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Reading the Tea Leaves

December 10, 2010 – 7:52 pm

A weak but improving stock market tis week signals consolidation, not a
return to a correcton phase, as the S&P 500 struggled to make new
highs. Te various large money houses have been raising their projections
of GDP to an increase to 3% or higher for 2011 and European problems
began to fade from the news. All this indicates a stock market not ready
to fall but consolidating its gains.

This morning the trade numbers were very positive as exports from the
U.S. increased sharply helped by a very strong Asia. on the other hand
that strong Asia is signaling, at least for China, an effort to slow down their
economy. china has raised interest rates several times and increased
bank reserve requirements. They have been able to slow their red hot real
estate market but the economy as a whole is still very strong.

Here in the U.S. our real estate market is still very sick and will remain so
for a long time. Mortgage rates rose sharply from historic lows of 4% for a
30 year mortgage to 4.9% in one week. That is not going to be helpful.
However, it is the tightness of lenders that is te real problem. Anyone
trying to refinance or obtain a new loan will realize very quickly how difficult
it is. A few years agao lenders would lend almost any amount of money
with ‘no docs’. Now they require not only every document they can think of
and proof that those documents are accurate but also they will not let you
buy just any home. Since they need to sell the loan they require that the
home meet certain standards so the loan will be attractive to the
secondary market. That kind of efforts is going to retard the ousing
market.

Still other parts of our economy are improving. It would be nice to see that
improvement show up in the job market. So far that is not happening, but I believe

it is coming. However, it will be slow and painful.

Good Trading
Steve Peasley

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