Great Consumer Crash of 2009
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
Here's a some lengthy, but very interesting and well researched paper on the economy in general. Focused on consumers overall, but a lot of material about housing. If the author is right, we've not seen anything yet.
http://seekingalpha.com/article/90892-the-great-consumer-crash-of-2009
Interesting read Wheatie. From where I sit, I don't see things getting better anytime soon. I have access to loan information and see a huge group of people that have been able to hold on to their McMansion's and BMW's to this point. Many of them are near or underwater, and their loans are coming up for adjustment at the time the kids are going to be going (or should be) off to college. Something is going to have to break for this group. These folks have Alt-A and even Prime loans. I am not going to make any solid predictions about the bottom, until I see the extent of fallout from this group.
I sincerely apologize for this gloat up front. I was the one who always drove the doggie cars, spent 8 years in college, often getting chided about being a "perpetual student". My clothes were simple, I lived in student housing for years and shopped at the day old bread store. I used to get seemingly friendly, but actually condescending remarks from the now McMansion people who were "so concerned" about my future. I shrugged it off; I knew where I was headed. By the way, I majored in the hard sciences.
I am now 55. I own 2 very nice homes (about 2 million in value--nice but not McMansions)--outright, 2 very nice cars and a bike--outright. After write-offs, my personal income taxes were over $250,000 last year, and will be more this year due to a large sale of stock. That gives you a clue to what I make. I have no debt (never touched my home equity) and have a healthy retirement in place. I'm putting my kids through college with no problem, and I give generously to causes I believe in. People like us exist, we just don't make the news.
I don 't hear from my McMansion friends much anymore--I wonder why?
I think the author is absolutely right. Look Out Below!
Mike
If you really believe the dire predictions in that article then the correct investing move would be to convert all assets to cash. Then if you are worried about the dollar tanking, you convert it to a hard currency like gold coins at face value.
Then you sit back, let everything fall apart and when it hits bottom start buying everything in sight with both hands.
I think you must mean gold coins at spot value. Pretty tough to buy any gold coin at face value, and I don't see gold falling to those prices in our life times. But, indeed, converting to cash, then buying when things crash is a good strategy. Not sure I'm convinced it will be quite this dire, but this recession turning into a depression seems possible.
OTOH, inflation does seem to be kicking up. If inflation is high, you certainly don't want to have cash. You want to have some hard asset, like RE or gold.
A report out yesterday says that inflation is at the highest annual rate in 17 years. This is a direct result of the recent interest rate cuts and the phony stimulus checks that the government handed out. So many people were screaming for the government to cut rates, well here’s the result.
A law of physics states that every action has an equal and opposite reaction. Think of that whenever the government does something, what will the negative consequences be? It reminds me of an old episode of Becker where Dr. Becker prescribes a simple medication, which cause a reaction, so he prescribes something else which cause another reaction. By the end of the episode he had prescribed so many medications to counter the effects of the original simple prescription. That seems to be what is happening here, we fix one problem only to create another.
Step one here is for people to get their own house in order. (article: http://www.biggerpockets.com/renewsblog/2008/01/29/getting-your-own-house-in-order/ )
That article is very well researched and explained. While it may not be as bad as they predict because we have a very resilient economy, it is going to be a rough ride.
:cool:
Even at its highs earlier this year, it was still below its 1980 value in inflation adjusted dollars and 1980 was a low point for gold.
$1000 an ounce gold (really around $800 at this writing) sounds spectacular until you adjust for inflation.
Great article. What is worse is that article mostly talks about the consumer. The story gets even worse if you bring the government into the picture. We now live in a country where the agenda of the American people and the agenda of politicians are not in concert. We have a government that insists on charging one of the highest corporate tax rates in the world, double taxes on capital gains, taxes interest on savings, bails out irresponsible corporations, fights expensive wars in the middle east and decides to put its head in the sand and not create a national energy policy for the 21st century.
So much for being on the same side.
Great article. Scary.
Richard I liked your article about getting your house in order. It falls in line with the conclusion of the doom and gloom article. Those living within their means 'might' come out unscathed.
Very interesting article. Thanks.
most of our problems can be blamed on parents. Weak and irresponsible parents raise weaker and less responsible children.
If our children were taught true leadership and money management skills, then our politicians and consumers would not put themselves into the situations they do. Today's politician was yesterday's child.
I had a friend tell me he couldn't afford to dress nice for work. I told him he could buy a button up shirt from wal-mart for $10. It may not be a $4000 suit but its better than jeans + t-shirt. He said 'yeah, but money don't grow on trees, I can't afford to just go clothes shopping'.
then I pointed out how much a case of budlight cost ($12) and the fact that he drinks a few of them a week, if not one a day. There's a new shirt every day for work.
I meet people my age (25), younger, and twice my age, who have absolutely no concept of money. It amazes me. It's a little frustrating too as those people are the ones who are usually the most opinionated about money.
Dustin,
I hear you about people your age or twice your age not knowing anything about money. Hell half the government doesn't understand the concept.
I was talking to a friend the other day and we both agreed that personal finance/investments should be a required course for every kid from 9th-12th grade.
Some schools offer them(mine never did) but they aren't required.
I don't care what you say personal finance and solid understanding of economics is a hell of a lot more important then 90% of the stuff you learn in HS.
Yet we learn poetry, cooking, some math we will never use, chemistry, history...etc. I'm not saying we can't all be well rounded but they need to focus teaching kids savings, investments, power of compounding interest, investments(stocks, bonds, real estate), and entrepenuerships should be more incouraged.
Although a foundation in some of the topics I mentioned above are important I think one thing that serves you through life is finance.
I sure as hell don't write poems, look at the periodic table and calculate the molecular structure of anything, know every little fact and date about every little war, or use trig on a normal basis.
It should be a requirement that the kids get educated at least (half year) for every HS grade.
END OF RANT
It's not just financial matters, we are a nation of instant gratification junkies.
For example, look at the current domestic oil drilling debate. A oft used argument is, "We won't see a drop of that oil for 10 years!" Personally, I think it is less but even if it is 10 years. Those 10 years are going to go by no matter what we do. In 1996, Congress passed legislation to allow offshore drilling. Clinton vetoed it using the, "We won't see a drop of oil for 10 years," argument. Well, here we are 12 years later and had it not been vetoed we would've started seeing that oil two years ago!
The majority of the population has completely lost their ability to plan, save and invest. Just look at the crap terminology we get out of Washington where they pretend spending is an investment. :roll: