Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings.
More Peak Housing
Originally published Feb. 21 at 2:21 p.m. EST
Real estate maven Mark Hanson chimes in with a look at this week's housing data:
After finishing off the year very weak--December existing sales down 2.3% year over year and new home sales down 7.9% year over year--the January numbers were more stable, as the "transitory" demand and mortgage rate-lock pop from the November rate surge continued to work their way to the mortgage and house closing stage (think "pig in the python").
Bottom line: Sales for January due out tomorrow and Thursday, respectively, will be mixed; higher year-over-year sales due to last year's weak January, but equal to, or slightly weaker than, consensus estimates. There will be no large misses like last month. But no big beats, either.
- Existing Sales 10 a.m. ET Wednesday: about 5.47 million to 5.5 million, flat to up slightly month over month and year over year; down 1% from 5.55 million consensus estimates.
- New Sales 10 a.m. ET Friday: about 550,000, up 1% month over month and 4.6% year over year; down 4% from 573,000 consensus estimates.
Item 1) Based on my forecasts in the Existing and New Sales charts below, we are very close from entering a protracted period of the steepest year-over-year sales and price comps since 2006 with stiffest headwinds since 2013-14 (see two charts below).
Existing Home Sales 2015-17
New Home Sales 2015-17
Item 2) Bubble 1.0 Redux: Interesting quote from the California Association of Realtors about the housing market, which I believe they copied from Bubble 1.0 stories in 2005:
"Eroding affordability and tight housing inventory are pushing buyers away from the core Bay Area markets of San Francisco, San Mateo and Santa Clara and into less expensive bedroom communities, such as Contra Costa, Napa and Solano... In Southern California, an influx of buyers from coastal employment areas into the Inland Empire drove healthy year-over-year sales in Riverside and San Bernardino."
Item 3) Where I am looking once the 1% rate increase gets fully into the mix:
- Low- to mid-price bands continue to greatly outperform middle- to higher-end bands.
- Middle- to higher-end price band sellers will reduce prices to hit bids beneath the market, resulting in year-over-year price declines.
- Early year for demand similar to 2015 versus last year when demand literally and suddenly gapped higher in the spring on "historically low rates."
- Spring pending closings early summer will bring peak demand, with the remainder of the year underperforming 2016 comps.
- Prices down year over year once lagging price indices catch up to the market (still working out price comps; need a little bit more data).
- Builders will struggle with pricing power, margin pressure, etc., all year, as demand moves down in price band.
- Higher-end, leading-indicating, core markets will experience the greatest hit to pricing power, which may result in demand stabilization at much lower price points.
Originally published Feb. 21 at 2:55 p.m. EDT
Takeaways and Observations
Every single market indicator I look at is overbought.
But it's likely that shorts and underperformers are buoying stocks.
Some are at the most overbought in decades.
The bond market is clearly not as sanguine on economic growth/corporate profits as the equity market.
I am as convinced as I can be that consensus expectations for global GDP and S&P earnings growth are too optimistic.
More signposts of speculation.
"Trade of the Week"--Campbell Soup
Fannie Mae and Freddie Mac knee-capped on negative news at 2:40 p.m. ET--shares drop by nearly 40%. (This is another example of how things don't turn out the way Wall Street hopes!)
As of 2:30 p.m. ET, near the highs of the day.
* The dollar strengthened.
* The price of crude oil rose by $0.70, to over $54 a barrel.
* Gold fell by a buck.
* Ag commodities were mixed to lower: wheat -5, corn +2, soybeans -6.50 and oats -5
* Lumber fell by -2.50.
* Bonds fell in price in the morning and reversed midday (TLT -$0.10 now). The yield on both the 10- and 30-year was flat.
* The twos/10s spread also was unchanged.
* Municipals showed little price movement.
* Junk bonds caught a small bid.
* Banks higher--and at new highs.
* Insurance was up modestly. Added to Hartford Financial (HIG) - Get Report long.
* Brokerages strong, led by Goldman Sachs (GS) - Get Report . Added to GS short.
* Auto stocks benefited from a positive Barron's story.
* Old tech was lower, downside led by IBM (IBM) - Get Report .
* Homebuilders recovered, small.
* Big pharma was mixed with Bristol-Myers (BMY) - Get Report and Johnson & Johnson (JNJ) - Get Report up.
* Biotech lagged--down all day. Celgene (CELG) - Get Report weaker and value trap Gilead (GILD) - Get Report at new lows.
* Media mixed.
* Ag equipment dropped after Deere's (DE) - Get Report results.
* (T)FANG led by Amazon (AMZN) - Get Report and Tesla (TSLA) - Get Report (earnings after the close).
* In individual stocks, DuPont (DD) - Get Report and Radian Group (RDN) - Get Report had some profit-taking. Oaktree Capital (OAK) - Get Report was up a large fraction and Apple (AAPL) - Get Report made a new high.
Here are some value-added contributions to our site:
1. Jim "El Capitan" Cramer on the retail outlook.
2. Mark Nashville CatsSebastian favors Apple calls.
3. Mike Norman on "flows" into the economy--they are slowing.
4. Guy Ortmann finds bullish and bearish reversals.
5. Chris Laudani on a possible Sprint/T-Mobile merger.
Position: Long GLD, CPB large, HIG large, SDS, SQQQ, DD small, RDN; short SPY, CAT, GS, AAPL.
Action Alerts PLUS, which Cramer manages as a charitable trust, is long AAPL.