Housing Market Rollercoaster

US housing data shows contrasting trends... [The Daily Peel... ]( November 30, 2023 | Peel #596 Silver banana goes to... [SRS Acquiom. ]( In this issue of the Peel: - US housing data shows contrasting trends: a steep drop in the median sale price of new homes but an all-time high in the broader housing market, according to the S&P CoreLogic Case-Shiller Index. - GameStop’s stock soared ahead of its quarterly report, indicating a resurgence in meme stock mania, while CrowdStrike impressed with strong earnings. Conversely, Cigna and Petco faced significant stock declines due to merger concerns and weak earnings, respectively. - The SEC’s enforcement methods are being challenged in the Supreme Court, raising constitutional questions. Market Snapshot Happy Thursday, apes. PSA: Nobody cares about your Spotify / Apple Music Wrapped. Let’s all do each other and Instagram’s servers a bit of a favor here and get back to posting the things that matter, like links to a news article you read the headline of that—still no one will care about—especially if it’s the Daily Peel! Alright, we’re done being haters (for now) despite the fact that some parts of the equity market definitely gave us reason to hate yesterday. It was a mixed day on Wall Street as large caps were out and small caps were in. The Russell 2k led the day with a 0.53% gain while the Dow was flat and the S&P and Nasdaq were both lower. The Real Estate sector led, which is one of the largest segments of the Russell, while Consumer Staples brought up the rear. Over at WSO Alpha, we found several empty crayon boxes strewn about in their corner of the office while all the analysts appeared to have weird mixes of color all around their mouths…No idea what happened there, but whatever it was certainly helped contribute to the 0.1% loss achieved yesterday. Thanks, team! Treasury yields, in the meantime, were mixed as well, with longer-dated and extremely-short-dated yields mostly rising while intermediary-term yields moved lower. The 10-year settled close to 4.27% while the 2-year is steady, vibing near the 4.65% level. Let’s get into it. Up Your M&A Game with Exclusive Deal Intel [image]( Gordon Gekko said it right: “The most valuable commodity I know of is information.” By that measure, SRS Acquiom is loaded—and we’re always happy to share the wealth. Take our Private M&A Deal Terms Quick Reference Guide. It draws on data from more than 3,400 private-target transactions to equip you with the exclusive deal terms and claims insights you need to keep delivering the absolute best results for your clients. We’ve consolidated everything into a tight four pages of quick-hit graphs, charts, and takeaways particularly pertinent to investment bankers like you. Less time required to read it means more time available to use it. But “it” is still all there: buyer type behaviors, due diligence trends, post-closing factors that can impact your pitch…you get the idea. Did we mention it’s free? [It’s all right here]( >> Banana Bits - In the literal definition of “f*ck you money,” Elon Musk told advertisers—to their faces—to “[go f*ck yourself](” if they don’t want to advertise on X…and yes, it was just as entertaining as it sounds. Check out the video [here](=). - An update on [unrealized losses](=) in the banking system if you’re feeling dangerous this morning - Snowflake [earnings]( dropped after the bell yesterday, much to the liking of investors. - Controversial yet influential American diplomat [Henry Kissinger](=) passed away yesterday at 100 years old. Macro Monkey Says A House for Housing Data This is exactly the problem. On Tuesday, if your memory is better than mine and you actually recall that far back, we (apparently) discussed recent trends in home prices across the US via the latest readings on median sale prices of new homes across the country. In case you don’t recall, this reading posted the fattest drop in the median sale price of new homes the US had ever seen, as far as records go back, dropping by 17.6% compared to last year. Now, as discussed on Tuesday, that annual drop had a starting point of October, 2022, when the median sale price of new homes was at a legit all-time high, per [FRED data](=). This should be kept in mind as a caveat, but given this massive drop reported on Monday and the data we got from Case-Shiller yesterday, well, Houston, we have a problem. The comically long-named “S&P CoreLogic Case-Shiller US National Home Price NSA Index” (yes, that’s really the [official name]()) measures changes in national home prices across the US in the broadest possible sense. So, it’s inclusive of existing homes and uses a repeat-sales methodology to deduce changes in home values. Believe it or not, this is the standard practice for home price indexes. "The comically long-named “S&P CoreLogic Case-Shiller US National Home Price NSA Index” ... measures changes in national home prices across the US in the broadest possible sense." Yesterday, we learned that the Case-Shiller index rose 3.9% annually to a brand new all-time high in September—already 2 months ago. That change reflects a 3-month rolling average as well so that 3.9% figure incorporates data from all the way back in July, when the Fed was still raising rates! So, by one reading, home prices in the broadest measurable sense are at an all-time high in the US. By another reading, new homes saw the steepest drop in history last month. Keep in