October 28, 2012

What If They Gave A Debt Party And Nobody Came?

Readers suggested a topic on debt and housing. “A friend was asking my advice yesterday. He has enough money to pay the balance of the mortgage on his house off. He says he owes about $75,000 and I would guess his house would now appriase around $300,000 in a nice neighborhood, but one that ended up with crazy high prices at the bubble’s peak. Several houses in the neighborhood are in foreclosure where once high earners have reduced income and can’t pay bubble era mortgages any more.”

“He works in a job that relies on government contracts and is feeling that his employer may ask him to take a paycut if they can’t replace some of the current work. Did not indicate he thought he would lose his job, but the current income in the low 100’s would probably be cut pretty dramatically.
He can’t decide whether to pay the mortgage off and have no debt or hold onto all the cash he can. My first reaction is always to pay off debt if you can, but if I were worried about my future income, I might not want to part with any cash before I had to. What would you guys do in his situation?”

One asked, “Is the fiscal cliff going to translate into something that will continue the decline of average housing prices, or did we hit the bottom in the Summer of ‘11 or ‘12. Additionally, how should I change my stock purchases because of the fiscal cliff? I personally have been selling the majority of my stocks in anticipation that I can buy them back at a bargain after the gas in the bubble leaks out after the election. I also feel the next 6 months should push down stocks since Congress and the new president is going to have a tough job on their hands in the next six months no matter what.”

One had this, “I’ve been pondering the idea of a credit system wherein nobody participates. For those old enough the remember the Vietnam ‘war’ and the public restlessness with it, there was a slogan or saying that was going around, ‘What if the gave a war, and nobody came’?”

“The United States and most of the Western World has become entranced in a multi-decade long debt bing that started to unwind when leverage overcame the ability to pay in 2008. The solutions have been to Print, Print, Print money. Give it to the Banks. Take their bad loan papers and try to provide MORE credit to support more lending, to support more Buying to ’stimulate’ economic activity.
There are still countless Debts and promises that can’t be paid. We’ve all been watching this play out for the past 5 years and trying to figure out what’s behind the Fed’s ‘door number 3.’”

“So, I’ve been pondering the War question: What if they gave a Debt Party and nobody came? I thought I was beginning to see a new brand of Frugality amongst the working population, in the sense that they see that vast Debt isn’t really vast wealth. What does this mean for the economic future of the US if this is a trend? And is this a trend? IF so, then, we won’t see people ‘competing’ for housing with $30,000 over the asking price to ‘Get In.’”

“Is it possible? Or will the FED win again, and start a debt binge to push up prices? I don’t know. I mean, the money’s almost FREE now, and still the markets are suppressed, at least housing. The Stock market is tettering. Support is becoming a ceiling. People are pulling their money OUT of stocks. It bodes for a suspicion of no-confidence in the markets and a desire to deleverage.”

“I’m on the side of Stupidity being the winner. I think the debtor’s prison isn’t near full enough and American’s can’t wait to get in line. But the actions of the markets are similar to the polls of the elections, a draw. Are we going to buy a debt binge, or are we going for austerity and paying down debt as a national trend? I’m a tightwad. A saver. I want austerity. Will I get it?”

A reply, “If everyone chooses austerity, it will be a disaster for everyone.”

To which was said, “Not really. It will be a disaster for those without any real skills. I think the hype up in jobs relating to supply chain - a.k.a the middle men in anything and everything that do the talking and take a cut: from shipping, to finance need to be rebalanced. The heady 2005-2007 years contributed heavily to the REIT fields. We have still not re-balanced.”

“Next year there will be more pain in these professions and more - across the board. People will adjust - they have to. I really wonder about those sales types in all professions that are over 50 that are high income deadweights. The companies will shed these quickly.”

From The Hill. “Although the housing market has been on the mend for the past year, industry experts now say that the sector has finally turned the corner, reaching deeper into harder hit areas and creating the expectation that the pace of the recovery will accelerate over the next several years. One reason for the recent surge in housing activity may be due to the Federal Reserve. The central bank announced in September it was embarking on a third round of ‘quantitative easing,’ in which it will buy up $40 billion a month in bonds backed by mortgages to lower rates and borrowing costs.”

“Fed Chairman Ben Bernanke made clear that the aim is to get the housing market back on track and that it will continue the purchases until it is satisfied with the strength of the recovery and the improvement in the labor market — and then it will buy just a bit more to make sure. ‘Our mortgage-backed securities purchases ought to drive down mortgage rates, and put downward pressure on mortgage rates, and create more demand for homes and more refinancing,’ he said.”

“‘The recovery is only breaking out this year,’ said Lawrence Yun, chief economist at the National Association of Realtors, who also pointed out that while there may be some people feeling ’subconsciously’ better about the economy as housing turns around, there are plenty of others still grappling with foreclosures or with home loans that lost value when the bubble burst. ‘In some place, it may take 10 or 15 years to fully recover the value,’ he said.”

From Reuters. “The monetary and fiscal policies in the United States are creating enormous risks and the Federal Reserve’s actions in particular are now harming the economy, influential hedge fund manager David Einhorn said on Thursday. The founder of Greenlight Capital repeated his criticism of the Fed’s very easy monetary policy, arguing at a conference that it now has ‘negative returns.’ The Fed’s policy easing is ’slowing down our recovery’ by ‘denying individuals interest on savings,” which is driving down consumption and hurting the economy, Einhorn argued at a conference hosted by The Economist magazine.”

“We’ve actually passed the point where the incremental easing of the Federal Reserve policy actually acts as a headwind for the economy and it’s actually slowing down our recovery,’ Einhorn said. ‘I’m alarmed by what I consider to be the reflexive group-think of the leaders, which is, if we want a stronger economy we have to accommodate’ with lower rates and more QE.”

“Einhorn added that, if the U.S. wants ‘more jobs, more consumption and more growth, we are way better off doing the opposite of current monetary policy.’”




Bits Bucket for October 28, 2012

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