Entries from February 2009 ↓

Last week, as you know, the stock market lost a chunk of its value and now sits at the lowest point in six years. General Motors shares are where they were in 1938. House prices in California are at 2001 levels.

There were big rumours this weekend Citibank and Bank of America would be nationalized. The White House tried to put that fire out on Friday afternoon, but the fact remains 2009 will see the United States government swallow banks. The shock waves will be predictable.

In Canada, as in the States, the car companies are on their knees. GM is asking for $6 billion more from Ontario and Ottawa, and even then it will shutter about 250 car dealerships and take its workforce down to 7,000. Worse, it says it can’t afford to meet its pension obligations, so expect the government to move in.

But is it fair to use tax dollars to plump up autoworker pensions when 70% of Canadians have no company pension of their own?

Hardly. And the car companies will probably fail anyway. This bailout won’t work since 2009 will bring no rebound in auto sales, and even these extra billions will not be enough for the car guys to survive until they do. This hasty action by government, not even voted on, could make our economic situation far worse – simply delaying inevitable corporate restructuring, or failure, and leaving us all with billions to pay back through higher taxes or reduced services.

The third harbinger of a wider economic collapse this year is more sinister. It’s denial.

We saw it this week with the visitation of Barack Obama, the Hope guy. By inspiring people to believe things will get better if we click our heels and scrunch our eyes, he’s preventing them from being scared and changing their habits. Bad idea.

But we all know why he’s doing it. By making folks feel normalcy is but a few weeks away, he’s trying to encourage them to borrow and spend – to buy homes and houses – and repeat the behaviour which got us into this mess. It’s hardly a long-term plan, but it seems about all Washington’s got. The first thing politicians say these days is, “we must get credit flowing again to families.” But, God knows, it was a surfeit of credit which parboiled this goose.

People should be scared. Frightened enough to take action, instead of watching CNN and waiting for the government to fix things. Like dumping wheelbarrows of money into the GM parking lot in Oshawa, manipulating folks into feeling hopeful just kicks the can down the road. It sets them all up for a harder landing. Denial’s a dangerous thing.

But, what can you expect when so many people are being misled?

Over my morning Squirrel Crunch I read the National Post’s review (yeah, another one) of my latest book. It referenced a list in there about 100 things that will disappear in a depression – a list I did not write, but which I included for useful context. Number 53 is duct tape.

In summarizing my book the reviewer write: “Duct tape, presumably, will be good for fixing those windows broken by the desperate and the criminal prowling the streets in a hunt for survival when the economy has collapsed, public utilities like light and power have become unreliable and financial institutions are limiting withdrawals to prevent a run on the bank.”

Can we be sarcastic? Yes we can. Hallelujah.

For today’s blog, “Day from hell“, go here.

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The last post was heretical, some say. Not to praise Obama is apparently to diss him, which I’d say shows what a serious pickle we’re all in.

The worst thing consumers, investors, homeowners and confused citizens can do at this time is wait for government to fix the problems. They cannot. Get used to it. This gets worse.

Of course, Barack Obama, Stephen Harper, Gordon Brown, Sarkozy the swinger, that Medvedev dude and the cabal running China can all help mitigate the economic and financial disaster and hasten the time of recovery. Or not. The jury is still out on whether unbridled spending, dropping interest rates to nothing and encouraging people to borrow and spend again is brilliance or utter insanity.

But to await government action at the expense of taking your own action is a recipe for disaster. As I said in ‘After the Crash,’ and in every talk I give around the country, doing nothing is no longer an option. If you do not take out some personal insurance against future events, you’re nuts – a gambler. The odds of a deflationary spiral may be just 15% or 20%, but that’s enough risk to justify immediate and sustained action of the kind I wrote the book about. There are more than 200 strategies in there. I’d strongly suggest you start now, because Messiah Obama will not be doing it for you.

* For example, if you work for Canwest or Global TV or the National Post, you might want to think about being unemployed. The parent company, drowning in debt and starving for ad dollars, is nearing the end of the road. Its stock lost up to a fifth of its value on Friday, and is now in penny territory as bankruptcy looms. I mean, face it: Your employer owes $4 billion, can’t find any buyers for its TV stations and needs hundreds of millions in the next 30 days just to survive.

This is a harbinger, of course. Last year Canadian television network revenues fell by 90%. The Globe and Mail has lost three-quarters of its ad revenue. When marketing dollars die, you know where the economy’s headed.

* Do you work for an auto company? Or a parts manufacturer? Or live in a town in the Ontario rust belt where cars have been the reason life goes on? On Tuesday GM and Chrysler said they need billions more from Washington and will still shed 50,000 more jobs. On Friday the Canadian divisions had the same message – more bailouts and more layoffs. The sad thing is governments will cave without even debate. The sadder thing is this won’t save any of them.

By the way, Saab filed for bankruptcy on Friday. I hear Hummer is next. And Pontiac is now Built for Creditors. BTW, General Motors shares closed in New York today at the same price as in 1938.

* Do you have a house? Have you noticed all the media stories now about reality washing over Alberta and BC, where “nobody saw this coming”? Well, this is but the debut.

Once again, we can see the future by looking south. Friday’s numbers show while inflation in Canada is at 1%, in the States it’s zero, as that economy slides inexorably towards deflation. As mentioned here earlier, there are 13 million homeowners already under water, owing more in mortgages than they own in equity. This is a number set to march higher as the year goes on, as negative equity becomes the big story in Canada.

Having learned absolutely nothing from the Americans about over-inflating real estate and then dumping mortgage borrowing standards, we’re now condemned to living out a version of what the US middle class is choking on.

Nobody wanted these things to be so on this February Friday, but welcome to the meltdown.

We can hope for Hope. Yes we can. Hallelujah.

Or, we can prepare.

For today’s blog, ‘No grid, no problem’, go here

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