Feb 19 2009
What signals the Economy rebound in America?
Billions of USD has been pumped into the U.S Economy in what appears to be a consolidated attempt to revive it. Partisan politics and the leading Economists continue to argue on the pros and cons of the recent Stimulus Package from the Obama Administration.
All of a sudden, America and the rest of the World has given birth to countless “Economists”, each detracting on the steps taken to contain the massive onslaught. Each too not being able to expound comprehensively on what it will take to arrest the present financial impasse.
Somewhere in all this, we are wont to know when all this will pass. The experts always believed that when the price of Copper starts to increase, that’s when the Economy is on a come-back. It has always been Copper because it predicts recessions and booms.
This time however, there is a new indicator. It’s not Copper.
It is a much more valuable indicator for right now, and no one’s paying attention to it says Tom Dyson.
He goes on on explain as follows.
The people in charge of the economic recovery have decided if they can “fix” the real estate market, then everything else will fix itself.
So the Fed has aimed its printing press directly at the real estate market. It will buy $500 billion of mortgages using freshly created dollars. The government has focused many of its plans on the real estate market, too… like its recent demand for the banks to halt foreclosures and Obama’s $50 billion mortgage and foreclosure rescue plan which comes out next week.
In other words, the U.S. real estate market is the main pivot in the whole economic mess we’re in right now. If you can figure out what’s happening in real estate, you can figure out everything else.
The best leading indicator of real estate is lumber. About two thirds of American demand for lumber comes from the homebuilding and remodeling industries… so its price is highly sensitive to strength and weakness in construction.
Take the timeline of the current crisis as an example. The lumber price reacted before any other market: Lumber prices peaked in May 2004. The Bloomberg Homebuilders Index peaked in July 2005. The Case-Shiller U.S. home price index peaked in July 2006. The credit crunch started in February 2007, when New Century Financial collapsed. And finally, the S&P 500 peaked in October 2007.
When the recovery comes, it’ll show up first in the lumber price, too. Right now, lumber is down 66% from its 2004 all-time high. A standard railcar load of lumber sells for $17,050 – the same price it was selling for in 1973.
Looking at the monthly chart, there’s still no sign of an uptrend but I can report the lumber price has risen 12% in the last three weeks, up from 1969 prices.
(Kind courtesy of Tom Dawson)
