The Lehmann Letter (SM)
The stock market is down this morning because eyes are on Europe and its debt crisis: How will the European nations pay their debts? What do the recent elections mean? What will happen to Greece? Will Europe survive austerity? How will Europe deal with weak economic growth? Will the euro survive? These are legitimate questions that require answers.
This letter remains optimistic, but many events have yet to unfold.
Meanwhile, except for housing, there is strength in the American economy. Recently the Department of Commerce announced 14.4 million new-vehicle sales in April at a seasonally-adjusted annual rate.
This year has been running strong, with monthly auto sales over 14 million. The chart reveals good progress from recession's depths when sales fell below 10 million.
But the key question remains: Without a robust housing recovery can auto sales break through 15 million and recover the 16 - 17 million pace they enjoyed before the recession?
Vehicle sales are linked to housing sales because housing is our barometer on the strength of consumer balance sheets. Housing can't recover until consumers, and the banks that lend to them, have regained confidence in household balance sheets: That net worth is adequate, debt is manageable and liquidity sufficient. When that occurs household exuberance will spill over into new-vehicle sales and restore autos' past strength. And strength in housing and autos would return the economy to full employment.
Housing is key.
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© 2012 Michael B. Lehmann