Stocks fell hard at the open and trickled lower sending all of the major averages back into the red for the year. Yesterday’s FOMC meeting announcement contained a number of surprises, the biggest of which was an acknowledgment from Fed Chair Ben Bernanke that the economic recovery was faltering. Not 10-days before he was telling everybody “don’t worry be happy”. He went on to state that interest rates weren’t going anywhere for a while and that deflation was reasserting itself. Another position seeing a reversal was the Fed’s recent proposal to begin reducing its massive balance sheet from the 2008 finance sector bailout. Now the Fed plans to use maturing bonds to purchase new ones. Failed Keynesian economic policy, ala Japan because the problem is too much debt, something that is obvious and has been for quite some time. Or to put it another way the Fed can flood the system with liquidity, but when no one wants to borrow the Fed is powerless. Interest rates are at a record low and despite generous tax credits home sales are also at a record low. Because people don’t care how low interest rates are when they are already choking on too much debt. Capital has to be either created through work or trade or someone has to borrow money to grease the wheels of the economy. None of which is occurring in sufficient quantity to grow the economy and the Fed’s various stimulus programs only papered over the reality temporarily, said reality is now coming back to the fore as stimulus recedes.
The June Trade Deficit jumped to 49.9 billion, surprising many and casting a pall over the already substantially revised lower 2nd quarter GDP figure as the trade data is all but guaranteed to push the final number below 1%. This represents the largest single month increase in the trade deficit in decades and the details of the report suggest a slowing of global economic growth.
Mortgage activity was effectively unchanged last week as per the latest report from the MBA as the 30-year contract rate remained at 4.6%. On the subject of the MBA they are out with a piece lambasting the morality and ethics of homeowners who “buy and bail” allowing the previous home to go into foreclosure after completing the transaction to purchase the new home before it ruins their credit. Something the MBA thinks should be illegal. Fair enough, except for one small problem. See the MBA purchased a shiny new office block in Washington DC during 2007 for 79 million, after losing their shirts on the deal they decided to walk away stiffing the lender for 37.3 million in the process. The hypocrisy leaves me speechless, further their CEO refuses to discuss if the MBA will make good on its obligations.
The latest report from the NAR shows existing home prices increasing 1.6% in the 2nd quarter form a year ago. Of the 5 regions the South and Northeast fell, the West led with a 2.5% gain. San Francisco shows a 25% increase from a year ago according to the NAR. Take the report for what its worth as the NAR, like stock analysts are an overly optimistic bunch.
Hi and welcome to The Profit Motive, I’m your host Caleb Lawrence. Once upon a time in America the media acted as the watchdog of the corporations and the state. In the modern era it’s all about ratings and profits, opinion has been substituted for news and frequently is presented as fact. 
