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New Home Sales Data: Don't rely On It Either

Wednesday, November 30, 2005 | 03:01 PM

Here we go again:

Yesterday's New Home Sales data of plus 13% month over month was . . . how shall I politely phrase this . . . somewhat questionable.

It seemed like such an outlier, that I had to dig into the details, especially given all the other non-confirming data we have seen: The same time we learned about that huge New Home Sales, we learned elsewhere that Unsold house inventory is at its highest since April 1986. (Existing Home Sales number about 6 times the number of New Homes).

I'll have more on this tomorrow, but here's the key takeaway:

a) The data appears to be "statistically insignificant," according to the Census Bureau;
b) Strong historical numbers (like plus 13%) tend to be subject to revision, but mostly stay net postive, albeit somewhat moderated;
c) Over the past 10 years, double digit months have been followed by flat to negative data the very next month (Mean Reversion).

The actual data can be found here.

The first item is the margin of error: Its actually higher than the increase for October as well as the revision for September:

“Sales of new one-family houses in October of 2005 were at a seasonally adjusted annual rate of 1,424,000 . . . This is 13% (+/- 17.7%)* above the revised September rate of 1,260,000 and 9.0% (+/-18.2%)* above the October estimate.

There's the key: anytime your margin of error is greater than the estimated increase in New Home sales, confidence levels inthat data are low to non-existent. (A Census Bureau Economist I spoke to agreed with this interpretation).

As significant as that is, let's ignore it for the moment:  Looking back over the past 15 years of data, we see that a mean regression has followed nearly all double digit monthly gains. The subsequent month's data was significantly lowered -- flat to negative in nearly every case:

New Homes Sales

Month, Year Double Digit Gain Subsequent Month Increase / Decrease
June 2003 10.7% July 2003  (-2.1%)
December 2000  11.7% January 2001  (-4.8%)
July 2000 11.9% August 2000 (-4.4%)
November 1998 11.4% December 1998 (-4.6%)
January 1998 10% February 1998 (-0.7%)
March 1995 10.2% April 1995 0.8%.
*February 1994; 10.82% March 1994 8.89%
April 1993  16.45% May 1993 (-10.70%)
September 1993; 12.56% October 1993 (-3.03%)
January 1992 21.15% February 1992 (-5.47%)


In nearly all of these months, the subsequent month's data was significantly lowered. The one exception was *February 1994, which was followed by a strong March and April -- but they came on top of January 1994, which has the honor of being the very worst month ever in the history of the Census Construction data: Down -23.77%.

One final factoid: According to the Census Bureau, it takes 6 months to establish a trend for new houses sold. They note this in the fine print:

"These statistics are estimated from sample surveys. They are subject to sampling variability as well as nonsampling error including bias and variance from response, nonreporting, and undercoverage...Changes in seasonally adjusted statistics often show irregular movement. It takes 6 months to establish a trend for new houses sold. Preliminary new home sales figures are subject to revision due to the survey methodology and definitions used. The survey is primarily based on a sample of houses selected from building permits...Explanations of confidence intervals and sampling variability can be found on our web site listed above.

Bottom line:

a) A high margin of statistical error means the October data is unreliable;
b) we should expect to see a revision downwards, but not by a whole lot;
c) The November data should be flat to negative.

Hey, I'm an optimistic guy. I was an X-Files fan -- I want to believe. <sigh> But sometimes, the dope is so bad that's its misleading to call it anything but. I only want to get an accurate read of this planet's economy in order to know how to position capital into various asset classes.

Damn!  Now I have to go look at GDP . . .


Note: Since this nonsensical data issue has become a recurring theme, I have added Data Analysis as a new subtopic . . .



New-Home Sales Surged in October; Cooling Still Seen
Wall Street Journal, November 30, 2005; Page A2

Census Bureau, Manufacturing and Construction Division
NOVEMBER 29, 2005 AT 10:00 A.M. EST

Comparing New Home Sales and Existing Home Sales http://www.census.gov/const/www/existingvsnewsales.html

Wednesday, November 30, 2005 | 03:01 PM | Permalink | Comments (6) | TrackBack (3)
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The “greatest irony” is that he is called the Maestro

Wednesday, November 30, 2005 | 05:33 AM

PIMCO's Paul McCulley lays out a surprisingly stark bitchslapping smackdown on Easy Al Greenspan. First, he quotes the Maestro:

"In perhaps what must be the greatest irony of economic policymaking, success at stabilization carries its own risks. Monetary policy–in fact, all economic policy–to the extent that it is successful over a prolonged period, will reduce economic variability and, hence, perceived credit risk and interest rate term premiums."

