Friday, October 27, 2006

The economy slows....not a good sign, but not my big worry....


I am not at all surprised to hear that the economy has slowed way down the last quarter. (GDP growth is down to 1.6%.....below inflation I'm sure...which means a loss) That's the slowest growth we have seen in about three years!

Let's face it, we have been experiencing a housing downturn, and it wasn't too long ago that we had "through the roof" oil prices......American's have been on the ropes taking a beating. (and it's not them pulling off some sort of "rope-a-dope") {sorry for the old Mohamad Ali reference)

Let's face it, over 70% of the GDP is driven by personal consumption. When comsumption goes down...so does the economy. This can happen when people lose either their ability to consume (when their money goes to increased energy) or when they lose the confidence to spend (which is not typical of many American's who seem to be hell-bent on digging their own grave by going always further into debt)

The economy has been set-up to slow down. It would have been a shock to see it do anything but that. (It almost looks as though oil prices are used as a modern day accelerator or damper on the economy...as though interest rates were not as effective!)

But another wildcard is the midterm elections.....conservatives worried about liberals, and visa versa!

On the other hand....while energy prices almost seem to be being "modulated" to control the economy, the housing glut is anything but under control! (But I'm not sure how much this worries the average person)

None of this worries me since the picture at the 20,000 ft level is totally out of my control. The best I can do is keep my eyes open for pitfall and opportunity. I feel that if we have a nortmal downturn, we will eventually get out of it. Things are cyclical. But what I fear is the large debt we are all sitting on, and how that may end up being a catalyst for other more serious "adjustments". I fear that those that we owe it to might lose faith is us, and our interest in paying them off.

Faith I say....why does faith have anything to do with this. Well, it is my opinion that the great value add of the USA to the world right now is our huge appetite for goods and services. We are happy to go into debt to get them! China and India needs buyers....for they are trying t0 set up their infrustructure as producers.

Some day they will be buyers....and when the USA is no longer the #1 market, not only will Cell phones not have english writing on them, but the world producers will have little interest or need in the USA.....for we will be so in debt to them and they will no longer have a NEED to loan us money. (buy our bonds and dollars)

I honestly don't think the average American is even aware of the debt we have....and if they know it, they have no sense that they are ultimately responsible for it. (even if the government just "prints money", we will all suffer with massive inflation and increased cost of goods purchased.)

So what am I going to try to watch....well, I am going to watch the size of the other economies, and how confident those loaning us the money are in us. I guess my main indicator will be the value of the dollar. If it either starts to lose value, or if we see another currency somehow taking the place of the dollar....it might be time for real consern. (say if energy were suddenly sold in Euros instead of dollars)

So I am going to try to learn a bit more about the currency markets. I'm not so much interested in trading currency....but in watching out for worrysome signs. (what would I do if I saw some....I'm not sure!)

Here are a few links I am going to start with to learn about currency trading. I need to learn in order to understand whether I am seeing a significant trend, or just a normal cycle. (the education and knowledge itself can't hurt!)

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