The Great Recession part 2

For many months, I have been saying that the housing market has more downside. In fact, some people have criticized me for selling my last home for a substantial 20% loss when I could've waited for a better offer. However, I have no regrets in that decision, as I still truly believe the U.S. housing market has significant downside ahead.


I am expecting a major decline in the future. I acknowledge the positive indicators we've been seeing that have shown signs of recovery, and I have been trading to the upside for most of the time since the March 9 lows. What I see though, is that the economy is largely being propped up by flimsy supports that are about to give way at any time. This economy is fragile right now. With unemployment as high as it is (17% not 10.2%, if you want to do apples-to-apples comparisons with previous recessions), and still rising steadily, the next round of foreclosures and more housing downside is around the corner.

If we were to raise interest rates in the shorter term, it would be disastrous. Foreclosures would take off, housing would plummet again. Bernanke knows this, so rates will be zero for some time to come. I'm guessing though at least MOST of 2010, but probably into 2011.

In the meantime, the U.S. will continue to print money left and right, and fuel major declines in the dollar. The U.S. government is quickly approaching the point of no return where we will be so totally buried in debt that we will never be able to balance the budget again so it will be a runaway problem. A few people think we've already reached this point. The longer it goes on, the deeper the hole is that we are digging for ourselves, and the harder it will be to climb out. No one wants to believe this though, so they just 'tune' it out, just like they tuned out the people calling for the correction of tech stocks in the late 90's and the correction in housing a few years ago. People will believe what they want to believe until it smacks them right in the face and they can't ignore it anymore. But by that time, it's always too late.

The falling dollar will continue to help our economy in the short term by increasing exports, but our industrial capacity is a lot lower than it used to be. We rely a lot on imports and those are just going to get a lot more expensive with every passing month. Foreigners will be pulling money out of our economy in droves. Coupled with the likely scenario that unemployment will stay high for a while, it's not a very good scenario to think about.

I really don't know when this will happen. It could take months, possibly quarters. I really don't know. But I don't see how we will get ourselves out of the mess we created for ourselves.