IMO Duy is more right than wrong. The benefits of a weak dollar are critical right now. A mojor question remains when can it turn around and what would that catalyst be? (I always sucked at currency stuff)
i dunno, the weak dollar may not be enough. how many jogs will we lose in real estate sales, mortgages, title offices, construction, etc? How much piggy bank has been lost as MEW's dry up? what will the people who are inverse in value but still able to pay do -- keep soending or tighten up a bit to get some of their "savings" back? already we hear stories all over about lack of credit availability. what does that stifle? business is starting to talk recession, and the consumer does not look like they are happy to spend as frothily at the retail level. And on and on...
Rates will be cut, the market drops are insuring that outcome. Further deterioration in the ABX provides cover to the Fed, as the workout will need vast oceans of stable liquidity as we retool housing finance in the US.
I don't care what anybody says, what we just had was a bubble, and was unsustainable. Now we need to make a housing finance system that does not emphasize the short term horizon of Wall Street- if this means put it into Fannie and Freddie, then so be it. Obviously, securitization was subject to ridiculous amounts of fraud and abuse.
Now we just wait for more corpses like ML to float to the surface.
Statement of Sheila C. Bair, Chairman, FDIC on Legislative Proposals on Reforming Mortgage Practices, before the Financial Services Committee, U.S. House of Representatives; Oct. 24, 2007 FDIC: Error 404 - Page Not Found
My expectation remains that the US economy will weather the housing rout better than expected, especially given the global pull, particularly from emerging markets."
Global pull of what? We make poor quality crap. Do you honestly think Asians are going to stop buying BMW's and switch to Chevy's? The only "Global pull" is inflation, which is rampid in EM's.
EM countries are in serious trouble. Their banks are stuffed with worthless greenbacks.
The idea of cutting rates to stave off an approaching downturn due to economic problems is a bit like paying a business to retain inferior employees and intentionally keep producing inferior products at the expense of developing new ones.
These rate cuts should worry anyone who has a long-term stake in the US economy (like if you live there).
At this point many see US goods as a bargain. The arbitrage is there between first world nations. For example, the Canadian finance minister is putting public pressure for importers and retailors to lower prices to be competitive. The US is a bargain right now.
We produce nothing of note in this nation anymore aside from: defense systems, some good planes, and questionable cars. Oh, we design lots of random consumer luxuries and export toxic financial products to the world. Heck, we even import FOOD products from China, etc!?
Since we import everything and export nothing, a falling dollar will crush us.
Second, the current economic game is to leverage up until things explode. If rates drop, which is more likely: 1) US companies realize the importance of the middle class, stable jobs, and so forth and create good jobs in America, or 2) greedy executives leverage things right back up to the max, loot some more, and then more things explode later.
Since there is no interest in a healthy economy at the top - they'd be content to have debt serfs living in squalor - rate cuts will accomplish nothing positive.
Almost every country in the world is dependent on exports to the US to support 10-35% of their economic activity. This widely held notion that the global economy will hold up just fine if the 25% share represented by the US consumer slows or goes into reverse strikes me as the second greatest economic myth of this decade - second only to the previously widely held belief that house prices always go up.
"But when I pressed the business community (not realtors they only tell you to wait two months, prices will be on the rise again) on the environment outside of sectors directly tied to housing, I continuously received the same story no problem."
It's been proven in a few places that MEW had a big impact on consumers ability to buy crap. Remember, that as recently as 6 months ago, people could still tap insane equity or get cash back on their new mortgages. It's quite possible that there's still a bit of MEW sitting out there that hasn't left the bank accounts yet (how long does it take to spend $60k for J6P?)
It's also been proven that consumers are tapping their credit cards more and more. (As MEW goes down - coincidence).
So while it may seem "business as usual" outside of housing, IMO, it's a mirage.
To discount MEW and credit card trends is a big mistake.
It's certainl not exports keeping central oregon's economy propped up. What do they make besides maybe apples and tee times?
Nemo does bring up a good point - American technology companies will do well globally with a falling dollar. (the tech company I work for does 60% of our busines outside of the US and our sales are up 12% yoy)
But, can this sector keep the entire US economy out of a recession? Not sure...
I don't know of one signicant tech company in Bend, Detroit, St Louis, Miami, or Flyover, USA...
Bull Insurance is pushed on to the consumer ..try closing your loan with out it..try registering your Auto with out it.. try going to your local Emergency room with out it..and the biggest problem..try collecting from it when you need it.
Insurance is just another American Scam..More money in the coffers..less money in your pocket..so don't tell me its a choice..cause it is not.
borkafatty
your free to...
not sign a mortgage
not drive a car
not have health insurance
The survey has proved conclusively what has long been held theoretically to be true, that wants are insatiable; that one want satisfied makes way for another. The conclusion is that economically we have a boundless field before us; that there are new wants which will make way endlessly for newer wants as fast as they are satisfied It would seem that we can go on forever with increasing activity Our situation is fortunate, our momentum remarkable.
Hoovers Committee on Recent Economic Changes report: 1929
Coke and Pepsi bottlers are reporting declining domestic volume, UPS and FedEx are reporting flat to declining volume domestically, trucking has been saying that business is bad for over a year, the railroads are generally experiencing declining volumes, casual dining chains are mostly losing customer volume, AutoNation predicts that auto sales volume will decline this year and next year, WalMart, which accounts for over 60% of all retail sales, is reporting YoY sales increases below inflation --- the list just keeps increasing.
I don't see any sudden crash going on. But I do believe that CR's MEW hypothesis is essentially correct, and that the housing bubble and associated securitized DD and auto debt bubble infused spending power into the economy and masked increasing consumer difficulties. Now that the bubble is deflating, the underlying trend is taking back over.
Given that we know the credit contraction has some way to run, and that residential and at least retail commercial are overbuilt, I find it impossible to put on my optimist hat and generate a plausible scenario in which the economy doesn't have a difficult patch ahead, even with some rate easing. The only way I can make that work is to produce a Dilbertish Don't-Stand-Where-The-Comet-Strikes-Oil scenario by plugging in the effects of a substantial drop in gas prices. Because RL is not a comic strip, I don't do that.
I don't believe in the mighty crash scenario because I do believe that there are some long term trends which argue strongly against it. I actually believe that some manufacturing and domestic commodity are picking up. I believe that foreign companies who need to maintain access to our domestic economy will be forced to move more production and investment into the US economy to offset our weaker dollar, and I believe the weaker dollar will help exports. Eventually, I believe that small businesses will pick up some talent being freed from larger companies and will experience an expansion as a result.
But I can testify with real knowledge that consumer credit combined with rising costs for basic consumer needs is going to take a bite out of consumer spending for quite a while, and that the radiating effects from that will have a further negative effect on the economy.
And not to be too pessimistic, but in the fall of 2006 the Fed was predicting that housing would pick up in the second half of 2007, and here we are standing in a much deeper hole in the fall of 2007, with the Fed predicting that housing will pick up in the second half of 2008. I'm experiencing some skepticism about this hypothesis, because the inventory overhang keeps getting larger and credit terms are now really beginning to tighten.
So you wonder what happens to a head CEO of a top Mortgage Company..mainly Ameriquest does when everything you worked for (err! stole for) goes belly up.....well how about a nice cushy job being the United States ambassador to the Netherlands with an estimated fortune of $l.5 billion.
Get yourself a throwing bucket cause you will puke when you read this.
The DJIA is still up 8% for the year!?!?! Why the hell is ANYONE saying the "market is in bad shape"? WTF? From '04 - 06, the darn thing was flat. We don't need no stinking rate cute.
my 2 1/2 cents worth, is today's existing home sales all but lock in a 25bps cut. If New homes sales are as bad or worse, bump that up to 50 bps. In that case, US dollar RIP. Gold, commodities continue skyward.
"At his confirmation hearing, Arnall denied being involved in the day-to-day operations at Ameriquest and said the problems were the result of "rogue" employees."
Yeah, and he was the #1 rogue employee.
Also, WTF is Bush thinking about? Talk about being out of touch with reality.
I think if we can hold what we've got long enough to work off the excesses then cool. But if the declines feed on themselves it could get ugly. I propose we tie a knot and hang on.
"Nemo does bring up a good point - American technology companies will do well globally with a falling dollar."
Maybe. For product companies like Apple, you do have to factor in the fact that nearly all their production is overseas, plus a substantial proportion of their parts supplier. So those costs may rise.
On the other hand, the actual cost of manufacture may be so low as a proportion of product price as to be ignorable. There's American companies are in China and corporate profits are so large.
