Bits Bucket And Craigslist Finds For January 2, 2008
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Happy new year to all my fellow “throwers of cash in the trash”
A special howdy to my favorite bloggers - aladin, NYCB, txChick, sammy schad, Popcorn Neil
Some good new year resolutions here..
http://www.marketwatch.com/news/story/ten-resolutions-help-you-survive/story.aspx?guid=%7BEEE93E28%2D3F7B%2D432E%2D9312%2D315D2F92FC12%7D&dist=MostReadHome
Happy New Year to you Newbie. I have made resolutions to this year be kinder to those I love and to be even more mocking to those that continue to say stupid things. It should be a good 2008.
I hope all HBBers appreciate what they have. No matter how depressing the headlines are we still get to (mostly) control our own little slice of the world. Life is still good for NYCityBoy and the NYCityBoy family. I hope you can all say the same.
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“No matter how depressing the headlines are we still get to (mostly) control our own little slice of the world.”
The primary goal of my commentaries is that despite lot of problems caused by our leaders and economic elite individuals can make better choices for themselves if they are aware of the problems and how they will impact the overall economy and markets.
Happy New Year, everyone!
Jas
The primary goal of my commentaries is that despite lot of problems caused by our leaders and economic elite
Jas -
Then may I make a suggestion? Focus on including what an individual person could about it the facts you include in your commentaries. I’m 34 (eek!) and have grown up with everyone and their brother trying to “raise awareness”. My poor primitive nervous system cannot take on the world’s problems nor does my schedule allow time to fix them.
I guess what I’m saying is that I’ve never noticed anything in particular about guilt, depression, and worry that gives them any spectacular world changing qualities. Give me something to do other than hand wringing and I’m all over it. *grin*
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I am sorry, but my experience is that forums/blogs are not the best places for specific advice or What-to-Do’s. If nothing else it leads to lot of argumentation and even attacks. Plus, everyone’s circumstance and mindset is different.
Having said all that my advice for the past ten years has been very conservative. I am called Broken Clock for not changing my tune, which has been…
1. Avoid Scams, aka stocks, altogether (unless you plan to be full-time professional speculator).
2. 5-10% in physical gold (avoid gold Scams)
3. Swiss franc as the safest paper currency.
4. Keep most of your savings in US Treasury Bills (short-term) and Notes (long-term bonds), etc.
Inflation threat in the US is extremely low.
Jas
PS: I gave the same advice to a very wealthy man in Silly.con Valley area (He owns 1/3rd of a whole block in San Jose in addition to lot of other real estate in the west) in December 1999. He ignored it then but hired me for advice in 2001 and he is still my client.
“3. Swiss franc as the safest paper currency.”
Is this still the case now that the Swiss central bank has agreed to team up with the Fed, the BOE, the Canadian CB, the European CB and the Swedish CB to stave off the ‘credit crunch?’
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Yes. The Swiss have been pressured to follow the powerful, but when fit hits the shan they will go back to their conservative ways. Just remember that Swiss didn’t give vote to women until 1975! That too was under pressure from outsiders.
Jas
P.S. There is a substantial body of empirical evidence in the academic journal literature in economics which shows a positive correlation between degree of central bank independence and the ability to control inflation. Conversely, a lack of central bank independence appears to compromise inflation fighting credentials.
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PB,
How can central bankers be independent if they are political appointees?!
Jas
PS: A doctor friend of mine tells me that he does not want politicians to be leaders. He wants only statesmen to be leaders. Was Bismarck appointed by a democratic leader? Can my friend vote for a President who is not a politician? People have problem dealing with inherent contradictions.
“How can central bankers be independent if they are political appointees?!”
The beauty of humanity at the individual level is that we all have the capacity to decide whether to exercise our God-given free agency. I admittedly have noticed much greater inclination to do so among Supreme Court Justices than Federal Reserve chairmen.
P.S. I produce the evidence on the Swissy:
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=C_CHF&time=7&freq=1&comp=&compidx=aaaaa%7E0&compind=&uf=0&ma=&maval=&lf=1&lf2=&lf3=&type=2&size=1&txtstyle=&style=&submitted=true&intflavor=basic&origurl=%2Ftools%2Fquotes%2Fintchart.asp
Just remember that Swiss didn’t give vote to women until 1975! That too was under pressure from outsiders.
While I read your posts with interest, I’m not sure that nationalized discrimination and/or stubborness is the best logic for endorsing the Swiss Franc.
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I gave a very good example of the conservative nature of the Swiss. All Swiss men have to serve in military but women don’t have to. All Swiss men are armed and women are not.
Hell, how long have women been given vote, or full participation in politics, in human history? I believe that giving women right to vote was driven primarily by politics and not for human rights, or equal rights, reasons. Are women more likely to give more powers to the govt. because of call for security and safety? Ever heard of “security moms” who voted for W?
Jas
How can central bankers be independent if they are political appointees?!
It seems to be a contradiction to me. Can you really be independent of the thing from which you derive your power? If the Fed were truly independent, it would have no power to prevent competition for example.
Given the Fed is owned by a consortium of banks, the specificiy of which we are not allowed to know, and given our banking-beholden politicos appoint the chairman…. how on earth could the Fed be considered independent? Impartial? Concerned with everyman’s economic level playing field?
Jas,
While the list of posters in here who I admire and respect is quite lengthy - even if we may differ on some points - you, my friend, deserve special mention. I’ve really appreciated your posts in here.
NYCityBoy,
I am not religious, but I am routinely thankful.
Happy New Year’s y’all!
It is hard to imagine why anyone would throw away good money on buying shares of companies that behave thus. Is it because stocks always go up, in the long run?
“Now the crisis is metastasizing: Hundred of billions of dollars in write-offs reducing shareholder equity, hundreds of millions of dollars in severance pay to CEO losers. Worse yet, Wall Street’s insiders rubbed salt in their shareholders wounds by passing out $38 billion of the shareholders’ profits in bonuses, averaging more than $600,000.”
“…passing out $38 billion of the shareholders’ profits in bonuses…”
RentingBuying stocks is just throwing money down the drain.The real problem with the Greenspan/Bernanke put policy: It gives corporate managers a license to steal.
Can any long-time watchers of the U.S. economy comment on how long asset price support has been a de facto U.S. policy objective?
“Can any long-time watchers of the U.S. economy comment on how long asset price support has been a de facto U.S. policy objective?”
Since 1776? Or maybe, technically speaking, 1789?
What evidence do you have on this? All the evidence of which I am personally aware suggests that asset prices went both up and down in the business cycles of the 1800s. So either this policy was not in force at the time, or else it did not work.
My knee-jerk inclination is to date the start of this policy to 1913.
Also worth mentioning: While business cycled and asset prices went up and down in the 1800s, the U.S. grew from a small independent nation into a world power. The price signal helped by showing investors which investments were smart and which were not. What is the expected effect of distorting the price signal through asset price supports on the ability of the market to figure out which bets are worth pursuing?
“What evidence do you have on this?”
Absolutely none. I was just kidding.
But seriously, I would say it goes back to at least panic of 1907. That’s why JP Morgan was hailed as such a hero. He prevented a banking crises, which held up asset prices, and then his actions led to institutionalizing this role in the form of (the latest reincarnation of) the Fed in (I think) 1913. After Fed royally screwed things up with loose money, there was a lot of talk of “organized support” of the stock market. The organized support was no match for Mr. Market in the long run.
I’m sure you could find evidence before this, though. Andrew “Me and No Bank” Jackson fought against banking interests. Desire for higher and higher asset prices and a certain brand of conservative politics go hand in hand. The higher asset prices go, the richer the rich get. The divide gets larger and labor get relatively cheaper.
The US Government engaged actively to reduce the money supply from 1869 through 1896 to wring out inflationary excess due to financing the Civil War. That late 19th century era was mostly a deflationary one due to shrinking money supply and growing durable goods, land access (improved transportation - we “made” more land!), etc… supply. Asset prices were not the concern of the federal Govt during this period. End result was William Jennings Bryan “thou shall not crucify mankind on a cross of gold” campaign in the 1896 election (I believe that is the one).
Don’t forget that JP Morgan helped CREATE the very banking crisises that you’re referring to. He did it for a reason…. to strengthen the argument for a central bank.
Worked, didn’t it? Now we have a national debt, owed to bankers, rather than a national currency. Clearly I sit in the Andrew Jackson camp with this one, given the result.
1913
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“Can any long-time watchers of the U.S. economy comment on how long asset price support has been a de facto U.S. policy objective? ”
Since Greenspan! It began with intervention in the Scam Market following the 1987 crash. “The Greenspan Put” was born.
And he is all blue now defending his policies and actions.
Jas
The sheep are getting cleaned. It was all over the internet 6 months ago how the Wall St boys would pump the market in order to get their 2007 bonus, fees, and 2008 would fall. I say they did a pretty good job! Shareholders got snookered again with their blind faith and greed. Don’t worry, the game will continue as many “new” suckers will try again as “it is differant this time”; they along with the new home buyers if they have any credit or money. Perhaps no one will show up too play in the game any longer? Wall St boys would be most unhappy.
Good market timing, Paul.
BULLETIN
DOW SUFFERS BIGGEST FIRST-SESSION-OF-YEAR POINT LOSS EVER; 29 OF 30 COMPONENTS FALL
Paul B. Farrell
PAUL B. FARRELL
Winning attitude
Ten resolutions that will help you survive the coming bear market
By Paul B. Farrell, MarketWatch
Last update: 5:01 p.m. EST Dec. 31, 2007
ARROYO GRANDE, Calif. (MarketWatch) — In a rare Fortune interview several years ago Warren Buffett warned that America was “selling the farm” to live “high on the hog.” Forget the hog: that dream’s gone, and the farm may not be far behind.
Happy new year to you, newbie…
It promises to be a most interesting one~
Happy New Year to you, too, Newbie, and may you and yours experience all the serenity and schadenfredue that us renters are poised to enjoy in 2008. Here’s to an even more lively, entertaining, and thought-provoking year on the HBB. And, as always, let’s remember to support, encourage, and sustain Ben Jones with a generosity befitting this gem of a blog that he’s created and maintained.
This is amusing….
More steps by Congress and the Bush administration are likely needed to stabilize the imploding U.S. housing market, a senior White House official said on Tuesday, as more signs of distress appear.
Early last month, President George W. Bush unveiled a plan to help some homeowners avoid foreclosures as some 1.8 million mortgages with low starter interest rates are due to reset to sharply higher rates this year.
Ed Gillespie, counselor to Bush, pointed to efforts by the U.S. Congress to overhaul the Federal Housing Administration program developed in 1934 amid the Great Depression and designed to make home ownership more affordable. Members of the House of Representatives and Senate have been trying to work out a compromise plan.
“There’s more to be done we think on the housing front to address the concerns people have about the housing markets, including FHA reform and other reforms that the president has called for,” Gillespie told reporters aboard Air Force One as Bush returned from a weeklong holiday at his Texas ranch.
http://www.cnbc.com/id/22464861
The only “solution” proposed in the article is to let Freddie and Fannie in on jumbo loans. Yeah, that’ll help, just like the last 4 (or is it 5?) “great” ideas that haven’t worked.
It might not be such a bad thing if Freddie and Fannie were able to purchase somewhat larger loans but at the same time keep the rest of their underwriting standards intact.
You might see some real discovery hit the market.
The head of the GSE regulator came out a couple of weeks ago and said he couldn’t see how they could do jumbos. He said they aren’t set up for it and it would be an entirely new structure. Funny how those things get passed over.
Are they talking about F/F doing jumbo’s, or about raising the conforming limit?
Wouldn’t guaranteeing Jumbo loans valued at $417,000 and above amount to an implicity taxpayer-funded bailout and a massive stealth wealth transfer from the relatively poor heartland to the relatively wealthy coastal areas? I am not sure that is what the Iowa voters consider to be good policy.
I’d agree with that, PB, but, as an Iowa voter, I really don’t think that more than 5% of my brethren consider that our “helpful” govmint would do that to us.
