Wednesday, March 26, 2008

Trouble comes in threes...

Yesterday was a busy day. Not only did reports focus on the record housing price decline and the precipitous drop in the consumer confidence index, but current trending of the value of the dollar indicates some very interesting economic conditions. Increasing numbers of economists are predicting that the economy has entered, or will soon enter, its first recession since 2001.

On the other hand ...

The Standard & Poor's 500 Index gained 0.2 percent yesterday as a rally in commodity producers helped offset the decline in consumer confidence. In addition, existing-home sales climbed for the first time in seven months during February as buyers took advantage of sharply falling prices. Home resales rose to a 5.03 million annual rate, a 2.9% increase from January's unrevised 4.89 million annual pace according to the National Association of Realtors.

While the rise in home sales is encouraging, given the weakness in other housing-related data and continued problems in the housing market, it is too soon to say that this sector is bottoming out.

It's also too soon to throw in the towel on the economy. Though weak, we are hardly in a state of collapse. Robert Samuelson provides yet another interesting commentary in this regard. He states "...most markets self-correct. As housing prices fall, more buyers come into the market; sales and construction revive. If inventories get too high, production slows and surpluses are sold; then production accelerates. If consumers or businesses are overindebted, they reduce spending to repay loans; spending speeds up when debt burdens drop.

In other words -- stay the course.

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