This blog post originally appeared on RealMoney Silver on Dec. 3 at 7:33 a.m. EST.
We had another lively session on "Kudlow & Company," with
Denny "The K" Kneale and
David Sowerby. I looked forward to last night, as I enjoy debating Denny The K and I have long-admired David "Small Cap" Sowerby's sound and sober analysis.
So, without further ado, let's go to the
In short, look for a post-bubble world to remain in recession throughout 2009, followed by an anemic recovery, at best, in 2010. In an era of globalization, we became intoxicated with what cross-border linkages were able to deliver on the upside of a boom. But as that boom went to excess and spawned a lethal globalization of asset bubbles, the inevitable bust now poses an exceedingly tough hangover.-- Stephen S. Roach, Financial Timesop-ed (Dec. 3, 2008)
My principal point was, as
Stephen Roach writes in today's
, that "the textbooks have little to say about post-bubble economies." Specifically, while there will be a huge savings and tax cut from lower energy prices, it will be
by the debilitating negative wealth effect of both a reduction in home and equity prices.
Not surprisingly, Sir Larry Kudlow and the other panelists did not agree with me that the risk of a capitulating consumer is near.
I will remind my readers that many of those same permabull talking heads on "Kudlow & Company" (and elsewhere) said earlier this year to ignore the headwind of shockingly high energy costs when the price of a barrel of crude went to $148 a barrel, so noting the benefit of oil at $47 a barrel (particularly in the face of numerous other headwinds) seems to be somewhat myopic and framing a positive economic argument through selective logic. There is little doubt that there will be a benefit. I quantified the oil "tax cut" at about $365 billion in 2009 if the price of crude averages $50 less than 2008's average ($105 a barrel) in the coming year.
I went on to comment that a combination of targeted policy efforts aimed to revive housing, a marked reduction in home mortgage rates, better affordability and an extended period of low production of new homes (vis-à-vis population and household formation growth) argues that the balance between housing supply and demand might move closer in balance by late 2009 vs. my previous expectation of stability in mid-2010.
Accordingly, I suggested that it might now be time to look to buy select (read: depressing and depressed!) housing stocks. I am currently long
, but I am now doing research on the group in an attempt to uncover values.
Know What You Own:
Ocwen Financial and Hatteras Financial operate in the savings & loans and mortgage investment industries, respectively, and some of the other stocks in their fields include
Hudson City Bancorp
People's United Financial
Annaly Capital Management
MFA Mortgage Investments
. For more on the value of knowing what you own, visit TheStreet.com's
Doug Kass writes daily for
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At the time of publication, Kass and/or his funds were long Ocwen Financial and Hatteras Financial, although holdings can change at any time.
Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.