"Street Critique"-Barry Ritholtz, Chief Market Strategist, Ritholtz Research and Analytics
Wednesday, January 17, 2007My street critique guest tonight says the slump in housing could have a big impact on other markets. He's Barry Ritholtz, the chief market strategist at Ritholtz Research and Analytics. Barry, welcome to NIGHTLY BUSINESS REPORT.
BARRY RITHOLTZ, CHIEF MARKET STRATEGIST, RITHOLTZ RESEARCH & ANALYTICS: Thanks for having me Paul.
KANGAS: In recent weeks, we've had a number of analysts saying that the housing slump has pretty well bottomed out and things are picking up and we have a chart which indicates that things do appear to be getting better after a terrible time in recent months. Do you put any credibility in that argument looking at the up tick in this chart at the right side of it?
RITHOLTZ: No, I don't. I think calls for the bottom in housing is a little premature. There's still a tremendous amount of inventory out there. While rates are not terrible, they're much higher than they were when housing was doing well. The chart you showed is the home builders' sentiment index. While it's off the bottom, it's still so far away from where it is when housing is robust. It doesn't appear there's a bottom there yet.
KANGAS: What markets will feel the sting of a continuing housing bust and why?
RITHOLTZ: Well, if you look at the sectors that did very well when housing was ascending, things like electronic retailers and mortgage underwriters, auto sectors, durable goods and sub prime mortgage lenders, they did terrific from 2002 to 2005. Now that housing is cooling and probably is going to cool another eight to 12 months at the very least, these sectors are going to feel some pain and that includes everybody from Best Buy to Circuit City to GM and Ford.
KANGAS: So stay away from those sectors and those big kind of stocks right there.
RITHOLTZ: They're in a void absolutely.
KANGAS: All right. Well, what sectors do you favor right now given the current environment?
RITHOLTZ: We saw people continue to take money out of their homes through mortgage withdrawals and that helped a lot of mortgage brokers and a lot of mortgage underwriters. But it didn't really help the credit card companies. If you take a look at American Express or Mastercard we've seen revolving credit debt go up. That's good for their bottom line and I think that's going to continue to help them. We also like any stock, any of the big cap stocks that are going to be benefit from the weak dollar and are going to be able to sell their goods overseas. That includes companies like GE and Honeywell and Disney.
KANGAS: Very interesting. Let's have a few more of those that will benefit.
RITHOLTZ: Well, you know, if you look at the things that did so well for the past couple of years, a lot of it had to do with cheap money. It had to do with inexpensive rates and as that unwinds, you have to really avoid that. So on the avoid side, take a look at Whirlpool or something that we don't think is ready to buy. On the buy side, other things besides GE and Honeywell, you could look at United Technology. They're doing very well because of the weak dollar. Boeing and Dow Jones is another one that looks like it's about to succeed.
KANGAS: Barry, do you own any of the stocks you've mentioned there or have other disclosure to make?
RITHOLTZ: We own some of them. We have positions in our clients' accounts and in our funds...
