Chain store sales fell again this week by -0.7% and YoY sales are down to 1.7%.
Wanna guess what the excuse is this week?
The report said cool weather hurt demand for summer goods, noting that the pull back in gasoline prices has yet to boost sales.
When historians write about "The Great Mid-Cycle Slowdown" they're going to have to note how it was the first major economic downturn precipitated by benign weather conditions.
With cancellations, I believe inventory is at about 9 months. Someone correct me if Im wrong, but around 6 months is the norm. With an increase in defaults when ARM rates adjust, I can see this thing spiraling out of control to nearly 1 years worth inventory. Good time to rent for the next year to year and a half.
--
Few Details on the NAR's household formation report:
Down 70% to BELOW 0.5M annual rate.
I sincerely hope that CR would be man enough to admit that he is grossly out-of-reality when it comes to the Fundamental Demand. Let me repeat:
NO IMPROVEMENT IN EXCESS SUPPLY WILL TAKE PLACE UNTIL TOTAL COMPLETED UNITS FALL BELOW 0.5M AND REMAIN AT THAT LEVEL FOR YEARS.
God forbid depression, because in that case building and selling new homes would be nothing but a loss proposition.
Dismal Scientists don't understand GROSS ABUSE in lending and its consequences. All economic catastrophes in the US, after 1830s, were due to BANKERS' MISCHIEF. With evildoedrs in charge of the banking and financing GREATER DPRESSION HAS BEEN FULLY BACKED IN THE AMERICAN ECONOMIC CAKE.
(quote)
Much of the fallout from the subprime market has occurred behind closed doors or within funds hidden within much bigger institutions. Queen's Walk Investment, as a (public)vehicle, is being subjected to an excruciating public post-mortem. The evidence among the entrails is alarming, but also suggest that other funds, without the constraints that quoted vehicles impose, may be much worse off....By this week, losses in the UK and US had cut net asset value by 27 per cent from its level in December.
What went wrong? Leverage was high. Gearing was embedded both in the underlying securities and at the vehicle level. That meant, roughly, a 1 per cent move in an underlying mortgage portfolio's value would lead to a 30-40 per cent hit to equity. The underlying asset quality was both poor and obscure: in the UK perhaps a fifth of net present value derived from expected charges on people who paid off their mortgages early.
....US subprime accounted for about a fifth of Queen's Walk's assets, and it did not purchase any mortgages originated in 2006....because it is public, Queen's Walk has "permanent capital". There was no vicious circle of declining values, leading to client redemptions, leading to forced asset sales. And gearing at the vehicle level, at one-third of assets at its peak, was low. There must be other funds in a worse position.
"To death and taxes you can add this to your list of inevitabilities: the subprime crisis is not an isolated event and it won't be contained by a few days of headlines in The New York Times."
"[this]may be just what the Fed has been looking for: easy credit becoming less easy; excessive liquidity returning to more rational levels."
Rates can't change until there are at least a few months where the goverment acknowledges that the economy is slipping and that that slippage is more important than inflation and dollar decline. At this point a rate cut will not help the economy because of the way the market is re-evaluating risk.
Talked briefly with a real estate agent in Modesto, CA this weekend; Modesto, like Stockton, was extremely overbuilt over the past few years, and prices are falling now. He said "a lot of people are being ruined" because they believed what the mortgage broker told them and got into a house that, ultimately, they couldn't afford.
I wouldn't bet on increased economic activity in that neck of the woods, that's for sure. Oh, and Hershey's is closing the local chocolate plant and moving 600 jobs to Monterrey, Mexico. Kiss, kiss from the global economy.
These numbers are JUST estimates from Surveys. They are based on what people polled what or need to say rather then actual data on inventory,or sales.
You could call X number of builders and ask them about sales and inventory for the Month of May, do you really think it would provide any meaningful data?
You guys may remember I asked a few months ago who would get stuck when the music stopped (actually it was There's a major (gigantic) vaporization of equity in the works, so who is the final loser?) -
Now we're nearing a meltdown caused by - in the real analysis - a search for fees on the Street. (After all, the paper we're talking about here - derivatives and leverage trash, not the useful MBS, etc. - serve no real purpose other than fee generation.)
