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The Devil is in the Details, Greater Vancouver Detached Market Update

June sales increased along with the average price, major win for the bulls? Not even close, the headlines can be deceiving. Once you take deeper dive the recent data is very bleak. The accepted offers in June 2020 are the lowest June in the past 15 years. Homes sold for a higher price than the month before but, for the first time in a quarter, and only up 2% from May.

Even during a downtrend the prices will create higher low data points while still trending lower to find the bottom. Some have stated that the Corona Virus shut down will create a pent up demand, I hope this isn’t the demand they were anticipating because it’s a blip on the charts.

The average sales price for June came in at 1.619Million, signalling the first positive data point since February. July will be hugely important in setting the next short term trend for the Greater Vancouver price chart. If the July is lower than 1.619Million there is a strong likelihood that a new aggressive downtrend will be established. The possible downtrend is indicated with the yellow downtrend marker. We have purposely used yellow as we need confirmation before the downtrend is established.

One anticipated trend that we have spoken on before is now coming to fruition, that being, the high end market is selling more readily than the lot value properties. Buyers are wanting the most bang for their buck and as a result they want the 17Million dollar mansion for 12Million and one such sale took place in June. Not too many buyers are purchasing spec land, this has an effect on the average price. Which means once those foreclosures roll in, and investors begin to dip their toes in the water. That will shift the focus from trying to buy the high end on the cheap to buying homes near lot value.

This also indicates that even while mansions are selling for very high numbers, the average price is still in the middle of the market threshold. Once the foreclosures hit and inventory is high, investors will begin buying deeply discounted lots which will force the average price to further decline. Then the market will panic, but in reality, the investors buying lower valued properties will indeed force the prices to drop but simultaneously be creating the market bottom. The pricing bottom will likely occur at 1.40 million if this threshold breaks we look to 1.225Million as the next threshold.

Detached Sales could be interpreted as “six of one and a half dozen of the other”. Simply meaning you will hear likely hear that the June 2020 sales were the highest over the preceding two year. Technically true, but the June 2020 sales was the lowest excluding the previous two year over the previous 15 years.  Don’t let the language fool you when you hear best June in the previous two years. The past three years of June sales data are the lowest in the past 15 years. Not a great trend to be a part of yet Realtors and the Real Estate Boards will likely tout this as a win.

Another truth even though it may hurt some, the pricing peak for the market occurred in 2017, However sales numbers began to tank substantially since the frenzied mentality of 2015 & 2016. Sales numbers have not exceeded 1000 since June 2017, while the average over the previous 15 years is 1050. The reality is the Greater Vancouver detached market has been trending lower for many years already, while most analysts and definitely the GVRD real estate board have been saying we were nearing the end of the tunnel by being able to see light in 2019… Eitel Insights warned that the light was a train, not the end of the tunnel.

Last truth, we know sales are from previous months accepted offers. The accepted offers in June 2020 were only 561 and the absolute lowest June in the past 15 years. For context June 2019 accepted offers were 804, June 2018 were 755, June 2017 were 1,216, June 2016 were 1,446, June 2015 were 1,816. So much for best in the past 3 years, Eh?   (Happy Canada Day)

Sales are not good nor are they average in fact they are paltry, inventory is on the rise and will continue into 2021. None of this bodes well for prices in the short term.

Inventory finally surpassed 4200 active listings which hadn’t occurred since December 2019. The inventory currently sits at 4471. Once the mortgage deferral system comes to an end the inventory will rise rapidly.

Over the upcoming year an odd phenomenon will occur to the buyer’s mindset. Far from the chaos of 2015-2016 when frenzied buyers lined up and fought over who would pay the most in history for a home. Into 2021 a whole new kind of methodology will prevail, the fear of overpaying for a depreciating asset. When inventory is at the highs prices will be at the lows but purchasers will be fearful when they should be strong.

With all that said, purchasing when a market is actually at the lows of the cycle is a great idea .Eitel Insights will be releasing a full market analysis for Greater Vancouver in the upcoming week. We proudly announce that Eitel Insights will be promoted by Michael Campbell’s Money Talks. In this report we analyze all 20 markets inside of Greater Vancouver and update the data monthly so you can know exactly when and where the opportunities reside, which are currently rare but do exist right now.

With our newest product release you will know exactly where each market inside of Greater Vancouver is with respect to the individual market cycles, for prices, inventory, sales, moving averages, strength index, and our unique supply demand chart. Use our analytical interpretation for your actionable intelligence.

Not all markets in Greater Vancouver are created equal, some areas are closer to the bottom. While others still have significant percentage losses upcoming. Become an Eitel Insights client to find out which are which.

