Is the recession near the end? Is the American economy on its way to recovery? The answer is probably yes. That's good news, right? Not so fast, say some economic analysts. And they mean, literally, that the stock market may be rebounding a little too quickly.

According to a recent report at Yahoo Finance, the stock market's rally in recent months is a bit of a mixed blessing. The hope that the economy is on the rebound "has lifted the Standard & Poor's 500 index, a benchmark for many investments like mutual funds, an enormous 39 percent from a 12-year low on March 9. Those kinds of gains might normally take four years to materialize."

Both being too quick to call it a recovery and not cautious enough in investing could cause this budding economic upturn to wither on the vine. The numbers remain mixed, with the number of job losses in the month of May are down, but unemployment is up. While the government's report of 345,000 jobs lost is the lowest since September, the actual unemployment rate is 9.4 percent. This indicates that although less people are being laid off, it is still very tough to find a job out there. In fact, the overall number of job seekers rose as college graduates flood the job markets.

Even Federal Reserve Chairman Ben Bernanke has said, even once the economy begins to recover, jobs will be the last sector to rebound. But there are still other troubling signs out there. Recent Commerce Department data shows that May retail sales were mixed, but in general analysts were surprised that more shoppers hadn't returned to stores. Wall Street may be throwing caution to wind, but Main Street seems to be holding onto their cash, with the savings rate up again last month.

One of the biggest downfalls of overzealous investing is that investors are helping push interest rates higher. According to Yahoo, investors have been selling off Treasury bills because they feel they are no longer in need of the safety of government debt. This causes mortgage rates and other kinds of loans for consumers to rise. Interest rates are still historically low, but they have been creeping up in the last few weeks. As the interest rates goes up, borrowing is falling off. The Federal Reserve reported last week that consumer borrowing in April fell by twice as much as analysts had been expecting.

The latest results of the AP's Economic Stress Index, which tracks the economic strains in 3100 counties across the country, show that many areas of the country are struggling more than they were a year ago.
"The AP calculates a score from 1 to 100 based on each county's rate of unemployment, foreclosure and bankruptcy, with lower numbers indicating less economic pain. The average Stress score dipped to 9.7 in April, from 10.3 in March. In April 2008, the national average was 5.9."

So while most indications show improvement in the economy in the first part of 2009, a slow, steady recovery is more likely to help this nation that has been stressed in so many ways over the last year and a half. After all, exuberant investing is what got us into this mess in the first place.


Ki lives and works in Austin and has worked in the Austin real estate market for 10 years. He maintains a search of Austin MLS on his website. It also has general information on Austin real estate and current mortgage rates

All investments depend on making returns, which in turn are affected by macro cycles such as the Great Depression or the dot-com boom. When a market is receding, it makes more sense for long-term, stability-seeking investors to look elsewhere upon first glance. However, in the case of the housing market of many parts of the US, the likelihood of long-term housing depression are still relatively slim. Furthermore, other factors will continue to influence the stability of housing pricing in the short term.

Likely investors in most areas will be able to get great values for some time, but housing prices have statistically increased on a per-capita level for the vast majority of the past century. Even with the 30% decrease in home prices during the years of 1930-33, economic stimulus eventually prevailed. The Depression was also the primary topic of a young Ben Bernanke who, before his current position as head of the Federal Reserve, wrote a 350-page report on how the US' largest recession was due to the blunders of the then newly-created institution. Bernanke has also taken more unprecedented steps to help preserve large investment banks than homeownership, citing a housing bubble which needs a necessary (though unfortunate) correction.

As foreclosure rates continue to increase, many properties are being revalued at less than the price they were purchased at. However, this is only half the story. America's losses are oft distributed unequally. And while the Midwest generally experiencing the worst effects of past recessions, this time may be a little different. Across middle America, home prices have depressed for seven straight months, but several previously hot markets have deteriorated below pre-bubble prices. Southern California and Arizona are two examples that stand out, particularly in terms of how rapidly falling home values have affected previously booming areas.

Now consumers are hit with two difficulties which make housing slumps particularly viscous: rising mortgage payments and loss of home equity, which has restricted lines of credit for homeowners. Furthermore, the advantages of America's size are diminished in a housing slump because homeowners are unable to migrate to other areas. Historically, there have been many such exoduses from economically depressed areas in search of higher wages, but homeowners are increasingly unable to do so unless they sell their homes at a loss.

This stagnation also means that markets with rising values will continue to attract investment, while government intervention may be necessary to lift more blighted areas. The Northwest continues to experience positive property values, despite the prospects oflooming layoffs from troubled financial firms. Texas continues to experience exceptional developmental growth, and relatively stable house prices in his area likely contributed to the Dallas Fed's dissenting vote against the recent record Federal Funds Rate cut. In central Texas, development has continued relatively unabated, in contrast with other areas where property values have dropped more considerably. This reasoning indicates that these markets are likely to accelerate growth as the larger economy recovers from the sub-prime crisis, and will probably be more valuable in the mid-term by comparison to more depressed areas.

Either way, the US recession is not likely to remain too deep, thanks to the generous monetary policy of the Fed. Should current inflationary pressures continue their current trends, home prices will necessarily rebound, although not quickly enough to facilitate speculative short sells. Therefore, for those looking for the long haul, deals are out there.

