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We have 3 major Housing releases this week:

• Existing Home Sales (1/25 10:00)
• S&P Case-Shiller HPI (1/26 9:00)
• New Home Sales (1/27 10:00)

I expect the trio will show that housing remains weak, that we are not seeing much in the way of any structural improvement in the Real Estate market; but that the pace of the overall collapse has moderated. We will see if there is any evidence of a significant decline in inventory, and whether affordability is improving.

We will also hear lots of noise about how the end of the first time home buyers tax credit is distorting the numbers. Perhaps it would be more accurate to say that the tax credit itself is what distorted the numbers, and its expiration allowed the data to normalize:

“National Association of Realtors is expected to announce an 11.6% drop in December existing-home sales to a seasonally adjusted annual rate of 5.78 million, according to economists polled by Dow Jones.

The large drop is exaggerated by the initial Nov. 30 expiration of the government’s first-time home-buyer tax credit, which previously boosted sales by some 28% from August through November to an annualized rate of 6.5 million units, the most since early 2007.

The tax credit has been extended through June, but most analysts don’t expect sales growth to resume until February or March. In the meantime, further declines in existing-home sales, which make up nearly 90% of the market, are sure to raise concerns about the recovery in housing and the broader economy.” (emphasis added)

You know the early data must have been pretty awful when a group of spinmeisters like the NAR are forecasting a 12% fall. Credit the WSJ writer of the paragraph above for appropriately noting the increase caused by the tax credit, and putting today’s likely drop into better context.

But one must also remember that home sales are a very seasonal phenomena. For each of the past several Springs, we have seen overly optimistic discussions of a Housing recovery that never was. In the final analysis, what was heralded as a recovery turned out to be little more than seasonality.

This reminds investors of a different bias to be on guard against: The bullish optimism endemic among Wall Street analysts and trade groups. Oftentimes, parts of the press can get swept up in the enthusiasm. When the cheerleaders missed the imminent market collapse, it sent the happy talk underground. Recent signs of economic stabilization, however, have allowed the buds to push through the frozen soil. That bias is why I push back against what I see as human foibles in the MSM.

We all fight a losing battle against our own wetware. I try to maintain a vigil against my own biases, some times less successfully than others. When ever we get something right — a bearish market call, a warning about Housing — there is a tendency to overstay your welcome with the winning call for too long. This can potentially lead to over-confidence.

Regardless, my goal is to understand the latest data, put it into context, separate the signal from the noise. Hopefully, you find this sort of analysis useful in your own data consumption and investing.

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Previously:
Existing Home Sales, Non Seasonally Adjusted, Explained (March 25, 2008)
http://bigpicture.typepad.com/comments/2008/03/existing-home-s.html

Revisiting Housing Seasonality & the Perennial Bottom Callers (July 28th, 2008)
http://www.ritholtz.com/blog/2008/07/revisiting-housing-seasonality-the-perennial-bottom-callers/

The Annual Existing Home Sales MSM Errata (March 24th, 2009)
http://www.ritholtz.com/blog/2009/03/annual-existing-home-sales-errata/

Understanding Seasonal Adjustments (October 24th, 2009)
http://www.ritholtz.com/blog/2009/10/understanding-seasonal-adjustments/

Source:
Figures Mask Signs of Life in Housing
KELLY EVANS
WSJ, JANUARY 25, 2010
http://online.wsj.com/article/SB20001424052748703415804575023151304859446.html

Asia’s Week Ahead: Data and Results in Focus

Japan will release a spate of economic data with the central bank expected to leave rates unchanged. On the corporate front, Samsung and Nintendo are among the highlights.

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Europe’s Week Ahead: World Economic Forum, Nokia

More than 2,500 economists, world leaders and CEO meet in Davos for the World Economic Forurm. On the earnings front Ericsson, Nokia and Siemens report quarterly results.

Last week I pointed out a somewhat mysterious, undated entry (turned out to be Nov. 24, 2009) at the website of the “official” arbiters of recession, the NBER.

