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Mark's Market Blog

10-23-09: House Prices and Consumer Confidence

By Mark Lawrence

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The market is becoming relatively unsettled and volatile as the S&P and DOW approach new yearly highs. However, while I continue to believe that next year will not be pretty, there continues to be no news results that would stop the market from continuing to climb right now. The pause this week (we're always really good after the fact) is due to companies reporting 3rd quarter earnings. Some have been better than expected, some worse; however this is a chance for everyone to notice that the price to earnings ratios for most stocks right now are absurdly high.


S&P 500 March 9 2009 to October 23 2009

Back in June, I wrote that I thought the CBO had underestimated Obama's deficits at a total of $9.3T over ten years, and the actual number would be more like $12T. This week Brian Riedl did a more careful analysis of the numbers and said they added up to more like $13T. This means our National Debt will be a bit over $20T, a bit over a full year's GDP. It also means that the interest payments on that debt will likely be about $1.6T per year, about a third of the Federal budget. This is how run away inflation starts: when you have to start printing money to pay the interest on the debt, you've lost all control.

Home prices are expected to head a lot lower, dropping in 342 out of 381 markets during the next year. Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years, although it underestimated the scope. Mark Zandi, chief economist with Moody's Economy.com, agreed. "I think more price declines are coming because the foreclosure crisis is not over," he said.

Miami is expected to be the biggest loser, with prices plunging 29.9% by next June, after having already fallen 48% during the past three years. Other notable losers include Las Vegas, where prices have already fallen 54.6% and are expected to lose another 23.9% by June 2010. In Phoenix values have already collapsed by 54% and could fall another 23.4%. Next summer will be a good time to look into buying that Florida retirement home.

The ABC News Consumer Comfort Index returned to -50 after a three-month stretch above it.On the CCI's scale of +100 to -100, that's about as bad as it gets. The index has been this low or lower just 23 times in 23 years of weekly polls - 22 of them in 2008 or 2009. Consumer confidence is a trailing indicator - confidence doesn't rise until a couple months after the end of a recession. However, confidence dropping after "the recession is over" is a very bad sign. 89% of Americans rate the economy negatively, 77% call it a bad time to spend money and 59% say their own finances are hurting, all near their lows in 23 years of weekly polls. 41% think Obama's economic program is making things better. 57% opposes spending more on recovery efforts if doing so would increase the federal budget deficit. There's not a single group or region of the country in which more than 28% think the recession is over. Among people with household incomes under $100,000 a year, 84% say the recession's still going, but in the wealthiest households 75% say the same. Among people who don't have a college degree, 85% say it's not over, but so do 76% of college graduates. 87% of women and 77% of men say the recession's still on. So do 88 percent of conservatives, 81% of liberals and 79% of moderates; and 85% of independents, 84% of Republicans and 79% of Democrats. These are not numbers that get a President or an incumbent congress re-elected. They're also not numbers that foretell a good christmas season. Walmart has already announced that they're expecting a very thin low-profit xmas.

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