Can Wall Street withstand weak housing?

Business Week Online ^ | September 19, 2006 | Peter Coy

[GodGunsGuts]

Can Wall Street withstand weak housing?

Some experts say real estate slump may spell trouble for equities

ANALYSIS

By Peter Coy BusinessWeek Online

Updated: 1:28 p.m. PT Sept 19, 2006

If your nest egg is made of 2-by-4s and you're watching the real estate slowdown with a mixture of fear and nausea, then this article is for you.

The question: If real estate tanks, will stocks follow? Or will the market ignore housing? Or maybe — just maybe — will a decline in housing trigger a rise in stocks? It's something you really ought to think about if you're trying to figure out where to put your money.

[GodGunsGuts]

No. It would have to drop below the 300dma and keep dropping for that to be true. Until then, this is just a correction. Same with other PMs, oil and other commodities.

[Petronski]

...very conservative in terms of inflation insurance for the long run.

Keep saying it, it still won't come true.

[GodGunsGuts]

You can do the same in almost any market. It's called leverage.

[osideplanner]

How do I leverage my 50,000 into 500,000 in the stock market?

[Petronski]

Interest-free credit card advances?   LOL

[osideplanner]

I knew I should have kept those citibank envelopes.

[Toddsterpatriot]

How do I leverage my 50,000 into 500,000 in the stock market?

Start a hedge fund.

[Petronski]

Start a hedge fund with interest-free credit card advances...

[osideplanner]

Please explain how that leverages to a 9 times increase in the investment.

[Mase]

I think it is for a variety of reasons, but primarily it is because americans are getting more credit, based on a real estate credit pyramid scheme

And yet the average American household still has about 56% equity in their home. Home equity makes up only about 21% of our total net worth. This credit fear-mongering has little basis in fact. If all these credit concerns had any validity they would have manifested themselves by now. It's not happening.

The doomers claim that Americans are hopelessly mired in debt from using their homes as ATM machines yet our debt to income ratio is only 18.3%, which is a whole half a point higher than it was a decade ago. Scary, huh?

Yeah, yeah, I know, be patient. Exactly how much
longer do we need to wait before the economy implodes?

[nopardons]

Doesn't matter, you posted it just now. But kudos to expat, too.

[Toddsterpatriot]

Please explain how that leverages to a 9 times increase in the investment.

Hedge funds use prime brokers who can hold their positions offshore (exempt from 50% US margin req). They can leverage you up to 20 to 1, or higher (if they're comfortable with you).

[bert]

The housing hoopla is overstated. there will be a mild reduction but not serious enought to make a real problem.


Why would anyone quote MSNBC? It is a virtual nonentity with less viewers than several well watched local cable access channels.

[nopardons]

"............very conservative in terms of inflation insurance for the long run." ? How is that so?

Anyone who bought gold at the '80s high, LOST money for decades. How was that purchase "....very conservative in terms of inflation insurance............"? Losing money is a "conservative" thing to do?

[DontBelieveAugPolls]

There is a theory that says a weak housing market translates into a great stock market.

People will lose faith in real estate a an investment and instead invest in shares of companies.


There is some evidence for this:

The Australian housing market peaked in 4Q 2003. The Australian housing boom lasted from about 1998-2003. During this time the All Ordinaries well under performed the US SP500 and DOW.

In 2003 the All ORDS stood at about 3300. Since 4Q 2003, some housing values in Sydney's eastern suburbs has fallen by over 40%. Yet the All ORDS has risen from 3300 to about 5000 today.

Excess liquidity has to go somewhere. The NASQAQ and DOT.com meltdown in 2000-2002 was partly the reason for the housing boom in 2002-2005 in the US. Investors lost faith in the US share markerts. Now investors will lose faith in real estate and will reasonable valuations, a decline in home values could mean a booming stock market.

[nopardons]

BRAVO!

[osideplanner]

Well I have some learning to do. My understanding is that a hedge fund is a pool; so that you put in $25,000 or more and you join with other investors to make a larger investment.

Whatever the pool makes is split in accordance with your investment, after a manager's fee of up to 20%.

I don;t get the leverage except that it allows for a larger investment because many pool their money.

In the real estate example, if the market goes up 10% you gain $50,000 in equity. Let's assume a rental home with a zero balance cash flow.

How much do you gain on $50,000 in a hedge fund that makes 10%?

[GodGunsGuts]

==Here the answer

Talk about not being able to spell!

You have never proved me wrong. I'm not saying you never will. For instance, you might someday say that you are deep down a nice lady. And who knows, in due time I may determine, despite your rough exterior, that you are just that. But given the available evidence, I'm inclined to believe that there would be a good chance that I would discover that hell froze over on the very same day.

[Toddsterpatriot]

I was kidding, you'd need millions to start up a hedge fund.

How much do you gain on $50,000 in a hedge fund that makes 10%?

A typical hedge fund could charge you 2% of assets and 20% of profits. Your example should net you in the neighborhood of $3000.

[GodGunsGuts]

I'm not saying you should do this by any stretch, but it's called margin.