Another busy morning of data and earnings.  Asian markets were lower across the board this morning as fears mount over the sustainability of the equity rally.  Nonetheless, U.S. stocks are currently shrugging off the declines and continue to focus on domestic data, which was somewhat mixed this morning.

Retail sales showed year over year improvement again, but appear to be slipping a bit.  The ICSC report showed a -2.5% decline in sales on a week over week basis, but a 1.9% gain on an annual basis.  Redbook’s data showed a 1% climb in sales.   Both reports noted the light historical sales at this time of year.

Consumer confidence came in better than expected at 55.9 vs expectations for a reading of 53.5.  All in all, the improvement is marginal and continues to show historically low levels for a “recovery”.  Nonetheless, the trend is clearly higher and equity markets liked the news as they spiked on the release.

Today’s Case/Shiller housing data shows a stalling housing market.  David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s describes the mixed picture in housing:

“While we continue to see broad improvement in home prices as measured by the annual rate, the latest data show a far more mixed picture when you look at other details.  Only five of the markets saw price increases in November versus October. What is more interesting is that four of the markets – Charlotte, Las Vegas, Seattle and Tampa – posted new low index levels as measured by the past four years.
“To add more mixed signals, we are in a seasonally weak period for home prices, so the seasonally-adjusted data are generally more positive, with 14 of the markets and both composites showing improved prices in November. On balance, while these data do show that home prices are far more stable than they were a year ago, there is no clear sign of a sustained, broad-based recovery.”

Home prices have clearly stabilized, but remain near their lows.  This would be more encouraging were it not for the record amounts of government aid being thrown at this problem.  In all likelihood, we’ll see another strong spring buying season as homeowners once again race to get in before the tax credit ends.  The middle and end of 2010 don’t look as favorable, however, as weak seasonal trends and the lack of government stimulus are likely to show housing’s true colors.   As I’ve long said, you can alter the laws of supply and demand in the short-term, but like fighting gravity, you’re bound to come back to earth eventually.  The government has attempted top impose its will on the laws of supply and demand – a battle they are destined to lose in the coming years.  Housing prices likely have a ways to correct before the market deems them appropriate.

Cullen Roche

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