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Wednesday, September 30, 2009

Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 46% in a little over 120 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… yet notably stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let’s continue to keep a watchful eye…


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Tuesday, September 29, 2009

S&P/Case-Shiller: July 2009

Today’s release of the S&P/Case-Shiller (CSI) home price indices for July 2009 showed a continued strong bounce in prices with the Composite-10 index increasing 1.65% on a month-to-month basis.

Again, this is another notable development but it’s important to put today’s results in perspective before getting too confident that the bottom is in for house prices.

As with last month, today’s results showed that metro areas with typically strong seasonality worked to pull up the composite series while many other markets gained modestly leaving only Seattle and Las Vegas as decliners.

It’s important to remember that the CSI data is lagged by two months and that the metro markets with strong seasonality (… especially recently) tend to reach their seasonal peak between June and July and then typically decline through the fall reaching a seasonal bottom in February.

Also, although Standard & Poor’s publishes a seasonally adjusted series, their seasonal adjustment appears to be underestimating the degree of seasonality that is currently present in many markets (… Boston is a good example).

In any event, as the summer pricing cools the Composite indices will more than likely reflect the aggregate movement of prices declines just a strongly as it has captured the spring-summer bounce.

Also, looking at the 1990s-era comparison charts below its obvious that even after the main downward thrust has been reached, the housing markets have a long tough slog ahead with the ultimate bottom likely many years out…. Or if we are currently experiencing the Japanese model… decades out.

Further, is important to remember that the 90s housing recovery played out against the backdrop of a truly unique period of growth in the wider economy fueled primarily by novel and ubiquitous technological change (cell phones, internet, personal computers, telecommunications, etc).

The 10-city composite index declined 12.77% as compared to July 2008 while the 20-city composite declined 13.30% over the same period.

Topping the list of regional peak decliners were Las Vegas at -54.82%, Phoenix at -53.10%, Miami at -47.57%, Detroit at -44.71% and San Francisco at -40.99%.

Additionally, both of the broad composite indices showed significant declines slumping -31.13% for the 10-city national index and -30.16% for the 20-city national index on a peak comparison basis.

To better visualize today’s results use Blytic.com and search for “case shiller”.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to each metros respective price peak set between 2005 and 2007.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a year-over-year basis.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a month-to-month basis.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What’s most interesting about this particular comparison is that it highlights both how young the current housing decline is and clearly shows that the latest bust has surpassed the prior bust in terms of intensity.

The “peak” chart compares the percentage change, comparing monthly CSI values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.


In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.

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Monday, September 28, 2009

Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 47% in a little over 120 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… yet notably stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let’s continue to keep a watchful eye…


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Collapsedachusetts Existing Home Sales Preview: August 2009

Sources inside the Massachusetts Association of Realtors (MAR) report that tomorrow’s monthly existing home sales results will show that in August single family home sales were up only slightly increasing 0.4% on a year-over-year basis while condo declined 3.5% over the same period.

Further, the single family median selling price declined 3.1% on a year-over-year basis to $315,000 while condo median prices dropped 4.6% to $279,000.

These results firmly indicate that, after a strong seasonal bounce in sales activity fueled primarily by the government's $8000 “homebuyer” tax bribe, sales are heading down sharply into the fall.

It’s important to note that although single family home sales were up marginally on a year-over-year basis, sales dropped 9.1% since July STRONGLY defeating the typical seasonal pattern of higher sales in August versus July.

This indicates that the June and July sales volume was likely strongly influenced by the “homebuyer” tax handout as recipients raced to lock their share of the transfer payments.

Massachusetts also assisted the process by lending first-time “buyers” “their” $8000 “credit” in advance so that buyers could apply it to their “downpayments”.

In any event, the government meddling only yielded a 0.4% year-over-year increase in home sales which appears to indicate that September sales could take a significant drop as “stimulated” sales continue to drop off and organic sales volume shows itself to be very weak.

The following charts (click for larger) show the decline in single family home sales since 2005.


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Three Strikes and Bernanke is OUT!

The “End the Fedmovement appears to be picking up steam… Ron Paul’s book is rising on best seller lists and the news is littered with reports covering and debating aspects of the argument.

Although I fully support any effort to put down or at least restrain the Federal Reserve, I’ve been thinking that a smaller, more symbolic move might also be a step in the right direction.

I call it “Three Strikes and Bernanke is OUT!”

