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MARKET SNAPSHOT: Stock Investors Find Some Cheer In Spike In Home Sales
"When was the last time we've had good news on the housing market? You really can cut prices to the point where volume will move," said Owen Fitzpatrick, head of U.S. equity group at Deutsche Bank, of the unexpected December increase in sales of existing homes reported Monday.
Falling prices on higher volume is great news! This only applies to homes though. If the stock market was crashing on higher volume then we would find very little reason to cheer. We might even be Greatly Depressed.
The S&P Case-Shiller report translates into an 18% decline in home prices for the 12 months ending in November, or a loss of approximately $3.8 trillion in the market value of U.S. housing stock.
When was the last time we've had news THAT good? I don't know about you, but I'm reminded of the time I lost $2.7 trillion of loose change in my couch. Upon realizing what I did, I immediately borrowed some more money to buy some party hats and noisemakers. I then rented a private corporate jet, flew off to Washington DC, and groveled for $5.2 trillion in bailouts. Good times, good times.
Meanwhile, investors found little reason to jump back into the shares of homebuilders Tuesday. The S&P Homebuilders ETF (XHB) fell, as the likes of Ryland (RYL), Pulte Homes (PHM) and Lennar (LEN) slumped.
Apparently the housing news was just too fantastic to lure the housing investors back in. That will all change once they awaken from their jubilant slumber no doubt.
This brings me to a major concern of mine. It is becoming increasingly difficult to increase the level of sarcastic output lately. Peak sarcasm?
It's like painting a dark wall white. That first coat turns it somewhat white. The next coat makes it look whiter still. At some point, the wall becomes white. No additional coats of white paint will make it look any whiter.
Sarcasm has covered my dark wall (of worry) one piece at a time. It is now as white as the driven snow.
One Piece at a Time
See Also:
Housing Market Crashes on High Volume!!!
Lawler: Observations on the Recent Surge in Net International Migration
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Today, in the Calculated Risk Real Estate Newsletter: Lawler: Observations
on the Recent Surge in Net International Migration
A brief excerpt:
NOTE: Hous...
4 hours ago
4 comments:
Stag,
I felt the need to try and get into Bernanke's head again. From his 2002 Helicopter speech:
A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934
It's odd that Bernanke attributes the reversal of the GD deflation to the gold devaluation. I'm sure it helped, but the data shows that the reversal was well under way in 1932 - prior to the devaluation in 1934. I'm also shocked that a 40% devaluation led to a relatively small increase in inflation.
I still can't get off the fence on the inflation/deflation issue. In one corner we have massive unpayable debts, poor income growth, 3rd world income distribution, depressed asset values and an aging populace. In the other corner we have a determined fed/gov't ARMed with a printing press.
I'm now wondering the same thing you are: What kind of game is this?
In any event, I think Bernanke and other central bankers miss the most important point. The only way to avoid a massive bust is to avoid the unsustainable boom.
mab,
I felt the need to try and get into Bernanke's head again.
I wouldn't go in there without proper backup! It's booby trapped!
The Level and Distribution of Economic Well-Being
http://www.federalreserve.gov/newsevents/speech/Bernanke20070206a.htm
Although average economic well-being has increased considerably over time, the degree of inequality in economic outcomes has increased as well. Importantly, rising inequality is not a recent development but has been evident for at least three decades, if not longer.
Three decades takes us back to the 1970s. That's when we fell off the gold standard. However, I think that's mostly just a coincidence. The real problem, if you can call it that, is the abundance of productivity miracles. I continue to believe that income inequality was the primary factor causing the Great Depression. The system becomes unsustainable once the masses can no longer afford to buy the products.
The central bank has no idea what to do if there is just one person working in all of America and all he needs to do is press the "Go" button on his desk. Advanced computers using sophisticated artificial intelligence and robotics does all the rest. Currently, we're trying to simulate such a system by outsourcing our jobs to China. That's somewhat worse though. We pay China and they expect to someday spend the money.
A better approach for policy is to allow growth-enhancing forces to work but to try to cushion the effects of any resulting dislocations. For example, policies to facilitate retraining and job search by displaced workers, if well designed, could assist the adjustment process. Policies that reduce the costs to workers of changing jobs--for example, by improving the portability of health and pension benefits between employers--would also help to maintain economic flexibility and reduce the costs that individuals and families bear as a result of economic change.
This does nothing to alter my worst-case extrapolated example. All we would have is highly educated unemployed people. Computers can now beat even the smartest chess players. How can mere humans possibly compete long-term? Let's face it. There's still plenty left to automate. This trend is not going away. We have already automated the heck out farming, to the point where we talk of employment reports in terms of non-farm payrolls. That's just a small glimpse of what's to come.
Chess champion loses to computer
http://news.bbc.co.uk/2/hi/europe/6212076.stm
In 2002, Mr Kramnik held Deep Fritz to a draw after eight games, but the chess software has since been updated, calculating millions of positions every second.
The chess champion just needs to play "smarter".
Stag,
Thanks for the Bernanke link. I had never read that before.
From the link:
Indeed, without the possibility of unequal outcomes tied to differences in effort and skill, the economic incentive for productive behavior would be eliminated, and our market-based economy--which encourages productive activity primarily through the promise of financial reward--would function far less effectively.
It sure seems to me that productive behavior is punished, not rewarded. Hopefully that will change though I'm not holding my breath.
The debt money system has merits, but it now rewards pushing debt. Or as Bernanke would see it - creating credit. I suspect that is because we are now in the steep part of the exponential curve.
Over the past ten years, I don't see how any intellectually honest person could maintain that the majority of the credit created was economically or productively based. The notion that depreciating houses were making the masses rich should have set off bullsh%t alarms, but it didn't!
I've had business dealings with a few companies that were private equity take-out targets. Every deal was idiotic. Insanely idiotic. And each deal involved a well known PE firm. I couldn't figure it out until I came to understand the credit system.
The credit monster requires exponential interest growth. More and more, the real economy can't meet the vig. When productive economies work properly they cause deflation. They also don't always provide credit growth to meet interest payments. See the conflict? No worries though. Hucksters were more than willing to provide credit growth and interest payments for the insatiable credit beast. The debt system needed nourishment and the "smart guys" were there to provide it. And it all looked like productive growth on the spread sheets of the fed. Oh yeah, the system rewards productive output!
If you want rewards in this eCONomy you need to understand this CONcept: credit growth = $. Productivity is secondary and is akin to swimming against the tide.
mab,
The debt money system has merits, but it now rewards pushing debt. Or as Bernanke would see it - creating credit. I suspect that is because we are now in the steep part of the exponential curve.
October 2006
Public Debt and Productivity: The Difficult Quest for Growth in Jamaica
http://www.imf.org/external/pubs/ft/wp/2006/wp06235.pdf
At low levels of external debt, borrowing provides countries constrained by small capital stocks with the necessary financing, as long as they are not constrained by macroeconomic instability, distorted policies and institutional weaknesses. This helps growth. Above a certain threshold, however, debt is found to reduce growth.
Other than macroeconomic instability, distorted policies, institutional weaknesses, excessively high debt, and excessively high increases in our debt load we're actually lookin' pretty darned good. That's probably just me being too optimsitic again though.
A few trillion dollars here and a few trillion dollars there? What's the harm?
The total effect of high debt is significantly negative. A doubling of total public debt is associated with an average reduction in productivity growth of about 1.5 percentage point.
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