Thursday, August 26, 2010


The market remains in 'Brokedown Palace.'

It is impervious to any better data point or to my view that value/opportunity is being created.

One of my greatest concerns is not in the economic statistics but rather that we get into this vortex of further consumer/business confidence erosion, stemming from policy and soft home/equity prices.

That said, I am confident that the November midterm elections will be a game changer.

Kass is getting increasingly more aggressive on his bank long exposure.

He is of the view that housing will recover in 2011, that we will see better job growth in the last half of the year and that the credit quality turn will continue (resulting in huge loan-loss provision swings).

C, BAC and WFC are his longs.

Jobless claims have likely been influenced by unemployment extensions, former census worker claims and seasonal adjustments.

The upcoming elections look like a game changer for the jobs and capital markets.

This morning's jobless claims report of 473,000 (vs. 495,000 consensus) should eliminate the doomsday recession scenario that Nouriel Roubini, David Rosenberg et al. have embraced.

Since most indicators of jobs growth appear more positive than the last three months' jobless claims reports, it is reasonable to surmise that this indicator has been artificially influenced by unemployment extensions, claims filed by former census workers and, according to several strategists, seasonal-adjustment issues.

The still-high claims number appears to be consistent with roughly 50,000-a-month payroll growth. As we move closer to the elections, I expect that claims during the next few months will be around 425,000 to 450,000, which would translate to 75,000-a-month payroll growth.

More and more the election looks like a game changer for the jobs and capital markets. The midterm elections now look likely to record a red (i.e., Republican) result, providing a watershed effect on consumer and business confidence and a repudiation of the President's initiatives and agenda.

The market will likely react favorably to the potential for this political and confidence-changing development well in advance.

Over there (and overnight), consumer confidence in Germany rose more than expected.

TOL made these salient points on their call today:

1. The cancelation rate was down to 6.2%, which represents the fifth consecutive quarter of lower cancelation rates.

2. High rise metropolitan New York projects were the bright spot geographically.

3. Lots owned and optioned increased this quarter, which represented the second consecutive quarter of growth in land position.

4. Homebuyer confidence remains dampened but could result in pent-up demand when recovery takes hold.

I would conclude that the turn in housing is closer than many believe, as the ongoing drop in new construction over the past two years is now being felt in the stability of the residential marketplace's inventory of homes for sale.

The U.S. housing market now appears to be coming closer to a balance between supply/demand.

The underproduction in 2008-2010, coupled with the likely maintenance of low interest and mortgage rates plus continued growth in population and in household formations, suggest that a recovery in housing could occur sooner in 2011 than many expect (particularly if shadow inventory trickles in but does not flood the market).

No comments: