Right now the markets are warily eyeing a
possible slowdown in the economic recovery. While we can't tell you if we are
indeed in the middle of another pause, we can tell you that we are already
reaping some benefits of even the hint of a pause. What are these benefits? Oil
prices, interest rates and gold prices have all fallen. It is easy to see the
benefits of lower gas prices and rates with regard to the economy. Lower gas
prices give consumers more money to spend. Lower rates encourage refinancing as
well as home and automobile purchases. The real estate and auto industries were
already in recovery mode before interest rates eased back. For example, in
March nearly 1.5 million cars and trucks were sold, a number not seen since May
2007. In addition, housing starts broke the 1.0 million mark in March, the
strongest performance since June of 2008. On the other hand, why should we care
that gold prices are dropping?
Of the three, the move in gold has been much
steeper than oil or rates. When the financial crisis hit five years ago, there
was a threat that the financial system would collapse and move us into a
depression. Gold soared in response to this threat. Even during the recovery --
every time we had a pause -- gold prices stayed strong because there was a
threat of a double dip recession. Today, there is a possibility of a pause, but
gold prices are weak. Is it because we are no longer worried about our economy
slipping back into recession or is it because countries in trouble like Cyprus
could be selling their stores of gold? In either case, we can say that gold is
falling back at a time in which the economy continues to grow at a pace which
will not ignite inflation. That is the best type of growth possible. Lower
energy prices, lower interest rates and positive economic growth are a strong
combination. Of course, we all wish that the economic recovery would become
even stronger. However, there are benefits to a moderate recovery -- especially
if it does not come with the threat of a recession around the corner or
inflation down the road.
Mike
Ervin
Senior
Mortgage Banker
NMLS # 282715
Office: 650-735-5261
Cell:
650-766-8500
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