Kicking the Can Down the Road

A great example of what happens when governments take over free markets. An excerpt:

Home sales up 7.4 percent in November as federal aid spurs sales. Home resales surged last month to the highest level in nearly three years, reflecting an extraordinary level of federal support that has pulled the housing market back from the worst downturn since the Great Depression.

But later in the article we get this:

Unemployment is high and employers are going to be slow to rehire because economic growth is weaker than expected. The economy grew at a pace of 2.2 percent in the third quarter, which was lower than the initial 2.8 percent reading, the government said Tuesday. What’s more, mortgage defaults are still setting records, and lenders are regularly rejecting applications from borrowers who don’t have good credit or enough money for a down payment.

How could anyone make a bet on housing with THESE fundamentals?

3 thoughts on “Kicking the Can Down the Road

  1. Fundamentals do NOT matter, it’s all about Rs (“N” in Turtle language)

    IYR recently set a new 3-month high, setting up a nice trend following opportunity on a long side.

  2. http://www.google.ca/search?q=iyr+ishares

    Robert. That is not really a residential housing asset. Related perhaps, but if you want apples for apples, the Case/Shiller futures on CME more directly reflect the price of residential homes. Unfortunately regulators of lenders still allow the hold to maturity loophole for these assets instead of forcing book valuation at exchange prices so we bubble away again.

    Trend following this sort of asset will require a very large account since (because of the hold to maturity loophole) there are no market makers or spot to derivative arbitragers who can narrow the bid/ask. When the shit hits the fan again, bid/ask will form a mighty chasm as it did every other time. Trend closing trades will be costly. Trend following is still possible with a 300 million dollar account and a few average properties.

    Funny to me though. If 300 million is the account size needed, consider this. People who own even modest homes in this mass of morons hardly have 50 thousand dollars to their name. That’s 10-20x leverage in one market with terrible liquidity problems. Knuckleheads, morons, sheep… perhaps are all terms that are too kind.

    Perhaps one could purchase properties under various aliases and play the bailout angle. That’s a form of trend following too. A trend in amassing aliases to exploit a trend in bailouts. Something to ponder.

  3. Sure, housing it up. But with the economy the way it is, those new owners are soon to lose their homes and make the situation even worse. Laws of unintended consequences. Being “nice” to people (which is all this is) is going to screw the lot of us. Fools everywhere.

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