Bits Bucket And Craigslist Finds For February 11, 2008
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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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The Real Reason Why the Fed is Panicking and Why Wall Street is so Nervous
PR Newswire
Comtex
BOCA RATON, Fla., Feb 08, 2008 /PRNewswire via COMTEX/ — The wild swings on Wall Street are becoming increasingly wild and more frequent. The fallout from the sub- prime crisis and slowdown in the economy increase the chances of a genuine economic nightmare.
To prevent the dominos from crashing the Federal Reserve has slashed interest rates by 1.25 percent in just the past two weeks. This means that “Real Interest Rates” are barely positive now. If they go any lower, they’ll be below official inflation rates.
“After inflation is considered, the bank will pay you to borrow its money, instead of the other way around,” says James DiGeorgia, editor of the Gold and Energy Advisor (www.goldandenergyadvisor.com). “Central banks like the Fed don’t do this unless they’re desperate — in panic mode.”
The latest reason for the Fed to panic is that bond insurers are in serious trouble.
“Bond insurers are capable of triggering a chain-reaction meltdown on Wall Street that spreads worldwide,” explains DiGeorgia. “A few years ago, bond insurers like MBIA and Ambac had quiet but profitable businesses. They insured bonds issued by municipalities, state governments, and other large organizations. Since these issuers rarely defaulted, the bond insurers rarely paid out on their policies. But the insurer executives got greedy. So they started insuring riskier bonds — such as mortgage-backed bonds, including subprime debt.”
These bonds are looking increasing fragile. Last Wednesday, Standard & Poor’s downgraded or took negative rating action against 8,000 mortgage bonds and CDOs, worth $534 billion. If only half of those go into default, it will mean $267 billion in losses. This is over two and a half times worse than anything in this crisis thus far.
And, according to estimates, if one or more of the insurers gets downgraded, Wall Street will face an estimated $70 billion in more losses.
“The risk of complete stock market meltdown, a crippling 5000 point nose-dive, is becoming increasingly likely. This would send gold to $2,500, and may even cause sudden 1929-type runs on banks and financial institutions across the country,” cautions DiGeorgia.
I disagree. A nosedive of that magnitude would be more likely to send gold back down to $500, at least immediately, as it would signify deflation taking hold.
I completely disagree. For a read on why the current economics favor a bull market in precious metals; during a deflationary depression:
http://tinyurl.com/2kw9za
We will agree to disagree, then.
I think it quite possible that we will see gold at $US2,500 per ounce within the next 5 years, just not in conjunction with a stock market collapse.
“(That’s one reason I like silver much more than gold — no gigantic government stockpiles.)”
… because they already dumped much of the U.S. silver?
Ditto. Anything deflationary, the Fed will print money 24/7 to get out of a depression.
But gold is in a bubble because you can’t eat it. Bwahahaha.
The core argument of gold, silver, platinum, etc. has nothing to do with whether you can eat them or not. The question is “are these metals commodities or currencies?” I believe that if they are commodities than they too would crash. If they are currencies then they will soar. I am no gold bug but I realize this is a question that each potential investor must answer on their own. It’s not a question of whether or not they can be eaten, as has been argued foolishly on this blog.
Hi Bill,
It’s like fingernails on the blackboard every time I hear “Is it gonna be inflation or deflation?” Tertium non datur.
I guess this is what modern economic theory suggests one should be asking, as if either choice alone would provide any explanation for the realities unfolding. Every day we see new highs in the PM group or some meandering near the highs, while at the same time interest rates and housing prices are crashing.The readers on this blog are a fairly astute group so I think many will catch on that this is a scenario that could continue for YEARS AND YEARS; reducing the “either-or” question to the irrelevancy it deserves. The actions of our international competition, the Fed, Treasury, Congress, and Administration will all simultaneously guarantee a cave-in of the dollar during a deflationary spiral.
See, also the next administration and Congress will be averse to permanent tax cuts as a stimulus and won’t put up with any spending cuts at all, so they will figure more interest rate cuts will keep the economy going. They are more concerned about Wall Street than keeping house prices overinflated! Like you said, the fundamentals indicate no reversal yet of precious metals price hikes. But eventually metals will crash, like in the early 80s. I say not within ten years.
won’t put up with any spending cuts at all
??? I think the Iraq war spending cut (from withdrawal) will not be insubstantial.
Why does it have to be “will it be deflation or inflation?” Why can’t it be BOTH?
Time and again, we have people who speak of things only in terms of one currency: the USD. Rarely do we see people talk of prices in terms of the variability between currencies? I just got back from Paris (was there for Christmas), and while everything was expensive in USD, it did not feel significantly more expensive in EUR. It was absolutely cheaper in AU (I value much of what I buy in AU cost).
If the Fed decides to “protect against falling prices” through monetary inflation, the USD will sink, and gold will rise. This means we’ll have falling prices (versus AU) and rising prices (versus USD). We may have stagnant prices versus EUR. That’s how money works.
Look at GDP for a great example. GDP is USD is going up, slightly, but when you look at the value of the USD versus anything else, the US has been in a recession for around 7-9 years. In reality, our GDP has fallen for many years, we just tend to value it only in the dollar (and ignore government spending in the total, which would show a recession in USD-valued GDP for many years).
Stop looking only at USD. Look at many other currencies to get a more global response to where things are going.
But eventually metals will crash, like in the early 80s. I say not within ten years.
I doubt we will see this happen this time around. During the 80’s and 90’s the Soviet Union dumped massive amounts of gold onto world markets to keep the lights turned on. Today they have discovered oil and natural gas in huge quantities and are restocking their gold reserves. Notably, they sold at $300 and are buying at $900. It is possible we will follow in a few years and the price of Gold could follow a similar pattern, and in the case of a large scale recession demand for computer and electronic products could fall, being one of the major consumers of industrial gold use this could impact the price of gold, but for now, I am glad I bought gold at $570, although I am not buying today I strongly suspect we will see gold well over $1000 before summer.
But maybe this time it will be the U.S. dumping massive gold reserves to keep the lights on.
(That’s one reason I like silver much more than gold — no gigantic government stockpiles.)
I don’t own any gold other than my wedding ring. But I have been long 10,000
ounces of silver since August, at $11.74.
I think as of this week you see Ag starting to narrow the ratio with Au.
Inflation or deflation? How about the worst of all worlds: inflation in the things you need, deflation in the things you want. The former leading to poverty, the later leading to lost jobs, and thus more poverty.
In the end, houses may be cheap, but nobody will be able to afford to maintain them since the only “jobs” will be as government drones or at Wal-mart.
??? I think the Iraq war spending cut (from withdrawal) will not be insubstantial.
But those cuts will be replaced by more than enough social programs that cost more than the war.
It isn’t anymore easy to get jobs in Walmart or similar outfits.
“But those cuts will be replaced by more than enough social programs that cost more than the war.”
Doubtful. For just one emergency funding bill we could have made a high speed train system running from NYC to LA. I think you underestimate just how much money has been spent on Iraq.
Agreed. All the hedge funds that are over leveraged with cheap money would have to unwind a lot of trades and would lose Billions. However, there would be other hedge funds that would make Billions.
Capital One just sent me a notice that my interest rate is going up. I don’t run any balances, so I called to complain and ask for it to be reduced since I have not missed any payments and I have good credit. The person said that is just the way it was, so I told him I wanted to cancel. He transferred me to the cancellation department. The person there asked me why I wanted to cancel. I explained why and they said, if we put you back at your current rate, will you stay?
So, I told a friend about this who also has a Capital One card and also got the notice. He was flabbergasted because he said, “Aren’t interest rates supposed to be going down?” He called up and got the same thing. When he got to cancellation, they asked him why he wanted to cancel. He told them why. They refused to lower the rate and told him he could cancel but he is still obligated to pay at the higher rate. They essentially told him if he didn’t like it to take his business elsewhere. The only difference is he runs a balance every month and I don’t.
Is your friend going to play transfer-balance-at-0% game?
Have a couple of friends who play this game, quesitons is when credit being tight I can’t believe credit card company’s are gonna keep givng out 0 percent cards, eventually a lot of poeple are gonna be stuck with a lot of debt at at high rate…
If you don’t carry a balance, why do you care what the rate is?
I also pay off balance of my CC each month and don’t even know what the rate is on mine.
Same here. I think my cap one card rate is pretty high, but I don’t really know what it is. I don’t know why I would care what the rate is, I’m more concerned about rewards. I used to use a GM card b/c I had plans to buy a new truck at some point. I bought the truck about 5 years ago and now we use a different card because of different reward options.
I don’t carry a balance either, but in an extreme emergency, I might. If they do that to me, I’ll be switching cards.
I suspect you can talk them down on the rate if you don’t carry a balance. However, I also suspect they’ll up the rate in a heart beat if you start carrying a balance.
Since people like us, who don’t carry a balance, are technically “deadbeats” to the CC companies, I think they have no incentive at all to reduce the rate for us. Wouldn’t they be happier if we dropped the card “on principle?”
The card company makes 2-3% (AMEX is higher) on every purchase you make with it.
I have to disagree here, I think they have incentives as every time we use their cards they get to charge 1% or 1.5% fee per trnasaction, not to us but to the businesses.
Since we’re in a lower risk category, they have to keep us
I use 1.5% cash reward cards that pay the reward for any purchase, even with no balance. (Fidelity’s card does this, for example.)
In the past I’ve had other cash reward cards and, after a year of having them and paying in full each month, they encourage me to “drop” by starting to charge a yearly fee.
One of the first cash-back cards “Discover” (which only paid about 0.75% back if you paid in full) I tried back in the day. It was free. After a year of paying in full, I got a notice that it would be $60/year for a card the next year. I cancelled. (I remember it was a hassle getting that $60 back because they went ahead and just put it on my statement hoping I wouldn’t notice.) They were still running ads for a no annual fee card for new customers.
The same thing happened with a no annual fee BofA card with cash-back. The cash-back on this was more obscure. You’d get “points” and one thing you could redeem the points for was cash. It came to about 1% back. I presume they had a lot of breakage on this (unredeemed points), but not from me. After two years on that, they told me I’d have to pay a yearly fee. I’m sure they knew that a “deadbeat” like me would dump the card rather than pay.
