By Laura Brown

Noted international economist and author Paul Erdman admitted one financial error to the Morning Forum audience on May 21.

“In 1958 I sold a house in Los Altos Hills for $28,000,” he said with a laugh. “I thought the market had peaked.”

Erdman, who now divides his time between a San Francisco apartment and his Healdsburg ranch, said that despite dire predictions by Barron’s magazine and others, he believes that real estate will remain “the strongest pillar supporting the economy.” Pointing to low interest rates, strong population growth and a limited housing supply, Erdman said that as an investment strategy “kooks buy gold, normal people buy houses.”

Although the events of Sept. 11 caused tens of millions of dollars in property losses, and the insurance and travel industries were decimated, consumer confidence recovered from the trauma at amazing speed, Erdman said, and the expected downward spiral did not continue after November 2001. Erdman said that although “there is a growing and fully justified suspicion that we’ve been led down the garden path by managers cooking the books, and brokers and investment bankers peddling a bunch of junk while laughing at us in internal e-mails,” he expects that the stock market bottomed out a few months ago, and that growth in the 3 percent range will continue through the rest of the year.

However, he noted that until the corporate and financial ethics “mess is cleaned up, we won’t see anything resembling the great bull market of the 1990s.” He assured the audience that those who have bond portfolios should “sleep well at night.”

Erdman credited Federal Reserve Board Chairman Alan Greenspan with keeping the U.S. economy on an even keel after Sept. 11 by moving huge amounts of liquidity into the system. Erdman said we are very lucky that consumer demand for cars and housing, spurred by low interest rates, accompanied the drop in capital spending by business, preventing a downward spiral similar to the one in Japan during the last decade.

Looking at the world picture, Erdman predicted that oil prices will remain stable, despite Saddam Hussein’s attempted embargo on oil to the United States. “Saddam called an embargo and nobody came,” Erdman said, noting that the Saudis can’t afford an embargo, financially or politically, and that Russia and Norway, the largest non-OPEC oil producers, are going back to full production.

Erdman said that Canada is coming out of recession quickly, and that Mexico has the best leadership ever and the outlook is positive. Russia, India and China are all experiencing unprecedented economic growth and have been relatively untouched by outside events. Erdman said that South America, other than Argentina, is in fair economic shape, and that Southeast Asia’s situation will improve as the U.S. and Japanese economies strengthen, although it is hampered by $2 trillion dollars in bank debt. Erdman sees Western Europe as suffering from economic malaise, which is producing a political shift to the right, with xenophobia and anti-Semitism on the rise.

Erdman predicted that economic recovery will begin in the United States in January 2003, led by technology. “As Silicon Valley goes, so goes America, and that path is upward,” Erdman concluded.

The Morning Forum is a members-only lecture series held at the United Methodist Church of Los Altos. Membership is closed for this year. To get on a waiting list for membership, write to: Morning Forum, P.O. Box 274, Los Altos 94023-0274.