Current Affairs
August 19, 2022
Housing Viewpoint
Housing hurts: Stocks look past dismal data
August 19, 2022
By Lindsey Bell, chief markets & money strategist for Ally
Housing data has been depressing.
When talk of a recession comes up, housing weakness is a typical justification as to why we are in a recession. But what if bad news is good news? Hear me out.
In general, stocks “price in” bad news early and they tend to rebound before the worst shows up in the economic data. Stocks are forward looking, and economic data is mostly backward looking. Lately, the stock market has been effectively absorbing weak economic data. Housing-related data has accounted for a lot of that data, but not all of it. Could it be that the market is beginning to bet on the economy bottoming soon (if not already), and quickly moving past all this negative news?
Let’s look at the housing market for clues.
The bad news first
Brace yourself, this isn’t pretty. You don’t have to look far to see a bleak housing picture. New and existing home sales have fallen dramatically. This week we learned July existing homes sales declines are picking up steam, with July marking the 12th consecutive month of decline. Not surprisingly, homebuilder sentiment plunged into contraction territory for the month of August, which was the first reading under the key 50 level since the onset of COVID.
That’s not all. Housing starts, a key indicator of economic activity, declined nearly 10% in July. Meanwhile, more prospective home buyers are backing out of deals. Data from Redfin show 16% of homes that went under contract last month fell through, up from just 12.5% in July last year. Why are folks pulling out of deals? It’s not employment concerns, as the jobs market remains robust. It’s likely an affordability issue as home prices and borrowing costs rise together. The National Association of Realtors confirmed what so many would-be first-time buyers feel: Affordability is at the lowest level since June 1989.
What’s moving in the right direction
I told you that was going to be depressing. Now that we got that out of the way, let’s talk about glimmers of hope underneath the surface. Inventory of existing homes for sale has been rising, and at 3.3 months’ supply its the highest level since August 2020. Granted, there is still much work to be done as that level is still below the 6 months of supply that is historically considered balanced for the housing market. Home prices are starting to moderate from the double digit increases that became the norm in the post-pandemic world. Over time, more houses on the market at lower prices will spur demand.
Another silver lining in the housing market is commodity prices easing: The price of lumber is down 65% from its pandemic high. As the input costs decline, it becomes cheaper to build a house. Another positive trend lately has been moderation and stabilization in the mortgage rate market. After surging above 6% in June, the average rate for a conventional 30-year mortgage has settled into the 5% to 5.5% range for now. Maybe the market is realizing that under any scenario (a hard landing, soft landing, or something in between) peak rates may be in. These types of trends are important to improve the affordability constraint on many looking for a home.
Finding strength in housing stocks
Despite what feels like a long road ahead for the housing market, price action in housing-related stocks is telling a more upbeat story. Since mid-June, the S&P Homebuilders ETF (XHB) has gained 30%, well above the 17% gain in the S&P 500 over the same time period.
The pop in the homebuilders ETF follows a 40% plunge between December and its June low. Over that period, investors priced in a severe slowdown in housing activity before much of the negative economic data was even seen.
To be sure, many of the homebuilders expect demand for new homes to cool in the coming months, driven by interest rates and inflationary pressures. Despite this outlook, the stocks reacted well to recent earnings reports. And while their price-to-earnings ratio has begun to lift off depressed levels, their valuations remain cheap by historical standards.
Looking beyond the homebuilders, shares of home improvement retailers Home Depot and Lowe’s have also performed better than the broad market during the summer rally. This week both companies provided guidance that were better than feared and suggested demand for home projects is improving.
While none of these housing focused companies signaled an all-clear signal, investors seem to be focused on the possibility of better times ahead for housing.
The bottom line
The housing market needs to cool off. There are indications that is happening, and it’s not crushing the economy. I see the sharp rally in homebuilder stocks as a sign that the worst could be in the rearview mirror for investors and recent economic gauges point to some normalization occurring over time.
