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Waiting to Exhale - Again

January 9th, 2008 · No Comments

Tomorrow (1/10/08) Ben Bernanke is scheduled to speak on his outlook on the economy, and the pundits are all expecting that by examining his comments repeatedly, reading tea leaves, and consulting their favorite oracle, they will be able to predict whether the US economy will slide into recession in 2008, and whether the Fed will cut interest rates again at their next meeting.

The stock market seems optimistic, with trading up today as investors shifted into sectors that are seen as resistant to recession and economic contraction. These are things that we spend on whether things are good or bad; food, medical care, gasoline and heating oil.

Some economists say we are already in recession because of a jump in unemployment in December coupled with little growth.

Nationally, I tend to agree with the doomsayers. Here in Palo Alto, Los Altos, Mountain View and Menlo Park however, we are still beneficiaries of the strong local economy. Local executives are still complaining that they can’t hire enough engineers, the housing market continues to be strong as we are seeing a net inflow of people, and minimal relative increase in housing (no more land), and we have a unique concentration of educational instituions, venture capital and innovation that enables Silicon Valley to continue to reinvent itself.

In summary - We will likely see a national recession in 2008 and 2009, with housing prices potentially falling by up to 30% in some areas where prices have been driven up by speculators/investors. The local real estate market will remain constrained by supply, so we will see fewer homes being sold, but prices will remain at current levels, or even continue to increase. Great news if you are planning to sell your home in Palo Alto, bad news if you want to buy in Palo Alto.

In the Central Valley this will sadly not be the case . . .

Stay tuned for a recap of tomorrow’s commentary by Fed Chairman Bernanke.

Thanks for reading.

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