Those with the cash are sitting tight for now. The “attractive bargains” of this week should prove bigger, even more “attractive,” by waiting. As a consequence, prices continue to drop and the “fire sales” heat up. This is not necessarily a good thing because it is not our own citizenry who are in the best positions to buy, and the foreign $ugar daddies just aren’t interested in what “main street” America has to offer and needs to unload. This applies to those US investment equities held as well.
The housing bubble (passing its gas) has put a record number of properties on the sale block, in pre-foreclosure, and in foreclosure. Real estate values are being deflated big time – not so much in the Mid-West as in the West, the East, and the South where a run up in “paper appreciation” was far greater. This is a natural, but painful swing of the pendulum. For about a decade now, the family home was used as a household ATM providing a seemingly endless source of funds for re-stocking checkbooks and funding what amounted to a profligate shopping spree run amok on steroids.
Outstanding credit card balances grew in sync with the proliferation of home equity loans. Now... maxing out the “plastic money reserves” is the sole avenue to keep many households afloat.
The most recent employment figures were equally depressing. Payrolls fell by 63,000 in February following a decline of 22,000 in January. The percentage of unemployed workers also went down, but this is only a superficial anomaly. The number of unemployed didn’t truly decline; what we are seeing is those long term without jobs are being excluded from the stats because their benefits have expired. This is no surprise as roughly 60% of jobs’ growth had been due to the housing boom.
Friday, the markets retreated back to the levels of Oct. 2006 - eliminating any gains from the prior 17 months. The employment figures, housing negatives, and burdens of debt clearly took their toll on Wall Street. Pressure is now on the FED to cut interest rates by a half to three-quarters of a point at their March 18th meeting – IF they wait that long! This will not fix anything, but will cause an immediate drop in the relative value of the US dollar. Import costs (particularly for energy) will surge. I expect at least a 15% spike in the barrel price of crude and the pump price of fuels right out of the chute. OUCH!!!
I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.
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This story was published on March 10, 2008.