What else can I say about the latest "bang" to our economy? The market dropped as panic selling took hold. I actually purchased some stock in the past week, looking toward the long term.
Is it gambling? Could be, as our political leaders are as clueless as ever. I watched Sen. Joe Biden at a political rally on C-SPAN and there was Sen. Hillary Clinton, head rhythmically moving up and down, looking so much like a bobble headed doll on his right.
This is getting close to my "worst case" scenario of about a 50% loss. The problem is, we haven't even "officially" entered the recession yet, and already the market was down 43% off it's high set about 1 year ago.
I do have to admit, I am glad the waiting is over. I have been waiting for this "bang" for a few years now. Perhaps it is me, but I really couldn't see how we could avoid this. Too many people way, way overextended, too many people making money by moving money around, too many people always willing to blame someone else, way too many people willing to live beyond their means, and too many people expecting it will all turn out well, no matter what they do.
I have always had confidence in the American system, but the past 10 years have put that confidence under quite a strain. I am of the opinion that we as a nation face quite a "headwind". Americans have been too willing to put their trust in politicians, who really do little but make laws about collecting and spending our money. There is no long term planning! Thanks to the Internet and 100s of cable TV channels, we all have access to the same "information" and the picture is not pretty.
I use the word "information" with some hesitation. There is actually little true information available on the popular media, which has evolved from that age when it bragged that "we don't report the news, we make the news" to the very modern "we are the news". So there's not much reason to watch TV or radio news. Even NPR and PBS are very narrow in their news focus, although there is some air time given to the BBC. While travelling across Nebraska last year, I was delighted to be within range of the Omaha PBS radio station and expected to be able to hear at least a part of General Petraeus testimony before congress. However, the NPR channel had decided to play religious music for the Jewish holy days, instead. So I did not hear that testimony until I returned home and was able to get a copy of the transcript.
Th current financial crisis will, I fear, accelerate the flight from the dollar and further erode our ability as a nation to accomplish the many daunting tasks which do face us. It will also make world cooperation far more difficult as people all over the world have realized that this emperor really doesn't have any clothes!
After reading this, you may wonder if I am optimistic or pessimistic. As a businessperson, I am optimistic. I think that American businesses can and will continue to innovate and to operate successfully within the strictures imposed by our politicians. As a citizen, I am pessimistic. We have no viable energy bill and, for example, the Democrat's proposal of $15B per year for 10 years is laughable and woefully inadequate. We still have 78 million baby-boomers who will be retiring in the near future and a broken social security ponzi scheme. We have a failed medical system in which all comers are rewarded if people are ill. Need I go on?
Showing posts with label Great Depression. Show all posts
Showing posts with label Great Depression. Show all posts
Monday, October 13, 2008
Tuesday, August 26, 2008
Economic Woes?
Apparently, this will be another sideways day on wall street. Yesterday the market paused on its wayward trip to the gutter. If we keep purchasing stock on the way down, I have been told that is a method of “dollar loss averaging”, with the purpose of spreading the pain out over months and months and providing our stock brokers with much needed revenue..
Thinking of the economy reminds me that it is four years since the last presidential campaign. That’s difficult to believe; seems like it was just yesterday that the Hon. Senator Kerry was stumping his position that it “was the worst economy since the great depression”. I wasn’t around for that depression, so I don’t know. However, I do remember my parents telling me a few stories, such as the one about people walking along the rails in winter, picking up pieces of coal discarded from the trains. This was apparently used to heat homes and for cooking. Sounded plausible to me! When I was a kid growing up in Chicago in the 1950s, we had a coal stove and oven in the kitchen. An explosion in that stove blew the round inserts off of the stove top and into the ceiling. This was attributed to a blasting cap or caps left in the coal. That event stimulated the family’s quest for a more modern fuel. We switched to kerosene and natural gas. The advantage was less ash, but it was still necessary to carry a large can of fuel oil up three flights of stairs twice each day.
But I digress. So the present economy is much worse than it was four years ago. I guess the big question is, how bad will it get? The second questions is “How long will it last?” Well, this is not the first or even the second recession I have experienced. I once experienced very high prime rates that resulted in the interest rate on my second mortgage reaching something like 21%! That was like purchasing a house on a credit card. Ouch! We have a way to go before we get to that point.
I remember watching President Jimmy Carter, sitting in front of a fire place dressed in a neat sweater, telling us all how we were going to have to pay the price for our past sins, or something like that. Well, I don’t know about “we” but I do know I paid a price. Recently, while watching former President Carter on a TV interview, I concluded that he has made out pretty well. Somehow the politicians always seem to make out very well, unless they get caught with their hand in the proverbial cookie jar.
As to how difficult it will be for the rest of us, using history as a guide, it will be unpleasant or worse. We are not yet at the particular day of reckoning for this fiasco (which in Wall Street parlance is the “market bottom”). I expect we’ll be getting close when the mantra “How could this happen?” becomes a din!
As the economy winds down, sales tax revenues will drop. This will impact communities large and small. Of course, our political and civic leaders have spent every last dime and so they are no more prepared for this than the rest of us, who also assumed that the good times would roll on, forever. Apparently we believed that recessions never happen, housing values always go up, inflation is always moderate, energy will forever be cheap, etc., etc., etc. Unfortunately for us, history and reality do not support that rosy lensed view.
Statistics quoted in the media imply that millions of my fellow citizens have spent the past 10 years using their home as an ATM machine so they can support their lifestyle. Feeling strapped by the current housing implosion, they are now turning toward robbing their 401Ks. Of course, home owners and apartment dwellers alike have maxed out their credit cards. My personal solution has been to upgrade my shredder to a near industrial model to keep up with the credit card offers I receive daily. I assume I am average in this.
