“What Indicators Do You See Pointing To A Recession?”
Several readers suggested a topic on the overall economy. “I would like to see a discussion on what ‘nebulous’ indicators do you see pointing to a recession: I was at a trade show in LA and noticed that a lot of women wearing long dress skirts. Recalling from my early econ class: An indication of a recession is long skirts. Short skirts/fashions indicate a booming economy.”
One answered. “I drive through Visalia, Ca. about once a week and there are 1/2 a dozen 50 house lots that the graders are doing their thing to and it looks as if they’ll build the houses, although there is no need for more new houses, with over 2,000 on the market, in a city of 100,000.”
“What do you think goes on in the brain trust of the homebuilders? Is it that they’ve bought the land and all the building material already and full speed ahead, damn the torpedoes, or are they just house building savants that don’t know any better?”
Another said, “I noticed a few weeks ago that Home Dumpo isn’t even staffing the registers in the middle of they day now. Just one person at the ’self check out’ section. How much does one low wage cashier cost? They must be pinching pennies.”
A reply, “I visited Home Depot last summer when I was in the States. Nobody was at the checkout registers. I thought to myself WTF? Nobody wants to take my money. Finally someone directed me to the ’self check out’ booth and I almost laughed my azz off thinking about how that ’self check out’ booth would go down in Moscow. I left the items I wanted to buy at the booth and went to Lowes.”
Another anecdote, “In mid-October, I visited a Lowes store in Tucson. Only one cashier in the main store, and this was on a lovely Saturday morning. (Perfect for doing projects around the house and yard!) The garden center had one cashier station open, and they briefly opened a second to handle a sudden uptick in traffic.”
One looked at the media. “A broader topic that I have been thinking about: Does the MSM contribute to the risk of severe financial dislocation by hiding the proverbial elephant under the rug?”
“Because we keep seeing story after story in the press these days about the housing market ‘bottoming out’ with no supporting evidence. In fact, occasional items suggesting the inventory of vacant new homes is at a record high level, builders are continuing to pile on the new inventory, prices are falling faster than official statistics reveal (thanks in part to builder incentives masked by fraudulent appraisals) and foreclosures are rising all generally point into deterioration, not a bottoming out.”
“At some point, happy talk loses its force when any greater fool can see the huge gap between what gets reported and the evidence on the ground. Even so, we have seen an occasional post documenting how the LA Times kept talking up a recovery from roughly 1989-1996 last time around (and by 1996, they were right!).”
A reply, “The GF(s) out there just want what they want, so they gleefully skim over negative reports and focus only on the positive spin that will help ratify their decisions.”
One asks for a definition. “What’s YOUR definition of ‘recession’ and are we already in one?”
The Washington Times. “Economic weakness spread beyond the stricken housing and auto sectors last month, with reports showing U.S. manufacturing shrank for the first time in 31/2 years and construction dropped the most since the September 11, 2001.”
“An unexpected decline in construction of offices and other business facilities in October added to a record string of drops in housing construction of more than 1 percent in the last seven months to cause the biggest drop in construction spending in six years, the Commerce Department said yesterday.”
“‘Industry is clearly going through a rough patch’ that few anticipated, said Daniel Jester, analyst at Moody’s. Outside housing and autos, the Federal Reserve had expected business to pick up rather than decline this fall, supporting a so-called ’soft landing’ in the economy.”
“‘Two major manufacturing markets are declining — motor vehicles and housing — and many other industries are trying to adjust inventories to adjust for a period of much slower growth ahead in 2007,’ said Daniel J. Meckstroth, chief economist at the Manufacturers Alliance.”
“The ‘awful’ collapse of the construction market in October means that sector is likely to be a major drag on economic growth for the fourth straight quarter in the final quarter of 2006, according to Economy.com estimates.”
“‘Housing slowdowns tend to lead recessions rather than result from them,’ said economist John Makin. ‘An annual drop in the growth rate of residential investment of more than 10 percent has coincided with a recession five of the seven times it has occurred since 1965.’”
From Bloomberg. “The housing slump is also resulting in job cuts at construction companies and related industries. Builders shed 26,000 jobs in October, the most since February 2003, the Labor Department said. ‘The weakness in orders and obvious further declines in housing-related activity suggests more weakness in coming months,’ said Steven Wieting, managing director at Citigroup Global Markets.”
“‘Construction and manufacturing are certainly the anchors weighing down growth at the moment,’ said economist Joshua Shapiro. ‘Consumer spending is hanging in there, but there are certainly a lot of crosscurrents that will lead to pretty anemic growth in the fourth quarter and probably the first quarter as well.’”
The Palm Beach Post. “Ask Nancy Bagley about the relationship between the housing slowdown and her net worth, and the Delray Beach homeowner is emphatic. ‘Absolutely, I feel less wealthy,’ says Bagley.”
“It’s a sentiment shared by many homeowners in Palm Beach County and the Treasure Coast as the once-sizzling real estate market cools. The median price of a single-family home in Palm Beach County fell 12 percent from October 2005 to October 2006, the Florida Association of Realtors said last week, while national home prices dropped a record 3.5 percent for the year.”
“An increasing number of home sellers are getting less than they paid for houses bought last year or earlier this year, according to Palm Beach County property records.”
“Ronnie Pryor says she’ll spend about $1,500 on Christmas gifts this year, the same amount she spent last year. Though Pryor is pessimistic about the economy, she says the housing market won’t affect her spending. After all, she’s not selling her house now, so she can ignore short-term fluctuations in its value.”
“But, Pryor says, ‘If you have to sell, it’s very tough.’”
Paul Krugman:
‘ Since last summer, when the housing bust became unmistakable, interest rates on long-term bonds have fallen sharply. They’re now yielding much less than short-term bonds. The fact that investors are willing to buy those long-term bonds anyway tells us that these investors expect interest rates to fall. And that will happen only if the economy weakens, forcing the Federal Reserve to cut rates. So bond buyers are, in effect, betting on a slowdown.’
‘When mortgage rates were at historic lows a few years ago, Victoria Bolton and her husband refinanced their home in St. Paul, Minn., taking out cash to pay off $70,000 in credit card bills.’
‘They relied on her nurse’s salary, and when that ran out, they paid for groceries, their kids’ college tuition, ‘everything you can think of’ using credit cards, which Bolton said she used to consider ’second income.’ Bolton’s habits help illustrate Americans’ addiction to debt.’
‘Somehow, people used to get by without self-storage facilities. They’d put their stuff in their attic, their cellar, their garage, their shed or anywhere they could find space. But today, about 40 years after the first such facility opened in Texas, it seems that Americans can’t live without them.’
‘Welcome to America,’ said David Paul, managing partner of Route 10 Self Storage, extending his arms toward the neat rows of units all around at his Cumru Township facility. Paul said his best guess is that the growth in population, housing and business is responsible for the boom, and said there’s still more demand than supply.’
‘Drive by any suburban neighborhood,’ Paul said. ‘All the cars are parked in the street, not in the garage. They don’t park their cars in the garage because they have too much stuff.’
