Monday, October 13, 2008


In London markets, there has been a bounce of 4 to 6% this morning, let's call it a 5% bounce. Every day, while this crisis plays out, assets are being sold by the weak and gathered in by the strong. The good news is that the number one asset class has been making a bottom. Real estate construction has died and the excess of prior inventory is being absorbed.

The recession has caused even more real estate to come onto the markets, but it too is being absorbed. Bring mortgage rates back in line with government securities rates and a mini housing boom will develop. Houses are more affordable today than they have been in a number of years.

The world economy continues to grow. Even growth in the US economy is going to surprise many. Our export-import growth continues. With China and India still above 7% growth rates, US export and import growth is adding a couple of percent to our economy. Housing construction is no longer a big factor. Housing construction has been low for more than a year; the slowdown in housing construction is over.

US GDP is likely to have been negative last quarter but the decline in the price of gasoline to the $2.40 range in a few weeks will give a powerful boost to the economy before the holiday buying season. The average family is going to have much higher free spendable cash next month than what they had last year.

The 5% bounce of one day is going to turn into a 500% bounce.