Bits Bucket For March 7, 2009
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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
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Mutiny at the Fed — Too Big has Failed. What’s the catch? They don’t like strings? Are they preparing us for large take-downs? Change?
Yep. They are attempting many interesting things.
Bloomberg
Intercontinental to Clear Credit Swaps Next Week March 7 (snip)
Members of the Intercontinental clearinghouse will have to have a net worth of at least $5 billion and a credit rating of A or better to clear their credit-default swap trades. Intercontinental said in the statement today that all market participants such as hedge funds, banks or other institutions are open to become members of the clearinghouse as long as they meet these requirements.
A clearinghouse acts as the buyer to every seller and seller to every buyer, reducing the risk of a counterparty defaulting on a transaction. In the over-the-counter market, where credit- default swaps are currently traded, participants are exposed to each other in case of a default. A clearinghouse also provides one location for regulators to view traders’ positions and prices.
Leigh
…and the great American housing and financial Ponzi schemes struggle on:)
“struggle on” = comes apart
Ponzi boondoggle = a result of a lack of regulation
Mortgage rescue boondoggle = a result of too much regulation
As Roger Cohen stated in the NYTimes, one is hubris and the other is the inevitable nemesis. A story as old as any Greek tragedy.
Disagree.
Ponzi schemes: lack of oversight (by regulatory bodies)
mortgage blow up: lack of regulation in the first place
mortgage “rescue”: stupid intervention/gov’t cheese
Let’s not confuse handouts (like HMD) and guarantees (FNM, etc) with regulation (SEC, Glass-Steagal).
This is not to say that all regulation is good. Read a blog today that argued that Sarb-Ox is horrible for small business b/c of cost of compliance and that the tax code in general is too complicated. (In general, yes, it has become way too complex AGAIN.) Regulation can turn into a “cost of compliance” and “cost of paperwork” issue that kills small businesses.
Good regulation: make stupid stuff that screws up the whole system illegal, protect the little guy, force transparency
Bad regulation: swamp entity (=business, public agency, non profit) in reams of paperwork until they need professional help, create (through Congressional horse-trading) swamps of conflicting laws that it is impossible to adhere to, create “barriers to entry” that protect big, poorly managed businesses from smaller, nimbler competition
Some news from South Central KY….
About 50% of forclosures listed in the legal notice section of the paper are still being pulled before auction. I believe this is due to owners doing a work out with the bank rather than the owner selling themselves out from under their debt. At the auction itself, the bank rep (usually a lawyer here) is still buying up three quarters of the properties at auction. Real odd thing from my perpective, is that bank will buy property at 85 k at auction and then it will show up for sale for 68k. Another property I followed was for sale for 1 year at 179k, brought 116k at auction (bank bought), and is now listed for sale at 92k.
go figure…
PS - the bank house for 68k would be a deal (rental of $725 in that subdivision) while the 92k listed house needs so much work, it still needs to come down 20-30k.
All jurisdictions are different, but normally a bank we buy a property back for what is owed on the loan. They are required to this if it is guaranteed loan (FHA,Freddie, etc). Here 90% of properties are bought back by the back, occassionally the property value exceeds the balance owed.
must be a new paradigm
Sales being pulled could also be due to owner going bankrupt; can happen up to day of sale. Foreclosure will be forestalled but not necessarily eliminated.
Good Morning
In reading many of the CNN, Fox News and Drudge Report blogs, I starting to form the opinion, that there is a growing anger in the American populace. Americans have been brainwashed into the instant fix mentality. There is no patience for a long term fix.
People are starting to realize, that this economy is in serious trouble, with no fix in sight, nor maybe even possible. Its going to interesting to see how the government keeps “we the people in control”.
“People are starting to realize, that this economy is in serious trouble, with no fix in sight.”
So much for Goldilocks and market highs. Now the signposts are signaling the end of civilization and new market lows.
The buying opportunity of a lifetime awaits.
Kudlow says the mustard seeds are starting to take hold (not agreeing with him, just sayin’).
I do have to wonder what would fertilize these mustard seeds.
Rising unemployment?
Collapsing RE?
Taxation?
Corporate bankruptcies?
No argument here.
I mentioned the other day that things like you list above seem to be the flood of negatives that washes the mustard seeds away.
Cheaper gas prices were allegedly a mustard seed. Equivalent to a tax cut. I say cheaper gas prices just slowed or stopped the hole people were digging for themselves.
Kudlow used to fawn over the Goldilocks economy. Now he bloviates about mustard seeds. What a moron!
I’ll believe in economic recovery when I hear about factories opening and hiring for industrial jobs. I don’t think that will happen any time soon…
I do have to wonder what would fertilize these mustard seeds.
Rising unemployment?
Collapsing RE?
Taxation?
Corporate bankruptcies?
Hudge medical bills?
No money after depletion for fixing cars.
“It’s Socialism, I tell ya, Socialism!”
When real people start producing necessary things again, not as part of some government program but because private individuals want, need, and will pay for them, then we’ll be on the road back. But a lot of bad habits and complacent attitudes are going to have to be left behind as roadkill.
