Bits Bucket And Craigslist Finds For December 16, 2006
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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its all about liquidity!
about bank reserve requirements and the impact of almost all asset markets.
http://www.immobilienblasen.blogspot.com/
Danke schoen, Herr Feddersen…
(Is it just me, or does it seem to others like the world’s equity markets are all dangling at the end of Central Bankers’ puppet strings these days?)
———————————————————————————-
Asian Central Banks May Spook Investors in 2007: Andy Mukherjee
By Andy Mukherjee
Dec. 15 (Bloomberg) — While a housing-led slump in the U.S. economy may indeed emerge as the biggest risk to Asian economies in 2007, a more immediate threat to investors will probably be posed by the region’s central banks.
Policy makers in China, South Korea and India may have no option except to aggressively contain domestic liquidity and stamp out asset-price bubbles even as the U.S. Federal Reserve and the European Central Bank get closer to ending their monetary tightening cycles.
Relying on “shock therapy,” central banks in these countries might end up making overstretched securities — such as Indian and Chinese equities — more volatile than they have to be. A case in point was the bloodbath on Indian stock markets earlier this week.
http://www.bloomberg.com/apps/news?pid=20601039&sid=atfvDGiVi93Y&refer=home
I agree completely. It amazes me how little bankers actually understand, or care to understand, economics. My wife works for a major bank. I work for a small bank. What I hear from the people around us is scary. I believe I am the only person in the bank I work at that believes 2007 will be a much different year from 2006. I am not planning for a 2007 bonus. I’m learning everything I can at the bank to make myself recession proof. Everybody else is picking daisies and humming lullabies.
Thanks for the article jmf. It deals with what I think are the 2 greatest myths we face going into 2007.
1) The American housing market can crash and not impact the overall economy.
2) The American economy can go into recession and not impact the world economy.
Both of these are pure bull$hit. All of the sins of China, India, Korea and the rest will come to light when growth screeches to a halt. It will be like what we are seeing now with the housing industry. High growth hides a lot of sins. The time to repent is near for a lot of these countries.
NYCityboy,
Good luck. I too think 2007 is going to be a year without bonuses.
I also do not see how having as much displacement in the economy as quickly as we will… cannot have a recession.
We’ll see 5%+ of the workforce put on the street from housing alone. Then we’ve been reading about the mortgage brokers.
We all know Southern California, with its high concentration of mortgage banking (including a huge fraction of the sub-prime) is going to hurt.
And I haven’t even brought up HELOC equity withdrawls and their impact on the economy. I don’t see how that could continue… not even two more quarters.
And yet most people I talk to are totally unaware. However, my banking friends are starting to sweat it… Construction loans are massive… and at risk.
Neil
In the recent past, some have provided links for foreign currency money market funds. Can someone be kind enough to repeat them?
Also I have recently come across currency ETFs offered by Rydex Investments. Does anyone have experience with these.
Thanks
Try http://www.everbank.com/ as well as http://finance.google.com/finance?q=FDPIX
Everbank lets you switch money between currencies.
http://www.everbank.com/main.asp?affid=eb
Thank you!
look it up, but I think it’s.
fxe
fxm
fxc
fxb
there are 6 total I think.
Neil, it’s not the cluelessness around me that scares me. It’s the depth of the cluelessness that scares me. I have a co-worker that is being pressured by his mother-in-law to buy a condo in Queens. They are “only $200,000″? When did the word “only” get attached to $200,000. The mother-in-law says the market is going down but it will pick right back up in a few months. Of course, nothing to back this up but the fact that her house is ridiculously overvalued.
I don’t even discuss this subject at work any more. You get sick of looking like the guy in the tinfoil hat. Like Winson Smith wrote in 1984, “being a minority of 1 does not make you crazy”. It doesn’t make you popular, either. I have now fully adopted the attitude of, “everybody is on their own”. If half of my co-workers pi$$ away everything and go bankrupt, too bad. All the FBs can rot in the gutter for all I care. Nobody cares about the feelings of a bear so why should we bears care about anybody else’s feelings? When they coming begging for money I will be the one laughing. Harsh but true!
“I don’t even discuss this subject at work any more. You get sick of looking like the guy in the tinfoil hat.”
Yeah, I know how that is, NYC. I was at a dinner last weekend, seated at a table with my sister, BIL, and about a dozen other people I had never met. Something my sister said pulled a trigger, and off I went into a rant about crashing markets, subprime borrowers, etc. I went on for about 5 minutes and when I stopped to catch my breath, I realized that the entire table had stopped talking and was staring at me. My sister said “Stop it! You’re depressing me!” End of rant.
>….And half of those people you didnt know were the owners of the exotic loans that you were ranting about. I had that similar awkward situation a couple years ago. I was ranting and raving at a dinner party about the retards “that took at these stupid loans” when a member of the dinner party proudly exclaimed, “i have one of those loans.” He then went on to justify that he was going to let the equity in his home work for him. He was actually a top loan officer in our company that bought a home in northern Virginia….oh and he bought a second home in FLorida. WHen he excused himself from the table, i apologized to the rest of the table. I just never thought someone who is in the business and otherwise quite bright, could be so freaking stupid.
Ah yes. I frequently find myself railing like Mad King Lear in the rain about the greed, avarice, and stupidity that has brought us to this point. The assembled FBs stare in bovine detachment, blinking like toads in a hailstorm as alien concepts like ‘personal responsibility’ fail to find purchase in their barren little craniums. Then, averting their gaze, they all shuffle forward another step in the soup line.
i get the same kind of crap from my wife
she says do not talk aobut your theories around
friends and family that are homeowners
put away your tinfoil hat and join the party
lol
When I put my home up for sale in the Summer of 2005 for a price low enough to sell quickly eveyone said I was just giving my home away. Now they are asking my advice on other matters and want predictions about the future. But I never give advice unless asked because it seems that most people are too hard-nosed to want to hear any other opinion besides their own. Nevermind that good ol Bob Slob nearly has a PhD.
big bob- funny stuff you went from foolish moron to
market timing genius in 12 months
funny how things change so fast
In another blog someone gave what I think is smart advice re this issue: you warn an aquaintance once, a friend twice, and a member of your family three times. Then you shut up. There is nothing else you can do. Time will prove you right, but sometimes being right too soon is a real burden.
“But I never give advice unless asked”……. OK, so you give advice, and they do something completely opposite because some really nice real estate agent who belongs to their church made them feel special. How do you feel then? Sorry, no advice, no where, no how. I won’t even give referrals to my lawyer, accountant or property manager. I have no idea how my referral can screw up my great relationships with these people.
My best advice to my self is “NEWS” “WEATHER” “SPORTS”
thats all I talk about ever.
“He then went on to justify that he was going to let the equity in his home work for him”
When you sound like the TV commercials they have got you hooked, line and sinker.
Most everyone is talking about the housing crash were I work now. High tech design center in Phoenix. Thoses who own homes plan to stay and ones tring to sell are lowering prices. One guy planning to buy is holding off. How bad will it get is the big question now.
One guy at my work has a house for sale in the Litchfield area (west Phoenix). The house has been on the market for many months. Some houses in his area have gone back to the bank and have sold for 100K less than his asking price. He paid 200K and wants 360K for it. I asked why he does not lower his price - answer: I don’t want to do that to my neighbors. When I suggest that the bank sales have already brought the comps down he says: relows don’t count against the comps!
Another girl in my office bought a house on the west side. The builder has given her and her husband a 30K price reduction. Now they are including backyard landscaping. She says: Now is the time to buy. I wanted to say: what happens when the builder takes another 30K off the price and gives the buyer a free pool?
Some (maybe most) people just don’t want to know.
