Well, housing permits and starts came in well below expectations. Does this mean the economy is slowing faster than expected?

Given that new home orders have been down sharply, I'm a bit surprised that the expectations were off the mark by this much.

And energy costs are way up as anyone could have expected. Again, this bodes ill for the health of the economy.

Just thinking out loud here as the market is itself still sorting things out.

Massive layoffs by big US companies are in the near term pipeline with, of course, outsourcing. Wall Street and the global bankers are licking their chops because they believe that lower interest rates are in the cards with this news and Hank's message that he doesn't want a lower dollar. The little people have been trained by the global bankers to accept their offers for more debt. So will the power of lower interest rates be enough to create more debt to counter poor wage prospects on the horizon? It's worked in the past for this "global economy". Stay tuned.

that's some pretty intense action in notes and bonds. shorts covering or fresh money buying? it looks like bonds are talking about a slowing economy with little inflation.

GLG (proxy for the group) is breaking back up through the top of its triangle.

short term, however, i will look to short strength on the indices somewhere in the next couple of hours.

Soon "the experts' will get to the point where slower than expected economic data will be interpreted beyond the short sighted lens of fed speculation, which is the only thing floating the current rise in equity prices.

Mtzion, I agree with you. It looks like a pile of crapola to me. Have oil prices crashed? Has the commodities crashed? Has the housing market crashed? Do we have a downward spiral in anything but real wages? But that last question is the question of questions. Do the bankers give the little people more debt in exchange for stagnant wages via lower interests rates in a quid pro quo?

alan,

the modern dependence on installment debt is an interesting one. if used properly, debt can change the life of a family. it allows us to send our children to colleges we could not have afforded in other generations. we can use debt to purchase homes and land that can be passed down to our sons and daughters. in that sense, the increasing access to debt in developed western countries can be construed as a positive.

however, i agree with you in the sense that there is an enslavement occurring among citizens who abuse debt, who use it for ridiculous purposes chasing after the great gatsby vision of happiness. over a long period of time, such citizens run the great risk of sliding back into the slavery from which our fathers fought so hard to emerge.

short-term market wise, the VIX is looking kind of oversold here. the indices are trying to blow through some formidable areas and the intraday hourly and half-hourly charts are gona get looking real overbought in this time frame.

will this be the start of an aggressive leg down or will it be a 2-3 day shakeout that sets up for a move much higher? i don't know but september puts on the DIA might prove to be a quick hit here.

Mtzion, abusing debt is a two way street. It takes two to tango, one on each side of the exchange.

alan,

that's a good point.

i wonder, however, where individual responsibility becomes important. at what point does the citizen evolve to the point where he or she says, "hey, i'm not going to play these ponzi schemes anymore. i'm going to scale down my lifestyle, pay down my credit cards and focus on what is important and substantial in my life."

the banks won't make those decisions. the citizen has to make them.

i've often thought in the past few years that a good idea would be to offer classes to young people about the role of credit and its use and abuse in their lives. could be the next growth industry.

market's hanging tough. S&P wise, this 1293 area is big. it turned us back on august 4th. gun to head, i'd say it's gonna be a tough area to hold.

Mtzion, how about the young people who are hard working and about to purchase their new house, would you tell them to purchase a home now at maybe 15 times their gross incomes when their older siblings and parents purchased under the old rules of banking which allowed a purchase at a MAXIMUM OF 3 to 4 times gross income?

i'd tell those hard workers that they should have their heads examined, that no matter whether or not the purchase works out for them, it is a wild speculation and should be avoided at all costs. i would also advise them to begin a period of intense self-examination so they could avoid making similar boneheaded plays in the future.

if they persisted, i would shrug my shoulders and pitch them this ocean-front property in arizona that is so hot it's unbelievable. i mean, smoking! talk about ground-floor opportunity of a lifetime and since i know the owner, he'll do me a favor, see, and i'll get them in at the insider prices....it's gonna be the next san diego!

Mtzion, maybe you should advise fannie and freddie also since houses on the coasts are selling for up to 15 times median family income. And it's either a huge head fake or the housing stocks have bottomed. We shall see.

yeah, i've thought for a long time FNM was an accident waiting to happen. that is one part of the ponzi scheme that would be a disastrous unraveling but, alan, those guys aren't going to listen to us. they're too busy being masters of the universe and managing the world's largest derivative book.

housing is interesting to me because it is sort of a lynchpin in this current environment. if we're headed back down, part of the back-drop will be an increase of horror stories coming from the homeowner part of the world.

