Bits Bucket And Craigslist Finds For August 29, 2006
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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fakten zu first fhn:
Mortgage banking, one of the nation’s top 25 mortgage
originators and top 15 servicers,
First Horizon’s profit to drop on mortgage slowdown
First Horizon National Corp. said trends in its mortgage business “foreshadow approximately a $1 billion reduction in originations and deliveries” during the third quarter. The Memphis-based banking institution also said “further deterioration” is in the mortgage environment, thereby reducing pre-tax operating earnings by about $35 million compared to the second quarter. The drop reflects in part a pinch on First Horizon’s gain-on-sale margins as well as higher net hedging costs. In addition, settlement of a class-action lawsuit is anticipated to create a third-quarter pre-tax accrual estimated at $21 million, the company said. “Although we currently expect some modest improvement in mortgage banking in the fourth quarter, the current operating environment suggests that mortgage banking operations will only be in the range of breakeven,” the company added.
to be continued…….
http://www.immobilienblasen.blogspot.com/
here is a good piece from mish (and kevon depew) who is a long time believer that there will be a deflation.
one piece that fits into this is
http://globaleconomicanalysis.blogspot.com/2006/08/psychology-of-deflation.html
Interesting article jmf. I was ecstatic but then concerned when I paid $30 for a pair of Reeboks (sneakers) a few weeks ago. I don’t think I’ve paid under $50 in years. Your link just answered my ponderings.
If people aren’t sick to death of discussing deflation’s impact, I’d like to revisit the subject. Fellow posters have said debtors would do better with inflation and that deflation would hurt more. But I felt that analysis was viewing the debt in isolation. If your debt was relatively low wouldn’t you do better in a deflationary environment since then cost of living would be lower and you’d have more discretionary income to pay down debt. (Of course this assumes that said deflationary environment doesn’t result in job loss or income reduction)
Debt is generally assumed to be a fixed dollar payment of some sort. Implicit in fixing those payments is an assumption of inflation (it is a portion of why there are interest payments the other major reason is loss of use of the money, and the final is some measure of risk). If inflation is higher than was expected in setting those rates the borrower benefits. Think of it this way, we’ll use a silly example say I loan you $700 this year to be repaid with $750 next year (we’ll pretend you are guaranteed to repay me). That $700 represents 100 lunches today in Washington DC, if the price of lunches rises to $10 over the course of the year you got to eat 100 lunches now but only give up the equivalent of 75 lunches to repay your loan. If next year we make the same deal for $1000 to be repaid with $1050 in one year (as I don’t learn from experience too well) but we have deflation and now lunches fall to 9 you borrowed 100 lunches from me agian in year two but now have to repay enough to have bought 117 lunches.
In the transition to a deflationary environment the less debt you have the better, since your debt included in the original interest rate an assumption of inflation. In the transition to a higher inflationary environment the more debt you have the better (since your debt included a presumption of lower inflation).
The best examples of gaining on unexpected inflation are homeowners in the 1960s who had a fixed rate note say they bought a big house for $20,000 with payments of $120 per mo (at 6%). $120 might have been a two week’s labor after taxes when they took out the note, but by 1977 it was perhaps 2 days of labor after taxes.
Conversly lenders to the government in 1982-1983 who owned 30 year debt made out like bandits earning 18% over the next 25 years (all they way to 2006-2007–the notes were callable).
The same thing is true (to a lesser extent when inflation goes from 2 to 4 percent or back down) but the shifts are much smaller.
Some pithy commentary from Jas Jain
http://financialsense.com/fsu/editorials/jain/2006/0828.html
I dig this quote:
” It would be good for Americans to learn about the limits of Fed’s power in being able to manipulate the economy. Americans will also learn a thing or two about what wealth is and what an investment is.”
instead of a pay raise every year, you would be getting a 3-5% decrease in wages. So its all relative.
Don’t forget your debt of gratitude to the 12-year-old little girls on the other side of the Pacific Ocean who made those $30 shoes.
As I see it, there is deflation for the things you want and inflation for the things you need.
Well put.
Not accurate. A price reduction (as in housing) is the decrease in price of one item in your consumption basket relative to the prices of everything else. A deflation is a general reduction in the price of all the items in your consumption basket in terms of the money needed to purchase it.
Yes, as a whole. But there will, of course, be certain items that will be more expensive than before, sush as, coffee, if, for example, there is a bad crop. Health care costs come to mind as an example of an item that is unlikely to cost less, even in a general deflation.
Is that too many commas?
-sush
+such
There = If there Sorry!
You are talking about shelter costs only in terms of owning a home. That is a want. I would consider needing shelter to apply to renting. The cost of renting has been rising.
“The cost of renting has been rising.”
Some places, perhaps, but where I live (east central Florida) rent has been falling - inventory coming online is steadily increasing. Floppers trying to hang on, just as has long been predicted here.
How does Mish know our govt will not succeed with its efforts to do almost anything and everything possible to avoid the risk of deflation?
That is the $64,000 question!
Soon to be the $45,000 question…. Or the $100,000 question?
-mr. b
Lol!
Another aspect to consider is this: If prices are down about 10% in a given area, for example, what happened to that potential money, or equity? It disappeared into thin air. That’s a lot of money!
Was it real money? Has the supply of money really contracted? Money is nothing more than a promise to pay. Those promises, thousands of dollars in equity have vanished!
Just some thoughts.
We don’t call that 10% “potential money” — we call it “wealth”…
i think nobody knows but here is a good piece that try to explain why even the fed is not in control when it comes to the endgame
http://globaleconomicanalysis.blogspot.com/2006/02/end-game-analysis.html
Good article.
I find this subject most fascinating. Mainly because if one has the answer to this question of inflation/deflation then the issue of portfolio positioning is a no-brainer.
Primarily, I believe this question to be unanswerable by anyone on this blog. I say that because no one can really know what A). The FED WANTS to happen
B). What lengths the FED will go to in order to effect that outcome.
C). What the actual outcome of the FED’s actions will be.
D). What the Foreign Central Bankers can/will do in response.
E). No longer on Gold standard so earlier depression comparisons are rendered obsolete/useless.
F). What unfriendly (China, Russia) countries intentions/abilities are.
Assuming that we all agree that inflation is the increase in money and credit (deflation being the opposite), this idea of taking one or two price increase/decreases becomes mute. The whole CPI calculation is actually an excercise in futility (IMO) because there is no easy/accurate way to separate out supply/demand fundamentals from the effect of increasing money supply on that good.
While the FED does not enjoy the ability to force people to borrow money (although we sure witnessed some serious encouragement), it does have the ability to debase the money to the point of worthlessness through many other mechanisms (buying all of the bad loans from banks would be one of them). That is why I say that the answer to this question is unknowable at this point because only the FED knows what it will accept with regard to dollar debasement. Sorry for the ramble.
wunderbar
so i´m now going to hamburg to watch the great
“rise against”
jan-martin
E). No longer on Gold standard so earlier depression comparisons are rendered obsolete/useless.