Kudlow? Are you freaking kidding? The last person one should listen to is that guy.
we could do 1921 over again
no $ fix = boom after brief deflation
otherwise we get Japan 90’s or worse
Tax Baybee!
The roorin’ twenteeees!
Let’s dance!
Fook the lost decades, hectades!
Shake yar bootay, shake shake shake -
Baybee!
Leigh
I think FOX and Drudge are trying to stir up some anger. They are very one-sided. For example, is Drudge calling out the politicians that are arguing against earmarks while simultaneously accepting them? Orwell had a term for this called “double-think”. Washington seems to excel at the today.
From the soon to be next Governor of Texas:
While fighting earmarks in budget bill, Sen. Kay Bailey Hutchison tops list of Texas’ earmarkers
By LAURA ISENSEE / The Dallas Morning News
WASHINGTON – Sen. Kay Bailey Hutchison fought against earmarks this week, urging her colleagues to trim wasteful spending from a $410 billion bill and even voting to strip all 8,500 earmarks from the measure.
Yet Hutchison also was the state’s biggest sponsor of earmarks – more than $150 million for Texas.
“I do think that earmarks are a legitimate role of Congress. I don’t think that we should be earmarking things that do not have a national interest,” the Republican senator said. “Can it be overdone? Yes. Should it be transparent? Yes. But that is the role of Congress, to determine how we spend money.”
-snip-
“The alternative [to no earmarks] would be to allow unelected, unaccountable bureaucrats to decide where all the federal dollars go,” Edwards said.
Edwards said most of his projects reflect priorities from local leaders: from $1.7 million for a Weslaco honeybee lab to $332,500 for a park in Groesbeck.
Who is Edwards? You referenced this person in your post without explaining who it is.
Are you referring to Democrat Representative Chet Edwards, Speaker Pelosi’s BFF?
Can’t be John Edwards because he isn’t in Congress anymore.
He wasn’t in congress. Senator.
Ummm…. may want to check out your statement.
which one. Well, go0glin again! whoopsie.
U.S. Senator from North Carolina.
All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and a House of Representatives.
- Constitution, Article 1, section 1
You know that the senate is part of congress, right?
Terry,
“In reading many of the CNN, Fox News and Drudge Report blogs, I starting to form the opinion…”
There’s your mistake right there.
Muir,
Maybe you could just summarize for us each day the highlights of the O-BOT TIMES.
Many of us need to know the politically correct way to think, and be led to the light.
No, I leave that to your preacher.
I’m sure he’ll do a nice summary tomorrow.
Thats something being drummed up by right wing TV and talk radio. Did you see the Glenn Beck “War Room” piece. This link has it with some interesting analysis of it as pure tribalism as the same folks didn’t get upset with Bush’s attacks on liberty.
http://www.salon.com/opinion/greenwald/2009/02/22/militias/
Stephen Colbert did a take-off on Beck; it must be on his website; think he called it “Doom Bunker.”
The one example these fearmongers have is that the federal government will force states to take stimulus money of the objection of governors like Jindal. The part those governors want to reject is unemployment extension and that was decided in the New Deal when Roosevelt didn’t let southern governors control the work project money because they wanted to continue the tradition of paying blacks less than half what whites were paid.
These dreams of violence and revolution are cockamamie. It didn’t happen in the 30’s when times were so much worse. And the federal government has routinely pumped money into the economy through Social Security and Medicare for a long, long time, and that keeps people stable. They can go and live with the old folks and they won’t starve or murder for food.
The one example these fearmongers have is that the federal government will force states to take stimulus money of the objection of governors like Jindal.
The governors in question (Jindal, Sanford, Barbour are the ones I know of) are playing hide-the-salami for the benefit of a relatively small (but vocal) conservative demographic.
They each objected to a token amount of the money for their respective states — two to three percent of the total — for the sake of looking like they’re fiscally tough. These governors all preside over relatively poor states, and they know damn well that they will end up taking most or all of the proffered funds. Governor Barbour has publicly admitted as much. But they’re doin’ the old song-and-dance for the talk radio crowd, who never let the truth or evidence or a little fact-checking get in the way of an indignant little crusade.
Well, the article is really tendentious, more screed than analysis, and the take on the “tea party” is dead wrong. As usual, Democratic partisans have no clue what is going on in the financial sector … it’s never on their radar, until it breaks down, and then they do whatever the puppet masters tell them to. At least the Republicans know they’re just paying off the well-connected a*ss-hats that paid for their election campaigns. (Of course, the politicians may well know the score but it’s a question of whether the voters do–and Dem. voters don’t.)
It is fun to poke fun at the militia conspiracy nuts who did a 180 when Bush came into office, but in a juvenile kind of way … They must be really steamed now that they lost the election so spectacularly. Whatever, screw them, they’re irrelevant until 2010.
In reading many of the CNN, Fox News and Drudge Report blogs, I starting to form the opinion, that there is a growing anger in the American populace.
