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Reality doesn't always bite - sometimes it sucks. Imagine being one of those ever hopeful American Dreamers, who thought that buying property was a path to riches (and a house-as-ATM to fund a new flat-screen every year in perpetuity).
Imagine, too, that you were in 'SoCal' - the epicentre of global vacuity.
Well, things aren't so good in SoCal no more - in some areas, house prices have fallen back to 1989 levels.
In thinking about that, you have to bear in mind that since 1989 the CPI has very nearly doubled (and the CPI understates inflation); thus, folks who bought property in 1989 have taken a 50% inflation-adjusted haircut, and that's not counting all the property taxes, maintenance and home-improvement inputs that they paid along the way.
The flow of housing services has not changed - you still get as much accommodation from the house - but you've gotta say goodbye to the ability to draw down equity in the event of economic hard times.
The long end of the yield curve already has recently spiked upward, leading to a rapid rise in floating mortgage rates - they have moved up 1 full percentage point in the last three weeks, from 4.7ish to 5.7ish. Recently, the short end (the 2-5 strip) has begun to rise, which will affect short-term fixed rates. LTV requirements, documentation and other creditworthiness measures, are being tightened.
In sum, there's no catalyst for any further price rises, and in fact there is an abundance of catalysts for a new leg down in property prices - not just in SoCal, not just in the US, but anywhere that a standard family home requires 2 full-time employed salaries to fund the purchase price. Governments will not be able to afford to give 'home buyers grants' - the equivalent of housing welfare - and don't be surprised if you see mortgage-interest deductibility withdrawn.
All this is part of my 'base case' for the next few years - which will result in house prices reverting to (roughly) 1992 levels economy-wide (by which I mean, in the entire western developed world).
By the time house prices bottom, an entire generation will have been rendered absolutely allergic to home 'ownership' - they will have discovered that they don't own the house unless they have made the last scheduled mortgage payment. The impact of this on investor psychology will be profound, and will forever destroy the idea that 'you can't go wrong with bricks and mortar'.
Stupid phrases like 'getting on the property ladder' will be treated with derision - along with 'dictatorship of the proletariat' and 'War on Terrrrrrrr'.
And for all the fuck-sticks who parrotted the 'rent money is dead money' mantra - feeling pretty smart about now? Hmmm? Feelin'.. pretty... clever? Hmmm? Gonna maybe... say somethin' smart? Hmmm? Gonna tell... everyone... how smart it is to buy a fucking house with no money down? Hmmmm? At the top of a generational price bubble spawned by Greenspan's idiotic expansion of credit? Hmmm?
OK - I admit it. I can't do a good impression of Stewie from Family Guy.
Headline Indices
The Dow Jones Industrial Average fell 24.04 points (0.27%) to 8739.02 points, as an inexplicable 100-point rally in the last two hours helped stave off reality for another day. The index high for the day was 8834.93, 5 minutes after the opening bell. The low was almost 200 points lower, 8639.95, at just after 2 p.m. NY time.
Total volume traded in the 30 components of the index was 1.31bn shares. Decliners outpaced gainers by 1.6 to one, with 18 decliners to 11 advancers. Declining volume was greater than advancing volume by 719.03m to 588.99m shares. The main decliners (in percentage terms) were -
- Caterpillar (CAT) -0.62 (1.6%) to $37.62 on volume of 14.8m shares;
- Coca-Cola (KO) -0.68 (1.4%) to $48.41 on volume of 13.9m shares;
- General Electric (GE) -0.17 (1.3%) to $13.4 on volume of 80.05m shares; and
- McDonalds (MCD) -0.72 (1.2%) to $58.36 on volume of 9.86m shares.
The S&P500 index (SPX) dropped 3.28 points (0.35%) to 939.15 points. Total volume traded in the 500 components of the index was 4.12bn shares. Decliners outpaced gainers by 1.7 to one, with 298 decliners to 173 advancers. Declining volume was greater than advancing volume by 2.52bn to 1.54bn shares. The main decliners (in percentage terms) were -
- Ameriprise FinancialInc. (AMP) -2.06 (7.3%) to $26.33 on volume of 7.76m shares;
- Pall Corp. (PLL) -2.08 (7.2%) to $26.87 on volume of 3.38m shares;
- Host Hotels & Resorts (HST) -0.58 (6%) to $9.12 on volume of 14.19m shares;
- Morgan Stanley (MS) -1.72 (5.6%) to $29.26 on volume of 54.24m shares; and
- PNC Financial Services (PNC) -2.38 (5.4%) to $41.8 on volume of 7.94m shares.
