lower bound on how much farther house prices will fall would help significantly to resolve the status of trillions of dollars in these troubled assets

TO BE NOTED: From Econbrowser:

"Is the worst behind us?

A couple of weeks ago we received the encouraging news that retail sales for both January and February were 1.8% above December. On Monday the National Association of Realtors reported that February sales of existing homes were 5.1% above January levels on a seasonally adjusted basis. Today the Census Bureau reported that new orders for manufactured durable goods rose 3.4% in February, with new orders for nondefense capital goods up 7.4%. And also today the Census Bureau reported that new home sales in February were up 4.7% (on a seasonally adjusted basis) relative to January. Is the tide starting to turn?

Note: graph does not include today's new home sales data. Source: Calculated Risk.

The new home sales figure is particularly relevant. Calculated Risk has been emphasizing the discrepancy between the possible turnaround in sales of existing homes and what had up until today been an ongoing slide in new home sales. Much of the strength in existing home sales has come from foreclosure resales. Large numbers of foreclosures coupled with falling sales of new homes do not paint a picture of a healthy housing market. Although the February bump in seasonally adjusted new home sales is encouraging, on a seasonally unadjusted basis, we'd usually expect February sales to be 25% above the seasonal low in December. But the seasonally unadjusted February 2009 number was about the same as was reported for a very weak December and 44% below February 2008.

Seasonally unadjusted new home sales. Source: Calculated Risk.

Despite the increase in sales of existing homes, the inventory of unsold existing homes unfortunately also increased in February. But the good news is that this inventory remains below the levels seen for most of 2008.

Source: Calculated Risk.

Here is Calculated Risk's take on the earlier existing home sales report:

Inventory levels increased sharply in 2006 and 2007, but have been below the year ago level for the last seven months. This might indicate that inventory levels are close to the peak for this cycle. Note: there is probably a substantial shadow inventory-- homeowners wanting to sell, but waiting for a better market-- so existing home inventory levels will probably stay elevated for some time. There is also the possibility of some REOs [real estate owned] being held off the market.

It is important to watch inventory levels very carefully. If you look at the 2005 inventory data, instead of staying flat for most of the year (like the previous bubble years), inventory continued to increase all year. That was one of the key signs that led me to call the top in the housing market!

If the trend of declining year-over-year inventory levels continues in 2009 that will be a positive for the housing market. Prices will probably continue to fall until the months of supply reaches more normal levels (in the 6 to 8 month range), and that might take some time.

As long as house prices continue to fall, concerns about the true value of mortgage-backed securities and financial instruments constructed from them will still be with us. But a lower bound on how much farther house prices will fall would help significantly to resolve the status of trillions of dollars in these "troubled assets".

On Monday CR wrote:

I think the keys to watch for the housing market are declining inventory levels, a bottom in new home sales, and the gap between new and existing home sales closing.

CR was right on target about the housing peak, so I trust his judgment in calling the bottom. But I take some encouragement in the news of the last two weeks."

Opinions have little or no value to us. Indeed, even our own opinions should ALWAYS be fluid and subject to change.

TO BE NOTED: From Charting Stocks:

"Media Calls a Bottom as Credit Market Calls for Panic (Charts) Tuesday, March 24, 2009 15:29

Posted in category Credit, Dow Jones Industrial Average, Economy

Much has been made (mostly by the mainstream media) over the recent rally in the Dow Jones Industrial Average. Many of the usual suspects, including those that have been wrong for the past 3 years, have been quick to call a bottom. We, as technicians, tend to pay little attention to CNBC, Fox Business, etc. Opinions have little or no value to us. Indeed, even our own opinions should ALWAYS be fluid and subject to change. We don’t tell the market where to go, we simply listen.

Our readers know that we’ve been pounding the table all throughout 2007. It was our view that all systems were blinking red, and that a MAJOR market collapse was imminent. We took heat for it through most of 2007, until the market topped in October 2007 and began its decline. Lately, the insults have turned into compliments.

Are we permanent bears? Absolutely not. Actually, the more accepted and praised that our views become, the more doubtful we begin to grow. We find that its best to stand away from crowds, and not in them.

The stock market most likely peaked yesterday, though the rally may continue to as high as 7,950 (DJIA) before exhausting. If the Dow Jones managed to pull a Friday close significantly above 8,000, however, we would re-evaluate. We feel that there is a MUCH higher probability of a decline than of an advance from this point on.

We would also re-evaluate our position if the DJIA managed to make a “higher low” at the end of its next leg down. That is, if the next wave of selling would end with buyers who are willing to pay more than they were on the previous low. The 2003 bull run began with such a higher low.

The credit market shows a persistent and elevated level of fear. There will be no bull market until the credit fear eases.

Housing depression continues to accelerate. There will be no bull market until this reverses or bottoms.

the country’s economy is bottoming. Is it, however?

From Paul Kedrosky:

"The China Bottoming Thing

Lots of people persist in pointing to improvements in China’s PMI as reason that the country’s economy is bottoming. Is it, however? As Michael Pettis points out, it’s tough to support the idea that China is bouncing back “surprisingly fast” if you actually look at the credit data in-country.

