Macro is the Greek for large or expansive. Micro is the Greek for small or limited. Macroeconomics deals with big picture stuff like what broad sectors of the economy are doing or what entire economies are doing. Microeconomics is all about what small economic players are doing, like individual companies or consumers taken one by one.

Most of our problems lately have been macro problems. The simple fact that the broad economy hasn’t grown very quickly lately is a macro element. The historical condition that most of Western Europe has a highly evolved but very expensive welfare state is a macro problem. The situation in the US where we have a large block of the electorate that doesn’t want to have higher taxes while at the same time a largely over-lapping group of Americans won’t stand to have services curtailed is a macro issue. Read more

Not all that long ago, back when your pundit was a pup, 100 Dow points was a big deal. 100 Dow points would be more than 10% on the market value of the Dow.

Today, 100 points is 1% of the Dow, almost. 600 points or 500 points aren’t as big as they used to be. In October of 1987, Monday the 19^th to be exact, the Dow lost 508 points in one day. Back then, it was 22% of the Dow’s value the previous day. Don’t even think about what that would take today. Keeping in mind that the Dow at 11000 is a lot different than the Dow at 1000, the trouble a lot of people have is relating to daily changes that are frightening by their size, but really aren’t that unusual. Today’s 300 point change is the same as a 30 point change on one tenth the market price. Read more

Keyness Is Still Dead

Well, they did it. After most pundits were telling anyone who would listen that S&P wouldn’t dare cut the Treasury rating until the ‘super committee’ (see below) had a chance to at least start the discussion of what to cut, they did it as soon as possible (evidently S&P wanted to do it earlier, but a mathematical difference of opinion with the Treasury held the process up for most of Friday). Thankfully, it took until after the market closed on Friday to release the change so everybody but the Japanese had a chance to digest the idea over the weekend (Japan has a short session on Saturday which started a couple of hours after the S&P action).

So, what does it mean to not be AAA/Aaa anymore? Evidently, not a lot. When your pundit went to turn-on the light this morning, the lights went on with the flip of the switch. When we went to turn the faucet to get water, there was water. So, the fabric of our daily lives is unchanged in most respects. What will it mean for the markets? Well, so far this morning it hasn’t really upset the Treasury market at all. In fact, Treasuries are higher in price, lower in yield, while most everything else is falling. So, the Treasury is downgraded by S&P while the market continues to treat Treasuries as the last bastion of safety in a world gone mad. Who’s right and who’s wrong will be answered over the next couple of weeks. Read more

Joan’s Real Estate Corner… June Pending Home Sales Rise

For the second consecutive month, pending home sales figures have increased. According to the National Association of Realtors® (NAR) all regions are showing “strong double-digit” gains over last June and the index itself was up 2.4 percent for the month.

Pending sales are a healthy 19.8 percent above June 2010’s numbers. The Midwest has seen the largest rebound from 2010, increase 26.4 percent from last June. The Northeast followed at a 19.4 percent increase and the South gained 19.1 percent. The West was up 16.4 percent.

According to the NAR, “Existing-home sales this year are expected to total 5.0 million, slightly higher than 2010. Similarly, little change is forecast for aggregate home prices with several indicators, including NAR’s median prices, showing recent signs of stabilization.” Read more

What we try to do is evaluate what point of view those who have some influence on the outcome might favor. If the big players want something to happen, they might just get their way. Try to think of who wins and who loses in each scenario and ask yourself who might be able to sway the odds.

Issue of the Week

For the next several weeks, barring some unexpected outcome, we will be prone to discuss the progress or lack thereof in the US deficit ceiling talks. The way this works is that the US can only issue debt that has been authorized by Congress and Congress decided many decades ago that without limiting the volume of debt available to be issued, they’d be likely to spend and spend until the US economy collapsed under the weight of Treasury debt. How prescient they were. Read more