Now I have a fidelity 1.5% cash back mastercard. The cash goes directly into my brokerage account each quarter. So far they haven’t threatened to drop me, but that’s probably because I have a big balance. (We did find it impossible to get a chargeback on counterfeit merchadise we bought! They just wouldn’t do it, kept coming up with more hoops for us to jump through. We ended up eating the loss on this because the fly-by-night merchant simply closed his tent. Watch out! You really don’t get much charge-back protection on a card. We may still take mastercard to small claims court over this if we have time and engery to do it.)
In my industry, we call customers who find the best deals, esp. the loss leaders, and buy that and nothing else “cherry pickers.” We hate them!
So far they haven’t threatened to drop me, but that’s probably because I have a big balance.
When I say I have a “big balance” I mean in the brokerage account, not on the credit card, which, of course, is paid in full each month.
Good arguments all, relative to being dropped. So I’ll have to stick with my initial point - that they have no incentive at all to give us a concessionary interest rate. Their computers tell them we are unlikely to use it. Anomalies are nuisances.
I just got a piece of unsolicited junque mail from Capital One. I sent it back to them, and made sure that I included my (not-so-nice) thoughts about the company on the application form, other papers in the package, and the envelope. So evil. But fun.
I just did the same thing with about 8 months worth of credit card offers. I have close to 30 neatly stuffed envelopes ready to go.
Interesting. This could explain why a housing-price support package was built into the stimulus bill, in the form of raising the size of the loan that the GSE’s can buy.
I was terribly impressed that the REIC lobby was able to get a housing price support package built into the core stimulus bill, but this indicates it might perhaps be more than only the REIC lobby.
“The question is “are these metals commodities or currencies?””
Individuals can flirt with this question of what is money, but the question tends to be decided by government. All of us gold nuts pay our bills in paper.
Since the US won the last big war, it got to tell everyone what was money. Would it take a revolution or big war to reverse this? What kind of government would benefit from sound money? Certainly not the kind we have (now) nor the communist kind. I don’t think any kind of government that is bent on controlling the people wants sound money. Anarchy maybe.
We are in a deflationary debt spiral. Savvy investors are seeking safety in gold and treasurys because they fear insolvencies. The Fed’s HOE-ATM printing machine is broken. The money/credit distribution channel is working in reverse. Wages have been stagnant for years. Consumption was driven largely by HOE-ATM withdrawals. Unless the government starts handing out checks or wages increase, consumption should decline.
Maven - that’s what I’ve been thinking, though the ride finally is getting a little scary.
“We are in a deflationary debt spiral. Savvy investors are seeking safety in gold and treasurys because they fear insolvencies.”
We know that the housing bubble is deflating and it is hard to be sure what (& when) the full consequences will be. If I randomly pick a date from the years in the range 1995 - 2005 and look at the Wall Street Journal (I have access to the archives) of that, I how lousy the predictions were about what was going to happen the following year. These days the multiple variable problem is getting is worse. So it is fair to say that ’savvy investors’ are
(1) Pulling out of the stock market
(2) Loading up on stocks (perhaps buying on the dip)
(3) Keeping a lot cash thinking cash is the King
(4) Buying precious metals
(5) Keeping away from PM thinking there is going to be a crash
(6) Buying foreclosure properties
…etc..
In other words, savvy investors don’t know what they are doing!
One of the best things about this board is that you are provoked to consider alternate extremes in the “who know what will happen” scenarios. What could be better than to be sheltered from either direction?
I agree.
UK house market continues to cool house inflation down to 9.1%. If they think this is cool just wait a year they’ll think there in a freezer.
http://news.bbc.co.uk/1/hi/business/7238399.stm
this probably means that inflation of home prices now runs at about the same speed as inflation on most other required items (yeah, I know … officially CPI is much lower but who still believes those numbers).
The Sydney (Australia) Sunday paper The Sunherald had a front-page teaser and a full 2-page spread (pages 6/7) on housing this weekend. One article detailed the plight of part of an outer north-western suburb under the headline ‘Up to 48% fall in Prices’. It quoted 2 examples of houses selling in 2005 for $A950K, and reselling for $A490K recently.
Reading through the article a couple of times (come on, you would have too, admit it
), I was struck by a number of “features” familiar from this blog.
- ridiculously high appraisals
- cookie-cutter McMansions in a low-end area
- minimal downpayments
- no-doc loans
- payments resetting at the end of an introductory period
I must stress that these problems are only appearing in a couple of specific areas, while the overall Sydney housing market (and the rest of Australia for that matter) appears very healthy with double-digit YOY appreciation everywhere you look.
Still, it makes you think. The California and Florida markets looked just like that 2 or 3 years ago, with the first cracks starting to show. (And the normal mortgage here is an 8% ARM!)
ozajh,
Is Australia still in drought conditions? Has this impacted the cost of housing?
- cookie-cutter McMansions in a low-end area
What is the definition of a McMansion in Oz?
Size?
Features? Wood/marble floors, granite counter tops, jacuzzi tub in the master bath, etc.?
Just curious.
Countrywide Financial Corp. Aims to Help More Subprime Borrowers Manage Payments
http://tinyurl.com/26sbzq
Under the latest plan, borrowers with subprime hybrid adjustable-rate mortgages, which typically were issued with a low “teaser” interest rate and then adjust higher after two or three years, could be offered the option of refinancing into a lower prime rate loan, or have their initial interest rate frozen for five years.
Homeowners with fixed-rate subprime loans who have fallen behind on payments could be offered short-term repayment plans, loan modifications or other adjustments, including having their interest rate frozen or adding their overdue balances to their principal loan amount.
I hope this helps some people, but since most FBs are living in a depreciating asset and are barely able to get by with their current rate structure, I don’t see how this is going to help very many.
Yeah? And do these dimbulb borrowers have any idea that their ball and chain of a house will likely be worth far less 5 years from now, which of course is worth far less today than 2005? This game thats going on is just a means to keep the revenue stream to lenders from sliding any further into the abyss. These clowns are reframing their intent as a means to “help” FB’s. If they wanted to help FB’s , they’d tell the truth and tell FB’s to walk.
i agree exeter
something is better then nothing
countrywide the lender with a heart of gold
SO angry that these useless wastes of life are getting a break, hopefully they will still just walk away, but who knows all this does is put off the problem for 5 years then they will still walk away…The question is can I go into countrywide and demand the same rate on a loan as these jackass’s got on there teaser loan rate…I have a feeling mortgage rates are gonna rise a lot inorder to subsidize all these freeloading burdens on scociety….
“I have a feeling mortgage rates are gonna rise a lot inorder to subsidize all these freeloading burdens on scociety….”
Thats exactly what needs to happen. It would a good thing.
I thought most of the houses were underwater in terms of equity. Wouldn’t the appraisers need to fudge the values back up? Or can the lender wave a magic wand and fudge the numbers on their own?
The long term trend of Gold is up, but I think it might drop just a bit as some people have to sell and some stop losses kick in. People might think it’s a bubble. If it dips, buy it. I spoke yesterday about how Gold might be in a perceived Bubble. Look at 1981. Of course, Volcker was trying to break the back of inflation which is what Bernanke is not doing. Just trying to give an alternative point of view ;-).
“If it dips, buy it.”
Yeah right. I bought GLD at 42 and dumped it at 65. I made better than 50% and 50% is more than enough profit.
Fools gold anyone?
Thanks for the shares at 65.
And your still behind me on ROI. But do hold onto it.
I bought gold at $570 and silver at $11.05
Silver is at an all time high and I am considering dumping, but then I am left with a bunch of cash I don’t know what to do with???
Silver is at an all time high
No it’s not. Not even close.
Bought North American Palladium at 3.45 roughly 4 weeks ago, trading at $6 a few minutes ago thanks to someones watchful eye here on the blog. Was it SammySchadenfreude? Whoever it was said they were backing up the truck. Maybe…..;)
I believe it was Hoz.
Yeah right. I bought GLD at 42 and dumped it at 65. I made better than 50% and 50% is more than enough profit.
Fools gold anyone?
Well, that certainly is a nice trade by any measure. I however, view gold more as an insurance policy than anything else. If the SHTF, where are you going to turn?
You can’t buy insurance at the scene of an accident.
I can appreciate having a few krugerrands stashed away but the concept of SHTF is exactly the speculative element behind AU’s run up. I lived through the 70’s and remember all the panic and uncertainty in the late 70’s. Remember Howard Ruff and the RuffTimes/RuffReport? He was right but only 30 years too early. So if one bought at the AU’s peak, they would have been breaking even nominally six months ago. A massive loss by any measure. 27 long years of loss after loss. Way to go Howard.
“You can’t buy insurance at the scene of an accident.”
Check out these Chinese, circa 1949…
http://imagecache2.allposters.com/images/pic/NIM/KN537~Gold-Distribution-Shanghai-China-1949-Posters.jpg
Anxiously trying to trade ever worthless Chinese Dollars into Gold Taels, and the ones that did, got a ticket out to Taiwan and freedom, and the ones that didn’t, got to tell tales of the Great Leap Forward, The Cultural Revolution and mass starvation.
http://en.wikipedia.org/wiki/Great_Leap_Forward
http://en.wikipedia.org/wiki/Cultural_Revolution
What color is your parachute?
Your point is well taken, but consider if you buy a life insurance policy or any other insurance policy to protect from financial loss, the aim is to NOT collect on it.
I’m no expert on the early 80’s as I was very young at that point, but didn’t it take rates to go to 18% to get inflation under control? Is that what killed the gold market then. I don’t see that happening now.
Nobody saw rates going to 18% then either. I’m not suggesting they will now as it is all speculation……
speculation…… and more speculation.
I spoke yesterday about how Gold might be in a perceived Bubble
Gold is always in a bubble, because it has no yield. Your return on holding gold depends only on what you can sell it for. In other words, every holder of gold is a greater fool, and it’s in a bubble by definition.
“…every holder of
goldfiat currency is a greater fool, and it’s in a bubble by definition…”I believe Samuelson wrote a pithy academic paper on this topic back in the 1960s.
At any rate, I note that gold is at least far more costly to obtain than is fiat money; the former involves extraction of a rare metal from the bowels of the earth, while the latter merely involves cranking up the virtual printing press.
Would you say the same of a currency trader (I just hold currencies in an electronic account, no paper)
Last Wednesday on the news( Fox, I think, not sure) they ran a story about Countrywide checks written on home equity lines of credit bouncing. The credit lines were pulled without notifying the customer.