Krugman:
“How serious a slump is the bond market predicting? Pretty serious. Right now, statistical models based on the historical correlation between interest rates and recessions give roughly even odds that we’re about to experience a formal recession. And since even a slowdown that doesn’t formally qualify as a recession can lead to a sharp rise in unemployment, the odds are very good that 2007 will be a very tough year.”
The belief that bond yields will drop is even more striking given that the Fed chairman has inadvertently convinced the world that he plans to drop money from helicopters on the first sign of weakness, which ought to result in an inflation risk premium getting priced in to the longterm treasury yield. The shape of the yield curve actually suggests this, with the 5-year yield well below the 30-year.
“Luckily, we’ve got good leadership for the coming economic storm: The White House is occupied by a man who’s ideologically flexible, listens to a wide variety of views and understands that policy has to be based on careful analysis, not gut instincts. Oh, wait.”
Nothing to add, for once
“Luckily, we’ve got good leadership for the coming economic storm: The White House is occupied by a man who’s ideologically flexible, listens to a wide variety of views and understands that policy has to be based on careful analysis, not gut instincts. Oh, wait.”
I can’t think of a better Whitehouse candidate to witness the 30 year experiment-turned failure of supply side economics theory than the idiot that currently occupies it.
How about Dick “deficits don’t matter” Cheney?
the biggest indicator of all is after working for the same company for 25 years i am now unemployed.
“the biggest indicator of all is after working for the same company for 25 years i am now unemployed.”
Sorry to hear that especially at this time of the year. BTW, what industry was that?
Very sorry to hear that, bottomfeeder. I hope you find new (and better!) employment soon.
Good luck, & please let us know how things turn out.
Here in Southeastern Virginia, we don’t have basements. The water table is too high. I had a storage unit, but I got rid of it. An interesting note: It was a Shurguard unit. I did a price comparison and selected the company based on value per square foot. I measured the square footage later, and it was smaller than advertised (I believe it was a 8′ x 10′ unit, but the real size was 8′ x 9′. It’s in the fine print of the contract that sizes are approx. Plus all of the local companies lock their prices to each other, so there isn’t much competition. It looks to be a very profitable industry.
A few years ago the Wall Street Journal had an article on storage facilities as alternative investment vehicles. I don’t remember the exact figure but the average return on investment was something like 7%-8%, with low volatility. Not too shabby.
Storage units have been enormously profitable in Calif because the rent/square foot is comparable to that of apartments but the building/maintenance costs for these metal sheds are much much less. However, I’m expecting a growing number of storage shed renters to stop paying their rent and abandon their stuff during the next few years and this may impact profits.
I’m convinced that the bonds are in a bubble as well, including the latest “inversions”. I wouldn’t touch long-term Treasuries with ten foot pole, no matter what the recession signals are, considering HOW FAST THE DOLLAR IS PLUNGING! Those who cause this inversions are either Asian central bankers, or idiots, thinking that Treasuries yielding 4.5% in a rapidly depreciating currency is “quality”.
Then would you suggest investing in houses instead of treasuries, Max? Or would it be gold? BTW, how has gold held up compared to treasuries since the May 2006 swoon?
No, not houses. Inflation is bad for housing because of leverage and long-term credit contraction.
No, I am checking out foreign currencies. A mix of Canadian, European and Asian bonds would be fine with me if a recession hits indeed.
I’m not much of a gold/commoditties bug, so I don’t know.
I recomend commercial real estate, especially triple net CRE. This is a classic pay fixed (the mortgage) get floating (rent) trade. Rents go up with inflation, the mortgage stays fixed.
The triple net REITS (of which LSE/LXP are most interesting) have long 10+ year leases with credit tenants, whose leases include CPI escalators.
TIPS are also an awesome investment. IMHO we are in a pre bond rally condition. In few years, people will get sick and tired of stocks and other alternative assets. When the fed lowers rates after the economy tanks, what happens to the prices of bonds bought today?
I get to have some interesting encounters in my job. For the last 18 months I have been campaigning first in the DoD and then in the commercial space to bring to market a new kind of software. It’s job in life it digest massive amounts of data and event information to come up with a series of metrics and conclusions about what is going on, and what the state of key indicators and factors are. This applies to how much money is sitting in your bank vaults, how many customers are visiting your property (and how much they are spending) to things such as “show me the last 4 images of the Korean Yongbyon reactor that have trucks in them”.
This software tends to get wired into the guts of the business cycle for our customers. We set it up and maintain it, and as such we get to occasionally glimpse what is going on. Without naming names, and without getting anyone (especially myself) into trouble, here is some of what seems to be emerging.
Hospitality Customers - In general they are down in every category. The number of people coming to visit and spend time at these destinations are down between 10% - 20%. Fewer people are coming, and when they come they are spending less. The last 3 years have been very good for these folks, and they know that leaner times are coming. When they read the results of our software, they agree that things are slowing down now.
Financial Customers (Credit) - Our customers tend to focus credit to consumers. The application for new credit, falling off rapidly. In addition a higher percentage of exiting debt is going bad. Surprisingly enough this is even reaching into some “seasoned” credit is going bad. Seasoned credit are accounts that have been around for a few years, and have established and stable payment track records. They are looking for a slowdown, according to them things have actually started to slow down now.
What this means for me and my company is (ironically) that we are tracking to some extent our own demise. Most of our customers have stated that they expect to be able to spend significantly less on IT (such as our products) next year due to decreased budgets, brought on by marginally to greatly reduced income.
Excellent info, sigalarm. Thank you for posting.
Like bottomfeeder above, even us bears are vulnerable to the slowdown/recession/depression.
I’ve been trying to convince my husband to prepare for it as well, and he has a govt job, which I expect will be hit by lower prop & sales tax revenues. Nobody is immune, IMHO, even us bears.
Good luck with the job. Hopefully, you will be able to either retain your position or use your knowledge to move forward with a viable business opportunity of your own.
Check out the yield curve inversion for a recession indicator. The 2yr T-bill yield dropped 9.2 bps on Friday alone in a flight-to-quality move. (Gekko, do you have enough investing experience to have previously experienced a flight to quality?)
http://www.bloomberg.com/markets/rates/
The Ohio State Buckeyes vs. The Michigan Wolverines
The New York Knicks vs. the Michael Jordan led Chicago Bulls
The Green Bay Packers vs. the Chicago Bears
The 1980s Los Angeles Lakers vs. The 1980s Boston Celtics
Gekko vs. GetStucco
Which rivalry is your favorite? I am really starting to like the Gekko vs. Stucco rivalry. It is easily the funniest of the group.
I like the GS vs HFA. My money is on GS!
HedgeFundAnalyst is the Washington Generals of this board. He gets his a$$ kicked every time he comes onto this blog. He is a troll that just tries to rile people up. He’s a pathetic excuse of a human.
I’m sure you meant “The Ohio State Buckeyes vs. The Florida Gators”.
easy
I’ll never forget watching the Bulls play the Knicks at MSG when Patrick Ewing was a true warrior. Charles Oakley (he fell in my lap once), John Starks, when the NBA was fun. I’ll never forget sitting 2 rows behind the Bulls bench with Dennis Rodman standing up in front of me, watching Jordan literally fly up to jam it home in front of me. Amazing.
