Bits Bucket For November 20, 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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Name:Ben Jones
Location:Northern Arizona, United States
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“We’re so engaged in doing things to achieve purposes of outer value that we forget the inner value, the rapture that is associated with being alive, is what it is all about.”
Joseph Campbell
Seriously, aladin, I am in a mood to forget market trends and have some fun living. The risks of doing so seem excessive, though. If somebody flips a deflation/inflation switch, I’ll need to be awake and unenraptured to save myself from ruin.
az_
A friend tells me bear sightings just from the road are pretty juicy just about now, he’s seen like 5-14 a day for the past few weeks, and the weather is perfect, so i’m going into hyber-nation a little later today, leaving hyperspace, in search of…
re: de/in
I might have stated my position once or twice, and for me and others of our ilk, all we’re doing now is sitting tight & waiting for the fireworks show to begin.
@ this very late hour, Alchemy is still being performed…
computer blips or paper chips into ne plus ultra.
Hop on board~
Ah, Joseph Campbell. One of the most brilliant philosophers (even though he’s technically a mythologist) of our time. He is an inspiration.
An interesting couple of days:
- Crude is still crashing - below $53 now.
- After a horrendous market day yesterday, futures are down some more this morning.
- Will the S&P break below its post-9/11 low of 798?
- Dollar is still rising vs. Euro and others (except Yen) - index pushing 88 now.
- Despite deflation reports and a strong dollar PMs are in a bit of a spike up.
Should add - Japan and Korea markets down almost 7% last night as well.
Crude still crashing? I guess the tin-fail brainwave of pirating oil to sustain the price isn’t working…yet…
As long as the Ninjas don’t get involved we should be ok.
Patience. Look for P/Es to go well below ten before anything resembling a bottom is reached.
Wrong!!! CNBC has told me 10,000 times that the bottom is already in. Now, don’t you feel silly, Mister I Love Cash So Much I Would Like to Marry It?
I feel a bit giddy, but not silly.
Days numbered if you hire clowns and run fantasy games to keep audience engaged.
S.P.Q.A.
Yep. I’m still very short on the market. My guess at this point would be S&P of 400 or so for the bottom. Buying opportunities may be had before then, but not yet.
Perhaps the end game is no market bottom. Either we somehow get the economy to catch and get hyperinflation and the dollar goes to 0, or we get communism and equities go to (near) zero. Communism offers the quickest solution to uncontrollable unemployment, which won’t be tolerated, so I see it as the logical outcome, even though it won’t be called that. Could all happen very quickly. Lock and load.
I sure wouldn’t want to be in Large American City @ this point in time, as people begin to unravel-not unlike many financial markets…
Heres some more rosy economic data to put one in a cheerful mood to start the day:
http://www.reuters.com/article/economicNews/idUSN2039410020081120
“UPDATE 1-US weekly jobless claims surge to 16-year high
Reuters - 39 minutes ago
By Lucia Mutikani WASHINGTON, Nov 20 (Reuters)
The number of US workers filing new claims for jobless benefits surged last week to their highest level in 16 years, Labor Department data showed on Thursday….. “
Violence is already on the rise here in Maryland. In the normally dull region I live in, we’ve had a gang of teens start attacking people on a local trail after nightfall and a multiple shooting last weekend in an area that normally doesn’t have such things… and it is only going to get worse - heaven help anyone who still lives in places like Baltimorgue!
I can’t speak to the violence as I haven’t necessarily seen much of an increase, but people are definately unravelling emotionally. My husband is a clinician for a psych hospital here in the L.A. area. He travels to emergency rooms and does psych evals. His nights on call would normally consist of 4-6 calls. That number has consistantly been climbing over the recent months that he now sees 9+ patients in a shift. THere are often several calls waiting for the next clinician on call as my husband couldn’t get to them all. He sees several people each week who have lost their home, sometimes their jobs and are having relationship troubles. It’s bad, and there is such a sense of hopelessness. By the time my husband sees them, they are ready to check out for good. It’s bad out there for many. Scary.
RE: people are definately unravelling emotionally.
LMAO..fookin’ lightweights!
This thing hasn’t even started yet.
Wait’ll the food trucks stop coming because of inner city hijackings and then the lights go out because the electric utilities are broke.
Futures are almost always representing thin volume. As of yesterday, S & P dividend yields are higher than Treasury bond interest rates for the first time since …. 1958! “Mr. Sandman, buy me some stocks. Make every price increase the American Dream.”
But I think everyone on this blog would agree that we are about to see corporate profits go down, therefore yields and forward looking P/E going down too?
And dividends are going to be cut across the spectrum of corporate America.
“It’s just a shadow that you’re seeing that he’s chasing”
dividends are going to be cut ??
Yep….Preserve cash just like everyone else…
Dividends will be cut just as all of Cramer’s groupies start diving in to them.
Do you perchance have a link to a good source of continuing data for dividend yields?
Thanks.
http://www.indexarb.com/dividendAnalysis.html
I have 775.8 as the post 9/11 low on the S&P, from Yahoo Finance. Mid-day October 10, 2002.
One more day like yesterday and we’ll be there.
Why is the price of oil going down? Because peak debt led peak oil by a few years!
Melted 798 within 5 minutes. Rapidly approaching 775.
WT, are you calling the time for peak oil at 3 years from now? I’d better sign up for that canning class and shooting range membership now…
Good idea to pay attention to the S&P. DOW is overloaded with banks and GM, and all of them bought the farm.
SPX could fall mid to high 600’s. If we get good solid downside follow through, 850 would turn resistance.
It really has been some week. I’m used to the sharp ups and downs that make daytrading so fun. But this week, it’s been a slow trickle day after day. Even today. A new low reached, and it kinda sorta looks like it wants to bounce. But there is an amazing amount of gravity weighing things down. Maybe we’ll get a bounce end of day, or else we may see the market fall to 2002 lows. I’ve been watching gold mining. But I”m wary of that as well. Gold has been fluxuating below 750 for awhile. If the markets plunge lower, I expect gold will too.
House Pirate: a real estate speculator, investor, or flipper who holds a house they don’t plan on living in for profit ransom.
Nice!
Sounds like a total butt pirate too while you’re at it.
Housing slowdown spurs auction of construction equipment…
Robert Anderson, 70, wandered the huge auction yard in Perris, inspecting his fleet of excavators, backhoes and other heavy construction machines, including the first crane he ever owned.