Rooting around the web, and finding myself at the site of the Census Bureau, I caught the following cryptic note at the page where Durable Goods data is released:

The Census Bureau identified a processing error that occurred when revising historic seasonally adjusted data for the November (data month) releases. The data have been corrected. As of January 15, 2010, revised data from January 2001 through October 2009 are available in the Historical Timeseries – NAICS tables, under the Historical Data tab.

Being skeptical and curious, I wondered what this “error” implied for the most recent release of Durable Goods (because we’re always all about the latest green shoot, right?).

Here we go again.

It struck me as a bit unusual that the data had been corrected as of January 15 — not coinciding with a scheduled Durable Goods release, which actually comes this Thursday, the 28th. Seemed to be a slip-it-in-there-while-no-one’s-looking type of thing.  (And no, I’m really not a conspiracy theorist.)

But back to the November data:  You may recall that consensus for November’s Durable Goods had been +0.5%.  The reported data was lighter than expected at +0.2%. Looking at the revisions the Census Bureau has now incorporated into the data, we see that November actually printed at -0.7%.

Here are the “Before” and “After” charts:

Before

After Revision

Admittedly October was bumped up a bit.  But we now are looking at two consecutive months of declines, which we’ve not seen since December 2008 (-3.7%) and January 2009 (-7.9%), when the world was falling apart.  And the trend seems to have deteriorated, with November now being the worst print since August.  What might the real-time impact have been had the Census Bureau initially reported a disappointing -0.7% instead of the +0.2% they maintained until very recently?

Consensus for Thursday is around +1.5% – +2.0%.  Stay tuned.

It doesn’t matter which party gets elected if the same Corporate interests control Congress:

Hat tip Start a Third Party Now

A small group of brainy math whizzes are emerging as the unlikely group who nearly brought down the finance industry. As WSJ’s Scott Patterson reports, a group called “The Quants” developed complex systems to trade securities such as mortgage derivatives, which were at the heart of the crisis.

Funny how these things work: In a rant Friday morning, I wrote:

“Regular readers know that I despise political parties, believe partisans suffer brain damage — literally, they have the same cognitive deficits that ardent sports fans suffer. I have trashed both Bush and Obama, but moved to a bullish posture when despite either’s incompetence, they accidentally did something that caused a bullish set of factors to predominate.”

Later that same day, an emailer pointed me to an article at Smart Money looking at a similar phenomenon: Do our cognitive errors affect even our most fundamental perceptions of reality?

A new study in the journal Psychological Science offers compelling evidence that the answer is yes:

“In their paper, “Wishful Seeing,” Emily Balcetis of New York University and David Dunning of Cornell report the results of their research showing that people are not only biased in their reasoning but are actually biased in their visual perception — literally, how they see the world.

In a clever series of experiments, Balcetis and Dunning show that people reliably misperceive how far away an object is based on how much they desire it. That is, more desirable objects appear closer. In one study, the researchers had people sit across the table from a full bottle of water and then had them either eat pretzels or drink water from an eight-ounce glass. After being shown a one-inch line as a reference, the participants were then asked to estimate how many inches separated them from the bottle of water. Consistently, the thirsty participants perceived the water bottle as being closer than did the quenched participants.”

Fascinating stuff.

And it is more proof as to why you don’t want to become infected with bad ideas, poor analysis or bias from various quarters.

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Sources:
Do You See What I See?
Ryan Sager
SmartMoney.com, January 22, 2010
http://www.smartmoney.com/investing/economy/do-you-see-what-i-see/

Wishful Seeing: More Desired Objects Are Seen as Closer
Emily Balcetis and David Dunning
Psychological Science, 17 December 2009
http://pss.sagepub.com/content/early/2009/12/16/0956797609356283
(DOI: 10.1177/0956797609356283)

“I think we’d all be doing a lot better if somebody like you was in there.”

–Ron Paul to Paul Volcker

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Quite the surprising comment from author of the book End the Fed. Its from this article in the FT:

“By common consent, Paul Volcker is never happier than when he is casting for trout in a river or lake, far from the chaos of New York and Washington.

