Weezer's Ode to You Tube
The official video for "Pork and Beans" from Weezer stars quite a few familiar YouTube faces.
New Weezer disc Red Album" out Monday, June 3rd, 2008
Mortgage Delinquencies Accelerating
The mortgage crisis is bad and getting worse. The latest evidence suggests that any bottom in real estate is some ways off in the future:
"Newly delinquent mortgage borrowers outnumbered people who caught up on their overdue payments by two to one last month, a sign that nationwide efforts to help homeowners avoid default may be failing.
In April, 73,880 homeowners with privately insured mortgages fell more than 60 days late on payments, compared with 39,584 who got back on track, a report today from the Washington-based Mortgage Insurance Companies of America said. Mortgage insurers pay lenders when homeowners default and foreclosures fail to cover costs.
Foreclosure filings surged 65 percent and bank seizures more than doubled in April compared with a year earlier as rates on adjustable mortgages increased, according to RealtyTrac Inc. Lawmakers and Federal Reserve officials are trying to ease the worst U.S. housing slump since the Great Depression through tax rebates, expanded federal mortgage insurance and other programs."
According to RealtyTrac, one in every 519 U.S. households is in some stage of the foreclosure process.
There is some good news amongst the dire foreclosure data: In April, a 183,000 homeowners were able to work out new borrowing terms with lenders and avoid foreclosure filings. Thats a record, according to the Hope Now Alliance.
However, that month's 54% "cure ratio'' among defaulted mortgages compares unfavorably with 80% a year earlier, and 87% in March 2008. This is mostly due to the accelerating foreclosure filings in April -- more than 243,000 properties, a 65% YoY increase (RealtyTrac).
As long as defaults are occurring faster than workouts, the supply of foreclosure properties and REOs remain at uncomfortably high levels for some time to come . . .
via Realty Trac
New Overdue Home Loans Swamp Effort to Fix Defaults
Josh P. Hamilton and Bob Ivry
Bloomberg, May 30 2008
Understanding Contrary Indicators
Yesterday, I mentioned in passing a fabulous cover story from a 1962 Time magazine. While these sorts of contrary indicators are subject to interpretation, they are worthwhile to those who can properly interpret them, as they can provide insight that is not readily available elsewhere.
I have been tracking these sorts of signals for many years. In 2003, I published a research piece, titled Contrary Indicators 2000 – 2003 Bear Market. I thought it was important to remind people that, despite the fact the market had been shellacked, there were plenty of signs of a major bullish reversal that could be followed by tradrs, fund managers, and investors :
"Astute observers of Human Nature have learned to detect the many “Contrary Indicators” on display throughout this crash. Traders who learn to use these contra-signals are better able to deploy capital, manage risk, and anticipate market reversals.
Anyone who manages assets for a living can garner a tactical advantage by learning to properly identify and employ these Contrary Indicators: They can be used as timing signals as well as help determine an appropriate investment posture (i.e., aggressive or defensive); Even for the least technically minded, they have value as risk management tools."
That these indicators exist for both bullish and bearish extremes points to their agnosticism. However, these are easily misinterpreted. In this week's Barron's The Trader column, Kopin Tan discusses a specific JP Morgan research piece, which misuses a sentiment indicator, the Conference Board Consumer Confidence readings:
"Some of you, of course, are miffed at how Wall Street is banking on your largesse even as they trade your pain. The Conference Board said last week that consumer confidence sank to the lowest in 16 years. Your confidence has been this morose or worse only five times since 1967, and each time the stock market has rallied soon after, with the Standard & Poor's 500 index producing average returns of 15% six months later and 23% a year after, according to JPMorgan."
Unfortunately, consumer sentiment surveys are coincident, not leading, indicators. And while JP Morgan is correct that Consumer Confidence Index has only been as bad as it is presently 5 times before (the current reading is 57.2), in 3 of those 5 previous occasions, the index got considerably worse (Approximately: 1992 = 48, 1980 = 49, and 1975 = 44).
Even worse, each of those low index readings in the 40s took place AFTER a 12 month or longer recession or bear market had already ended. At this time, it is premature to declare the worst over for either the Consumer Sentiment Index or the economy.
