Major Economic Dislocation

[notyoueither]

Originally posted by DanS


The word "recession" should be used with caution. "Depression" counts about 10x in that regard.

That said, just as recessions come in all shapes and sizes, so do panics and depressions. For example, do you consider Japan's Lost Decade a depression? You might also be interested in the Long Depression from 1873 to 1896.

http://en.wikipedia.org/wiki/Long_Depression

Even though the phenomenon was worldwide, some countries fared better than others.

I agree. I am not thinking Dirty 30's v2.0.

I'm thinking long (years) and/or severe (high unemployment, large number of failures, significant shrinkage of economy(ies)). In which proportions, I have no idea.

There are and will be government programs to blunt much of the misery for some lucky few, but things could still be significantly less than comfortable for a great many and worse for many more.

[notyoueither]

Originally posted by DarkCloud
NYE- Well, I doubt the recession will be as long as you state...

I see another round of collapses of companies coming in Jan/Feb as they report poor earnings for December.

Notably, December may not be as bad as everyone fears- some shopping days extra got pushed into it this year that weren't there last year. Still, Dec. won't be good... ... ...

So- let's assume that the companies collapse in Jan/Feb. IF things stabilize and OPEC can finally get its act together, the rundown in oil prices will probably end- will go no lower than 35/40 dollars. Then oil will begin slowly to ride up to 60 where it should probably have been based on existing demand and resources (instead of rocketing to 140 like it did this summer) - the 9 month forward purchasing of oil is around 60-80 from what I recall, so there is consensus for this view.

Well, 60/oil won't kill foreign trade or airline transport. But currently 40/oil is actually helping drive down commodity prices across the board- which is good for companies that are producers- they can lower prices so that consumers can afford them.

---I have no crystal ball beyond Feb's oil bottom and second round of economic collapses.

But IF credit is still liquid and oil plateaus at $60/barrel, then I think the worst will behind the world economy and the US should start coming out of the recession around March/April.

IF credit crashes, or Democrats bail out too many companies and homeowners, the recession might very well linger for quite a good time... ... Housing prices need to drop to realistic levels.

Kramer, of Mad Money, seems to think Housing will level out around July/August 2009.

Hopefully the democrats reinstate some trading rules and restore order to the financial world... this should help reduce volatility.

and hopefully the Democrats don't kill free trade If they do that, then the US economy is doomed (no cheap goods to buy; therefore, no purchases), and therefore, other economies are doomed as well.

Once all these things hit bottom, we can begin to see an uptick.

So, I suppose a final bet:
Worst Month: Late Jan to Early March 2009.
Recovery: May 2009 to June 2010.

Worst case scenario is that Oil either goes to 140 or oil stays at 40. If oil goes to 140, lots of companies won't be able to afford recsources. If oil stays at 40- then all those alternative energy companies are going out of business or dragging the government down with them into debt.

- I honestly bet that if oil stays at 60-90, we'll see some amazing technological advances in alternative fuel around 2011-2013 that should make everything a lot cheaper and a lot more efficient; thus saving the world from recession. "Everyone will need a thneed" because a "thneed" will save them cash.

- Tablet PCs will also come online in a big way and be used in Universities as substitutes for textbooks around 2012- increasing productivity even more. This may destroy the publishing industry since the books will have to be cheaper, and the IP will have to be protected, but it will save thousands per student per year on school books. And it will make millions for tablet PC makers.

- Technology is our savior.

One prediction per customer, please.

What about the second part of the mortgage problem in the US?

[DanS]

The second part of the mortgage problem?

[DarkCloud]

What about the second part of the mortgage problem in the US?

I don't know. I don't claim to be an expert about these things. The only things I can say with certainty are what I said above and which are readily checked and quantifiable by other economic laypersons who read the WSJ daily and the Economist weekly. My background is on political, not economic trends and though the worlds are tied- I may very well be missing some economic nuances.

And as I admit above, the situation may get worse if certain other things do not happen. But, assuming a best case scenario, what I say above should hold true.

[DanS]

Originally posted by notyoueither
There are and will be government programs to blunt much of the misery for some lucky few, but things could still be significantly less than comfortable for a great many and worse for many more.

I can only speak for the United States, and I don't want to minimize the very real hardship that many have experienced and will experience. But the unemployment rate is still less than 7% and we have been in a recession for a while already. Compare to 1982, when the unemployment rate topped out at 10.8% and was above 7% for 6 and a half years. That wasn't a depression, was it?

Fact is that it always feels like an exceptional time when in the midst of the dog days of a recession. Even an average recession feels like **** -- as if it will never end.

[notyoueither]

Originally posted by DanS
The second part of the mortgage problem?

http://www.economist.com/finance/displaystory.cfm?story_id=11921871

The option ARM allows borrowers to pay less interest than the formal rate for a limited period (the vast majority of customers choose this option). In return, the unpaid interest is added to the original loan, a process soothingly called “negative amortisation”. While house prices are rising, the product just about makes sense. If borrowers do get into trouble when they start paying off the loan in full, higher property values offer some wiggle-room. But when house prices are falling and refinancing is difficult, as is now the case, the option ARM is the financial equivalent of a bikini in winter. Homeowners end up owing more on a property that is worth less.

