The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Have prices reverted back to historic norms yet?

Even after the 2.3% decrease in median home prices, the short answer is no. Consider the following from Chart of the Day, who note:

“For some perspective into the all-important US real estate market, today’s chart illustrates the US median price of a single-family home over the past 39 years. Not only did housing prices increase at a rapid rate from 1991 to 2005, the rate at which housing prices increased – increased.

That brings us to today’s chart which illustrates how housing prices are currently 30% off their 2005 peak. In fact, a home buyer who bought the median priced single-family home at the 1979 peak has seen that home appreciate by a mere 4%. Not an impressive performance considering that three decades have passed. Over the past two months, single-family home prices have resumed their decline and remain (until proven otherwise) in an accelerated downtrend.”

I have annotated the COTD below, showing 3 distinct phases of the acceleration in price appreciation: From 1) During the Bull market 1985-1996; 2) Then following an advantageous tax change, ~1997 -2002. and then 3) After rates came down to 1% in 2003, housing went ballistic.

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Courtesy of Chart of the Day

Did the Abstract Expressionist hide his name amid the swirls and torrents of a legendary 1943 mural?

That is the case an art historian makes for a signature gesture:

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click for interactive photo

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Source:
Decoding Jackson Pollock
Henry Adams
Smithsonian magazine, October 2009

http://www.smithsonianmag.com/arts-culture/Decoding-Jackson-Pollock.html

Nice interview by Henry Blodget:

Andreessen, The Early Days
click for video

Read the rest of this entry »

Tiger Management chairman and investing legend Julian Robertson discusses a range of topics, from the risk inflation poses to the economy to the U.S. dependence on China and Japan to fund its debt, with CNBC’s Erin Burnett.

Elasped time 29 minutes.

Hat tip Paul

I was invited to testify this week to the House Financial Services Committee about reform and regulation.

I politely demurred.

Quite bluntly, I didn’t see how speaking to Congress would matter one tiny bit. Its not like they seem to be paying much attention to witnesses, or have very much interest in figuring out what was the cause of the crisis. Besides, they seem to be beholden to those whose interests are to not fix the problems at hand.

While I have been critical of the Federal Reserve (especially the Greenspan years), my beef with them has been their judgment and decision-making process. Congress, on the other hand, is a whole different matter. Its not their judgment, but rather, the fact they are owned not by the American people, but by lobbyists, and corporate interests. They have become structurally deformed.

How weird is it for me, who spent so many pages blaming the Fed for much of the recent crisis, to find myself in a position of defending them from outside political pressure? The choice we face is the recent Fed regime of secrecy, nonfeasance, irresponsibility, and easy money — versus something possibly likely to be a whole lot worse.

To be found in “contempt of Congress” would require an improvement in opinion of them.

If the Fed has been a major source of problems, Congress is much worse. They were the great enablers of the crisis, readily corruptible, bought and paid for by the banking industry. Even AFTER THE CRISIS, the lobbyists seem to own the place. Thus, I fear Congress is the worse of two evils — lacking in objectivity, incapable of producing legitimate regulatory review.

If the Fed is Wall Street’s bitch, than Congress is the Street’s whore.

You can see why going to DC is probably a good way to get my ass thrown in jail. Most scenarios I envisioned end with me trying not to respond with a list of the campaign donations that were made to the congressional questioner. I pictured myself responding not to the “Senator from the great state of Texas,” but rather, to the “Senator representing the great state of AIG.”

In my mind, these back and forths all go badly. Visions of Jack Nicholson barking YOU CAN’T HANDLE THE TRUTH comes to mind. Or worse, Al Pacino yelling, I’M OUT OF ORDER? THIS WHOLE PLACE IS OUT OF ORDER!

I leave the great chamber — or rather, am led out — in cuffs.

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If anyone can give me a good reason to spend a day in DC testifying to Congress, I am all ears. I was unable to think of any; maybe the crowd has some special insight.

