Where are we in the progress of the housing bubble?

Hard to say. It is clear that sales are down and inventories are rising, especially in the most extreme bubble areas, such as South Florida, Phoenix, Las Vegas, San Diego and so forth. However, there has been little downward movement on prices although the rapid rises seen last year seem to have stopped in most place, although not all. Some areas are still seeing bidding wars and price increases. The first cracks in the bubble occurred in late summer of 2004, with Pulte’s drastic price reductions in Las Vegas showing that there were, in fact, limits to the ability to raise prices. What is clear is that new house builders are increasingly cutting prices and adding incentives to move the product. But the less skilled sellers of existing houses are still holding their ground and hoping for higher prices. If not now, in the fall. Or spring 2007. Or whenever.

What we saw in Australia and Britain was an initial drop, then a leveling out in housing. One certainly cannot rule out the same thing here. However, the real issue os not the bottom falling out of the housing market but the end of the “housing ATM” which has been funding consumption for the last few years. This should show up in M2, usually a good indicator for consumer spending. So far (as of the end of March). it has not done so. So I think it is too early to conclude that the housing bubble has burst, although the behavior of the new house builders and the rising inventoriea are a clear warning signal that the end is near.

We will be watching the weekly mortgage purchase index (from the Mortgage Bankers Association) for signs of movement, and also M2 as a leading indicator of consumer spending.

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“NEW YORK (MarketWatch) — The dollar was lower across the board early Friday after the Swedish Central Bank said it had significantly reduced its holdings of dollars in its foreign exchange reserves. The Riksbank said it cut the share of dollar-denominated assets by 17% to 20% and boosted the euro’s share by 13% to 50%.”

The dollar losing its status as the reserve currency as we watch.

Jimmy Rogers, in a speech given in Singapore: “The U.S. dollar is in the process of losing its status as the world’s reserve currency, sterling went down 80% from top to bottom (when it lost its status as the world’s reserve currency), the U.S. dollar’s going to go down a lot in the next decade or so.”

Clearly this is the case. I don’t see any other way that the excess consumption can be curbed. The dollar will go down, but nominal wages will not increase to compensate.

Dennis Gartman: “In what must be the singularly worst public relations gambit in history, ExxonMobil announced yesterday that it is giving its outgoing president, Lee Raymond, one of the most generous retirement packages in the history of American business: nearly $400 million, including pension, stock options, a $1 million consulting deal, two years of home security, personal security, a car and driver, and use of a corporate jet for professional purposes. What were Mr. Raymond and the Board thinking when they allowed this sort of retirement package to be granted — and made public — at a time when gasoline prices are skyrocketing? We are capitalists here at TGL, and we are far to the right on almost all questions; but for ExxonMobil to grant this sort of package to a mere caretaker, albeit a very excellent one, is beyond reasonableness. The timing could not be worse. The entire oil industry will suffer because of ExxonMobil’s public relations idiocy in this matter.”

This is the standard CEO greed syndrome. Quite apart from the public relations aspect, this is theft from the shareholders. This man did nothing to deserve this kind of compensation except to be in the right place at the right time. Lucky sperm, indeed. I have no problem with, for example, Larry Ellison’s wealth, although personally I dislike him intensely. Without Larry, Oracle wouldn’t exist. He built it from scratch and deserves the credit and rewards. Regardless of his personal nastiness. But this jerk at Exxon can make no such claim. He’s entitled to a good salary but nothing more. He is abusing his position to make off with the shareholders’ money. Like many other CEOs, it must be said. Larry, on the other hand, is the shareholder.