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Thursday, August 26, 2010

Simplified Answer To All Economic Woes

It's Jobs Stupid.

Hey folks,

I know I was told I shouldn't say anything, but, nice try. You know who you are, and you know what I'm talking about. {Smile} Nice try. But here we are. Happy Thursday to you folks.

Now, as I said before, some of you heard me on the Tom Sullivan Radio Show on Friday talking about the Housing quote - unquote "Recovery." Tom asked what I though could be done to speed up the Housing "Recovery." Some of you did not like my answer. "Too simplistic." Well, I have news for you. It really IS just this simple. So I wanted to elaborate a bit more on this topic.

Oh, I could get on here and talk about different Economic Formulas. I could talk about inserting more Capital into the Housing Industry, and speak in Financial lingo. I could talk about statistics and show you how this and that SHOULD work in the Industry via looking at history. But this will not solve ANYTHING. It may make me "sound smart." You may be left with the feeling that this is just too complicated to understand therefore I must know what I'm talking about. But the TRUTH is really not that difficult.

Why are people not buying homes? Well, why are they NOT buying Cars. Why are they not buying a big screen TV from the local Retailer? A new Reuters/Ipsos poll showed on Tuesday 72 percent of people said they were very worried about Joblessness and 67 percent were very concerned about Government spending. With the "Official" Unemployment rate of 9.5 percent, REAL numbers in double digits, and the huge Budget Deficit, people are just not going to go out an make investments in, well, ANYTHING.

Look, the formula is really simple. No Job, or fear of losing one, no spending. No spending, no new Jobs, no new Businesses. If you do not go to Merchant A and buy item B. Merchant A makes no money. They do not hire more people. In most cases, they CUT people. I'm not going to go out and buy that Big Screen TV, if I do not know if I will be able to pay my Electric Bill next month. I'm not going to go out and buy a new Car tomorrow if I am collecting Unemployment, or am fearful I may soon be. I, sure enough, am not going to invest in a long term Mortgage.

Chances are, raise your hands, you know someone now that is unemployed. They are collecting $500 bucks from the Government in unemployment benefits. That leaves little money, even with a "Housing Incentive" tax break, or $8,000 dollars check. That eight grand is not going to cover the long term Thousand plus monthly bill.

I told this story on the show. I met this guy at a Mini-Mart. We were both getting a Coffee. He just bought a home in this new Neighborhood that was built, well, started to be built, about Four years ago. There is him, and a Neighbor a street or two over. Oh there is houses there. About eight or so. Some are not even completed. He paid 1.4 Million dollars. Now he has done pretty good for himself. He can afford it. So he bought it. But now? The house right across the street from his, a "cookie cutter high end home," that looks just like his, now on the market for $400 Grand. Same configuration. Same size. Everything. $400 Grand. His Neighbor? He said his Neighbors are on their way out. They can afford it as well, but they have already lost a Million Dollars, why continue to pay. They can afford to go somewhere else, and pay cash for a smaller home. So they are thinking about it.

Credit? Who cares? Is your Credit Score 700 or higher? GREAT! Where are you going to get a loan? WHY are you going to get a loan? No one is lending. It makes no logical sense whatsoever to go out an make an investment, when you do not know what tomorrow brings.

I know this guy. He got a job where he is, because of the Benefits, and Job Security. It was pretty much a standard belief that once you are vested in this Job, you are there for life. Well, 5 years later, half his department was cut. His Supervisor that has been there something like 15 years got demoted. There are now like two people left in front of him, before he goes in and gets a pink slip. Do you REALLY think that he is all that concerned about investing in a bigger home? A new Car? He has a family, and his Wife has a child on the way. He WAS looking into getting a larger home. He has a modest two bedroom now. Nope. He is going to work with what he has got. His car is pretty beat up. Is he worried about going out and investing in a NEW one? Nope. As long as it will go from point A to B, he will keep it.

They use to say, "It's the Economy Stupid." Well, it's Jobs Stupid. Without Jobs, and with this growing fear about losing them, we will NEVER have a recovery in Housing, the Auto Industry, or ANY Economic Recovery at all. It ALL has to start with JOBS.
Peter

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