>> Market Update
QUOTE OF THE WEEK..."Every situation properly perceived, becomes an opportunity."--Helen Schucman
INFO THAT HITS US WHERE WE LIVE...Ms. Schucman was the Columbia University clinical psychologist who "scripted" A Course in Miracles. Many are hoping for a miracle to send the housing market into recovery, but Ms. Schucman says we only need to look at a situation properly to find an opportunity. A proper look at the housing market shows there's plenty of opportunity, in the form of unbelievable affordability, tremendous values and historic mortgage rates. These opportunities are there for those who take a long view and close their ears to the naysayers, who have been noisy of late.
Plenty of naysaying came after last Thursday's July Existing Homes Sales, down 3.5% to a 4.67 million annual rate. This was puzzling given recent strong Pending Home Sales (homes under contract). The National Association of Realtors said cancelled contracts were at higher levels the past two months, with buyers rattled over the debt debate. Yet Existing Home Sales are up 21% over a year ago. And Housing Starts are up 9.8% over a year ago, at 604,000 annually, although dipping 1.5% in July.
BUSINESS TIP OF THE WEEK...When you're striving to innovate, don't be afraid to fail. To innovate, you have to attempt things that haven't been done before, so you very well may fail on the way to creating something great.
>> Review of Last Week
TOUGH DAY AT THE OFFICE...Investors had a hard time making money last week as Wall Street was haunted by two specters--European debt and fears of a U.S. recession. French and German leaders met, but came up with no definitive solution to European banking problems, while Eurozone GDP was up just 0.2% in Q2. Investors worried about these conditions infecting our shores and sold off stocks, sending market indexes down for the fourth straight week. Pundits opined we may dip back into recession.
Stock market volatility might make people hold back spending, which could cause a recession. But the economic data shows clear evidence we're growing, albeit slowly. Industrial production was up better than expected in July, while capacity utilization climbed to 77.5%. Weekly chain store sales have been up 3.5%-4.5%. Rail car traffic is up year-over-year. Steel Production was up for the week. Core CPI consumer inflation is up only 1.8% year-over-year. Corporations are financially in very good shape. None of this shows the economy falling off a cliff.
For the week, the Dow ended down 4.0%, to 10818; the S&P 500 was down 4.7%, to 1124; and the Nasdaq was down 6.6%, to 2342.
Investors' flight to safety was more like a stampede into the bond market, pushing prices up. The FNMA 3.5% bond we're now tracking closed Friday at $101.14, up .09 for the week. Freddie Mac's survey showed national average rates on both fixed and adjustable rate mortgages hitting new record lows.
DID YOU KNOW?...This week's GDP Deflator measures the price changes of newly produced goods during Q2. Economists use it to account for inflation, so GDP can be compared to other time periods in constant dollars.
>> This Week’s Forecast
NEW HOME SALES, Q2 GDP, CONSUMER FEELINGS...Observers expect Tuesday's New Home Sales numbers to hold for July, coming in just a tad below June. Weekly Initial Unemployment Claims should show a sign of hope, with that number forecast a little lower.
Friday, all eyes will be on the second estimate of Q2 GDP. Economists predict slightly less growth than originally expected. Final Michigan Consumer Sentiment for August should be at a subdued level. No surprise there. Finally, everyone should listen to Chairman Bernanke's comments at the Fed's Jackson Hole Conference.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of Aug 22 – Aug 26
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months...As far as the Fed is concerned, rate hikes are off the table through the first half of 2013. Economists are taking this as a given for now. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
Probability of change from current policy:
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