Random Thoughts on the U.S. Economic “Recovery”

by Jerry Robinson | FTMDaily Editor-in-Chief

HOUSTON, June 1

U.S. Housing Market. I have spent the last several days with my head buried in U.S. real estate prices. While many of the economic reports about residential real estate are depressing, I am becoming somewhat more bullish on the housing sector in certain parts of the country. For example, I live in Texas. Right now, individuals and corporations alike are pouring into the state, thanks to its no income or corporate tax rates. And while many of these new residents are seeking to buy property, it appears the majority of them are choosing to adopt a "wait-and-see" mentality by renting. This is obviously driving up rent prices leaving housing prices stagnant. This situation is similar to what is happening all over the country. Many people are choosing to rent over buying. Meanwhile, mortgage interest rates are at 2011 lows. And as long as interest rates remain low — 30 year mortgages are currently at 4.55% while 15 year mortgages are at 3.77% — I don't expect a huge shift in this trend. However, when rates begin to increase — which they inevitably will — I expect many to begin piling in to housing. That's why now may be a great time to buy — ahead of the curve.

Stocks. Stocks are getting hammered today after U.S. companies added fewer employees than forecast in May. U.S. employment increased by only 38,000 jobs in May — which is the the lowest increase since September. These are very difficult days for equity investors. After all, the Federal Reserve's quantitative easing has completely distorted prices, and perceptions, in the financial markets. QE2 is set to end at the end of this month — on June 30. Right now, the Fed is viewed by many as Public Enemy #1. Therefore, I believe it will let investors see what life is like without the money pump. This will lead investors to begin begging for another round of QE. Honestly, which do American citizens care about more? A 20% drop in their 401(k) or a bigger increase in food prices. Most Americans would take the $4.00 bread over anymore hits to their retirement accounts. The Fed knows this and is waiting for their moment to spring QE3. Could be late in the year before its announced, or it could be sooner. But when it is announced, expect commodities and stocks alike to begin another major inflation-induced rally.

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In The News Today…

1. MARKET WATCH: The Dow Jones has tumbled 200 points in mid-day trading. Stocks skidded on Wednesday as more weak economic data cemented fears the U.S. recovery was running out of steam and prompted Wall Street firms to slash forecasts ahead of the closely watched payrolls report on Friday. Employment increased by 38,000 last month, the smallest increase since September, from a revised 177,000 in April, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 175,000 advance for May. Meanwhile, U.S. manufacturing growth is at its slowest since September 2009

2. QE3 IS ONE THE WAY: U.S. Treasury debt prices rallied Wednesday after weak data on jobs and factory activity drove fears that the economic recovery could be derailed, pushing the yield on the 10-year note below 3 percent for the first time in nearly six months. Its another sign that QE3 is coming…

3. HOUSING WATCH: U.S. single-family home prices dropped in March, dipping below their 2009 low, as the housing market remained bogged down by inventory and weak demand, a closely watched survey said Tuesday.

4. OIL WATCH: Oil dropped below $101 per barrel Wednesday on discouraging economic news, as U.S. manufacturing growth slowed and an industry group said private employers added the fewest jobs since September.

5. GOVT. MOTORS: The Obama administration said Wednesday that the government will lose about $14 billion in taxpayer funds from the bailout of the U.S. auto industry.

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Cartoon of the Day…

Until tomorrow, Jerry Robinson – FTMDaily.com

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Jerry Robinson is an economist, published author, columnist, international conference speaker, and the editor of the financial website, FTMDaily.com. In addition, Robinson hosts a weekly radio program entitled Follow the Money Weekly, an hour long radio show dedicated to deciphering the week's economic news.

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