Understanding How... As the California Recovery Goes, So Goes the Nation (Plus a Note on Today's Market Flux)

There's an important article today that you are likely to overlook, and guess what? It lays out in detail what the recovery is likely to look like... under a microscope... just for you. Remember, if you buy into the thesis that a recovery can't happen without home prices stabilizing then you shouldn't ignore today's Wall Street Journal article on California. Most Why You Care readers are familiar with the political maxim: As California goes, so goes the nation. It turns out, so does the economy.

Here's why you care: The Journal article today is important for two reasons. First, it gives you a detailed understanding of how the market will unfold by providing evidence of properties in certain California communities starting to sell for bargain basement prices. The result is a domino effect into the next community driving prices down further, but with the promise that they will start to be bought on the market.

Second, it cites a study claiming that while "California represents about 12% of the nation's population, its homes account for 34% of the loans in a typical mortgage-backed security." Wow - 34%. That means even if you don't really care about the California market, you actually have to because it impacts the economy, and the banks where you keep your money, and your 401K which likely includes investments impacted by the mortgage/credit crisis.

(Quick primer on a mortgage back security: That's where an entity buys up a bunch of mortgages, stuffs them into a salami casing, and essentially cuts pieces off and sells them to investors. Each piece contains different percentages of a variety of mortgages - some more safe than others.)

Bonus why you care about today's market flux: Notably the New York Times and others are pointing to earnings reports today as the reason for the market roller coaster. However, we note that this past Thursday when we published Next Week's News Today on our site we highlighted that this week's action would be due to earnings reports. Just another reason to never miss each Thursday's Next Week's News Today.

As always, our goal: Put you ahead of the curve and decode the business pages.