I did get a sort of backward enjoyment special-ordering an Airport Extreme base station from Apple not long ago and monitoring its progress across the globe towards me by air and truck from the factory in Shanghai. My computer equipment is better-traveled than I am.
The DJIA is still up 8% for the year!?!?! Why the hell is ANYONE saying the "market is in bad shape"? WTF? From '04 - 06, the darn thing was flat. We don't need no stinking rate cute.
no bail out | 10.24.07 - 2:38 pm | #
Moody's Investors Service on Wednesday lowered the long-term ratings of Merrill Lynch and Co., to A1 from Aa3, and assigned a negative outlook to the new ratings.
Moody's said the downgrade follows the New York-based financial-services firm's announcement it plans to increase the size of its previously disclosed write-downs in structured credit products and sub-prime mortgages to $7.9 billion from $4.5 billion.
In a statement, the agency said the increase in the provision was "surprisingly large" and supports its view that the firm suffered a risk control failure.
8% OHH! I better jump on board the SS.suckers bet.
The DOW is manipulated, just look at todays roller coaster ride, with all this great new the DOW should be falling off a cliff..yet it holds...It most certainly is not foreign money thats for sure, They are running for the gate.
I don't see how anyone can look at the ARM reset schedule (both subprime and prime), the current worsening trend in delinquencies and foreclosures, and the truly desperate and pathetic (not to mention dishonest) attempt by some financials to form a cadaver company (M-LEC) onto which they can dump their rapidly degrading RMBS paper, and then say all of that will not have a significant and very bad effect on the entire economy.
MOM - "But I can testify with real knowledge that consumer credit combined with rising costs for basic consumer needs is going to take a bite out of consumer spending for quite a while, and that the radiating effects from that will have a further negative effect on the economy."
I can agree with that. Particularly since everyone keeps saying consumer spending accounts for 70% of the American economy. This is not going to be fun, and I'm not sure how much of that increase in business from having a weak dollar is going to be able to counteract a contraction in consumer spending due to the housing ATM going away, overwhelming consumer debt loads, and flat (or declining in real terms) consumer income levels.
Pessimistically I can see the chance of rising inflation (which would normally help relieve the consumer debt load) as probably only bringing stagflation. This is because I don't see any real wage pressure going along with it to help increase wages and, in the end, what the consumer takes home to pay off their debt.
The Fed is going to ease again, but it won't be problemmatic for inflation because it's so low already.
Old topic: I once said that some of the best money-making opportunities involved taking advantage of other people's irrational behavior, to which Tanta replied that she'd gnaw off a limb to escape being my neighbor.
Now is one of those times, IMO, to take advantage and press it for all it's worth, both for stocks and housing.
Ever heard of Cisco? Intel? Apple? Google? Microsoft?
Ever Heard about Huawei, Foxcon, Linux?
Cisco - is just too expensive, even if they cut the price in future it will lower their earnings and you know how stockholders punish those that dont deliver the increase in earnings
Intel - In a suicidal price war with AMD, no further comment
Apple - nice luxury goods, but too expensive, see how it worksout during a slowdown
Google - advertisement machine, lets see their earnings during the slowdown
Microsoft - crawling on knees in EU while nobody wants Vista
this argument is like "there is hollywood, therefore there can be no recesion in california". economy doesnot consist from 5 big companies, us is not korea or japan
Falling dollar great for american companies but at what point is it not so great for the average american? Ah what the heck, as long as the top 1 percent are doing good. If we destroy savings of the few wierdos even better.
Tech companies generating most of their business overseas masks the fact that a tech parts supplier may be supplying to the foreign-based assembly unit of another tech for eventual consumption in the United States. Its difficult to say how much is exactly for foreign consumption.
Surprising new research published by the Federal Reserve Bank of Atlanta concludes that the bulk of the increase was caused by innovations in the mortgage market, in particular the explosion of "piggyback" or "combo" loans that made it possible for people to make small or zero down payments. Young families with little savings flocked to those loans to buy first homes.
Trouble is, lenders aren't making many of those loans anymore because default rates on the smaller, second loans have been extremely high. That means that one of the main props of the housing market has been kicked away. If the homeownership rate drifts back to where it was in 1995, the outlook for housing construction and home prices could turn out even worse than the pessimistic projections.
The bears have been cash for a long time now and certainly aren't jumping in now since all the bad that made them bears is still ahead.
Average Joe may still be buying in his 401k every paycheck, but certainly not at a higher rate that years past. Some like me have probably stopped buying stocks months ago. This wouldn't explain higher prices, volume, and optimism.
It probably isn't foreigners since money in their own market is likely to yield, and has been yielding (especially factoring in the falling dollar) much better returns than the U.S. market.
Perhaps it's all those financials that make money moving money, buying and selling repeatedly with other people's money, generating huge trading fees to offset losses in other sectors.
some people ask "what will the worlds economy do without the 25% part of the usa?"0
well, if the us gdp goes down in a big way and us has a real depresion like gdp-20% it will still be just 5% of the global gdp, yes stocks will hurt and a slowdown in indebted society looks different then in one with the savings. thats why there is a public taboo to say aloud the word "recesion"
Who is driving the market? My guess (and it is only a guess), the ever increasing amount of investment dollars public and private pension funds have, same with insurance companies and lots of foreigners still see the US as the default place to invest.
If anybody has actual, ya know, data , I'd love to see it.
Now is one of those times, IMO, to take advantage and press it for all it's worth, both for stocks and housing.
I'll keep that in mind, Seb, the next time I see homebuilder stocks bounce up meaningfully. Best time to buy puts is when the suckers fall for the old false bottom trap.
Market down, now up; soon got over the vapors. MER writes off 8 billion; house sales drop off a cliff, but why worry? Rogers may say the US is in a recession, but the Dow isn't, so who cares? Tra la la boom d'ay (or something like that).
An old Red Foxx schtick when he played Fred Sanford. When he got news he didn't like he'd simulate a heart attack and call to his late wife. Sorry for the obscurity
I agree that is alot of money flowing non-stop into pension funds, 401k's etc. These have to go somewhere. They are likely habitual buyers and often long-term so are reluctant and unlikely to sell large quantities (more likely to simply reposition).
This means that there is a steady floor of guaranteed buyers.
So, given the slow steady and boringly steady buyers, why so much volitility? Who's doing all the back and forth buying and selling?
I don't think pension fund managers get much income from moving around money.
I really don't think there are many "retail" investors like in 2000.
Virtually everyone agrees that there will be a "slowdown" in the U.S. BUT BUT BUT no recession (they doth protest too much....."I don't know how much we'll slow...but I know it won't be that much") Anyway, why buy now? What's the upside? Why not buy CD's from here?
Average Joe,
I know there are some overseas investors looking for acquisition targets in the US. European instrument and biotech companies are getting gouged by the currency exchange. US companies in those industries are able to both beat their counterparts on price and enhance margins.
Remember also that Sarkozy wants to devalue the Euro, so investments in the US could pay back again when the currencies have more parity.
So, given the slow steady and boringly steady buyers, why so much volitility? Who's doing all the back and forth buying and selling?
Hedge funds, some endowments? Those would be my guesses. Plus, I really don't think things are all that volatile. A 2% move is still considered huge isn't it?
Anyway, why buy now? What's the upside? Why not buy CD's from here?
Because you are smart enough to know you can't successfully time the market equity repeatedly. And you further suppose that over time, risk gtets rewarded and equities will outperfom CD's. So you play the long-term game.
The volumes in equities have been amazing me lately and today takes the cake. The volatility in the DJIA today you'd think it was on monster volume, but they only did moderate volume. Of course the fix was in with the curbs, I'm assuming the rally in the last 90 minutes was short covering.
But the Nasdaq was all over the place on almost twice the volume of the DJIA.
With that kind of intraday whipsawing it's a wonder any small investor would even be in(even permabulls) except for degenerate gamblers.
anyway, i had this feeling that the current crisis will end up in hyperinflation but now i start to think that its not that easily to hyperinflate entire world by one central bank. the fed might try to do that but i doubt very much that the elites in eu, russia, china and japan will go along. one thing is to loose an election, another to loose entire system. "hyperinflation is stuff revolutions are made of"
altough we just had 33% food inflation in my country, so based on the hyperinflation teory of 100% in 3 years, another 2 years of 33% food price increase and we have a inflation from a textbook. the governement statistics can say what they want, people will not believe them.
but since much of the new corn demand is from ethanol and as dryfly said, these corn ethanol factories are not very efficient while there is now just too much ethanol on the market which caused its price to go down 30% who knows. altough one should not forget the demand for pigs in Asia
Correction: a 50% reduction in US consumer discretionary spending would represent less than 4% of world GDP.
