Negative saving rate, unprecedented debt, wealth concetrated in few hands and Shiller thinks we can spend our way to presperity. I am growing tired of the wise men of economics and their quick fix mentality.
It bugs me a little bit about how Robert Shiller says that we need to take all these measures to boost consumer wealth and consumer confidence, but also laments that consumers aren't saving enough.
Isn't it possible that the reason consumers don't save enough in this country because we always seek to boost their confidence, even when it's not warranted?
To me this is distrubingly similar to UCLA-style "Fantasy Economics".
Increasingly my sense is that when it comes down to it, Robert Shiller doesn't think that the average person should be able to make decisions that affect their economic future.
Maybe he's right.
In any case the Federal Reserve and the economic orthodoxy in this country clearly don't believe that US citizens don't deserve free will in these matters.
In any case the Federal Reserve and the economic orthodoxy in this country clearly don't believe that US citizens don't deserve free will in these matters.
BTW, take one of those don't out. It makes more sense that way.
--
The severe recession will be continuation of the weakest and costliest recoveries...
The annual growth rate in employment in Jan08 was 0.72%. Whenever this rate fell below 1.0%, after a sustained recovery, the economy had entered recession.
Assuming that the recession began in Nov07, during the last business cycle, Mar01-Oct07 (beginning of the recession to the end of the recovery,) the annual rate of growth in Employment was 0.62%, the worst since the Great Depression, which finally ended with the end of the recession of 1949-50 in Sep50. For comparison purposes the annual growth rate during the previous (Clinton) cycle, Mar91-Feb01, was 2.02%! Thus, the Clinton-cycle employment growth rate was 3.28 times the Bush-cycle!!
And the cost of the Bush recovery, in household debt via the Housing Bubble, was horrendous.
I personally think after reading the SD article on short sales earlier today we are screwed. Even the FEDS don't have enough money to put Humpty together again.
The best thing to do is let housing correct. Then people will have lower house payments and rent then they can spend again. You can't borrow your way to prosperity.
It's pathetic the way some of these media people practically beg to be told that we're at the bottom and that everything really will be alright -- putting their anecdotes out there.
All this discussion without understanding why this chart of household mortgage borrowing is merely blather.
Prices zoomed up because Americans were able to borrow FIVE TRILLION PLUS dollars 2002-2007.
This was essentially a time-warp of income from the future -- which will be debt service going forward -- into cold, hard, cash in consumers' hands in this economic cycle.
Prices will fall to the corresponding level of lending. $600B/yr is about 2002-era prices.
Not reason to whine, we can all short homebuilders soon and make a load of money. People continue to make bad assumptions, and, for the informed, this is a huge opportunity. CR readers will have every chance to profit from the mainstream blunders. I say keep up the misinformation NAR.
No worries, Senator Dodd (front man for the banks) has proposed a new federal agency to deal with the mess. It will be called the Distressed Mortgage Agency. I am not making this up! This sounds very similar to the RTC set up to deal with the Savings and Loan crisis of the early 1990's, which involved risky real estate lending -sound familiar? This mess will end up just the same way, just bigger this time. The bagholders have been identified-It's us--the US taxpayer, again. Now the stock market can rocket up up and away. The banks and Wall Street keep all the fictional profits and you and me pay for all the real losses . It may be time for the second Revolutionary War if we get stuck holding the bag again.
One of the hedge fund managers who specialized in subprime, made 350 million dollars, frose his client's assets in the fund with no redemptions, and has now had to sell his Gulfsteam jet and his 45 meter yacht, named the "Carry Trade", so he is cutting back too, Come on you people,you have to chip in and help him out , he is feeling the pain. And there is a National Securitization Forum meeting in Las Vegas, with topics including -How to rebuild investor confidence in subprime, and How traders cope with low volume subprime trading conditions. You can read all about it at Bloomberg-no joke.
Excuse me, I need to take a break so I can go
vomit... these amoral crooks have made me sick from disgust.
PS, this blog is great. Misean, your posts are absolutely hilarious...better to laugh at all this stuff..it is just business as usual on Wall Street.
barely writes:
Negative saving rate, unprecedented debt, wealth concetrated in few hands and Shiller thinks we can spend our way to presperity. I am growing tired of the wise men of economics and their quick fix mentality.
barely | 02.02.08 - 7:07 pm | #
barely got to the crux in the first comment. These economists lament lack of savings, but then it is all about confidence and spending.
Does it ever occur to any of these people that "consumers" are pulling back because they are BROKE.
"Increasingly my sense is that when it comes down to it, Robert Shiller doesn't think that the average person should be able to make decisions that affect their economic future."
Shiller would have us be more like Singapore, I think.
as somebody who works on "wall street" (albeit in a unsensationalized arena and in a low level capacity), i'm shocked by the shock of people on this blog and in the MSM regarding wall street's intentions, moral fiber and capacity for greed.
WS will buy anything assuming WS can skim a little bit and sell it to somebody.
only the top 1% of hedge funds and banks have the mental ability and intestinal fortitude to move against the market and take the other side of the bet.
everybody else is, to borrow chuck prince's terminology, just "dancing."
Spending our way to prosperity wouldn't be such a bad deal if... that money was churning around and around in the US economy rather than being sent elsewhere almost as soon as its spent (i.e tanker loads of crude and aircraft full of ipods and iphones). I have nothing against buying stuff that originates in other countries, as long as they are buying just as much from us.
WS will buy anything assuming WS can skim a little bit and sell it to somebody.
only the top 1% of hedge funds and banks have the mental ability and intestinal fortitude to move against the market and take the other side of the bet.
everybody else is, to borrow chuck prince's terminology, just "dancing."
The problem is a lot of these hedge funds that aren't betting against the markets are still knowingly involved in ponzi schemes (e.g. housing). How many hedge fund managers who bought bad debt actually lost money? Or was it just their clients who lost money?
I think unless you've experience the thrill of screwing people over for money first hand (presumably because you're "smarter than everybody else") I think it's difficult to appreciate the tendency for this kind of behavior to spread and become deeply entrenched in a culture.
Some of us who used to dream only about an opportunity to make the world a better place now only dream that tomorrow will bring a new sucker.
Send me an e-mail when the median home price is twice median household income.
That event will be near a bottom.
Also, how can there be serial stimulus packages when every penny must be borrowed from countries that are fighting inflation caused by a world excess of dollars? The US government has been BK'ed by military action - possibly intentionally ("starve the beast"). I personally suspect the US will also have high inflation (10%-ish) due to globalization even as we have a credit collapse. Rare but not impossible IMO.
The last great bubble (in this super cycle) may already exit in bond prices.
Can I just say how much I HATE the hand-holding interview style that passes for news these days. It's like weatherman-itis has infected all reporters. Why does everything have to have an upside? And be cheerful and positive? It's so callow and insincere. WTF is wrong with Americans?!
the real issues is that as currently constructed, our economy must grow to avoid collapsing back on itself.
in our frantic urgency to maintain "economic growth" we have borrowed and spent ourselves into oblivion.
equity appreciation is dependent on earnings growth; new debt must be issued to pay debt service; asset appreciation is dependent on an increasing population (each successive generation of which overutilizes natural resources) and what else?
its an unsustainable system. we'll get out of this mess without a depression, but it won't be long before things get really bad.
when oil is scarcer and costlier. when food becomes more expensive and more toxic to the environment. when we can't afford to spend our way out of a recession.
we'll be fine for a while - the US is still innovative enough that our economy can prosper for the next 5-15 years just building up China and India (infrastructure, tech, ag) and global alternative energy supply. but unless serious changes are made in american consumption patterns and major scientific advances are made in alternative energy, i can't see how it will be enough.
the 2020's should be interesting.
sorry for the rant - i just can't understand a society that counters a terrorist attack with pleas to "go shopping."
NC Jim writes: The last great bubble (in this super cycle) may already exit in bond prices.
It won't be buy choice either.
Not only is there a distinct possibility that the Fed will take rates to 0 (a la Japan '89/90), I also think that Bernanke-panky will - as an "open market operation" compress the yield curve by buying Treasuries all across the curve to take it to 0 as well. Look at the TAF, the 50/50 cut on an options expiration. This guy is all about "being creative" and having government entities stepping further and further into the market realm.
All because they "are from the government and are here to help."
Shiller like BB places great emphasis on "confidence" its as if the new fiancial engineering is based on perception rather then reality. Now I cannot spend my Confidence at the store nor does my confidence reduce debts. Somebody please inform the economic upper crust that income is more important key measure of wealth rather then confidence.
"Some of us who used to dream only about an opportunity to make the world a better place..."
If there are actually more than a handful of sincere, non self-congratulatory people out there who actually feel this way, then I am his holiness the pope.
Sorry for the rant, I'm just fed up (ah, pun intended).
you sound like you are struggling with income - i'll hire you for some work on the side, but i'll only pay you with praise. after a couple of weeks you'll have so much confidence you'll be able to buy an ipod.
serious now: great point on BB. the current economic hardship is just an "illusion" and if we can prove that "illusion" false, everything will be OK.
Shiller like BB places great emphasis on "confidence" its as if the new fiancial engineering is based on perception rather then reality. Now I cannot spend my Confidence at the store nor does my confidence reduce debts. Somebody please inform the economic upper crust that income is more important key measure of wealth rather then confidence.
"Oh, don't worry about walking off that ledge. There'll be an airbag at the bottom by the time you get there."
Done and done, I wrote both my senators the day the House came out with the conforming loan limit increase...used a quote from Lockhart (head of OFHEO) to buttress argument.
We'll see if that turkey makes it back in the conference version of the bill...
"The recession is going to be horrible. People are going to stop borrowing, cut way back on spending, stash their money into savings, and generally tighten their belts, killing the economy."
News reporter to economist:
"Then what do you recommend people do to get ready for the coming recession??
Economist to news reporter:
"They should stop borrowing, cut back their spending, start saving, and really tighten their belts..."
I wonder why these interviewers so often stumble over their words because they babble so rapidly. Why can't they maintain some verbal poise when asking their meaty questions?
I sense that Shiller believes it is going to be much worse than he says it will be. He is just being cautious about what he says.
As he points out in Irrational Exuberance, 2nd ed, these manias are driven by psychology.
His comments about the need for additional stimuli merely provide a polite way for him to tell you how screwed housing really is. He cannot possibly believe that a little stimulus will change sentiment towards housing.
If he told the truth, he would not be invited to be on TV. Simple.
Jas, stick to economic prophecy and stay away from political economy. The rapid increase in household debt started in the '90s. Probably a 'boomer' thing -- instant gratification -- more than anything:
Hope you're right, mp, about Monday. Although if you could push things off a week, I'd appreciate it, as I'm levering up via margin and other borrowing to amplify my SDS bet.
Shiller, for being such a sharp guy in many matters -- seeing the dotcom bubble and housing bubble -- sure is oblivious to other things, e.g., that household debt to income at 150-200% of '29 levels poses a mortal threat to consumption and that you can have inflation -- if we are flooded with dollars and credit -- even when real activity is receding or depressed.
dr strangemoney writes:
Regarding suckers and financial education, the solution is simple. Graduating from high school would require correctly answering this question:
Somebody gives you information when they have a vested interest in getting money from you. You should assume that this person is:
a) Trustworthy
b) Full of shit and trying to rip you off
Yeah, well going through life assuming that everyone around you is trying to rip you off makes for a horrible society. I'd go on a long rant about this, but I just did on my blog.
" Now he (Shiller) says lawyers won't let him publicly forecast home prices because he's involved in preparing the market-sensitive Standard & Poor's/Case-Shiller home price indexes. All he'll say is: 'This is a historic turning point.' "
If Conjure Bag is looking for a change might I suggest Fuente Double Chateau Sungrowns if he has time for a long relaxing smoke. Otherwise the Hemingway Short Stories work well if he's pressed for time.
I can't believe that Shiller dodged the question of raising the conforming limit amounts. I am at a loss to explain how this will improve efficiency of mortgage markets. We got into this mess because of exotic mortgages. Now that prices are falling across the country, why would we RAISE the conforming limits?
I suppose the real reason that the limits are going up is NOT to improve the system and make sure that this mess doesn't happen again, but rather to try to reinflate the bubble and have the GSEs eventually bail everyone out.
(BTW, the bubble WON'T reinflate, since borrowers will still need to qualify by proving income, etc.)
Keep It Simple, I'm Stupid writes:
dr strangemoney writes:
Regarding suckers and financial education, the solution is simple. Graduating from high school would require correctly answering this question:
Somebody gives you information when they have a vested interest in getting money from you. You should assume that this person is:
a) Trustworthy
b) Full of shit and trying to rip you off
Yeah, well going through life assuming that everyone around you is trying to rip you off makes for a horrible society. I'd go on a long rant about this, but I just did on my blog.
Keep It Simple, I'm Stupid | Homepage | 02.02.08 - 9:06 pm |
Why does the choice have to be between two extremes (honesty or ripoff) listed above? Usually the behavior of the sales people we encounter is somewhere between. We just need to realize that the guy who labels himself your "financial advisor" is actually a "financial products salesman." That would make the whole business a lot more transparent. After all, used-car salesmen don't call themselves "transportation advisors."
Gee on a couple of threads ago I seem to recall saying Stephen Roach was ahead of the curve stating "A sharp decline in asset prices ( first and foremost with hosues ) is necessary to rebalance the US economy".
Why does the choice have to be between two extremes (honesty or ripoff) listed above? Usually the behavior of the sales people we encounter is somewhere between. We just need to realize that the guy who labels himself your "financial advisor" is actually a "financial products salesman." That would make the whole business a lot more transparent. After all, used-car salesmen don't call themselves "transportation advisors."
Because most people do not have professional level knowledge of financial products and investing. Unless you plan to argue that everyone should develop such knowledge, there is a need for financial advisers that you can trust.
If you do think that everyone should have such professional level knowledge, does that apply to everything in life? Is it your fault if you don't have a professional knowledge of everything, and someone takes advantage of you?
"Because most people do not have professional level knowledge of financial products and investing. Unless you plan to argue that everyone should develop such knowledge, there is a need for financial advisers that you can trust."
"Trust" is the operative word. Inevitably, these folks have a product to sell, and that's not always wise advice.
its an unsustainable system. we'll get out of this mess without a depression, but it won't be long before things get really bad.
Okay, dunham, how exactly do we avoid a depression?
The interviewer is absolutely clueless -- she obviously considers real estate a circus side show, and not the predominant driver of the economy this century. RE got us out of the last recession, and nothing's stepped in to take it's place; take it away and we're sunk. There's little left except huge sums of (realistically unsecured) debt, even larger future obligations, and absolutely no savings (not to mention your seriously disjointed economic structure).
I've said it before and I'll say it again -- we're in worse shape than 1929, not better. RE peaked in 2005, jobs just now tanked, and CRE's angling southward. This show is only now starting.
KISIS: If you do think that everyone should have such professional level knowledge, does that apply to everything in life? Is it your fault if you don't have a professional knowledge of everything, and someone takes advantage of you?
Someday Im gonna write a book the title will be something like Asymetrical Relationships (OK, Ill have to work on that.)
The thesis will be that in todays world virtually every transaction an individual makes is with a very large organization. The organization always holds the cards; it understands the laws (may have even written them) and if you want to play with them, they make (and change) the rules.
The irony is that many of us are employed as cogs in one of these big wheels; were the experts in some aspect of these rules. We hold the advantage in that area, and if the topic moves to another area we call in/transfer the issue to an expert in that subject. The layman doesnt stand a chance.
Then we go home from work and become the layman ourselves, dealing with CC, utility, retail, government, and my personal favorite, the cable company. And we have to deal with their experts and rules. And still, the layman doesnt have a chance.
idoc- "what do u think about total borrowing of depository institutions dropping back to zero?"
idoc, we haven't had the chance to do any deep analysis for several days. Having said that, we expected a test of 12,000 and certainly got it. Conjure and I didn't expect this big of a bounce. Oh well, just that much more fun later.
Go to Table 2.1, and pull down annual data from '29 to present. You'll see that personal savings as a percentage of disposable personal income (line 34) was positive though declining over '29-'31, negative in '32-'33, and was 7-10% through '92, when it began its near monotonic decline to near zero.
That addresses annual savings. But it does not address stock of savings. I don't know where to find that online.
However, I don't know--in fact, I doubt--if the rates for 1929 and, let's say, 2006 are comparable. I say that mainly due to differences in culture and the system's structure.
When comparing the 90s to the 20s it's important to note that "savings" doesn't include investments or home equity. When houses were selling for $10,000 in Westwood these were not that significant, but these days, people have more access to wealth outside of traditional savings.
The important thing here IMO is that there was a positive savings rate up until the GD, whereas we haven't had a positive savings rate this century. Goes to my point that we're in worse shape now, not better.
How many stimulus pkgs do you think we'll get in 2008? 3? 4? I better sell my EEM PUTs. The only place getting an economic stimulus will be China. Good. More money for China to buy MORE US Treasuries and pump into the IBs. Perpetual economic motion machine.
Because most people do not have professional level knowledge of financial products and investing. Unless you plan to argue that everyone should develop such knowledge, there is a need for financial advisers that you can trust.
Obviously there's a need for that, but where does the small-timer find a financial adviser who doesn't have divided loyalties -- if he isn't completely in it for him/herself?
There are decent retail stockbrokers out there, just like there are decent car salesmen and realtors too. But it's always, "let the buyer beware."
If you choose not to do your homework and "trust" the people you do business with, you will eventually pay for that.
I'm no Shiller fan particularly and I find his relaxed manner in that setting much more convincing and less distracting than the host who should have maybe had a handful of cards to play with...maybe shoot them 1 at a time with her questions...such were those distracting limbs.
$2T loss (according to Shiller) so far in the housing morass means in this $13T economy that...there was no GDP growth...even if we assume that $2T is from the peak of housing in 05...no growth since mid 05. The large beast takes awhile turn, but we take longer to recognize the turn and even longer still to act on it.
barely writes:
How many stimulus pkgs do you think we'll get in 2008? 3? 4? I better sell my EEM PUTs. The only place getting an economic stimulus will be China. Good. More money for China to buy MORE US Treasuries and pump into the IBs. Perpetual economic motion machine.
Maybe the only economic stimulus that matters is the one we get from China. Let's hope they want to keep stimulating us.
\tWhen comparing the 90s to the 20s it's important to note that "savings" doesn't include investments or home equity.
That's because investments and home equity are not savings, and can evaporate quite quickly. Did I say can? Oh, so sorry... they are evaporating quite quickly.
tj, no doubt whatsoever that we are in worse shape going into this depression than we were in '29.
There's a chart from Ned Davis Research that I have on PDF that plots domestic debt-to-GDP over '20-'06. It is scary: in '29, it was at 170%; today, it is at 330%.
That chart is the one that foreordains where we are going -- depression -- IMO. Either income has got to grow faster than debt -- fat chance -- or debt (and assets) have to be liquidated, which is happening as we speak.
As those assets and debt get liquidated/written off, 'animal spirits' for investment and entrepreneurial activity evaporate and consumption plummets.
Store those nuts, folks, 'cause it is going to be a long, long winter, unfortunately.
We have deposit insurance (see CR post last week about bank failures in 20s and 30s)
We don't have half of Europe starving and nearly the whole continent in political chaos. This certainly caused some rather poor policy choices (e.g. Smoot Hawley)
We don't have a gold system pushing us into deflation (I imagine you think this is good, but my opinion is that it made the depression far worse in the UK for example)
People are far wealthier in the US, so it's far harder to starve now then it was then. This is actually important.
Govt. social programs now act as economic stabilizers (unemployment insurance, social security, food stamps etc.)
Shift in economy towards services means its more stable. So does shift in manufacturing away from carrying large inventories.
etc. etc.
This economy is a different animal. Odds of a repeat are rather low.
jg- "There's a chart from Ned Davis Research that I have on PDF that plots domestic debt-to-GDP over '20-'06. It is scary: in '29, it was at 170%; today, it is at 330%."
This type of measure, it seems to me, is more germane to what y'all are talking about than the personal saving rate.
Be advised, however, that Conjure and I do not subscribe to an actualization of 1929 scenario in this instance.
"On Jan. 30 the government said annual economic growth slowed to just 0.6% in the fourth quarter as home construction plunged at a 24% annual rate. The Standard & Poor's/Case-Shiller 20-city home price index fell 7.7% in November from the year before, the biggest decline since the index was created in 2000.
"And that could be just the start. Brace yourself: Home prices could sink an additional 25% over the next two or three years, returning values to their 2000 levels in inflation-adjusted terms. That's even with the Federal Reserve's half-percentage-point rate cut on Jan. 30."...
Given the lag from notice of default to foreclosure to sale, the sales numbers we are seeing now comprise the first wave of foreclosures stemming from the August credit restrictions. Furthermore, we should expect the month-on-month rate of REO and short sales to increase until at least 6 months after the peak in ARM resets, making 4Q08 the likely peak rate of home price decline, with the decline rate easing in 2Q09 and beyond.
A second observation is that every foreclosure, and perhaps every short sale as well, produces a person or household that will not be a future home buyer for at least several years. Taking together the recent record rate of homeownership, the excess supply of housing, the continued monetization of land, labor, and material by the homebuilders, and the disenfranchisement of foreclosed and short-sold homeowners, and we have the conditions for long term price pressure on residential housing. This may take several years to clear.
By the time it does, the baby boomers will be beginning their excess property liquidation to support their retirement.
The conditions for a generation of real home price declines are in place.
Maybe the only economic stimulus that matters is the one we get from China. Let's hope they want to keep stimulating us.
You can take one thing to the bank. China will act in it's own (very long term) self interest. China may have found finance capitalism's weakness - an addiction to short term leveraged debt.
You're kidding, right? There are so many of your points I can eviscerate with little if any effort, but the worst is this: Shift in economy towards services means its more stable.
Stable??? The majority of those services are discretionary; IOW, the demand for them will disappear overnight. Services can never be the basis for a sound economy. Hell, that's one of the biggest reasons we're in worse shape this time around, not better.
...the Great Depression, which finally ended with the end of the recession of 1949-50 in Sep50.
Jas Jain
If this is true, Jas, the last Long Wave would have indeed bottomed out in 2002-2003 as per the ~54 years cycles demonstrated by N. Kondratiev first in 1926 (German edition, 1935 translated into English). You paint the most bullish scenario possible, yet forecast the extreme opposite. One cannot be more contradictory than this. Read the book!
I am not comforted by the fact that the US economy is now dominated by the service sector.
It is difficult to imagine that the nascent correction will be similar to any previous event. Shiller himself said that every cycle is different in the video.
FWIW, in the last San Diego downturn, only when NODs were coming down, employment was moving up, and sales were increasing did home prices begin moving up:
People are far wealthier in the US, so it's far harder to starve now then it was then. This is actually important.
At the risk of piling on, I will disagree. IMO, the US is not a rich country but a mid-income country containing many rich individuals and businesses. Take out the top 5% and I would bet (sorry I cannot quantify) the remaining 95% are insolvent or close to it particularily when you apportion the national debt (which we are beginning to do in the form of an inflation tax).
I know you meant "harder to starve" metaphorically but in 1929 most Americans lived on a farm or had family that did and could grow their own food with very little cash required. Most Americans today probably think steaks come from a steak bush. Agflation will be a serious problem by the election. Home gardens may come back in style (my best friend's Father raised chickens in the backyard within the Raleigh city limits as late as the 50's).
If you choose not to do your homework and "trust" the people you do business with, you will eventually pay for that.
As a practical matter, this may be true. However, modern society is so complex that it means that getting taken advantage of is going to be a commonplace event for most people. Not only do I find that to be an unappealing society, I'm not sure that it's one that will function at a basic level.
