Monday, March 09, 2009

Our Lives, Interrupted

As a child, one of the many stories I enjoyed is the one about the Ant and the Grasshopper. The ant was careful to plan and prepare for the future, while the Grasshopper danced and played, immersed in a summer he thought would never end. Most of the children I grew up with turned out to be scrimping, saving ants. I was the playful grasshopper. This is a Post For All Grasshoppers!

Suddenly, the playing field is leveled. The ants who so cautiously calculated and saved for tomorrow have had their nests wiped out. The grasshopper, who feared perishing once the cold winds of Autumn began, eyes open too late, has been given a second chance.
"In all affairs, it is a healthy thing now and then to hang a question mark on the things you have long taken for granted." - Bertrand Russell
Since December of 2007, the United States economy has officially been in recession. That recesssion has gone global, fueled by greed. Greedy people taking advantage of others. Time to invoke a bit of old wisdom: "The bigger they are the harder they fall." So, CitiBank and General Motors are falling? Not a moment too soon! CitiBank and its ilk are responsible for the housing collapse. GM did itself in. The carmaker planted the seeds of its own destruction in the late 1940s when it conspired with big oil and Firestone to topple America's light rail system - the trolley car - by systematically buying up or destroying every trolley company in every major US city. San Francisco is the only one that hung on. By getting rid of the trolley cars, GM could sell busses which would consume oil, gas and rubber tires by the barrelfull - $$$! And at the end of the 20th century, GM sealed its fate when it realized it couldn't gouge consumers for repairs and maintenance on the EV-1 electric car. They recalled and crushed the entire fleet and turned the plant that produced them into a Hummer factory!

Harry S. Dent, Junior founded HS Dent. He predicts the US will remain in a "deep depression" through the year 2012. Dent foresees a greater stock market crash. Old saying time again: "When the going gets tough, the tough get going." (Fellow grasshoppers, this is where we come in!) No matter what happens next, don't be afraid, don't panic. If you are afraid, don't let anyone know. If you only have a little money to invest, this is a good time. If you never though you could own a home, your time is nearing. We have to time our jump through the window of opportunity to take palce at exactly the right moment. But when is that?

Let's examine the situation. Keep in mind, we're just entering the recession/depression. Donald Trump recently told CBS Morning News that "this is 1929 all over again" but the difference is the government prevented a run on banks by offering bail-outs. Second, we're seeing credit tightened following the sub-prime mortgage disaster. In turn, consumers, having been stung over the summer by $4 a gallon gas (and not forgetting that for one minute) are reluctant to buy new cars, and even when they can, can't get approved for credit.
Would you really want to buy a GM car? I read someplace that 37 per cent of what you pay is actually paying for the retirement of former GM workers, many of whom left the company years ago - that's why you can buy a Hyundai SUV for $12,000! And don't buy one of those little tin-can Suzuki mini-SUV's that get "37 miles a gallon!" Boo-hoo! A Hyundai Elantra Sedan gets 37 and it's better built, much more comfortable, and safer in a crash! Stay away from those Mercedes Golf Carts "Smart Cars" too! I'd hate to be in one of those when it meets head-on with a Hummer or a full-size Pick-up!
Homeowners in general are a very unhappy lot. The folks who got mortgages the old-fashioned way are seeing red: they view the sub-primers now being helped by the government as "bad behaviour being rewarded." They won't forget this next time there's an election.

So what to expect? We gotta guess a little here: the housing market will bottom out, but when? After the stock market bottoms out? There are two homes for sale on my street. When the economy was good, the house next door was vacant for over a year and was marketed by three different real estate firms before it was sold - for $86,000. Now the two-family on the other side is on the block for $259,000 (being dropped soon to $220,000) and a one-family up the street is selling for $199,000, having already been dropped from $210,000. Both have been on the market roughly 6 months, and I suspect the two-family owner may have a sub-prime mortage and is desperate to sell. But here's their wake-up call: both homes are seriously overpriced. The two-family is run down. The one-family has been spruced up but the very important car garage in the back has been torn down. Realistically, the two-family should be priced at $159,000 and the single family at $102,000. Will we see the prices tumble? Probabaly, if they're not sold to someone well off enough to buy one or both right now. I'm hoping at least one will still be on the block in July or August, so I revisit the issue and see how far the asking price plummets. The baby boomer generation drove the housing boom. They've had their time, their numbers are declining... I don't expect the housing market to recover any time soon.

How to proceed? Dyed-in-the-wool grasshoppers are still at "Square One," exactly where the ants are. The ants "feel" defeated. The grasshoppers believe all things are now equal and the glass is "half-full." Save $25 here. Invest $25 there. Check out Zecco or any of the stock trading services on the Net. Spread your modest wealth: diversify. A little Ford stock here, Fannie Mae there, start your own little portfolio of unrelated asset classes!

If you are interested in currencies, you might look into the Mexican Peso. Stay away from Dollar, Yen, Pound and Euro! Some of you are interested in day trading. Learn all you can before delving in, and again, be wise: diversify!

Additional reading: Other bloggers have referenced the Ant & Grasshopper story in different ways. Here's what Fed Up Conservative had to say. Then there's this anti-Obama post Michelle Malkin uploaded last fall. Bob Mitchell dislikes grasshoppers, but keep in mind these bloggers are bending the analogy in a direction different from mine!

Homework: Study Business Conditions in real-time.

Former spokesman for Russia's Federal Space Agency and ex-KGB analyst Igor Panarin believes the United States economy will collapse in 2010.
"...he cited the slide in major stock indexes, the decline in U.S. gross domestic product and Washington's bailout of banking giant Citigroup as evidence that American dominance of global markets has collapsed.

"I was there recently and things are far from good," he said. "What's happened is the collapse of the American dream."

Panarin insisted he didn't wish for a U.S. collapse, but he predicted Russia and China would emerge from the economic turmoil stronger and said the two nations should work together, even to create a new currency to replace the U.S. dollar."
Last but not least, Here's a snippet from a WSJ.com opinion piece:
"Periods without stock-market crashes are very safe, in the sense that depressions are extremely unlikely. However, periods experiencing stock-market crashes, such as 2008-09 in the U.S., represent a serious threat. The odds are roughly one-in-five that the current recession will snowball into the macroeconomic decline of 10% or more that is the hallmark of a depression."
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