(There Is Very Little ) Consumer Confidence

This is, of course, an attempt to gauge how confident consumers are about current economic conditions and about the future. Analysts really only try to predict the Consumer Sentiment portion of the index (and they're looking for 73.0, down from December's 74.5), because that's the snapshot of overall consumer attitudes, but it is still useful to look at the Consumer Expectations Index (67.5 in December) and the Current Conditions Index (85.3 in December).

So, how did we do? Well, the Thomson Reuters/University of Michigan release is titled "Rising Prices Worry Consumers". That is a proverbial inauspicious start. The Consumer Sentiment Index came in at 74.2 (beating expectations, but down from last month), while Consumer Expectations rose to 69.3 and the Current Conditions Index fell to 81.8. Here's a few other data points to mull over:

• Only 22% of all consumers surveyed expect the unemployment rate to increase during 2011.
• The majority of consumers surveyed do not expect their income to increase in 2011; stagnating or falling household incomes are expected, particularly once income is adjusted for inflation.
• The majority of consumers, who are having to pay more for food and fuel, are not impressed with core inflation.
• Increased household durables and vehicle prices are lowering consumers' buying attitudes, particularly among higher income households.

The Street may like the fact that Consumer Confidence beat expectations, but it's hard to see the overall comments as a win.

Do You Know Someone With An AOL E-Mail Account? Help Them.

Reluctant as I am to credit anything the Huffington Post says as having accuracy, this particular news item actually comes from quoting an article in the New Yorker. Accessing the original article requires a paid subscription, so I'll just quote the relevant section from the HuffPo article: "The company still gets eighty percent of its profits from subscribers, many of whom are older people who have cable or DSL service but don't realize that they need not pay an additional twenty-five dollars a month to get online and check their e-mail. 'The dirty little secret,' a former AOL executive says, 'is that seventy-five percent of the people who subscribe to AOL's dial-up service don't need it.'"

(80% x 75%) = 60% That means that, assuming that the New Yorker article is accurate, 60% of AOL's revenue come from people who actually have no need for their service. As BusinessInsider.com points out in "An Apology To AOL" (in which, probably in response to somebody's lawyers, they retract their original description of this as a "scam"): "Now, no one is suggesting that AOL is actively misleading any of these people about the need to keep paying, and in the past AOL has been quire forthright with subscribers about how they can switch to cheaper (or free) subscription plans. But if Auletta is right - if most of AOL's remaining subscribers don't realize that they don't need to pay to get their email - it does raise some ethical questions about what lengths AOL should go to to alert them to this."

I would add that it also raises questions about how long AOL will remain a company with a viable business model.

The US Will Destroy The Global Economy. Also, GDP.

Gross Domestic Product - specifically, the initial GDP estimate for Q4 2010 - is the big news for the morning. And since GDP is a measure of the entire economic output of the country - consumer spending, private sector spending and production, and government spending - this is a huge one. Q3 hit a final result of 2.6% growth, and the GDP Price Index (a measure of inflation) came in at a final 2.1%. For Q4, the analysts are optimistic. They're looking for a 3.5% increase, with the price index increasing only 1.5%.

Less spectacular, but also due out at the same time, is the Employment Cost Index. Employees are a substantial expense for businesses, and this index measures the increase or decrease in total employee compensation (wages, salaries, and benefits). There is no particular expectation for the index, but investors will be watching this not just because it will show increases (or decreases) in employer costs, but also because it can indicate whether or not we are experiencing wage inflation. If wages are rising substantially faster than inflation, it increases the odds that interest rates will rise as the Fed tries to suck money out of the economy.

Based on comments from the Fed (and from other sources), my prediction is that the ECI will be up by a small amount.

