May
18

What Bad Economy? An Inside Look At The Hard Truth Nobody Wants To Admit

Filed Under Real Estate Investing 

The state of the country is in a real mess! Not because of the economy but because of the idiots running the country and blatant misrepresentation by the media. Here’s a reality dose for the whiners and people with their head in the sand.

News Headline: Consumers Are Downbeat On Economy

As I read this real “News” story it talks about “Consumer Sentiment” being at a 28 year low because of surging gasoline prices, falling home prices and a weakening job market.  Let’s see…. I’m a consumer and my “sentiment” is low?  Damn, I didn’t know my sentiment was low so now I’m worried. Does that mean I need to have my prostate checked or something because I don’t even know where my sentiment is located?

Are gas prices high? Yes, and  I don’t like paying anymore than you do but I count my blessings.  Compare our gas prices to Europe ($7.615 per gallon Sept 2007) and they are still a real bargain.  With gas prices surging out of control per the media  you would think everybody would park their cars and start riding bicycles… but that’s not happening.  Drive around on any Friday or Saturday night and notice the restaurants, bars, and hot spots are packed full!  Just last week I left a restaurant because I did not want to have a 45 minute wait!  And they say this country is in a recession? Seems like a lot of people have plenty of spendable income and Starbucks is still doing great charging $7 for a cup of coffee.

Let’s put you in charge of the oil companies… How much would your charge for gas?  $1 a gallon?  Not on your life.  It makes business sense to keep raising the price if gas until you have raised it so high that the loss in consumption equates to a loss in net profit.  And right now they aren’t even close to that amount and this is verified by looking at US consumption of gasoline.

But don’t worry because the government is doing their best to get your gasoline prices lowered.  That’s why we’re in Iraq, right? Or was it for weapons of mass destruction?   You have to realize that the government profits on every gallon of gasoline sold through gasoline taxes which nationally average 47 cents per gallon.  So if Uncle Same really wanted to lower the cost of gasoline they could just suspend gas taxes and we’d save 50 cents per gallon.  That would be fast and easy but it will never happen! Instead the politicians will talk about all kinds of things that need to be done yet refuse to do anything that does not line their pockets with profits.

Supply and Demand

When it comes to gas we’re in a very bad position because as a Nation we are dependent on the Middle East for oil/gas.  Supply and demand 101… they’re the only supplier so they control the prices.  This is really odd since we have so many oil sources much closer than the Middle East - Alaska, Russia, Central America, and South America come to mind.  Countries like Brazil are turning to ethanol as an alternative but here in the US there is no talk of using real alternatives.

History Fact: Henry Ford endorsed ethanol before the gasoline companies gave him financial incentive to switch to gasoline motors!

What do gasoline prices have to do with housing?

Supply and demand rules are the same for both.  With oil we are currently screwed for several reasons. First we have one supplier. Second, the government does your thinking for you so you have no control over getting another supplier. Third, the government profits from the sale of gasoline by the gallon. No matter what the cost of gasoline the only choice you have is it buy it or not to buy it.

You do not need to be concerned with gas prices or the economy because these are all things that are out of your control.  Focus on things you can control as individuals.Your life. Your finances. Your business decisions.

With the housing market sales are based on supply and demand as well.  New construction increased as the demand for housing increased to the point that the market was flooded with an oversupply of houses. New construction lags actual demand and as sales slowed more inventory reached the market as builders completed projects which worsened the situation.

Demand for houses is down and this is reflected in the low number of permits requested for new construction.  As the oversupply is sold, rented and occupied prices will stabilize and rebound.  The cycle will be reborn and as it gains strength there will be another rush to build houses. This cycle is never ending.

What we are experiencing now is nothing new to old real estate investors like me who used to watch a 7 year cycle in the markets. Prices will go back up and there are things that can be done to make this happen sooner rather than later.

If you are looking to buy a personal residence now is a good time and you can get a lot more for your money today then you could three years ago. Understand that buying a residence to live in is NOT an investment. Robert Kiyosaki 101 - investments pay you money… your house is a liability because you make payments.

For real estate investors the focus should be cash flow. I know, a mythical thing your grandparents may have told you about but trust me it really does exist and tenants can make you rich, filthy rich.

Tis all for now.  If enough people find value in this article and post comments then I will write more articles that talk about the big picture, success, and how to obtain it.

Author: Gerald Romine

Comments

4 Responses to “What Bad Economy? An Inside Look At The Hard Truth Nobody Wants To Admit”

  1. DesertDweller on May 18th, 2008 10:42 pm

    Hey Gerald,

    Some good thoughts about our precarious situation here in America.

    In my transportation business I’ve noticed a dramatic increase of customers paying for their ride to the airport using their credit cards.

