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9/11/2008 Update: I am avoiding stocks and real estate investments at this time; more attractive prices may be down the road. Possible continued dollar strength and deflationary trend. Hyperinflation is still expected with all the bailouts and debt our country has; and this is the long term outlook. Additionally, when the fed finally takes action, they may overcompensate its reaction to adverse dollar resilience. The markets today are not in any way logical or make sense; no one can predict what will happen, no matter what their credentials. In this type on environment, it seems wise to stay uncommitted and readily liquid until the hyperinflation makes itself apparent. Consult your financial professional; not investment advice (see disclaimer below).
UCLA Anderson continues to report "no recession" (3.11.08). This gives the bears a moment of pause because the UCLA forecast often proves itself to be reliable. The report is also unbiased, and apparently not influenced by the 'for profit' financial media (See Article: True Market Analysis, or Self Interest). This forecast predicted the housing downturn, roughly 1.5 to 2 years before the actual bubble burst.
The US Dollar is tanking, and reaching historical lows; yet we are seeing hard assets, like stocks and real estate, depress. As a result, raw dollars can buy more real estate and more stocks. Some unconventional economists are speculating there is a deflationary (not inflationary) trend happening.
By opinion, the US Government has encouraged inflation since the 1940's to help pay down government debt's: It has sought to reduce its spending and borrowing costs by use of annual inflation. This tactic cannot work forever; the final bill has to come some time. With our 4 year re-election cycle, politicians culturally 'put off' this responsibility. It certainly seems like the Government has 'shorted' the US economy, by the actions of short term thinking politicians. A growing deficit, and 'shoveling' responsibility off to the next generation are what has resulted. This is similar to a consumers attitude toward credit card use and home equity: 'get now, pay later (or have someone else worry about it)'.
This explains why the FED is punishing savers by lowering interest rates, in what seems to be an inflationary trend. Savers don't benefit the banks. It also reinforces the counter intuitive argument regarding economics (See Article: The Counter Intuitive Market Force ): Asset deflation in an inflationary trend. It can be predicted that we will start seeing the term 'Deflation' in economic blogs, where before the term was unheard of.
How does this relate to local Housing? It doesn't help. Specifically, this does not help the banks and economies where the housing prices are being propped up; Where the local economies and working classes cannot afford homes. In some areas just outside California (like Las Vegas), prices are down and are more indicative of a true market, without 'blue sky retail'. These markets appear at least close to a rational bottom. But this does not mean a sudden recovery and massive appreciation for these markets; more likely flat and non liquid, with values holding because they simply cannot go lower.
Housing is in trouble because the banks can't lend with unacceptable risks, and there are far less qualified buyers now. More and more people are getting their credit rating tarnished, which means less borrowing revenue for the banks. In turn, as credit is destroyed, there are less dollars in play. With less liquidity, assets tend to deflate. The driver behind the last housing boom was inflated appraisals, agent puffing, cheap money, and Greenspan's 1% interest rates. Will the fed try that again, with the dollar currently hovering @ .64 to the euro? The FED is in a real bind.
The forecast also indicates, with reservation, that California is no worse off than the rest of the nation. However, one has to think there will not be salary increases to go along with high gas prices. So consumers are being hit by an inflationary trend of higher fuel costs, but the FED doesn't "count" this as inflation. California being a commuter state, that's less free spending money in consumers pockets.
UPDATE 4.19.08: I think the current stock market rally driving the DOW over 12,800 is for real. Kudos to the UCLA report. If you read on below for previous updates you can see my doubts raising on the report soon after its release, otherwise supporting it. International US companies are coming in with global earnings strength; tech is showing strength too. As the UCLA report said, we may skate the recession and the only trouble may be in financials. Here in California we still have major issues as a commuter state with gas prices, the lack of increased wages, and employment. This is an expensive state to live in, and I expect it to drag behind its neighbors like Nevada in recovering. More current comments on mid April 08 Here: Next for the Economy: The Greatest Bull Run in History?
