A recent USA Today article confirmed to me that we shouldn’t allow folks like Warren Buffett to make comments in the media any longer as the “Sage from Omaha” latest prognostication has left me scratching my head. As the octogenarian mogul stated that he believes our economic salvation will come in the form of renewed housing starts. Ok, this goes to show you “kids” you don’t have to be smart to have a lot money, just convince people that you are and they will follow, as Warren we need to talk.
First (Warren), let’s look at demographics as more people are dying then being born, so with existing supply far out striping demand why would we want to build more new homes? So strike one Mr. Mogul, next up is the fact of the resources themselves as at the time of the last housing boom China was not the hungry monster it is now. With that said, many of the raw components which fueled the original building “boom” where cheap and those days are gone as their value off shore is far higher than on if they are sourced here [in the first place] and if not their value to China and the east is greater than here in the states. Thus strike two for Mr. Sage as no longer is there a need and two the cost is going to be significantly higher too. So again, this is why the market is packed full of existing properties for pennies on the dollar.
Speaking of dollars, where are they going to come from as no one (rhetorically) has a job, ok well at least 9.2 percent don’t and that doesn’t count the people who have fallen off the rolls and given up so will bet more on a number of 11 to 12. Also the government isn’t going to be able help as they have already done their damage with Quantitative Easing One and Two. Thus strike three Mr Buffett to your Omaha based wisdom your wrong about this one so maybe a game of bridge with Gates might be more your speed these days.
So ok, what is the answer you ask, that’s a good question and for one thing its easier to answer in terms of what its not and those are autos and homes. Yes we need both however we have enough of each therefore life for them will be more about equilibrium then growth. Alright know that still is a little of a cop out as it’s easier (as fairly noted) to call the losers rather than the winners. As if push came to shove the answers for me are Biotech and Semiconductors as odd as it may sound, both are interrelated.
However the real answer will not come till we see a greater inflow of hard cash back into the country as guess what our biggest problem today is? If you guessed “we are out of cash”, you’re officially smarter than a fifth grader…
Note to Readers: yes, fully realize there will always be new housing starts as inventory turns over in age and location. However the days of the boom demand are gone, therefore this should be viewed more as a measure of equilibrium rather than growth.