Bits Bucket For August 22, 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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Okay… where’e the coffee. I need coffee, and I need it NOW!
Up early today with insomniac energy — no coffee needed! I just left behind a longer post on this article in yesterday’s bits bucket. Take home message:
Even though the California state unemployment rate is higher than San Diego County’s, last month’s job losses were proportionally higher in San Diego County (relative to population) than for California overall.
S.D. County jobless rate up slightly
But state’s figure is highest in modern record-keeping
By Dean Calbreath
Union-Tribune Staff Writer
2:00 a.m. August 22, 2009
Man, that author lives and breathes California!
He lives here in San Diego. He is a voice of reason floating atop a vast ocean of denial.
America May Need to Find Another Financier
By FLOYD NORRIS
August 21, 2009
Figures released by the Treasury Department this week indicated that China reduced its holdings of Treasury securities by $25 billion in June, the most China had ever sold in a month.
Monthly figures can be volatile, and can be revised, so it is risky to draw conclusions from one month’s data. In May, China increased its holdings by $38 billion, according to the Treasury figures.
Nonetheless, the decline highlighted a fact shown in the accompanying graphics: Asia’s appetite for Treasury securities is not growing as fast as it once did. That means the United States will have to turn to other buyers, including American citizens, who are now saving as they did not do during the boom years, to finance the deficits.
China and Hong Kong, which is reported separately but is combined under China in the accompanying graphic, together covered more than half of the increase in the amount of Treasuries sold to the public — that is, to buyers other than United States government agencies like the Federal Reserve or Social Security — in 2006.
That share had fallen to 22 percent last year, when the government increased its public debt by a record $1.2 trillion. In the first half of 2009, China and Hong Kong acquired only 9 percent of the more than $800 billion worth of Treasuries that were sold.
Japan, which was replaced by China as the largest foreign holder of Treasuries last year, has been a larger buyer this year, taking up 11 percent of the new supply of Treasuries.
The figures include both government and private ownership of Treasuries, and private transactions affect the figures in both Hong Kong and Japan. But in China, the overwhelming ownership is by the government, which has accumulated the securities in part to hold down the value of its currency against the dollar, thus making Chinese exports to the United States more attractive.
In recent months, some Chinese officials have indicated concern of inflation in the United States that could erode the real value of their holdings, and have talked of diversifying their investments. The slowed purchases could reflect those concerns, or could simply be a result of China’s own aggressive stimulus program, which has involved large public spending.
When sovereign wealth funds stop purchasing our debt, the charade will enter the final phase. Most people continue to believe the lies. Any conversation detailing these untruths is viewed as an Alcoa hat event. It will eventually reach its natural conclusion as our current path is unsustainable. I have become more disgusted with our nations collective intelligence. Even though my beliefs regarding the bubble were realized long before ever visiting this site (I sold our second home in 03′) it is nice to drink from the pool of HBB sanity every now and then.
Thanks Ben for keeping this thing going. A contribution is on the way.
More and more I get the feeling that I’m living in the movie “Idiocracy”.
Ever read “The Marching Morons” by C.M Kornbluth?
An Idiocracy type story? I think I might have read that in an anthology when I was a teenager. Do you have the name of a collection that it’s in? I’m going to the library in a couple days.
I haven’t seen Idiocracy yet.
“That means the United States will have to turn to other buyers, including American citizens, who are now saving as they did not do during the boom years, to finance the deficits.”
Raise the rates to 10%, and I’ll really stock-up on ‘em.
Me two. Damn I’d live like a king with my cash earning 10%. Bring back Volker and the tight money plan.
So when you’re not worth a crap at your job, pull out the “race” card, sorry home boy, doesn’t wash…
Gov. David Paterson blames calls for him to step aside on race
Daily News Albany Bureau Chief
New York Governor David Paterson
Paterson plays race card
The governor says the calls for him to not seek re-election are because he’s black and that we are not “post-racial.” Do you agree?
Yes - it’s still difficult for people of color in politics.
No way, the reason people want him out is because he stinks!
ALBANY - Gov. Paterson blamed a racist media Friday for trying to push him out of next year’s election - launching into an angry rant that left even some black Democrats shaking their heads.
“The whole idea is to get me not to run in the primary,” Paterson complained on a morning radio show hosted by Daily News columnist Errol Louis.
He suggested that Massachusetts Gov. Deval Patrick, the country’s only other African-American governor, also is under fire because of his race.
“We’re not in the post-racial period,” Paterson said.
“The reality is the next victim on the list - and you can see it coming - is President Barack Obama, who did nothing more than trying to reform a health care system.”
Paterson said the campaign against him is being “orchestrated” by reporters who would rather make the news than report it.
But critics said the governor should blame his own blunders.
“He’s given the media more than enough to feed on with the incompetence shown in his administration,” said state Sen. Kevin Parker (D-Brooklyn), an African-American.
“To quote Michael Jackson, he should start with the man in the mirror,” Parker said.
Wow, that has housing bubble written all over it… At least it mentioned Michael Jackson, which makes it OK I guess.
Yep, off track/OT, but this is a fellow who proposes crushing tax increases and property is one of his big targets and that will have a direct effect on everyone in NY, and NY has and effect on the nation as a whole.
Of course we are all inter-connected so perhaps it’s just one minor blip on the radar screen.
P.S. If it’s to far of center please delete…. Thanks, David
I just thought people didnt like him because he was blind.
Always smells the roses and never sees the crap he is about to step in.
I used to give him a break thinking he was taking the brunt of a lot of other people’s sins. He lost me w/the $200 per child gift. I’m sorry. I have never once spent that much for school supplies per child and my district asks for quite a list. And it needed to be a voucher program. This obvious free money for votes action was the last straw for me.
Next!
Looks like HBIC is going to go down in history as the biggest spendthrift of all time, and the ingnorant girl in Fla. is still going to have to pay her mortgage and gas bills. Imagine that!
Obama to raise 10-year deficit to $9 trillion…
WASHINGTON (Reuters) - The Obama administration will raise its 10-year budget deficit projection to approximately $9 trillion from $7.108 trillion in a report next week, a senior administration official told Reuters on Friday.
The higher deficit figure, based on updated economic data, brings the White House budget office into line with outside estimates and gives further fuel to President Barack Obama’s opponents, who say his spending plans are too expensive in light of budget shortfalls.
The White House took heat for sticking with its $7.108 trillion forecast earlier this year after the Congressional Budget Office forecast that deficits between 2010 and 2019 would total $9.1 trillion.
“The new forecasts are based on new data that reflect how severe the economic downturn was in the late fall of last year and the winter of this year,” said the administration official, who is familiar with the budget mid-session review that is slated to be released next week.
“Our budget projections are now in line with the spring and summer projections that the Congressional Budget Office put out.”
The White House budget office will also lower its deficit forecast for this fiscal year, which ends September 30, to $1.58 trillion from $1.84 trillion next week after removing $250 billion set aside for bank bailouts.
Record-breaking deficits have raised concerns about America’s ability to finance its debt and whether the United States can maintain its top-tier AAA credit rating.
Politically, the deficit has been an albatross for Obama, a Democrat who is pushing forward with plans to overhaul the U.S. healthcare industry — an initiative that could cost up to $1 trillion over 10 years — and other promises, including reforming education and how the country handles energy.
It’s the economy, stupid…although I oppose most of Obama’s programs on ideological grounds, I think much of the blowback he’s getting now is just based on the continuing rise in unemployment (even though that rise is not, at this moment, a result of his policies). My centrist friends, not too uncomfortable themselves, now mostly have 30-ish children who have been laid off and who still have zillions in student loans to pay. Thus my centrist friends, more conscious of debt burdens, are turning against the man they preferred to the Spectre of Sarah Palin. Of course I’m not a Palin fan either.
Some economists are saying the deficit is not a problem because Americans in their new “saving” mode will themselves buy all the U.S. T-bonds that the Chinese are afraid of. Well, maybe; but the rates would have to be much higher to attract ME.
“I think much of the blowback he’s getting now is just based on the continuing rise in unemployment (even though that rise is not, at this moment, a result of his policies).
Well I could hope that the folks that keep voting for the same old BS over and over again may start to understand “they” for the most part are all the same. It’s about power and control for politico’s, the current occupier of the WH made many promises as all politicians do.
This fellow however played to may folks who sincerely believed that he would change their situation in life, with no effort on their own.
Not going to happen, to improve one’s station in life, a person must work for it, and it may not be easy.
“…I think much of the blowback he’s getting now is just based on the continuing rise in unemployment…”
It’s pottery barn rules once again:
You break it, you bought it.
Whether or not it is fair, whoever beats their chest the hardest and loudest gets blamed for whatever breaks. The Obamanomics Dream Team made sure to grab the reins of control from the departing Bush and administration early and loudly, and now they are paying the price.
I believe in the state of CA if you break it you don’t buy it.
And on Wall Street, if you break it, someone who works in Washington, DC pays you a ginormous bonus.
“you break it, you bought it”
But Obama didn’t break it.
It was broke years ago. Before Obama was born.
” but Obama didn’t break it”
True, but he is trying to restore with Krazy glue.
“But Obama didn’t break it.”
Sorry if you missed the point of my post (perhaps my early-morning pre-caffeinated ramblings were murky)? I did not mean to suggest that Obama or his Obamonomic Dream Team ‘broke it’ — W’s men did a bang-up job in that regard. All I meant is that they seemed a bit too quick to start thumping their chests about how they were going to save every underwater homeowner in the country from drowning. Now that the futility of the exercise is coming to light, it will be easy to shift the blame onto them for a failed rescue policy, taking the focus off the previous eight (well, maybe more like 74) years of misguided federal housing policy which set the stage for the mortgage crisis at hand.
I did not mean to suggest that Obama or his Obamonomic Dream Team ‘broke it’ — W’s men did a bang-up job in that regard.
I don’t mean to direct this at you, PB, but I find it frustrating that people give Obama a pass on this. Sure, W and his cabinet deserve a lot of the responsiblity. But Congress, which Obama was a part of, deserves a HUGE heaping of the blame as well. BHO was a member of the party that broke things. He just wasn’t president at the time.
“BHO was a member of the party…”
I don’t buy into the whole party politics blame game. It is a waste of time when politicians on both sides of the aisle are engaged in governance practices which defeat the ability of the free market to function properly. I don’t want anyone to get the impression that I am some kind of laissez-faire nut job who believes the market works best without any intervention whatsover, including a rule of law to bring justice to Wall Street’s white collar criminal brigade. But when the normal modus operandi by pols of both stripes is to employ distortionary market interventions to pursue Rob-Peter-to-Pay-Paul political objectives, we are all in trouble.
drumminj,
Not just BHO party. Bush’s party also helped drink the well dry.
But Congress, which Obama was a part of, deserves a HUGE heaping of the blame as well. BHO was a member of the party that broke things. He just wasn’t president at the time.
Perhaps you should look at the composition of Congress for those eight years.
Regardless, The Professor is wise in recommending a non-partisan, long-term view of the legislative sausage-making that got us here.
Not just BHO party. Bush’s party also helped drink the well dry.
By ‘party’ I didn’t mean political. I meant he was part of the group of people that created the mess. That group being congress (both houses), both R&D, as well as the white house.
Yes, when BHO became president the mess had already been made. But he had a part in creating it while a member of congress. That was my point. I’m not making any kind of partisan statement. The same would be true of McCain…really anyone who doesn’t have a record of voting against most spending, regulation, etc.
“The citizen, generally, doesn’t mind being lied to and robbed – just so long it is by someone he elected.”
~Bill Bonner
Consumers Making Ends Meet With Credit
A new study is providing more insight into the ways Americans are using consumer credit to help them get through the recession.
The research company Demos recently released “The Plastic Safety Net,” which found that low- and middle-income households now carry an average of $9,827 in credit debt.
The report said that households now take about 5.1 years to pay off their credit debts, while about one in three families are now apparently using credit cards more for basic living expenses.
One out of two households also reported carrying medical debts on their credit cards, with an average amount of $2,194.
“Wages have stagnated while medical and housing costs have skyrocketed, and if confronted with a layoff or health emergency, there are few, if any, personal or public safety nets adequate enough to help in a crisis. Households are turning to high-cost credit cards to keep afloat,” said Tamara Draut of Demos.
“medical costs have skyrocketed” — I’m just using your post as a pretext to whine here — the “Massachusetts plan” outlawed health ins with deductibles above $2K, and I fear the current “reform” will involve the same provision, thus outlawing my $10K-deductible policy issued by Blue Cross of AZ — despite BO’s assertion that “you can keep your health ins if you like it.” Well, my general feeling is that “medical costs have skyrocketed” BECAUSE of govt mandates, not in spite of them. And the likely demise of my cheap health ins is a perfect example.
But countries with national health care spend far less and get better results. (anecdotal Drudgeries notwithstanding)
Az,
I believe that, aside from inherent inefficiencies & other various system maladies, we insured pay more to pay for those that are uninsured. Everyone should be able to connect the dots.
I defy anyone to explain to me how I will pay for non-producers medical coverage yet my own costs will decrease and I will experience no reduction in level of care. By using newly created efficiencies created by the government? Right. I agree the current system is broken but I believe any able bodied persons level of care should directly reflect his work ethic. Exactly how you would quantify this would be difficult for sure. But knowing that I have busted my a$$ my entire life for what I have, I would sure have a problem standing in line with a lazy, chronic fatigue syndrome suffering, bar philosophizing, meth freak receiving the same level of care at the Obama clinic.
Those with legitimate disabilities, physical and developmental, that render them unable to work should be taken care of. I believe they already are.
I’m not really feeling the love this morning.
I totally agree. I also reminisce about (I forget who’s post) the two week ago line that everyone’s going to die anyway. So why not let Darwinism do it’s thing and avoid socialized health care?
So why not let Darwinism do it’s thing and avoid socialized health care?
Because people believe we’ve evolved (yuk yuk) beyond that way of thinking, on a moral level.
Self sacrifice (from the healthy and fit to the ones who do not practice good health) is devolution not evolution. Socialized health care robs from the fit to give to the unfit.
Nature, god…..whatever you believe in provides us with the ultimate system designed to ensure that the overall health of the population will stay the same or get better as time goes on. It’s called you get sick and die. The remaining members of the heard are the hearty and live on to reproduce.
It’s unclear why we as a race tend to believe that we are exempt from laws that govern other creatures on this planet.
“Consumers Making Ends Meet With Credit
A new study is providing more insight into the ways Americans are using consumer credit to help them get through the recession.”
Does the study cover the creative financing technique of stopping payment on one’s mortgage in order to live payment-free in a house you supposedly own? Because my understanding is that something like 13 percent of mortgage holders are making ends meet that way about now…
Old news. Replacing lost wages with credit has been going on since the first jobs were offshored back in the 80s and led DIRECTLY to the mess we’re in.
Here’s a fun fact about banks…
When you deposit money in a bank it is no longer yours. It belongs to the bank, although you will be given a receipt or certificate that says you may make a demand for a sum in that amount in the future. The bank, however, will not guarantee the purchasing power of the dollars you lend it.
