If Housing Accelerates…..The Entire Economy Will Also

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If Housing Accelerates…..The Entire Economy Will Also

Single-Family Housing activity drives employment, commodity prices, retail sales and professional services. When it corrects this sector’s impact is significant. When it expands, it impacts the entire country positively. The past 7yrs has seen many restrictions on this sector. One of the most restrictive has been the narrow spread of rates between T-Bills/10yr Treas on which bank mtg lending is based. With a narrow spread, mtg cannot be extended beyond Prime Borrowers and new home buyers/first time buyers even if relatively good credit risks cannot get a mtg. Once the spread widens, even at higher rates, mtg become easier to obtain. Single-Family Housing benefits. A full recovery in this sector would double current level of starts. The US economy should experience acceleration.

 

Housing Starts and financing go hand-in-hand. The T-Bill/10yr Treas spread used by banks in mtg lending decisions narrowed to 1.2% in July 2016 indicating a potential slowing in housing which this data reflects. This morning this spread has widened rapidly since the election to 1.8% and the trend looks higher. 10yr rates should continue to rise faster than T-Bills and this will confound many forecasters.

Here Are Bill Ackman’s Favorite Hedge Funds

Bill AckmanMany of the most well-known hedge fund managers in the world engage in philanthropy, and in doing so, they often reveal their favorite hedge funds through a review of their foundation's public filings. Bill Ackman's Pershing Square Foundation invested in several hedge funds during the fiscal years that ended in September 2019 and September 2020.

 

The election of Trump has not yet been factored into housing. I would buy TOL and LEN at current levels with their excellent CEOs. Single-Family Housing starts should be higher by June 2017 after Trump strips away some of the impediments to mtg lending.

 

The bump in T-Bill rates brought them to just over the Effective Fed Funds rate which I use in my studies. Yellen will be forced to hike FFunds. FFunds should be at least 25bps higher than T-Bill rates. Today’s levels suggest FFunds should be 0.75%. I do not thing the Fed will do this in the current political environment.

 

The current economic environment is improving. US LgCap issues should benefit especially the infrastructure issues. I do not recommend hedging any positions. Long-term economics support a potential shift in market psychology well into the optimistic side of the spectrum.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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