If that's the case, the 1st penultimate hit is on the clients (the re-org fees will keep paying for those Tribeca condos), most likely pension funds, the CBOC, and edu endowments. And the 2nd is the stockholders of Bear, GS, MS, etc., once again mainly pension funds, etc., but probably not CBOC.
And the last hit is Ms & Mr Sixpack - and who do they blame? Bush? Greenspan? Clinton? Some incoherent "they"?
It's not only going to hit the financial system, it's going to be at the top of 2008 politics - along with gas prices and the Chinese owning everything (while killing us with poisoned food and bad tires).
For the last 12 announcements of New Residential Sales, the total number of sales has been revised downwards. The median revision has been down -5.2%. If the new release is revised by that amount, it will lead to 867k (down 20.2% from may 2006) and inventory will be at 7.4 months.
Its debt exhaustion. Only way to sustain the price is with exotic loans.
Those are being exposed for the high risk that they are. Momentum is unstopably downward and not a darn thing can be done.
Get the hell out of the way. Only things stopping this are when people run out of cash and how sone the big money guys (meril, goldy,stern) decide to book the losses.
I am avoiding these guys for a few years till the loss picture settles. Will be invested in staple goods due to the bee situation. Otherwise millitary and aerospace that are on the gov nipple.
That's the only inflation left, and it's running out of steam. See my post.
I agree with both of these assessments, but would add that some of it is also coming directly from Wall Street and much of the inflation coming from overseas is coming via the Bank of Japan.
"Will be invested in staple goods due to the bee situation."
james, didn't get it. could you explain?
thanks!
Bee colonies are collapsing at a very alarming rate. They just disappear, never come back to the hive, leaving the queen bee which is very unusual. Many of our crops are heavily dependent on bees for fertilization. There are people who drive rigs around the country with hives to ferilize certain crops. It is happining around the world.
thought it was mostly in california, didn't know it was happening all around. no idea still why? they were saying back in march that it might have been due to parasites, but nothing for sure.
Jas, I think you are misinterpreting the steady state demand. I currently think it is around 1.7 million housing units per year (Fannie Mae's Berson has estimate 1.8 million units per year).
This is calculated based on household formation, normal demolitions and second home purchases - over the long term. And the long term trend is for demand to continue to grow.
I believe you are confusing the short term with the long term. Yes, for a short period, household formation will probably slow (because of the high cost of housing), demolitions and 2nd home purchases will decline. I've made that argument many times. But that is SHORT TERM thinking. That is fine for analyzing the next year or so - but it is incorrect when analyzing housing overall. As prices fall, the demand will return back to the steady state.
This approach helps understand the overbuilding of recent years. It has also helped with a fairly accurate forecast for housing in '06, and so far in '07.
Late to the party as usual, but I just wanted to note that while the overall number was revised down for April, the NE number was revised up.
I have no idea why that would be and based on what I have seen and the builders I'm talking to, it sure doesn't seem like everything is sanguine with sales right now.
According to the latest revision, April new home sales in the NE this year were better than they were in 05.
Chain store sales fell again this week by -0.7% and YoY sales are down to 1.7%.
Wanna guess what the excuse is this week?
The report said cool weather hurt demand for summer goods, noting that the pull back in gasoline prices has yet to boost sales.
When historians write about "The Great Mid-Cycle Slowdown" they're going to have to note how it was the first major economic downturn precipitated by benign weather conditions.
Maybe NAR will say its a great time to buy, Again.
With cancellations, I believe inventory is at about 9 months. Someone correct me if Im wrong, but around 6 months is the norm. With an increase in defaults when ARM rates adjust, I can see this thing spiraling out of control to nearly 1 years worth inventory. Good time to rent for the next year to year and a half.
I'm sure that MEW has nothing to do with retail sales being down, even a little.
Note the sarcasm.
--
Few Details on the NAR's household formation report:
Down 70% to BELOW 0.5M annual rate.
