There may be no escape from the recession.
The latest housing and manufacturing reports, according to investor Peter Boockvar, suggest it is spreading rapidly to other parts of the economy.
“People aren’t sensitive enough to this economic downturn and what it’s going to mean for corporate earnings and profit margins,” the chief investment officer of the Bleakley Advisory Group told CNBC’s “Fast Money” on Monday.
The National Association of Home Builders/Wells Fargo housing market index fell into negative territory in August. This is the eighth month in a row that builder confidence has fallen. In a press release, NAHB Chief Economist Robert Dietz said, “The Federal Reserve’s monetary policy tightening and persistently high construction costs have caused a housing slump.”
Boockvar predicted a housing slump almost exactly a year ago on CNBC’s “Trading Nation.” He warned that the Federal Reserve was fueling another house price bubble that would wipe out home equity.
A longtime critic of the Fed, he expects the central bank to make a big mistake by raising interest rates and tightening monetary policy to fight inflation.
“If you look at previous rate hike cycles, it was the lower and lower levels of a fed funds rate that started to break things,” Boockvar said. “But each successive cycle of rate hikes ended before the last because something broke. So now we’re starting to get into dangerous territory where things are in danger of breaking.”
There was a discouraging second economic report on Monday. The New York Fed’s Empire State Manufacturing Survey for August fell 42 points. It was linked to a slump in new orders and shipments. Boockvar called it an “ugly report” in a note.
Still, the major indices started the week in the green. The Dow had 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 as it is at the start of a downturn. He lists three stages of a bear market and suggests investors are in denial.
“I can say we’re just getting started…the second part where growth is slowing down and we’re starting to see the impact on earnings, especially profit margins,” he said. “It has a way to get to work through door number two.”
But Boockvar thinks investors can still make money. In this environment, he recommends value names rather than dynamic technologies.
“Value is still going to outpace growth well,” said Boockvar, a CNBC contributor. “Growth stock valuations, even with these declines, are still quite expensive where there are still plenty of overlooked value names that already have low expectations embedded in them.”
He also likes commodity stocks, including precious metals, natural gas and oil.
“I’m still quite bullish on commodities in general, acknowledging the pullback due to demand concerns,” Boockvar said. “But [I’m] still very optimistic about the challenges on the supply side.”
On Monday, WTI crude fell nearly 3% to close at $89.41 a barrel – after hitting its lowest level since Feb. 3 earlier in the day.