Stock Online TraderBulls & Bears Make Money, Pigs Get Slaughtered…Let Us Not Be That Pig…

Bloomberg has latest story about US Pending Home Sales: U.S. Pending Home Sales Probably Fell in March for Second Month

Fewer Americans probably signed contracts to buy previously owned homes in March for the second consecutive month as falling prices and tougher loan rules discouraged buyers, economists said before a report today.

The index of pending home resales fell 1 percent after a 1.9 percent drop in February, according to the median forecast in a Bloomberg News survey of 30 economists.

The glut of unsold properties is driving down home values, while rising defaults on subprime mortgages have prompted lenders to restrict access to credit, representing more hurdles for buyers. The slump in residential real estate may persist for much of the year, hurting economic growth.

….

Recent reports indicate the worst housing slump in a quarter century is far from abating. Purchases of new homes plunged in March to the lowest level in almost 17 years, while the median price fell the most in almost four decades, according to the Commerce Department.

Sales of previously owned homes fell in March for the seventh time in eight months, according to the Realtors’ group.

The pending resales index is considered a leading indicator because it tracks contract signings. The existing-home sales report reflects closings, which typically occur a month or two later.

….

Home values fell 7.7 percent in the first quarter to the lowest level in almost three years, according to Zillow.com, an online real estate data provider. Zillow also estimates that almost 52 percent of owners who bought homes in 2006 now owe more on their property than it is worth.

…..

Access to credit is also shrinking. The share of banks making it tougher for companies and consumers to borrow approached a record in the past three months, according to the Federal Reserve’s quarterly survey of senior loan officers issued this week.

….

The fallout from the housing downturn is spreading. The world’s biggest banks and securities firms cut a combined 65,000 jobs in the past 10 months as mortgage losses and writedowns for financial institutions reached $319 billion, according to Bloomberg calculations.

I believe we are still not out of the woods. The current rise in the stock market seems like a short term uptrend in the bear market. Such violent rallies are very common in the bear market. These are opportunities to lighten up on long positions and slow start entrying short positions.

WSJ: Credit Crunch Hurts Hedge-Fund Stars

David Tepper, founder of hedge-fund firm Appaloosa Management LP, saw a negative 17% return last quarter in two funds with more than $6 billion in assets combined as bets on distressed debt went awry, according to fund documents. His Appaloosa Investment and Palomino funds gave up most of that ground in January and February, as declining prices for mortgage-backed bonds and other debt investments caused broad credit-market seizures.

…

Some hedge-fund managers who have fared better this year are saying the wild ride in the markets isn’t over. “As we enter the second quarter, the volatility seen in past months does not appear to be in the process of disappearing soon,” wrote Philip Falcone, a former head of high-yield trading at Barclays Capital who runs $19 billion hedge-fund firm Harbinger Capital Partners, in a quarter-end letter to his investors. “Rising default rates, consumer struggles, weak labor markets and contraction in manufacturing/nonmanufacturing sectors continue to dampen the U.S. economy.” Harbinger posted returns of about 8% in its $15 billion Harbinger Capital Partners fund and 4.5% in its $4 billion Special Situations fund last quarter, according to client letters.

Another hedge-fund giant, John Paulson, whose Paulson & Co., of New York, oversees $32 billion, once again is taking advantage of credit turmoil, with a 10% rise at its Credit Opportunities funds in the first quarter, according to fund documents. Mr. Paulson personally profited to the tune of an estimated $3 billion last year on bets correctly forecasting the housing-market plunge.

Some hedge-fund managers’ troubles have mounted this year as banks tightened standards for buyers of risky assets such as securities backed by subprime mortgages to people with poor credit. Margin calls, or demands for increased assets or cash as collateral for loans, have caught some hedge funds short, causing them to unload assets and sparking a broader sell-off of securities and price declines in more highly rated assets.

As the dominoes fell, London hedge fund Peloton Partners LLP imploded in late February. But Appaloosa, for one, stabilized somewhat, with its two funds down 3.4% for March. The troubles of others, though, were gaining momentum.

John Meriwether’s JWM Partners LLC, of Greenwich, Conn., had a negative 31% first-quarter return in his Relative Value Opportunity Fund, the firm’s biggest. It included a decline of more than 20% in March alone, according to a fund document. The bond portfolio, which started the year with more than $1.2 billion, was hammered by investments in Japanese government securities. Mr. Meriwether, 60, is perhaps best known as a founder of Long-Term Capital Management, the hedge fund whose loss of $4 billion in 1998 threatened a global financial crisis.

Hedge funds world-wide across all investment styles posted losses of 2.8% on average, after fees, last quarter, according to Hedge Fund Research, the Chicago firm that tracks fund performance. Most relative-value managers and those who specialize in fixed-income trading finished the quarter down 2.6% to 6%, on average, depending on their focus.

New home sales measure the number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends and, in turn, economic momentum and consumer purchases of furniture and appliances.

Why Do Investors Care?
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic “ripple effect” can be substantial especially when you think a hundred thousand new households around the country are doing this every month. Since the economic backdrop is the most pervasive influence on financial markets, new home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

Current New Home Sales Data
Sales of new homes fell in February for the fourth straight month, pushing activity down to a 13-year low. While the rate of decline has slowed, the worst slump in more than two decades has not run its course, analysts said.

The 1.8 percent drop sent the annual sales rate down to 590,000 units in February. That was the slowest pace since February 1995 and down 57.5 percent from the sales peak of 1.389 million units in July 2005. The median price of a home sold last month dropped to $244,100, 2.7 percent less than the level of a year ago. The median sales price is the point where half the homes sold for more and half for less.

A closely watched gauge of existing home prices, the S&P/Case-Shiller Index, reported recently that 16 of 20 major cities had record annual price declines in January compared with a year ago.

A separate report Monday showed that sales of existing homes posted an increase of 2.9 percent in February, the first gain after six months of declines. Nonetheless, analysts said they do not expect a sustained rebound for many months in the market for resales or new homes, primarily because the number of unsold homes is so high.

The report on new homes showed the number of unsold homes on the market at the end of the month was a 9.8 months’ supply at the February sales pace, matching the 26-year high set in January.

Builders have cut construction and offered heavy discounts. Such efforts have been offset by record mortgage defaults, dumping even more homes on the market.

Analysts said buyers’ demand remains weak heading into the spring sales season. Among the reasons are difficulty in getting loans because of tighter standards and potential buyers’ hesitancy to commit to a purchase in an environment of falling prices.

Sales of new homes dropped the most in the Northeast, by 40.6 percent, and fell 6.4 percent in the Midwest. Sales rose 5.7 percent in the South and 0.7 percent in the West.

The two-year slump in housing has depressed overall economic growth. The government will provide its last look at economic growth in the final three months of 2007. Many economists believe that report will show the gross domestic product edged up by a barely discernible 0.6 percent from October through December. Many analysts believe GDP growth may have dipped into negative territory from January through March, which would be the strongest signal yet that the country has slid into a recession.

The worry is that the slumping economy and rising unemployment will make it more difficult for housing to mount a sustained rebound in the second half of the year.

Source: Bloomberg, ET