Markos Kaminis' Instablog Markos N. Kaminis was a sell-side analyst over a seven-year period at Standard & Poor's. After proving his value in-house, he was promoted into a special role as an idea generator, supporting the portfolios of institutional clients as well as driving performance within S&P's recommended lists and portfolios. At times, Markos was responsible for up to 10% of the firm's entire "Strong Buy" list. Markos followed a group of 30-40 Small and Mid-Cap firms, and was charged with finding new buy and sell candidates across industry sectors. He generated a 23% average annual return over five years on his "Strong Buy" recommendations, and 26% over three years ended 2004. He was ranked 1st of 60 analysts in-house for his "Strong Buy" performance over 4 years (2nd over 5). Markos also authored IPO research and wrote for high-level newsletters, The Outlook, Equity Insights and Emerging Opportunities, as well as for BusinessWeek Online. He represented his firm as an analytical expert commentator for major media, including television, Internet and through quotes and interviews in reputable publications. Markos is currently Directing the globally syndicated blog he founded, "Wall Street Greek," and writing for other well-known publications. Markos' column is syndicated across sites like Kiplinger Magazine, UPI and major newspaper and TV websites, as well as private networks, Amazon Kindle and more. In the past, he has written for RealMoney.com, Motley Fool and others. He welcomes you to follow him here at Seeking Alpha, where he is proud to be a long-time contributor to this strong team of writers. He considers the Seeking Alpha team and management close friends, and for you, people worth knowing and following. Visit his site: Wall Street Greek (http://www.wallstreetgreek.blogspot.com/) Markos Kaminis http://seekingalpha.com ISM Spurred Stocks, but Beware the Deceptive Data http://seekingalpha.com/instablog/402179-markos-kaminis/42095-ism-spurred-stocks-but-beware-the-deceptive-data?source=feed 42095 ISM's Index Spurred Stocks Monday, but the Data Hides Deceptive and Less Than Sustainable Drivers

The Institute for Supply Management (ISM) reported on the manufacturing sector Monday, noting December's Index improved to a mark of 55.9, up from 53.6 in November. It was the best check-up since 2006, and the stock market took notice, with the Dow Jones Industrials gaining 1.5% on the day. Economists had forecast improvement for December, but to a lesser extent (54.8), so the positive surprise gave lift to stocks that needed a reason to rise further in 2010. Still, I temper your enthusiasm, as I view several aspects of this positive data either unsustainable or deceptive.

ISM's December Index stood above 50, the threshold for manufacturing sector expansion, for the fifth month in a row. What's better is that the New Orders Index rocketed up to 65.5 in December, from 60.3 in November. A closer inspection of the data, though, reveals that the improvement in New Orders was greatly due to stabilization rather than increased order levels. The percentage of manufacturers reporting improved New Orders actually slipped to 35% in December, from 36% in November. However, the number of manufacturers reporting deterioration in New Orders fell, while those reporting stabilized orders improved to 46%, from 42% in November. Suddenly this key component to the index's improvement and the stock market's rise is less convincing, isn't it?

The Employment Index lagged, showing employers will be cautious with regard to new hiring. The Employment measure reached 52.0, up from 50.8 in November. Besides, manufacturers still have plenty of capacity left to fill before needing to consider the expansion of production. Still, the Production Index ramped to 61.8, from 59.9.

ISM's Flawed Extrapolation

ISM stated its PMI trends indicate general economic expansion over the last eight months, and good times to come. However, we expect this tune will not ring true for this economic cycle. According to ISM, when the PMI rates above 41.2, it historically indicates a growing overall economy. However, extremely high unemployment this time around, and service sector drag, due to tighter capital constraints across the consumer spectrum, likely means ISM's extrapolation of its PMI Index to cover the overall economy is irrelevant with regard to this cycle.

ISM also stated that if its December PMI of 55.9 is annualized, it corresponds with 4.6% GDP growth. Be careful now readers, because the accelerated rate of expansion we are seeing in December's figure is not sustainable in my view. It represents a return to normal inventory stocking, which is likely driving intensified demand for manufacturers' goods in the short term. Therefore, I believe you cannot extrapolate December's data toward a 2010 GDP forecast for 4.6% growth. That's just foolish. Now if by some miracle GDP were to improve that much this year, it would most likely be due to factors other than those covered by ISM.

Manufacturing customers' inventories showed an increased percentage (37%, over 33% previously) of customers reporting inventories were too low in December. This has been the trend over the past few months, and represents a shift to normal trading patterns, in my view. Manufacturers' inventories contracted at a slower rate in December, which implies improved sales trends, but not necessarily driven by sustainable demand (inventory restocking is likely playing a role).

It looks to us like inventory restocking from deeply understocked levels will serve the purpose of lifting the economy in Q4, and maybe into Q1 as well. Still, be aware that this is a trend seen oftentimes in economic cycle history, and oftentimes it is followed by a second dip into economic contraction once normalized inventory meets still sub par absolute demand. Given still high unemployment and cautious employers, Wall Street Greek finds no reason to forecast any other consequence for this cycle, and therefore, for 2010.


Disclosure: No Positions]]> Mon, 04 Jan 2010 19:05:59 -0500 ISM's Index Spurred Stocks Monday, but the Data Hides Deceptive and Less Than Sustainable Drivers

The Institute for Supply Management (ISM) reported on the manufacturing sector Monday, noting December's Index improved to a mark of 55.9, up from 53.6 in November. It was the best check-up since 2006, and the stock market took notice, with the Dow Jones Industrials gaining 1.5% on the day. Economists had forecast improvement for December, but to a lesser extent (54.8), so the positive surprise gave lift to stocks that needed a reason to rise further in 2010. Still, I temper your enthusiasm, as I view several aspects of this positive data either unsustainable or deceptive.

