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Monday, December 27, 2010

Eye of the Storm

Hope everyone had a good Christmas.

Obviously with the three-day holiday weekend, there was little to no financial/economic news and even if so, not desiring to be 'bah humbug' on Christmas, 'A&G' took a few days off.

Now that the presents have been opened and the turkey (or ham, goose,etc..) has been eaten, its time to focus once again on the economic state of the nation. Before Christmas, I ran across a very good column written on Dec 23 in Yahoo Finance which I thought was very sincere...

The Eye of the Recession's Storm (Yahoo Finance)-- "Is the recession really (not just technically) over? Is the economy coming back? Are jobs coming back? Obviously, the answers to those questions depend upon whom you talk with. As the old saying goes, “If your neighbor loses his job, we’re in a recession. If you lose your job, we’re in a depression.” "

"Here in America, the economic news is still pretty dire. A recent survey of college seniors revealed that 85 percent said they planned on moving back in with Mom and Dad. They simply can’t find jobs. The October 25, 2010, edition of USA Today ran the headline: For Many Over 55, Debt Defers Dreams: Recession Strips Away Savings, Jobs. The article states, “The unemployment rate for Americans 55 and older was 7.2% in September, a major increase from 2.9% in September 2006.”"

"Overseas, the news isn’t much better. The British government recently announced austerity programs that will cut 500,000 government jobs and cut welfare payments drastically. The French rioted in the streets, protesting the retirement age being raised two years from 60 to 62. Japan is now sending work overseas, which means more unemployment in Japan. The Yen’s strength makes Japanese products more expensive. So they seek lower-wage countries to manufacture their products. Toyota is set to produce 57 percent of its product overseas, up from 48 percent in 2005. Nissan will produce 71 percent overseas, up from 66 percent just last year. Bye-bye, Japanese jobs."

"The mortgage mess is only getting worse, not better. Many people aren’t paying their mortgages because they don’t have a job. Yet there are a growing number of people who have jobs but who are also refusing to pay their mortgage.  A medical doctor friend of mine confirmed this growing trend. He said the doctors he works with, doctors who make a lot of money, are buying a lower-priced second home and then defaulting on their primary residence.  If this trend turns into an avalanche, the real estate market will crash again. "

"The second half of the storm is about to hit. The leading edge of the storm was the subprime mortgage defaults, the storm that hit in 2007. The trailing edge of the storm will be the defaults of people who are solid citizens, people who have good jobs and good credit. How severe the second front of the storm will be is yet to be seen. If there are more people (like the highly paid doctors) who don’t want to pay for a house that is going down in value, the second half of the storm will be very severe."
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"So is the recession really over?  For some, the recession has been like Hurricane Katrina. They have lost everything in the storm but now the levies are about to break and the flooding will begin. For others, the recession never started. The reality is, unfortunately, that it’s far from over."

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