Political Calculations
Unexpectedly Intriguing!
28 March 2024
New Home Construction photo by Paul Brennan on PublicDomainPictures - https://www.publicdomainpictures.net/en/free-download.php?image=new-home-construction&id=109975

It happened again in February 2024. The size of the U.S. new home market as measured by its market capitalization shrank for the fifth month in a row.

Political Calculations' initial estimate of the size of the new home market cap in February 2024 is $26.38 billion. This estimate is nearly 7% below September 2023's now finalized estimate of $28.34 billion. It is also 12.5% below the December 2020 post-housing bubble peak of $30.12 billion.

The average price of a new home sold in February 2024 declined month-over-month. The U.S. Census Bureau's initial estimate of the average price for a new home sold in February 2024 is $485,000. This average price came in well below January 2024's revised estimate of $523,400, which itself was reduced from a first estimate of $534,300.

Meanwhile, the estimated number of new homes sold saw a small increase from January to February 2024. The first estimate of the seasonally-adjusted annualized number of new homes sold in February 2024 is 662,000, just 2,000 less than the preceding month's upwardly revised total of 664,000.

That small decrease in sales combined with the much larger decline in sale prices to cause the new home market cap to fall for the fifth consecutive month. The following charts show the evolution of the U.S. new home market capitalization, the number of new home sales, and also new home sale prices as measured by their time-shifted, trailing twelve month averages from January 1976 through February 2024.

Trailing Twelve Month Average New Home Sales Market Capitalization in the United States, January 1976 - February 2024

New home sales decreasing:

Trailing Twelve Month Average of the Annualized Number of New Homes Sold in the U.S., January 1976 - February 2024

New home prices decline:

Trailing Twelve Month Average of the Mean Sale Price of New Homes Sold in the U.S., January 1976 - February 2024

Some market observers strained to find a silver lining in these gloomy numbers.

Sales of new U.S. single-family homes unexpectedly fell in February after mortgage rates increased during the month, but the underlying trend remained strong amid a chronic shortage of previously owned houses on the market.

The report from the Commerce Department on Monday also showed the median new house price last month was the lowest in more than 2-1/2 years, while supply was the highest since November 2022. Builders are ramping up construction, while offering price cuts and other incentives as well as reducing floor size to make housing more affordable.

"Housing activity is stabilizing as homebuilders appear to be building cheaper, and therefore, likely smaller homes," said Conrad DeQuadros, senior economic advisor at Brean Capital. "Sales have been relatively stable at December's level over the last two months and prices have been falling at mid-single-digit rates on a year-over-year basis."...

The overall housing market has likely turned the corner, with home resales surging to a one-year high in February. Nonetheless, supply remains inadequate, keeping house prices elevated and homeownership out of the reach of many.

We'll take a separate look at the relative affordability of new homes sold in February 2024 in the near future.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 25 March 2024. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 25 March 2024. 

Image credit: New Home Construction photo by Paul Brennan on PublicDomainPictures. Creative Commons CC0 1.0 Deed.

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27 March 2024
Piggy bank on a pink background photo by QuinceMedia on Pixabay - https://pixabay.com/illustrations/piggy-bank-money-finance-banking-2889042/

Life happens. And when it happens, it will often come with an unexpected price tag. Is that extra bill something you can afford to pay? Even on top of all your other bills?

Wouldn't it be nice if you already had the cash to pay that unexpected bill? Without having to borrow any money from family, friends, professional lenders, or your neighborhood loan shark? Or set up a GoFundMe fundraiser? Or count on winning the next lottery drawing?

If it's not obvious already, having cash saved and ready to use in case of emergency is a real solution to the money problems posed by potentially unexpected life events.

But there's a catch. In order to have a supply of cash available when an unexpected event happens, you have to have saved it first. According to Bankrate, just 44% of Americans have the savings to pay an unexpected bill of $1,000. If saving was as easy as banks make it sound, wouldn't that percentage be much higher? Right off the bat, 56% of Americans would seem to agree that saving is harder than it sounds.

