Bad news bears

HOUSING SECTOR REMAINS IN A DEEP FUNK
Banks repossessed a record number of U.S. homes in the second quarter, so the headline news of slower foreclosure notices was a bit misleading. The banks took over 269,962 properties, up 5% sequentially and 38% from a year ago (RealtyTrac data). In a normal year, banks repossess 100,000 homes — they are on now track for over a million in 2010! And, more than 3 million homeowners will receive at least one foreclosure notice (oh, but it would be far, far worse without HAMP, right?).

So, the headlines last week read that foreclosure filings were down 7% YoY, but it’s not the change but the continued astronomical levels that is the real story — north of 300,000 for sixteen months in a row. It’s an unmitigated disaster.

And, the shadow bank inventory will inevitably flow into the market and continue to depress real estate prices ... likely for years.

THE ECONOMY HITS A MAJOR SPEED BUMP … the most up-to-date data for the second week of July:

• Bank credit contracted at a 7% annual rate.  
• ABC consumer confidence slipped to a four-week low of -44 from -42.  
• Mortgage applications for new home purchase fell 3.1%, the fourth straight decline, to a new 14-year low.  
• Railway carloadings in the U.S. (including intermodal) collapsed 13.9% to their lowest level since January 9
• Raw steel production slipped 1.7% and is down three weeks in a row to a three-month low.   
• Motor vehicle production sagged 14.8% YoY in the steepest downtrend since November 21, 2009.    
• Coal production fell 4.8% and is down to for three of the past four weeks – lowest level since January 9, 2009.

This all follows a very bad May and June … so what we have is a downtrend in the making, not a blip.  Double-dip odds are clearly not zero.

• Household employment fell 301,000 after a 35,000 decline in May.  
• Manufacturing output fell 0.4% in June for the sharpest decline since May 2009.  
• ISM fell to 56.2 in June from 59.7, the low-water mark for the year  
• The non-manufacturing index fell to 53.8 from 55.4, a four-month low.  
• The NFIB small business sentiment index sagged from 99.2 to 89.0.  
• The Conference Board’s measure of consumer confidence collapsed from 62.7 to 52.9.  
• Retail sales fell 0.5%, the second decline in a row.  
• The NAHB homebuilding sentiment index dropped to a four-month low of 17 from 22.   

Based on these trends, it may be reasonable to assume that S.I.R.P. – safety and income at a reasonable price – is pretty prudent portfolio to pursue.
---Op Cit