ISM's December Index stood above 50, the threshold for manufacturing sector expansion, for the fifth month in a row. What's better is that the New Orders Index rocketed up to 65.5 in December, from 60.3 in November. A closer inspection of the data, though, reveals that the improvement in New Orders was greatly due to stabilization rather than increased order levels. The percentage of manufacturers reporting improved New Orders actually slipped to 35% in December, from 36% in November. However, the number of manufacturers reporting deterioration in New Orders fell, while those reporting stabilized orders improved to 46%, from 42% in November. Suddenly this key component to the index's improvement and the stock market's rise is less convincing, isn't it?

The Employment Index lagged, showing employers will be cautious with regard to new hiring. The Employment measure reached 52.0, up from 50.8 in November. Besides, manufacturers still have plenty of capacity left to fill before needing to consider the expansion of production. Still, the Production Index ramped to 61.8, from 59.9.

ISM's Flawed Extrapolation

ISM stated its PMI trends indicate general economic expansion over the last eight months, and good times to come. However, we expect this tune will not ring true for this economic cycle. According to ISM, when the PMI rates above 41.2, it historically indicates a growing overall economy. However, extremely high unemployment this time around, and service sector drag, due to tighter capital constraints across the consumer spectrum, likely means ISM's extrapolation of its PMI Index to cover the overall economy is irrelevant with regard to this cycle.

ISM also stated that if its December PMI of 55.9 is annualized, it corresponds with 4.6% GDP growth. Be careful now readers, because the accelerated rate of expansion we are seeing in December's figure is not sustainable in my view. It represents a return to normal inventory stocking, which is likely driving intensified demand for manufacturers' goods in the short term. Therefore, I believe you cannot extrapolate December's data toward a 2010 GDP forecast for 4.6% growth. That's just foolish. Now if by some miracle GDP were to improve that much this year, it would most likely be due to factors other than those covered by ISM.

Manufacturing customers' inventories showed an increased percentage (37%, over 33% previously) of customers reporting inventories were too low in December. This has been the trend over the past few months, and represents a shift to normal trading patterns, in my view. Manufacturers' inventories contracted at a slower rate in December, which implies improved sales trends, but not necessarily driven by sustainable demand (inventory restocking is likely playing a role).

It looks to us like inventory restocking from deeply understocked levels will serve the purpose of lifting the economy in Q4, and maybe into Q1 as well. Still, be aware that this is a trend seen oftentimes in economic cycle history, and oftentimes it is followed by a second dip into economic contraction once normalized inventory meets still sub par absolute demand. Given still high unemployment and cautious employers, Wall Street Greek finds no reason to forecast any other consequence for this cycle, and therefore, for 2010.


Disclosure: No Positions]]> f ge ba utx mmm hon tm jci mga bwa trw dia fdml aapl qqqq msft macro economy economic data Consumer Good Cheer or Sign for the Year? http://seekingalpha.com/instablog/402179-markos-kaminis/41463-consumer-good-cheer-or-sign-for-the-year?source=feed 41463 Is Consumer Good Cheer Simply Symptomatic of the Season or is the Sun Shining Again?

The Conference Board reported on Consumer Confidence this morning. December's reading marked improvement over November, as the index measured 52.9, up from a revised 50.6 mark in November. November also offered a gain over October's measure of 48.7. So we wonder what's got consumers so cheery?

We would first assume that the smiley times are simply symptomatic of the holidays. After all, there is an undeniable euphoria that coincides with the heavy holiday consumption of sweets and spirits. Nostalgic films like It's a Wonderful Life and A Miracle on 34th Street have a way of warming the heart as well. Then there's that jolly old fat guy in the red suit laughing up a storm, and they say laughter is contagious… By the way, I think the fat guy just got his bonus from Goldman Sachs (NYSE: GS). Anywho, maybe improving sentiment is just a consequence of the season…

Still, with the labor market recently bleeding jobs at a slower pace, and with only 9% of employers saying they will likely layoff more folks in 2010 (down from 16%), maybe the communal sense of job security is solidifying. Also, stocks were up a bunch this past year, albeit from bare bottom lows, especially in early March. Meanwhile, GDP is growing again and the Fed is still as fiscally friendly as can be. So maybe the sun really is rising?

Well it has not risen yet, as the Present Situation Index component of the overall sentiment figure stuck at a 26-year low. The PSI fell to 18.8 in December, down from 21.2 in November. Still, America seems to have its collective eye on the horizon, as the Expectations Index moved to 75.6, up from 70.3 in November.

Investor Confidence Up Too

A second measure reported this morning seems to reinforce the good day sunshine seen in the Conference Board's report. State Street's (NYSE: STT) Global Investor Confidence Index improved to 103.9, from 100.8 in November. While the universal measurement benefited largely from a 6.3 point advance in Asia Pacific sentiment (to an 8-month high), US confidence improved 0.9 to a level of 103.1. And why shouldn't investors favor increased risk these days, given the stock market's large advance since March. State Street says its measure, which looks at actual risk taking of institutional investors, was ahead of the curve in predicting stock market and economic recovery.

Come January though, we anticipate investor sentiment might cool along with equity values. Given the run-up this year, with the Dow Jones Industrials up 2.0% this month, and up 61% since the March 9 close, we expect investors will look to lock up gains post the tax-year threshold of December 31st.

Disclosure: No Positions]]> Tue, 29 Dec 2009 14:23:15 -0500 Is Consumer Good Cheer Simply Symptomatic of the Season or is the Sun Shining Again?

The Conference Board reported on Consumer Confidence this morning. December's reading marked improvement over November, as the index measured 52.9, up from a revised 50.6 mark in November. November also offered a gain over October's measure of 48.7. So we wonder what's got consumers so cheery?

