The Return of Goldilocks?

The rate hike cycle is now officially over.

That’s what I got out of Ben Bernanke’s commentary to the Washington Economic Club.

Econom_20061004202442I was out of pocket/away from the flickering ticks all day yesterday, but reading the reports on why the Fed Chair’s comments launched the markets higher has been an exercise in futility. The short version is simply the Fed Chair sees the economy slowing significantly enough that the Fed is officially out of the way. His highlighting that the sinking housing markets may put a significant
dent in U.S. economic growth in the second half of the year moves the Fed to the sideline.

That strengthens the hope of the rare and mythical soft landing; Color me skeptical.

From a macro perspective, Housing’s slide is real and ongoing, retail has become a mixed bag, savings is non-existent, and the industrials are peaking. That is being offset — but only somewhat — by moderating inflation and falling energy prices, now off some 20% from their peaks.

Reviewing yesterday’s market internals, we did see breadth improve significantly; volume also was better than it has been. Marketbeat ticked off what the usual
suspects are that must be overcome for this to be sustainable: "the yield curve is still
inverted, the Dow Transports haven’t "confirmed" the move, the Russell
2000 has diverged from the Dow, many indices are showing a "double-top"
– and of course, the old standby, that the Dow doesn’t matter anyway."

I am again out of pocket today, but will make up for it with a vengeance this weekend . . .


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Sources:
The Shifting Calculus Of Buying a House
Report Predicts Price Declines In 100 U.S. Cities Over Next Few Years;
JAMES R. HAGERTY and ANJALI ATHAVALEY
October 5, 2006; Page D1
http://online.wsj.com/article/SB116000493065983148.html

Bernanke Expects Housing Slide To Rein In Second-Half Growth
GREG IP, BRIAN BLACKSTONE and CHRISTOPHER CONKEY
October 5, 2006; Page A1
http://online.wsj.com/article/SB115996969091382367.html

Wal-Mart Raises Worry With Cut In Estimate of September Sales
By GARY MCWILLIAMS
October 5, 2006; Page A2
http://online.wsj.com/article/SB115996450217082252.html

Category: Economy, Federal Reserve, Markets

Stockpickr.com

Category: Data Analysis, Investing

Light Posts Due to Fast Laps

Due to a very thoughtful birthday present from Mrs. Big Picture, there will be somewhat lighter posting the today and tomorrow due to travel — mostly in broad and curvy circles: > Lime Rock CT / Skip Barber UPDATE:  October 5th, 11:14pm This was an awesome trip — I’ll try to do a full update…Read More

Category: Weblogs

Dow Components

Category: Technical Analysis

Blog Spotlight: The Mess That Greenspan Made

Today we start a new series:  Blog Spotlight.

We put together a short list of excellent but somewhat overlooked blog that deserves a greater audience. Expect to see a post from a different featured blogger here every Tuesday and Thursday evening, around 7pm.

First up in our Blogger Spotlight:  Tim Iacono and The Mess That Greenspan Made. Tim is a software engineer in his mid-forties, living in Southern California. He calls his blog is a "vain attempt to stave off a mid-life crisis, and here’s hoping that it’s going to work."

Tmtgm

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Today’s focus commentary is called Friends in High Places? and it address the controversey we discussed last week.

 

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Friends in High Places?

Life is always much more fun when there’s a good
conspiracy theory to kick around. When the New York Times starts kicking it
around too, then it can really be
enjoyable.

Such is the case with the recent plunge
in the price paid for gasoline by formerly dour consumers leading up to an
election where the party in power is clearly having difficulty wooing the
electorate. It just so happens that the newly appointed Treasury Secretary used
to run the investment bank that controls the world’s most important commodity
index, which seven weeks ago cut the weighting of unleaded gasoline by nearly 75
percent, causing all commodity investments based on this index to sell their
unleaded gasoline futures.

For the same number of buyers, a glut of
sellers means lower prices, and voila! Prices at the pump drop precipitously,
consumer confidence rebounds, and the electorate develops a new spring in their
step.

Or at least, that’s what some would have you believe. . .

Read More

Category: Blog Spotlight, Commodities, Corporate Management, Federal Reserve, Finance, Politics

Media Appearance: Kudlow & Company (10/03/06)

Category: Media

New Features at The Big Picture

Category: Blog Spotlight, Weblogs

New Home Starts? Don’t Make Me Laugh!

Category: Data Analysis, Economy, Real Estate

Kass on the Soft Landing

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"We do expect an adjustment in home prices to last several months, as we work through a buildup in the inventory of homes on the market. …This is the price correction we’ve been expecting — with sales stabilizing, we should go back to positive price growth early next year."

– David Lereah, economist, National Association of Realtors
The New York Times, September 2006

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 I am out of pocket most of today, but I wanted to reference something of Doug Kass’s from some time ago.  Doug
discusses the details of his debate with NAR’s chief economist last
year (CNBC’s "The Real Estate Boom") and what it might mean going
forward:

"Back in April 2005 (on the CNBC special), Lereah and the managements of Hovnavian (HOV) , Prudential Realty and LendingTree were fully convinced (you might say glib) that the housing market was destined for a long boom. They saw a new paradigm of uninterrupted, noncyclical growth. One month later, Lereah was quoted as saying, "We simply don’t have enough homes on the market to meet demand."

Forgive my preoccupation with the housing markets, but it has had a disproportionate role in economic growth since 2000 (and maybe before). This merits a continued discussion as to the possible slope of the decline, and the nature of the inevitable recovery. The housing cycle, among other variables, is a key influence on aggregate economic activity.

I expect a hard landing, and I have roughly quantified my expectations as to when the housing market will bottom (2009). It is folly to think that an unprecedented rise in home prices (in real and nominal terms) will be over in relatively short order. Yet this has been suggested by Lereah and others.

Read More

Category: Economy, Real Estate

Oil Price Cycles Up, Then Down

Category: Commodities, Energy, Weblogs