Nil | 10.24.07 - 4:14 pm | #
Nil, that is just about the stupidest thing anybody on this blog has ever said. It assumes that if U.S. consumers were to cut back, there would be zero impact in emerging markets that have huge export business with U.S. Get a grip, man.
something long term? and if you imagined that the money were in CDs with interest income atop of it
http://finance.yahoo.com/charts#chart6:symbol=eurusd=x;range=19991022,20071022;compare=^ixic+^gspc+^dji;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined
anyway regarding emerging markets, someone in a discussion on Rgemonitor, i think the woman was from India said that india has just 4% of gdp or something like that in service related industry that could be harmed wqith a slowdown in us. she also described the overall parts of indian economy and it sounded very credible.
Over at citydata.com, where I am a moderator; A family currently in Italy wants to purchase a new home in Connecticut (where I live)
Here is some information in a post they just made;
"I am going to sit out the market for at least a few more months. Countrywide just released it's REO list yesterday. The number of REO increased from 13k to 290k units. In CT alone it went from 75 to 1300."
You cannot have a recession with unemployment at 4.7%.
You cannot have inflation with the long bond at 4.7%, either.
OK so maybe unemployment is a lagging indicator. Point remains: It is way too early to know how this plays out in the big picture. Anyone who thinks they know how the housing catastrophe will affect the broader economy is either a genius or a fool. With the over/under favoring "fool".
Banker, don't make me laugh-
got any AA paper? 6 new lows in Markit tonight including some AA paper. How much money are you going to lose on downgrades? Might want to check what's in your portfolio before you depend on it;-}
Stalingrad? Waaay to early for that one. More like the first pullback after the suburbs of Moscow. This war has a lot more damage to inflict.
I note much talk, and little action so far in making things better on the ground. So the decline in real estate will continue. ABX will be dead shortly, and we will have to find another window into subprime.
As for the dow- Brownian motion baby.
Someday this war's gonna end...
Hey the stockmarket is hardly down at all today. Bad news is good for it. Good news is good for it. Any news is good for it. The stockmarket is magical; it always goes up and hardly ever goes down. Up, up, up....so why worry about some silly houses, or the people who used to be in them?
October 06: Greenspan calls bottom in housing, LBO and Buyback activity is high and growing, earning estimates are in the double digits,
and the dow is about 12500.
October 07: Housing sales are cut in half since Greenspan called the bottom. Now he says no bottom in sight and prices to continue to drop for years. Two major credit crunch events, emergency liquidity by the fed, LBO's failing, SIV's leaking, earning estimates in the low single digits,
You cannot have a recession with unemployment at 4.7%.
You cannot have inflation with the long bond at 4.7%, either.
Anyone who thinks they know how the housing catastrophe will affect the broader economy is either a genius or a fool. With the over/under favoring "fool".
Nemo
It depends on what metric your using. With all the RE people being independent contractors or on commission, these folks don't show up in the baseline employment number.
Go to workforce participation # or the broadest measure of unemployed and it's more than obvious that the unemployment number isn't telling the full story.
In this enviornment, using the 30 year to measure inflation is the indicator of a fool.
To measure the impact of housing on the economy is easy, the duration(beyond the time insensitive term "long") is harder. It will be a drag on GDP for a long while.
But it's well beyond housing's damage, it's now about SIV's and ABCP. The depth is unknown, the duration is unknown and this is wealth destruction, not misallocation of capital.
SAN FRANCISCO (MarketWatch) -- CFC 13.83, -1.22, -8.1%) said late Wednesday that director Henry Cisneros is leaving the board of the mortgage lender to focus on CityView, an urban homebuilding finance company he chairs
Sebastian is simply right. I'll also be long stocks 100% this week.
About pressing chances in multi-family RE market, do we have some experts here? What are general rules in US regarding
- interest rate spread prime owner occupied SFH and multi-family apartment building
- average time of non-occupancy; does 10% sound reasonable
(Particularly in Phoenix area)
Thanks!
Curent multi-family home prices look good to me, but things are probably different from Germany.
Banker, I repeatedly share that quote to my wife; our read of the scale is that it is going down, down, down, and we wonder when the voting is going to catch up.
O-Joe, please, buy lots and lots of stocks and commercial real estate, in AZ and SoCal. There could not be a better time -- to-date during this cycle -- to buy, based on the low volumes and increasing inventory.
Someone needs to start a blog on 'Economic Darwinism in the Lead Up to the Second Great Depresssion,' 'cause I think O-Joe deserves an entry.
Nobody ever talks about the poor unemployed realtors, title clerks, and mortgage brokers who work on no commission. These people are unemployed and will effect the consumer spending at some point when their CCs get maxed out.
My questions were actually sincere. I would base a multi-family house purchase mainly on rental yield. If I get enough (even covering for potential downtimes, reapirs etc.), I would certainly buy... like anybody would. Admittedly, the yields would have to be very good as you can currently make lots of money in the stock market.
Opt-Joe,
I can't answer your specific questions, but one analysis is to:
Take a Schedule E tax form and drop the line items into Excel. Leave out depreciation (for now).
Make one column for what you hope will happen.
Make another column for a fairly bad scenario (i.e.: 70% occupied, high repairs, increases in Property Tax, Insurance, etc.).
Look at the cash income. If it has much chance between the two scenarios of going negative, stop here.
If there is a net income, compare that to your purchase price for a percentage yield and compare the yield to competing investments on a percentage basis.
Do not count on appreciation. Never make a decision based on income tax effects. Factor in an hourly rate for your new job spent in a variety of tasks, including going to court.
Having said that, I'm just some guy on the internet. Take it with a grain of salt to say the least.
"Huh. The market is almost acting like the U.S. has companies outside of finance and housing and are reporting record profits quarter after quarter.
Oooo, that cwazy mawket!"
Memo, Banker, and O-Joe, I'll admit you have the market numbers to justify the market numbers.
Every other number says: "what's the market thinking".
And a question:
If things are so good, why is it that everyone has to reassure us that a recession is unlikely?
When things are really good no one even thinks to bring up the question.
When the job market slows and the consumer dies/slows significantly, the same people who told us that job growth and consumer spending will get us through this, will be first to say why we'll be fine despite them.
Just as I read stuff like "The Communist Manifesto" and "My Life by Emma Goldman" to read what folks on the other side of the political/economic aisle think, I recommend that you read one of the following for a perspective totally different from the one that you have, now: "How to Profit from the Coming Real Estate Bust," "America's Bubble Economy," "Financial Armageddon," or "The Second Great Depression."
I found all of them illuminating and convincing. Much more convincing than Kudlow's data-free columns.
Of course there is a non-trivial chance of recession, which is why everyone is talking about it. Nobody is trying to "reassure" anyone; it's a simple debate about a question to which frankly nobody knows the answer.
If you think recession chances are much more than 50% at this point... Then as I said, you are either a genius or a fool.
It is very easy to draw a conclusion before facts are available, and then focus only on the facts that match your conclusion.
If you put aside all preconceptions, you will find the economic data are very mixed. In short, we have a housing depression which will likely be the worst in history, but we also have global productivity at its highest level and growth rate in history.
We also have land mines of housing derivatives spread throughout the financial system. They are being defused -- or just stepped on by the likes of Merrill Lynch. But that is not "real wealth destruction"; that is paper wealth destruction. The factories are still running, the engineers are still creating, the farmers are still harvesting, and yes, the land and houses are still there.
I am not saying you are wrong. What I am saying is I don't know and neither do you.
If things were good, then you wouldn't get bank lines at the slightest wiff of trouble, you wouldn't get emergency fed liquidity, and you wouldn't get ANYONE to believe, let alone BUY, on a hint of an fed rate cut with a meeting in a week.
Think about that....a rumor today of an emergency pre-meeting cut. Firstly, who would think it would be believed.....and who would believe it? Unless of course they all know the trouble that lies beneath.
It's like a huge car full of people teetering over a cliff, where the slightest move or panic is a self-fulfilling prophecy. I fully expect those in the car to try to calm everyone. Try to convince them that there's no problem. Everything will be OK.
You can learn two things from this:
First, when people are trying to prevent panic and calm others, it's not because things are great.
Second, while I don't blame them for saying there's no reason to panic, it doesn't mean what they are saying is true. There may be a very good reason to panic, but to do so is suicidal.
That's good advice I agree 100% with the statements:
a) never decide based on taxes
b) never decide based on future appreciation (in real estate)
A RE investment has to make sense from a cash-flow perspective. I would be in it for the long term, profiting from rents and not appreciation. I'll have to crunch the numbers a lot more, but the general rule of 120*monthly rent seems to make sense to me.
