Update No. 42 – 13/01/12

I have said before, the US is the worlds economic engine.  For those of us in Australia, we hear a lot more about China driving our prosperity, but the US is still where you should keep your eyes peeled as it will inevitably drag the world in whatever direction it is headed.  China on the other hand, if it faced a 20 year stagnant period such as Japan has, would not adversely affect us nearly as much as people think.  Japan has stagnated from the late 1980’s, and was until 2008 still our largest trading partner, when China overtook.  Although Japan STILL remained the largest destination for our exports (though I believe this also may have changed recently).  So a period of stagnant growth need not be feared terribly excepting for certain forecasters who have mistakenly extrapolated the current Chinese growth indefinitely.

The two figures I watch most closely to monitor the health of the US economy were again very positive in December.  December housing approvals (the November figures) were up 20.7% year on year (starts up 9.3% yoy).  More interestingly, approvals for buildings with 5 or more dwellings were up 80.6% year on year (starts up 180.6% yoy – a near tripling of the figure!).  Now these figures are coming off an awfully low base, but as I have pointed out in recent months, substantial housing growth can only lead to one thing, a substantial improvement in the unemployment figures.  The US construction industry has never been as weak as recently, so the power of the comeback will be impressive to watch in my view.

Unemployment is the other important figure.  After dropping 0.4% to 8.6% for November, a more sedate 0.1% drop followed in December.  An 8.5% unemployment rate still indicates a fairly sick economy, but in my view, if housing continues on anywhere near the same trajectory, an unemployment rate approaching 7% by the end of 2012 is not out of the question. Felix Salmon blogs the positive implications, but I think even he is understated in his positivity, Paul Krugman says not good enough – it will take 10 years to get back to full unemployment at this rate (I think he forgot how positive November was…Take an average of the employment growth over those 2 months and you’re talking a 3 or 4 year recovery, I think slow and steady is best.).  An economic improvement of that speed and magnitude (that drives unemployment down 1.5% in 12 months) would certainly drag the rest of the world along with it, even with Europe stagnant, I guess time will tell.

I purchased a little stock this week and will likely be purchasing a little more next week; we are a little over 10% in cash, which I generally like to maintain in case a sudden opportunity emerges.  When you think the market is very cheap – as I do at the moment, it behoves us to be mostly deployed in stocks, so I will likely buy until we are nearer to 5% cash – Tony Hansen 13/01/12.



April 1st 2011

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EGP Fund No. 1 Pty Ltd. Up by 2.32%, lagging the benchmark by 1.11% since January 1st. Since inception, EGP Fund No. 1 Pty Ltd is Down by 1.51%, leading the benchmark by 8.85% all-time (April 1st 2011).