Tuesday, January 6, 2009

Housing Continues to Deteriorate

Good Evening Everyone!

Well, today was the same old story: More bad news and higher stock prices. Ahhh... you gotta love the psychology of Wall St. The combination of hope and denial can make investors do crazy things (like buy stocks that are about to fall of a cliff).

Here is a perfect example of the buying insanity that currently dominates Wall St. Take a look a press release from commercial real estate developer (GRT):

"Glimcher sells Kansas mall for $20.5MTuesday January 6, 12:41 pm ET Glimcher Realty Trust sells mall in Kansas City area for $20.5M as part of plan to sell assets COLUMBUS, Ohio (AP) --

Mall owner Glimcher Realty Trust said Tuesday it sold a Kansas City-area mall for $20.5 million as part of a plan to sell off non-strategic properties.The real estate investment trust sold The Great Mall of the Great Plains in Olathe, Kan., to Great Olathe Center LLC. Glimcher said it applied the proceeds toward a $30 million mortgage on the property."

Quick Take:

So lets do some simple math here people. They had a $30 million mortgage on a mall that they sold for $20 million. Thats a 33% loss. You would think that (GRT) would get pummeled after this press release right? WRONG! (GRT) rose a whopping 30% today on the news.

This reaction is insane. Why did this dog move higher on the news? Are we supposed to be relieved that they were able to sell a property at a 30% loss? How many others do they have to dump at a similar loss or MORE. Does anyone look at fundementals anymore? IS this an attempt to front run a bailout? I see it as pure gambling and nothing more.

Its price action like this that killed SRS today. We are now down into the 40's on SRS. I plan on buying some more of this very shortly. I can't see this going much lower. However, I have been saying this for days so until I see a break in the trend, I see no reason to front run it. I still believe the REIT's are trading higher based on the premise that we will see further interventions into the credit markets by the government which would theoretically loosen lending as this crisis deepens.

Wall St continues to pump this "credit markets are thawing" thesis since the Fed got involved in the credit markets.

This is a bunch of hogwash IMO, and I see no signs of increased lending. This perception/window dressing has pushed many commercial REIT's and home builders much higher for no other reason other than hope. The reality is housing continue to see no bottom:

"Jan. 6 (Bloomberg) -- Fewer Americans signed contracts to buy previously owned homes in November as credit markets seized up and a deteriorating labor market signaled the housing slump will extend into a fourth year.

The index of pending home resales fell 4 percent to 82.3, the lowest level since the series began in 2001, from a revised 85.7 in October, the National Association of Realtors said in a report today in Washington. Pending sales fell in all four regions.

A financial crisis that worsened in the final months of 2008 deepened the economic recession, extending the slump in home sales and prices. President-elect Barack Obama has pledged to enact measures to ease foreclosures and save or create 3 million jobs to boost the economy.
“The housing stress just doesn’t end,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York."

Quick Take:

Oh yeah, those credit markets sure are thawing. Look at all of the homes that are selling! This number was an all time low since this index started in 2001. What a crock.

Here is another example of how things are thawing

Manufacturing continued to severely retract in December:

"Jan. 6 (Bloomberg) -- The U.S. economy ended the year in a steep decline, with factory orders, home sales and service industries all contracting further, reports showed today.

The Institute for Supply Management’s index of non- manufacturing businesses was 40.6 for December, a higher-than- forecast reading that was still the second-worst on record. The National Association of Realtors index of pending home resales fell 4 percent in November, and the Commerce Department said orders at U.S. factories slumped for a fourth month."

Quick Take:

Wow the bulls are right! Things are thawing! In fact the economy is starting to sizzle!

Keep in mind here folks that this is December data which means the economy continued to contract despite the "quantitative easing" by the Fed. Don't believe the hype on Bubblevision folks.

Things are not getting better. There will be no second half recovery in 2009. This 40.6 was the second worse number in history preceded only by last month! Remember folks, anything under 50 means the economy is contracting.

Bottom Line:

What can I say. The Obama hope rally continues. I stayed on the sidelines today.

There was some bad news among the financials today:

There was a S&P downgrade on Wells Fargo debt after the bell today.

