They’re Spending A Ton, And Why Not?
A weekend topic around some comments in the desk clearing post. One reader said, “In the 1970s I remember having a long discussion with my uncle about all the doomsayers. Going off the gold standard, nuclear war, economy tanking, the end of the world…..all that stuff. His advice: proceed with life, because you can’t live in a box of fear. That is the best advice I ever received.”
I replied, “We’ve had at least two major manias in 15 years. My position is that we are in the midst of a global real estate bubble, and probably stock, bond, milk, art, antique car and rosewood furniture bubbles too.”
One replied, “With the exception of real estate, who does it hurt? If some successful 70 year old dude with a hot blonde 40 year old wife wants to pay a million dollars for a stupid 1970 Barracuda at Barrett-Jackson, then be my guest. That purchase probably caused the employment of ten marginally adequate body shop men in Texas.”
The Lodi News Sentinel. “Home prices are rising, and homeownership is falling. How can that be? If prices are rising, it must be because there is increasing demand for homes, but if there is increasing demand, then why are there fewer homeowners? In the nation’s 20 largest markets, home prices were 5 percent higher in February versus the same month one year ago, according to the S&P/Case-Shiller home price index.”
“‘Home prices continue to rise and outpace both inflation and wage gains,’ said David Blitzer, of S&P Dow Jones Indices. ‘If a complete recovery means new highs all around, we’re not there yet.’”
The Santa Cruz Sentinel. “After months of lagging, the high end of the housing market has taken off in Santa Cruz County, with one in five homes in March sold for more than $1 million. The median price — the midpoint of what sold — reached $749,000, the highest since August 2007, according to Gary Gangnes of Real Options Realty, who tracks the market. Prices are just about where they were before the housing bubble burst. ‘My God, right now, the shortage of listings, things get bid up and up and up,’ said veteran Santa Cruz appraiser Glenn Fuller. ‘On the Westside, everything as selling $20,000 over what it was listed.’”
“Low interest rates push prices up. When the cost to borrow is less, people are willing to pay more. Experts have been predicting a rise in interest rates but it has yet to materialize. ‘Who want to pull the punch bowl, so to speak?’ asked Fuller.”
The Star Exponent. “Culpeper has seen a steady increase the past few years in residential home permits with 230 issued last year, compared to a low of 49 in 2009 and the peak of 611 in 2006. In the first three months of this year, typically the slowest, the building department issued 40 permits, according to interim Culpeper County Administrator John Egertson. ‘I think we will surpass last year’s mark by the end of this year,’ he said. ‘The larger homebuilders are telling us that they will be very active with new home starts in the coming months.’”
“Ryan Homes is advertising various models, from the low $220Ks to the high $250Ks, where homes in the neighborhood, overlooking the mountains, once sold for $400K at the building peak. In Culpeper County, the median sold price for single family homes was $249,900 in the first three months of 2015, a 1 percent year-over-year increase, according to a new first quarter report from the Greater Piedmont Association of Realtors. While the slight increase is good news, it’s indicative that the market is still fragile, said Ellen Butters, principal broker at EXIT Cornerstone Realty in Culpeper.”
“‘Healthy numbers would be a bit higher, historically at 3 to 5 percent,’ she said. ‘If you look back at the boom in 2003-2006, we were experiencing double digit year-over-year increases, which was unhealthy in that it could not be sustained and a burst was inevitable.’”
“Of the five counties, Rappahannock showed the highest year-over-year increase in the median sales price for the first quarter, increasing nearly 38 percent to $344,150, compared to $250,000 in 2014. In Madison County, the median sales price fell 8 percent to $161,000 in the first quarter, according to the association report.”
The Real Deal. “Barbara Corcoran says that New York City might be in a new bubble, but she doesn’t seem too concerned. ‘Let people buy these apartments, they’re spending a ton,’ the Corcoran Group founder told Bloomberg News in an interview. ‘They’re parking their money here. It’s fueled by foreigners more than anyone else. And why not?’”
