Horseshoe Bay Texas Grows

) HSB:  GOING FROM THE BEST IN TEXAS TO THE BEST IN AMERICA.

Over the past several months, we’ve examined what makes HSB tick from historical, economic and growth perspectives.  We’ve seen that throughout its 37-year history, HSB’s well-being has been tied closely to the price of crude oil. 

We’ve also learned that oil is a commodity traded on the world market and that it is priced in U.S. dollars.  And we’ve noticed that the price of oil rises as the dollar declines in value, and vice versa. 

Unfortunately for the U.S., there hasn’t been much vice versa and none is foreseen.  Let’s take a closer look at the relationship.

COMPARING THE DOW TO THE PRICE OF GOLD:  We’ll start with a chart that weighs the price of gold against the Dow Jones Industrial Average over the seven-year period from 1-3-2000 to 2-6-2007.  The chart shows how much gold the Dow could purchase at any point in time within the period. 
                                                                                                                             
We're using gold because it's the only true form of money.  But mind you, since gold reflects the value of our greenback, this chart is reflecting the purchasing power of the Dow in terms of the U.S. dollar.

Now put this chart into context.  On 1-3-2000 the Dow was trading at 11,357.  Put another way, if you bought every stock in the Dow back then, you’d have invested $11,357.

At that time, the same $11,357 could have also bought you 39.3 ounces of gold.  About seven years later, on 2-6-2007, the Dow was trading at 12,666.  In pure nominal terms, the Dow had gained 1,309 points since 1-3-2000, or 11.5% - only 1.6% per year, not too swift.

However, in terms of the Dow’s purchasing power, the Dow of 2-6-07 only buys 19.4 ounces of gold.  In other words, the Dow had lost 50% of its purchasing power when measured in real money!

COMPARING THE DOW TO HOME PRICES:  In early 2000, the median home price in the U.S. was $169,000.  If you had $1,135,700 invested in the Dow back then, you could have bought 6.72 median-priced homes.

Today, the median price of a home is $221,000. And your $1,135,700 in the Dow is worth $1,266,000.  Yet in terms of the number of homes your investment in the Dow will purchase, you can only buy 5.72 homes today ... that’s 16% less purchasing power.

And remember, that’s just the national median home price.  If you live in California, New York, Florida, or New England, the investment you made in the Dow back in 2000 buys only 2.5 homes or less today.  Put another way, the Dow buys you 50% to 70% less in terms of real estate.

COMPARING THE DOW TO BUILDING COSTS, SCHOOL TUITION, METALS, GRAINS & FOREIGN STOCK MARKETS:  Some people might argue that these are just isolated cases of asset prices going through the roof at a much faster pace than the Dow’s appreciation.  But that's not the case; everywhere you look, it’s the same result.

Based on the Turner Construction Cost Index, a measure of the cost of building commercial and residential properties, the Dow now builds 30.4% less than it did in 2000.

The average in-state tuition for a four-year public university was $1,500 per academic year in 2000.  Today, it’s $5,836.  So while the Dow would have bought 7.57 years worth of college tuition in 2000, today it buys only 2.17 years.  That’s a whopping 71.3% decline!

The Dow now buys 55% less silver than it did in 2000 … 63% less copper … 45% less corn … 37% less wheat … 43% less rice!

And if that doesn’t convince you, consider the loss of purchasing power in the Dow compared to foreign stocks.  Today’s Dow will purchase 12% less of Spain’s Ibex 35 than it did in early 2000 … 41% less of Australia’s All Ordinaries Index … and 42.6% less of Shanghai’s A Index.  

COMPARING THE DOW TO GASOLINE COSTS:  The Dow has failed to keep pace with rising energy costs, too. In January 2000, the national average for a gallon of unleaded gas was $1.45.  The Dow would have purchased 8,832 gallons back then.

Today, despite its 1,309 point rise, the Dow will only buy 5,556 gallons, based on the national average of $2.30 a gallon.  So, the Dow has lost 37% of its purchasing power when it comes to unleaded gas.

COMPARING THE DOW TO CRUDE OIL PRICES:  The discrepancy is even worse when you look at crude oil.  In January 2000, the Dow purchased 430 barrels of crude.  Today it purchases exactly half that amount of oil, 215 barrels. 

