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Stock Ideas Investors Daily Edge The Economy Won’t Turn The Corner Until The Other Big Three Turn The Corner
Stock Ideas Investors Daily Edge The Economy Won’t Turn The Corner Until The Other Big Three Turn The Corner 
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| The Economy Won’t Turn The Corner Until The Other Big Three Turn The Corner |
| Monday, 10 November 2008 | ||||||||
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Now that the election is over instead of focusing on what is going to happen over the next 10 weeks until the inauguration, I thought it would serve our readers better to look further out. Over the next 10 weeks there are going to be numerous news items that will affect the market. Right now, everyone wants to know how President Obama is going to turn the economy around. First, it isn’t going to happen overnight. We aren’t going to go to bed on January 20 and wake up on January 21 and magically the economy is fixed. And this would have been the same had McCain won. One thing that might change somewhat overnight is we could see a boost in consumer confidence. With things looking so dire, a change in leadership certainly couldn’t hurt right now. Kind of like when a sports team makes a coaching change in the middle of the season. All of the sudden the team goes on a winning streak with the same players. When leadership is changed, there is an attitude change. We better hope this is the case for the American economy. In order for the economy to turn the corner and start improving, one of the big three has to start improving. I am not talking about GM, Ford and Chrysler. I am talking about the other big three. What are the other big three? As children, most of us dreamed of having three things when we thought about growing up: a nice house, a nice car, and a nice job. These are the other big three. Right now, these big three for most people are about as optimistic as the outlook for the automotive big three. Over the past year, home values have dropped sharply, auto sales have dropped like a rock, and unemployment has gone through the roof. Before the U.S. economy can turn around, at least one of these markets is going to have to turn higher. After the October payroll numbers were released, it isn’t looking likely the job market is going to be the one that turns around anytime soon. Adding the 240,000 jobs lost in October to the rest of the year, the number of jobs lost so far this year has reached 1.2 million.
Turning our attention to auto sales, the picture is much the same. October’s numbers are the worst since 1992. You might recall this was during the ‘91-’92 recession. Vehicle sales have been falling for over three years now after peaking in the third quarter of 2005.  Much has been written in IDE as well as other publications about the trouble of The Big Three. Without a doubt the U.S. automakers have serious problems, but as you can see in the chart, import sales are declining as well. The third of the other big three, housing, may have the best shot at turning around first. Three recent reports have shown the housing market is improving slightly. The August Pending Homes Sales Report showed an increase of 7.4 percent compared to declines in previous reports. The September Existing Home Sales report showed an annual rate of 5.18 million homes versus the August number of 4.91 million. The September New Home Sales showed an annual rate of 464K versus the rate for August was 452K. The pending home sales and existing home sales were both skewed by foreclosure sales, but still it is slightly encouraging. The inventory of homes on the market is insane right now, we have to start depleting this inventory, and the logical place is with the foreclosures. Once we work through the foreclosure inventory, we can start working our way through the houses on the market that are what I would call desperation sales. The owners are desperate to get out from under these properties, whether they are investment properties or primary residences. People are doing some serious panic selling in the real estate market right now and there are some attractive prices out there. The new homes inventory has already been depleted pretty significantly. In fact, the inventory of new homes on the market hit a five-year low in October, so builders have done a good job in tightening up their books. They were not getting the prices they hoped to get, but the inventories are depleted nonetheless. So where do we go over the next four years under President Obama? That remains to be seen, but if I were one of his economic advisors, I would focus on stabilizing the housing market. It is the one of the three that still has a heartbeat at least and if you can revive the housing market, the other two will follow suit. As I said earlier, the economy isn’t going to turn around immediately and that would have been the case for either candidate. A change in leadership is what this country needs right now and that could be said for either candidate as well. The Obama supporters are celebrating and are feeling much better about America right now. Hopefully, that will translate into an increase in consumer confidence and with a more confident consumer, we just might get through this mess. Good luck and good trading, Rick P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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