We would first assume that the smiley times are simply symptomatic of the holidays. After all, there is an undeniable euphoria that coincides with the heavy holiday consumption of sweets and spirits. Nostalgic films like It's a Wonderful Life and A Miracle on 34th Street have a way of warming the heart as well. Then there's that jolly old fat guy in the red suit laughing up a storm, and they say laughter is contagious… By the way, I think the fat guy just got his bonus from Goldman Sachs (NYSE: GS). Anywho, maybe improving sentiment is just a consequence of the season…

Still, with the labor market recently bleeding jobs at a slower pace, and with only 9% of employers saying they will likely layoff more folks in 2010 (down from 16%), maybe the communal sense of job security is solidifying. Also, stocks were up a bunch this past year, albeit from bare bottom lows, especially in early March. Meanwhile, GDP is growing again and the Fed is still as fiscally friendly as can be. So maybe the sun really is rising?

Well it has not risen yet, as the Present Situation Index component of the overall sentiment figure stuck at a 26-year low. The PSI fell to 18.8 in December, down from 21.2 in November. Still, America seems to have its collective eye on the horizon, as the Expectations Index moved to 75.6, up from 70.3 in November.

Investor Confidence Up Too

A second measure reported this morning seems to reinforce the good day sunshine seen in the Conference Board's report. State Street's (NYSE: STT) Global Investor Confidence Index improved to 103.9, from 100.8 in November. While the universal measurement benefited largely from a 6.3 point advance in Asia Pacific sentiment (to an 8-month high), US confidence improved 0.9 to a level of 103.1. And why shouldn't investors favor increased risk these days, given the stock market's large advance since March. State Street says its measure, which looks at actual risk taking of institutional investors, was ahead of the curve in predicting stock market and economic recovery.

Come January though, we anticipate investor sentiment might cool along with equity values. Given the run-up this year, with the Dow Jones Industrials up 2.0% this month, and up 61% since the March 9 close, we expect investors will look to lock up gains post the tax-year threshold of December 31st.

Disclosure: No Positions]]> stt gs m kss jwn sks tjx dds bont cpwm anf aro aeo ann bke chs cbk dsw ges jcg ltd nwy mw dia spy bebe cmrg ctrn dbrn hott josb rost plce urbn wtsla qqqq macro S&P Case Shiller's Home Price Index Concerns Me http://seekingalpha.com/instablog/402179-markos-kaminis/41444-s-p-case-shiller-s-home-price-index-concerns-me?source=feed 41444 Today's real estate metric seems to point toward trouble

S&P Case Shiller posted its Home Price Indices this morning covering the 10 and 20 city markets it regularly measures. Unfortunately, the data seems to offer insight the market could choke on as economists mull over and pick through October's refuse.

Unfortunately, today's report covers the month of October (do you remember when?…)! Anyway, way back in October, prices improved at a less rapid rate when compared to ancient September. Prices were still lower than the prior year period, but less lower than in September. The 10-City Composite was off 6.4% when matched against last October (that's in 2008), while the 20-City measuring stick slipped 7.3%. Only seven of 20 metro regions posted month-to-month gains; that's a marked deterioration of the rate and breadth of improvement. Those seven cities include: Detroit, Los Angeles, Phoenix, Portland, San Diego (gosh I love it there), San Francisco and Seattle.

As we recall those lazy summer/early fall days (foggy as it may be), we know the pending expiration of the First-Time Homebuyer Tax Credit led a mass rush of Americans to enter into home purchase agreements in September, with a resulting counter-slippage in October. That seems to explain the change pricing here as well.

A representative of the measuring organization cautions in the press release against looking for a double-dip in pricing, since Fed policy is consistent and favorable now, versus a comparable period in the early '80s when a dramatic shift in Fed policy led prices to drop twice. We caution though, that market anticipation of future inflation is intensifying, and market sentiment may matter as much or more than actual Fed policy, and may precede it.

For now, we expect the most important market takeaway will be that we appear en route toward year-over-year price stabilization. Still the pace is slowing, and seems unreliable, especially if we remove the crutches of government stimulus. The latest extension of the homebuyer tax credit is set to expire in the first half of 2010.


Disclosure: No Positions]]> Tue, 29 Dec 2009 12:26:44 -0500 Today's real estate metric seems to point toward trouble

S&P Case Shiller posted its Home Price Indices this morning covering the 10 and 20 city markets it regularly measures. Unfortunately, the data seems to offer insight the market could choke on as economists mull over and pick through October's refuse.

Unfortunately, today's report covers the month of October (do you remember when?…)! Anyway, way back in October, prices improved at a less rapid rate when compared to ancient September. Prices were still lower than the prior year period, but less lower than in September. The 10-City Composite was off 6.4% when matched against last October (that's in 2008), while the 20-City measuring stick slipped 7.3%. Only seven of 20 metro regions posted month-to-month gains; that's a marked deterioration of the rate and breadth of improvement. Those seven cities include: Detroit, Los Angeles, Phoenix, Portland, San Diego (gosh I love it there), San Francisco and Seattle.

As we recall those lazy summer/early fall days (foggy as it may be), we know the pending expiration of the First-Time Homebuyer Tax Credit led a mass rush of Americans to enter into home purchase agreements in September, with a resulting counter-slippage in October. That seems to explain the change pricing here as well.

A representative of the measuring organization cautions in the press release against looking for a double-dip in pricing, since Fed policy is consistent and favorable now, versus a comparable period in the early '80s when a dramatic shift in Fed policy led prices to drop twice. We caution though, that market anticipation of future inflation is intensifying, and market sentiment may matter as much or more than actual Fed policy, and may precede it.

For now, we expect the most important market takeaway will be that we appear en route toward year-over-year price stabilization. Still the pace is slowing, and seems unreliable, especially if we remove the crutches of government stimulus. The latest extension of the homebuyer tax credit is set to expire in the first half of 2010.