From Barron’s. “What’s your mutual fund worth? It seems such a simple question. But for investors in GL Beyond Income it’s currently impossible to answer. The mutual fund’s board froze its assets in December, pending the results of investigations by the Securities and Exchange Commission, and the Federal Bureau of Investigation into an alleged fraud by its manager, Dan Thibeault. ‘The trustees have determined that the valuation of the fund’s assets may not be reliable,’ the board wrote in a letter to shareholders after Thibeault’s arrest that month.”
“GL invested in obscure, difficult-to-value loans to medical students—a category ripe for scandal, according to some experts. Thibeault allegedly created fictitious loans. But the case has implications that go beyond a narrow subset of unusual funds. The fact is, almost every bond fund and some stock funds have assets that are difficult to value. Market volatility, negligence, or outright fraud can render the share prices of such funds inaccurate.”
“Managers can be tempted to maintain incorrectly elevated prices to prevent a stampede by redeeming shareholders. Such mispricing occurred, the SEC found, in its enforcement actions against now-defunct funds run by Regions Morgan Keegan after the 2008 crash. Worse, level 2 bonds can suddenly become level 3 during a crisis. The mortgage-backed bonds that Regions Morgan Keegan owned were fairly liquid prior to the crash.”
“‘Because of the housing bubble people thought these bonds were homogenous,’ says Stephen Keen, a securities lawyer. Then defaults spiked and it suddenly mattered which mortgage pools you owned. ‘Once it became apparent investors didn’t know what they had, there was no liquidity and the valuations collapsed,’ Keen said.”
The Charlotte Observer. “A Charlotte-area whistleblower suing Wells Fargo in federal court is now facing foreclosure from the same bank. Robert Kraus lost his job in 2006 after he says he raised red flags about questionable activities in the corporate and investment bank at Wachovia, now part of Wells Fargo. Since then, he says he has fallen behind on his mortgage because he hasn’t been able to find work in financial services. Wells Fargo started foreclosure proceedings against Kraus and his wife, Julianne, in December, according to court documents. The Krauses are behind on payments on the $515,000 mortgage for their Waxhaw home. A hearing before the Union County Clerk of Superior Court is scheduled for June 9.”
“Soon after being recruited to Charlotte-based Wachovia in 2005, Kraus alleges he found ‘problematic practices’ related to the booking of trades, the reporting of losses and other activities inside the investment bank, according to a lawsuit he later filed in state court. Kraus, who was a controller in the unit, brought his concerns all the way to the then-head of the investment bank, Steve Cummings, according to the suit. But months later, in July 2006, a lawyer for the bank told Kraus that an internal investigation had uncovered no wrongdoing, and he was offered a severance package on a ‘take it or leave it basis,’ according to the complaint. With a pregnant wife and a new home under construction, Kraus accepted.”
“Two years later, Wachovia was in serious trouble, hobbled by losses in its mortgage portfolio and in the corporate and investment bank. San Francisco-based Wells Fargo swooped in to buy the faltering bank in fall 2008 at the peak of the financial crisis. In 2011, he and another whistleblower, Paul Bishop, filed a suit in federal court in New York alleging Wachovia’s investment bank violated accounting rules and skirted internal controls to pursue short-term profits, benefiting senior management at the expense of the company’s financial health. The case was unsealed in October 2014.”
“The complaint includes allegations that Wachovia, in violation of federal law and proper accounting practices, routinely placed loans in an off-the-balance-sheet entity called the College Street Funding Master Trust, known internally as the ‘Black Box.’ Wachovia’s former headquarters was on College Street in Charlotte. The goal was to skirt regulatory constraints on the amount of loans the bank could keep on its balance sheet, according to the suit. In a 2005 email, a Wachovia executive, according to the suit, wrote that the accounting process was ‘held together with band-aids, spit and gum.’”
