24/7 Wall St. » Housing

The Bear Market’s Big Sucker Rally (MSFT)(BA)(GE)(F)(FNM)(FRE)(WM)(LEH)

247wallst — Tue, 09 Sep 2008 04:45:37 +0000

In community college Economics 101 students learn that there can be dips in bull markets. Usually these are caused by a single event like a change in the party that runs Congress. The same holds true for bear markets. Suckers jump in on one piece of news or another. The market spikes up. A week later, it’s gone.

The Fannie Mae (FNM) and Freddie Mac (FRE) rescue pushed the market higher and may do so for a few days. In Asia, they know better. The rally never made it beyond the first 24 hours. Markets turned down in Day Two.

The overwhelming evidence is that almost no one benefited from the government taking over the agencies. The rest of the economy is in the toilet. A lot of data has come out in the last day underscoring that point.

The well-regarded Manpower Employment Outlook Survey’s look at corporate hiring plans found that a net 9% of firms expect to hire in the fourth quarter, down from 12% in the previous quarter, and 18% for the fourth quarter a year ago. According to MarketWatch, this is the longest string of quarterly declines in two decades.

A quick glance over at the Forrester study of IT spending found that 43% of companies have cut IT spending this year. How can companies like Oracle (ORCL), Microsoft (MSFT), and IBM (IBM) have strong earnings into next year with that kind of trend?

A Bloomberg News survey of 39 economists showed that they believe pending US home sales dropped again in July.

All three pieces of data are less than 24 hours old.

The market really did not rally. A few stocks did. GE (GE) sits at $29, still relatively near multi-year lows. Boeing (BA) faces a strike which could go on for months. That will hurt earnings and employment at scores of its suppliers. Boeing’s shares could clearly drop. Ford (F) is barely off a 20-year low. The same could be said of Microsoft (MSFT).

If the stock prices of Washington Mutual (WM) and Lehman (LEH) tell any tale it is that they will have to be rescued or cease to exist as independent companies.

Most of the seminal stocks in key industries are still well down and have little prospect of recovery.

If a recession is defined by the breadth of its damage, this is already a powerful one.

Douglas A. McIntyre

Pimco Bets The Farm On Mortgage Debt

247wallst — Fri, 23 May 2008 04:22:22 +0000

The Pimco Total Return, run by highly-worshiped bond manager Bill Gross, is putting most of its chips into mortgage debt. The fund, which manages $130 billion, is counting on the federal government to make the bet work.

According to the FT "Mr Gross said his decision to raise exposure to mortgage debt in recent months was based on the US government’s implicit guarantee of Freddie Mac and Fannie Mae, the government-sponsored mortgage agencies."

Gross is usually right, but, with his exposure to mortgage-related paper tripled over that last few months, he could be facing his Waterloo. The housing crisis in the US could still get much worse. Recent data shows that housing prices are still falling. Consumer ability to pay housing debt is being hurt by rising costs of food and fuel and unemployment, which is edging up. A number of subprime ARMs will reset through the summer.

Pimco has been an unusually good performer over the last decade. Nothing good lasts forever.

Douglas A. McIntyre

Housing Stocks…Ignoring Poor Housing Data (HXB, PHM, DHI)

247wallst — Tue, 02 Oct 2007 09:27:17 +0000

The National Association of Realtors monthly Pending Home Sales Index for August came in at 85.5, Month on Month -6.5%, and Year over Year -21.5%.

This is perhaps the worst data on recent record, but it is worth keeping in mind that this data is August and before the FOMC rate cut. It was also during the worst mortgage month when every single headline was revolving around headlines and story lines saying "billions of dollars lost here" and "billions of dollars lost there" were on every television station (while "Flip That House" versions were still running rampant on TV).

The SPDR Homebuilders ETF (AMEX:XHB) is up almost 5% today at $23.20 and the ETF did maintain its strength after these numbers came out. Citigroup’s upgrade for a trade yesterday is turning out to be quite a call. The XHB ETF closed Friday at $21.40, almost an 8.4% gain in two days.

Of the largest homebuilders, it looks like a 7% gain in DR Horton (NYSE:DHI) and in Pulte Homes (NYSE:PHM) are leading the pack.

Jon C. Ogg
October 2, 2007