One lady found out her line of credit was pulled when the check she wrote her contractor bounced. Her kitchen was demolished, the money was cut off and she still owes the contractor money.
FYI….Bloomburg Radio daily 5pm world markets discussion with Tom Kean will be about housing globally, today 5pm. I think it is streamed as a simulcast off their webpage.
Economy Rebounds…. Well I sure am glad to know everything is A-OK!
http://www.bloomberg.com/apps/news?pid=20601103&sid=a8qLR4f6OieU&refer=news
Well hell I guess I better sell my Harley PUTs they had a good run up 300% but you can’t argue against the 5yr Tresury. What tools god you got to love them.
A repeat of the Great Depression is unlikely
http://tinyurl.com/35tzy3
Deflation?
Leigh
“That said, there is one scenario that could produce a 1930s-style deflationary depression in the US: a large-scale financial meltdown. By that I mean a situation in which the financial sector would cease to fulfil one of its basic functions: to provide liquidity to the real economy. But surely, lower central bank interest rates today could neither prevent such a scenario from happening, nor provide any comfort to an economy when it has no physical access to credit.”
_________________________________________________________
This is what I see coming, now that we’ve passed the Rubicon into a combination of lack of morality & money, and let’s not even add into the equation what climate change is doing, and our powerlessness, to stop it.
The Dust Bowl years of the 1930’s were all about climate change, and came when people were at their wits end already, financially.
The Central Valley of California is our “bible belt”, as lots of Arkies & Okies escaped to here.
An interesting slice of hardcore conservative California, to this day.
A Credit Card You Want to Toss
http://tinyurl.com/29dlxe
Hike your rate because than can!
Ya just can’t make this stuff up!
Leigh
I can’t imagine a greater or quicker clamp on spending than when one friend tells the next that this just happened to them.
This is just another sign of the times. A “contract” that can be changed at the drop of a hat is not a contract, IMO. It’s a trap. What’s crazy about this situation is that it will do nothing but cause more defaults, which will then cause more panic, followed by gov interference that could result perhaps in credit card companies reducing and freezing rates, which they could have done in the first place without creating panic and defaults. Instead of the credit card companies holding rates steady for good customers, they’re looking for reasons, any reason, to screw them. Such is the state of much of business in the US. Screw thy customer. Ebay is doing the same thing with its policy changes.
At some level the credit contraction affects CCs the same way it does REFIs. People who treated CC debt like an installment loan, where the rate was fixed are just as stupid as people who figured “I’ll just REFI next year.” Both are assuming that the easy money of yesterday would always be there and are now discovering just how wrong they were.
True, jim, but why turn good customers who are making their payments into deabeats if you don’t have to? I’ll be the first to admit that I’ve been through some rough times where I’ve carried a balance and made small payments. At the first opportunity, I paid the balance off in full. This should be standard operating procedure when it comes to a loan of any sort. But CC companies are mainly usurers, IMO. Still, given the scope of identity theft, I’d rather use a credit than a debit card.
But CC companies are mainly usurers, IMO. And there’s your answer. Not just YOUR opinion either. There’s a REASON that they’re all headquartered in the two states that DON’T have interest rate capping antiusuary laws.
jim A - interesting - didn’t know that.
Credit cards are usury.
I used to have a boa credit card years ago and they did the same thing then, back during 2 recessions ago. I basically wrote them a letter and told them they could keep their card and cancelled it.
This could be renamed the boa-constrictor credit card.
Pontiac - BoA Constrictor - that’s a good one. You should resurrect it later on - too late in the day for many to have read this.
Wall Street — heads I get big bonuses and win; tails I dilute shareholder equity and you lose.
http://www.bloomberg.com/apps/news?pid=20601109&sid=a8wXme0GUnco&refer=home
“Shareholders share in the downside and not necessarily in the upside, that’s the whole story,” said John Gutfreund, 78, who ran Salomon Brothers in the 1980s when it was renowned for the size of its trading bets. “It’s OPM: Other People’s Money.”
75% Housing Correction-Minimum
Incomes today about the same as 2000.
Non Housing expenses including Health Insurance, Property Taxes, and Food and Fuel way up-expenses you must incur!!!!
Families probably can afford 40% less of a mortgage today than 2000.
House value $250K in 2000 assuming 80K income
House value $500K in 2007
After much higher non housing expenses, family can afford $150K house in 2008
Either incomes have to go up, non housing expenses have to go down, interest rates must plummet, house prices must fall, or any combination of the above.
The above is assuming no drop in income or slow down in the economy.
“75% Housing Correction-Minimum”
You should qualify that to say in certain bubble markets. For most of the country, a 75% correction would take us back to, say, 1972 levels.
75% decline is unrealistic to you but a 200-300% increase is normal?
I think that he’s pointing out that some places might have only increased 50% over the last 10 years (i.e. 4% per year). In those places, a 75% decline would make no sense.
75% correction…where? I’ll believe it for a condo in downtown San Diego, or for that “landscaped” shack in California with the shrub out front (remember that)? But I don’t think we’ll see anything of the sort in flyover states like Tennessee or Missouri. No way is a 100K house (plenty of those) in those states will drop to $25K, unless we have a full-on canned-pea-and-AK-47 style Depression.
TN and MO, maybe not. Parts of MI and OH, however, are well on their way.
I agree about living expenses today compared to 2000. We lived better just prior to 2000 (1999 before my kids went to college)on $20k less a year than we are now, after they’ve graduated and are on their own….and we had no college debt. Groceries alone have doubled. Everytime I go to the store something is $1 more and the quantity is smaller. Gas….we won’t even go there. I told my husband the other day that we were going to have to start using newspaper for toilet paper, since it’s gone up $2.50 for a 12 pack compared to a year or so ago. It’s all gone so high that normal living expenses, excluding mortgages, are a huge percentage of one’s paycheck.
There’s so much sales tax everywhere(city, county, state) that it really changes the price of the items you buy. Everyone’s got their hand out. That’s not including the tax on income, services(a more recent item), utilites, phones, license plates, and on and on. I once got an email on the list of taxes that we pay, and it covered a full page.
I said when the Shrub gave us those tax cuts we’d pay more elsewhere and it’s definitely come true. They cut at the Fed level on taxes and sending money to the state and local levels, and the state and local levels have to make it up somewhere, so they raise taxes. I’m sure in the end we’re all paying a bigger percentage of taxes now than we were in the 90’s, if you take into account all the levels we’re taxed at. But hey, old Georgie get’s to say he’s puting money back into the people’s pockets. But everyone else is reaching in and not only taking the money we got back, but actually taking more the rest of our pocket money too.
We make make 3 times the average wage for our area, so I don’t know how people making an average wage do it. We only eat in reg. restaurants if we get a gift card. Occasionally we’ll go to Arby’s or McDonalds. We don’t smoke and we might have a glass of wine 4 or 5 times a year, so we’re not drinking & smoking it up. We drive our cars for 10 years. Our house is paid for. Last year we didn’t even take a vacation, and if we do it might be to Florida for 10 days. I still feel like we’re sliding backwards income-wise even though we make a lot more now than in the 90’s.
Anyone else feel we were better off in the mid 90’s making less? Anyone else feel they had more discretionary spending money then?
“Anyone else feel we were better off in the mid 90’s making less? Anyone else feel they had more discretionary spending money then?”
I do.
Have you ever read “The Greedy Hand”….Its a simple read with a historical perspective on taxes annd fee’s…
I don’t make more money now than I did in the mid-90s. Well…. maybe a little more. $72k in ‘98 and $75K now. But, take higher medical and dental expenses and my take home is less.
Was I better off then? Duh. $1 gas, price of food a good 25% less, utilities 30% less, etc.
But, the economy then was every bit as false as it is now. We’ve been living in a fake, bubble blowing economy ever sense Reagan cut taxes and increased spending and put us on the path to a debt based economy.
Heck, I was making more in nominal dollars in 99 than I do now. If I factor inflation in I’ll probably start crying.
Reagan did not cut taxes.
Misremembering Reagan.
we all seem to be led down a primrose path and at the end is an alligator.
My pay was reduced -35% in 02 and med insurance has raised 4 times. Not counting everything else that has increased, gas, food, public transportation…
Wasn’t the “Tax Relief Act of 1986″ actually in 1986?
I believe that was Reagan era. I am a Reaganite and proud of it!
trickle down and all that.
I thought he cut marginal rates right after he got in office, in 1981 or 1982.
It was the “Tax Reform Act” not the Relief act in 1986 and it was Devastated the real estate syndication business (One big tax dodge) by changing the rules in the middle of the game….
How is passing a bill that lowers tax rates and decreases government revenue not a tax cut? Economic Recovery Tax Act of 1981, signed into law on August 13, 1981 by President Ronald Reagan at his California ranch.
I had the same feeling yesterday when I returned home from Costco. Some items, now made in low-cost of labor countries, were pricier then, but generally the products and services I buy were more affordable. The nineties are starting to seem like the good old days with a much higher standard of living.
I just did my annual Quicken expense analysis. I spent slightly less in 2007 than 2006. My living conditions are the same.
so, not everyone is seeing double digit inflation.
I don’t spend much of my income on gas or food, which are the ones that went up a lot. Manufactured goods and clothes are down. So one’s personal inflation rate will depend on what one spends money on.
You know, thats true. AS I’ve retired I spend less on clothes. Gas is much, much less. My wife cooks, makes everything herself, our food budget hasn’t gone up, we almost never eat at a restaurant (haven’t been in a fast food place in 5 years at least). No kids at home, college expenses are over.
My car insurance dropped, property tax has gone up like $100 (a year) over the past 3 years - I live in slowly appreciating fly-over country. I’m now on medicare, health insurance dropped. So with a pension plus SS (2 checks) we are actually doing very well.
New Hitches In Markets
May Widen Credit Woes
A widening array of financial-market problems threatens to trigger a new phase in the global credit crunch, extending it beyond the risky mortgages that have cost banks and investors more than $100 billion in losses and helped push the U.S. economy toward recession.
In the past few days, low-rated corporate loans — the kind that fueled the buyout boom of recent years — have plummeted in value. As a result, banks are expected to try to unload some of those loans this week at fire-sale prices.
