Mish's Global Economic Trend Analysis

New Home Sales and Bear Market Math
Consumer Confidence Sinks to 50.4, a 5-Month Low; Home Prices Rise; Case-Shiller a Very Lagging Price Indicator
Afghanistan is a "Lost Cause"; Leaked Documents Show Futility of Afghanistan War

Posted: 27 Jul 2010 08:43 PM PDT

One can't help but laugh at headlines touting a huge 23.% jump in new home sales given that the "jump" was to the second worst month in history, dating back to 1963.

Dave Rosenberg puts the headline jump into perspective in Housing Data Are Not Supportive.

Market sentiment is positive and as a result of the market going straight up, people believe that the economic data are somehow getting better. Not the case at all.

April new home sales were revised DOWN to a 422k annual rate from 504k when the data for the month were first released. You know what that means? It means that the homebuyer tax credit was even a bigger dud than we thought it was previously. No bang for the buck from these spending gimmicks.

May new home sales were revised DOWN to 267k units from 300k. That sure puts a 23.6% "jump" to 330k into perspective, doesn't it? It's called bear market math.

At 330k in June, this goes down as the second worst month on record (data back to January 1963). And in per capita terms it is far worse than that considering the population has expanded 63% since then.

Now, if we take the original unrevised number for April, the unrevised May data-point, and the June consensus estimate of 310k, then the average of the past three months would have been 371k. But post-revisions and with the actual June print, sales have averaged 340k at an annual rate.

That puts the data into proper context. We are actually left with a weaker three-month profile of home sales after the release of the data yesterday, not the opposite. Also, it took a median of 12.4 months for the builders to locate a buyer upon completion – a record for June.

The unsold inventory number was also revised sharply higher in May and because of that, the backlog looks so much better now – from 9.6 months' supply to 7.6 months'. Even so, a well-balanced market, as any real estate agent will tell you, is 5-6 months' supply.

Maybe this is why the average sales price was cut 9.8% MoM in the third steepest month ever in terms of discounting. At $242,900 for an average price of a new home sold, this represented the lowest number since October 2003 and off 26% from the 2007 peak.

But just think about that for a second. The third largest price cut in history managed to generate the second worst new home sales tally on record. This is something to get excited about?

Given that housing leads recoveries (more specifically housing starts followed by new home sales), this is another nail in the coffin that suggests there has been no recovery except in financial assets. Moreover, that financial recovery is only a result of unsustainable stimulus that is now quickly fading into the sunset.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Consumer Confidence Sinks to 50.4, a 5-Month Low; Home Prices Rise; Case-Shiller a Very Lagging Price Indicator

Posted: 27 Jul 2010 10:26 AM PDT

Consumer confidence has plunged to 50.4. To put the number in perspective, it was averaging 98 in the last expansion.

Bloomberg reports U.S. Economy: Consumer Confidence Slips to Five-Month Low

The Conference Board's sentiment index fell to 50.4, below the median forecast of economists surveyed by Bloomberg News and the lowest level in five months, figures from the New York-based private research group showed today. Another report showed home prices rose more than forecast in May as a government tax credit temporarily underpinned sales.

"Faith in the economic recovery is failing," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who had forecast the confidence index would drop to 50.3. "It'll be 2013 before we see any semblance of normality in the labor market. It means weaker purchases."

Home prices in 20 cities climbed 4.6 percent in May from the same month last year, exceeding the median forecast of economists surveyed and the biggest 12-month gain since August 2006, a report from S&P/Case-Shiller also showed. Home sales plunged following the April 30 contract-signing expiration of a government incentive worth up to $8,000, raising the risk that property values will slacken in coming months.

"There may still be some residual impact from the homebuyers' tax credit," David Blitzer, chairman of the index committee at S&P, said in a statement. "It still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy."

Case-Shiller a Very Lagging Price Indicator

It would help if analysts understood (and properly explained) what is happening and how Case-Shiller works.

Calculated Risk explains in Survey shows house prices falling in June, but long wait for house price indexes

Campbell Surveys put out a press release this morning: Home Prices Tumble in Most Categories During June (no link).

The Case-Shiller index is a three month average and is released with a two month lag. The Case-Shiller house price index to be released tomorrow will be for a three month average ending in May.

The first Case-Shiller release with July prices will be released at the end of September - and that will include the months of May, June and July! And prices were probably up in May and June.

And prices don't fall overnight. Based on the timing of the above survey, prices fell from May to June - and those transactions will probably mostly closed in August. That is why Popik is saying the price declines will not show up in house price indexes until October of November.

With that in mind, let's revise David Blitzer's statement so that it actually makes sense.

"It still looks possible ~~that the housing market might bounce along the bottom for the foreseeable future~~, Case-Shiller reported prices will rise for a few more months before ~~showing any real improvement that will filter through to the rest of the economy.~~ sinking again this Autumn. Anyone expecting home price improvements to filter through to the rest of the economy simply does not understand how lagging the Case-Shiller index is, the change in consumer sentiment, or how rapidly the real economy is deteriorating."