And while we wait, let's turn to the Chinese rating agency, Dagong Global Credit Rating[1], for an outsider's perspective on the current world economic situation. In their first annual global sovereign credit risk outlook, they are predicting that the developed nations will be the next "major source of global sovereign credit risk in 2011", in the following stages:

1. The financial needs of developed debtor nations will rise, and their debt will continue to expand. Most will have financing requirements as large as 20% of GDP, and debt servicing will account for about two-thirds of their total financing requirements.
2. Weak economic growth and an inability to eliminate structural deficits will both further increase the debt of developed nations and will make it impossible to maintain the solvency of the developed debtor nations. Interest rates will rise and lenders demand increased reward for the risks they assume.
3. Default is not seen as a risk, but more countries (particularly in Europe) will be forced to ask for bailouts in 2011.
4. I'll just quote this one: "Fourth, the United States, as the biggest country involved in sovereign debt crisis around the world, will continue its quantitative easing policy when the country is in danger, and the world credit war will be escalated due to the overflow of US dollars. In particular, the trend of continuous depreciation of US dollar will result in haircut of international creditors' debts dominated in US dollar. The issuance of US dollar encourages numerous speculative capitals into the global commodity market, leading to an increasing pressure on global inflation. Different countries, in order to avoid unpredictable losses on their own interests, will have to seek for adjustment of international credit relations, and the global credit war, no doubt, will become the turning point of reforming international credit relations in 2011."[2]
5. The extremely loose monetary policy of the developed debtor nations cannot and will not be substantially changed in 2011. The excess global liquidity that results is a potential disaster for developing nations; expect to see housing prices fall, emerging market economies slow down, and exchange rates depreciate. In some extreme cases, look for political crises.

And with the end of western civilization predicted, let us turn now to the Bureau of Economic Analysis for the Q4 2010 initial GDP estimate. Failing to meet expectations by a small amount, GDP is estimated to have increased 3.2% in Q4 2010. Mostly on personal consumption expenditures, exports, and nonresidential fixed investment. Also imports, which have a negative impact on GDP, decreased. The price index missed expectations more significantly, increasing 2.1% in Q4. These are far from final numbers, though. Next month we'll get an initial revision, and then March will provide a final revision.

Turning to the Bureau of Labor Statistics, we also have the Employment Cost Index news. Compensation costs for civilian workers increased 0.4% in the month of December. for the year, they're up 2.0%, a greater increase than the 1.4% in 2009. Most of that came from a 2.9% increase in benefit costs, while compensation costs increased 1.5% (mostly driven by retirement costs). Compensation costs for private industry workers increased 2.1% for the year, while compensation costs for State and local government workers only increased 1.8%.

{1] Which has rated China's sovereign debt at AA+, and US sovereign debt at A-.

[2] In other words, they expect the US to continue to crank out dollars by the billions, devaluing the currency. Existing Treasury bond holders will suffer as a result, because their loans will be repaid in debased currency. This will drive inflation on a global scale, because the US dollar is the reserve currency of the world.

Ifo Business Climate Germany

The Ifo Business Climate Indices have been released, and things look pretty good. The overall climate index rose 50 bps to 110.3, the situation index fell 10 bps to 112.8, and the expectations index rose 100 bps to 107.8. The manufacturing sector is particularly confident, showing strong gains in their subset of the index. The wholesaling and retailing sectors are less optimistic overall, and the construction sector is actually still pessimistic (although noticeably less pessimistic than it was at the end of December).

Municipal Bond Risks discussed on CNBC

Anyone remember Meredith Whitney[1] on 60 Minutes last month? She didn't cause the municipal bond not-quite-a-panic, but she became the public face of it. "There's not a doubt in my mind that you will see a spate of municipal bond defaults. You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars worth of defaults."

CNBC, not to be outdone, had Jim and Alexandra Lebenthal[2] on WSJR With Maria Bartiromo on January 21, 2011 to talk about some of Ms. Whitney's statements and the bond markets in general. I've included some excerpts here, but watch the whole thing some time. It's instructive.

