Liquidity is an illusion.

1.This capital is drawn from the national coffers by increasing the amount of debt versus equity – in other words, we are leveraging our national economic future for this market;

2.The leverage shown throughout the financial system is understated – the off-balance sheet costs and resource/environmental costs are not properly accounted for;

3.We don’t have and won’t have the national or industry earnings to service this debt on a continuing basis;

4.We won’t be able to raise prices or rents to offset our withdrawal of equity to fund this party.

The result will be what it always is – a severe correction of prices when the statements can be leveraged no more.This is a zero sum game and the net result is a loss of opportunity for the financial condition of the country as a whole.In other words, we lose the rewards of investing for an increase in value rather than speculation.The country and its citizens are short the value added reward and the liquidity for the next round shortens.If the cycles continue, eventually the business capabilities of the nation will narrow in comparison to its citizen base and we will assume a stagnant economic position like the western European economies hold now.

Not only are the on balance sheet and off balance sheet costs to be considered, but we withdraw natural and environmental resources without accounting for their replacement on a LIFO basis and these practices reduces our economic ability to continue.Our citizens are induced to accelerate consumption and we wind up in personal bankruptcy positions.

I’ll grant that all these processes contain winners and losers along the way, so all is not that grim.For some – particularly those with an acquisitive and avaricious nature – life will be good for a period.But none will be as prosperous in perpetuity as if we paid attention to the balance sheet along the way.

Observe the history of the Forbes 400 as to the appearance and disappearance of its members over its lifespan.Major fortunes are difficult to sustain as the evidence there shows.The legacy automakers, GM, Ford, Chrysler, are the notable current examples of the results talked about above.I noticed the word legacy shown above elsewhere – I guess it means an old goner because of bad management.These companies didn’t take care of business like we aren’t taking care of the nation through our efforts in the acquisition/speculation sides of the real estate business.I think the sentiment that we used the housing business improperly in the recent past to foster current earnings to generate the programs of the current administration is now the prevalent one, so I think the speculation of the investment property sectors of the real estate industry is just a continuation of that poor practice.That doesn’t mean that the values of our big home builders are necessarily totally destroyed, but it does mean that they are now faced with a future of grinding out profits on a sustainable basis in a very different competitive industry from a land cost basis incurred at the peak of the market.

But we’re switching now as earnings are unable to sustain continued real estate speculation.The 29% of the nation’s households with children in residence are investing in education as well as other aspects of their children’s future.I continually see families making alternative allocations of their budgets to foster their children’s well-being at the expense of investment in McMansions.Granted that recreation and social activities are fostered here, but I don’t think that incivility and a hair shirt is the way to foster team work toward a national objective.Our institutional investors are focusing on biotech.Our Internet 2^nd round companies after the dot-com bust are well founded.Alternative fuel investments appear to be well placed.The weak dollar will enhance our position as a quality and productive manufacturer and our balance of payments problem will reduce or switch positive.Our immigration will sustain our energy as a growing population versus the stagnant populations of the other industrial nations.

In other words, I like our chances, but I don’t think we’ve been well-founded in our emphasis on real estate in this century.After all, real estate is just the box the present comes in.It should be pretty and the experience should enhance the product, but the benefit is in the features of the product.The wrapper is nice, but there should be a suitable economy to its cost.