This is also from the Wall Street Journal. Maybe somebody could explain the reasoning to me:
U.S. consumers cut back on their appetite for foreign cars and television sets in April, shrinking the U.S. trade deficit and prompting forecasters to boost their outlook for economic growth this spring...
To a large extent, the weaker imports reflect the fact that U.S. consumers are tempering their spending habits amid falling home values and high gasoline prices. But a shrinking trade deficit is a plus for U.S. economic growth, because it adds to estimates of the value of goods and services produced on U.S. soil.
Combined with recent upbeat data on manufacturing and business investment, the April trade report "plays well into the economic-rebound scenario," said Joshua Shapiro, chief U.S. economist at consultancy MFR Inc. in New York.
I understand that falling imports improves the GDP as a balance sheet, but that's not an improvement in economic activity. And if consumer spending is such a huge part of the GDP, wouldn't that offset the imports?
Just imagine how fast the economy would rebound if gas were $10 per gallon, home values dropped 75%, and consumers stopped spending completely.
My question is: can consumers replace the foreign goods they are not buying with domestic goods?
A second question is: if a consumer doesn't buy a BMW, aside from improving the balance of payments, does this, in fact, negatively affect the American economy?
My suspicion is that the answer to the last question is: Yes, it negatively affects the American economy.
Also, with the recent rout in corporate bonds and the rising yields, this unnerved market participants, this also sent a message to the lenders that risk is not being properly priced.
In my opinion, what you will see, contrary to what many believe, is a re-inversion of the 2year Treasury and the 10 year Treasury, I think spreads will widen further as the economy weakens going forward (Treasury yields coming back down and corporate, HY in particular, moving higher). I believe that Treasury yields move lower once again, that this remains the top of the range and do not believe the recent comments concerning a further dramatic rout in Treasury yields. The economic backdrop is weaker than the economists believe and this evidence will continue to surface.
Corporate defaults will move markedly higher and the spreads will widen due to the warning shot that this latest move, which caught many off-guard, presented.
Raising margin requirements should be the next move by the regulators, this may be long in the making but, my belief is that you will begin to hear public discussion. The rhetoric surrounding hedge fund legislation is beginning to heat up once again, which in the end, is in the best interest of the public and I believe cannot be ignored.
It will be interesting to see if there is any fallout from the last 4 days in the market, as far as pronounced losses and trading houses caught off-guard.
I've spent time trying to figure out why so many economists keep underestimating the duration of the housing decline. Maybe it's just that they think all serious declines must be driven by unemployment.
On the other hand, it seems evident to me and many of us that housing cannot recover until inventory and prices come down. And the issue here is where the buyers will come from when so much of the pervious buying by speculators (perhaps including second home buyers). Why don't the economists understand that the doubling of prices in many areas simply put homes out of reach of a very high proportion of the public? The other point is that housing busts historically have taken many years to unfold and the previous boom is by far the biggest in US history.
Yesterday I received a mailing asking me to buy "the prudent speculator newletter" which (supposedly) has a very good long term record in stock picking. The only company that they actually mention going forward is the biggest home builder DR Horton (DHI) as a great value, having never had a negative year and with a P/E (presumably trailing) much lower than the S&P 500. I wonder whether they are really bullish on DHI or whether they just want a bump to get rid of their own positions. After all, the P/E of builders is always low, even during the best of times. Any estimates on when the major builders will have two consecutive quarters of earnings positive growth?
I thought CR readers might be interested in the Business week article(s) and graphs regarding import valuation and the potential for overstating GDP.
AC & Arbogast, you're right. Declining imports due to declining (or a shift in) consumer spending has a different overall impact on GDP than continued consumer spending and increasing imports.
If you look at the imports and exports in the latest release, a huge part of the decrease in consumer goods imports was a massive cutback in the import of "pharmaceutical preparations". That may well be related to the Chinese contamination problem, or it may be an overhang because YTD YoY imports of pharmaceutical preparations are up by 4,563 million.
That's Part A Exhibit 8. The April decline in all consumer goods was 1,536 million. Pharmaceutical preparations dropped 1,230 million.
