Soft Housing Prices… for a very long time

There’s lots of speculation these days about when housing prices might reach bottom and begin to recover.  Most are predicting the turnaround to be a year or two away.  Seems reasonable.  Clearly we need to work off the inventory of both new and pre-owned homes.  And, of course, we also need to recover the current credit crises.

But when will home prices recover in earnest?  When can we expect to, once again, see year-after-year two, or three or four percent increases in the price of homes?

Logically, you’d think that we might see such price increases soon after we’ve worked off the excess inventory.  You might think two or three years.  Hmmm… maybe not…

When Will the Stock Market Recover?

The current stock market sell-off is brutal!  Reading, watching and listening to the news is clearly depressing — especially for those with a significant portion of their net worth in the market.  Investors are selling securities in part to cut their losses and in part to raise cash to ”hunker down.”   

The market continues to decline in spite of the Fed’s and The Treasury Department’s heroic support efforts.  Investors seem worried that, while the financial crisis might soon end, we’ve descended into a serious world-wide recession.  And perhaps they see the government’s series of rescue measures as confirmation that the economic sky is falling. 

But this too will end.  As we all know, some day the market will turn around and go back up.  But when? 

 

Will US Automakers Survive?

Sales for US automakers were down sharply again in September.  This is the latest in a continuing downward spiral for the Big 3 — GM, Ford and Chrysler. 

These dinosaurs of the Industrial Revolution continue to suffer from the consumer’s turning away from larger vehicles in favor of smaller, more fuel efficient vehicles.  So the Big 3 are planning to re-tool to manufacture smaller cars.  And to fund that re-tooling, they’re seeking a government (taxpayer) bailout.

Regardless of who pays for re-tooling, the US manufacturers will then have to play catch up with their Japanese competitors.   Japanese auto manufacturers are not only expert in small car manufacturing, but they’ve got a heck of a head start.

Can the Big 3 really compete in the market for small cars?  Will they ever catch up?   Or will they fail? 

Taxpayers Don’t Riot

It’s a good thing that taxpayers don’t riot.  For they’ve got a whole lot to be very angry about.

The folks down the street — John and Jane Taxpayer — have been living their lives responsibly.  They’ve been working at their job, making payments on their home, driving their kids to Little League games and watching Monday night football.

While John and Jane Taxpayer have been “behaving themselves,” many around them have been “running amok.”  About two years ago, another couple down the street decided they’d like to live in a larger home.  So they found a mortgage broker who was ever so happy to arrange a “funny money mortgage.”  That couple is currently having trouble making payments on their mortgage — as those payments, since resetting, have increased significantly.

But what has the neighbors’ funny money mortgage got to do with John and Jane Taxpayer?  Keep reading…

Get Ready for Significant Inflation

Today was another brutal day on Wall Street.  The Dow dropped 449 points.  That’s a bit over 4% in a single day!  Worse yet for the Standard and Poor 500 which dropped 4.7%  And once again, share prices for the big name financial institutions suffered drops of double digit percentages.

But, today something was different from trading sessions of recent weeks.  Today, commodity prices rose spectacularly.  The price of oil rose 6.59%.  And gold gained a full $70 to close at $850.  Not only is this a gain of 9% in a single day, but it’s also the largest dollar price increase in the hsitory of the gold market!  

In recent weeks, investors had been selling commodities in response to a rapidly weakening economy.  And that made sense.  For during time of economic weakness, the demand for commodities diminishes.  Analysts call this “demand destruction.”   

But today, September 17, 2008, investor attitude changed significantly.  Finally, investors caught on to the fact that we’re soon to enter a period of very high inflation. 

Bailout of the Big Three Auto Manufacturers? Guess Who Pays?

It was quite the weekend… with the news of the government’s bailout of Fannie Mae and Freddie Mac.  But did you also see Chris Isidore’s article for CNNMoney, “Big Three Bailout May Be Around the Corner”?  Article 

Seems that sales for GM, Ford and Chrysler are down more than 20% this year.  And their combined US market share dropped to 47% from 51% a year ago.  Thus foreign auto makers now have the majority of sales in our country.

It’s the Big Threes’ own fault.  Remember the Arab oil embargoes of the 1970s?  Then, Toyota and Honda began to grow at the expense of the Big Three.  The Japanese companies’ strategy was, and still is, to offer smaller, more fuel efficient cars.

Detroit paid token attention to this clear trend.  Yes, the Big Three did manufacture some smaller cars.  but the lure of short-term profit maximization was simply too tempting to resist.  And so, the Big Three pushed their larger, less fuel-efficient vehicles.

Want to buy a Prius? Wait a while.

While recently shopping for a car for my wife Wendy, we just had to include the Toyota Prius in our list of possibilities.  We had heard so much about this “wonder car,” that we simply had to see it for ourselves.  So we visited the Toyota dealer (in fact, we visited a few Toyota dealers), got to kick the tires and drive the car. 

While the car is rather small, the hybrid technology is most impressive.  Clearly it represents a significant step toward increased fuel economy.

And given the high gas prices we’ve been experiencing this year, the Prius has become quite the hot item.  The car is sold from a waiting list and is gone just as soon as it arrives at the dealer’s lot.  In fact, the waiting list is some weeks long.  Also, some (though not all) of the dealers in Southern California are charging a premium (of up to $5,000) for a new Prius.  Want to buy a used Prius?  Good luck finding one.

Seems to me that this is sort of a frenzy.  I can’t help but wonder if, during this frenzy, some people who wouldn’t normally purchase a Prius are purchasing a Prius.

If I’m correct about this being a frenzy, then this frenzy, like all frenzies, will one day come to an end.  And then what?

High Food Prices: It’s More Than Ethanol.

The world is currently reeling from sky high food prices.  But why those high prices?  The popular answer is that we’re converting much of our corn to ethanol.  And this use of corn for ethanol competes with its use for food.  Thus our high food prices.

 

Yeah, that makes sense.  Certainly this reasoning is correct. 

 

But there’s yet another, little-talked-about factor pushing up the price of food.  It’s the changing diet of people in developing nations.  Historically, when people receive more money, their diet changes. They shift from carbohydrate to protein. Specifically, they eat less grain and more meat.  For example, during Japan’s rapid economic development from 1960 to 1990, the country’s meat consumption increased by a phenomenal 360%.

 

According to the World Resources Institute, it requires approximately 10 pounds of grain to raise just one pound of meat.  So changing diet from grain to meat consumes not less grain, but more.  Much more.     

 

 

Death of the Suburbs?

Some are predicting that the high price of gasoline will cause middle class Americans to move in closer to city centers.  In effect, to abandon the suburbs in an effort to reduce the expense of their commute to work.

Will this happen?  No, I think not.

What price oil? And why?

Thankfully, the price of oil has dropped by almost $35 a barrel. That’s a bunch! But still, at $113 or so a barrel, the price is historically high. Without question, this high price of oil is damaging to our economy.

Yes, I know, Europeans are paying a lot more for oil than we are here in North America. And they’ve been doing so for a long, long time. I know that. But consider that our society, whether rightly or wrongly, has been built on cheap oil. Witness, the size of our suburban homes and the distance of our homes from our workplaces. Consider too the size of the vehicles we prefer to drive. High oil prices will, without doubt, bring painful change to our auto-centric, suburban way of life.

There’s currently quite a bit of debate as to the cause of these high oil prices. As is generally the case, unpleasantness is accompanied by a high degree of finger pointing. These days, fingers point at OPEC, major oil companies, the Bush Administration, the US Congress, American SUV owners and futures market speculators.

All of this finger pointing kind of begs the question, “What factors are moving the price of oil?”