mind that Case-Shiller doesn’t reflect October 2023 just yet (useless), and new homes account for only ~[1/6th]() of the US housing market, meaning that this is far from a 1-to-1 comparison. But it’s indicative of a big problem. In a world where reporting home price data from several months ago has become about as timely as if someone were to launch a horse-and-buggy startup to compete with Tesla, Case-Shiller has become all but useless. However, it is still widely used as the industry standard. It will be interesting to see the Case-Shiller data once it incorporates the October figures to see if any sense starts to be made, but we have plenty of time to wait for that. Further, the housing market is (supposed to be) a leading indicator of the US economy. Homes are also the single biggest asset for most Americans and a huge portion of economic activity, so knowing in a timely manner what’s going on with prices is fairly important. "... imagine if most of your wealth was tied up in a stock and ... you only got the benchmark data 2 months late and on a rolling basis." I mean, imagine if most of your wealth was tied up in a stock and, in order to compare your performance to the benchmark, you only got the benchmark data 2 months late and on a rolling basis. Even further, economists like those at the Central Bank use housing market data to make decisions on the most important base economic factors, like, oh, I don’t know, just a little thing called interest rate decisions! Now, they don’t use Case-Shiller. In fact, it’s even worse. “Owner’s equivalent rent,” which generally makes up >1/3rd of the whole CPI reading, is the metric used for shelter costs in that headline inflation reading. This is calculated literally by calling people and asking them how much they think they could rent their house for—do we even need to point out the problems here?? New collection methods for housing data are in dire need. Knowing what’s going on now, not what happened 5 months ago, is crucial in a digital age when we can already use Zillow, Redfin, and plenty of other aggregators to get real-time data on home values. Fortunately, Redfin is already trying to save us with the Redfin Home Price Index (RHPI), which issued its inaugural reading earlier this week, showing US home prices rising 2.2% in October compared to a year ago. That growth rate is 43% lower than the 3.9% reported by Case-Shiller, and Redfin doesn’t show home prices at an all-time high. If you want to continue diving into the problems of the US housing market beyond just the simple data collection, go ahead and check our brilliant, poetic coverage from Tuesday. If you’re not mad enough already, you sure will be then. Again, happy Thursday! What's Ripe GameStop (GME) ↑ 20.33% ↑ - F*ck me, how is this sh*t happening again? Alright, sorry for the swearing, but it looks like meme stock mania is once again seeking to mount a legendary comeback. - As such, shares in the OG kingpin of meme stocks, GameStop, surged just a few days prior to the release of the company’s latest quarterly report, set to come on December 6th. - Maybe GameStop’s NFT exchange they floated has exploded, and just literally no one on Earth has noticed, or maybe the anticipated release of the GTA 6 trailer has investors excited for the additional sales to come along with that…despite it being likely over 2 years away from release and primarily sold by other companies. - Of course, we can hate on this as much as we want, but people are still out here making money. As [Unusual Whales](=) points out on X, one trader turned $70k into $1.28mn in TWO DAYS from GME calls. While the rest of us are just trying to achieve liftoff, this guy’s already on the moon. CrowdStrike (CRWD) ↑ 10.40% ↑ - Turns out protecting information for people and companies actually is valuable—not that Okta would know, obviously. Thankfully, for both customers and now shareholders, too, CrowdStrike got the memo. - The cybersecurity name released earnings late on Tuesday showing a massive 35% jump in total revenue, reaching $786mn and easily beating estimates for $777mn. EPS of $0.82/sh also beat by a respectable margin against estimates for $0.74/sh. - For investors, what was even more exciting was the breakdown of those revenue figures, showing recurring revenue paid via subscription maintained at an ultra-high rate of ~93%. Investors are about as addicted to recurring revenue as your dog is to his favorite treats—neither one can get enough. - Guidance was solid, too, projecting ~31.5% annual revenue growth in the fourth quarter. After results like this, bulls better keep their fingers crossed that the stock can keep this up. (Lmao get it? Up…like the share price yesterday…alright, I’m sorry). What's Rotten Cigna Group (CI) ↓ 8.14% ↓ - Now, we all know that healthcare in the US isn’t perfect. For example, one thing I always think when I’m unfortunate enough to have to deal with these companies is, “damn, that sucked, but I wish there was an even bigger health insurer that was larger, more complicated, and if I’m lucky, even more expensive!” - Thankfully, Cigna and Humana are here to help. The $77bn and $60bn health insurance providers signaled a potential mega-merger between the nation’s largest health insurers—exactly what we needed. - Of course, this would be one of the largest deals in the history of Corporate America. It is also almost sure to stir antitrust concerns, but Cigna’s signaling of a desire