The Second Housing Bubble

“Demand is artificially high … and supply is artificially low.”
                                                                         Fitch Ratings

We’ve written frequently about the disconnect between the real world and the stock and bond markets. Now the housing market has drifted into its own false reality.

While Gluskin Scheff’s David Rosenberg has referred to the stock market’s recent climb as a “Potemkin rally,” what’s happening in housing is Potemkin in reverse.

Russian minister Grigory Potemkin created a fake village to impress Empress Catherine II during her visit to Crimea, giving us the term “Potemkin” to mean an illusion, reality propped up to look bigger and better than it really is.

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Financial Tsunami

In a recent post, we speculated about what would happen when quantitative easing finally ends.  This week we got a glimpse.

After Federal Reserve Chairman Ben S. Bernanke said that The Fed may cut the pace of its bond purchases, first U.S. Treasuries slid, then Japan’s bond market fell.  When Japanese markets opened, the bond futures market was halted on a circuit breaker as the bond market took a swan dive.  U.S. 10-year rates climbed to 2.07 percent, their highest level since March, while 10-year yields for Japanese bonds pushed up to 1% for the first time in a year.

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Key Indicators Negative Across The Board

The worst things get, the more they stay the same.

As the stock market continues to set records, the latest Philadelphia Fed Business Outlook Survey shows that the business outlook for manufacturing is weakening.  Of course, that could help continue to boost the market, since it gives The Fed an excuse to continue its quantitative easing.

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Forever Blowing Bubbles

“I’m forever blowing bubbles,
Pretty bubbles in the air
They fly so high, nearly reach the sky
And like my dreams they fade and die.”

                                     From “Forever Blowing Bubbles”

Bubbles are everywhere, according to Bill Gross, aka The Bond King.

According to Gross, there’s a bubble in Treasuries, a bubble in narrow credit spreads and a bubble in high-yield prices.  The stock market appears to be in a bubble, too.

The problem with bubbles is that we won’t know we’re in one until it pops.  And when it pops, it’s too late to do anything about it.  A bubble can cause all sorts of problems, as you may recall from the dot-com bubble in the ‘90s and the housing bubble in 2008.

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How Baby Boomers Can Benefit the Economy – Keep Working

If baby boomers decide to postpone their retirement, it may not solve all of the country’s economic problems, but it will help address most of them.

So it’s good news that a growing number of boomers are postponing retirement.  Today, almost 18% of people older than 65 are still working and the number is climbing.  In 1993, only 11% of people older than age 65 were still working, according to the Bureau of Labor Statistics.

Of course, many boomers will be forced to keep working, because they have not saved enough or because the performance of their retirement portfolio has not met their expectations.

Others, though, will keep working simply because they want to work.

So how will it help the economy if boomers keep working beyond 65?

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Blame It on Sequestration

President Obama and the Federal Aviation Administration blamed recent flight delays on sequestration.  Now the Federal Reserve Board’s Open Market Committee is blaming sequestration for the poor performance of the U.S. economy.

Both claims are equally frivolous.

As The Wall Street Journal noted, “The FAA’s all-hands furloughs managed to convert a less than 4% FAA budget cut into a 10% air-traffic control cut that would delay 40% of flights. The 6,700 flights that the FAA threatened to force off schedule every day is twice as many delays as the single worst travel day of 2012.”

With members of Congress among those affected by the flight delays, Congress acted with uncharacteristic quickness and approved a bill to revoke FAA’s politically motivated furloughs.

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