Nervous buyers also have retreated in recent days from the market for securities backed by student loans and municipal bonds, roiling some corners of the short-term money markets. Similarly, investors have recoiled from debt backed by commercial real estate, such as office buildings.
Over the weekend, the world’s top banking authorities warned that the U.S.-led economic slowdown and continued uncertainty about securities could lead banks to further reduce their lending, and choke off economic activity.
http://online.wsj.com/article/SB120269228578457765.html?mod=hps_us_whats_news
The Magic of Inflation
http://stockmania.com/?q=node/2089
Kahuna — Sorry to see your package did not get stimulus.
Ha. Me too.
Yep, I think that’s the policy. The other alternative is for the rock to get bigger and bigger until both the sheep and the pigs are crushed under it.
4 legs bad, 2 legs good.
This is encouraging: just heard an economist from PIMCO saying on CNBC that nationally housing has at least 15% to fall from here. I think he doesn’t go far enough, but at least this is a MSM acknowledgment that this housing problem is FAR from over.
“…at least 15% to fall from here. I think he doesn’t go far enough…”
Was he talking about nominal or real decline? W/ inflation, one could get a 15 pct nominal decline but far larger real decline.
Well, he was talking about price/wage and rent/wage. So I guess he would argue 15-20% indexed to those.
So, we have the same question as has been tossed around for years. Even if the Fed can get inflation fired up, will it just be commodity, or will it somehow translate into wage inflation? I don’t see how we will get wage inflation with globalization and recession.
Sorry… price/wage and price/rent….
So, unless we get wages and rents going up a lot, house prices still have a long way to fall.
Right — 15% real (in terms of price/wage or price/rent) will not suffice to unwind a 200% real increase, any more than $168 bn in stimulus can offset a $1.6 t loss in home equity wealth.
I would bet his 15-20% further is based on interest rates staying at 5%. If rates go up, prices would have to fall more to be in line with wages and rents.
I don’t think the $170B stimulus is intended to offset the loss in home value directly. I think it is intended to offset the loss in $600 billion a year of debt increase.
People have been spending more than they make. Take away their ability to spend more than they make, and they have to spend less. Spending less in an economy that is 2/3rds consumption = recession. I think they are just trying to slow the rate of decline into the recession.
Like a heroine junky. You can’t just have them quit cold turkey. You have to ease them off with methadone.
isn’t that 15% down based on the 3% or lower rates that PIMCO has been demanding from the FED for some time now?
Yeah… I heard that too. He was talking about price/income and price/rent. Nationally need to fall 15-20% from here. More in bubble areas and less in other.
How did this nut job get on the air. Someone should water board him until he admits the truth that fundamentals do not matter because we have reached a new, permanently high platau.
Was Cramer there? Weeping in fetal position?
No… they waited until the DOW change was made to trot out Cramer. He has been pushing Altria, so dropping it from the DOW is counter to what he has been preaching.
In short, we should have known this was coming.
I saw that clip.
He was on the phone and I DID imagine him in a corner of the room in the fetal position…maybe not weeping but whining and sucking his thumb.
He really is an easy target, isn’t he?
Nothing wrong with cigarettes… Will probably be one of the few growth industries left around.
Was it Bill Gross?
Mark somebody.
bond insurance turns toxic:
Feb. 11 (Bloomberg) — Bond insurance sold by MBIA Inc., Ambac Financial Group Inc. and Security Capital Assurance Ltd. is backfiring on counties, universities and hospitals across the U.S., more than doubling some borrowing costs.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=acDDWaycQaeg
MBIA Inc., Ambac Financial Group Inc are sure big stories these days. We will see another bloodbath if these bond insurer are dowgraded.
Absolutely no worries there, as I am quite sure the big bond insurers qualify for a “too-big-to-fail” behind the scenes workout arrangement brokered by the Fed.
dollar down, gold up:
LONDON (AP) — The dollar was lower against other major currencies in European trading Monday morning. Gold rose.
The euro traded at $1.4551, up from $1.4506 late Friday in New York.
Other dollar rates:
–106.70 Japanese yen, down from 107.38
–1.0970 Swiss francs, down from 1.1018
–0.9981 Canadian dollars, down from 1.0009
The British pound was quoted at $1.9513, up from $1.9455.
Gold traded in London at $925.50 per troy ounce, up from $919.20 late Friday
http://biz.yahoo.com/ap/080211/dollar_gold.html?.v=2
As a word of caution: It is not wise to watch the USD:anything. The current currency markets are trading EURO:YEN. All other currencies are trading off the spread. It does not mean ignore it, but the relationship between the EURO/YEN has been more significant for the last 2 years.
The EURO/YEN has gone from 165 to 155 so far this year.
have to add that Gold is behaving VERY different in euros lately than in dollars. In euros it never seems to drop and only (slowly) goes up, while in dollars there are significant (few %) corrections along the way. The markets are clearly loosing faith in the euro, and they have every reason to do so.
Test
So I’m at a family gathering at my sister’s house yesterday, and my sister is feeling sorry for herself because her neighbor just bought a $1.6M home. I laughed (of course) and said that it wasn’t a very smart move on her part. My sister’s eyes became wide in confusion as she said, “What? It’s a buyer’s market isn’t it? Doesn’t that mean it’s a good time to buy?”
Aside from the obvious, what struck me about my sister’s disappointment in her neighbor’s move was not that she was moving to a big house, a house in a better school district, a better-built house - no, it was “a $1.6M house.” That says a lot about the mentality (and I use the term loosely) of middle-class America.
“Middle-class?” Gasp. I’ve become poor. Had a hunch, but this confirms it.
“what struck me about my sister’s disappointment in her neighbor’s move was not that she was moving to a big house, a house in a better school district, a better-built house - no, it was “a $1.6M house.”
Exactly. And it’s the same IMO when it comes to cars, clothes and other bling items. In the long run, or in terms of happiness–they don’t really care about the possessions themselves, they only care about how terrible it is that they don’t have it too! Kind of sad when you think about it.
Stuff doesn’t make one happy.
DOC
“The more stuff you own, the more it owns you.”"
The Fight Club
“The more stuff you own, the more it owns you.””
You got that right.
Its not until after complete destruction that we can have reserection.
Might as well vote hillary and speed up the process.
I own a huge chunk of the Sierra Nevada mountains…
And so do you.
The best things in life are shared, without any actual ownership. Our National Parks epitomize this belief.
They don’t call it the Great Outdoors, for nothing.
“Our National Parks epitomize this belief.”
Hear, hear!
They will be the next segment of our government to be sold off. We’re running out of government holdings to “privatize” (ie: sell to Bush/Cheney cronies at a loss to the taxpayer).
I can see it now: “The National Park Service is inefficient! Why is the government in the parks and recreation business? We should privatize these parks - Oh, and the fact that I own stock in this company or serve it’s board shouldn’t keep them from landing these juicy contracts!” Coming soon: Halliburton owns the Grand Canyon…
Or, as an added insult, they’ll probably be sold to foreign-owned firms.
“The best things in life are shared, without any actual ownership. Our National Parks epitomize this belief.”
Until they get sold by Bush and Cheney to their cronies in the private sector. They are running out of government resources to privatize. I can see it now: “The National Park Service is inefficient! Why is the government in the parks and recreation business?…And don’t let the fact that I own stock in the companies who have been awarded the contract and that I stand to make millions from this deal be cause for concern!”
So, Halliburton ends up owning the Grande Canyon.
Or, as an added insult, it gets sold to a foriegn compnay.
(Tried once and it never showed up, apologies if this is a double…)
Oh, Bub Diddley, you just about made me cry. I could so see them trying to pull that. Why does the public keep falling for that cr@pola?
When my house and 25 yrs of antiques/STUFF burned to the ground-94, I woke up, walked out the door with car keys, and wallet. Red Cross came by in the night to give me a Comb/brush, toothbrush, and small bottle of lotion.
Picture this, 6am, woman in long Tshirt, with Redcross bag and car keys, getting in saved car from garage..
The surreal thing in my mind, aside from devastation, was that “What was I forgetting”…nothing, I had NO STUFF left to worry about.
My stuff’s been in storage for a year and I’ve pretty much forgotten what I own.
I came into this world empty-handed. As I watch my money-pile increase every month, I keep reminding myself that I won’t be able to take even a signe penny with me when I leave this world in about 50 years ( I am in the forties, intend to live to be ~90ish.)
I believe in cremation. When I leave this world my ashes will be left behind. They will be sprinkled in the ocean. Then mixed with the sand sold to a building contactor. We all are worth pretty much the price of dirt.
Exactly DOC….
Where is a $1.6 mil house considered middle class?
In NARville of course and that is what poor folks buy so just imagine what you could have?
“Where is a $1.6 mil house considered middle class?”
The “middle class” person in my story was my (overleveraged) sister in her 3000sf house ($450K in 2004). I think that was the point - her neighbor was moving to a new class level of overindebtedness.
and my sister is feeling sorry for herself because her neighbor just bought a $1.6M home.
I hope for your sis’s sake that Life never wings a real problem her way. Although I do recall when I worked in REIC, a lot of the flashier transactions were driven by a sister or sister-in-law.
My sister’s eyes became wide in confusion as she said, “What? It’s a buyer’s market isn’t it? Doesn’t that mean it’s a good time to buy?”
My god, the NAR is good.
With names like Dick Gaylord, they better be.
Why would a candidate only rely on top aides of one gender? Doesn’t that create a potential appearance of gender discrimination?
Hint to newbie: Try not to create the appearance of a wannabe candidate desperate enough to do anything to win (even degrading the status of a former POTUS in order to bash one’s chief rival, if necessary).
2008 VOTE: PRESIDENT
Clinton shakes up top staff of campaign
Sen. Clinton shakes up campaign staff at top
By Beth Fouhy
ASSOCIATED PRESS
February 11, 2008
WASHINGTON – Sen. Hillary Rodham Clinton replaced campaign manager Patti Solis Doyle with longtime aide Maggie Williams yesterday, engineering a shake-up in a presidential campaign struggling to overcome rival Sen. Barack Obama’s financial and political strengths.
http://www.signonsandiego.com/uniontrib/20080211/news_1n11campaign.html
MW is also the same race as the opponent. Am I just being cynical?
http://www.latimes.com/news/nationworld/politics/la-na-hillary11feb11,1,5175375.story
Hmmm… no, I wouldn’t say you are being cynical… but you are sounding sort of superficial and illogical - maybe unintentionally - maybe not - idk.
