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Weldon's Money Monitor

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But how do we know you're not bluffing?

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The City of Sin, what happens there, stays there.

In fact, more and more people are just ... staying there.

Indeed, the local Las Vegas newspapers are replete with stories of celebrity turned Vegas citizens, amid a flurry of new business ventures, and a deluge of new residential purchases by celebrity elite, including Paris Hilton, Shaq, and Eminem, all of whom were in Vegas this weekend, along with yours truly.

Yes, the 'Big Slick' seized an unexpected opportunity to spend three days in the Poker capital of the world, honing our game, as a tangent consequence of our trip to Los Angeles for the Minyanville Minyans in the Mountains investment conference and spiritual retreat.

And YES ... a fantastic fourth place, final-table finish in the Rio daily buy-in No-Limit Texas Hold 'Em tournament MORE than paid for the entire trip.

BUT, it was the cab ride from the Bellagio to the Rio, and the cab ride later that evening to the famed Binion's Horseshoe (for another in-the-money finish) that was MOST intriguing and educational, as relates to the MACRO scene, ala housing, as defined in the City of Sinful speculation.

Our first cab driver was a young, bright, could-be-the-kid from next door ... who ... was considering whether purchasing a newly completed, condo-conversion, residential "property" was a good idea, or, whether purchasing his THIRD such "investment", now, might not turn out to be bad timing, amid a suddenly, seemingly, overbuilt environment.

Our new friend and eager conversationalist was "worried" about the "thirty" new condo projects currently under construction, an OBVIOUS factor after taking just a glance out our hotel window upon arrival. Our cabby turned real estate mogul was concerned about renting another glorified apartment, amid a rise in the number of units that are going UN-RENTED.

He quipped ... 'hell, three years ago, you couldn't give these things away"

Indeed, we ask ... hindsight, or foresight ???

Naturally, as I exited the cab at the Rio, with a giant new condo complex being erected right across the street hovering over us, the cabby was FAR MORE ... concerned ... after hearing my abbreviated opinion.

In the meantime, Eminem bought four new condominiums, and converted them into a mega bachelor pad (the newest fad on the strip) ... while Shaq was the guest Deejay at his newest hot, hip-hop club housed within Caesar's Palace, and Paris Hilton was hanging out in her newly purchased digs.

Moreover, the impact of Asian wealth is evident, along with bling upon bling upon bling.

Our departure from McCarron Airport revealed square after endless square of newly 'plotted' land, ready for building ... at the edge of endless squares of homes under construction ... which stood at the edge of the just completed areas of endless squares of big homes, built on mini-sized land-plots.

The mountains stand far in the distance, and the opportunity 'appears' endless indeed.

BUT, our second cab ride spread the spectrum, as a more 'elderly' gentleman of Russian heritage spoke of being priced out of the market, forced out of an apartment going-condo, and relegated to moving almost an hour away, meaning he now drives 16 hours a day, instead of 14 ... just to stay even ... which of course he does NOT, given the fact that he is now paying a HELLUVA lot more to commute, thanks to record and still-rising gasoline prices.

Two cabbies, and two extreme ends of the macro-spectrum, in a microcosm.

And, speaking of the 'devil' ... we spotlight the chart on display below, while noting that despite a short-term spike to the downside in energy during our stay in Los Angeles, city of angels, that upon our arrival in the city of sin, crude oil and gasoline prices reversed higher. Indeed, the 13-week average price sits at a new record high, while the 52-week ROC is breaking out on the upside and back above +50% year-year.

Simply ... NEVER before, has gasoline been above $1 per-gallon, and increasing at a +50 rate ... as it has now for the last year and a half.

Again, in our final Money Monitor prior to our trip, we offered Natural Gas as a KEY commodity to watch, and indeed, it too, spiked violently lower and then straight back around to the upside, to the point where it is hitting NEW HIGHS once again, as noted below.

AND, when we arrived home in New Jersey ... we were greeted with the strangest welcome home note, informing us that the lawn maintenance service we employ will be charging a 50-cent per 'cut' gasoline surcharge.

