World War 3?

[rankandfile]

What short/long-term effects will the Israel-Lebanon (Hezbollah) conflict have on home prices and the United States economy in general? It is very early, but I have been hearing talk that we may actually be in the beginning stages of WW3. I am not subscribing to this point of view, but I do wonder how it will affect our economy if we are indeed dragged into another war.

[carlislematthew]

I think the effects we’re seeing already are at the gas pump! Gas prices *seem* to be affecting consumer spending already (depending on who you talk to) and increases at the pump can only make things worse.

If there was a full scale WAR over there (which isn’t happening yet) then I think we’d easily see $4 gasoline almost overnight, and move towards $5 or $6 depending on how bad things got over there.

I believe this will accelerate (not create) the next recession. This is why I think it’s almost futile to guess when the next recession will occur. The problem? Events!

But don’t worry, just refinance and buy a Prius! 😉

[lindismith]

High-priced oil has been affecting my business for the last 2 years! I’m in manufacturing, and the cost of bringing in goods has gotten very expensive. In some cases, the frieght and the value of the raw materials are equal costs.
Of course, when we produce the finished goods, the freight is often as high or higher than the goods, so all my customers are paying more too.

As for the raw goods, they are costing more also because those vendors have been affected.

All the way up the line, we are all affected by it.

I’m not necessarily sure higher oil costs are a bad thing because it means we are paying more realistic prices and it certainly makes us conserve more. (Both in business, and as consumers.) Plus, if I’m paying more, so are my Chinese producers/competitors, so both of raising our prices is ok, as long as we’re both raising them.

Ultimately, consumers will be paying more for their goods (if they aren’t already.)

As for the other effects of the conflict, I think it creates a huge amount of fear in our culture, and in general a buying environment turns into a stalled environment. Everyone goes into “let’s wait and see what happens” mode.

[powayseller]

Can you elaborate on the amount of increase in your inputs, and how much of that you can pass along to your customers? Are your competitors passing along these costs?

[rankandfile]

I’m not so sure if China is a victim here as well. I guess it would depend on their supply of oil. Then again they can always “fix” their currency to compensate. I think that they only help to increase oil prices because they have become a big time oil consumer.

You have the Iranian president saying that the Holocaust never happened and that Israel should be wiped off the map. And he wants nuclear weapons, I mean, power. It’s scary that Russia is a major energy supplier for much of Western Europe. And Russia and China are like peas and carrots when it comes to getting anything done via the UN.

[lindismith]

Can you elaborate on the amount of increase in your inputs, and how much of that you can pass along to your customers? Are your competitors passing along these costs?

I’ll give you a small example to illustrate: one of the items we produce are shower curtains. Our grommet supplier on the E. coast had cost increases in freight and brass. Grommets went from 3.5c each to 5c each (so almost double). We order these by the hundred thousand. This was a massive increase for us to absorb. My buyers (I supply huge janitorial companies who then sell these items to gyms, universities, prisons etc.) would balk at another $1.00 on their product costs, so instead of re-ordering from my regular supplier I sourced them offshore, and paid $2.5c for them. This is business, no?

I don’t see how my competitors wouldn’t be passing these costs along. If they are not, then they won’t stay in business long. I expect a few of them to go out of business in the next year to 18 months, because in general manufacturers are slow to adapt, and they don’t use technology to help their businesses. Their demise usually increases my sales as their buyers are forced to find another supplier (probably me), but often they just end up going directly to China if they can, as that helps their margins by cutting out someone like me.

As for freight, I routinely get 30% surcharges from UPS or my big carriers. About 18 months ago, we made a costing decision to just work off 40-60% margins instead of 30-50 because we had to account for freight increases. It was killing us.

I have to say, my business has not suffered yet. People are still buying, and when they object to prices, I can reasonable tell them about oil costs affecting everything, and of course they know what they’re paying at the pump, so they get it, but my phones are not ringing like they were, and I’m still trying to figure out if it’s because people are on summer vacation, or there is a general slowdown happening. My web hits are the same as they were which leads me to believe it’s the summer doldrums, but I’m not certain. Manufacturing, like construction, generally feels it first.

I’m not so sure if China is a victim here as well. Yes, i’m not sure either, but I do know my costs of products I produce in China have been affected. (Victim is not really the right word in my opinion. Every market is affected by oil costs, except maybe oil-producing countries, but even they have to buy finished goods, and the costs of those are UP.)