Another fun fact about money. Federal Reserve notes are not “money.” Until 1963 they were redeemable in lawful money. That is, they were IOUs for the real stuff. But they aren’t even IOUs any more.
My husband’s co-worker tried to cash in some of his 401k. He was denied. (I know the fact this was going to happen was announced in the MSM)
Another co-worker had been able to pull out all of his money last fall.
I find this interesting because on the cover sheet of each employee’s total income package the company includes 401k money to declare a total. I understand it’s technically true but isn’t part of it being “our” money having control over what happens to it?
A lot of Enron people thought the same thing. They tried to cash out and were denied.
I’d like a little more information about the particular circumstances before I get excited about this. I would never ever have more than a token percentage of a 401(k) in the stock of the employer.
If I have my facts straight, and it is 3rd person at this point, the money was all employer contributions. The employee did not contribute anything out of his pay.
I just wanted to remark that if you couldn’t take it out especially with the intent of protecting its value, it’s a stretch to include it as income on their yearly income breakdown sheet. Could he use that amount when qualifying for a mortgage? I’m thinking no.
Besides at this point, I have to wonder whether that money will actually be there when needed or will it be like the social security trust fund? How many corporate securities have failed this year again?
For years people have been calling me an idiot for not having a 401k. This is EXACTLY the reason I would not buy in. It gives the government the ability to prevent you from spending your money until they are finished devaluing it.
There are so many sweetly baited traps out there.
“There are so many sweetly baited traps out there.”
It helps if you understand the circular flow of money between Wall Street and Washington, DC, which is supported by the one-way flow of money from Main Street America to Wall Street and Washington, DC.
Denied on what basis?
I’ll ask and get back to you on that one.
McAfee (who developed that “virus scanner” that so ANNOYS me in my Toshiba laptop) was the main subject of yesterday’s NYT article on the fall of the superrich. He’s holding no-floor auctions of some of his real properties now that his net worth has dropped to $4 mil. While $4 mil is not chicken feed, the income available from it at today’s low interest rates puts him almost in the universe of real people. Unless he still has an actual job, he belongs in a house worth well under a million. Bwaaaahahaha.
McAfee’s wealth dropped from somewhere around $100 million to $4 million. I do give him props for his willingness to talk about losing 95%+ of his total wealth. I mean, that’s kinda embarrassing.
As a technical professional, I have nothing nice to say about MacAfee. Considering its, er, quality, I’m not surprised the creator is just as, er, competent.
The product is junk alright, but he sold off in the early ’90s. Somebody else has been Capt’n of that junk for quite some time.
I posted here about a week ago or so about renting or buying in Tampa. I got the expected “you are a moron for even considering buying” replies.
Here’s an update:
Ive been here all week looking at both rentals and for sale.
On the rental front: it is amazing what photoshop can do to make a complete sh!thh0le look fantastic on craigs list. I looked at one house for rent at $1900 which looked great online. Got there and I wouldn’t think of paying $190 for. $2500 seems to be about the minimum for an acceptable house in a good neighborhood. And by acceptable I mean a house that does not have kitchen cabinets from 1971 or carpeting from 1982. And believe me there is no shortage of either in this town.
And granted the areas I want to live in are not representative of the entire Tampa/St Pete metro. I am looking in older, established ‘hoods, either in Tampa or St Petersburg. Areas with pre-war houses, not suburban wastelands with McMansions to spare. $2500 out there would probably get me a palace. I didn’t even bother checking though since I have no interest in that kind of community.
On the sale front: asking prices have come down since January when I last looked. But not much. Maybe 10% on average. Saw one I really liked that has been on the market for 210 days. Beautiful house, well kept, updated, etc. Original price $599K. Now at $529K. And it has been sitting empty since May. I told the real estate agent, I would be interested at $435K which was the last sale price recorded in 2002. She didn’t laugh in my face directly, but I could tell she was laughing on the inside. Oh well so be it, plenty of fish in the sea. Saw another one listed for $519K. It has been on the market for almost 2 years, and it too is sitting empty. Not one price drop the entire time. So there is still a lot of that attitude around. I guess nobody has told these people it’s 2009 and not 2006.
At the end of the day the choice is rent for $2500 or buy for $3500ish including tax/insurance. Add in the tax deduction and it’s a $2500 vs. $3000 equation. The unknown of course is will prices fall more? Obviously everyone here will say that is a YES! I tend to think that as well, but I don’t know. There are houses being sold. Looking on zillow, there were 4 sold last month alone in one 3X3 block area that I was most interested in the Old NE section of St. Petersburg. And the average price was well over $200/ sq ft. Is this just a blip on the screen in an otherwise downward trend? I don’t know.
Most likely the outcome will be a 6 month lease on a house and start monitoring closely what’s happening on the sale front. If after 3-4 months prices are staying put and sales are still happening, then we’ll pull the trigger on buying.
“Is this just a blip on the screen in an otherwise downward trend? I don’t know.”
Most likely explanation:
Dough-4-dumps stimulus blip on the screen
Where’s my coffee, P-Bear?
Eddie,
Thanks for the front lines account of what you see. As for this:
‘I got the expected “you are a moron for even considering buying” replies’
You don’t hear that from veteran HBBers. Our general response has long been, “go ahead and buy; hell buy two.” Not to make light of your situation, but personally I’ve never cared if somebody bought here or there, or when. I’m more interested in the economics of this mania, and what individuals do is just part of the puzzle. Good luck, seriously.
“…hell buy
twoten…”Speaking only for myself, I find highly irritating those posts which can easily be construed as ‘the water is fine, so come on in and take a few of my investment properties off my hands while the price is only $200 / sq ft.’
Having a name like “Eddie” suddenly show up out of the clear blue sky almost instantly sets off my shill detector. Isn’t your first name “Fast”?
So absolutely nothing even remotely positive is allowed to be posted? I’m telling you what I saw. Yes $200+ / sq ft is what those 4 houses sold for. Look it up yourself if you don’t believe me. For all I know next time they sell it will be $20 / sq ft. I don’t know. I posted my thoughts and experiences. And now I am automatically a shill because I didn’t say the end of the world is here, everyone run for cover. Sheesh.
Dude — you are sounding more and more like Fast Eddie by each word you type…
“So absolutely nothing even remotely positive is allowed to be posted?”
Just for you, I repeat my advice posted here yesterday and often:
Buy stocks now or get priced out forever.
Not to be negative, Eddie, but did you catch the recent news that 5 out of 10 mortgages in Tampa-St Petersburg-Clearwater are under water?
Clearwater / under water — has a nice ring to it, no?
No I didn’t. Link?
“No I didn’t. Link?”
Click on the NEGATIVE HOME EQUITY table for percentages underwater for various US MSAs.
Eddie, didn’t you say that you’re looking into the Davis island area? that’s an expensive hood (Derek Jeter’s home).
Anyway, $2,500/mo translates into $300,000 using the 120 times mo rent formula. So at $500,000 those homes are way overpriced. That said, wealthier areas can hold their price longer, especially in FL.
Davis Island was one option. But very few rentals there and nothing decent under $4K a month. There are some crappy, run down options in the $2.5K range. But they’re quite awful. It’s a nice place to live, but not worth living in a shack just for the cool address.
There is a little rental near my place in Flagstaff for sale by owner, and the sign says “investment property.” It would almost certainly be cash flow negative. So the obvious “investment” would be on the part of the seller.
FWIW, I get a lot of calls and questions these days from people looking to buy or sell or avoid foreclosure, etc. For the most part, these same people didn’t listen to a thing I said back when it could have made a difference.