Please note that I've only summarized the questions. Any answer in quotes is as accurate a transcription as possible.

Q: Could 50 - 100 jurisdictions go broke as Meredith Whitney predicts?

Alexandra: "We [municipal bond experts] just can't figure out where that number is coming from. Now let's put that in perspective for a moment. If you look back at the number of defaults from 1970 to 2009, there were four cities and states that declared bankruptcy. And clearly we had some very significant recessions over that time. Not as great as now. And even if you look at the number of total bankruptcies in municipals which includes revenue bonds backed by a specific project, that number goes up to about 54. By comparison you had 1700 corporate defaults. So the numbers don't make sense."

Q: What do investors in muni bonds need to understand about the chance of a default?

Jim: "Let me put it in perspective. We're talking about a security that has a payment record second in safety only to the United States government itself. We're talking about bonds that are paid from the first dollar in the city's treasury - not the last - or, in the case of revenue bonds, that are backed by the power of the authority to charge for a necessity of life. We're talking about communities - state and local governments - that exist in perpetuity. We're talking about projects, necessities of life, that the community can't live without. So we're talking about something that is so essential to the ongoing well-being of the nation that to be talking about massive defaults is the equivalent of talking about the meteors, the downfall of Rome, and the end of Western civilization."

Q: So what happens when there isn't enough money?

Jim: "Services get cut. Services are the first things to go. The bonds are the last things to go."

Alexandra: "If you look at the statistics, on average debt represents about 4% to 5% of a municipality's budget. So it is not a major item."

Jim and Alexandra also made some common sense recommendations about what can be done to minimize risk when buying municipal bonds:

• Look at AA and AAA rated bonds. That will help you avoid risk.
• Look at ETFs and mutual funds to diversify risk.
• Look for bonds that are for an essential public service - sewers, school districts, roads, and so on.

So, are Jim and Alexandra Lebenthal right, and Meredith Whitney wrong? It's - obviously - impossible to say right now. But it's probably safe to say that the two municipal bond analysts and traders understand the municipal bond situation better than an equity analyst and trader.

[1] Who is Meredith Whitney, and why do we care what she says? According to Wikipedia, she manages Meredith Whitney Advisory Group, LLC., which produces company-specific equity research on financial institutions and analyzes the sector's operating environment. She first caught attention for here extremely bearish (but accurate) report on Citigroup back in October 2007. Forbes.com listed her as the second best stock picker in the capital markets industry in 2007.

[2] Again, who? And why do we care? They are the owners and operators of Lebenthal & Co, LLC. Amongst other things, they are municipal bond analysts and traders.

Durable Goods Orders! Jobless Claims!

We've got two major sets of data points out now, so let's see if there will be more joy in the US than in Japan this morning.

First off, Durable Goods Orders. We're about to look at the December 2010 figures, and analysts are looking for substantial improvement. November saw a revised decline of 0.1% in orders, or a revised increase of 4.5% in ex-transportation orders. For December, the analysts are burning incense to Plutos Catachthonios and hoping for a 1.5% increase in new orders. And does the US Census Bureau disappoint us? Yes. Yes it does. Durable goods orders declined 2.5% for the month (ex-transportation, they were up a tepid 0.5%). The transportation sector was the biggest loser (new orders down 12.8%), with nondefense aircraft the biggest loser in the sector (down 99.5%[1]).

So, what about First Time Jobless Claims? Will that make the markets happy? We did really well last week - even after revising the figures, we had a better than expected seasonally adjusted 403,000 new claims. Unfortunately, there is no joy to be found in the news from the US Department of Labor, either. Seasonally adjusted, the week ending January 22 saw 454,000 initial jobless claims[2]. The seasonally adjusted insured unemployment level[3] is 3,991,000 (up 94,000) as of the week ending January 15, with the insured unemployment rate at 3.2%.

