I might humbly suggest that those journalists and reporters in both the traditional and financial media are largely missing the grander point on Apple the company and Apple the stock.  Running businesses is a lot more than seeing what ratios look like on financial numbers and saying whether something is undervalued, fairly valued or overvalued.

Fundamentally, and whether it is said this way or not, Apple has a monopoly position in digital music.  It’s easy, it’s fun, it’s cool and nobody I know anywhere has any desire to forklift upgrade their digital music, throw away their investment in purchases and ripping CDs in to iTunes or ever starting over again on another platform.  There may be an exception to every rule, but ever since Apple launched the iPod and “got it right” on MP3 players, nobody has even dreamed of challenging them in this area … not Dell with their media player, not Microsoft with Zune … no one.

As part of iTunes, Apple has made photos, videos, music, movies and now mobile applications simple, easy and bundled under one roof.  The anchor to this roof is most definitely music, and this anchor is something that no other smart phone manufacturer has anywhere.  Google and Android, Palm and Pre and Research in Motion and Blackberry just don’t have this natural anchor and draw to their application stores like Apple … so don’t expect them to be able to make the in-roads that people believe in the smart phone mobile application world.  Unfortunately there is just no other compelling reason to go to their mobile application stores as there is with Apple.  Sorry, but there just isn’t.

Ultimately, a pre-existing and trusted billing relationship exists with Apple’s consumers and the loyalty to the brand now goes way, way, way beyond the religious cult that it used to be.  As a result, Apple isn’t just winning the battle for mobile devices, but it’s also beginning to get people to shift from their Wintel PCs back to the Mac platform in meaningful numbers.  I expect that this trend will not only continue, but that it will also accelerate.  I’m not suggesting that Macs are suddenly going to be back on top in terms of market share, but I am saying that the “halo effect” of Apple’s mobile dominance is paying dividends on their Mac desktop and laptop numbers.  Plus, the next great battle of the larger PC war is going to be when the smart phones fundamentally become the PC of the future.

In parallel, Apple has a massively deep managerial bench of talent and it is my contention that most of the iPhone and iPod product and services designs and offerings were created during the period that Steve Jobs was completely out of the company.  My understanding from some detailed research and discussions with many inside Apple was that Jobs wasn’t even around day to day when the iPhone was created internally as his medical issues were already well underway … just not publicly known.  Steve Jobs might get credit for everything great at Apple, but the reality is a far, far different story and the number of fantastic individuals that are involved and responsible for the success of these mobile platforms at Apple goes way, way beyond any one person.

The fundamental aggregate talent in engineering, management and operational execution is what has driven Apple to greatness … not any one man … and not even Steve Jobs.  Apple didn’t miss a beat when he was out and won’t now that he’s back or if he’s out again.  The rich multiples Apple’s stock gets are a result of this dominance, not a cause of it.  The multiples will also look modest with the penetration of the world’s next large computing platform: the smart phone.  While Apple, Palm, Google and Research in Motion will alll have a market share, Apple owns 75% of all application downloads in the world and has an even larger dominance in music.  These market shares are like GOOG and search, MSFT and Windows, CSCO and routers/switches, EBAY and auctions.  Said another way … nobody can challenge this any time soon.

I will personally admit to having a great respect and admiration for Steve Jobs.  I think that he’s a great visionary and leader and wish him well with his health and most recent recovery.  I believe that he and Larry Ellison of Oracle should get much more credit for what they’ve done in the 2000s than Michael Dell at Dell, John Chambers at Cisco, Bill Gates at Microsoft and others of that decade as they grew their businesses in novel, unique and meaningful new ways after the decade of “a rising tide lifting all boats” was over and the penetration rates of PCs, cell phones and the Internet (broadband connections) rose from virtually nothing to more than 100%.  Said another way, from no market to a mature market … all in a single decade.  That penetration rate is about to be replicated again in the coming decade, but this time with the migration from cell phones to smart phones instead of the migration from circuit switching to packet switching from a decade ago.  Steve Jobs will remain an icon and a brilliant visionary.  However, with or without him Apple is strong, deep and well positioned to dominate as the monopoly that it is … even if most people don’t realize it just yet.  As a result, I like LEAP call options and/or core common stock holdings for Apple as it is clearly already a winner and will continue to be one through 2020 very, very easily.

