Most welcome! One of my projects for 2005 is starting up an online macro journal- combination market commentary and grand experiment. Anyone who wants to be notified when this launches, PM me.
I skimmed his book. He sounds too bullish until 2009-2010(Dow 40,000) He also does not see any housing buble until 2010. I also remember though that he was very bullish about the internet stocks in 2000, as we know that some of them went down to the toilet. I also recall that Munder Net-Net Fund was using his Roaring 2000's argument while pitching their fund which eventually had a disastrous ending. I guess time will tell whether he is right or wrong, however definitely he is an ultra optimist at least for the next 5 years.
You make some excellent and compelling points. A few points to ponder is that effectively, the low interest rates substituted one hot sector for another. The people who were crestfallen from their dotcom stocks biting the dust initially curtailed spending (a negative wealth effect), but as the housing prices started to climb, they began to feel like they had wealth again and started spending. It did prolong the party, as you say, but I don't know that it will be five times worse. IMHO, the stimulation was only enough to keep us out of the toilet, and not enough for us to exacerbate a bad situation. The stimulus did provide jobs, which provided taxes, though pundits argue that it didn't create as many jobs as projected. The economy was better than it would be, and new jobs were added, including dotcom jobs. One could argue that the cheap money is facilitating our ability to work our way out of our situation, despite an on-going war which is a tremendous drag on the system. And finally, I followed the concept of how a bubble that creates nothing useful after the collapse is bad. By that definition, the dot com bubble was bad because a lot of those companies don't exist, though you did point out that some of the technological advances still survive. However, the cheap credit has created something good and lasting...houses. Maybe it was a good bubble. It has created droves of people who now have more discretionary funds because they refinanced on fixed notes and so their payments are lower. They will have cheap mortgages which allow them to spend more on other items for many years to come. When rates go up, there are many people who will be very happy they participated in the real estate boom because their payments will remain low. Further, when the rates go up, some people will definitely lose their homes. My question is, after that shake out, will there be more of less home owners, on a percentage basis, than there were 5 years ago? I think the percentage of home owners vs. renters will ultimately prove to be higher, and stay higher, than it was for years to come.
What darkhorse appears to be saying is that a country can compete on the world stage and succeed provided it can supply technological goods/services at least comparable to the amount it imports. A house, no matter how new/good, does not enter the equation unless you want to trade it and have millions of foreigners come and occupy them. Houses are NOT currency. They're really shelter/comfort. Think about it...you import $billions in goods and you want to pay it back with your houses??? That's what you're saying.
Paradoxically, this is what actually happens. 700k/year legal immigrants + twice that much illegal ones are coming to US each year. Any one of them needs a shelter. Putting 3 persons in a house, at $200k average house price, we arrive at $140B/year net money influx - enough to finance about a quarter of current account deficit ! Add to this massive investment by non-residents into American real estate, and you will see that houses are actually most important exporting industry.
Except that immigrants are not slapping down 200G cash for their house. They are buying w/ interest only, ARM mortgages. In other words, borrowing from your Grandma and Grandpa (thank you Fannie Mae!) so that they will have reliable income in their later years and you won't have to support them. Yikes!
Getting off topic here a bit, I see the latest generation of immigrants as *very* different from previous generations. Go to many community colleges and you'll see what I mean. Many are studying with tuition paid by your tax dollars. Others are receiving free housing for 3-4 years (entire families) . IOW, unlike previous generations of immigrants who contributed their labor from the minute they arrived, today, they suck up resources for 3-4 years and then compete for your jobs. I have nothing against immigrants, but the system somehow makes them want to be "permanent students". Oh, and this is interesting. 10-20 years ago, thousands of home construction guys (framers, builders, mostly white, american) gave up on home construction because they could not support their families since the work was not dependable (laid off every 3-4 years for extended periods). Anyway, today, in most of California at least, the vast majority of houses are built by Hispanics. And these guys are *very* hard workers. I saw them working on Christmas and New Year's day last year building brand new subdivisions
"Home (equity) For The Holidays Todd Stein & Steven McIntyre The Texas Hedge Report December 24, 2004 Oh, there's no place like home for the holidays â unless you take a look at the mind-numbing amounts of home equity (which took years to build) being pulled out almost instantaneously to speculate on stocks. According to a December 9th Wall Street Journal story, âhomeowners are pulling money out of their property at greater rates than ever. From 2001 through the first half of 2002, 11% of total funds obtained from mortgage refinancings were used for stock-market and other financial investments. That is up from less than 2% during a previously studied period.â The average sum that people are pulling from their home to use for investments was $24,000, up from ârelatively small amountsâ in the earlier period. The $24,000 plowed into investments topped the averages for nearly all the other categories for which people used proceeds, including home improvement! The Journal article went on to deliver one of our favorite quotes of all time, âIn a brochure distributed at Merrillâs annual meeting this year, it states: âYou may think of your mortgage as a way to buy a house. At Merrill Lynch, we see it as way to build your wealthâ.â So letâs think about this for a minute â the way to get rich is to take on debt? Then take those proceeds from levering up and speculate on overpriced (likely tech) stocks? It appears that only a collapsing dollar (and the subsequent much higher rates that it will spawn) will kill the average Americanâs appetite to live beyond his means. Like a moth to a flame, the U.S. consumer cannot stop himself from spending and will behave rationally only when market forces dictate that he must. The most severe consumer recession since the Great Depression will likely accompany a monumental collapse in housing and autos not to mention a significant weakening throughout the economy. A perfect storm is brewing and we find it laughable that many in press talk positively about the weakening dollar given the chain reaction it is likely to set off. The idea that a country can stem its currency decline anytime it wants when it has such massive imbalances like the U.S. is ludicrous. Likewise, a weakening dollar and the current account deficit are not the self-healing miracles that most economists would have you believe. So far we have really only seen a correction in non-Asian currencies. The largest imbalances are with our Asian trading partners and stem from our insatiable appetite for their low cost goods. A fifteen, thirty, or even fifty percent decline in the U.S. dollar will not be enough to make us competitive with labor costs that our often 1/10th of what we can offer domestically. Only by a dramatic pull-back in U.S. consumption of Asian goods (resulting from the U.S. consumer being forced to fix his debt-laden balance sheet in the midst of higher rates) will the consumption imbalances begin to correct themselves. Santaâs gift for Christmas may come in the form of massive dollar devaluation. Our readers are aware of this and many have been wise enough to keep their savings in something other than dollars."
Like a lot of discussion on this thread: the thesis may be right but the conclusion is wrong. If I believed that a massive dollar devaluation lies ahead than I want to be a massive borrower today as I can payback to-morrow with cheaper dollars. What will burst the asset bubble is not dollar weakness or even the perhaps correspondingly higher interest rates, but dollar strength. Home owners would be beneficiaries of a dollar collapse. If you had Argentinean type currency problems in the U.S. (which will never happen) then a studio apartment would sell for 7 million dollars. Of course your monthly electric bill might be 100k too. But the point is being long dollar denominated assets and leveraged to the hilt is MUCH preferable to being merely long cash.