By Robert Goldsborough
Recently released housing market data have shown some meaningful improvements, with both the new- and existing-home markets gaining strength simultaneously. Reports have shown nice increases in builder sentiment, housing starts, and existing-home sales, with data also coming in above expectations and housing start data from the previous month being revised upward.
This story has been very different from the way the housing market has looked over the past year. Previously, the housing market has shown a marked divide in its behavior: periods where new-home sales (or starts) did better and periods where existing-home sales did better. It's been rare for both to exhibit the same behavior. Most recently, that trend has broken, with strong performance both from new-home activity and existing-home sales. In addition, homebuilder confidence grew in August for the third straight month.
What has been driving this rosy housing news? Morningstar's analysts see a confluence
Would you base any decision on three-month old information? I doubt you would. So why should three-month old data about home prices matter to the market? The S&P Case Shiller Home Price Index may have been useful three months ago, but today, it's just obsolete. There are other data points to look toward for a more relevant reporting of home prices. In this case, though, looking at just one month fresher information, we get the same message. Home prices are declining. However, I believe it is part of the healthy process of real estate market normalization, and not due to any economic or sector issue. I think that home prices are finding traction at a level from which they can rise at a sustainable and modest pace.
With all due respect to Professor Shiller, who has produced plenty of significant work and is a relevant voice for markets to listen
They don't ring bells at tops, and one rarely hears the bullet coming....so they say.
Here is a short list of why I am highly defensive, right now, and recommend others do so and raise cash before the fall arrives.
It's all about the internal indicators, the weak foundation of the current rally.
1. Divergences. Although the Nasdaq continues to power higher and the SPX celebrates breaking the 2000 barrier, small cap stocks (NYSEARCA:IWM) continue to substantially lag. The rally -- continues to narrow in breadth and in new 52 week highs.
2. Treasury bonds continue to substantially outperform junk bonds, which are also lagging the SPX, a divergence. The yield curve continues to flatten, with long bonds greatly outperforming 5 year instruments.
3. Commodities are starting to sell off, hard, particularly oil, very interesting during a time of substantial Mideast uncertainty. Both this and the bond trends put into