Dane Eitel
Founder & Lead Analyst, Eitel Insights
604 813-1418

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Schachter’s Eye on Energy – June 17th

This week Josef explains how the EIA had a third increase in total stocks which is creating a storage problem. As well as how the OPEC’s report out Wednesday the 17th showed significant non compliance and it is very likely crude will fall sharply in the near term.

Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 28 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more and subscribe

EIA Weekly Data: Wednesday June 17th’s EIA data was mostly bearish. The headline number of commercial crude stocks showed a rise of 1.27Mb versus the estimated 130K build. The Strategic Petroleum Reserve added 1.7Mb and now stands at 651.7Mb or nearly 38 days of current demand. The rise in commercial crude stocks would have been higher except net imports fell 245Kb/d or 1.72Mb on the week. Motor gasoline stocks fell 1.7Mb and Distillates fell by 1.4Mb. Overall stocks rose this week by 8.8Mb (compared to a rise of 11.9Mb last week). Total stocks are now up 141.8Mb over last year. Commercial crude oil stocks are now up 11.8% from 56.9Mb last year. Refinery runs rose 0.7% to 73.8% from 73.1% in the prior week. Cushing saw a decline of 2.6Mb to 46.8Mb as refinery activity consumed more crude.

US production of crude fell by a whopping 600Kb/d to 10.5Mb/d (all in the lower 48) and is now down 2.6Mb/d from the peak in mid-March at 13.1Mb/d. We are surprised by the large size of the shut-in. It is possible we are looking at data that removes production from bankrupt entities. There were a number of new filings last week for Chapter 11 insolvency.

Product supplied backed off from the strong consumption during the Memorial holiday weekend.  Total product usage fell by 283Kb/d to 17.29Mb/d and is down 3.53Mb/d or 17% from 20.8Mb/d consumed last year at this time. Finished motor gasoline demand fell by 31K to 7.87Mb/d, but is  down 21% from 9.93Mb/d last year. Jet fuel demand continues to rise modestly as more flights start up and consumption rose last week by 76Kb/d to 788Kb/d.  However, it is still 885Kb/d lower or 53% less than last year’s 1.67b/d.

Baker Hughes Rig Data: Last week Friday the Baker Hughes rig survey showed a decline in the US rig count of 5 rigs (prior week down 17 rigs) to 279 rigs and down 71% from 969 rigs working a year ago. The Permian had a rig loss of 4 rigs (last week down 7 rigs) or down by 69% from a year earlier level of 441 rigs. The US oil rig count fell by 7 to 199 rigs (down 16 rigs last week) and down 75% from 788 rigs working last year. Canada’s rig count was flat at 21 rigs working but is down 80% from 107 rigs working at this time last year. The rate of weekly rig releases has clearly decelerated and we are close to the bottom for this key energy service sector activity indicator. Last week we saw the first green shoot with the Haynesville showing a rig count increase of two rigs to 33 rigs.

OPEC Monthly Data: OPEC today released their June 2020 monthly issue. They see demand at 81.3M/d in Q2/20 rising nearly 11Mb/d to 92.3Mb/d in Q3/20. Their big assumption is that China demand rises to 12.55Mb/d in Q2/20 from 10.27Mb/d in Q1/20 and OECD demand rebounds meaningfully. We suspect this may be high due to weak consumer demand in the OECD and the recent lock-down in Beijing due to the recent Covid-19 breakout. The report shows non-OPEC production falling 4.1Mb/d from 66.5Mb/d in Q1/20 to 61.4Mb/d in Q2/20. This fits with what we are seeing from the weekly EIA data and the reports from Canada. OPEC cut overall production in May 2020 by 6.3Mb/d to 24.2Mb/d with the Saudi’s taking the largest cutback at 3.16Mb/d. UAE helped with a 1.36Mb/d cut as did Kuwait with a 921Kb/d cut. As we suspected, other OPEC countries did not partially or fully meet their quota. Angola cut only by 33Kb/d to 1.28Mb/d, Iran raised production by 5Kb/d to 1.978Mb/d, Iraq cut only 340Kb/d versus the over 1.0Mb/d cut allocated and Nigeria cut by only 185Kb/d to 1.59Mb/d. Overall compliance appears to be 2-3Mb/d less than needed. OPEC in the report shows that the call on OPEC in Q2/20 is 14.6Mb/d and with production of 24.2Mb/d there is still an inventory build of 9.6Mb/d. So the deal last week to extend the cuts to the end of July does nothing to balance supply and demand. In the OPEC report they show Q2/20 demand at 81.3Mb/d, non-OPEC production at 61.4Mb/d, OPEC NGL’s at 5.3Mb/d leaving a call on OPEC of only 14.6Mb/d. They spin their positive story showing demand rising 11.0Mb/d to 92.3Mb/d in Q3/20 with non-OPEC production falling by 2.1Mb/d in Q3/20 to 59.3Mb/d. Under this view they show demand for OPEC crude rising to 27.8Mb/d and inventories worldwide starting to shrink. Our biggest disagreement is that we don’t buy their large increase in world demand for Q3/20 that they forecast.

