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alstry (34.97)

Worse Than The Great Depression

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April 16, 2008 – Comments (5)

We now see pundits on TV, who were saying everything is fine a few months ago, comparing stats to the Great Depression to justify how much better off we are today.  Great!!!!

But the real question is whether conditions will get worse.  We are less than a year into this cycle and we are already making comparisons.  It took about 4 years from 1929 to 1933 to bottom out.

In 1929 we had much less debt.  Home values were a much lower multiple to income.  We were a growing economy creating new industries to sell products around the world.

Today, house values are still over 4X median income.  Debt is out of control.  And we are a net importer mostly servicing each other to earn a living.  Moreover, much of our corporate earnings were based on financial alchemy.  Without profits from financing activity, our corporate earnings would be a fraction of what they are today(we are just beginning to see the unwinding process).

In The Great Depression, Florida land only decreased 70% in value peak to trough.  Recently, we have seen land transact at 90% off.  Now the job layoffs are just starting to pour in.  Construction will likely lose at least 50% of its employees.  Same with mortgage finance.  Ditto with Real Estate Sales.  Wall Street is projected to lose 35%.  Recently we have seen a slew of companies announce 10% workforce cuts or more including Dell, AMD, INTC, Schering Plough and many more. 

Airlines are shutting down completely and Northwest and American have announced hiring freezes.  You think Delta and Northwest are going to add employees when they merge and cut overlapping routes to raise fares?  States are now announcing 10% budget cuts at every level.  The Federal Deficit is running at a record high just six months into the year.  Retailers are shutting down thousands of stores.  Others are going out of business completely. 

So now what?  Cut interest rates and more deficit spending so we can pay $5 a gallon for gas and $10 for milk?  Cut back spending and slow the economy down even further?

What makes this soooo different than The Great Depression is that wages/income are going down and Non housing related expenses are skyrocketing.

 

5 Comments – Post Your Own

#1) On April 16, 2008 at 8:38 AM, alstry (34.97) wrote:

Housing Starts and Permits Fall to 20 Year Lows.

But that isn't the half of it.  There are probably more than three times the housing communities open today compared to 20 years ago.

Maybe FloridaBuilder could elaborate on this a little bit.  We miss your insight.

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#2) On April 16, 2008 at 9:36 AM, dwot (97.30) wrote:

I wonder how if they compare to the Great Depression they get that things aren't worse.

I agree with your assessment:

 "In 1929 we had much less debt.  Home values were a much lower multiple to income.  We were a growing economy creating new industries to sell products around the world."

I mostly just look at the difference in debt to come to the conclusion that you need to be looking at the great depression for a comparison of how bad it could get.  The great depression saw the market decline to 11c on the dollar from the peak.  I believe it was Thailand that lost something like 75% of its value in 97.  Big crashes are not things of the past.

Other things that make this different is the aging population and that cost. 

And what you say about finance, that is true of a number of areas of the economy.  The wages and value to the economy is over stated because the business models are parasites, and their host is dying.  Insurance would be another.  There are simply enormous layers of middlemen that truly deliver little of value to the economy but strip it raw.  This was never affordable but well hidden by negligent economic policy and the very existence of the parasite economy was used to justify that the economy was strong. 

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#3) On April 16, 2008 at 9:39 AM, alstry (34.97) wrote:

CREDIT TIGHTENING FURTHER:

Student Loan Corp. said due to dislocation in the capital markets and recent federal legislation it will suspend lending at certain schools and withdraw from the federal consolidation loan market. The Citibank NA majority-owned unit said that effective May 1, it will suspend lending at certain schools where loans with lower balances and shorter interest-earning periods result in unsatisfactory financial returns.

SALES SLOWING DRAMTICALLY IN MARCH

GE's miss because of the last two weeks in March?  Now this:

MarineMax Provides Fiscal Second Quarter 2008 Update
Wednesday April 16, 6:45 am ET Same-store sales declined approximately 28%

William H. McGill, Jr., Chairman, President and Chief Executive Officer of MarineMax, stated, “Trends in the marine retail environment deteriorated further in March, resulting in an even more disappointing quarter."

HOW BAD WAS MARCH IF SALES WERE OFF 28% FOR THE QUARTER AND MARCH WAS WORSE!!!!!!!

THE FEDERAL DEFICIT RUNNING AT RECORD LEVELS.  LOANS DEFAULTING AT RECORDS LEVELS.  JOB CUTS ALL OVER THE PLACE.

And we are already making comparisons to The Great Depression so early in the game?

 

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#4) On April 16, 2008 at 11:43 AM, CycleFreak7 (25.83) wrote:

And yet (as of 11:45 EDT), DJIA is up 180 (1.5%) and S&P500 is up 52 (2.3%).

How does this magically alchemy keep working? 

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#5) On April 16, 2008 at 11:46 AM, alstry (34.97) wrote:

I guess they call it PE expansion.  Go figure, earnings are crashing and PE's are expanding.

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