I was thining about this the other day. Are we truly no longer on gold standard? Think about it. You can still go purchase an oz. of gold for whatever the market price is that given moment. Now the dollar is not convertible at the Fed window like it used to be, but that window is still open every day in the market place. Yes? This is not lost on foreign central bankers, investors, and policy makers.
Gold is still the standard, just not a fixed $$$ amount per oz. Central banks are free to exchange their $$$’s for gold, just not at a pre-determined price set by the Fed’s. Now the market price has to keep the central bankers of the world honest.
Thoughts?
The fact that gold fluctuates against a currency, and that money supply can be increased without regard to the amount of gold available says that gold is just another commodity with a long history of being a safe haven during inflationary periods.
Keep in mind the difference between debt-based assets and equities vs. commodities and free & clear assets. Debt based assets are typically real estate and stocks or bonds. In real estate, unless it is owned free and clear, the title holder has “equity”, which fluctuates up with inflation or down with deflation. Stocks are equities in corporations, valuations of which are subject to earnings and subordinate to debt or bond holders. Take it one step further, many stocks are purchased on “margin”, one more aspect of debt-based assets. If the SHTF, you want to own free and clear, unsubordinated hard assets, preferrably liquid assets. In a deflationary scenario, my choice would be gold and to a lesser degree, cash, then free and clear income producing real estate or 1st position paper with substantial protective equity and food or energy commodities. Any leveraged real estate or stock equities go out the window.
As for the big question, inflation or deflation, I think we’ve run the course of inflationary bubbles, and Mish is essentially saying the Fed has lost control, i.e. they can only increase or decrease the ability of banks to extend credit. They can’t force Joe Sixpack to borrow more money he can’t afford to repay, and they can’t control what Joe does with the money if he does incur more debt. Game over.
“it does have the ability to debase the money to the point of worthlessness through many other mechanisms (buying all of the bad loans from banks would be one of them).”
The FED is a group of banks; they are not non profit or a government entity that can just receive more tax money. The number one thing that the FED will protect is themselves. Why do you think they would deliberately buy up bad loans? It just won’t happen.
The FED is a cabal of banks in charge of keeping the “game” going. It “costs” them nothing to print money (monetize debt). They don’t “collect money” from tax payers, they print it! You need to bone up on how money is created in this system as well as the powers the FED holds to monetize banking debt. They “only” risk credibility of the currency if they do this. If a debtor is not going to pay off a loan, how the hell does the bank get harmed by the FED buying the non-performing loan? It is HELPED by that mechanism. What happens to the debtor aside, the banks have a non performing loan removed and this loan gets replaced with funds thus helping the bank maintain solvency. One could even argue this likely since the charter of the FED is to protect the banking system (as opposed to protecting the currency or debtors)What part of that seems to be a mystery to you? The FED doesn’t care about inflating the money supply (check old M3 charts). It doesn’t care about debasing the purchasing power (lost 98%+ of purchasing power since FED Reserve Act of 1913). The FED loses nothing by inflation but loses everything when deflation truly happens because the system does not work in a contraction (interest payments & principal exceed money supply in debt based system).
You and I will have to agree to disagree on these points I suppose but I stand by my earlier statements.
The FED doesn’t care about inflating the money supply (check old M3 charts). It doesn’t care about debasing the purchasing power (lost 98%+ of purchasing power since FED Reserve Act of 1913).
OK. Time to stop with this dollar has lost 98% of it’s value since 1913 stuff. I’m not buying it, and either should you. If you had an ounce of gold in 1913, you had $20 effectively in your pocket. That same ounce of gold today is about $615.00 in your pocket. If you had $20 in your pocket in 1913 and had that money compound for you at 3 month T-bill rates, you can see the $$$ has not lost 98% of it’s value, but actually held it’s value quite well. $20 compounded at 4% since 1913 comes to about $767 not including taxes. So, you could look at the purchasing price of the dollar holding up quite well against gold. I mean if you’re talking about justing putting a dollar under the pillow, you’d be accurate in your statement, but just holding cash at 4% compounding, you are still better off holding cash vs. gold. Someone may want to double check the math, as my Future Value calculations may be off. It’s been a while since Finance 101
“You need to bone up on how money is created in this system as well as the powers the FED holds to monetize banking debt.”
I know perfectly well that the FED has the power to monetize banking debt. I also understand how money is created in this system. What you don’t seem to understand is that when money is created debt is created at the same time and the holder of the debt is responsible to see that the money that was created out of thin air returns to the thin air from whence it came, so to speak, which is what happens when debt is payed off and what happens when a bank holds debt that is defaulted on and the bank has to take a loss in order to remove the bad loan from its books. If the FED buys bad loans and the borrowers default, the FED loses exactly that amount of money out of its profits in order to balance its books. You seem to think that the FED has a different set of rules to follow in regard to how bad loans are handled.
“how the hell does the bank get harmed by the FED buying the non-performing loan?”
I never said the other banks would be hurt if the FED sacrificed itself to help get them off the hook, It is the FED that would be hurt and that is why it will not do it. If the FED buys non performing loans this simply moves the non performing loan from one bank to another, to the FED banks. It does not remove the non performing loan from the system.
I never indicated that I thought that the FED cared about debasing the money supply, I just said that they are not going to buy up bad loans because then THEY would be the ones taking the loss.
The FED does not have the power to create money supply out of thin air that does not have to be paid back, as you appear to believe.
From: http://www.answers.com/topic/bad-debt
Bad Debt
Banks and Corporations: open account balance or loan receivable that has proven uncollectible and is written off. Traditionally, companies and financial institutions have maintained a Reserve for uncollectible accounts, charging the reserve for actual bad debts and making annual, tax deductible charges to income to replenish or increase the reserve. Companies and large banks ($500 million or more in assets) must generally use the direct charge-off method for tax purposes, although bad debt reserves continue to appear on balance sheets for reporting purposes.”
Notice that large banks must make direct charge offs from income to cover the bad debts.
OK guys and gals, try this on for size:
The Fed has the power to
A) Set the overnight lending rate banks charge each other to maintain Reserve Requirements
B) Set the Reserve Required Ratio for demand deposits
C) Authorize Retail Sweeps programs effectively moving certain demand deposits to an asset category not covered by the Reserve Required Ratio
D) Monetize the debt of the US Treasury ONLY as needed to fund spending in excess of revenues.
E) All of the above and that’s about it.
Answer is E. Anything else I’m missing?
“E) All of the above and that’s about it.
Answer is E. Anything else I’m missing?”
They can, of course, do anything any regular bank can, such as buy any type of debt they want, including bad debt, as Auger-Inn notes, if they wanted to. But the power to dissolve bad debt into thin air without subtracting it from their income is just not in the list of special powers of the Federal Reserve.
Please provide a link or something backing up the statement that the Fed can “buy any type of debt they want”. I am fairly confident they just don’t go out and “buy” bad bank loans. However they may, as the “bank of last resort”, extend credit to member banks in a financial pinch. In the event of a bank failure, they would assume control of that banks assets for transfer to another member bank. FWIW, I remember in the 80’s the US Treasury “acquired” the $6 billion debt of Poland, which was subsequently transferred to the Fed as an asset, effectively monetizing the debt of Poland.
