Five Things You Need to Know: Existing Home Sales; Former Homeowners Desperately Working to Save House of Credit Cards; Any Love is Good Love for Home Depot; Demand Back in Control; $100 Bill to Undergo Extreme Makeover
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. Existing Home Sales
Sales of existing-homes in the U.S. fell in July for a fifth consecutive month, declining 0.2% the National Association of Realtors reported.
- On the bright side, the 0.2% decline wasn't quite as bad as most economists' forecasts.
- The 5.75 million unit annual pace was better than forecasts for a decline to a 5.7 million unit annual pace.
- However, the bad news is that the supply of unsold homes reached the highest level since 1991.
- The inventory of homes for sale rose 5.1% to 4.59 million.
- That represents 9.6 months of supply at the current sales pace.
- And with increased supply, and less demand, usually comes lower prices: median home prices fell 0.6% year-over-year.
2. Former Homeowners Desperately Working to Save House of Credit Cards
While foreclosures have spiked, the number of credit card loans in delinquency has been running steady, but why?
- Credit card delinquencies fell to 4.41% in the first quarter of 2007, from 4.56% at the end of 2006, according to the American Bankers Association.
- Meanwhile, foreclosures have soared, up
- Conventional wisdom has always held that a person would lose his or her credit cards long before risking losing the home.
- Of course, that old saw is probably grounded in the olden days, back before zero down payments for a house.
- Merrill Lynch's David Rosenberg recently noted that balances on credit cards surged at an 11% annual rate in May and June, the highest rate since 2000-2001.
- Why the jump?
- Simple. You can still spend your credit card, but you no longer can spend your home.
- Last week we looked at a Federal Reserve paper by Vice-Chairman Donald Kohn, with Fed economist Karen Dynan, arguing that the rise in home prices was the primary reason consumer borrowing has soared since 2001.
- With median home prices now poised for what could be the first yearly decline since federal housing agencies began tracking them, it's back to the credit cards.
3. Any Love is Good Love for Home Depot
Home Depot (HD) agreed to sell its construction-supply unit for $8.5 billion, cutting the price by $1.8 billion, or 18%, according to Bloomberg.
- The original buyers, Bain Capital LLC, Carlyle Group and Clayton Dubilier & Rice, negotiated a reduced price from the original $10.3 billion price tag Home Depot sought just two months ago, according to Bloomberg.
- So here's a question: How did Home Depot's construction-supply unit lose nearly $2 billion in value in less than two months?
- The answer is, it didn't.
- What HD's construction-supply unit lost was buyers with access to formerly cheap credit.
- Wait a minute, wouldn't that mean the previously agreed-to price was more a function of psychology than "value"?
- Yes, it would.
- Ok then, so what is Home Depot going to use the sales proceeds for? To pay down debt? Re-invest in their business? Expand?
- Nah, they're going to buy stock with it. Seriously.
- "Home Depot planned to use the sale proceeds to help fund a $22.5 billion stock buyback," Bloomberg reported.
4. Demand Back in Control
Below is where we stand with the point and figure bullish percent indexes. For more on what these are and how they tell us whether supply or demand is in control see the articles here.
- NYSE Bullish Percent: Xs (Positive), 38.53%
- S&P 500 Bullish Percent: Xs (Positive), 49.6%
- Nasdaq Composite Bullish Percent: Os (Negative), 37.66%
- Nasdaq-100 Bullish Percent: Xs (Positive), 60%
- Russell 2000 Bullish Percent: Xs (Positive), 41.5%
- NYSE High-Low Index: Xs (Positive), 21.56%
All bullish percents except the Nasdaq Composite are now positive, meaning demand is in control. Even the Russell 2000 is now positive. However, and this is important, it is critical to understand where the market leadership is coming from.
The chart below shows the Russell 2000 versus the S&P 500 plotted in point and figure terms. This is a relative strength chart. The trend and columns are important. This chart shows the RUT versus the SPX back to 2000 when the changeover occurred and a long period (roughly 1996 to 2000) of underperformance for the RUT reversed.
Click to enlarge.
Now, this relative strength chart has given a sell signal and violated the positive trendline. It has reversed into Xs, but I believe that is a result of temporary mean reversion and de-leveraging.
5. $100 Bill to Undergo Extreme Makeover
An amazing new look has been approved for the $100 bill, according to The Associated Press.
- The redesign of the $100 is about one-third of the way complete, the AP said, and the new bill is expected to go into circulation late next year.
- Among the changes is a weird new security thread that combines micro-printing with tiny lenses - 650,000 top be precise - that will cause the image of Ben Franklin to appear to shift when the bill is moved side to side or up and down.
- The security changes are part of an effort to head off counterfeiters.
- But that's just the beginning.
- Minyanville has learned the changes to the greenback will be even more extensive than new security features.
- The new $100 bill (shown below) will feature a larger "1" with both zeros removed.
- As well, Minyanville has learned the $1 bill is also undergoing some cosmetic makeover to remain consistent with the $100 bill's new look.
- The new $1, shown below, will feature a decimal and two new zeros added before the $1.
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