The past few weeks has seen some major volatility
within the stock markets. Some weeks have seen major pullbacks and others we
have seen significant bounce-backs. The first ten days of April, the volatility
of the markets hit on the downside. One thing which is interesting about this
pullback is that it happened as the economy was pulling out of its pause caused
by a very cold and harsh winter. For example, the first week in April we saw a
stronger employment report and the second week first time claims for
unemployment fell to levels not seen for many years.
When stocks drop the analysts are always searching
for explanations, yet sometimes there seems to be no logic. One card which keeps
coming up in explanations this month is the threat of slower growth in China. So
we must ask, why is China so important to us other than it is a huge economy?
Certainly at a growth rate of over 7.0%, this is not an economy in trouble. For
one thing, the Chinese populace travels overseas to the United States in great
numbers -- almost two million per year. In 2012, the Chinese spent almost $9
billion in the United States.
Secondly, China helps keep our interest rates low
in two ways. Their low cost of manufacturing lowers cost to our consumers. And
the profits these manufacturers produce are eventually invested in US
Treasuries. Basically, China is helping to finance our Federal budget deficit.
More economic growth and lower rates? These are good enough reasons for us to
hope that the growth in China continues. And good enough reasons to fret when it
appears that the Chinese growth cycle is abating. So, if you are shopping for a
home this week and enjoying the fact that rates on home loans are very low --
don't forget to thank the Chinese, as improbable as that may seem.
Mike Ervin
Branch Manager/Mortgage Loan Officer
NMLS: 282715
W.J. Bradley Mortgage Capital, LLC
O: 650.735.5261
C: 650.766.8500
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