“Conditions Likely To Remain Challenging”: CEO
Some housing bubble news from Wall Street and Washington. “M/I Homes, Inc. homes delivered in 2006’s fourth quarter were 1,363, decreasing 16% from 2005’s record-high 1,616. New contracts for the twelve months ended December 31, 2006 were 35% below 2005’s. The Company experienced a 63% cancellation rate during the fourth quarter of 2006.”
“Robert Schottenstein, CEO, commented, ‘Conditions in most of our markets remained difficult throughout the fourth quarter. Although new contracts on a gross basis reached 953 homes for the quarter, the impact of our 63% cancellation rate resulted in new contracts declining 61% for the quarter and year-end backlog units declining 46% compared to December 31, 2005.’”
“Mr. Schottenstein, concluded, ‘For the past six months, we have consistently stated that housing conditions are likely to remain challenging throughout 2007 and we see no reason to deviate from that belief. We are confident that our defensive operating strategy will serve us well as we navigate through these difficult times.’”
“The Company has homebuilding operations in Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Tampa, Orlando and West Palm Beach, Florida; Charlotte and Raleigh, North Carolina; Delaware; and the Virginia and Maryland suburbs of Washington, D.C.”
From MarketWatch. “Despite contentions that the housing market is forming a bottom, 2007 will see ‘a continuation of the challenging operating environment’ for home builders, wrote Raymond James & Associates analyst Rick Murray in a report Wednesday.”
“‘Our fundamental outlook is one of caution, believing that the slowdown is likely to be longer in duration and more difficult than many are forecasting based on inventory levels that are stubbornly high and home prices that are broadly unaffordable,’ he said.”
“Many residential builders are also taking charges on real estate holdings that have fallen in value, and as they write off land options they’ve decided not to pursue. ‘Since we think home-price declines will continue to pressure earnings, 2007 write-downs could equal 5% to 6% of equity written off in 2006,’ wrote Deutsche Bank analyst Nishu Sood, estimating that impairments are likely only half-way done.”
“There could also be an upcoming ’spike’ in impairments for builders set to report financial results after wrapping up their fiscal years at the end of December, ‘due to the added rigor of year-end accounting reviews and the desire to minimize next year’s fiscal write-offs,’ Sood added.”
From Inman News. “Private-label, subprime mortgage originators will have a more difficult time selling Wall Street investors risky loans in 2007, experts say, even as they face tougher underwriting and disclosure standards from regulators.”
“‘After every good party there’s a hangover,’ said Amy Crews Cutts, deputy chief economist at Freddie Mac. ‘We’ve seen a huge boom in mortgage-related employment, including Realtors.’”
“In the last weeks of 2006 several subprime lenders were closing their doors because of financial difficulties. Kenneth Rosen, of the University of California, Berkeley, said the problem is real, and subprime loan originators and the investors who financed them are to blame.”
“‘Subprime loans, for the last and early part of this decade, were 2 percent of the market,’ he said. ‘Then all of a sudden it became 15 percent of the market because you could securitize them through Wall Street. People who normally wouldn’t meet the criteria were approved for loans. It was a sure thing there would be substantial delinquencies and foreclosures.’”
“‘It’s a way some borrowers, and some mortgage lenders used to get people into homes they had no ability to afford,’ Crews Cutts said of such ‘low doc’ or ‘no doc’ loans that require little or no proof of income. ‘There are some really scary products out there. We’re going to see a crackdown in non-documentation mortgages — you are going to have to show a W-2 or at least income.’”
“Federal Reserve Board Vice Chairman Donald Kohn says a ’stabilization’ that seems to be taking place in the housing market may be vulnerable to a rise in long-term interest rates, or even a decision by the Fed not to lower short-term interest rates.”
“Kohn said housing prices are still high relative to rents and that inventories of unsold homes have only started to edge lower. ‘Uncertainty about where we stand in the housing cycle remains considerable,’ Kohn said. One reason for the uncertainty, Kohn said, is that the downturn ‘was not triggered by a restrictive monetary policy and high interest rates.’”
“The downturn did follow ‘an unusually large run-up’ in housing sales, construction and prices. ‘Our uncertainty about what pushed home prices and sales to those elevated levels raises questions about how the market will adjust now that expectations of the rate of house-price appreciation are being trimmed,’ Kohn said.”
“Kohn said housing starts ‘may be not very far from their trough, but the risks around this outlook still are largely to the downside.’”
“It’s unknown, Kohn said, if ‘the possible stabilization that seems to be taking hold would be immune to a rise in longer-term interest rates should term premiums increase or the federal funds rate fail to follow the downward path currently built into market expectations.’”
“It is still too soon to say rising prices no longer pose a threat to the economy, the President of Federal Reserve Bank of Chicago said today. Michael Moskow said the unemployment rate, now at 4.5 pct, is about at the bottom of the range of the so-called ‘natural rate’ of unemployment.”
“‘This suggests that we need to be vigilant for the possibility of increases in inflationary pressures,’ he said. And he said the Fed has to be worried about inflation expectations, which can cause actual inflation to rise.”
“‘If firms and workers expect inflation to be high, they will want to compensate by raising prices and wages or building in plans for automatic increases,’ he said.”
The Associated Press. “An expected dampening of the world economy in 2007 after three years of healthy growth has the weakening U.S. housing market primarily to blame, a U.N. flagship economic report said.”
“The waning U.S. housing market is a ‘major factor’ in the slackening economic prospects, the report said. The end of the housing boom is expected to depress U.S. consumer demand, slowing the growth of the country’s economy, it said.”
“‘The economic recovery in Japan and Europe is not strong enough to replace the U.S. as the engine for growth of the world economy,’ the report said.”
“A continued widening of the U.S. deficit could erode ‘confidence in the dollar as the world’s main reserve currency,’ the report warned. The U.N. report also warned that if the U.S. housing market falls at a dramatic rate, the global economy could become unhinged, ‘enhancing the risk of a major upheaval in financial markets.’”
‘Fallout from the surge in subprime and exotic mortgages taken out during the housing boom could become a major issue in the 2008 national elections, political analyst Charlie Cook told REALTORS® in Washington, D.C., this week.’
‘Cook said that the number of potential foreclosed loans is so large that problem subprime and exotic mortgages like interest-only loans could ‘be a big political issue’ while 2008 national campaigns are underway. ‘The issue is not on the political radar screen today but it could be in 18 months,’ he said.’
‘Cook says the attention could shine the spotlight on mortgage brokers, but real estate practitioners could feel the impact, too, as the issue hits ‘pretty close to where you live.’
Predatory lending is already a hot topic in many areas, including my city of Tucson and the state of Arizona. Wouldn’t be much of a stretch to extend the term “predatory lending” to include toxic mortgages. Some local politicians are already making rumblings in this direction.
Whatever plan any politician claims to institute will not fix the problem. This problem is already starting to fix itself due to to free market conditions. Subprimes failing, prices falling and people learning the lessons about speculatory investing.
