The poor showing in February could very likely be a set-up for March, generally accepted to be the key month for the traditionally strong spring season. What better way to manufacture strong new home sales data in March by making the previous month look so bad. Beware as this little trick has been played before!
the number is certainly bad enough, but I would like to point out that of the 1.2m new houses accounted for sold in 2006 probably 300k were actually canceled.
My point is that these are bound to be the first ones that building company push for sale and do not appear on this year sales.
what do you think?
8+ months inventory is a killer- houses going on hold over winter, school year and Thanksgiving/ Christmas/ New Year holidays. No recovery possible this year.
It would appear from this mornings data- housing is basically in bleak shape. Oil is up- the FED is screwed- inflation and a weakening economy- seems the possibility of a recession is growing daily.
Yeah, BB is totally screwed right now with copper over $3 and oil hovering around $63. A big crisis driven push could make life even worse. Crashing home sales and dropping business confidence confounded with a dropping dollar. Perfect Storm time?
Oh, well. No one can afford the time to sell stocks - the really important news has broken - Anna Nicole Smith died of a drug overdose, so now the media stocks must rise!!!
The poor showing in February could very likely be a set-up for March, generally accepted to be the key month for the traditionally strong spring season. What better way to manufacture strong new home sales data in March by making the previous month look so bad. Beware as this little trick has been played before!
I wouldn't call it a 'trick' but I would expect March numbers to 'rebound' due to this drop - call it reversion to trend (not mean)... trending down but this was a major drop below what had up to now been assumed to be 'trend'... at least by the MSM experts.
sweet!
we're that much closer to the bottom.
Closer but maybe not close.
dc1000 - you'll know when were 'near a bottom' when we've passed it, not before.
Washington Mutual announced adjusted ALT-A parameters effective today. Loan to Value(LTV), fico scores, maximum loan amounts, and combined LTV's(first and 2nd's) were changed to reflect current market conditions. ALT A includes, full doc, no income verification, no ratio and no income/no asset loans.( Option Arms are not included in this adjustment.)
March YoY comparisons could be tough to make look good as the credit tightening hits the stage that month.
Ya but MSM can focus on MOM if March is better than February and then extrapolate an annualized 'increase' from that... like what happened with the NAR report a few days ago... trending down overall but noise makes recent month look 'good' if the numbers are looked at as less bad then the month before. Not 'inaccurate' but 'misleading' just the same.
Hard to make the numbers on this recent new build sales report look good no matter how you spin it... unless your dc1000 that is...
With houses in SoCal now trading at 12 times household income (4 times household income is the 30 year average), I think we are nearing the turning point where a new upsurge in SoCal housing prices has to be right around the corner.
Thanks Cal for answering/informing us/ giacomo Aghina, Neal for the inventory note, argo for making us scratch our heads over "...basically for detectives everywhere"..., dc1000 for his sense of humor, skytrekker and AllenM for the broader view of issues facing the Fed, dryfly and Mom for specific media or dc1000 critiques and Robert who reminds us of the basic problem: covert sarcasm. Ok, that wasn't it: sarcasm of any kind when affordability issues are ignored.
Housing is going to show up even worse in the next few months if the volume of posts on the Grapevine at Broker Universe is any indication. I would say the message board volume pretty well dropped of 2-3 weeks ago.
Anthony - and the "takes" on the broker forums have dropped off much more than the volume. The credit tightening is extremely real and still continuing.
Anybody know how far in advance of public announcements like these Fed officials get this data? I am trying to figure out how much of this the Fed knew when they made their last decision and how far behind the curve we peons are. [cue dumb jokes]
Banker, Greenspan was notorious for getting the data as soon as possible- right down to getting raw data from the integrators to interpret himself.
I suspect that the Fed was looking at these numbers two weeks ago, and kept them out of the beige book and for discussion. On the other hand, the fed also has been watching the currency markets gyrate, and is evincing some small concern that they might get out of hand and show up as inflation. I think our markets are missing the point, the fed has to keep our foreign investors happy or they might find themselves buying a ton of bonds to keep rates stable as foreign holders dump.
Banker - when I was getting my masters I partnered on a project with an econ researcher at the Mpls Fed... I drilled the guy on that very question and his lips were sealed.
Not only did he not tell us anything at all (he didn't have 'org wide' visibility anyway but had way more than any of us)... But he wouldn't even hint at what the 'heavies' knew & when they knew it.
He acted like an AG Mini-Me. Lotsa interesting circular logic... no real info.
I am certain they get timely data - I am even more certain we won't get the real skinny on it until it is ready to be unwrapped for all. JMHO.
Now if you happen to have friends at the fed and want to share...
the Chicago Fed report month to month can be very misleading so it has a 3 month moving average to smooth out these jumps either way. The 3 month trend is still just below the overall trend line but close enough to call it close.
The first chart in this post is very interesting. Note that even with the big decline, we are only at levels associated with the Tops of previous booms. Now I will grant you that the total population of the country is now greater than it was in the 70's or 80's. However, if someone tries to tell you that the overall demodgraphic situation for housing is better now than it was in the late 70's, ask them what flavor kool-Aid they are drinking and if it was the subject of a Tom Wolfe book. In the late 70's all those baby boomers were entering the houing market for the first time, now they are contemplating retirement. A spike down to the 400,000 level can not be ruled out.
Humphrey Bogart's Sam Spade to Mary Astor's Bridget O'Shaughnessy in John Huston's (directorial debut) The Maltese Falcon:
When a man's partner is killed, he's supposed to do something about it. It doesn't make any difference what you thought of him. He was your partner and you're supposed to do something about it. And it happens we're in the detective business. Well, when one of your organization gets killed, it's-it's bad business to let the killer get away with it, bad all around, bad for every detective everywhere.
Fireworks, history shows that it takes up to 6 months for a new sales trend to emerge so even if sales go up in March it would be premature to call a bottom.
CR or anyone else, please tell me what you think of chart 21 in this letter from Gary Shilling:
All of our regulars here know by now that my wife and I are Realtors who live and work here on Atlanta's north side. It's been a while since I have given an update on what I am seeing in our market so this will cover a lot of ground. Something for everyone, I promise. The large mega office we work from has now one hundred twelve Realtors or Realtor teams. The leader board our managing broker keeps up in our break room tells an interesting story. Beside each name is a stick on with the number of closings each Realtor has year to date. Seventy one Realtors, that's sixty three percent, have no closings at all year to date. That's pretty grim even if the months of December through February are traditionally the slowest of the year. Is it time to panic? Perhaps not yet but if it looks the same on May 1st, then yes, it is. My wife and I, by the way, have closed two with four more pending. One of the pendings is that big new construction I wrote of a few months ago that will close in July. Last year was our slowest year ever as those of you who have followed my posts know. This year seems to be tracking last year. It's still a little early so stay tuned.
.....
Many of you may remember my post in January when we bought our second home, our weekend house, up on Lake Lanier. I still believe, for many reasons, our property up on the lake will appreciate at 10% - 20% per year for the next several years. It definitely makes sense to hold on up there but cut back here if we can, if the market will let us. So here we go. We still have a few getting ready items to address, but I think we list our Roswell home on May 1st for $550,000. A home two doors down and around the corner closed for $514,000 last week. We have a slightly better set up, let's try $550,000.
I think she was a redhead, though it's hard to tell in b/w.
The line is from the original novel, by Dahiell Hammett. Ford followed the book very closely, though he did drop one odd thread involving Gutman's daughter.
But if we're looking for direction from 1930s movies, we need to watch the Coconuts, where the Marx brothers take on the Florida real estate bubble.
I believe it ends with boy gets girl. I'm not sure how that will help us in the current situation, it's hard to see rising foreclores doing much for the marriage market. Can you buy divorce futures?
"New median and average new home prices were up." When I was in mortgage lending, builders could not provide 'incentives' which were not deducted from the home price. This was because an 80% LTV loan would become something over 80% after an incentive. For example, a $200K home with a 80% mortgage at $160K. Subtract a $20K incentive and the actual home price is $180K with a LTV of 89%. Any comments from those currently in the field?
I think Dirk might be onto something about how deep this trough could go. Especially if there are conversions/mods to those McMansions that allow more buyers into one residence in an effort to get around sticky high prices. Boomers may be encouraged to share space with their children.
wally continues to have me ear...but I really don't see the Volcker solution (or any Fed solution really) as fixing a problem that has allowed all the marbles to roll to one badly unregulated sector.
So Intel announces plans for a $2.5B plant in China...helping lift share prices but the typical American worker, not so much.
Six out of last seven US housing recessions since 1960 have been associated with an economy-wide recession All but one of the seven US economy-wide recessions since 1950 have been associated with a housing recession
The current housing recession is already getting close to be as deep as some of the worst housing recessions since 1960. But housing is still falling; no there is not yet a bottom to the current recession that may turn out at the end as the worst since 1960.
Housing starts have already fallen 38% from peak (and 14.4% in January 2007 alone).
New home sales have already fallen 38% from peak, 16.6% in January alone (and now 3.9% in February)
Even in a soft landing scenario for the US economy, starts, completions, and new homes sales are likely to fall much more in 2007. We estimate that in this rosy soft landing scenario, starts could fall from the current depressed level of 1.4 million (SAAR) down to at least 1.25 million (another 15% at least) in 2007.
This benchmark scenario does not consider the effect of a credit crunch either in subprime and/or a more generalized one in mortgage on housing. It also does not consider the effect of an economy-wide recession on housing.