    I’m pondering what that 43% credit card increase means and have wondered if it’s because cash is in short supply, what with the cost of gasoline taking a huge part of our budgets now, and hence, more people are using the “power” of borrowing with their credit cards to get there.

    I wonder, if it can be ascertained, that the restaurant patrons you are seeing out there Gerald aren’t doing the same.

    We can’t ignore the polls, taken from real people, and not just the media hype, that indicate such deminished confidence in our economy.

    My own poll, the Darrell Barker Poll, if you want, has it that the many many people I talk to are financially hurting and are expressing great concern about gasoline prices, and comparing the UK’s prices doesn’t assuage them one iota.

    My blog, http://www.kickgas.wordpress.com has comment about the huge American tax breaks Big Oil is receiving at a time when their profits are historically soaring through the roof.

    You commented:

    “You do not need to be concerned with gas prices or the economy because these are all things that are out of your control. Focus on things you can control as individuals.Your life. Your finances. Your business decisions.”

    I agree with that.

    By the way, the Duplex deal I bought this year is coming along fine. I’ve decided to that this deal is a keeper. No wholesaling this one because it nicely cash flows,

    We moved to Washington, by the way, but I’ll be flying back to oversee the Duplex project often.

    Again, good blog.

    Darrell Barker
    http://www.kickgasatthepump.com

  2. rkim777 on May 19th, 2008 1:53 am

    The media is probably doing the most damage to consumer confidence. It’s during chaotic times like this that the most profit can be made.

    –
    Bob

    Exchange ideas and investing tools at our Real Estate Mastermind Group on Yahoo Groups:
    http://tinyurl.com/ypue7o

  3. smcraver on May 19th, 2008 8:16 am

    Iraq sells oil $128 a barrel…

    Iraq buys grain $7 a bushel…

    Solution…

    Sell grain $128 a bushel…

    Can’t buy it?

    Tough!

    Eat your oil!

    Then oil will come down…

  4. bill on May 26th, 2008 11:48 pm

    Actually… contrary to your statement, the Mideast is NOT the only.. or even major source of oil for the USA. Our congress doesn’t have the guts or foresight to understand that domestic sources of energy are enormous.. but the “green” religion has overtaken the minds of the minions who now run congress. This is the generation that maxed out on dope-and this is the long term consequences of it.

    Here are the actual facts:

    Crude Oil and Total Petroleum Imports Top 15 Countries
    March 2008 Import Highlights: May 12, 2008
    Preliminary monthly data on the origins of crude oil imports in March 2008 has been released and it shows that two countries exported more than 1.50 million barrels per day to the United States. Including those countries, a total of three countries exported over 1.20 million barrels per day of crude oil to the United States (see table below). The top five exporting countries accounted for 69 percent of United States crude oil imports in March while the top ten sources accounted for approximately 88 percent of all U.S. crude oil imports. The top sources of US crude oil imports for March were Canada (1.727 million barrels per day), Saudi Arabia (1.535 million barrels per day), Mexico (1.232 million barrels per day), Nigeria (1.138 million barrels per day), and Venezuela (0.858 million barrels per day). The rest of the top ten sources, in order, were Iraq (0.773 million barrels per day), Angola (0.375 million barrels per day), Algeria (0.232 million barrels per day), Ecuador (0.231 million barrels per day), and Brazil (0.188 million barrels per day). Total crude oil imports averaged 9.385 million barrels per day in March, which is a decrease of (0.221) million barrels per day from February 2008.

    Canada remained the largest exporter of total petroleum in March, exporting 2.303 million barrels per day to the United States, which is a decrease from last month (2.464 thousand barrels per day). The second largest exporter of total petroleum was Saudi Arabia with 1.542 million barrels per day.

    Crude Oil Imports (Top 15 Countries)
    (Thousand Barrels per Day)
    Country Mar-08 Feb-08 YTD 2008 Mar-07 YTD 2007

    ——————————————————————————–

    CANADA 1,727 1,920 1,863 1,780 1,825
    SAUDI ARABIA 1,535 1,614 1,541 1,216 1,325
    MEXICO 1,232 1,231 1,220 1,621 1,475
    NIGERIA 1,138 982 1,097 1,290 1,156
    VENEZUELA 858 945 980 1,036 1,033
    IRAQ 773 780 697 523 464
    ANGOLA 375 341 429 696 570
    ALGERIA 232 191 264 501 484
    ECUADOR 231 169 217 191 214
    BRAZIL 188 169 175 209 174
    KUWAIT 178 261 225 288 208
    COLOMBIA 120 220 169 108 107
    RUSSIA 108 80 68 193 92
    CHAD 101 89 103 66 74
    UNITED KINGDOM 95 60 80 77 90

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