UPDATE: 3.13.08 It appears I was right about the rally on 3.11.08. It was a bear market rally, and now we are hearing about larger than expected slowdowns in retail for Feb 08. Conflicting information to the UCLA report. There is reason to fear a recession again.
As sourced from the UCLA Report http://www.uclaforecast.com/ 3.11. 08 Press Release:
(Summary) Forecast director Edward Leamer believes that the U.S. economy is not in a recession, and that there is no recession to be feared in the immediate future, while . ... a normal economy returns in 2009. He also said there is a "tenuous aspect to the forecast". He says; "recession risk is rooted in the insolvency problems that lending institutions currently face....But until I see evidence of a decline in spending by consumers and businesses because of credit problems... I am going to believe that this is just another symptom of 'recession depression.' Main Street is doing well, even as Wall Street suffers."
We just got a headline 2 days later 3.13.08: Retail Sales plunge .6% where experts predicted a small .2% increase. Additionally, on 3.13.08, the latest Wall Street Journal economic-forecasting survey indicates most economists think the recession is here, now. What can be concluded? A wait and see attitude is certainly merited. Cessation of Q1 growth is being priced into assets; and we will need to dissect the accounting trends in the latter parts of March to determine the economic direction for the year.
What is interesting is that the UCLA report is in the minority in its 'no recession' forecast. If this viewpoint is correct, and the country successfully avoids recession, there is real opportunity to come in the following weeks and months in the stock market for long positions. We will be watching closely, and will update accordingly.
3.11.08 ANALYSIS: Stock Market up over 400 points. Stocks up on fed bailout. Does not address the base philosophical and structural problems in the credit markets. The basic fact is: as equity evaporates, loans and margins against that equity become worthless. The consequences are left only with the banks that made the loans, based on inflated appraisals. Those that borrowed become one less 'qualified' buyer as their credit becomes tarnished. Bank lending rates have not gone down, no more 'no doc' loans. Technology also expected to suffer with the reduction in online ad revenues. Consider all things tied to tech and financials as bearish. Add a dash of unpredictable presidential fiscal policy; and we have a long hot summer. Not much to like here investment wise until after we know if red or blue is running the country.
All articles written by The Sniper
© 2008 Realtech Partners, Inc. All Rights Reserved. Email
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**ARTICLES** Most recent listed last
. Q1-Feb 10 '08: - The Perfect Storm of American Economic Downfall Q2- '08: So what do we do now? . .. Q1-Feb 21 '08:- The Counter Intuitive Market Force: But Housing is the Exception Q2- '08: Analysis of CA Bank Earnings . ... Q1-Feb 21 '08:- The 5% Income Rule Q2- '08: Riverside-San Bernardino tops the list... . ... Q1-Feb 21 '08:- A Compelling Argument for Alternative Investments Q2-'08: Bank of America & Countrywide: A signal of a housing bottom? ... Q1-Feb 26 '08: True Market Analysis, or Self Interest? Q2 2008: Deflation with Inflation: No Recession, but Depression? . Q1- '08: No Recession, but Deflation? . 3.17.08: Next for the Economy: The Greatest Bull Run in History? Q2- '08: The Schizophrenic FED Gambit .. Q2- '08: Bearish on Housing, Bullish on Stocks
Realtech Partners, Inc. - © 2008. All Rights Reserved. Email
DISCLAIMER: Not associated with any city, county, civil entity, or government body. No warranties are stated or implied. Use at own risk. External web sites are not endorsed. Users agree to all terms. These articles merely reflect the opinions of this author and are by no means a guarantee of future economic conditions. Though the author strives to provide accurate and relevant data, he sometimes relies on external sources and cannot assure the reader of the accuracy contained within. Additionally, these articles are provided for information purposes only and are not meant to provide investment advice to anyone. Please consult with your professional financial planner for investment advice.
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