The Nasdaq Composite fell 7.05 points (0.38%) to 1853.08 points. while the Nasdaq100 lost 6.28 points (0.42%) to 1495.27 points. Total volume traded in the 100 components of the index was 822.95m shares. Decliners outpaced gainers by 1.8 to one, with 63 decliners to 35 advancers. Declining volume was greater than advancing volume by 432.84m to 390.1m shares. The main decliners (in percentage terms) were -
- UAL (UAUA) -0.29 (6.2%) to $4.37 on volume of 10.48m shares;
- Ryanair Holdings plc (RYAAY) -1.15 (3.8%) to $28.98 on volume of 0.7m shares;
- Hansen Natural (HANS) -1.29 (3.8%) to $32.71 on volume of 2.09m shares;
- Whole Foods Market (WFMI) -0.77 (3.6%) to $20.85 on volume of 1.97m shares; and
- Baidu.com (BIDU) -10.86 (3.5%) to $298.3 on volume of 2.93m shares.
Volatility
The CBOE Volatility Index rose +0.19 points (0.67%) to 28.46 points. and the CBOE Nasdaq100 Volatility Index added +0.08 points (0.27%) to 29.77 points..
Breadth and Internals
A total of 3712 issues traded today on the NYSE; 1605 stocks posted gains for the day, and there were 1988 losers. 17 stocks made new 1-year highs on the NYSE, while 38 shares plumbed new 52-week depths.
On the Nasdaq 2842 tickers traded today; total Nasdaq volume was 2.32bn shares. A total of 1062 stocks posted gains for the day, with aggregate volume of 1.04bn shares changing hands in the day's winners. The red zone of the Nasdaq exchange comprised 1643 losers, and total declining volume was 1.26bn shares. 51 Nasdaq-listed stocks hit new 52-week highs, while 17 shares dipped to new 1-year lows.
| Major Market Statistics | |||
| Index | Close | Gain(Loss) | % |
| Dow Jones Industrial Average | 8739.02 | -24.04 | -0.27% |
| S&P500 Index | 939.15 | -3.28 | -0.35% |
| Nasdaq Composite | 1853.08 | -7.05 | -0.38% |
| Nasdaq100 | 1495.27 | -6.28 | -0.42% |
| CBOE Volatility Index | 28.46 | +0.19 | 0.67% |
| CBOE Nasdaq100 Volatility Index | 29.77 | +0.08 | 0.27% |
Dow Darlings
- Alcoa (AA) +0.34 (3%) to $11.49 on volume of 47.3m units
- Microsoft (MSFT) +0.47 (2.1%) to $22.55 on volume of 60m units
- Exxon-Mobil (XOM) +0.72 (1%) to $73.84 on volume of 26m units
- Verizon (VZ) +0.11 (0.4%) to $29.53 on volume of 11.4m units
- AT&T (T) +0.07 (0.3%) to $24.28 on volume of 33m units
Dow Duds:
- Caterpillar (CAT) -0.62 (1.6%) to $37.62 on volume of 14.8m units
- Coca-Cola (KO) -0.68 (1.4%) to $48.41 on volume of 13.9m units
- General Electric (GE) -0.17 (1.3%) to $13.4 on volume of 80.1m units
- McDonalds (MCD) -0.72 (1.2%) to $58.36 on volume of 9.9m units
- JPMorganChase (JPM) -0.42 (1.2%) to $34.84 on volume of 59.6m units
Most Traded Dow stocks:
- Bank Of America (BAC) -0.08 (0.7%) to $11.98 on volume of 325.6m units
- General Electric (GE) -0.17 (1.3%) to $13.4 on volume of 80.1m units
- Microsoft (MSFT) +0.47 (2.1%) to $22.55 on volume of 60m units
- JPMorganChase (JPM) -0.42 (1.2%) to $34.84 on volume of 59.6m units
- Intel (INTC) +0.04 (0.2%) to $16.46 on volume of 47.5m units
Precious Metals
The Gold Bugs index (XAU) lost 1.03 points (0.68%) to 150.1 points. Total volume traded in the 16 components of the index was 97.14m shares. Decliners outpaced gainers by 3 to one, with 12 decliners to 4 advancers. Declining volume was greater than advancing volume by 73.03m to 24.11m shares. The main decliners (in percentage terms) were -
- Yamana Gold (AUY) -0.45 (4.2%) to $10.16 on volume of 20.07m shares;
- Barrick Gold (ABX) -1.06 (2.9%) to $35.06 on volume of 13.76m shares;
- Gold Fields Ltd (GFI) -0.25 (2.1%) to $11.91 on volume of 5.07m shares;
- Coeur d'Alene (CDE) -0.28 (2%) to $13.45 on volume of 2.34m shares; and
- Silver Wheaton (SLW) -0.11 (1.1%) to $10.18 on volume of 4.76m shares.
Energy Complex
The Oil Services index (OSX) slid 1.89 points (1.05%) to 178.9 points. Total volume traded in the 15 components of the index was 101.48m shares. Advancers outpaced decliners by 6.5 to one, with 13 advancers to 2 decliners. Advancing volume exceeded declining volume by 91.3m to 10.18m shares. The main decliners (in percentage terms) were -
- National Oilwell Varco (NOV) -0.49 (1.3%) to $37.74 on volume of 8.44m shares; and
- Global Industries (GLBL) -0.01 (0.1%) to $7.19 on volume of 1.74m shares.
Bellwethers
The nine-stock group that makes up the Rant bellwethers declined on average by 0.3%. The fallout occurred as follows:
- General Electric (GE) -0.17 (1.25%) to $13.40 on volume of 80.06m units.
- Citigroup (C) +0.07 (2.05%) to $3.48 on volume of 313.77m units.
- Wal-Mart (WMT) -0.55 (1.09%) to $50.06 on volume of 19.58m units.
- IBM (IBM) +0.21 (0.19%) to $108.35 on volume of 7.43m units.
- Intel (INTC) +0.04 (0.24%) to $16.46 on volume of 47.53m units.
- Cisco Systems (CSCO) -0.13 (0.65%) to $19.95 on volume of 55.71m units.
- Google (GOOG) -3.02 (0.69%) to $432.60 on volume of 3.29m units.
- Fannie Mae (FNM) -0.01 (1.45%) to $0.68 on volume of 7.97m units.
- Freddie Mac (FRE) -0 (0%) to $0.71 on volume of 5.07m units.
Other Indices of Interest...
The Banks index (BKX) dropped 0.48 points (1.27%) to 37.24 points. Total volume traded in the 24 components of the index was 987.17m shares. Decliners outpaced gainers by 4.3 to one, with 17 decliners to 4 advancers. Declining volume was greater than advancing volume by 628.28m to 358.89m shares. The main decliners (in percentage terms) were -
- PNC Financial (PNC) -2.38 (5.4%) to $41.8 on volume of 7.94m shares;
- Zions Bancorp (ZION) -0.48 (3.3%) to $14.17 on volume of 3.06m shares;
- Suntrust Banks (STI) -0.54 (3.2%) to $16.52 on volume of 14.25m shares;
- Wells Fargo (WFC) -0.75 (2.9%) to $24.91 on volume of 87.21m shares; and
- State Street (STT) -1.38 (2.9%) to $46.88 on volume of 6.59m shares.
The Semiconductor index (SOX) was unchanged at 271.31 points. Total volume traded in the 18 components of the index was 236.81m shares. Advancers outpaced decliners by 1.1 to one, with 9 advancers to 8 decliners. Advancing volume exceeded declining volume by 146.13m to 90.68m shares. The index's rather boring situation arose as a result of a mixed bag of results, the most notable amongst these (in percentage terms) being -
- ST Microelectronic (STM) +0.42 (5.4%) to $8.2 on volume of 2.7m shares;
- Micron Technology (MU) +0.28 (5%) to $5.86 on volume of 26.37m shares;
- Sandisk (SNDK) -0.28 (1.7%) to $16.16 on volume of 7.17m shares;
- Advanced Micro Devices (AMD) +0.07 (1.5%) to $4.82 on volume of 18.28m shares; and
- Teradyne (TER) +0.1 (1.4%) to $7.35 on volume of 5.97m shares.
The ChildKiller ("Defence") index (DFX) gained 5.05 points (1.93%) to 266.21 points. Total volume traded in the 17 components of the index was 110.28m shares. Decliners outpaced gainers by 4.3 to one, with 13 decliners to 3 advancers. Declining volume was greater than advancing volume by 106.21m to 4.06m shares. The biggest gainers (percentage-wise) were -
- Raytheon (RTN) +0.62 (1.4%) to $45.6 on volume of 3.24m shares;
- Alliant Tech (ATK) +1.22 (1.4%) to $90.39 on volume of 0.6m shares; and
- Gencorp (GY) +0.03 (1.3%) to $2.27 on volume of 0.22m shares.
