Improving Economy

Media such as TV, radio, magazines, and newspaper makes money by reporting bad news. We have dedicated news TV channels such as CNN, CNBC, MSNBC, and Fox News that makes more money when more people watch them and reporting bad news makes good money. Economic data such as unemployment data and housing starts are very disturbing. I think that we can correlate any speech on the economy from President Obama, Treasury Secretary Geitner, or Federal Reserve Chairman Bernanke with a drop in the stock market. Perhaps they should change topics to the Weather or Sports.

We actually had some good data that was not given much notice:
* January retail sales were unexpectedly positive
* January index of leading economic indicators was unexpectedly positive
* January home refinancing rate was higher than expected
* January home affordability index has improved making it possible for many people to become first time home owners.

Why would we have any positive news? Money is going into the economy from such things as people who are refinancing their mortgage saving money, Social Security recipients got a 5.8% pay increase, and lower gas prices.Recent actions by the government are very positive. The actions by the Federal Reserve to increase consumer credit is critical for large dollar purchases. All politics aside, the stimulus package is positive on almost all fronts and while the government officials on the federal level were giving it bad reviews almost all state and local government officials were thankful to have funds to meet commitments. We do need money for things like schools and unemployment benefits.

One major issue remains, underwater or negative equity mortgages on homes. Historically, homes appreciated at a 4-5% annual rate. So when home prices were run up at a much higher rate, in parts of the country, and then people were given a 2nd loan up to 125% of the home value it created a very speculative bubble. The average home price in these areas of the country has further to decline to get back to levels expected by projecting historic values. This is the very difficult issue to be solved by the Treasury Department and TARP. A method that was used in the 1980's, during the Savings and Loan debacle, the government took over some banks for a short time. I recently heard Bill Seidman, FDIC Chairman during this period, discuss this on CNBC. In essence, they were nationalized for a short time like is being debated now. The government did the difficult work of removing, repackaging, & repricing the toxic assets within bank. When a bank is taken over by the government, the investors lose money. The depositors are taken care of according to the FDIC rules. What this means is that investing in bank stocks, especially Bank of America and Citigroup, should be avoided until TARP actions are known.

Smile, enjoy your family and the important things of life. A steady diet of bad news, especially during meals, is bad for your health.