Since summer 2005: sales down 42%

We know that the housing boom and consumer spending are inter-related. The growth in consumer spending has been closely tied to the rise in home prices. Last year consumers pulled an incredible $750 billion out of the value of their homes. But that's not happening this year.

Wall Street is worrying about whether the Fed is going to boost rates another .25% in August. I don't think it's going to happen. The reason I say that is that I believe that consumers are going to pull in their spending. Here's why -- the rising price of oil squeezes consumers. Today it costs anywhere from $50 to $100 to fill up your car's tank. In other words, the high price of oil and gasoline acts as a tax. On top of that, the central banks of the world are tightening -- so credit will become more difficult to come by. And last but not least, the housing market is running out of steam.

More about the fizzling housing bubble. Since the peak in the summer of 2005, home sales have declined by a shocking 40%, year-to-year. Housing stocks are down 25%, so far this year and down 42% from their 2005 peak. In the face of slowing sales, home inventories have increased to record highs. The time it takes to sell a home is lengthening, with buyers in many area not bidding at all, simply waiting for prices to decline further. In "red hot" San Diego, owners who bought condos to "flip" in many cases are under water and desperate to unload their wares. Some houses have been sitting for months, looking for buyers who will simply take the thing off their hands and hopefully let them break even.

With consumer spending tied so closely to housing and with housing in trouble, I'm of the opinion that the Fed is finished raising rates. If rates are to rise from here, it's the market that will do it, not the Fed. And with the yield curve now inverted, I doubt that the market is thinking in terms of another Fed rate boost. Suddenly, cash has again become an "asset class" to be respected.