If and when you do pull the trigger to buy something, be sure it’s a house you can live in for a long time (over 5 years).
It’s MUCH easier to buy a house (if you have a down payment and good credit) than it is to sell a house.
I don’t mean to offend you by stating the obvious, but often times we need to review the basics.
Good luck to you!
“The unknown of course is will prices fall more?”
Unknown to who?
Eddie,
For what it’s worth, I rent a 2200+ sqft, 2 car garage, townhome in Carillon park (pretty close to Old NE). It is very nice. The first year we paid $1700/month (negotiated down from $2200 )and our landlord was so happy to have good tenants that she lowered the price to below $1500 (we mentioned the possibility of buying). The prices for these units were sticky for a long while but very recently started to slip significantly.
I agree that the prices haven’t come down as fast in the inner communities as they have in the outer communities. But they are coming down and I suspect the pressure of dramatically lower prices in areas like new Tampa and Westchase will cause significant further declines. I anticipate faster rates of decline starting soon due to school starting. In any case, I don’t see prices going up in the inner areas for a long time (any reason why they could?) , so if the monthly costs are lower for renting then you have your answer.
Here’s the deal (crazy)Eddie.
2 weeks ago my firm announced they copped a 5 year contract valued in the tens of millions with the city of Sarasota(all BS work like parks, curbs, catch basins, storm and some sanitary….easy stuff). Of course this is falls right in line with my long term vision and I got right to work on lobbying the movers and shakers in order to be considered for it. Further to the point, I’ve been perusing Sarasota/Desoto/Charlotte/Manatee county shacks4sale with a fervor. Given the fact that my wife wants to get back into horses(barrel racing and gymkhana), some of my focus has been on shacks with a few acres of dirt. The shacks I found fitting that criteria, some inside of Sarasota city limits don’t line up with your inflated prices you’re talking about. Not even close. For a instance I found a pre-war craftsman on 5 acres, 1 mile from the beach for $120k. Another shack built in 2006 on 8 acres, within Sarasota geographical boundaries for under $200k. Those are *asking* prices. Given the fact that anyone with their head attached understand that they’re getting ripped off if offering more than 50% of asking prices, I’d wager to say that your posts here are overflowing with excrement.
If I wanted to live in a shack in Sarasota this would be very helpful.
Let’s establish this fact. They’re all shacks…. every single one of them and they all deteriorate, depreciate and end up back in the ground…. exactly where they came from.
Now step up to your previously posted REIC induced propaganda.
I looked at a 2300 sqft home yesterday at 1996 prices. I’m in Jax, FL. I only look at distressed situations, sometimes the property is not even listed on the MLS. Most contracts here are signing for 8-13 pct below MLS.
..The unknown of course is will prices fall more? Obviously everyone here will say that is a YES! I tend to think that as well, but I don’t know…
Do you see some reason incomes will rise anytime soon? I don’t, and I think it’s safe to say prices will first continue to fall to the point of affordability and then remain at that level, until overall economic conditions set the stage for incomes to increase.
——–
I understand the urge to buy.. Money constantly whispers in your ear ” … spend me.. spend me.. spend me..” and it’s hard to think straight.
White House to project $2 trillion higher deficit over next decade. August 21, 2009, 10:20 pm EDT
WASHINGTON (AP) — The Obama administration expects the federal deficit over the next decade to be $2 trillion bigger than previously estimated, White House officials said Friday, a setback for a president already facing a Congress and public wary over spending.
The new projection, to be announced on Tuesday, is for a cumulative 2010-2019 deficit of $9 trillion instead of the $7 trillion previously estimated. The new figure reflects slumping revenues from a worse economic picture than was expected earlier this year. The officials spoke only on the condition of anonymity ahead of next week’s announcement.
Ten-year forecasts are volatile figures subject to change over time. But the higher number will likely create political difficulties for President Barack Obama in Congress and could create anxiety with foreign buyers of U.S. debt.
Earlier this week, the White House revealed that it expects a budget deficit for the fiscal year ending Sept. 30 to be nearly $1.6 trillion. That figure was lower than initially projected because the White House scratched out $250 billion that it had initially added to the budget as a bank rescue contingency. The administration ultimately did not ask Congress for that money.
Still that number, together with the 10-year projection, represents a huge obstacle for an administration trying to undertake massive policy overhauls in health care and the environment.
Economists predict a slow recovery from the recession, further testing Obama’s goal of cutting the deficit to $512 billion in 2013. Even as he seeks higher revenues to pay for new climate change and health care measures, the president could face pressure to increase revenues or make deep spending cuts to tame the deficit.
“Economists predict a slow recovery from the recession, further testing Obama’s goal of cutting the deficit to $512 billion in 2013.”
I think the goal is to talk about cutting the deficit. The goal is not actually to make the decisions necessary to cut the deficit.
Watch only what they do. Don’t listen to a word they say.
I wonder if the central bankers discussed the tsunami wave of bank failures at their Jackson Hole pow-wow this week? Or did they run out of time after endlessly congratulating themselves on saving the world from the 2008 financial crisis, which has officially bottomed out?
I note that it is not even the end of summer yet, and 80 banks have failed this year so far. Is a shuttering of the FDIC likely at the end of this mess, akin to the shuttering of the FSLIC at the end of the S&L debacle?
2009 bank failings highest since height of S&L crisis
80th seizure recorded with three in South
By Marcy Gordon
ASSOCIATED PRESS
2:00 a.m. August 22, 2009
BB&T Corp. will take over 346 Colonial BancGroup branches. (AP) -
WASHINGTON — The toll of failed banks is mounting, with 80 institutions closed by regulators this year — the most since 1992 at the height of the savings-and-loan crisis.
The latest came yesterday with the seizures of two small banks in Georgia and one in Alabama: ebank in Atlanta with $143 million in assets and $130 million in deposits; First Coweta in Newnan, Ga., with $167 million in assets and $155 million in deposits; and CapitalSouth Bank in Birmingham, Ala., with $617 million in assets and $546 million in deposits.
The Federal Deposit Insurance Corp. was appointed receiver of the failed banks, and approved the sale of some or all of their assets and deposits to other institutions.
In contrast to the big bank failures early in the financial crisis, many of the recently shuttered banks were undone not by exotic mortgage products but by standard loans.
…
Among the 80 banks closed this year — compared with 25 last year and three in all of 2007 — were a stream of smaller institutions, many felled by losses on ordinary loans amid the souring economy, tumbling home prices and spiking unemployment. Their business was a far cry from the complex securities favored by Wall Street investment banks that precipitated the financial meltdown.
The average cost to the fund of a bank failure over the past 19 months has run higher than during the savings-and-loan debacle. That’s partly due to smaller banks having higher resolution costs than larger ones, and because the steep decline in home prices that set off the current distress wasn’t a factor in the earlier crisis, said Jim Wigand, deputy director of resolutions and receiverships at the FDIC.
Because of the tumble in prices, the loss rates on home loans and construction and development loans were higher for banks, with “a domino effect” on related securities, Wigand said.
…
Guaranty Bank was also taken over by the FDIC
Eddie: Having lived there, I am surprised at what you wrote. I thought the place was getting reasonable again. In any event, good luck to you!
How do you know Eddie is not a seller trying to drum up business? I cannot really tell from his post (and sorry to be such a snarky, cynical bassturd today
)
Ok you got me. I am trying to sell my 7 condos and my brilliant marketing strategy is to post on a blog where 99% of the readers would rather have 4 root canals than buy real estate. Darn I’ve been exposed, what shall I do now?
You could mold that satirical strategy in to a TV show! Call it “Flip that House The Other Way, Stupid!”
