Fashion Valley packed last night

[powayseller]

AN, I don’t get your point. The Census Bureau is tracking the auto sales, and they are down 2.4% in June’s report. So the new car sales decline is an indicator of consumer spending decline. However, I see your point that it does not mean GDP will decline since cars can still be manufactured abroad. But we do have a recession in the auto states already, as unemployment is very high and home prices are depressed and foreclosures rising (not from ARM resets but from unemployment).

The biggest indicators of recession are the inverted yield curve and the decline in housing permits. This housing decline already brought down GDP to 1.6% in Q3 and will depress it even further in Q4.

So AN the burden of proof is on you to show why the big drop in housing permits/starts will not bring a further decline in GDP. I see this latest drop in permits as an indication that permits and starts are continuing their downward spiral, further depressing residential investment, a very important contributor of GDP. In Q3, res. inv. was down 17%, and was the main reason for the GDP decline. Also you have to prove why this time the inverted yield curve is not indicating a recession. The bond market is expecting a recession, although the stock market is not. This happened in the last recession, as the stock market rallied right into the recession. Have you read Roubini’s commentary, and what do you disagree with?

My burden of proof will be to research why the Iraq war is not stimulating the economy, as the Korean and Vietnam wars did.

My comment about being prepared for recession was meant to show that we don’t have to be worried about a recession. If it comes, we can be ready. If we have a job that is sure to be eliminated, we can change jobs or sell our house or move to another city. We can shift our investments. Sometimes I’m not sure if people disagree on the recession because they truly believe it is impossible, or because they are in denial because a recession would cause them financial harm. I wonder why a recession is so hard to believe,because they are normal part of the business cycle. Saying we cannot have a recession is like saying we cannot have rain. I don’t get it….

[sdrealtor]

What’s rain?

[powayseller]

THe other wars were a greater % of GDP.
“The sort of numbers mentioned in US discussions as to the military costs of the war are less than US$100 billion, that is less than 1% of GDP compared with 12% or 15% of GDP for the Korean and Vietnamese wars. ” – abc.net

“The second world war called for total mobilisation, requiring a country’s total resources, and that is what wiped out unemployment. …Most analysts put the total costs of the war at less than 0.1% of GDP, the highest at 0.2% of GDP. Much of that, moreover, includes the usage of munitions that already exist, implying that little or no stimulus will be provided to today’s economy. ” – The Guardian

Housing is now a hug epart of our economy. “…unlike the previous periods, housing is now the main engine of the economy. This is especially true when the substantial contribution of equity extraction to consumer spending is included.” A housing bust is therefore more serious than ever.

This is Roubini’s “Housing Free Fall Turning Into Meltdown … 2007 Recession Ahead”. Roubini has written about a housing-led recession since last spring. Have you read his work? It all comes down to the economic contribution made by housing and MEW, and the effect on GDP when residential investment falls. The data is all there.

Economists don’t question whether housing downturns lead to recessions. It is generally accepted as fact. The disagreement hinges on how bad this downturn will be, and whether it’s a hard or soft landing.

AN, I recommend you read Roubini’s well written blog, and then decide for yourself about the case of a recession. If you disagree with any of Roubini’s points, it would be interesting to hear.

[sdcellar]

PC, exactly and AN, it’s just that, a sign, nothing more, nothing less. It doesn’t mean a recession is certain to happen, it’s just been a good historical indicator. Let’s just breath everybody…

Damn, I wish I’d been able to make it to the meet-up…

[qcomer]

We have to realize that at the core of all this is a liquidity bubble coupled with easy lending practices, around the world. G-20 conference urged nations to raise rates and I believe them. I think still there is too much liquidity in the system and it will still take 3 more quarters to clear that out (assuming central banks keep rates up). So I think a US recession in late 2007 or early 2008, instead of early 2007 as predicted.

What can lead to the “ugly” recession pointed by Roubini will be lots of defaults and banks suffering, causing lending standards to tighten and big job losses. If Fed lowered rates a lot (below 4%), it may help soften the recession. But a weak dollar will increase oil and commodity prices thus spiralling inflation again and Fed will not be able to lower rates. Lot of money has moved from commodities to stock market by hedgies in last 3 months and they will move back to commodities. If foreign investors also decided to pull money out of US because of dollar decline, it will cause markets to nose dive. If big job losses happened then it will change the psychology of the “resilient” consumer that hasn’t seen a real recession for quite sometime. This will be the “ugly” recession predicted.