When talking about most of the work of the world, skin color and sex really doesn’t tell one that much (unless one is bigoted and believes in that kind of thing) - of course what really matters is a person’s ability or culture or values or character or intelligence or (lack of intelligence)… and the more we look beyond the color, the sex, the physique… the better off our world will be.
We all know why some people talk about these distinctions based on physical characteristics - it’s to further the concept that these distinctions matter. Usually it only matters to certain people who still need these color,sex… distinctions to matter. But I believe most people, don’t think in these distinctions much anymore - it’s illogical - competence comes in many physical packages.
Also, just talking like skin color or sex is important just belittles everyone - there are plenty of smart, competent men, women, whites, blacks… blah, blah, blah.
C’mon world - let’s get smarter and talk about what people are accomplishing and have yet to accomplish without considering their physique!
Do you sell Amway too or maybe real estate?
Thats what I was thinking also Chic….Color doesn’t matter ?? Tell that to Henry Ford Jr. in Tennessee when he went from four points up to four points down in the last week of his campaign when his opponents ran the “Blond Blinky” commercial…
Henry = Harold….
Just calling you out sistah! (ooops… jk, I’ve been watching too much Sarah Silverman lately.)
Unfortunately, typifiying me a Pollyana “real estate agent” is just another stereotype that gets it so wrong… but I can’t fault you - no way you could really know. In fact, I think the comment implying I’m a Pollyana because I oppose sweeping stereotypes is sort of funny (well, and sad too ) and sort of makes my point. Maybe you have a sense of humor too.
I’m actually a glass empty type with a fascination with progress that comes with new ways of thinking. I like to mix it up; I like to challenge some things.
Today I thought it would be fun to call out stereotypes and “cynicism.” - dead end thinking.
Anyone who is interested in the idea that stereotypes limit our world, check out the recent interview of John Edgar Wideman on Diane Rehm’s show - he explains how unchallenged stereotypes keep the world limited. Also included in the first hour is a good interview with a bunch of smart people on sovereign wealth funds - interesting views all around!
http://wamu.org/programs/dr/08/02/04.php
Seriously, I bet Maggie had to do work really hard for her promotion – *wink wink* – but we all “know” that she probably slept with Hillary to get there – jk, jk.
Look, don’t take my jabs personally. I usually find your posts informative and entertaining. You just happened to be the person to post this kind of dead-end thinking – could have been someone else and I would be saying the same thing.
Good luck on that one.
LOL. Life is too short to listen to Diane Rehm. I let my husband do that. One lilly livered liberal is enough for a family.
Her speech is a little slow ’cause she had a stroke. If you can get past that long enought to listen for ten or twenty minutes you’ll find out that her disability makes her the best moderator on any news show anywhere. This is because because people can’t talk over her or ignore her or effect not to understand her questions without looking like absolute swine. Meanwhile she’s extremely smart and calls people on all sorts of crap you wont’ see anybody else calling them on. Diane Rehm is the bomb.
I agree in principle, but why put her on during morning drive? The show is soporific, even by NPR standards. (One more problem with living in Texas. Even our time zone sucks
)
“But I believe most people, don’t think in these distinctions much anymore ”
You gotta get out of the house once in a while and meet some folks. And perhaps a little travel will help…perhaps Japan, China or Saudi Arabia can explain their enshrined xenophobia or sexism. Or Kenya, where race is moot–it’s tribe against tribe.
“C’mon world - let’s get smarter”–so ‘fess up. Do you get your ideas listening to the questions on world peace asked of beauty pageant contestants??
One would have to be deaf, dumb and blind to want Hillary as our next president. I haven’t heard any definitive plans on anything from her, I can see that shes gone thru menopause and has shape shifted, and she hasn’t explained her previous criminal activities, ie existing lawsuit and oh, the chineses campaign funds.
900 FBI files ???
I don’t think you can be cynical enough when thinking about her motives.
well if she did choose her campaign director according to skin tone, she’s a little late on that bandwagon
The flight to quality is on. Six fine paintings in as many days in Switzerland, gotten for a song and a gun.
Over a long period of time, I wonder what the correlation is between art theft and major downward shifts or instability in the world economy.
Switzerland has gotten uber xenophobic lately…
It’s a weird piece of the puzzle, that is Europe.
The bankers there are waste deep, in dodgy U.S. financial wrongness…
“waste deep” intentional or not, funny all the same.
Somebody has to torture the words.
Please it’s only enhanced interrogation when you waterboard the English language.
Serf’s up…
b.y.o.w.b.
An email I received a while ago…
“A thief in Paris planned to steal some paintings from the Louvre.
After careful planning, he got past security, stole the paintings and made it safely to his van.However, he was captured only two blocks away when his van ran out of gas.
When asked how he could mastermind such a crime and the make such an obvious error, he replied,
“Monsieur that is the reason I stole the paintings.
I had no Monet
to buy Degas
to make the Van Gogh
See if you have De Gaulle to send this on to someone else.
I sent it to you because I figured I had nothing Toulouse.”
LOL. Good, and timely.
A lending sector that threw away good monies down the subprime rathole is now trying to make up for their grand folly by gouging credit card customers.
So much for a break in credit card rates after the Fed’s cuts
Foreclosure-stung banks reluctant
By Nancy Trejos
THE WASHINGTON POST
February 11, 2008
WASHINGTON – The Federal Reserve’s dramatic rate cuts were expected to make it cheaper for consumers to use credit cards. But credit card interest rates remain high and in many cases have even climbed.
(Sidebar:
SPENDING SLOWDOWN
The Federal Reserve reported last week that borrowing slowed in December, with Americans’ revolving debt totaling $944 billion, most of it on credit cards. That was a seasonally adjusted annualized increase of 2.7 percent, down significantly from a growth rate of 13.7 percent in November.
SOURCE: The Washington Post)
Bruised by a rise in foreclosures, banks have been reluctant to lower rates for cardholders who have missed payments or had their credit scores slip, analysts and industry watchdogs said. Yet even some cardholders who pay on time have not benefited from the Federal Reserve’s recent actions, as banks raise rates and fees to make up for losses in their mortgage departments, analysts said.
“Not everyone is going to get a rate decrease,” said Edmund Mierzwinski, consumer program director for the U.S. Public Interest Research Group, a Washington-based consumer advocacy organization. “People presume that because the Fed lowers rates, the banks will.”
http://www.signonsandiego.com/uniontrib/20080211/news_1n11credit.html
Add credit card rates to the list of things the fed does NOT control,
The 2 yr rate
The 10 yr rate
The 30 yr rate
Mtg Rates
Oil Prices
Coporate Bond spreads
Rating Agencies’ Ratings
…
Of course… Jim Cramer was saying this would save the Consumer but what does he know? We knew this was a bailout for WallStreet that was pitched as a bailout for the average Joe.
Wall Street wins… everyone else loses because of devalued currency and higher prices.
For a graphic of how the “either-or” and “both-and” inflation/deflation arguments are faring, check out this graphic, which starts in August ‘07, when we first heard that the ’subprime problem is contained’.:
http://tinyurl.com/3cea2z
My translation of this front page Wall Street Journal article: Today should be a reasonably good day for the U.S. stock market.
PAGE ONE
New Hitches In Markets
May Widen Credit Woes
By LIZ RAPPAPORT, CARRICK MOLLENKAMP and KAREN RICHARDSON
February 11, 2008; Page A1
A widening array of financial-market problems threatens to trigger a new phase in the global credit crunch, extending it beyond the risky mortgages that have cost banks and investors more than $100 billion in losses and helped push the U.S. economy toward recession.
In the past few days, low-rated corporate loans — the kind that fueled the buyout boom of recent years — have plummeted in value. As a result, banks are expected to try to unload some of those loans this week at fire-sale prices.
Nervous buyers also have retreated in recent days from the market for securities backed by student loans and municipal bonds, roiling some corners of the short-term money markets. Similarly, investors have recoiled from debt backed by commercial real estate, such as office buildings.
Over the weekend, the world’s top banking authorities warned that the U.S.-led economic slowdown and continued uncertainty about securities could lead banks to further reduce their lending, and choke off economic activity. (Please see related article.)
One sign of investors’ anxiety: Standard & Poor’s said its index of the prices on high-risk corporate loans fell to a record low of 86.28 cents on the dollar at the end of last week.
http://online.wsj.com/article/SB120269228578457765.html?mod=hpp_us_whats_news
Volatility bungee jumping time…
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=INDU&time=1&freq=9&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
For anyone watching the bungee jump going down deeper and deeper, I assure you that the bungee chord will not snap — in fact, there will be a dead cat bounce after this market drop just like there always is…
Wow — now I can see why they say cats have nine lives!
Those who are wringing their hands today because the DJIA is dropping like a rock should reassure themselves that the market is not even in bear market territory at this point. In fact, the DJIA is a mere 15 pct off last October’s highs. Buy the dip and catch the next bull market rally!
Hoz — Would you care to offer your thoughts on how soon you expect that long-predicted spike in l-t T-bond yields to play out?
http://tinyurl.com/34yljb
Flight to quality world wide. The JGBs have soared. Flight from any corporate and municipal debt.
Fed Foreign Holdings of Treasury, Agency Debt last week (ended 2/6) increased $7.3bn to a record $2.118 TN. “Custody holdings” were up $61.2bn y-t-d, or 25.8% annualized, and $320bn year-over-year (17.8%). Federal Reserve Credit declined $2.9bn last week to $861.7bn. Fed Credit has contracted $6.1bn y-t-d, or 11.7% annualized, while expanding $20.2bn y-o-y (2.4%).
from prudent bear….food for thought.
From p. A2 of today’s WSJ:
Markets at Risk for Additional Shocks
Liquidity Pressure Could Come Back As Economy Slows
By Michael M. Phillips and Yuka Hayashi
Word Count: 899
TOKYO — Global financial markets may suffer a relapse into the turmoil sparked by last year’s collapse of securities backed by U.S. subprime mortgages, the world’s top banking authorities warned.
