US – Home prices surging, Home sales improving, loss of pay rolls going down, How long will the stimulus continue?

Before going into the main article for today, i would like to record some of my thoughts here. Today Nifty crossed 5000 mark. Just 20 odd trading sessions ago, at the turn of the month of September, almost 80% of the analysts were calling for a correction this month. The average target given were around 4200 – 4400. But, the markets never gave a damn about these targets and just went on its own way. We were however able to come up with an article on Sep 7 that these Sep crashes are not going to happen at least for this year. The article can be accessed HERE. Corrections are uninvited guests. They just come and meet you when they are least expected / when they are not invited. Does that mean that we will pass October as well with merry? That may be doubtful and we will soon come up with our views on it.

Switching over to the main article – We have not been writing much about US markets. However, for quite some time, we have been providing our views as to how things like housing and auto industries are shaping up in US. We have been broadcasting our views whenever we see any positive news flow out of US and this is yet another one.

Home values in almost 20 cities in US has climbed in July by the most in almost 4 years. This is something unexpected at this point of time. The Case – Shiller home price index has rose by around 1.2% in July from the month before. Such a rise has not been witnessed since October 2005. Home values are rebounding as lower borrowing costs and the tax credits offered by the governments are working their way out. These are being viewed as strong signals towards restoration of the damaged economy. Read it – just restoration.

Also, from a year earlier, the index has gone down by 13.3%, which is less than what the economists had anticipated and its the smallest decrease in almost 17 months. It was forecast to fall by at least 14.4% according to the median projection of 36 economists.

Combined Sales of new and existing homes have yet again risen for four out of the last five months. The government’s 8000 USD tax credit for the first time buyers is said to be working the magic. However, the tax credits will expire by the month of November. The efforts are on by lobbyist to extend the dead line for the tax credits.

As we indicated earlier, the pace of job losses are clearly slowing down. Payrolls fell by 210,000 in August, the smallest decline in almost a year. It is being worked out that for this month, it would have still come lower to levels of 175,000.

And here comes the topping – Fed policy makers reiterated last week that they would hold the benchmark lending rates at near zero levels for an extended period of time. So, for quite some time now, there have been solid recovery signals coming out, instead of the speculative ones that were available earlier. It is really a good news to see the loss of payrolls decreasing.

However, it would be interesting to watch how things would pan out when the stimulus is being withdrawn at a gradual pace. The Cash for clunkers programme has already expired and the tax credits for home buyers are due in another month. Though the G -20 leaders have firmly re iterated that they have no plans to withdraw the stimulus plans, i have been pessimistic on their words. All countries are not US to throw in pieces of paper and even US is not US that we have known.

Arun Gopalan $ Lead – HBJ Capital,

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