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Bulls & Bears
This past week’s "Bulls & Bears":
• Gary B. Smith, RealMoney.com columnist
• Pat Dorsey, Morningstar.com director of stock research
• Tobin Smith, ChangeWave Investing editor
• Scott Bleier, HybridInvestors.com president
• Joe Battipaglia, Ryan Beck & Company chief investment officer
Trading Pit: Housing Bubble Bursting Good for Stocks?
Have we seen the first signs of a housing bubble beginning to burst? In New York City, one of the country's hottest markets, the average price for an apartment fell 13 percent in the last three months.
What does it mean for stocks if this is the beginning of the end for the housing boom?
Tobin: This slow down in housing is good for stocks in the long-term. The “panic buy” is over. Last year, if your house was on the market for two days, you almost panicked. It was very extreme. Now, the market is getting back to normal. This is great for dividend paying stocks, which have become more attractive.
Joe: The bursting of the housing bubble is not necessarily good or bad for stocks. There is a greater wealth effect from home values than common stock portfolios. Investors that went through the stock market bubble ran to real estate. But if housing rolls over, I doubt that they’ll run to a risky asset class.
Tom: This has been one of the best housing years we’ve had in American history. I don’t think the housing bubble is bursting just yet. We need to remember what drives the stock market and what drives the real estate market. If people have more money, they will invest it in something. Net income is the number one driving force behind whether people invest or not.
Pat: I agree with Toby that some kind of slow down in the housing is a good thing. When any market gets too overheated, it doesn’t end in a good way. If there’s a slow down from a big pop, it’s good. However, I don’t think this will have an effect on the stock market one way or another. The wealth aspect that Joe was talking about does have a big impact on consumer spending. However, I don’t think people were using their extra cash to invest in stocks. They were buying motorcycles and powerboats.
Gary B: Every blip in housing isn’t the start of the end. In fact, the Philadelphia Housing Index shows that housing is still in a solid uptrend. Yes, it has come down a little off the peak, but it still looks like it is heading up. There’s a direct correlation between when housing prices drop and the stock market. The housing market burst in 1929 and again around 2000, right when the stock market started going down.
Scott: The housing market and stock market are intimately associated with the other. Manhattan real estate is up 40 percent over the past 2 years. The average co-op is over $1 million and a small pullback is long overdue. The economy, stock market, and the housing market have all become very inter-related. When one takes a hit, all of them take a hit.
We're putting it on plastic! Past due credit cards are at a record high so the Bulls & Bears each picked a stock that could make big gains and help pay off your balance.
Pat: I really like Constellation Brands (STZ), which makes beer, wine, and other alcoholic beverages. It owns Mondavi wines and distributes Corona in the U.S. The stock is pretty cheap and looks like it could hit $32 in the next year. (Constellation Brands closed on Friday at $23.53.)
Gary B: This stock has been way down and I think there will be more downside. Not a great pick.