Remember Lee Iacocca, the man who rescued Chrysler Corporation from its death throes?  He’s now 82 years old and has a new book, ‘Where Have All the Leaders Gone?‘ 

Lee Iacocca says: 

‘Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage? We should be screaming bloody murder! We’ve got a gang of clueless bozos steering our ship of state right over a cliff, we’ve got corporate gangsters stealing us blind, and we can’t even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, ‘Stay the course.’

Stay the course? You’ve got to be kidding. This is America, not the damned, ‘Titanic’. I’ll give you a sound bite: ‘Throw all the bums out!’ You might think I’m getting senile, that I’ve gone off my rocker, and maybe I have. But someone has to speak up. I hardly recognize this country anymore.

The most famous business leaders are not the innovators but the guys in handcuffs.. While we’re fiddling in Iraq, the Middle East is burning and nobody seems to know what to do. And the press is waving ‘pom-poms’ instead of asking hard questions. That’s not the promise of the ‘ America ‘ my parents and yours traveled across the ocean for. I’ve had enough. How about you? 

I’ll go a step further. You can’t call yourself a patriot if you’re not outraged. This is a fight I’m ready and willing to have. The Biggest ‘C’ is Crisis! (Iacocca elaborates on nine C’s of leadership, with crisis being the first.)

Leaders are made, not born. Leadership is forged in times of crisis. It’s easy to sit there with your feet up on the desk and talk theory. Or send someone else’s kids off to war when you’ve never seen a battlefield yourself. It’s another thing to lead when your world comes tumbling down.

On September 11, 2001, we needed a strong leader more than any other time in our history. We needed a steady hand to guide us out of the ashes. A hell of a mess, so here’s where we stand.

We’re immersed in a bloody war with no plan for winning and no plan for leaving. We’re running the biggest deficit in the history of the country. We’re losing the manufacturing edge to Asia, while our once-great companies are getting slaughtered by health care costs. 

Gas prices are skyrocketing, and nobody in power has a coherent energy policy. Our schools are in trouble. Our borders are like sieves. The middle class is being squeezed every which way. These are times that cry out for leadership.

But when you look around, you’ve got to ask: ‘Where have all the leaders gone?’ Where are the curious, creative communicators? Where are the people of character, courage, conviction, omnipotence, and common sense? I may be a sucker for alliteration, but I think you get the  point.

Name me a leader who has a better idea for homeland security than making us take off our shoes in airports and throw away our shampoo? We’ve spent billions of dollars building a huge new bureaucracy, and all we know how to do is react to things that have already happened.

Name me one leader who emerged from the crisis of Hurricane Katrina. Congress has yet to spend a single day evaluating the response to the hurricane or demanding accountability for the decisions that were made in the crucial hours after the storm. 

Everyone’s hunkering down, fingers crossed, hoping it doesn’t happen again. Now, that’s just crazy. Storms happen. Deal with it. Make a plan. Figure out what you’re going to do the next time.

Name me an industry leader who is thinking creatively about how we can restore our competitive edge in manufacturing. Who would have believed that there could ever be a time when ‘The Big Three’ referred to Japanese car companies? How did this happen, and more important, what are we going to do about it?

Name me a government leader who can articulate a plan for paying down the debt, or solving the energy crisis, or managing the health care problem. The silence is deafening. But these are the crises that are eating away at our country and milking the middle class dry. 

