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A snorkel or an aqualung?
Seems like just yesterday that voices were saying that the Dow was going to 5 000. United States President Barack Obama's big rescue plan was too small, and internationally coordinated fiscal stimuli were too uncoordinated to be of any use.Then Citigroup said it had been profitable for the first two months of the year and hallelulah, the market raced upwards. There have been other, small signs that the worst may be in the past, notably the fact this week that new homes under construction in the United States increased for the first time after seven consecutive months of falling. Federal Bank chairperson Ben Bernanke, taking an uncharacteristically high profile, has also been saying that the recession will end this year and that the economy will begin to recover in 2010. He cautioned that there would be no recovery without first stabilising the financial system. "We're working on it. And I do think we will get it stabilised." But there is no shortage of analysts who say that stabilisation will be achieved only once housing prices in the United States have returned to their pre-bubble, long-term sustainable average. These analysts point to a study by Yale economist Robert Shiller, which tracks the inflation-adjusted value of US homes back to 1890. The recent housing boom saw prices increase by 83% since 1987. The meltdown has seen these prices fall by more than 25%, but they still need to fall a further 20% to reach the average price, which this market has sustained since the 1950s. Another way to think about the prospects of recovery is last week's US wealth data. Americans lost a collective $12.7-trillion last year. "This is the largest decline in US household asset values ever recorded over a 12-month period," says Stanlib's Kevin Lings. US household assets were still an impressive $65.7-trillion at the end of last year, he says, although he expects losses since then to be about $2-trillion. Lings says that US household debt amounted to $14.2-trillion at the end of 2008. This is mostly in home mortgages (74% of total) and consumer credit (18%). Posted by: Fred 2009-03-25 |
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