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BY SHAVASB BOHDJALIAN
Rising home sales in the US and signs that the US housing market, which triggered the global recession, ended last year confirm that the world's biggest economy is recovering and this can only be good news for shares and the dollar in general.
Bloomberg News reported, "Confidence Among U.S. Homebuilders Climbs to Highest Since 2007" adding that record-low borrowing costs, a growing population, and reduced prices may drive demand for homes this year…"
Building permits, which bottomed out three years ago are also recovering and adding to the positive mood that things are getting less bad in the US.
The housing market is the catalyst for the US economy. As house prices were declining, confidence was declining hurting consumption and in turn adding to the wave of the jobless, causing more pain and gloom. Following the turnaround, the US economy will start to benefit and US assets and the dollar will be the first beneficiaries of the move.
Smart money is already positioning and buying shares and markets are bidding the value of the dollar higher since market professionals know well that several months later, the statistics will also confirm the turnaround in US housing. But it’s not only in the housing sector that the US is scoring a success.
The latest report on "Debt and Deleveraging" by the McKinsey Global Institute published in the Telegraph shows that total public and private debt in the US is declining and far lower and better than comparative figures in the UK, the EU and Japan.
The Telegraph reported that the total US debt dropped to 279% of GDP from 295%, which was at the peak of the boom, compared to 500% in the UK and Japan and certainly much better than 363% for Spain, 346% for France, 314% for Italy and 278% for Germany. The Mckinsey report also showed that the debt of US financial institutions, at just 40% is very low compared to 219% for UK, 120% for Japan and 87% for Germany.
US banks are also reported to have the highest capitalization ratios in sharp contrast to EU banks, which are just starting to reduce risk, cut down on loans, dispose of non-core assets and raise capital.
With the Federal Reserve having promised to keep interest rates “exceptionally low” for an extended period of time, professional money managers are snapping up share prices and also maintaining their bullish stance to US Treasuries. The fact that the US has will hold Presidential elections this year is also seen as a positive factor which normally supports US share prices.
US stocks are up 20% since their October lows and have started 2012 on a very strong footing, in one of the best performances in a decade. Corporate profits are rising, confidence is coming back and with the turnaround in US housing, there is a strong case for US consumption to climb higher, adding to the growth rate, which in turn should help reduce the unemployment rate.
The anticipation that the Fed will be the first among the major central banks to hike interest rates will in turn benefit the dollar, which is already the main beneficiary of the eurozone debt crisis considering that the currency market usually trades 6 months ahead of the actual event.
The eurozone debt crisis and the awful state of the economy in Britain and a slowdown in emerging markets is seen pushing money managers to divert funds to the US and in the process benefit the US dollar.
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(Shavasb Bohdjalian is a certified Investment Advisor and CEO of Eurivex Ltd., a Cyprus Investment Firm, regulated by CySEC, license #114/10 and approved by the Cyprus Stock Exchange to act as Nominated Advisor for listings on the Emerging Market. The views expressed above are personal and do not bind the company and are subject to change without notice. Investing in markets carries a high degree of risk and investors are strongly advised to consult a professional advisor before investing)
