Farm Financial Management Ernie Goss Ph.D. Professor of Economics, Creighton University & MacAllister Chairholder w

1. The Farm & Non-Farm Economies: The Importance of Open Markets • Farm Financial Management Ernie Goss Ph.D. Professor of Economics, Creighton University & MacAllister Chairholder • www.twitter.com/erniegoss • Websites: • www.ernestgoss.comwww.outlook-economic.com • Podcast: Itunes http://coba3.creighton.edu/econoutlook/goss-rss3.xml

2. The Current Crisis Investment Climate New Jobs Interest Rates & Economic Growth Housing Trade

3. Heartland Trade Report, 2007-09produced in cooperation with Creighton University

4. Benefits of trade (for each $1 million of exports)

5. Threats to trade • Exports—high value of the dollar • 2009 Stimulus Bill (Buy American) • Cap & trade (tariffs on CO2 emitting countries • Limiting H1 Visas only 65,000 of 163,000 applicants last year received them. • Preventing Mexican trucks from crossing into U.S. (temporarily restarted). • H1N1 flu virus • Exaggerated health concerns regarding foreign food

6. U.S. housing vacancy rates andHousing price growth, 1999-2008 (Quarterly Case-Shiller Index)

7. U.S. Housing Affordability,1987-2009

8. How big is (was) the problem (bailout)? • Homeownership rates: • 1995 64.8% • 2005 68.9% (highest ever) • Relaxing standards brought 4.5 million new and mostly unqualified buyers into market. • Initial price tag was $450 billion • With no growth in per capita income, housing prices would have to drop by another 9% by the end of 2009 to return to historical ratio • This estimates assumes housing prices do not plummet below pre-bubble trend • A partial solution: 1) Tax credit for all for home purchases, 2) Reduce the hours to achieve active home investor status (500 to 50) 3) Reject the deductibility interest limitation for high income workers

9. Investment Climate

10. Stock values vs. U.S. economy, 1952-2009 • Graph profiles S&P divided by Gross Domestic Product (times 100) Carter begins Obama begins Clinton begins

12. Solution:>Make 2001 and 2003 tax cuts on dividends & capital gains permanent>Reduce Gov. spending to less than 20% of GDP> Reject lifting the cap on taxable social security wages

13. Jobs

14. The Mainstreet Economy • A monthly survey of community bank CEOS • Colorado, Illinois, Iowa, Kansas, Missouri, Nebraska, South Dakota, Wyoming • Intended to gauge the economic conditions in the non-urban areas of region • Average community size is 1,300 population • Available at: • www.outlook-economic.com • www.economictrends.blogspot.com

15. The Mainstreet Economy(index over 50 indicates expansion)

16. The Mainstreet Economy, 2006-09

17. The Regional Economy:Survey of Purchasing Managers& Business Leaders • A Partnership Among Creighton University, and State Purchasing Management Associations

18. Monthly Survey of Business Conditions • Leading Economic Indicator • Released First Business Day of Each Month to Media • Released Via WWWeb: • www.outlook-economic.org • www.ernestgoss.com • Appears in media throughout U.S. • Survey of supply managers in over 900 firms

19. Business Conditions Index, 2003-09

20. Prices Paid Index, 2003-09

21. Important indicators: keep an eye on: • The employment report for May will be released on June 5th . I expect the report to show job losses (and large) for a 20th straight month and an increase in the unemployment rate to 9.1%. (www.bls.gov) • First time and continuing claims for unemployment insurance. Released every Thursday. First time claims below 450,000 and continuing claims less than 5.0 million would be bullish. I don’t expect this though. They will be worse. (www.doe.gov ). • Keep an eye on the yield for 10-year U.S. Treasuries. Current yields are artificially low and reflect unprecedented fear among investors. Large increases will tell us that either 1) global investors are taking funds out of the U.S. market, or 2) inflation expectations have increased, or 3) investors have reduced the risk perceptions and are pulling money out of treasuries and putting it into equity markets (http://finance.yahoo.com ) • Case-Shiller home price index—if the declines become smaller and smaller, iit will be very bullish. • Gold prices (safe haven buying)

22. The Quantity Theory of Money • Currently: • Money * Velocity = Prices * Quantity • 2010 • Money * Velocity = Prices * Quantity

23. 30 Year Mortgage Rate 2007-10 For each 1% increase in the deficit as % of GDP, the mortgage rate increases by 0.3%

24. The Risk Factors (Long & Short Term) • Taking cap off of taxable social security wages. • Cap & trade ($650 billion over 10 years) • Limiting interest deductions on high income workers. • Anti-trade language in Stimulus Bill and cap & trade • The biggest risk is housing prices dropping by another 25% for 2009 (overwhelming pessimism) • Asian reduced buying of U.S. Treasuries (Chinese de-link their currency to dollar).

25. The Outlook • From Goss: • Year over Inflation will remain very low (< 1.0%) for most of 2009 as large commodity prices pass through the system. However, inflation will pick up considerably in 2010 rising to 4% - 5% by the end of 2010. • Despite the Fed’s efforts, mortgage rates will rise by 2% by the second quarter of 2010. • Annualized inflation will rise to 4% - 5% by the second half of 2009. • From the National Association of Business economics: • The current cyclical downturn will rival that of 1973-75.  In the current downturn real GDP ispredicted to decline 2.8%, slightly less than the 3.1% during the early ‘70s.  • Economic weakness will be dominated by a retrenchmentinconsumer spending reflecting large employment and wealth losses.  • The jobless rate will peak at 9.0% by the end of the year.  • House prices are predicted to decline 5% during 2009, though the S&P 500 index is expected to rise a solid 8% by December 31, 2009.  • From the Conference Board: • The unemployment rate will peak at 10.1 percent in 2010. • Housing starts will grow from 540,000 in 2009 to 730,000 in 2010. • The economy will grow by 1.6 percent in 2010. This is well short of the potential of 3.5% to 4.0%.