There may be anger, but there’s also the nearly universal sentiment that everything is someone else’s fault, and it’s someone else’s job to fix it. I don’t see much of that anger translating into constructive action. A lot of it looks misguided, as well. It’s a lot easier to focus on scapegoats than to acknowledge the complexities of the factors that have cumulatively led to this crisis, and to develop realistic, workable solutions.
“Hey, what’s the downside potential of that?”
That is a good way for me to evaluate my spending or investing.
Lots and lots of opportunity out there right now, but too hard to figure the downside potential.
You only have ten fingers to loose.
No matter how low it goes - the downside potential is always 100%. Always remember that.
GM looked like a bargain when it was down 90% to $5. It’s now $1.45.
Citi looked like a bargain when it was down 90% to $5. It’s now $1.03.
Housing looks like a bargain in some areas right now.
It’s not.
Anywhere.
To add to that - from looking at all the macro data - historical and current prices, available inventory, debt still outstanding, general economic condition, etc. - I’m now quite sure that housing prices pretty much everywhere are going to overshoot on the downside - and by quite a lot in most places. About a year from now people will be talking about it, and 2 years from now it will be clear to everyone.
Generally I’m talking relative to inflation, though in many places prices will probably end up below pre-bubble levels in nominal terms even.
How do you REALLY calculate rent vs. buy?
I mean when you figure everything in, even opp. cost.
Assume: 3% return on cash (probably high this year)
Maintenance is 5%, prop tax is 2% (kind of a cheat because it varies wildly in FL based on various factors and I’m not even dealing with tax assessment issues)
Let’s suppose annual rent of $6000. To cover this, you would need capital of $200,000. Interest from cash b/c anything else is stupid. Don’t mess with your shelter.
However, a unit that rents for $6000/yr should sell for $60k. Costs: $3k/yr maint, $1200 tax: $4200/yr against $6000 value, return of $1800 on $60k or 3%, other $140k can go in bank, returns $4200. In terms of cash flow you are net zero. If, however, you can invest the $140k in something more lucrative you are ahead. Also, some home maintenance can earn you tax breaks, and in Fl you only pay prop tax on $25k of $60k, $35k in school/library assessment.
It seems like a unit at 120x rent is a buy. Honestly, I think in a couple of years I can get much more house (owner equiv rent) for $60k than I could get apt for $6k. (Right now I pay less than that anyway, but no dishwasher.)
The only sticking point is electricity… I pay very little in apt–all homemoaners I know are paying lots and lots.
So what do you think?
5% for maintenance? So on a $500K house you’re paying $25K a year to cut the grass and inspect the A/C? Come on.
Not exactly. If one uses certain leverage products the potential downside could be far more than 100%.
Well of course. I was assuming no leverage.
We’re looking for a retirement home in AZ and we’re waiting at least 2-3 more years, especially after “discussing” it with Arizonans on hBB. Besides, if prices keep on falling, we may be able to afford something on Marco Island instead, such as in my dad’s condo building. Yum, yum.
Because the Washington Post will not relent until a) every living human being in America is a FB or b) the entire economy is destroyed, taking the paper down with it:
What’s so painful is that stories on their front page detail the carnage: job losses, foreclosures rising, job fairs to nowhere — yet the real estate boosters just can’t let go.
Time to Get off the Fence?
Prices are down, but psychological factors may still keep buyers waiting.
http://tinyurl.com/d3a8ze
The guy profiled in this story just bought a house for $725K. Um, OK, that may be down from $800K a year ago, but not what I’d call affordable.
I am so sick of hearing about “psychological” reasons for people not buying. Unless if by psychological, they mean that I have an 8th grade math education and can work a calculator, and ergo have figured out that prices are still too damn high!
Anywho, off to enjoy the warm weather. Happy weekend, all.
” - yet the real estate boosters just let go.”
These guys are the the taxpayer’s friends. Relax, and enjoy.
“Buy Now..Misery LOVES company”
Love it!
It’s articles like this that convince we still have a ways to go before housing prices bottom out. I love the use of the word “psychological” in the article, though not for the reasons the author intended. For me it sums up every conversation I’ve had about housing over the past few years. If you argued that renting was cheaper or that housing was overvalued people looked at you and talked to you as if you had “psychological” problems. Even at this point in the cycle, with this country heading towards double digit unemployment, with the housing market cratering and trillions of dollars of wealth destroyed many still buy into the “renting is throwing money”.
Also note the guy they use as an example. Granted, we don’t know what he makes, but his final motivation was “price”? And he has been “vindicated”? Are they nuts?
How is he representative of the average buyer?
The subliminal (psychological) message I’m getting is that if we don’t subscribe to luxury, we haven’t succeeded. And now it’s within reach for us paupers with these low, low $725K prices!!
I strongly suggest you divide $725K by 360.
And that’s just the principal repayment.
Long division : the Magical Mystery Machine™.
The “new” M^3!!!
