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Will soaring pump prices take the fuel out of the recovery?
Matt McCall: Absolutely, not only are they taking the fuel out of the recovery, there's a good chance that this can put us back to the double-dip recession, I hate bringing that word back into what we are talking about here but if you think about this, if gas really gets about $5 per gallon national average, which there's a good chance, with what's going on in the Middle East right now we could see not only the recovery end, but we are going to see people driving to and from work, I don't even drive a car but this is how gas prices are going to hurt me because every good that I buy is somehow transported from the manufacturer to the retailer. What happens then is that is passed onto me so when I go to the store to buy something new, it is going to be higher than it was just a few months ago. Then the bigger thing Brenda is confidence. I don't care if I drive or not. If I walk by a big screen and I see gas prices under $5 then I'm not buying anything.
Gary B. Smith: Precisely Brenda, 2 points I guess. 1 Credit Suisse did a study, if gas went up another 50 cents it takes about 50 billion out of the economy. That's about a half percent so it's not that substantial maybe in a slowing economy it's a little bit more than we'd like but I kind of disagree with that in one respect, as you point out Brenda the 50 billion goes back in the economy. People pay higher gas prices or in Matt's case maybe he saves the money and puts it in the bank-therefore the bank gets more money. The money just doesn't stop flowing it goes somewhere. Everyone just doesn't sit on their money, even like I said even if they do sit on their money it goes somewhere. So we have more or less kind of a closed economy where one part is hurt but other parts are helped.
Julian epstein: Well no question it has a regressive effect I think it has a dampening effect on the economic recovery I think we are probably looking at 2 percent economic growth it could I think as Gary said shave a half or quarter percentage off I think the data doesn't support matt's argument which that it could lead us into a double-dip recession. I think it's important for your viewers to understand demand for oil is as low as it's been since 1997, but prices are sky rocketing and the data is overwhelmingly showing speculators the manipulation of the markets has a big role, if not the primary role in the reason for these spikes.
Tobin smith: Well again, I think if you look at the data, if speculators were behind this move, then why is it that natural gas is at the lowest price it's been at in 10 years? And there's-yeah I mean so the economy is taking these factors in and saying two things. One is disproportionately it hurts the economy in different states. In Mississippi for instance gas prices are 11 percent of a person's take home pay, it's going to hit Mississippi harder. In other parts of the country it's a lower number. But over all matt does make a good point we look at is just as your gas tank, but you have to look at it for extra prices like Fedex, from the movie theater from the guy you get on an airline with. All those prices are going to pass through that's going to take a point off of this GDP.
Jonas max ferris: right and first of all every economy is using more gas than in 1997 except maybe North Korea so that fact is flagrantly wrong. America is now growing as much consumption as they used to in the past but other countries like china are so as far as the economy there are two kinds of high gas prices. There's a gas prices as a result of people just driving more whether it's another country or here. Then there is what I call a service interruption -- that is a storm, an OPEC situation, a war, an Iran thing, that kind of high energy price can hurt the economy and cause a recession but one is the symptom of a growing economy if you drive the price up because you're buying more but that's not going to cause a recession because the strong economy is why it happened in the first place. Right now we're not seeing a service interruption so I wouldn't get too worried about it. But if people -- but the price goes up if we have problems in Iran and we get to $5 gas then yeah it could cause a recession, but I wouldn't worry about it at 4 because of the demand.
Tornado damage
Gary b. Smith: First of all Brenda it is tragic and I'm sure everyone feels our hearts go out to all these people living through this tragedy it's horrible. But the real tragedy Brenda as you allude to that the fact that from the federal level down to the state and local municipalities everyone seems to need a course in rainy day planning and financial management. You know we saw this with the "snowmageddon" of a year and 2 years ago where cities, states were running out of money on snow removal. Now we are seeing that the cities federal government FEMA is running out of money for things that do happen- that's the tragedy. You know everyone spends like a drunken sailor when times are good and they don't put money away. All of these governments have to get their house in order.
Julian epstein: I think -- look, be it an act of terrorism or be it, God forbid, a natural disaster I think when things like this happen the country should come together as one big family. I think we put our partisan and philosophical swords down. I think particularly given what's happened in the recession in the past couple of years, state and local governments do not have the resources to be able to address and rebuild communities after a devastation like this. I think it is unique responsibility of the federal government and I think FEMA does have the resources to deal with this and we have done a lot of nation building in Iraq and Afghanistan and elsewhere and i think when something like this happens it's the national responsibility as a nation to come together as a family and help the rebuilding process. And this is not like a snowstorm, Gary. This is not like something that happens day in and day out. This is an unpredictable act of nature that state and local governments don't have the capacity to deal with.