Capital goods ex auto dropped 590 million; autos, engines and parts dropped 1,008 million.
I will be watching May import numbers very carefully.
"My question is: can consumers replace the foreign goods they are not buying with domestic goods?"
In many cases, not. Consumer electronics comes from overseas, save from what is produced just across the border in the maquilodora (sp?) zone. Even production of everyday electromechanical items like ceiling fans now takes place overseas.
But there are a couple of caveats. First,there are a lot of things that people just don't have to buy, and can go without buying for a while. A lot of homes have five TV sets. If one blows, you don't have to replace it if you don't wanna. There's also the used market, and in large metro areas outlets like Craigslist provide an ever more efficient way of moving used goods around.
Finally, a lot of foreign production is actually American production, moved overseas in the past few years either to cash in on cheap labor or to stay competitive with the other guys who cashed in on cheap labor. If there was an overriding economic reason to do so -- influenced by the currency market or by changes in the rules that the U.S. gov't uses to define and control economic activity -- production would start to move back here again. The workers are still here. It's not been that long.
My question is: can consumers replace the foreign goods they are not buying with domestic goods?
It depends.
On the consumer side...
Autos & appliances - absolutely can be made here, most still are.
Components for autos & appliances, mostly 'yes things can be made here' (But things like electrical controls & electric motors not so much).
Electronics & electrical consumer products - no, not at all.
On the industrial & capital side:
Network systems & communications infrastructure - a lot can be made here, even some of the components. Much of it still is made here now.
Actual PCs & such - it is possible they can be ASSEMBLED here, component mfg is & will remain almost all in Asia. Besides final box build, some 'wafer foundry' & 'chip fab' is still in the states... most all final processing & 'packaging' of the processor units is offshore or going offshore though.
Industrial machine tools & heavy cap ex is a mixed bag - a lot of the machines are made in Asia or Europe now (Germany, Switzerland, Japan, Taiwan)... But the custom tooling they are fitted that allows them to do actual work can easily continue to be made here should the dollar decline & our imports slow. Over the life of a machine, the tooling can greatly exceed the dollar value of the machine itself - this isn't trivial stuff.
All said, the ideal situation would be our exports continue to expand and our imports decline - that would be a significant positive delta to GDP. Good high paying jobs associated with these sectors too.
This shift might result in somewhat higher prices but the increase in activity domestically would mean a lot more money in peoples pockets & tend to lift more boats than those who rely on cheap prices.
BTW - cheap consumer consumables (think WalMart & Target) wouldn't change much at all except in terms of the dollar adjustment. Not much of that is ever coming back.
But this whole scenario requires that the 'decoupling theory' hold water. I'm not willing to say there is NO decoupling. OTOH I'm not willing to suggest we are completely decoupled either.
PE of major builders isn't looking too good right now. For many the number looks like those for every NASD company just before the tech bubble burst, where everyone was supposed to ignore those irrelevant passe metrics. I'd check to see if that newsletter is in some way published by the same guys from Nigeria that need a lot of bank account numbers to dispose of a ton of excess money. Ever see Nigeria?
Musing about recessions... I looked back at prior recessions. Based on prior recession timing, if we get a recession Q4 this year or early next year it could be either short lived, or a couple of quarters of rebound - a mid-recession-cycle-upturn - and then recession to resume.
Remember, 2008 is a Presidential election year and those beasts bring out a lot of $$$ out into circulation.
Mr. Resler does not get it because he is not paid to get it! I doubt if he has ever done something as simple as taking a drive in one of the bubble areas and seen the amount of overbuilding. Does he know there have been 82 lenders who have gone out of business since December, or does he choose to ignore it. In my opinion Mr. Resler is willfully ignorant and blind as well. I am afraid that denial is the most American of traits.
If we can milk it along for a few years, we have a chance of recovery, said Mike Gross, Eestern managing director for Countrywide Home Loans. Otherwise, your business gets wiped out.
MaxedOutMama said; Capital goods ex auto dropped 590 million; autos, engines and parts dropped 1,008 million.
I will be watching May import numbers very carefully.
If you were a foriegn high cost/value manufacturer and you saw the condition of the US dollar where would you be holding your inventory; Marks & Euros or US denominated pesobucks?
