How Housing Starts Will Prevent Obama from Being Another Reagan

Veteran readers know one of my favorite charts is to juxtapose housing starts vs. unemployment. I forgot how I ran into this particular chart or what compelled me to contrast the two, but many years ago I did, and what I found is that housing starts typical forecast unemployment by 6-18 months. Ergo, if housing starts tank, you can expect unemployment to spike within the next year and 1/2.

Though I could speculate, I do not know the precise reason why housing starts forecast unemployment so well. I do know, whether the correlation is spurious or not, it's been a pretty good predictor in the past which is why I wanted to revisit and update the chart. I also wanted to revisit the chart because this recession is different than most others (duuhhhh!) in that unemployment has remained stubbornly high. Instead of a traditional recession where (cough cough, WHEEZE WHEEZE) FREE MARKET FORCES are brought about to take advantage of lower labor costs and lower cost opportunities presented by recessions and bring about a SHARP drop in unemployment, this time around it has not happened as unemployment stalls above 9%.



The question is of course, "when will unemployment come back down?" and this chart tells us the answer;

Not any time soon.

Notice that housing starts have also stalled. Unlike recessions before, when housing tanks, but then quickly recuperates, this time around it has not only tanked, but stayed tanked. Housing is still down and out, and assuming the correlation between housing starts and unemployment holds, you can expect unemployment to be hovering around 9% for some time to come.

Now this is GOOD NEWS in some regards because many political pundits (lacking the super awesome economic genius I am gifted with) are worried that Obama will be like Ronald Reagan. Reagan during his first term had very low approval figures just like Obama, but then an economic boom occurred in the third year of his first term, vaulting him into a second term. Those of the right side of the political spectrum are worried this could happen with Barry.

However, that is unlikely to happen. If you look at housing starts under Reagan in both parts of the double dip recession/Volcker Recession, housing starts recovered immediately. Additionally, they never went below 800,000. In Obama's case, housing starts tanked to 500,000 and have consistently stayed down there for over 2 years.

Of course, I don't know why housing starts track unemployment so well. And I am nowhere near as "educated" as the likes of Christine Romer and Paul Krugman. But so far this chart is batting about .925 while Keynesian-addicts such as Romer and Krugman are batting at about .000.

So those of you on the political right need not worry. The economy is not going to recover in time and strongly enough to the point it will save Obama. More importantly though however, is that we should not be cheering on a moribund economy so we can defeat somebody for political gain. We should be cheering this on because it's simply going to be another metric ton of empirical evidence that socialism and Keynesianism does not work, and free markets and a free people do. Of course "tell them that."

Or Your Could Just Buy a Motorcycle

Financial advice is hard to give nowadays. Until the budget gets balanced and economic growth is enough to outpace population growth, I have a hard time finding something to recommend to people beyond hedging items such as "gold, silver, bullets, booze, foreign ETF's, and stable countries' currencies."

But there is one investment, especially for young men, I am STRONGLY recommending.

Motorcycles.

Men, listen to me. You can go ahead and look on them there interwebz and read all about different prohibitively cars that have great mileage and worry about how the price of gas eats into your disposable income, or you can just buy a motorcycle. The compelling reason is NOT the money you'd save on gas, though that is certainly a factor. the compelling reason is the money you'd save on courting.

Gas, if you look at personal expenditures, is actually not that large of an expense. It usually is less than rent and even less than what you spend on booze, cigarettes and other vices. But if you employ your motorcycle correctly you can save a TON in....

courting.

Look, women LOVE motorcycles. Even the ones that don't claim to, once you throw them on the back, they LOVE motorcycles. You don't have to take them to fancy dinners, overpriced movies, trips to Cancun. You just say, "hey, get on" and off you go.

Better than that even is the money you save not having to go and search for a nice young lady to court. When you get a motorcycle, you don't go to the "clubs" or "discotecs" or "parties." You simply show up where the object of your affection is on a regular basis with your motorcycle jacket and helmet. And when you have built a repoire with the young lady you simply say, "Hey, want to go for a ride?"

It's almost, if not easier than asking a girl to ballroom dance. It is the perfect in.

Of course, motorcycles are not just for the young man. They are also for the young lady. Owning and driving a motorcycle immediately puts you in a higher regard amongst most males. Sure it may be a bit tom-boyish, but no man in the history of men ever said, "Oh, no! She has a motorcycle! That sucks! I'm never dating her!" Additionally, your ownership of a motorcycle also saves you the unnecessary time, money and expense of going out "clubbing" and buying the latest in night-club-wear. Put on some good jeans, some bootsy-boots, and BAM! You'll have plenty o' men pining for your affection and better gas mileage to boot!

So youth, for those of you looking to invest, but you plain just don't believe your 401k will be there. Or you just plain don't have the money to afford investing, then invest in a motorcycle. It will pay itself back VERY quickly and make your love life all that much easier.

Sarah Conant - Professoinal Crusader

What did I tell you people about the threat of crusaders?

Recession Medicine

HAR!