If you go the reality TV route, try not to kill any women like that investment banker currently in the news did.
No worries, Eddie, we are used to that kind of thing around here. There used to be a whole brigade of flippers and trolls posting here who incessantly insisted that “real estate always goes up.” I honestly don’t know whether they stopped posting because they were ashamed about how foolish they looked when housing prices crashed, or if Ben finally got fed up with their nonsense and banished them.
“…where 99% of the readers would rather have 4 root canals than buy real estate…”
To set the record straight, I am in the other 1% from the group you mention, as so far I have had but one root canal, but have previously owned 2 houses (but luckily none at the moment).
Today?
Peak Schadenfreude alert!
‘Underwater’ households resurfacing? It depends
By Roger Showley
Union-Tribune Staff Writer
2:00 a.m. August 22, 2009
Many San Diego County homeowners are “underwater” — they owe more on their mortgages than their homes are worth. But the economists who measure such things disagree on the volume of what’s formally called “negative equity” and whether it’s getting worse.
Depending on which number you believe, the implications for how you and your neighbors behave can vary widely.
If you think things are getting worse, do you walk away from your mortgage and incur a stain on your credit?
If things are getting better, do you continue making payments in hopes that you’ll rise above water sooner rather than later?
And you have to make the decision amid an economy struggling to escape the recession.
…
One anecdote serves to illustrate the debate going on in many minds these days, as homeowners ponder whether to hang in there and uphold their obligations or walk away from their properties.
In 2005, a 28-year-old nurse and 30-year-old hotel worker, who didn’t want their names used, bought a two-bedroom condominium in Golden Hill, just east of downtown, for $350,000.
“We shouldn’t have been able to buy a house,” the nurse said. “I thought that, but listened to what other people were saying.”
Then their $2,000 mortgage payment began rising to $3,500; she took on a second nursing job and became pregnant; her husband lost his job for seven months; and when they called their lender to ask for a loan modification, they got the cold shoulder.
“They didn’t want to work with me, so I said, ‘Then forget it,’ ” she said.
Her mother, Denise Roundy, who lives in Florida, where her other daughter is a real estate agent, said the pressure has been enormous.
“Emotionally, it’s been a huge toll, huge guilt,” Roundy said. “My daughter has dealt with the guilt forever.”
The couple stopped paying, moved out in February and hired real estate agent Rick Ungar of Casa Bella Realty & Mortgage in Carmel Valley to arrange a short sale with the bank — to sell their condo for less than the loan amount. He thinks it might sell for $170,000.
“If you take a normal, healthy market, eight or 10 years, you’re looking at a number of years before they get back to the loan balance,” Ungar said. “A lot of people don’t want to hold on that long. Some will; some won’t.”
Marilyn Sanderson, an agent at Century 21-Carole Realty in Mission Valley, said condos, especially those in Golden Hill, will take a long time, if ever, to reach the previous condo resale median high of $440,000 in 2006; it was just $126,750 last month.
“Its prospects are driven by what happens to downtown development,” where sales are slow and construction has virtually ground to a halt, Sanderson said.
…
Golden Hill condo crash math:
(126,750/440,000 - 1)*100 = -71 percent (i.e., a 71 percent decline)
The first example does not look quite so bad:
(170,000/350,000 - 1)*100 = -51 percent, but this is based on a guesstimate, not actual sales figures.
“Peak Schadenfreude alert!”
I couldn’t disagree more. I believe Schadenfreude levels will be much higher in 2011 and 2012.
I have no argument with you on that. So far as I can tell, the PTB have done a pretty decent job of prolonging the denial stage of the housing bubble grieving process. The anger stage has not yet diffused through the masses…
But the stock market will be making new highs!
Just remember, the stock market almost always* goes up.
*Except for last year
Gone nowhere for the last 10 years.
Then their $2,000 mortgage payment began rising to $3,500; she took on a second nursing job and became pregnant; her husband lost his job for seven months; and when they called their lender to ask for a loan modification, they got the cold shoulder.
You know, when your mortgage is jumping by $1500 a month and you have to take a second job - it is not the time to get preggers. Buy a pack of rubbers and a copy of a spank magazine for your out of work hubby, much cheaper. That would run you under $20 and would pay off much better in the long run.
The longer this plays out the more I realize the average American can’t solve simple cause-effect problems. Instead of seeing what their problem is they’re sold a bill of goods on Oprah about the fact that they just don’t wish hard enough for good things to happen. Yeah, moron, that is why you’re behind on your mortgage, you didn’t wish hard enough.
BC,
I’m so glad individuals like you still exist…….it gives me hope!
“Condoms, not condos! Condoms!”
“The longer this plays out the more I realize the average American can’t solve simple cause-effect problems. Instead of seeing what their problem is they’re sold a bill of goods on Oprah about the fact that they just don’t wish hard enough for good things to happen. Yeah, moron, that is why you’re behind on your mortgage, you didn’t wish hard enough”
Couldn’t have said it better myself, BC. Our culture is saturated with “positive thinking” (wishing) and actively derides and punishes realistic viewpoints.
Of course, in the history of mankind, this is nothing new.
Be sure to click on the “Negative Home Equity” table in the sidebar, where you will learn that while only slightly over 4 out of 10 San Diego mortgages are underwater, the fraction goes up to 5 out of 10 for Tampa-St Petersburg-Clearwater, nearly 6 in 10 for the Inland Empire and 7 out of 10 for Lost Vegas.
The scariest thing about this is that there are SO MANY underwater people, that our politicians on both sides of the aisle are going to try some sort of bailout for these “victims”. There are too many voters to ignore.
The horror scenario predicted by the WSJ over 10 years ago has come true. The infamous editorial about how the nation will tip when the majority of voters become “takers” instead of taxpayers that got them into so much trouble back then (google “lucky duckies”) has turned out to be true, just in a slightly different form. People who fancy themselves as “upper middle class” when in fact their net worth is negative several hundred though feel entitled to government help to “keep” “their” “homes” (lie quotes needed around each of these words).
“There are too many voters to ignore.”
Exactly! The ‘do-nothing-let-it-crash’ option is an impossible option in a country where the majority don’t want this to happen. And don’t kid youselves– the majority don’t. (And I’m not so sure about it myself. A lot of innocent, well-prepared people die in train wrecks along with the deserving idiots.)
Well especially now after the majority has seen how the banks, financial industry, corporations are given entitlements at the cost of the taxpayer.
Is joe6pak as mad about that as we are? I don’t hear it. If you bring it up, some are upset, but most are oblivious, as usual. And of course everyone is against the other guy’s bailout, but demand their own. And the partisans never let facts get in the way of their positions.
“Is joe6pak as mad about that as we are? I don’t hear it.”
Keep your ear to the ground over the next 6-24 mos, as there is an established pattern of the discussion on this blog anticipating popular opinion by 1/2 to 2 years time.
‘…when the majority of voters become “takers” instead of taxpayers…’
I hate to break it to you, Reuven, but I am not sure you picked the best state to live in if this bothers you.
I’m well aware of the problem in California. And I think my days here are numbered: There’s an effort here to blame all the state’s problems on Prop 13. Without inflation protection for property tax, my paid-up house will be essentially worthless.
“Without inflation protection for property tax, my paid-up house will be essentially worthless.”
Best way to completely deflate California property values: Repeal Prop 13.
You misunderstand. I don’t care AT ALL what my paid-up house is worth. I *do* care about the rent I have to pay to the local school board.
It would be completely unfair if I were forced to move because some idiot thinks a 3/2 house is worth $1,000,000 and my property tax went from $5,000/year to $20,000/year.
