The U.S.'s Economic Humble Pie

Folks, in everyone's favorite Governator's words, "Let's get serious". Take off your bear and bull suits. Take off your biases determined by your current portfolio allocations. Step back, take a deeeeeeep breath, and look at the overall picture.

Our current situation is bad. Plain and simple b-a-d. No, we're not going to zero. No, the Dow probably won't hit 5,000 like some foolish person on tv said recently. But yes, housing is in crisis mode. Yes, the sell off last week was false. This rally is a simple retest of resistance prior to the Fed's ruling on rates. Yes, the market has been acting like a spoiled little brat - screaming and whining for more and more rate cuts. The problem is that these cuts came too late AND they're helping the wrong people. The Fed is too data dependent and it causes a reaction instead of a response. Oh, and Greenspan, well, not much to say to you except thanks for creating opportunity through destruction (I was one of your biggest fans in high school but hindsight has taught me to be otherwise - not that I wouldn't have done 100x more damage than you).

1990/91 - housing and higher oil prices cause recession

Before that the culprit was inflation.

2008/9 - we're right on track to ride both simultaneously

Now for all of you out there who say the economy is runnnig along fine - please use some common sense. I'm young and didn't live through much of what many of you have so I'm a bit short on personally-experienced wisdom. However if it walks like a, talks like a, and quacks like a, I'm willing to bet it darn sure is a duck. How arrogant are we in the strength of our economy that we think a housing depression will not have an IMMENSE impact of our economic growth? Some would point to manufacturing or rate cuts as the saving grace. Manufacturing constitutes less than 15% of our economy. You try lifting 5.67 times your weight (85%/15%) and tell me how well that works out from your newly-acquired wheel chair. Rate cuts take time to have an impact and the real stimulus for the economy will be increased access to capital via credit. This means lending rates need to fall but due to all the defaults these rates won't decline deep enough for some time. Again, that word 'time' comes into play - interesting. It would seem that many look to the Fed and the market participants in general as Doug Flutie on that fateful day when he threw up the hail mary and connected for the TD. In my personal opinion we are in the unfortunate position of our receivers not having hands good enough to catch the ball this time. The self-exalted are always humbled my friends and we need to eat more pie before we've been sufficiently humbled.

Disclosure: I own FEB 44 Puts on the QQQQs

Comments

[huangjin:]

I don't disagree with your overall outlook, but manufacturing is more important than you give it credit for, because the 15% represents only the final goods that are counted in GDP. If the global economy holds up, it's very possible that manufacturing will delay the onset of recession or help the economy avoid one entirely. We've had major recessions and even depressions in one sector of the economy for very long periods of time without it taking out the entire economy. If things go well, housing could be in a similar situation.

2008 Jan 30 09:30 AM

[seriously ?:]

I def agree w/ your outlook.

Also I would like to add, that almost no analysts/economists seemed to be at least "publicly" concerned about oil.

About all I can recall is a year old interview piece w/ Soros in Forbes ( or fortune ? ). Besides that I read a very small piece in the financial times a few months ago mentioning OPEC should peak around 2013.

I do remember George Soros saying he was def concerned about peak oil ( because its real and not a conspiracy... just possibly too scary to contemplate ). I also believe I recall he was then basically asked how this was affecting his investment strategy to which he more or less responded " I'm staying extremely liquid " , and def did not elaborate.

So my point is.... how in the F&$# is not only our economy , but the global economy going to get through peak oil. ( this is not the 70's ...its a global issue, not a "domestic" one ).

The only solution I see is a massive influx of capital into nuclear energy... but it's probably already to late to stave off a major global recession... hope we start soon to prevent a very bad depression...

anyone else agree ? disagree ? think I'm being a paranoid lunatic ?

2008 Jan 30 10:30 AM

[seriously ?:]

seriously... i cannot understand why this "housing bubble" / "credit crunch" etc is not going to look like a drop in the bucket after oil peaks.

Someone please correct my head ( ergo portfolio ) if they can.

2008 Jan 30 10:32 AM