Good Morning on this fantastic Wednesday and best day of the week,

Lots going on despite limited data. The markets are truly in flux. Equities surging, crypto surging, bonds getting beat with the same belt I was growing up…

Bonds are under pressure again as money flows back into risk on assets. Could it be that suddenly the market does not care about the Russian invasion of Ukraine, nuclear war, fuel prices leading to fuel shortages, a flattened yield curve, and the first Fed rate tightening cycle in 4 years? I would doubt it. The stock market is witnessing a bear market bounce (despite the Jolts report coming in stronger than expected). While these can last for days and cause big upward moves, they are designed to trap unsuspecting investors into buying again, and/or not exiting while they can. This happens during every bear market. The smart money sits back and lets the dumb money buy, the smart money then sells heavily into the bounce, once again trapping small investors. AKA a bear trap. When this trap has caught a few baby bulls, stocks will fall and bond prices will rise. Meanwhile, the ten-year is bumping up against a key level at the top of the range. If we close above 1.91%, we will very likely run up and retest the previous high of 2.04. We will see how this turns out. What I am much more interested in is how the 10-yr treasury auction fairs in about 45 minutes. That will be a good lens into investor sentiment and where rates could be headed. Tomorrow is CPI, so be careful and caution your clients if you decide to float.

I have to share, this is my favorite piece of the day. Don’t panic about prices. Market-implied expectations for U.S. inflation over the next decade are the highest since 2005, but still only point to an average pace of around 3%. It peaked above 13% in the 1970s stagflation era, versus 7.5% in January.

And if you are on the team that thinks growth is a given and we are only going up.. The below chart tells a more interesting story. The latest NFIB Small Business Optimism report showed ongoing plans to raise prices, even as hiring intentions are starting to roll over. I would say we are close to the top on both jobs and inflation (assuming the war ends and commodity prices come back to earth).

I guess I have to mention (begrudgingly) that Bitcoin jumped above $42,000, spurred by optimism about U.S. policy on tokens. Joe Biden will sign an executive order today mandating government agencies to research the pros and cons of a digital dollar and make recommendations on combating illicit finance. But there’s nothing about regulation. I thought this was old news that the US has been looking at creating a digital currency for quite some time (why meta/Facebook or whomever was politely asked to shelve their plans for one). If anyone understands volatility it escapes me how they would buy bitcoin. The odds are truly better at roulette.

Putin may not be worried about the economic impact on the war but that doesn’t mean his friends aren’t. I have to share that I have wondered whether a secondary reason why Putin pushed for war (the first being his obsessive need for control) was to raise oil and commodity prices to enrich himself and Mother Russia. He cares nothing about human life and suffering, but it would be an interesting calculation to see how much the war has cost vs how much more Russia has earned (Europe is still buying Russian Oil despite the sanctions). Bringing this home, how has the war impacted real estate here in the US? Put it another way, Russian buyers do not even place as one of top buyers of U.S. properties. The top five foreign buyers are: Canada (8% of foreign volume); Mexico (7%); China (6%); India (4%); and the United Kingdom (4%). 

Is that enough for today? If not, I have lots more to share, like inventory is at the lowest we have seen in more than a year (other than a small blip over the holidays). That is not going to allow prices to stagnate and buyers to wait. If anyone is thinking to sit on the sidelines and wait, it will cost you. From 12 months ago, between price increases and higher rates, mortgage payments are up 26%. Food for thought.

Please remain safe and healthy.