WHERE’S THE BOTTOM?

The totally data dependent GDPNow model is sinking fast! At 2.2%, it stands below the range of 20 economists. This after three 1% quarters…

BTW, the NY Fed Nowcast is also at +2.2% for Q3 (left), but at a shocking +1.2% for Q4. Yet, the market-based odds for a December hike now stand at 61%.

  

• Fed’s Evans Says Hike Imminent, Wants Clearer Communication

• U.S. Stocks Fall as Bets Move Toward Rate Increase

The bean counters see something else:

• 3rd Quarter GDP at 4% Thanks to Soybeans?

Meanwhile, via The Daily Shot:

Even though, as we saw this morning:

Apartment Rents Decline in Some Big Cities

Rents in San Francisco declined 3%, while they fell about 1% in New York and edged lower in Houston and San Jose, Calif., the first drops in those markets since 2010, according to apartment tracker MPF Research. Across the U.S., rent growth was 4.1% on average.

According to a report by Axiometrics Inc., growth in the U.S., slowed to 3% in the third quarter from 5.2% in the year-earlier period. The rate remains above the long-term average of about 2%, the report said.

But rent increases have slowed for four straight quarters and turned negative in key regions, suggesting the overall market could be headed lower. (…)

The foreclosure crisis, along with a trend toward urban living, has created seven million new renter households since the housing-market peak in 2006, as the homeownership rate declined to 51-year lows. (…)

Across the country, rents have jumped 22% in urban areas since 2010, according to Axiometrics. High-end apartments now command a 45% premium over older ones, while historically they have fetched about a third more, according to MPF. (…)

Rents for midprice apartments across the U.S. are still up 4.9% from the year before, according to MPF.

More affordable cities are seeing some of the strongest rent growth. Rents in Sacramento shot up 12% in the third quarter, while in Riverside, Calif., they jumped 7.9%, according to Axiometrics. (…)

The main cause of the rent slowdown is a flood of new supply, with more than 555,000 units under construction across the 100 largest U.S. metro areas, according to MPF. Tenants also are beginning to tighten their purse strings as rents have jumped by as much as 60% in some markets since 2010. Growth of high-paying jobs, meanwhile, is slowing in New York, San Francisco and nearby Silicon Valley. (…)

On the other hand, house prices have been rising 5%+ per year since 2014. Hence

• A Onetime Housing Skeptic Plans $1 Billion Bet on Homes

(…) Mr. Mullen, the onetime head of Goldman’s mortgage-and-credit business, is now pitching pensions, endowments and other large investors on a wager that, four years after the housing market hit bottom, rents and home prices will continue to rise.

“We believe tight credit availability is preventing new households from being able to obtain mortgages to purchase their first home,” Pretium wrote in its 69-page pitch to investors. “Households that have been unable to obtain mortgages have become renters, thus driving high occupancy rates and robust rent growth.” (…)

In its latest pitch, Pretium said it won’t likely find the bargains it once did. The firm plans to bulk up in ZIP Codes with favorable economic and demographic trends as it fine-tunes its portfolio of thousands of homes in an effort to build a potentially long-lasting rental business. It expects it will be able to buy homes in its target markets, which include Houston, Phoenix, Atlanta and Indianapolis, for roughly 20% less than it would cost to build similar homes. (…)

CalculatedRisk offers another analysis of the rental market:

• Reis: Apartment Vacancy Rate unchanged in Q3 at 4.4%

Reis reported that the apartment vacancy rate was at 4.4% in Q3 2016, unchanged from Q2, and up from 4.3% in Q3 2015. (…)

A few comments from Reis Economist Barbara Denham:

For the sixth quarter in a row, new construction exceeded net absorption in the apartment market but only by a slim margin: 37,744 in completed units to 37,693 absorbed units. …

Asking and effective rents both grew by 0.9% during the third quarter, slightly below last quarter’s growth of 1.1% and well short of the post-recovery high of 1.7% quarterly growth rate seen in Q3 2015. We had expected rent growth to slow so do not view this deceleration as cause for alarm. In fact, the gap between asking rents and effective rents – that net out concessions such as free rent – has not widened in the last few quarters which suggests that landlords generally remain confident that conditions will continue to improve in the wake of stronger job growth, although rents have declined in a few of the top submarkets. (…)

(Apartment vacancy data courtesy of Reis.)

We can stare at the chart as long as we want, it still looks like a cyclical bottom.

Gundlach: “Deutsche Bank Will Be Bailed Out But What About Credit Suisse” 

While Germany’s largest lender would ultimately be rescued by the German government if needed, other banks in the region wouldn’t be able to count on such support, Gundlach said. “Deutsche Bank will be supported by Germany if push comes to shove, but what about Credit Suisse, which has shown a similar decline in stock price? Who’s there to bail them out?”

Low-Vol Stocks Go Wild With Price Swings Hitting Record Levels

Low-volatility stocks have gone wild in recent months, discovering the danger in the second part of their name and rattling investors who sought safety by sending $6 billion dollars to the biggest exchange-traded funds that track them. Those flows have slowed as a measure of the group’s swings exceeds the broader market’s, reaching levels not seen in 20 years, data compiled by Bank of America Corp. and Bloomberg show. (…)

Utility shares, the biggest component of the low-vol universe because of a once-coveted dividend payout, fell for an eighth straight day as rising bond yields erode the allure of equity income. (…)

The S&P 500 Low Volatility Index trades at 20 times earnings, in line with the broader equity gauge. The low-vol group peaked at a valuation of 22 times in July, when the utility stocks that are its biggest component were 13 percent moreexpensive than technology shares that normally have among the highest valuations. (…)

An investor retreat from ETFs may have exacerbated volatility in these stocks, according to Bank of America. The iShares Edge MSCI Minimum-Volatility ETF, the most favored equity fund in the first half with cash inflows that surpassed $6 billion, experienced two consecutive monthly declines in deposits through September. The PowerShares S&P 500 Low Volatility Portfolio ETF saw investors pull $471 million last month, the biggest withdrawal in two years. (…)