BofA's merger with Merrill Lynch is turning into a disaster. Merrill's head guy in the brokerage side just quit today. He apparantly was adored by the 16,000 Merrill brokers. Some are now questioning the viability of this merger including S&P who came out with a statement saying that they were concerned about the developments with the merger today.

The market bounce started to look a little fatigued to me today on the long side. It appears the 930 area on the S&P has been tough to break through which is a bad sign for the bulls. Its also been a problem for the bears because it seems to be holding every time the market comes down and tests it.

I am going to most likely sit on my hands until the jobs number on Friday if we continue to trade like we have the past few days. If we get back up to 1000 on the S&P before the jobs report, I will jump on the short side.

Stay Tuned!


John Maynes said...

Thanks for the posting, Jeff.

Jeff said...

no problem :)

Minton Mckarkquey said...

Yeah, there's a ridiculous level of nonsense in the markets right now with the buying response to bad news. But I can't help feeling much of this is New Year money pouring into a thinly-traded market.

Whichever way you spin it, the news everywhere is nothing short of completely disastrous. The car sales numbers were just catastrophic for everyone, and I still keep hearing commentators who are actually surprised the consumer is so timid. What?! Are they kidding? Who in this market is thinking of anything other than keeping their job?

Talking of jobs, I think this Friday's job number is going to be much MUCH worse than expected. There was some seasonal tweaking last time that took the pressure off, but this one's going to be big, hard number. Everyone's slashing at the workforce numbers and people are not going to be slow to file unemployment now the holidays are over and government offices are actually open!

And I think the endless noise from the Obama camp about creating jobs could be bad news next month, when someone asks the question about how we pay for all this.... *sigh*, it's enough to drive me to drink.

johndaniels said...

the market is being propped by government decree.. i.e. 'fiat equity'..not the true market. but how much longer can the international community allow the US to benefit from creating money without consequence to fund our military and CIA covert operations? what we need is some sabre rattling from russia and china.

Jeff said...


I totally agree with you. Check this out from the NY Post.

Lets see if the rally can continue when we post a big fat nasty jobs print.

I have so many friends that are losing jobs! Its really frightening.

Obama sounded scared to me today. They know its going to be bad, and they don't know what in the hell to do about it except throw more money at it which does nothing but throw is deeper in debt.

HEre is the Post article:

ALBANY, N.Y. - New York's unemployment claims systems have crashed, overwhelmed by tens of thousands of jobless New Yorkers trying to call or log in at once ahead of this week's filing deadline.

State labor department officials say the problem started Monday and caused the phone banks at the state's toll-free claims center to shut down, followed by the online filing system. Leo Rosales, an agency spokesman, says as many as 10,000 people per hour were trying to log into the system.

Technicians are trying to bring the systems back online Tuesday afternoon but officials couldn't say when they'll be back up and available.

Rosales says the system failure shouldn't delay newly unemployed workers from getting benefits because they have until the weekend to file claims.


Jeff said...


Its coming. They aren't desperate enough...Yet

The problem is they both own so many treasuries that they blow up themselves if they stop buying them.

I think as this recession deepens, they will be forced to take the money out of the US and spend it at home so they can stay in power.

This whole thing will blow up eventually. Its gonna take some time. I am starting to wonder if the bond market might get tired of Obama's massive spending packages.

If the vigilantes say "no mas" to Obama, things could get ugly in the bond market.

Keep an eye on yields. Some big money has been forced to rotate into stocks because of this rally so the rising yields this week should be expected.

I think the big money thats been forced out of treasuries and buy pieces of garbage in the stock market are not happy with the government spending celebration in equities.

Many investors are going to tire of the Fed's antics.

You have 2 choices now: Make 0% in treasuries or buy equities with zero earnings.

It won't stay like this forever. There will be some trigger that blows this whole thing up.

John Maynes said...

Businesses Seek Tax Break on Canceled Debt Like Homeowners Got

John Maynes said...

Struggling Retailers Press Struggling Landlords on Rent

Joey said...

Obama did use the word "Dire" when speaking about the economy. I was watching the SPYs when he said it. I could swear the SPYs did a double take.

Jeff said...

Don't you love this toilet bowl we call a market?

Fraud everywhere. Confidence is getting crushed. Retail should be awful tomorrow.

A good day to be short!