Bursting Housing Bubble Will Be ‘Tipping Point’ For Deficits
Danielle DiMartino at the Dallas News interviewed a professor on Alan Greenspans role in the housing bubble. “Ravi Batra is not one to mince words. Take the title of the latest of the 15 books he’s written in his 33-year career as an economist: Greenspan’s Fraud. Though the book was greeted with skepticism, it has gained greater acceptance as many of the possibilities it raises tiptoe closer to reality.”
“Q: Let’s start with the title of your latest book. A: The book focused not just on monetary policy, but also on many other areas over which Alan Greenspan had influence, such as Social Security. The idea of creating a trust fund for the baby boomers with guaranteed benefits came about in 1981 with his active support. But Greenspan knew in advance there would be no cash to fund those accounts. By April 1983, he was saying we needed to balance the budget by cutting Social Security benefits.”
“In totally contradicting himself, he deceived the public into paying higher payroll taxes. People don’t blame him, but that’s where the idea came from.”
“Q: How else has he affected future generations? A: Greenspan created a huge trade deficit. Here again, though, people don’t blame him. They just think it’s globalization. He pushed for the deregulation of the free flow of capital across countries, but the result was that the U.S. dollar would not fall anymore in response to trade deficits. In the past, the dollar would quickly eliminate trade deficits.”
“Q: So far, it would appear that the trade deficit, while at record levels, does not pose a threat to the U.S. economy. Is there a tipping point at which the deficit will matter?”
“A: The tipping point will be the bursting of the housing bubble. Much of the housing bubble has been financed by foreign purchases of mortgage-backed securities. The problem is, many of these loans have been backed by a fraud of their own, unqualified buyers have been given loans by the mortgage industry because the lenders then pass along the risk into the mortgage-backed securities market.”
“Q: Can we be sure it is a housing bubble? Many in the real estate industry are predicting a classic soft landing.”
“A: Bubble cycles can last seven to eight years, with the unraveling typically beginning in the fifth year. The housing bubble started in 2001 when Greenspan panicked and started slashing interest rates at a fast pace. Five years from then is 2006, and what are we seeing today? A slowdown, which is starting right on schedule.”
“Next year, we’ll have bigger problems as house prices fall, especially in the hot markets. Finally, in 2008, the real housing crunch will come, with price declines in much of the nation. The worst implication is that foreign investors in mortgage-backed securities will be spooked for fear they’ll lose their principal. It’s one of my biggest fears.”
“Q: So what’s the solution? Is there a way out? A: There is, and it’s consistent with free trade. I would propose a dual exchange rate system like those in Japan and China. If we could fix our export exchange rate, our exports would rise sharply as the prices of our goods fell overseas. We would let all international transactions continue to occur at the free-market dollar rate.”
“This would not only rebuild our manufacturing base, it would reduce the trade deficit sharply. We have to bear in mind that every empire, from the Romans to the British, has fallen because of a huge trade deficit.”
I agree with Mr. Batra’s recall of how we got the social security ‘fix’. At the time, many people trusted AG because he was pro-gold, supposedly, and talked about free markets a lot. But all they really did was quadruple payroll taxes and put more on the back of businesses.
The IMF has this out today, which isn’t far from the professors solution.
‘Restoring balance to the world economy will require shifts in global demand and exchange rates, and governments must not stand in the way of the process, the International Monetary Fund said on Wednesday.’
‘In the April edition of the semiannual World Economic Outlook, the IMF renewed a warning about the threat posed by trade distortions, saying a fall in the dollar and a rise in some Asian currencies is one prerequisite to resolving them. ‘
AG is the biggest fraud I have ever seen. His deception fooled most of us for a loooong time. He supported Bush’s reckless tax cut for the top. He flooded the global economy with money and personally took part in blowing up one bubble after another. He contradicted himself and ingratiated himself with politicians as wind blew. He is a shameless skunk! Period.
I wish it was this easy, IMHO the fed is “worried” about “inflation remains in the upper end of a comfort zone and has the potential for pass-through from high energy and commodity prices over the next few quarters”, said Yellen. Without forced savings plans, inflation will spiral out of control. Why “shift Global demand”? We need our Frisbees and Nikes and (insert) crap from China!