Unfortunately the rest of the underwriting standards are under attack - like dropping equity minimums to 3% in the FHA programs. Doesn’t even cover the sales fee! ouch!
I suspect the outcome of the current mess will be all mortgages covered by the government one way or another, simply because the private market will be too hurt and too spooked but people will still need mortgages. So the fight over underwriting standards for government agencies is the real fight.
Why not let the private market sort it out? That way, we could soon have both affordable housing and a return of housing market liquidity. Or would you prefer a fifteen year long standoff between buyers and sellers while prices are artificially propped up by “Save our Homes” govt policies?
You’re right, but the gov’s too stupid to figure that out. They never learn from their past mistakes, only make bigger ones.
“…gov’s too stupid to figure that out…”
I don’t believe it is about stupidity, so much as rewarding campaign contributors in the REIC who profit from ongoing housing market imbalances.
More like pandering to voters who are actually in the mess themselves, or want to do a bailout “for the children.”
“More like pandering to voters”
This is why the bailout proposals all go under the heading of ‘Save our Homes’ instead of ‘Save our Lenders who Threw Money Down the Drain.’
“You’re right, but the gov’s too stupid to figure that out.”
Let’s not forget we are the government.
We have met the enemy, and they are us.
- Pogo -
The Guberment doesn’t learn, because the Guberment is not a single entity. It is a constantly changing gang of idiots and charlatans (for the most part), and it would be counter to their individual personal interests to “learn”.
If you have voters that don’t pay attention to what they are voting for and people who don’t vote, are we not getting the government that represents who we are as a nation?
The private market is happy to lend money for all kinds of mortgages, people just don’t like the real price. They’ve gotten so used to eating government cheese they think any other kind is spooked cheese.
Exactly.
Even I’d be willing to lend mortgage money IF the borrower would be willing and able to pay 10% AND if the value of the collateral would cover any defaults.
No problem with liquidity, but nobody likes the price.
They’ll raise the limits and keep the underwriting standards intact… and then gut the underwriting standards a year or so later because, “unaffordable housing is key to a nation of prosperity and debt.” or some such nonsense.
Once the camel sticks its nose in the tent, well, you get the idea.
As we look for a government solution to our housing problem we should look south to our secularised comrades and observe how they deal with a housing problem of a opposite nature.
Cuban housing shortage forces many divorced couples to keep living together
http://www.iht.com/articles/ap/2007/12/30/america/LA-GEN-Cuba-Divorced-Under-One-Roof.php
By law, Cubans cannot sell their homes and because the state controls almost all property, moves must be approved. Housing is so scarce, however, that often there is nowhere to go.
The shortage is exacerbated by failed marriages. In 2006, the latest figures available, Cuba reported 56,377 marriages and 35,837 divorces. That’s a yearly divorce rate of nearly 64 percent, though it does not account for those married and divorced multiple times.
Breakups are so common that Cubans joke that anyone whose parents stay together needs a lifetime of therapy.
Cuba was for decades officially atheist and divorce does not carry the stigma it does in other countries. Many divorcees head back to their parents’ homes, but problems arise if their former rooms have since been occupied by siblings’ spouses and offspring.
Lots of renters pay more than 50% of their income for housing. The government used to care about things like that. Now it cares about keeping people who HELOCed in McMansinos.
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USG’s involvement in housing, for several decades, can only be characterized as extreme. And it is evil because debt is pushed on households in the name of “homeownership” and American dream.
As a son of a moneylender (most family members are still moneylenders) I can tell you that all forms of pushing debt are evil. Debt is not the same as products and services.
Jas
“McMansinos”
Excellent! I think you typo’d, but still…
McMangrowsinos
“Thinking is man’s only basic virtue, from which all the others proceed. And his basic vice, the source of all his evils, is that nameless act which all of you practice, but struggle never to admit: the act of blanking out, the willful suspension of one’s consciousness, the refusal to think—not blindness, but the refusal to see; not ignorance, but the refusal to know. It is the act of unfocusing your mind and inducing an inner fog to escape the responsibility of judgment—on the unstated premise that a thing will not exist if only you refuse to identify it, that A will not be A so long as you do not pronounce the verdict ‘It is.’ Non-thinking is an act of annihilation, a wish to negate existence, an attempt to wipe out reality. But existence exists; reality is not to be wiped out, it will merely wipe out the wiper.”
John Galt
aladinsane, thanks for the gifts that keep on giving. Happy New Year.
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“And his basic vice, the source of all his evils, is that nameless act which all of you practice, but struggle never to admit: the act of blanking out, the willful suspension of one’s consciousness, the refusal to think—not blindness, but the refusal to see; not ignorance, but the refusal to know.”
I have a simple term for it — blind faith. Regardless of education, it all too common. All civilized societies breed people with blind faith in many human institutions relating to politics and economics, primarily to justify the existing system.
Jas
“Regardless of education, it all too common.”
What is worse, many religions encourage and reward the practice among their adherents.
[Man's] basic vice, the source of all his evils, is … the act of blanking out, the willful suspension of one’s consciousness, the refusal to think
I’m no philosopher, but it seems to me that non-thinking, blind-faith (as Jas put it) would be a good thing but for the evil ways of men in organized groups. Non-thinking is not evil; it renders us victims to the true evil of corrupted-by-power institutions of religion, political parties, and the like. Would it be that men could trust other men and their institutions, this would free their minds to pursue the greater good instead of rooting out corruption.
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Amen.
Jas
All civilized societies breed people with blind faith in many human institutions relating to politics and economics, primarily to justify the existing system.
Jas
***********************and organized religion.
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Religion, by definition, is based on faith. Therefore, the question of “blind faith” is redundant, or to say that one religion is true and others are false.
Faith in democracy, on the other hand, could be blind faith. The same applies to the economic system. The reasons being that all such systems are infinitely corruptible by men of ambition to serve their own interests.
Jas
Unless specific measures are taken (ala the constitution) to restrict the encroachment of these institutions on the rights of men. The magic is the system, not the men.
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Who write constitutions? Men!
Who make laws, supposedly according to the constitution? Men!
Who enforce the laws? Men!
Who interpret the laws and the constitution? Men!
BTW, I am great admirer of the Founding Fathers as men (they were great men). However, the DOI and the Constitution of the United States are propaganda masterpieces.
Jas
Even Jefferson admitted that the DOI was prose.
I always appreciate John Galt’s insight, but let’s be honest, this quote is basically what Immanuel Kant said over 200 years ago already.
Link:
http://en.wikipedia.org/wiki/What_is_Enlightenment%3F
Happy New Year
Did anyone ever accuse Ayn Rand of having one original thought in her life?
If not…no harm, no foul.
Touche!
broke britain;
Debt experts are predicting a record number of personal insolvencies this year as excessive Christmas shopping, rising mortgage payments and soaring food and fuel costs force thousands of people over the financial edge and into bankruptcy.
More than nine million individuals in Britain are now believed to be struggling to pay credit card bills and mortgages, with the average owed by problem debtors hitting £30,000.
In alarming figures to be released tomorrow, the accountancy firm Grant Thornton predicts the total number of personal insolvencies will jump to at least 120,000 this year, almost triple the equivalent figure in 2004, when just under 47,000 people went bankrupt.
http://news.independent.co.uk/uk/this_britain/article3300968.ece
Wow! 30K pounds.. Or ~50-60 thousand dollars per “problem debtor”?
That seems incredibly high to me… What’s the monthly payment on 50K at 18%? God, those people are big time sc**wed!
Guess I better dump my GBP holdings.
Keep in mind the qualification in the statement:
average owed by problem debtors hitting £30,000.
They’re talking PROBLEM debtors, not the average person in the UK. The question is, how many people are like that out of the total? From the wording above, you can’t quite tell for certain, though the implication is 9 million, or 10% of the population. If true, then “Ouch”. But I’m having trouble getting the whole article to load.
The GBP & Euro are both overvalued, IMHO.
Are these the same Europeans we think will buy up U.S. properties and spend copious cash on our tourist attractions?
You got that right. Just go to Disney at easter time and every other person is a Brit.
Ha, not only is that the humurous truth but also funny is how many foreign economies are counting on our debtors riding to the rescue.
Everyone’s waiting for the calvary but no one has a horse.
Friends just got back from the UK and had rented a car, and diesel was just $9.50 a gallon.
yikes~
Well, what the heck, at least they were probably able to travel 40 or more miles on that.
$3.50 (in CA) @ 15 mpg in a Yukon is about $9.33 for 40 miles traveled.
RE: diesel was just $9.50 a gallon.
The Europeans produce numerous stylish cars that can cope with these gasoline price levels.
On my trip to the UK I rented a Spanish Altea with a 1.8 liter turbo diesel with a 5 speed standard transmission.
I got like 58mpg toolin’ around the countryside.
It was an embarrassment to return home to the US and look
at the pig mobiles we’re stuck with.
No one ever forced anyone to buy an SUV.
“No one ever forced anyone to buy an SUV.”
Yeah, but we shouldn’t have to subsidize ‘em either.
A lot of people who would rather not own SUVs probably feel compelled to buy them for protection from the idiot SUV and oversized pick-up drivers they’re forced to share the road with.
Europeans generally visit California from June to September, flying into L.A. or S.F. and renting a car or rv, to many times do a trip that includes Yosemite, Sequoia, Death Valley and Las Vegas…
We are now seeing much more winter visitation than ever before, because of the weak Dollar.
I can only imagine the flood of tourists from overseas, in 6 months time…
Sure, and they are all going to buy houses, too, right? The UK and Australia, etc, are all seeing their economies head down too.
I’ve never bought the knee-jerk-currency-up-down effect. It never worked out that great south of our border.
They come to see our National Parks(how could I not throw in Zion and Grand Canyon?), which aren’t for sale. (yet)
Well, my point is what does it matter? In Sedona, AZ, big busloads of foriegn tourist stop daily, buy some bottled water or ice cream and leave. But the area has something like 900 realtors and Sedona is around 11,000 people. I just don’t see the dollar making a dent in that slowdown.
The idea of foreigners snapping up Sedona does seem remote.
Very few people go on vacation, and buy $800k houses.
Thats the same story here in Utah. They do the Vegas, Zion, Grand Canyon bus tours.
It was Californians and local speculators that ’snapped up’ these houses at $800k. Not many selling for that now, and lotsa FBs.
At some price, a few foreigners will be interested in Sedona.
Would those same foreigners care one iota about Sacramento, though?
At some price, a few foreigners will be interested in Sedona.
Would those same foreigners care one iota about Sacramento, though?
Many of us remember what Japan did in the 1980s bought lots of RE in the US. Japan had its own bubble back then. Now it looks like all the RE bubbles are poping.
Amusing Sedona article in this week’s NY Times…
http://travel.nytimes.com/2007/12/28/travel/escapes/28spirit.html
http://www.latimes.com/news/local/la-me-reclaim2jan02,0,7789563.story?coll=la-home-center
Aladinsane,
A just- built OC processing plant converts sewage waste into drinking water. I wonder how much energy that sucker uses for the conversion process, and who pays for it.
Torrey, Utah is Sedona, Arizona…
With just 171 people, and just as much color.
Right next to Capitol Reef National Park…
Bicoastal: isn’t it a hoot how all these spiritual pilgrims are rich as hell?
peter m:
They could add some fizz and call it “Soylent Sparkling Water”
Preach it, Chick! I used to go to a Tucson business group run by a lady whose favorite word was “abundance.” And I noticed that the people who were really under her spell had more than enough money.
As for the scrimping and scraping rest of us, “abundance” wasn’t in our vocabularies. We were just trying to get through the day/week/month.
And I’m one of those 171 Torreyoids. You forgot to mention the winter weather is pretty cold so that keeps the off-season folks away for the most part.
RE Prices here are starting to creep up after essentially being flat through the entire bubble. Who’da thunk it?
And have such bad taste. Money is wasted on the rich.
Bicoastal: isn’t it a hoot how all these spiritual pilgrims are rich as hell?
