Business Cycle or Credit Cycle

[coolhand]

http://www.contraryinvestor.com/mo.htm

[Birchtree]

Coolhand,

Gee, that is a long article - why don't you read and give us the condensed version.

Several heads are always better than one - in most situations.

[Birchtree]

Coolhand,

Better still, I notice the bodacious Wonder Woman has arrived. She already has an extensive library - perhaps she would be willing to volunteer her time and more time to give us just the facts ma'm. I probably won't get time until Thursday - and by that time the world could ending for all I know.

WW, thanks for the windmill- you are a sport. DMA has been growling all day, but he tends to be gracious about his opinions. Hope he doesn't burn up all those pilgrims sitting in the shelter. At any rate it's time for a breather - must go change my cats' cookie box. It won't be long I'll be a house husband.

Dennis

[coolhand]

Aw com'on Dennis, it really isn't all that long. It just has a lot of charts. ;)

Tell you what, if an 8-minute read is too much :shock:skip to the last four paragraphs or so. The writer tries to sum everything up at that point. :^

It means they think we are going into a recession. Surprised?

Japan opened down 95 points out of the blocks.

:( Something starts on Monday. :s

[Birchtree]

Coolhand,

Here is my take : the credit cycle will eventually give way to the traditional business cycle. As a percentage of household net worth since 1999, financial assets are undervalued at 0.9%, real estate as a value of 67.4% is overvalued. My own situation is just the reverse - my household net worth is in financial assets with maybe only 20% in realestate at this time. And that is how we stay.

Five years into a housing boom that has boosted US home values an average of 50% and added an estimated $5.5 trillion to the total market value of residential real estate, many Americans no longer think of their home as just a place to live. Instead, it's a cash machine that can be used to rapidly build wealth. To that end, a growing number of people are tapping into their home equity to invest in more real estate. Pyriel can speak expertly on this issue.

Residential real estate values are driving consumption patterns. Equity lines of credit are being reinvested in more real estate, especially rental income properties.

[Birchtree]

Coolhand - more,

This article was leaning toward the bearish side and I agree with some of the comments but I saw positive signs between the lines, for example: As measured on a percentage basis, this is one of the worst payroll employment recoveries on record. Certainly this is true- but the capital spending on technology improvements of previous years means there is less requirements for new employees at the early stages of our current expansion. This rate of hiring is non-inflationary. The year over year change in service wage growth as of the latest payroll report is 2.8%. We have been treated to negative real wage gains in the current payroll recovery, lagging behind the CPI rate of change. Wages are one of the larger components of inflation that the Fed watches very carefully. Lower wages unfortunately is good for the stock investor.

Corporations are not currently spending their cash on capital equipment as they have in past expansions. This will change overe time. They are using their cash to buy back stock and increase dividends. What happens in deflation - rent prices will be reduced, house values will be reduced, other income producers will increase value, such as stocks. Staying 100% long.