Signs of economy slipping

HappyHarry said: "People are late on [url=http://news.yahoo.com/s/ap/20050928/ap_on_bi_ge/late_loans]credit cards[/url] because of high gas prices. This is a scary sign of degradation of buying power. People really need to cut back on debt and consumption. That's a message that probably no one wants to hear."

bennettbike said: "I would agree, as the economy starts to slip (if its not short term from the disasters) What is your take on gold stocks? I heard some stuff about GG or Gold Corporation on this forum, i also have been watching the stock, its not that expensive."

HappyHarry said: "Gold is something people cling to in times of trouble. If people feel negative, Gold can rise."

thezster said: "I find it difficult to relate.... though I know, absolutely, positively, that I should. Most, if not all, of the people I know who invest on a regular basis - tend to be in the upper income brackets... We see gas rising, and credit card debt rising.......... for the masses. However, if we don't feel it ourselves... we tend to discount it (awwww... what's a few cents more for gas?). Bad mindset! If anything, we should be extremely conscious of what's happening to the average wage earner in America... As they go... so goes the economy! Probably what separates the pros from the amateurs (which I absolutely am one of) I continue to buy, buy, buy.... knowing things "will" turn around sooner or later........... or at least "in my isolated world" - thinking that!"

BenHouston said: "Good point "thezster". I have the same problem, I am only a student and all so I am not well off or an upper income earner yet, however I come from a respectable family and I nor can my father get our heads around the masses and credit cards. People want things "now now now" such as new clothes, cars, renovations, they buy everything on credit even though they cant afford it. Now people are maxing out their credit cards with gas, if its not with gas I am sure it would be with something else. Don't get me wrong I don't think credit is bad, I use it on occasion and in a few years of course I assume I will have a mortgage. Just managing it I guess can be a little trickey for some?"

HappyHarry said: "Alright, I'll also admit I have a 6 figure income, so I'm not really relating to the little man that much myself. However, I talk to the little man...a lot :) The little man is HURTING from the gas prices, especially the people who have long unavoidable commutes. Add to that the fact that interest rates are going up, and PRICES of goods are rising, I just don't see the scenario where this turns out right. These hurricanes are hugely expensive. The money has to come from somewhere. I think consumers are tapped, and the consumers have been pushing the economy forward. The momentum could be coming to an end."

alhamid said: "im as little as men come...let me give my opinion...:) the credit is killing me...i kid you not..i only got 3% raise this year and i have rates go up on my credit cards and mortgage... this is affecting me becuz i dont buy much"

StockFreak said: "I heard that they recently changed the minimum credit card payment to 4% instead of 2%. People were figuring out that the balance would never be paid at that rate. As far as gas prices, im definately thinking twice about that 7 liter Vette now.... They really need to put a press on the hydro fuel technology move."

HappyHarry said: "Even ethanol or anything. It's hard to believe these alternative fuels are still so far away."

bennettbike said: "thats just it there not far away. Isnt it more about the mechanical end, repair parts, and training mechanics to work on different (hybrid) engines. I see the race for hybrids starting. Ford (F) is comming out with more trying to catch Toyota (TM) , General Motors isnt in there (GM) It could be nice to look into ford (9$ avg.) ah, im a small man as well, but have a good lump sum to start with. I already jumped into rental property before the intrest rates rise. And im in atlanta, and investing in some great real estate. My sisters home went up 50 grand in 4 years, and my area 10 grand in 2 years. :-) bonds, not stocks... doe smy post make any sence, haha, im just blabbinn"

HappyHarry said: "Sure it made sense. One of these car companies has to really push the new technology."

bennettbike said: "which could be tm, buts its pricy. nice to meet you all, im new to this as well. been reading without posting for awhile."

