James, I suppose time will tell! Mr. Dent's theory is possible, but, depends on much that is rather unpredictable. Certainly, with the stock market at such lofty levels and unemployment(and fear of unemployment) at such low levels, there is little immediate danger of a collapse of the construction or real estate markets.
However, its quite clear that the Fed will not allow the economy to continue to grow at rates that exceed the ability of the economy to produce goods and services. What this will take in the way of increases in interest rates is hard to tell. The big danger is that the Fed will continue to increase rates well past the point needed to slow things down. This could occur because the effect of rate increases takes quite a while to appear. If we end up with another 2% increase in rates it will push mortgage rates to 10%, historically this has been a very bad thing for housing, construction and real estate.
To be quite honest, I don't take very seriously some of the projections that some of the extreme "optimists" put out. Things like "DOW 40,000", etc., are just hype to me. I expect a NAZDAQ 40,000 book to show up very soon.
The problem with these things is that they assume that the only measure by which stocks will be valued is growth and there there is no limit as to what growth is worth.
This is actually what the problem with TMBS is. Right now its valued like it has little or no growth prospects. This is because its fate is seen to be tied to a very real segment of the "old economy" and one that is very vulnerable to interest rate increases.
I like TMBS as a company and think its undervalued. However, I understand the risks that interest rates hold for the company. I do think that if it can leverage its position in the housing construction and R/E management markets into a B2B position it could soar. Without that, though, it will follow an inverse relationship with interest rates.
Here's a little comparison chart of TMBS, ORCL, MSFT, and two major financial institutions...
siliconinvestor.com |
