Friday, May 25, 2007

What Happened Yesterday!!

Did you see the news??

The stock market went down because new homes sales were up 14%!! What may you ask is going on??

Simple economics: uncertainty in the market makes investors skittish. The uncertainty yesterday was improved home sales = economy not slumping as bad as thought. Thus, The Fed(short for Board of Federal Reserve) will not lower short term interest rates which in turn reduces the cost of loans from the Fed to banks(yes, the banks borrow from the gov't to meet cash flow requirements to lend to you...making money on the "spread" between what they pay and what we pay).

As a result, the market thinks you and I will not get a reduction in the cost of our car loans, furniture loans and credit cards(or the like). In turn, we won't continue to spend and drive our consumer-based economy.

But wait until "The Market" hears today news: Yes, Sales were up but new home prices nationwide were down 11%(biggest ever according to Good Morning America). Will that make them think, oh they saved money on the house, so they will spend it on blenders and grills at Wal-mart or suits at Macy's. We will see how this plays.

So do you think all markets act the same? New York, Virginia, Texas and California all are down 11%? More on that later!!!!
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