Outlook 2008, The Upcoming US Depression

[MattyUSA]

Thanks.

I realise the future is uncertain and thats fine. Some events are very likely and it is wise to plan for them, 'just in case'. This time around I happen to agree with this 'pundit'. Yes, we could both be wrong. I'd be happy if that's how it turns out. Here's hoping eh...

That said I think you are right in saying 'property' and are backed up by others.

Your suggestion of rural is a good angle that I hadn't considered but alas not suitable for me. I work in the heart of suburbia and rural would simply be too much a commute. I'll struggle to afford one property let alone two, so like many others I guess I'm potentially goosed.

I think it'll be more important to put 20% down, save on the PMI and give some scope to weather any price decline.
Then just hold on for a turnaround. The irony is the only places where what I have is 20% are currently too far out. Increasing commute and sanity costs.... sigh.

"self-sustaining property with running water and arable land" I wish that were feasible, I'd love to live in the country. I'll never get there without leaving my current job, then I'd never afford the mortgage payments. Catch 22.

Thanks for your thoughts, I'm sure there are others in the same situation as I, that find your thoughts helpful.

Anybody else have other ideas that may help?

Hopefully,
Matt

 

[zarni]

Thanks.

I realise the future is uncertain and thats fine. Some events are very likely and it is wise to plan for them, 'just in case'. This time around I happen to agree with this 'pundit'. Yes, we could both be wrong. I'd be happy if that's how it turns out. Here's hoping eh...

That said I think you are right in saying 'property' and are backed up by others.

Your suggestion of rural is a good angle that I hadn't considered but alas not suitable for me. I work in the heart of suburbia and rural would simply be too much a commute. I'll struggle to afford one property let alone two, so like many others I guess I'm potentially goosed.

I think it'll be more important to put 20% down, save on the PMI and give some scope to weather any price decline.
Then just hold on for a turnaround. The irony is the only places where what I have is 20% are currently too far out. Increasing commute and sanity costs.... sigh.

"self-sustaining property with running water and arable land" I wish that were feasible, I'd love to live in the country. I'll never get there without leaving my current job, then I'd never afford the mortgage payments. Catch 22.

Thanks for your thoughts, I'm sure there are others in the same situation as I, that find your thoughts helpful.

Anybody else have other ideas that may help?

Hopefully,
Matt

Putting more down than you have to is nonsense. If you get a fixed and your rate will be lower than 10% you can pay that off with a guaranteed higher return on your money. If you can't find that return PM me.

 

[MattyUSA]

Thanks zarni

Sorry I should have been more specific.

Where I said:

I think it'll be more important to put 20% down, save on the PMI and give some scope to weather any price decline.

I perhaps should have worded it as:

I think it'll be more important to continue saving hard, put 20% down, save on the PMI and give some scope to weather any price decline.

I have almost 15% of a likely purchase price. If I can continue with Forex and learn my stuff you never know I may get the rest...

I'm pretty sure I and others would love to know where you can get 10% return on savings (in the USA). I am assuming medium to low risk. If you are not sure that you want to pop it online that's fine (I'll PM you if so). I just know others would love to know too.

Best Wishes,
Matt

 

[thethinman]

The Perfect Storm

An interesting scenario, Rob.

My take is that the "Big Drop" will occur only after another period of "irrational exuberance". We might get a correction or even a minor recession, but in about 3 or 4 years all of the chickens that you mentioned could come home to roost. That slow suffocation you mentioned might become a hangman's noose, and we could have "the perfect storm".

Why? In addition to all factors you've mentioned, the first of the baby boomers will begin retiring in January, 2008.

Unable to get congress' attention, the U.S. Comptroller General is taking the unusual step of crisscrossing the country in this pre-election year giving talks to the public on the bankrupt state of the country will soon be in. (You can view him on video at YouTube by searching for "Government Immorality")

According to him both medicare and social security, but especially medicare, will be unable to meet its obligations, and within 3 yrs. will need $8 trillion dollars to lend at treasury rates just to fund medicare, and there is nothing presently in the kitty. Considering that the entire national debt is only about $10 trillion (congress just raised the debt limit), that's not a likely possibility.

This is one issue that no amount of rate lowering or money printing is going to be able to solve. Only the very politically unsavory solution of severely raising taxes would allow the treasury to meet its obligations. This would risk a severe recession, and possibly the feared deflationary spiral which Japan experienced in the not too distant past. If inflation kicks in before the drop, as I suspect it might, the U.S. could be stuck with a nasty case of stagflation, which could last for a decade or two, or more.

Cutting back on entitlements appears to be the only solution possible, at a time when you will have the largest elderly population in your history, many depending almost completely on SS and medicare.

However, another solutions leaps to mind, which is equally unpopular at the moment, and that's to legalize all the "undocumented" workers, and even invite others into the country. This would increase your tax base, and because it puts pressure on wages, has always been a favorite of business. With lower wages the U.S. might even be able to get back into the manufacturing business. Why go offshore, when cheap labor can come to you? This could be called the "Third Worlding of America". In that case the situation would be different, if it happens within the next 3-4 years, which I doubt, but you never know (except for death and taxes) for sure. :err:

 

[Pharaoh]

As far as the loss of forex trading - well boohoo.. I do make money trading forex but frankly speaking I am not proud of this. Forex as any other derivative transaction is an economically unnecessary and parasitic instrument.

