The Message of the Stock Market.......

What would $100/barrel oil do to your forecast?

You could have asked the same question 2 yrs ago about $75/barrel oil?...What would your response have been?...My reply is I don't have a clue, but here we are...

The action of the housing stocks (joe, kbh, tol, bzh, dhi, hov, phm, ctx ) is telling us the Fed is finished raising rates. The market is also telling us that there will be a recovery in housing in the spring of 2007.

Can you expand on what you mean by a "housing recovery?"

The action of the housing stocks (joe, kbh, tol, bzh, dhi, hov, phm, ctx ) is telling us the Fed is finished raising rates. The market is also telling us that there will be a recovery in housing in the spring of 2007. The next major move in rates is DOWN. The Fed's work of the last 2 years raising rates has slowed the economy and tempered housing. The economic statistics will contine to deteriorate as well as the housing statistics but make no mistake about it, the recovery is coming in 2007. The Fed will begin lowering rates in the spring to generate growth. We will experience a growth rexession, which means GDP growth of 1-2%. We will NOT have a full blown recession...the FED will make sure of that. The stock market is a forecasting mechanism. The dawn is coming !!!

... and they all lived happily ever after.

i worry about this alot - hopefully your idea is not rose-colored glasses

i can see predicting the downturn (bound to happen), but how do you get a fed-induced recovery in spring 2007 - wishful thinking?

our "new" fed chairman (greenspan was a genious next to this guy) believes "the printing press was invented for a reason" and is printing money (creating black to offset the increasing red) like no tomorrow, and playing the currency markey like a country band fiddle to keep the dollar up

i won't say 'the dollar is toast - get out get out get out' but i will say to watch your assets

a worldwide depression affects all forms of currency and asset valuation, so pick something that holds its value, is small and transportable, and won't be destroyed by nuclear attack or glaciers

what is it that hold its value the best? lots of people have different ideas (and its even mentioned in the bible) and let me know when you find it

at least i can eat the fishies if it all goes pear shaped

and enjoy it while you have it!

what is it that hold its value the best? lots of people have different ideas (and its even mentioned in the BIBLE) and let me know when you find it

FOUND IT!! 😀

On the bright side, 15 and 30 year fixed mortgage rates have improved over the last 2 weeks.

You could have asked the same question 2 yrs ago about $75/barrel oil?...What would your response have been?...My reply is I don't have a clue, but here we are...

Unfortunately we see now what $75 oil does to the economy. My question is, what is Washington doing? Minimum wage, health care, immigration, social security, energy issues are all being dealt with equally. Nothing substantive is being done, because the status quo benefits our leadership.

Unfortunately we see now what $75 oil does to the economy. My question is, what is Washington doing? Minimum wage, health care, immigration, social security, energy issues are all being dealt with equally. Nothing substantive is being done, because the status quo benefits our leadership.

.

Not including an exogenous event ( like a nuclear device exploding in the middle east ) I think oil is going down. higher prices brings more exploration, development of alternative energy sources, and also conservation....that is what history tells us. the fed will start to lower rates next year to jump start the economy after sluggish growth. there is a lag time of usually 6-12 months when the fed goes to work. we are seeing the effects of the fed interest rate increases of the last 18 months. the economy will bottom in the next 6-12 months which during this time the fed will start easing.
as far as a "housing recovery" is concerned....granted there is a lot of inventory but there will also be a lot of pent up demand. the housing situation of south walton is not the norm of the u.s. we are a second home market. our situation will be the last to recover but it will recover ( 2-3 years) history shows the economy is a dynamic and expanding force. and lets not forget the consequences of a weaker u.s. dollar. that will create foreign demand for u.s. assets. what has and is occuring is part of the natural business cycle. the sky is not falling. nothing different or onerous in the latest cycle.

Bob its taken many years, but I've resigned myself that there are always naysayers...Fact is of no use to them, only the possibility of what could go wrong...Maybe oil will go to $500/barrel and we'll find out if your right...But @ $75 the economy grows @ 2.5%...that's where we are...Bye the way, did you tell a story when you said you voted for W?...

High oil prices are here to stay and they will go higher. Right now the world is pumping over 1000 barrels/second (It's true, do the math.) and needs to discover the equivalent of an Iraq (2 million barrels a day) every year just to replace depleting wells, not to mention keeping up with demand from China and India whose economies are growing at 9-10% year. Total world demand is conservatively projected to increase by 1.0-2.0 million barrels/day for the next few years.

Alternatives are being developed. Unfortunately, history shows us that it takes 10-20 years to adapt to new energy technologies. Meanwhile, we will have to live with higher oil prices and it can be done. The UK and Japan use about the same amount of oil today as in 1975. However, the US can't conserve it's way out of this one. No MAJOR oil fields have been discovered in the last 30 years and the entire world has been pretty well surveyed and explored. Chances are oil supplies will actually decrease and the alternatives won't be developed and implemented fast enough to compensate. It's best to just face reality and make the necessary adjustments in lifestyle and investments. It's a major trend that will create wealth for those who adjust and ruin for those who don't.