The reporter on the video was unbelievable. Every question was basically, "This is not anywhere as bad as it's been blown up to be, right? right? The bottom is just around the corner, correct?"
a) U.S. Americans have very little savings.
b) Almost all real property except a house is worthless once it leaves the store/dealership.
c) People are now losing -- nay, walking out of -- the only real asset they have: houses.
d) The U.S. job market has been in a flight from quality for almost a quarter century and shows no signs of abating.
so how, or more precisely, with what, are we supposed to spend our way back to prosperity ?
Pat "The conditions for a generation of real home price declines are in place."
Agreed, at least in nominal terms. If we get border enforcement and further curtail immigration things look even bleaker. I wonder what if any blue-skying the authorities are doing to prepare. My sense is nothing. They are fighting TODAY'S tape - HARD - And hoping (or praying - faith based planning)
If you choose not to do your homework and "trust" the people you do business with, you will eventually pay for that.
As a practical matter, this may be true. However, modern society is so complex that it means that getting taken advantage of is going to be a commonplace event for most people. Not only do I find that to be an unappealing society, I'm not sure that it's one that will function at a basic level.
Other people chime in and correct me if I'm being too cynical here, but I think millions of us small investors who had accounts with the major brokerage houses during the dotcom bust already have been taken advantage of. I'm not talking about "is going to be." Getting taken advantage of is already a commonplace event.
Now we find out that even larger investors--municipalities like Springfield, Mass. for example--have been taken advantage of. Meanwhile, millions of unsophisticated borrowers trusted real estate and mortgage professionals who told them not to worry about adjustable rates because they could refi after the price of the house went up. Those professionals wanted to close those deals because 1) they generally get paid by the deal and 2) in any event, their managers expected them to produce deals or hit the road.
I agree with you that this kind of society is unappealing. But it does function--or at least, it has been functioning. Let's see where we are in a year or two.
I respectfully disagree with everyone who says you have to trust a financial advisor - a broker - because you're too stupid to learn anything. I am 60 - and when I first started investing - there was no such thing as a discount broker - money market funds were brand new - and when you wanted to invest or redeem money from most mutual funds - you did it by mail. There was no such thing as an ETF. There was no internet - which provides instant access to tons of current information for free.
(I will also note that when I first started to practice law - we had wet copy machines - no word processors - just typewriters with white-out - no computers - and we dictated onto things that were like old Victrola records with grooves.)
We had about 4 TV stations (and when I was in college - the nearest TV was in the student union about a mile from my dorm). We did have newspapers.
People my father's age (he's 90) had an excuse for total reliance on brokers. Because about the only financial information he could get - even a current stock quote - was from a broker. And it is hard for people his age to make the transition from the way things were to the way they are now.
I am in the transitional generation. Some of us have made a smooth transition - it's harder for others.
But for you younger people - there is simply no excuse for ignorance except sheer laziness. A lot of investing work is - to put it simply - tedious and boring - plowing through lots of information and data. Evaluating one's risk tolerances. Going over family budgets in terms of saving and spending. Deciding whether you can afford that house - and eat out at a decent restaurant more than once a year. Learning about your 401k options at work. Your cafeteria plans. Making a will so your kids will wind up being taken care of by the right people if you die. Discussing sensitive issues (money is usually a sensitive issue) with spouses or partners. Etc. Not as much fun as the latest do-dad like an iPhone - or Super Bowl parties - or videogames - or writing 100 comments off the top of your head on a blog. But much more important.
Planning one's financial future takes a fair amount of work - and there are certainly no "one size fits all" answers. But - it is possible for most people who have IQs higher than 90 (I've met mentally challenged people who work at Publix - excellent local grocery chain - and many seem to have a better handle on their finances than a lot of people who started with greater intellectual advantages).
I have been doing personal and family financial planning at least 10-20 hours a week for almost 40 years now - and I will continue to do so until I am incapacitated or dead. Because it's necessary to try to make the best of my financial well-being. I'm just glad that I have a lot more resources available to me now than I did when I started out. It's all there at your fingertips people - you just have to be willing to sit down and use what's in front of your noses. Off soap box, Roby
ok, i need some clarifying analysis from u balance sheet readers, mp/lama. r these 2 inconsistent with each other? how can total borrowing in the graph go to zero while the table suggests otherwise?:
look at the acceleration in TAF borrowings! where does the Fed get the funds to fund TAF? shouldn't these numbers show up somewhere else in their balance sheet?
since these are automatically turned over, i assume, these become long term cash injections into the economy which can only be inflationary.
It's all there at your fingertips people - you just have to be willing to sit down and use what's in front of your noses.
It is about marketing machine. You can be smart as hell and still screw up. Clever and well designed messages will reach you, your siblings, your parents, your friends, your coworkers, and unless all above listed parties are (a) smart, (b) have unbiased financial advisors, (c) surrounded by honest people, you are doomed to make dumb decision.
Speaking of Hedy Lamarr (2 threads back), she invented CDMA in US patent 2292387, then under the name of Hedy Markey, look it up), she is central to several of the jokes in Blazing Saddles:
I respectfully disagree with everyone who says you have to trust a financial advisor - a broker - because you're too stupid to learn anything.
I have never said that the problem is that people are too stupid to learn anything. I have said that modern society is too complex for most people to learn everything they need to know. Sure, they can learn how to make detailed financial plans, but that means that there is something else that they aren't going to have time to learn.
On any given subject, a large chunk of the populace is going to have to trust some sort of expert. Finance isn't any different than anything else that way.
Dmitry Orlov has written on the differences between the US and Russia with regard to preparedness for economic collapse. Interesting stuff, and very similar to the comparisons between now and 1929.
Here is a link to a speech transcript, and he is easy to Google
Then we go home from work and become the layman ourselves, dealing with CC, utility, retail, government, and my personal favorite, the cable company. And we have to deal with their experts and rules. And still, the layman doesnt have a chance.
The obvious solution is for people (collectively) to regulate business through our elected government so that the power of the state can somewhat level the playing field (going to jail is a disincentive to take advantage). Of course, business doesn't want to lose their advantage and works hard to convience people that regulation is bad by definition. This has worked since the 80's (Reagan had such a sweet smile) but people are wising up. Expect regulation to make a comeback in the next decade (there is a reason for the FDA - lots of babies died).
Demographics are a bit of a problem taking 1.4 million consumers out of the market a year for 15 years. While we pay for the retirement and healthcare of the baby boomers.
I know some of you crazier bloggers have been missing Greenspan lately. Well, he is in Sweden telling more tales.
"He said that he didn't exacerbate the subprime crisis, instead he had called for caution in a speech in 2004."
"He said a surge in U.S. home purchases had driven up outstanding mortgage debt by 10 percent in the decade before 2004, but that the finances of those buying homes were not 'materially impaired' by the trend."
"He said low interest rates had held down debt service costs for households."
as somebody who works on "wall street" (albeit in a unsensationalized arena and in a low level capacity)
No offense, but that description made me think of somebody employed in a foreign equivalent of Wall Street who is now enjoying(?) world-wide prominence.
NCJ: "...there is a reason for the FDA - lots of babies died..."
Geez, NCJ, I thought that's why you libs WANTED the FDA, to give an imprimatur to terrible stuff like the morning after pill, the highly effective killer of babies (and of young women: use of the MAP can result in massive hemorrhage and death; lovely thing for the FDA to approve).
IMO, the FDA does not make things safer, at least not on the medical device side (where you often jump through meaningless hoops that have no real bearing on patient efficacy or safety).
Telegraph UK
George W Bush: God's gift to comedy
Dominic Cavendish wonders how comedy will cope when George W Bush becomes an ex-president (I get to post this because I'm from Texas.) George W Bush: God's gift to comedy - Telegraph
As bad as the housing boom-bust has been, I don't think it's the worst thing that's happened to the U.S. economy over the last decade, or the thing that will make this recession long, deep and hard.
In my work and life, I look around and see so many Americans who don't actually make or do anything useful. Think about all the wrong and damage that have been done by bankers, brokers, hedge fund operators, realtors, insurers and their CPAs, lawyers and regulators. All these "service professionals."
When we were a country of farmers manufacturers, miners and merchants, it wasn't possible for so many greedy people to go so wrong. I know we had robber barons. But not millions of them.
It will be so much harder to get the economy back on track, after the bottom, now that so many Americans have become so unproductive and useless.
But, after the massive bloodletting of the upcoming depression, I'm positive that we'll have our priorities -- family, honest work, thrift -- back in order.
Yes, too many people doing unnecessary things. Compound that with the fact that over half the population gets checks directly or indirectly through the (beyond bankrupt) government and you've got a sure-fire recipe for disaster.
But, after the massive bloodletting of the upcoming depression, I'm positive that we'll have our priorities -- family, honest work, thrift -- back in order.
jg, I really believe this, too. In fact, I'll bet there will come a time when we turn on the evening news and see that somewhere in America, somebody is starting a new factory that actually makes something.
Whoa, dude! Have you read that website you just linked? From the "About Four Winds":
Our objectives are:
1. To reveal the Darkside's secret Plan 2000 for total world control by our present evil world leaders.
2. To reveal to the world's people that Creator God Aton of Light also has a Plan 2000. God Aton and His Forces of Light will not do it for us but will work with us, as we responsibly confront evil in our day and change the 'ending of the play.'
3. To reveal the evil world leaders' cover-up of off-world humans (our ancestors) who are here in starships in Earth's atmosphere at this time, and who have come with good intent to help us prevent the evil Plan 2000 from being accomplished, and to help us establish the New Age of Enlightenment.
I know we get a bit apocalyptic around here, but come on.
But, after the massive bloodletting of the upcoming depression, I'm positive that we'll have our priorities -- family, honest work, thrift -- back in order.
Rich, jg, I agree with you. But I won't feel like we're in the correct upward trajectory in the US until we start spending on rail, barge transportation, and most people can walk to a brand new brewery.
Not kidding about that last one. Even Matt Simmons, oil investment banker, thinks that we must relocalize our food supply ASAP.
Peak oil, and global warming, doncha know.
NCJ: "...there is a reason for the FDA - lots of babies died..."
Geez, NCJ, I thought that's why you libs WANTED the FDA, to give an imprimatur to terrible stuff like the morning after pill, the highly effective killer of babies (and of young women: use of the MAP can result in massive hemorrhage and death; lovely thing for the FDA to approve).
IMO, the FDA does not make things safer, at least not on the medical device side (where you often jump through meaningless hoops that have no real bearing on patient efficacy or safety).
Come on, it doesn't have to be all or nothing. Yes, you can't trust every professional, but then it doesn't mean you can't trust anyone.
If the FDA is burdensome, think of what the place would be like unfettered of any regulation. You'd have the crappiest stuff sold out of fly-by-night manufacturing.
The problem isn't that there aren't trustworthy people out there, the problem is identifying them and not falling into the clutches of the other kind. And I do get the feeling that people have given up trying and just throw their affairs and money at some 'professional' and expect a miracle to happen.
I'm not talking an excessive amount of care, just due diligence.
Just like trusting anyone on this blog. I believe the vast majority honestly believe in what they are saying; they may be wrong, but they believe in it!
I don't know who the interviewer was, but she reminds me of Edith Prickly from SCTV.
Shiller knows the jig is up.
The interviewer kept trying to spin positive (she keeps hearing stories of people getting ready to jump in? WTF?). Shiller kept dragging her back to reality - and even hough he introduced the 'D'
word twice, he stuck to the official line of nothing worse than a 'really bad R'. To me, he looked like he thinks the worst is coming.
If the FDA is burdensome, think of before the Pure Food and Drug Act of 1906.
Remember. Prior to the PFDA of 1906 we had "Mrs. Winslows Soothing Syrup," a concoction of whisky, opium and cocaine that was sold by the tens of millions of bottles to mothers as a teething syrup for babies.
Shiller kept dragging her back to reality - and even hough he introduced the 'D' word twice, he stuck to the official line of nothing worse than a 'really bad R'. To me, he looked like he thinks the worst is coming. Marcus Aurelius | 02.03.08 - 1:15 am | #
Doug Watts,
Tanta drinks that stuff like cough syrup! It's an old family secret recipe handed down from old lady Winslow who was Tanta's great-grandmother. That's my this blog is so popular man.
...On any given subject, a large chunk of the populace is going to have to trust some sort of expert. Finance isn't any different than anything else that way.
Heck, just take medicine. You are trusting your doctor - even if you read the insert in the packet printed in the minute type. How many can actually read and understand the R&D and clinical trial results and make a decision that the medicine works, or that it won't harm you? Even if you can understand it, how can you be sure that the R&D was done, or the trials were not manipulated? You have only the pharma company's word for it.
"
Rich, jg, I agree with you. But I won't feel like we're in the correct upward trajectory in the US until we start spending on rail, barge transportation, and most people can walk to a brand new brewery."
I can walk to two microbreweries, one organic. Honestly, the place I live in is almost at the place you're describing; we've even got the rail in place to do long- and short-haul freight and passenger service. But a lot of the guys who bought overpriced homes along the currently-underused tracks over the past 10 years are fighting increased rail service tooth and nail because they think it'll effect their property values.
In the long run, it'd be good for their property values, if things play out the way I think they will. But they can't see it that way.
How refreshing to see Robert Shiller talk about the current state of affairs in a way that sheds some evidence on the severity of the current crisis along with some perceptive ideas of how to avert it.
What I find most appealing about Shiller, and Bernanke is that they are NOT politicians, they do not have to be, they are required to breathe, eat, sleep economics, and hence--do not have to be polished sales men. That is not their job.
Let Wall Street and MSNBC hold the torch to these guys-- they truly can show us the way out.
patient renter writes:
Might I add that this interview made me lose some respect for the man. Grow some balls dude... raising the conforming limits is ridiculous.
patient renter | 02.03.08 - 1:28 am | #
The man is hedging. He might have a job in a future administration.
Citigroup to withdraw cards from some U.K. customers: report
By Michelle Coffey
Last update: 5:02 p.m. EST Feb. 2, 2008
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Citigroup has told more than 160,000 customers in the U.K. that they will not be able to use their card cards after the first week of March, according to media reports Saturday. The bank is canceling credit cards for customers it considers risky following a review of accounts at Egg Banking PLC, an Internet bank Citigroup purchased in May 2007, according to a report in The Wall Street Journal. The figure represents about 7% of the Egg unit's credit card customers
NEW YORK (MarketWatch) -- Bank of America's planned acquisition of distressed mortgage company Countrywide Financial Corp. may have hit a major snag this week when hedge SRM Global Fund unveiled its 5.2% stake in the target, issued a blistering attack on Bank of America and asked the SEC to investigate trading ahead of the announcement.
Oh my kinda fugly, I hope I can get on this potential lawsuit. Nothing I enjoy more then smoking out snakes in the grass.
Some of us who used to dream only about an opportunity to make the world a better place now only dream that tomorrow will bring a new sucker.
ac | 02.02.08 - 8:06 pm | #
Or we have ended up working for those who look for the next sucker.
Watched the vid twice. Second time after reading the latest posts.
The man clearly looks worried. So, he starts dropping the "D" word and they haul him off, primp him up and maybe give him a little talking to about scaring the viewers, and pick up the show again.
She tries to coax happy-talk out of him (unsuccessfully). He again brings up the word which shall not be mentioned...
If the FDA is burdensome, think of before the Pure Food and Drug Act of 1906.
Remember. Prior to the PFDA of 1906 we had "Mrs. Winslows Soothing Syrup," a concoction of whisky, opium and cocaine that was sold by the tens of millions of bottles to mothers as a teething syrup for babies.
Doug Watt
This is not your father's FDA. It's job is to stifle competition on behalf of the big boys, plain and simple.
I don't think it needs to be scuttled, but some deadwood needs to go.
Speaking from personal experience, their flouting of their own regs simply to limit entry for certain medical devices(for products already approved in the EU and Australia) only benefits certain interest groups, certainly not US patients.
This is not your father's FDA. It's job is to stifle competition on behalf of the big boys, plain and simple. -- Alec
By saying this Alec, you necessarily represent that you are 100 percent certain that pharmaceutical companies will never ever ever again produce or introduce another drug that causes unintended, devastating side effects and try to hide from criminal and civil responsibility for the damage they have done.
By saying this Alec, you necessarily represent that you are 100 percent certain that pharmaceutical companies will never ever ever again produce or introduce another drug that causes unintended, devastating side effects and try to hide from criminal and civil responsibility for the damage they have done.
Okay.
Doug Watts
I wrote no such thing.
When they threw in an extra 6 months protection for the 1st generic to market, who benefited? Big Pharma who make copies of their own drugs.
Who pays for the clinical trials? Certainly not the FDA, it's the manufacturers with the deep pockets and startups who have to sell out
early to VC to even do phase 1 testing? Guess which datasets get barely perused then approved while which ones get the stink eye?
It's the FDA who looks sideways when me too drugs have horrific side effects, not the doctors, not the consumers.
Do you even know what the hell you're writing about?
Economic cycles do have a basis in mass psychology, which is why a depression is pretty much a given. People can't just maintain a balanced outlook, they go overboard on optimism and pessimism. The pendulum never stops in the middle.
The media spin looks desperate. A Bloomberg story on the loss of jobs said that out of 80 economists surveyed, not ONE had predicted a loss of jobs, and the consensus estimate was a gain of 100,000 jobs, while the actual number was a loss of 17,000 jobs.
Wow, those economists Bloomberg surveys sure are accurate.
On NPR radio show, they were interviewing some market 'expert' and asked him what he thought of the -17,000 jobs number. His response: "I think the number is wrong. I think when it is revised, it will show jobs growth."
So now we are getting some real solutions- if the statistics or numbers are unpleasant, they must be wrong and should be changed...problem solved.
I guess this explains why Moodys and S&P will keep a AAA rating on AMBAC and MBIA even after they default and go bankrupt, until hell freezes over.......which may actually happen sometime in 2008......
rob wrote:
So now we are getting some real solutions- if the statistics or numbers are unpleasant, they must be wrong and should be changed...problem solved.
Quelle surprise! The same solutions from the same environment where the exit polls are always wrong now compared to the electronic election results.
SEC in the hands of cronies.
EPA in the hands of cronies.
FDA in the hands of cronies.
The entire alphabet soup is in the hands of...
Sow the wind, reap the whirlwind.
The impending debacle has been forty or fifty years in the making. The denouement won't be pretty, or more importantly, predictable. Almost every external factor is different from the last "big one"; not the least of which is that the peasants have learned to imitate the elites by exercising ruthless self-interest. see:jinglemail.
First, I love the term "faith based economy." That's a keeper.
v, you suggested there was no one here who hasn't made money off the nonsense of the last decade. Well, I got out of stock entirely in the summer of 1999, left corporate America in 2002, and sold my home in 2003, so I'm relativey clean.
Looking through these lenses, I see a downward correction back to fundamentals for the housing market, not a depression. This devaluation will be good for typical folks who simply need affordable places to live and call home. I agree that 2-3 times income is about right.
I see a return to integrity and a simpler life for most people, and they will actually prefer it to the stale taste that passes for reality these days. And the "faith based economy" period (Reagan to now) will be viewed as a passing phase of greed and weakness for our society.
finally, those of you who use this site for your own speculative investing purposes, betting against legitimate value creation and such, I suggest you take a long look in the mirror. And I'll never teach my kids that being successful equates to being one step ahead of those trying to rip you off.
One factor that is commonly omitted iwhen comparing now and "Then" is the rural/urban ration. Here's the result of a very quick search; In 1930's Georgia 69 percent of the population was rural.
At the very least, that figure is reversed now. What appearance American urban centers will take on is truly horrifying.
01/20/2009 end of an error writes:
TJ and the Bear,
I agree we are much worse off than before the 1930's.
We have sold out our manufacturing base.
We have a fiat currency.
Unsustainable debt load.
Overcapacity in retail and the service sector.
A younger generation that is totally unprepared to compete in a global economy.
Not to mention at least peak cheap oil if not peak oil.
01/20/2009 end of an error | 02.02.08 - 11:37 pm | #
assume all of the above is true...
and use PO as a foundation for plans that you would implement in a national level...
I'm state the case the plan is brilliant, shrewd and devilish...and Working.
PO means reduced manufacutring...may as well sell it at the top...Done that..1990's-2005
Fiat currency-read the Prize to follow oil market developments with gold backing... no mistake that us peaked in'71 and nixon close's the window---
overcapacity in retail? not at the peak... would be like a 1000 person wedding and one bar... No Fun at this party.. capacity was Perfect.
All parties end.. the financiers who paid for it all won big.
Younger generation unprepared to compete in global economy? PO says there won'tt be such a thing. there certainly prepared to work in fields of war and wheat.
Wait till the job loseese pile up. where is everybody going who is getting foreclosed on. Are card now becoming houses. By the way, the next thing that will be yanked from us will be our credit cards.
I fear we havent seen the tip of the iceberg. How about all those negative amortization loans or option loand coming due in the years ahead, and the subprime resets have not finished. we have a boatload coming due this year. Oh waht a beautiful mourning , oh what a beatiful day, I am just beside myself becuase wall street gave America away. And, they got big bonuses on top of it. Something is definitely wrong here.
I AM DAMN MAD!!!
Sciller maybe not all right in his thoughts but if he is 1/2 right, look out. Has anyone even mentioned the civil unrest that can occur?
I also think that Bernanke-panky will - as an "open market operation" compress the yield curve by buying Treasuries all across the curve to take it to 0 as well
And just how is the +$2bn/day current account deficit going to be funded in such a scenario? You'd have to get China, Japan, oil producers just to give their stuff to the US for free, because the USD would become as worthless as its namesake in Zimbabwe.
This will get you even more scared. Its called real estate mortgage backed securities RMBS.... read the article where it discusses walk aways, the new phenomenon. Apparently, its socially acceptable just to walk away from your house now.
We are in for a mighty spanking, all of us, even the ones who have saved. The stock market willbe next to drop. There go the 401k's, pensions you name it. No one will be immune from the catstrophe that lies in front of us. Just keep watching your new flat panel tv that you cant afford, while you drink your 5 dollar starbucks coffee.
When comparing the 90s to the 20s it's important to note that "savings" doesn't include investments or home equity. When houses were selling for $10,000 in Westwood these were not that significant, but these days, people have more access to wealth outside of traditional savings.
This post should get the "Troll of the Year" award...
Let me point out another clear and utterly dispicable example of how the Big Banks, Brokers etc have no regard whatsoever for people's wealth or future well being.And why they are not to be trusted.
Think of all the billions in now worthless toxic derivative alchemy paper that has been sold by these snake oil salesmen into the pension funds, money market funds etc of honest hard working and retired folk, who placed their precious savings , future and trust in these so called "safe" investments.
If those things were say cars, trucks, bridges, dams or aeroplanes being sold and they performed as this toxic paper did , why the vendors/manufacturers would be up on charges!
It is called Fictitious Capital and it is being destroyed wholesale (along with people's wealth) now because the Ponzi finance shemes that spawned them have collapsed.All under the very noses of the Fed and Treasury.
This stock rally is walking dead just like the insolvent banks, agencies and monolines it is built upon.
Wow, all this apocalyptic stuff on a Sunday morning! It seemed to me that Shiller was clearly saying something between the lines, and I perhaps agree that all tools should be used because we don't exactly know what will help. After all, we've not been here before.
The issue for housing is that the terms that led to what is now happening are gone, regardless of who gets back in the game...certain hedge fund manager failures notwithstanding. What comes out of this will bury them for good. Housing comes back to a decent down-paymnent and real multiples. The journey there is what will be interesting. Most current financial products are toast, as are SIVs, CDOs, and general derivative instruments.
