Yesterday’s Existing Home Sales data from the National Association of Realtors for the month of November continued to impress.  As discussed in last night’s Closer, Existing Sales came in at 6.69 million SAAR. Although lower, snapping a streak of five straight months of increases, sales continue to come in at some of the highest levels since 2006.  With sales running at such a strong clip recently, inventory numbers have been nothing short of remarkable: there are only 1.32 million listed units nationally with 1.12 million single-family homes listed.  Both respective readings are the lowest levels of the past two decades.  Even with declines in volumes, the ongoing collapse in inventory levels has driven the number of units in inventory down to 2.37 months’ sales (only 2.25 months for single family homes), a new record low.  We should note that implied new listings have indeed risen. They stand in the mid-6mm SAAR range, the highest since 2007 but still about 20% below the 8mm range that they hit in the mid-2000s. While prices are still extremely high, they did drop sequentially on the month thanks most likely to a shift in mix towards lower value homes.  Click here to view Bespoke’s premium membership options for our best research available.

Whereas other regional Fed manufacturing readings like the Empire and Philly Fed were weaker than expected for December, today’s release from the Richmond Fed was a welcome surprise. Rather than the forecasted decline down to 11 from 15 in November, the headline number rose to a reading of 19.  Although that is still off the record highs from earlier in the fall, the December print indicated that manufacturing activity in the region continued to grow at an accelerated and still historically strong rate.

As shown in the table below, this month’s reading moved back into the top decile of all readings since 1993. As for the individual components, New Orders, Backlog of Orders, Vendor Lead Times, Number of Employees, Wages, and Average Workweek also all came in the top decile of historical readings.  On the other hand, current condition indices covering expenditures, inventories, and Local Business Conditions remain much weaker relative to their historical range.

Breadth was broadly positive this month with only a small handful of indices falling month over month.  Of those that fell, the most glaring decline was for Local Business Conditions.  Its 17-point decline was the 8th largest on record. Granted, the index remained positive, but it was at a much slower pace than November. The indices for future expectations were generally weaker than November with a higher number of indices falling in December.

Demand has appeared to continue to recover with New Orders and Backlog of Orders both coming in at another strong expansionary reading in December.  In fact, the Backlog of Orders index rose to the highest level since June 2018 which is also in the top 2% of all readings.  Despite this, Shipments were lower falling 8 points to 12.  That means shipments continued to rise in December but at a slower pace. Given the uptick in New Orders and Order Backlogs, that slowdown in Shipments could be more of a supply rather than a demand problem.

Some evidence of this is the index for Vendor Lead Times.  Higher readings in this index indicate that suppliers are taking a longer time to get products to manufacturers.  Vendor Lead Times are in the top 2% of all readings rising another 14 points to 31 in December.  That 15-point increase was the largest since March when the index rose by 17 points.  Before that, you would need to go all the way back to June of 1996—in the early days of the index when readings were all over the pace—to find another time that the index has risen by more in just one month.

The indices covering employment painted a positive picture for the region’s labor market with Number of Employees and Average Workweek both rising 7 points back up to their recent highs from a couple of months ago. While firms are taking on more people and lengthening the hours worked, they also report having trouble hiring the right people.  The index for Availability of Skills remains around historically low levels even after rising 5 points in December.  Given that tight labor market sign, the index for Wages also rose 7 points up to its highest level since May of last year.  As with the indices for Number of Employees and Average Workweek, the increase this month in Wages leaves each of these indices in the upper percentiles of their historic ranges. Click here to view Bespoke’s premium membership options for our best research available.

Precious metals have been a top-performing asset in 2020 on a year to date basis, but over the past few months, silver (SLV) and gold (GLD) have together remained in a downtrend. More recently, though, the two have begun to diverge.  While that downtrend is still in place for GLD (top chart), strong performance in recent days has resulted in SLV to break out of its own downtrend (second chart). Whereas the ETF sat below its 50-DMA about a week ago, in the five trading days through yesterday’s close, SLV rallied just over 10%. That leaves it extremely overbought at more than two standard deviations above its 50-day. GLD in the same span, on the other hand, has a much more modest 2.5%.

The breakout from its downtrend in silver has resulted in the ratio of the two to make a vertical move higher. As of yesterday’s close, the relative strength line of silver versus gold is back up to its highest levels since the first days of September.

