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How Restraint is Killing the Recovery

If you’re new to the Wall Street Daily Nation, here’s the rundown…

I’ve embraced the adage that “a picture is worth a thousand words.” So each Friday, I hand-select compelling graphics to put the week’s investment news into perspective.

All it takes is a quick glance and you’ll be up to speed on this week’s news – this time, regarding home sales data, household debt and commodities prices.

Whoever said achieving enlightenment isn’t easy? Enjoy!

Housing Supply Spike Means More Real Estate Woes Ahead

I’ve already spilled considerable ink – and ushered in a dozen stats – debunking any hopes of an immediate rebound in the residential real estate market. But how about one more statistic for good measure?

This week, the National Association of Realtors (NAR) released existing home sales data. The numbers revealed an inventory of 3.72 million homes, or a 9.3-month supply, based on the current sales rate.

Simple economics applies here…

Before any meaningful recovery can take root, we need to burn through the current glut. However, as the chart below exhibits, we’re not even headed in the right direction.

Supply is climbing again – and that means more real estate woes ahead. (But don’t kill the messenger!)

Consumer Restraint = Economic Hurt

If you’re wondering why this economic recovery feels different than any other, that’s because it is!

Normally, consumers load up on debt as the economy emerges from a recession. But this time round, consumers were so over-leveraged beforehand, they either can’t borrow any more… or simply don’t want to. Instead, they’re deleveraging.

While I’m certainly in favor of individuals (and the government for that matter) exercising fiscal restraint for a change, doing so means weak consumer demand and, in turn, a slow economic recovery.

The Truth About Rising Commodities Prices

The talking heads love to scare us into believing that out of control commodities prices are going to sap every last penny of consumers’ disposable income.

Wrong. The truth is, commodities prices aren’t a drag on consumers right now.

The recent drop in the price of corn, soy, wheat, cattle, hogs, oil and natural gas is actually acting as a windfall for consumers, leaving almost an extra dollar in their pocket each day.

As I revealed in May with these three charts, the conventional wisdom that hyperinflation is imminent is a crock! This latest chart only serves as further proof.

That’s all for this week. Before you sign off, though, do me a favor…

Let me know what you think about this weekly column – or any of our recent work at Wall Street Daily – by sending us an email to feedback@wallstreetdaily.com or by leaving a comment on our website.

Thanks and enjoy the weekend!

Ahead of the tape,

Louis Basenese