The credit area that started in the 60s has run its course full stop. It allowed the artifical expansion that we have witnessed by not requiring people to have the money to actually pay for what they were buying. All the innovation was in getting goods into people's hands who couldn't actually pay for them, except in some sort of future income stream.
So then, what happens now? Depression? Apocalypse? No way. Just a different way of doing just this. There is always a recovery and money to be made. Predicting doom is easy, figuring out what gets us out is hard.
This time it IS diffrent. If you recall the last time this happened in 2001-2003, the best that could be achieved was that the US consumer went on a borrowing binge to fund demand. THAT is what pulled the US out of recession. But, it led to the mother of all financial debacles today. Absent that credit/lending orgy, what will fuel future US economic growth and the so-called recovery thereafter?
The US consumer? Already his main source of wealth and income (housing) is in precipituous decline while banks are closing down HELOC's fast and furious. That ATM is closed. Credit cards? With delinquancies rising on already maxxed cards, this would seem like a rather weak source. Rising cost of lifes necessities will put paid to any excess income the US consumer can eek out.
Manufacturing? With demand coming from where? The US consumer? And with millions of manufacturing jobs sent offshore in the past 2 decades anyway,any demand increase will be felt in China rather than the US.
Service jobs? Retail, banking,construction, small business? These industries are hardest hit from the credit crunch.They will downsize and consolidate to reach economies of size for what will be a significantly smaller US economy.
Cheap money does not guarantee more demand by any means. Confidence drives demand. Recently, consumer confidence has been shattered, with much worse to come. In the last almost decade confidence and demand has been enabled by incredibly easy access to debt, with much of it at very low rates. With that door now firmly closed , it falls increasingly on current household incomes(and savings?) to service demand. That would mean the approximate 1 third of all US consumer spending in recent years has now lost its funding source.
How big an effect is that? Rather big I would say.
What I find most appealing about Shiller, and Bernanke is that they are NOT politicians, they do not have to be, they are required to breathe, eat, sleep economics, and hence--do not have to be polished sales men. That is not their job.
Let Wall Street and MSNBC hold the torch to these guys-- they truly can show us the way out.
And yet these economists who claim to have all these cures for the economy have so far only managed to unleash this financial apocalypse with their repeated, and apparently failed, attempts at fixes.
They've yet to demonstrate any real long-term successes.
Is it possible that they're merely deluding themselves about being able to fix problems that may be fundamentally rooted in human nature?
If so, I don't care how nice they are. I want them to stop peddling snake oil and convincing everybody that they're going to make us well when in fact the exact opposite has been happening.
gsm, the issue here is not demand and cheap money per se. It is the willingness to lend that cheap money and to whom. The orgy really got going because the models that told everyone who to lend to were modified such that anyone with a pulse was seen a good risk. It's not that way anymore, and it's not going to be either. And even with all this housing mess, you bet that there is still demand out there for 5000sqft boxes with granite and stainless. It will just be priced out of the reach of those with normal incomes...as well it should be.
So now what we're in the middle of is the markets trying to figure out how to get the goods to people who can't essentially afford them. Either with some financial innovation or the goods will have to come down to a price point where the demand can take over. That last scenario is what we're desperately trying not to get to. If wages and financial instruments don't change, all asset prices have to lower to meet the curve. That type of destruction is not the creative type at all.
I agree with your post
some problems just cant be fixed. these times that we are in are so full of problems I surmise that the fed doesnt know where to start. This snowball will be an avalance as time goes by, so wear big boots if you have to go to work, that is if you will have a job.
I agree with your post
some problems just cant be fixed. these times that we are in are so full of problems I surmise that the fed doesnt know where to start. This snowball will be an avalance as time goes by, so wear big boots if you have to go to work, that is if you will have a job.
It could be that the major problem we face now is that economists are unwilling to give up their high school fantasies of growing up and saving the world.
They may pose a serious threat simply by being in denial about their own abilities.
It could be that the only real solution to this problem is for the individuals who make up this country to start using their brains.
Right now I have to reject the notion that the economists can do that for us.
And the economists may need to reject this notion also (or lose all credibility) before we can make any progress.
All I know is this. We are in for one heck of a ride. No one knows where the next finanicla bomb will fall. The big banks are insolvent, a dog with a note in its mouth knows that. The SEC has changed the rules to allow for off the book accounting (shame), the monoliners are insolvent, whoever came up with derivatives should be put on a slow boat to the north pole without any clothes, Commercial real estate is the next to go thud and most Americans are insolvent. Our balance sheets were predicated in large part on our inflated house values, hence a hummer or 2 in every garage. The soup lines will be enormous. Would you like chicken or vegetable?
I essentially agree with you too GSM, except i'm just looking at it a bit sideways. The solution isn't governmental at all, it is all about how the business side looks at it.
Think about it this way in a much simplified version...you're bmw back a while ago. You know that you're too expensive for most, but people aspire to own your product so you have two choices: you can be small and expensive like Ferrari, or you can find some way to get your product to more people who, esentially, can't afford to pay for it now, but could in the future. You started with the four year loan. Then the five year loan worked for a while, but things got a little expensive for that. So you innovated again and made the lease, lowering the payment and getting a new car into people's hands sooner building in automatic demand, and automatic future demand by getting your used vehicles to even more people on the lower price. Now that's really business acumen at work!
So where do you go from here on housing? Do you really think it's over? It's over until we find where to go with the idea of a mortgage...maybe that's what needs to change. Same for the current credit system. What is needed is some way to get goods into people's hands without deflating. Is that possible? Anything is possible....
Ipodious
you say anyting is possible. This is wher I disagree. We have tried almost everything. This is going to unravel real bad. by the way, my neighbor got a lincoln navigator for 0 down o% for 5 years. Are all the MBA finacial types smoking crack?
I'm not so pessimistic. That's the thing about capitalism...there's always a way to take advantage of an economic model that went down in flames...look at the dot com bust. Some made it, and some other tech businesses rose out of it.
0% for 5 years with 0 down can make total financial sense (pardon my MBA . What are the costs associated with NOT selling that vehicle? What is the time value of that money? What are the cash flows from the sale? Does it beat NO cash flows? Think about it, you have that sunk cost of producing the vehicle. Now you're going to add in the cost of disposing of it unsold? At the current rate of inflation, what is the net present value of the 0% loan? Think about it like that and it can make total sense.
I think it comes down to this - We need to wipe the slate clean and design a brand new economy. Authorities seem to hope that we can simply hit the accelerator, cheapen credit, give away a tiny bit of devalued and devaluating currency... and the ponzi economy can fire right back up.
Better yet! I heard repeatedly last week that IF the NFC wins the SuperBowl, we can expect prosperity and a Bull Run in equities. There is so much riding on this match (LOL!) that I decided to take the Giants with the spread (hedged in case the PPT can't guarantee victory).
"The hunt is on for the mortgage disaster's bad guys.
Across the country, task forces of prosecutors, FBI agents, securities investigators, class-action lawyers and others are mobilizing to figure out who broke the law during the high-flying days when lenders were handing out mortgage money like drunken sailors."
The above is slander, of course: I don't think drunken sailors would have been nearly as irresponsible.
Ronald Reagan - 'Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.'
Well, at least 1 thing has changed since Reagan was in government. We stopped regulating.
Well, yes but in the meantime you have an inventory to get rid of so you whip out the spreadsheets and start figuring out how to minimize your losses. That's what the 0% is about. Then you flex production to the lines that will sell the most instead of the stoopid SUVs that are tarted up more than one of Tanta's pigs in the spreadsheets
But the interesting macro question is when, earnings are essentially flat, how do you get increasingly expensive goods and services into people's hands? If wages go up, employment goes down and costs go up. If costs come down we get massive asset deflation. Or do we find a way to keep it sort of going while we re-price? If you can figure out some way to do that, you'll be on the upside of this.
Certain industries are canaries in the coal mine for consumer spending, and one is retail jewelry.
Over about the last 12 weeks, the U.S. retail jewelry industry has begun to implode.
Friedman's, a chain of 500 stores (Friedman's/Crescent) filed for Chapter 11 and is likely gone. They are being sued by several states in a bizarre story about duping jewelry customers into buying different types of insurance.
Finlay, a chain of 700 stores, is in deep financial trouble.
The largest U.S. chain, Zale (more than 1,000 stores) is rumored to be pairing down its Gordon's division, including 60 imminent store closings. This news is not public but comes from store managers who post on the ZLC Yahoo message board. They say store traffic has dropped through the floor.
Jewelry was hammered in the retail recession of the early 90s, and some surviving companies have not fully recovered yet.
After you watch Shiller's interview, there is a link to an interview with Ross Healy. Very interesting.
I think the Ross Healy interview is more interesting to watch than the Robert Shiller interview. Ross sounds more level-headed and in control also, maybe because his policies aren't the ones spectaularly blowing up.
This is a statement that screams:"listener, you are now asked to read between the lines!"
Having read his book, this is what I see between the lines:
Americans have too much debt and little savings, but our economy is dependent on Americans taking on more debt and not saving.
We are headed to something that will be on the same severity level as the Great Depression, but bringing up the GD is like bringing up Hitler. Terrible things can happen but we don't like to think about it.
So, the best advice is panic first. Save money and pay down debt before the inevitable "severe recession" comes and you lose your job. You'll be better off than those who kept their head in the sand until the "bad times" smacked them in the butt.
I'm starting to think that at some point in 2008 or 2009, we will see negative earnings for the S&P 500 Index on a TTM basis. If you remove the oil and gas sector from the Index, I'm almost sure this will happen.
It's a remarkable thing to consider, unprecedented since the Great Depression. As I said, at zero earnings, P/E ratios become infinite.
Earnings aren't just falling because of the recession. They also are falling because of artificial techniques that were used to inflate them during the boom, including off-balance sheet entities and share buybacks. For companies with defined benefit pension plans, I think underfunding issues related to CDO/asset-backed losses will produce big hits to earnings for several years.
It will be interesting to see if analysts continue making optimistic future earnings estimates as earnings keep plunging.
Indexes don't show the depth of earnings decline during recessions, by the way, because failed companies are removed from the indexes.
"If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.'
"Well, at least 1 thing has changed since Reagan was in government. We stopped regulating."
barely | 02.03.08 - 10:36 am | #
We've increased subsidies without regulation resulting in outright theft of taxpayer dollars. Tax and spend Dems have been replaced by Borrow and spend Reublicans. That we have cut taxes on the wealthy in a time of war and record debt and deficit is the proof. (Some will say that tax increases result in higher revenues. Judging from the balance sheet, apparently revenues are not high enough.)
Reagan's voodoo economics have led us to this point (I don't know what he hell Bush has done, other than everything wrong, but they say he's Reagan's ideological heir). Reganomics, and much of "conservative" ideology has bankrupted us.
Want to know who to blame? Start at 1600 Pennsylvania Avenue NW, Washingon, DC, and follow the money out/down from there. This could not have happened without both incompetence and complicity at the top.
AC,
Yes I agree. Economics is not a science, it is VOODOO. It has no use whatsoever. The more people think Economics is Voodoo, THE MORE MONEY I MAKE IN THE MARKETS. So I am willing to back you up on that (for money).
PS I am still waiting for the deflationary spiral.
"
But the interesting macro question is when, earnings are essentially flat, how do you get increasingly expensive goods and services into people's hands?"
You try to find a way to make cheaper products or services that people can afford and still want. And if you can't, you go out of business. Whoa, that part of capitalism is only supposed to happen to the other guy, right?
--
"Has anyone even mentioned the civil unrest that can occur?"
sam Samuels,
"Civil unrest?" LOL. How about civil war to undo the Civil War? How about disintegration of America?
Can't happen? Keep on dreaming.
Future of a nation of born-and-bred educated dopes led by Crooks (the Housing Bubble was a good piece of evidence in that regard) is not very bright. America is being ruled by the worst financial Crooks in US history and both Hillary and McCain are fully bought and paid for by the same Crooks.
Crooks are united and people simple cant be. Just look at the discord among American People on various issues. They will rather go on each others throats than after the Crooks. Crooks are safe! Goons, or goondas, will go after ordinary Americans and terrorize communities during the depression.
Americans made a bargain with the Devil and now the Devil wants their souls and more.
American democracy TODAY = rule of the banking and finance Crooks. The born-and-bred dopes will go to the polls to sanction one of the two agents of the Crooks. What a system!
Yes I agree. Economics is not a science, it is VOODOO. It has no use whatsoever. The more people think Economics is Voodoo, THE MORE MONEY I MAKE IN THE MARKETS. So I am willing to back you up on that (for money).
Well, the way I would put it is that economics isn't being carried out in a scientific manner -- economists are offering cures when they don't really have proof that they work.
IMO it's not that economics couldn't be a useful science, just that in it's current form it's more of a quack science. It's a lot like medical science 200 years ago or so.
Whoa, that part of capitalism is only supposed to happen to the other guy, right?
Bob Dobbs
Ha! Yes, never let that happen to you. But that's why bankruptcy exists...others get to pick over your failed carcass for pennies on the dollar. But cheaper isn't the only answer. It's Walmart's answer but now you've got nothing but cheap. And the cheap has to come from somewhere...so what does Walmart pay people? Is that a self-fulfilling prophecy?
Don't get me wrong, the is a big unwind, but I'm thinking about the re-wind here. Because there will be one. And that sort of 50's TV view that Americans will cut back, save, and suddenly discover the value of money is nice, but in the real world we all know this isn't going to happen. It's also fantasy to think that there will be panic in the streets and some sort of uprising. Not going to happen. Contraction is a great time to think of the impending expansion.
Yes AC,
Science is only as good as the people practicing it.The best people will not make it to the Top where they can make a real difference. Majority of people are aggressive investors and will not put up with
level-headed and moderate economists.The most optimistic practitioners of economics make it to the top.
Anyway I was just messing with you, But I am sure you knew that.
"Let's look at what happened during the Great Depression, I keep bringing that up but that's what we're going to avoid..."
That probably sums up the whole interview to me. I think if one could talk to him off the record he would say we have the potential of falling into a great depresion if we don't do everything possible to boost consumer confidence and even that might not be enough.
One passage that keeps coming to mind through all of this depression era talk is from Studs Terkel's book, "Hard Times." I don't have the quote exactly but it was something like, "when I was 16, I wasn't afraid to die. But the kid, sixteen now, is not afraid to kill." That was in '73.
Do I think a Great Depression is coming? I don't know. Did most people in 1929 think that a Great Depression was coming? Probably not.
--
The word Great Depression was spoken some ten times during an interview of Robert Shiller by Kathleen Hayes on the recent US housing price declines. According to Shiller, even though our index doesnt go that far the last time we had housing price declines like today was during the Great Depression (which is period of 1930-50 that included the WW II during which time the economy boomed followed by a big bust).
He also made the point that housing prices never before bubbled like in the recent years. What would it do to the $10.5Tr of debt secured by housing in US alone? Even if just $2Tr is lost that would take the private banking system down and everything, including all securities, related to mortgage lending would get nationalized. Private gains and socialized losses.
--
"Did most people in 1929 think that a Great Depression was coming? Probably not."
That is putting it mildly. And Americans weren't such brainwashed dopes that they are today either.
In 1929, the best and the brightest were singing the "permanent plateau of prosperity" song. There was great faith in the Federal Reserve! And still there seems to be despite failures. What did Burn-ass-ke say about the housing prices in Mar'07 and about the economy in Jul'07? He now looks like a moron.
Judge Christopher Sontchi of the U.S. Bankruptcy Court in Wilmington, Del., said there was no legal reason why homeowners shouldn't be allowed to participate in bankruptcy auctions at which hedge funds and other big investors buy mortgages for as little as 50 percent of their face value. But he said it isn't his job to look out for the interests of consumers in a bankruptcy case.
In his excellent Credit Bubble Bulletin this week, Doug Nolan quotes Mr Ricardo Hausmann writing in the UK Financial Times on January 31, 2008:
"The same voices that supported tough macroeconomic policies to deal with the excesses of spending and borrowing in east Asia, Russia and Latin America are today pushing for a significant relaxation in the US to deal with the so-called subprime crisis. Interest rates should be slashed quickly and $150bn put into taxpayers pockets by April at the latest, they say. The goal seems to be to avoid a 2008 recession at all costs. As Larry Summers, former Treasury secretary, put it, failure to act would make Main Street pay for the sins of Wall Street."
What Mr Summers knows but is not about to say in public is that Main Street HAS been paying for the "sins of Wall Street" for decades. But be that as it may, the point made by Mr Hausmann in this quote is a good one. The US controlled IMF has "presided" over financial and monetary crises affecting almost every nation on earth over the past two decades or so. The "formula" presented to the afflicted government was always the same. Cut spending, raise interest rates, balance budgets, take the downturn. Now, it is the turn of the US government. And what is THEIR formula? RAISE spending, CUT interest rates, BLOW OUT budgets, AVOID the downturn. After all, it is an election year. End quote.
Need more evidence of Main Street dopes led by banking and finance Crooks? BTW, in case you dont know the trust rating of Wall Street is higher than that of the Congress! The Congress was supposed to be the most powerful political body, representing the American People!, but it has been exceeded by other political institutions including the Federal Reserve, in theory a servant of the Congress. Dopes are in denial of many things including their dopiness. What else is new!
The Healy interview is very good. His manner reminds me of Spalding Gray.
Rich, your canary in the coal mine commentary is interesting. What do you think about index funds going forward? I've been a diehard indexer in the past (I'm a pretty young investor, though) but removed everything because I'm concerned about what ac mentioned the other day: a lot of hidden problems waiting to blow up.
But the interesting macro question is when, earnings are essentially flat, how do you get increasingly expensive goods and services into people's hands?"
There's a difference between "flat earnings" and what I'm describing.
Flat earnings means they aren't growing.
I'm saying, take oil & gas out of the picture and the 500 largest U.S. companies will report greater losses than profits over a full year.
Over the last two quarters, we are already about half way there, and there's still not much carnage reported among food, retail, basic materials or technology.
But even if this happens, I think the largest U.S. companies will look good compared to the smallest.
Over the next 12-18 months, long equity index funds will go down.
Short equity index funds will go up.
It will be volatile and choppy, so pick your shots.
Index funds are a good way to play this market compared to individual equities, because the market is so manipulated, and individual issues can do strange things as you saw last week. If you just want to bet on the big themes over time, index funds are the way to go IMHO.
without even reading between the lines (there only bein one, making that a challenge...)
I used to be a big believer and confident as all get out too...but then I was beset with rising operating costs originating in the Skeptisism Dept and had to change my model.
Now I'm big on knowing. Just knowing beats the snot out of beating around the bush with a bunch of confident hunches.
Trust me and start plonking.
You'll see the difference overnight.
Be your own News Anchor in your own mind.
You know it.
John McCain is the worst possible choice the Republicans could made. And they have chosen him.
In effect, the Republicans have put their own fates in the hands of Iraqui extremists and global terrorists.
If Iraq and the Middle East erupt in a bloodbath of violence this summer, as they surely will, the anti-war movement of the Woodstock Generation will be nothing compared to this one.
But this time, Americans' frustration with the war will be deeply and spiritually tied to their economic fears and losses.
Imagine trying to rally Americans around a never-ending, trillion dollar war in the middle of a dark recession, and that is your ONLY issue, and you've chosen a candidate who won't budge from it.
it's not just about investing...that's a small part of life.
It's impossible to be educated and skilled about everything. At some point you have trust someone else's opinion, either through recommendation or observation.
Assuming you apply 0% to houses it would still leave some bubble areas overpriced for the incomes of the area.
Payments per 100k by interest rate.
0% 278 a month
1% 322 a month
2% 370 a month
3% 422 a month
4% 477 a month
5% 537 a month
6% 600 a month
A 500000 dollar 800sqft box in Compton is still overpriced at 0%. I would rather pay 250000 at 5% which would give the same payment basically with lower taxes and insurance to boot. Also there is less risk of depreciation from 250000 than 500000
I have always wondered if 5.75% mortgages were the problem how 5% would be the solution 50 dollars a month per 100K borrowed isn't going to do much. Especially if inflation is going through the roof offsetting X 2 any benefit of the 50 dollars a month saved. Way to go Benny your doing a great job.
"I'm extremely worried," he says. "I have been for a while, but I just see things getting much worse this time around than I expected." To Rogers, a longtime Fed critic, Bernanke's decision to ride to the market's rescue with a 75-basis-point cut in the Fed's benchmark rate only a week before its scheduled meeting (at which time they cut it another 50 basis points) is the latest sign that the central bank isn't willing to provide the fiscal discipline that he thinks the economy desperately needs.
"Conceivably we could have just had recession, hard times, sliding dollar, inflation, etc., but I'm afraid it's going to be much worse," he says. "Bernanke is printing huge amounts of money. He's out of control and the Fed is out of control. We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene."
This story is a nuthinburger... people who truly are good risks & prudent won't have any trouble getting a card from somebody.
The story here is how stoopid Citi was... they'll spend many millions in PR damage control & additional marketing expense to try to get back to where they were prior to this 'announcement'. Talk about shooting yourself in the foot
I want my Citi Card though. I see a time in the future where people trade defunct bank credit cards like baseball cards. The ones with the latest date of expiration will be worth the most.
I want my Citi Card though. I see a time in the future where people trade defunct bank credit cards like baseball cards. The ones with the latest date of expiration will be worth the most.
LOL!!! That's almost too close to reality to be funny but still is.
BTW - I use my CC as my business banker & expense interest so it isn't so bad. Being self-employed nobody wants to lend to me as a 'business' but they throw CCs at me like beads at Mardi Gras (and I don't even have to pull up my shirt). Might have to switch to a debit card if they pull mine. I can't see them doing that as I am a profit center for them.
There are soon to be humungous shortfalls in capital AND INTEREST forthcoming as the avalanche of defaults occur. For this economy to remain sound, those shortfalls must be replenished. And for growth to occur, additional spending and wealth creation has to go back on track like Q3 '07. Does anyone see any way that we can go from our present contraction to 4.9% growth?
What idiot is going to pledge their capital to make up those shortfalls? Will debasing the currency make credits, debits? What public entity will pledge money to remedy an insolvency when there is no future profit potential? How long will shareholders allow mismanagement dilute their value? Can a government under election cycle afford to perform a massive bailout and dimunition of its citizens lifestyle without revolution? The stamp act and its Boston tea party arose from much, much less discontent.
How can a market increase in value under diminishing returns; liabilities exceeding assets; artificially low interest rates? Overextended borrowers and overextended lenders?
IT CAN'T, IT WON'T--TROUBLE DOESN'T VANISH WITH THE WAVE OF THE FED WAND!
Those of you who gripe about interviewer Kathleen Hays' handling of Schiller seem to have forgotten about CNBC (where she used to work before moving to Bloomberg).
I, too, felt she was pulling at Schiller's traces, but gently. Had that been Maria Bartiromo, Dylan Ratigan or Erin Burnett until recently, he would have been beaten up like an old black boot!
So then, what happens now? Depression? Apocalypse? No way. Just a different way of doing just this. There is always a recovery and money to be made. Predicting doom is easy, figuring out what gets us out is hard.
ipodius | 02.03.08 - 9:34 am | #<
The BMW example was good. Yea they did the lease deal, but they also put out the Mini Cooper. And they have another, smaller series of cars called the 1 series. The US auto industry is a disaster if you look at the so called domestics. But Honda, Toyota, and BMW make a lot of cars here.
The combination of the main stream media catching up and the fed led stock market bounce seems to have people in a bad mood. If the main stream media says bad, the only way that bloggers can be ahead of the curve is to predict catastrophe.