Delinquencies are already rising fast. Write-offs for option ARMs at Washington Mutual, a stumbling thrift, have zoomed from 0.49% in the last quarter of 2007 to 3.91% in the second quarter. But the real crunch will come when the mortgages “recast”, forcing borrowers to start making full payments. The loans recast after a set period (typically some five years after origination) or when the principal hits a predetermined ceiling. The biggest wave of recasts is due to happen in 2010 and 2011. By some estimates, borrowers’ monthly payments will then surge by 60-80% (see chart), at a time when property values may still be at, or close to, their trough.

[notyoueither]

Originally posted by DanS


I can only speak for the United States, and I don't want to minimize the very real hardship that many have experienced and will experience. But the unemployment rate is still less than 7% and we have been in a recession for a while already. Compare to 1982, when the unemployment rate topped out at 10.8% and was above 7% for 6 and a half years. That wasn't a depression, was it?

Fact is that it always feels like an exceptional time when in the midst of the dog days of a recession. Even an average recession feels like **** -- as if it will never end.

It feels like an exceptional time when trillion dollar financial firms fall over like ten pins.

This is not a mild wind, Dan.

[DanS]

It never is a mild wind.

[notyoueither]

At bottom, I disagree with the characterisation that these are the dog days of the recession. What we've seen so far is a gerbil. The cat is eyeing it. The dog hasn't been let in the house yet.

I am/was hoping to be learn something and perhaps entertain some doubts about my misgivings, but I need more than reassuring words.

[DarkCloud]

So when do you think the worst will come?

I've predicted Jan-March.

You seem to suggest that it'll be wretched in early 2009, perhaps get better, then get slammed again in late 2010, correct?

Many TV channels laughably say that the worst was in November... I fear they've set themselves up for a bit of a letdown...

[notyoueither]

Originally posted by DarkCloud
So when do you think the worst will come?

I've predicted Jan-March.

If the OP is correct, not in 2009.

You seem to suggest that it'll be wretched in early 2009, perhaps get better, then get slammed again in late 2010, correct?

Many TV channels laughably say that the worst was in November... I fear they've set themselves up for a bit of a letdown...

I'm not suggesting any sort of up-down, better-worse scenario on any sort of timeline. I'm not an oracle. I am a historian.

If things go seriously pear-shaped, it will be a process measured in years. Many of them.

We won't have work camps or bread lines, but happy days again are a long way away for a lot of people.

[DarkCloud]

Ok. Thanks for answering.

It's definitely going to be tough times, but if people in the US can get transitioned into apartments and moved away from expensive homes, then hopefully prices can go down again. People will just have to get used to living frugally. Heavens, the standard of living in the US for even a poor person is remarkably high- they have cable TV for heavens sake (I don't even really have cable TV and have never had it- Just got it this year because it came with the internet deal as a package ) And they have cellphones- remarkable connectivity compared to years ago. AND best of all- they have washers and driers and dishwashers. I lived for a goodly time without access to a drier and I made due pretty easily (and saved a good deal of cash and helped the environment) and dishwashers are only marginally necessary... Times are good.

I'll agree that its going to take probably a decade to sort out all the mortgage mess. We haven't seen the last of it yet... I just figure that they won't have a huge impact on the stock market- there is real value in a lot of companies. And 2010-arriving technological inventions will increase efficiency and production and consumer demand for goods consumers actually "need" rather than want.

[notyoueither]

The stock market didn't have a single crash in past events of great magnitude.

What most people don't understand is it is not a single bang and then get about rebuilding. A serious downturn is made up of a series of bangs.

[DanS]

Originally posted by notyoueither
At bottom, I disagree with the characterisation that these are the dog days of the recession. What we've seen so far is a gerbil. The cat is eyeing it. The dog hasn't been let in the house yet.

I am/was hoping to be learn something and perhaps entertain some doubts about my misgivings, but I need more than reassuring words.

So far, you haven't named anything that would cause a major blowup beyond what we're experiencing already (and there's a lot of crap baked into the cake already). It's a little hard to argue against a vague notion of impending doom.

[Colon™]

Originally posted by DanS
No doubt many businesses will go under, which will feed unemployment, thereby prolonging and worsening conditions.

But that's what happens in a recession. It has been so long since we've had a real recession that we hardly remember what it feels like.

In theory I fully agree with this (BTW glad it took a mere decade to come around my view Americans weren't saving enough ), but the trouble lies with counterproductive measures taken by the state. I'm convinced Japan has been prolonging its misery by diverting (appropriating) capital into unproductive infrastructure works and the US (as other western countries, though its not as new to them) is well taking a similar path (as most recentely, but not exclusively, evidenced by the Big 3 bailout).