The Great Recession of 2005
 

Many people think that with a Barrel of oil in the high $50 range, it will eventually pull the economy into recession...that the average family faced with higher fuel costs will have to economize of other areas of their budget...like forgo going out to eat, buying that new motor home and this will all have a chain reaction effect...Also there has been a noticable slow down in the sales of the more gas guzzling varieties of automobile on the road....Also one has to consider that with increased fuel prices the costs of goods and services have to rise.....in one word Inflation will set in...thus the economy will slow and the USA will slide into a Great Recession

Now lets take a look at the economic picture... Housing prices have risen dramitically over the past several years, for several reasons, one is a low interest rate environment, lack of other good investment vehicles and prices were low given the demand...thus the rise in housing prices has merely brought the sector into a price equilibrium. When interest rates go higher and make the current price structure unaffordable housing prices will seek a new equilibrium at lower price levels... Another factor is the decline in the Dollar in world currency markets....this is also inflationary in that it now takes more US Dollars to buy overseas goods. The cause of the Dollars decline has been largely due to the deficit spending on the part of the US Government, it also has been the policy of the current administration to devalue the dollar so that US goods and services are more affordable overseas.. The third area to look at is the US Bond market...The Fed orginally lowered interest rates after 911 to keep the economy from going into the tank by providing fiscal stimlus. Now the Fed has increased rates with an eye on curbing the irrational exhuberence in the housing market...yet the increase in shorterm rates has not translated into substantially higher mortgage rates nor higher long term Bond rates...showing that the demand for these Bonds remains high due to their relative security in an uncertain world situation. Lastly one needs to look at the US Stock Market. It has traded relativily flat for the past year or so...facing a wall of worriies starting with the uncertainities in the world situation, the outcome of the US elecetion cycle, moving onto the effect that the rise in oil prices will have on the economy...

Thus with close examination of each of these markets one finds that the high price of fuel has been factored into the current price structure and the economy has allready adjusted itself to these price levels and there will be no recession in the forseeable future...

In the big picture, oil prices aren't near as high as education and medical care:

http://dailynews.yahoo.com/news?tmpl=story&e=5&u=/csm/20050419/ts_csm/amilk&sid=84439559

GM pays more for employee medical cost than they do for steel...

Drug companies, hospitals and medical technology companies are reporting record profits.

I made less money last year than I did 5 years ago, despite doing more work. At last check, doctors get less than 7% of the healthcare dollars spent. (End of mini-rant).

It has been said that GM is an HMO and retirement fund masquerading as an automaker. No wonder Toyota is eating their lunch.

I thought GM was just an empty shell for the GMAC credit financing company. I read somewhere that GM makes a profit on the loans, but not the actual vehicles they sell. Bummer.

It's even worse than that. GM actually makes a lot of its money from mortgages.

In 2004 GM earned $1.2BN from auto manufacturing, $1.5BN from auto financing, and $1.1BN from mortgages.

In 1Q05 GM lost $1.3BN from auto manufacturing, earned $0.25BN from auto financing, and earned $0.39BN from mortgages.

If and when the real estate market rolls over, another leg of the stool will be kicked out from under GM.

Okay, so they do have $20BN in gross cash, but the auto business generated negative $3BN of cash flow in 1Q!

I wonder how they lost the $1.3B in manufacturing?? :confused:

Is the Oracle Tabula now a believer that housing is overvalued (or is he still working on a NIMBY - not in my back yard - theory, and Vegas is still on the up?).

It certainly looks like the last prop for the economy is already going down.

Housing starts slide 18%

http://money.cnn.com/2005/04/19/news/economy/housing.reut/index.htm

Inflation is picking up, not just in energy either.

http://biz.yahoo.com/ap/050420/economy.html?.v=7

Drug companies are the silent evil in our society I think. The amount of payola they shell out has to be huge, plus the budget for advertising has to be staggering. All for drugs you cannot buy over the counter. Then they offer incentives for dispensing them and on and on. Yet they can stiil report record profits. Whats wrong with that picture?

They successfully lobbied for direct-to-public advertising and now Medicare is gonna pay for all those unnecessarily over medicated seniors prescriptions. What a boondoggle.

Let's put it to yo this way...I believe we are in an ebb tide situation...holding pattern...for now...how long??? no one knows...I believe housing prices will start to subside..like the tide going out...how far will the tide go ...I don't know....

The Demographics and amount of land available for development are both favorable for price appreciation in LV....much as Los Anglese was back in the 60's and 70's ....

So while the tide goes out ...for every area....I think LV will do better than most...

Further todays numbers were a rise of .60% with a core rate of .40% inflation....what offsets this is the fact that real wages are down .10%...so any price increases have not been passed along to wage earns....

Ironically with a higher rate of inflation comes a interest rate hike which will dampen the housing market...causing prices to fall...without wage increases people will not be able to afford higher housing prices...so prices will fall.

Ohhhhh i seee it nowww.....it's becoming clearer...yep....see my new thread...

Ohh I got to say this...I don't think this thread is really coherent on my part....I was thinking about the housing market being in equilibrium....and the rest is just working out ideas in my head..to see how things kinda fit...eg the Stock and Bond markets...

As I've said before this is all first draft stuff....I rarely edit...

Another take on RE

http://www.atimes.com/atimes/Global_Economy/GD20Dj01.html

The talking heads who don't understand the current dynamics all merge into a common think so they can All say they were correct, for circumstances, to each other when every goes crapola. The deep indicators lead to a future of political stonewalling vs the good of the economy. We're at economic war with China and India and the a-holes in congress can't get their act together. This hasn't occurred for over 30yrs. If Bush doesn't take major control of economic policy we could all be screwed for 5-10yrs. So far Bush can't get anything going. SS is doomed, I think. If his tax reform gets stonewalled then that's the big bad indicator that fiscal policy is in the $hit can. Along with crippled fiscal policy is a poor economy that reaches out and touches everyone.

oh btw. many indicators jerk around monthly. Consumer spending, jobs, and housing are among the most volatile.

don't forget that it's a world economy filled with competitive countries. World markets will respond to US fiscal weakness before the US figures out what's happening.

I think Bush is being paid by various interests (WalMart, Microsoft, etc) to ignore China and India - these companies are making too much money leveraging cheap labor and want the war to continue.

any evidence of that, or are you just all revved up this morning?

China and India are two way streets....are you going to tell 2.5 BILLION people to go to he11...These are hugh markets that are just opening up...we need their low end goods and we in turn sell the more sophisicated goods to them...It the USA doesn't exploit our opportunity the Japs and EuroUnion will...