The Bubble That Fueled Spending Isn’t There Anymore
Readers suggested a topic on personal spending and saving in this holiday season. “I’d like to see a topic about what a bearish investor sitting on the sidelines with Cash that is getting throttled by inflation, stocks that are getting pummeled, and an overall bearish sentiment on the state of the US economy can REALISTICALLY do to maximize their safety while concurrently not overexposing in any one class (such as foreign currencies, gold, other commodities or whatever else)?”
A reply, “If you are *really* bearish on the US stock market (and the S&P 500 in particular), there are always the contrary plays, like UltraShort S&P500 ProShares (SDS).”
“There’s also Short QQQ(Q), Short Dow 30, etc., and the related UltraShorts on all of them. My play money is in the SDS.”
Another asked, “No one can time the market perfectly but does the following sound like a good idea? 2 or 3 year LEAP puts on financials, luxury consumer, and big momentum stocks like AAPL and GOOG. 2 or 3 year LEAP calls on commodities, energy, precious metals.”
“I never hear much talk about LEAP’s but considering that the big players and the Fed are willing and capable of commiting anything to prevent the needed collapse, they can’t succeed for that long. And if they do manage to keep the music going that long. I can not fathom the absolute armageddon that would unleash.”
Another posted this, “Holiday spending? What do you think will save retail and melt the numbers off our credit cards this holiday season?”
One replied, “No because a smaller perfect storm has hit the credit cards too. They’re having to use them for living expenses and even to pay the mortgage now - so no credit limits available for junk.”
“You want to get a good feel for this - read the ‘wanted’ boards on Craigslist. The Christmas begging started a month ago. Very early.”
Another shared this, “I stood behind a fellow in line not long ago and he went through 5 cards until they found one with room on it, and the bill was $37.00 and change!”
One noted this trend, “I think that the places that have been hit really hard already CA, FL, OH, etc. we’ll see some major retail pain, but perhaps other areas won’t feel the crunch as deeply, yet. However, I didn’t see anyone buying big ticket items, mostly just crappy sweaters and towels, so maybe people are cutting back on the cost of items even if the quantity is staying the same.”
And one has a specific measure, “The American consumer will gleefully spend as much as possible so long as they can get more credit. My barometer is my brother in law - a mechanic who has gone BK twice, has some $30K in CC debt and has no problem whatsoever getting new cards, a new truck every couple years, and a new cell phone plan. He’s still spending like nuts. However, he did try to buy a house recently and was turned down.”
One had a prediction, “Christmas ‘07 will be the first visible sign of the consumer pullback. Joe Sixpack and Nancy Pinot Nior are cutting expenses as I type. They borrowed from the future, now comes the belt tightening (either voluntary or forced). I stand by my Christmas ‘07 prediction, that it will be reported as a very disappointing selling season, followed by talk of a contraction/recession.”
From Bloomberg. “Sales at U.S. retailers slowed in October as rising fuel prices and falling property values left Americans with little extra cash to spend, economists said reports this week will show.”
“The housing slump may be partly responsible for decreasing demand for furniture and appliances, economists said. A report from the National Association of Realtors on Nov. 13 may show…the number of Americans signing contracts to buy previously owned homes dropped to the lowest level on record in September, the agents’ group is forecast to report.”
“‘Housing will probably be bad for the next 18 months,’ said Jeffrey Immelt, CEO of General Electric Co. ‘We have to be cautious about the U.S. consumer. The consumer has used their house as a piggy bank.’”
The Detroit Free Press. “Flush real estate values for years meant that consumers could put little money down on a house, watch the home’s value grow and then treat that added equity just like a bonus.”
“But the credit crunch has landed with a thud, falling particularly hard on Michigan. The days are over where practically anyone could turn the house into an ATM.”
“In metro Detroit, we’re watching the collapse of home-equity financing. Homeowners here pulled $200 million out of their homes’ value in the first half of 2007, compared with $2.2 billion in 2006, reports Equifax and Moody’s Economy.com. The number had been as high as $4 billion in 2000.”
“This piece of havoc in the housing market is national and isn’t just hitting people who borrowed way over their heads or are trying to sell the house.”
“Sean Gurske took out a $22,000 equity loan on his Woodhaven home. He invested that money in a tanning salon that didn’t work out. Gurskey now owes about $245,000 on a house that’s worth less than the $265,000 he paid for it in 2003.”
“His monthly mortgage payment is $2,486 and set to climb in July when his adjustable rate goes up again. He’s having trouble refinancing into a fixed rate because the home’s value has dropped, he has that home-equity line and he filed for bankruptcy in 2005.”
“He said he hasn’t missed a mortgage payment yet. He’s working with two lenders…but he isn’t getting any help so far to keep the payments lower. ‘I’m the one that wrote my name down, but I didn’t expect the housing industry to go down like it did,’ he said. ‘I wasn’t expecting to lose all this equity.’”
“Pava Leyrer, president of the Michigan Mortgage Brokers Association, had one customer in the Grand Rapids area who had to borrow about $30,000 through an unsecured loan so he could sell his house. He brought that money, plus some savings, to the table to cover what he still owed on his mortgage and home-equity loan. The house, once appraised at $380,000 a few years ago, sold for $285,000 in July.”
“Going forward, three things will cut into borrowing power: Home values are expected to continue to trend down. ‘The values are coming in lower and lower by the day,’ said Steve Gornick, business development officer for Shore Bank in Detroit.”
“In some cases, he said, he has worked with homeowners who saw a 20% drop in the appraised value of a house in just six months in metro Detroit suburbs.”
“Interest rates are no longer at rock bottom.”
“Lenders are edgy, especially in metro Detroit. ‘In markets where housing prices are weak, we want to keep people from owing more than the house is worth,’ said Tom Kelly, a spokesman for Chase in Chicago. ‘Nobody wins if you make a loan that they can’t pay back.’”
“‘The bubble that fueled a lot of consumer spending just isn’t there anymore,’ said P. Brett Hammond, chief investment strategist for the TIAA-CREF.”