I don’t think Prop 13 was responsible for the “bubble” in CA. If anything, it kept people from moving–keeping prices DOWN. I, for one, would never consider moving because I don’t want my property tax to go up.
Reuven:
Would it be OK with you if the scope of Prop 13 were reduced to primary homes only? Then only 2nd homes, investment property, and commercial property would be affected by rising property values.
Geez I agree with Big V…..
And have an escape valve for people 65 and older who make less than some tier of income, where the less they make the more of a discount they get on property taxes.
Prop 13 is flat out wrong and always has been. Giving one group lower taxes just because they happen to purchase real property a long time ago. Give me a break.
How about the mortgage deduction? Should people who are rich enough to purchase a home get to write off interest on their taxes while renters get nothing? Where’s my credit for living in 1 bedroom apartments in densely populated areas instead of an energy sucking house in the suburbs?
Let’s take deductions for children. Parents get to deduct money for their offspring. They get a break for adding another hungry mouth to the plant. They’re rewarded. Where’s my reward for not breeding and using less resources?
Where’s the escape valve for being responsible and using less resources?
Oh, and Dennis you should drive your Miata to the range and shoot holes in that idea of yours. It’s more of the same bullshit. Favoritism for a group based on being over 65. How about we just get rid of property tax and have a flat income tax? Same for everyone. That way when you are 65 and retired you pay less taxes.
No more escape values. That’s what got us here.
escape values = escape valves.
Man am I ever mad.
The mortgage deduction should be added to the constitution. That person will be elected for life.
I am 100% opposed to the mortgage deduction! Even though there was a time I personally benefited from it. (Before it got “phased out” because my income was “too high” and before I paid off my house!)
Prop 13 probably wouldn’t be necessary, of course, if our Government wasn’t subsidizing Million Dollar Mortgages (that can be renegotiated, crammed down, or forgiven without even having to pay income tax on the amount forgiven!)
However, there does seem to be something very unfair about having to move because your block becomes “trendy” all of a sudden and you can’t afford your taxes.
I suppose if things were truly fair, eventually houses would be discounted enough to compensate for this, once people realize that–because of property tax–you can’t really own real estate in this country.
However, there does seem to be something very unfair about having to move because your block becomes “trendy” all of a sudden and you can’t afford your taxes.
+10,000
(The only consolation would be getting away from the neighbors who paid half a million for their teardown in ‘trendyhood’ and consider them selves real estate geniuses - but think you’re some kind of simpleton rube for having bought there cheaply 20 years before, fixed up a little house and lived in it.)
I am personally hopeful that still-falling prices on rising sales volume is an early warning sign that capitulation is underway. If so, affordable housing prices could be widely and openly available in the near future. Sell now, or get priced in forever
* WALL STREET JOURNAL
* AUGUST 22, 2009
Housing Lifts Recovery Hopes
Stocks Soar on 7.2% Spurt in Home Resales; Bernanke Optimistic but Foreclosures Loom
By JAMES R. HAGERTY and NICK TIMIRAOS
Sales of existing homes in July jumped at the fastest rate in 10 years, sending stock prices up around the globe on hopes that the U.S. housing market — a driver of the world’s largest economy — is stabilizing after years of decline.
Sales of single-family homes increased 7.2% in July from a month earlier to a seasonally adjusted annual rate of 5.24 million units, the National Association of Realtors said Friday.
The monthly increase was the largest since 1999, when the NAR began collecting data for all types of homes — its measure includes condominiums and cooperative apartments. It marked the fourth monthly rise in a row. Sales also were up 5% from July 2008, showing the first gain from the year-earlier level since November 2005.
The good news on housing came as Federal Reserve Chairman Ben Bernanke issued a mostly optimistic report Friday on the state of the U.S. economy.
“Fears of financial collapse have receded substantially,” Mr. Bernanke said at the Federal Reserve’s annual retreat at Jackson Hole, Wyo. “After contracting sharply over the past year, economic activity appears to be leveling out, both in the U.S. and abroad, and the prospects for a return to growth in the next year appear good.”
…
I have an aquaintance who is a mortgage broker who has some scrupples. Yes, he really does. He works with older folks doing reverse mortgages and he screens them very carefully to make certain they are thinking straight and know what they are getting into. In most cases the loans are for some sort of medical issue they cannot get coverage on from insurance or the government for one reason or another. Basically it is an emergency.
Yesterday I was talking with him and he told me that fully 75% of them are upside down in their homes when we runs the data. These are older people and they have no options.
This really hurts to watch.
I wouldn’t have expected elderly people to be “upside down!” Shouldn’t their houses have been paid up by now?
Sounds like some “elderly folks” may have recently benefited from the magic of home equity ATM-financing of consumer expenditures?
Most of the elderly people that still are real estate owners at this point in their lives, are no longer old enough to remember the Great Depression first hand. This demoraphic change has occurred within the last decade. The lessons have apparently been lost, and are not yet being significantly re-learned.
My guess is the gubmint took no extraordinary measures to prop up housing prices during the 1930s. The problem with the stealthy ’stabilization’ measures currently in play is that they were widely anticipated, as evidenced by the widespread belief, with associated actions, in the notion that “real estate always goes up.” Consequently the fundamental support for real estate prices at even their currently ‘reduced’ prices is very weak.
So you are saying all that REIC street talk of retiring rich boomers moving to _______ is complete BS? They aren’t rich? They aren’t retiring to ____? They’re broke? They have medical problems? They HAVE A MORTGAGE? They can’t afford health insurance?
Wow…. you HBB’ers are just flippin’ negative naysayers…/sarcasmoff
Same person I was talking about on nycboy’s thread reported she’s been taking phone calls w/people in tears all summer. We got on this conversation because she said I was one of the few people looking to buy new. Most were refi’s.
I asked if these were people who had recently been been laid off. She said no. They were in trouble the moment they took the mortgage because they believed what the bank said they could afford. She bemoaned the youth’s lack of budgeting skills.
She said teachers were the worse (sorry to all you teachers! I’m just repeating back as close to her words what she told me) because they didn’t seem able to make up for their lack of pay in the summer. Instead of taking their income and spreading across 12 months they’d spend it all in the 9 months and then be hurting when summer came. Perhaps summer jobs they’d held in the past were no longer available?
She told me before closing she advised new buyers to sit down and subtract out all their costs from their income including the mortgage they thought they could afford. She felt strongly that they never did it.
When I finally decide to go for it I’ll probably use this institute because she was so honest with me about this and several other things. I ran into another bank that wouldn’t even let me fill out my own application which I took as a red flag for fraud potential.
Thanks CarrieAnn. Very interesting news.
That’s very sad about the elderly.
Hi. I read that that amout of money the Fed is creating is still much less than what was lost in the meltdown so there is little prosepect for inflation. Does this sound reasonable ?
I don’t think anyone really knows. The numbers are too murky for anyone to get a real handle on it. Most figures are ballparked. Much like the shadow inventory, it’s almost impossible to get a true count. Especially the fraud side of it all.
15 cities and one county in CA not to receive any sales tax revenue. Here’s the rest of the story
http://tinyurl.com/mx9kez
Don’t know if this has been posted before.
Google Maps now shows some of the “shadow inventory” plus your neighbors who missed a payment or are in the beginning of the foreclosure process.
Click the “show search options” text to the right of the search bar, then select “Real Estate” from the pop-up menu.
Type in a zip code in the search bar
Check the “foreclosure” box in the left side of the screen.
The “price” is actually the balance of their loan.
That’s beautiful. I keep thinking I should talk to the Google folks about their obvious potential to undermine the NAR’s monopoly grip on real estate data. They themselves could profit tremendously, and also provide a great service by making the US real estate market more transparent and efficient.