Isn’t Torrey the place with the amazing restaurant in the middle of nowhere?
Stayed there a few years back, and was wowed by the food.
What are property prices like, then?
Torrey - awesome place. iftheshoefits - I’m jealous. I stayed at the Skyridge Inn many years ago; the day I first got engaged. Got there pretty late though, and ended up having dinner at the local 7-11 (or whatever the name of it was) via microwave. That’s when I knew I had a keeper.
speedingpullet -
Yes, there is a killer restaurant, Cafe Diablo. It’s only open April through October, as is most of the town. The RV parks and a number of hotels close in the off-season. Too cold for the snowbirds, not enough reliable snow for a winter tourist economy.
packman -
Ahh yes, the Torrey off-season quick-stop cuisine experience. Enjoyed by many, not necessarily by choice. Not many options when everything closes down.
about the Torrey property prices -
We have some raw land (10 acre parcels) bought for $2K per acre in 1996, went up to about $10K per acre by 2000, and has held about there ever since. Smaller parcels with utils (maybe water, if you can get it) go for $20-50K per.
A small (1200 sq ftish), less than 5 yr old cabin in town just went for $155K. Some folks were shocked. 2 years ago at bubble peak they would have been very lucky to get $125K.
Not a lot of transactions to base property prices on, only one full-time agent in the county and she holds info close to the chest. They tell us that only 3% of the land in Wayne Co is privately owned. The rest is NPS, Forest, BLM or State school trust.
On our Southwest roadtrip last year during the month of October, passing through Torrey, your Cottonwood trees were so beautiful, lining the main road…
And an interesting color combo, when combined with all of Mother Nature’s hues on the walls beyond.
‘They come to see our National Parks(how could I not throw in Zion and Grand Canyon?), which aren’t for sale.’
I much rather do the southwest desert tour something like in 1995: 1 month circling the southwest indian country in my Toyota Ex cab with hi-dome camper shell , camping free in BLM land, cooking on a backpacker stove on the truck tailgate, only spending two nights at a cheap flop motel, Visiting 5-6 NP’s and same # nat monuments, doing a one week backpack with Sierra Club in Escalante/ Glen Cyn Region, long desert canyon hikes in Zion, Cap reef, Grand cyn ,NAt bridges , grand gulch, ect.
I would rather kill myself than go on a packaged tour. Even up to my retirement years expect to do solo off-trail backpacks and desert Wanderings. My kind of scenery something out of lawrence of arabia or a route 66 travel log
“I can only imagine the flood of tourists from overseas, in 6 months time”
Looking at this from An East Asian/Chinese perspective, I do expect a sharp uptick in Chinese visitors and toursts into US in 2008. US & China just signed an agreement easing visa requirements( somewhat) for chinese visitors/tourists, and the yuan will rise further against the US $ again in 2008. China gov’t also gave the green light for Chinese tour agencies to allow for increased expansion of US group tour activities.
As for foreign investors in property here, U may see rich Asians snapping up LA locations in such upscale or relatively safe clean communities as Palos Verde, hancock Park, Arcadia, Walnut, diamond Bar, San Gabriel, Monterrey park, Pasadena, which are all within reasonable distance from Asian/Chinese markets & businesses/shops around dwtn LA -wilshire district- korean town.
I don’t think rich chinese/HK investors are that stupid as to buy property in IE at any price.
The fable that “foriegners are coming to save housing” is getting more mainstream. I heard it again this morning. I was told that people from oppressed countries will be the fundamental when I asked that he provide some evidence of this phenomena. How in hell are the worlds poor going to get here no less buy $400k houses in Iowa? Just the idea of it is beyond preposterous. I can see the asian influence in place like Hawaii but even then, there will be an end to that gravy train too.
I just had breakfast @ a local greasy spoon and had a gaggle of 6 young Germans to the right of me, and a Dutch couple to the left of me…
I asked my waitress “what percentage of your clientelle is foreign now?”
She said “over half”.
Which means if they didn’t have visitors from overseas, business would suck.
I like Alan’s comment here.
http://www.hardrightedge.com/trader.htm
and how nice of “them” to provide a gap up so allocaters at the beginning of the year have to pay up. I remember the huge gap up on the first trading day of 2000. It lasted about 20 minutes.
Dollar cost averaging makes sheep shearing nicely predictable.
Ah geeez, you just sentenced us to a lecture from Bill. Thanks for nuttin!
Here’s the lecture:
I don’t care if you folks claim you can time the market. I seriously doubt it. You’d be multi-billionaires otherwise. I don’t care if you hate DCA. My net worth is what I care about. I only want a 7% ARR. Anything more is gravy to me. BFD. I don’t lose sleep at night like day traders. Too much better stuff to do. Like produce software. Day trading, as I said before, does not add to the GDP.
Day traders don’t lose sleep at night. They close everything out at day’s end. That is what the term “day trader” means.
Everybody’s gotta do what they gotta do.
Teaching and health care don’t add to GDP either.
I’m not a day trader, just making a statement that “contributing to GDP” doesn’t necessarily equal “noble” and vice versa.
That’s a lot of hooey anyway. Who cares if you contribute to GDP. Not moi.
Bill -
IFFC you started cost dollar averaging in around 1989 or so. (Please correct me if I’m wrong here). Since that was the start of the longest bull run for stocks in history, has it occurred to you that much of your gains have to do with long term market timing? For instance, if you were able to measure it, how would your cost basis and returns pan out starting in oh, say, 1927? Something to consider. Cost dollar averaging I think is a good strategy overall but market timing looks like the superior strategy if you can do it well. (Of course, what do I know as I’m sure my net worth is pretty paltry compared to some folks around here.)
And it seems silly to me to say that any investment into stocks does something for GDP. By definition (especially if you are long) the goal of investing is to make money through dividends and appreciation. In other words, you are buying slices of businesses to make money off other people’s work.
If you want to add to the GDP, you need to get a W-2 job or start working your own business in a “non-overhead” industry (so no healthcare or government,etc).
Cost dollar averaging I think is a good strategy overall but market timing looks like the superior strategy if you can do it well.
That’s the crux of the argument. People like Bill can’t or won’t do it and if they can’t, that means the whole method is unworthy. Whatever.
Regardless of whether you prefer day trading or DCA, today is shaping up to be a great day to buy the dip!
How do you figure basis for mutual shares bought over by CDA over 10+ years with dividend additions periodically thrown in as well?
DCA= a percent or two over inflation. Now go buy the dip……
“IFFC you started cost dollar averaging in around 1989 or so.”
Bingo. Try figuring out your DCA returns if you had started in 1901, 1929 or 1966. You would have had to keep the faith for well over 16 years before seeing gains. IMO, 2000 = 1901, 1929, and/or 1966. Market timing matters, over the long run.
“Market timing matters, over the long run.”
That rule also applies to real estate if you replace the word “timing” with the word “pricing”, and it also applies to stocks.
As Mr. Buffett says: “The price you pay determines your rate of return”.
Me? I was just agreeing with you!
Bill!
I don’t care if you folks claim you can time the market. I seriously doubt it. You’d be multi-billionaires otherwise. I don’t care if you hate DCA. My net worth is what I care about. I only want a 7% ARR.
Speaking of a 7% ARR….
Back in 1999, when all my friends were telling us to invest in Pets.com, etc, we noticed that government “IBONDS” were paying 7% interest.
And, at that time, a person could buy 60K/year of them (so between the two of us, we could do $120K).
A guaranteed 7% interest—with some tax advantages–is by far the best bet when you can get it, and we “maxed out” on these until the interest rates went down to nothing (the current “war on savings”)
Needless to say, this was a very good bet.
I remain a very conservative investor, and have no regrets, and only buy equities with a very slow, regular DCA approach.
You got that right with I-Bonds. We stacked ‘em up when those margins were high in 2000 or thenabouts (is that a word?), and now we’ve got a large, healthy, tax-advantaged, predictable college savings plan for the kids. So long as the education-spending tax advantages of I-bonds don’t get repealed, that is.
That said, I love investing lots of my other spare cash in equities, and I’ve been especially loving put options lately on some previously much-overrated companies with lots of lending risk.
Just follow the bouncing balls, and buy the dips in 2008!
http://www.marketwatch.com/tools/marketsummary/
Can someone please offer comment on this weird AMEX chart?
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=XAX&sid=18343&dist=TQP_chart_date&freq=7&time=3
Flatliner? Dead? />
Here is a chart which is easier to understand. It graphically illustrates the “flight to quality” phenomenon.
http://www.marketwatch.com/tools/quotes/intchart.asp?submitted=true&intflavor=advanced&symb=TNX&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=1&freq=7&startdate=&enddate=&hiddenTrue=&comp=tyx&compidx=aaaaa%7E0&compind=aaaaa%7E0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013
Better TNX/TYX chart (at 1-minute intervals):
http://www.marketwatch.com/tools/quotes/intchart.asp?submitted=true&intflavor=advanced&symb=TNX&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=1&freq=9&startdate=&enddate=&hiddenTrue=&comp=tyx&compidx=aaaaa%7E0&compind=aaaaa%7E0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013
OMG…
SOL — Worse than expected — AGAIN!
BULLETIN U.S. FACTORY-SECTOR GAUGE HAS WEAKEST READING SINCE APRIL 2003
U.S. factory sector contracting in December, ISM says
By Rex Nutting
Last update: 10:04 a.m. EST Jan. 2, 2008
WASHINGTON (MarketWatch) — The U.S. factory sector contracted in December, the Institute for Supply Management reported Wednesday. The ISM index fell to 47.7% from 50.8% in November. Readings under 50% indicate more manufacturing firms were contracting than were growing in December. It’s the lowest reading since April 2003 and the first sub-50 reading since January 2007. Economists expected the index to slide to 50.5%. Seven of 18 industries were expanding in December. The new-orders index fell to 45.7% from 52.6%, and the production index fell to 47.3% from 51.9%.
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B791FAB67%2DEAD7%2D46E8%2DA978%2D29B239209225%7D&siteid=mktw
He Who Must Not Be Named has cast the Imperius Curse on the flight to quality effect seen in T-bond yields…
http://en.wikipedia.org/wiki/Unforgivable_Curses
Here is a dumb reading of the T-bond yield curve’s tea leaves:
- Recession expected for the next two years
- Inflation expected thereafter
http://www.bloomberg.com/markets/rates/index.html
If the DJIA drops through 13,000 and further below, I will gladly retract all statements I have made to date about the Bernanke put, and apologize for my misjudgment.
CBOT futures show a 92% chance of rate cut this month; perhaps that is why gold is poised to go through 850? Oil to 100 this week?
Dollar took a knee to the groin today.
Good morning all. I rang in the new year in the Garden State. I missed out on Chick’s attempt to set me up yesterday. Thanks but no thanks. I love my wife too much to go for some neurotic train-wreck. Even when I was single I would have avoided that one like the plague.
Things in Jersey do not look so good. I won’t go into too many anecdotal details from our friends. It’s too depressing. They are dependent upon building in New Jersey. I kept hearing over and over, “2008 better be better than 2007″. It is ugly out there but denial of reality seems to be in plentiful supply. All of my warnings of 2005 and 2006 went unheeded. 2008 will be brutal in Jersey.
What part of NJ were you in? I am from the southern tip of NJ (originally, now in Palm Beach, FL, where the collapse is plainly visible all around me), and wondered if you were in that area or had anything futher to share about that area. There was a big boom in building outside of Philly, but, honestly, most of the stuff built was pretty cheap to being with (~100/sq/ft for a 3500+ McMansion) so I don’t know how much to expect it to fall.
Anyway, feel free to relate you anecdotes!
Correct me if I’m wrong, but I believe to Manhattanites Union County is considered the southern tip of New Jersey.
Northern Jersey. Exit 27 off of Highway 80.
