The DR and the Recession of 2008

[Malibook]

Well, the reality is that the real estate problems are mostly due to the sub-prime crisis and too much speculation in some markets. However, that is only a part of the entire picture, a relatively small part.

http://articles.moneycentral.msn.com...earMarket.aspx
"The credit bubble is just starting to unwind, a credit-derivative insider says. And while U.S. borrowers are being blamed for the mess, they were really just pawns in a global game.
Rather than joining the crowd that blames the mess on American slobs who took on more mortgage debt than they could afford and have endangered the world by stiffing lenders, he points a finger at three parties: regulators who stood by as U.S. banks developed ingenious but dangerous ways of shifting trillions of dollars of credit risk off their balance sheets and into the hands of unsophisticated foreign investors; hedge and pension fund managers who gorged on high-yield debt instruments they didn't understand; and financial engineers who built towers of "securitized" debt with math models that were fundamentally flawed.
When you add it all up, according to Das' research, a single dollar of "real" capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion -- or eight times total global gross domestic product of $60 trillion.
One of the wonders of leverage is that it amplifies losses on the way down just as it amplifies gains on the way up. The more an asset that is bought with borrowed money falls in value, the more you have to sell other stuff to fulfill the loan-to-value covenants. It's a vicious cycle."aranoid:

 

[Malibook]

sorry dude but there isn't a recession Yet.

Are we there yet? Some say US recession already here
http://news.yahoo.com/s/afp/20080109...h_080109204009
The recession camp got bigger Wednesday as investment giant Goldman Sachs joined those arguing that an economic downturn is already here or will arrive soon.
"The recent data suggest that the US economy is falling into recession," Goldman Sachs economists said in a research note, noting that the impact of credit and housing woes is already being felt.
The report came two days after Merrill Lynch said a recession was "a present-day reality" for the world's biggest economy.
Recession "isn't even a forecast any more but is a present-day reality," and that is reflected in ultra-low bond yields and a near-bear market in stocks, he said.
Morgan Stanley economist Richard Berner, who had already predicted a downturn, now maintains that "the key question now is how deep the recession will be and how long it will last.":ermm:

 

[Malibook]

I'll make a prediction, and will be overjoyed to come back here to dine on a steaming plate of crow: if there is a change of political party in the U.S. Presidency, watch how quickly the doom and gloom of the pending cataclysmic "recession" disappears. I still remember how "the worst economy in 50 years" disappeared overnight 16 years ago...

The doom and gloom reporting may subside but economic realities will not disappear, at least, not without much more cleansing.
Sadly, I am afraid we are seeing the tip of the iceberg.aranoid:

The next banking crisis on the way - MSN Money
Write-downs for high-risk, high-yield corporate debt, known as 'junk,' could dwarf losses in the mortgage mess. And that's when this financial crisis will finally hit bottom.

http://articles.moneycentral.msn.com...onsInDebt.aspx
"Every year, tens or even hundreds of billions of dollars are quietly added to the national debt -- on top of the deficits that we hear about. What's going on here?
Consider the proud trumpeting that came from Washington at the close of fiscal 2007. The deficit for the unified budget was, politicians crowed, down to a mere $162.8 billion.
In fact, our government is overspending at a far greater rate. The total federal debt actually increased by $497.1 billion over the same period.
But if you examine another figure, the gross federal debt, you'll see something strange. First, the debt has increased in each of the past eight years, even in the two years when surpluses were reported. Second, the gross federal debt, which includes the obligations held by the Social Security and Medicare trust funds, has increased much faster than the deficits -- about $3.3 trillion over the same eight years.
That's $2 trillion more than the reported $1.3 trillion in deficits over the period. Can you spell "Enron"?"

 

[cobraboy]

1) Putting the unfunded SS obligations has been a smoke and mirrors move by the US gubmint since it's Day 1 beginnings 70+- years ago. It just has not garnered attention until the 60's demographic shift made it unsustainable without radical alterations that NO gubmint officials have wanted to take on.

2) It is estimated that as much as 70% of "sub-prime" mortgages in default are a direct result of borrower fraud, that the "lenders" did not fully vet and document. That is why I feel no sympathy for either borrower or lender (and the lender's investors, sophisticated folks who should have KNOWN better, and REQUIRED proper underwriting as a condition of their financial participation) who participated in that fraud.