Strike 1. In Mid 2007 Bernanke either completely misses the significance of the housing decline or makes a serious blunder by assuming he and the Fed could bluff their way through the decline by asserting that the subprime implosion and the wider housing troubles were “contained” and economic growth would continue:

May 2007 Bernanke states:

“Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited,”

From the August 7th 2007 FOMC statement:

“Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy”

Strike 2. In the fall of 2008 Bernanke along with Treasury Secretary Paulson revert to complete reactionary panic mode making their famous “won’t be an economy on Monday” plea to congress while urging on the largest taxpayer funded swindle in history.

Strike 3?... September 15th 2009 Bernanke indicates that the recession is over:

“From a technical perspective, the recession is very likely over at this point,”

With this simple statement Bernanke has made the mother of all bottom calls… the bottom of the great unwind over which he presides and also bears some responsibility for creating and exacerbating.

Not only did he misjudge the role that the Fed’s “easy money” policy played in creating the crescendo of our massive credit bubble, Bernanke missed the impact of the resultant decline and deleveraging, he seriously overreacted once there was nowhere else to hide… and now he makes arguably earliest and most significant bottom calls in economic history.

I say “three strikes and you’re out”... If the bottom is not in… Bernanke is out.

If we are to have the Federal Reserve (… i.e. a massive central planner) at all, does America not deserve better than an unrealistic chairman who is a three time loser?

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Friday, September 25, 2009

Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 44% in a little over 120 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… yet notably stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let’s continue to keep a watchful eye…


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New Home Sales: August 2009

Subtitle: Green Shoots Go Limp… Is That All You Got!

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for August showing the fifth, albeit tepid, consecutive monthly increase in sales of newly constructed single family dwellings bringing the seasonally adjusted annual sales pace to 429,000 units or 3.4% below the level seen in August 2008 and remaining 69.11% below the peak level 2005

You would think that the government’s historic first-time "homebuyer" welfare payments could trump up a bit more activity but it’s looking as if the pool of unwitting suckers is starting to dry up.

Like the “cash for clunkers” ruse, all this scam is doing is pulling forward demand while giving handouts to a lot of buyers who would have been capable of (…and fool enough) buying this year or next anyhow.

The government will more than likely extend this program and maybe even relax its terms but as home prices continue to decline it may soon become clear to both the newly minted “homeowners” and their representatives that this policy was misguided.

For the time being though, you can certainly expect the National Association of Realtors and the home builders to push hard for the extension of this swindle… In good times they rip you off honestly with bloated commissions or junk McMansions… In bad, they underhandedly lean on your representatives for a portion of your pay… it’s a classic lose-lose.

In any event, it looks like buying activity is slowing down and I say good riddance!

The following charts show the extent of sales declines seen since 2005 as well as illustrating how the further declines in 2009 are coming on top of the 2006, 2007 and 2008 results (click for larger versions)


It’s important to note that although the new home sales data appears to have prompted the traditional media to make many “bottom calls” recently, the evidence for their conclusions were scant.

First, most “bottom callers” have focused too closely on just the new home sales series and its historic bottoms rather than other important indicators that disclose a more complete state of the new home market.

As I have argued recently, the level of inventory and supply and level of completed new homes are still too high for a real sustained bottom for the new home market.

The following chart (click for larger) plots the new home sales (SAAR) series along with the current inventory level (NA) and the level of homes completed (NA) since 1973.

As you can see, although the new home sales series has breached the lowest level in over 30 years, the level of inventory (homes for sale at end of period) still remains higher than past historic bottoms and the level of homes completed remains much higher.

In fact, the level of completed new homes remains near PEAK levels for past housing boom periods… a truly bad sign for pricing going forward.

Look at the following summary of today’s report:

National

  • The median sales price for a new home declined 11.67% as compared to August 2008.
  • New home sales were down 3.4% as compared to August 2008.
  • The inventory of new homes for sale declined 36.4% as compared to August 2008.
  • The number of months’ supply of the new homes has decreased 34.2% as compared to August 2008 and now stands at 7.3 months.
Regional

  • In the Northeast, new home sales increased 28.6% as compared to August 2008.
  • In the Midwest, new home sales declined 31.9% as compared to August 2008.
  • In the South, new home sales declined 11.1% as compared to August 2008.
  • In the West, new home sales increased 30.4% as compared to August 2008.