NYCityBoy,
I used to live off that exit, in Mt. Olive off 206. My mom lives in a retirement/assisted living community in Hackettstown (sold her SFH in Buffalo last year thankfully). My sis is in an exclusive gated community a little to the east; Smoke Rise in Kinnelon. She and BIL think I am the family retard for renting, NJ is fine, too much Stock Market money for it to go down, etc. Granite and stainless in the kitchen, blah blah blah. I suspect I will end up with more equity in my sock drawer than she has in her great investment house.
Wow, I’m off exit 25, you were awfully close!
Yeah, things are getting a lot worse here, especially with the cr*ppy holiday sales and cold weather/oil bills. The area is bubblicious, but it’s “different here”, so people are slower to lower their price and nothing is moving. OTOH, I know remodelers who claim to be backed up for months, so there are still wealthy people who have money
I lived off of exit 35 on I-80 in 2002 there in New Jersey.
And from a bubble perspective, Jersey was rather off the radar. I can’t imagine the brutality to come in places like Tucson. They’ll be bulldozing homes just to keep undocumented guests and meth dealers from squatting (who needs a construction job when you can live rent-free and keep the welfare checks coming in.) Not that it would take much force to knock these boxes down anyway.
Hmmm - I’m short CAT, on the premise that construction will continue to decline - done well too. Maybe there will be a big demand for bulldozers in the near future - I’d better cover :).
As Cat’s products are used worldwide in mining, agribusiness, and power generation, they aren’t completely dependent on the construction market. There are better short positions out there from which to capitalize on the housing bust, I think.
Bridge/highway/municipal construction is absolutely roaring in the northeast with no end in sight.
The end will be in sight when the funds are cut off by severe recession. It’s happening here in NoVA - many highway projects are funded in large part by residential and commercial development, with many now being put on hold. Existing projects, including ones starting now, are ongoing since there’s a very long lead time (3-5 years), but I think will be tapering off quickly soon, and IMO that will be seen nationwide, and worldwide, over the next few years.
Pman…. Do I dare say it’s different in the northeast?
Very little if any of the B&H and municipal construction is new service. It’s all retrofits, technology upgrades in the case of wastewater and water, and black paint jobs in the case of highway. Right now I’m building a job that only replaces 100 year old facilities if you can believe it. Based on designs that I know are in the pipeline but not yet on the street, big construction in the northeast won’t fall off for at least 2-3 years.
Commercial/non-heavy construction I cannot say nor do I care about. Mostly fly by night crews and scab labor.
I would say that there’s two primary components - there’s definitely a stable base of municipal retrofit / maintenance construction as you mention that will be relatively recession-proof. There’s also an “add-on” component of construction driven by flight to the ‘burbs - that component boomed along with the housing market (and IMO pulled CAT’s stock price with it - up 300% since 2003 and 1000% since 1992) and will be drastically shrinking in about 2-3 years. That latter component is much more prevalent in the south, and in CA, and other places around the U.S. and not so much in the NE corridor, it seems.
Friends from Maryland are telling me they just got socked yesterday with new taxes (+1% sales tax, +$1 cigarette tax, plus more) and that much of the money is supposed to go for tranisit projects. They’re hoping for more road construction. I dunno, I wonder how much is headed to other things instead. I haven’t looked at their budget proposal details for those new taxes, but it’s possible the road building will continue there anyway. I see they just started the probably-multi-billion dollar ICC across Montgomery and PG counties.
Brutality’s already happening in Tucson. The ringing in of the New Year was punctuated with numerous gunshots, including one that wounded a five-year-old.
The local paper’s comments section is full of venting about this incident, and all I can say is that if the Tucson Police Department is reading the online Arizona Daily Star, they’ll get plenty of tips about stupid New Year’s shooters.
http://www.denverpost.com/ci_7856697
A woman and an 11-year-old girl in the same house were killed by probable celebratory gunfire on New Year’s in Denver. Another Third-World tradition we can do without.
“2008 better be better than 2007″
In other words, capitulation to be evident in 08. Bring it on.
RE: Things in Jersey do not look so good. I won’t go into too many anecdotal details from our friends. It’s too depressing. They are dependent upon building in New Jersey.
Builder’s, remodelers, RE crowd singin’ the blues in the gym this morning.
Philosophically and intellectually these people are a long ways away from the informed group here on Ben’s blog.
However, from the tone of the discussions you can sense an emerging panic.
In the Land of Many Ifs
http://www.nytimes.com/2008/01/02/business/02econ.html?_r=1&th&emc=th&oref=slogin
“If banks go into hibernation and there’s no cash for anybody, then it’s very hard to get the economy to grow with any vigor.”
In the olden days we used to refer to NCNB (remember them?) as “No Cash For Nobody”
Chateau d’if
http://en.wikipedia.org/wiki/Ch%C3%A2teau_d‘If
(formerly American Dream)
Forecasting the demise of consumer spending, however, is notoriously risky. The willingness of Americans to spend, whatever the size of their debts, seems to transcend the rules of economics.
I wholly agree with this statement. Americans will continue to spend no matter what. If they can’t take out a HELOC, then they will use their credit cards, skip paying the utility bills, or perhaps refinace their cars.
Problem with that thinking is the assumption companies will continue to lend. Lenders are puckering pretty tightly these days and it’s only getting more puckery.
I thought so, but I heard this on New Year’s: “I just bought a house. I probably could have got it cheaper if I’d waited until now, but I think it’s fine. This is Portland…It’s not going to go down”. “What type of loan did you get? An 80-20 so you wouldn’t have to pay mortgage insurance?” “I really don’t know what kind of loan we got. It wasn’t that, though, I think it was something where they just rolled all the closing costs into the a giant loan or something”.
So clearly loans haven’t tightened up around here.
How the fark can he not know what kind of loan he got? This is an art teacher in a poor part of town. It seems unlikely he can really afford whatever it is he bought. Time will tell if Portland is “different”.
You may be right. I have some professional friends from former Soviet bloc and they reminded me that they left there to have the good life and spend like there is no tomorrow. BMW, ocean beach house , golf club house. They are up to their eyes in debt. To each his own.
“In the Land of Many Ifs…”
“If ifs and buts were beer and nuts, we’d all have a hell of a party!” — Unknown
An Ottoman warning for indebted America
http://tinyurl.com/ypbg8x
In other words, as in the 1870s the balance of financial power is shifting. Then, the move was from the ancient oriental empires (not only the Ottoman but also the Persian and Chinese) to western Europe. Today the shift is from the US – and other western financial centres – to the autocracies of the Middle East and east Asia.
Kuwaiti fund eyes US subprime bargains
http://tinyurl.com/3xmtu9
Mr Al-Sa’ad said he intended to speed up decision-making at the KIA to take advantage of the opportunities thrown up by the crisis. “With Citi, the Abu Dhabi Investment Authority had good timing,” he said, noting that it took ADIA less than three weeks to seal its late November deal to invest $7.5bn in convertible securities in Citigroup. “I believe we need to move faster in some of our response time.”
How’s that saying go; “Those who don’t learn from history will be condemned to repeat it.”
“With Citi, the Abu Dhabi Investment Authority had good timing,”
Too soon to tell or a really big loss of money?
“The only thing men learn from history is that men don’t learn from history.”
Bear,
Aren’t quite a few of those realtors in Sedona hawking the time share places which were legion the last time we were up there. I would think these would be the first type of place people would default on and/or just not spend the bucks to go to Sedona.. They sure brought a big crowd of people to vacation the last 5 + years.
desertfox
900 realtors. That blows my mind. Sounds like a good place for an ebola breakout.
The timeshare folk are really not traditional realtors, but the numbers may be combined. Unfortunately the corporate TS mob is calling the shots, one reason that almost no one is happy about how the place was developed.
And yes, TS’s are thin ice for an economy, IMO. Especially one as isolated as Sedona.
We stopped going to Sedona two years ago. The TS did away with a great deal of the charm of the place. Crowds and awful traffic just about all year.Much of which i associate with the TS which seemed to have sprung up on most cornors.
I’m glad I was there when I went before things got totally nuts there (sept 2002)…or were at least on there way from wacky to certifiably insane… Certainly a beautiful place, but I don’t think I could live there!
down in norway:
New numbers from the Norwegian real estate brokers association (Norges Eiendomsmeglerforbund) left even normally bullish real estate agents forced to admit that housing prices are falling after years of a hot market.
The new numbers showed a 1.7 percent drop in average sales prices from November to December.
http://www.aftenposten.no/english/business/article2174447.ece
‘expert’ predictions;
LONDON (Reuters) - Signs have been mounting of a slowdown in the property market, so what are the prospects for 2008?
A total 1.4 million people will see their fixed rate mortgage deal end in the early part of the year, and each will be forced to pay an average of 200 pounds per month more to meet the cost of servicing their home loans.
http://uk.reuters.com/article/personalFinanceNews/idUKCAS94341120080102
I was amazed that UK prices rebounded from 04
this may be the end
Doesn’t sound much like a fixed rate mortgage to me . . .
My understanding is that they don’t have what we know as fixed rate mortgages over there.
housing slump weigs on builders:
Miguel Hinojosa and his four brothers have kept their jobs on a local painting and remodeling crew despite a nationwide slowdown in the construction industry.
But Hinojosa said there’s only six or seven hours of work per day, compared to 10 or 12 hours two years ago.
The work nowadays has declined a lot,” said Hinojosa, a 37-year-old from Mazatlan on Mexico’s Pacific coast.
http://tinyurl.com/2by5nj
From the article:
“Right now, what I wouldn’t give to leave here and go to Mexico,” he said in Spanish. “But my situation in Mexico is very complicated.”
Wow!
This is not surprising. Most illegals are only here for the money.
Also, “is very complicated” is a figure of speech in Mexico. What he no doubts means is that he couldn’t provide for his family if he worked in Mexico, so he has to stay here. It is a face saving way of saying that he can’t go back.
http://www.latimes.com/news/local/la-me-converters2jan02,1,7664456.story?coll=la-headlines-california
Happy new year everybody. What better what to start the new years off by yet another growing criminal racket, this time thieves stealing catalytic converters from parked vehicles for their platinum content. Fav targets are hi clearance SUV’s and toyota pickups.
Possible new hot 2008 business venture here: ownership Interest in a Compton/Gardena junkyard or scrapmetals dealers. Big volume upticks in 2008 for ‘recycled’ hot car parts or dismantled/stripped home & business energy fixtures for their PM value.
A few years ago in the city of angles, small-time hoods were cutting off the heads of parking meters, for the bounty within.
They now deal in precious metals…
That was just Paul at it again.
http://www.kitco.com/charts/liveplatinum.html
Platinum hit $1544 today - a five-year high. Gas cars can substitute palladium, which is much cheaper - around $360 - but diesels require platinum. I think there’s about an oz of platinum in each catalytic converter, so there’s going to be a bunch of very pissed-off diesel owners once this trend explodes in 2008, which it’s going to given the ease of the theft.
(Scroll down to see the historical price charts)
Rest assured it is the illegal aliens participating in this…with construction drying up they must still send their “remittance” back! I predict things to get ugly here in the LA area before this ends.
How long can a clock remain stuck before it shows correct time?
Some stock market analysts say the market’s luck will run out in 2008, as the economy is dragged down by a rise in home foreclosures and write-downs related to mortgage securities by Wall Street’s biggest financial institutions.
“People want to believe that things are going to be all right in 2008, but I don’t think they comprehend the full magnitude of the problem,” said Jim Welsh, head of Welsh Money Management in Carlsbad.
“In the past, the banking system’s ability to function was not impaired, which allowed the market to recover (from downturns),” he said. “This time, the banking system is at the center of the problem.”
The Vanguard Group’s retired founder John Bogle said there is a 75 percent chance of a recession this year. Bill Gross, founder of the Pimco bond investment firm, recently told The Financial Times that he believes the economy may have already entered a recession that will last through April or May.
http://www.signonsandiego.com/uniontrib/20080102/news_1b2markets.html
Stoopid question. When you see the report of retail sales up 2.13% over the previous year-is that number adjusted for inflation?
Time to buy the dip on Asian bourses?
