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Five Things You Need to Know: Bad News: Housing Normalization Continuing; Housing Normalization Threatening Broader Economy; GM Workers Strike; Consumers Now Have a Target on Their Backs; Who Wants to Be a Nillionaire?

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

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

1. Bad News: Housing Normalization Continuing

Existing-home sales in August fell to a five-year low, the National Association of Realtors said.

  • Existing-home sales fell 4.3% in August and 13% year-over-year.
  • Meanwhile, the supply of homes on the market bulged to a 10 months' worth of supply, the most ever.
  • But no worries, this was all part of the plan according to the National Association of Realtors.
  • "Existing-home sales expectedly fell in August when mortgage availability problems were peaking, but conditions are [SIC] forecasted to normalize in late fall," the NAR said on its website.
  • Yeah, that's right. By late fall existing-home sales are expected to "normalize."
  • Here's the thing about "normalization" though:
    - Existing-home sales have declined for six consecutive months and 10 of the last 12 months.
    - The supply of existing-homes on the market has increased for seven consecutive months.
  • In other words, this is the normalized housing market.
  • At this point any increase in sales or decrease in supply would be an aberration.


2. Housing Normalization Threatening Broader Economy

One tiny bit of good news from existing-home sales was that the median sales price for existing-homes managed to post a slight increase for August. But any enthusiasm for that increase was sucked dry by the earlier Case-Shiller Home Price Index decline.

  • Home prices in 20 U.S. metropolitan areas fell the most on record in July, declining a record 3.9% according to the S&P/Case-Shiller Home Price Index.
  • The 10-city composite index fell even more, 4.5% year-over-year.
  • Meanwhile, adding to housing-related woes was a disastrous earnings report from Lennar (LEN), which reported the largest quarterly loss in its 53-year history.
  • Yes, 53 years.
  • The company's cancellation rate actually increased from 29% in the second quarter to 32%.
  • And new orders plunged 48%, with the biggest decline coming from Arizona, Colorado and Texas.
  • The company had already reduced its workforce by 35% cutting more than 1,000 jobs last year, but widespread housing "normalization" is threatening still more jobs as Lennar CEO Stuart Miller said in a statement the company will be forced to eliminate still more jobs to "bring us back to profitability."


3. GM Workers Strike

The United Auto Workers labor union yesterday sent 73,000 workers to picket lines in its first national strike at General Motors (GM) since 1970.

  • Bloomberg is now reporting that the UAW has returned to the bargaining table with GM, a sign that the union may desire a quick end to the walkout.
  • Regardless, with the bulk of GM's profits now coming from overseas, no matter how long the strike lasts the walkout carries more socionomic significance than outright economic significance.
  • How so?
  • "Labor unions are nothing if not a bear market phenomenon. They thrive under bear markets and dark social mood conditions, they wane under bull markets and bright social mood conditions."
  • That was something we wrote back in June 2005 while the LA Times was busy declaring Labor Unions dead and powerless.
  • The antagonism between labor and management is always grounded in economic benefit and the trickle down from the bottom line that ordinarily goes straight to the top.
  • If workers feel they are benefiting from some of the fruits of their labor, not equally benefiting mind you, just benefiting, the friction between the worker and The Man is reduced.
  • The cyclical swings of social mood play a significant role in this that should not be underestimated.


4. Consumers Now Have a Target on Their Backs

Last night Target (TGT) cut its forecast for September sales to a range of 1.5% to 2.5%, down significantly from its previous forecast of 4% to 6%.

  • The retailer said traffic was far weaker than expected,, reflecting a sharp slowdown in consumer spending following on what was widely reported as "brisk" back-to-school sales.
  • Of course, what went hand-in-hand with those "brisk" back-to-school sales were widespread markdowns and cost-cutting, a tactic that will likely become more apparent as we edge closer to the holiday shopping season and get a peak at inventories.
  • Separately, Lowe's (LOW) home-improvement stores said weaker than expected sales will cut into its full-year earnings.
  • The company is blaming a mid-Atlantic drought on the weak sales, probably because dry conditions in the region have make it impossible for rural customers to drive their speedboats to Lowe's stores to charge Chrysanthemums and landscaping implements on their credit cards.
  • Meanwhile, these retail datapoints offer a grim reminder of what the National Retail Federation last week warned could be the slowest holiday shopping season in five years.
  • Circle Oct. 11 on your calendar, that's when most retailers will release September sales.


5. Who Wants to Be a Nillionaire?

And as if on cue, here is the Urban Dictionary's "Word of the Day." September 25, 2007: Nilionaire - Person without any money of their own. Usage:

  • "He looks rich but it's all borrowed and his bank account is nil, he's a nillionaire."
  • And, "Everything's in his wife's name, he's just a nillionaire."

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No positions in stocks mentioned.

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