As for the Get Stucco/Gekko thang, no comparison, Get Stucco is a bit of a wise ass to Gekko from what I have read, and for no reason. There is plenty of room here for multiple opinions. I guess some just cant help themselves.
Go Blue!!!! I hate the BCS…
Lowe’s is about to open an all new location on Skypark in Torrance, CA between Hawthorne and Crenshaw Blvd. exactly across street from a Costco which is next door to a Sam’s Club and all three stores can’t be more than a .2 miles from a Home Depot.
i refuse to shop at home depot if they cant even supply a cashier,i have walked out of their more than once.i hope a home depot exec reads this blog and see’s why their sales are down.
I care less about checkers or salespeople. Price is the objective.
“Finally someone directed me to the ’self check out’ booth”
Exactly price is what determines business plans present and future. Tech wide and far has taken out higher costs. The fact is high paid Eng jobs even in Silicon Valley are being offshored. High cost medical procedures are being sent to Thiland/India by insurance companies/even the IRS is sending returns to India. IS ALL ABOUT KEEPING COSTS DOWN….Dont be surprised that the trend will continue and get expand worldwide. We got our butt kicked in the Auto industry by the Japanesse because the US unions won over management. Even with delflation the Japanese Auto makers have majority market share of world markets. The same is true with high tech Mainframe computing and chip production.
We truly are in a deflationary world economy ( a new turning point) … A 1,000 sq ft home costing in No California selling for $500,000 or MacMansion for $2M wont make much sense in a few years. There will be jobs in the future but not the kind to support those kind of housing prices.
Welcome to the “new” America and the “new” economy.
yes - depressing in the extreme…pass the prozac
“We got our butt kicked in the Auto industry by the Japanesse because the US unions won over management. ”
Do you have facts to back this up? I’d be more inclined to think the problem was/is the US automakers continued deisign and manufature of big, gas guzzling pieces of crap.
Also thought I read somewhere that there’s much less gap between CEO’s pay and front-line worker pay in Japan than here in US.
The anti-union “market competetion” argument Walmart uses is a joke. Walmarts in Germany pay union workers there decent wages and still turn a nice profit. Same story with COSTCO here in US. I’d rather see two or three retail check-out cashiers keep their jobs that use those frigging self-checkout stands. All the checkers at my grocery store know me by first name and alwas say hello.
DOC
Just my .02
Louie Louie
“… IS ALL ABOUT KEEPING COSTS DOWN….”
It’s all about bigger top execs getting fatter and fatter.
“We got our butt kicked in the Auto industry by the Japanesse because the US unions won over management.”
There’s plenty of evidence to the contrary. Almost all the blames lies at the feet of the Big 3’s top executives. I suggest you read any serious historian’s papers on the topic.
There was plenty of blame to go around.
The unions got so powerful the companies couldn’t get an iota of productivity improvements.
The design of vehicles was driven exclusively by minimizing costs. The result was uglier and uglier, expensive “cheap” cars put together by “workers” who couldn’t give a damn.
Finance driven design, unmotivated workers and corporate management stagnation. All born of ages of lack of competition across the board.
“refuse to shop at home depot if they cant even supply a cashier,i have walked out of their more than once.i hope a home depot exec reads this blog and see’s why their sales are down.”
I don’t mind using a self-checkout register at Home depot or Wal-mart, especially if it has no waiting line.
Cheap prices and fast checkout are my priorites in shopping. The newest Long beach HD which just opened in Long BeACH This year has been sooooo slow recently that i was actually shocked to actually had several idle sales associates ask me if i needed assistance, which never happened before in my HD shopping experience.
I wish we had self checkout in NYC. Unfortunately it would never happen at the more ghetto cheap grocery store I shop because there would be rampant shop lifting and cheating.
They must be counting on all those miilion dollar Palos verdes homes providing ample cashout re-financings for home improvements!
They would be mistaken. I’m starting to see some interesting things in that area. Prices are adjusting in bug lumps.
“‘Housing slowdowns tend to lead recessions rather than result from them,’ said economist John Makin. ‘An annual drop in the growth rate of residential investment of more than 10 percent has coincided with a recession five of the seven times it has occurred since 1965.’”
Sounds a lot like something I posted here a couple of weeks back
I have seen that statistic several times and always wondered how so many economists could insist that it would take a recession to pop the housing bubble and not be challenged on it.
Just doing their jobs of muddying the picture, I guess…
I totally agree that “‘Housing slowdowns tend to lead recessions rather than result from them,” I can remeber in LA at the end of 1989 that housing began to slow and the recession came after that. I think after Christmas things are really going to hit the fan.
Thes moron mortgage guys actually think they are contributing to the economy. Over inflating housing prices, causing massive debt, causing ever increasing foreclosure rates, is going to destroy the economy.
Well I need to go buy a remote control car for my nephew, his parents are FB’s after buying a home last year and the kids will get very little for Christmas. I pleaded with them not to buy, but some loan officer sold them a bill of goods. Hopefully I can find something made in America.
Thats another thing how does taking a piece of crap consumer item made in China for close to nothing and shipping here and being sold in store by $7.00 an hourly types keep the economy going. So we have increased sells, big freakin deal. We still have massive debt.
Your recollection of the housing slowdown preceding the “defense industry recession” jibes with mine.
I never bought the hype that recessions cause housing slowdowns. From what I’ve seen, the opposite is true.
Mr. Makin, Mr. Makin! Uh, sir, were those five previous recessions identified using the old CPI formula or the new, improved one?
The old one you say?? Well, isn’t that comparing apples to oranges?
Well, what happens if you use the old CPI formula now?
WHAT??? We’re already in a recession?!?! HOW THE HELL DID THAT HAPPEN????
p.s.: CPI is used to “deflate” the GDP (i.e., remove the effects of inflation). By consistently understating inflation the government is also consistently overstating the GDP. The “true GDP” is negative and has been for over a year.
I have a friend who owns a salon and spa in an upper income part of the Metroplex. She says that business has slowed to a crawl. I also noticed that Walmart is getting busier, which means that budgets are being stretched. On the other hand, their sales revenues are down, which means that fewer people are buying disposable income big-ticket items.
‘Wal-Mart’s latest problems come from…consumers. Despite hundreds of price cuts to lure early-bird Christmas shoppers, November was Wal-Mart’s worst month in a decade, with sales dipping below last year’s levels. And December isn’t expected to be much better.’
‘The good old days are over,’ said Mark Husson, an analyst with HSBC Securities in New York. ‘And some people in the market don’t seem to be able to accept that [Wal-Mart] is not going to go back to the rates of growth it used to enjoy.’
Wal-Mart is Arizonas’ largest single employer. I mentioned the other day that the construction guys I know are all short of work, compared to working 7 days a week in the past. And every realtor in the state can tell you the market is way off. IMO, Arizona may already be in a contraction.
Should also mention that when Jerry says ‘metroplex’, he is talking about Dallas/Fort Worth. People around big D sometimes forget there are those in the US have never made a connection between the two.
