The Keystone Speculator's Housing Market Indicator Flips Positive

The housing market data this week was a huge surprise. Housing Starts jump wildly higher--during winter time. The Keystone Speculator's Housing Market Indicator flips back to a housing recovery in progress. This is an astounding and surprising development.

This housing market tool does not do whipsaws. When it flips in either direction it is serious business. When Keystone called the start of the housing recovery in February 2012, as the for sale signs were everywhere and construction workers were looking for different careers, he had to duck the rocks and tomatoes. No one believed that; instead it was all doom and gloom and the misery would continue indefinitely. Nope. It was the bottom and the housing recovery did begin in 2012 and by later that year and into 2013, everyone was on board.

Seven years go by. On 7/17/19, a housing recession begins as per the indicator. The formula and indicator is plugged into the Keybot the Quant algorithm which is Keystone's proprietary trading algo. Keybot the Quant has been long the stock market since 12/4/19 and yesterday Keybot prints a maximum +100 level representing maximum market euphoria and glory. The Federal Reserve folks are not dummies.

The Federal Reserve saw the housing recession coming and other trouble with the market internals then whammo, the liquidity event hits the banking industry on 9/17/19, exactly 2 months after the Keybot the Quant algo called for the housing recession to begin. Fed Chairman Powell had a religious experience that day. He also had to change his underwear. The overnight repo rate went through the roof popping from 2% to 10%, liquidity vanished, the Fed panicked and started printing money like madmen (to flood the market with liquidity and avoid a banking event). The obscene Keynesian money pump during Q4 and running through to the present day creates the massive and historic stock market rally with prices going parabolic on the indexes. The wealthy privileged class own large stock portfolios. They speed-dial real estate brokers to have brochures sent over as they begin shopping for another summer home.

The Federal Reserve papered-over the housing recession that would have begun in earnest if the central bank did not step in to save the day, as usual. The power of the Fed is jaw-dropping. Kneel and Worship at the feet of the modern-day Money God's! What a sick world it is. What is sicker, is that the Federal Reserve will never take the fall for such sick Keynesianism-run-amuck. Like the time of 9-11, a major event will occur, terrorism, war, a pandemic, all of the above maybe, and that event will take the blame for the stock market rolling over never the Fed. This is how the crony capitalism game is played. We are likely in for wild times ahead.

So the housing market indicator is back in bull mode and this creates positivity in the broad stock market, hence, more new record highs in equities. The SPX prints a new all-time high at 3329.88 and new all-time closing high at 3329.62.

Looking at the quant's data and making a few educated guesses, Housing Starts will likely have to retreat down to 1.0 million units (after the blow-out 1.6 million units number yesterday) to flip the housing market back into recession mode. Or, lower numbers of, say, 1.2 million for a couple months in a row would likely flip the model back to the recession side. Thus, watch the future Housing Starts and Permits data releases on 2/9/20, 3/18/20 and 4/16/20. You would be wise to mark them on your calendar--or you young folks use the smartphone nowadays.

Housing Starts were a huge blow-out number yesterday, a 13-year high, but Permits fell. Why were Starts so high? There are several reasons. First, for a winter month, the Starts would be expected to drop about -5% and instead catapult +17% higher. There are seasonal adjustments for the data but with the mild winter, the numbers are thrown askew. At Keystone's place right now, in the beautiful scenic Laurel Highlands of western Pennsylvania, the foothills of the Appalachian Mountains, there should be at least one-half foot (15 cm) of snow on the ground that stays there until March-April. Instead, the neighbor was working in his garden yesterday while folks are walking around in short pants.

Builders obviously try to take advantage of the mild winter. At the same time, the huge drop in interest rates that occurred last year during and around the mini liquidity panic (and the Fed cut rates last year) feeds the increase in home purchases and in refinancing loans. Pile on the Fed's ridiculous boatloads of easy money bulging out of everyone's pockets, and the perfect storm of blowout housing numbers is in play.

Multi-family construction rises at a rate three times that of single-family. Perhaps the millennial's like to live a different way than their parents and grandparents. Interestingly, Permits drop. This was ignored by analysts. Permits lead to future Starts.

In February, the Fed will likely try to back off from its QE games. Whenever it is, February, March, doesn't matter, there will be trouble. The Fed provides more easy money heroin starting last September-October to keep the patient alive (prevent a housing recession and liquidity event from happening while goosing the stock market for the rich) but risks an overdose or possibly killing the patient after the 11 years of drug addiction (the Federal Reserve, BOJ, ECB, PBOC and 20 other global central bankers colluding daily and printing money since early 2009 to prop up the global markets and economies).

The markets are fascinating these days. Stock market history is being written in real-time but most everyone is oblivious as to what is coming down the pike. The market joy is rampant and everyone believes they see the light at the end of the tunnel. Perhaps instead it is the oncoming train? It will be a sight to see. For now, the housing market is back in happy mode and the Fed throws a pizza party over at the Eccles Building congratulating each other at how smart they all are and how they can continually avoid financial crises. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.