The Stock & Bond Markets -
Despite troubling economic news, the stock market had a great 3rd quarter with prices of the major indexes reaching levels not seen since March 2000. Among the issues of concern are cutbacks in consumer spending as rising mortgage rates (which require a bigger percentage of peoples income than ever) and falling home prices are both limiting (actual) the ability and willingness (psychological) to spend since consumers feel less wealthy. As for savings, despite tax cuts and incentives, Americans are now saving -.5% (yes, that's a negative number and marks the 17th consecutive month in negative territory). And consumers aren't alone - the U.S. is running a $3 billion per day trade deficit whereas China has a trade surplus of $500 million per day - not a positive trend regardless of how polititicians may want to spin the story. A welcome relief in gasoline prices has eased some concerns with prices falling over 20% in the past 7 weeks. And so, the rising market and negative economic news continues to surprise even the most seasoned investors.

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Real Estate Bubble? -
While home prices rose 10% from spring quarter 2005 to 2006, this represents the sharpest decline in the quarterly growth rate in the Office of Federal Housing Enterprise Oversight (OFHEO) House Price Index since 1975. Additionally, the National Association of Realtors indicated the pace of home sales fell for the 5th straight month with prices dropping from year-ago levels for the 1st time in 11 years. KB Homes, one of the largest homebuilders in the country, stated their 3rd quarter orders are down 43% from year ago levels. And finally, the nation's largest home lender Countrywide Financial funded 24% fewer loans than they did during the same period last year. The air has clearly been let out of the bubble. The question is whether the landing will be soft or hard.