Now that Washington is past the fear of imminiet default we can retrun to the “normal” state of stalemate.
With the resulting delays of and cloudy readings from the economic indicators it will be some time before the Fed and the markets can take an accurate read on the true health and direction of the economy.
In the meantime, there are encouraging signals for the economy and housing.
The “taper” debate that was dominating the discussion up until the latest fiscal fiascal will soon reclaim the spotlight. The Fed’s close decision to leave its bond-buying program intact in September may seem less controversial as the economy feels the effects of the first government shutdown in 17 years.
Keith Wade, chief economist at London-based asset manager Schroders, boiled it down in a Thursday morning note: “From a market perspective the main impact is that the Fed will need longer to assess the state of the economy. Economic data has been delayed, distorted and depressed by the shutdown and it will not be until early next year that we can get a clear picture of the fourth quarter. The risk of another political stand off will also weigh on Federal Reserve deliberations. As a result we would not expect tapering to begin until March next year with the possibility it will be delayed until June to accompany a press conference from new chair Janet Yellen.”
Right now we are in the midst of the third-quarter earnings reporting season for the US corporations.
Many analysts are anticipation a tepid 3% y/y and investors remain confident in the market.
“Markets are willing to look across the valley of the shadow of default and see that the fundamental fabric of our great America remains intact. We are still the best place to be on this planet ? although sometimes we are the least worst,” wrote David Kotok, chairman of Cumberland Advisors, in a note to clients. “This is our system. We own it. We also own our complacency, because more folks will watch the baseball playoffs than will focus on shenanigans in Washington.”
While the economic status is difficult to accuratly read, some have metaphoriclly described the US economy as the cleanest dirty shirt in the laundry pile (referring to the words from Johnny Cash’s “Sunday Morning Coming Down”). The US is still the best house on the block.
What this all means to the housing market is unclear but we can be fairly certain that the Fed will hold rates down through mid-2014. That is good news for housing.