In domestic news, does anyone remember me talking about the Iraqi Dinar? Good. There is related news, with the US Commodity Futures Trading Commission using provisions in the Dodd-Frank Wall Street reform law and the 2008 Farm Bill[4] to file suit against 14 foreign exchange dealers. The suits allege that the firms named illegally solicited members of the public to engage in foreign currency transactions, and that they operated without being registered with the CFTC. The CFTC is looking for civil monetary policies, as well as trading and registration bans. DinarTrade is not one of the companies named.

[1] Not a typo.

[2] Interestingly enough, the unadjusted numbers came in at 482,399 for the week ending January 22. That's down from the week ending January 15, and also down from the 502,710 initial claims for the comparable week in 2010. Go figure.

[3] I haven't really discussed this figure before. The insured unemployment level is the number of persons who are currently receiving state unemployment insurance payments. It is not used in any way as a measure of actual unemployment, because not everyone who is unemployed receives unemployment insurance benefits.

[4] No, I'm not sure what farming has to do with it either.

Morning Metrics!

Our typical jaunt round the globe begins in Japan, where last night at 6:50 PM EST their Merchandise Trade figures were released. This is more or less the same thing as the US Trade Balance figures, and looks at the trade deficit or surplus on tangible goods and services. The consensus estimate was for a surplus of ¥450 billion in December (up substantially from November's ¥151.1 billion). Analysts were also looking for annual imports to hit a 9.5% increase, while imports were expected to increase 12.3%. In actuality, the December trade surplus was ¥727.7 billion (whupping estimates), while 2010 exports finished up 13.0% and imports finished up 10.5%.

The Japanese markets would be far happier about this if Standard & Poor's hadn't cut their long-term sovereign debt rating to AA-.S&P's reasoning is that "In our opinion, the Democratic Party of Japan-led government lacks a coherent strategy to address these negative aspects of the country's debt dynamics, in part due to the coalition having lost its majority in the upper house of parliament last summer." The yen dropped and credit default swaps widened on the news.

In further Asia-related news, Representatives Sander Levin, Tim Ryan and Tim Murphy are planning to reintroduce the Currency Reform for Fair Trade Act when the House returns in February. This act would allow the Commerce Department to treat undervalued currency[1] as a subsidy under US trade law. This would allow companies to seek higher duties against imports from the nation with the undervalued currency[2] if those imports compete with US production.

In addition, the China Securities Regulatory Commission has drafted a consultation paper outlining rules that will allow qualified foreign institutional investors to invest in the Chinese stock index futures market. The investments can only be used as a tool for hedging, not for arbitrage or speculation, and the QFIIs will not be allowed to issue derivative products on the stock index futures.

Turning to Europe, German CPI was released at 8:00 AM EST. For January 2011 the consensus expectation was to see CPI fall 0.4%, and it beat expectations by falling 0.5%.

[1] coughcoughyuancoughcough, at least as far as the authors of the bill are concerned.

[2] coughcoughChinacoughcough, at least as far as the authors of the bill are concerned.

Taco Bell Meat, the US Budget Deficit, and The Invisible Hand Of The SEC

Let's start right off with Yum! Brands getting sued. The Beasley Allen law firm has initiated a consumer rights class action lawsuit against Taco Bell Corporation (a subsidiary of Yum! Brands), challenging "Taco Bell's practice of representing to consumers that its restaurants serve 'seasoned ground beef' or 'seasoned beef' filling in its products".Apparently, the "seasoned ground beef" is actually only around 35% beef. The other 65% is: "water, isolated oat product[1], salt, chili pepper, onion powder, tomato powder, oats (wheat), soy lecithin, sugar, spices, maltodextrin, soybean oil (anti-dusting agent), garlic powder, autolyzed yeast extract, citric acid, caramel color, cocoa powder (processed with alkali), silicon dioxide (anti-caking agent), natural flavors, yeast, modified corn starch, natural smoke flavor, salt, sodium phosphate, less than 2% of beef broth, potassium phosphate and potassium lactate."

