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August 23, 2006

Housing market weakness accelerates, Wed., Aug. 23, 2006, 6:36 PM

Today's release of the U.S. housing market data did not surprise. The chart of the inventory of unsold homes shows that, despite prices still holding up, it is taking longer and longer to sell a listed property.

Download UBS analysis of housing market data.

As usual, I also check the Econoday report on this important data.

The issue long ago ceased being a trader's concerns for the home-builders, for we got out of that market a year ago. Today, since further weakness is expected in this data, all eyes are on the U.S. consumer, who enjoyed the wealth effect on the rise and who, without a healthy savings amount to draw on, and a credit limit and monthly debt service amount that is becoming problematic, may pull in their horns, which could lead to a recession.

Although I made an early call on economic weakness, I did not think, until this month, that a recession would be possible. Now I am not so sure. I think the probabilities are at least 50 pct likely at this point.

One factor that may occur is something I saw in 1990. Foreigners who had been buying up impressive amounts of U.S. real estate at that point, stopped and quickly put it on the market, which depressed prices further at the time. I guess that is the downside of "hot" money: it comes and goes.

And the downside of that capital flight, in today's environment, could lead to falling prices " which is a deflation.

It's possible we could get a demand-side driven deflation in real estate and a continued supply-side driven inflation in oil and metals commodities. How bad would that be?

It could be a bad one, which is a reason why, last weekend, I opined that the U.S. Administration and Fed could get those printing presses going overtime this Fall. Although I haven't changed my opinion on the long-term Bear, I'm not ready to call a short-term crash in the U.S. equity market because I think every effort will be made to extend the cycle, and try for a soft landing.

I hate to contemplate what "every" effort could entail " but I won't go there. :-)

Posted by Posted by Bill Cara on August 23, 2006 06:36:03 PM | Category: Economics

Discourse

As many have said there is a force holding the DOW 30 up above 13000. The housing data, the Iran issues and all of the other negative data on the economy and we are seeing these furious closing hour rallies? Almost a 40 point swing based on questionable at best fundamentals, technicals and macroeconomic conditions. I guess Paulson is doing his job, but is not very clever about hiding it.

Think about yesterday's statements by the 2 fed governers that warned of more possible rate hikes. Perhaps those quotes were a way to cushion any negative economic data into the "this confirms no more rate hikes" category.

Posted by: rick s [TypeKey Profile Page] at August 23, 2006 9:39 PM [link]

Back in the 70's Treasury Sec Simon could not bring
himself to use the word "recession" so he called it
a "banana". It was too funny. I just have an erie
feeling the market is headed for a crash soon.
I don't understand what is holding this market up.
A banana has not been baked into this cake.
Reality has to hit soon. The baby could go out
with the bath water. All equities would fall together.
Liquidation of stocks of all categories.
Just a feeling....I have been wrong before.

Posted by: DollarBill [TypeKey Profile Page] at August 23, 2006 10:29 PM [link]

DollarBill, I think it was Alfred Kahn, a likeable and very funny economist and "the anti-inflation czar" for President Carter who was chastised by Carter when he said we were going into recession as people stopped using their credit cards, so he started using the word banana for recession. And rick s, I too believe the stock market has been and continues to be manipulated by "higher forces" and the housing market as well. When the stock market rallies, maybe we should shout out "Serfs Up"!

Posted by: alan [TypeKey Profile Page] at August 24, 2006 7:47 AM [link]

New homes sales for July well below estimates. Median price is now $230K (down from $231.3K last month), and supply is up to 6.5 months (6.1 last month).

And yet the HBs are up with the bond market. Sheesh. >8)

Posted by: number2son [TypeKey Profile Page] at August 24, 2006 10:12 AM [link]


number2son...

From my experience stocks usually trade after news based on where people WERE positioned PRIOR to the news - they don't trade as a cause and effect on news unless the news was unexpected...

So if one is short-term trading you try to anticipate where people are already positioned.
This is easier said than done.

tradesman

Posted by: Tradesman [TypeKey Profile Page] at August 24, 2006 10:25 AM [link]

How will the attempt to support the US economy by increasing money supply affect the direction of the US dollar? It seems that having a good idea about the direction of the greenback in the short term would aid in how you'd make Gold and Forex decisions.

For example, would now be a good time to switch out of USD in order to avoid the continued downward trend, or will the Fed's attempt to keep the market afloat maintain the USD or even push it slightly higher?

Posted by: Fazeli [TypeKey Profile Page] at August 24, 2006 10:30 AM [link]

Tradesman, that is excellent advice. Thanks. I just thought the suprisingly negative news would mitigate that dynamic this morning.

As it happens, the HBs are moving back to red. It's an uncertain market, to be sure.

Posted by: number2son [TypeKey Profile Page] at August 24, 2006 10:55 AM [link]

FNM up 5% this morning.

Posted by: alan [TypeKey Profile Page] at August 24, 2006 11:22 AM [link]

You probably already know, alan, but here's why:

http://www.thestreet.com/_yahoo/newsanalysis/homebuildersconstruction/10305580.html

The chart suggests a few shorts reached for the panic (I mean buy) button this morning.

Brother FRE is also up in heavy trading on the news.

Posted by: number2son [TypeKey Profile Page] at August 24, 2006 11:42 AM [link]

Number2son, great post and thanks. "Serfs Up"

Posted by: alan [TypeKey Profile Page] at August 24, 2006 11:47 AM [link]

Number2son, you might be interested in an article dated July 17, 2006 by William Greider, "Storm Is Coming", thought provoking to say the least.

Posted by: alan [TypeKey Profile Page] at August 24, 2006 2:13 PM [link]

alan, thanks very much for the reference to Greider's article. Very informative and very relevant.

Posted by: number2son [TypeKey Profile Page] at August 24, 2006 5:08 PM [link]