I’m from Ohio, but I think I understand. “Dallas” is where that T.V. show took place. “Fort Worth” is where Radio Shack was invented. I understand that if you buy a house in either city, you cannot go outside and lay on your lawn because fire ants will eat you up. That’s all I need to know about Texas.
For all the evil’s Walmart is. I think their internal control stucture over financial reporting is excellent, while other retailers will fudge in order for executives to get bonuses.
Wal-Mart has a culture unless the store is doing well nobody gets nothing. I think they will cut the balls off someone who fudges.
So even if sales are better than last year, I feel Wal-Mart sales being down is good indicator that economy is taking a big crap and the sells numbers for all retailers is a bunch of bul shxx.
Justy my guess. No I will not buy my nephew a remote control car at Wal-Mart. I need to get him a cool gas powered one. Something he can take apart and re-build. Anything to get him outside and think for himself.
“Something he can take apart and re-build. Anything to get him outside and think for himself.”
Not a bad idea. I am thinking of encouraging my sons to become plumbers or german-auto mechanics. Both occupations earn ridiculous wages, have very low skill-erosion rates (especially plumbing) and are virtually outsource-proof and recession-proof.
People can hold off on vacations and plasma TVs, but try holding off on a busted water heater, or head gasket.
“I am thinking of encouraging my sons to become plumbers or german-auto mechanics.”
I’ve noticed a huge increase in the amount of EuroTrash on the road. For the life of me, I cannot figure out why someone would pay double for depreciating POS.
Besides, I’d never own or drive something whos name closely sounds like female reproductive anatomy.
I finally finished my BS for my own happiness but I’ll be damned if I give up fixing electronics for a living. The money is way too good to go become a lawyer.
Blue collar jobs pay well (mostly) and when everybody figures out that the world doesn’t need anymore women’s studies grads we’ll all be better off.
Professional education has become an oversold ticket to prosperity in America. Kids go to school expecting an education that will translate into a good paying job. Instead it only is guaranteed to translate huge debt burdens.
Get a skill or trade along with an associates in business so that you can manage your business affairs that come with running a small business. You’ll make 80k easy, can have a life and be rather independent and have very little debt.
Most lawyer starting salaries are in the 60k range and most doctors during residency/intern make even less. Both work you like a dog so you have no life, you’ve got six figures education debt but for some reason everyone thinks the moment you become a doctor/lawyer your rich and hence charge you accordingly.
“I cannot figure out why someone would pay double for depreciating POS”
Drive a 911 for a week and report back with your findings.
cayman s, not 911…better deal
I’ll buy a used chevy under warranty before I pay triple for a God awful looking Vulva GeekMobile.
Even my old 912 is a hoot to drive!
Chris — In 1974, I owned a 1973 911E Targa with every option available. Granted, it was a blast to drive. But that car cost more than a wife. I ended up selling it to a dentist who, ironically, owns a spec condo about 20 yards from where I sit as I type this.
One German car was enough. Great build quality at the time, but I was relatively too poor to feed them. A ‘67 Corvette, 427 with sidepipes — I’d marry for that. A 427 real (new series) Shelby Cobra in Pacific Blue with sidepipes — I suppose I might divorce AND pimp for that. Women do not seem to understand this and I suspect they never will.
My Lord, are you guys not getting enough lately?! The misogyny level in the phrasing choices is getting pretty high boys…
David said: “No I will not buy my nephew a remote control car at Wal-Mart. I need to get him a cool gas powered one. Something he can take apart and re-build. Anything to get him outside and think for himself.”
I don’t know how old your nephew is, but last year I gave the son of a good friend one of those Lego Ferraris (made in Europe, mostly) and his mom says he has built it and taken it apart dozens of times and it’s his favorite toy. I don’t know if they have remote controlled ones, though, but I’m pretty sure some come with an engine. Just a thought
Can he go to any hobby shop and pick out parts and talk with the old pros sitting behind the desk. Get a good understanding of gear ratios and how an engine works. Can he switch out the engine for a better one or does he have to order all his parts from the LEGO factory.
Not trying to knock your point, but toy remotes are toys. Real interchangeable remotes are a hobby even the electric ones, which I decided on when I purchased today, beacuse I felt gas was a little advanced, however electric hobby remotes can be just as cool.
Yes I learned about gear ratios using legos. I’ll never forget sorting out that changing the gear size made the little helicopter blades I’d connected to the wheels turn satisfyingly faster.
They also have electric engines programmable from computers and can chat with the old pros on web forums. So it’s a different experience today, but still a learning one.
“I’ve noticed a huge increase in the amount of EuroTrash on the road. For the life of me, I cannot figure out why someone would pay double for depreciating POS.”
Uh, the American cars are the ones that depreciate the fastest. Oddly, the Eurotrash car that I want seems to hold it’s value real well. I’m happy with my paid off Honda, but when I finally get a house with garage bays I will get a new-used Eurotrash car (Or 93 GMC Typhoon). The housing bubble has actually driven up the prices on alot of the collector cars. More HELOC money chasing them Ferraris.
If I were looking at a vehicle for anything but getting from one place to another, I’d take your recommendation under advisement.
“‘Wal-Mart’s latest problems come from…consumers…”
You know, Retail would be a damn fine business if it weren’t for all those consumers.
I imagine the drop in the dollar isn’t helping Walmart either.
China’s currrency is pegged to the dollar - when the dollar drops, it does too.
But what about other countries’ currencies? India’s? Sri Lanka’s? Cambodia’s? Indonesia’s? Yes, I realize China is the lion in this market, but there are plenty of other producer’s of the crap we Americans buy.
“China’s currrency is pegged to the dollar - when the dollar drops, it does too.”
Not since July 2005.
——————————————————————————
Why Paulson Will Face Disappointment in China
Why Paulson Will Face Disappointment in China
By William Pesek
http://www.bloomberg.com/apps/news?pid=20601039&sid=aNlktVN07lps&refer=home
Yeah, big deal, went from “pegged to the dollar” to “mostly pegged to the dollar”
“I mentioned the other day that the construction guys I know are all short of work, compared to working 7 days a week in the past.”
I’m surprised by the number of pickup trucks with ladder racks sporting FOR SALE signs. These trucks are not cheap, and many of them have lots-o-miles; pretty tough to find a faster way to lose money.
walmart had crappy black friday loss leaders….not too smart. hopefully they get a clue and offer lots of loss leaders b4 x-mas
Gee, that wouldn’t be because there’s about 5 “spa and salons” for every credit card - toting Dallas bighair looking for a dye and shellac job, would it?
I liked this quote
Beginning in the 1980s, ads trained consumers to use credit cards as a “lifestyle supporter,” Boss said.
So true, one of my favorite rants. People are so poorly educated or not in control of their emotions that they don’t realize how they are being used and manipulated by marketers. It’s really insulting.
