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Wolf Richter

Wolf Richter

Founder, Wolf Street Corp. In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China.

Articles by Wolf Richter

Yield Curve Spaghetti

10 hours ago

Investors in short-term Treasuries and savings products are having a field day.
The US Treasury yield curve is having some bad-hair days. It is overall flat-ish, but within this description, it is steepening at the short end, sagging in the middle, and steepening at the long end. And all of it, from the one-month yield on up, is above the rate of inflation as measured by CPI, something we haven’t seen in that magnitude since the brief deflation scare in 2009.
On January 15, this is where the Treasury yields across the curve ended up. Note how they are nearly the same in the middle of the yield curve — from six months through five years, with the three-year yield marking the low point:
1-month yield: 2.41%
3-month yield: 2.43%
6-month yield: 2.52%
1-year yield: 2.57%
2-year yield:

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What Truck Drivers Say about “Driver Shortage” & Pay Increases

20 hours ago

For the majority, pay has remained flat or has fallen over the past year.
The trucking industry is reverberating with claims that there is a massive driver shortage, that they have trouble recruiting and retaining drivers, and that they have to pay more to recruit and retain them. So here’s what truck drivers are saying.
How much has your salary increased in the past year?
This should be an obvious one. If there is a driver shortage, and if trucking companies have trouble recruiting and retaining drivers, and if they’re fretting about having to pay more to recruit and retain drivers – which would squeeze their profits – then drivers in turn should see this increase in pay.
Turns out, less than a quarter of the truck drivers in the survey experienced pay increases of over 5%. But 59%

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China Auto Sales Plunge 4th Month in Row, 2018 First Down-Year since 1990: Welcome to the Club of Saturation & Decline

2 days ago

China’s consumers rattle global automakers: GM’s sales drop, Ford’s sales collapse.
For the month of December, light new-vehicle sales in China plunged 13%, compared to a year ago, to 2.23 million vehicles, the China Association of Automobile Manufacturers (CAAM) announced on Monday. Sales through June had risen 6%, but then came July, and now there have been six months in a row of year-over-year declines – with the last four months dousing any remaining enthusiasm about China’s consumers with double-digit declines:
July: -4.00%
August: -3.8%
September: -11.6%
October: -11.7%
November: -13.9%
December -13.0%
These declines pushed light new-vehicle sales down 4.1% for the year, to 23.7 million. This phenomenon of declining auto sales is new to China’s managed and pump-primed

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Bankruptcy Next, PG&E Says. Shares Down 90% in 15 Months. From “Investment Grade” to “Default” in Three Weeks?

2 days ago

California’s rate payers & taxpayers likely on the hook, as we know from PG&E’s first bankruptcy in 2001.
“PG&E remains committed to providing safe natural gas and electric service to customers as it prepares to initiate voluntary reorganization proceedings under Chapter 11 [of the bankruptcy code],” PG&E announced this morning. San Francisco-based, the regulated monopoly is one of the largest investor-owned utilities in the US and provides gas and electric services to 16 million Californians. It will file for bankruptcy “on or about January 29, 2019,” it said, following the 15-day advance notice required under California law.
During the bankruptcy proceedings, PG&E will conduct business as normal, it said. Customers will continue to receive services – indeed, power and gas are

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THE WOLF STREET REPORT

2 days ago

What’s the deal with retailers — and retail sales?
This is on purpose. Macy’s is not alone. Other department stores and brick-and-mortar retailers are into this too, at least the ones that haven’t filed for bankruptcy yet. So we’ll take a look (11 minutes):
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Movie tickets are expensive. Alternatives are plentiful, convenient & cheap. Read… The Brick & Mortar Meltdown at Movie Theaters. But a Few Movies Still Make it Big   
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The Brick & Mortar Meltdown at Movie Theaters. But a Few Movies Still Make it Big

3 days ago

Tickets are expensive. Alternatives are plentiful, convenient & cheap.
The year 2018 was a banner year for the movie theater industry in the US. The number of movie tickets sold jumped 9.8% from the prior year to 1.35 billion tickets, according to movie data provider The Numbers. It was the largest jump in the number of tickets sold going back to 1996. It was a massive triumph for the industry.
But ticket sales in the prior year, 2017, had been the worst since 1995. And that 9.8% jump in 2018 off those lows took ticket sales almost but not quite back to where they’d been in 2012. And they remained 15% below where they’d been in 2002; and remained below where they’d been in 1997:

In terms of per-capita ticket sales: During the record year 2002, with a US population of 288 million,

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Oops, SpaceX to Lay Off 10% of its Employees after Funding Fiasco in November

