Will Housing Topple the U.S. Recovery

Will the housing market topple the U.S. recovery? That was the question Fast Money’s J.J. Kinahan had Wednesday morning after the Commerce Department said February housing starts saw their biggest drop in 27 years.

"It doesn’t bode well for the employment picture," said Kinahan, TD Ameritrade’s chief derivatives strategist. "New housing directly impacts construction employees."

New home construction dropped 22.5% in February, nearing a two-year low. The decline was far larger than average economist estimates.

The housing start data was particularly troubling given the devastation in Japan, Kinahan said. As Japan eventually rebuilds areas destroyed by last week’s 9.0 magnitude earthquake and subsequent tsunami, it will demand large amounts of lumber and steel – driving up prices for those commodities. Higher input costs would make constructing new homes more expensive, further pressuring homebuilders to delay or abandon projects.

Kinahan was doubtful that infrastructure spending, promised by the White House, would provide enough construction jobs to significantly offset the shortfall in new housing. Faced with their own budget difficulties, states are unlikely to have the money to fund large-scale construction projects, he said.

"Infrastructure jobs sound great in a stump speech, but the reality is – who is funding it? It is going to be tough to sell to people that you are spending money on rails and cutting back on education," said Kinahan.

Kinahan recommended traders look for ways to protect themselves against a U.S. double-dip. In the short-term, he was buying puts on the S&P Homebuilder ETF (XHB).

"I don’t think all the bad news is out there," said Kinahan

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Ref: http://www.cnbc.com/