For the silver ETF (SLV), rallies of 10% or more in the span of just 5 trading days have been fairly rare.  Since it began trading back in 2006, there have only been 13 occurrences without another instance in the prior three months.  As shown in the table below, the last time such a move took place was in March of this year. Prior to that, the last instance was way back in July of 2016.

Even though those big short term moves may seem like SLV has momentum at its side, performance following such moves has been fairly weak.  As shown in the table below, at various periods over the following year, only six months out has averaged positive returns for SLV with that positive performance only occurring half the time.  Of the other periods, SLV has averaged declines with positive returns less than half the time.  Looking at these instances plotted on the chart of SLV, most of these moves within the past decade have come around the time of a short term peak. Before that, though, only the March 2008 occurrence saw this type of pattern as the other instances were typically followed by further moves higher.

With regards to silver’s yellow cousin, gold, performance after these same instances has been a bit stronger but generally remains weak over the following week, month, and three month periods.  Six months to one year out have usually been stronger, though, averaging positive returns.  Similar to SLV, the occurrences of the past decade have tended towards weakness while for those prior to that the opposite holds true. Click here to view Bespoke’s premium membership options for our best research available.

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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Data

I Was the Homeland Security Adviser to Trump. We’re Being Hacked. by Thomas P. Bossert (NYT)

A hack disclosed this week impacting FireEye, SolarWinds, and eventually clients that include large swathes of the US government has exposed critical data to hackers, likely from Russia. [Link; soft paywall]

Magnetic tape has a surprisingly promising future (The Economist)

Data storage technology that brought recorded music to cars via 8-tracks and cassettes has a promising future as a way to cheaply store very large volumes of information. [Link; soft paywall]

Disputes

An Agent’s Mistake Cost an N.B.A. Player $3 Million. He Paid Him Back. by Sopan Deb (NYT)

Twenty years ago, Anthony Carter’s agent forgot to formally exercise the player’s option to remain with the Miami Heat. Two decades later, his agent has finally made him whole. [Link; soft paywall]

Sorting Out Tony Hsieh’s Estate, From LLCs to Thousands of Sticky Notes by Kirsten Grind and Katherine Sayre (WSJ)

The co-founder of Zappos.com had a complicated web of commitments: real estate, angel fund commitments, and businesses of all kinds that were part of his orbit. The estate is now struggling to digest all of the various dealings of the late entrepreneur. [Link; paywall]

Remote Work

Fleeing New Yorkers resulted in an estimated $34 billion in lost income -study by Jonnelle Marte (Reuters)

With tens of thousands of New Yorkers moving from the city due to the pandemic – or other factors which were around before COVID – the city is losing out on billions in economic activity. [Link]

The Work-From-Home Boom Is Here to Stay. Get Ready for Pay Cuts by Noah Buhayar (Bloomberg)

With many employees leaving large, expensive metros in order to weather the pandemic, employers are starting to push back with salary cuts. [Link; soft paywall]

Where Tech Workers Are Moving: New LinkedIn Data vs. the Narrative by Alex Kantrowitz (Substack)

While Texas and Florida are cited as hot destinations for tech workers, smaller and less-discussed metros are bigger beneficiaries of movement of employees in the industry. [Link]

Hot Stocks

Taking Psychedelics (Seriously) by Birb Bernanke (Substack)

Like pot stocks before them, companies focused on novel uses for psychedelic drugs are starting to get attention. This primer is useful background on the drugs some are working on and the stocks that might benefit. [Link]

Elon Musk Has Made Millionaires Out of His Most Loyal Fans by Dana Hull (Bloomberg)

Tesla (TSLA) is up over 700% this year, making millionaires out of ordinary people who put pretty modest amounts of cash into the volatile and dramatic shares. [Link; soft paywall]

How Moderna’s Vaccine Works by Jonathan Corum and Carl Zimmer (NYT)

A helpful rundown of the science of mRNA vaccines, which are being used by Pfizer/BioNTech and Moderna to roll out their inoculations for COVID. [Link; soft paywall]

Wealthy countries block COVID-19 drugs rights waiver at WTO – sources by Emma Farge (Reuters)

The EU, US, UK, and others are blocking developing nations’ efforts to use COVID vaccine intellectual property to speed inoculations of their populations. [Link]

Prognostications

Clueless About 2020, Wall Street Forecasters Are at It Again for 2021 by Jeff Sommer (NYT)