Even if oil does go down in the short term (2-3 years say) I think Paradise Sea is correct.

Bob its taken many years, but I've resigned myself that there are always naysayers...Fact is of no use to them, only the possibility of what could go wrong...Maybe oil will go to $500/barrel and we'll find out if your right...But @ $75 the economy grows @ 2.5%...that's where we are...Bye the way, did you tell a story when you said you voted for W?...

Yes,I voted for GW, and although the trends I see are negative, I'm not a naysayer. To be brief, the fly in the ointment of our economy is the rapid rise in the cost of energy, and the way prices react to that rise. I, before anyone, want the Fed to pause this week, and I want inflation to take a break....

Rising energy prices will ensure a high rate of inflation for years to come. There's very little the Fed can do about it short of raising rates so fast they create a recession or, even worse, a depression. The cost of energy affects the cost of virtually everything else to one degree or another. I think the next few years will look a lot like the early 1980's. High inflation and very slow real growth.

By the way, this isn't necessarily bad for the houseing market or those holding fixed rate mortgages. In the early 1980's housing prices overall actually outpaced inflation and made housing, even with high mortgage interest rates, an attractive investment vs. the stock market.

the latest "message of the stock market" from the building sector ...


(Forbes)
Toll Brothers' Q3 Surprises CEO
Greg Levine, 08.09.06, 5:25 PM ET
Toll Brothers' third-quarter earnings report likely wasn't a total shock to anyone -- but its chief executive didn't soft-soap his disappointment.

On Wednesday, Toll Brothers (nyse: TOL - news - people ), which makes its money through building, financing and selling upscale residences, announced that the three-month period saw total revenue drop by 1.2% to $1.54 billion, with its construction segment's revenue slipping 0.5% to $1.53 billion.

Besides sagging sales, the value of confirmed contracts was slashed by nearly 50%, down to $1.07 billion.

By region, most Toll Brothers activity went according to tepid expectations, with one nice surprise: Sales declined in the Mid-Atlantic, Midwest, and California arenas; predictably, revenue was healthiest in the Southeast and Southwest -- and surprisingly, in the Northeast.

For the fourth quarter, the firm has projected delivering fewer homes: between 2,500 to 2,800 domiciles, as compared to its previous guidance of 2,900 to 3,300 units.

Based on the relatively solid state of the U.S. economy, Chairman and CEO Robert Toll expected some housing-market aches--but not this much quarterly pain. In a statement, the eponymous chief explained, "It appears that the current housing slowdown...is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors."

Investors seemed as taken aback as the CEO. In Wednesday early-afternoon trade, Toll Brothers' shares lost some 3.12%, slipping 83 cents to $25.75. And the ripples were felt by its rivals: D.R. Horton (nyse: DHI - news - people ) slid 73 cents, or 3.33%, hitting $21.18; LennarLEN - news - people ) fell by $1, or 2.16%, to $45.34; and (nyse: Pulte Homes (nyse: PHM - news - people ) lost $1.01, or 3.37%, to trade at $28.99.

I feel comfortable nibbling on kbh @ 38 ryl @34 tol @22 dhi @20 hov @25 ctx @43 phm @26 joe @42 .........all at their recent lows. at these levels they offer good value. Recently these stocks all had violent reactions to the upside on good volume. they got too cheap on a book value basis. these prices i stated indicate to me the the price points that i want to nibble at. i am a long term investor ( 2-4 years ) if these stocks return to the prices i indicated i will put on 25% positions.......if they don't return to those prices, i guess i won't own any housing stocks !! i am a very disciplined investor and perhaps a little pigheaded.....but i have done well over 30 years following this game plan.

The time to buy equities is when everyone hates them ( which is the case with housing stocks ). The stock market discounts future developments. IMO that has occured in housing stocks. No one knows when the bottom happens, but you have to start building positions at some point. As I stated, at my limit prices I will put on 25% positions and then wait. At these limits these companies are trading at below book and they are STILL earning money, albeit at a lower rate than a year ago BUT they have all been cut in half !!! You need to be patient......as I have stated in the past, "buy straw hats in the winter"

The time to buy equities is when everyone hates them ( which is the case with housing stocks ). The stock market discounts future developments. IMO that has occured in housing stocks. No one knows when the bottom happens, but you have to start building positions at some point. As I stated, at my limit prices I will put on 25% positions and then wait. At these limits these companies are trading at below book and they are STILL earning money, albeit at a lower rate than a year ago BUT they have all been cut in half !!! You need to be patient......as I have stated in the past, "buy straw hats in the winter"

I don't disagree with your strategy at all ... just your timing. I believe that we have many, many, many quarters of bad news ahead in the building sector (lawsuits, massively overvalued land holdings on the developer's books, ever increasing "for sale" inventory levels, foreclosures, drying up of liquidity ...).

To be a buyer of Builder stocks right now I'd have to believe that the housing bull market was still intact, and that the last year was just a mid-cycle correction in a decade long housing boom, when reality is that I believe we are in the early stages of a housing bear market.

I'd be more inclined to short Builders at this point.