In a scenario of a US recession housing starts could fall at least another 22% in 2007 from the currently low level of 1.4 million, all the way down to 1.1 million (a level 51% down from the 2006 peak). Again this is not a floor: with a severe recession and/or a housing crunch starts could fall even more.
Even leaving aside, the coming credit crunch in the mortgage market on the housing market and considering only strictly defined subprime mortgages alone i.e. leaving aside the other risky loans that were labeled as near prime or prime subprime mortgages were about 25% of originations by H2 of 2006. Thus, even a credit crunch limited to subprime mortgages would have severe effects on the demand for new housing and, thus, on housing starts. Considering that subprime, near prime and other risky and dangerous loans were closer to 50% of mortgage originations in 2005-2006 (as now suggested by Credit Swiss and UBS research) a more generalized credit crunch in the mortgage market that is now becoming highly likely will have even more severe effects on demand and supply.
So, the paper benchmark of a seriously deepening housing recession even in a soft landing scenario for US economy does not consider at all the effects of a credit crunch or a hard landing for the economy
There is an even bigger problem that is developing now: the excess supply of unsold new and existing homes will become much larger in 2007 and 2008 because of four separate channels: 1. the fall in demand of new homes relative to the new supply because of the fall in demand for new homes from subprime borrowers; 2. the increase supply of existing homes from defaulted subprime borrowers whose homes will go i
From Roubini RGE - Why New Home Sales is a Much More Significant Measure of the Housing Recession than Existing Home Sales. And the Worsening Housing Recession…
There is an even bigger problem that is developing now: the excess supply of unsold new and existing homes will become much larger in 2007 and 2008 because of four separate channels:
1. the fall in demand of new homes relative to the new supply because of the fall in demand for new homes from subprime borrowers;
2. the increase supply of existing homes from defaulted subprime borrowers whose homes will go into foreclosure and will be sold by banks repossessing them;
3. the sale in semi-distressed conditions of existing homes by homeowners subprime, near prime, and prime - who cannot afford their resetting ARMs, the balloon payments in their mortgages and the rising debt servicing costs of their existing homes;
4. the sales of existing homes by speculative home owners and small developers who engages in condo/home flipping but are now seeing their equity eroding as home prices are falling.
Note also that, given the last three channels above, the future supply of existing homes will go up and, given downward price adjustment, the equilibrium level of existing home sales will increase over 2007 and 2008. Thus, observation of increases in sales of existing homes - like those in February and the last few months are a sign - as long as existing home prices are falling of further trouble in the housing market, not a improvement. Basic economics suggests that a positive shift in the supply function (in this case supply of existing homes given the growing glut of existing homes for sale) will - given a downward sloping demand function - lead to greater sales and lower prices. Thus, seeing rising existing home sales - with falling rather than rising prices - is a signal that the glut of existing homes is getting worse and that the housing market is not bottoming out. So beware of incorrect arguments - that are already being presented now by some analysts - that claim that the rising existing home sales is a positive indicator of the housing recovery. That is simply incorrect Economics 101 reasoning
Steve: on the "Texas Manufacturing Activity Continues to Expand in March" within the text they say order volume, order growth and general business sentiment fell. The Chicago Fed aticle says indicators rose from slighlty negative to a reading of essentially zero. A key finding of the small business report was that now more (a small majority) of the samall businees people think the economy will get worse. Somehow, the content of the articles are not reflected in the headlines-I wonder why. Maybe it is for those who only read or quote headlines.
What I think (with no particular insight into real estate) is the reversion to the mean will be painful.
Further up the thread
homes at 12x annual income? what lender in their right mind would even think such a loan could be repaid? buyers at that price level must be thinking speculation, flip to another sucker, no way this is a purchase for living in.
You can pretty much take every economic report and find one thing wrong with it. That doesn't mean that on the whole all three of those reports are not positive.
Somehow, the content of the articles are not reflected in the headlines-I wonder why. Maybe it is for those who only read or quote headlines.
Oh really? Let's look at them:
The first headline:
Confidence among small business owners increased in March
From the article: -At 117.7, the Watch rose slightly more than four points over Februarys mark of 113.4
-49 percent of small business owners indicated that economic conditions for their businesses were getting better, up from 44 percent in February.
That seems pretty consistent with the headline to me.
Okay, now the second headline: Texas Manufacturing Activity Continues to Expand in March
From the article:
-The production index increased to 27.2 in March, compared with 18.1 in
February.
Again, that seems pretty consistent.
And now the third one:
Chicago Fed national activity index rises in February
First, it would help to know how the CFNAI works. A reading of 0 is consistent with trend growth in the economy. The three month moving average is usually used to smooth fluctuations. Further, recession typically isn't a serious concern until the three month moving average is at or below -.7.
-The Chicago Fed said its National Activity Index rose to 0.03 in February from an upwardly revised -0.72. It was previously reported as -0.74 in January.
-The three-month moving average of the index was negative for a sixth straight month, but rose to -0.02 from an upwardly revised -0.23. It was originally reported as -0.29 in January.
So, basically what this report is saying is that growth is below average, which we knew, but perhaps more importantly that the economy is not even close to recessionary.
Again, on the whole these reports are positive and they are most certainly consistent with the headlines.
My point is that these reports do not contain unmixed good news. The weakness of the economy is indicated in the text far more than is reflected in the headlines. That's all.
calmo,
I think it is really too early to call 'stagflation', but the trend is heading there. What you say is an interesting problem: all the marbles rolled one way.
Wall Street does not care if the Fed bails out housing (a 'bail-out' has no effect now, anyway) but they want to see a rate cut so they can jump on the next spec bubble. I really do not see any way that the Fed can allow that to happen, no matter what the situation in housing. They certainly know by now that each bulge is getting larger and more dangerous.
I'd have to agree with Steve's post... housing & mortgage biz is a problem... but it hasn't contaminated everything... at least not yet.
On the Texas numbers - that activity is legit. I shared some links with Steve a month or so ago from SME (Soc. Mfg Engineers)... there is a LOT of activity surrounding offshore oil platform build & repair (past storms & new build combined) down there right now and also electrical generation & distribution upgrades. These are projects that need to be done regionally for the most part and are both labor & skills intensive.
On the Small Biz confidence numbers - I work with a lot of small biz (am one)... my anecdotal take is that is pretty consistent with what I see & feel.
I'm actually more confident now than a year ago - seeing problems getting attention & coverage makes me far more confident we won't get blind-sided & makes me more confident they will actually get corrected without complete fubar. Semi-fubar maybe but not complete fubar... Semi-fubar most of us can handle (old hats at that we are).
I don't know enough about what's in the Chicago Fed Index to have an opinion...
The key question I have is will everything be snuffed out if the contagion spreads & what are the signs to look for that it's happening - other than our jaw boning (myself included).
I'd like more attention on that - CRs metrics are very good for watching housing & mortgage. It is certainly possible the trouble could spread. Where do you watch to know if the problems spreading?
Can anybody comment on New and MS (morgan stanley). First Ms buys NEW's subprime portfolio for 97pct on the dollar when ABX (BBB) is down 20pct, and now they announced they are auctioning this porfolio.....did I get my facts wrong or am I missing something? What are they doing?
Citigroup's issues that are driving the restructuring are specific to Citigroup. CEO Prince is under a great deal of pressure as expenses have been rising far faster than revenue growth. Prince Al-Waleed, the largest shareholder is not a happy guy. There are two enormously talented guys in their early 40's, Tom Meharas and Michael Klein waiting in the wings if Prince and Ben Druskin's plan doesn't work. The issues have nothiong to do with the mortgage biz.
Dryfly,
"Semifubar?" Has that been copywritten? Seriously, I don't see the contagion, at least not yet. Around here hat makes me a bull
dryfly,
I think consumer spending is where you look. Even if business investment stays strong for a while, all trails ultimately lead to the end consumer.
Remember that the point often made here - and on similar blogs - is that the issue is a debt bubble, of which the housing bubble is but a part. The theory is that when debt stops increasing, spending must be cut.
Analysts Say Bankruptcy Filing
From New Century Is Imminent
By LINGLING WEI
March 26, 2007 3:08 p.m.
NEW YORK -- New Century Financial Corp. likely will file for bankruptcy imminently, analysts said Monday, pointing to the latest move by two of the company's major bank lenders to take possession of loans previously used to secure their financing.
seeing problems getting attention & coverage makes me far more confident we won't get blind-sided
Dryfly,
This is one of the reasons I remain optimistic that the housing slowdown alone won't cause a recession.
Recessions are usually caused by unexpected jolts to the economy. It's rare for the economy to slowly bleed into a recession. As we know, the housing bubble isn't playinig out with a "pop" but more like the air slowly coming out of a ballon. Because conditions will be changing slowly, this will likely give the Fed and most businesses time to adjust, rather than being caught with their collective pants down. It's the difference between getting out of the way of a speeding Ferrari and a steamroller. Both can kill you, but you can usually get out of the way of a steamroller.
I think the chances of a sustained period of sluggish growth, similar to what we saw in the years after the last recession, are much more likely than a recession.
As for what to watch, given that most seem to be worried about the consumer, I think consumer confidence is a good place to start. CC doesn't always track spending very well, but it does have a good history of turning down prior to a recession. This is a site I like to keep an eye on: Rasmussen Reports. Jobless claims (as CR has followed) are pretty much always a good thing to keep an eye on.
"Semifubar?" Has that been copywritten? Seriously, I don't see the contagion, at least not yet. Around here hat makes me a bull
Banker | 03.26.07 - 5:02 pm | #
Ya I'm almost a bull by the comments section standards too. I clearly see problems & how they could spread... I just haven't seen any real evidence it has or it will.
