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Five Things You Need to Know: Confidence Man, Minute-by-Minute, Detroit Sees Nothing But Gasholes, Housing Short Sales, What's New in Tippecanoe? Nothing.

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

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

1. Confidence Man

This morning The Conference Board's Consumer Confidence survey was released at 10 a.m., showing a fall to 99.6, well below consensus expectations of 102.7.

  • That's the lowest level since last November.
  • More than gasoline and other necessity prices, it's been the cooling labor market that has hit The Conference Board's Consumer Confidence survey in recent months.
  • After increasing modestly in June (to 105.4) it rose slightly in July to 106.5, which was now adjusted upward to 107.
  • The whisper (even from The Conference Board) was that this number could show a surprisingly low result. And it did.
  • We would note that even with higher gasoline prices (See Today's Number 3, below), the hidden component may very well be real estate.
  • Much publicity has been given the near .8 positive correlation over the past five years between the NAHB confidence index and the S&P 500. See the chart here with the SPX overlay.
  • Also, check out the the year-over-year change in consumer confidence index chart below. It peaked shortly after January 2004.
  • Interestingly, that is about the same time that stock participation as measured by the index bullish percents (percent of stocks on Point & Figure buy signals) peaked.


2. The Fed: Minute-by-Minute

Minutes from the Federal Reserve Open Market Committee's August 8 meeting will appear at 2 p.m.

  • The August 8 meeting is where the FOMC voted to effectively cut rates by simply pausing after a two-year-long series of rate hikes.
  • Noteworthy in the minutes will be anything related to Richmond Fed President Jeffrey Lacker's decision to dissent from the group in voting to maintain the current Fed Funds rate.
  • Of course, given the benefit of perfect hindsight, Lacker's dissent looks slightly... off... especially after the Richmond Fed Manufacturing Index plummeted unexpectedly last month.
  • The Federal Reserve Bank of Richmond said that its manufacturing index dropped to 3 in August compared to July's reading of 12.
  • There was a contraction in shipments during the month, with the index for that component falling 21 points to a level of negative 8.
  • Hey, speaking of shipping, anybody been watching the Dow Jones Transportation Index lately?


3. Detroit Scans New Car Lots, Sees Nothing But a Bunch of Gasholes.

The Chrysler Group, which depends more heavily on sales of pickup trucks and sport utility vehicles than any other Detroit automaker, said Monday that it expected gasoline prices to remain at $3 to $4 a gallon for the rest of this decade, according to the New York Times.

  • The comments forecasting a price range for gas over the coming decade were made by Chrysler Chief Executive Thomas W. LaSorda (weird, that name rings a bell).
  • According to the Times this is the first time a Detroit automaker has issued a forecast for gas prices since they began climbing in this cycle.
  • Not to be outdone by rival Chrysler, Ford's chief sales analyst reportedly agreed with the forecast on Monday.
  • About 75 percent of the vehicles that Chrysler sells are pickups, sport utility vehicles and minivans, compared with about two-thirds of the sales by the Ford Motor Company and about 60 percent of the vehicles sold by General Motors, according to the industry statistics firm Autodata, the newspaper article said.
  • Now the automakers are locked in a race against time to shift their manufacturing strategies toward greater fuel efficiency.
  • Too bad they are wrong about their gas price forecasts. But then, having missed the 100% rise in unleaded gas prices since roughly 1999, why should they be right about the coming decline?
  • The chart below shows unleaded gas price futures (monthly chart, basis continuous contract) with the DeMark TD-Sequential price exhaustion indicator overlaid.
  • A 13 TD-Sequential "sell" signal nailed the June peak.


4. Housing Short Sales... No, Not That Kind

Hoping to avoid foreclosure, some homeowners are selling the houses for anything they can get and persuading bankers to accept less than what is owed, according to the Sacramento Bee, a tactic known as a "short sale."

  • Widespread in Texas during the 1980s oil and real estate crash, short sales are back and proliferating, local specialists who handled them in the 1990s tell the Sac Bee.
  • Elk Grove real estate agent Derek Kirk recently counted 264 short-sale listings in El Dorado, Placer and Sacramento counties compared with fewer than 50 six months ago, the newspaper said.
  • Last year up to 77% of capital-area homebuyers used riskier adjustable-rate financing to help them buy homes they couldn't otherwise have afforded, the article reported.
  • Real estate broker Sterling Watkins, a veteran of the 1990s California short sales, according to the story, says many homeowners, facing setbacks from illnesses, divorce, job loss, and car or home repairs, have an "albatross that's dragging them under."
  • So much for the standoff between sellers and buyers.
  • Also, call me crazy (You Crazy!) but if a car repair threatens to send a homeowner into foreclosure, they just might be over-leveraged.


5. What's New in Tippecanoe? Nothing.

When you think of hot housing markets, you probably don't think of Tippecanoe County, Indiana. And you'd be right. According to the Lafayette Journal & Courier Online, house prices in the Lafayette Metropolitan Statistical Area were just 1.2 percent above year-ago levels. "That put Lafayette's appreciation rate at 272nd among 275 metro areas ranked by the Office of Federal Housing Enterprise Oversight." From 2001 to 2005, homes in the Lafayette area rose 6.9 percent in value, according to the same data.

  • Hmmm, so finally we've found a "normal housing market" that is safely protected from the "regional bubbles" elsewhere. The only problem is that it's apparently not protected. "Business has been going down steadily -- even from the standpoint of new construction.
  • I don't understand why," local realtor Len Wilson told the newspaper. "Starting prices on homes are starting to come down. It's interesting. What I'm seeing as selling are duplexes, and we've seen a lot of investment properties and repossessed homes selling," he added.
  • But that's not all. It should be all, but sadly it is not. Here is the kicker. In Tippecanoe County, a place the "housing boom" never even reached, government records show 1,219 single family home building permits were issued in 2004, a record pace of single-family home construction, according to the Tippecanoe County Area Plan Commission.
  • Meanwhile, as Tippecanoe County added an estimated 14,200 new residents between 1995 and 2005, new residential units exceeded 16,000.
  • Why? Why did Tippecanoe County see record building permits issued in 2004 without a real estate price boom, an economic boom or a population boom?
  • According to the figures, in Tippecanoe County real estate developers have apparently been chasing (yes, chasing) real estate asset price growth of an average 1.7% a year since 2001.
  • The Fed is right. There is no national real estate bubble. There's a national real estate mania.



After I first noted the above on the Buzz & Banter yesterday, Minyan Bryan wrote in from the front lines of Tippecanoe County:

Kevin,

As a current resident of Tippecanoe county (West Lafayette, home of Purdue University) I can tell you that we have experienced (and continue to experience) overbuilding as your article indicates.

About a month ago Beazer Homes packed things up and left several neighborhoods unfinished. I was told that Beazer sold the land back to the group that they originally bought it from for 50 cents on the dollar. My guess is that several years from now many of these neighborhoods will still be partially completed and unoccupied.

One thing that has also played an important role has been irresponsible lending. There are several billboards around town that say you can have 3,000 square feet for less than $800 a month. I have never gotten close enough to one of the billboards to read all the fine print at the bottom of it, but based on the number of foreclosures this builder has had in one of its other neighborhoods I am going to guess it has something to do with an acronym that rhymes with HARM!

Lastly, for those that believe if they just hold on long enough they will be able to sell their house for more than they paid, I offer this. A stock broker I know sold his house in Tippecanoe County last year for LESS money than he paid for it 20 YEARS ago.

No positions in stocks mentioned.

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