Current Economic Situation is Understandable

The US is certainly in an interesting economic cycle, one that for many is a bit scary, in reality it is a huge opportunity. The two themes that seem to dominate the news are the weak housing markets and the high cost of energy.

I believe that the current correction that is occurring in both is one of the healthiest shift that could occur. The housing market has been a house of cards for the last 30+ years. Something is fundamentally wrong when you see people bulldozing down million dollar houses to build multimillion dollar homes in its place; banks making no money down loans to people with no steady employment. As we all know when you pull a card out the whole thing comes tumbling down, and so it has.

Hopefully this time when we rebuild the base will be on solid bed rock.

Energy, the US has lived a fairy tail life, with relatively low energy costs. This has lead to a number of problems. First, consumption has been rampant. The US has become a corn society; you may ask how does corn relate to energy? Read virtually every label in your home and in someway corn has been involved. It is used for feed, soda pop sweetener, diet sugars, and antibiotics and on and on. Corn consumes huge amounts of oil, from farm equipment fuel, transportation to market fuel and fertilizer. Just to put this into perspective, every cow that is grown in the feedlot has taken on barrel of oil to produce.

High energy costs are already shifting Americans out of the gas guzzling SUVs into more fuel efficient cars. I find it surprising that the likes of GM didn’t see this coming, although I know that there is much more profit in a Hummer then in a Saturn. Local farms are going to become more competitive since they don’t have to ship food around the world.

What do I think will happen now? I am very optimistic about America, we are resilient and we are winners. In the short term oil futures will continue to drop and the big money will be looking for the next big opportunity. The two obvious places are equities and real estate, both of which are very undervalued at the time. With the extremely weak dollars there may also be resurgence in manufacturing in the US, especially when couple with the increased transportation costs.