Can you hear it? It is faint, but the beat is growing, and the sound coming our way could have a big impact on the market. Listen, the drumbeat for war is getting a bit louder, and if you have been listening to the republicans running for president, you most certainly have heard the beat.
The United States should deploy ships, step up covert activities, and sharpen its rhetoric to make more credible the threat of a U.S. military strike to stop Iran’s nuclear program, a bipartisan group said on Wednesday.
Words have power. As the U.S. election in November nears, and the possibility of a nearly global embargo on Iran’s oil increases, the word flow regarding Iran will increase, and the price of oil will rise. Given the Fed’s recent statement about its long-term inflation target (2%), and its statement that it will keep the Fed funds rate between zero and one percent through 2014 to accommodate this, one wonders how rapidly rising oil prices will play in this tidy scenario. If the rhetoric and/or the reality regarding Iran fires up to high degree, the 2014 frame will change quickly. But this is “down the road stuff,” just another hurdle for the market to leap when it comes time. Currently, the market hurdles are still Europe and the global economic picture …
Chinese Prime Minister Wen Jiabao said Beijing is considering greater involvement in the euro zone’s rescue funds – the temporary European Financial Stability Facility (EFSF) and the upcoming European Stability Mechanism (ESM).
Funny thing, words do have power, but talk is cheap. Unfortunately, talk is all anyone outside of Europe is willing to give until the political issues are settled, and the ECB announces its willingness to step up its participation in the healing process. Nevertheless, like effect of the words about Iran, China’s words about its willingness to contribute have an effect as well, only those words are helpful and contribute to a positive outcome.
Meanwhile, back here in the “good ol’ USA,” our housing issues still act like an anchor on the economy. The loss of wealth from dropping housing prices is a problem and the lack of construction in the housing industry (although necessary to reduce housing inventory) is also a problem, but the larger problem is the “locked up” dollars of those whose homes are under water. If those dollars are freed up, good things will happen to the U.S. economy. All well and good, you might say, as all the programs put forth so far have yielded precious little in this regard. The problem has been two-fold. First, there is little appetite for more tax dollars going to another bailout (imagine that, a bailout for the taxpayer) and second, the banks, have refused to participate because it would cost them money (think about this in a quiet room with padded walls). Well, it could be this is about to change …
In exchange for up to $25 billion, much in the form of cutting mortgage debt for distressed homeowners, the banks will resolve state and federal lawsuits about servicing misconduct and faulty foreclosures, and some lawsuits about how they made the loans. The mortgage settlement is part of a larger plan the Obama administration hopes will get relief to homebuyers and help boost the economy, as it introduced a $5-$10 billion package to help homeowners refinance.
We have heard the cheap talk, but, like words, money has power, and if the banks can eliminate losses much larger than $25 billion with a settlement, don’t ya think they will take the deal?
Trade in the day – Invest in your life …