Waiting for the unraveling and the inevitable bottom is boring, with an edge. It’s like watching the movie Jaws for the 100th time. I hear the music, I know the shark is in the water and I know somebody is going to die. Eventually after the carnage is over, the shark will be slaughtered and the water will again turn blue.
I view our economy to be similar and when the clouds part, the cycle of excess will begin anew.
Until we get to that point, home-livers who are faced with upside down mortgages will be bailing. This will put pressure on many banks and credit unions who provided the mortgages and now are stuck with foreclosures. The Federal Deposit Insurance Corp. announced on August 26 that its list of "problem" banks, or those at risk of failure had grown from 90 three months ago to 117 as of June 30.
I expect the home-livers to bail out for the same reason they jumped into the housing market. Greed! The thought that one could have a house for little or no cost which would turn into a cash machine, was more than many could resist. That same philosophy will get them out of the housing market. Why own something that requires maintenance and cash injections? Having a house was simply an expedient, an opportunistic moment! So how bad it gets for the rest of us, will I think, be determined by how many bail. If everyone who “purchased” a home since 2005 decides to jump ship, leaving the rest of us to clean up the mess, it could get nasty, indeed!
My personal opinion is that it will take a few years for this particular “game” to go around the entire board and return to “home”. So those who are looking forward to quick resolution will be disappointed.
Thinking of the economy reminds me that it is four years since the last presidential campaign. That’s difficult to believe; seems like it was just yesterday that the Hon. Senator Kerry was stumping his position that it “was the worst economy since the great depression”. I wasn’t around for that depression, so I don’t know. However, I do remember my parents telling me a few stories, such as the one about people walking along the rails in winter, picking up pieces of coal discarded from the trains. This was apparently used to heat homes and for cooking. Sounded plausible to me! When I was a kid growing up in Chicago in the 1950s, we had a coal stove and oven in the kitchen. An explosion in that stove blew the round inserts off of the stove top and into the ceiling. This was attributed to a blasting cap or caps left in the coal. That event stimulated the family’s quest for a more modern fuel. We switched to kerosene and natural gas. The advantage was less ash, but it was still necessary to carry a large can of fuel oil up three flights of stairs twice each day.
But I digress. So the present economy is much worse than it was four years ago. I guess the big question is, how bad will it get? The second questions is “How long will it last?” Well, this is not the first or even the second recession I have experienced. I once experienced very high prime rates that resulted in the interest rate on my second mortgage reaching something like 21%! That was like purchasing a house on a credit card. Ouch! We have a way to go before we get to that point.
I remember watching President Jimmy Carter, sitting in front of a fire place dressed in a neat sweater, telling us all how we were going to have to pay the price for our past sins, or something like that. Well, I don’t know about “we” but I do know I paid a price. Recently, while watching former President Carter on a TV interview, I concluded that he has made out pretty well. Somehow the politicians always seem to make out very well, unless they get caught with their hand in the proverbial cookie jar.
As to how difficult it will be for the rest of us, using history as a guide, it will be unpleasant or worse. We are not yet at the particular day of reckoning for this fiasco (which in Wall Street parlance is the “market bottom”). I expect we’ll be getting close when the mantra “How could this happen?” becomes a din!
As the economy winds down, sales tax revenues will drop. This will impact communities large and small. Of course, our political and civic leaders have spent every last dime and so they are no more prepared for this than the rest of us, who also assumed that the good times would roll on, forever. Apparently we believed that recessions never happen, housing values always go up, inflation is always moderate, energy will forever be cheap, etc., etc., etc. Unfortunately for us, history and reality do not support that rosy lensed view.
Statistics quoted in the media imply that millions of my fellow citizens have spent the past 10 years using their home as an ATM machine so they can support their lifestyle. Feeling strapped by the current housing implosion, they are now turning toward robbing their 401Ks. Of course, home owners and apartment dwellers alike have maxed out their credit cards. My personal solution has been to upgrade my shredder to a near industrial model to keep up with the credit card offers I receive daily. I assume I am average in this.
Waiting for the unraveling and the inevitable bottom is boring, with an edge. It’s like watching the movie Jaws for the 100th time. I hear the music, I know the shark is in the water and I know somebody is going to die. Eventually after the carnage is over, the shark will be slaughtered and the water will again turn blue.
I view our economy to be similar and when the clouds part, the cycle of excess will begin anew.
Until we get to that point, home-livers who are faced with upside down mortgages will be bailing. This will put pressure on many banks and credit unions who provided the mortgages and now are stuck with foreclosures. The Federal Deposit Insurance Corp. announced on August 26 that its list of "problem" banks, or those at risk of failure had grown from 90 three months ago to 117 as of June 30.
I expect the home-livers to bail out for the same reason they jumped into the housing market. Greed! The thought that one could have a house for little or no cost which would turn into a cash machine, was more than many could resist. That same philosophy will get them out of the housing market. Why own something that requires maintenance and cash injections? Having a house was simply an expedient, an opportunistic moment! So how bad it gets for the rest of us, will I think, be determined by how many bail. If everyone who “purchased” a home since 2005 decides to jump ship, leaving the rest of us to clean up the mess, it could get nasty, indeed!
My personal opinion is that it will take a few years for this particular “game” to go around the entire board and return to “home”. So those who are looking forward to quick resolution will be disappointed.
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