Housing Stocks May Move Independently Of The Housing Market For The Short Term.

Implications: Securities investors seek trading profits in the short term based on indicators that are not always in keeping with the long term issues of the housing industry.  It may be that the latest move in the market is tied to the twin pillars of a stable discount rate and a fallback in oil prices.  I don’t believe either of these conditions is sustainable in the long term.

Analysis:

The United States just owes too much money and now that the country’s borrowing costs are higher, we are faced with a federal interest bill maybe half again as much as the current level by the end of 2008.  Now we’re getting information that the Private Equity Capital/Hedge Fund Markets may be showing some weakness.  It appears that the total sum invested here may be two or more times the GNP, so there are some serious bucks involved.  Granted that much of this investing is a zero sum business, the potential losses are still potentially disturbing.  Even in the zero sum area, what happens if the winning bets are offshore as against our losing position. In that case, we might be a suffering and poorer economy awful quick.  A couple of wrong bets and we might be trading a lot of our national wealth back to the other guys due to a wrong ego driven bet.

Lots of money is being thrown at the oil business now, but it will take a few years to bring this production on line.  And since some of this drilling is in fairly high cost drilling areas, it may be that the results won’t come cheap.  OPEC the other day moved to limit production to bring prices up – I believe Saudi Arabia has usually held the swing vote here by virtue of its signification percentage of known reserves.  We shall see if that country is still swinging our way or whether they have other fish to fry in a new world.

Other than that, the fundamentals of the housing industry don’t seem to be strong.  Too much land is in production with the wrong product and it’s unlikely that communities will grant a whole lot of approvals for less expensive product in this age of the NIMBY.  Not that the communities can provide services under current fiscal plans for the cheap stuff.  Single family housing now probably doesn’t break even for government budgets at numbers less than yesterday’s prices and the plans for commercial and industrial were established in anticipation of higher end housing numbers in many new communities.  We could go on listing the negative stats here, but I guess what I’m saying is that I don’t see the up-turn in the housing market in my headlights yet from this seat.

So again, I believe the up-tick in housing stock prices may remain over the short term but that more pain may be a better bet for these stocks until the market factors seem better for this industry.