For four decades, he ran Desert Pipeline Inc. out of Thermal, near Palm Springs, building sewers and storm drains for new housing projects. But when the housing bubble burst, Anderson went from a backlog of contracts to no job orders at all.
http://www.latimes.com/business/la-fi-auction20-2008nov20,0,1344005.story
I used to be a controller for some mid-sized construction and road/underground utilities companies. The costs and overhead with those excavators is insane. On one, an oil change ran about $5k.
“Back in 2005, during the boom, the company sold a used hydraulic dirt excavator for $309,000. That same excavator changed hands Tuesday for just $50,000.
Another excavator, worth $1.4 million new, sold for $150,000, said Sean Green, Thompson’s colleague.”
==================================================
On our road trip up Hwy 99 a couple weeks ago, we passed dozens of fully laden heavy equipment lots just from our vantage point of them being close to the road…
Can you imagine all the other heavy metal debris fields that we didn’t see?
Lots of capital going “pooof”.
It appears that excavators can dig up anything-except cash, king.
Yep. Cash: The Ultimate Financial Solution. Nothing else compares.
Surely, you jester.
He’s not jestering. And don’t call him Shirley.
Do you think it would be worth buying and holding some industrial equipment to sell when the economy improves? I’ve noticed the same thing happening with tools I use. Like a 50 ton hydraulic press…when I was looking for a used press a few years ago they were holding their value much better than now, even if 30 yrs old. I ended up buying new, because the selection and price of used presses.
And used iron=cents on the dollar. The trend is to lease equipment.
I used to drive a mining truck with six tires worth 35k each. I’m sure they cost more now since that was a few years ago.
And I knew a man with a wooden leg named Smith
Sure that was his leg?
I knew a man who shot an elephant in his pajamas.
How the elephant got in his pajamas, I’ll never know.
“For four decades, he ran Desert Pipeline Inc. out of Thermal, near Palm Springs, building sewers and storm drains for new housing projects. But when the housing bubble burst, Anderson went from a backlog of contracts to no job orders at all.”
the entire IE is one vast graveyard of rusting unused heavy construction equipment sitting in vast yards baking in the hot IE heat. They built tons of housing tracts but forgot to add jobs. IE was nothing but housing tract speculation and feeding the construction beast.
No construction and the IE is dead. No high paying jobs and 100% positive UE rate is 15% all over the IE.
Anyone who witnessed the IE ‘housing’ boom of 2004-2007 knows the vast amt of pollution and attendant scarring of the landscape. Anyone who wants to tackle the history of IE development in the first decade of this century needs to document the shear pillaging and ecological strip mining which was a feature of the IE housing tract boom period.
I wouldn’t sell short the Northern Inland Empire (Bakersfield to Sacramento), in terms of overbuild, compared to it’s kin down south…
” wouldn’t sell short the Northern Inland Empire (Bakersfield to Sacramento), in terms of overbuild, compared to it’s kin down south”
Actually the CV probably has a bit more visual appeal due to vistas of rolling agricultural fields leavened by the occasional irrigation canal. Here what the iE has , or lacks in the way of attractions :
*Agriculture, nada
*Tourist attractions, zilch
*No waterways , rivers nor recreational-friendly lakes
*Bone dry yellowish barren landscape
*Miles upon mile od landscape scarring industrail pit zones *entire square miles of hugh warehouses for holding
imported china crap- which trade is rapidly declining
*No high paying jobs except for contruction which is dead
*Tons of useless malls built during the IE boom which are now abandoned ghost malls
*No easy short access to the pacific ocean which would be a great stress reliever
*No natural resources, very little mining, no large expanse of forest except high up in fire ravage san bernardino mts, No oil drilling, ect. There are tons of windmills however out by palm springs area which are visually an eyesore .
The one thing the IE does have is tons of dirt-cheap foreclosed properties. I will offer $10,000 cash for any IE REO trashed out fixer located in some fornlorn god-forsaken IE outback as banning, hesperia,Colton, lake Elsinore, menifee, Suncity, San jacinto, Hemet,ect
Final offer.
Sacramento to Redding also…
“Miles upon mile od landscape scarring industrail pit zones *entire square miles of hugh warehouses for holding
imported china crap- which trade is rapidly declining ”
Since the IE has become an industrial scarred polluted pit zone with tons of useless empy tract homes and with US UE rate skyrocketing why not just import chinese & mexican slave labor /pollution belching factorys over to the IE. Put UE americans back to work at $10/hr making american made products again. The IE at least has the transport infrastructure in place to send crap alll over the US.
The IE is already wasted from housing tract landscape scarring so relocating factories here would not affect the environment that much.
Just some tinfoil thinking here!
The nightmare landscape of the Inland Empire sounds a lot like the landscape shown in “Idiocracy” - Hmmmm… makes you wonder about where things are going!
“Your sh1t’s all fu<ked up, and you talk like a f@g!”
/goes off to watch “Oww my balls!”
SR
‘…document the shear pillaging and ecological strip mining which was a feature of the IE housing tract boom period.’
That wasn’t just an IE feature. Nohow. That happened EVERYWHERE. What happened up here in li’ ol’ Thurston County, what streams, forests, lakes, the Puget Sound–the developers and builders desecrated any and all in pursuit of their profits–it would make you barf, and then decide to go kill a couple of them.
All over rural Oregon also….Municipalities looking for fee’s, infrastructure and revenue stream…
Or, in your case, date their enablers?
A trillion here a trillion there…
Financials need at least $1 trillion:
(Reuters) - The U.S. financial system still needs at least $1 trillion to $1.2 trillion of tangible common equity to restore confidence and improve liquidity in the credit markets, Friedman Billings Ramsey analyst Paul Miller said.
Eight financial companies — Citigroup Inc, Morgan Stanley, Goldman Sachs Group Inc, Wells Fargo & Co, JPMorgan Chase & Co, American International Group Inc, Bank of America Corp and GE Financial — are in greatest need of capital, he said.
http://www.reuters.com/article/ousiv/idUSTRE4AJ1GV20081120
Sounds reasonable. In contrast, yesterday’s lead NYT editorial was urging help for homeowners, and Sheila-Whom-I-Dont-Like-Anymore said if “we” could prevent just 3% of the decline in house prices, it would save half a Trill. Well, if that’s true, it undoubtedly means that the prevention of that 3% would cost…guess what…half a Trill! Yawwwwn.
