Magnifi Communities

Back in March I posited the notion that the S&P 500 would need to fall to about 2,900 before all of the froth that the Federal Reserve had injected into the market through its various monetary stimulus programs dating back to the Great Recession had finally burned off.
On Christmas Eve the S&P closed at 3844, which would put it 19% below its all-time high of 4,766 on December 27, 2021, or about a year to the day.
In recent days some market prognosticators have been warning that the market is poised to fall another 20%, which would put the index at about 3,000, or slightly above my guesstimate.
So do I feel vindicated, if that is the right word? No, and I hope I’m wrong anyway.

First, my guess was not a prediction, just a quick back-of-the-envelope calculation based on my assumption that the Fed was responsible for about half of the stock market’s 600% gain between the March 2009 bottom of 683 and the time I made my comment.
So, if we cut that 600% gain in half, that would reduce the S&P’s gain to a still respectable 300%, or a little below 3,000.
Not an educated estimate, maybe, but I thought a reasonable guess—a worst case scenario, if you will.
Second, we don’t know if these bears will turn out to be right. I hope they’ll be wrong.
I now believe the Fed won’t have to drive the economy into the tank in order to get inflation down to where it wants it to be, probably in the 2.5% to 3% range.
Remember, about two years, in what was considered to be a major policy shift, the Fed said it was willing to let inflation “overshoot” its long-term target of 2% for a time, as it indeed it did.
Now it looks like inflation is dropping a lot faster than most people thought, and the Fed itself is now forecasting that inflation will fall to 3.1% next year before declining in 2024 to 2.5% and 2.1% in 2025, i.e., putting it at its long-term target.
That, to me, is a reason to be positive about the market and the economy. Inflation is, in fact, coming down, and fairly quickly.
Of course, my March “forecast” didn’t assume that the solons at the Fed would see it that way. As we know, the Fed is often wrong, by wide margins and in terms of timing. Which is one big reason why the market has shown a predilection in the past few months to not believing the Fed when it makes a statement about monetary policy and inflation.
Why should it? We’ve been told countless times to “don’t bet against the Fed” or “follow the Fed,” even when our gut tells us it’s all wet.
So my latest “prediction” is that we are a lot closer to the bottom in stocks now than another 20% drop would warrant, and that 2023 could be a good year for the market.
As I noted in my previous column, there are many reasons to be optimistic about inflation. As the Wall Street Journal reported last week, “The Covid-19 pandemic might not be gone, but the global supply-chain crisis it spawned has abated. Goods are moving around the world again and reaching companies and consumers… Gone are the weekslong backlogs of cargo ships at large ports. Ocean shipping rates have plunged below prepandemic levels.”
“Chip inventories swell as consumers buy fewer gadgets,” another Journal article proclaims. “Semiconductor companies slash production plans amid weak demand. The world is now awash in chips.”
The Fed has already raised interest rates close to what it says will be their end point. Gasoline prices have plunged despite the ongoing war in Europe. Used car prices have declined. Home sales have plummeted. Rental prices have dropped, to the point where builders are holding back on adding more supply.

The main reason why inflation held so low and for so long—technological developments that increased productivity and competition—continue to benefit us.
The only institution that has not gotten the disinflationary message is the U.S. government, which continues to spend as if we are in constant crisis mode. Witness the recent passage of the $1.65 trillion omnibus bill, which apparently few people in Congress actually read even as they passed it, and President Biden will no doubt be happy to sign.
Can we expect any fiscal restraint when the Republicans take over the House next month? Probably not, but at least gridlock may constrain reckless fiscal spending at least a little bit.
Conclusion: The Fed’s job is almost done, barring some new unforeseen crisis. That should give us some optimism for 2023.
George YacikINO.com Contributor
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Silver futures continue to maintain leadership not only among metals, but compared to all futures as we can see in the leaderboard below.
Chart courtesy of finviz.com
The white metal has seen gains of close to ten percent month-to-date. None of the metals come close as copper futures, formerly the number two, has lost its shine lately as I shared the reason last week. When compared to silver futures, gold futures appear pale with gains of 2.62%.   

All last week, I observed a pattern in the making, watching to see when it would trigger. As a result, exactly at the end of last week, the expected event happened. Here is a visual representation in the daily chart below.
Source: TradingView
There are two simple moving averages in the silver daily chart above. The blue line represents a 50-day moving average and the red one is a 200-day moving average. We can see that last week the short-term blue line crossed above the long-term red line. This pattern is called a “Golden Cross”. It is a bullish sign as it indicates a change in the trend to the upside.
The silver market seems to be waking up from its long hibernation within a large consolidation, which was also indicated by flat moving averages and a deep crossover to the downside during the last leg down.
Let’s get down to measurements to find out how high the silver futures could skyrocket on this bullish confirmation pattern. History could be helpful for us. The last time this crossover pattern occurred was in the summer of 2020. The following rally, both in price and in the blue moving average, took silver futures price to almost $30 for almost $13 from the crossover price of $17.
The current Golden Cross appears at the price close to $21. The target is located $13 above at $34. It is over $10 or 42% potential gain for silver investors.
There is another alert we can see on the chart. Since the beginning of the month, the RSI indicator has not followed the price because it shows lower peaks that contradict the higher highs on the price chart. Such a pattern is called a Bearish Divergence and the outcome won’t please silver bugs.