Conclusion: As we write this, WTI is at US$37.43/b for the July contract (down US$0.95/b on the day) due to the overall inventory build. After a robust short covering rally of nearly 90% from the April low to US$40.44/b on Monday, crude prices have now rolled over and are down over 7%. We see a decline below US$30/b as the line in the sand for crude oil bulls (US$34.36/b next breakdown level). The breach of US$30/b should start the next phase of worry for energy bulls and restart aggressive selling of energy and energy service stocks. Much lower levels are expected once we get into the fall and the wage support programs by the governments end, and layoffs pick up and we see more bankruptcies. In addition this is also the window for the next expected Covid-19 wave. The energy and energy service companies with the most downside are those with high debt loads, high operating costs, have current balance sheet debt maturities of some materiality over the next 12 months and those that produce heavier barrels. Hold cash and remain patient for the next low risk BUY window as we saw in mid-March. If over-invested take appropriate defensive action.  

The short covering rally of the last few weeks took the S&P Energy Bullish Percent Index from 0% on March 9th to 100% two weeks ago (84.6% now after stock market decline of the last two weeks). As the general stock market has declined, we expect to see the energy sector fall heavily as well. The Energy Bullish Percent Index is likely in this situation to fall to below 10%, providing the next low risk BUY signal. For the S&P/TSX this means a decline to below 40 for the Index, or nearly a two for one sale – OUCH! In  a few days we see the next general market plunge starting. Downside for the Dow Jones Industrials in the near term 22,800 with much lower levels in July/August.

The S&P Energy Index today is at 78.82 (down 11% from last week’s level of 88.60) and down from the recent bear market rally high of 96.07 (Index down 18% from this recent high of two weeks ago). Be prepared for significantly lower energy and energy service stock prices in the coming weeks. Next downside breach is 76.50 (one bad market day away).

High risk tolerant speculative ownership of crude oil futures continues to rise crude. Last week speculators owned a net long position of 572Mb up modestly from 570Mb the week before. Commercials are adding more aggressively to positions and are now short 617Mb up from 605Mb the week before. Speculators are usually wrong and we expect them to get smacked hard once the current stock market decline has massive intermarket margin calls. At the next bottom in crude prices It is possible that commercials will move to net long position..

Our June SER Monthly Report will come out tomorrow. We go over the current market conditions and our key reason why we see an imminent breakdown in the overall stock markets that will drag energy stocks down as well. In our corporate update section we cover one of our favourite international ideas which just successfully completed its debt refinancing with a two year extension and covenant relief.

Subscribe to the Schachter Energy Report and receive access to our Webinar from Thursday May 28th, our Action Alerts, our TOP PICK recommendations when the next BUY signal occurs as well as our Quality Scoring System review of the 28 companies that we cover.

To get access to our research please go to http://bit.ly/2OvRCbP to subscribe.

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Beating the market is not just about having a good strategy. It is even more important to have the emotional control and discipline to execute that strategy, consistently and with focus. Making money in the market is simple, but it is far from easy.

In my 30 years of trading, I have made countless mistakes repeatedly. Those mistakes almost always come down to not being a master over my emotions and biases that cause me to make bad trading decisions.
I have also taught others how to trade my strategies for over 20 years and have watched almost every student make those same mistakes. When you know what they are, they become obvious. However, the solutions are not always easy to find or execute. The reason is simple; it is hard to overcome being a normal human with a normal emotional attachment to money.

My experiences from the past 30 years of trading make me something of an expert on making mistakes. I believe that those who can overcome themselves will excel in trading the stock market. Those who cannot find their success rises and falls with the trends of the market.

To be a successful investor, you must overcome your emotions. Here are two ways to do that:

Do Not Chase Greed

In the short-term time horizon for the stock market, the fundamentals do not matter. Stocks can go up quickly because there are emotional buyers chasing after a fast moving upward trend. However, when the emotion wears off, these same stocks can come crashing down to earth quickly. If you are part of the crowd and coming into a strong stock late, you may be setting yourself up for failure.

There is a simple rule that will help you avoid chasing after greed.

Buy when the stock is breaking from low volatility, not after it has already been going up for a while.
Here is a chart that demonstrates this idea:

Throughout the recent stock market crash and recovery, I have been focused on buying stocks that had sold off sharply and then broke their downward trend line after building a rising bottom. Ideally, this comes with a break from low price volatility.

Low price volatility simply means that the stock is not moving up or down a lot in price. In the chart above, that occurred at point 1. You can see that the height of the candles on the chart are short indicating that the stock did not have a lot of price volatility.

Point 1 was also the rising bottom and at Point 2, there was the break from low price volatility. This was the signal that the stock was starting an upward trend and the ideal place to buy. Most investors would doubt this signal to buy because the recent market activity was a frightening sell off and most people will not buy in to fear because they feel it themselves.

People will start to feel the itch to buy at the Point 3s. When a stock goes from $30 to $45 in 4 days, people get excited. Their outlook is biased toward what has just happened and what has just happened is exciting!

However, Point 3 is a terrible place to buy because the stock has risen on emotion and is due for a pull back. Large computerized traders have a strategy that almost guarantees that a pull back will happen as they will be strong sellers on stocks that run up quickly like this (the strategy is called Mean Reversion).

How do you know when you are chasing after emotion? Notice the green line that I drew on the chart above. It is the upward trend line and I have drawn it across the bottoms on the chart. When the distance from the current price to the trend line becomes large, you are best to leave the stock alone and wait for a pull back before buying. This is another one of my trading strategies, something I call a Pullback Play.

Buy When Others are Panicking

Fear is so powerful that it actually changes how our brains function. When we feel fear, our brain seeks to protect us with the “fight or flight” response that triggers that little part of our brain called the Amygdala. That serves us well when we are being chased by a Cougar, but it hurts our ability to make smart trading decisions when we simply have a fear of losing money.

This fear response causes us to accept a price that is irrationally too low. The farther a stock falls, the closer it gets to the bottom and yet, our fear increases the farther a stock falls. So, our response to fear is more likely to cause us to sell the closer we get to the stock’s turning point from weakness. The Amygdala really hurts our ability to make money in the stock market.

Consider how you felt about your investments in March. My last article for MoneyTalks discussed the tremendous opportunity that the market crash brought, and I showcased a simple strategy for finding stocks to buy (this is the pattern that I show on the chart above). However, I am certain that many readers of that article, perhaps even the majority, thought I was crazy to suggest that it was a good time to be a buyer. The reason was simple; it seemed like the world was ending and taking the stock market down with it. Fear was high.

Since that article, the market is up sharply. The haters that left me disparaging comments on my YouTube channel have gone quiet. A lot of money has been made by those willing to buy in to fear when the market started to turn higher. Buying since March would seem brave, but really, it was just taking advantage of other people’s emotional decision making.

I want to be clear, however, that we should never buy simply because a stock has gone down in price. There must first be a sign that the stock is trying to make a bottom. There are some stocks that go down for very good reasons and deserve to be lower. If we look for stocks that have made emotional sell offs and then start to build rising bottoms on the chart, we are applying a strategy that takes advantage of emotion at a time when the trend is starting to turn. Wait for those signs before trying to catch a falling knife.

Fear and Greed create opportunity if you are on the other side of the emotion. Buy when others are fearful and sell when others are greedy.

Tyler Bollhorn, Stock Scores

Where COVID-19 is Rising and Falling Around the World

Where COVID-19 is Rising and Falling Around the World

It’s been just over two months since New York declared a state of emergency, and global stock markets were hammered as the fears of a full-blown crisis began to take hold.

Since then, we’ve seen detailed, daily coronavirus coverage in most of the major news outlets. With such a wealth of information available, it can be hard to keep track of the big picture of what’s happening around the world.

Today’s graphic, adapted from Information is Beautiful, is an efficient look at where the virus is fading away, and where new infection hotspots are emerging.

The Ebb and Flow of Coronavirus Cases

First, the good news: the number of new confirmed COVID-19 cases has started to level off on a global basis. This metric was rising rapidly until the beginning of April — but since then, it has plateaued and is holding steady (for now)…CLICK for complete article

Hand Sanitizer Boom Could Save The Ethanol Industry

With widespread layoffs and furloughs hitting post-World War II records and a global economy deep in the throes of a recession, the economic devastation wrought by the Covid-19 pandemic is only rivaled by the Great Depression. Yet, some businesses have been thriving during this upheaval, while others have had to reinvent themselves thanks to dramatic shifts in consumer behavior.

