Bill Fleckenstein mentioned some data points from Joel Locker of FBN Securities.

• As of the end of Q2, vacant rental units stood at 10% (about 3.94 million units), vs. the 43-year average of 7.16%. That 2.84% difference equates to about 1.12 million excess rental units above the historic mean.
• The overall housing vacancy rate was 14.36% in Q2, against a 43-year average high of 10.75%. (There are roughly 130 million total units, with 18.6 million vacant.)
• To get back to the 10.75% mean, the U.S. would have to create about 4.7 million households, or in other terms about 6.6 million jobs (assuming 1.4 jobs per household), without having built one additional housing unit.

And as I’ve commented previously, in a speculative market, like housing, fundamentals like this mean little, except in the very long term. And we all know what happens in the very long term. But they do give you an idea of where you are.

I continue to be more than a little frustrated at continued high valuations of the tech stocks, the NASDAQ 100 to be specific. Amazon included in operating earnings the sale of a subsidiary in Europe, and is now trading up 15%. This is a retailer, looking into a recession, and already trading at a P/E around 70. Added to which, forecasting a sharp reduction in gross margins in the coming quarter.

But the mechanical monkeys jam it up anyway. Because they can, I guess. Bill Fleckenstein calls this kind of action “muscle memory,” just unthinking reflex left over from the bubble eras. Personally, I think of it as the actions of black box traders, just mechanical monkeys doing the same thing over and over, without understanding.

Calculated Risk reproduced Bill Fleckenstein’s comment today. The TED spread is creeping up, so is the iTraxx Europe Crossover which is as good a one-number index of credit market pain as there is. The ABX indices are horrible, the CMBX (commercial mortgage) spreads are rising quickly. The KDP daily high-yield index is very close to a new daily high. Default rates on the Alt-A, no-doc and low-doc, mortgage loans are rising rapidly. The bank stocks are just getting creamed. Oh, and by the way, American Express says that more folks aren’t paying their bills.

The Fed’s measures to restore order to the credit markets are clearly failing. Be careful out there. There was more to today’s selling than the price of crude.

The politicians are scurrying to do what they do best - spend.

Lawmakers are looking at an election-year package of about $100 billion to $125 billion that is likely to include tax rebates of about $250 to $600 to get money quickly into the hands of consumers.

Savings? Investment? Not very likely. If spending is so great, then why isn’t Zimbabwe the richest country on earth? We are facing a depression because excess consumption has crowded out investment. The proposed remedy is more consumption - and more borrowing. That is called the triumph of hope over experience. As Bill Fleckenstein says:

If we stop attempting to bypass the creative destruction of capitalism, we will finally be able to bring about a recovery built on a solid foundation instead of the quicksand underlying the 2003-07 “recovery” that was built on the housing mania. Though I would like to think the politicians and the Fed get the message and will let the process play out, I am not going to hold my breath.

Politicians are terrified of saving. It breeds confident, independent-minded citizens who are not dependent on the politicians for a continuing series of free lunches.

We had a mini-panic today for no apparent reason (other than exhaustion, of course). I suspect this little affair when the Nasdaq 100 index swung from +20 to -50 or thereabouts is an indication of what can happen when the robo-traders start to feed on one another to the downside. If you were watching the action today I suspect you feel the idea of a full-scale panic is not so far-fetched, after all.

Bill Fleckenstein commented about the current market’s disconnection from reality: “So, as someone who has witnessed a lot of insanity, I would say that this moment (not necessarily this morning) is perhaps the craziest I’ve ever seen, and maybe the craziest in the history of the country. Which of course doesn’t mean it can’t get crazier, because once you get to points like this, there’s no telling how wacko things can be. But my feeling has been that this will be a landslide when it goes, which is why I have continued to be on red-alert every day. ”

As thought likely, year over year expected third quarter earnings growth for the S&P 500 has turned negative and is now at -0.65%.

Also from Reuters columnist James Saft: “Retail sales rose just 0.3 percent in August, and when motor vehicles and parts were stripped out, sales fell 0.4 percent, the sharpest drop since September 2006.

Considering that people always have to eat and many Americans have only limited discretion over how much gasoline they use, a period when credit card debt is expanding rapidly while retail sales are contracting points to debt financing of necessities, rather than luxuries.”