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Keep Your Chin Up!

August 20, 2007 All of us are trying to assess the impact of the puncture of the housing bubble on retail sales.  David Phelps in The StarTribune suggests it already is having an effect: 

“After more than a year of signals, warnings and fears, the slumping housing market is finally taking a bite out of a wide swath of the economy.

Home builders, clothing retailers, paint manufacturers and many companies in between are all blaming recent woes on housing.”

Besides the depressed housing market, Americans also are coping with persistently expensive gasoline, higher food costs, high debt levels and a volatile stock market that does little for their confidence. 

On the other hand, and for economists there is always the other hand, Larry Kudlow of  Kudlow's Money Politic$ writes “The economy is in relatively good shape. Stocks are still at a relatively high level. The unemployment rate is low. The vital economic signs are positive.”  

I might add, so far the Dow Jones Average has fallen roughly from 14,000 to 12,600, a 10% correction.  Painful, but not terribly upsetting.

One of the most startling prognostications I’ve read recently is from Don Hays owner of the Hays Advisory (By subscription only):

Okay - here's our strongest belief. You are living in a world when it is inevitable that Democracy will completely envelope the world. We believe the transparency of what Democracy produces in the way of freedom will destroy all methodologies, dictators and religious zealots that try to prevent the evolution.

We believe the massive productivity enhancements of the Technology Revolution will make it virtually impossible for inflation to be a problem in our lifetime. The governments of the world will have a constant battle trying to keep inflation up to the desired 1-2%.

In the last 18 years the huge digestion of the newly emerging capitalistic economies - as Democracy has gradually spread, has produced the potential of over 2 billion new consumers.

There has never before been a massive new sponge of potential consumers like this one, and corporations everywhere are sitting on tons of cash, and ready to produce goods to satisfy that new hunger. Every person that gets a job in one of those new factories, or immigrates to an old economy and gets a job, becomes a part of this new massive engine of growth. One job, one consumer, and that produces a need for the next job to produce a product for the next new consumer. Geometric growth is a wonderful thing if you are a producer.

We are proceeding on the assumption that housing needed a correction, that it won’t be fatal.  There will be many with Zero-down or adjustable mortgages that will be hurt by the recent credit crunch.  We may even see some startling bankruptcies.  However, the Federal Reserve will make sure there is no shortage of capital and we may even see the interest rates move quite a bit lower.  That may lead to a much lower U.S. dollar that could give our exports a big shot in the arm.  We plan on keeping our chin up and our minds focused on meeting our clients needs.

You can email me at landfair3554@comcast.net

Posted by Mike Landfair on August 20, 2007 | Comments (0)