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Home Prices Peak – Unusual Times

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We live in unusual times; we always live in unusual times.

This is the third MONTHLY blog within the past 30 days; events are moving at such a fast pace that everything is likely to be changed by tomorrow, so I post today.

I was just calculating the number of times that a Vice-President has taken over for an in-office U.S. President because of death or resignation or impeachment.  The surprising answer is one out of every five administrations (20%).  Two have occured just during my lifetime.  The current President’s Administration seems to be imploding from within.  Even far-right Ann Coulter recently called President Trump a “grotesque disappointment,” but she would also think the same thing about me.

Vice-President Pence?  He’s a friendly guy who holds some antiquated beliefs but with a willingness to listen to others.  He is liked and personally respected by many people on both sides of the aisle.

President Trump?  According to Trump’s quarterly health assessment (public record and reported by NPR) he has gained 60 lbs in 90 days.  He has stated that he refuses to exercise because it “depletes energy.”  It is said by his aides that he drinks sweet sodas and eats fried foods and sugary junk food all day long.  He watches a lot of television to see what is being said about him.  When the NSA gives him a security briefing, it has to be on one page with photos and drawings and they have discovered that they must put his name in each paragraph in order to encourage him to keep reading.  He told now ‘former’ FBI Director Comey that he wanted to jail journalists.  He just stated that when back from his European trip, he will likely suspend all press briefings.  He seems to be awake at all hours of the night as he “Tweets” into the darkness.  The stress level must be sky high as shouting matches continually erupt within the hallowed walls of the Oval Office, in the same home-office that Abraham Lincoln humbly occupied.  Trump’s thinking process seems progressively narcissistic, paranoid, confused and in decline.  There appears to be no learning curve at all.  He just “does stuff” but is then completely unable to take responsibility for his own actions.  And now he’s in charge, but with Vice-President Pence literally pacing in the wings and with Republicans more than willing, perhaps eager, to swap Trump out for Pence.  A highly unusual step was just taken by Vice-President Pence this month and that was to start a Political Action Committee (PAC); it’s as if he is now running for office.  We live in unusual times; we always live in unusual times.

Tweeted on May 18, 2017:

President Trump ran his ticket on improving the economy.  I track the poles and this (shown as a trend line) is his economic approval rating amongst registered voters in the United States.  His disapproval rate has jumped by a 25% increase in three months and the trend direction is still intact:

Home Prices

Possibly because of all of the global worry and discord, the United States has retreated from its its normal inflationary late-stage trend (that began 1.5 years ago).  It is unusual for inflation to be abating during the late-stage of a market cycle, it usually just keeps increasing until the end but deflation seems to be taking over once again.  This is not good.  If we move into an eventual economic recession within a year (or two?) with deflation still in control, then the downturn may be, once again, more severe than usual.  It will prove to be even more important to avoid buy & hold and to be able to shift to portfolio protection ahead of time.  Market internals, those things that prop up the stock market, have been recently showing some early signs of breaking down.  Our (intermediate-term) proprietary risk indicators started flashing a warning at market close on May 15th, two days before the big drop.  We don’t care about news, we care about quantifiable measures.

MarketCycle has already moved to partially protect client accounts and we believe that we might have some market turmoil over the next few months. Our chosen protective assets have the ability to protect from stock drops, but they can also profit along with stocks should stocks decide to climb higher instead.  You always want to skew asset expectations toward the direction of potential profits and non-interference with other assets in the portfolio.

Below is a close-up of one of MarketCycle’s proprietary indicators that incorporates a whole lot of information and data into one line.  The direction of the line simply shows the direction of inflation, it is no more complicated than that. To repeat, it does not show the long-term level of inflation, it only shows the near-term direction:

Home Prices

As I’ve been repeatedly stating in these monthly blogs, home prices normally peak and begin to fall (historically) starting sometime around one year before economic recession begins.  Home prices have now reached the levels of prior peaks.  The following chart shows housing peaks for the past 32 years and we are now at the same high levels.  If we are still experiencing deflation when housing prices finally do peak and fall, then they might fall more than they normally would.  This falling and bottoming process might take as long as 2-3 years from the peak. (Chart courtesy of NAHB):

Home Prices

However, as of today, housing is still bullish and above its six year long trend line:

Home Prices

SUMMARY:  MarketCycle is still bullish but with the expectation of market turbulance over the next few months and our accounts now hold some protective assets to help in softening the blow.

That’s it, brief this time.  Thank you for reading!  The cartoon is below!!

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Article by Stephen Aust, MarketCycle Wealth Management

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