“‘We have things we’d like to do with our home, but we’re not going to do any improvements right now because we don’t want to take out a home equity,’ said Kris Marcath of Leonard. She estimates that her home’s value has fallen by $75,000 or more. She questions whether she could get $400,000 for the 2,700-square-foot home on 18 acres.”
‘In metro Detroit, we’re watching the collapse of home-equity financing. Homeowners here pulled $200 million out of their homes’ value in the first half of 2007, compared with $2.2 billion in 2006, reports Equifax and Moody’s Economy.com. The number had been as high as $4 billion in 2000.’
‘In the Grand Rapids area…the house, once appraised at $380,000 a few years ago, sold for $285,000 in July. Kris Marcath of Leonard. She estimates that her home’s value has fallen by $75,000 or more.’
There’s your bubble, Michigan deniers. It isn’t always about skyrocketing prices or even actual sales. Perceptions of worth, an insane refi-appraisal system coupled with reckless borrowing are bubble symptoms too.
That’s why the Texas crash will be so interesting when it happens. This is the first time in one of these cycles that home equity lending was available in Texas and I’m sure it’s been drained dry.
Detroit has been ravaged by auto and manufacturing layoffs. Here’s a couple on a micro scale. According to the Denver Post this morning, Chaco, a manufacturer of high-end sport sandels, is moving is manufacturing operation from the small town of Paonia, Colorado, to China. The move will result in the lay off of 35-45 people. “That’s a big deal”, said Deana Sherriff, a local economic development official. “There’s a lot of concern because there are a limited number of businesses in Paonia”, Sherriff said. The production move is an effort to reduce costs.
Last time I was in Paonia, the locals told me it was the hottest spot for rael estate going on the front range. This is a story coming to small towns all over. A week or so ago I read about a small start up business in Laramie, Wyoming called Welldog, that was building a new building using state economic development money. According to the Laramie Boomerang, they have layed off all their employees and are filing for BK. Meanwhile, the building is still under construction.
For small towns, these kind of layoffs are devistating to the local economy and housing markets.
If 35 - 40 jobs is a big deal than a community that size has no business having an “economic development” official. Another example of government waste. However getting rid all government waste, even if possible, still makes US 15% payroll tax and even minimun wage of $5 per hr. uncompetitve with $0.20 per hr. wages in Chindia.
Right on AnoninDC - until oil costs climb so high that the waste in China (they use way more oil in producing any given product) and the costs of transportation start to add up…
2006 = $2200 m
2007 = $200 m for the first half, and doubtless will be less than $400m by year’s end.
It looks as though greater Detroit home equity financing took a haircut to the tune of (400/2200 - 1) X 100% = 82 percent this year. No recession worries for Detroit, though, given the healthy state of the main economic driver in Motor City.
And it will spread to the rest of the country…Detroit is just the canary.
I hope someone will interview me so I can tell them my sob story on how I couldn’t afford to buy a house because I am not stupid and realize I can only afford what I can afford.
You seem like a financial terrorist to me. You should be out there doing your patriotic duty by spending more than you make.
Exactly! Now that our economy is not based upon real jobs with real incomes, but rather on meaningless service jobs and debt being used in place of income, you need to get deeply in debt so some hedge fund can leverage up and make a fortune from your misfortune when you go bankrupt.
Ben, just like everywhere else Michigan is not and never was immune. In fact, our bubble started to burst ~3 years ago thanks to inflated housing prices, people overextending their financial obligations, and of course job loss. Basically, Michigan is a microcosm of what will happen as the years progress nationally. Here is what I’ve seen locally living here in Michigan.
1.) Housing prices have dropped at least 20% possibly more in some markets.
2.) Most homes have been for sale around me for many years. There are 3 new homes built right next to my modest old 1920s house. 2 of 3 houses are still for sale, both for 3 years. The 1 house that did sell sold at a steep discount; though, not steep enough. It was listed at $699k then dropped to $599k and then sold for $550k. My guess is it’s lost another $50k in the 6 months since someone bought it.
3.) There are 19 houses for sale and 2 for lease on my street. I live in one of the most desirable communities in SE Michigan. Usually there are maybe 1 or 2 houses for sale at a given time, mostly builder tear downs. But now the builder tear downs — taking $250k homes ripping them down and putting up $600-$700k houses are about half of the 19 homes for sale. There are also 3 new houses being built as I type this. It will be interesting to see how they price these homes.
4.) My house, a 1300 sq foot 2 story we bought in 1996 for $165k, was last appraised in 2004 for $420k…I almost fell out of my chair. To think if we were dumb enough to exercise that equity. I used $10k of it to help pay for a new garage along with $20k of my own cash. Anyway, I’m sure the house has fallen at least $100k because similar for sale homes are $350-$400k but all have been sitting for months and 1 for over a year at $380k.
That’s one true story of what is happening on a single street in a desirable city in SE Michigan. Any one with a brain would have to say we are not immune and the bubble has been hissing for quite a few years…and only until recently, last 3 months, have prices started falling on some of the homes.
I was in Macy’s and Nordstrom’s in downtown Seattle yesterday. Absolutely no indication that people are pulling back from spending…both stores were PACKED. Things are different here
It is different. You are much more over-valued and a couple of years behind the mid-west.
Are you talking about Seattle or Manhattan? I get so confused.
PNW does seem to be the caboose in the train that is the housing bubble. From what I’ve observed, that region, Seattle in particular, is running at about an eit
Sorry, I was about to finish by saying the Seattle seems to be about 18 months behind the leading bubble areas.
Here in my area I am seeing more signs of businesses that were “housing” related moving out of their leased spaces..and more lease signs going up around town….restaurants are still busy..HOWEVER..most in the area are offering $5 lunch menu…mall is standard busy on the weekends, however, not much in the way of “shopping bags” in peoples hands…all in all..I see signs of thrifty shopping this year…people will be waiting for the last min bargains….
Same here according to my wife….Personally I never frequent the malls….She could not find a parking spot….Line outside of Cheesecake…..
Same here to lakewashington post….
“Line outside of Cheesecake…..”