I kid you not.

Unfortunately for lawn owners, the value of their landscaping may have PEAKED, as might be suggested via a perusal of the chart on display below, coming courtesy of our buds at briefing.com, revealing the 3-Month Annualized growth rate in Median New Home Prices ...

... which have RAPIDLY disinflated from record high levels.

Considering that Sales of New Homes continue to SPIKE higher, as noted by the +6.5% monthly rise posted this morning for July, taking the S.A.A.R to more than 1.4 million for the first time ever (seen below) ...

... AND ... that the MEAN price ROSE in July (though still below May's level) ...

... we are willing to conclude that the bubble mentality has now enveloped the LOWEST 'common-denominator' sphere. Indeed, this FITS perfectly with our anecdotal Vegas cabby-fodder, implying a completely saturated supply-side dynamic. Naturally, we focus attention on the HUGE, +36.0% single-month SURGE in sales of new homes in the West, as clear-cut evidence.

Then, tilting towards the micro-evidence, we observe the strong, double-digit gain in Sales posted by the Northeast region, up +10.1% during July, against the RECORD HIGH in "Housing Units Under Construction in the Northeast", which generates a year-year increase of +19.7%

OH, and Sales of Existing Homes in the Northeast ... fell during July.

We could skew the odds and look at the scene with different colored glasses, when we realize that the rate of change in home prices has gyrated somewhat violently in the last four years, and, while the price appreciation of Homes actually SOLD ... IS reaching new heights ...

... the nominal increase, on a year-to-year-to-year basis, has been relatively calm and 'steady', at around $20,000 per annum. Note the data-details extracted from the National Association of Realtors report:

... from end-2002, pegged at $199,200 ... to end-2003 at $215,000 for a rise of + $15,800 ...

... to end-2004, posted at $236,600, for a gain of+ $21,600 ...

... then to end-June-2004 and the $243,000 value, a six-month rise of LESS than $10,000 ...

...and from then, to end-July 2005, and the price of $267,000, for a 13-month gain of $24,000 ...

Indeed, simply, on this basis, the actual DOLLAR reflation has been pretty STATIC, against gasoline and natural gas price reflation that has been ANYTHING BUT, static.

On a MONTH-MONTH basis, month in, and month out, over the last three years, for the average consumer-household, home price wealth reflation has NOT kept pace with gasoline and natural gas price reflation, case closed.

And there is MORE, literally and figuratively.

We extract the following, scantily-noticed data on the offer from the US Census Bureau, as relates to the square footage numbers attached to the New Privately Owned Housing Units Completed category, revealing:

• Average Square Footage of Condos and Apartments ... 1,307 as of 2Q 2005 ... up by +21.4% since the 1Q of 2000, when it was pegged at 1,077 square feet on average, for newly completed condos and apartments.

Indeed, consider the implications, under the radar screen, suggesting a rise in natural gas consumption and demand ... amid the LOWEST common consumer denominator, ala the LOW end of the real-estate wealth spectrum.

Amazingly, a local Los Angeles Times article informs us of the intensifying competition among California mortgage lenders, to offer derivate mortgage loans to ILLEGAL 'aliens', or 'pseudo-citizens', which of course defines a whole new universe of potential LOW INCOME borrowers.

And as far as mortgage lending, overleverage, interest-rate sensitivity, and singularity points of debt-density ... we note the chart on display below courtesy of our long-time Texas buddy John Mauldin, and his 'Outside the Box' commentary (after all, it was a long flight home yesterday). Indeed, a TRIPLING of the percent of Mortgage Loans Outstanding that are rate-adjustable Home Equity Loans, is NOT a healthy sign, implying an increasingly STRESSED consumer, who is digging deeper into reflated home wealth in order to maintain consumption.

During our macro-presentation and micro-breakout sessions in Ojai last week, we repeatedly mentioned the words ... 'debt obligation ratio'. In fact, despite a Greenspan facilitated decline in the early part of the decade amid the housing refinanced boom, the Fed's own Debt Obligations Ratio has spiked back to a new RECORD HIGH.

