Second Half Slowdown: Here's What to Expect

Keep this in mind when sifting through the end-of-the-world headlines: This, too, will pass.

Passing through the second half of 2010, however, may feel like a firm kick to the face.  

Don't act like you didn't see this coming. By and large, the now-evident second-half slowdown is not a factor of European fallout or the Gulf oil spill (although neither helps). It's the retrenchment in stimulus spending and housing credits, both of which end in very predictable, well-telegraphed, and even written-into-law ways. This slowdown shouldn't surprise anyone.

Could have seen it coming
Take the impact of stimulus spending, courtesy of the American Recovery and Reinvestment Act (ARRA, aka the $787 billion stimulus package). The effect this program has on GDP peaked in Q2 2010, and will fade over the next few years.

The slowdown isn't insignificant, either. The Congressional Budget Office's most recent estimates of ARRA's quarterly impact show a second-half GDP drag of somewhere between 0.5%-1% compared with the first half. That might not sound apocalyptic, but Q1 GDP growth registered just 2.7%. That makes a 1% drag nothing to sneeze at. It's also worth noting that ARRA's effect on 2011 GDP should be roughly half that of 2010, but we'll cross that bridge when we get there.

Last week, Larry Summers, President Obama's lead economic advisor, said, "A year ago the question was about a free fall, it was about depression. Today the questions are about the pace of recovery. That's a much better kind of question to hear." 

He's right -- today is unquestionably less awful by comparison. But questioning the pace of the recovery shouldn't be pooh-poohed. Consider that the economy needs to grow roughly 2% per year just to keep unemployment from rising. If a recovery is measured by job creation -- and it should be -- then the second half will feel recessionary for millions of Americans, regardless of what the GDP numbers say.

Housing's last hurrah
Housing will be the other major drag on growth. Since the homebuyers' credit expired at the end of April, the housing market has been perfectly derelict, with new home sales collapsing to the lowest levels ever recorded.

This, too, should surprise no one. When you pay people to buy homes, as the housing credit did, you pilfer future demand. That's obvious. The question is how much demand the credit's existence stole.

Alas, that's tough to quantify, and I won't insult you with a guess (although many others will). This credit has been around in one form or another since mid-2008, so it's been a while since we've had a normal market to use as a comparison. Just eyeballing the spike in home sales before the credit expired in April shows that its ability to frontload demand was quite potent. Ironically, the more successful the credit was during its existence, the more violent the hangover will be in its absence. We're now experiencing that hangover, and the cast of Animal House would be impressed with its severity.   

An offshoot risk here is that the credit's short-term success gave homebuilders a false sense of optimism, leading to a pickup in construction. As wretched as most housing headlines have been lately, residential investment was actually one of the largest contributors to GDP growth late last year, and housing starts experienced a burst of growth early this year that devoured expectations.

Why is that dangerous? Given the excess overhang of unsold homes -- estimated at more than 7 million units -- any itch to built seems positively crazy, and the chickens may soon come home to roost for megabuilders such as KB Homes (NYSE: KBH  ) , Lennar (NYSE: LEN  ) , and DR Horton (NYSE: DHI  ) . Just listen to DR Horton's February conference call, where CEO Donald Tomnitz warns, "We're focusing on reducing our inventory post March to comply with the expiration of the tax credit." That's appropriate medicine for the housing market, but it'll be a sledgehammer on second-half production and construction.

Morning in America?
Amid it all, there's room for optimism. You just have to look hard and be creative. Much of what will be wrung out during the second half are artificially supported excesses that encumber a sustainable recovery. For housing in particular, you'll never see a real recovery until prices fall to appropriate levels, which they've struggled to do under stimulus package after stimulus package. The headlines you should cheer for are the ones that say, "Housing Starts Grind to a Halt," and "Prices Fall off a Cliff." That's when recovery can begin -- and those are the headlines that likely await the second half.  

Scary headlines are also best friends with opportunity. The Dow Jones has fallen for eight of the last nine trading sessions. Is this justified? Maybe. People are terrified. Dreams are shattered. But it's presented some nice entry points. A few possibilities I like are ExxonMobil (NYSE: XOM  ) , Philip Morris International (NYSE: PM  ) , and Patriot Coal (NYSE: PCX  ) , all three of which have been brutalized in recent months and trade for compelling, if not mouthwatering, valuations.

What should you expect out of the second half? Lots of bad news, probably. It was bound to happen. But it's that same bad news that plants the seeds of a recovery -- a real, true recovery this time. In that sense, now's the time to be optimistic.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel owns shares of Philip Morris International. Philip Morris International is a Motley Fool Global Gains recommendation. The Fool has a disclosure policy.


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  • Report this Comment On July 02, 2010, at 5:08 PM, daliya wrote:

    Builders need to build non toxic buildings of concrete domes instead of plywood, particle board and plastic with recyded hazadius waste carpets .

    Build better and more people might buy them.

    If the homes did not get burnt in a fire or destroyed in an earthquake and if mold was out of the picture in a flood more people might want to invest in them. Tell them to build better . RIght now plastic houses are not worth investing in or living in. daliya@nontoxic.com

  • Report this Comment On July 02, 2010, at 5:41 PM, Scoot411 wrote:

    My take is the DOW is going back down around 6600 and it'll start coming after the mid term elections. The charts are supporting this as well with a downward trend. With this rogue Congress and runaway spending is just delaying the inevitable.

    You want growth in this nation? Start putting a tariff on the toxic crap coming from China and use them funds towards the deficit! Extend the Bush tax cuts another year and stop the spending in Washington. Also, repeal the Healthcare bill!

  • Report this Comment On July 02, 2010, at 7:17 PM, easyavenue wrote:

    "you'll never see a real recovery until..."

    My first comment has too do with writing style. By using the second person (you) as in the example above, I believe Mr. Housel sometimes comes off as lecturing. Even scolding. I don't like feeling lectured to or scolded for reading an otherwise interesting article. Just a feeling I get from his writing style.

    As to content, I agree with you 100% and wish the politicians would more or less have stayed out of it. I think if they had we'd have gotten to the real bottom faster and would be already on the way to a real recovery. Not a second dip in the low end of the greed gene pool.

    And I think the bailout of AIG and the others was against the natural order of economic principals, they should have been allowed to fail. Did you hear the Morgan Stanley CEO saying he feels righteous about getting 100 cents on the dollar for the asset (failed payment to MS from AIG) worth about 48 cents at the time? He feels no remorse for us taxpayers paying that bill! And who are the Fed Gov fools who allowed that payment to go through? It's their JOB to make sure stuff like that doesn't happen. They should be fired! Doesn't anyone believe in taking responsibility anymore?

    Finally (let him go, he's on a roll), derivitives and such secondary or lower tier instruments MUST be regulated. By someone effective. Most of them should be banned outright because they don't create any real, new asset. They therefore create false wealth, only paper wealth. Capitalism without morality is what Ghandi called one of the eight great blunders of the modern world. I say politicians without the cajones to do the right thing, regardless of political fallout, is another.

    Whew! Talk about lecturing! Sorry about that. No offense intended. Except to politicians.

  • Report this Comment On July 02, 2010, at 9:18 PM, xetn wrote:

    Stimulus spending does not create anything, it just transfers wealth (redistribution). What creates real economic growth is saving and investment (capital formation). Jobs are a result of production not a cause of production. Consumption does not create economic growth, it depends on production. You cannot consume what has not been created (produced).

    What is really needed for the economy to correct is to drastically cut spending (every dollar of government spending takes away from the private sector) and drastically cut taxes. We also need to drastically eliminate government regulations, such as the minimum wage which destroys jobs by pricing workers out (especially harmful for young, inexperienced and uneducated). The fed needs to stop inflating the money supply, which leads to price inflation.

    In short, government does not create anything of value nor does it create real economic growth.

    The reason housing continues to slump is because the prices are still too high. When prices are allowed to drop enough, sales will pick up. But adding new housing while we still have a huge glut of unsold (and foreclosed) houses is just plain stupid.

  • Report this Comment On July 02, 2010, at 9:35 PM, TMFHousel wrote:

    "By using the second person (you) as in the example above, I believe Mr. Housel sometimes comes off as lecturing. Even scolding."

    A fair point, although that certainly was not the intention. I'll keep it in mind.

    -- Morgan

  • Report this Comment On July 02, 2010, at 11:27 PM, ChuckWoolery wrote:

    @ Easyavenue -

    Oh man that was a wonderful comment to read! Time and time again, why are politicians trusted to do the right thing at all? It's hard to bite the hand that feeds you.

    But seriously, I missed out the opportunity in 2008, hopefully I can find XON at a nice price and value in the coming weeks.

  • Report this Comment On July 02, 2010, at 11:43 PM, needosh wrote:

    USA and Europe have been living high off the hog for decades..... finally sending our manufacturing bases far and wide, car manufacturing was replaced with service industries, marinas and telephone sanitizing companies...I feel there will be a leveling of incomes, pleasant for 'third world countries' where the occupants start to own their first car, have a chance at a mortgage. Unpleasant for first worlders who have to sell off a few of their 'spare' cars and wish they had never read the word 'mortgage'! Does that make sense? Or have I got ir all wrong?

    Good luck to all.....

  • Report this Comment On July 03, 2010, at 2:29 AM, AirForceFool wrote:

    "By using the second person (you) as in the example above, I believe Mr. Housel sometimes comes off as lecturing. Even scolding."

    I beg to differ... I simply see it as a nudge... an attention getter that makes me focus more on something that could affect me. :P

    Chris

  • Report this Comment On July 03, 2010, at 9:04 AM, BMFPitt wrote:

    Who says a depression is off the table? If anything, it seems more likely now than it did in 2008, due to all the damage done by Congress since then.

  • Report this Comment On July 03, 2010, at 12:01 PM, Celtics17 wrote:

    Vote the Democrats out in November 2010. In 3.5 years of being in power, they have been the wrecking ball to America's economy, safety, sovereignty, competitiveness, and prosperity. Time to throw the bums out, end the destructive ObaMarx-Soros-Clinton agenda, elect some patriots to office, and restore American excellence.

    Happy 4th everyone!

    God Bless America.

  • Report this Comment On July 03, 2010, at 12:57 PM, adventure818 wrote:

    Throw the republicans out too. And throw out everything but the original constitution, including income tax and subsidies. Let the people who actually produce something keep their wages. After all, these are the people who have a demonstrated track record of producing something of value.

  • Report this Comment On July 03, 2010, at 2:37 PM, KZMike wrote:

    Hurray for adventures818. . . let's see what he REALLY means. . .

    The original constitution allowed slavery. . . hmm slaves producing wealth, but seems their 'wages' could not be spent on the real wealth/goods that xetn needs for his solution to boost the economy. I also wonder if the lack of a the vote for women has any significance for his position.

    We can take away the Bill of Rights too, and remove the 'problems' that poses for him and his [her?] way of dealing problems. This is all very indicative of the Tea Party 'group' and all those who really think simplistic in an ever growing more complicated environment. Thinking outside of their little box seems to be the problem for the rest of us for coming up with the 'out of the box' solutions that are needed.

  • Report this Comment On July 03, 2010, at 3:01 PM, KZMike wrote:

    Had 'we the people' taken the advice of xetn, Celtics17, or adventurs818, we'd likely still be stuck trying do dig ourselves out of the 1929 depression or one of depressions of the late 1800's. If they could do a tiny bit of research on how FDR finally figured out how got us out of the '29 rut and out foxed the GOP into spending some Fed $$$ we'd likely not hear such simple solutions.

    Truly the Bush-Obama bail outs have had a TON misguided dollars that have ended up in 'pockets' that is just wrong! Those dollars are not doing anything to put is back to recovery. The Party of NO and the Party of Spend MORE, really need to find the middle ground.

    The notion that we can fix everything by going back in time to the 'original constitution', or to move us out of our difficulties by basically doing 'nothing' as many suggest is totally absurd. Where/What are the family values of those who suggest this? Do they know/understand what they suggest?

    It seems the collective memory of what really happens to individuals/families from past depressions of the 1930's and the early and late period of the 1800's, has been lost. American's seem to not listen to lessons of history, whether it be financial, political or other wise.

  • Report this Comment On July 03, 2010, at 5:15 PM, Zaneyjaney wrote:

    Here, here, KZMike!

  • Report this Comment On July 03, 2010, at 10:21 PM, plange01 wrote:

    second half of 2010 will see the country collapse into a depression as unemployment and forclosures are out of control.obama will be removed from office and replaced with someone more capable of running the country through these desperate times.right now the country has never been in greater peril of failing and time is nearly run out to make changes....

  • Report this Comment On July 03, 2010, at 11:29 PM, weihou258 wrote:

    "The Dow Jones has fallen for eight of the last nine trading sessions”. Is time to buy ? For traders, maybe yes, it will rebound. For investors, I think No. Why? I am thinking the globe money flow called "hot Money".

    Shanghai composite index dropped more than 70% from Oct 2007 to Nov 2008. It took 13 months. DOW dropped more than 50% from Oct 2007 to Mar 2009. It took 18 months.

    DOW bottomed after Shanghai by 5 months. I think the hot money managers made enough money in Shanghai, then they moved to US in 2009.

    Shanghai was peaked in Aug 2009. The bull market lasted about 10 months. If the high of May 2010 is the top of DOW of current run, the US bull market lasted around 13 Months. As you can see the DOW is trailing Shanghai market by about half year and last longer. (I am not saying China is leading the world economic up and down, someone may not be happy. I just try to explain where the hot money moves).

    So, I think the DOW will go down from May and will reach the bottom after the Shanghai reaches its bottom 4 to 6 months later and after the hot money managers made enough money in Shanghai again.

    Do not forget the Chiness Yuan may increase its value against US dollor this time.

    When will Shanghai market bottom? It is 2350 now. Some say 2100, some say 1800, who knows. I only need to know when it bottoms and rebounds about 60%, it will be the good for me to buy US stocks.

    Thanks

  • Report this Comment On July 04, 2010, at 12:19 AM, weihou258 wrote:

    Correction : I think after around 5 months of Shanghai market bottoms again , it will be the good time to buy US stocks.

  • Report this Comment On July 05, 2010, at 8:12 AM, Danl48 wrote:

    Most of you financial pundits are nothing more than the losers of the last election cycle praying for the country to go down the tubes because your guy didn't win and maybe if the country fell into depression, then you can say that you were right and the majority of the country was wrong. What absolute losers you really are. The stimulus package kept the worst results of the Republican mess left over from the Bush crowd to materialize. Now, you claim the way out of the financial mess we are in due to all you clowns calling for 'free markets' to be left alone and give the keys back to the slime that put us in this predicament in the first place. You people need to grow up and get your priorities straight or get lost!

  • Report this Comment On July 05, 2010, at 10:07 PM, Varchild2008 wrote:

    Right.... Blame the "Lack of Governmental Spending" as the reason for the 2nd half slowdown and not the "Disgustingly high taxes that are getting higher and the Oil Moratorium and other Regulations getting worse" which are cumulatively the actual reasons for the 2nd half slowdown.

    The slowdown has absolutely nothing to do with lack of Governmental spending when the economy wasn't improving WITH the governmental spending.

    All you did with Housing Credits and Car Credits and Home Appliance Credits is provide shoppers that would have bought the stuff to buy them right away instead of further down the road.

    That's not growth and it never was growth.. a Stock market trading higher doesn't mean anything.... It just means people were all clueless about the innate failure of Keynesian economics or they simply did not care that it would not work.

  • Report this Comment On July 05, 2010, at 10:08 PM, Varchild2008 wrote:

    1 more thing....

    Green Shoots are Gone and the only answer we get on Motley Fool is "We need our precious Federal Garbage Hog Trough to spend more?"

  • Report this Comment On July 05, 2010, at 10:12 PM, Varchild2008 wrote:

    "Last week, Larry Summers, President Obama's lead economic advisor, said, "A year ago the question was about a free fall, it was about depression. Today the questions are about the pace of recovery. That's a much better kind of question to hear."

    He's right -- today is unquestionably less awful by comparison. "

    YOu have GOT TO BE KIDDING ME!!!!!!!! OMG!!!

    June 2009 U3 9.5% unemployment

    June 2009 U6 16.5% Unemployment/Underemployment

    June 2010 U3 9.5% U6 16.5%

    Riiiigggghhhhhtttttttt The Economy is better? HOW IN THE HECK IS THIS ECONOMY ANY BETTER ?????????

  • Report this Comment On July 05, 2010, at 10:31 PM, klabuskes1 wrote:

    @celtics 17,

    Blame the economic collapse on the Obama administration, even though it started several months before he was even elected. Posts like that show that some people are so willing to ignore the facts if they get in the way of the stories they tell themselves.

  • Report this Comment On July 05, 2010, at 10:36 PM, TMFHousel wrote:

    dman48,

    "Most of you financial pundits are nothing more than the losers of the last election cycle praying for the country to go down the tubes because your guy didn't win and maybe if the country fell into depression, then you can say that you were right and the majority of the country was wrong. What absolute losers you really are."

    Wow. What's ironic is that you're fed up with how politically polarized this country has become, yet you wrote that. I actually voted for Obama, and think he's done a fairly good job all things considered, but that really shouldn't matter. Policies should be analyzed by their usefulness, not political affiliation. On that point, I criticized Bush's stimulus policies as well. Both were poorly executed.

    "The stimulus package kept the worst results of the Republican mess left over from the Bush crowd to materialize. Now, you claim the way out of the financial mess we are in due to all you clowns calling for 'free markets' to be left alone and give the keys back to the slime that put us in this predicament in the first place."

    I think the ARRA was mostly necessary, but poorly targeted. The housing stimulus measures, on the other hand, have been an utter joke. If you can argue otherwise without resorting to a temper tantrum, have at it.

    varchild2008,

    "Right.... Blame the "Lack of Governmental Spending" as the reason for the 2nd half slowdown and not the "Disgustingly high taxes that are getting higher"

    You, sir, have overdosed on Glenn Beck. Check out this table:

    http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...

    It's a bit a stretch to call current taxes "disgustingly high." "Near the historical bottom, even with their impending rise" is more like it.

    Thanks for the comments, all.

    Morgan

  • Report this Comment On July 06, 2010, at 9:19 AM, Formula51 wrote:

    klabuskes1. I am with you, Obama is not to blame for the economic collapse. The blame falls on Carter first and foremost (Community Reinvestment Act and end of nuclear development to name a few) and then Clinton (continued racial enforcement of CRA and NINJA loans to name a few). Then Bush who did nothing to try and stop it and Obama who tacked a couple trillin dollar defecit on top of the problem like a complete moron. We need change alright, we just don't seem to realize what kind of change.

  • Report this Comment On July 06, 2010, at 10:39 AM, crazy4swayze wrote:

    "You, sir, have overdosed on Glenn Beck."

    blahahahaha! as has anyone who has ever heard or seen a minute of glenn beck. the only time i want to see that clown is when they run clips of him on the colbert report.

  • Report this Comment On July 06, 2010, at 10:48 AM, Bondmaster wrote:

    Global Hunter Securities reiterated Buy rating and $16 price target on Lihua International, Inc. (NYSE:LIWA).

  • Report this Comment On July 06, 2010, at 1:34 PM, LegalizeMe wrote:

    Let's have a history less shall we? The United States sank into a Depression in the early 20's nobody talks about. Why? Because the government cut taxes AND spending and we entered the roaring 20's.

    http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc... (see 1922-1929). We had a very lengthy depression in 1929 into the 30's. This Depression was exacerbated by tax rates going back up.

    Here you have complete evidence that cutting taxes and spending always works. The current administration has saddled us with the biggest increase in debt in decades (health care) during a recession/depression! The admin is also wanting to raise taxes on everyone, not just the rich. The talk of a VAT tax, carbon tax, and others have made investors, and citizens, nervous. This will not end well.

  • Report this Comment On July 06, 2010, at 1:42 PM, TMFHousel wrote:

    LegalizeMe,

    Correlation isn't the end-all of causation. You're assuming that tax and fiscal policy are the only factors in economic output. Monetary policy, regulatory policy, the madness of men, wars, dust bowls ... those all matter too, you know.

    I don't inherently disagree with you, but there's more to the story than taxes. Taxes soared in the early '90s, and the economy subsequently experienced the largest boom in history.

    "The current administration has saddled us with the biggest increase in debt in decades (health care) during a recession/depression!"

    I think a more proper criticism lays on the previous administration, which cut taxes and raised spending during a fairly strong economic boom. *That* was irresponsible.

  • Report this Comment On July 06, 2010, at 2:42 PM, plange01 wrote:

    the second half of 2010 will see the depression grow worse unemployment and forclosures rise and obama removed from office...

  • Report this Comment On July 06, 2010, at 3:38 PM, weihou258 wrote:

    Out source hardware work to China, out source software work to India.

    Hardware imported to US will be taxed. But the software is free. All software companies and big companies with IT departments are out sourcing development work. Thousands of thousands high incoming jobs are gone.

    What does Americans do? –Consuming and consuming with huge debt. 70% of GDP comes from consuming, how to maintain it? – Printing. Printing was invented by Chinese. Both are printing, but seems US has the edge in new technology to print more. China’s GDP is measured by housing price. What will used to measure US’s GDP? – Debt or printing speed.

    I do not think either part can solve this easily. One thing and the only one I support Obama is renewable energy.

  • Report this Comment On July 06, 2010, at 4:36 PM, BonnieABaker wrote:

    What interesting comments and absolutely no solutions. I am an Obama supporter so I shall start there. Who else would you have trying to deal with everything including the economy? I would refinance any owner occupied home at current appraisal and payoff the balance due. I would have Fannie Mae and Freddie Mac doing the refinance. I can hear you all screaming. This is an attempt to rid the banks of toxic assets and stabilize the housing market. It is time to sacrifice for the good of the country. Quit whining.

  • Report this Comment On July 06, 2010, at 4:43 PM, TMFHousel wrote:

    bonnieABaker:

    "I would refinance any owner occupied home at current appraisal and payoff the balance due. I would have Fannie Mae and Freddie Mac doing the refinance. I can hear you all screaming."

    If the Treasury had $12 trillion (size of mortgage market) sitting around, I'm sure this would be a viable option. Until then ...

  • Report this Comment On July 06, 2010, at 4:56 PM, weihou258 wrote:

    bonnieABaker,

    your solution is printing too. Print dollors till we have 1:1 ratio with Yuan and Rupee, the jobs will come back automatically.

  • Report this Comment On July 07, 2010, at 9:12 AM, SAMSCREEK wrote:

    I agree with Plange01.

    This country needs help and needs to RETURN

    to the old days when people worked for a living

    and welfare was not a way of life, you wern't given a home loan just because of the color of your skin,

    knowing you couldn't pay the payments, our military men and women ane dying on a foreign

    soil to protect us, but our border is so wide open,

    the terrorist have an easy entry point into our

    country. I could go on and on but I think everyone

    knows my meaning.

    As far a dman48 and TMFHousel go, once a

    democrat , always a democrat. I guess in 2012

    when Obama is up for reelection, you will still be blaming Bush.

    Please don't get me wrong. I would rather live in the good ole USA than anywhere else on earth.

    It's just we have gotten away from the values that made this country great to begin with.

  • Report this Comment On July 09, 2010, at 11:18 AM, markofzorro wrote:

    Thanks for the reassuring column. I feel more secure knowing we all agree the law of gravity is back again. It is no fun investing in a market that seems to be running on rumors and manipulation.

    Alas, simple-minded tea heads and obstructionists congressional republicans and right-wing democrats guaranteed a long recession/depression by obstructing the stimulus needed to create jobs and put the economy back on its feet again. They only saw the need to bail out fat cat bankers, but stopped short of creating jobs. Guess we know who their real constituency is.

    People who have jobs pay taxes and this will pay the debt and allow us to rebuild our shattered education system so we can compete in the global economy in the future. We could easily create jobs by subsidizing those who create them best: small to mid-sized business (< $1b cap).

    If we continue, as planned, to stiff the states, which cannot carry deficits in most cases, then hundreds of thousands of teachers, policemen, etc will be laid off. But we'll keep paying for prisons, which already cost more than education.

    All this stupidity creates investment opportunities for those of us who have stable sources of income.

    But I pity those just entering the workforces and the families who will be unnecessarily foreclosed. Many of them will have to go on welfare (i.e., the taxpayers will pick up the tab anyway, we will have just destroyed their families and dumped them from the middle class. And the poorly-educated future generations who will have to learn Chinese in order to go to the best universities in the world or get jobs.

    And they will inherit the world's largest prison system, a corrupt political and educational system, a broken and expensive health care system that continues to subsidize insurance companies, and a giant deficit caused, in large part, because the formerly middle class people can no longer pay taxes.

    Hekuva job, congress and corporate masters of the universe.

  • Report this Comment On July 09, 2010, at 11:31 AM, FrankTrades wrote:

    How do you slow down something that is moving in reverse?

  • Report this Comment On July 09, 2010, at 11:32 AM, Keal7 wrote:

    "you wern't given a home loan just because of the color of your skin,"

    The misinformation on Fox easy to swallow. Our economic crash was due to subprime mortgages bought by blacks. Makes sense until you realize that is about 11% of the country and only less than 10% of that 11% probably bought homes. And that had nothing to do with mostly white speculators all over Florida and Nevada on various TV shows flipping houses or realize that AIG, Bear were not primarily mortgage companies bought leveraged their own junk unregulated 40 folds nor that credit default swaps have a racial component. It's easy to all see your problems in one racial group if you are inclined thus but it will make you avoid the truth or the remedies.

  • Report this Comment On July 09, 2010, at 12:10 PM, KBOKSOFT wrote:

    I'm confused (but not screaming) by bonnieABaker's statement:

    "I would refinance any owner occupied home at current appraisal and payoff the balance due. I would have Fannie Mae and Freddie Mac doing the refinance. I can hear you all screaming."

    So if I have a $400k mortgage on a (current market value) $300k house, the government gives the mortgage lender $100k and I now have a $300k loan? (which I probably still can't make the payments on?)

    If I bought the house for $400k cash, does the government write me a $100k check? Why should my mortgage lender get the money if I can't?

    If I buy 4000 shares of XYZ corp at $100 and a few years later it's at $75, does the govt. give me $100k for my troubles? Why is a house investment different from any other uninsured investment?

    If I buy a $1 lottery ticket and don't win, should I get my dollar back?

  • Report this Comment On July 09, 2010, at 1:28 PM, Auburn102 wrote:

    All of you people are greedy -- you keep saying that you are americans and love america but when it is time to pay taxes everyone complains yet they want nice roads and parks, etc -- where would the money come from to get these nice things? What about when disaster strikes and the government has to give federal funds? where does the money come from? If you love america, then stop complaining and pay your taxes and when you say God bless America -- count your blessings also that you live in such a great country and we should all be contributing to build american and not tear it down. It seems as if some people are praying that the present Govt fail. We must unite as americans and pray that the country succeed and it would only do that if we all play our part. The problem comes from having to fight a war and cut taxes -- no wonder we are in such a mess and now people are crying again for a tax cut -- then how would the debt be reduced? I must admit that the Govt needs to cut back on its spending also just as some americans are doing now. I love america and is praying everyday that the Govt succeed so that we can continue to enjoy a wonderful life in this land of opportunity. Just stop complaining and count your blessings.

  • Report this Comment On July 09, 2010, at 1:40 PM, bretco wrote:

    Interesting how some Motley readers are so well informed and intelligent from both sides of the political spectrum and yet there is still a fair sprinkling of idiots and morons, also from both sides of politics to disrupt the dialogue of reasonable discussion.

    Maybe censorship should have a place at MF.

  • Report this Comment On July 09, 2010, at 1:50 PM, userdick wrote:

    Guys and girls:

    I'd like to offer another perspective. Living in a Democratic society presents its problems. A Democratic Government accomplishes things slowly and inefficiently. The most efficient and responsive government is a dictatorship Good dictators have done a fine job, but the problem is many (if not most dictators) have agendas that are not necessarily in the best interest of the public. So we are stuck with what we've got.

    Every president starting with FDR has tried to legislate a form of universal health care (even Nixon). I give credit to Obama and the Democrats, many of whom will lose their jobs because they voted against what the people wanted, even though it will be good for the country in the final analysis

    Medicare, Medicaid and Social Security all faced the same hurdles. There is no doubt in my mind that the current administration avoided a devasting depression with the steps they took. The problem we're facing right now is what will happen as a result of the negative effect these steps will have on our future.

    It does appear that sacrifices will have to be made. In order to come up with good solutions our legislators have to worry less about getting reelected and more about getting together with each other to work out compromises that appear to be the best for the country as a whole in the future. You guys and I also have to be willing to share in the sacrificing.

    I am comfortably, but modestly, retired and don't pay much taxes, But I would be willing to pay a bit more, if I knew that everyone was sharing in overcoming these problems. Sacrifice is inevitable.

    Gates and Buffett are examples of "rich" people who are willing to contribute to areas of need. Our population in general is well-known as "givers". Unfortunately there are also some greedy people and companies that work only for themselves and against ultimate prosperity for the country as a whole. But that's the downside of a democracy. For some reason that many US citizens cannot understand, there are literally millions of people who would do anything (legally)to be citizens here

    I would like our country to be known for its ability to govern responsibly and to provide a safety net for those who are unable to take care of themselves and their families. I would like more of us to look at these principles as we dicuss the issues that confront our nation.

  • Report this Comment On July 09, 2010, at 1:53 PM, userdick wrote:

    Gusy and Girls:

    I was writing my piece while Auburn's was being posted, so I just saw it. Thanks, Auburn

  • Report this Comment On July 09, 2010, at 1:55 PM, userdick wrote:

    Bretco:

    Where are you coming from? You sound very unhappy.

  • Report this Comment On July 09, 2010, at 2:57 PM, FreeMortal wrote:

    Nice article Morgan

    At this point I'm much less concerned with what politicians "should" do (over which we have little control) and more concerned with anticipating what they WILL do and how it will affect investors like us.

  • Report this Comment On July 09, 2010, at 2:58 PM, HGautophile wrote:

    Hmm. Mr. Housel back in April of this year complained that "Around 1.8 million buyers received the housing credit. Yet you'd be wrong to assume that this means 1.8 million extra sales were stimulated. Many of these buyers would have bought homes anyways, with or without the credit."

    Here, however, he says that "Housing will be the other major drag on growth. Since the homebuyers' credit expired at the end of April, the housing market has been perfectly derelict, with new home sales collapsing to the lowest levels ever recorded."

    I guess I'm not seeing the logic here. If "many of these buyers would have bought homes anyways, with or without the credit," then why is it that *since* the credit expired, we have "new home sales collapsing to the lowest levels ever recorded."

    Is Mr. Hausel implying a cause and effect? That because the credit expired, new home sales collapsed, and yet the credit did not influence home sales at all according to the April article? Or am I reading this statement wrong?

    Thanks, Rob.

  • Report this Comment On July 09, 2010, at 3:02 PM, TMFHousel wrote:

    Hgautophile,

    Many of the buyers would have bought anyway, *but not at the time they did.* Some people would have bought next year, but instead bought this year. The end result is that demand isn't increased; it's just shifted around.

    Thanks,

    Morgan

  • Report this Comment On July 09, 2010, at 3:15 PM, proplumb wrote:

    If it wasn't for greed nobody would have a job.

    Some people don't want or are incapable of starting their own business'. The greedy ones want it all and they have to hire people to make it happen. Gates an Buffet were once very greedy.

    It just happens that they can now share their wealth. Mortality can be very inspiring. We can only hope that the greedy people are running private companies, and that they are not government officials! Ya Right!!

  • Report this Comment On July 09, 2010, at 3:36 PM, Ereshkigal wrote:

    Proplumb,

    I believe that most people to not work or start companies motivated only by greed. The people I have worked with have a passion for a service, product or skill and feel successful if they can make a positive impact on society while being able to make a living.

    I have great concern that many companies have lost sight of their original charters to serve a useful purpose and have become fixated on making money.

  • Report this Comment On July 09, 2010, at 4:53 PM, userdick wrote:

    Proplumb & Erishkigal:

    I wonder if we're missing the definition of "greed."

    To me "greed" means that you are taking some action to benefit yourself at the expense of others.

    Slavery, although accepted at the time, was an act of greed. Forcing young children to work for pennies is greed.

    People who start their own business could have a number of reasons for doing so. The desire to make a lot of money is not an expression of greed. Its the motivation to take an idea and developing it into a useful, moneymaking business. The desire to do or produce something that hasn't been done before is another of many motivators to start a business in addition to greed.

    Today is my first day of reading and posting, but I must say that there certainly have been a number of posts that are quite "chilling."

    I don't know that much about Buffett, But I worked with a couple of people who left to work for Gates. Does somebody know something about Gates that I don't? Clearly you have to have people working for you who are clever and tough business people to grow a large business, but to assume they are all greedy is short-sighted.

  • Report this Comment On July 09, 2010, at 5:37 PM, mtracy9 wrote:

    The Stock Picker Should Ignore Macroeconomic Events -- Warren Buffett: "We have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist." Warren Buffett: "If [the U.S.] Fed Chairman were to whisper to me what his monetary policy was going to be over the next two years, it wouldn't change one thing I do."

    http://shouldersofgiantsinvestor.com

  • Report this Comment On July 09, 2010, at 10:48 PM, mryansmith37 wrote:

    userdick,

    I like your posts.You express my sentiments in most ways.

    I noticed in your first post that you used the phrase in your last paragraph "unable to take care of themselves."

    Well put. I think that one of our major problems is the number of people in the U. S. that are UNWILLING to take care of themselves, and are brought up in the entitlement mode. Until something is done concerning the number of people who are able to work, but are unwilling to do so, I don't see much happening in getting the deficits reduced. Entitlements are killing us.

    Those who are unable to work should be taken care of. Those UNWILLING to work should be either required to work, or be taken off the welfare rolls.

    This is not a new problem. When I first started working (at age 14, in 1951) this was already a problem, and has consistently gotten worse.

  • Report this Comment On July 10, 2010, at 1:21 PM, LemonMeister wrote:

    Housing is down because housing does not respect it's customers.. KB Home just Google "KB Home Sucks". KB will ignore your complaints. The Board of Directors does not care about the quality or the reputation. KB Home only interested in quick profits at your expense and time - with the cheap materials and undocumented workers at this job site. They will undervalue your home just to suit their short term business objective. There is no Lemon Law for your new home in these United States so you’re stuck with it. The housing industry is not regulated. Years later they will still be in your home trying to fix what should have been done correctly in the first place. The Corporate greed still running high in America – it’s called KB Home. BTW Bruce Karatz the former CEO of KB faces up to 60 years in prison when he gets sentenced September 2010. Leslie Moonves is on KB Home's board and runs CBS, wonder why KB Home does not appear on 60 minutes? Ask you salesperson about Bruce Karatz and his stock manipulation. The rats are jumping ship from KB Home, Wendy Shiba General Council and secretary stepping down shortly after Ron Burkle's resignation as Board Member. KB Home does not publish their warranty online? They have a FTC Consent order, it states if you are not 100% satisfied they will buy your home back within one year. How many have they bought back? ZERO!

  • Report this Comment On July 10, 2010, at 5:30 PM, RaptorD2 wrote:

    "The headlines you should cheer for are the ones that say, "Housing Starts Grind to a Halt," and "Prices Fall off a Cliff." That's when recovery can begin..."

    Ahoy! Morgan gets it. Even the stocks ... as the resident pessimist even I am also building positions in MO and XOM among others, adding on dips. And for me that's saying something at this point in the market cycle. The biggest challenges in the market always bring the biggest opportunities. You just have to have a little faith, a little guts, a sense of history and a little bit of lucky timing never hurts.

    "... -- and those are the headlines that likely await the second half."

    There's that timing thing again. But some day this thing will turn around, and some investors will get rich. I'd sure like to be one of them for a change. :)

    My motto is "We can't get paid if we haven't played." With that in mind, I think it's time to ante up.

    Dan

  • Report this Comment On July 10, 2010, at 5:45 PM, pawl442 wrote:

    KZMike, I totally agree. I will/can never understand how so many people want to go back to the buSh/cheNey governance when theirs is what got us into this depression. There was a huge transference of wealth during this period from the middle class to the top 1% in this country. Close to ONE TRILLION DOLLARS!! The oil companies, Health Ins. Co. and Wall Street getting the lions share. None of which created jobs.

    The voters who kept the people in office, who continually lowered the taxes for the rich will NOT admit to their contribution to the financial mess we are in. They will not listen to reason or fact. Trickle down economics is a massive failure yet they still want to keep it. Instead of understanding the facts or facing up to the facts they choose to blame the Government i.e. the Democrats. They refuse to accept the fact that most of the decline in jobs and finance are the direct result of the buSh/cheNey policies that carried over through Obama's first term and they blame it on him. Cause and effect does not seem to register with them. They seem to put party ahead of Country as though it were some sort of sports competition and they are betting on their team to win instead of what's good for the Country. It is childish, spiteful and very dangerous for hundreds of millions people INCLUDING themselves, though they never seem to grasp that fact. They keep carrying water for the enemy of their Life, Liberty and Pursuit of Happiness. Happiness being the one thing they never think of, as important or more important than untold wealth. Something (vast wealth) that 99% will never attain because it is just impossible for everyone to be billionaires. They refuse to accept that taxes need to paid for there to exist the great society that we in the U.S.A enjoy.

    I also agree that the bailout money (that was implemented by BUSH, NOT Obama, as they somehow always forget) should have gone mostly to main street not Wall Street. We will never get out of this depression if manufacturing is not brought back to America. I firmly believe that many of the tariffs that protected businesses here should be reinstated. Peroit was dead on when he said "that big sucking sound we hear, will be our jobs going over seas if NAFTA/CAFTA are implemented".

    To this day, just about NONE of that bailout money has gone to small businesses for either start-up or carry through in the way of keeping them above water.

    The TWO-FACED republicans that are screaming about the deficit had no problem with it tripling under Regan and more than doubling under the buSh's. When Obama was sworn in he was handed an annual debt of 1.3 trillion. The Tea party and the republicans keep blaming this on him. How can they rationalize this? NOW THEY WANT TO CUT SPENDING. AT THE WORST TIME. Like I said TWO-FACED.

  • Report this Comment On July 10, 2010, at 6:20 PM, pawl442 wrote:

    Ereshkigal, YES, YES, YES. All of Wall Street and 99% of the multi nationals that had their origins right here in the good ole USA.

  • Report this Comment On July 10, 2010, at 7:39 PM, pawl442 wrote:

    markofzorro, I agrre with all you have said. You brought up the prisons, a fact that no politicians will touch. But it is SO true. The prison system has slowly changed to a FOR PROFIT business subsidized by the State and Federal Gov. Here in FL prisons get up to $25,000 per year per prisoner. Run by, for profit organizations, that have taken over complete control of the probation rules that literally cause people to be stuck in the system for life. In order to NOT break your probation, you would have to stay in your house 24/7, because of the millions of laws on the books. Outdated laws, that you and I and everyone break every day without knowing it. But will send a probationer back to jail or hit with a hefty fine that goes right to the profits of the "prisoner for profit" system.

    I don't think the average taxpayer realizes how much money is spent on the warehousing of the millions of people in jail or prison. Not counting the law enforcement budgets.

    If we went through our State and federal budgets and cut these subsidized "so called" free enterprise, free capitol budgets we would probably save hundreds of billions of dollars AND make it easier for other businesses to start up. They would not have the disadvantage of trying to compete with Government subsidized competition. That includes foreign owned State subsidized companies also. Every imported product to this country that is subsidized by their government SHOULD HAVE A TARIFF placed on that product equal to the amount of the subsidy. Make the playing field even for our workers and businesses. If that was done Our American companies would blow the competition out of the water.

    This is the power and influence the U.S. multi-national corp. have over our elected officials. These companies won't be happy until US workers are being paid Chinese wages. That is why the repugs hate the unions so much. The Unions FIGHT FOR A DECENT WAGE.

    I could go on and on about the causes of this mess we are in, but MOST OF IT LIES with corrupt politicians and the campaign financing of that corruption. ONLY WE THE PEOPLE CAN CHANGE THAT!!!!!! We need to unite on that front. I'm sure that both sides of this same corrupt coin can agree on at least that.

  • Report this Comment On July 10, 2010, at 8:06 PM, pawl442 wrote:

    SAMSCREEK. WHO should we blame for the buSh policies? The TOOTH FAIRY. You sound like Regan who kept blaming Carter right up until he (Alzheimer and all) left office. Where were you in October of 2008 when the banking system was imploding? Oh yeah, that's right, you were masturbating to pics of Sarah Palin. Face the facts, this mess is not Obama's fault. AND, It is going to take allot more than 16 months to get out of it. Why will you not admit "trickle down" didn't work? Not only didn't it work, it DESTROYED our economy. Why are you taking it so personal? We need to come together to fix this. Going back to what caused it, WON"T FIX IT. Tell me how going back to what we had will change the results. See your problem is that, because the economy was still contracting during Obama's first term you think it was Obama's fault. He spent most of his first term stopping the damage and decline caused by the tooth fairy. Do you think that the day Obama got elected ALL would just magically change? I guess so seeing you believe it was the tooth fairy that caused it.

  • Report this Comment On July 10, 2010, at 8:43 PM, altrue1090 wrote:

    The problem with the economy is that the population is aging. 70% of the economy is due to consumer spending and older people don't need to spend on new houses, big cars, furniture, refrigerators, etc. They are saving for retirement and downsizing. Japan has faced the same problem for twenty years. The solution is to increase legal immigration drastically so that young workers with skills and families can move in, buy houses, pay into social security, and replace the retiring work force. That is the reaL stimulus that the country needs. Like in 1900 all over again.

  • Report this Comment On July 12, 2010, at 9:35 AM, SAMSCREEK wrote:

    WOW, did I yank your chain paw1442...

    What I was doing to pictures of Sarah Palin,

    you must have been doing to pictures of

    Nancy Pelosi........and Reid.

    We have had a democrat controlled congress since 2006. Where were they during this crisis?

    I agree, George Bush will not go down as our greatest president, but I enjoyed some of his tax cuts, and I am not rich by any stretch of the imagination. You also need to remember that Bush inherited an economy that was beginning to erode when he was elected.

    You should try watching the FOX NEWS NETWORK and get a different view of the world other than what the liberal ABC, CBS and NBC

    puts out. They inform you of things that you will never hear from the liberal media.

    Your dear Barack Obama took more PAC money

    from BP than did any other politican in the nation.

    Wonder if that had any influence over his lack of

    responce in the Gulf Oil crisis. He did do his photo ops tho.

    Can you imagine what the Constitution would look like if todays congress had drafted it.

    There would be no freedoms, no gun ownership,

    no freedom to secure your borders, etc,etc.

    Get a life paw1442, and quit taking up all of the comment room on these articles.....

  • Report this Comment On July 13, 2010, at 12:28 AM, thisislabor wrote:

    Why do we keep talking about GDP going up every quarter when per capita income has been falling for the last 7 years. who cares what happens to the GDP?

  • Report this Comment On July 13, 2010, at 6:50 PM, dagrandpoobah wrote:

    I so agree with you Samscreek.

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