I know this is going to sound screwy, but when people feel poor, they tend to eat more. My sis, who is in Fairfield County, Connecticut, tells me that at the Danbury Mall, a number of smaller, high end stores are shutting down, while the food courts are going gangbusters. According to her, the mall is attracting droves of immigrant families, legal and illegal and they’re eating like there’s no tomorrow, shopping on the cheap and of course, ignoring the more expensive clothing shops. But they do seem to spend on coffees and cakes.
know some folks who they themselves suspect that they will be heading into trouble times (mortgage, less hours etc). They are taking a bit of a fatalistic attitude and will at least have a ‘good christmas’ with the kids.
I could not personally do this in their shoes, but i think i understand their misguided theory
I personally think the J6P sheeple are going to have one last blowout holiday shopping season fueled by CC debt and any of their remaining HELOC money, and then we’ll see BKs soar into the stratosphere in early spring.
I ran into some anecdotal evidence of this yesterday… One of my hobbies is an attempt to obtain a perfect credit score. To make a long story short, as part of my strategy, I occasionally request a CC credit line increase on one of the eight phantom cards we have, and usually I receive a nearly instantaneous acceptance of the request. However, I received this reply from Chase yesterday:
“Due to a large number of requests for credit line increases, it may take four to five business days to make a decision regarding your request. Your request is very important to us and we’ll reply by e-mail as soon as possible.”
This can’t be a good omen.
Rally Bob: how can you find out your credit score without paying money? I sent for my mother’s and son’s credit reports for them, but they don’t include FICO scores, and I’m too cheap to pay for them.
I’m not sure… I’ve always had to pay to obtain my FICO score.
The credit report is free but actual scores must be purchased, which I think is crap. It’s MY score, which you’re using to judge me. Why shouldn’t I have free, unlimited access to it?
It’s your credit report… But it’s their score.
I am a chase customer. I received an offer in the mail from Chase that if I pay my November (and the following 5 month bills) bill 10 days early, I get extra reward points. Usually credit cards copanies prefer you to pay the minimum. Could it be that Chase has a liquidity crunch on their hands?
I actually saw this as a sign that the flock was maxed on their CC debt, and are braying for an increase in their credit limits to fuel one last holiday shopping season. Either that, or pay their utility bills.
Here in Maryland, the answer to that choice is “yes.” We are lagging behind the leading edge of this disaster, but we’re making progress. We also had a 50% to 75% increase in utility bill prices this year. Lots more debt for the masses!
“In metro Detroit, we’re watching the collapse of home-equity financing. Homeowners here pulled $200 million out of their homes’ value in the first half of 2007, compared with $2.2 billion in 2006…”
Yowza. From 2.2 billion down to 200 million in a year…there’s a lot less spending going on in metro Detroit. While Bernanke scans the horizon for signs of belt-tightening, he ought to take a look at those numbers.
Motor City Meltdown
“In metro Detroit, we’re watching the collapse of home-equity financing. Homeowners here pulled $200 million out of their homes’ value in the first half of 2007, compared with $2.2 billion in 2006, reports Equifax and Moody’s Economy.com. The number had been as high as $4 billion in 2000.”
from $4,000 Million to $200 Million, down 95% in just 7 lucky years…
At least it won’t overlap into the larger economy. Excuse me while my head explodes.
I hear you NYC.
There are days I just don’t want to get out of bed!
I’m so desensitized by all these billions and trillions.
This is an excert from BBC News–mind numbing.
Then again you can illustrate the scale of this number by comparing the fact that a million seconds equals 11.5 days, a billion seconds is 32 years and a trillion is 32,000 years.
Just WOW.
Leigh
Leigh, that’s a great way to illustrate the scale of these numbers. Really mind blowing. Can’t wait to use it in conversation
“Sean Gurske took out a $22,000 equity loan on his Woodhaven home. He invested that money in a tanning salon that didn’t work out. Gurskey now owes about $245,000 on a house that’s worth less than the $265,000 he paid for it in 2003.”
$PF -22,000
This seems to be a common theme - the banks become unwitting partners in people’s half-baked, hair-brained money making schemes.
My sister has had a few hair-brained business ideas. Good thing she didn’t have the money to lose.
The problem isn’t that this guy is down on his equity ,the problem is this guy can’t pay the high mortgage payments ,even if his equity allowed him to refinance .
–
“‘The bubble that fueled a lot of consumer spending just isn’t there anymore,’ said P. Brett Hammond, chief investment strategist for the TIAA-CREF.”
Ergo, the US economy is in a recession. “Home modernization,” a term Greenspan coined for home improvement, contributed quite a bit of economic activity.
BTW, how many here agree with me on the recession call?
Jas
My hand is raised. Just sit through our management meetings and you will see that the big boys get it. There is fear in the air and we really haven’t been hit yet.
I spoke to an artist from Miami a few weeks ago. He isn’t selling anything. He said to me, “you know the economy is so bad”. His emphasis was on “so”. It is hitting Long Island and other areas around here. The airborne recession virus is spreading rapidly.
I think it’s been in a recession since early this year. Sales at my company have been flat, no bonuses since we missed forecasts, and the Christmas party was canceled. Looks like we may skip merit raises next year too. Oh yeah, they just increased our benefits costs also.
I agree - we’re already in recession. House & car sales are down; in my industry (semiconductors), book to bill is tanking and the industry has been slowing for a couple quarters. Christmas will show consumer buckling and then finally the Marie Antoinette segment will cave in by middle of next year.
So, yes, we are already well into a recession.
We won’t be in a recession until we see 2 consecutive quarters of negative GDP growth. Until then it’s just a slide into recession. The feeble peso^D^D^D^Ddollar may drag it out a long time by increasing production and exports. Of course what economists don’t say is that a national economy doesn’t have to enter recession for life to hit the skids for the regular folks in that country.
You mean we won’t be in an “official” recession. The GDP is propaganda of the highest order.
Sorry, but I don’t think we’ll see 2 quarters of negative GDP growth. They’ll just make up some numbers and/or devalue the dollar and count inflation as growth. Considering how cooked the rest of the numbers are, why not do this, too? We already have the BS inflation numbers that work great for people who don’t: eat, need to use energy, need health care, etc. Last quarter, they made up an absurd inflator deflator - claiming that inflation was only 0.8% when typical numbers are around 2.0% and we all know the real number is much higher.
