Tuesday, April 14, 2009
One day last week, the Dow Jones Industrial Average shot up 246 points. On CNBC, Jim Cramer punched the Sousa March button. NPR's "Marketplace" boomed, "We're in the Money."
Yeah! Happy days are here again. Right? And just when the Prozac started to kick in.
Or perhaps wrong. Look at the bigger picture. The Standard & Poor's 500-stock index has risen a swell 25 percent from the pits on March 9, but that still left it flattened 37 percent from a year ago. That the employment losses in March were "not worse than expected" was cause for optimism of the most pathetic kind. In any case, the bottom line remained dismal: Another 663,000 jobs had vanished.
March retail sales showed some bright spots -- toodle-de-doo -- but the bright spots were few. Or as a Wall Street Journal headline put the mixed message, "Retail Sales Slip, but Outlook Gains."
We're rats in a cage, the subject of a diabolical experiment in anxiety and uncertainty. One moment the man in the white coat shocks us with a prod. The next, a peanut-butter pellet comes flying through the bars. The objective is to learn how crazy people get when they can't make assumptions, when they can't plan.
Thus, they closely observe us as the economic reports cycle between good news and bad news.
For example, you worry that your company may go under and take your traditional defined-benefit pension plan with it. The good news is that the Pension Benefit Guaranty Corp. was created years ago to ensure that workers get their benefits (with some limitations) when their company pension fails. The bad news is that the PBGC may itself go under. The good news is that the taxpayers would surely bail out the federal agency, as it had Fannie Mae. The bad news is, hey, I'm a taxpayer.
What do the so-called experts say about the near future? They say it is bright. They say it's not bright.
Cramer insists that the tide is turning. JPMorgan Chase strategist Thomas J. Lee thinks stocks will hit a new low. White House economist Lawrence Summers expects that the economic "freefall" will soon end. Barron's Alan Abelson predicts "a disappointed market returning to its skittish ways."
President Obama sees "glimmers of hope." OK, where do those scintillas reside?
Housing, we are told. Some of the most ravaged real-estate markets are showing signs of life. Sales in Gulf Coast Florida, California's Inland Empire and the Las Vegas area rose 80 percent in February from the same month last year.
True, but. The reasons for this include several passing phenomena. First, prices had caved clear to China. (When eight of 10 homes for sale in Las Vegas are distressed properties, marked improvement is not hard to come by.) Second, the Federal Reserve has stomped mortgage rates to record lows. They won't stay there. And third, Washington is dangling an $8,000 tax credit before first-time homebuyers. That goes away on Dec. 1.
What happens if the people who've put off selling their homes suddenly rush into these wretched markets at the first sign of a scintilla? More supply and again lower prices. That's what Ian Shepherdson, economist at High Frequency Economics, expects. He expects an additional 20 percent drop in the Case-Shiller home price index.
The ongoing crisis in commercial real estate debt hasn't received as much attention as housing. Nor has bad corporate debt, another shoe that many economists see teetering.
So we sit forlornly in the cage, cheered up one minute, tormented by despair the next. Uh-oh. Here comes the big man in the white coat again. Prod or pellet?
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Views expressed in this column are those of the author, not those of Rasmussen Reports.
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