Jesse Eisinger has a strong piece in today’s WSJ about the slowing economy and risks to the market: What if Housing Hare Becomes a Tortoise?
I chatted with Jesse about two major themes I have been beating to death: How an obvious but ignored idea (inflation, slowing housing), can suddenly take over the market.
Here’s a quick excerpt:
Sure, the stomach-churning downturn in the last several sessions — in U.S. stocks and then the bubblicious commodities markets — was fast. But it wasn’t surprising. The things that should have mattered didn’t for the longest time, and now suddenly they do.
To figure out where the birds will come to roost, look homeward. Housing has been the key sector driving consumer spending, employment and therefore the markets. It was trending south long before last week’s selloff, but investors have yet to fully appreciate its implications.
The Federal Reserve’s rate-raising campaign has clearly started to have an impact, as long-term rates are moving up. And oil’s relentless rise has finally started to bite. Crude’s creep seemed merely worrisome when it hit $40 a barrel, troubling at $50 and ominous at $60, but by the time oil hit $70, investors seemed to forget about it. But the airlines and distributors that have been tacking fuel surcharges onto their wares didn’t forget, and now inflation is on the horizon.
The rapid recent swoons are only the latest evidence of how dominated the markets are by aggressive speculators, especially the trend-following hedge funds that play the futures markets. These funds have been whipsawing the global markets, researcher Bridgewater Associates pointed out in a note this week.
Yeah, I’m quoted in it — but you have to go to the full article to see that . . .
What if Housing Hare Becomes a Tortoise?
May 17, 2006; Page C1
The complete article is available at Post Gazette