5 days ago

What SpaceX is trying to do has “bankrupted other organizations,” it said.
SpaceX, the unicorn startup with a newly minted $30.5 billion “valuation” and dreams of sending humans to Mars shortly, will lay off about 10% of its employees, “a person familiar with the matter” told the Los Angeles Times on Friday.
The company says on its website that it has “6,000+” employees. TechCrunch reported that SpaceX “employed at least 7,000 people in late 2017 when COO Gwynne Shotwell last gave a number.” So somewhere between 600 and 700 employees will be out of a job. The Times reached out to SpaceX for comment, and this is how the company responded in perfect corporate-hype speak (bold added):
“To continue delivering for our customers and to succeed in developing interplanetary spacecraft and a

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Fed’s Powell: Balance Sheet to be “Substantially Smaller.” How Small? He Gave Big Clues. My Dive into the Dynamics & Charts

5 days ago

In fact, QE started reversing at the end of 2014.
The Fed’s balance sheet would be “substantially smaller” after the Fed gets done with its QE unwind, Fed Chairman Jerome Powell said on Thursday. How far the Fed might go in shedding assets is a red-hot topic right now that causes a lot of fretting and howling on Wall Street and in the White House. Here is what Powell said at the Economic Club of Washington, D.C – and then we get into the dynamics and charts of what he described and what “substantially smaller” might mean:
“Yes, we wanted to have the balance sheet return to a more normal level, which is a level no larger than it needs to be for us to conduct monetary policy,” he said. When asked what level that would be, he said:
“Don’t know the exact level. That would depend really

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The Fed Paid Banks $38.5 Billion in Interest on “Reserves” in 2018, Slickest Annual Wealth-Transfer from Taxpayers to Banks

6 days ago

Normally, this would be ironic: The Fed doesn’t need to borrow; it creates money when it needs some. So it wouldn’t pay interest. But these are not normal times.
The Fed reported its preliminary results this morning for the year 2018. The headline is that it sent $65.4 billion of its profits to the US Treasury Department in 2018, and that this amount had plunged by 18.5% from the remittances, as they’re called, in 2017, and by 44.1% from the peak of $117 billion in 2015.
The Fed earns interest income on the huge pile of securities it holds. After covering operating expenses, interest expenses, and some other items, it is required to remit the rest to the Treasury Department – to the taxpayer.
Therefore, the amounts in interest expense the Fed pays the banks on their “Excess

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Rally in Stocks Takes Heat Off Fed, Now They Talk Rate Hikes Again, Market Expectation of a Rate Hike Spikes

7 days ago

But all bets are off if something big breaks.
Since the low point on Christmas Eve, the S&P 500 has rallied 9.9%, nearly half of which on December 26. This was helped along by the word “patient,” used by Fed Chairman Jerome Powell, other Fed governors, and the FOMC minutes. The effect: Wall Street has stopped haranguing the Fed about the rate hikes and the QE unwind, and the White House has stopped leaking titillating tidbits about President Trump wanting to fire Powell. The dust is settling.
And now the Fed governors are fanning out to talk about rate hikes again, adding the soothing terms as “patience” or “wait,” and disagreeing with each other, as they usually do in public to keep the debate going on how many rate hikes will eventually happen.
In early 2018, the markets expected

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My “Fed Hawk-O-Meter” Speaks

7 days ago

Wall Street’s hope for a dovish Fed may not be entirely fulfilled, it seems.
Wall Street has been abuzz about a “dovish” turn by the Fed — or even a “U-turn.” So, today the Fed released the minutes of the FOMC meeting on December 18-19, during which it voted for the fourth rate hike in 2018, and the ninth in this cycle, bringing its target for the federal funds rate to a range between 2.25% and 2.50%. The WOLF STREET Fed hawk-o-meter checks the minutes for signs that the Fed believes the economy is strong and that “accommodation” needs to be further removed by hiking rates.
The hawk-o-meter measures how many times the minutes use the word “strong,” “strongly,” and “stronger.” In the December meeting minutes, released this afternoon, the mentions of “strong,” “strongly,” and

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Housing Bubble Trouble in the Seattle-Bellevue Metro

7 days ago

With Seattle’s economy still strong, the downturn isn’t caused by layoffs & defaulting mortgages. The fabulous bubble has run out of steam on its own.
Inventory of houses and condos for sale in King County – which includes Seattle and Bellevue but does not include Tacoma – surged 148% in December, compared to December last year, to 4,017 active listings, according to data by the National Association of Realtors.
Active listings started piling up in the spring 2018 when levels were still very low. By July, when active listings reached the highest level since October 2014, the underlying dynamics of the housing market in King County had clearly changed direction. Since then, active listings exploded higher. This chart shows the year-over-year percentage changes, with the red bars

