Thread: Is the world heading into recession?

Originally Posted by Thormaturge

I have grown hoarse over the past five years telling people not to count on property for their retirement.

Twenty years of property gains can vanish in a few months, along with the retirement wishes they supported.

So what would you suggest - stocks? Bonds? Gold?

I guess the only safe investment would be to buy a whorehouse - when times are good, you make a fortune, and when times are bad and the cutomers stop coming (no pun intended), at least you can get laid.......

Originally Posted by Thormaturge

As for the future, I would guess that if you have cash then simply waiting for the property market to bottom out and snapping up bargains has to be a good option.

People who had cash during the 1930s depression emerged as some of the nations richest when the dust settled reaffirming the adage "cash is king".

Venezuela has high sulphur oil and its perfectly acceptable to the USA at the right price.
The sweet stuff is obviously preferable, since its cheaper to refine into fuel. But in the end any oil is better than no oil when the world demand pushes the price up. Most of the high quality, cheap to recover and cheap to refine stuff is in Iraq, Iran and and Saudi Arabia, hence the USAs interest in these countries.

so what now? Keep cash safe? Stay away from Mutual Bonds? Cash out the properties now. buy later?

Yes I think it is.
And I believe it is headed that way for 2 basic reasons.

1. the cost of fuel and food is going up due to increased demand and limited resources. That's a couple of debates there on their own, but the facts remain.
So basically, people are going to work a lot harder for less income and subsequently a lesser standard of living.

2. The $US hegemony as the worlds default trading currency is on the verge of collapse. The USA has been printing more and more $USs and pumping them into the system for decades. As the worlds default trading currency the rest of the world lapped them up as they needed $USs to back up the value of their own currencies after it replaced the Gold Standard. Most countries bought $USs rather than gold after the '80s because it was more secure as a tradable currency.

The trouble is that as the USA printed more and more money like it was just monopoly money to buy real goods and services from the rest of the world, the USA became a consumer nation rather than a producer nation. However, due to to confidence in the $US as the worlds strongest and most stable trading currency, reinvestment back into to the USA kept the bubble growing. The USA simply kept printing more $s and selling it as bonds to countries like China and Japan in the belief that those $s would be reinvested back into USA to keep the bubble growing.

Something had to give sooner or later. And we are seeing the results of allowing one nations currency to become the world trading currency now.

The US economy has been leeching off the rest of the world for decades. And now the world financial system based on the $US is in real trouble (which had to come sooner or later).

So yes, I think the world is in for a recession during this readjustment phase. Hopefully the world will choose a more viable trading currency in future which might include a bag of currencies as well as precious metals to balance it out.

Originally Posted by bkkandrew

Can anyone find positive news in this summary from today? ..... This is going to be really bad people. Prepare for the worst.

As an American waiting for our impending financial meltdown. I'm trying to see a silver lining to all of this:

1.) Extended families will be re-invented as a method of survival. By necessity kids will move back with their parents. Grandma will stick around, too, because the family can't afford $5000 a month for the nursing home. This will humanize all involved. 2.) People might finally realize that buying lots of useless crap that they can't afford breaks the bank and numbs the soul. 3.) People might also realize that occupational security is related to actually doing something constructive instead of flipping houses, selling useless crap and gambling on financial derivatives. I'd rather be a plumber than a stock broker these days. 4.) There may be a recognition by the ruling elites that destroying a middle class destroys an economy. These same elites might even see a moderate Democrat like Barack Obama as a way to salvage a nation instead of a threat to their wealth. A huge effort to rebuild the country's infrastructure seems to be in the cards. 5.) The reputation of any person or political ideology associated with the Bush family will be absolute sh*t decades to come.

My parents lived through the Great Depression. The way the talk about it, life was tough but they have lots of warm memories about the way people helped each other. They are part of a great generation whose hardships helped to mold their characters in a positive way.

Hey, Floopotato, I hope you are right mate! I don't see this current individualistic consumer society as bringing anyone much real happiness.
Financial duress could bring back the extended family situation in some circumstances. Though I doubt if Grand Parents would be valued much in today's society as anything more than free babysitters and a potential source of bonus inheritance income. But then again I am something of a cynic and I am sure tough times would bring a lot of people to their senses.

^^^Excellent post Panda.

The top four Headlines on Bloomberg today are thus:

•Stocks Drop in Europe, Asia, Led by Porsche, RBS; U.S. Index Futures Fall

•House Prices in U.K. Have Biggest Annual Drop Since 1992, Nationwide Says

•Broad Says U.S. Is in Worst Recession Since WWII, Sees Recovery Years Away

•Manufacturing in U.K. Shrinks Most Since 2001 on Credit, Commodity Costs

Grim reading...

Originally Posted by bkkandrew

^^^Excellent post Panda.

