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What’s on the Menu 🍴

Mortgage rates are flying sky high…

And disinflation isn’t making consumers feel any better.

Could this lead to a housing crash?

We’re covering that (and more) in today’s newsletter:

• 10 Reasons Housing Could Crash 🏠

• Why Disinflation Isn’t Making Consumers Feel Better 👎

• The Fed's Crypto Clampdown: PayPal, Beware! ⚠️

• The One Metric Every Investor Needs To Know 🔑

Today’s newsletter is a 6 minute read.

10 Reasons Housing Could Crash 🏠

Today, we're diving deep into the housing market's murky waters.

I'm here, raincoat on, predicting a storm.

Why?

Because beneath the surface, there's a whirlpool of data suggesting this market isn't as solid as it seems.

Let's slice this pie and see what's really baking. 🏠📉

1. Skyrocketing Home Prices: Despite inflation acting like a bull in a china shop and the Fed going all hawk-eyed, home prices have soared.

2. The Affordability Mirage: The income to house price ratio is scraping the bottom of the barrel. Millennials and Gen Z? They're window shopping, but those price tags are just too spicy.

3. Where Are All the Houses? The number of homes for sale is near an all-time low. It's like a game of musical chairs, but there aren't enough chairs.

4. Mortgage Rate Madness: This week we saw rates shoot up past 7% again. This is a breakout chart pattern we don’t like to see!

5. Cash is King: A whopping one-third of U.S. home purchases are in cold, hard cash. This isn't Monopoly, folks. These cash wars are driving prices to the moon.

6. The Affordability Phenomenon: Modestly priced homes? Hotcakes. Homes over $500k? They're gathering more dust than an attic.

7. Investor Antics: Investors own 1 in 10 homes up for grabs. But here's the kicker: they're slowing down in 2023. And when they do buy? They're snapping up those affordable homes with all-cash offers.

8. Renting Renaissance: More folks are choosing to rent in major U.S. cities. Why buy the cow when you can get the milk for cheaper? After all, there are only 4 major U.S. metro areas where it’s cheaper to buy than rent!

9. The Airbnb Effect: Platforms like Airbnb and VRBO are gobbling up the housing supply like Pac-Man, driving up neighborhood prices.

10. Flip or Flop: House flipping is nosediving. Bad news bears for real estate investors.

In a nutshell? Keep your eyes peeled and your wallets ready…

We think we could see lower house prices in the near future! 🎢🏠📉

Why Disinflation Isn’t Making Consumers Feel Better 👎

We received the most recent CPI (Consumer Price Index) report and it’s showing that inflation is staying pretty calm.

Even though we’ve seen a slight uptick in the inflation rate from 3% to 3.2%, we’re seeing the overall trend as a positive with future disinflation expected (fingers crossed).

Inflation is a measure of cost changes across a basket of goods and services like gasoline, electricity, used and new cars, food away from home (restaurants), and more.

When looking at the inflation data, you can view month-over-month price changes, or year-over-year changes.

When looking at year-over-year changes in the prices of goods and services, it’s clear to see why some consumers may still be feeling the pinch financially.

Let’s start with the GOOD 😊:

When looking at important major categories like gasoline, gas for a home, used cars and even medical care services, it looks like consumers have gotten relief and prices have come down.

Even airline fares ✈️ are down -18.6%.

Now, onto the BAD 😵:

It’s clear that on a year-over-year basis, way more categories are showing prices are still UP year-over-year.

They are important things that consumers feel on a day to day basis, like food, electricity and shelter.

When you dive deeper into the inflation category breakdown, you see some pretty shocking year-over-year price increases.

Here are some that stood out (price change from 1-year ago July 2022 to July 2023):

• Motor Vehicle Repair: +19.5%

• White Bread: +10.7%

• Frozen Vegetables: +17.1%

• Pet Food: +10.6%

• Veterinarian Services: +10.6%

• Tax Return Prep & Accounting: +14.4%

I’d say it’s pretty explainable why consumers are feeling the pinch even though they have had some help in certain categories declining year-over-year like energy.

Unfortunately, things still feel pretty costly in many other categories that are more-so everyday spending items for households.

Fed's Crypto Clampdown: PayPal, Beware! ⚠️

The Fed’s got their eyes set on any bank cozying up with the cryptoverse, especially those dabbling with stablecoins.

In a nutshell, the Fed's new "novel activities supervision program" is like having a hawk-eyed grandma watching over your shoulder while you try to sneak a cookie.