Can any of you thoughful & insightful folks explain to me why we as taxpayers have forked over over 100 billion dollars to AIG?
The boggy man of, “it would be worst if they failed”, just doesn’t cut it with me.
Let them fail
Because of counterparty risks if AIG fails then a lot of others fail as well.
“Let them fail” = a total market freeze-up where checks everywhere bounce and world commerce comes to a screeching halt.
Drinking the Kool-aid?
It is what it is.
Many of them have already failed. We just haven’t publicly accepted this yet. Rebuilding brings hope and opportunity.
“Many of them have already failed.”
Agreed, but it’s useful to pretend that they have not. To pretend otherwise would cause a financial freeze-up.
We could unfreeze the freeze-up with fresh trustworthy balance sheets. We need to breathe new life into the system. The Zombies are festering and dripping all over the furniture. It’s time to bury our dead.
“We need to breathe new life into the system.”
“By “new life” do you mean “new money”?
New money from private sources would be a great thing, but these sources have pretty much dried up, no?
So that leaves the taxpayer as the last source, yes?
New money is not going to invest in failing Zombie banks exposed to government seizure. If we bury the Zombies once and for all, capital will flow into new viable banks. They’ve already lost investor trust, nothing left to save but face.
New money from private sources would be a great thing, but these sources have pretty much dried up, no?
They’ve only dried up because only a m*ron would compete with the printing press. Their capital has been crowded out by all the “low-cost” programs run by the Fed.
Have these counterparties been identified yet?
That’s part of the porblem. Nobody knows for sure just who is the counterparty for what. That makes all the financials suspect.
The financial industry operates on trust. Take away the trust and the industry - and everyone else - is screwed.
The people giving out the money know the counterparties.
What’s more, haven’t they already lost our trust? The only thing holding it together is a bunch of government guarantees.
“The only thing holding it together is a bunch of government guarantees.”
That’s my point. Without the government guarantees the whole system falls apart.
If the government is able to guarantee the entire system, why does it need some of its festering members? Couldn’t the government maintain this guarantee while cleaning out the system? People want to invest in viable banks.
“People want to invest in viable banks.”
Agreed, and they will … but first they need to determine which banks are viable.
As of now probably very few are viable, and this number of viable banks is shrinking as homebuyers decide to walk instead of paying down their mortgages.
… which makes anyone that can convince folks to stay and pay instead of walk away the friend of the taxpayer.
And the NAR is spending their own money to do just that.
How can investors determine which banks are viable when regulators and CEOs obfuscate and throw sand in our eyes?
At what point regulators agreed to let Citi buy Wachovia, implying Citi was a viable bank. Who can you trust when you cant’ trust the regulators?
“Who can you trust when you can’t trust the regulators.”
You can’t trust anybody, which is why we are in this mess. That’s why the taxpayer is forced to be the lender of last resort.
This discussion is going around in circles.
I think we’ve made progress. In short, in order to restore trust in our banking system and capital markets, some of the regulators and their Zombie friends need to go. New capital will invest in properly regulated viable banks.
I’ve got a song, I ain’t got no melody
I’ ma gonna sing it to my friends
I’ve got a song, I ain’t got no melody
I’ ma gonna sing it to my friends
Will it go round in circles
Will it fly high like a bird up in the sky
Will it go round in circles
Will it fly high like a bird up in the sky
I’ve got a story, ain’t got no moral
Let the bad guy win every once in a while
I’ve got a story, ain’t got no moral
Let the bad guy win every once in a while
Will it go round in circles
Will it fly high like a bird up in the sky
Will it go round in circles
Will it fly high like a bird up in the sky
I’ve got a dance, I ain’t got no steps, no
I’m gonna let the music move me around
I’ve got a dance, I ain’t got no steps
I’m gonna let the music move me around
Will it go round in circles
Will it fly high like a bird up in the sky
Will it go round in circles
Will it fly high like a bird up in the sky
Trust the banking system? Do you really think people are going to trust this system in 2, 5, 10 years? 40-50 years later after the Great Depression my grandparents still didn’t trust banks.
And your grandparents were right.
IAT
Billy Preston had it right.
Lars, Billy certainly had it right
Top U.S., European Banks Got $50 Billion in AIG Aid
I believe many are foreign banks like the Royal
Bank of Scotland, Deutsche Bank AG, and French bank Société Générale SA. got some of the US taxpayer money.
That’s why they are afraid to disclose who got it
http://online.wsj.com/article_email/SB123638394500958141-lMyQjAxMDI5MzA2NjMwODYzWj.html
Several Australian banks also received some of this US bailout money!!!
The financial industry operates on trust.
Trust, my butt. Maybe THIS is what they ought to change. Credit should be based on present provable assets, verifiable income, and general sustainability of a company’s business model.
NOT on historical data that no longer applies.
NOT on some “deferred” income that they THINK they will get in the future.
NOT on who has the best golf game and who throws the best cocktail parties.
They sure as hell used to use solid metrics for homebuyers. Then they got lazy and began “trusting” FB’s, trusting that today’s FB’s were as responsible as their parents/grandparents. The system went down from there.
