DOW and Housing

As yours truly predicted last week, the mini-rally of last week was nothing more than a head fake. We are in the sweet spot of red now. The DOW was a 14K a month ago. That's a 7% chop since. And we have a long way to go. 12K is a no-brainer. Once we get below 12K is when the decisions will have to be made. Buy in and take a chance or wait it out but potentially miss out on some rallies.

The performance of equities is a super fast version of what's happening with housing. The so-called experts such as Kudlow and Cramer said housing could never fall. And they also said equities were poised for big gains. Anyone who said otherwise was a naysayer, a doomer, a gloomer and gosh darn it, just plain old crazy. Equities had a small slide this summer and the Kudlows and Cramers of the world said the worst is over, buy, buy buy. And a dead cat bounce did occur, however short lived. Now where is that rally? In the toilet that's where.

Housing is doing the same thing only much much slower. 2006 was a plateau year. Early 2007 was the start of the crash. The so-callled experts said buy buy buy. Prices can't fall any more. And some did. And prices spiked just a little bit before continuing the downward trend.

Stocks like housing are priced based on fundamentals in the long run. The fundamentals say (as I have been saying) both are over valued. And as always happens fundamentals don't lie. Fundamentals don't skew. Fundamentals don't spin. Fundamentals have nothing to gain by lying. That is why your best bet is to ignore the salesmen, ignore the propagandists and focus on fundamentals which tell you we have a long way to go until both housing and equities bottom out.

Not quite 10/19/87 but I'll take it

On this 20th anniversary of Black Friday, we get a fun little mini-crash.

What do you know? Caterpillar warned today because the housing market crash may be worse than "experts"predicted. Well I'm no "expert"but I predicted this crash many moons ago. I am no expert and I have been banging the housing crash drum for over a year while being told I was nuts and over reacting. Housing never falls right Wall St? Housing is the best investment you could ever have right NAR? Goldilocks economy right Larry Kudlow?

Well OK here's your over reaction. S&P down 2.5%. All hell breaking loose on Wall St yet again due to some big surprise about housing. This is just downright comical now. How many warnings does someone need before clueing in? Let me spell it out as clearly as possible. Anything that has to do with housing is toast. Lenders. Heavy equipment. Bricks. Cement. Lumber. Furniture. Appliances. Home Depot. Lowe's. Moving companies. Harley Davidson. GM. Ford. When Home Depot announces yet one more round of layoffs, don't be shocked. When Lennar goes bankrupt, don't be surprised. When Countrywide's CEO is arrested for Enron style shenanigans, do not be stunned. When Bear Sterns announces another $3B worth of MBS bonds are not worth the paper they're printed on don't act surprised. When GM comes out sand says nobody is buying cars anymore don't be surprised. They aren't buying cars and boats and ski-doos and motorcycles anymore because the HELOC magic is gone.

Anyone with 1/4 of a brain could see this coming. But nobody **wanted** to see it coming. The gravy train was too good. The fat was too delicious to imagine it would ever go away. Well it has and it's not coming back any time soon. The emperor's clothes are gone. He is buck-ass naked. Get it now?

On a related note my favorite shorting opportunity made some people a ton of money today. Yes you guessed it FXI. Today was options expiration and FXI fell below $200. The $200 puts expiring today went up over 200% just today, up 400% for the week. I got in on this fun ride a little myself. I bought and quickly sold Feb '08 puts on Thursday. Made a decent return, but nothing close to the grand slam had today. To any of you out there with balls of steel to play the options game so close to expiration...I salute you.

No, Thank You Larry Kudlow

Seeing as how I am one of the pessimists Mr. Kudlow is referring to here is my retort.

Let's take a look at this record DOW you speak of Monsieur Kudlow.

At the peak in 2000, the DOW was at 11,722. Today it is as 14,100. So in 7+years it has gained 20% or less than 3% a year.

WOW!! WOW!! WOW!! 3% a year!! Gee wiz Mr.Kudlow, that is just freaking amazing. Why with that kind of return I can retire at 82. I notice you don't mention that gold is at $750 or that silver is at $13.50. Both gold and silver are up over 150% since 2000 due to the fact that the $US has lost 40% of its value. Tell me again why I am so well off with a 20% gain in the Dow? I mean besides the fact that you work on Wall St and your entire livelihood is based on people into investing in stocks.

Let's see what has happened since 2000.

In 2000 the median house in the USA was $169,000. Today is it $220,000. That's a 30% increase.

During the week in 2000 when the DOW hit its previous high the average cost of gas in the US was $1.53. Last week it was $3.01. That is an increase of 97%.

The base price for a 2008 Honda Accord on sale today is $20,360. The base price for a 2000 Accord on sale last time the DOW set a record was $15,350. That is an increase of 32%.

So let's recap:

DOW is up 20%
Gold and silver are up 150%
Housing costs are up 30%
Gas is up 97%
Cost of a Honda is up 32%.

OK you got me Mr. Kudlow, I am a pessimist and with good reason. Pesky things like the cost of a Honda or the cost of a gallon of gas are trivial to you. I know it's hard for you to fathom such nonsense from your multi-million dollar Upper East Side apartment. Out here in the real world, us lowly peons notice and care. We don't have tens of millions invested in the markets. If we make 20% over 7 years our cost of living increases by twice that much, we lose.

Oh but never mind. It's time for another rate cut. We need to get that Dow to 15,000 at all costs. I look forward to the $25,000 base price on the 2009 model. But as long as Goldman's CEO gets his $100M bonus, I am willing to sacrifice.