2012 February 01 | timiacono.com

ISM Manufacturing Index at 7-Month High

If the nation is about to enter a recession, then somebody better tell the Institute for Supply Management’s manufacturing index that rose to a seven month high last month, the important new orders component continuing to indicate a healthy expansion.

The overall index, where readings above and below 50 indicate expansion and contraction, respectively, rose from 53.1 in December to 54.1 in January and, while this was slightly below consensus estimates, a jump in the new orders component from 54.8 to 57.6 compensated for that disappointment.

Not surprisingly (given the rise in new orders) backlog orders rose from 48.0 to 52.5, however, there were a few negatives as production fell from 58.9 to 55.7 and the employment index dipped from 54.8 to 54.3.

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Not surprisingly, I’m going to have to agree with both Yale Economist Robert Shiller in this Business Insider interview and Barry Ritholtz at his Big Picture blog in arguing that a housing bottom – if it does indeed arrive in 2012 – will prove disappointing for those expecting gains on their real estate investment in 2013 or 2014.

As shown to the right using the mid-1990s Los Angeles housing market as an example of what might happen to national home prices in the years ahead, housing market bottoms are long drawn out affairs.

We happened to be living in Southern California at the time and had the good fortune to buy a house there in 1995, though, we were just looking for a place to live, not thinking of it as an investment.

I remember the price actually declined by another five percent or so in the year after we bought it and it wasn’t until five or six years later that we began to hear about rising home prices, a bit surprised to learn that the value of our place had increased by  $100,000 or more.

But, for the first few years, you were better off not even thinking about home values.

Using the broad Los Angeles price index as an example, even if you had bought at the absolute bottom in February 1996, you’d have had less than a one percent gain a year later.

The index spent a full four years within five percent of the February 1996 low!

Anyone thinking that a housing market bottom in 2012 means that home prices will be higher next year or the year after that will probably be disappointed.

Moreover, given the size of the recent boom and the likelihood of the bust being of similar magnitude, I wouldn’t be surprised if home prices don’t post a substantive advance for the rest of the decade.

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The Ongoing Housing Boom in Warshington

It’s nothing like Vancouver, but, by U.S. standards, the ongoing housing boom in the nation’s capital is rather impressive, a point made clear in the graphic below from this Washington Post story following the release of the latest Case-Shiller home price data.

Note that the November index values for Detroit, Atlanta, Las Vegas, and Cleveland wouldn’t show  up on the chart above as they have all fallen below the 100 mark, the latter three areas having done so over the last year or so while Detroit made the plunge back in early-2008, now sitting at a stunning 70.66 after falling another 2.4 percent.

Interestingly, after hosting one of the more spectacular bubbles last decade, Miami’s housing market is now within a point of the 20-city index.

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Wednesday Morning Links

MUST READS
House prices hit post-bubble low – Washington Post
China PMI tops forecast, hard landing fears ease – Reuters
Hong Kong Homes Face 25% Drop in Year of the Dragon – Bloomberg
U.S. federal gov’t to run 1.1 trillion USD deficit in FY 2012 – xinhuanet
The perils of Mario Draghi’s €1.5 trillion blitz – Telegraph
In Talks on Greek Bailout, Eyes Turn to Central Bank – NY Times
The EU summit: A deal, but to what end? – Economist
EU Summit Marred by Fears of German Domination – Spiegel
Liens filed on American Airlines after pension payment comes up short – McClatchy
Consumer Financial Protection Bureau Complaints Tallied For 2011 – HuffPost
California Faces Cash Shortfall by March on Low Receipts, – Bloomberg
After a Delay, MF Global’s Missing Money Is Traced – DealBook

MARKETS/INVESTING
Oil inches above $99 on China data, US supply jump – AP
Gold keeps up rally after best January in 32 years – Reuters
‘January Barometer’ predicts good year for stocks – USA Today
Get Out Of Stocks Now! – ETF Daily News
How best to play the gold market in February – MarketWatch
Fleckenstein: Get Ready, Public to Enter Gold & Silver Markets – KWN
Long term gold prices, short term speculators and macroeconomics – Mineweb
Silver off to perfect start with 20% gain in January – BullionStreet
Gold to hit 2,000/oz in 2012: PwC – Commodity Online
The reasons behind gold’s break out – Mineweb

ECONOMY/WORLD/HOUSING/BANKING
Jobs Increase as Health Care Eclipses Factories – Bloomberg
Krugman Doesn’t Tell Whole Story About British Austerity – Bloomberg
The free market doesn’t make people poor. People do. – Mises, CSM
China export and import demand dips amid global fears – BBC
Inflation stays high in Asia, central banks face dilemma – Reuters
Europe May Be Planning 1.5 Trillion Euro Backstop Fund – Spiegel
Chinese travelers are seeing the USA in record numbers – USA Today
Seeds of Housing-Market Recovery Have Been Planted, Case Says – Bloomberg
In Atlanta, Housing Woes Reflect Nation’s Pain – NY Times
Homeownership rates fall to 66% as downturn nears a bottom – USA Today
Fed Reveal Assets From Ranchland to Inflation-Linked Bonds – Bloomberg
I Don’t See How This Can Continue – Fed Watch

 
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