World resource are limited
5-21-11

We all noticed the recent prices of commodities have been rising significantly.  Of course, there are some speculators to make some money.  However, the real force of the change is, it appears, we have surpassed the point where the historical productivity grow that could no longer meet the rising word demand of resources.  It may be the most important change in our economic time that the lowest prices of commodities before 2000 may not be available in the future.

Biggest problem of U.S.: debt
4-2-11

Do you know the annual GDP of the U.S. in 2010?  It is about $14.7 trillion.  A second question: do you know the annual budget for the U.S.?  It is about $4 trillion for 2011.  Once we are at it, let me ask the third question.  Of this budget, approximately how much is for Medicate, Medicaid and Social Security (non-discretionary entitlements)? What if I say about 44%.  Add to this the defense spending of 24% and the interest payment of 7% (a total of 75%), the remaining discretionary spending is only 25% (for education, infrastructure, agriculture and housing).

In 2011, it is expected the U.S. would have a budget deficit of $1.65 trillion and the total U.S. debt will reach $15.5 trillion.  That is excluding the real problem of U.S. debt of un-funded Medicare, Medicaid and Social Security in the amount of about $76 trillion.  Most likely, the U.S. government is unable to trim down these entitlements.  Thus, we will eventually see either higher inflation or declining U.S. dollar or both in the future.

Less chance of double dip
7-21-10

There are many well known economists predicting the U.S. economy would encounter a double dip recession.  I also used to think the same as there are too much debt and printed money by the U.S. government.  Other negative views that I had were the U.S. government is interfering too many ways for the free capitalism to work itself out by nationalizing the health care system, taking ownerships in auto, bank, insurance and other public companies; no government in the world history did a good job when it controlled its economy (especially the failed communistic countries such as Soviet Union); and how the heavily debt countries are facing their consequential problems, such as Greece.

Nevertheless, at the same time, I was deeply puzzled by the behavior of the world's greatest investor, Warren Buffett, who is keep investing and buying big companies despite the U.S. worrisome economy.  During the severe and scary downturn in 2008 and 2009, I followed and conveyed his wisdom to my clients not to sell their equity investments at the dirt cheap prices, a 100% sure way to lose money.  Many clients did not listen to me and they felt good by selling their investments at 50% to 70% losses.  They could not stand the pain to see every day their investments were keep going down.  However, from March 2009 to April 2010, the stock market recovered about 78%.

What Warren has been saying is that no one can make money by betting against the U.S.  Trying to understand a little bit of where he is coming from, I purchased a book called, "It's Not as Bad as You Think, Why Capitalism Trumps Fear and the Economy Will Thrive" by Brian S. Wesbury.  What a book!  You should buy and read it.  Only this system, capitalism, has been very successful in our human history by overcoming all obstacles, such as World War I and II, etc.

Nobody can predict the economy.  Thus, there may be a slight chance of another severe downturn.  However, with the property rights, rule of law and the most importantly the free human incentive will overcome many obstacles down in the road, which has been since 1776.  Fear itself is the most scariest enemy of human being.  Yes, there was a serious problem in 2008 by lending recklessly to no creditworthy borrowers just to make unbelievable fees.  However, at the moment, there is no such danger.  As a matter of fact, lenders are now tighter than ever.

The U.S. government is now getting paid back of its money it invested in companies.  Moreover, generally companies are making good profits at the moment.  If the economy is getting worse from now, the government is ready to pump in more money to resuscitate it again.  The real trouble would start if the inflation comes along the way.  That's what many investors and economists have been predicting but it did not happen so far.  It appears it would not happen in the near future because the unemployment rate is staying high and the stagnation in the economy will stay for a while. 

The housing bubble started to deflate
1-20-09

Housing prices in the U.S. may reach its bottom in 2010 by falling 10% to 15% from the current prices.

The housing bubble started to deflate
8-21-06

Past a few years, we have been writing about the housing bubble and the following are the current market comments: 

Minneapolis/St. Paul...
"15 houses per buyer. If we had buyers."

