On Wed, Jun 20, 2007 at 07:27:23PM +0530, Udhay Shankar N wrote: > Udhay Shankar N wrote: [ on 06:23 PM 6/20/2007 ] > > >>The US doesn't make its share of contributions to the UN, nor to > >>global warming. What makes you think they will fear their creditors? > >>Who do you think can cast the first stone? China? They like Taiwan and > >>Tibet too much. > > > >Eh? > > > >I am not able to decipher the above. Are you claiming that the US > >will freely resile from its debts? Doesn't work quite that way, if > >that is indeed what you are claiming. > > This might prove instructive: > > http://www.ustreas.gov/tic/mfh.txt
http://www.amazon.com/Second-Great-Depression-Warren-Brussee/dp/1591136881/ Mid-June, 2007, Update of “The Second Great Depression” 12:34 PM PDT, June 17, 2007 Many people have requested that I do my updates more than once per month. Although I was hesitant to do this because so much government data is monthly, I will try this for a while to see how it goes. Also, thanks for all the positive feedback. I only asked for a yes/no reply, but many people took the time to write a more detailed response. This has influenced my decision to try a bimonthly update. First, I believe that a very important economic change happened last week, which was bond yields increasing to a 5-year high. More important than the increase was the cause. The Chinese have begun to sell their Treasury Securities, and they have reduced their Treasury Security purchases. Since they hold over 400 billion dollars worth, if this continues they will put huge pressure on the US. Since we NEED other countries’ money to keep financing our deficit, we are forced to pay whatever is needed to borrow these funds. (Page 52 in my book.) Cheney might find out that deficits DO matter! The second thing of importance is that gas inventories are low and refinery utilization (page 39 in my book) is down. Even without a severe hurricane (which is not unlikely), gas shortages are likely this summer. The third thing of importance is inflation; NOT core inflation, but the 0.7% increase in total inflation in May. The average for the last three months, on an annual basis, is 7%. Note that these numbers are not hidden. It is just that the government, press, and investors have chosen to only look at core inflation, which was only 0.1%. But the consumer is affected by the 7% total inflation, and so is the economy (Page 67 in my book). THE NEXT SIX MONTHS: Although I am hesitant to do this, many readers of my book want a more detailed outlook on the economy and the stock market. So, here goes. First, the three items above will all add to consumer cost/debt, which is the key reason that we are heading towards a depression. If bond rates keep rising because of Chinese actions, the cost of money will increase across the economy, including mortgage rates. Gasoline is likely to go over $4.00 per gallon this summer due to shortages. And to fight inflation, the FED may have to drive interest rates even higher than already being driven by a higher bond rate. This will be disastrous for the stock market. So here is my own take on the stock market (which should be used for reference only). For another month or so, the market will stay high or may even go higher. Second quarter GDP will go up somewhat, to perhaps 2%. But further bond rate increases, which are likely, will start to put downward pressure on the market in July/August. Then, by October, high gas prices will put even more pressure on the consumer. By November, the data will begin to consistently show that consumer spending is decreasing, and third quarter GDP will again be below 1%. The market will take a large drop by November at the latest. Existing housing, which will drop 5% to 10% in price by the end of the year, will put further pressure on the market. By the end of 2007, the stock market will have dropped at least 10% from current levels. Again, the above is only my opinion. Intelligent people can, and do, disagree! Warren Comments (4) June 2007 Update for The "Second Great Depression" 8:08 AM PDT, May 31, 2007 HOUSING The housing bubble continues to deflate. New home sales volume rose 16% in April, but was still 11% lower than a year ago. The median price of new homes dropped a record 11.1%. Builders are aggressively dropping prices to get rid of excess inventory. New construction permits dropped almost 9% in April, the largest drop in 17 years. But builders will have to drop new house prices an additional 16% to get down to historical price levels. Existing home prices dropped only 1% versus a year ago (almost 4% with inflation), but their April sales were the lowest in almost four years. Inventory of existing homes for sale are at record highs, rising an additional 10% in April. Homeowners will eventually have to follow the lead of new home builders and slash prices dramatically if they want to sell. Otherwise, new homes will cost less than used homes. From an earlier month’s calculations, existing home prices will have to drop 25%. Foreclosure filings surged 35% in the first quarter versus a year ago. Adjustable rate loans are starting to be reset, driving many people over the edge. ECONOMY The revised GDP numbers showed that the economy grew a trivial 0.6% in the first quarter. Gas prices are at record highs and shoppers are slowing down spending, as evidenced by disappointing retail sales in April. To cope with higher costs, since consumers can no longer take equity from their homes, revolving credit (mostly credit cards) increased by 9.2 percent in March. This is very expensive debt, and as shown by the decrease in consumer sales, it is largely being used to finance “needs,” like gas and food. Since credit card debt quickly raises monthly payments, this can not continue for long. STOCK MARKET Pundits have convinced people that when economic numbers are good, that is evidence of a growing economy and the market will go up. And when the economic numbers are bad, it means that the FED will lower interest rates and the market will then go up. Investors don’t think they can lose, despite what history should tell them! The market will only get back to reflecting reality when the consumer just stops spending, which will make unemployment go up and corporate profits vanish. THE “SECOND GREAT DEPRESSION’S” PROJECTIONS Periodically, I review the book’s 2004 projections on key economic numbers, because there is little reason to believe current projections if the earlier ones were incorrect. The following projections were generally right on. -Housing bubble collapse and adjustable mortgage issues (pages 31 & 54). -Leveling of GDP (pages 36 & 52). -Personal Savings Rate going to zero or below (pages 20 & 31). -Oil refinery issues (pages 39 & 63). -Drop in dollar value (Page 64). -Personal debt reaching level reached in Japan before their slow down (page 23). -On going issues/costs related to wars in Iraq and Afghanistan (pages 55 & 61). Please do me a favor. Indicate whether you like or dislike this plog so I get some idea of how many people are reading it. This takes me quite a bit of time to prepare, so I would like to see if it has an audience. It looks like this year will be the year when the bottom falls out. But, as always, people should use their own judgment/data to affect their own investment strategies. Intelligent people can, and do, disagree.