And my bias a few years ago was we'd have hit the wall by now already - and haven't... so I doubt my own eyes & reason.
I'm a 'metrics' kind of a guy (that's why I love CRs routine & consistent posting of the same data stream with updated analysis... it gives me comfort like the control panels back at the chem plant).
My only knock on wally's suggestion of 'consumer spending' as a metric is that in my estimation that is WHEN a recession starts - jobs & GDP fall so fast after that as to look almost simultaneous.
Its sort of like 'high level' alarms on the floor of the chem plant (to alert you that a tank ran over or a pipe ruptured)... a bit late no?
Somebody please enlighten me if I'm wrong here.
So I keep watching CRs dashboard & the 'check engine' keeps blinking on and off (housing & market data month to month)... but the car still seems to be running fine & I can't see anything besides the usual dirt & noises when I lift the hood & peak for myself.
But I'm a lousy mechanic... should I be more worried and where else do I look?
Steve I'm going to bookmark that Rasmussen Report & start watching it - thanx.
The other one I watch is Setser's Blog (especially stuff on China & RMB and Japan & Yen). I just can't see us having a real credit crunch until the PBoC & BoJ say we have a credit crunch... then we got one big time.
As long as people in this country have 'credit' the seem to have 'confidence'.
--
Due to demographics (peak in divorce rate and Baby Doomers' household formation) the housing Demand peaked in late 1970s. The demand today is down at least 25% from the peak in 1970s.
Baby Doomers' were raised to lead to America's DOOM and there is nothing that can stop that well entreched process. Very powerful cycles, rooted in Human Nature, are in play. Nothing personal, it is business.
Dryfly:check ou=t Russ Winter's blog at the Wall Street Examiner
I read his stuff it seems thoughtful... but I'm not as comfortable with his analysis as CR or Setser - seems too much like the WSE team have made up their minds & present the data accordingly. CR does some of that, we all do, but he challenges his own assumptions & predictions pretty regularly - I like that.
I mean its one thing to have an opinion (they are like assholes, everyone has one)... its another thing to stick yours in other people's faces.
Same problem I have with Mish - especially since he's hocking his own biz opps on the site & his 'self interest' appears so closely tied to the message.
But then I'm not a gold bug either... gold's fine, love it if somebody gave me a bunch... its just not my full focus.
In terms of process control, I'd liken our current situation to some time a while after that moment in the Three-Mile Island incident when, after they'd been misdiagnosing the problem and bleeding out supposedly "excess" coolant for many hours, it was finally noticed that the temperature and pressure in the reactor meant the steam was superheated, indicating that the core was uncovered* and about to melt down.
*As the temperature at which water boils at any particular pressure is fixed, reactor steam can't get hotter than that unless it's heated further by uncovered core material after the boiling.
how much of an impact did weather have on new home sales in feb?
and what about the first commenter's idea that the already cancelled homes are the ones being pushed hardest right now and these won't show up as home sales because they already were counted before they were cancelled?
The increasingly relentless deception and spin that is being placed in the media though private and public sources make it increasingly important that one receives data and opinion from contrary sources. I have made money in up markets and I haven't lost too much in downs. If I thought "Be happy, don't worry" wasn't a problem, I wouldn't be searching out bearish sites. According to this administration, things have never been better. I know differently from my own personal and business contacts. Why sould I accept the statements made by offiials when the evidence to the contrary is obvious around me? I can read government publications every day, I can read press releases from companies and industries, but what is helpful to know is where are the problems are showing up and where the cracks are developing.
Dryfly, this was mentioned briefly above, but could the big players in the MBS area starting to make contingency plans enough to qualify as one of your high level signals that things are getting bad?
NEW YORK (Reuters) -- Morgan Stanley said Monday it is auctioning nearly $2.5 billion of residential mortgages from New Century Financial Inc. to public investors, fueling speculation that the troubled subprime lender was edging closer to bankruptcy.
According to a public notice, Morgan Stanley Mortgage Capital Inc. will auction a portfolio of about 13,200 loans originated by New Century, Home123 Corp. and other affiliates with a total unpaid principal balance of $2.48 billion.
...
Morgan Stanley "felt so uncomfortable with" New Century's ability to repay the loan that "they decided to just take the loans and auction them off themselves," analyst Christopher Brendler at Stifel Nicolaus was quoted as saying by the Wall Street Journal on its Web site. "I'm surprised that New Century hasn't filed for bankruptcy already."
Morgan Stanley (Charts) declined to comment beyond the public notice. A spokeswoman for New Century also declined to comment.
In a filing two weeks ago, New Century said several lenders were demanding New Century and its subsidiaries repurchase all outstanding mortgage loans, and that its other lenders had the right to make that demand. It said if each of them do, its total repayment obligations would be about $8.4 billion.
The New Century loans that Morgan Stanley is auctioning are collateral pledged by the subprime lender for a $2.5 billion credit line, of which about $2.48 billion was funded. That amount includes $710 million of New Century exposure taken over from Citigroup Inc. (Charts), but not $265 million in secured financing extended on March 9.
Neal - I've read their sites & still read them... Some of Winters stuff is very good. Mish I feel is good at 'diagnosis'... but his gold fever remedy leaves me cold.
I just find their arguments sort of 'contrived'. And its not because they are bearish, its that they stick to a very narrow orthodoxy of bearishness with almost fundamentalist fervor. I just don't buy it.
I can see a lot problems - in that respect I'm also quite bearish. But I am not a strict monetarist - I don't fear fiat per se.
Nor are central banks powerless against these forces. That's good news & bad.
Fiat can surely be mismanaged, sometimes badly with awful consequences... and currently I think the central banks, especially BoJ & PBoC, are mismanaging the situation... But I don't see run way inflation or deflation as terribly huge immediate threats. Deficits & excess debt - very much so.
I believe the administration (budget & tax cuts) & the populace in general carry more blame for the current mess than the CBs. As Pogo said 'We have met the enemy & he is us.'
And I don't see commodities as the salvation.
So I'm looking for more conventional answers first - at least start with those. If that doesn't provide guidance there is a whole cacophony of alternative 'voices' out there... Winter & Mish among them.
62 years is when someone can take social security in retirement. Do we have the beginnings of a demographic shift of a large number of baby boomers unloading their larger homes to retire in smaller existing homes?
I'm holding metals, energy funds, ethanol, gold, food commodities, short duration bonds, defense, foreign funds-does that make me a bear, pragmatist, or bull?
And the reason why I hold gold is not because it is a magic shield, it is because it is likely during the next downturn there will be a mad rush into the gold market.
wally, I can see you may have been influenced by Roach (haven't we been influenced by this bear, MS's chief economist?) whose latest offering pushes the view that BB is no Volcker.
I'm hoping that BB is no dummy and his academic foundation is not merely academic but useful in guiding us through what may be some tough times ahead...times that were not of his doing as much as Greenspan and those complacent administrations that trusted "the maestro" and other regulating bodies.
Nobody has mentioned the effect that rising gasoline and energy costs can have on the American economy. Right now we have unrelenting credit tightening, rising foreclosures, a negative savings rate and crippling personal debt. What will happen to the economy if we experience a massive increase in the cost of gasoline? I am afraid the economy will look like a scene from Monty Python's Search for the Holy Grail. The black knight may say "it's only a flesh wound, I 've had worse" but he will still fall to earth like a bloody stump.
tj - people have always been calling for the end of money but its been around longer than the metals. Ancient societies used 'wampum' & such before they could smelt the damn stuff.
There will be some inflation/deflation and currencies coming & going... but productive assets increase/decrease proportionately IF they maintain their productive place in society.
Prior to modern central banking & fiat money there were much larger booms & busts (panics) even with gold backed currencies as people basically created their own money via private credit then reneged.
Having gold denominated money then didn't change anything. We are repeating those errors again it appears via hedge fund leverage & margin... creating 'private credit' in more ways than we can imagine.
If you want to survive & thrive you have to watch your leverage & tie your investments to production of goods & services. People don't eat gold. And food commodities have no shelf life - they have to be grown each season.
My father (an economist who went into business, not academia) said it best...
"You can only eat the potatoes you grow this year. You can't store them year over year, they rot.
"Likewise having money or gold is no good unless somebody who grows the potatoes is willing to trade you their potatoes for your gold... in a shortage the potatoes are more valuable than either the money or gold. You might or might not have sufficient gold, even as valuable as it is."
He then went on to say that basically EVERYTHING we consume, every commodity, behaves like this - some more valuable than others. They are what we consume & they are all perishable to a degree.
I mean if you buy a computer today... will it be useful in a decade let alone a half century from now?
Gold only has value when there is a surplus of goods to trade for it. As soon as a shortage of goods occurs the 'price' in gold skyrockets just like any other currency.
So the key is having a 'claim' to valuable production in some fashion... that being your own business, farm, mine... or a claim against somebody else's business... via stocks or bonds.
Even gov't bonds are a claim against the productivity of the nation - levied through taxation. If the production is there then the bonds will be good, if not, they won't... no matter what the fed does.
My complaint is people get too hung up on the CURRENCY whether fiat or gold and not on the actual production of goods denominated in those currencies.
Believe me - the Chinese & Japanese are missing this detail.
There can be currency problems from 'fiat' but if you own an enforceable piece of the factors of production they will roll with whatever the currency does... inflate or deflate. If you don't then it is all 'fiat' of varying degrees.
Believe me - the Chinese & Japanese are NOT missing this detail.
They are more than willing to take our fiat so long as they get factories and more importantly a trained work force able to run them in return for out fiat.
The later is what the 'conundrum' is really all about...