Re: Credit..I am sure you’ve seen the commerical where the guy tries to use cash ,and the line stops? Just another push toward electronic debits instead of physical money. What havoc they will wreak once they control all your spending habits…Mr. Smith you havn’t spent your quota this week as a dutiful citizen. We will have to debit your account 10 Ameros until you increse your output….That is all. Signed ‘The Company
i went to a warehouse store today - total 125.00. gal said ‘credit or debit’… i said CASH. wtf - nobody pays cash anymore - i must be a dinosaur
-
“Economists have correctly predicted nine of the last five recessions.” - Paul Samuelson
Except in Q2 2001, when nobody predicted even when it was already under way.
Oh yeah, keep spending you debt driven fools (from the PB post article).
I am sorry, but someone working in a dept store should not be spending 1500 dollars for holiday gifts. People just crack me up, what are you thinking?
Oh well, I hate the holidays, so I guess I might be a bit biased. The holidays, imho, are just a ploy by marketers to get us to spend much more then we should on crap that nobody really needs. If you needed it, you would BUY IT YOURSELF (really novel concept for some, I realize that).
Bah humbug.
If Xmas didn’t exist, someone would have invented it.
Festivus, for the rest-uv-us!
Actually, I have this theory that Christmas (or the Christmas season) probably goes way, way back in time (under other names) and that it was in fact invented by merchants, who probably understood that the colors red and green have a lot to do with money and buying things. It’s kind of cynical but fun to speculate on. And interesection of the religious and retail markets.
Actually, I believe the Christian Christmas was moved to December the 25th, as an anti-competitive measure to rub out some Pagan or Celtic holiday that was popular. It’s very interesting that things haven’t changed that much in the world. I believe that Christmas before Thanksgiving should be banned. They were putting up Christmas store decorations before Halloween here in Southeastern Virginia. Christmas is so long, I’m officially tired of it.
Christians co-opted two of the most important traditional pagan feasts, the solstice festival (notice how Dec 25 is conspicuosly close to Dec 21?) and the fertility festival (aka Easter), when they realized the futility of trying to stamp out the old superstitions. Santa, the Easter Bunny and Jesus make very strange bedfellows, but as they say, “If you can’t beat ‘em, join ‘em.”
http://en.wikipedia.org/wiki/Christmas
http://en.wikipedia.org/wiki/Easter
GS,
You got it. Organized religion (of any flavor) has two purposes: To maintain social control, and to benefit its leaders. I was able to come up with this on my own before I was 17 and haven’t experienced anything in the last decade plus to condradict this. It’s amazing people fight wars over crap like this.
Unfortunately, the extrapolation of this nihilism suggests the complete futility of living. The logical alternative is suicide. Somehow, the uber-rationalists never carry their chain of reasoning to its logical end. I wonder why. :p
Because your premise that life itself is only worth living if there is a better, though make-believe, afterlife to follow is flawed.
‘Wall Street stumbled Friday after a key survey showed that manufacturing unexpectedly contracted in November for the first time in more than three years, stoking concerns that the economy will not be able to achieve a soft landing.’
‘Stocks and the dollar were socked after the Institute for Supply Management said its index on manufacturing fell to 49.5 from 51.2 in October. Economists had been expecting 51.5. Anything under 50 indicates the manufacturing sector is contracting.’
‘This is just additional confirmation that the economy is not only slowing but quite possibly going into a recession,” said Hugh Moore, a partner with investment firm Guerite Advisors. ‘It’s not just the housing and auto industry any longer; now we’re finding out that manufacturing in general is slowing.’
‘Moore said an ISM number below 50 has preceded every U.S. recession since the 1960s.’
“‘Moore said an ISM number below 50 has preceded every U.S. recession since the 1960s.’”
This is probably a bit misleading. More on-point would be: How many drops below 50 did NOT lead to recession.
actually, you’ll find that this is a very good indicator and has been for many years. This is from what used to be the Purchasing Managers association (NAPM). You know, the people that are buying to feed the beast–mfg, construction, etc.etc.
Stock market came back 100 points though to end the day down modestly. I don’t know maybe the weak dollar is helping the stock market? I seem to remember hearing a devaluating currency usually causes a stock market to go up. very suprising what ever is going on?
Understanding Consumer Ponzi Finance:
http://wallstreetexaminer.com/blogs/winter/?p=139#more-139
Hi Russ,
thanks a lot for your great blog.
always read your blog..thanks
Thanks Russell, That was well enjoyed….added it to my favorites.
A recession indicator from the article Russ linked in (I guess Suzanne researched this):
‘November 30, 2006 — Home Depot abruptly shelved a much-touted plan to improve customer service by hiring more store-level employees - just a month after rolling it out, The Post has learned.
The about-face appears to be the result of a sales slowdown that is far more severe than the company anticipated, sources said.
“The Home Depot is committed to customer service and maintaining market share in a challenging home-improvement environment,” the company said. “Labor hours are allocated to each store based on the store’s sales volume and activities inside that store.”
Under the plan, known simply as “hours reinvestment” and introduced in August, stores with annual sales volumes of more than $40 million were to get an additional 260 hours of labor per week - the equivalent of six full-time associates and one part-timer, a source said.’
http://www.nypost.com/seven/11302006/business/sales_falloff_kills_staff_increase_plan_business_suzanne_kapner.htm
I’m thinking the number of stores with $40M+ sales volumes has suddenly dropped off…
Also…
“Labor hours are allocated to each store based on the store’s sales volume and activities inside that store.”
Doesn’t that translate to stores with low sales will “release” employees?
So much for the back up jobs.
Let’s see… more people are buying items at Walmart yet sales are level to down… Hmmm… does that translate to more Walmart employees? Nyet.
Unfortunately the non-skilled working class takes it hard in a recession. Expect sob stories on CNN late spring.
Plumbers and other skilled “trades” as others posted earlier will be ok, there isn’t much you can do when a water heater rusts out but pay and pay premium rates.
But the hardest hit are going to be the “college educated” entry level positions that can be replaced quickly: realtors ™, mortgage brokers, etc. Actually, I’m not sure they have college degrees…
Neil
IMHO the key leading indicator is that Wal*mart had the first decline in Month over Month, Same Store Sales since 1996. If typical americans save 0% of income, then we can assume that household income flows through to WMT directly.
So, behold the start of the decline in personal houshold income that leads to the decline in aggregate demand.
My stock market recomendations.
1) More bond funds. (The AGG etf, or Managers Fremond Bond fund MBDFX).
2.) Upshift into quality dividend paying stocks, i.e the SDY etf.
3.) Euthanize retail now, yet buy WMT. The newly poor will shop there.
4.) Buy foreign dividend stocks, I.e the PID etf. Buy now or be priced out forever.
5.) A *small* (5%) allocation to unhedged foreign bonds is a good idea. Think about the PIMCO Foreign Bond (Unhedged) D (PFBDX).
6.) Sell big equity REITs now, take profits. They are very overvalued.
The best stock market recommendation for most is probably “get out and stay out”.
My business has also slowed (specialized PCBs). Also I am seeing something that I have not seen since 2000. Some customers paying by credit card are getting declined when we call to authorize the charge Haven’t seen that since the last recession.
Circuit Boards?
Welcome to the board — great screen name.