What's different in Germany is: tenants pay for insurance& taxes, but also strong renter's protection laws regarding increases and expulsions.
JG: don't read stuff that just poisons your mind with endless chains of pseudo-logic. This stuff is one of the reasons why a) the stock market is in strong bull mode and b) the public is in money management funds c) insiders load up on stocks like crazy.
Hey, dryfly, Quaker says you make junk. Care to comment?
Ya LOL, what can you say to that?
I didn't reply sooner 'cause I was running out to overnight prints from a Japanese transplant to a US supplier I work with... and I need the quotes turned around fast (can't easily overnight late in the day from my one horse town - had to drive in closer to the city).
I guess those Japanese want to buy 'crap' 'cause they plan to source the work domestically!
Reality is there is quite a lot of mfg still in the US... though you won't see the results of it at WalMart... but the next time you walk through a clinic, fly a plane, tour a power plant - etc. - check the nameplates and see where the stuff was made. Most all made in USA. Walmart, not so much.
It really is way too diverse an industry to say blanket statements like its booming or its busting - different segments are almost always in different phases all the time.
Domestic mfg is under pressure for sure - especially automotive and housing related (windows, materials and appliances). But stuff related to infrastructure & commodities is booming. Different segments, different phases.
Opt Joe,
I was trying to get you away from the cash-flow model. That is a separate consideration and can be deceptive. Your financing options could include, and even favor, a negative cash flow for a time(an extreme example would be a 10 year fixed mortgage).
So, I'm dropping the principal payment off the monthly analysis and using it in the overall investment analysis.
Sorry, I have to finish some work. Gotta go.
PS: I thought you were in AZ?
Global pull of what? We make poor quality crap. Do you honestly think Asians are going to stop buying BMW's and switch to Chevy's? The only "Global pull" is inflation, which is rampid in EM's. - Quaker
Exactly. A falling dollar will help no one here.
[...]
Since we import everything and export nothing, a falling dollar will crush us. - Pondering the Mess
To Quaker's point...
There are TWO sides of a current account balance - money in and money out. The very fact that we stop buying imports, even if we DON'T make the stuff (just reduce consumption) is a positive from a GDP perspective. ideally they would buy some of our stuff but if that can't be arranged us cutting back because their stuff is too expensive due to weak dollar is at least a half victory.
The less we import under those conditions, the less debt we pile up. A weak dollar is a disciplining factor to help move that doggie along.
To Mess's point...
Again, a falling dollar only crushes us if we continue to consume past our means. If we stop then we don't get crushed.
How is this not like neg am sub-primers? pay the amortization & no problem - don't and get crushed. But unlike sub-primers, nations don't go bankrupt - their currency does.
The only way we get the CA deficit back in line is accept the pain of currency adjustment - the sooner the better.
When the duplexes start selling for 25,000, everyone and their dog will be a landlord Joe. There are empty houses, apartments, condos and townhomes EVERYWHERE... supply and demand kiddo.
The unemployment from the construction downturn will not reflect undocumented workers. I recall reading that money wired to central america was an indirect indicator of that activity level. No hard data to bring to the table, sorry.
Few if anybody is saying "if things are so good." That isn't the question, the question is, I think, its there a near term recession. I think the better economic case exists for a no, but I wouldn't bet the ranch.
Here's a good rule of thumb. The more certain someone is they are correct, the less weight one should assign their opinion.
JG,
Banker, I repeatedly share that quote to my wife; our read of the scale is that it is going down, down, down, and we wonder when the voting is going to catch up.
Nemo, you tell me how many people of the BRICs can afford stuff from these companies. The bottom line is when the US goes into recession these countries and companies will suffer a great deal. Look at inflation in these countries. Look at the average wage. Look at where they get their money. Also, anyone who thinks the geopolitical risks have disappeared are terribly mistaken!
Yet one more sign that the equity markets might be overheating: Margin debt in investor brokerage accounts has reached an all-time high of $321 billion, enough to prompt a warning from securities regulators on the risks of investing with borrowed money.
When a guy at a kids soccer party who works as basically a receptionist tells me he is making tons of money day trading at work with his margin account it reminds me of my friends who were making a killing in 2000 trading at home on their spare time. They are all still working.
Bend and Portland are both getting bad. If you want to check out the latest about the Portland market you can check out my blog.
Portland Housing Blog
Two months things will be ok?
Yup-
IMO Duy is more right than wrong. The benefits of a weak dollar are critical right now. A mojor question remains when can it turn around and what would that catalyst be? (I always sucked at currency stuff)
i dunno, the weak dollar may not be enough. how many jogs will we lose in real estate sales, mortgages, title offices, construction, etc? How much piggy bank has been lost as MEW's dry up? what will the people who are inverse in value but still able to pay do -- keep soending or tighten up a bit to get some of their "savings" back? already we hear stories all over about lack of credit availability. what does that stifle? business is starting to talk recession, and the consumer does not look like they are happy to spend as frothily at the retail level. And on and on...
I bet on minimum stagnant growth...
Health care costs are a major concern to at least me. Also does Duy come from the school of 'this is a new paradigm'
That these third world emerging nations are going to see unlimited growth?
They aid that in the 1920's.
But, Ken Fisher said this was all nothing, just overblown fear. He laughs at the fear-mongers and doom-sayers.
Ken said that there was no housing bubble and that the consumer will be fine.
Actually, Ken Fisher advertises more than any financial shill in history. Must be desperately trying to shill, uh-sell, his book.
Rates will be cut, the market drops are insuring that outcome. Further deterioration in the ABX provides cover to the Fed, as the workout will need vast oceans of stable liquidity as we retool housing finance in the US.
I don't care what anybody says, what we just had was a bubble, and was unsustainable. Now we need to make a housing finance system that does not emphasize the short term horizon of Wall Street- if this means put it into Fannie and Freddie, then so be it. Obviously, securitization was subject to ridiculous amounts of fraud and abuse.
Now we just wait for more corpses like ML to float to the surface.
Someday this war's gonna end....
Statement of Sheila C. Bair, Chairman, FDIC on Legislative Proposals on Reforming Mortgage Practices, before the Financial Services Committee, U.S. House of Representatives; Oct. 24, 2007
FDIC: Error 404 - Page Not Found
I love these fluff comments. "
My expectation remains that the US economy will weather the housing rout better than expected, especially given the global pull, particularly from emerging markets."
Global pull of what? We make poor quality crap. Do you honestly think Asians are going to stop buying BMW's and switch to Chevy's? The only "Global pull" is inflation, which is rampid in EM's.
EM countries are in serious trouble. Their banks are stuffed with worthless greenbacks.
The idea of cutting rates to stave off an approaching downturn due to economic problems is a bit like paying a business to retain inferior employees and intentionally keep producing inferior products at the expense of developing new ones.
These rate cuts should worry anyone who has a long-term stake in the US economy (like if you live there).
What Do Phone Sex & Mortgage Servicing Have in Common?
What Do Phone Sex & Mortgage Servicing Have in Common? - Credit Slips
At this point many see US goods as a bargain. The arbitrage is there between first world nations. For example, the Canadian finance minister is putting public pressure for importers and retailors to lower prices to be competitive. The US is a bargain right now.
Exactly. A falling dollar will help no one here.
Since we import everything and export nothing, a falling dollar will crush us.
Since there is no interest in a healthy economy at the top - they'd be content to have debt serfs living in squalor - rate cuts will accomplish nothing positive.
Almost every country in the world is dependent on exports to the US to support 10-35% of their economic activity. This widely held notion that the global economy will hold up just fine if the 25% share represented by the US consumer slows or goes into reverse strikes me as the second greatest economic myth of this decade - second only to the previously widely held belief that house prices always go up.
"But when I pressed the business community (not realtors they only tell you to wait two months, prices will be on the rise again) on the environment outside of sectors directly tied to housing, I continuously received the same story no problem."
It's been proven in a few places that MEW had a big impact on consumers ability to buy crap. Remember, that as recently as 6 months ago, people could still tap insane equity or get cash back on their new mortgages. It's quite possible that there's still a bit of MEW sitting out there that hasn't left the bank accounts yet (how long does it take to spend $60k for J6P?)
It's also been proven that consumers are tapping their credit cards more and more. (As MEW goes down - coincidence).
So while it may seem "business as usual" outside of housing, IMO, it's a mirage.
To discount MEW and credit card trends is a big mistake.
It's certainl not exports keeping central oregon's economy propped up. What do they make besides maybe apples and tee times?
Quaker: "Global pull of what?"
Ever heard of Cisco? Intel? Apple? Google? Microsoft?
I heard a rumor one or two of them reported earnings recently. Maybe you should go check those out.
