-- Posted Tuesday, 20 February 2007 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Tuesday, February 20, 2007
“Phenomenally accurate forecasts”
Fed easing just ahead? If there were any doubts about it before, they should melt away with this latest piece of bad news from an already staggering real estate sector: “Sharp Drop in Housing Starts Adds / To Fear of Wider Economic Impact”. Just how sharp? In fact, construction plummeted in January to the lowest level in almost a decade, according to a Wall Street Journal report published over the weekend. New homes were down 14.3% from December and 37.8% from January 2006 levels.
The Journal is usually quick to add a disclaimer to such disquieting news, and so it did, reminding us that the building slowdown could conceivably reduce the inventory of unsold homes sufficiently to speed a recovery. Even so, the story’s emphasis was on the potential negatives, to wit: “The possibility of further deterioration in the sector this year remains a primary risk to economic growth – particularly if it is accompanied by rising loan defaults or a broad tightening of credit standards.”
Of course, the U.S. economy needs a tightening of credit standards about as much as a lung-cancer patient needs a year’s supply of Pall Malls. Helicopter Ben evidently agrees or he would not have touched off a mini-stampede on Wall Street last week with some unwontedly dovish comments on inflation. But don’t expect the Fed Chairman to elaborate on why inflation appears to be moderating, since just a tad more “moderating” of real estate prices than we’ve already experienced could push the U.S. economy into the deflationary maw it has been skirting since the tech-stock crash six years ago.
Psychological Blow
Even if Captain Whirlybird never again uses the word “deflation” in public, he surely understands that a credit implosion would prove far more lethal than whatever inflationary red herring he can conjure up to take everyone’s minds off our real problems. Easing is coming, and soon. When it does, we should not allow ourselves to get so caught up in CNBC happy-talk that we’ll be unable to judge for ourselves whether it is working – i.e., boosting asset values so that we can once again borrow wantonly against the equity in our homes.
Whether another round of Fed easing will suffice to kick housing-mania back into high gear seems highly dubious, given that the real estate boom has already suffered its worst psychological blow in a generation. In any event, it will take nothing less than a full-blown re-fi frenzy to move the economy, since it is now requiring upwards of $8 of fresh credit to generate a single dollar’s worth of GDP growth. I predict that administered rates will be down to 3.5 percent by summer, but don’t be surprised if housing prices – and the stock market – have barely budged.
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Helsinki Seminar
Helsinki!? I just wanted to see if you were paying attention. In fact, I’ve received numerous requests to offer a Hidden Pivot seminar in Boca Raton, Florida, though not in Finland, and will do so if there is sufficient interest. Please let me know if you would be seriously interested in attending a Florida class. The two-day session would be held sometime in the Spring of 2007. To get on my mailing list, drop me an e-mail, including your contact information. The cost would be $1,500 USD.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2006, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Tuesday, 20 February 2007 | Digg This Article | Source: GoldSeek.com