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Germany Heads for a Technical Recession

8 days ago

This economic slowdown is not unique to Germany but has been spreading across the EU.
OK, this is embarrassing in the land of super-stimulus via the ECB’s negative-interest-rate policy and years of QE that were supposed to perform miracles: Production in Germany’s industry, which includes construction, dropped 1.9% in November from the prior month (seasonally adjusted), the German statistical agency Destatis reported this morning. This drop is also embarrassing because economists polled by The Wall Street Journal had expected a 0.3% gain.
The agency also downwardly revised October, to a monthly decline of 0.8%. This makes three months in a row of declines. In November, compared to a year earlier (adjusted for inflation and calendar differences, but not for seasonality), the

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Housing Bubble Trouble in Silicon Valley & San Francisco

9 days ago

But this time it’s not a result of a tech bust. That hasn’t happened yet.
Housing inventory listed for sale in the two counties that make up Silicon Valley – San Mateo County and Santa Clara County – and in the county of San Francisco, surged by 113% in December compared to December last year, to 2,691 active listings, the most for any December since 2013, when the area emerged from Housing Bust 1. December is usually near the annual low point in terms of listings, but not in 2018, when listings in December were higher than in each of the first five months that year.
The chart below shows the year-over-year percentage change in active listings. The bars in red denote when the underlying dynamics of the housing market changed direction (all data via the National Association of

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Carmageddon in the UK: Auto Sales Plunge 12% in 2 Years, Diesels in Death Spiral. Consumers, Businesses, Fleets Cut Back

9 days ago

This is getting serious.
Sales of new passenger vehicles, as measured by registrations, dropped 5.5% in December from a year earlier in the UK, the second largest auto market in the EU, behind Germany. Sales in the full year of 2018 dropped 6.8%, “reflecting 12 months of turbulence,” and “the ongoing decline in consumer and business confidence,” according to the Society of Motor Manufacturers and Traders (SMMT).
But in 2017, sales had already dropped 5.7% from 2016; and over the two-year period, sales were down by 12%. This chart shows the year-over-year change in new vehicle registrations:

Sales fell for all three customer types: to consumers (-6.4%), to fleets (-7.3%), and to businesses (-6.4%). A lease counts as a registration because the leasing company buys the vehicle and

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THE WOLF STREET REPORT

9 days ago

Nothing Goes to Hell in a Straight Line, not even on Wall Street.
I have to admit, it was the most volatile holiday period in the stock market and the credit markets that I can remember – and perhaps in history. All kinds of crazy things happened, just when market participation was thinnest. These were crazy moves. But those crazy moves won’t be the last crazy moves (11 minutes).
[embedded content]
Here are the ugly long-term charts that Wall Street doesn’t want us to see. And now US stocks are infected too. Read…  Long-Term “Buy & Hold” Crushed Stockholders in Largest Markets Except US & India. But for the US, Luck’s Running Out   
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Trucking Boom Ends, Next Phase in Cycle Starts

11 days ago

This is a very cyclical business. 
In December, orders for new Class-8 trucks — the heavy trucks that haul the products of the goods-based economy across the US — plunged by 43% from a year ago, to just 21,000 orders, the lowest since August 2017, and down by 60% from August 2018. The chart shows the percent change of Class-8 truck orders for each month compared to the same month a year earlier, which eliminates the effects of seasonality (data via transportation data provider FTR):

In the chart above, there are some standouts that show just how cyclical this business is:
The impact of the “transportation recession” in 2015 and 2016 when Class-8 truck orders plunged to the lowest level since 2009. This entailed layoffs at truck and engine makers.
The subsequent boom in orders in

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Fed’s Balance Sheet Reduction Reaches $402 Billion

12 days ago

The QE unwind has started to rattle some nerves.
For the past two months, the sound of wailing and gnashing of teeth about the Fed’s QE unwind has been deafening. The Fed started the QE unwind in October 2017. As I covered it on a monthly basis, my ruminations on how it would unwind part of the asset-price inflation and Bernanke’s “wealth effect” that had resulted from QE were frequently pooh-poohed. They said that the truly glacial pace of the QE unwind was too slow to make any difference; that QE had just been a “book-keeping entry,” and that therefore the QE unwind would also be just a book-keeping entry; that QE had never caused any kind of asset price inflation in the first place, and that therefore the QE unwind would not reverse that asset-price inflation, or whatever.
But in