Now maybe I'm wrong but I don't think so. The problem is I'm not 100% sure how to implement that strategy even if I'm right.
What goods will remain valuable & what processes will be the the most productive at producing those goods & how do I get & keep a claim to some of the benefit of that production... in a hostile world?
Those are the toughies I don't have the answers to.
dryfly, there was a husband and wife team of history professors, Will and Ariel Durant, that wrote a series of overview books on the various different major ages of recorded history, I am fortunate enough to have a copy.
I mention this aside mainly because they had a quote that I think is up your dad's alley. In an interesting little book called, naturally enough, "The Lessons of History" based on what major themes they run across during their work, they start off the economics section by stating that (as best I can remember) "history is inflationary, as a result wealthy people generally don't hold money, but invest in land and sources of production."
I don't disagree with anything you've just written.
My point was in regards to the eventual destruction of the dollar via inflation and/or deflation, precisely due to excessive public, private and consumer debt.
The world economy is largely a faith-based institution, and when that faith is shaken... well, that's exactly the time you'll want to have that 'claim'.
Right - but gold isn't a claim either. And faith changes all the time like new religions. You can't stay pegged to the old, you have to move but at the right times & to the right places.
Here's a link for you to read & digest - I just finished it myself & need to digest some more... from the comments section in Setser's latest.
Read the original entry then follow the exchange between Moldbug & Setser in comments... it explains in part why it all holds together & why it is such a mess, all at the same time. Gold isn't terrible - it isn't the answer to our salvation... it's way trickier & more complex.
Money is the bubble that doesn't need to pop. As long as there is demand for indirect exchange, at least one asset will be stockpiled by hoarders, hence experience demand that is not a consequence of any direct utility, hence be overvalued. As long as the storage cost for this asset is zero and the supply in existence is fixed, you have a perfect Nash equilibrium - using any other asset as a medium of indirect exchange provides no advantage, and runs the risk of buying into a bubble which will subsequently pop as punters revert back to the stable standard. If the forward price of an asset which is not the current monetary standard, but which is theoretically capable of replacing it, rises to exceed the forward price of money, arbitrageurs will buy it now and store it, increasing the present price and closing the gap between the yield curves.
Even bimetallic (eg, gold and silver) monetary systems are unstable in this simple model - even without any attempt to fix the bimetallic ratio. It is a pencil balancing on its point. If demand shifts for some random reason toward one of the metals, it creates a feedback loop which will eventually demonetize the other, leaving it priced by normal commodity criteria.
Of course this is a simplistic free-market approach and does not even begin to describe the complexity of the various official forces acting on monetary systems. It just provides some indication of the pressures lurking under the surface.
Besides of course the "export subsidy," I suspect that some of the industrial overcapacity in China (not to mention residential overcapacity in the US!) is a result of this blind search for a replacement currency, a savable good whose price will not underperform the dilution rate. Factories, especially, make a very bad monetary system, because they are not inelastically supplied (unless you have a very large supply of environmentalists). But the supply of shares on a stock market may not respond instantaneously to an influx of demand, temporarily mimicking an inelastically supplied commodity, and tricking the unwary.
Written by moldbug on 2007-03-26 19:01:21
Gold, fiat, factory. There is no easy way to store 'value'... all we can do is continue to produce necessary consumption & find imperfect ways to 'exchange' it.
"The Lessons of History" based on what major themes they run across during their work, they start off the economics section by stating that (as best I can remember) "history is inflationary, as a result wealthy people generally don't hold money, but invest in land and sources of production."
Andrew - my father must have read the book, either that or they were both channeling the same mentor.
That is what I grew up with as a child - that message over and over. You save to buy and control factors of production that produce 'surplus' (profit) you plow back into more factors of production.
The problem is obsolescence & innovation - it can rob you of the 'value' of your factors of production. You can't be blind to the changes in production any more than you can safely be blind to changes in currency valuation.
There are many ways to get trapped. Gold appears to avoid those but doesn't - it produces nothing & costs resources to hoard (guard & store & transport)... meanwhile you need to continue to eat (consume) so the pile gets smaller & smaller... UNLESS you produce something others want to consume who then TRADE for more gold.
What's with the gold fixation? I was not talking about mediums of exchange as much as about fiat's tendency towards self-destruction. Preserving wealth is a whole 'nother issue.
"Ford followed the book very closely,..." No he didn't, since John Ford didn't direct the Maltese Falcon. Howard Hawks did.
Dryfly: I agree with you to the extent. However, it certainly matters what factors of production one holds. Their relative importance change over time. Owning a potato farm over the past several years probably hasn't been a great investment (unless the land is close to a city, in which case its value has skyrocketed), since the amount of potatoes needed to buy a college education has gone up. On the other hand, the value of owning the factor of production called Apple Computer has been great... On the whole I think the most important factor of production one can invest in is one's one health; after that, one's education; and after that, "economic" factors...
tj - gold is the stereotypical 'anti-fiat'... any commodity serves the same purpose for arguments sake just that gold fits better than all others.
The point is it is better to own the factors of production for the commodity than the commodity itself. That is unless the particular process or producer you own isn't competitive - then you're sunk either way.
:::
a - 'potatoes you eat to day' was an allegory my father used for any form of production of an ESSENTIAL product. He was very leery of 'fashion products'... at least leery of betting the farm on them. They sure can produce wealth - they just don't hold that values long.
If you plan to invest 'long term' in fashion products then you need to constantly take your winnings off the table when winning & invest in other more stable assets... and limit loses when losing.
The problem with betting your future on Apple is that they can be completely displaced tomorrow by another technology or even a trendier version of the same technology... and it can happen overnight.
Plus they don't even own their own factors of production so are constantly running on the IP treadmill while at the mercy of those who do own the factors of production. As long as they are strong & can keep pace with the treadmill they will prosper... if they falter they could be done.
From a strategy perspective - I understand why they do it. That still doesn't mean it isn't high risk - it is.
Given all that I'm not sure a potato farm - literally - isn't a better store of value, generation to generation. Lower immediate return but constant return nonetheless. Assuming of course you don't wildly over pay for the potato farm (that is likely to be the case now - asset inflation has found farm land too).
I wish I could take credit for it - all I did is listen to older wiser businessmen when I was a kid & absorb... literally in elementary school & early teens.
My father & a friend of his were mid-upper level executives at a large (then prosperous) rust belt corporation.
The two would get our families together for formal dinners. Prior to the sit down, the men would go off and talk... a couple of us kids would sit and listen in. Fascinating stuff really.
My father was from Catholic Irish/French Canadian lineage having grown up in rural Midwest & studied economics in college... His friend was descended from Eastern European Jews, grew up in NYC and studied engineering. Other than that they were twins.
Mostly they talked amongst themselves but if one of us showed any interest they then tried to bring us in... & used allegories like the 'growing potatoes' as way to make difficult concepts easier to understand. They did a fairly good job considering how slow the pupil was.
The poor showing in February could very likely be a set-up for March, generally accepted to be the key month for the traditionally strong spring season. What better way to manufacture strong new home sales data in March by making the previous month look so bad. Beware as this little trick has been played before!
the number is certainly bad enough, but I would like to point out that of the 1.2m new houses accounted for sold in 2006 probably 300k were actually canceled.
My point is that these are bound to be the first ones that building company push for sale and do not appear on this year sales.
what do you think?
The reaction of the stock market is very interesting.
Initially, it sold off, but now it has stabilized.
Market players are experiencing a Hobson's choice.
An imploding housing market, according to the accepted wisdom, will force Bernanke to lower rates which is bullish (break out the silk).
An imploding housing market is bad for earnings and basically for detectives everywhere which is bearish (cut velvet).
The euro, on the other hand, sees Bernanke cutting rates.
8+ months inventory is a killer- houses going on hold over winter, school year and Thanksgiving/ Christmas/ New Year holidays. No recovery possible this year.
sweet!
we're that much closer to the bottom.
with all the news and feature stories on this the bottom has go to be close
It would appear from this mornings data- housing is basically in bleak shape. Oil is up- the FED is screwed- inflation and a weakening economy- seems the possibility of a recession is growing daily.
Yeah, BB is totally screwed right now with copper over $3 and oil hovering around $63. A big crisis driven push could make life even worse. Crashing home sales and dropping business confidence confounded with a dropping dollar. Perfect Storm time?
Sure is starting to look interesting!
Last report (sales):
Nov-1029k
Dec-1123k
Jan-937k
This report:
Nov-988k
Dec-1047k
Jan-882k
Oh, well. No one can afford the time to sell stocks - the really important news has broken - Anna Nicole Smith died of a drug overdose, so now the media stocks must rise!!!
The poor showing in February could very likely be a set-up for March, generally accepted to be the key month for the traditionally strong spring season. What better way to manufacture strong new home sales data in March by making the previous month look so bad. Beware as this little trick has been played before!
I wouldn't call it a 'trick' but I would expect March numbers to 'rebound' due to this drop - call it reversion to trend (not mean)... trending down but this was a major drop below what had up to now been assumed to be 'trend'... at least by the MSM experts.
sweet!
we're that much closer to the bottom.
Closer but maybe not close.
dc1000 - you'll know when were 'near a bottom' when we've passed it, not before.
Enjoy the ride.
What does the subprime mortgage market look like?
Fannie Mae
"The poor showing in February could very likely be a set-up for March"
Possible, but I thinm it's a long shot. March YoY comparisons could be tough to make look good as the credit tightening hits the stage that month.
