Sunday, September 30, 2007
1. Unemployment is going to rise
Mortgage lenders are laying off people in massive numbers. Residential construction is falling off a cliff. The consumer is tapped out (witness a negative savings rate over the last year, first time since the GREAT DEPRESSION), realtors are struggling, and all areas related to real estate are going to get pinched.
2. Home Values are falling and will continue to fall
In a previous post I noted that a house is sort of a forced savings plan. Homes have been used as an ATM the past few years, and ever escalating home prices were seen by the consumer as a never ending source of credit debt payoff. Thats all over now, and as the single largest monthly payment item most have falls in value, there is no rescue from crushing debt.
Whats all this mean? I dont know, but I imagine a gradual return to more reasonable living standards will occur. What a shift in mentality from "spend everything all right now" to "spend what is reasonably comfortable" will mean to the stock market and economic growth is hard to say. I dont think it is going to be good though.
Saturday, September 29, 2007
Things got so bad, the government in England had to guarantee the deposits at the bank:
I know, move along nothing to see here, and besides it was in England anyway.
Well, after the closing bell on Friday (a closing on a friday that just so happened to be an options expirations date!) we get a buried story about a bank failure here in the good ole USA!:
Now Netbank is not a major bank, but the process by which it failed is not a unique story just applicable to that one case.
I had mentioned this event to my wife, and she asked me about our accounts. Our money is at two different banks, one major and one regional, and both are under the FDIC insurance amount of 100k. I assured her that our money was safe. I then had an absolutely terrible thought that has stuck with me, and it is this;
If a major bank like say bank of America, or Washington Mutual were to fail, I think that getting my money from the FDIC is not going to be my major concern going forward.
Now I am not one of these Gold Bug ( I am long lots of gold miners however! full disclosure) survival nuts that has a well stocked bunker ready for Armageddon in the woods, but think about it for a minute. If the FED had to supply money to the FDIC to guarantee deposits of a MAJOR bank, what would happen to the US dollar??
If you had say 20,000 in the account, after the printing presses are running full speed, will that 20k have anywhere near the same purchase power? Would submitting your forms to the FDIC be your first concern?
I do not have answers to these questions, but they are worth thinking about. The DOW is almost back to its all time high, and all the talking heads on the financial shows were wearing their bull horns today. The Economic Disconnect of everything is great versus all the money injections the FED is doing, and in a cutting interest rate environment are clear. Perhaps the FED and Wall Street are afraid, maybe you should be too.
Friday, September 28, 2007
Makes you feel small.
For more info on Spirit:
- Current Conditions Summary
Public spending is out of control in the US and UK.
Banana Republic charges are being leveled at the US and UK.
Runs on the bank occurred in the US and UK.
The Fed is accepting mortgages as collateral in the US for the first time.
Foreclosures are at all time high in the US.
The US dollar is at all time lows.
Japan is still struggling with deflation.
Two failed banks in Germany were bailed out by the ECB.
There are US Congressional threats of tariffs against China.
There is a proposal to freeze short term commercial paper for up to 7 years in Canada.
Housing bubbles in the US, Spain, and Australia are deflating.
Housing bubble in Canada is still inflating.
China refuses to float the RMB and sterilize US dollars flooding in. That in turn is fueling Chinese inflation.
Price controls that can't possibly work were implemented in China in response to Chinese aforementioned Chinese inflation.
Commodity prices are soaring.
Oil is at record high prices.
A Massive carry trade in Japan is fueling a plethora of asset bubbles around the globe.
$500 Trillion in derivatives are floating around dwarfing the size of the global economy.
The global credit bubble dwarfs by orders of magnitude the credit bubble preceding the great depression.
Other than the above, the global economy seem pretty normal and rather well balanced. It's a tribute to just how well central bankers have done their jobs.- Mish
A great post and one that captures clearly the Economic Disconnect that this blog is focused on.
3. Health care
4. Heating/Cooling bills
5. Real Estate Taxes
Chances are you will not recognize the wonderful 2% inflation in those areas! This is what I hope to discuss on this blog. Just today, one of my favorite blogs, The Big Picture, had a post on inflation absurdity http://bigpicture.typepad.com/comments/2007/09/speechless-on-c.html
and I recommend reading that post.
Another excellent phrase that sums up what is going on today is what Todd Harrison over at Minyanville.com likes to call "Inflation in things we need, and Deflation in things we want". As all the necessary costs skyrocket, things like TV's, cars, and computers go down in price. Thats helpful isnt it?