I have news for the gang in Congress. We didn’t elect you to sit on your asses and do nothing and remain silent while our democracy is being hijacked and our greatness is being replaced with mediocrity. What is everybody so afraid of? That some bonehead on NBC news or CNN news will call them a name? Give me a break. Why don’t you guys show some spine for a change?

Had enough? Hey, I’m not trying to be the voice of gloom and doom here.  I’m trying to light a fire. I’m speaking out because I have hope - I believe in America. In my lifetime, I’ve had the privilege of living through some of America’s greatest moments. I’ve also experienced some of our worst crises: The ‘Great Depression,’ ‘World War  II,’ the ‘Korean War,’ the ‘Kennedy Assassination,’ the ‘Vietnam War,’ the 1970’s oil crisis, and the struggles of recent years culminating with 9/11.

If I’ve learned one thing, it’s this: ‘You don’t get anywhere by standing on the sidelines waiting for somebody else to take action. Whether it’s building a better car or building a better future for our children, we all have a role to play. That’s the challenge I’m raising in this book. It’s a “Call to Action” for people who, like me, believe in America’. It’s not too late, but it’s getting pretty close. So let’s shake off the crap and go to work. Let’s tell ‘em all we’ve had ‘enough.’

Make your own contribution by sending this to everyone you know and care about. It’s our country, folks, and it’s our future. Our future is at stake!!

Here is a very well written opinion piece from Christopher Grey of TheStreet.com. 

I think it summarizes much of the discontent affecting our great country, especially with regards to the attitudes of the “social elite” and their repurcussions on the attitudes of many other Americans as a result.  It also does a good job highlighting the dangers our country may soon face as the Chinese refuse to invest in any more of our financial institutions and the Japanese refuse to buy Treasuries yielding little to no return on investment. 

The world appears to be saddened by the cavalier attitude expressed by America and the “oh well” explanations accompanying very real challenges and problems.  Trust and faith in “the system” are critical to the long term economic health of our country and even more critical to successfully servicing our national debt and its accompanying financial obligations.  As an ex Army Ranger myself, I couldn’t agree more … even if by agreeing it forces me to accept my disappointment with many of the attitudes permeating modern society.  As a father of four, I see amazing teaching points for my children and will take advantage of these while they are at an age that matters.

Today we see more evidence of the stresses in “the system”.  It’s not so much that the markets are up or down in a big way.  In fact, today they don’t seem to be doing very much of anything, as the Dow is down a little more than 100 and the Nasdaq is off about 40 as of this writing.

The data continues to be bleak, whether it’s unemployment numbers, manufacturing numbers or pretty much anything else that we want to cite.  However, with that said, everyone continues speculating about our having hit “the bottom” back in October/November when we successfully retested the lows and held.  Even better though is the view that the market has already “priced everything in” except for “new surprises” or macro events.  Yeah, OK, sure it has.

Clearly Mr. Market is expecting the Fed to drop the Fed funds rate by at least 75 basis points to 0.25% at the end of its FOMC meetings today and tomorrow. But, while most of the world is focused on the Fed and “quadruple witching” options expiration this Friday, today I want to focus on the oil and gas patch and the latest announcement from Weatherford International that they too are leaving the United States for the greener pastures of Switzerland. 

Someone in Washington DC needs to start paying attention to how many large US corporations in the energy complex are simply throwing in their operational white towels and literally bailing out of the US in droves (at least in terms of their corporate structure, HQ leadership and investment).  At last count this puts Transocean, Foster Wheeler and Tyco in Switzerland and Haliburton in Dubai, in addition to many, many others that are probably less known by “the masses”. 

This is absolutely great, just great (insert frustrated sarcasm here for effect).  Perhaps as a next step our illustrious leaders can see if they can effectively drive Cisco Systems, Google, Microsoft, Apple and the entire core technology complex out of the country as well (again, insert frustrated sarcasm here for effect).  I’m sure that such grand political efforts would breed the basis for further improvement in the US economy and much stronger future prospects for the continued global leadership of our great nation.  Please, please, WAKE UP!!

