The Dow broke through 14,000 yesterday and has hit record highs 52 times since October.

Two factors were flagged recently as part of the explanation for this remarkable resilience in the US economy and capital markets, despite the gloom surrounding property, hedge fund implosions and a host of other problems:

- There have been more LLCs set up in the past five years than at any time in history, and they account for millions of high-paying jobs. Here’s the remarkable thing: these knowledge workers are not counted as employed. Why? we have no idea. But clearly there are thousands upon thousands of small businesses generating wealth, spending and jobs, who are simply not on the official records. In other words, the headline unemployment rate includes these individuals, apparently.

- Another factor is that the wealthiest 20% of Americans account for 40% of consumer spending. Two dollars of spending for every dollar other Americans spend, and this segment has been growing at a 5% rate.

Other factors include: the economic impact of legal and illegal immigrants; the spending of the 12 million-plus non-documented workers; the fact that the median age of Americans is 34, compared to over 40 in Europe and over 45 in Japan; the 50% reduction in oil per GDP; and of course arguably the major factor which is continued relative low interest rates.

This is the first of a series of short notes on the current state of the debate on the key question for most private investors in the UK - is this a 1990, or a 1995, or a 2003-4 scenario?

The plus side:

- Rates remain low relative to 1990-2 15% peak

- Arrears and repossession rates remain low

- Longevity & immigration are secular trends that drive demand - 400,000 new entrants in 07

- Divorce, young people at university, second homes, buy to let are all other drivers of demand

- 160,000 new homes built in 2006 - in the 70s and 80s numbers were 350-400,000

The negatives:

- House price income multiples stand at 6 times

- Typical mortgage payments as a % of income are now 18.7%, a 15 year high

- US sub-prime market decline may be the tip of the iceberg

- Medium term path of inflation and hence rates are the key swing factors, and ultra hard to predict with any genuine conviction… 

Fidelity’s FundsNetwork released sales data on Wednesday which shows that UK investors continue to pour money into property funds and income-oriented offerings.

Equity-income and property funds outsold other types of funds on the Fidelity platform during the first half of 2007. The IMA Specialist sector was the best selling sector, and three funds among the top ten sellers were property funds: they were Norwich Property Trust, New Star Property Unit Trust and Standard Life Select Property Fund.

May IMA data showed £431 million into the Specialist sector, of which £378 million went into UK domiciled retail property funds. The Specialist sector has been the best selling IMA sector among retail investors in every quarter since the fourth quarter of 2005.

The key questions for investors in property is whether we have seen the top of the market & how the sharp falls in US property prices might reverberate throughout the entire property spectrum.

Is this a short hiccup in property’s relentless upward march, or something that marks an inflection point?

Property has been the asset class du siecle - so far. In May 1997, the average house in Britain cost £74,000. By May this year its value had risen to £220,000, a three-fold increase. If you borrowed three quarters of the cost of that average house in 1997, covering your mortgage with your tenants’ rent, you would have turned the £18,500 deposit into an equity share worth £164,500, a nine-fold return on your original investment.

Interesting to note the FTSE 250 index has risen almost in line with house prices from 4,500 a decade ago to about 11,500 today. But the FTSE 100 has lagged markedly. Why? A major factor has to be the 1997 decision to abolish the £5bn a year tax credit on dividends which mauled the performance of pension funds, and caused a shift out of equities into bonds just as equities were recovering post-crash.

Since May 2 1997, the FTSE 100 index has gone from 4,445 to its all-time high of 6,930 before losing more than half its value by March 2003, falling to 3,287. Four years later, still 400 points off of its previous peak, it stands just 47pc higher than when Labour came to power. With dividend income reinvested you would only have doubled your money in 10 years, a compound annual return of just 7pc. With the RPI at more than 4pc real returns look even more lukewarm. According to Graham Secker, equity strategist at Morgan Stanley, Britain’s is the eighth worst-performing of the world’s 50 largest stock markets since 1997. European has risen 150% and the US by 100%. Little wonder enthusiasm for shares pales when compared to our enthusiasm for all things property related, whether it be principal residence, buy to let, direct property, overseas property, property shares & REITS.