patrick.net

Hello Little Guy Lobby: Can you explain "Aint going to happen". What are you specifically refferring to?

Cheers,

a1sinclair: I agree. I think we are in for a prolonged recovery with a false foundation but aren't all recoveries built with false foundations. In 2000 we were due for an economic contraction (recession) as a normal part of the economic cycle. The gov't didn't allow it and created bubbles to get through it. This is where the housing bubble came from (actually Clinton started that ball rolling under ACORN but the Bush Admin spent the capital). So we still have to make up for that missed contraction which is generally 4% per recession. We have an 8% contraction ahead of us. When you consider the synergistic effect of 4% plus 4% you get more like 12%. I hope not but it is most likely going to happen. I think with the stimulus we will simply stay still or lose 2% for 5-7 years until the excess is mopped up. Then the debt will be our kid’s problems. Aren’t we nice?
Consider this:
In my grandfather's day a stock was considered expensive at 2-3 times earnings. 7x earnings was the max one would see normally unless it was an IBM stock that paid juicy dividends and you planned to hold it for 100 years. We now have 300 times earning stocks. During the stock bubble there was 1000 time earning stock evaluations on companies with no assets.
Pundits will tell you that the S&P at 14 times earnings is a buy point. I disagree. I think a buy point is when we get back to the level before the Fed Reserve system began inducing the poison of inflation causing the illusion of wealth. I think we will see S&P 1-3 times earnings again. Doesn't it only make sense? Do you want to hold a stock for 1000 years before you make your money back...'cmom. I'll hold it for 2-3 years and then I expect to own it outright.

Commercial real-estate is the Achilles heal of the economy. It's going to create havoc on unimaginable levels. I believe this will cause the second declination of the economy and where we will see the W recovery. Where the second point of the W or double bottom occurs will depend upon the intervention the wizards take. Don't underestimate them. They declare war on other countries daily in the interest of the industrialized world and the USA. Remember how we felt when the towers fell, think about how you would feel or how you would be impacted if the economy fell apart completely. Finance is war. Make no mistake about it.

If you want your money to grow stay close to commodities. Specifically fossil fuels and base metals. I work and live in the oil patch. I can see the growth. At the very least you will own part of a company that owns tangible goods the world needs not wants. Or you can listen to the Pundits who told you to buy, CROCS, KRISPY KREME, TAZER INTERNATIONAL. They were the next big thing, a home run. Well maybe for them as they unloaded their stock to us. 2 of the 3 are bankrupt. Didn't last long for being touted as the next IBM.

So here is what I am doing:

If you want to know what the market is going to do follow:
BKX and SMH They are good short term indicators.
IWM for a medium term indicator (speculators get in and out first. Kinda like rats on a ship! LOL
BZH is a representative of the emerging market. If it is doing well the DOW will be healthy
Buy commodities soon. The price level is getting attractive but not until we see the next cycle bottom.Ie: The W
Buy real return bonds if you need some anchoring

Stay away from everything else until Grandpa's PE ratio exists again.

If you really want to become wealthy, learn to build a house and do it. Use your labour vs. paying someone else 2x the cost of the materials plus the speculative pricing. You may actually be able to pick up houses cheaper than their construction content at this point. That's a good option to.

Land is always a winner. God isn’t making any more of it and with global warming he seems to be taking some back :)

We will stagflate for a long time so welcome the new reality. Get out of consumerism and refocus on relationships. Those are more fulfilling and free.

Cheers,

Steve

Hey all - I see the many thoughtful predictions here but it seems that sometimes you leave out one key piece. Many economists and politicians do the same thing - assume that no one changes their behaviors when events take place. You all are doing what you can to deleverage, save, live below your means. You don't think many others won't do the same? If we assume people don't change then yes, some of those doom scenarios can come to pass. Just like raising taxes and predicting revenue from those taxes without assuming the people's behaviors won't be modified in light of the tax increase.

I don't like the continued downward pressure on wages in the U.S. and the very poor retirement savings rates. Surely that will catch up with Americans and ratchet down cost of living faster. I personally know too many who say they don't make enough money to save for retirement and they are in their forties....I have tried to help suggest the power of start small and watch it grow but you cannot be too nosy about people and their money.

thunderlips11 says

I went to see a house that was listed at $400k. Nice, custom built place, lots of land. As I was leaving, the Agent told me the seller would consider leasing or even down to $300k.

I see that situation in my area as well. where asking prices greatly exceed selling prices. I wonder why the realtors engage in that practice. It seems that if the houses were advertised at $300k instead of $400k, buyers would be more plentiful. I suppose the realtors are advertising high prices to convince anyone who is looking at listings to believe prices are higher than they really are.

I'd like to respond to mjfhorsey@comcast.net.

I agree with you in terms of people modifying their behaviour. They will have no choice. They won't like it as they watch the American dream slip away. The American Dream to the consumer society is markedly different than the American Dream that the war generation sought. They were prepared to forgo immediate gratification for a stable climb in standard of living. Not so, especially since the recession of early 90's. Yes we will have to return to the world of delayed gratification......those that lived pre 1990 (i.e.: war, boom and bust generation) will understand. Those that lived post 1990 (The echo generation) will not and for all it will be difficult.

