Today we received an insightful e-mail from John K. regarding whether the economy has bottomed in Q2..
POTC does not believe the economy has bottomed in Q2, yet today's news on new home sales will fool most.
New home sales rose by 11%, and we feel this is a misrepresentation of the true underlying problem, falling sales prices..
Please read this piece and you'll see prices have plunged 12% from last year and an astounding 6% since May. That's right, 6% drop in prices in the last month alone. Are we cheering, no way: http://www.cnbc.com/id/32170234.
Until sales prices stabilize, the pace of sales or even supply of homes on the market is insignificant to us. The fact prices fell 6% in the last month is very troubling. It's very likely prices will overshoot on the downside, as is the case in every panicked market, and this will be one difficult pill for the stock market to digest..
Residential real estate deleveraging is continuing, and how quickly that bleeds through to stock prices is anyone's guess. Contractors just want out at any price, and today's news makes that crystal clear.
POTC believes until the bottom in new or existing prices is marked by a couple months of massive overshoot followed by at least a year of boredom, the stock market will struggle at best. A real estate price bottom could take much longer than equity price stabilization, as real estate is Americans' largest asset class..
From a historical standpoint, stock prices fall much faster than they rise, and the recent 4 month run-up could be erased by October, especially IF home prices continue their price plummet.
Are you buying today's optimistic headlines, or are you analyzing all the intricate details. POTC recommends not buying the headline hype, as the residential real estate crisis is only attempting to reach for somekind of a bloody bottom, caution..
A good Monday is wished to all forward-thinkers, the Psychology of the Call team...