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Soaring Prices Drive Market Cap of New Homes Higher in April 2022

Political Calculations' initial estimate of the U.S. new homes market cap for April 2022 is $31.37 billion. That figure is 1.7% higher than March 2022's revised nominal market cap of $30.86 billion.

The following chart shows what that new record looks like in the context of the new home market cap history since January 1976:

Trailing Twelve Month Average New Home Sales Market Capitalization in the United States, January 1976 - April 2022

Soaring prices are the primary driver of April 2022's increase in the market cap for new homes sold in the U.S. In the two years since the Coronavirus Recession bottomed in April 2020, the trailing twelve month average of new home sale prices have increased by 35.2%. Meanwhile, the trailing twelve month average number of new home sales continued its upward trend in April 2022, but the increase in this component of the market capitalization math is much smaller than the contribution from the increase in new home sale prices.

New home sales ticked up in April 2022:

Trailing Twelve Month Average of the Annualized Number of New Homes Sold in the U.S., January 1976 - April 2022

Average sale prices jumped to $516,283:

Trailing Twelve Month Average of the Mean Sale Price of New Homes Sold in the U.S., January 1976 - April 2022

The trailing twelve month average for new home sales removes the effects of annual seasonality from this data, while the math helps smooth the month-to-month noise in new home sale prices, making it easier to identify trends for both data series. Since new home sales are counted toward GDP when their sales contracts are signed, a rising trend in the market cap for new homes represents an economic plus for the U.S. economy. The National Association of Home Builders estimates new home sales contribute 3% to 5% of the nation's Gross Domestic Product.

What Does Bitcoin Look, Walk, and Quack Like?

Duck, by Ross Sokolovski via Unsplash - https://unsplash.com/photos/kCZSzqvIei4

What is the best way to think about what Bitcoin (BTC-USD) is as an investment?

We've already demonstrated what it isn't. Bitcoin isn't "Gold 2.0". We know that's true because Bitcoin doesn't act like gold (KITCO: Live Gold Price), which rises in value whenever inflation forces real interest rates to fall. If anything, we found changes in the value of Bitcoin is almost completely independent of inflation-adjusted interest rates. If gold were a duck, Bitcoin wouldn't look, walk or quack anything like it.

Which then raises the question: what does Bitcoin look, walk and quack like?

We think Bitcoin looks, walks, and quacks like a non-dividend paying stock.

The thing that put us onto that line of thought was a recent headline: Bitcoin’s correlation with the Nasdaq 100 index reaches a new all-time high.

To be highly correlated with something is akin to looking, walking and quacking like it. So we put that proposition to the test, tracking the relationship between Bitcoin and the Nasdaq Composite Index (NASDAQ: COMP.IND), which is a broader measure of the stocks that trade on the NASDAQ stock exchange. The following chart shows what we found after we mapped the available data we have for the historic value of Bitcoin against the value of the Nasdaq Composite Index over the same period of time, from 17 September 2014 through 20 May 2022.

Bitcoin Value vs NASDAQ Composite Index, 17 September 2014 - 20 May 2022

In the chart, we see that Bitcoin's value has two distinct phases. One before the NASDAQ Composite index exceeded $10,000 in value, which was generally linear outside of a bubble-like period from October 2017 through November 2018. One after the NASDAQ exceeded $10,000 in value, coinciding with when Bitcoin began gaining institutional backing and its value with respect to the index took on power law characteristics. It both cases though, outside short periods where changes in its valuation decoupled from changes in the value of the stock index, Bitcoin has a generally tracked along with the NASDAQ, rising and falling with it in a positive relationship.

That makes it very much like a non-dividend paying stock, especially during the period after it began gaining significant institutional backing. We know that from the exponent of the power law relationship that exists between Bitcoin and the Nasdaq Composite Index during this period, which represents the ratio of the exponential growth rates of Bitcoin and that of the Nasdaq index, which includes dividend-paying stocks.

In doing that, Bitcoin is very much looking, walking, and quacking like a volatile non-dividend paying stock, which shares those characteristics. Unless and until it starts acting differently, that's perhaps the best way for investors to think about Bitcoin's qualities as an investment.

References

Federal Reserve Economic Data. NASDAQ Composite Index. [Online Database (Text File)]. Accessed 20 May 2022.

Yahoo! Finance. Bitcoin USD (BTC-USD), 14 September 2014 through 21 April 2022. [Online Database]. Accessed 20 May 2022.

Previously on Political Calculations

Image credit: Photo by Ross Sokolovski on Unsplash.

Campbell’s Tomato Soup Prices Keep Escalating

More grocery stores have increased their prices to consumers for an iconic No. 1 size can of Campbell's Condensed Tomato Soup. Here's how prices have changed since our previous snapshot of prices at ten of the U.S.'s largest grocery-selling retailers roughly two months ago.

