Where's The Economy Going And Why Do You Think That???
Some are preaching that our economy is hyper inflated and prime for an "adjustment" followed by a 10 year recession and economic recover (much like what Japan has experienced). Others claim that clear blue skies, economic abundance, and bull markets lie ahead.
What do you think the economy will do in the next 5 years and why do you think that??? Let's hear from all of the armchair economists out there!
Okay, I’ll start. I think this is a really important question, but is also one that’s very easy to highjack with a political reply. I’ll try not to do that. Also, it’s very easy to generalize, but there will of course always be exceptions to every rule.
I don’t think we’re going to face a 10-year recession. But the good old days are certainly over. Look for the stock market to be much more jumpy than it has been in the past. I think there are still profits to be made there, but the days of easy money are long, long gone.
I predict that by the end of the year, we will see interest rates around 2%, possibly as high as even 2.25%. Next year there will be a slowdown noticeable enough that interest rates will again go down by .25-.5%. After that, it’s anyone’s call, but they will probably start a slow rise.
Oil will continue to be a major issue, although as tends to be the case, with time, people will become somewhat deadened to the issue and will learn to operate effectively in these conditions. But I doubt that the average price of gas will come down to the $1.75 range any time soon. Although the upcoming OPEC production increase, as well as additional production from countries like Russia, will certainly help.
It’s difficult to predict what effects the last few years will have on American society going forward. While as a nation we’re more patriotic and aware of the benefits of “Americana”, I also think we’ve moved from just being ignorant of other cultures to being ignorant and disrespectful. This country and all it’s successes were built by immigrants from other nations. Each contributing their individual and cultural peculiarities to what we now know as American culture. While Americans as a whole used to be proud of their country and ignorant of other cultures, we’re now also convinced that the American way of life is the only acceptable way of life. This has led us on a number of debatable paths, and has turned a very large portion of the world against the US as a nation, though not against Americans as people. All this will most certainly have economic ramifications. Be prepared for a Europe that is more divisive internally, but also less willing to take the extra step to help the US. And be prepared for a tumultuous Asia and increasingly stronger China. In other words, the predictability and benefits that once came from a divided but more controlled world are now gone. Replaced by an even more divided and less controlled world.
Peace and prosperity to us all.
The problem with any kind of statement like this on a national scale is that in some parts of the country, regardless of the prediction, it's going to be wrong. Take now, for example. Some areas of the U. S. are hyper-inflated, like CA, and they will likely experience an "adjustment" at some point. Other areas, like here in NC, are in a major recession already. About the only way to go is up, so anything else is just more of the same.
Roger
Roger,
Notice that this is the "Random Ramblings" forum. You're statement is very true when it comes to RE, and also has relevence to local economies. We're talking about macroeconomics here and what will happen on a national and global scale.
I live in an area of the country that is traditionally high manufacturing, low on office or tech jobs. Here, we are losing our middle class. Jobs have gone over seas or to mexico. Many many plants have closed. The new jobs that have come in to replace those have been low end retail and restaurant. We live on Lake Michigan here and tourism is getting to be a big player. That's great for those who come here to play. ( We have the Road America race track as well as 5 premier golf courses) The PGA will be played here this year and a new grand tourist resort is being finished just in time for that. The problem here is that all of the new jobs coming in are minimum wage service jobs where there used to be middle income factory jobs. The middle class jobs were held by the laborers and the customer service people in those factories. Now, those people are working service jobs and have lost homes and become low income wage earners. You are either a president or CEO or you are a bellman hoping to get good tips. Target just added a store here. 300 new employees- Average wage $6.00 per hour. Walmart will be building two new stores as well. Yahoo! 700 more people will make minimum wage. This affects the rental and housing market as well. Many renters lok for low end or section 8 housing. I don't know if that trend is seen elsewhere. It seems that the middle class is going away here.
[ Edited by Sandbahr on Date 06/03/2004 ][ Edited by Sandbahr on Date 06/03/2004 ]
The future big return investments are going to be in alternative fuel technology. Those safe and sound mutual funds (investing in GM, Philip Morris, Coca-Cola) earning 5% per year are going to slow considerably. Electric motors and hybrid vehicles will be a hot growth industry once the world realizes we have less than 30 years worth of oil reserves left on earth at the current rate of consumption. Look for builders of wind generators to boom in Europe and Canada, solar plants will sprout up in developed countries while third-worlders will get fossil-fuel preference; this has already started since the Kyoto agreement was refused by Bush. Americans will put them(renewable power generators) on their private property to sell power to the utility company once the next generation of solar cells rival the cost of dwindling fossil fuels. Nuclear power might see a resurgence in about 10-20 years but not while three-mile island is still fresh in our minds. The big car manufacturers though, are going to have to adapt to global demands for cleaner vehicles (SUV sales will continue to fall flat) or face a stagnant and stubborn US market. We do love our gas-guzzlers. Gas prices wil steadily go up. All the big american companies are going to hit turbulence because of the recent global business trends. If they don't adapt, many will face massive downsizing as foriegn competition outperforms them. I have a hunch that savvy americans will start investing in tangibles, but it's just a gut feeling, can't explain why. Look for precious metals to see a frenzy in about a year.