In less entertaining news, the CBO has projected that the US budget deficit will hit $1.48 trillion in fiscal 2011, up from the $1.07 trillion estimate they made back in August. Most of it is driven by the fact that their August projections assumed that the Bush-era tax rates would expire at the end of 2010 (as originally planned). In actual dollars that is an all-time record. As a percentage of GDP (9.8%) it missed the 10% of GDP that the budget deficit hit last year.

Adam Smith is currently experiencing the not-so-invisible hand of the market right now. He is the latest and 18th person to plead guilty in the Galleon insider trading case. You'll be glad to know that he has also apologized[2] for what he did. "I knew what I was doing was wrong," he said, hoping his performance will be sincere enough to keep him from getting 20 years in prison, "and am forever remorseful about this terrible mistake.'[3] Also, most likely in hopes of not doing hard time, he is "cooperating with prosecutors"[4]

[1] Say what now? "Isolated oat product" is, according to the specification sheet for RightFiber™ Oat Fiber, "a fine fiber product made from oat hulls". In other words, it's the nearly undigestible part of the oat that is removed after harvesting. Very similar to the psyllium seed husks used by Metamucil and other laxatives, although (obviously) from a different plant. So if you're one of the people who has to run to the bathroom after running for the border, now you know why.

[2] The current trend in crime. Do a bunch of illegal things. Get caught. Apologize. Maybe go into rehab as well.

[3] Mistake? I do not think this word means what you think it means, Mr. Smith. Mistake can mean "an error in action, calculation, opinion, or judgment caused by poor reasoning, carelessness, insufficient knowledge, etc." or "a misunderstanding or misconception". You might be able to use material non-public information once or twice by mistake, although I'm skeptical that any associated person of a hedge fund could really claim "mistake" in regards to that. You really can't use material non-public information for a period of six years, allowing your boss to rack up $45 million in proceeds from illegal trades, by mistake.

[4] Translation: narking on Raj Rajaratnam for all he's worth, trying to reduce his sentence as much as possible.

Brace Yourself For The Shock...

The FOMC has spoken.

The committee has confirmed that the economic recovery is continuing, but not enough to improve the labor market. They like the improvement in household spending, but they dislike the fact that household spending is being "constrained by high unemployment, modest income growth, lower housing wealth, and tight credit". They do expect longer-term inflation to remain stable, for what that's worth.

But let's cut to the chase, shall we? Because of all of this, the federal funds rate will be maintained at a target range of 0% to 1/4%. In addition, they plan to purchase $600 billion worth of longer-term Treasury securities by the end of Q2 2011.

Oh. It also appears that Thomas Hoenig once again dissented. No shock there.

Memento Mori. Plan Appropriately.

Probably the single most common concern people have when talking to brokers is retirement planning, and probably the single most common question when talking about retirement planning is "how long should I plan for"?

 

Well, to help with that planning, here are some figures from the Center for Disease Control about average life expectancy, by age and sex, for people who live in the United States.  This should prove to be both helpful and informative, and sobering and morbid.

 

Age	Total	Male	Female
0	77.7	75.1	80.2
1	77.2	74.7	79.7
5	73.3	70.8	75.8
10	68.4	65.8	70.8
15	63.4	60.9	65.9
20	58.6	56.1	61.0
25	53.9	51.5	56.1
30	49.2	46.9	51.3
35	44.4	42.2	46.4
40	39.7	37.6	41.7
45	35.2	33.1	37.0
50	30.7	28.8	32.5
55	26.5	24.7	28.0
60	22.4	20.7	23.8
65	18.5	17.0	19.7
70	14.9	13.6	15.9
75	11.6	10.4	12.3
80	8.7	7.8	9.3
85	6.4	5.7	6.8
90	4.6	4.1	4.8
95	3.2	2.9	3.3
100	2.3	2.0	2.3

 

So, let's put that into practice.  Let's say you're a 35 year old man, who wants to retire at age 66.  Checking the chart, you see that you can expect to live another 42.2 years (on average).  You plan to work for another (66 - 35) = 31 years, so you need to plan for at least (42.2 - 31) = 11.2 years.  But wait, there's more!

