With affordability at a 20-year low, we will be keeping a close eye on the inventory numbers in 2006. Demand has rolled over just when we're seeing supply peak. That's a prescription for a price adjustment.
Energy and raw material demand in China has been one of the key drivers behind the strength in commodities. If China is raising rates and trying to slow growth, then we may see some tempering in those pressures.
Investors should be focused on regions where there are healthy balance sheets and high personal savings rates. Areas where there will be appreciating currencies, where there is pent-up demand and where there is an ability among policy makers to spur that pent-up demand.
So many clients are telling us that we are just plain wrong and there is inflation everywhere. But ... the bulk of these complaints come from folks who have kids in college ... Prices set according to supply and demand are flat or falling for the most part.
The housing market has become so stretched that the affordability ratio for first-time buyers, the folks who drive the incremental demand in the real estate sector, has deteriorated to levels last seen in the third quarter of 1989.