OFHEO To “Avoid Disrupting The Market”
Some housing bubble news from Wall Street and Washington. Origination News, “Subprime lender ECC Capital Corp., Irvine, Calif., posted a stunning $54 million loss in the third quarter, citing loan buybacks and early payment defaults. Through the first nine months of the year, the publicly traded nondepository lost almost $80 million.”
“ECC said it is continuing to “experience higher levels of repurchase claims generally relating to early payment defaults.”
“Williams-Sonoma Inc. on Thursday posted lower third-quarter profit and cut its outlook for the fourth quarter due to weak demand for home goods.”
“‘We are increasingly concerned about the ‘home-related’ macro-economic environment, as well as the competitive landscape,’ CEO Howard Lester said.”
From CNN Money. “Economists think it’s looking more and more likely that the Federal Reserve will hold interest rates steady for quite a while, maybe through all of next year. So investors hoping for a rate cut in 2007 may need to kiss that wish goodbye.”
“‘There’s no reason to assume that inflation pressures will come down quickly so it’s very unlikely the Fed will ease anytime soon,’ economist Chris Probyn said.”
From Bloomberg. “Central bankers and finance ministers from the world’s 20 largest economies may say inflation risks have increased amid the fastest global economic expansion in decades, raising the specter of higher interest rates.”
“‘They’re more concerned about inflation than growth,’ said Jean-Michel Six, chief European economist at Standard & Poor’s. ‘There will be more hikes from the European Central Bank and the Bank of Japan. The Federal Reserve will pause, but it won’t cut rates until the second half’ of 2007.”
From Reuters. “The conforming loan limit for mortgage finance giants Fannie Mae and Freddie Mac will be frozen for a year if national home prices decline in 2006, the Office of Federal Housing Enterprise Oversight said.”
“The agency said it was anticipating a drop in average home prices since September’s average price saw a 3.1 percent decrease from a year earlier.”
From MarketWatch. “James Lockhart, director of the OFHEO, said the decision to freeze the limit was made to avoid disrupting the market.”
“‘If house prices fall, loan limits should reflect that, but we need to ensure an orderly and transparent process for any downward adjustment,’ he said. ‘We want to make sure that guidance exists to avoid disrupting the end-of-the-year pipeline of mortgages or the market for mortgage-backed securities.’”
Here’s a good one
http://www.smartmoney.com/mag/index.cfm?story=december2006-homes
Oh boy. I couldn’t finish this article. I can’t stand how they pointed to interest rates as a reason for a market slowdown FIRST. Did they even mention any of the other factors?
“According to Winzer, any market that’s more than 30% overvalued is due for a correction.”
Who is this person. Can you say, “NO SH*T”?
But even more retarded is saying that 60% of households nationwide can afford the median priced home. Where di dthey get that stat? Morons. Connect the dots. With places like LA at 19% median to median, there must be a counterbalance somewhere in the US. Hmmm, where should we look first?
THESE BS ARTICLES MAKE ME SO ANGRY!!
But thanks for linking it TX.
p.s. 19% stat taken from article - which I think is also BS.
Also from Smartmoney article:
“Ramirez paid only $475,000. Buying in a falling market made him nervous, admits Ramirez, “but I paid a 2004 price for this house.”
Smooth move, Exlax!
Now by the end of 2008, you’ll only be 20% down for 5+ years instead of 40%-45%. You must subscribe to “SmartMoney Magazine”, cause you one “smart” guy.
You economic “Panther”! With great fury, you “pounce” on already dying prey!
Love it……….They never wait till the falling knife hits the ground………what is it with falling knives that makes poeple want to catch them in flight?
Same thing that makes them want to buy tomatoes at Von’s grocers when their is a 25%-off sale.
I suspect they mean that 60% of households can afford THE nationwide median home price. Of course, that does me precious little good in San Diego, but I can sleep well at night knowing that the odds are with me that a nationwide median-priced home is within my reach.