Sheila Bair is clearly deranged. She has no clue what she’s talking about. Plus, she needs a shave.
I can’t stand the way she tilts her head when she’s talking.
I’m tired of vague phrases like “improve confidence.” Aren’t these financial companies money-oriented down to the last decimal place? And, they say they don’t know the value of their assets. I think they know full well the value of their assets.
Even if you print money to pay off the so called losses, where are their future profits coming from?
It was a credit expansion game. Who’s left who wants to borrow?
“Men are devoured by the reproaches of their conscience.”
Jaroslav Hašek
“Men are devoured by the reproaches of their conscience.”
Not all men. Just ask “What, Me Worry?” Shrub. He’s right with his conscience.
I think he’s rotting from the inside-out and the outside-in.
Imagine the burden of being the most despised person on Earth, currently?
No, no. Hist-r-ie will show how great he was. Dontcha know.
Imagine the burden of being the most despised person on Earth, currently?
I dunno, I think he’s fairly confident that he was A Force For Good, all evidence to the contrary.
He and his sidekick remain firm in their delusions of self-grandeur.
The funny thing is, Shrub has no idea that his approval rating is less than 90%. Moving to Dallas next year is going to be a *huge* shock to him.
I dunno…He delivered on the oil boom for Texas…I don’t think he gives a rats a$$ what anybody else thinks…
he must eschew public opinion, and derive his self-satisfaction from a) the staff members paid to kiss his ass, and b) a deluded mental construct that has God congratulating him for everything he does.
“Imagine the burden of being the most despised person on Earth, currently?”
In the Holy Land he is a hero. Dubya facilitated the strip mining of our nation’s wealth, and commited our military to a religious war with no end in sight.
Watch this video of the G20 from last week…
Everybody is shaking one another’s hands, except for the 800 pound pariah.
http://www.youtube.com/watch?v=k6Y_ncOVlDw
Surely time to give this dreary Bush-bashing a break. Start talking up the guy you elected.
I’ll cease and desist my attacks on January 20th, but not a day sooner.
“It may be technical, it may be an abnormality. But it is a gift horse nonetheless. Corporate bonds are trading more cheaply than credit default swaps. That means investors can buy a bond and then receive a coupon that more than pays for the cost of insuring that bond against default. This is close to free money.
Normally, CDS spreads trade wider than cash bond spreads. First, because investors short credit by buying default protection; that pushes CDS spreads wider. Second, corporate bonds are typically viewed as attractive to hold because they can be used as collateral for funding. That narrows spreads on cash bonds….”
FT
Only if you trust the underwriter of the CDS. If it is underwritten by AIG - no worries. The US Government is guaranteeing those. Just part of the bank bailout.
Hyperinflation Is Coming Despite Deflationary Debt Unwind
by Eric deCarbonnel
http://www.marketskeptics.com/2008/11/hyperinflation-is-coming-despite.html
In the investor community, there currently exists the belief that hyperinflation is impossible because of the deflationary debt unwind now underway. However, this logic is based on the flawed assumption that the money supply is the only important factor when determining inflation or deflation. This ignores the fact that for nations heavily dependent on foreign imports, like the US and Iceland, the purchasing power of the currency is the most important determinant of inflation/deflation.
Yes, the US can print dollars, the world reserve currency, which gives it an advantage Iceland didn’t possess. However, this is of little help in averting a dollar collapse. Already, foreign investors are shunning all US assets except treasuries. When falling tax revenue and ever-growing bailouts destroy foreigner’s trust in the last US asset they consider safe, an exodus out of the dollar will begin.
US treasuries are not safe
Deflation and deleveraging will not prevent hyperinflation. The falling value of dollar will drive up prices despite the consumer’s weakening purchasing power.
A bet on the yield curve steepening is a bet that the dollar will collapse, and this bet makes sense.
So, how does one play this? Sell short some long Treasury “zeroes” ? Or buy some sort of option against future value of USD index? What is the simple strategy for those who are not familiar with weird derivatives? Buy a house? Oops, just kidding.
What’s coming really isn’t hyper-inflation, but it’s seldom seen cousin ‘outer-inflation’.
Those that might loan us money from abroad, are talking about making the loans denominated in their currency, not ours.
They’ve dug the whole for the Dollar already, and are covering it up, one shovelful @ a time.
Like this is a new concept!
In the 70’s the US had to borrow money denominated in German deutsche marks.
Nobody trusted the US to repay its loans.
A government forced to borrow in some other govt’s currency strikes me as the equivalent of a suicide mortgage. Sovereign suicide loans, I’d call them…
First of all, the borrower is already in suspect condition, or those terms wouldn’t be forced on them. On top of that, they’re taking on all the exchange-rate risk, in that if EITHER their currency declines (likely, since they’re in suspect condition to begin with), OR the other currency increases, they’re going to lose.
When you’re getting further and further into debt even WITHOUT new borrowing, your currency is in big trouble. It has the potential to be a self-reinforcing spiral.
Depends.
The US didn’t get into trouble in the 70’s for these loans.
It all depends on future policies and the terms of the loan.
RPIBX T rowe price international bond fund
I’ve lost money in this fund as the us dollar is trading higher but in the future ?
PCY
PowerShares Emerging Markets Sovereign Debt
anywhere under $17
I wonder what the rest of the world will do when they no longer have their #1 buyer…
As I understand it, hyperinflation can only happen when there is too much money chasing too few products… What I am seeing worlwide is an excess capacity (GM, Ford Chrysler, MB, Honda, Toyota, etc) all with excess inventory sitting on their books.
What happens to those countries that sell to us, and that benefit from a strong dollar, when the dollar tanks, and they are no longer able to sell their products and services here, and are unable to sell them locally as there is no market for them?
Think China, and India without the US…
I think that the bout of hyperinflation already happened with the credit bubble, oil to 157, houses to 10 times median income, etc, and now we are experiencing the downside.
“I think that the bout of hyperinflation already happened with the credit bubble, oil to 157, houses to 10 times median income, etc, and now we are experiencing the downside.”
yes thats what I think and notice how almost no inflation was reported back when this was happening.
There was also no wage increases while that was happening.
Perhaps MEWs took the place of wage increases. Now that those are done deflation is taking over.
Bingo.
The real economy has been sailing off a cliff for well over 10 to 15 years thanks to excess debt, jobs vanishing, etc. The dot.con Bubble popping should have lead to a crushing recession as the last new US “companies” - nothing but fraud scemes - folded. Instead, we got the Housing Bubble, which is orders of magnitude worse, to hide the declining real wages and vanishing jobs. With this gone, there’s not much standing between where we are today and eventually having to face reality.
I must also add a Ding Ding Ding to this statement, although I’d like to add Visa and Mastercard to the MEW’s.
Problem is, wages are yours to keep. The debt, you gotta pay back.
Bingo on deflation as a result of the inflation which already occured.
Anyone ever notice how when talking about investments or money in the past everyone would always add, “plus X for inflation.” It was assumed to always be there, pushing asset prices ever-higher (but not wages, necessarily). Nobody ever mentioned the possibility of deflation.
What they were referring to was the increase in debt Americans were all taking on. At some point, we’re expected to pay our debts back, but economists failed to detail what would happen as we converted to saving/paying off debt from spending/accumulating debt.
But even if we don’t give them $$ for their products we are still contractually obligated to give them trillions of $$ in the form of treasury bond payback. That’s the kicker. So the question is what happens if we don’t have that money to pay them back?
We get to sit 14 aircraft carrier groups off of our coasts….
Seriously, if the US defaults on its debt, would that not take a lot of people down with it? What exactly are they going to do? I have said it before, lending money to the treasury is like lending money to the neighborhood bully with the shotgun collection, and the pitbull in the front yard…
I don’t think the rest of the world is hep to being tied to a one-size-fails-all-fiat…
And thanks to GPS, all 14 of those carriers are sitting ducks, big fat targets for some missile on a mission.
Things Change.
Nope, but they tied themselves to only one buyer…
And that buyer is by all intents and purposes… broke.
Right. To what extent is the deficit and national debt financing a ponzi scheme? Paying off old debts is incumbent upon selling new bonds.
If you lend the US 100 billion $, and they don’t pay it back, the US has a problem. If you lend the US 100 trillion $, and they don’t pay it back, YOU have a problem…
That works for the likes of Trump, but countries tend to get trumped when they think like that…
Except we have a kiss a@@ army and all the Donald has is his hair. If we default, what do they do?
One wonders if the Donald has ever had a “good hair day”?
“This ignores the fact that for nations heavily dependent on foreign imports, like the US and Iceland, the purchasing power of the currency is the most important determinant of inflation/deflation.
”
The thing is we don’t “have to” import much other than oil from the rest of the world. We have a good food supply, some oil, and a stockpile of cars, clothes, shoes, and electronics. People can easily survive on less.
I haven’t seen any clothes, shoes, or electronics with the “made in the USA” label on them since, actually, I can’t remember when.
I tried to buy a new set of dishes last year. Fiesta ware were the only dishes I could find that were still made in the US.
I jsut bought a pair of Double H boots. Granted, if you use various online sites you can get them for half off the street price, but they are made in the USA.
RE: I haven’t seen any clothes, shoes, or electronics with the “made in the USA” label on them
NEW BALANCE*-proudly made in factories located in Maine and Mazzland USA.
REDWING boots & SCHOTT leather jackets are also manufactured here.
*please purchase this product. It will keep one of my best friends’ wife working!
Danner stitch down boots are still made in Portland, OR.
redwing is top notch. spendy, but quality wear.
The Chicago Tribune’s website has a section for little tidbits of what’s happening around the metro area. Here’s one from this morning:
A job fair at Navy Pier was causing traffic backups on Lake Shore Drive and roads leading into the pier early this morning.
Hundreds of job seekers in this rough economy began lining up around midnight. The fair, sponsored by “Good Morning America,” was scheduled to open at 5:30 a.m. and end at 8:30 a.m. Navy Pier’s Web site advised people to get there by 5 a.m. Parking is $5.
About 80 companies are represented at the fair.
Yep, things are getting bad.
“Politicians are the same all over: they promise to build a bridge even where there is no river.”
Nikita Khrushchev
He looked out his kitchen window and saw Alaska.
Hahahahaha! Nice!
Actually, he saw out his window in the Baltic and told guests he saw “Nuclear missiles aimed at his dacha.”
From Turkey.
That must have been said by the actor who played Kruschev, right?
And I also love THIS headline:
Fed sees economic woes persisting into next year
Fed sees country lurching deeper into economic despair, driving up unemployment
Jeannine Aversa, AP Economics Writer
Thursday November 20, 2008, 7:58 am EST
Wow. No shit? Good call.
probably a good day to buy as I expect the PPT to step in. may be a good short term trade.
Hedge funds are mostly done selling. At this point it feels like shorts buying and selling to other shorts (and one Saudi prince).
They can have that rigged game. I’ve been out of this market all week and I’m staying out all week.
How do you know most hedge funds are done selling? Do you have a reference? Thanks.
they are done selling. TODAY
I heard that redemptions could continue into Feb ??
I thought there were some hedge funds that required only 30 days’ notice, doesn’t that mean selling could go on till December 1?
Why are they done selling? Do they short? Are they done with it? There are way too much questions, answers are mostly speculations.
Ode to Willie…
Hello Wall*Street, (Hello, hello.)
How’d things go for you today?
Don’t you miss liquidity.
Since it up and walked away?
And I’ll bet you dread to spend another lonely morn with me,
But loan-lie Wall*Street, I’ll keep you company.
Hello window, (Hello, hello.)
Well, I see that you’re still here.
Aren’t you lonely,
Since our dear departed defenestrated & disappeared?
Well look here, is that a drop, or corner pain?
Now don’t you try to tell me that’s it’s rain.
Credit went away and left us all a loan, the way it planned.
Guess we’ll have to learn to get along without it if we can.
Hello ceiling, (Hello, hello.)
I’m gonna stare at you a while.
You know I can’t sleep,
So won’t you watch the bear market with me a while?
We gotta all stick together or else I’ll lose my mind.
I gotta feelin’ it’ll be down a long, long time.
(Hello, hello Wall*Street)
http://www.youtube.com/watch?v=0D4g8vraB-8
That’s Faron Young, I believe.
My bad, Willie wrote the song.
“…The market certainly appears to be in the grip of a deflation scare. Bond market prices imply an expected inflation rate of minus 0.7 per cent on average for the next five years, and positive inflation of only 1.3 per cent for the following five years.
