Hey There Income Hunter,

 

Two of the most influential bank CEOs changed their tune on the US economy this week.

 

It was like they went from singing “I’m a Believer” by the Monkees to Geography’s “Eve of Destruction.”

 

JP Morgan CEO Jamie Dimon was first on Wednesday morning … Dimon was talking about risks to the system in front of a room full of investors said this:

 

“It’s a hurricane. That hurricane is right there, down the road, and coming our way. We don’t know if it’s a minor storm or if it’s a Superstorm Sandy.”

 

John Waldron, the Goldman Sachs president, was next, when at an investor conference yesterday he said: 

 

“The confluence of the number of shocks to the system to me is unprecedented.”

 

I’ve been singing about impending trouble for weeks. No global bank CEOs are blasting that message out to the masses 

 

Today, we’ll take a look at a couple of weak spots in the economy and a trade that could potentially turn a sad song into a winner for you.

 

In Harmony

 

Now, there is no love lost on Dimon and Waldron. When Americans got crushed during the 2008 housing crisis, JPM and GS were paid lots of bailout money even though their banks were partly responsible for the economic destruction it caused … 

 

So, you have to ask yourself, why would they come out with this now? Well, they are sending out a warning because they know the damage QT policy will inflict on the markets.

 

Funny enough, yesterday I wrote how QT will hurt banks most. Banks hold massive amounts of securities that the Fed will be selling during QT – and nobody wants them. 

 

You see, with interest rates so far below inflation, sitting with negative yielding bonds will destroy wealth in a hurry …

 

And then there is this: the government will not be bailing out many banks when this crisis bites .

 

Let’s take a look at a couple of key warning signs …

 

The Housing Market

 

• Mortgage Purchase Applications =  24 month low and May is tracking the lowest monthly level since October 2018.
• New Home Sales  – -27% Y/Y to 591K = 25-month low.
• Pending Home Sales –  -9.2% Y/Y to a  25-month low & 6th consecutive month of decline.  Remember pending sales represent contract signings and lead existing sales by 4-8 weeks. 

The Labor Market

 

• Job Openings-  -455K M/M to 11.4M
• ISM Employment- 18-month low first contraction since November of 2020.
• Jobs Plentiful = a new 12M low.  Jobs Plentiful minus Jobs Hard to Get, also a 1Y low.  

The one area where an imbalance in jobs will hurt the Fed is the job openings-to-unemployed ratio, which is still at record highs. 

 

This will continue to put pressure on wages and may trigger a wage price inflation that will all but guarantee the Fed will not be able to get inflation down. 

 

Small Business Layoffs Begin

 

 

How to Play Housing 

 

You can short housing via the ProShares UltraShort Real Estate ETF (SRS) … As you can see in the chart below, SRS has corrected and may test the 50- and 200-day moving average in the days ahead.

 

The 14.5 level is a great location for a bullish low risk/high reward options strategy …

 

 

Bring It Home

 

Here’s the sad truth …

 

The Fed is so far behind the curve that no matter what it does inflation will remain high and as Dimon and Wadlron said, the  economy will go into recession.

 

But that doesn’t mean that traders can’t still build wealth.

 

Live and Trade With Passion My Friend,

Griff