3) There is no evidence of two consecutive quarters of *negative* growth. Slowdown of growth is NOT negative growth, no matter how one wants to paint it. In fact, the last month I read re: economic activity was November, and that month still had growth, although a little less than October. December has not been determined yet, much less growth figures for Q4/07. Q3/07 showed solid, yet unspectacular, growth. I doubt Q4/07 will show negative growth. Doom and Gloom are NOT statistical economic component substitutes.

4) There is an irony in having economists from the major investment houses are lamenting the results of the very policies that created the sub-prime mortgage situation in the first place, due to BAD underwriting criteria THEY implemented. I shed crocodile tears for their problem.

5) The investors in the sub-prime market should have required the folks who were responsible for underwriting those loans do proper due diligence in underwriting.

6) It's an election year. "The Sky is Falling" is a hot commodity.

7) The whole sub-prime issue is something that 95%+ of ~casual readers~ are totally clueless about. They don't even know what "sub prime" is. It's become a buzzword.

8) I agree that the economy has slowed. I agree there will be pockets of pain, both market sector and geographic. There always is. But I do NOT blame the gubmint, much less individuals within the gubmint, for the sub-prime problem. I blame consumers who CHOSE to straddle themselves with high-interest debt, who CHOSE to live in a house they couldn't really afford, who CHOSE to live beyond their means. I equally blame the lenders who CHOSE to lend these folks money THEY borrowed from someone else, and the investors who did NOT require evidence that their investment was wisely underwritten.

9) IMO, analyzing economics through a political prism does not benefit either. Just look how well it works in the Dom Rep.

10) The single most important action a person can do to avoid much of the potential economic "pain" is to eliminate ALL consumer debt, period, and that includes an automobile. Keep your mortgage, dump everything else.

Additionally, I will personally pay more attention to data sources other than Googled internet MSM for details on current economic conditions, especially during an election year. But much of my formal edumacation is in economics, and I take a differing perspective on it.

Anecdotally, I have a friend in Jacksonville who owns a high-tech machine shop he invested in heavily 10 years ago with sophisticated (and expensive :surprised) CNC machines. He's been struggling to keep his growth in net cash flow above his growth in receivables. He told me yesterday he's well over the hump because several European clients have started to sub out (i.e. "offshore") some of their CNC production to him, due to the delta in exchange over the last couple of years. Yes, an anecdote, but it demonstrates what I posted before: not all sectors of an economy are hard hit due to currency fluctuations. Additionally, even Orlando is reporting an increase in European tourists. Maybe TSA sucks, no debate from me, but there is a conceptual difference between the hassles of being a tourist post 9/11 (heck, ask a tourist going to Israel what "hassle" is like), and a fundamental economic basis of travel reduction.

But, as usual, we pay attention to those we philosophically agree with.

And, as usual, opinions vary, all blessings.

:classic:

 

[Robert]

This needs to get back to being VERY heavily biased toward the DR otherwise it will be closed. Any rants or very USA centric posts will be deleted.

 

[cobraboy]

As long as the economy of the DR is so closely aligned with that of the US, the economics of the US DOES strongly bias the DR, and would have a direct, material material impact as the OP was asking about.

But it's not all doom and gloom, because of the currency flucuations between the $$$/peso and the Euro/loonie.

Unfortunately, the economy of the DR cannot stand on it's own, and must depend on other currencies and resources to survive and progress. Well, as long as there are 9.5 million rats in the cage, anyway.

 

[samanasuenos]

WOW! Thank you everyone for the thoughtful and thought-provoking responses.

To bring it back to the DR and to stay a debate, let's try to list the changes (in the DR) that we accredit to the US recession. Then we can debate if they really are directly related to the US recession or to the other factors so well described in this thread so far.

What do you think guys? Any takers?

gracias,
sammy OP

 

[cobraboy]

WOW! Thank you everyone for the thoughtful and thought-provoking responses.

To bring it back to the DR and to stay a debate, let's try to list the changes (in the DR) that we accredit to the US recession. Then we can debate if they really are directly related to the US recession or to the other factors so well described in this thread so far.

What do you think guys? Any takers?

gracias,
sammy OP

As of this date, there is no recession. The premise is faulty.

Now if you want to speculate, go ahead.

 

[A.Hidalgo]

A bit of relatively good economic news.......

Jan. 14 (Bloomberg) -- The Dominican Republic's inflation rate slowed in December from the previous month, because of lower gasoline prices.

Bloomberg.com: Latin America

 

[samanasuenos]

Point well taken

As of this date, there is no recession. The premise is faulty.

Now if you want to speculate, go ahead.

Thank you Cobraboy; point well taken.

Let's say that the TALK of recession in the US could have impact in the DR. (Just as such talk in the US makes things worse...).

