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Five Things You Need to Know: New Home Sales, (en)Durable Goods Orders, Breadth, The Price Simulacra, Socionomics of Camouflage

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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. New Home Sales Bullish for Stocks

New home sales released by the Census Bureau and the US Dept, of Housing and Urban Development came in at 1,050,000, 4.1% above the July rate.

  • The number is 4.1% above July's rate, an unexpected increase.
  • But the huge downward revision (a form of borrowing?) to sales in May, June and July simply means the numbers came in right at expectations on an annualized basis.
  • Is it possible August may be revised lower next month?
  • Sales are still 17.4% lower than the August 2005 estimate.
  • Oh, and prices were down 1.3% year-on-year, the first y-o-y decline since 2003.
  • But the bottom line is this is really bullish for stocks because it shows housing made a soft landing in August after the May, June and July numbers were revised.


2. (en)Durable Goods Orders

New orders for U.S.-made durable goods fell unexpectedly in August, according to news reports.

  • New orders for U.S.-made durable goods fell 0.5% in August, a surprising drop given expectations were for a rise of 0.5%.
  • Orders excluding transportation also fell a surprising 2%, far lower than expectations for an increase of 0.5%.
  • July's decline was revised lower to 2.7%, and we've now seen the back-to-back monthly declines for the first time since May 2004.
  • Durable goods are goods meant to last three years or more.
  • Clearly, these numbers must somehow be bullish for stocks and bonds. But how?
  • Take your pick from these two choices, both of which are bullish:
    - The report shows the economy is slowing and therefore inflationary pressures are easing, which is bullish for stocks.
    - The report shows weak demand in every sector except autos, so we've seen the bottom in autos, and as GM and Ford go, so goes the economy, which is bullish for stocks.


3. Breadth

In yesterday's Five Things we looked at the continuing negative divergence in market breadth.

  • What is market "breadth"? It's simply a measure of participation in the movement of the stock market by the underlying individual issues.
  • Breadth can be measured many ways. The simplest way is measuring advancing versus declining issues.
  • One problem with that simple advancing-declining measure on the NYSE, however, is that more than 50% of NYSE components are preferred stocks and closed-end funds.
  • Another measure of breadth is a bullish percent index, which measures stock participation in terms of Point & Figure buy and sell signals.
  • That measure, as noted yesterday, has been making lower highs since January 2004.
  • The reason for bringing all this up is because we received an interesting note from Minyan Tom Alexander yesterday who runs Alexander Trading:

    Kevin,

    Per your comments referencing Dr. Brett Steenbarger's observation about lagging internals, see the chart linked here. The lower frame - "Volume" - on the chart is not quantity, but rather NYSE Up vs. Down volume.

    I have watched this for almost 20 years and do not recall too many other times when a divergence has persisted this long. While I am aware this can have a bullish resolution if the Big Boys decide to get enthusiastic, it WILL eventually be resolved and every day this persists it increases the likelihood of a resolution.

    Got your party hat for new Dow highs ready? If the present trend continues it could be a new high with 16 net advancing issues!

    Regards,
    Minyan Tom Alexander




4. The Price Simulacra

In 1981 French philosopher Jean Baudrillard wrote a book attempting to theorize the post-modern, titled "Simulacra and Simulation." Why should you care?

  • "Modernity" is most often viewed as the child of the Renaissance and as heralding the development of social and scientific thought; the "modernization" and integration of large-scale societies that had been previously separated by technological, social and even religious boundaries.
  • In terms of finance, we can characterize "modernity" as a seemingly linear progression of the following:
    - increased modes of production
    - increased movement of goods and capital
    - the development of a structural framework in which the movement of goods and capital can interrelate and "grow"
    - corresponding division of labor.
  • What, then, is "postmodernity"? In the simplest sense it is a reaction to the authoritarian linearity of modernity. Is life experienced in a linear, objective fashion?
  • While that seems like a hokey "philosophy" question, it strikes at the heart of every thing, every belief and every "system" in which we operate on a daily basis. Included in those belief systems, naturally, is finance and, in particular, the price discovery of markets.
  • The reason for bringing up Baudrillard's Simulacra and Simulation today is because I came across a description of what he called the "successive phases of the image" and the links, the correspondences with financial markets struck me as worth considering.
  • What is the price of a security but an image? It is a "signifier" of some "thing." But what? Is it objective? Is price "real"?
  • Baudrillard's successive phases of the image, if viewed in terms of securities pricing, seem to suggest the cyclical phases of markets.

    Successive Phases of the Image (with price relation in parentheses)
    - it is the reflection of a profound reality (price "means" something profound with respect to the security)
    - it masks and denatures a profound reality (price disguises a profound reality - the value investor's dream)
    - it masks the absence of a profound reality (1999)
    - it has no relation to any reality whatsoever; it is its own pure simulacrum, a copy without a model (perhaps this is where we find ourselves today given the decoupling of paper money and the continuous supply of liquidity and credit to market participants with no underlying attachment other than the promise of a central bank).
  • From the standpoint of the final phase of the image (price) then are we now witness to securities markets that have no relation whatsoever to anything - solely existant as a pure simulacrum from which higher and lower are relations to something without meaning; in other words a hyperreal market?
  • Just think about it.


5. Socionomics of Camouflage

The Chicago Sun-Times today asks, "Are real-life events such as the war in Iraq and other world conflicts driving designers to push camouflage onto fashion runways and into stores?"

  • Sandra Michaels Adams, who teaches clothing history and the role of dress in society at the School of the Art Institute of Chicago, says "the element of war is part of the zeitgeist," and likely has some effect on what real people wear on the streets, the newspaper reports.
  • But Adams says today's fad-driven camo phase is much different than the baby boom generation's.
  • "I'm not hearing or seeing sufficient war protest to say this is against the war," she says. "It's not like the '60s when we wore military clothes as a protest statement."
  • From a socionomic standpoint, this regurgitation of militaristic fashion in absence of a counter-war perspective is typical of social mood where everything is bullish.
  • The euphoria of the bull market embraces war and violence as a bullish phenomenon; consider the graphics showing market reactions to the 2003 Iraq war invasion, the September 11 terror attacks and the London and Madrid bombings.
  • It is not data itself or events that matter but the psychological environment into which they are fed that matters.


Is this a war protestor?

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No positions in stocks mentioned.

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