SVET Markets Weekly Update (September 19, 2022)

19 Sep 2022 by rate3

Fed will continue to destroy US economy by adding to the banks 2.50 rate a record 100 points (as some analytics believe) while retail investors start to realize that Powell is going after their hard earn money.

It is difficult to come out with a reliable statistical information on the state of US retail trading industry. None of the widely available periodic macro economic reports cover it. It is known to be dominated by several giganotosaurus - retail-focused brokerages, including (as of Jan 2021, according to Reuters): Fidelity (32.5 million accounts), Vanguard (30), Schwab (29.6), Webull (15) and Robinhood (13).
It is added by smaller on-line brokers (such f.e. as Interactive Brokers with 1.1 million users). Cumulatively they are estimated to hold more than 100 million accounts - covering more than one third of US population.

During the past two year (until market crash in November 2021) those numbers had grown significantly. For example, retail investors constituted about 25 percent of overall market trades in August 2020 (Reuters). It had been 17 percent eight months prior (Jan 2020). Most recent estimates put it on 32 percent (as of Jan 2022).

The median age of Robinhood users is 31 and an average number of daily trades exceeds USD 8 million (according to Schwab). As of December 2019 two brokerages - Fidelity and Schwab - accumulated more than USD 15 Trillion of client assets. During the two years (2020–2022) those assets had increased from 60 to 150 percent.

Powell and its corporate cronies believe that USD 2 Trillions added to those accounts were stolen by Millenials as a result of 'relief programs' proclaimed by politicians in 2020. A year later FOMC decided it was a big blunder. Solution? Boomers in government will squeeze those money from Millenials.
That is, probably, the first time in its history when FRS intentionally goes against the whole generation of assets owners - not some industries, or professional groups (f.e. 'speculators') tagging their 'despicable' investment habits (including buying crypto, of course) as the main cause of markets 'irrational exuberance'.

Powell speaks not about it publicly. However, it can be inferred from the tone of increased irritation with which he addresses the public outcry about rapidly deteriorating economic conditions. Under his anti-inflationary rhetoric there is the hidden message for us: "I am intentionally starting the recession. I do not care how many of you will be ruined by it. You deserve that by showing no respect to my rules. You must pay for your revolt by fiat."

However, most of young retail holders still resist Powell racket and do not sell into this deep (both on crypto and stock markets). It frustrates main-stream analytics many of which predicted SP 500 to be at ~3000 (it is standing at 3868 now) and BTC on 10k (18798) this time of year. Accordingly, most corporate funds have accrued large amount of cash on their accounts waiting to be deployed when prices drop to a 'fair' level. Of course, what that level might be is the matter of personal taste :)
That creates a conundrum.

Powell can not fight inflation by traditional FOMC means - reducing short and medium term banks credits available to corporations. Most of them have already became so big and politically influential that they can hold on to their existing loans almost indefinitely by re-financing its with higher rates. Creditors can not afford corps to go underwater taking with it so much of their own money. Instead Powell is recurring to the scorched earth tactic by burning Mellenials savings, which have been primarily allocated to tech stocks and crypto.

The question is - how much longer young assets holders can hold to their digital belongings despite rising food and gas prices, looming unemployment and galloping mortgages rate?
Speaking about the later - Housing Starts, Building Permits and Existing Home Sales reports issued by Census Bureau and National Association of Realtors - that what will immediately precede Wednesday, September 21 FED rate decision.

Although those reports are none consequential for stocks and crypto price dynamic this week, I will cover those upcoming releases anyway - to keep statistics of my updates uninterrupted :)
Housing starts fall 9.6 percent (month-over-month) to 1.446 mio (July of 2022), Market expectations was 1.54 million - a big gap. Primarily, soaring prices of materials and rising mortgage rates lead to the housing sector cooling down. Expectations for new starts coming out this Tuesday, September 20 is lower ranging from 1.42 to 1.45 mio.

Building permits - a proxy for future construction - continues to diminish felling 0.6 percent to 1.685 million in July and reaching the lowest level since September 2021. Analytics expect its further decline to 1.61–1.63 mio in August.

Existing home sales declined 5.9 percent (4.81 million) in July - the record since May of 2020. It makes it sixth consecutive months of decline. The median home price stood at USD 403800 - up 10.8 percent from July 2021. The mortgage rate peaking to 6% in June has something to do with that, I guess :)