Recession for 2008

Happy new year, 2008, and great to see the market down so much this year (was about 8% this morning but now 6.7% year to date for NASDAQ Composite index, due to late day rally today).

Unfortunately, with my portfolio, I was too early in buying my QID stocks, so I'm barely in the black today. (DXD and SH are solidly in the black, but most of my shares are QID so the returns aren't impressive, so far.)

However, I believe as the debt problem exasperates over the next few months and years. That's right, I'm predicting that we'll have problems for many dozen months ahead, just like in Japan post 1990: things will be shorter than Japan but worse since we, US, are not a nation of savers and we do not export like Japan did in the 90's and 00's.

We won't be having a mild recession as some pundents and economists have been predicting but it'll be a bad one: serious recession or depression (if not worse). I'm not sure how bad things will get since the national debt level by the government, corporations and individuals (see Fed's
report "U.S. Consumer Debt Rose $15.4 Billion in November" via Bloomberg) has been very high.

We haven't had so much leverage (borrowing) since the 1920's -- and we all know how that ended: the Great Depression of the 30's.

Personally, I believe that the downturn of the economy is just getting started. As less home gets sold, more people will continue to lose jobs: realtors, construction workers, loan officers, bank employees, apprasiers, furniture sellers, appliance sellers, even handyman repair folks. Which means even less cars, pickups, RV's, motorcyles, ATV's, and snowmobiles will get sold. And construction related tools and materials (think Home Depot).

Then the government employees: lower home prices will mean lower appraisals which means lower taxes. People facing foreclosures and bankruptcies won't even bother paying local taxes: which will all combine to mean lower tax intake which means government workers will be fired, too.

And due to credit crunch (including failing bond insuring companies), borrowing costs are increasing for the local governments which means less tax money to spend which means even more firing of government workers.

And with the market not doing well (bonds and stocks), retirees will be getting less money from various pension plans (private and government pensions). Even those dependent on their own savings (i.e., no pension), lower market returns means less money to spend, as well.

So, with all those reduction in spending (home related businesses, government employees and all kinds of retirees), other jobs won't be immune: people will drop cable, internet, cellphones and other costly contracts (ATT is reporting softer consumer spending with lower landline and internet customers).

People will stop buying unnecessary junk like 3 or 4 digit gadgets like ipods and computers. (4,5,6 digit toys like RVs and ATVs are already down noticeably.) Which means more layoffs and spending cuts all around.

Just as in bubble where all things go up, post-bubble, all things will start to come down. The question is how bad and how long? My personal belief is that things will get much worse before we reach the end of the tunnel (playing chicken with few trains along the way, I'm afraid).

It helps that more and more analysts and economists are predicting recession, like Goldman Sachs today: "Goldman predicts light recession."


Copyright 2007, DannyHSDad, All Rights Reserved.