It isn't so much that we're inflated as it is that the rest of the world is rapidly developing, while we've been going at a snail's pace since the dot-com/post 9-11 crash. And here we go pouring billions into a backward culture that doesn't recognize private, individual ownership as the foundation of a healthy economy.
Great post Hibby. We often get so focused on some small thing in front of us that we forget to look at the big picture. I've been thinking about your question for a day or two now (even wrote a long response once but the computer froze and I couldn't send it-- maybe just as well, on reflection it was a string of platitudes) and I gotta tell you-- I do not have the foggiest idea. And I think that may be significant in itself.
I cannot remember a time in my 25 years in the biz when it was harder to see over the horizon. The price of oil and the uncertainty regarding rates are part of that but these things are with us always. So I do not believe that they are the cause of this uncertainty
I cannot remember a time when so many things seemed to be at a "tipping point" where a small change now could produce major differences almost immediately. Iraq is one example. Inside your 5 year time frame Iraq will either be a resounding success, well on its way to rebuilding its society, infrastructure and culture or it will be a quagmire that makes Vietnam look like a cake walk. Unfortunately there is little we can do to push it either way. The rule of unintended consequences is firmly in place and the future is out of our hands in this matter.
One thing that worries me a lot is the amount of resources we are diverting from productive uses into "security" after 9/11. It is easy to forget that the engine of progress for the last 500 years has been the open society (god, you'll think I am as old as Lucius by the time this is over). The free movement of people, ideas and technology have generated the modern society.
Now we seem to have powerful forces at work trying to control and close our society. The diversion of tens of thousands of people into airport security jobs are one example. At least with the WPA we got dams and trails and other "improvements". Now we have a gigantic government make-work project with no economic productivity-- only economic drain. And I, at least, do not even see where our security is dramatically improved in the process.
So, short term I think that the economy is more-or-less on an even footing. The two big issues are rates and oil but they are both under control. As oil prices go up rates will stay low or lower.
Longer term I think we are in for major economic and social shifts as America embraces its new imperial mandate. I do not think that those shifts are going to be positive ones for private rights-- either civil rights or property rights. And that makes me warry indeed. But I think that these shifts may keep the economy rolling for some period (perhaps even a very long period) as we reap the traditional benefits of colonialism: bread and circuses for the masses at home while the elites exploit the lower classes abroad.
I'd like to re-ask your question, Hibby with a twist. Population growth in germany is already at negative numbers (i.e. the average births per woman is now less than 2). If it were not for the influx of immigrants the german population would already be falling.
A similar phenomenon is happening in this country. Birth rates are falling. Assume for a minute that population were to just stablize. Would this result in long-term declines in real estate prices? Daily in this forum and elsewhere we here that real estate always increases in value over the long run (10 years or so). If fewer people were looking for houses would that continue to be true?
Now, given the number of new units constructed each year does population even have to decline. If the rate of population growth slowed to a number lower than the number of new homes built annually then prices must actually fall. And given that construction is a big piece of the economy would not the resulting decrease in construction jobs have a dis-inflationary ripple effect through the economy as a whole?
I believe that economic specialzation and political stability are two anchors of a successful economy.
You don't hear people complaining that there are no longer good farm jobs, because a bailer now does the job of 100 men. The people that lost their jobs have moved on and are now able to add more goods and services to our economy because they're not worried about having to bail hay by hand. Indeed, "human capital" is just that. I don't fear that we export jobs overseas....I fear that we do it very quickly. If if happens slowly, over time, people will adapt, become more educated and more specialized, make more money, and everyone will have more buying power.
I bought a great living room light the other day....$9 at Home Depot. Manufacuted in Taiwan. There's someone out there who might have been paid $20 per hour to make the thing but it would have been sold for $50 instead of $9. You don't need to make as much money, if your buying power increases because everything else is cheaper. That's the beauty of economic specialization.
Our problem will come if we expect to make just as much money as we always have doing the same thing we've always done when there's someone on the planet that will do it for much less.
