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The Housing Bubble is Broken


Anecdotally and statistically, the bubble is toast.

No. It is NOT different this time. It never is. The housing bubble is broken.

Several times over the past 18 months I have made mention that the parabolic move in housing stocks (bubble) mirrored the move in gold in the early 80's, and the NASDAQ in 1999-2000. Well, all of those bubbles broke. I even featured a chart comparing those bubbles. I was told 'it was different this time' due to demographics, interest rates, etc.

Well, see the chart below. Yes, indeed, a picture tells a thousand words. It shows the S&P Super Composite of housing shares, which, in my humble opinion, has a direct correlation to housing fundamentals. Anecdotally and statistically, the bubble is toast.

Why? Well, it could be the interest rate 'creep' we have been talking about, where essentially, it has taken a while for higher rates to work their way though the system. Or, just good old over-speculation. Whatever the reason, it's still a mess and will hurt the already overleveraged consumer, which leads us to believe we will have a consumer led economic slowdown and it explains our defensive posture.

Please fell free to contact me with any questions or comments at

One last thing, Standard Pacific (SPF), another large builder, also announced awful fundamentals the other day. The index is actually down another 3% today, which is not reflected in this chart. I find it improbable, if not impossible, that these fundamentals will not make their way through the rest of the economy (like banks) in short order. Someone is likely sitting on (and will write off) a bunch of bad loans.
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