Parsing the Plan

It's hard to realize with the crisis atmosphere that surrounds the government's plan to rescue Wall Street, but there is a real economy that continues to move along. Or "struggle along" might be a better description. Existing-home sales for August fell 2.2% to 4.9 million units. Prices fell 9.5% from year-ago levels to a median level of $203,000. The one bright spot in the report is inventories of homes held for sale fell 320,000 to 4.25 million. That is still about 1.5 million more than usual, but it represents 10.4 months of supply, down from 10.9 months in July.

Consider that about 1.2 million new households are formed annually in the U.S. Housing starts are running well below that level (about 800,000 starts on an annual basis), so inventory levels will continue to come down. If nothing changes, the decline in inventories will be about the difference between the above two numbers, or 400,000. If the rescue plan is approved and even remotely effective, credit to the housing sector should flow and there should be an increase in the number of sales.

Perhaps this is overly optimistic, but if starts stay subdued and if credit flows, you might see the overhang of the 1.5 million homes held for resale be greatly reduced over the next two years.

In international news, a survey of German business confidence fell to a three-year low. French business sentiment dropped to a five-year low, and Italian business confidence is near a seven-year low. I see a cut in euro interest rates coming before too long, which would help the value of the dollar.

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Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.