I believe that our downfall will come from labor unions who want to keep the decent paying manufacturing jobs when a company can not compete by doing so. Companies tend to be static (fixed wages, minimum wage, etc.) in a dynamic world (changing prices, varied sales and revenue streams, etc). If companies opperated on more of a profit-share system, they may give up more when times are good, but they'd keep afloat when times got tough. People would try to produce more, as their wage would be tied to it, and accept lower wages in tough times OR someone would willingly take their place when they stepped out to seek better opportunities.
I see no problem with producing no cars in this country as long as those workers can fill in other aspects of our economy designing computer programs that are sold world wide, producing new drugs, etc.
Big Government is another threat to our economy in my opinion. The fed is the biggest employer in the country, and only getting bigger. They "produce" very few goods and services. I believe that the private sector can do most things better and more efficiently than the government. The government gets their hands into too many pies. The airline crisis after sept. 11. What is the worst case scenario after the attacts??? The unprofitable airlines go bankrupt, jets are sold at a discount, profitable (and leaner running companies) step in and increase their business (namely jetblue and southwest), pilots change companies, share holders reinvest, and we all fly less expensivly.
CommercialKing....as for population growth. The world is continuing to grow. 2/5ths of the world's population lies in India and China (both of which are reproducing at a healthy level). South/Central America and Mexico are also rapidly growing. Africa is as well (if they can get AIDS under control) I think that if it were to become a problem, we'd open up our boarders more than they are now and we'd have a higher percentage "ethnic population" and more diversity (.....or less depending on how many immigrated). More americans would speak mandarin and Farsi, but I think it would cause temporary, but not permanant problems. Might be a mighty fine time to buy up lots of cheap RE! (oops...I can't talk about that in this forum!).
Clearly this topic is wide open, and there are MANY aspects of the economy that can be discussed. Any other theories???
Wow! It got really deep really fast.
Not as much discussion about rates and oil prices and jobs as I had expected.
Everyone really went for big picture.
Economy:
First, rates are going higher. They are low on a historical basis but they are going to have a spiral higher. The banks will probably have a huge problem because they lent all this money on RE at 4% and 5% long term rates and their Short term Cost of funds is about to approach that number.
With oil prices staying higher, and rates spiking, I fear a stagflation like we saw in the 70s. I hope this doesnt happen. But we do have a great military expense with the war AND security costs domestically. These costs produce NOTHING for our domestic consumption.
Maybe somehow people will consume even though prices are higher and job markets will adjust over time. But I dont have a whole lot of confidence in the American economic resiliency that we have seen in the past.
We certainly have to retrain many of our people, because manufacturing jobs will keep going away. We became a service economy a long time ago and that trend will continue.
At some point there will be an adjustment. I like to think it will be 2 or 3 years, but it could be much longer depending on how strong the world economies are and how capable they are of bailing us out.
Just my take,
Neill
Interesting discussion,so here is my .02 too!
Hibby you coudnt have said it better,when you talked about outsourcing,that it could have been gradual displacement of jobs and not so immediate. Good goverance is all about not worrying about displacement of jobs, as a healthy market always have displacements and fuilfillments of jobs ,but a proactive approach of having the labor displaced throgh absorption in other areas. Our economy is always capitalist and will always remain so. So rather than crying foul on the mega corporations forever trying to shore up the bottomline of the shareholders pockets,through outsourcing as another tool(which accroding to me is really shortsighted! but that another discussion,lol) the focus should be ability to provide quality and effective employment to the displaced.
It was alfred marshall on his principle of economics who had indicated that " the central idea of economics must be that of a living force and movement, and its main concern must be with human beings who are impelled, for better or worse, to change and progress. " How true it is,even now.
As far as hyper inflation goes,thats always led me to be amused,the US dollar is still strong and as along as it holds its position in international monetary ecnomics as it does now, I dont see us buying bread at a $1000 as the way the Japanese Yen or the Italian Lira went! Inflation to a certain extent is good for the economy as it opens up a lot of good changes in the market. Its only a galloping inflation like the ones we have in third world countries which we should be worried about,where the money loses its value so much that to print a 1$ worth of currency it take about $5 so to speak.. Neil7 points out about Stagflation, a stagnating economy and also a spiralling inflation. Will that ever happen to our economy? I would guess not. The instrinsic value of our currency and the fundamentals of demand and supply even tho not perfect,are alteast normal enough not to have that happen.
commercialking,
You really should get over to Germany and start getting the birth rate up.
When you are done there come on back here and do your thing. Help keep the economy strong through population increases.
If everything else you have are as nimble as your posting fingers, stand by for a population explosion.
