I haven't been posting as much lately because I am working on several projects. In particular I am giving a presentation on the Health Insurance Reform Act and its impact on business owners. I will post an outline of what I present and if I can figure out how to do it will also post the slides. In addition, I will begin some longer posts to outline what I responded to Dacian regarding the catalysts for a turn down.
HOME SALES - CAN IT LAST?
Here is a graphic that shows where we are in existing home sales since September 2008. We've had a spike as a result of the economy stabilizing and massive stimulus applied to every facet of the financial system.
We have a few more days of "cash for houses" the incentive that allows new home buyers and trade up buyers to access a tax credit to help with the purchase of a home.
Hopefully the housing market will now be able to stand on its own feet and we won't see a drop from these stimulated levels - however I doubt it. (Edit- I noticed that I didn't put in my skepticism as the auto plan cash for clunkers did nothing to change long term demand).
I pulled the chart from - http://dailycaller.com/2010/04/22/existing-home-sales-up-6-8-in-march-propelled-by-buyer-credit/
TRADING UPDATE -We've been on target for the last several months as April has delivered "more of the same" as the melt up has continued. As I'm typing the market Dow is down 150 points on the back of the Portugal debt downgrade. This revelation added to the Greek debt uncertainty and the Goldman Sachs testimony is adding risk and volatility back into the markets.
Does this mean we need to bail on trades? Actually, I believe this is not true at all. In fact, this weakness and the continued understanding that Europe is on its deathbed means that the only course of action will be more of the same. More of what? More printing of course! As I suggested in December and January in my predictions, the FED is not going to be able to raise rates given the deflationary forces at work. This uncertainty assures us that the FED will continue to press the gas pedal and inflate.
Notice that despite the sell off that gold is doing well. This gives us and indication that players have a sense that inflation is going to be looming.
I'm still watching issues with seasonality of the markets in May (Sell in May), but feel like we have sometime before that will kick in near the end of the month. I will be buying on weakness here.
Goatmug
Posts
The NAR (National Association of Realtors) most recent update showed that 44% of all home purchases in March were made by first time buyers.
ReplyDeleteI am anticipating a pull back in first time buyer purchasing once the $8,000 tax credit opportunity ends April 30th.
There could also be a pull back in purchases made by other buyers (non-investors) leveraging the $6,500 credit available to people looking to 'upgrade' after living in their existing residence at least 5 years.
We will not know until mid June exactly how much that pull back might be, but I expect it to be pretty substantial.
Nice KPG, thanks for the post. - We might expect as much. Is that really NAR posting that? They usually are way too one sided and bullish in their projections so suddenly I'm wondering what they are up to.
ReplyDeleteGoatmug
Yes, the NAR posts monthly updates on sales trends. They break down how the monthly sales compared to years past, as well which demographics are doing the purchasing.
ReplyDeleteThe NAR has not stated that they anticipate a pullback based on those numbers, but 44% is a high number, and I believe the tax carrot is really driving that. When the carrot is gone, I don't think that demographic is nearly as motivated to buy.
Hi
ReplyDeleteMe in your post? I'm proud of that :)
"More of what? More printing of course!
...
the FED will continue to press the gas pedal and inflate."
I do agree, it seems safe to bet on that for now. I'm also with you that exactly because of that, there MIGHT be a big spike in oil later in the summer; yet, you notice oil is selling with the markets although the operators know FED will continue inflating. An big spike in oil (aka the economic killer) will put a lot of pressure on the recovery; I'm long oil for now.
You probably also noticed that another big stimulus (half a trillion $) is reported as being deployed in China this summer.
http://www.bloomberg.com/apps/news?pid=20601089&sid=ajsv6gEJ15Nw
"Notice that despite the sell off that gold is doing well. This gives us and indication that players have a sense that inflation is going to be looming."
I'm not sharing the same reason as you on why gold is holding well; I still think gold is not selling because operators feel DEFLATION is coming rather than INFLATION. If INFLATION is coming, the FED will restrict the supply of money, which will be gold-negative. But if DEFLATION is coming, the FED will expand on its policies, which is gold supportive.
"I'm still watching issues with seasonality of the markets in May (Sell in May), but feel like we have sometime before that will kick in near the end of the month."
Do you have like a menthal target for this push for end of May? 1300 or a bit more? You might have a look at XRT index (retailers); it just broke the highs established in 2007, it looks vertical (Guy Lerner has a nice post on that). What do you think?
Also, do you think that the print we'll have in May (or later this year) will be some lasting top (couple of years)? Or just a temporary thing which will be taken out easily later in 2011.
I read Grantham letter which was out 2 days ago (I highly appreciate this guy); it's called "playing with fire"; he believes we can revisit the 2007 highs (1500 - 1600 on S&P by the end of 2011); his reasons are we're in the 3rd presidential year and never in history markets fell in that year because there is a lot of help from the FED for the president to be elected, a lot of pork and stimulus, etc. He says that if we go there, it will be very ugly afterwards with bad consequences for the economy (a crash will be more dangerous than a big correction from these levels).
voila! thanks for this post btw, waiting for you to develop on it.
I just saw you have another post with the chinese stimulus, I wasn't aware and mentioned it above...
ReplyDelete