“Kraus doesn’t think it’s a coincidence that he faces foreclosure as his whistleblower lawsuit is pending. According to his 2010 lawsuit, Kraus received a loan modification from the bank after he sent a hardship letter explaining his dismissal from Wachovia. According to the suit, Wells Fargo pushed back payment on $395,000 of the balance until the end of the loan term and charged 2 percent interest on the remaining amount.”
“According to one of Kraus’ mortgage statements, his monthly payment is $1,192 for interest, principal and escrow. Kraus says his wife works, but it’s not enough to keep up with the family’s bills. They have two children. ‘The reason I can’t pay my mortgage is because I did my job at the bank,’ he says. ‘I’m losing my house to the same bank.’”
News
Steve Huntley: Sanders the socialist sure gets it right on big banks
Posted: 05/01/2015, 01:56pm | Steve Huntley
U.S. Sen. Bernard Sanders (I-VT)
Even socialists can have good ideas — well, at least one. Vermont Sen. Bernie Sanders, the newly declared Democrat presidential candidate and a self-described “democratic socialist,” is pushing something that should resonate with believers in free market capitalism: breaking up megabanks deemed too big to fail.
One of the many shocks of the 2007-09 economic crisis was the sorry sight of the federal government bailing out huge Wall Street banks with hundreds of billions of dollars. Congress later passed the complex Dodd-Frank financial regulation act aimed at ending too big to fail, but the banks only grew bigger. For example, before the financial crisis, JPMorgan Chase had $1.8 trillion in assets. In 2013 those had soared to $2.4 trillion, according to the Los Angeles Times.
Big government is good for big business.
Sanders asserts the nation’s six largest banks have more than $9.8 trillion in assets, the equivalent to 60 percent of the nation’s gross national product, and issue more than half of the country’s mortgages. “No single financial institution should have holdings so extensive that its failure could send the world economy into another financial crisis,” Sanders said in a speech in March. ”If an institution is too big to fail, it is too big to exist.”
Sanders is not proposing a socialist solution for the megabanks, such as nationalizing them. He wants to break them up.
That’s not such a radical idea — it has the support of, among others, Richard W. Fisher, the recently retired president and CEO of the Federal Reserve Bank of Dallas.
In a 2013 analysis, Fisher said that during the Great Recession, “Sick — seriously undercapitalized — megabanks stopped their lending and capital market activities during the crisis and economic recovery. They brought economic growth to a standstill and spread their sickness to the rest of the banking system.”
A dozen banks, only 0.2 percent of all banks, hold 69 per cent of all industry assets, Fisher said. Megabanks reap the benefits of capitalism but don’t have to pay the price of bankruptcy when they fail. A study last year by the Federal Reserve of New York found that the biggest banks, which enjoy lower funding and operating costs, take more risks because they believe the government will again rescue them in another crisis.
Fisher’s analysis found Dodd-Frank made things worse, saying that “parts of Dodd–Frank have exacerbated weak economic growth by increasing regulatory uncertainty in key sectors of the U.S. economy. It has clearly benefited many lawyers and created new layers of bureaucracy.” Furthermore, he said community banks, subject to the market discipline of bankruptcy and sale for bad behavior, are “being victimized by excessive regulation that stems from responses to the sins of their behemoth counterparts.”
Again, big government is good for big business.
Like Sanders, Fisher called for reshaping “banking institutions into smaller, less-complex institutions that are economically viable, profitable, competitively able to attract financial capital and talent, and of a size, complexity and scope that allows both regulatory and market discipline to restrain excessive risk taking.”
…
“According to one of Kraus’ mortgage statements, his monthly payment is $1,192 for interest, principal and escrow. Kraus says his wife works, but it’s not enough to keep up with the family’s bills. They have two children. ‘The reason I can’t pay my mortgage is because I did my job at the bank,’ he says. ‘I’m losing my house to the same bank.’”
If almost all the money in the banking system weren’t concentrated in just 0.2% of all U.S. banks, there would be a lot more potential employers to choose from in the banking sector. Plus a lower chance that reporting on illegal activities would get an employee fired and ostracized from the entire industry.
