A Corrected Market and Economy?  Incline Village Real Estate Values remain stable.  Tim Lampe, Lake Tahoe Realtor.

 

Economic Commentary ~

August 12, 2011

The primary meaning of Monday’s crash may prove to have been a vote of no confidence in several recent events, far more than it was a response to specific bad and/or unexpected news in the economy. The American debt ceiling legislation apparently inspired no one; to the contrary, it seems to have exacerbated the world’s worries about our fiscal condition.

 

At the same time, it appears that most global investors had lost confidence in the ability of American stock shares to continue climbing. A correction may have been overdue.

 

And the sovereign debt problems in Europe seem to have weighed heavily on investors’ peace of mind. Equally, there may be a growing sense that the leaders who should be solving the debt problems now worrying most of the world aren’t being as forthright with us as they should about the true condition of Greece, Portugal, Spain, and other nations and their banking systems.

 

Still, it is reasonably likely that global investors believe we can pull ourselves through the crises. We can find remarkable evidence for this belief in the fact that global investors turned heavily toward U.S. Treasury securities as the primary safe haven for their money on Monday. If investors believed our financial systems were breaking down or were beyond repair, they would have begun the big migration from Treasury securities that the gloom-and-doom economic analysts have been predicting.

 

The other bit of proof, if we read it correctly, is that the stock markets began to revive themselves on Tuesday. Whether this will continue, in the long term, is impossible to say as of this writing, but it underscores the resiliency of American stock markets. The course of a crash generally begins with a day of plunging stock market indices. (Again, recall the 1987 crash.) Fairly soon, investors who see bargains in the lower-priced stocks enter the fray and begin to buy. “Buy,” in other words, crowds out “sell,” and the market turns north again.

 

As of this moment, we can see little reason that stock markets won’t continue to recover, though it may be two-steps-forward-and-one-step-backward. Treasury security yields may rise in this process as well. We may soon be facing a “corrected” market—and economy. Federal Reserve Board Chairman Ben Bernanke rather adroitly promised to keep interest rates low—but promised little else. Perhaps the corrected economy will run better on its own batteries than the economy of the past few years. It’s a good and long-awaited possibility.

 

KEY INDICATORS
[08/09/11]

Gold
$1761.10/ounce [up!]

Crude Oil (Brent)
$102.02/brl [down]

U.S. Dollar to…
Euro   .7023 [down]
Japanese Yen   76.833 [down]
Chinese Yuan   6.431 [down slightly]
Canadian Dollar  .9944 [up]

6-mo Treasury Bill Yield  0.05%

10-yr Treasury Note Yield  2.29%
6-month down 7 bps
10-yr down 39 bps

11th Dist Cost of Funds  1.338% [down]

HSH average mortgage rates

    Index includes jumbo rates

30-yr Fixed-rate Mortgage  4.65%

15-yr Fixed-rate Mortgage  3.87%

1-yr ARM  3.49%  
30-yr down 15 bps
15-yr down 13 bps 
1-yr ARM up 3 bps

Freddie Mac weekly average rate
4.39% [down 16 bps]

Mortgage Bankers Association

Mortgage Applications Index
week ending  7/29

Overall

    Up 7.1%;
[Down 5.0% the week prior]

Purchase Money Loans
Up 5.1%;
[Down 3.8% the week prior]

Refinancing Loans
Up 7.8%;
[Down 5.5% the week prior]

Jobless Claims  7/30
400,000
[prior week 401,000]
4-week moving average 407,750

ISM Non-Manufacturing Index July

    From 53.3 to 52.7

 

Employment Report July

    117,000 Nonfarm payrolls – unemployment rate from 9.2% to 9.1%

 

Consumer Credit June

    Up $15.5 billion – non-revolving up $10.3 billion – revolving up $5.2 bill

 

 

COMING INDICATORS

Friday, August 12

    Retail Sales

 

Monday, August 15

    NAHB (National Assoc. of Home Builders) Housing Index