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Back to Work Wednesday

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Back to Work Wednesday

Screen Shot 2012 10 31 at 1.33.52 PM Back to Work Wednesday

(Picture from Gov. Christie’s Sandy page at Facebook)

Courtesy of Phil's Stock World 

Forget the insurance companies.

Yesterday they were saying $20Bn in damages but the NYC subway system alone may have more than $20Bn in damage. Who's insuring it? I have no idea. But things like that and the devastation along the Jersey shore, where single homes are worth well over $1M, and 100 miles of home-filled coastline was hit with record flooding, means we could, ultimately, be looking at $50-$100Bn worth of total (not all insured) damage from hurricane Sandy.

So we're not going to go bargain-hunting for insurance companies – it's a very hard group to pick winners and losers in, but some segments, like title insurers, tend to sell off with the group. Those can make for some good fishing once the dust settles.

At the moment, the futures are up slightly (8am), but only because the Dollar took a dive to 79.75 as the Euro broke over $1.30 . It remains to be seen if the Dollar will stay under 80 and the Euro will stay over $1.30 – otherwise we'll be back on the downward path very quickly.  The oil inventory report has been postponed until tomorrow and oil is back up at $86.35. With 1/3 of the country not driving or flying for a few days, don't expect a lot of fuel to be used in the NEXT report – this one only covers through Saturday.

 

In Europe, Unemployment remains stubbornly high at 11.6% for September, up from 11.5% in August with both Spain and Greece topping 25% unemployment.

Spain, for it's part, seems to have narrowed its deficit to 4.39% of GDP from 4.77% just a month ago, mainly on an increase in VAT taxes. VAT taxes are doing their trick and increasing revenues for the Government. The 5% drop in the deficit in the first month of a tax increase bodes well for Spain and gives credibility to the Government's resistance to the EU bailouts and their draconian terms.

We get our own Unemployment Report with the Non-Farm Payrolls on Friday morning. We're expected to have added 130,000 jobs in October, which would leave Unemployment at roughly 7.8% in the US – nothing to crow about but thank goodness we're not Europe!

Higher payrolls mean more demand for Dollars but not necessarily a strong Dollar, as the Fed has already made it clear that it will continue pumping money into the economy long after we don't need it anymore. Of course, if Romney is elected, he plans to replace Bernanke, presumably with someone more hawkish, and that could turn the Dollar up quickly, which would be bad for stocks and commodities in the short-run – so we'll keep an eye on that next Tuesday.

 

 

As you can see from the chart from the WSJ above, despite the little bump in the road we've been having, the S&P is still up 12.3%, year-to-date, while an admittedly modest recovery in new home sales has sent the Dow Construction Index (ITB) up 80.3%. That may seem like a lot, but it was down from 50 in 2006 to 6.50 in 2009 and only made it back to 12 at the beginning of this year, pretty much doubling with the rest of the market . Like XLF, it had taken a much harder hit and, even back at 20, is still down 60% from the top. Our housing market still has a very long way to go before it's back on track – at least another 50% to 600,000 annual starts and even that only replaces the nation's 110M residential properties at a rate of once every 183 years so it seems like a pretty good bet that new home construction should continue to trend higher and we'd love to add some ITB on a pullback ($19.50 is the 50 dma, $16.50 is the 200 dma but not likely to see that again).

 

The S&P/Case-Shiller index of property values in 20 cities rose 2 percent from August 2011, the biggest year-to-year gain since July 2010, after climbing 1.2 percent the prior month, the group said today in New York. The stabilization in values is rippling through the economy after the housing slump helped trigger the recession, supporting gains in consumer confidence and spending that are benefiting companies such as LOW and WHR.

“The housing recovery has had modest momentum,” said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, a subsidiary of the largest U.S. mortgage lender. “We still are looking for housing improvement and think that trend will continue.”

Over 25% of the nation's unemployed are in the construction industry.  If we can keep this momentum positive in 2013, it won't matter that much what Europe or Asia do as a housing recovery in the US will trump most other issues.

Meanwhile, we still have this mess to clean up, then the elections, then the fiscal cliff so let's not pop any champagne corks just yet…

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Thu, 11/01/2012 - 09:20 | 2937233 steve from virginia
steve from virginia's picture

 

I guarantee that nobody in America wants another Great Depression ... people will do whatever it takes to avoid one. If that means build an unneeded house, that house will be built.

 

If it means build another unneeded Pizza Hut, that Pizza Hut will be built. Credit expands by such means: from the standpoint of credit there is no such thing as 'unneeded'.

 

Whether the credit can be serviced by the use of the houses/Pizza Huts is another matter. Once funds are committed there is an implicit guarantee of additional funds to 'extend' and 'stretch out' repayment terms. The ceiling becomes the floor for each succeeding round of credit. What matters then is when is credit saturated, when every bit of available credit become service for existing loans ...

 

Time will tell whether we are at that point or not ... we won't know for sure until it is too late for anyone to do anything about it ...

 

...

Thu, 11/01/2012 - 08:20 | 2937073 Shizzmoney
Shizzmoney's picture

Oh, the poor plutocrats and their million dollar homes!

 

Thu, 11/01/2012 - 06:19 | 2936907 Henry Chinaski
Henry Chinaski's picture

Real estate is picking up in my area (Central Florida).  The four houses  that have been for sale on my street for many moons all sold recently.  Stuff is being built, homes, apartments, restaurants, and some retail, but only in the best locations.  Construction demand from the Sandy recovery is going to put upward pressure on materials and labor costs.  So yeah, ZIRP is working.  For now. 

Wed, 10/31/2012 - 22:09 | 2936456 Rastadamus
Rastadamus's picture

Christie 2016

 

Wed, 10/31/2012 - 22:49 | 2936552 cornedmutton
cornedmutton's picture

SMOD 2012

Wed, 10/31/2012 - 20:46 | 2936221 disabledvet
disabledvet's picture

Sandy is going to knock down housing big time. God forbid if another comes roaring up the East Coast. 'tis that time of year however. the losses from this storm are already staggering in the form of lost work time. this will cause a recession in New York City, New Jersey and Connecticut. This Mayor is a total failure obviously. Did he learn nothing from last year's storm? Obviously. Everything is disorganized...no one is appearing together. This is a total boondoggle. By the time the price gouging is done (just in time for the holidays!) no less than Wall Street itself will get a front row seat to how capitalism works "in your time of need." The insurance claims will be staggering as well. Those aren't poor people on the Jersey Shore. The Federal Government has insured that...meaning the taxpayer is on the hook. But still the debris must be cleared. Winter is coming so "let the check cutting commence." The President is making promises he obviously cannot keep. Nice photo ops though. Still making fun of all those "fire departments we never needed"? Yes, folks...there is a material downside to a paranoid police state...and now you see it. I still believe they all will rise above their egos and realize that working together is the only way forward. I find it interesting that STILL not one of them has called for that however. Is this everyone's first disaster? Would appear so. "The Government money will just appear"? Really? Praise be to the people who made it to work today is what i say. "Was a marathon just getting there" said one guy.

Wed, 10/31/2012 - 20:17 | 2936126 mendolover
mendolover's picture

I'm not buyin' it.  How the hell is a kid supposed to afford a house (never mind coming up with 20%) when she's totally buried by an unforgivable student loan?  And what's the average price of a wedding nowadays?  Not to forget how many dummies will be guilted into buying an overpriced and ridiculously expensive to maintain hybrid shitbox.  I have a nephew who just left college to teach English in Thailand.  We're hoping he can get my niece (60K student loan) a gig there, and just maybe they can make a go of it there for a while until maybe just maybe this place gets it's shit together.  We can only hope.

Wed, 10/31/2012 - 22:40 | 2936532 willwork4food
willwork4food's picture

You get a house by sucking up to the boss, stroking his chain or working 60 hours/wk for a 40/hr/wk salary which will suck for a few years.

Unfortunately, when the shtf, it might not be a good idea to be an American in a foreign country.They will not be happy campers when they get stiffed on their IOU's from treasury. Just sayin'.

Wed, 10/31/2012 - 19:48 | 2936050 nmewn
nmewn's picture

You call that work?

Algos can do that stupid job, oh...

Wed, 10/31/2012 - 19:27 | 2935998 Praetorian Guard
Praetorian Guard's picture

What a load of shit, housing is NOT, repeat, NOT coming back... How in the hell can housing go up when no one has a JOB???? Income is dropping like a rock. Do work for the NAR??????

Thu, 11/01/2012 - 07:12 | 2936935 Seize Mars
Seize Mars's picture

Depending on your view, it's either "getting worse," or it's "getting better."

Clearly the market's attempt to clear inventory can't happen until prices plummet, and it's actually advantageous for a buyer. So prices want to keep dropping. But the control freaks just can't seem to let it happen! So they will manipulate until it suits them.

My view, is that housing is a shit-show disaster and will only be getting worse - sorry I mean getting better. Mark 'em down, move the inventory. I will be standing on the curb with my checkbook open, waiting for the "real" price to emerge. Bring it!!!

Wed, 10/31/2012 - 19:22 | 2935995 ReeferMac
ReeferMac's picture

Thanks for sharing Phil.

Wed, 10/31/2012 - 19:06 | 2935958 I am Jobe
I am Jobe's picture

who wants to live in that dump hole NJ anyway?

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