Appropriate username, though.
Countrywide: Saving Its Skin And Others As Well?
a bit passed on from janet tavakoli
Nemo does bring up a good point - American technology companies will do well globally with a falling dollar. (the tech company I work for does 60% of our busines outside of the US and our sales are up 12% yoy)
But, can this sector keep the entire US economy out of a recession? Not sure...
I don't know of one signicant tech company in Bend, Detroit, St Louis, Miami, or Flyover, USA...
Bank Regulators Paved Way for Subprime Abuses, Congress to Hear Today at 2 p.m. Hearing
Regulators Paved Way for Loan Abuses, Congress Hears (Update2) - Bloomberg.com
Bull Insurance is pushed on to the consumer ..try closing your loan with out it..try registering your Auto with out it.. try going to your local Emergency room with out it..and the biggest problem..try collecting from it when you need it.
Insurance is just another American Scam..More money in the coffers..less money in your pocket..so don't tell me its a choice..cause it is not.
borkafatty
your free to...
not sign a mortgage
not drive a car
not have health insurance
somewhere, i think many have forgotten this...
The survey has proved conclusively what has long been held theoretically to be true, that wants are insatiable; that one want satisfied makes way for another. The conclusion is that economically we have a boundless field before us; that there are new wants which will make way endlessly for newer wants as fast as they are satisfied It would seem that we can go on forever with increasing activity Our situation is fortunate, our momentum remarkable.
Hoovers Committee on Recent Economic Changes report: 1929
I'm mesmerized by the "no problem" comment.
Coke and Pepsi bottlers are reporting declining domestic volume, UPS and FedEx are reporting flat to declining volume domestically, trucking has been saying that business is bad for over a year, the railroads are generally experiencing declining volumes, casual dining chains are mostly losing customer volume, AutoNation predicts that auto sales volume will decline this year and next year, WalMart, which accounts for over 60% of all retail sales, is reporting YoY sales increases below inflation --- the list just keeps increasing.
I don't see any sudden crash going on. But I do believe that CR's MEW hypothesis is essentially correct, and that the housing bubble and associated securitized DD and auto debt bubble infused spending power into the economy and masked increasing consumer difficulties. Now that the bubble is deflating, the underlying trend is taking back over.
Given that we know the credit contraction has some way to run, and that residential and at least retail commercial are overbuilt, I find it impossible to put on my optimist hat and generate a plausible scenario in which the economy doesn't have a difficult patch ahead, even with some rate easing. The only way I can make that work is to produce a Dilbertish Don't-Stand-Where-The-Comet-Strikes-Oil scenario by plugging in the effects of a substantial drop in gas prices. Because RL is not a comic strip, I don't do that.
I don't believe in the mighty crash scenario because I do believe that there are some long term trends which argue strongly against it. I actually believe that some manufacturing and domestic commodity are picking up. I believe that foreign companies who need to maintain access to our domestic economy will be forced to move more production and investment into the US economy to offset our weaker dollar, and I believe the weaker dollar will help exports. Eventually, I believe that small businesses will pick up some talent being freed from larger companies and will experience an expansion as a result.
But I can testify with real knowledge that consumer credit combined with rising costs for basic consumer needs is going to take a bite out of consumer spending for quite a while, and that the radiating effects from that will have a further negative effect on the economy.
And not to be too pessimistic, but in the fall of 2006 the Fed was predicting that housing would pick up in the second half of 2007, and here we are standing in a much deeper hole in the fall of 2007, with the Fed predicting that housing will pick up in the second half of 2008. I'm experiencing some skepticism about this hypothesis, because the inventory overhang keeps getting larger and credit terms are now really beginning to tighten.
"That leads me to believe that we are not on a runaway rate cut train in the US."
Tell that to the two year note which is (3.70%) at 2.5 yr lows.
Jim Rogers says the US is "undoubtedly" in a recession now. Must be some kind of insane pessimist. Bernanke needs to straighten him out.
I second Turbo's comments.
Just look to Japan at its weakening GDP and falling exports to see the effect of falling U.S. demand.
OT:
So you wonder what happens to a head CEO of a top Mortgage Company..mainly Ameriquest does when everything you worked for (err! stole for) goes belly up.....well how about a nice cushy job being the United States ambassador to the Netherlands with an estimated fortune of $l.5 billion.
Get yourself a throwing bucket cause you will puke when you read this.
Ameriquest in Shambles; Wealthy Founder Serves as U.S. Ambassador - The Blotter
Hey, dryfly, Quaker says you make junk. Care to comment?
The DJIA is still up 8% for the year!?!?! Why the hell is ANYONE saying the "market is in bad shape"? WTF? From '04 - 06, the darn thing was flat. We don't need no stinking rate cute.
Ever heard of Cisco? Intel? Apple? Google? Microsoft?
Not to mention a gang of wheat farmers in the upper mid-west.
Housing nowhere near bottom. Just today when I was driving to work I heard following ad on the radio:
"Buy houses with 0% down and 0 everything. With outpocket expenses less than cup of cappuchino".
I will start seeing bottom when ads like this stop.
my 2 1/2 cents worth, is today's existing home sales all but lock in a 25bps cut. If New homes sales are as bad or worse, bump that up to 50 bps. In that case, US dollar RIP. Gold, commodities continue skyward.
"At his confirmation hearing, Arnall denied being involved in the day-to-day operations at Ameriquest and said the problems were the result of "rogue" employees."
Yeah, and he was the #1 rogue employee.
Also, WTF is Bush thinking about? Talk about being out of touch with reality.
I think if we can hold what we've got long enough to work off the excesses then cool. But if the declines feed on themselves it could get ugly. I propose we tie a knot and hang on.
What circuit breaker? We are going to be all green today. We will have a rate cut tomorrow and another one next week.
if this means put it into Fannie and Freddie, then so be it.
They were both down 7% this morning is that putting it to them? And I helped:-)
"Nemo does bring up a good point - American technology companies will do well globally with a falling dollar."
Maybe. For product companies like Apple, you do have to factor in the fact that nearly all their production is overseas, plus a substantial proportion of their parts supplier. So those costs may rise.
On the other hand, the actual cost of manufacture may be so low as a proportion of product price as to be ignorable. There's American companies are in China and corporate profits are so large.
I did get a sort of backward enjoyment special-ordering an Airport Extreme base station from Apple not long ago and monitoring its progress across the globe towards me by air and truck from the factory in Shanghai. My computer equipment is better-traveled than I am.
The DJIA is still up 8% for the year!?!?! Why the hell is ANYONE saying the "market is in bad shape"? WTF? From '04 - 06, the darn thing was flat. We don't need no stinking rate cute.
no bail out | 10.24.07 - 2:38 pm | #
Did you used to sell new homes?
Moody's Investors Service on Wednesday lowered the long-term ratings of Merrill Lynch and Co., to A1 from Aa3, and assigned a negative outlook to the new ratings.
Moody's said the downgrade follows the New York-based financial-services firm's announcement it plans to increase the size of its previously disclosed write-downs in structured credit products and sub-prime mortgages to $7.9 billion from $4.5 billion.
In a statement, the agency said the increase in the provision was "surprisingly large" and supports its view that the firm suffered a risk control failure.
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
Surprising? WTF
What circuit breaker? We are going to be all green today. We will have a rate cut tomorrow and another one next week.
REBear
190 point down collar worked well today...
that was at 13486.. low was 13470
it's good to know these level's if your active
8% OHH! I better jump on board the SS.suckers bet.
The DOW is manipulated, just look at todays roller coaster ride, with all this great new the DOW should be falling off a cliff..yet it holds...It most certainly is not foreign money thats for sure, They are running for the gate.
I don't see how anyone can look at the ARM reset schedule (both subprime and prime), the current worsening trend in delinquencies and foreclosures, and the truly desperate and pathetic (not to mention dishonest) attempt by some financials to form a cadaver company (M-LEC) onto which they can dump their rapidly degrading RMBS paper, and then say all of that will not have a significant and very bad effect on the entire economy.
MOM - "But I can testify with real knowledge that consumer credit combined with rising costs for basic consumer needs is going to take a bite out of consumer spending for quite a while, and that the radiating effects from that will have a further negative effect on the economy."
I can agree with that. Particularly since everyone keeps saying consumer spending accounts for 70% of the American economy. This is not going to be fun, and I'm not sure how much of that increase in business from having a weak dollar is going to be able to counteract a contraction in consumer spending due to the housing ATM going away, overwhelming consumer debt loads, and flat (or declining in real terms) consumer income levels.
