The economy is a minefield of problems, why are people bullish? (bankruptcy, real estate)
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The world economy is surrounded by mines, any one of which could send panic and collapse spreading like wildfire throughout the world. So why all this bullishness? Here is a partial list of things which could cause credit and stock markets to implode.
Sovereign Debt Default; Greece is not the only country facing default which could cause economic calamity. Portugal, Spain, Ireland, Turkey, Pakistan, India, the Baltic States, are all on very unstable ground in regard to debt. A default in any one of them could cause a domino effect that would cascade into credit downgrades, higher interest, and more defaults worldwide.
Commercial real estate; 50% of commercial real estate mortgages are now under water. Without a dramatic turn around, these underwater mortgages have the potential to be the last nail in the banking industries coffin. When you add this to the Alt A, and Opt. ARMS in residential real estate, the outlook for banks going forward is dismal.
Federal Debt; The staggering Federal Debt which is now about $42,000 per citizen without Social Security and Medicare, and $500,000 with them, now is the focus of government and the FED. Without addressing the massive debt problem the US in danger of having it's credit rating downgraded. Any attempt to curb deficit and debt problems will need to include painful cuts and increased taxes. Both will be detrimental to the economy and unemployment.
State Debt; 50% of all States have liabilities of funded and unfunded debt over 38% of GDP. This will cause the same type of budget cuts and tax increases being examined at the Federal level. This will be a double whammy for taxpayers.
Local Debt; Cities with debt troubles severe enough to cause serious possible default on munis include Las Vegas NV, Merced CA, El Centro CA, Port St Lucie Fl, Fort Myers FL, Bend OR, Ocala FL, and Detroit MI. Thousands more are looking at unfunded pension obligations that could potentially drive them to bankruptcy. Again the answer will have to be cuts in services and higher taxes.
China's economy; With China facing its own bubble economy, it will soon have to increase interest rates and increase the value of the Yuan to slow it's growth and prevent a crash. This will have the effect of making the Chinese products we all now depend on more expensive, lowering the American standard of living. It will also make US assets more affordable to the Chinese which will translate into more Chinese ownership of American Business.
Higher taxes, higher interest rates, higher consumer costs, and cuts in government spending are all baked into the cake for our future, and all those things will have serious detrimental effects on both the economy and employment. We have lived for too long on borrowed money, and now must pay the bill. So again I ask why is everyone so bullish?
You know what ... people on here have been telling me that the economy is about to collapse for the past year. And they have got it wrong every time. Is everything rosy? No. Are things getting better? Absolutely.
Buy low baby. Enjoy your gloom n doom rants. You may be right, but I wouldn't hold your breath. Suppose you'd been saying this in the early 30s? It's all timing. Just exactly what that timing should be now I don't know. No I'm not rushing out to buy like crazy, but I'm not quite a 2012 type doomer just yet.
You know what ... people on here have been telling me that the economy is about to collapse for the past year. And they have got it wrong every time. Is everything rosy? No. Are things getting better? Absolutely.
Agreed. In actuality, some members of this forum have been hearing about an economic collapse since 2007. Still waiting...
I agree that everything is far from rosy right now, but things are definately getting better. Most people I have talked to in my field of business are seeing the tide turning and expect 2010 to be at least moderately better than 2009. The demand for goods and services certainly appears to be increasing, and companies will be forced to increase payrolls to keep up. With increased payrolls and spending comes increased tax revenue for federal, state and local municipalities.
Yes, I do beleive we have some hurdles to overcome, but I am bullish on the recovery.
A lot of people are bullish simply because they want to be bullish. It's circular logic I know, but it seems to be (for now at least) working. I mean come on. Who would you rather be aligned with (to use some illustrious analogies)?
The Hooters girls (cheerleaders=party=upbeat=growth=bulls)?
Or that dumb blue donkey from Winnie-The-Pooh....what's his name? (depressed=sad=unmotivated=bears)
I know that's an extremely oversimplified and grossly dumbed down example, especially for something this big and complex. But that's more-or-less the lowest common denominator that everyone can relate to in an effort to sort sides.
Nothing makes a bull "happier" than proving a bear "wrong". That alone creates a lot of drag on any attempts to see things go bad.
Besides. What do the bulls really have to worry about? Uncle Sugar has already stated (by example setting precedent) that they will NOT let the markets fail. Period. At least not as long as they are able to prop things up.
Agreed. In actuality, some members of this forum have been hearing about an economic collapse since 2007. Still waiting...
I agree that everything is far from rosy right now, but things are definately getting better. Most people I have talked to in my field of business are seeing the tide turning and expect 2010 to be at least moderately better than 2009. The demand for goods and services certainly appears to be increasing, and companies will be forced to increase payrolls to keep up. With increased payrolls and spending comes increased tax revenue for federal, state and local municipalities.
Yes, I do beleive we have some hurdles to overcome, but I am bullish on the recovery.
Ok show me the math, all the touchy feeley warm feelings in the world are fine and good but buisness decicions need to be based on facts and figures. I can see tons and tons of debt on the liabiliy side of the ledger that we were not even paying the interest on in the good times, and miniscule improvement from a multi decade low on the positive side. How does all this add up to a bull market? Show me the figures of how this is all going to work.
The world economy is surrounded by mines, any one of which could send panic and collapse spreading like wildfire throughout the world. So why all this bullishness?
It is always darkest before the dawn, and that darkest hour is when the boldest buy in. That's the "buy low" part of "buy low and sell high". Besides, collapses and wildfires are the worst case scenarios, and in my experience, worst case almost never happens. Always consider the best and worst case scenarios, then eliminate them both as unlikely, plan for something somewhere in the middle, and make your move.
Even a bank can make money borrowing at 0% and investing in a ten year treasury, earnings a 4% spread. The Fed won't raise rates until unemployment is around 6%. So bank profits should continue higher, pulling stocks with them... This is not a fool proof plan however..
Even a bank can make money borrowing at 0% and investing in a ten year treasury, earnings a 4% spread.
I am so tired of hearing that nonsense. Free money from the Fed for banks is ridiculous, becasue when the Fed raises rates, then banks will raise the rates they charge customers and still be making the same spread! If they borrow at 0% and charge you 4%, then when the Fed goes to 2%, you'll get charged 6%. The whole free money for banks arguement is stupid. The spreads will remain the same, regardless of the actual rates. That's how banks have ALWAYS made money.
That is not true, credit cards are around 30% tops, regardless of the fed rate. That doesn't get lower as the Fed lowers the rate. In boom times and else, credit card rates for normal folks are 10%, today, that is still so.
Mortgages precrash were around 5 to 6%, after a whopping drop from 5% to 0%, mortgages haven't dropped down to 0%.
Simply, while mortgages have gotten cheaper, the fed funds rate has gotten a lot cheaper.
It's only in extreme cases like in the 80s where the rate change affects main street very directly.
The caveat of this free money philosophy is that banks are going to throw themselves at oil, stocks, assets (housing), and can cause a bubble.
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Enjoy your gloom n doom rants. You may be right, but I wouldn't hold your breath. Suppose you'd been saying this in the early 30s? It's all timing. Just exactly what that timing should be now I don't know. No I'm not rushing out to buy like crazy, but I'm not quite a 2012 type doomer just yet.
