With Louisiana and its oil facilities apparently avoiding the worst after Hurricane Katrina lost some of its strength, oil retreated below $70 per barrel and stocks moved higher Monday. But while oil's tax on growth was forgotten for a day, there was more bad news for the economy's key driver, housing.
It came mostly from
Chairman Alan Greenspan, who predicted over the weekend that real estate would soon "simmer down" and that home prices could decline.
In addition, Merrill Lynch issued a note to clients that referred to "record" insider selling in homebuilding stocks over the past 10 months, even in the absence of sell ratings from major Wall Street firms. That trend, says Richard Bernstein, Merrill's market strategist, mirrors what happened to tech stocks in 2000, the year the tech bubble burst.
Still, oblivious to the historic resonance, the stock market cheered that the price of oil came down Monday, closing at a meager $67.20 on a gain of $1.07 on Nymex.
Dow Jones Industrial Average
gained 65.76 points, or 0.63%, to 10,463.05. The
rose 7.18 points, or 0.6%, to 1212.28. The
advanced 16.88 points, or 0.8%, to 2137.65.
The benchmark 10-year Treasury bond, which first rallied as oil prices surged, still closed with a gain of 3/32 while its yield fell to 4.17%. The bond market has been rallying during August on the prospect that oil prices will curb consumption and growth.
It may take days to estimate Katrina's impact on oil production and refining installations in the Gulf of Mexico. But it may take years to recover from a severe slowdown in consumption caused by soaring gasoline prices.
Even if crude oil prices come down from current levels, there is increasing evidence that high energy costs are hurting consumers. Consumer confidence is waning fast, and
and other retailers have warned that this is depressing sales.
And, of course, the formidable cash machine provided by ever-rising home equity over the past three years could run out of steam.
During his farewell speech at the Jackson Hole, Wyo., economic symposium Saturday, Greenspan warned that his successor will have to deal with future inflationary pressures stemming from the U.S. budget deficit.
But, "nearer term, the housing boom will inevitably simmer down," Greenspan said. "As part of that process, house turnover will decline from currently historic levels, while home-price increases will slow and prices could even decrease."
Consumption, fueled by home-equity extraction, also will wane, he said, although "the estimates of how much differ widely," Greenspan said.
The speech was another downer for the stocks of homebuilders, which have taken a beating recently. The Philadelphia housing index first dropped to a low of 513.17 before bouncing back to close at 519.91, up 0.14% on the day. Still, the index is down more than 11% since late July.
That might just be profit-taking for many investors in homebuilding stocks. But it appears that many of the executives of homebuilding companies have been active sellers of their own stocks for quite a while.
"Executives might simply be diversifying personal holdings, but we think there is a strong contrary message in that they are now doing so at a record pace across nearly the entire industry," says Merrill's Bernstein.
The commonly cited reason for such insider selling is that after an extended period of stock outperformance, executives need to diversify their holdings.
Bernstein says it's not a valid point. Outside of the homebuilding sector -- which is only the fifth best-performing sector in the stock market -- there has not been no consistent pattern of insider selling.
saw the largest volume of insider selling they'd had in 20 years.
had theirs in June, according to Merrill research.
"Such insider behavior seems to mimic that of the technology sector around the peak of the technology bubble in March 2000," Bernstein says.
Around that period, companies such as
( CMGI) ,
saw their heaviest volume of insider selling in 20 years.
Most tech stocks subsequently lost an average of 80% of their value over the two years that followed the bursting of the tech bubble.
In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;
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