We’re just at the tip of the iceberg – Congress passes the package

We’re just at the tip of the iceberg – Congress passes the package

Folks – you should be pissed off – we just got shafted in the largest hosing you will see in your lifetime – and it isn’t even at the worst yet.

So, the House votes down the no accountability, no court oversight giving of 700 billion dollars to an acting fed chairman (who’s really just a Goldman-Sacks executive) – the bill goes to the senate who keeps it roughly the same, fills it with pork, passes it, then gives it to congress to pass – and they do.  They claim they had no other options.  I call complete bullsh*t.  There was never a proposal for a different plan.  It was Fed chairman’s way or the highway.  There were plenty of other economists who said there were way better bailout plans out there, ones that would keep the burden on these companies, and not cost us taxpayers even 1/2 the money.  Ones that might actually work.  Yet the fear mongering that went on in the house left most of them saying, “We don’t have any other options”.  Yes. You. Did.  You just choose not to explore them. You did a 9/11 all over again congress.  You knee-jerk reacted to a war in Iraq when the people screamed to slow down and figure out what happened.  We just got our financial Iraq, because it will do NOTHING to stop the very things they were afraid of such as:

1. Stock market will just keep declining.  Nothing in the bailout will stop stocks from deflating.  Companies are looking to re-entrench, and hunker down for tough times.  That means folks will not be putting money into the markets since no company is looking at growth for the next year or so.  That means the markets at best would be flat.  And with stocks driven by speculation so much right now – everyone is running for security.  Not that congress probably should have done anything anyway.  It was probably time for a good market correction.
Prediction: markets will continue a steep decline for the next month or so, with slower flat to down trends for the rest of the year (at least).  The markets won’t recover in any meaningful way for a year or two.
Because of this, you’re going to find that more people were in more risky ventures with your pension funds than should have.  Pensions and other retirement accounts are going to go bankrupt because of poor management and over-investment in declining stocks.  Our financial ‘experts’ have been playing fast and loose for years – and seem to have forgotten all the rules of exposure they were supposed to be following.  Wait for it.

2. The downward housing spiral is going to continue.  The debt holders to these bad loans likely have not been forthcoming with how bad these debts really are.  One of these managers said that if they just got liquidity, they’d be all able to all sell at face value.  So, those loans for $300,000 homes that are now worth $150,000 will just magically go back up to double (or more) in value?  If this is the extent of the lying they are telling congress – and congress believed them – then we’re all f*cked.
Here’s a graph of housing prices adjusted for inflation over time.  Does it look natural to you?  What level would you guess is more natural?  Guess what the market will do? (yes, this is simplistic, but it shows the extent we have been stretching and inflating the housing market lately)

As home prices continue their declines, more owners will continue to default since it’s better for the average person to take the default and 8 years of bad credit than pay $150,000 in value you’ll never see again .  The BEST we could hope for is that folks stay in ridiculous upside-down loans – which I just find hard to believe.  Even if we could do this, folks will be paying for years and years on homes that are not worth what they are paying.  Everything will grind to a halt for years while we just pour money down holes and sit saddle with debt.  Debt and greed that WE, my fellow Americans, signed with our own hands.  This time the corporations just let us be stupid.  Yep, they hold 50% of the blame because they were supposed to be doing the right things – but we hold solidly the other 50% for not doing OUR homework.  None of this was rocket-science.  It’s been in self-help books and homebuying guides for years.

Prediction: The value of houses in most places will continue to decline by 1-5% every month for the rest of the year and will stay flat for years.  Here’s the data for the current situation from S&P or already charted for you. Obviously some locations will be more than others.  But they will all continue to keep declining – which will continue to encourage people to default and walk away from $100,000s worth of bad debt.  And there is absolutely no reason for folks to buy a house right now outside of moving.  Yes, you can’t guess the bottom – but I can also just wait till it starts going back up and it’ll be safer that trying to catch a falling knife.

3. Job losses will continue.  Nothing in the bill will address the coming job losses – nothing can.  Again, companies are looking at contracting markets – not expanding.  They’re not hiring and won’t until a broader turnaround happens.  Yes, immediate operating loans will become available again, but that’s just a small comfort.  When times get tough – you have to cover your loans much more heavily – tying up cash.  This will probably be the case for a year or two in the broad economy, but some sectors will be slower/faster. Expect job markets to shrink, and lots more layoffs in the immediate future.

4. Depression is a real word – and we may just get one.  I for one am still very convinced we’re in a 50/50 shot for a depression – we’re already clearly recessing.  Maybe not quite like the 1920’s, but it will be very bad times.  Likely the worst any of us have seen in our lifetimes.  Jobs are already starting to declining by 100,000’s per month (159,000 last month alone) for the next few months at least.  The question is where it stops – and I’m not hopeful at all.  There is no immediate positives to turn things around.  I predict an unemployment rate of about 9-10% by mid-next year.
I sure hope you’ve saved up some living cash.  I feel exposed with just 9 months of living expenses saved right now.  I wish I’d saved up 2 years worth personally.  I’m cutting 90% of my discretionary spending and working towards that goal of 12-24 months of living expenses.

5. The days of easy credit and easy ownership are OVER (and SHOULD be)  Some car dealer was complaining on the radio the other day that folks that could get loans before couldn’t get them now.  After giving the sob story, he revealed that folks used to get loans with a score of 625, but now need 640’s or higher.  What?!  That’s cause of us to run screaming for the doors?  Scores below 640 *are* traditionally considered risky bets.  Lending bars are going to go up.  This isn’t harsh – this is the way it always was until the free-wheeling of these last 10 years when we thought we could just throw this stuff out the doors and give loans to anyone.  And look where that got us.  There are good reasons folks have bad credit scores – and for the most part the law of averages always catches up to you.

So – we just paid 700 billion for something that will help slow the decline, but probably cannot stop any meaningful adjustments that need to happen.  Meanwhile folks will keep blaming government and corporate greed when they’re really not understanding the problem.  Congress will continue to oblige with things that look like their helping on the surface to appease the masses – when the truth is NEITHER party will be able to stop the coming slides – just mitigate it.

We’ve been in unhealthy waters for a long time, and it takes a long time to get out of them.  Don’t believe me on any of this?  This guy has a pretty good commentary: http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_weil&sid=aMaWyNFImi4o

My plan of action:
-Conserve and save cash: rare eating out, going to concerts/plays/events, stay at home and watch more movies/play video games.  Read more books – anything entertainment that doesn’t cost money.
-Reduce all market exposure: I’ve sold all my stock – and did so about 6 months ago.  I’ve never been happier.  I’m not putting anything in the market until the knife sticks in the ground and stops falling.
-Save up as much living cash as possible.  If you get laid off now, you better be prepared for a long, hard job search.  Better save up a year’s worth of living expenses with a good bit of extra for job hunting costs.
-Don’t bother with any large purchases – unless they’re commodities – and fight for a good deal.  I bought my car a few months ago because I expected inflation.  With inflation – it’s better to buy *necessary* commodities such as cars, appliances, furniture.  Because they’ll all be going up in price.
Look around for deals – take advantage of places that are in terrible shape.  This economy is beating the midwest hard.  I got a dealer in Indiana to drive my car 200 miles to a shipping place for no charge and gave me a 2-year bumper-to-bumper warranty for free.  I didn’t even need to haggle.  He also sold me the car at $3000 less than any dealer around here was asking.  The $700 in shipping was more than worth buying it somewhere else.

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