We got a 48% increase in the mortgage application index -- which is chiefly a measure of refis -- this week. We got a drop in durable goods. The focus will be in the durable goods number. I think that is wrong. The focus should be on mortgage applications, because when you couple it with the existing-home sales spike, you are getting a picture of homebuilding inventory work-off.
We must never forget that the reason we are in this slump is housing, not industrial machinery or capital goods. Everyone is slowing purchases because of a decline in confidence, but the decline in confidence is about housing, NOT about industrial orders.
I believe, on the days when the analysts are helping the short hedge funds with solidly negative news to help MARK DOWN the financials so the hedge funds can recapture the quarter's gains -- and with no uptick needed, the hedge funds are able to generate a gigantic amount of commissions, so they are worth catering to -- it is important to focus on the mortgage application rates.
The ease with which you can get a mortgage, the lower price of the mortgage money, the lower price of homes, all of these things are going to work off the inventory. Meanwhile we have a rational outfit, BlackRock
(BLK)
, helping the Fed and Treasury sort out the price of the "bad" bonds, which will allow price discovery and price purchasing. That matters greatly, again, on the back end because if banks can securitize loans they will be able to lend again with conviction. If the FHA would guarantee the loans, then you would really be well on your way to getting rid of inventory and stopping house price depreciation in time to make it worth paying your mortgage, which it hasn't been for some time.
All of these are integral to the bottom; all are happening. We could look back at this moment - ex Citigroup
(C)
-- and say, "Why did we stay so negative after the barn door was open?" Focus on the relevant FORWARD numbers, mortgage applications, and not backward-looking numbers like durable goods.
Random musings: Twin blows to the Fortress Investment Group
(FIG)
: lousy numbers from sale of assets and the drastic dividend cut from Aircastle
(AYR)
, which is unable to get the kind of financing it needs from the short-term markets -- this is precisely the market that is most shut down during this period, as we know from CIT's
(CIT)
wows. This deal continues to be the Vonage
(VG)
of 2007, especially if the Penn National Gaming
(PENN)
deal can't get financing (Columnist Conversation had great commentary on the deal last night). ... Motorola's
(MOT)
issue is technology, NOT infrastructure, but at least they are trying.
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