August 16, 2022
Mattress Update
Cool, Sustainable, Feature-Rich Foams in Demand
Value-added offerings help manufacturers bolster higher-priced mattress collections
Value-added polyurethane foams are in high demand in the mattress marketplace, producers say. And they are adding features that today’s consumers want, such as cool-sleeping and sustainable foams and foams offering a variety of health benefits.
Producers say they have added foams and will introduce more soon to help mattress makers stand apart from the competition and to bolster their mattress offerings at higher price points.
While consumer demand for mattresses is down, the polyurethane foam producers are not slowing their efforts to develop innovative products for mattress makers, they say.
“Customers are looking for products and solutions that offer them some sort of value added,” says Chris Bradley, executive vice president of consumer products at Mount Airy, North Carolina-based NCFI Polyurethanes. “Whether that’s reduced cost or a tangible benefit such as cooling, customers are looking for an advantage.”
Polyurethane foam producers are not slowing their efforts to develop innovative products.
Read more here: https://bedtimesmagazine.com/2022/08/cool-sustainable-feature-rich-foams-in-demand/
August 16, 2022
Mattress Update
Cool, Sustainable, Feature-Rich Foams in Demand
Value-added offerings help manufacturers bolster higher-priced mattress collections
Value-added polyurethane foams are in high demand in the mattress marketplace, producers say. And they are adding features that today’s consumers want, such as cool-sleeping and sustainable foams and foams offering a variety of health benefits.
Producers say they have added foams and will introduce more soon to help mattress makers stand apart from the competition and to bolster their mattress offerings at higher price points.
While consumer demand for mattresses is down, the polyurethane foam producers are not slowing their efforts to develop innovative products for mattress makers, they say.
“Customers are looking for products and solutions that offer them some sort of value added,” says Chris Bradley, executive vice president of consumer products at Mount Airy, North Carolina-based NCFI Polyurethanes. “Whether that’s reduced cost or a tangible benefit such as cooling, customers are looking for an advantage.”
Polyurethane foam producers are not slowing their efforts to develop innovative products.
Read more here: https://bedtimesmagazine.com/2022/08/cool-sustainable-feature-rich-foams-in-demand/
August 12, 2022
Rhine River Update
Rhine River One Centimeter From Danger Zone
by Tyler DurdenFriday, Aug 12, 2022 – 09:00 AM
Update (0900ET): The water level on the Rhine River at Kaub, Germany, a key point on the inland waterway west of Frankfurt, is one centimeter (.40 inches) from breaching 40 centimeters (15.7 inches), which below that level could severely impact barge shipments.
Toril Bosoni, head of the IEA’s oil market division, said the Rhine’s low water crisis would remain a problem through the end of the year, making it very challenging for landlocked countries in central and eastern Europe to receive crude product deliveries via barges.
On Friday morning, water levels at Kaub were 41 centimeters (16.15 inches), with new estimates from the German Federal Waterways and Shipping Administration indicating the level could drop even further by the end of the weekend or early next week to 33 centimeters (12.9 inches).
Barges have been hauling “significantly less” goods — including crude oil and coal, but still can transit the waterway, German newspaper Frankfurter Allgemeine Sonntagszeitung said, citing an interview with the head of Federal Waterways and Shipping Administration Hans-Heinrich Witte.
Witte said, “it’s possible, but I don’t think it’s likely” a shipping halt on the waterway would occur. However, a level of 33 centimeters (12.9 inches) in 2018 was enough to shutter parts of the Rhine and spark economic pains for Germany.
Earlier this week, we pointed out that a handful of major companies along the Rhine that relies on barge shipments have made alternative plans, such as trucking and rail, to continue operations.
A reduction in barge transport capacity has increased the cost of shipping exponentially.
Gunther Jaegers, managing director at Rhine stalwart Reederei Jaegers GmbH, told Bloomberg that the barge rate jumped 30% in one day earlier this month. He said, “I’ve never, ever, seen this … it’s insane.”
Joachim Hessler, managing director at shipping company Maintank GmbH, said declining water levels at Kaub could soon “mean ‘game over’ for more and more barges.”
