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Will the Disaster Spread?

March 16, 2011 – 5:45 pm

The news is focused on the disaster in Japan and ignoring the economic data that is being released this week. The important issue is will the disaster in Japan kill the world economic growth? The answer is probably not. The reason it is probably and not a certainty is because of the emotional response by consumers. Fear is a powerful force. However, once the crisis is over and the world takes a more practical view it will revert to a more normal activity. In fact Japan will have a spark of GDP growth for some time after a short term fall from this disaster. For them the bigger issue will be long term debt.

The few economic statistics out this week are mixed. The New York manufacturing region rose to 17.5 for March up from 15.4 from the month before. That was a little less than expected. The housing index for March rose to 17, its highest level since May of 2010. However, that is still a very low number when you consider above 50 means that builders consider the market healthy and below weak. Add to that the report that February starts for new homes fell 22.5% from January and you can see how weak the housing market is. Of course I noted that when the February number was released they revised January’s number up 18.4% so February’s number gave all that back then some and may not be as bleak as at it appears. The silver lining is that since builders are not building much the supply of homes from foreclosures can be absorbed faster. Housing will not recover until the excess inventory is reduced. That will take time. Frankly, I think housing is finally bottoming out.

Good Trading
Steve Peasley

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