Asian shares start 2008 on a gloomy note
By Andrew Wood in Hong Kong
Published: January 2 2008 03:24 | Last updated: January 2 2008 10:07
Shares in Asia started 2008 on a gloomy note as an unexpected contraction in Singapore’s economy and a downgrade in South Korea’s growth forecast stoked concerns that the region might be feeling the first effects of a US downturn.
http://www.ft.com/cms/s/dc081976-b8e0-11dc-893b-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fdc081976-b8e0-11dc-893b-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
I find this analysis to be cogent, though I believe it is rather early to be predicting the severity of the solvency crisis at this stage.
Prepare for a global economic downturn but not a disaster
By Wolfgang Munchau
Published: January 2 2008 02:00 | Last updated: January 2 2008 02:00
North America remains the global economy’s hub. Any assessment of the world economy in 2008 depends on the likelihood, depth and length of a US economic downturn and the magnitude of a global spillover. Any forecast is thus contingent on how we answer the following three questions. Will the financial crisis continue in 2008? Will inflation expectations rise further? Last, will there be a disorderly process of global rebalancing? If we answer all three questions with Yes, we should prepare for a global depression. If the answer is No, the world economy will have another good year. There are many intermediate scenarios as well.
I would answer the first question with an unqualified Yes. The financial crisis will probably linger on for most of the year and may get worse before it gets better. This is not really a “subprime” or “credit” crisis, as it is frequently called. This is a banking crisis. Economic history has taught us time and again that banking crises do not simply go away.
…
The second risk is inflation - for two reasons. First, persistent high inflation could destabilise global government bond markets, a rare pillar of stability in an uncertain financial environment. Second, high inflation places constraints on monetary policy. This in turn could make the downturn harder and longer, and the banking crisis more severe. The problem for central banks is not the rise in headline inflation rates, but the rise in inflationary expectations. A sharp economic downturn would almost inevitably reduce headline inflation rates, owing to lower oil and food prices. But it would not necessarily reduce expectations of future inflation.
…
The third risk is a disorderly unwinding of global imbalances, in particular a collapse in the exchange rate of the dollar against the euro and the yen. That could occur if central banks in Asia, Russia and the Middle East were to shift reserve assets out of dollars on a large scale. On this score, I am more optimistic.
…
Taken together, I would expect the credit crisis to get worse before it gets better, that persistently high inflationary expectations will place constraints on central banks and that there will be no dollar crisis.
This hypothetical scenario would almost certainly produce a serious slowdown in US economic growth and quite possibly a recession.
What about the rest of the world? Can it decouple? The answer is No.
…
The bottom line is that this year marks the start of an asymmetric global economic downturn that is likely to persist for some time and will probably be quite unpleasant, but which will be well short of catastrophic.
http://www.ft.com/cms/s/0/9fff6f8a-b8d4-11dc-893b-0000779fd2ac.html
(Hint: Google “Prepare for a global economic downturn but not a disaster”)
Visited Sedona this Christmas and climbed Cathedral Rock - amazing place. Didn’t get up to Flagstaff as intended but did spend a lot of time in Scottsdale. Here is my brief Scottsdale report:
Toll Brothers have several “developments” going on. Next to the JW Marriott they are building “Toscana”, alledgedly high-end luxury condos. They look awful from the outside (wife and I did not go in), seem very small and plain.
Toll has three developments on North Scottsdale Road (going out towards The Boulders where we were staying). Each place looked the same. We drove around the site on the corner of Scottsdale Road and Dixileta. Big houses, sign said start at $1.2MM. About 20 homes in total, maybe three were occupied, the rest were in various states of development. Looked nice, but amazingly for Scottsdale, none of them had swimming pools. Wife and I could not believe this.
Overall, actual construction seemed slow, maybe it was just the fact it was the holidays. I get the feeling the though that these places are not selling. Very little sales office activity and no looky-loos except for us. Would like to buy in Scottsdae/Flagstaff one day but no hurry at all. I do not see how Toll are going to move these “luxury” homes at over $1MM. They are in big trouble in Scottsdale I think. Also, a couple of Pulte developments we never stopped at. Very disappointed at the amount of construction ongoing in Scottsdale - still very active everywhere. I hope to buy in this area in 2 years. Maybe I can pick up one of these $1MM houses for $400K then!!
Not sure if this may have been posted the other day but - FAR stats came out for Florida on Monday. Florida sales count for November (8,106) was the lowest of any November on record, since stats started in 1993.
http://media.living.net/statistics/statisticsfull.htm
Median price continues to plummet as well - down 16.3% from the June ‘06 peak now. Ouch.
demand for US assets waned:
IMF External Relations Department
Morning Press
Wednesday, January 2, 2008
The U.S. dollar’s share of global foreign-exchange reserves fell to a record low in the third quarter as demand for U.S. assets waned after the subprime-mortgage market collapsed, IHT reported Saturday. The dollar accounted for 63.8% of reserves at the end of September, down from 65% three months earlier, the IMF said Friday. The euro’s share rose to 26.4% from 25.5%. IMF quarterly figures go back to 1999, the year the euro was introduced. The figures suggest central banks diversified out of the dollar as it fell to the lowest level in a decade. ”The dollar seems to be losing, at least to some small extent, its favored status,” said David Powell, a currency strategist at IDEAglobal in New York.
Well it’s Jan 2nd, let the LISTING SEASON begin. What’s the guess on the percentage of increase in the number of houses on the market by the end of “08?
…let the LISTING SEASON begin
You supposed to wait until after the super bowl to say that.
This morning NPR had a story about how federal funding for local food banks has stopped. San Francisco food banks and “soup kitchens” are having to shut down.
I just need to rant! How can the government afford to give massive tax breaks to deadbeat specuvestors (i.e., not charging income tax on forgiven debt) when they don’t have the money to fund food banks and soup kitchens.
or spend obscene amounts of money in Iraq
Hear hear!
…when they don’t have the money to fund food banks and soup kitchens.
How about 3 trillion dollars to blow up Iraqis who didn’t have any WMDs or fault in 9-11?
I saw the title of an article which said that Saddam was better at feeding the Iraqis than the US is.
There is NO WAY the Iraq war has cost $3 trillion. Best estimates are in the $500 billion to $600 billion range for both Iraq and Afghanistan. That isn’t chump change, but it is WELL short of $3 trillion.
I think the 2 to 3 trillion quote includes estimates for rebuilding the military and taking care of the wounded over the next decade or two.
The true cost of the war should also include the increase in gas and oil. Oil production was taken off line and the military consumes massive amounts of fuel each day.
How can the government afford to give massive tax breaks to deadbeat specuvestors (i.e., not charging income tax on forgiven debt) when they don’t have the money to fund food banks and soup kitchens.
Your issue is one of ideology - i.e., what the federal government should tax and what it should spend on - not the government’s financial wherewithall.
Your issue is one of ideology - i.e., what the federal government should tax and what it should spend on - not the government’s financial wherewithall.
Not quite. Announcing a new–very substantial–tax break for people who tried to “get rich quick” is distasteful when the government is struggling to make ends meet.
I’m not saying what the government should spend money on per se, I’m just thinking that we shouldn’t be showering shady specuvestors with cash gifts–in the form of tax breaks–that can be worth 40K or more–when we can’t make ends meet.
(I agree with your opinion on giving tax breaks to FBs and cutting off spending for soup kitchens.) I was just saying that if the reason for your anger is purely that the government is overextended, then in addition to disliking the tax cut for FBs, you should cheer the cutbacks in funding for the soup kitchens as a matter of a conservative fiscal policy.
The answer: the government is taking a shortcut!
No soup for you!
U.S. Manufacturing Contracted in December, ISM Says
Jan. 2 (Bloomberg) — Manufacturing in the U.S. unexpectedly contracted in December as new orders dropped, showing the housing recession was spreading into other parts of the economy at the end of 2007.
The Institute for Supply Management’s manufacturing index dropped to 47.7, the lowest reading since April 2003, from 50.8 the prior month, the Tempe, Arizona-based group said today. Fifty is the dividing line between contraction and expansion.
Manufacturing is near stalling as the housing recession extends beyond building-related industries to affect credit standards and consumer and business spending plans. Slower factory production and company spending will weigh on economic growth.
“We’re getting down to that area where manufacturing is at best flat and is maybe even starting to decline,” said David Wyss, senior economist at Standard & Poor’s in New York. “We face the possibility that the first part of next year could turn into recession.”
Oh, here’s another belated prediction for 2008…
MSM writers will learn to instinctively insert the word “unexpectedly” into the first sentence of every financial/economic story.
US stocks fall as manufacturing contracts
By Chris Bryant in New York
Published: January 2 2008 13:58 | Last updated: January 2 2008 17:39
Wall Street stocks fell on Wednesday after an index of manufacturing contracted last month to its lowest level since April 2003, raising fears that the US economy is slowing more than expected.
http://www.ft.com/cms/s/222d0910-b932-11dc-bb66-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F222d0910-b932-11dc-bb66-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
These numbers are still optomistic as they include things like utility production in the manufacturing numbers. I’m not sure if farming is included, if so these numbers are horrible.
National City to Trim Dividend by 49%, Cut 900 Jobs
Jan. 2 (Bloomberg) — National City Corp., Ohio’s largest bank, will reduce its quarterly dividend by 49 percent and cut 900 more jobs as it stops making home loans through third parties.
The lender has cut its staffing by 3,400 positions in the past year, including the reductions announced today, as the real estate market slumps. National City will continue making home loans through its own staff, the bank said.
The housing market “requires aggressive steps to overcome the near-term challenges,” Chief Executive Peter Raskind said in a statement today. “It is clear that origination volumes will be lower going forward, and we are configuring our mortgage business to operate profitably.”
Here’s a Great article by one of my heroes, Jared Diamond…
“To mathematicians, 32 is an interesting number: it’s 2 raised to the fifth power, 2 times 2 times 2 times 2 times 2. To economists, 32 is even more special, because it measures the difference in lifestyles between the first world and the developing world. The average rates at which people consume resources like oil and metals, and produce wastes like plastics and greenhouse gases, are about 32 times higher in North America, Western Europe, Japan and Australia than they are in the developing world. That factor of 32 has big consequences.”
“To understand them, consider our concern with world population. Today, there are more than 6.5 billion people, and that number may grow to around 9 billion within this half-century. Several decades ago, many people considered rising population to be the main challenge facing humanity. Now we realize that it matters only insofar as people consume and produce.”
http://www.nytimes.com/2008/01/02/opinion/02diamond.html?ex=1356930000&en=07a742d70360f175&ei=5124&partner=permalink&exprod=permalink
This is for Stucco. Ben, feel free to remove this if you feel it goes too far off topic.
http://www.michaelmoore.com/words/message/index.php?id=220
Who’d of thunk MM would implicitly endorse RP?
On second thought, would you even be willing to utter the words, “I absolutely believe to my soul that this corporate greed and corporate power has an ironclad hold on our democracy?” ‘Cause the candidate who understands that, and who sees it as the root of all evil — including the root of global warming — is the President who may lead us to a place of sanity, justice and peace.
I wondered if you would come to that conclusion but of course he won’t overtly do that.
Well, this is too much down for the first trading day of the year. I hate to spend the money but have to hedge the puts here.
More OT stuff…
ELECTION NOTEBOOK
Obama leads Clinton on eve of Iowa caucuses: poll
Huckabee maintains lead over Romney one night before key contests
By Robert Schroeder, MarketWatch
Last update: 8:58 a.m. EST Jan. 2, 2008
WASHINGTON (MarketWatch) — It’s looking like it could be a happy New Year for Barack Obama: The Illinois senator is leading closest rival Hillary Clinton in a new poll with just one day to go before the critical Iowa caucuses.
http://www.marketwatch.com/news/story/obama-huckabee-hold-leads-eve/story.aspx?guid=%7B76DF0657%2D1DC4%2D4DDD%2D8644%2DCE4478824625%7D&dist=TNMostRead
Every number from now on will be a new record, for mellow yellow.