As an aside, Calculated Risk is reporting that the new non-traditional loan guidance that is long overdue is likely coming “within the next 60 days or so”. As I posted there, I’m a little skeptical about this delay..maybe it’s normal, but the timing is a bit convenient, if you ask me.
Jackie Childs, You have proven my point with regards to loss of purchasing power. It takes $615 to buy and ounce of gold that cost $20 back in 1913. Return on investment is not the same thing as dollar debasement.
One can always find periods of time that certain asset classes returned greater than the inflation rate. From your example it seems like treasuries have returned roughly the inflation rate over that period of time. The dollar is continually debased by adding more dollars into the system. The more they inflate/add dollars into the system the more purchasing power it loses.
Kim said: The FED does not have the power to create money supply out of thin air that does not have to be paid back, as you appear to believe.
I will refer the matter to then chairman Greenspan from a speech in 1997
“When there is confidence in the integrity of government, monetary authorities — the central bank and the finance ministry — can issue unlimited claims denominated in their own currencies and can guarantee or stand ready to guarantee the obligations of private issuers as they see fit. This power has profound implications for both good and ill for our economies.
Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.
That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.”
Good stuff here Auger. AG did mention that Central Banks can “discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.”
GS didn’t mention that this occurs when a bank failure is imminent or has occured. That would have scared the sh*t out of the lemmings. Again, the Fed is the bank of last resort. It’s not in their charter to selectively take over bad loans from solvent banks in order to goose the money (credit) supply.
Jackie Childs, You have proven my point with regards to loss of purchasing power. It takes $615 to buy and ounce of gold that cost $20 back in 1913. Return on investment is not the same thing as dollar debasement.
One can always find periods of time that certain asset classes returned greater than the inflation rate. From your example it seems like treasuries have returned roughly the inflation rate over that period of time. The dollar is continually debased by adding more dollars into the system. The more they inflate/add dollars into the system the more purchasing power it loses
No. What I’m saying is if you had to pick, in 1913, either whether to put $20 in gold or $20 in cash (T-bills), you’d be about the same in either. So the $$$ has really not lost 98% of it’s value. I’m not saying this is going to hold true in perpetuity.
I do believe at some point the dollar will be toast.
Jackie, We are talking past one another. If a suit cost $20 in 1913 and $615 today then you have dollar debasement. The fact that we used gold confuses the matter because gold is money (was in 1913). Hell, If I had $20 to invest in 1913 I can pick a hell of a lot better vehicle to place that money in then a treasury OR gold and I bet you could too. We are talking (at least I was) about the purchasing power of the dollar. That has diminished by 98%. I don’t dispute your calculations, I just find them irrelevant to the issue at hand.
Auger, I don’t think the arguement holds that the $ has lost 98% of it’s value. I keep reading this online that the dollar has lost all of it’s value. This is complete BS that is normally espoused by people that want to sell you something, ie (gold). I do agree that we are in some point talking past each other and are in agreement for the most part.
I use the compounded interest calculation because earning cash rates yielded about the same return as holding gold over that time. So by holding cash, the value of a dollar has held it’s value remarkably well.
I don’t buy into the dollar is worthless theories. I think they are perpetuated by people with an interest in selling their books, newsletters, “research” and other wares on the internet. I’m suspicious of them all. They feed on doom and gloom and negativity because they know it will sell. However, when these theories are exposed to just a little bit of thought and sunlight, they don’t hold up very well.
As I mentioned earlier, I do think at some point down the road with the enormous debt coming due, the dollar will be toast.
I use the compounded interest calculation because earning cash rates yielded about the same return as holding gold over that time. So by holding cash, the value of a dollar has held it’s value remarkably well.
I don’t buy into the dollar is worthless theories. I think they are perpetuated by people with an interest in selling their books, newsletters, “research” and other wares on the internet. I’m suspicious of them all. They feed on doom and gloom and negativity because they know it will sell. However, when these theories are exposed to just a little bit of thought and sunlight, they don’t hold up very well.
That’s all very well and good Jackie but you aren’t quoting me “cash” rates. You are quoting me returns on treasuries. Cash is cash and holding it doesn’t earn interest, same with gold. I’m taking a dollar in 1913 and a dollar in 2006 and comparing their respective purchasing power. I’m NOT comparing returns of holding a treasury vs holding gold. Hold an ounce of gold from 1913 to today and compare the purchasing power of that ounce (it bought $20 worth of goods in 1913 and buys $615 worth of goods today). Or as the saying goes, it buys a good suit regardless of the timeframe.
Now, If your grandmother put a $20 bill into a mattress in 1913 and you dug it out today you would purchase 20/615ths of an ounce of gold. Not 20/20ths like she would have purchased in 1913. We are talking about a comparison of holding dollars here against holding gold, not the RETURN on treasuries compared to holding gold. You seem reluctant to accept that the dollar has lost value for some reason yet it seems so commonsense to me. What did a house cost in 1913 vs today (assuming one could corral all the variables)? What did a beer cost?
Also, I didn’t say the dollar was worthless at all. I use dollars everyday and would gladly take a million of em should someone offer that. However, please compare the purchasing power of a million dollars in 1913 vs that of today. See what I’m saying?
Auger is correct on this one. The dollar has lost value. When talking about the value of a dollar, you are talking about the purchasing power of a dollar, not what would happen if you earned interest on that dollar (or “invested” it in any other way).
It’s very clear that the dollar lost value over time. It’s called inflation. It’s why earning $800/mo in 1913 was considered very good income while today it is well below poverty level.
“Please provide a link or something backing up the statement that the Fed can “buy any type of debt they want”.”
Why can’t a bank buy up any kind of debt they think will end up being a good investment? The FED is a group of banks.
” I am fairly confident they just don’t go out and “buy” bad bank loans.” That was just my point.
““When there is confidence in the integrity of government,monetary authorities — the central bank and the finance ministry — can issue unlimited claims denominated in their own currencies and can guarantee or stand ready to guarantee the obligations of private issuers as they see fit.”
But if they do start issuing unlimited claims in order to inflate the money supply will this confidence in the integrety of the government continue? I doubt that they could do it without causing the bond market to drop which would lead to a spike in interest rates that would increase defaults in our already precarious RE market.
The FED is really between a rock and a hard place of their own making. The difference now is the outsourcing of jobs keeps the wages from keeping pace more or less with inflation as they did in the 70’s, and the end is near.
I admit that I could be wrong about the ability of the FED to buy up bad loans without taking any loss themselves, but I still don’t think they are likely to do it, and if they do try it the result will be worse problems than the ones they are trying to fix.
Auger, now you’re in trouble. CA Renter is probably the last person you would want to agree with you. He has no understanding of basic economics. He still thinks redistribution of wealth is the govt’s job.
If you buy gold, you are doing exactly that buying it. You have an opportunity cost. You can’t talk about the dollar being worthless in this case. If you want to talk about worthless currencies there are plenty of other examples out there, dozens actually. The dollar is not one of them. People do not leave money in the mattress, they leave it in cd’s and money markets, and other cash instruments to keep liquid. The physical dollar bill will buy less today, granted, but cash works 24/7 even when sitting in your money market. That is how the dollar keeps it’s value and what these instruments were designed for.