I fully expect we’ll all be in soup lines in the next Depression and we’ll still be getting reports about how we’re at near 100% employment, the Dow is up (because they changed it to only have the surviving 30 companies and it’s all government owned), etc. You get the idea - this recession/depression will not be televised.
I just don’t know. All signs point to a recession, but both my dad and brother own their own businesses and both are having their best year ever and the company I work for is, too. “I’m so confused” - picture Barbarino here. My brother’s business is probably recession-proof (foods), but my dad’s sure isn’t and I doubt mine is, either. Anyway, for the three businesses I know the most about, no signs of recession yet.
Same here - I work for an environmental consulting firm. We’ve had a record year and exceeded our projected sales significantly. I did notice that the last sales email that went out noted that we don’t have a crystal ball to tell us what the economy will be like next year. I’ve felt the company hunkering down a bit since the beginning of the year. Sharing work between regions, etc. I also don’t get weekly calls from clients looking for proposals anymore. Still really busy, but not like last year.
are you doing due diligence for commercial RE transactions? Phase I and II ESAs, etc.? I know some people in that business too and they are having good years because the transactions have not flagged at all. We’ll see what happens in ‘08 with credit seizing up.
Yep, most of my personal clients are in commercial/industrial RE. I mostly do wetlands, streambeds, endangered species type work. No hazardous materials (don’t want a brain tumor by 40). The housing development projects are deader than dead and those environmental firms specializing in that sector are in serious trouble. We are doing okay though.
Agreed on the 2008 slowdown. I have at least one client in a PANIC over the credit crunch.
We have environmental consulting in our little company and the type of work has been changing for what they do. They are the busiest portion of the office currently. I mainly work on planning subdivisions and we are pretty much stopped right now. But I have been hearing last week that some of the enviro jobs are about to get cancelled because of bonds that don’t have the money anymore.
I have been calling a recession ever since I first discovered that in the past seven-out-of-seven times since 1955 that U.S. residential investment declined by over 25 percent, a recession was either concurrent or soon to follow. Unless the U.S. economy has hit a lucky eight (and I see no indication to that effect), it is not different this time.
I work for a youngish company that is gowing through a growth spurt. Target was for 40% revenue and profit increase this year. FIrst quarter we missed our targets. We still had YoY growth in both revenue and profit, but not to target.
Second quarter, we beat target and made enough over target to make up half of 1st qtr miss.
Third qtr, back below plan again.
I think this followed the U.S. economy pretty well. Last wnter they could see the storm clouds. Then the spring/early summer was kind of a calm before the storm. August we got hit by the storm.
We were in the recession a year ago. Where I work the planning stages of projects started slowing down big time. During this slow period the planning should be starting. How else can you build when everything picks back up again???
My friend told me there are just so many young people right now who haven’t felt pain that they would not know what a recession is until its too late. We are 28 btw. So all I can really say is that I have enough money to buy a nice new Porsche that is doing its job of shorting different sectors. =)
I visited old friends in Leeper PA this weekend. My 60 YO truck driver, Goldwing Patriot Rider, backwoods, redneck as they come friend, when I asked him how business was going, smiled and said “the bubble is over.” This guy spends his life on the hard, and he knows.
Florida sales tax data are in - spending is falling everytwhere, except… Miami-Dade. Miami is the ultimate bubble central, but somehow it is holding so far.
I suppose all the Latin American money passing through Miami contribute a lot to supporting the city economy.
This also reflects in housing prices, which (at least in the attractive locales) are holding much better than Broward & Palm-Beach. I wonder for how long these factors (+the dollar collapse) are going to support the prices here. So far it is frustrating for potential buyers.
“I suppose all the Latin American money passing through Miami contribute a lot to supporting the city economy.”
For those that think this comment is based on myth, it isn’t. Miami Dade has been like that since the 1970s. Shoppers from Latin America would be taken on bus trips to various malls and shopping destinations, led by guides who would be paid off by retailers out of the advertising budget. No joke.
It’s a good business plan on the part of the retailers.
“I suppose all the Latin American money passing through Miami contribute a lot to supporting the city economy.”
I assume since most all those people are trying to cross the border into America to be able to get some money, you are referring to the “cash crop” money that comes from the region.
Wow, that one made me sit up. My best friend is in Broward. There are multiple units in his townhouse complex now in foreclosure and offered ~30% lower than bubble highs and still not selling.
I don’t buy this about Miami. I posted above that I spoke to a Miami artist and he said the economy is really bad right now. This doesn’t jive with this Latin American saviors idea.
NYCityBoy, I was just talking about shopping, that doesn’t mean they’re buying real estate. You think Americans are consumerist? Wheeoo, we’ve got nothing, and I mean NOTHING on Latin Americans, especially the women. It really has to be seen to be believed and I’ve seen it in South Florida. Even here in West Central Florida, illegals humping flat screen TVs out of Wal Mart like there’s no tomorrow. And even in the thrift stores and “stuff” outlets, the heaps of clothing and stuff they buy makes Americans look like pikers when it comes to shopping. So it happens at all levels of income.
Broward is falling fast. That’s why CS Miami index is 10% off Dec. 2006 peak already - it includes Broward & WPB in addition to Miami-Dade. Even in M-D, the cr@p built way South, along the turnpike is probably falling, though not so fast.
The established areas (Gables, Pinecrest, Dadeland) are holding better, though the inventory is high.
And if you go to any upscale mall (like new Merrick Place in Gables), you’ll see scores of Brazilians and Colombians, buying loads of expensive stuff.
Chick — I think the difference might be that huge numbers of South Americans flood the Miami area for vacation and to buy “stuff,” as Palmetto notes, but they are not there to buy property, either because it is beyond their budget (increasingly less so), or because they don’t trust our currency to hold up the value of their “investment.” They are just delighted with mall shopping and relatively inexpensive lodging.
A secondary factor is that Miami is a major transit point for South American business or rich types who travel to and from Mexico. It used to be they could transit Miami without a visa, but no longer. So if they have a visa anyway, they might as well get out of the airport and buy stuff to take home.