“I’m not asking for a depreciation of the dollar by any means,” he told a news conference, adding that “From this day on, I will receive my salary from the IMF Yuan.”
oops “…in Yuan”
Would be odd to take it in Yuan as those are linked to the dollar, better to choose Yen. Central banks have a habit of remaining irrational far longer than you can remain liquid.
The Yuan is no longer linked to the dollar.
Mind you, it’s a very dirty float. But maybe that’s no bad thing. I have in fact read a very plausible article suggesting that a freely traded Yuan would decline against the dollar/Euro/Pound, at least initially, as wealthy mainland Chinese sought to move their money out of their own banking system into safe havens.
Yes, but the comparison of “wealthy mainland chinese” to the Chinese government buying US Securities is like comparing the flea to the dog it rides on. The chinese central bank are running at top speed just to keep their currency suppressed. I guess you missed the article of the $500B that the Chinese central bank holds in excess of their stated goals of US denominated treasuries? You couldn’t get 1/100th of that movement if all wealthy chinese timed their flight together. Besides, if they were going to leave the Yuan, they aren’t going to buy USD, they will buy regional currencies that have better yields and trade surplusses.
I took macro and micro econ from Batra when I attended SMU in 1983-85. His book at the time was titled: The Great Depression of 1990. I thought he was a nut, and it didn’t help that he and the TA’s all spoke with thick Indian accents forcing me to learn econ from videotapes of a professor from Duke.
Looking back, however, I find Dr. Batra to be very insightful, and a little ahead of his time. I haven’t researched his latest theories, but at least he’s talking about doing something in an attempt to rebuild our manufacturing base as well as how huge deficits have helped ruin major empires. You don’t hear that kind of talk from the other economists who are questioned about the current economic situation this country faces.
Didn’t he predict the Soviet Union would crumble economically, just as the US embarked on a weapons buildup?
I have a recollection of asking him a question in a good-sized auditorium and him dancing around my question w/out answering it - all in the thick Indian accent. After that, I pretty much turned him off. He always seeks out the media (or vice versa) depending on whether he has a new book out or the country is about to head into economic collapse. I remember he did a slew of interviews during the banking crisis in the late 80s and after the dot.com meltdown.
I don’t know what his current theory is, except to say that he isn’t afraid to throw around the “D” word - depression.
Ravi B severely underestimated Alan G’s ability to indefinitely forestall the Great Depression of 1990…
Now we get to see if BB can keep the balls up in the air indefinitely as well, or if he gets left holding the bag.
I hate to butt in but I’m trying to convice someone to sell their San Diego condo and need advice.
He writes
I’m planning on copy pasting your responses into my reply. Thanks!
Is the potential reward worth the potential risk? The San Diego condo market is ripe for a nasty correction, much like Miami and South FL (where I live). Negotiate a broker down to 3-4%, they’ll take anything about now. Netting anything positive is better than being upside down for an indefinite amount of time. If your friend can’t ride out a potential storm, he should sell and eliminate the risk. Have your friend look back at RE in SoCal from 1989-1996. That should wisen him up. Good luck.
Just tell your friend to run the numbers on what would happen if he has to sell at $280k. Or lower.
He just added
No, this guy is stupid. That is who ever wrotte the quote you reproduce is stupid. The 3 1/2% is the State holdback in anticipation of their 9.3% capital gains. If you fill out the form this can be less or none. Now I know there is some baiting/trolling going on here.
Agreed Robert,
There is no sales tax, and broker commissions are a deductible expense (as well as many other things) Making money on a home cannot produce a negative cash-flow due solely to taxes. This is core in any tax system; you cannot tax more than 100% of any income - and it’s written into US Tax law.
I think his argument actually makes sense. His scenario illustrates precisely why flippers should not expect to net any money. And that’s even with a ~20% appreciation rate!