to divest their Medicare Advantage business earlier this year could be indicative of preparing concessions to the FTC in order for this deal to go through. - Still, the FTC doesn’t like Amazon’s move to try and scoop up iRobot for $1.7bn, so we can’t imagine a mega-merger in a much more important industry would get any less scrutiny, even if they do sell off certain units. Petco (WOOF) ↓ 28.91% ↓ - Your dog needs a new toy. That’s not me telling you that; that’s Petco CEO Ron Coughlin telling—no, begging—you to go buy more stuffed animals for Sparky that he can turn around and tear apart. - Unfortunately, when Ron begs, he looks a lot less cute than your dog, despite the fact that Sparky undoubtedly agrees that he is in dire need of some new toys. Well, clearly, he didn’t get any last quarter as the pet goods provider tanked on earnings. - Petco reported a loss of $0.05/sh on $1.49bn in sales vs. estimates for earnings of $0.02/sh on $1.51bn. Missing on both was garbage enough, but the company was dumb enough to “be honest” or whatever and reduce guidance, too. - The company blames weak consumer spending for the lost quarter, but maybe if Sparky went out there, got his own job, and stopped freeloading, they’d have some customers to sell to. Thought Banana SEC Goes to SC Everyone freaks out when scumbags like Jake or Logan Paul start fights, but no one bats an eye when the best fights of all are going down right before our very eyes. Nothing better than a government vs. government showdown. And that’s exactly the fight that we’re getting this week. The Securities and Exchange Commission (SEC), which oversees financial markets in the US, is going to the Supreme Court. The SEC, which we all know is Elon Musk’s [absolute favorite]( federal agency, has a 3-part mandate to: - protect investors, - maintain fair and orderly markets, and - facilitate capital formation. "We’re definitely not legal experts, but one thing we can say for certain is that Thomas Jefferson and James Madison would be pissed." And now, a common practice that has—prior to yesterday—been commonly accepted at the SEC is being challenged as “unconstitutional.” We’re definitely not legal experts, but one thing we can say for certain is that Thomas Jefferson and James Madison would be pissed. Back in 2007 and 2009, noted fraudster George Jarkesy founded two hedge funds with the assistance of a firm called Patriot28 as an investment adviser. The SEC determined that Jarkesy overstated the value of the fund’s claimed $24mn AUM and thus constituted fraud. So, on March 22nd, 2013, the SEC initiated enforcement against Jarkesy and Patriot28 for the alleged violation. But this is where it gets complicated. The Dodd-Frank Act, signed in 2010 and intended to clean up Wall Street following the GFC, gave the SEC the ability to enforce penalties via its own in-house administrative law judges (ALJs). These ALJs have the power to decide on rulings, impose penalties, and more. The problem comes, however, when we remember back to those days in APUSH, where we learned that all American citizens are entitled to a trial by a jury of their peers for criminal and civil violations at the federal level. As the SEC was imposing this enforcement on an alleged federal civil violation, Jarkesy challenged the ruling, claiming he was entitled to attend a trial at the will of a jury of his peers, not the SEC’s own judges. So, now, more than 10 full years after the initial enforcement action, the case has made its way to the Supreme Court. The blinding speed of the US government is on full display once again, but don’t worry. They’ll be sure to take their time in making a decision. And thank god because I’m sure they all need to catch their breath. "The blinding speed of the US government is on full display once again ... They’ll be sure to take their time in making a decision." The Supreme Court heard arguments that the SEC’s action violated 3 clauses of the US Constitution, including: - 7th Amendment: the right to a jury trial in federal civil cases - The Nondelegation Doctrine: Congress cannot delegate its legislative authority to any other body (in this case, including to agencies like the SEC) - Article II: interfering with the President’s ability to faithfully execute the law From the SEC’s perspective, these actions are done in the name of investor protection, and they, along with their supporters, sure have an army of arguments against these violations. Based on the rate at which this case has proceeded, we might see a ruling before AI takes over the world. Actually, wait, should we just ask ChatGPT who’s right? Damn, AI judges is a scary thought… The big question: For whom will the Supreme Court rule in favor? If Jarkesy, will all other federal agencies have to get rid of their own in-house judges? Banana Brain Teaser Yesterday — Two men, starting at the same point, walk in opposite directions for 4 meters, turn left, and walk another 3 meters. What is the distance between them? Answer 10 meters Today — What's the probability of rolling a 6-sided dice three times and getting a sum of 5? Shoot us your guesses at vyomesh@wallstreetoasis.com. Wise Investor Says “The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.”—Seth Klarman How would you rate today’s Peel? [All the bananas]() [Decent]( [Rotten AF]() Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? [Be smart like your friend](). 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