Update No. 62 – 01/06/12

I haven’t looked to US Housing starts for a couple of months.  April’s figures indicate 717,000 starts, up about 30% year on year, although permits declined to 715,000, indicating month on month growth will probably stabilise at around that level over the next couple of months.

I said here in February that if housing starts were anywhere near 800,000 by the end of 2012 that the level of US economic growth would be quite extraordinary.  My caveat then remains as now the state of Europe, which really is causing enormous uncertainty, my new caveat is the extraordinary reduction in US government spending which is being trimmed at a nominal and real rate unseen in recent history.

I said here that if unemployment continued on the same downward trajectory that it could be as low as 7% by the end of 2012.

I have reviewed the data for the first 4 months of the year and would now say my view is that US housing starts figure for November/December will probably be more like 770,000 and unemployment will be hard pressed to be below 7.5%.  These levels would still indicate a wonderfully steady and stable recovery, I believe that a slower return to trend levels in these important economic indicators lessens the likelihood of ‘overshooting’ and lengthens the likely time before the next downturn in the cycle.  Many economists demand an immediate return to trend growth levels, but if we build towards these levels more gradually, I think the long-term results will be far better – Tony Hansen 01/06/12.

PS Here is more brilliance from Scott Sumner as he uses his usual unconventional thinking to interpret from another angle what the problems of the GFC were and some alternatives as to how they should be viewed.  I don’t know how widely his work is considered by Economic policy makers, but they would do VERY well to consider his viewpoints.  Remembering that a house has a very long economic life on average does change the way we view the GFC as the US housing market was a primary driver of that chaotic period.

PPS I think I said last week I’d touch on the Euro this week, I think that will need to wait for next week as I want more time to collate my thoughts.

PPPS I guess I need to comment on the recent boost to performance, really all it involves is a very marginal improvement in a couple of our larger holdings while the broader market has slid substantially.

EGP Fund No. 1 Pty Ltd. Up by 7.53%, leading the benchmark by 5.2% since January 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 3.5%, leading the benchmark by 14.82% all-time (April 1^st 2011).