Consider the 2003 low came after the 78% drop in the Nasdaq; the 1980 low came in year 14 year of a 16 year bear market; the 1975 low came after a horrific 1973-74 bear that saw the Dow Industrials get cut in half. Even the 1992 lows came long after the recession and market trouble in 1990.
Have a look at the chart below, via Joseph H. Ellis' book, Ahead of the Curve. It shows that sentiment bottoms around the same time as the bear market. And, we have yet to get any where near the depths of of many of the 5 prior cycles.
Consumer Sentiment Surveys: Coincident, Not Leading, Indicators
via Joseph Ellis
(note: this chart does not include 2008 data)
The Conference Board Consumer Confidence Index Declines
May 27, 2008
When Consumers' Pain Is Investors' Joy
Barron's THE TRADER, JUNE 2, 2008
Consumer confidence: Worst since '92
CNNMoney, May 27, 2008: 1:08 PM EDT
Feldstein Says U.S. Economic Indicators 'Pointing Down'
Martin Feldstein, an economics professor at Harvard University and president of the National Bureau of Economic Research, talks with about U.S. first-quarter gross domestic product, the outlook for Federal Reserve monetary policy and potential legislation to help homeowners avoid foreclosures.
click for video
Feldstein Says U.S. Economic Indicators `Pointing Down'
Bloomberg, May 29 2008
Friday Night Jazz: Chet Baker II
I was searching out some of my favorite Jazz artists on YouTube, when I randomly stumbled across this video of Chet Baker. For those of you unfamiliar with Baker, he was a terrific Trumpet player who was later "discovered" as a wistful blues singer, specializing in ballads and love songs.
Chet Baker's vocal style is unmistakably unique -- my favorite description of his his voice is "at times, it seems like he's hanging onto the melody by his fingernails." He seems at times half a tone off where you might expect him to be.
There is a lovely melancholy, a gentle beauty, to the way he wraps his voice around a song. The soft, simple sentiment embodied in his lyrical approach to ballads can turn any song into a brooding lament.
There's quite a few other videos at ChetBaker.net . . .
Either of these two CDs are good places to start exploring Baker's works:
"His vocals were absolutely distinctive, sung in a high-pitched, even fragile voice seemingly drained of emotion and yet possessing an inherent charm, a detachment that might be both the antithesis of style and its definition, whether it's heard as sensitivity or indifference. The singing is a double of his trumpet playing here, spare and barely present but achieving much through nuance and suggestion. Pianist Russ Freeman is an almost constant partner, supplying deft chords and harmonic daring, amplifying Baker's ideas. Their empathy is especially evident in the beautiful instrumental "Moon Love," but it's just as significant on signature Baker songs such as "My Funny Valentine," "Let's Get Lost," and "Like Someone in Love." --Stuart Broomer
New videos after the jump
Technically, Not a Recession
Bear vs Bull (1962)
How is this June 1, 1962 Time Magazine issue? Perhaps this is a more significant example of the Magazine cover indicator?
That cover, showing a Bear mauling a Bull, took place when stocks were getting whacked.
As you can see from the chart below, this obviously Bearish cover worked well as a contrary indicator -- it was not a bad entry point to get long equities:
Revisiting Q1 GDP Revisions
The consensus in the media is that revisions higher in GDP to 0.9% means that the US has successfully avoided a recession.
I highly doubt that is the case.
The good news is that, and once again, I can comfortably slip into a (rather than mainstream) contrarian recession call. I was uncomfortable when the masses were ever so briefly agreeing with me anyway.
Why do I disagree? As the chart below shows, the revised GDP gains were 1) National Defense spending by Uncle Sam; 2) Inventory builds; and 3) net exports. That leaves the majority of the economy -- call it "private domestic demand" -- in contraction mode, with an annual rate of -0.4% (vs. -0.7% in advance GDP). Domestic Consumption, Fixed Investment, Exports, and State & Local governments all showed quarter over quarter losses.
Its important to understand the significance of this factor. In the post WW2 era, this is a relatively rare occurrence. Merrill's David Rosenberg points out that "Over the past five decades, such weakness in private domestic demand occurred barely more than 10% of the time." You can bet those times were not brisk expansions.
charts by Jake
Plenty of folks seem to think we have wished our way out of a recession. They need to spend some more time with the actual data.