Talk about meaningless.
Hey, how about this? 99.8% of American families can afford the global median house once we factor in the 3 billion hovels and mud shacks in slums and rural villages all around the world.
Now THAT should really make us feel much better about things.
I wonder how those 2 guys in this article are gonna feel about their laons when the house sink another 10-20% at minimum. That view of the Sierra Nevadas better be well worth it.
OCDan, that was exactly what I was thinking. If you’ve just bought something that has plunged 30% in price, almost inexplicably (given the hype around real estate in particular) how can you NOT feel a little bit uneasy?
And I love how the article describes a “buyer’s market” where you can save “3-6%”. What?
If all you can negotiate, in a market like this, is 6% off, you might as well just liquidate all of your assets and light the proceeds up. If you can’t get at least 20% off you’re going to be under water in a year and for the next five years, geez.
Simple. 60% of American households can afford the median priced home using today’s no-doc, interest loan.
if its a no-doc loan than 100% of people can afford any price imagineable. I thought this was the whole problem in the first place with most people and the no-doc loans with ARM or IO? Since they cant do any form of simple math, they think that the house price will keep going up and the interest rates will keep going down.
You will make yourself feel better if you review the number of past times when affordability approached anything near as low as its current level in SoCal (almost never) and how often affordability subsequently improved (always).
I couldn’t finish it either.
Facts: Reno/Sparks has a median income of about 65K with a median home price of about 389K. 20% of all home loans are of the toxic variety. Casinos and tourism are the main industries here with many warehouses and a couple Nasdaq tech companies thrown in. There is nothing here that supports home prices this inflated. Absolutely sickens me.
Smart Money, BusinessWeek, etc. are MSM Judas goats aimed at leading the sheeple en masse to whatever fleecing or slaughterhouse the market-makers have prepared for them.
Yeah, you’ve got love that their “expert” says that Dallas is underpriced by 18%, and that Greeley, CO (leading the nation in foreclosures per capita) is fairly valued. Genius!
Great link, TxChick.
“South Florida real estate broker Mike Morgan recommends that his clients take 1% to 3% off the price every week until they get an offer.”
This is the Mike Morgan we follow via Mish’s blog. That is THE way to move a property in today’s market, IMO – a real Dutch auction. We sold that way and I wanted put in the listing that we’d keep cutting until it sells. (Wife vetoed.)
BTW, I wrote to Mish last week and he will try to get a followup interview with Mike online very soon.
“raising the specter of higher interest rates”
Now that speculators got killed off by the fed,
the new fed target is homeowner extracting equity.
Wages/Salary isnt stellar nor is savings. Whats left!
‘St Louis Federal Reserve President William Poole said on Thursday the Fed should play as limited a role as possible in a financial market crisis and took aim at Fannie Mae and Freddie Mac as a looming source of risk. ‘What should the Fed do when financial instability strikes? In most cases, nothing,’ Poole told a monetary conference.’
‘For the first time in three-and-a-half years, foreigners sold more Treasury issues than they bought in September, the U.S. Treasury Department said Thursday.’
Uh Oh, Selling ? Like myself I think they want higher rates ! I’m seriously upset the Fed hasn’t taken rates higher, I like my interest income !
Fascinating, China buying US Bonds while Japan is dumping, now China is planning on diversification - which asks the question - to whom?
The faster China gets rid of dollars, the faster the prices of Chinese goods will rise, the slower their economy will grow.
Sure, they can get out of dollars but they can’t avoid the consequences.
Our economy is China’s… and China’s is ours.
I keep saying this, …and people keep saying I’m wrong, …and thing just keep rolling along.
Why all these contingency plans for Armageddon when the economy is so strong?
Congressman Ron Paul asked him why the Money measure - M3 - has been
growing for the past several years. WHY, If Inflation, which Greenspan
claims to be trying to control, is caused by growth in the Money Supply, why
has the FED allowed M3 to grow unchecked since 1992?