POET LLC, the world’s largest ethanol manufacturer producing about two billion gallons of the product per year, has made a pretty drastic business transition after retooling and pivoting into hand sanitizers instead. POET has re-engineered its systems to make pharmaceutical-grade hand sanitizers after ethanol prices cratered following weak gasoline demand.

Second Act POET runs more than two dozen ethanol plants in the U.S. but has been forced to close down three plants. It is running the remaining plants at half capacity and has laid off 10% of its workforce.

Pivoting into hand sanitizers is not as dramatic as, say, auto companies such as Ford, GM, and Tesla repurposing their car factories to make ventilators. Nevertheless, POET CEO Jeff Broin says the conversion from an ethanol manufacturer to one making hand sanitizers comes with some pretty significant costs….CLICK for complete article

Don’t Try to Catch This Falling Knife

Greater Vancouver’s Detached Market Drops Over 100 Thousand dollars in April.

Sell in May and go away, an adage used primarily in the stock market, applies to Vancouver’s Real Estate in 2020. In all actuality one should have sold much sooner than May, but better late than never. Home values dropped over 100 Thousand dollars from March to April across Greater Vancouver. With more significant losses forecasted.

Many analysts and even the Greater Vancouver Real Estate Board had touted a significant price increase for the detached market in 2020. Reality has hit them all hard, along with their ardent followers. Prices are still up from the beginning of the year albeit only a measly 7 thousand dollars. From $1.590Mil in January to 1.597Mil in April. Signalling the peak of the 2020 detached prices has already come and gone.

Eitel insights had strongly suggested selling into that perceived strength, and advised to hold off on any potential purchases. The chart above demonstrates why. Prices for a majority of 2019 were near the 1.50Million threshold (Higher Orange) which held as a temporary bottom, and in turn stabilized the market enabling a rally up to 1.709Million to occur in March. We have seen this movie before of pricing threshold temporarily holding only to be broken on subsequent tests.

During 2017 – 2018 prices tested the 1.60Million threshold which temporarily held. However a pricing threshold is akin to a camel, one added straw will break this markets back too. 1.60Million broke early in 2019 much like 1.50Million will break in 2020. Leaving 1.40Million as the next threshold inevitably tested.

Now, we advise, Don’t try to catch this falling knife. Prices are down over $230,000 from the peak which is good. It will become even more attractive with time. As prices decline to 1.40Million that will exemplify a discount of $430,000 to the market from the peak.

There is no rush to enter this market, we suggest patience.

Inventory for the month of April waned as expected due to covid – 19, and the social distancing. The active listings are still above the staunch uptrend, finishing the month with just under 4000 properties for sale.

Once the social distancing relinquishes, the inventory will rapidly rise. A need for money has become a harsh circumstance for a majority of households. The stock markets have lost the equity gained over the previous two years. There isn’t even a possibility to work extra hours, as most work places have been closed, some never to reopen.

With few options remaining, selling real estate will become an unfortunate necessity. Which will inevitably lead to foreclosures coming to the market as well. None of which puts pressure on the buyers. If selling, take the hit early before the knockout punch is landed.

The housing market just experienced the lowest sales in April on record. For some perspective during the 08 -09 recent recession the sales for April were at 1298 and 1188 respectively. Sales numbers plummeted to only 393 home sales in April. Sub 400 sales have only occasionally occurred during the winter months, never in the spring markets. Sounds bad but there is an additional kicker.

As we have been pointing out for the past few articles, sales data is from land titles, meaning, the upcoming months will see likely even lower numbers reported.

The number of accepted offers so far this year, beginning with January, was over 500. February saw nearly 800, and March realized just under 700. Meaning the sales data from land titles of 393 sales came from completions on those previously accepted offers.

The kicker, April’s accepted offers were just over 200… the worst is yet to come.

One of my favourite quotes is as follows which will lead into my final thoughts. “While the individual man is an insoluble puzzle, in the aggregate he becomes a mathematical certainty. You can, for example, never foretell what one many will do, but you can say with precision what an average number will be up to. Individuals vary, but percentages remain constant. So says the statistician.”  – William Winwood Reade

Eitel Insights’ forecast of 1.40 Million was offered by back in 2016 and published in 2017 (Western Investor). Not only were we the first to forecast the peak of 1.830 million, we forecasted the bottom at the same time. The housing markets are no longer guess work. Fundamental factors continually show up late to the game. By utilizing our actionable intelligence buying low and selling high is no longer based on a gut feel, it is technically predictable.

Not all markets in Greater Vancouver are created equal, some areas are closer to the bottom. While others still have significant percentage losses upcoming. Become an Eitel Insights client to find out which are which.

Dane Eitel, Eitel Insights

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