We have commodities liftoff, but intra-day high for gold is 900. Give it a week.
Gold and oil break new records
By Chris Flood and Javier Blas in London
Published: January 2 2008 12:15 | Last updated: January 2 2008 17:21
Gold rose above $850 becoming the first commodity to reach a new record on the first session of new year, followed by oil which sprinted past the $100 level, also setting a record.
Gold pushed to $859.30 a troy ounce on Wednesday, helped by renewed US dollar weakness after the influential ISM manufacturing survey indicated that activity contracted in December, fuelling fears that weakness in the housing market is spreading into the wider economy.
http://www.ft.com/cms/s/89da5850-b929-11dc-bb66-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F89da5850-b929-11dc-bb66-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Just got off the phone with one of the bigger dealers in physical precious metals, in Los Angeles…
With Gold @ record levels, there are more buyers than sellers.
Silver is a different story, as he said it was nothing but sellers today, perhaps triggered by it getting over $15 per oz.?
Here’s words from ’ssshrubery’s ex-speechwriter, attacking Gold…
http://frum.nationalreview.com/post/?q=NWQyYjc1ZjNjZTc5ZTcxODM1NDQ5ZDhhODZjZTU5YmQ
The powers that be, must be terrified of Gold’s honesty…
Reuven - I agree with your statement 100%. I say tax the H&LL out of those deadbeat specuvestors. Let the really poor eat at the food banks and soup kitchens.
http://www.dallasnews.com/sharedcontent/dws/bus/stories/010208dnbusiqmain.9d92.html
United States For Sale
http://www.stockmania.com/index.php?showimage=124
Wheel of Misfortune
The NYT keeps running those RE articles about foreigners snapping up apartments. I don’t believe them. So, don’t worry too much??
Every silver cloud has a dark lining.
ECONOMIC REPORT
U.S. construction spending hits two-month high
Up a surprising 0.1%; November outlays for building new homes stay weak
By Robert Schroeder, MarketWatch
Last update: 10:48 a.m. EST Jan. 2, 2008
WASHINGTON (MarketWatch) — Spending on U.S. construction projects hit a two-month high in November, rising by 0.1% on strong outlays for public, state and local construction projects, the Commerce Department reported Wednesday.
Spending on home construction, meanwhile, continued its slide, falling by 2.5% in November following a drop of 2.3% in October. It’s the 21st consecutive decline.
http://www.marketwatch.com/news/story/us-construction-spending-hits-two-month/story.aspx?guid=%7B0244DBAE%2D5E79%2D4F4F%2D86DC%2DEAB932DE2B9A%7D
Now and Yen:
https://image.minyanville.com/assets/FCK_Aug2007/File/Links%20Charts%203/image001.jpg
A buddy of mine is thinking about selling his lagoon-front, bayside NJ vacation home next year, as he bought it in 2005 and he’s sensing that prices have come down to at least the level at which he bought it, and he’s afraid they’re going lower. His alternate fear, however, is that if he sells, things aren’t going to drop as much as anticipated, and he’ll have gotten rid of a great vacation property that he will not be able to afford in the future. My gut reaction was to tell him to sell it if he could and cut his losses; but since his original plan was to hold the property for 15+ years, I wasn’t sure that such advice would be wise. THoughts?
What’s his financial condition? Can he afford it come hell or high water? If he can, and he isn’t worried about his job, why sell it.
He can afford it, but he’s one of those guys who’s always worrying about losing his job.
Maybe he ought to put it with one of those vacation brokers and rent it out part time. Split the baby.
I have a condo in Vegas (yes I know there are a lot of Vegas bashers) I own it free and clear, but I also rent it out furnished via a vacation rental. It rents on average 8 months out of the year and I get to use it the other 4. The rent covers what an unfurnished place would for the year. I love the place and had an offer for way too much and thought about selling it in late 05. I decided the break it gave my family from the daily life was more important. We spend very good family time there. It has a pool with waterfall, day hikes to Red Rock, walk up and down the walking trails around our complex, and then at night we have a baby sitter and can go to the shows and eat at nice restaurants. I ran the numbers and since it paid for itself the quality time for the family meant more then the extraordinary profit (80% in 4 years) it would have generated. I stated it before, a long time ago on this blog. If I were more greedy I would have sold. For me it has been a win win!!
one of those guys always worried about losing job + successful shore home ownership = does not compute.
The folks I know who thoroughly enjoyed their shore home were masters of their own domain, IOW, self-employed. And they used their beach house, as well as the boat. No worries about ever being able to afford the vacation home, or the gas money required for the weekly trips down, not to mention the higher food costs associated with feeding and entertaining the whole world once they discover you have a shore home.
It’s obvious that his original plan to hold for 15+ years was predicated on the value continuing to increase. Thus he has no original plan. If the price goes down much he blows everything financially - that is clear from the tenor of what you report. His ONLY ratioinal option is to get a plan together to get that thing sold - put it on the market in March at a competitive price.
And he will - put it on the market, but not at a price that will sell. And he will - end up in the situation he just now is sensing could come to pass.
WASHINGTON, Jan 2 (Reuters) - Bear Stearns Cos Inc (BSC.N: Quote, Profile, Research) Director Paul Novelly disclosed on Wednesday that he recently sold 50,000 shares on the open market through his investment vehicle St. Albans Global Management LLLP.
Golden parachutes must never be packed in a hurry…
The lines tend to tangle.
calling Jas Jain:
SAN FRANCISCO (MarketWatch) — Crude-oil futures surged more than $4 a barrel and hit $100 on Wednesday on expectations U.S. crude inventories fell for a seventh consecutive week and concerns violence in Nigeria may cut output from Africa’s biggest oil producer.
Crude for February delivery rallied $4.02 to $100 a barrel on the New York Mercantile Exchange in early afternoon trading. It was last up $3.52, or 3.7%, at $99.5 a barrel.
–
I believe that we have had a commodities bubble for the past two years and it is global just like the housing bubble. Fed’s easy money policy is now directly leading to high prices for gold and oil as a result of weakening dollar.
This bubble will be burst by demand, just like the housing bubble. We shall find out within 9 months (by 2008Q3 has been my forecast for demand-driven commodities bubble burst).
Jas
I posted this right after Christmas, but it deserves a repost…VERY funny.
For those that haven’t seen the CDO/SIV/Hedge Fund parody of Dr. Suess’s “Green Eggs and Ham” making the email rounds (warning: PDF):
http://online.wsj.com/public/resources/documents/brokerjoe_2008.pdf
Excerpts:
“…I will not sell it here or there
I will not sell it anywhere
I do not like your CDO
I do not like it, Broker Joe
Our SIV has had a few rough knocks
Get in now, you sly old fox!
I am slyer than a fox
And I don’t think you have the docs
That you must have if you foreclose
And so a judge will thumb his nose
At you, your SIV, and CDO
Who owns the mortgage?
I don’t know
And you don’t either, Broker Joe
I would not know it here or there
I would not know it anywhere
I will not buy your CDO
I will not buy it, Broker Joe!”
We have some hedge funds who are long
Those guys are smart! They can’t be wrong!
Some funds are long and some are not
The ones who are, are feeling caught
The short ones make a lot of sense
And they are up lots of percents
No SIV, no yen
Not now, not then
Not here, not there
I would not touch it anywhere
I will not buy your CDO
I will not buy it, Broker Joe!…”
Awesome! Thank you for posting that.
The optimism in Humboldt in unshakable.
Just listed Single Family Home - $ 489,900 in Honeydew, built 1950.
Sale history:
01/23/2006: $250,000
10/28/2003: $235,000
07/18/2001: $125,000
What a boring first day of 2008 — yawn…
1:25Merrill may cut about 1,600 jobs, CNBC reports
1:13[MER] Merrill expected to take $10 bln in added writeoffs: CNBC
1:12[MER] Merrill Lynch layoffs likely in fixed income dept.: CNBC
1:11[MER] Merrill Lynch to begin layoffs ‘as soon as tomorrow’: CNBC
1:11Futures Movers: Crude hits $100 on supply concerns, Nigeria violence
In Nigeria, bands of armed men invaded Port Harcourt, the center of the oil industry Tuesday, attacking two police stations and raiding the lobby of a major hotel. Four policemen, three civilians and six attackers were killed. The Niger Delta Vigilante Movement claimed responsibility for the attack.
“Although the violence has not impacted oil flow out of the country, it has reignited supply concerns as militant attacks have reduced Nigeria’s crude output by roughly 20% since 2006,” said John Gerdes, an analyst at SunTrust Robinson Humphrey in a research note. Nigeria is Africa’s largest oil producer.
Separately, the Organization of Petroleum Exporting Countries said its member nations may not be able to meet demand as early as 2024…
This reminds me a lot of the first trading day of 2000. Don’t forget, the high was made for that year in March.
Spot gold just closed at an all-time high! Wheat was limit up too. Yeah, deflation any day now, sure…
All signs currently point to stagflation in 2008.
I have to admit I don’t quite understand why the economy has to be either deflation or inflationary. It quite easily seems that it could be both a totally crappy combo of both.
Dollar fear sparks rush to oil and gold
By Javier Blas in London and Michael Mackenzie in New York
Published: January 2 2008 19:00 | Last updated: January 2 2008 19:34
Crude oil prices briefly hit the psychologically important $100-a-barrel level and gold prices jumped to an all-time high as investors on Wednesday poured money into commodities following deepening fears about the weakness of US dollar.
The oil price rally soured the first stock trading day of the year, with the S&P 500 down at midday by 1.4 per cent.
http://www.ft.com/cms/s/a220ffc4-b963-11dc-bb66-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fa220ffc4-b963-11dc-bb66-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
This news should cheer those betting on higher-than-expected future inflation…
Fed Sees Potential for More Cuts, According to December Minutes
By Brian Blackstone
Word Count: 387
WASHINGTON — U.S. Federal Reserve policymakers recognized at last month’s meeting that their third-straight reduction in the Fed’s key lending rate might not be the last of the cycle amid continued erosion in credit and housing markets that has crept into consumer spending.
Some Fed members even saw the risk of a vicious cycle pulling down both financial markets and the economy that may require “substantial further easing of policy.”
http://online.wsj.com/article/SB119929673404762575.html?mod=hpp_us_whats_news
CBOT and Treasury yield curve currently price rate cut probability at 95-100%. The question is how big a cut?
January 02, 2008
December May Wipe Out US Car Company Progress, Cast Shadow On 2008
It looks like December will be another ghastly month for US car companies. Based on a survey of auto analysts by Bloomberg, units moved by the old “Big Three” could drop 7% or so in the last month of the year. That would bring total vehicle sales in the American market to 16.1 million for 2007, the worst year since 1998.
http://www.247wallst.com/2008/01/december-may-wi.html
Ever since 1955, the policy of U.S. auto makers has been to build absurd cars, then ram them down everyone`s throat with absurd advertising.
Housing Bubble Casualty: 4,000 grapevines for a vineyard.
http://www.novabubblefallout.com (from Northern Virginia)
“In yet another sign of abysmal times for the residential housing market, Centex Homes has abandoned plans for a high-end, seniors-only community along Warrenton’s southwestern edge. Two weeks ago, the Dallas, Texas-based company terminated its contract to buy 370 acres. . .Last spring, Pearmund planted 4,000 grapevines along the ridgeline that overlooks U.S. 29. His plan ultimately called for 40,000 vines . . . Pearmund wants to continue to maintain the vines for two or three years, with the hope that the housing market will rebound and a developer with deep pockets will pick up where Centex left off.”
Short sale in Inverness, IL .. $1.1M mortgage, short sale $630K.. ugly
http://chicago.craigslist.org/chc/rfs/526033652.html
that’s rough…do you know the address? Inverness is a nice community to live in
Hint to FOMC: Don’t be surprised if credit solvency problems still linger by the time of your next meeting.
2:02Little opposition to quarter-point cut in Dec., FOMC minutes
2:01Poole voted against European swap facility
2:01FOMC surprised by worsening of credit markets in Dec.