Greenspan replied, “… We have a problem trying to define exactly what
MONEY is…the current definition of MONEY is not sufficient to give us a
good means for controlling the Money Supply…”
Congressman Paul asked “Well, if you can’t define Money, how can you
control the Monetary System?”
Greenspan replied “That’s the problem…”
The FED is powerless. They follow trends yet exacerbate the problems and then create new “unforseen” trends with their actions. They started this ball rolling (although it was unforseen) and are now going to just run away from the carnage they created and blame it on outside market forces.
“So I gave matches to a bunch of four year olds, what’s the worst that could happen?”
Ron Paul is awesome. He not only asks the vital questions that no one else in Congress will ask, he does so each and every time Congress strays from the minimalist approach that he (and I) believe was ordained for federal government. The archives of his speeches to Congress and his writings at Lew Rockwell make great reading for anyone tired of too much government intervention in anything and everything. (Links available, of course)
Hear hear. My disgust at the Republicrats (Dems & Republicans are practically indistinguishable, so let’s just merge ‘em) does not extend to Dr. Ron Paul. The man is a pillar of integrity, vision, and intellect in the “Parliment of Whores” as PJ O’Rourke aptly labeled our Congress. I wish he’d run for President.
He did in 1988 as a Liberterian.
Not many votes.
Ron Paul fans should look into the Free State Project and its First 1000 pledge.
Paul’s 1988 campaign is still the second best ever result for a Libertarian. (Best is Ed Clark in 1980, Clark’s campaign was funded by billionaire Ed Koch as the VP nominee. They got over 10% in Alaska.)
Diffculty defining what money is - I struggle with this. If the FED and govt is having problems defining what money is I will be more than happy to help them out. My new definition is money = dirt. Can i deliver my tax payments in bags or do I have to use a dump truck? Seems to me that the difficulty has been created by the govt itself with a fiat currency that is changed on a whim by the Fed. This has led to money being equal to a belief and not a tangible factor. When this happens anything is on the table.
RMB — LOL — too bad the reply to Greenspan wasn’t, “Let’s ask the IRS.” My book on the origins of taxation is buried somewhere, but I remember from it that the best-preserved records from all time usually were tax rolls/records.
The origins of taxation usually have something to do with whomever has the biggest sword and the power to swing it.
As the symbol of the Senate is the Fasces, the symbol for the IRS should be a guillotine with the trip rope clutched in the condemned’s hand.
Any monetary system can work, the trick is having the power to make it stick.
“This has led to money being equal to a belief”
Gold, Paper, Shells, Sasquash droppings = belief. money IS belief.
If I understand this right, these mortgages all get bundled and sold as MBS to FNM or someone like that. The MBS holder has the option to require the originator to repurchase the mortgage.
What conditions can trigger the repurchase? And what happens if the originator defaults on the repurchase? Is the MBS just stuck with it?
Does FNM lose in this transaction?
When the loans are bundled, the buyers generally require banks to buy back any loans that miss their first few payments. This way they have some protection from shoddy underwriting.
It used to be that a first payment default triggered buyback, as that would reflect immediate fraud. The window has been extended out to a year in many cases, and payment default is not the only criteria. When these loans have landed back in the originator’s lap, they have be subject to quite a hair cut, as no one wants this toxic goo. New Century admitted to a 12 POINT hair cut in their announcement last week, HR Block and Option didn’t fare much better. From the inside, everyone is running scared, buybacks are posted on the wall like a scarlet letter. When you start to see the kind of losses these companies are getting slammed with, you better believe they are finally paying attention. By the way, I still get two or three calls a week from an inside sales person at Encore.
Another report from the Land of Deserted Mortgage Boiler Rooms: Coast Hills Financial, on the ground floor of Center Tower at South Coast Plaza, just closed up and moved out.
Too bad. I really liked checking out their receptionist every morning.
