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FORGET ALL THE DOUBLE-DIP TALK: ARE WE ALREADY KNEE DEEP IN A NEW RECESSION?
Todd Schoenberger: Yes we are, Brenda. For everything you've mentioned above and also you have to look at where's the catalyst that's going to pull us out of this. Look, right now things are bad. They're dire. Sentiments down. We also have consumer confidence that's down. You could take your pick guys, housing, the household balance sheet is decimated. We are in a recession we never got out the last one and this things going to continue for some time now.
Tobin Smith: Yeah, they sure do, and Todd the world has fallen and will never get up. It sort of misses a couple parts here. We are not in good shape, not only does it feel like a recession, whether it's a recession or not - it feels like a recession, but there are many parts to the United States, Silicon Valley, IET, the energy belt, God knows D.C, New York etc. that are not. The bigger issue if you look at the labor report though was at sixty percent of the jobs came from business services and of that about half were temporary jobs, so guess what. It's the biggest I've ever seen. People if they're going to hire are going to hire with temp cause they don't know what they're costs are going to be, they don't know what it's going to be in six months and that's the thing that has me worried.
Gary B. Smith: I looked at all the recessions for the last sixty years ‘cause that's the kind of exciting guy I am, fascinating stuff going on in the Smith household. We've never seen a double dip recession, Brenda unless unemployment hits the peak of the previous recession. In this case total unemployment including those people who've stopped looking for work etc., etc., was about sixteen percent which of course is extraordinarily high. Now we're back down off that peak, you just saw the unemployment figure from Friday about 8.2 percent, so it probably translates into about thirteen percent or so. We could go back up there, Todd makes the doom and gloom case for certain. My gut tells me we're just going to limp along sideways we won't get there for there will not be a double dip recession.
Susan Ochs: Right and it's not time to push the panic button yet, because there is a difference between slow growth and we still do have growth versus a stalled economy versus an actual recession. So I still think we're a ways away from an actual recession. We do have slow growth it's been chappy in certain points it's come up it's come down, but let's not forget we have had twenty eight straight months of job growth in the private sector. I know it's not where everyone wants it to be, but there are things that are looking good. Construction is continuing to be a slight strong spot, now we're seeing housing demand come back. There are small signs of light on the horizon there.
Jonas Max Ferris: Well apparently Todd doesn't care about the official definition of a recession either. He's kind of the like the opposite of the soviet economic people, it's always a good time it's always a bad time. We're not in a recession we haven't been in a recession for a long time, however the concern is that it's a little sluggish given that we're still running a artificial low tax regime to boost the economy, so it's a bit of a concern how little jobs are being created with the low payroll tax in effect which a lot of people including myself thought was going to help hiring, we also have these other tax cuts that are all going to expire so we need the economy a little stronger than it is going into an eventual tax increase so we will get another recession. It's not here yet and to that other guest point we don't need to pull the panic button yet.
THE UNITED NATIONS CALLING FOR A GLOBAL TAX TO FIGHT THINGS LIKE GLOBAL WARMING
Gary B. Smith: It's horrible Brenda. The UN wants to go in and tax millionaires and billionaires. The UN is maybe one of the only organizations that makes our own government look efficient for the last twenty or thirty years. They've accomplished almost nothing other than to have pervasive corruption amongst their organization, but forget about that. The fact is that in the last ten years or so even though carbon dioxide emissions have increased thirty three percent, temperatures have remained the same. Forget about that let's just say there is global warming, science has not come up with a way to funnel this money to solve it. Going out and taxing job creators, taking wealth and transferring it to come other ludicrous organization who doesn't even have a clue how to solve it well you know, that's what you get with the UN.
Susan Ochs: So, you know this is just another example of the multilateral agencies IMF, the UN they're all having these budget problems right now and the truth is that their donor countries are all strapped at home, right we're having the same problems everyone else is and so they're all short on funds. So they put this report out to say hey, where are all these other places that we can get countries to find money to send to us. It's a bit of a shame because it's sort of alright you know what everyone needs to solve their own problems and figure out how they're going to pay their own UN dues, but this isn't the right way to kind of go about it. There are some places where it would make sense to have countries working in concert, like if everyone's going to do a carbon tax, everybody does it together so you don't have forum shopping but this isn't the right way to go back.