April New Home Sales - Revisited
On Tuesday, we noted that New Home Sales fell 42%. There was one small piece of the data I failed to mention earlier in the week, which is worth discussing -- the March revisions:
1) Revisions: April's (unrevised) data for new homes was 526k annualized units (+3.3). That is the identical to the number released in March -- 526k units. March sales were revised to -11%
from -8.5%. So but for the revisions, March to April headline number was flat.
How did we show a 3.3% monthly gain? Tuesday’s report saw March revised DOWNWARDS from 526k units to 509k units. In other words, April did not so much showed a positive move upwards (statistical error notwithstanding) as much as the prior month comparison was revised downwards.
2) Apples to Oranges: Why do we compare Revised versus Unrevised data? The overall trend for the past year has been mostly downward revisions. An apples-to-apples comparison would be an original release to original release (that showed flat data, not an increase in new homes sales).
Comparing the original (but soon to be revised) April data to the revised March data presents a misleading picture.
3) Cancellations: Of course, none of the new home sales data includes cancellations, which were running north of 30% -- and with the recently tightened credit, it may be even worse.
UPDATE May 30, 2008 12:55pm
Over at Calculated Risk, Tanta disagrees with my assessment:
"Cancellations are not getting worse. In fact they are getting better. For most builders, cancellation rates peaked in Q3 2007 (with the credit crunch) and have improved significantly since then. And it's the change in cancellation rates that matter when analyzing the New Home data.
This is a key point: right now the Census Bureau is probably underestimating sales!
I do not know if cancellations are getting worse (I wrote "may be even worse"). However, we do know several things:
1. Census Department does not factor in cancellations at all. Let's say for arguments sake that cancellations are improving -- from 30+% to 15+% or better --
that only means the overstatement of sales is less, but still
2. Cancellations represent potential understated sales in some indeterminate
future. Past cancellations might be getting sold today -- or they might not. We don't really know. One would think if they were, however, we should see some evidence somewhere in some data -- sales, homebuilder inventory, etc.
I have yet to see that anywhere (doesn't mean it doesn't exist, i just haven't seen it).
3. Right now, all of the YoY, inventory, and price data suggests that prices & sales are still falling. If and when New Home sales actually see real month over month, YoY improvements,
then CENSUS will be understating it New Sales. But thats somewhere off in the
(possibly distant) future.
If someone can show me a definitive basis for thinking New Home Sales are better than reported, I mention it on Kudlow & Co. But until then, do not count your chickens before they are hatched!
No, New Homes Sales DID NOT Rise . . . (October 2007)
New Residential Sales
The Census Bureau MAY 27, 2008
Cockeyed Optimists See Housing Recovery
RANDALL W. FORSYTH
Barron's May 28, 2008
NYMEX Raises Margin Requirements for Crude
Hefty increase in margin rules from the NYMEX, effective earlier this week:
The New York Mercantile Exchange said on Tuesday it will increase margins for its crude oil and related futures contracts, beginning at the close of business on Wednesday.
Margins for the crude oil, crude oil calendar swap, and crude oil financial futures contracts will go up to $7,250 from $6,500 for clearing members, to $7,975 from $7,150 for members and to $9,788 from $8,775 for customers, NYMEX said in a release.
Margins for the NYMEX miNY crude oil futures contract will rise to $3,625 from $3,250 for clearing members, to $3,988 from $3,575 for members and to $4,894 from $4,388 for customers. Margins for the NYMEX MACI index futures contract will increase to $1,450 from $1,300 for clearing members, to $1,595 from $1,430 for members and to $1,958 from $1,755 for customers.
That may be one source of pressure on Crude this week . . .
UPDATE: May 30 , 2008 11:00am
For all you folks who are Google-impaired:
These come from the 2008 NYMEX Press Releases.
Incidentally, this is what the Fed should have done with Stock margin requirements in 1998-99: gradually increase required capital.
NYMEX to raise margins for crude, related futures
Reuters Tue May 6, 2008 10:25pm BST