“Real housing stagnation” will reduce inflation. Predicting a “Phoenix Rise” for Bonds – Michael Jade

(Kitco News) – The housing market appears to be in a downtrend. Nearly 60,000 home sales collapsed in June, and new home sales fell to their lowest level since April of 2020.

Michael Gade, portfolio manager at Toroso Investments, warned of a fundamental correction in the housing sector.

“what or what [markets have] “Not pricing it is a real stagnation in the housing sector,” he said. “Housing is only now beginning to roll around.”

Good talk with David Lane, presenter and producer at Kitco News.

stocks and bonds

Despite weak home sales, stock markets are rising. The S&P 500 is up 7.5 percent over the month, and the Nasdaq is up 11 percent over the same period.

Jade said that despite recent gains in the stock market, stocks still have a downside, which will be beneficial for US Treasuries. This trend has been dubbed the “Phoenix Rise”.

“If you have another downside wave in equities, which I think is likely to come, Treasuries will go back to the way they have behaved historically, like risk aversion, a ‘safe haven’ [asset]He said, “You can actually make money afterwards, during that classic environment where you avoid risk.”

Although Jade cautioned that he could not fully predict the markets, he spoke in terms of “possibilities”. He noted that the facilities are a sign of general changes in the stock market.

“Historically, utilities, which are the stock exchange’s most boring segments, tend to outperform before high volatility events in the broader market,” he said. “Utilities are the most bond-like segment of the stock market… utilities, in fact, when they trigger a short-term explosion, tend to precede major declines in stocks.”

Real estate

In the United States, the ratio of home price to median income is just over 8, which is the highest ratio historically. “This affordability issue” will lead to a correction in the home market, Jade said, especially as energy and food prices go higher.

The FAO Food Price Index has declined in recent months, but is still at its highest level in history.

“When the average person, who is not in the financial markets, starts to realize that their food prices are going up much faster than they thought, and their home heating bills, it will break demand,” he said. “It forces the choice between getting a home and dealing with high mortgage payments, or paying basic needs. That dynamic still plays a big role.”

He added that housing prices must come down to curb inflation, otherwise there will be “societal unrest” and “rising inflation”.

However, he said it will take some time for home prices to correct, since “you have institutions on the margins, you own these properties that are not necessarily a seller, and the price is always set by the marginal seller.”

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