Evaluation of Market Bottoming Evidence

 The most recent chatter concerning evidence of a market bottoming pattern is widespread in nature, occurring in both financial and traditional media outlets. The impetus for this new found optimism was the release of several economic data points throughout the past week, and subsequent media analysis of the chart pattern formed by the inclusion of these data points. We will first offer an assessment of the data itself, followed by our observations concerning the individuals who are aggressively promoting this new economic storyline.

The two data points that are most widely cited as evidence of a market bottom are new orders for durable goods and existing home sales. The durable goods data is notoriously volatile, and thus we will not pass any judgment until at least four additional months of data are available. The trend in existing home sales however, has the ability to offer a bit of insight. More importantly than the headline data figure, we think, is the fact that approximately 40% of these sales involve a distressed property. This is actually to be expected, and provides evidence that the Market is working to clear the inventory of foreclosures, a prerequisite for any sustainable recovery. Sales of existing homes will likely continue to rise in the coming months, until at least, the Government's refinancing and foreclosure prevention efforts begin to work their way into the economic data. We expect these efforts to slow the intensity of foreclosures at any given point in time, although the total volume will remain relatively unchanged. Ultimately however, the level of existing home sales does not serve as an indicator as to the extent of deterioration in the underlying collateral of the securitized pools of mortgages that continue to rot the financial system from within.

As for the "pushers" of this new bottoming theory, we are not surprised to see that the chief proponents are none other than the usual Wall Street asset managers, who are unashamedly attempting to lure the public back into stock related investments. This is, and has always been, the Name of the Game.

 

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Comments

Is the "story" true or not?

That ought to be your analysis.

You seem to agree that the housing story is correct, and important, even though prices are likely to fall much more (which is a good or bad thing depending on if you are a first time buyer, or a seller who bought within the last few years).

As to who is "pushing" the story, I'll let Rob Oak and others here vouch for my bona fides. I'll also note that Calculated Risk is looking for a bottom, and CR's ideology is what I would call center-left.

Describing what is happening with the economy is an entirely different enterprize than analyzing the morality of how the economy is functioning.

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I'll add to that

Back to my divergence theme or the theoretical economy decoupling from the real economy mantra...

I think many folks who aren't hip to Economic indicators and what they all mean are simply aware that they are personally screwed.....and the percentage of personally screwed in the United States keeps rising...

so maybe we need along with all of this some sort of main street recovery indicators super imposed on the traditional EIs.

i.e. wage cycles, under employed cycles....then the damn median wealth indicators are so hosed because they were funneled with private dwellings...which is turn was overinflated debt. Maybe another one is career longevity and stability.

I'm just mulling here but something that more clearly ties main street to national economic growth and recovery or lack thereof.

To everyone else, yes The Economic Populist is a layperson's blog, a community blog, a place, as long as it's well reasoned, referenced, cited, based in economic reality, one can blast out on the national screw job called Economic, Trade policy....

but frankly we really do expect you to crack the economics books, we expect you to read, learn, understand or ask questions about economics 101. I believe anyone with a college education absolutely needs to crack those books never mind those with a high school education. This is the most critical policy area besides outright war that affects real people and their real lives. Even war is so often tied into economic related policies.

So, once again, what's happening here is NDD happened to have a strong economic education and he's simply using it...
and yes all of these metrics are extremely valid..

just because one doesn't like economic policy....one should not confuse that with economic theory and metrics...not the same things.

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bottoming theory "pushers" & welcome to EP Carneades

You might check out the user guide on the upper left column for how to format, cite references.

As far as the "buttom pushers", I can guarantee that NDD is no "Wall Street pusher", just looking at the data to get an accurate picture and he has written other posts on EP, one of my favorites of recent on what he would like to see in a real financial crisis recovery plan, which has the bold desire to fire Summers and Geithner immediately...

That said, being fact based and getting to the bottom of the actual facts is one of the points of EP, so adding references, quotes, graphs and other metrics in a blog post brings you good juju so we can see your points more clearly.

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