Confidence

by Larry Levin

Although there were two major reports today, consumer confidence and housing prices, only one mattered. Which report mattered? The bullish one. The consumer confidence report, however, was far better than expected.

This morning's Case/Shiller housing price index was bad - very bad - which recorded a 19.1% decline in the 1st quarter of 2009 versus the 1st quarter of 2008. This was the largest decline in the series' 21-year history.

When housing prices were far out of line with incomes the first to go bust were the hair dressers-turned-house-flipping tycoons. Then the subprime borrowers went up in smoke. Shocking nearly all economists is that now the prime borrowers can no longer afford to make their mortgage payments. Their heretofore housing ATM has been turned off as housing prices continue to drop.

All of this makes a recent NY Times article relevant today.

"In the latest phase of the nation's real estate disaster, the locus of trouble has shifted from subprime loans - those extended to home buyers with troubled credit - to the far more numerous prime loans issued to those with decent financial histories.

"With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.

""We're about to have a big problem,' said Morris A. Davis, a real estate expert at the University of Wisconsin. 'Foreclosures were bad last year? It's going to get worse.'"

But as I mentioned above, the consumer confidence data stole the show. According to the Conference Board the index jumped to 54.9 in May from an upwardly revised 40.8 in April as expectations for the economy improved. The gain is the fourth-largest in the 32-year history of the survey, and the index is at its highest level in eight months. Economists were expecting the index to only improve to 43, so as I said in the beginning, it was far better than expected.

However, some noted that although this is a fine jump indeed, the index is still much lower than where it should be. During recessions, confidence has averaged 76.3, rising to 85.9 during recoveries, and 99.8 during expansions, according to the research note.



Previous Day's Trading Room Results:

Trade Date: 5/26/09

E-Mini S&P Trades*
(before fees and commissions):

1) TP buy @ 12:50pm at 908.25 = b/e (1 lot)

2) Algorithm positions (4)...combined Secret's and Algo total...+5.75


Electronic (YM) Mini-Dow:

1) None today



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