You know that a bear market is just getting started when you see something like this…..The U.S. Economy Is Just Starting to Tap Into a Big Source of Dry Powder
There’s a big reason to believe that the U.S. economy will be able to withstand the start of the Fed tightening cycle: There’s still plenty of pent up activity in the housing sector. And it’s hard to see the U.S. economy running out of steam with this much upside left in residential investment, according to some economists and analysts. Going back to the 1940s, the U.S. central bank has never embarked upon a tightening phase with housing having so much room to run to the upside.
Room to the upside? Have they heard the phrase “blow off top” and/or “dead cat bounce”. That is exactly where real estate is today. The primary top was reached in 2006, we are now putting in a secondary top. There is nothing fundamentally good with housing being unaffordable. Which is the situation today.
“Business cycle expansions are likely when residential investment is low as a share of GDP,” wrote Doyle. “Recessions typically only transpire when residential investment becomes elevated as a share of GDP.”
What? First, this is utter nonsense. Second, someone forgot to tell this guy that most of the FED’s stimulus went into the stock market and share buybacks this time around. Not towards any sort of productive GDP growth.
“What is interesting about this is that the housing market is accelerating at a time when the labor market is near full employment,” he said. He suggested that any shortage of construction workers could be remedied by displaced mining employees and higher wages to attract additional labor.
You see, anyway you twist it, it comes up roses. All of those displaced $100K+ oil patch workers can move to San Francisco to build houses for all of those Uber millionaires. That will surely cause our GDP growth to skyrocket.
Dutta concurred with the demographic support for construction activity, pointing out that children born in the 1980s, when the birth rate was climbing, will make up the next batch of first-time homebuyers. He also noted that cyclical forces, such as easing lending standards and rising homebuilder confidence, buoy the outlook for the sector. “Bad things do not happen to America when housing is moving up and to the right while Americans are finding jobs,” said Dutta.
There is only one response to that. People did not believe the stock market can go down in 1929,1937, 1946,1972,1987, 2000, 2007, etc….. If anything, primary economic indicators were surging at the above dates. Yet, the market/economy turned around and proceeded to collapse with stunning speed. So much so that Mr. Dutta would be better off studying blow off tops.
That is to say, I’ll have what they are having.