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Carmageddon for GM, Ford & Toyota: 3rd Down-Year in a Row. Industry Sales Below 2015. Hyundai-Kia Drop 11% in 2 Years. BMW & Mercedes-Benz Fizzle

12 days ago

But average transaction prices rise to record highs.
In terms of new-vehicle sales in the US, 2018 was the third relentless down-year in a row for three of the four biggest automakers, GM, Ford, and Toyota. For them peak sales occurred in 2015.
GM delivered 2,954,037 vehicles in 2018, down 1.6% from 2017, down 2.9% from 2016, and down 4.2% from 2015:

These are deliveries of new cars and trucks by dealers to their customers, by automakers directly to large fleet customers, and by automakers to their own employees via employee-purchase programs. A lease counts as a sale because the dealer sells the vehicle to a leasing company, a lender, or the automaker’s own finance company, which leases it to the customer.

For GM, these deliveries included 1,034,808 crossovers, a relatively new

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Markets Are in a Tizzy. So What Will the Fed Do?

13 days ago

Investors are waking up after years of somnolent money-making.  
Markets are in a tizzy. They’re finally reacting to the Fed’s rate-hike cycle, the slowest rate-hike cycle in history. It took three years to nudge up the effective federal funds rate from near zero to 2.40% now. Throughout, the Fed has communicated its goals of “removing accommodation” from the “financial conditions” in the markets — thus tightening “financial conditions” that had become loosey-goosey during years of zero-interest-rate policy and QE.
And suddenly, financial conditions in the markets started tightening in October. So let’s see where we are — and how this might impact the Fed’s decisions.
“Financial conditions” is a key term in the Fed’s official communications. For example, in the minutes from the

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iPhone Sales Croak, China’s Economy Deteriorating Faster than Expected, Apple Warns. Shares Plunge

14 days ago

“We did not foresee the magnitude of the economic deceleration.” Oh dude, starting the year out on the right foot.
On Wednesday after the market closed, Apple released a letter to shareholders in which it said that revenues are going to be a lot worse in the quarter ended December 29 than its guidance two months ago, that iPhone revenues have dropped year-over-year, that China’s economic problems are deeper than expected, and that iPhone revenues are hurting elsewhere too. This confirms a series of revenue warnings from Apple suppliers.
Shares plunged 7.5% after hours to $146. If shares close at this level on Thursday, it would be the lowest close since November 7, 2017. Shares have plunged 38% in three months. Wow, this was quick:

In its “Letter from Tim Cook,” Apple slashed its

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The Housing Bust in Sydney & Melbourne, Oh My!

14 days ago

But it wasn’t the central bank that pricked the bubble; its interest rate is at a record low!
The relentlessness of the housing busts in the regions of Sydney and Melbourne – they account for about 55% of Australia’s housing stock by value – is quite something. At some point, it seems, the price declines would slow down at least for a little while, or even perform a quick bounce, before falling again. But no. The downward momentum is picking up.
For Sydney, according to CoreLogic’s Daily Home Value Index, prices dropped 1.8% in December from November, in just one month! The index is now down 11.1% from its peak in July last year:

In the calendar year 2018 in Sydney, the prices of all types of dwellings fell 8.9%, with prices of single-family houses down 10.0%, and prices of condos

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Long-Term “Buy & Hold” Crushed Stockholders in Largest Markets Except US & India. But for the US, Luck’s Running Out

15 days ago

Ugly long-term charts that Wall Street doesn’t want us to see. And now US stocks are infected too.
How well does a buy-and-hold strategy work in the stock market over the long term – as measured in years and decades? In the largest markets around the world, it has crushed investors. There are two exceptions: the US and India. And the US is infected too.
The Everything Bubble in the US, a period of nearly 10 years when just about all asset classes have skyrocketed, was perhaps the most magnificent bubble the world as ever seen. But it peaked in 2018 and has since given up some of its gains to the wailing and gnashing of teeth on Wall Street. So it behooves us to see how this has turned out in the other major markets, and how it might turn out in the US.
The results and charts below

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US Dollar Status as Global Reserve Currency?