My money is on a global infrastructure boom, a little evidence in today's NYT:
You and I agree on McCain, but for slightly different reasons. I think the real threat with McCain is that he isn't tempermentally suited to be president.
McCain is a noble man, a great patriot and war hero. However, he has fatal character flaws that revealed themselves through a long Senate career. Namely, stubborness, combined with a desire for personal glory over working with others. He has made a name for himself as a maverick, by consistently bucking the GOP on core issues (immigration, taxes.) There is nothing inherently wrong with this, but it does not bode well for his ability to work with a hostile Democrat Congress (or a Republican one, for that matter.)
Nominating McCain would be a huge mistake for the GOP, as he would offer the voters no core differences from a Hillary Clinton. If Obama wins the nomination for the Dems, I would expect McCain to lose in a landslide.
If Iraq and the Middle East erupt in a bloodbath of violence this summer, as they surely will, the anti-war movement of the Woodstock Generation will be nothing compared to this one.
Not to get political on you rich but it won't happen - not without a draft.
I'm from 'that generation' though I just missed the war (in HS at the end - graduated with the copters falling off the carriers).
The so called 'antiwar' movement was really an 'anti-draft' movement... if they hadn't had the draft the Woodstock Generation 'anti-war' movement would have been about six Berkeley drop outs in a microbus... With the draft 'anti-war' movement included about half of the under 30 crowd.
BTW - I think McCain is a lock to win the GOP nom & the presidency. Do a state by state accounting of electoral college and I think you'll agree. It will be close but I see no way Obama or Clinton take Florida or Ohio - without them Dems are toast. The rest of the states go pretty much like 2000, 2004.
Oh and I'm NOT a GOPer - an inde that votes more Dem than GOP lately. I'm not trying to spin nothing - just my WAG.
Just logged in. Went to comments and read barely's:
"Negative saving rate, unprecedented debt, wealth concetrated in few hands and Shiller thinks we can spend our way to presperity. I am growing tired of the wise men of economics and their quick fix mentality."
If it's a run between Hitlery Rotten Clinton and John Insane...I shall be investigating furiously ex-pat options, including giving up citizenship in the empire.
Mise - was at a party last night, talked to a friend who is a gold bug - I encouraged him to come here, mentioned you as somebody who has some experience but isn't a crazy like some of the pump-n-dumpers. He especially needs answers with the 'management issues' re:physical gold & silver (buy, sell, store, security). Don't be surprised if you get questions from another 'river rat' from my neck of the woods.
BTW - he said a shit load of REO has come on the market in our town. 30 house at a pop to one realtor buddy we know - others got a dump too.
I haven't heard anyone in the media talking about the January Barometer, which is based on the view that "as January goes, so goes the year". That's probably because they only talk about it when the market has a strong January, which predicts a good year. Unfortunately, this January was a very bad one. The 6% loss in the S&P 500 makes it the sixth worst January on record. According to the Stock Trader's Almanac, "the January Barometer predicts the year's course with a .754 batting average. It goes on to state that "every down January on the S&P since 1950, without exception, preceded a new or extended bear market, or a flat market".
If it's a run between Hitlery Rotten Clinton and John Insane
I think Hillary has hit the wall - we'll know Tuesday for sure. Her husband reminded us all why we had Clinton fatigue in the first place.
However none of them is likely to have enough delegates to win on the first ballot - therefore a 'brokered convention'. Hot damn - in the era of internet and 24X7 talk radio & newstoob - it will be better than WWF.
Debt origination at the big banks is as good as dead. The IPO market has shut down. M&A has slowed down significantly. Leveraged buyouts are only done in the mid-market segment, with less debt.
Conclusion: while Wall Street banks had a solvency problem in 2007, they will have both a solvency and a liquidity problem in 2008. More SWF type bailouts will be needed - what if the SWFs realize that they stepped in too early and refuse to pump in additional capital? Nationalization?
Brazil is a good option - it's economy is developing rapidly, plus the culture is wonderful and the women are simply stunning.
You have to be kidding? I have a number of buddies who do biz down there - walk factories & you'll see the place is a powder keg held together by high commodity prices. Those prices slump just once & the place explodes.
I'd look for a place small & inconspicuous - the kind of country NOBODY thinks of when they think geopolitical & economic power. Costa Rica has always been the poster child for that group of countries, but there has to be others.
I, too, felt she was pulling at Schiller's traces, but gently. Had that been Maria Bartiromo, Dylan Ratigan or Erin Burnett until recently, he would have been beaten up like an old black boot!
Ya but Maria B would at least have shown us some cleavage. I now know why Kathleen was moved from the big screen of CNBC to little screen of the intertubes at Bloomberg... not enough D's in Kathleen (as in Double D).
Touche, I enjoyed the Ross Healy interview. He's concise and to the point. I also liked that Healy cited his sources (Greenspan's book, etc) Thank you for pointing it out.
--
Economy would great under McPain. He would appoint Greenspan and Kudlow to the commission on how to solve our economic problems. No one knows how "to keep America great" better than Kudlow.
sorry i contributed to getting u in early on SRS. hang in there tho. i started buying it at 117 in the summer and watched it plummet all the way down to 79 by Oct. then i bought hard. judging by the stories coming out and whats happening with CMBX, LCDX and interest rates, i think you'll be rewarded with some patience.
But BOB SAGGET! it hit 140 on Friday while I was on the road and then fell like a rock. &^%$^**^%^*! If I had been in the server room I would have sold for a tidy little profit then doubled. Oh well. This ain't no low, nor is this a bull market. It's got time.
Tj-
Sorry for the late reply. I was serious. The elasticity of manufactured goods is actually quite low. As their price has come down (I'm not talking China, I'm speaking over past 300 years) demand has increased, yet demand for services has risen far faster. THis is the same thing that happened with agricultural goods - productivity gains and rising incomes increased demand for food, but manufactured goods faster, and services fastest of all.
Secondly, I would argue many services aren't discretionary or are barely discretionary - surgeons, professors etc, don't have to worry about unemployment.
"I'd look for a place small & inconspicuous - the kind of country NOBODY thinks of when they think geopolitical & economic power. Costa Rica has always been the poster child for that group of countries, but there has to be others."
I spent 2 weeks in Costa Rica recently. Our dollars could buy a mansion down there, however, every mansion is surrounded by a high walled fence lined with spikes. Coiled around the spikes is barbed wire. In addition, you would be spending money on 24/7 security.
The locals tell me there is lots of property crime due to the influx of immigrants from war torn Nicaragua.
I asked them to show me someplace that people live without fear and he pointed to the top of a mountain and said, up there. The people who live up there are so poor they have nothing to steal.
As far as countries/regions to expat to, I like Central America a lot. Panama is wonderful, much better than Costa Rica, IMHO.
We're off to Nicaragua in a couple of weeks for a couple of weeks to explore. It is very inexpensive, progressive and has the lowest crime rate of any Central American country.
if things are this bad and this obvious, then why the hell are people buying stocks like its 1999! And why is Jim Cramer telling his viewers that a new business cycle is beginning now?
Perhaps the answer is in this anecdote written yesterday by Hellasious on Sudden Debt:
In other words, who's "painting" the picture that the Fed sees? Let me tell you a story...
When I was starting my career in finance I had the great good fortune to sit next to an old gentleman who started working in Wall Street one month before the 1929 Crash. In an uninterrupted career that spanned decades - he only stopped to fight in WWII - he made and lost several small fortunes and finally learned enough to become comfortably rich.
When I met him, Moe was well past retirement age and didn't have to work for a living, but came to the office daily anyway. As he succinctly put it: "What else am I going to do?" He was happily married to a gracious and elegant lady, so the usual excuse of avoiding marital distress didn't apply; perhaps being out of the house kept it that way... In any case, Moe's position in the firm was assured by tradition, honor and, I suspect, not a little fear of the age discrimination laws. Upper management kept hinting he should retire voluntarily - they gave him a gold watch, twice - but he just shrugged them off. And kept the watches.
I learned a lot about markets from Moe that isn't to be found in any formal training course or book - save the classic Reminiscences of A Stock Operator, which he could have easily written himself, anyway. He didn't share financial theories, analyses or models with me, just hard practical facts about people and how to battle for a buck on the Street. (He also told me stories about Ziegfeld girls, but they can't be repeated here.)
One morning, he glanced over his newspaper and saw me poring over the double tome of Daily Graphs. "You see anything in there you like?" he asked. Naturally, I was flattered and started spewing out the usual gobbledygook about technical formations, indicators, angles and the like. He listened patiently. When I finished, with what must have been the look of a puppy expecting a treat on my face, he said: "Let me tell you a story".
"When I was about your age and full of vinegar, I too looked at charts, thinking I could figure it all out by looking at pictures. One day, I even approached a big speculator and solicited his business by recommending something out of a chart. He asked me what I saw and I told him all about the picture - the same as you just did. When I finished, the guy gave me a shark smile and said, "Son, I'm the guy painting the picture you're looking at - now git". Moe stopped right there and went back to reading his newspaper.
I have never forgotten Moe, rest his soul. He comes to mind every time I see a chart, an analysis or a particular "action" in a market. For instance, when I look at the above Fed fund implied probabilities, I wonder... Who exactly is doing the "implying"?
And I also wonder...has Mr. Bernanke ever met a "Moe"?
Perhaps you are unfamiliar with a group of organized looters, called the IRS. Living in the mountains only means an FBI military...erm...hostage rescue team would get what little you had. Costa Rica sounds like a deram.
asked them to show me someplace that people live without fear and he pointed to the top of a mountain and said, up there. The people who live up there are so poor they have nothing to steal.
That is the key - don't live in a mansion. My daughter was just in CR and it wasn't an armed camp at all where she was (NW corner).
My friends in Mexico employs locals - a lot of locals doing everything from cooking to maintenance to guiding & scuba master. Those locals watch out for them like they were money trees - 'cause they are.
They also became Mexican citizens and active in local development causes (getting power & water to the village).
I think there are risks but there are going to be no shortage of gated communities anywhere - not just CR - you will have to learn to live & share with locals wherever you are if you want the locals to help protect you.
Brazil definitely isn't for the faint of heart. I've been their twice, in the mid to late 90's. Some parts of Rio could get you killed real fast after dark. But the same could be said for Detroit, the South Bronx, or East LA.
What I liked the most about it was the people. Warm and full of joy despite their circumstances (mostly poor.) And noticeably less anti-US sentiment than other parts of Latin America.
Their scientists and engineers are good as well. I wouldn't necessarily write them off so fast.
I just had an interesting realisation. I decided to calculate the average annualized return of the DowJonesIndustrialAverage from July 1st, 1929 to the Present. On July 1, 1929 the DJIA reached a high of 386.10, and it closed on January 31st at 12,650.36. This means that approximately 78.5833 years has elapsed, and the DJIA has risen 32.76 fold, as in times 32 and change. This means that the annualized total return (the average compound annual return as a mathematics person would say) is +4.5403% per year. Hmmm +4.54% per year!!! WOW! Looks like Treasuries currently almost match this! As a 20 and 30 year T-Bond rates are currently at 4.35%. Oh, and I went ahead and discovered that since 1929 (according to a treasury inflation calculator) that 1,000 in 1929 has inflated to 12,125.26, so there's been approximately 3.23% inflation since 1929. This means the real return from the DJIA has been [4.5403-3.2263] which is 1.314%. Wow, a whopping +1.31% real return on US Equities! Wow, I better fund my retirement account very soon, and snatch up some hot equities.
I'm beginning to think that the best investment to make is called Life Insurance on the parents! Even if your father is 70, a whole life term life insurance policy for $1,000,000 dollars (yes, a cool million) costs $8,000 per year in insurance premiums. So, $10,000,000 costs $80,000 per year. If your 70 year old father lasts e.g. 30 years, that's 2.4 million out your pocket, but upon the death certificate materializing, you get $10,000,000. Not too shabby eh?! Maybe spread that risk among many insurance companies, because some financials and banks are trading at or below their book values, and if they go bankrupt, the policy is null and void. Happy policy making!
dryfly is actually stimulating the economy. He's using his labor to make something someone might actually want, and not looting the seed corn to do it. You can learn a lot from this guy.
BTW...secrets safe with me...unless she gets on the 'puter and looks at what you're doing whilst chopping.
There are risks everywhere. If you decide to go for a stroll at midnight through Echo Park, are white, and unarmed...well Gods Speed and good luck...because you're going to need it.
central_scrutinizer | 02.03.08 - 2:09 pm | # wrote about the positive attributes of Brazil
and C_S...i think you got those parts right, but, Brazil has some civil society issues not the least of which is crime esp in urban areas...of course we will be having more of that too here...
And Called Bluff listed many of the parade of the horribles as to why in some ways we are in worse shape than right before the Great Depression...
BUT, the scariet thing, i say again, is that the quants, the Central Bankers, the best economists and even the few trusted political leaders out there
......DON"T HAVE A PLAUSIBLE MODEL AS TO HOW THIS PLAYS OUT!!!!
to me that means own your own place, have cash (real cash not near cash) and , or CDs, i bonds etc, and get ready to jump into equities only after all hope is lost!
....and plant a "victory garden"(good exercise to keep you healthy, and you may be glad to have the food)
Have never been to that site. I am too busy trying to fihure out how to grt out of my financial predicament which is driving me nuts. Got disabled, had to use my 401k money to live, none left am 53 with a son going to college which will cost me 200k, so the super bowl is not on my mind. Homelesness is.
I'm sorry you thought I was taking that as a joke. I wasn't. I meant it sincerely. I can't imagine going through that, and it tears at the heart. I may be an uber-bear, but I am human.
Misean
Thank you. You have no idea what it is doing to my family and there are lot of these scenarios playing out everywhere is this country. I would like to sell my house and rent, but there are no rentals where I live, they are all taken. My house would require a jumbo mortgage even after a massive discount, forget that. And I was once Senior VP of a publicly traded company who had the unfortunate but terrible accident on the way home from a meeting that left me with head trauma. You realize who your friends are when you are in dire straits, very few.
Negative saving rate, unprecedented debt, wealth concetrated in few hands and Shiller thinks we can spend our way to presperity. I am growing tired of the wise men of economics and their quick fix mentality.
Can we have a mild recession?
It bugs me a little bit about how Robert Shiller says that we need to take all these measures to boost consumer wealth and consumer confidence, but also laments that consumers aren't saving enough.
Isn't it possible that the reason consumers don't save enough in this country because we always seek to boost their confidence, even when it's not warranted?
To me this is distrubingly similar to UCLA-style "Fantasy Economics".
Increasingly my sense is that when it comes down to it, Robert Shiller doesn't think that the average person should be able to make decisions that affect their economic future.
Maybe he's right.
In any case the Federal Reserve and the economic orthodoxy in this country clearly don't believe that US citizens don't deserve free will in these matters.
But then who does?
Washington bueracrats?
In any case the Federal Reserve and the economic orthodoxy in this country clearly don't believe that US citizens don't deserve free will in these matters.
BTW, take one of those don't out. It makes more sense that way.
Did it not sound like they where grasping at straws to keep things positive? Faith based economy, kind of like disbelieving gravity exists.
MiTurn,
No.
Probably over the top, but proof positive that housing as an ATM is definitely broken for good.
reverse mortgages excepted, after a while.
Just looked at Len's balance sheet. They lost 1/3 of the company last year, with a billion.five in the last quarter.
Grim news this weekend, indeed.
Someday this war's gonna end...
--
The severe recession will be continuation of the weakest and costliest recoveries...
The annual growth rate in employment in Jan08 was 0.72%. Whenever this rate fell below 1.0%, after a sustained recovery, the economy had entered recession.
Assuming that the recession began in Nov07, during the last business cycle, Mar01-Oct07 (beginning of the recession to the end of the recovery,) the annual rate of growth in Employment was 0.62%, the worst since the Great Depression, which finally ended with the end of the recession of 1949-50 in Sep50. For comparison purposes the annual growth rate during the previous (Clinton) cycle, Mar91-Feb01, was 2.02%! Thus, the Clinton-cycle employment growth rate was 3.28 times the Bush-cycle!!
And the cost of the Bush recovery, in household debt via the Housing Bubble, was horrendous.
Jas
I personally think after reading the SD article on short sales earlier today we are screwed. Even the FEDS don't have enough money to put Humpty together again.
The best thing to do is let housing correct. Then people will have lower house payments and rent then they can spend again. You can't borrow your way to prosperity.
It's pathetic the way some of these media people practically beg to be told that we're at the bottom and that everything really will be alright -- putting their anecdotes out there.
As I watched I wondered how much she paid for her condo last year and what it's worth today.
FT Woods,
I hope it was a lot.
All this discussion without understanding why this chart of household mortgage borrowing is merely blather.
Prices zoomed up because Americans were able to borrow FIVE TRILLION PLUS dollars 2002-2007.
This was essentially a time-warp of income from the future -- which will be debt service going forward -- into cold, hard, cash in consumers' hands in this economic cycle.
Prices will fall to the corresponding level of lending. $600B/yr is about 2002-era prices.
--
"All this discussion without understanding why this chart of household mortgage borrowing is merely blather."
Yes indeed, troy.
It Is the Debt, Stupid!
Jas
--
AllenM,
Would you kindly identify the waring parties?
Jas
Not reason to whine, we can all short homebuilders soon and make a load of money. People continue to make bad assumptions, and, for the informed, this is a huge opportunity. CR readers will have every chance to profit from the mainstream blunders. I say keep up the misinformation NAR.
No worries, Senator Dodd (front man for the banks) has proposed a new federal agency to deal with the mess. It will be called the Distressed Mortgage Agency. I am not making this up! This sounds very similar to the RTC set up to deal with the Savings and Loan crisis of the early 1990's, which involved risky real estate lending -sound familiar? This mess will end up just the same way, just bigger this time. The bagholders have been identified-It's us--the US taxpayer, again. Now the stock market can rocket up up and away. The banks and Wall Street keep all the fictional profits and you and me pay for all the real losses . It may be time for the second Revolutionary War if we get stuck holding the bag again.
One of the hedge fund managers who specialized in subprime, made 350 million dollars, frose his client's assets in the fund with no redemptions, and has now had to sell his Gulfsteam jet and his 45 meter yacht, named the "Carry Trade", so he is cutting back too, Come on you people,you have to chip in and help him out , he is feeling the pain. And there is a National Securitization Forum meeting in Las Vegas, with topics including -How to rebuild investor confidence in subprime, and How traders cope with low volume subprime trading conditions. You can read all about it at Bloomberg-no joke.
Excuse me, I need to take a break so I can go
vomit... these amoral crooks have made me sick from disgust.
PS, this blog is great. Misean, your posts are absolutely hilarious...better to laugh at all this stuff..it is just business as usual on Wall Street.
RJM
barely writes:
Negative saving rate, unprecedented debt, wealth concetrated in few hands and Shiller thinks we can spend our way to presperity. I am growing tired of the wise men of economics and their quick fix mentality.
barely | 02.02.08 - 7:07 pm | #
barely got to the crux in the first comment. These economists lament lack of savings, but then it is all about confidence and spending.
Does it ever occur to any of these people that "consumers" are pulling back because they are BROKE.
"Increasingly my sense is that when it comes down to it, Robert Shiller doesn't think that the average person should be able to make decisions that affect their economic future."
Shiller would have us be more like Singapore, I think.
"http://www.project-syndicate.org/commentary/shiller55"
I think Shiller look haunted, especially at the beginning. I don't think what he said we could spend our way to prosperity.
as somebody who works on "wall street" (albeit in a unsensationalized arena and in a low level capacity), i'm shocked by the shock of people on this blog and in the MSM regarding wall street's intentions, moral fiber and capacity for greed.
WS will buy anything assuming WS can skim a little bit and sell it to somebody.
only the top 1% of hedge funds and banks have the mental ability and intestinal fortitude to move against the market and take the other side of the bet.
everybody else is, to borrow chuck prince's terminology, just "dancing."
I think Shiller look haunted, especially at the beginning. I don't think what he said we could spend our way to prosperity.
Was it just me, or did somebody take him out back after that first cut and comb his hair?
Spending our way to prosperity wouldn't be such a bad deal if... that money was churning around and around in the US economy rather than being sent elsewhere almost as soon as its spent (i.e tanker loads of crude and aircraft full of ipods and iphones). I have nothing against buying stuff that originates in other countries, as long as they are buying just as much from us.
rjm - Is this the guy you're talking about?
Prospering in an Implosion; Subprime Market's Fall Plays to the Strengths Of a Bold Contrarian - NY Times
If so - you got the name of the boat wrong
. Roby
"Was it just me, or did somebody take him out back after that first cut and comb his hair?"
Yes, I noticed that! And out more make-up on him and said, "Bob, please don't slouch."
Maybe his mom was there.
WS will buy anything assuming WS can skim a little bit and sell it to somebody.
only the top 1% of hedge funds and banks have the mental ability and intestinal fortitude to move against the market and take the other side of the bet.
everybody else is, to borrow chuck prince's terminology, just "dancing."
The problem is a lot of these hedge funds that aren't betting against the markets are still knowingly involved in ponzi schemes (e.g. housing). How many hedge fund managers who bought bad debt actually lost money? Or was it just their clients who lost money?
I think unless you've experience the thrill of screwing people over for money first hand (presumably because you're "smarter than everybody else") I think it's difficult to appreciate the tendency for this kind of behavior to spread and become deeply entrenched in a culture.
Some of us who used to dream only about an opportunity to make the world a better place now only dream that tomorrow will bring a new sucker.
Send me an e-mail when the median home price is twice median household income.
That event will be near a bottom.
Also, how can there be serial stimulus packages when every penny must be borrowed from countries that are fighting inflation caused by a world excess of dollars? The US government has been BK'ed by military action - possibly intentionally ("starve the beast"). I personally suspect the US will also have high inflation (10%-ish) due to globalization even as we have a credit collapse. Rare but not impossible IMO.
The last great bubble (in this super cycle) may already exit in bond prices.
Jim
Can I just say how much I HATE the hand-holding interview style that passes for news these days. It's like weatherman-itis has infected all reporters. Why does everything have to have an upside? And be cheerful and positive? It's so callow and insincere. WTF is wrong with Americans?!
Some of us who used to dream only about an opportunity to make the world a better place now only dream that tomorrow will bring a new sucker.
Mmmmm... ripped off face.
Lou Reed said it best:
"Americans will shit in a river, dump battery acid in a stream, then complain they can't swim."
Shiller repeats more than twice what he does not believe in ... is that a condition for the interview (on request) or he himself in denial ?
lets be honest.
the real issues is that as currently constructed, our economy must grow to avoid collapsing back on itself.
in our frantic urgency to maintain "economic growth" we have borrowed and spent ourselves into oblivion.
equity appreciation is dependent on earnings growth; new debt must be issued to pay debt service; asset appreciation is dependent on an increasing population (each successive generation of which overutilizes natural resources) and what else?
its an unsustainable system. we'll get out of this mess without a depression, but it won't be long before things get really bad.
when oil is scarcer and costlier. when food becomes more expensive and more toxic to the environment. when we can't afford to spend our way out of a recession.
we'll be fine for a while - the US is still innovative enough that our economy can prosper for the next 5-15 years just building up China and India (infrastructure, tech, ag) and global alternative energy supply. but unless serious changes are made in american consumption patterns and major scientific advances are made in alternative energy, i can't see how it will be enough.
the 2020's should be interesting.
sorry for the rant - i just can't understand a society that counters a terrorist attack with pleas to "go shopping."
NC Jim writes:
The last great bubble (in this super cycle) may already exit in bond prices.
