This is the same DataQuick that wrote this in its recent report on Souther California housing:
"Indicators of market distress continue to move in different directions. Foreclosure activity is at record levels, financing with adjustable-rate mortgages or with multiple mortgages has dropped sharply. Down payment sizes and flipping rates are stable, non-owner occupied buying activity is edging up, DataQuick reported. "
Market distress? Well, there's good news and bad news.
Foreclosures? Yeah, that's bad.
But look at the bright side: not as many people are buying multiple properties with 0% down Option ARMs with the intent to flip in 2 months.
The problem this year will be the vicious cycle of foreclosures leading prices down, leading to more foreclosures, leading prices down. It will take on a momentum that no amount of rate cuts or hype will stop.
It's hard to imagine, but this year will probably be worse.
It's easy to imagine, considering how overvalued homes were, how much credit has tightened, and the current trends in employment and the economy. It's just not a pleasant thing to imagine.
Re: The Fed said it was cutting the federal funds rate, the interest that banks charge each other on overnight loans, to 3.5 percent, down by three-fourths of a percentage point from 4.25 percent.
Does Washington really think lower these rates will solve this foreclosure problem or the impending amount of future foreclosures that are on the way? This foreclosure story is obviously directly related your previous story on people walking away, which is related to a lack of regulation in the first place! These foreclosure problems are not going to go away and get better by tossing pennies at trillion dollar losses. The Fed is focused on wallstreet as a mechanism to be used to help this problem, when in fact, wallstreet is the problem! The Fed is pouring gas on a forest fire; ok, for you people that need a picture of whats going on try this: Oil well fires are more difficult to extinguish than regular fires due to the enormous fuel supply for the fire. Firefighters who are specially trained to deal with oil fires are usually hired to extinguish oil fires. There are several techniques used to put out oil well fires, which vary by resources available and the characteristics of the fire itself.
You know it's getting bad when DQ can't spin a positive out of this story. Prentice has been one of the last RE holdouts in the Lereah/Yun/Watts polyanna mode.
There will be no escaping the reality of the accelerating CA housing bust - no way to spin data this bad.
Easy to imagine... sub-prime ARM resets don't peak until March 08, then by summer, the wave of Option ARMS starts.
This year, what's left of the middle class will discover the joys of walking away from a depreciating asset.
Which technique do you think The Fed is using today?
Techniques include:[1]
Dousing with copious amounts of water
Raising the plume- Inserting one metal casing 30 to 40 feet high over the well head (thus raising the flame above the ground). Liquid nitrogen or water is then forced in at the bottom to reduce the oxygen supply and put out the fire.
Drill relief wells to redirect the oil and make the fire smaller (and easier to extinguish with water).
Using a jet engine to direct high pressure water and air over the well.
Using dynamite to 'blow out' the fire by blasting fuel and oxygen from the flame and consuming oxygen in the combustion.[2]
Dry Chemical(mainly Purple K) can be used on small well fires such as those in refineries.
Special vehicles called "Athey wagons" as well as the typical bulldozer protected by corrugated steel sheeting are normally used in the process.[3]
I think the solution is a Paul Volker-like reality where someone in authority tells wallstreet to go to hell and then: dynamite to 'blow out' the fire by blasting fuel and oxygen from the flame and consuming oxygen in the combustion
Eagan-based Buffets Holdings Inc., the second- largest family restaurant operator in the U.S., filed a Chapter 11 petition today in Delaware along with 17 affiliates, listing $964 million in assets against debt of $1,156 million.
Buffets operates under the names Old Country Buffet, HomeTown Buffet, Ryan's and Fire Mountain.
Buffets blamed the filing on a "marked decline in discretionary spending" by consumers. Although the company was in restructuring negotiations with its secured lenders and bondholders, Buffets said it was required to file as a consequence of a decline in liquidity
Slightly off topic, but the big story people are missing today is TARGET. They just announced they would be at the lower end of their range for january sales, and that range was -1% to 1%. And this comes after a grim December for them. So, if you want to know what BB is looking at, this is it. Consumer capitulation, which, if the stock market were to get routed further, would take this already bad trend, and hit it even harder. BB knows you cant have a consumer cave at this point, or it's lights out US economy, and batten down the hatches world economy...that's when you look into the abyss, and nothing looks back.
But the NAR said that all real estate is local (despite the almost worldwide surge in RE prices), that real estate never goes down (they're not making any more land, you know), and that it was a great time to buy (buy now or be priced out forever). And Suzanne researched it! So how could this happen? /sarcasm
I think the vast majority of my fellow Californians are going to be shocked by how far prices fall in CA. It just seems so inconceivable to them that prices could fall 30+% from the peak (I think here in OC we're looking at 40+%, but that's just my WAG). I'm sure that we'll hear bottom callers for quite some time, but the bottom is a long ways away.
Good money after bad by the hedge funds. These shenanigans are just showing the world how corrupt and rigged our markets are. When this is all said and done the USA stock exchanges will have no credibility.
You can call the bottom all you want, but it would take a very large wave of buyers to change the downward momentum on prices. Most likely, you get a few people here and there thinking it's time to jump in, and as they are slowly converted to knife catchers, they breed timidity in the next group of fools who try. You can read about these people each month when you see that ANY homes were sold in S CA at all.
Borrow from foreign governments to give 'middle class' Americans money to buy foreign products.
REBear | 01.22.08 - 2:40 pm | #
Yup. I think its winding down via a weak dollar... but we won't know until we see the response from Asian SWF & CBs... if they step back in to 'prop up' the dollar then this silliness could go on a lot longer.
Munis loose AAA status [Sorry if this was already posted]. Rest assured most will now be paying a bit more for urban renewal or local programs whatever the fed. rate is. And, what a pension manger going to do?
Because of the downgrade of Ambac, Fitch cut the ratings of 757 bonds to "AA+" from "AAA" to match the underlying municipal rating. Another 4,234 were downgraded to "AA" from "AAA" to match the underlying rating. Fitch left 261 bonds at "AAA" because the underlying rating was also "AAA."
About 132,000 municipal bonds were downgraded to "AA" from "AAA" because either the underlying rating was below Ambac's new rating of there was no underlying rating at all. All of those bonds are also on negative watch because Ambac is still on negative watch.
The truly alarming number is the percentage of NOD that are devolving into NOTS.
For the people in the previous thread who were sanguine about homemoaners walking when only 10% underwater I offer the following. It isn't the current 10%, it is the prospect of the next 10% or even 0% drop. For a decade the monthly mortgage payment minus appreciation was less than zero. Now, the prospect of even 2-3 years of 0% appreciation isn't the issue. These people are environmentally conditioned to perceive 0% appreciation as wasting the mortgage payment. This is their twisted logic; "$2k/mo mortgage for the next 24 months so that I can end up down 10% ($25k equity+$48k payments=$73k)? Alternative, not pay $2k/mo for the next 6 months and rent for $1k per month for a loss of far less." Their breakeven is at least many years in the future.
Try as may there is only one solution to high prices. These people paid too much on a term contract. There is no break that makes their price paid make sense. Like so many problems we are about to face sc-fi got there first. Google 'The Cold Equations."
hence my tale of tar-j...a something burger, fat and greasy.
Geoff | 01.22.08 - 2:42 pm | #
LOL. I thought Target was in for a fall... you only need so much 'Cheap Chic' before you have to call in a dumpster. Those dumpsters cost money even if the crap from Target doesn't.
BTW - prices at Target had been going up (they most not flog their Asian slaves as much or as hard as Wally does - 'Minnesota Nice' I guess).
John - that is a gift to you my man, do not look it in the mouth. Until this cut, there was little room to short that crap, now, you can enjoy the fruits of Ben's futile labors.
Is there some way to gauge how this is screwing responsible borrowers who are paying less-than-optimal rates on their responsible loans? I gotta imagine they're getting screwed somehow - at least in an opportunity cost way.
John Stark ...the Regulators are now working w/ them.
And this is a true visit to the confessional:
NEW YORK (Reuters) - The largest U.S. housing finance companies, Freddie Mac and Fannie Mae, may report $16 billion in write-downs for the fourth quarter due to the falling value of their subprime mortgage investments, according to Credit Suisse analysts
I agree, bad news for OCB employees. Bad news for those who have OCB for their Friday or weekend out. I grew up very, very poor, and I still remember going once or twice to the Jolly Troll Smorgasbord on Lake and Hennepin in Minneapolis and eating until it hurt.
But not exactly a customer demographic that will resist the downturns of the economy.
That is a sign of problems still to come--much of the recent growth has happened in consumer sectors with some discretionary money left in their incomes. When the discretionary money disappears, places like OCB will go.
Debt is good, that writedown creates value and helps the companies grow faster, helps add scale and is a good thing; more debt more leverage, because no one has to pay for anything anymore, this is new social ownership society. Can I lend you money? Do you need cash?
Well the next hour should tell what the market really thinks of the Fed's cut today. The markets true direction usually manifests itself in the last hour, when the market becomes more of a real, cash investor affair. I was a buyer out of the gate this morning, but I also honestly expect better levels to add down the road.
Request for CR or Tanta,
Since you folks probably have the data, could you do a guestimation on the amount of the money being saved by consumers as a result of variable rate mortgage resets due to fed rate cuts and treasury yield declines?
tia
david
I still hope somebody can tell me why MBIA and Ambac stock is up so far today. What's cookin'? Who's piggin' out at the monoline buffet?
John Star,
I said in the other thread that it looked like the same pattern that has happened when the quant long/short funds had to unwind quickly because they were blowing up. If so, just hold your shorts. In the past, things returned to normal pretty fast after the unwinds.
The long/short quant funds buy good stocks and short bad ones. When they screw up, they have to sell good stocks and buy back bad ones like MBIA and ABK.
"the big story people are missing today is TARGET. They just announced they would be at the lower end of their range for january sales"
What you people don't realize is that the market is a forward discounting mechanism. RTH is levitating, so the efficient market is clearly and reliably predicting a big turnaround for retailers. I have expressed it in the form of an equation for those of you who consider yourself "quants."
The only new housing selling in my area of Southern Calif is what is priced below $417. Fed and Fannie are pricing loans based upon spreads and not on the risk to lending in an environment of falling asset prices.
Think about it, how in the world can you have rates at 6% when prices are rising (as they were a couple of years ago) and then still have 6% rates on the way down? The risks are not even close to the same?
Fed and Fannie are artifically keeping the cost of loans low. They should be 8% or more on people maxing out to buy a depreciating asset.