This is itself worrying because inflation expectations play a key role in determining the future rate of inflation.
However, Fed officials are not putting too much weight on these market-based measures because they believe the market is distorted by extreme liquidity risk aversion. For now, survey-based measures of inflation expectations remain quite stable and well above 2 per cent….”
http://www.ft.com/cms/s/0/6828a1a8-b6a3-11dd-89dd-0000779fd18c.html
The US Treasuries’ yields are dropping like a stone and the risk for credit default in the US Treasury 10 year swaps is up 100%.
from the Economist
Could America default?
“…Now America is counting on its assets’ risk-free status to persist. It plans, in fact, to help save the global economy by incurring still more debt. The risk-free perception means that America can borrow whatever it needs for a low cost, and can do so without threatening its risk-free status. This isn’t typically how credit-worthiness works.
The prospect of an American default seems incomprehensible no matter how much debt the government issues. But is it really? Suppose a major creditor nation posed a security risk and threatened to dump all its American debt on the market. In that case default could happen despite American solvency. That situation is improbable, but feasible. After all, many politically inconvenient creditor nations hold substantial American debt. And stranger things have happened…”
http://www.economist.com/blogs/freeexchange/2008/11/could_the_us_ever_default.cfm
The risk of treasury default is up 40X based on current default swaps from 2 months ago.
Adds Estonia, Lithuania, analysts, background)
By Jorgen Johansson and Patrick Lannin
RIGA, Nov 20 (Reuters) - Latvia sought economic rescue from the International Monetary Fund and European Union on Thursday, becoming the second EU state to seek a lifeline after sliding into recession and having to take over its second-largest bank…
—-
expected.
Nobody ever expects the Baltic Red Inkquisition…
took yer advice and went into the UYG, at a 4.25 this morning.
we’re all terminally insane now.
“took yer advice and went into the UYG, at a 4.25 this morning”
$3.92 now. Ouch!
just trying to fall into the TARP, like all the other useless animals.
Vozzie er Clue
I am playing with profits! I should be buying corporate debt and the swaps, it is as close to free money as one can get. Just no trust in the CDS underwriters.
Hey, Ill go even stupider.
GE at 13
DDM at 26
Don’t worry, be happy! Obama is considering Janet Napolitano for Homeland Security!!!!?????? WTF????????? Janet Napolitano? After seeing the segment on CBS Evening News about the drug cartel activity in Phoenix, must seriously have a screw loose. She can’t even handle her own state, much less the entire US.
Of course, I say that never having set foot in AZ, and only know what I read on the net and hear on the news, so honk if you think Napolitano is doing a good job.
Pal:
Maybe just maybe she has the half a brain that will decriminalize drugs, so the gangs have no reason to be in AZ.
Grow your own, but make it a felony to sell even 1 joint or 1 rock
I agree…
I have been hoping for a cabinet appointment for Napolitano. There are several pieces of legislation that I support that have not moved forward because of her certain veto. She will be replaced by Republican Secretary of State Jan Brewer.
If she gets the nod, she will be America’s problem. Good luck.
I always like her ice cream.
How we got here:
This link is to an article from 2006, telling how derivatives and hedge funds had taken us to the brink of financial collapse. Everything was easy to predict:
http://mondediplo.com/2006/10/02finance
I have a follow-up article I will post later, concering the “bailouts”.
-D
I thought an IRC live chat would be fun. Ya’ll can join me:
swiftco.wa.us.dal.net
#housingbubble
Can I get a time share cheap?
http://www.sbsun.com/ci_11027863?source=rss
Yeah, if they pay you.
Janet Napolitano for head of Homeland Security???????? WTF????
Second posting, other seems to have been eaten.
Obama is going to pay my gas and mortgage. Jesus has come back!
Obama is going to pay my gas and mortgage. Jesus has come back!
http://www.youtube.com/watch?v=P36×8rTb3jI
Janet Napolitano for head of Homeland Security???????? WTF????
The singer from Concrete Blonde?
LOL! I think that’s “Johnette” Napolitano.
He’s just illustrating a sly joke…she’s from Arizona…you know… she can see Mexico right over there past the cactus…makes here eminently qualified to be a “homeland Security Czar”
That would make (R) Jan Brewer as defacto Governor…who gets to appoint a replacement for McSame…if he decides to say the heck with it all and go hang out in some of his 8 houses…
The problem when it comes to filling all these vital jobs is that neither team has a deep bench.
Sorry if this is a repeat for anyone, but I really like this Peter Schiff video, especially the way they laugh at him. It’s a collection from several different interviews.
http://www.youtube.com/watch?v=2I0QN-FYkpw
that’s a classic. all those cheerleaders giving him a hard time. Oh, you’re so negativeeee! sounds like my wife.
Awesome! Thanks.
Government can’t stop deflation because prices were fake and based on faulty lending and wages did not go up accordingly to match price increases and doubtful if Corporations will increase wages and salaries .
The economic system borrowed into the future by debt ,messing up current demand . The big gambling Casino gave us a fake value market
based on payment by debt and now its crashing . How do you correct
something as insidious as what took place . Deflation is cooked in .
Speaking of Casinos…
Did anyone see Erin Burnett (CNBC co-anchor) yesterday afternoon. She just got back from Russia, where she interviewed Putin and did a number of stories on the Russian stock market.
One little vignette, she said “take a look at this. This is the building that is right next door to the Russian Stock Market. And yes, it is a Casino…” The camera then panned down the side of the building which looked like it was about a block long.
I read a little Russian, and the name of the casino was “Super Slots”. Big, shiny building, just like you’d find on the Vegas strip.
How ironic…
Is there any difference between the two?
I agree Wizard..Nice post..
This is not America
David Bowie - The Falcon And The Snowman
http://www.youtube.com/watch?v=zP_fsm3cRB0
the Dutch housing trainwreck is starting:
Today the Dutch minister responsible for housing received an official recommendation to fully take over the NHG (National Mortgage Insurance - the free put option for homeowners). NHG is an insurance fund that is officially separate from the Dutch government, paid for by the people who take out a mortgage. But everyone should understand that the fees are totally insufficient to withstand any downturn in prices, and in reality it is similar to Fannie and Freddie (just worse …).
After a +/- 1000% price runup for Dutch homes, the sleazebags (burocrats and RE mob officials) are now recommending to transfer the full downside risk of the housing market to the taxpayer.