To Bankrate's credit, they do suggest two basic steps for establishing up an emergency savings fund, including:

  • Setting up an account for your emergency savings in a savings account at a bank that earns a high rate of interest. They also say if you can get a cash incentive from the bank to set up a new account, more power to you.
  • Regularly funding the account a little at a time using direct deposit from your paycheck.

If you don't like banks and are willing to give up earning interest on your savings, you could cut the bank out of the picture and save cash in a piggy bank or in a safe at home. Both of which have their own risks, such as your kids helping themselves to what's in your piggy bank or you forgetting the combination to the safe! But there are some new options for setting up an emergency savings fund you might want to consider that may be available to you through your job.

If your employer offers a 401(k) program that is managed by Fidelity, you may have access to Fidelity's new Goal Booster program. This is a new program that automatically combines payroll deduction with savings accounts that are directly linked to your specific savings goals but are separate from your retirement savings. That means you can take out money from them when you need to without paying any early withdrawal hardship penalties. Other employers are starting to provide access to similar programs managed by firms like SecureSave and Sunny Day Fund.

What we haven't yet discussed is how much to save for an emergency. That's a different topic for a different day, which we'll get around to covering in Part 2!

Image credit: Piggy bank on a pink background image by Quince Media on Pixabay. Creative Commons CCO 1.0 Universal Public Domain Dedication.

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26 March 2024
U.S. American Eagle Gold One-Ounce Coin - Source: U.S. Mint: https://www.usmint.gov/wordpress/wp-content/uploads/2022/11/2023-american-eagle-gold-one-ounce-bullion-coin-obverse-768x768.jpg

What drives the price of gold?

That's a fascinating question, which is the subject of an article asking that exact question at Investopedia. We're going to cut straight to their bottom line answer:

Today, the demand for gold, the amount of gold in the central bank reserves, the value of the U.S. dollar, and the desire to hold gold as a hedge against inflation and currency devaluation all help drive the price of the precious metal.

We have a unique perspective on this topic because of the fortunate timing of a snapshot we took mapping the recent historic relationship between the spot price of gold and real 10-Year U.S. Treasury yields some two years ago. That snapshot covered the period from 2 January 2007 to 17 March 2022, which is significant because a new paradigm for gold prices took hold starting on that latter date.

Two years later, this new paradigm can be seen in the following update to our chart, in which how the price of gold has changed with respect to the inflation-adjusted yield of the 10-Year Treasury is shown by the red line.

Gold Spot Price vs Inflation-Indexed Market Yield of 10-Year Constant Maturity U.S. Treasury, 2 January 2007 - 22 March 2024

The big thing that stands out in the chart is that the price of gold has been rising even though the inflation-indexed market yield of a 10-Year U.S. Treasury has also risen during this period as the rate of inflation has fallen. This pattern contradicts the previous paradigm, in which gold prices rise as high inflation makes real yields fall or even turn negative in value, while low inflation rate has the opposite effect. In the old paradigm, there is an inverse relationship between the two.

The other thing that stands out are the periodic changes in direction of gold prices with respect to real 10-Year Treasury yields. We've marked the dates of the most significant turning points in the new paradigm on the chart.

We next mined through the market-moving headlines we've been capturing for years as part of our ongoing S&P 500 chaos series. While we seek to record headlines that have the potential to affect stock prices, it turns out we've also captured the events that proved to be major turning points for gold prices in the new paradigm. Here are the notable headlines occurring within a trading day of the indicated date on the chart marking the turning points:

For that last headline, gold prices broke through the $2,200 per ounce level to record an all-time high in terms of U.S. dollars. As of the final data point for the snapshot, we find gold prices hovering just a little below that level.

What all these headlines have in common is they herald actions by the U.S. Federal Reserve to alter the course of monetary policy in the United States. In the new paradigm, when the Fed alters its direction, investors alter the trajectory of gold prices.

References

Federal Reserve Economic Data. Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Inflation-Indexed. [Online Database (Text File)]. Accessed 24 March 2024.

USAGold. Daily Gold Price History. [Online Database]. Accessed 23 March 2024.

