The end is in sight

happylux

Worrisome economic news abounds, but here are five hopeful signs

By Jennifer Openshaw

Last update: 7:47 p.m. EDT April 28, 2008

NEW YORK (MarketWatch) -- It sure isn't hard to find the bad news these days. Big debt write-downs, shrinking industrial production and home values, disappearing jobs, oil prices out of control. Is there any hope?

Maybe I'm an eternal optimist, but I like to accentuate the positive once in a while. Sure it's bad, and most of it is real. But if you landed from another planet and picked up a newspaper, you'd think we were having an economic calamity.

Starting with the bad

In case you've been touring that other planet, here's a quick rundown:

• Foreclosures are up 57% in March versus a year ago, with 50,000 new foreclosures during the month. Those who bit off too much during the boom are still hurting, and the recent LIBOR index rise will hurt some adjustable-rate mortgage borrowers again.
• Like it or not, national average home prices are back to 2003 levels. That makes everyone feel less wealthy and spend less. But at least it's not 1992 levels.
• Employment was a good news category last September. Unfortunately, it's not anymore, with 235,000 jobs lost this year and an unemployment rate back above 5%.
• Inflation is hitting closer to home, including food and energy, the basics. Of course, oil prices are responsible for a lot of it. But I'm starting to wonder whether financial demand is exceeding real demand. Are too many scared dollars heading into oil with no increase in supply? Is that fueling another bubble? We'll see. See related column.

Light at tunnel's end?

While the gloom-and-doom stories still carry the day, the good stuff is starting to get some attention in the news. Here are five I've seen recently:

1. Real estate close to bottom? It's hard to know for sure, but there are some hopeful signs. In February, the time needed to sell the inventory of homes at the current sales pace dropped to 9.6 months from January's 10.2. There's evidence the foreclosure market is starting to clear. Lower prices, yes, but many more sales, as I discovered last month in Lincoln, Calif. See related column.

There's evidence that other sellers are holding back while the forced sales proceed. In the stock market, that's usually a sign of returning balance. And the further decline of construction spending and building permits also foretells better supply balance, although it's still a tough time if you work in that industry.

2. Personal savings rate inches higher. It isn't much, but February's personal savings rate rose to 0.3% from January's 0.1%. That's still pretty small but especially in light of current credit problems, it shows consumers are erring on the side of prudence.

3. Dollar slide halted? For good reason, the dollar is one of the year's top financial stories. But a modest rise to 104 yen from 98 yen and relative calm against the euro may signal a bottom. And if the Fed stops or slows down interest rate cuts, that should give further stability and slow the relentless inflation wildfire.

4. China stock market correction. It isn't good if you're heavily invested in Chinese stocks, but the Shanghai Composite Index is down almost 50% since last October. That makes all markets less vulnerable to big sell-offs.

5. Credit markets settling down. Tax-exempt municipal bond interest rates actually exceeded 10-year Treasury rates more than once this year. Does a tax-exempt rate higher than a taxable one for pretty darned safe securities make sense? No, but it illustrated the underlying turmoil. Too much cash seeking the safe haven of Treasuries, too much risk premium on the municipals due to the failing bond insurance market. It's coming back to normal, and by the way, it was a great buying opportunity for the munis, too.

More rays of light

I'm watching a lot of other stories, too. The trade balance has been improving for the past year. Exports have been strong, providing jobs and sustenance for companies such as IBM and Caterpillar. But oil imports caused February figures to worsen slightly.

Corporate earnings woes seem to be largely limited to the financials and some retail sectors. We can all hope that corporate America starts to feel good about itself again.

Some overdue good news on the energy front would be huge. And I also think that by this summer we'll be seeing better news (finally!) on real estate.

Of course, nothing is guaranteed, and there's still a lot of economic darkness out there. The light at the end of the tunnel could still be a train. But when I see rays of light I tend to turn in their direction.

qiangge

thanks

maserati

This is the start, not the end. The author is clueless.