Thoughts

Road Remains Rough for Residential Real Estate

The housing data this morning confirms my view that residential real estate is struggling to stabilize.

Though refinancing applications rose by over 7% (its third weekly rise), applications for new mortgages were 2% lower, for the fifth weekly decline in the past six weeks.

Run, don't walk, to read Goldman Sachs' worthwhile "The Bitter After Taste of Higher Food Commodity Prices," which was released last night.

Here is Goldman's report summary:

* "Prices for food commodities have surged in recent months, with our Goldman Sachs Commodity Agriculture & Livestock index up 60% since its recent trough in mid-June 2010."

* "Higher food costs have yet to reach the retail level. Our analysis suggests an average lag of seven months from commodity price changes to retail food price changes. Typically, retail food prices move about one-tenth as much as commodity prices. Of course, there is significant variation in both the time lag and the degree of pass-through in individual episodes."

* "If commodity prices held steady at current levels, we would expect to see consumer food inflation accelerate from roughly 1% over the past year to about 5% in mid-2011, contributing about ½ point to the headline Consumer Price Index. Pass-through into core could also be a few tenths of a percentage point, although there is considerable variation around this outcome. These results suggest that the burst of food inflation seen thus far poses modest upside risk to our current inflation forecasts, but not a major threat to the broader economic outlook."

Sequential and combo indicators designed to identify market tops and bottoms are giving a sell signal on the main U.S. stock benchmark for the first time since mid-2007. On a weekly basis, the two indicators signaled on Jan. 14 that a reversal is imminent.... DeMark expects a decline of at least 11% because his work shows that markets move in increments of 5.56%, he said. Assuming a drop of twice that size "is a conservative estimate," he said.

-- Bill King, The King Report