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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Vosilla who wrote (82887)	6/20/2007 4:22:01 PM
From: THE ANT	Read Replies (1) \| Respond to of 110194

John,I think that with the increased ability to outsource both services and production (brought about by technology such as the internet and large container ships)that the wage gap between the EM's and the US must narrow.Since housing on average correlates closer to income over time(with regression analysis) than it correlates with any other factor I will use house prices as a income proxy.5 years ago the house across the street from me cost 450K and yet the same house in Brazil in a similar location was 45K.When an engineer moved into it I could be pretty sure he was doing nothing that had to do with selling US services or products overseas as his income had to sevce his mortgage payment and he was thus no longer competitive with any Brazilian,Russian,Chinese or other EM engineer.Sure enough he worked on a road project that could not be outsourced.The choice the Fed has is to constrain liquidity,hold the dollar up and let our houses and income go down to EM levels(which would be rising slowly)or pump and allow the dollar to go down.In this case EM assets rise faster in dollars.In Brazils case their currency has doubled against the dollar while real estate has gone up 40% in the last year alone.The house accross the street is now 425K and soon to be 400K and the one in Brazil is 120K soon to be 180K-240K when rates fall another 2-4%.If you could not buy Brazilian Real Estate one could have bought their stock mkt as a proxy and I have been saying this for 3 years on these boards.The US will be fully competitive with Brazil shortly,but Brazil is a special situation with its commodities and willingness to let their currency appreciate.It may take longer against other countries.Yes,savers have suffered but the alternative was likely worse.As long as the US economy does not crash the EM's will do well.If the US crashes the EM's will do worse short term but better medium term.The US stock mkt is not a bad place to be if their is no crash because the dollar has rescued it.In 1972 real estate in Brazil and incomes were higher than the US ,it could happen again some day.