Speaking of Visalia, Centex laid off 10% this week in town and Beazer laid off 25% from their Fresno office. Maybe the builders are finally figuring it out. Central Ca is toast economically. A few warehouses and lots of ag but nothing job wise to support what has happened here in the last five years. I think the main industry has been home building. That will change soon and the city councils that didn’t do anything to get REAL jobs will reap what they sow.
Whats interesting is how the rot caused by forclosures can doom neighborhoods. I.e a house gets forclosed, it gives a stigma to the neighborhood. Abandoned houses get vandalised, killing the neighborhood, etc etc etc.
Worst case, these developments of derelict McMansions become a mini Detroit in the Valley.
Funny how something that was worth $500,000 last year sits empty and deteriorating this year. I don’t know about you people, but in my life $500,000 is an unimaginable sum. Hell, I’m still impressed by the $500 orange bills in the old monopoly set. When I was a kid I figured one of those would set me up for life.
If you ask anyone in Bakersfield, except me., things are great here. Oil is booming and the commodity prices of Ag products are doing great.
They all ignore the time bomb that is Real Estate. I guess if you ignore it long enough maybe it will go away?
Any layoffs in Bakersfield for Home Builders? An associate who is a VP for a HB stated to me “right now we can’t sell $hit”.
Also throw in the $1 billion for infrastructure improvements, our former Congressman (Chairman of the Ways and Means Committe) funnelled to our county as his retirement gift for all his years of service. The locals are so giddy about this - as they feel the multiplier effect will be 10 fold.
Oildale is the new Fresno ™ .
You haven’t asked me! I want out of this Hot,Overpriced, Miserable ‘burg. I am priced out of a house for a long,long time,the Air Quality is Second Worst in the nation, and it gets $500.00 a month Power-bill hot in the summer.
Lastly, as a B-field native, it just is not a pleasant place to live anymore.
Imagine a Quaint, Good Ole Boy, town… Of a half million people.
Not Good.
“Imagine a Quaint, Good Ole Boy, town…”
So you have more than one traffic light now?
Yeah,We have more than one. Much as I hate this place, it has many traffic lights. And the drive time traffic jams that come with too many houses-not enough roads. Yes, mornings and afternoon are as fun here as they are in L.A.
Just think. Seventy years ago your forebears loaded up the Model A and departed Oklahoma to live where you reside today. Perhaps its time to make a sequel to “The Grapes of Wrath - the Joad’s head east”.
The core sign that a recession is brewing, is the slowdown in WMT sales. IMHO now is the time to really cut back on purchases, and if you have investments, position yourself defensively.
I.e more bonds, less stocks.
Thought I had mastered the acronym universe here, but apparently not. So if you don’t mind, please explain what is a WMT sale?
Walmart.
Thanks (and sorry — that should have been obvious!).
Ok, so then what is a GF ? This site needs an acronym glossery, for the newbies.
Great idea. GF = Greater Fool
greater fool
I’m thinking big fat LEAP puts OTM on all the indices.
Well, June 2007 XHB 37 puts are only 2.85 or so. All you need is XHB to drop 10% and you are already earning dollar for dollar.
LOL!
“‘Housing slowdowns tend to lead recessions rather than result from them,’ said economist John Makin. ‘An annual drop in the growth rate of residential investment of more than 10 percent has coincided with a recession five of the seven times it has occurred since 1965.’”
The two exceptions:
1967, when the Vietnam War Machine was cranked up.
1986, when general defense spending surged.
The common theme, of course: Big Government Spending. Seems to me that we’ve already shot that bullet.
Good points. And in light of the poor economic outlook, it is clearer why itIMO rate cuts to fight a downturn will not cause people to run out and buy houses.
Has spending begun from the massive highway bill that was passed ?
I don’t know. How much $ was allocated? Does it come anywhere near the 1/2 Trillion that has already been spent on Iraq?
Maybe it just me but I see that the amount of “Guest Workers” waiting for work outside of Home Depot has increased dramatically as of late.
Not just you, not by a long shot.
Same here. And don’t get me started on “guest workers”. What a farce. I remember McCain and other politicians wagging their fingers saying these people “do jobs Americans won’t do”. Bullcrack. In Florida, the “guest workers” became very uninterested in crop work and descended en masse on the construction industry, enabling the developers to build all those crappy sh*tboxes. And of course, now all the children of the “guest workers” are busy tagging the walls of the ghost town developments. Meanwhile, the farmers started whining about how they couldn’t find anyone to pick the orange crop (which was already thin, due to repeated hurricanes and cropland that been sold off to developers). They were trying to justify more “guestworkers”. Trust me, the local “guestworkers” have NO intention of going back to the fields. Around here, they are either trolling for more construction and landscaping work or galumphing out of the local Walmart with boomboxes on their backs. If any farmers are having difficulty finding “guestworkers” to pick their crops, I can tell the foremen where to find them. But don’t be surprised if they just laugh and say “No, senor”.
They have no intention of going back to their country or origin.
Having worked for a large city police department - I can guarantee they will soon be breaking into houses, stealing cars, selling drugs…
That’s one of the things that bothers me about the recession. What are the “guestworkers” going to do when there is no longer any work for them?
“What are the ‘guestworkers’ going to do when there is no longer any work for them?”
Catch-22. They are going to be replaced by convicts and homeless who will piss on the chicken they pluck. No free lunch. It will really suck for those on low-sodium diets, but so goes it.
I saw one guy standing on a busy intersection in Ft. Collins, CO at noon on a sunday afternoon twirling a “Will paint for food sign” today.
Went to Fashion Valley last night (big, higher-end mall in San Diego) and it was packed. And that was with the ever-popular “December Nights” happening at the same time in downtown Balboa Park (about 10 minutes away and an event that draws 100,000+ people).
I used to go to Facist Valley just because, after living in Texas, it was such a weird experience to walk though an open air mall like that. Is Horton Plaza still going strong too?
Yeah, Horton Plaza is still there and on the map, but I don’t get there too often. There’s also Mission Valley, which has been revitalized a bit since when I first moved here (back in 2000), although I can’t comment on their business, as I rarely go to malls.
We were at North County Fair in Escondido today (North SD County), and is was also quite packed. I did not have trouble finding a parking spot, though (plenty of parking last year as well). In 2004 & prior years, you could not find a parking spot.
That being said, I have not seen sales during the Christmas shopping season like I’m seeing right now. Some stores have very significant price cuts, so I’m thinking we won’t see so much of the Christmas season slowdown until we get the see the retailers’ margins. I’m thinking they will be taking quite a hit.
Summary: seems people are still shopping, but are holding back the past two years.
Well, this is counter to a recession, but it certainly reflects a money is no object factor to a certain class. I think it also reflects atop to the bubble.