This thought also crossed my mind shortly after I started exploring forex. Most of my other jobs at least served some useful purpose. I'm not sure if donating my spreads (and losses) to my broker qualifies as a useful purpose.

After I make my first billion (yeah, right) trading forex, I want to be able to look back and say I did a little more good for the world than just making myself rich. I think Felix has a very good solution. He donates 10% of his gains to worthy causes. I've already made a personal list of some causes that I want to donate to and will be cutting the first check once I actually make some money for me (instead of for my broker).

 

[MattyUSA]

The big fish control too much and are the only ones making big money. The odds are stacked against the smaller guy. Gainful jobs with useful output typically benefit the employer more than the employee. How many independent gainful jobs can keep you living comfortable? By that I mean where you are not working for another's benefit first and your own sustenance second. It is harder and harder to start, run and promote your own business successfully whilst the bigger companies just get bigger.

At least with Forex trading, the smaller chaps have a chance of gaining a foothold. I take the viewpoint that whilst it is here, if we don't others would and so I just resolve to try and be a better person with any gains (yes charity donations are intended once I restablize, I saw Felix's 10% theory as well ).

I often wondered how many market movements were caused by those in a position to cause them just to increase the money they made from them. Then I reasoned they'd probably make just as much money regardless via other methods and at least whilst Forex is open I had a chance too.

I hope it doesn't leave. I enjoy it. Easier than stocks. Imagine if Forex were closed to only banks.... would it be any better?

Best Wishes,
Matt

 

[magister]

Nuclear ETF

There is a nuclear ETF http://finance.yahoo.com/q?s=NLR
which might be good until a pure Uranium one exists.

Hopefully the new MACI contracts from NYMEX coming in 2008
will include a Uranium Index which will average out the effects
of backwardation and contango which happen with futures.

Another poster mentioned out the USA has producted alot of creative
stuff, that is true, however I think the youth are being brought up with violent movies and video games which is routing their creativity towards violence. France might not have created some of the products that the USA has however they have a practical approach to life which the USA can learn alot from....this is most evident in their forsight to develop their nuclear energy program and in the running of their democracy. Here is a funny youtube video I got from the Daily Reckoning.



njoy

p.s. can someone fix all these javascript errors popping up from this page, it is dam annoying.

 

[elektrance]

Thanks Rob

Just would like to thank you for the great insight. For me your article was a good lesson. I am still a newbie in what comes to trading so this kind of information is quite valuable for me. As an european citizen(euro zone) I look to the US with concern. I believe with a good administration (not with Crusty the Clown as it is right now) US will be able to rebound quickly as it has a very strong knowledge network and a great diversity of resources.

Regards,

Elektrance

 

[zarni]

There is a nuclear ETF http://finance.yahoo.com/q?s=NLR
which might be good until a pure Uranium one exists.

Hopefully the new MACI contracts from NYMEX coming in 2008
will include a Uranium Index which will average out the effects
of backwardation and contango which happen with futures.

Another poster mentioned out the USA has producted alot of creative
stuff, that is true, however I think the youth are being brought up with violent movies and video games which is routing their creativity towards violence. France might not have created some of the products that the USA has however they have a practical approach to life which the USA can learn alot from....this is most evident in their forsight to develop their nuclear energy program and in the running of their democracy. Here is a funny youtube video I got from the Daily Reckoning.



njoy

p.s. can someone fix all these javascript errors popping up from this page, it is dam annoying.

The US is pure capitalism. Capitalism is not conducive to education. Why would the US put more tax dollars towards education when they get so much talented and educated people from countries that have put those resources towards education. The balance is perfect for the US. The more educated the populace the more problems it can potentially cause for any government. In this situation there is little incentive, political or economic, for furthering education. Same goes for healthcare.

 

[zarni]

There are increasingly myopic views being circulated about the dollar weakness.

The reason for the dollar slump has little to do with the US consumer or US government spending. Remember during Reagan era defense spending the US deficit was even larger as a percentage of GDP. The dollar was then on a rise. The two are not really correlated as much as some say.

In addition blaming the US consumer is also incorrect. US consumer spending has grown in relation to US GDP growth. The devaluation of the USD has little to do with the prior two. It has to do with Yen and primarily Yuan manipulation. Since these currencies continue to be held artificially low the only way for the disbalance of US trade to be overcome is for the dollar to fall. What we are seeing here is a global economic bubble. Since the Chinese and Japanese central banks continue to keep their currencies artificially low against the dollar the only outlet for the dollar is to shift the problem to the Euro and other currencies. This will lead to further Euro strength in the short term however the Euro will become severely overvalued.

The weak dollar is not a problem currently neither for the US nor for China or Japan as the Yuan is virtually pegged to the dollar and Yen maintains a fairly narrow range artificially. This is going to be an increasing problem for Europe. American goods will become ever more competitive and start displacing European products both domestically and abroad. This will lead to pressure on EU economy and transfer of jobs to the US. I expect little issues for the US economy - it is really a self-sufficient economy and has virtually no need for imports (except for the obvious exception - cheap oil). Shrinking exports will spell doom for China's economy which is literally linked via umbilical cord to the US consumer.

I will expect a weak euro next year as this disbalance becomes unsustainable. There is significant possibility for severe shocks coming to China's economy as they succumb to pressure and move to a floating rate.