The ‘only other option’ is to strongly increase the risk premium on the NHG insurance. But they fear that new buyers will no longer be interested in getting this insurance if the cost jumps from the current 0.4% to a realistic value (that should be many % I guess, as home prices could easily fall by 75%) - and thus not contribute at all to the fund. The major incentive for buyers to get NHG has always been to get lower mortgage rates, which provided the free put against lower prices. Even if newer buyers would accept higher premiums, it would further depress home values as banks are now getting more cautious with lending and the money has to come from somewhere.
Another option would be to admit that the whole Dutch NHG is a super Ponzi scheme, but of course that will not happen until after the whole RE mob has dumped their properties and the market has crash landed.
nhz…..In response to your last sentence . I think admitting that prices were a Ponzi scheme is the beginning of recovery because otherwise
incorrect solutions are applied and it’s just a game of how to transfer the loss to a new bag-holder .Like in America ,where you see all these games being played to transfer the loss to the uninformed ,so the special interest groups can re-group ,its a obstruction of justice . Had the powers just came out in the open with what the problem was ,than the winners and losers would of been in place and every one would of taken the licks accordingly and the gamblers would of gotten the most punishment . So much BS from the spinners in the news or from the people who want a result that won’t harm them ,in spite of them harming Main Street . As I see it ,Main Street America is not accepting the con job and they are tapped out and not able to be fleeced any
more .
the Dutch are just way behind the US in this.
The current debate in our media is mostly about the suggestion from the RE mob that the media are scaring the homebuying sheeple, and that the housing market is perfectly healthy. A home is ‘the best investment ever’, prices can never go down and the papers should not write about market risk (which they hardly do anyway); instead the media should focus on the great opportunities for buyers (well, they write about that every week in the special homebuyer/advertisement section, and have done for at least ten years or so).
At the same time, all the begging for bailouts and more subsidies from the housing mob is disgusting and you don’t need to be very clever to see the disconnect between the RE mob story and their request for government assistance.
Sounds like the US circa 2006 and early 2007. Okay and mid 2007 probably. I wonder if the dutch will give us an unbelievably spectacular crash to watch…like the iceland crash or maybe even the mid 90s economic crash in Albania.
The very idea of insuring against declines in home prices is ridiculous on the face of it.
Insurance only works when the probabilities payoff-events are un-correlated/independent. In other words, the odds of me having a heart-attack and dying are unrelated to the odds of you having a heart-attack and dying. The probabilities can be computed independently, without any consideration of the other event.
The chances of home prices declines are HIGHLY correlated. When they go down, they all go down at once. The probability of your home price going down is tightly tied to whether your neighbor’s home price went down, since his sale is used as a comp for yours.
Ridiculous. Unbelievably stupid.
agree, but Netherlands is Housing Bubble Central…
I think the market needs to teach our politicial/econimic elite a lesson about how stupid this idea is. Unfortunately, it looks like it is going to be a very expensive lesson for the Dutch taxpayer, and not for the idiots that are responsible for the mess.
nhz:
Had a nice talk with a countrywoman of yours, yesterday…
She’s here on holiday for 6 weeks, and got laid off her job @ AMRO after it merged into the financial void.
She told me she gets full pay until Dec, and 11 months severance pay after that.
She told me she was mid-level or thereabouts.
I can’t imagine American Banks being that generous?
I’m afraid that is pretty normal yes; I know a few lower level managers who were asked to leave because they were no longer needed after ABNAMRO closed some offices. If they chose to leave, they got 100-150.000 euros bonus, I guess that is about 2 years pay for them.
for reference, anybody who gets laid off (except severe cases of stealing etc.) receives at least half a year pay as a bonus over here; plus they keep nearly the same net wage for the next two years. Times for workers are still good …
Times for workers are still good …
—————-
That sure beats what we have over here.
Glad to hear the housing market is finally starting to crack for you, but sorry to hear you have to deal with the same whining and “saving the FB” rhetoric we have to deal with.
A writer for CNNMoney. com is now suggesting that people who lose their jobs - should also be helped to avoid foreclosure.
Did I fall into an alternative universe? I’m beginning to question my own wisdom in trying to be a responsible borrower.
nothing new, Spain has a massive program like that starting this January and running for (at least) two years. Government will pay 50% of the mortgage for people who get unemployed and are no longer able to pay (if you have significant assets you may have to hide them before applying, no idea if they check this).
With unemployment rising at record rate, such programs will certainly backfire. Even when the job market is good, it can be an incentive to quit the job, especially for those with lower incomes. The Netherlands also has some homeowner support regulations that can have this effect, depending on the situation. If they cannot loose their home whatever happens, couples may decide to have one of them quit working; no more expensive childcare, and more money to spend despite working less …
government is always able to make things worse
“Brother, can you spare a dime..?”
http://dealbook.blogs.nytimes.com/2008/11/19/john-paulsons-fancy-toast-to-his-firms-fortunes/
Connecticut governor calls for 6-month moratorium on foreclosures
Property taxes and interest would still be paid during that time.
http://biz.yahoo.com/ap/081120/ct_meltdown_foreclosures.html?.v=1
How is it possible to pay the taxes if you dont make your mortgage payment? Are they going to make the banks pay for it?
Here’s roughly how I see communism coming about in America:
In 2009, something like “TEES” will be formed - Temporary Emergency Economic Stabilization. This will quickly be changed to simply EES.
EES offices will be opened around the country, probably piggy-backing off of unemployment offices. Jobs paying the minimum wage will be guaranteed anyone who is willing to sign over various aspects of his life, including forfeiting to the government certain assets. EES offices will also serve as soup lines for the indigent, generating great sympathy and thankfulness toward the government from many.
To provide these jobs, the government will quickly realize that it needs to have more say in the management of business. It will orchestrate a campaign to demonize capitalism and rally the common man to its cause. It will work - the modern man’s biggest concern is not freedom, but no income.
EES will morph into NES - National Economic Stablilization. The government will now control much of business but will realize that it needs to impose certain forms of martial law and/or issue supra-constitutional edicts in order to properly manage and enforce its programs. “1984″-type measures will be undertaken. People will be encouraged to spy on their neighbors. Freedoms and free movement will be slowly restricted - searches will be commonplace and guns, gold, and other dangerous vestiges of the old order will be seized when possible.
