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Housing Is Still The Key to Recovery

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That means a really comprehensive program to sop up the inventory and get people into homes will take a massive, expensive effort along the lines of the Resolution Trust Corporation of the early 1990s. Perhaps you could perceive of the government issuing bonds that are bought by the Fed, and the money is used to help people buy homes at ultra-low rates.

That would be very expensive, but if you think about it, letting home prices deflate by another 30% would be even more expensive — even crippling.

The president has to deliver a proposal next week that is surprising, awesome, workable and which he pledges to put his whole body and soul into. He can do it. He’s capable.

Short of something credible along those lines, equity and credit markets are going to trade off and hard — and the August lows will be a distant memory in the rear-view mirror.

In the meantime, I am more hopeful of a recovery from the August crush than ever. We learned in mid-August that the Fed plans to keep interest rates at zero for two years at least. And last week, Federal Reserve board members seemed to be competing to appear even more dovish than that. Dennis Lockhart, head of the Federal Reserve Bank of Atlanta, said it was possible for the Fed to extend the low rate beyond two years if required, and that downside risks to the U.S. economy have risen. That followed the dovish comments from Fed biggies Evans and Kocherlakota earlier in the week.

Plus, business is just not that bad. I read a lot of press releases. (Sorry, I’m a business news geek, I can’t help it.) I noticed on Wednesday that the Obama administration is helping Northrop Grumman (NYSE:NOC) sell a Global Hawk system to South Korea. Officials told Reuters that the South Korea may buy four RQ-4 Global Hawk Block 30 drones, and if a deal is signed this year, they could be delivered in 2014. They added that Japan, Singapore, and Australia are interested in the system.

Meanwhile, Raytheon (NYSE:RTN) reported that it received more than $700 million in contracts from the Defense Department for a big box of missiles, including 234 Advanced Medium Range Air-to-Air Missile Air Intercept Missiles; four AIM-120D air vehicles instrumented; eight integrated test vehicles; 101 AIM-120D Captive Air Training Missiles , and logistics support for the Phalanx Close-In-Weapon Systems. This announcement involved sales to the governments of Australia, United Kingdom, New Zealand, Japan, Poland, and Bahrain, which will be issued separate delivery orders.

See, we still make some great stuff: unmanned surveillance planes, jet fighters and other war materiel is made-in-USA equipment that does not get its due on business pages, but it’s real and deals are getting done.

Everyone seems to be so bearish on September, and can recite reams of statistics about how horrible the month normally is. Can the market really tank when everyone expects it to? Yes. But it becomes incrementally less likely because expectations are low.

What would change my mind? Only if the ECRI Weekly Leading Index continues to fall off a cliff and Lakshman Achuthan declares that the WLI is forecasting a recession. Until then, we will remain in “worrisome but near-miss” country.

Let’s hope the data remains firm and that by the end of the year, the big divot in August turns out to be just a run-of-the-mill “recession scare” exacerbated by European sovereign debt — and not the start of a new bear market.


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