The U.S. Federal Reserve and other central banks have pumped enough money into the banking system to help alleviate the worst of the initial phase of the credit crunch, and major banks have now accounted for tens of billions of dollars in losses that had been moldering in off-balance-sheet entities. But the U.S.-led economic slowdown and continued uncertainty about securities may lead banks to further reduce lending and choke off economic activity, the Financial Stability Forum said in a report Saturday.
…
“and major banks have now accounted for tens of billions of dollars in losses that had been moldering in off-balance-sheet entities.”
I hate the press. They try make it sound like all the lies, deceit and fraud has now been uncovered and completely accounted for.
What the chart shows is that when the Dow fell 2000 points over six months; gold went way up.
So exactly why would gold drop big if the market dropped big in the future?
Expect housing, equity markets, and dollar to continue to erode.
Expect strong PM prices to continue.
Expect continuous unravelling of dollar denominated derivatives to the detriment of financial institutions.
Expect an economic depression.
‘Headwind’ Blows As Top Executives Navigate Trouble
By Dionne Searcey
Word Count: 1,001
America’s captains of industry are starting to talk like, well, sailors.
At a Goldman Sachs conference in December, G. Kennedy Thompson, chairman and chief executive officer of Wachovia Corp., informed investors that the bank and its competitors were facing “headwinds.”
An audience member asked the logical question: “So, how big a headwind should we think about in ‘08?”
“Well, right now, it’s a big headwind,” Mr. Thompson replied.
http://online.wsj.com/article/SB120270082858658203.html?mod=todays_us_nonsub_page_one
Headwind Unwind
As we sail through this fog bank, it’s not the headwind that scares me. It’s the fact that I can hear waves breaking upon a lee shore.
well…as I was saying…
http://www.reuters.com/article/worldNews/idUSSYD9153120080211
Short-Term Gain Could Yet Yield Long-Term Pain
By mark gongloff
Word Count: 527
Policy makers these days are fixated on stimulating a sleepy economy. But repairing its underlying problems doesn’t look like the kind of fast or easy job many have in mind.
Think about the road tripper who pounds an energy drink to stay awake on a long-haul drive: He gets a short-term jolt, and then gets even sleepier. Similarly, the economy is about to start chugging the Red Bull of interest-rate cuts and tax rebates, which could briefly lift it from its doldrums.
http://online.wsj.com/article/SB120268880891257597.html?mod=todays_us_nonsub_money_and_investing
Two more observations from my family gathering yesterday; my window into the minds of middle America (Philly Suburbs style):
1. My sister-in-law is holding off on selling her 5-br house (paid off) because she “doesn’t want to lose her shirt.” She’s waiting for housing to bounce back.
2. My brother is putting off retiring because of the housing collapse(and his declining primary asset) and his fear of where the stock market is going.
2. My brother is putting off retiring because of the housing collapse (and his declining primary asset) and his fear of where the stock market is going.”
Multiply your brother’s action by several million times and you have the solution to the social security underfunding situation.
Combo, you’re on to something. I think that widespread retirement will disappear within a generation. Reason: Leisure is expensive. Most people can’t afford it for more than a few weeks.
Yeah, those monthly trips to Vegas can sure add up.
This is another point of reality disconnect for J6P. He thinks that he will spend his retirement on cruise ships and Las Vegas. Instead, he will end up an $8/hr crosswalk guard living in a 1 bedroom apt. He will get to know the nice people at the public library by name. He will also learn that if he wants some time on the library PCs (to surf the web) that he needs to be there at opening time.
“He thinks that he will spend his retirement on cruise ships and Las Vegas”
Most old folks I know spend most their days going to the store and buying stuff.
Is your brother a Boomer (54-63) ???
This here young boomer retired at the end of 2006 after selling his house at the end of 2005. In 2007 my portfolio, average 70% US cash, was up 10%. So far this year my portfolio, 55% US cash, is up almost 3%. US equities are only one of many areas of investment. My small US equities position is mostly on the short side.
Moral: Counting on your house and the US stock markets to fund your retirement can be a case of putting too many eggs into too few baskets.
There was a post last week about the potential for gold bubble and a discussion about the general public’s lack of knowledge ofprecious metals markets. Recently my niece was invited to a neighborhood “sell your gold” party. She didn’t go, but the idea as best as I could tell was bring in a piece of jewelry that you no longer wear and make a few bucks while jawing with the ladies.
I put up the “Decade of January Monthly Sales” for Northern Virginia.
Arlington and Alexandria we’ve been watching closely, and they finally got smacked down hard in January 2008.
how about fairfax peoples county ?
I’m showing off 21% from peak
flat,
Fairfax 2008 sales are at a decade low and are 50% off from last year — and 13 months of inventory, up from 5 months last January. My crystal ball says that’s not so good for keeping prices up.
Just to clarify: 50% off is not the price, but the sales rate for January.
The January rate is at a decade low, but the median price is 219% higher than it was in 1998. January prices are 13% off the sales peak ($395k in 1/2008, $456k in 1/2007).
Craigslist scams targeting NYC renters.
http://tinyurl.com/256nym
Ya just can’t make this stuff up!
Leigh
Did anyone see Law & Order this week? It was about a guy getting people to quick claim their house over to him temporarily so he could help straighten out their credit. He then sold their house to someone else. He had a girlfriend who handled the title work. Somehow the mob was connected. I only heard bits and pieces of it, as my husband was watching it. I thought, boy how true it is.
(it is quit claim, not quick claim.)
I watched it. There were flaws.
These rescue firms are not selling the houses. They are just refi-ing them to themax, then walking away and letting the bank take the house. Much harder to sell than to refi.
The obfuscated the “cash back at closing” fraud. The scammers will selling the house for below market and getting cash at closing from the buyer. The result would be the bank being owed less than the house is “worth”.
People don’t have that kind of cash sitting around. “Cash back” was really to the buyer for buying above market price. Buy a $200K house for $250K and get $50K cash-back. The $50K gives the buyer cash to make the payments while they are “flipping” and it creates a higher comp and market velocity to get the house to appraise for more when they resell a few months later.
This results in the bank being owed more than the house is worth. That is why the banks are recovering so little in these cases.
They had to BADLY mangle reality to get the story to fit the plot line they wanted.
RE: “Cash back” was really to the buyer for buying above market price. Buy a $200K house for $250K and get $50K cash-back. The $50K gives the buyer cash to make the payments while they are “flipping” and it creates a higher comp and market velocity to get the house to appraise for more when they resell a few months later.
Only feasible with a crooked appraiser to fudge the comp’s.
Well, if you’re that stupid, you’ll get scammed in NYC daily.
Which part of don’t give out any money upfront do they not understand?
I’m glad every day I have no cousins or other relatives who “work for real estate” or “in the mortgage business”.
That way I successfully not only ‘missed’ the bubble and avoided financial suicide, but also staued clear of family feuds, which would be the worst thing I can think of, according what I am reading lately.
Maryland, Virginia January housing MRIS sales report. Surprise - the percentages are way down.
http://www.mris.com/reports/stats/monthly_reti.cfm
CNBC will have NAR president on at 7:15pst. This should be interesting…….
what did the NAR pres end up saying?
“It’s a good time to buy.”
Mark Haines pointed out that he’s never heard a realtor say anything else. It was pretty funny.
“After inflation is considered, the bank will pay you to borrow its money”
NOT banks you fracking nitwit…SAVERS!!!!!
(my comment is directed to the person speaking in the article…not the poster of the article)
hahaha, what an idiot. He said you should start thinking about buying now, and they called him on it. Said “I’ve never had a realtor tell me it was NOT a good time to buy.” Said pretty much next to nothing, what an ass…
The identification problem rears its ugly head, as it is impossible to tell whether an increase in Treasury bond yields is due to inflation worries (pessimistic) or an increased demand for loanable funds (optimistic).
I am wondering how the sharp drop in l-t T-bond yields today squares with the timing of this happy talk piece from Bloomberg?
Economy Rebounds Before Election, Treasuries Show (Update2)
By Daniel Kruger
Feb. 11 (Bloomberg) — Before you can say “Barack Obama is president of the United States,” the economy will be growing faster again.
That forecast is based on the rise in the five-year Treasury yield from its lowest level relative to two- and 10- year notes since 2001. The last two times that happened was during the recessions of 1990 and 2001, and the economy began to expand within nine months.
“We’re actually starting to see tell-tale signs by the market that it expects the economy to be in recovery in six to nine months,” said James Caron, head of U.S. interest-rate strategy in New York at Morgan Stanley. The five-year note “tends to be the most forward-looking point on the curve,” said Caron, whose firm is one of the 20 primary dealers of U.S. government securities that trade with the Federal Reserve.
If past is prologue, then the five-year note’s yield indicates the economy will be on the mend by the Nov. 4 general election. Whoever wins the White House may have Fed Chairman Ben S. Bernanke to thank for cutting interest rates at the fastest pace in almost two decades and President George W. Bush and Congress for a proposed $168 billion stimulus package.
http://tinyurl.com/34yljb
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8qLR4f6OieU&refer=home
Unless my eyes lie to me, the 5-year Treasury yield is close to an all-time low, and also shows the largest drop this morning. Great timing for this article, Bloomberg!
Notes/Bonds
COUPON MATURITY
DATE CURRENT
PRICE/YIELD PRICE/YIELD
CHANGE TIME
2-Year 2.125 01/31/2010 100-14¾ / 1.89 0-02½ / -.043 10:36
5-Year 2.875 01/31/2013 101-04 / 2.63 0-08¾ / -.059 10:38
10-Year 3.500 02/15/2018 99-06+ / 3.60 0-13 / -.049 10:38
30-Year 4.375 02/15/2038 99-28¼ / 4.38 0-20¾ / -.039
PB that chart is pathetic.
I hate this new helter skelter crap.
The rise last week was because the Treasury auctioned off a bunch of 30-year bonds while Asians were off for their New Year.
Almost like the treasury was TRYING to steapen the yield curve. In a free market economy like ours, surely the government would not so blatently attempt to influence markets… would they?
Asia is back and AIG is talking $4.88billion loss. Money is again flowing to safety.
They are. That’s how banks will recapitalize.
The “yield steepener” trade was a no-brainer once they started cutting. Short 10Y; long 1Y/2Y.
Dangerous stuff though; negative theta (= you pays to play.)
Ah yes, another gloom and doom week for everybody.
Everybody except the banks and Hell St.