Always remember when you buy a house, you never are investing in the house. You are investing in your neighbors.
One of my neighbors keeps chickens. No roosters fortunately. She also has about a 120 pound rottweiler. I bet those chickens sleep with one eye open.
Another neighbor has goats. What do you think they’re keeping those goats for? Pets, milk, performance art???
We visited the Richard Nixon Memorial Library yesterday in Yorba Linda, CA, at the site of the house where he grew up. One of his lingering bad childhood memories was of drinking goat’s milk his parents offered.
One of his lingering bad childhood memories was of drinking goat’s milk his parents offered.
Funny—I have a late teen memory of how deliciously wondering goat’s milk was in coffee, as my grandmother raised and milked goat on her farm.
wondering==wonderful
Whatever your politics, I recommend visiting both the Nixon Presidential Library and Museum as well as the Ronald Reagan Presidential Library and Foundation (in Simi Valley, CA) if time and proximity allow. The slices of recent U.S. history which are preserved in both of these institutions is worth the time to take in, and I found myself walking away with a deeper sense of appreciation of the personal accomplishments of both of these presidents, to help offset my negative memories of the nasty side of politics that seems to go with the territory of attaining high office.
Sounds like you committed a lifetime of earnings to the wrong location Idgits.
“Barbara Corcoran says that New York City might be in a new bubble, but she doesn’t seem too concerned ??
I saw her on Bloomberg surveillance…I wanted to vomit…What a narcissistic Beach…
March 15, 2005
RE Mogul On Why There Is No Bubble
Sometimes you have to let the story tell itself. Listen to Barbara Corcorans’ reasoning as to why real estate can only go up.
“I think it’s a much scarier world that we live in. When kids are scared, where do they run? They run home. People are staying home more..it’s really reassuring for people to know they own the walls around them. People have also become more distrustful. People don’t trust the government, they don’t trust Corporate America, they don’t trust the stock market. They trust their house.”
“The movie 8 Mile, I believe, did for downtown Detroit what Ghost did for downtown Manhattan. I remember a stuffy couple I took down to Tribeca before Ghost came out. Then after the movie (premiered), they thought it was cool.”
“I think the bubble theory is nothing more than an intellectual expression of people’s typical worry that good times can’t last forever. When your marriage is going well, you worry there’s a problem on the horizon.” Has she struggled with success? “Other than my boyfriend and business partner marrying my secretary, it has been my hardest transition.”
http://thehousingbubble.blogspot.com/2005/03/re-mogul-on-why-there-is-no-bubble_15.html
You can’t reason with stupid.
Well afterall…. She is a realtor. We all know what that means.
Stay in your Grannie’s basement!!
Why There Are So Few Houses to Buy, and What You Can Do About It (Not Much)
NEW YORK (MainStreet) — Housing starts are up, property prices are rising and millions of homeowners are no longer “underwater” — so why is America facing a big shortage in the number of residences available for sale?
“We should be seeing the supply of available homes growing more rapidly, but it isn’t,” says economist Jonathan Smoke of Realtor.com.
The National Association of Realtors recently reported that while median home prices jumped 7.8% in March, America had just a 4.6-month supply of properties on the market. That’s well below the six- to seven-month supply experts consider normal.
Inventories of available homes have been low for years because the housing bust dried up construction and left many homeowners “underwater.” That’s where you owe more on your mortgage than your property is worth, meaning you can’t easily sell unless you have enough cash to make up the difference.
Economists say the housing market’s slow rebound over the past few years has begun to chip away at both problems, but that shortages remain.
“Supply is tight virtually everywhere in the country,” Smoke says. “It’s really started to emerge as one of the most important factors that’s holding back the market.”
He and other experts say problems persist because:
Construction levels are still low
U.S. housing starts rose 12.4% over the past year to hit a 1.04 million annual rate as of the first quarter, but Smoke says that’s way below what he’d expect at this point in the housing-market cycle.