Oh sorry, I replied to the wrong thread.
If I write you a check and you accept it then you are trusting that it will clear in the bank. If there are doubts the check will clear then you won’t accept the check.
It’s all about trust.
Wouldn’t I be clearing you, not the bank? And what would I base that “trust” on? You being a nice guy? You could be Prince Charming and still be broke.
Couldn’t you say trust is necessary for cash, too? I accept dollars because I trust trust that someone else will accept them from me.
“Wouldn’t I be clearing you, not the bank.”
You’d be clearing both.
“Couldn’t you say trust is necessary for cash, too?”
Indeed it is. As I said previously, the financial system operates on trust.
test
The entire social system requires trust. And that’s why any “I built this myself” claim is idiotic, as is the libertarian fantasy of “it’s my money!” self-sufficiency. Yes, everyone is ultimately responsible for their own behavior, but that doesn’t mean the larger necessity of trust is suspended. Indeed, I challenge anyone to show any activity that does not require trust. Without trust we would be paralyzed (see current U.S. financial markets for a developing example).
IAT
Couldn’t you say trust is necessary for cash, too? I accept dollars because I trust trust that someone else will accept them from me.
Girl Scout troupe was just swindled with counterfeit 20’s.
Trust? I guess we will all have to show up with pennies after those counterfeiters ruin everything. At garage sale, 2wknds ago, official came around warning us that counterfeit money was being used at garage sales.
Libertarians don’t deny that society is based on trust, in fact they emphasize it.
It’s the socialists who seem to trust no one, except, oddly, the government.
Then I don’t know any socialists.
Posted this earlier, but it did not go through. So, Libertarians may believe society is based on trust, but this runs head-on into their claims that government is theft of their personal resources, and their claims that they can be self-sufficient. This approach creates two intellectual contradictions.
First, they seem to forget that Western governments are produced by the people — if the people don’t like it, they can change it, at least in principle. Thus, their attack on government per se is an attack on society. This is hardly consistent with trust.
Second, the claim to self-sufficiency implies either incredible arrogance or incredible niavete — arrogance in that the libertarian acts as if, for example, as they approach a bridge while driving, they will be able to evaluate its safety. This is crazy. Alternatively, they are niave to believe those charged to test the bridge will do so out of the goodness of their heart without any oversight at all. But oversight requires coordination, which will, eventually, be some form of government, even if it goes by another name. The arrogance suggests a lack of trust, the niavete suggests too much trust. Neither is sensible alone, and together, they render libertarianism incoherent.
How incoherent? So incoherent that in this whole wide world, we have precious few functioning libertarian societies, i.e., we have zero. Further, all the libertarians in the US refuse to follow their own advice — not one has moved elsewhere, to some deserted island or region, and set up their libertarian paradise. Content to rail against society from the safety of its protection, they hardly put their bodies one the line for ther alleged beliefs. Sadly, that they will not do so is something in which can forever trust.
IAT
So you’re saying there’s no choice but to bail out Goldman and all the others on the other side of the trade??
I say let ‘em die.
Which version do you want, truth or untruth? The money is funneled through AIG to protect large banks. The money is used to protect insurance policyholders across the globe. Sorry, can’t name names.
What we are paying the money for is the bad deals that people paid AIG to insure. Evidently, AIG insured $1.5+ trillion worth of deals.
As those deals go bad, tax payers are paying off. If we don’t give AIG money to do this, companies that made mistakes will have to pay for them. And you know how those CEOs hate to give up their bonuse.
Can any of you thoughful & insightful folks explain to me why we as taxpayers have forked over over 100 billion dollars to AIG?
The boggy man of, “it would be worst if they failed”, just doesn’t cut it with me.
Let them fail
This is a long read folks, and parts of the tome appear to be a Geithner biography -
Only a small mention of AIG.
Easy to glean why to big to fall has them running scared and crying for mommy.
I’ll risk posting the link and cross my fingers it gets through the spamminator
http://businessmirror.com.ph/home/bloomberg-specials/6927-in-geithner-we-trust-.html
In Geithner We Trust?
Best,
Leigh
P’Bear,
Re: Last nights thread. If you get a chance to read this, let me know what ya think.
Best,
Leigh
Leigh –
I was so proud of my clever respelling of an ancient caveat (in respect to banks taking monies from TARP, CARP, TALF, LAFF, SCARF, BARF, etc) that I feel compelled to repeat it here:
BEWARE OF GEEKS BEARING GRIFTS.
P’Bear!
You’re killing me baybee!
How the H E double hockey sticks did ya come up with that one - never mind!
Leigh
Oh, signing off P.
See ya tomarrrrroh,
He’s neither an economist nor a biologist. So perhaps he does not realize that bankers, like other mammals, habituate to environmental conditions. If the regulatory environment dictates that growing too big to fail and then making stupid gambles results in heads-we-win, tails-they-lose payoffs, bankers will try very hard to grow too-big-to-fail and make stupid gambles with positive expected payoffs, courtesy of free (taxpayer-provided) bailout insurance.
