Greenspan sequenced his "I'm with stupid" stance, while Bernanke signaled holding of rates in spite of inflation pressures. Greenspan is like the old man of the prior year who seems to never go away, tossing out tips to the new years baby. At least Bernanke has figured out the smell is his own babiness dodo. Personally, I cant blame him. You've got depression era signals on one end and inflation in small segments on the other end. Not to mention the inflation caused by flooding and disasters in the Midwest against those disasters being the very thing which will contribute to a slower economy and GDP overall. The sad thing in many foreign Fed reserve equivalents like England and Australia are still operating at old world M1 & M2 monetary policy.
We've only just tripped and started to fall. Right now, we slightly missed the 1st quarter recession signal by the smallest of margins but everyone always forgets the revision always goes downward. So look for the update to show us having 2 quarters moving downward when revised. Effectively, showing a recession. Go down to your local retail shop and ask them if they think we're in a recession. Wall Street has finally decided to catch on.
Consumer Confidence just took a new hit and will likely get much worse. Midwest floods and skyrocketing gas prices over the last 2 months will be tossing some kinks in the economy. We'll see it having a greater effect in the 2nd and 3rd quarters of this year, probably not helping the 4 quarter rebound in any way. We may not now see a recovery till 2010.
Recently, foreclosures and defaults hit an all new highs signaling we arent even close to the full inventory of foreclosures being washed out of the market, so we can even begin a recovery. New rounds of layoffs are coming signaled by Citi's 10% layoffs, watch for more.
The price pressures of gas, corn and ethanol, already made worse in demand, will be made further worse as we see the effects of the flooding in the Midwest wiping out crops. Steel and other items are looking for increased pricing in Asian countries which will end up costing all of us more at the product line. MORE AND MORE THE FACTORS THAT WE NEED TO REALIZE IS, DEVELOPING COUNTRIES LIKE CHINA AND OTHERS ARE IN DEMAND FOR MORE RESOURCES THAN EVER BEFORE. America is not longer the leader in its consumption demands and more and more is competing for oil and commodities against countries where demand is outstripping us. With China coming of age we are not the 800 lb gorilla anymore.
One factor I see people building into the economic recovery is housing bouncing back. It is not bouncing back anytime soon. To get to the prices and appreciation we saw it maybe another 10 years or more. If you read my prior blogs on why the housing bubble developed it was made over 5-6 years of an investor driven craze with investors given blank checks (stated 100% loans) to run up demand and prices on homes. We're seeing a correction you'll note to prior to 2001 prices. The air is coming out to where values resided, about the time investors started driving the market or a little worse for punishment.
Since investor products have all but dried up and investors are now almost shunned as a "third rail", the days are back to where we were in the mortgage business in the 90's. The shunning of investors, like the new 4 max property rule, when you could have 10, is now starting to put the good solid investors into foreclosure. The economy isn't helping them either in affordability for their rents and rent losses on their end. More an more with my database brokers are reporting that previous solid and smart investors with 10+ properties are sitting on the brink of not being able to get out of increasing loans, renter defaults and increasing costs. Ideally, the small time investors are what we have seen go down. A new round will most likely start with the investors with 10+ homes coming crashing down as a result of the new Fannie Freddie 4 property rule.
As you can see the other shoes are still dropping, Stated loans all but disappearing or LTV's dropping aren't helping either. Right now we're back to owner occupied borrowers driving the market and most of them cant get out of their upside down equity home or cant afford the astronomical LTV down payment spread to get into a new home. Investors need not apply. As you can see the housing market isnt going to rebound. Values aren't going to re soar with demand without investors driving an overbuilt market (note how many partially done housing projects are now on hold). ITS GOING TO BE A SLOW CRAWL BACK ON HOME DEMAND AND VALUES. WITH THAT BEING SAID, THAT CORE COMPONENT THAT LARGELY HELPS DRIVE THE ECONOMY AND MONEY FLOW IS GOING TO BE GONE FOR 3-5 TO MAYBE 10 YEARS. That doesn't bode well for us. We should be looking at how that is going to affect us.
Then theres the new depression era challenge. Banks have borrowed against the Fed loans to them for close to 1/2 trillion dollars. These are short term loans that even Bernanke has noted smaller banks will likely be folding, especially those heavily steeped in real estate and housing vesting. Already banks are quietly playing hardball and loaning to each other tighter in an effort to ramp up cash to make acquisition plays on smaller banks.
The only remedy I can see is doing many things to drop the price of gas, which to me means pull out all the stops on domestic drilling etc. China and other developing countries are going to take more and more in demand, raising our costs. Corn Ethanol is going to make things worse and we should put a stop to it and go back to corn. We dont grow enough and flooding doesn't help to service the worlds hunger demands for starters. Or even close on Gas.