The economist says developers are breaking ground on plenty of multifamily units to take advantage of high apartment rents, but aren’t building enough houses.
While contractors started work on houses at a 680,000-unit annual rate during the first quarter, Smoke says that’s about 400,000 too few.
He attributes the shortfall to a reluctance by developers and lenders to do “speculative” construction, which involves building homes and selling them later instead of starting work only after you’ve signed buyers up.
https://www.mainstreet.com/article/why-there-are-so-few-houses-to-buy-and-what-you-can-do-about-it-not-much/page/2
“Supply is tight virtually everywhere in the country,” Smoke says. “It’s really started to emerge as one of the most important factors that’s holding back the market.”
Lol. Sounds as if you could be talking about cash.
Lying Realtors.
She is a horrible, shallow b!tch.
Stocks
Fighting the Bubble in Bubbles
Apr 15, 2015 4:48 PM EDT
By Justin Fox
Twenty-five percent of the respondents to the latest BofA Merrill Lynch Fund Manager Survey think equity markets are overvalued. Another 13 percent “believe that ‘equity bubbles’ are the biggest tail risk markets are facing.” That’s interesting, especially since both numbers are up a lot from previous months. And it’s definitely interesting that 84 percent think bonds are overvalued.
Read the media headlines about the results, though, and they are made to sound more than just interesting. They sound positively…bubbly: “Extreme valuations: Bonds, stocks near bubble territory” (CNBC), “Bubble fears rattle fund managers” (The Telegraph), “Bubble fears just hit their highest level on record” (Business Insider), “BofA Merrill Lynch Survey Shows Concerns Over Equity, Bond Bubble” (WSJ).
Are stocks and bonds overvalued? Maybe. Ask Stan Druckenmiller, since he’s got a lot more credibility on the topic than I do. What I do know, though, is that use of the word “bubble” has gotten way out of hand — not just in investing but in all kinds of pursuits. Yes, people should be able to make their own word choices. But “bubble” is a useful concept, and it’s a shame to see it wielded so indiscriminately that it becomes devoid of meaning. It is time to fight back against the bubble bubble.
…
Now there are many, many other bubble definitions out there. And this one doesn’t include the crucial element — lots and lots of debt — that made the housing bubble’s collapse a few years after Nasdaq’s so much more devastating. But I don’t think you need debt to have a bubble. You just need debt to have a financial crisis after the bubble.
Are we in a bubble now? Well, it depends which one you’re talking about. Here’s a far-from-exhaustive rundown of a few of the bubbles the world is said to confront or have recently confronted.
…
“Here’s a far-from-exhaustive rundown of a few of the bubbles the world is said to confront or have recently confronted.”
Either the writer is an idiot who is in way over his head, or this piece is a deliberate attempt to confuse the reader on the topic.
‘Home prices continue to rise and outpace both inflation and wage gains,’ said David Blitzer, of S&P Dow Jones Indices. ‘If a complete recovery means new highs all around, we’re not there yet.’
If no one else will say it, I will. This is a very dangerous line of thinking.
‘Healthy numbers would be a bit higher, historically at 3 to 5 percent,’ she said. ‘If you look back at the boom in 2003-2006, we were experiencing double digit year-over-year increases, which was unhealthy in that it could not be sustained and a burst was inevitable.’
See, if it just inches up. And up. It’s OK. Trees can grow to the sky as long as certain conditions do or don’t exist. Never mind that historically prices have never done this.
‘My God, right now, the shortage of listings, things get bid up and up and up,’ said veteran Santa Cruz appraiser Glenn Fuller. ‘On the Westside, everything as selling $20,000 over what it was listed.’
This is an appraiser saying this!
‘Because of the housing bubble people thought these bonds were homogenous,’ says Stephen Keen, a securities lawyer. Then defaults spiked and it suddenly mattered which mortgage pools you owned. ‘Once it became apparent investors didn’t know what they had, there was no liquidity and the valuations collapsed,’
We are sleepwalking right back into the same disaster. And why not?