IIRC, the derivative notional amt (BIS) was north of $600T in recent history. Good Lord, there aren’t enough trees. Anybody have more current data? (I’m lazy this AM) AIG is DOA. Bury it already.
School needs one janitor, gets 700 applications:
http://www.cantonrep.com/news/x1569321039/Stark-s-hottest-job-Janitor
Thats article is quite disturbing…
That story is really disturbing. Custodial work is stable and no layoffs?
Where have we come to?
You must not have followed my posts from Northern Ohio; we are toast and 700 applications for one government job just points that out. My concern is what will happen to the 699 de-selected? How many more abandoned homes will they spawn?
How far north??
So, how low is low?
S&P _____?
150 would be low.
Doubt it gets there but 400 is not inconceivable (at least to me with a quick back-of-the-envelope calculation.)
If companies have no earnings, then an S&P 500 index of zero is not low.
I know this board invites regular members of the M*ronic Mad-hatter Men and their ilk but even in the depths of GD1, companies had earnings.
They will fire people, renege on pensions, stiff their creditors to make sure they are profitable - that’s how capitalism works. And they will have earnings.
At the end of the day, life will go on - probably different from before but it will go on.
The
was a reply to FPSS
Some companies even have increasing earnings, such as Autozone and Netflix.
And yet you felt an overwhelming urge to attempt a comment that earnings might be zero?!?
Wow, just wow.
Also keep in mind that earnings fluctuate - a lot, as we now see. Just because a company has zero or negative earnings doesn’t mean it’s worthless.
A. Assets still count
B. Expectation of future earnings growth
That’s why to some extent P/E ratios - especially now - are very misleading w/regards to the value of a company or even the S&P as a whole.
I’m considering that to be the lowest of possibilities, with 250-400 as a more probable range.
I based that primarily on the idea of a bottom being 5-8x earnings along with using 70% of the average 10 yr earnings of the S&P. In other words, estimating that earnings drop 30% (a number totally pulled from my arse) from the historic 10 yr avg and we bottom out at 5-8x earnings.
150 is the “what if we fall 90% like in GD 1″ number. At that point, I KNOW I can start moving in. At 300-400…I’m thinking I’m still hanging myself out 25-50%.
But I don’t know $h!t. I submit to your much more experienced opinion.
Come to think of it, that’s why I’m so conservative. I need a larger margin of error (consider the difference from 450 to 150 to be that margin) than you.
Why would we not overshoot and go to 100?
I think 300 on the S&P can be reached before the reversal. The reversal will also mean the reversal of Obama’s anti business policies of course. In the 1930s the average Joe had no money in the stocks. These days most professionals invest in stocks in their 401ks and have a major interest in making sure business thrives. Several colleagues are upset about their 401ks and blame Obama’s socialist policies. They also hated George W. Bush and his socialist policies.
There will be a breaking point when people had enough. Could happen in 2010 when we throw out Pelosi, Frank, Dodd, Reid, Schumer, and the band of fellow thugs. I predict the Libertarian party will get a lot of votes for Congrerssional seats this time.
I predict the Libertarian party will get a lot of votes for Congrerssional seats this time.
I think you are overly optimistic.
Economics is complicated. It’s easy to see that poor people need money and we should give it to them. It is much more difficult to perceive even a possibility that perhaps giving out that money does more harm than good, much less actually going as far as to evaluate that possibility and determine if there are harmful effects to welfare. Very, very few people vote as if they have considered the latter and most people vote as if they have done the former, cursory consideration.
Also, I have come to the conclusion that politics now is much like religion. Witness, as evidence, how many people are unable to see fault in “their” party while only able to see fault in the other party.
Dems blame the right for the Frank/Pelosi created bank handout. Dem supporters think their party is the party for minorites, despite having a member of the KKK not only in the party but also as a widely supported party leader for a long time. (He has spent something like 20 years as the Senate majority leader I think)
Repub supporters blame the left for big budgets and deficits despite the last couple Repub presidents driving some the largest deficits ever. Many of them (the religious right) hold the Repubs up as representatives of their faith, despite a myriad of questionable behavior by party members.
If faith is the ability to really believe in something despite lack of evidence to support the belief, what do you call the tendency to believe a thing in spite of solid, obvious evidence to the contrary? Whatever you call it, that’s what you are fighting against.
Why would we not overshoot and go to 100?
Nothing would surprise me, but in terms of earnings/multiple that would be either shockingly low earnings or a shockingly low multiple.
Anything is possible, but I think it’s more helpful (as with most things) to think in terms of probabilities. That would be a highly improbable event I think.
“Many of them (the religious right) hold the Repubs up as representatives of their faith, despite a myriad of questionable behavior by party members.”
But they’re dumb enough to get right back in line and vote for the same hypocritical liars…… Very wierd indeed.