Since the market needs a break to build up energy for the expected rally, it should consolidate. The price could retest one of its moving averages before resuming bullish growth.

 Loading …
The “Golden Pattern” for gold is on hold and here is why.
Source: TradingView
The blue line of the 50-day simple moving average is approaching the red 200-day simple moving average, however, it is still far from making such a coveted crossover to the upside.
The gold futures price sits on the 200-day moving average, while silver futures are much higher. This could result in sinking down to the blue 50-day moving average around $1,737 during anticipated consolidation as the RSI shows a Bearish Divergence here as well.  

 Loading …
Intelligent trades!
Aibek BurabayevINO.com Contributor
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

On December 20th, the Commerce Department released data showing that housing prices remain high, renter demand is still strong, and the supply and demand imbalance appears to show no relief.
These economic data points indicate that the housing crash, or pull-back many expected to see with housing prices in 2023, may not be coming.
Let’s look at the numbers and then explain why a housing crash doesn’t appear to be on the horizon in 2023.
The December housing numbers showed US single-family homebuilding dropped to a two-and-a-half-year low in November 2022. Permits also fell in November by 7.1% for single-family homes and 11.2% for overall building permits. Overall housing ‘starts’ dropped 0.5% in November, with single-family starts falling 4.1% and multi-family units up 4.8%.
So essentially, we are seeing that construction of new single-family homes is slowing when we are already in a tight supply-demand situation with those types of units. This supply shortfall comes from data showing that from June 2012 to 2021, the US had 12.3 million new households formed, but only 7 million new single-family homes were built.

The pandemic played a role in making this shortfall wider, as it is estimated that in 2019 the US was only short 3.84 million units. But, labor shortages before the pandemic started, which worsened during the pandemic, and costs of materials and land, all pushed housing prices higher.
Higher housing prices make it harder for more people to afford a home. Thus, fewer homes get built. High housing prices were likely one reason we didn’t see more homes built in 2021. In 2022, the main reason was increasing interest rates. Again, higher interest rates push the overall cost of ownership higher, resulting in fewer people building homes.
Another interesting data point from December was the Homebuilders’ confidence levels also plummeted in December for a record 12th month straight. This data point only adds to the idea that single-family homes will continue to be underbuilt in the near future.
Remember, there are two sides to the equation of new home builds. First, the consumer decides they want a new home built and hires a contractor to build the house ‘custom’. The other way is a build track style homebuilder, which builds a bunch of homes in anticipation of consumers wanting to buy a new home.
If the home builders are confident they can sell what they build, they build before they have buyers. If their confidence is low, as it is now, they wait until they have a buyer who has already put money down before they build.
This matters because if the big home builders built up inventory now, while sales were slow, we could see that 5 million home shortfall begin to shrink. But if they don’t build above the last ten-year average rate, how will we claw back some of that supply shortfall?
With all of that said, my takeaway from the December housing numbers is this; in 2023, we will not see a massive drop in housing prices. Yes, we may continue to see low demand because interest rates are high, but prices will not take an enormous hit. Low supply and high costs of materials will keep housing prices at or near current levels in most US markets.
So as an investor, here are a few Exchange Traded Funds that you can buy and hold for the next few years as we watch the housing market work through these interesting times.
The first is the Residential REIT Income ETF (HAUS). HAUS buys REITS that generate 75% of their revenue from multi-family or single-family rental housing or at least 50% from senior living housing. HAUS does have a high expense ratio of 0.60%, but considering it is an actively managed fund offering exposure to roughly 25 different REITS, that is not a terrible price.

Another ETF option similar to HAUS is the Kelly Residential & Apartment Real Estate ETF (RESI). It has an expense ratio of 0.68% and focuses on the residential and apartment real estate sector. However, unlike HAUS, which is focused on US-based companies, RESI focuses on any company operating in developed countries. RESI’s goal is to have a portfolio of roughly 60 companies. A little more than double HAUS.
Another option is something like the Hoya Capital Housing ETF (HOMZ). HOMZ tracks a tier-weighted index of the top 100 equities representing the US residential housing industry. The fund is built on four segments; 1) home ownership and rental operations, 2) home building and construction, 3) home improvement and furnishings, and 4) home financing, technology & services. HOMZ is much broader than the other two but also focuses slightly less on the residential and rental portion of the housing industry, and more on the other business’s that benefit from increased supply.
As an investor, you need to remember that predictions that the housing market will stay strong in 2023 and prices will not dip dramatically are just predictions and could be wrong. But I still believe investing some money in this sector is a wise move over the long run, even if 2023 doesn’t play out the way I think it could.
Matt ThalmanINO.com ContributorFollow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.