-- Posted Sunday, 19 August 2007 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
“Phenomenally accurate forecasts”
Before we join the stampede to buy the Dow Industrials back up to 14000, let us consider what the stock market will be up against. Here’s a short list of impediments from David Rosenberg, Merrill’s Lynch’s chief U.S. economist:
“The American consumer, 70% of US GDP and 20% of global GDP, is losing its resilience. Auto sales have fallen for a record seven months in a row and slipped to a 9-year low of 15.2 million units (at an annual rate) in July and there is no sign of pickup in the first half of August. Consumer spending in real terms has stagnated over the February-July period, which is a stretch of weakness not seen since the double-dip of 2002. Chain store sales were flat sequentially last month and fully 62% of the retailing universe missed their already-lowered sales targets in July. While employment growth in the nonfarm payroll survey has indeed stayed positive, though moderating, the Household survey has actually flagged a stagnant labor market since February and this measure is far more reliable at turning points.”
Rosenberg says any Fed easing at this point will be pushing on a string, and we find that hard to refute. Think about it. In an economy that is 70% consumption, any Fed stimulus boils down to one goal: getting consumers to spend. But how, now that the “wealth effect” of soaring home prices has moved very sharply in the opposite direction? Indeed, if you are a typical homeowner, your property has lost about 7 percent of its values in the last twelve months alone. If the house appraised for $350,000 the last time you refinanced, that means it would currently fetch only $325,000 on the market. You would be “under water,” so to speak, and it would take a price rebound of nearly 8% just to bring you back to even.
We seriously doubt Joe Homeowner will be in a spending mood at that point, since he would not be feeling anything like a “wealth effect” – only a sense of relief, perhaps, from not having drowned financially. That is hardly cause to celebrate with the purchase of a big-ticket item, even in binge-besotted America. Actually, given the sobering – and for many, scary -- condition of the residential real estate market right now, we think it would take a swelling to something like $400,000+ to fully rekindle Joe’s lust for consumer goods that he could never quite afford to begin with.
The Dollar Problem
And that would entail pumping up the housing market, not with a rolling start as occurred when the country was emerging from the dot-com bust six years ago, home prices largely unaffected, but in the midst of today’s near-crash in real estate. Think of a weightlifter trying to heft 300 pounds above his head. If he can get the bar to his chin and then jerk it the rest of the way with one neat thrust, no problem. But let all that weight cause the strongman’s arms to buckle even slightly before they reach full extension, and the task becomes nearly impossible. That is exactly where the housing market is now: needing not merely a little easing to turn things around, but a credit stimulus more powerful, even, than the one applied post-9/11 – a stimulus that saw the Federal Funds rate fall from 6.5 percent to 1 percent in less than two years.
Problem is, the dollar was quite strong when this unusually bold spate of easing began. But the buck has depreciated by a third since, with a corresponding fall in the dollar index to a recent 80 from the post-9/11 high just above 120 (see chart). To begin easing aggressively now would risk sending the dollar into oblivion. Yet, nothing less than that will suffice to re-ignite a housing boom.
Investors appeared nonetheless to breathe a sigh of relief on word Friday that the Fed had lowered the rate it charges banks to borrow by 50 basis points. As a result, the Dow Average ended the week 500 points above its recent lows, returning to the plus column for the year. But we seriously doubt the euphoria will last for more than another day or two. Should the stupidity persist beyond that, we have no plans to fight the tape. But that doesn’t mean we’ll march with all the lemmings over the cliff.
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Online Seminar: Last Call
Six students are on board so far for the August 25-26 online Hidden Pivot Seminar, so if small class-size appeals to you, this will be an ideal session to attend. For the convenience in particular of participants from the U.K., the class will begin on both days at 4 p.m. London time (11 a.m. EDT), allowing students a leisurely Saturday and Sunday, as well as dinner on Saturday night at a fashionable hour.
If you've ever wanted to forecast stock and commodity prices as accurately as many gurus who do it for a living. this may be the best opportunity you will have to pursue that goal. To reserve a seat, simply click here, then on the “Upcoming” tab. Detailed information about the course itself and the Hidden Pivot Method can be obtained by clicking here. All who do so will also receive a free Hidden Pivot calculator.
Free to All Graduates
Incidentally, all seminar grads now have free access at all hours of the day to a recorded version of the seminar, as well as to the Q&A forums held in conjunction with each class. In addition, I am in the process of creating an advanced tutorial built around some especially difficult charts. It will be available to seminar grads for a nominal fee.
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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 © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Sunday, 19 August 2007 | Digg This Article | Source: GoldSeek.com
