Doug Kass of Seabreeze Partners is known for his accurate market calls and keen insights into the economy, which he shares in
"The Edge," his daily trading diary.
This week, he discussed how the housing sector was hitting bottom, why U.S. consumers could pull the economy out of its current malaise and what Thursday's jobless claims mean for a recovery.
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Housing Hitting Bottom, Ready for Rehab
Originally published on Aug. 25 at 11:23 a.m. EDT.
This morning's housing number was bullish for a residential real estate recovery in 2011.
Lost in the hyperbole surrounding the weak new-home sales data and the sizeable increase in the months of unsold inventory is the fact that the absolute level of homes for sale was unchanged (at 210,000 homes) last month.
Remember the months-of-supply metric is influenced by not only the absolute level of homes for sale but by monthly sales activity as well (which plummeted).
I would conclude, for the first time, that the turn in housing is closer than many believe, as the ongoing drop in new construction over the past two years is now being felt in the stability of the residential marketplace's inventory of homes for sale.
The U.S. housing market now appears to be coming closer to a balance between supply/demand.
The underproduction in 2008-2010, coupled with the likely maintenance of low interest and mortgage rates plus continued growth in population and in household formations, suggest that a recovery in housing could occur sooner in 2011 than many expect (particularly if shadow inventory trickles in but does not flood the market).
Changing My Tune on the Consumer
Originally published on Aug. 25 at 3:32 p.m. EDT.
I am in total agreement with Jim "El Capitan" Cramer regarding the consumer now.
After several years of believing that the U.S. consumer was spent-up, not pent up, I am changing my tune.
In fact, the consumer and the retail stock sector could conceivably lead us out of this economic and stock market malaise.
This is a big change for me, but as Keynes asked, "If the facts change, do you, sir?"
is what I wrote on the subject in Monday's opening missive:
And what about the common view that the consumer is spent-up, not pent-up? The bearish view that the consumer is the Achilles' heel to growth might be worthy of challenge. As Morgan Stanley noted late last week:
American consumers are deleveraging their balance sheets and rebuilding savings faster than expected. While debt/income is elevated two key metrics indicate that the deleveraging timetable is nearly a year ahead of schedule. Looking forward, the plunge in mortgage rates will likely push debt service still lower. And the headwind to consumer spending from deleveraging will be a smaller risk to the outlook, as consumers now can spend more of their income.We believe that 11-12% is a sustainable debt-service ratio, consistent with debt/income of 80-100%. The first of those goals likely is attainable by late this year, accompanied by real annualized spending growth of 2-2.5%, a personal saving rate remaining in a 5-6.5% range through 2011, and a 2009-11 contraction in consumer debt of about 8%. ... Lower debt service frees up discretionary spending power and makes consumers more creditworthy. Once achieved, a higher savings rate enables consumers to maintain spending, continue to pay down debt and accumulate wealth the old-fashioned way.
Jobless Claims Jive
Originally published on Aug. 26 at 9:22 a.m. EDT.
This morning's jobless claims report of 473,000 (vs. 495,000 consensus) should eliminate the doomsday recession scenario that
, David Rosenberg et al. have embraced.
Since most indicators of jobs growth appear more positive than the last three months' jobless claims reports, it is reasonable to surmise that this indicator has been artificially influenced by unemployment extensions, claims filed by former census workers and, according to several strategists, seasonal-adjustment issues.
If the stock market sells off this morning, I would add further to my long equity exposure.
The still-high claims number appears to be consistent with roughly 50,000-a-month payroll growth. As we move closer to the election, I expect that claims during the next few months will be around 425,000 to 450,000, which would translate to 75,000-a-month payroll growth.
More and more the election looks like a game changer for the jobs and capital markets. The midterm elections now look likely to record a red (i.e., Republican) result, providing a watershed effect on consumer and business confidence and a repudiation of the President's initiatives and agenda.
The market will likely react favorably to the potential for this political and confidence-changing development well in advance.
Doug Kass is the general partner Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.