Wednesday, May 11, 2005

US Economy is getting teed up for a long drive

Here's what one major brokerage advisor had to say about housing and the economy last week:

"On a year-over-year basis, median existing home prices jumped 11.4%, with the strongest increases in the highly speculative condo market (15.9%) and in the already red-hot West (18.9%). What started out as a reasonable response to a low interest rate environment has become a bubble in one-third to one-half of the market."


"We expect a long adjustment ahead, with a significant decline in the dollar against a wide range of currencies. The length and magnitude of the adjustment means accidents are likely along the way. Among the warning signs are:

1) protectionist measures in the U.S. and Europe that invite retaliation from Asia;

2) a game of hot potato, whereby investors try to shift out of dollar assets before the dollar falls further, putting more of the buying burden onto the remaining supporters of the dollar;

3) reorientation of currency pegging toward baskets of currencies rather than the dollar;

4) events in Asia that encourage selling foreign exchange assets to deal with local difficulties; and

5) a sharp shift away from export-oriented growth policy toward domestic demand-driven growth policy, reducing the need to buy dollar assets. "

... Fore!

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