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Two Ways To Play: Less Focus on US Housing?


Strengthen your portfolio in good times and bad.

Is the U.S. housing-market slump nearing an end? Bloomberg reports its effect on the economy may be. That is according to Morgan Stanley Australia's chief equity strategist Gerard Minack.

In a note to clients, Minack wrote, "It is (almost) impossible for housing to detract as much from GDP growth next year as it has this year. "This may have been an extreme cycle for housing, but it is a cycle – and it seems clear it is in the latter stages of decline."

Minack wrote homebuilding now accounts for just 3.3% of U.S. GDP as of last quarter, below the long-term average of 4.5% and near a record low. In addition, inventories, which usually determine the length and magnitude of U.S. contractions, have also declined to make up a smaller portion of the economy.

Nonetheless, these qualities don't imply that the recession will be "mild," Minack wrote. Economists at the firm project consumer spending will decline by the largest amount since World War II with the downturn stretching into 2010.

From the Bull Pen: Bulls can look elsewhere. Consider a play mentioned by Professor Mike Paulenoff today: the healthcare ETF (XLV). Its components have been exhibiting patterns that argue for more upside. Sell stops can be set below $24.

From the Bear Cave: Although shares of the real estate index fund (IYR) could rally in the intermediate term, bears can test the downside for a quick trade. A buy stop can be set above $35.
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No positions in stocks mentioned.

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