Yeah, but you know how politicians like to jump on an issue bandwagon. I’ve even heard presidential candidates talking about it.
The bankruptcy laws will be next.
The bankruptcy laws should be next. That bill was a disgusting sop to the credit card companies. I didn’t think 6 years of Republican power could come this close to bankrupting an entire country . . .
The credit bubble and the housing bubble were entirely a Republican creation . . . once the noose was in place, they (along with Joe Biden (D-MBNA) and other DLC hacks) kicked out the chair beneath Joe Sixpack and plenty of college-educated naifs.
Meanwhile, they emptied the treasury while handing out $300 early tax refund checks as a distraction. What a disgrace.
It never fails to amuse me that people expect anything different from either party.
The government is a corporation with guns.
Txchick
OT. Missed your sarcastic remark in a previous post about Cheerios. Not a problem. Over the past few years I’ve heard many such remarks from those who feel they have the answer to trading the markets. I usually discover after listening to them or reading about their trading methods, I am way ahead of them. In fact, some time ago you made an equally sarcastic remark which I ignored but I figured I should at least reply with one post now that you have decided that your knowledge about the market far exceeds mine.
I have read nearly ALL of the tech analysis books but still come back (for explanation) to the one I was advised to read first by the 86 year old (then) VERY successful trader who took me under his wing many years ago when I was floundering and losing money. That book being Steven Achelis A-Z.
However, I have since moved on past the Mickey Mouse indicators like MACD, Stochs, Bollinger, Chaiken Money Supply, etc. I realized a long while ago that every man and his uncle and brother was using those signals and Da Boyz of Wall Street ain’t dumb enough to let Joe Sixpack steal their money bu using a few Mickey Mouse indicators. “Their money,” being how they regard all the 401k cash and other investments that flows in via various routes into their coffers.
Tech analysis is almost 100% based on moving averages. That’s it. Every signal has it’s foundation in moving averages. Thus, one can employ scores of these signals (like the MACD or the stochs) but they are still no more than moving averages with prettier lines.
I do use (in my top chart) a certain variation of 3 different moving averages and I have a program which allows me to adapt moves. Not just EMA’s or SMA’s. In my bottom chart I use only one signal which I was shown by another trader about 5 years ago. I don’t usually listen to other traders but this guy backed up his signal with 10 years of research. In other words, I do not allow myself to get confused from indicatoritis (anymore).
My charts work very well. I do not trade individual stocks. Only ETF’s. I once traded, many years ago, a stock which lost 50% of it’s value overnight when I was long. When I asked the old investor how I could have avoided falling into the trap, he showed me via his charts, that the CEO of the company (which operated retirement homes) and a Wall Street analyst who covered the stock, had met just 2 days before the fall. There was a “blip” on his charts two days before the fall which he said, was where the analyst and the CEO connived to announce a SELL rating. That gave the analyst time to warn his brokers top clients and the CEO to tell his family to sell before the announcement. If a stock has a volume of several million shares a day. A few hundred thousand being fed into a sell order will hardly show up - but in conjunction with the right signal it WILL show up.
You may have been watching a certain popular stock leap by over $7 in the last few days. My charts showed me that there were “inside” moves starting on the 28th of December. That was around $81. However, the announcement which created the big jump, was not announced until a few days ago. Some money came off the table today but the stock is now at $96.
Last night, 15 minutes before the close, the QQQQ’s indicated they were about to rise. That’s day chart not week because my weekly chart has gone like the property market - straight up since August 14th. I was fully invested until Nov 24th when I sold. Since then, the QQQQ’s have been flat (basically). I don’t post what I see anywhere because there is no guarantee that it might not be a fakeout by Da Boyz and I don’t want anyone to lose money. I can get out - they might not be able to.
Finally, the trading method. Just like property, 99.9% of investors are NOT going to get in at the start of a trend. That’s because Da Boyz of Wall Street control the timing. Neither will 99.9% of investors get out at the end of the trend. For the same reason. So, I take the advice of the old guy (now passed on) who told me two things. (A) Be satisfied with the meat in the middle. (B) Don’t try and outsmart the Financial Gangsters of Wall Steet. Just follow them and pick up the crumbs they drop and they steal the cake.
For other posters, I apologise for posting something not totally related to property but there is a connection in so far as the ultra rich of the USA which I think is about 10%, make most of their money in stocks and property over the long run.
Why are REITs doing so well is most RE is going down?
You may have been watching a certain popular stock leap by over $7 in the last few days.
let me guess…AAPL?
It’s funny that you mention this because after the iPhone was announced I thought, $hitdam, how do someone get advance notice of those announcements?
(not in market now, but when I did play around with that stuff I made some good calls, mainly due to dumb beginner’s luck. One thing I learned early not to buy into any stockbroker’s recommendation.)
You guessed correctly.
IMO you have cracked the code…
cap tip to you sir
Mike,
In yesterdays infamous thread, you conjectured there is no difference between buyer exhaustion and resistance. I would say there is a difference. Buyer exhaustion is a market condition where the buyers are in complete control of the action. They take the prices up on high volumes, and when volume dries up at the top, price drops, and then there is a high volume retreat as the late buyers become sellers. This often results in a parabolic blowoff or a market top that looks like a spike. Resistance is different, resistance is active selling. When a mutual fund has a big sell order in the market and is patient about getting its price, you will see prices bounce off an imaginary ceiling numerous times until the big order is filled. This is a seller dominated market condition. So buyer exhaustion and resistance are completely different phenomenons, and IMO, there is no resistance to price movement in residential real estate markets only buyer exhaustion.
As for your trading, it is great to see you are past the indicator fascination stage. Many traders do not survive long enough to reach that milestone. It sounds like you have developed a trading strategy that is profitable and suits your personality. IMO, you are home free pending your trading systems survival in a true bear market. My only disagreement with what you wrote in your post was the idea that there is some signal that accurately indicates future price movements that could be used to avoid catastrophic gaps. There is no such signal, and there never will be. If such signals were to exist, even for a short period of time, people would figure it out, use it, and thereby render it useless. The markets are the combined activities of people, and although the behavior of markets may stay within statistical norms, it cannot be predicted. There is no amount of math that can be applied to a chart that is going to predict when a mutual fund holding a very large position is going to decide to sell. This is a decision made by people, and as such, it cannot be mathematically modeled. IMO, the only way you can deal with the uncertainty of the markets is to manage your risk well through the use of stoplosses, short holding periods, and small position size. At least that is what works for me.
Mike, no worries
I learned something today from you…so thank you!
If the people who sold the loans and pocketed their fees aren’t punished or at least regulated, then this will happen again. A lot of people made a lot of money financing and re-financing homes. Yes, a lot of the people who ultimately lost money were deserving of their loss, buy many weren’t. And the ones who will ultimately pay - you and me - for the banks losses due to fraudulent loan and appraisal practices should at least get accountability and some assurance that it won’t happen again.
