The NAHB released its September reading on homebuilder sentiment this morning.  Rather than another decline down to 74 that was expected, the headline reading surprised to the upside coming in slightly higher at 76. We are now approaching the one-year anniversary since homebuilder sentiment peaked at its record high of 90 from last November.  While little progress has been made in working back up to that high, the current reading remains at one of the strongest levels on record.

Both Present Sales and Traffic drove the headline index higher this month with the latter seeing the larger move higher of the two.  Future sales, on the other hand, went unchanged for the second month in a row.  Just like the overall market index, each of these components has pulled back from last November’s highs but remain at historically strong levels.

There was a more significant movement based on geography.  Starting with the bad news, the Northeast and West experienced particularly large declines of 9 and 5 points, respectively.  After that decline, sentiment in the Northeast is at the weakest reading since June of last year and the month-over-month decline ranks in the bottom 2% of all monthly moves. The drop in sentiment in the West similarly was one of the largest declines on record.

Meanwhile, the Midwest and South had much stronger showings this month.  Not only were the indices for both of these regions in the top decile of all periods, but they also showed significant improvement in September.  The 5 point uptick in the Midwest index ranks in the top decile of all moves while the 3 point increase in the South narrowly missed a 90th percentile move. Click here to view Bespoke’s premium membership options.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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COVID

The unvaccinated and the orphans they leave behind by Renée Graham (Boston Globe)

With hundreds of thousands of Americans dying from the COVID pandemic, more than 100,000 children have been orphaned or lost at least one caregiver. [Link; soft paywall]

New Orleans Saints Covid-19 Cases Will Test NFL’s Pandemic Strategy by Andrew Beaton (WSJ)

Hoping that widespread vaccinations would reduce spread risk, NFL teams are required to test personnel weekly rather than daily. But that allows clusters of breakthrough cases (like the New Orleans Saints saw this week) to create a mess if they gain momentum. [Link; paywall]

College

Colleges Have a Guy Problem by Derek Thompson (The Atlantic)

Men dramatically outnumber women on college campuses…but why? This effort to dig into the causes, and concludes that it’s unlikely down to a single factor but a mix of cultural, historical, and economic forces. [Link; soft paywall]

College students reported record-high marijuana use and record-low drinking in 2020, study says by María Luisa Paúl (WaPo)

Time was that college meant binge drinking, and a lot of it. But many college kids are pivoting towards marijuana use instead, with nearly half of college-aged Americans reporting use last year. That’s about twice as large a share as those reporting binge drinking. [Link; soft paywall]

Real Estate

Rust Belt City’s Pitch for a Hot Housing Market: Free Homes by Ben Eisen (WSJ)

A struggling small town in Pennsylvania is hoping desperation among home buyers will make a pretty good deal seem irresistible: agree to fix up a house, and you get it for free. [Link; paywall]

Newsom signs long-awaited bills to increase housing density in California by Alexei Koseff (San Francisco Chronicle)

In addition to staving off a recall attempt this week, Governor Newsom also made it legal to build a duplex on any property zoned for single family housing statewide. The hope is that modest increases in density will free up housing supply in the famously challenged state. [Link; soft paywall]

Politics

Polling error: How one survey changed the Newsom recall campaign by Ben Christopher (CalMatters)

In late July, Democrats in one of the country’s bluest states started to worry their reasonably popular governor would get recalled. One poll specifically spurred a frantic effort to turn out voters, and appears to have led almost directly to the strong results for Newsom in the race, a fascinating example of electoral reflexivity. [Link]

Pests

Die, Beautiful Spotted Lanternfly, Die by Ginia Bellafante (NYT)

The northeast is facing an invasion from gorgeous bugs called spotted lanternflies, putting at risk grape crops and trees across the region. The solution? Put the boot to them. [Link; soft paywall]

Personal Finance

How You Feel About Money by Michael Batnick (The Irrelevant Investor)

A thoughtful review of how our personal experience drives us to think about money, both for good and ill, but in ways that need to be acknowledged and understood. [Link]

Taxes

ETF Taxation In The Crosshairs (NASDAQ)

Democrats are considering removing some of the tax benefits of ETFs, making the funds less likely to track their benchmark and creating tax liabilities for some investors. We note that this is only at the proposal stage and formal language has not even been circulated. [Link]

Fast Food

Taco Bell tests 30-day taco subscription to drive more frequent visits by Amelia Lucas (CNBC)

YUM is testing a program that would let users pick up a daily taco every day for 30 days at a cost of $5 to $10 per month, hoping that the loss leader will drive more frequent visits and purchases of other items. [Link]

Oil

Beijing to release state crude reserves by auctions to ease feedstock costs (S&P Global/Platts)

In an effort to alleviate tight crude supplies, China’s strategic oil reserve will release tens of millions of barrels and cap imports, in a major shift for short-term global crude demand. [Link]

Labor Markets

Spillover Effects from Voluntary Employer Minimum Wages by Ellora Derenoncourt, Clemens Noelke, and David Weil (SSRN)

When Amazon raises wages for its distribution centers, other local employers are forced to bump up pay as well to continue attracting workers. [Link]

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Have a great weekend!

On February 25th of this year, the 10-Year Treasury yield surpassed the dividend yield of the S&P 500 for the first time since January 17th, 2020.  Currently, the S&P 500’s dividend yield stands at 1.33% vs. the 10-Year’s yield of 1.31%, so they’re essentially right inline with each other at the moment.

Since 1971, the 10-Year yield has been higher than that of the S&P 90.7% of the time, and the median spread between the 10-Year yield and the S&P’s dividend yield has been +3.5 percentage points. Both yields are much lower than their typical level since 1970. The S&P’s dividend yield has been higher than its current level 94.62% of the time. As for the 10-Year Treasury, its yield has been higher 97.55% of the time.