You could suggest that he try a discount realtor or sell it without any agent at all. Or hold it long enough so he does not have to pay capital gains tax. Or scare him into selling by considering how 5% depreciation would wipe out his equity if he was forced to sell for some reason …
Are you sure you didn’t get the numbers mixed up? If the condo appreciated by $69k, how can his equity be only $50k?
While this request belongs in the daily bit bucket…
Remind the potential seller that “valued at $360k” is a guess. The true value is what a willing buyer pays, nothing else. Closing costs will run closer to 8%. Capital gains are 15% Federal, 9.3% CA. Primary homes occupied longer than 2 years are exempt as well.
He’s got $50k in presumed equity and monthly expenses trying to earn either appreciation or income. Does he/can he rent for more than the carrying costs? Not likely. Based on the amount of equity he presumes he bought just about two years ago. If he bought more recently he’s wrong about $360k anyway.
Too late to buy a ticket on the cash out at the top equity boat. He can either save his skin or ride out the whatever comes. If he’s wrong about the $360k being there in the future his equity AND MORE will disappear.
IF he can walk away with his skin he should but it looks like it is already too late. Try to sell a $360k condo in San Diego in May 2006? Pencils, apples, matches anyone?
I don’t get his math. Looks like his gain is $32k (if he borrowed 100%), not $69k. Did he borrow money on a HELOC to buy stuff? And if he has owned it for more than a year, LTCG treatment is 15% fed PLUS 9.3% CA for 24.3%, not 35%.
At the end of the day, if he is living there, and happy to live there for 7-10 more years, and not worried about the value of the unit, then he shouldn’t sell. If he can rent out the unit to make positive cash flow, then holding is also less painful.
BUT, if he is thinking that he’s going to get $400,000 for the unit in 6 months, he has another thing coming–there is HUGE supply of condos in San Diego. Better to sell ASAP. He could be in a position where he needs to come out of pocket to pay the mortgage on a monthly basis, or to pay back the loan.
At the end of the day, a profit is a profit, better to sell to early than to sell too late.
Thanks for the advice everybody. He just said he plans on holding it long term. He has a 10 year interest only loan.
ask him the definition of his “long term”.
What? A 30/10 I/O? In 10 years he’ll owe $310k and for the next 10 years he’ll be paying $1700/mo to live there. At the 10 year mark his payments will almost double.
You are just teasing/baiting us. Things cannot be this bad. Good joke, I almost believed it.
“10 year interest only loan”
I’ve never heard of such a thing.
It’s probably a 30-year fixed with 10 years of interest-only payments.
I happen to think this is the best loan - most buyers live in a place ~7 yrs. Why get a 30 yr fixed , when you have 10 years of protection. If the housing market does not recover to break even in 10 years, he then has a 20 year loan at a good rate.
No, he has already spent 19k of his before-tax gain hasn’t he? ($69 - ($360-$310)) not counting his down payment. He has used hiscondo as an ATM and therefore I have no sympathy for him, sorry
Old expert wisdom: “You can’t always sell your mistakes.” Take a loss and get out now! There’s nothing worse than waiting and getting stuck for a worse loss next year, or the next year etc….
The realtor’s commission and possibly local sales taxes would be netted out. Your friend already spent the majority of the profits (since loan exceeds costs by a considerable sum). Tell your friend not to forget about the things they purchased with the HELOC, and not to consider gains/losses when making sell decisions. It’s more about not having to make monthly payments on a $310,000 mortgage/HELOC. Do they have payments adjusting sometime soon?
“netted out” should be “netted out of the gain” wish I could make an edit sometimes. If you can’t convince your friend just let him stew and worry about your own problems.
Looks to me like he could only have gotten into this amount of capital gain by 1031′ing into the property or refi-cashout along the way or HELOC “equity” extraction. He has nothing to whine about — much of his profit he already took and spent. I think he’s a fool if he doesn’t cut it loose right now, at those numbers.
I also agree with Robert — this looks like a bait.
“So what’s the solution? Is there a way out? A: There is…”
**********************************************************************
I don’t buy that. There is no solution to the impending crash of our economy. We have made our bed and now we must lie in it.