I know your fustrations. Some of my family and friends are very smart. But they get that look on thier face when you start talking about impending hard times/changes.
They don’t want to be woken up. They are having a good time now. They want to enjoy it.
Our time to enjoy will come when the greatest fire sale in history starts and we get our dream homes for dimes on the dollar.
In the mean time protect yourself from inflation, the falling dollar, and over leveraged banks.
Its best to never ever give ‘advice’ anyway. First no one listens, Second you are wrong in some way shape or form. We all know its going down, but can anyone tell us when the exact bottom will be? nope.
You could wait 3 years, buy a house, then a year later be deep underwater further. Down markets suck too.
Hard to go too wrong on a 200k purchase anyway. Thats pretty low end.
hey nyc? where in queens can one buy a condo for 200k?
small coop maybe
I could check on that for you. My co-worker lives in Flushing Meadows. I can definitely find out. I believe they are about 700 square feet. That still sounds expensive to me.
The average bonus for the employee’s of Goldman Sac this year $400,000. What is going on with them? Will they spend their bonus or put it away for a rainy day?
I live downtown near all of this white collar trash. I’m guessing there will be a lot of hookers, strippers and drug dealers making a lot of money in this area. Nobody ever uses a windfall to save for a rainy day. Well, almost nobody, because they usually don’t recognize that it was a windfall. They expect it to be a recurring payment.
Jealous? Maybe they deserve high bonuses. There are a lot of business majors out there. If it was easy to be an investment banker, there would be more of them and the bonuses would be less. Don’t be against anyone else’s freedom.
mark unfortunately i agree with nycboy most of these master’s of the universe think it will last forever
and they do support the local underground economy
as nyc stated
What’s wrong with supporting the underground (free) economy?
They are real patriots.
So in your book, drug dealers (the ultimate underground (free) economy are real patriots? Ah yes, I see it so clearly now….
they should just legalize the crap already
tax it and if you want to snort ,smoke,or shoot your life away go for it
too much violence is associated with the underground economy in nyc
they’ll use their bonuses as downpayments for $2M+ 700sq/ft condos… mark my words..
Mark, I am not jealous at all. I have a much happier life than 99% of the people that are richer than me. I enjoy the simplest pleasures in life. I am a simple guy. To be honest, I feel sorry for those poor bastards.
Put it this way, what would happen to the world if there were no i bankers? I mean, what did the human race do for the last 2 thousand years.
I have heard that the majority of Goldman Sach’s employees will be getting bonuses of less than $1000.00 - which is up from last years $400.00. Most of Goldman’s employees are secretarial, clerks, floor runners, etc. - the actual fund managers, traders and specialists will receive from $600,000 to $40,000,000.
Scores and the Penthouse Executive must be booming.
Lucky girls will get a new Mercedes and new silicone implants (FDA okayed them again, I expect a booming silicone biz) in 2007 paid for in lap dances. Funny NYC stripper anecdote. A college buddy of mine used to work for major strip club as a manager. He told unbelievable stories about these girls, where about 1 inn 10 might actually save their money for the future. The stripping for college myth is just that, a myth. He was begging one girl to take the giant pile of $20 bills out of a giant wicker basket and at least put it in a savings account to earn some interest. Poor thing replied, “but if the bank goes out of buisness, i’ll lose my money!”
God bless strippers.
At least their deadbeat boyfriends in NYC will have a merry Christmas!
Never danced myself, but I lived with one and the stories she came home with about the other girls and the losers they dated…
jmf, NCYB, Neil, etal
I agree with your assessments for 2007 and still I see many companies that don’t understand what’s happening in the coming year. I worked in Southern California in 2006 and talked to many upper management types in the course of my job. Almost NONE realized there was a “perfect storm” heading their way, and only a few were even interested in what I had to tell them. Even FB’s with multiple homes on interest only mortgages haven’t followed up and plugged into this blog.
II think I’m going to buy a large case of Orville Reddenbacker popcorn, watch from the sidelines in 2007, and “hope” that my close friends and loved ones survive.
What is funny is that I work for a Fortune 100 company. One of our top leaders recently commented that a “perfect storm” was headed our way and we needed to get ready for the impact. Housing was specifically mentioned as a major factor — and is not part of our direct product line.
That’s the damn thing about a free market when the economy is heading into a “slowdown.” When corporate leaders start “getting ready for impact,” a slowdown can rapidly deteriorate into a full-blown recession.
when a car slams into a solid wall at 50 miles an hour, it’s a “slowdown” as well
Repent?? No need to worry about China, Korea or India repenting..Americans do not realize how far things have been advancing in Asia. It’s as if 300 million people got in the original MSFT or INTC IPO…so a 50% haircut is a big deal?? LOL. I was in China during the Great Leap Forward when they were eating tree bark in Hunan. It restores your perpective to what’s important in life…and how Godamm lucky us Americans are.
Why do you have so little faith in the abilities of Big Ben and Hammering Hank to engineer a soft landing?
“Why do you have so little faith in the abilities of Big Ben and Hammering Hank to engineer a soft landing?”
I have a lot of faith in thier abilities. But it’s the job they were hired to do that is misunderstood.
Do you think they are there to protect the average Joe? Do you think the average Joe has the same interests as the mega coporations that run the show?
Do you believe we have a GOV for the people, by the people?
I believe Ben and Hank have an agenda that they are following. Based on the last 30+ years, it appears to be a dollar devaluation (inflation), exporting manufacuring jobs (and now others) overseas, increased credit (liquidity), a move to a “Sevice Economy” (read slavery), and an increasing relance on the miliary to procure and secure the worlds rescources (for the mega coporations). None of these things have been good for the average Joe.
I’m sure I left a bunch of things out.
These people are not there to protect us. They are there to insure coporate profits and world domination.
They don’t call me Suspicious for nothing!
I agree the U.S. economy will go in a rat hole in 2007. But I disagree about international stocks, particularly in emerging Asian countries. They do not need 300 million Americans buying. They have more middle class than Americans. They are buying more and more cars in India and China. A good portfolio will be in T-bills, series I savings bonds, precious metals, and Asian stocks. I like PRASX and VEIEX funds. Large multinational stocks based in the U.S. that do a lot of business in emerging economies will do well. Just my opinion.
“But I disagree about international stocks, particularly in emerging Asian countries.”
And I disagree with you here, Bill. When the US economy sneezes, the rest of the world catches cold. The rest of the world’s stock prices are positively correlated with the US market prices, with a high beta to boot.
Thats why China will agree to a slow dollar devaluation and not pull the rug out. I too am buying foreigin Mutual Funds.
PRDIX and VGTSX. The FED is NOT moving interest rates high enough for me. I expect the FED will agree to a higher rate of inflation to keep any deflationary housing pressure from gaining momentum or spreading to the economy. This FED is terrified of Deflation. Stock Market is way up … so many dollars sloshing around and now that the housing boom is dead its back to the stock market. Funny thing is wages have been held low on out-sourcing and improved computer technology replacing workers allowing companies to make record profits. Its a “thing” inflation not a wage inflation. HoHa merry Christmas.
“They do not need 300 million Americans buying. They have more middle class than Americans. They are buying more and more cars in India and China. ”
I’m with GS here, Bill. China’s private consumption is anemic, and the government is in no hurry to get that juggernaut rolling. Right now, it’s simply not a policy objective. They’ve got billions more people than us, yet for 2005 our private consumption was 9X theirs. India is even MUCH further down the list. Decoupling ain’t goin’ to happen anytime soon. Roach says so.
Since this is an open page, let me veer off topic slightly.
What is it about developers that makes them hate trees?