That’s a whopping 50% decline in the Dow’s purchasing power of crude oil in only seven years – a 7.1% per year decline.   Put another way, the price of oil has been increasing at the rate of 7.1% per year during the period, just for this reason alone.

Think about projecting a 7.1% annual increase into the future.   Crude oil prices will double every 10 years for that single reason without any help from tightening demand or additional terrorism – both of which are more than likely. 

WHAT'S DRIVING THIS?  Despite a rise of 1,309 points in the last seven years, the purchasing power of the Dow is getting slaughtered by just about every asset under the sun.  The same goes for the NASDAQ and the S&P 500.

The primary force behind all this is the falling value of the U.S. dollar.  As the value of the dollar has plunged since early 2000, the value of tangible assets has risen correspondingly.

WHY HSB IS BEING DRIVEN TO THE NEXT LEVEL: 1) We've learned that with oil priced in U.S. dollars, oil prices must rise as our dollar declines to maintain market value for the producing countries that supply us.  Although other factors such as supply/demand and terrorism influence world oil prices, most don’t realize the dollar’s importance

2) Although higher oil prices hurt the overall U.S. economy, the economies of major oil producing states like Texas, Oklahoma and Louisiana benefit immensely.  The exact opposite occurs when the price of oil falls to the base of its pricing cycle, as HSB experienced beginning with the oil-price crash at the end of 1985 and lasting until 2003.

3) The economies of oil producing states benefit from higher oil prices through the higher margins our in-state producers receive.  That extra cash for the same-sized barrel of oil they sold during the downturn lifts the economy of the producing region as the producer invests in new projects, buys new oil and gas leases, drills more wells, drills deeper wells, lays pipelines, buy drilling rigs, heavy duty trucks, employs more people, ad infinitum.

4) The benefits pass through many hands as they trickle down through untold layers to the local lumber yard, neighborhood furniture store, your local car dealer, your travel agent, your favorite restaurant, your dentist, et cetera as people buy new homes, new furniture, new cars, take vacations, go out on the town, take better care of their health, et cetera. 

5) Today’s producers have their businesses pretty much back in shape and are beginning to treat/reward themselves, such as looking for second homes, for example.  And where will they go for that? 

6) They're coming to HSB because: a) its no more than 3.5 hours driving time from Austin, San Antonio, Houston, Ft. Worth and Dallas - five of the country's 19 largest cities; b) we have the finest public-accessible golf in the state; and c) HSB sets on the shore of Lake LBJ, America's lake of choice for lake-side enjoyment/living.

7)  HSB also has one of the country’s finest private airports, meaning more distant cities like El Paso (the country's 21st largest city), and Midland/Odessa/Lubbock (home to many of Texas’ independent oil men) are also within range. 

8) Furthermore, HSB is blessed to be located in Texas' "sweet-spot" - that small area in the heart of Texas where the four most attractive sectors of central Texas overlap - namely the Texas Hill Country, the Llano Uplift, the Central Mineral Region and the Highland Lakes.

9)  In an article published in the 12-25-06 issue of Fortune Magazine, the state of Texas was predicted to see its real estate values appreciate more than elsewhere in the country for the next couple of years.  There’s actually no reason to believe this advantage for Texas won't continue for a long, long time, especially considering Texas’ real estate was been depressed for almost two decades .

10)  For the above reasons, the successful producers are coming to HSB in record numbers, not just to buy a second home.  They’re coming in knowing they’re making a sound investment as well.  They know that while their oil businesses struggled for almost 20 years, Texas' real estate did likewise. 

Our economy was too weak to keep our real estate values in line with the rest of the country. Predictably, our real estate became grossly undervalued.

Although our declining dollar is steadily weakening our country and is indeed worrisome, there are still places in America that are not in decline, where one can still enjoy the bountiful American way of life, and where one can take advantage of overall weakening going on outside the oil patch – like, MOVE TO TEXAS! 

IN SUMMARY:  Being that HSB is Texas' most attractive draw, HSB is where the state's greatest demand for real estate will be focused long-term.  Accordingly, HSB is positioned to be among, if not lead, those select American cities that will see the greatest appreciation of its real estate over the next few decades – for as long as our country’s economy and lifestyle remain based on crude oil. 

Everything is pointing to HSB being not just the BEST IN TEXAS, but regaining the stature it had attained at the end of 1985, right before the crash – namely, the BEST IN AMERICA!