Everything is out of whack. It is not just the deficits. It is not just the housing bubble. It is every aspect of our economy.
The only way out is to take our medicine. The depression will be historic and incredibly painful but it will clean up the mess that Greenspan and others have helped create.
When it is over, those who are still standing will live in a reasonable world once again.
I am totally with you on this one.
Hyperinflation would be a way out, but they must hide it by taking food, energy, housing, materials, etc. out of the CPI calculations. Oops, they’ve already done that! Never mind ;(
as you know. hyperinflation is not really a way out; it likely is more destructive than a real depression.
Imagine trying to buy gasoline at $10 a gallon today, before it jumps to $12 a gallon next week. Or bread at $5 a loaf before it jumps to $6.
I only hope that the tough economic times come after Commander Cukoobananas is out of office and someone capable of handling a crisis is President.
Bush could make us praise Hoover for handling a crash.
I’m afraid you’re right. The economy ran off the edge of the cliff in 2000, and the massive liquidity injection was an artificial - and temporary - prop. We always knew there’d be a day of reckoning for the party of the 1990’s; all AG managed to do was postpone it. In doing so, he allowed the structural imbalances to become more pronounced and helped Americans dive headfirst into an abyss of debt at a time when we should have been repairing our personal balance sheets instead.
Reminds me of an old Wizard of Id strip: Bung (the chronic drunk) walks into a bar and announces to the bartender, “I’ve discovered the cure to the hangover!”
“What’s that?” the bartender asks.
“Don’t sober up!”
Housing is still only 20% of the economy at these historically high percentages. Even with ripple effects housing cannot take down the US economy anymore than the homebuilder sector can take down the stock market. It will be our response to the housing crisis that may take down the economy but that remains to be seen.
Robert, I respectfully disagree. As a result of a housing crash, unemployment will skyrocket, GDP will go flat or negative, banks and financial stocks will crash, dollar will crash. How’s that for a start? Don’t ask me to start looking for data or links to back up my statement please. The only response to this crisis will be to hyperinflate the dollar, and that won’t happen.
Unemployment will increase. GDP will certainly go negative. The velocity of money will dramatically decrease. Interest rate based returns will evaporate. Asset based investments other than housing will likely increase. Consumer rates will rise. A lot. Not 17% like under Carter but still ruinously high. Those of us with low fixed debt and no intention of seling and liquid assets are not going to care. Those with adjustable debt and/or housing equity expectations are going to get killed. The retail market is wickedly overbuilt as well. Empty strip malls will be the hallmarks of the next decade. The banks will contract as well. Actually it will look like contraction but will in fact be disintermediation and flattening of the industry. Mortgages will no longer pass through a dozen hands until no longer recognizable. The likes of Countrywide and Moretech may disappear and I will see some of that pain up close. Countrywide is based locally and Moretech’s owners live in my neighborhood.
This will happen very fast. Far faster than any intervention can address. Good. Intervention is what happened to Japan. I’d rather get it over with in 6 years than our taking their 15 years.
Painful, yes. Declining housing prices, yes. Inflation, yes. Reduced expectations, yes. Depression, no.
Robert, I compliment you for a well phrased discourse. IMHO the ramifications are far greater than any stock market collapse or recession I have lived thru. The Wilshire 5000 index which has a total market capitalization of all listed equities in the US has an approximate value of 13.4 Trillion dollars. That is equal to the number of dollars placed in residential real estate loans over the last three years. The total residential (SFR, CONDO, TOWNHOMES)realestate value in the US is ~15 Trillion dollars with total realestate value of ~50 Trillion. A 10 % drop in real estate can have a larger impact than a 50% drop in the stock markets. Most people have no individual ownership in stocks. Most people do have ownership in real estate. The 1893 depression caused the single largest transfer of real estate and wealth in the US as a result of foreclosures when mortgages could not be paid and there was no trust in the banking system.
Thanks, we can have diferences and respect. The US residential market total valuation is/was ~$18T as your report. The thing is that is a price on the margin. Without the speculative element of the last few years that is more like $14T. Sounds like $4T just went away but very little of it was accessed so it won’t be missed except emotionally. I bought only 10 years ago and I’m something like 20% LTV. If prices drop 50% I’ll be all the way up to 35% LTV. While possibly extreme in amount there are tens of millions of similar stories like mine.
Blowing up even half the housing sector is only 10% of the general economy and that isn’t going to happen all at once. The fact that people need to live somewhere unlike stocks means there just won’t be a lot of total losses. Even walking away leaves a servicable asset behind. People are going to write a lot of checks at the closing, banks are going to lose money, all that. These aren’t depression triggers. Then again you might be right, if we let the banks paper over their problems the result might be a depression but I like to think we learned that lesson in 1897 and 1933. There will be new lessons to learn this time. IMO it will be the hidden MBSec market that is resold as commercial paper.
Strongly disagree, Robert. If everything but housing was okay, sure, your scenario would be about right. Unfortunately, that is far from the case. The camel that is the US economy is one straw away from depression, and the housing bust is a whole damn bale coming down on that camel’s back.
50% of the earnings of the S&P 500 are from financial concerns. The flattening of housing and its affect on fiancial institutions will have profound affects on the economy, stocks and realestate.
I disagree as well. The housing bubble has provided an enormous boost to consumer spending and the banking sector. Take those out — along with all of the RE and construction-related jobs that have been created since 2001 — and we’ve got a huge problem on our hands.
First and foremost a RE crash may damage the financial system through a breakdown of MBS and derivatives markets. As these two tank, USD takes a dive, and now suddenly we may find ourselves in a position of having to compensate for the “artificially low risk premiums” of the Greenspan tenure.
And naturally, those will bring down everything else.
One more thing Robert - back in 1997, it took a mere week or so, for the economically sound Asia to collapse under the weight of non-performing junk.
Helped along mightily by that humorless old socialist, Comrade George Soros.
The listed companies in 1929 probably represented less than 20% of the GDP too. However, their decline in value touched off a series of events that had people hoard money rather than use it resulting in a massive deflation and decline. I’m still quite undecided (which makes planning terribly difficult) between high inflation or deflation if the housing bubble goes in an especially bad way.
Ravi Batra makes bad predictions and often. Perphaps is doom and gloom will be correct, but odds are his explanations will be wrong as always.
Northern VA inventory is going through the roof. April 1: 3321 active listings; April 19: 3802 listings. A 14.5% rise in less than three weeks! The number on April 19, 2005 was 863, so the YOY increase is 340%.
There’s still quite a bit of unfinished inventory under construction, and I’m sure there are more nervous flippers getting ready to pile into the market.
The NVAR’s web site still has a link to an article titled “The Housing Supply Problem Just Gets Worse and Worse.” At first glance, you’d think they were talking about the explosion in inventory, but it’s actually a link to a 2004 article telling us why the region is going to suffer from a chronic supply shortage of housing! Take a look at how housing inventory has grown exponentially since 2004. Yes, the supply situation does indeed keep getting worse and worse!
“…dual exchange rate system” WTF? This guy thinks we can close the door and he want to call it consistent with free trade? No, the dollar will fall reducing the value of dollar denominated debt. Some of us will be looking at 5% mortgages in a 8% inflation and dollars worth half what it was. I doubt there are many reading old enough to remember their parents with exactly the same luck. If you had a few year old mortgage in the early 70’s it was free money after inflation. $150 mortgages ended up as pocket change. $1500 mortgages may seem the same in a few years.
What isn’t going to happen is a managed exchange rate.
Yeah it will lead to the collapse of the WTO (which isn’t necessarily a bad thing - unrestricted mercantilism can be devastating).
Dual exchange rate == Offsets and incentives for exports, and tarrifs for imports which goes against WTO.
The “free money after inflation” only applies if you’ve got a fixed rate mortgage. No one in the 70’s ever heard of “ARM…”
That’s all that was available back then. My year 3 of 30 4.99% is looking real good about now. Had to pay an extra point but that is deductible anyway.
