AS THE WORLD TURNS

Many of the Economic Indicators have turned down including the Leading and Coincidence Indicators, indicating at best a slow down and at worst a recession. As the sub-prime mortgage market takes its lumps, and the Federal Reserve holds fast to not changing interest rates, the Stock Market takes it on the chin.

The Federal Reserve has a real problem-If they raise rates, that will certainly doom whats left of the housing market and trigger a recession, and if they decrease interest rates, the Dollar will drop against most currencies and we will suddenly be importing inflation. The risk of lower interest rates is not only inflation, but the chance that many holders of US Bonds denominated in Dollars (China, etc) will be inclined to sell US$ Bonds and go elsewhere (other currencies with higher yielding Bonds.) Thus do want a recession or do want inflation. In order to save the Kingdom, I believe the Fed will lower interest rates sooner than later, and take its chances with inflation.

The housing Economic Statistics have focused on units sold. However, the most important statistic in housing is the total units sold times the average sales price. The total sales for the year ended June 30, 2007, in dollars, of new Single Family Dweling units has dropped 26.03%, and existing homes 14.20%. Both these figures have posted hugh declines which in the past has been a lead indicator of recessions. For example, total sales posted large delines in: August 1966, February 1970. October 1973, December 1979, July 1981, August 1990. and June 2000. Subsequent to these delines a recession occured. We therefore are poised for another Recession if the Fed does not lower interest rates, and it might be too late.