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Pent-up demand and its potential for U.S.

Chris Buchbinder
Portfolio manager/investment analyst
Based in:
San Francisco office
Investment experience:

CHRIS BUCHBINDER: Both autos and housing are industries that have historically been big drivers of the economy. There was an interesting paper written by a guy named Edward Leamer that he presented at the 2007 Kansas City Fed Conference in Jackson, Wyoming — Jackson Hole, rather — and it was entitled “Housing is the Business Cycle.”

The key point of the paper is, basically, you can’t just look at the direct impacts of housing on the economy; you have to look at the broader impact. And essentially, the economy follows what’s happening with housing. We haven’t really had much of a housing recovery. If you accept the premise in that paper, and I think it’s well thought out, as we get a recovery in housing, which I think is inevitable — I can’t call the exact timing, but I think the signs are there that it’s starting — you’re going to have a lot of employment opportunities for less-educated workers. Younger and less-educated workers are where most of our unemployment lies. As those younger and less-educated workers have employment, guess what: They’re going to do things like buy cars. As people build houses, they’re going to buy pickup trucks. As they buy more pickup trucks, we’re going to employ more blue-collar workers in factories. As we employ more blue-collar workers in factories, they’re going to buy more stuff. And that stuff might be another car, but it might be an iPhone, or they may increase their subscription on Comcast or DirecTV. So there’ll be a lot of second-order ramifications as this all unfolds.

But I’m pretty confident that if we do have a rebound — and I think we will in housing and autos — you’ll see those second-order ramifications. When Alan Greenspan was chairman of the Federal Reserve, one of the industries he spent a lot of time monitoring was the auto industry, for precisely the reason I mentioned: While it’s small as a direct contributor to GDP, there’s a lot of money and equipment and stuff and jobs that revolve around the auto industry. And as the auto industry ramps, you really see the rest of that stuff move. And so I think, between housing and autos, if we do get a significant recovery, the impacts will be significant.

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