Ken Fisher on housing

I like the optimism of Ken Fisher...

Currently the big concern for the US economy appears to be the housing slowdown. Some commentators already speak about crunch, crash, disaster and so on. Quite too early - we really do not need the "dreams" of the bears - for now ...

So Ken Fisher is writing in his Forbes column:

For months now the debate has been over whether America will have a hard landing or soft landing, the answer hinging on how big 2007's housing disaster turns out to be. Well, there won't be any housing disaster. We won't have a landing at all, soft or hard. Right now the U.S. and global economies are both accelerating.

You can see right through the housing crash story by looking at the prices of housing stocks. The market knows what the economic worrywarts do not, which is that the housing sector is already making a comeback. In the last six months housing stocks are up 24%, well ahead of the overall market. If housing were destined to fall apart in 2007 these stocks wouldn't be so strong now.

Housing Boom!

Fed guess by Capmarketline

All the data suggests a coming monetary easing. But I have a strange feeling. I am not that convinced the Fed will be inclined to ease so soon - maybe because everyone, especially the stock market, is appreciating this so much. The relief would be too furious and the job of crunching down inflation not done.



And in Capmarketline I have found some interesting thoughts, which go in my direction:

My guess is the Fed sees the run offs of excess housing and goods inventories as the prelude to eventual recovery of production and later, housing investment. So, the Fed is forecasting that rising final demand for consumer goods, services and exports will lead to this upcoming recovery of production and housing. Implicit of course, is the notion that weaker production and housing will not produce increases in joblessness and weakened confidence that could bring the economy down. The Fed may also not mind if the economy stagnates for a few months, if it makes it easier to squelch

inflation pressure further and create enough slack to goose the economy later this year for a clean run through 2008.

Bearish toughts

My sentiment is bearish. The market is much higher than when I first, incorrectly as it turned out, became bearish. The defensive action taken last summer was far from extreme, and I am less defensive than I was a few months ago. Technically speaking we are closer to the next correction than we were six months ago.

This is Roger Nusbaum at SeekingAlpha: Bearish and Long.



I really gladly hear bearish thoughts. My perception is, more bloggers (in particular) are bearish. But they are forced to follow the trend. Roger speaks of his equity exposure to have risen - but we don't know how high it was. And, yes, surely it has risen - most probably due to the strong market, not new investments.



The correction - much anticipated - will come. I also suggest that we are near a short turn "relief". But "a bearish sentiment" means to me to expect a mid term market top followed by an extended bear market or pronounced weak period in stocks. And I do not see this coming: correction - yes, please, but this is not the top of this bull run.



In my humble opinion, of course.

An interesting study on productivity

The Federal Reserve Bank of New York publishes a new study on tracking and evaluating of productivity trends in the economy.

In the summery of the research is stated:

Authors James Kahn and Robert Rich conclude that long-run productivity growth, also known as trend productivity growth, continues to be nearly 3 percent per year, based on a new model designed to track underlying national productivity trends.

Kahn and Rich developed their model to facilitate more timely and accurate assessments of evolving productivity trends. These trends have important implications for living standards and the nation’s overall economy, and hence for the decisions of economic policymakers.

According to the authors, their model identifies changes in productivity trends within a year or two of their onset. They observe that the model would have been especially revealing as productivity began to increase in 1996 in an early manifestation of what became known as the "new economy."

Kahn and Rich also conclude that their model, had it been in use, would have given clear indications to policymakers that despite cyclical moves in data linked to the nation’s 2001 recession, long-run productivity growth was unaffected during that period.

The authors’ model incorporates additional labor market and consumer spending data to help screen out transitory movements in productivity related to business cycle conditions.

James A. Kahn is a vice president and Robert W. Rich a research officer in the Macroeconomic and Monetary Studies Function of the Research and Statstics Group.

Tracking Productivity in Real Time

Hedge Funds do not bear just risks

The G7 summit put hedge funds on its agenda and caused additional uncertainty about the health and stability of the financial system. Especially the Yen carry trades, the vast volume of the managed assets as well as the often involved leveraged trading positions were a main source of concern and were widely covered by the mass media.



Though, looking in some details one could suggest, that the G7 politicians do not understand the role of the hedge funds to the full. For example Fed chief Bernanke made more cautious statements on the need of regulations and pointed some important "positives" of the hedge funds activity:

"I would be very reluctant to get involved in heavy-handed, direct regulation of hedge funds," Bernanke told the Senate Banking Committee in response to a question during semi-annual testimony on monetary policy.