That hasn't happened, partly because inventories of unsold houses have continued to grow
So Mr Resler, would that mean that if inventories are still growing in 2008, or 2009, or 2010, that the housing slump could continue? And you will be "surprised" again? Uh... excuse me... just dot connecting here...
MaxedOutMama-- Thanks for the reference to the Business Week cover story. That is a very significant story, in my opinion, and will be much discussed in coming weeks. Here's an excerpt:
evidence suggests that shifting production overseas has inflicted worse damage on the U.S. economy than the numbers show. BusinessWeek has learned of a gaping flaw in the way statistics treat offshoring, with serious economic and political implications. Top government statisticians now acknowledge that the problem exists, and say it could prove to be significant.
The short explanation is that the growth of domestic manufacturing has been substantially overstated in recent years. That means productivity gains and overall economic growth have been overstated as well. And that raises questions about U.S. competitiveness and helps explain why wage growth for most American workers has been weak...
MEASURING INTANGIBLES To make better sense of this paradox, I wrote a cover story last year that explored the possibility of the trade deficit being overstated (see BusinessWeek, 2/13/06, "Why the Economy Is a Lot Stronger Than You Think"). In particular, the story argued that the trade statistics, designed for an earlier age, did not entirely capture the enormous flow of intangibles such as business knowledge, management practices, and technological knowledge across national borders. In what amounts to a type of export, U.S. companies were sending these intangibles to their foreign suppliers and foreign subsidiaries as they set up global supply chains. Such outward flows were called "dark matter" by some economists because they were real but you couldn't see them in the data.
That was part of the way I could make sense of the contradiction between rising productivity and rising trade deficits. But since then, I have discussed in my blog another possibility: Perhaps economic and productivity growth over the past few years have been overstated. This week's cover story shows how rapid offshoring of goods and services is distorting the government's economic numbers. Some of the cost cuts and productivity gains in overseas supply chains are being booked as U.S. outputin other words, phantom gross domestic product.
Dark matter and phantom GDP are related to each other. U.S. corporations help bring their foreign suppliers up to speed ("dark matter"), who then can ship low-cost goods back to the U.S. ("phantom GDP") This supply-chain loop is one of the realities of today's world but it's completely missed in the government data.
Here's some more on phantom GDP from the Business Week story:
According to government statistics, output in almost every major manufacturing industry expanded between 2001 and 2005. That seems a little surprising since manufacturing employment dropped by more than 2 million jobs over that period, and nonpetroleum imports rose by roughly 35%...
When Houseman first uncovered the problem with the numbers that is created by offshoring, she was primarily focused on manufacturing productivity, where the official stats show a 32% increase since 2000. But while some of the gains may be real, they also include unlikely productivity jumps in heavily outsourced industries such as furniture and audio and video equipment such as televisions. "In some sectors, productivity growth may be an indicator not of how competitive American workers are in international markets," says Houseman, "but rather of how cost-uncompetitive they are." For example, furniture manufacturing has been transformed by offshoring in recent years. Imports have surged from $17.2 billion in 2000 to $30.3 billion in 2006, with virtually all of that increase coming from low-cost China. And the industry has lost 21% of its jobs during the same period.
Yet Washington's official statistics show that productivity per hour in the furniture industry went up by 23% and output by 3% between 2000 and 2005. Those numbers baffle longtime industry consultant Arthur Raymond of Raleigh, N.C., who has watched factory after factory close. "And we haven't pumped any money into the remaining plants," says Raymond. "How anybody can say that domestic production has stayed level is beyond me."
Phantom GDP helps explain why U.S. workers aren't benefiting more as their companies grow ever more efficient. The cost savings that companies are reaping "don't represent increased productivity of American workers producing goods and services in the U.S.," says Houseman...
Over the past 3 years, reported output per hour is up 5.4%, but real compensation per hour, including benefits, is up only 4.2%. Real wages are actually down by 0.6%.
Yal: Moving from assigning blame to looking for solutions to the growing subprime mortgage crisis, the Federal Reserve Board's San Francisco bank yesterday gathered lenders, consumer advocates and fair-housing experts to look for ways to save financially distressed homeowners from foreclosure.
