Market Commentary

New home sales surged 26% in March
April 26, 2010

New home sales surged 26% in March, the biggest increase since 1963.  In my view this surge is the direct result of the pending cessation of the home buyers tax credit and milder weather.  I think demand will remain elevated through April as the tax credit ends on Thursday.  The number of new homes available for sale declined only 5K but because of strong sales the key inventory to sales ratio (I/S) declined to a 39 month low of 6.7 months.  A healthy market is defined as I/S ratio of 3-4 months.

Analysts had expected a 5.5% increase in new home sales but it is generally accepted that any rise (or decline) over 10% is significant.  All are expecting sales to decline in May but the question is by how much.

Many claimed cash for clunkers robbed future auto sales.  The data suggests this is not case.  Yes sales did decline from incentive induced purchases but are still 20% higher than levels measured at the depth of the recession.  Auto manufacturing is a major reason why the manufacturing sector is exhibiting sustained and robust growth, a view validated by March’s strong durable good orders.

Will residential real estate follow the same path as autos?  I think yes for a myriad of reasons, the primary of which is pent up demand.

Commenting upon Greece, early Friday morning Greece announced it will petition both the IMF and EMZ for a bailout as it appears any type of public offering will be too expensive.  It is my understanding as per Bloomberg that the European governments must go back to their respective legislatures to ask for such authority to bailout a sovereign nation.

What are the odds 22 diverse countries will approve such action especially by the end of May, the date Greece must roll over about E10 billion?

Is the Euro and EMZ toast as I believe it is all but inevitable Greece will rely entirely upon the IMF for its bailout? Perhaps the only certainty is that Euro zone debt will trade lower costing all countries more to fund their fiscal needs.

Speaking of interest rates, the Federal Reserve meets tomorrow.  What comments will the Committee make regarding our lack of fiscal restraint?  How does the FRB view the economy?  All are expecting no change in the overnight rate but as inferred above the post meeting statement will be scrutinized.

There are other notable events this week other than a FOMC meeting.  Earning season accelerates as over 35% of the S & P post results.  The economic calendar is very heavy and includes a regional manufacturing and home price indices, several consumer confidence surveys, employee costs and first quarter GDP.  And then there is today’s scheduled vote for the financial reform bill.

To state the obvious, this could be a significant and volatile week.

Last night the foreign markets were up.  London was up 0.74%, Paris up 1.15% and Frankfurt up 1.01%.  Japan was up 2.30% and Hang Sang up 1.61%.

The Dow should open nominally higher as earnings are indicating the economy will continue to expand and apparent relief that Greece finally petitioned the IMF for a bailout.   The 10-year is up 3/32 to yield 3.80%.