Indeed, I expect a Expect Second-Half Housing and Durable Goods Crash.

The key reason is consumer spending plans have crashed as noted in Consumption Inflection Point - No One Wants Credit; Consumer Spending Plans Plunge.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Afghanistan is a "Lost Cause"; Leaked Documents Show Futility of Afghanistan War

Posted: 26 Jul 2010 11:35 PM PDT

The questions on my mind are: How many trillions of dollars do we have to spend, how many lives need to be wasted, and how much longer are we going to be involved in the boondoggle known as Afghanistan?

Such questions were on my mind even before Leaked Documents Underscore Lawmakers' Concerns on Afghan War

President Barack Obama faces renewed concern about his Afghanistan war strategy after leaked military documents suggested Pakistan's main intelligence agency secretly aided the Taliban and others the U.S is trying to defeat.

Disclosure of the documents, as Congress this week considers funding for the U.S. troop buildup in Afghanistan, underscored questions about the war while many lawmakers prepare to go home to campaign in August.

Some of the 92,000 classified reports, disclosed July 25 by the website Wikileaks, say that members of Pakistan's Inter- Services Intelligence Directorate helped the Taliban and other Islamic rebels. The documents, covering 2004 through 2009, were reported by the New York Times, the London-based Guardian and the German magazine Der Spiegel, which said Wikileaks provided them the reports three weeks ago.

The leaked documents "raise serious questions about the reality of America's policy toward Pakistan and Afghanistan," said Senate Foreign Relations Committee Chairman John Kerry, a Massachusetts Democrat. "Those policies are at a critical stage," and the documents "make the calibrations needed to get the policy right more urgent."

'Not Pretty'

"I've been to a number of briefings and I've always been provided a more upbeat picture than the one" depicted by the documents, said Representative James McGovern, a Massachusetts Democrat who opposes Obama's Afghan policy. "The picture that is painted here is not pretty."

Obama announced in December plans to send another 30,000 combat troops to Afghanistan, and Congress is under pressure to pass legislation paying for the buildup before taking its monthlong summer recess. Obama has said he will start to draw down U.S. forces in July 2011 and give more security responsibility to the Afghans, depending on conditions.

Polls show support for the war waning. Almost 6 in 10 respondents in a Bloomberg National Poll conducted July 9-12 said Afghanistan is a lost cause.

Also, 60 percent of Americans surveyed thought the withdrawal of forces should start in July 2011 even if the situation in Afghanistan remains unstable. The poll of 1,004 adults had a margin of error of 3.1 percentage points.

The document leak constitutes the "the largest single unauthorized release of currently classified records -- multiple times the volume of the Pentagon Papers" about the Vietnam war leaked to newspapers in 1971, said Steve Aftergood, director for the Federation of American Scientists Project on Government Secrecy.

Arizona Senator John McCain, ranking Republican on the Armed Services Committee, said, "We are finally beginning to address many of the problems highlighted within these leaked documents." McCain generally supports the war effort, though he opposes setting a date to begin a withdrawal.

House Speaker Nancy Pelosi, a California Democrat, said she doesn't believe the leak will affect support for the war-funding legislation because the group of reports "predates the president's new policy."

The Senate last week approved $60 billion to fund the troop buildup in Afghanistan and other needs. The House version, passed earlier this month after Democratic leaders used parliamentary tactics to push it through, included funds to help states avoid having to fire teachers.

The House plans to debate a nonbinding resolution by Representative Dennis Kucinich, an Ohio Democrat, seeking removal of U.S. troops from Pakistan.

The documents show it is "indisputable" that "our nation has fallen into a trap of continued occupation and escalation that can only lead to more tragedy," Kucinich said.

Motivation for the Leak in Question

Whoever leaked those documents is a national hero if it was done for the sake of disclosing the truth as opposed to creating a political firestorm. I suspect the latter. However, I am still glad the truth is out.

Parrots and Warmongers Speak

McCain and Obama are both warmongers. Neither is fit for office. In contrast, Nancy Pelosi is a parrot willing to say whatever Obama tells her to say. Parrots are unfit for office as well.

I think there is a good Saturday Night Live skit here, with Obama talking and Pelosi in a parrot suit repeating verbatim what Obama says.

Anyway, Afghanistan is a "Lost Cause" no matter how much more we spend or how long we stay. Does anyone remember the original mission? Here it is: To catch Bin Laden.

Instead of pursuing Bin Laden, we got sidetracked in an insane war in Iraq that did not need to be fought. So here were are, having wasted trillions of dollars, and all we have accomplished in 10 years is to make more enemies and wreck the economy.

Amazingly, we have a deadline of July 2011 to start pulling out troops, even though there is no clear mission as to what we expect to accomplish between now and then.

Mission Defined

A best as I can tell, the mission is to start withdrawing troops in summer of 2011 (come hell of high water), nicely timed for Obama's reelection ramp.

I have a better idea: I propose Congress pass a binding resolution this is 2011 and the war has been won. That way, we can start pulling out troops now and find better uses for another $60 billion dollars Obama wants to waste in Afghanistan.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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