Since the announcement of QE3 stimulus lat week, the markets have remained mostly level. We can surmise two thoughts from this; first is that the markets rallied in anticipation of the program which was expected, and second what now? If that is all we got from the announcement, where will the program take us? What happens when we continue to see weak and weakening economic data? Will QE have officially failed at that point?
We need jobs to get this economy to recover and the question remains how will purchasing mortgage backed bonds to push rates lower than they already are, create jobs? Our economy is already saturated with debt and the baby boomers have begun a natural progression of paying down debt and saving for retirement. All the cheap money in the world is not going to entice these people to borrow more. So what else you got Uncle Ben? The upcoming start to earning season should help to discern which way this market is going to go.
Manufacturing measures both domestically and around the world are contracting. Jobless claims remain elevated at 382,000, Expect layoffs to accelerate later this fall and corporate earnings to disappoint.
Housing starts are up 29% year over year and existing home sales are up 10% year over year. While these numbers suggest that the housing market is stabilizing, others believe it is bottom bouncing. These numbers seem high however it is important to remember these bounces are from very low levels. Large institutions are starting to buy up foreclosures and getting into the rental business which if it works will help to avoid another leg down in housing. We'll just have to wait and see on this one.
In what is not a good sign for the middle class, median household income falls to $50,200 which is the level from the mid-90's, nearly 20 years ago. This is a sign of the times; falling incomes with higher prices. And while incomes fall, the debt payments typically do not. No wonder the consumption demand isn't as strong as the Fed hoped with their artificially low rates.