“Patient opportunism, buttressed by a contrarian attitude and a strong balance sheet, can yield amazing profits during meltdowns.”
― Howard Marks

1. U.S. Home Prices Hit a Record of $375,300 in March — U.S. home prices soared to a new record in March while mortgage rates continued to rise rapidly, slowing home sales in what has been the hottest housing market in more than 15 years. The rise of remote work and the pursuit of more space unleashed a powerful wave of home buying when Covid-19-related lockdowns started to ease in the middle of 2020. The frenzied housing market, supported by ultralow interest rates at the time, lifted home prices throughout the country. Homes for sale often stayed on the market for less than a month, and sometimes only days, while open houses could draw lines around the block.
Now, that frenzy is starting to ease and the volume of home sales is reverting to pre-pandemic levels, said Lawrence Yun, chief economist for the National Association of Realtors. With mortgage rates at 5% and back to their highest level since 2011, Mr. Yun said he expects home sales in 2022 to decline 10% from last year.
2. Florida Bill to End Disney’s Special Tax District Heads to Gov. DeSantis for Signature — Florida lawmakers gave final approval to a bill that would end a special tax district that allows Walt Disney Co. DIS 0.07% ▲ to govern the land housing its theme parks, sending the measure to Republican Gov. Ron DeSantis, who has made clear he would sign it. The move marks a significant setback for Disney’s Florida operations. The special district, created in 1967 and known as the Reedy Creek Improvement District, exempts Disney from numerous regulations and certain taxes and fees. It has permitted the company to manage its theme parks and resorts in the state with little red tape for more than 50 years.
3. Fed’s Jerome Powell Seals Expectations of Half-Point Rate Rise in May — Federal Reserve Chairman Jerome Powell signaled the central bank was likely to raise interest rates by a half percentage point at its meeting next month and indicated similar rate rises could be warranted after that. The Fed has indicated it is also set to begin shrinking its $9 trillion asset portfolio.
4. Mortgage Rates Continue to Rise — the average rate for a 30-year fixed-rate mortgage rose to 5.11%, mortgage-finance giant Freddie Mac said Thursday. The rate hit 5% last week for the first time since 2011, up from 3.22% at the beginning of 2022. The Federal Reserve’s pullback from the mortgage-bond market has helped drive up interest rates on home loans in recent months. So too has its posture on interest rates. The Fed is expected to raise its benchmark rate again at its meeting early next month, and it has signaled that more increases are likely this year. That has driven up yields on the 10-year Treasury note, to which mortgage rates are closely tied.
The combination of rising rates and record home prices has started to weigh on demand. Sales of existing homes dropped 4.5% in March from a year earlier, according to the National Association of Realtors. Purchase mortgage applications last week fell 3% from the prior week and 14% from a year earlier, according to the Mortgage Bankers Association.
5. Past History of Inflation — based on past history, as inflation tops and starts to rollover, stock market will start to rally as inflation is discounted.

The week ahead — Economic data from Econoday.com:

“Patient opportunism, buttressed by a contrarian attitude and a strong balance sheet, can yield amazing profits during meltdowns.” ― Howard Marks,

