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Housing...Inflation....and other important stuff....

December 12, 2007
Michael Bosso

Michael Bosso

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What does the newly proposed Hope program housing bailout program proposed byPresident Bush mean to the economy?

The honest answer is probably not a whole lot. It is going to effect a very smallpercentage of home owners who are in trouble, and only those who are not currentlybehind on their payments. Many professional analysts say it may not even be put intoeffect due to some illegalities involved in the ability of the Government to affect contractlaw. At a base level, housing prices need to adjust, recessions need to happen, andgeneral market (stock markets, housing markets, and consumer markets) need to pullback from time to time to make the economy healthy. It clears out the mistakes and letsus start over with a clean balance sheet. Over engineering by government agenciesgenerally has long term effects that cause unforeseen consequences. My favorite quotefrom the week was an email to Bloomberg (a financial reporting company) right after theBush announcement. To paraphrase, "Hey President Bush, where is my bailout packagefor the tech stocks I invested in back in 2000?". The Tech bubble was a terrible time forinvestors, but the correction taught people a couple of important lessons. First, don'tinvest in companies that don't make money and have no product to sell, and second "thistime is not different". Economies, investments, and trends can be tracked for hundreds ofyears (data gets a little shaky the farther back you go) and ups and downs are common.Nothing goes up forever, and things don't generally go down forever. Technologieschange and industry are created while others are demolished, but in the long run changemakes our lives better, our pocket-books fuller, and our future brighter.

The inflation question. Every day economists, government agencies, and Presidentialcandidates tell us inflation is under control. I have begun to feel that they never goshopping, don't own a home, and never fill up their gas tanks. The following informationwas taken from a December 6, 2007 article in the Economist magazine. Wheat prices areat $400 per tonne compared to $200 per tonne in May (100% increase); Corn is at $150per tonne up 50% from 2006. From the USDA website the national average cost ofwhole milk for the month of November was $3.83 per gallon compared to $3.17 pergallon in November of 2006 (almost a 21% increase). Even with the housing pullback,National housing prices are still almost 53% higher than they were in 2002 (S&P Schillerprice index). Should I mention oil and gas prices, or would that be overkill?

I would never suggest economists, government agencies, and Presidential candidatesaren't telling you the whole truth, I just want to go live in their world for awhile.

__________________________

Michael Bosso is and Financial Adviser through Pacific West Consulting and PacificMichael PacificWest Securities. He may be reached contacted via email at Mike@teamfbr.com

Securities offered through Pacific West Securities, Inc., Member FINRA/SIPC

Advisory services provided through Pacific West Financial Consultants, Inc., a Registered Investment Advisor

About the author:

Michael Bosso
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