Housing...Things are going from bad to worse

So the housing market is finally on its knees. However, I wouldn't say people are really bleeding or jumping out of windows yet. The consumer debt overhang is a fun problem we will have to deal with in 2007 and 2008.


Recently sales of existing homes in September clocked in at 6.16 million, down a bit from Augusts number of 6.3 million, and down a bit more from last September's 7.4 million. Oh and inventory of existing homes is up to 7.2 million from 4.6 million homes same time last year.

Things have finally turned for new housing and the optimistic builders, forcing the median home price down to 217,000 a 9.7% drop from last year and largest drop in over 30 years.

This leads to the other question, well maybe its time to buy...after all...prices should start coming up again...Terry Savage of the Chicago Sun Times throws people's hopes and dreams of higher housing prices back into the toilet.

"A generation of investors was scared out of the stock market by the 2000 crash and subsequent bear market. Many came to view real estate as the alternative for creating wealth. Now the differences in the two types of investments will become apparent. After all, the Dow has made new highs in a short time period. It's unlikely that real estate will make a similarly timely rebound from its eventual low. (Chicago Sun-Times, http://www.suntimes.com/business/savage/116415,cst-fin-savage30.savagearticle)"

"Yet in the coming months, an estimated $1 trillion in adjustable-rate mortgages will be re-set. Even at current low rates, monthly payments will jump for those who entered the market with low teaser rates. And those who have interest-only mortgages could see their monthly payments rise by 50 percent. (Chicago Sun-Times, http://www.suntimes.com/business/savage/116415,cst-fin-savage30.savagearticle)"

Who cares about the housing market you say?

Well, besides its definate impact on the economy through the lowering of people's net worth, reducing their credit worthiness, causing defaults, turning mortgages "upside down" (when your house is worth less than your mortgage), and a general downward shift in consumer spending and demand.

This basically means if personal income or business spending doesn't start going up, we might be in for a smaller GDP growth rate. Lower tax revenue, cuts in programs, medicare, social security all the good stuff...might as well start eating cheese, drinking wine, wearing a beret and protesting labor in the streets...

General Motors posts higher than expected earnings

People don't seem to understand what it takes to turn around the Titanic to keep it from hitting an iceberg...bad analogy. Turning around the Exxon Valdez...wait, wrong again...

GM posted a before special charges, before tax gain of $.93/share in comparison to analyst estimates of $.49/share. That is a serious difference. I've been bullish on General Motors since the stock has been at $16/share. Rick Waggoneer, Fritz Henderson, Bob Lutz, and the other parts of the executive team there are the people best capable to turn around this slumbering giant. What's more, they are doing it.


Recently, the Buick LaCrosse and Buick Lucerne were named in the list of top cars in terms of quality. That's right, quality. Bob Lutz said approximately one year ago that there is a perceived quality gap between General Motors and the Japanese, and the Americans are putting quality cars out there, but it will take a couple of years for the public to take notice. Well, anyone who reads their balance sheet can see the downward trend in warranty costs. Further, GM has provided a 10-year 50,000 mile warranty on the powertrain. This is the way to bolster quality, would they do it if they thought the repairs would cost them a fortune? Absolutely not.

The changes that Lutz has made in the design team are paying off and the cars on the road, including but not limited to the Pontiac G6, Chevy Impala, Pontiac Solstice, Buick Lucerne and Buick Lacrosse have breathed new life into old forgotten brands. The new Saturn designs have compelled people into the showrooms through sheer emotion. This is the makings of a true turnaround.

Further, the number one growing market is China. The General Motors-Shanghai Automotive venture is the market leader. GM is making profits there as the market continues to grow. General Motors is further well positioned in India. It has been investing in India for over ten years and stands to have a strong position as that market begins to boom.

The General is back, and as I have been saying for long time, American carmakers have to combine cost cutting and production scheduling through flexible manufacturing, cut their large pension and health care liabilities by any means necessary, and invest that savings into design, and engine and powertrain research. The world sits on a pivotal technological shift in our uses of energy and natural resources, and the automotive industry is at the beginning of a technological renaissance in the automobile as we know it. Those who think Detroit is not going to be a major part of that renaissance, don't know anything about the people at the top of these carmakers.

Now if only the Chrysler stock could drift far enough that some car guys and some private equity could take that company over...

The General breaks negotiations on the Renault - Nissan 3 way

General Motors breaks off negotiations with Renault-Nissan...

Here's Tom Walsh's take on it from the Detroit Free Press.

The Structural Shift in Labor is Continuing

Labor in this country is continuing to undergo tremendous changes as the new economic environment is weakening the hand of the union. Some say this has been going on since the airlines and steel companies first began their domino fall into backruptcy, but no one predicted that the auto makers would be giving such buyouts...


Now their suppliers are following suit. Nobody wants to be left with a bloated labor structure and cost as the industry restructures. This is just more short term bad news for Detroit economy, but more good news for the long term outlook of the city. Its time to shift priorities.

Crain's Detroit broke the story, that you can read if you click here.

“The unprecedented, yet necessary, structural transformation of the domestic automotive industry is continuing at a rapid pace,” said American Axle Chairman and CEO Richard E. Dauch. “(American Axle’s) special attrition program is necessary at this time to realign our workforce with actual and projected production and market conditions.”

Let's pray that the US automakers stop losing market share and start making money on the cars and trucks they sell, Detroit sure needs it, and they can't blame it completely on labor anymore...

Dow Hits All Time High

News that is a little bit of a big deal...Dow hits all time high!

I don't know how I feel about it...oil prices touch $59/barrel...

Anyway, articles about this are all over the place...I wonder if it even makes sense for me to regurgitate stuff like this...