Bringing it local – Interpreting the Political/Economic Quagmire

The excitement never ceases to amaze me!

The veritable blizzard of new developments on the National Political and Economic landscape can be confusing at best as all of the “experts” sift through the complexity of the issues at hand . . . and attempt to bring it all into a perspective the average American can understand.

Just in the last 24 hours, I’ve tweeted the following:

• S&P Downgrades US credit –http://ow.ly/5WzCb
• If US Gvmt was a family – income=$58k/yr – spending=$75k/yr – Credit C debt=$327k – promise to reduce spending to $72k/yr. Dave Ramsey
• Gas prices to fall soon: “the same fears that forced a sell-off on Wall Street also brought down the price of oil” http://ow.ly/5WJqP
• On Facebook: S&P said it was now “pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics anytime soon.”
• On Facebook: Incredible Mastermind yesterday – We are studying the National political and economic happenings and bringing it local – Then filtering it through how we believe it all affects Home Buyers and Sellers in Middle Tennessee – Next week, we are talking about how it affects Home sellers – Every Friday @ 10 – If you’re not a REALTOR and you want to know what we’re thinking and seeing in our crystal balls, Turn off your TV and contact me (or your favorite REALTOR) . . . It is NOT all bad! Just sayin’

I may be speaking out of turn, but my guess is that most Americans have “shut down” and thrown in the towel @ finding any level of understanding . . . What’s the point?

Without any sensible tie in as to how all of these drama affects us here in our local economy, it’s just noise.

“If I don’t understand, then I’ll just take my toys and play in a different sandbox and act like none of this is really happening. Life is easier this way, and I’d rather just call all of the politicians “Idiots” and go about life.”

This brings me to what we’ve been talking about in our weekly Mastermind sessions. Generally speaking, we are examining all of the recent happenings and then peering into our respective crystal balls and talking about what we see happening on our local level in the coming months and years.

We’re practicing the voodoo of “predicting the future” based on our fundamental knowledge of market dynamics so we can RESPOND as things shift rather than being blindsided and forced to REACT.

These masterminds are EVERY WEEK . . . and the crystal balls are gaining in clarity each time.

Consider the image to the left. This is a simplification of the Macro-Economic cycle (I drew the image in Google Draw).

There are 4 major components of the cycle . . . which I parallel to the life cycle we all know and I will indicate in () beside each:

1. Expansion/Growth (Birth) – The young economy gains momentum. Excitement and innovation are high. things are getting done and potential rewards are HUGE. These are fun times.
2. Prosperity (Adolescence) – Momentum is driving things along and everything is easier. Things are working well. Life is cruising, and the general feeling is one of being relatively “bulletproof.” Folks tend to get reckless – careless and start taking their good fortune for granted
3. Contraction/Shrinkage (Maturity) – Uh-Oh . . . Things start not working so well. the risk taking begins back-firing. Demand begins decreasing because during the times of prosperity many of the consumers were “borrowed from the future” by the gimmicks and shenanigans of those folks attempting to prolong Prosperity . . . The “Adults” in the crowd see the writing on the wall that demand is shrinking and begin more conservative business practices – Downsizing.
4. Recession (Death) – The gig is up . . . The bigger they are, the harder they fall. Everything plunges – Values – Jobs vanish – Building ceases – Banks fail – Businesses close . . . and everyone does everything they can do to keep themselves above water. The general consensus is that we’ve gotta do whatever it takes to “recover.”

This is where we are now.

Below are some “One-liners” that have surfaced in our Masterminds:

• Our Government has intervened with the natural cycle through a series of “Bailouts” in an attempt to “Buy our way out of recession” . . . What this has effectively done is: “Soften the impact of the recession” and “Delay the inevitable”
• Akin to taking aspirin for Strep Throat – Relieves symptoms but doesn’t cure
• What must happen in order to get to “Expansion” is inflation.
• Keeping interest rates at “all time lows” and continuing to throw money at it has created “The WALL” in the diagram – blocking the natural progression of the economy. This is EXACTLY where we are NOW
• Increase in Interest rates would motivate “fence-sitting Buyers” to take action
• Increase in interest rates would likely flow more money . . . Banks would loosen up and be more willing and enthusiastic about lending money
• Many of the people who did shortsales and foreclosures in the past 4 years and have been renting houses will be eligible to buy a house soon . . . as they migrate from their rentals, many of those houses will be listed for sale . . . and those people will be buying houses – Inventory will shrink and as supply decreases while demand increases, values will increase (Inflation)
• This decrease in supply and increase in money flow will create space for more CONSTRUCTION . . . (Builders have already started building again in Middle TN) . . . Thereby creating more JOBS.

The bottom line seems to be that no matter how much intervention the government does to save the people from the pain of recession and the insult of inflation, that is the inevitable and unavoidable next phase . . . It’s going to happen.

the only remaining crystal ball question is:

WHEN?

Our crystal balls are telling us:

Soon . . . 

We think rates will soon start rising . . .

If we’re right . . . We’re expecting to see more Buyers moving about and buying in the Fall effectively shrinking the inventory and triggering value inflation . . . More houses flow into the market in the 1st quarter of 2012 and we’ll see as close to a “Balanced Market” as we’ve seen in years in the Spring of 2012.

Next week, this analysis could ALL change 🙂

But that’s the fun of Masterminding every week 🙂

Hope you’re having a great weekend . . . and PLEASE . . . If you are baffled by what you hear on the media and REALLY want to know how all of this is affecting you personally WRT to Buying or selling a house . . .

TURN OFF YOUR TV AND CONTACT YOUR LOCAL REALTOR!

Just sayin’

Best,

b

🙂