2015 Housing Prediction

Advice to Prognosticators

I'm drafting my 2011 letter to clients now, which seems like a good time to recall this (anonymous) advice to prognosticators:

"The ideal time frame for predictions is 2-4 years out. That's immediate enough to compel people's interest, but distant enough that if you're wildly off the mark, no one will remember."

That may work for stock market or global warming predictions, but I doubt I can get away with that in my 2011 client letter.

Which leaves Plan B: simply extrapolate current conditions.

In fact, the vast majority of housing market predictions I've seen -- this year and in previous years -- do just that.

In the case of today's housing market, that means a continued soft market, characterized by skittish Buyers worried about their jobs and the risk of (further) home price declines.

Meanwhile, Sellers need to price and market aggressively to stand out from what is still a high inventory of homes for sale.

Betting on the Incumbents

Goliath vs. David

No, I don't know how the elections next month are going to turn out.

But when it comes to the stock market, here's a tip: bet on the incumbents.

That's because today's economic environment is particularly hospitable to "incumbents" -- established, large companies -- and hostile to upstarts.

At least, that's what the capital markets are indicating.

So, "mega-cap" corporations with already strong balance sheets -- think, Microsoft, McDonalds, Johnson & Johnson, Pepsi, etc. -- are able to borrow billions at infinitesimal interest rates.

Meanwhile, smaller companies apparently are still finding themselves on the outside of a "credit drought."

Forecasting Gobbledygook from Barry Ritholtz

Which Way Stocks?
"Up, Down, or Sideways"
(I think that about covers it)

Blogger Barry Ritholtz ("The Big Picture") is not exactly shy about criticizing Realtor foibles (I think it's got something to do with his mother being one).

So it certainly seems fair to point out some of the fence-straddling, cover-all-bases gobbledygook investment managers like Ritholtz (his other hat) periodically spew.

See if you can discern what the normally pull-no-punches Ritholtz thinks stocks are going to do from this excerpt:

The conditions for a major reversal are not conclusive. That doesn’t mean it cannot happen, it just means that at this moment, making decisions with imperfect information, we put the odds of a hefty drop of 20+% at about 25%.

Given that liquidity is still so abundant, we expect the pullback to be somewhat contained, but deeper than the prior 3 wobbles (June, September, January) since the rally began. We could see a deeper than 10% pullback. Depending upon conditions and internals, our expectations are that we will be buyers into a 10-20% correction. From current levels, we do not expect to revisit the lows.

If the correction fails to materialize, and the market rallies aggressively, with firming internals, we will reconsider our posture. We are always willing to redeploy cash higher into a possible melt up.

I still expect a 25% correction at the end of this rally. I am unable to say with any degree of conviction that the current market turmoil is that major move down.

--Barry Ritholtz, "Market Changes Tone During Correction"; The Big Picture (5/5/10)

Got all that?

Can you say, "hedge your bets??"

How about, "I haven't a clue."

Personally, I prefer the answer J.P. Morgan gave when he was asked what stocks were going to do: "they're likely to fluctuate."