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Running Out of Cousins... The U.S. Boom Is Back

By Dr. Steve Sjuggerud
Thursday, June 13, 2013

"You're going to run out of cousins," I told my house painter yesterday.
It took him a minute to understand what I was saying. But once he got it, he couldn't stop laughing. He knew I was exactly right...
You see, my painting contractor is from Honduras. He does great work, and he does it with a big smile. He arrives on time and finishes when promised. As you can imagine, his business has grown.
His workers are his cousins... from Honduras. As his business has grown, he's simply called more cousins.
I asked him yesterday how business is going...
He told me it's "booming." He said, "In addition to all of the new homebuilding, Bank of America now needs me to paint about 25 houses a month."
That's when I joked he was going to run out of cousins. Judging by the Cadillac he drove up in, he's laughing all the way to the bank these days.
Business is booming in my small town on the Florida coast...
•   New construction is happening again. We've quickly gone from too much supply and no demand to the opposite situation... no supply and lots of demand.
•   The roads are full of out-of-towners. We know they're from out of town before we see the license tags... They're the ones that are completely baffled by our basic traffic circles. (Remember, "yield" doesn't mean "stop.")
•   The restaurants are full. Heck, I stopped at my favorite take-out place over the weekend... They told me I'd have a 50-minute wait... for take-out!

I asked my friend – the owner of that take-out restaurant – what's happening around here.
"Things are definitely moving in the right direction in the economy," he said. He wasn't willing to say that things are as strong as they were in the good ol' days of a couple years ago. But things are better.
I think what's going on is that people are feeling wealthy again – wealthy enough to travel to Florida and open their wallets. And I think what's happening in Florida is what's happening in the rest of the country.
I believe the U.S. Federal Reserve has tricked people into spending money again...
By cutting interest rates to zero and printing money, the Federal Reserve has artificially pushed up home prices and other asset prices. This makes people feel wealthy. So they feel comfortable spending more money.
The statistics prove what I'm describing... Millions of homeowners are now no longer "underwater" on their mortgages. Their homes are now worth more than their home loan. USA Today reported, "Rising home prices, up 12.1% in April year-over-year, have lifted 1.7 million home loan borrowers above water in the past year."
Florida is the second-worst state (behind Nevada) for the percentage of mortgages that are "underwater." But that's not holding Florida back today... Florida's economy grew in 2012 by 2.4% – the fastest pace in six years. From my perspective here in Florida, 2013 is light-years ahead of 2012.
For the nation as a whole, economists are revising their growth estimates upward. Economists surveyed by the Federal Reserve (Philadelphia branch) expect U.S. inflation to run at 1.5% in 2013. And they expect the U.S. economy to grow in the first half of 2014 at a 2.8% rate.
My painter is going to run out of cousins... and that's a good sign for our economy.
I believe this Federal Reserve-created boom will continue... and U.S. housing is one of my favorite ways to play it.
Good investing,

Further Reading:

"The stock-market boom so far has been incredible... And it isn't ending any time soon," Steve writes. "This stock market boom is not about an improving economy, improving home sales, or improving corporate revenues. It is about stimulus from the Federal Reserve." Learn how long the Federal Reserve-created boom will last here.
And find out why housing is one of Steve's favorite investments here:

Market Notes


On Tuesday, we showed you how the U.S. consumer is still spending money with gusto. Today, we show you the U.S. government is keeping pace.
For the past few years, some analysts warned against investing in defense contractors. Their thinking is that the U.S. government will "get religion" and reduce spending... even on the defense industry, which is in enough foreign wars that it should be called the "offense industry." But today's chart shows this hasn't been the case at all...
Our chart displays the performance of "offense" contractors Northrop Grumman (NYSE: NOC) and Lockheed Martin (NYSE: LMT) over the past 18 months. They produce things like jet fighters, missiles, radar systems, and unmanned aerial drones. They rely almost entirely on government spending. Last year, Northrop got 90% of its business from the U.S. government. For Lockheed, that number was 82%. Together, these two companies raked in more than $60 billion in government money last year.
As you can see, the government is still spending plenty of money on offense. Shares of Northrop and Lockheed are up 35%-plus over the last 18 months. Last week, both stocks broke out to their highest levels in more than four years. Despite claims to the contrary, no cutbacks are affecting these stocks.
Northrop (NOC) and Lockheed (LMT) Hit Four-Year Highs

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