Let’s cut through the spin…

First, this is getting old hat, but that imminent housing rebound continues to evade us. We continue to see startling losses in home values - but this is nothing new, nor something we did not predict. What will amaze you is the first time home prices stop dropping 14% year over year (which is a disaster) to 11% year over year (which is a disaster) we will hear trumpets blaring and samba dancing on CNBC. Watch for it; it should be coming within the year. All these housing stories start to sound the same, but the key takeaways here are

1. The disaster continues
2. New home builders were the first to slash prices but optimists continued to point to existing home prices “holding up” - my comment was - that is because these people (current home owners) are not facing reality, have emotional attachment and/or have no idea what the real housing market is like. They will change their tune soon enough - i.e. when the house in the neighborhood half a mile away (new homes) is being sold for $75-$125K less than your home… that puts some reality into your world. That is NOW starting.
3. “Walk aways” of people who are underwater are just really getting started - Jose Canseco did it, and it’s spreading throughout the country. That’s going to flood the market with more supply - it does not make ECONOMIC sense to keep paying for a depreciating asset. As I said late last year, 2008 (and part of 09) will be the year of the walk away
4. What markets are doing well? Those with (shocker) affordable homes! $110K or so range. They are seeing appreciation. Unfortunately in most of our urban centers where our populace is concentrated, $110K buys you a kitchen and bathroom… not much else.
5. 3 MILLION homes in America now sit … EMPTY.
6. The quicker we let this pain play out, the faster we can heal. I will repeat every month; the best thing for the bottom 80% of Americans will be an era of lower home prices - the less they need to spend for a roof over their head the more they can spend for the minor things in life, such as eating or heating/cooling said adobe.
7. If you live in a farming area or energy related part of the country - don’t bother reading the numbers below; it’s a whole different world.

• Single-family home prices dropped 7.7% in the first quarter in the largest year-over-year decline since the National Association of Realtors began reporting prices in 1982.
• The median sales price fell to $196,300, down 4.8% compared with the last three months of 2007. (that is not year over year, that is quarter over quarter - which would be equivalent to 20% year over year fall)
• Sun-Belt cities were among the biggest losers. In California, Sacramento prices plummeted 29.2% to $258,500 compared with last year and Riverside prices fell 27.7% to $287,100. Prices in Las Vegas fell 20.2% to $247,600 and those in Phoenix dropped 15.4% to $222,200.
• Midwestern cities, hard hit by factory closings, also suffered huge losses with Lansing, Mich., prices falling 26.9%.
• The best performing market in the nation was Binghamtom, N.Y., where prices rose 11.8% to $109,700. Second was Peoria, Ill., up 10.4% to $119,000 and Spartanburg, S.C., where prices rose 10.2% to $130,300.
• All that foreclosure activity added to the glut of homes on the market. The total inventory has risen to an average of 10 months worth of unsold homes. In addition, a record number - 2.9 million - of vacant homes are up for sale, according to the Census Bureau.

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On to retail sales - I won’t even bother with the “better than expected” mirage. Remember folks, this does not take into account inflation. If inflation is 5%, then retail sales would have to be up 5% just for unit sales to be FLAT. So what is being celebrated today is a complete joke but let’s clap like seals and drink Kool Aid on the resilient consumer. We are seeing demand destruction. Just to keep up with inflation retail sales should be jumping 5-10-15%. They are in fact down 0.2% this month but if you EXCLUDE autos, they are up ! Yee haw. See, in every report we can exclude something to make it look good.

• The Commerce Department reported Tuesday that retail sales dipped 0.2 percent last month, right in line with economists’ expectations. It was the second drop in the past three months and was led by a 2.8 percent decline in auto sales, the biggest setback in this category in 10 months
• Excluding autos, retail sales rose by 0.5 percent, a better performance than had been expected as sales at general merchandise stores, a category that includes big chains such as Wal-Mart, posted a 0.5 percent increase (mmmm, Kool Aid)

I am going to start a new housing price index. I am calling it the CORE HOUSING index. While real housing prices are down 15-20%, the CORE HOUSING ™ index is up 1.6%. In my trademarked core housing index I exclude all homes that dare to go down in value. Therefore I can make the number look bright and shiny (I believe this qualifies me for a job in government now) Therefore we have normal Case/Schiller Housing Index -15 to -20% price drops, but the all important Core Housing Index is up 1.6%. Things are looking up in housing (using core!), buy stocks! It sounds like a joke but this is what we are doing in all our numbers now - we are excluding this or that from inflation, we are excluding this or that from retail sales, as long as we exclude all the things with NEGATIVE effects, the economy is BOOMING. I’ll continue to report the core housing index to you in the future, so you are not swayed by the dirty underhanded media which is Democrat controlled and reporting false numbers to you, so you feel bad about the economy and vote Obama. It’s all a conspiracy.

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But one retailer in the “pooring of America” is doing great - who else? Our friend Walmart (WMT) - BOOM. This is just the beginning - great times ahead in the next 2 years (at least) for these guys. They sand bagged their guidance and will crush it in the future.

• Wal-Mart Stores Inc. on Tuesday said first-quarter profits rose 6.9 percent, but the world’s largest retailer offered a guarded outlook as consumers wrestle with higher energy and food costs.
• Without fuel, same-store sales for the first quarter were up 2.9 percent at Wal-Mart’s domestic properties, rising 2.7 percent in the Wal-Mart Stores division and 3.6 percent at Sam’s Clubs.
• In a research note, analyst Adrianne Shapira of Goldman Sachs said Wal-Mart’s first-quarter numbers “demonstrated that it is best positioned to weather today’s challenging environment,” considering increases in customer visits and how much shoppers are spending each trip.

This chart tells you everything you need to know about the health of the American consumer/economy (ex farms, ex energy, ex exports, ex movie stars, ex upper 1%, ex bankers, ex professional athletes) Keep in mind, this stock has been comatose the entire 2000s; its the same price it was in 99. So this type of move, for this type of stock “tells us” a lot.

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