A Position on the Economy for 2008

[Flipx99 5,000+ posts]

I get PMs from time to time from various members asking about various financial and economic subjects…”What should I invest in?” or ”How much should I borrow,” etc. But that is not the point of this specific thread. I am making a prediction on what I think the economy will be like in 2008 and more importantly what one should do about it. No cliffs, you don’t want to read and learn, this I suggest you click next post.

I’d like to point out I am no real economist but I play one on a car audio forum. So take my comments as conjecture at best. Just my opinion on what to look for in the upcoming year. I have been planning on making this post for a while, but was lost trying to think of a word or phrase that would correctly unify my thoughts on the matter. The basic theme of this thread and my opinion will be liquidity. Think of liquidity like this…if someone offered something you really want at a severely discounted price, could you pay for it with cash? Cash !?! , yes cash. I have never recommended cash investments before but I am this year.

I’d like to think Mark (Mach5Audio) for inspiring the theme. The 24 hour sale provided a clear example to me about the importance of liquidity. I live a very leveraged lifestyle. If I can borrow cheap I do. Hell, I take cash advances and put them in high yield savings accounts to get a free 1 or 2% interest for a year (Borrow and the 3% fee, invest at 4-5% and keep the difference). But because every nickel I have is tied up somewhere, I could not take advantage of the sale. Could I have unwound some of my positions and purchased?…sure. But I didn’t have enough time. Therefore, my liquidity is essentially zero.

So here’s my advice for the upcoming year…1st pay off debt. The highest interest rate I pay is 5.55% on my truck…So those of you who pay 10% on vehicles or 18% on credit cards or whathaveyou take this more seriously. This is the first time I recommend reducing debt in lieu of investment. The reason for it is because of liquidity. As the average consumer begins to run out of mechanisms to obtain liquidity through borrowing, I believe many investment opportunities will appear. (Yes, I am rooting for a [further] recession.) Because Madison Avenue’s (think the Marketing equivalent of Wall St) influence is so strong, the consumer will continue to try to buy buy buy at all costs. Secondly, alter your financial strategy where you still use your credit cards for the rewards, but pay off the balance monthly. I typically let it ride because I don’t pay interest but again…liquidity is the key.

As far as short term investments, I will be getting out of international at the beginning of the second quarter. I think the dollar will revalue and interest rates will begin to rise. There is too much pressure from OPEC against the falling dollar to let our currency depreciate much more. I will be getting to income stocks. These are basically large cap stocks that pay a nice dividend. Again this is a very conservative approach. And I may readjust the large cap alternative as the recent run-up in the flight to quality has me thinking some of the stocks are overpriced. I am hoping the market calms down a bit. However, S&P futures on volume indicate this will not be the case.

So…here’s the cliffs

1. Keep plenty of cash on hand

2. Pay down debt

3. Keep all long term investments in the market....no matter what

None of this is revolutionary….at all. But it is quite a different path than I typically take. I am hoping to become more optimistic by the end of the 1st quarter.

FWIW, I beat the S&P by 8% this year. I don’t anticipate doing so in 2008, but the plan is to take advantage of people’s misfortune this year for 2009.

Click to read more...

 

[sundownz Pro Seller]

Good info, I pretty much agree with your statements. Although, I'm not sure how much the dollar will recover in the short term... but I do think it'll make some gains.

 

[Flipx99 5,000+ posts]

Good info, I pretty much agree with your statements. Although, I'm not sure how much the dollar will recover in the short term... but I do think it'll make some gains.

Don't get me wrong, I don't forsee parity with the euro or anything like that. But I do see a strong stablization just because of oil prices. When oil hit $100 yesterday, I was like ****...I really didn't know what to do. So, I am thinking of taking an extremely conservative approach and just sitting this one out so to speak. I know the economy has been through this kinda stuff before, but I am not old enough to recognize it, nor what to do. I am not scared or paniced or anything due to sufficient cash savings.

I am thinkinhg we will be at ~ .83/euro by years end. But in order to do that, the consumer will be crushed as far as interest rates are concerned.

 

[skeptikal Premium Member]

Pretty much what i'm doing with my tax return. Trying to get my car paid off within 2 years as opposed to 4. Might stack a little just for a nest egg.

 

[bk12321 10+ year member]

Flip, ive been meanin to ask you something and this thread finally reminded me

ygpm

 

[adio 5,000+ posts]

wow. intelligent threads in 08 ftw

 

[snoopdan 5,000+ posts]

I guess im a lucky one, I have absolutely no debt and have a positive cash savings of over 4k. Of course, I had to sell my house to pay off my medical bills that topped over 500,000 so 2007 was my recovery year. I see people worried about the current economic enviroment but quite honeslty it effects me little.

 

[Flipx99 5,000+ posts]

Pretty much what i'm doing with my tax return. Trying to get my car paid off within 2 years as opposed to 4. Might stack a little just for a nest egg.

Exactly...but don't push yourself to the point where you cannot take advantage of opportunity. For instance, I pay $200 every two weeks on my truck when the bill is $158/per month. On one hand, I will pay it off quite a bit faster, on the other it causes me to lack the liquidity to take advantage of opportunities. All my money is tied up in equity.

Flip, ive been meanin to ask you something and this thread finally reminded me
ygpm

replied.

 

[DBfan187 5,000+ posts]

I get PMs from time to time from various members asking about various financial and economic subjects…”What should I invest in?” or ”How much should I borrow,” etc.

You need to start charging for that.

 

[Flipx99 5,000+ posts]

Yes and No. If I started charging, it wouldn't be any fun to me. It's kinda like installing car audio for many. It's really fun, but if I had to do it everyday, I wouldn't like it as much.

 

[Captain_Ahab 5,000+ posts]

I honestly don't see how SO MANY people are in such great debt in America.

Don't spend so much that you don't have. Its that simple.

I have numerous friends in high school who just HAD TO HAVE that new Z71. Well 2-3 years later they are griping about payments in insurance on it. Having to quite college to get a job in a factory and make payments. Go figure.

Also know lots of adults who are the same way. They have to have the nice house or vehicle to fit in with other people.

Ridiculous.

 

[slim j 10+ year member]

I honestly don't see how SO MANY people in in such great debt in America.
Don't spend so much that you don't have. Its that simple.

I have numerous friends in high school who just HAD TO HAVE that new Z71. Well 2-3 years later they are griping about payments in insurance on it. Having to quite college to get a job in a factory and make payments. Go figure.

Also know lots of adults who are the same way. They have to have the nice house or vehicle to fit in with other people.

Ridiculous.

It keeps the economy moving. We would be in quite a pickle if people only bought what they needed and/or could afford.

 

[528hz 10+ year member]

Excellent post Mr. Flip! I have read many of your posts on where you have commented on financial verbiage and you definitely have educated yourself quite well. I couldn't agree with you more about your #1 suggestion for keeping cash on hand and your #2 about paying down debt.

Although I would also add to the mix TO BUY GOLD if you can. It protects against inflation and that is exactly what will destroy the dollar. Mr. Slim j is on the mark as well. If we ALL decided to save everything and not spend anything our economy would collapse. MONEY is worthless and is ONLY backed by debt. We have to constantly consume and spend to keep the ball rolling. The "Consumption Cycle," what I call it anyway, is something that we got into back in 1933 when the Federal Reserve came in (and do your homework guys, the Federal Reserve is NOT FEDERAL, NOT GOVERNMENT). You can make the pendulum of the economy swing by back and forth by regulating the interest rate, discount rate, and just like the supply and demand model with goods, CASH money is regulated in the same manner: supply and demand by tightening or levying more or less loans.

 

[Flipx99 5,000+ posts]

You should hear Milton Friedman's kind words regarding the federal reserve....//content.invisioncic.com/y282845/emoticons/smile.gif.1ebc41e1811405b213edfc4622c41e27.gif

 

[528hz 10+ year member]

Yeah,, my ECON professor was a huge fan of him. I can't say I know his entire bio or all of his "philosophy", but I am familiar with him and Spikedhumor.com has a great little piece with him speaking for a couple of minutes on the cooperation of all the components of the free market system. Really neat to listen to.

 

[Flipx99 5,000+ posts]

I like his writing. Sometimes in the podcasts he sounds rather senile because of age. He wrote two pretty good books. One is like the PM you sent but focuses on America.

 

[2002XLT 5,000+ posts]

This is actually pretty much what my financial strategy is going to be this year. The last year i was able to find the deals you are talking about. By buying bulk, or waiting for deals (no matter what the product was/is) i was able to make quite a bit back. To me, since i dont have tons of money to throw into long-term investments right now, im making a good chunk of change and just trying to put money into different things. I think next year i will be able to take this even further and im hoping to be able to significantly raise my cash income.

 

[AllStar1500bd 5,000+ posts]

Flip, what are your thoughts on raising of the minimum wage and its effect on inflation?

 

[Flipx99 5,000+ posts]

I am opposed to raising the minimum wage...(I hate inflation, I rather think in terms of purchasing power...which is similar but easier to grasp)

What you look at the function of wages of the middle class, they are negatively affected by increasing the minimum wage. While they make too much to be benefitted from the increases, they are the principle "buyers" of minimum wage earning labor. ie they shop at supermarkets and fast food establishments that employ much of this minimum wage. The middle class also owns many of the mom and pop places that employ these folks. What most people miss is the employer's part in paying income tax. As the employee makes a greater wage due to legislation, the employer also faces a greater tax burden in additon to the increased wages.

So, no, I am not for a minimum wage of any kind, not even the one currently in place.

Also consider this, of those who make the minimum wage, primarily where do they spend their money? At places such as fast food, supermarkets, resturants, etc. Well, those business will have to raise prices to accomdate the increased wages. The purchasing power of those most benefitted from the increase does not increase significantly.

In my honest opinion, the primary purpose for rasing the minimum wage is a tax increase that people for some reason do not take the time to think about.

 

[AllStar1500bd 5,000+ posts]

Perfect response, I couldn't agree more. What's interesting is that Oregon has raised its minimum wage 4-5 times in the past 8 year or so. I tried googling for the exact increments, but couldn't find them.

As my economics teacher would say, inflation is el diablo //content.invisioncic.com/y282845/emoticons/fyi.gif.9f1f679348da7204ce960cfc74bca8e0.gif

//content.invisioncic.com/y282845/emoticons/biggrin.gif.d71a5d36fcbab170f2364c9f2e3946cb.gif