Best efforts are not enough for strategists that try and figure out where the market is headed. 2020 was the perfect example, but investors are once again getting estimates for 2021 that have to rely on a truly heroic amount of guesswork. [Link; soft paywall]

Retail

U.K.’s Largest Rolex Retailer Lifts Forecast as Demand Improves by Corinne Gretler (Bloomberg)

Swiss watch retailer Watches of Switzerland raised its guidance for revenue after an impressive first half that points to strengthening momentum in the high-end watch market. [Link; soft paywall, auto-playing video]

Sustainability

Valeo is revolutionizing e-bike drivetrains (Valeo)

Auto parts company Valeo has developed a 48 volt combined motor and gearbox for bikes that automatically detects the amount of electrical assistance needed by a given rides. [Link]

Policy Design

Use It or Lose It: Tenant Aid Effort Nears a Federal Cutoff by Conor Dougherty (NYT)

Tenant relief programs run at the local level have struggled to push aid granted by the federal government out the door thanks to the combination of state and federal requirements on means testing. [Link; soft paywall]

Long Reads

Murder In Malta by Ben Taub (NYer)

A refusal to let sleeping dogs lie led the family of a murdered journalist to uncover the killers, in the process bringing down the entire Maltese government. [Link]

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Have a great weekend!

The majority of global equity markets tracked in our Global Macro Dashboard found a short-term bottom at some point in late October including the US.  As shown below, of the 23 ETFs tracking each of these countries’ equity markets, nearly all are up double digits since the end of October.  A dozen have risen over 20% and Brazil (EWZ) has risen more than any other country, gaining over 40%.  China (MCHI), on the other hand, is the only hold out as it has risen just 3.44% over the past month and a half. Given these moves, most of these ETFs are overbought as defined as trading at least one standard deviation above their 50-DMAs. Only Hong Kong (EWH) and China (MCHI) are not overbought by this measure while India (INDA) is currently the most overbought ETF trading 1.92 standard deviations from its 50-DMA. That is even though it is at the low end of the performance range of these country ETFs listed. Top-performing Brazil, on the other hand, is the second most overbought ETF trading 1.85 standard deviations above its 50-day. In percentage terms, Brazil is also the ETF trading the furthest above its 50-DMA.

In the charts below, we show the trading range charts of each of these ETFs over the past six months.  As shown, most are fairly elevated at or near some of the highest levels of the past six months. With that being said, there are some country ETFs that have seen a bit of a drift lower in recent days and weeks.  For example, France (EWQ), Hong Kong (EWH), and Singapore (EWS) have all made a move lower within their respective trading ranges recently even though they are still overbought.  Similarly, Sweden (EWD) has been more or less trading sideways since late November. The same had been true for Switzerland (EWL) and Norway (ENOR) until they began to break out to the upside in recent days.  Click here to view Bespoke’s premium membership options for our best research available.

Leading Economic Indicators for the month of November came in higher than expected this morning, rising 0.6% versus estimates for an increase of 0.5%.  One way we like to track the index of Leading Economic Indicators is to compare its ratio vs the index of Coincident Economic Indicators.  The chart below shows the monthly ratio going back to 1959 with recessions highlighted in gray.

If you aren’t familiar with this ratio, it tends to rise during economic expansions and then roll over in advance of recessions.  Then, towards the end of the recession, the ratio bottoms out and starts to improve.  Even ahead of the current recession, the LEI/CEI ratio peaked in September 2018.  While the pace of the decline wasn’t nearly as steep as it was heading into prior recessions, the weakness in the ratio suggests that the economy was already at risk of a slowdown before the COVID outbreak.  Who knows?  If COVID never happened, maybe the US economy would have experienced a recession at some point in 2020 anyway.

While it’s a bit hard to see in the chart above, as the shorter-term chart of the LEI/CEI ratio below shows, November’s reading isn’t far from the pre-recession highs reached 26 months ago.  Why is this important?  For starters, at 26 months, the current streak without a new high isn’t even the longest we have seen since the end of the financial crisis.  The longest streak without a new high was 27 months from mid-2011 through mid-2013. Therefore, if the ratio rises again next month and makes a new high, it will be tied with that prior streak, one which didn’t even result in a recession.  More importantly, though, in every prior recession since 1960, the LEI/CEI ratio has never been this close to a new high and still in a recession.  This means one of two things – either the LEI/CEI ratio has become flawed or the recession that began in February has been over for months.  Click here to view Bespoke’s premium membership options for our best research available.