So much for what some traders were cheekily calling "the housing bubble redux." When rates on government paper started ramping up in the wake on hints of an end to quantitative easing, housing-related stocks bore more than their fair share of the equity smackdown. The SPDR S&P Homebuilders ETF (XHB) has lost 10% since mid-day Wednesday and is still groping for a bottom.
Simon Baker of Baker Ave Asset Management says the housing recovery is still in play. "The big question is, is housing still intact? And we very much believe it is," he says in the attached clip. The key is avoiding the still lofty homebuilders themselves and getting long some related names.
Baker likes MGIC Investment (MTG) a mortgage insurance provider to lenders. The notion is that higher risk borrowers aren't getting loans at the advertised rate in the recovery. If defaults are lower than the historic rate, a company like MTG keeps the premium.
Baker also thinks Wells Fargo (WFC) looks good. They have the benefit of a steepening yield curve, limited exposure to Europe or China and a decent dividend.
Rising rates are the one chilling caveat to his entire thesis. "If interest rates go up I think I'll be selling all my equities and coming to live with you," he threatens. Thankfully he doesn't expect that to happen. The lack of volatility in 2013 thus far has spoiled us.
Healthy markets are supposed to move lower occasionally; it's not cause to panic. He's looking for a bumpier ride but a higher market by year-end. The key for individuals will be staying long and not letting themselves get scared out of stocks by the nattering nabobs of negativity on their televisions.