Two Reports Disappoint

The market struggled again today as two big news items appeared, consumer confidence and August new home sales, both not so good.  Consumer confidence fell or plunged to 86.6 from last month’s 105.6 with expectations of a drop only to 95.  This is the largest drop in confidence since back in 1990 when Iraq invaded Kuwait, at least some of you might remember that period of time.  This drop is even more than the drop after 9-11.  And, this is the lowest level of confidence in two years, 81.7 back in October of 2003.  The confidence number is based on current information and does reflect some impact from the two hurricanes and possibly other things like the last rate hike from the Fed.  People are worried about the future and that means we may just have a shift in the way they view their lives.  

The other number is the new home sales for August.  This represents activity Prior to the hurricanes, or should we say lower activity.  New homes sales came in about 10% lower than July and fell more than expectations of a 2% drop.  The numbers are not staggering but, when taken in the context that they were before the hurricanes, they take on a much greater significance.  

We here at the Wednesday Update are all over these two numbers because they fit into our thought process for the near term.  The cracks are starting to appear in housing which in turn will lead to less available cash from the big ATM people live in.  That is what we have been patiently expecting.  The confluence of so many problems for the economy are beginning to surface right now just in time for October and a steep drop in stocks.  As I think of the housing situation and all of the many veins of the economy that run through it, I am reminded of an army walking in line and the front guy bends over to tie his shoe and the chain reaction of people piling into him.  Housing sales dropping is like the front row in the parade bending down to tie their shoes.  We are still watching this unfold but the picture is getting clearer.

We are very bearish as you can tell.  The market has tried to stop going down so hard the last few days which could be construed as a temporary stop gap before prices really slide.  The end of the month, end of the quarter phenomenon better hurry as we keep marching toward the end of the week.  Can you envision a scenario of higher stock prices in this environment???  I sure can’t.  

The Fed is on a course to increase rates further.  Oil prices are near record highs.  The stock market has put in and tested some solid highs and has fallen off since then.  The government is trying to run a war in Iraq and a domestic bailout program here at home in the Gulf, not to mention the budget and trade deficits we already have.  The housing market is slowly rolling over—this is the key.  I guess a bull could spin these items to a bullish conclusion, that’s what makes the market move in different directions.

We have some short positions and are ready to move more funds into short positions.  We get to the end of the month and wonder if we will see any bounce in the market going into these normally bullish time periods.  The drop could come at any time including the “bullish” time of the month so we need to make a commitment to something.  So, tomorrow we will.  Always put off till tomorrow the difficult tasks, you never know, you might come up with a better solution.  In the mean time, happy trading.

Dow Industrials:  10,456.21   +12.58  (just a matter of time)
BGEIX:  13.00  (we’re just watching this now)