Kim, I agree with your statements on what potentially could be the likely result of that FED action. I didn’t say they would, I didn’t say that they should. I just said that they could and I got that from Greenspan’s assessment (my interpretation) in that speech I quoted.
Jackie, You are just wrong on this topic, period.
You are running around comparing everything but the point of interest which is what a 1913 dollar could purchase versus a 2006 dollar. Every thing else you are talking about is mute because I did not bring it up in my statement.
I did not say the dollar was worthless, I said it was worth less. OK? GOT IT? I don’t give a rat’s patootie about what it earns in a investment vehicle and plenty of people hold large sums of cash outside the bank, I’m one of them. Let’s agree to disagree because clearly you are unable to understand my point.
I don’t give a rat’s patootie about what it earns in a investment vehicle and plenty of people hold large sums of cash outside the bank, I’m one of them.
If you carry large sums of money not earning interest and compounding, then you deserve to lose 98% of your money.
Jackie, Here is another take on that subject.
Inflation & the US dollar
In recent decades, consumers and TV pundits have bemoaned “the cost of living”. We here about daily expenses for hard-working folks keep rising and that wages are not keeping up with inflation. It wasn’t that long ago that the hand-wringing went on and on about how there are fewer and fewer “one-income” households. Politicians wax on pompously about how families need “two incomes now to afford what a single income used to provide”. Inflation is simply government printing too many dollars as they chase the same basket of goods and services. Yes, there is a more precise/formal definition but that should suffice.
The bottom line is that managing the currency (printing dollars) is the government’s responsibility. The government has power over the currency and we as participants in the US economy have little choice since we are forced to use this currency for most of our daily transactions. But it stands to reason that the more you produce of something, the less each unit is worth. “Inflating” the currency doesn’t mean that the cost of goods and services go up; it’s that the value of each dollar keeps shrinking because you produce too many dollars. All things being equal, If I bought something last year for $1 and this year it costs me $2, it isn’t because that item doubled in value; it’s because the value of my money went down.
The value of the US dollar since the creation of the Federal Reserve system (effectively America’s central bank; a government entity) in 1913 has fallen by nearly 99%. Inflation is basically a hidden tax since you end up paying more without getting more. Who is causing this massive inflation? Who is debauching the value of our currency? Government.
Now, I would love for you to tell me WHY I should lose 98% of my money by holding cash? I don’t understand how you think? Should we all have to race to the store after payday to spend our money? Money is supposed to be a “store of value”. Your arguments make no sense and you clearly don’t have a grasp of the subject matter.
WHY I should lose 98% of my money by holding cash?
That should be “98% of the value/purchasing power of my money by holding cash”
Very well put. Nicely stated. Nice discussion.
I think if we knew the motives of the Fed, things would fall into place and become predictable– as it seems the Fed can do whatever it wants, nearly independent of democratic mechanisms (except appointment of the Fed chair as far as I can tell), and is accountable to nobody but itself. As the Fed was built out of the banking industry, it would be sensible to think that it is the interests (namely profits) of the banking industry that it serves. And indeed, the financial industry has recently done quite well by taking its cut of all credit transactions recently made. So the Fed has sought to get as much credit out there as possible for the benefit of the financial industry. If indeed there were another potential credit bubble, I would predict the Fed would work to exploit that too given its recent patterns. But borrowers now are in short supply.
So if people or corporations stop borrowing because they no longer can, or no longer want to, what’s the Fed’s interest at that point: inflation, deflation, or niether (in Austrian terms of money expansion, contraction, or stasis)? Now as always I suspect it would be keeping things at 2% inflation as a target. Deflation makes us less likely to take on credit, and is thus unprofitable for the banking industry. Inflation equates with debt forgiveness, which is likewise unprofitable. 2% inflation appears to be the sweet spot for the financial industry, and remains the Fed’s target.
BUT, with so much money sloshing around from lax lending standards, is it within their ability to control inflation, and keep it at 2%? Particularly a system so driven by the whims of human psychology, both as individuals and groups? Clearly, they will need to adopt rigorous deflationary mechanisms to control the obvious inflation that is upon us.
If an incipient recession is the reaction to recent excesses of credit, without further credit expansion I think price-drops across numerous sectors will be likely as people tighten their belts and demand fades.
This analysis considers only the financial sector, and not political motives upon the Fed which I’m sure are out there as well.
I think if we knew the motives of the Fed, things would fall into place and become predictable
I refer to my first comment which started this whole discussion which was that no one can correctly ascertain the correct answer to the inflation/deflation debate for all the reasons stated thus far.
What a monetary system we have, eh? No one knows where they can safely place money they already earned in order to preserve it’s ability to purchase food in the same amount as when they earned the money. Hence the continued race in and out of various asset classes in search of the holy grail. Just peachy!
Sorry for the bold type. This was my first try and I didn’t get it quite right.
Yeah Auger-Inn it was your comment way up there that I was referring to.
I just had a thought: there is the “Austrian view” of inflation which is expansion of the money supply. Then there is the “common view” of inflation which equals increasing prices of things. Deflation in each case would simply be the opposite of inflation, respectively. Now, generally the expansion of money supply equals increase in prices, and vice versa.
BUT- what if there is a disconnect between the expansion of money supply and prices… what if money expands but prices drop? What if Austrian inflation does not equal common inflation. At that point the economy is out of control of the Fed. And that’s about where I think we are.
Here is a thoughtful piece by Kenneth Rogoff on the interplay between globalisation and inflation…
————————————————————————–
The myth of central banks and inflation
By Kenneth Rogoff
Published: August 29 2006 19:36 | Last updated: August 29 2006 19:36
Central banks’ near universal success in bringing down inflation over the past two decades has led many policymakers to conclude that they have pretty much solved the problem of high inflation, once and for all. Market participants have bought into this story, as evinced by a host of quantitative and survey measures. Outside a few developing countries, nobody seems to worry much about a sustained bout of 5 per cent or 6 per cent inflation, much less the double-digit levels of the 1970s. But have central bankers truly slain the hydra of inflation?
http://www.ft.com/cms/s/ff05c5b6-3783-11db-bc01-0000779e2340.html
Today it takes 165 US Gold Eagles to pay off $100,000 of mortgage. What’s your take on the rate in 2010? 2015?
someone had a chart on this in a post back in the day.
Average US House Prices
Measured In Ounces Of Gold Or Silver
What are people seeing with inventory in your areas? With Labor Day hard upon us, is inventory in your area decreasing (with houses being pulled of the market, as some predicted) or no?
In the area I track (Hampton Roads, VA) inventory is still increasing. There are some significant price reductions, and unlike this past spring, where the price reductions led to quick sales, now even the more “reasonably” priced houses are sitting.
In the area I am tracking, inventory seems to have decreased 8-10% from last month. Many houses have just been sitting for a long time. I don’t know if there was a little late summer “blurb” of sales at the “reduced prices” (people buying before school starts), or if some people just took them off the market. Maybe both.
Inventory up in North Orange County, CA.
