Mel's Blog

August 09 Market News #10

August 25th, 2009 8:59 AM by Mel Samick

There was a dearth of big economic news this past week, and that was sort of a good thing. The Existing Home Sales report showed that purchases in July rose 7.2 percent month-over-month to the highest level in two years. That was a big gain, and favorable news for the housing market. The dark cloud was that despite a large increase in the number of homes being sold, median prices fell 15 percent. This suggests that many of the sales were done on a distressed basis (such as foreclosures and short sales), and that many of the buyers were bargain hunters taking advantage of good deals coupled with low interest rates. Also, it's likely that a lot of them were first time buyers taking advantage of the $8,000 tax credit available as part of the government's economic stimulus package. The program ends December 1st, so that element of support for the real estate market will be going away in a couple of months.

Ben Bernanke and central bankers from around the world, as well as lots of esteemed economists and, of course, the media, descended on Jackson Hole, Wyoming for their annual summer get-together to have fun and discuss the economy. Bernanke's comments from his keynote speech on Friday were viewed as cautiously optimistic, but also didn't contain any suggestion that the Fed would need to raise rates anytime soon. That combination was music to the ears of the financial markets. It's like the doctor telling your Mom that you're well enough to go along on the family vacation, but not yet well enough to be back in school.

Bond prices were essentially unchanged for the week, though long term yields fell while short term yields rose, reflecting an overall easing of risk aversion. The equity markets rallied on the good news (or lack of news), with the S&P 500 up over 2 percent, and real estate investment trusts and foreign stocks up over 1 percent. We've seen a pretty consistent pattern in recent months that stocks, oil, and gold advance together, while bonds and the dollar fall (and vice versa during stock market retreats). That's actually the old-fashioned textbook pattern for stock and bond price movements, although there have been long stretches in recent decades where it hasn't held up.

Having gone through a recession and a financial markets crisis that were definitely way beyond the norm by contemporary standards, today's state of affairs feels like a much more normal late-recession, early-recovery scenario. People are asking the normal questions like, "Will we see a double dip?" and "When will inflation start to reappear?" and "How much longer will unemployment keep rising?" It's much better to be hearing those questions rather than questions like, "Will we be reduced to the barter system?" and "Is Communism the answer?" and "How much ammunition, canned food, and gold should I hoard in the basement to make it through the coming Armageddon?"

For the coming week, we have several interesting releases coming out. On Tuesday, the S&P/Case-Shiller home price indexes through June will be released. Market participants are hoping that June's home prices repeated their May performance, when prices actually managed to edge up slightly, a welcome relief from the past several years' norm of plummeting relentlessly. Also on Tuesday, we will see the Consumer Confidence Index, which is expected to show improvement. As indicators go, Consumer Confidence is one of the few that is fairly insightful as a leading indicator of future trends. On Thursday, we will see the updated revision to the second quarter GDP numbers. These are expected to be revised downward to show the economy shrinking at an annualized rate of 1.4 percent for the quarter, and that's par for the course when you're in a recession.

Finally, way out at the end of next week, it's worth noting that we will be seeing the August Employment Report. It is expected to show a net loss of 231,000 jobs and an uptick in unemployment to 9.5 percent. Although those numbers aren't wonderful, they would represent an improvement in the trend from prior months in the sense that things are getting worse more slowly. Employment is an indicator that lags other events in the economy, but it's near and dear to the hearts of most working Americans, because it's the one that affects our well being most directly



Information provided by Amtust Bank Capital Markets

Posted in:General
Posted by Mel Samick on August 25th, 2009 8:59 AM



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