Ki operates as a realtor working in the Austin Texas real estate market. He writes a blog covering Austin real estate as well as providing a free search of the Austin MLS.

In recent months, the sub-prime crisis has reached unforeseen heights, infiltrating banks and financial institutions worldwide and causing many to report multi-billion losses due to the risky investments going sour. While the underlying economy of the US appears to be relatively robust, and the dollar's continued weakness has made investment and exports more attractive to foreigners than ever before, these factors have not salvaged pessimistic markets: The FTSE has dropped more in the past two business days than any other point since September 11th. In order for global markets to respond in such a definitive manner, they must either believe that the US is already in recession or that it is close. Ben Bernake referred to the economy as being on "a knife's edge" just as President Bush has unveiled a lackluster economic stimulus package that, if it is even able to make a substantial difference, may be implemented too late to do so. As banks continue to report record losses, in swoop foreign "sovereign-wealth funds," investment vehicles financed from state coffers in Asia and the Middle East, to shore up capital to the tune of $69 billion over the past ten months, according to Morgan Stanley. While the investment is needed badly, and no other source of capital has come running so willingly, the intentions of such funds is shrouded in secrecy. Most of this comes from genuine differences in the purposes of a given fund. Russia calls theirs a stabilization fund aimed at keeping energy prices consistent for Russians, but others are less obvious. As US citizens continue to be concerned about free trade's potential impact on American jobs, foreign investment is reaching new peaks, with their total value measured at $2.9 trillion. The downside to this gigantic increase of investment is also an upside, depending on how future events transpire. If oil prices continue to maintain their strength, oil-producing countries with huge surpluses will have more purchasing power than ever before, but at a price: By taking all the oil out of the ground, it cannot be spread out over decades and thus has limited reliability. But if that oil is converted into wealth, deposited into a sovereign-wealth fund, and invested in American firms, then the yield on their investment will keep GDP high and revenue stable. Plus, the US government won't breath down their necks (in the case of oil-related funds like the United Arab Emiritates-held Abu Dhabi Investment Authority) if they don't have oil to sell. The obvious problem here is that continued investment will be beneficial until controlling stakes in those companies are held, at which point an American backlash will be inevitable. One of the best publicized protectionist policies was the ban on Japanese companies operating radio stations, made under national security concerns. Other such problems have happened in the past, usually to the detriment of the investors, but never on the scale that economists predict will occur in the next couple of years. While looking a gift horse in the mouth is a bad policy, until sovereign-wealth funds have similar accountability to other financial vehicles, firms may be somewhat spooked. Ki is a realtor and broker in Austin helping clients searching for Austin homes. His website focuses on Austin real estate and offers a free home search. His Austin real estate blog offers insight and analysis on the market.

On January 22nd, the Federal Reserve cut their most important interest rate for the fourth time in the past six months, in an attempt to stem the widespread sentiment that the US is in, or headed for recession. Their cut comes at a strange time, because they were rumored, nay, expected, to deliver the cut at their monthly rate-setting meeting next week. But after stock and commodity markets suffered their largest losses in one day since the September 11th attacks, it seemed as though no amount of scheduled economic treatment would be able to rally confidence to a more optimistic level, especially given that the so-called "economic stimulus package" introduced by the White House in recent days actually made the problem much worse. Thus the Fed needed to act decisively, and so, for the first time since 1982, cut their most important rate by three-quarters of a percentage point, signifying how seriously they take the crisis. Yet markets, especially in the US, barely hiccuped upon the announcement: After a brief rally, Asian and European stock indexes closed down by several percentage points, and in the United States no change was seen. Might the Fed be able to wield the same power they used to over economic growth? It seems that an answer to that question is less than forthcoming, but certainly the Fed cut is a very good thing taking into account the historical role of interest rate cuts in similar times. As recently as 2001, with the dot-com bubble rapidly deflating, the mere adjustment of rates to moderately lower values brought the recession down to a dull roar. The biggest difference between that scenario, or for that matter any other previous economic downturn, is that now governments worldwide stand to lose something in a US recession, whereas even in the early 2000's foreign investment had not accelerated to its current breakneck pace. Even in the event of further cuts, credit markets are not required to pass on the savings they make onto their customers, which means that we won't necessarily be able to ever feel the effects of the most recent cut unless, as individual consumers, are able to borrow money more easily, an unlikely possibility under current conditions because, as a whole, Americans spend more than they can save. Throughout history, Americans have saved around %5 of their income, a lofty amount by current standards. This has allowed the US to run a giant deficit with far more stability than it should, because individual liquidity helps to guard against smaller economic bumps that could spiral out of control. A strong possibility is that the Federal Reserve never really had as much power as it would have us believe. As consumer confidence continues to crumble, it doesn't seem to make as big a difference to regular Americans that they can borrow more. They may not want to. And, even if this is an inevitable and beneficial adjustment, a lot of people will lose out in other countries who would normally be unaffected. Fortunately, the Fed isn't accountable to them quite as directly. As long as consumer spending slows, a Fed cut can only do a limited, and possibly impotent, amount of good for the larger economy. Ki Gray is a real estate agent in Austin. His site focuses on Austin real estate and has a Austin MLS search on his site. He also blogs about Austin on his Austin real estate blog.