Thursday, December 27, 2007

What Lies Ahead

Now that the speculative housing/lending bubble is undeniably deflating and the U.S. economy is sliding into recession--just as this site has been predicting for 2 years-- the bloom is off the doom and gloom.

(Sorry, I couldn't resist that bit of doggerel.) Truth be told, now that the decline in housing is being covered by every publication known to humanity, it's become rather boring. I mean, how many ways can you say, "housing is going down for a long time"?

Ditto with "the U.S. is heading into recession." The flaccid attempts at a "debate" engineered by the financial press are laughably absurd, as the same tired old hands who failed to foresee the 2000-2002 recession are again trundled out to make yet more failed forecasts of permanent rosiness.

As a result, there is less and less to say of any value about housing and the financial meltdown in the U.S. It was fun to cover those topics when they were being ignored and glossed over by the mainstream and financial press, but now that doom and gloom is mainstream, my focus in 2008 will shift to what is less obvious: the feedback of forces attempting to ameliorate and counter the destruction of risk and wealth we all see at work.

In my view, the Empire Will Strike Back to protect its assets, reach and power, and to expect the U.S. economy to roll over and expire in a nice predictable swan-dive of doom is foolhardy, given the scope of that Empire:

This great, long unraveling--and the powerful counter-trend rallies as the Empire responds--certainly will impact our own financial situations. Everyone wants to know where to put their nestegg to preserve capital/buying power and perhaps even increase the nestegg, and the worldview I will explore is this: there are no "long-term" straightforward investment answers anymore. Risk has retaken the field, and every investment strategy that seems to be well-grounded and working well will stop working.

The era in which you could follow some simple plan year in and year out such as "buy on the dips" or "buy precious metals" may well be over. That is the thesis I will explore.

Just to reiterate what has been established here in dozens and dozens of entries and charts: the housing decline has barely started; the bottom is at least 4-5 years away. Anyone buying in previously "hot" markets in the next year or three will see their investment lose value, perhaps by a stupendous percentage.

The U.S. will enter a long, confusing recession which will fail to respond to the usual elixirs of lower interest rates and more government deficit spending. Structural imbalances in the global economy will drag the rest of the world, including China and India, into recession behind the U.S. Oil will plummet in price as demand drops, for this recession will deepen with time. It will not be "shallow" or brief, despite all the official predictions that it will be a mere pinprick.

Most importantly, I will continue to strive for that most difficult goal: to surprise you. Once you can predict what I will cover tomorrow, I will have lost my edge. What keeps me sharp, of course, is you: your ideas, your suggestions, your critiques. That's what keeps the site lively and unpredictable: the amazing range of reader intelligence and experience.

Thank you, Pedro V. ($10), for your generous contribution to this humble site. I am greatly honored by your gift and your readership. All contributors are listed below in acknowledgement of my gratitude.

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