‘We are sleepwalking right back into the same disaster. And why not?’
With market score keepers like Blitzer defining what is healthy or not, is it any surprise?
Whenever I have a really nice dream, when I wake up and am faced with reality or going back to sleep and back to the dream, I roll right back over and snooze.
You aren’t perchance a Realtor™?
I dreamed that I was a man and woke up and realized I was a butterfly. I dreamed I was a human being and woke up and realized I was a Realturd.
This is fraud all the way to the top.
Turtles, all the way up.
“Home prices are rising, and homeownership is falling. How can that be? If prices are rising, it must be because there is increasing demand for homes, but if there is increasing demand, then why are there fewer homeowners? In the nation’s 20 largest markets, home prices were 5 percent higher in February versus the same month one year ago, according to the S&P/Case-Shiller home price index.”
Could this possibly be a sign of the difference between fundamental demand due to owner-occupant households buying homes at rational multiples of their incomes, versus a speculative mania where a historically large share of purchases reflect a short-term plan to buy while prices are bubbling up and to sell before the next crash?
Nah…it’s just because of the recent bad weather.
“Low interest rates push prices up. When the cost to borrow is less, people are willing to pay more. Experts have been predicting a rise in interest rates but it has yet to materialize. ‘Who want to pull the punch bowl, so to speak?’ asked Fuller.”
It seems like the man on the street fully grasps the connection between ultra-low interest rates and frothy housing prices at this stage of the bubble. Can the end of the party be far off at this point?
Remember…. A ‘housing recovery’ is falling prices to dramatically lower and more affordable levels by definition.
Denver, CO List Prices Crater 8% YoY; Inventory Explodes 127%
http://www.movoto.com/denver-co/market-trends/
White Plains, NY(NYC Metro) List Prices Sink 4% YoY; Housing Recovery In Sight As Prices Fall
http://www.movoto.com/white-plains-ny/market-trends/
“Housing Recovery In Sight As Prices Fall”
I love these kind of headlines. Are you a real journalist?
One never knows.
The 1970 Hemi Barracuda does have one advantage over a house.
They definitely won’t be making any more of them.
And the other 11 million domestic cars built that year?
The 1970 Hemi Barracuda does have one advantage over a house.
They definitely won’t be making any more of them.
I don’t get the romanticizing people have with those cars. I’ve driven some of them and they are typically clunky, poor handling heaps. As for their engines and overall performance, modern muscle cars completely blow them away. Ever shift a stick on one? It’s like driving a tractor. Automatic? Hope you like 3 or even just two gears. You’ll also need to have a mechanic you can trust, because those things had carburetors and points. I remember my dad constantly tweaking those when I was a kid, it was a frequent ritual. Remember how you were supposed to get a tune up every six months?
An unmolested 1970 Hemi Cuda is in the collection of a billionaire somewhere, with his Warhol paintings, etc. It’s a museum piece.
The good ol’ boys in Texas have what appears to be a new way to have the wretched refuse pay for infrastructure twice.
First, the “Toll every two mile” toll roads. Then the automatic billing.
Now, the regular highways are getting the treatment. Looks like they have installed the technology to allow individual drivers to use the car pool lanes…….for a fee, of course. Which, in this case seems to be recalculated instantaneously, dependent on the amount of gridlock/supply and demand.
So, they now have a means of taxing/billing you any time you turn a wheel on a street. We’ll see how that works when they start sending bills to people from out of town.
Also, do they charge by the mile, or by the time you occupy the lane?
In my mind, they ought to be scratching out a check to you anytime you are stuck in gridlock. Which is about 80% of the time in DFW.
First, the “Toll every two mile” toll roads. Then the automatic billing.
