“The one point that he (Chris Thornberg) makes in this segement that stands out to me is that economist, and you can throw in Wall Street for that matter are totally underestimating the sheer size of this housing bubble. They have not budgeted accordingly its impact on GDP.”
Today’s GDP
“WASHINGTON (AP) — Economic growth slowed to a near crawl of 1.3 percent in the first three months of 2007, the worst performance in four years. The main culprit: the housing slump.
The fresh reading on gross domestic product, released by the Commerce Department on Friday, was even weaker than the 2.5 percent growth rate logged in the final three months of last year. The new figures underscored just how much momentum the economy has been losing as it copes with the strain of the troubled housing market, which has made some businesses more cautious in their spending.”
IMO we have not yet felt the full blow of the housing bubble. There is definitely a tug of war going on in the economy but I think Chris Thornberg was right, the fed and Wall Street have not budgeted the negative consequences of this housing slump into the numbers. This report increases the possibility we will see recession this year, 2008 for sure IMO.
“Even though the economy slowed in the first quarter, inflation picked up — a development that will complicate the Fed’s work.
An inflation gauge tied to the GDP report and closely watched by the Fed showed that core prices — excluding food and energy — rose at a rate of 2.2 percent in the first quarter, up from a 1.8 percent pace in the fourth quarter. Another measure tracking all prices jumped by 3.4 percent in the first quarter, compared to a 1.0 percent decline, on an annualized basis in the fourth quarter.
Federal Reserve policymakers say the biggest danger to the economy is if inflation doesn’t recede as they currently predict.”
If the dollar weakens further this will only get worse before it gets better. We could find ourselves going into recession with the FED handcuffed on easing. They will cut but it won’t be enough to turn back the tide on housing or enough to prevent a recession. How the stock market reacts to all of this? judging from the way it is performing now it will probably go up, ha ha. There is still a ton of liquidity sloshing around and heavy short interest in the market. Volatility anyone.
