Signs are Mixed - To Say the Least

Let's begin with the markets and a man named Fink. The markets in the U.S. were up roughly 2.5% today based - according to Bloomberg - on good housing numbers. Meanwhile, Fink - the name says it all - head of BlackRock, says stocks in the U.S. are ready to "rock." Do you get it . . . Black"Rock" ready to "rock." He is not so positive on the EU, but who is. By the way, BlackRock manages over $3 trillion in investments (yes, that is with a T) so he arguably has good street cred. So it is with great difficulty that I have to build a case to disagree. (My six year old daughter would say to me that I am being sarcastic at this point).

http://www.bloomberg.com/apps/news?pid=20601110&sid=aRyKXyGE.xUY

Let's start with the housing numbers. At least Bloomberg acknowledged that the pick up in sales was due to the end of an $8000 tax credit promotion at the end of April. Nonetheless, I saw numerous headlines, analysts and commentators today touting the good housing numbers, which according to most of what I read is responsible for the good market numbers today and good numbers so far in the market in Japan. Don't believe me, listen to Bloomberg in this attached link.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahdrnfUqZWbU&pos=1

So where, might you ask, lies the problem? Let's start with the prospect that on housing we have paid it forward big time and are in for a world of hurt the next few months. And I mean a serious world of hurt. Let me just say new mortgage applications, since the lapse of the home buyer tax break, have gone down just a tad - AS IN THE LOWEST LEVELS SINCE 1997!! Did I say a world of hurt?!

http://www.calculatedriskblog.com/2010/06/mba-mortgage-purchase-applications.html

How on Earth can the markets react so positively on this artificial housing number? I think because market wise we are down 10-11% in a matter of weeks and money is itching for an excuse to come back in. Money just chose today a poor excuse to come in.

Now it is not like housing is showing a great resurgence because foreclosures or defaults are down. Yes, for those companies now owning most of the mortgages in this country -Fannie, Freddie and FHA - delinquencies are down, but perhaps only because they are being more aggressive in pursuing foreclosures. The REO numbers for this trio continue to set new records each and every month, and we are talking about a staggering increase of REO inventory among them, increasing roughly 50% between second quarter 2009 and fourth quarter 2009. With all these foreclosed properties coming on the market I do not see much in terms of a RE bounce this year.

http://www.calculatedriskblog.com/2010/06/fannie-mae-serious-delinquencies.html

Now I would be remiss not to note that auto sales are posting some strong gains YOY and there are other signs of recovery, but a lot of this seems to be companies finally filling in historic low levels of inventory. Exports are up in the U.S. but how long can this last as the dollar continues to strengthen - especially against the Euro. Bottom line, with overburdened individuals and governments in terms of debt levels there is just so far this run can go.

I could be wrong on my expectations but the fundamentals still do not lead me to trust a Fink.

Disclosures: None.