MADISON, Wis. – Under the dark cloud of a recession, it may be hard to calm jittery investors but patience may be key as banks continue to make adjustments with their capital and lending efforts.
"Once banks gain a true handle on their capital and begin lending again, the price of mortgages and refinancings should be at levels that are more affordable, thus driving more volume while potentially stopping the housing skid," said Scott Powell, managing director, common stocks and managed accounts at MEMBERS Capital Advisors Inc. in a Dec. 1 MarketLine alert. "But investors are going to have to be patient in letting this phenomenon play out."
Even so, credit markets are still substantially frozen up and house prices are still falling.
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"The cost of credit is high, if you can get it at all, while the velocity of money is way down, causing the economy, asset prices and commodity prices to contract."
Meanwhile, yields on longer dated U.S. Treasuries continue to fall dramatically as investors move into government paper, Powell said. It would not be surprising to see the Nov. 20 market lows retested, he added, saying "assuming that does happen, and the low would hold, the formation of a triple bottom in the equity market would mark a significant, and potentially promising, milestone on the road to future market stability and recovery."
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