Washington Mutual announced adjusted ALT-A parameters effective today. Loan to Value(LTV), fico scores, maximum loan amounts, and combined LTV's(first and 2nd's) were changed to reflect current market conditions. ALT A includes, full doc, no income verification, no ratio and no income/no asset loans.( Option Arms are not included in this adjustment.)
with all the news and feature stories on this the bottom has go to be close
dc1000, are recylcing one of your comments from last Fall?
The market is off its lows because everyone anticipates magical incantations from Bernanke this afternoon.
dc1000
"with all the news and feature stories on this the bottom has go to be close"
You one funny Dude
March YoY comparisons could be tough to make look good as the credit tightening hits the stage that month.
Ya but MSM can focus on MOM if March is better than February and then extrapolate an annualized 'increase' from that... like what happened with the NAR report a few days ago... trending down overall but noise makes recent month look 'good' if the numbers are looked at as less bad then the month before. Not 'inaccurate' but 'misleading' just the same.
Hard to make the numbers on this recent new build sales report look good no matter how you spin it... unless your dc1000 that is...
With houses in SoCal now trading at 12 times household income (4 times household income is the 30 year average), I think we are nearing the turning point where a new upsurge in SoCal housing prices has to be right around the corner.
/// sarcasism off
The market is off its lows because everyone anticipates magical incantations from Bernanke this afternoon.
I'm sure he will deliver and bulls all over will be flatulating in their panties.
Thanks Cal for answering/informing us/ giacomo Aghina, Neal for the inventory note, argo for making us scratch our heads over "...basically for detectives everywhere"..., dc1000 for his sense of humor, skytrekker and AllenM for the broader view of issues facing the Fed, dryfly and Mom for specific media or dc1000 critiques and Robert who reminds us of the basic problem: covert sarcasm. Ok, that wasn't it: sarcasm of any kind when affordability issues are ignored.
--
CR,
It looks awfully like preceding the 1980-82 "Double Dip" recesssion, the worst since the Great Depression.
Anyone for the Greater Depression to begin within this decade?
Jas
Housing is going to show up even worse in the next few months if the volume of posts on the Grapevine at Broker Universe is any indication. I would say the message board volume pretty well dropped of 2-3 weeks ago.
Mortgage Grapevine - BrokerUniverse
Ugh, ugh and ugh!
(I figured I owed it to you guys on both threads)
Anthony - and the "takes" on the broker forums have dropped off much more than the volume. The credit tightening is extremely real and still continuing.
glad some of you can see the humor.
i dont think that we're near a bottom by any means but it is funny how the media is all over it now.
if this we're a bull market we'd all be claiming top because of the coverage.
you know the MSM is last to know.
Moving toward stagflation? Remember the Volcker solution: brutal but effective.
Lennar reports tomorrow. Includes Feb sales. Gonna be a tough YoY for them.
In other news today (because I know everyone here is interested in economic news outside of the housing sector, right?):
Confidence among small business owners increased in March
Texas Manufacturing Activity Continues to Expand in March
Chicago Fed national activity index rises in February
Anybody know how far in advance of public announcements like these Fed officials get this data? I am trying to figure out how much of this the Fed knew when they made their last decision and how far behind the curve we peons are. [cue dumb jokes]
Thanks for any insights.
Banker, Greenspan was notorious for getting the data as soon as possible- right down to getting raw data from the integrators to interpret himself.
I suspect that the Fed was looking at these numbers two weeks ago, and kept them out of the beige book and for discussion. On the other hand, the fed also has been watching the currency markets gyrate, and is evincing some small concern that they might get out of hand and show up as inflation. I think our markets are missing the point, the fed has to keep our foreign investors happy or they might find themselves buying a ton of bonds to keep rates stable as foreign holders dump.
Fugly. Housing is the last bubble.
Anybody have any bright ideas what could be next?
Banker - when I was getting my masters I partnered on a project with an econ researcher at the Mpls Fed... I drilled the guy on that very question and his lips were sealed.
Not only did he not tell us anything at all (he didn't have 'org wide' visibility anyway but had way more than any of us)... But he wouldn't even hint at what the 'heavies' knew & when they knew it.
He acted like an AG Mini-Me. Lotsa interesting circular logic... no real info.
I am certain they get timely data - I am even more certain we won't get the real skinny on it until it is ready to be unwrapped for all. JMHO.
Now if you happen to have friends at the fed and want to share...
http://www.chicagofed.org/economic_research_and_data/files/cfnai_march2007.pdf
the Chicago Fed report month to month can be very misleading so it has a 3 month moving average to smooth out these jumps either way. The 3 month trend is still just below the overall trend line but close enough to call it close.
The detectives everywhere quote is Humphrey Bogart in The Maltese Falcon, I believe.
Please correct me if I am wrong.
He's explaining why he has to turn in the blond even though he wants her bad.
The first chart in this post is very interesting. Note that even with the big decline, we are only at levels associated with the Tops of previous booms. Now I will grant you that the total population of the country is now greater than it was in the 70's or 80's. However, if someone tries to tell you that the overall demodgraphic situation for housing is better now than it was in the late 70's, ask them what flavor kool-Aid they are drinking and if it was the subject of a Tom Wolfe book. In the late 70's all those baby boomers were entering the houing market for the first time, now they are contemplating retirement. A spike down to the 400,000 level can not be ruled out.
Humphrey Bogart's Sam Spade to Mary Astor's Bridget O'Shaughnessy in John Huston's (directorial debut) The Maltese Falcon:
When a man's partner is killed, he's supposed to do something about it. It doesn't make any difference what you thought of him. He was your partner and you're supposed to do something about it. And it happens we're in the detective business. Well, when one of your organization gets killed, it's-it's bad business to let the killer get away with it, bad all around, bad for every detective everywhere.
Fireworks, history shows that it takes up to 6 months for a new sales trend to emerge so even if sales go up in March it would be premature to call a bottom.
CR or anyone else, please tell me what you think of chart 21 in this letter from Gary Shilling:
Safe Haven | The Coming Collapse in Housing
If you want to look into the state of mind of an Atlanta RE broker.
sonnypage
All of our regulars here know by now that my wife and I are Realtors who live and work here on Atlanta's north side. It's been a while since I have given an update on what I am seeing in our market so this will cover a lot of ground. Something for everyone, I promise. The large mega office we work from has now one hundred twelve Realtors or Realtor teams. The leader board our managing broker keeps up in our break room tells an interesting story. Beside each name is a stick on with the number of closings each Realtor has year to date. Seventy one Realtors, that's sixty three percent, have no closings at all year to date. That's pretty grim even if the months of December through February are traditionally the slowest of the year. Is it time to panic? Perhaps not yet but if it looks the same on May 1st, then yes, it is. My wife and I, by the way, have closed two with four more pending. One of the pendings is that big new construction I wrote of a few months ago that will close in July. Last year was our slowest year ever as those of you who have followed my posts know. This year seems to be tracking last year. It's still a little early so stay tuned.
.....
Many of you may remember my post in January when we bought our second home, our weekend house, up on Lake Lanier. I still believe, for many reasons, our property up on the lake will appreciate at 10% - 20% per year for the next several years. It definitely makes sense to hold on up there but cut back here if we can, if the market will let us. So here we go. We still have a few getting ready items to address, but I think we list our Roswell home on May 1st for $550,000. A home two doors down and around the corner closed for $514,000 last week. We have a slightly better set up, let's try $550,000.
I am convinced that new home sales will be be at an annual rate of 350,000- 400,000 by November of 2007. Welcome back to 1982.
arbogast,
I think she was a redhead, though it's hard to tell in b/w.
The line is from the original novel, by Dahiell Hammett. Ford followed the book very closely, though he did drop one odd thread involving Gutman's daughter.
But if we're looking for direction from 1930s movies, we need to watch the Coconuts, where the Marx brothers take on the Florida real estate bubble.
I believe it ends with boy gets girl. I'm not sure how that will help us in the current situation, it's hard to see rising foreclores doing much for the marriage market. Can you buy divorce futures?
"New median and average new home prices were up." When I was in mortgage lending, builders could not provide 'incentives' which were not deducted from the home price. This was because an 80% LTV loan would become something over 80% after an incentive. For example, a $200K home with a 80% mortgage at $160K. Subtract a $20K incentive and the actual home price is $180K with a LTV of 89%. Any comments from those currently in the field?
I think Dirk might be onto something about how deep this trough could go. Especially if there are conversions/mods to those McMansions that allow more buyers into one residence in an effort to get around sticky high prices. Boomers may be encouraged to share space with their children.
wally continues to have me ear...but I really don't see the Volcker solution (or any Fed solution really) as fixing a problem that has allowed all the marbles to roll to one badly unregulated sector.
So Intel announces plans for a $2.5B plant in China...helping lift share prices but the typical American worker, not so much.
From Roubini
RGE - Why New Home Sales is a Much More Significant Measure of the Housing Recession than Existing Home Sales. And the Worsening Housing Recession…
Six out of last seven US housing recessions since 1960 have been associated with an economy-wide recession All but one of the seven US economy-wide recessions since 1950 have been associated with a housing recession
The current housing recession is already getting close to be as deep as some of the worst housing recessions since 1960. But housing is still falling; no there is not yet a bottom to the current recession that may turn out at the end as the worst since 1960.
Housing starts have already fallen 38% from peak (and 14.4% in January 2007 alone).
New home sales have already fallen 38% from peak, 16.6% in January alone (and now 3.9% in February)
Even in a soft landing scenario for the US economy, starts, completions, and new homes sales are likely to fall much more in 2007. We estimate that in this rosy soft landing scenario, starts could fall from the current depressed level of 1.4 million (SAAR) down to at least 1.25 million (another 15% at least) in 2007.
