Market Economics

Posted on November 11, 2008. Filed under: Industry News | Tags: market, Mortgage, real estate, Roger Arnold, wall street |

November 10th I had the pleasure of listening to a speaker that provided great insight into this troubled market, and world, on a macro level.  His name is Roger Arnold and he is a well respected expert in the discipline of macro-economics.  You will not find much recently published information from him because he consults and meets daily with HUD, FHA and private entities on wall street.  Those that pay his tab have put a non-compete on him and his opinions.  Below is a note dump of some of the important points:

1. Three timeless, virtually infallible realities that repeat throughout history are…. (A) As US housing goes, so goes the US economy.  (B) As the US economy goes, so goes the world.  (C) What is good for the US economy is good for the world.
2. The US, and the world, is entering an inescapable deflationary period.
3. Current US GDP is about 14 trillion and debt is about 9-10 trillion.  Compare this to Japan who has GDP of 4 trillion with Debt of approx. 10 trillion.  Japan is at risk to collapse in this environment.
4. Washington is the new financial capital of the world after collapse of wall street. 
5. When the public sector shrinks, the government must expand (this is NOT socialism as expressed by media it is actually just the natural mechanics of capitalism).  This includes nationalizing some companies in this economy, we can re-privatize them later.
6. Unemployment will quickly grow to over 10% in this contraction of US economy.
7. He predicts another 50% drop in S&P in 2009 as some effects of financial lock-up have not yet reached the markets.
8. Federal Funds rate will go below 1%.  Banks are already trading money below that level.
9. As the US drops its lending rate the world will follow as they MUST have US buying their goods.  US represents a third of the total world market and if they stop buying many economies would cease.
10. US dollar will increase in value relative to other currencies.
11. As the US dollar value rises, commodities fall due to an inverse relationship between these two.  Specific to this, oil will continue to fall long term and OPEC will be under great pressure. 
12. Subprime is not the cause of this crisis.  It was merely the first card that fell and a symptom of flaws that have been en-grained in our financial markets.  It is not just a US problem as these same financial flaws exist, and are worse, in all major world markets. 
13. The DC real estate and mortgage market will lead the country as the government expands. 

His overall presentation projected calm during this storm.  This current financial reality, though traumatic and historically significant, is part of relatively normal ebbs and flows of macroeconomics.   Lack of effective oversight and a limited number of bad apples exaggerated this normal ebb and flow.  Know what is coming, plan accordingly, hunker down and survive the storm.