<All over America, borrowers such as the Campbells are rushing to take advantage of the rising value of their homes. And the cash squeezed out of these refinancings has helped keep consumer spending increasing — by an annualized rate of 3.1% in the first five months of the year. >
Hello Jay. The wondrous balance of human desire keeps the economy zooming along. Alan pounded the stock market bubble. Then the mob got frightened instead of irrationally exuberant as they saw their net asset value plummeting. It's like herding sheep. The sheep-dog has to rush from one side to the other to keep them on track. So Alan has slashed interest rates, so that home 'owners' who don't really own their home, refinance at the new cheaper rates and start spending the difference [they can't take it with them so they want to do a spot of spending now]. That will keep the economy ticking along [although luxury goods such as new BMWs and first class trips to Hawaii will be forfeited in favour of cool new CDMA Webphones = there will be winners and losers selling to the newly-chastened rationally exuberant consumer boom].
House prices are going up! Soon, share prices will start going up too as people realize the cleanout is complete, irrational exuberance is but a memory and it's back to producing stuff which people want to buy from companies which are real companies with profit, or prospects of profit, and not just share certificate printing machines.
House prices and consumers have led the recovery because mortgagors and credit card holders are at the sharp end of interest rates. It takes a long time for interest rate cuts to filter through on ordering and building a new satellite constellation. But buying a home entertainment centre or cellphone takes a day.
Stockmarkets will stabilize and the slower-acting economic stuff will gradually pick up, then shares will start rising quickly. Alan Green$pan will declare the emergency over and he will rapidly raise interest rates back to moderate levels to avoid consumer buying mania and another round of irrational exuberance in stockmarkets.
But, the amount of new money printings and economic activity as China, India and others continue to seek material well-being, will mean the stock markets will continue lofting onwards and ever upwards to new all-time highs [but with dot.coms and JDS Uniphase types chastened]. That will happen without inflation and without irrational exuberance, as happened in the mid 1990s.
The initial turnaround should be quite rapid as people realize the end of the world has, as always, been avoided. But this time, they will be a bit more circumspect about catching the momo wave. I'll be happily surging along on an uncrowded wave, propelled by hordes of product-buying cash holders who have been heavily diluted and who lend me money at derisory rates compared with the returns available from the good companies in the new technological globalized world, such as Globalstar <g> - I will just have to be particular about choosing them in future :-[
Mqurice
PS: <With bullion dropping almost $3, the HUI Gold index sank almost 4% this week.> Time for an Aztec rain dance? |