Sorry, Jas, your post got eaten. Here is the text:
Jas Jain Date: November 11, 2007
–
“‘The bubble that fueled a lot of consumer spending just isn’t there anymore,’ said P. Brett Hammond, chief investment strategist for the TIAA-CREF.”
Ergo, the US economy is in a recession. “Home modernization,” a term Greenspan coined for home improvement, contributed quite a bit of economic activity.
BTW, how many here agree with me on the recession call?
Jas
I think many parts of the country in a recession, but not the whole country - yet. Having lived through the stagflation of the Carter years, and the hammering of commercial RE during the Reagan years, I know that things can get a lot worse.
1982 - I have never forgotten you.
But so many of my contemporaries have. They are about to have their memories jogged. It won’t be an enjoyable flashback.
1982
I get the willys everytime you mention that year.
It ain’t here yet.
What was it like for the normal American?
I have not forgotten….
I was young and in medical school and didn’t even notice 1982. It’s funny how if you have no money and low expenses, you are blind to the ebb and flow of the economy.
REhobbyist, that’s exactly right. I’ve always lived like there’s a recession, so it is normal to me.
I had thought ‘77-’80 were the worst (in the last 30 years horizon).
I remember 74 - lost job, gas lines, moved to another area for another job and lost that in 75. Sometimes, things turn out for the best - moved to Alaska for job and ended up staying for 16 years. Great place to raise a kid and to grow up past wanting everything immediately.
Aye
I posted this in the last section but I was thinking on this. We have such a bad affordability problem that even the banks can’t afford homes. They have to sell everything off the books and keep relending the money to keep it going.
I have a feeling the situation with immigration (sp), the economy and bank failures is going to get real real ugly in the next presidential administration.
I’m trying to get the wife to work more and keep our debt situation from getting worse (she blew upwards of 10Gs cash and 5 Gs credit over the last year). Its a struggle.
I am begining to resent Christmas.
I still love Christmas. I always will. We didn’t get much as kids and that has turned out to be the biggest gift of all. Give me a brandy and egg nog, “It’s a Wonderful Life” and a walk around New York City with my wife and it’s a great Christmas season.
NY: In the desert it’s pizza and walk the decorated streets on Christmas eve then Mimosas and brunch on the day, followed by swimming and a big prime rib dinner and all the Christmas movies in the evening. Our whole extended family is already sick of all the ads, but so excited to spend a few days together. We only buy for the youngest generation and none of them are very good consumers - none of them can tell you anything they want.
My kids taught me to like Christmas again. I used to stress about the gifts/decorations/cards. My sons only care that we all can wake up together and that I cook a lot of food. I still like Thanksgiving more.
Every year we make the pilgrimage to the Rockefeller Center tree. NYC all lit up at Christmas can be magical.
James - if you want your wife to work more and she won’t, and if she is spending more than she is bring in, you might be an “FH.”
(With apologies to Blue Collar Comedy)
She spends it in little amounts and almost exclusivley on our child (who is sweet but difficult). So, I’m not quite a FM but I need for them to NOT buy three little toys, go out for lunch exc exc…
About Christmas… she just likes to buy toys for all the less fortunate relatives (like everyone) but our discresionary spending needs to be lower with all the other necessary expenses.
I don’t resent the religious aspect of the holiday but the consumerism and other “its about the gifts” things irk me.
I’m trying to get the wife to work more and keep our debt situation from getting worse (she blew upwards of 10Gs cash and 5 Gs credit over the last year). Its a struggle.
Friend of mine put down the condition that his fiancee had to clear out all her CC debts before they’d decide a wedding date (2nd marriage for her). She learned her lesson.
Is your name Al Bundy ???
“Sean Gurske took out a $22,000 equity loan on his Woodhaven home. He invested that money in a tanning salon that didn’t work out. Gurskey now owes about $245,000 on a house that’s worth less than the $265,000 he paid for it in 2003.”
“His monthly mortgage payment is $2,486 and set to climb in July when his adjustable rate goes up again. He’s having trouble refinancing into a fixed rate because the home’s value has dropped, he has that home-equity line and he filed for bankruptcy in 2005.”
What becomes of the Sean Gurske’s of the country that bit off a bit more of the American Dream, than they could chew?
And there’s no dark cloud in terms of going bk again, after you’ve been there once, is there?
You can file again after 7 years.
It’s good to have something to look forward to in life.
every 8 yrs.
Is it 8 now? Okay.
Yup, it’s every eight yrs now thanks to the CC industry bought and paid for (and Orwellian named) Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
I’ll bet he has a better tan than Mozilla!
“Sales at U.S. retailers slowed in October as rising fuel prices and falling property values left Americans with little extra cash to spend, economists said reports this week will show.”
How did we ever get to a place in America where the “value” of your house determined how much money you could spend?
This whole finance bubble has American household economics turned upside down. Isn’t your house expense a fixed monthly cost that you work around for a budget?
I can’t believe an article like this gets printed. NO HELOC, no money.
In the end, many will be able to truthfully say…
I owe it all to my house.
The mainstream media cashed in their brains long ago.
I’m tired of the same old words used over and over again to describe this housing/credit situation. ‘Sluggish, a perfect storm’, a ‘tsnunami’ an ‘epidemic’—boring words and phrases like that.
Oh, and particularly ‘…tip of the iceberg’.
I am super super tired of that one. ‘Tip of the iceberg, tip of the iceberg, blah blah…’
How about we go instead with ‘… just the icky shriveled protruding nose of the newly uncovered nasty raisin-like peat-bog man, sticking up from the Arctic tundra to the consternation and wonderment of heavily bundled up Laplanders who were out there with their reindeers.’
I think that sounds better.
You should send this to http://www.bulwer-lytton.com/ and you might win this years award. Typical Bulwer-Lytton prose:
“It was a dark and stormy night; the rain fell in torrents–except at occasional intervals, when it was checked by a violent gust of wind which swept up the streets (for it is in London that our scene lies), rattling along the housetops, and fiercely agitating the scanty flame of the lamps that struggled against the darkness.”