Exactly, Wall Street will deny it, but housing is the lynchpin, the whole enchilada. How simple, yet how sublime.

"housing is interesting to me because it is sort of a lynchpin in this current environment."

Interesting use of the word 'linchpin', as it can be spelled with an "i" or a "y".

The lynchpin version sounds a bit more ominous.

And housing has been and still is THE linchpin of the current economy. I have firsthand knowledge of many in the construction industry looking for work in the Midwest.

Builders are simply walking away from land options and no longer willing to build on spec. This will have an increasingly significant affect on the economy going forward.

The real weakness from the housing slowdown will reveal itself in the 3rd and 4th quarters of this year, IMO.

Todd, does Wall Street smell the deflationary blood and expect Ben to panic and drop the fed funds rate soon, in fact, starting right before the elections?

Still maybe a little fuel in this rally - depending on HPQ tonight - and continuing lower oil prices "fueling" NASDAQ and chips...

I'd feel more secure shorting stock indexes once oil tests 70.5 or so and holds.

Any drop below 70 could spur another large rally to test May highs...

It's also curious to have the S&P500 with a few percentage points of its recent high - at the bottom of the 4/8 year cycle.

If this cycle has already bottomed - the worst is behind us - and the worst we could expect is one last shakeout over the next 2 weeks - then the market will just keep running up until earnings say otherwise...

I am reminded (was it Friedman??) who said -
"There is no (little) correlation between the economy and the stock market"

My biggest fear was that this market was going to be kept as is until the Nov. elections. Does anyone share this view?
If so, there would be little point in predicting what it should *logically* do. It would be disconcerting to say the least.

you're right tradesman. this things feels a little dangerous to short here although the hourly chart is getting good and extended. i'm going to treat this day by day although i think a gap up opening tomorrow could probably be faded.

the market and economic truth?

like pilate said, "what is truth?"

.. also noticed that BKX (phil bank index) did not go higher than it opened this a.m....

... so some potential weakness....

Don't be faked out by "dumb" money, low summer volume, bear market rallies (fast, furious and prone to failure)...have fundamentals changed?...has the macro picture changed? IMHO, I don't think the Nov election comes into play this year...but, Alan does make a good point about what wall street smells. Bottom line, Bill has amazed me with his prescience since I started reading this blog early in the year, so therefore, I remain in the bear mode.

"Todd, does Wall Street smell the deflationary blood and expect Ben to panic and drop the fed funds rate soon, in fact, starting right before the elections?'

I don't know what the Fed is going to do - all I know is what I see firsthand and what I hear from people I have known personally for many years. The news in the home building business is not good and it's not getting better, it's getting progressively worse.

A very small sample of what I'm talking about: in SW Florida (in one of the 3 top RE markets during the boom), a builder who sold 135 homes last year and currently has many homes in various stages of completion, suddenly shut their doors 2 weeks ago, laid off all their employees, and used an answering machine to field calls from suppliers, tradesmen, customers, etc.

The builder is trying to avoid bankruptcy proceedings by possibly merging with another building company. They said they have only sold 4 contracts in 2006 so far. The FL economy is still somewhat OK due to the backlog of building contracts that were signed in 2005. Once those houses get built, the work will dry up and unemployment will certainly rise.

So if this is happening in Florida where the economy is still humming along at a reasonable pace, how bad can it be in other parts of the country where the economy is already weakened (Midwest rust belt) ? My contacts say that it is already extremely slow with no sign of improvement.

The Fed is in a real quandary, but it wouldn't surprise me to see interest rates begin to fall sometime in the next 6 months.

Todd and Ursus:

I think both are right on: housing is the lynchpin of the economy and yes I see every effort made to keep the economy roaring, valid or not (Look for economic reports to be postive and for the price of gold to be manipulated if posisible).

Housing creates more jobs than anything else: contruction materials and labor, big box appliance retailers, lending and finance, to name but a few. Not to mention every homeowner in the hot markets has felt "rich" because of their home appreciation and spent accordingly. This loss of expenditures in discretionary spending has and will continue to have a chilling effect on the economy.In Orange county, where the market is cooling, I know many in the lending/finance industry that have either lost their jobs or make a pittance to what they did before.