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US stocks drop sharply on oil price fears and very poor housing and orders data

Posted on 27 August 2013 with 1 comment from readers

The US posturing over intervention in Syria seems to be reaching a tipping point into military action and that will mean higher oil prices this fall. Meanwhile, the surge in US interest rates over the summer is impacting new home sales badly and industrial orders too.

Welcome to the end of the anaemic US recovery, if indeed the statistics ever prove it to have happened. Higher interest rates are a tax on any economy and that is what the US has got over the summer while many folks were on holiday.

Interest rates rocket

The interest rate on a 30-year fixed home loan climbed to 4.58 per cent in the week ended August 22nd, according to data compiled by Freddie Mac, surging from a record-low 3.31 per cent in November. It posted its biggest-ever quarterly gain of 25 per cent from April to June.

No surprise then that orders for durable goods dropped in July by the most in almost a year. Orders fell 7.3 per cent, the first decrease in four months and the biggest since August 2012. The retreat was broad-based, with the transportation category unexpectedly falling.

Then again sales of new single-family homes in the United States fell sharply in July to their lowest level in nine months. Sales dropped 13.4 per cent to an annual rate of 394,000 units. That was lower than any prediction by the 72 economists surveyed by Bloomberg.

US recovery over

How long will it take a bullish stock market to realize that the US recovery is dead? For the moment the bad July data can be seen as something good for the market because it will encourage the Fed to keep on printing money.

Still that hardly matters now that interest rates are on the way up, does it? Investors don’t seem to have quite twigged that yet. The Fed has lost control of interest rates.

So perhaps it will take a good old fashioned Middle East oil price spike to prick the stock market bubble. Intervention in Syria, whatever that might or might not achieve in humanitarian terms apart from raining more bombs on the hapless Syrian public, will certainly do the trick on Wall Street.

Standby for round two of the global economic crisis coming soon on a screen near you! How do you protect yourself against this force of nature and maybe make money from it? See the next issue of our investment newsletter (subscribe here).

Posted on 27 August 2013 Categories: Banking & Finance, Bond Markets, Global Economics, Hedge Funds, Sovereign Wealth Funds, US Dollar, US Stocks

1 Comment posted by readers:

Comment by Tiu - 27 August 2013

I suspect it’ll be more tangible than “on a screen near you”!

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