The true fall out is when Fannie and Freddie fail or crash. Any "private" bank that has to compete with them can't make a profit. Until they are forced to charge for risk we're never gonna see the end of this.
Re: RTH is levitating, so the efficient market is clearly and reliably predicting a big turnaround for retailers
Bill Gross also seeks investors with cash and a recession in Asia is clearly not going to be helpful to either interests! Cash dude, where were you last night?
Off Topic so sue me.
To see marketing in action go to: Dream House Raffle to Benefit Community Action Marin to buy tickets for a raffle of a 2.1 million house or accept 1.7million in cash.
Not sure of the how or why of this as the proceeds are to go to a non-profit.
More than likely a big tax scam wrapped up in it somewhere.
CR, how dare you abdicate your fiduciary responsibility to the rest of the brainwashed masses - house prices are the counterbalancing force to Republican tax cuts!
Could someone with great quantitative expertise --like albrt-- explain why shares of companies like JNJ or KO are going down today while BAC and WB go up? These are the guys that just said "we barely made any money and have still to deal with all the jingle mail"
Rates are pretty sweet right now,Indymac is offering 4.87% on a 15 year fixed,and 5 3/8 % on a 30 year fixed with no points.If you bought in 2003 or before with 20% down in sonoma county you probably won't have to bring $ to the table.Probably.
Yeah, I dont see a solution to this mess. Know matter what bernanke does with interest rates, its the appraised value of the home that determine whether a homeowner can refinance or not.
For Bush's State of the Union address, I bet he will just tout his Republican tax cuts, or how the economy is still strong and robust.
If I was more inclined to fiction, I would actually be more giddy to it, along with watching a Mike Tyson match, or "The Hottie and the Nottie". 0 credibility...
Bill Poole is a SHAME!! He's SHAMEFUL!!!!!! He has NO IDEA what it's like out there!!!! My people have been in this business for TWENTY FIVE YEARS AND THEY ARE LOSING THEIR JOBS AND HE'S NUTS, THEY'RE NUTS!!!!!!!!
Actually, I think RTH is just another example of rich's "paired trade" effect. Folks probably long pharma and short retail or something like that and got a margin call.
There are some very good rates out there. I just don't understand how they set these? These are the same rates they had when the FF was this low.
But back then real estate prices were rising (so default costs were low) and the future held positive job growth.
So you may not need to bring $ to the table, but one thing you do bring is a depreciating asset as collateral.
They haven't priced for this yet. Even people who can afford to make the payments can get sick, divorced, lose their job, etc. They have to price for this. They aren't.
2003 or before with 20% down in sonoma county you probably won't have to bring $ to the table.Probably.
Tom, first they have to have a job, 2nd the rent/price ratio in Sonoma is still way out of line, 3rd, if they bought before 2003 w/20% dn they probably don't need to refi, 4th, hope is not a strategy
Let's see, in 1992, prices for CA homes were mostly flat to down, and job growth was mediocre after the recession. And foreclosures went up the next four years.
Where are we now - job growth weakening, home prices have a LONG way to drop, and foreclosures have only been rising meaningfully for two years.
There is now a consensus certainly at the AEA panel that home price will have to fall 20% to 30% before they bottom out, most likely 30%. This is a whopping loss of home values of about $6 trillion that will have significant macro effects and financial effects. With losses this large the wealth effects on consumption and the related collapse in home equity withdrawal will be serious; and with losses this large over 10 million households will end up in negative home equity territory and would thus have a strong incentive to default on their mortgages as most US states treat mortgages as non-recourse loans (i.e. once you default and get foreclosed you are not liable for the
It'd take a 50 percent price drop in the Santa Cruz area to bring price to own even roughly comparable to price to rent. And when people stop believing that "real estate always goes up," and I believe they will, serious adjustment make take place.
All California is also overbuilt on retail space, and there's been an incentive to do so for almost the last 30 years, since Prop. 13. No matter how bad the oversupply is in other states, I can't but believe that it's worst in California.
FWIW, what follows is a layman's attempt to understand today's market action in a historical context.
Based on the poor economic fundamentals -- particularly, our off-the-chart household debt-to-income -- I believe that we have entered a recession, proceeding smartly to depression.
I think that we are a few weeks away from our stock market crash.
September 1929 -- modest daily declines that cumulatively amounted to a fall of 17%
First week of October 1929 -- modest daily moves up
Second week of October 1929 -- modest daily declines
Third week of October 1929 -- modest daily declines, but with big swings up and down during the day
Fourth week of October 1929 -- crashes on Monday (13%) and Tuesday (12%)
My read is that, today, we are in 'September 1929' or 'Second week of October 1929.' Two or three more weeks of bad news and continued hits to the stock market could give us our crash in mid/late February.
Here's a video on CNN of a woman talking down the volatility. It's all good news, according to these people. Oh, and don't go selling off your 401k funds - it's a bad idea to sell your funds when they start losing money...
" no matter what bernanke does with interest rates "
Bernanke has ZERO effect on your personal interest rate. I'll keep posting it until people (at least the ones who read this blog) understand this fact.
Private debt drives your mortgage rate. The FFR only powers the rates at which banks lend to each other. One of the articles in the Times summed up this fact very succinctly:
" As the Fed cuts rates, Citigroup is raising them. "
Bernanke's rate follows the private debt origination rate. Right now multiple majors are insolvent based on the slosh, all daily reserve needs are met purely based on loans from the Fed, and the long T isn't rising because all private money is there.
"Here's a video on CNN of a woman talking down the volatility. It's all good news, according to these people. Oh, and don't go selling off your 401k funds - it's a bad idea to sell your funds when they start losing money..."
My sister is the executor of my mother's will. Mom left four brokerage accounts, which we agreed should be liquidated. My sister took her sweet time to get around to it starting the paperwork. Until last week, when she mailed me beneficiary papers for my signature and was on the phone to me two days later because she didn't see them in her mailbox that day.
Sis has been an optimistic investor in RE and stocks all her life, but she's been watching the news and she's picked up the Fear. And if she's got it, expect your average 401K guy is going to have it very soon.
More video:
Ben Stein equates believing we're in a recession is like believing in UFOs.
--CNN
Why is this man on TV?
Speed
To tell the perma bears on CR and 3 in 4 Americans that they are thinking wrongly. We are not in a recession, nor will there be one in the next two years. Someone needed to state things right I guess, particularly looking at the posts here.
That is also assuming you went "all in" on that day.
The truth is you dollar cost averaged. Meaning you overpayed for stocks during the dot-com bubble and over the last few years.
The only time you bought shares that are actually worth more today is at the bottom of the dot com bloodbath in 2002,03.
Why any long term investor would cheer this market manipulation so that you overpay for shares for so long is beyond me.
Picture the straight line between two points of Jan 22, 1998 and today. If the trend line of stocks is above this line for most of time your returns are worse (turtle shell shaped), if the line is below it (bowl shaped) your return is better.
My guess is that a decade from now we'll all look back and see that those who were counting on stock market returns will be sorely dissapointed and sorely underfunded for their retirment needs.
Sis has been an optimistic investor in RE and stocks all her life, but she's been watching the news and she's picked up the Fear. And if she's got it, expect your average 401K guy is going to have it very soon.
Bob Dobbs
The rate cuts are just a distraction and a prelude - the government is going to bail out the monoline insurers. That way they can prop up all the banks without J6P catching on.
Doesn't even sound so bad, bailing out "insurers" - everyone expects that when they buy insurance, and need to make a claim it will be there, right?
"But when a mortgage defaults, the lender takes back the house or condo, sells it, and usually recovers about 75 percent of the loan value or more. That means the real loss would be about 25 percent of 2 percent, or 1/2 of 1 percent.
In the context of a market as huge as the nation's mortgage market, that's not a lot. A few companies will go bankrupt, and someone will make a killing buying their bonds and portfolios at a huge discount as they turn out to be worth a lot more than people thought in March 2007. But it won't mean a lot to a roughly $14 trillion economy, of which the subprime mortgage market is a tiny blip."
It sure looks like that is the way we are headed. We are going to play hide the sausage and hope people keep spending. Hopefully the rich people will keep everything going, because the "poor" are going to get smashed over the next 5 years.
I've been wondering.... when the zero-down F'd Buyer's start walking away from their homes into cheaper rental housing, won't that improve their ability to keep buying stuff & keep the economy going? Minus the MEW money, sure. But the holder of the note will be the one to take the hit, not this type of homebuyer
To what degree will this be a mitigating factor in keeping the economy going?
My sister is the executor of my mother's will. Mom left four brokerage accounts, which we agreed should be liquidated. My sister took her sweet time to get around to it starting the paperwork. Until last week, when she mailed me beneficiary papers for my signature and was on the phone to me two days later because she didn't see them in her mailbox that day.
Sis has been an optimistic investor in RE and stocks all her life, but she's been watching the news and she's picked up the Fear. And if she's got it, expect your average 401K guy is going to have it very soon
Sounds like a familiar story. I have acquaintances that just last week said "Maybe I'll look in to selling my stocks next week in case we do have a recession."
Once the stock market optimists are looking to get out it's almost by definition going to be a bad time to sell... even if its not the worst.
Well, they "saved" the day with a mere 100+ point decline. Great! Now, for tomorrow... well, maybe a rally based on the Fed saving the day provided nothing bad happens, of course. After that, I guess we'll need a daily rate cut to keep the Wall Street pigs strung out so they can make the Big Bucks. What a joke!
I love the vote buying by Shrub and his cronies. "We need to get money to Americans so they can spend it." Hey, how about the government just buys everyone a big-screen TV? That'll help right? Oh, wait - they are all made in China, any extra profits would be pocketed by the CEO's, and it wouldn't help for more than 1 quarter anyway. I can't wait to see how the Iron Maiden will "stimulate" things when she wins! I just wish somebody in charge would speak the truth, but that won't happen.
It all comes to preventing the fit hitting the shan until they can blame it on the next administration.
"Once the stock market optimists are looking to get out it's almost by definition going to be a bad time to sell... even if its not the worst."
Now that's a comment I can respect. But in truth we need to divvy up the estate; and I have better things to do with the cash than leave it in stocks and hope against hope.
What this is really about is a lack of trust. The chest-beating grownups who told us to buy their stocks and leave them alone to make the magic, turn out to be Mickey Mouse in a sorceror's cap. So now we should trust that it'll all get better if we stay put.
Whether that's true or not, the trust it requires is going, going, gone from this generation of Americans.