Then what impacts are they and which ones are due to factors other than my SKY IS FALLING song?

Gracias,
Sammy

 

[mike l]

There is a world self off which will affect the DR's Foreign Investment ; Here is the info


Global sell-off a bad sign for U.S. stocks
Recession fears in the United States spark a big global sell-off and could hit Tuesday's markets. Crude oil takes a dive, too. Earnings are due from Bank of America, Wachovia and Johnson & Johnson. Apple reports after the bell.

Latest Market Update
January 18, 2008 -- 16:25 ET
[BRIEFING.COM] It was another exhausting day of trading on Friday as the major indices moved in wide ranges, driven sharply higher at the open by reassuring earnings news from General Electric (GE 34.31, +1.10) and... More

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Exchange Rates Currency US Dollar
British Pound to US Dollar 1.939488
Euro to US Dollar 1.441338
Japanese Yen to US Dollar 0.009445
Canadian Dollar to US Dollar 0.966651

MoreAfter a major sell-off in Asia and Europe today, U.S. stocks could be headed for an ugly open on Tuesday.

Some analysts believe the Dow Jones industrials may drop substantially at the open. Terry Bedford, a Toronto hedge fund manager, thinks a 400-point drop on the Dow is not out of the question.

Global markets are in a panic, Bedford said today.

U.S. markets were closed Monday for the Martin Luther King Jr. holiday. The Dow closed Friday down 60 points to 12,099. So far in January, the blue-chip index is down 8.8%, the worst start of any year this decade.

The reason for the panic appears to be that many investors around the world are terrified that a recession in the United States is coming and may be more severe than most have expected.

And a bad recession in the United States could cause problems with economies that have grown strongly in recent years in part because of rapidly growing exports to the U.S.

"For a world that didn't need the U.S., we sure seem to be affecting them," Howard Silverblatt, an index analyst at Standard & Poor's, said today.

Deep selling in Europe and Asia
Monday's selling took the Japan's Nikkei 225 Index ($N225) down 3.9% to 13,326. (It opened on Tuesday down an additional 201 points to 13,125.)

Germany's Dax Index ($DEAX) fell 7.2% to 6,790, and the United Kingdom's FTSE 100 Index ($GB:UKX) was off 5.5% to 5,578.

The FTSE 100 and Dax losses were their worst daily losses since the Sept. 11, 2001 terror attacks. The Nikkei's loss today was its worst since Jan. 4.

Bombay's Sensex Index was off 7.4% to 17,605. The Shanghai Composite Index fell 5.2% to 4,914, and the French CAC 40 Index ($FRX1) was down 6.8% to 4,744.

Crude was slumping in electronic trading. At 7:25 p.m. ET, crude in New York was quoted at $88.51, down $2.06 from Friday.

Commodity stocks were taking some big hits. Australian mining company BHP Billiton (BHP, news, msgs) saw its shares fall more than 10% in London today.

Since its all-time closing high of 14,164 on Oct. 9, the Dow has fallen 14.6%. The Standard & Poor's 500 Index is down 15.3%, and the Nasdaq Composite Index is down 18.2%.

Those aren't the worst of the declines. The Nikkei is down 23% since October. The small-stock-oriented Russell 2000 Index ($RUT.X) is down 21% from its 2007 high on July 13.

Hoping to avoid a recession
The eruption of recession fears accelerated last week when the Bush administration called on Congress to pass a $145 billion economic stimulus package to avoid a recession. The idea also won explicit support from Federal Reserve Chairman Ben Bernanke.

The Administration and the Fed both believe the economy has not fallen into a recession yet. Both have forecast that there won't be one in 2008.

More from MSN Money
5 rules for surviving a bear market
Why Bush's bailout wouldn't work
4 ways to recession-proof a 401(k)
Why you might never own a home
How Greenspan's policies hurt you
Check how today's markets are faring
The economy has been weakened by the slumping housing market and the subprime mortgage crisis that has wounded financial giants such as Citigroup (C, news, msgs) and Merrill Lynch (MER, news, msgs). The problems in the U.S. have affected financial institutions in Europe and Asia as well.

The Fed has been under intense pressure as well to cut interest rates. The central bank is widely expected to cut its key federal funds rate from 4.25% now to 3.75% at its meeting in a week. It will probably cut its discount rate from 4.75% to 4.25% as well.

The fed funds rate is what banks charge each other for overnight loans. The discount rate is what the Fed charges member banks for short-term loans.

