Standard & Poor reported today that U.S. home prices fell 3.2 percent in the second quarter. This is the steepest rate of decline in the housing index since 1987 when S&P first started tracking the index. The decline in home prices around the nation shows no evidence of a market recovery anytime soon.
Here is another sober thought to ponder that was stated in the recent issue of Barron's on August 27, "Up & Down Wall Street," There are over $1 trillion of securitized low-grade mortgages (subprime) outstanding and nearly three-quarters of a trillion dollars worth of mortgages whose adjustable rates are stated to rise over the next year."
The message from the above two reports assures us that the economy is about to experience an appreciably larger magnitude of pain in the months ahead. This is why I am now totally convinced that the Fed will not only cut the Fed Funds rate by 50 basis points but will provide sufficient liquidity (money) to save the entire banking system. When the Fed re-inflates, and they will, with a passion, the dilemma for them is the negative impact such a monetary policy has on the dollar.
Stay tone because all of this will come to the forefront in September. Oh, I forgot to mention that September will also bring earnings reports from banks and brokerages that will reveal the extent of their "losses" from subprime investments.
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