Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19
US China War - Thucydides Trap and gold - 16th June 19
Gold Stocks Bull Upleg Mounting - 16th June 19
Gold Price Seasonal Trend Analysis - Video - 16th June 19
Fethiye Market Fruit, Veg, Spices and Turkish Delight Tourist Shopping - 16th June 19
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Global stock market growth to offset US Housing Slump - Whistling Dixie To The Chicken Littles

Housing-Market / US Housing May 02, 2007 - 10:59 AM GMT

By: Brady_Willett


Having stayed out of the limelight for far to long, the 'bubbles forever!' doctrine is roaring back:

"Speculative money needs to go somewhere. There is no question that some of it is moving away from housing and into the stock market." Van der Eb, of the Gamco Mathers Fund, Chicago Tribune

"...bulls argue that global stock market strength helps to offset the wealth lost in people's homes..." Street

There you have it - the wealth that will be destroyed in the U.S. housing market will simply reappear in the stock market. And here I thought that a severely overstretched U.S. consumer ensured that the next U.S. recession, unlike the last two, was going to be ugly. What a relief.

But exactly how 'global stock market strength' will offset the damage in housing isn't entirely clear. Rather, with central banks around the world contemplating raising interest rates further and the U.S. economy slumping towards what could be recession, there is the real danger that an equities bear market is brewing. Fear not, say the bulls, these and other threats are covered:

"There virtually can't be a recession on the horizon. The world is awash in financial liquidity. Anything that goes wrong -- like the housing slowdown or the subprime mess -- is easily absorbed by the massive amount of money available in the world."

The above quote from Donald Luskin - who eloquently adds "let the bonehead bears say whatever they want" - highlights the cheerleading bulls have been doing since the jarring correction in late February proved a blip. Apparently, and not unlike the Red Hat analyst calling bears a bunch of 'chicken littles' in 1999, people like Luskin have been awarded a license to make wildly antagonistic comments towards bears: "we bulls have to have someone dumb enough to sell us the stocks we want to buy". Needless to say, for those that watched Luskin buy into the late 1990s 'new economy' only to be forced to shutter his funds after severe losses in 2001, there is really no need for a lengthy rebut.

'Liquidity' Divides But Does Little To Enlighten

The fascinating thing about the so called 'liquidity' situation today is that both bears and bulls can use 'it' to build their case. Bulls like Luskin can point to the liquidity forces that successfully navigated markets through wrecks like Amaranth by looking at their rear view mirrors, and bears can contend that excessive liquidity in the marketplace guarantees more blow-ups tomorrow. It doesn't seem to matter to bears that 'liquidity' ducks a definitive definition and/or that slumping gold isn't forecasting a lasting inflationary threat. Conversely, bulls do not seem at all concerned that during the 2000-2002 equities slump the Fed kept right on printing and trillions in paper equity wealth still vanished. No, what matters to both camps is that aggressive unregulated entities control an estimated $1.5+ trillion in wealth (before deploying leverage), private equity is buying out everything imaginable, world stock indices are hitting record highs, and the M3's (M2 in U.S.) are raging. If these events do not titillate your crystal balls, nothing else can.

Unfortunately, using 'liquidity' speculations alone to guide your investment decisions is little more than gambling, and some steadfast bears have found this out the hard way. To be sure, February 27 did not mark a lasting return of volatility, the days of yen carry have not ended, and commodity currencies have not fallen this year. What each of these themes/gambles have in common is that they were/are backed by a contrarian 'liquidity' viewpoint - or the conclusion that when the liquidity bubble pops, destruction and chaos will follow.

Yet as untimely as many of the bearish liquidity bets have been in 2007, the most dangerous bet of all is, to reiterate, just restarting to make the rounds:

"...bulls argue that global stock market strength helps to offset the wealth lost in people's homes..."

During the 2001 recession U.S. consumers never stopped spending and the U.S. housing market did not correct. As unprecedented as these events were, nothing is more unthinkable than a U.S. recession combining with a bull market in stocks (unless brought about by hyperinflation). In short, 'liquidity' doesn't explain why a slumping U.S. economy is being met with record highs in stocks, delusion does.

Dear Mr. Fantasy, Play Us A Tune...

As investors grow increasingly confident investing abroad, and as U.S. dollar weakness is met with an eerie applause by U.S. investors and policy makers, the bulls have decided not to not fret housing market weakness because the 'liquidity' situation supposedly guarantees that U.S. stocks will follow the perpetual uptrend in international equities. Taking currency into account you may not make as much investing in U.S. assets as most other places, but at least you are making some.

These are not reasons to be confident on U.S. stocks you say? Hmm. OK. Just shut up and buy because private equity will surely take your position out tomorrow.

...something to make us all happy.

By Brady Willett was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules