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Friday, March 29, 2024

Homebuilder Sector Leading Rally: Predicting A Housing Boom?

Courtesy of Lee Adler of the Wall Street Examiner

Mr Hanky, who posts on Capitalstool.com, wondered today whether strength in the Homebuilder Index portended a housing boom.

I responded that I doubt it. With the average wage stagnant and median household income in the toilet, new housing demand will remain weak. In the stock market, the housing ETFs are not really about housing. They’re overweighted with home furnishings and accessories retailers, suppliers, and manufacturers. Actual builders are only about 20-25% of the weighting.

Over the 46 years or so that I’ve been observing markets, I’ve concluded that changing stock price levels aren’t predictive of anything but stock price levels. They measure total liquidity and liquidity preferences. Those preferences could be simply a matter of shorts getting squeezed or bots reacting to support and resistance or following momentum.

Traders and trading algorithms know no more about the future of the economy than you or me. They’re just trying to make a quick buck. The idea that the stock market predicts the future is just another of Wall Street’s many shibboleths designed to suck the public in–including institutional suckers–while the securities dealers who run the show distribute inventory.

Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE's Professional Edition risk free for 30 days!

Copyright © 2012 The Wall Street Examiner. All Rights Reserved. 

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