2:01Little opposition to quarter-point cut in Dec., FOMC minutes
http://www.marketwatch.com/
Credit crunch seen keeping financial M&A strong
‘Darwinian economics’ predicted to mean big changes in financial services
By Alistair Barr, MarketWatch
Last update: 2:04 p.m. EST Jan. 2, 2008
…
“Credit crunches are always painful, expose unexpected pitfalls, and are rarely short lived,” said James Freeman, the firm’s founder and chief executive, in a statement. “As 2007’s subprime upheaval migrates into the corporate credit markets in 2008, we believe major opportunities will arise for established, well-financed firms to consolidate their leadership position.”
“Darwinian economics, as against the rising-tide environment we have experienced for the last five years, should bring major changes in the strategy for the financial-services industry,” he added.
http://www.marketwatch.com/news/story/credit-crunch-seen-keeping-financial-services/story.aspx?guid=%7BE18F8553%2D0952%2D4638%2DADA8%2D680B3329A2AD%7D&dist=sp_inthis
Comment by Desertfox:
“We stopped going to Sedona two years ago. The TS did away with a great deal of the charm of the place. Crowds and awful traffic just about all year.”
One big topic around Sedona these days is the investors and/or multi property owners doing short term rentals. Many of the permanent residents have got sick and tired of out-of-town vacationers whooping it up with their friends till 2 a.m. That and picking up the empty beer cans and wine bottles that migrate into their properties. Sedona is like many enclaves of the “haves” - now that I got mine, lets close the door to anyone who wants there’s who came after me.
I contacted someone who advertised a short term rental (nice house from the looks of it). His listed three different prices (for daily, monthly, weekly). Probably because of the European e-mail address that I had used, his price quote for bi-weekly was 14 daily rates, all the while he had advertised for a monthly which was less than two weeks. That was enough Sedona for me for the rest of my life.
How will the stock market do in 2008?
http://forums.wsj.com/viewtopic.php?t=1104
Per CNBS the Dow is having its worst opening day of the year since 1932. Dang, there’s that 1930’s analogy again. Hmmm…
Weird coincidence…
So far in 2008, the stock market is doing worse than expected, at least according to that WSJ online reader poll.
BULLETIN
CRUDE CLOSES AT $99.62, UP NEARLY $4, AFTER HITTING $100 MARK INTRADAY
MARKET SNAPSHOT
U.S. stocks fall as prices of commodities rise
Crude-oil futures hit $100; gold closes at highest level since 1980
By Kate Gibson, MarketWatch
Last update: 3:25 p.m. EST Jan. 2, 2008
NEW YORK (MarketWatch) — U.S. stocks on Wednesday extended the prior session’s losses into 2008, with the Dow poised to record its steepest start-of-a-year drop yet, as spiking commodity prices and a measure of manufacturing activity furthered concerns about the economy.
“As we start off the new year, the first piece of economic data that catches our attention is a disaster, as it shows a slowdown in economic activity; this is no way to start a party,” said Art Hogan, chief market strategist at Jefferies & Co.
http://www.marketwatch.com/news/story/us-stocks-fall-dow-poised/story.aspx?guid=%7B88F7BCAA%2DE6A5%2D435D%2D93FF%2D4C7081510E75%7D&dist=SecMKTW
Bush to Revive Push for Housing Remedy
By John D. McKinnon
Word Count: 774
WASHINGTON — With public sentiment on the economy still sagging, President Bush will make a new push for congressional action to shore up the troubled housing market, a top aide said.
In an impromptu briefing aboard Air Force One as Mr. Bush returned from his Texas ranch, top communications adviser Ed Gillespie told reporters that the president wants Congress to do more to “help make the market more stable.” The administration sees “an opportunity for bipartisan consensus” on a housing initiative, despite the feuding that erupted last year between the Republican White House and the Democratic House and Senate over …
http://online.wsj.com/article/SB119924188289161561.html?mod=hpp_us_whats_news
Another fire of undetermined origin in a downtown San Diego warehouse:
http://tinyurl.com/2t8rde
This is the second in the past few days.
http://tinyurl.com/3xn22v
Note the reader comments on the second story:
“How do you start demolishing a building before they determine what caused it?”
“Cause is still undetermined, but investigators found greasy hand prints on the interior walls…”
investigators found greasy hand prints on the interior walls…”
The Blair Witch did it.
Minutes of last Fed meeting suggest big rate cuts imminent but stock
market is in freefall. how does that work?
The Federal Reserve is certainly trying to do its part to keep the economy afloat with a series of cuts to short-term interest rates. The first in four years came Sept. 18, when the central bank lopped off a half percentage point. The Fed then cut a quarter point Oct. 31 and did so again Dec. 11.
Conventional wisdom has it that the stock market responds positively to rate cuts. (It may be more accurate to say the market doesn’t suffer huge losses while the Fed is cutting.) But this time around, the S&P lost 10 percent of its value after the Oct. 31 cut.
Mr. Stack said that’s happened only two other times – the Great Depression in 1930, and in 2001.
“While falling interest rates can be bullish for the stock market, it is important to remember that this housing downturn is unprecedented,” Mr. Stack said. “We are in uncharted waters.”
http://www.dallasnews.com/sharedcontent/dws/bus/stories/010208dnbusiqmain.9d92.html
“Mr. Stack said that’s happened only two other times – the Great Depression in 1930, and in 2001.”
There’s that “first time something has happened since 1930″ refrence again. Seems to be a pattern here. Hmmm…
fed may cut rates substantially
The dollar is in freefall and the cuts aren’t even saving the stock market. Nobody’s happy and still they cut.
I need some help. If a short sale is approved at a certain amount, what happens when you bid lower?
Dude’s gotta go back to his bank and grovel to get them to approve the buyer’s bid.
I went through this with Countrywide back in Oct/Nov. Whatever price the buyer/seller agree to will still go back to the lender. The lender may modify the price to which the buyer could either accept or not. In my case, Countrywide countered with a price that was a little higher than the original price. This was accepted by the buyer. The whole process was SLOW, about three months from initial agreement to eventual closing.
A lower offer might be accepted depending on what a current appraisal shows and what investors are willing to accept.
Lots of after-hours dips buying…
http://www.marketwatch.com/quotes/quotes.aspx?symb=tol+kbh+len+ctx+dhi+fnm+aapl+goog+bzh+phm+sbux+peet
FYI
The S&P 500 closed December 31, 1999 at a level of 1469 and eight years later on December 31, 2007 closed at a level of 1468.
What’s a mere one point decline among friends?
Are we in a Secular Bear market ?
No, not yet but we’re thinking about it.
“Are we in a Secular Bear market?”
One might answer that by computing inflation-adjusted returns on the S&P 500 since 1999.
“The S&P 500 closed December 31, 1999 at a level of 1469 and eight years later on December 31, 2007 closed at a level of 1468.”
CPI
01-01-2000 168.800
11-01-2007 210.177
http://research.stlouisfed.org/fred2/data/CPIAUCNS.txt
Approximate inflation-adjusted total return on the S&P 500 since 1-1-2000:
((168.800/210.177)^(96/94)*(1468/1469)-1)*100 = -20.1 percent
Gold price 12/31/99 (approx) = $300/oz
12/31/08 (approx) = $800/oz
http://goldprice.org/gold-price-history.html#10_year_gold_price
Real return on gold since 12/31/99 (conservative)
((168.800/210.177)^(96/94)*(800/300)-1)*100 = 113.2 percent
You decide whether we have been in a secular bear market. And while you are at it, just remember that the stock market always goes up, in the long run.
Something tells me the Fed did not get the memo…
The era of easy money is over
By Richard Reich
Published: January 2 2008 18:53 | Last updated: January 2 2008 18:53
According to new polls, the economy is the number one issue for American voters. A million homeowners may lose their homes because of the subprime mortgage crisis and millions more face difficulties getting credit. Energy costs are up, consumer confidence is down. We are poised for recession.
…
The fact is, middle-class families have exhausted the coping mechanisms they have used for more than three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are in fact lower than they were then; the income of a young man in his 30s is now 12 per cent below that of a man his age three decades ago. Yet for years America’s middle class has lived beyond its pay cheque. Middle-class lifestyles have flourished even though median wages have barely budged. That is ending and Americans are beginning to feel the consequences.
The first coping mechanism was moving more women into paid work. The percentage of American working mothers with school-age children has almost doubled since 1970 – from 38 per cent to close to 70 per cent. Some parents are now doing 24-hour shifts, one on child duty while the other works. I call these families Dins – double income, no sex.
But we reached the limit to how many mothers could maintain paying jobs. We turned to a second coping mechanism. The typical American now works two weeks more each year than he or she did 30 years ago. We are veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.
But there is also a limit to how long we can work. As the tide of economic necessity continued to rise, we turned to the third coping mechanism. We began to borrow, big time. With housing prices rising briskly through the 1990s and even faster between 2002 and 2006, we turned our homes into piggy banks through home equity loans. Americans got nearly $250bn worth of home equity every quarter in second mortgages and refinancings. With credit cards raining down like manna from heaven, we bought plasma TV sets, new appliances, vacations. With dollars artificially high because foreigners continued to hold them even as the nation sank deeper into debt, we summoned inexpensive goods and services from the rest of the world.
But this can no longer keep us going, either. The era of easy money is over. With the bursting of the housing bubble, home equity is drying up. Defaults on home equity loans have surged to the highest level this decade. Automotive and credit card debt is next. Personal bankruptcies rose 48 per cent in the first half of 2007, probably even more in the second, which means a wave of defaults on consumer loans. Meanwhile, as foreigners shift out of dollars, we will no longer have access to cheap foreign goods and services.
http://www.ft.com/cms/s/0/a7f69da8-b947-11dc-bb66-0000779fd2ac.html
Jan 3, 2008
THE BEAR’S LAIR
Decade of deception
by Martin Hutchinson
The Japanese public has dubbed 2007 the ”Year of Deception”. Expected Japanese GDP growth for the year has been revised down from 2.1% to 1.3% and the stock market has fallen by 10%. I’ll return to whether the Japanese are right later, but the concept itself appears more generally applicable. There has in recent years been an excessively snake-oil-salesman quality to the policies and promises of politicians, monetary authorities and financial intermediaries.
In the United States for example, the country’s economic policymaking since 1995 has involved not just a ”Year of Deception” but a decade of it. In examining the record, one is tempted to quote Mary McCarthy’s verdict on Lillian Hellman’s autobiography: ”Every word she writes is a lie, including ‘and’ and ‘the.’
http://www.atimes.com/atimes/Global_Economy/JA03Dj03.html
I am astounded at this selloff on day 1 of ‘08. Many times as January goes, so does the rest of the year. I expected a selloff in January but not this much this fast. I’d love to see a real bear market get rolling.
Election years are supposed to be up. You’re right this looks bad, Gold and Oil way up, not a great sign of stability and confidence. Maybe the housing meltdown is just a symptom of much bigger problems? like a War, too much Debt and poor income growth prospects for many US workers.
I think you might get your bear Market wish this year.
great title for a film-Pain Street USA
one of my favorite japanese films is called ‘punishment room’
Pain Street USA: ‘08 housing outlook
The forecast is for a longer, deeper home-price slump than previously expected, with double-digit declines in many markets.
The United States is deep in its worst housing slump since the Great Depression, and according to a new report, it’s not going to get better any time soon.
In a new survey, Moody’s Economy.com says many metro areas will record losses of 20 percent or more during the downturn, with the national median price for single-family homes dropping 13 percent through early 2009. Factoring in discount offers from sellers, the actual price decline would be well over 15 percent.
Eighty of the 381 metro areas covered by the report will record double-digit losses, according to the report. Most of the worst-hit markets are in once high-flying areas, such as California and Florida.
The steep losses were bound to arrive sometime. Throughout the housing slump, which began in the summer of 2006, experts kept expecting prices to tumble, but it wasn’t until recently that they dropped substantially, according to Mark Zandi, chief economist for Moody’s Economy.com.
