Put your ear to the ground and you can almost
hear the bulls stampeding. The Dow closed above 12,000 Tuesday for the
first time since June 2008. The Dow is up 4-percent this year after
increasing 11-percent in 2010. The Standard & Poor 500 is also up 4-percent this year, and the Nasdaq index, up 3.7-percent.
"The U.S. economy is back!" says a prominent Wall Streeter.
Ummm. Not quite.
Corporate earnings remain strong
(better-than-expected reports from UPS and Pfizer fueled Tuesday's
rally). The Fed's continuing slush pump of money into the financial
system is also lifting the animal spirits of Wall Street. Traders like
nothing more than speculating with almost-free money. And tumult in the
Middle East is pushing more foreign money into the relatively safe and
reliable American equities market.
But most Americans own a tiny sliver of the stock market, even including stocks in their 401(k) plans.
What do most Americans own? To the extent they have any significant assets at all, it's their homes.
And the really big story right now -- in terms of the lives of most Americans, and the effects on the US economy -- isn't Wall Street's bull market. It's Main Street's bear-housing market.
According to the Wall Street Journal's latest quarterly survey of housing-market conditions, home prices continue to drop. They've dropped in all of the 28 major metropolitan areas, compared to a year earlier. And remember how awful things were in the housing market a year ago! In fact, the size of the year-to-year price declines is larger than the previous quarter's in all but three of the markets surveyed.
Home prices have dropped most in cities already hard hit by the housing bust -- Miami, Orlando, Atlanta, Chicago. But declines increased in other markets that had before escaped most of the downdraft, such as Seattle and Portland.
Things could easily get worse on the housing front because millions of owners are in various stages of foreclosure or seriously delinquent on their mortgages. Millions more owe more than their homes are worth, and, given the downward direction of the housing market, are going to be sorely tempted to just walk away. This means even more foreclosure sales, pushing housing prices down even further.
So don't be fooled. The American economy isn't back. While Wall Street's bull market is making America's rich even richer, most Americans continue to be mired in a worsening housing crisis that the Administration is incapable of stemming, and of which Wall Street has now seemingly washed its hands.
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