Thoughts

Run, don't walk, to read about a 2012 forecast of $5 gasoline by former Shell Oil CEO John Hofmeister.

GM Is at a New High

General Motors is now trading at a new high.

Weak Auction

The note auction today was quite weak.

Nightmare on Main Street

Today's release of weakening home prices exhibited the largest drop since December 2009.

The double-dip is almost here, as six cities set new lows for the period since the 2006 peaks. There is no good news in October's report. Home prices across the country continue to fall." says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. "The trends we have seen over the past few months have not changed. The tax incentives are over and the national economy remained lackluster in October, the month covered by these data. Existing homes sales and housing starts have been reported for both October and November, and neither is giving any sense of optimism. On a year-over-year basis, sales are down more than 25% and the months' supply of unsold homes is about 50% above where it was during the same months of last year. Housing starts are still hovering near 30-year lows. While delinquency rates might have seen some recent improvement, it is only on a relative basis. They are still well above their historic averages, in both the prime and sub-prime markets.

-- Case Shiller release today

Freddy Krueger would be pleased with today's release of weakening home prices, which was worse than expectations, exhibiting the largest drop since December 2009.

The breadth of the decline was convincing, with 18/20 cities experiencing a month over month drop in prices.

The bulls on housing, who have looked for stability in prices for some time, have been wrong but remain optimistic. They continue to maintain that most of the home price decline is behind us and that the moribund state of the residential real estate markets will turn based on jobs growth, underproduction of homes, continued growth in population and in household formations, the benefit of ownership vs. renting and historically low mortgage rates.

These are all valid arguments in normal times and over history have typically marked a turning point in the housing cycle.

However, we are not in normal times.

I see an avalanche of foreclosures by spring 2011, mortgage rates rising, limited improvement in payroll growth and screwflation directed toward the middle class all serving as a headwind to an improving real estate market next year.

My conclusion is that housing has hit a bottom in activity -- it can't get worse -- but not a bottom in price.

My best guess would be that home prices drop by another 3% to 5% in 2011 and that industry volume will scrape along the bottom for most of the year.

A more "normal" recovery awaits in 2012-2013.

Oil Vey

Crude oil continues to rip, approaching $92 a barrel.

A continued headwind.

I would be getting out of retail stocks right now.