 

Skip ahead to the "age 65" row.  If you, our hypothetical 35 year old male, actually make it to age 65 then it turns out you should have actually planned for at least 17.0 years.  That's your actual, anticipated remaining life span at age 65.

 

But,if you then survive that full 17 years (making you age 82), you find that statistically you've got about another 6-7 years left in you.  And if you survive those years, making it to age 90, you've still statistically got 4.1 years left in you.  This rapidly turns into an attempt to murder the tortoise in Zeno's Paradox, but it illustrates the difficulties of knowing exactly how long you should plan for.

 

This is not to say that this chart is useless.  It still gives you a frame of reference, after all.  It lets you know that if you're 35, and you want to retire at age 66, you have to plan for at least 11-12 years of living on your retirement assets.  But plan for a best case, and assume you'll live at least 50% longer.

 

After all, it's memento mori.  Not memento mori primum.

New Home Sales

About an hour ago, I indicated that the analysts were looking for 300,000 new single-family home sales in December 2010.  Since then, the US Census Bureau has released its official report, and we actually hit a seasonally adjusted 329,000 (up from November's 280,000 but still behind December 2009's 356,000).  The median price of new homes sold in December was $241,500, while the average price was $291,400.

 

So yeah, that'll bring a little happiness to the markets.  Can you smell the sweet, sweet scent of trickle-down economic impact?

Market News That Isn't The State Of The Union

Yeah, sure, the State of the Union and its promises of job creation and freezes in government spending and reductions in corporate taxes has excited the market.  But that's not everything that's going on today.  What else is happening?

 

Well, let's start off with Monday's approval for a $150 million settlement with the Securities and Exchange commission.  The SEC had originally filed two lawsuits against Bank of America, alleging that the bank had misled shareholders about Merrill Lynch bonus payouts (about $3.6 billion) and losses (around $15.8 billion) when they were persuading shareholders to approve the purchase of Merrill Lynch.  The approval of the settlement ends BofA's legal battle with the SEC, but US District Judge Rakoff seems to have made it clear that he doesn't really care for the settlement.  He stated that it was clear that BofA failed to adequately disclose the scope of Merrill's losses or bonus payments - "a prudent bank shareholder, if informed of the aforementioned facts, would have thought twice about approving the merger" - and indicated that he approved the settlement only because the law requires him to give "substantial deference to the SEC in these matters.  Both Bank of America and the SEC are reported to be pleased with the results, but legal experts believe that the scathing acceptance will actually serve as both guidance and ammunition for additional lawsuits against Bank of America.

 

In a separate suit, Bank of America has agreed to pay $10 million to settle SEC charges that "first, Merrill's proprietary traders misused institutional customer information which was improperly disclosed by the firm's market makers.  Second, Merrill traders improperly charged mark-ups and mark-downs on certain riskless principal trades[1] of institutional and high net worth customers for which the firm had agreed to charge only a commission equivalent."  The settlement is largely considered a slap on the wrist.  But, before you get outraged by this, consider the fact that this Equity Strategy Desk hasn't operated since BofA took over Merrill, so BofA is paying a fine for something they didn't actually do.

 

The SEC is also looking into changing the legal definition of an "accredited investor".  Currently, anyone with a net worth of more than $1 million qualifies.  The proposed new definition, while leaving the $1 million threshold intact, would require the value of an individual's home to be excluded from the net worth calculation.  The change is proposed to bring securities regulations into compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the proposal is open for comment until March 11, 2011.

