Economy is REALLY, REALLY, REALLY In Trouble

[Kid Dakota]

You're putting words in my mouth. I'm not saying that it's the end of the world (btw, if I would have believed that during the tech bubble wouldn't I have saved a lot of money). I'm just saying the economy is in a lot worse shape than people are saying.

Just becuase the market has been sliding lately doesn't HAVE to mean it's just a small correction.

[MrBlue]

Well, you did say the economy was REALLY REALLY REALLY in trouble. I figure 3 reallys meant we were in trouble.

Anyway, I'm actually reducing my leverage back to 1 and taking some precautions in case this does turn for the worse. I just like to post articles and numbers and play devil's advocate.

[technologic]

overall US GDP is going down? what kind of production?

[Hank Scorpio]

I'm not sure what he's referencing, but I know that estimates of 4th quarter GDP in 06 were revised downward pretty substantially. Other indicators like durable goods have also been down. I actually wrote a 4 page paper on the current state of the economy if anyone is interested.

[dopp16]

[ QUOTE ]
You're putting words in my mouth. I'm not saying that it's the end of the world (btw, if I would have believed that during the tech bubble wouldn't I have saved a lot of money). I'm just saying the economy is in a lot worse shape than people are saying.

Just becuase the market has been sliding lately doesn't HAVE to mean it's just a small correction.

[/ QUOTE ]

Kid Dakota-

You obviously have very strong opinions and do your fare share of research. These are not the only economic indicators to consider. To be convinced that we are in trouble based solely on that information is silly and your argument has no merit

[shark6]

Just watch the money supply numbers. As long as the money keeps flowing into the economy we'll be ok. Once it stagnates, it's all over.

[PairTheBoard]

We've been on a pretty long run of big earnings growth. I'm wondering what happens if earnings growth stagnates and some of these private equity deals turn sour. They discover they've paid too much and can't service the debt created in the takeover. Risk premiums jump and credit tightens. Rumors of takeovers evaporate like the IPO's of the 90's and stock prices suddenly look a lot less attractive.

The subprime mortgage market comes to be seen as just a symptom of the more general problem of too much liquidity chasing weaker and weaker deals. When enough losses from the weak deals makes it clear that risk premiums have been underestimated the credit driving the liquidity dries up.

I believe this scenario is more or less typical of boom bust cycles. Are we entering the bust now? Who knows. But like Greenspan indicated, as time goes on in the recovery from the last bust, forces naturally build toward the next one. Subprime sure looks like it could be a heads up for it.

Some people think this is more like the midcycle slowdown of the mid 90's. I don't know. The late 90's may have been something of an anomaly caused by the introduction of the two major new technologies of the internet and cellphones at that time. There doesn't appear to be anything like that happening now. Or maybe there is and I just don't see it. Or it may be a little more like the 70's with foreign factors driving up the price of oil and other commodities. Or it may be like the late 80's-early 90's with the exhastion of the Junk Bond boom and the savings and loan debacle.

I feel like a room full of economists. I don't have enough fingers to point in all the directions I'm going.



PairTheBoard

[wpr101]

[ QUOTE ]
You have production going down but at the same time prices increasing. I think stocks are going to drop a lot lower over the next year until the Fed decides a decrease in interest rates will spur inflation. Aggree / Disagree?

[/ QUOTE ]

YOU ARE A GENIUS!!!!!!!!!!!!!!!!!!

[SplawnDarts]

A little downturn would be nice - it's hard to find really cheap investments these days.

One place of interest - look for investment banks that are buying up now-devalued portfolios of subprime mortgages. They're likely getting a very good price on them, because larger firms want to be able to claim "limited subprime exposure" for irrational stock price reasons. That means the rational guys buying the mortgages are going to make a killing.

I'll have some reccomendations at some point.

In the meantime, buy KOMG to go with your HERO.

[cbloom]

I personally hate the overall US market as an investment; I'm sure you can find bits of value though. It's hard to find anywhere in the world that's promising& safe though, because it's all so tied now that if/when the US tanks most of the rest of the world will tank.