Every Commercial project includes clear-cutting all existing vegitation, and then planting slender sticks with a light dusting of leaves in the parking lot when they finish. Almost every “thing” that gets built here in California, has the same ‘non-native’, non-shade producing tree-like substitutes planted.
They are miserable, scrawny plants,under watered, and sickly. And, of course, here in the Desert City of Bakersfield, they provide absolutly no shade. I have seen Shade trees cut down, so that parking lots could be put in. I wish more thought would be given to working around natural features and trees, instead of our present “Grade it Flat & Start Fresh” mindset.
That is a holdover from the thinking of the 1930′ & 1940’s. It is time we thought differently about how we build things.
This one is pretty simple ThunderEater. If a tree can’t make the developer money, that son-of-a-b#tch is out of there. It’s a lot easier for crews to build when they have no trees or root systems to worry about.
I know in california native oak trees are protected during development. Valley oak, blue oak and interior live oak are common native oaks found around sacramento. The valley oak can have a root system that covers up to or near an acre. So putting up some fenceing around the drip line of the tree doesn’t do much for these larger oak trees. When you compact the soil you take away the air needed for respiration in the root zone as well as divert water as runoff. They wonder why the large oaks are dead or dieing a few years after development.
Like any serious disaster there are a whole host of reasons.
Effective tree protection is actually relatively recent and quite spotty. There is some excellent material on the Palo Alto town web site which is a leader in this regard.
People often value views more than trees, so oddly enough even though nothing gentrifies like trees they end up NIMBY like so much else.
For easy access to the site and secureness of the finished product large machines compress the earth on almost every inch. This is actually somewhat difficult to avoid in modern construction which is a complete turnaround from the old days when such machines were rare and constructions were plopped down amid existing scenery for sake of efficiency.
There are many levels at which the construction process is detached from the consumer. Many of the recent buyers would not necessarily support hordes of drunken Mexicans cavorting from early until late, huge piles of garbage left to fester, and various other common occurrances at construction sites. In Europe or Japan one such incident would completely stop all construction until everything had been sorted out and everyone involved thouroughly fined. In the US no one cares and buildings last around fifteen years between remodels, so whatever.
It’s cheaper to build when you clear the lot first and then replant after construction is finished. So I guess the answer to your question is, “profits,” or if I were in the mood to be unkind, “greed.”
I think you also have to look at the mood of the buyer the past few years. They didn’t view this home as a long-term commitment. This was something to be bought, lived in for a couple of years (maybe) and then flipped. Something tells me going forward that the builders may have to be a lot more conscious of the aesthetics of the property they are presenting to the buyers.
I would guess that the people on this blog would demand to have a few of those shade trees left behind. The sub-primers could care less. And who has been buying the past 5 years?
They will be more conscious of asthetics, that is for certain. Buyers will demand it. Look at houses built in Austin TX in 1985 and compared those to houses built in 1990. You’ll see what I mean instantly.
Thanks.
I was thinking more about the many commercial lots I have seen developed,but you are right about the houses too. I understand about the cost of watering,and trimming, and about the troubles that roots can cause. Just seems to be counter productive to just flatten’n'build.
But, what do I know? I am just some guy who is priced out of houses,who likes trees.
It’s childish to say “greed”. There is no market demand for your beloved trees. And old trees create more CO2 than oxygen, unlike young trees.
There is little market demand for humans. Young and old they make plenty of CO2. And they spew continuous bullsh*t. Exterminate them all.
I’d buy a few humans if it weren’t for that darn 13th amendment.
Doesn’t stop you from renting them. Lots of realtor-babes will soon be practicing an older, more noble profession on a street corner near you….
lol, good one mark.
“There is little market demand for humans.”
Do you work for free, then?
While I’m sure there is some merit to the idea that it is more expensive to work around the trees, one would think that the increased value of a home with a few mature trees would exceed any incremental cost involve during construction.
Maybe it is cultural? I wondered about the exact same thing in East Texas where there are miles and miles of beautiful forest. Many houses there sit in the middle of a completely clear cut area. Why? So the rest of us can see how big your ’spread’ is?
NYC and Peggy are exactly right. Developers want a clean site to work with. Almost everything about building is speed- since time is money. The final landscaping is almost always dictated by the local gov. In my office it’s a cat and mouse game as to how little landscaping needs to be provided. If we require a certain number of trees, that’s all that they will plant. To their defense though, large shade trees in parking lots are murder on concrete and asphalt paving because they have bigger root systems. You’ll see more decorative trees in the paved areas.
In AZ we’re conserving our native trees. Developers are forced by law to transplant the native trees, bushes, and cacti on the land they develop. It’s pretty amazing seeing rows of saguaro cacti waiting for the property to be developed.
Actually the townhome site near me in Sunnyvale is preserving their quite beautiful tree lines from the ex-office park they’re replacing.
“What is it about developers that makes them hate trees?”
IN scal, and especially in LA area, large shade trees/wooded tracts are rare. Older residential suburbs and parks IN LA may have substantial large trees along their streets, but i rarely find commercial parks/businesses in LA/IE which have abundant large shade trees as part of their landscaping. Commercial/industrial establishments that do locate in areas where there are large shade trees,and incorporate them on their properties, tend to be much better run successful companies with happier employees. The corp parks in south OC, Valencia, and thousand oaks/newbury park/ camarillo tend to have superior tree asthetics than those on older grimy LA industrial areas and large tracts out in the IE, which basically adopts the scene out of LOrd of the rings where mordor orders the trees to be ripped out and the landcape becomes a barren razed industrail wasteland. This is the IE industrail MO, which is why the iE IMHO is becoming a toxic industrial nightmare.
You’ve got that in spades!
I’ve been out there,it looks like something out of Mad Max.
UInfortunatly, Bakersfield, is where the I.E. got that idea, it seems, as B-town has been doing this for the last 30 years. Trees need to be seen as more than a “necessary evil”. I am sick and tired of $$$$ being the only way we judge things.
ThunderEater,
You’ve hit on a pet peeve of ours. Try looking around San Diego. Very few trees; and it’s not as arid as Bakersfield, so no excuse. My husband and I both grew up in the San Fernando Valley (Ventura corridor), so we’re used to nice, tree-lined streets. Gotta love those 50+ year-old trees!
In San Diego, you’ve got Fallbrook, Escondido, Del Mar and La Jolla. Those are the only areas with any **real** trees to speak of, and even in those locations, it’s spotty.
Used to make fun of “tree huggers” when I was a kid. Now, I understand…
This could be a big problem.
http://www.halturnershow.com/ChinaToDumpUSDollars.html
Vmaxer, Very interesting how this world works.
“In a strange twist of fate, Arabs and OPEC may come to the rescue of the U.S.!
Senior officials in OPEC made clear that they too would be severely harmed if the U.S. Dollar collapsed, and hinted they “would not be inclined to sell oil to any particular nation that intentionally caused such a collapse.”
This was a thinly veiled threat to China, which depends heavily on OPEC oil for its rapidly developing energy needs.
The OPEC officials even went so far as to say “Since China lacks the ability to project their military power, OPEC nations need not worry about any Chinese military response to an oil cut-off.”
Dumb latter statement by the Arabs. China has the wherewithal to build quite a military now and they have long memories. Not to mention there are a lot more of them and they are a lot closer than we (USA) are.
Heck, with current trends, the USA will need to import its tanks from China!
The Mongols sacked Baghdad in the 1400s (I think). Slaughtered 800,000 inhabitants - a huge toll in those days. China has a rising need for energy and diminishing patience, I suspect, for greedy Persian Gulf Sheiks and extortionate oil prices. They’re a lot closer to the prime oil patches, too. If Persian, Shia Iran and China joined forces against the Sunni Arabs, things would get very interesting in the Mid-East.
