In nature, some animals have very poor eyesight, such that they can hardly see anything that isn't moving. In the film Jurassic Park, as Sam O'Neill strategized how to avoid becoming lunch for a T-Rex, he aptly remarked, "stay still, he can't see us if we don't move." A similar dynamic can be observed in the investing world, afflicting both bulls and bears alike.
Investors are prone to add unnecessary significance to the latest piece of fast-moving market noise, while underestimating or missing large and slow-moving shifts that have huge impact.
The past week has been a good example. Cyprus, an economy with a GDP around half the size of Tulsa, Oklahoma's, is dominating the headlines and the minds of traders and retail investors. But, it would make a lot more sense to be talking about the recent and hugely important signals that the $20 trillion U.S. housing market has entered a sustainable upswing.
Of course, there have been valid reasons for concern about Cyprus; a proposed bail-in of depositors expecting to be covered by the 100,000 euro deposit guarantee scheme risked a wider public mistrust of bank deposits in the euro area. And in fairness, markets have been relatively well-behaved, with the euro stoxx down less than 2 percent last week. But a 37 percent jump in options prices underscores where the market's focus has been.
Now that it appears the bail-in will exempt those within the guarantee threshold, investors should take another look at the bigger picture.This means looking again at the single most important factor in the global economy, the U.S. consumer. And with 65 percent of these consumers owning homes, with equity worth close to $7 trillion, the performance of the US housing market is instrumental in determining their mood.
Last week, a raft of new data confirmed that the U.S. housing market is gaining momentum and is poised to become an important contributor to both labor market strength and broader economic growth.
Single family housing starts are up nearly 30 percent compared to February of last year. And building permits at a near-five year high suggest that starts should continue to grow strongly in the coming months. This growth in construction is backed by good sales figures too, as last week also showed existing homes sales rising for the twentieth consecutive month, to 4.98 million annualized in February.