Jul 07 2008

The Economy – Blowing Some Steam

Published by at 7:26 pm under Global Economy,US Economy

“The constant problem of the speculator or analyst is how to disentangle the cold, hard economic facts from the rather warm feelings of the people dealing with these facts.  Few things are more difficult to do.  The main obstacle lies in disentangling ourselves from our own emotions.” – Bernard M. Baruch

 

Emotions are clearly running high these days; unfortunately not in the warm and fuzzy sense.  Most of us that are tuned into the economy and the markets are sitting on pins and needles hoping to recognize a positive sign – just one.  I for one am confident it will get better – it always does.  When and for how long is yet to be determined.

From what I have been able to determine, there are three very serious underlying causes for the current economic storm.  Two are closely related and should ease up over the next two to five years.  The third is really tough.  All are either caused or magnified by ignorance, short-sightedness or extreme greed.  The sub-prime mortgage debacle and the speculative real estate bubble are clearly related and they will eventually be nothing more than an unpleasant memory.  The toughest of the three is none other than the increasing demand for black gold – and unless someone perfects a salt water-powered engine soon, the pain will only increase in years to come.

All of us are being hurt by the sub-prime mortgage mess and to be honest, it infuriates me to think about how many highly-paid financial professionals, entrusted with other peoples’ money, could believe that lenders with a history of not paying their bills would suddenly become responsible when approved for a loan worth several hundred thousand dollars.  At the height of the fury it is possible that my twelve-year-old daughter qualified for her own mortgage without credit or a job.  Utter foolishness that everyone around the globe is paying for right now!

Less than two years ago, the trick was to pay a deposit for a condo or home being constructed and then flip it for a nice profit before you had to start making monthly payments.  Well – those days are gone and now all of a sudden we have a glut of available properties with no buyers.  Worst of all, every day thousands of property owners are defaulting on their mortgages.  It seems that someone should actually buy a condo or house to live in once in a while – and have enough “real” income to pay for what they buy.

As I suggested above, the mortgage mess and the real estate bubble are likely to be short-term problems that will eventually get better.  I am truly concerned about oil over the long-term, however.  Prices will stabilize and possibly even decline in the short-term, but unless we dramatically curb global demand growth somehow, we are heading for completely uncharted economic territory.  I know most of you realize that petroleum derivatives make up or are used in just about everything that we all depend upon every day!  To support what I am saying here, the May 2008 issue of National Geographic contains a terrifying graphic that shows China’s oil imports in 1996 were 166 million barrels/year.  Ten years later in 2006, they were 1.065 BILLION barrels/year!  Considering only the automotive markets, in 2006 there were still only 30 million cars and light trucks on the road in China and the population was estimated to be 1.3 billion.  In the U.S. there were 240 million cars and light trucks on the road and the population was about 285 million.  I am no automotive market expert, but I would tend to believe that someone plans to sell more cars in China.  I don’t even want you to think about all the other potential markets in China – not to mention all the other developing countries throughout the world!

So what should WE do?  Some of us obviously have more influence than others, but for the most part we are all just along for the ride.  It is important to stay abreast of what is going on in order to make the best decisions – but I suggest (and I will do my best to take my own advice) that you avoid letting all this unsettling news eat at you.  Focus on the things in your life that you have control over and do your best to let go of what you cannot control.  You will likely live much longer and be happier – not to mention you will accomplish a great deal more in the process!

Boy do I feel better now…hope you can say the same.

17 responses so far

17 Responses to “The Economy – Blowing Some Steam”

  1. Wiggumson 14 Jul 2008 at 10:07 pm

    Good points but I doubt the oil situation is as bad as you make it sound. OPEC and a large group of speculators are having their day.

  2. Biggyon 14 Jul 2008 at 10:22 pm

    I hope it gets better sooner than you suggest!

  3. Chief Walkabouton 15 Jul 2008 at 5:29 pm

    With a barrel of crude oil priced at 27.39 (adjusted for inflation at $34.16) in the year 2000 these numbers would seem to imply that somebody has managed the energy situation terribly wrong. To make one feel worse, the price of regular gasoline in 1999 was $1.14 jumping to $1.52 in 2000 and upward ever since.

    Today President Bush in his speech blamed the Democrats for the situation we are in. Correct me if I am wrong but I believe they have not been the majority party in the time frame mentioned above.

    The white man continues to mess in his own nest (for profit of course)!

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