Monday, April 27, 2009

Housing market green shoots (2)

Bloomberg's index of the stock prices of major homebuilders is now up 75% from its recent lows (current: 120, low: 68). This is the biggest bounce in this index since the housing market started turning down almost four years ago, and it comes amidst a steady drumbeat of prognistications that a housing bottom won't occur until next year. There's a decent chance the market is telling us that we have already seen the bottom, or that we are very close to the bottom.

4 comments:

Paul said...

Anecdotally speaking, our office transactions were up in March after Jan&Feb(the worst two months in company history for our wing of the business.) We'll see if it holds.


Scott,

I'm no economist but am I wrong to be slightly concerned that the Fed and govt have poured trillions into this economy and the best we get for the effort is a slowdown in the freefall?

Scott Grannis said...

To begin with, they haven't poured trillions into the economy--it just looks that way. The Fed has bought trillions worth of assets from the private sector, but most of that has just resulted in a change in ownership: the Fed now owns the securities the private sector was presumably loathe to hold. The money the Fed created to buy the securities is for the most part still sitting at the Fed in the form of unused bank reserves.

Treasury has sold a ton of bonds, but that doesn't create money. The public was desperate to own more bonds, and Treasury was happy to oblige.

To the extent the Fed did succeed in creating new money, it was money that people were desperate to acquire.

So to date, nothing is seriously out of balance. But that can and most likely will change going forward as confidence returns and the demand for money declines. That's when we could see the problems arise.

I'm keeping a sharp eye on the a) the value of the dollar, b) TIPS breakeven spreads, c) gold, d) commodities, and e) the slope of the yield curve. If there starts to be too much money in the system (more than people want to hold) it should show up in these indicators. If the Fed doesn't reverse course in a timely fashion, these indicators should tell the tale.

Bernard said...

"Well, again, throughout history, the center of the world has shifted to where the capital is, where the assets are. You don't see any period in history where things are shifting to the debtors, and America's the largest debtor nation in the history of the world. Unless something's different this time, unless the world's changed very very dramatically, the center of the influence, the center of power, the center of the earth, the center of the globe, is going to be shifting towards Asia, because that's where all the money is. Have you ever heard of anybody saying, "Let's go to where all of the debtors are"? It just doesn't happen that way."

- Jim Rogers

There are only a few ways to resolve our imminent debt future.

1. Pay off the debt
2. Default on the debt
3. Inflate the debt away.

Each does not carry a 1/3 probability. Place your own weghts into the equation and decide wehre you think we are headed.

We are probably in the 2nd or 3rd inning of this malaise.

Time will tell, rallies will occur, bottoms will be announced, and more debt will be issued. That we can be certain off.

America is deeply underwater. At some point people will stop buying American debt and the ultimate irony may come when Americans themselves walk away.

Scott Grannis said...

The US is the world's largest debtor, but we are also the world's biggest economy. If you look at debt relative to the size of our economy, we are not the largest debtor--Japan is, by far. Simplistic announcements such as Jim Rogers makes don't do anyone any good.