Sunday :: Dec 25, 2005

Dreaming Of A Green Xma$

by pessimist

Weeding out all of the happy talk from the economic news one is dismayed to discover that More evidence of a housing slowdown is underway:

Sales of new homes plunged in November by the largest amount in nearly 12 years, providing the most dramatic evidence yet that the red hot housing market over the last five years is starting to cool down. Last month’s decline was even bigger than the 8.7 percent drop-off that Wall Street analysts had been expecting. The Commerce Department reported today that new single-family homes were sold at a seasonally adjusted annual rate of 1.245 million units last month, a drop of 11.3 percent from October, when sales had surged to an all-time high. Analysts are looking for home sales to dip by between 3.7 and 6 percent next year under the impact of rising mortgage rates. Analysts believe that house prices, which had been soaring at double digit rates, will moderate as well.

Foreclosures are up in Las Vegas, California, Tennessee, Missouri, Pennsylvania, North Carolina, Butler county, Ohio, Cook county, Illinois, Fort Worth, Texas, Williamson County, Texas, Georgia, Denver, Detroit, Massachusetts, ....

I could go on and on.

In fact, foreclosures are up 35% nationally, with Ohio leading the nation in foreclosures.

Maybe that's why there aren't as many holiday shoppers as expected?

There are lots of reasons why this would be so. Ebeneezer Bu$h'$ 'economic boom' doesn't seem to be producing jobs that bring in sufficient income to have enough left over after necessities to go shopping for frivolities, and as job security is a thing of the past, shoppers aren't rushing into the stores. They know that they are facing higher heating energy costs, reduced-milage gasoline that only appears to be cheaper if one doesn't keep track of how often one goes to the gas station to fill up, higher co-pays and other health insurance-related costs, reduced pension payments, higher local taxes to offset the loss of federal subsidies, ...

I could go on and on.

But hope always springs eternal in the retail trade, especially around Christmas time. "Cut the prices again! Damn the profit margins!" they cry, as they rally their efforts for that hoped-for last-minute rush even though time is about to has run out. There was some reason for hope, as only 26 percent of households completed their holiday shopping as of Dec. 18, compared to 31 percent during the same time a year ago.

But as of yesterday afternoon, Christmas Eve sales were still slower than predicted, but the purveyor Pollyannas are now showing some signs of realism...

"Are we going gangbusters? No. As we get into the week after Christmas, you're going to have another push upward of sales."

... even while hoping for improved numbers next month:

[T]he rising popularity of gift cards may prompt some retailers to focus more attention on Dec. 26... Many retailers haven't resorted to deep discount levels of as much as 70 percent as in the past... Merchants who were able to keep discounts in check earlier will have protected their margins enough to make steep price cuts...

I could go on and on.

The economic signs are clear enough. No matter how much our wrong-wing friends crow about how good things are (maybe they are, but only for the investor class), how else does one explain why Warren Buffett is bearish on the dollar, and as of this time last year, Forbes reported that Buffett continues to exit dollar investments, and his Berkshire Hathaway holds some $20 billion in foreign currencies.

Buffett fears the $10 trillion of the U.S. economy owned by foreigners [and] believes that a the dollar fall off 'could cause major disruptions in financial markets'. What worries Buffett is the huge deficits being run up by the federal government, adding to the huge existing debt load.

Buffett's net worth, as of 12/21/05, is about $40 billion dollars, so his foreign holdings constitute approximately 50% of his holdings. This alone demonstrates intense resolve, but there is another factor that shows that Buffett is serious about not being tied to the dollar. As Forbes puts it:

Much of the portfolio is unmovable unless Buffett wants to single-handedly reduce the federal deficit by over $11 billion.

Bill Gates is listening to Buffett, and that may be one reason why he spent $1.7 billion on Microsoft India's new facility, one which will Create 3,000 Jobs to be filled by India’s top student technologists. The Indian government is very delighted that the Software Caesar has chosen them to be the New Computer Rome.

This way, should Alan Greenspan's tardy warnings about the adverse effects of Bu$hCo Oil War and Tax Relief borrowing on the American economy come true, Gates will still have the means to continue his dominace of the desktop - no matter what the EU says - or what Korea says, either. He can still step out with his buddy Buffett and invest heavily in China:

Microsoft invests heavily in its Chinese business, and, like so many U.S. companies, is helping China build the cheap juggernaut economy that now poses the greatest challenges to us.

He'll still be very wealthy, making wads of cash even if the American economy hits the skids hard:

Gates isn't the only titan talking down the dollar and linking it to America's decline. Warren Buffett, Gates' friend and the world's second-richest man, has been bad-mouthing America's financial house and currency for two years. Billionaires who talk the dollar down may ultimately cause harm to U.S. workers that far outweighs the growing trend to ship jobs abroad or outsource production to foreign companies.
If the dollar drops like a rock, the greenback could well lose its prized place as the world's reserve currency.
Without the reserve currency, the United States could fall into the debt trap long suffered, for instance, by Latin America. One immediate effect: Foreign investors would pull out of their American investments. "Americans may discover abruptly that interest rates climb and the value of the assets … declines," says Jeffrey Frankel, an economist at Harvard's Kennedy School. "When other countries have gone through similar crises, people panicked. Whether such a crisis might lead the U.S. to also lose much of its political power, it is hard to say. It is certainly possible."

One foreign economic columnist sees this growing disaster looming:

I usually find a visit to the United States invigorating and inspirational. After all, there is no better place to do business. But last week it felt as if trouble was on its way.

Home values are now completely disconnected from any historical relationship with salaries or rents so most first-time buyers are priced out of urban markets. Billions have been extracted from homes by way of secondary loans - essentially to fund current spending, rather than investment or savings. If there is a housing slump, then the pain could be savage.

But in addition to the risks of a housing crash, there is little doubt that US government spending is out of control. The war on terror and homeland security costs have added hundreds of billions to the deficit. Even Bill Gates and Warren Buffett believe the dollar will decline owing to excessive imbalances in the system.

I could go on and on.

Considering all of these points, it is clear to me why retail sales are not meeting expectations. There are far too many reasons NOT to spend then otherwise. I have posted quotes from shoppers recently concerning their reasons for cutting back. They are far from alone.

For example, did you spend as much as you did last year? Why not?

Tell us all why. We'll let you go on and on!

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