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Five Things You Need to Know: New Home Sales Fall More Than Expected As Expected; Durable Goods Orders; Beige Book; Housing Weakness Well Contained to Newspapers; Daily Sign That Massive Credit Bubble is Verging on Deflationary Collapse


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. New Home Sales Fall More Than Expected As Expected

New Home Sales in June fell more than expected which, weirdly enough, was actually... expected. What would have been unexpected is some kind of glimmer of hope that sales were leveling off or inventories were no longer building.

  • Instead, New Home Sales fell 6.6%, far worse than the forecast for a 2.7% decline.
  • And inventories, although unchanged for the month, on a net basis bulged to 7.4 months' supply from May's 7.1 months', thanks to the falling sales.
  • Year-over-year, sales of new homes were down 22%.
  • And the median price of a new home fell 2.2%.
  • Bloomberg noted that "Builders may have to cut prices even more and sweeten incentives to turn sales around and trim bloated inventories."

2. Durable Goods Orders

U.S. orders for Durable Goods showed a headline increase of 1.4% in June, according to the Commerce Department.

  • Expectations were for a slightly larger increase, however of 1.6%
  • The key component of Durable Goods orders is the nondefense capital goods excluding aircraft category, which is a proxy for capital spending.
  • In plain English, the only real reason to watch this report is to get an idea of whether businesses are investing money in equipment to help them produce more goods, or whether they're holding onto their cash in a possible sign of risk aversion.
  • So, that said, orders for nondefense capital goods excluding aircraft fell by 0.7%.
  • Shipments for nondefense capital goods excluding aircraft decreased in June by 0.4%, after rising 0.7% in May.
  • Shipments are used in calculating gross domestic product (GDP), and GDP is tells us whether there is economic growth.
  • What's interesting is that the Durable Goods report paints a slightly bleaker picture of capital spending than the Fed's Beige Book, which leads us to today's Number 3...

3. Beige Book

The Federal Reserve's Beige Book significantly downgraded the assessment of US consumer spending yesterday. Why? Rising costs in things such as food and energy.

  • The Beige Book, which is the Fed's survey of regional economies, painted an overall picture of the U.S. economy as continuing to expand with strong employment but "ongoing cost pressures.''
  • The report noted that that high food and energy prices are restraining consumer spending and that sales of housing-related items such as furniture are "weak or declining" (for more on that see today's Number 4).
  • "New York, Atlanta, Kansas City, and Dallas reported sales as flat and/or below expectations."
  • For comparison's sake, a little more than a month ago the Beige Book report indicated that in Cleveland, Atlanta, Kansas City, and Dallas sales were "disappointing or below expectations."
  • Last month too the Beige Book highlighted the discrepancy between positive retail sales in luxury items versus low-end items.
  • Finally, one additional item to note in this report:
  • "Household credit quality deteriorated marginally, while business credit quality remained mostly favorable."
  • Meanwhile, this morning, as we were typing that last sentence, the following news alert scrolled across our Bloomberg: "Stocks fell around the world and US Treasuries rallied on concern higher borrowing costs will slow takeovers, spur debt defaults and curb earnings."
  • Oops. So much for "favorable" business credit quality.

4. Housing Weakness Well Contained to Newspapers, Home Improvement Retailers, Japanese Securities Firms

Does this spell the end of the "well contained" mantra?

  • The slump in the US housing market is taking a toll on the newspaper industry, the Financial Times observed this morning.
  • Two publishers yesterday reported weak earnings that they say were pressured by sharp drops in real estate advertising.
  • Tribune (TRB) reported a 24% year-over-year drop in real estate advertising for the second quarter.
  • The New York Times Company (NYT) said real estate advertising fell 20.9% year-over-year for the quarter, contributing to a broader 5.7% slide in the company's advertising revenue.
  • The FT notes that back in the good old days the housing market had been "a rare bright spot for US newspapers."
  • Last year many papers posted gains in their real estate classified ads of 20% or more.
  • Meanwhile, Black and Decker (BDK) reported sales were about flat for the second quarter, held back by a 2% decrease in sales of power tools and accessories, as well as a 3% decrease in sales in the hardware and home improvement segment... you know, areas most affected by the housing market.
  • "Looking ahead, we expect that the weak U.S. housing industry and significant commodity inflation will continue to adversely affect our earnings comparisons," Chairman and CEO Nolan Archibald said.
  • And according to the Financial Times, Nomura, Japan's largest broker, yesterday said it was considering withdrawing from the US residential mortgage-backed securities (RMBS) market due to substantial losses related to subprime mortgages.
  • Well, at least we still have our shirts:

5. Daily Sign That Massive Credit Bubble is Verging on Deflationary Collapse

A Manhattan accountant who requested a copy of his soon-to-be-expiring ExxonMobil (XOM) credit card received proof positive that there may, in fact, be a massive credit bubble building.

Frank Van Buren, an ExxonMobil business account-holder for 17 years, received two boxes containing 1,000 credit cards each after asking for two additional copies of his card. According to the Associated Press, Van Buren said it took hours to shred the cards, each of which were embossed with his name and account number.

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