  • Walmart: $1.17/each, unchanged
  • Amazon: $0.99/each, unchanged (Lowest)
  • Kroger: $1.25/each, unchanged
  • Walgreens: $1.50/each, unchanged when you buy 2 cans
  • Target: $1.29/each, increase of $0.10 (+8.4%)
  • CVS: $2.19/each, increase of $0.40 (+22.3%, Highest)
  • Albertsons: $1.59/each, increase of $0.59 (+59.0%)
  • Food Lion: $1.19/each, increase of $0.19 (+19.0%)
  • H-E-B: $1.21/each, unchanged
  • Meijer: $1.19/each, increase of $0.19 (+19.0%)

For the latest in our coverage of Campbell's Tomato Soup prices, follow this link!

Among these sellers, only Amazon continues to sell a can of Campbell's condensed tomato soup for under $1.00. The next lowest price available to consumers is Walmart's $1.17 per can.

Since Amazon sells many fewer cans of tomato soup than all these other grocery-selling retailers, that means most tomato soup-buying American households are now typically paying far more than $1.00 for each can of Campbell's tomato soup they buy. So much so that the trailing twelve month average of a can of Campbell's Condensed Tomato Soup has jumped to reach a new record high of $1.04 per can. The following chart presents the entire price history of a No. 1-size can of Campbell's Condensed Tomato Soup we've assembled to mark the occasion:

Campbell's Condensed Tomato Soup Unit Price per Can, January 1898 - May 2022

We anticipate the trailing twelve month average for Campbell's Tomato Soup will reach nearly $1.20 per can by the end of 2022. How long do you suppose Amazon might continue selling the product at what is now a deeply discounted sale price of $0.99?

S&P 500 Investors Keep Focus Fixed on 2022-Q2 Awaiting the Fed’s Next Signals

The third week of May 2022 came and went with Federal Reserve officials signaling their willingness to hike interest rates higher than they've previously suggested. S&P 500 (Index: SPX) investors locked their forward-looking focus on the current quarter of 2022-Q2 in response, held there by the uncertainty of what will come from the decisions the Fed will make before its end.

That's what we read in the latest update to the alternative futures chart, which reveals the index is tracking remarkably closely to the alternative trajectory associated with investors focusing their attention on the current quarter according to the dividend futures-based model.

Alternative Futures - S&P 500 - 2022Q2 - Standard Model (m=-2.5 from 16 June 2021) - Snapshot on 20 May 2022

It's unusual for the actual trajectory of stock prices to track so closely along with a particular projection for investors focusing on a given quarter. We normally see more noise in day-to-day trading than we've had during the past week. That said, the clock is ticking down for how long investors can continue to fix their focus on 2022-Q2, which points to a potential investing opportunity that will exist until their forward-looking attention does shift to another point of time in the future in what will be the stock market's next Lévy flight event.

This assumes we don't see significant erosion in the expectations for dividends expected in the upcoming quarters to which investors might next shift their attention. Fortunately, that prospect is so far a low risk consideration for the near term.

Here are the market-moving news headlines that helped shape investor expectations in the week that was.

Monday, 16 May 2022
Tuesday, 17 May 2022
Wednesday, 18 May 2022
Thursday, 19 May 2022
Friday, 20 May 2022

The CME Group's FedWatch Tool continues to project the Fed will hike rates by a half-point in June (2022-Q2), followed by a two more half-point hikes in July and September (2022-Q3). After which, the tool projects the Fed will slow down, hiking rates by just a quarter point each in November and December 2022 (2022-Q4) to close out the year.

The Atlanta Fed's GDPNow tool projects real GDP growth of 2.4% in 2022-Q2, up from last week's projection of 1.8%.

Who’s Better at Picking Stocks: r/WallStreetBets or a Goldfish?

Michael Reeves has carved out a unique niche in the online world through his comedy-tech videos, combining his programming skills and love of modern technology with rapid fire jokes and satire.

In his latest production, he's taken on the world of meme investing, as represented by the favorite stocks pitched by top contributors to r/WallStreetBets, and pitted them against pure random selection, as represented by the stock picks of his pet goldfish. In the following 15-minute video (featuring some NSFW language and visual humor), he explains how he did it and presents his experimental results:

Our favorite part is when he pitches the "FISH" system to potential investors.

Reeves' experiment makes sense in the light of the real results of the Wall Street Journal's long-running investment dartboard challenge, in which the performance of stocks picked by professional investors competed against stocks picked by WSJ reporters who threw darts at the newspaper's stock listings to pick stocks at random. Superficially, it appeared the pros beat the darts, but that was because they benefitted from two secret advantages that were hidden in plain sight:

Professor Burton Malkiel of Princeton University, who for decades has been arguing that you can't beat the market, and a colleague found that the stocks the experts picked were risky. They were far more volatile than those the reporters picked using darts or the stocks that make up the S&P 500. When the stocks of the three groups are adjusted for risk, the returns of the experts fall precipitously below those of the dartboard or the index.

Professor Malkiel goes further. He argues that the unadjusted returns of the experts were higher because Wall Street Journal readers noted the selections after they were published and then bid them higher. Had the experts chosen their stocks on the day the stock picks were published instead of the day before, their return would fall a whopping 3 percentage points!!!

All in all, Reeves' goldfish-based investing system is a fun way to revisit those old results.

Previously on Political Calculations