Just Precious

I think it is just precious that Bernanke can speak at some conference out in the Hole, reference that things are not going so swimmingly - at least not as swimmingly as he and the main-stream economist crowd had predicted - and that QE2 is in the offing. And the market bounces big time with no real positive news. Now reading between the lines there is a bit of dissent at the Fed on what to do and QE2 may not be in the cards as readily as Mr. Ben says, but what the hell, let's have a market rally on speculation that the Fed might do more easing, effective or not. Bartender, another round for my friends - and I think we need a cab for Ben as he has obviously had too much of his own rhetoric to understand reality.

And oh, what a difference a weekend can make. Ben gets to sober up, as do his friends, and all does not look so great in the sober light of day. At least that is what the markets suggested today. So what happened, what caused the drop today - nothing.

Seriously, nothing happened. Trillions of dollars in stimulus flushed and nothing much happened. Unemployment stays stubbornly high, housing still in a funk (with strong signs the borrow-it-forward stimulus approach does not work), folks are still paying off debt (very slowly), incomes are not increasing as much as hoped (for those who have jobs), and, well, folks are still in the doldrums facing the new reality. So nothing happens at a time when investors are desperately seeking something to hang their hat on, even if it is just Ben in the Hole speaking without actually saying anything.

Stupid is as Stupid Does

So HUD Secretary Donovan comes out and indicates they are going to do everything they can to help support the housing market. Calculated Risk does a nice analysis that I will not repeat.

http://www.calculatedriskblog.com/2010/08/lawler-hud-secretary-may-have-just-made.html

The point here is you do not suggest the possibility of another home buyer tax credit and expect that to help stabilize anything. First of all, the prior credit was a total disaster to the point where one major home builder in their recent results asked that the government stop doing things to try to help. Credits front load sales and now the prospect of more down the road could very well dampen sales while people wait and see. It is very hard to plan your business as a builder if the government keeps meddling in things.

Second, as noted, the credit did not work. You are just giving money to people who by and large would have bought anyway. Third, there ain't nothing wrong with renting. Renting has a certain freedom to it. Sure you are stuck for the term of the lease but after that you are free to walk, move across the country, live in a cave, whatever, without having to worry about selling the house. And you never have to worry about your house being under water as it is not your house. I can guarantee you there are millions of people out there wishing they had never bought and for whom the American Dream is their worst nightmare. I know people struggling to make payments on homes they cannot sell and it is a terrible situation. The dream for them would have been to rent and not buy. Fourth, there is already too much supply and that will take time to adjust. There is absolutely nothing the government can due to fix this other than to simply help those with homes they cannot afford get by. Promoting more sales is the wrong thing to do.

Immigrants - Good For Business?

A study by the Fed finds that immigrants do not take jobs from U.S. born workers and indeed serve to stimulate the economy and lift wages. This is obviously going to be highly controversial - especially in certain states like Arizona.

http://www.bloomberg.com/news/2010-08-30/immigrants-don-t-take-jobs-away-from-americans-fed-study-finds.html

Now if this study is true, we have an interesting situation; the U.S. just started using unmanned drones to help protect our borders so these illegal immigrants cannot come into the country and boost our economy. Yes, the government is actively protecting us from a better economy and, I might add, at great cost. Go figure.

http://www.reuters.com/article/idUSTRE67T5DK20100830

Disclosures: None