The Bottom Line
By Chad Wilson
May 30, 2008
Foundation Bank --
The Bottom Line
Can We Not Talk About Gas?
Volume IV Issue V – Friday, May 30 2008
A monthly newsletter of financial commentary for our friends
All you hear about these days is the cost of fuel. From the church parking lot, to the coffee club, to the family dinner table, everyone is talking about oil – and rightly so. The cost of gas affects every single American in some way or another. That being said, I am going to do my dead level best not to bore with you more info on oil. Suffice it to say, that I am hoping that Memorial Day weekend was the top for oil, and that we will be trending down through the rest of the summer. But take this with a grain of salt, because I have been saying that oil was too high since it hit $60 a barrel. So instead of talking about oil itself, let’s talk about some of the side effects that we are seeing, and new trends that may emerge as a result:
· Hybrids are flying off the lots as quick as they are coming on the lot. Not only are they getting 50 MPG, but they are also the new trend. On the other end of the spectrum, SUV values are plummeting. Some are selling for 30-50% less than the NADA value. Since there are many who want to dump these gas-guzzlers, there is a plentiful supply.
· Used car dealers might see their sales increase. Since it is more expensive to run a car, people are settling for cheaper cars to compensate. They are also trading in their big cars for smaller ones. Repo’s are also on the rise, which will keep car lots stocked with plenty of inventory. There’s room for a lot of swapping.
· Internet commerce will continue to expand at an exponential pace. Why drive across town to buy that pair of shorts when you can hop online to do it? More and more retail purchases of clothes, books, and even food will be bought online. Did you know there are online grocery stores out there that will deliver orders of food to your front door?
Longer-term rates are inching up with the expectation that the Fed is done. The recent minutes that they released let us know that they think the biggest fears in the economy are subsiding. They acknowledge significant challenges ahead, but think we have moved out of ‘emergency mode.’ So the 10-year government bond and mortgage rates have inched up slightly in the past few weeks. Likewise 3-5 year CD’s have gone up some in rate, with the anticipation that the Fed will begin raising rates down the line. Not anytime soon. But once they see recovery signs in the fragile economy they will begin raising rates to combat the old enemy inflation.
Credit gets tighter and tighter. It is nearly impossible to find 100% financing options these days. Certain government programs are requiring 3% down, while conventional programs are asking for at least 10% down. As more and more loans default, these standards will continue to tighten. As more and more banks go broke, these standards will tighten even more. A bank in our back door (Bentonville Arkansas) went broke on May 9. There will be more to come in the future. Bad loan decisions are the primary culprit. Foreclosures continue to set new records every month. Can you believe that former baseball legend, Jose Canseco, had his 2.5 million dollar house foreclosed on last month? According to MSG.com, Canseco made 5.8 million dollars in 1995 (enough to pay cash for the house). Poor decisions from lenders and borrowers will continue to be brought to light over the next couple of years. Whether you are making 5.8 million a year, or $15,000 a year, if you need help being making wise decisions with it, give us a call.
Chad P. Wilson, CFP
Foundation Bank – a division of McKenzie Banking Company - 731-554-2423
The above is strictly informational commentary and does not constitute any sort of recommendation. Please consult your own financial advisor for specific tax, loan, or other investment advice.
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