June 29, 2007 – Make no mistake about it, the U.S. economy is not healthy. Despite all the reassurances from the Feds about the subprime fiasco being under control, the housing markets having already bottomed out, inflation being under control, unemployment at lows, and whatever other statistics they choose to manufacture out of thin air, the real story is quite the opposite. If my assertion is correct, many ask, “how could have the U.S. markets have performed so well in the first half of 2007?” The answer is quite simple- the Feds creation of easy liquidity. Everything from low-interest equity pulled from exotic mortgages that people shouldn’t have been able to afford if responsible lending practices had been adhered to, to the creation of easy money for foreign investors as well. Well now the proverbial chickens are coming home to roost as pulling equity from homes has virtually ceased in the face of this housing slump, consumer debt is rising, GDP is non-existent and foreign creditors are becoming more savvy to the game that they quiet willingly engaged in earlier.
However, should much of the foreign investment that helped prop up U.S. stock markets flee, buyer beware. There are historical precedents of economies going from boom to bust virtually overnight. In reality, the conditions that caused the bust had been building for many years and the boom was artificially manufactured by poor fiscal policies. The same situation exists today and the cracks are beginning to show. This is why we’ve also created a separate archive of our past articles. Good investing.