I ask that it not be about blame, not about pointing fingers, said Melody Neva, the bank's Southern California community development manager.
Those accountable are always eager to focus on the future. The solution to the root cause of this problem is to understand the process and hold actors accountable. The Federal Reserve doesn't want anybody thinking too hard about accountability because somebody might connect the dots between making it free to borrow money and the ensuing credit orgy.
The gun manufacturer distributing to the guy selling guns off the sidewalk doesn't want to talk about all the shootings lately.
Resler, chief economist at Nomura Securities International Inc. is in for another surprise down the road. As SFH price declines the many citizens of have been serial refiers
will find themselves upside down on their mortgage, in fact the money owed the banks may never come close to market value, creating a fresh group of homeowners ready to turn the keys over to the banks.
the Federal Reserve Board's San Francisco bank yesterday gathered lenders, consumer advocates and fair-housing experts to look for ways to save financially distressed homeowners from foreclosure.
They are beyond saving. Thats not what theyre trying to do! They want to save their own asses (ie squeeze blood from turnips)!
Veteran Fed watcher David Resler, chief economist for Nomura Securities International, said Bernanke's remarks in Chicago Thursday were consistent in another sense.
The problems faced by subprime lenders and borrowers represent an effect, not a cause of the current housing slump, he said.
A reversal in the housing boom would have happened, even if lenders had not loosened lending standards to attract less credit-worth borrowers, Resler said. The housing bubble peaked at the same time that the subprime problem emerged as an issue, he said.
If credit markets outside subprime lending remain stable, as they apparently have, the spillover from subprime lending will be minimal, even as the housing slump persists, Resler said.
(end quote)
People were just out to make a quick buck, and now they are hurting me and many of my neighbors, she said while picking up a dirty plastic bag and a smashed beer can from the yard of the vacant house three doors down from her home.
I want to sell and move to a neighborhood where people are proud of their homes. But all the investor-owned homes have flooded the market, Fisher said.
Nasty isn't it. big bummer if you have extended yourself and now your neighborhood is full of forsale signs and foreclosures. Oh well a new twist to the sticky down side of the housing market.
"Bond guru Bill Gross sees a more dire outcome. The manager of the world's biggest bond fund told CNBC Television on Friday that an increase in rates will decimate the housing market "if they haven't already."
In my opinion, what you will see, contrary to what many believe, is a re-inversion of the 2year Treasury and the 10 year Treasury,...
I would tend to think not. FCBs didn't attend the last T-bill auction and the bond market's suddenly rediscovering risk. A weakening economy isn't dampening inflation, either.
The world is upside down now. Recessions don't automatically translate into lower rates.
So is it official now? Did bloggers, using nothing more than facts and common sense detect this mess coming down the pike while all the economists and business people are being caught by surprise?
This is what will forever mystify me: did they, in all seriousness, miss the boat on this, or are they lying?
All along I've thought they were all just lying (comforting). Now I'm starting to think they actually didn't "know" (scary).
My thinking is that the opinions of all these so-called "learned" economists aren't worth a bucket of warm spit.
The workers in these outsourced industries (ie, furniture) know exactly whats going on and can put their finger on the problems far quicker than Asleep-At-The-Switch, chief economist of Whatever, Inc.
Jeez. Our esteemed economists never caught on to how the shell-game works?
Ten years ago I did a contract at a now-defunct Hewlett Packard division that made servers. The servers were not manufactured in this country, although roughly 40-50 percent of the parts were. Those parts were shipped to an HP plant in Malaysia, where they were assembled along with the remainder of the required parts, which came from Taiwan, China, et al. The factory was considered a bonded site by Malaysia, so no import duties were paid tok Malaysia on those components.
The finished servers were reimported to the U.S. where, because of their approximately 40 percent US component level, they were declared US-made, and no duty was paid -- not even on the parts that were imported from Taiwan and China. So no doubt these servers showed up on stats as 100 percent US made.
That was ten years ago. Imagine what kind of games corporations are playing now with the "US-made" rules. And imagine how little is actually made in the US.
