Posts Tagged ‘Bear Market Rally’
House prices have gone up! Does this mean a recovery in the housing market is in? Don’t jump in quite yet, dear reader.
The collapse of the housing market that started in 2006 has taken its toll on the U.S economy. Nationally, U.S. home prices are still down 31% from where they were in 2006. Home prices will need to go up almost 45% for home prices to get back to where they were six years ago.
Private equity firms are on a spree of buying foreclosure homes. A company backed by The Blackstone Group L.P. (NYSE/BX), Colony Capital LLC, owns about 3,600 homes facing foreclosure. (Source: Wall Street Journal, September 11, 2012.).
Blackstone and other private equity firms such as Och-Ziff Capital Management and Oaktree Capital Group LLC have raised more than $8.0 billion to buy houses negatively affected by the housing market crash.
These private equity firms are buying foreclosure homes, because they can easily rent them—notice I didn’t say sell them—and earn higher return compared to other investments.
For a healthy housing market recovery, there must be individuals buying houses and living in them, not investors buying to rent properties out. Money at private equity firms flows to places where it gets the highest return. Buying cheap, foreclosed homes and renting them at a return higher than the cost to buy home makes big sense for private equity firms.
The effects of the home buying spree: demand by investors for foreclosure homes in Phoenix and Los Angeles has driven up the prices of homes to a point where it is not feasible for private equity firms … Read More
The grim reality is that the U.S. economy will not be improving anytime soon. The statistics don’t lie—there is no economic growth, but there is growing evidence the U.S. is experiencing an economic slowdown.
One important indicator of economic growth includes the standard of living. As I have written recently, the American middle class is in jeopardy of disappearing, just like it has in most of Europe.
In June of this year, there were 46.7 million people in the U.S. on some form of food stamps. (Source: U.S. Department of Agriculture, August 30, 2012.) The number of people using food stamps has increased 3.3% over the course of the year. This means that almost 15% of the U.S. population is on food stamps!
Why are there so many Americans on food stamps? It’s simple. The unemployment rate is too high for economic growth to happen, food prices are going up, and millions of people can’t afford to pay their expenses. How can we experience economic growth when so many people can’t afford to fill the most basic needs?
Another reason for soaring food stamp usage: the majority of jobs created since the credit crisis hit are mainly in low-wage sectors—retail, food prep, laborers, freight workers, waiters and waitresses, office clerks, and customer service representatives. These jobs do not create economic growth; they just put food on the table.
There are still approximately 10 million jobs missing from the economy. (Source: NELP, August 31, 2012). What we are witnessing in the U.S. is a continued economic slowdown, as real economic growth would have resulted in across-the-board job creation.
While I … Read More
A fiscal policy implemented during President Bush’s period in office, which included cuts in taxes and increased government spending, is set to expire at the of this year. That means higher taxes, cuts in government spending, and a reduced budget deficit.
On the bright side, the Fiscal Cliff will cut $100 billion in government spending on the U.S. military and other government programs. These cuts would see the annual U.S. budget deficit fall from seven percent of U.S. gross domestic product (GDP) to four percent of GDP. (Source: Wall Street Journal, August 22, 2012).
It’s a perfect scenario, because it enables the U.S. government to finally lower its budget deficit. Unfortunately, in this case, it is actually bad news for the economy.
Yes, the budget deficit will be reduced, but on August 22, a Congressional Budget Office (CBO) analysis showed that the Fiscal Cliff will cause a recession in the upcoming year, causing GDP to contract by 2.9% and unemployment to rise up to 9.1%.
Issue at hand: if government spending is cut and taxes go up, it will lower the budget deficit, but also march the economy right back into recession as the budget deficit decreases. (That’s what many economists are now saying. This economist says we’re headed back to recession, Fiscal Cliff or no Fiscal Cliff.)
The U.S. economy is already facing this long laundry list: recessions in Europe; a slowing economy in China; high domestic unemployment; record high … Read More
In spite of weak corporate earnings within the S&P 500 list companies, the market continues to grind its way higher. However, this chart shows the S&P 500 could be forming what is referred to in technical analysis jargon as a “Triple Top Reversal Pattern.”
The below is a three-year chart of the S&P 500. Those blue circles to the right of the chart represent the rough equivalent high price points that the S&P 500 has reached since the beginning of the year; notice that the S&P 500 has reached this level three times.
According to technical analysis, a Triple Top Reversal forms over a period of three to six months. Any Triple Top Reversal that forms over a period of time greater than six months is said to be indicative of a major top.
Chart courtesy of www.StockCharts.com
As is evident by the above S&P 500 chart, this current Triple Top Reversal pattern has been forming for six months. In technical analysis terms, the other characteristics of a Triple Top Reversal pattern are that there must be a previous trend to reverse and overall average volume must be lower at the three tops.
From December 2011 to the first blue circle on the S&P 500 chart above, or March 2012, the S&P 500 has been in an uptrend or moving higher on a consistent basis. This satisfies the criteria of there being an uptrend to reverse, which means that if this Triple Top Reversal pattern plays out, a downtrend will follow.
The red line at the bottom of the chart running across the volume box indicates average volume. When volume … Read More
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