[bob007]

Israel and Hezbollah is a minor skirmish. World War III can happen between two powers of relatively equal strength. No one is close to USA even though China might get there in the future.

[lindismith]

China wants to do buiness with us, not hurt us. Where do people get these crazy ideas????

[SD Realtor]

Last night nightline had a cool interview with T Boone Pickins who now runs one of the top energy hedge funds. His take is 4$ per gallon within 6 months. He also said that prices will continue to rise after that. It is simply a supply and demand issue. The demand in China and other burgeoning economies has tripled in the past 20 years. He also has invested heavily in the extraction of oil from sands in Canada fields.

While the middle east conflict has shaken Wall Street there has been no dip in the supply chain because of that. The recent price increases are due to increased demand, summer travel and an overall increase in energy demand as the hot summer continues.

T Boones final statement was that oil will continue to skyrocket until there is a normalization of the supply/demand curve. His implication (this is now my speculation) is that it could be 5$ a gallon, it could be 10$ a gallon. Basically he said it will happen when it happens, but that the tolerance of US consumers and businesses to pay the high cost is still present. I believe he did mention 100$ a barrel will not be a great surprise.

I believe he DID say it will never go back down to where is was at a few years ago.

With regards to the possibility of war and the affect, I believe that the only major supplier of oil involved in this mess is Iran. They are a problem regardless of this war.

[lindismith]

Did he explain why oil companies are having record profits?

[SD Realtor]

No they didn’t ask him about that. You and I know the answer to that question though.

They have record profits cuz they gouge us and we cannot do much about it. Until we all are driving hybrids and all figure out how to wean ourselves off of thier sweet honey, they WILL gouge us because the CAN gouge us.

The alternative will be regulation right? Note I am not saying this is right or wrong and as a small business owner I am getting HAMMERED by fuel costs.

The smart people figure out that if they cannot beat em, join em. How can I invest in thier success and take advantage of it.

[rankandfile]

The technology is there for cars to be powered on ethanol, not oil…just look at Brazil (http://en.wikipedia.org/wiki/Ethanol_fuel_in_Brazil).

I am also a big believer in ultra narrow vehicles (UNVs) – http://en.wikipedia.org/wiki/Commuter_Cars_Tango. This would not only help to reduce oil consumption but provide immediate relief to our traffic problems. You would also never have a problem finding parking space!

There are kits that allow you to modify a diesel engine into one that runs on vegetable oil. This is a little more grass-rootsy, but it is possible and fairly inexpensive.

I honestly think that we need to cure our addiction to oil from the bottom up, because the politicians are certainly not going to do anything about it. They will sponsor a study or research of some sort to calm their constituency, but nothing ever really gets done. Why else would Brazil be ahead of us?

[North County Jim]

Why else would Brazil be ahead of us?

Because they have an ideal climate for growing sugar cane. Sugar cane is the cheapest way to produce ethanol.

[Anonymous]

WW3 – It’s the NeoCons!

Newt Gingrich stated that he thinks that we are in the early stages of WW3 on Meet the Press on Sunday, July 16th, 2006.

Personally, I think he’s a fool and it’s this type of extremism that empowers the other side. He’s stoking fear, creating uncertainly, fanning doubt.

We have seen war in the middle east and arab/islamic terrorism for the last 40 years (remember: carlos the jackal, abu nidal, etc) I’m not sure why this time it has to lead to an entire world war.

What type of irresponsible politician envisions a war that will kill tens of millions of people? What type of idiot would buy into that vision???

“Elect me and I’ll draft all of your happy, comfortable American sons and send them to a hot desert to get shot at by people who have nothing to lose!”

Go away Newt Gingrich, please.

[powayseller]

The media misinterprets also. For example, there is no phrase “wiped off the map” in farsi, and the Iranian president did not say Israel should be wiped off the map, yet that statement is widely circulated as fact. He actually said the “occupying regime” [*not* Israel] should leave, and that Palestine should elect its government. I have a long analysis of this error available, but it is not for a housing forum. However, all this rhetoric is elevating tensions in the Middle East, causing our stock markets to suffer, and oil prices to rise.

On the subject of oil, I am convinced by the data of Hubbert’s Peak and Peak Oil, that we are the peak supply of oil, and that our demand is rising at a faster rate due to growth in China and India. $100 oil is not far away, due to the supply/demand imbalance. $200 oil is possible. What is truly amazing is that our government is not making plans for averting an energy crisis. It seems we don’t like to plan for unpleasantries, so we just deal with today.

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