The Economy Guy

Issue: 8/30/07 Thursday

Today’s preview: See paragraph 6 below…” The worry is that the roller coaster ride in stocks and spreading credit problems will shake consumer and business confidence and cause cutbacks in spending and hiring plans.”

Today the market went up and down, and ended down 51 points. It was a battle between the optimists and the pessimists. Those that think the Fed will lower the Fed Funds rate and those that think we might be close to a recession.

Bankrupt home loan provider American Home Mortgage Investment Corp, said on Wednesday, a federal bankruptcy judge has authorized the auction by two affiliates of 5,700 mortgage loans with an unpaid principal balance of about $1.62 billion. The company said the auction would happen on the morning of September 11 at a Wilmington, Delaware law office.

I wonder what discounted price these will go for? This will be a real measure of what people think these junk mortgages are worth. It is very possible that someone will get a bargain.

The economy grew at its strongest pace in more than a year during the spring as solid improvements in international trade and business investment helped offset weakness in housing. The gross domestic product (GDP), the broadest measure of economic health, expanded at an annual rate of 4 percent in the April-June quarter, significantly higher than the 3.4 percent rate the government had initially estimated a month ago, the Commerce Department reported Thursday.

But the growth spurt could be short-lived. There are concerns that the recent turmoil in financial markets, a result of a spreading credit crisis, could seriously dampen economic activity in the second half of this year.

GDP growth may have slowed to just above 2 percent in the current quarter and many analysts believe growth will slow even further in the final three months of this year as the full impact of the recent market turmoil is felt. The worry is that the roller coaster ride in stocks and spreading credit problems will shake consumer and business confidence and cause cutbacks in spending and hiring plans. The 4 percent GDP revision was slightly below economists’ expectations for a 4.1 percent GDP gain in the second quarter.

So, did you catch that double talk?? Because the GDP was up 4%, the market was happy. However, economists expected it to be 4.1%. That kind of shows you that the herd doesn’t really care about the fact, but moves on the emotion. Herein ends the lesson.

The winner of the craziest condo market is Miami. Here’s a real life story of how it hits the buyers.

Natalie and her fiance made a bundle of money speculating on Miami condo’s in the “good ‘ol days”, only a year or two ago. Now the couple are spending restless nights wrestling with the question that looms like a guillotine: Should they walk away from the $117,000 deposit they plunked down on another investment condo in the ritzy Miami-Dade enclave of Bal Harbour? Or should they close on the one-bedroom unit, which is similar to others now on the market for less than the $585,000 they agreed to pay? “It’s painful and scary,” Natalie Luongo, 31, said. “We saw the frenzy, and we bought in. Now we’re paying the consequences.”

Just how many other speculators face the same dilemma in the nation’s most glutted condo market will become clear during the next two years. That is when 25,000 new condo units, most of them rising in or near Miami‘s downtown, will flood an area already saturated with 23,000 condos listed for sale. Miami, with its unmatched volume and untold number of speculative buyers, is ripe for the hardest fall in the U.S.

I have a great friend in the mortgage business (still in the mortgage business) who, when I asked him 2 years ago, said he is waiting to cash in on the Miami condo market. I asked him when. He said “When there is blood in the streets.” He certainly had great foresight. Also, the blood hasn’t hit the street yet, and it could be 2 year out.

Here are Today’s closing details:

DJ30 – 13,239 (down 0.4%).

10 year US Treasury Bond – 4.50% (Down .05) We finally hit 4.5%. I wonder how much lower it could go?

US Dollar – $1.3662/Euro. Slightly up for the Euro and other currencies.Gold closed at $674 per ounce. (Down $1)Oil Closed at $73.36 (Down .15)

Gasoline is $1.91