Oil Companies Voting With Their Feet—Investor’s Business Daily

Source: 15 December 2008 (c) 2008 Investor’s Business Daily

Energy: Another day, another oil company fleeing the country. No, this isn’t Ecuador, the banana republic that just defaulted on its debt after chasing out investors. It’s the United States, and what we’re seeing is self-defense.

Much political hay has been made in Congress about “unpatriotic” corporations that move operations abroad. Weatherford International is the latest, taking its headquarters from Houston to Switzerland. The oil services company said that it wants to be closer to its markets. But what it really meant was that it no longer saw the future in the U.S.

In a political atmosphere of blaming corporations, it’s no wonder. Halliburton fled to Dubai in 2007. Tyco International, Foster Wheeler and Transocean International all went to Switzerland. As a pattern emerges, America’s global standing diminishes, in part because it’s based on the willingness of companies to invest. It’s an especially bad sign when domestic companies flee.

“The U.S.is an important market,” Weatherford CEO Bernard J. Duroc-Danner told the Houston Chronicle Thursday. But, “it’s just a market. It’s not the primary market.”

How does that sound for a loss of global leadership? If that’s not clear enough, try this: “In the hierarchical pecking order, (Houston’s) not going to be Rome anymore.”

What accounts for this vote of no confidence in the U.S.?

Start with the demonization of oil companies. Executives have been hauled before Congressional star chambers, held up to abuse and ridicule, and then blamed for high oil prices as if they wanted to kill their markets. Rising global demand, nationalizations and Congress’ failure to open the country to drilling go ignored.

Huge companies such as Exxon Mobil, whose market cap exceeds the GDP of most countries, create $100 billion in earnings in quarters when oil prices soar. It looks high, but over the years, the industry’s average returns, at 9%, are less than other industries.

Nevertheless, Exxon’s profits are evidence of its success at extracting oil from miles below the earth’s surface, even underwater, and from unbelievably hostile environments, such as the Arctic. Instead of being objects of national pride for their productivity and efficiency, and subjects of heroic Hollywood movies, their success is considered to be dishonest.

Congressional hostility affects oil companies’ operations abroad, too: Exxon, remember, noted that Congress’ animus toward oil profits directly encouraged Hugo Chavez’s uncompensated expropriations of $1 billion of Exxon’s assets in Venezuela, which drove oil prices higher.

With an expanded Democratic Congress and an incoming Democratic president determined to create “patriot corporations,” it’s no surprise to see companies try to get out while they can. Make no mistake — it’s investment fleeing the country. As this goes, foreign capital could flee next.

Congress’ abuse sets the political tone for the worst to come.

First, oil companies, like all corporations, endure the second-highest taxation in the developed world (39.25% of their income), which dampens their competitiveness. The 2007 OECD average is 27.6% and falling. Worse still, U.S. firms are taxed on operations around the world, unlike the global standard, making a move of headquarters a defensive move.

Meanwhile, politicians openly say they want to hike taxes on oil firms. President-elect Obama seems to have backed off, but questions remain as to whether he can stand up to a rapacious and economically ignorant Congress that hasn’t.

Second, Big Labor is feeling its oats, swaggering confidently with newfound political power. United Steelworkers approved a “national oil bargaining policy” for higher wages and beefed up its “strike defense fund,” both of which point 15 plans to squeeze oil companies, if not launch strikes.

“You have to prepare your membership for 2009,” according to USW International Vice President Gary Beevers on a union Web site. “The oil companies are ready for us; we have to be ready for them.” With Congress at their back, oil companies are unlikely to lose.

None of this portends well for the U.S.business environment. That’s why top-performing firms, such as Weatherford, are exiting. Until Congress learns to appreciate and value oil firms, this will continue, leading to less U.S. investment and influence as more competitive climes beckon.

