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Bulls & Bears
This past week’s Bulls & Bears: Gary B. Smith, Exemplar Capital managing partner; Tobin Smith, ChangeWave Research editor; Scott Bleier, HybridInvestors.com president; Pat Dorsey, Morningstar.com director of stock research, Bob Olstein, Olstein Funds president, and Gary Kaltbaum, Kaltbaum & Associates president.
Through the roof! That's one way to describe the housing market of the last five years — and many believe it's been the foundation of our economy. But now there are more and more signals that the market is slowing down. So what happens to stocks and the economy if housing falls?
Gary Kaltbaum: This has a potential for big problems. Things have changed over the past few years. More people have tied their wealth to housing and are using their homes as ATMs. More people are much more leveraged than they used to be in the past. If things turn south, there will be direct effect on the economy, which will have a direct effect on the stock market. Both will head lower. The economy is consumer driven and if people feel poorer, they are going to spend less.
Gary B. Smith: People are more leveraged, but most people take out a mortgage and if the price of their home goes down, they don’t panic because most are not planning to sell it anyway. Yes, maybe your net worth goes down, but that has no effect on the market. If we’ve been in a housing boom for the past five years, and there’s a direct correlation, why haven’t stocks gone straight up? If home prices go down, there will be less speculation in the housing market, and more money will find its way into the stock market. I’d actually like to see the housing go flat for a little bit.
Pat Dorsey: The only people that will shift money from the housing market to the stock market are speculators, and speculators make up a very small percentage of investors. Consumer spending will slow. Right now I see a direct parallel to what happened a little while back in the United Kingdom. Housing prices over there peaked after a massive run-up and consumer spending has slowed markedly since then. A housing slowdown over here will hurt and will not help the economy.
Bob Olstein: Housing is causing the economy to slow down and will continue to do so. But corporate coffers are filled with cash and they will spend the cash to pick up the slack. Acquisitions will replace the fuel previously provided by housing. P/E ratios have declined and the slowdown in housing has already been discounted by the market. Stocks are better investments than real estate. Most people use real estate for their homes, and that’s it. It’s not going to change the stock market. There’s not going to be a real estate crash. There may be crashes in certain areas, but overall, real estate market will not crash.
Tobin Smith: I’m not worried. A crash in housing might happen if unemployment went sky high, but more and more people are working. Interest rates are historically low. And we’ve already had a crash in many sections of the country over the last 6 months. So it’s already happening and stocks have gone up! And if we were going to have a major crash, it would have already happened.
Scott Bleier: Housing has corrected in the last year and the stock market has gone higher. The economy continues to do well and more people continue to work. The correction in housing is overdue and is healthy for the industry and the overall economy. Plus, a slowdown will mean more people will be able to buy homes.
Are the stocks in the news ready to make you money?
First up, Apple (AAPL). French lawmakers are trying to force Apple to open up its iTunes music service to competitors. (Apple closed on Friday at $59.96.)
Gary B. Smith: Bull. Steve Jobs hates the French. Enough said.
Scott: Bear. The iPod is a commodity product and the stock’s worth $40.
Tobin: Bull. We sold at $65 because we thought it would come down. But in the $50 to $55 range it looks good. The surprise is when their new Macintosh systems, new iPods, and new phones come out. The stock will pick up again.
Bob Olstein: Bull. It’s coming into interesting territory. People are missing the point, it’s not the iPod, it’s the Macintosh that’s going to be big.
Pat Dorsey: Bear. It’s come down, but not far enough. I need it to head to the high $40s for it to be interesting.