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

As we warn year after, Housing is extremely seasonal. This part of the calendar is expected to slip straight thru to January — mostly in EHS, but we will also see it in New Homes Sales, Permits and Starts.

Add to this the sunsetting government subsidies — $8,000 tax credit for first-time home buyers, and the eventual removal of ZIRP — and you have a recipe for slowing Permits, Starts, and Sales. Yesterday saw the National Association of Home Builder’s confidence index declined for the month of October.

Commerce Data:

BUILDING PERMITS
Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 573,000. This is 1.2 percent (±1.8%)* below the revised August rate of 580,000 and is 28.9 percent (±2.2%) below the September 2008 estimate of 806,000.

Single-family authorizations in September were at a rate of 450,000; this is 3.0 percent (±1.0%) below the revised August figure of 464,000. Authorizations of units in buildings with five units or more were at a rate of 104,000 in September.

HOUSING STARTS
Privately-owned housing starts in September were at a seasonally adjusted annual rate of 590,000. This is 0.5 percent (±9.9%)* above the revised August estimate of 587,000, but is 28.2 percent (±6.7%) below the September 2008 rate of 822,000. Single-family housing starts in September were at a rate of 501,000; this is 3.9 percent (±9.3%)* above the revised August figure of482,000. The September rate for units in buildings with five units or more was 78,000.

HOUSING COMPLETIONS
Privately-owned housing completions in September were at a seasonally adjusted annual rate of 693,000. This is 10.2 percent (±10.4%)* below the revised August estimate of 772,000 and is 39.6 percent (±5.7%) below the September 2008 rate of 1,148,000. Single-family housing completions in September were at a rate of 464,000; this is 8.3 percent (±14.3%)* below the revised August figure of 506,000. The September rate for units in buildings with five units or more was 210,000.

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Source:
NEW RESIDENTIAL CONSTRUCTION IN SEPTEMBER 2009

http://www.census.gov/const/newresconst_200909.pdf

Homebuilder Confidence in U.S. Unexpectedly Decreases
Shobhana Chandra
Bloomberg October 19, 2009

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atsuzv2LjY8o

In contrast to the Reserve Bank of Australia, the Bank of Canada decided to keep rates at the historical low level of .25% and the strength of the Canadian $ seems to be the main motivation. The RBA spent more time focused on the possible imprudence of keeping rates at emergency levels when it was no longer necessary and was afraid of the imbalances to the economy low rates can create instead of the ancillary impact of a stronger currency due to higher rates. The BoC in contrast is worried that the strong Canadian $ is working to slow growth that is under way in Canada and they thus believe that “the composition of aggregate demand will shift further towards final domestic demand and away from net exports.” The strong currency is also giving them comfort that it will subdue inflation pressures and thus gives them room to keep rates very easy.

Sept PPI fell a sharp .6% vs expectations of flat and the core also unexpectedly fell .1% vs a forecasted rise of .1%. The headline drop was led by a 2.4% fall in energy prices, especially in gasoline which was down by 5.4%. This will reverse though in Oct as gasoline prices are back up by over 4%. The drop in natural gas prices kept a lid on residential gas prices. A 1% rise in the wholesale price of passenger cars was offset by a 1.4% drop in trucks. Inflation in the pipeline though, ex f&f, is rising as goods in the intermediate stage of production saw a rise of .9% m/o/m and prices at the initial stage rose 3.6% m/o/m ex f&f. Bottom line, with the CPI already out last week, the PPI today lost its market moving impact and with the continued rise in commodity prices, the drop in today’s data should reverse. The implied inflation rate in the 10 yr TIPS is unchanged this morning at 2.04%, up 6 bps from Friday and the highest since June.

Sept Housing Starts totaled 590k, 20k less than expected and Permits at 573k were 22k below forecasts. A drop in multi family construction was the drag on starts as single family homes rose but the reverse was true for permits. With the housing tax credit possibly about to expire, the drop in single family permits was not a surprise and buyers rushed to take advantage of it going into Sept, thus helping starts. Single family Permits fell in the Midwest, South and West but rose a touch in the Northeast. I highlight permits because the recent trends in starts becomes irrelevant in extrapolating future building IF the tax credit doesn’t get extended as we’ll have another Cash For Clunker type hangover since most of those who took advantage of the tax credit were going to buy a house anyway and all we did was pull forward demand.

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Fascinating look via a study by Pew Research Center’s Project for Excellence in Journalism, on how well the Media did in covering the financial collapse.