I sincerely hope that CR would be man enough to admit that he is grossly out-of-reality when it comes to the Fundamental Demand. Let me repeat:
NO IMPROVEMENT IN EXCESS SUPPLY WILL TAKE PLACE UNTIL TOTAL COMPLETED UNITS FALL BELOW 0.5M AND REMAIN AT THAT LEVEL FOR YEARS.
God forbid depression, because in that case building and selling new homes would be nothing but a loss proposition.
Dismal Scientists don't understand GROSS ABUSE in lending and its consequences. All economic catastrophes in the US, after 1830s, were due to BANKERS' MISCHIEF. With evildoedrs in charge of the banking and financing GREATER DPRESSION HAS BEEN FULLY BACKED IN THE AMERICAN ECONOMIC CAKE.
Bye bye Miss American Pie...
Jas
Financial Times today:
(quote)
Much of the fallout from the subprime market has occurred behind closed doors or within funds hidden within much bigger institutions. Queen's Walk Investment, as a (public)vehicle, is being subjected to an excruciating public post-mortem. The evidence among the entrails is alarming, but also suggest that other funds, without the constraints that quoted vehicles impose, may be much worse off....By this week, losses in the UK and US had cut net asset value by 27 per cent from its level in December.
What went wrong? Leverage was high. Gearing was embedded both in the underlying securities and at the vehicle level. That meant, roughly, a 1 per cent move in an underlying mortgage portfolio's value would lead to a 30-40 per cent hit to equity. The underlying asset quality was both poor and obscure: in the UK perhaps a fifth of net present value derived from expected charges on people who paid off their mortgages early.
....US subprime accounted for about a fifth of Queen's Walk's assets, and it did not purchase any mortgages originated in 2006....because it is public, Queen's Walk has "permanent capital". There was no vicious circle of declining values, leading to client redemptions, leading to forced asset sales. And gearing at the vehicle level, at one-third of assets at its peak, was low. There must be other funds in a worse position.
(end quote)
"Chain store sales fell again this week by -0.7% and YoY sales are down to 1.7%."
ac, YOY gain less than inflation, right? So real sales are actually down YOY. Again. Right?
PIMCO's Gross says "subprime crisis" not isolated
Business & Financial News, Breaking US & International News | Reuters.com
"To death and taxes you can add this to your list of inevitabilities: the subprime crisis is not an isolated event and it won't be contained by a few days of headlines in The New York Times."
"[this]may be just what the Fed has been looking for: easy credit becoming less easy; excessive liquidity returning to more rational levels."
But Gross still thinks that FED may throw a small bone rate cut!
Does it make sense at some point to look at the total (January to May) YoY? I am just wondering about that recurring "seasonal adjustment".
Rates can't change until there are at least a few months where the goverment acknowledges that the economy is slipping and that that slippage is more important than inflation and dollar decline. At this point a rate cut will not help the economy because of the way the market is re-evaluating risk.
The most important chart
Enjoy!
Talked briefly with a real estate agent in Modesto, CA this weekend; Modesto, like Stockton, was extremely overbuilt over the past few years, and prices are falling now. He said "a lot of people are being ruined" because they believed what the mortgage broker told them and got into a house that, ultimately, they couldn't afford.
I wouldn't bet on increased economic activity in that neck of the woods, that's for sure. Oh, and Hershey's is closing the local chocolate plant and moving 600 jobs to Monterrey, Mexico. Kiss, kiss from the global economy.
Inflation is coming from overseas.
Rate cut = lower dollar = more inflation -> no rate cut.
Mortgage rates are really, really low. Seriously.
Thirty year fixed: 6.5%
Ordinarily, people would be pouring into the streets to buy houses with that rate.
But as long as Jeffrey Pearlowitz and his buddies can mark to model, the US is [rhymes with trucked].
These numbers are JUST estimates from Surveys. They are based on what people polled what or need to say rather then actual data on inventory,or sales.
You could call X number of builders and ask them about sales and inventory for the Month of May, do you really think it would provide any meaningful data?
That's the only inflation left, and it's running out of steam. See my post.
