This could be the week we get an official declaration of QE3 as
the Federal Reserve's 2-day meeting takes place on
Tuesday/Wednesday. The market will certainly take its queue from
the commentary surrounding these meetings later this week.
In the meantime, we had a bit of a tough start to the week's
action, as sellers took the lead from cautious Wall Street analyst
commentary on shares of companies like Intel Corp (
), International Paper (
) and Tyco International (
). We did see a bit of a bounce in several railroad names which
caught some cautious commentary themselves last week. Union Pacific
) and Norfolk Southern (
) paced the gains there. Lastly, Wall Street analyst upgrades
helped shares of PPG Industries (
) and Kraft Foods (
) buck the selling trend.
Housing Recovery (Take 12)
Housing recovery watchers had another big weekend, as Barron's
took their third swing at trying to call a housing market bottom.
The very same author of this past weekend's article made a similar
argument back in 2008 and 2009. Obviously, he was dead wrong those
The most recent article makes plenty of the usual points for a
housing recovery, but of course leaves out details as to why the
data should be given a much closer look. I have been making the
argument that in certain areas of the market, real estate has
remained for the most part fairly stable with some upside as well
(Manhattan, Silicon Valley-related communities). But for the vast
majority of all markets out there, the upside has been fairly
minimal (see: non-existent) as far as residential home prices are
My theory when it comes to killing an investment theme has
If you want to guarantee lower returns on a investment asset,
either 1) make a lot more of something, or 2) make it so
affordable that anyone and everyone can and will buy it.
It's a supply and demand argument really. Housing has managed to
hit both of those theme-killing points above. Builders went
absolutely crazy with new home construction over the past several
years, creating a glut of inventory. In unison, the lenders allowed
anyone with a pay stub to buy a home. And now, with interest rates
continuing to hit record lows, anyone who's financially able to buy
a home has already done so, for the most part.
Finally, the ultimate problem that will continue to haunt real
estate is a lackluster jobs environment. I have seen many studies
that maintain the true unemployment rate is in the 13-16% area, and
underemployment is probably double that percentage number.
Underemployed people include those overqualified for their current
job (and thus are making much less money than they "should"
No one seems to be asking the tough questions, like "Who will
the baby boomers sell their homes to when it's time to retire and
downsize?". Many near-retirees had a certain price they expected to
fetch for their home penciled in years ago when they attempted
their first pass at a retirement planning exercise.
Furthermore, how confident can we be about governmental
oversight of job growth, when you still hear stories like the
recent General Motors Chevy Volt plug-in hybrid vehicle? Reuters
reported the auto giant is still
losing as much as $49,000
on each Volt it builds. Throw in some attractive lease options,
which GM has done, and I ask, how are they going to make money
doing business like this? The tough part of this is the company was
part of an enormous federal reserve bailout ($50 billion in
taxpayer money) that remains way underwater (estimated at -$27
billion, when looking at GM's current market cap).
The reason I bring up real estate yet again is because many
mom-and-pop investors yearning to put money into residential real
estate will buy into the phony headlines and believe the coast is
clear. Now again, if you can find multi-family or commercial
properties where the numbers work (specifically the property can
pay for itself each month and you are able to put money in your
pocket comfortably), that is where you can at least consider buying
an asset that is actually producing income (and hopefully
Those who are desperately looking for a place to put money to
work have to remain disciplined. Doing something just to do
something with your money is not a good investment strategy. Real
estate tends to tie up a decent chunk of most people's liquidity
for a very long time, so you have to buy right - or not buy at
I hope everyone had a chance to check out our
members-only weekend articles , including new features that
highlight some of the biggest winners and losers from the week that
was, such as analyst upgrades/downgrades and earnings/story stocks.
These articles are a great way to catch up on the week that was in
the markets. We also have a rundown of how various Dividend ETFs
performed on the week.
Be sure to visit our complete recommended list of the
Best Dividend Stocks
, as well as a detailed explanation of
our ratings system here