Maybe you can “hire” her now.
good info thanks.
http://www.signonsandiego.com/uniontrib/20061020/news_1b20auction.html
Worth reading Robert Cambells take on this auction as he was there. He posts on the SDCIA board. No way homes owned by a group of Lawyers are going to be a good deal anyway.
“The fact is, San Diego is not the hottest place right now to sell homes,” Lobel said. “The good news for us is this auction is generating a tremendous amount of interest.”
The bad news is they sold 0 homes at that auction, despite the tremendous amount of interest.
I hope that someone on the blog had enough interest in the failed auction/location to track the properties’ movement in the afterlife.
OC Renter’s blog has had a couple of posts on it.
Bubble Markets Inventory Tracking
I love the head line from CNN Money Piece:
“Beware: No rate cut until 2008
Minutes from latest Fed meeting show the central bank, still worried about inflation, might stand pat through 2007.”
As headlines like this prove to be reality, we shall hear the growing rumble of thuds dropping in trousers across our fair land.
I’ve been saying this for a while. Many keep thinking the Fed will have to cut to “save” the economy, “save” all the loans. Inflate their way out…
Got news. FED DON”T CARE about your house and the idiotic loan you were dumb enough to buy it with. FED CARES about what they own and have the license to print. MR DOLLAR… Without Mr. Dollar FEd has nothing.
Sorry Suckers. Due to a unique convergence of circumstances John Q Public was given the opportunity to secure 30 yr fixed money for what amounted to “FREE”. Instead, many took the bait and used toxic loans to go for the “BLING” that they really couldn’t afford. The circumstances have now changed. As far as Fed is concerned “too bad, so sad”.
Little guy’s gonna get what he always gets. JMHO
From Ben’s comment above:
‘What should the Fed do when financial instability strikes? In most cases, nothing,’ (St Louis Federal Reserve President) Poole told a monetary conference.’
This sentence says it better than my two paragraphs.
Yep so true. Bye bye middle class.
CASH WILL BE KING! PAY OFF ALL THE DEBTS. Secure low-cost housing, have cash under matress, maybe some silver and gold coins, just in case, and stock up on supplies (take this one anyway you want), and hunker down. Oh, there will still be a middle class when this is all over, but you better believe it will be everyone who cashed out and/or has cash/other assets available. When this is over, the middle class is going to be AT LEAST 40% smaller than before this whole bubble began. Many people are going to be cleaned out by this mess.
“Got news. FED DON”T CARE about your house and the idiotic loan you were dumb enough to buy it with. FED CARES about what they own and have the license to print. MR DOLLAR… Without Mr. Dollar FEd has nothing.”
AMEN. Let this serve as a warning shot across the bow to all the dopes (Badger Boy) posting on about how the FED will save the FBs and their loan pushers. The FED has two things to worry about:
1.) Reserve Currency Status
2.) Keep selling our Treasuries
Lowering interest rates/firing up the helicopters will not be good for either of them.
first, chill dude. and remember, talk is cheap. so, we shall see.
As a renter who owns cash and PM, I win either way. I hope he lets the FBs fry, but I wouldn’t hold my breath…
“As headlines like this prove to be reality, we shall hear the growing rumble of thuds dropping in trousers across our fair land.”
What an image! imploder, I agree. The Fed only cares about Senor Dollar. If their actions crush all the FBs, then that is fine. Actually, that is fine by me as well, at this point. Dude, your comments are the best!
Greenspan suggested homeowners were making a bad choice with the 30 year fixed and should choose the variable rate instead….. didn’t he.
Gee. Once a banker always a banker. From a bankers point of view, which is the preferred? 5% (free) money, or adjustable money?
Dear Imploder: Doesn’t John Q P. understand that economy like roller coaster (think 1999 & 2002)? And that at most, it will be 6 years of nuts before the flushing sound is heard ? I took the feds cheap money @ 5.2% for 30Y fixed. Had only 30% of the house left to pay. Payments went from ~1200 for 20Y fixed to 600. NO CASH OUT, NO HOME EQUITY LOANS. Me crazy?
