Safe Money Report Reader Roundup, February 2006

In the February 2006 issue of Safe Money Report, Martin Weiss identifies five key risks to the economy going forward:

1) The Middle East and Oil
Hamas has one a free election; Iran has been making threats; Iraq elections have not stopped violence; Syria is rebelling against UN murder investigations; Yemen and Saudi Arabia are battling terrorists, and so forth. Weiss believes these factors could propel oil higher.

2) Inflation Spike
The price of oil is infiltrating the rest of the economy, whether it is in mining copper, or delivering a pizza. The Federal Reserve's core personal consumption expenditures index Q4 was 2.2%, above the Fed's target of 2%. Bonds could be at risk.

3) The Housing Bubble
What we've been hearing from the housing bulls has gradually shifted from:
"We have a tight supply." "The baby boomers are trading up." "Foreign money investing."

to

"It's a soft landing." "It's a healthy cooling."

Housing starts declined more than two times as much as analysts expected in December. New building permits hit a seven month low.

Existing home sales fell 5.7% between November and December. The supply of unsold condominiums increased by over 66%.

The National Association of Realtors reported that in 2005, 43% of first-time home buyers put no money down on their homes.

4) Overreaching for Yield
Treasury and CD yields are still very low. In an effort to stretch for greater yield, investors are piling into securities backed by shaky mortgages.

5) Fed Screwup
The Federal Reserve typically underreacts to risks as they develop then overreacts when things blow up. Weiss believes the Fed is underreacting to inflation risk.

Creative Selling in real estate

Two stories have caught my eye over the last few days about new creative ways to sell homes.

Brubaker-Culton Real Estate is offering a free pet with the sale of a house. They are giving vouchers good for an animal of choice at a local shelter.

I hope it works out, I really do. Having a pet can make a home "complete".

But it's bad enough that humans do stupid things and buy houses they can't afford and end up out on the street. Being an animal lover I worry about animals who often end up as victims of our thoughtlessness and stupidity. I guess being in a loving home, even if the worst happens and the animal has to go back to the shelter, is better than the animal living its entire life in an animal shelter.

The other story is from the Minneapolis Star Tribune about homeowners making a leap of faith. Sellers are burying statues of St. Joseph by their For Sale signs in the hopes that he will bring their asking price, apparently.

Ah, the real estate market must have shifted, can you feel it?

Having it both ways

When the economic numbers come out favorable, the political talking heads trumpet how their policies are "working". When the numbers come out bad, it must be some error, some "anomaly".

From a Reuters story on January 28, 2006:

Slower-than-expected U.S. growth data at the end of 2005 do not accurately reflect the continued strength of the world's biggest economy, U.S. Deputy Treasury Secretary Robert Kimmitt said on Saturday.

"We think those figures are anomalous and out of step with the other figures showing the strength of the economy both now and in the future," he told Reuters on the sidelines of the World Economic Forum in Davos.