I agree. Millions have been on the losing end of investments for years now. Investing for the long term has turned into a mug's game. Starting with the farm crisis, moving to the S&L debacle, then the dot.com bust, loss of pensions, outsourcing of jobs and now millions losing their homes. Somewhere along the line you change the mindset & ethics of a society. I have friends & family who played by the rules & lost everything. Each crisis takes down another. In the end, how does that change the society in which you live?
rich, do you think something cool happened like the quant funds were baited into looking for the collapse today by other hedge funds? Is it like a giant high stakes poker game right now while all of this money is being run to try and outsmart each other during the turbulence? It seems like it could be more risky for them all right now as during the boom it was about leveraging and carry trade but everything was going up at some rate.
Well it certainly was an interesting morning. While the U.S. was celebrating MLK day, the rest of the world was plunging. Early in the morning the market was faced with a big ol grizzly charging at it, the futures were down over 500 points on the Dow. Then from the clearing Bernanke blasted it with both barrels, and the Bear fell (futures recovered to down just 130 points) but then within minutes, the Bear regained its feet and we opened down about 450 points. For a while it looked like Ben had just shot the beast with a BB gun, which only served to make it angry. However, during the day, the Bear has been staggering from loss of blood. Is it dead yet? The close will give us a clue. If we close down by less than 100 points, the market has probably reached its selling climax and will have found an intermediate level of support from which to launch a sizable dead cat bounce. I dont see this as the final bottom, but the market sure is oversold here and due for a bounce. I remain convinced that despite this cut, and a probable 50 basis point additional cut next week, we will have a recession this year. However, this cut will help cushion the blow, as will the fiscal stimulus package that Congress and the Administration are working on. If we close down by more than 300 points on the other hand, it will mean that the Fed has used quite a bit of ammo and not solved the problem. In other words, it will show that we just made the Bear angry. If that occurs, look for more declines through the rest of the week.
Why wouldnt this cut work? Well its not like a Fed rate cut is some sort of pixie dust that when sprinkled on the economy magically makes it come to life. It needs a transmission mechanism. Historically the most important transmission mechanism has been housing. Cut rates, and mortgage rates go down and people decide now is a good time to buy a new house. Unfortunately we are sitting on a huge amount of housing inventory, and builders are still starting houses at a 1 million per year annual rate. It seems unlikely that we are going to pump the housing bubble back up with a 75 or even 125 basis point cut. Thats not to say the cut was a bad idea. It will help steepen the yield curve, thus improving the spread between what banks borrow at and what they lend at (Net Interest Margin, or NIM). This higher NIM will help banks become more profitable, and thus have the retained earnings to build back up their capital levels. This however will be a slow process given the magnitude of the losses being taken at many of the banks. The cuts also mean that when some people go to refinance, or when their ARMs reset, they will do so at lower interest rates. This may cause some who would have been foreclosed on to stay in their houses. The cuts will also weaken the dollar, particularly if the other major central banks do not follow suit. This will help the profitability of big
I agree. Millions have been on the losing end of investments for years now. Investing for the long term has turned into a mug's game. Starting with the farm crisis, moving to the S&L debacle, then the dot.com bust, loss of pensions, outsourcing of jobs and now millions losing their homes. Somewhere along the line you change the mindset & ethics of a society. I have friends & family who played by the rules & lost everything. Each crisis takes down another. In the end, how does that change the society in which you live?
paradigm lost
This is what puzzles me so much about so many CR posters. We live in the same country yet my glass is always half full and theirs is always half empty. What a self-created misery!
My job which gives my family a solid income did not exist 10 years ago - only the information revolution created it. How could you lose any money on stocks or even bonds in the last 5+ years, nonwithstanding smaller setbacks or well-timed bottom-selling. Other investments in raw materials worked out very well, too. All you need is be in the longer trends - and we had great and persisting year long trends.
The worst thing you can do is to develop a "tomorrow is the end of the world" mentality as this will prevent you from making any good decision whether in investing anywhere else. Recession-anticipation is neither a stimulating nor profitable pastime, either.
continued:
The cuts will also weaken the dollar, particularly if the other major central banks do not follow suit. This will help the profitability of big firms both by making our exports cheaper (and competing imports here in the U.S. more expensive) and through currency translation effects. Also since the value of a stock is the value of all the cash flows it will produce between now and when the Pacific Ocean boils dry, discounted back to the present, a lower discount rate will, as a mater of pure arithmetic, raise the value of stocks.
The Consumer is tapped out and it seems likely that unemployment will rise further. Thus consumers will be pulling in their horns and trying to defer purchase of those things that can be deferred. It does not mean that they will stop spending all together. Large firms that sell basic staple type items should do well, particularly if they have a big overseas presence and thus benefit from currency translation. A few stocks from the Dow 30 that fit this bill would be Proctor and Gamble (PG), Altria (MO) Coca Cola (KO) and McDonalds (MCD). I suspect they may be the new market leaders when the smoke clears. Eventually the Bear will die from the blood loss, but it is still dangerous until it is dead. Watch the close today, if less than 100 points on the Dow, start buying these big stable multinational firms tomorrow. If its down more than 300, wait until next week.
I am certainly not suggesting anyone should buy at this point,however there are some people who could benefit by doing a refi.I spoke to one today,they have had the same 1st for a long time,and tapped their heloc to do some repairs and upgrades after a pipe burst while they were on vacation.the upgrades were real,triple pane windows,etc,not granite countertops or bling.they have a blended rate of 6.75% at 30% cltv and solid incomes.I suggested a rate/term refi,and recommended they go to indymac directly and try for a 4.50% 15 year fixed with no points.Indymac is offering a rebate above a point on these deals!!! so there should be some room to bargain.They must be hurting very badly to offer these deals,they came out BEFORE todays rate cut.
there are some people who could benefit by doing a refi.
Absolutely -- if they are not already upside down, refi now while there are still comps. Especially for those with ARMs.
As an appraiser, I started feeling like a deck hand on the Titanic back in September -- "You have a 1st class ARM ticket, sir? This way to the life boats." For those with a 3rd class upside down ARM -- best be talking to your lender, looking for a Mod.
O Joe, today is not tomorrow and extrapolating today does not make it so when tomorrow arrives.
I am beginning to think that we will have a big splatter, followed by major unhappiness, followed by a slow dawn of a new era.
Remember, This just looks like 1974. Pay no attention to all of the warning signs.
And if we elect a Jimmy Carter, well, it's our fault.
Ignore the sounds of the helicopters warming up, ignore the bleatings of foreign dollar holders...just ignore everything, and it will be all right, after all, your only destination is your grave. That is your end of the world.
Stop misportaying those you disagree with. Exept for Jas, there is practically nobody here who says "tomorrow is the end of the world" or the glass is half empty. all we are saying is that these little things called stocks are/were overvalued, same things for bonds, and houses, and that there's a bit too much leverage in the economy. None of us said that there should be NO loans, NO banks, NO derivatives at all. None of us said that houses should always be rented and never bought.
You know...you remind me of those people in 2003 who said it's unpatriotic to oppose the Iraq war. Just admit that so far you WERE INDEED wrong about the credit system and the extent of this downturn, and we were right, and I guarantee you that a hand will be extended your way.
I didn't say I lost money. I've done OK, thank you very much. But there's much destruction around me. Well, I guess you can't see it...too busy gazing at your navel. At some point the nation should decide whether it's every man for himself or there's a common good to be considered. Today your glass is half full...but what if someone drinks it when you're not lookin'?
Hi, Joe Six Pack here. I've been playing this game since 1972, dollar cost averaging mutual funds and throwing money into 401k accounts. What I have for my efforts is about 80 grand, mostly gained the the past few years because I dumped illiquid managed accounts and started doing things myself.
When the rates were low, I refied my latest house to a 15 year, leaving the equity. Then my wife got new house fever. You know the story. Sell the old one, buy a new one using the equity for DP. Now I'm sitting here nearing retirement with a house that I can't sell, and a tax assessment 150k more than the sales price.
Do I think I should walk? You betcha. Many of my neighbors already have, leaving empty shells that no one wants. But I'm not one to give up easily. I'm hanging on waiting to see what happens next. But once the DP is gone, stand by. I would imagine there are a whole bunch of Joe's clones doing exactly the same thing. Gotta go to my second job. Too bad about OCB, but I have a tax payment coming up.
O Joe is correct that there is much bearish sentiment on this site -- and more than a few end of world as we know it doomsayers.
That said, there is a hell of a lot of bad news out there, and while most of us hope the damage will be minimal, that is not something I would bet on at this point in time.
Until there is some sign of bad news stabilization, it is wise to remain conservative with ones financial options.
This is my first comment to the blog, but I had to address what you said.
"The worst thing you can do is to develop a "tomorrow is the end of the world" mentality as this will prevent you from making any good decision whether in investing anywhere else."
I am not a concern-troll, but when I look around at my workplace and I see people who, in the very same conversation, talk about the blu-ray player and movies they're going to buy with the $800 tax credit, and yet complain that they can't eat lunch until payday because they're behind on their rent, I know something is wrong.
When people happily talk about planning their next vacation to Mexico, and also worry about what they're going to do when they retire, I know something is wrong.
When conversations turn from how our children are doing in school to the latest stupid upgrade people have done to their house, I know something is wrong.
We can't put our finger on just what is wrong, but there's... something... that doesn't feel quite right to us. Somewhere along the line, we started getting absolutely bombarded with the message that we could get rich quick, and even if we didn't actually have the money we could still live like we did.
You say: "How could you lose any money on stocks or even bonds in the last 5+ years, nonwithstanding smaller setbacks or well-timed bottom-selling."
And I am here to tell you, the vast, vast majority of middle class Americans simply have no clue what that sentence even means. People I work with don't fund their 401k, because it means less money into their pocket on Friday. In the past few years, they have become so overwhelmed by financial problems that even the thought of saving any money from each paycheck is a completely foreign concept.
Poverty is sweeping through America like the Gobi desert, always expanding further and further onto the landscape. Regular, hard-working people, who have been conditioned to spend spend spend spend by everyone from their favorite television shows all the way up to the President himself, are finding that they just can't spend anymore, and they're going from upper-middle class to extreme lower class within the span of one paycheck.
So no, I don't believe that the world will end tomorrow. But there are some serious economic problems with our country, problems that can't be fixed by making sure the stock market is at 12000. I don't know how we solve those problems; I don't even know if we can. As a society we need to rally around a wide-reaching solution, which includes systemic changes in our society.