Ben, who is left in Phoenix to afford a townhouse “starting” at 900K
http://www.luxist.com/2008/02/11/green-townhomes-at-the-aura-at-camelback/
At least they are talking 2K-3K sqft. There are dozens of projects offering 700 sqft for $500K+.
And, Camelback and US51 is Biltmore. A truely “richy” area of town. No way you could rent right there for less than $800-1000 a month. Some of the “luxury condos” like near ASU, you can rent a block or two away for $600.
There’s a luxury condo complex in Tucson (Ice House Lofts) where units are selling for $300k and up. But you can rent a unit there for $925/month.
Yeah….And look at the “Ding Bat” with her head on his shoulder…
Florida Taking Its Toll (Brothers) On Daughter’s Condo
Posted By:Diana Olick
Topics:Interest Rates | Housing | Real Estate
Sectors:Construction and Materials
Companies:Toll Brothers Inc.
You just can’t make this stuff up. Apparently even a big builder’s daughter can’t seem to keep faith in the Florida housing market. According to an SEC filing, Wendy Topkis, daughter of Toll Brothers co-founder and Vice-Chairman Bruce Toll, is walking away from a Florida condo, just like everyone else. A Toll Bros. condo!! The Palm Beach Post says it best: Et Tu Wendy?
According to the home builder’s proxy statement:
Prior to fiscal 2007, the Company entered into an agreement of sale to build and sell a condominium to Wendy Topkis, Bruce E. Toll’s daughter, and her husband for a purchase price of $2,468,075. In January 2008, the buyers informed the Company that they did not intend to make settlement on the condominium. The Company intends to pursue its rights under the agreement of sale.
Does that mean they’ll sue darling daughter? The company’s general counsel says they are pursuing normal procedures.
Daddy is quoted as saying she just changed her mind because she had another child and the place would be too small, but I’m guessing the 13 percent drop in Florida prices was screaming at her a little louder than the baby. So Wendy just adds to the company’s 61 percent cancellation rate in the Sunshine State.
related content
Toll Bros. CEO compensation tops $7.1M
Sector Glance: Homebuilders rise
Now, if Wendy was required to put down the same 7 percent deposit on the new home as everybody else, then she could be out $172,765. Of course, daddy made about seven million dollars last year, so maybe he could help out, or perhaps he wants her to learn about fiscal responsibility the hard way. None of my business of course; just family business…or lack thereof.
http://www.cnbc.com/id/23110984/site/14081545?__source=yahoo%7Cheadline%7Cquote%7Ctext%7C&par=yahoo
The best part of Toll is their 61% CANCELLATION rate.
Now that wheat is hitting new highs, I am going to miss the taste of bread and cereal.
Are Oats going up too?
All grains are going up.
Big moves in commodities again today. Nat gas and silver especially, and oil is up.
Hedonically adjust your diet; for example, eat tree bark instead of costly bread. This message brought to you be YOUR federal reserve.
Sawdust……except there is a shortage of sawdust, due to the drop in starts in new housing.
Life is complicated nowadays, isn’t it?
Hey Watcher, if you have cottonwoods, you CAN eat the inner bark. Horses and cattle can eat it too. The Ute Indians of Utah and Colorado used it for survival during hard winters. Just a little fact everyone should know…LOL
Yeah and you can boil acorns to remove the toxins and grind up for flour.
Seems like those in the midwest should get Ewell Gibbons book
“Stalking the wild Asparagus”
and on the coasts
“Stalking the Blue-eyed Scallop.”
But the recent grain prices are going to impact the primary food groups of beer and malt whiskey.
Hoz, time to make the shift to wines…do they have chokecherries out there? Makes a nice wine, not too sweet.
You can’t make this stuff up!
So much for the old joke about “no one would buy from him except his family.”
Apparently Toll Brothers (NYSE: TOL) can’t even get co-founder and vice chairman Bruce E. Toll’s daughter to close on the home she agreed to buy from the company.
http://tinyurl.com/2jtxho
http://tinyurl.com/2cqjgg
Interesting column from the CEO of Emerge Homes, described as a luxury builder in the column. This guy correctly diagnoses the problem as affordability. Instead of taking that logic to it’s obvious conclusion that prices have to fall more to get in line with incomes he says:
“The solution is not to be found in a short-term stimulus nor in waiting things out. What is needed is a new standard mortgage product, something as revolutionary today as the 30-year fixed-rate loan was when it was introduced.
So many people bought into subprime loans because that was all they could afford. Subprime and Alt-A lenders exposed the market demand. Now it is time for more trustworthy capitalists, more focused on long-range outcomes, to meet this demand and reopen the door to homeownership to millions of Americans.”
Maybe a 90 year, negative amortization, option ARM, that calculates the interest based on fluctuations in global warming patterns. Anything but letting prices get in line with what incomes can support.
Law of diminishing returns. Going from a 5 year mortgage to a 30 year mortgage means the principal went from 75% of the initial payment to only 17% of the initial payment.
$150K at 7% for 5 years = $2900 payment on $750 interest.
$150K at 7% for 30 years = $900 payment on $750 interest.
5 year to 30 year = resulted in payments falling 65-70%.
30 year to infinate year = 15-20% drop, MAX.
The only way prices are not going to fall substantially is if we can get mortgages at or below rate of inflation or if we can get a huge jump in wages.
Local observations: the better educated sheeple are waking up.
For years now, I was one of very few people speaking out against the Bubble and the insane notion that runaway asset inflation and ballooning debt loads was somehow good or normal. Housing cannot keep “going up” if incomes stay the same.
Well, in the past week or two, I’ve overheard several conversations in the halls at work: a group of people complaining about the Fed lowering rates and trashing the dollar, another group complaining about the housing Bubble (bad loans, debt, etc.), people a few cubes over talking about how housing is overpriced, etc. Now, these are engineers, so it’ll be a while before the common sheeple catch on, but a few years ago everyone one of these people would have been preaching the New Order: “housing only goes up, debt is wealth, low rates are good, etc.”
It’s slow progress, but progress nonetheless.
surprised that Engineers caught on so soon. They usually take ages of charts /graphs, data ad infinitum to come to a ‘decision’
I resemble that remark! Sorry for the time delay, I had to evaluate whether my response would be positive or negative.
Signed:
Old Engineer
Old engineers are critical to the economy.
While young engineers are sitting at their desks waiting for the computer power to come back on, the old engineer walks past their desk, reaches over and plugs the monitor power cable back in.
Hey, Pondering.
Did you ever get my e-mail? Did it get routed to your spam folder? I never heard back.
I don’t know if you saw my reports, but I got my landlord to agree to no increase on my new lease as well - thanks for the inspiration. The 6.9% proposed increase we both saw came from the recommended increase from THE COUNTY for this year. Ridiculous.
So much for the falling dollar making US industry more competitive…
A good friend is a paper mill manager, so I asked him this weekend if the falling dollar was helping his company better compete with foreign producers?
NO. In fact, most of their industrial components (machines, chemicals, etc…) are imported. Consequently their production costs have skyrocketed over the past 12 months and wiped out any potential profit. Look for rising paper costs over the next year as this is passed on to consumer. But don’t worry, no inflation.
What if credit contraction yields a fundamental deflation, but a falling dollar results in nominal inflation?
GHD….. I’m from a long line of papermakers but never entered the field. You in Maine? Alabama? Tenn?
My buddy is in northern WI, the land of closing paper mills and second homes on a puddle. I’m now in WA state, but grew up in central Illinois.
Pulp and Paper weekly today announced today that, IIRC, 6 major paper producers are going to raise prices $50 per ton on March 1st for liner board and medium. No way the box producers are going to get this through to the OEM’s.
Comment by In Colorado
“He thinks that he will spend his retirement on cruise ships and Las Vegas. Instead, he will end up an $8/hr crosswalk guard living in a 1 bedroom apt. He will get to know the nice people at the public library by name. He will also learn that if he wants some time on the library PCs (to surf the web) that he needs to be there at opening time.”
Yeah, but it beats hell outta the lifestyle of the American vagabonds living out of motor homes, moving from Walmart parking lot to Walmart parking lot. I see the ‘everything I own piled on my motor home’ people increasing every year, and I notice these blurry-eyed gypsies stumbling to their rolling homes from service station restrooms, Mail Boxes Etc., local parks, convenience stores, etc. with their nutritious booty (canned Ravioli, diet soda, and a Kit Kat bar) to bolt down while staring out at another day of endless boredom and hope against hope that their home-on-wheels doesn’t break down in a big way, or that gas prices don’t get any higher.
I know two couples who defy this stereotype. One couple is a husband-wife team of software developers. They run their business from their RV. Other couple is a web developer/writer and photographer combo. They’re two or three decades younger than the software couple, but like the software people, they’re having the time of their lives. I think it’s because they’ve found occupation/travel lifestyles that work for them. I don’t think that either couple is about to retire.
One would think that these people chose their motor home lifestyle, whereas the Mr. Playah’s will find that Vegas and cruise ships are not for 60 year olds living off of Social Security.
Comment by Arizona Slim:
“I know two couples who defy this stereotype.”
Exceptions are to be found for almost everything. The couples you describe sound as though their lifestyle is based on choice, not necessity, and it sounds like they have the ability and resources to buy a stick-built home if they so desired it. I was referencing folks living out of motor homes because that is all they have, and all they can really afford to have. I’ve met people from Florida to California living a motor home lifestyle, but they most often had a permanent home somewhere.
Amy Winehouse cleans up to the exclusion of “the Boss”.
The end really is near!
Am I old, or what?
I’ve never even heard of anyone on that show last night, other than Herbie Hancock.
My daughters made me listen to “Mika” a while back……..made me want to pound icepicks into both ears.
What’s happening with Silver? Gains in the past month have outpaced gold 8% to 2% (approx)
‘Markets naturally self correct, rewarding good strategies and punishing bad ones. Government actions may be less effective at differentiating between the two and may prevent markets from creating products that benefit consumers.’
— The White House economics team
http://www.marketwatch.com/news/story/white-house-warns-congress-about/story.aspx?guid=%7B9151DB91%2D4B31%2D4A85%2D9F5A%2D0985561DD765%7D
I have VERY SAD news to report from California!
It seems that Barbara Boxer, our senator, cannot read!
I sent her a letter that urged her NOT to support the stimulus package and NOT to raise the conforming loan limit. I suggested that the “jumbo loan” amount be lowered, to keep up with the falling median house prices.
