The Reason to Ignore Most Economists 14 comments
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Durable goods orders (manufactured goods designed to last at least three years) increased 1.3% last month to a seasonally adjusted $219.26 billion, the Commerce Department said today. Excluding transportation, durable orders rose a promising 0.7%. Orders in June were revised higher, also rising 1.3%. Previously, June durables were seen rising 0.8%.
The report was much better than Wall Street expected; economists had forecast a decline of 0.4% for July. It should be noted that the June revisions mean economists were far off the mark then also.
A gauge of business equipment spending -- orders for nondefense capital goods excluding aircraft -- increased in July by 2.6%, after going up 1.3% in June. Year-over-year it has increased 4.2%, indicating capital spending hasn't collapsed despite dire predictions it would.
The "long story short" translation here is that other than housing, the economy is still in good shape. We have yet to have a negative quarter of GDP growth, the unemployment rate, despite rising, is still low by any historical measure.
Economists, far from being scientists are letting their outlook shade the reality of what is happening out there and their "predictions". My home has dropped in value like the rest of the US's over the last two years. But, I am not selling, so who cares? It does not have any effect on my life at all and its drop is meaningless to my financial plans in the next decade or to my lifestyle. Now, it does on others, and that is why we will not grow GDP at 3% to 4%. It is the reason it will grow 0% to 2%. That is still growth.
Do home value drops matter to Caterpiller (CAT) or John Deere (DE) or other US exporters selling equipment to China, India or Brazil? It does in that their profits may drop slightly but not enough to offset a global world. Again, not great growth but growth nonetheless.
Housing is also the reason people think the world is coming to and end, clouding their perception of what is really happening. People losing their homes make real nice news headlines and stories, especially in an election year. Watch what happens after the election. This issue will take on considerably less importance. For now, it will be a day after day drumming of it as both parties and the media try to assess blame on everyone but the real responsible parties, lenders and borrowers.
Do not base your outlook or investments on what the economists say. Remember, they predicted a recession as early as last fall, and have still been wrong to date on that one.
Disclosure: None
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This article has 14 comments:
Amen to that. Of course, the "careful what you wish for", "sane lending standards = Financial Armageddon" crowd WANTS you to think it's the End of the World --so they can manipulate the public into supporting more taxpayer-financed Wall Street bailouts.
Privatize profits, Socialize risk, baby!
No one's saying that the housing bubble implosion *won't* negatively impact the broader economy at all. Just that speculators and Wall Street suffering consequences for their own reckless actions does not = End of the World. There will be suffering, no doubt. However, as long as most of the pain is concentrated among those aforementioned "responsible parties": lenders and borrowers, it's not an automatic crisis. It's just the market working the way it's supposed to --Creative Destruction 101.
I have nothing to prove here. I manage my money, you manage yours as you see fit. But when people telling us not to listen to economists, who were right all along about the debt, dollar and inflation, I simply cannot understand it.
Bottom line - housing is huge, and so is it's impact. Wait'll after the election and home selles enter the flat selling season with their home STILL on the market, and christmas sales show the true demise of the home equity loan as ATM. This is gonna be one seriously interesting 4th quarter.
Think of it this way. Some are saying the roof is not leaky while others say it is an accident waiting to happen. Come the rainy season (4th quarter) we will find out who is right.
U.S. consumers are buying less. Guess what? That translates to fewer imports to the U.S. Guess what? Fewer imports means other nations have less cash to spend on our exports, and less incentive to expand. They will also start cutting their staffs. Guess what? That means that U.S. multinationals are about to see their international business slow as well, and that is even IF the dollar does not continue to strengthen....
Truth-In the last 4 years 60% of home sales were 2nd homes or investment properties. That means almost 15 million homes can go back on the market if the speculators need money. 70% of US econ is based on consumer spending-mainly housing related.
Oh, but wait: the dollar has droped 15% and thus housing should drop by the same. How can the dollar go up when the Fed prints more money. RATES will rise.
No refi's - no equity+job insecurity+ too much inventory= bad times.
If the market looks forward I guess we will see 8900 on the dow before June 2009. S&P 1080.
The country doesn't need to be in a recession to feel like one. How does it feel to wake up with 25% less than you thought you had?
The problem with the author and many other "experts" who argue that this financial and economic disruption that has resulted from over leveraged consumers, banks and brokers, is that these people pick and choose the data that they want to use to support their opinions. Can you say "weapons of mass destruction intelligence"? Today's GDP numbers are a prime example. Even though unemployment has risen over a full percentage over the last year or so, foreclosurers and personal bankruptcies have reached multi-decade highs, bank failures are on the rise, retail sales are contracting, and real wages have fallen for over seven years straight, GDP has not gone negative, therefore the economy is strong.
Thank you, SR.
This type of bizarro-world, one-sided "Head, I win, Tails, you lose" thinking is what got us into this mess in the first place.
I love the way a massive run-up in prices (but not incomes) fueled by funny money was universally hailed as a W-O-N-D-E-R-F-U-L thing by most media pundits and financial "experts". Yet, prices falling back down to levels that *real people* with *real income* can actually afford is... ARMAGEDDON.
Welcome to our Lake Wobegon world of one-way capitalism, where every speculator is above average and merits a bailout.
Kudos to Todd if his falling home price value does not matter to him and his lifestyle. But apparently there are millions of other folks who were not so restrained and indebted themselves far more than they should have thanks to ever increasing home values. Now that the ever pyramiding lending schemes have dried up, somebody will hold the bill. And that's always the consumer - and that's bad for the US economy and eventually may very well be bad for the global economy (especially China).