Disclosure: No Positions]]> srs ure igr xin tol hov bzh bac fre fnm len phm nvr gfa mdc ctx kbh ryl mth bhs spf mho ohb wci dia spy nyx dog sds qld qqqq real estate housing homebuilders Labor Market Gives Obama Leg Up http://seekingalpha.com/instablog/402179-markos-kaminis/38514-labor-market-gives-obama-leg-up?source=feed 38514 Critics of the President will be hard pressed to find a point of argument on the labor front for a while. The reason being: November's Employment Situation Report offered decidedly good news.

When reported a month ago, October's unemployment rate jumped into double-digits, reaching 10.2% and spurring harsh criticism of a president who inherited an economy on the downslide. Every dog has his day, but on Friday, the raving maniacs of political mind and of elephant bent would have been smart to keep quiet. You see, November's unemployment rate improved to 10%, giving Democrats at least a month to bask in the potential for economic recovery. Economists surveyed by Bloomberg had been looking for an ongoing 10.2% unemployment rate for November. However, Wall Street’s joy did not last, as stocks gave back most of their early gains before the close. For the week, the Dow Jones Industrials Index was only up about one percent.

The Nonfarm Payrolls data was simply fantastic, relatively speaking. Nonfarm Payrolls showed a net shedding of only 11,000 jobs in November, versus economists’ consensus view for –100K. The improved rate of decline compared against October's revised rate of -111,000 (improved from -190K). The data also matched against a prior three-month average rate of loss of 135K.

Continued losses in Manufacturing (-41K) and Construction (-27K) were offset by enthusing gains in important first-mover areas. Temporary Employment, where businesses first look for new help, improved by 52K. Since September, improving demand for temporary help has led to the net hiring of 117K Americans. This news perhaps offers a starting point for consideration of the shares of employment firms Robert Half (NYSE: RHI), Korn Ferry Int'l (NYSE: KFY), Manpower (NYSE: MAN) and Monster World Wide (NYSE: MWW). Professional and Business Services, within which Temporary Employment is categorized, improved by 86K.

We also found reason for cheer within the bad news bits. While Manufacturing and Construction continued to shed jobs, they did so at a significantly slower pace than seen through the first six months of the year.

The Average Workweek improved to 33.2 hours, up from 33.0. As this metric rises, demand for new jobs should be exponentially spurred. We say this due to our view that panic led layoffs to excessive rates versus historical recession period firings. Thus, employers should find themselves short of help on very little demand increase when the time comes.

Those working part-time jobs who would prefer working full-time, or had to take part-time work due to the loss of full-time jobs or hours cut, stayed steady at about 9.2 million. As demand for part-time work rises, pressure increases on the poorest of Americans. This is because many of these folks only qualify for part-time work, and now have a more difficult time finding jobs that fit their skillset.

The government also breaks out those who have been unemployed for a long period of time, and does not include them in the unemployment rate calculation. We know better though... If we include the "Marginally Attached" workforce in the unemployment count, UnderEmployment sits at 16.3%. Marginally Attached Workers are those who have not sought a job in the past four weeks, while “Discouraged Workers” are those who believe they simply cannot find work now.

 

UnderEmployment clearly impacts consumer spending, but we suspect that as employment improves, spending would see a burst of activity. One thing is certain; President Obama has an economic leg to stand on now.


Disclosure: Disclosure: No Positions]]> Sat, 05 Dec 2009 05:23:59 -0500 Critics of the President will be hard pressed to find a point of argument on the labor front for a while. The reason being: November's Employment Situation Report offered decidedly good news.

When reported a month ago, October's unemployment rate jumped into double-digits, reaching 10.2% and spurring harsh criticism of a president who inherited an economy on the downslide. Every dog has his day, but on Friday, the raving maniacs of political mind and of elephant bent would have been smart to keep quiet. You see, November's unemployment rate improved to 10%, giving Democrats at least a month to bask in the potential for economic recovery. Economists surveyed by Bloomberg had been looking for an ongoing 10.2% unemployment rate for November. However, Wall Street’s joy did not last, as stocks gave back most of their early gains before the close. For the week, the Dow Jones Industrials Index was only up about one percent.

The Nonfarm Payrolls data was simply fantastic, relatively speaking. Nonfarm Payrolls showed a net shedding of only 11,000 jobs in November, versus economists’ consensus view for –100K. The improved rate of decline compared against October's revised rate of -111,000 (improved from -190K). The data also matched against a prior three-month average rate of loss of 135K.

Continued losses in Manufacturing (-41K) and Construction (-27K) were offset by enthusing gains in important first-mover areas. Temporary Employment, where businesses first look for new help, improved by 52K. Since September, improving demand for temporary help has led to the net hiring of 117K Americans. This news perhaps offers a starting point for consideration of the shares of employment firms Robert Half (NYSE: RHI), Korn Ferry Int'l (NYSE: KFY), Manpower (NYSE: MAN) and Monster World Wide (NYSE: MWW). Professional and Business Services, within which Temporary Employment is categorized, improved by 86K.

We also found reason for cheer within the bad news bits. While Manufacturing and Construction continued to shed jobs, they did so at a significantly slower pace than seen through the first six months of the year.

The Average Workweek improved to 33.2 hours, up from 33.0. As this metric rises, demand for new jobs should be exponentially spurred. We say this due to our view that panic led layoffs to excessive rates versus historical recession period firings. Thus, employers should find themselves short of help on very little demand increase when the time comes.

Those working part-time jobs who would prefer working full-time, or had to take part-time work due to the loss of full-time jobs or hours cut, stayed steady at about 9.2 million. As demand for part-time work rises, pressure increases on the poorest of Americans. This is because many of these folks only qualify for part-time work, and now have a more difficult time finding jobs that fit their skillset.

