Keep Saving and Don’t Spend-Rainy Days are Coming

January/06/2010 18:10PM
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It’s all about energy. With the Iran-Iraq situation oil will get tighter. We are still living in a dream world where windmills and solar panels will deliver us from the problem. Electric cars make sense until you realize the EPA will shut hundreds of coal fired power plants in the next few years. Two big refineries have closed in the US. More will follow. As oil prices continue to go up refinery margins will be squeezed. The majors are done with this country. They have been blamed once too often for all the energy mess. The blame is in Washington and has been for 25 years. Just as the global economy begins to turn around, the demand for oil to stoke the turnaround will escalate prices again. At the worst possible time for us.

The dollar is close to the post-gold standard low at 80 cents on a trade weighted basis.

The pubic debt will increase quadruple by 2050 with no tax increases and spending cuts.

Construction loans account for 30% of the $1.4 trillion in maturing commercial real estate loans over the next 3 years. Many more regional banks will fail under this strain.

The government has been propping up the residential housing market. The monetary expansion has been 4 times the amount applied in all of the U.S. post-war recession combined. The Fed purchased $1.4 trillion of Treasury and agency paper. Freddie and Fannie financed 55% of the home purchases in 2009. Many of those are already behind on the payments as are most of the that were propped up with the Federal program. The $8,000 new home purchase is due to expire in April.

Last year was the worst labor market in 70 years. It was the a year that had the sharpest decline in private sector wages since 1960. It had the sharpest and fastest decline in top-line non-financial revenues in 50 years.

We got little from the stimulus money. Little from the Fed’s Monetary policy. Little from more Chinese debt.

And, no one knows what will happen if interest rates go up.

The stock market may go up, but if the government stops throwing money at the problem, it may stop going up. If interest rates go up, inflation might come. If it’s reasonable, it’s good. It will solve the housing and commercial mortgage problems, but could stop the corporate profit increases in their tracks.

With all this uncertainty, it’s going to be rainy days ahead. You can build an ark or you can hang onto to your savings for a very tough future. And and even tougher future for your kids and grand kids.

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