Pessimistically I can see the chance of rising inflation (which would normally help relieve the consumer debt load) as probably only bringing stagflation. This is because I don't see any real wage pressure going along with it to help increase wages and, in the end, what the consumer takes home to pay off their debt.
"Mark Thoma says Tim Duy is losing sleep."
With more reliable indicators comes better sleep.
The Fed is going to ease again, but it won't be problemmatic for inflation because it's so low already.
Old topic: I once said that some of the best money-making opportunities involved taking advantage of other people's irrational behavior, to which Tanta replied that she'd gnaw off a limb to escape being my neighbor.
Now is one of those times, IMO, to take advantage and press it for all it's worth, both for stocks and housing.
Sebastia
For Fun,
I'm not a frequent trader but thanks for the information.
Ever heard of Cisco? Intel? Apple? Google? Microsoft?
Ever Heard about Huawei, Foxcon, Linux?
Cisco - is just too expensive, even if they cut the price in future it will lower their earnings and you know how stockholders punish those that dont deliver the increase in earnings
Intel - In a suicidal price war with AMD, no further comment
Apple - nice luxury goods, but too expensive, see how it worksout during a slowdown
Google - advertisement machine, lets see their earnings during the slowdown
Microsoft - crawling on knees in EU while nobody wants Vista
this argument is like "there is hollywood, therefore there can be no recesion in california". economy doesnot consist from 5 big companies, us is not korea or japan
Falling dollar great for american companies but at what point is it not so great for the average american? Ah what the heck, as long as the top 1 percent are doing good. If we destroy savings of the few wierdos even better.
Cisco? Intel? Apple? Google? Microsoft?
If that is the backbone of the US Stock Market IE: NASDAQ...we are in trouble
Speaking of stock market..HAHAHAH! we are almost in the green....SUCH UTTER BLATANT BULLSHIT!!!!
It just stinks of corruption.
Tech companies generating most of their business overseas masks the fact that a tech parts supplier may be supplying to the foreign-based assembly unit of another tech for eventual consumption in the United States. Its difficult to say how much is exactly for foreign consumption.
"Now is one of those times, IMO, to take advantage and press it for all it's worth, both for stocks and housing."
Excellent idea! New Century shares can be had for $.066 on the pink sheets under the symbol NEWCQ!
Great read!
A Troubled 'Ownership Society'
Surprising new research published by the Federal Reserve Bank of Atlanta concludes that the bulk of the increase was caused by innovations in the mortgage market, in particular the explosion of "piggyback" or "combo" loans that made it possible for people to make small or zero down payments. Young families with little savings flocked to those loans to buy first homes.
Trouble is, lenders aren't making many of those loans anymore because default rates on the smaller, second loans have been extremely high. That means that one of the main props of the housing market has been kicked away. If the homeownership rate drifts back to where it was in 1995, the outlook for housing construction and home prices could turn out even worse than the pessimistic projections.
Hank Reardo
As for the stock market,
Who's driving it?
The bears have been cash for a long time now and certainly aren't jumping in now since all the bad that made them bears is still ahead.
Average Joe may still be buying in his 401k every paycheck, but certainly not at a higher rate that years past. Some like me have probably stopped buying stocks months ago. This wouldn't explain higher prices, volume, and optimism.
It probably isn't foreigners since money in their own market is likely to yield, and has been yielding (especially factoring in the falling dollar) much better returns than the U.S. market.
Perhaps it's all those financials that make money moving money, buying and selling repeatedly with other people's money, generating huge trading fees to offset losses in other sectors.
some people ask "what will the worlds economy do without the 25% part of the usa?"0
well, if the us gdp goes down in a big way and us has a real depresion like gdp-20% it will still be just 5% of the global gdp, yes stocks will hurt and a slowdown in indebted society looks different then in one with the savings. thats why there is a public taboo to say aloud the word "recesion"
Optimistic Joe went all in?
Avg Joe,
Who is driving the market? My guess (and it is only a guess), the ever increasing amount of investment dollars public and private pension funds have, same with insurance companies and lots of foreigners still see the US as the default place to invest.
If anybody has actual, ya know, data
, I'd love to see it.
All California numbers are out:
DQNews - DataQuick Real Estate Headlines and Statistics
im with you Avg Joe...
except i think they are buying and trading on promises of once 3XA rated stuff and SIV's and RE backed crap..
they're playing with figures not money.
Hank Reardo
revro,
well, if the us gdp goes down in a big way and us has a real depresion like gdp-20%
{places one hand over heart and the other in the air}
Elizabeth, I'm coming!
Only 3 counties showed postive yoy numbers
Basel II: Do Big Banks Need More Capital?
Basel II: Do Big Banks Need More Capital? -- Seeking Alpha
Re: making money off others irrational behaviour
Now is one of those times, IMO, to take advantage and press it for all it's worth, both for stocks and housing.
I'll keep that in mind, Seb, the next time I see homebuilder stocks bounce up meaningfully. Best time to buy puts is when the suckers fall for the old false bottom trap.
Banker
i dont get the joke, sry xD can you explain please 
Market down, now up; soon got over the vapors. MER writes off 8 billion; house sales drop off a cliff, but why worry? Rogers may say the US is in a recession, but the Dow isn't, so who cares? Tra la la boom d'ay (or something like that).
revro,
An old Red Foxx schtick when he played Fred Sanford. When he got news he didn't like he'd simulate a heart attack and call to his late wife. Sorry for the obscurity
Get a grip. US consumer discretionary spending represents less than 4% of world GDP.
Get a grip. US consumer discretionary spending represents less than 4% of world GDP.
There in lies the problem..I can not Grasp all this great news in one day...heading off for a drink.
Nil,
what a meaningless and out of context comment.
Nul,
What is the % of world consumer discretionary compared to US GDP?
Banker,
Thanks for the response.
I agree that is alot of money flowing non-stop into pension funds, 401k's etc. These have to go somewhere. They are likely habitual buyers and often long-term so are reluctant and unlikely to sell large quantities (more likely to simply reposition).
This means that there is a steady floor of guaranteed buyers.
So, given the slow steady and boringly steady buyers, why so much volitility? Who's doing all the back and forth buying and selling?
I don't think pension fund managers get much income from moving around money.
I really don't think there are many "retail" investors like in 2000.
Virtually everyone agrees that there will be a "slowdown" in the U.S. BUT BUT BUT no recession (they doth protest too much....."I don't know how much we'll slow...but I know it won't be that much") Anyway, why buy now? What's the upside? Why not buy CD's from here?
Doesn't make sense.
Funny, with the hand in the air I thought of ol' Stonewall Jackson.
Now we shall see what money we have left in reserve to see us through this tough time. In other words, no more house ATM.
That alone is a giant cause of consumer angst. No more Heloc to soften the blows of life.
That should cause a lot of folks to sit up and take notice of consumption that was brought forward due to lax lending, and will now be foregone.
Someday this war's gonna end...
That would be just fine with the boys on the boat...
Average Joe,
I know there are some overseas investors looking for acquisition targets in the US. European instrument and biotech companies are getting gouged by the currency exchange. US companies in those industries are able to both beat their counterparts on price and enhance margins.
Remember also that Sarkozy wants to devalue the Euro, so investments in the US could pay back again when the currencies have more parity.
...must stay green....
...must not show fear...
...always....green....
So this is what those reg23a exemptions were for...
Fred G. Sanford, the G is for Go here
YouTube - Fred Attack
Avg. Joe,
So, given the slow steady and boringly steady buyers, why so much volitility? Who's doing all the back and forth buying and selling?
Hedge funds, some endowments? Those would be my guesses. Plus, I really don't think things are all that volatile. A 2% move is still considered huge isn't it?
Anyway, why buy now? What's the upside? Why not buy CD's from here?
Because you are smart enough to know you can't successfully time the market equity repeatedly. And you further suppose that over time, risk gtets rewarded and equities will outperfom CD's. So you play the long-term game.
Stay long, think long-term, use index funds.
NOTE, THE ABOVE IS NOT INVESTMENT ADVICE.
Correction: a 50% reduction in US consumer discretionary spending would represent less than 4% of world GDP.
The volumes in equities have been amazing me lately and today takes the cake. The volatility in the DJIA today you'd think it was on monster volume, but they only did moderate volume. Of course the fix was in with the curbs, I'm assuming the rally in the last 90 minutes was short covering.
But the Nasdaq was all over the place on almost twice the volume of the DJIA.
With that kind of intraday whipsawing it's a wonder any small investor would even be in(even permabulls) except for degenerate gamblers.