It is clear to me that the road America has gone down the past few years is a destructive one, not just to our precious portfolios but to the very fabric that defines what it means to be an American. The overwhelming wall of debt that has been created is killing our way of life.
the blu-ray player and movies they're going to buy with the $800 tax credit,
Wait...this is important. Did you actually hear this? Is this what people are actually saying? Is it because they are partriotic or because they think they have the extra $800? Don't some of them want to, for example, use the 800 to pay down their credit card balance? what state are you from? thanks.
Years ago, I watched a local news news story about a family being evicted from a house. All their stuff was on the front lawn, including a huge big-screen TV.
I think I'll be seeing reruns of that story, only this time, the TV will be skinny.
Yes, people are that stupid. Give them $800 cash, and they will spend it on crap they don't need. Don't kid yourself thinking that they'll do something responsible with it, like paying down the principal on a credit card.
And yes, this has been the conversation. The people who even know that they're getting $800 back from the government-- and trust me, most people had no clue until I asked-- are treating it like a community chest card in Monopoly. I don't ask people how much credit card debt they have, because let's face it, that would be rude.
We all laugh at the term "retail therapy" but for a lot of people around here that's what is happening. People don't feel like they're getting ahead in life unless they have the latest gadget, or have the latest fashion, or have gone on a long weekend, literally flying away from their problems for a while. I can only speak for the people at my work, who are solidly middle class, but I have to believe this is being echoed throughout the entire country.
Throwing money at people who live their lives based upon Us Magazine is not a solution. The very idea that I would put the money into a "brokerage account" (another foreign concept to coworkers) gets me strange looks. I think this may be part of the problem-- society treats those of us who don't blindly run up our credit cards as some sort of outcasts. When I am unimpressed with someone's iPhone, they are insulted. When I tell people that I don't wear clothes with billboard-sized brand logos on them, because I'm not terribly excited about marketing, they get genuinely confused.
This is why O-Joe's statement hit home with me. We are told that we should be happy because of all the things we own, and that the economy is robust but only facing a little challenge, but at the same time there are so many people who are tightrope-walking that it is hard to believe people will be in good shape when it comes time to retire.
Only about one in five of those Americans polled gave U.S. economic policy high marks, although 55 percent rated their own personal financial situation "good" or "excellent".
Nearly 31 percent of those polled expected house prices to rise in their area over the next year, a slight improvement from last month, when that total stood at 27.5 percent. Some two-thirds thought prices would stay about the same or fall. Page Not Found | Reuters.com
The number of mortgage default notices filed against California homeowners jumped last quarter to its highest level in more than fifteen years, a real estate information service reported.
Lending institutions sent homeowners 81,550 default notices during the October-to-December period. That was up by 12.4 percent from 72,571 the previous quarter, and up 114.6 percent from 37,994 for fourth-quarter 2006, according to DataQuick Information Systems.
ck,these people are still at about 30% cltv.My Father was an Appraiser and expert witness for 40 years,and I am licensed as a Broker.I am one conservative son of a gun when it comes to Real Estate and do belong to the local Appraisers association.Speaking out,and refusing to make bad deals cost me about $50k in commissions last year,however since I was getting Divorced at the time it wasn't as much of a loss as it could have been.The ex has everything sheets and kiyosaki ever wrote,and all the DVD's as well...so she knows more about real estate than i ever will.
I rarely comment here because my thoughts would be out of place what with the large brains and all... But I have to speak up so that this doesn't turn into the typical economics debate which consists of one attention starved poster dictating the entire discussion by angering people.
Ignore the sounds of the helicopters warming up, ignore the bleatings of foreign dollar holders... AllenM, are those the money dropping choppers or the "last one off the embassy roof is a rotten egg," ones. 'Cause I predict at least two years before we here the latter bunch.
mark,
I know what you mean, it actually sad that some measure their own worth/happiness by the amount of stuff they have. but that's the way it is and you can see that in the overall debt statistics that the Fed puts out. When HELOC financing dried up in 3Q07, the consumer just made up the shorfall by allowing the credit card balances explode. now the banks are saying (JP Morgan Chase comments) that they are aware of these trends and are now monitoring credit limits to avoid the inevitable wave of defaults. All of this, imho, is a sure sign the the US consumer, as well as the other "anglo consumers across the world are straight up addicted. They know they are living way beyond their means and that it will end poorly, but they can't seem to not borrow because they haven't yet separated the addiction to stuff with the debts and the MSM won't help them because they earn when the consumer spends.
On an optimistic note, all of this spending is not increasing the average happiness indicator for the US consumer and when the drug pushers (wall street/MSM and banks) finally turn off the spigot, the withdrawal period is horrible (and that's 2008 to 2010 I think), but people will find a better way to live over time. You'll still meet people that are happy/sad/angry in about the same percentages that you see them today. frugality will become the fashion instead of excess and the world goes on. That's what keeps me going anyway.
I suspect your impressions are highly unrepresentative of the average US tax payer who will be receiving that $800 credit.
Outside of large cities in California, the value of the dollar is very different. When the price of a starter home is in the $50K price range and a nice home is in the $1-200K range (as is the case in most of the country), that $800 stretches alot further.
I've lived in Illinois, Indiana, North Carolina, Florida and California for extended periods. I can assure you that in almost every part of the country except Californian cities, life revolved around the community and its activities, not on material goods.
Much of the US is in much better shape than the bears think. The pain will be highly localized in the high-priced metropolises - not just because of the price drops of real estate, but because these are the areas where a dollar has lost its traditional worth.
I can assure you that in almost every part of the country except Californian cities, life revolved around the community and its activities, not on material goods.
Oh, get real. People drive their Hemis to Best Buy to get overly-large plasmas everywhere in this country. The only difference between flyover country and the coasts is that there are more people who kid themselves about how moral they are in flyover country.
I didn't say they don't buy material goods. However, there is a decidedly different emphasis.
Folks in the middle class in flyover country don't think twice about the fact that they own their homes. In California, it's a badge of honor.
In flyover country, people spend a lot less time commuting to and from their jobs. This frees alot of time to spend with friends and family. The result is people build relationships, participate in sports, etc.
Unreal. I read one report that estimated the peak of option arm resets would be Feb-March of this year. If that's the case and the payments go up substantially, even with the low interest rates, California Foreclosures will only go up more.
primero!
worse!
B.B. should take rates to 0!
It wont be worse. President Bush says the stimulus will work and he has been right about everything, so this must work?
joke...
Here's my yahoo horror-scope for today: Some big walls are coming down today -- and this collapse will reveal new truths.
This is the same DataQuick that wrote this in its recent report on Souther California housing:
"Indicators of market distress continue to move in different directions. Foreclosure activity is at record levels, financing with adjustable-rate mortgages or with multiple mortgages has dropped sharply. Down payment sizes and flipping rates are stable, non-owner occupied buying activity is edging up, DataQuick reported. "
Market distress? Well, there's good news and bad news.
Foreclosures? Yeah, that's bad.
But look at the bright side: not as many people are buying multiple properties with 0% down Option ARMs with the intent to flip in 2 months.
The problem this year will be the vicious cycle of foreclosures leading prices down, leading to more foreclosures, leading prices down. It will take on a momentum that no amount of rate cuts or hype will stop.
CR - This actually scares me!
Ouch!
whoa
Both curves look to me like they extrapolate to infinity some time next year.
does it look as bad when these are population adjusted?
oops... duh... the second graph is a percentage, so thus probably population adjusted.
yuck.
It's hard to imagine, but this year will probably be worse.
It's easy to imagine, considering how overvalued homes were, how much credit has tightened, and the current trends in employment and the economy. It's just not a pleasant thing to imagine.
Re: The Fed said it was cutting the federal funds rate, the interest that banks charge each other on overnight loans, to 3.5 percent, down by three-fourths of a percentage point from 4.25 percent.
Does Washington really think lower these rates will solve this foreclosure problem or the impending amount of future foreclosures that are on the way? This foreclosure story is obviously directly related your previous story on people walking away, which is related to a lack of regulation in the first place! These foreclosure problems are not going to go away and get better by tossing pennies at trillion dollar losses. The Fed is focused on wallstreet as a mechanism to be used to help this problem, when in fact, wallstreet is the problem! The Fed is pouring gas on a forest fire; ok, for you people that need a picture of whats going on try this: Oil well fires are more difficult to extinguish than regular fires due to the enormous fuel supply for the fire. Firefighters who are specially trained to deal with oil fires are usually hired to extinguish oil fires. There are several techniques used to put out oil well fires, which vary by resources available and the characteristics of the fire itself.
Oil well fire - Wikipedia, the free encyclopedia
You know it's getting bad when DQ can't spin a positive out of this story. Prentice has been one of the last RE holdouts in the Lereah/Yun/Watts polyanna mode.
There will be no escaping the reality of the accelerating CA housing bust - no way to spin data this bad.
Easy to imagine... sub-prime ARM resets don't peak until March 08, then by summer, the wave of Option ARMS starts.
This year, what's left of the middle class will discover the joys of walking away from a depreciating asset.
Which technique do you think The Fed is using today?
Techniques include:[1]
Dousing with copious amounts of water
Raising the plume- Inserting one metal casing 30 to 40 feet high over the well head (thus raising the flame above the ground). Liquid nitrogen or water is then forced in at the bottom to reduce the oxygen supply and put out the fire.
Drill relief wells to redirect the oil and make the fire smaller (and easier to extinguish with water).
Using a jet engine to direct high pressure water and air over the well.
Using dynamite to 'blow out' the fire by blasting fuel and oxygen from the flame and consuming oxygen in the combustion.[2]
Dry Chemical(mainly Purple K) can be used on small well fires such as those in refineries.
Special vehicles called "Athey wagons" as well as the typical bulldozer protected by corrugated steel sheeting are normally used in the process.[3]
I think the solution is a Paul Volker-like reality where someone in authority tells wallstreet to go to hell and then: dynamite to 'blow out' the fire by blasting fuel and oxygen from the flame and consuming oxygen in the combustion
Just imagine if interest rates stayed where they were last summer.
Does it freak anyone else out that the dow is rock steady at 12000 after this AM?
Consumers are tired and Money is tight:
Eagan-based Buffets Holdings Inc., the second- largest family restaurant operator in the U.S., filed a Chapter 11 petition today in Delaware along with 17 affiliates, listing $964 million in assets against debt of $1,156 million.
Buffets operates under the names Old Country Buffet, HomeTown Buffet, Ryan's and Fire Mountain.