Exeter,
While I have great respect for devout, principled people of any faith, and am politically conservative myself, you are dead right about the “religious right.” A more brain-dead group of herd creatures can hardly be imagined. Doesn’t it say something that Ted Haggard, at the time he was biting the pillow for his meth-toking man-whore, was also the leader of the National Association of Evangelicals? People of faith are the easiest of all to deceive and manipulate. And what the hell were people thinking when they re-elected Bush - the most monumentally incompetent president since Jimmy Carter - when it was abundantly clear by that point what a disaster he and his Administration had become.
Did anyone else sense yesterday’s doji turn was a bit contrived? Futures were up. We started up and fell apart. Then, in the last 30 minutes, we rocketed up from the lows on no news.
That said, quarterly statements need to be made. There is a holiday and Fed meeting ahead. Most of the earnings are behind us. Plus, some notable bears are bullish. Reminds me of the Thanksgiving massacre. New news, downgrades, and surprise BKs could damper things, however.
“in the last 30 minutes, we rocketed up from the lows on no news.”
Short covering.
From Yesterday’s Bloomberg:
“The New York Stock Exchange, the world’s largest equity market by value of listed companies, will seek to reduce last-minute swings in prices by changing the way it handles bids and offers at the close of trading…
The Financial Industry Regulatory Authority, which oversees 5,000 brokerages, last year grew concerned that investors were manipulating end-of-day stock prices to avoid being forced by their brokers to sell holdings. “
MrktMaven’s alter ego:
http://www.cnbc.com/id/29545350
Good morning Ben,
The filter/comment issue still isn’t fixed.
Comments seem to be coming through much faster now, which is nice.
It’s still broken.
OK. Guess I’m missing something then.
No, it’s working now. It was broken when I wrote that.
NoSingleOne,
Send Ben an email describing the problem.
Pensions checks in Wisconsin deflating:
tinyurl.com/amwj87
Faster,
Good timing on this article, eh?
“(CNN) — Rita Hritz knows several people who have lost more than $100,000 in the stock market recently, and she’s not taking any chances.
Rita Hritz has pulled out of the stock market. Her husband, Jim Schaefer, won’t retire as he had planned.
She pulled out of the market in 2005 because she was tired of the ups and downs, and she has no plans to invest in anything again except real estate.
Hritz is just one example of an American who has lost confidence in the stock market, which has plummeted in recent months. Confidence among investors as a whole is a key factor in determining how the market behaves, economists say; when investors collectively lose confidence in the market, it is more likely to drop.
In fact, confidence is an example of an “animal spirit,” a term referring to the psychological factors that move the market. British economist John Maynard Keynes coined the term.”
www DOT cnn DOT com/2009/LIVING/03/07/economy.investment.fears/index.html
Notice how only real estate is appealing to her. It must now be the only thing that always goes up long term. Chuckle.
BTW, do you have any recommendations on reading material on behavioral finance or investor psychology? Yes, I’ve consulted with Google and Amazon. Just wanted to see if you had any specific recommendations.
You know, I could swear I read a near-identical word-for-word article of the same ilk in 2002! That’s when the seeds of a possible housing bubble formed as the glimmerings of an idea in my brain. Of course, the party got wilder and wilder and went far beyond my wildest dreams.
I know of no books on the subject. At least, none that I am aware of. As Buffett put it, if investing were about reading books then the richest people would be librarians.
“Notice how only real estate is appealing to her. It must now be the only thing that always goes up long term. Chuckle.”
Actually, she might be smarter than the average bear. At some point I am going to sell my Treasury Notes, and buy into the San Luis Obispo market; my fear is that eventually inflation is going to return like a tsunami due to these massive bail-out schemes.
Try “Smart Money Decisions” by Max Baserman, might be spelled Bazerman
I keep reading from different posts on the web that there is 8 Trillion on the sidelines waiting for a bottom in the market to jump in. Can the great minds on this blog give me an insight as to where the people posting are seeing this sidelined money?
Are they refering to the money in Treasury Bonds?
And if so, what happens to all these bail-outs in the process if people Stampede-out of the Treasury and into the Stock Market?
Thank you in advance for any knowledge you can provide me
You know I am so sick of this canard that I am going to explain it once and for all.
In our debt-based system every bit of savings has to sit in some debt-instrument somewhere. Whether that be T-bills or corporate bonds or even common stock, or your checking account which appears as a liability on the bank’s balance sheet, it is counterbalanced by an equal amount of debt.
So this money may flow from bonds to stocks or from stocks to real estate but the sum-total cannot change. Only default can make the stuff go poof like right now.
Besides, this h*rseshit gets trotted out at the beginning of every recession and has been trotted out for the last two centuries.
On the dot. Every. Single. Time.
thx FPPS
Wasn’t my question, but loved the answer.
But Faster, if that were true….then we’d be in the biggest friggin deflation in the history of the universe!
HAHA!
rubs hands together, licks lips, murmurs “yesss.”
Yep. Much of it is indeed in Treasuries. However that’s very much not “on the sidelines”. Obama’s made a $1.75 Trillion bet that people won’t be taking any money out of treasuries this in 2009 at least, and nearly the same bet for 2010.