The government also breaks out those who have been unemployed for a long period of time, and does not include them in the unemployment rate calculation. We know better though... If we include the "Marginally Attached" workforce in the unemployment count, UnderEmployment sits at 16.3%. Marginally Attached Workers are those who have not sought a job in the past four weeks, while “Discouraged Workers” are those who believe they simply cannot find work now.

 

UnderEmployment clearly impacts consumer spending, but we suspect that as employment improves, spending would see a burst of activity. One thing is certain; President Obama has an economic leg to stand on now.


Disclosure: Disclosure: No Positions]]> macro Why I See a Near-Term Setback in Real Estate http://seekingalpha.com/instablog/402179-markos-kaminis/36603-why-i-see-a-near-term-setback-in-real-estate?source=feed 36603  

An ugly trend in the Mortgage Bankers Association's Weekly Applications Survey has real estate warning sirens blowing again. As the result of a relationship we see between mortgage activity and the First-Time Homebuyer Tax Credit, we are looking for a near-term pull back in the residential real estate marketplace.


Before we tie the information together, we think it best to ensure the reader understands the First-Time Homebuyer Tax Credit. The Worker, Homeownership and Business Assistance Act of 2009 extends and expands the First-Time Homebuyer Tax Credit allowed by previous acts. Most importantly to new homebuyers, Congress extended the tax credit, which was set to expire this year. Prospective purchasers of a principal residence can now benefit from the tax incentive if they enter into a binding contract to buy a home before April 30, 2010, and close on the home by June 30, 2010. The credit, which remains $8,000, can be applied to reduce your tax bill dollar for dollar, or to boost your tax refund, in either the reported 2009 or 2010 tax year (for qualifying 2010 purchases).

 

A new facet of the legislation allows long-time homeowners to benefit as well. Those who have lived in the same principal residence for any five consecutive year period during the eight-year period ended on the date the replacement home is purchased, may take a $6,500 credit (up to $3,250 for married filing separately). Also, the income limit has been raised to allow more Americans to qualify. Tax credit phase out now occurs at individual income levels of $125K to $145K ($225K to $245 for joint filers).

 

As you can see, the First-Time Homebuyer Tax Credit provides great incentive to buy a home. Thus, a great many Americans, some advised by clever and perhaps starving real estate agents, rushed to buy homes before the previous credit would expire on December 1st. Since home closings typically take 60 days, early October marked the effective deadline for entering into contract. We think this factor drove a burst of home sales, as was intended, up to and ending in early October.

 

The Evidence is Clear

 

The last six weeks of Mortgage Activity highlighted the effect of the legislation in vivid color. Despite a favorable and consistent drop in the average contracted rate on 30-year and 15-year fixed rate mortgages, mortgage activity for the purchase of homes has declined decisively. Up until the latest reading of the Mortgage Bankers Association data, the Refinance Index, which measures contract volume for mortgage refis, had shown refinance activity benefiting from lower rates; during the same period though, the Purchase Index deteriorated consistently. In fact, purchase activity has decreased for six consecutive weeks now, and sits at its lowest point since November of 1997.

 

Tying the Setback in Housing to its Cause

 

If the then pending expiration of First-Time Homebuyer tax incentive (before its renewal) and the push of real estate and tax agents to help sales along, helped to drive home purchase activity ahead of the decline begun in early October, then perhaps significant demand has been pushed forward. Thus, similarly to the effect of the “Cash for Clunkers” program, we would expect home sales to teeter off in the coming month or so. While this article comes to you after the latest Housing Starts data, which showed a precipitous decline in the pace of Starts in October, the report now seems to only confirm our assumption that the housing recovery benefited significantly from the First-Time Homebuyer Tax Credit. Furthermore, the previous gains in home sales may have been due to pushed forward purchases that may now limit near-term sales in their absence.

 

Add to this the burdensome weight of still rising unemployment and tightly squeezed credit standards, and the real estate market seems set for a longer near-term retrenchment. Perhaps offering a counter to this, however, is the expansion of the legislation to bring higher income and existing homeowners into play. This wise decision seems clearly construed for the purpose of floating the housing market further down the economic stream. November Starts should provide telling results as to whether the effort was effective or not.

Disclosure: No Positions
]]> Fri, 20 Nov 2009 05:11:56 -0500  

An ugly trend in the Mortgage Bankers Association's Weekly Applications Survey has real estate warning sirens blowing again. As the result of a relationship we see between mortgage activity and the First-Time Homebuyer Tax Credit, we are looking for a near-term pull back in the residential real estate marketplace.


Before we tie the information together, we think it best to ensure the reader understands the First-Time Homebuyer Tax Credit. The Worker, Homeownership and Business Assistance Act of 2009 extends and expands the First-Time Homebuyer Tax Credit allowed by previous acts. Most importantly to new homebuyers, Congress extended the tax credit, which was set to expire this year. Prospective purchasers of a principal residence can now benefit from the tax incentive if they enter into a binding contract to buy a home before April 30, 2010, and close on the home by June 30, 2010. The credit, which remains $8,000, can be applied to reduce your tax bill dollar for dollar, or to boost your tax refund, in either the reported 2009 or 2010 tax year (for qualifying 2010 purchases).

 

A new facet of the legislation allows long-time homeowners to benefit as well. Those who have lived in the same principal residence for any five consecutive year period during the eight-year period ended on the date the replacement home is purchased, may take a $6,500 credit (up to $3,250 for married filing separately). Also, the income limit has been raised to allow more Americans to qualify. Tax credit phase out now occurs at individual income levels of $125K to $145K ($225K to $245 for joint filers).

