dark110 wrote:
For all of you people who think you unerstand economics, allow me to explain.
First off, a recession is having two straight quarters of reduced Gross Domestic Product or Real Income Growth. While I think the 1st Q of 2008 may be slower than Q4 2007, I think the economy will recover and show growth by Q2 of 2008 thus keeping us out of a recession by definition.
Among the reasons:
1. Stimulus package. Much of the $150 billion or so they will be handing out will get spent almost immediately. Even if it is used to pay off debt, it will circulate through the economy and ultimately cause much more then $150 billion in spending. The tax cut portion will also allow small biz to keep more money. This money will either be spent or invested in new employees, etc, once again causing a greater increase in GDP than the amount invested in the stimulus. This is trickle down at its finest.
2. Housing. I think we have about reached bottom on the housing crash. Fed is expected to lower rates again this coming week. This is going to make 15 & 30 year fixed payments quite attractive versus renting. People who were sitting on the sidelines will start jumping in. People who were going to have to sell may be able to hang on. People who couldn't have qualified to refinance at higher rates now may be able to. Overall, it will cause a very quick firming of the housing market.
3. Dollar strengthening. Despite all the gloom and doom, I believe the dollar will begin to strengthen. Much more money, investment and available credit has been wiped out of our economy than the Fed has put back into it. Thus, if they actually still measured the money supply we would find that it has actually dropped. As foreigners realize this, American assets will start to climb in value. They will be buying our stocks, our real estate and anything dollar denominated to save them from their own plummeting currencies, thus driving up the prices of American assets, which in turn will spur more American Spending.
4. Wages and Inflation - for those with no real estate exposure we will only see increased spending. Wages are rising, albeit quite slowly. Prices are also rising for most of the goods a lower income household buys. Since generally they already spend everything they make, they will continue to spend everything they make plus any raises they get. And yes most employees still do get raises.
5. Presidential election - Presidential elections either bring the prospects of little change for those doing well or much change for those yearning to better. This will lead to great optimism for all as the year unfolds. Optimism and hope brings productivity. People will figure a way to make things better for themselves and the economy will benefit.
6. Everyone thinks things will get worse. When consensus is this strong in one direction things usually happen in the other direction. 2 years ago, everyone was saying that you could never lose money in real estate. I wanted to sell my home, but wife wouldn't let me because you have to live somewhere. But the point being, when everyone thinks sell, you need to buy. When everyone says buy, you need to sell.
These bubbles and subsequent crashes of various sorts happen about 20 times in the average person's lifetime. People don't understand that it is just a natural cycle and thus they make decisions that may haunt them for the rest of their lives. The world is not ending, the economy is far from dead, the dollar is not going to be worthless, so please make sure you think very hard and look at all the evidence before making a decision that will affect you for the rest of your lives. 30-40 years from now people will be talking about how they wished they would have stayed in stocks, they will still be waiting to get even on gold, they will be wallpapering their bathrooms with Euros, they will be ruing over the house they let go because they were upside down, and is now worth 10 times what they had owed on it.
1. You understand that the $150 billion for the stimulus plan is money we don't have right? We either have to borrow it, or create it out of thin air. Flooding the market with dollars just devalues every dollar currently in existance. You can't debase yourself into prosperity. It just doesn't work. Inflation leads to higher prices in gas, food, services like health care, and people have debt to pay back, so that makes it just that harder. You may say inflation really isn't that high, but I wouldn't quote inflation from the Fed. They use a flawed substitution based index method to measure inflation.
2.
The Fed just cut interests rate today. That is highly inflationary. It would be a different story if we lent money we actually had, but we are printing more money out of thin air to lend when we lower the discount rate, and we are the world largest debtor. When you have a GDP based on 70% consumer purchasing, and you debase the dollar, you are really screwing yourself over. Plus the fact is people have debt to pay back, so I don't see people spending much. Plenty of people live pay check to pay check.
Good time for people to buy homes, bad time for people to pay off their debt. There was a 40% increase in bankruptcies filed in 07, even under stricter laws.
3. The last time M3 was published back in 06, inflation was at 13%. They measure inflation by the ol' if steak gets too expensive, people will buy hamburger method. You also understand when you flood the world with dollars, people invest them in things like bonds or commodities. I'm sure you have heard of Frank Veneroso, right? He gives an interesting argument on how he believes there is one. Doug Casey explains inflation (which is higher than the gov is telling us) is skewing the markets.
4. Inflation is around 15% according to M3. I know M3 isn't published anymore, but people can still measure it such as John W. Williams. People's income levels are not adjusting to real inflation. If you have money in a CD, you are losing about 5% a year. This is morally wrong, and if it works against our economy. We are taking the purchasing power away from the consumer the more inflation there is.
5. Politicians spend now, think about it never. We are currently $13 trillion in debt, and our entitlements will cost us $60 some trillion. It is not ok when we borrow $3 billion a day from foreign investors. I'd rather not be a slave to compound interests for the rest of my life. The "America" we know is not sustainable. There will come a day when there will be major changes, and it won't be pleasant.
6. I'll admit there is a lot of uncertainty, but I believe the route we are taking is very dangerous. If you can't borrow from the bank forever, what makes the US gov any different? If people stop investing in the dollar, our economy is going to grind to a halt. But back to the OP, I don't know how much losses these major banks have, but once we move forward we will know. The dollar is less and less a good place to invest in because of these problems.
There are normal business cycle, in fact a few cycles are lined up for this time. Periods of inflation followed by periods of deflation (sometimes a recession or a depression depending on the severity). Recessions are healthy, and I posted that in the OP, although if anyone knows I feel there are still some troubles looming. My main beef is our economy is more and more based on credit expansion. Sure, spending money you don't have stimulates the economy, but spending too much to the point you can't pay your debt back hurts. Our standard of living is much greater than our grandparents, but they didn't have negative equity in their homes.
I am investing my assets into gold and silver. If there were any stocks I would own, I'd own mining stocks. Any other stocks I would not touch with a 10 foot poll. Gold is a good safety net against inflation, and silver has a lot of potential, if not more. I don't think the Euro is a good investment, nor any fiat currency. I'm using the money God intended. Gold and silver.