The last few days have been days of reckoning for the stock market. The question only remains: is this a small, short term stock market correction, or is this the beginning of a bear market that will take out much of the value that has been generated over the last ten years since the 2008 crisis.
HOUSING STOCKS GET HAMMERED
During the post 2008 “recovery” people were screaming hysterically about a housing market that was never going to go back down and that would continue to see prices grow year after year, forever. But as home sales and prices began to slide and interest rates crept up over the last 60 days, another very serious trend has emerged without much attention: housing company stocks have been getting absolutely destroyed. That said, most of the delusional “economist” commentators continue to insist that the “fundamentals” of the housing economy are strong.
“I think fundamentals are strong out there, but I think buyers are going to continue to be involved in the market particularly at the low end,”
How very 2008.
These “experts” seem to conclude that everything is ok–it’s just that rising interest rates are making a home purchase a little more difficult. People for decades were purchasing homes at double-digit interest rates, in fact in 2008, the interest rate was around 6%. But this time around we see the housing market beginning to look very shaky as interest rates hit 5%. Throw on top of that Trump’s insane tax cut financed with $1.5 trillion in debt and that will eliminate deductions for many home owners, tumbling housing stocks and weak wage growth and there is no way for the would-be home buyer to keep up. This is not healthy and interest rates can’t be the only thing we blame. This is a massive failure of leadership.
More challenges to home builders:
“On the other side, homebuilders are facing massive increases in cost, they’re really having problems with finding skilled construction workers; they’re also having higher material costs as commodity prices go up. So you’ve got higher costs in building, higher prices from a consumer perspective, and that’s just really making the earnings growth tank,” Gibbs said Friday on CNBC’s “Trading Nation.”
In what world are these “fundamentals” strong?
AMERICAN AUTO COMPANIES GET WRECKED
The “big three” American auto companies have also been taking a lot of damage in this supposed “very healthy” and “best” economy in the “history of the world.” As has been discussed repeatedly on this blog, the insanely high prices, of even a pickup truck, these days is making it very difficult for the American consumer. But instead of looking at why income isn’t keeping up with inflation or why costs are going way beyond what people can afford, the auto industry “expert” economists once again bring out the interest rate boogeyman and blame him for all of the auto companies’ problems:
So, why are Ford shares plummeting?
In the short-term, auto stocks are falling because interest rates are rising.
Actually, how about the fact that it now costs $50,000 for a fairly average pick up truck, which is basically the entire annual salary (before taxes) for the average American worker. In what world is it a good business model to offer a product that nobody can afford absent a eight year financing loan? When your entire business relies on your customers taking on a huge amount of debt in order to buy your product, perhaps the question should be about how to cut costs while still being able to make a profit instead of figuring out ways to just get your American chump to take on more debt and pay more interest.
Others now claim that auto stocks are “irrelevant,” but the reality is auto stocks usually take the biggest dump right before the economy. They are the canaries in the coal mine:
“We all know before the whole economy goes south, autos do,” said Jon Gabrielsen, CEO of Cabo San Lucas, Mexico-based J.T. Gabrielsen Consulting LLC. “That’s why I think they’re dropping off on all the autos.”
The 2008 crisis came about because bad loans were being written to people who had no business getting them. This time, loans are being offered to people who have no business getting them other than at the low rates that the loans were offered. In other words, we went from an underwriting problem–where shitty loans were being offered to shitty people (in terms of creditworthiness)–to issuing loans to people who looked like they could afford them because the interest rates were so low.
As interest rates now begin to rise to reasonable and responsible levels, levels that in the history of finance are still low but closer to reality. The problem is the entire recovery has been built artificially on the back of cheap money. If not for the low interest rates, the recovery would not have happened the way it happened. All these people are waking up and realizing that they can’t make the payment on their adjustable rate loans, that they did not save any money during the supposed “boom times” because they were too busy taking on more debt. They realize they failed to get any meaningful wage growth (especially when inflation is factored in) over the last ten years, and that they have been footing the bill for increasing healthcare costs.
Meanwhile, the greed at the top continues. Their incomes grows and their tax burden falls while the rest of us eat cake.
The boom times are when you are supposed to put away money for a rainy day. Average Americans on an individual level and their government at the group level did not do that. The storm is coming and there is nothing in the piggy bank.
But hey, blame the Fed. Blame the interest rates. Blame anything other than your own crappy financial decisions.