This benchmark scenario does not consider the effect of a credit crunch either in subprime and/or a more generalized one in mortgage on housing. It also does not consider the effect of an economy-wide recession on housing.
In a scenario of a US recession housing starts could fall at least another 22% in 2007 from the currently low level of 1.4 million, all the way down to 1.1 million (a level 51% down from the 2006 peak). Again this is not a floor: with a severe recession and/or a housing crunch starts could fall even more.
Even leaving aside, the coming credit crunch in the mortgage market on the housing market and considering only strictly defined subprime mortgages alone i.e. leaving aside the other risky loans that were labeled as near prime or prime subprime mortgages were about 25% of originations by H2 of 2006. Thus, even a credit crunch limited to subprime mortgages would have severe effects on the demand for new housing and, thus, on housing starts. Considering that subprime, near prime and other risky and dangerous loans were closer to 50% of mortgage originations in 2005-2006 (as now suggested by Credit Swiss and UBS research) a more generalized credit crunch in the mortgage market that is now becoming highly likely will have even more severe effects on demand and supply.
So, the paper benchmark of a seriously deepening housing recession even in a soft landing scenario for US economy does not consider at all the effects of a credit crunch or a hard landing for the economy
There is an even bigger problem that is developing now: the excess supply of unsold new and existing homes will become much larger in 2007 and 2008 because of four separate channels: 1. the fall in demand of new homes relative to the new supply because of the fall in demand for new homes from subprime borrowers; 2. the increase supply of existing homes from defaulted subprime borrowers whose homes will go i
From Roubini
RGE - Why New Home Sales is a Much More Significant Measure of the Housing Recession than Existing Home Sales. And the Worsening Housing Recession…
There is an even bigger problem that is developing now: the excess supply of unsold new and existing homes will become much larger in 2007 and 2008 because of four separate channels:
1. the fall in demand of new homes relative to the new supply because of the fall in demand for new homes from subprime borrowers;
2. the increase supply of existing homes from defaulted subprime borrowers whose homes will go into foreclosure and will be sold by banks repossessing them;
3. the sale in semi-distressed conditions of existing homes by homeowners subprime, near prime, and prime - who cannot afford their resetting ARMs, the balloon payments in their mortgages and the rising debt servicing costs of their existing homes;
4. the sales of existing homes by speculative home owners and small developers who engages in condo/home flipping but are now seeing their equity eroding as home prices are falling.
Note also that, given the last three channels above, the future supply of existing homes will go up and, given downward price adjustment, the equilibrium level of existing home sales will increase over 2007 and 2008. Thus, observation of increases in sales of existing homes - like those in February and the last few months are a sign - as long as existing home prices are falling of further trouble in the housing market, not a improvement. Basic economics suggests that a positive shift in the supply function (in this case supply of existing homes given the growing glut of existing homes for sale) will - given a downward sloping demand function - lead to greater sales and lower prices. Thus, seeing rising existing home sales - with falling rather than rising prices - is a signal that the glut of existing homes is getting worse and that the housing market is not bottoming out. So beware of incorrect arguments - that are already being presented now by some analysts - that claim that the rising existing home sales is a positive indicator of the housing recovery. That is simply incorrect Economics 101 reasoning
I suppose this Citigroup restructuring is entirely unrelated to any problems anywhere else in the banking world.
Citigroup eyes cutting 15,000 jobs - U.S. business- msnbc.com
I've been pondering the demographic shifts of a contracting housing market.
Year Houses Crowded Severely Crowded
1940 34,447,032 6,964,894 20.2% 3,085,922 9.0%
1950 42,154,443 6,628,292 15.7% 2,607,717 6.2%
1960 53,023,875 6,113,473 11.5% 1,902,923 3.6%
1970 63,449,747 5,210,874 8.2% 1,408,416 2.2%
1980 80,389,673 3,648,445 4.5% 1,134,619 1.4%
1990 91,947,410 4,548,799 4.9% 1,911,867 2.1%
2000 105,480,101 6,057,890 5.7% 2,873,122 2.7%
1-PERSON OCCUPANCY RATES
2000 1990 1980 1970 1960 1950 1940
25.8% 24.6% 22.7% 17.6% 13.3% 9.3% 7.7%
2000: 2.66 persons per dwelling unit.
2007: at the same 2.66 persons per dwelling unit would require 114,000,000 dwelling units.
Current estimate of housing stock: 128,000,000 dwelling units.
Excess: 14 million dwelling units.
Steve: on the "Texas Manufacturing Activity Continues to Expand in March" within the text they say order volume, order growth and general business sentiment fell. The Chicago Fed aticle says indicators rose from slighlty negative to a reading of essentially zero. A key finding of the small business report was that now more (a small majority) of the samall businees people think the economy will get worse. Somehow, the content of the articles are not reflected in the headlines-I wonder why. Maybe it is for those who only read or quote headlines.
Charlie Stromeyer
What I think (with no particular insight into real estate) is the reversion to the mean will be painful.
Further up the thread
homes at 12x annual income? what lender in their right mind would even think such a loan could be repaid? buyers at that price level must be thinking speculation, flip to another sucker, no way this is a purchase for living in.
Neal,
You can pretty much take every economic report and find one thing wrong with it. That doesn't mean that on the whole all three of those reports are not positive.
Somehow, the content of the articles are not reflected in the headlines-I wonder why. Maybe it is for those who only read or quote headlines.
Oh really? Let's look at them:
The first headline:
Confidence among small business owners increased in March
From the article:
-At 117.7, the Watch rose slightly more than four points over Februarys mark of 113.4
-49 percent of small business owners indicated that economic conditions for their businesses were getting better, up from 44 percent in February.
That seems pretty consistent with the headline to me.
Okay, now the second headline:
Texas Manufacturing Activity Continues to Expand in March
From the article:
-The production index increased to 27.2 in March, compared with 18.1 in
February.
Again, that seems pretty consistent.
And now the third one:
Chicago Fed national activity index rises in February
First, it would help to know how the CFNAI works. A reading of 0 is consistent with trend growth in the economy. The three month moving average is usually used to smooth fluctuations. Further, recession typically isn't a serious concern until the three month moving average is at or below -.7.
-The Chicago Fed said its National Activity Index rose to 0.03 in February from an upwardly revised -0.72. It was previously reported as -0.74 in January.
-The three-month moving average of the index was negative for a sixth straight month, but rose to -0.02 from an upwardly revised -0.23. It was originally reported as -0.29 in January.
So, basically what this report is saying is that growth is below average, which we knew, but perhaps more importantly that the economy is not even close to recessionary.
Again, on the whole these reports are positive and they are most certainly consistent with the headlines.
My point is that these reports do not contain unmixed good news. The weakness of the economy is indicated in the text far more than is reflected in the headlines. That's all.
calmo,
I think it is really too early to call 'stagflation', but the trend is heading there. What you say is an interesting problem: all the marbles rolled one way.
Wall Street does not care if the Fed bails out housing (a 'bail-out' has no effect now, anyway) but they want to see a rate cut so they can jump on the next spec bubble. I really do not see any way that the Fed can allow that to happen, no matter what the situation in housing. They certainly know by now that each bulge is getting larger and more dangerous.
I'd have to agree with Steve's post... housing & mortgage biz is a problem... but it hasn't contaminated everything... at least not yet.
On the Texas numbers - that activity is legit. I shared some links with Steve a month or so ago from SME (Soc. Mfg Engineers)... there is a LOT of activity surrounding offshore oil platform build & repair (past storms & new build combined) down there right now and also electrical generation & distribution upgrades. These are projects that need to be done regionally for the most part and are both labor & skills intensive.
On the Small Biz confidence numbers - I work with a lot of small biz (am one)... my anecdotal take is that is pretty consistent with what I see & feel.
I'm actually more confident now than a year ago - seeing problems getting attention & coverage makes me far more confident we won't get blind-sided & makes me more confident they will actually get corrected without complete fubar. Semi-fubar maybe but not complete fubar... Semi-fubar most of us can handle (old hats at that we are).
I don't know enough about what's in the Chicago Fed Index to have an opinion...
The key question I have is will everything be snuffed out if the contagion spreads & what are the signs to look for that it's happening - other than our jaw boning (myself included).
I'd like more attention on that - CRs metrics are very good for watching housing & mortgage. It is certainly possible the trouble could spread. Where do you watch to know if the problems spreading?
Can anybody comment on New and MS (morgan stanley). First Ms buys NEW's subprime portfolio for 97pct on the dollar when ABX (BBB) is down 20pct, and now they announced they are auctioning this porfolio.....did I get my facts wrong or am I missing something? What are they doing?
Anonymous,
Citigroup's issues that are driving the restructuring are specific to Citigroup. CEO Prince is under a great deal of pressure as expenses have been rising far faster than revenue growth. Prince Al-Waleed, the largest shareholder is not a happy guy. There are two enormously talented guys in their early 40's, Tom Meharas and Michael Klein waiting in the wings if Prince and Ben Druskin's plan doesn't work. The issues have nothiong to do with the mortgage biz.
Dryfly,
"Semifubar?" Has that been copywritten? Seriously, I don't see the contagion, at least not yet. Around here hat makes me a bull
Check out Russ Winter's blog for a wider view.
dryfly,
I think consumer spending is where you look. Even if business investment stays strong for a while, all trails ultimately lead to the end consumer.
Remember that the point often made here - and on similar blogs - is that the issue is a debt bubble, of which the housing bubble is but a part. The theory is that when debt stops increasing, spending must be cut.
