October 5th, 2009 4:35 PM by Mel Samick
Meanwhile, after a spirited rally from July through September, the stock markets in the U.S. also cooled and in tandem with the zeitgeist, headed southwards this past week. The three major indices lost around 2 percent in value. Reports of a weak job market, with unemployment touching 9.8 percent, raised concerns about the pace of recovery. It is reported that upward of a half a million people have given up looking for a job or have taken up part-time work. Economists refer to such people as underemployed. If the number of underemployed workers is included, the unemployment rate could be as high as 17 percent. Even with the hope of an optimistic annual 3 percent compounded economic growth, the Fed Chairman, Ben Bernanke, expects the unemployment rate to remain above 9 percent through the end of 2010.
On the positive side, the housing market is showing some signs of stability. For the 7th straight month, sales of existing homes have risen. The S&P Case-Shiller index -- which tracks home prices across 20 metropolitan regions in the U.S. -- has continued to rise for the third straight month. One hopes that the housing market has finally bottomed out and that it continues to stabilize and improve in the coming months.
Mortgage rates are also looking very attractive. The 30-year fixed mortgage rate averaged 4.94 percent this week, falling to a four-month low. The 15-year fixed rate at 4.36 percent is the lowest rate since Freddie Mac began tracking in 1991. First-time home-buyers should note that the $8,000 tax credit for buying a home is valid only until December 1, 2009, unless the government extends the subsidy. The hope is that buyers will clinch a good deal while the market remains extremely attractive.
It has been a year since the $700 billion TARP bailout package was announced. To date, $450 billion has been used to stabilize various sectors in the economy. Some economists feel that these efforts helped avoid a global economic collapse. However, on the flip side, this massive government spending has weakened the U.S. dollar and increased the debt envelope, which has ballooned decisively. Since March, the dollar has lost 14 percent of its value against a basket of seven currencies, raising concerns as to whether the dollar can maintain its status as the world's leading currency.
Despite all the above issues, Treasury Secretary Timothy Geithner indicated that the government is not yet ready to roll back stimulus plans. An exit strategy, requiring a careful and measured macro approach, would have to be contemplated in a phased manner, and only once "conditions stabilize and growth strengthens."
Gold, in particular, and precious metals in general have risen and gold prices crossed the threshold $1000 per ounce mark, notwithstanding the news that the IMF has decided to sell around 380 tons of the precious metal to bankroll their governmental lending programs. Base metals and commodities are also showing signs of recovery while oil is still moving sideways in a tight price band of $66 - $72 per barrel.
Information provided by AMtrust Bank Capital Markets