Two Very Different Views

Say what you will about the New York Times and Los Angeles Times, but they certainly seem to be a lot more concerned about the rapidly approaching iceberg, than is a mainstream financial publication such as BusinessWeek. After a weekend full of hair raising real estate stories in the L.A. Times (Putting Stock in Property, More Than Miles Apart, Doubt is Cast on Loan Papers) and a terrifying piece about hedge funds from the N.Y. Times (If I Only Had a Hedge Fund), it was quite comforting to pick up the latest BusinessWeek and have Cooper and Madigan soothe some rattled nerves once again regarding the state of the US economy (Inflation is Back on the Radar - if you can't get to this article, just read anything by either one of these two - it all sounds the same.

The L.A.Times articles raise some real concerns, what with native Chris Boone selling his mutual funds to buy land he's never seen in far away Nevada, and Erik Mellquist's parents calling him 'stupid' for paying $284,000 for a rundown, 1,000-square-foot condo with no garage. Then we find that Ameriquest is once again accused of duping their sub-prime clientele - this time accused by Linda Hubbard and others, of forging financial statements and rigging appraisals to assist these people in going into debt way over their heads while refinancing. And, to top it all off, just when we thought we might hear some comforting words from the hedge fund community, Seth Klarman, founder of the Baupost Group, which manages $5 billion, makes this prediction "It is completely obvious that this will end badly -- for the firms, investors, everyone".

Well, thank goodness there's BusinessWeek with it's team of James C. Cooper and Kathleen Madigan and their take on the U.S. Economy - just listen ... in fact, after those Times articles, you should read this out loud ... several times:

Right now financial conditions are extremely accommodative. Not surprisingly, the U.S. economy is simmering along nicely, as consumers and businesses boost their spending.

Yes! The sky is clearing ... feeling better already ... continue please ...

But one result of solid growth is that inflationary pressures are building as businesses face rising costs ... For the first time in years, inflation is officially back on the Fed's radar ... Unless financial conditions are cooled off soon, strong demand will continue to use up whatever slack is left in both the labor markets and production capacity.

"On the radar", "using up slack" ... feeling has returned to all extremeties ... a wonderful recovery, but there is still the question of real estate ... Jim? Kathy? ... drive it home ...

Because mortgage rates are hovering near 6%, buyers still have leeway to bid up home prices. Rising real estate values have pumped up household wealth, leading to more consumer spending. Plus, cheap mortgages enable homeowners to tap into housing wealth through refinancings and home-equity loans. Mortgage rates would have to rise by a substantial amount, probably hitting close to 7%, before consumers stop using their homes to finance current spending.

Ah ... now it is all clear ... Greenspan and the Federal Reserve have help in shaping the perceptions of the world in which we live. While some see rampant speculation and wreckless lending, others see "leeway to bid up home prices". Hmm... I wonder if there any other publications out there that see the world like Jim and Kathy do ... or better yet, TV shows!