Waiting for the Fed

In Hong Kong, property firms lost ground for a second day on profit-taking as we all waited with bated breath for the Fed meeting tonight (US time 18 September 2007). The expectation is that he will cut the Fed Funds rate by 1/4 percent. Some are hoping for a 1/2 percent cut.

I had just returned from a short visit to the US over the weekend. The man in the street does not appear too concerned about the economy which shows that the sub prime problems have only touched the edges so far. But! I was taking a stroll with my grandson one nioght and saw a "For Sale" sign outside a house on the development. It said, "New Price". This is a weak attempt to disguise "Reduced Further" that we see often in store sales. Homeowners are finding it more difficult to move their properties and can only mean that prices are coming DOWN.

The pain will be felt first by the builders and developers who have taken loans for the development. They will be forced to cut prices to liquidate their invnetory and repay loans. We are already seeing very generous incentives in the form of "upgrades" etc as they try to keep the top line prices from falling. The froth have gone out of the property market and everyone has adopted a "wait and see" attitude which is markedly different from the "buy before it's too late" mentality from the last 2 years. People are no longer camping out overnight to get in line to buy homes.

I went to my bank on Friday morning and was collared by a loans officer who offered me an equity loan on my house. No fees, no costs and a 1/2 percentage off the interest rate. On the surface, this appears to be business as usual. But this is in contrast to people lining up to take out 2nd mortgages to buy vacation homes, or investment properties. People are much more cautious and that can only mean that the adjustment has not yet run its course.

Market Indices
Australia All Ordinaries 6208.00 - 1.20%
Bombay Sensex* 15669.12* + 1.06%
Hong Kong Hang Seng 24576.85 - 0.09%
Japan Nikkei 15801.80 - 2.02%
Shanghai Composite 5425.20 + 0.07%
Singapore STI 3477.75 + 0.04%
South Korea Composite 1838.61 - 1.77%
Taiwan Weighted** 8899.91** - 1.46%

* Intraday trading
** As of Sept. 17. Markets were closed in Taiwan due to Typhoon Wipha.