LOL
Oh is that you THOR?
“‘We have things we’d like to do with our home, but we’re not going to do any improvements right now because we don’t want to take out a home equity,’ said Kris Marcath of Leonard. She estimates that her home’s value has fallen by $75,000 or more. She questions whether she could get $400,000 for the 2,700-square-foot home on 18 acres.”
Hey I would love to do stuff to my home…but I like to use a foreign word for Americans..”cash.”
Amen Ann: Not so long ago when I refused to use credit I had an interesting conversation with a video store clerk. She asked me what I do when I see something I want to buy but don’t have enough money for. I said I save up. She said “what’s that mean?” When I explained it her answer was “but that means you have to wait.”
It is always very interesting to see the shock on the salesman’s face when I pull my check book out to write a check when buying a new car. No wonder they, including the finance guy, get so confused when I ask what does the total amount come to. They are so programmed to minimize the monthly payment that they can’t put an accurate figure on what a profitable cash sale price would be.
It probably pisses them off pretty good too, because if your anything like me you have haggled away the large majority of profit in the car knowing they can probably screw you on the financing. Most dealerships profit centers are the service and financing side of the business. When they take 4 hours trying to get you the “best financing” it’s because they are trying to find the loan company that will give them the biggest kickback for the financing :).
I have a buddy that really puts this in spades. He haggles the car down to the absolute lowest point he can with all of the add on option warranties, and whatever else he can pile on. Then he calls and cancels all of those options the next day because there is a 7 day cancellation period on them. The thing is the dealer is willing to drop the car to the point they break even even on the factory to dealer incentives because they know they are going to make SO much money on the rip off warranties, paint sealers, and road hazard junk. He also lets the dealer finance the car, but writes a check to the finance company the day he rolls off the lot. I’m not sure if the dealer still gets the kickback if the note is paid off before the first payment is due.
I personally only buy 2 or 3 year old vehicles and then drive them into the ground, but that’s because I’m not really vehicle centered :).
–
Another asked, “No one can time the market perfectly but does the following sound like a good idea? 2 or 3 year LEAP puts on financials, luxury consumer, and big momentum stocks like AAPL and GOOG. 2 or 3 year LEAP calls on commodities, energy, precious metals.”
“I never hear much talk about LEAP’s but considering that the big players and the Fed are willing and capable of commiting anything to prevent the needed collapse, they can’t succeed for that long. And if they do manage to keep the music going that long. I can not fathom the absolute armageddon that would unleash.”
Not to brag, I am one of the most experienced LEAPS speculators in the world. I started using them for speculation the month that they came into existence. I have found it very hard to educate people in forums/blogs on long-term options and I don’t plan to start here. I would be happy to answer few question, though.
I was lucky to accumulate a truckload of LEAPS puts before the end of June, especially, on Fraudentials. Options, especially, puts, have become quite expensive since July/August increase in volatility and I was able to buy only a few since then. I always use GTC orders to accumulate LEAPS on Scams that I find good candidates for shorts. Unfortunately, one must be early than late in accumulating LEAPS because ones the underlying Scams start to go down seriously they become very expensive. My most successful recent LEAPS has been VMEML ( MER JAN-09 $60 PUT); I sold few at $10, $12.5 and $15 with the purchase price of $1.5 and I still have quite a few left. But, I had to buy them early
Since 7/13/07, puts in my family and friends’ accounts with LEAPS have tripled in value and I have sold roughly 1/4th of the puts (part of my discipline to raise cash during market downturns). I still have many puts that are up 300-1500% since 07/13/07 (I just happened to check that this morning). Until four months ago I was carrying the puts at a loss, but having the long time horizon has been very helpful.
I also sell naked calls on few Scams using LEAPS. I advice against this because it requires years of experience and even then it is tricky.
Jas
I have also used Leaps since the inception. They’re great for hedging as well as speculating. I do know a couple of folk though at places like SUNW and DELL who thought they could “hedge” their company stock in 2000 by selling 2002 and 2003 leaps. That didn’t work out too well
I absolutely LOVE my LEAPS!
Thanks, Jas and Chick. I found this on Wikipedia:
http://en.wikipedia.org/wiki/LEAP_financial_instrument
Therein was this link, to a CBOE site with a useful Q&A section:
http://www.cboe.com/products/leaps.aspx
I was buying a pre-owned high end watch last weekend at a well known store in Chicago and the salesman said a couple of things that were quite interesting. First, Rolex is famous for shutting down any dealer that offers a discount of any kind. They have secret shoppers to try busting them. Well, apparently Rolex has “authorized” them to offer discounts up to 15% through the holidays. Second, he said the market for anything over 1K is deadsville. Under 1K doesn’t amount to much in the high-end watch business. Were people even “pulling equity” to buy watches? One has to wonder.
“Were people even “pulling equity” to buy watches?”
BK - They probably were. Your notes are particularly interesting because Rolex watches are 100% made in Switzerland and the decline of the dollar and increase in gold should have been sending Rolex prices higher recently, not lower. The folks who make out best in such times, relatively speaking, are the diamond merchants. The markup on precious gems is so outrageous that they can cut and cut and cut (no pun intended) and still make money.
oh yeah, “pulling equity”…watches, vanity license plates, ski boats, botox, veneers, tattoos, crystallized flip flops, trips to Cancun, lottery tickets, purse dogs, and asian pears.
Did I miss anything?
Asian pears?
lychee?? come on, thats like saying fruit is an equity puller. sorry i had a few lychee martinis.
I dont know why someone would buy a watch as an investment though. I have a breitling automatic and figured I would keep it and just slowly buy more watches over time. Someone needs to knock some sense into people so they realize not everything is an investment. And an expensive watch doesn’t mean anything either. Goodluck telling that to people with expensive cars though.
LOL, purse dogs!
Yes. Spinners for the g-ride. Here in B’more, one can RENT spinners for the ghetto-ride. Great stuff! What a nation we’ve become: focused on buying utterly useless and tasteless crud with money we don’t have to impress people who don’t like and who don’t care anyway!
