Friday, September 07, 2007

Proverbial invisible hand

What we're seeing is a delayed implementation of Adam Smith's invisible hand. While the American consumer has been resilient, I'm expecting that to slow. Credit will continue to tighten.

So the question is, with all of the trouble in the commercial paper market, how long can the "no payment until 2009" promotions last? J6P is up to his eyeballs in debt. Soon that negative savings rate has to be paid off.

From what I've read, our current demographics suggest a 3% savings rate would be the minimum for a healthy long term economy. Cool... Now what does it have to go up to? We have years of negative savings that must be made up. We also will be seeing the land barrons' retirement plan of stiffing the next generation for a home isn't working out... So how much must spending contract?

What won't be hit? I'm sure sporting goods will be very hard hit (how many people do not have three rackets in the garage?). Cars sales are one step away from the critical list. Yes, retirees will spend more time on leisure, but do we really need that many golf courses?

What will it be like on the ski slopes this year? Will people nurse an extra year out of their old skis? Not by as many day passes? Go with cheaper lodging if they have a season pass? (Its a damn expensive sport.) Not to mention, what are the bar sales going to be like at Mammoth this year? Quite bluntly, the realtors (tm) and mortgage brokers were the lushes for 2003, 2004 and 2005. You're going to get a few blog posts on this during the winter from yours truly. ;)

I have a feeling that the election focus will shift to health care, pensions, and 401k reform. The boomers are getting ready to retire and are not ready to accept the losses their portfolios are about to take. How many hedge funds haven't yet halted dispersals yet are effectively broke? Yes, I'm sure some will do well. But not all.

Closer to my heart, will business jet sales bonanza continue? Heck, even single engine prop jobs were selling well. But I cannot help but notice how many older Cessnas, pipers, and Commanders are on the market. But no flood of jets... yet. I think we're just seeing the normal time lag; the rich don't notice we're into a recession until about a year after the working class.

Overall my predictions are that we're going to see a bit of layoffs between now and just before Christmas. Nothing too severe, but enough to get people worried. That won't happen until 2008.

Bubble bloggers have been frustrated for years why the laws of economics were no longer applying. We're about to find out why people still read Adam Smith. May I recommend an earlier printing? One with the chapter on slavery (its really a good overview on how treatment of workers and their motivation affects productivity). For some reason the newer printings cut out that section. Also spend some time on the chapters on how regions do best focusing on specialized industries (e.g., so-cal and banking/aerospace/media). Yea... he uses lace production as an example, but no reason you cannot think software, health care management, or microchips. ;)

The WSJ has a pretty bearish video:
http://online.wsj.com/public/page/8_0004.html

"Value of a home depends on the employment around it." Naaaa... couldn't be.

"Unless we have see some pronounced evidence of firming of the labor market, of which there is no evidence, consumer spending is likely to slow."

In other words, Goldilocks is about to suffer a bit of abuse.

Got popcorn?
Neil

4 comments:

tj & the bear said...

On the bright side, those of us who have been saving our pennies should start to see some pretty sweet deals in those nicer vacation spots.

wannabuy said...

TJ,

You are correct. Bargain hunting should start in two or three years. Sadly, we must be at least that patient. I predict the bottom on condos will be in about 2011. (Maybe excluding Miami condos... I still cannot get my mind around that much overbuilding.)

Got popcorn?
Neil

tj & the bear said...

Actually, I was thinking about nicer vacation rentals starting early next year...

wannabuy said...

Actually, I was thinking about nicer vacation rentals starting early next year...

They're already starting to become available. :)

Neil