Matt Blackman

Global Property Bubbles: Not Bursting

The problem with home prices indices is the variety of ways in which they are measured. Compare the S&P Case-Shilller Home Price Index and the National Association of Realtors existing home median prices for example. The first shows year-over-year home price declines north of 15% while the latter index shows prices down around 7% y-o-y. Then there is the Office of Housing Enterprise Oversight (OFHEO) home price index and ...., each index with its own take on what is happening with prices.

In other words, even in a well tracked market like the US, data varies wildly. I personally have found the NAR and OFHEO numbers to be sadly lagging and way too volatile to offer any real benefit in understanding what is happening with prices but that is the topic of another article.

Now... take that situation globally and you have a real can of worms. For example, housing prices in Canada have stopped going up at double digits and just begun to experience y-o-y declines. But one report (Douglas Porter of BMO Capital Markets) shows a very convincing chart indicating the Canadian prices perform almost identically to those in the US with a 2-year lag.

Globally, home prices may be rising but given the fact that median home price data is a poor indicator of real price dynamics and that most market are measured by this lagging indicator, I consider this global number suspect, especially considering how recently some markets (like those in Canada) have begun to correct.

Another Week of No Money Supply Growth

According to a third party estimate of M3 thanks to the myopic decision by the Fed to reduce transparency and discontinue the series, it was growing at 16% the last time I checked.

Inflation may be moderating but it has nothing to do with Fed restrictions. Good to his promise, Bernanke continues to throw money out of helicopters and the macro picture remains a concern (see tradesystemguru.com/co.../ ) Week to week changes are of little consequence. And besides, its an election year. Any government or Fed sponsored report must be considered highly suspect.

Residential Real Estate: How Much More Pain?

Dr. H, I'll take that bet! The rate of change (negative) may have declined month to month but it is still accelerating year-over-year. Unless the bubble is done breaking, which would be an historic miracle, the Case-Shiller home price index should see values well below 150 before the declines are finally over. Take a look at the chart.. tradesystemguru.com/co...

History tells us that bubble aftermaths generally see prices return to well below their historic trendlines. The dashed orange line is a linear regression line so weighted for the later data. The longterm trendline sits around 130 for the 20-city composite...

Residential Real Estate: How Much More Pain?

Unless I have missed something, David has neglected to discuss a key component of bear markets: they are littered with bear market rallies in which the asset class (index, future, currency etc) experiences a dramatic rally only to end and subsequently put in a lower low.

The best example I've seen is the Japanese Nikkei 225 that has put in at least 5 bear market rallies of 50% of more since it peaked in 1990 ( see tradesystemguru.com/co... ).

The Philadelphia Housing Sector Index is another great example. After peaking in Aug-Sept 2005 near 600, the index has continued to fall and rallied more than 25% from July 2006 through Feb 2007. Since, it has fallen to around 130... www.quotemedia.com/res...=^HGX

So is it at a bottom? Maybe, maybe not. But they equate bottom picking to trying to catch a falling knife for good reason....

Commodity Price Movements in the Short Run and Long Run

Now that was a complete waste of time...

Would Trickle-Down Policies Really Help All Americans?

I for one, am sick and tired to Thoma's continuous attempts to promote the Obama administration. Just look at his articles and you'll see his highly distorted leftist views liberally (pun intended) spouted for anyone who will read them. He continually bashes McCain quoting data from leftist group claiming to be tax experts, the Tax Policy Center.

If this guy is not a paid-Democratic promoter he should be.

What is his political propaganda doing on an investment/market site?

Why Core Inflation?

Only a highly-biased liberal economist like Thoma could argue for the merits of a useless stat like core inflation. Both CPI (core and non-core) as well as GDP are highly skewed to give the desired result. They are certainly of no value to investors or traders... (See Perfecting the Art of Mass Deception at tradesystemguru.com/co... )
Governments throughout history have clearly demonstrated that their motivation in producing (and manipulating) these statistics has little to do with providing any useful information and everything to do with getting re-elected. Rely on them at your peril.

Spreading Oil and Natural Gas: A Post-Labor Day Plan

Brad;
Excellent analysis! I also wrote about the NG/Oil spread this week at
tradesystemguru.com/co...

Steve Moore in his excellent reference The Encyclopedia of Commodity and Financial Spreads (Wiley 2006) ( ca.wiley.com/WileyCDA/... ) notes that a strategy to buy Nov natural gas calls and sell Oct NG calls on Aug 29 and exit Sept 14 has a 100% win ratio over the last 15 years... Nothing to sneeze at.

'The Pie's Getting Larger' - What Warren Buffett Means

Any numbers from a partisan government agency (aren't they all?) must be considered suspect. Administration after administration prove one overriding fact of economic life - these statisticians are experts at manipulating the data to give a pre-determined result and that is that the economic looks better than it really is and inflation lower than it really is. This is doubly true leading up to election time.