Wife bought Rolex circa 1986 for $1500. Sold last week for $1600. Before selling she got a quote for maintennace\repair of $800. Chose to sell and pick up something else. Nice deal I’d say.
BK — overlooked a key adjective in your post: “pre-owned.” Someone is blowing a pile of fresh BS at you if they told you Rolex has any control over used-watch prices. Be careful about fakes, at least if not shopping in a highly reputable store. It used to be you could readily spot fakes by the different “tick” but better fakes lately (the $100-150 ones) overcome that, for the most part. One trick used by professionals is to take a “Tudor” diving watch (an inferior line made by Rolex) and put a real Submariner face on it. In a good fake with wide gold center links in the band, the gold links are hollow in a real one, but solid (you can see the gold fill over stainless) on a fake. Best bet, IMO, is to take along a real one of the same model you are looking at. Also, there is a chart, put out by Rolex, that shows the year in which a model was made, based on its serial number. Modifications can harm the “value,” too, so get a written commitment that your watch has not been modified, or what the mods were.
I was buying a used Audemars Piguet, but this store is an authorized Rolex dealer. You are correct that Rolex has no control over used prices. Also, the links in the new datejust bracelet are solid to solve that nasty stretching problem. I was in Europe a couple of weeks ago — and for the first time in memory, watch prices were much much lower in the U.S. Shocking how much higher they were there (Germany) than here.
Wife just bought me a Rolex a few months back. Totally in love with it. It was new. She won;t tell me how much she bought it for but I checked Internet Pricing and I was surprised she bought it. I almost fell off my chair when I saw the price. ($8k-10K)She told me the same story about the discounts. Interesting.
Oh yeah, We’re renters so we don’t have equity on real estate or didn’t used her credit card. Paid cash. We’re still saving butt loads of money so once in awhile I get treated like a king.
why does anyone buy watches that cost that much?
don’t most cellphones come with clocks in them?
Thank you.
“If you are *really* bearish on the US stock market (and the S&P 500 in particular), there are always the contrary plays, like UltraShort S&P500 ProShares (SDS).”
Someone suggested REW yesterday, an ultrashort tech fund. Does anyone out there have ideas as to which might be stronger right now?
I bought Pro Shares short 30. I liked the ticker symbol:
DOG.
I’d say if you’re going to buy into a bear market fund or ETF, then make sure it is a 1x and not a 2x fund. I think anything using leverage as an investment strategy is going to be hammered, even bears.
Unlike direct shorting, any losses in a short ETF are limited to principal, so why not go 2x? IMO, if you’re playing with money you can’t afford to lose you shouldn’t be in this market at all.
Also, one more thing… make sure you can see what the fund does with the cash from a short. Some funds, like Rydex, I’ve noticed invest the cash into (believe it or not) mortgage backed securities! Make sure your bear market fund keeps it in cash or uses something safer like a treasury note.
Right. See the article I linked below. How ironic.
It will be interesting to see if people get over using shopping as entertainment. We used to have the best times with a bunch of us at one house (usually my little apartment) playing cards and partying while all the kids played in the other room and made toy soup (every piece of every toy set mixed together). Once folks get over that they aren’t really Rockefellers and never will be, they might find some joy in everyday life.
Fond memories indeed. When my son was 7-14 yrs old, we got together with friends of ours nearly every weekend. They have a son a few years older than ours.
We’d cook, play uno, jinga, skippo, balderdash, pictonary and other fun ones
Othertimes we’d all go out on the boat fishing, or plan a camping trip. At least once a year we’d canoe down the Blackwater River.
Fond memories indeed!
Leigh
Leigh: Skipbo - loved that one. We’de do mile borne team tournaments and then losing team had to pay for dinner at the chinese place sans kids. Potlucking instead of “dinner parties” and staying in instead of clubbing is a lost art, I think. Lots of weekend camping, too. Amazing how much fun we all had without cable or internet - lived in Alaska at the time. Once a year we’de go to Anchorage where they had a nordstroms. We would walk in and get so overwhelmed, we’de have to go back outside and calm down before we could shop.
There are some big brains around here, I’d like to hear from them on the subject of the ProShares Short/UltraShort offerings. For instance, QID has had a long down trend with spikes timed right at the March and August credit market shakeups. Then, within the last 3 trading days, it has bottomed at 35 ish and started rocketing up. I am a believer in a looming hardcore retail/tech/real estate recession. Is QID a good play to put my money where my mouth is?
Just be careful of SZK short consumer goods. I made the novice mistake of glancing over the list of companies, but not the percentage they comprised. After flushing a couple hundred down the drain I looked a little closer and 40-60% was comprised of 6-8 companies which mainly sold Soda, Tobacco, and alcohol. OUCH. Bad move.
http://www.dallasnews.com/sharedcontent/dws/bus/stories/DN-dorfmansub_11bus.ART.State.Edition1.356af62.html
i think any unhedged trades in equities will prove difficult. you can still make money on the short side but it won’t be a slam dunk. bernanke is weak, you can see in his face when he talks publicly. he will keep pumping liquidity to the system (he actually promised this in his last appeareance) which will keep bonds inflated and there is no alternative to equities for the institutional holders with bond yields so low. the only escape valve to this is the dollar exchange rate.
Ha.
http://www.thestreet.com/s/homeowners-are-too-big-to-fail/funds/financial-advisor/10389511.html?puc=_tsccom
I was saying here in ‘05 that the bankruptcy reform and housing bubble would be major ‘08 campaign issues. “Experts” like VA Investor said I was just a bitter renter who was mad that I didn’t get on the money train. Can I get some love here ;)???
Love to you Tx - from what see there’s lots o love for you here. Where have all those contrarians disappeared to?
Where have all those contrarians disappeared to?
They’re busy working a shift at McDonalds.
‘Tis true. XOXO.
XXOO
VA_Investor is probably working as a housekeeper at this point - just another bitter FB.
You, TX, are a keeper.
Ms. Savage, not so much.
Well, she does have a point there. It seems that no obstacle is too high to “restructure” bad loans for the WS banks but heaven forbid we restructure a mortgage for a few thousand bucks and keep Juan Sixpack from being tossed into the street.
