Tuesday, March 27, 2007

US Housing Cycle

First the China scare, then the yen trade, now the US subprime. It seems like a merry go round, the bears are trying very hard, this one cannot-ah, what about this-one?
The table above clearly shows that the market has been weakening for a pretty long time. Subprime worries is not the start of a calamity, its the near-end of a weak cycle. If you wanted to get all hot and bothered, you should have done so 6 months ago, and then had ample time to get out of the subprime shares way before they tanked.
The weakness in US housing is not fresh or big news, just look at 2006, the US saw a contraction of 10% in construction and housing related jobs, but still we are seeing an overall jobs increase for the last 2 quarters and even month on month figures looked good. Which is to say, if the housing side wasn't so weak, you may even have unemployment at way below 4% even. Jobs growth in other sectors have more than compensated for the down cycle in housing. That is why, despite the subprime media maniac focus, the Fed does not want to ease too swiftly as it can see the rest of the economy chugging along nicely. Doomsayers go to bed.
Like I have mentioned before, the rise and rise of the internet and 24 hour biz channels have changed the way markets move. They are more volatile, and they tend to jump to too many conclusions too soon, too fast. They want opinions, action plans, what's next ... every other minute. They want expert opinions now, a counter opinion now, they want to analyse every nuance in the price changes, they want to make sense of every move, have something intelligent to say about every thing that even dares to move or make a sound ... Remember how it was the coverage during yen carry trade fear, a week later ... what now, brown cow?? Where are all the "buy now", "sell now", "catastrophe visionaries", "domino effect prognosticators"...
What I am trying to get at is the same thing is happening in subprime and US housing. The biz channels will latch onto an issue and trash it to death. If you see people and so called experts talking about subprime and US housing everytime you switch on CNBC or Bloomberg for 3 or 4 days continuously, your mind will be conditioned to think that that is driving the markets. This kind of immersion effect is dangerous and will cause over reliance on certain investing factors at the expense of considering others. Exposure time does not equate to levels of importance, they rarely do.
Sometimes they will latch onto a topic just because there is nothing that exciting to report. Can you imagine the biz desk anchors saying "Well, its a dull day, nothing much happening of any consequence...". They are paid to attract viewers and to sell commercials, they want viewers to stick around.


Kia said...

whats the direction of malaysia market now..

Salvatore_Dali said...

it should hover btw 1200-1260 and not try to retestthe all time high too soon. the culmination of factors are not all there yet for mkts to go charging ahead... owing to the selldown in the last few weeks, it will take a lot more to move markets past all time highs as everytime they do so, people will remember the risks, i guess this is the pricing in of risk ... yen needs to stablise, it has ... subprime needs to die down, it will... Malaysia mkt will be moved more by the catalysts of Nusajaya, strong ringgit, CPO prices, M&A activity ... we may stay range bound for a few more weeks but selected counters in those categories will move

Eddie said...

I believe in short term to medium term there will be another correction as China has again reached it's all time high yet again last few days.

So, investor need to be aware of the major drop similar to post CNY.
What to do, our market is not strong to withstand external shock as well as the fact that we are very export dependent.

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