Quote of the Day: Jeff Saut
Before I head over to the Yankees home opener, here is a short but sweet QOTD via Jeff Saut (I'll include his chart relative to our earlier post this morning):
"Now for those pundits that insist that real estate is not spilling over into the real economy, we ask the question, “Why has the Association of Home Appliance Manufacturers’ Index posted a roughly 10% decline in shipments?” Or, “Why is Circuit City laying off 3,400 of its best sales personnel and attempting to hire maladroit sales people at a much reduced compensation package?”
Similarly, “Why is Citigroup cutting 15,000 financial-related jobs?” And, “Why is GMAC stating that its Residential Capital subsidiary is going to hurt profits?” Inquiring minds want to know such things.
Moreover, if the problems in sub-prime mortgages are NOT spreading, why are sub-prime mortgage companies dropping like flies, why are companies like ACC Capital closing their “call centers,” and why are delinquencies rising not only in the Alt-A complex, but in prime portfolios as well?”
We think the answer resides in the fact that housing prices are falling while Mortgage Equity Withdrawals (MEW) are contracting. Indeed, MEW has declined from $844 billion to $386 billion over the past nine quarters as housing prices have softened and trillions of dollars of adjustable mortgages have reset at higher interest rates. And with the continuing decline in housing prices, combined with mushrooming adjustable rate mortgage resets, it is difficult to envision that this situation will not continue."
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Source:
“As long as the roots are not severed . . .”
Jeffrey Saut
Raymond James Investment Strategy, April 2, 2007
http://www.raymondjames.com/inv_strat.htm
Monday, April 02, 2007 | 12:15 PM | Permalink
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As we reported this morning, one time mortgage king New Century has tumbled all the way down into bankruptcy. It will now be up to the courts, the creditors and the management to see if they can put this shattered... [Read More]
Tracked on Apr 2, 2007 2:56:48 PM
Comments
The hypsters attitude is "It ain't over till it's over!"
Until we see more New Century style bankruptcies, layoffs, stock market plunge i.e. real plunge of 10%+ in one day, I don't think the Lereahs of the world will give up easily...
Posted by: Lauriston | Apr 2, 2007 1:41:21 PM
Saut is a smart boy. I've followed his work for years. No permabear he. "Keep your enemies close........and your stops closer'.
Posted by: Ross | Apr 2, 2007 1:50:02 PM
Anyone who thinks mortgage problems are confined to subprime, feel free to grab a big chunk of M&T Bank, an Alt-A lender.
Hurry and buy quick as it's a gread value investment, selling at a 10% discount from yesterday LOL.
Posted by: Idaho_Spud | Apr 2, 2007 2:09:03 PM
"We think the answer resides in the fact that housing prices are falling while Mortgage Equity Withdrawals (MEW) are contracting. Indeed, MEW has declined from $844 billion to $386 billion over the past nine quarters as housing prices have softened and trillions of dollars of adjustable mortgages have reset at higher interest rates. And with the continuing decline in housing prices, combined with mushrooming adjustable rate mortgage resets, it is difficult to envision that this situation will not continue."
Mr. Saut, with the above qoute, has stated something we have have all known. What may be quite startling in the coming quarters is the accelerating contraction of further MEWs (Mortgage Equity Withdrawls) due not only to higher interest rate and declining property values, but the addition the rapidly restrictive underwriting guidelines for new home equity loans and credit lines (HELOCs). Existing loans and credit lines are either at maximum capacity or the borrower no longer wants to or can afford to add any new debt.
Posted by: sfarm | Apr 2, 2007 2:13:39 PM
Please take notice of where the chart was in early '98. I would say the indicator successfully predicted two of the last one recessions.
Posted by: ArizonaChartist | Apr 2, 2007 2:23:53 PM
>>Before I head over to the Yankees home opener, >>
Based on the volume of today, overall, I think alot of people elected to go watch the Yankees too..
Ciao
MS
Posted by: Michael Schumacher | Apr 2, 2007 2:48:33 PM
To comment on the Saut article....
cue the black helicopter's and "flight of the valkyries:.......
What we are seeing with the lack of reporting of that type of news is just another example of big money(and media) and there careful emphasis on what they want people (us) to focus on. When the ISM #'s came out this morning it was almost a full 40 minutes before anything was posted on sites like Marketwatch( they had a "breaking news headline with no story), The street, etc. (if you know where to look it's easy to find) However if those numbers were positive (i.e. above expectations) then they would be plastered all over those sites within minutes and the market run would be attributed to those numbers.
Merely suggesting that things are not what they appear to be gets people jakced up into calling you a conspiracy nut or whatever.
I find it hilarious that it fully depends on how the news will be percieved rather than the news itself as to it's importance in being released.
Ciao
MS
Posted by: Michael Schumacher | Apr 2, 2007 3:44:15 PM
not sure, but was this the same guy that last summer suggested a gov conspiracy to move the markets up? i forget.
Posted by: joao | Apr 2, 2007 3:57:32 PM
Economic growth "ex-aircraft"?
If I posted up a chart of current economic growth "ex-housing," the number would be quite robust, and posters here would have a snit. I suspect the aircraft numbers are quite positive, and would skew this posting of numbers in a direction that the author doesn't want it to go.
Why exclude aircraft from the numbers? There is no good reason given.
Posted by: Nova Law | Apr 2, 2007 7:26:15 PM
MS,
If you know something different as the truth, how are you trading given that the truth and the MSM do not jive according to what you perceive? Are you making the best of a less than ideal environment?
Sooner or later we have to trade with the trend, be it up, down, or sideways and let the anger subside.
What are the odds that all of the inefficiencies, poor reporting, and herd mentality will leave the market? It seem to me this is some type of universal constant.
(Note: I am also frustrated by it but have no choice but to try and adapt.)
Posted by: rebound | Apr 2, 2007 8:04:20 PM
Nova Law,
The posters here won't have a snit. Please post a chart ex-housing and we can discuss it.
I think the Aircraft numbers are indeed very positive as you had indicated. So positive in fact that they can skew the underlying data. In order to look at what the rest of the smaller sectors are doing (combined), it is useful to look at the data through the Ex-Aircraft lens.
I'd encourage you to look at GDP Ex-Mortgage Equity Withdrawals over the last 10 years.
Posted by: rebound | Apr 2, 2007 8:14:13 PM
rebound-
Absolutley agree 100%......
How do you trade??? with small lots!!!
I do not confuse news, or writings on a blog with trading style. If I did I would have been broke long ago. trading momo is one thing...discussing underlying reasons for economic patterns is another.
Ciao
MS
Posted by: Michael Schumacher | Apr 2, 2007 9:58:07 PM
Snit?
What kind of effete jet fuel huffing freak are you Nova Law?
Posted by: brion | Apr 3, 2007 2:29:15 AM
Feeling pressure to "make" your numbers? Fake how much someone makes at http://www.fakpaycheckstubs.com
Posted by: dman | Apr 3, 2007 10:53:45 PM