For some context to the last closure of the waterway, current water levels for this time in 2018 are much lower.
The Kiel Institute for the World Economy warned barge disruptions would likely dent German economic putout.
* * *
Water levels on the Rhine River are set to drop below a critically low point by the end of this week, making it increasingly difficult for barge transport of goods — including crude oil and coal — as one of the worst energy crises in decades batters Europe.
We noted Wednesday that further up the Rhine is Kaub, Germany, a bottleneck for barges where the river is very narrow and shallow and could fall below 40 centimeters (15.7 inches) by the end of the week. A drop below that level would make it nearly impossible for barges to transit the stretch of the waterway.
New data from the German Federal Waterways and Shipping Administration expects water levels at the key waypoint west of Frankfurt could plunge to 33 centimeters (12.9 inches) by Monday. This extremely low level would mean most barges hauling commodities on Europe’s most important inland waterway that snakes 800 miles (1,300 kilometers) from the Swiss Alps through the largest industrial areas on the continent would be unable to sail through Kaub.
“This is particularly the case for the Rhine, whose nautical bottleneck at Kaub has very low water levels but which remains navigable for ships with small drafts,” said Tim Alexandrin, a spokesman for Germany’s Transport Ministry. Though by the end of the weekend or early next week, Kaub could potentially fall to 33 centimeters would put it within centimeters of the low levels recorded in October 2018 that led to a shuttering of the waterway.
“The situation is quite dramatic, but not as dramatic yet as in 2018,” said Christian Lorenz, a spokesman for the German logistics company HGK.
Factories on the Rhine are heavily reliant on barge transport. About 4% of freight moved in Germany is carried on waterways, including the Rhine. If sinking water levels at Kaub breach 40 centimeters and fall further early next week, then Germany’s industrial heartland would be in trouble, and the energy crisis would be exacerbated.
The 2018 closure of the Kaub area shaved .2 percent off German GDP that year, Deutsche Bank economist Marc Schattenberg told AFP.
“The low levels have come much earlier this time,” Schattenberg said, adding, “if problems we are now observing last longer (than in 2018), the loss of economic value becomes all the more serious.”
Last week, multiple companies along the Rhine reportedly shifted barge transport to trucking and rail networks to avoid logistical headaches on the river.
The International Energy Agency warned Thursday that low water levels at Kaub could worsen supply chain disruptions through late this year.
“The product supply situation in central and eastern Europe was already very tight before this latest crisis,” Toril Bosoni, head of the IEA’s oil market division, said in a Bloomberg television interview. “The low water levels make it more costly to get fuel from the seaborne market into that region.”
“This is concerning for landlocked countries that normally get fuel on the Rhine, Bosoni added. “So we’re expecting this situation to continue towards the end of the year.”
Andrew Kenningham, the chief Europe economist for Capital Economics, said Germany’s economic growth will be flat in Q3 and a contraction in the last three months of the year, “the low water level in the Rhine simply makes a recession even more likely.”
August 12, 2022
Rhine River Update
Rhine River One Centimeter From Danger Zone
by Tyler DurdenFriday, Aug 12, 2022 – 09:00 AM
Update (0900ET): The water level on the Rhine River at Kaub, Germany, a key point on the inland waterway west of Frankfurt, is one centimeter (.40 inches) from breaching 40 centimeters (15.7 inches), which below that level could severely impact barge shipments.
Toril Bosoni, head of the IEA’s oil market division, said the Rhine’s low water crisis would remain a problem through the end of the year, making it very challenging for landlocked countries in central and eastern Europe to receive crude product deliveries via barges.
On Friday morning, water levels at Kaub were 41 centimeters (16.15 inches), with new estimates from the German Federal Waterways and Shipping Administration indicating the level could drop even further by the end of the weekend or early next week to 33 centimeters (12.9 inches).
