Juggling Dynamite

Many people believe that “rich people always have money.” What is typically overlooked is that people with higher incomes tend to have higher overhead and debt levels, and any savings they have are often invested in risky asset markets. This magnifies vulnerability to downturns in the economy, income, and stock market, eventually intensifying liquidation cycles.

Most people borrow heavily to buy their real estate. Even those with multi-million-dollar homes tend to have mortgages and other kinds of debt, believe it or not.

Erisk Sykes, of Sykes Property, explains it well in the segment below:

“I work Manhattan, the Hamptons, Palm Beach, Miami, entry levels below $2 million, that stayed strong. Those people expect to have a mortgage. They’ve already factored it in. We’ve seen prices adjust accordingly. Now in the 2 to $10 million, which I call the keeping up with the Joneses sector in those particular markets. And granted, those numbers change depending on a your portion of the country, but the keeping up with the Joneses are the ones who have been hit with the one two punch. Not only are they beholden to elevated mortgage rates, but they’ve also seen some challenge on, you know, either their stock portfolio or in terms of the job market. They have seen this lifestyle creep where they have been exposed to ultra low rates and borrowing potential over the last decade. Now, they’ve gotten used to a certain comfortability, and it’s just not in their wheelhouse anymore in terms of affordability.”

Here is a direct video link.

US new home sales were off 13.7% month over month in May, double the 6.7% drop forecast. At the same time, the new home supply, at 9.8 months in June, is the highest since 2006, with the number of new US homes for sale the highest since October 2007 (as shown below since 1990).

In the first quarter, the median new US home price of $403,600 (approximately five times the median household income) was down approximately 7.5% from its peak in late 2022.

Not reflected in this figure are the concessions that new home builders have made in ‘free’ upgrades, giveaways and mortgage rate buydowns to entice people to buy at current prices. This hurts homebuilder profits.

The iShares US Home Construction ETF (XHB) is currently down approximately 20.5% from its peak earlier this year. During the 2007-2009 housing downturn, US home builder shares declined by 81.6% (a 47.7% drop in 2007 and an additional 36.8% in 2008).

The median US home price fell from an average of $305,800 in 2007 to $272,900 in 2009 — a drop of nearly 14%. More inclusive measures, such as the S&P/Case-Shiller index, indicate a 30% fall from the mid‑2006 peak to the depth of the crisis (2008–2009).

There is no evidence that the current housing cycle is bottoming anytime soon.

An insightful overview in this segment. Happy Friday!

Guy Adami and Dan Nathan host economist ⁠David Rosenberg⁠ of ⁠Rosenberg Research⁠ on the RiskReversal podcast to discuss the state of the market, economic conditions, and geopolitical factors. Rosenberg outlines the volatility seen in the S&P 500, emphasizing that recent market moves are sentiment and momentum-driven rather than based on fundamentals. He highlights concerns about a potential topping formation in the market and discusses the impact of tariff policies, the labor market, the housing market, and global geopolitical tensions, particularly around Israel and Iran. Rosenberg also shares his views on inflation, interest rates, and the potential for recession, suggesting that the economy may already be contracting. The discussion concludes with a focus on risks in the private equity and debt markets and the potential for pension funds to be the center of the next financial crisis. Here is a direct video link.

Stock bulls cite prices back near all-time highs as a self-fulfilling prophecy for financial resiliency. After rebounding 22% since the April 8 lows, the S&P 500 is now +3.5% year to date and .90% below its February high.

Another way to say this is that large-cap stocks have returned to extreme capital risk and overvaluation (S&P 500 forward PE of 22x, TSX 18.5x), while underperforming short-term Treasuries over the past seven months.

At the same time, since mid-January, as Treasury prices have quietly rallied, US 10-year yields are 48 basis points lower, while oil (WTI) remains -18% despite a steady stream of Middle East terror.

The June 18 peak for WTI was $75 per barrel and $120 in June 2022 following Russia’s invasion of Ukraine. The overarching factors remain a slowing global economy, accompanied by steadily rising total primary energy supply from fossil fuels, nuclear, and renewable sources (IEA’s Global Energy Review 2025).

Growth bulls further cite a historically low US unemployment rate of 4.2% as proof of happy days, even though unemployment, like the consumer price index, is one of the most lagging economic indicators. Less mentioned is that May’s labour force participation rate declined by 0.2 percentage points to 62.4%, matching February’s two-year low, while the employment-population ratio declined by 0.3 percentage points to 59.7%–the lowest level since January 2022. Canada’s job market is weaker than the US’s, despite the Bank of Canada having already lowered its policy rate from 5 to 2.75%.

US non-farm payrolls (NFP) are generally considered a coincident to slightly lagging economic indicator. As it turns out, over the past 12 months, non-farm payrolls have been consistently revised lower after initial better-than-expected announcements, by an average of 30,000 jobs per month.

Despite Fed Chair Jerome Powell’s insistence that the “solid” job market suggests financial easing is not required, economist Eric Basmajian explains the signal behind the inflated NFP noise in the segment below.

Current data suggests we are adding ~1.6 million jobs per year. The pace is likely closer to 1.25 million, a 20% difference. pic.twitter.com/ewtGLdMqHL

— Eric Basmajian (@EPBResearch) June 23, 2025

This video highlights the subtle cracks forming in the US labor market.  Here is a direct video link.

The trouble is that once the lagging data gets revised down to reality, and the US Fed starts cutting, it is generally too late for complacent masses to find shelter from financial harm.