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to take on new debt until they are certain that the economy

truly is recovering no doubt plays an important role as well.

Whatever the reasons it is an historical fact that each recovery

has this momentary pause that gets everybody worried that

maybe the recovery isnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t all that strong after all. They

nervously look to the unemployment number - which always

lags the recovery and therefore provides the skeptics with

readymade proof that the recovery isnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t for real. It doesnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t

seem to matter how many recessions play out this very same

way, each time one comes along there is never a shortage of

people who wrongly claim that the recovery hasnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t begun

because the unemployment number has not yet moved

significantly lower.

We have two other charts which we think might just make

you feel a little bit better about the sticky unemployment rate.

On page 6 you will see a chart on worker productivity. This

particular chart shows you what was happening to non-farm

productivity from 1991 to 1993. YouÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ll recall that 1991 was

the year after a short, sharp recession had caught most of the

country off guard. George H.W. Bush was in the White House

then and he was preoccupied with getting Saddam Hussein

out of Kuwait. The conventional wisdom had always been

that war was good for the economy but the first President

Bush, mindful that he did not have the full support of Congress

to fight the war, chose to fight it on the cheap - so to speak.

Rather than buy new armaments the president used only the

equipment on hand as well as the military supplies of the

many allies he had convinced to join him in the effort to roll

back the Iraqi invasion forces.

The result was the first wartime recession in quite some time.

But despite the war being waged during the early months of

1991, the U.S. economy continued to grind through all the

usual stages of a run-of-the-mill recession. Negative growth

was accompanied by rising levels of unemployment. Soon

followed the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“V-shapedÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ growth spurt signaling the end of the

recession and always necessary inventory rebuild. That was

soon followed by a temporary lull in growth and the

accompanying baying that this time it was going to be different.

This time the jobs would not be coming back. As the recovery

took hold in 1991-92 these businesses saw demand pick up

but were uncertain if the recovery had staying power. They

went about filling new orders, but they did so without restaffing.

That led to big gains in worker productivity.

Fast forward to today and the chart on page 8. Notice how

the sharp jump in productivity mirrors that of the one seen

after the recession of 1990. Note also how the steep rise in

productivity seems to have crested back in the first quarter of

this year and actually declined in the second quarter. Much

was made of this number when it came out. Everything written

or said about it was negative. The analysis by Fox News was

that the drop was bad news because lower productivity meant

higher labor costs, which would be inflationary. For the

moment, let us overlook the fact that higher labor costs are

not inherently inflationary since inflation is a monetary

phenomenon caused by too much money chasing too few

goods. Higher labor costs are not a proxy for excess money

creation - they are simply costs that reduce the profitability

for business, like higher oil costs or the need to settle a big

lawsuit against your company. You never hear a news report

that suggests a company being forced to fork over a large wad

of cash after losing a lawsuit is causing the general price level

to go up! But a funny thing happened on the way to higher

inflation. It ran smack dab into the conventional wisdom that

America was caught in a Japanese style deflation that was

sure to bring ten years of economic misery to the U.S. - just

as it had to Japan back in the 1990ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s. The story about the

decline in productivity was dropped and forgotten.

ThatÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s too bad. In post-recessionary periods the cresting of

rising productivity rates is one of the earliest signs that business

has reached the end of the line when it comes to getting more

production from their recently pared back workforce. ItÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s a

sure sign that new hiring is going to be needed if these

corporations hope to fill all the new orders coming in the

door. Far from being a harbinger of doom as portrayed, the

declining productivity number is a clear signal that the economic

expansion has at last reached that critical point where new

hiring will be needed.

Here again we have a recurring signpost that appears

in all recoveries - yet there is a determined effort

underway to pretend it doesnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t exist.

I suspect that the looming congressional elections might have

a great deal to do with this. It appears that the politicians on

the left wish to placate their traditional supporters with even

more economic stimulus packages and targeted tax cuts to

promote the importance of big government during times of

economic uncertainty. On the right you have a group that

believes that a stagnating economy will make their opponents

efforts to combat the recession look ineffectual at best,

damaging at worst.

While there is no denying that the upcoming election will have

a dramatic impact on which policies the country chooses to

implement in the next couple of years - policies that will help

determine the level of prosperity the country enjoys - it is also

a fact that this economy has a cyclical element to it that is

going to unwind no matter who controls the Congress. The

recovery has been following a classic pattern and it will

continue right up to election day and then beyond. Failing to

believe this will stop you from making informed decisions

about your business and your investments.

