More Pale Green Shoots

I love the stock market’s constant urge to exaggerate any good news. Lately that has led us to some odd analysis. Even supposedly sober folks like those at the Financial Times fall prey to what we should now call Bernanke’s ‘Green Shoots Syndrome’ or simply BGSS.

Today’s example of this quickly spreading disease is the almost breathless reporting of the National Association of Homebuilders’ index of homebuilder sentiment. Under the heading of “US homebuilder confidence climbs” the FT solemnly reports that the sentiment index has shot up from a reading of 14 last month to … 16 this month.

Yes it shot up precisely 2 points.

The excitement overwhelms me.

That’s staggering.

A whole two points.

Wow.

Now consider this: at its high point in the balmy and heady days of never ending home price inflation and construction mania back in 2005 the index had a reading of 72. Yes that’s right: 72.

I realize that I am somewhat jaundiced, some have even called me a tad cynical, but there’s something that strikes me as odd about this picture. To characterize a meager 2 point gain in an index that seems to run from 0 to 100 as anything other than tiny seems to me to fall in the category of stock market hyperbole. Most tall tails have more substantial content. Think of that gigantic fish your favorite uncle claims to have caught whilst, unfortunately, no one was looking, and you get my drift.

Where, exactly is the news?

More to the point does this miniscule advance, and let’s acknowledge that it is progress, really justify the comment, made towards the end of the FT report, that: “A return of homebuilder confidence signals that housing starts could start to rebound”?

A “return of homebuilder confidence”?

Where?

Yes the index has doubled in the past few months. From a suicidally low 8 to a merely manically depressed 16.

But it used to be 72. And the blurb accompanying the index tells us that a level of 50+ is an expression of optimism or the that the sentiment is that ‘conditions are good’. So if 50+ means that things are good, I have to assume that 16 means that they are damned awful.

There is simply no return of confidence evidenced in these numbers. None. So why the breathlessness and eager reporting?

I haven’t a clue.

BGSS plays havoc with erstwhile sensible people’s ability to remain calm in the face of the slightest hint of green.

The implication that housing starts are about to recover or return to a more normal level, whatever that is nowadays in this glut-of-unsold-homes era, is a tiny bit ambitious.

The recovery, it appears to me, is not just around the corner. It is still lingering in a distant county.

I agree it’s nice to hope. And I think it very important to report data faithfully.

But this? Please.

BGSS. First Bernanke. And now the old FT.

Get back to me when the index hits 50. Then I’ll give a hoot. Until then: green shoots? Not in homebuilding.