I base 400 S&P on $40 in forward earnings on the S&P. Analysts haven't pulled down numbers far enough yet and the PE ratio historically goes to single digits in a recession.
Yes, the PE ratio does historically go to single digits, but single-digit PE ratios don't automatically drive a 80+% decrease in stock prices. Again, it will take some type of crisis to drive prices down significantly from the levels we're at right now.
The auto industry can't be salvaged in its present form. Demand for vehicles is going south of 10 million on an annual basis. With that as a backdrop, they either need to get small quickly or one has to go out of business. I don't know how much the govt is going to try to prop them up, but without structural reforms, the auto industry is a money pit.
Agreed, and that's my concern. There have been huge plant closures, layoffs, and we're nowhere NEAR where we need to be with the big 4. Just like the majors, the healthiest thing would be to lose one (probably Chrysler) and have the others restructure and retool. There's a reason so many companies are writing these companies off as a TOTAL loss before those companies have even discussed a filing or a shutdown.
If we don't get that and we have also get a huge bailout package, it WILL drive another market dive, and that could tip us over the edge from recession into depression.
Homes are NOT an investment. Shelter is a necessity, but right now houses are a lousy investment. Even with the tax breaks.
For many years, people have been programmed to think of a house as an investment. You are correct in that it's really not a traditional investment, but the assertions made in Rich Dad, Poor Dad, that a home is only an investment if it generates revenue, is flawed on many, basic levels, for these reasons:
1. You have to pay for a place to live, anyway. If you are going to pay LESS in rent than your monthly house payment minus your year-end tax deduction for the interest payment, then, maybe, you can look at the house as a bad investment, but most people (unless they buy a McMansion), will be within that limit easily. A 3-bedroom apartment is anywhere from $900-1,100 a month. A 3-bedroom house is anywhere from $1,000-1,300 a month. Easy math.
2. Right now is a great time to buy. Yes, the market still has some drop left to it, but we'll see it happen in the next year. More importantly, because of the risk that Obama will make changes to the tax code, these banks are dumping a lot of NICE homes they were previously hanging onto.
3. FHA programs and others are about to dramatically change, Dec 31st. Down payments will increase, "gift" portions of your down payment (which can account for up to 50% of your down payment) will disappear. Credit will get even tighter. If you don't get into a house now, you may not be able to for a long time to come.
Case in point, there was a foreclosure on the market for $248,000 a 2,700 sq ft home in a lakefront community. 6 year old home, under home warranty for 4 more years, great schools, fastest-growing area in the city, the last appraisal was at $265,000... I snagged it last week for $198,000, 30 year FHA Fixed at 5.78%. Because it's so far under appraisal, I have no PMI, my payments are about $1,300, and a 3 bedroom house for rent (unless it was a dump) would run me $1,100-1,200 a month anyway. I save money every month and, when the housing market recovers (2 years estimated if we don't have another big hit in the economy and get pushed into a 4-7 year depression), I'll sell it, take the equity, pay off my student loan, and use the rest as a down-payment on another home.
Houses CAN be invesments, you have to have housing anyway, and just because it's not going to make you money every month doesn't mean it's debt you need to avoid. Everyone needs to have a house... purchase smartly and you'll always be better off than renting.
Rent prices are dropping, so I am seeing my housing costs decrease annually.
Maybe in your area... not here. The people who have decent homes for rent are quickly realizing that the people who are getting evicted from ARM mortgages have NO interest in renting an apartment, have the income to support a $1,200-$1,400 a month payment (what it was before the ARM adjusted) and aren't lowering their rent prices AT ALL.
Not for decent homes in nice neighborhoods, anyway. Apartment rent may be falling, but not decent homes. We're not in a depression yet, and people are still buying the basics.
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