Don't Get Excited About CPI and Housing Data
This week it was announced that both producer and consumer prices dropped by 1.3% and .5% respectively, while housing starts unexpectedly increased by 5.9%. Not surprisingly, Wall Street celebrated the apparent good news, sending the Dow Industrials into uncharted territory. As has been its recent tendency, the market is unconcerned with recent bad news, instead championing it as confirming the highly touted "soft-landing." September's much weaker than expected non-farm payroll data and the Philadelphia Fed survey that showed an unexpected deterioration in manufacturing, are two recent examples. However, a closer look at the supposed good news reveals just how unwarranted the hype really is.
The inflation data was largely
a function of the sharp decline in gasoline prices. In the first
place, this decline will likely prove to be temporary, as it
merely reflects a correction in an ongoing bull market. The
confluence of events behind the correction will soon fade, and
gasoline prices will resume their upward march.
So as the temporary relief at the gas pump will soon end, pain at supermarket checkout counter will soon begin. These higher costs, combined with rising mortgage payments created by upwardly resetting rates on adjustable home mortgages, will result in severe strains on the consumer's ability to spend on discretionary items. Of course, if the consumer stops spending, there goes the ball game for an American economy whose GDP is 70% consumer spending.
I would also not take great comfort in the recently announced up-tick in housing starts. By adding additional inventory to an already over-built market, homebuilders are simply helping to make a bad situation worse. Either home builders do not appreciate the gravity of the supply and demand imbalances, or they are simply building in order to convince stockholders that the future earnings picture looks bright. Company insiders can only continue selling their shares if they convince investors to keep buying. A sharp reduction in starts would confirm just how dire the housing situation really is, and jeopardize many executives exit strategies. As a result, they keep building homes that they can't sell profitably, so they can keep selling shares that will collapse in price as soon as Wall Street wises up.
This confluence of seemingly good news has just about everyone embracing the soft landing scenario. This is more wishful thinking than true forecasting, as those calling for it the loudest have the most to gain from its occurrence. In fact, this rosy, pollyanna view is now so ingrained in Wall Street's psyche that any evidence to the contrary is summarily dismissed. However, now that most remaining skeptics are finally on board, the stage is finally set for the crash-landing scenario to catch everyone by surprise.
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Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange