Hey There Income Hunter,
Powell’s one-liners were all over twitter yesterday as he testified on monetary policy at the Senate banking committee.
I caught a read-between-the-lines message during the onslaught and that was this …
Powell confirmed my gut feeling that he wants to crush housing.
And I get it.
If Powell can break the housing market’s backt, then owner’s equivalent rent (OER), which carries a 30% weighting in the CPI calculation will crater and get him closer to his goal.
Will it be enough?
Doubtful but I did find a way to gain leverage on a bearish housing strategy …
Today, we’ll take a closer look at Powell’s message, the internals for housing and a strategy to consider.
Powell’s Hidden Message
FED’S POWELL:
- WE WANT TO GET THE HOUSING MARKET BACK ON TO A MORE SUSTAINABLE PATH.
- I THINK YOU WILL SEE INCREASE IN HOUSING PRICES TO SLOW PRETTY SIGNIFICANTLY NOW.
- INTEREST-SENSITIVE SPENDING IS AN IMPORTANT ASPECT OF HOW OUR TOOLS WORK.
Ah, interest-sensitive spending is an important aspect of how our tools work …
Ya think? You directly control interest rates …
This is a decent plan and he would love to get housing out of the hands of the institutional players (Blackstone) and make it more affordable for the lower and middle class.
It is outrageous how much higher the monthly payment on a median priced home has become.
Plus, the credit availability to households has plummeted over the past year.
Banks have enough problems, so unlike during the housing crisis of 2008 they are not supporting the subprime market so many lower-income families are losing out.
A Bear Housing Strategy with Leverage
The ProShares UltraShort Real Estate ETF (SRS) provides 2x exposure to the Dow Jones US Real Estate Index.
SRS is not as liquid as non-levered plays, but I have had a couple of successful trades in the past couple of months and it works great in a bear market.
Check out how SRS lines up with its Proshares Ultra Real Estate ETF (URE), which provides 2x exposure to the Dow Jones US Real Estate Index.
Housing is an interesting play because the Fed will be selling mortgage bonds into a market it wants to crush.
Powell will get his way on this one and judging from the headwinds for affordability it may have a ways to go on the downside …
Below is an illustration of the trade I have put on. Housing is a bit of a lagging indicator, so I wanted to go out beyond the end of this year.
I can always do a tight near-the-money call spread along the way, depending on my thoughts on interest rates or hedge it with a long in bond ETFs.
I like the optionality it gives me.
Bring It Home
This type of trade is something I do in coordination with Andrew Giovanazzi, the Option Pit Director of Education.
Together we join macro analysis with option optimization for our Power Gains product.
We have hit big winners this year including 123% gain on a bearish SPDR Select Financial Sector ETF (XLF) strategy and 90% gain on an Invesco QQQ Trust (QQQ) bear play, as well.
And overall we’ve beaten the S&P 500 by 43%.
Subscribe to Power Gains and you will learn how to combine global macro and Fed driven money flows with option strategies that are ideal for maximizing your profits.
Call Customer with any questions at 888-872-3301 to power up your gains today.
And as always …
Live and Trade With Passion My Friend,
Griff