I have been in this apartment and it’s friggin unbelievable. If you are a Beatles fan hic collection is insane. As to the apartment, you could play basketball in the ballroom. It also has the best terrace views I have seen in NYC other than the roof garden at the MET, and that includes CPW penthouses. Yours for only $70 million dollars. It’s one of a kind, but $70million? I just read about a developer offering to buy out an entire park avenue co-op 9last apartment building below 57th on park) for $140M to build an office tower.
http://www.nytimes.com/2006/12/03/nyregion/thecity/03pier.html?em&ex=1165294800&en=cc908efcb14dc3f2&ei=5087%0A
Chateau in the Sky
By JOHN FREEMAN GILL
THE coming-out party for the palatial penthouse restaurant of the Hotel Pierre was a chilly one. On a blustery February afternoon in 1930, a genteel hotel impresario named Charles Pierre Casalasco led a hardy troupe of debutantes wearing cloche hats and fur stoles up flight after flight of stairs to the roof of the unfinished 42-story building.
Perched on high heels with only a few wooden planks standing between them and a plunge to Fifth Avenue, the debutantes blinked into a stiff wind as one of them helped drive the last rivet, a gold one, into the steel framework.
By October of that year, the Pierre’s top two floors, including the exposed wooden platform on which the debs braved the elements, would be transformed into a glamorous breakfast room and night club, “decorated to resemble the interior of a zeppelin cabin,” according to The New York Sun. Not long after that, the hotel would begin to operate the space as a ballroom.
A place of Champagne bubbles and swing bands, the Pierre Roof, as it became known, was the exclusive province of high society in Depression-era New York. Though its interior was off-limits to most of the city, however, its ornate exterior became a signature feature of the Fifth Avenue skyline. Set atop a slender tower of cream-colored brick, the Pierre’s upper floors had the rarefied aspect of a French chateau in the sky, complete with a gleaming copper mansard roof 500 feet above 61st Street.
slideshow link to the Pierre Penthouse
http://www.nytimes.com/slideshow/2006/12/03/nyregion/thecity/20061203_PIERRE_SLIDESHOW_1.html
Maybe Gekko will buy it. He is rich you know
Hey, Stucco. You’re from Utah, aren’t you? What do you think? I’ve been watching this place since spring and the price is coming down. Overpriced? Look at the back yard!
http://home.comcast.net/~turner.utah/FLWStyleForSale.htm
“You’re from Utah, aren’t you?”
No, but most of my relatives live there, and I visit annually (most recently last week). There is no shortage of For Sale signs around Wasatch Front communities (where 99% or so of the people live), especially going in to the holiday season, which seems like a rather odd time for Mormons (who are normally preoccupied 24/7 with Christmas activities) to be thinking about selling a home…
BTW, are you going after that place in Logan? The pictures make it look like a steal at $299K — can’t believe the California equity locusts have not bid up the price to a gazillion dollars already…
I look at everything in the Western mountains. It does look like a steal, doesn’t it. But is it expensive for Logan?
I think everything in the Wasatch front has been on a tear as of late thanks to California equity spillover. My inlaws claim their home is up by over 2X in just a few years since they bought it, and there are properties in their hood listed at $800K+ (but not necessarily selling…).
The problem I could see with Logan (at least if you are thinking of the home from an investment standpoint) is that it is too far north of SLC to be within commute range. The town is beautiful, but my sense is that SLC and Provo-Orem are more the economic engines of the state (but this is just an unsubstantiated impression).
Not investment, looking for a place in a beautiful area in the Western mountains (have about given up on Florida) to buy and live in. My problem is, I’m going on a long trip to Asia next summer and will miss a lot of the market dump, if there is one. If someone would be kind enough to take their loss in Sedona or Flagstaff or someplace like that now, I’d be much obliged
Don’t you think inventory will stay high throughout 2007? In this case you will have plenty of places to choose from next Oct-Nov.
txchick, if you are still thinking of Florida, the word is that Putnam County (Palatka) is the place. Low insurance (hurricanes miss it) and taxes (bubble bypassed it, seriously), wide open spaces still and not that far from Gainesville, Jax, St. Augustine. It’s on a bend of the St. Johns. I’m going to check it out myself. They did quite a write up on it.
Is Prescott still nice?
OK you two. Now you’ve done it. Within a week that place will sell for 200% over asking.
txchick — you aren’t the owner, are you
(You don’t have to tell before the home is sold…)
I know that homes which have appreciated to the sky on the coasts are poised to fall, but do you think these mid-America homes will do the same? This one you found seems pretty nice http://home.comcast.net/~turner.utah/FLWStyleForSale.htm. I remember in the last go-round I was living in southern California. Our place fell like a rock, but my brother’s place in Denver kept going up every year. Made us sick. It seems like no matter how much we lost, somebody’s was always going up.
Well, you’re in Plano and you have my sympathy.
I hear ya. The only mountains I ever see here are through the telescope on the moon. Properties like this make my mouth water and my heart ache.
TX,
It’s a very nice looking place, and it sounds like a good value for the money (~$100/sq.ft) But when I saw it, I immediately heard strains of:
It’s a story,
of a lovely lady,
who was bringing up three very lovely girls…
Compare for yourself
lol
LOL, I have to agree with you, Chris.
BTW, isn’t that the real Brady Bunch house? They had to put a fake window on it for the show, IIRC because it’s really a one-story house, but the one you show does indeed look like the real one.
Too funny!
Look out for Logan, Utah for a couple of reasons:
1. Logan is usually the coldest larger town in Utah. They get inversions in the Cache valley that trap cold air in place for weeks on end.
2. Snow. Cache valley also gets quite a bit of snow that does not melt quickly (see above).
3. Distance. If you want to visit metro Salt Lake, it is about 1 1/2 hours south over a rather treacherous pass in the winter.
Views like you see behind that place are actually quite common here, you should see the view behind my place in metro SLC.
I would add that the price is pretty good, in my ‘hood $300k wouldn get you a 2,000 sqft split entry. Of course you will have a hard time finding a good job in Logan to pay for a $300k house.
jb
“The common theme, of course: Big Government Spending. Seems to me that we’ve already shot that bullet.”
Much of the infrastructure in the U.S. is aged well beyond its design life, and is in terrible shape according the American Society of Civil Engineers, which gives the nations infrastructure a D+ on their association’s report card. At some point, a huge federal government public works effort might be launched to insure a viable future for the country.
Well at least we have plenty of newly built housing capital (including supporting infrastructure).
As a structural engineer (and member of ASCE) I’ll agree with the statement about infrastructure. Unfortunately, most local, state and the federal government spend more money on useless infrastructure (like administration buildings and town halls) than on bridges, roads, and wastewater treatment facilities. It is sad.
As a sign of a recession (and I do mostly municipal utility work) is that buisness is great right now - typically, the municipal engineering field tails the general economy by about three years - I guess it takes that long for the higher revenues to make it into the general spending. It had been SLOW from Oct 2002 up until the start of the last fiscal year (Oct 2005). And I expect it to be about Oct 2007 before the cities and states decide to write off their losses and stop design projects and studies in midstream.
So I guess that is my sign of an impending recession - my business is great.
Sadly, house flipping and debt-driven consumer binge spending does not an economy make.
It was fun while it lasted though.
“At some point, happy talk loses its force when any greater fool can see the huge gap between what gets reported and the evidence on the ground..”
Yes, think of all those “investor” owned properties in far away states, where the speculator can’t actually see what’s happening on the ground. Denial may still run deep, unless it’s painfully obvious in front of your face.
The US economic system is broken.