It won't be buy choice either.
Not only is there a distinct possibility that the Fed will take rates to 0 (a la Japan '89/90), I also think that Bernanke-panky will - as an "open market operation" compress the yield curve by buying Treasuries all across the curve to take it to 0 as well. Look at the TAF, the 50/50 cut on an options expiration. This guy is all about "being creative" and having government entities stepping further and further into the market realm.
All because they "are from the government and are here to help."
Some of us who used to dream only about an opportunity to make the world a better place now only dream that tomorrow will bring a new sucker.
ac - couldn't have said it better myself.
we've come to the point where as long as you aren't holding the bag when the sh** hits the fan, you're doing your job well.
Regarding suckers and financial education, the solution is simple. Graduating from high school would require correctly answering this question:
Somebody gives you information when they have a vested interest in getting money from you. You should assume that this person is:
a) Trustworthy
b) Full of shit and trying to rip you off
Shiller like BB places great emphasis on "confidence" its as if the new fiancial engineering is based on perception rather then reality. Now I cannot spend my Confidence at the store nor does my confidence reduce debts. Somebody please inform the economic upper crust that income is more important key measure of wealth rather then confidence.
"Some of us who used to dream only about an opportunity to make the world a better place..."
If there are actually more than a handful of sincere, non self-congratulatory people out there who actually feel this way, then I am his holiness the pope.
Sorry for the rant, I'm just fed up (ah, pun intended).
ron,
you sound like you are struggling with income - i'll hire you for some work on the side, but i'll only pay you with praise. after a couple of weeks you'll have so much confidence you'll be able to buy an ipod.
serious now: great point on BB. the current economic hardship is just an "illusion" and if we can prove that "illusion" false, everything will be OK.
Counter this w/ letters of your own, before it's too late.
Campaign Unavailable
haha, get the F out of here Anon.
counter-
adj : indicating opposition or resistance
Anon:
My apologizes, your sentence was unclear as to what "this" referred to. dangling modifier? i don't grammar well enough, but i was confused either way.
Shiller like BB places great emphasis on "confidence" its as if the new fiancial engineering is based on perception rather then reality. Now I cannot spend my Confidence at the store nor does my confidence reduce debts. Somebody please inform the economic upper crust that income is more important key measure of wealth rather then confidence.
"Oh, don't worry about walking off that ledge. There'll be an airbag at the bottom by the time you get there."
"Was it just me, or did somebody take him out back after that first cut and comb his hair?"
Yes, I noticed that! And out more make-up on him and said, "Bob, please don't slouch."
Maybe his mom was there.
Well, it looks like Robert's hair might be the first real casualty of this economic downturn.
Conjure Bag and mp are here to say, "Hello from New York, it's Saturday night!"
On Monday, the fun begins.
Anon,
Done and done, I wrote both my senators the day the House came out with the conforming loan limit increase...used a quote from Lockhart (head of OFHEO) to buttress argument.
We'll see if that turkey makes it back in the conference version of the bill...
mp!
Instead of the clock, can we get a new measure on how many Macanudo's Conjure has gone through in the last 24 hours?
Economist to news reporter:
"The recession is going to be horrible. People are going to stop borrowing, cut way back on spending, stash their money into savings, and generally tighten their belts, killing the economy."
News reporter to economist:
"Then what do you recommend people do to get ready for the coming recession??
Economist to news reporter:
"They should stop borrowing, cut back their spending, start saving, and really tighten their belts..."
cd
Conjure Bag and mp are here to say, "Hello from New York, it's Saturday night!"
lolz.. there you are !
I wonder why these interviewers so often stumble over their words because they babble so rapidly. Why can't they maintain some verbal poise when asking their meaty questions?
Energyecon- "...how many Macanudo's Conjure has gone through in the last 24 hours?"
Seven, I think.
I sense that Shiller believes it is going to be much worse than he says it will be. He is just being cautious about what he says.
As he points out in Irrational Exuberance, 2nd ed, these manias are driven by psychology.
His comments about the need for additional stimuli merely provide a polite way for him to tell you how screwed housing really is. He cannot possibly believe that a little stimulus will change sentiment towards housing.
If he told the truth, he would not be invited to be on TV. Simple.
Jas, stick to economic prophecy and stay away from political economy. The rapid increase in household debt started in the '90s. Probably a 'boomer' thing -- instant gratification -- more than anything:
http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=CMDEBT&s[1][transformation]=pc1
Hope you're right, mp, about Monday. Although if you could push things off a week, I'd appreciate it, as I'm levering up via margin and other borrowing to amplify my SDS bet.
Shiller, for being such a sharp guy in many matters -- seeing the dotcom bubble and housing bubble -- sure is oblivious to other things, e.g., that household debt to income at 150-200% of '29 levels poses a mortal threat to consumption and that you can have inflation -- if we are flooded with dollars and credit -- even when real activity is receding or depressed.
dr strangemoney writes:
Regarding suckers and financial education, the solution is simple. Graduating from high school would require correctly answering this question:
Somebody gives you information when they have a vested interest in getting money from you. You should assume that this person is:
a) Trustworthy
b) Full of shit and trying to rip you off
Yeah, well going through life assuming that everyone around you is trying to rip you off makes for a horrible society. I'd go on a long rant about this, but I just did on my blog.
I botched the link; I hope that this works:
http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=CMDEBT&s[1][transformation]=pc1
Third time is the charm:
http://tinyurl.com/2s2lpt
" Now he (Shiller) says lawyers won't let him publicly forecast home prices because he's involved in preparing the market-sensitive Standard & Poor's/Case-Shiller home price indexes. All he'll say is: 'This is a historic turning point.' "
BusinessWeek Magazine
.
Here's another one, Jas, Gary, and other Bush-haters:
St. Louis Fed: Series: TDSP, Household Debt Service Payments as a Percent of Disposable Personal Income
Nah, the silliness clearly started long before GWB set foot in the White House.
I sense that Shiller believes it is going to be much worse than he says it will be. He is just being cautious about what he says.
Well this is the guy who's been saying that retirees in the next few decades may have to live their lives "simply".
So he hasn't really changed his tune.
"Well, it looks like Robert's hair might be the first real casualty of this economic downturn."
But your lawyers won't let you say that on the air.
mp,
If Conjure Bag is looking for a change might I suggest Fuente Double Chateau Sungrowns if he has time for a long relaxing smoke. Otherwise the Hemingway Short Stories work well if he's pressed for time.
I can't believe that Shiller dodged the question of raising the conforming limit amounts. I am at a loss to explain how this will improve efficiency of mortgage markets. We got into this mess because of exotic mortgages. Now that prices are falling across the country, why would we RAISE the conforming limits?
I suppose the real reason that the limits are going up is NOT to improve the system and make sure that this mess doesn't happen again, but rather to try to reinflate the bubble and have the GSEs eventually bail everyone out.
(BTW, the bubble WON'T reinflate, since borrowers will still need to qualify by proving income, etc.)
Keep It Simple, I'm Stupid writes:
dr strangemoney writes:
Regarding suckers and financial education, the solution is simple. Graduating from high school would require correctly answering this question:
Somebody gives you information when they have a vested interest in getting money from you. You should assume that this person is:
a) Trustworthy
b) Full of shit and trying to rip you off
Yeah, well going through life assuming that everyone around you is trying to rip you off makes for a horrible society. I'd go on a long rant about this, but I just did on my blog.
Keep It Simple, I'm Stupid | Homepage | 02.02.08 - 9:06 pm |
Why does the choice have to be between two extremes (honesty or ripoff) listed above? Usually the behavior of the sales people we encounter is somewhere between. We just need to realize that the guy who labels himself your "financial advisor" is actually a "financial products salesman." That would make the whole business a lot more transparent. After all, used-car salesmen don't call themselves "transportation advisors."
Gee on a couple of threads ago I seem to recall saying Stephen Roach was ahead of the curve stating "A sharp decline in asset prices ( first and foremost with hosues ) is necessary to rebalance the US economy".
Why does the choice have to be between two extremes (honesty or ripoff) listed above? Usually the behavior of the sales people we encounter is somewhere between. We just need to realize that the guy who labels himself your "financial advisor" is actually a "financial products salesman." That would make the whole business a lot more transparent. After all, used-car salesmen don't call themselves "transportation advisors."
Because most people do not have professional level knowledge of financial products and investing. Unless you plan to argue that everyone should develop such knowledge, there is a need for financial advisers that you can trust.
If you do think that everyone should have such professional level knowledge, does that apply to everything in life? Is it your fault if you don't have a professional knowledge of everything, and someone takes advantage of you?
"Because most people do not have professional level knowledge of financial products and investing. Unless you plan to argue that everyone should develop such knowledge, there is a need for financial advisers that you can trust."
"Trust" is the operative word. Inevitably, these folks have a product to sell, and that's not always wise advice.
mp
what do u think about total borrowing of depository institutions dropping back to zero?
its an unsustainable system. we'll get out of this mess without a depression, but it won't be long before things get really bad.
Okay, dunham, how exactly do we avoid a depression?
The interviewer is absolutely clueless -- she obviously considers real estate a circus side show, and not the predominant driver of the economy this century. RE got us out of the last recession, and nothing's stepped in to take it's place; take it away and we're sunk. There's little left except huge sums of (realistically unsecured) debt, even larger future obligations, and absolutely no savings (not to mention your seriously disjointed economic structure).
I've said it before and I'll say it again -- we're in worse shape than 1929, not better. RE peaked in 2005, jobs just now tanked, and CRE's angling southward. This show is only now starting.
p.s.: Welcome back mp & cb!
KISIS: If you do think that everyone should have such professional level knowledge, does that apply to everything in life? Is it your fault if you don't have a professional knowledge of everything, and someone takes advantage of you?
Someday Im gonna write a book the title will be something like Asymetrical Relationships (OK, Ill have to work on that.)
The thesis will be that in todays world virtually every transaction an individual makes is with a very large organization. The organization always holds the cards; it understands the laws (may have even written them) and if you want to play with them, they make (and change) the rules.
The irony is that many of us are employed as cogs in one of these big wheels; were the experts in some aspect of these rules. We hold the advantage in that area, and if the topic moves to another area we call in/transfer the issue to an expert in that subject. The layman doesnt stand a chance.
Then we go home from work and become the layman ourselves, dealing with CC, utility, retail, government, and my personal favorite, the cable company. And we have to deal with their experts and rules. And still, the layman doesnt have a chance.
And they say I'm an optimist.
idoc- "what do u think about total borrowing of depository institutions dropping back to zero?"
idoc, we haven't had the chance to do any deep analysis for several days. Having said that, we expected a test of 12,000 and certainly got it. Conjure and I didn't expect this big of a bounce. Oh well, just that much more fun later.
mp
St. Louis Fed: Series: TOTBORR, Total Borrowings of Depository Institutions from the Federal Reserve
What was people's savings before the great depression comparing to now?
idoc,
Looks like it's gotten worse to me...
FRB: H.3 Release--Aggregate Reserves of Depository Institutions--December 3, 2009
w-, go to the BEA website and pull down the data:
U.S. Department of Commerce. Bureau of Economic Analysis
Go to Table 2.1, and pull down annual data from '29 to present. You'll see that personal savings as a percentage of disposable personal income (line 34) was positive though declining over '29-'31, negative in '32-'33, and was 7-10% through '92, when it began its near monotonic decline to near zero.
That addresses annual savings. But it does not address stock of savings. I don't know where to find that online.
wawawa, see this regarding the savings rate:
Credit Card Nation: The Consequences ... - Google Books
However, I don't know--in fact, I doubt--if the rates for 1929 and, let's say, 2006 are comparable. I say that mainly due to differences in culture and the system's structure.
When comparing the 90s to the 20s it's important to note that "savings" doesn't include investments or home equity. When houses were selling for $10,000 in Westwood these were not that significant, but these days, people have more access to wealth outside of traditional savings.
jg, mp,
Thanks guys for that data.
The important thing here IMO is that there was a positive savings rate up until the GD, whereas we haven't had a positive savings rate this century. Goes to my point that we're in worse shape now, not better.
Thanks jg & mp.
How many stimulus pkgs do you think we'll get in 2008? 3? 4? I better sell my EEM PUTs. The only place getting an economic stimulus will be China. Good. More money for China to buy MORE US Treasuries and pump into the IBs. Perpetual economic motion machine.
The Z.1s have household savings, investments, and debt levels on table L.100.
Unfortunately, the Z.1s only go back to '45.
Oops; forgot the link to the historical Z.1s:
FRB: Z.1 Release--Flow of Funds Accounts of the United States, Historical--September 17, 2009
Because most people do not have professional level knowledge of financial products and investing. Unless you plan to argue that everyone should develop such knowledge, there is a need for financial advisers that you can trust.
Obviously there's a need for that, but where does the small-timer find a financial adviser who doesn't have divided loyalties -- if he isn't completely in it for him/herself?
There are decent retail stockbrokers out there, just like there are decent car salesmen and realtors too. But it's always, "let the buyer beware."
If you choose not to do your homework and "trust" the people you do business with, you will eventually pay for that.
I'm no Shiller fan particularly and I find his relaxed manner in that setting much more convincing and less distracting than the host who should have maybe had a handful of cards to play with...maybe shoot them 1 at a time with her questions...such were those distracting limbs.
$2T loss (according to Shiller) so far in the housing morass means in this $13T economy that...there was no GDP growth...even if we assume that $2T is from the peak of housing in 05...no growth since mid 05. The large beast takes awhile turn, but we take longer to recognize the turn and even longer still to act on it.
barely writes:
How many stimulus pkgs do you think we'll get in 2008? 3? 4? I better sell my EEM PUTs. The only place getting an economic stimulus will be China. Good. More money for China to buy MORE US Treasuries and pump into the IBs. Perpetual economic motion machine.
Maybe the only economic stimulus that matters is the one we get from China. Let's hope they want to keep stimulating us.
\tWhen comparing the 90s to the 20s it's important to note that "savings" doesn't include investments or home equity.
That's because investments and home equity are not savings, and can evaporate quite quickly. Did I say can? Oh, so sorry... they are evaporating quite quickly.
tj, no doubt whatsoever that we are in worse shape going into this depression than we were in '29.
There's a chart from Ned Davis Research that I have on PDF that plots domestic debt-to-GDP over '20-'06. It is scary: in '29, it was at 170%; today, it is at 330%.
That chart is the one that foreordains where we are going -- depression -- IMO. Either income has got to grow faster than debt -- fat chance -- or debt (and assets) have to be liquidated, which is happening as we speak.
As those assets and debt get liquidated/written off, 'animal spirits' for investment and entrepreneurial activity evaporate and consumption plummets.
Store those nuts, folks, 'cause it is going to be a long, long winter, unfortunately.
TJ-
We have deposit insurance (see CR post last week about bank failures in 20s and 30s)
We don't have half of Europe starving and nearly the whole continent in political chaos. This certainly caused some rather poor policy choices (e.g. Smoot Hawley)
We don't have a gold system pushing us into deflation (I imagine you think this is good, but my opinion is that it made the depression far worse in the UK for example)
People are far wealthier in the US, so it's far harder to starve now then it was then. This is actually important.
Govt. social programs now act as economic stabilizers (unemployment insurance, social security, food stamps etc.)
Shift in economy towards services means its more stable. So does shift in manufacturing away from carrying large inventories.
etc. etc.
This economy is a different animal. Odds of a repeat are rather low.
jg- "There's a chart from Ned Davis Research that I have on PDF that plots domestic debt-to-GDP over '20-'06. It is scary: in '29, it was at 170%; today, it is at 330%."
This type of measure, it seems to me, is more germane to what y'all are talking about than the personal saving rate.
Be advised, however, that Conjure and I do not subscribe to an actualization of 1929 scenario in this instance.
Maybe this is what Prof. Shiller was referring to:
Housing-Meltdown: Personal Finance News from Yahoo! Finance
"On Jan. 30 the government said annual economic growth slowed to just 0.6% in the fourth quarter as home construction plunged at a 24% annual rate. The Standard & Poor's/Case-Shiller 20-city home price index fell 7.7% in November from the year before, the biggest decline since the index was created in 2000.
"And that could be just the start. Brace yourself: Home prices could sink an additional 25% over the next two or three years, returning values to their 2000 levels in inflation-adjusted terms. That's even with the Federal Reserve's half-percentage-point rate cut on Jan. 30."...
Given the lag from notice of default to foreclosure to sale, the sales numbers we are seeing now comprise the first wave of foreclosures stemming from the August credit restrictions. Furthermore, we should expect the month-on-month rate of REO and short sales to increase until at least 6 months after the peak in ARM resets, making 4Q08 the likely peak rate of home price decline, with the decline rate easing in 2Q09 and beyond.
A second observation is that every foreclosure, and perhaps every short sale as well, produces a person or household that will not be a future home buyer for at least several years. Taking together the recent record rate of homeownership, the excess supply of housing, the continued monetization of land, labor, and material by the homebuilders, and the disenfranchisement of foreclosed and short-sold homeowners, and we have the conditions for long term price pressure on residential housing. This may take several years to clear.
By the time it does, the baby boomers will be beginning their excess property liquidation to support their retirement.
The conditions for a generation of real home price declines are in place.
John Stark writes:
Maybe the only economic stimulus that matters is the one we get from China. Let's hope they want to keep stimulating us.
You can take one thing to the bank. China will act in it's own (very long term) self interest. China may have found finance capitalism's weakness - an addiction to short term leveraged debt.
Jim
rcryan,
You're kidding, right? There are so many of your points I can eviscerate with little if any effort, but the worst is this:
Shift in economy towards services means its more stable.
Stable??? The majority of those services are discretionary; IOW, the demand for them will disappear overnight. Services can never be the basis for a sound economy. Hell, that's one of the biggest reasons we're in worse shape this time around, not better.
...the Great Depression, which finally ended with the end of the recession of 1949-50 in Sep50.
Jas Jain
If this is true, Jas, the last Long Wave would have indeed bottomed out in 2002-2003 as per the ~54 years cycles demonstrated by N. Kondratiev first in 1926 (German edition, 1935 translated into English). You paint the most bullish scenario possible, yet forecast the extreme opposite. One cannot be more contradictory than this. Read the book!
O-Joe
Louise Yamada is among very few people who has integrity and knowledge to speak truth.
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vlRCrGZV393k.asf
The US suffered a seven year depression that started in 1837. Someone estimated private sector debt to be 150% of GDP at the outset of that event.
Safe Haven | May 10th - Credit Collapse
I am not comforted by the fact that the US economy is now dominated by the service sector.
It is difficult to imagine that the nascent correction will be similar to any previous event. Shiller himself said that every cycle is different in the video.
Makes sense, Pat.
FWIW, in the last San Diego downturn, only when NODs were coming down, employment was moving up, and sales were increasing did home prices begin moving up:
Free Inflection Point Forecasting Model | Piggington's Econo-Almanac | San Diego Housing Bubble News and Analysis
Scroll down to see the charts of the predictor variables vs. prices; nice correlations and inverse correlations.
We are a long, long way from those three things -- NODs, employment, and home sales -- moving in the right direction, IMO.
rcyran writes:
People are far wealthier in the US, so it's far harder to starve now then it was then. This is actually important.
At the risk of piling on, I will disagree. IMO, the US is not a rich country but a mid-income country containing many rich individuals and businesses. Take out the top 5% and I would bet (sorry I cannot quantify) the remaining 95% are insolvent or close to it particularily when you apportion the national debt (which we are beginning to do in the form of an inflation tax).
I know you meant "harder to starve" metaphorically but in 1929 most Americans lived on a farm or had family that did and could grow their own food with very little cash required. Most Americans today probably think steaks come from a steak bush. Agflation will be a serious problem by the election. Home gardens may come back in style (my best friend's Father raised chickens in the backyard within the Raleigh city limits as late as the 50's).
Jim
Americans are rich if we look at number of things (often useless) they own.
When *it hits the fan this "wealth" evaporates. Everybody back to work.
w-, thanks for the L-Y- interview. Never heard her before; she's good.
B-, thanks for the link to P-L- column. Seems crystal clear to me, the parallels between today and the 1830s and 1920s.
If you choose not to do your homework and "trust" the people you do business with, you will eventually pay for that.
As a practical matter, this may be true. However, modern society is so complex that it means that getting taken advantage of is going to be a commonplace event for most people. Not only do I find that to be an unappealing society, I'm not sure that it's one that will function at a basic level.
The reporter on the video was unbelievable. Every question was basically, "This is not anywhere as bad as it's been blown up to be, right? right? The bottom is just around the corner, correct?"
She was COACHING the witness !!!!
What's scary to me is:
a) U.S. Americans have very little savings.
b) Almost all real property except a house is worthless once it leaves the store/dealership.
c) People are now losing -- nay, walking out of -- the only real asset they have: houses.
d) The U.S. job market has been in a flight from quality for almost a quarter century and shows no signs of abating.
so how, or more precisely, with what, are we supposed to spend our way back to prosperity ?
Let the person who has not collected wages from the speculative industry at the time of its boom cast the first stone. Amen.
My sin is that I have not collected enough because people who made the rules were always 2 moves ahead.
Pat "The conditions for a generation of real home price declines are in place."
Agreed, at least in nominal terms. If we get border enforcement and further curtail immigration things look even bleaker. I wonder what if any blue-skying the authorities are doing to prepare. My sense is nothing. They are fighting TODAY'S tape - HARD - And hoping (or praying - faith based planning)
If you choose not to do your homework and "trust" the people you do business with, you will eventually pay for that.
As a practical matter, this may be true. However, modern society is so complex that it means that getting taken advantage of is going to be a commonplace event for most people. Not only do I find that to be an unappealing society, I'm not sure that it's one that will function at a basic level.
Other people chime in and correct me if I'm being too cynical here, but I think millions of us small investors who had accounts with the major brokerage houses during the dotcom bust already have been taken advantage of. I'm not talking about "is going to be." Getting taken advantage of is already a commonplace event.
Now we find out that even larger investors--municipalities like Springfield, Mass. for example--have been taken advantage of. Meanwhile, millions of unsophisticated borrowers trusted real estate and mortgage professionals who told them not to worry about adjustable rates because they could refi after the price of the house went up. Those professionals wanted to close those deals because 1) they generally get paid by the deal and 2) in any event, their managers expected them to produce deals or hit the road.
I agree with you that this kind of society is unappealing. But it does function--or at least, it has been functioning. Let's see where we are in a year or two.
I respectfully disagree with everyone who says you have to trust a financial advisor - a broker - because you're too stupid to learn anything. I am 60 - and when I first started investing - there was no such thing as a discount broker - money market funds were brand new - and when you wanted to invest or redeem money from most mutual funds - you did it by mail. There was no such thing as an ETF. There was no internet - which provides instant access to tons of current information for free.
(I will also note that when I first started to practice law - we had wet copy machines - no word processors - just typewriters with white-out - no computers - and we dictated onto things that were like old Victrola records with grooves.)
We had about 4 TV stations (and when I was in college - the nearest TV was in the student union about a mile from my dorm). We did have newspapers.
People my father's age (he's 90) had an excuse for total reliance on brokers. Because about the only financial information he could get - even a current stock quote - was from a broker. And it is hard for people his age to make the transition from the way things were to the way they are now.
I am in the transitional generation. Some of us have made a smooth transition - it's harder for others.
But for you younger people - there is simply no excuse for ignorance except sheer laziness. A lot of investing work is - to put it simply - tedious and boring - plowing through lots of information and data. Evaluating one's risk tolerances. Going over family budgets in terms of saving and spending. Deciding whether you can afford that house - and eat out at a decent restaurant more than once a year. Learning about your 401k options at work. Your cafeteria plans. Making a will so your kids will wind up being taken care of by the right people if you die. Discussing sensitive issues (money is usually a sensitive issue) with spouses or partners. Etc. Not as much fun as the latest do-dad like an iPhone - or Super Bowl parties - or videogames - or writing 100 comments off the top of your head on a blog. But much more important.
