*Disclosures: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.
Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.
Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.
Fed Presidents, who by the way have been creating an excessive amount of "dead presidents" (vernacular substitute for dollars) lately, still remain cautious on the economic recovery and more or less admit that the challenges of high unemployment, dependency of financial institutions on government stimulus life support, and weakness in commercial real estate have yet to be overcome.
Gleaned from Reuters news at Yahoo Finance is the following excerpt attributed to San Francisco Fed President, Janet Yellen:
"High unemployment, weak job growth and paltry wage increases are a recipe for sluggish consumer spending growth and a tepid recovery," said Yellen.
The Fed chopped overnight interest rates to near zero in December and it has pumped more than $1 trillion into the economy to spur a recovery from the deepest downturn since the Great Depression.
Last week, it reaffirmed its commitment to keep borrowing costs ultra-low for "an extended period," and financial markets will be listening to Fed officials closely to try to gauge when they may finally move to withdraw their economic support.
Whether the private sector can pick up the slack once the government boost is gone also remains to be seen, Yellen said.
While comments from her Atlanta counterpart, Dennis Lockhart, cover the following:
Lockhart, speaking at a Urban Land Institute conference in Atlanta, Georgia, said he believed the economic recovery was under way but added he expects the pace of growth to be "relatively subdued" in the medium term.
"The situation is much improved, but there are sobering aspects of the economic picture," Lockhart said, noting that the economy has been supported by temporary government programs and that data on bank failures, foreclosures, unemployment and personal income "continue to disappoint."
I believe that comments from both of these Fed presidents accurately assess the current economic environment and give the Fed plenty of cover to maintain ZIRP (zero interest rate policy).
*Disclosures: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.
Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.
Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.
The latest Case/Shiller report dominated Tuesday’s news for the real estate industry as its index rose 1.2% in July and indicated that home prices in 20 U.S. cities rose the most in 4 years. For investors bullish on recovery and real estate stocks, this is probably music to the ears. The XHB (S&P Homebuilders Index ETF) was up +1.79%.
This is all fine and dandy, but for the rest of the story, I encourage readers to defer to Laurie Goodman of Amherst Securities. In her video interview with Bloomberg television, she shares her analysis on the impact of residential real estate’s shadow inventory on supply and housing prices.
Here’s a bullet list of the most important points of her analysis:
7mm homeowners in the U.S. are currently not paying their mortgage
Statistically once one is down 30 days, the probabilty for recovery shows a 25% chance if 1 payment is missed, a 5% chance if 2 payments are missed, and a 1% chance if 3 payments are missed
Out of 56mm homes, the current situation exists where 13.5% of these have missed at least 1 payment which translates into a source of 7mm potential defaults
Option ARMs (adjustable rate mortgages) are due to reset at the beginning of the year
Bulk of subprime defaults have already occurred, but now the prime market is exposed to default risks
Only actual listings of defaults are being accounted for, but missing from the puzzle are notices of default, bank owned REOs, and auction listings
In the event that any of the above comes to fruition, then the bottoming process for residential real estate could last longer than many economic cheerleaders are shouting
For the entire "rest of the story" in greater detail, check out the 4 minute video below and make your own conclusions.
Related Securities: XHB and ITB
*Disclosures: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.
Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.
Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.
A lot of very optimistic market pundits have either refused to acknowledge or downplayed the critical health of the American consumer. Tuesday’s retail sales report was a bit frothy and contradicted the earnings results delivered by Best Buy (BBY) or cautious comments from Kroger’s (KR), a consumer staples industry company.
Well now, in reading Bloomberg’s report on "American Consumers Plan to Limit Spending on Recovery Concerns", it appears that consumers are telling the economists to speak for themselves as they give a picture of the real deal in a recent survey poll:
Americans plan to refrain from boosting their spending even after the biggest drop in consumption since 1980, signaling concern about the direction of the economy over the next six months.
Only 8 percent of U.S. adults plan to increase household spending, almost one-third will spend less, and 58 percent expect to “stay the course,” a Bloomberg News poll showed. More than 3 in 4 said they reduced spending in the past year.
