The Crash of '09 ?

[Dave Stringer]

Today is a holiday in Australia and New Zealand, equal to veterans and remembrance day in the USA & UK; as such it's a nice day to sit and think with few distractions after the Dawn Service. Today however, I've been thinking thoughts that bring concern rather than innovation. They went a bit like this , , , , , , , , ,

The price of an 'average' house is now 8 times the average income.
Payments on the mortgage on an average house today, with a 20% deposit, take up 82% of after tax income for the 'average household'.
A barrel of oil has increased in price by 100% in a year, and looks ready to do it again before the end of 2008
The price of commodities, (milk, wool, grains, base metals, etc.,) have also doubled in the last year.
Most (76%) of the USA's borrowing is short term (60 - 120 days) from Saudi Arabia, The United Arab Emirates and Kuwait.
The price of rice in Sri Lanka (where my wife is from) and many other countries where it is the staple food, has almost tripled in the last 15 months.
Commodities are, in the main, traded in prices set in US dollars.
The total debt of the USA government on March 1st 2008 was just over 7 TRILLION dollars.
The daily borrowing (rolling over term debt on an average of 90 days) of the USA is $77,777,777,777 PLUS another $1,500,000,000 in new debt, making it just over 88 Billion Dollars
If the friendly royal families of the middle east should be overthrown, or the USA should do something to really upset them, they could bring the USA economy, and standard of living, plunging in less than a week, as the Govt would have to print money to pay them with. This of course would lead to the collapse of the economies of the rest of the OECD at least.
The price of commodities would rise exponentially as the value of the US$ falls through the floor.
Importing energy would become an unaffordable luxury for vast regions of the world.


Then I woke up!!!!

But heck, it's not as far fetched a dream as I at first thought. With a TRILLION dollars of housing finance already written off in just the USA (the rest of the OECD is just about to really start feeling the squeeze too), and another four to six trillion still expected to fall out of balance sheets around the world, the chances of a major collapse of society as we know it is not unimaginable to me.

What do you think?

[Jeff Doak]

It will be interesting to see how it all turns out. If you project current trends, it's easy to see something has to give. No one can predict where the changes will occur. The odds of a good overall outcome are very slim. Largest odds sit on status quo for any foreseeable time.

[Michael "Ollie" Oliver]

Those that purport to believe in 3rd order thinking would say it is part of "the plan" that sucking the resources out of the middle east so they run dry leaving us to our own resources while the rest of the world begs us for access to them must also understand that "the plan" is not inevitable. Yes we have stopped oil exploration or drilling and some of those resources may in fact be larger than the other OECD resources, and certainly if you count the more expensive resoruces like oil shales and sands and deep drilling pools already identified, this rise in prices may make those cost effective. The fact we haven't added refineries or Nuclear generation makes pause.

Another Depression world wide. Yup it could happen and as you said if someone gets "really upset" and turns all the mid east oil into a lake of fire with a few nukes lobbed over the borders of Israel, then who is to say we aren't in the end times.

But is another Depression likely? I don't think so, because I don't think any one person or even any one family has either enough clout or a willingness to bring everything down as it surely would mean their demise and loss of power too.

Ollie

[Mark Porter]

So we made it to June! Still plenty of bad signs about, but I'm not sharpening my razor yet !!

[Dave Stringer]

Oh Mark :-)

lets see if we get to 2018, that's when I think we will be seeing the major shift really hitting hard. Even in this instant gratification world, these things take time to work through, and the US still has some fiscal credibility, even if it's not much.

But hey, what the heck, if you record the advent of each month, we'll all know how far we got.

In the meantime, anyone want to buy US$ futures in Euros for 2012?

[Mark Porter]

Some good news:- I got the annual report from my building society this week. It states -

Assets: £ many billions

Direct exposure to sub-prime mortgages: £0

Good to hear, eh? (Hold on though, does "direct" here imply they have indirect exposure ...)

[Dave Stringer]

absolutely!

They own debentures in companies that invested in bundles of sub-prime ms thatsome bank sold on a quiet day when there was too much cash in the kitty - or something?!

Happy Daze

[Mark Porter]

Or should it be The Crash of '08 ?

This week the oil price reached an all-time high.

[Dave Stringer]

I'm still putting my mind share on October this year for a crash, with the real effect coming through early in '09 when the demand for heating oil in North America goes through the roof.
You can cut out a few trips in the car, but in the north-east and CaNaDa it's hard to live in a frozen home, and a lot have oil central heating!

[Jeff Doak]

What about the many people that stock up early knowing the price will probably go up? They may not be hit until they need a refill in later months. I agree there will be a hit there.

[Jeff Doak]

Anyone have 42k$ and a 10k gallon gas can I can borrow for a few months? Heh heh.

[Michael "Ollie" Oliver]

I was just at a conference of Angel Investors and one of them mentioned that in a recession companies will try to survive by cutting costs and those companies that sell products and services where the primary value proposition is lower costs, even if the total life cycle costs are not much lower, will thrive.

Software as a Service sector could easily be a boom town in the middle of a recession.

[Dave Stringer]

Absolutely
My most recent investment was in a SaaS company - Xero
look at xero.co.nz you'll be amazed, (67,000 users in the USA alone!)