” China has a rising need for energy and diminishing patience, I suspect, for greedy Persian Gulf Sheiks and extortionate oil prices. They’re a lot closer to the prime oil patches, too. If Persian, Shia Iran and China joined forces against the Sunni Arabs, things would get very interesting in the Mid-East”
To extend this discussion further, let it be noted that both Germany and japan in WWII were driven to wage war by their needs for the black gold(oil). If US does reduce/cutback its role in the middle east/Iraq, then there may emerge a conflict between sunni’s(Saudi-arabia faction) and Shia’s(Iran faction), with Iraq being the battleground. China will play it’s cards, thus far aligning itself with IRAN. All this would imply sharply increased energy prices in the near future as the threat and incidence of terrorist attacks on strategic oil facilities around the Persian gulf increase. US cannot do S*it in middle east right now as it is reduced to a paper tiger. China is indeed gearing and rampimg up its military forces and positioning its chesspieces in worldwide strategic moves to lock in the worlds oil sources.
China is investing in Africa to secure oil and metals.
The Mogul or Mongol attack on the mid east in the 1400’s by Tamerlane destroyed the high culture of the moslems. The low level of moslem developement today has its roots in that destruction. They seem to yearn for a return to their golden age prior to this destruction.
It’s far more likely the Chinese would invade Russia for resource gain if they were to attempt to gain a little breathing room.
How do they plan to create those 15 million jobs per year if they pull the plug on the world economy? It seems like they might have a bigger unemployment/civil unrest problem than us.
I agree. China won’t destroy its own reserves of US$. They are just getting the idiots in the US fedgov off their back. They will use dollars to buy natural resources around the world.
Highly questionable source. Ignore.
Agreed.
“Highly questionable source”
Agreed, but I wouldn”t totaly ignore it. Seems like sensationalism to me. I followed the articles to where it seemed to say “Congress will Declare War on China.” But when I read that story, it didn’t say that at all.
Gold sold off big time yesterday. Doesn’t seem to fit. Remember we are a day behind China. So when we woke up Thursday morning (the start of the meetings), it was already Friday over there and the meetings near conclusion. So they had one day to trade for gold, etc. But gold went down over $11/oz.
Having said that. This issue is of real concern. In fact, if remember, over the Thanksgiving trading holiday (holiday in US only), there was a big sell off in the dollar (maybe this precipitated the trip to China)! The coming two weeks around xmas and new years day, is essentially a long trading holiday (historically low trading volumes as traders are on vacation), I will be watching closely how the markets do. Especially, the overnight markets in Asia.
We are living in times where changes can occur rapidly. This should be part of your investment strategy. Sometimes it is indeed difficult to be a bear.
“Since China lacks the ability to project their military power.”
Most Westerners do not understand the deep cultural history of the Chinese mind…they are incredibility patient and rarely do they try to use militaries to expand their land domination or export their political philosophies. Results in too much wasted vital economic energy. They are very content within themselves. Besides…they have a Billion and 1 problems to deal with internally, hence their tendency towards direct and indirect brutality of their own people. Believe me… Goldman Sachs and their like-minded brethren, have a tremendous future in the success of China, not to mention India regardless of there political orientation…$ profit is $ profit. What percentage of 2,000,000,000.00 + people can make you a $$$$$ profit?
“They are very content within themselves. Besides…they have a Billion and 1 problems to deal with internally, hence their tendency towards direct and indirect brutality of their own people”
Imperial Germany during WWI embarked upon a military arms race and got into the colonial aquisitions games precisely to divert the discontented masses from domestic squabbling and socialist/union-driven political upheavels. Gov’ts, even liberal Democracies, have been known to do this: embarking upon foreign diversions to get their peoples attentions away from domestic problems. THe Brtish empire during it;s heyday period in the 1800’s was a source of pride and patriotism even among the poor British working classes. In the US, jingoistic ‘yellow journalism’ got the folks riled for a totally unnecessary and useless war against spain in 1895.
Yes, the early 1890s were a time of deflation and depression (though not on the scale of the 1930s). Distraction with Spain…
From Dec 16th China Daily
US, China officials work for economic integration
“….And, there are more demands from the Americans. In his speech, Bernanke said that while a more flexible yuan rate would be helpful, a more direct way to address the global imbalance is to reduce China’s savings rates. The country’s high savings rates, he said, reflect China’s “thin social safety net”, that means that families have to save for medical expenses, their old age and children’s education.
However, in the language of global economic imbalances, it’s hard for Americans to complain about Chinese families saving their earnings without the Chinese bringing up the American practice of spending far more than they earn. Americans are simply over-spending. So, like Paulson, Bernanke lowered his critique of Chinese savings rate with a self soul-searching that the U.S. needs to save more and borrow less….”
http://tinyurl.com/y2h3wd
I agree about the source, however it is sensationalized of actual news that has occurred over the last months. China announced months ago it was diversifying out of dollars.
Points 1, 2, & 3 are relatively accurate M3 has not been published, the US dollar has lost and will continue to lose value and the US has no intention of reducing its deficit.
Opec and Russia have been getting out of the dollar for the last 12 months: Iran is out of the dollar, Russia reduced its dollar holding to ~60,000,000 from 200,000,000
China has been buying natural resources for three years, China has tried to buy military hardware from the US, But until this week had previously been turned down for such items as Cray computers, Wing design and advanced weapon systems.
China’s comment to the US was “save and do not spend above your means”.
Vmax-Nice find. That will help my gold stocks.
No, China cannot dump all of its dollars. A dollar collapse would mean the US really starts saving. Contemplate millions of unemployed Chinese since we aren’t buying things anymore.
The dollar will keep going down. But, the Chinese don’t want to see it happen. That’s why they keep buying dollars (via really low quality mortgage debt ;-)).
Paulson described his wish for an orderly decline in the dollar just as he was taking office.
“Contemplate millions of unemployed Chinese …”
Contemplate millions of unemployed americas trying to sell thier houses at the same time!
Maybe that’s what all those hallibuton “emergency” camps are for?
I sorry what am I thinking. That can never happen here in America. People are just to smart, aware, and our Gov is for the people and by the people. Don’t worry about a thing. Just go back to sleep.
By the way, I’ll propabaly be the one of first to be inducted. Damm it!
People gripe about what we spend on the military. In a (near) one super power world it seems excessive.
However, the Saudis, Kuwaitis and many others realize they are. literally, DEAD without our power lurking behind them.
Sure China can pull the plug on us by selling out their US securities….and bankrupt themselves in the process. One of the beautiful (little understood) outcomes of “globalization” is these interdependencies that spread far and wide. Makes countries cooperate more often than not.
Yeah, it would be great if we could insulate ourselves from all the woe in the world. It would be great if we didn’t have the burden of being the world’s “policeman”.
It’s time to reread “The Guns of August”, Babara Tuchman’s masterpiece about intertwined alliances and how they caused World War 1, a war that didn’t need to happen.
Our military is built along the lines of winning the last war (the war against The Soviet Union, that never happened) and do you think for an instant that a freedom fighter with a coupla i.e.d.’s is cowed in any way by a $50 million dollar airplane overhead, or a 20 million dollar tank, so loud, that he knows it coming from blocks away?
America’s super power status is built on missles that can shoot an apple off the forehead of a man 6,000 miles away. We are particularily vulnerable to the suicide bomber or cave dwelling “non-uniformed” soldier. We were totally unprepared for the Afgan and Iraq wars because we misidentified our enemy.
It really sucks that the insurgents wear street clothes and we have to wear incredibly identifiable uniforms.
Too bad we can’t use mustard gas anymore.
That’s because we, unlike others worry about collateral damage!!
Yes - much better to murder and torture behind prison walls than slaughter in full daylight.
