Slicing Through the Housing Bull Case

 | Jul 31, 2012 | 6:28 AM EDT  | Comments
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Stock quotes in this article:

mas

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awi

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usg

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whr

Is the housing boomlet turning into a housing bustlet overnight? It depends on whom you listen to. On Monday night we saw a downbeat outlook from Masco (MAS), the kitchen-bath company and a horrendous report from Armstrong (AWI), which makes floor and ceiling tiles. Both firms indicated that the U.S. had taken a sudden turn for the worst. The latter, Armstrong, is right up there with the worst calls of the quarter.

On the other hand, USG (USG) and Whirlpool (WHR), while admitting the world has been weak, didn't say all that much that was negative about the U.S. Instead they reiterated the party line -- that things are improving off a small base.

It is possible Masco and Armstrong are right, but their book of business is dramatically at odds with every homebuilder we have heard from, as well as with Lumber Liquidators (LL), which boosted its outlook significantly. Plus, we just heard Weyerhaeuser (WY) say good things about home sales in the U.S. along with Pulte (PHM), D.R. Horton (DHI) and Meritage (MTH) last week.

Home Depot (HD) has signaled no weakness, nor has Stanley Black & Decker (SWK), where the shortfall almost entirely came from Europe.

I am sure Armstrong isn't deliberately sandbagging, and much of its downbeat commentary focused on commercial. For instance, there was this gem: It has seen a "fairly precipitous drop in the second quarter in almost every commercial subsegment, education, health care, retail."

Masco isn't putting out the white flag, either. It is simply saying the economy is "losing momentum" and the second half will be "less robust."

Still, these two companies -- Masco and Armstrong -- sliced through the bull case pretty effectively Monday night, despite all the national data and individual housing company data we've seen.

Stocks are on hold ahead of the Federal Reserve decision. Otherwise, I think these two reports would have dome some real damage to the housing case today -- damage I actually would have wanted to buy. That's particularly so with stocks like USG, which is not seeing these kinds of declines in the U.S. while it simultaneously extricates itself from the European markets that continue to haunt both Armstrong and Masco.

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