My challenge to all is to ask you will the behavioural changes make the difference. If the problem is in the behaviour alone then yes it will. I mean to say if the basis of the economy is stable and all things being equal and do not change except behaviour then I could buy into the thesis. However, we are talking about fundamental shifts in the basis of the economy that behavioural changes won't fix. It will help but when the ground shifts, changing your gait won't help much.

As I've stated in other posts, the monumental shifts in the economy will change the way we all live significantly. Behavioural changes will occur no doubt but I believe that the aggregate of these changes will not be able to overcome the problems in the economy. The late adopters will be the victims 70% generally. The early adopters (15%) will survive. Be an early adopter. Cut debt, refuse consumerism and save, save, save,..........

With respect to all

HeadSet says

thunderlips11 says

I went to see a house that was listed at $400k. Nice, custom built place, lots of land. As I was leaving, the Agent told me the seller would consider leasing or even down to $300k.

I see that situation in my area as well. where asking prices greatly exceed selling prices. I wonder why the realtors engage in that practice. It seems that if the houses were advertised at $300k instead of $400k, buyers would be more plentiful. I suppose the realtors are advertising high prices to convince anyone who is looking at listings to believe prices are higher than they really are.

The house would have more interested parties if the pricing was closer to what the seller would accept. Not only that, the seller would probably get more money for a properly-priced home.

A few years ago, my husband and I were looking for a home with a 3-car garage. We were willing to pay $300k so we limited our search to homes priced under $350k. A Realtor told me he'd just sold a home which met our criteria for $300k. How could that be? I had been diligently checking the MLS. He never asked the sellers to lower their price from $400k so it never came up in any of my searches. The sellers took an offer 25% under asking price. There may have been multiple offers if the price had been set at $325k because the place blew away the comps.

homeowner_for ever_san jose says

Interest rate will be raised when housing will start to recover. and it will be done in a way which makes sure that housing does not go lower due to inerest rate hike.

3steve says

I’d like to respond to mjfhorsey@comcast.net.
I agree with you in terms of people modifying their behaviour. They will have no choice. They won’t like it as they watch the American dream slip away. The American Dream to the consumer society is markedly different than the American Dream that the war generation sought. They were prepared to forgo immediate gratification for a stable climb in standard of living. Not so, especially since the recession of early 90’s. Yes we will have to return to the world of delayed gratification……those that lived pre 1990 (i.e.: war, boom and bust generation) will understand. Those that lived post 1990 (The echo generation) will not and for all it will be difficult.
My challenge to all is to ask you will the behavioural changes make the difference. If the problem is in the behaviour alone then yes it will. I mean to say if the basis of the economy is stable and all things being equal and do not change except behaviour then I could buy into the thesis. However, we are talking about fundamental shifts in the basis of the economy that behavioural changes won’t fix. It will help but when the ground shifts, changing your gait won’t help much.
As I’ve stated in other posts, the monumental shifts in the economy will change the way we all live significantly. Behavioural changes will occur no doubt but I believe that the aggregate of these changes will not be able to overcome the problems in the economy. The late adopters will be the victims 70% generally. The early adopters (15%) will survive. Be an early adopter. Cut debt, refuse consumerism and save, save, save,……….
With respect to all

It's a good question, will it be enough. I believe things are in a later stage of decline than they appear to be. America has only the primary player on the world economic stage for about 60 years. From the guilded age to the start of the depression the American economy was strong, but far from dominant. It is not preordained that America will continue to be the largest economy in the world. Many long since forgotten societies throughout history were the the Americas of their time.

We have moved into owing unprecedented levels of debt that might not be payable. Yes people are reducing their personal debt, but public debt is increasing faster. There were large amounts of debt in the late 1800's but almost all was spent building infrastructure. There was a higher level of public debt after WW II but a big part of that debt went to building the largest industrial base ever seen in the world to that date. Not to mention that the rest of the industrialized world was left in smoking ruin. America was in a unique position of advantage never seen before in history. Never to be seen again.

Contrast that to our current debt along with the staggering amounts of future unfunded obligations. These debts have done nothing to increase our infrastructure or industrial base. Previous public debt was an investment in the future. Our current debt is stealing from the future. Can a government that hasn't balanced the books in 30 years not only balance the books, but generate a surplus to repay the debt? It seems, at best, unlikely. Is an entire generation going to repudiate the only lifestyle they have ever known. I really, really hope so. But I also think it unlikely. Ever increasing interest on the debt must be repaid. Missing a debt payment would result in t bills being used for toilet paper. There will be a breaking point where interest on the debt consumes all the money in the federal budget.

It's a long hard road back to a sound fiscal base and I don't hear a single person in a position of responsibility talking about sacrifice of any kind. The only message I hear is that we are somehow going to get back to the unsustainable pre crash status quo. It's very sad and scary state of affairs. Like others here I have been responsible, paid cash, and saved. I also have multiple citizenships. If things go horribly wrong I would reluctantly renounce my citizenship. Still I am worried. My future and my children's future are being mortgaged to pay for the irresponsible, the greedy, and the reckless. I hope I am proven very wrong.