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Gary Mckae's Blog

By Gary Mckae | Agent in 94301

Economic Recovery, Risk Acceptance

 
 

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Economic Recovery, Risk Acceptance


 

Last issue I spoke of a possible top in the stock market.  I have had a chance to review my thoughts on this.  It appears that the Dow Jones, the S&P and the NASDAQ are all moving higher.  Higher in terms of gradual movements not dramatic movements.  While the equity prices are gradually increasing the Treasury Bond Market is declining and yields are moving up on the mid and to the long end. Gold is selling off, Banks are willing to purchase from the Federal Reseve the Toxic Loans of AIG and most importantly commodity prices are increasing. Investors are moving from risk adverse and saftefy of principal assets to risky assets.  This is a sign of confidence.  It is not natural for equity prices to go up when bond yields go up.  But in this case it is a sign that money is flowing back into risky assets.  Investors are selling the store of value assets, US Treasury Bonds and Gold and buying stocks!  Real Estate too as the Miami Condo Market has gone from Bust to Boom!

Commodity prices increased as producer inventories are depleted by increased demand.  Supplier inventories are depleted by produceer buying in expectation of greater consumer purchases.

Along with the commodity Price increases, corporations are issuing warnings that the next quarter earnings may not be as great as the prior quarters as they have to compete with rising costs.

The US Corn market got the sale it was looking for this past Tuesday.  The USDA reported private exporters sold 240,000 metric tons of US Corn for deliveries unknown.  Commodity Traders believe the “deliveries unknown” was China.  In addition to the “unknown” was that Chinese Feed Companies have signed contracts to import US Corn and many more International Feed Companies are considering the same.  China is expected to import 4 metric tons of US Corn this year up from 1 million metric tons last year.  Don’t expect weakness in grain prices; in fact, don’t expect weakness in commodity prices in general.  Do expect higher prices in ethanol, corn and corn products and those food products that are dependent on Corn; i.e., the meats,

Signs of strength abound as China has hiked minimum wages and the hike is rippling across Asia.  As companies move their prodiuction facilities from China to Malaysia and Thailand, wage demand and hikes follow.  

Continued show of strength can be seen in the stress tests recently held by the FED on US Banks.  US Banks are now stronger than European Banks.  With the strength in the Banks and the rise in interest rates, can available home mortgages and a loosening in their lending practices be close at hand?

As we move forward the strength in the economy can be seen in the Consurer Debt Strength.  Does the strength really mean Stress?

Payroll revisions came out on March 7th.  The revisions point  to a stronger job market.  

With the improving outlook the FED will remain on hold as the need for more quantative easing deminishes.  

The jobs report is most encoraging in the housing market. The states hardest hit by the Housing Collapse lead the US jobs recovery.

That recovery has encouraged the youngest of investors as a14-Year Old Florida Youth bought her first home for $12,000 with monthly income of $700 per month.

Wondring what to do with your IRA, tired of low money market returns, worried about the stock market risk, worried about lossing equity in your bonds as interest rates rise?  Well CNBC has the answer, “Buy Foreclosures With Your IRA”  This is not an old idea.  Back in the recession of the late 70’s indendent, “Self Trustee”,  IRA adminsistrators were the new growth industry as they held investments in real estae, gold and collectibles.  To help you, CNBC has given a list of administrators who will help you and some of the caution items to take care of when buying your first Foreclosure.

As China adjusts to new rulers and the economy adjusts to it growth.  Other countries will prosper.  China will see investors look elsewhere to invest and move their capital.  With the adjustment China’s lending is weak.  The London Financial Times recently had their Blog refer to this situation.  This all means that the US will continue to be the place to invest and eventually the US$ will become the currency of choice.  I don’t see that until 2013.  

As the world adjusts to democracy and the Arab Spring matures and continues to grow and other nations find themselves in transition, Why is This Happening?  TheEconomist has a great article on the change and from a historians perspective a very sensible and correct analysis.

The markets here are changing quickly.  Short sales are getting multiple offers, regualr sales are getting multiple offers.  People are over biding to get properties and to add to the stress inventories are at historic lows.  It is not unusual to see inventories 50% below last yea in various Silicon Valley communitiesr.  

Some notable sales occured in Atherton where a large estate on the market for 172 days recieved an all cash offer at full list of $18.9 million and closed in one day.  In Woodside a Glens property sold in 10 days; represented by an out of the area Chinese Agent and a Chinese buyer, I am told.  Palo Alto contimues to see multiple offers and buyers are scrambling to find proeprties in Menlo Park, but none appear.

Spring is upon us and Easter will soon see the typical rally in home proces.  If you are thinking of selling, get ready now.  If you are a buyer, beat the rush and have your qualifcation letter in hand or cash in hand.  It you are a buyer and see the right proeprty, BUY IT!  Don’t wait, prices are not gong to get any better and new homes will only see competion and multiple offers.

 

Friday, March 16, 2012


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