There may be no escape from the recession.
The latest reports on housing and manufacturing, according to investor Peter Boockvar, suggest it is quickly spreading to other parts of the economy.
“People are not being sensitive enough to this economic slowdown and what it’s going to do to companies’ revenues and profit margins,” the chief investment officer at Bleakley Advisory Group told CNBC’s “Fast Money” on Monday.
The National Association of Builders/Wells Fargo housing market index slipped into negative territory in August. This is the eighth consecutive month that builders’ confidence has fallen. In a press release, NAHB Chief Economist Robert Dietz said, “Tighter monetary policy by the Federal Reserve and persistently high construction costs have led to a housing recession.”
Boockvar predicted a housing collapse almost exactly a year ago on CNBC’s “Trading Nation.” He warned that the Federal Reserve was stoking another housing price bubble that will wipe out home equity.
A longtime Fed critic, he expects the central bank to make a serious mistake as it raises interest rates and tightens monetary policy to fight inflation.
“If you look at previous rate hike cycles, it was lower and lower levels of a Fed funds rate that started to break things down,” Boockvar said. “But each successive rate hike cycle ended before the previous one because something broke. So now we’re starting to get into dangerous territory where things are at risk of breaking.”
There was a second disappointing economic report on Monday. The New York Fed’s Empire State manufacturing survey for August fell 42 points. It was linked to a collapse in new orders and shipments. Boockvar called it an “ugly report” in a memo.
However, the main indexes started the week in the green. The Dow saw its fourth consecutive positive day. The S&P 500 and the tech-heavy Nasdaq closed higher for the third time in four sessions.
But Boockvar suggests the rally is on thin ice because it’s early in a slump. He lists three stages of a bear market and suggests that investors are in denial.
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“I can argue that we’re really starting … the second part where growth is slowing down and we’re starting to see the impact on earnings, particularly profit margins,” he said. “This has a way of going to work through door number two.”
But Boockvar believes investors can still make money. In this setting, he recommends value names over boost technology.
“Value will still outperform growth well,” said Boockvar, a CNBC contributor. “Growth stock valuations, even with these declines, remain quite expensive where there are still many forgotten value names that already have low expectations embedded.”
He also likes commodity stocks, including precious metals, natural gas and oil.
“I’m generally quite bullish on commodities, acknowledging the pullback due to demand-side concerns,” Boockvar said. “But [I’m] remains very bullish on supply challenges.”
On Monday, WTI crude fell nearly 3% to close at $89.41 a barrel, after hitting its lowest level since February 3 earlier in the day.
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