I think that this is a very good read for those of you that have not yet read it (http://rangerider.blogspot.com/2008/03/john-exters-golden-pyramid.html).  It complements my summary of derivatives from a few weeks back.  The ultimate punchline of the Golden Pyramid is that we’ve somehow ended up with $700 *trillion* of paper sloshing around out there even though the entire world only has about $60 *trillion* in total assets.  Hmmm.

As an update, gold just plowed through $800 an ounce and the commodities have started rebounding from their floors.  Financials, real estate and anything tied to residential or commercial building continue to look very, very scary.  The Santa Claus rally is also equally scary as we’ve simply gone way too far way too fast when the underlying data continues to look horrible at best and accelerating to the downside at worst.

Speaking of way too far way too fast, long term Treasuries are now looking like the next bubble to pop.  Recently the TLT has gone vertical as yields on short term T-bills have hit zero and long-term T-bills have hit record lows.  When the prices start dropping (or plummeting as the case more likely will be), the yields will spike and the bubble will simply pop just like the Internet, credit and housing bubbles before it.

I’ll throw out my forecasts for 2009 in the near future.  Stay tuned!

Well folks, the bad data just keeps coming.  This morning the Labor Department shared numbers not seen in the United States in decades.  Unemployment rises to 6.7%.  Job losses exceed 533,000.  Average work week drops to 33.5 hours per week.  Yuk.  Yuk.  And Yuk!

Estimates for job losses had a consensus around 340,000 jobs, with a 500,000 loss as the magic “whisper number”.  Unfortunately even the most pessimistic views on the number understated just how bad it was out there.  I think that these numbers are so bad that the U.S. government will start working aggressively on the next economic stimulus package so that President Elect Obama can sign something in to law as soon as he completes his oath of office in mid January. 

As stated over and over and over again, focus on the data and ignore the media noise.  Hope is not a plan and we can no longer wish our way out of this mess.  I’ve been clicking my heels together for 3 months and despite saying “there’s no place like irrational exubberance, there’s no place like irrational exubberance”, I’m still looking at the same problems and unfortunately the data has only gotten worse.  Toto is not only not in Kansas anymore, but Dorothy also can’t even seem to find him to even start their road trip back home.  With that said, please make sure that you’re “following the yellow brick road” and adding to your gold position as 2009 is likely to result in either hyperinflation or stagflation (both of which will make gold move much higher).

With futures only off by 120 points this morning pre market, it is growing more and more apparent that the market is desperately trying to have all of this bad news priced in to the markets so that we can try moving forward again.  Retesting the lows of 7350-7500 appear very much in the cards, so expect that and also expect a battle between “holding that line” on the bull side versus “get real” on the bear side.  Downside in to the low 6000s is now very much on the table if the rate of decline in the data continues to accelerate rather than stabilize.  We’ll keep following this and let the numbers be our guide. 

Other than commercial real estate, the next major bubble appears to be 10 and 30 year Treasuries.  Start watching this closely rolling forward as yields are now hitting lows that haven’t been seen since the 1950s.  Yikes!

As suggested last week, don’t believe the hype of the 5 day bear market rally.  Today we had to get back to the data instead of the media headlines.  And the data was (unforunately) just plain awful.

The November Institute for Supply Management (ISM) manufacturing index dropped to a new 26 year low of 36.2 (numbers below 50 equal economic contraction).  In parallel, the Commerce Department reported that construction spending fell by another 1.2% in October, and the National Bureau of Economic Research confirmed that the United States has officially been in recession since December 2007, fully 12 months ago.

“Manufacturing is in freefall, with output collapsing,” Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a note. “We see no prospect for near-term improvement.”  Yikes.

At this point in the cycle I would once again urge everyone to ignore the headlines and simply focus on the data.  When the data gets better, then the markets will follow.  Clearly markets have traditionally bottomed 5-6 months faster than the actual economy will, but right now there is no data to support that we are getting close to that bottom.

