One Ray Of Light In An Otherwise Cloudy Forecast

A fair portion of my business day is consumed by reading economic reports of varying sorts: Durable Goods reports, Consumer Confidence surveys, Housing Price indexes – they all are supposed to guide our forward-looking decisions by keeping at least one eye firmly in the rearview mirror.

When any one of these compendiums of facts, figures and suppositions hits the news wires, the market tends to react to the first few words pretty darn quickly. So if Consumer Confidence is down, we ought to sell Wal-Mart, right? A decent Real Estate survey means we ought to buy REITs, and quick, before the other guys bid up the sector on us!

And then the initial flurry of activity comes and goes, and some other headline grabs the herd’s attention, and off we go in another direction.

Obscuring the Truth With Facts…

Problem is, most of these reports were never intended to be read by regular folks. Beyond the headlines, they are composed of far more grungy little details than most investors have time to mess with. And frequently those details are somewhat contradictory.

A quick glance at the recent Durable Figures would seem to reveal an economy on its way down the toilet. After all, the headlines are shouting about demand falling 2.5% in June, making for the biggest such tumble in the past five months.

What happened to all our “little green shoots?” How on earth are we supposed to bust out of recession with numbers like that coming out?

Autos and Aircraft Crash, but Refrigerators Soar (as Best They Can)

Ah, but as usual, the situation is considerably more complex. That drop was almost entirely contained within aircraft and auto sales. And we pretty much already knew that both sectors were lagging, so it doesn’t even qualify as news. Demand ex-transportation has actually climbed two months in a row – 0.8% in May and 1.4% in June.

Now the Durable Goods Report is supposed to be all about stuff bought and sold that is intended to last a couple of years or more. Take out planes and cars, and you are looking at things like TVs, refrigerators, rugs, et al. And also houses (which hopefully last more than two years, although some of the townhouses that were ginned up at the top of the boom probably ought not qualify).

So a couple of the other reports that came out recently ought to gibe with the Durable Goods figures, right?

Not Particularly Confident, but Still Looking to Buy?

Sort-a-kind-a, but not really. Back in April and May, we did indeed see spikes in consumer confidence. But they have been followed by two straight monthly drops in June and July. Currently the index stands at 46.6, just a tad below the critical positive/negative threshold of 50.

Many of my compadrés around here write off consumer confidence as a lagging indicator. And to a certain extent, they are right, in that the markets turned flat roughly 15 days prior to the downturn in confidence. After that, June and July’s stall match up very closely to the stall pattern in the major indexes.

One might go so far as to stipulate that the recent breakout in stocks just might lead confidence back up… if investors don’t get too depressed about it first.

Clear as Mud

By now, you are probably wondering if I am completely confused. This whole picture I am painting for you is about as clear as mud. Isn’t it my job to clarify such ambiguities?

Well, yes and no. It is my job to order the facts as succinctly as possible. And right now, succinct facts are on short supply. That’s the reason the market has run flat for three months.

But I did see two reports that seemed genuinely optimistic. Even better, they don’t even contradict themselves.

A Ray of Light

The folks who watch real estate tell us that home sales are up for the third month in a row. You never saw a prouder moment over at the Commerce Department than when they announced that June’s 11% volume increase was the largest such gain in over eight years.

And the gains are not just coming from foreclosed sales either. Heck, even new home prices are turning up for the first time in something like three years. The Case-Shiller 20-City Index is showing a 0.5% increase for June, making for the first increase since June 2006 and the biggest monthly gain since May 2006.

Now you have to keep in mind that this is more of that same “I’m so low the curb looks like up to me” stuff that we have been hearing from most every company on Wall Street. The actual sales and price figures are quite pitiful on both a monthly and annual basis. In fact, they only look good compared to how bad things have been lately.

The Crazy Days Are Still Gone…

But at least they are both up, right? Now I somehow doubt that this means a return to the heady days of 2006, when spit and cardboard houses thrown up in the middle of highway interchanges were bought and sold entirely by speculators who doubled up almost monthly.

But could it mean a return to something resembling normal, wherein regular working folks with growing families went about looking for more bedrooms for the kids, and maybe enough room for a nice swing set out back?

Here’s a pure play on this nascent trend you can pick up relatively cheap.

But That Doesn’t Mean You Can’t Make a Nice Buck or Ten

USG Corporation (USG:NYSE) is one of the biggest manufacturers of those most prosaic construction materials: Mud and drywall board. The stock has been trending up steadily now for the past two weeks, and has now beaten both its 50-day and 200-day moving averages, a buy signal in most any analyst’s book.

Even with the sort of chop we’ve come to expect in a deadlocked market, USG’s chart is indicating a perfectly reasonable upside run through resistance at $17.88 to the top of the rising trend at $26.30 over the next six weeks or so.

After that, it’s pretty much a flip of a coin as to whether USG surges past $30 or collapses back to $10.

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