I've written before about the glut of McMansions in Arlington Heights, IL. Today I happened to look in detail at Elmhurst, another Chicago suburb with a convenient rail commute to downtown, and found it even worse.
In 2004, recorded sales* in Elmhurst numbered 879, of which 9 were for a million or above, and 22 above $900k. In 2005 the corresponding numbers were 866, 19, and 43, and in 2006 were 703, 30, and 59.
This year, as of May 4, with a third of the year gone, recorded sales numbered only 167 total, with only four above $1 million, and only 13 above $900k. But the MLS lists 60 homes priced above a million, and 94 above $900k. And though I haven't examined the photos for every one, a sample of about 15 listings indicates that the percentage of these homes that are vacant new construction probably exceeds the 70% I found in Arlington Heights. The 2007 total sales volume of 167 as of 5/4 is a 40% fall from the 277 sales as of 5/4 in 2006, and the drop-off in the high end is even more dramatic, fully 60% in the million-plus range.
Even at the 2006 sales pace, current high-end inventory would be about two years, but with the slowdown is more likely nearly four years. And total MLS inventory of 660 amounts to a year's supply.
If prices could fall without destroying the myth that home prices can only go up, discounts of $400k on the $2 million homes sliding down to $200k for the $900k homes might clear the market. But if the $900k homes drop to $700k, well, all the houses between $900k and $700k have to drop, too, in a chain reaction all the way down to the bottom of the market.
*All figures are for single-family homes plus condos/townhomes (but none of the latter are priced above $900k).
That hasn't happened, partly because...
Isn't one definition of an economist someone who can tell you with absolute certainty why they were wtong?
This is also from the Wall Street Journal. Maybe somebody could explain the reasoning to me:
U.S. consumers cut back on their appetite for foreign cars and television sets in April, shrinking the U.S. trade deficit and prompting forecasters to boost their outlook for economic growth this spring...
To a large extent, the weaker imports reflect the fact that U.S. consumers are tempering their spending habits amid falling home values and high gasoline prices. But a shrinking trade deficit is a plus for U.S. economic growth, because it adds to estimates of the value of goods and services produced on U.S. soil.
Combined with recent upbeat data on manufacturing and business investment, the April trade report "plays well into the economic-rebound scenario," said Joshua Shapiro, chief U.S. economist at consultancy MFR Inc. in New York.
I understand that falling imports improves the GDP as a balance sheet, but that's not an improvement in economic activity. And if consumer spending is such a huge part of the GDP, wouldn't that offset the imports?
Just imagine how fast the economy would rebound if gas were $10 per gallon, home values dropped 75%, and consumers stopped spending completely.
My question is: can consumers replace the foreign goods they are not buying with domestic goods?
A second question is: if a consumer doesn't buy a BMW, aside from improving the balance of payments, does this, in fact, negatively affect the American economy?
My suspicion is that the answer to the last question is: Yes, it negatively affects the American economy.
Greenspan resisted oversight of subprime lending-
Did Greenspan Add to Subprime Woes? - WSJ.com
Also, with the recent rout in corporate bonds and the rising yields, this unnerved market participants, this also sent a message to the lenders that risk is not being properly priced.
In my opinion, what you will see, contrary to what many believe, is a re-inversion of the 2year Treasury and the 10 year Treasury, I think spreads will widen further as the economy weakens going forward (Treasury yields coming back down and corporate, HY in particular, moving higher). I believe that Treasury yields move lower once again, that this remains the top of the range and do not believe the recent comments concerning a further dramatic rout in Treasury yields. The economic backdrop is weaker than the economists believe and this evidence will continue to surface.
Corporate defaults will move markedly higher and the spreads will widen due to the warning shot that this latest move, which caught many off-guard, presented.
Raising margin requirements should be the next move by the regulators, this may be long in the making but, my belief is that you will begin to hear public discussion. The rhetoric surrounding hedge fund legislation is beginning to heat up once again, which in the end, is in the best interest of the public and I believe cannot be ignored.
It will be interesting to see if there is any fallout from the last 4 days in the market, as far as pronounced losses and trading houses caught off-guard.
I've spent time trying to figure out why so many economists keep underestimating the duration of the housing decline. Maybe it's just that they think all serious declines must be driven by unemployment.