Here’s the reply I got from her. What’s SICKENING about this is my letter was probably mis-counted as being in support of this handout to our nation’s deadbeats.
Dear Mr. S******:
Thank you for contacting me regarding H.R.5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008. I appreciate hearing from you about this economic stimulus package, and I want to assure you that I strongly support providing Americans with timely relief.
I am pleased to report that on February 7, 2008, the Senate passed its version of H.R.5140. I voted for this important legislation, which also passed the House of Representatives and will soon be signed into law by President Bush. Although I am pleased that we were able to add seniors and disabled veterans to the rebate program, I am very disappointed that my Republican colleagues blocked our efforts to extend unemployment benefits, add funding for low-income heating assistance and include tax breaks for green energy, homebuilders and homeowners.
H.R.5140 will provide approximately 130 million Americans with rebate checks of $300-$600 per individual and $600-$1,200 for married couples, plus $300 per child.
The Senate’s version of H.R.5140 will also provide rebate checks to 20 million seniors, including about 2 million Californians. In addition, H.R.5140 will provide rebate checks for 250,000 disabled veterans who receive at least $3,000 in nontaxable disability compensation. I believe that these provisions are crucial to stimulating our economy, as our seniors and disabled veterans are among those most in need of assistance and also among those most likely to quickly spend their entire rebate.
H.R.5140 also addresses the mortgage foreclosure crisis by temporarily raising loan limits for federally backed mortgages to $729,750, which would allow many borrowers who have or are seeking higher interest jumbo loans to qualify for lower interest rate conforming loans. This will help our families lower their monthly mortgage payments and even save their homes from foreclosure.
Again, thank you for writing to me. Please feel free to contact me again about this or any other issue of concern to you.
Barbara Boxer
United States Senator
What else would you have expected?
BWAHAHAHA - oops, sorry, but you expect a politician to pay any mind to us non-elites (assuming you make under 500 mil/year)???
The foreclosure bus has arrived in Longmont:
http://www.reporterherald.com/news_story.asp?ID=14896
“Even if you weren’t looking for a house, it was kind of fun just to gawk,” one man said as the bus returned.
“…if you look back at the exchange rate in 2001 and compare it to the exchange rate today, they are different. What that implies, of course, is that American goods have become cheaper, and that imported goods have become more expensive over time. That’s a fact, not a policy statement.”
Mr. Henry Paulson
Feb 11, 2008
remember that the next time he says we favor a strong dollar.
You mean: it’s a policy statement, not a fact?
As I read the evening’s posts, one of two things is pretty darned good tonight - the wit or the Scotch.
This story is made for the HBB.
Housing Gets Seedy and Strange
On Brittain Street in Akron, a lit-up sign with an exotic dancer on it stands as a testament to just how seedy and strange parts of the housing industry became in recent years. Willan was allegedly laundering money from his mortgage fraud ring through this strip club.
Those close to Willan say he was living large — driving fancy cars, partying, dating exotic dancers. He owned a yacht. Attorneys involved with the case say Willan funneled upwards of $700,000 into the strip club, setting it up as a side business to fall back on as his housing company headed into bankruptcy.
Akron is not Manhattan or San Diego. It is a gritty manufacturing town that never had a housing boom. Willan probably wasn’t going to get rich quick buying and selling houses if he played by the rules.
http://www.npr.org/templates/story/story.php?storyId=18885797
I was listening on the way home tonight. After that report above on mortgage fraud, they gave more information on a previous days report. The subject, a man who was going through foreclosure because his loan was significantly higher than his house’s value (keeping him from refinancing), turned out to have done a cash out refinance - the (or one of?) the reasons his loan was more than the value.
Nice of them to come back and make this point. Hopefully they weren’t prompted too hard. Seems like some are getting the point.
AIG’s subprime hit
Published: February 11 2008 21:19 | Last updated: February 11 2008 21:19
Another day, another loser in the global game of subprime hide and seek. As the Group of Seven finance leaders said over the weekend, there could be $400bn of losses in the financial system linked to US subprime mortgages.
Yet only $120bn have been revealed so far. American International Group’s confession on Monday reveals where some more of the losses were hiding. In December, the US insurer announced a $1.05bn to $1.15bn charge for October and November for credit default swap (CDS) insurance it wrote against collateralised debt obligations backed by subprime mortgages.
http://www.ft.com/cms/s/4172507e-d8e4-11dc-8b22-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F1%2F4172507e-d8e4-11dc-8b22-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Lessons of the credit crunch
By Chris Giles and Gillian Tett
Published: February 11 2008 19:51 | Last updated: February 11 2008 19:51
Six months ago this week, the world realised the credit party was over. Ever since, the spotlight has been shining on the very core of central banks’ operations – the process of setting interest rates in markets and their skill in easing the first generalised transatlantic liquidity shortage for decades.
None of the institutions at the heart of the crisis – the Federal Reserve, the European Central Bank and the Bank of England – has found the past half year comfortable. The period has been the equivalent of a test-tube experiment in modern central banking, and policymakers now resemble a distinctly uneasy group of scientists: they know what policies they have put into the pot in recent months, but are far from clear why the markets have reacted in certain ways – and even less sure that they have devised the perfect cocktail to stop markets erupting again.
http://www.ft.com/cms/s/5d533184-d8d3-11dc-8b22-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F5d533184-d8d3-11dc-8b22-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Groan - “New mortgage rescue goes beyond subprime.”
“The plan, called Project Lifeline, is to be announced Tuesday by the Treasury Department and the Department of Housing and Urban Development, a person familiar with the plan said Monday evening, confirming earlier news reports and speaking on condition of anonymity because it had not yet been made public. The plan will allow seriously overdue homeowners to suspend foreclosures for 30 days while lenders try to work out more affordable loans are worked out.”
http://tinyurl.com/2ewzxp
you cannot wave a magic wand on this one.
At 0% and you cant service a 30ry Amortization…the Foreclosure tsunami cannot be overcome…..RIP THE BAND-OFF.
seriously though, after the comments on the Cali thread….they are bulldozing, dismantling, and otherwise wiping the slate clean. All the homebuilders should just go under at once….or maybe they can all just come together as one.
Keep payin, payin, payin
no money is what thy’re sayin
Keep them bagholders payin, bad loan
we won’t own a house just a sittin
So get a paper and pen and ink ‘em
Soon our bonuses will fly!
Boy my heart’s calculatin’
on the future profits will be makin, profits to buy a fleet of cars.
Sign em up, skip a month
skip a month, get em signed
sign em up, skip two months, bad loan!
forgive the debt, tack it on at the end
tack it on at the end, sign fo the debt
sign the docs, increase the loan Bad loan
Loaning , loaning loaning
Loaning , loaning loaning
Loaning , loaning loaning
Loaning , loaning loaning
Bad Loan.
no more walkin away in
I have friends ARMing from subprime 9% to 14% this year, on a 650k house. Unfortunately, they made a 100k downpayment.
I hope CFC enjoys the green swimming pool.
Hamzie Financial still says stay short….long call was INFN had a similiar style breakout as JDSU had a blastoff last week.
Brinker kicked out an all in signal in a “Special Report”.
both watch the put-call ratio..and they are split.
I still consider August to be the DOW sell theory breach, and February is now the Market timer breach.
If you are playing with money in the stock market, you are about to have your money taken away.
Hoz said something this weekend that got me thinkin.
If you buy what China buys and sell what China sells, you make money.
What does China buy.
Disclaimer: I am long food and energy. Or food as Energy. Or Energy as dollars. I am also long chemicals..
One might consider that bullish on dollars, chemicals, food, and oil.
A couple of news items this past week: Mr President George Bush said that literacy was important to establish and maintain democracy and freedom.
The next day the budget came out. President Bush axed the literacy program for children.
So much for any hope for Americans’ freedom and hope for democracy.
From PBS’s Frontline show on Mormonism, Monday 9PM, EST:
Joseph Smith’s involvement in a speculative frenzy surrounding a real estate bubble which burst, taking down his finances, nearly ended Mormonism before it started. Fascinating to hear about a real estate bubble in the 1830’s, and its impact on an American religion:
http://www.pbs.org/mormons/
After you finish digesting that, check out the father of our country’s involvement with real estate speculation…
http://www.answers.com/topic/land-speculation
More information on the Joseph Smith bank failure:
http://en.wikipedia.org/wiki/Kirtland_Safety_Society
Just an interesting historical housing bubble note, not trying to say anything good or bad about Mormonism.
For more on Mormons in banking history, read up on this fellow:
http://en.wikipedia.org/wiki/Marriner_S._Eccles
EXPLAINING OUR UNITED STATES TAXING SYSTEM WITH BEER
Suppose that every day, ten men go out for beer and the bill for all ten
comes to $100.
If they paid their bill the way we pay our taxes, it would go something like
this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the
arrangement, until one day, the owner threw them a curve. ‘Since you are all
such good customers,’ he said, ‘I’m going to reduce the
cost of your daily beers by $20. Drinks for the ten now cost just $80.’
The group still wanted to pay their bill the way we pay our taxes so the
first four men
were unaffected.
They would still drink for free. But what about the other six men - the
paying customers? How could they divide the $20 windfall so that everyone
would get his ‘fair share?’ They realized that $20 divided by six is $3.33.
But if they subtracted that from everybody’s share, then the fifth man and
the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to
reduce each man’s bill by roughly the same amount, and he proceeded to work
out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before and the first four continued to
drink for free, but once outside the restaurant, the men began to compare
their savings. “I only got a dollar out of the $20,” declared the sixth man.
He pointed to the tenth man, “but he got $10!” “Yeah, that’s right,”
exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he
got TEN times more than I!”
“That’s true!!” shouted the seventh man. “Why should he get $10 back when I
got only two? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison. “We didn’t get
anything at all. The system exploits the poor!”
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down
and had beers without him. But when it came time to pay the bill, they
discovered something very important. …they didn’t have enough money
between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax
system works.
The people who pay the highest taxes get the most benefit from a tax
reduction. Tax them too much, attack them for being wealthy, and they just
may not show up anymore. In fact, they might start drinking overseas where
the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible!
That has to be one of the stupidest posts ever put out on this blog.
In that case GS, I offer my deepest apologies to the HBB crew.