And the Beat Goes On

For the two of you who read it, I focused a good bit on my last post a month ago on two things - housing and the coming demise of the Bull market - so let me start where I left off.  On housing, we have now hit the lowest home ownership levels in 20 years:

http://www.latimes.com/business/la-fi-home-ownership-20150129-story.html

Now according to the linked article, steps are afoot to ease lending standards to help improve the numbers, like Fannie and Freddie allowing 3% down payment for mortgages. That sounds like a dandy plan to me.  Easy lending standards worked so well the last time around!

One might suggest that if folks cannot afford homes at a point presently when unemployment is low and interest rates are the lowest in my life time, perhaps, just perhaps, something else is just a tad off balance - like housing prices perhaps?  Oh, why didn't I think of that.

We have options here to improve the picture.  Option one, wait for wages to catch up to housing prices, which will require prices to stop climbing and wages to start climbing.  Given wage growth does not seem to be in the offing any time soon, it looks like - oh no, say it isn't so - real estate prices will not only have to stop climbing but may actually have to go down.  Obviously, this "improves" the picture if you are talking home ownership, but not so much if you are looking to build or sell.  Option two, we make a bunch of foolish moves, like 3% down payments, seeking to convince folks to buy homes they cannot afford and see how long that lasts before another bubble.  Of course option two will also eventually lead to a drop in home prices when the bubble pops, along with massive foreclosures, bank losses, credit being ruined, cats sleeping with dogs, and the like, but hey, people temporarily get to live in homes they cannot afford and realtors get to earn some commissions. Of these two options, any guesses on which is most likely? 

The second area I talked about last month was the stock market being somewhat long in the tooth (look it up) and ready for some correcting.  Not just because it is old, however, but because there is a fair amount of economic turmoil in the global economy (actually quite a bit) and the market was at levels that are not justified.  Indeed, the only real justification for the markets has been a lack of options.  You certainly are not going to make money in bonds or on your savings account.  Where else do you even have a chance to make money on relatively brainless investments? 

Well, the market just had a pretty nasty month and the second down month in a row, so that long tooth is wiggling a tad.  Two months does not make a trend per se, but aside from a few glimmers, like Apple profits, not a lot to stop this momentum at the moment.  Europe still doing poorly and Greece is showing us the growing discontent with the austerity efforts to date.  China to the rescue again?  Well, let's see what the Chinese leaders themselves think of their growth prospects this year versus last:

http://ftalphaville.ft.com/2015/01/30/2106222/chinas-new-normal-cut-out-and-keep-edition/?Authorised=false

As you can see in the table provided at FTAlphaville, all of the 31 provincial and municipal governments in China missed GDP targets in 2014 and have set reduced targets for 2015.  Based on provincial forecasts in 2014, nationally the expectation was for an increase of 9.2% GDP growth but reality came in at 8.5%.  And for 2015 the forecast is 8.0%.  Think about that a moment; the forecast for 2105 is actually lower than the reality in 2014.  Me thinks they see some writing on the walls in terms of the direction of things.  These percentages for China are not at all great.  Its average GDP growth from 1979 to 2010 was 9.91%, so 8% is poor projection and the projections are for this downward trend to continue for a few years to come, going below 7% by 2017.  As the second largest economy in the world, China's impact on the U.S. cannot be ignored.

I do have some good news.  We should be able to (legally) buy Cuban cigars in the not too distant future!  Maybe I will have to take up smoking cigars to have something to celebrate.