May 2009 - Forecasts & Trends

While we have seen some encouraging economic data over the last month or so, the vast majority of reports remain negative. The housing slump is getting worse, not better, with home prices plunging a record 19% in the 1Q. The home foreclosure rate skyrocketed 46% over year-ago levels in March. Meanwhile, millions of adjustable rate mortgages (ARMs) are going to "reset" to higher monthly payments over the next couple of years. And finally, the default rate on commercial real estate loans and mortgages is rising rapidly. All of this reinforces my view that this recession will last all year or longer, and this is bad news for the credit markets and the stock markets. Don't be fooled by all the talk of "green shoots" in the economy. We are not out of the woods yet....

I don't know if you've noticed, but the global warming issue is now increasingly referred to as "climate change." Believers say that the new name conveys the idea that there are more changes in store than rising temperatures. Critics, however, say that the name change was necessary because the warming has ceased in recent years. Whatever your opinion on climate change, it's likely that you've noticed that it is a polarizing issue, with most people being either adamantly for or against taking steps to reduce man-made greenhouse gasses.

I will not even attempt to enter the fray of whether or not climate change is the result of human activity. What I do know, however, is that the economic consequences of trying to reduce greenhouse gasses is going to cost a lot, and most of the money will come from the pockets of American taxpayers either as taxes or increased costs of goods and services. With that in mind, this week I'm reprinting an excellent article from Peter Huber. He addresses the likelihood of meaningful reductions in greenhouse gasses when only developed countries are required to participate. No matter where you stand on the climate change issue, I think you'll find his analysis to be thought provoking....