In other words, any government GDP growth projections are nothing more than wishful thinking. These tricks include using hedonics, substitutions, imputations etc to produce the desired results. If the resulting numbers aren't rosy enough, they simply go back to the drawing board, make a few more substitutions and then re-run the numbers. For more on this topic including the tricks of the government statisticians trade to achieve this end see tradesystemguru.com/co... I also highly recommend viewing Dr. Chris Martenson's excellent video on this topic entitled Fuzzy Numbers. You won't ever look at a government report in the same way again!

Financials and TED Spread Could Signal a Bottom for Corporate Profit Declines

I call BS on improving corporate profits. Don't know what data you are using but according to the Wall Street Journal that tracks earnings for more than 4000 companies on US markets, corporate profits for Q2-08 are down a whopping 37% from Q2-07 (see tradesystemguru.com/co... )

With regards to comments that the recession has yet to materialize, you are being hoodwinked by distorted GDP and CPI data. Take out the smoke and mirrors in those numbers and we have been in a recession for more than 2 years now (see Gov't Stats: Perfecting the Art of Mass Deception tradesystemguru.com/co... )

Thirdly, the pattern you highlight in red in Chart 3 is a bullish flag pattern, a good indication that the chart will breakout to the upside and that would be decidedly negative for stocks.

No point in going on. There are so many holes in your argument that it is a waste time pointing them out to you...

Tuesday's Economic Calendar: Taking the Nation's Pulse

The only problem is that if you had been following the Fed (and Bernanke's) lead over the last year, you would have had your head handed to you. Bernanke completely underestimated the impact of falling housing price and in fact was tracking lagging home price data (annual median prices) and confidently declared more than a year ago that home prices were stable. Then when the severity of the problems facing the housing market became evident, publicly dismissed the economic impact of falling mortgage equity withdrawals. He also completely missed the coming credit crunch. We all know now just how flawed those views were and how those who followed the Fed's lead to stay invested or invest more, got hurt.

Those who took the Fed drop in interest rates when they dropped the Fed funds rate from 5.25% to 2% as a stock buying signal got hammered. (See Are We Being Fed Winked? at tradesystemguru.com/co.../ )

The moral? The Fed can sometimes provide useful information in their statements but more often than not, they are way behind the eight ball, especially in a declining economy. The reason? Because like many mainstream economists, they rely on flawed fundamental data. (See tradesystemguru.com/co... )

Stock Screen: Price Momentum + Fundamentals = Profits

Interesting analysis but Mark Barath misses one key point. Fundamentals lag price by at least three months and in some cases more, especially at key turning points. In other words, investors (or traders) who focus on the fundamentals and wait for them to give them an entry signal in the recovery or an exit signal in a slowdown will be severely punished.

Homebuilders are an excellent example. The following chart shows homebuilder stocks leading up to a peak in 2005 followed by a big breakdown. But as you see from the lower subgraph showing earnings growth, GPE (growth to PE) and EPS (earnings per share) did not show signs of real trouble until the price of the homebuilders index had been cut in half. (See Figure 5 tradesystemguru.com/co... ).

My research has consistently shown that while fundamentals provide useful confirmation in an uptrend (and weakening fundamentals confirmation of a bear market), price is the leading indicator and ignoring a price surge or breakdown while waiting for the fundamentals to tell you what to do can be an extremely costly practice.

Hedonic Adjustments Downplay Inflation

Regarding the increasingly deceptive methods used by the Bureau of Labor Statistics, Commerce Department, etc. in government stats, be sure to watch the excellent 15 minute video by Chris Martenson entitled Fuzzy Numbers at www.chrismartenson.com...

I certainly found it to be an eye-opener... You'll never look at GDP, CPI and other reports the same way again.

Dog Days Are Here

Excellent input gentlemen! From a technical trading point of view, volume is extremely important. If a stock or index rallies on low or declining volume, its bearish as it shows that buyers are losing interest or not participating. If volume is declining or low on down days it is mildly bullish as it shows that shorts are sitting on the sidelines and investors aren't dumping shares.

Volume is the fuel that drives rallies. Stocks need steady increases in volume to keep the rally alive. If we see a steady decline in volume during a rally, this normally means that the rally is getting ready for a correction.

The flip side is the stocks can fall of their own weight so that stocks are falling on low volume is not necessarily bullish. In a bear market, stocks can fall for extended periods of time on lower than average volume. For more on this as it pertains to markets this week, see tradesystemguru.com/co...

So what does the fact that volumes are low and falling for most of the major indexes? It could mean one of two things. 1) stocks are consolidating. The problem with this contention is that consolidations are marked by specific chart patterns such as flags, pennants, ascending triangles etc and we aren't seeing these patterns. The more likely possibility is 2) More weakness ahead. The second contention is made even more likely by the fact that Septembers have a habit of being the worst month of the year and the current deteriorating environment.

Statutory vs. Effective Tax Rates

On Linda Beale's point above, yes the US is a corporate tax haven but only for non-US corporations and individuals and why the country has enjoyed strong foreign direct investment in the past. This is certainly not the case for corporations domiciled in the US. And yes, this will change if Obama's tax hikes are instituted on individuals, corporations, capital gains and dividends as the recent article in Barron's clearly points out. (See seekingalpha.com/artic... )