This article says that the weakness in housing could be bullish for stocks and bonds. Is this guy joking, has he not seen what has happened in the last 7 months. They also talk about how this rally can be sustained by interest rate cuts....ha
Full article Below...............
The U.S. housing market is in a recession and it still might not have hit rock bottom, but in a few months that weakness could turn out to be bullish for both stocks and bonds.
Sure it's miserable now for home builders, construction, lumber and home furnishing businesses. But the collapse in the house prices is going to help lower inflation pressures and that will allow the U.S. Federal Reserve Board to lower interest rates. It's just a matter of time, most economists still believe.
Just look at the jump in U.S. stock markets yesterday, after the Fed boosted optimism of expectations of a "soft landing" by suggesting that the rout in the U.S. housing market has moderated.
"There's still a significant number of new homes being built, and vacancy rates for residential properties are starting to soar," said Michael Gregory, a senior economist with BMO Nesbitt Burns.
As a result, the actual rents and the owners-equivalent rent (a theoretical calculation of what home owners would expect if they rented out their own houses), which account for 38 per cent of the consumer price index, should decline over time, Mr. Gregory said.
But don't look for lower inflation with today's release of the core personal consumption expenditure price deflator (PCE) data, the Fed's preferred measure of inflation. It is forecast to be 2.3 per cent on a year-over-year basis in December, compared with 2.2 per cent in November, according to a survey of economists by Bloomberg. That is still above the 2-per-cent upper end of the Fed's comfort zone.
"We have stayed with the view that you will probably get another chance to buy the cyclical stocks," said Clancy Ethans, senior vice-president and chief investment officer for Richardson Partners Financial, which has $6.2-billion under management for high-wealth clients. "The Fed rate hikes take time to filter through the system. I wouldn't buy them yet, as we continue to believe the [U.S.] economy will weaken."
And don't be fooled by the recent bounce in home building stocks, said BCA Research in a report yesterday. The shares of subprime mortgage lenders continue to plunge in relative performance, "which suggests that the marginal new buyer is no longer seeking, or is unable to receive, credit." That is disconcerting because it will prolong the oversupply, it said.
For a sustained rally, there will need to be interest rate cuts. At current levels bond yields are really no challenge to stocks.
'There's still a significant number of new homes being built, and vacancy rates for residential properties are starting to soar.'
http://www.theglobeandmail.com/servlet/story/LAC.20070201.RBELL01-1/TPStory/Business
Full article Below...............
The U.S. housing market is in a recession and it still might not have hit rock bottom, but in a few months that weakness could turn out to be bullish for both stocks and bonds.
Sure it's miserable now for home builders, construction, lumber and home furnishing businesses. But the collapse in the house prices is going to help lower inflation pressures and that will allow the U.S. Federal Reserve Board to lower interest rates. It's just a matter of time, most economists still believe.
Just look at the jump in U.S. stock markets yesterday, after the Fed boosted optimism of expectations of a "soft landing" by suggesting that the rout in the U.S. housing market has moderated.
"There's still a significant number of new homes being built, and vacancy rates for residential properties are starting to soar," said Michael Gregory, a senior economist with BMO Nesbitt Burns.
As a result, the actual rents and the owners-equivalent rent (a theoretical calculation of what home owners would expect if they rented out their own houses), which account for 38 per cent of the consumer price index, should decline over time, Mr. Gregory said.
But don't look for lower inflation with today's release of the core personal consumption expenditure price deflator (PCE) data, the Fed's preferred measure of inflation. It is forecast to be 2.3 per cent on a year-over-year basis in December, compared with 2.2 per cent in November, according to a survey of economists by Bloomberg. That is still above the 2-per-cent upper end of the Fed's comfort zone.
"We have stayed with the view that you will probably get another chance to buy the cyclical stocks," said Clancy Ethans, senior vice-president and chief investment officer for Richardson Partners Financial, which has $6.2-billion under management for high-wealth clients. "The Fed rate hikes take time to filter through the system. I wouldn't buy them yet, as we continue to believe the [U.S.] economy will weaken."
And don't be fooled by the recent bounce in home building stocks, said BCA Research in a report yesterday. The shares of subprime mortgage lenders continue to plunge in relative performance, "which suggests that the marginal new buyer is no longer seeking, or is unable to receive, credit." That is disconcerting because it will prolong the oversupply, it said.
For a sustained rally, there will need to be interest rate cuts. At current levels bond yields are really no challenge to stocks.
'There's still a significant number of new homes being built, and vacancy rates for residential properties are starting to soar.'
http://www.theglobeandmail.com/servlet/story/LAC.20070201.RBELL01-1/TPStory/Business