“me crazy?” Not in my book. I would have done the same, but I didn’t want to stay where I was, so I sold in July of 05.
“Avoid disrupting the market” — Have recently posted about putative sale of a lot-plus-mobile-home on which I am owed $34500. Although the first buyer backed out, there is a new prospect who is offering $55K ($3K less than previous offer). The new buyer wants to know if I am interested in lending MORE than $34500 on the property. I told her I am entitled to collect the entire $34500, it’s “due on sale,” but that I am willing to lend $34,500 towards the $55K purchase [TO AVOID DISRUPTING THE MARKET]. My guess is she’ll find the dough elsewhere, since my rate is 9.6% and someone will be willing to lend 80-90% of purchase price. Not me, I’m trying to exit this business noiselessly.
Goody goody: now they tell me they have a CASH buyer. There goes another $34500 of my money into foreign currency asap.
1099 question on incentives
builders offering furniture ? probably
how about closing costs- do they 1099 the buyer
how are the other players different? only by degrees
Subprime lender ECC Capital Corp., Irvine, Calif., posted a stunning $54 million loss in the third quarter, citing loan buybacks and early payment defaults. Through the first nine months of the year, the publicly traded nondepository lost almost $80 million.”
Homebuilder confidence up: http://tinyurl.com/y85ges
There’s probably quite a few COE’s that haven’t cashed out yet. Maybe they thought they’d better put some lipstick on that pig.
That is a huge contradiction. They just had a meeting in the last week with all the major homebuilders and they were all unsure where the bottome was. Noone of them tried to sugarcoat it. They were all concerned because they didn’t see any lights at the end of any tunnels. Mas Propoganda
No $hit! We’re supposed to think the downturn reversed itself 180 degrees in the past week? They were just on CNBC talking about how this is the worst they’ve seen it in their careers. Liars, nothing more. Move on.
The orchestration is pretty transparent: First they told everybody how unbelievably bad everything was for the past six months, while their share prices magically bubbled upwards against a steady stream of worse-than-expected news. Now they are signalling that the worst is behind them, and there has never been a better time to buy (either stocks or houses!). Never mind that no capitulation took place — this is the third millenium, and stock prices no longer capitulate like they did in the second millenium. Of course, there is no law of economics that says capitulation has to follow after a 50% price drop, but I bet examples are rather scarce pre-Greenspan.
All of the babble about homebuilder confidence, interest rates, inflation, etc. is basically noise until something changes to make homes more affordable. And, based on my simple calculation, there are three dials you can adjust: (1) wages up, (2) interest rates down, or (3) home prices down. Even if (1) and/or (2) have the theoretical potential to “fix” the affordability problem, I don’t think they will/could arrive in time. So that leaves (3) housing prices down. Part of the cool-aid that is fed to the masses is making the above seem like a complicated riddle that is linked to astrology and other nonsense and can only be deciphered by Liareah and his ilk. It isn’t. As I tell people, just do the friggen math.
The builders are leveraged to the hilt. Any stories told here about how they can outcompete the used home sellers seem to omit this fact, as well as the little problem that $125,000 cars are a pretty big expense to use as an incentive, and also that they may eventually be charged of aiding and abetting appraisal fraud for selling homes at inflated prices equal to market value + value of Maserati incentive. JMHO, of course…
I’m ecstatic!
With that $417,000 (from the Marketwatch article) I’ll soon be able to buy my big house in Stanton!
Stick to La Palma. Stanton is getting a bit too uppity.
For the last couple of years the people on this blog have pointed out how sub-prime lenders would simply package up their risky mortgages into investment packages and sell them. This allowed them to ignore the inherent risks involved in lending huge sums to people with bad credit. Instead they simply pocketed the fees, declared huge profits and cashed in their big bonus checks.
