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Thursday, June 26, 2008

Housing in US set to recover

AMIDST all the doom and gloom so prevalent nowadays, it is very easy to lose one’s sense of perspective.

After reading all the bearish news and high-profile bearish forecasts, one can easily become convinced that the world or the economy is coming to an end.

Fortunately or unfortunately, there are independent folks out there like i Capital who look at the situation objectively, instead of with hidden agenda.

Since the subprime issue broke out in August 2007, i Capital has stuck its neck out again and again, by saying that the global and US economies are still in fine shape. It has been maintaining that the subprime problem is a containable problem. Period.

Even though Greenspan, Buffett, Soros, etc. have all said otherwise many times, data point to the fact that the US economy was not in recession in 2007 and will not be in a recession in 2008, simply because the global economy has decoupled from the US economy.

And the rest of the world, with more than six billion people, is pulling the US economy out of its housing rut.

The latest ISM manufacturing indicator for May showed a US economy that is still very resilient and an important reason for this is strong and sustained export growth.

To understand what is going on in the US economy, understand the i Capital Long Boom.

Besides the strong exports, one should not overlook the fact that the US housing starts and sales cannot go to zero.

With more than three million extra people every year, the US economy needs plenty of houses and the current US housing contraction is only a temporary and not a permanent trend.

After more than two years of steep decline and with house prices dropping as well, houses are getting more affordable.

If there is only one piece of advice that i Capital would like to give in the current turbulent environment, it would be that the US housing contraction is coming close to its end.

As advised previously, the current US economy is not like the Japanese economy of the 1990s. If the US housing contraction is really close to its end, this would have major implications for the US economy in 2008 and 2009.

It would imply that US gross domestic product growth in 2008 and 2009 would be higher than what most have forecast and in the process, surprise folks like Buffett, Greenspan, Soros, etc. who had made bold, highly publicised forecasts of a US recession or financial crisis.

The chart shows that the housing sector has been weighing down the US economy for more than two years or nine quarters in a row.

As the US economy escapes recession in 2008, courtesy of the China-led economic block, and as consumers regain some sense of composure, the US housing sector would see a bottoming in sales and then an eventual recovery.

For now, it does not matter whether the recovery is V or U-shaped. What matters is that the US economy would end 2008 with solid positive growth, in contrast to the generally pessimistic views.

By The Star / By Capital Talk (

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