We remain a long way from a recovered economy. It is as yet unclear if the dismal employment statistics from last month are to be repeated or are an anomaly but the latest unemployment claims number suggests the nice uptick in the first three mothers might not be repeated anytime soon. We will have to wait to see the next 60 days. There is a belief, which I adhere to, that the warm weather and a sense that things were getting better, tied to a refilling of positions that were cut too deep during the recession, are what was really happening in the first quarter. The underlying issues have not changed to suggest the upturn is really here yet. Europe remains in crisis even though the EU and the media want to bury it. Spain is in serious crisis, Italy has a long way to go to make the changes needed to their labor and company laws and massive corruption problems, and Greece simply got a band-aid. Portugal is not worth even bothering about. China is slowing and is likely to continue to do so for quite awhile until they get their banking and real estate sectors cleaned up, and that will take quite awhile.

In the US nothing good has happened. The housing crisis may be less awful, but it is far from turned around as some would have you believe. There are still millions of foreclosures to go. There are millions more who are current, but way underwater. They can’t sell or move. Baby boomers are not buying new houses. They are downsizing. With unemployment still at a real 14.5%, the young are not able to buy a house in large numbers. Between the regulators and legal onslaught against mortgage lenders, there is no hope that mortgages will become readily achievable for many. The brokers have recently said that large numbers of contracts are falling out due to the buyer not being able to get a mortgage. If you take out the investors, and then the contracts falling out, you see a picture of housing that is a long way from real, sustainable recovery. Keep in mind, that over the next several years, all those investor bought houses that are on rental will be coming to market over the next few years. That will be on top of all the yet to happen foreclosures and the REO inventory at the lenders and Fannie and Freddie. Add on all those who are underwater, but will become short sellers, or just sellers, over the next few years. Add to that the lesson learned, that renting is often a better alternative than owning for many who do not have a substantial down payment and a solid job. It is not that housing is not getting better. It is simply that there is a very long way to go to have a solid recovery in housing, and so a ways to go to have a solid and robust economic recovery.

When you add on the attacks on the upper income by Democrats who promise higher taxes, the continuing attacks on the banks causing billions to be diverted from productive uses to compliance and lawsuits, and the coming attacks from Cordray who is just getting warmed up, and then there will not be a free flow of capital into new riskier projects. There are still hundreds of billions of commercial real estate loans maturing which have to be worked out, or foreclosed over the next three years, and that means equity is going into preserving ownership or distressed acquisition of existing assets, not the creation of new development assets. While values in some markets have materially improved, they are not yet to the level where current underwriting will refinance them at the required level. Therefore, there will continue to be large capital flows into existing assets and not new development for several more years.