(GDP declined by 1% in Q2 vs. consensus of -1.5%, and stocks reacted negatively. See Overnight Section for details. TB)
…today is our first ‘peek’ at GDP for the second quarter…it is expected to have improved from -5.5% in Q1 to a mere -1.5%. Was yesterday the ‘rumor’ while today will just be the news? By the time you are reading this the results will be posted, but does it matter…really? …really matter? After all, there are several options for it going forward: ‘V’ for victory, ‘U’ for useful, ‘L’ for level, or ‘W’ for what the…??? Starting to sound like a listing of Sue Grafton novels.
Last night the local CBS affiliate media station (KCBS) sponsored a ‘business mixer’ and discussion on the real estate market. The sponsors were mainly two huge condo projects who had huge pictures of their ‘unsold’ projects, one in Walnut Creek, and the other in Oakland at Jack London Square. It was strange seeing the conglomeration of realtors, insurance people, prospective house flippers, etc. and they must have been disappointed at the discussion in the second hour.
The first was one of the key people at Zillow, the online company that evaluates real estate prices nationally and with a most effective map display. He even labeled himself ‘Dr. Doom’, another was the CEO of CMG Mortgage, and two author/reporters. The most positive comment was that this is a good time to buy a home, especially in foreclosure (if in an area not inundated by them), but only IF you are planning on it as a long term investment…they pulled no punches and the audience quietly groaned.
The point was also made that another wave of option ARM resets is coming starting in 2010 and will continue in 2011 and even 2012. These are not on the subprime loans but on the higher priced homes bought by people who thought they would be making more money by then…does that cheer you up?
Now take this against the backdrop of the stock market yesterday…euphoria would be a gross understatement…trading technicals would be more accurate. There are two key points about the rally:
1. it was strong right out of the chute and volume was the best since July 8 but still 150 million shy of a normal day…and then not only did it give back half of it’s gain…in the final 20 minutes but there was concern it might give them all back.
2. the S&P 500 surged 21 points stopping at 996.68 just two points shy of the magical 1,000 psychological level but the only one that is significant is 1014.14…the 38.2% Fibonacci retracement from the March 6 low…and taking that out was not to be.
Which brings us to TB’s mea culpa yesterday as it was disconcerting to see an afternoon’s research wiped out immediately after the opening…but it was proved to be a ‘faux’ rally by the end of the day…nevertheless…
What was fascinating was the continuing string of investment people TB has gained respect for on Bloomberg talking about the weak state of the recovery which was unexpectedly confirmed at the conference last night. Not only that but the foreclosure rate jumped by 50% from May to June…that can’t be a good thing! (also the CMG guy said that the default rates used by Moody’s and S&P went back to 1945…they are now using 2007 as a base year!). Hedge fund manager Bill Ackermann who correctly shorted FNM/FRE and other financials says that rising foreclosures will be the next wave in the crisis…seems to be gaining support too!
If TB hears one more comment about the Obama stimulus plan kicking in he is going to scream. It won’t work (other than to help stabilize things) for the following reasons:
1. the scope is incomprehensible. How does one distribute hundreds of billions of dollars yet insure that it isn’t given to frauds….remember the scandals after Katrina? It takes time to do this and the longer the time frame the less effective…in fact there is the risk that usually occurs with fiscal policy of it kicking in after the recovery and thus causing inflation (not to worry about that one this time however). Local governments are complaining about the money not reaching their ‘shovel-ready’ projects…about all that IS getting there is the ‘Build-America-Bonds’ program where bonds are being issued as taxable despite it being cheaper as tax-exempt after adjusting for the federal subsidy, except this is money the states need NOW, not later…so future generations can pay for it instead.
2. the programs are also flawed and so vague that the participants don’t even understand them. Another case of designing the elephant by committee. Cash-for-clunkers is being hailed as a success (it has already run out of money!), yet it originally sounded like you would get $4,500 plus your trade-in, but turns out that is what you get…and then you only get a ‘voucher’ to be applied towards purchase of a new car that mandates you have to take out a five year loan on and the car must cost less than $45,000…too many strings…and what about anyone who has a ‘clunker’…can they even qualify for credit? Oh and here is a good one…the $8,000 first-time home owners tax credit. TB’s son just bought a home and would have had to put down a small down payment for FHA but was told by the realtor that the tax credit could be applied beyond that. He said that never happened because nobody knew how to do it…not the realtors, not the banks, not the escrow company…the point is that what good is a program if it is too complex to work? It didn’t matter in his case as he put plenty down and will just take it on his tax return.
That’s enough for today…you get the point…and the stock market is oblivious to it. Or you may think it is TB that doesn’t get the point…fair enough…and what he wants you do: think for yourself because only a fool would listen tot the blathering fools on CNBC.
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TB is going on vacation so the next scheduled blurb will be on August 18, at least you have lot to play with in the interim. He will be in Minnesota visiting his grandson and kids…and hopefully some friends and readers.
Hope you all have a nice weekend and thrive over the next two weeks.
TB
Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © July 31, 2009.