The top four Headlines on Bloomberg today are thus:

•Stocks Drop in Europe, Asia, Led by Porsche, RBS; U.S. Index Futures Fall

•House Prices in U.K. Have Biggest Annual Drop Since 1992, Nationwide Says

•Broad Says U.S. Is in Worst Recession Since WWII, Sees Recovery Years Away

•Manufacturing in U.K. Shrinks Most Since 2001 on Credit, Commodity Costs

Grim reading...

Not pleasant at all.

The really bad news is that the UK is in worse shape than the USA as far as balance of trade and external debt. Per Capita external debt is worse than the USA! Brittan is into international debt bigtime. The UK holds very little in $USs or gold reserves and relies on international investment into the financial sectors to keep its economy afloat. Dancing on very thin floor boards if you ask me.

^
The UK was, until very recently, a net exporter of oil but I believe it became a net importer in 2006. Given the subsequent price hike that could now be dealing an enormous blow to the UK.

^The current recession and cutbacks on oil use, combined with some new wells coming on-stream pushes UK back into net export, but only marginally.

Originally Posted by Panda

The really bad news is that the UK is in worse shape than the USA as far as balance of trade and external debt. Per Capita external debt is worse than the USA! Brittan is into international debt bigtime. The UK holds very little in $USs or gold reserves and relies on international investment into the financial sectors to keep its economy afloat. Dancing on very thin floor boards if you ask me.

Exactly Panda.

UK debt is the elephant in the room and what I have been posting about on this board for some time. The whole thing is propped up on the housing market and whoops, thats just collapsed!

Japan, 1989.

^Worse.

Originally Posted by bkkandrew

Originally Posted by Panda

The really bad news is that the UK is in worse shape than the USA as far as balance of trade and external debt. Per Capita external debt is worse than the USA! Brittan is into international debt bigtime. The UK holds very little in $USs or gold reserves and relies on international investment into the financial sectors to keep its economy afloat. Dancing on very thin floor boards if you ask me.

Exactly Panda.

UK debt is the elephant in the room and what I have been posting about on this board for some time. The whole thing is propped up on the housing market and whoops, thats just collapsed!

Add to that the fact that UK interest rates are at their highest since 1998. In '98 however, Bank of England base rate was 7%. Today it's 5%. Banks in the UK are over-stretched and pass on their offshore cost of funding, which means they pay little notice of BoE base rate. Historically, if interest rates in the UK were slowing down the economy, the BoE could lower them. This tool is no longer available to them.

A similar problem is now happening in Australia - although I'm not sure it has yet reached the depth the UK is facing.

And have to agree about the UK debt being the huge elephant in the room. Look at personal debt levels in the UK as a comparison to Europe. I think, on average, it's somthing like 8 times as much per person (as an average).

There was a report on the BBC the other day that the only "growth" industry in the UK at the moment is pawn brokers. Reminds me of my time in Thailand

Originally Posted by bkkandrew

Grim reading...

Gonna be interesting day for the us markets today, S&P500 is just above a key support level at around 1260 and as you pointed out already, there is zero good news to cheer up investers at all.

The only reason I feel so smug at the moment is because I an an Aussie and right at the moment the rest of the world is buying everything we can dig up out of the ground.
Minerals are booming. China is sucking up everything we can produce. But in the long run, Chinas escalation depends on USAs consumerism. So if USA goes down its going to flow back through the rest of the world, including Australia.

Originally Posted by Panda

The only reason I feel so smug at the moment is because I an an Aussie and right at the moment the rest of the world is buying everything we can dig up out of the ground.
Minerals are booming. China is sucking up everything we can produce. But in the long run, Chinas escalation depends on USAs consumerism. So if USA goes down its going to flow back through the rest of the world, including Australia.

yes, but it would be smug to say that Australia is OK. Perth and Brisbane are doing well (due mainly to the resources sector), but Sydney and Melbourne are suffering. Sydney, as financial centre, is certainly feeling the pinch.

I hate Sydney. But in the end we all sink or swim together. Right now, truck drivers in WA are earning more than soliciters in Sydney. It will all even out in he end.

^agreed - and looking at my super statement, I can tell you the Aus economy isn't all that cracked up at the moment.

Fucking tarts *Supers that is*

The impending US recession parallels that of Japan in 1989 except that the Japanese saved a lot more. Many Americans are still tapping their home equity lines, credit cards and 401k retirement savings accounts to support lifestyles that they can't afford. When the party's over, they'll be in deep sh*t, especially when layoffs start. Except for those depressed businessmen who jumped in front of the bullet trains, most Japanese families weathered the storm.

Not to oversimplify here but didn't the Great Depression result as an over-extension of credit? The big difference now seems to be that consumers are just as heavily indebted as the banks and brokerages.

Buffett's Berkshire Has Worst First Half Since 1990 (Update2)


By Josh P. Hamilton




July 2 (Bloomberg) -- It must be a bear market because even billionaire Warren Buffett's Berkshire Hathaway Inc. has slumped almost 20 percent since December.

