Golden Slumbers

Barron's published an article entitled, "Extreme Contrarianism," by David Ranson and Penny Russell. First they quote the 'anarcho-punk' band Chumba Wumba, saying, "everything you know is wrong." Then they present seven forecasts based on proven empirical relationships that work over business cycles.

They assert that inflation is not peaking. The dollar is still declining relative to gold and other commodities. Their research shows that the price of gold and other commodities is a reliable leading indicator of Federal Reserve policy. They forecast the Fed continuing rate hikes up to 2000 levels of six percent or higher.

Among their other forecasts is that "There is no housing bubble and it is not about to 'deflate.'" They say that when the price of housing on a nationwide basis is deflated against a benchmark of gold and other commodities, it has actually declined in real terms since 2001.

That may not be accurate for every region. Where I live, every third house is for sale. Apartment buildings have been converted to condos. One development will give you a new Volkswagen Beetle or a Nissan Xterra if you buy their condominium. Our landlord is selling to avoid capital gains. This remodeled house was built in the teens. It has about 800 square feet on a larger lot. Asking price: $550k. My fiance and I drove around looking for rentals last weekend. I estimate twenty properties for sale to each rental unit. Every speculator is trying to squeeze out the exit at the same time. Should be interesting.

David Ranson and Penny Russell are principals of H. C. Wainwright & Co. Economics, an independent investment research boutique based in Hamilton, Mass.