Ken Heebner is known for his big bets and rapid trading at the CGM funds sits down with Consuelo Mack WealthTrack on public television for an interview . This week Ken Heebner describes his contrarian views on the U.S. economy and stocks, particularly housing and banking, and why he thinks bonds are so dangerous. We posted a preview of the entire episode earlier this week. Full video and summary below:
Ken Heebner makes TWO BIG CALLS in his Consuelo Mack WealthTrack interview:
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1) Housing is going to be much stronger than consensus and home prices are going to go up much faster than expected.
2) The biggest U.S. banks are going to be much more profitable than anyone realizes, plus his thoughts on Goldman Sachs and Morgan Stanley stocks.
Ken Heebner on why housing is going to be stronger than the consensus believes
“I think we have a significant shortage of housing in the U.S. today. We had a surplus in ’05. But as housing starts collapsed we brought production of new houses down to a level far below the annual growth in demand for the population. And as a result of that we have a shortage and the housing industry (has) cut back capacity severely that you have it not only with less labor than they had but in additionally, the housing industry takes years to title land and put it into lots, put in the infrastructure, and then start to build houses. And as a result of that the housing industry is going to be constrained in its ability that to meet demand…..so the housing shortage is getting more intense every year. The result of this is going to be rising prices. In a lot of the country housing prices are down 25-50 percent. The arithmetic is that if we go back where we were, they have to go up 50 to 100 percent and that’s going to happen sooner rather than later. I don’t think housing starts are going back to where they were, but the supply-demand dynamic is going to cause the prices, maybe not go back completely and its going to vary a lot by market, but we could approach to see pricing levels we saw at the height of the bubble.”
Ken Heebner explains why he’s positive about the U.S. banking industry
“When you look at the P-E ratios of these big banks, they are well below where they have ever been, they are off of the lows, but they are low by historical standards. They are big beneficiaries of the problems in Europe, they compete with the European banks which have serious problems… so there is market share opportunities and in the banking industry we now have the five biggest banks which have about 50 percent of the deposits and that’s consolidation that we have never seen before. So you have a much better profit outlook and low P-E ratios.”
“Admittedly, Goldman Sachs is opaque because they don’t really tell us how they make their money. On that one you just have to figure that they are as smart as they have always been and they won’t tell us any more about how they make their money than they did three or four years ago. But they will keep doing what they have always done. In the case of Morgan Stanley you have a company which has focused on wealth management and was able to buy Saloman Smith Barney from Citigroup when the regulators were pressuring Citigroup to strength its balance sheet on extremely favorable terms and this is a business commands a 20 P-E in general … now half the revenues of Morgan Stanley come from wealth management so not only are you going to see surprising earnings but you are going to see a very substantial P-E upgrade.”