Thursday, February 07, 2008
Here is the latest cover of Business Week. The editors' view of the prospects for the housing market is pretty clearly expressed in this cover. My own view is that the stock market has pretty much discounted all that is known about the current state of the housing market and its implications for credit availability and bank profits. So I think we are pretty close to the low in housing and bank stocks and that both sectors will be trading substantially higher 12 months from now.
The chart of Home Depot is particularly striking. HD established it low early in January, before the averages made their lows, and since then has rallied a greater percentage than anytime in the past year. I think this is the first harbinger of springtime in housing stocks. Note too the chart of KBE, the bank index spiders. Here too we have seen a very substantial rally with plenty of room for a successful test of the January low. I think that KBE will make it up to 50 before another significant drop can materialize.