Banker thanks for explanation
anyway, i had this feeling that the current crisis will end up in hyperinflation but now i start to think that its not that easily to hyperinflate entire world by one central bank. the fed might try to do that but i doubt very much that the elites in eu, russia, china and japan will go along. one thing is to loose an election, another to loose entire system. "hyperinflation is stuff revolutions are made of"
altough we just had 33% food inflation in my country, so based on the hyperinflation teory of 100% in 3 years, another 2 years of 33% food price increase and we have a inflation from a textbook. the governement statistics can say what they want, people will not believe them.
but since much of the new corn demand is from ethanol and as dryfly said, these corn ethanol factories are not very efficient while there is now just too much ethanol on the market which caused its price to go down 30% who knows. altough one should not forget the demand for pigs in Asia
Correction: a 50% reduction in US consumer discretionary spending would represent less than 4% of world GDP.
Nil | 10.24.07 - 4:14 pm | #
Nil, that is just about the stupidest thing anybody on this blog has ever said. It assumes that if U.S. consumers were to cut back, there would be zero impact in emerging markets that have huge export business with U.S. Get a grip, man.
Oh, come on Banker; it's late-in-the-day futures purchases that is saving the DJIA/S&P 500.
Today's volume was the heaviest that I've seen since mid-September, and it started very early in the day.
Intraday Futures Prices - Markets Data Center - WSJ.com
But, as we saw last Friday, when enough folks want to sell, the PPT/I-banking cabal has insufficient capital to save the market.
The slow, painful torture by a thousand needlesticks continues, and will end in the sudden, violent expiration of the patient, soon.
When I read this, I thought of the field promotions in the Wehrmacht as the Russians closed in on Stalingrad:
Goldman Names 299 New Managing Directors, Most Ever (Update1) - Bloomberg.com
jg,
What is your complaint with me? On a thread last night post Merrill's announcement, I called for a down 2% day.
The slow, painful torture by a thousand needlesticks continues, and will end in the sudden, violent expiration of the patient, soon.
OK so THIS time the sky really is gonna fall? Soon? I'll mark my calendar and get the caretaker to open up and prepare the BankerDome.
something long term?
and if you imagined that the money were in CDs with interest income atop of it
http://finance.yahoo.com/charts#chart6:symbol=eurusd=x;range=19991022,20071022;compare=^ixic+^gspc+^dji;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined
anyway regarding emerging markets, someone in a discussion on Rgemonitor, i think the woman was from India said that india has just 4% of gdp or something like that in service related industry that could be harmed wqith a slowdown in us. she also described the overall parts of indian economy and it sounded very credible.
Over at citydata.com, where I am a moderator; A family currently in Italy wants to purchase a new home in Connecticut (where I live)
Here is some information in a post they just made;
"I am going to sit out the market for at least a few more months. Countrywide just released it's REO list yesterday. The number of REO increased from 13k to 290k units. In CT alone it went from 75 to 1300."
You cannot have a recession with unemployment at 4.7%.
You cannot have inflation with the long bond at 4.7%, either.
OK so maybe unemployment is a lagging indicator. Point remains: It is way too early to know how this plays out in the big picture. Anyone who thinks they know how the housing catastrophe will affect the broader economy is either a genius or a fool. With the over/under favoring "fool".
Banker, don't make me laugh-
got any AA paper? 6 new lows in Markit tonight including some AA paper. How much money are you going to lose on downgrades? Might want to check what's in your portfolio before you depend on it;-}
Products and Services Overview
Stalingrad? Waaay to early for that one. More like the first pullback after the suburbs of Moscow. This war has a lot more damage to inflict.
I note much talk, and little action so far in making things better on the ground. So the decline in real estate will continue. ABX will be dead shortly, and we will have to find another window into subprime.
As for the dow- Brownian motion baby.
Someday this war's gonna end...
Hey the stockmarket is hardly down at all today. Bad news is good for it. Good news is good for it. Any news is good for it. The stockmarket is magical; it always goes up and hardly ever goes down. Up, up, up....so why worry about some silly houses, or the people who used to be in them?
October 06: Greenspan calls bottom in housing, LBO and Buyback activity is high and growing, earning estimates are in the double digits,
and the dow is about 12500.
October 07: Housing sales are cut in half since Greenspan called the bottom. Now he says no bottom in sight and prices to continue to drop for years. Two major credit crunch events, emergency liquidity by the fed, LBO's failing, SIV's leaking, earning estimates in the low single digits,
And the dow is at 13500.
Markets are "rational", and "forward looking".
Oh, Banker, we are like the five blind men examining the camel: all 'seeing' the same data and reaching different conclusions from it.
I've got my bet placed based on my read of the camel.
AvgJoe,
Remember Ben Graham
"In the short-term the market is a voting machine, in the long term a weighing machine."
Average Joe --
Huh. The market is almost acting like the U.S. has companies outside of finance and housing and are reporting record profits quarter after quarter.
Oooo, that cwazy mawket!
Actually the market turned around today on the rumor the Fed was going to make an inter day rate cut.
You cannot have a recession with unemployment at 4.7%.
You cannot have inflation with the long bond at 4.7%, either.
Anyone who thinks they know how the housing catastrophe will affect the broader economy is either a genius or a fool. With the over/under favoring "fool".
Nemo
It depends on what metric your using. With all the RE people being independent contractors or on commission, these folks don't show up in the baseline employment number.
Go to workforce participation # or the broadest measure of unemployed and it's more than obvious that the unemployment number isn't telling the full story.
In this enviornment, using the 30 year to measure inflation is the indicator of a fool.
To measure the impact of housing on the economy is easy, the duration(beyond the time insensitive term "long") is harder. It will be a drag on GDP for a long while.
But it's well beyond housing's damage, it's now about SIV's and ABCP. The depth is unknown, the duration is unknown and this is wealth destruction, not misallocation of capital.
And financials make up how much of the S&P500?
Uh-huh:
SAN FRANCISCO (MarketWatch) -- CFC 13.83, -1.22, -8.1%) said late Wednesday that director Henry Cisneros is leaving the board of the mortgage lender to focus on CityView, an urban homebuilding finance company he chairs
Sebastian is simply right. I'll also be long stocks 100% this week.
About pressing chances in multi-family RE market, do we have some experts here? What are general rules in US regarding
- interest rate spread prime owner occupied SFH and multi-family apartment building
- average time of non-occupancy; does 10% sound reasonable
(Particularly in Phoenix area)
Thanks!
Curent multi-family home prices look good to me, but things are probably different from Germany.
O-Joe
You cannot have a recession with unemployment at 4.7%.
Unemployment was 3.9% at the beginning of the Great Depression.
My what a timely piece.
UCLA View: Factories Trump Housing. No Recession.
We shall see.
Banker, I repeatedly share that quote to my wife; our read of the scale is that it is going down, down, down, and we wonder when the voting is going to catch up.
O-Joe, please, buy lots and lots of stocks and commercial real estate, in AZ and SoCal. There could not be a better time -- to-date during this cycle -- to buy, based on the low volumes and increasing inventory.
Someone needs to start a blog on 'Economic Darwinism in the Lead Up to the Second Great Depresssion,' 'cause I think O-Joe deserves an entry.
the garbage train.
TXU Sells $7.5 Billion of Junk Bonds, Most Since 1989 (Update1) - Bloomberg.com
Nobody ever talks about the poor unemployed realtors, title clerks, and mortgage brokers who work on no commission. These people are unemployed and will effect the consumer spending at some point when their CCs get maxed out.
JG,
My questions were actually sincere. I would base a multi-family house purchase mainly on rental yield. If I get enough (even covering for potential downtimes, reapirs etc.), I would certainly buy... like anybody would. Admittedly, the yields would have to be very good as you can currently make lots of money in the stock market.
O-Joe
Not to be political
Countdown over at MSNBC-Kieth Olbermann
called the New Fox Business channel 'FBN'......Fascist Business Network
sort of ties in with
Economic Darwinism in the Lead Up to the Second Great Depression,' 'cause I think O-Joe deserves an entry.
O-Joe, boy, that junk you're getting to cram in that crackpipe must be a lot stonger in Germany. That's where the bull market is.
Opt-Joe,
I can't answer your specific questions, but one analysis is to:
Do not count on appreciation. Never make a decision based on income tax effects. Factor in an hourly rate for your new job spent in a variety of tasks, including going to court.
Having said that, I'm just some guy on the internet. Take it with a grain of salt to say the least.
WSJ - BofA Is Set To Shake Up Investment Bank Layoff 3,000
BofA's Wall Street Retreat - WSJ.com
Nemo said,
"Huh. The market is almost acting like the U.S. has companies outside of finance and housing and are reporting record profits quarter after quarter.
Oooo, that cwazy mawket!"