Lol, lol, lol, lol! Just as I predicted over the last couple of months. Here come the “concerned” politicians, 6 years too late. If the local politicians are starting to make negative comments about lending methods, can Hilary and Obama and the rest of the “concerned” Washington whores (on both sides) be far behind.
Next up…..lots of tax payer money being spent on hearings in Washington about toxic loans, predatory lending, interest only, etc. Expect to see a long parade of mortgage industry and real estate leaders sitting in front of our “concerned” politicians who, grim faced, make notes as they slightly shake their heads in surprise that this kind of predatory lending could have been going on….before they break for an expensive tax payer subsidized lunch.
I’m sure we will have the pleasure of seeing people like David Learah of NAR, smiling smoothly through his shark teeth, telling them, “Private property ownership is still the best investment for the average american and prices always go up. However, the NAR has been concerned for some time about the widespread use of these exotic loans.”
I figure CountryWide Finance will probably be on the list. The ones I want to see and hear are those who were employees. Especially those involved in the boiler room operations. We should get a laugh from these Whistleblowers who were told by their paymasters to, “Ignore the statement of earnings,” on the mortgage application, “Just fill in the spaces and we will push it through.”
This is going to be more fun than watching those “Jackass,” videos.
So Mike, it would be better that nothing be done by Congress? You criticize (in advance) Obama and Hillary . . . but the Democratic party has been utterly powerless in Washington for the past 5 years.
Try getting some anti-predatory lending legislation through a Republican House, Republican SEnate, and a Republican president.
The Democratic party is not perfect and needs to be weeded (examples Lieberman, Biden, Harman, Bayh, Ford, etc.); but to pretend that both parties are equally responsible for this coming mess is pure BS.
Maybe not equally responsible, but they knew what was going on. They (the Dem’s) get plenty of media exposure and could have come out and make public statements about the dangers of predatory lending.
Brooklynite
I did say “both sides”. Just so you know, I’m a liberal. You are correct when you say the Dems have not had any power (sadly) since President Fuhuer Adolph took over but I think you have to agree that the Dems do have the ear of the media and many in the media lean to the left and would give them “a hearing”. However, and correct me if I’m wrong, I cannot recall ANY Democratic politician coming out and saying, “I’m really concerned about the amount of predatory lending going on.” Again, you are correct when you say legislation coming from the Dems would never get passed with the bunch of corrupt crooks we have had in power but there was NO attempt. Nada.
I’m not sure why but I suspect it might come down to special interests. Let’s face it, anyone who thinks that the USA is still a democratic country run by the US government elected by the people, needs to get their drinking water checked out by a lab. The people elect, the politicians get in and the corporations and special interests via their lobbyists tell the politicians what to do. Sad, but there it is.
I suppose the only way we can tell why the Dems have been so silent on this subject, would be to see who in the mortgage, banking, real estate business have been contributing to their war chests.
“I’m not sure why but I suspect it might come down to special interests. Let’s face it, anyone who thinks that the USA is still a democratic country run by the US government elected by the people, needs to get their drinking water checked out by a lab. The people elect, the politicians get in and the corporations and special interests via their lobbyists tell the politicians what to do. Sad, but there it is.”
Horsepuckey. Business and other special interests (lawyers being the largest class of contributors; their donations are overwhelmingly to Democrats) do have more influence than the numbers of people associated with them would justify based on votes alone. But saying that they are all-powerful is absurd. If they were, the Sarbanes-Oxley abomination would never have gotten passed. We wouldn’t have some of the highest corporate tax rates in the developed world. We wouldn’t have white-collar crime laws written so vaguely that basically any time a high-profile businessman crashes and burns a big company, he’s guaranteed to be prosecuted for something or other. We wouldn’t have a tort system that imposes more legal costs on business than any other country’s.
The truth is that business may have some influence on government, but against a politician with a good grasp on the popular conventional wisdom on a sexy trendy issue, business is toast. A politician has the advantage of proposing a splashy Solution to a discrete, high-profile Problem — and if the Solution winds up having negative consequences over time, they are likely to be complicated and hard to explain to a population whose grasp of economics comes from a high-school class they spent admiring the back of Julie Thomas’s neck.
Politics is a blood sport, and large interests do punch according to their weight — but there always comes a point when mass opinion prevails.
Ah, yes. I figured my post would bring out the flag wavers! Too many points to go into. You sound like you are defending those who “crash” a company.
I cannot name one single CEO who has been prosecuted that didn’t deserve it. Not one. Perhaps you can enlighten me and I hope you don’t bring up those honest CEO’s like Lay, Ebbers, etc. American CEO’s are a joke. They are GROSSLY over compensated and run corporations into the ground through arrogance and then walk off with multi-million dollar golden parachutes. They ignore the threat of foreign corporations which know what they are doing (like Toyota) and destroy whole sections of the US manufacturing base. Even as gas prices were going up, those idiots who run Ford and GM were building bigger gas guzzlers while Toyota was building gas savers. Now these capitalist thinking corporations want top be bailed out by tax payers.
Politics isn’t a blood sport. It’s bought and paid for by the biggest donors. Yes, the Dems do collect big time of the tort lawyers (mainly) but they pale in comparison to the crooks who run the US oil corporations and give to the republicans.
Still, it’s a pointless argument because I expect you think the US invaded Iraq to bring “Freedom and Democracy to the Iraqi People” as opposed to the rest of the world who think the US invaded Iraq to steal or control their oil.
If that’s true, then why not just invade Arabia- they have more oil and a smaller army?
Because the Bush Crime Family are in bed with the Saudi’s.
More. And btw, if you want radical muslims to piss off, the best place to find them is Saudi Arabia. Also, the US would have problems justifying invading Saudi Arabia but Saddam Hussain had all the earmarks needed to convince people that he was the bad guy who needed to be taken out. Btw, Iraq has (I think but I’m not sure) just as much oil as Saudi Arabia.
If that’s true, then why not just invade Arabia- they have more oil and a smaller army?
Because the Saudis are our “friends” and “allies”? Because we already have U.S. troops on Saudi soil? Because overthrowing the Saudi government would provoke a Muslim backlask the likes of which would make Iraq look like a picnic (infidels occupying Mecca, their holiest site)?
Lots of good reasons.
“I figured my post would bring out the flag wavers!”
Mike, I agree with everything you have said on this topic. I am thrilled to be an American citizen, but like you said, anyone who thinks our system is on the up and up needs to be examined. And both parties are to blame in this credit debacle because I have not heard one peep on the topic until now, from either party. I think we have to let the lenders and credit junkies burn this time around.
I stand by my argument that Sarbanes-Oxley is an absolute rebuttal to the argument that corporations run America.
Re: Iraq, it got invaded not because we wanted to “steal their oil” (which we haven’t done, obviously) but because Iraq was one of the three countries in the ME that wasn’t giving at least some cooperation in cracking down on terrorists, the other two being Afghanistan (already dealt with) and Iran. I would have chosen Iran, but the State Department insisted on having some legal cover, and Iraq’s violation of its cease-fire agreement gave at least an arguable legal basis for calling “time in” on the suspended 1991 hostilities.