“There has been a sea change in seller psychology since the subprime shock this summer,” he said. “Sellers now realize they have to drop their prices to make a sale and prices are coming down very rapidly in some markets.”
One such place is Punta Gorda, Fla. In Moody’s outlook, prices there will undergo the steepest correction of any U.S. market. From their peak during the first three months of 2006, to their bottom, forecast for the second quarter of 2009, prices will decline 35.3 percent. That’s in nominal dollars; adjusted for inflation, the loss will be even greater.
http://tinyurl.com/3xoaqu
January 1, 2008 at 16:08:03
2008–The Year They Killed the Golden Goose
by M. Davis Page 1 of 2 page(s)
http://www.opednews.com
A manufactured banking crisis is killing the economic golden goose. Who will pay the piper when the bills come due?
Way back in the Thirties, there wasn’t a whole lot of entertainment available for children, particularly children who grew up in Southern Illinois in the Depression. Any entertainment you came across was often of your own making. For my father and his friends, Halloween was a particularly treasure filled entertainment venue. Most of the bets were off, and acts, which usually had adults coming after you with a razor strap or belt, were written off as Halloween pranks.
One particular prank, which I’ll admit to finding really strange, was outhouse pushing. (No relation to cow tipping). My father and his mean little friends would seek out vulnerable outhouses and push them over, then giggle and gag at the horrendous stench. In telling this tale, due to his stroke, my father did not articulate as well as he did earlier in life. Due to his stroke, his speech was impaired, but the gleam in his eyes when he told the tale made up for the fact that I had to listen really close and concentrate hard to understand what he was saying.
Leaning back in his wheelchair, going back in time, some 70 years earlier, he told about how he and his friends scouted the neighborhood for “just the right outhouse”, then they’d all come together, push it over, and run like mad. Clapping his hands, with the gleam of youthful hijinks fueling his memory, my father grinned a sneaky grin and told how the fumes from the smelly pit stank. This memory comes to mind as I read more about the manipulation, machination and money laundering behind the so-called ‘housing crisis’.
What many writers fail to do is call this mess a manufactured crisis. Yes, that’s right. M-A-N-U-F-A-C-T-U-R-E-D.
…
No doc, low doc—suspend reality mortgages, fueled one of the most lucrative housing booms in history. And during the boom times, the financial wizards and wanna be king makers wined and dined themselves into an orgasmic stupor, while the tainted investment ‘instruments’, which they sold, flew around like drunken birds in a persimmon patch and landed in the coffers of some of the most prestigious banking institutions and pension plans in the world.
The pendulum is now swinging in the other direction and the piper has come calling for his due. All of the risk is playing out, and, irony of ironies, those who devised the game are howling at the unfairness of the consequences. Now the birds are coming home to roost in the banking industry, and the well-coifed, expensively dressed high rollers and their institutional employers ran howling to the government for a bailout. That’s right BAILOUT.
Don’t be fooled by this so-called ‘mortgage bailout’, because industry experts already know what this twisted piece of politically expedient legislation is: it’s a combination bank bail out and prayer for a miracle. The banks have to be bailed out of these loans, else the folk they sold the poison paper to—that’s other banks and institutional investors, will come calling with their legal leg breakers and sue them out of existence. Now, here’s where the snake venom starts to kill the golden goose.
According to federal banking rules, banks have to maintain a healthy loan to deposits rule, usually 10:1. That is, for every buck they have in deposits, they can loan out ten dollars. (Wow, gimme sum a that bankin’ magic). One of the root causes of this current mess is that the bankers have been playing numbers games with deposits, and it goes like this:
The first technique banks used to circumvent regulators’ rules is known as “securitisation” - a way of a bank getting loans it had already made off its balance sheet. They did this by selling their loans off to pension funds, insurance companies, even to other banks around the world.
Professor Nouriel Roubini, the head of a leading New York firm of economic analysts, says securitisation was key to helping banks avoid the regulators’ 10:1 rule. “You make a bunch of mortgages and then you package them and you sell it to someone else,” he explains. “Therefore it goes off the books and therefore you can make even more loans. (City of debt shows US housing woe, Michael Robinson, BBC World Service 1-1-08)
The weight of its own corruption has finally tipped this financial outhouse over and the stench is inundating markets around the world. The Shell Game turned into a bad game of dominos and it’s crashing all over the world. The whole securitization thang is coming apart at the seams—how could it not? Eventually a pyramid scheme bows to mathematical probability and collapses of its own weight.
http://www.opednews.com/articles/1/opedne_m__davis_080101_2008__the_year_they_.htm
Dang that outhouse-pushing trickster who first asked:
“Wait a minute, how much are these houses really worth, anyway?”
Danger ahead: The prospect of recession again confronts America
Financial Times
By Krishna Guha
updated 25 minutes ago
(Wall St start to new year worst in 25 years
Dollar fear sparks rush to oil and gold)
America has entered 2008 in greater danger of recession than at any stage since the collapse of the internet bubble in 2000-01, as the world’s largest economy struggles to maintain growth in the face of the credit squeeze, a housing slide and high oil prices.
http://www.msnbc.msn.com/id/22475697/
Carmakers braced for hard times ahead
By Bernard Simon in Toronto
Published: January 2 2008 18:52 | Last updated: January 2 2008 18:52
Carmakers are set to report weak US December sales on Thursday, underlining mounting damage to the automotive industry from the housing slump, tightening credit conditions and high fuel prices.
Last month’s car and light-truck sales in the world’s biggest market are widely expected to fall well short of the annualised, seasonally-adjusted level of 16.7m posted in December 2006. Analysts estimate total 2007 sales at just over 16m units, the lowest level in nine years. Most forecast a further slide this year to 15.5-15.7m units.
http://www.ft.com/cms/s/8ebc9f4a-b960-11dc-bb66-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F8ebc9f4a-b960-11dc-bb66-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
TxChick — You were saying today reminded you of the first day of 2000?
Wall St start to new year worst in 25 years
By Chris Bryant in New York
Wednesday Jan 2 2008 17:15
US blue-chip stocks on Wednesday suffered the worst start to a new year in 25 years after an index of manufacturing fell sharply, raising fears that the US economy is slowing more than expected.
Energy stocks were a lone bright spot as crude oil prices touched $100 a barrel, but the spike in crude accentuated selling of a broad range of transport and industrial companies. Technology stocks were particularly weak after an analyst downgraded several semiconductor companies.
The Dow Jones Industrial Average fell 1.7 per cent to 13,043.96 points, its worst percentage decline on the first trading day of a year since 1983. The S&P 500 closed 1.4 per cent lower at 1,447.16 and the Nasdaq Composite shed 1.6 per cent to 2,609.63.
http://us.ft.com/ftgateway/superpage.ft?news_id=fto010220081725270407
Yeah, in 2000 the market tanked right out of the gate for about 10 days. Then it did the mother of all short squeezes into March and you know what happened next. May it happen again.
I got stopped out of AMCC first of the year 2000. Almost all my Conexant options expired worthless as well one year later. It was too good to last after all just like the housing bubble.
“As January goes so goes the market.”
I looked at this data many years ago. If you take January out of the rest of the year, there is almost no effect. The market in the 11 months following an up or down January is not even close to being statistically significant from the aggregate 11 month-figure. But if January goes up or down, there is of course a correlation between what happens in January and what happens in the whole year, because (obviously) January is now no longer an exogenous variable but is a part of what is being predicted. The same would likely be true of any month. If you tell me that in 19– June (or May, or whatever) is a down month, I’ll make money in the long run by betting that the market performed below its long-run average that year.
Unfortunately, since I’ve never been able to cash in historical returns, “how January goes so goes the market” is worthless.
Tomorrow morning will offer a great opportunity to buy the dip.
ASIA MARKETS
Asian stocks drag on Wall Street decline
By V. Phani Kumar, MarketWatch
Last update: 8:58 p.m. EST Jan. 2, 2008
HONG KONG (MarketWatch) — Asian markets suffered declines Thursday, hurt by the overnight sell-off on Wall Street, with financials such as Macquarie Group as well as miners pacing losses in Sydney, while exporters such as Hynix Semiconductor led the shares lower in Seoul.
Australia’s S&P/ASX 200 index fell 1.5% to 6,257.60, while South Korea’s Kospi fell 1.4% to 1,825.96.
Elsewhere, China’s Shanghai Composite dropped 0.7% to 5,238.27, Singapore’s Straits Times index shed 1.8% to 3,400.32, Taiwan’s Weighted index sank 2.3% to 8,130.41 and New Zealand’s NZX 50 index rose 0.1% to 4,046.66, as trading resumed after a two-day holiday break.
Stock markets in Japan were closed Thursday for a holiday.
“The market here is weaker, but that’s not surprising given the concerns in force in the U.S. last night,” said Jamie Spiteri, head of trading at Shaw Stockbroking in Sydney.
http://www.marketwatch.com/news/story/asian-stocks-drag-wall-street/story.aspx?guid=%7BAB20221A%2D5CD6%2D4621%2DA6B3%2DEC7F51826FF2%7D
http://www.ppar.com/public/stats_public.asp
Pikes Peak Realtors’ Association released home-sale statistics for December. Not horrible, but not very healthy, either.
New mantra for brave new year: The Indian and Chinese economies will pull the weight of the world as the U.S. economy slows down.
Crude, Gold Soar;
Stocks Off Sharply
On Economy Fears
By E.S. BROWNING and JOANNA SLATER
January 3, 2008; Page A1
Oil and gold futures closed at all-time highs, and the Dow Jones Industrial Average suffered its steepest percentage decline in a New Year debut since 1983, as mounting fears for the economy sent investors to places they consider safer than U.S. stocks.
Oil futures briefly touched $100 a barrel for the first time before settling at $99.62, while the Dow industrials fell 220.86 points, or 1.67%, to 13043.96. Other stock benchmarks in the U.S. and Europe also sagged.
A growing number of money managers now fear that turmoil in the nation’s housing and credit markets will worsen, and that the economies of Western Europe and Japan also could suffer. But many remain hopeful that economic growth elsewhere, including booming India and China, won’t be bruised by the troubles in the U.S.
http://online.wsj.com/article/SB119933185665564423.html?mod=googlenews_wsj
Alt-A Issuance Slid in Third Quarter
By DONNA KARDOS
January 2, 2008 3:17 p.m.
Issuance of so-called Alt-A mortgages tumbled in the third quarter as the credit crunch hit a peak, according to a report by Standard & Poor’s Ratings Services, and the ratings group projected further declines in the fourth quarter and into early 2008, citing limited liquidity.
The value of Alt-A mortgages, which typically go to borrowers whose credit is deemed good enough to forgo proof of claimed assets or income, issued in the third quarter fell 64% to $39.3 billion from the second quarter’s record high of $109.5 billion. The third quarter’s issuance was less than half that seen in the same period of 2005 and 2006.
However, the mortgages still made up 28% of all mortgages originated in the quarter, the same level as two years earlier.
http://online.wsj.com/article/SB119930182964662815.html?mod=googlenews_wsj
CREDIT MARKETS
Treasurys End on Positive Note
Price Rise for Year
Far Outran Junk’s;
Eyes on New Data
By DEBORAH LYNN BLUMBERG
January 2, 2008; Page C3
Treasurys headed into 2008 higher across the board, as market participants bid adieu Monday to a year marked by volatile trading.
…
Balance-sheet strains will continue to create concerns about the price and availability of short-term funds, Mr. Crandall said. But for the most part, “We’ve moved beyond … liquidity concerns. The focus has moved to that part of the financial fallout that central banks can’t address through technical operations.”
In other words, solvency, not liquidity, threatens the economy and the financial system as 2008 begins. At the root of the solvency threat is the likely continued decline in housing prices that will further undermine credit quality by reducing the value of collateral for mortgages. Housing demand likely will weaken further as a result of new fees Fannie Mae and Freddie Mac will impose to buy or guarantee some mortgages once deemed prime.
http://online.wsj.com/article/SB119923451538661095.html?mod=googlenews_wsj