This quote is actually one of a series of statements from the departing Fed Chair essentially claiming that we get Bubbles because Greenie did his job so damned well.

McCulley is having none of this; He deftly uses Al's own words against him:

"Ah, “the eventual exhaustion of the forces of boom!” Roll enough games without a fingertip ball and you don’t have to worry about overhooking it, as your arm ain’t got the strength. But you do have to worry about underhooking it into the gutter. For, if (1) the “greatest irony” of successful Fed-driven macroeconomic stabilization – notably achieving secular “price stability” – is excessive reduction of risk premiums, otherwise known as bubbles, and if (2) the only strategy available for addressing such bubbles is to wait for their “eventual exhaustion,” then (3) the “greatest irony” is not as Mr. Greenspan declares, but rather that he is called the Maestro."

As if that wasn't enough, McCulley notes that new Fed Chair Ben Bernanke does not see "the wisdom of relying exclusively on the hands-off-then-mop-up strategy" of Bubble management. Indeed, Helicopter Ben has already stated:

"When this moral hazard is present, credit flows rapidly into inelastically supplied assets, such as real estate. Rapid appreciation is the result, until the inevitable albeit belated regulatory crackdown stops the flow of credit and leads to an asset-price crash. Bubbles of this type may be identifiable to some extent after they have begun, but the right policy is to do the financial deregulation correctly – that is, in a way that does not allow speculative misuse of the safety net – in the first place. Or failing that, to intervene and fix the problem when it is recognized.”

One suspects that McCulley -- Managing Director of the largest Bond Fund company in the world --  approves of Bernanke as Fed Chair . . . 


Reflexive Disintermediation: Say What? Learning To Live With It (pdf)
Paul McCulley
PIMco, Fed Focus| November 2005

Wednesday, November 30, 2005 | 05:33 AM | Permalink | Comments (21) | TrackBack (0)
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Bloomberg TV (7:05 AM, 11/30/05)

Tuesday, November 29, 2005 | 09:02 PM
in Media


A quick heads up:  If you are in front of a TV set while you are getting dressed or over breakfast on Wednesday morning, I'll be on Bloomberg TV (US) for a quick chat on Holiday Retail shopping season.

I expect the conversation will follow the recent Visa and NRF hype discussions . . . 

Tuesday, November 29, 2005 | 09:02 PM | Permalink | Comments (0) | TrackBack (0)
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Napster versus Apple

Tuesday, November 29, 2005 | 06:18 PM
in Music

Absolutely brilliant television commercial for Napster, out of the UK
(why don't we have TV adverts like this in the USA?)

click for video


Warning: brief nudity:


Great Britain:  It must be interesting to live in a country where a tushie shot doesn't send the entire nation into apoplectic seizures


Get the Whole Thing via adrants

Tuesday, November 29, 2005 | 06:18 PM | Permalink | Comments (11) | TrackBack (0)
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Grateful Dead Bans Sharing, Commits Musical Suicide

Tuesday, November 29, 2005 | 04:59 PM

A Tuesday Tunes post: How astonishing is this:  A band that built its entire reputation and fan base on freely recorded and shared live shows has now pulled the plug:

"Grateful Dead fans, perhaps rock's most dedicated bunch, are taking a stand against the band they love. Until recently, Deadheads could download countless live recordings of the band for free from third-party sites, including the popular Live Music Archive (archive.org), which once hosted nearly 3,000 Grateful Dead shows. All of the downloads were pulled last week at the request of Grateful Dead Merchandising (GDM), the group that handles official products for the band and is overseen by its surviving members.

Deadheads have answered in protest. In an online petition, fans have pledged to boycott GDM -- including CDs and concert tickets -- until the decision is reversed. (The band itself broke up in the wake of leader Jerry Garcia's 1995 death, but in recent years guitarist Bob Weir, bassist Phil Lesh and drummers Mickey Hart and Bill Kreutzmann have toured simply as "the Dead.")

GDM recently began selling live music downloads through its online store. The sudden lockdown could be a simple non-compete strike, or it could foreshadow a long-rumored deal with iTunes that will make the entire Grateful Dead live vault available for purchase.