Planning one's financial future takes a fair amount of work - and there are certainly no "one size fits all" answers. But - it is possible for most people who have IQs higher than 90 (I've met mentally challenged people who work at Publix - excellent local grocery chain - and many seem to have a better handle on their finances than a lot of people who started with greater intellectual advantages).
I have been doing personal and family financial planning at least 10-20 hours a week for almost 40 years now - and I will continue to do so until I am incapacitated or dead. Because it's necessary to try to make the best of my financial well-being. I'm just glad that I have a lot more resources available to me now than I did when I started out. It's all there at your fingertips people - you just have to be willing to sit down and use what's in front of your noses. Off soap box, Roby
Dollar Approaches Record Low Against Euro After Fed Rate Cuts
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQxrxdMqJ5Dc&refer=home
ok, i need some clarifying analysis from u balance sheet readers, mp/lama. r these 2 inconsistent with each other? how can total borrowing in the graph go to zero while the table suggests otherwise?:
FRB: H.3 Release--Aggregate Reserves of Depository Institutions--December 3, 2009
St. Louis Fed: Series: TOTBORR, Total Borrowings of Depository Institutions from the Federal Reserve
look at the acceleration in TAF borrowings! where does the Fed get the funds to fund TAF? shouldn't these numbers show up somewhere else in their balance sheet?
since these are automatically turned over, i assume, these become long term cash injections into the economy which can only be inflationary.
It is about marketing machine. You can be smart as hell and still screw up. Clever and well designed messages will reach you, your siblings, your parents, your friends, your coworkers, and unless all above listed parties are (a) smart, (b) have unbiased financial advisors, (c) surrounded by honest people, you are doomed to make dumb decision.
Good luck on your quest!
where does the Fed get the funds to fund TAF?
That one's easy . . . TMK they're printing money.
But taking full collateral for that money, so it's not new money per se.
since these are automatically turned over, i assume
actually, no. The term-of-art you want to investigate here is slosh, the amount of rollover in monthly repo issues.
According to denninger, the slosh actually went down this week.
TJ and the Bear,
I agree we are much worse off than before the 1930's.
We have sold out our manufacturing base.
We have a fiat currency.
Unsustainable debt load.
Overcapacity in retail and the service sector.
A younger generation that is totally unprepared to compete in a global economy.
Not to mention at least peak cheap oil if not peak oil.
Troy,
it is new money. they are paying full price for deflated assets, thus a net ADD.
i too follow Denninger/Adler/Winter comments as well as the Slosh myself. the decrease in no way matches the TAF infusions.
Speaking of Hedy Lamarr (2 threads back), she invented CDMA in US patent 2292387, then under the name of Hedy Markey, look it up), she is central to several of the jokes in Blazing Saddles:
Hedley Lamarr: Repeat after me: I...
Men: I...
Hedley Lamarr: ...your name...
Men: ...your name...
Hedley Lamarr: [to himself] Shmucks.
[continues aloud]
Hedley Lamarr: ... do pledge allegiance...
Men: ...do pledge allegiance...
Hedley Lamarr: ...to Hedley Lamarr...
Men: ...to Hedy Lamarr...
Hedley Lamarr: That's Hedley!
Men: That's Hedley.
As usual, it all comes back to Blazing Saddles.
I respectfully disagree with everyone who says you have to trust a financial advisor - a broker - because you're too stupid to learn anything.
I have never said that the problem is that people are too stupid to learn anything. I have said that modern society is too complex for most people to learn everything they need to know. Sure, they can learn how to make detailed financial plans, but that means that there is something else that they aren't going to have time to learn.
On any given subject, a large chunk of the populace is going to have to trust some sort of expert. Finance isn't any different than anything else that way.
all of u should watch the Louise Yamada video posted above.
note she only threw up longterm charts. the last weeks bull rally would be but a small blip in the longterm trend chart.
Mish blogs on this:
Columbia Journalism Review
Job Well Done / WSJ shines light on Wall Street 'hairball'...
Job Well Done : Columbia Journalism Review
sic semper,
Possibly the best comedy ever!
http://www.uccplus.com/files/RiskManagementLuiquidityArticleDec07.doc
"Bullets Over Broadway" with Jennifer Tilley is my favorite comic movie at the moment (I know her brother Steve.)
Blazing Saddles - Rape, murder, arson, and rape...
YouTube
- Broadcast Yourself.
Dmitry Orlov has written on the differences between the US and Russia with regard to preparedness for economic collapse. Interesting stuff, and very similar to the comparisons between now and 1929.
Here is a link to a speech transcript, and he is easy to Google
Orlov: Russia Was Better Prepared for Collapse than the U.S. >> Four Winds 10 - fourwinds10.com
2009eoae,
Yeah, pretty sad. Throw in the demographics trouble and it's an ironclad bitch.
That said, we'll survive just fine and come out the other side stronger. May be a while, though.
Then we go home from work and become the layman ourselves, dealing with CC, utility, retail, government, and my personal favorite, the cable company. And we have to deal with their experts and rules. And still, the layman doesnt have a chance.
The obvious solution is for people (collectively) to regulate business through our elected government so that the power of the state can somewhat level the playing field (going to jail is a disincentive to take advantage). Of course, business doesn't want to lose their advantage and works hard to convience people that regulation is bad by definition. This has worked since the 80's (Reagan had such a sweet smile) but people are wising up. Expect regulation to make a comeback in the next decade (there is a reason for the FDA - lots of babies died).
Jim
Bullets Over Broadway w/Jennifer Tilly
YouTube
- Broadcast Yourself.
TJ
Demographics are a bit of a problem taking 1.4 million consumers out of the market a year for 15 years. While we pay for the retirement and healthcare of the baby boomers.
That video looks likes Austin Powers. To wit: Za vashe zdorovye!
I know some of you crazier bloggers have been missing Greenspan lately. Well, he is in Sweden telling more tales.
"He said that he didn't exacerbate the subprime crisis, instead he had called for caution in a speech in 2004."
"He said a surge in U.S. home purchases had driven up outstanding mortgage debt by 10 percent in the decade before 2004, but that the finances of those buying homes were not 'materially impaired' by the trend."
"He said low interest rates had held down debt service costs for households."
Greenspan defends subprime role to Swedish bankers
| Reuters
as somebody who works on "wall street" (albeit in a unsensationalized arena and in a low level capacity)
No offense, but that description made me think of somebody employed in a foreign equivalent of Wall Street who is now enjoying(?) world-wide prominence.
NCJ: "...there is a reason for the FDA - lots of babies died..."
Geez, NCJ, I thought that's why you libs WANTED the FDA, to give an imprimatur to terrible stuff like the morning after pill, the highly effective killer of babies (and of young women: use of the MAP can result in massive hemorrhage and death; lovely thing for the FDA to approve).
IMO, the FDA does not make things safer, at least not on the medical device side (where you often jump through meaningless hoops that have no real bearing on patient efficacy or safety).
Telegraph UK
George W Bush: God's gift to comedy
Dominic Cavendish wonders how comedy will cope when George W Bush becomes an ex-president (I get to post this because I'm from Texas.)
George W Bush: God's gift to comedy - Telegraph
As bad as the housing boom-bust has been, I don't think it's the worst thing that's happened to the U.S. economy over the last decade, or the thing that will make this recession long, deep and hard.
In my work and life, I look around and see so many Americans who don't actually make or do anything useful. Think about all the wrong and damage that have been done by bankers, brokers, hedge fund operators, realtors, insurers and their CPAs, lawyers and regulators. All these "service professionals."
When we were a country of farmers manufacturers, miners and merchants, it wasn't possible for so many greedy people to go so wrong. I know we had robber barons. But not millions of them.
It will be so much harder to get the economy back on track, after the bottom, now that so many Americans have become so unproductive and useless.
Good point, rich.
But, after the massive bloodletting of the upcoming depression, I'm positive that we'll have our priorities -- family, honest work, thrift -- back in order.
I don't care what she says--she's HOT!
rich,
Yes, too many people doing unnecessary things. Compound that with the fact that over half the population gets checks directly or indirectly through the (beyond bankrupt) government and you've got a sure-fire recipe for disaster.
jg, I really believe this, too. In fact, I'll bet there will come a time when we turn on the evening news and see that somewhere in America, somebody is starting a new factory that actually makes something.
Here is a link to a speech transcript, and he is easy to Google
Page Not Found >> Four Winds 10 - fourwinds10.com? q=1201473090
Whoa, dude! Have you read that website you just linked? From the "About Four Winds":
Our objectives are:
1. To reveal the Darkside's secret Plan 2000 for total world control by our present evil world leaders.
2. To reveal to the world's people that Creator God Aton of Light also has a Plan 2000. God Aton and His Forces of Light will not do it for us but will work with us, as we responsibly confront evil in our day and change the 'ending of the play.'
3. To reveal the evil world leaders' cover-up of off-world humans (our ancestors) who are here in starships in Earth's atmosphere at this time, and who have come with good intent to help us prevent the evil Plan 2000 from being accomplished, and to help us establish the New Age of Enlightenment.
I know we get a bit apocalyptic around here, but come on.
Will Ferrell Crashes CNBC with hosts Bill Griffeth & Sue Herrera...
Must See Video: Will Ferrell Crashes CNBC, Pimpin' On Idol, Huckabee Girl, And More!
Gretchen Morgenson: Lenders Who Sold and Left
FAIR GAME; Lenders Who Sold And Left - NY Times
Washington Post
Barbara Ehrenreich: Dept.of Raw Deals
The Boom Was a Bust For Ordinary People
The Boom Was a Bust For Ordinary People - washingtonpost.com
the so called "complexity" of our system is actually just the sales people in the way.
Anyone who can read does not need a car salesman.
I love the idea that realtors have some sort of professional expertise.
Personal financial advisors are not successful due to knowing where to invest your money, their success is based solely on you thinking that.
NCJ: "...there is a reason for the FDA - lots of babies died..."
Geez, NCJ, I thought that's why you libs WANTED the FDA, to give an imprimatur to terrible stuff like the morning after pill, the highly effective killer of babies (and of young women: use of the MAP can result in massive hemorrhage and death; lovely thing for the FDA to approve).
IMO, the FDA does not make things safer, at least not on the medical device side (where you often jump through meaningless hoops that have no real bearing on patient efficacy or safety).
Come on, it doesn't have to be all or nothing. Yes, you can't trust every professional, but then it doesn't mean you can't trust anyone.
If the FDA is burdensome, think of what the place would be like unfettered of any regulation. You'd have the crappiest stuff sold out of fly-by-night manufacturing.
The problem isn't that there aren't trustworthy people out there, the problem is identifying them and not falling into the clutches of the other kind. And I do get the feeling that people have given up trying and just throw their affairs and money at some 'professional' and expect a miracle to happen.
I'm not talking an excessive amount of care, just due diligence.
Just like trusting anyone on this blog. I believe the vast majority honestly believe in what they are saying; they may be wrong, but they believe in it!
I don't know who the interviewer was, but she reminds me of Edith Prickly from SCTV.
Shiller knows the jig is up.
The interviewer kept trying to spin positive (she keeps hearing stories of people getting ready to jump in? WTF?). Shiller kept dragging her back to reality - and even hough he introduced the 'D'
word twice, he stuck to the official line of nothing worse than a 'really bad R'. To me, he looked like he thinks the worst is coming.
If the FDA is burdensome, think of before the Pure Food and Drug Act of 1906.
Remember. Prior to the PFDA of 1906 we had "Mrs. Winslows Soothing Syrup," a concoction of whisky, opium and cocaine that was sold by the tens of millions of bottles to mothers as a teething syrup for babies.
Shiller kept dragging her back to reality - and even hough he introduced the 'D' word twice, he stuck to the official line of nothing worse than a 'really bad R'. To me, he looked like he thinks the worst is coming. Marcus Aurelius | 02.03.08 - 1:15 am | #
Well said.
Doug Watts,
Tanta drinks that stuff like cough syrup! It's an old family secret recipe handed down from old lady Winslow who was Tanta's great-grandmother. That's my this blog is so popular man.
Damnit Shiller! Why didn't he say that raising the GSE loan limits is bad?
I'm disappointed.
Might I add that this interview made me lose some respect for the man. Grow some balls dude... raising the conforming limits is ridiculous.
Keep It Simple, I'm Stupid
...On any given subject, a large chunk of the populace is going to have to trust some sort of expert. Finance isn't any different than anything else that way.
Heck, just take medicine. You are trusting your doctor - even if you read the insert in the packet printed in the minute type. How many can actually read and understand the R&D and clinical trial results and make a decision that the medicine works, or that it won't harm you? Even if you can understand it, how can you be sure that the R&D was done, or the trials were not manipulated? You have only the pharma company's word for it.
It will be painful, riding into the sunset on blazing saddles.
"Mrs. Winslows Soothing Syrup,"
Doug Watts | 1:19 am
In my lifetime, I've known dudes on the same formula (Keith Richards would serve as a good example, too).
These young drug addicts went on to become "the Greatest Generation."
Thank you, Ms. Winslow.
"
Rich, jg, I agree with you. But I won't feel like we're in the correct upward trajectory in the US until we start spending on rail, barge transportation, and most people can walk to a brand new brewery."
I can walk to two microbreweries, one organic. Honestly, the place I live in is almost at the place you're describing; we've even got the rail in place to do long- and short-haul freight and passenger service. But a lot of the guys who bought overpriced homes along the currently-underused tracks over the past 10 years are fighting increased rail service tooth and nail because they think it'll effect their property values.
In the long run, it'd be good for their property values, if things play out the way I think they will. But they can't see it that way.
Microbrewers-hahaha
Buy Bud, Beast, and Pabst.
How refreshing to see Robert Shiller talk about the current state of affairs in a way that sheds some evidence on the severity of the current crisis along with some perceptive ideas of how to avert it.
What I find most appealing about Shiller, and Bernanke is that they are NOT politicians, they do not have to be, they are required to breathe, eat, sleep economics, and hence--do not have to be polished sales men. That is not their job.
Let Wall Street and MSNBC hold the torch to these guys-- they truly can show us the way out.
patient renter writes:
Might I add that this interview made me lose some respect for the man. Grow some balls dude... raising the conforming limits is ridiculous.
patient renter | 02.03.08 - 1:28 am | #
The man is hedging. He might have a job in a future administration.
"I am a big believer that confidence matters."
I guess that's why he is not being honest about what he believes.
"I am a big believer that confidence matters."
I guess that's why he is not being honest about what he believes.
Exactly!
Citigroup to withdraw cards from some U.K. customers: report
By Michelle Coffey
Last update: 5:02 p.m. EST Feb. 2, 2008
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Citigroup has told more than 160,000 customers in the U.K. that they will not be able to use their card cards after the first week of March, according to media reports Saturday. The bank is canceling credit cards for customers it considers risky following a review of accounts at Egg Banking PLC, an Internet bank Citigroup purchased in May 2007, according to a report in The Wall Street Journal. The figure represents about 7% of the Egg unit's credit card customers
And the credit contraction beat goes on...
NEW YORK (MarketWatch) -- Bank of America's planned acquisition of distressed mortgage company Countrywide Financial Corp. may have hit a major snag this week when hedge SRM Global Fund unveiled its 5.2% stake in the target, issued a blistering attack on Bank of America and asked the SEC to investigate trading ahead of the announcement.
Oh my kinda fugly, I hope I can get on this potential lawsuit. Nothing I enjoy more then smoking out snakes in the grass.
Some of us who used to dream only about an opportunity to make the world a better place now only dream that tomorrow will bring a new sucker.
ac | 02.02.08 - 8:06 pm | #
Or we have ended up working for those who look for the next sucker.
I guess that's why he is not being honest about what he believes.
Now now... mustn't spook the sheeple!
Shiller's use of the "D" word is a textbook case of Freudian slippage.
Watched the vid twice. Second time after reading the latest posts.
The man clearly looks worried. So, he starts dropping the "D" word and they haul him off, primp him up and maybe give him a little talking to about scaring the viewers, and pick up the show again.
She tries to coax happy-talk out of him (unsuccessfully). He again brings up the word which shall not be mentioned...
and the end-of-segment music comes up.
Perhaps I'm just too cynical.
If the FDA is burdensome, think of before the Pure Food and Drug Act of 1906.
Remember. Prior to the PFDA of 1906 we had "Mrs. Winslows Soothing Syrup," a concoction of whisky, opium and cocaine that was sold by the tens of millions of bottles to mothers as a teething syrup for babies.
Doug Watt
This is not your father's FDA. It's job is to stifle competition on behalf of the big boys, plain and simple.
I don't think it needs to be scuttled, but some deadwood needs to go.
Speaking from personal experience, their flouting of their own regs simply to limit entry for certain medical devices(for products already approved in the EU and Australia) only benefits certain interest groups, certainly not US patients.
This is not your father's FDA. It's job is to stifle competition on behalf of the big boys, plain and simple. -- Alec
By saying this Alec, you necessarily represent that you are 100 percent certain that pharmaceutical companies will never ever ever again produce or introduce another drug that causes unintended, devastating side effects and try to hide from criminal and civil responsibility for the damage they have done.
Okay.
many throughout this thread have supposed that Schiller was being subtle and telling us just how bad it is and is going to be... in code.
that's why, or how he justifies raising the conforming loan limit!
he's saying hey this thing is so off the hook we have to use every tool in the box available to us.
also more than once he talked about confidence.
mock taurtle cant type.
also
last?
By saying this Alec, you necessarily represent that you are 100 percent certain that pharmaceutical companies will never ever ever again produce or introduce another drug that causes unintended, devastating side effects and try to hide from criminal and civil responsibility for the damage they have done.
Okay.
Doug Watts
I wrote no such thing.
When they threw in an extra 6 months protection for the 1st generic to market, who benefited? Big Pharma who make copies of their own drugs.
Who pays for the clinical trials? Certainly not the FDA, it's the manufacturers with the deep pockets and startups who have to sell out
early to VC to even do phase 1 testing? Guess which datasets get barely perused then approved while which ones get the stink eye?
It's the FDA who looks sideways when me too drugs have horrific side effects, not the doctors, not the consumers.
Do you even know what the hell you're writing about?
Not last.
Economic cycles do have a basis in mass psychology, which is why a depression is pretty much a given. People can't just maintain a balanced outlook, they go overboard on optimism and pessimism. The pendulum never stops in the middle.
"Irrational exuberance", meet "senseless despair".
Shiller interview... FDA... am I missing something??? You guys are WAY off the reservation.
THIS IS A GOOD LINK TRY THIS Lively Money: BUSH IS GIVING AWAY $600 SO HERE ARE TWO THINGS YOU CAN DO WITH THE MONEY!.
The media spin looks desperate. A Bloomberg story on the loss of jobs said that out of 80 economists surveyed, not ONE had predicted a loss of jobs, and the consensus estimate was a gain of 100,000 jobs, while the actual number was a loss of 17,000 jobs.
Wow, those economists Bloomberg surveys sure are accurate.
On NPR radio show, they were interviewing some market 'expert' and asked him what he thought of the -17,000 jobs number. His response: "I think the number is wrong. I think when it is revised, it will show jobs growth."
So now we are getting some real solutions- if the statistics or numbers are unpleasant, they must be wrong and should be changed...problem solved.
I guess this explains why Moodys and S&P will keep a AAA rating on AMBAC and MBIA even after they default and go bankrupt, until hell freezes over.......which may actually happen sometime in 2008......
rob wrote:
So now we are getting some real solutions- if the statistics or numbers are unpleasant, they must be wrong and should be changed...problem solved.
Quelle surprise! The same solutions from the same environment where the exit polls are always wrong now compared to the electronic election results.
SEC in the hands of cronies.
EPA in the hands of cronies.
FDA in the hands of cronies.
The entire alphabet soup is in the hands of...
Sow the wind, reap the whirlwind.
The impending debacle has been forty or fifty years in the making. The denouement won't be pretty, or more importantly, predictable. Almost every external factor is different from the last "big one"; not the least of which is that the peasants have learned to imitate the elites by exercising ruthless self-interest. see:jinglemail.
First, I love the term "faith based economy." That's a keeper.
v, you suggested there was no one here who hasn't made money off the nonsense of the last decade. Well, I got out of stock entirely in the summer of 1999, left corporate America in 2002, and sold my home in 2003, so I'm relativey clean.
Looking through these lenses, I see a downward correction back to fundamentals for the housing market, not a depression. This devaluation will be good for typical folks who simply need affordable places to live and call home. I agree that 2-3 times income is about right.
I see a return to integrity and a simpler life for most people, and they will actually prefer it to the stale taste that passes for reality these days. And the "faith based economy" period (Reagan to now) will be viewed as a passing phase of greed and weakness for our society.
finally, those of you who use this site for your own speculative investing purposes, betting against legitimate value creation and such, I suggest you take a long look in the mirror. And I'll never teach my kids that being successful equates to being one step ahead of those trying to rip you off.
Enjoy your Sunday!
One factor that is commonly omitted iwhen comparing now and "Then" is the rural/urban ration. Here's the result of a very quick search; In 1930's Georgia 69 percent of the population was rural.
At the very least, that figure is reversed now. What appearance American urban centers will take on is truly horrifying.
Fester Bestertester writes:
Rest in peace, Don Martin!
01/20/2009 end of an error writes:
TJ and the Bear,
I agree we are much worse off than before the 1930's.
We have sold out our manufacturing base.
We have a fiat currency.
Unsustainable debt load.
Overcapacity in retail and the service sector.
A younger generation that is totally unprepared to compete in a global economy.
Not to mention at least peak cheap oil if not peak oil.
01/20/2009 end of an error | 02.02.08 - 11:37 pm | #
assume all of the above is true...
and use PO as a foundation for plans that you would implement in a national level...
I'm state the case the plan is brilliant, shrewd and devilish...and Working.
PO means reduced manufacutring...may as well sell it at the top...Done that..1990's-2005
Fiat currency-read the Prize to follow oil market developments with gold backing... no mistake that us peaked in'71 and nixon close's the window---
overcapacity in retail? not at the peak... would be like a 1000 person wedding and one bar... No Fun at this party.. capacity was Perfect.
All parties end.. the financiers who paid for it all won big.
Younger generation unprepared to compete in global economy? PO says there won'tt be such a thing. there certainly prepared to work in fields of war and wheat.
Wait till the job loseese pile up. where is everybody going who is getting foreclosed on. Are card now becoming houses. By the way, the next thing that will be yanked from us will be our credit cards.
Mish's Global Economic Trend Analysis: Citigroup's Strange New Definition Of "High Risk"
the above article also scares me. Cyanide drink anyone?
I fear we havent seen the tip of the iceberg. How about all those negative amortization loans or option loand coming due in the years ahead, and the subprime resets have not finished. we have a boatload coming due this year. Oh waht a beautiful mourning , oh what a beatiful day, I am just beside myself becuase wall street gave America away. And, they got big bonuses on top of it. Something is definitely wrong here.
I AM DAMN MAD!!!
Sciller maybe not all right in his thoughts but if he is 1/2 right, look out. Has anyone even mentioned the civil unrest that can occur?
I also think that Bernanke-panky will - as an "open market operation" compress the yield curve by buying Treasuries all across the curve to take it to 0 as well
And just how is the +$2bn/day current account deficit going to be funded in such a scenario? You'd have to get China, Japan, oil producers just to give their stuff to the US for free, because the USD would become as worthless as its namesake in Zimbabwe.