They've got specialized crypto experts teaming up with regular supervisors to ensure banks play nice with digital assets.

Here's the kicker:

Banks wanting to issue, hold, or transact in dollar tokens (like those shiny new PayPal stablecoins) need a golden ticket from the Fed.

Banks have to prove they can handle the risks, from money laundering to cyberattacks…

And the Fed is scrutinizing everything, from how banks handle mass redemptions to their cybersecurity measures.

But wait, there's more!

The Fed's program isn't just about stablecoins.

They're also peeking into blockchain tech and tech-driven nonbank partnerships.

Their goal is to sprinkle some old-school oversight on these new-age tech activities, ensuring the banking system remains sturdy.

This move is just another layer on the Fed's crypto cake, following their January 27, 2023 policy.

Other Regulators Joining the Party

The Fed isn't dancing alone. Other regulatory bigwigs are also shaking their tail feathers:

FDIC: They've raised eyebrows at a slew of crypto risks, from consumer protection to cybersecurity.

Banks under FDIC's watchful eye need to prove they can handle crypto safely. More on their stance here.

OCC: They've been dishing out letters like hotcakes, detailing how national banks can (and can't) play with crypto.

The latest, Interpretive Letter #1179, is like a strict school principal, setting high expectations and possibly hinting at limiting crypto activities.

What's Next?

While the crypto community was popping champagne after President Biden's March 9, 2022, Executive Order, the recent actions of the Fed, FDIC, and OCC might just be party poopers.

From decentralized finance to non-fungible tokens, regulators are casting a wide net. The cryptoverse is in the midst of a regulatory tornado, and it's getting wilder by the minute.

One Metric Every Investor Needs To Know 🔑

It doesn’t matter if you’re an active investor (picking individual stocks), or a passive investor (buying index funds/ETF’s)… you NEED to know this very important metric.

The price-to-earnings (P/E) ratio.

We use it to see how expensive, cheap, or fair valued the S&P 500 is, and using it will keep you from making major investor mistakes like:

1. Selling stocks at the wrong time

2. Buying stocks at the wrong time

3. Getting overly emotional about the market

You might be thinking, “well, I only invest in index funds, so I don’t have to worry about that.”

That’s where you’re wrong.

A lot of people who do index fund investing make mistakes with their portfolios.

They avoid buying stocks to wait for a crash that never comes (and miss out on gains), or pull all of their money out of the market at the wrong times due to fear.

We see it time and time again.

Plus, wouldn’t it feel great to be able to add to your portfolio when the stock market is on “sale” to improve forward returns?

So let’s break this sacred ratio down.

Price = The price of the S&P 500 index

Divided by ➗

Earnings = The earnings per share expected for the S&P 500 index

So let’s use the estimated forward earnings of the S&P 500 as it stands today.

According to Factset, we’re expecting roughly $230 of earnings per share in the S&P 500.

The current price of the S&P 500 is $4,535.

So the math is:

$4,535

Divided by

$230 =

19.7 PE Ratio

So looking at PE ratios charted for the small, mid and large cap indices, it may help put things together:

We can see visually where PE ratios have historically been.

The lower the ratio goes, the more potential “value” you might be getting in stocks.

We can see that the S&P 500 PE ratio currently is not showing expensive, but it’s not screaming value either.

Unlike the small and mid cap stocks (blue & green line) which show valuations close to recession levels!

So, the biggest takeaway from the PE ratio?

It helps us get a little more of an edge on other investors and keep a more grounded stance on markets.

We can see where we are in relation to historic levels, and that is a valuable piece of information when everyone around is spitting overly bearish or overly bullish narratives.

This Week’s We Talk Money Episode 🎙️

We got an economic news announcement this morning that’s terrifying for the real estate market…

And it looks like things are about to get ugly!

In this episode, you’ll learn:

• The massive bet against the housing market

• Signs that Bitcoin has massive upside potential

• Trends and themes we’re investing in now

• And answering your questions!

Delicious Bites 😋

• The simple way to become a bitcoin millionaire

• Retirees Face $17,400 Cut to Social Security Benefits in 2033

• Why consumers may still be hurting in the face of lower inflation

• Risks of AI in the hands of criminals

• SEC Likely to Approve Several Spot ETFs

Food For Thought 🧠

"Rule No. 1: Most things will prove to be cyclical.
Rule No. 2: Some of the greatest opportunities for gain and loss come when other people forget Rule No. 1.”
- Howard Marks

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.