This column was originally published on RealMoney on Aug. 24 at 12:56 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.
Don't know which triggered a rally in homebuilders: the strength in housing, as expressed by new-home sales, or the weakness in the economy expressed by durable goods.
Sometimes it is that tough. We are at a really and truly bizarre moment where the papers and the television shows are all filled with how buying a condo's now worse than buying eToys common on that secondary in 2000.
We are convincing ourselves -- typically through journalists who couldn't afford or didn't buy homes -- that owning an apartment's dumber than paying $30 for Webvan and owning a beach house is like buying the Viant $100 secondary.May I suggest that most of this stuff is plain stupid? The truth is that new-home sales remain robust but the rest of the economy is much weaker than we think and the result is that the game is all Fed. If the Fed takes its cue from the durable goods number, then, correctly, the housing stocks should go higher. If the Fed is paying attention only to the journalists who write about the bubble -- good chance of that by the way, and don't forget Alan Greenspan's married to one for heaven's sake -- then we are still in for pain and you should lighten up on this rally. The amount of misinformation out there is pretty incredible. The New York Times today talks about the condo glut, but national data from Deutsche Bank and Goldman show that condo starts are way, way down, and if anything, there could be a condo shortage developing. We are convinced that the resale numbers are really weak but that's simply not true, and when taken with today's new sales numbers, paints a very robust picture. There are pockets of undervaluation in housing and pockets of overvaluation. There are places where there are gluts and there are places where there are scarcities. Business as usual. Yet, it is true as it was in 2000, if the Fed decides that it is worried about borrowing on homes, as it was worried about borrowing for stocks, it has the ability to wreck the whole economy to cool homes. Just like in 2000, when the Fed should have raised only margin rates, the Fed simply has to say: "We don't want interest-only mortgages sold."