Another stupid panic drop today

[Fredledingue]

Complicated mecanisms made the mortgage crisis and the real estate slow down interract with the rest of the economy, but these effects have been largely overstated recently. I'm tired on this constant amphasis on real estate, mortgage etc. On saturday they published again an article on poor poeple losing their house. Boo Hoo Hoo! Today home prices drop "steepest in 20 years". While this has zero meaning in the absolute, poeple panic and sell the stocks they just bought 3 days ago. Practicaly every home oner who bought two years ago or more make money on their invstment, those who bought one year ago lose very little or break even and those ought tis year couldn't have lost much and in two or three years they will make money too. Houses are still only 7% off the all time record highs.

That poeple have hard time to borrow money for houses they cannot afford and the clean up of the industry is a healthy reaction for the economic stability. + the Fed could cut rates. If not this quarter, almost certainly the next one. Finaly if you don't buy real estates, you buy stocks. What we will see next is that money which used to feed the real estate boom, will go back to stocks. Stocks are cheap, houses are expensive. It's in the stock market that the place is to be in the next two years.

repost from:Business and Economics Forum | Its All Politics

[aquaswim47]

I think the stock market is the place to be for the next 5 years because the FED will NOT decrease interest rates. He's keeping the economy from going haywire; while inflation is low, stock market returns have been extravagant fed by the 2000-2002 decline. It was definitely time for a correction and extremely healthy too.

I think we will have one more, maybe two more retests of the lows (one in September and one early next year). After that point, I'm incredibly bullish on stocks as they are currently at what I call fair value. Real estate is expensive but REITS are cheap (SPG = down 29.1%, VNO = down 26.4%, and EQR = down 37.3%). FIREX is down 13.0%, while FRESX is down 25.95%. My opinion, also consider Japan & Australia but stay away from Europe.

If your prognosis is correct, than REITs should be self-correcting and they can now be bought very cheaply.

[Airelon]

Amen to both of those posts.

I swear guys, I am LICKING MY CHOPS to start buying come October / November.

Originally Posted by Fredledingue

That poeple have hard time to borrow money for houses they cannot afford and the clean up of the industry is a healthy reaction for the economic stability.

A-freaking-men Fred!

[Fredledingue]

What I see is that one panic selling day is followed by a bergain hunting day.
Stocks Rise on Bargain Hunting


IMO that's a sign that there is no widespread fear and that the market should bottom out soon.

I don't think it will drag in the month of september but it may refall in october since the traditional "crash day" occure in that month and also because the sub prime problem won't be over.

About next year it's too early to say.

IMO the rate will e cut in september by .25 point because of the risk of a sudden recession but not further.

[aquaswim47]

Well if we rose to 14,500, I would have expected a crash. On the other hand, I don't expect the FED to lower interest rates nor the international market keep its high rate of growth. I expect the sub-prime problem to be less severe than indicated in that it will only affect those who couldn't afford to borrow. It's not going to affect small business or prime borrowers, thus the macro-economy shouldn't be affected greatly unless fear becomes a self-fulfilling prophecy.

[Fredledingue]

I agree. What is sub-prime market?
20~25% of all mortgages. Off this how much deliquency? Say, one fourth. That's 6% of all mortgages. 6% where banks don't make profit, yet don't lose everything (they never do).
Then what is the mortgages business in the economy? a hundred billions among hundreds of trillions...

I'm sure that money lent for daytrading currencies exceed that of the home mortgages...

Now about the ratecut: I think they will cut the rate because inflation risks are lower (now that the loan frenzy is over) and because the risk of recession due to high rates cannot be ignored.
Also it's always good to prop up the stock market before the election and cutting rates will do that. A cut of .25 or .50% won't change much for the inflation so they can do it.

We will see.