Here is last week’s video via Forbes on more bank write-downs for the Financials and iBanks, and on a long-lasting U.S. recession. Avoid Home Builders.
click for video (2008-03-28)
Forbes Video (3/28/08)
April 4, 2008 3:00pm by Barry Ritholtz
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love the quote…
“If your looking in that tunnel and see the light at the end, make sure it isn’t a locomotive coming right at you!”
great video. substantive and succinct.
In comparing this bear cycle with the last one (2000-2002), there are similarities and differences. An important similarity is the easy money in both cases. One of the differences in this case is the political calendar. The politicians (and by extension, Bernanke & Co.) are falling all over themselves to, in effect, borrow from the future to ease the pain now. It follows then that the decline in stocks between now and the election will be less than it would have been without all of the exertions of the politicians (and the Fed). But it also follows that we will have to pay a bigger price in 2009 than we would have without all of the bailouts, tax breaks, easy money, etc. A sustained bull market may be another two years in the future.
Excellent analysis BR.
And the political angle is important, as DL noted. Along those lines, I think the next president is a George Bush/Jimmy Carter one-termer, ’cause none of this will be resolved by 2012, and he/she will, correctly or not, bear the brunt of the blame.
IMO, the best strategy is to place whatever bets you make on the underlying assumption that the dollar will steadily continue to weaken until the current account deficit decreases substantially and reduces our need to sell dollar-denominated securities to finance our purchases.
Two videos of Captain Haggard Scraggly in two days!!
Avoid home builders?!?
FusionIQ’s highlight of the day is Ryland.
OK Barry,
If I’m going to let you anywhere near my hay meadow, you have to pronounce potash……………POT ASH, not PO TASH…
And it’s BU CYRUS not BUCKEYRUS.
Over and out!
Barry, I wondered if you had any thoughts on this. I just picked a synopis that was simple and straight forward to post from The Washington Monthly.
http://www.openleft.com/showDiary.do?diaryId=4970
Whoo Hoo I just saw that the Clintons went from zero to $100,000,000 in 8 years!
And they say crime don’t pay! A pox on all their houses.
Attempting to expand upon what both DL and DonKei have already stated above I think what the Market is pricing in with this current uptrend is the Magnitude of the effect of current stimulus by the Federal Reserve and Congress on equity prices.
On the table are congressional rescue efforts for homeowners — “a (House-Of-Rep.) plan to provide up to $300 billion in federally guaranteed loans to help refinance the mortgages of as many as 1.5 million homeowners at risk of default”. This includes tax credits for buyers of foreclosed homes and the Senate is proposing to throw in tax relief to those whose homes were lost to Hurricane Katrina.
Also, we have earnings coming up and the Market seems to be “Expecting”, or pricing in, more results like RIMM’s.
We have the 150-170 billion stimulus package yet to hit the economy.
Possible currency intervention schemes by central bank(s)/G7 to support the dollar– and the ECB looking to cut rates at some point in the not too distant future.
Plus, any more rate cuts/easy money programs by the Federal Reserve for the big investement banks/commercials.
All of the above seems like a lot of cash to be thrown at the markets– some of which will undoubtedly be TaxPayer funded.
These factors are what I think is currently “Being Priced Into” this Market. Not the Ongoing Recession that we ‘never had’.
But I doubt very seriously that it will amount to the Trillions already lost, and that will continue to be lost, as Home Prices reach Trendline Levels– and lets not forget about Food and Energy price increases — they’re certainly going to continue to dampen consumer spending (2/3rds of GDP).
The 2000-2002 Bear Market had quite a few substantial bear market rallies. Bottom callers were a dime a dozen then– and continued to be Dead Wrong. That was a business led downturn (representing a much smaller amount of GDP). This one is consumer led representing a much larger percentage with homeowner equity, as a percent of market value, continuing to fall. I believe the Federal Reserve has it at (or near) the lowest levels not seen since 1945.
How much of this current expansion/GDP was directly attributed to Home Construction/Home Price Appreciation/subsequent Home Equity withdrawals? I’ve read somewhere on the order of 70+%.
I expect more Inventory to build during the Spring Selling Season as Homes that were taken off the Market get put back on again.
And while the Fed steepens the yield curve and continues to accept a broader range of “Highly Rated” financial assets as collateral from the commercial and Investment banks what sorts of loans will they be able to make to stem the downturn in earnings as Home Prices continue to fall (past Housing Recessions/Price Declines have lasted How Long– from beginning to end??? 32 months???). Consider the size and Magnitude of This One.
I think the Market will continue to Rally, possibly through earnings and/or until it realizes the Bail-Out efforts by the Federal Reserve, Congress and the Bush Administration while (possibly) slowing the rate of decline, are simply postponing the Inevitable– if not by complicating the process even more.
Then it will be time to Short this Market again.
I expect 5% growth the 2nd half of this year and 4-4.5 for 2009.
Great segment Barry. When are you going to start teaching? We need guys like you in academia.
PS.
Love the locomotive quote!
Sorry, but at the third commercial I just hit the “back” button and turned it off. I hope other comments will let me know what I missed because I was too annoyed to watch more advertising.
Hey Barry,
I thought this was one of your better interviews. Someone actually allowed you adequate time to express and explain
your views on the air.
Nice job!
jb
Excellent, excellent commentary !!!
Just one question Barry (or enybody else).
Do you know how much lower the median home price vs. median income has to fall to get to acceptable/normalized levels?
You talked about this, but could you be more specific…or provide a longterm chart.
.