Lyndie England - Poster Child for American Hypocrites
If we fought in Afghanistan and Iraq the way we fought in WWII things would have been resolved long ago. We need a new Gen. Patton and Linebacker III.
I hope our next war is right here, after the collapse. The US needs a general housecleaning. The tree of liberty is watered by the blood of patriots (and tyrants).
Our biggest problem will be with the amazing amount of guns in our country. A sense of false entitlement, combined with lethal firepower, seemingly everywhere, will create what i’d call a “gunocracy”. Right by might, if you will.
Please consider getting out of our big cities, which will be ground zero for all the festivities~
Any other part of the Constitution you would get rid of, other than the 2nd Amendment? As Freud says, a fear of guns is a fear of sexual inadequacy. As Thomas Jefferson would say, real Americans should love guns.
Every multi-ethnic society collapses in an orgy of violence, eventually.
MY wife and I were in New Zealand for a few months last year (drop everything, take a trip there) and a 23 year old woman in Wellington was shot and killed, with a handgun and it was front page news for 4 days running, in the national newspaper. Imagine that happening here?
We have a penchant for violence in this country and it will be our undoing~
50,000 American Lives have been snuffed out since 9/11, thanks to guns~ just the prelude.
NZ seems very nice but its probably like rural ireland or something. Impossible to make money from frivoluous lawsuit and real estate shenanigan. So no Californian would ever move there.
“50,000 American Lives have been snuffed out since 9/11, thanks to guns~ just the prelude.”
No, 50,000 Ameican lives (your number) have been snuffed out buy low-lifes who have no respect for the sanctity of human life, and no fear of a Higher Power.
Wonder where their world view came from?
“Wonder where their world view came from?”
The higher powers of course. Why should they have all the guns? Do you trust them?
Over 2 million people per year are saved by the use (usually just the display) of guns. But I hope all you anti-freedom types disarm yourselves. It will be that much easier to deal with you.
50,000 American Lives have been snuffed out since 9/11, thanks to guns~ just the prelude.
How many of those were scumbags offing other scumbags? Also, how many innocent victims would be alive today if our criminal justice system was truly intent on protecting the innocent and punishing - ruthlessly - the guilty, instead of enriching lawyers and perpetuating the power of a bloated, largely inept criminal-justice bureaucracy?
“50,000 American Lives have been snuffed out since 9/11, thanks to guns~ just the prelude.”
How many of those lives would be snuffed out by other means if there were no guns.
Maybe our society is violent because the movies and television are so full of it, that it seems normal and commonplace. And you have to always put in more and more low level behavior so you can “push the envelope” or make it “edgy.”
I think labelling people who are anti-gun as anti-freedom is simplistic and ignores a very real danger to our children today.
I think being anti-gun ignores some of the real dangers in today’s society and some of the real benefits of having a nation of gun owners.
Small countries like New Zealand can outlaw guns, but will never be able to defend themselves if a larger nation chooses to attack.
I am pro-gun. Not pro-NRA - no one needs “cop killer” bullets or machine guns. But I believe we will never be invaded because in a nation with more guns than people an invading army will never be safe. I also deeply fear our current government. When a government can tap phones without a warrent, promote torture, and pass seizure laws in which your house is taken away because there’s an ounce of pot in your teenage son’s bedroom we should fear for our freedom.
And I agree with FED Up that we are becoming more violence as the mass media promotes violence as the answer to our kids. So I don’t have any answers.
I do know however, if you own a gun you should know how to use it, keep it away from all childred and be a responsible gun owner. And if you are a violent drunk, or have a really bad temper, maybe you should just be honest with yourself and recognize that maybe you shouldn’t own one.
That you even mentioned such nonsense like “cop killer” bullets and machine guns showed you are not qualified to have an opinion about gun ownership.
You first!
” hope our next war is right here, after the collapse. The US needs a general housecleaning. The tree of liberty is watered by the blood of patriots (and tyrants”
Some more choice quotes:
From Lenin or Marx : ” war is the opiate of the masses”
from Hobbes or clausewitz: “War is the health of the state”
Another great book on that subject.
http://www.amazon.com/Dreadnought-Britain-Germany-Coming-Great/dp/0394528336/sr=1-2/qid=1166285855/ref=pd_bbs_2/102-2208764-2588923?ie=UTF8&s=books
“It’s time to reread “The Guns of August”, Babara Tuchman’s masterpiece about intertwined alliances and how they caused World War 1, a war that didn’t need to happen”
Good read. We May need all that advanced military weaponry down the war as i suspect that The next major war(WWIII) may be with the chitcoms. This is speculative but based on my knowledge of the events leading up to both 20th century wars superpower conflicts usually arise from trade/resource disputes, and or simply from calculated imperialistic ambitions. A big powerful military should be seen as a big stick to bolster worldwide political power plays, nothing more. World politics is nothing but power plays: who gets the world resources. who gets respect, who is feared the most. The cold war lead to a lot of US defeats/pullbacks in proxy
wars with the Russian/chinese communist factions. Only the fear to total nuclear annihilation kept US from going to all-out total war with the Soviets.
The ongoing ‘war’ against Islamo-fascism will require highly trained,instant readiness special ops.counterinsurgency forces ready to drop anywhere in the world. It will also require state of art spying/radiation-detection equipment and increase spending on the recruitment/training of homeland defense units( City police/firefighter/FBi/emergency response units). The question is do we go pro-active(iraq) or revert to reactive(pre-911). The problem is that this enemy is a worldwide ideological movement not tied to any one country, but in localised terror cells. It will be akin to sarching out and flushing out an enemy block by block in urban street fighting.
“Yeah, it would be great if we could insulate ourselves from all the woe in the world. It would be great if we didn’t have the burden of being the world’s “policeman”
President Harry S. Truman spelled out in the Truman Doctrine the necessity for the US to ‘defend freedom’ worldwide. President John F. Kennedy in his ‘We will meet any foe” speech also did the same. Both were ardent cold warriers and also great Liberal Democrats. I know those were long ago periods and that the worldwide global situation has altered somewhat, but US does go thru periods between isolationism and active intervention in worldwide affairs. I think that the american people are simply disenchanted with the situation in Iraq and simply want to focus on resolving domestic issues at this point, thus the democratic victories in election 2006. This period is similar to the two decades prior to WWII , the 50’s decade and the 70′ decade. We do of course now have the internet/CNN which allows for speedy dissemination of worldwide events into the homes of most US households, but also the propagation of too much MSM/gov’t misinformation and deceptive propaganda spin.
Didja catch the $5 Million fine and a couple of possible 6 month jail sentences to the execs, doled out to a California Co. named Golden State Fencing?
1/3rd of their workforce were illegal immigrants (just like every other California Company that does hands on labor) and if this is just the 1st shot across the bow, expect Mexicans and Central Americans to bear the brunt of the pain for our sorrow, financially.
We will need somebody to blame things on, and they are the perfect foil.
While I do have sympathy for the illegal immigrants who come here to work and escape horrific conditions in their native countries, I don’t see how allowing tens of millions of poor, undocumented people into our country is a good thing.
The answer to their poverty lies in their own countries, not ours. If the people of Mexico (and other countries) got serious about eliminating political corruption, they’d start making some decent advances WRT quality of live & economics.
My mother is an immigrant, so not against letting people in, we just need to monitor it and be more selective. Health screenings should be a big part of that, as well. Used to work for a company, almost 100% immigrant workforce, where we had a TB outbreak. DHHS (?) had to come out and test everyone, etc. I don’t think US citizens ought to put their lives at risk so we can have “cheap” labor.
Just MHO.