Barges have been hauling “significantly less” goods — including crude oil and coal, but still can transit the waterway, German newspaper Frankfurter Allgemeine Sonntagszeitung said, citing an interview with the head of Federal Waterways and Shipping Administration Hans-Heinrich Witte.
Witte said, “it’s possible, but I don’t think it’s likely” a shipping halt on the waterway would occur. However, a level of 33 centimeters (12.9 inches) in 2018 was enough to shutter parts of the Rhine and spark economic pains for Germany.
Earlier this week, we pointed out that a handful of major companies along the Rhine that relies on barge shipments have made alternative plans, such as trucking and rail, to continue operations.
A reduction in barge transport capacity has increased the cost of shipping exponentially.
Gunther Jaegers, managing director at Rhine stalwart Reederei Jaegers GmbH, told Bloomberg that the barge rate jumped 30% in one day earlier this month. He said, “I’ve never, ever, seen this … it’s insane.”
Joachim Hessler, managing director at shipping company Maintank GmbH, said declining water levels at Kaub could soon “mean ‘game over’ for more and more barges.”
For some context to the last closure of the waterway, current water levels for this time in 2018 are much lower.
The Kiel Institute for the World Economy warned barge disruptions would likely dent German economic putout.
* * *
Water levels on the Rhine River are set to drop below a critically low point by the end of this week, making it increasingly difficult for barge transport of goods — including crude oil and coal — as one of the worst energy crises in decades batters Europe.
We noted Wednesday that further up the Rhine is Kaub, Germany, a bottleneck for barges where the river is very narrow and shallow and could fall below 40 centimeters (15.7 inches) by the end of the week. A drop below that level would make it nearly impossible for barges to transit the stretch of the waterway.
New data from the German Federal Waterways and Shipping Administration expects water levels at the key waypoint west of Frankfurt could plunge to 33 centimeters (12.9 inches) by Monday. This extremely low level would mean most barges hauling commodities on Europe’s most important inland waterway that snakes 800 miles (1,300 kilometers) from the Swiss Alps through the largest industrial areas on the continent would be unable to sail through Kaub.
“This is particularly the case for the Rhine, whose nautical bottleneck at Kaub has very low water levels but which remains navigable for ships with small drafts,” said Tim Alexandrin, a spokesman for Germany’s Transport Ministry. Though by the end of the weekend or early next week, Kaub could potentially fall to 33 centimeters would put it within centimeters of the low levels recorded in October 2018 that led to a shuttering of the waterway.
“The situation is quite dramatic, but not as dramatic yet as in 2018,” said Christian Lorenz, a spokesman for the German logistics company HGK.
Factories on the Rhine are heavily reliant on barge transport. About 4% of freight moved in Germany is carried on waterways, including the Rhine. If sinking water levels at Kaub breach 40 centimeters and fall further early next week, then Germany’s industrial heartland would be in trouble, and the energy crisis would be exacerbated.
The 2018 closure of the Kaub area shaved .2 percent off German GDP that year, Deutsche Bank economist Marc Schattenberg told AFP.
“The low levels have come much earlier this time,” Schattenberg said, adding, “if problems we are now observing last longer (than in 2018), the loss of economic value becomes all the more serious.”
Last week, multiple companies along the Rhine reportedly shifted barge transport to trucking and rail networks to avoid logistical headaches on the river.
The International Energy Agency warned Thursday that low water levels at Kaub could worsen supply chain disruptions through late this year.
“The product supply situation in central and eastern Europe was already very tight before this latest crisis,” Toril Bosoni, head of the IEA’s oil market division, said in a Bloomberg television interview. “The low water levels make it more costly to get fuel from the seaborne market into that region.”
“This is concerning for landlocked countries that normally get fuel on the Rhine, Bosoni added. “So we’re expecting this situation to continue towards the end of the year.”
Andrew Kenningham, the chief Europe economist for Capital Economics, said Germany’s economic growth will be flat in Q3 and a contraction in the last three months of the year, “the low water level in the Rhine simply makes a recession even more likely.”
Everchem Updates Archive 
Sign Up for Email Updates