HappyHarry said: "Welcome aboard, man. We're always glad to welcome another :)"

LanceJ said: "The statement issued with the Fed's most recent increase noted that Hurricane Katrina's disruptions "do not pose a more persistent threat." But the Fed noted that the boost in energy costs has "the potential to add to inflation pressures." We take that to mean that the Fed is now a bit more concerned that the latest energy shock will fuel inflation. I'm pleased so far with our crouching tiger defensive approach to our inflationary opponent with the current holdings in the Sticky Six portfolio. So far we've countered inflations feable blows rather nicely. The thing is, I know inflation is a more challenging opponent than his latest attack shows meaning he may be just feeling us out at the moment with a much more powerful attack coming in the future. We therefore remain in our defensive position and highly alert."

HappyHarry said: "No matter how you look at it, inflation is bound to kill earnings. Everything starts costing more. The inflated gas prices get passed on the end user in many ways. Shipping goes up. Travel is more expensive. People have smaller paychecks with less disposable income. The oil crisis, if it gets worse, will really weigh down earnings."

LanceJ said: "Right... and worse, companies raise their prices to compensate for the increased costs which makes earnings look great which means P/E ratios start coming down and looking great. Don't fall for low P/E multiples as we move into an inflationary period. You need more than ever to be picky about the companies you invest in and to read the SEC filings to determine if growth was from price increases due to inflation, or actually sales growth. Again, I can't stress enough. You must distinguish between growth from inflation, and growth from increased business. For those of you that rely to heavily on the P/E ratio and don't do deeper research, you have been warned."

LanceJ said: "Economy Gets Another Inflation Warning [url]http://biz.yahoo.com/ap/051005/economy.html?.v=8[/url] Everything is down today, even our inflationary hedges.... yikes! Now that's a worthy blow by inflation."

HappyHarry said: "Factory output was up, but basically I'm seeing a lot of bad signs."

trickynick said: "This last increase in interest rates by the Fed I kept hearing was "slightly less anticipated" than the previous ones. In my opinion the idea that the Fed would not continue to raise rates stemmed from a lack of understanding of economics and what the Fed's role in the economy is. The Fed's principal role is to control inflation. The fact that interest rates came down to almost nothing in 2001 to stimulate the economy out of the recession has placed pressure on the Fed to raise rates more than investors would like just to get back to a neutral level. Between the previous interest rate increase and this latest one, oil prices went through the roof. Rising oil prices result in increases in the general price level of everything in the long run because demand for energy compliments increases, which causes the price level of energy on the whole to increase, which causes the cost of production to increase which causes the general price level to increase. In addition to that, the costs of shipping goods that are produced increases, the cost of works GETTING to work to produce what they produce increases which in the long run leads to higher labor costs, all of which ALSO cause the general price level to increase. It takes some time for all of this to happen but knowing that all of it will eventually come down the pipe but if in the face of all this the Fed fails to contract the money supply undue inflation will certainly result. It would seem that I am in a great minority but I don't think gasoline will sustain the kind of prices we have been seeing, and I am almost willing to bet we will see below $2/gallon gas sometime between now and 2008."

LanceJ said: "[QUOTE=trickynick]Rising oil prices result in increases in the general price level of everything in the long run because demand for energy compliments increases, which causes the price level of energy on the whole to increase, which causes the cost of production to increase which causes the general price level to increase. In addition to that, the costs of shipping goods that are produced increases, the cost of works GETTING to work to produce what they produce increases which in the long run leads to higher labor costs, all of which ALSO cause the general price level to increase.[/QUOTE] Well said Trickynick. Rising oil and its effects you described above can be line itemed into inflation. Three other items we can line item into inflation are rising mortgage rates (which are a direct result of the Fed raising interest rates), deficit spending (printing more money thereby devaluating all current money), and the rising cost of basic materials such as cemet and steel (China consuming nearly half of the world's supply last year)."

trickynick said: "[QUOTE=LanceJ]deficit spending (printing more money thereby devaluating all current money.[/QUOTE] Just a slight correction on what you have written here. Although you are correct that deficit spending is a factor in inflation, deficit spending actually has nothing to do with the money supply. The reason increased goverment spending affects the general price level is that it causes an increase in aggregate demmand which induces what is called demand-pull inflation. The effects of rising oil prices which I wrote above and you quoted lead to what is called cost-push inflation. Increases in the supply of money (M2) [i]also[/i] causes demand-pull inflation but there only four ways in which the supply of money increases and they all require action by the Fed."

