Pending Home Sales Drop More Than Forecast

Good Morning folks!

As I write to you the market is flipping from red to green looking for direction. Well, pending home sales came out today and were back in the red down 4.7% after actually popping slightly in April. This has quickly quelled any hope that the rise seen in pending home sales in April was possibly signaling that we had found a bottom.

Here is the home sales scoop from Bloomberg

July 8 (Bloomberg) -- Americans signed fewer contracts to buy previously owned homes in May for a third month in four, a sign house prices have yet to touch bottom.

The index of pending home resales fell 4.7 percent, a bigger decline than forecast, after a revised 7.1 percent gain in April, the National Association of Realtors said today in Washington.

Would-be buyers are holding off purchases as they expect further price declines, and as rising mortgage rates and tougher lending standards make it harder to qualify for loans. Record delinquencies on home loans have led to concerns that Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, may need to increase their capital by $75 billion.

``After a healthy bounce in April, the housing market appears to have lost steam again in May and June,'' said Mike Larson, a housing analyst at Weiss Research in Jupiter, Florida. ``Unless and until the economic clouds part, we'll likely see the housing market continue to struggle.''

Economists had projected the index would fall 3 percent, according to the median forecast in a Bloomberg News survey of 38 economists. Estimates ranged from a drop of 6 percent to a 0.2 percent gain."

Quick Take:

This number shouldn't have been a surprise given the current lending standards and higher interest rates seen in the last few months. What amazes me is how these numbers keep coming in worse than economists forecast. How can these economists not see the slow motion train wreck that I and many of you see so clearly?

Are they dropping acid when they write these research reports? Anyway, this number took away any hope after a promising April that housing is rebounding.


Commodities Breaking Down?

An interesting development this week has been the big drop off in oil and commodities. Dennis Gartman who is a well known commodities guru talked in his newsletter today of a potential popping in the commodities bubble.

Many were expecting the stock market to pop if the commodities like oil came down in price. Guess what? Its not happening folks!

The main problem with this theory is energy stocks have soared during the commodities run. This sector has basically been carrying the DOW. Imagine where we would be on the DOW without energy? If commodities breakdown, we are about to find out.

This brings me to my big question. Where does the money go if the commodities run is over?

Financials? HA! Yeah right. No one with a brain is going to touch these right now.
Consumer staples? Crowded trade and most have underperformed.
Tech? I can't see this being a leader as the consumer falls apart.
Healthcare? Performed poorly. Pharma is a nightmare. National healthcare risk looms.
Consumer related companies? As I said before. The consumer is dead.
Transports? Anyone seen Fed Ex, UPS and the airlines lately?

Obviously my point is there is nowhere left to hide in the market. This does not bode well for equities. I expect too see a lot of the smart money head to the sidelines in cash waiting to pick up distressed assets after the market is done tanking.

That's what I would be doing if I was a Warren Buffet. Houses will be pennies on the dollar in certain bubble areas when this crash climaxes.

Billions of dollars are waiting to be made once this storm passes. The smart money is foaming at the mouth already!