That’s why there will be no quick turnaround for the stock market, at least from what I see. Most of the money being taken it is going into treasuries right now. Well - it can’t go in the reverse direction because the U.S. debt is only getting bigger.
What’s the solution? Print more. Yeah that’s ongoing, but not yet at the rate the debt is growing.
When the Fed starts directly buying treasuries (they’ve mentioned the possibility) then that might help ease the stock market. But then watch out above, for inflation.
common stock? Aren’t you stretching a reasonable defintion of money and debt?
No, accountant’s definition.
Assets = Liability + Equity.
Equity sits on the debit side of the balance sheet.
(You would recognize it better as Equity = Assets - Liabilities.)
Ok, hang on their just a sec. I have 3 classes left in a graduate level accounting degree…so I have at least a little knowledge of acct theory.
First, the right side of the equation would be the credit side not the debit side (those accts have a “normal” credit balance). Second, the word “debit” doesn’t have anything to do with the word “debt”, except perhaps in some long-forgotten etymological sense. “debit” means left and “credit” means right (getting down to Principles of Accounting there).
Third, that side of the balance sheet should correctly be considered as “sources of financing” or sources of assets, no? So just because equity is on the right side doesn’t make it debt.
Now, if you come with an economic reason of why equity is actually debt…then we can talk. But I can’t see any way in which equity would create money in any inflationary sense. Equity only represents the extent to which some entity has transferred some assets to another entity, in exchange for a claim on the second entities assets.
You can’t “default” on equity b/c equity doesn’t imply debt.
You’re still missing it.
I’ll explain tomorrow.
I’ve had more than my share of “liquidity” this evening.
I’ve had more than my share of “liquidity” this evening.
You’re lucky. I’m only number 2. I’ve been doing homework for 16 straight hours…stupid finance class.
Thank you, for the excellent explanation of my question. I knew it had to be Bull-oney, it helps to get confirmation from the HBB crew.
And now for something completely different.
This week we are building raised beds and moving the vegetable garden to a sunnier spot - hoping for better production this year.
If you google “square foot gardening” you get Mel Bartholomew’s website demonstrating his compact gardening style. If you enter “square foot gardening” into google books, you can read his book online. I’m getting a lot of good ideas from it and will probably go out and get a hard copy later.
(And renters, you can have a garden that is not just compact but portable if need be.)
HIp. I walk out every day to view the yellow/orange/red bell peppers growing, the tiny tomatoes coming up and the cucumbers budding.
Thanks for the link for square foot gardening.
Got to invest in screens to protect from heat.
You’re ahead of us.
We’re putting up an a frame around the raised beds to hang screening of something like vinyl chicken wire to protect from birds and critters. Next winter we can put plastic and make a cold frame.
Recession? What recession? The Burlington, MA mall was more crowded today than at Christmas. Couldn’t get a parking spot, so I had to go to Kohl’s instead. That was crowded too, short line at each register. Shocking! Do you think everyone is spending their tax refund or something?
It sure isn’t like that in my neck of the woods. The city of Fort Collins announced that sales tax revenue has dropped 7% YoY.
I see it here, too. Last night every over priced restaurant was filled to capacity. Cabela’s was in overdrive… got guns? It was like everyone knew their plastic debt maker was going to quit this next week and were just trying to max it out. 9mm ammo almost gone- 380 was gone.
Who got AIG’s bailout billions?March 7, 2009 9:52 PM ET
All Thomson Reuters newsNEW YORK (Reuters) - Where, oh where, did AIG’s bailout billions go? That question may reverberate even louder through the halls of government in the week ahead now that a partial list of beneficiaries has been published.
The Wall Street Journal reported on Friday that about $50 billion of more than $173 billion that the U.S. government has poured into American International Group Inc since last fall has been paid to at least two dozen U.S. and foreign financial institutions.
The newspaper reported that some of the banks paid by AIG since the insurer started getting taxpayer funds were: Goldman Sachs Group Inc, Deutsche Bank AG, Merrill Lynch, Societe Generale, Calyon, Barclays Plc, Rabobank, Danske, HSBC, Royal Bank of Scotland, Banco Santander, Morgan Stanley, Wachovia, Bank of America, and Lloyds Banking Group.
15100 Marquette St UNIT C Moorpark CA 93021 3 beds, 2.5 baths, 1,353 sq ft
Sale History
02/19/2009: $268,000
03/28/2006: $465,000
02/28/2003: $272,500
12/04/1998: $155,000 *
07/29/1998: $126,000 *
Ouch this is very close to where I used to live in CA. Townhomes with extremly high HOA fees. 200K poof in a short sale
went to another Garage Sale here in Ahwahtukie AZ where the stove, dishwasher, everything for sale. I asked and was told the owner has another house. OK doesn’t explain why you are gutting current house unless you don’t plan on trying to sell it but instead are going to do the midnight dash. I see this alot.
Ahwatukee, AZ