Monday, March 2, 2009


The Lehmann Letter ©

Today the Dow fell 300 points to 6763, a 12-year low. Why? What’s propelling it into the sub-basement?

Most analysts blamed financial stocks after AIG reported huge losses.

That’s probably true. But we shouldn’t let our financial-sector focus restrict our perspective. The underlying economy is doing miserably, as the following charts illustrate.

New-home sales fell to 309,000 in January. Connect the trend-line to that level in the chart below, and you can see that something is terribly wrong. Home sales have not been this weak since the Commerce Department began collecting the data 45 years ago. Moreover, the latest figures are only 25% of what they had been until recently. Finally, about 400,000 new-home sales marked the trough of earlier cycles. We’re 25% below that and there’s no indication we’ve reached bottom. This is a disaster.

New Home Sales

(Click on chart to enlarge)

Recessions shaded

Real-estate’s collapse has dispirited consumers. The Conference Board reported that consumer confidence fell to 25 in February. Connect the trend-line below to that number. We’ve gone from 140 ten years ago to one-fifth that level today. Households were not this gloomy during the sky-high inflation of the late 1970s or the 10% unemployment of the 1981-82 recession.

Consumer Confidence

(Click on chart to enlarge)

Recessions shaded

The result: Consumers are boycotting consumption in order to preserve their balance sheets. They’re trying to conserve cash, retire debts and build equity. You do that by saving, not spending. No woner everything is headed south.

Perhaps the stock market has further to fall.

(The charts were taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2009 Michael B. Lehmann

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