The biggest threat to the government will be a military coup. Obama (and I’m not “blaming” Obama for this hypothetical scenario - things just happen the way they have to happen) will have to show great skill to prevent a coup, but it will be possible, as he already will have mobilized most all of the non-military police forces to his side.
Eventually, of course, national and world conditions will alter this scenario - major war, etc. I am only pointing out that something very close to communism could be right around the corner in the U.S.
Time to get some meds, Paul… Paranoia is a terribly unpleasant way to live your life.
I’m merely crafting a possible scenario as a consequence of what I expect the stated unemployment rate to be in 6-9 months (12-13%). Step 1: Unemployment will reach intolerable levels. Step 2: Everything Americans think about what their country represents will become subordinate to employment. Step 3: Communism provides the most rapid short-term solution to unemployment. It may or may not transpire. But it is worth thinking about. Do you consider all creativity paranoia?
Perhaps I was too harsh. The way you had written it up, though, made me think you were really expecting black helicopters.
To be honest, one of my fears about this downturn is that desperate people do tend to be accepting of things that they would not once have been accepting of. Witness post-WWI Germany and the rise of fascism.
I’m ore concerned about the possible rise of fascism than the communism scenario that you described. I expect that we will continue to have personal property and private business in the US, because the PTB have too much of a vested stake in that system.
Paul, you are closer to the truth than you think.
It will happen, but not exactly as you have described.
Look into your crystal ball and tell me what stock will rally tomorrow.
Thank You.
C of course, silly! It is friday before options expire.
Not that a stealth portion of $2T hurts either… feeling squeezed?
Can I take that back Ben? Oops… I’ve lost count of my Thursdays. Happens when I go so darn short term.
I went in and smacked my boss today can’t wait to pick up my 50% mortgage check.
The PPT must be skipping lunch today.
Some macroeconomic (or perhaps macrocomical) thoughts - stuff I was thinking about, wondering about etc., and wondering what others thought.
The markets are tanking of course; generally right at 50% off its recent highs. So - people are taking tons of money out of stocks, obviously. Major equity extraction.
So - where is this money going?
For a while it went into commodities, but that popped recently (for the most part).
Obviously none of it is going into real estate.
Corporate bonds? Maybe, but I haven’t really heard much of that. Seems like not, though I could be wrong.
That leaves two major places (that I can think of anyhow - maybe I’m missing something) - cash, and government bonds (including treasuries).
Cash: Probably some of this money is just being held as cash - money markets and CD’s such. How much? Not sure.
Government bonds: Certainly there doesn’t seem like much going into local/state municipal bonds. There’s tons of risk there right now, as many municipalities and states are rapidly going belly-up. However it does appear that there is a massive influx of money into U.S. treasuries. This is borne out by simply the rapid increase in the debt, combined with the incredibly-low rate of treasuries right now (demand for this safe debt is high, thus prices high, thus yields low).
What I’m getting to is this:
- It seems to me that most of the recent rapid U.S. debt expansion has been fueled by withdrawals of stock market equity.
- Already half of the equity in the stock market is gone - vamoose, wiped out; money taken for other things.
- We’re still in the early stages of this thing, with “this thing” being the U.S. debt expansion. The rate of annual debt (now above $1 trillion per year I believe) does not appear it be going down anytime soon.
- What happens therefore, when the other half (or major portion of it) of the stock market equity is gone? What will be left to fuel the U.S. debt expansion?
Thus it seems to me that we’re in for a huge jump in treasury yields, as the available equity in the stock market dries up, causing the demand for treasury debt to dry up.
Like - potentially a really, really huge jump in yields.
Thoughts?
Packman …..I agree with your theory . I’m trying to figure where the money has gone also . Some of the money went to paying debt ,some to survival of the unemployed or stressed out and in Russia they are purchasing cars ,rather than keeping money in Banks or the Stock market …. .Are people actually hiding money …don’t know .
with the speed that the stock market is loosing money now we will find out soon
The amount of money withdrawn is a fraction of the paper losses. If your stock drops from 100 to 50 it doesn’t mean 50 was removed it just means that no one is willing to pay you more than 50. Also when a stock sale occurs someone on the other end is taking cash and buying the stocks. I think a lot has gone into treasuries and money markets but much of it never existed except in the minds of investors.
Definitely agree. However *some* equity had to have been removed, in the form of a stock sale, to make the price of a given stock go from 100 to 50.
So yes even though the media likes to quote the $8 trillion (or whatever it is) figure indicating how much equity has been lost, we all know that not actually that amount has been withdrawn. However at least a significant percentage of it has (maybe 20-40%? as a crude guess) - that’s what I was referring to.
San Francisco rentals, there are lots of them and prices seem to be coming down. Real estate and stocks tanking, unemployment rising yet:
Sq Footage 450, $1,450/month, “free rent” until January if “6-12 month’s rent due at signing”.
Now, that’s silly.
IMO, someone asking for prepaid rent in this environment ain’t paying the mortgage.
For the tenant, a 6 month gamble of this type might make sense, if they were getting say a 20-25% discount.
A year of waiting for the sheriff, though, with the cash out of pocket? — I don’t think so.
Dinor, saw you responded yesterday, and I agree, renters are basically screwed in this era. Look for increased regulation in favor of renters, making it even harder for the Real Landlords of Genius to make a profit.
I wouldn’t prepay the rent.
They’re gonna default stealing the rent.
San Francisco rentals, there are lots of them and prices seem to be coming down
It’s about freakin’ time.
The comments on SFGate re real estate drops are interesting: either extreme euphoria that regular people will soon be able to buy a home OR extreme smugness by homeowners gloating that their house is still appraised at such and such dollars.
I, personally, am feeling extremely smug about the numbers, as the “it’s different here” mentality has been so strong.
My landlady loves me, we are saving money, and for now, gainfully employed. Had it not been for HBB, I might be looking to buy right now, but this thing is far from over.
bout 7 more days like this and the 10 yr bond will be at 2%
From the San Francisco Chronicle today:
Bay Area home prices dive, sales soar
Against a background of economic turmoil, Bay Area home sales soared and the median price plummeted in October as buyers snapped up bargain foreclosures, according to a real estate report released today.
A total of 5,624 resale homes changed hands in the nine-county Bay Area in October, up 66.2 percent from a year ago, according to research firm MDA DataQuick of San Diego. The median price fell to $375,000, down 45.3 percent from $685,000 a year ago. Almost half of all existing homes sold - 44.8 percent - had previously been foreclosed upon, compared to just 8.2 percent a year ago.
