Today’s pending home sales data was one more sign of the enormous problems that linger in the real estate market. Despite some near-term signs of stability (courtesy of uncle Sam and his never ending bailout campaign) the long-term structural problems in real estate remain. The government can alter the laws of supply and demand in the short-term with their boom/bust policies, but over the long-term the laws of the free market will win.
Mark Hanson at Mark Hanson Advisers analyzes the latest housing release and shows us why the government will ultimately lose this battle with econ 101. The hurdles are simply too numerous. At some point the market will correct. For now, we’re just kicking the can down the road. As always, Hanson’s work is a must read:
But with increased foreclosures and short sales, come all the house price and write down challenges we experienced when foreclosures were coming without interference. Having their cake and eating it too will be a difficult task in the housing sector for the gov’t in 2010.
Source: Mark Hanson Advisers
TPC,
If I can sum this up, housing is in the crapper, the consumer is near dead, yet we go higher b/c Wall St analysts are bad at their job? You may very well be correct with your forecast for Q1 strength in the market, but if this is the case, how on earth does anybody make a compelling argument for a rational market? The word insanity keeps coming to mind over and over again.
[Reply]
TPC Reply:January 5th, 2010 at 9:17 AM
As I often say, the market does not necessarily reflect the real economy. It reflects expectations compared to the real economy. If expectations for a recovery remain low and we continue to outperform those expectations then stocks will outperform. Combine that with the fact that markets can remain irrational for years and voila! You have all the ingredients for a rally….
[Reply]
VCC Reply:January 5th, 2010 at 10:10 AM
Your logic makes sense, I’m just trying to reconcile it with Rosenberg’s comments: “Remember that this time last year the consensus was at $77 operating EPS for 2009 and we got $56.” Despite a significant miss of these overly OPTIMISTIC numbers, we still rallied 20% last year. And David appears to be calling for a significant miss to forecast again this year (unless GDP surges to impossible double digit levels). So how are analysts too pessimistic, given that we didn’t hit their optimistic numbers last year and most certainly will not again this year?
[Reply]
TPC Reply:January 5th, 2010 at 10:24 AM
I don’t know VCC. Rosenberg made the same argument all of last year. I think the back half could prove to be risky, but then again I don’t put much faith in any forecast out more than a quarter.
I am a firm believer that it’s impossible to forecast out more than a quarter or so with any real accuracy. Hence, why I believe investment time horizons should remain short in duration. As of now, I think the estimates are far too low for Q4 and that means it’s a bad idea to get short in front of and during the upcoming earnings season.
I’ll take it from there after Q4 earnings are over….
[Reply]
Steve Reply:January 5th, 2010 at 1:02 PM
Hey TPC, wasn’t the issue last year that analysts were far too optimistic at the beginning of 2009 and so the market continued tanking the first 2 months, but those same analysts then became too pessimistic and stayed too pessimistic as the market started rising.
[Reply]
TPC Reply:January 5th, 2010 at 1:18 PM
My expectation ratio troughed Q4 last year so estimates became too pessimistic heading into the New Year and into Q1.
TPC Reply:January 5th, 2010 at 10:25 AM
In other words, it’s a bad idea to take Rosey’s long-term outlook and try to create a short-term strategy from it. I think he will ultimately be vindicated, but his timing is likely wrong.
[Reply]
Are you subscribing to Mark’s reports, or is he publishing in places other than his blog?
[Reply]
Not only us, but China and the asian sphere looking for some of the stimulus overflow. It will end badly, but no one knows when. The reason is simple, China can be reduced to two simple facts: (a) the stimulus is huge so we get no information about the state of China’s economy … this is neither positive nor negative, but anyone extrapolating that China will pull the global economy out of the Great Recession cannot be doing anything but guessing, (b) consumer spending is actually decreasing relative to GDP, (c) corollary with (b) fixed asset/capital spending is increasing with GDP … every business cycle ends with this. US and Europe … are at that stage now.
[Reply]
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Today’s pending home sales data was one more sign of the enormous problems that linger in the real estate market. Despite some near-term signs of stability (courtesy of uncle Sam and his never ending bailout campaign) the long-term structural problems in real estate remain. The government can alter the laws of supply and demand in the short-term with their boom/bust policies, but over the long-term the laws of the free market will win.
Mark Hanson at Mark Hanson Advisers analyzes the latest housing release and shows us why the government will ultimately lose this battle with econ 101. The hurdles are simply too numerous. At some point the market will correct. For now, we’re just kicking the can down the road. As always, Hanson’s work is a must read:
But with increased foreclosures and short sales, come all the house price and write down challenges we experienced when foreclosures were coming without interference. Having their cake and eating it too will be a difficult task in the housing sector for the gov’t in 2010.
Source: Mark Hanson Advisers
TPC,
If I can sum this up, housing is in the crapper, the consumer is near dead, yet we go higher b/c Wall St analysts are bad at their job? You may very well be correct with your forecast for Q1 strength in the market, but if this is the case, how on earth does anybody make a compelling argument for a rational market? The word insanity keeps coming to mind over and over again.
[Reply]
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