The Censuse Bureau's New Home Sales Data Aborticide

Investment Research Dynamics

Gyrating wildly month-to-month, as seen also with the extreme and unstable monthly reporting of the housing-starts series headline August new-home sales rose by an incredible 18.0% for the month. Even more incredible—as to why the Census Bureau even bothers to publish the current detail—a headline monthly gain of that magnitude was not statistically-significant.  - John Williams, Shadowstats.com.

Well guess what? The Census Bureau reported new home sales for September and revised the original number for August down by 38,000, or 7.5%.  Recall, the same thing happened in June, when May’s unbelievably high number reported was pole-axed by almost 10%.   The data collection and seasonal adjustment algorithms produce a monthly statistic that is vomited out by both the Census Bureau and the National Association of Realtors (existing home sales).  Then they compound this grotesque abortion by reporting an “annualized rate” for each month.  It’s a complete and utter farce.

I review this month’s statistical aborticide in this article published by Seeking Alpha:September New Home Sales.

One thing to keep in mind: the data both the NAR and the Census Bureau collect are just samples. Then they impose “seasonal adjustments” on that sample data. No one outside of those organizations knows how the adjustments are calculated so we can never assess the reasonableness of the calculation.

THEN, they annualize the number output from the adjustment algorithm. To the extent that there’s errors in both the data samples and the adjustments, annualizing the data compounds the errors by a factor of 12.

The homebuilders have staged a parabolic short-squeeze spike higher during this last week in which in the Fed has heavily intervened in the stock market to keep it from falling off a cliff.  Now is the perfect time to add to existing shorts or establish a new short position in the homebuilders.  I have four great homebuilder short-sell ideas available here:   Homebuilder Bear Reports.

In these reports I show the extreme misleading accounting being used by the homebuilders to prop up their GAAP-reported net income.  All the while the insiders are unloading shares.  A several people have asked me if my first report published at the end of July is still valid.  It dropped 19% from its price at the time I published and has since rallied back but is still below my initial recommendation.  I am looking at shorting more here myself.  I have not decided if I’ll short some at-the-money calls or just short the stocks.   All of my recommendations will drop quickly once this S&P 500 runs out of the steam the Fed injected into it last week.