Tobin smith : Well I think in essence we have sort of created this co-dependency where the states don't save enough or the city doesn't save enough for this because they are assured that the federal government is going to come in. And Julian, I think you make an excellent point about the country coming together on these acts of god but I also believe that it is not necessarily the federal governments job to fund a city or local type of sinking of fund we call a rainy day fund and there's ways to have forced savings so those monies will be there we know these things will happen we don't know when or where but we know they are going to happen particularly if you are in the hurricane belt or tornado belt, etc. I just think this now says states and cities don't want to be co-dependant on the fed government they need to be dependent on their own selves.
Jonas max ferris: Yeah, first of all prime and property that's private market insurance but you can't really insure state or whole government roads so that's where it gets a little dicey and at that point I got to say, I don't think having rainy day funds and managing your budget makes sense in this particular case and even more than it would make sense for you to have that for your house and not have fire insurance because for some places these are very out of the ordinary events, there not in a flood plain where this is just a yearly occurrence this is extremely rare whether it's an earthquake a meteor shower or whatever and they couldn't put aside that much money nor would they want to whether it be a bad use of money so in that case they should be basically paying some sort of insurance premium to federal government who then a federal government should manage their budget so that they have the money for this. But the state and local but I think for them it's just paying a small premium they don't need to put aside money for the one in a hundred year storm whether its snow or whatever that's just wasteful and doesn't make a lot of sense economically.
Matt mccall: You know my thoughts I kind of disagree with Jonas only because I think we see these events happening more and more every year unfortunately and i think at the state level you have to have some money put aside. You know looking ahead to fiscal year 2013, 29 states out there already have shortfalls looking ahead, that's already half the states, $47 billion shortfall, we have issues going forward then we have something like this a tragic event that's hits you know anywhere, it can happen anywhere in our country we have to have some money put aside then it falls back to the federal government, where our federal government really doesn't have the money right now either so I think we need to take this more seriously. And put the money aside if it's not the best use of money I don't care I would rather have the money for our citizens of our country.
Fannie Mae requesting $4.6 billion more in government assistance
Tobin smith: Qell, of course we do because they were bailing out the lie that they tried to tell in 2008. If you remember the shows we were doing then, we said it would probably be 200 billion, so we were underestimating it. Number two, we're going to bail out the bailouts because they're not counting FHA loans and other Ginnie Mae loans that we haven't even talked about. This is government politicians staring us in the face, lying to our face and knowing that anybody who can do math, that this is what's going to happen when you bail out a bailout.
Gary b. Smith: Absolutely, Brenda. This is like bailing out, in a sense, part of the federal government; these government-sponsored enterprises are. Look, if you're working at Fannie and Freddie, your whole mission in life is to grow your power base. You don't care about the bottom line, you just care about growing bigger and bigger and bigger and that's exactly what these companies are doing. They just want more and more money. It will finally choke and starve the housing sector unless they are dealt with by being removed.
Julian epstein: Well, I think just to push back on Toby for a second, I think the TARP rescue and the auto-industry rescue worked out pretty well, both for those industries and for taxpayers. These are apples and oranges, but let's distinguish the apples from the oranges. The Obama administration, to their credit has done two things; the SEC has sued Fannie and Freddie and they have announced this week that they're trying to wind down the two programs because they're not particularly good business models. I think where there is some debate right now, is whether you want to close them down immediately. I think if you were to close them down immediately, even though they've done very bad things and they're not a good business model, if you close them down immediately I think the housing market, the bottom would fall out of it and talk about the impact of gas prices; it would dwarf that impact if you shut it down now.
Jonas max ferris: First of all, I wish the government knew it was going to cost 100s of billions when they said it was going to be less. I actually don't think they knew that. That was the scary part. I think Wall Street didn't know either. It was a bottomless pit and unlike the other bailouts we talked about you can't get your money back. Theoretically GM could work out and the banks could pay you back with interest. When you start bailing out underwater homes, it's just a bottomless pit as long as homes stay down. To get to the point that was just made, it's probably why it's going to take 10 years to get out of the Fannie Mae situation because at the end of the day we are ensuring several trillion dollars of underwater mortgages. You've got to kind of walk away from it slowly.
Matt mccall: I think what should have happened is they should have realized this and told us the truth that it was going to cost a couple hundred billion dollars to fix this issue and really cut the cord right then, because Julian really is right, you can't cut the cord now. We're stuck, the government's stuck and it's probably going to hit three or 400 billion 10 years from now and it's coming out of our pockets.
Predictions
Matt mccall: Tech is where the profits are! (INTC) processes a 30 percent gain by December.
Gary b. Smith: Don't fight AT&T data cap, join it! (T) rings up a 25 percent gain by January.
Jonas max ferris: GM Volt production halt gives (HMC) a 25 percent jolt in one year.
Tobin smith: Don't fear the new FDA warnings! (AZN) dispenses 35 percent gains in one year.
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