Fans were incensed that the policy change applies not only to official soundboards but audience recordings as well. Throughout their four-decade career, the Grateful Dead actively encouraged fans to trade live recordings and even designated a special "taper's section" at the concerts. In return, Deadheads largely respected the band's wishes that the concert recordings weren't sold for profit.

An official statement from the Grateful Dead camp is expected in the next few days. In the meantime, longtime band publicist and spokesperson, Dennis McNally, told Rolling Stone that he thinks "David Gans' comments were dead -- you'll pardon the expression -- on."

Perhaps now that 1) Jerry is Dead; b) the free swapping of live recordings have ended; iii) most of the drugs have worn off -- we can all now admit that, excepting a few good songs, the Grateful Dead pretty much sucked . . .


UPDATE:  November 30, 2005  8:46am

The NYT reports:

Dissent has been building rapidly, however, as the band's fans - known as Deadheads - have discovered the recordings are, at least for the time being, not available. Already, fans have started an online petition, at www.petitiononline.com/gdm/petition.html, threatening to boycott the band's recordings and merchandise if the decision is not reversed. In particular, fans have expressed outrage that the shift covers not only the semiofficial "soundboard" recordings made by technicians at the band's performances, but also recordings made by audience members.

Talk about your boneheaded marketing moves . . .

UPDATE December 1, 2005, 6:54am

The NYT observes that

Downloads of the Dead are Not Dead Yet


Deadheads Boycott Dead
Fans object to band's live recordings being pulled from Web
Rolling Stone, Nov 29, 2005

Deadheads Outraged Over Web Crackdown
NYT, November 30, 2005

Tuesday, November 29, 2005 | 04:59 PM | Permalink | Comments (19) | TrackBack (0)
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How Media Can Connect with Their Customers, according to U2

Tuesday, November 29, 2005 | 11:55 AM
in Media | Music

There was a terrific article in Monday's NYT (Media Age Business Tips From U2) on U2 the corporation, and the lessons the band holds for other forms of Media:

"On the surface, the formula U2 used to send 20,000 fans into sing-along rapture at Madison Square Garden last Tuesday night was as old as rock 'n' roll: four blokes, three instruments, a bunch of good songs. Add fans, cue monstrous sound system, light fuse and back away.

But that does not explain why, 25 years in, four million people will attend 130 sold-out shows this year and next that will gross over $300 million and how their most recent album, "How to Dismantle an Atomic Bomb," has already sold eight million copies.

For that, you have to look at U2 less as a band than as a multimillion-dollar, multinational media company, one of the smarter ones around."

Interesting take. The author breaks down what U2 does right into a few bullet points:

Meet The Consumers Where They Live

Apologize, Then Move On

Embrace Technology

Don't Embarrass Your Fans

Be Careful How You Sell Out

Embrace Politicians, Not Politics

It's Called Show Business For A Reason

Seize The Moment, But Don't Steal It

Aim High

For anyone in the Media business (Newspapers, Magazines, Internet, TV, Music, Film) the entire piece is well worth reading. (You can see some snaps I took at last Tuesday's concert here).



Media Age Business Tips From U2
David Carr
NYT, November 28, 2005

Tuesday, November 29, 2005 | 11:55 AM | Permalink | Comments (10) | TrackBack (0)
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Read it here first: Real-Estate Boom Soon May Sputter As an Engine of Retail Sales

Tuesday, November 29, 2005 | 08:54 AM

A key part of my Bearish thesis for 2006 has been that as interest rates tick up, the Real Estate cylinder in the economic engine will fade.

Yesterday's WSJ had a good article on that exact subject:

"As home sales start to slow and the inventory of unsold homes rises, some economists are warning that home-price appreciation will slow or prices will possibly even decline next year. And that, they say, will lead to a slowdown in consumer spending that could start as soon as the holiday season ends.

Leading the worrywarts are economists at Goldman Sachs Group Inc. For several years, they have been closely watching what the firm dubs MEW, which stands for mortgage-equity withdrawal. It is the cash people extract from their homes by drawing on home-equity loans, "cash out" mortgage refinancing, or capital-gains earnings from real-estate sales...

Jan Hatzius, a Goldman Sachs economist, estimates Americans will withdraw $834 billion from residential real estate this year. That will fall next year, he says, to $758 billion and to $645 billion in 2007. "As households' cash flow goes down," Mr. Hatzius says, "spending weakens." That, in turn, will reduce economic growth.