On the other hand, it seems evident to me and many of us that housing cannot recover until inventory and prices come down. And the issue here is where the buyers will come from when so much of the pervious buying by speculators (perhaps including second home buyers). Why don't the economists understand that the doubling of prices in many areas simply put homes out of reach of a very high proportion of the public? The other point is that housing busts historically have taken many years to unfold and the previous boom is by far the biggest in US history.
Yesterday I received a mailing asking me to buy "the prudent speculator newletter" which (supposedly) has a very good long term record in stock picking. The only company that they actually mention going forward is the biggest home builder DR Horton (DHI) as a great value, having never had a negative year and with a P/E (presumably trailing) much lower than the S&P 500. I wonder whether they are really bullish on DHI or whether they just want a bump to get rid of their own positions. After all, the P/E of builders is always low, even during the best of times. Any estimates on when the major builders will have two consecutive quarters of earnings positive growth?
I thought CR readers might be interested in the Business week article(s) and graphs regarding import valuation and the potential for overstating GDP.
AC & Arbogast, you're right. Declining imports due to declining (or a shift in) consumer spending has a different overall impact on GDP than continued consumer spending and increasing imports.
If you look at the imports and exports in the latest release, a huge part of the decrease in consumer goods imports was a massive cutback in the import of "pharmaceutical preparations". That may well be related to the Chinese contamination problem, or it may be an overhang because YTD YoY imports of pharmaceutical preparations are up by 4,563 million.
That's Part A Exhibit 8. The April decline in all consumer goods was 1,536 million. Pharmaceutical preparations dropped 1,230 million.
Capital goods ex auto dropped 590 million; autos, engines and parts dropped 1,008 million.
I will be watching May import numbers very carefully.
"My question is: can consumers replace the foreign goods they are not buying with domestic goods?"
In many cases, not. Consumer electronics comes from overseas, save from what is produced just across the border in the maquilodora (sp?) zone. Even production of everyday electromechanical items like ceiling fans now takes place overseas.
But there are a couple of caveats. First,there are a lot of things that people just don't have to buy, and can go without buying for a while. A lot of homes have five TV sets. If one blows, you don't have to replace it if you don't wanna. There's also the used market, and in large metro areas outlets like Craigslist provide an ever more efficient way of moving used goods around.
Finally, a lot of foreign production is actually American production, moved overseas in the past few years either to cash in on cheap labor or to stay competitive with the other guys who cashed in on cheap labor. If there was an overriding economic reason to do so -- influenced by the currency market or by changes in the rules that the U.S. gov't uses to define and control economic activity -- production would start to move back here again. The workers are still here. It's not been that long.
My question is: can consumers replace the foreign goods they are not buying with domestic goods?
It depends.
On the consumer side...
Autos & appliances - absolutely can be made here, most still are.
Components for autos & appliances, mostly 'yes things can be made here' (But things like electrical controls & electric motors not so much).
Electronics & electrical consumer products - no, not at all.
On the industrial & capital side:
Network systems & communications infrastructure - a lot can be made here, even some of the components. Much of it still is made here now.
Actual PCs & such - it is possible they can be ASSEMBLED here, component mfg is & will remain almost all in Asia. Besides final box build, some 'wafer foundry' & 'chip fab' is still in the states... most all final processing & 'packaging' of the processor units is offshore or going offshore though.
Industrial machine tools & heavy cap ex is a mixed bag - a lot of the machines are made in Asia or Europe now (Germany, Switzerland, Japan, Taiwan)... But the custom tooling they are fitted that allows them to do actual work can easily continue to be made here should the dollar decline & our imports slow. Over the life of a machine, the tooling can greatly exceed the dollar value of the machine itself - this isn't trivial stuff.
All said, the ideal situation would be our exports continue to expand and our imports decline - that would be a significant positive delta to GDP. Good high paying jobs associated with these sectors too.
This shift might result in somewhat higher prices but the increase in activity domestically would mean a lot more money in peoples pockets & tend to lift more boats than those who rely on cheap prices.