1. U.S. Inflation Accelerated to 8.5% in March, Hitting Four-Decade High — U.S. inflation surged to a new four-decade high of 8.5% in March from the same month a year ago, driven by skyrocketing energy and food costs, supply constraints and strong consumer demand. The Labor Department reported the consumer-price index—which measures what consumers pay for goods and services—last month rose at its fastest annual pace since December 1981, up from the 7.9% annual rate in February. Rising prices have been unrelenting, with six straight months of inflation above 6% that is well above the Federal Reserve’s average 2% target.
2. Chinese Stockpile Food as Covid-19 Concerns Ripple Out From Shanghai — As Shanghai battles the country’s worst Covid-19 outbreak in two years, people across the rest of China are stockpiling necessities as they brace for the prospect of similar lockdowns. In Beijing, where some residential districts have been closed in recent weeks as infections have been discovered, supermarket shelves in some parts of the city have been picked clean of toilet paper, canned foods, instant noodles and rice in recent days.
In Suzhou, an industrial hub roughly two hours’ drive west of Shanghai, residents swarmed supermarkets to fill their grocery baskets with instant noodles and other food on Tuesday morning, hours after local officials said they would conduct districtwide testing in one section of the city.
3. Supplier Prices Rose Sharply in March — the Labor Department on Wednesday said the producer-price index, which generally reflects supply conditions in the economy, increased a seasonally adjusted 1.4% in March from the prior month, a pickup from an upwardly revised 0.9% gain in February. Producer prices rose 11.2% on a 12-month basis, compared with an upwardly revised 10.3% increase in February. That marked the fourth consecutive month with a double-digit gain and was the highest since records began in 2010.
4. Mortgage Rates Hit 5% for First Time Since 2011 — the interest rate on America’s most popular mortgage hit 5% for the first time in more than a decade, extending a sharp rise that has yet to significantly slow the red-hot housing market. Rates’ fastest three-month increase since 1987 has made the housing market ground zero for the Federal Reserve’s efforts to tame inflation. Home buyers, already facing surging house prices, are now contending with a substantial increase in financing expenses, further lifting monthly payments. A year ago, buying the median American home at prevailing rates meant a monthly mortgage bill of about $1,223 after a 20% down payment, according to calculations by George Ratiu, an economist at Realtor.com. At recent rates, such a purchase would require a monthly payment of nearly $1,700—a 38% increase, he estimated.
5. Inverted Yield Curve Follows by Recession — chart below from the Fed Reserve Bank of St. Louis shows the yield curve inversion follows by the recession usually precedes the market lead in the range of 10 to 34 months.

The week ahead — Economic data from Econoday.com:

“Willingness and ability to hold funds uninvested while waiting real opportunities is the key to success in the battle for investment survival” — Gerald Loeb

1. Congressional Negotiators Settle on $10 Billion for Covid-19 Tests, Treatments — the package will allow the U.S. to purchase supplies, including more tests and vaccines, that the Biden administration said would be needed to continue to fight the virus. The $10 billion pulls from unused money in earlier bills passed by Congress, rather than representing new spending. Top U.S. health officials have been closely monitoring the Omicron BA.2 variant, which has triggered a surge in cases in parts of Europe and Asia, and now represents more than half of new Covid-19 cases in the U.S. President Biden said last week that without more federal dollars, another wave of the virus could lead to testing shortages similar to those experienced during the winter’s Omicron surge.
2. Fed Lays Out Plan to Prune Balance Sheet by $1.1 Trillion a Year — Federal Reserve officials laid out a long-awaited plan to shrink their balance sheet by more than $1 trillion a year while raising interest rates “expeditiously” to counter the hottest inflation in four decades. The roadmap for reducing the assets they bought during the pandemic was spelled out on Wednesday in minutes of their March meeting, when officials raised rates by a quarter point. They debated going bigger but chose caution in light of the uncertainty caused by Russia’s invasion of Ukraine, the record of their discussion showed.
3. U.S. Allies to Release Close to 60 Million Barrels of Oil From Reserves — U.S. allies are planning to release close to 60 million additional barrels of oil from their reserves, officials familiar with the matter said, joining the Biden administration in an effort to tame prices after they rose sharply when Russia invaded Ukraine.
The 31-member nations of the International Energy Agency—which include the U.S., most of Europe, Australia, Japan, Mexico and others—are planning to announce a new reserve release totaling 120 million barrels, officials said, the largest release in the IEA’s 47-year history. Around half of that amount will come from U.S. reserves, which were included in Washington’s previously announced decision to release 180 million barrels of oil over six months. That leaves around 60 million barrels of additional oil that will hit the market because of the IEA decision, which is expected to be announced by the end of the week. Those barrels are expected to be released over six months to track the U.S. schedule, an official said. IEA nations on March 1 announced the release of 60 million barrels—including 30 million barrels from the U.S.—in what was then the agency’s biggest-ever release of reserves.
4. Manufacturers Grind to a Halt in China as Covid Lockdowns Expand — manufacturers are struggling to keep some of their China operations going as extended and widening Covid-19 lockdowns choke off supplies and clog up truck routes and ports, heaping more pressure on the stretched global supply chain. Stringent government measures to contain the country’s Covid-19 outbreak, the worst in more than two years, are locking down tens of millions of people, mostly in and around the industrial heartland of Shanghai. The curbs are keeping many workers at home, restricting output at some factories and closing others, including component makers for Apple Inc. and Tesla Inc. Tesla, which suspended work at its factory in Shanghai on March 28, still hasn’t set a date for restarting production, according to people familiar with the matter. The electric-vehicle giant said it is implementing Covid-19 control requirements and setting work arrangements according to government policies.