But NOW it turns out that all those bundles of mortgages had a buy-back clauses in case of under performance or excessive foreclosure activity. This is HUGE. It means that ALL the sub-prime lenders are toast. It means that those bundles of mortgages will be off loaded at fire sale prices as the lenders go into bankruptcy.
So it’s not the dumb foreign investor who will be left holding the empty bag. It will be the domestic lenders and their stockholders and employees.
This is just one more sign that our economy is on the verge of a total meltdown.
Yes, the stock market may look bullish. But its like a blindfolded bull with a red hot poker stuck up it’s ass. It will charge forward like mad until finally it brains itself on a tree or runs off a cliff.
Or until bonuses are safely pocketed. Which is not long now.
The market has topped in this time frame each of the last several years.
It’s easy to play the game when you are using other people’s money
Investors will wise up eventually. They are sowing the seeds of their own demise…Besides, short-term I think many of the funds are running low on cash. There may not be much fuel left to feed the fire.
Anybody think tax loss selling will be a significant factor this year? I am hoping some of the folks holding home builder shares from much higher will want to offset gains in other areas.
Speaking of timing, isn’t this the sign some folks were looking for a few months ago?
“A cat, Mimi, nurses what its owner Cassia Aparecida de Souza claims are Mimi’s own offsprings born with dog traits last Friday, three months after mating with a neighbour’s dog, in the southern Brazilian city of Passo Fundo, Rio Grande do Sul state, November 15, 2006.”
now this is what imploder calls news! imploder didn’t read this at Savon and imploder read EVERY magazine…TWICE! links?
It is on Yahoo most popular (pictures).
Who on this blog has been predicting the demise of the stock market and the economy the longest? How many months or years have you been making that prediction? What was the Dow level when you first made that prediction?
Anyone gonna step up?
Bill — your question is a snooker, and you know it. That’s why you don’t see a swarm of response. Best I recall, you acknowledged early on, *in your recent time here*, that you’re in the real estate business, n’est pas?
I post to cheer on or, hopefully, to entertain with humor and occasionally to impart real news. I’ve wondered about your own motives — haven’t figured you out. Why are you here, Bill?
What’s your point, Bill? We were early on housing, too; doesn’t make us wrong.
Ahem…
Pardon me…is this thing on?
I do recall discussing the fact that buybacks would create a financial meltdown. I brought that up last October on this blog.
Back then, a bunch of bullish folks told me I was wrong. Funny how things can flip in just one year.
yes i too discussed recourse contracts and buybacks from securitized pools. even so there will be many sub prime shop owners/execs who have gotten alot of garbage beyond the recourse period.
the capitalization of these subprime lenders is thin at best, it sounds like encore is good for a few more weeks. the bigger question is- after the stockholders get wiped out and encore, nfi, etc. get shut down, will the bigger money center banks (wells, citi, chase) that finance their warehouse operations take it in the shorts as well?
better, or worse, than the capitalization in your post?
(But NOW it turns out that all those bundles of mortgages had a buy-back clauses in case of under performance or excessive foreclosure activity. This is HUGE. It means that ALL the sub-prime lenders are toast.)
Are any FDIC-insured institutions?
Yep. 2007-09 is going to be a very interesting period for American banks. Something we haven’t seen since 1987-89 or so.
FDIC-Insured
Checking Accounts (including money market deposit accounts)
Savings Accounts (including passbook accounts)
Certificates of Deposit
Retirement Accounts (consisting of cash on deposit at a bank or thrift)
Not FDIC-Insured
Investments in mutual funds (stock, bond or money market mutual funds), whether purchased from a bank, brokerage or dealer
Annuities (underwritten by insurance companies, but sold at some banks)
Stocks, bonds, Treasury securities or other investment products, whether purchased through a bank or a broker/dealer
“But its like a blindfolded bull with a red hot poker stuck up it’s ass.”