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Thursday, September 24, 2009

Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 45% in a little over 120 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… yet notably stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let’s continue to keep a watchful eye…


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Commercial Cataclysm!: Moody’s/REAL Commercial Property Price Index July 2009

Today's results of the Moody’s/REAL Commercial Property Index continues to suggest that the nation’s commercial real estate markets are now firmly experiencing a tremendous downturn with prices plummeting a whopping 30.83% on a year-over-year basis and a stunning 38.54% since the peak set in October 2007.

The Moody’s/REAL CPPI data series is produced by the MIT/CRE but is noted to be “complimentary” to their alternative transaction based index (TBI) as it is published monthly and is formulated from a completely different dataset supplied by Real Capital Analytics, Inc.

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Existing Home Sales Report: August 2009

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for August showing a notable decline sales activity sin July while continuing to indicate an increase on a year-over-year basis.

Existing single family home sales were up 3.4% on a year-over-year basis while the median selling price declined 12.5% over the same period.

More notably though, Condo sales jumped 10.1% on a year-over-year basis while median selling prices declining 15.7% over the same period.

It’s important to note that the “Cash for Clunkers” of housing, the “first time home buyers” tax credit, is likely driving the current jump in sales.

While the government assistance program is temporary, today’s results continue to indicate that home sales have been buffeted throughout its term which, short of being extended, expires in November.

Of course, the NAR leadership continues to wave the banner of the government’s first-time homebuyer tax handout … even if these housing welfare payments are poorly targeted and absurdly expensive … Realtors want commission at all costs… even if their commissions comes from your salary... as chief economist Lawrence Yun puts it:

“Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus. The first-time buyer tax credit is having the intended impact of bringing buyers into the market, allowing them to take advantage of very favorable affordability conditions … Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process, but the decline demonstrates we can’t take a housing rebound for granted.”

The following (click for larger versions) are charts showing sales for single family homes, plotted monthly, for 2006, 2007, 2008 and 2009 as well as national existing home inventory and month supply.







Below is a chart consolidating all the year-over-year changes reported by NAR in their most recent report.

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Mid-Cycle Meltdown!: Jobless Claims September 24 2009

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted “initial” unemployment claims declined 21,000 to 530,000 claims from last week’s upwardly revised 551,000 claims while “continued” claims decreased 123,000 resulting in an “insured” unemployment rate of 4.6%.

As with the last few weeks, today’s results indicate that initial claims are continuing to stay elevated while continued claims has slowed its descent.

Are we on the verge of a new upturn in joblessness or just in a slow trend down from last year’s epic shakeout?

We are on the verge of realizing the answer to this question and its outcome is probably one of the most important developments of our time.

If firms go for another substantial round of layoffs and job cuts during the fall to early winter (…the typical period of increasing job cutting activity regardless of economic conditions) we could see an unemployment super-spike form whereby two years of significant job cutting activity merge into one large period of unemployment.

Of course there are many ways that the job picture could trend but if firms underestimated their cutting last year and need to cut even deeper this year, it would clearly differentiate this period from most of the past post-WWII recessionary periods.

Clearly, careful attention needs to be paid to these indices to see how they reflect the state of the job market as we move further into the second half of the year.

***

The following chart shows the recent trend in initial non-seasonally adjusted initial jobless claims with the year-over-year percent change acting as a rough equivalent of a seasonally adjustment.

Historically, unemployment claims both “initial” and “continued” (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

I have added a chart to the lineup which shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.

As you can see, acceleration to claims generally precedes recessions and vice versa.


Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).


In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a “flattening” period of employment and subsequently followed by even further declines to unemployment as growth accelerated.

This flattening period demarks the “mid-cycle slowdown” where for various reasons growth has generally slowed but then resumed with even stronger growth.

Until late 2007, one could make the case (as Fed chief Ben Bernanke surly did) that we were again experiencing simply a mid-cycle slowdown but now those hopes are long gone.

Adding a little more data shows that in the early 2000s we experienced a period of economic growth unlike the past several post-recession periods.

Look at the following chart (click for larger version) showing “initial” and “continued” unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.

The most notable feature of the post-“dot com” recession era that is, unlike other recent post-recession eras, job growth had been very weak, not succeeding to reach trend growth as had minimally accomplished in the past.

Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.

It is now completely clear that the potential “mid-cycle” slowdown that appeared to be shaping up in late 2007, had been traded for a less severe downturn in the aftermath of the “dot-com” recession, and now has we have fully entered, instead, a mid-cycle meltdown.

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Wednesday, September 23, 2009

Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 47% in a little over 120 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… yet notably stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let’s continue to keep a watchful eye…


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PaperEconomy Blog - www.papereconomy.com
All Rights Reserved

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