By: Mark Faber
Real Clear Markets
September 4, 2013
Outspoken “Gloom Boom & Doom Report Editor” Marc Faber is ursine. He thinks the S&P is about to correct. He explains why on CNBC.
Josh Brown from The Reformed Broker is growing worried about rising interest rates and their impact on the stock market and economy.
…The number one threat right now: Interest rates.
And by interest rates, I do not mean the absolute level, but the velocity of the increase, taking place at a speed the markets are currently unprepared for and businesses may not have planned for. The effect of higher rates on the housing market is already being felt in the New Home Sales number. We’ve seen a 20% drop-off in new home sales in June and July, and this does not bode well for existing home sales in the coming months or in Case-Shiller home prices next quarter.
The reason this is so important is that the housing recovery is the key underpinning of the economic recovery and the biggest tailwind for stocks and risk appetites in general. The wealth effect from stabilizing to rising home prices and the optics of a buoyant real estate sales environment have absolutely contributed to the rising PE multiples in equity markets. For most of America, the value of their home is the single biggest determinant (other than employment status) of whether or not they are optimistic enough to go out and buy things or invest. Should mortgage rates – which are already up 100 basis points since the spring – continue to rise, I believe that a lot of the essential confidence we’ve seen return to the housing market could evaporate – and recent stock gains along with it.
40% of US growth in the second quarter GDP number was directly related to housing, according to Scott Minerd at Guggenheim. If he’s right, then supporting the housing market should be the Fed’s number one goal right now, not chasing phantom asset bubbles. The good news is that the Fed itself seems to be aware of this. Recently a trial balloon had been floated in the direction of Goldman’s chief economist, who is now talking about a taper that could involve maybe buying less Treasurys each month but more mortgage backed securities (MBS), thus supporting housing (see: Goldman’s Latest on the September Fed Announcement at Zero Hedge).
We’ll find out if this will be the approach on September 18th, I guess.
So of the litany of current market fears – Syria, Egypt, China’s banking system, the Taper, the debt ceiling, the budget battle, the twerking epidemic, high oil prices, etc, the one I am most worried about is the effect of higher rates on the housing market.
Gold Goliath is not your typical gold dealer.