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Five Things You Need to Know: Durable Goods; New Home Sales; Price Capitulation?; Those " Subprime" People; Home Energy Conservation Tips


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Durable Goods

As expected, orders for durable goods unexpectedly fell in September, the Census Bureau reported. Let's look inside the numbers.

  • New orders for durable goods fell 1.7% in September.
  • Wait, what exactly are "durable goods"?
  • The Commerce Department defines "durable goods" as goods designed to last three years or more.
  • Why three years? Because that's the number. Seriously. They had to pick a number to distinguish them from non-durable goods and the decision was made to use three.
  • For an eye-opener, take a look sometime at this breakdown of the composition of industry categories.
  • Anyway, back to today's release. Although we care about the headline in durable goods orders - in this case down 1.7% - what we really want to pay attention to is "capex."
  • What is "capex"? It's economic jargon for "capital expenditures."
  • Capital expenditures are business spending that creates (hopefully) future benefits. It's important because "capex" is one of the few "forward looking" datapoints in all of economics.
  • Almost by definition, most economic data reports what has already happened.
  • Capital expenditures, on the other hand, can give us some idea of business sentiment - companies that are fearful of coming economic conditions try to hold back spending.
  • Core nondefense capital goods orders (excluding aircraft and shipments), a proxy for capex, were 0.4% higher, led by a 4.3% rise in machinery orders.
  • Capex shipments rose 1%.
  • So while the headline looks pretty bad, internally the report is more of a mixed bag with enough fodder for bulls and bears alike.

2. New Home Sales

Sales of new homes in the U.S. were able to show a dramatic and unexpected rise in September thanks to the miracle of downward revisions to the August data.

  • The pace of new home sales rose 4.8% in September to an annualized 770,000 units.
  • How did that happen?
  • Simple, 60,000 homes thought sold in the previous months' data turned out to be not sold.
  • Year-over-year sales are down 23.3%.
  • The average price fell 3% to $288,000.
  • Barry Ritholtz has a comprehensive take on the data over on his Big Picture blog.
  • We've discussed the cancellation rates at homebuilders here before.
  • For the quarter the cancellation rates run from 35% at Centex (CTX), to a whopping 68% at Beazer (BZH) and 50% at KB Homes (KBH).

3. Price Capitulation?

Speaking of home sales, let's take one more look at yesterday's existing home sales data.

  • We were discussing this last night with Minyanville Professor Adam Warner who noted that in his area "nothing is really selling, but prices aren't moving either."
  • I found the same thing to be the case in Lexington, KY last weekend, and a number of Realtor friends reported taking other jobs or returning to prior careers because the market is "stagnant."
  • But that anecdotal evidence isn't what is happening on the national scene.
  • While the real estate mantra "all real estate is local" sure sounds good, the reality is that this time around all real estate is global.
  • Why would that be the case? Because the weakest links are acting as a canary in the coal mine of sorts and warning of things to come nationally.
  • For example, one thing we wanted to clarify from yesterday's existing home sales report is the worrisome decline in prices even as inventory continues to build.
  • The supply of existing homes hit a record 10.5 months.
  • Meanwhile, the median price of existing homes fell 5.7% for the month.
  • Is this the first sign of price capitulation in the face of inventory builds?
  • Possibly. But what is most worrisome for the future is that inventory bulged in the face of the price declines.

4. Those " Subprime" People

Almost a week ago David Einhorn, founder of Greenlight Capital, gave a speech at the 17th annual Graham & Dodd Breakfast at the Hellbrun Center for Graham & Dodd Investing. This paragraph from his speech, which is well worth a read, stood out:

"In my view, the credit issues aren't just about subprime. Subprime is what the media says. Subprime is what parts of the financial establishment say. Subprime is about them -- those people and the people who made foolish loans to them. The word "Subprime" is pejorative."

  • Indeed.
  • Subprime is being passed off as the disease, when in reality it's merely a symptom.

5. Minyanville Presents: Home Energy Conservation Tips

This morning we woke up in New York City to what may be our first, official Autumn day. With that in mind, and considering that Americans are expected to spend more than $160 billion this year to heat their homes, we present: Minyanville's Home Energy Conservation Tips.

While our homes are more efficient today than they were 30 years ago, considerable opportunity remains for greater home energy efficiency and the associated benefits. To help households across the country reduce their home energy bills, Minyanville has prepared the following guidelines:

  • A large percentage of heating and cooling efficiency is lost through doors and windows. Board up your home's windows with plywood and seal all doors to prevent energy seepage.

  • Did you know that a fireplace can shave as much as 10% off your winter heating bill? But wood is expensive. Save on wood costs by burning plastic.

  • Scientists say heat rises. During cold winter months try to sleep on the ceiling.

  • Instead of costly and dangerous space heaters at night, consider creating a Personalized Nightlight & Bonfire by smoking in bed.

  • The human body is a very efficient heating and cooling system. Instead of central air conditioning and heating, just get a bunch of human bodies.

  • Take a cue from nature and gain 200 lbs of insulating, warming fat for the winter. Later, portions of this fat can be used to create candles and heating oil.

  • Window unit air conditioners are very inefficient because they blow out hot exhaust when in use. During the cold winter months, turn your air conditioner around backwards so the hot air blows in, not out.

  • Move your family somewhere warm in the winter, cold in the summer, just right during the fall and spring. Become a meteorologist to help plan the moves. Charter a private jet to avoid long airport delays.

  • Be alert for anything burnable that your neighbors may leave unattended.

  • Be conscious of where you set your thermostat. Because the body's normal temperature is 98.6 degrees it is best to set your home's thermostat to 98.6 degrees for consistency.

  • It takes much less energy to heat a car than it does to heat a house. To save on home heating costs, sleep in your car in the garage with the engine running.

  • Carry the warmth of anger, humiliation, slights and regret with you at all times by storing them in a Little Box of Hurt you keep in the pit of your stomach.
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