Things may not be as bad as they seem
Are we in a recession? I think so. But is it a bad recession?
Of course, if you've lost your job, are struggling to make ends meet or suffering in any way from a slowdown in business, the recession may be tough for you. But talk of a depression, which some have brought up lately, seems out of place. I just don't see it. Do you?
So if we are now in a recession, if we're experiencing a slowdown in business, this may be the worst of it. In spite of all the economists talking about the housing slowdown and the difficult credit markets, the future may not be all that dark.
One way of checking on the future is to look at th stock market. It's always been considered a "discounting" mechanism. It looks like it has already discounted any bad news coming in the next 6 to 18 months. And it has indeed been behaving rather well, after hitting lows in January. It's not continuing down. It's been rallying.
We aren't seeing great buying action, but then again we're not seeing a lot of selling pressure. So maybe the stock market is telling us that things don't look all that bad.
The housing downturn may also be sending out positive signals. Now, that's not to say that the housing downturn hasn't been dramatic. It's just that it may not be the end of the world.
I just read an interesting commentary by a hedge fund guy who explains that if we only look at the declining price of homes, we'll miss the declining monthly cost of owning a home. Since most people today buy homes with a mortgage, the monthly payment on the mortgage matters more than the actual price of the house. And on that basis, monthly costs have come down over the last 2 - 3 years. 30-year mortgage rates are lower. House prices are lover. Monthly payments have therefore come down to the point where they are now affordable.
If that's the case, then people will start buying houses again -- and soon. If they start buying houses, economic activity will pick up.
So things may not be so bad. The stock market's saying that the future is brighter. The housing market may soon be turning up, or at least stop going down. The end of the world will have to wait, yet again.
Of course, if you've lost your job, are struggling to make ends meet or suffering in any way from a slowdown in business, the recession may be tough for you. But talk of a depression, which some have brought up lately, seems out of place. I just don't see it. Do you?
So if we are now in a recession, if we're experiencing a slowdown in business, this may be the worst of it. In spite of all the economists talking about the housing slowdown and the difficult credit markets, the future may not be all that dark.
One way of checking on the future is to look at th stock market. It's always been considered a "discounting" mechanism. It looks like it has already discounted any bad news coming in the next 6 to 18 months. And it has indeed been behaving rather well, after hitting lows in January. It's not continuing down. It's been rallying.
We aren't seeing great buying action, but then again we're not seeing a lot of selling pressure. So maybe the stock market is telling us that things don't look all that bad.
The housing downturn may also be sending out positive signals. Now, that's not to say that the housing downturn hasn't been dramatic. It's just that it may not be the end of the world.
I just read an interesting commentary by a hedge fund guy who explains that if we only look at the declining price of homes, we'll miss the declining monthly cost of owning a home. Since most people today buy homes with a mortgage, the monthly payment on the mortgage matters more than the actual price of the house. And on that basis, monthly costs have come down over the last 2 - 3 years. 30-year mortgage rates are lower. House prices are lover. Monthly payments have therefore come down to the point where they are now affordable.
If that's the case, then people will start buying houses again -- and soon. If they start buying houses, economic activity will pick up.
So things may not be so bad. The stock market's saying that the future is brighter. The housing market may soon be turning up, or at least stop going down. The end of the world will have to wait, yet again.
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