Memo, Banker, and O-Joe, I'll admit you have the market numbers to justify the market numbers.
Every other number says: "what's the market thinking".
And a question:
If things are so good, why is it that everyone has to reassure us that a recession is unlikely?
When things are really good no one even thinks to bring up the question.
When the job market slows and the consumer dies/slows significantly, the same people who told us that job growth and consumer spending will get us through this, will be first to say why we'll be fine despite them.
Crammer's take is such where "after all of the 50 b.p.'s cuts we will look back at this speed-bump and smile."
"This is not 1990, go high growth."
Why not only 7 stocks in the Nas are holding up the index anyway; you dont want to know the valuation.
This war will end badly!
O-Joe, you seem like a nice, sincere person.
Just as I read stuff like "The Communist Manifesto" and "My Life by Emma Goldman" to read what folks on the other side of the political/economic aisle think, I recommend that you read one of the following for a perspective totally different from the one that you have, now: "How to Profit from the Coming Real Estate Bust," "America's Bubble Economy," "Financial Armageddon," or "The Second Great Depression."
I found all of them illuminating and convincing. Much more convincing than Kudlow's data-free columns.
Average Joe --
Of course there is a non-trivial chance of recession, which is why everyone is talking about it. Nobody is trying to "reassure" anyone; it's a simple debate about a question to which frankly nobody knows the answer.
If you think recession chances are much more than 50% at this point... Then as I said, you are either a genius or a fool.
It is very easy to draw a conclusion before facts are available, and then focus only on the facts that match your conclusion.
If you put aside all preconceptions, you will find the economic data are very mixed. In short, we have a housing depression which will likely be the worst in history, but we also have global productivity at its highest level and growth rate in history.
We also have land mines of housing derivatives spread throughout the financial system. They are being defused -- or just stepped on by the likes of Merrill Lynch. But that is not "real wealth destruction"; that is paper wealth destruction. The factories are still running, the engineers are still creating, the farmers are still harvesting, and yes, the land and houses are still there.
I am not saying you are wrong. What I am saying is I don't know and neither do you.
Proof,
If things were good, then you wouldn't get bank lines at the slightest wiff of trouble, you wouldn't get emergency fed liquidity, and you wouldn't get ANYONE to believe, let alone BUY, on a hint of an fed rate cut with a meeting in a week.
Think about that....a rumor today of an emergency pre-meeting cut. Firstly, who would think it would be believed.....and who would believe it? Unless of course they all know the trouble that lies beneath.
It's like a huge car full of people teetering over a cliff, where the slightest move or panic is a self-fulfilling prophecy. I fully expect those in the car to try to calm everyone. Try to convince them that there's no problem. Everything will be OK.
You can learn two things from this:
First, when people are trying to prevent panic and calm others, it's not because things are great.
Second, while I don't blame them for saying there's no reason to panic, it doesn't mean what they are saying is true. There may be a very good reason to panic, but to do so is suicidal.
Lama,
That's good advice I agree 100% with the statements:
a) never decide based on taxes
b) never decide based on future appreciation (in real estate)
A RE investment has to make sense from a cash-flow perspective. I would be in it for the long term, profiting from rents and not appreciation. I'll have to crunch the numbers a lot more, but the general rule of 120*monthly rent seems to make sense to me.
What's different in Germany is: tenants pay for insurance& taxes, but also strong renter's protection laws regarding increases and expulsions.
JG: don't read stuff that just poisons your mind with endless chains of pseudo-logic. This stuff is one of the reasons why a) the stock market is in strong bull mode and b) the public is in money management funds c) insiders load up on stocks like crazy.
O-Joe
O-Joe, please also keep in mind that rents will be going DOWN here for a very very long time.
O-Joe, please also keep in mind that rents will be going DOWN here for a very very long time.
Average Citizen
Well, they just went up by 10% over one year. How would that trend suddenly turn around that drastically?
O-Joe
Hey, dryfly, Quaker says you make junk. Care to comment?
Ya LOL, what can you say to that?
I didn't reply sooner 'cause I was running out to overnight prints from a Japanese transplant to a US supplier I work with... and I need the quotes turned around fast (can't easily overnight late in the day from my one horse town - had to drive in closer to the city).
I guess those Japanese want to buy 'crap' 'cause they plan to source the work domestically!
Reality is there is quite a lot of mfg still in the US... though you won't see the results of it at WalMart... but the next time you walk through a clinic, fly a plane, tour a power plant - etc. - check the nameplates and see where the stuff was made. Most all made in USA. Walmart, not so much.
It really is way too diverse an industry to say blanket statements like its booming or its busting - different segments are almost always in different phases all the time.
Domestic mfg is under pressure for sure - especially automotive and housing related (windows, materials and appliances). But stuff related to infrastructure & commodities is booming. Different segments, different phases.
Opt Joe,
I was trying to get you away from the cash-flow model. That is a separate consideration and can be deceptive. Your financing options could include, and even favor, a negative cash flow for a time(an extreme example would be a 10 year fixed mortgage).
So, I'm dropping the principal payment off the monthly analysis and using it in the overall investment analysis.
Sorry, I have to finish some work. Gotta go.
PS: I thought you were in AZ?
Here are a couple of my favorites...
Global pull of what? We make poor quality crap. Do you honestly think Asians are going to stop buying BMW's and switch to Chevy's? The only "Global pull" is inflation, which is rampid in EM's. - Quaker
Exactly. A falling dollar will help no one here.
[...]
Since we import everything and export nothing, a falling dollar will crush us. - Pondering the Mess
To Quaker's point...
There are TWO sides of a current account balance - money in and money out. The very fact that we stop buying imports, even if we DON'T make the stuff (just reduce consumption) is a positive from a GDP perspective. ideally they would buy some of our stuff but if that can't be arranged us cutting back because their stuff is too expensive due to weak dollar is at least a half victory.
The less we import under those conditions, the less debt we pile up. A weak dollar is a disciplining factor to help move that doggie along.
To Mess's point...
Again, a falling dollar only crushes us if we continue to consume past our means. If we stop then we don't get crushed.
How is this not like neg am sub-primers? pay the amortization & no problem - don't and get crushed. But unlike sub-primers, nations don't go bankrupt - their currency does.
The only way we get the CA deficit back in line is accept the pain of currency adjustment - the sooner the better.
When the duplexes start selling for 25,000, everyone and their dog will be a landlord Joe. There are empty houses, apartments, condos and townhomes EVERYWHERE... supply and demand kiddo.
I did my duty to try to save O-Joe, and to prevent him from showing up on the 'Economic Darwinism' list.
My soul is at peace, now.
The unemployment from the construction downturn will not reflect undocumented workers. I recall reading that money wired to central america was an indirect indicator of that activity level. No hard data to bring to the table, sorry.
Dryfly,
You made a good market call last night
Me? Not so much.
Apartment rents in AZ have gone down in the last 6 months as it's cheaper to rent a SFH from an underwater flipper.
Do a search @ azcentral.com , should be within the last 2 weeks.
Avg Joe,
Few if anybody is saying "if things are so good." That isn't the question, the question is, I think, its there a near term recession. I think the better economic case exists for a no, but I wouldn't bet the ranch.
Here's a good rule of thumb. The more certain someone is they are correct, the less weight one should assign their opinion.
JG,
Banker, I repeatedly share that quote to my wife; our read of the scale is that it is going down, down, down, and we wonder when the voting is going to catch up.
I think you misunderstand the quote.
You made a good market call last night
Luck. No, make that 'dumb luck'...
Quaker: "Global pull of what?"
Ever heard of Cisco? Intel? Apple? Google? Microsoft?
I heard a rumor one or two of them reported earnings recently. Maybe you should go check those out.
Appropriate username, though.
Nemo | Homepage | 10.24.07 - 2:08 pm | #
Nemo, you tell me how many people of the BRICs can afford stuff from these companies. The bottom line is when the US goes into recession these countries and companies will suffer a great deal. Look at inflation in these countries. Look at the average wage. Look at where they get their money. Also, anyone who thinks the geopolitical risks have disappeared are terribly mistaken!
When the US consumer peters out its over.
The perfect storm is coming.
PS Last time I checked the EU is also in bad shape with debt and housing.
Yet one more sign that the equity markets might be overheating: Margin debt in investor brokerage accounts has reached an all-time high of $321 billion, enough to prompt a warning from securities regulators on the risks of investing with borrowed money.
Mad Money Is Piling Into Margin Accounts - Forbes.com
When a guy at a kids soccer party who works as basically a receptionist tells me he is making tons of money day trading at work with his margin account it reminds me of my friends who were making a killing in 2000 trading at home on their spare time. They are all still working.