Well today reading has me confused. First there was this from Fortune, claiming ‘It’s time to buy again’. The thrust of the article stating that housing starts are at 50 year lows in parts of the country, the housing supply is finally contracting, resale houses will soon become scarce and new home building will finally pick up again.
But, then Fortune also said this today: Unless Ben Bernanke sets off a big inflation wave, house prices are doomed to keep falling for years. Here’s a quote:
…that house prices over time tend to rise more or less in step with inflation. And while inflation fears are certainly rising right now, actual inflation as measured by the government remains quite low.
Hmmm… Doesn’t quite jibe with all the other inflation talk I’m hearing. Inflation is already happening, at least with non-housing, consumer goods.
And, even though the employment numbers that came out today were good (down to 8.8%), apparently that isn’t good, according to TIME. Here’s why:
So is this worrisome? Potentially, for two reasons. First of all, and this is a worry that people have had for some time, the amount of people out looking for work is a sign of how optimistic people are about the prospects of the economy, and their own prospects. Combine that with this week’s large drop in consumer confidence and that seems like a real worry. But there is a second newer fear raised by the fact that more people aren’t out looking for work: The Federal Reserve. If people don’t return to the workforce but companies continue to increase hiring that can cause inflation. The result may be that Ben Bernanke and the Fed would have to boost interest rates. And higher interest rates could slow the economy. Economy.com’s Mark Zandi on CNBC this morning said that the jobs report “calls into question when the Fed has to move on interest rates.”
And, there is this Fortune interview of global macro strategist Russell Napier who’s bearish on America.
Corporations are borrowing in the US, but not through the banking system. The banking system is reliant on households and small enterprises, and they aren’t borrowing. In fact, bank lending continues to decline. Banks are not expanding their balance sheets. The amount of money in America is not going up. So even though the headlines scream that the Fed is printing money, the money supply hasn’t risen. They’re creating fuel to create lots of money, but they haven’t actually created it. The stock market at these levels is looking for 3% real GDP growth and 1.5 to 2% inflation. I don’t think those forecasts are justified. The market is too excited.
… Yields on Treasuries will have to go up. Other countries don’t have to be selling to cause an issue, they just need to stop buying. And to find a new buyer, there’s going to need to be a higher yield. Foreign central banks bought about $800 billion in Treasuries last year. So consider that gap. Who’s going to step up? It’s going to have to be a domestic buyer in the U.S. What price do you need on Treasuries to lure people out of other asset classes? I think it will be significant. I think at least 100 basis points higher than now. And when that money shifts out of private sector assets — the corporate bond market or equity market — into public sector assets, there will be a deflationary adjustment.
If the switch happened tomorrow morning, the impact would be quite negative for economic growth. Things would get tight pretty quickly for the private sector. Basically, an anti-inflation drive abroad is deflationary for the U.S. It’s the opposite of what Paul Volcker did. He attacked U.S. inflation and bankrupted Mexico. When China finds a Volcker, it’s America that goes bust.
Yikes. But, don’t sweat it nothing much has really changed on Wall St. They’re still playing the same game. Heck, looks like Subprime Bonds are even making a comeback. Wow…