 

As you can see, the First-Time Homebuyer Tax Credit provides great incentive to buy a home. Thus, a great many Americans, some advised by clever and perhaps starving real estate agents, rushed to buy homes before the previous credit would expire on December 1st. Since home closings typically take 60 days, early October marked the effective deadline for entering into contract. We think this factor drove a burst of home sales, as was intended, up to and ending in early October.

 

The Evidence is Clear

 

The last six weeks of Mortgage Activity highlighted the effect of the legislation in vivid color. Despite a favorable and consistent drop in the average contracted rate on 30-year and 15-year fixed rate mortgages, mortgage activity for the purchase of homes has declined decisively. Up until the latest reading of the Mortgage Bankers Association data, the Refinance Index, which measures contract volume for mortgage refis, had shown refinance activity benefiting from lower rates; during the same period though, the Purchase Index deteriorated consistently. In fact, purchase activity has decreased for six consecutive weeks now, and sits at its lowest point since November of 1997.

 

Tying the Setback in Housing to its Cause

 

If the then pending expiration of First-Time Homebuyer tax incentive (before its renewal) and the push of real estate and tax agents to help sales along, helped to drive home purchase activity ahead of the decline begun in early October, then perhaps significant demand has been pushed forward. Thus, similarly to the effect of the “Cash for Clunkers” program, we would expect home sales to teeter off in the coming month or so. While this article comes to you after the latest Housing Starts data, which showed a precipitous decline in the pace of Starts in October, the report now seems to only confirm our assumption that the housing recovery benefited significantly from the First-Time Homebuyer Tax Credit. Furthermore, the previous gains in home sales may have been due to pushed forward purchases that may now limit near-term sales in their absence.

 

Add to this the burdensome weight of still rising unemployment and tightly squeezed credit standards, and the real estate market seems set for a longer near-term retrenchment. Perhaps offering a counter to this, however, is the expansion of the legislation to bring higher income and existing homeowners into play. This wise decision seems clearly construed for the purpose of floating the housing market further down the economic stream. November Starts should provide telling results as to whether the effort was effective or not.

Disclosure: No Positions
]]> tol hov bzh phm len dhi fnm fre bac wfc c gs ms macro real estate housing Producer Price Index (PPI) - Making Sense of it for You http://seekingalpha.com/instablog/402179-markos-kaminis/36162-producer-price-index-ppi-making-sense-of-it-for-you?source=feed 36162
Producer prices were reported increased by 0.3% in October, marking the sixth monthly price rise of the last 12 months. Price increase in a period of recession might seem counterintuitive, but as we know well by now, Headline PPI is influenced by wild swings in energy prices. Taking a longer-term look at the metric shows the Headline Producer Price Index is in fact down 1.9% from where it stood a year ago. Recall, oil prices started their trek downward from mountainous peaks in July of 2008, and by October of that year still had a ways to fall. Despite the mid-term trend, though, dollar weakness and reviving Emerging Market demand (read China) seem sure to keep pricing stable-to-higher moving forward.

Both volatile components of Producer Prices that regularly drive wild monthly swings in Headline PPI, energy and food, increased a substantial 1.6% in October. Gasoline price increase of 1.9% was mostly behind the big increase in finished energy prices. Higher residential power costs and liquefied petroleum gas contributed the rest. On the Intermediate Goods level, higher diesel fuel and natural gas shipped to electric utilities and commercial electric power drove pricing. Behind all this were rising energy prices on the Crude Level. Natural gas prices increased 16.3% in October based on the BLS produced index, and higher coal and petroleum contributed as well.

A 9.0% higher Grains Index, and also increased prices for slaughter poultry, factored significantly in increased foods prices on the Crude Level. On the Finished Foods level, 24.2% higher vegetable prices led the push.

When excluding volatile food and energy prices from the October measurement, Core Producer Prices declined 0.6%. That's a figure we can find more consistent with the recessionary times. However, when compared against the prior year Core Producer Price Index, prices are actually up 0.7% versus year ago levels.

Today's reported PPI rise of 0.3% compared against economist expectations for a greater price increase of 0.5%. That's good news, but an even better result was found in the Core Producer Price Index comparison to expectations. The decline in Core Prices of 0.6% last month compared against economists' expectations for a rise of 0.1%. Core prices fell for the second month in a row (-0.1% in September), but have only declined four out of the last twelve months (though also 4 out of the last 6). So why then have prices held up relatively well in such a tumultuous environment? That's the subject of a follow on feature article coming soon.

Note:

If you are concerned about inflation, you may consider some inflation protection funds or other hedges. Some useful tools may include: Western Asset Inflation Management Fund Inc. (NYSE: IMF), Western Asset/Claymore Inflation- Linked Opportunities & Income Fund (NYSE: WIW), Western Asset/Claymore Inflation-Linked Securities & Income Fund (NYSE: WIA), Market Vectors Gold Miners ETF (PCX: GDX), ETFs Gold Trust (NYSEArca: SGOL), PowerShares DB Gold (NYSE: DGL), SPDR Gold Shares (NYSE: GLD), Ultra Gold ProShares (NYSE: UGL), AMERICAN CENTURY VP INFLATION P (Nasdaq: AIPTX), AMERICAN CENTURY VP INFLATION P (Nasdaq: APTIX), American Century Inflation Prot Bd A (Nasdaq: APOAX), American Century Inflation Prot Bd B (Nasdaq: APOBX), American Century Inflation Prot Bd C (Nasdaq: APOCX), American Century Inflation Prot Bd Instl (Nasdaq: APISX), American Century Inflation Prot Bd Inv (Nasdaq: APOIX), American Century Inflation Prot Bd R (Nasdaq: APORX), BlackRock Inflation Protected Bond A (Nasdaq: BPRAX), BlackRock Inflation Protected Bond B (Nasdaq: BPIBX), BlackRock Inflation Protected Bond Black (Nasdaq: BPLBX), BlackRock Inflation Protected Bond C (Nasdaq: BPRCX), BlackRock Inflation Protected Bond Instl (Nasdaq: BPRIX), BlackRock Inflation Protected Bond Svc (Nasdaq: BPRSX), DB USD IG INF USD IG INFLATION (LSE: XUIT.L), DFA Inflation-Protected Securities I (Nasdaq: DIPSX), DWS Inflation Protected Plus A (Nasdaq: TIPAX), DWS Inflation Protected Plus B (Nasdaq: TIPTX), DWS Inflation Protected Plus C (Nasdaq: TIPCX), Alliance Resource Partners L.P. (Nasdaq: ARLP), Alliance Resource Holdings (Nasdaq: AHGP), Atlas Pipeline Partners L.P. (NYSE: APL), Atlas Pipeline Holdings (NYSE: AHD), Atlas Energy Resources (NYSE: ATN), Boardwalk Pipeline Partners (NYSE: BWP), Breitburn Energy Partners (Nasdaq: BBEP), Buckeye Partners (NYSE: BPL), Buckeye Holdings (NYSE: BGH), Calumet Specialty Products (Nasdaq: CLMT), Capital Product Partners (Nasdaq: CPLP), Cheniere Energy Partners (AMEX: CQP), Constellation Energy Partners (PCX: CEP), Copano Energy (Nasdaq: CPNO), Crosstex Energy (Nasdaq: XTEX), DCP Midstream Partners (NYSE: DPM), Dorchester Minerals (Nasdaq: DMLP), Duncan Energy Partners (NYSE: DEP), Eagle Rock Energy Partners (Nasdaq: EROC), El Paso Pipeline Partners (NYSE: EPB), Enbridge Energy Partners (NYSE: EEP), Encore Energy Partners (NYSE: ENP), Energy Transfer Partners (NYSE: ETP), Energy Transfer Equity (NYSE: ETE), Enterprise Products Partners (NYSE: EPD), Enterprise GP Holdings (NYSE: EPE), EV Energy Partners (Nasdaq: EVEP), Exterran Partners (Nasdaq: EXLP), Ferrellgas Partners (NYSE: FGP), Genesis Energy (AMEX: GEL), Global Partners LP (NYSE: GLP), Hiland Partners (Nasdaq: HLND), Holly Energy Partners (NYSE: HEP), Inergy (Nasdaq: NRGY), Inergy Holdings (Nasdaq: NRGP), Kinder Morgan Energy Partners (NYSE: KMP), K-Sea Transportation (NYSE: KSP), Legacy Reserves (Nasdaq: LGCY), Linn Energy (Nasdaq: LINE), Magellan Midstream Partners (NYSE: MMP), MarkWest Energy (NYSE: MWE), Martin Midstream Partners (Nasdaq: MMLP), Natural Resource Partners (NYSE: NRP), Navios Maritime Partners (NYSE: NMM), NuStar Energy (NYSE: NS), NuStar GP Holdings (NYSE: NSH), ONEOK Partners (NYSE: OKS), OSG America (NYSE: OSP), Penn Virginia Resource (NYSE: PVR), Penn Virginia GP Holdings (NYSE: PVG), Plains All American (NYSE: PAA), Quest Energy (Nasdaq: QELP), Quicksilver Gas Services (NYSE: KGS), Regency Energy Partners (Nasdaq: RGNC), Rio Vista Energy (Nasdaq: RVEP), Spectra Energy Partners (NYSE: SEP), Stonemor Partners (Nasdaq: STON), Sunoco Logistics Partners (NYSE: SXL), Targa Resources (Nasdaq: NGLS), TC Pipelines (Nasdaq: TCLP), Teekay LNG Partners (NYSE: TGP), Transmontaigne Partners (NYSE: TLP), Vanguard Natural Resources (NYSE: VNR), Western Gas Partners (NYSE: WES), Williams Partners (NYSE: WPZ) and Williams Pipeline (NYSE: WMZ).

Disclosure: No Positions
]]> Tue, 17 Nov 2009 18:27:17 -0500
Producer prices were reported increased by 0.3% in October, marking the sixth monthly price rise of the last 12 months. Price increase in a period of recession might seem counterintuitive, but as we know well by now, Headline PPI is influenced by wild swings in energy prices. Taking a longer-term look at the metric shows the Headline Producer Price Index is in fact down 1.9% from where it stood a year ago. Recall, oil prices started their trek downward from mountainous peaks in July of 2008, and by October of that year still had a ways to fall. Despite the mid-term trend, though, dollar weakness and reviving Emerging Market demand (read China) seem sure to keep pricing stable-to-higher moving forward.

Both volatile components of Producer Prices that regularly drive wild monthly swings in Headline PPI, energy and food, increased a substantial 1.6% in October. Gasoline price increase of 1.9% was mostly behind the big increase in finished energy prices. Higher residential power costs and liquefied petroleum gas contributed the rest. On the Intermediate Goods level, higher diesel fuel and natural gas shipped to electric utilities and commercial electric power drove pricing. Behind all this were rising energy prices on the Crude Level. Natural gas prices increased 16.3% in October based on the BLS produced index, and higher coal and petroleum contributed as well.

A 9.0% higher Grains Index, and also increased prices for slaughter poultry, factored significantly in increased foods prices on the Crude Level. On the Finished Foods level, 24.2% higher vegetable prices led the push.

When excluding volatile food and energy prices from the October measurement, Core Producer Prices declined 0.6%. That's a figure we can find more consistent with the recessionary times. However, when compared against the prior year Core Producer Price Index, prices are actually up 0.7% versus year ago levels.