Finally. I have the perfect thing to say (with your permission) when I hear yet another e-trade margin freak tell me how great the market is.
It seems to me you’ve got a bunch of really dumb money running the stock market. Probably the same dumb money that was flipping houses. Any news is good news, even bad news.
The amount of energy be used to prop this market up is beyond comprehension.
Same thing holds true with the housing market. The Fed is trying to say it thinks a housing crash has been averted, when what the country REALLY NEEDS is a housing crash.
Since it’s all undecipherable insanity, our best bet is to do other stuff.
I’m seriously considering swimming to Catalina Island to work off some excess stress.
As a concerned former lifeguard, please let me recommend swimming parallel to shore. A quick dogpaddle up to Santa Barbara should de-stress you nicely, and the poor overpaid guards won’t have to swim near as far to fish you out when you get a leg cramp.
Yea, imploder’s got a fistful of”really dumb money” says you won’t make it, and may very well end up in the “least of all stressful conditions known.”
“Williams-Sonoma Inc. on Thursday posted lower third-quarter profit and cut its outlook for the fourth quarter due to weak demand for home goods.”
“‘We are increasingly concerned about the ‘home-related’ macro-economic environment, as well as the competitive landscape,’ CEO Howard Lester said.”
What Howard means is that there are no buyers for $200 Japanese chef knives because the granite countertops are in foreclosure.
It should be possible to get a suicide loan on a $200 steak knife. Suicide taken literally in this case.
Correction: $200 Japanese chef knives made in China for $2…
imploder “the stock market genius” makes stock suggestion useable for next couple years:
“Sell” Williams Sonoma, “Buy” 99Cent Store.
This is quite possible. NDN and DLTR both exist and are well-traded.
I actually did by 99 cents store stock (NDN) a while back for that logic.
Good call.
‘They’re more concerned about inflation than growth,’
Of course they are. They want the paper they peddle to be perceived as valuable. If it’s not perceived as valuable, then the federal reserve is out of business.
Watch as the interest rate changes follow the price of gold, because gold is the ultimate competition to their printing presses.
Predictions on housing starts tomorrow anyone?
OT: As we discuss economics here is the news of one notable person passing way.
Nobel economist Milton Friedman dead at 94.
http://tinyurl.com/ykauzp
I’d be a lot wealthier had my economics professors taught Friedman instead of Samuelson.
Milton was an economic and rational giant.
I agree with jag. Friedman was a giant in free-market economics. Samuelson was famous only, as I recall, for his thoughts about comparative advantage, itself a squishy subject. Unfortunately, in college we were/are not given a choice as to which school of thought to study or follow. The most unfortunate students, IMO, were led to believe that Galbraith was worth more than noting as a wrongfellow.
Chip –
Did you read A Short History of Financial Euphoria? I suggest you reserve judgment on Galbraith until you do so.
As for Friedman vrs. Samuelson, the latter clearly won the battle for the hearts and minds of higher educators in US college and university economics departments. Not sure if Friedman had a horse in the race, though…
“‘If house prices fall, loan limits should reflect that, but we need to ensure an orderly and transparent process for any downward adjustment,’ he said. ‘We want to make sure that guidance exists to avoid disrupting the end-of-the-year pipeline of mortgages or the market for mortgage-backed securities.’”
Is the conforming limit only allowed to adjust upwards, since real estate prices always go up?
GS — I read this, perhaps too innocently, as meaning they will adjust the limit down. Not today, of course, but on a quiet day soon.
Chip — I read that to mean that they don’t want to make downward adjustments to the conforming loan limits either a signal that the market is dropping or a factor in precipitating the drop. There are risks of both occurring if they adjust the loan limits to follow the market down.
When is all this going to affect the stock market? I just moved (will execute after market close) 50% of my 401K from stocks to a fixed income fund, and will probably move the rest in the next few weeks. I will sit on my 15% gain for this year and be happy.