Then, the former chairman of the Federal Reserve will happily wait long hours before landing a catch, and afterwards share in the bonhomie of his fellow fishermen. “When he is away fishing he is a delight,” says Jim Wolfensohn, the former World Bank chief who hired Mr Volcker to join his investment firm on leaving the Fed. “He lets his guard down and nobody is interested in his views on interest rates.”

That quiet patience is now serving Mr Volcker well. Almost exactly a year ago, Mr Volcker presented a report calling for restrictions on banks engaging in risky activities such as proprietary trading while continuing to enjoy taxpayer support for insured deposits.”

Volcker’s proposal is common sense: If you get a taxpayer guarantee, you cannot behave in a way that is potentially reckless putting taxpayer dollars at risk.

I especially like the next excerpts:

“Long appalled by the lack of what his former protégé Gerry Corrigan calls “financial statesmanship” on Wall Street, Mr Volcker has become increasingly critical of banks since the financial crisis broke.

In mid 2009, he joked that the only useful recent banking innovation was the invention of the ATM; by late last year, this was no longer presented in jest and he was deploring excesses in risk-taking and bonuses.”

Good read the full article (free if you register).

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Source:
Man in the News: Paul Volcker
Krishna Guha and Gillian Tett
FT, January 22 2010 21:12
http://www.ft.com/cms/s/0/47155caa-0796-11df-915f-00144feabdc0.html

I love this concept: Peanuts done in actual peanuts:

via Threadless

Someone sent me an FT headline to show me that my WSJ post “misses the mark.” To demonstrate that it wasn’t just the WSJ that succumbed to political bias, I was referred to this FT article: Investors fret over Obama’s bank assault.

Not quite as egregious as the WSJ’s New Bank Rules Sink Stocks, but certainly worth investigating.

Would I have to add the FT to our growing collection of media criticism (WSJ and NYT). I went to the link and read the article. It turns out no. Consider this context within the FT piece:

The Market Eye

“Let’s keep this in perspective. The US stock market advances 70 per cent from its lows in less than 11 months, leading some to claim the rally is overdone. Support for riskier assets from a falling dollar is whipped away as the buck shows evidence of reversing its trend decline. Signs emerge that China, the engine of global growth, is overheating and may require a risky application of the brakes. Concerns increase that a number of European countries are teetering on the fiscal precipice. And the US earnings season delivers a response from traders that suggests all the good news is already baked in.

With all this going on, it was perhaps surprising that stocks were hovering near 15-month highs as recently as Tuesday. They were ripe for a pull-back, and unexpected (?) events such as the Obama banking proposals provide a wonderful excuse.

But this is a banking thing. The idea that the New Wall Street, should it come to pass, will restrict economic activity sounds like spin emanating from the canyons of lower Manhattan. Equities are just 3.5 per cent below those recent peaks.”

That, dear readers, is what an intelligent, partisan-free, market diascussion looks like. That balance is precisely what was missing from the front page WSJ article.

Those of you who are partisans, I can only tell you that in my experience, mixing politics with investing is both foolhardy and expensive.

Look around at who made money during the “Obama Rally:” I know a disproportionate number of the people who missed this 70% market spike leaned Republican. But stupidity knows no party affiliation, and after the 2003 George W. Bush trillion dollar tax cut was passed, there was also a huge rally — and many of the ones who missed that one leaned Democratic. This is no coincidence — it is a function of bias and selective perception and an investing strategy co-opted by politics.

Perhaps this helps explain to everyone else why balanced financial reporting is so helpful to investors . . .

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Previously:
WSJ Jumps the Shark (January 22, 2010)
http://www.ritholtz.com/blog/2010/01/wsj-jumps-the-shark

The WSJ Responds (January 22, 2010)
http://www.ritholtz.com/blog/2010/01/wsj-another-view/

Source:
Investors fret over Obama’s bank assault
Jamie Chisholm
FT, January 22 2010
http://www.ft.com/cms/s/0/59a631a8-0720-11df-a9b7-00144feabdc0.html

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