If the housing bubble was the fault of Bush, was the dotcom bubble the fault of Clinton? Oh, I forgot, the dotcom bubble was a wonderful creation of Clinton that created 24 million jobs. No mention of the jobs lost when that silly bubble popped. Oops, that was all Bush’s fault that the glorious dotcom bubble popped. You DailyKooks sure do have selective memory.
four legs = good
two legs = bad
On a southwest roadtrip, we were in Hurricane, Ut. and walked by a predatory loan shop that proudly boasted they had the lowest apr in the state, according to a SLC newspaper. Their “low” rate? 304.17%.
The top rate in Utah? a Startling 912.5% apr…
This from The Deseret Morning News. A survey of 307 payday lenders in the state, from February 2006.
Shocking?
“Predatory lending is already a hot topic in many areas, including my area of Tucson…”
Arizona, I completely agree with you. Much of the price inflation in Tucson’s market is probably due to out of town/state speculators, but for the locals who bought during this time, there had to be many, many toxic loans. For anyone who is not in the top few percent of income for Tucson, a toxic mortgage is the only way they could afford houses for $300,000+. For anyone working for an hourly wage in this town, even $250,000 is a stretch, even w/ two incomes. My wife and I have just begun professionals, and our combined income is just over 6 figures, and we figure in about two years we could afford $250,000 pretty easily, $300,000 would be a bit of a stretch (though we could afford more if we didn’t have large student loans to pay). If we could barely afford $300,000 after getting established in a highly paid profession, then how many folks can really afford the MANY, MANY houses selling for MUCH more than that? There are not that many folks making that kind of money in this town, even when you add in the wealthy snowbirds. My father bought his 3/2 house in a nice middle class neighborhood in central Tucson for $85k in 1991. His mortgage at that time was around $800 including PMI, etc. That was about the max he could afford with what was a relatively high hourly wage plus income from own business on the weekends. Houses in his neighborhood sold for well over $200k in 2004-2005. NEWSFLASH — folks in Tucson do not make 2.5 to 3 times as much money as they did in 1990’s. When the toxic mortgages are gone, prices will HAVE to come down, whether due to sellers getting a clue, or due to REO’s being sold for what the market will bring after FB’s get foreclosed.
I think the problem’s already being taken care of by the market, Tucsonguy. I know someone who is privy to information concerning new service hookups by one of our local utilities. She says that there aren’t too many new service requests these days. Which means that very few Tucson houses are selling right now.
What about the other big elephant in the room. Job loss. When you lose your job and your PITI is 1000 you can potentially pay your mortgage while working for 10-12 bucks an hour until you find a new reasonable job, but when your interst only loan is 2600 your are toast, burnt toast, no butter just dry burnt toast.
My mom lived in tuscan in mid 90’s and i remember her telling me that if you made $10 an hour you were doing well
the salaries in tuscan are really low and in no way can support those price levels fo rthe average local
im sure Ben can elaborate more on the subject
“…if the U.S. housing market falls at a dramatic rate, the global economy could become unhinged, ‘enhancing the risk of a major upheaval in financial markets’.”
WOW .. puts me in mind of the ‘It’s a Wonderful Life” theme… see the parallel? One small subprime mortgage in a little town in America added to another one in another small town in America could unhinge the world economy — no one real estate action is exempt from responsibility. Boggles my mind.
Sounds rather chaotic…
http://en.wikipedia.org/wiki/Butterfly_effect
OT: Another f’ed borrower (sorry, I mean investor)
Follow along as he buries his head in the sand. (I like the most recent entry. “Look, I found a mortgage broker’s blog! I can go there for objective analysis!“) Heh.
http://journeytoamillion.blogspot.com/ Enjoy.
another Russian. Why am I not surprised.
He’s not Russian. It looks like he’s a Mormon who spent 2 years in Russia as a missionary. Not that it matters. He’s still an idiot.
That blog should be titled “Journey to Bankruptcy.”
Politicians who try to distance themselves from the subprime fallout are likely to inadvertently worsen the situation. Nobody will want to have the stench of toxic subprime debt on their political coattails once all the problems start coming to light.
Geez this thread is long. I will add one factoid:
Sen. Christopher Dodd of Connecticut was installed last week as the new Chairman of the U.S. Senate Committee on Banking. He announced today his intention to seek the presidency in 2008.
Should be interesting.
Do you think he is going after the FB vote?
getting alot of buzz this morning from the other wholesale reps that freemont is the next to go this week. i am four for four, having lost a subprime lender a day (that i met) since the lender fair on friday, hopefully freemont will get me five for five.
This is big news. I am checking all the broker blogs every hour to see when this happens…
Fremont is #4 or #5 depending on what list you look at
Can you recap who is on your list?
‘Although new contracts on a gross basis reached 953 homes for the quarter, the impact of our 63% cancellation rate resulted in new contracts declining 61% for the quarter and year-end backlog units declining 46% compared to December 31, 2005.’”
***********************************************************
So what happens to its stock when M/I Homes, Inc. reports such dismal news? Down sharply one would think. But not while the Plunge Protection Team is on duty. As of 11:11am, MHO was UP.
Check the chart on MHO for this morning…
http://tinyurl.com/yg5v5q
dawnal, your posts regarding M/I’s stock price are VERY significant. IMHO, it means the markets are so completely gamed, don’t even bother using traditional methods or measurements to make investment decisions.
This really makes me sick to my stomach.
Yes the markets are completely gamed. Check out this trading alert that came out this morning:
Trader Tracks Trading Alert 9:20am 01-11-07
Analysts claim they can tell the future of the markets by watching the
action for the first five trading days. We prefer to watch at least the
first ten trading days. At this point we have seen enough and charts are
showing a correction is on the horizon. The carry-over buying power for
mainstream stocks from 2006 remains in force. While markets do things at
times with little or no warning, we see the major stock indexes topping
out
for correction. Understand the Plunge Protection Team seeks three major
objectives: (1) Keep the Dow above 10,000. (2) Keep the US Dollar above
80.00. (3) Do not let gold get into a runaway rally. Never ever
underestimate what they can do to manipulate those prices. Eventually
major
trends will win, but getting there can be rough. KEY POINT: BOTH GOLD AND
SILVER ARE READY TO RALLY AS THE LARGEST MONTHLY WAVE THREES MOVING HIGHER
ARE READY TO GO. IT CAN HAPPEN TODAY OR NEXT WEEK. DO NOT MAKE RASH
DECISIONS AND DO NOT OVER TRADE. STOCK OPTIONS WILL BE INCREASINGLY
VOLATILE AND THEY ARE NOT PRICED TO OUR ADVANTAGE. FUTURES OPTIONS AND
SPREADS ARE SAFEST AND LIMIT RISK WHICH IS THE NAME OF THE GAME. WATCH FOR
SPECIAL ALERTS ANYTIME IN THE NEXT FEW DAYS. SILVER HAS THE MOST POTENTIAL
AT THIS TIME AND MIGHT SURPRISE ABOVE 15.20 OVER THE NEXT 4-6 WEEKS.