This will get you even more scared. Its called real estate mortgage backed securities RMBS.... read the article where it discusses walk aways, the new phenomenon. Apparently, its socially acceptable just to walk away from your house now.
Fitch Places $139 Billion of Subprime RMBS on Negative Watch, Cites ‘Walk Aways’ : HousingWire || financial news for the mortgage market
We are in for a mighty spanking, all of us, even the ones who have saved. The stock market willbe next to drop. There go the 401k's, pensions you name it. No one will be immune from the catstrophe that lies in front of us. Just keep watching your new flat panel tv that you cant afford, while you drink your 5 dollar starbucks coffee.
Sam, you mention civil unrest. Take alook at Paris, France. It has already started there.
He is right about confidence. Fear and lack of confidence can wreak havoc on our housing, economy and jobs. no one will be immune.
When comparing the 90s to the 20s it's important to note that "savings" doesn't include investments or home equity. When houses were selling for $10,000 in Westwood these were not that significant, but these days, people have more access to wealth outside of traditional savings.
This post should get the "Troll of the Year" award...
Even if it wasn't intentional.
Let me point out another clear and utterly dispicable example of how the Big Banks, Brokers etc have no regard whatsoever for people's wealth or future well being.And why they are not to be trusted.
Think of all the billions in now worthless toxic derivative alchemy paper that has been sold by these snake oil salesmen into the pension funds, money market funds etc of honest hard working and retired folk, who placed their precious savings , future and trust in these so called "safe" investments.
If those things were say cars, trucks, bridges, dams or aeroplanes being sold and they performed as this toxic paper did , why the vendors/manufacturers would be up on charges!
It is called Fictitious Capital and it is being destroyed wholesale (along with people's wealth) now because the Ponzi finance shemes that spawned them have collapsed.All under the very noses of the Fed and Treasury.
This stock rally is walking dead just like the insolvent banks, agencies and monolines it is built upon.
Wow, all this apocalyptic stuff on a Sunday morning! It seemed to me that Shiller was clearly saying something between the lines, and I perhaps agree that all tools should be used because we don't exactly know what will help. After all, we've not been here before.
The issue for housing is that the terms that led to what is now happening are gone, regardless of who gets back in the game...certain hedge fund manager failures notwithstanding. What comes out of this will bury them for good. Housing comes back to a decent down-paymnent and real multiples. The journey there is what will be interesting. Most current financial products are toast, as are SIVs, CDOs, and general derivative instruments.
The credit area that started in the 60s has run its course full stop. It allowed the artifical expansion that we have witnessed by not requiring people to have the money to actually pay for what they were buying. All the innovation was in getting goods into people's hands who couldn't actually pay for them, except in some sort of future income stream.
So then, what happens now? Depression? Apocalypse? No way. Just a different way of doing just this. There is always a recovery and money to be made. Predicting doom is easy, figuring out what gets us out is hard.
This time it IS diffrent. If you recall the last time this happened in 2001-2003, the best that could be achieved was that the US consumer went on a borrowing binge to fund demand. THAT is what pulled the US out of recession. But, it led to the mother of all financial debacles today. Absent that credit/lending orgy, what will fuel future US economic growth and the so-called recovery thereafter?
The US consumer? Already his main source of wealth and income (housing) is in precipituous decline while banks are closing down HELOC's fast and furious. That ATM is closed. Credit cards? With delinquancies rising on already maxxed cards, this would seem like a rather weak source. Rising cost of lifes necessities will put paid to any excess income the US consumer can eek out.
Manufacturing? With demand coming from where? The US consumer? And with millions of manufacturing jobs sent offshore in the past 2 decades anyway,any demand increase will be felt in China rather than the US.
Service jobs? Retail, banking,construction, small business? These industries are hardest hit from the credit crunch.They will downsize and consolidate to reach economies of size for what will be a significantly smaller US economy.
Cheap money does not guarantee more demand by any means. Confidence drives demand. Recently, consumer confidence has been shattered, with much worse to come. In the last almost decade confidence and demand has been enabled by incredibly easy access to debt, with much of it at very low rates. With that door now firmly closed , it falls increasingly on current household incomes(and savings?) to service demand. That would mean the approximate 1 third of all US consumer spending in recent years has now lost its funding source.
How big an effect is that? Rather big I would say.
What I find most appealing about Shiller, and Bernanke is that they are NOT politicians, they do not have to be, they are required to breathe, eat, sleep economics, and hence--do not have to be polished sales men. That is not their job.
Let Wall Street and MSNBC hold the torch to these guys-- they truly can show us the way out.
And yet these economists who claim to have all these cures for the economy have so far only managed to unleash this financial apocalypse with their repeated, and apparently failed, attempts at fixes.
They've yet to demonstrate any real long-term successes.
Is it possible that they're merely deluding themselves about being able to fix problems that may be fundamentally rooted in human nature?
If so, I don't care how nice they are. I want them to stop peddling snake oil and convincing everybody that they're going to make us well when in fact the exact opposite has been happening.
gsm, the issue here is not demand and cheap money per se. It is the willingness to lend that cheap money and to whom. The orgy really got going because the models that told everyone who to lend to were modified such that anyone with a pulse was seen a good risk. It's not that way anymore, and it's not going to be either. And even with all this housing mess, you bet that there is still demand out there for 5000sqft boxes with granite and stainless. It will just be priced out of the reach of those with normal incomes...as well it should be.
So now what we're in the middle of is the markets trying to figure out how to get the goods to people who can't essentially afford them. Either with some financial innovation or the goods will have to come down to a price point where the demand can take over. That last scenario is what we're desperately trying not to get to. If wages and financial instruments don't change, all asset prices have to lower to meet the curve. That type of destruction is not the creative type at all.
TO AC
I agree with your post
some problems just cant be fixed. these times that we are in are so full of problems I surmise that the fed doesnt know where to start. This snowball will be an avalance as time goes by, so wear big boots if you have to go to work, that is if you will have a job.
Ipodius
no quarrel here.
I agree with your post
some problems just cant be fixed. these times that we are in are so full of problems I surmise that the fed doesnt know where to start. This snowball will be an avalance as time goes by, so wear big boots if you have to go to work, that is if you will have a job.
It could be that the major problem we face now is that economists are unwilling to give up their high school fantasies of growing up and saving the world.
They may pose a serious threat simply by being in denial about their own abilities.
It could be that the only real solution to this problem is for the individuals who make up this country to start using their brains.
Right now I have to reject the notion that the economists can do that for us.
And the economists may need to reject this notion also (or lose all credibility) before we can make any progress.
All I know is this. We are in for one heck of a ride. No one knows where the next finanicla bomb will fall. The big banks are insolvent, a dog with a note in its mouth knows that. The SEC has changed the rules to allow for off the book accounting (shame), the monoliners are insolvent, whoever came up with derivatives should be put on a slow boat to the north pole without any clothes, Commercial real estate is the next to go thud and most Americans are insolvent. Our balance sheets were predicated in large part on our inflated house values, hence a hummer or 2 in every garage. The soup lines will be enormous. Would you like chicken or vegetable?
After you watch Shiller's interview, there is a link to an interview with Ross Healy. Very interesting.
I essentially agree with you too GSM, except i'm just looking at it a bit sideways. The solution isn't governmental at all, it is all about how the business side looks at it.
Think about it this way in a much simplified version...you're bmw back a while ago. You know that you're too expensive for most, but people aspire to own your product so you have two choices: you can be small and expensive like Ferrari, or you can find some way to get your product to more people who, esentially, can't afford to pay for it now, but could in the future. You started with the four year loan. Then the five year loan worked for a while, but things got a little expensive for that. So you innovated again and made the lease, lowering the payment and getting a new car into people's hands sooner building in automatic demand, and automatic future demand by getting your used vehicles to even more people on the lower price. Now that's really business acumen at work!
So where do you go from here on housing? Do you really think it's over? It's over until we find where to go with the idea of a mortgage...maybe that's what needs to change. Same for the current credit system. What is needed is some way to get goods into people's hands without deflating. Is that possible? Anything is possible....
After you watch Shiller's interview, there is a link to an interview with Ross Healy. Very interesting.
Can you post the link?
YouTube -
Ipodious
you say anyting is possible. This is wher I disagree. We have tried almost everything. This is going to unravel real bad. by the way, my neighbor got a lincoln navigator for 0 down o% for 5 years. Are all the MBA finacial types smoking crack?
I'm not so pessimistic. That's the thing about capitalism...there's always a way to take advantage of an economic model that went down in flames...look at the dot com bust. Some made it, and some other tech businesses rose out of it.
0% for 5 years with 0 down can make total financial sense (pardon my MBA
. What are the costs associated with NOT selling that vehicle? What is the time value of that money? What are the cash flows from the sale? Does it beat NO cash flows? Think about it, you have that sunk cost of producing the vehicle. Now you're going to add in the cost of disposing of it unsold? At the current rate of inflation, what is the net present value of the 0% loan? Think about it like that and it can make total sense.
I think it comes down to this - We need to wipe the slate clean and design a brand new economy. Authorities seem to hope that we can simply hit the accelerator, cheapen credit, give away a tiny bit of devalued and devaluating currency... and the ponzi economy can fire right back up.
Better yet! I heard repeatedly last week that IF the NFC wins the SuperBowl, we can expect prosperity and a Bull Run in equities. There is so much riding on this match (LOL!) that I decided to take the Giants with the spread (hedged in case the PPT can't guarantee victory).
Madness. I'm voting for Ron Paul.
Ipodious.
I agree, the problem is what is the net present value of giving that vehicle to someone who cant afford it in the first place.
barely
The plunge protection team is still in Davos trying to fihure out what is happening. They have run out of money to keep the markets up.
of course there is a macro economic adjustment behind this crisis.
The USA will never be the same.
To put it gently it will became a big
country like any other big country.
With a normal unemployment rate (around 6%-7%) and normal personal spending rate
The hunt for someone to blame begins:
MORTGAGE MELTDOWN / PLENTY OF BLAME FOR LENDING MESS / Suits filed, agents hunting perpetrators of loan scams that devastated the nation
"The hunt is on for the mortgage disaster's bad guys.
Across the country, task forces of prosecutors, FBI agents, securities investigators, class-action lawyers and others are mobilizing to figure out who broke the law during the high-flying days when lenders were handing out mortgage money like drunken sailors."
The above is slander, of course: I don't think drunken sailors would have been nearly as irresponsible.
Well, at least 1 thing has changed since Reagan was in government. We stopped regulating.
Well, yes but in the meantime you have an inventory to get rid of so you whip out the spreadsheets and start figuring out how to minimize your losses. That's what the 0% is about. Then you flex production to the lines that will sell the most instead of the stoopid SUVs that are tarted up more than one of Tanta's pigs in the spreadsheets
But the interesting macro question is when, earnings are essentially flat, how do you get increasingly expensive goods and services into people's hands? If wages go up, employment goes down and costs go up. If costs come down we get massive asset deflation. Or do we find a way to keep it sort of going while we re-price? If you can figure out some way to do that, you'll be on the upside of this.
Certain industries are canaries in the coal mine for consumer spending, and one is retail jewelry.
Over about the last 12 weeks, the U.S. retail jewelry industry has begun to implode.
Friedman's, a chain of 500 stores (Friedman's/Crescent) filed for Chapter 11 and is likely gone. They are being sued by several states in a bizarre story about duping jewelry customers into buying different types of insurance.
Finlay, a chain of 700 stores, is in deep financial trouble.
The largest U.S. chain, Zale (more than 1,000 stores) is rumored to be pairing down its Gordon's division, including 60 imminent store closings. This news is not public but comes from store managers who post on the ZLC Yahoo message board. They say store traffic has dropped through the floor.
Jewelry was hammered in the retail recession of the early 90s, and some surviving companies have not fully recovered yet.
After you watch Shiller's interview, there is a link to an interview with Ross Healy. Very interesting.
I think the Ross Healy interview is more interesting to watch than the Robert Shiller interview. Ross sounds more level-headed and in control also, maybe because his policies aren't the ones spectaularly blowing up.
wawawa,
Thanks for the link on bull/bear markets. Great stuff!
"I am a big believer that confidence matters."
This is a statement that screams:"listener, you are now asked to read between the lines!"
Having read his book, this is what I see between the lines:
Americans have too much debt and little savings, but our economy is dependent on Americans taking on more debt and not saving.
We are headed to something that will be on the same severity level as the Great Depression, but bringing up the GD is like bringing up Hitler. Terrible things can happen but we don't like to think about it.
So, the best advice is panic first. Save money and pay down debt before the inevitable "severe recession" comes and you lose your job. You'll be better off than those who kept their head in the sand until the "bad times" smacked them in the butt.
I'm starting to think that at some point in 2008 or 2009, we will see negative earnings for the S&P 500 Index on a TTM basis. If you remove the oil and gas sector from the Index, I'm almost sure this will happen.
It's a remarkable thing to consider, unprecedented since the Great Depression. As I said, at zero earnings, P/E ratios become infinite.
Earnings aren't just falling because of the recession. They also are falling because of artificial techniques that were used to inflate them during the boom, including off-balance sheet entities and share buybacks. For companies with defined benefit pension plans, I think underfunding issues related to CDO/asset-backed losses will produce big hits to earnings for several years.
It will be interesting to see if analysts continue making optimistic future earnings estimates as earnings keep plunging.
Indexes don't show the depth of earnings decline during recessions, by the way, because failed companies are removed from the indexes.
"If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.'
"Well, at least 1 thing has changed since Reagan was in government. We stopped regulating."
barely | 02.03.08 - 10:36 am | #
We've increased subsidies without regulation resulting in outright theft of taxpayer dollars. Tax and spend Dems have been replaced by Borrow and spend Reublicans. That we have cut taxes on the wealthy in a time of war and record debt and deficit is the proof. (Some will say that tax increases result in higher revenues. Judging from the balance sheet, apparently revenues are not high enough.)
Reagan's voodoo economics have led us to this point (I don't know what he hell Bush has done, other than everything wrong, but they say he's Reagan's ideological heir). Reganomics, and much of "conservative" ideology has bankrupted us.
Want to know who to blame? Start at 1600 Pennsylvania Avenue NW, Washingon, DC, and follow the money out/down from there. This could not have happened without both incompetence and complicity at the top.
We have been robbed.
Thanks rich - very interesting!
AC,
Yes I agree. Economics is not a science, it is VOODOO. It has no use whatsoever. The more people think Economics is Voodoo, THE MORE MONEY I MAKE IN THE MARKETS. So I am willing to back you up on that (for money).
PS I am still waiting for the deflationary spiral.
*jewelry informatio
"
But the interesting macro question is when, earnings are essentially flat, how do you get increasingly expensive goods and services into people's hands?"
You try to find a way to make cheaper products or services that people can afford and still want. And if you can't, you go out of business. Whoa, that part of capitalism is only supposed to happen to the other guy, right?
--
"Has anyone even mentioned the civil unrest that can occur?"
sam Samuels,
"Civil unrest?" LOL. How about civil war to undo the Civil War? How about disintegration of America?
Can't happen? Keep on dreaming.
Future of a nation of born-and-bred educated dopes led by Crooks (the Housing Bubble was a good piece of evidence in that regard) is not very bright. America is being ruled by the worst financial Crooks in US history and both Hillary and McCain are fully bought and paid for by the same Crooks.
Crooks are united and people simple cant be. Just look at the discord among American People on various issues. They will rather go on each others throats than after the Crooks. Crooks are safe! Goons, or goondas, will go after ordinary Americans and terrorize communities during the depression.
Americans made a bargain with the Devil and now the Devil wants their souls and more.
American democracy TODAY = rule of the banking and finance Crooks. The born-and-bred dopes will go to the polls to sanction one of the two agents of the Crooks. What a system!
Jas
Yes I agree. Economics is not a science, it is VOODOO. It has no use whatsoever. The more people think Economics is Voodoo, THE MORE MONEY I MAKE IN THE MARKETS. So I am willing to back you up on that (for money).
Well, the way I would put it is that economics isn't being carried out in a scientific manner -- economists are offering cures when they don't really have proof that they work.
IMO it's not that economics couldn't be a useful science, just that in it's current form it's more of a quack science. It's a lot like medical science 200 years ago or so.
Whoa, that part of capitalism is only supposed to happen to the other guy, right?
Bob Dobbs
Ha! Yes, never let that happen to you. But that's why bankruptcy exists...others get to pick over your failed carcass for pennies on the dollar. But cheaper isn't the only answer. It's Walmart's answer but now you've got nothing but cheap. And the cheap has to come from somewhere...so what does Walmart pay people? Is that a self-fulfilling prophecy?
Don't get me wrong, the is a big unwind, but I'm thinking about the re-wind here. Because there will be one. And that sort of 50's TV view that Americans will cut back, save, and suddenly discover the value of money is nice, but in the real world we all know this isn't going to happen. It's also fantasy to think that there will be panic in the streets and some sort of uprising. Not going to happen. Contraction is a great time to think of the impending expansion.
Yes AC,
Science is only as good as the people practicing it.The best people will not make it to the Top where they can make a real difference. Majority of people are aggressive investors and will not put up with
level-headed and moderate economists.The most optimistic practitioners of economics make it to the top.
Anyway I was just messing with you, But I am sure you knew that.
"Let's look at what happened during the Great Depression, I keep bringing that up but that's what we're going to avoid..."
That probably sums up the whole interview to me. I think if one could talk to him off the record he would say we have the potential of falling into a great depresion if we don't do everything possible to boost consumer confidence and even that might not be enough.
One passage that keeps coming to mind through all of this depression era talk is from Studs Terkel's book, "Hard Times." I don't have the quote exactly but it was something like, "when I was 16, I wasn't afraid to die. But the kid, sixteen now, is not afraid to kill." That was in '73.
Do I think a Great Depression is coming? I don't know. Did most people in 1929 think that a Great Depression was coming? Probably not.
--
The word Great Depression was spoken some ten times during an interview of Robert Shiller by Kathleen Hayes on the recent US housing price declines. According to Shiller, even though our index doesnt go that far the last time we had housing price declines like today was during the Great Depression (which is period of 1930-50 that included the WW II during which time the economy boomed followed by a big bust).
He also made the point that housing prices never before bubbled like in the recent years. What would it do to the $10.5Tr of debt secured by housing in US alone? Even if just $2Tr is lost that would take the private banking system down and everything, including all securities, related to mortgage lending would get nationalized. Private gains and socialized losses.
Jas
--
"Did most people in 1929 think that a Great Depression was coming? Probably not."
That is putting it mildly. And Americans weren't such brainwashed dopes that they are today either.
In 1929, the best and the brightest were singing the "permanent plateau of prosperity" song. There was great faith in the Federal Reserve! And still there seems to be despite failures. What did Burn-ass-ke say about the housing prices in Mar'07 and about the economy in Jul'07? He now looks like a moron.
Jas
Judge won't let homeowners buy loans
Judge Christopher Sontchi of the U.S. Bankruptcy Court in Wilmington, Del., said there was no legal reason why homeowners shouldn't be allowed to participate in bankruptcy auctions at which hedge funds and other big investors buy mortgages for as little as 50 percent of their face value. But he said it isn't his job to look out for the interests of consumers in a bankruptcy case.
Business Week Online > File Not Found
--
Quote from The Privateer newsletter:
In his excellent Credit Bubble Bulletin this week, Doug Nolan quotes Mr Ricardo Hausmann writing in the UK Financial Times on January 31, 2008:
"The same voices that supported tough macroeconomic policies to deal with the excesses of spending and borrowing in east Asia, Russia and Latin America are today pushing for a significant relaxation in the US to deal with the so-called subprime crisis. Interest rates should be slashed quickly and $150bn put into taxpayers pockets by April at the latest, they say. The goal seems to be to avoid a 2008 recession at all costs. As Larry Summers, former Treasury secretary, put it, failure to act would make Main Street pay for the sins of Wall Street."
What Mr Summers knows but is not about to say in public is that Main Street HAS been paying for the "sins of Wall Street" for decades. But be that as it may, the point made by Mr Hausmann in this quote is a good one. The US controlled IMF has "presided" over financial and monetary crises affecting almost every nation on earth over the past two decades or so. The "formula" presented to the afflicted government was always the same. Cut spending, raise interest rates, balance budgets, take the downturn. Now, it is the turn of the US government. And what is THEIR formula? RAISE spending, CUT interest rates, BLOW OUT budgets, AVOID the downturn. After all, it is an election year. End quote.
Need more evidence of Main Street dopes led by banking and finance Crooks? BTW, in case you dont know the trust rating of Wall Street is higher than that of the Congress! The Congress was supposed to be the most powerful political body, representing the American People!, but it has been exceeded by other political institutions including the Federal Reserve, in theory a servant of the Congress. Dopes are in denial of many things including their dopiness. What else is new!
Jas
The Healy interview is very good. His manner reminds me of Spalding Gray.
Rich, your canary in the coal mine commentary is interesting. What do you think about index funds going forward? I've been a diehard indexer in the past (I'm a pretty young investor, though) but removed everything because I'm concerned about what ac mentioned the other day: a lot of hidden problems waiting to blow up.
There's a difference between "flat earnings" and what I'm describing.
Flat earnings means they aren't growing.
I'm saying, take oil & gas out of the picture and the 500 largest U.S. companies will report greater losses than profits over a full year.
Over the last two quarters, we are already about half way there, and there's still not much carnage reported among food, retail, basic materials or technology.
But even if this happens, I think the largest U.S. companies will look good compared to the smallest.
Berylmarkham,
Over the next 12-18 months, long equity index funds will go down.
Short equity index funds will go up.
It will be volatile and choppy, so pick your shots.
Index funds are a good way to play this market compared to individual equities, because the market is so manipulated, and individual issues can do strange things as you saw last week. If you just want to bet on the big themes over time, index funds are the way to go IMHO.
Judge is being dumb- folks should be allowed to match the bid plus 10%- that would pay the admin costs.
Of course that might force the vulture bids up a bit for good pools.
Legislation is needed- fast.
Someday this war's gonna end...
Red Pill knocks me out:
"I am a big believer that confidence matters."
without even reading between the lines (there only bein one, making that a challenge...)
I used to be a big believer and confident as all get out too...but then I was beset with rising operating costs originating in the Skeptisism Dept and had to change my model.
Now I'm big on knowing. Just knowing beats the snot out of beating around the bush with a bunch of confident hunches.
Trust me and start plonking.
You'll see the difference overnight.
Be your own News Anchor in your own mind.
You know it.
I hate to see Dmitry Orlov's name get associated with a web site he had nothing to do with. His original post, Closing the 'Collapse Gap': the USSR was better prepared for collapse than the US | Energy Bulletin has the slides in their proper places, too. He is a highly entertaining writer, imho.
CONGRATULATIONS!!! CR is NUMBER ONE!!!
OT and, since I haven't read the comments during the weekend, maybe posted by someone already, but
EconDirectory | Gongol.com
CR is the MOST read economics blog ranked by average daily pageviews in January 2008.
CR and Tanta rock!
John McCain is the worst possible choice the Republicans could made. And they have chosen him.
In effect, the Republicans have put their own fates in the hands of Iraqui extremists and global terrorists.
If Iraq and the Middle East erupt in a bloodbath of violence this summer, as they surely will, the anti-war movement of the Woodstock Generation will be nothing compared to this one.
But this time, Americans' frustration with the war will be deeply and spiritually tied to their economic fears and losses.
Imagine trying to rally Americans around a never-ending, trillion dollar war in the middle of a dark recession, and that is your ONLY issue, and you've chosen a candidate who won't budge from it.
it's not just about investing...that's a small part of life.