Surprisingly fast? I’ll take that bet. Aside from the normal excitement we all get from the right kinds of stimuli, part of the recent optimism seems to reflect the huge upsurge in bank lending I reported last week – with loans in January rising by RMB 1.3 trillion. Nearly one-quarter of that was provided just by ICBC.

Read the whole thing.

Me:

"Lots of people persist in pointing to improvements in China’s PMI as reason that the country’s economy is bottoming. Is it, however?"

Since some notoriety comes from correctly predicting the bottom or top of economic events, you're always going to have people venturing opinions on this subject. The problem is that, although it makes sense to call bottoms and tops with some regularity, you don't want to do it enough to make it appear that you're guessing, which you are.

And:

Paul Kedrosky • 89p

Yup, no question that there is an incentive for people to do precisely
that. Doesn't make it any less irritating or banal.

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Don the libertDem

I should say more.

"be used for non-agency RMBS, agency RMBS, prime and Alt-A mortgage loans, CMBS, CDOs and other consumer or non-consumer ABS"

An interesting post on Housingwire by Patrick Harden:

"The holiday week was largely quiet for the mortgage REIT sector, but a few noteworthy items managed to surface here and there.

Annaly Capital (NLY: 15.00 -4.52%) seems to be calling a bottom in the real estate market. The Wall Street Journal reported that NLY is looking to expand into the commercial-property debt market, through its wholly-owned investment advisory unit, Fixed Income Discount Advisory Company (“FIDAC”). Led by TIAA-CREF’s former CMBS chief, Kevin Riordan, FIDAC is exploring raising capital to invest in debt used to finance office towers, shopping malls, hotels and other types of commercial property. No word yet on how much capital FIDAC is looking to raise.

Meanwhile, another Annaly-sponsored venture, Chimera Investment Corporation (CIM: 3.13 +0.97%) filed a $750 million mixed shelf on Christmas Eve, its third offering in just over a year as a public company. The proceeds of the offering, when completed, are expected to be used for non-agency RMBS, agency RMBS, prime and Alt-A mortgage loans, CMBS, CDOs and other consumer or non-consumer ABS — in other words, just about anything that can be packaged up and sold off.

Chimera shares were recently changing hands at $3.10/share, well below their $19.79 52-week high."

I have no idea if these people know what they're doing, but I would probably be doing the same thing were I an investor in these types of assets.

"If you’re going to swallow that line, please, help yourself to some salt."

Stacy-Marie Ishmael again on Alphaville:

"Bill Miller is a brave, brave man.

From Reuters:

Legg Mason’s star stock-fund manager Bill Miller said on Wednesday the “bottom has been made” in U.S. equities and that the Federal Reserve should consider purchasing stocks and junk bonds to pull the United States out of the financial crisis.

Speaking at Legg Mason’s annual luncheon for media, Miller said that all long-term investors believe that stocks today are cheap.

If you’re going to swallow that line, please, help yourself to some salt.

Because not only is Legg Mason’s flagship Value Trust fund - for years a star performer - down 59.7 per cent as of yesterday, but Miller told Reuters that his funds “performed far worse than I would’ve predicted we would” this year. Foresight you can trust? Not so much.

Yes, Miller beat the S&P 500 for fifteen years running. But lately, he’s been just as wrong-footed - and as wrong - as everyone else.

Some background:

- Legg Mason is the second largest publicly traded asset manager in the US, with assets of $842bn as of September 30, according to Reuters data. Its stock price has slid more than 75 per cent year to date.

- Late on Tuesday, Legg Mason said it expected to take a $523m charge in the fourth quarter as it provides yet more support for four ailing money market funds that invested in asset backed securities and SIV-issued commercial paper. Legg has already spent nearly $2bn in a bid to prevent these funds from breaking the buck.

- The company also amended its debt covenants to “provide flexibility during a time of prolonged market turmoil.”

- Last month, Legg Mason Capital Management - the subsidiary run by Miller - cut a third of its staff as asset values sank.

In light of the above, one can argue that Miller’s call is more hopeful than anything else."

I've no idea if he's right. I certainly don't consider him brave, but that's just personal. I seem, magically, to be more upbeat than others, possibly that's because I consider this an existential crisis, as well as political and economic. This existential malady isn't near as awful as earlier ones, in my opinion. More on that later, I suppose.

Here's my comment:

Posted by Don the libertarian Democrat [report]

“is more hopeful than anything else.”

If it’s more hopeful than anything else, why shouldn’t we heed it?

My humor was lost on a decent soul who posted:

Posted by praxis22 [report]

@don,

Hope is necessary, but if all you’ve got is hope, than you’re better of staying safe. Trying to chase profit in this volatility is a losing game. Entire indexes are fluctuation 5-10 percent intraday, this not a place for amateurs or those that need to sleep well at night.

I replied in gratitude:

Posted by Don the libertarian Democrat [report]

Praxis22, I will certainly heed your advice. The only thing that I was chasing was a double entendre on "more hopeful than". I didn't find it. Cheers, and thanks for the concern, Don

Stacy-Marie shot back:

Posted by Stacy-Marie Ishmael [report]

Don - ah, you noticed…