Analysts Say Bankruptcy Filing
From New Century Is Imminent
By LINGLING WEI
March 26, 2007 3:08 p.m.
NEW YORK -- New Century Financial Corp. likely will file for bankruptcy imminently, analysts said Monday, pointing to the latest move by two of the company's major bank lenders to take possession of loans previously used to secure their financing.
seeing problems getting attention & coverage makes me far more confident we won't get blind-sided
Dryfly,
This is one of the reasons I remain optimistic that the housing slowdown alone won't cause a recession.
Recessions are usually caused by unexpected jolts to the economy. It's rare for the economy to slowly bleed into a recession. As we know, the housing bubble isn't playinig out with a "pop" but more like the air slowly coming out of a ballon. Because conditions will be changing slowly, this will likely give the Fed and most businesses time to adjust, rather than being caught with their collective pants down. It's the difference between getting out of the way of a speeding Ferrari and a steamroller. Both can kill you, but you can usually get out of the way of a steamroller.
I think the chances of a sustained period of sluggish growth, similar to what we saw in the years after the last recession, are much more likely than a recession.
As for what to watch, given that most seem to be worried about the consumer, I think consumer confidence is a good place to start. CC doesn't always track spending very well, but it does have a good history of turning down prior to a recession. This is a site I like to keep an eye on: Rasmussen Reports. Jobless claims (as CR has followed) are pretty much always a good thing to keep an eye on.
"Semifubar?" Has that been copywritten? Seriously, I don't see the contagion, at least not yet. Around here hat makes me a bull
Banker | 03.26.07 - 5:02 pm | #
Ya I'm almost a bull by the comments section standards too. I clearly see problems & how they could spread... I just haven't seen any real evidence it has or it will.
And my bias a few years ago was we'd have hit the wall by now already - and haven't... so I doubt my own eyes & reason.
I'm a 'metrics' kind of a guy (that's why I love CRs routine & consistent posting of the same data stream with updated analysis... it gives me comfort like the control panels back at the chem plant).
My only knock on wally's suggestion of 'consumer spending' as a metric is that in my estimation that is WHEN a recession starts - jobs & GDP fall so fast after that as to look almost simultaneous.
Its sort of like 'high level' alarms on the floor of the chem plant (to alert you that a tank ran over or a pipe ruptured)... a bit late no?
Somebody please enlighten me if I'm wrong here.
So I keep watching CRs dashboard & the 'check engine' keeps blinking on and off (housing & market data month to month)... but the car still seems to be running fine & I can't see anything besides the usual dirt & noises when I lift the hood & peak for myself.
But I'm a lousy mechanic... should I be more worried and where else do I look?
Dryfly:check ou=t Russ Winter's blog at the Wall Street Examiner. Lots of info from a lot of different places.
Steve I'm going to bookmark that Rasmussen Report & start watching it - thanx.
The other one I watch is Setser's Blog (especially stuff on China & RMB and Japan & Yen). I just can't see us having a real credit crunch until the PBoC & BoJ say we have a credit crunch... then we got one big time.
As long as people in this country have 'credit' the seem to have 'confidence'.
--
Due to demographics (peak in divorce rate and Baby Doomers' household formation) the housing Demand peaked in late 1970s. The demand today is down at least 25% from the peak in 1970s.
Baby Doomers' were raised to lead to America's DOOM and there is nothing that can stop that well entreched process. Very powerful cycles, rooted in Human Nature, are in play. Nothing personal, it is business.
Jas
Dryfly:check ou=t Russ Winter's blog at the Wall Street Examiner
I read his stuff it seems thoughtful... but I'm not as comfortable with his analysis as CR or Setser - seems too much like the WSE team have made up their minds & present the data accordingly. CR does some of that, we all do, but he challenges his own assumptions & predictions pretty regularly - I like that.
I mean its one thing to have an opinion (they are like assholes, everyone has one)... its another thing to stick yours in other people's faces.
Same problem I have with Mish - especially since he's hocking his own biz opps on the site & his 'self interest' appears so closely tied to the message.
But then I'm not a gold bug either... gold's fine, love it if somebody gave me a bunch... its just not my full focus.
dryfly, where I come from "semi-fubar" is FUBOR (But Occasionally Recognizable). Rhymes with "scratch & dent."
dryfly,
In terms of process control, I'd liken our current situation to some time a while after that moment in the Three-Mile Island incident when, after they'd been misdiagnosing the problem and bleeding out supposedly "excess" coolant for many hours, it was finally noticed that the temperature and pressure in the reactor meant the steam was superheated, indicating that the core was uncovered* and about to melt down.
*As the temperature at which water boils at any particular pressure is fixed, reactor steam can't get hotter than that unless it's heated further by uncovered core material after the boiling.
how much of an impact did weather have on new home sales in feb?
and what about the first commenter's idea that the already cancelled homes are the ones being pushed hardest right now and these won't show up as home sales because they already were counted before they were cancelled?
The increasingly relentless deception and spin that is being placed in the media though private and public sources make it increasingly important that one receives data and opinion from contrary sources. I have made money in up markets and I haven't lost too much in downs. If I thought "Be happy, don't worry" wasn't a problem, I wouldn't be searching out bearish sites. According to this administration, things have never been better. I know differently from my own personal and business contacts. Why sould I accept the statements made by offiials when the evidence to the contrary is obvious around me? I can read government publications every day, I can read press releases from companies and industries, but what is helpful to know is where are the problems are showing up and where the cracks are developing.
Dryfly, this was mentioned briefly above, but could the big players in the MBS area starting to make contingency plans enough to qualify as one of your high level signals that things are getting bad?
CNNMoney.com: 404 Page Not Found
NEW YORK (Reuters) -- Morgan Stanley said Monday it is auctioning nearly $2.5 billion of residential mortgages from New Century Financial Inc. to public investors, fueling speculation that the troubled subprime lender was edging closer to bankruptcy.
According to a public notice, Morgan Stanley Mortgage Capital Inc. will auction a portfolio of about 13,200 loans originated by New Century, Home123 Corp. and other affiliates with a total unpaid principal balance of $2.48 billion.
...
Morgan Stanley "felt so uncomfortable with" New Century's ability to repay the loan that "they decided to just take the loans and auction them off themselves," analyst Christopher Brendler at Stifel Nicolaus was quoted as saying by the Wall Street Journal on its Web site. "I'm surprised that New Century hasn't filed for bankruptcy already."
Morgan Stanley (Charts) declined to comment beyond the public notice. A spokeswoman for New Century also declined to comment.
In a filing two weeks ago, New Century said several lenders were demanding New Century and its subsidiaries repurchase all outstanding mortgage loans, and that its other lenders had the right to make that demand. It said if each of them do, its total repayment obligations would be about $8.4 billion.
The New Century loans that Morgan Stanley is auctioning are collateral pledged by the subprime lender for a $2.5 billion credit line, of which about $2.48 billion was funded. That amount includes $710 million of New Century exposure taken over from Citigroup Inc. (Charts), but not $265 million in secured financing extended on March 9.
Neal - I've read their sites & still read them... Some of Winters stuff is very good. Mish I feel is good at 'diagnosis'... but his gold fever remedy leaves me cold.
I just find their arguments sort of 'contrived'. And its not because they are bearish, its that they stick to a very narrow orthodoxy of bearishness with almost fundamentalist fervor. I just don't buy it.
I can see a lot problems - in that respect I'm also quite bearish. But I am not a strict monetarist - I don't fear fiat per se.
Nor are central banks powerless against these forces. That's good news & bad.
Fiat can surely be mismanaged, sometimes badly with awful consequences... and currently I think the central banks, especially BoJ & PBoC, are mismanaging the situation... But I don't see run way inflation or deflation as terribly huge immediate threats. Deficits & excess debt - very much so.
I believe the administration (budget & tax cuts) & the populace in general carry more blame for the current mess than the CBs. As Pogo said 'We have met the enemy & he is us.'
And I don't see commodities as the salvation.
So I'm looking for more conventional answers first - at least start with those. If that doesn't provide guidance there is a whole cacophony of alternative 'voices' out there... Winter & Mish among them.
2008-1946 = 62.
62 years is when someone can take social security in retirement. Do we have the beginnings of a demographic shift of a large number of baby boomers unloading their larger homes to retire in smaller existing homes?
I'm holding metals, energy funds, ethanol, gold, food commodities, short duration bonds, defense, foreign funds-does that make me a bear, pragmatist, or bull?
And the reason why I hold gold is not because it is a magic shield, it is because it is likely during the next downturn there will be a mad rush into the gold market.
But I don't see run way inflation or deflation as terribly huge immediate threats. Deficits & excess debt - very much so.
dryfly, how do you manage that disconnect?
This monstrous game of Jenga is one block away from all falling apart, and it just so happens that one block is housing.
wally, I can see you may have been influenced by Roach (haven't we been influenced by this bear, MS's chief economist?) whose latest offering pushes the view that BB is no Volcker.
I'm hoping that BB is no dummy and his academic foundation is not merely academic but useful in guiding us through what may be some tough times ahead...times that were not of his doing as much as Greenspan and those complacent administrations that trusted "the maestro" and other regulating bodies.
Nobody has mentioned the effect that rising gasoline and energy costs can have on the American economy. Right now we have unrelenting credit tightening, rising foreclosures, a negative savings rate and crippling personal debt. What will happen to the economy if we experience a massive increase in the cost of gasoline? I am afraid the economy will look like a scene from Monty Python's Search for the Holy Grail. The black knight may say "it's only a flesh wound, I 've had worse" but he will still fall to earth like a bloody stump.
