Starts Down = We're Doomed!
Starts Up = "Proof We're Doomed!"
Posted on 10/20/2006 7:42:08 PM PDT by hubbubhubbub
This week it was announced that both producer and consumer prices dropped by 1.3% and .5% respectively, while housing starts unexpectedly increased by 5.9%. Not surprisingly, Wall Street celebrated the apparent good news, sending the Dow Industrials into uncharted territory. As has been its recent tendency, the market is unconcerned with recent bad news, instead championing it as confirming the highly touted “soft-landing.” September’s much weaker than expected non-farm payroll data and the Philadelphia Fed survey that showed an unexpected deterioration in manufacturing, are two recent examples. However, a closer look at the supposed good news reveals just how unwarranted the hype really is.
The inflation data was largely a function of the sharp decline in gasoline prices. In the first place, this decline will likely prove to be temporary, as it merely reflects a correction in an ongoing bull market. The confluence of events behind the correction will soon fade, and gasoline prices will resume their upward march.
More importantly, while oil price declines have claimed center stage, few have noticed other commodities price rallies that are surging in the wings. For example, during the past month industrial metal prices have surged, led by zinc and nickel prices which have both increased by more than 20%. Even more impressive has been the rise in agricultural commodities, led by skyrocketing wheat and corn prices that have risen by 33%. Given that food prices are conveniently absent from the "core" measures of inflation, I would expect that these agricultural price gains will receive scant attention from government economists and financial pundits. And although many of these theoreticians would prefer otherwise, we all have to eat. Unfortunately, doing so is about to get a lot more expensive.
So as the temporary relief at the gas pump will soon end, pain at supermarket checkout counter will soon begin. These higher costs, combined with rising mortgage payments created by upwardly resetting rates on adjustable home mortgages, will result in severe strains on the consumer’s ability to spend on discretionary items. Of course, if the consumer stops spending, there goes the ball game for an American economy whose GDP is 70% consumer spending.
I would also not take great comfort in the recently announced up-tick in housing starts. By adding additional inventory to an already over-built market, homebuilders are simply helping to make a bad situation worse. Either home builders do not appreciate the gravity of the supply and demand imbalances, or they are simply building in order to convince stockholders that the future earnings picture looks bright. Company insiders can only continue selling their shares if they convince investors to keep buying. A sharp reduction in starts would confirm just how dire the housing situation really is, and jeopardize many executives exit strategies. As a result, they keep building homes that they can't sell profitably, so they can keep selling shares that will collapse in price as soon as Wall Street wises up.
This confluence of seemingly good news has just about everyone embracing the soft landing scenario. This is more wishful thinking than true forecasting, as those calling for it the loudest have the most to gain from its occurrence. In fact, this rosy, pollyanna view is now so ingrained in Wall Street’s psyche that any evidence to the contrary is summarily dismissed. However, now that most remaining skeptics are finally on board, the stage is finally set for the crash-landing scenario to catch everyone by surprise.
Starts Down = We're Doomed!
Starts Up = "Proof We're Doomed!"
The Fed wanted overheated housing to cool off and it has. High oil prices did their job damping demand and calling forth supply and no other explanation is needed there. The economy is fine, all the doom stories have utterly failed to pan out.
Who's excited?
Given that energy decreases are conveniently absent from "core" measurements of inflation.
Oh wait, strike that...doesn't fit the agenda.
Not like the media hasn't been hammering this "crash" non-story every day.
LOL!
I thought I smelled a goldbug around here!
More likely homebuilders are getting more orders and building houses in response to that. You can bet new homes sales will be going up as these homes close. This is a sign that inventories have peaked in the new home market and will stablize or come down in the months ahead.
The CPI ex-energy is up just 2.5% over the past 12 months. The cost of food has increased just 2.2% over the past year. The only way this guy can sell his doom is to argue that oil prices are going to skyrocket. I'll bet he's trying to sell gold to someone somewhere.
Given that the government conveniently releases inflation figures that conveniently include food prices, I suppose this writer found it inconvenient to look them up.
Yep! See #10.
Have not posted here in a while, but, a dumb statement needs to be called a dumb statement.
Considering this is my business, it is anything but a dumb statement. Lowering interest rates have in fact brought buyers back to the market.
A lot of buyers are also back in the market because the perception that the economy is in free fall has ended. Newspapers (especially here in NY) are still trying to convince them that we're going into the next great depression, but gas prices, the DOW and the growth in local commercial construction tells them otherwise.
They don't believe house prices are going to fall anymore, and may even go up slightly during the normal Spring cycle. So, time to buy while we're at the "bottom" and the deals are still good.
Earlier today I had a realtor look at a house I have empty to either rent or sell. She started with that "Healthy Correction" (read frighten sellers into accepting less so relators can move houses faster) mubo jumbo... I started to laugh. She was an older lady and must of felt a sense of guilt for pushing that line she looked well.. sheepish..
W
Starts Down = We're Doomed!
Starts Up = "Proof We're Doomed!"
Only if you're deeply in debt or own homebuilder stocks.
Only if you're deeply in debt or own homebuilder stocks.
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