The ARMs of today will be toxic tomorrow. People will put their children up as collateral to get rid of them. As they are eliminated money will be forced to seek returns elsewhere making for interesting arrangements outside of the normal banking channels.
Again, I agree with Robert. Fro my part, I think that “creative” financing of home sales will be the rage. Whether it is lenders reintroducing assumable mortgages or a cottage industry in seller-financing, people will find a way to do deals. Fortunately for moi and many of us who are waiting to buy, that will not be nearly enough to prop up the current price levels. Win-win for the bears, I think.
Robert, in assuming that a $1,500 mortgage will be “nothing”, you are assuming that income gains will occur alongside the “hyperinflation”. You can ask the Argentinians if this is the case. There will be a lag between the devaluation and renewed economic growth. For a while, those who have cash will be able to pick up 1,500/month mortgages but at 10% interest rates and thus home values 65% of what they are today in bubble areas.
I don’t see ARM mortgages disappearing anytime soon, because in any situation short of foreclosure they transfer risk from the lender to the borrower. Insanely risky “payment option” and no-doc “liar loans” will again be exclusively marketed to the very wealthy. The rest of us will actually have to come up with a 20% downpayment, and that money had better have been in your account for awhile.
Robert - You’re not saying ARM was all that was available back then? The opposite is true. ARM’s were an “inovation” (cough, cough) of the early 80’s, if I recall.
it is not that simple. With 8% inflation, mortgage rates should be over 10% (if the FED keeps them at 5% all bets are off but the economy will crash anyway).
Even if you are paying just 5% for your mortgage, the value of your home will be cut in half because other buyers can no longer afford the payment on a new mortgage for the same home. Yes, you can hang on and don’t care, but only if you have lots of equity to begin with.
I don’t think many people will be ‘lucky’ if this happens, especially not since most of them have already cashed in on the assumed equity (a BIG difference with previous crashes).
You can be underwater as long as you are still making the payments, you can’t sell of course. The bank doesn’t want to reposess a home they will take a loss on if you are still paying your loan off.
I think that depends on the conditions on the loan.
Apart from that, with inflation at 8%, do you think that wages will increase by around 8% so that people will still be able to pay the mortgage while all other costs are rising strongly?
Now that is one of the few things that really IS different this time, me thinks. The global labour arbitrage is screwing things up.
How long have HELOCs been available?
Everything is out of whack.
Quarter million $$$ doled out per kid per year in some MA school districts to meet Special Education mandates.
And the schools are all broke despite taking on average 60% of a muni district’s budget.
I won’t get into the WSJ article about Medicaid payin’ $400k to cover an 85 yr.’ old’s intensive care bill after a heart attack. The azzhole bitched because he had a $175.00 co-pay for new dentures.
Yeah, we want it all, as long as somebody else pays for it.
Damn right everything’s out of wack.
Yeah, we want it all, as long as somebody else pays for it.
Exactly - as a 30-something, I don’t mind paying high taxes to keep the system propped-up for the retirees, seniors, etc. - ASSUMING my years (and years..) of school, work, and saving allow me to have a decent middle-class life (i.e. own a safe home, kids in a decent school, adequate medical coverage.)
However, at this point in my life, this has not worked out the way I had hoped. So if the gov’t comes along and want to tax me even more, all the while keeping these various ponzi schemes (real estate, SSI) going and going; well then I’m out of here - I’ll go move to Thailand or some other place where my money will get me somewhere…
Amen. 30 somethings aren’t going to be on the hook for others who
ran this country and their bodies into the ground and want someone
else (including millions of illegals)to pick up the tab. F–k that. I sold in June 04 in
San Diego and for me to buy again in this country EVER, prices will have to be damn cheap and a lot of these problems will have to be
fixed, and the probability of that happening is ~0. Plenty of other countries that aren’t nearly as screwed as the US.
Show him a chart of HOV, TOL, LEN, etc. and tell him that his housing valuation chart could look like that in the future.
“We have to bear in mind that every empire, from the Romans to the British, has fallen because of a huge trade deficit.”
That statement makes me suspicious of this Batra fellow, if only because a trade deficit is a symptom rather than a disease.
it is just a sympton, but he has a valid point.
