MARKET COMMENT
October 26, 2006
Builders slash prices to sell more homes
Sales up 5.3% in September, but prices plunging at
fastest rate in 36 years
So screams the headline at MarketWatch
today. Homebuilders, as we’ve suggested,
are subject to the same forces as any retailer—too much inventory, cut prices
and get rid of it. No doubt their
bankers and bondholders are communicating the same message. That means, as bulls have been arguing, it’s
not the price that matters but the inventory build-up. XHB (Homebuilders ETF) was “washed-out”
technically in July. Bottom-pickers have
been pushing the price higher ever since confirming that few sellers
remain. But is there a lot more “up” to
this story than just an absence of sellers?
Clearly, homebuilders have to build more homes and sell them at a profit
for earnings to rise rather than just clearing the decks. (And inventories of unsold homes are still up
14% over the past year and unsold new homes are up 47% so sales just rising
somewhat hasn’t made a large dent in the number. As bulls would argue, the trend is reversing
silly!)
Now how about some crass self-serving posts?
Now many think we’re unhappy with conditions. Why would we be since we have many
positions? But, there is one disturbing
piece of information. As reported here by AMG Data Services, money is still not
flowing to the markets despite all the hoopla and grand headlines. Why is that?
I guess individual investors aren’t buying yet what Wall Street is
selling.
Tomorrow we get GDP data and everything could change. Did Mr. Market forget that September and
October are supposed to be bad months?
That’s why they play the game folks!
Disclaimer: The ETF Digest
maintains positions in: IEF, GLD, EWM, EWZ, IFN, PHO, IBB and FDN.