8.21.09

8.21.09

            This past week was a perfect example of the unpredictability of the market, and it’s been that way for months now. Until certain changes occur, we are at the mercy of the “traders”. Read on and you will see what I mean.  China was in the spotlight early this week. Following a 109% rally from October through the beginning of August, a 5.8% plunge on Monday  (which caused the S&P 500 close down 2.4% that day)  and another 4.3% decline on Wednesday brought the Shanghai Composite to a two-week correction of 20%. At first equity markets around the world followed suit, as China would be an integral part of any global economic rebound. But as we've seen throughout the market's five-month rebound, buyers stepped in, specifically on Wednesday when the major indices quickly regained opening losses and then surged higher just before midday, though on no specific catalyst.

            The buying effort was the opposite of what it normally should have been to this week's economic data. We had negative housing data on Tuesday -- July Housing Starts 581,000 vs. 599,000 consensus; Building Permits 560,000 vs. 577,000 consensus -- and negative employment data on Thursday -- Initial Jobless Claims 576,000 vs. 551,000 consensus -- but equities closed modestly higher both days. Then on Friday, a better-than-expected Existing Home Sales figure (5.24 million vs. 5.00 million consensus) led to a 1.9% rally in the S&P 500.
            So investors are effectively ignoring poor economic data while going long the positive data. The end result is all four of the major indices made fresh 2009 highs on Friday. Excuse me, I should have said “traders” not “investors”.

            The report that set the tone for the day on Friday was the Existing Home Sales. Alan Abelson’s column in Barron’s this weekend, casts suspicions on how positive yesterday’s report that existing home sales shot up 7.2% in July really is.

Here is an excerpt from Alan’s column:“Another instance of how the devil is inevitably in the details and the details are inevitably overlooked by investors panting to dive into this boiling market was the hip-hip-hooray response to the release by the National Association of Realtors showing higher sales of existing houses.

No doubt the positive reaction by the Street was a tad exaggerated by the fact that it came hard on the heels of a decidedly less inspiriting communique from the Mortgage Bankers Association. That group reported that the percentage of residential mortgages in foreclosure or at least one payment past due shot up to 13.16% in the second quarter, an all-time high. Particularly disturbing was that holders of subprime loans were no longer the major offenders; that unenviable role was taken over by home owners with prime fixed-rate mortgages, who suffered a significant rise in foreclosures.

But Mark Hanson, who runs the real- estate and mortgage advisory firm bearing his name (both Bill King and Mark are lucky they don’t have one of those 40-syllable monikers) points out that, in any case, the tally of existing home sales didn’t rate the celebratory fuss that greeted it. For, he asserts, save for a "surprise and suspect" 16,000-unit increase in Northeast condo sales, the national count would have been 12,000 fewer than in June.

And that’s not the whole of the disappointing details that careful scrutiny of the July numbers reveals, Mark says. Sales of single-family detached units were down; foreclosure activity increased by 24,000 over the previous month; and despite much lower prices, interest rates at historic lows, tax credits and stimulus galore, this summer’s sales are barely keeping pace with a year ago.”

            We remain 100% in CASH while waiting for predictability to return.

Till next time

The MTA Staff