Boockvar: Investors Need to Realize the Pandemic is Not Forever

Your Real Vision Daily Briefing for September 30, 2020

Ed Harrison and Peter Boockvar discusses “the pain trade,” the latest economic data, and banks as the ultimate value trap.

  • Housing prices are rising so aggressively that the market is at risk of offsetting the benefit of lower mortgage rates.
  • Everyone is all in on technology, but a vaccine could accelerate normal economic activity faster than people think and we could see a reversal of winners and losers.
  • Banks have been the ultimate value trap but they may be poised for a turnaround should the long-end of the yield curve tighten.

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The combination of the desire for more space, more affordability, and lower mortgage rates have created a strong housing market, Peter Boockvar told Real Vision during today’s Daily Briefing.

Boockvar said that the caveat is that aggressive price increases are accelerating so much that there’s a risk of offsetting the lower rates. He said the affordability issue will eventually slow the housing market, which is being driven largely by Millennial first-time homebuyers.

When pent-up demand from COVID is satisfied, pricing may start to slow the market. “You can’t sustain a healthy housing market if home prices are rising 5-10% a year even with low mortgage rates,” he said.

Boockvar went on to discuss the prospect of a vaccine and how good news on the drug front could affect markets. The reality of a vaccine, as well as more effective therapeutics, is coming closer to the forefront and we may be at the end of the worst, he said. He believes that investors need to think past the current trends and look longer term to decide where the opportunities will be.

Everyone is all in on technology because we’re working from home, but this pandemic is not forever, he said. We’ve already had the “we think it is forever trade” and those stocks have done well, but Boockvar said he thinks that good drug news in next couple of months could lead to outperformance from the losers and dramatic underperformance from the winners.

Boockvar believes inflation is coming our way, demand will be further elevated, and the commodity space will benefit. He predicted that the areas of the market that have been neglected—like commodities, value stocks, leisure and hospitality—stand to benefit the most and those who suffer will be companies like Zoom and other high flyers with huge valuations.

“The work from home trade will reverse itself,” he said. “There will still be trends embedded, but some parts of life will resume faster than people think. Be careful thinking that current trends will last forever.”

Boockvar concluded the interview with his thoughts about financials, which he called a massive value trap. The world’s central banks have killed their business model and killed the yield curve and profits are squeezed, he said. Banks need a steeper yield curve to offset that and if the long end tightens for the Fed with inflation and a vaccine, it will be a welcome respite for the financial sector.

“It would be a lifeline if banks had a yield curve again,” he said.

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