Among the key findings:

• Three storylines have dominated: efforts to help revive the banking sector, the battle over the stimulus package and the struggles of the U.S. auto industry. Together they accounted for nearly 40% of the economic coverage from February 1 through August 31. Other topics related to the crisis have been covered much less. As an example, all the reporting of retail sales, food prices, the impact of the crisis on Social Security and Medicare, its effect on education and the implications for health care combined accounted for just over 2% of all the economic coverage.

• Actions by government officials and business leaders drove much of the coverage. The White House and federal agencies alone initiated nearly a third (32%) of economic stories studied through July 3. Business triggered another 21%. About a quarter of the stories (23%) was initiated by the press itself and did not rely on an external news trigger. Ordinary citizens and union workers combined to act as the catalyst for only 2% of the stories about the economy.

• Fully 76% of the datelines on economic stories studied during the first five months of the Obama presidency were New York (44%) or metro Washington D.C. (32%). Only about one-fifth (21%) of the stories originated in any other city in the U.S., and about a quarter of those emanated from two other major media centers: Atlanta and Los Angeles.

• When it came to which phrases and ideas reverberated most in a broad array of media, an analysis of some 1.6 million news websites, blogs and other online sources finds that the president dominated. Nine of the top 20 most-quoted phrases came from him. But among Republicans, it was 38-year-old Louisiana Governor Bobby Jindal’s voice that carried the furthest—not any of the national party leaders. Overall, Republicans accounted for just four of the top 20 “memes” tracked in the analysis.

• Once the economic situation showed some signs of improvement—and the political fights over legislative action subsided—media coverage began to diminish. After accounting for 46% of the overall news coverage in February and March, for instance, coverage of the economic crisis dropped by more than half (to 21% of the newshole studied) from April through June. And in July and August, it fell even further (to 16%). The clearest example came in cable news. Once the political battles subsided, coverage fell by about two-thirds from March to April.

Read the rest of this entry »

Einhorn Vic 2009 Speech

Earnings overall continue to be excellent with a higher % of revenue beats than Q2. Apple of course was incredibly impressive. The big multinational companies with healthy exposure outside of the US definitely took advantage of the stronger rebound overseas. Emerging markets, led by Brazil, may be under pressure today after Brazil’s decision to levy a transaction tax on foreign purchases of their stocks and bonds in an attempt to halt the gains in the Real and the Real today is at a one week low. The US$ however is down a touch vs most other currencies. The RBA in minutes from their Oct rate hike said low rates could lead to imbalances in the economy. If only Greenspan took that advice in ’03-’04 and Bernanke now but I digress. Sept Housing Starts and PPI are the two key data points today with the housing figure being impacted by the tax credit.

We previously discussed the reaction to GS bonus — I thought it was much ado about nothing, you thought it was an outrage.

Well, it looks like the outrage camp is catching the attention of both the media and the politicos. Even the usually staid, anti-tax WSJ is discussing a “windfall tax” favorably:

“A windfall tax is blunt, arbitrary and something supporters of free markets usually instinctively avoid. Even so, following news that Goldman Sachs Group has already set aside a $16.7 billion bonus pool for 2009, the case for windfall taxes on banks that pay giant bonuses is becoming unanswerable.

This year’s bank profits are windfalls in the purest sense. They aren’t the due rewards for exceptional skill but gifts from taxpayers. Many banks are earning huge, risk-free profits borrowing from central banks at ultralow interest rates and lending back to governments at much-higher rates. If this giant, hidden subsidy was being used to support new lending, fair enough. Instead, it looks destined for bankers’ pockets. (emphasis added)

As much as so many people have recoiled over the size of the bonuses, there is one group that is thrilled with the big NY firms as they dole out $26 billion in bonus checks: State and city governments, and their friendly neighborhood tax collectors:

“Before the financial meltdown slammed bank earnings and the Standard & Poor’s 500 Index of U.S. stocks dropped 38 percent last year, Wall Street’s compensation and corporate profits provided 20 percent of New York state tax revenue and 9 percent of the city’s taxes. New York banks lost $42.6 billion in 2008 and shed 30,000 jobs, according to the city’s Office of Management and Budget . . .