We’ll keep monitoring things and update you further as we go.  Today’s major sell off in the markets was accompanied by an equally major sell off in gold.  We took advantage of that decline to add to our gold position via the DGP “double gold” fund.  Sooner or later the market price of gold will have to start reflecting the physical price of gold, and the U.S. dollar will have to start falling to reflect the $7.5 *trillion* in money printing accompanying all of the underlying “stimulus” and “bailouts”.

The best quote I have seen on the U.S. dollar is this: “The U.S. dollar has its problems, but so far it has been winning a beauty contest in a leper colony.” (Source: Safe Money Report, Sean Brodrick)  

$7 *trillion* will get printed to attempt to solve the market and economic problems facing the U.S. The dollar is only rallying because (1) right now we appear to “suck less” than others, and (2) everyone is deleveraging, has to unwind positions due to margin calls, redemptions, forced selling, etc., and all of the unwinding is typically settled in U.S. dollars.

Kind of ironic isn’t it? In order to deleverage, you are forced to buy a lousy asset: U.S. dollars. Then, after you unwind, you can finally sell the dollars and/or redeploy them elsewhere. However, in the interim you get a “false rally” in the U.S. dollar because you have to; with that said, it’s only a matter of time before we either debase our currency ala FDR in the 1930s (which means gold goes through the roof), or deflation gets replaced with hyper-inflation because we have to start paying off all the IOUs tied to our twin deficits (trade/budget), social security, medicaid, medicare, commercial paper, FRE, FNM, C, BS, AIG, TARP, etc., etc., etc. (which also means gold goes through the roof).

Printing money = inflation. And this will be north of $7T (with a “T”) of printing, along with more than a $1T (also with a “T”) of budget deficit in year one of the Obama administration. Much like the Internet in China, you can’t put the dollar genie printing press back in the bottle. We’re way, way past the point of no return and now it’s consequences time. Period.

So, while we’d all like to believe that the “great unwind” is at the later stages of the process than the beginning stages of the process (7th or 8th inning instead of 2nd or 3rd inning so to speak), let’s forget the headlines and the media and focus exclusively on the underlying data.  To that end, I ask a simple question to all of you.  Namely, exactly how much government stimulus money is needed to adequately address unwinding almost $600 *trillion* worth of financial derivatives?

From TheStreet.com, “According to the U.S. Comptroller of Currency on June 30, 2008, it was reported that U.S. commercial banks held more than $182 trillion in face-value derivatives. Furthermore, the Bank of International Settlements produced a figure six months ago of $596 trillion in worldwide financial derivatives. To put that number into perspective, it would equal 10 times the gross domestic product of the entire civilized world. This derivative problem along with many of the largest banks close to bankruptcy leaves the entire system exposed to another devastating financial storm.”

Furthermore, “This wild and volatile market is driving both fundamentalists and technicians totally crazy. No sooner does it look as if stocks are about to head in one direction that the trend quickly changes. On top of that, the volatile 5% to 10% swings at the end of the day make it almost impossible to take any intermediate- to long-term positions. This is a totally disorganized market with absolutely no leadership; it will have a hard time producing anything more than a technical bounce.”

My suggestion in light of this is to ignore the media, ignore the headlines and ignore the cheerleaders.  Rather, focus exclusively on the *data* and let this data be your guide.  When the data turns, so too will the rest of the markets.  Until then, however, I think that every rally is a bear market rally and you shouldn’t get suckered in to going long in the “wrong areas”.  “Wrong areas” to me are real estate, housing, financials, insurance, retail (especially retail with significant real estate exposure) and the U.S. dollar.

With regards to financials, today’s data and projections look even bleaker.  Consumer sentiment for November is down to its worst level in 28 years, banks are set to write down $44B in the 4th QTR (or most of the TARP money recently infused in to the banks), new home sales tumbled to an 18 year low in October, durable goods orders dropped 6.2% in October (more than double the already bad estimates provided by the “experts”) and to top all of that off, consumers … who represent more than 2/3 of the U.S. economy just cut their spending in October at the steepest rate in 7 years (which was immediately after the 9/11 terrorist attacks). 

