Yesterday the International Herald Tribune reported, “U.S. home owners and investors are ambivalent about 2007.” “ambivalent”?
Americans are in a selling mood.
Slowly selling, the Federal Reserve hopes, because as the air lets out of the housing bubble, the velocity of downward home prices is the difference between a hard landing for the US economy and a soft one, between a few subprime lenders failing like cracks in a pane of glass, or shattering—which would happen if the multi-trillion dollar market for collateral mortgage obligations were to buckle.
Of course, the Federal Reserve is praying for a soft landing. But when the stock market close yesterday threw ice water on what had been a very hot, 175 point start to the new trading year, the evidence pointed in another direction.
What spooked the sell off from yesterday’s triple digit gain? The published minutes of the December 12th meeting of the Federal Reserve.
AP writes of the Federal Reserve’s anxiety, “… the bleak assessment of the housing market unnerved investors who were betting that the sector’s problems wouldn’t necessarily spill over into other portions of the economy.”
“Wouldn’t necessarily spill over” sounds like a bad bet to us.
Miami has had the feeling of spilling over for some time now: too much speculation, too much bending over for special interests, too much public corruption, and too much bulldozing of the public interest.
If it sounds intangible—well, it is. But that’s what market psychology is all about and one reason that mainstream media is determined to be cheerleader for the largely irrelevant.
Take today’s Miami Herald front page story about a “greasy, dishonorable coward”. It is filled with indignation, “He has run away from a challenge. … a liar? A raging fraud?” Strong words from the Miami Herald, applied to who? A football coach.
That’s right: the mainstream media saves its righteous indignation for sports, not the fraud that affects our everyday lives, like the local county commissioner who takes free work from a powerful member of the Latin Builders Association and is given a free pass by the Ethics Commission.
No, the fraud that is at the heart of our economic life is never reported that way.
The behavior of the economy in relation to interest rates set by the Federal Reserve is part science, part alchemy, and part serendipity.
We think Goldilock’s luck has run out.
Planned subdivisions and cranes towering over Miami will be mothballed mid-stream 2007. Maybe the cranes can be shipped to China, but not speculators.
They are already crying ‘poor’ to local government for bail-outs, wondering what happened.
Here is what happened.
For various reasons the real value of the dollar has been bleeding into market psychology that is primed for the flu: a sense of Iraq, Afghanistan, an unstable balance of trade payments all mixed with a gaping federal deficit, rising competitors consuming more and more of the world’s commodities.
Yes, the stock markets have been strong and certain pockets of real estate, like New York City, are buoyant. But our economic immune system is worn down and distress has been brewing for a long time.
The Federal Reserve is pumping money into the banking system like a gusher, keeping the world awash in liquidity. Note its decision to stop publishing M3 money supply numbers.
So it is no surprise the real value of the dollar is falling and even if the American consumer / homeowner doesn’t follow currency exchange rates, he or she can feel the flu coming on.
The housing markets have been slumping despite low interest rates that should be acting like paddles to the chest of the housing sector.
There is no luck for the Federal Reserve in a moment when American consumers pop the housing bubble and foreign nations start diversifying portfolios from positions heavily over-weighted in dollar denominated debt.
This is the economic backdrop for local thievery that has gone on long enough in hothouse environments like Miami’s municipal and county governments.
Since the housing bubble was inflated by Alan Greenspan, it has been a non-stop fire sale of the public interest in south Florida, where bulldozers and special interest lobbyists have had the run of local legislatures, Ferraris proliferated, Crystal flowed and wetlands disappeared in a puff of fraudulent mitigation banking.
The wage inequity between the richest and the middle class is enormous and growing. In Miami a functional shantytown for the homeless has set fragile roots.
Umoja Village may just be a foretaste of what is to come. (http://takebacktheland.blogspot.com/ City and county leaders want to knock it down.)
If markets like Miami are a bellweather, the intangible part of market psychology is locked and loaded for bear.
It is also the backdrop for the special election in Miami Dade in 18 days, when citizens have a chance to redress grievances—from the inexcusable corruption of affordable housing, to the declining quality of life and massive traffic—all piled on by a majority of county commissioners who abandoned their responsibility to the taxpayer and public.
In Miami, voters will begin to restore that balance by approving the county-wide referendum for an executive mayor.
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