The charts on pages 10 and 12 show how the popular media

can sometimes take numbers coming out of Washington and

misinterpret them because they are filtering them through their

preconceived notions about the state of the economy. The

chart on page 10 shows you that the level of consumer debt,

relative to the GDP, continues to fall. Each month the

consumer credit number is released and there is an immediate

gnashing of teeth and wringing of hands about the continued

decline in consumer debt levels. It is always pointed out that

consumer spending is 70% of the economy and that continued

weakness in the jobs market means that the country is doomed

to years of barely discernable growth at best due to a need to

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“de-leverage.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ It is interesting then when you look at the

chart on page 12 and see what has been happening to retail

spending in this country over the past year and a half. All

those who predicted that the weak jobs market and falling

debt levels meant that U.S. consumers would not go out and

spend have obviously been proven very wrong. While retail

spending can (and does) fluctuate from month to month the

trend since the start of 2009 is unmistakable. Consumers are

spending again. In fact it seems likely that retail sales will

recover their old highs sometime in 2011 and this will happen

despite the fact that consumer credit will continue to contract

for at least another year or two.

It appears that people are so nervous about the

strength and durability of this economic recovery that

they seem only to concentrate on the items that

bolster their argument that things are not going so

well while ignoring any signs that the economy is going

to be OK.

In addition to the two examples we have already sighted, you

have the near hysteria that broke out on Wall Street after the

most recent first time jobless claims number was reported as

up 12,000 to 500,000. That the number moving back up to

the 500,000 level is bad is undeniable. But we need to add

some perspective to this number. Much of the rise in jobless

claims is coming from recently laid off state and local

government employees. People who were spared layoffs

earlier because of the massive amounts of federal government

stimulus money used to cushion the effects of the economic

slowdown on the states. If this aid had not been provided it is

likely many of these people would have lost their jobs a year

or two ago. That would have pushed up the unemployment

number back then, probably to around 12%. If that had

happened we would have been talking about unemployment

being stuck at 11.5% today instead of 9.5%, but what we

wouldnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t be talking about is the possibility that the economy

was stalling due to rising first time unemployment claims.

It is a well established fact that the jobs market is the last

thing to begin improving after a recession. Everybody knows

that, but they canÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t help but worry that this time the recovery

really is going to stall and no new jobs will be forthcoming.

If we were not seeing a turnaround in the leading indicators,

those that tell us what the economy is likely to do moving

forward, then we would be out front warning you about it.

But there are lots of signs that things have improved and that

they are continuing to improve. Besides retail sales you have

rising government revenues as an indicator that the economy

is springing back to life. As the chart on page 14 shows the

governmentÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s revenue picture has been improving for three

straight quarters now. Yes it remains well below the peak

reached in 2007 but, once again the trend is unmistakable.

Revenues are growing fast enough that the Congressional

Budget Office has just released a new estimate for this yearÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s

budget deficit that is slightly below earlier estimates at $1.342

trillion. The budget deficit for next year is estimated to be

$1.066 trillion. While these numbers stagger the imagination

it must be noted that next years number is almost $500 billion

lower than last yearÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s budget deficit. Such improvements are

indicative of a growing - not shrinking - economy.

You should not forget the housing industry when talking about

parts of the economy that are rebounding. Due to the illconceived

tax credits for first time home buyers (ill-conceived

because studies show that the tax credit only made people

buy sooner rather than a little later ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ producing no real gain in

home sales) it is very difficult to discern any real improvement

in the homebuilding market. The chart on page 16 seems to

indicate that homebuilding, while certainly not in the freefall

that marked the post-bubble era of 2006 to 2008, only appears

to have stabilized at much lower levels over the past year and

a half. But the chart is misleading. ThatÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s because it includes

all those years when the country was building way too many

new homes so the scale of the chart needs to be quite big,

obscuring recent improvements. If you take a snap shot of

just the past 19 months you get a better sense of the recovery

taking shape. On page 18 you can see such a chart, but even

here you need to do some visual adjustments to account for

the expiration of the latest tax credit in April. The looming

expiration moved many sales that would ordinarily have taken

place in May, June and July into March and April. Adjusting

for all that you find, on average, the country was starting

around 550,000 new homes ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ on an annualized basis ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ in

2009 and through July of 2010 that average has been about

600,000. Historically, a healthy annual new housing starts

number runs at around 1.5 million new homes. This country

hasnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t seen that rate of growth since April 2007.

For more than three years now we have been under building

homes. Obviously that was necessary to work off the excess

inventory that was built up during the bubble years. The

question is ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ how much longer must builders under build to

clear the market of excess homes? Much is made of the

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“shadow inventoryÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ in the housing market. So called because

it is believed that these houses will be unseen until the banks

finally foreclose on overdue mortgages and dump upwards of

4 million homes on the market ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ directly competing with any

new homes out there for buyers. This alleged shadow

inventory is the main reason why many people wrongly

predicted that home prices would continue to fall in 2009 and

2010. They remain certain that these pending foreclosures

mean real estate will not get healthy for years.

