Tuesday, August 30, 2011

Morning Update/ Market Thread 8/30 - Roller Coaster, Hope You’re Enjoying the Ride Edition…

Good Morning,

Equity futures are rolling lower this morning with both the dollar and bonds rising to erase yesterday’s moves. Oil is lower, gold is on the up ramp as is silver, while food commodities are free falling into the gap up that was created yesterday! Wee, isn’t this fun?

Yeah, if you’re 8 years old it’s real exciting and you want to experience those emotional highs and lows again – what fun! But to call these “markets,” or to claim that feeding your money into them is “investing” is a long, long stretch from my point of view. We are so far away from the concept of investing that it’s hardly recognizable.

When one invests, for real, they are providing capital for someone else to use in a productive manner. You know, old fashioned things likes real goods and services that create real jobs. Not today. Today “investing” goes like that roller coaster ride for most Americans, but not if you’re Warren Buffett. No, no… Warren does something entirely different – he uses his money to buy his way into face time with the President where he suggests that he’d be happy to provide a few billion to help shore up an insolvent and worthless bank if only the good people will guarantee his “investment” and provide a guaranteed return of hundreds of millions.

Quite the contrast, no? And it’s certainly not the first time that he’s used the taxpayer to his benefit. That type of inequity is a marker – it signifies that “other events” are going to be fueled and that major league change is enroute.

Consumer Confidence is released at 10:00 Eastern, we’ll report that depression era read inside of today’s Daily Thread.

This morning the Case-Shiller quarter 2 report for the month of June came out. This report is somewhat better than May’s, especially in the 10 city figures, but if you take the time to read the report you’ll find that the National Index year over year number is still negative by a whopping 5.9%! That’s a ton of price movement in the downward direction, don’t let the happy talk fool you. Here’s Econofool:
Home prices were trending flat in June with Case-Shiller's adjusted composite 10 index, which is a three-month average, holding unchanged for a second straight month (prior month revised from plus 0.1 percent). The composite 20 index edged 0.1 percent lower for a second straight month with 11 of the 20 cities showing declines in June. Seasonality is at play during spring and summer which is a strong time for home sales and, in what is a mild positive, seasonality is also at play this year as well. Unadjusted data show 1.1 percent gains for both the composite 10 and composite 20 indexes during June following 1.0 percent gains for both in May.

In contrast to month-to-month comparisons, year-on-year comparisons are less affected by seasonality with the adjusted composite 10 down 3.9 percent vs minus 3.8 percent for the unadjusted composite 10. The composite 20 shows deeper contraction at an adjusted minus 4.6 percent and an unadjusted minus 4.5. The trends for the report's year-on-year rates have been flat to slightly negative.

Weak home prices remain yet another negative for the American consumer whose foremost battle however is with the soft jobs market. Watch for comments on housing in today's FOMC minutes followed by construction spending data on Thursday.

Now, do yourself a favor and compare that mild assessment with what you read on pages 1 & 2 of the actual report… That’s where you’ll read about the National Index and places line Minneapolis and Portland that are down 10%+ in the past year alone:

Case-Shiller June 2011

WEE! Nice roller coaster on that chart! Must be another great “investment.” Oh yeah, we’ve all seen the real estate price roller coaster by now, so I won’t show it again – I think that young boy’s reaction on the down stroke says it all.

But remember, I think a very large anchor is about to be removed from the housing market, that is the Option-ARM resets are at peak right now and from this point forward their drag on the market will lessen rapidly:

Just remember, do not get up until the roller coaster has come to a complete stop!

In all seriousness, this probably will not mark the bottom of the market as the market has tended to lag about 6 to 9 months behind both the Subprime and Option-ARM waves, so be careful in making assumptions.

Hope you’re enjoying the ride!