Roger Wiegand,
Editor, Trader Tracks
palmetto
Of course the markets are corrupt, fixed and manipulated! You don’t think the Wall Street guys buy property in Bermuda and the South of France and collect $60 million bonus checks by honest means do you! That money isn’t plucked out of thin air. It’s money that someone either lost OR it’s a big chunk taken out of big profits. In the case of Wall Street brokers, they will let Joe Average keep 5% or so of the profits of a much bigger gain - but that’s all. The rest is theirs.
You have to get over it like I have. It’s hard especially if you were raised by honest, hard working parents who saved, put away a few bucks (pounds in my case) every week for several years to put a deposit on a house. Money moves the world and money corrupts.
Just think what Da Boyz of Wall Street could do to a privatized Social Security fund which President Clouseau has been touting and now that ex-Wall Street CEO Paulson is attempting to revitalize. Boy! They would hammer that treasure chest for all it was worth.
Mike, I’m not even a liberal and I agree with everything you’ve posted in this thread so far. I’m not a conservative, either, though. And I completely agree that the responsiblity of those of us who are not privy to the games of Corporate Fundamentalism is to try to figure out how to work around them, just to live.
Life is unfair and you are right, I have to get over it. But right now I’m just at the stage of confronting it and I’m having a really hard time with it. I just recently read a very extensive report by a former software engineer/salesperson who was doing work for some of “Da Boyz” prior to and after 9/11. It was very enlightening and a tad on the bleak side, but yes, something can be done about it. And I don’t expect the guvmint to do a damn thing. However, Da Boyz can only be in charge if the rest of us agree to it and right now, we’re working with the system they’ve given us. That could change.
“President Clouseau”
That is perfect. Very funny, Mike. I will have to use that one myself. I saw the Pink Panther on TV a while back and yes, it is fitting.
Dubya is a dimwit in way over his head. He is surrounded by incompetent and/or corrupt people and isn’t smart enough to know it. Too bad the Democrats couldn’t put up someone decent on 2004.
They have followed the same pattern as all the others. First they tighten up on the spec loans, due to buybacks. Then they tighten up on all the other less $hitty loans… Keep us updated.
Makes me feel like a fool! Why on earth would I have saved over $40K to put down on my house. I should have joined in the 15% sub-prime. 100% financing and when the ARM resets, leave the keys on the counter.
Please, plz someone ’spain me…
This “strategy” keeps getting mentioned, but then there is the bugaboo of paying IRS for forgiven debt…or not?
With proper deference to Desi Arnez, your line ’spain me’ makes me laugh. When my youngest was 2 or 3, he would take hold of my wife’s face and in the middle of a conversation she was having with a friend, pull her close to him and say ’spain me, momma. spain me’. His need for accurate information is exactly what has been lacking from the typical sub-p buyer. Just a little more insistence on ’spainin’ would have went a long way!
***I’m not a lawyer or accountant and can’t give advice as such.***
Depends on whether it gets reported as forgiveness. Some of these lenders will go for a judgement against the homeowner in states that allow. A very good defense was being “misled” into making the purchase decision based on “affordability” that wasn’t clearly explained. Remember, even when the lender files suit against you, you can request a jury. In a civil matter the company would then need to convince 7 people that you duped them instead of the other way around.
OK got it.
then in my case I’d have to make sure the property is located within the Philadelphia city limits, since urban juries are notorious in their contempt for The Man.
Lender = plaintiff
phillygal = defendant
Slam dunk: decision in favor of moi.
not that I’m planning to take this course of action, mind you.
You got it! I saved, saved, saved, saved, and saved some more. Then I played the waiting game until I couldn’t anymore before buying my home. It just seems like we’re the ones getting penalized.
The expense of bringing suit against a borrower would no doubt exceed the median priced home in just about any market. No bank is going to do that, unless there is a much larger issue at stake, i.e., some sort of precedent-setting case that will impact its bottom line moving forward.
Lenders are going to eat the bad loans, trash borrowers’ credit and send the debt forgiveness paperwork to the IRS.
And I should add, that most traditional mortgages (OK,OK, I know) are secured by the property alone - no pay bank, bank take house - The End. No grounds for lawsuit.
Why on earth would I have saved over $40K to put down on my house. I should have joined in the 15% sub-prime. 100% financing and when the ARM resets, leave the keys on the counter.
Because the end result would be that you just spent the time renting, albeit at a higher monthly cost than genuine renting, and you ruined your credit as part of the deal.
The American pocketbook is Ground Zero for the housing bubble. The poorer you feel, the less you spend, and the world economy grinds to a halt.
How long until someone accusses the U.N. of meddling in our economy by issuing that report?
Global economy = global risks.
Amen, brother.
un and some lefties in congress want a global tax- that means YOU !
Oh, I fully expect to be taxed heavily as a result of all this. It is better to consign myself to that fate and know that well-meaning pols will get their hands in my trousers instead of lying to myself and actually believing that a free market actually exists for me.
I thought they wanted my gun.
They want to take your gun first so it’ll be easier to rob you. While that fool is squandering our treasury and military trying to play peacekeeper in Iraq, our country gets weaker by the day.
Yes, and considering our savings rate is negative, the pocketbook is already empty. Once liquidity dries up, watch out.
Money does not exist until it is borrowed into existence. Money = debt. Money isn’t backed by gold - it is backed by the suckers who signed for a loan.
The poorer you feel - the less you borrow.
Debt deflation on deck.
No debt inflation - and house mortgages were the vehicle for debt inflation - and the world economy grinds to a halt.
Then the books are cleared, of both debts and debtors (ala the plague - when the Venice banking system blew or WWII during the last debt deflation).
That is the reason I’ve watched the real estate market. Not so I could ‘buy a home’ when prices collapse - but so I will know how much time we have left before the $hit hits the fan.
Visit Mish’s blog much? I’m in complete agreement. The helicopter drop / hyperinflate my debt crowd is way off base.
The U.N. report also warned that if the U.S. housing market falls at a dramatic rate, the global economy could become unhinged, ‘enhancing the risk of a major upheaval in financial markets.’”
Ok lets all get together and go by some property and take one for the team. Why in the hell do we buy all this crap from these other Countries.
AMEN, DAVID.
If you think about it, the US has been slowly conditioned into this consumption economy. 25 years ago, not many folks had credit cards, etc. And the US was the largest saver, I believe. Now look at things.
It was never in our best interest.
The “He or she that dies with the most cluttered garage full of junk” Society?
AMEN, Ben.
I agree Ben… it started with easier credit from department stores, credit cards etc. Then the auto industry made it so “cash back” can be your down… now homes have no down, no qualify etc. Add to that the change in BK laws and you have a herd of sheep that will be paying back for 7 years!!
