Peter Boockvar

My good friend David Rosenberg on Friday put the Thursday market rally into good perspective. Looking back over the past 20 years, these were the similar sized rallies and the dates they took place. I’m sure you can recognize the time frames:

January 3rd, 2001: +5%

July 24th, 2002: +5.3%

July 29th, 2002: +5.4%

September 30th, 2008: +5.4%

October 13th, 2008: +11.6%

October 20th, 2008: +4.8%

October 28th, 2008: +10.8%

November 13th, 2008: +6.9%

November 21st, 2008: +6.3%

November 24th, 2008: 6.5%

December 16th, 2008: +5.1%

Fed Governor Chris Waller spoke today in Sydney and said “It’s good finally that we saw some evidence of inflation starting to come down. We’re going to need to see a continued run of this kind of behavior on inflation slowly starting to come down before we really start thinking about taking our foot off the brakes here.” He really emphasized this point, also saying “These rates are going to stay – keep going up – and they’re going to stay high for a while until we see this inflation get down closer to our target. We’ve still got a ways to go. This isn’t ending in the next meeting or two.” Brainard speaks at 11:30am est. 

The first hill to climb for this market was getting to the end of the rate hikes which we’re close to doing. The second hill is living with a high level of rates for a longer period of time than we’ve been used to.

Ahead of some housing data this week and with us knowing full well the downturn that is underway, the director of research at John Burns Real Estate Consulting had these comments on Twitter last week from some builders he surveys. 

Oklahoma City builder: “Biggest challenge is your customers who just closed their home and see you drop prices by $30,000.”

Jacksonville builder: “Buying land at the top of the market and having to pull every incentive lever to sell is not a recipe for success. We’ll cut starts ~60% to 70% in 2023.”

Boston builder: “October was exceptionally weak.”

Harrisburg builder: “October was the worst sales month in 12 years. No buyers, no sales.” 

Baltimore builder: “The market is terrible.”

Birmingham builder: “The market is weakening demonstrably.”

Wilmington builder: “The market is falling off a cliff.”

Phoenix builder: “October started strong, then there was a head fake and in the last two weeks things dramatically worsened.” 

Denver builder: “Preparing for a very sluggish 2023 with increasing incentives and price erosion, driven mostly by the need to buy down interest rates.” 

Noteworthy in the Disney memo to employees late Friday was that not only did they say they are “limiting headcount additions through a targeted hiring freeze” but also talked about curbs on business travel. “In the immediate term, business travel should now be limited to essential trips only. In-person work sessions or offsites requiring travel will need advance approval and review from a member of your executive team. As much a possible, these meetings should be conducted virtually. Attendance at conferences and other external events will also be restricted and require approvals from a member of your executive team.” 

I also want to point out the weekend WSJ article titled “Walmart’s New Muscle: The largest US retailer and other industry giants are taking an increasingly aggressive stance with suppliers as the economy slows.” //www.wsj.com/articles/walmart-is-flexing-its-muscle-again-11668229212?page=1. The first sentence of the piece said “America’s biggest retailer has a new message for its suppliers: We’re not going to pay higher prices anymore.” This has major implications for both inflation and profit margins. It will lead to relief for the former and stress on the latter for their vendors. I point this out because almost every single consumer products company I follow (and some stocks we own) saw ALL (or almost all) of their Q3 revenue growth in price and not volume (where some saw outright declines). ‘Recapturing margin’ continues to be the theme of consumer product companies but it looks like price is no longer can be a main driver of that. 

On the ‘China is going to save its housing market with a 16 point plan’ news and the initiatives announced (like allowing developers some access to pre-sale funds in order to pay suppliers and finish projects), iron ore is rallying by 3% but copper is down 2.3%, though up sharply last week. The Hang Seng property stock index jumped 6.8% after a 9% rally on Friday. Chinese stocks broadly were mixed but the yuan is up for a 3rd day as Biden and Xi have a coffee talk in Bali.