Image credit: American Eagle One-Ounce Gold Coin photo by U.S. Mint. U.S. Government works public domain image.

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25 March 2024
An editorial cartoon of a Federal Reserve official lighting a rocket with 'RATE CUTS' written on it and the Wall Street bull in the background.

For S&P 500 (Index: SPX) investors there was one, and only one, market moving headline during the week that was. The Federal Reserve confirmed on Wednesday, 20 March 2024 that interest rate cuts are coming in 2024.

That confirmation was like lighting off a rocket on Wall Street. The index rose nearly 0.9% after the Fed's "dot-plot" projection of future interest rates was released on Wednesday afternoon, closing at an all-time record high. The index would proceed to reach its current new record high of 5,241.53 on the following day, but dipped slightly on Friday, 22 March 2024 to close out the week at 5,234.18. That value represents a 2.3% gain over its previous week's close, making the third week of March 2024 the best of the year to date for the S&P 500.

The CME Group's FedWatch Tool projects the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 12 June 2024 (2024-Q2), unchanged from last week. The expectation that the Fed will begin a series of quarter point rate cuts starting on that date and continuing at mostly twelve-week intervals is also unchanged from the previous week.

With the Fed's first rate cut expected in June 2024, investors have locked their forward looking focus on the current quarter of 2024-Q2 in setting current day stock prices. The latest update shows that even though the trajectory of the index is just off its record high, it falls almost right in the middle of the redzone forecast range we added to the chart several weeks ago, which is based on the assumption investors would be focused on 2024-Q2 at this time.

Alternative Futures - S&P 500 - 2024Q1 - Standard Model (m=+1.5 from 9 March 2023) - Snapshot on 22 Mar 2024

Other things happened during the third week of March 2024. Here's a summary of all the other market-moving news headlines that investors absorbed during the week, along with the week's most influential headline.

Monday, 18 March 2024
Tuesday, 19 March 2024
Wednesday, 20 March 2024
Thursday, 21 March 2024
Friday, 22 March 2024

The Atlanta Fed's GDPNow tool's latest estimate of real GDP growth for the first quarter of 2024 (2024-Q1) decreased to +2.1% after last week's +2.3% growth projection.

Image credit: Microsoft Bing Image Creator. Prompt: "An editorial cartoon of a Federal Reserve official lighting a rocket with 'RATE CUTS' written on it and the Wall Street bull in the background."

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22 March 2024

If you're a firefighter, one of the biggest hassles you have involves directing the water from a firehose to where a fire is burning.

That's not an easy job because of the high pressure of the water flowing through the firehose. For traditional firehoses, once the water is turned on, firefighters are limited in how they can direct it. They can angle the end of the hose within a small range and they can move the hose laterally along the ground to some extent, but doing so takes a lot of manual effort as you can see in firehose handling training videos.

But what if you could fly or steer the hose exactly where you need it to be to put out a fire? Better still, what if the hose could be either automatically or remotely-controlled so the risks to firefighters' lives from their inherent occupational hazards could be reduced?

That thinking lies behind the "Dragon Firefighter" flying robotic firehose being developed as an open source project by Japanese researchers at the Akita Prefectural University. As you'll see in the following video, "Dragon Firefighter" isn't just a cute project name. It's a useful description that accurately conveys what their innovation is and how it is intended to work.

If it's not already clear from the video, here's a written description of how the Dragon Firefighter works (HT: Core77):

The Dragon Firefighter’s firehose is propelled upward (flying at two meters above the ground) by eight controllable jets of water spouting from its center and head. The firehose can change shape and be oriented towards flames, steered by a control unit in a wheeled cart behind. The cart is connected through a supply tube to a fire truck with a water reservoir of 14,000 liters.

The nozzles spout water at a rate of 6.6 liters per second with a pressure of up to one megapascal. The hose’s tip contains a conventional and thermal imaging camera, which help to find the location of the fire.

The researchers anticipate they their flying robotic firehose concept is about ten years of development away from finding its way into the everyday arsenal of modern fire departments, where one of their bigger challenges is extending its length and range.

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About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

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