Is Gold a Safe Bet?

mortgage application decline again

Yesterday the market saw it’s 3rd best day in 2010 and was up 273 points. It is my opinion which is also shared with alot of other Wall Streeter’s that you should be buying on the dips and selling into the rallies. This is how I would be trading in a market like this. The days of long term investing is gone for right now and the key is to preserve as much of your capital as possible.

Many things still trouble the markets and a resolution to these things don’t seem likely anytime soon. BP’s Oil Disaster is a huge burden, as well as the potential credit crisis spreading in Europe. However, today’s auction of the Spain and Italy Bonds (which went well) seem to indicate the debt issue may not be as bad as people had expected. The Euro stabilizing is another positive sign. I feel gold hitting an all time high on Tuesday $1,245 an ounce is an extremely negative factor hanging over the market and an indication that the market / people feel the debt crisis may not be over. I still believe that if you want our economy to grow we have to stop the massive government spending and cut taxes across the board to promote growth. Since this isn’t the way the current administration is heading (actually directly the opposite) we may be in for some turbulent times ahead.

Not Hiring

Today’s Jobs Report was a disappointing figure. The market opened lower this morning with this terrible number and the sell off continued to accelerate throughout the day dropping below 10,000 down 310 points to 9,946. The Department of Labor said that Jobs grew by 431,000 in May but, went on to say that nearly all those jobs were temporary census workers. There were 411,000 census workers added and only 41,000 private sector jobs created. The unemployment rate dipped slightly to 9.7% however there are still 4.66 million continuing to receive jobless benefits. I find this figure to be a huge smoke screen! Why should temporary work be classified as employment? Isn’t the goal of employment to be employed for a long period of time? What happens when this work ends? Will these people then be able to file for unemployment? Sounds like a horrible scenario to me!

Pending Home Sales were up 6% in April and the Index is up 22.4% year over year. Pending Home Sales in the Northeast were up 29.5% in the month of April. These are contracts signed not closed. Many Realtor’s surveyed are unsure if these homes will closes by the June 30th Home Buyer Tax Credit deadline due to the overwhelming amount of short sales and appraisals that are taking longer than expected. May will be the 1st month in 16 months that the Government isn’t paying people to buy homes. I have been saying for quite a long time that these numbers are lagging indicators (old data) and the real news will be what happens after the June 30th date.

Mortgage applications to purchase homes dropped 4.1% this past week. It was down the 4th straight week and down a staggering 40% from last month which is the lowest level since April of 1997! Mortgage rates remain low which is good for the housing market. The 30 year fixed rate national average is at 4.625% and the 15 year fixed rate average is 4.125%.

BP Oil Spill Disaster

Looking ahead we have some big challenges to be dealt with. For me, a major question is how long this economy can run effectively not running on all 8 cylinders? I think there are some major issues abroad in Europe with the credit issues looming to other countries and in China that need to be addressed! What happens if China Real Estate Market (bubble) experiences a similar situation we did in the U.S.?

The employment issue is defiantly a problem as well. The Government needs to give back to small business to encourage employment. That is the only way to grow our economy. Entitlement programs need to be cut, extending unemployment benefits is not the way to get people back to work.

The long term affects of this oil disaster will also have a huge impact moving forward. The amount of work that could be lost along the Gulf Coast could be catastrophic! Some analysts say the loss of jobs alone in the tourism industry could be greater than the fishing industry as a whole. That is a scary thought! I pray that the efforts are successful and things can get back to some sort of normality for these folks.

As goes the economy so does the market? It has seemed like a popular trend the month of May which has seen the DOW down 7.9%! The markets volatility has become an everyday occurrence. Ending the week pretty much flat but, giving you an ulcer if you happen to follow the markets. This was the worst May the Stock Market has seen since 1962! The $64,000 question on the street is whether or not we go into a double dip recession and or if European Credit Crisis spreads into other countries. To top it off with recent issues with North Korea, we can see what is troubling the markets.

The good side of all this is that oil has back off recent highs falling to around $73.50 a barrel. Rates have remained low, which is great for the housing market. The 30 year fixed rate national average is at 4.80% and the 15 year fixed rate average is 4.25%. The troubling news is that the purchase application index fell again this week 3.3% and after last weeks fall of 27.1% Existing Home Sales jumped to 5 month highs in April up 7.6%. Inventories were up 8.4% month supply and sales were up 21.1% in the Northeast year over year. 1st time home buyers accounted for 1/2 of the people buying. These are all lagging indicators and old data. It is pretty clear that the end of the Home Buyer Tax Credit Program had a tremendous effect on the housing market. I feel as though that is a bad thing because the problem going forward is, what is going to stimulate people now? The question now will be what happens in May and June?

Consumer Confidence Index was at 63.3% in May vs. April’s reading of 57.7% The next month will give us a great gauge on what the future has in store for us. The keys going forward will be the Unemployment Rate and the pulse of the consumer. Consumer Spending was unchanged for the month of April and the first time jobless claims fell 460,000 down 14,000. Consumer Sentiment for May was 73.6 which was better than expected. This measures the consumers mood.

My issue is that the way out of a financial problem is for the Government to cut taxes on business which gives the private sector an incentive to expand and create more jobs. It is clear that the unemployment rate which is currently at 9.8% will not be decreasing anytime soon. The Government can not expect prosperity by creating temporary employment like they have with the census workers. The way to economic prosperity is to encourage productivity and innovations. That leads to better products and services which then creates jobs.

This was another very volatile week for the stock market. After last weeks Dow plunging 998.50 points in the mater of 5 minutes it was a very important week to see if that trend continued. The market open up huge on Monday with a more than 350 point surge but after almost breaking 11,000 the market leveled off to being up 234 for the week.

Retail Sales for April was up .4%. Retail Sales measures consumer spending. The core rate which excludes auto, gas, and building materials fell .2% which was the biggest decline in a year. Consumer Sentiment rose in May to 73.3% from April’s 72.2% Luxury spending is back on the rise as the economy tries to rebound. Gold hit a record high on Wednesday to reach $1,249.70 an Oz. as much of Europe looks to Gold as a safe haven as worries about the next Bail Out rumors spread. Oil surprisingly has been down as it closed down $2.42 on Friday to $71.98 a barrel.

30 Year Fixed Rate Average fell to 4.96% as the 15 Year Fixed Rate Average fell to 4.32%. This is the lowest level rates have been in the year. Foreclosure filings were down 9% in April, as Bank Repossessions were up a whopping 45% from last year! The expiration of the Home Buyer Tax Credit program has already effected the housing market. Purchase apps for the week were down 9.5% and sellers are being more aggressive with their prices. In some areas, we’ve seen a 10% drop in price to off set the popular tax buyer incentive program.

The question going forward is going to be what happens with home sales going forward without this program in place and how it will affect the rest of the market. Other things to keep an eye out for is other European Countries falling subject to a Bail Out. Obviously, another Terrorist Attack will also affect the market. We were extremely lucky last week to avoid a major problem and fortunately it seems the Government is doing a good job being one step ahead of these criminals!

Have we come out of a recession and recovered? I would say it’s too early to tell but, hopefully it wont be a double dip recession that some analysts have started to talk about.

About the Me: The above Real Estate information was provided by Greg Afarian, l can be reached via email or send me a message on Twiter.  Have a home to sell on the NorthShore in Mass? I’ll help you with my social media skills for a quick transaction to help save you time and money. I service the following towns in Boston and the Greater Boston Area: Andover, North Andover, Lawrence, Methuen, Haverhill, Boxford, Bradford, Dracut, Reading, North Reading, and beyond.