Inventory has been pretty steady here. I have seen another burst of sold signs about as Labor Day approaches. I often wonder if buyers are coming from bubble areas. I personally do not know anyone who’s home is for sale. I do know many who are doing expensive improvements (as housing values only go up!)Some properties are still selling within days. It is my opinion that in this area of lower price increases, next summer will be much more interesting as the “bust” awareness spreads throughout the masses.
Inventory seems to have reached a plateau. Most of the long-sitting houses in my areas have sold and closed escrow in the past 60 days. There are still a few long suffering houses in the area. Some of the recent sales set new highs for the area and that property. I am wondering if I still have time to cash out.
LI/part of Queens MLS inventory from realtor.com:
03/31/05 15,524
02/19/06 24,691
04/03/06 27,143
06/05/06 31,662
07/01/06 34,244
07/02/06 33,748* (-496)
07/29/06 34,414
*I doubt 496 homes went into escrow overnight. This number most likely reflects a popular expiration date, i.e., the first of the month. As someone mentioned above, the lesser number probably includes quite a few casual sellers who retired their homes from the market, but it’s not certain, because I don’t have “solds” statistics.
Al in all, inventory of homes for sale on mls seems to be steadying, yet still rising at an average of 40 homes per week in the last 4 weeks.
Another possible explanation for this decrease in the rate of increase is that realtors may be shunning overpriced listings. It’s become quite clear that overpriced listings are not moving at all in this market.So, why spend time, advertising funds and precious gasoline on them?
I just started tracking inventory in the area we want to buy in eventually. This past week it has gone up 2.5% per cent but I will need to watch it for a while to really see the trend.
Rental inventory is still growing in the markets I track, except for a small decrease in Raleigh.
Craiglist house rentals.
3BR
Date Phoenix Orlando Raleigh
25/03 2571 610 724
02/04 2494 637 711
01/05 2572 766 908
09/06 3014 961 903
01/07 3296 1055 979
01/08 3930 1255 1138
02/08 4034 1306 1165
03/08 4096 1347 1170
07/08 4166 1374 1186
08/08 4114 1386 1161
09/08 4242 1419 1193
10/08 4323 1432 1204
11/08 4438 1461 1214
14/08 4452 1511 1190
15/08 4553 1542 1225
16/08 4594 1551 1231
17/08 4687 1588 1248
18/08 4755 1609 1261
21/08 4846 1619 1249
28/08 5119 1749 1245
Its back to Uni time so not a big surprise for Raleigh to drop a bit. The Phoenix increas is a 288% annual rate and Orlando is 417%.
I don’t think rents are going up in these markets.
Here in and around Temple City and Arcadia CA, I see more for sale signs up and a lot of “reduced” “please offer” tags on them too. Many of the “for sale” signs have been there for over 3, even 4, 5 months. Nothing moves here.
I’d really like to see further discussion on Schiller’s chart. One of the first things that leaps to my mind is the absolute disconnect of real inflation versus the official CPI. The second thing, it looks like at some point from 1890 to 1960, there was a real economic phenomenon that allowed purchasers to pay more for their homes (hence the apparent floor at 110% of 1890 - perhaps some maturation of industrial productivity?) and along that same point, should the globalization + internet/tech innovations of the last 10 years raise this apparent floor to somewhere above 110% of 1890?
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
i learned not to trust any of these charts because you don’t know where the data came from and anyone with a few college courses in statistics can make up 10 different charts from the same data.
This is my opinion of what is happening. At least in NYC.
Is a lot of stuff overpriced? Yes.
Are there suicide loans here along with speculators? Yes, but no where near as much as california and other places.
Is there a bubble here and is it popping? We’ll find out next year. So far we are just getting back to normal market conditions and it’s a shock to some people.
Do I think NYC and the suburbs will crash? No, but it is possible. Suicide loans and overbuilding aren’t the problems here. The biggest risks are the crazy property taxes in the suburbs and the co-op boards being strict.
Can I afford anything over $350,000 in the NYC area? No. And that is a stretch on an income over $100,000.
Are there people that can afford this? Yes. Plenty of people here own a business that deals mostly with cash. Wink. Wink.
What is the current state of the market here? People are asking on average 2003 prices plus 80% - 100% over. At least this year buyers are refusing to pay.
What is going to happen next year? Who knows? I did some research and a lot of people selling are old people who’s mortgages are long paid off and they bought their $600,000 homes for a tiny fraction of the price. If they really want to sell they have a long way to go in dropping their asking price and still walking away with suitcases full of cash.
For all I know we can be in a trend here where only people with $300,000 incomes and above will own a house and the rest will own condos and co-ops. Who knows?
I’m looking forward to next year. I’m an apartment owner since 2003. Not looking to move for around 5 years and have plenty of time to research things and see what is happening. Even if prices stay flat for the next 10 years which I think is going to happen, I have a nice chunk of equity to put a huge downpayment on most homes anywhere in the US
p.s. it always amazes me how much money some people make here.
some family members sold their co-op last year and the buyers were a NYC police detective and a physical therapist. $180,000 joint income for the year.
another apartment in the co-op was bought by an actuary. $125,000 a year income.
Lately I’ve noticed quite a few taxi cabs in the driveways of some expensive homes. The medallions were dirt cheap years ago and now go for $500,000 a pop. I heard it’s a nice way for people to invest money they brought from eastern europe that was earned in a shady way.
Airport baggage handlers make around $75,000 a year. Not the airline ones, but the curbside check in. mostly tips and in cash.
http://www.doggydiva.com i bet this person makes a chunk of change
http://www.doggiediva.com/MainBody.htm
Interesting dba;….Particularly the comments regarding working “for cash”…..I think the “off the books” income in this country is far larger and IMHO, has assisted in the run up in values of real estate….
A 50K declared income with a 50K cash income has got to be close to the equivelent of 200K declared….
It makes you think, if we ever go to a vaule added or flat tax, what impact that will that have on this underground cash economy ??
No way.
$50k declared and $50k cash would net about $87k with income and payroll taxes. $200k declared would net about $138k.
I can tell you with 100% certainty that there are many CPA’s here who help their clients cheat the government. I don’t mean find deductions, but fraud. IRS even says most tax cheats are small businesses.
But even more interesting is that the cash people are basically forced to buy homes and condos. Since they report little income they have to do the no-doc loans. But co-op boards check financials no matter what kind of loan you get. if your numbers don’t add up to their standards you don’t get in. Buying real property here in NYC is basically a way to launder your tax savings. And unlike many places in the US, small business rules here. There are so many small retail stores from ethnic foods to home decor stores selling European $3000 faucets it’s beyond belief if you come from a suburb from any other part of the country. something like 95% of restaurants here are independently owned.
ExCal;….No way.
$50k declared and $50k cash would net about $87k with income and payroll taxes. $200k declared would net about $138k.
My little pee brain calculates the effective tax rate (you suggest) on the 50K to be 26%….The effective tax rate on the 200K to be 31%…
Am I missing something here Pal ???
FICA (Soc Sec) tax is only taxed on the first $94k of income. After that, you “only” pay income tax rate, and medicare, no more FICA tax at that point, so while your income tax bracket goes up, your overall tax may level out due to FICA limits.