Buffets blamed the filing on a "marked decline in discretionary spending" by consumers. Although the company was in restructuring negotiations with its secured lenders and bondholders, Buffets said it was required to file as a consequence of a decline in liquidity
Buffets Holdings files for bankruptcy protection - TwinCities.com
so is this a good time to buy in southern ca
Slightly off topic, but the big story people are missing today is TARGET. They just announced they would be at the lower end of their range for january sales, and that range was -1% to 1%. And this comes after a grim December for them. So, if you want to know what BB is looking at, this is it. Consumer capitulation, which, if the stock market were to get routed further, would take this already bad trend, and hit it even harder. BB knows you cant have a consumer cave at this point, or it's lights out US economy, and batten down the hatches world economy...that's when you look into the abyss, and nothing looks back.
But the NAR said that all real estate is local (despite the almost worldwide surge in RE prices), that real estate never goes down (they're not making any more land, you know), and that it was a great time to buy (buy now or be priced out forever). And Suzanne researched it! So how could this happen? /sarcasm
I think the vast majority of my fellow Californians are going to be shocked by how far prices fall in CA. It just seems so inconceivable to them that prices could fall 30+% from the peak (I think here in OC we're looking at 40+%, but that's just my WAG). I'm sure that we'll hear bottom callers for quite some time, but the bottom is a long ways away.
Sandy,
Good money after bad by the hedge funds. These shenanigans are just showing the world how corrupt and rigged our markets are. When this is all said and done the USA stock exchanges will have no credibility.
But how bad is it when Old Country Buffet goes belly-up?
You can call the bottom all you want, but it would take a very large wave of buyers to change the downward momentum on prices. Most likely, you get a few people here and there thinking it's time to jump in, and as they are slowly converted to knife catchers, they breed timidity in the next group of fools who try. You can read about these people each month when you see that ANY homes were sold in S CA at all.
You folks in CA can't be trusted with money.
What's this century's opium trade?
Borrow from foreign governments to give 'middle class' Americans money to buy foreign products.
About 1 or 2 on every block.
As the Fed spokesman said, "This is just part of the normal business cycle, don't worry."
But how bad is it when Old Country Buffet goes belly-up?
Jim Broshar | 01.22.08 - 2:39 pm | #
A nuthin burger - this is one of the worst food joints ever. BK is too good for them.
hence my tale of tar-j...a something burger, fat and greasy.
Old Country Buffet going under will deal a devastating blow to the salt and cooking oil industry.
Neal,
Don't forget Weight Watchers.
What's this century's opium trade?
Borrow from foreign governments to give 'middle class' Americans money to buy foreign products.
REBear | 01.22.08 - 2:40 pm | #
Yup. I think its winding down via a weak dollar... but we won't know until we see the response from Asian SWF & CBs... if they step back in to 'prop up' the dollar then this silliness could go on a lot longer.
Munis loose AAA status [Sorry if this was already posted]. Rest assured most will now be paying a bit more for urban renewal or local programs whatever the fed. rate is. And, what a pension manger going to do?
Because of the downgrade of Ambac, Fitch cut the ratings of 757 bonds to "AA+" from "AAA" to match the underlying municipal rating. Another 4,234 were downgraded to "AA" from "AAA" to match the underlying rating. Fitch left 261 bonds at "AAA" because the underlying rating was also "AAA."
About 132,000 municipal bonds were downgraded to "AA" from "AAA" because either the underlying rating was below Ambac's new rating of there was no underlying rating at all. All of those bonds are also on negative watch because Ambac is still on negative watch.
Old Country Buffet-where overweight poor people eat massive amounts of bad food.
Neal maybe true...but there are 36,000 folks who work for the outfit.
The truly alarming number is the percentage of NOD that are devolving into NOTS.
For the people in the previous thread who were sanguine about homemoaners walking when only 10% underwater I offer the following. It isn't the current 10%, it is the prospect of the next 10% or even 0% drop. For a decade the monthly mortgage payment minus appreciation was less than zero. Now, the prospect of even 2-3 years of 0% appreciation isn't the issue. These people are environmentally conditioned to perceive 0% appreciation as wasting the mortgage payment. This is their twisted logic; "$2k/mo mortgage for the next 24 months so that I can end up down 10% ($25k equity+$48k payments=$73k)? Alternative, not pay $2k/mo for the next 6 months and rent for $1k per month for a loss of far less." Their breakeven is at least many years in the future.
Try as may there is only one solution to high prices. These people paid too much on a term contract. There is no break that makes their price paid make sense. Like so many problems we are about to face sc-fi got there first. Google 'The Cold Equations."
hence my tale of tar-j...a something burger, fat and greasy.
Geoff | 01.22.08 - 2:42 pm | #
LOL. I thought Target was in for a fall... you only need so much 'Cheap Chic' before you have to call in a dumpster. Those dumpsters cost money even if the crap from Target doesn't.
BTW - prices at Target had been going up (they most not flog their Asian slaves as much or as hard as Wally does - 'Minnesota Nice' I guess).
Hemet Calif population 70K has close to 680 REO homes plus 200 homes at auction, I lost track of the NOD's.
I still hope somebody can tell me why MBIA and Ambac stock is up so far today. What's cookin'? Who's piggin' out at the monoline buffet?
John - that is a gift to you my man, do not look it in the mouth. Until this cut, there was little room to short that crap, now, you can enjoy the fruits of Ben's futile labors.
Is there some way to gauge how this is screwing responsible borrowers who are paying less-than-optimal rates on their responsible loans? I gotta imagine they're getting screwed somehow - at least in an opportunity cost way.
John Stark ...the Regulators are now working w/ them.
And this is a true visit to the confessional:
NEW YORK (Reuters) - The largest U.S. housing finance companies, Freddie Mac and Fannie Mae, may report $16 billion in write-downs for the fourth quarter due to the falling value of their subprime mortgage investments, according to Credit Suisse analysts
How do you put out a credit fire?
You add more credit fuel!
Dammit, they were posting the NTS per county the last few times and this time they didnt.
I agree, bad news for OCB employees. Bad news for those who have OCB for their Friday or weekend out. I grew up very, very poor, and I still remember going once or twice to the Jolly Troll Smorgasbord on Lake and Hennepin in Minneapolis and eating until it hurt.
But not exactly a customer demographic that will resist the downturns of the economy.
That is a sign of problems still to come--much of the recent growth has happened in consumer sectors with some discretionary money left in their incomes. When the discretionary money disappears, places like OCB will go.
Barley,
Debt is good, that writedown creates value and helps the companies grow faster, helps add scale and is a good thing; more debt more leverage, because no one has to pay for anything anymore, this is new social ownership society. Can I lend you money? Do you need cash?
Re: Old Country Buffet going under will deal a devastating blow to the salt and cooking oil industry.
Wheat, wheat futures! Flour and gravy dude!
Well the next hour should tell what the market really thinks of the Fed's cut today. The markets true direction usually manifests itself in the last hour, when the market becomes more of a real, cash investor affair. I was a buyer out of the gate this morning, but I also honestly expect better levels to add down the road.
hello,
quick question if the author can help. will FED cutting rate to 0% help real estate? when will real estate bottom in your opinio
Haloscan ad shows "When PAYDAY is too far away... get a PAYDAY ADVANCE online!" Oooh, the irony with predatory lending!
American Carry Trade... coming to an account near you.
Not terribly productive though - more zero sum manipulation masquerading as economic activity. Oh well.
Request for CR or Tanta,
Since you folks probably have the data, could you do a guestimation on the amount of the money being saved by consumers as a result of variable rate mortgage resets due to fed rate cuts and treasury yield declines?
tia
david
I still hope somebody can tell me why MBIA and Ambac stock is up so far today. What's cookin'? Who's piggin' out at the monoline buffet?
John Star,
I said in the other thread that it looked like the same pattern that has happened when the quant long/short funds had to unwind quickly because they were blowing up. If so, just hold your shorts. In the past, things returned to normal pretty fast after the unwinds.
The long/short quant funds buy good stocks and short bad ones. When they screw up, they have to sell good stocks and buy back bad ones like MBIA and ABK.
Guest pls ask that question in Japanese.
and
"Haloscan ad shows "When PAYDAY..." ROFL thx tOHB
"the big story people are missing today is TARGET. They just announced they would be at the lower end of their range for january sales"
What you people don't realize is that the market is a forward discounting mechanism. RTH is levitating, so the efficient market is clearly and reliably predicting a big turnaround for retailers. I have expressed it in the form of an equation for those of you who consider yourself "quants."
higher stock prices = higher stock prices
I dare you to prove that one wrong.
albrt - lol. Your methods are beyond reproach.
Nice little rebound there for oil. Almost reclaimed the $90 dollar mark.
Some emerging markets actually in the green now.
Might be heading back to bubble city for some of these market.
I certainly hope so. I like bubbles now.
albrt Can you put some color on that for us non-quants?
The only new housing selling in my area of Southern Calif is what is priced below $417. Fed and Fannie are pricing loans based upon spreads and not on the risk to lending in an environment of falling asset prices.
Think about it, how in the world can you have rates at 6% when prices are rising (as they were a couple of years ago) and then still have 6% rates on the way down? The risks are not even close to the same?
Fed and Fannie are artifically keeping the cost of loans low. They should be 8% or more on people maxing out to buy a depreciating asset.
The true fall out is when Fannie and Freddie fail or crash. Any "private" bank that has to compete with them can't make a profit. Until they are forced to charge for risk we're never gonna see the end of this.
Oh Albert thank you! You make it so very simple.
Re: RTH is levitating, so the efficient market is clearly and reliably predicting a big turnaround for retailers
Bill Gross also seeks investors with cash and a recession in Asia is clearly not going to be helpful to either interests! Cash dude, where were you last night?
American Carry Trade... coming to an account near you.
See this is the problem with these rate cuts not addressing the underlying problem -- we've forgotten how to use money constructively.
Now these hedge funds are just going to go bulldoze hapless emerging market economies instead of ours.
Maybe these foreign officials will try to do something to stem the inflows.
Retail is going to be smashed, but then again we do have a stimulus pla
HomeTown Buffet going out of business. I better economize.
Pass the pork rinds and beer, please!
Off Topic so sue me.
To see marketing in action go to: Dream House Raffle to Benefit Community Action Marin to buy tickets for a raffle of a 2.1 million house or accept 1.7million in cash.
Not sure of the how or why of this as the proceeds are to go to a non-profit.
More than likely a big tax scam wrapped up in it somewhere.
I'm very nearly motivated to write a post.
CR, how dare you abdicate your fiduciary responsibility to the rest of the brainwashed masses - house prices are the counterbalancing force to Republican tax cuts!
