Today Post::Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 46% in a little over 120 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… yet notably stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let's continue to keep a watchful eye…

Today Post::Three Strikes and Bernanke is OUT!

The "End the Fed" movement appears to be picking up steam… Ron Paul's book is rising on best seller lists and the news is littered with reports covering and debating aspects of the argument.

Although I fully support any effort to put down or at least restrain the Federal Reserve, I've been thinking that a smaller, more symbolic move might also be a step in the right direction.

I call it "Three Strikes and Bernanke is OUT!"

Strike 1. In Mid 2007 Bernanke either completely misses the significance of the housing decline or makes a serious blunder by assuming he and the Fed could bluff their way through the decline by asserting that the subprime implosion and the wider housing troubles were "contained" and economic growth would continue:

May 2007 Bernanke states:

"Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited,"

From the August 7th 2007 FOMC statement:

"Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy"

Strike 2. In the fall of 2008 Bernanke along with Treasury Secretary Paulson revert to complete reactionary panic mode making their famous "won't be an economy on Monday" plea to congress while urging on the largest taxpayer funded swindle in history.

Strike 3?… September 15th 2009 Bernanke indicates that the recession is over:

"From a technical perspective, the recession is very likely over at this point,"

With this simple statement Bernanke has made the mother of all bottom calls… the bottom of the great unwind over which he presides and also bears some responsibility for creating and exacerbating.

Not only did he misjudge the role that the Fed's "easy money" policy played in creating the crescendo of our massive credit bubble, Bernanke missed the impact of the resultant decline and deleveraging, he seriously overreacted once there was nowhere else to hide… and now he makes arguably earliest and most significant bottom calls in economic history.

I say "three strikes and you're out"… If the bottom is not in… Bernanke is out.

If we are to have the Federal Reserve (… i.e. a massive central planner) at all, does America not deserve better than an unrealistic chairman who is a three time loser?

Today Post::Two Great Bounces!

The following charts provide a simple comparison between the big stock bounce that occurred in the wake of the DOW crash of 1929 and the bounce we are seeing today in the S&P 500 index.

The method of alignment was simple… take the first definitive up trading day off the bottom of the preceding bear market low and set that as the start of the series… then simply re-base both series to a value of 100 so that they can be compared side-by-side.

The lower bar chart plots the cumulative percentage change since the start of each bounce.

The S&P 500 is up over 47% in a little over 120 trading days… an historically aggressive run with an obvious note of mania to it… and wholly comparable to… yet notably stronger than… the price movement seen in the 1930s-era DOW rally.

At this point for the 30s-era DOW, the bull-run was over as the bear trend resumed in earnest… today though the Bull is seriously on the move… how long will this boom last?

Only time will tell… But for now, let's continue to keep a watchful eye…

Today Post::S&P/Case-Shiller: July 2009

Today's release of the S&P/Case-Shiller (CSI) home price indices for July 2009 showed a continued strong bounce in prices with the Composite-10 index increasing 1.65% on a month-to-month basis.

Again, this is another notable development but it's important to put today's results in perspective before getting too confident that the bottom is in for house prices.

As with last month, today's results showed that metro areas with typically strong seasonality worked to pull up the composite series while many other markets gained modestly leaving only Seattle and Las Vegas as decliners.

It's important to remember that the CSI data is lagged by two months and that the metro markets with strong seasonality (… especially recently) tend to reach their seasonal peak between June and July and then typically decline through the fall reaching a seasonal bottom in February.

Also, although Standard & Poor's publishes a seasonally adjusted series, their seasonal adjustment appears to be underestimating the degree of seasonality that is currently present in many markets (… Boston is a good example).

In any event, as the summer pricing cools the Composite indices will more than likely reflect the aggregate movement of prices declines just a strongly as it has captured the spring-summer bounce.

Also, looking at the 1990s-era comparison charts below its obvious that even after the main downward thrust has been reached, the housing markets have a long tough slog ahead with the ultimate bottom likely many years out…. Or if we are currently experiencing the Japanese model… decades out.

Further, is important to remember that the 90s housing recovery played out against the backdrop of a truly unique period of growth in the wider economy fueled primarily by novel and ubiquitous technological change (cell phones, internet, personal computers, telecommunications, etc).

The 10-city composite index declined 12.77% as compared to July 2008 while the 20-city composite declined 13.30% over the same period.

Topping the list of regional peak decliners were Las Vegas at -54.82%, Phoenix at -53.10%, Miami at -47.57%, Detroit at -44.71% and San Francisco at -40.99%.

Additionally, both of the broad composite indices showed significant declines slumping -31.13% for the 10-city national index and -30.16% for the 20-city national index on a peak comparison basis.

To better visualize today's results use Blytic.com and search for "case shiller".

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to each metros respective price peak set between 2005 and 2007.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a year-over-year basis.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a month-to-month basis.

Additionally, in order to add some historical context to the perspective, I updated my "then and now" CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data with side-by-side columns (click for larger version).

What's most interesting about this particular comparison is that it highlights both how young the current housing decline is and clearly shows that the latest bust has surpassed the prior bust in terms of intensity.

The "peak" chart compares the percentage change, comparing monthly CSI values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.

In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 97 months (over 8 years) peak to peak including roughly 43 months of annual price declines during the heart of the downturn.