They have that in Denver too, though it’s just a portion of the still incomplete 470 loop. The E-470 is pretty expensive and people mostly use it just to get to the airport. The trip from Broomfield to the airport is about $12. Needless to say, the E-470 never has heavy traffic. In fact it isn’t unusual to be driving it during the day and have no one else on the road within a half mile.
You’d think they’d lower the toll as an incentive to get people to use it. It could be a time saver at rush hour, but most people simply can’t affor $20+ for the round trip, so the slog it out on I-25, 70, 270, and 225 in bumper to bumper traffic. So what have they done? They raised the tolls. There is a slower way to the airport from northern Denver (104 st) and I only take the e-470 the airport if I’m running low on time. On a good day it might take 10 more minutes to go via 104th, but it could be much longer.
The people controlling these toll prices are dumber than words can describe. The tolls are more than people can afford, so they get less and less revenue as people avoid them, so they continue raising the tolls to make up for the lack of expected revenue. It’s like a failing restaurant raising menu prices every time their customer base shrinks. We all know what happens after that…
We all know what happens after that… The toll road goes out of business & they break up and remove the pavement???
Well the Palm Beach County clerk finally got back from vacation and uploaded more sales for the Q1 2015. The volume looks the same as Q1 2014 and the prices consistent with Zillow
http://www.zillow.com/palm-beach-county-fl/home-values/
Zillow is predicting a 1.4% rise in prices that have been fairly flat since mid 2014. The beavers are very busy building right now, having dusted off their projects from 2008 and getting right to work. They are sure the housing market is back. And if it isn’t they want to sell all those fine new homes before it drops.
I love my cheap rental.
“Kraus says his wife works, but it’s not enough to keep up with the family’s bills. They have two children.”
Well Kraus, you did your job and got the boot. We all have to make decisions and move on. You could pay that mortgage working as a clerk.
“Kraus doesn’t think it’s a coincidence that he faces foreclosure as his whistleblower lawsuit is pending.”
You mean he thinks that not paying the mortgage isn’t a reason to lose the house? Huh?
We all know the reason for inflated housing and stock prices - The Fed’s cheap money.
Why won’t they simply raise the interest rate? It will shut down this madness, some people will lose - but not the entire market as only those who recently purchased (a fraction of the overall market) are exposed. And they generally are the gamblers.
After all, if the Fed makes a mistake they can always lower their rate immediately !!
And the gamblers will return - instantly - until higher taxes eradicate them.
However it is the grossly inflated prices that is driving demand into the ground.
Inflated prices=collapsing demand=cratering prices
Cratering prices of all items is precisely what this economy needs.
This is a game of musical donkeys.
Why won’t they simply raise the interest rate?
Because governments around the world would be unable to make interest payments on their collective debt should interest rates return to historic standards?
Would you be OK with your taxes being massively raised to cover the now much bigger interest payments the Treasury would have to pay on new debt? And since most debt is short term they are constantly rolling over expired Treasuries into new ones, so we can’t count on being “locked in” to low rates.
Don’t get me wrong, I hate ZIRP. It’s going to make it nearly impossible for ordinary people to retire, it’s helped make housing unbelievably expensive and it’s allowed governments around the globe to borrow and run deficits with wild abandon. But we are now painted into a corner and the PTB won’t make a move until their hand is forced.
And since most debt is short term they are constantly rolling over expired Treasuries into new ones, so we can’t count on being “locked in” to low rates.
One of the most amazing things, imo—it should be clear to all that with rates stuck at the lower bound, the only sensible move is for governments to issue only long-term bonds rather than short-term notes.
What you fail to wrap your minds around is the fact that demand is collapsing as a result of the credit cost price fixing.
“We’ve had at least two major manias in 15 years. My position is that we are in the midst of a global real estate bubble, and probably stock, bond, milk, art, antique car and rosewood furniture bubbles too.”
This might not be a bubble. Instead, this might be central bank created inflation. When you have the ECB and BOJ printing to the point you have negative yields on government bonds, inflation is a likely outcome. I think the inflation will continue and get out of hand. Then, it gets ugly. Scary ugly. In my opinion, when it gets to runaway inflation, there is a strong risk of a major war. I am very worried.