Don’t forget that war is good for the economy. Hell we are producing whole bunches of new cruise missles etc. to replace the ones we launched on Bagdad. The MIC loves to shoot up the old stuff so they can get new stuff. Boys and their toys.
Oh and that deficit thingy….no problem.
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We still have lots of terrorists left to kill!
While I agree that war manufacturing stimulates parts of the economy (and really only benefits a few); they are not an investment. It is money used up on a one time expenditure. Could those recources be better spent? Of course they could. Roads, bridges, schools, and health care are just a few.
“It is money used up on a one time expenditure.”
Does this statement only apply to arms that are stockpiled at home, or to arms exports? Because arms trade is sometimes referred to as the world’s “second-oldest profession.” Arms exports contribute to US GDP (through the X in Y = C + I + G + X - M).
I believe arms exports come from private companies. That’s who I meant by benefits a few. The US GOV outlays (taxpayers) are indeed a one time use. All those arms exports over the decades have served to destabilize the world. And in turn have forced the US to spend more in defense/military budget.
I think this money could have been better used investing in our infrastructure, educating future generations to be able to compete in the work place, stopping crime in the cities, heath care, etc. These expenditure pay dividends, like increasing the tax base, increasing commerce with better infrastructure, a healthy citizen increases production and doesn’t burden the system in their old age, etc.
Instead we have a system of quick gratification, what have you for me lately, and let the future generations fend for themselves. We’ve had a good lifestyle for the last 30+ years. But this system is unsustainable. It is requiring more and more tricks and misdirection to keep it going. The lower classes are growing (and have been for years), there are medical epidemics springing up in our society, brain cancer, Alzheimer’s, and breast cancer to name a few.
I believe change is coming, our lifestyles are in jeopardy, and it will occur in our life time.
I know you have preached self responsibility. We are all going to getting a chance with that every day.
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Jack Welch on Bulls & Bears this morning predicted that the U.S. economy will be very, very strong in 2007 - “much stronger than anyone expects”.
what are the lightbulbs telling him?
Pretty good article on First Time Homebuyers:
http://biz.yahoo.com/weekend/firsttimehome_1.html
Excerpts:
The share of first-time home buyers dropped earlier this year to its lowest level since 1987, according to the National Association of Realtors. First-time home buyers now account for 36% of home purchases, according to a study released last month by the Realtors group, down from 40% in the three previous years.
First-time buyers play a key role in the housing market. They provide a source of new demand for homes, and they also make it possible for owners of entry-level properties to trade up, creating a ripple effect that affects higher-priced sectors of the market. Declining affordability has made it difficult for first-time buyers to buy homes in many parts of the country, an important factor in the recent housing downturn.
If all present first-time home buyers were smart right now, that 36% would drop to 0%. Then the house of cards would tumble quickly. I am so sick of this whole thing. I truly believe things are going to change very dramatically - eventually. But I’m almost all out of patience. (Not that that means I’ll be stupid enough to pull the trigger and buy something . . . even if I were that fed up I couldn’t afford to.)
From Mauldin, on the retail numbers…
“Because sales tax collections do not reflect a robust retail sales picture. Taxes are a fairly good indicator of sales and income. No one pays more taxes than they have to, and sales taxes are collected and reported regularly.
The Liscio Report calls up the offices of the various state sales tax collection agencies and surveys them as to how they are doing. Here are the opening few paragraphs from their report for November sales:
“Our index of state sales tax receipts took it on the chin in November, falling to 27% at or above expectation, down from 55% in October. Although the number of states reporting positive growth over the year rose to 80% from 72% in October, several of the states that did not make it to the zero line were in steeply negative territory.
“… the weakening consumption trend is now established, and the majority of our tax contacts expressed real concern about slowing in sales tax collections. It now appears clear that consumers are not spending the billions of dollars they have saved on gas in recent months, and comments on the effects of the dual slowdowns in housing and manufacturing centered on how much more is to come.”
http://www.frontlinethoughts.com
From the same Mauldin letter…
“But income growth does not come close to explaining how we can see huge drops in Mortgage Equity Withdrawals, yet no apparent effect on sales. So where are we getting the cash? “Our tax contacts in states prone to heavy exercise of stock options report a big upsurge this year. Individuals have been sellers of stocks forever, but the levels in the Q3 Flow of Funds report are at record highs. The first 3Qs of 2006 average $770B at an annualized rate; in 2000 it was $630B, and no other year comes even close. It’s currently 11% of DPI; previous peak was 9% in 2000.
“In Q3 households sold $166B in treasuries, $139B in corporate bonds, and $757B in stocks, totaling about $1.1 trillion, and net purchases of financial assets was an unusually low $250B.
“Putting it all together, we have decent income growth, but households are still doing a lot of dissaving to keep up their spending. We keep looking to credit card debt to cover loss of mortgage equity, but perhaps people are also selling assets to finance spending…”
patience eastcoaster patience
i hear you loud and clear
I would guess a dispropoportionately high % of first-time homebuyers are newly married or newly pregnant - or planning on having kids shortly. Nest building is very deeply rooted from millions of years of evolution and not likely to be stopped by months of real estate tumult. I wanted to continue renting but my wife wanted her own nest and she got it. There was no arguing that one for me.
“There was no arguing that one for me.”
You should have got her pregnant before starting negotiations. Because then there would have been no arguing that one for her.
Once she was pregnant, there was no stopping her.
You did not play your hand very well. Once a woman is pregnant, her hand is fairly week, unless the man fails to call her bluff.
Perhaps there’s a lot to this. When I was raising kids I would have never considered renting. I guess you can call that nesting. Now that they’re gone I would never consider buying-unless it was cheaper. The renting lifestyle allows me to have extra time for hobbies and extra work that makes me more money. When I see the lawn crew show up every Saturday, I’m glad it’s not me.
Exactly. But every generation seems to have to learn this lesson for themselves. Just gotta have that house - until you’ve mowed the lawn 1,000 times and then it’s “just gotta get rid of this f’n horror”.
Which choice makes more sense?
http://tinyurl.com/yjj3m4
or
http://stockton.craigslist.org/apa/247489909.html
When I predicted some houses in California won’t see their peak for another 30 years (after the Nasdaq trades 5000 again), that’s the kind of house I was thinking of.
Neither, Lodi sucks. However, this is a great example of how screwed the market is. Great find.
http://www.bloomberg.com/apps/news?pid=20601039&sid=a0wzLWr5Lbm8&refer=columnist_lewis
and another
http://bigpicture.typepad.com/comments/2006/12/yeah_housing_wi.html
I agree with the conclusion to the typepad piece:
“Real housing bottoms require more than wishful thinking; They require solid evidence, and more than mere price reductions. A significant decrease in inventory, plus motivated sellers, would go a long way to seeing a bottom form. So far, we have yet to see any evidence of that.”
It seems kind of odd that the market is rallys when inflation comes out a zero. Doesn’t anybody remember the deflation scare 5 years back? This is exactly what was happening prior to the 2000 to 2003 crash. It’s pretty basic. Low inflation means to much production capacity. This translates into low or negative wage adjustments. It’s almost as if the entire financial press and investors in general have their heads in the sand. I think the market will be in for a rude awakening come spring time.
Deflation scare = good justification for helicopter drops. That is why Wall Street is partying like it’s 1999.
Today’s WSJ has a concise explanation of the US-China symbiosis (p B12)
(I added a couple of clarification in parentheses):
Kowtowing Bernanke
Chinese Vice Premier Wu Li has been lecturing her distinguished American visitors on her country’s strained historical relations with foreign countries. Perhaps she told Treasury Secretary Henry Paulson and his retinue about hte failure of the British mission to China in 1793, whose leader Lord McCartney refused to kowtow to the emperor. The Brits were sent packing after that. This lesson seems not to have been lost on Federal Reserve Chairman Ben Bernanke, who tempered an inflammatory speech in Beijing on Friday.
