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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (122014)	5/9/2008 4:58:08 PM
From: SouthFloridaGuy	Read Replies (1) \| Respond to of 306849

Tizzie, Oil has taken away from non-discretionary spending. The spending pie, if not growing, is a 0 sum game. Please refer to personal income gains in the 70's for reference. Other differences: Household Wealth did not fall in the 70's. The savings rate was not 0%. The current account deficit was not -5% (it was -7% before the market troubles and readjustment began). If oil can do what it has done, and break-even inflation is unchanged and risk-free bond yields are lower today than they were 1 or 2 years ago, what will happen when commodities fall? If you're willing to bet on year 5 in a row of the commodities expansion, please feel free. The 70's were marked by inflation. The 2000's are market by overcapacity. Overcapacity in real-estate, overcapacity in business spending. Have you looked at capacity utilization rates in the 70's versus today? They look like what India and China look like today. The Emerging Markets are going through what we went through in the 70's, we are going through what Japan went through in the 90's. Inflation is a small issue. If you live in L.A., fine, it costs me $15 extra to fill up my gas tank. But my house just fell $100,000. It's amazing how so many people are noncholant about home prices falling but are up in arms because food and energy are rising. These are the same people who drive 5 miles to save 2 cents on gas. On average, do Americans now starve because of the food and energy inflation? Indians and Chinese do... The elephant in the room is massive deflationary forces that are now very close. As the CAPEX cycle turns - and Q12008 marked the first negative quarter in the current economic slowdown - then deflation will begin to price itself in. The Fed's pause is an illusion. It will last no more than 3 months. They will continue to cut to at least 1% if not lower. P.S. There is tremendous cognitive dissonance with those who think, "commodities will crash," and "inflation will rise." That's just plain silly. P.P.S. There has NEVER been a recession where bond yields haven't fallen from the start of the recession to the end EVEN IN THE 70'S. A tangential point: There has never been a yield curve inversion which didn't lead to bond yields going much lower. So anybody who is saying we will have a recession AND bond yields will rise doesn't know what they are talking about. Go look it up.