Wednesday, August 08, 2007

Armageddon Close?

Jim Cramer’s impassioned rants that the economy is going to hell in a hand basket unless the Fed immediately lowers interest rates fell deaf ears, as the FOMC unanimously voted to maintain the 5.25% lending rate.

Volatility is the phrase that pays on Wall Street, with the Dow’s intraday performance posting a 200-point swing. The Fed's somewhat rosy take on the U.S. economy was not shared by everyone, the proof being the sharp pullback in the major market indices from their highs of the session. As we like to say in Texas, the markets finished “fair to middlin’.”

The Fed says the failure of inflation to moderate is still its chief concern. While core inflation has showed signs of easing, the Fed sang a second verse from the same hymnal used in June, and needs more convincing evidence of the trend.

So what about the subprime mortgage market, the housing market, and worries over credit liquidity and Jim Cramer’s angst? The Fed rendered a typical, oblique reference that risks to economic growth have increased since its last meeting, but the committee still expects moderate growth in the coming quarters, despite reports of slowing productivity and upward wage pressures.

Interestingly, mortgage applications are up, as loan rates fall in reaction to everyone running for the exits in the lending business. The Mortgage Bankers Association's index of applications to buy a home or refinance a loan jumped 8.1% from the prior week. A gauge of demand for credit for home purchases rose 7.4%, and the average rate on a 30-year fixed mortgage fell for the fourth consecutive week.

Armageddon this or not?

Subtextual message: the good guys are still open for business, still need to make loans to remain in business, and if you're "bankable," you're business is bookable.

Subliminal message: It's a buyer's market if you've got your financing lined up ahead of time, and are willing to purchase an existing piece of new home construction.

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