Mr. Bernanke, in his prepared remarks to the Chinese Academy of Social Sciences, was expected to say that China’s policy of preventing the yuan from floating had served as an “effective subsidy” to Chinese exporters. However, he excised these references when he actually delivered his address.
It is easy to see why. Apart from annoying his hosts, such comments would have emboldened those in Wasington who want to slap a tariff on Chinese imports. That wouldn’t have been diplomatic. Yet Mr. Bernanke is correct to point out that by shielding the currency from market forces China has distorted its economy towards exporters. If the yuan were to appreciate, many new capital investments in China might turn out to be even less profitable than now.
And in any event, accusing China of subsidizing its exporters overlooks the beneficial impact China’s currency policy has on the U.S. economy.
Chinese imports into the U.S. keep inflation lower than otherwise (so long as the Yuan is undervalued). More important, China’s recycling of its current-account surplus into dollars keeps U.S. interest rates low. And as China invests the bulk of its nearly $1 trillion of foreign-exchange reserves in dollar-denominated securities, it provides liquidity to the American financial system (particularly the mortgage lending sector). Low interest rates and abundant liquidity fuels higher asset prices and strong credit growth. That has created wealth for money-shufflers, Realtors and brokers around the country.
So as China’s economy becomes “distorted” toward exports, the U.S. economy is ever more dependent on a financial sector that is boosted by artificially low interest rates. If the Chinese were to end this “effective subsidy” to Wall Street, the pain would be terrible to behold.
Why should Americans tell the Chinese to stop being so stupid. If they want to be Bob Slob’s slaves then let them be happy about it. I bought over $45,000 worth of Chinese goods over the past three years. I can’t remember doing anything for them. Yes, they have the green stuff, but then it is just paper. We can print some more if we need to.
“I can’t remember doing anything for them.”
You helped keep their manufacturing unemployment rate low.
Increased thier tax base so they can but more weapons.
If you print more but no one wants it, then value goes down based on supply and demand. Dollars are still subject to law of supply and demand. I admit, it seems to have been suspended for quite awhile. Maybe it really isn’t a law. Maybe it is just a theory that has yet to be proven false. Personally, based on logic, it makes more sense that with less demand and more supply whatever it is will be worth less. That is the what this entire debate is about. If it is different this time, then I guess that was just a theory versus law.
Another case where the WSJ has completely missed what happened this past week. China got what it wanted - formerly banned export technology and the US can say “see our exports are going to increase to China”.
So, we have two choices:
1) Encourage (or allow) imports to be cheaper, boosting consumption, or
2) Encourage (or demand) exports to be cheaper, boosting production.
Since China came on the scene, all we’ve known is (1). (2) would be much better in the long run, but nobody in government has the guts to take the short term pain.
Question for the economic historians out there: Has inflation typically fallen or risen at past business cycle turning points? Because Wall Street only sees the upside in low inflation numbers (probably on the assumption that Big Ben will have a ready-made excuse to lower interest rates soon…).
And isn’t it funny how Wall Street uncorks the bottles on each piece of good economic news that comes in, and consistently ignores each bad piece of good economic news that comes in? Just like real estate, stock prices always go up…
———————————————————————————-
Economy on a roll with good news
Inflation fears subside; growth expected to last
By Nell Henderson
THE WASHINGTON POST
December 16, 2006
WASHINGTON – The U.S. economy is ending the year with a flurry of good news, including signs that inflation has receded, consumers are spending money briskly and growth is likely to continue well into 2007.
“Here comes Santa Claus!” Mark Vitner, a senior economist at Wachovia, wrote to clients after a new batch of favorable statistics was released yesterday. “All we wanted this holiday season was a little more growth and a little less inflation. Boy oh boy, has Santa delivered.”
Nearly gone is the inflation scare of the spring and summer, as are investors’ doubts about whether a new Federal Reserve chairman would be tough enough to beat back price increases. And almost gone are analysts’ worries that the slumping housing market would curb consumer spending and trigger a recession.
On the contrary, Wall Street loosened the corks in the champagne bottles all week as each unexpectedly rosy new economic figure rolled in.
http://www.signonsandiego.com/uniontrib/20061216/news_1b16economy.html
Here is a chart which suggests an answer to the question I raised. The grey bars indicate recessions. Notice what happened to the YOY change in CPI during each one of them (and also the large deceleration in YOY CPI inflation currently in progress).
It is also noteworthy that not every period of rapid YOY CPI deceleration coincided with a recession, though every recession coincided with or preceded a large drop in YOY CPI inflation. Maybe this is the fact which gives the soft-landing crowd cause for hope?
http://research.stlouisfed.org/fred2/series/CPIAUCNS/Custom?cs=Medium&crb=on&cf=pc1&cosd=1950-01-01&coed=2006-11-01&seid2=+%3CEnter+Series+ID%3E&cg=Go
I don’t think it’s my tin foil hat that protects me, although I sometimes wear it. I think it’s what’s inside the hat.
Ali G Economics and the Gini Coefficient Puzzle:
http://wallstreetexaminer.com/blogs/winter/?p=200#more-200
What is the status of GNMA funds? I have 80% of my holdings in them. I just want to protect principal.
The US housing bubble is moving from subprime subsistence to subprime subsidence. Is it safe to conclude that one of the main pillars of the bubble is collapsing in the process? And does “terror” seem like the right adjective for the situation at hand? I personally favor “panic.”
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Finance & Economics
Mortgage lending
Subprime subsidence
Dec 13th 2006 | NEW YORK
From The Economist print edition
Parts of America’s mortgage market are in turmoil. Some on Wall Street see this as an opportunity. Others are biting their nails
MORTGAGE lending is hardly the raciest business, but it has its moments. “It’s a bit like the definition of combat: 59 minutes of boredom followed by a minute of sheer terror,” says Michael Youngblood, an analyst at Friedman, Billings, Ramsey, an investment bank. “And we seem to be going through another one of those minutes now.”
What has set pulses racing is subprime lending—mortgages extended at higher than normal rates to those with weak credit histories. In America, where it is most advanced, this market is under a lot of strain, and so, by extension, is the giant asset-backed securities market that is linked to it. The market for prime mortgages (those extended to higher-quality borrowers) is faring better, though it, too, is showing signs of weakness, exacerbated by cooling house prices. Might these troubles, some wonder, be the canary in the mine, warning of a looming credit crunch as investors, for years free with their money, recoil from risk?
Once a backwater, subprime is now very much in the mainstream. Annual loan originations grew fivefold between 2001 and 2005, to $625 billion, according to Inside Mortgage Finance, a newsletter.
But with rapid growth has come fragility. According to UBS, the rate of subprime-loan delinquencies of 60 days or more stood at around 8% in October, nearly double the rate of a year before. Foreclosures are also around twice as high as they were. Worse, loans are decaying remarkably quickly: the number of borrowers falling behind on payments in the first few months has leapt, to around 4% of the total. This has taken some analysts by surprise. But Anthony Sanders, finance professor at Ohio State University’s Fisher College of Business, thinks they should have seen it coming: “With the traditional mortgage market flat, the growth has been in the one area nobody wanted to go into.”
This is already producing casualties. A number of mid-sized mortgage firms have failed in recent weeks. The latest, on December 7th, was Ownit Mortgage Solutions, the 17th-largest subprime lender. Others—such as H&R Block’s Option One Mortgage—are for sale, their owners keen to leave the business. Earlier this month, in another bad sign, KeyCorp sold its subprime arm, Champion, for an undisclosed sum thought to be well below the $200m-250m tag analysts had put on it.