What about State ???
Depends on the state, of course.
Some states (like Texas) don’t have an income tax, others (like California) have a progressive income tax. I don’t think any state has an income tax high enough to overcome the difference between $87k and $138k, though.
But, because of State tax the margin narrows significantly (up to 11% I believe in Ca.). And, since the comment came from dba (New York City, high tax state) I will stand by my statement…Furthermore, the less declared, and the more undeclared, the net could actually reverse with the undeclared making more NET income…
OF COURSE!!!
If you don’t declare your income, then you don’t pay taxes. But taxes aren’t 100%, so you can’t double it that way.
“i learned not to trust any of these charts because you don’t know where the data came from”
that’s another point I think I can make from my post below, I think the data from 1890 to 1922 is probably very accurate, as so much wealth was concentrated in so small an area (and those areas were the most advanced, with the greatest press, universities, etc. New York, Boston, Philadelphia, etc.)
i’ll bet the spike from 1942 to 1950 had to do with the onset of 15(30?) year mortgages. probably prior to 1922, people actually paid cash, or at least something less than 15 years amortized. Plus, before WWII the majority of Americans lived and worked on a farm. The spike probably reflects returning soldiers/sailors (weren’t airmen either soldiers or sailors?) relocating to the cities.
and how about that drop from 1913 to 1922! hey! there’s that 1913 year again!
and i’d wager that full 50% of national residential housing wealth in 1922 was within 20 miles of a professional baseball stadium. Really, how much was a farmhouse in Kansas worth? (not counting the farm, obviously) I’m no baseball nut, but how many teams were there? 12? 12 x 1200 = 15,000 square miles (and it was probably a lot smaller area than that.) I guess my point is that more land is available to reside in today, what with our newfangled transportation and communication technologies, so why shouldn’t that floor conceivably fall below 1922 levels (70% of 1890?)
16 teams, 8 in each league, from 1901 to 1960.
WW2 we had millions of people in the military and others worked in wartime industries with a lot of price controls. no one thought of buying a home. once the war was over people got married and used their savings to buy homes in the suburbs. the amount of people buying in a short amount of time is what probably made prices jump.
1913 was probably one of the periodic depressions the US used to have with regular frequency. Reason why they called it the Great Depression was probably because of media exposure. there were always depressions before 1929 with similar effects and unemployment as the Great Depression. they used to call them panics before that. 1914 also saw the start of WW1 and this caused trade and investment to get screwed up. War in europe means less immigrants coming over due to the need for people in the military and this means less demand for housing in the US.
this is how levittown got started in the NYC suburbs along with most of Long Island. Arthur Levit took Henry Ford’s model and used it to sell identical homes.
BIG gov was created to “HELP” people during the dedression, so it lasted a long time
Shiller lists two reasons in his book for this increase after the second world war: 1- the government had limited house building during the war, so the demand with almost 20 million men returning wanting to start a family was great, and 2 - the GI bill of rights gave 17 million servicemen subsidies to buy houses added price pressure.
Does anyone else find it interesting that nytimes walkthrough “blog” (supported by RE advertisers) hasn’t posted anything new since Aug. 7? Hey what about that amazing bubble chart on the blog, times??
http://walkthrough.nytimes.com/
chineese firewall at work- face it newspapers are desparate
ummm, I was reading the guardian or the independent and one of those newspapers lameted that the majority of brits believed that the government cooked up the “terror plot.” the nytimes aritcle seemed to side with that opinion since it noted: “the terror plot was developing but a long ways off.” thus, there was a big disconnect between “blair grounding the planes” and the reality of a “dangerous threat.”
as an example, bush keeps saying that “everyone believed that sadamn had weapons of mass destruction” when, in reality, “everyone took bush at his word that sadamn had weapons of mass destruction.”
the british papers, of course, dispelled bush’s accusations against sadamn in real time and, people like myself, who read british papers, saw a naked emperor running the US– and a president who didn’t read newspapers.
Tony Blair is in the same situation with the “terror plot” because, if the brits read the NYT article, they might ask: “what’s all the fuss about? was there really a threat”
Thank you Mr. Franken. What did that have to do with the discussion?
What???? “Coast to Coast with Art Bell” blog is at a different blogsite. What indeed did this have to do with the housing market?
I think he was just trying to prove that he could READ.
Now, if only he could demonstrate his ability to THINK.
As far as I can tell, the nytimes prints a few things to remain “credible” but, on the other hand, encases those rare articles in about 6 feet of propaganda and misinformation.
During WWII, the nytimes was printing stuff like: “people don’t die from the radiation of nuclear bombs, only their initial explosion.”
It’s all about find the gems and throwing out the tons of waste.
“It’s all about find the gems and throwing out the tons of waste.”
Which is what I’m grateful to Ben Jones for, daily.
Hong Kong as the US Case Study:
“The market-wide index (CentaCity Index) experienced a real
increase of 50 percent from 1995 to 1997, followed by a real decrease of 57 percent from 1997 to 2002.”
Contrast and compare.
http://real.wharton.upenn.edu/~wongg/research/bubble_july.pdf
50 percent up followed by 57 percent down = 36 percent down.
Yup, the bubble has burst. Yesterday I received a flyer from some desperate realtor. It was merely a printout with the following and his phone number:
The grammar has been left as is. Wow guys, how can I resist? Just imagine all money I can save!! Whoohoo!! To give him some credit, it was printed on better than average paper, and he had a foreign name so he probably isn’t up to speed on spelling yet. The thing that really got me, was he took the time out to give one of these to everyone in my entire apartment building, but HE DOESN’T EVEN LIVE IN MY CITY.
I think I’m going to stop calling it Real Estate, and start calling it Real Desperate Estate.
It was hard to read with his poor grammar.
http://www.controlledgreed.com/2006/08/prudent_specula.html
9:59 AM ET 8/29/06 U.S. AUG. 12-MONTH INFLATION EXPECTATIONS HIGHEST SINCE OCT.
9:59 AM ET 8/29/06 U.S. AUG. CONSUMER CONFIDENCE LOWEST SINCE LAST NOV.
9:59 AM ET 8/29/06 U.S. AUG. CONSUMER CONFIDENCE BELOW CONSENSUS 102.7
9:59 AM ET 8/29/06 U.S. AUG. CONSUMER CONFIDENCE FALLS TO 99.6 VS REV 107 JULY
WASHINGTON (MarketWatch) — U.S. consumer confidence weakened sharply in August, the Conference Board said Tuesday. The consumer confidence index fell to 99.6 in August from a revised 107.0 in July. This is the lowest level of confidence since last November, when hurricanes battered the southern United States. The fall was sharper than expected. Economists expected the index to drop to 102.7 from the initial estimate of 106.5 in July. Expectations for inflation in the next year rose to 5.5% from 5.1% in July. This is the highest level since last
“Expectations for inflation in the next year rose to 5.5% from 5.1% in July.”
It looks like the Fed’s choice between continuing to tighten and facing expectations for higher inflation may have been real…
“The Conference Board surveys 5,000 households, usually by the middle of each month. The (July) survey was completed before a recent dip in prices of crude oil and gasoline.”
