Evidence of a Bottom

Have we really bottomed? The stubborn lack of decline in the homebuilders, coupled with the better-than-expected retail sales, the strong transports, and the conclusion of a deal like Clear Channel (CCU - commentary - Cramer's Take), has created an environment where you are hard-pressed, if you rely on stocks as forecasters, to ignore the possibility of a bottom.

I watch the HGX like a hawk, the homebuilding aggregation, and it simply won't come down. That's despite the awful numbers, the covenant violations (Standard Pacific (SPF - commentary - Cramer's Take)) the bad loans, the lack of mortgage money, the insistence of a down payment and an abysmal spring traffic season.

So, why are people buying the group that signaled the downturn? I think it comes down to price. If you force the homebuilders to sell, as Toll (TOL - commentary - Cramer's Take) did this quarter, taking no gains on homes, you clean up inventory. If you clean up inventory, which is what happened in western Florida, you stabilize pricing. When you stabilize pricing, you bring out buyers. It is a virtuous circle.

Which brings us back to the government. The feds, being pushed by Sen. Dodd, could provide real help, or provide some damage to the process depending upon the actions in the upcoming weeks.

If we spend $200 billion to $300 billion to allow the FHA to guarantee loans and stretch out the payments, we will allow people to stay in homes. That takes off more inventory, the foreclosure inventory. But if we give the builders a credit, they stop cleaning up their inventory because they can pay the banks with that credit. One will offset the other. (If they just listened to Bob Toll and offered a $15,000 tax credit on a home, then we could deal with unsold inventory, but the Dems are focused on keeping people in their homes who deserve to be in them, not selling new homes.)

So the Senate matters, as does the president who is completely laissez-faire about this issue and could become the enemy quickly with a veto. Given that we just got a veto-proof farm bill for the least needy group out there -- the farmers -- anything can happen. (And aren't we craven about that!)

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