Excellent point. I watched “Trading Places” over the Christmas season. That movie is from sometime in the 80’s I think (at least according to the state of Jamie Lee Curtis boobs), but I was very struck by the Hollywood image of a rich man (Dan A.) He had about six credit cards and bragged that “he could charge goods and services in 80 countries.” It was mostly chargex (visa), mastercard, and American Express - not even Gold, never mind platinum. In other words, even 20 years ago, only wealthy people had easy access to credit. The rest of us were lucky to have a couple of cards with a one thousand dollar limit that we were scared to use.
Now you get offers to replace your current card (platinum) with a new one with a HIGHER credit limit, and LOWER interest - Why? - Because you don’t use your current card much, and they want to encourage you to borrow!
It’s still insane out there. Gee, we must all be rich! Could have fooled me!
Huh? I got my first credit-card 17-18 years ago, and I was only a college student. If you signed up for a Visa at the stand outside the dorm, you got a free 2 litre bottle of Coke. Rich? Hell, we had no income!
I get your point. I guess I was talking about the time before Visa when it was called Chargex. So maybe you have to go back 30 years. All I was trying to say was that at one time it was not easy to get credit cards.
That’s exactly the point - condition the BMP into debt slavery.
A little bit at a time, like the camel’s nose under the tent…
Posters here have described how this debt-enslavement was engineered in order to get more of our bucks into the hands of PTB…Central bankers, Uncle Sam, whoever has an interest in keeping my Italian azz indentured.
AFAIC Mike’s post from yesterday says it best:
waahoo once made reference to “moving the money into friendly hands”…paraphrase.
I’m not a subscriber to conspiracy theories, but in this case I have to believe my lyin’ eyes.
We sold our souls to the “company” store.
Well, Ben, 25 years ago, credit cards were pretty hard to get. You had to prove that you had stellar credit before you could even think of being granted one.
You can thank the Asset Backed Securities market for the debacle. In essence, we can all print money whenever we please.
120% correct, Ben. When I left the UK in 1978, hardly anyone I knew had credit cards. I was in the entertainment industry in those day and had lots of meetings with directors, producers, name actors, etc. If memory serves me correctly, I only saw one card being used in those days and it was American Express. For those not in the big money group, it was either cash or check (cheque in UK lingo). Of course, the UK now has BIG, and I do mean BIG, personal debt problems but they brought in some kind of program with a fancy name which isn’t exactly bankruptcy but, as far as I can tell, gives the debtor a lot of forgiveness. How that affects future borrowing I’m not sure….
I was just a small kid in 1978, but when I think back over my life, the way my parents had to handle “money” is vastly different than it is today. And I don’t mean that today is better, we need to return to our past if we are to come out okay.
Why am I suddenly thinking about boiling frogs?
http://en.wikipedia.org/wiki/Boiling_frog
Because its not made in the USA anymore.
“The U.N. report also warned that if the U.S. housing market falls at a dramatic rate, the global economy could become unhinged, ‘enhancing the risk of a major upheaval in financial markets.’”
++++++++++++++++++++++++++++++++++++++++++++++
Major upheaval? Is that like a Great Depression?
No it’s the Greenspan Depression.
Like the ‘war to end all wars’ (WWI) was originally called the Great War, it took an even greater conflict 20 years later to put it in perspective.
Watching this unfold will be the high drama of our age. We get to see a consumer society/economy be tested in ways no society or economy has been tested before. Great stuff, we ditched the maufacturing economy for the comsumer economy - what’s the next stop on capital’s crazy ride?
The speculative economy!
Aren’t we there already? Or can it get worse than people gambling with their shelter? Oh gee, wait, there’s always the (human) organ trade.
Anyone remember the old Max Headroom series on Cinemax? It had a great dystopic backdrop - the networks were the gov’t and the trade of human organ flourished.
Read Schumpeter’s “Capitalism, Socialism, and Communism”. This “thing” we’re witnessing isn’t new. It has happened over and over throughout history.
Lobbyists must be taken out and lynched for an elected government to work properly.
“Kohn said housing prices are still high relative to rents and that inventories of unsold homes have only started to edge lower. ‘Uncertainty about where we stand in the housing cycle remains considerable,’ Kohn said. One reason for the uncertainty, Kohn said, is that the downturn ‘was not triggered by a restrictive monetary policy and high interest rates.’”
“The downturn did follow ‘an unusually large run-up’ in housing sales, construction and prices. ‘Our uncertainty about what pushed home prices and sales to those elevated levels raises questions about how the market will adjust now that expectations of the rate of house-price appreciation are being trimmed,’ Kohn said.”
Mr. Kohn, if you would pull your head out of your ass the answer to your questions is quite simple. You are correct, the housing market has turned and interest rates and moneytary policy have not been the cause. The cause for the slowdown is the speculators have vanished and are dumping their properties on the market. Ironically, it was the FED’s loose monetary policy and lax lending standards that allowed specualtors and sub prime borrowers bid up home prices to nose-bleed levels. Now the artificial demand has turned into hidden supply. Prices are too high in many areas so the market has locked up as first-time home buyers are priced out. Affordabilty is the key issue and the supply/demand equation will not reach an equilibrium point until there is affordable housing. Those markets whose home prices are disconnected furthest from true fundamnetals will get hit the hardest. Mr. Kohn, please let me know if I can be of further assistance to you.
‘Our uncertainty about what pushed home prices and sales to those elevated levels raises questions about how the market will adjust now that expectations of the rate of house-price appreciation are being trimmed,’ Kohn said.”
His uncertainy raises questions about whether he has brain function.
As you may know, six of the twelve board members on the Fed are put their by banks. It seems to me, the main goal of the Fed is to keep banks alive and profitable - oh and if they can help out Americans that’s nice too.
The Federal Reserve Board is a government entity.
The Federal Reserve Banks are privately owned for profit corporations.
I recommend you read the Federal Reserve website. What you say is not accurate. In short, from the Fed, they are an “independent entity of the government”. You’ll need to read a little more from the Fed itself to understand the relationship. Personally, I don’t see the difference.
I don’t want any central agency, gov’t or private, determining the value of my money by influencing the money stock. That is socialism, no capitalism. You can certainly have a democratic, socialist, republic. It used to be the Union of Soviet Socialist Republics. If the people decide they want elected politicians to plan the means of production and distribution to provide stability and less risk, then we would have the United Socialist States of America. People get the government they want. Plain and simple.
The Federal Reserve Board is government entity.
The Federal Reseve Banks are privately owned for profit corporations. I verified this with a call to a Federal Reserve Bank of New York and a subsequent email the FRBNY sent to me with a list of the shareholders (all member banks) that each receive 6% dividends.
The recent increase in the EU basic rate was described as ‘catching all 52 economists questioned in a recent survey by complete surprise’. Nothing to see here. Move along folks.
“Mr. Kohn, please let me know if I can be of further assistance to you.”
Could you translate your summary into Fedspeak, please?
“The Company has homebuilding operations in Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Tampa, Orlando and West Palm Beach, Florida; Charlotte and Raleigh, North Carolina; Delaware; and the Virginia and Maryland suburbs of Washington, D.C.”