BTW - cheap consumer consumables (think WalMart & Target) wouldn't change much at all except in terms of the dollar adjustment. Not much of that is ever coming back.
But this whole scenario requires that the 'decoupling theory' hold water. I'm not willing to say there is NO decoupling. OTOH I'm not willing to suggest we are completely decoupled either.
Just another thing to watch.
PE of major builders isn't looking too good right now. For many the number looks like those for every NASD company just before the tech bubble burst, where everyone was supposed to ignore those irrelevant passe metrics. I'd check to see if that newsletter is in some way published by the same guys from Nigeria that need a lot of bank account numbers to dispose of a ton of excess money. Ever see Nigeria?
Musing about recessions... I looked back at prior recessions. Based on prior recession timing, if we get a recession Q4 this year or early next year it could be either short lived, or a couple of quarters of rebound - a mid-recession-cycle-upturn - and then recession to resume.
Remember, 2008 is a Presidential election year and those beasts bring out a lot of $$$ out into circulation.
Mr. Resler does not get it because he is not paid to get it! I doubt if he has ever done something as simple as taking a drive in one of the bubble areas and seen the amount of overbuilding. Does he know there have been 82 lenders who have gone out of business since December, or does he choose to ignore it. In my opinion Mr. Resler is willfully ignorant and blind as well. I am afraid that denial is the most American of traits.
If we can milk it along for a few years, we have a chance of recovery, said Mike Gross, Eestern managing director for Countrywide Home Loans. Otherwise, your business gets wiped out.
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MaxedOutMama said; Capital goods ex auto dropped 590 million; autos, engines and parts dropped 1,008 million.
I will be watching May import numbers very carefully.
If you were a foriegn high cost/value manufacturer and you saw the condition of the US dollar where would you be holding your inventory; Marks & Euros or US denominated pesobucks?
That hasn't happened, partly because inventories of unsold houses have continued to grow
So Mr Resler, would that mean that if inventories are still growing in 2008, or 2009, or 2010, that the housing slump could continue? And you will be "surprised" again? Uh... excuse me... just dot connecting here...
MaxedOutMama-- Thanks for the reference to the Business Week cover story
. That is a very significant story, in my opinion, and will be much discussed in coming weeks. Here's an excerpt:
Here's some more on phantom GDP from the Business Week story:
One more quote from the Business Week article:
Yal:
Moving from assigning blame to looking for solutions to the growing subprime mortgage crisis, the Federal Reserve Board's San Francisco bank yesterday gathered lenders, consumer advocates and fair-housing experts to look for ways to save financially distressed homeowners from foreclosure.
I ask that it not be about blame, not about pointing fingers, said Melody Neva, the bank's Southern California community development manager.
Those accountable are always eager to focus on the future. The solution to the root cause of this problem is to understand the process and hold actors accountable. The Federal Reserve doesn't want anybody thinking too hard about accountability because somebody might connect the dots between making it free to borrow money and the ensuing credit orgy.
The gun manufacturer distributing to the guy selling guns off the sidewalk doesn't want to talk about all the shootings lately.
Resler, chief economist at Nomura Securities International Inc. is in for another surprise down the road. As SFH price declines the many citizens of have been serial refiers
will find themselves upside down on their mortgage, in fact the money owed the banks may never come close to market value, creating a fresh group of homeowners ready to turn the keys over to the banks.
the Federal Reserve Board's San Francisco bank yesterday gathered lenders, consumer advocates and fair-housing experts to look for ways to save financially distressed homeowners from foreclosure.
They are beyond saving. Thats not what theyre trying to do! They want to save their own asses (ie squeeze blood from turnips)!
From th Sothern Illinoisan, 5/20/07
Veteran Fed watcher David Resler, chief economist for Nomura Securities International, said Bernanke's remarks in Chicago Thursday were consistent in another sense.
The problems faced by subprime lenders and borrowers represent an effect, not a cause of the current housing slump, he said.
A reversal in the housing boom would have happened, even if lenders had not loosened lending standards to attract less credit-worth borrowers, Resler said. The housing bubble peaked at the same time that the subprime problem emerged as an issue, he said.
