The Federal Reserve announced its highly-anticipated quantitative easing, or its so-called QE3, purchasing additional agency mortgage-backed securities at a pace of $40 billion per month in another effort to stimulate the struggling economy.
QE3 is official. Zero interest rates for three more years. Loosen credit. That will fix things.
Actually, it will guarantee fairly low interest rates for the federal government for a while. Meanwhile, for the average working person who has to pay the bills, gasoline is headed over $4, food costs are going to escalate.
But housing will be all right. Right? I was talking to a contractor last Saturday about his business. He is mainly doing remodels at this point, but he is getting squeezed on his margins because of inflation in the cost of materials. With material costs going up, builders will try to keep wages steady or decrease labor costs by letting more people go -- even if they get contracts for new construction. Most likely any savings in mortgage rates are going to be eaten up in base costs. I see no home-building boom and no re-inflating of the real estate bubble coming out of this.
I'm not even sure that is intended. The banks continue to benefit from low rates. I also suspect -- though I am not sure how all this crap works -- that purchasing "mortgaged-backed securities" eases the strain on Bank of America and others that are holding tons of property they do not want to book as foreclosed.
We usually have pretty cheap gas here. I just filled up the truck with 87 at $3.74 -- seventeen gallons or so and over $66 total. I would not be surprised to see another small jump by the weekend. Some of this is already "priced in" with the euro against the dollar and with the market's support for the last few weeks. Still, people making daily commutes are going to be hurting very quickly -- stock market boost or no stock market boost.
Stock up for winter. It may be a long one.