There are plenty of market worries, and major indices broke technical support Monday. Our TCA model flipped negative as a result, but there are still plenty of attractive sectors.
What does this mean for investors?
Housing and Recession
Regular readers of "A Dash" know that we do not expect a recession. We have acknowledged problems in the housing market, as does anyone with a pulse. The real question is how far this goes and whether it can be contained. There are plenty of pundits who are calling for the worst. Here is an alternative viewpoint:
The key to housing is the employment rate. As long as the employment stays basically full--say, under 5.5%--I see no major crisis in the housing market. Yes, we have a sub-prime issue. Yes, we have a lot of investors who got hung out, but I don't see the crisis the way the media portray it. And consequently, as long as employment stays strong, I don't see any issue as far as rental housing is concerned.
Q: Where do you see the economy going? Are we heading for a significant slowdown or recession in 2008, as some economists have predicted?
A: Not 2008. If you had to pick the next cycle change, logic would say it would be sometime in 2009 because of a new presidency and because of the various factors in the market. And that's a probability. But I don't see it as 1990 or 1974 or any of those periods where we had a real serious downturn.
When looking for real experts on real estate, Sam Zell would be high on the list. The quotation comes from his recent interview in Time.
Bogus Doomsday: November 15th
The usual suspects are citing the FASB 157 requirements that they say "take effect" on November 15th. The actual requirements have been implemented by major firms throughout the year, as David Faber (along with other sources) reported Monday on CNBC.
Many are expecting a Y2K-type event on November 15th, and this is not going to happen.
FASB 157 will help to show the actual exposure of financial institutions. Much is already in the public domain. Some announcements have already occurred. Some will occur during the next quarter. There is nothing special about November 15th, despite all of the hype. This is merely the dividing line for corporate fiscal years to start using the new method. The concept has been in play for almost a year.
There has been a reckless dumping of some leading growth stocks. Leading mutual fund manager Noah Blackstein today (on RealMoney, subscription required) called this "a gift" and we agree. We see little fundamental change in the prospects of these companies, so we added today to positions in Apple Computer, Inc. (NASDAQ:AAPL) and initiated a position in Research in Motion Limited, (RIMM). We suspect forced dumping by some hedge fund managers. Their loss, your gain.
In options expiration week, big moves are possible. Long-term investors have a chance to initiate a position in growth stocks.