In ending 2009, I am reading some reports about the economy and it appears as expected last year that by the end of 2009 we would be through this.  And with all the reports so far, it is the “trough” we are in.  I am now more concerned that the current adminstration’s policies will have a far more damaging effect to the economy in the near future.   With all the money that we spent as a government this year that we  didn’t have…well, try doing that at home.  The results are the same.  President Reagan, rest his dear soul, was pressured by the democrats to do the government programs like Obama did.  President Reagan didn’t for fear of inflation raising it’s ugly head.   His by-line was “stay the course”.  It worked, America seen the largest economic expansion that it had ever seen and the tax dollars flowed into the federal government.   I understand that the  ”stimulus” money hasn’t really reached the American people yet, and we are for the most part out of the recession.  But now this  new debt is here.  Inflation?  You bet, we just bought and paid for it.

I’m afraid that this health care bill is going to cost a lot of money with little or no results to the poor or average American.  What the heck, if it means getting re-elected…spend it.

Enough of that:  Let me quote from my weekly Wells Fargo report;  “Economic recovery remains the baseline outlook.  This week gains were reported in industrial production, housing starts and leading indicators.

Housing starts rose to 574,000 in November compared to average starts of 540,000 in the second quarter.  Leading indicators for housing are also positive.  Expected buyer traffic is up in response to the first-time home buyer tax credit.  Single-family permits are running ahead of starts which suggests starts are sustainable at current levels.  yet, we remain cautious.  Our outlook is for just 660,000 housing starts in 2010 – not the 1.3 million of 2007.   Household income growth remains modest and credit standards are tighter.  Household expectations for home prices and the state of the market remain very subdued.  The calculus of home buying and finance has changed.

Sales of new homes regained their footing in October, increasing around 6 percent to an annual pace of 430,000, after uncertainty around the scheduled expiration of the first-time home buyer tax credit likely pushed sales lower in September.  Inventory levels of unsold homes have continued to improve and have reached levels not seen in nearly 40 years.  Once sales rise on a consistent basis, the sustained low levels of inventory suggest a pick up in new construction in coming months.

Inflation: A Note of Caution  This week’s consumer price report introduced an element of caution that we had expected.  Inflation, while “low” is not flat.  Over the past year, core goods CPI is up 2.6 percent compared to a year ago.  The overall CPI is up 1.8 percent compared to 1.1 percent a year ago.  With two, three and five year Treasuries all yielding below three percent these inflation numbers suggest negative, real after-tax  rate of returns for investors.  Meanwhile, average hourly earnings are up just 2.2 percent suggesting that rising inflation will put a damper on real income growth.  Finally, rising inflation brings into question if the Fed can maintain its 2.0 percent inflation target in the face of political pressure to keep monetary easing with unemployment above nine percent.”

Source:  Wells Fargo Securities

Inflation…best place for your money is in real estate when it rears it’s ugly head.  Keep an eye on my blog, I will be watching this weekly as the years unfold.  Inflation was kept in check for 28 years.  I almost think that an inflationary period is worse than a recession, from what I can remember of the Carter years.  That’s right, during Carter we had 10% inflation per year.  Taxes…before Reagan, were at 50% (some as high as 70%).  President Reagan cut taxes (to a max. of 28%) so that the money went back into the hands of the American people.  Man do I wish that he was alive today.  I see a replay of Jimmy Carter about to unfold.  So with that…

real estate is the best place for the average American to invest and ride out the future storm.  If the administration wins out on increased taxes (the capital gains tax is currently at 15% with a sunset provision during Obama that I don’t think he will give back) you may have to hold it until a favorable tax climate reappears.