Thursday, May 7, 2009

Housing Bottom To Lead Recovery

Not withstanding the stranglehold being placed on the vehicles of economic growth coupled with the immoral spending creating massive deficits and the complete lack of respect for contract law, our economy is engaged in a rebound.

What led our economy down was the housing crisis, which culminated in the banks getting creamed with the derivatives gambling they were involved in, freezing credit and punishing housing values and stifling sales activity.

Markets correct themselves, regardless of what politician is claiming credit. Currently, even in the face of the implementation of economic policies that would make Milton Friedman cringe, evidence suggests a bottom is in.

The S&P seems to have bounced nicely off the bottom and has been in an uptrend for several weeks now. Any recovery in the economy will met with rising oil prices, and that is taking place.

The wildcard in the deck is the lagging indicator of jobs. The jobs report will be released in the morning, and indications from the ADP National Employment Report suggests that, although the loss of jobs will continue, likely for some months, the rate of job losses is declining significantly. In a chart gathered from Professor Mark Perry's A+ economic blog Carpe Diem, we see that unemployment claims seem to have peaked a few weeks back. In past recessions, this has proven to be a very sound and reliable indicator.

If we can see improvement in the job situation, we can turn to housing affordability, which is at historic highs evidenced by the chart from professor Perry. If it is given that the jobs losses have stabilized and will be improving, a significant change in the housing psychology can take place, tackling the existing inventory at a accelerated pace which will lead to a resumption of normal price appreciation.

The one, and only, governmental action that has helped housing thus far is the 8K credit for buyers who have never owned a home or those that have not within the prior three years. With prices way down, this is percentage wise a big deal.

I have always subscribed to the stock market being a leading indicator and telling us a story. Therefore, given the recent performance of the market, I am looking for a much better job number and a clear signal the worst is behind us. Then we can turn our attention to the nationalization of industries, higher taxes and regulatory influences that are heading our way thanks to the incompetence we unfortunately placed in policy making positions.

When is the next tea party ?

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