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Crescenzi: My Top 10 Investment Themes for '09
If you haven’t been able to tell by now, I like to write. Look no further than my three books for proof, in particular to my 1,200 page revision to Stigum’s Money Market.
What I don’t like is pontificating. I seek instead to raise awareness of important issues, always trying to strike themes that investors can act on. I do this from a macro perspective, from the top-down, which is the subject of my latest book, Investing from the Top Down, which includes 40 major top-down indicators. Having wrote the book and given my penchant for macro-style investing, I thought I’d initiate — in part as a good exercise to start each year — an annual top-10 list of top-down bankable themes for the New Year.
Here are the top 10 top-down themes for 2009:
1) The U.S. will retain its reserve currency status: This theme is paramount because it answers the question of our age: If the U.S. is backing its financial system, who is backing the U.S.?
The question is critically important because the U.S. needs massive amounts of money to finance its efforts to restore stability to its economy and its financial system. If the support exists, the effort will work. If not, financial and economic Armageddon. Thus far, support has been superfluous, as evidenced by the low level of Treasury yields, continued sufficient bid/cover ratios for Treasury auctions, and 2008’s rebound in the U.S. dollar. The reason I am siding with the view that the U.S. will get the money it needs and retain its reserve currency status is because the U.S. remains the world’s preeminent power economically, politically, and militarily. Moreover, the currencies of rising powers such as China are not yet ready to absorb the $7 trillion in reserve assets the world holds, particularly because their bond markets are immature and can’t house reserves as U.S. markets can.
2) The overhang of unsold homes will fall and alter the dynamic on home prices: The massive overhang of unsold homes has already fallen, with the supply of new homes close to levels considered normal by historical standards. This is because home builders have substantially curtailed the construction homes whilst the population continues to grow. The inventory theme is a bankable one because as with many reliable top-down themes it relates to a basic necessity in life: shelter.
The U.S. population is growing by 3 million per year, which results in 1.2 million new households (household formation slows during recessions but it is a delay in the inevitable). If builders are constructing just 700k or so new homes, the net increase in the housing stock is only about 500k or so, because some of the tally represents the reconstruction of homes from storm damage and such, and as a result of teardowns. Given the basic need for shelter, people have to go somewhere. People are born short a roof over their head and they are forced to cover, whether through the purchase of a roof or renting one.
Data is a real-time snapshot *Data is delayed at least 15 minutes
