Yesterday’s report on existing home sales showed the worst numbers in forty years that they have been tracking them, today’s Commerce Department figures for new home sales were the worst in the fifty years that they have been tracked. For July new home sales fell nearly 33% from last year and 2009 was not a stellar year. The drop from the previous month was 12% and again this compared to the previous bad month. This is even worse than yesterday’s news because new home sales are linked to far more jobs in construction, building materials and durable goods like appliances.
A disturbing point on this is that the poll Reuters did of economists had predicted there would be no change. These are the guys that are influencing the policy makers in government and business and it seems that every news piece mentions how wrong they were.
Durable goods showed 0.3% growth but those whacky economists had predicted a 2.8% gain. Remember these economists’ predictions that are quoted are poll number averages, some predictions were even further off. If you exclude aircraft and automobiles the numbers were all very bad, off almost 4% on average with machine orders off 8%. Machine orders, as in manufacturing jobs.
Whirlpool that became the world’s largest appliance maker after absorbing Maytag and then closing its union plants is exporting 400 more jobs to Mexico in October. Whirlpool shares are trading higher today with futures contracts particularly active creating the rumor that the price will spike still higher. Don’t mind that the stock market could head south anytime.
Some pundits are predicting a DOW at 5000 and wild fluctuations for many years to come. The likely bottom based on past market swings during even minor recessions since the last Depression has been 25% of the asset replacement value. This theory is also known as Tobin’s Q ratio (Tobin won a Nobel prize). The real value of the DOW is around 6000 points based on a Q ratio of 1 to 1. So the real bottom, if the theory holds is 1500 but that’s based on past numbers and we don’t live in that world anymore.
In the last century, the American Century, American factories made things, Americans built houses and sent their kids to college. Eggs came from farms and not from factories. Americans shopped at the stores on main street where they sold things that Americans made. That was the century Professor Tobin lived in.
The neo-cons say we are living in the New American Century and if we just cut taxes for the rich some more they’ll show us what that is really like. After all the rich will spend that money, it will then trickle down to the rest of us and we’ll all be rich. The first thing the rich will buy is some new Whirlpool appliances from Mexico. Do you feel a warm trickle running down your back too? www.prairie2.com