The Housing Recovery Is Getting Real

Home builders up 2 percent on strong housing starts data. October housing starts at 894,000, the highest level since July 2008.

Builder sentiment edged up just one point in October, according to an industry association index.
Builder sentiment edged up just one point in October, according to an industry association index.

Single-family home starts were basically flat, but there was a big increase in multifamily home starts.

Bottom line: The housing recovery is real, and housing starts are approaching the psychologically important 1 million level. This is far below the record of 2.2 million set in 2006, but those were unrealistic levels — the 10-year average is close to 1.2 million units. (Read More: House Prices Are Nowhere Near a Bottom: Analyst)


1) Ya think so? "In line with trends experienced over the last three years, Best Buy's third-quarter financial performance was clearly unsatisfactory," the company said. That's putting it mildly: Even with a preannouncement, Best Buy's $0.03 a share was shockingly below the $0.12 a share expected. Free cash flow was revised lower by 30 percent. Share buybacks were suspended. Margins are declining.

Look at this: Entertainment same-store sales down 18.5 percent; consumer electronics down 8.4 percent; and services down 4.6 percent. Computing and mobile phones up just 1 percent. Only appliances showed a significant gain, up 10.8 percent.

Bottom line: Apple and continue to eat into sales. Other promotions by discounters and clubs take market share away. Still a chance of a Schulze-led takeover, but potential buyers are likely to just wait for the price to drift even lower.

This was a $20 stock in August, now $12.

2) Government spending cuts are coming ... with or without sequestration. So says Honeywell : "We have a plan."

Sen. Harry Reid (D.-Nev.) on the "fiscal cliff":"Everyone has a plan until they get punched in the mouth."

That's Mike Tyson's famous line — spoken in response to a reporter who said an opponent had a plan to defend against his left hook — is a favorite line on trading desks. It's the Wall Street equivalent of "the best-laid plans of mice and men..." or just, "Sh-- happens."

Defense stocks have rallied in the past few days on a new "plan" ... that much-feared cuts that would occur under sequestration would not happen, and that the final deal will contain only modest cuts.

Honeywell, in an analyst day meeting yesterday that was little-noted, said that defense cuts were coming, with or without sequestration. Specifically, Honeywell believes 80 percent of the cuts triggered by sequestration will happen, even if they won't really start cutting until 2014.

This will not be disastrous to Honeywell (the defense and space segment will likely see only a roughly 1 percent decline in revenues in the next few years, according to analysts. The big surprise was that Honeywell is not fighting the cuts. "They need to happen," Mike Madsen, president of the defense and space unit, said.

This, with just a little imagination, could easily be expanded to government spending in general: Regardless of the so-called fiscal cliff, there will be less spending by the federal government. Not just defense. Tech spending. General procurement. Office stuff. Just about everything.

—By CNBC's Bob Pisani

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