The week ahead — Economic data from Econoday.com:

“Accepting losses is the most important investment device to ensure safety of capital” — Gerard Loeb

1. Second Covid-19 Booster Shot Endorsed by FDA, CDC for Adults 50 and Older — the Food and Drug Administration said Tuesday it had cleared extra shots of Pfizer Inc. and its partner BioNTech SE and from Moderna Inc. for adults 50 years and older. The Centers for Disease Control and Prevention followed up by endorsing the second booster shots.
The extra doses are “especially important for those 65 and older and those 50 and older with underlying medical conditions that increase their risk for severe disease from Covid-19 as they are the most likely to benefit from receiving an additional booster dose at this time,” CDC Director Rochelle Walensky said.
2. Shanghai Lockdown Adds to China’s Economic Woes — the lockdown of one of China’s largest and most prosperous cities is the latest blow to the country’s economic fortunes, adding new risks to Beijing’s ambitious growth target in a politically sensitive year for leader Xi Jinping. The economic toll is only starting to come into view. Production at Shanghai-area factories operated by electric-vehicle maker Tesla Inc. and some other companies has been halted while domestic logistics networks have jammed up, slowing global supply chains, according to exporters and business owners. Meanwhile, hundreds of restaurants, retailers and other service-sector businesses have been shut down temporarily. The megacity of more than 25 million people, which accounts for roughly 4% of China’s total economic output and which is home to the country’s largest port and the regional headquarters of hundreds of multinational companies, initially sought to avoid a citywide lockdown. Instead, it systematically tested residents while blocking off some office towers in a bid to minimize disruptions to the economy and people’s daily lives, in line with Mr. Xi’s call this month “to achieve the biggest prevention and control effect with the smallest cost.”
3. Biden Considers Invoking Defense Production Act to Boost Minerals for EV Batteries — President Biden is considering invoking the Defense Production Act as soon as this week to boost domestic production of minerals used in batteries needed for electric vehicles, a person familiar with his plans said. The administration would include minerals like lithium, nickel and graphite, cobalt and manganese under the Korean War-era national security mobilization law, the person said. The designation could help mining companies access government funding for feasibility studies on mining development, productivity and safety improvements, or on how to wring more of these metals out of ore already produced at facilities operating in the U.S. It could also prompt Congress to dedicate more money to such efforts, the person said.
4. Biden to Draw Down Oil Reserves in Bid to Ease Gas Prices — President Biden will tap up to 180 million barrels of government oil reserves to help tamp down near-record high fuel prices, an unprecedented government intervention into oil markets following Russia’s invasion of Ukraine. In remarks from the White House late last week, Mr. Biden framed high energy prices as a wartime issue that requires a robust and wide-ranging response. The oil release—about 1 million barrels a day for six months starting in May—would be the Biden administration’s third, and by far the biggest-ever drawdown from the country’s emergency stockpile of roughly 568 million barrels.

The week ahead — Economic data from Econoday.com: