A little over a month ago we asked in a post: “Oil: Has the Economy Fundamentally Changed and If So What Does it Mean to Domainers?”
At that time Oil was at $139 a barrel. On Friday it closed at over $145.
Gold was under $900, Friday it closed at $960.
The euro was $1.55 to the dollar, on Friday it closed at over $1.59.
This week saw Freddy Mae and Freddy Mac lose half of its market value.
Freddy Mac (FNM) which started the week at $18, closed at $10.25 after falling as low as $6.68.
Freddy Mae (FRE) which started the week off at $14 a share closed at $7.30 after being down as low as $3.89
Fannie Mae and Freddie Mac are the largest purchasers and insurers of mortgages in the country. They buy and guarantee mortgages from banks. Fannie and Freddie hold or back more than $5 trillion in mortgages, about half the outstanding mortgage debt in the United States.
If they were to fail, according to Brad Neigel, a senior analyst at Aite Group, a financial services research firm, “It would be the collapse of the entire mortgage industry as we know it.”
On Friday the FDIC took over a bank and big mortgage lender, IndyMac which had over 32 billion in assets on March 31, 2008.
It was also reported this week that he number of foreclosure filings grew by more than 50 percent in June compared with June a year ago.
Nationwide, 252,363 homes received at least one foreclosure related notice in June, up 53 percent from the same month last year, but down 3 percent from May.
One in every 501 U.S. households received a foreclosure filing last month.
Yes one in every 501.
This week also T. Boone Pickens, a man who became very wealthy in the oil business annouced he was going to spend 58 million of his own money to try to get America to change its oil habits.
According to Pickens, (you need to read his plan) America imported 24% of its oil in 1970 and today its 70% and growing. At current prices the US will send 700 billion out the country this year alone for oil, which is 4 times the annual cost of the Iraqi war.
Over the next 10 years, the total cost to the US he projects will be $10 trillion dollars, as he calls it the “greatest transfer of wealth in the history of mankind.”
And Pickens is just talking about the direct cost of oil, not the effect oil prices are having on all segments of the economy.
Food costs are skyrocketing.
The airlines industry is losing their collective asses.
Detroit car makers sales are plummeting.
So we ask again a little over a month since our initial post, has the economy of the US fundamentally changed.
We believe so.
At best we have 5 years of economic misery ahead.
We have a long way to go in the housing market.
Along with the failing house prices and the write off of well over 180 billion dollars so far in mortgage debt, there are still two other problems which will cause the housing market to further deteriorate.
Mortgage interest rates continue to rise. Despite the fed fund rate cuts, mortgage rates are now over 6.3%.
Second, you can’t get a mortgage.
The no money down, interest only mortgages given to people with no income verification has now swung completely to the opposite end where you better have 30% to put down on a house and a credit score over 700.
So we have the perfect storm.
Lenders going out of business.
Government bailouts of lenders
Taxes increasing.
Housing prices falling.
New mortgages hard to get.
Stock market falling.
Dollars falling.
Oil and other commodities rising.
Inflation.
Higher interest rates.
Stagflation
Stagflation is defined as a period of rising inflation accompanied by flat or sluggish economic growth. The last time we had it was the 1970s when we saw rising prices, lowered income, unemployment,high interest rates.
However in this decade stagflation maybe worse because of the deflation cased by falling housing prices and values. As house prices fall, the equity that represents most American families “wealth” is going away.
We were never a nation of savers and most people had its largest portion of its “wealth” in its house equity which they are watching slip away.
How America will deal with this is anyone’s guess.
As prices of real estate continue to decline, mortgages for average American gets harder to obtain, it is lightly that those foreign countries and their citizens, that are receiving all of this oil money from us, come back into the US and use those same funds, to buy US properties and companies, individually or though their sovereign wealth funds, then the true cost of this economic mess will start to show.
So what does this mean to domainers?
Do we live on another planet totally disengaged from the economic problems in this world.
We can be thankful that we are in an industry, maybe the best possible industry, to ride out the recession and make way in what may be a new economy.
However we cannot expect to come out unscathed.
In our own industry we are seeing declining PPC revenues, uncertainly regarding the future of one of the two parking providers we all depend on for our revenue, slowing domain auction markets, the threat of hundreds of new domain extensions and possible increased legal challenges to the domains we own.
So lets be thankful for being in a great industry but also be aware of the world we live in and what is going on around you.
Excellent post, Mike.
There is no question we are undergoing a significant paridgm shift in this country… yet few people see it or want to acknowledge it.
Our culture is built on credit and our collective engine runs on oil – We are running out of both and the damage will continue to be significant and widespread in this country.
Its like watching the Hoover dam slowly fail with cracks and fissures spreading across the concrete.
Look for high ground and brace yourselves…The flood of bad news is just beginning.
Great article.
I think people drive less and stay home more and close to home more. What are the positives of that?
More time on the computer and more time with the family.
Besides all the obvious negatives, I think one more negative is that people will turn to the government for help and that means bigger government.
Time to cash out and move to a small Caribbean island where you can live like a king on very little money?
Just make sure you have a good internet connection and you can live and work anywhere in our business.
Fly back into the US for domain shows and you’re good 🙂
Perhaps its time we all start opening up oil companies and drill oil and be the next billionaire. lol
This is the time to get good bargains you could never get before. End users who suffers from the economy might be willing to sell their domain for a bargain.
Subash
This may happen, however there are not signs of it yet.
Deidra
There have and will continue to be great investment opportunities in alternative energy.
As a country we looked at this back in the 70’s but quickly looked away.
Now with global demand for oil in developing countries, there is no looking away. Its an issue that is going to be with us.
Look at some public solar companies and see how they have done.
Look at First Solar (FSLR) has a 52 week low of $74 a high of $310 and sits at $280 in this crappy stock market.
Many of these alternative energy stocks have already one well.
Read the T. Boone Pickens plan I referred to in my blog.
He is talking about wind power and makes a compelling argument how it can help our dependence on imported oil.
Rob
Your absolutely right.
The government is going to have to bail out lenders, homeowners, guarantee new mortgages, which means higher taxes on those who make money.
Post is coming on that in a couple of days
There is no success without hardship.
MANY People within Nations have to suffer – some people (the very Rich) pick up the cake and the others pick up the left overs (if any).
Damir
This is not by in large true.
I will post on this in the next couple of days but by in large the people who make the most money pay the most in taxes here in the US.
I moved some cash into SLV (silver) and GLD (gold) and energy, nanotech, biotech, and commodities ETF’s – long (long positions).
There is money to be made in a market moving South. I also Dbl shorted oil and mad some money last week. That was a pure hunch – a Vegas play – and I am out on that and not likely to repeat it since it made me queasy…:)
Good money in domains now!!!
Still…money can be made in this market
Kelly
I also have EFT poistions in the euro, gold and bought several commodity funds, that provide principal protection.
There is definitely money to be make in any market
@Rob
Although everyone has this dream:
“small Caribbean island where you can live like a king on very little money”
I wish it were true, but the high oil costs are actually magnified in the Caribbean. For example, a gallon of milk is $7 in the Bahamas.
@Kelly & Michael
Do you manage your own portfolios? Do you trade on technicals and charts- perhaps we can share some ideas.
Michael is right, there is money to be made is any market. My charts have been giving solid buy and sell signals all year.
– Richard
Richard
Yes I do
Feel free to e-mail me directly
Update
Today the treasury department announced it would bail out and lend whatever was need to sustain Fanny Mae and Freddy Mac.
Another government bailout that taxpayers are going to have to pay for
Update 7/15
The Labor Department reported that soaring costs for gasoline and food pushed inflation at the wholesale level up by a bigger-than-expected 1.8% in June, leaving inflation rising over the past year at the fastest pace in more than a quarter-century.
Over the past 12 months, wholesale prices are up 9.2%, the largest year-over-year surge since June 1981.
I did a bit of research to find this or a similar post from years past – any true “economic” recovery is always accompanied by inflation – and we have that on steroids now – just an observation about domain values friends – I am not the only one realizing this now