U.S. dollar is expected to fall
1-29-06 (initially written on 10-25-04, see below)

Even though the U.S. dollar has recently gained against most currencies, it is expect to resume its decline as the U.S. trade deficit continues getting worse.  The value of dollar is expected to continuously decline in the near future, until this problem is properly dealt with.  The U.S. dollar has been steadily declining since early 2003.  As such, some shrewd investors are taking this advantage by buying other country currencies betting against the U.S. dollar to keep loose its value.

Possible recession ahead
9-11-05

Due to the housing bubble, high debt level, and rising commodity and oil prices, the U.S. economy may be heading to recession in the late 2006 and 2007.  If the housing bubble stops expanding, deflates or burst (which any one of these may happen soon), then the weight of high level of the U.S. debt is expect to slow down the economy or bring it into recession.  Fighting the inflationary by increasing the interest rate may reach its peak at 5%.  A successor to Alan Greenspan may need to work on the necessity to lower rates once again.

Housing may be cooling
8-12-05

According to The Wall Street Journal, the number of homes available for sale has increased sharply in some of the nation's hottest real-estate markets -- one of several recent signs suggesting that air may be seeping out of the frenzied U.S. housing market.

Home prices have surged an average of about 50% in the U.S. in the last five years, largely thanks to the lowest mortgage interest rates in more than four decades and what has been a shortage of available homes in many markets. But some economists and housing-industry analysts believe supply is catching up with demand -- a trend that could cause home-price appreciation to slow down in the months ahead.

In San Diego County, for instance, where the median home price has more than doubled in the last five years, the number of homes listed for sale totaled 12,149 on July 8, more than twice the 5,995 available a year earlier, according to the San Diego Association of Realtors.

In northern Virginia, an area dominated by the fast-growing suburbs of Washington, inventories are up 26% from a year earlier. "Sales have slowed down for sure," says Tip Powers, president of Realty Direct Inc., Sterling, Va. He says home prices have flattened out and speculators are starting to shy away from the market because they no longer can count on quickly unloading properties at a profit.

A similar rise is being seen in Massachusetts, where home inventories are up 31%, according to officials of real-estate organizations there. Real-estate brokers say inventories also are up in such markets as Chicago, Las Vegas and Orlando.

To be sure, housing demand has appeared to stall at previous moments in the boom only to pick up steam again. Judging the strength of the housing market is especially tricky in August, which is normally a slow month for home sales because so many people are on vacation. A year ago, inventories also were up at this point in the year, but supplies grew tighter in some cities later in the year and prices kept surging.

Economists and real-estate analysts say they won't be able to determine whether the market as a whole is slowing until September or October at the earliest, and note that housing conditions vary among communities.

Real estate bubble and problems of trade deficit
6-28-05

There are imbalances in the real estate market in the U.S.  With the low mortgage interest rates with abundant available credit and also herd mentality are all coming together in the real estate market, just like what we had a bubble in the stock market a few years ago.  Just like in late 1990's to the early 2000, there is definitely something wrong if one can make a lot of and so easy money than what one can make from a regular job.

The U.S. current account deficit will cause a big problem and lead to a weaker U.S. dollar for the next five years.  The spending habit of the U.S. citizens will not be easily corrected, which nowadays fueled by borrowings such as home equity.  This will lead to a path which the most intelligent people described as dangerous.

Chinese companies are now trying to buy the major U.S. companies, such as Maytag and Unocal.  However, this is an inevitable result of the trade deficit.  They are keep selling goods to us.  With the money they make they have been buying treasuries and now they want to buy U.S. assets.  Simply put, one cannot spend more than one can produce without give up one's assets.

U.S. dollar is expected to decline next few years
10-25-04

As the U.S. trade deficit has been worsened, to the point that its net worth is now being transferred abroad at an alarming rate, the value of dollar is expected to continuously decline next few years, until this problem is properly dealt with.  The U.S. dollar has been steadily declining since early 2003.  As such, some shrewd investors are taking this advantage by buying other country currencies betting against the U.S. dollar to keep loose its value.

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