The Market Calms Down - Bernanke Helps

The correction in yesterday's stock market is a reminder that markets don't move up forever in lockstep with low volatility and complacenty, and that some retrenchment is always necessary and healthy. After the settling out today it was a good wake up call that risk does exist, but also that long term fundamentals are in tact for sound U.S. economic growth.

Fed Chairman Says Markets Working Well - Associated Press - February 28,2007

Bernanke Says Markets Appear to Be Working Well With No Big Change in Economic Outlook

"WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that the administration and federal regulators are closely monitoring financial markets in the wake of the biggest sell-off in stock prices in more than five years but so far the markets appear to be "working well.".....

....In what might have been a reference to Greenspan, Bernanke testified at one point that there did not appear to be a "single trigger" to Tuesday's sharp sell-off, which saw the Dow Jones industrial average fall by 416.02 points.

Some analysts believe that Greenspan's comments over the weekend that there was a possibility of a recession by the end of the year along with a sharp drop in China's Shanghai stock market contributed to Tuesday's big drop on Wall Street, which saw the Dow Jones industrial average fall by 416.02 points.

But Bernanke let members of the House Budget Committee know that he didn't intend to assign blame.
"There didn't seem to be any single trigger of the market correction we saw yesterday," he said in response to a question. "I don't think it would be useful for me to try to parse the movement into the components associated with different pieces of news or pieces of information."

On Wall Street, investors seemed to take comfort from Bernanke's comments that there was no single trigger to the big selloff. At midday, the Dow Jones average was up 42 points after having been up by more than 100 points earlier in the session......

....He said there had been "no material change in our expectations for the U.S. economy since I last reported to Congress" when he delivered the Fed's latest economic outlook two weeks ago.

"We are looking for moderate growth in the U.S. economy going forward," Bernanke said. He said that if current corrections under way in housing and the amount of inventories being held by business stabilize in coming months, the economy should begin to rebound from its current slowdown by the end of the year....

Some key points in Bernake's testimony today. He stated that he didn't see the isolated subrime mortgage market issues spreading into a bigger problem , also there was a chance that if housing stabilizes the first half of the year (fedspeak for it's stabilizing - similar to what Alan Greenspan has said a number of times that housing has stabilized) that the U.S. economy could strenthen at mid year. He also reiterated that liquidity is not a problem in the credit markets, so that should put a lot of fears to rest about a credit run or anything resembling an S&L type situation.

Housing Turnaround and Consumer Confidence at 5 Year High

From the Associated Press
Sales of Existing Homes Jump in January

"WASHINGTON (AP) -- Sales of existing homes rose in January by the largest amount in two years, raising hopes that the worst of the severe slump in housing may be coming to an end. Median home prices, however, fell for a sixth straight month.

The National Association of Realtors reported Tuesday that sales of previously owned homes rose by 3 percent last month, the biggest one-month increase since a 3.3 percent advance in January 2005, a time when housing was roaring toward the peak of its five-year boom....."

And consumer confidence is up.....

In other economic news, the Conference Board, a private research group, said consumer confidence rose in February to its highest level in more than five years.........The New York-based Conference Board said its confidence index increased to 112.5 this month, a bigger than expected rise from a February reading of 110.2. The gain reflected increased optimism about jobs and business prospects. Link Here

Hit the Links on Saturday

Sick of all the bad news about our national and California economy portrayed by the mainstream television media? Here are some links that will cheer you up. Things are pretty good out there. Also note, fundamentals in the longer term always trump short term fear.


Januuary 2007 New Homes Sales in Sacramento Best since June 2005 Link Here

Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco, sees stabilization for housing and growth for economy Link Here

Small firms' job creation plans at near-record high
Link Here

Silicon Valley Rebounds, Led by Green Technology
Link Here

Bay Area job market surging
Link Here

Housing Market Heats Up Again in New York City
Link Here

Bay Area Luxury Housing Hot

In the $1 million-plus market: `plenty of buyers,' not enough houses

Bay Area luxury-home prices were up 1.5 percent in the fourth quarter of 2006 compared with a year earlier. However, they dropped 1.5 percent from the previous three months, according to a report released today by First Republic Bank.

According to the banks' Prestige Home Index, the average price of a luxury home was $2.92 million -- or, to put it simply, a lot more than most of us can afford. The banks' survey considers home prices in the Bay Area's ritzier communities, specifically: Alamo, Atherton, Belvedere, Danville, Healdsburg, Hillsborough, Lafayette, Los Altos, Los Gatos, Mill Valley, Moraga, Orinda, Palo Alto, Piedmont, Portola Valley, Ross, St. Helena, San Francisco, Saratoga, Sonoma, Tiburon and Woodside.