P.S. The survey was also completed before the rash of “housing crash” news last week.
Wonder why sentiment is down?
Americans’ net worth falls, report says
Tuesday, August 29, 2006
Alison Grant
Plain Dealer Reporter
The net worth of many U.S. households has fallen as Americans cope with rising debt, flattening real estate values and stagnant wages, according to a report today from the Economic Policy Institute.
The study says the accumulation of stocks, bonds, bank savings or other assets aside from equity in their homes has eluded many Americans. In fact, about 30 percent of households have a net worth of less than $10,000.
http://tinyurl.com/qcjwz
MarketWatch is strangely pro-gold, I’ve noticed. I’m starting to susptect that they make this stuff up in order to increase the value of their holdings.
It’s not just paranoia. They’ve been cheerleading for gold all month, even while the price of it has been steadily decreasing.
Just not sure …
Is there a PPT vacation day today?
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=bzh&sid=12200&freq=9&time=1dy&siteid=mktw
Maybe too many investers are reading Danielle’s excellent column these days…
http://www.dallasnews.com/sharedcontent/dws/bus/columnists/ddimartino/stories/082906dnbusdimartino.31b0350.html
I can’t believe the Morning Snooze lets her write stuff like that and actually prints it. RE runs that city.
very good.
in a normal credit market most of the builders would´t have access to the bond market. their balance sheet is often very poor. the rating from s&p are close to junk or jink. and this after the greatest bull market in history.
from ende of july
Home builders’ bonds take tumble
Debt sold by D.R. Horton, KB Home and other construction companies have fallen an average 3 percent since May 1, saddling investors with losses of about 1.1 percent for this year, including reinvested interest, according to indexes compiled by Merrill Lynch. That is the worst performance of 37 industries tracked by the investment bank.
The extra yield, or spread, investors demand to own home builders’ bonds instead of U.S. Treasury securities is widening as the housing market declines. Bonds in the Merrill index yield an average 3.50 percentage points more than government debt, up from 2.25 points in late April.
The company’s $300 million of 7.25 percent notes due in 2018 fell to 90.40 cents on the dollar last week from 98.62 at the end of April, according to Trace, the bond-price reporting system of the NASD. The drop pushed the yield on the securities to 8.54 percent from 7.42 percent. Moody’s recently lowered its outlook on the company’s credit-rating to “stable” from “positive.”
more on the rating here
http://immobilienblasen.blogspot.com/2006/08/immobilienblasen-homebuilder-bonds.html
“Home builders’ bonds take tumble
Debt sold by D.R. Horton, KB Home and other construction companies have fallen an average 3 percent since May 1, saddling investors with losses of about 1.1 percent for this year, including reinvested interest, according to indexes compiled by Merrill Lynch. That is the worst performance of 37 industries tracked by the investment bank. ”
Why doesn’t the PPT protect the homebuilders bonds? Is it because bonds are less visible to the public eye than stock prices, or less perhaps because they are less-widely held in household portfolios?
“The flaw, he explained, is that their newfound critical mass emboldened builders to be overly aggressive with land commitments.
Land is where things begin and end for builders; it’s where they take their longest-term, and therefore riskiest, gambles.
“The builders have finally realized they’ve been hit with a truck, and they’re trying like mad to get out of their land commitments.”
Bingo. Here in AZ the builders are back pedalling like mad, giving up substantial options, particularly in Pinal County, the nuclear crater of the USA housing market.
How does a builder “give up” an option? Does that mean they are selling them at a loss, or writing them down for a total loss, or something else?
Nah, the PPT didn’t take the day off, Stucco. They just took the morning off. But back to work they came at precisely 1:00pm and took the HBs up and kept them up for the next hour and a half. Great work,PPT. Should earn a coupon pass from the Fed for sure.
Take a moment and look at the charts for the HBs and compare with the non-HBs. The uniformity and precision of the PPT effort is impressive. Sure wished I could manipulate markets like that!
http://tinyurl.com/ovpm8
Beazer and Ryland must be behind on their PPT dues.
Dawnal,
I admire your open willingness to post on the PPT in the face of morons who often respond with the kneejerk “tinfoil hat” remarks. Anyone who cannot see the telltale signs of manipulation is about as stupid as those who thought it was a good idea to flip McMansions for a living, and about as easy to convince otherwise.
wanted to add that at leat the consumer lives not in a “core” world like the fed and wall street
Are little cracks beginning to appear in the financial system?
http://www.bloomberg.com/apps/news?pid=20601103&sid=aM6rUS3g4Ui0&refer=us
fantastic. very telling. i like the sharp increase from the cfc bonds sold in may
i´ve made a post with the highlights and additional links to this.
http://immobilienblasen.blogspot.com/2006/08/trouble-in-bankland.html
What I find really upsetting about reporting like this the slanted viewpoint. How many times have we heard: “The Fed raised rates an unprecidented 17 times, blah , blah”, as if moving rates from a ridiculous 1% to a more neutral level of 5% is somehow heavy-handed and the cause of economic distress.
If they had gone in half-percent or 1 percent, then the Fed would have only had to raise the STILL VERY LOW rate 4 or 8 times, rather than 17. They weren’t so SLOW to drop the rates.
I was suffering from my savings not even getting inflation adjusted returns. Why are low rates “good”?? I guess because the closer you get to “FREE” money, the more the animal spirits get unleashed and the inflation runs wild.
Calm before the storm?
Bankruptcy filings fall to lowest level in 5 years:
http://www.msnbc.msn.com/id/14556876/
Go figure…
“The net worth of many U.S. households has fallen as Americans cope with rising debt, flattening real estate values and stagnant wages, according to a report today from the Economic Policy Institute.
The study says the accumulation of stocks, bonds, bank savings or other assets aside from equity in their homes has eluded many Americans. In fact, about 30 percent of households have a net worth of less than $10,000.”
http://www.cleveland.com/business/plaindealer/index.ssf?/base/business/1156840646113880.xml&coll=2
No, it’s the result of this change in the laws engineered and paid for by credit card companies. I truly believe that it will end up being a big campaign issue in the coming elections, as there is a perfect storm of bad economic events + the inability to file bankruptcy on the horizon. People are going to be PISSED that they actually have to take ownership of their bad decisions and deal with them. Someone will have to pay.
‘06 elections are too close, nothing subtle like bankruptcy will make an impact. However ‘08 is a different story.
I can’t wait to hear the spin from the Gov: “Through our excellent new law, we have helped millions of American consumers avoid the shame of bankruptcy”
The people are still bankrupt, and the Credit Card Companies are dancing the Jig.
In my darker ‘tin foil hat’ moments, I wonder if the ‘powers that be’ foresaw (engineered?) this coming crunch and got laws to protect themselves.
Ah well, you can’t squeeze blood from a turnip.
Actually, the decrease in bankruptcy filings correlates directly to the new bankruptcy legislation which went into effect October 17 of 2005. There’s a chart of filings in the EDVA here: http://vaeb.uscourts.gov/stats/trend/trend.html Note the spike in 4th q 2005 and the plunge to q1 2006. It is my understanding that the same effect was observed nationwide.