The problem is ...that now, the debt-dense household consumer has NO mortgage-equity-withdrawal, OR fiscal tax break relief, support.

VOILA, we were thus happy to see the chart below revealing the very same dynamic, along with the Ratio of Total Debt to Personal Income, which now exceeds ONE HUNDRED PERCENT.

And yes, the new bankruptcy laws have skewed the short-term numbers, BUT bankruptcy is still being BROKE, and the TREND over the last several YEARS, in terms of the number of people being BROKE ... is rising, and, making new nominal highs, case closed.

We have been saying for YEARS ... that secular disinflation in 'real' wage-driven income ... is a KEY missing ingredient in the macro-push for economic reflation. Without it, there is ONLY debt, and more recently, debt that has become tenuously 'collateralized'.

For sure, amid the disinflation-turned-overt-deflation in 'real' labor-derived income, there is NO 'pool' of savings for consumers to fall back on.

It is NOT just the word debt, but it is also the words, life savings, wealth, and disposable income that are ALL, now, fully 'fungible' with a single word ... housing.

Take our friendly skies seat-neighbor during the return leg from Vegas to Dallas Fort-Worth, a woman in her fifties who lives in a rented California home, and recently purchased a Vegas condo as a vacation residence ... yet ... expressed a great deal of worry over her job security at IBM, where her cost of living pay raise had been ELIMINATED for 2005.

Her life savings ... yes, it is the Vegas condo.

Doubtful that she is deriving anything resembling the classic dividend yield derived income by holding the stock of the company employing her, as is likely the case for most ALL workers, as implied by the disinflationary collapse in Dividends and Dividend Yields seen in the chart below.

Let's look at the US Consumer from a unique perspective, incorporating the rise in energy prices via the use of the AMEX Oil and Gas Index (XOI), compared to the Morgan Stanley Consumer Index (CMR), by constructing the ratio plot on display below, overlaid with the 52-week moving average.

In a word ... reflated to the moon via the tech-bubble ... disinflated when the bubble burst, then reflated slightly thanks to Alan Greenspan and the push to negative real short interest-rates ...

... and now, IMPLODING, thanks to rampant energy reflation, with our ratio having deflated all the way back to the level seen in 1993.

Hence, as we were prior to our trip, we remain intently focused on the outright price action in the Morgan Stanley Consumer Index itself, seen in the medium-term daily chart on display below. We focus on the BRICK WALL of overhead resistance, and the potential developing for a significant technical breakdown back below the longer-term 200-day moving average.

NOT coincidentally, we also note a VERY similar topping pattern and STAUNCH overhead resistance (an OIL wall ??) ... not to mention severe bearish momentum divergence ... in the chart on display below plotting Overseas Shipholding Group, a major global shipping stock.

Consumers ... Shipping ... and ... Steel ???

Indeed, note the reflationary FAILURE in US Steel exhibited in the chart below, revealing that the entire rally since the 1Q-05 sell-off low, may have been nothing more than a shallow, 38% Fibonacci retracement relative to that sell-off ... implying ... a resumption of the med-term DOWN move.

And ... Lumber, which broke down YESTERDAY, as evidenced by the weekly close only chart on display below.

Indeed, we close using a poker analogy ...

... because EVERYONE at the table, is ALL-IN, via the debt-driven wealth reflation in US housing, including ...

... the US consumer ...

... US banks ...

... the US Fed, Treasury, and Administration ...

... global finished goods exporting nations that import energy, including the biggest economies in the world outside of the US, such as China, Japan, and the EU .

So far, everyone at the table has held pocket aces.

But, the very next hand could bring garbage, and energy, interest rates, non-economic event risk, or derivative event risk ... might win the hand, and the tournament.

Sure, the odds suck, but the consumer might as well play the slots, and take a flyer in Vegas, cause this is one poker game he CANNOT win, no matter what strategy is employed from here

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No positions in stocks mentioned.
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