You all know this popular graph, posted and re-posted in many blogs:

It shows a 79% correlation between 12-month delayed NAHB housing index and S&P 500. And you all know that this graph is cheating, as previous years are removed. The whole picture is not so convincing:

It shows that we may not be so sure about the direction of S&P 500, after all.

But you know what – I’ll give you a better graph to look
at the correlation between the same homebuilder index and the real consumer spending:

It clearly shows that we have to wait just about 9 to 12 months from the collapse of NAHB index to the collapse of consumer spending. The index crash started in April of this year, 9 month lag should give us December-January to see the consumer to zip his pants really tight.

And this time it’s for real, no gimmicks, no cheating, just a crash.

Thank you Elmer (Greenspan) for all this!