"One of their key characteristics is that they are very nimble ... and that is good for the economy, because they help to create liquidity in markets, they help to spread risks around more broadly, and a regulatory regime that inhibited that flexibility and nimbleness would eliminate a lot of the economic benefits," he said.

Reuters.com, Fed's Bernanke - don't over-regulate hedge funds

Much ado for what?

Hedge Fonds have under management ca. 1% of all world's financial assets, but represent up to 20-30% of trading volume. This is the result of a recent industry report as Vincent Fernando points on SeekingAlpha: Hedge Funds Manage 1% of Global Assets, 25-60% of Global Trading.



In the abstract we read:

On the latter score, U.S. hedge funds shoulder two-thirds or so of worldwide margin debt, or something in the neighborhood of $300 billion. Truly staggering, furthermore, is the Dresdner Kleinwort estimate that hedge funds account for between 25% and 60% of the trading in global major markets. And, we're reminded, it's the marginal trader that makes the market.

And transaction costs sum up to 4%-5%, which is actually much. So no wonder, the hedge fonds have a tough game to play - and given their recent growth even harder in the future.



But why not ask: so much action trading - what for? Is the performance good? No, no. But they just can't sit still.

Still cheap money

The interest rates - are they the key to today's financial markets? If you can understand the forces behind them you should be in a very good position to predict the direction of the stock markets.



The striking point viewing the interest rates development is - they are permanently so low. Yes, beside an uptick in the summer 2006, the long-term bonds yield remains quite stable, low, moderate...



In the BusinessWeek.com we read:

When the rate on the 10-year Treasury bond plunged from 6.5% in early 2000 to an average of 4% or so in 2003, the explanations were easy: tech bust, recession, weak capital spending, low inflation, steep rate cuts by central banks around the world. The low rates seemed perfectly normal—and sure to reverse on a dime when conditions changed.



Since then, plenty has changed. The Fed has hiked short-term rates by more than four percentage points. The global economy grew by 5.1% in 2006, the second-strongest performance in 25 years. Europe and Japan have recovered. Even tech spending seems to be on the rise, judging from Cisco Systems Inc.'s (CSCO ) strong earnings report on Feb. 6. And yetand yet!—10-year Treasury rates have risen only three-quarters of a percentage point. Real rates, which adjust for inflation, have barely budged.



It isn't only a U.S. phenomenon. Ten-year euro bonds are yielding around 4% today, no higher than in 2003, despite much faster growth in the region. Real rates in the euro zone are up only a bit.

BusinessWeek.com, It's A Low, Low, Low, Low-Rate World

Good news for inflation outlook

The inflation outlook should be more favourable for the investors' community after the good data provided today:

U.S. worker productivity grew at the fastest rate in almost a year last quarter and labor costs rose at a slower pace, suggesting wages may pose less of an inflation threat.

The 3 percent gain in productivity, a measure of how much an employee produces for each hour of work, followed a revised 0.1 percent decline in the third quarter, the Labor Department said today in Washington. A measure of labor costs increased 1.7 percent after rising 3.2 percent.

Bloomberg.com: U.S. Economy: Productivity Accelerates, Cost of Labor Slows

Wait for the market reaction. Normal mode is UP. And if the data flow goes further this way - not only for today...

Sentiment Charts - do not trust them

Always be sceptical when you see statistics. With graphs it can get even worse:

In the investment world, this takes the form of scores of misleading systems, charts, and tables, all purporting to show a relationship that does not really exist. The process of extracting information from data, or data mining, requires great skill if the results are to be meaningful. Since the untrained analyst takes all of the data and examines thousands of different possible relationships, something will always turn up. Statisticians call this "data dredging".



Sometimes it is not obvious that hundreds or thousands of combinations have been tested. This is particularly true when the result is a graph showing what appears to be a compelling relationship. In the investment world, these graphs appear all of the time.

Via: SeekingAlpha, Homebuilder Sentiment and the Stock Market



I have studied statistics long enough to at least know that reading them properly is not that easy. Variables can appear to be in a relationship, but in fact there is some other factor which determines those variables, and so on... In the financial world, unfortunately, just few investors care about proper analysis. The mass of them just takes a look on some constructed chart or relationship and makes decisions. It's ridiculous.

Payrolls and Wages increased less than expected

Via seekingalpha: U.S. Payrolls, Wages Increased Less Than Expected in January:

U.S. employers hired 111,000 workers in January, lower than the 170,000 economists forecast, and unemployment unexpectedly rose 0.1% to 4.6%. It is the first time in three months unemployment rose.