The decline exceeds the drop of the Standard & Poor's 500 Index and marks the worst first half for the Omaha, Nebraska- based investment and holding company since 1990. Price competition has driven down revenue at Berkshire's insurance units, which account for about half of its income.

Berkshire is ``close to getting more fairly priced,'' said Charles Hamilton, a Nashville, Tennessee-based analyst at FTN Midwest Securities Corp., who has a ``neutral'' rating on Berkshire. ``I wouldn't say it presents a buying opportunity right now.''

After reporting record 2007 earnings of $13.2 billion, the 77-year-old Buffett told shareholders in February that profit margins from insurance will drop.

``That party is over,'' Buffett wrote in his annual letter to shareholders in February. ``It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008.''

Berkshire also has been hurt by the declines of Wells Fargo & Co., American Express Co. and U.S. Bancorp, three of the company's 10 biggest equity holdings at the end of March. Wells Fargo, Berkshire's second-largest holding, dropped 18 percent in the second quarter, while American Express and U.S. Bancorp slipped 14 percent.

Buffett Bulls

Berkshire declined $250 to $119,850 at 9:58 a.m. in New York Stock Exchange composite trading, and is down more than 19 percent since its all-time closing high of $149,200 on Dec. 10. That exceeds the 15 percent slide of the S&P 500 in the same period. Berkshire spokeswoman Jackie Wilson didn't respond to a request for comment.

The slide hasn't deterred Buffett devotees, who think Berkshire's decline represents a buying opportunity.

``I'd put a new client in Berkshire right now,'' said Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which oversees $800 million, including Berkshire shares. ``It's probably the highest-quality collection of individual companies that's ever been assembled. Long slides are not in the Berkshire Hathaway lexicon.''

Berkshire bulls are betting with history on their side: the shares advanced in 17 of the past 20 years. The last annual decline was 3.8 percent in 2002. The company had record earnings last year as Buffett booked a $3.5 billion profit on a $500 million investment in oil producer PetroChina Co., and insurance units made money selling coverage against storms that never came.

`Chaotic Markets'

The decline in financial shares may provide Buffett an opportunity to boost holdings, said Whitney Tilson, a principal at New York-based hedge fund T2 Partners, which counts Berkshire among its investments.
``Where Buffett makes his money is taking advantage of weak, chaotic markets,'' Tilson said. ``The odds that Buffett could do a large transformative deal have gone up substantially.''

Buffett built Berkshire over four decades from a failing maker of men's suit linings into a $185 billion company. He plows revenue into companies whose management he trusts and whose business models he deems superior. The billionaire's Berkshire stake makes him the world's richest person, according to Forbes magazine.
With Berkshire's $35 billion in cash, Buffett can scoop up bargains on beaten-down securities and make acquisitions while near-frozen credit markets curb purchases by leveraged buyout firms, Tilson said.

Bond Insurance

Buffett entered the bond insurance business in December as the largest companies in the industry, MBIA Inc. and Ambac Financial Group Inc., struggled to maintain their credit ratings. CIT Group Inc., the lender that lost 84 percent of its market value in 12 months, said yesterday that a Berkshire subsidiary agreed to pay $300 million for its portfolio of loans backing factory-built homes.

Tilson calculates the so-called intrinsic value of Berkshire's assets and operations at $157,000 a share. The stock reached intrinsic value in 11 of the past 12 years, Tilson said. The discount was about 24 percent at yesterday's close.

This year's gap emerged amid a drop in commercial property rates from their peaks after Hurricane Katrina in 2005. Property and casualty prices in the U.S. fell 14 percent in the first quarter from the same period a year earlier, according to a survey by the Council of Insurance Agents and Brokers.

Housing Slump

Berkshire, which owns National Indemnity, General Re Corp. and Geico Corp., saw first-quarter earnings from underwriting insurance policies fall 70 percent to $181 million. Pretax underwriting profit at Berkshire Hathaway Reinsurance Group, which sells catastrophe coverage, dropped 95 percent.

Also damaging to Berkshire's earnings is the biggest housing slump since the Great Depression, which slowed the company's building-related businesses, including Acme Brick, wallboard maker Johns Manville and Shaw Industries, the world's largest carpet manufacturer.

Buffett says the U.S. is mired in ``stagflation,'' a period of slowing economic growth and accelerating inflation.

``We're right in the middle of it,'' Buffett said in a June 25 interview. ``I think the `flation' part will heat up, and I think the `stag' part will get worse.''

An economic recovery isn't ``going to be tomorrow, it's not going to be next month, and may not even be next year,'' he said.

Tilson and Carret Zane's Betz say they'll wait. Berkshire gained 26-fold since 1988 in NYSE trading -- a return more than three times greater than the S&P 500.

``I sleep well,'' Tilson said. ``It's not going to double overnight, but we think it will in five years, which is a 15 percent compounded annual rate. It's the stock you want to own.''

Bloomberg.com: Worldwide