For a real hoot, get into the Google maps “foreclosure” feature as SFAreaGal describes above, then zoom out so you get the entire US on your screen. You can really see the foreclosure hot spots that way.
To briefly summarize, they are:
1. West Coast population centers (Emerald City, Portland, SF Bay, LA Basin and San Diego)
2. Inland West population centers (Lost Vegas, Salt Lick City, Phoenix to Tucson corridor, Albuquerque and Greater Denver)
3. (Surprise!) Literally every major or even mid-sized population center either south or east of the Dakotas.
The impression one gets from the Google map picture is that the foreclosure crisis may actually be worse out in the major (not to mention minor) eastern population centers. I almost suspect they may be able to catch a glimpse of a few of them foreclosure homes from inside the beltway…
That feature is very cool, but anyone using it should realize you are only looking at a small fraction of the actual shadow inventory. For comparison, I see a relatively small number of homes (maybe 200 or so) on the map for the La Jolla zip code (92037), compared to 418 foreclosure homes, priced to sell from $32,000,000 on down, listed on the ForeclosureTown dot com web site.
Similarly, only a sparse smattering of red dots show up on the map for Rancho Santa Fe (92067), while ForeclosureTown dot com lists
196 foreclosure homes in that zip code, affordably priced from $14m on down.
BTW, I believe these sort of listings represent hordes of yesterday’s genius real estate investors losing their shirts right about now… hopefully the gubmint rescue plans will save their bacon before they see millions and millions of dollars in imaginary investment gains go straight down the toilet.
First I’d seen it, thanks for posting it.
Thanks SFGal! I had no idea that resource was available.
ahansen — Take note
Got it, thanks Prof.
That’s going to be devestating to the NAR bottom and “it’s different here” callers. Thanks SanFrangal.
This is really helpful tool. Cross-check addresses with your county’s records to find out more details.
I just looked at 5371 Chestnut Lake Dr, Jax FL 32258. The home-debtor paid 245K in Feb 2005. Built and sold in 1995 for 146K. It’s not listed on the MLS.
P.S. It doesn’t capture all the real-time distressed properties.
There are 3 properties that have been foreclosed or abandoned in 3 separate but small neighborhoods I looked at and they are not listed. It’s still a good tool, however.
For every one foreclosure listing I looked at recently, there was at least 1 unlisted abandoned property in the pipeline/neighborhood.
“P.S. It doesn’t capture all the real-time distressed properties.”
This is a problem — ahansen, again please take note:
I don’t believe there is a good source that gives the complete shadow inventory picture. The elephant under the rug is far larger than any single source might suggest.
If there is such a source, or at least the raw ingredients to assemble it, I am highly interested
Well thanks everyone.
The credit really belongs to commentator inmyopinion. This person was commenting to an article on SFGate.
I wanted to share with the HBBers what I found.
Thanks, SFBAG.
Is it just me, or is “SF BAG” not a term of endearment?
I didn’t take any offense.
Good find!
Thank you SFBayAreaGirl. You have MADE MY DAY. My goodness. I have gotten some wonderful info.
An HBB must-read on Vegas
partial link: time.com/time/printout/0,8816,1915962,00.html
partial link to slide show: time.com/time/photogallery/0,29307,1910156_1909209,00.html
How much longer can pretend & spend, pretend & lend policies last?
I guess that depends on the success or failure of pretend & reflate policies currently in play.
What is this guy talking about? I thought the Fed’s main plan was to use inflation expectations, coupled with ‘accidentally’ starting to tighten too late, to respike the punch bowl, while feigning an attempt to control inflation?
I quite frankly would be shocked and awed if the Fed actually followed through with the widely-discussed plan to tighten when they believe a recovery is underway. Given Bernanke’s chest-thumping announcement last week about the nascent recovery, I guess we should expect the FOMC announcement on tightening plans any day now?
A more likely outcome, IMHO, is for them to use the head fake of the suggestion that tightening is coming to get the extra psychological jolt of punch bowl respiking for the same amount of alcohol when everyone realizes they didn’t mean it.
Academic: Fed rate boosts should be aggressive
By JEANNINE AVERSA (AP) – 1 hour ago
JACKSON, Wyo. — When time comes for the Federal Reserve and other central banks to ward off inflation by boosting interest rates from the current super-low levels, they shouldn’t pussyfoot around, an economist and expert on monetary policy warned Saturday.
Even though the U.S. and the global economy are healing from the worst recession since the 1930s, many economists think it will be a while before central banks start lifting rates. In the United States, economists think the Fed won’t begin pushing up rates until next summer.
Still, when that decision is made, interest rates will need to be “increased aggressively,” said Carl Walsh, professor at the University of California, Santa Cruz, discussing a paper he presented on the topic at the final day of an annual Fed conference here. “Committing to a gradual increase in the policy rate is not justified,” he said.
Consumers, businesses and investors, he argued, must feel more confident that prices won’t spiral higher in the future. Or as Walsh put it, so that their inflation expectations don’t become “unanchored.”
…
Like the deflation we are currently experiencing, inflation is inevitable. Getting the timing right is what counts. Credit has expanded beyond sustainable levels — beyond our ability to pay.
The market is getting a reprieve as a result of the accounting rule change — a pretend and lend policy. Meanwhile, however, the comps are going lower and lower, foreclosures are mounting, and more and more banks are shutting their doors. Municipalities are next.
If you haven’t already, this rally provides a great opportunity to dump all your junk on the unsuspecting herd.
Dump stocks on the unsuspecting herd.
Is there something bad coming down the track that hasn’t been priced in? .. something sharp eyed cows at the front can see but others can’t?
I see the DJIA at near 1999 levels.. about the same for SP500. At what point would you think these indexes are reflective of a solid market? Lop off 20 years and settle in at 1989?
While I agree it’s inevitable, Japan hasn’t seen much inflation in quite some time, despite their best efforts to create it.
“I see the DJIA at near 1999 levels.. about the same for SP500.”
In real terms, sure, but how about nominal? The ‘inflation hedge’ argument is one reason to at least keep a big toe in stocks…
If you want to look at some data that supports my view, look at currency movements on recent days when the DJIA and other headline US stock indexes rallied. The dollar’s and the DJIA’s moves have exhibited strong negative correlation as of late.
(English translation: Dollar up, DJIA down, and vice versa…)
Isn’t a currency’s value a comparison of currencies?
Isn’t changes in the “value” of a dollar dependent on changes in foreign economies?
Cannot the value of a dollar move without any movement in the DJIA?
While there may be some suspicious connection between the value of a US dollar and our stock market, it’s only fair to add the other component, and that component is changes in those foreign markets.
———
but then i’m not the expert.. btw.. are you the expert? I hope you got some letters after your name..
..and don’t blame me for starting this pissing contest..
What p!ss!ng contest?
The ‘inflation hedge’ argument is one reason to at least keep a big toe in stocks…
I’m mostly in cash now but have about 25% in index funds for this reason. Geez I wish I had a crystal ball right now.
Joey’s pissed because he can’t win an argument against you, Bear. Only, of course, because he’s always wrong.
When mark-to-market (m2m) came into play banks had to mark future losses today. As a result, they stopped lending (credit crunch = very low economic transactions) and the markets swooned. Since they no longer have to mark future losses today, they can pretend and lend — economic transactions return. They aren’t lending their money, after all. They are lending the herd’s checking/savings/tax-dollars. Future losses are piling up, however.
When enough banks close and savers lose money, we will see a repeat — more bank runs and then some. Stocks are going to 1980’s level.
