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Bulls & Bears
This week’s "Bulls & Bears:" Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, editor ChangeWave Investing; Scott Bleier, president of HybridInvestors.com; Gary B. Smith, columnist for Real Money.com; John Rutledge, president of Rutledge Capital; and Tom Adkins of RE/MAX Properties and CommonConservative.com
Does it seem like déjà vu? The feeling that “you can’t go wrong if you buy now;” hearing that “it can’t fall;” investors borrowing money to buy; and selling for way above asking price. This is the housing market of today. It sounds a lot like Internet stocks just five years ago. Could this housing boom blow up like the Internet bubble?
John: Absolutely, this housing market is in a bubble. The difference is you can live in a house, while you can’t live in stocks. It’s all about interest rates. Rates are down, prices are up and I don’t think they are going to go down any more. Once the boom is over, it could hit people hard especially those that pay too much. Overall, the economy is pretty strong right now. It is the small businesses fed by bank loans that are picking up the slack that housing will leave. This will be very good for the stock market because it will pick up the money that people don’t invest in real estate.
Tobin: Stocks get overextended and ahead of themselves. Clearly, housing prices in certain parts of the country are ahead of themselves. Other countries have gone through this, like Australia and Britain. The economy didn’t blow up. We came down and the rate of change will be close. My biggest fear is that IF we had a housing bubble, it would come down for only one reason: unemployment. Unemployment would skyrocket because we would be heading for a recession. Then, oil prices would fall and it would kill the housing market more than anything.
Pat: This bubble does sound familiar to the Internet bubble of the late ‘90s. I agree with Toby that we have seen this before in other economies. If you are a housing speculator, it will not be good for you, however if you are a housing owner, it won’t be such a big deal. This bubble won’t sink the economy and have as much of an effect as the big dot-com crash. However, people in Miami and California, where the prices keep rising, are the ones that could get hurt. Investors, not buyers, will be hurt — along with people who are borrowing from mortgage companies with poor lending standards. A lot of those are going to blow up big time.
Tom: I make a living at real estate and I’m not worried. I’m still buying real estate. It’s not just a matter of interest rates. It’s a matter of net income rising faster than interest rates are rising. Right now, that’s still happening. I’m taking a looking at the big picture. Over the past couple of years, we’ve been creating wealth at 4-6 percent per year. We’ll still see that. It’s a matter of supply and demand. The one thing that protects housing prices is that people will not sell a house for half of what they paid for it. And they will do that with a stock to get the cash to do something else.
Gary B: Taking a look at a chart of the housing market, housing prices have certainly gone up, but they are keeping pace with inflation. There may be a bubble in certain areas, but not overall. Housing prices are rising along with inflation. At the bottom of the chart, there’s been no fall in housing prices in the last 40-50 years without some underlying reason. In Dallas, prices went down because the oil industry dried up. In California, prices went down because technology dried up. There has to be a reason.
Scott: Housing doesn’t go to zero, but Internet stocks can. The two are not mutually exclusive. Housing prices are a little ahead of themselves, but the Fed is in the process of killing the interest-only loan and the 1-year adjustable rate mortgage (ARM). Now, the 1-year ARM is similar to the 5 and 7-year ARM. You can’t speculate without money any more.
America is fighting the battle of the bulge. What stocks will fatten your wallet, as we get thin?
Tobin: I’m fighting fat with pharmaceutical company Sanofi-Aventis (SNY). It has a wonder drug called Acomplia. For a diabetic, this drug cuts weight, helps you quit smoking, and makes triglycerides go down. It hasn’t been approved in the United States yet. It’s not a sure thing, but I think it will become available. If this drug does get approved, this will be the number one best selling drug in America. (Sanofi-Aventis closed on Friday at $44.05.)
Pat: This is a good company and has the best pipeline of the big pharmaceutical companies right now, but I think the approval of Acomplia has been priced into the stock already. Wait for it to go back to the high $30s before getting it. Once it goes down a little, it would be a good one to own.
Scott: I like the company, but it has some risk with a court case going forward for the drug Plavix.
Pat: I like the medical technology company Medtronic (MDT), which has a potential device that is implanted into the stomach that stimulates it and helps control eating. It should be approved in 2008. Half of the company’s top line is made up of cardiac devices. It really is a juggernaut in this business. Plus, its competitor Guidant (GDT) has run into some problems recently. Medtronic is going to $65. I do own the stock. (Medtronic closed on Friday at $54.90.)
Scott: It’s a wonderful diversified company, but I’m not sure how much money will come from this new device. It is involved in all areas of the medical business.
Tobin: The stock’s a little too expensive for me.
Scott: My pick is Inamed (IMDC). The health care products company is merging with another company called Medicis (MRX). It has a lot of products for plastic surgery, but their LAP BAND is what is making a name for them in weight loss. Use of this product is growing very fast. (Inamed closed on Friday at $74.15.)
Pat: The stock is expensive and has had some FTC problems with the Medicis takeover. If it doesn’t go through, the stock is going to get hit pretty hard.
Tobin: I like it.