Despite an onslaught of grim business news and a stock market plunge that started in late September - just as many October buyers were making offers - the priced-to-move foreclosures kept buyers in the market.
“People searching for that bargain were pretty committed; even after all the disturbing news on the economy and financial markets, they decided to pull the trigger,” said Andrew LePage, a DataQuick analyst. “Perhaps it reflects the number of people who feel like real estate right now, in relative terms, is not a bad place to park their money.”
The Bay Area median has not been so low since October 2001, when it stood at $370,000. However, the median’s tumble reflects more the swing to lower-priced homes in lower-priced areas where foreclosures are commonplace, rather than an across-the-board depreciation.
“This doesn’t mean every Bay Area house has gone back to 2001 levels, but it does tell an interesting story about where people are buying and, to some extent, where they are not,” LePage said.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/20/BUHT148R9Q.DTL&tsp=1
San Francisco Bay area median home prices plunged 41 percent in October
http://finance.yahoo.com/news/NorCal-median-home-price-apf-13635742.html
The PPT Cruiser is stuck in Queens with a bad tranny and can’t make it today, Sorry.
-
-
DOW 8000
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(2012)
Bernanke May Find Deflation Is Back as Fed Concern
“Credit availability certainly hasn’t increased,” said Lyle Gramley, a former Fed governor. “That has to be a major concern for the Fed because historically the way we get out of recessions is having the Fed push down hard on the accelerator. If that is not working very well, we have to look somewhere else for salvation.”
Bloomberg
Does anyone have an idea as to where the FED will look to find this salvation?
just look to the playbook.
currently, I believe a concerned effort to mask a quantitative easing strategy is being employed. This will fail, just like it did in Japan.
Then the WHOOP,WHOOP, WHOOP starts up and the helo’s start dropping cash on Blue States first. Once the States dole the helicopter drop of money on the Munis fails….it’ll already be too late.
You, as a krill, will have then received your third stimulus check. (except it wont be an actual check, it will be a plastic card only good for use outside you municipality and only for certain goods, like hotel rooms, and Dysneyland tickets, and gas).
Well its time to give everyone $1000 increase in their credit cards…and pray the stimulus works
Back in 2003 when Greenie took the FFR down 1% he kept prattling on about deflation. Deflation, deflation, deflation. Anyone remember all his quotes on the subject back then? For a while they seemed non stop.
I’m glad he lived to see what he was so afraid of back then.
vozworth put one here that clue is not seeing.
I’ll stop posting under censorship….
14 days.
OMG - Jas looks like the near-term HBB forecast winner…
Financial Times
Deflation fears spark rush for government bonds
By Michael Mackenzie and David Oakley
Published: November 20 2008 18:02 | Last updated: November 20 2008 19:39
The spectre of looming deflation drove government bond yields on both sides of the Atlantic to historic lows on Thursday as nervous investors sought sanctuary from the turbulence in equities and other asset classes.
Some US Treasury bills were quoted at 0 per cent, while the two-year note and the 30-year bond recorded their lowest yields since they were first regularly issued in the 1970s. The five-year note was at its lowest since 1954, based on historical data from the Federal Reserve. In the UK, the two-year gilt yield dropped to its lowest level since since the second world war.
Buying government bonds as a safe haven investment has dominated flows in recent months. The latest moves come as increasingly worrying economic data point to rising unemployment and plunging inflation.
“Given the recent deflationary data, not just in the US but globally, the world is starting to build in a Japan-style deflationary scenario,” said Jim Caron, head of interest rate strategy at Morgan Stanley.
Yep.
For now. What happens though when investors simply run out of money to buy any more treasuries? See my post above. How far off might we be from that scenario, is my big question. There’s not a lot of money left in the stock market to be pulled out. Half of it has been extracted in just a few months’ time.
Buffet lost another $3-5 billion today, I estimate. He has now lost over half his wealth in 10 weeks. Nobody in media is reporting this stuff, but it’s not rocket science to do the numbers. Berkshire was very near its high as recently as September, and is since off almost 50%, but still trades at an unsustainable premium to its underlying holdings. You have the miserable performance of GE, COP, GS, WFC, and insurance, and then the 1-10 bet he allowed as a bookie against stock indexes falling, which now has him down 3 against the 1 in mark-to-market. Buffet is also getting creamed in his personal holdings. He could be busted by year end.
Buffet lost another $3-5 billion today, I estimate. He has now lost over half his wealth in 10 weeks. Nobody in media is reporting this stuff, but it’s not rocket science to do the numbers. Berkshire was very near its high as recently as September, and is since off almost 50%, but still trades at an unsustainable premium to its underlying holdings. You have the miserable performance of GE, COP, GS, WFC, and insurance, and then the 1-10 bet he took acting as an unprincipled bookie against stock indexes falling (which allowed him to take in $4bb cash up front), which now has him down 3 of those 10 against the 1 in mark-to-market. The 7 additional he is on the hook for works out to around $25 billion, getting very close to his current total holdings. Buffet is also getting creamed in his personal portfolio.
As a value investor Buffet certainly wouldn’t have overlooked our little comparison of the value of today’s market versus 1982, would he (the former being much more richly valued, even without a depression scenario)? Bill and Belinda Gates may as well write off his wondrous philanthropy because it looks like he may very well be busted before age 80.
They are pricing the pain. Oh, the pain!
775 fell with a little conviction. Now what? Op-ex tomorrow?
“Unemployment could rise as high as 7 1/2% before it peaks” is the new “subprime is contained.”
It’s too bad that it’s human nature to want to block out bad memories/experiences because everyone needs to stop and carefully reflect on all the ridiculous recent predictions of our much vaunted “experts”.
12% easy IMO.
They tried to avoid 1982 so they give the 70’s instead.
Wait, what happened in 1954? Was it bad then too?
I predict rolling blackouts for the next three years.
Good find…
Anatomy of a meltdown.
By England, Robert Stowe
Publication: Mortgage Banking
Date: Monday, October 1 2007
Related Topics:
* Mortgage-Backed Securities
* | Mortgage Banking
* | Subprime Mortgages
* | Bonds
* | Hedge Funds
* | Cruises
* Private Labels
* | Housing Authorities
* | Chronologies
* | Tsunamis