Even though they are many centuries apart, the situations of these declining empires are similar in many, many ways.
History echoes, indeed, doesn’t it? As an American and a “student of government” I can tell you with considerable confidence that no one person ever holds all the cards. Stalin, perhaps, but not here. Blaming Greenspan for everything wrong with the world is simple and tidy but simply does not dig deep enough. Was there a “Greenspanius Maximus,” personaly responsible for centuries of Roman decline? Of course not. It just strikes me as way too easy to heave bricks at Al, especially for those trying to sell books.
i wonder how the romans kept tracked of their trade balance.
With an abacus the got from…the Chinese!
We will be seeing the biggest bubble in history in stocks and metals in the next 3 years. At about that time homes will start declining rapidily the GREATEST STOCK MARKET AND REAL ESTATE BUBBLE IN HISTORY WILL WIPE 50% OF LIQUIDITY IN THE WORLD. Then we will start all over again. GET IN THE STOCK MARKET AND METALS MARKET TODAY AND GET OUT BY EARLY 2010.
Are you a big fan of Harry Dent? Isn’t he predicting the DJIA to hit 40,000? It’d be nice if it did.
How long??? Can I sell you my house for 500,000 then I buy your house for 600,000 then you buy my house for 700,000 then I buy your house for 800,000 and on and on. And we both become rich ?????? that is fuzzy economics. I think people don’t invest. they play on peoples greed.
I did read Harry Dent. I do agree with him. And it is possible there could be more then one bubble before the big POP. But everyone I know is financed up to their neck, but equity rich in their minds. And their is no way sheople are going to miss out on the next BUBBLE. So 40,000 dow,very possible. Other then real estate all my money is in metals and stocks.
i am no economist but how safe is investing in metals if in the event of a world recession demand for metals (like copper or steel) will certainly decline as well.
Harry Dent….. bwahahahahaha.. I remember his ‘dent demographic ” stock fund that came out right around the top of the dot.com bubble. He and Larry Glassman share the same crack pipe.
It is really good crack.
GOLD AT $642 AND OIL AT ALL TIME HIGH. No inflation here. Move along, rates going lower. Per Yellen all is fine, go out and leverage your self to the hilt, rates going lower.
Yes, they will be down to about 2-4% in about 4-6 years.
yeah, and the only mentioning of gold in the financial and investment press is still lots of warnings that you shouldn’t buy because it will crash big time tomorrow. They have been saying that for some months now and as long as they do, there is still more upside
In the Netherlands the CPI is now officially near 1% while real inflation (mandatory items like energy, taxes, medical cost, insurance, home prices etc.) is rising at least 8-10% yoy. And many of the sheeple, even many ‘investors’ believe this crap.
Those idiots won’t say Gold is a great investment untill it hits the top. about 2,000 an once
found this:
“The great Austrian economist Ludwig von Mises put it this way, ‘The attempts to lower interest rates by credit expansion generate, it is true, a period of booming business. But the prosperity thus created is only an artificial hot-house product and must inexorably lead to the slump and to the depression. People must pay heavily for the easy-money orgy of a few years of credit expansion and inflation.’ “
lost wisdom.
John Law - I am a true believer in Von Mises and in Murray Rothbard, libertarians and wise economists who saw the world as it is, instead of as they wanted it to be. It’s a shame that there is virtually never a mention of either man in contemporary economics classes.
and this:
“Our analysis leads us to believe that recovery is only sound if it does come from itself. For any revival which is merely due to artificial stimulus leaves part of the work of depression undone and adds, to an undigested remnant of maladjustments, new maladjustments of its own.”
– Joseph Schumpeter
Does that mean we’re FU#KED??
yes, but as long as the sheeple don’t realise it, the biggest party ever continues.
Just don’t look down (if people watched enough Willy Coyote movies they know why).
A DRUNK does not know he has a problem untill he hits the bottom. We are borrowing and spending money like a drunken sailor.
Hey don’t give drunks a bad name!! In the immortal words of WC Fields “My wife drove me to drink, It is the one thing I am indebted to her for.”