Bonuses in 2008 fell 44 percent from the prior year, to $18.4 billion, said New York state Comptroller Thomas DiNapoli. The reduction cost the state $1 billion in personal income tax revenue and New York City $275 million, he said. State personal income tax collections in the current fiscal year’s first six months declined $4.4 billion, or 21.6 percent, from the same period a year earlier, DiNapoli’s September cash report said.”

One must think local retailers, Co-op sellers and Ferrari dealers must similarly be feeling a small sense of relief. A silver lining, to say the least . . .

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Previously:
Much Ado About Nothing $23B: Goldman Sachs Bonus (October 14th, 2009)

http://www.ritholtz.com/blog/2009/10/much-ado-about-nothing-23b-goldman-sachs-bonus/

Looking at Wall Street Pay (August 1st, 2009)

http://www.ritholtz.com/blog/2009/08/looking-at-wall-street-pay/

What’s Wrong With Billionaire Fund Managers? (April 16th, 2008)

http://www.ritholtz.com/blog/2008/04/whats-wrong-with-billionaire-fund-managers/

Sources:
Windfalls Show That Bonus Tax Makes Sense
Simon Nixon
WSJ, October 20, 2009

http://online.wsj.com/article/SB125598361150394821.html

Wall Street 40% Bonus Rise Feeds Spending on $43 Steak, Co-ops
Martin Z. Braun
Bloomberg, October 20, 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=a25cbLmExCXs

By now, everyone knows that employment is a lagging indicator. This cycle, however, the extent and duration looks to be deeper and longer than usual:

“Companies across the economy are holding off on hiring even as the profit outlook improves, amid economic uncertainty and their own success at raising productivity in rough waters.

Hiring always lags behind in economic recoveries, but the outlook this time is worse, many economists say. Most forecasters now expect a prolonged period of high unemployment, even though the government is expected to report next week that the economy grew in the third quarter, after four quarters of contraction. That is sure to frustrate the jobless and could be a problem for the Obama administration.

There are several major factors behind the trend, which is coming on top of sharper-than-expected job cuts in the recession. Many businesses have nagging doubts about the durability of the upturn, attributing much of the recent growth in orders to a move by their customers to rebuild inventories and to government stimulus spending, rather than underlying strength in their markets.

Businesses also face uncertainty about the potential costs of regulatory moves — such as an expansion of health care and climate legislation — that could drive up costs. And many employers have learned how to produce more with a smaller number of people than they previously thought possible.”

A “V” recovery looks increasingly far-fetched . . .

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Chart courtesy of WSJ

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Previously:
NFP: Understanding the Lag (April 3rd, 2009)

http://www.ritholtz.com/blog/2009/04/nfp-understanding-the-lag/

Source:
Employers Hold Off on Hiring
TIMOTHY AEPPEL and CONOR DOUGHERTY
WSJ, OCTOBER 20, 2009

http://online.wsj.com/article/SB125599093581195087.html

Quick reads:

• FDIC Failed to Limit Commercial Real-Estate Loans, Reports Show (Bloomberg)

• Einhorn on gold, sovereign default, and more (Winkler)

• The Stock Market Has Never Been This (Intermediate-Term) Overbought (Hussman)

• Builder Confidence Slips in October (NAHB)

• Oil Hits 1 – Year High Above $79 (Reuters)

• Moody’s/REAL Commercial Property Price Indices Off 41% Since 07 Peak (Bloomberg)

• Apple Q4 Results: Big Q, More Macs And iPhones Sold Than Ever Before (TechCrunch)

• Feds to issue new medical marijuana policy (AP)

Anything else worth reading?

Rob Fraim is a reader who puts out his own amusing comments each week via email. On the 22th anniversary of the 1987 stock market crash, he put out his recollections from that day, and we are republishing them today, the 20th anniversary of Black Monday.

I found them so interesting that I suggested Rob (who is blogless) post them here. He gladly agreed. Without further adieu, here is Rob’s version of 1987 Crash Revisited:

1987 Crash Revisited

A few years ago I wrote up my recollections of the Crash of 1987 – that very spooky period back when I was a mere pup in this business.  Evidently some folks enjoyed the piece, since it cropped up here and there on the internet as it was shared by one person and another.

This being the case I sometimes re-send it on the anniversary of the 1987 Crash, and this year – having just gone through a year of extraordinary financial events and a prolonged stock market drop of epic proportions – it seems particularly timely to replay the events of 22 years ago.   Perhaps there are some lessons to be gleaned, or if nothing else maybe it serves as a reminder to look for a bit of humor in dark moments and scary markets.