 

Toyota, which is still struggling to no longer known as the Russian joke company[2], has announced that it will recall over 1.7 million vehicles worldwide.  1.34 million vehicles are being recalled because of a faulty fuel pump and connecting pipe[2], and 335,000 Lexus vehicles are being recalled due to a faulty fuel pressure sensor.

 

New Home Sales figures are due out at 10 AM, and the consensus estimate is that sales will climb to a level of 300,000 units for December 2010.

 

The FOMC announcement is due out at 2:15 PM EST.  The markets will no doubt hold their collective breaths, then relax when the Fed announces that they will not change anything.  Expect to hear that they are glad to see economic optimism, but remain concerned about unemployment.  You know, the same things they always say.

 

[1]  According to FINRA, this is "a transaction in which a member after having received an order to buy (sell) a security, purchases (sells) the security as principal and satisfies the original order by selling (buying) as principal at the same price.

[2]  "In Soviet Russia, the car accelerates you!"

[3]  Toyota's second biggest recall for a single defect.

Consumer Confidence

Last month, we saw evidence of a decline in consumer confidence.  The actual Consumer Confidence Index dropped to 53.3, while the Present Situation Index was at 24.9 and the Expectations Index was at 72.3.

 

For January, analysts were expecting a mild increase in the Consumer Confidence Index (up to 54.3), with no word on what they thought about the Present Situation Index and the Expectations Index.

 

How did we do?  Well, according to The Conference Board, we had a massive surge in confidence.  The Consumer Confidence Index went up to 60.6[1] (savagely beating expectations), while the Present Situation Index rose to 31.0 and the Expectations Index rose to 80.3.  People are still more pessimistic than optimistic about the economy, but the number of optimists are growing and the number of pessimists are shrinking.  More specifically:

• Those saying business conditions are "good" increased to 9.8% of respondents, while those saying business conditions are "bad" remained pretty flat at 40.4%.
• Those saying jobs are "plentiful" rose 100 bps to 5.2%, while those saying jobs are "hard to get" declined 260 bps to 43.4%.
• Those expecting an improvement in business conditions over the next 6 months increased 220 bps to 19.0%, while those expecting business conditions to worsen declined 50 bps to 11.3%.
• Those anticipating more jobs in the next 6 months increased 180 bps to 16.0%, while those expecting fewer jobs declined 170 bps to 17.5%.
• Those expecting an increase in their incomes rose 150 bps to 11.4%.

So.  Not a lot of confidence yet, but definite improvement.

 

[1]  The last time we got near this number was May 2010, when the Consumer Confidence Index stood at 62.7.

S&P Case-Shiller Home Price Indices

Home prices are down, pretty much across the board  for November (the most period covered by the most recent report).

 

As you recall, this is a set of indices looking at the growth rate of home prices in a 10-City area and a 20-City area.  The 10-City Composite fell 0.8% for the month, and the 20-City Composite fell 1.0% for the month.  In fact, out of all the covered Metropolitan Areas, only San Diego saw a month-over-month increase in housing prices, and that was up a bare 0.1%.  Eight markets - Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland (OR), Seattle, and Tampa - have hit a new low since their peak in 2006-2007.

 

On the up side, this means it is a buyer's market (assuming you can get a mortgage).  On the down side, this means falling municipal revenue[1], which casts further doubt on the stability of the municipal bond market.  Also, this is a pretty strong indicator that new and existing home sales are soft.  Prices tend to fall as supply increases, and supply (in homes) increases directly as new homes are completed and existing homes are put on the market.

 

Or, as the report puts it, "With these numbers more analysts will be calling for a double-dip in home prices.  Let's take a moment to define a double-dip as seeing the 10- and 20-City composites set new post-peak lows.  The series are now only 4.8% and 3.3% above their April 2009 lows, suggesting that a double-dip could be confirmed before Spring."

 

[1]  Most municipalities have property taxes as their number one source of revenue.  If home prices are falling, people will have their properties reassessed in order to pay less in taxes.