It's impossible to be educated and skilled about everything. At some point you have trust someone else's opinion, either through recommendation or observation.
Iposius,
Assuming you apply 0% to houses it would still leave some bubble areas overpriced for the incomes of the area.
Payments per 100k by interest rate.
0% 278 a month
1% 322 a month
2% 370 a month
3% 422 a month
4% 477 a month
5% 537 a month
6% 600 a month
A 500000 dollar 800sqft box in Compton is still overpriced at 0%. I would rather pay 250000 at 5% which would give the same payment basically with lower taxes and insurance to boot. Also there is less risk of depreciation from 250000 than 500000
--
"CR is the MOST read economics blog ranked by average daily pageviews in January 2008."
USA Today tabloid?
Certainly a good piece of evidence that we have our fair of dopes. No offense intended towards the bloggers or the participants and viewers.
Not trying to win the popularity contest,
Jas
I have always wondered if 5.75% mortgages were the problem how 5% would be the solution 50 dollars a month per 100K borrowed isn't going to do much. Especially if inflation is going through the roof offsetting X 2 any benefit of the 50 dollars a month saved. Way to go Benny your doing a great job.
--
Jim Rogers, one of the American non-dopes...
"I'm extremely worried," he says. "I have been for a while, but I just see things getting much worse this time around than I expected." To Rogers, a longtime Fed critic, Bernanke's decision to ride to the market's rescue with a 75-basis-point cut in the Fed's benchmark rate only a week before its scheduled meeting (at which time they cut it another 50 basis points) is the latest sign that the central bank isn't willing to provide the fiscal discipline that he thinks the economy desperately needs.
"Conceivably we could have just had recession, hard times, sliding dollar, inflation, etc., but I'm afraid it's going to be much worse," he says. "Bernanke is printing huge amounts of money. He's out of control and the Fed is out of control. We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene."
Jim Rogers: 'It's going to be much worse' - Jan. 31, 2008
Jas
You want to get outraged, here we go:
Prudent customers risk losing credit cards
Prudent customers risk losing credit cards - Times Online
Have a nice day.
You want to get outraged, here we go:
Prudent customers risk losing credit cards
This story is a nuthinburger... people who truly are good risks & prudent won't have any trouble getting a card from somebody.
The story here is how stoopid Citi was... they'll spend many millions in PR damage control & additional marketing expense to try to get back to where they were prior to this 'announcement'. Talk about shooting yourself in the foot
Dryfly,
I want my Citi Card though. I see a time in the future where people trade defunct bank credit cards like baseball cards. The ones with the latest date of expiration will be worth the most.
--
wawawa,
Debt Pushers are evil; their motives are evil; and their construction of Debt Concentration Camps, piped with financial poison gas, is evil.
Prudent lending and borrowing is so 1950s.
Jas
I want my Citi Card though. I see a time in the future where people trade defunct bank credit cards like baseball cards. The ones with the latest date of expiration will be worth the most.
LOL!!! That's almost too close to reality to be funny but still is.
BTW - I use my CC as my business banker & expense interest so it isn't so bad. Being self-employed nobody wants to lend to me as a 'business' but they throw CCs at me like beads at Mardi Gras (and I don't even have to pull up my shirt). Might have to switch to a debit card if they pull mine. I can't see them doing that as I am a profit center for them.
There are soon to be humungous shortfalls in capital AND INTEREST forthcoming as the avalanche of defaults occur. For this economy to remain sound, those shortfalls must be replenished. And for growth to occur, additional spending and wealth creation has to go back on track like Q3 '07. Does anyone see any way that we can go from our present contraction to 4.9% growth?
What idiot is going to pledge their capital to make up those shortfalls? Will debasing the currency make credits, debits? What public entity will pledge money to remedy an insolvency when there is no future profit potential? How long will shareholders allow mismanagement dilute their value? Can a government under election cycle afford to perform a massive bailout and dimunition of its citizens lifestyle without revolution? The stamp act and its Boston tea party arose from much, much less discontent.
How can a market increase in value under diminishing returns; liabilities exceeding assets; artificially low interest rates? Overextended borrowers and overextended lenders?
IT CAN'T, IT WON'T--TROUBLE DOESN'T VANISH WITH THE WAVE OF THE FED WAND!
Those of you who gripe about interviewer Kathleen Hays' handling of Schiller seem to have forgotten about CNBC (where she used to work before moving to Bloomberg).
I, too, felt she was pulling at Schiller's traces, but gently. Had that been Maria Bartiromo, Dylan Ratigan or Erin Burnett until recently, he would have been beaten up like an old black boot!
The BMW example was good. Yea they did the lease deal, but they also put out the Mini Cooper. And they have another, smaller series of cars called the 1 series. The US auto industry is a disaster if you look at the so called domestics. But Honda, Toyota, and BMW make a lot of cars here.
The combination of the main stream media catching up and the fed led stock market bounce seems to have people in a bad mood. If the main stream media says bad, the only way that bloggers can be ahead of the curve is to predict catastrophe.
My money is on a global infrastructure boom, a little evidence in today's NYT:
Building Costs Deal Heavy Blow to Local Budgets - NY Times
rich,
You and I agree on McCain, but for slightly different reasons. I think the real threat with McCain is that he isn't tempermentally suited to be president.
McCain is a noble man, a great patriot and war hero. However, he has fatal character flaws that revealed themselves through a long Senate career. Namely, stubborness, combined with a desire for personal glory over working with others. He has made a name for himself as a maverick, by consistently bucking the GOP on core issues (immigration, taxes.) There is nothing inherently wrong with this, but it does not bode well for his ability to work with a hostile Democrat Congress (or a Republican one, for that matter.)
Nominating McCain would be a huge mistake for the GOP, as he would offer the voters no core differences from a Hillary Clinton. If Obama wins the nomination for the Dems, I would expect McCain to lose in a landslide.
If Iraq and the Middle East erupt in a bloodbath of violence this summer, as they surely will, the anti-war movement of the Woodstock Generation will be nothing compared to this one.
Not to get political on you rich but it won't happen - not without a draft.
I'm from 'that generation' though I just missed the war (in HS at the end - graduated with the copters falling off the carriers).
The so called 'antiwar' movement was really an 'anti-draft' movement... if they hadn't had the draft the Woodstock Generation 'anti-war' movement would have been about six Berkeley drop outs in a microbus... With the draft 'anti-war' movement included about half of the under 30 crowd.
BTW - I think McCain is a lock to win the GOP nom & the presidency. Do a state by state accounting of electoral college and I think you'll agree. It will be close but I see no way Obama or Clinton take Florida or Ohio - without them Dems are toast. The rest of the states go pretty much like 2000, 2004.
Oh and I'm NOT a GOPer - an inde that votes more Dem than GOP lately. I'm not trying to spin nothing - just my WAG.
Just logged in. Went to comments and read barely's:
"Negative saving rate, unprecedented debt, wealth concetrated in few hands and Shiller thinks we can spend our way to presperity. I am growing tired of the wise men of economics and their quick fix mentality."
Well that about says it all doesn't.
Gotta be quote of the month.
Cheers,
If it's a run between Hitlery Rotten Clinton and John Insane...I shall be investigating furiously ex-pat options, including giving up citizenship in the empire.
Cheers,
Mise - was at a party last night, talked to a friend who is a gold bug - I encouraged him to come here, mentioned you as somebody who has some experience but isn't a crazy like some of the pump-n-dumpers. He especially needs answers with the 'management issues' re:physical gold & silver (buy, sell, store, security). Don't be surprised if you get questions from another 'river rat' from my neck of the woods.
BTW - he said a shit load of REO has come on the market in our town. 30 house at a pop to one realtor buddy we know - others got a dump too.
Its hitting Middle America dude.
I haven't heard anyone in the media talking about the January Barometer, which is based on the view that "as January goes, so goes the year". That's probably because they only talk about it when the market has a strong January, which predicts a good year. Unfortunately, this January was a very bad one. The 6% loss in the S&P 500 makes it the sixth worst January on record. According to the Stock Trader's Almanac, "the January Barometer predicts the year's course with a .754 batting average. It goes on to state that "every down January on the S&P since 1950, without exception, preceded a new or extended bear market, or a flat market".
Time to learn Arab, Mandarin and Russian.
Misean,
Brazil is a good option - it's economy is developing rapidly, plus the culture is wonderful and the women are simply stunning.
If I weren't settled into a career and family, I'd be investigating waterfront property in Ceara or maybe near Recife ... keep that passport handy.
If it's a run between Hitlery Rotten Clinton and John Insane
I think Hillary has hit the wall - we'll know Tuesday for sure. Her husband reminded us all why we had Clinton fatigue in the first place.
However none of them is likely to have enough delegates to win on the first ballot - therefore a 'brokered convention'. Hot damn - in the era of internet and 24X7 talk radio & newstoob - it will be better than WWF.
I'm in a super tuesday state (GA), and I've gotten 3 McCain calls in the past 24 hours.
He is looking to close the deal, and I think he will. Romney just isn't ready for prime time, and all the others are running out of money.
I just might vote for Obama to teach the GOP a lesson.
Debt origination at the big banks is as good as dead. The IPO market has shut down. M&A has slowed down significantly. Leveraged buyouts are only done in the mid-market segment, with less debt.
Conclusion: while Wall Street banks had a solvency problem in 2007, they will have both a solvency and a liquidity problem in 2008. More SWF type bailouts will be needed - what if the SWFs realize that they stepped in too early and refuse to pump in additional capital? Nationalization?
Brazil is a good option - it's economy is developing rapidly, plus the culture is wonderful and the women are simply stunning.
You have to be kidding? I have a number of buddies who do biz down there - walk factories & you'll see the place is a powder keg held together by high commodity prices. Those prices slump just once & the place explodes.
I'd look for a place small & inconspicuous - the kind of country NOBODY thinks of when they think geopolitical & economic power. Costa Rica has always been the poster child for that group of countries, but there has to be others.
dryfly,
"therefore a 'brokered convention'. Hot damn - in the era of internet and 24X7 talk radio & newstoob - it will be better than WWF."
Obama putting up a step ladder and jumping on Hitlery's chest...BWAHAHAHA!
As to your friend...and OOF 30 at a pop...I'll give him my best advice...for what Super Colander Tin Foil Hat wearer advice is worth.
This just in, Wall Street is bundling Super Colander Tin Foil Hat wearer advice with other tranches, and Moddy's is expected to give a AAA rating.
Money in the bag.
Woohoo!
Cheers,
I, too, felt she was pulling at Schiller's traces, but gently. Had that been Maria Bartiromo, Dylan Ratigan or Erin Burnett until recently, he would have been beaten up like an old black boot!
Ya but Maria B would at least have shown us some cleavage. I now know why Kathleen was moved from the big screen of CNBC to little screen of the intertubes at Bloomberg... not enough D's in Kathleen (as in Double D).
Touche, I enjoyed the Ross Healy interview. He's concise and to the point. I also liked that Healy cited his sources (Greenspan's book, etc) Thank you for pointing it out.
Dryfly,
My old man has a couple of ares undeveloped here:
Belize Fact Sheet
Cheers,
--
Economy would great under McPain. He would appoint Greenspan and Kudlow to the commission on how to solve our economic problems. No one knows how "to keep America great" better than Kudlow.
Jas
I have a buddy trying to sell me land just north of Belize in Mexico - about 10-15 miles from the Belize border... tempting. Very tempting.
Mise,
sorry i contributed to getting u in early on SRS. hang in there tho. i started buying it at 117 in the summer and watched it plummet all the way down to 79 by Oct. then i bought hard. judging by the stories coming out and whats happening with CMBX, LCDX and interest rates, i think you'll be rewarded with some patience.
"Ya but Maria B would at least have shown us some cleavage."
Can i haz kleevaj?
Perhaps instead of Tom Petty, we could have Gisselle and Friends do a lingere show at half time. I might actually watch the half time show then.
Cheers,
been to belize, where the insects are bigger than seagulls. At least seagulls wont steal your savings
idoc,
It's all good dude...I ain't sweating it.
But BOB SAGGET! it hit 140 on Friday while I was on the road and then fell like a rock. &^%$^**^%^*! If I had been in the server room I would have sold for a tidy little profit then doubled. Oh well. This ain't no low, nor is this a bull market. It's got time.
Cheers,
Tj-
Sorry for the late reply. I was serious. The elasticity of manufactured goods is actually quite low. As their price has come down (I'm not talking China, I'm speaking over past 300 years) demand has increased, yet demand for services has risen far faster. THis is the same thing that happened with agricultural goods - productivity gains and rising incomes increased demand for food, but manufactured goods faster, and services fastest of all.
Secondly, I would argue many services aren't discretionary or are barely discretionary - surgeons, professors etc, don't have to worry about unemployment.
Hi dryfly,
"I'd look for a place small & inconspicuous - the kind of country NOBODY thinks of when they think geopolitical & economic power. Costa Rica has always been the poster child for that group of countries, but there has to be others."
I spent 2 weeks in Costa Rica recently. Our dollars could buy a mansion down there, however, every mansion is surrounded by a high walled fence lined with spikes. Coiled around the spikes is barbed wire. In addition, you would be spending money on 24/7 security.
The locals tell me there is lots of property crime due to the influx of immigrants from war torn Nicaragua.
I asked them to show me someplace that people live without fear and he pointed to the top of a mountain and said, up there. The people who live up there are so poor they have nothing to steal.
As far as countries/regions to expat to, I like Central America a lot. Panama is wonderful, much better than Costa Rica, IMHO.
We're off to Nicaragua in a couple of weeks for a couple of weeks to explore. It is very inexpensive, progressive and has the lowest crime rate of any Central American country.
Can i haz kleevaj?
LOL!! Makes me want to give my wife a hockey jersey with that as the name on the back...
I. Hazkleevaj
Tell'er it's a famous Czech winger or something. I mean haven't you heard of Igor H? Where have you been?
Keep it quiet though, just our little joke... Valentine's day is coming up.
Catch you later - I have go stimulate my economy (don't think dirty - I'm going to cut up some firewood).
if things are this bad and this obvious, then why the hell are people buying stocks like its 1999! And why is Jim Cramer telling his viewers that a new business cycle is beginning now?
Perhaps the answer is in this anecdote written yesterday by Hellasious on Sudden Debt:
In other words, who's "painting" the picture that the Fed sees? Let me tell you a story...
When I was starting my career in finance I had the great good fortune to sit next to an old gentleman who started working in Wall Street one month before the 1929 Crash. In an uninterrupted career that spanned decades - he only stopped to fight in WWII - he made and lost several small fortunes and finally learned enough to become comfortably rich.
When I met him, Moe was well past retirement age and didn't have to work for a living, but came to the office daily anyway. As he succinctly put it: "What else am I going to do?" He was happily married to a gracious and elegant lady, so the usual excuse of avoiding marital distress didn't apply; perhaps being out of the house kept it that way... In any case, Moe's position in the firm was assured by tradition, honor and, I suspect, not a little fear of the age discrimination laws. Upper management kept hinting he should retire voluntarily - they gave him a gold watch, twice - but he just shrugged them off. And kept the watches.
I learned a lot about markets from Moe that isn't to be found in any formal training course or book - save the classic Reminiscences of A Stock Operator, which he could have easily written himself, anyway. He didn't share financial theories, analyses or models with me, just hard practical facts about people and how to battle for a buck on the Street. (He also told me stories about Ziegfeld girls, but they can't be repeated here.)
One morning, he glanced over his newspaper and saw me poring over the double tome of Daily Graphs. "You see anything in there you like?" he asked. Naturally, I was flattered and started spewing out the usual gobbledygook about technical formations, indicators, angles and the like. He listened patiently. When I finished, with what must have been the look of a puppy expecting a treat on my face, he said: "Let me tell you a story".
"When I was about your age and full of vinegar, I too looked at charts, thinking I could figure it all out by looking at pictures. One day, I even approached a big speculator and solicited his business by recommending something out of a chart. He asked me what I saw and I told him all about the picture - the same as you just did. When I finished, the guy gave me a shark smile and said, "Son, I'm the guy painting the picture you're looking at - now git". Moe stopped right there and went back to reading his newspaper.
I have never forgotten Moe, rest his soul. He comes to mind every time I see a chart, an analysis or a particular "action" in a market. For instance, when I look at the above Fed fund implied probabilities, I wonder... Who exactly is doing the "implying"?
And I also wonder...has Mr. Bernanke ever met a "Moe"?
"McPain" LOL
Good one, Jas!
Jillayne,
Perhaps you are unfamiliar with a group of organized looters, called the IRS. Living in the mountains only means an FBI military...erm...hostage rescue team would get what little you had. Costa Rica sounds like a deram.
Cheers,
asked them to show me someplace that people live without fear and he pointed to the top of a mountain and said, up there. The people who live up there are so poor they have nothing to steal.
That is the key - don't live in a mansion. My daughter was just in CR and it wasn't an armed camp at all where she was (NW corner).
My friends in Mexico employs locals - a lot of locals doing everything from cooking to maintenance to guiding & scuba master. Those locals watch out for them like they were money trees - 'cause they are.
They also became Mexican citizens and active in local development causes (getting power & water to the village).
I think there are risks but there are going to be no shortage of gated communities anywhere - not just CR - you will have to learn to live & share with locals wherever you are if you want the locals to help protect you.
dryfly,
Brazil definitely isn't for the faint of heart. I've been their twice, in the mid to late 90's. Some parts of Rio could get you killed real fast after dark. But the same could be said for Detroit, the South Bronx, or East LA.
What I liked the most about it was the people. Warm and full of joy despite their circumstances (mostly poor.) And noticeably less anti-US sentiment than other parts of Latin America.
Their scientists and engineers are good as well. I wouldn't necessarily write them off so fast.
I just had an interesting realisation. I decided to calculate the average annualized return of the DowJonesIndustrialAverage from July 1st, 1929 to the Present. On July 1, 1929 the DJIA reached a high of 386.10, and it closed on January 31st at 12,650.36. This means that approximately 78.5833 years has elapsed, and the DJIA has risen 32.76 fold, as in times 32 and change. This means that the annualized total return (the average compound annual return as a mathematics person would say) is +4.5403% per year. Hmmm +4.54% per year!!! WOW! Looks like Treasuries currently almost match this! As a 20 and 30 year T-Bond rates are currently at 4.35%. Oh, and I went ahead and discovered that since 1929 (according to a treasury inflation calculator) that 1,000 in 1929 has inflated to 12,125.26, so there's been approximately 3.23% inflation since 1929. This means the real return from the DJIA has been [4.5403-3.2263] which is 1.314%. Wow, a whopping +1.31% real return on US Equities! Wow, I better fund my retirement account very soon, and snatch up some hot equities.
I'm beginning to think that the best investment to make is called Life Insurance on the parents! Even if your father is 70, a whole life term life insurance policy for $1,000,000 dollars (yes, a cool million) costs $8,000 per year in insurance premiums. So, $10,000,000 costs $80,000 per year. If your 70 year old father lasts e.g. 30 years, that's 2.4 million out your pocket, but upon the death certificate materializing, you get $10,000,000. Not too shabby eh?! Maybe spread that risk among many insurance companies, because some financials and banks are trading at or below their book values, and if they go bankrupt, the policy is null and void. Happy policy making!
dryfly is actually stimulating the economy. He's using his labor to make something someone might actually want, and not looting the seed corn to do it. You can learn a lot from this guy.
BTW...secrets safe with me...unless she gets on the 'puter and looks at what you're doing whilst chopping.
Cheers,
--
central_scrutinizer,
McDonalds, McMansions, and now McPain or McClintons Gang.
Jas
c_s
There are risks everywhere. If you decide to go for a stroll at midnight through Echo Park, are white, and unarmed...well Gods Speed and good luck...because you're going to need it.
Cheers,
So what do you advise? Buy DOW Diamonds. For every story of returns, there are more stories of loses.
If it was so easy to make those great returns, surely there would be a road map.
central_scrutinizer | 02.03.08 - 2:09 pm | # wrote about the positive attributes of Brazil
and C_S...i think you got those parts right, but, Brazil has some civil society issues not the least of which is crime esp in urban areas...of course we will be having more of that too here...
And Called Bluff listed many of the parade of the horribles as to why in some ways we are in worse shape than right before the Great Depression...
BUT, the scariet thing, i say again, is that the quants, the Central Bankers, the best economists and even the few trusted political leaders out there
......DON"T HAVE A PLAUSIBLE MODEL AS TO HOW THIS PLAYS OUT!!!!
to me that means own your own place, have cash (real cash not near cash) and , or CDs, i bonds etc, and get ready to jump into equities only after all hope is lost!
....and plant a "victory garden"(good exercise to keep you healthy, and you may be glad to have the food)
More candidates for McPain's cabinet:
Secretary of the Treasury - O-joe
Chief Economic Advisor - Cramer
OFHEO Head - Bob Toll
FDIC - Bonnie and Clyde (emeritus)
SEC Head - Angelo Mozilo
this is the only thing that matters to the freaking masses, lemmings they are.
The real Super Bowl parties are in Scottsdale - MarketWatch
SICKENING.
FALLOUT FROM US SLOWDOWN HITS CANADA...
Mish's Global Economic Trend Analysis: Fallout From US Slowdown Hits Canada
c_s,
Poor Charles Prince. Can't we give him National Endowments for Arts for his dancing skill?
Cheers,
oy vey,
Come on...you've NEVER been to this site:
The Dirty - Nik Richie + Dirty Army intel, opinions, gossip, satire, and celebrities
Cheers,
ITS GLOBAL
UNDER THE RADAR RESCUE OF SPANISH MORTGAGE BANKS
Under-the-Radar Rescue of Spanish Mortgage Banks « naked capitalism
Good one Misean, and let's not forget Cayne for Drug Czar ...
Misean
Have never been to that site. I am too busy trying to fihure out how to grt out of my financial predicament which is driving me nuts. Got disabled, had to use my 401k money to live, none left am 53 with a son going to college which will cost me 200k, so the super bowl is not on my mind. Homelesness is.
You want to get outraged , here we go:
Prudent customers risk losing credit cards
Error Page
--
central_scrutinizer,
You forgot:
SecTreas -- Lawrence Kudlow
SecDef -- Joe Lieberman
SEC -- James E. Cayne of BS
Jas
Oy Vey,
I'm terribly sorry. God bless.
You got me tearing up in public.
Cheers,
sam,
Read it. I am hoping Amex doesn't do the same. I'm sure they won't. They were always more of a debit card than a credit card.
Cheers,
Misean
I am not kidding, this isnt a joke.
oy vey,
I'm sorry you thought I was taking that as a joke. I wasn't. I meant it sincerely. I can't imagine going through that, and it tears at the heart. I may be an uber-bear, but I am human.
Cheers,
So will the recession bring deflation? Or will the fed print like mad to keep us inflating?
Seems to me that gold/silver is now not a good investment. With Jewlery tanking, that will have to drag those commodities with it.
May yield a buying opporunity in a year for gold/silver?
Misean
Thank you. You have no idea what it is doing to my family and there are lot of these scenarios playing out everywhere is this country. I would like to sell my house and rent, but there are no rentals where I live, they are all taken. My house would require a jumbo mortgage even after a massive discount, forget that. And I was once Senior VP of a publicly traded company who had the unfortunate but terrible accident on the way home from a meeting that left me with head trauma. You realize who your friends are when you are in dire straits, very few.
Anonymous | 02.03.08 - 3:45 pm
The fed CAN'T print...only loan. That's where the financial "pushing on a string" comes from. If no one wnat s more debt, the Fed is powerless.
So it means deflation.
Cheers,