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Why I think we are headed for a recession later this year

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n2doc Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Mar-10-06 08:44 AM
Original message
Why I think we are headed for a recession later this year
The beginning of this year has held some ominous signs, at least to me. They are pointing towards the US going into recession sometime this summer, or maybe even spring. What concerns me is the following:

Rapidly increasing long term rates, and the "inverted yield curve" seen earlier. Now, rates on 30 year mortages have gone up about 1/2 to 3/4 of a percent in just the last month (I know, as I have been looking at buying a house, and this is frustrating!). Higher rates mean a slowdown in housing sales, which we are already seeing. Inventories of homes are skyrocketing. The inverted yield curve, with rates on 2 year bonds higher than those on 10 year bonds, only lasted a few weeks, but has presaged an economic downturn nearly every time it has happened. Not enough in an of itself, but....

The buildup in oil reserves. Oil supplies (not gas or heating oil, but crude) have been building up for months. We are now at the highest levels since 1999. Now, given that there has been no evidence for an increase in output by the producers (in fact, Nigeria is experiencing significant disruptions) this points to cutbacks in the use of oil by both industry and consumers. Again, this would not happen if the economy was doing well and indicates a slowdown. When things were going well last year and the year before (well, relatively well, at least for the fat cats) oil supplies consistantly shrank. So not enough in and of itself, but...

Weakness in many stocks. The DJIA and NASDAQ notwithstanding, many stocks, especially in the early warning tech and biotech sectors, have been taking it lately. I haven't seen this since 2001, and it is not pretty. So far the declines haven't been like then but we are starting from a lower point and it is still early. But there are a discouraging number of stocks on what appear to be long term downtrends. so...

If these signs are correct, we are in for it this year. Since W can't effectively cut taxes any more (he can lock in the cuts for the fat cats, but that won't help the economy), he doesn't have anything to hold up as a thing to do if things go bad this summer. Which means that if nothing is done the Pukes will definitely lose control of the House and possibly the Senate, because people will really be pissed about the economy (as in 92). Which leaves coming up with a "distraction". And we all know what that distraction is probably going to be.
Just my tin foil hat thoughts. And I hope I am wrong. :scared:
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Media_Lies_Daily Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Mar-10-06 08:50 AM
Response to Original message
1. "Headed for a recession"?? We've been in one since March 2001....
...unless you believe all of the "strong economy" crap the NeoCons have been spewing since that time.

No, if we're headed anywhere, we're headed toward a 1920-1930 style of depression or worse.
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Viva_La_Revolution Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Mar-10-06 09:37 AM
Response to Reply #1
3. Damn! beat me to it.
recession.. check

Depression.. check :(
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fasttense Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Mar-10-06 09:34 AM
Response to Original message
2. Add to that
the fact Caribbean Banking Center are buying up more US dollars. DaanSpeak reported in an interview of Willem Middelkoop (a freelance reporter for the Dutch financial report) that the suspicion is the US is financing itself by making a U-turn, via the back-door. Caribbean hedge funds (which are unregulated) are being funneled newly printed dollars and are turning around and buying up American treasury bonds, as if they are foreign investors. This is a Rob Kirby theory.

Another interesting point in that interview was the fact that the Dow Jones no longer falls more than 2% in one day. European and Asian markets fall more than that but since April 2003, since the beginning of the Iraq war, the Dow Jones has not fallen more than 2% in one day. The theory is that the Plunge Protection Team is continually intervening in the market and artificially propping up stocks.

This can't go on forever. Everyone agrees we are due for a "correction". The question is when is this "correction" going to start and how bad will it be. I think, and this is based on a guesstimate, that the "correction" will start in 2007. But that and about $5 will buy you a good cup of coffee.
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Spider Jerusalem Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Mar-10-06 09:47 AM
Response to Original message
4. As to one of your points:
The buildup in oil reserves. Oil supplies (not gas or heating oil, but crude) have been building up for months. We are now at the highest levels since 1999. Now, given that there has been no evidence for an increase in output by the producers (in fact, Nigeria is experiencing significant disruptions) this points to cutbacks in the use of oil by both industry and consumers. Again, this would not happen if the economy was doing well and indicates a slowdown. When things were going well last year and the year before (well, relatively well, at least for the fat cats) oil supplies consistantly shrank. So not enough in and of itself, but...

There's been no increase in output because there are no producers with spare capacity. Oil production is running near maximum; it's been at current levels, more or less, since 2004. Buildup in reserves is likely due to the ongoing political tension with Iran; current worldwide production is at around 84.5M bbl/day, of which 4 million is Iranian oil; worldwide demand is at around 82.5M bbl/day. So any embargo or disruption of Iranian supply would lead to a production shortfall of nearly 3%, which is enough to trigger extreme price volatility (up to the $80-100/bbl range, at least), given the inelasticity of demand.
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