The Credit Bubble and Housing Boom’s Shaky Foundation
Source: Ritholtz.com, RAB Capital US Homebuilder’s Construction Binge 4 Million excess homes = 2010 Household formation = 0.9 million / year Homes built = 0.6 million /year Current rate = 12 years to absorb excess
Source: Ritholtz.com, NDR Residential Real Estate Relative to Median Income, Rent
Source: Ritholtz.com, BIS Residential Real Estate Boom Was Global Emailer : Why don’t you think Fannie, Freddie, CRA was to blame?
Source: Ritholtz.com, Calculated Risk Time Until Full Employment Recovery Post-Recession Economists are looking at the wrong data set: Instead of “ALL CYCLICAL RECESSIONS, try substituting CREDIT CRISIS RECESSIONS. Hence, why they seem to be perplexed by weak job creation and soft GDP.
100 Years of Secular Markets, P/E Expansion & Contraction Source: Ritholtz.com, Crestmont Research
100 Year Dow Industrial Chart Source: Ritholtz.com, Bloomberg
S&P500: 2009-11 Compared to 1973-74 Source: Ritholtz.com, TheChartstore.com
Recession Bear Market vs. Armageddon Source: Ritholtz.com, Bloomberg
Source: Ritholtz.com, TheChartstore.com “ 100-Year Floods” seems to come along far more often than their name implies
Duration and Intensity of Bear Market Rallies Rally averages over 12 and 24 months, going back to 1929 After 12 months, returns range from 21.4% (1987) to 121.4% (1932), followed by 81.4% (1935). Remove the post-depression outliers, and 1982 becomes the next most intense move at 58.3%. That is, until the 2009 rally. After 12 months, it stood at 68.6%. The average of these rallies at the 1 year mark was 47.3%. From one to two years, the rallies strengthened to 56.1%. Note that the two post-depression rallies eventually give up all their gains. (See S&P 90, lower right) 2009 is now the outlier. After just 23 months, this market is up nearly 100%. 1974 is the runner up at 65.7%. How intense is this rally? The current run is 50% greater than the next closest one, and nearly 2X the 2 year average. ~~~ How much of this is attributable to the Fed? We can only guess, but if only half of the excess gains over prior rally averages are attributable to the Fed, it means that the US Central Bank has artificially created several trillion dollars in market capitalization. Source: Ritholtz.com, Investech Research S&P 90 Roundtrips : 1932 Bottom June 4 th 1932 $4.21 Peak September 10 1923 $9.49 Low March 4, 1933 $5.47 Peak July 22 1933 $12.44 1935 Bottom March 23 1935 $8.02 Peak March 13 1937 $18.84 Low April 2 1938 $8.36
Composite 19 Secular Bear Markets Source: Ritholtz.com, Morgan Stanley Europe
Looking Backwards : Downsizing America Source: Ritholtz.com, February 2009
How Does the ‘09 Rally Stack Up Against ‘82 Bull Market?
Lose the News : Beware the Recency Effect Source: Ritholtz.com, WSJ WSJ: 2007 WSJ: 2010
Do Markets Forecast the Economy? (No) Source: Ritholtz.com, Bloomberg
Analysts Are (Still) Too Bullish Source: Ritholtz.com, McKinsey “ Analysts have been persistently overoptimistic for the past 25 years, with estimates ranging from 10 to 12 percent a year, compared with actual earnings growth of 6 percent… On average, analysts’ forecasts have been almost 100 percent too high” -McKinsey study
Congress for Sale: 2009 Lobbying $3.49 Billion Source: Ritholtz.com, Time • Derivative trading banks spent $28 M to save $5-7 billion collateral allocations $ = Annual profits $3 billion (risk remains on the taxpayers) • Auto Dealers spent < $10M dollars ($6.3m lobbying, + $3.4m campaign contributions) $ = Saved undisclosed added interest, fee kickbacks, other over-priced loans worth $20 billion annually to dealers.
Barry L. Ritholtz CEO, Director of Equity Research Fusion IQ 535 Fifth Avenue New York, NY 10017 212-661-2022 516-669-0369 [email_address] The Big Picture http://www.ritholtz.com/blog for more information, contact