More Signs

                May’s 6% jump in signed contracts to buy existing homes is a welcome sign of returning blood flow to the housing market, which has been on death’s door for a few years now.  It may be too early to say “the recovery is nigh,” but since I am basically a Pollyanna, I will say it:  “The recovery is nigh!”

                In case you are not up on your archaic English, nigh means near or almost.  So you can still take it with a grain of salt if you wish, but it is my fond wish and belief that it is nigh.

                You can also take note that the archaic definition of “fond” is foolish or silly.  Be that as it may, a number of signs and portents point in the direction of recovery.  New home sales are up, affordability is up, mortgage rates are at record lows and inventories are down to a point where home builders may actually have to increase production to keep up.

                Signed contracts were up 14.5% in the West, driven in large part by investors buying distressed properties.  Many will convert them to rentals.  The rental market is strong.  Many investors, no doubt, hope to have a capital gain in the future, figuring prices will rise.  This is known as the “bottom-feeding” play.

                Difficult days are still ahead for real estate.  But it is my fond assessment that the worst is behind us.

Diverging paths

While we are wondering if Europe will become an economic black hole, devouring the world economy, let us also take note of some interesting developments in the US. 1. A revolution in the production of natural gas which offers the promise of relatively cheap energy for, they say, several decades at least. 2. Signs that the housing slump is turning the corner and may be on the mend. For example, the Wall Street Journal reports today that there is an unexpected increase in the building of large new homes. Also, relative to rents and affordability factors, US housing may actually be underpriced right now. 3. Healthy trade in the Pacific region, which continues to grow and is already more important than the Atlantic trading area. 4. Several important US states are making good progress on returning to fiscal health, perhaps providing examples to other states on how it is done. 5. South Dakota is experiencing an oil boom, growing so fast it can hardly cope with various problems that growth creates. The natural gas revolution is something that could spread to other countries, but according to The Economist, there are some factors of the US marketplace that may be so unique that other countries may be unable to follow it in this field for some time. There are more independent operators here, less government interference and other factors. US companies are preparing to export large quantities of liquefied natural gas to other countires. Will these factors provide a powerful impetus for growth? Is our economy on the verge of blasting off? On the other hand, will these things be enough to offset the drag of Europe? Tune again this time next year; we may know more by then.

Health Care and Economics

                As a general rule of thumb, the reason a problem seems insoluble is that the actual anatomy of the problem has not been figured out.  Lacking an understanding of the problem, we heap “fixes” on top of it.  The result is that the problem gets worse. (Credit where credit is due: a talk on the anatomy of problems, by L. Ron Hubbard, circa 1961)

                Even before Romneycare was enacted in Massachusetts, the state had a highly regulated health insurance market.  And guess what, it also had the highest health insurance premiums in the country.  Is it any better now?  No, premiums are even higher.  With all due respect to the current Republican presidential candidate, maybe he could have tried looking into WHY the insurance market was so heavily regulated. 

                The free market may not seem, to some people, to be appropriate for health care.  But to what extent have we actually had a free market for it?  Are there bottlenecks, restrictions, undue influence from a dominant group, excessive regulation? 

                With all due respect (again) to the American Medical Association, maybe someone should have a serious talk with them to see what they can do to take responsibility for their own industry.  Not to impose on them what we think they should do, but perhaps to find out if they are doing anything to skew or restrain the freedom of the health care market.  (Just a thought.)

                It is a multi-level, multi-faceted, extremely complex problem.  But hey, we’re Americans, right?  What happened to our can-do spirit?  Let’s find out what’s really going on.

                Let’s solve it.

Chinese Considerations

If I may be permitted to ramble on this subject, perhaps some people who know more than I do about it can correct me where I am wrong or misinformed. And I am sure I am wrong and misinformed quite a bit on this subject. China was deeply humiliated by the Western incursions into their country during the colonial era. Certainly the Chinese have not forgotten, and undoubtedly it will be a long time before they do forget. According to the novels of James Clavell (Tai Pan, Noble House and others), Chinese culture prizes something which can be succinctly described as covert hostility. If you are going to plot against an enemy, do it secretly and show a smiling face in the meantime. This mode of behavior is not unknown in the West of course, but according to Clavell, the Chinese can take it to quite an art form. Does this mean anything in regard to our future dealings with China? European countries learned long ago not to trust each other—and with good reason. Governments seem to believe that all forms of international relations can be added to the list of things in which all is fair. Americans sometimes show a quaint tendency to trust people. That is all very nice, and can work between individuals, but in international relations we should always have our eyes open and should always prepare for the possibility that the trust could be betrayed. On the other hand, international trade gets countries locked together in relationships that theoretically benefit both sides. This is especially true when governments are less involved. Governments may be scheming against each other, but private companies, while they try to get the best deal for themselves, usually have to accept deals that allow the other side to make some money, too. Sometimes they even build up relationships in which some trust begins to creep in. In this world-wide economy, no country can stand alone. We buy, we sell with all people on earth. It is not sensible to wish that the Chinese economy would break down and we could remain number one. Of course we would like to be number one, but if other large parts of the world economy were to go into decline, that would make us weaker and poorer, too. If we are to remain number one, it should be in an environment in which all the players are doing better and better and we are simply doing the best. Theoretically, it doesn’t really matter who is number one. What matters is that everyone is moving closer to prosperity. Now, it could very well be that China has been using its industrial production as a weapon to inundate the United States with cheap products to drag down our wages and our standard of living and to build up a huge surplus of dollars that could be used against us financially. Anything is possible. Logically speaking it is stupid for countries to try to bring each other down. But that does not mean they do not do it. People who behave that way in private life—trying to sabotage and make less of the people around them—would properly be called criminal or insane. They can make life hell for the people around them. And by golly, that’s what governments so often try to do to the countries around them. At least it has happened far too often in the past. China’s history does not show the type of overseas imperialism that Westerners showed in the colonial period. They gradually expanded their land area. The Chinese believe (I have read) that they represent civilization, and all people will eventually want to join them. Many Westerners, including Americans, have found much to admire in Chinese culture. The Chinese may not realize that we, as barbarian as we are, have a considerably complex and persistent culture of our own: a barbarian civilization, as it were—something that is not going to go away. We may wonder what the Chinese are aiming for with all their growth and their increasing military spending. One good guess, I believe, is that they want to get to a point where no one can ever push them around again. They are very proud and probably believe they were treated very badly by the Western barbarians. And it is true, they were.