LanceJ said: "[QUOTE=trickynick]Just a slight correction on what you have written here. Although you are correct that deficit spending is a factor in inflation, deficit spending actually has nothing to do with the money supply. [/QUOTE] In this case, the Fed has stated that they will be printing money as a result of Hurricane Katrina and their irresponsible spending spree that started 5 years ago, so the current deficit spending is impacting the money supply. If you want to break out inflation into two separate line items labeled "cost-push inflation" and "demand-pull inflation", I wouldn't argue with you, especially if you are a student of economics or an instructor that requires this sort of detail as a form of torture. I prefer, for the purposes of this conversation against the context of making investors aware that inflation is rising and to adjust their portfolio accordingly, to lump them into one line item called inflation. Whatever works for you."

trickynick said: "[QUOTE=LanceJ]In this case, the Fed has stated that they will be printing money as a result of Hurricane Katrina[/QUOTE] The Fed may print money if there is an increase in demand for cash holdings while at the same time selling securities to banks which decreases money in circulation by the same amount so just because money is being printed doesn't mean the money supply is expanding. The Fed's current monetary policy is a contractionary one and that is not expected to change for at least another year. And yes, I am a student of torture. :D Just thought I'd provide the information, whether or not people find it useful is up to them."

LanceJ said: "[QUOTE=trickynick]The Fed may print money if there is an increase in demand for cash holdings while at the same time selling securities to banks which decreases money in circulation by the same amount so just because money is being printed doesn't mean the money supply is expanding. The Fed's current monetary policy is a contractionary one and that is not expected to change for at least another year. And yes, I am a student of torture. :D Just thought I'd provide the information, whether or not people find it useful is up to them.[/QUOTE] I'm going to say this one more time, and then I give up. The Fed is printing more money because of the huge deficit spending and now hurricane katrina and this is devaluating the dollar and thereby contributing to inflation. Now if I was your professor of torture, what I would ask you to do is channel your energy to start a separate thread discussing the details of the different types of inflation you brought up above in a historical perspective, what type of inflation we're currently experiencing, what type of inflation we are likely to continue to experience more of if any, and therefore what stock recommendations you have to allow for maximum benefit for readers here at SuperiorInvestor.net. I would expect it to be nothing less than 3 full messages worth of text and to take about 3 - 7 days to complete the paper. So instead of demonstrating critical thought (which is the goal of higher education), you are demonstrating value production which actually is a higher form of intellect than critical thought alone, and in my opinion, when one truly begins to excel beyond the ability of their professor."

LanceJ said: "A final parting thought... The current deficit, in part, is being financed through printing new money and therefore causes an increase in the money supply which is contributing to inflation. As the Fed counters inflation by raising rates, the result is a decrease in stock market investment expenditures. This is the position we are currently in, in the U.S. Now image if President Bush for the last 5 years was in a debt reduction fiscal policy mode, the opposite of what we currently have. The surplus would be used to pay off the government�s outstanding debts, the contractionary effect of the surplus will be reduced as the return of the money to holders of government bonds would increase the money supply and thus would probably cause interest rates to go down. A reduction in interest rates would result in an increase in stock market investment expenditures. Now like I tell my father, hell, if interest rates rise to 10% per annum which is about the 100 year stock market return, I wouldn't be in the stock market. I could have 0 risk exposure and guaranteed returns. That's the way most people feel. Therefore this is why the current deficit spending financed in part by printing money belongs, in my opinion, under inflation as a line item and that's where I'm keeping it. Alright, on to other things..."