(New York)

The US real estate market has appeared to be on the ropes for several months. While the woes in commercial real estate have been apparent for some time, it is the recent reversal in the residential market that caught some off guard. Well, new data is out, and it seems to have cemented a new reality—housing is in full decline. Homes sales declined month over month, with a big drop in sales in the northeast. The home sales figure was the weakest in two years. The chief economist of the National Association of Realtors commented that “Too many would-be buyers are either being priced out, or are deciding to postpone their search until more homes in their price range come on to the market”.

FINSUM: The summer is usually a better time for home sales, so this comes during what should be a period of strength. Home prices seem bound for a correction given how pricey things have become at the same time as rates have been rising.

(Washington)

Yesterday was a rough one for the President. Michael Cohen’s guilty plea, and testimony that he was order to pay two women by Trump using campaign finances caused yet another firestorm for the White House. Trump responded strongly, admitting that he knew of the payments, but denying that they came out of campaign finances, saying he paid for them personally. Lawyers say it will be hard to use Cohen’s testimony to bring charges against Trump. However, Cohen’s lawyer says that his client can also testify that Trump was aware of Russian efforts to interfere with the election before such information was ever reported publicly.

FINSUM: We do not think the campaign finance situation will imperil Trump, but that last statement about Russia is a real x factor which could cause serious trouble.

(New York)

One of Wall Street’s favorite trades has gone down the tubes this year, and for a classic reason. One of the hottest trades of this year has been to short ten-year Treasury bonds. Many institutional money managers believed that the bonds would see their yields rise and prices fall as the Fed raised rates and the US continued to grow at a quick pace. However, the opposite has happened recently, and ten-year Treasury bonds have seen their yields fall from well over 3% to just 2.83%. The reason why is a short squeeze. Short interest in the bonds rose from a net short position of around 75,000 futures contracts at the beginning of the year to almost 700,000 now.

FINSUM: We think there are a lot more factors keeping yields low than a short squeeze, but it is definitely a considerable component.

(New York)

When the Republican tax reform package came out last year, there were fears that the changes could cause weakness in the muni market. However, while those potential long-term challenges remain, the reality is that the tax changes have helped the muni market considerably. The reason why is that the lack of SALT deductions means that many more investors have a strong inventive to buy muni bonds. This has kept yields low and demand robust, as for a high income couple in states like New York, a local muni bond yielding 3% is equivalent to a taxable corporate bond yielding over 6%.

FINSUM: Given the way that the new tax package heavily incentivizes muni income, we expect demand and prices to remain robust.

(San Francisco)

Investors are currently anxious about the SEC’s investigation of Tesla and Elon Musk, not only over the infamous tweet, but also about guidance the company has given over the years. However, Bloomberg says investors shouldn’t be worried because the SEC is unlikely to take any serious action. Bloomberg points out that the San Francisco office of the SEC is woefully understaffed and outgunned and has almost no history of going after top tech executives, something that has led the tech sector to act with more impunity than in finance.

FINSUM: We aren’t sure we like this analysis much. If there were ever a time the SEC might want to make a statement, this would be it.