Has anyone read the book titled “Conquer the Crash”?
If so, what did they think of it?
It predicts the oncoming hard times and even a deflationary depression and it tells you what you can do to survive and even thrive in it.
Tom - Is that the book by the Elliot Wave Theory guy? I can’t remember his name but I read the book. It’s very entertaining. Just keep in mind there is sub-culture of “perma-bears” out there, that have been predicting a catastophic end to economic civilization for as long as anyone can remember. “Conquer the Crash” belongs in that section of the library, on the same shelf with the born-again stuff about the Second Coming. Repent, Repent, Repent! Or you will go to Hell, broke. Oh, well.
What’s the evidence for his statement that “Bubble cycles can last seven to eight years, with the unraveling typically beginning in the fifth year.”
This sounds like bogus precision (i.e., making up numbers), unless he can point to some empirical study–but there seems a lot of subjectivity in how you pick the starting point.
Ravi Batra. I thought that name sounded familiar. He was the author of that book, “The Great Depression of 1990″ or something that came out just around the time of the big stock market crash in the late 80’s. I remember reading it and being very worried back then… Older and less sure now that I or anyone else has a good handle on what the future is likely to bring…
Learning to think for one’s self is the most valuable lesson, Sarah. The ones predicting the end of the world around every corner are just as suspect as the Dow 136,000 and Real Estate Forever crowd.
oh, and metal and commodities are not in a bubble. they are riding some of the liquidity wave, but they aren’t in bubble territory until they are near their all-time real highs.
Really? Though I suppose with gold it’s hard to say when there’s a “bubble” since its value is primarly psychological—it’s worth whatever people happen to think it’s worth.
Though here’s an interesting graph showing the price of gold from 1796 to 2005 in constant (2004) dollars. The current price looks kinda high by these historical measures.
chart
Ben, I am disappointed that you are using Ravi Batra here. If anything, Batra is a contrarian indicator. We all know there is a bubble, but Batra is a huckster.
Ben, please don’t get influenced by your bloggers. You need to bring everyone into this forum to have a well balanced opinion. Unlike George W Bush, the liar and cronie, we want everyone to have their opinions printed. Lou and his kind can move to another country, like IRAN, and stop giving opinions as to who and what anyone can say. After all, we live in a democracy.
A republic.
aren’t those two words interchangeable as used by the our founding fathers?
No. The United States is a Republic. You know, Rule of Law, i.e. The Constitution. Democracy is mob rule. Most people, including imbiciles like the Learning Man, don’t have a clue.
Having read this blog everyday for the past year, this is without a doubt the best thread I’ve seen. My .04 cents (I’m adjusting for inflation)…
The fed continues to be behind the inflation curve. Inflation is going to treat these asset classes differently (at different parts of the cycle) as it establishes itself. In the short-term, we’ll see continued increases in commodities and equities - even given the fact that the commodities trend is well established. Equities will benefit initially, up until the point where the bond vigilantes demand their risk premium - at which time, the cost of funds will have it’s effect on equities. I believe we are in the early stages here, so equities can still benefit from the excess liquidity.
The Fed MUST protect U.S. treasury holders, and at the same time, bring new blood into the game. If not, the $ collapses and its lights out. This to me is the most glaring reason why that SF crackpot can spout off all she wants and it doesn’t mean a damn thing. Unless she is looking to be paid in seashells, she’ll have no option other than to protect bond holders and the $.
Again, just my .04 cents.
-dd
As someone who actually read Batra’s book, I think I will comment. Not like anyone will read this anyway.
About Greenspan and Batra’s title. That was to get people to read his theories of economics. Which I find fascinating. From 1980-something till about now there was one person that was the uniting factor of American economics. This being Greenspan.
About his Depression book. Aren’t all of us or most of us predicting a crash in housing? What if it doesn’t come true. Should we not listen to your ideas anyway?
He was wrong about Depression but there was a Recession I remember happening around the same time of his predection. Also he did predict the collapse of the Soviet Empire almost to the year, but did say the Chinese were not going to collapse.