Equity withdrawal isn't the only way that housing is supporting the economy. According to Moody's Economy.com, the real-estate industry is responsible for creating 1.1 million of the two million net jobs that the nation added in the five years that ended in October. Those jobs include positions for land surveyors, general contractors, loan officers and building-material retail workers."

Note that the ugly part of the accompanying chart (via  Goldman Sachs) are projections, and not actual declines:

MEW= Moprtgage Equity Withdrawals


A few other data points on this:

A study (supposedly co-authored by Fed Chair Alan Greenspan) estimated that "Americans withdrew $600 billion in equity from their homes in 2004, or 7% of their disposable income." Greenie's study estimated "consumers spend about 51% of the cash they extract." Goldman's estimates were that consumers spend ~68% of the cash they extract through home-equity loans and refinancing (most of the rest is used to pay down credit-card debt or invest).

WSJ:  "In other words, Goldman believes that consumer spending is even more closely tied to home equity than does the Fed. If Goldman is correct, that means the housing slowdown will have a bigger negative impact on spending and the economy than commonly thought."

See also Unsold house inventory highest since April 1986



Real-Estate Boom Soon May Sputter As an Engine of Retail Sales
Rafael Gerena-Morales
The Wall Street Journal, November 28, 2005; Page A2

Unsold house inventory highest since April 1986
Newsday, November 29, 2005

Tuesday, November 29, 2005 | 08:54 AM | Permalink | Comments (13)
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Mixed Retail Picture: Visa Edition

Tuesday, November 29, 2005 | 05:48 AM
in Retail

You folks posted alot of good comments yesterday following the discussion on increased Credit Card usage in the mixed retail post. Enough issues were raised that I tracked down some people at Visa to get a breakdown of the specific data regarding card usage over the weekend:

Spending on Friday/Saturday with Visa branded cards was over $7.068 billion dollars; This represents a 15% increase versus 2004.

• $3.84 B was consumer credit;
• $2.82 B was debit/check cards;
• $400M was Visa Commercial/Small Business cards (a form of commercial credit).

That means approximately 54% of the increase in card usage was added consumer debt. 

Another interesting data point:  E-Commerce was $544 million, a 32% increase from 2004. That number is consistent with the past 5 years of growth online. Note, however, that online purchases are a mere 7.6% of total retail sales.

Also, Travel spending was up 19% to $974 million -- reflecting in large part increased energy costs for airlines and autos.

Note that these are actual sales receipts, and not opinion or expectations of spending. Its is therefore a significant data point.


UPDATE November 29, 2005  10:49am

Here is the Visa data release

Tuesday, November 29, 2005 | 05:48 AM | Permalink | Comments (13) | TrackBack (0)
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Media Appearance: Kudlow & Company (11/28/05)

Monday, November 28, 2005 | 04:24 PM
in Media



A quick heads up:

I will be on Kudlow & Company tonite at 5:00 pm. Its for at least two segments of the show, discussing Holiday shopping, Energy, the Economy and this rally.


UPDATE  Novermber 28, 2005 7:55PM

How surprising was Larry's mixed outlook on the holiday season? He never ceases to amaze -- I thought for sure he was going to lock onto the Bullish data, flawed though it was.

I wish we had more time to go into the Border, Energy, and Tax issues post Allan Hubbard. Once again, the producers were chirping in my ear ("You have 10 seconds!") I don't know how people do entire newscasts with someone feeding them info -- its disconcerting to think and speak AND digest that additional auditory input.

I didn't get to the Visa credit card data, but I will get a post up on it shortly . . .

Monday, November 28, 2005 | 04:24 PM | Permalink | Comments (1) | TrackBack (0)
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More To Holiday Sales Than A Few Phone Calls

Monday, November 28, 2005 | 01:11 PM

Today's morning missive was picked up by Dow Jones Market Talk:

11/28 11:21A    More To Holiday Sales Than A Few Phone Calls

11:21 (Dow Jones) The widely cited National Retail Federation's "Black Friday" report takes some heavy flak from Maxim Group's Barry Ritholtz. "There are few things that make us more annoyed than bad data, lazy thinking or poor analysis," he writes. The NRF, he says, "hit for the inept cycle." For starters, the report is only a survey. "They asked 4,209 consumers how much they were planning on spending" and extrapolated the total from that "all without seeing any actual data whatsoever," he says. "If I were their mathematics or statistics professor, I would give them a grade of 'F'." The real picture, he says, is very mixed.


Monday, November 28, 2005 | 01:11 PM | Permalink | Comments (0) | TrackBack (0)
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