Wednesday, December 11, 2013
This is the type of stock market that could really start to accelerate to the downside. I woke up somewhat surprised to see the dollar had dropped to a new low for the move down it is currently making. I really expected that the news of the Congressional budget deal - as hollow and fictitious as it is - would have at least given some superficial support to the markets. But the dollar continues to fall hard - I'll have more to say about that later this week - and now the stock market appears to be on shaky ground.
The fact is that the stock market is, right now, historically overvalued. Especially in relation to the underlying fundamentals. I have been posting analysis now for about 8 weeks which shows both the auto sales and housing markets are starting to head south. Bloomberg has a report today that details falling apartment rents in NYC and that the apartment vacancy rate is back to a 7-yr high: LINK I specifically remember walking around NYC back in 2007 and was stunned by the number new building skeletons for which construction had clearly been abandoned. Sounds like now there's several new completed buildings that will sit mostly empty for quite some time, especially since we know Wall Street is about to go through a job-cutting blood bath.
I also believe that the housing market is about to head south very quickly: New Home Sales Data Show Big Problems Ahead For Housing. So, it's fine if you want to listen to the talking heads blow smoke about the economy or housing market, but at least make them back up their assertions with data. The data shows a completely different story than the fairy tale being fed to us by home sale industry organizations and the blow-hards in the financial media and on Wall Street.
In addition, Zerohedge has a report out this morning detailing the housing market collapse that has been set in motion in Nevada: LINK. Of course, as is par for course, I'm usually way ahead of Zerohedge on the topics of housing and gold. I published an article on October 29th on Seeking Alpha which cited data showing that the market for new home sales in Nevada had collapsed 60% from Q1 to Q3: Housing Market Is Headed South.
The reason NYC and Nevada are important bellweathers, at least in my view, is that both markets were among the hottest during the big housing bubble and both markets started heading south ahead of the rest of the country when the bubble collapsed. Nevada/Vegas essentially, from a demographic perspective, is East Los Angeles, so any negative trend that starts in Vegas in housing will spread to southern California like a deadly virus. This is how it played out starting in 2005 and this is how it will play out this time around. Only this time around it will be worse.
One more point about this, a colleague of mine was chatting with a realtor from Scottsdale, Arizona. That was also one of the hottest markets during the housing bubble and one of the hottest markets during this Fed and Government money printing fueled dead-cat bounce. This realtor told my colleague that the market activity in Phoenix had essentially hit a wall in November.
Be careful with your stock market exposure. No one knows for sure when, but this stock market is set up of the biggest stock market downside disaster in history.
Posted by Dave in Denver at 8:42 AM