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Virtuous Cycles

October 24, 2012 – 5:11 pm

High oil prices with the resulting high gas prices have been a drag on our consumers. It acts as a tax and takes money out of everyone’s pocket that might be used to buy something else. Since our economy is 66% to 70% driven by the consumer every dollar forced out of their pocket is important, just as every job produces more spending and every tax retards spending.

Since those dollars are so important there is very little attention to an important change in consumers free cash flow. The Fed has been successful in pushing interest rates to record lows. The mortgage rate is below 3.5% and consumers have and will continue to refinance their mortgages. We can explore the mortgages that cannot be refinanced because the value of the home is too low and does not meet the new tighter lending practices but the fact remains there are tens of thousands mortgages that can be refinanced. That is going to translate into increased cash in every homeowner’s pocket monthly which can be spent thus adding to economy.

Last month retail sales were up 1.1%, better than expected. At some point with a better stock market, increased home prices and now a reduced monthly mortgage payment consumers are going to feel wealthier thus willing to spend more money.

Maybe we can get into a virtuous cycle of increased spending causing hiring of new employees who will be spending also.

Good Trading,
Steve Peasley

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