Stock Smarts: Home Bust, Stock Boom?
Mortgage rates are zooming up, and already there are early signs the housing boom is slowing down. If this is the last gasp for the housing craze, what will that mean for the stock market?
Hilary Kramer of A&G Capital thinks that stocks will rise because the “bloom is off the boom” for the housing market. The housing market has been the pillar of this economy, but stocks will benefit from the eventual slide, because people will put their money into stocks. And she says that money never vanishes, it just moves – so people will be moving money that might have gone towards a house into the stock market.
Jonas Max Ferris of Maxfunds.com wonders how money will just move from the housing market to the stock market. If people lose their money in a housing bubble that bursts, there will be no money to move. He says that when real estate goes up higher than inflation, it has to come down at some point.
Wayne Rogers of Wayne Rogers & Co. isn’t too concerned about a burst in a "so-called" bubble – housing is a regional and local thing – you can have a bust in one area and a boom in one area. He thinks that interest rates have to go substantially higher for a total bust in the housing market. In certain areas you will have continued strength. And even though they’ve gone up as of late, rates are still historically low.
Gary Kaltbaum of Kaltbaum & Associates says that the talk of a housing bubble is overrated, agreeing with Wayne that it is a regional thing. He thinks that even if we drop 10% in terms of growth in housing, the market will be in good shape. Gary would not buy the “home builder” stocks though. And he says the best way to figure out the market is to “watch the market” and not listen to the noise. Right now, he says, the market is acting pretty well.
Jonathan Hoenig of Capitalistpig Asset Management sees rates rising, commodity prices that are strong, and some momentum with stocks – but he is not that bullish. Booms in stocks and real estate go together, and higher rates aren’t good for the stock market. He still thinks stocks are expensive.
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Gary says: Symantec (SYMC)
Friday's close (8-29-03): $57.60
This company makes the Norton anti-virus program, which protects computer hardware like the servers, right down to the laptops. Gary cites strong earnings and revenue growth – and he says the stock is at a new all-time high. Wayne likes the stock; he says it has a great chart.
Hilary says: Lockheed Martin (LMT)
Friday's close (8-29-03): $51.23
Hilary says NASA has a $15 billion budget, and what NASA is spending on is planetary observation and she says that will help Lockheed. Jonathan doesn’t love the stock. He says he sees a lot of good news for defense contractors, but he still isn’t too crazy about this one.
$aving Yourself From Gas Prices
Wayne says: Murphy Oil (MUR)
Fridays close (8-29-03): $57.73
Wayne isn’t crazy about any of the gas stocks, but Murphy Oil sells the cheapest gas, so he likes this stock. Gary says this is a strong stock and will go higher.
$aving the Power Grid
Jonathan says: Electricidade de Portugal (EDP)
Friday's close (8-29-03): $21.80
Jonathan is worried about the regulatory environment. He likes emerging market stocks (among the few areas he owns), and he likes this one because Portugal has a “less regulatory environment”.
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Wayne, Jonathan and Gary answered some of your questions.
Question: “Lately, Microsoft (MSFT) has been more down than up, but the ‘experts’ keep calling it a buy. Are you bullish on the stock?”
Wayne has mixed feelings about Microsoft - it’s a great cash machine, but there is always the possibility that Bill Gates will sell a big wad of stock. The risk on the downside is low, but so is the potential to the upside. Gary worries about thee lack of relative strength in the stock.
Question: “Interest rates have nowhere to go but up. Are there any stocks or funds that will mirror a rise in rates?”
Jonathan likes to play the “bank loan” funds, and he owns a few:
• Van Kampen Senior Income (VVR)
• Citigroup Investments Corporate Loan Fund (TLI)
• Nuveen Senior Income Fund (NSL)
Question: “I bought Tyco (TYC) at $12 a share. I am 29-years old and can take some risk. Should I keep it for the long term?”
Gary says the stock is acting well, so you want to give it a chance to go higher – and insiders are buying the stock right now, so maybe it could get to the mid $20’s. Jonathan says the buzz is bad and the stock is acting well – a good combination.