The closest guess I have about home prices is what is assumed by the Chicago Mercantile Exchange (CME) housing futures market. Across the 10 major markets home prices are predicted to drop 8% in 2008 with no signs of stabilization. We are looking for home prices to form a bottom in 2009-2010. But, from there we don't expect significant appreciation. The bottom line is there is still no reason to be optimistic about home prices in the near term.
You can price in whatever you want but the Federal Reserve doesn't have to do anything. Ben Bernanke didn't actually say the previous sentence but he may as well have. After the Fed cut the fed funds and discount rates 25 bps today the market didn't react all that well. I guess Ben doesn't like being bullied around all that much:
Top 10 Things You May Not Have Known About the FOMC
10. The Fed exists to insure maximum employment, price stability and moderate long term rates. Their purpose is not to backstop speculators
9. 4.25% Funds rate very accommodative and historically low.
8. Between votes, Fed Governors make fun of BLS economists.
7. Overheard at FOMC meetings: “What would Greenspan do? Let’s do the opposite!”
6. Jealous that Jean Claude Trichet gets to hang out with Gisele Bundchen
5. Doesn’t give a rat’s ass what Cramer thinks.
4."Then it's resolved, we print more money and we make more speeches . . ."
3. There is no Santa Clause -- just some guy with a beard named Ben.
2. Has been long Gold and short the Dollar since 2003.
and the #1 thing you may not have known about the FOMC:
1. “Hey, Wall Street: We’re not your Bitch anymore.”
I'm not big on currency speculation, but I do find it hard to believe that during the middle of a fed easing cycle and with massive concerns about the US housing market the dollar will form a meaningful bottom. That said, the dollar is up almost 2% off of its lows and is showing a little bit of life.
We continue to receive validation from independent research that our firm's commitment to a secular overweight of commodities in general and agricultural commodities in particular is a sound asset allocation decision in light of the macroeconomic environment. My personal bet is that soybeans (pictured right), soymeal and soybean oil will be a particularly attractive place to park money over the next 6 months (and not just because of my personal edamame addiction). Here is the latest validation via Bloomberg:
Agricultural commodities may rise by as much as 50 percent next year because of crop shortages and demand from emerging Asian economies, Schroders Plc said.
Corn and palm oil will advance because of ``continued'' demand for ethanol and vegetable oils to make biofuels, while soybean and coffee may gain on smaller inventories, said Christopher Wyke, product manager at London-based Schroders, which manages $3 billion in commodities.
``The supply-demand balance for these commodities is very tight, which means they're vulnerable to any setbacks in production,'' he said in a telephone interview today. He declined to forecast prices.
Standard and Poor's GSCI Agriculture Index has advanced 32 percent this year as wheat rose to a record, while corn and soybeans climbed to multi-year highs. Commodities, which are outperforming stocks and bonds this year, may beat such asset classes in 2008 as the U.S. heads into a recession, Wyke said.
The UBS Bloomberg Constant Maturity Commodity Index of 28 futures contracts has returned 17 percent this year, compared with a 4.3 percent gain in the Standard & Poor's 500 Index of stocks. U.S. Treasuries have returned investors 8.9 percent, according to Merrill Lynch & Co. indexes.
On a side note, is anyone else feel relieved that oil is back under $88?
Last week we posted a video of Peter Thiel saying that there is absolutely no bubble in technology. This week we offer the opposite view. We think you will enjoy this one . . .
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Hat Tip: Bespoke