Tobin Smith: Forget about Gary's points about the science here. Here's the reality. First off, $400 billion a year of capital would be extracted out of the productive world and gone into the non productive world. What that would mean economically would absolutely be at the margin A disaster, then secondarily we know from Africa after a trillion dollars look how much we've got there. No, no no. If a trillion doesn't work well then four trillion is really going to work, and now what we're going to create is some brand new billionaires and they're going to be the new Mohammed, you know. Qadaffi, and the new Hussein. This is going to be, this is like graft 101. This is the golden vein for every corrupt dude out there.
Jonas Max Ferris: They're not the IRS they really can't tax anything it's just a recommendation. All they're saying is all the countries that offered aid to other countries but then reneged on the payments because they decide they got their own problems at home not talking about Germany, Greece or any of those countries, but they're just saying we have to come up with a way to pay for that and perhaps some sort of forced tax because you're not paying what you said you were going to give these countries in aid, that's a legitimate concern. Loosely the concept that we're someday going to need global taxes is not ridiculous. We already had billionaires leave our country go to Singapore to avoid our taxes at some point we're going to have to get together the other countries to have a fixe tax rate so you can't have your billionaires go to other countries to avoid your taxes.
Todd Schoenberger: First of all we would have a universal tax code, we can't even understand our domestic tax code and we're going to have a universal one. Second of all, what Gary B. said. Look there is no scientific proof of any of this global warming right now. What are we going to do, what are you going to solve? This money is just going to be redistributed; it's another wealth redistribution scheme, it's all it is.
New Housing Plan: Use Eminent Domain to Seize Mortgages
Tobin Smith: Insane! I mean, remember, let's go back to Economics 101. So, if you're a mortgage lender you take risk-you have the borrower risk (will they pay you back) you have the home value risk-here, they are adding a whole another level of risk which, if you are going to make a loan and they are going to blow that loan up and give it to someone else. When you add another level of risk into an already tight market spot rates will go up and mortgage availability will get less. That is absolute and right now in most of the United States to get a home loan to qualify it is incredibly tough-this would just kill the housing recovery.
Gary B. Smith: What it is, is that you have another government entity here-in this case not the federal but at a lower level like the state or local level-going in and propping up the housing market, that is all it is. If you're borrowing, the state needs to get the money from somewhere-they go out and borrow the money or bond or higher taxes and they subsidize these homes that should be under foreclosure. The only way to solve the housing crisis, as painful as it is, is by letting prices drop to the level that people want to buy them. If you can't sell your house for $100,000 you will have to sell for $80,000-if not $80,000 then $40,000. Yes, it is a tough, bitter pill to swallow but that is the only thing that is going to get us out of it.
Susan Ochs: To Gary B's point, they do actually want to bring this down to market value. I don't really love this plan, but they are going to try to get people back into these homes at something that looks like close to market value. Now, they were planning to have judges come in to determine if it is fair market value and that feels like a mess, but the idea is "can you try and clear out the market?" It is still overpriced. At the height of the crisis, there were still people saying let's get the bulldozers out start knocking down homes so this feels like a little less drastic than that.
Jonas Max Ferris: When you hear the words eminent domain, it is a little scary especially because they aren't turning these houses into parks. I will say that some of these areas are so underwater and there is so much negative equity in places like Las Vegas and Southern California there is almost no solution other than to force the hand of all the lenders who own a piece of that mortgage, otherwise what is ultimately going to happen to the blight of these houses and they are going to be tearing them down and that is going to be another kind of eminent domain. I don't think that this is designed the way it should be, ultimately a hand is going to have to come out and say that you are taking $200,000 on this $500,000 mortgage-you are getting a new mortgage, you are out of this house. Otherwise, what is going to happen is if they all go into foreclosure they are going to have to resell to someone and the prices are going to go down more and you are going to get another deadbeat in there. Toby makes a good point, there is very little government lending-it is all private government backed loans. So, in that sense they don't care what happens.
Todd Schoenberger: Look, they have to borrow the money and this proves why government officials are not smart businessmen because they are actually going to have to take borrowed money and actually buy a depreciating asset. We are a full generation from the housing sector recovering guys, I hate to play the doom and gloom scenario but it is true-these homes are going to continue to depreciate.
PREDICTIONS
Gary B: McDonalds (MCD)
Jonas: J.P. Morgan (JPM)
Tobin: Apple is still golden (AAPL)
Todd: EZCORP (EZPW)
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