Late yesterday the Federal Reserve released its Beige Book report on regional economic activity (or lack thereof). There were a couple of recurring themes.

Retail was mostly described as “below expectations” and “weak” while Real Estate had relatively good news, with descriptions like “up tick” and “sales higher” sprinkled into with the normal doom and gloom stuff. Yet, as many readers of my daily commentary know, the market is leaning toward the good news, no matter how many rocks have to be turned over to discover such news.

(By the same token, Wall Street is ignoring huge backlogs, strong earnings and even stronger guidance when it comes to commodities and peripherals such as mining equipment makers. The crushing blow felt by Joy Global (JOYG) was amazing and suggests the Street views this space much like homebuilders back in the summer of 2006, when the stocks in that industry peaked even though business sizzled for another year.)

Speaking of homebuilders, Hovnanian (HOV) posted its third quarter results after the bell, and boy was it ugly. How ugly was it? So ugly the stock has to be a screaming buy! The Red Bank, New Jersey posted a loss of $202.5 million or $2.67 a share from $80.5 million or $1.27 a year earlier. The Street was looking for a loss of $1.57. In addition to positive cash flow and guidance for cash to climb to $800.0 million by the end of October cancellation rates dipped slightly to 32% from 35% and unsold homes decreased to 1365 (1677 with models) from 3,242 year over year.

What’s happening this week feels countercyclical but could be how investing is supposed to go: Sell at the top and buy at the bottom. Of course, this script has been peppered with a certain level of hysteria.

The Philadelphia Housing Sector Index is coming on strong and has room to 155-160 before being seriously tested.


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Other Compelling Areas

Refiners acted great yesterday, led by Western Refining (WNR) as investors have come around to the notion the company could be positioned to turn it around. Sure, earnings have missed the mark over the past year, and often by crazy margins, but only fractionally in the most recent quarter. (In the last four quarters earnings from the company missed the mark by 14%, 567%, 3700% and 27 %.)

In the most recent quarter, operating costs increased to 92.6% of revenue from 79.1% in the year ago period. Valero (VLO) and others were also up substantially, too. This space has a tremendous amount of room on the upside.

Retailers continue to dazzle, all things considered. Kohl’s (KSS) was higher, Limited (LTD) tried to recapture last week's glory when the stock posted a fabulous earnings report. After the closing bell Guess (GES) posted earnings of $0.57 versus the consensus of 0.49. The company also raised guidance to revenue of $2.06 to $2.11 billion and earnings of $2.47 to $2.53 from $2.48 on the high end. The company is increasing its dividend by 25% to $0.10.