Home and Equity Valuations -- Nowhere to Go But Sideways ~ Steve Blitz Morning Notes
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Tuesday, May 25, 2010

Home and Equity Valuations -- Nowhere to Go But Sideways

By focusing on the monthly bounces in the housing data one risks missing the bigger point – the two main assets supporting household balance sheets and, by extension, the global economy at large, have nowhere to go but sideways. Equities and homes are priced to a level that can be appraised as fair or expensive, depending on one’s view point, but neither can realistically be called cheap.When the equity bubble popped in 2000 the economy could weather the collapse because a housing bubble could replace it. A “bubble-swap” followed by "double-burst" occurred in the late 1970s, when the culprit was a deep recession followed by soaring price inflation followed by a deeper recession. Today there is no potential for unlocking domestic equity valuations as there was in 1982. As for housing, it took 20 years before the real dollar volume of existing home sales cracked the high of the late 1970s. The potential for global growth is locked up in the Asian trade surplus. Once that spending power is unleashed on the world real economic recovery can begin. Until then, governments can only buy time by swapping leverage for leverage. Majestic Research

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