Capitol Hill Blue Forums Political Issues Finance, the economy & Economics The Economy - Stuff to watch

I was watching CNBC at market close (what to do while on the stairmaster at the gym with my favorite music playing but watch that -- the alterntaive was some dumb sopa opera) and the talking heads were rapturous about the magical "recovery" of today's market. Once down by 343 it rebounded and ended almost even.

In speaking about Countrywide, some pointed out they have used their reserves now so what happens if the financial markets continue to restrict credit for a prolonged period.

I am certainly no economist, but it just seems to be common sense that until the people of this country pay down their personal and governmental debts and reign in buying everything on credit hoping for a rosy tomorrow this economy is in deep doo doo.

Home prices take a second-quarter plunge, reports show, and consumer confidence is also falling. Stocks close sharply lower.
By Annette Haddad, Los Angeles Times Staff Writer
1:29 PM PDT, August 28, 2007
U.S. consumer sentiment took its sharpest plunge in nearly two years in August, and home prices declined at their fastest pace in two decades in the second quarter, according to reports that show the housing slump starting to weigh on the economy.

The weak economic news triggered a sell-off on Wall Street, where the Dow Jones industrial average closed down 279.88 points, or more than 2%, to 13,042.25. The Nasdaq, S&P 500 and other major financial indexes also closed sharply lower.

Home prices dropped 3.2% in the second quarter compared to the same period last year, according to the S&P/Case-Schiller quarterly index, which tracks price trends among existing single-family homes in key U.S. markets. It was the worst decline in the 20 years since the index was inaugurated.

"The pullback in the U.S. residential real estate market is showing no signs of slowing down," said Robert Shiller, chief economist at MacroMarkets, a division of Standard & Poor's that compiles the index.

The ongoing pain in the housing sector — including higher monthly payments for some owners and declining home values for others — is persuading many Americans that buying a car is not a good idea right now, according to market research company CNW Marketing Research.

Recent polling by the company shows that nearly 18 percent of people in the market for a car or a truck are delaying their purchases because of home-related issues, up from 9 percent in 2006.

It looks like the media is finally doing some homework, and that they are beginning to understand what is happening in the economy. For some time now, I have been accusing the major media of hiding the truth about the markets, in order to satisfy big business. I've changed my mind, now, because it looks as if they really had no idea of how the markets work.

Here are some things that are happening, that you may expect to start seeing in the news.

Less talk about the subprime, and much more about the hedge funds and how they have been running under the radar. This means that a few more people may begin to understand the black box of derivatives, and how the lack of oversight has caused the entire market fall. The SEC as a cheerleader for business has now come to the fore, and to the credit of the Administration, they are refusing to bail out the big players.... The SEC had wanted to indemnify the hedge funds, and turnover the losses to the public... In effect Bush said he would not allow that. (Yeah, I know... I can't believe that myself.)

Recognition of the reality of inflation. From 2.3%, the real inflation is being recognized as about 7.5%. In fact, I believe that you may start hearing about 12% to 14% inflation... this year.
I believe that 15% to 20% may be reasonable by the end of 2008.

Remember the caution about the price of the Japanese YEN... The panic point was said to be $1.12... At that time, it looked to be well in the distance since the trade was at $1.22, and in fact looked to be going higher. In the past week or so, the trading has dropped to $1.16. While no one is talking about this right now, the Carry trade is in a wild panic. The effect of this potential problem on the Fed, could be catastrophic for US interests. Stay tuned, and watch the YEN.

Pension Funds... Notice that no one is even talking about this. That's because the people who run the Pension Funds don't know that they are paying for the current market drop. Fund values are only calculated at the end of the month, and unless the Fund Values reflect a mark to market, they may not know about the extent of their losses for several months. (Watch for Fund Directors' resignations).

The entire problem began with fast and easy trading of owed debt... (they call this "Credit")... The SEC was complicit with the big guys, and allowed the Black box Derivatives and Unlimited leverage... with NO oversight. Alan Greenspan was the Rasputin here. Credit him with keeping the balls up in the air for many many years, while the rich got richer, and the poor didn't know they would have to pay for it.

The bill for years of affluence is coming due. The guys who caused it are living in the Hamptons, on their yachts, or in Dubai.

Except for Americans who have already lost their jobs, the public is only now coming to the realization that their way of life may be seeing some changes. Jobs last, only as long as the companies who hire, are making money. With the current average rainy day savings standing at just over one month, trouble may be just over the horizon.

The nation's economy will be so sluggish well into next year that any major hiccup could tip it into recession, UCLA's latest economic forecast predicts.

The end of easy credit and a further decline in home construction are sending the economy into a "near-recession," with growth hovering at just above 1% through the first three months of 2008, according to the UCLA Anderson Forecast to be released today.

The forecast presents a gloomier outlook for jobs and the housing market. The nation's unemployment rate will rise to 5.2% by mid-2008, up from the current 4.6%.

And home values will fall 10% to 15% from their peaks, the forecast says, meaning that sliding prices have yet to hit bottom.

"The small recent minimal declines represent not the end, but rather the beginning of what will be a very painful decline," David Shulman, author of the forecast, said in the report, referring to home prices.

Still, UCLA's prognosticators say the economy should narrowly avoid a formal recession -- that is, two consecutive quarters of negative growth. But analysts indicated that with economic currents shifting rapidly, there's no guarantee of a clean getaway.

Since 2001 the dollar has lost more than half its value against the euro. It now costs nearly $1.40 to buy one euro. But the decline against its major rivals is just the most visible sign of the buck's loss of purchasing power.

In much of the world -- from Brazil to Poland to Thailand -- one dollar buys less than it did a year ago, and far less than it did four years ago. On Friday, the U.S. currency hit a 30-year low against its Canadian peer.

The trend of a falling dollar isn't news to Wall Street or to the ranks of economists. But it was a shock to Katie Ochoa, 20, when she visited a friend in the Provence region of France in May.