Donald Last

All Signs Point to an Upcoming Bull Market

Can we call large buyouts a lead indicator? May simply reflect recent good growth and masses of corporate cash lying around.
The yield gap between 10yr TB and the S&P earnings yield has been with us for some years so nothing new there. Maybe companies did beat estimates by 4:1 but markets try to discount what might be coming up and past achievments are soon forgotten.
Yes, yield curve inversion signalling a recession could be old hat because long yields have been strangely sticky for a long time now - Bernanke's global savings glut with some of the excess going into Treasuries?
Equity outflows? Yes, a contrarian argument that the crowd always gets it wrong.
Adding it all up, however, does not seem to make for a bull rush since we have not seen yet the outcome of the downturn in housing. It is just beginning. And as another article on today's page points out, business investment is getting tired.
The basic fact about a bubble, or a period of extreme price movements, is that the factors that gave it impetus when the market turns begin to reverse and compound the fall. Also, a bursting bubble always, but always, reveals crimes and misdemeanours.

Donald Last

The Myth of Housing as a Source of Wealth Creation

You cannot judge the real estate market without reference to interest rates. They are the kernel of the problem. It was the steady fall in rates to historic lows which fuelled the real estate boom (global not just US) and it is now the steady rise which is killing it. Real estate is a prime capital asset. Capital assets adjust in value to the changing level of interest rates just like bonds. Its a see-saw: rates up capital values fall - rates down capital values rise. Its as simple as that. Greenspan lowered rates because of the fear of deflation (some say to a needless extreme). Rates are going up because that is now history. New fear is obviously inflation. If inflation is not quelled, rates will go up even further. Bond holders hate inflation so they demand higher returns to compensate. The Fed and the market gives it to them. Builders must hope that inflation levels off and puts a stop to further interest rate hikes.