In addition, Wall Street is increasingly worried about bond insurers such as Ambac Financial (ABK, news, msgs) and MBIA (MBI, news, msgs). They have been facing downgrades because of problems involving securities backed by subprime-mortgages.

Big earnings this week
When trading opens on Tuesday, the fourth-quarter earnings season kicks into high gear with two Dow components -- DuPont (DD, news, msgs) and Johnson & Johnson (JNJ, news, msgs) -- reporting.

Two big banks, Bank of America (BAC, news, msgs) and Wachovia (WB, news, msgs), are also scheduled to issue reports. Bank of America is down 13% this month; Wachovia is down 19%.

In addition, Apple (AAPL, news, msgs) will report after the bell. Apple shares, one of Wall Street's darlings in 2007 with a 133% gain, have taken a big pounding this month, falling more than 18%.

How far major indexes have fallen from 2007 highs Most recent close* Change from closing peak Date of peak
Dow Jones Industrial Average 12,099.30
-14.58%
Oct. 9

Standard & Poor's 500 Index 1,325.19
-15.33%
Oct. 9

Standard & Poor's 100 Index 620.43
-14.99%
Oct. 9

Nasdaq Composite Index 2,340.02
-18.16%
Oct. 31

Nasdaq-100 Index 1,844.09
-17.64%
Oct. 31

Standard & Poor's Midcap 400 Index 756.21
-17.55%
Oct. 9

Russell 2000 Index 673.18
-21.34%
July 13

Dow Jones Utilities Average 503.92
-8.83%
Dec. 10

Dow Jones Transportation Average 4,179.70
-14.55%
July 19

Nikkei 225 Index (Japan) 13,325.94
-23.67%
Oct. 11

FTSE 100 Index (Britain) 5,578.20
-17.12%
Oct. 12

Dax Index (Germany) 6,790.19
-15.56%
Oct. 12

* U.S. closes are as of Friday. Japan, U.K., German closes are as of Monday.


By Charley Blaine, MSN Money

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[samanasuenos]

What Dominican Economists Say about a US "Slowdown"

Economy - 18 January 2008, 7:24 AM
Dominican economy to feel effects of U.S. slowdown, economists says

The mortgage meltdown continues in the U.S.

SANTO DOMINGO. - The economists Carlos Despradel, Carlos Asilis and Bernardo Vega say the Dominican Republic will feel the effects of a possible deceleration in the U.S. economy.

Despradel said while the stock market?s plunge doesn?t affect this country, a deceleration in the U.S could, though of a magnitude as yet unknown.

He said a fall of the U.S. economy would spark a fall in remittances and purchases, such as free zone exports and other goods, and would lead to a restriction in consumption in the measure of less currency inflow.

For Vega if a deceleration arises "it?ll be necessary to do something," as the famous expression goes, "when the U.S. sneezes Latin America gets a cold." He said remittances, tourism and the foreign investment will be affected, and cautioned that the Government would have to take measures.

Asilis said while the U.S. economy would be weak in the first half of the year, it would recover in the second. He said as this would negatively impact the Dominican economy, the best policies to adopt during a world-wide economic decelerates is to maintain healthy public finances and no imbalances in spending and in the financial variables.

For Asilis the best thing than the Government can do is to maintain transparency in spending. However.

Economy minister Tem?stocles Mont?s said the Government is aware that several situations can have a negative impact on the economy this year. He said scenarios have been evaluated which show that for each percentage point the U.S. economy falls, Dominican Republic loses 0.4 percent and that by assuming a moderate growth of 5 percent with the IMF, "it?s the signal that we are taking into account what can happen in the United States."

The economists were interviewed prior to the beginning of the panel: "Towards where the Dominican Economy is headed," where they were the main exponents. The activity is part of several conferences and seminars within the week to celebrate the Economy Ministry?s first anniversary.

_________________________________

So, posters - do we agree with these Dominican economists; why or why not, in under 100 words.(Please note that we are not continuing to debate a US recession/slow-down/deceleration; call it whatever you will, it is going downhill and faster than I would like.)

 

[Chris]

As of this date, there is no recession. The premise is faulty.

Now if you want to speculate, go ahead.

I'm speculating that after today on the world market indexes, the premise is not going to remain faulty for long. I put forward that the US economy is heading into recessionary territory, if it is not already there, and no fancy election year politics is going to save this economic butt, because there are a few structural problems. They may have been self-inflicted, but they are there nevertheless. Some will win and some will lose. (Sure many bears around today on the markets - I quite like it .. I'm going shopping.)