Be careful out there as it’s just flat out ugly.  I’m seeing people call for the Santa Claus rally in to year end and that the S&P 500 can get all the way back to 1000.  However, all of these gains and all of these moves are not based on anything more than headlines as the real underlying data remains horrid.  To that end, and based on yesterday’s blog topic, “hope” remains a 4 letter word and an extremely poor foundation for an investment philosophy.

It’s pretty bad (sad) when people have to start writing “pep talk” pieces to home owners to not make them feel like idiots for owning “a part of the American dream” (see article below).  Unfortunately it seems that this “dream” is continuing to be a really bad “nightmare” for an awful lot of people out there.  After all, entertaining Freddie Kruger and Jason during the holidays isn’t exactly at the top of anyone’s proverbial “fun list” of things to do.

I think that this has gotten so far beyond anyone’s control that all the king’s horses (Fed, FDIC, TARP, Congress, etc.) and all the king’s men (Paulson, Bernanke, Summers, Geithner, etc.) aren’t going to be able to put Humpty Dumpty (U.S. housing market and mortgage backed securities) back together again anytime soon.  The endless money printing, unbearable debt and fallacy of being able to engineer a “soft landing” is going to lead to a plummeting U.S. dollar, plummeting domestic purchasing power and extremely high gold prices (and commodity prices in general for that matter as deflation gets replaced with hyper-inflation and the dollar falls off a cliff).

I don’t buy in to the latest multi-day rally and expect to see things turn back in the other direction as soon as we get back to the economic fundamental and data realities at hand.  “Hope” is a four letter word and sure isn’t a sound basis for an investment thesis.  I’m an optimist by nature, but right now I have to acknowledge that I’m an experienced optimist.  Enjoy.

Price plunge reminds us what we really value in a home

MarketWatch Databased News - November 25, 2008 11:31AM EST

CHICAGO (MarketWatch) — For most Americans, their home is their biggest investment. So when we read about record declines in U.S. home values, we naturally think our investment is in the tank.

But just because buying a house represents the biggest financial commitment most of us will ever make does not mean that its value is in its price and that if that price does not go up year after year we are somehow an investment failure.

That kind of thinking may apply to your retirement savings. Indeed that philosophy is the one Wall Street has pushed on all of us in selling the idea that we need to keep a good chunk of our nest egg in stocks because, historically, stocks have provided the kind of return we need if we are to retire “comfortably.” But houses are not stocks — even though the prices on them are acting like equities in a bear market.

The latest Case-Shiller home price index released Tuesday by Standard & Poor’s shows prices falling at an annual rate of more than 17% in September across the country, with all 20 markets tracked by the index showing declines from August and from September of 2007. See Economic Report.

These are troubling statistics, confirming that the housing market is in throes of its worst downturn in decades. Much as the argument about stocks historic returns over the long haul have blown up in everyone’s face as we look at a decade of essentially zero gains, the argument that housing holds its value by appreciating on average a percentage point or two more than inflation each year now seems like so much smoke puffing.

But let’s forget about prices, for the moment (and doesn’t that feel good!) and concentrate on fundamental value. Because that is something that no home-price statistic captures.

At its core, a house is a shelter. Unless the roof caves in, there is always some economic value in that.

But most people when they dream about a house or start looking for a house or actually buy one think about value in a whole different way: they think about the fireplace they can gather around with their families, the kitchen where they can show off their culinary skills, the bathroom that they won’t have to share, the schools they will be able to send their kids to, the neighbors they will be able to entertain in the backyard, the parks they can bike and hike and the community events they will be able to attend.

Yes, you have to make a price decision. And that can come back to haunt you if you’re forced to sell in a market like this. But that doesn’t mean you value any of those other things any less.

– Steve Kerch, assistant managing editor/personal finance