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OK, so now its September, typically a down month in the market. The first day appears to be trying to live up to its historical performance. Is it a time to bailout again or is this the pull back you’ve been waiting for?
What do the economic signs say? Jeez, this is like reading tea leaves or tarot cards.
Housing is starting to stabilize. Automobile sales jumped up for the month propelled by the cash for clunkers program but is probably not sustainable. Unemployment is unlikely to show any signs of real progress. This will dampen spirits and cause the consumer to pull back even more. For me this remains a time to continue to play, defensively and keeping a sharp eye out for the opportunity for a great play.
I think the third quarter will be an anomaly showing some positive GDP growth but won’t be sustained because it was contrived or manufactured by the Cash for Clunkers program and the $8,000 first time home buyers tax credit. Absent these stimuli I think we are in for a lackluster fourth quarter. That said, I think we may see some real improvement develop slowly over the first and second quarter next year, with sustainable improvements leading to GDP growth in the 2-4% range. This will help unemployment some and will begin to change the attitude of consumers. As it builds on itself, GDP will grow at a 4-5% rate. If it begins to surpass this level the Fed will begin to remove liquidity to keep it at a sustainable rate. The unemployment rate will not likely return to the 5% level until 2012.
In the interim, housing prices will stabilize but not grow. New housing will remain at a disadvantage pricewise to re-sales. Once pricing makes new houses seem more affordable, commodities will again head skyward. New credit regulations will slow the growth of land development at least until existing lots in inventory are absorbed. My guess is 2013- 2014.
