Are the Stock Markets Telling Us Something
The
report, released last week is another green shoot pushing upwards. Home
prices in the U.S., as measured by the S&P Case-Shiller home price
indexes, rose in July over the previous month, as 18 of the 20
metropolitan areas comprising the benchmark saw saw a boost to real
estate values. For the 16th consecutive month, every region saw
year-over-year declines, but the pace of those declines continues to
decelerate, according to the Wall Street Journal. The ten-city index is
down 33.5% from its mid-2006 high, while the 20-city index has declined
32.6%.
UMM and DMM
Confirming
the stats market shares built to be reflective of moves in home prices
acted as they should. These market tools are investments in their own
right, but they are also trend confirming tools. MacroShares Major
Metro Housing Up Trust (UMM) and Major Metro Housing Down Trust (DMM).
In relatively heavy trading Tuesday morning, UMM had gained more than
3%, while DMM was down by about the same amount.
Since their
inception in June of this year, UMM has jumped by nearly 35%, while DMM
is down nearly 25%. Recently, DMM was trading at a discount to its net
asset value of about 17%, while UMM was trading at a 24% premium. While
such large spreads would be alarming for most exchange-traded products,
in this case it simply reflects investor expectations for the U.S.
housing market (specifically, that home prices will continue to rise
over the next five years).
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If you look at the price action of
the UMM vs the DMM, you can see investor perception that homes will
continue to rise. Looking at the Dow REIT index, you see similar strong
moves to the upside. Personally, I think the markets are ahead of
themselves but they are a strong confirmation that people are beginning
to look past the bust and are betting on the future.
Early?
Yes.
We have the commercial recasts and the option ARMs to get through. The
markets enthusiasm is emotional, we raised the flag because we avoided
a great depression, but now thee is more reality to face. The good
news, The Economist made an observation I loved. American is brilliant
at fixing itself.
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