Luxury homes are defined as those with at least 3,000 square feet, three to six bedrooms, and three to six bathrooms. And if it's worth less than $1 million, it doesn't make the cut.

Just how is the market doing in that rarefied space? ``For anything under $5 million, buyers are chomping at the bit because there is so little inventory,'' Lea Ann Fleming of McGuire Real Estate in San Francisco said in a statement provided by the bank. ``There are plenty of buyers, but there just aren't enough houses.''
The bank's survey found similar trends in the Los Angeles and San Diego areas, with prices down in the fourth quarter from the previous three months, but up from a year ago.

For more real estate news, check out our Square Feet blog.

By Frank Michael Russell
Mercury News

So How is the Economy Doing?

Last Week we were treated to a bounty of economic numbers about the U.S. economy not too mention Bernanke's testimony in front of Congress. So what did we learn and which numbers were important?

Retail Sales - Came in lighter than the expected .4% at .3% for January, but December was revised up to 1.3% from 1%. Perhaps some sales were accelerated to December, but I wouldn't read too much into this number until we see a trend.

Core PPI - The Core number came in at the expected .2%. This is significant as it continues a decelerating trend that shows inflation is in check and gives the Fed room to relax.

Housing Starts - Housing starts came in really lite at just over 1.4 million in stark contrast to what the market expected at 1.6 million. Well this is great news to me. It demonstrates builders adjusting supply to current market conditions. As the current housing market is going through a "speculative supply correction", the quicker inventory goes down, the sooner the market will come into balance. So low starts are a good thing.

Industrial Production - Was negative at -.5% giving way to some slowing. This helps inflation, but continued decleration would not be welcome, especially since 4 out of the last 5 months have disappointed.

Capacity Utilization - For January was 81.2% less than the expected 81.7% and less than the previous month's 81.8%. Again, in my opinion this gives the Fed room to duck and cover with waning inflation pressures.

So what's the overall prognosis? Steady as she goes, with no alarm bells, a bit more slowing than expected, and enough to let the Fed get out of the way and watch for awhile, perhaps the reason the Dow Jones hit another all time high and the major indexes all moving up 1% for the week. And is inflation in check? Well the 10 year treasury rate backed down below 4.7% to finish the week at 4.69%.

Shrinking Deficit

Good news about the budget deficit courtesy of Larry Kudlow's blog......

REVENUE GUSHER

Compliments of our friend, Michael Darda, chief economist at MKM Partners

Treasury data for January released yesterday afternoon showed that tax receipts continue to roll in at a rapid rate, which has reduced the fiscal deficit to $191.9 billion or 1.4% of GDP, well below the 2.3% average since 1970. At the current pace, the budget could move back into balance as early as May 2008. ........

Read more at this Link here

Big Week of Economic Numbers Ahead

There is a lot of data about the U.S. economy coming to us this week. So far the data this young year has given us a stronger economy, more jobs, lower energy prices, and lower inflation than expected. Important figures to watch this week include:

Retail Sales
Core PPI
Housing Starts
Industrial Production
Capacity Utilization


It will be interesting to see this week as the numbers roll in if we continue the greatest story never told (to quote Larry Kudlow), the american economy.

Not to mention, Big Ben Bernanke will be on the hill this week testifying to Congress. Stay tuned for details and analysis....................................


Economic Calendar Link

DB

USA Today - 96% of Economists say Housing Bottoming This Year

Here is why you can't just read the attention grabbing headline. This from the USA Today "Most agree: Housing crunch isn't over yet". Well that sounds really awful, right? Not if you read the article. Excerpt below......................

"WASHINGTON — Housing is proving to be one of the biggest wild cards in the economy in 2007 as analysts are deeply divided about whether the worst in the downturn is over or there is much more pain to go.
Only 9% of economists say the housing decline ended in 2006, according to a USA TODAY survey of 55 economists taken Jan. 18-24. Another 42% said the downturn will end in the first half of the year, and 45% said housing will bottom out in the second half."

Well excuse me but let's look at what the economists are saying. More said that housing already bottomed in 2006 or will bottom in the first half of 2007 than won't. And the "down side" nearly all of the rest of the economists say it will bottom in the second half of 2007. So add it up 96% say bottom is near so as a would be home buyer better to buy at the bottom than the top. More excerpts below.

"Seeing things stabilize and hearing reports that housing is stabilizing is good for consumer confidence," he says.

The NAR's index of pending home sales, which is adjusted for seasonal variations, rose in December at the fastest pace since March 2004. The level of unsold homes on the market appeared to have peaked in July, the group says. "

Contributing: Barbara Hansen, Noelle Knox - USA Today - Feb 5, 2007