If these are the markets M/I builds in, bankruptcy will probably occur within 6 months.
I hope M/I isn’t headed for bankruptcy. They have dug up a huge swath of jungle near my house in Palm Beach Gardens, FL and if they don’t pour some cement on it soon, all the loose sand will end up blowing down Military Trail.
I almost bought an M/I home last year, until I (actually, my girlfriend) saw the light. Now these homes have dropped about 20% in price…
I very much doubt it; M/I hasn’t overextended itself with bad credit practices and resulting bad PR like another local Ohio homebuilder (Dominion) did. Their gross and operating margins are better than average. See chart for info: http://finance.yahoo.com/q/co?s=MHO
where’s LIErah ?
Our fundamental outlook is one of caution, believing that the slowdown is likely to be longer in duration and more difficult than many are forecasting based on inventory levels t
OK, it’s stupid but I gotta say it:
“Amy Crews Cutts, deputy chief economist at Freddie Mac”
Is she here to help with the haicuts people are taking?
(I’ll stop now…)
making over 6 figures and can’t get fired= gov employee
how do you like her now?
Maybe it’s been posted already, but just in case, Fed Governor Susan Bies is out on the wires talking about the explosion in high-risk mortgage lending practices. It’s the usual stuff, but if you’re interested in reading the speech, it’s available here:
http://tinyurl.com/yhereb
remember when the homebuilders welcomed a downturn because they could gain marketshare?
Condo complex goes back to lender
Maisel-Presley owes $35 million on project
By Mike Freeman
UNION-TRIBUNE STAFF WRITER
January 11, 2007
A 280-unit Oceanside condominium complex from one of the county’s most prolific condo converters has been taken over by its largest lender.
Here’s the link. Note that this is not the first condo project in trouble….
http://www.signonsandiego.com/news/business/20070111-9999-1b11condo.html
Thanks… very interesting.
Yet… it really hasn’t even begun.
Neil
I starting to hear alot of radio commercials from new home construction companies with “Employee Pricing Plus” programs and additional incentives if you purchase a spec home hear in the DC area. Thus housing is now just as desparate as the auto industry was back in 05 when they rolled out employee pricing marketing plans. The really desparate one’s then tacked on additional rebates & inventives in addition to the employee pricing.
Dallas. Gee, I thought it was different there:
D-FW home starts fall 17%
11:27 AM CST on Thursday, January 11, 2007
By STEVE BROWN / The Dallas Morning News
Local homebuilders continued to cut construction during the final months of 2006.
Single-family home starts in the Dallas-Fort Worth area dropped by about 17 percent during the fourth quarter, according to statistics released Thursday by Residential Strategies Inc.
With 9,629 units, it was the weakest quarter for housing starts in more than two years, the Dallas-based research firm reported.
Sales of new homes in the fourth quarter also dropped by about 4 percent compared with a year earlier. Builders sold 10,956 homes.
But with almost 12,000 unsold new houses on the market in North Texas, don’t be surprised to see further declines in construction.
“Clearly builders will need to continue to rein in future starts until inventory levels are brought in line with historical norms,” said residential Strategies Ted Wilson.
Anyone else see this on the news last night?
Developer pay $510 million for 43 acres in Florida…..how about a new moniker for the blog… FD (F@ucked Developer)
http://www.wptv.com/News/011007_BrinyBreezesMillionairesorNot.cfm
I saw it, they are not going to be paid until 2009. Poor guys, they’ll loose their beach front trailer park AND the money…..
December number for San Diego trustee sales just out: 322.
November was 284, October: 251.
Last December: 68.
February ‘05: 12.
http://www.sddt.com/Finance/EconomicIndicators.cfm
So who is Responsible for this enormous mess???
Lets go straight to the top, who was that idiot pushing the “ownership society”?
This whole thing was started by GW Bush and the Republicans
If you can point to a specific “Ownership Society” policy enacted by “GW Bush and the Republicans,” we can talk.
More like Bush & Co. were trying to take credit for an “ownership society” (actually, “bubble-driven debt-slavery quasi-ownership society”) that was created by:
1. Alan Greenspan
2. Foreign central banks
3. Really stupid MBS purchasers
4. Piratical fly-by-night mortgage lenders and brokers
5. Standard-issue American go-for-broke economic illiteracy
Seriously, I can’t think of one single thing “GW Bush and the Republicans” did to kick off this bubble. Even the tax cuts only came along in 2003 — long after the stampede was in full gallop (or whatever it is that you call cows running fast). That’s not to say that their “ownership society” rhetoric isn’t as silly as President Clinton taking credit for the tech-bubble boom — but trying to pin this bubble on the Bush administration is the mark of a hyperpartisan who’d happily blame the Administration for everything up to and including earthquakes, tsunamis, and Aunt Edna’s bad breath.
Correct me if I’m wrong, but hasn’t Bush peppered his “hype” speeches with stuff like, “Under my administration more people have been able to own their own homes, etc.” Of course, that’s true. It’s also true that more people are now enslaved for years to come because of mortgage debt.
You have to look carefully at what President Clouseau says. He’s a politcian and he, like Greenspan, says things to cover their flabby a**ss and make themselves look smart and to do that they choose to leave out the nasty stuff. For instance, “Under my administration we have full employment.” No mention that a lot of that full employment has come from Federal government hiring and a big slice comes from retail hamburger flipping jobs paying $7 an hour with no benefits. No mention that whole areas of middle class, good paying jobs have gone. I’m not going to hold my breath because I could die from lack of oxygen but I’m waiting for President Clouseau to say something like, “Under my administration we have invaded a foreign country which was no threat to the United States and spent billions of dollars on a war which we have lost and which has cost the lives of more Americans than were killed in the 9/11 attack. Under my administration, many states like Ohio and Michigan have almost been destroyed economically and I don’t want to talk about my incompetence related to Katrina. Under my administration, we allowed banks and mortgage corporations to hand out free money to average americans without seriously warning them of the dangers which would appear if a property boom collapsed.”
Many will say it’s not the job of government to “warn people.” In that case, lets take the government warnings off the use of dangerous drugs.
The job of the party in power is to say everything’s wonderful. The job of the party out of power is to say things suck. (And then it gets accused by the party out of power of “talking down the economy.”)
What people miss is that the United States is not the only country with a property bubble. To the contrary, pretty much everywhere has one — the result of a global credit bubble, whose origins pre-date the Bush administration, or even Clinton’s. There has been a massive global misallocation of capital, which is about to unwind and inflict a lot of hurt. It would have been nice if our government (or Japan’s, or China’s, or Britain’s) had recognized this fact earlier, but politicians, though sometimes articulate, generally aren’t very smart — certainly not in America, where the brightest go into business, law, or (decreasingly) the academy.
Besides, what good would it have done to “warn” people about borrowing more than they can afford? Who would listen? Not most of the stupidly optimistic people I know.