These troubles did not come out of the blue. Their origins lie in 2004, when some of the big subprime lenders began to compete hard for market share. By late 2005, this battle had pushed rates for ropy borrowers down to a little over 7%. This led to a boom in new business as thousands scrambled onto the housing ladder.
http://economist.com/finance/displaystory.cfm?story_id=8424086
“Dubious mortgages are now a growing share of the mortgage-backed market, so there is scope for more trouble. Of the $1.02 trillion of MBSs issued in the first half of this year, over 40% was linked to subprime loans, up from 6-8% in 2000-03, says CreditSights, a research boutique.”
Not mentioned in the article but important for priced-out renters with good credit ratings to understand: Subprime borrowers who willingly signed the contract for high risk loans that enabled them to buy homes they could never hope to afford were a key factor pushing prices to a frothy peak in 2005. Nobody of sound mind and credit rating would buy until this subprime meltdown is done playing out, as a large amount of froth will disappear from home prices once the suicide borrowers are out of the game.
Nobody of sound mind and credit rating would buy until this subprime meltdown is done playing out, as a large amount of froth will disappear from home prices once the suicide borrowers are out of the game.
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Preach it, GS!!
Housing, car markets may spark credit crunch
Fri Dec 15, 2006 12:19pm ET25
By Walden Siew
NEW YORK (Reuters) - For U.S. consumers and companies, the era of easy access to cash may be ending.
While innovation in corporate credit has helped home buyers with checkered debt records buy houses and kept company default rates at historic lows, the first signs of a coming credit crunch are emerging in the housing market.
“A weak housing market can tighten credit constraints and raise the overall costs of consumer finance,” said Suzanne Mistretta, an analyst with Derivative Fitch. “The housing market and financial health of the consumer will be the focus” in 2007.
Subprime mortgage loan borrowers stand to be the most significantly strained by a housing slowdown, which may mean higher delinquencies and more rating downgrades next year for subprime residential mortgage-backed securities, or RMBS, and structured products known as collateralized debt obligations, or CDOs.
For consumers and companies, that means borrowing costs may rise and access to capital may dry up. Bond prices also may fall if CDO investors buy fewer subprime bonds.
http://today.reuters.com/news/articlenews.aspx?type=reutersEdge&storyID=2006-12-15T175746Z_01_N13416297_RTRUKOC_0_US-USA-SUBPRIME-CORPORATES.xml&src=cms
Finance & Economics
The Federal Reserve
Difference of opinion
Dec 13th 2006 | WASHINGTON, DC
From The Economist print edition
The economy, the Fed and the markets
THE outcome was never in doubt. On December 12th America’s central bank kept short-term interest rates unchanged at 5.25%. What mattered was the statement accompanying the Federal Reserve’s decision. Although Ben Bernanke and his colleagues gave a nod to the slowing economy (noting that the cooling of the housing market had been “substantial” and that recent economic indicators had been “mixed”), they repeated that they still considered inflation a bigger worry than weak growth.
That is not what Wall Street has been thinking. According to the latest Blue Chip monthly survey, four out of five financial forecasters reckon the central bank’s next move will be to cut the federal funds rate. Some once-optimistic seers have been busy cutting their growth forecasts. The price of fed-funds futures suggests that financial markets see a 20% chance of lower interest rates by April. This had been close to 70%, but unexpectedly strong growth in jobs and then retail sales in November has caused some in the markets to think a rate cut less likely.
The central bankers are simultaneously more cautious and more optimistic than many on Wall Street. With core inflation still well above the 1-2% rate they unofficially deem appropriate, Mr Bernanke and his colleagues are genuinely worried about price pressure. Although fuel costs have fallen sharply, core consumer prices, which exclude the volatile categories of food and energy, still rose by 2.8% in the year to October. (November’s figures will be released on December 15th.) The Fed’s preferred price gauge, the core personal-consumption deflator, went up by 2.4% in the year to October, only a little short of the fastest pace for a decade. With inflation still too high, cautious central bankers see scant reason for abandoning their hawkish rhetoric.
http://economist.com/finance/displaystory.cfm?story_id=8426464
great podcast here
Contrarian Debate: Janszen vs Mish
Eric Janszen and Mish debate the new law on pocket change, housing, recession, and the terminal state of the asset bubble cycle: inflation or deflation?
http://www.itulip.com/forums/showthread.php?p=5325#poststop
A very interesting post at CalculatedRisk today:
http://calculatedrisk.blogspot.com/
Equity to Value for homeowners with mortgages:
http://photos1.blogger.com/x/blogger/2825/754/1600/742997/BOFA3.jpg
Hmm, over 65% of all homeowners have mortgages, the other 35% are free and clear.
Bottom line,
the average equity of all homeowners with mortgages will be entirely wiped out with a 40% decline in values, should it occur.
Comments? Am I missing something here?
That’s a point I’ve been making for quite a while, most recently over at Neil’s blog. The very idea that home values could rise so high yet homeowners equity (as a % of value) could decline is stunning, is it not? Essentially mortgagers have borrowed all of the gains and more!
IMHO, this is key to the imminent destruction of the housing market. In a “normal” housing boom/bust cycle, it would be entirely reasonable for a bust to take back 80% of what the boom gave, and that would be your 40%.
What happens when homeowner’s equity essentially evaporates? The “trade-up” buyer goes the way of the dinosaur.
Just read the following and I want to puked:
“Twenty-nine year old Bonus Babies are scurrying to their brokers to find two-bedroom, 1200 square ft. “starter” apartments with their $5 million bonuses.They are just playing catch-up with Goldman Sachs which is giving bonuses of more than $100 million to several of its top traders — out of a record $16 billion total bonus pot announced earlier this week. This figure averages out to $622,000 for every one of their 26,400 employees including: messengers, clerks, junior accountants, secretaries, copy people and maintenance men. And all the courtiers to the rich are dancing in the aisles. The real estate brokers are especially ga ga at the prospect of pumping up the wilting housing bubble in the Hamptons and Manhattan. If half the bonus monies goes into real estate, that’s a cool three billion in fees for brokers”.
http://www.huffingtonpost.com/blake-fleetwood/richie-rich-when-a-two-m_b_36519.html
Forget about William McChesney Martin’s admonition, and spike that punchbowl till the drunks can no longer stand!
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Bernanke’s Fed giving green-light to risk taking
Fri Dec 15, 2006
By Jennifer Ablan
NEW YORK (Reuters) - Thanks Ben! That appears to be the response from yield-seeking investors who are taking advantage of the Federal Reserve’s decision this week to hold interest rates steady for the fourth straight time.
Since the Federal Reserve this week characterized the housing market slowdown as “substantial,” but acknowledged that the economy “seems likely to expand at a moderate pace on balance over coming quarters,” investors in recent days have taken that to mean interest rates could remain at current levels for some time.
“People love certainty and Bernanke basically is telling us that we are on hold for a period,” said Jeffrey Gundlach, chief investment officer at the TCW Group in Los Angeles.
Gundlach said when the Fed is on the sideline for a period, “the perception that you are going to have a bad volatile risky event goes down.”
The market’s fear-factor measure, the Chicago Board Options Volatility Index , or VIX, touched a 13-year low on Friday, sinking to 9.56, just as the Dow Jones industrial average hit a record high. The last time the VIX reached such a low level was December 1993.
“Bernanke basically gave the markets a green light for risk-taking,” added Gundlach.
http://today.reuters.com/news/articlenews.aspx?type=reutersEdge&storyID=2006-12-15T180330Z_01_N15402782_RTRUKOC_0_US-INVESTING-RISK.xml&WTmodLoc=NewsArt-L3-Reuters+RecommendsNews-4