What is the logic in taking out 2100 only to let the Naz tank afterwards? Isn't it more likely that Greenspan is trying to narrow the Naz's loss for the year? Maybe bring it into line with the Dow and the SnP?
The top here could coincide with end of quarter buying. Fundamentals are gasping for air but the market is being supported by low interest rates and low inflation.
Five years ago, the bull market for stocks came crashing to a halt after a glorious run. Now, many worry that the roaring housing market may be headed for a train wreck as well.
What's the likelihood this could happen? For his part, Federal Reserve chairman Alan Greenspan said last week that a nationwide housing bubble was improbable, while warning of "froth in some local markets." He said a broad price decline in the housing market was unlikely to happen or to have much economic impact.
While house prices aren't likely to deflate as quickly as a hot Internet stock during the dot-com bust, the consequences have the potential to be far more devastating.
Here's how the stock and housing booms look similar -- but differ in several important respects.
The key difference is that stocks are purely financial investments. You can sell a stock on a whim, and you don't have to run out and buy another. By contrast, people live in houses, and if they sell they have to move -- which is both costly and time-consuming. "How could you have a housing crash?" asks Ted Aronson, managing partner at Aronson Johnson Ortiz, a Philadelphia money manager. "We all just sell our houses and move into a trailer park?"
Houses are also much more expensive to sell. Mr. Greenspan says commission and other transaction costs approach 10% of the price of a home. By contrast, Mr. Aronson says big institutions typically incur transaction costs of 1% to 2% on their stock purchases.
The cost of moving is why homes change hands much less than stocks. Sales of new and existing homes in the U.S. in 2003 were equal to about 6% of total housing units in the U.S. By contrast, annual turnover on the New York Stock Exchange is about 100% of all shares outstanding. A home normally sits on the market for several weeks before selling; a stock usually sells in seconds.
Stocks also move as a single market more than houses do because they are subject to many of the same influences and often are bought and sold as part of a broad portfolio. Houses are more subject to local influences. Stocks can also be sold "short" by people who don't own them, or via derivatives. You can't bet on declining housing prices the same way. That means when houses appear overvalued, it's harder for contrarians to nudge them the other way.