There are a couple of problems with their analysis. First off

20 THE FRC MONEY FORECAST LETTER

SEPTEMBER, 2010 21

they are assuming that the population in this country is

somehow going to remain stagnant. As the chart on page 20

shows, this is hardly the case at all. The population of the

United States climbs fairly consistently at close to 1% a year.

There are now an estimated 310 million of us here in America.

ThatÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s nearly 30 million more than were here just 10 years

ago. All these people need to live somewhere. When a family

tragically loses their home they must still live somewhere.

Yes, it is possible that while times are really tough they may

end up living in the spare bedroom at a friends house or maybe

back at their parentÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s home. But as the economy recovers

these people will once again be out looking for a place of their

own. It will likely be smaller and less expensive than the

house they lost during the downturn, but they will need housing.

DonÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t think that a drop in home ownership is the same as a

drop in the number of homes needed to house everyone in

the country. In addition to all those displaced people out

looking for a place to live you have roughly another 10 million

new people looking for housing just since 2007. The excesses

of the home building industry from 2000 to 2006 produced

roughly 2.5 million more homes than we needed. Since then

the homebuilders have under built to the tune of some 2.3

million homes. That suggests that sometime around the end

of 2010 the housing market will have achieved a new balance

and the homebuilders will need to start building nearly another

1 million more homes a year than they have been to keep up

with constantly rising demand.

Imagine for a moment what will happen to the growth rate in

this country should this come to pass. Talk of a ten year

Japanese style recession will evaporate. Talk of sub-par

returns in the stock market will do likewise. The housing

22 THE FRC MONEY FORECAST LETTER

market is a very important part of the economy. Its decline

was directly responsible for the collapse we saw earlier this

decade. Its revival will go along way towards putting our

economy back on solid footing.

It is easy to lose sight of all the things going right for this

economy these days. It has been ten years since the last time

this country had to shake off the effects of a recession and

rebuild the economy. It has been nearly 30 years since this

country has faced an economic downturn as severe as this

one. It is only natural that we would have forgotten how

much hard work must be done to get people back to work.

But much of that hard work has already been accomplished.

Earlier we mentioned the Congressional Budget Office and its

report on the budget deficit. Among the many other CBO

estimates was one that suggested that it will be 2014 before

the country has produced enough new jobs to bring the

unemployment rate down to 5%. This fact was offered as

proof of the severity of the economic downturn and the

difficulty the country will have in getting back to where it

belongs. It should be noted that it usually takes this country 5

years to replace jobs lost in a recession. Far from making the

case that this economy is somehow destined to walk, zombielike,

through the next few years, the CBO is really saying that

they expect this recovery to be much like all previous

recoveries. Perhaps once the economists and members of

the media come to appreciate this simple fact we will see

investors stop sweating every time a new press release comes

out of Wall Street or Washington. Your patience will be

rewarded

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welcome back e-b !!! :)

and sincere wishes for a successful rehab! Great to see you haven't lost your sparkling spirit during all that time!

Take it easy and enjoy every "bran niu dae" - for many days and years to come :B):

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Hi EB

Just had a big break from the market myself, but for a different reason. Busy preparing our house for sale. Could say neither of us had much fun by the sounds of it.

Glad to hear your on the mend !

Here's wishing you a speedy recovery :)

Cheers

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mate, i went into hell and one of my foot still stuck in there, :( can't eat prop, scared of vommit some time. the neck musules still not heal........

 

anyway, life goes on, and Doc. siad to me that i'll be nomal, it just takes time. freaking after three months of oppration i'm still not nomal. but can sit and trading that is good way to pass time!

 

hope you can do a better deal for your house, plenty chinese out there hunting......hehehehe

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not so bearish for me for once, don't know what they did to my head in hospital! ;)

 

LOL - So that's what I need to change my attititude - a bit of brain surgery :lol: My family would probably say that they've know that for years. LOL

 

Do me a favour - if you (and this goes for all the regulars here) ever pop out again except for a nice holiday. please have your wife PM me. I've been worried about you (and a few other SS buddies who have gone MIA). It's so great to hear you are on the mend.

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:lol:

what is your down side target Dan??

 

for me, i think SPX will up and down around 1100 till year end. the yeild of 10year just too low and most of company held too much cash in their balance sheet and Gov, from US to Japan still want to print more paper....... shake my head. it is not nomal market!!

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