Thomas,
I agree with your 5 reasons for the bubble. But, just for the sake of argument…
“Seriously, I can’t think of one single thing “GW Bush and the Republicans” did to kick off this bubble. ”
Bush and the Republicans passed a tax cut package in May of 2001 that was supposed to stimulate the economy. This money went to the rich who were supposed to invest it and create a booming economy. It didn’t work. IMO, if this tax cut had gone to the poor or the middle class who would have spent it, it would have stimulated the economy quicker. Either way, since the tax cut failed, the FED was forced to reduce interest rates to 1% and keep them there for a full year to stimulate the economy. This leads us back to number 1 on your list and all the other points which follow. My point is that if Bush and the Republicans had given their tax cuts to people who would have spent the money and stimulated the economy, the FED action would not have been necessary, and the whole sequence of events which led to the housing bubble would not have occurred; therefore, Bush and the Republicans can be held accountable for the housing bubble as a direct result of their tax policies.
I don’t know if I believe that, but it is an argument some might believe.
Two holes to be shot in that argument:
1. The vast bulk of the tax cuts didn’t go into effect until 2003. Interest rates had already been chopped by then, and the bubble was already rolling.
2. The Keynesian argument that the government should direct tax cuts at people who will spend it is outmoded. A lack of consumer spending wasn’t the problem in the 2001-2002 recession; it remained high. In addition, spending is spending, as far as economic activity goes — it doesn’t matter whether the consumer or the government is doing it. What does matter is capital formation — investments that increase productivity and produce a return on investment, causing the economy to grow.
Taxes aren’t a drag on the economy because they take money away from consumers. The government doesn’t just burn the money it takes from taxpayers — it spends the money itself. (In fact, much of the money it taxes is simply flipped right around and given to other consumers via transfer payments.) A dollar spent by government is effectively a dollar spent by a consumer.
However, a tax doesn’t just move money around. It also disrupts the economy, by artificially increasing the price of the good or service taxed. When you tax something, you get less of it. So every dollar the government spends results in a loss to the private economy of more than a dollar’s worth of value in foregone production.
That’s a long way of saying that if you want tax cuts to have any macroeconomic effect, you have to cut taxes not only on lower- and middle-class taxpayers (who did, in fact, get greater tax cuts than the “rich” on a percentage basis; the tax code actually became more progressive after 2003, with the rich paying a greater percentage of the income tax burden), but also on the affluent (who pay the vast bulk of income taxes in any event). In other words, if a lack of consumer spending isn’t the problem (and it wasn’t in 2001) and you need to encourage capital investment, you need to cut taxes in the higher tax brackets, too.
I would disagree that the tax cuts “failed.” The recession of 2001 was extraordinarily short and shallow (although it felt worse, not least because I myself happened to lose my job because of it). I might agree that one possible downside of the cuts was that it added to the liquidity surge that inflated the housing bubble, although that was overwhelmingly caused by the Fed’s inexcusable cutting interest rates down to 1% and holding them there.
The problem is that neither monetary nor fiscal policy are precise instruments. Government can remove obstructions to the flow of capital, but it has a harder time directing where capital flows. In this case, it flowed to a spectacular misallocation of capital in the residential housing market — a nonproductive asset class — instead of into alternative energy, which is finally showing some genuine promise. (Before someone pegs me as a greenie naif, I’m including new, safer nuclear technology in the “alternative energy” column, which any serious person should.)
The poor don’t pay any federal income tax, so how could they get a tax break? In fact, most of them receive earned-income credits or child-tax credits.
The poor pay payroll taxes and state/local taxes.
However, I do agree that could could be many revisions to the tax code that would help the working poor. The 2001 tax cut should have applied to the working class only.
Maybe, but that wouldn’t have had any effect on the biggest economic weakness in 2001 — the dropoff in capital investment (a result of the collapse in the tech bubble).
About the only way the tax code could be altered to help the working poor — since most of them actually come out money ahead on income taxes — would be to cut FICA withholding. But since Social Security payouts are calculated according to pay-ins, that would result in those workers’ eventual Social Security payments being less. Unless, that is, you abandoned the whole premise of the Social Security system being a mandatory retirement insurance system and merged the whole thing into the general fund, divorcing what’s paid out from what’s paid in, and instituted a completely new system where everybody got the same pension regardless of what they’d paid during his working career.
Who caused this mess? Fannie Mae and Freddie Mac buying MBS. Foreigners buying up MBS. Without those entities, there would have been no bubble.
The lenders had to pawn off their fraudulent loans to somebody. If it was their own money on the line, you know they would never have loaned the money.
Get the Democrats to agree to shut down the GSE’s and the Republicans to agree to regulate and enforce laws against the lenders, and the bubble will be gone forever.
“‘Our fundamental outlook is one of caution, believing that the slowdown is likely to be longer in duration and more difficult than many are forecasting based on inventory levels that are stubbornly high and home prices that are broadly unaffordable,’ he said.”
Translation for those who have trouble reading between the lines:
We are nearly certain that this time is not different, and this housing bust will take several years to bottom out, just like every other housing bust in the history of the planet.
It is sad he has to obfuscate the truth to prevent market panic.
“Federal Reserve Board Vice Chairman Donald Kohn says a ’stabilization’ that seems to be taking place in the housing market may be vulnerable to a rise in long-term interest rates, or even a decision by the Fed not to lower short-term interest rates.”
Possible interpretation: Higher long-term rates are on the way as I speak, though it is entirely coincidental.
http://www.bloomberg.com/markets/rates/index.html
The 30y mortgage rate is sneaking up ever so slowly. 6.21% up from last weeks 6.18% and 6.13% the week before. Seems like at least one thing has bottomed out?
Did you even bother clicking on the link? Because you be wrong, OB — T-bond rates are a leading indicator of where mortgage rates are headed, and T-bond rates are lurching up…
Stucco, I think we agree. The bottom was 6.13% a month ago, now there’s only one way: up.
I prefer the weekly mortgage assn. number over the the Bloomberg link. Bloomberg includes an unknown number of points (and list the 30y fixed rate in the mid to upper 5%’s).
OB_Tom. Could you please stop pretending to misunderstand me?
UNLESS THIS TIME IS DIFFERENT, THE BOTTOM IS FOUR OR MORE YEARS OFF IN THE FUTURE!
ok relax the caps lock. Look at his numbers, The “bottom” joke is in reference to 30 yr mortgage numbers. I don’t think he believes residential real estate has bottomed.
Thanks!
“It’s unknown, Kohn said, if ‘the possible stabilization that seems to be taking hold would be immune to a rise in longer-term interest rates should term premiums increase or the federal funds rate fail to follow the downward path currently built into market expectations.’”
As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don’t know
We don’t know.
A Donald Rumsfeld quote I believe.
Actually, a poem that was written based on Rummy’s RAND-like quote. I think I heard about a book of such poems on NPR a while ago.
Actually, the book is comprised of direct quotations of the former defense secretary reformatted as verse.
http://www.slate.com/id/2081042/
As strange as that quote is: I understand it.
italics off?