Well, the Fed cut seems to have accomplished at least one thing:
^IRX\t2:51PM ET\t2.25\tDown 0.54\t$0.00\tDown 19.35%
I believe this is NOT the end of the yield curve where the Fed wants movement.
this is not going to be an "orderly" close...whether melt up or melt down.
Execution risk is VEWY VEWY high. (don't expect to get filled at all)
So...
Could someone with great quantitative expertise --like albrt-- explain why shares of companies like JNJ or KO are going down today while BAC and WB go up? These are the guys that just said "we barely made any money and have still to deal with all the jingle mail"
Rates are pretty sweet right now,Indymac is offering 4.87% on a 15 year fixed,and 5 3/8 % on a 30 year fixed with no points.If you bought in 2003 or before with 20% down in sonoma county you probably won't have to bring $ to the table.Probably.
Yeah, I dont see a solution to this mess. Know matter what bernanke does with interest rates, its the appraised value of the home that determine whether a homeowner can refinance or not.
CalculatedRiskOmnibusPig,
For Bush's State of the Union address, I bet he will just tout his Republican tax cuts, or how the economy is still strong and robust.
If I was more inclined to fiction, I would actually be more giddy to it, along with watching a Mike Tyson match, or "The Hottie and the Nottie". 0 credibility...
You want color? OK.
Bill Poole is a SHAME!! He's SHAMEFUL!!!!!! He has NO IDEA what it's like out there!!!! My people have been in this business for TWENTY FIVE YEARS AND THEY ARE LOSING THEIR JOBS AND HE'S NUTS, THEY'RE NUTS!!!!!!!!
Actually, I think RTH is just another example of rich's "paired trade" effect. Folks probably long pharma and short retail or something like that and got a margin call.
Tom Stone,
There are some very good rates out there. I just don't understand how they set these? These are the same rates they had when the FF was this low.
But back then real estate prices were rising (so default costs were low) and the future held positive job growth.
So you may not need to bring $ to the table, but one thing you do bring is a depreciating asset as collateral.
They haven't priced for this yet. Even people who can afford to make the payments can get sick, divorced, lose their job, etc. They have to price for this. They aren't.
They will be forced to some day.
No matter
2003 or before with 20% down in sonoma county you probably won't have to bring $ to the table.Probably.
Tom, first they have to have a job, 2nd the rent/price ratio in Sonoma is still way out of line, 3rd, if they bought before 2003 w/20% dn they probably don't need to refi, 4th, hope is not a strategy
Let's see, in 1992, prices for CA homes were mostly flat to down, and job growth was mediocre after the recession. And foreclosures went up the next four years.
Where are we now - job growth weakening, home prices have a LONG way to drop, and foreclosures have only been rising meaningfully for two years.
Enjoy.
By Nouriel Roubini
There is now a consensus certainly at the AEA panel that home price will have to fall 20% to 30% before they bottom out, most likely 30%. This is a whopping loss of home values of about $6 trillion that will have significant macro effects and financial effects. With losses this large the wealth effects on consumption and the related collapse in home equity withdrawal will be serious; and with losses this large over 10 million households will end up in negative home equity territory and would thus have a strong incentive to default on their mortgages as most US states treat mortgages as non-recourse loans (i.e. once you default and get foreclosed you are not liable for the
Top Economists See Recession Ahead | FINalternatives
Pimco was calling for 2.5 - 3% fed rate this year. We will have 3% by the end of this month. So what does Gross do? Wait for more or cut and run?
If we account for fall in dollar prices, did Gross really make money?
up on the day !
rall-e rall-e
It'd take a 50 percent price drop in the Santa Cruz area to bring price to own even roughly comparable to price to rent. And when people stop believing that "real estate always goes up," and I believe they will, serious adjustment make take place.
All California is also overbuilt on retail space, and there's been an incentive to do so for almost the last 30 years, since Prop. 13. No matter how bad the oversupply is in other states, I can't but believe that it's worst in California.
And of course....the Dow and S&P are gonna finish up for the day.....
It's a conspiracy!....lol
his yard stick is dollars... does'nt matter about other currencies...
Pimp-co King Gross
eyecoodanode
FWIW, what follows is a layman's attempt to understand today's market action in a historical context.
Based on the poor economic fundamentals -- particularly, our off-the-chart household debt-to-income -- I believe that we have entered a recession, proceeding smartly to depression.
I think that we are a few weeks away from our stock market crash.
September 1929 -- modest daily declines that cumulatively amounted to a fall of 17%
First week of October 1929 -- modest daily moves up
Second week of October 1929 -- modest daily declines
Third week of October 1929 -- modest daily declines, but with big swings up and down during the day
Fourth week of October 1929 -- crashes on Monday (13%) and Tuesday (12%)
My read is that, today, we are in 'September 1929' or 'Second week of October 1929.' Two or three more weeks of bad news and continued hits to the stock market could give us our crash in mid/late February.
http://stockmarketcrash.atspace.com/
EH.Net Encyclopedia: The 1929 Stock Market Crash
Anecdotal - I had to wait almost an hour to get execution on a small trade this morning.
Tom Stone if you think conventional rates are low take a look at FHA. Not sure how relevant it is for most of CA though.
Average Joe,
Just isn't the demand there was last time the rates were this low, and they have all those loan officers to put to good use, down come the rates.
President's day is on the 18th. Yet another long weekend.
So is now the time to short BAC or what?
ACA gains as counterparties hold off until Feb. 19
If this trend keeps up, people will be moving to California just so they can buy a house and get foreclosed on.
Here's a video on CNN of a woman talking down the volatility. It's all good news, according to these people. Oh, and don't go selling off your 401k funds - it's a bad idea to sell your funds when they start losing money...
This is why I don't pay for TV.
" no matter what bernanke does with interest rates "
Bernanke has ZERO effect on your personal interest rate. I'll keep posting it until people (at least the ones who read this blog) understand this fact.
Private debt drives your mortgage rate. The FFR only powers the rates at which banks lend to each other. One of the articles in the Times summed up this fact very succinctly:
" As the Fed cuts rates, Citigroup is raising them. "
Bernanke's rate follows the private debt origination rate. Right now multiple majors are insolvent based on the slosh, all daily reserve needs are met purely based on loans from the Fed, and the long T isn't rising because all private money is there.
"Here's a video on CNN of a woman talking down the volatility. It's all good news, according to these people. Oh, and don't go selling off your 401k funds - it's a bad idea to sell your funds when they start losing money..."
My sister is the executor of my mother's will. Mom left four brokerage accounts, which we agreed should be liquidated. My sister took her sweet time to get around to it starting the paperwork. Until last week, when she mailed me beneficiary papers for my signature and was on the phone to me two days later because she didn't see them in her mailbox that day.
Sis has been an optimistic investor in RE and stocks all her life, but she's been watching the news and she's picked up the Fear. And if she's got it, expect your average 401K guy is going to have it very soon.
Ding, Ding..
And there off, NZX heads straight into positive teritory after a terrible run yesterday, this little filly may have some legs....
The next race will have that old nag the ASX, plave yer bets ladies and gentleman...
uhoh....here comes Bush with a bigger stimulus package.....on TV....lol
More video:
Ben Stein equates believing we're in a recession is like believing in UFOs.
--CNN
Why is this man on TV?
Anyone, Bueller? That's why he is on TV.
The other reason, is that it's TV. That's where dumb people hang out, or shills, or both.
Someday this war's gonna end....
ABX/CMBX roundup:
CMBX hat trick, all new highs
ABX has ~7 new lows
and, will some get freaked about the < 12,000 or do black cats not matter when the ladder is falling on your head?
More video:
Ben Stein equates believing we're in a recession is like believing in UFOs.
--CNN
Why is this man on TV?
Speed
To tell the perma bears on CR and 3 in 4 Americans that they are thinking wrongly. We are not in a recession, nor will there be one in the next two years. Someone needed to state things right I guess, particularly looking at the posts here.
O-Joe
Ben Stein: Actor, Comedian, Economist.
I guess one out of three ain't bad.
Ten years ago today:
Jan 22, 1998 S&P was 963.
Jan 22, 2008 S&P is at 1310.
That's an Average Annual Return of 3.13%.
That is also assuming you went "all in" on that day.
The truth is you dollar cost averaged. Meaning you overpayed for stocks during the dot-com bubble and over the last few years.
The only time you bought shares that are actually worth more today is at the bottom of the dot com bloodbath in 2002,03.
Why any long term investor would cheer this market manipulation so that you overpay for shares for so long is beyond me.
Picture the straight line between two points of Jan 22, 1998 and today. If the trend line of stocks is above this line for most of time your returns are worse (turtle shell shaped), if the line is below it (bowl shaped) your return is better.
My guess is that a decade from now we'll all look back and see that those who were counting on stock market returns will be sorely dissapointed and sorely underfunded for their retirment needs.
Sis has been an optimistic investor in RE and stocks all her life, but she's been watching the news and she's picked up the Fear. And if she's got it, expect your average 401K guy is going to have it very soon.
Bob Dobbs
Bottom selling in perfection IMO.
O-Joe
The rate cuts are just a distraction and a prelude - the government is going to bail out the monoline insurers. That way they can prop up all the banks without J6P catching on.
Doesn't even sound so bad, bailing out "insurers" - everyone expects that when they buy insurance, and need to make a claim it will be there, right?
O-Joe
Is optimisim the 'new' pessimism?
Here's Ben Stein saying that the subprime problem is "Barely Blip-Worthy."
"But when a mortgage defaults, the lender takes back the house or condo, sells it, and usually recovers about 75 percent of the loan value or more. That means the real loss would be about 25 percent of 2 percent, or 1/2 of 1 percent.
In the context of a market as huge as the nation's mortgage market, that's not a lot. A few companies will go bankrupt, and someone will make a killing buying their bonds and portfolios at a huge discount as they turn out to be worth a lot more than people thought in March 2007. But it won't mean a lot to a roughly $14 trillion economy, of which the subprime mortgage market is a tiny blip."
Oh, Ben. You're such a comedian!
M-F
It sure looks like that is the way we are headed. We are going to play hide the sausage and hope people keep spending. Hopefully the rich people will keep everything going, because the "poor" are going to get smashed over the next 5 years.
I've been wondering.... when the zero-down F'd Buyer's start walking away from their homes into cheaper rental housing, won't that improve their ability to keep buying stuff & keep the economy going? Minus the MEW money, sure. But the holder of the note will be the one to take the hit, not this type of homebuyer
To what degree will this be a mitigating factor in keeping the economy going?
