Last week in my letter "Thoughts from the Frontline," I promised a more in-depth view into the housing market provided by the well respected Professor Nouriel Roubini. I also commented on how complexity theory plays into the markets with a culmination of individual events each contributing to a larger "finger of instability" that poses a recessionary threat. One such contributing variable is the U.S. housing market. This week's "Outside the Box" contains an excerpt from Mr. Roubini's blog. (This entry as well as his latest posts can be found at http://www.rgemonitor.com/blog/roubini)
Nouriel is a Professor of Economics at the Stern School of Business at New York University (see http://pages.stern.nyu.edu/~nroubini/ for his Stern homepage). His applied academic research includes seminal work in international macroeconomics, global macro policies, financial crises in emerging markets and their resolution, and the reform of the international financial architecture.
Mr. Roubini continues to take a non-consensus view on the markets which is why I believe that you will find his opinions to be truly "Outside the Box."
With so many variables to weigh in on, there has been a lot of speculation going around about how Fed Chairman, Ben Bernanke, is going to fare in his rookie season. The headlines of the financial press have been filled with reports of inflation and the dollar, but what of the U.S. housing market that once demanded so much investor attention?
This week's letter is from Paul Kasriel of The Northern Trust Company. Kasriel is Senior Vice President and Director of Economic Research, responsible for producing the Corporation's economic and interest rate forecasts. He advises the Bank's Assets-Liabilities Committee as well as the Corporation's Investment Policy Committee.
Paul looks at the U.S. housing market in light of the Fed's recent actions and their effects on mortgage rates. He is in the "soft landing" camp for the recent slowdown in real estate but warns of what could happen to the market if a bubble were to burst. Now, let's take a look at this week's "Outside the Box."
This week's letter is from Paul Kasriel of The Northern Trust Company. Kasriel is Senior Vice President and Director of Economic Research, responsible for producing the Corporation's economic and interest rate forecasts. Not long ago Paul had a contest to try and come up with a new name for his Positive Economic Commentary and The Econtrarian: Your Alternative to the Econsensus won out.
In this edition he turns his focus on the housing market. Many are forecasting continued strength in the housing markets and they point out that previous slow downs have not been disastrous. Although they might go back and look at the Houston, Texas market in the early-to-mid 1980's during the oil industry collapse.
Is the housing market a bubble about to burst or merely in a late winter slow down? Kasriel takes a macro look at some of the numbers behind housing and why things might be different this time and that is why it was picked for this week's Outside the Box.
This week's letter comes to us from Dr. A. Gary Shilling, president of A. Gary Shilling & Co., Inc. Gary is a long time friend and one of my favorite economic analysts. He also contributed a Chapter to my latest book, Just One Thing, which can be purchased at www.amazon.com/justonething.
In Friday's Thoughts from the Frontline, I mentioned that Gary is less optimistic on the housing market than I am. Gary's January letter looks at 10 nonconsensus investment themes and he spent nearly half the letter on housing and makes a case for why the housing bubble may be headed for trouble. This is a topic that has received a lot of attention over the last couple of years and poses one of the largest threats to the US economy.
This letter may seem longer than most, but that is due to the numerous charts Gary uses to back up his argument. You will find this very interesting food for thought in this week's Outside the Box.
This week's letter is by good friend Paul McCulley, Managing Director of PIMCO. About once a year he puts together an economic debate between his favorite friend and family pet rabbit, Morgan Le Fay. It always presents a very readable look at global economics and a forecast of what could be ahead.
My Friday letter, Thoughts from the Frontline, included a graph that looked at GDP growth and mortgage equity withdrawals (MEW) and Paul explores what could happen if MEWs come to an end, or at least slow down. McCulley once again takes a look at Bretton Woods II, the housing marketing in the US and what might lead to a slowdown in the economy for 2006.
This is an important piece to help you in your understanding of the issues surrounding the debt, trade and housing bubbles. I am going to touch on a few of his ideas next Saturday in my weekly letter, particularly the quote from around the middle of this essay that has his rabbit asking the following question (MLF throughout are the initials for Morgan Le Fay:
"MLF: So, the housing bubble, or whatever you want to call it, ain't America's fault, but rather the Emerging World's fault?
"PM: No, Morgan, it isn't anybody's fault; it just is. When the Emerging World decided to shift from being a net user to a net provider of savings, those savings had to go somewhere, they had to finance something. Otherwise, the entire world would have fallen into a liquidity trap, triggering a global depression."
Read this when you have some time to think about it. In a few weeks I will be putting together my forecast for next year and I am on the lookout for opinions, like McCulley's, that can help us think Outside the Box.
Once again we look at one of my favorite analysts and behavioral finance thinker, James Montier of Dresdner Kleinwort Wasserstein in London. James wrote a fascinating book several years ago called "Behavioural Finance: A User's Guide" and puts out ongoing research like the one we will enjoy today. Long time readers will recognize the name because I have discussed many of his ideas in my weekly letter "Thoughts From the Frontline," my book "Bull's Eye Investing" and in "Outside the Box."
This report by James explores whether there is a bubble in the US housing market. He has pulled together data from numerous sources and gives his conclusion that there is a definite bubble. In fact he does not understand how others like myself could argue otherwise and that is why it was picked for this weeks Outside the Box.