Ethanol may even kill us in the end because the price of gas is so high it can still come in higher in price just as long as its a little cheaper than Gas. This will absolutely help no one. Its a failed and destructive environment experiment now. Americans cry when our corn costs go up, unfortunately people in 3rd world countries die from it. We cant even import good food (or non-lead based toys), the tomato salmonella crisis that is wiping out our domestic tomato industry maybe from Mexico imports? DO YOU SEE THE INTERNAL SPIRAL THATS INTERNALLY KILLING US?
Environmentalist are technically feeding their own self serving hype while our attempts to change are having radical destructive results upon our economic systems. Most environmentalist I've met complain about the cost of their homes being high, but environmental terrorism alone added over $40,000 to the lumber cost per home in the 90's. The cause and effect we are seeing is reverberating huge. With skyrocketing corn prices to save on oil, forest destruction in countries is reaching all time highs to make way for farms now financed with higher prices. I'm all for the environment but take a look. We're that fat glutton that doctors tell to SLOWLY change and lose weight to now shock and kill the system.
We're in one ugly beast of times. There are almost too many failing counterbalances to come up with an easy solution. Maybe we should goto that 0% Fed rate I predicted, like Japan had for 10 years. That maybe one solution. Ending the Iraq war cost another. Iraq just handed out tons of contracts to finish getting them to their pre-saddam oil production levels - why are we still there? And for the trillions spent, we should have added that country as a new empire as in Cheney's manifesto. Our leaders need to begin to thing more globally and realize how outside demand is outstripping us and turning us into Great Britain (gas prices, etc).
We are becoming just like them and island unto ourselves as the world expands.
Our government needs to take pressure off of corn. We need to come up with more refinery and quit being stupid. We need to start drilling into the protected Gulf of Mexico and Anwar. China and these other countries will keep out contracting and outbidding us around the world. Obama as President needs to reverse the bastardization of the Bush admin and rebuild our ties reaching out to Venezuela and settle the saber rattling with Iran. Remember where gas prices were when Bush declared them Axis of Evil out of the blue? Assuming the Bush Admin's plans to start a war with Iran prior to leaving office to ensure their future Haliburton residuals. Much of the gas speculation revolves around Irans Bush issues. For what that administration has cost us on the value of the dollar its insane. On top of that math scores across the nation are down. Listen to any global CEO, we are a country running out of developing Engineering for new ideas for the future. Any intelligence with be more and more imported than exported which has kept us ahead of everyone. Well at least our future generation has high scores on xbox....maybe thats the reason for Sim games and Avatars, life has beat us and we can only beat virtual gaming life now?
Recently, if you noted we are back to the 70's with the Saudis and oil countries now buying up New York and America on the cheap. Our countries wealth is exported for OPEC countries and now are disparate broke banks and real estates are bought on the cheap. THE MOST INSANE THING IS W BUSH JR'S PATTERN OF BANKRUPTING HIS BUSINESS' AND THE BUSH FAMILYS SAUDI OIL FRIENDS BOUGHT THEM OUT - NOW IS HAPPENING TO THIS COUNTRY!! The old rule on history and doomed repeating? Remember the gas crunch and Americans getting killed at the pump with buying The Big 3 Motors over production of gas guzzlers, that helped cause a economic collapse in American with Saudi's buying New York and the rest of our country, which eventually led out of control home loan inflation costs (18%). Not now in 2008, the 1970's stupid! Sound familiar to the 70's? De De De! Hello?
Do you see what going on here. We're the street hooker with the abusive pimp who takes all our money and still beats us, then says go whore for some more money to pay them for oil? Its not so bad if it wasn't for according to the Valtrex commercial 1 out of 5 have genital herpes now! The prescription companies are in collusion with the oil! At least I'm smart and beat the 1 to 5 commercial odds, sleeping with only 4 four girls at a time in our Texas FLDS compound. Our political are the beat cops who get paid off by our OPEC pimps to look the other way and keep us imprisoned buying oil from our country. This is the equivalent to getting prison gang beatened, then dry raped with not even a courtesy of a reach around from all those folks. Now we're so kicked in the ass we cant even help ourselves with our own corn or oil resources.
The last vestige of core wealth in this era also is the retiring baby boomers, yet many of them up to 80% are now saying they are having to help out or are EXPECTING to help out struggling children in the coming year. With housing, gas, food and fixed income squeezing what should have been a easy retirement between unexpected inflation and children far worse of the middle class is striking an even further collapse.
To make it worse even so, States are now having to deal with the trickle down economics. See link:
http://blogs.wsj.com/economics/2008/07/01/states-going-from-bad-to-worse/?mod=homeblogmod_realtimeeconomicsDont believe me read link below - remember the 70's Who song "Going Mobile"? Maybe its better we bought those larger SUV's - we may need their size after all...
http://www.examiner.com/a-1454864~L_A__seeing_more_people_living_out_of_their_cars.htmlThe only solution seems to be to suffer through and bite the bullet or as my mom says - pray. Let us start to demand more from our politicians, we are fastly approaching a Bastille Day because more and more many of us cant even afford the bread/cake.
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