John $Cash$ Locke
Thank you Mother Locke, I thought I was wordy.
Guys, guys, oh yes and girls. Pull back things are changing but hay man, it was always so. Damned when we built the Ark we had big battles about which animals to take and which ones to leave.
Worried bout the finite supply of oil? You should, especialy since China has moved up the ladder and where everybody was riding a bicycle they now have a car. Yip.
But fear not. Does anybody remember the Manhatten Project? We started that after Einstein and a few others wrote the president a letter about what Germany was developing up in Norway. The nice President put clutzy General Groves in charge and guess what RIGHT we made a nice biggy bomb and just could not wait to drop it on the Japanese, seems we were a little annoyed at them for bombing some dumb place in Hawaii. In any case we did not have to fight our way into Japan.
And now dear friends history is just about to repeat itself. Seems that somebody is awake and a new project has received its first little check. Yep a new Manhatten Project. Guess what? Research a replacement system and fuel source for oil. Short cut to Hydrogen, or perhaps they might open one of Telsas old books. Shame to let that old metal hot core spin away generating energy and not using it. Ah well. Don't sweat it and get so serious. Remember none of you will get out of this life alive. 'Well maybe me. The only nice thing about what they laughingly call the Golden years is the view is much calarified. Of course the intimate relationships with members of the opposite sex are much reduced. They seem to run screaming every time the subject is broached.
Let me give you a small example about an example of extended finger trouble. I have a very small little establishment that grows Soy plants. They produce among otherthings a very nice oil. Better then corn oil. We squeeze it and I drive the 60 some odd miles to Willowsprings and pick up a tank full. My cost 51 cents a gallon. I even put a little sign on the back of my 1981 VW pickup Truck which says. Bio Diesel. So I get about 600 miles on a tank of gas and about 54 miles per gallon if I drive like an old F--t. You know in the middle of the freeway at 55 miles per hour. God people love me.
In any case about a year ago I called on Shell Oil and suggested that they might be interested in investing in an extended growing project to grow the oil instead of spending all that money digging for it. I was told they had no interest in the project and if we persisted and opened a station and started to market, they would make sure that we received no other products like gasoline etc. I thanked them much. Suggested that perhaps some time in the next 50 years they might like to consider this simple solution. I left them my card for future reference. At the door I noticed they tore it up. Ah well. Sometimes you have to let time work on all problems and in the end perhaps a small light of reason shall fall upon the event and expose once more a solution.
But please post on I love to read your writings. Takes me back to my time when the Air Force tried to educate me.
They sent me everywhere. I enjoyed it.
It is from such events that future paths are exposed and perhaps somewhere in these postings a path will be opened and we can continue on our lawful occasions.
Cheers. Lucius the Elderly. 8-) 8-)
Please forgive, I forgot to properly describe my little truck.
1981 Volkswagen pickup truck.Diesel engine of 1600 CC. produces a hot 52 HP at about 4,000 rpm. Five speed. and fuel injected. The only modification is to the fuel injection and it was only remachined to bring it to proper tolerances which had not been achieved in original manufacture. It has now gone a total of 1,200,000 miles. It has had three engines. The first came with the truck, the second I built myself. It lasted 10,000 miles and threw out such a heavy black cloud that I had enquiries from the US Navy. Seems they wanted to utiiize it for destroyer gnerated smoke screens. I replaced this engine with one hand built and blueprinted at the enormous cost of $1,800 had it ever since.
I love it. The Ferrari sits neglected, hate driving it. Noisy uncomfortable and you should take at least one mechanic with you on all trips over ten miles.
Cheers. Lucius
8-)
If it is the desire of the contributers to rattle the dice of prophet and tie to this an investment in time and money. Then perhaps the book 'The Reluctant Metropolis' by William Fulton should be read. It speaks of past and who knows future of Los Angeles. It is well written and well researched. My ongoing score of one boobooh to five sucesses seems to fit the standard of those who throw the dice in the game of real estate.
Luck or if talented, Load the Dice. Lucius
$Cash$, you give new meaning to the term prolific poster.
commercialking,
Sorry to late you have been beaten out by someone who has about twice as many posts as you do this month.
The only difference is I can understand your posts. So you may still be in the lead if we add in the posts must be understandable or they don't count.
John $Cash$ Locke
After reading Lufo's comments I had to reread my drivers license because I forgot my name.
I can only imagine the sellers just giving Lufos their deeds and wondering what happened days afterwards.
:}
tbelknap,
Lucius still has his original drivers license so I have been told, however carrying around a stone tablet must get tiresome.
John $Cash$ Locke