Regarding the DR, I hope that the DR can get itself together to become self-sufficient in food production. Whenever a country enters territory where it is not self-sufficient in food production, I worry. DR-Cafta made the DR less self-sufficient. That worried me. My beliefs may be really old fashioned in today's very sophisticated markets and economies, but if we can eat, we are usually happier than those that cannot eat. I hope the US and Canada and Europe and the Eastern Countries do very well for themselves and that they all take nice Caribbean Holidays in the DR.

 

[PICHARDO]

I believe that a market correction was way over due.
On regard of the Dominican economy, one must know that given the fact that we have to purchase most raw materials that are later send to the USA after some alterations/manufacturing process; it's clear that at least any domino effect would create an immediate sobering 1% (I'm more realistic than hopeful Dominican economists) growth drop from the projected target minimums.

Add to it that most imports are from US origin and the inflation would be kept in check by the same bloating of the goods to value ratio in the US. The big issue for the DR is how to unload gov spending without massive lay offs of public employees...

The housing market will see abnormal peaks due to the safe investment of liquid capital by retirees in the DR's robust real estate market. This in turn will create an artificial price on the sector that later will have to adjust to real trends.
The after effect would be most noticeable in an idle inventory, that finds no buyers and seller must hold on to property for longer periods than the intended; or risk losing on the main investment.

 

[Malibook]

For the numerous people whose lives feel like there is a recession, it really is a moot point whether or not the GDP stats reflect their realities.

In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. However, in the United States the official designation of recessions is done by the business-cycle dating committee of the National Bureau of Economic Research.<SUP class=reference id=_ref-0>[1]</SUP> That Bureau defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." A recession may involve simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions may be associated with falling prices (deflation), or, alternatively, sharply rising prices (inflation) in a process known as stagflation. A severe or long recession is referred to as an economic depression. A devastating breakdown of an economy (essentially, a severe depression, or a hyperinflation, depending on the circumstances) is called economic collapse. Newspaper columnist Sidney J. Harris distinguished terms this way: "a recession is when you lose your job; a depression is when I lose mine."

 

[cobraboy]

For the numerous people whose lives feel like there is a recession, it really is a moot point whether or not the GDP stats reflect their realities.

In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. However, in the United States the official designation of recessions is done by the business-cycle dating committee of the National Bureau of Economic Research.<SUP class=reference id=_ref-0>[1]</SUP> That Bureau defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." A recession may involve simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions may be associated with falling prices (deflation), or, alternatively, sharply rising prices (inflation) in a process known as stagflation. A severe or long recession is referred to as an economic depression. A devastating breakdown of an economy (essentially, a severe depression, or a hyperinflation, depending on the circumstances) is called economic collapse. Newspaper columnist Sidney J. Harris distinguished terms this way: "a recession is when you lose your job; a depression is when I lose mine."

At least you could give Wiki credit for your extensive quote, Malibrook. You lifted the entire last paragraph above from it. :ermm:

Nice ECON 101 definitions, however.


Still, consider hat consumer behavior, the engine of any non-centrally controlled economy, is psychological. Even Chicken Little affected "consumer" behavior in the sotry, whether the sky was falling or not. I am not, nor have I ever claimed a slow down does not exist, because official statistics as shown it has. But actual negative growth? That has NOT been actually been measured as of yet. Doesn't mean it's not possibly headed in that direction, but it has NOT been measured by anyone.

How might economic woes affect the DR? Easy. IMO, the #1 problem area is direct monetary remittances to the DR from the US. Most folks sending $$$ remittances back to family in the DR. I suspect as a recession affects jobs, the $$$ usually sent may slow down. That will have a direct impact on families in the DR.

Secondarily, I suspect tourism may slow somewhat. Tourism is less directly linked to the US than remittances are. Remittances come more from the US, while Tourism is less linked to the US with a big sector coming from Europe and Canada.

 

[cobraboy]

75 point cut in discount rate by the Fed this morning. That'll get some folks off the sidelines.

 

[Malibook]

At least you could give Wiki credit for your extensive quote, Malibrook. You lifted the entire last paragraph above from it. :ermm:

Obviously I was trying to claim credit regardless of the 11 direct links to the Wiki website.:tired:

 

[Malibook]

Still, consider hat consumer behavior, the engine of any non-centrally controlled economy, is psychological.

With the US housing ATM broken, it is also physical.
If people living within their means is such a problem, what will happen if they actually start to save some cash?

 

[cobraboy]

Obviously I was trying to claim credit regardless of the 11 direct links to the Wiki website.:tired:

No prob. But "Google" is no substitute for edumacation.