Commentary recently from Central Bank members and analysts alike have suggested the possibility that the US credit turmoil has seen… … its climax and is beginning to fade.

Fed Chief Ben Bernanke added to the sentiment today in his comments. While he said the situation is certainly note ideal, credit markets appear to be in much better shape than they have been.

Bernanke went on to say that March was the peak of the credit crunch from his perspective. This is when credit problems forced creditors to examine their situations and the Fed was in the midst of its aggressive rate easing process.

In spite of the comfort offered to Americans by Bernanke and others, there are still some troubling economic data pouring in. Median home prices dropped again in April, continuing the trend that has been ongoing or about a year. Some hopeful real estate analysts believe there could be a start to a turnaround later this year if economic conditions improve and buyers become more confident in investing money.

It is uncertain as to whether the Fed will continue to cut interest rates in order to help spike the economy. Tax rebate direct deposits have been ongoing since late April and it is hoped consumers are spending their rebates. Some economists still think the Fed should and could drop their funds rate another full percent down to one percent. This seems a bit aggressive given recent statements from bank members, including Bernanke.

The Fed talk has shifted more toward concern of the escalating consumer prices, including fuel and groceries. Central Bank board members have expressed concern that rate cuts that are too deep might overdo things on the economic side, while contributing to a worsening inflation situation. Rate cuts are usually not the ideal way to combat inflation. For months, however, the Fed has committed to stimulating the economy while keep inflation on the back burner. The time for a shift in focus might be nearing, though.

Among the strongest signs that the credit markets are primed for a jump start, Bernanke pointed to two keys. First, the Chief said the Fed’s controversial move to allow banks to seek emergency loans helped improve market sentiments. The most notable move was the Fed’s involvement in the JP Morgan buyout of Bear Stearns. Bernanke also stated that mortgage-backed securities have been on the rise as have been fixed rate mortgages and corporate debt.

Several investment markets have definitely demonstrated the importance that credit concerns have had on the markets. Despite continued oil and retail gas records, equities have held steady and the dollar is poised for another move back up. Many economists have speculated for some time that the movement in the major investment markets would coincide with signs of a real bottom in credit or housing, or both.

Currency speculators have been fighting for the dollar for a couple months now and interest in the greenback seems to be on the rise. The dollar is ready to break over 105 yen again, while it has kept the Euro and pound at bay. The Euro remains under $1.55 well below its brief stint over $1.60 early last month. The pound is netting just over $1.94 at the moment. The dollar is also closing on 1.06 Swiss francs after dropping below equal weight for a while earlier this year.

Home buyers and investors may not want to wait too much longer if they want to take advantage of the possibility of a market bottom. Current 30-year fixed rates are 5.82 percent for conventional mortgage loans. This is fairly consistent with rates over the last few weeks. As buying interest starts to pick up, now or in the future, home prices will climb back, as well. The best deals might be sitting on the market right now.

Market Recap

Stocks were up sharply in Monday’s US trade following a mixed bag of earnings reports and heightened expectation for financial markets. The dollar pushed higher while the Dow closed up 130 points on the day. On Tuesday, stocks were fairly flat despite a couple negative news events. The Dow dropped 44 points to 12,832. The NASDAQ was up 6 while the S&P was break even. April retail sales were down .2 percent, which was actually modestly better than anticipated. Wal-mart reported a decent profit. Oil spiked again to $127.

Neil Kokemuller
Tuesday, May 13, 2008
11:59 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.