Sort of OT but interesting. Ran into a friend at the dog run this am, who is an art dealer. Got to talking about the recent Sotheby’s auction, which is widely described as a failure here. He mentioned that 37million for a late,2nd rate Matisse is still a “shat-load of money”, and that prices for first-rate works in his area, late 19th-early 20th c European paintings and drawings are still holding up, though buyers are often Asian corporate structures…shades of Japanese banks in the 80s. Also, that Sotheby’s acting as a market-maker for a number of works in the recent auction took a bath when prices didn’t reach their reserves. The collusion of auction houses on prices which cost them legal scrutiny is now happening again, he said, though this time the dealing is really happening, unlike earlier, when it was the existence of an agreement to do same, that cost them legally. And the worst, a dealer who owns a Jeff Koons, is unloading that bit of garbage for a staggering profit, though he couldn’t id who the deluded buyer might be. He did mention that the shock was the Pollocks that didn’t sell–though he knows I’m interested in RE–maybe why he cracked that the hedge fund boys must not be furnishing their Hampton beach houses in the grand style this winter.
Much of the value of kitschy art that were deemed masterpieces, was fueled by those with self-esteems so low, they felt the need to compete with others of the same ilk, for the same perceived treasures, to stick in their office, and breathlessly wait for a competitor to inquire…
“Say, isn’t that a Koons?”
I work in franchising and financing for the builders, drywall, roofers, carpenters, pest control, basements water proofing, handy mans services, home improvement contractors etc. etc. etc
They will tell me they are slow and getting slower. The high end builders always think rich people can afford Mc mansions. I think these contractors are living on the existing projects they have on hand but there is not much back log of work. The diversified service contractors are doing fine. What I have learned in this down turn if your are a business owner you must be diversified in different markets to survive. There is only one thing certain about a business which is CHANGE
I think people are going to cut back on spending big time. The reason is they already have heavy debts. It isn’t like these folks did a Refi / HELOC and then ran up the credit cards.
They ran the credit cards up FIRST assuming they could Refi / HELOC it away. And now the cannot.
I imagine the last spending binge they had was the worst, too. Just wait until they are late on a payment for one card. Rates will skyrocket to 30% - on all their cards.
People are really screwed.
And then Rangel and Hillary will want us all to hug these credit card deadbeats and expect the “taxpaying class” to bail them out, too.
Aren’t credit limits adjusted downward due to late payments?
I will probably close out my shorts and puts this week before OpEx on expectations of a short term rebound into mid to late December unless we have a close below last summer’s low. But even in this case I will be looking for a move up rather than down in the near term.
I am a bit nervous this week–once burned twice shy.
Think beach ball held under water.
Exactly!! (At least in the near term)
Doesn’t that assume that the beach ball still has air in it?
I’m so sorry I missed out on the Ultra-Shorts this week. The QID was around 34 bucks for a few days and I just procrastinated thinking they’d get below 30 bucks soon so I could buy. Darn;-)
I was at Wal Mart today. ‘God!, I hate Wal Mart” I was forced to go because my kid wanted a specific video game and he was going to use his gift cards he received on his birthday. Well, it was packed but on the other end of the street was Macy’s and it was slow. I’m thinking people are going into the “cheap” this christmas. Remember, when you see a “packed” retail store during the holidays, it is normal. But the Retail stores are also banking on “really packed” stores during the holiday season. I am thinking their is going to be bad “sales data” after this season.
Oh yeah, I just passed by a Chevron and it is selling Ultra Premium gas for $3.85. $3.67 for Unleaded and $3.54 for regular. WOW! I’m glad I bought a car that gets 45 MPG and I only drive about 50 miles a week!
Fed’s are “Fleecing US consumers!”
Good lord. I paid 2.80 at Costco today. Where are you?
Los Gatos, CA
My area is at $3.25 to $3.35 .
“Good lord. I paid 2.80 at Costco today. Where are you?”
Not in Texas.
“I’m trying to get the wife to work more and keep our debt situation from getting worse (she blew upwards of 10Gs cash and 5 Gs credit over the last year). Its a struggle.”
Oh My God!! $15000 on ’stuff’??? I can’t think of enough things to buy that would total that much. We are retired and I run the whole household for nearly 7 months on what she blows on things - and my budget includes health insurance, the symphony, Brooks Brother clothes and rent. (We sold 5 years ago, travelled and when we stopped I took one look at the market and laughed - spending 58% more a month to buy a house that I could rent long term for far less would have been stupid.)
Of course, I have always bought excellent quality over the years and my closets are stuffed with Brooks Brothers and Ferraamo shoes but they never wear out - some are over 20-25 years old and still perfect. Your wife needs to come spend some time with me and learn how to differentiate silly wants from needs, and still get quality.
Maybe you had better introduce her to Ebay. Oneof my regular sellers lives near the Brooks Bro factory and I happily pay her $7-15 for a New Without Tags men’s shirt. At least your wife wouldn’t be paying retail.
“I’m trying to get the wife to work more and keep our debt situation from getting worse (she blew upwards of 10Gs cash and 5 Gs credit over the last year). Its a struggle.”
leave her
A couple of weeks ago, I headed on out to the east Mojave for a bit of camping/hiking. As I drove through Victorville on I-15, I passed a couple of new furniture “megastores” with nearly empty parking-lots. It was about noon on a Saturday. I smell some big-time retailer bankruptcy action coming!
A couple of weeks ago, I drove out to the east Mojave for a bit of hiking/camping. As I drove north through Victorville on I-15, I passed a couple of new furniture “megastores” with nearly empty parking-lots. It was about noon, on a Saturday.
I smell some big-time retailer bankruptcy action coming…. They’ll soon be giving away furniture along with the houses out there in the high-desert.
As you know, it really depends on where you live whether or not you are “feeling” a recession or not. Since one out of four jobs is somehow relate to housing, many more are going to be feeling the pinch.
Sorry about the duplicate — my browser froze when I sent the first comment — thought it got lost in the aether.
And don’t be expecting Chinese stock market investors to be buying up U.S. real estate any time soon. They already have margin calls up the Ying Yang.