BULLS, BEARS AND BOB (Nardelli)

According to this study the 2006 shopping seaon was unimpressive and yet the markets are in bull mode due to CEO Bob Nardelli resigning from Home Depot and Walmart seeing better than expected December sales after reducing forecast the previous month. So in essence Walmart set the bar so low that they had to beat it no matter what. Add in a better than expected manufacturing index ISM number of 51.4 and a less than expected 0.2 fall in construction.

So lets examine all this. Could Nardelli have resigned because he sees a slowdown in HDs earnings ? He gets out before the shit hits the fan with a fat severance package. I'd be shorting this surge in HDs stock price in the coming days. I seriously doubt Nardelli would have quit if he saw good prospects down the line.

Walmart had already lowered its outlook for December after a drop in same store sales for the first time in 10 years in November. The fact they beat December estimates is nothing to cheer about. The question is how did all the other retailers do ? We will find out tomorrow.

On to the ISM manufacturing report. Up 51.4 from the Novembers 49.5. FYI Below 50 indicates a contraction in the manufacturing economy and above 50 correlates to expansion. A rise looks great but lets look at the history of the ISM for the last 8 years. Sure looks to me that the index peaked in 2004 and is showing a slowdown. It is highly likely we could see numbers below 50 in the coming months signalling a recession. One item to notice is that last time round the markets peaked in January of 2000 yet the index was positive and only started signalling a recession in August.

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2006 54.8 56.7 55.2 57.3 54.4 53.8 54.7 54.5 52.9 51.2 49.5 51.4
2005 56.3 55.6 55.3 53.8 51.8 54.0 56.4 53.5 58.0 58.1 57.3 55.6
2004 62.9 62.2 62.3 63.0 62.9 61.5 61.5 59.6 58.0 56.8 56.9 58.6
2003 52.8 49.9 46.4 46.5 50.0 50.5 52.3 55.5 54.4 57.2 60.6 63.2
2002 49.1 53.2 55.0 54.4 55.2 55.8 51.2 50.9 51.3 50.0 49.2 53.1
2001 41.4 41.1 42.6 43.1 41.9 43.9 44.7 48.3 47.7 40.5 45.0 46.7
2000 56.7 55.8 54.9 54.7 53.2 51.4 52.5 49.9 49.7 48.7 48.5 43.9
1999 50.6 51.7 52.4 52.3 54.3 55.8 53.6 54.8 57.0 57.2 58.1 57.8

Constrution has pretty much been covered by all segments of the media. By now we all now that housing construction is down , sales are down, price appreciation has turned into depreciation and huge inventories of unsold homes glut the market. What does a less than expected fall in contruction mean ? That the housing market has bottomed out ? Highly unlikely with all the inventory glut. Real estate is a cycle like another other commodity or market for that matter. In real estate its usually the 15 year cycle where the market peaked in 1990, fell through the early 90s before bottoming around 1994-95 and then based till 1997-98 before rising and peaking in 2005.So its highly unlikely we will bottom in real estate especially after such a fantastic runup of 100-200% in many parts if the country. I would not expect a bottom till 2008-09 at the earliest. So much for new home construction and the home builders for now.