Saturday, November 18, 2006

US recession fears grow

US housing 'caught in death spiral'

US housing construction tumbled 14.6pc in October to a six-year low and building permits slid for the ninth consecutive month, dashing hopes for quick end to the economic slowdown. Yields on 10-year Treasury bonds fell sharply to 4.6pc on recession fears, though the Dow Jones index of leading stocks continued to probe record highs - a contradiction that left analysts scratching their heads.

Posted by sold 2 rent 1 @ 09:34 AM (1844 views)
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7 thoughts on “US recession fears grow

  • Blindleadtheblind,

    Nice article,
    The end-result we are looking at is deflation.

    A major global recession initiated by a collapse in U.S. house prices will probably usher in the chronic deflation we’ve been forecasting. Crude oil and other commodity prices will nosedive along with all fears of inflation. This deflation of 1% to 2% annual declines in major price indices will be the good deflation of tech-led, productivity-soaked excess supply, much like the late 1800s and the 1920s when concentrations of new technology propelled supply faster than demand increased. Nevertheless, a complete breakdown in housing and stubborn mortgage debt burdens could spawn the bad deflation of deficient demand, as in the 1930s in the U.S. and in Japan more recently, as consumer spending becomes moribund.

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  • UK catches a cold when the US sneezes.

    If this reflects the beginning of the same pattern (i.e the US has sneezed) then the UK is in big doo doo.

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  • Disagree I’m afraid sir google. The UK may actually not fair to badly if the US has a recession seems to be the economists view.

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  • sold 2 rent 1, you maybe interested in this by Chris Ciovacco – seems to support your view and that of the artice, but with a prior hyperinflationary trend (hold on to that gold):

    “In the long run, the Fed will use every weapon they have to prevent deflation. We will most likely see hyperinflation sometime in the next 5 to 10 years, followed by deflation. Deflation will arrive after the velocity of money accelerates to record levels. Currently, the velocity of money is roughly where it was in 1994 – significantly below the levels seen in 2000. Deflation is coming and all the arguments for that are correct – they just have the timing wrong. More inflation, leading to hyperinflation, followed by deflation is the most likely outcome. That does not mean we will not have periods of deflation (we may be entering one now) in the secular inflationary trend.”

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  • harold,

    Another good article.

    Key points are:

    “As a result, I expect all interest rate cycles (both up and down) to be shorter in duration than the previous cycles.”

    We have seen this in the UK already – look at how a 0.25 rate cut 15 months ago caused house prices to fire up again

    “That does not mean we will not have periods of deflation (we may be entering one now) in the secular inflationary trend”

    If this secular trend matches the secular trends in stocks, commodities, and property then it has at least 15 years to run.

    The “perfect” way out of this mess would be to have inflation at say 6% for 15 years.

    Economies don’t work like that so we will have wild swings from deflation to hyperinflation over the next 15 years instead.

    All this fits in with my expectations of 3 recessions in the next 18 years

    My plan for the next 15 years:-
    Stocks: select opportunities during the cyclical bull phases but overall this is a secular bear
    Property: Good buying opportunities but expect to be punished with each recession
    Commodities: A safe haven when inflation kicks in and when world growth is strong
    Gold/silver: Good with inflation and currency crises with the dollar/euro
    Cash: Good if real IR is high

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  • NoHPC

    Not sure how you can deny the decades long strong linkage between the US and UK economies and the similar economic models we practice. I think that denying the linkage is wishful thinking on your part.

    After all it is this linkage that the EU world is always complaining about. Perhaps you have discovered that the UK has suddenly become a more EU centric country. I hope you are correct.

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