“This might not be a bubble. Instead, this might be central bank created inflation.”
What exactly is the distinction?
Inflation results when the central bank allows money supply go grow beyond economic growth. This is the current central bank policy.
Bubble is just a buying panic where stupid people overpay for assets. Just a Ponzi.
“Inflation results when the central bank allows money supply go grow beyond economic growth. This is the current central bank policy.”
Like so?
wsj dot com
10:59 am ET
Apr 23, 2015
Economy & Business
Eurozone Risks Bad Inflation After Good Deflation
Is bad inflation taking over from good deflation?
The eurozone economy has stumbled, according to the latest survey of regional purchasing managers. The expansion of both manufacturing and services was slower than expected in April, with French industry contracting and Germany’s falling well short of expectations.
Undoubtedly, some of this softness will be down to global factors. The U.S. economy wobbled in the first quarter–probably down to weather-related factors, though a strong dollar didn’t help either. And China has slowed enough for its policymakers to start worrying and start pressing the monetary liquidity pedal again.
But some of the weakness might well be down to the fact that oil prices stopped falling and started rising again during the month.
European Central Bank President Mario Draghi recently acknowledged the role of low energy prices in the eurozone’s recent recovery–granting it equal billing with the ECB’s monetary easing. As a substantial net importer of gas and oil, falling energy prices are a net positive for the economy, a sort of anti-tax giving firms and households more disposable income.
Some have called this good deflation. Central bankers tend to worry about deflation because generally falling prices make it harder to service outstanding debts and also encourage people to hold off purchases, thus depressing overall demand in the economy. And the eurozone’s recent run of negative year-on-year consumer price changes made plenty of economists worry that the region could slide into that sort of bad deflation.
Instead, the eurozone’s good deflation seems to have boosted spending and lifted consumer and corporate sentiment.
But with oil prices starting to rebound, energy is taking a bigger bite out of people’s purses. At the same time, the euro’s sharp depreciation has added further upward pressure on prices. To be sure, this has yet to register in the official data, which show inflation remains at rock bottom levels. But higher inflation seems to be coming. German firms reported rising input costs and the most marked increases in output prices since the start of 2014 in the latest purchasing managers’ report. And ECB surveys have shown rising inflation expectations.
Although the ECB’s policy efforts have been directed at returning inflation to its target of near but below 2%, the central bank might take a lesson from Japan’s own efforts.
Japanese inflation trended up towards the end of 2013 as a result of the Bank of Japan’s policy of forcing down the yen’s value and then jumped in 2014 after the government hiked consumption taxes in April. The economy slumped into another recession.
…
“Bubble is just a buying panic where stupid people overpay for assets. Just a Ponzi.”
Wouldn’t this be a natural consequence of widespread fear that central banks are hellbent on financially engineering asset price inflation as a fundamental monetary policy objective?
With so many too-clever-by-half folks having figured out (as you have) the central bank inflation engineering plan, coupled with interest rates pinned to the mat at generational lows for a protracted and interminable period of time, how is it even conceivable that anyone who has allocatable assets wouldn’t hedge by piling into risk assets?
But this drives prices sky high, segueing directly into your scenario where stupid people overpay towards the end of the accidental Ponzi scheme.
Price fixing, bottlenecking and other market distortions is not inflation.
*Learn* the difference.
“However it is the grossly inflated prices that is driving demand into the ground.” HA
Yes, I agree that should be happening, but we have to delayer the current buyers into first timers, etc, etc, and then gamblers.
I think a gigantic push on prices is coming from gamblers with the ability to quickly buy and sell - in other words, the ability to recognize when the market is tanking so that they can sell quickly.
These people are wingnuts and should be taxed for their windfall profits - heavily.
It applies to housing as well as stocks.
It is happening. Organic demand is at 20 year lows.