16 days ago

So, how hot is the Chinese Renminbi? And is the euro dead yet?
The US dollar’s role as global reserve currency is defined by the amounts of US dollar-denominated assets – US Treasury securities, corporate bonds, etc. – that central banks other than the Fed are holding in their foreign exchange reserves. To diminish the dollar’s role as a global reserve currency, these central banks would have to dump the dollar.
So, let’s see. Total global foreign exchange reserves, in all currencies, came in at $11.4 trillion in the third quarter, according to the IMF’s data on “Currency Composition of Official Foreign Exchange Reserves” (COFER), released this morning. The amount of USD-denominated exchange reserves was $6.63 trillion. This amounted to 61.9% of total foreign exchanges reserves held

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THE WOLF STREET REPORT

17 days ago

How the Corporate Debt Bubble Will Crush Stocks.
Corporate debt, after years of encouragement by the Fed via artificially low interest rates, has reached historic levels. Now even the Fed is worried about its handiwork. Many of these companies will default over the next few years. This is a cleansing process that is part of the business cycle – only this time, it’s so much larger (12 minutes).
[embedded content]
Instead of “bubble” or “collapse,” it uses “valuation pressures” and “broad adjustment in prices.” Business debt, not consumer debt, is the bogeyman this time. Read… The Fed Explains the Rate Hikes: To Prevent Financial Crisis 2   
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Carmageddon for New Cars, But Used Cars are Hot

17 days ago

The price of going upscale: New cars are too damn expensive, and Americans aren’t buying them anymore.
Based on new-vehicle sales data this year through November, plus my own estimates for December, for the year 2018, sales of new cars plunged 13% to 5.5 million units; and sales of new trucks (SUVs, compact SUVs, pickups, and vans) surged 8.3% to 11.8 million units. Car sales are now down to 29% of total sales, the lowest share on record in US history. This is the fourth year in a row of declining new-car sales. Since 2014, new-car sales have plunged by 31%; but new-truck sales have soared by 38%:

These are deliveries of new cars and trucks by dealers to their customers, and by automakers directly to large fleet customers. A lease counts as a sale because the dealer sells the

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“Leveraged Loans” Bite: Record-Bad Year-End for Loan Mutual Funds & ETFs

18 days ago

Forced selling by loan funds in the once red-hot $1.3-trillion “leveraged loan” market.
Part of the $1.3 trillion in “leveraged loans” — loans issued by junk-rated overleveraged companies — end up in loan mutual funds and loan ETFs. These funds saw another record outflow in the week ended December 26: $3.53 billion, according to Lipper. It was the sixth outflow in a row, another record. Over the past nine weeks, $14.8 billion had been yanked out, another record. These outflows are, as LCD, a unit of S&P Global Market Intelligence, put it, “punctuating a staggering turnaround for the asset class” that until October was red-hot:

Despite $10 billion of net inflows during 2018 through early October, the record outflows at the end of the year caused a net outflow for the entire year of

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US Housing Market to Get Uglier in Near Future

19 days ago

Sales decline to steepen, no respite in sight.
The reasons for the housing-market downturn are in the eye of the beholder, as we will see in a moment. But whatever the reasons for it may be, the data on the housing market is getting uglier by the month.
Pending home sales is a forward-looking measure. It counts how many contracts were signed, rather than how many sales actually closed that month. There can be a lag of about a month or two between signing the contract and closing the sale. This morning, the National Association of Realtors (NAR) released its Pending Home Sales Index for November, an indication of the direction of actual sales to be reported for December and January. This index for November fell to the lowest level since May 2014:

“There is no reason to be

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China’s Startup Bubble Runs Aground

20 days ago

Bike-share companies, among the hottest startups, are wiping out investors.
“It now appears bike sharing is the stupidest business, but the smartest brains of China all tried to get in,” Wu Shenghua, founder of 3Vbike, one of the many collapsed bike-sharing companies in China, told Reuters. “It really now seems ridiculous.”
Afterwards, a lot of the ingenious must-not-question stuff that happened during a bubble is considered “ridiculous.”
Bike-sharing companies are just an example. With their capital-intensive, cash-burning, ride-subsidizing business model, they were, in their short lifespan, among the hottest startups in China. They’ve attracted $2 billion in venture funding in 18 months of frenzy leading into 2017. Over 40 platforms mushroomed out of the ground.
This now collapsed

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Government Shutdown Stops Nasty Housing Data in its Tracks

20 days ago

Homebuilders, a bedraggled bunch recently, breathe a sigh of relief, but get crushed anyway.
“NOTICE: Due to a lapse in federal funding this website is not being updated,” the Commerce Department’s website says currently on the page where the Census Bureau would have published this morning’s data for new-home sales, inventory, and prices for the month of November.

The main page of the Commerce Department’s website explains: “Due to the lapse in Congressional Appropriations for Fiscal Year 2019, the U.S. Department of Commerce is closed. Commerce Department websites will not be updated until further notice. For more information, see Shutdown Due to Lapse of Congressional Appropriations.”
And that’s a good thing for our bedraggled homebuilders.

On November 28, when the October data

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