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Earnings vs Housing

January 19, 2011 – 5:54 pm

The earnings season is in full swing and so far the numbers are very impressive with more companies beating their estimates than missing them. That has been the norm over the last four quarterly reports. It was feared that the numbers would begin to slow slightly as the economy matures out of the recession. This recovery is far different than past recoveries because after a full year exiting a recession usually the sales and earnings start to flatten. However, this recession was deeper and one of the normal leaders out of a recession, housing, is still falling.

This morning new home construction for December was reported and it fell 4.3%. For all of 2010 new home construction was up 6% from the prior year which was the worst ever.

The positive note in the new home construction report was the building permits. They rose 16.7% in December. That is a leading indicator but there is speculation that builders wanted to get permit approval in 2010 before stricter rules take effect in 2011. California in particular changed the rules making it tougher for builders. That may mean in January we will have lower than expected permits.

Job killing new rules at a time that we need jobs is not too smart. Sometimes our politicians and bureaucrats just don’t understand the unintended consequences of their political actions.

Meanwhile earnings are the focus and the market likes what it sees. At some point a correction is in order and it could start anytime. Just don’t try to guess when that might be.

Good Trading
Steve Peasley

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