To funny:

via Dilbert.com

Some afternoon reading for a lazy Friday:

• King Says British Banks Got Within Hours of Collapse (Bloomberg) “Two of our major banks which had had difficulty in obtaining funding could raise money only for one week then only for one day, and then on that Monday and Tuesday it was not possible even for those two banks really to be confident they could get to the end of the day.” –Bank of England Governor Mervyn King

• G-20 to Curb Bank Pay, Coordinate More as Crisis Ebbs (Bloomberg)

• A Tale of Two Bailouts: It’s not the best of times for housing. (Newsweek)

• Marc Faber Takes on Krugman (Real Time Economics)

• Is Twitter Worth a Billion Bucks? (BusinessWeek)

• The Biggest Government Bailout Is Yet To Come. Itself. (Slate)

• Why China must do more to rebalance its economy (FT)

• A System Breeding More Waste (NYT)

And this one looks especially important:

• Nadir Of Western Civilization To Be Reached This Friday At 3:32 P.M. (The Onion)

What are you reading?

Protecting your gains in this market can be difficult. BNN discuss strategies to take advantage of the current market conditions with Danielle Park, portfolio manager and president, Venable Park Investment Counsel.

The Street : September 23, 2009 : Strategy Session [09-23-09 8:15 AM]

Michael Moore with Dylan Ratigan on MSNBC’s Morning Meeting today.

Both Existing and New Home Sales disappointed economists this week. had they been savvier observers of Housing Markets, they should not have been surprised.

Existing Home Sales declined 2.7% month over month. They improved 3.4% above the August 2008 levels, as the national median existing-home price fell to $177,700 in August — down 12.5% from year ago levels.

New Home Sales also disappointed — coming in at 0.7% gain from the prior month, about half of consensus expectations. Again, sales disappointments took place despite a record drop in prices. Median new house price dropped 9.5% in August from July — the biggest decrease since records began in 1963. New Home Sales were off 3.4% from a year earlier, as prices fell 12% from August 2008.

Why? Start out with the end of the Tax Credit for First time home buyers — that sunsets November 30th. Given that most mortgage commitments are only 90 days, the August buyers of new (but already built) homes should make it. Then we move on to the Seasonality issue: With the heart of the Spring/Summer sales season behind us, experienced real estate folk know that (month over month) home sales are heading back down. Sales bottom every year in January, pick up throughout the spring, and peak in July/August. Then, begin to slide until January (see chart below).

For sheer entertainment value, you can do no better our all time favorite spinmeisters, the National Association of Realtors.  They had the best excuse for why August sales faltered: According to their chief  economist, Lawrence Yun, the problem was (brace yourself for it) a “rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process.”

You see, real estate is booming, and there have been so many sales, the entire system is backed up! WE SIMPLY CANNOT CATCH UP ON ALL THE PAPERWORK.  (One has to conclude that to work at the NAR requires a unique combination of chutzpah and stupidity; they seem to have both in spades).

One last curiosity about recent sales: Despite the record drop in prices, sales continue to flatten out after several months of strong increases. Beyond the seasonal observations, consider the implications of such weak sales accompanying a “record drop” in prices. That suggests that 1) demand is not strong; 2) credit for purchases is limited in availability; 3) prices are still too high; 4) all of the above.

So to conclude: Sales have stopped free-falling year over year; The were improving, in part due to foreclosure driven bargains, and in part due to first time tax credits. We now enter the weakest stretch of the year for monthly sales — expect them to continue sliding until January . . .

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click for ginormous chart

Chart via Calculated Risk

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Sources:
NEW RESIDENTIAL SALES IN AUGUST 2009
SEPTEMBER 25, 2009 AT 10:00 A.M. EDT
Manufacturing and Construction Division

http://www.census.gov/const/newressales_200908.pdf

Existing-Home Sales Ease Following Four Monthly Gains
NAR, September 24, 2009

http://www.realtor.org/press_room/news_releases/2009/09/ease_four