You guys may remember I asked a few months ago who would get stuck when the music stopped (actually it was There's a major (gigantic) vaporization of equity in the works, so who is the final loser?) -
Now we're nearing a meltdown caused by - in the real analysis - a search for fees on the Street. (After all, the paper we're talking about here - derivatives and leverage trash, not the useful MBS, etc. - serve no real purpose other than fee generation.)
If that's the case, the 1st penultimate hit is on the clients (the re-org fees will keep paying for those Tribeca condos), most likely pension funds, the CBOC, and edu endowments. And the 2nd is the stockholders of Bear, GS, MS, etc., once again mainly pension funds, etc., but probably not CBOC.
And the last hit is Ms & Mr Sixpack - and who do they blame? Bush? Greenspan? Clinton? Some incoherent "they"?
It's not only going to hit the financial system, it's going to be at the top of 2008 politics - along with gas prices and the Chinese owning everything (while killing us with poisoned food and bad tires).
Thirty year fixed: 6.5%
Ordinarily, people would be pouring into the streets to buy houses with that rate."
Ten years ago, absolutely. When the economy was stronger, personal debt was less, and housing was half the price it is now.
Only artifically low interest rates support the prices we have now. At 7.5 or 8 percent, or 9, what would they be? 30 percent lower? 50 percent? More?
For the last 12 announcements of New Residential Sales, the total number of sales has been revised downwards. The median revision has been down -5.2%. If the new release is revised by that amount, it will lead to 867k (down 20.2% from may 2006) and inventory will be at 7.4 months.
6.5 percent 30yr isn't low enough.
Its debt exhaustion. Only way to sustain the price is with exotic loans.
Those are being exposed for the high risk that they are. Momentum is unstopably downward and not a darn thing can be done.
Get the hell out of the way. Only things stopping this are when people run out of cash and how sone the big money guys (meril, goldy,stern) decide to book the losses.
I am avoiding these guys for a few years till the loss picture settles. Will be invested in staple goods due to the bee situation. Otherwise millitary and aerospace that are on the gov nipple.
"Will be invested in staple goods due to the bee situation."
james, didn't get it. could you explain?
thanks!
Lennar homes is in big trouble. They lost $244.2 million for the quarter and their margins went from 23.7% down to 13.6%.
>>> Inflation is coming from overseas.
That's the only inflation left, and it's running out of steam. See my post.
I agree with both of these assessments, but would add that some of it is also coming directly from Wall Street and much of the inflation coming from overseas is coming via the Bank of Japan.
"Will be invested in staple goods due to the bee situation."
james, didn't get it. could you explain?
thanks!
Bee colonies are collapsing at a very alarming rate. They just disappear, never come back to the hive, leaving the queen bee which is very unusual. Many of our crops are heavily dependent on bees for fertilization. There are people who drive rigs around the country with hives to ferilize certain crops. It is happining around the world.
thought it was mostly in california, didn't know it was happening all around. no idea still why? they were saying back in march that it might have been due to parasites, but nothing for sure.
The bee situation is very alarming. Just like if the plankton dispeared from the ocean.
Jas, I think you are misinterpreting the steady state demand. I currently think it is around 1.7 million housing units per year (Fannie Mae's Berson has estimate 1.8 million units per year).
This is calculated based on household formation, normal demolitions and second home purchases - over the long term. And the long term trend is for demand to continue to grow.
I believe you are confusing the short term with the long term. Yes, for a short period, household formation will probably slow (because of the high cost of housing), demolitions and 2nd home purchases will decline. I've made that argument many times. But that is SHORT TERM thinking. That is fine for analyzing the next year or so - but it is incorrect when analyzing housing overall. As prices fall, the demand will return back to the steady state.
This approach helps understand the overbuilding of recent years. It has also helped with a fairly accurate forecast for housing in '06, and so far in '07.
Best to all.
Late to the party as usual, but I just wanted to note that while the overall number was revised down for April, the NE number was revised up.
I have no idea why that would be and based on what I have seen and the builders I'm talking to, it sure doesn't seem like everything is sanguine with sales right now.
According to the latest revision, April new home sales in the NE this year were better than they were in 05.
I have no idea how that could be possible.