However, the Fed as well as many investors and economists think/hope that dollar will slowly decline, commodity prices will rise again but not shoot up, housing may go bust only on coasts and not across the country, consumer will slowly increase savings and economy can move slowly back on track from <1% growth in 2007 to something around 3% in 2008. I believe it is difficult for this scenario to happen but UK has shown that monetary policy can help avoid recession.

[powayseller]

A recession is 2 quarters of negative real GDP growth, i.e. a declining rate of domestic production of goods and services. We’ve already seen a strong decline in domestic production of housing and cars, and the ripple will soon spread to other sectors. I don’t know anything about the dollar or liquidity in a recession, or if there is a pattern. Commodity prices and oil prices drop in a recession, due to lower demand.

I think this quarter’s GDP growth will be 0 or negative, so we could actually be in the recession already. Unemployment peaks 1 – 2 quarters after a recession starts, and I expect a lot of construction and related layoffs in the next 3 quarters. Once current housing projects are complete, most of those workers will be laid off. We will have 800K laid-off construction workers in the US according to an estimate I read. It could be even more.

I don’t know how we got ourselves into a situation where we are so dependent on housing to keep our economy strong. It seems absurd that a great country like this, with the best financial and military systems in the world, derives its greatest productivity from building houses. You would think our productivity comes from exporting our technological advances in drugs, robotics, health care, alternative energy systems, educational methods, water treatment systems and other infrastructure products, mobile communication, and film making to developing and advanced nations. Why are we dependent on buying and selling homes to each other? Has it always been that way?

[an]

Ok, I’ll just hold my tongue and see if everything come crashing down this time next year. If that’s the case, everyone on this board will be unemployed, witch mean we’ll have a very lively board this time next year. Good luck to everyone.

[sdcellar]

AN– Nobody (or at least I) wants you to hold your tongue. You could be absolutely right and there will be no recession. Or there could be one and it won’t be too bad. Or there could be a depression like some have suggested. Or things could just keep swimming along for a couple more years.

I was just trying to explain the difference between yours and powayseller’s points. I think there’s some kind of indicator related to who wins the Super Bowl or something as well. If any of this stuff was a sure thing, we’d all be a lot richer.

(Then again, how would that work? We can’t all be rich, somebody needs to lose money).

[an]

sdcellar, that’s exactly what I’ve been trying to say. Recession is not a sure thing like powayseller is trying to say. I’m just trying to play devil’s advocate and try to ask the question “why” car sales are down. It could be many reasons why sales are down. No one know for sure, that’s why I say, lets just let time tell us what will happen. We all have our point across. Now, just sit back and see who’s right.

[sdcellar]

I’m going to regret this, but…

You didn’t explain why sales overall were down unless a) foreign cars are so much better that they need to be replaced less often or b) people are holding out for U.S. automobiles because they like them better (but they don’t like what’s available right now? basically what PerryChase said), or c) I really have no idea…

[an]

I don’t know the exact reason why it went down. It could possibly be that last year’s sales were artificially inflated due to the 0% interest and employee discount and such from the big 2.5. This year, there are not as many discounts. That’s one explanation I can think of. Could it also be that big there have major concentration in trucks and SUV and since gas spiked to over $3/gal, demand decreased?

[sdcellar]

Neither do I (or at least I’m too lazy to try to figure it out), but those are much better possible explanations (and I’m glad you didn’t stay quiet!)

[powayseller]

AN, no one suggested you stay quiet. You make very good points. Yet, none have convinced me that we will escape an economic downturn. To me, the recession for next quarter is a sure thing. Many of us on this board will be unemployed next year.

[an]

PS, I’m not trying to convince you to change your view. I’m just trying to say that there are a lot more gray area in a discussion than black or white. To you, seems like a lot of things are a sure thing. Lets see of that S&P 600 is a sure thing.

[sdcellar]

PS– Holy crap! That’s some dot connecting there. You’re freaking me out!

[Author]

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