As the new mix of Democrats and Republicans begins to posture and parry with each other, we hope that they will focus quickly on crucial matters at hand. If the Federal Reserve continues to believe that additional monetary accommodation is necessary to sustain economic growth, then it makes NO economic sense to engage in contractionary fiscal policy.
Overall, we remain constructive and we are buying individual stocks. But we continue to believe that we have a long road to recovery. We believe that stocks will be the best performing asset class over the long-term. A 2.5% 10-year Treasury bond is an emotional trap with potentially disastrous consequences.
Even with mortgage rates at 4%, housing prices are not increasing and may move lower. Housing took us into this mess. Housing can keep us in this mess. And we won’t emerge until housing stabilizes. This morning Bernanke said that broad home ownership is only good if it is sustainable. The homeownership rate averaged around 60% over many decades but got as high as 69.2% in 2004. If we are reverting to the mean, we need to keep in mind that reversals seldom stop at the mid-line.
Michael K. Farr is President and majority owner of investment management firm Farr, Miller & Washington, LLC in Washington, D.C. Mr. Farr is a Contributor for CNBC television, and he is quoted regularly in the Wall Street Journal, Businessweek, USA Today, and many other publications. He has been in the investment business for over twenty years.