Because the data in the article is collected from June to June, the real plunge in bankruptcy filings won’t be noted until next year. Since this is an apples-to-oranges comparison, however (old Code and new Code), I would not take this to be any sign of economic health at all.
I wasn’t making that jump. It’s not a sign of economic health, it’s a sign of the brakes being slammed on by vested interests.
The vested interests certainly rammed the BK act thru, and the whipsaw on the new BK law will occur when the number of foreclosures accelerate and broke borrowers find they have been reduced to indentured workers. I suspect that the revised BK law (IMHO 2008) will allow the IRS and state taxes to be written off. Either that or BK individuals will lose the right to vote (IMHO not likely).
They will lose their jobs in the coming recession, be upside down in their home, have maxed out the plastic, and maybe have $30,000 in the bank.
My advice? Give everything away, run the cards up to the max, put some stamps on the jingle mail, then go talk to the BK attorney.
BKs only seven years, right? It ain’t like going to prison.
But you could get a tattoo, none the less.
Consumer confidence came in much lower than expected today (Tuesday). Home builders and lender that were up yesterday are going down today. I think that it may be time to buy more puts and shorts on retail and indicies.
Of course, the fed’s notes could have something good today for the bulls, but maybe not. New mortgate applications will be released tomorrow. They have been down 5 weeks in a row. Another drop will be evidence that July was just the beginning of the downturn in home sales.
maybe NOT being able to give your house away is a factor ?
http://biz.yahoo.com/ap/060829/economy.html?.v=7
Now THIS guy is screwed. Can’t finish the place and probably can’t pay for it either. Cool place though.
http://dallas.craigslist.org/rfs/200378272.html
I stopped by the local real-estate office today to pick up a packet of information that a realtor had prepared for me regarding local rentals. When I asked how business was, one realtor dryly said “very slow”. I almost felt sorry for the people who are seeing their income ruined because of the greediness of a few.
Well… it could be more accurate to say “a few” million.
If you believe the stats that show 28% of homebuying activity in 2005 was done by speculator/second homeowner, etc., types.
(or was it 40%? or maybe that figure is just for California)
Consumer confidence plunges just before the Labor Day Massacre! Are there really any qualified buyers left after Labor Day? Those unsold 4 month listings will now compete to lower their asking prices with all the other 4 month old listings, and with the builders who have absolutely no traffic in their model homes. Maybe we can rename the real estate agents “buyer’s market” to “panic market
This graph is amazing. Looks like the S&P is at the top of a double black diamond run.
http://www.2000wave.com/article.asp?id=mwo082506
Sorry-the article comes up first. But click “continue reading.” Seriously the graph is worth it.
As far as inflation/defaltion debate, I have another way to look at this. I look at it from the Globalists’ perspective (these rats are everwhere in DC):
Would it be inflation or deflation that would bring America more in line with the rest of the worlds economy and standard of living?
So long as wages remain level I pick deflation, on the face of things (in a person with none or little debt) that would improve American’s standard of living. But there are many Americans I’m sure who would love to see their debt disappear with hyperinflation, but then we are left without a currency.
Do you mean is the US standard of living going to rise (currently the US is 16th tied with a lot of 2nd tier industrial countries - see yesterdays Christian Science Monitor
“Numbers show a second-rate US”
http://tinyurl.com/ndccf
http://www.newsday.com/news/opinion/ny-walt082506,0,7473253.cartoon
Nice to see this tidbit by Steven Roach….
“It’s hard to imagine that a US-centric global economy wouldn’t be at risk in the aftermath of a bursting of the US housing bubble. Lacking in internal support from private consumption, the non-US world remains heavily reliant on selling exports to wealth-dependent American consumers. As the United States now comes to grips with the aftershocks of another post-bubble shakeout, so, too, must the rest of the world.”
http://www.morganstanley.com/GEFdata/digests/20060828-mon.html#anchor0
So much for diversifying by investing in Asia…
I think it’s safe to say that based upon all the information, comments and links posted above lead to only one conclusion: We are freakin doomed.
IMHO - I think we are going to be in a lot of pain, but it will only last 15 years or so. After the fires, regrowth. “Doomed” justs seems final.
Ok, I’ll go with that. We are freakin doomed for 15 years.
I’m just trying not to be too worried. But I’m failing that. Your post above, indicating 30% of Americans have a net worth of under $10,000 is very frightening. Combine that with the decline in America’s public school system and the increase of meth among whites in America (I estimate 20% of those who don’t get a college degree are meth addicts), and you can see America easily becoming a jungle - no rule of law. I’m not yet ready to flee the city though. The days of the jungle are probably about 5 years away.
I’ve said a million times and I will keep saying it until the next depression hits, which I believe will be soon. You can only run an economy with debt for so long. In fact, as others have said on this blog before, we are already bankrupt. Most of the sheeple just don’t know it or they claim debt is wealth. Yeah, right!
Watch Ernesto wipe out the Florida Real Estate market in realtime:
http://radar.weather.gov/radar.php?rid=AMX&product=NCR&overlay=11101111&loop=yes
Nah. Ernesto is just a kitten of a storm.
Bad news on the mortgage lending standards front. I’ve been checking the OCC’s (Office of the Comptroller of the Currency) website regularly for their new lending guidance — which was rumored to be due out this summer. There seems to be a preview of the (apparently) weak guidance to come in a paper posted today:
http://www.occ.gov/wp2006-1.htm
It’s a study/report on the effect of various subprime mortgage lending products in the Chicago metropolitan area. The upshot, as far as my not super-close reading of it went, is that while no-doc and low-doc loans “unambiguously” create a much higher likelihood of defaults and foreclosure, the agency does not want to severely restrict or prohibit such loans. Instead, they want lenders to be more careful with their underwriting (whatever that means).
One annoying thing about the report that jumped out at me is that the period primarily studied — 1999 to 2003. The fact that this was a boom period for the housing market is not considered a mitigating factor. Nevermind that this was a rosy time for home prices: The author concludes that ARMs, balloon payment products, and various other tricky types of mortgages pose no real problems for subprime borrowers. Well of course they didn’t then, if prices were going up. But, uh, what if they flatten or go down? An obvious question, you’d think.
I know this notice is a bit late, but you all may be interested in listening to NPR’s “Talk of the Nation” today. The topic is “The Burst of the Housing Bubble. What it means to you.” Or something like that.
I know this notice is a bit late, but you all may be interested in listening to NPR’s “Talk of the Nation” today. The topic is “The Burst of the Housing Bubble. What it means to you.” Or something like that.
CAN’T KEEP UP!
I was out all day today. I came back home and am trying to catch up…and I can’t!!! It’s impossible to keep up with all of the housing bubble news. Coincidentally I ran into my landlord on an evening walk and he said his house which is for sale has only had 2 people come to look at it (the house is an absolutely gorgeous 60s ranch, but anyone who can afford it at $190K will want something new), and his grandson tried to buy a house in nearby Republic, MO for $100K but it sold before he could put in his offer. So the news is conflicting and frenetic. Is housing bubble blogging an addiction? It’s like watching that train wreck only the slow motion and gone into high speed. Yikes.