The spread between these two yields generally narrowed between the ’90’s and the mid 2000’s. The first time the S&P’s dividend yield crossed above the 10-Year yield was in November 2008 in the midst of the Financial Crisis. Since then, the spread has never been more than 2 percentage points in either direction, with a range from -1.99 to 1.67. The spread was the largest in September of 1981, when the 10-Year Treasury yield was 10.23 ppts higher than that of the S&P 500’s dividend yield.

The 10-Year yield has also historically been more sensitive to economic change. The average rate of change over a one month period for the yield of the 10 year has been 4.82% to the upside and -4.95% to the downside. The S&P 500 dividend yield’s average rate of change over the same time period has been 3.64% to the upside and -3.23% to the downside. The correlative coefficient between the two yields is .80, signifying that the two figures are strongly correlated. This makes sense, as the two are alternative forms of income. When one yield increases, it becomes more attractive to investors, who will sell off the alternative, thus raising the yield of the alternative as the price decreases.

Last month saw a broad pivot lower across the regional Federal Reserve Bank manufacturing surveys.  With the release of the Empire Fed’s survey this morning, we now have the first reading for the month of September. Rather than the more dour results of August, today’s results showed a broad acceleration in activity across categories in the New York region.  The headline index was expected to show an ever so modest decline to 18.0 from 18.3 last month.  Instead, it popped 16 points to 34.3 which is actually the seventh-highest level on record.

Just about everything drove the uptick in the headline number as only one index for current conditions was lower on a month-over-month basis: Prices Paid.  Not only did almost every category show acceleration, but current levels across the board are in the top decile of historical readings. While elevated and higher readings are perhaps not positives, Delivery Times and Prices Received both came in at record highs.

Some of the categories to have seen the most notable upticks this month were related to demand.  Both New Orders and Shipments saw increases in the top few percentiles of their respective historical ranges.  In fact, New Orders surpassed the July high to reach the highest level since July 2004.  The reading on Shipments has been particularly volatile over the past few months, and the September reading was still below the high from July. That being said, it still came in at a very healthy level in the 90th percentile versus the 21st percentile reading in August.  Additionally, expectations were far stronger. Coming in at 54.7, that index was at a seventeen-year high.

One area that expectations have gone the other way of current conditions is unfilled orders.  While the growth in demand meant the current conditions index is right below the spring highs, six-month expectations came in at zero for the second month in a row. In other words, reporting businesses expect backlogs to remain at current levels six months out even as inventories are being built up at one of the fastest clips on record.

For the past few months, the index for Delivery Times had been showing some relief, but over the past two months, there has been increasing evidence once again of worsening supply chains.  The past two months have both seen the index increase over 8 points which brings it to yet another record high of 36.5. While time will tell if the prediction is right, on the bright side, expectations are much more modest for future delivery times.

Prices are a somewhat similar story. Current levels are unlike anything seen through the history of the survey, but Prices Paid have now fallen for four months in a row.  That lower does not mean prices are falling but are instead growing at a slower rate. As such, price increases are continuing to be passed on to customers as prices received increased for the third month in a row to a new record high of 47.8.

Employment-related indices also had a strong showing this month. The region’s businesses continued to take on more workers with the index rising to 20.5 which is just below the pandemic high of 20.6 set back in June.  Granted, there are also signs that demand for labor is not being met. In spite of that uptick in employment, the average workweek surged. That index leaped 15.4 points to come in at the second-highest level on record.

Perhaps because the demand for labor cannot be filled, responding firms appear to be turning to the other side of the production function.  Readings on plans for Capital Expenditure and Technology Spending also shot higher this month with the latter rising to record levels.  In fact, the month-over-month increase in Technology Spending was the second-largest monthly gain on record behind a 19.1 point leap in April 2009.  Click here to view Bespoke’s premium membership options.

Energy commodities have been on an impressive run in 2021. Natural gas has basically gone into orbit recently on supply concerns. The US Natural Gas Fund (UNG) is now up over 100% on the year and 15.65% over the past five days alone. Since its recent closing low on August 18th when UNG was testing its 50-DMA, UNG has rallied 44.88%. Take a look at the one-year price chart for UNG:

With regards to this particular ETF tracking the commodity, UNG’s one month rate of change is now approaching one of the highest levels on record.  As shown in the chart below, UNG’s 40.9% rally over the past month is second only to the 43.6% gain in August of last year and a 46.3% rally in November 2018.  As for a slower year-over-year rate of change, things are equally as impressive.  Again, only two periods have seen UNG experience larger gains on a rolling 1 year basis. The smaller and more recent of the two was when UNG posted a 66% rally in early December 2018 while the record 68% rally occurred in April 2013.

As could be expected with the explosive moves in natural gas prices, price has become extremely overbought.  Today, UNG has moved over 3 standard deviations above its 50-DMA for the first time since June.  Prior to that occurrence earlier this spring, there were only a handful of other times that UNG was as elevated above its 50-DMA. Two of those were in the fall of 2018 while the others were in June 2016, January 2014, and June 2010.

Turning to a look at speculator positioning, Friday’s release of the CFTC’s Commitment of Traders report showed the recent rally in natural gas appears to have resulted in shorts closing out their positions.  As shown below, open interest has consistently been net short since the early spring. But from the second to last week of August to the most recent update last week, the percent of open interest has gone from 11.97% net short to only 8.18% net short.  March 2020 was the last time to have seen positioning jump by as much in a two-week span.  Click here to view Bespoke’s premium membership options.