My sister is the executor of my mother's will. Mom left four brokerage accounts, which we agreed should be liquidated. My sister took her sweet time to get around to it starting the paperwork. Until last week, when she mailed me beneficiary papers for my signature and was on the phone to me two days later because she didn't see them in her mailbox that day.
Sis has been an optimistic investor in RE and stocks all her life, but she's been watching the news and she's picked up the Fear. And if she's got it, expect your average 401K guy is going to have it very soon
Sounds like a familiar story. I have acquaintances that just last week said "Maybe I'll look in to selling my stocks next week in case we do have a recession."
Once the stock market optimists are looking to get out it's almost by definition going to be a bad time to sell... even if its not the worst.
Almost 32% of stocks on the NYSE hit 52 week lows today.
Advances & Declines - Yahoo! Finance
Bottom selling in perfection IMO.
O-Joe"
One-note commentary in perfection. A nice little cut-and-run throwaway with no content.
If that's all you can do, you're not worth talking to. And I won't anymore.
O-Joe, AAPL guiding down earnings by $0.13 for Q2 isn't going to help the bulls.....
Well, they "saved" the day with a mere 100+ point decline. Great! Now, for tomorrow... well, maybe a rally based on the Fed saving the day provided nothing bad happens, of course. After that, I guess we'll need a daily rate cut to keep the Wall Street pigs strung out so they can make the Big Bucks. What a joke!
I love the vote buying by Shrub and his cronies. "We need to get money to Americans so they can spend it." Hey, how about the government just buys everyone a big-screen TV? That'll help right? Oh, wait - they are all made in China, any extra profits would be pocketed by the CEO's, and it wouldn't help for more than 1 quarter anyway. I can't wait to see how the Iron Maiden will "stimulate" things when she wins! I just wish somebody in charge would speak the truth, but that won't happen.
It all comes to preventing the fit hitting the shan until they can blame it on the next administration.
"Once the stock market optimists are looking to get out it's almost by definition going to be a bad time to sell... even if its not the worst."
Now that's a comment I can respect. But in truth we need to divvy up the estate; and I have better things to do with the cash than leave it in stocks and hope against hope.
What this is really about is a lack of trust. The chest-beating grownups who told us to buy their stocks and leave them alone to make the magic, turn out to be Mickey Mouse in a sorceror's cap. So now we should trust that it'll all get better if we stay put.
Whether that's true or not, the trust it requires is going, going, gone from this generation of Americans.
I dunno -- maybe the equities markets won't crash with the rest of the economy; maybe they have totally decoupled from reality.
O-Joe, AAPL guiding down earnings by $0.13 for Q2 isn't going to help the bulls.....
dunham
The next two days may still be shaky IMO. Timing is always the tricky part. I will probably go long 100% this week, though.
O-Joe
Bob Dobbs:
I agree. Millions have been on the losing end of investments for years now. Investing for the long term has turned into a mug's game. Starting with the farm crisis, moving to the S&L debacle, then the dot.com bust, loss of pensions, outsourcing of jobs and now millions losing their homes. Somewhere along the line you change the mindset & ethics of a society. I have friends & family who played by the rules & lost everything. Each crisis takes down another. In the end, how does that change the society in which you live?
rich, do you think something cool happened like the quant funds were baited into looking for the collapse today by other hedge funds? Is it like a giant high stakes poker game right now while all of this money is being run to try and outsmart each other during the turbulence? It seems like it could be more risky for them all right now as during the boom it was about leveraging and carry trade but everything was going up at some rate.
When is everyone going to wake up and realize a large part of GDP growth for the last 5+ years was mainly from the RE bubble?
Doesn't that mean the debt of the US is WAY higher than stated if bogus GDP from housing is revised out?
Then what?
doh, debt ratio is WAY higher
My assesment of the day, cross posted from Zacks:
Well it certainly was an interesting morning. While the U.S. was celebrating MLK day, the rest of the world was plunging. Early in the morning the market was faced with a big ol grizzly charging at it, the futures were down over 500 points on the Dow. Then from the clearing Bernanke blasted it with both barrels, and the Bear fell (futures recovered to down just 130 points) but then within minutes, the Bear regained its feet and we opened down about 450 points. For a while it looked like Ben had just shot the beast with a BB gun, which only served to make it angry. However, during the day, the Bear has been staggering from loss of blood. Is it dead yet? The close will give us a clue. If we close down by less than 100 points, the market has probably reached its selling climax and will have found an intermediate level of support from which to launch a sizable dead cat bounce. I dont see this as the final bottom, but the market sure is oversold here and due for a bounce. I remain convinced that despite this cut, and a probable 50 basis point additional cut next week, we will have a recession this year. However, this cut will help cushion the blow, as will the fiscal stimulus package that Congress and the Administration are working on. If we close down by more than 300 points on the other hand, it will mean that the Fed has used quite a bit of ammo and not solved the problem. In other words, it will show that we just made the Bear angry. If that occurs, look for more declines through the rest of the week.
Why wouldnt this cut work? Well its not like a Fed rate cut is some sort of pixie dust that when sprinkled on the economy magically makes it come to life. It needs a transmission mechanism. Historically the most important transmission mechanism has been housing. Cut rates, and mortgage rates go down and people decide now is a good time to buy a new house. Unfortunately we are sitting on a huge amount of housing inventory, and builders are still starting houses at a 1 million per year annual rate. It seems unlikely that we are going to pump the housing bubble back up with a 75 or even 125 basis point cut. Thats not to say the cut was a bad idea. It will help steepen the yield curve, thus improving the spread between what banks borrow at and what they lend at (Net Interest Margin, or NIM). This higher NIM will help banks become more profitable, and thus have the retained earnings to build back up their capital levels. This however will be a slow process given the magnitude of the losses being taken at many of the banks. The cuts also mean that when some people go to refinance, or when their ARMs reset, they will do so at lower interest rates. This may cause some who would have been foreclosed on to stay in their houses. The cuts will also weaken the dollar, particularly if the other major central banks do not follow suit. This will help the profitability of big
Bob Dobbs:
I agree. Millions have been on the losing end of investments for years now. Investing for the long term has turned into a mug's game. Starting with the farm crisis, moving to the S&L debacle, then the dot.com bust, loss of pensions, outsourcing of jobs and now millions losing their homes. Somewhere along the line you change the mindset & ethics of a society. I have friends & family who played by the rules & lost everything. Each crisis takes down another. In the end, how does that change the society in which you live?
paradigm lost
This is what puzzles me so much about so many CR posters. We live in the same country yet my glass is always half full and theirs is always half empty. What a self-created misery!
My job which gives my family a solid income did not exist 10 years ago - only the information revolution created it. How could you lose any money on stocks or even bonds in the last 5+ years, nonwithstanding smaller setbacks or well-timed bottom-selling. Other investments in raw materials worked out very well, too. All you need is be in the longer trends - and we had great and persisting year long trends.
The worst thing you can do is to develop a "tomorrow is the end of the world" mentality as this will prevent you from making any good decision whether in investing anywhere else. Recession-anticipation is neither a stimulating nor profitable pastime, either.
O-Joe
continued:
The cuts will also weaken the dollar, particularly if the other major central banks do not follow suit. This will help the profitability of big firms both by making our exports cheaper (and competing imports here in the U.S. more expensive) and through currency translation effects. Also since the value of a stock is the value of all the cash flows it will produce between now and when the Pacific Ocean boils dry, discounted back to the present, a lower discount rate will, as a mater of pure arithmetic, raise the value of stocks.
The Consumer is tapped out and it seems likely that unemployment will rise further. Thus consumers will be pulling in their horns and trying to defer purchase of those things that can be deferred. It does not mean that they will stop spending all together. Large firms that sell basic staple type items should do well, particularly if they have a big overseas presence and thus benefit from currency translation. A few stocks from the Dow 30 that fit this bill would be Proctor and Gamble (PG), Altria (MO) Coca Cola (KO) and McDonalds (MCD). I suspect they may be the new market leaders when the smoke clears. Eventually the Bear will die from the blood loss, but it is still dangerous until it is dead. Watch the close today, if less than 100 points on the Dow, start buying these big stable multinational firms tomorrow. If its down more than 300, wait until next week.
I am certainly not suggesting anyone should buy at this point,however there are some people who could benefit by doing a refi.I spoke to one today,they have had the same 1st for a long time,and tapped their heloc to do some repairs and upgrades after a pipe burst while they were on vacation.the upgrades were real,triple pane windows,etc,not granite countertops or bling.they have a blended rate of 6.75% at 30% cltv and solid incomes.I suggested a rate/term refi,and recommended they go to indymac directly and try for a 4.50% 15 year fixed with no points.Indymac is offering a rebate above a point on these deals!!! so there should be some room to bargain.They must be hurting very badly to offer these deals,they came out BEFORE todays rate cut.
Rob Dawg,
Thanks for the pointer to "The Cold Equations". I doubt my local public library has it, but I added it to my Amazon wish list.
there are some people who could benefit by doing a refi.
Absolutely -- if they are not already upside down, refi now while there are still comps. Especially for those with ARMs.
As an appraiser, I started feeling like a deck hand on the Titanic back in September -- "You have a 1st class ARM ticket, sir? This way to the life boats." For those with a 3rd class upside down ARM -- best be talking to your lender, looking for a Mod.
O Joe, today is not tomorrow and extrapolating today does not make it so when tomorrow arrives.
I am beginning to think that we will have a big splatter, followed by major unhappiness, followed by a slow dawn of a new era.
Remember, This just looks like 1974. Pay no attention to all of the warning signs.
And if we elect a Jimmy Carter, well, it's our fault.
Ignore the sounds of the helicopters warming up, ignore the bleatings of foreign dollar holders...just ignore everything, and it will be all right, after all, your only destination is your grave. That is your end of the world.
Someday this war's gonna end...
the glass is neither half empty, nor half full... it's the wrong sized glass.
O Joe,
Stop misportaying those you disagree with. Exept for Jas, there is practically nobody here who says "tomorrow is the end of the world" or the glass is half empty. all we are saying is that these little things called stocks are/were overvalued, same things for bonds, and houses, and that there's a bit too much leverage in the economy. None of us said that there should be NO loans, NO banks, NO derivatives at all. None of us said that houses should always be rented and never bought.
You know...you remind me of those people in 2003 who said it's unpatriotic to oppose the Iraq war. Just admit that so far you WERE INDEED wrong about the credit system and the extent of this downturn, and we were right, and I guarantee you that a hand will be extended your way.
OhNoJoe! Say it ain't so!
