"Use Your Common Sense"

October 13, 2009 - SF Bay Area (Peninsula)

1)Commodity Prices Rise
2)International Economies Rebound
3)Dollar Still Weak
4)Where is the Growth Coming From

Australian is “Commodity Currency Country”. What that means is that Australia relies on commodities; such as grain, metal ore and the like to prosper. In fact; all Natural Resource Countries have had a rebound in their economies and their currency. The demand from China for raw resources has returned and the world economy has bounced back. So why has not the U.S. I think the major reason is we lost our competitiveness because we kept a strong US $. The strong $ allowed the developing nations a favorable spin against our businesses. You all know the fact about the person in Silicon Valley who was laid off and replaced with a worker in India or another developing nation, simply to save money for the parent corporation. A strong $US did that. With a weak dollar the situation will change. Sooner or later the developing country employee becomes more expensive than the domestic employee. Our goods become competitive to foreign competitor’s goods and the tide will swing and the balance of payments will become positive.

The next wave is the present wave, foreign investors and residents will look for a secure environment to raise their families and protect their newly accumulated wealth. Where else but the United States? They will use their strong currency to purchase weak currency US$ assets. Stocks are necessary a stable asset that can be bought on a discounted level, but at present real estate is a discounted US asset.

I recently attended a “Angel Venture Capital” investor forum for Keiretsu Forum in August and September. I was interested in the subject of the August Forum and the venture capital investment Keiretsu would introduce to their members. The August forum was in San Francisco and dealt with depressed real estate. It was STANDING ROOM ONLY! I am not talking about small investors. I am talking about institutional investors and investors with a minimum net worth of $5 million net of home. In fact, a venture capital investor will take 20 or more positions on the basis of not all working. With a minimum of $1 million per investment we are talking about investors with $20 million of speculative money to invest and that speculative money is roughly 5% of their net worth. What I am talking about are big time investors!

The September Forum had 5 investment 3 were real estate oriented and two were funds to purchase real estate.

This group of venture capital investors invests for a 5-year time frame. If they think real estate is the place to look, where should you be?

As the only hard asset that has not participated in the commodity boom; as gold, silver, oil and other natural resources, physiological forces not real forces have kept down real estate.

Let me explain that comment, what is asphalt’s major component? Oil is it not? What about copper prices? They have increased along with other metals. What are pipes and home wiring made of? What about the circuit boards in the electrical panels? The roofing is wood or a composite made from, oil. There is not one part of a home that is not a natural resource commodity. The trucks that bring equipment to the employees and the material; they are all natural resource driven. What country has the greatest source of natural resources? You got it, the United States. Would we purchase high priced foreign resources with low priced US $? Of course not is the logical answer.

Where do we go now? We touched upon natural resource value and the weak dollar; but who will drive our future growth?

Immigration is the answer. I have retired my designation as a certified financial analyst and investment advisor, but I still keep up to date with many of the publications. Martin Barnes wrote one of the publications that I kept in my files in 2004. It is titled “Global Demographics: An Economic and Geopolitical Time Bomb. WOW! I will attach it here or a link to it for those of you who wish to read the article in full.

http://isvr.net/usr/1024408819/CustomPages/Gobal_Time_Bomb.pdf

The basis is this, the baby boom generations of the post WW II years are retiring and moving out of the work force and are no longer the age of Conspicuous Consumption. That goes for the US, Britain, France, Germany, Japan, Russia, Australia and Italy. Only the US will have a positive growth in population. In fact, the US growth projected for 2000-50 will be # 1 at +123.7%. Where elsewhere will there be growth: Yemen +66.4%, Afghanistan +48.1%, Iran +39.1%, Iraq +34.7%, and Saudi Arabia +32.6%.

If the US is losing the greatest generation, the Baby Boomers, where will growth come from? Immigration. The projected fertility rate is 2.05 for 1995-2000 in the US; in Mexico it was 2.75, India 3.45, Egypt 3.51, Saudi Arabia 5.09, Pakistan 5.48, Nigeria 5.92 and Yemen at 7.30.

Based upon those statistics will real estate prices remain at their present levels? I must say that my father told me as a very young boy, 8 or 9, to use your common sense when I made a mistake. When we will all do the same? Sooner or later the inventory of homes will decline, sooner or later the news commentaries will talk about the escalating cost of home construction, repair and remodeling and sooner or later home values will increase. Sooner or later a solid form of lending will occur and a change from the old system will be accepted. When that all occurs home prices will increase. How far away is that? I use the venture capitalist time fame, 5 years or more. 10 years from today people will brag about buying in Woodside, Atherton, Menlo Park, Portola Valley and Palo Alto at the depressed levels of the Great Recession of 2009. Will you be one of them?

I added a new column to the statistical page below, it is “expired, cancelled and withdrawn” homes. I decided to add this page since I sent out letters to this group every 14 days. The average number is usually about 39 or more. We have dropped sharply. What does that mean? My guess is that sellers are staying pat with their listings. The seller has realized that it may talk longer to sell a home, but it will sell at or near their listing price. Sooner or later the buyer realizes that the price will not decline any further and they will make their offer.

October 13, 2009

City
Active
Pending
Pending 2
Sold
Exp/Cxl/WD

Atherton
43
5
8
0
1

Menlo Park
75
19
10
10
10

Portola Valley
28
4
4
3
3

Woodside
53
9
3
0
1

Palo Alto
103
22
33
12
9



September 24, 2009

Inventory
Pending
Pending contingencies removed
Sold

Menlo Park
85
14
12
16

Portola Valley
28
2
8
4

Woodside
54
5
1
4

Atherton
39
5
6
11

Palo Alto
114
22
28
36


September 2, 2009

City
Inventory
Pending
Pending contingencies removed
Sold

Menlo Park
72
12
11
17

Portola Valley
27
2
6
5

Woodside
52
2
1
5

Atherton
40
5
6
6

Palo Alto
93
21
28
28


July 28th report as a comparison

Cities
Active
Pending
Pending Do Not Show
Sold

Menlo Park
90
10
13
58

Portola Valley
33
5
1
6

Woodside
57
2
5
3

Atherton
37
3
10
7

Palo Alto
117
13
25
27