The housing scam was the last thing the crooked money boys could wring out of the brain dead who inhabit the realm.
If you took all the parasitic, public payroll, dual income checks for the bazillion government jobs like-teacher aide; special ed adjustment counselor, homeland security Gestapo agent, etc. etc, out of each US household, we’d be in a full blown national depression.
Good that someone used the D-word. We’re already in a recession (definition: growth
[last bit got cut off?]
Good that someone used the D-word. We’re already in a recession (definition: growth
My PC hates me today….?
don’t use greater than or less than symbols.
OK, thanks!
http://www.larouchepub.com/eiw/public/2006/2006_40-49/2006-48/pdf/30-35_648_ecolede.pdf
“Housing Bubble’s Fate is Banking System’s Destiny” (PDF) - Shows how the collapse of the housing bubble could bring down the US financial system as well. “Recession” could be the best-case scenario compared to the far worse possibilities.
excellent article - thx
Mr. Winter goes to the heart of the matter:
the biggest wild-card of all, credit spreads will stay minuscule.
Obviously, a violent reversal is coming, and I wouldn’t buy any RE anywhere (including Logan, UT) until I fully understood its impact.
What indicators do I see presaging a recession? These, from above:
“They relied on her nurse’s salary, and when that ran out, they paid for groceries, their kids’ college tuition, ‘everything you can think of’ using credit cards, which Bolton said she used to consider ’second income.’ Bolton’s habits help illustrate Americans’ addiction to debt.”
“Drive by any suburban neighborhood,’ Paul said. ‘All the cars are parked in the street, not in the garage. They don’t park their cars in the garage because they have too much stuff.”
Too much stuff, bought with too much debt. And invariably the cost of servicing the debt becomes prohibitive, Peter’s tapped out and can no longer pay Paul, and the bill finally comes due.
I could point out more technical indicators — I’m sure all here at this blog could — but the reason I started searching online and found this blog was that I noticed a widespread phenomenon I’ve seen a couple times before now: the trappings of wealth flaunted by vast masses of people who are not wealthy.
And that basic imbalance invariably corrects itself. As someone once said after a previous downturn: “They were like pigs at a trough. And you knew it couldn’t last.”
..the trappings of wealth flaunted by vast masses of people who are not wealthy.
EXACTLY!
Check out Pimco’s December outlook by Bill Gross. They say that credit spreads over treasury are way too low and, in some cases are even negative. More importantly, they say the the point of increasing risk for diminishing reward has been reached in credit markets (the next dollar taken in treasury leverage and wagered on riskier asset is now more likely to be lost than to turn into a profit). If he right, then the rush for the exist should begin some time soon (early 2007). Who gets hurt? corporate credit, Mortgages, emerging market debts, and yes, even credit card debt. Looks like the game is almost up! I wonder what happens if foreclosures increase and corporate debt gets more expensive simultaneously? Makes you wonder about the theory that higher corporate investment will offset housing weakness.
The negative credit spreads for Credit Defaul Swaps, are due to the demand of debt for investment purposes far exceeding the supply. Hence the creation of synthetic debt with CDX. Lots of demand (supply) for CDX means prices are low.
Just cause the general market is cuckoo for credit risk ™ doesn’t mean you have to be. Mostly what this means is that if risky bonds are cheap, then safe bonds are cheaper. So load up the truck. When credit risk gets repriced, sell. In the mean time, collect interest.
People who buy MBDFX (Managers Fremond Bond fund) are going to be very happy in a few years. MBDFX is subadvised by PIMCO/Bill Gross. While the name brand PIMCO fund charges 0.95%, MBDFX charges 0.60%.
WOW–60% in Euro futures. Worth checking out. thx
Those are eurodollar futures. I.e interest rate futures. Eurodollar futures can be used to create virtual bond portfolios.
PIMCO uses them because it is much cheaper to buy and trade eurodollars/t-bond futures than it is to buy and trade physical bonds.
This results in the fund seeming to be 60-70% cash at all times.
It is simple. PONZI
http://www.safehaven.com/article-27006.htm
The collapse of the high end “toys” market…luxury cars, jewelry, snooty inns and B&Bs…all advertising like mad on the radio.
Always a bellweather of an economic “storm” coming…
To be honest, I haven’t seen any sign of recession, personallly. Freeways are still packed, restaurants are still packed, grasshoppers are fiddling away. But reading Barrons, looking at the inverted yield curve, reading reports of manufacturing data drop-off for the first time in several years all smells of recession coming up.
Personally, I’m good for another 6 or 7 months of my own work with good pay, so I’m going to continue building up 3 month T-bills, series I savings bonds, municipal bonds, and precious metals as much as possible. If a recession is full blast starting June, I will be ready for it, and ready to go anywhere in the 48 states (plus Hawaii) for my next software engineering contract. My main equities purchases will be through my 401k and IRA in the first half of 2007. I’m 100% aggressive in those areas, being that I don’t need to get my retirement money for at least 20 years. I invest like a 20-something in my tax-deferred plans but invest like an old man outside those plans.
Bill in Phoenix
“… go … for next software engineering contract”.
What if recession will get to DoD projects ?
I anticipate defense contracts will be good through the Fall of 2008. That’s 2 years. Then bad times for me in 2009 when we have an anti-American administration running the Oval office, combined with anti-American Congress. It will be just like 1979 and 1980. I will switch to some other career if I have to, and downsize verrrry significantly! I’m fine for now since I have very little debt and a heck of a lot of savings.
anyone have a number on the loss in stocks from 2000-2001
vs a 20% RE correction- might be telling
most markets are half way there now
Hard to compare a 20% (or any other %) RE correction to a given magnitude stock market correction, due to the confounding factor of leverage. I assume leverage is much bigger in RE at the moment, thanks in part to the prevalence of 0% downpayment programs. I also know that low margin requirements were an aggravating factor in the 1920s bubble and Great Crash of 1929. But I have no idea about how one would do a comparison for the current situation.
http://globaleconomicanalysis.blogspot.com/2006/12/lit-fuse-in-key-west.html
Although we had a ZERO hurricane year (thank goodness), it may be a repeat of 2005 in 2007. So maybe half of those key west ARM resets will be blown away or buried to the rafters in sewery sand.
“‘Housing slowdowns tend to lead recessions rather than result from them,’ said economist John Makin. ‘An annual drop in the growth rate of residential investment of more than 10 percent has coincided with a recession five of the seven times it has occurred since 1965.’”
Debate ammo for housing bulls who say [baby voice on], “But employment is still stronnnggg”.
I’m a health inspector in NH. Many restaurants are complaining about how bad business is, even when I don’t ask. However, the mall is busy as heck and houses are stilling selling at high prices(although less of them). We won’t now a recession is here until it happens anyway.
A sure sign of recession? My ex (real estate agent) asking for another loan from me without having paid her prior two loans from me. I’m not making this stuff up. Three loans from an ex in two months……..Yikes!
I just went to Costco at 6pm to help my ex with the kids while she bought some huge thing. I was bracing myself for holiday shoppers and crowds of people stopping on the way home, but the place was practically empty, with almost no lines.