Recessionary Risk overweighing on the economy AND More...

1. The recent fall in the prices for shipping containers, semiconductors and fertilizer can stabilize the supply chain issue and aid the central banks in achieving the so-called soft landing through the tightening phase.

2. Should the investors be buying the dip, given that the US has seen the worst YTD performance from 1960? With the Fed poised to control inflation, subsequent margin pressures, and the risk of the Fed overtightening calls for keeping away from buying this dip now. The major reason for this fall in margins is the inability to pass on the higher raw material cost and higher wages, coupled with high energy costs.

3. Interesting facts and observations about the US housing market over the last 2 years, when typically no one could have gone long on the housing market, but turns out, it rallied like never before. Does this astronomical increase raise concerns?

   1. Monthly supply of houses was the highest in 10 years on May 22.

   2. Even though the mortgage rates are rising, there are still many buyers, but not enough houses.

   3. But now sales have started shedding off. One in 5 homeowners have lowered their asking price in May, this is largely due to the rising rates and abnormally high housing prices.

   4. Empirically, the trend in housing prices is inversely correlated with the consumer sentiment in the economy, and since the last 5 months, consumer sentiment in the US has been receding.

   5. Implication: If Americans loaded themselves with house mortgages, they will face a double whammy, service higher rates of interest at a time of declining house prices, and hence declining rents. This could lead to widespread mortgage defaults.

4. The labor supply is unable to keep up with the demand, as seen from the rising job vacancies and higher wages. All people who left work during the pandemic haven't been able to rejoin. Can the labor supply shortage issue be fixed by the immigrant workforce?

5. Under QE, the Fed bought tons in treasury securities to suppress the yields, but now in the QT phase, as they have started rewinding their balance sheet and started selling treasuries the longer end still has some upside. Given this, the investors are inclined to off load long end, specially because the longer maturities have higher duration. An interesting example of this case is the returns on the iShares 20+ Year Treasury Bond ETF, which is down 23% YTD.

6. The average 30-year fixed mortgage rate today spiked to 6.18%, from 5.85% on Friday. With every rise in the mortgage rate, a major chunk of buyers are pushed out. In May itself, sales and asking rates started sliding. Sellers have to come down a level where the buyer can service a mortgage.

7. Interesting Charts: