So there was a release today that housing starts are up because of multifamily construction but single family construction was up only 1.1% so our residential construction is not moving very well.  What people need to look at is building permits because that is the leading economic indicator of activity and those are trailing starts.  The rise is starts could very well because of seasonal fluctuations because it’s much easier to build after the long winter is going away thus the 89% rise in the northeast.  But looking at a headline is more than meets the eye.  But housing starts don’t solve the problem that we have.  The problem is still prices are falling.  By adding more supply, we don’t solve the price problem.  More supply equals lower prices.  We are currently at a 13.3 month supply of homes as of January which is a record.  Normally we have less than six months.  So we need less housing starts not more.  In fact by placing more housing on the market, we deflate rent and house values which discourages buying even more when people want to wait for prices to drop.  But if you can even get a construction loan which is quite limited now, building more housing not bring out housing market to an equilibrium point especially since there will be more foreclosures.  

But now we have to focus on a huge problem that is slowly crippling our economy.  Why do we have the TALF program to help consumers and small businesses?  Well because 70% our economy is consumers and 60-80% of job creation is by small and middle sized businesses.  The banks who face billions and billions more in writedowns of jumbo loans, credit card loans, commercial real estate loans, lines of credit, and insured bonds cannot lend to consumers or small businesses, so the government will have to do it.  But by the time this program starts the end of this month, it may be too late.  I can’t help but notice that little restaurants have been closing down lately.  One by one.  Small businesses are struggling and it seems there is no help for them directly.  Although we are getting rather optimistic lately because of this 13% move in the markets and every bank saying that they are doing well, we are far from the bottom.  This can be the beginning of the end, perhaps the 7th inning but the last three innings may be really rough.  

Disclosure: Long UNG, SRS (perhaps too soon – might come back and haunt me)

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