The Bottom Line
By Chad Wilson
August 1, 2008
Foundation Bank --
The Bottom Line
Major Change in the Works
Volume IV Issue VII – Friday, August 1, 2008
A monthly newsletter of financial commentary for our friends
Things have improved a touch since my last market commentary. Gas has topped out at $4 a gallon if only for the time being, and the stock market is up from its lows of the year on June 30. One can only guess whether this is a brief rest for oil’s relentless march upward, or if this might be the beginning of a change in trend. It is worth noting, however, that there was pretty significant demand destruction at $4 per gallon. I have wondered for some time when the American consumer would actually start changing their behavior in response to high gas prices. I feared that it would take $5 gas to really cause a change in habits. But it would appear that $4 gas has at least started some noticeable change in gas consumption. I cannot underscore, underline, or pound the table enough about the paradigm shift we will see in the next few years in regard to oil. The desire for oil independence has been set into motion. Even if the price of oil eases substantially, it is my belief that Americans have made this a “we vs. them” nationalistic issue. With T. Boone Pickens presenting his plan for renewable wind energy, with Congressmen searching for ways to appease oil weary voters, and with the American spirit of ingenuity in high gear the table is set. We all know that necessity is the mother of invention. It is my belief that there will be a host of alternative energy solutions cropping up over the next several years. Just as infrastructure changed in a dramatic way during WWII, we will see it changing yet again to get ready for the paradigm of the next 60 years. For example, Ford and GM are being forced to the table, looking at completely reworking the way they have done business for the last 60 years. On a local level, the local technology center in McKenzie has a devise utilizing water in a jar that can increase a car’s fuel efficiency by 10 mpg. So the juice that makes this country go is dying a slow death. Don’t expect it overnight. It may be like watching the hands of a clock. But the ingredients for a major paradigm shift are already in the pudding.
The FDIC seized two more banks last week. There will be more to come. This should not make you paranoid that your bank is on the precipice of failure. There are many strong banks that have made good lending decisions over the last few years that will not only survive, but will thrive, picking up customers from their weakened competition. It should make you do a little bit of yeoman’s work, looking into the strength of your bank. Look for strong levels of capital (at least 7%) and low amounts of additional debt. You can expect to see a more level playing field in the mortgage loan market in the near future. Regulators will make sure that everyone is playing by the same rules – which is good for you as a consumer. Credit will continue to tighten – meaning it will be harder to get a loan. If you’re buying a house, you might as well bank (no pun intended) on the fact that you will have to put money down.
The Olympics are one week away. This event will bring an incredible amount of revenue to the Beijing area. They have been very busy getting ready. A friend of mine who used to live in China said their soldiers have been dredging seaweed and algae from their lakes and rivers for months getting ready for rowing, among other things. But there are even stranger preparations under way. According to the Financial Times the Chinese organizers put out an official “clapping guide” in June describing a 4-step clapping method. I guess if you look hard enough, you can find instructions for just about anything!
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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