Respondents were divided over whether the economy will get better or stay the same in the next six months; only 1 in 6 said things will get worse. More than 40 percent of those surveyed said they feel less financially secure than they did when President Barack Obama took office in January, outnumbering 35 percent who said they feel more secure.
“People I never thought would lose their jobs have lost their jobs,” said Angela Payton, 42, a university publications editor in Florence, South Carolina. She kept her children out of summer camp, stopped buying organic milk and plans to curtail the party for her daughter’s 6th birthday in November.
In the poll, conducted Sept. 10-14, 40 percent of those questioned said they have experienced one or more problems from the banking crisis. In the most-often cited repercussions, 27 percent said their credit-card interest rates have risen dramatically and 15 percent report that they couldn’t get a home-equity, car, or other kind of consumer loan.
*Disclosures: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.
Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.
Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.
For the record, I deplore the antics of "Monday morning quarterbacks" in any shape or form whatsoever and fully acknowledge and respect the challenges of forecasting the economy and capital markets. But, whenever there exists an incredible gulf between perception and reality, even I cannot resist venting. So here goes nothing or everything…
Tuesday’s July-2009 Consumer Credit report @ -$21.6bn missed the consensus estimates @ -$4bn by margins that reflect a Wall Street being completely out of touch with Main Street’s economic reality. For me, the final straw was June’s revision to -$15.5bn vs. a previously reported -$10.3bn. Such wide discrepancies lead me to speculate that some of these venerated economists have been frequenting Venice Beach’s House of Kush (a medical marijuana dispensary located a few blocks north of the law office building from which I lease my office space) just a few times too many.
How these econo-geeks failed to connect the dots is beyond me. If this is simply a case of mental laziness, then referencing Gallup’s Daily U.S. Consumer Spending reports should have provided some minimal clues. If one were to liken Gallup’s Daily U.S. Consumer Spending graph to an EKG report, the rendered diagnosis would be along the lines of "patient in critical condition and to remain on life support".
If it looks like I am kicking a dead horse, then it is only because there are still some people out there who just don’t get the following underlying reasons for the dismal consumer credit report:
1) The job market sucks. The reported national unemployment rate is @ 9.7% (never mind the fact that real unemployment is at least north of 16%). Sure, it is a lagging indicator, but an inventory restocking cycle or a government stimulated cash for clunkers program are inferior to organic job growth in terms of sustainable economic recovery. Jobs create income which yields discretionary income and/or sufficient cashflow to service consumer debt. These days, people are avoiding debt voluntarily and involuntarily. Deleveraged household balance sheets have their own welcome mat in the new world order.
2) When jobs are lost or job stability looks tenuous at best, consumers rely upon the stand-by safety nets of nest egg savings or access to credit, both of which have been either removed or diminished. The primary and preferred investment savings vehicles for most individuals and families are residential real estate and equities in some form or another (e.g. 401ks, other retirement savings programs, and mutual funds) and neither of these asset bubbles is even close to full reflation and fundamentally speaking, nor should such be desired any time soon. Regarding credit, banks are very cautious about their lending exposure and risk management forces them to sandbag dry powder for future potential writedowns. In the old world order, consumers abusing the steroids of easy credit could easily perform the heavy lifting of a 70% contribution to GDP. Even with the Fed offering a spot, consumers find themselves straining to lift any amount of debt.
3) The force, as in demographic force, is not with thee (i.e. out of sync with expansion of consumer credit). Baby boomers happen to represent the largest generational group of the U.S. population as well as the largest population segment of consumers engaged in discretionary spending. Gallup Polls reveal that boomers’ average daily spending is down @ 35% since 2008. Alas, household balance sheets, like aging atheletes, can only endure so much stress associated with leverage before the wisdom of age kicks in and says "enough is enough" and ultimately arrives at the conclusion that "he who has the most toys is a bankrupt jackass".
Well that’s my three cents for what it is worth. Apparently, the stock market did not think much of the implications for Tuesday’s consumer credit report as it logged in its 3rd consecutive day of positive gains. However, I would lay my head on a chopping block that this report is a cause of concern for the Fed since the results completely refute its vain and desperate policies to stimulate spending (at all costs and by any means necessary).
*Disclosures: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.
Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.
Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.