The market run seems to be defying all of the news, domestic, business and international. Was listening to a technical analyst today, and he was making a good case that the run is on its last leg, driven now only by dumb money (investment houses slowly reducing positions).
Anyone else moving to something safe and secure, or am I just chicken little?
is your retirement target date more than 10 years out? If so then why would you be leaving equities?
Wow. Using that logic, why not buy a house?
here is an excerpt from an email response i received from a relative (older,successful,international finance specialist) to my question “if you were me would you shift any 401k money into bonds at this point?”
The correlation of the house building cycle and the economic cycle is not new (despite the author’s sense of epiphany!). Nonetheless, if sufficiently depressed, the home building sector can indeed drag the economy into recession. I don’t believe we are at that point yet but these things bear watching.
If you need the funds over the foreseeable future, bonds (short to medium dated fixed income instruments) may make sense. If you have a long range outlook (10-20 year range) for the monies in question, I would rather you stay in equities (diversified portfolio). This presumes that you have the discipline (you do) to tough out the down periods. If you do you should achieve superior returns over the LT. You know the argument…….
Bonds offer security of income and principle (high quality investment grade/not junk), greater stability of value (if you stay under 10 years in FMD). Some would say they are primarily good for getting out of jail! Using them to “time” the market is not advisable in my opinion.
Hope this helps.
“Bonds offer security of income and principle”
How did they do during the last stagflationary period of the 1970s?
Got slaughtered.
“(investment houses slowly reducing positions)”
China slowly reducing position
I’m with you but I’d be careful about what type of bonds you buy. Credit spreads are still ridiculously narrow. I can easily see, in a recession, Treasuries going up in price while spreads widen with corporates (to reflect a more reasonable risk ratio between the two). Maybe not so bad with high grade corporates but definitely a problem on the low quality end of the bond market.
The housing market index improved to 33 in November from 31 in October, the National Association of Home Builders reported. The index had fallen for eight months in a row to a 15-year low of 30 in September.
The index shows that about one-third of builders are optimistic about the housing market. A year ago, the index was at 61 and it peaked at 72 in June 2005.
Economists surveyed by MarketWatch had been predicting the index would remain at 31. See Economic Calendar.
“More and more builders are seeing light at the end of the tunnel,” said David Pressly, president of the NAHB and a builder based in Statesville, N.C. “Our members are telling us that the market is steadying after a significant downward correction. We look for sales to stabilize and gradually move up in the coming months.”
Does the fact that 77 percent of builders confidence is still low mean anything anymore? Market manipulation at its best if you ask me.
Hmm, the recent statements from the CEOs of the HBs don’t seem to support this. The statements recently have been more along the lines of this downturn is going to be longer and deeper than we expected, and we see nothing that says things are going to be any better in 2007. So, what seems more likely to be true: statements of CEOs on the record or anonymous poll results? IMO, I think that either they’re lying in the poll to make the market seem better, or the rise is just statistical noise.
I would guess the Sunvek management, for one, is feeling much more confident now that the bankruptcy judge has relieved them of all their money-losing executory contracts while allowing them to keep the deposits (see the next post for more info).
Good news is all relative.
“…we need to ensure an orderly and transparent process for any downward adjustment…”
For some reason, that reminds me of the life boats on airliners. Can anyone name a time in recent history when they were both vitally needed and used successfully?
They had some lifeboats on the Titanic, but it turned out there were not enough…
Reminds me more of Kevin Bacon in Animal House - “All is WELL!!!!! REMAIN Calm!!!!”
“Central bankers and finance ministers from the world’s 20 largest economies may say inflation risks have increased amid the fastest global economic expansion in decades, raising the specter of higher interest rates.”
More cheap talk from Bloomberg here which should be discounted unless accompanied by action from the Fed. IMO, they are terrified at the moment of the prospect of deflation, given widespread reports of deflating housing prices. Never mind that asset prices don’t count in the inflation statistics…