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Movie Studios Reassess TV Ads Hollywood marketers are realizing that network-television advertising, lo ng the lifeblood of their movie campaigns, may not pack the punch it onc e did.
Closing Knights As the baseball season moves into its late innings, all eyes shift toward the relief pitchers in a team's bullpen. But how do you measure which r elievers are doing the job?
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Subscribe to The Wall Street Journal Online advertisement Cracks in the Ceiling Foreclosures, Builder Stocks, 'Flip This House' May Warn of Deflating Housing Market August 19, 2005 This week, Trading Shots welcomes UCLA professor Ed Leamer. Leamer is director of the UCLA Anderson Forecast, which provides quarterly econom ic projections for the nation and the state of California.
Mark Gongloff: If you're trying to find a slow leak in a tire, you can su bmerge it in water and look for tiny bubbles of escaping air. That may b e the best way to look for signs of a deflating housing market, too. After all, just going by the big indicators, the housing market still loo ks plump. Sales of pre-owned homes, the bulk of the housing, hit record pace in June, with prices posting their biggest gain since the Carter ad ministration. But there are tiny bubbles escaping, which shouldn't make you feel happy or fine (apologies to Don Ho) about the boom.
Sign up to receive an email each time Trading Shots is published. The most important indicator is probably the growing length of time "For Sale" signs are sitting on lawns across the country. "This happens in every cycle," says Wellesley College economics professor Karl Case, who has published several studies of the housing market with Yale econom ist Robert Shiller.
Yet there are other, even tinier bubbles rising to the surface. New-home construction has plateaued in the past year, though at a high level. Mor tgage applications have fallen in four of the past six weeks. Sales growth at home-and-gar den centers and furniture stores has slowed sharply from a peak in early 2004, according to Commerce Department data. As of the second quarter, Home Depot and Lowe's were still making money hand-over-fist, but their share prices have flattened in the past month, with investors worried th at higher interest rates will hurt business. Furniture sales have fallen in three of the past five months. Another leading indicator could be a slowdown in the pace of new-home sal es, says Richard DeKaser, chief economist with National City in Clevelan d Unlike homeowners, who tend to resist cutting prices, homebuilders ar e more willing to slash prices on brand-new homes to get rid of them, if they have to. "If a price adjustment is required, we will see it there first," he says. "My read there is that we may be seeing price-softening already in the process of playing out." The National Association of Hom e Builders' index of new, single-family home sales fell for the second s traight month in August, matching its lowest level of the past year. If these are simply signs of a healthy market adjustment, that's good new s But more of a slowdown could also hurt the broader economy, which, to gether with higher interest rates, could put even more pressure on this overinflated tire.
David Gaffen: At least three television shows today -- one on the A&E cha nnel, no less -- extol the virtues of buying, renovating and selling hou ses for a quick profit. The Learning Channel has "Property Ladder," hosted by "veteran real-estat e investor and flipper Kirsten Kemp"; its sister network, Discovery Home , has "Flip That House." That competes with the just-as-imaginatively na med "Flip This House" on A&E (we could spend all day arguing whether fli pping is an art, entertainment or both). Housing has been a terrific investment -- Freddie Mac says the annualized five-year rate of home price appreciatio n was 838% as of first quarter, the best it has been nationwide since 1 982. Still, the idea of several TV shows explaining how Joe Sixpack can make easy money in real estate through what amounts to speculation shoul d trip an alarm or two. There is an old adage that magazines and books are great contrarian indic ators. Business Week's famous "The Death of Equities" cover in 1979 and James K Glassman's "Dow 36,000" tome from 1999 are storied examples. Li fe Magazine in February 1970 published a cover foretelling how America b eat inflation -- just before inflation boiled over. There is an interest ing twist, though: While magazines and other publications can be churned out quickly to ride a trendy wave, studio productions often takes month s of work, and by the time they hit screens big and small, there is a re al danger that the peak is well in the past. Oliver Stone's "Wall Street" was poignant, but it premiered nearly two mo nths after the 1987 crash. Meanwhile, two drop-dead awful TV shows, "Bul l" and "The $treet," premiered in 2000 just in time to follow the market into the toilet. "Television is so removed," says Barry Ritholtz of Max im Group. "By the time an idea has totally infiltrated the public it's usually very late in the stages of that trend." Sure, home renovation has always been a part of TV since Bob Vila's "This Old House," and TV shows like "Extreme Makeover: Home Edition" have som ewhat noble agendas. flipping is about making quick bucks in a difficult game to play. Once the cameras start rolling, the losers are likely to turn up fairly quic kly.
The figure here depicts real residential investment per worker since 1948 , with the official recessions shaded. During the recession of 2001, we wer e at that high $4,000 level, but we ploughed right through the recession without noticing it, and in the second quarter of 2005 we achieved the all-time high -- $5,233 per worker. Cut that back by $1,000 to get it in to "normal high" range and you lose $1,000 times 140 million workers. That's enough to cause a recession, if it occurs rapidly. There have been two "false positives" -- pro blems in the housing sector that didn't precede recessions. Spending on the Vietnam War saved the economy that time. For perspective, Defense Department spending on Iraq and Afghanistan was 48% of gross domestic product in 2004 according to the Bureau of Econom ic Analysis.
Scott Patterson: The stock market is often a step ahead of the economy. M arkets usually plunge well before recessions strike, for instance, as se asoned investors catch an early whiff of the slowdown. Could shares of h ome builders be telling us something about the housing market?
The Dow Jones Home Construction Index has declined 10% so far in August. July saw the most insider selling of home-builder stocks on record, 51 million shares, according to Thomson Financial. There are some stock-specific reasons for these declines, but general wor ries that rising interest rates could reverse the housing boom are takin g a toll across the board. Home builders got whacked particularly hard r ecently after the Labor Department reported strong jobs growth in July, which caused investors to bail out of bonds, sending yields higher. Bond s tend to decline on signs of economic growth, such as rising employment . Since mortgage rates are tied to Treasury yields, home-builder stocks are especially sensitive to the bond market. Hovnanian took a hit after it said the number and dollar value of net con tracts in the West declined in its third quarter due to development dela ys. One reason cited for the downgrade: His firm's July neighbo rhood-watch survey showed signs of a sharp slowdown in Washington, DC, where Toll Brothers does a lot of business. Rising prices for homes wer e making it difficult to find buyers, sales managers said. Sales managers are also hinting at trouble in northern California, said M r Reichardt, where prices have started to hurt traffic and sales. What' s more, PMI Mortgage Insurance's US Market Risk Index, which estimates the probability of house-price declines based on affordability, recentl y showed that the risk of falling prices increa...
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