Today's reported PPI rise of 0.3% compared against economist expectations for a greater price increase of 0.5%. That's good news, but an even better result was found in the Core Producer Price Index comparison to expectations. The decline in Core Prices of 0.6% last month compared against economists' expectations for a rise of 0.1%. Core prices fell for the second month in a row (-0.1% in September), but have only declined four out of the last twelve months (though also 4 out of the last 6). So why then have prices held up relatively well in such a tumultuous environment? That's the subject of a follow on feature article coming soon.

Note:

If you are concerned about inflation, you may consider some inflation protection funds or other hedges. Some useful tools may include: Western Asset Inflation Management Fund Inc. (NYSE: IMF), Western Asset/Claymore Inflation- Linked Opportunities & Income Fund (NYSE: WIW), Western Asset/Claymore Inflation-Linked Securities & Income Fund (NYSE: WIA), Market Vectors Gold Miners ETF (PCX: GDX), ETFs Gold Trust (NYSEArca: SGOL), PowerShares DB Gold (NYSE: DGL), SPDR Gold Shares (NYSE: GLD), Ultra Gold ProShares (NYSE: UGL), AMERICAN CENTURY VP INFLATION P (Nasdaq: AIPTX), AMERICAN CENTURY VP INFLATION P (Nasdaq: APTIX), American Century Inflation Prot Bd A (Nasdaq: APOAX), American Century Inflation Prot Bd B (Nasdaq: APOBX), American Century Inflation Prot Bd C (Nasdaq: APOCX), American Century Inflation Prot Bd Instl (Nasdaq: APISX), American Century Inflation Prot Bd Inv (Nasdaq: APOIX), American Century Inflation Prot Bd R (Nasdaq: APORX), BlackRock Inflation Protected Bond A (Nasdaq: BPRAX), BlackRock Inflation Protected Bond B (Nasdaq: BPIBX), BlackRock Inflation Protected Bond Black (Nasdaq: BPLBX), BlackRock Inflation Protected Bond C (Nasdaq: BPRCX), BlackRock Inflation Protected Bond Instl (Nasdaq: BPRIX), BlackRock Inflation Protected Bond Svc (Nasdaq: BPRSX), DB USD IG INF USD IG INFLATION (LSE: XUIT.L), DFA Inflation-Protected Securities I (Nasdaq: DIPSX), DWS Inflation Protected Plus A (Nasdaq: TIPAX), DWS Inflation Protected Plus B (Nasdaq: TIPTX), DWS Inflation Protected Plus C (Nasdaq: TIPCX), Alliance Resource Partners L.P. (Nasdaq: ARLP), Alliance Resource Holdings (Nasdaq: AHGP), Atlas Pipeline Partners L.P. (NYSE: APL), Atlas Pipeline Holdings (NYSE: AHD), Atlas Energy Resources (NYSE: ATN), Boardwalk Pipeline Partners (NYSE: BWP), Breitburn Energy Partners (Nasdaq: BBEP), Buckeye Partners (NYSE: BPL), Buckeye Holdings (NYSE: BGH), Calumet Specialty Products (Nasdaq: CLMT), Capital Product Partners (Nasdaq: CPLP), Cheniere Energy Partners (AMEX: CQP), Constellation Energy Partners (PCX: CEP), Copano Energy (Nasdaq: CPNO), Crosstex Energy (Nasdaq: XTEX), DCP Midstream Partners (NYSE: DPM), Dorchester Minerals (Nasdaq: DMLP), Duncan Energy Partners (NYSE: DEP), Eagle Rock Energy Partners (Nasdaq: EROC), El Paso Pipeline Partners (NYSE: EPB), Enbridge Energy Partners (NYSE: EEP), Encore Energy Partners (NYSE: ENP), Energy Transfer Partners (NYSE: ETP), Energy Transfer Equity (NYSE: ETE), Enterprise Products Partners (NYSE: EPD), Enterprise GP Holdings (NYSE: EPE), EV Energy Partners (Nasdaq: EVEP), Exterran Partners (Nasdaq: EXLP), Ferrellgas Partners (NYSE: FGP), Genesis Energy (AMEX: GEL), Global Partners LP (NYSE: GLP), Hiland Partners (Nasdaq: HLND), Holly Energy Partners (NYSE: HEP), Inergy (Nasdaq: NRGY), Inergy Holdings (Nasdaq: NRGP), Kinder Morgan Energy Partners (NYSE: KMP), K-Sea Transportation (NYSE: KSP), Legacy Reserves (Nasdaq: LGCY), Linn Energy (Nasdaq: LINE), Magellan Midstream Partners (NYSE: MMP), MarkWest Energy (NYSE: MWE), Martin Midstream Partners (Nasdaq: MMLP), Natural Resource Partners (NYSE: NRP), Navios Maritime Partners (NYSE: NMM), NuStar Energy (NYSE: NS), NuStar GP Holdings (NYSE: NSH), ONEOK Partners (NYSE: OKS), OSG America (NYSE: OSP), Penn Virginia Resource (NYSE: PVR), Penn Virginia GP Holdings (NYSE: PVG), Plains All American (NYSE: PAA), Quest Energy (Nasdaq: QELP), Quicksilver Gas Services (NYSE: KGS), Regency Energy Partners (Nasdaq: RGNC), Rio Vista Energy (Nasdaq: RVEP), Spectra Energy Partners (NYSE: SEP), Stonemor Partners (Nasdaq: STON), Sunoco Logistics Partners (NYSE: SXL), Targa Resources (Nasdaq: NGLS), TC Pipelines (Nasdaq: TCLP), Teekay LNG Partners (NYSE: TGP), Transmontaigne Partners (NYSE: TLP), Vanguard Natural Resources (NYSE: VNR), Western Gas Partners (NYSE: WES), Williams Partners (NYSE: WPZ) and Williams Pipeline (NYSE: WMZ).

Disclosure: No Positions
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