While m2m would put them in a tight spot, how does banks NOT marking to market lead to a prediction of bank failure?
Unrealized losses can sit on the books forever, in theory. Meanwhile the bills get paid and life goes on. Perpetuating this situation is the objective of govt’s supporting business and banks.
Let everyone sit on their losses until housing bottoms out… newly made loans have solid collateral.. business picks up.. we are then in an actual recovery, and prior losses are mitigated.
The market has some faith that we can pull it off… remains to be seen perhaps, but we are an optimistic people.
Joey:
The only way that loans with solid collateral can be made is if the currently bad loans get washed out through foreclosure. A new loan (now at a lower, less unstable price) can now be made (against solid collateral). You see how it works? Allowing a bank to pretend that their collateral is solid only encourages them to amass more and more unsound collateral, thereby receiving more and more future bailout money.
I thought you were for lower taxes, not the insanely high taxes necessary to pay off all these bailouts.
Maybe I’m different this way, but my being for or against something doesn’t change my view of reality.
Govt has so far only scratched the surface of it’s potential “fixes”. It’s arsenal of social and financial weapons is beyond huge in number and capacity. If higher taxes is the worst thing we suffer, I will be very much relieved.
Joe:
Please list what else the gubbmint has in its arsenal. Seems they’ve already done everything possible, and nothing has worked so far. As a result, our taxes will be so high in the future as to negate any possible “recovery” that might have come from bailing out all these bad banks.
But that’s another issue. My initial point (which you have glossed over) is this:
1. Currently, banks have a lot of bad collateral on their books.
2. That collateral is houses sold at too-high prices.
3. The borrowers of said money can’t afford to pay for said collateral.
4. Hence, the bank has 2 choices:
a) Give the underwater portion of the collateral away for free - they haven’t and won’t do this for myriad reasons
b) Foreclose on it and sell it to someone else at a lower price
5. As far as new loans are concerned, they have to be made against collateral too.
6. The new collateral will be houses.
7. The new collateral must be made against either:
a) The same houses that used to be the old collateral.
b) Newly built houses. There really aren’t any of those right now because builders don’t want to lose their shirts. — If building did continue, then prices would decline further, in which case the new loans may be made against new houses while foreclosures accelerate and the problem gets worse and worse. This is not going to happen because builders would eventually stop building.
8. Hence, the new loans will be made against the same houses that banks are trying to keep on their books. That’s impossible. You can’t keep it on your books and make a new loan out of it too. These houses will be sold at LOWER PRICES.
9. Hence, revenue from the new loans will not cancel out lost revenue from the old loans.
See Joey? How’s that for a view of “reality”. The logic is clear. You can’t fix your books by pretending that you are not going to trade out big money for small money. Normally, I wouldn’t really care if a bank digs a hole for itself by perpetuating a bad business model based on denial of facts. My only problem with it is that I’m being made to pay so that they can continue making the same mistakes.
Bottom line: We don’t need any particular company to keep our economy afloat. What we need is to force these huge banks to cut their losses now so that better banks (who know how to face reality) can take over.
“The market has some faith that we can pull it off… remains to be seen perhaps, but we are an optimistic people.”
The market reflects the sentiment of the herd. Members of the herd take comfort when other members buy or sell — buying begets buying -> housing bubble, and so on.
The wolf understands herd like behavior and herd members’ weaknesses — at bottom of information curve, lack of education, and so on. So, when the wolf tells the herd everything is going to hell, sell — the herd sells, but the wolf buys. And when he says prosperity is around the corner, buy — the herd buys, but the wolf sells. This is how the market works.
Big V, i can only repeat myself..
A bank (or a business) can sit on unrealized paper losses forever, as long as they have the means to pay whatever bills come due. There’s no need or requirement for banks to sell current REOs. Selling would realize some loss, so it’s to be avoided.
Good collateral (houses) will exist when the market has bottomed out where, by definition, prices are at bottom. Banks could then lend on a home, and recover the whole of that new loan (plus whatever penalties) by foreclosure and resale. But foreclosure would be less likely..
As the market picks up, more and more good loans are made. Part of the income from those loans would be applied to previous losses. Eventually the bank gets healthy.
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what could govt do.. well.. Executive orders.. Acts of Congress.. or a Constitutional Convention could be called if need be. I guess they could re-write the constitution, or dump it completely, to suit whatever circumstances.
Nationalize whatever industries they desire.. fix prices and wages.. Prevent people from selling houses.. prevent them from withdrawing money from the bank.. bring in the military to preserve order. Public execution of naysayers..
That’s off the top of my head. I’d need time to think about specific, appropriate things as they apply to today’s difficulties..
Like the deflation we are currently experiencing, inflation is inevitable. Getting the timing right is what counts.
When you say that, do you mean “inevitable in a time horizon of five years (or X years),” or “inevitable like death and taxes are inevitable”?
You are certainly correct in the big picture death-and-taxes view, but I’m not sure how all those lost notional assets numbering upwards of $50 trillion could be replaced in an orderly fashion in the short/medium term — even with the virtual printing presses operating at their current brisk pace, we’re well short of the mark. Not all roads lead to Weimar, or even less dramatic inflationary territory. See: Japan.
It’s very difficult to say exactly when we’ll see inflation. However, if you look at the commodities charts of the Great Depression, you see most of them bottomed and bounced in 32. So, they didn’t fall forever.
The Chinese stopped the commodities plunge when they started stockpiling stuff — perhaps moving into hard assets. It doesn’t look like they’ll continue to pretend and spend however — Baltic Dry Index is falling and they’ve instructed banks to stop lending.
This is a you-tube and report on the auction of the last 23 units of the Sage (S. Lamar well south of downtown and the river, in the auto-related businesses area). It was a strange style of auction - people bid for the right to choose a unit.
http://downtownaustin.wordpress.com/2009/08/22/sage-condos-auction-results/
According to the Sage website, there were only 33 condos in the first place:
Inflation, or Stagflation?
Thursday, August 20, 2009
by John Caruso of Lind-Waldock
…
The NASDAQ, S&P 500, and Dow Jones Industrial Average have managed to shrug off negative fundamentals in the last few sessions, forging higher to climb the wall of worry. I’m left asking myself how much longer this can continue with few signs of growth in the economy–not to mention–no clear indication as to the end of the recession. Don’t get me wrong, I enjoy a good bull market just as much as the next person, but it looks increasingly evident to me that there may be outside factors involved.
When I mention “outside” factors, I’m speaking in regard to the Federal Reserve, President’s Working Group on Financial Markets (a.k.a. the “plunge protection team, or PPT), and possibly larger financial institutions.
In order to see a rally such as we’ve had of late, we need to take into account the action in the U.S. dollar. On March 4, 2009, the ICE U.S. Dollar Index futures peaked at 89.71, and since then, it has seen a steady decline to a current level of approximately 78.50. One day after that dollar peak, we saw the S&P 500 bottom out at 665.75, and it hasn’t looked back since.
You could also look at the price of oil and see the same correlation. The weak dollar has given stocks and commodities a boost. However, looking forward, a significantly weaker dollar will haunt U.S. consumers and will not help spur growth in our economy; it will help spur growth in the costs of goods and services, which could lead us into stagflation.
…
But where or what is the causal connection between the currency and the price of stocks?
Lots of things correlate. When an NFC team wins the Superbowl, stocks rise.
Ice cream sales and shark attacks correlate. Can we cut down on shark attacks by eating less ice cream?
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The weak dollar has given stocks and commodities a boost. However, looking forward, a significantly weaker dollar will haunt U.S. consumers and will not help spur growth…
So, a “weak” dollar is stimulating while a “significantly weaker” dollar isn’t?