Category: INO.com Contributors

2023 Housing Market May Be Different Than Expected

Posted on by Matt Thalman

On December 20th, the Commerce Department released data showing that housing prices remain high, renter demand is still strong, and the supply and demand imbalance appears to show no relief.

These economic data points indicate that the housing crash, or pull-back many expected to see with housing prices in 2023, may not be coming.

Let's look at the numbers and then explain why a housing crash doesn't appear to be on the horizon in 2023.

The December housing numbers showed US single-family homebuilding dropped to a two-and-a-half-year low in November 2022. Permits also fell in November by 7.1% for single-family homes and 11.2% for overall building permits. Overall housing 'starts' dropped 0.5% in November, with single-family starts falling 4.1% and multi-family units up 4.8%.

So essentially, we are seeing that construction of new single-family homes is slowing when we are already in a tight supply-demand situation with those types of units. This supply shortfall comes from data showing that from June 2012 to 2021, the US had 12.3 million new households formed, but only 7 million new single-family homes were built.

The pandemic played a role in making this shortfall wider, as it is estimated that in 2019 the US was only short 3.84 million units. But, labor shortages before the pandemic started, which worsened during the pandemic, and costs of materials and land, all pushed housing prices higher.

Higher housing prices make it harder for more people to afford a home. Thus, fewer homes get built. High housing prices were likely one reason we didn't see more homes built in 2021. In 2022, the main reason was increasing interest rates. Again, higher interest rates push the overall cost of ownership higher, resulting in fewer people building homes.

Another interesting data point from December was the Homebuilders' confidence levels also plummeted in December for a record 12th month straight. This data point only adds to the idea that single-family homes will continue to be underbuilt in the near future. Continue reading "2023 Housing Market May Be Different Than Expected" →

Gold Miners On The Sale Rack

Posted on by Taylor Dart

It’s been a rough year for the major market averages, with the major indexes down roughly 20% in their worst year since 2008.

This poor performance is not surprising after a decade-long bull market that pushed valuations to historic extremes combined with an ultra-hawkish Federal Reserve that has aggressively hiked rates into a recessionary environment.

At the same time that higher rates have dented earnings and resulted in layoffs due to increased interest expense, the outlook for forward earnings is less clear, with consumer spending pulling back and reduced sales leverage for most corporations.

However, one sector stands out and has been trending higher over the past two months: the gold mining sector. In fact, the Gold Miners Index (GDX) has clawed back from a 30% year-to-date loss to just a 13% year-to-date loss, and many gold miners are trading in positive territory year-to-date.

Given that they’ve suffered through a much larger bear market than the Nasdaq (COMPQ) with a ~55% decline, these names are not only undervalued, but they’re long-term oversold, and the sector could have meaningful upside as we head into a strong seasonal period for the GDX.

In this update, we’ll look at two of the more undervalued names in the sector:

Osisko Gold Royalties (OR)

Osisko Gold Royalties (OR) is a $2.23 billion company in the precious metals royalty/streaming space.

This means that It finances developers, producers, and explorers in the commodity sector with a gold/silver focus, providing them capital upfront to build or expand their assets.

In exchange, Osisko Gold Royalties receives either a royalty or stream on the asset over its mine life, with the latter giving it a right to buy a percentage of metal produced at a fixed cost that is well below spot prices.

The result is that royalty/streaming companies have their tentacles in several projects, have their revenue streams spread across several countries, and are inflation-resistant. Hence, they are superior businesses from a margin and risk standpoint vs. most gold producers.

So, what’s so special about Osisko? Continue reading "Gold Miners On The Sale Rack" →

Fed Fears Inflation, Copper Fears Hawkish Fed

Posted on by Aibek Burabayev

Copper futures have closely followed the trajectory of the zigzag that was outlined this summer in the post titled “Copper Fears Recession”. Below is a copy of that monthly chart to refresh your memory.

Copper Futures Monthly

Source: TradingView

The majority of readers bet that the price would remain above $3. Within the same month, the price reached a valley of $3.13 and subsequently recovered. This vote is still valid as the price hasn't crossed that handle yet.

In the next weekly chart update, we will examine the outlook further.  

Copper Futures Weekly

Source: TradingView

This is a closer look at the second red leg down shown on a bigger time frame in the summer. When the first leg up within a bounce in copper futures was unfolding, it looked promising at the beginning. Continue reading "Fed Fears Inflation, Copper Fears Hawkish Fed" →

FTX Disaster Could Be Good For Crypto Market

Posted on by Matt Thalman

The disaster we are all still watching play out with Sam Bankman-Fried and his cryptocurrency exchange FTX could actually be suitable for the longer-term viability of Bitcoin, Ethereum, and other cryptocurrencies.

I know it sounds crazy, and if you were an investor who had money in FTX, you are certainly not happy with this, but long-term, the size of the losses incurred by investors in FTX could benefit the crypto market in years to come.

Why?

Since massive losses were incurred, regulators are taking note and investigating what happened.

Sam Bankman-Freid has been arrested and charged with many crimes, including conspiracy, fraud, money laundering, and campaign finance violations.

However, while those charges against him don't have much to do with cryptocurrencies, it is likely that the investigation into how these crimes were committed and, more importantly, how he and his team at FTX were able to evade detection sooner will lead to some changes in the crypto world.

The change I'm referring to, which would boost cryptocurrencies and in some ways turn a bad situation into a good one, would be government oversight and regulation of the cryptocurrency markets.

Since Bitcoin, Ethereum, and all the cryptocurrencies came into existence, we have had no legitimate regulation or oversight of the industry.

While some believe that is a good thing, a lot of investors have been hesitant up to this point to jump into the world of crypto because there is limited to zero oversight. And I am not just talking about small retail investors who have sat on the sidelines, but big-time money managers who are not permitted to invest client funds in such investments due to their largely unregulated markets. Continue reading "FTX Disaster Could Be Good For Crypto Market" →

Reasons to be Optimistic

Posted on by George Yacik

As expected, the Federal Reserve raised the target for its benchmark federal funds interest rate by 50 basis points at its mid-December meeting, to a range between 4.25% and 4.5%.

That was down from the 75 basis-point hikes at its four previous meetings, yet the market’s immediate reaction to the move was an immediate selloff.

Was that a classic “buy on the rumor, sell on the news” reaction — i.e., the Fed delivered exactly what Chair Powell had earlier indicated it would do?

Or was there some element of disappointment that the Fed, despite the more modest rate increase, included in its updated economic projections that most officials expect to raise rates by another 100 basis points, to about 5.1%, next year?

But was that really a surprise, given earlier comments from Powell and other Fed officials?

On a positive note, according to the Fed’s revised economic projections, it now expects inflation to fall to 3.1% next year before declining in 2024 to 2.5% and 2.1% in 2025, putting it at its long-term target.

In November, the year-on-year increase in the consumer price index fell to 7.1% from 7.7% a month earlier, down sharply from June’s 9.1% peak. So it looks like the Fed is optimistic about where inflation is headed, whether its rate-rising regimen deserves the credit or not.

It's also now calling for U.S. GDP to grow by 0.5% next year, unchanged from this year’s pace, before climbing to 1.6% in 2024.

By way of comparison, the economy rebounded at an annual rate of 2.9% in the third quarter following two straight quarters of negative growth.

The Fed projects the unemployment rate to jump to about 4.5% over the next three years, up from 3.7% currently, due to its rate increases. Continue reading "Reasons to be Optimistic" →