Markets go up and markets go down, so maybe it’s not surprising that January’s stock market performance has less exuberance to it than the performance to which we’ve become accustomed.
As of yesterday’s market close, the S&P 500 was down 0.13% year to date, which is not a big deal, especially considering that the S&P 500 Index finished 2013 up 32.4%. Even with the recent downward trend, the S&P 500 is up 25.35% for the past 12-month period.
The Dow Jones Industrial Average has been a bit creakier, down 0.96% year to date, but still up 21.51% for the past year.
It’s doubtful, then, that the markets will break any records this month. But if you believe the hype, good things are headed our way. The unemployment rate has slimmed down to 6.7%, gross domestic product (GDP) was revised upward to 3.6% for the third quarter of 2013 and, with Janet Yellen’s appointment to head the Federal Reserve Board, quantitative easing can continue ad nausem.
So why worry?
To begin with, as we explained last week, the falling unemployment rate is an illusion. The rate dropped only because so many people have stopped looking for work. The number of non-working Americans exceeds 102 million, which is a record.
GDP growth, which has hovered around 2% since President Obama took office, has for the first time exceeded its post-World War II average of 3.3%. But, again, the GDP boost has little to do with economic improvement.
The economy grew, because domestic producers were stockpiling inventory. Factor that out and GDP growth falls back down to 1.9%, which is about where it’s been throughout the current “recovery.”
As CNNMoney pointed out, businesses may be adding to their inventories because they expect demand to pick up, or it could indicate that demand is weaker than expected, and goods are lingering on the shelves longer than planned as a result.
“Some evidence points to the latter theory,” according to CNNMoney, “which would be discouraging news. Consumer spending, for example, grew at a slower pace in the third quarter than originally reported.”
Well, at least quantitative easing will continue. Although, as recent performance may be indicating, it can’t prop up the stock market forever.
Stifling the Housing Market
Well, you might say, at least the housing market is recovering. Granted, a lack of inventory has resulted in a drop in sales, but at least prices have recovered somewhat and, as a result, fewer homeowners are underwater.
Just in time, though, 3,500 pages of new federal mortgage regulations took effect on Jan. 10, 2014 to comply with the Dodd-Frank Consumer Protection Act.
You may recall that before the housing crisis in 2008, the federal government and U.S. lenders created a market where anyone with a pulse could qualify for a mortgage. Underwriting standards were discarded in favor of the “no doc” loan. Lenders saw their Community Reinvestment Act ratings improve and they could sell the mortgages to Fan and Fred, so credit risk be damned.
Now, though, rather make everyone eligible for a mortgage, Congress has come closer to making no one eligible for a mortgage.
“Most notable among (the new regulations) is a new requirement imposed on lenders to ensure that borrowers have the ‘ability to repay’ a mortgage,” according to The Heritage Foundation. “In turn, borrowers gain a new right to sue lenders for misjudging their financial fitness. Dozens of new rules also dictate procedures for appraisals and escrow accounts, title agents and loan originators, as well as edicts on the precise timing and content of communications between lenders and borrowers, the format of periodic statements, and borrowers’ new rights in foreclosure proceedings, among hundreds of other commandments.”
In other words, if a lender approves a mortgage for would be homeowners and they later decide they can’t afford it, they can sue the lender. As the lender’s liability would potentially be greater than the value of the mortgage, lenders have largely decided to be very selective about approving mortgages.
It’s yet another example of iatrogenics, in which regulators attempt to help consumers by stifling economic growth and preventing would-be homeowners from qualifying for mortgages.