If credit markets outside subprime lending remain stable, as they apparently have, the spillover from subprime lending will be minimal, even as the housing slump persists, Resler said.
(end quote)
My, how times have changed.
People were just out to make a quick buck, and now they are hurting me and many of my neighbors, she said while picking up a dirty plastic bag and a smashed beer can from the yard of the vacant house three doors down from her home.
I want to sell and move to a neighborhood where people are proud of their homes. But all the investor-owned homes have flooded the market, Fisher said.
Nasty isn't it. big bummer if you have extended yourself and now your neighborhood is full of forsale signs and foreclosures. Oh well a new twist to the sticky down side of the housing market.
"Bond guru Bill Gross sees a more dire outcome. The manager of the world's biggest bond fund told CNBC Television on Friday that an increase in rates will decimate the housing market "if they haven't already."
In my opinion, what you will see, contrary to what many believe, is a re-inversion of the 2year Treasury and the 10 year Treasury,...
I would tend to think not. FCBs didn't attend the last T-bill auction and the bond market's suddenly rediscovering risk. A weakening economy isn't dampening inflation, either.
The world is upside down now. Recessions don't automatically translate into lower rates.
So is it official now? Did bloggers, using nothing more than facts and common sense detect this mess coming down the pike while all the economists and business people are being caught by surprise?
This is what will forever mystify me: did they, in all seriousness, miss the boat on this, or are they lying?
All along I've thought they were all just lying (comforting). Now I'm starting to think they actually didn't "know" (scary).
My thinking is that the opinions of all these so-called "learned" economists aren't worth a bucket of warm spit.
The workers in these outsourced industries (ie, furniture) know exactly whats going on and can put their finger on the problems far quicker than Asleep-At-The-Switch, chief economist of Whatever, Inc.
Jeez. Our esteemed economists never caught on to how the shell-game works?
Ten years ago I did a contract at a now-defunct Hewlett Packard division that made servers. The servers were not manufactured in this country, although roughly 40-50 percent of the parts were. Those parts were shipped to an HP plant in Malaysia, where they were assembled along with the remainder of the required parts, which came from Taiwan, China, et al. The factory was considered a bonded site by Malaysia, so no import duties were paid tok Malaysia on those components.
The finished servers were reimported to the U.S. where, because of their approximately 40 percent US component level, they were declared US-made, and no duty was paid -- not even on the parts that were imported from Taiwan and China. So no doubt these servers showed up on stats as 100 percent US made.
That was ten years ago. Imagine what kind of games corporations are playing now with the "US-made" rules. And imagine how little is actually made in the US.
CR is further ahead of the curve than 95% of all economists, most of which have an agenda other than telling the general public the truth.
Duh, right?
I've written before about the glut of McMansions in Arlington Heights, IL. Today I happened to look in detail at Elmhurst, another Chicago suburb with a convenient rail commute to downtown, and found it even worse.
In 2004, recorded sales* in Elmhurst numbered 879, of which 9 were for a million or above, and 22 above $900k. In 2005 the corresponding numbers were 866, 19, and 43, and in 2006 were 703, 30, and 59.
This year, as of May 4, with a third of the year gone, recorded sales numbered only 167 total, with only four above $1 million, and only 13 above $900k. But the MLS lists 60 homes priced above a million, and 94 above $900k. And though I haven't examined the photos for every one, a sample of about 15 listings indicates that the percentage of these homes that are vacant new construction probably exceeds the 70% I found in Arlington Heights. The 2007 total sales volume of 167 as of 5/4 is a 40% fall from the 277 sales as of 5/4 in 2006, and the drop-off in the high end is even more dramatic, fully 60% in the million-plus range.
Even at the 2006 sales pace, current high-end inventory would be about two years, but with the slowdown is more likely nearly four years. And total MLS inventory of 660 amounts to a year's supply.
If prices could fall without destroying the myth that home prices can only go up, discounts of $400k on the $2 million homes sliding down to $200k for the $900k homes might clear the market. But if the $900k homes drop to $700k, well, all the houses between $900k and $700k have to drop, too, in a chain reaction all the way down to the bottom of the market.
*All figures are for single-family homes plus condos/townhomes (but none of the latter are priced above $900k).
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