I didn't say I lost money. I've done OK, thank you very much. But there's much destruction around me. Well, I guess you can't see it...too busy gazing at your navel. At some point the nation should decide whether it's every man for himself or there's a common good to be considered. Today your glass is half full...but what if someone drinks it when you're not lookin'?
Dirk,
Altria will not be a market leader if the smoke clears.
Hi, Joe Six Pack here. I've been playing this game since 1972, dollar cost averaging mutual funds and throwing money into 401k accounts. What I have for my efforts is about 80 grand, mostly gained the the past few years because I dumped illiquid managed accounts and started doing things myself.
When the rates were low, I refied my latest house to a 15 year, leaving the equity. Then my wife got new house fever. You know the story. Sell the old one, buy a new one using the equity for DP. Now I'm sitting here nearing retirement with a house that I can't sell, and a tax assessment 150k more than the sales price.
Do I think I should walk? You betcha. Many of my neighbors already have, leaving empty shells that no one wants. But I'm not one to give up easily. I'm hanging on waiting to see what happens next. But once the DP is gone, stand by. I would imagine there are a whole bunch of Joe's clones doing exactly the same thing. Gotta go to my second job. Too bad about OCB, but I have a tax payment coming up.
O Joe is correct that there is much bearish sentiment on this site -- and more than a few end of world as we know it doomsayers.
That said, there is a hell of a lot of bad news out there, and while most of us hope the damage will be minimal, that is not something I would bet on at this point in time.
Until there is some sign of bad news stabilization, it is wise to remain conservative with ones financial options.
O-Joe:
This is my first comment to the blog, but I had to address what you said.
"The worst thing you can do is to develop a "tomorrow is the end of the world" mentality as this will prevent you from making any good decision whether in investing anywhere else."
I am not a concern-troll, but when I look around at my workplace and I see people who, in the very same conversation, talk about the blu-ray player and movies they're going to buy with the $800 tax credit, and yet complain that they can't eat lunch until payday because they're behind on their rent, I know something is wrong.
When people happily talk about planning their next vacation to Mexico, and also worry about what they're going to do when they retire, I know something is wrong.
When conversations turn from how our children are doing in school to the latest stupid upgrade people have done to their house, I know something is wrong.
We can't put our finger on just what is wrong, but there's... something... that doesn't feel quite right to us. Somewhere along the line, we started getting absolutely bombarded with the message that we could get rich quick, and even if we didn't actually have the money we could still live like we did.
You say: "How could you lose any money on stocks or even bonds in the last 5+ years, nonwithstanding smaller setbacks or well-timed bottom-selling."
And I am here to tell you, the vast, vast majority of middle class Americans simply have no clue what that sentence even means. People I work with don't fund their 401k, because it means less money into their pocket on Friday. In the past few years, they have become so overwhelmed by financial problems that even the thought of saving any money from each paycheck is a completely foreign concept.
Poverty is sweeping through America like the Gobi desert, always expanding further and further onto the landscape. Regular, hard-working people, who have been conditioned to spend spend spend spend by everyone from their favorite television shows all the way up to the President himself, are finding that they just can't spend anymore, and they're going from upper-middle class to extreme lower class within the span of one paycheck.
So no, I don't believe that the world will end tomorrow. But there are some serious economic problems with our country, problems that can't be fixed by making sure the stock market is at 12000. I don't know how we solve those problems; I don't even know if we can. As a society we need to rally around a wide-reaching solution, which includes systemic changes in our society.
It is clear to me that the road America has gone down the past few years is a destructive one, not just to our precious portfolios but to the very fabric that defines what it means to be an American. The overwhelming wall of debt that has been created is killing our way of life.
Mark,
the blu-ray player and movies they're going to buy with the $800 tax credit,
Wait...this is important. Did you actually hear this? Is this what people are actually saying? Is it because they are partriotic or because they think they have the extra $800? Don't some of them want to, for example, use the 800 to pay down their credit card balance? what state are you from? thanks.
Mark and Ugh--right-on!!
Years ago, I watched a local news news story about a family being evicted from a house. All their stuff was on the front lawn, including a huge big-screen TV.
I think I'll be seeing reruns of that story, only this time, the TV will be skinny.
Yes, people are that stupid. Give them $800 cash, and they will spend it on crap they don't need. Don't kid yourself thinking that they'll do something responsible with it, like paying down the principal on a credit card.
probert:
California, of course.
And yes, this has been the conversation. The people who even know that they're getting $800 back from the government-- and trust me, most people had no clue until I asked-- are treating it like a community chest card in Monopoly. I don't ask people how much credit card debt they have, because let's face it, that would be rude.
We all laugh at the term "retail therapy" but for a lot of people around here that's what is happening. People don't feel like they're getting ahead in life unless they have the latest gadget, or have the latest fashion, or have gone on a long weekend, literally flying away from their problems for a while. I can only speak for the people at my work, who are solidly middle class, but I have to believe this is being echoed throughout the entire country.
Throwing money at people who live their lives based upon Us Magazine is not a solution. The very idea that I would put the money into a "brokerage account" (another foreign concept to coworkers) gets me strange looks. I think this may be part of the problem-- society treats those of us who don't blindly run up our credit cards as some sort of outcasts. When I am unimpressed with someone's iPhone, they are insulted. When I tell people that I don't wear clothes with billboard-sized brand logos on them, because I'm not terribly excited about marketing, they get genuinely confused.
This is why O-Joe's statement hit home with me. We are told that we should be happy because of all the things we own, and that the economy is robust but only facing a little challenge, but at the same time there are so many people who are tightrope-walking that it is hard to believe people will be in good shape when it comes time to retire.
Only about one in five of those Americans polled gave U.S. economic policy high marks, although 55 percent rated their own personal financial situation "good" or "excellent".
Nearly 31 percent of those polled expected house prices to rise in their area over the next year, a slight improvement from last month, when that total stood at 27.5 percent. Some two-thirds thought prices would stay about the same or fall.
Page Not Found | Reuters.com
The number of mortgage default notices filed against California homeowners jumped last quarter to its highest level in more than fifteen years, a real estate information service reported.
Lending institutions sent homeowners 81,550 default notices during the October-to-December period. That was up by 12.4 percent from 72,571 the previous quarter, and up 114.6 percent from 37,994 for fourth-quarter 2006, according to DataQuick Information Systems.
ck,these people are still at about 30% cltv.My Father was an Appraiser and expert witness for 40 years,and I am licensed as a Broker.I am one conservative son of a gun when it comes to Real Estate and do belong to the local Appraisers association.Speaking out,and refusing to make bad deals cost me about $50k in commissions last year,however since I was getting Divorced at the time it wasn't as much of a loss as it could have been.The ex has everything sheets and kiyosaki ever wrote,and all the DVD's as well...so she knows more about real estate than i ever will.
I rarely comment here because my thoughts would be out of place what with the large brains and all... But I have to speak up so that this doesn't turn into the typical economics debate which consists of one attention starved poster dictating the entire discussion by angering people.
In other words, don't feed the troll.
Optimistic Joe,
Please go long I sold most of my PUTS this morning and need guys like you to bid her up again. I am up 75% this year how is going long doing you?
It may be hard to imagine 2008 being worse, but it is impossible to imagine it being better.
Ignore the sounds of the helicopters warming up, ignore the bleatings of foreign dollar holders... AllenM, are those the money dropping choppers or the "last one off the embassy roof is a rotten egg," ones. 'Cause I predict at least two years before we here the latter bunch.
Mark, that post is too self-effacing for you to be considered a concern troll.
O-Joe, now we're talking troll. Except when I mistake him for a droll, dry satirist.
mark,
I know what you mean, it actually sad that some measure their own worth/happiness by the amount of stuff they have. but that's the way it is and you can see that in the overall debt statistics that the Fed puts out. When HELOC financing dried up in 3Q07, the consumer just made up the shorfall by allowing the credit card balances explode. now the banks are saying (JP Morgan Chase comments) that they are aware of these trends and are now monitoring credit limits to avoid the inevitable wave of defaults. All of this, imho, is a sure sign the the US consumer, as well as the other "anglo consumers across the world are straight up addicted. They know they are living way beyond their means and that it will end poorly, but they can't seem to not borrow because they haven't yet separated the addiction to stuff with the debts and the MSM won't help them because they earn when the consumer spends.
On an optimistic note, all of this spending is not increasing the average happiness indicator for the US consumer and when the drug pushers (wall street/MSM and banks) finally turn off the spigot, the withdrawal period is horrible (and that's 2008 to 2010 I think), but people will find a better way to live over time. You'll still meet people that are happy/sad/angry in about the same percentages that you see them today. frugality will become the fashion instead of excess and the world goes on. That's what keeps me going anyway.
Washington Mutual really must like this news.
If you are curious about particular areas, ForeclosureRadar
will show you the database for a neighborhood.
Scary stuff.
Nice posts Mark.
please find attached an interesting essay on the topic a little long but well worth the read.
Consumerism and the New Capitalism
Mark,
I suspect your impressions are highly unrepresentative of the average US tax payer who will be receiving that $800 credit.
Outside of large cities in California, the value of the dollar is very different. When the price of a starter home is in the $50K price range and a nice home is in the $1-200K range (as is the case in most of the country), that $800 stretches alot further.
I've lived in Illinois, Indiana, North Carolina, Florida and California for extended periods. I can assure you that in almost every part of the country except Californian cities, life revolved around the community and its activities, not on material goods.
Much of the US is in much better shape than the bears think. The pain will be highly localized in the high-priced metropolises - not just because of the price drops of real estate, but because these are the areas where a dollar has lost its traditional worth.
I can assure you that in almost every part of the country except Californian cities, life revolved around the community and its activities, not on material goods.
Oh, get real. People drive their Hemis to Best Buy to get overly-large plasmas everywhere in this country. The only difference between flyover country and the coasts is that there are more people who kid themselves about how moral they are in flyover country.
F. Frederson,
I didn't say they don't buy material goods. However, there is a decidedly different emphasis.
Folks in the middle class in flyover country don't think twice about the fact that they own their homes. In California, it's a badge of honor.
In flyover country, people spend a lot less time commuting to and from their jobs. This frees alot of time to spend with friends and family. The result is people build relationships, participate in sports, etc.
Unreal. I read one report that estimated the peak of option arm resets would be Feb-March of this year. If that's the case and the payments go up substantially, even with the low interest rates, California Foreclosures will only go up more.
National Housing Assistance maybe able to help if you're facing foreclosure.
Please call:
877-264-2529 / 877-2-NHA-LAW
Try as may there is only one solution to high prices. These people paid too much on a term contract. Tactical Flashlights
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