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SIX things you need to know this week in 60 seconds.
Affordability crushes mortgage demand
Assets you don’t want to be in 2022: IPOs
Hot Seat: brokerages and wholesalers
US National average gas price nears $5 a gallon
First major bipartisan crypto legislation
The ultimate ‘buy’ indicator just flashed
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1. MACRO
Affordability crushes mortgage demand
At the end of 2021, a median US household needed 32.6% of its income to cover payments on a median-priced home—already a stretch.
That number jumped to 38.6% in March (highest since August 2007) as home prices are appreciating like meme-stocks at the start of 2021 and the chart for the 30-year fixed mortgage resembles that of shitcoin.
After a brief pullback in May, the 30-year fixed rate is back up to 5.55%, according to Mortgage Daily News.
Add persistently low inventory to the mix and what you get is a 6.5% decline in total mortgage application volume last week, dropping it to the lowest levels in 22 years.
GRIT’S TAKE: Applications for mortgages and demand for refinancing fell 21% and 75% YoY last week, respectively, and all signs point to a continued decline through summer.
GRIT’S ACTION: Dollar-cost averaging into S&P 500.
Under the Radar
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2. DEALS
Assets you don’t want to be in 2022: IPOs
Over the first 5 months of 2021, 628 companies raised a total of $192B in IPOs. In the same period this year, just 157 companies have raised $17.9B.
In fairness to 2022, 2021 was a record-setting year for listings. Still, the decline has been almost as spectacular as the rise.
The global value of IPOs has fallen 71% this year ($283B to $81B) and the number of listings dropped by 52% (1,237 to 596).
IPOs in the US and Europe have been hit even harder: their total value has crumbled by 90% and among the top 10 IPOs this year by value, only 2 have been listed on American or European exchanges (TPG and Var Energi).
GRIT’S TAKE: Don’t expect many big listings any time soon—most are predicting companies will push back IPOs until conditions improve, which at this rate is looking more and more like 2023.
GRIT’S ACTION: Staying far away from IPO/SPACs.
3. STOCK MARKET
Hot Seat: brokerages and wholesalers
The SEC’s Gary Gensler is wielding a meme-sized hammer over the brokerages and wholesalers he believes helped fuel the retail trading frenzy in early 2021.
The pair could be in big trouble as Gensler unveiled his plan to overhaul the structure of equity markets and address “inefficiencies” highlighted by the meme-stock fiasco.
Under the proposals, brokers would be forced to send orders to auctions where market participants duke it out to ensure investors get the best possible price.
This throws a wrench directly into the business models of firms like Robinhood (broker) and Citadel (wholesaler), where the latter pays the former fees (read: kickbacks) in exchange for order flow.
Another way to put this news: RIP PFOF (payment for order flow).
GRIT’S TAKE: Expect formal proposals in the fall, followed by a public weigh-in, and then an SEC vote on adoption.
GRIT’S ACTION: Any guesses on what $HOOD is worth if the SEC kills PFOF?
4. COMMODITIES
US National average gas price nears $5 a gallon
US crude oil and gasoline stocks remain well below their 5-year ranges for this time of year.
According to AAA Gas Prices, the price per gallon has topped $5 in 21 states and the national average currently sits at an all-time high of $4.986.
The outlook doesn’t look likely to improve soon either as demand has remained firm despite surging prices and refining capacity is still well below pre-Covid levels (though it is rebounding).
The US Energy Information Administration (EIA) is forecasting gas will average $3.87 a gallon for the final 3 months of the year…I’ll believe it when I see it…
GRIT’S TAKE: Goldman Sachs has upped their forecast for Brent crude prices to an average of $140 (up from $125) a barrel between July-September.
GRIT’S ACTION: Still not chasing.
5. CRYPTO
First major bipartisan crypto legislation
New legislation introduced this week could finally provide a regulatory framework for the crypto markets.
A bipartisan bill co-led by Senators Kirsten Gillibrand and Cynthia Lummis would classify most digital assets as “ancillary assets”—intangible, fungible assets offered/sold in tandem with a purchase/sale of a security.
The law would treat these ancillary assets like commodities and designate the Commodity Futures Trading Commission (CFTC) as the industry’s top watchdog.
Assets would only be subject to SEC scrutiny if they entitled the holder to privileges enjoyed by corporate investors, such as dividends, liquidation rights, or financial interest in the issuer.
The bill is certainly a key milestone, and it represents the first real attempt to create a structure for the markets, but there are concerns over the decision to charge the CFTC—the smallest financial regulator with the smallest budget—with the task of taming crypto.
GRIT’S TAKE: The bill’s size and complexity most likely mean it’ll be broken up and passed (or attempted to be passed) piece by piece.
GRIT’S ACTION: Long Bitcoin and Ethereum and doing due diligence on altcoins. Subscribe to our paid crypto newsletter here to receive our new watchlist at the end of the month!
6. ENTERTAINMENT
The ultimate ‘buy’ indicator just flashed
Great news, folks—the bottom may be in!
Trading disclosures submitted by one of the greatest traders who ever lived (Nancy Pelosi) revealed that her husband, Paul, is bullish on Big Tech.
Does he know something we don’t?
Paul Pelosi bought between $500k and $1M worth of Apple call options on May 13, and then another $250-500k worth 11 days later.
He also purchased Microsoft call options worth as much as $600k on the same day.
Now, I’m not saying liquidate your life savings and buy Big Tech, but if you’re going to follow a member of Congress (or their spouse) into a trade, it might as well be a Pelosi.
Just kidding—don’t do that—according to our friends at UnusualWhales, the Congress member you want to be copying is Austin Scott.
GRIT’S TAKE: Remember when we thought Congress would ban Congress from trading stocks? Good times…
GRIT’S ACTION: Patience. Now is the time for patience.
Here are the tickers trending on WallStreetBets:
*SOURCES
3. CNBC
4. NY Post, CNN, AAAGasPrices
5. CNBC
6. Benzinga
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