Calculated Risk
Great charts
tj - people have always been calling for the end of money but its been around longer than the metals. Ancient societies used 'wampum' & such before they could smelt the damn stuff.
There will be some inflation/deflation and currencies coming & going... but productive assets increase/decrease proportionately IF they maintain their productive place in society.
Prior to modern central banking & fiat money there were much larger booms & busts (panics) even with gold backed currencies as people basically created their own money via private credit then reneged.
Having gold denominated money then didn't change anything. We are repeating those errors again it appears via hedge fund leverage & margin... creating 'private credit' in more ways than we can imagine.
If you want to survive & thrive you have to watch your leverage & tie your investments to production of goods & services. People don't eat gold. And food commodities have no shelf life - they have to be grown each season.
My father (an economist who went into business, not academia) said it best...
"You can only eat the potatoes you grow this year. You can't store them year over year, they rot.
"Likewise having money or gold is no good unless somebody who grows the potatoes is willing to trade you their potatoes for your gold... in a shortage the potatoes are more valuable than either the money or gold. You might or might not have sufficient gold, even as valuable as it is."
He then went on to say that basically EVERYTHING we consume, every commodity, behaves like this - some more valuable than others. They are what we consume & they are all perishable to a degree.
I mean if you buy a computer today... will it be useful in a decade let alone a half century from now?
Gold only has value when there is a surplus of goods to trade for it. As soon as a shortage of goods occurs the 'price' in gold skyrockets just like any other currency.
So the key is having a 'claim' to valuable production in some fashion... that being your own business, farm, mine... or a claim against somebody else's business... via stocks or bonds.
Even gov't bonds are a claim against the productivity of the nation - levied through taxation. If the production is there then the bonds will be good, if not, they won't... no matter what the fed does.
My complaint is people get too hung up on the CURRENCY whether fiat or gold and not on the actual production of goods denominated in those currencies.
Believe me - the Chinese & Japanese are missing this detail.
There can be currency problems from 'fiat' but if you own an enforceable piece of the factors of production they will roll with whatever the currency does... inflate or deflate. If you don't then it is all 'fiat' of varying degrees.
Correction - should read:
Believe me - the Chinese & Japanese are NOT missing this detail.
They are more than willing to take our fiat so long as they get factories and more importantly a trained work force able to run them in return for out fiat.
The later is what the 'conundrum' is really all about...
Now maybe I'm wrong but I don't think so. The problem is I'm not 100% sure how to implement that strategy even if I'm right.
What goods will remain valuable & what processes will be the the most productive at producing those goods & how do I get & keep a claim to some of the benefit of that production... in a hostile world?
Those are the toughies I don't have the answers to.
dryfly, there was a husband and wife team of history professors, Will and Ariel Durant, that wrote a series of overview books on the various different major ages of recorded history, I am fortunate enough to have a copy.
I mention this aside mainly because they had a quote that I think is up your dad's alley. In an interesting little book called, naturally enough, "The Lessons of History" based on what major themes they run across during their work, they start off the economics section by stating that (as best I can remember) "history is inflationary, as a result wealthy people generally don't hold money, but invest in land and sources of production."
dryfly,
I don't disagree with anything you've just written.
My point was in regards to the eventual destruction of the dollar via inflation and/or deflation, precisely due to excessive public, private and consumer debt.
The world economy is largely a faith-based institution, and when that faith is shaken... well, that's exactly the time you'll want to have that 'claim'.
Right - but gold isn't a claim either. And faith changes all the time like new religions. You can't stay pegged to the old, you have to move but at the right times & to the right places.
Here's a link for you to read & digest - I just finished it myself & need to digest some more... from the comments section in Setser's latest.
Still Going Strong - Bretton Woods II...
Read the original entry then follow the exchange between Moldbug & Setser in comments... it explains in part why it all holds together & why it is such a mess, all at the same time. Gold isn't terrible - it isn't the answer to our salvation... it's way trickier & more complex.
Money is the bubble that doesn't need to pop. As long as there is demand for indirect exchange, at least one asset will be stockpiled by hoarders, hence experience demand that is not a consequence of any direct utility, hence be overvalued. As long as the storage cost for this asset is zero and the supply in existence is fixed, you have a perfect Nash equilibrium - using any other asset as a medium of indirect exchange provides no advantage, and runs the risk of buying into a bubble which will subsequently pop as punters revert back to the stable standard. If the forward price of an asset which is not the current monetary standard, but which is theoretically capable of replacing it, rises to exceed the forward price of money, arbitrageurs will buy it now and store it, increasing the present price and closing the gap between the yield curves.
Continued...
Even bimetallic (eg, gold and silver) monetary systems are unstable in this simple model - even without any attempt to fix the bimetallic ratio. It is a pencil balancing on its point. If demand shifts for some random reason toward one of the metals, it creates a feedback loop which will eventually demonetize the other, leaving it priced by normal commodity criteria.
Of course this is a simplistic free-market approach and does not even begin to describe the complexity of the various official forces acting on monetary systems. It just provides some indication of the pressures lurking under the surface.
Besides of course the "export subsidy," I suspect that some of the industrial overcapacity in China (not to mention residential overcapacity in the US!) is a result of this blind search for a replacement currency, a savable good whose price will not underperform the dilution rate. Factories, especially, make a very bad monetary system, because they are not inelastically supplied (unless you have a very large supply of environmentalists). But the supply of shares on a stock market may not respond instantaneously to an influx of demand, temporarily mimicking an inelastically supplied commodity, and tricking the unwary.
Written by moldbug on 2007-03-26 19:01:21
Gold, fiat, factory. There is no easy way to store 'value'... all we can do is continue to produce necessary consumption & find imperfect ways to 'exchange' it.
"The Lessons of History" based on what major themes they run across during their work, they start off the economics section by stating that (as best I can remember) "history is inflationary, as a result wealthy people generally don't hold money, but invest in land and sources of production."
Andrew - my father must have read the book, either that or they were both channeling the same mentor.
That is what I grew up with as a child - that message over and over. You save to buy and control factors of production that produce 'surplus' (profit) you plow back into more factors of production.
The problem is obsolescence & innovation - it can rob you of the 'value' of your factors of production. You can't be blind to the changes in production any more than you can safely be blind to changes in currency valuation.
There are many ways to get trapped. Gold appears to avoid those but doesn't - it produces nothing & costs resources to hoard (guard & store & transport)... meanwhile you need to continue to eat (consume) so the pile gets smaller & smaller... UNLESS you produce something others want to consume who then TRADE for more gold.
Back full circle - to production.
No easy answers.
dryfly,
What's with the gold fixation? I was not talking about mediums of exchange as much as about fiat's tendency towards self-destruction. Preserving wealth is a whole 'nother issue.
"Ford followed the book very closely,..." No he didn't, since John Ford didn't direct the Maltese Falcon. Howard Hawks did.
Dryfly: I agree with you to the extent. However, it certainly matters what factors of production one holds. Their relative importance change over time. Owning a potato farm over the past several years probably hasn't been a great investment (unless the land is close to a city, in which case its value has skyrocketed), since the amount of potatoes needed to buy a college education has gone up. On the other hand, the value of owning the factor of production called Apple Computer has been great... On the whole I think the most important factor of production one can invest in is one's one health; after that, one's education; and after that, "economic" factors...
thanks to all who contribute here . hard to find much localy. you "guys " are pretty sharp. great work.
dry fly seems to have it close .
tj - gold is the stereotypical 'anti-fiat'... any commodity serves the same purpose for arguments sake just that gold fits better than all others.
The point is it is better to own the factors of production for the commodity than the commodity itself. That is unless the particular process or producer you own isn't competitive - then you're sunk either way.
:::
a - 'potatoes you eat to day' was an allegory my father used for any form of production of an ESSENTIAL product. He was very leery of 'fashion products'... at least leery of betting the farm on them. They sure can produce wealth - they just don't hold that values long.
If you plan to invest 'long term' in fashion products then you need to constantly take your winnings off the table when winning & invest in other more stable assets... and limit loses when losing.
The problem with betting your future on Apple is that they can be completely displaced tomorrow by another technology or even a trendier version of the same technology... and it can happen overnight.
Plus they don't even own their own factors of production so are constantly running on the IP treadmill while at the mercy of those who do own the factors of production. As long as they are strong & can keep pace with the treadmill they will prosper... if they falter they could be done.
From a strategy perspective - I understand why they do it. That still doesn't mean it isn't high risk - it is.
Given all that I'm not sure a potato farm - literally - isn't a better store of value, generation to generation. Lower immediate return but constant return nonetheless. Assuming of course you don't wildly over pay for the potato farm (that is likely to be the case now - asset inflation has found farm land too).
dry fly seems to have it close
I wish I could take credit for it - all I did is listen to older wiser businessmen when I was a kid & absorb... literally in elementary school & early teens.
My father & a friend of his were mid-upper level executives at a large (then prosperous) rust belt corporation.
The two would get our families together for formal dinners. Prior to the sit down, the men would go off and talk... a couple of us kids would sit and listen in. Fascinating stuff really.
My father was from Catholic Irish/French Canadian lineage having grown up in rural Midwest & studied economics in college... His friend was descended from Eastern European Jews, grew up in NYC and studied engineering. Other than that they were twins.
Mostly they talked amongst themselves but if one of us showed any interest they then tried to bring us in... & used allegories like the 'growing potatoes' as way to make difficult concepts easier to understand. They did a fairly good job considering how slow the pupil was.
home sale recession graph
International Monetary Fund: Housing killing U.S. economy. http://infohype.blogspot.com