Did I actually express hope yesterday that the market would be less volatile this week? Yes, I think I did. Well, hope springs eternal, but reality has a way of always intervening. The reality is until we get the European and U.S. debt issues settled, or at least a credible plan to settle them, the market will keep expending lots of energy jumping up and down. Oh, but what about the global economic slowdown, you might say. Frankly, the economic slowdown worries me not, and I think the market feels the same way. The market understands that even if the global economy slows for a bit, it will rebound. Perhaps that rebound is already beginning …
Manufacturers in the U.S. churned out more cars, computers and furniture in July, easing concern that one of the mainstays of the recovery was giving way. The 0.9 percent increase in production at factories, mines, and utilities was almost twice the median forecast of economists surveyed and the biggest gain of the year.
The debt issues are several notches higher on the worry scale, and rightfully so. Perhaps, though, at least in Europe, an ambitious plan to bring the debt issue down a notch or two is underway. Today, Germany and France announced a “structure” to bring greater fiscal coordination between the 17 countries in the Eurozone, and they stated they will do whatever is necessary to protect the euro. One of the “offerings” from these two economic powerhouses is a financial-transaction tax to reduce debt for all the countries in the Eurozone. Imagine that. What a great idea. If only the U.S. could pull that off, the U.S. debt issue could be put to rest. But, as I wrote awhile back, our dodo-head politicians find serving their ideology preferable to rational thinking. Jumping back to the economic issues …
In the U.S., homebuilders are still stuck in their years-long slump. They broke ground on new homes at an annual pace of just 604,000 last month, according to the Commerce Department. That’s down from 613,000 in June. In 2005, before the housing bubble burst, housing starts were typically above 2 million.
The above is an example of why the economic issues are less of a worry for the market. On the surface, the news seems bad, but it is not. First, and I have discussed this before, less houses built means a shrinking housing inventory, especially as the foreclosure rate falls. This is exactly what has to happen for the real estate market to rebound. This is good news, really it is.
Second, the market understands that comparing the current pace of new homes to the rate in 2005 is ridiculous. In 2005, the housing bubble was in full inflation mode. At that time, way, way too many houses were coming on the market. The figure of 2 million homes built annually may have been good for the construction industry, but those houses were a disaster for the real estate market. Perhaps half that number is realistic for a healthy real estate market.
The market is still in volatile mode, although signs are fatigue might be setting in. If so, we should expect more jumping up and down, just not as high and just not as low.
Trade in the day – Invest in your life …
