Investment Contrarians

housing market

More Easy Money Signals Tougher Times Ahead for U.S. Economy

By for Investment Contrarians | Nov 4, 2013

Easy Money Signals Tougher Times Ahead for U.S. EconomyThe easy money will continue to be pumped into the economy by the Federal Reserve, but the difference, I think, will be that the soft tone will have less of an impact on the stock market than in the previous years. As was widely expected and to no one’s surprise, the Federal Reserve sat on its hands and did nothing with its current bond buying. So its status quo again as we move ahead and get ready to welcome in Janet Yellen as the next chairman of the Federal Reserve.

Based on the subsequent reaction by the stock market, the news was clearly discounted. The only thing was what the Federal Reserve would say about the economic renewal.

As I have said on numerous occasions, the Federal Reserve, in spite of adding over $3.0 trillion in debt to its balance sheet, continues to see America in flux and unable to shake its demons. By this I mean the economic renewal, while in place, remains at a tepid pace. Consumer spending is just not where you want to see it, and I think the advance reading for the third-quarter gross domestic product (GDP) growth on Thursday will point to this. Also, the jobs market continues to be caught in a vacuum.

“Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months,” said the Federal Reserve. Notice the comment on the housing market which I said was heading down.

Of course, for market participants, the cloudy forecast from the Federal Reserve will likely mean the tapering of the monthly … Read More

How to Profit from a Potential Housing Market Downdraft

By for Investment Contrarians | Nov 1, 2013

Potential Housing Market DowndraftThe housing market has had a nice run up over the past several years, but the party is beginning to fade.

Home prices continue to edge higher with a 12.8% jump in August, according to the S&P/Case-Shiller 20-City Home Price Index. While this seems positive, you also have to wonder if the housing market is headed for a bubble down the road as mortgage rates rise—and they will.

The chart of the S&P/Case-Shiller 20-City Home Price Index below shows the current recovery in home prices. The index is still far below the peak in 2006 and 2007, prior to the subprime blow-up. These were unrealistic levels. We saw downward moves in 2009 and 2012, but it has been clear sailing. Yet the problem is that much of the buying in the housing market was driven by institutional buying. Once this begins to fade as home prices rise, we could see a relapse in the housing market.

S&P Case-Shiller Home Price Chart

Chart courtesy of

We saw a 5.6% decline in pending home sales in September. This metric is not considered as critical as the housing starts and building permits readings, but in my view, it’s a good indicator. In August, pending home sales slid 1.6%. We may be seeing a trend of lower demand for homes, which suggests there could be some issues on the horizon if pending home sales continue to be negative.

Existing home sales were also flat at 5.29 million units in September, down from 5.39 million units in August. Less people are buying homes, and this cannot be good for the homebuilder stocks.

What makes the situation in the housing … Read More

Two Ways to Profit from Lagging Jobs Growth

By for Investment Contrarians | Oct 30, 2013

Lagging Jobs GrowthWith the slew of economic data being released this week, we’re obviously starting to get a better sense of where stocks could be heading over the next few weeks.

Of course, the focus will be on the Federal Reserve meeting today, where it’s really a no-brainer that Federal Reserve Chairman Ben Bernanke will leave his bond buying in place. Now some may argue that it may have been a different outcome if the government impasse didn’t occur, but I doubt that.

The talking points at today’s Federal Reserve meeting? The Federal Reserve will likely talk about how the economy is showing signs of growth, but that it remains fragile and will need to strengthen. The Federal Reserve will also talk about the soft results from the jobs market, and how it also needs to pick up.

The end outcome? A non-response from the Federal Reserve as far as tapering its bond purchases. In fact, based on what is happening, it doesn’t look like any tapering will occur until at least December, but most likely not until Bernanke leaves his post as head of the Federal Reserve in January.

Traders realize the Federal Reserve will keep the flow of money going, which has helped to add support to the stock market. Yet I’m still debating how high stocks can run. The key will be what consumers do during the holiday shopping season that begins in about a month with the critical Black Friday on November 29.

I’m not that optimistic, based on what the retailers said in their September reports. Also, jobs growth continues to be marginal at best, and this … Read More

Lack of Economic Data Hiding True Health of Housing Market

By for Investment Contrarians | Oct 18, 2013

True Health of Housing MarketOne of the difficult situations that arose from the U.S. government shutdown was the lack of economic data. Since economic data is extremely important to fine-tune your investments, without it, investors are essentially driving in the dark. With the decision to push back the debt ceiling and temporarily reopen the government, we’ll likely see some data coming in over the next few weeks.

However, in the meantime, there are still private organizations that have been issuing their reports on economic data throughout the U.S. government shutdown period.

The latest report on the housing market is by the National Association of Home Builders, with the Housing Market Index (HMI) dropping to 55 in October—a four-month low, and lower than the expected 58. (Source: “Builder Confidence Down in October,” National Association of Home Builders, October 16, 2013.)

The survey is interesting because, normally, homebuilder stocks as a group are quite optimistic. This confluence of negative variables, including higher interest rates and the government shutdown, has had an impact on the housing market, trickling into the sentiment of the homebuilder stocks.

While the government freeze is now over (at least for now), higher interest rates are still with us. While mortgage rates remain near historic lows, the move up in interest rates over the past few months has caused a significant dent in the housing market.

What this tells me is that the average American is far more worried about their future than many analysts would like to believe.

While the survey does indicate that optimism among homebuilder stocks still remains positive, the drop in confidence is noteworthy. Frankly, I’m not surprised; these … Read More

Price Action of the Bank Stocks Indicates Changing U.S. Economic Landscape

By for Investment Contrarians | Oct 16, 2013

U.S. Economic LandscapeOne of the most eagerly anticipated sectors to watch during this earnings season is bank stocks and how they are dealing with the shift in interest rates and the impact on the housing market.

Obviously, it’s crucial to watch bank stocks since they can give us information about the health or direction of the economy in general. Take Wells Fargo & Company (NYSE/WFC), for example; the company is the largest lender in the housing market, and its latest third-quarter financial results are quite interesting.

As I have been saying for most of this year, higher interest rates will be coming, and this will lower expected revenue in the housing market division. Wells Fargo has just validated this forecast by reporting significantly lower levels of mortgage origination, which includes both home purchases and refinancing.

Wells Fargo reported a 43% year-over-year decline in mortgage banking income, at $1.61 billion for the quarter. Total mortgage originations, which include refinancing, dropped 42% year-over-year to $80.0 billion for the latest quarter. (Source: “Wells Fargo Reports Record Quarterly Net Income,” Wells Fargo & Company web site, October 11, 2013.)

With higher interest rates, the housing market is indeed feeling the pinch, and bank stocks need to dramatically shift their business structure into higher growth areas. Wells Fargo is one of the leading bank stocks in America, and it’s trying to move away from the housing market-related business into both the retail side of banking, as well as business loans.

In these sectors, things are certainly better for bank stocks than the housing market. Net income from the retail banking division was $3.34 billion, up 22% from … Read More