No V means no immediate recovery. No immediate recovery means the cash burn continues. Cash burn means bankruptcy. Sentiment will drop of course when builders start busting in larger numbers.
Most think that L turns into a U. This time it's a step on the way down. A pause.
Therefore no immediate pop up means it's only a pause to the bottom.
Sentiment will skyrocket when the last ones remain standing.
Like Bubba-Gump's Shrimp Boat, which didn't depend upon an increase in shrimp demand, but skyrocketed on an absolute destruction of all competition for what demand there was.
An L is only half the shape. The other half, the recovery will be a long, slow tapering climb that starts eventually.
Like the bottom of a swimming pool. We've just fallen in the deep end. And we can't swim very well. Gotta walk our way up the gentle slope to the shallow end and hope we don't drown in the meantime.
It's counter-intuitive...but not unlike the Dotcoms of 2001-2...which had several good bounces off their lows, only to crash and burn to zero in just months later....the housing and homebuilder stocks, many of which are 30%, 40%, and others over 50% above their lows....REMAIN THE BEST SHORTING OPPORTUNITIES IN THE MARKET TODAY...IMO. Watch and learn....
Despite the Federal Reserves concerted efforts to lower short-term interest rates, free up credit markets and shore up the national economy, the housing market has shown no evidence of improvement thus far. In fact, conditions have continued to deteriorate in recent times, said NAHB Chief Economist David Seiders.
You can't make a healthy economy by handing out pieces of paper.
A lot of economists these days have Flat-Earth-Syndrome.
NAHB is an index of change. So for the L-shaped building activity, the index must stabilize at about 50. If it looked like "L", there would be constant deterioration.
Housing Market Index at 19 is in horrible territory (any number below 20) and down from a month ago. Traffic of Prospective Buyers at 17 is close to an all-time low and also in horrible territory.
Builders need to slash prices to compete with auctions and foreclosure sales. Also, they need to shut down building and permits in the high foreclosure areas for at least a year.
The builders have really thrown in the towel. The only thing they can hope for is a tax credit to buyers to support prices. That's not much of a business model.
An insignificant number of houses will be required in insignificant markets over the next few year. Not much help to builders who will be bankrupt and wondering how they could screw up such a good thing. (Starts with G and ends with D -- And it is not God's fault.)
From what I remember builders are getting to apply losses to previous year's tax payments to get a refund. This should keep them afloat for quite a few years as the good times were really good. There's nothing like a government subsidy.
Oct.1929 - June 1930: Fed slashes discount rate from 6% to 2.5%.
Nov.1929 - Apr.1930: Dow +48%
I don't believe in the 2nd coming of the Great Depression (though I do believe in a prolonged slowdown). My point is the Fed can't stop the inevitable, but it does appear to be able to delay it for about 6 months...
Don't know why all are so concerned. The tax rebate checks are coming! And to paraphrase Nancy Pelosi's remark when the current rebates were announced: "If needed, there's more where that came from!"
Much as I love to be pessimistic about housing, I suspect there is going to be a big drop in inventory over the next few quarters, allowing a resumption of home building at a pace close to its normal relationship to GDP, household creation and the like.
That's because those unoccupied houses are going to get nasty. The quality of materials used on recent years will contribute to the process, but the real issue is nobody living in them.
Who knows? Maybe there is a cottage industry in refurbishing long-empty houses in our future.
To reiterate my point....builders can't survive an L. An L by defination can't be a U because the act of staying low for so long is destructive to the builders in the form of bankruptcies. Cash flow won't last the bottom. Bankruptcies equal more sentiment drops. A final spiraling collapse followed by a rapid pop by the survivors who see the competition is gone, regardless of demand.
To use an analogy....I can pull a swimmer underwater deeper and deeper....the deeper I pull them the quicker they swim up to surface. The swimmer, as I pull them down, continues to guage where the bottom is, knowing the moment I let them go, they will swim up.....every time I pull them down, there is a V shaped recovery and euphoria. But if I pull them down and hold them there...then by definition there is no rapid rebound, but a long pause as they run out of breath and then a slow final sinking to the depths. Most can't and won't survive long enough to outlast the L. It's a V or death.
Can anyone explain why the homebuilders are up 30 - 50% despite unrelenting bad news?
Once you get enough shorts concentrated in a sector the hedge funds and deliberately start going long and force short covering to drive it up even further.
It makes prefect sense if you're making short-term bets -- not only do you make money on the long side, but after you've driven out a lot of the shorts you can go short yourself at a much more attractive position.
I seems to me a lot of people that trade stocks here haven't played much poker.
Ultimately, if memory serves me, Japanese real estate prices fell about 75 percent from the peak of the bubble, in the late 1980s, to the trough, just a few years ago. Throughout that period, but especially at the beginning, there were many times when forecasters were saying that improvement was just around the corner.
In the event, a long, steady grind continued to destroy real estate wealth for more than a decade.
Maybe this will prove a better guide to our experience than will the Great Depression.
In some of the other boards I read, people are optimistic about Congressional proposals to help housing. Specifically, the expansion of FHA coverage and the lifting of Fannie/Freddie conforming limits. In their worldview, buyers will return in droves as soon as the financing spigots are reopened (at taxpayer expense).
Today I was listening to the show "Forum" on NPR, and they had some political hack from Team Terminator (Governor Arnold).
I caught myself swearing out loud at the guy. He tried to explain how the plan to borrow from future State Lottery revenues was not actually borrowing money, even though it might look that way. He claimed that somehow "redirecting future revenues" was different than borrowing.
When you scream in your car, nobody can hear you... I think I will call and scream on the phone at my congressmen.
In their worldview, buyers will return in droves as soon as the financing spigots are reopened (at taxpayer expense).
theres no way that will can happen for several yrs. in my area of coastal Cal, prices were run up at least as high as anywhere else. i saw a client of mine yesterday who's a bankruptcy atty and she said she is swamped with filings from "anything RE". another client said the local schoold district one city over is firing all the district supervisors except 2 from lack of money. also kids are being forced back to their original school districts next yr again from lack of money.
also conducting interviews for 2 new employees and i'm seeing many more elderly women in their 50's and 60's applying who used to be retired and living off their RE or stocks. with inflation they realize they need to get off the stick and work. sad really but good for me as i think i will be able to lower my wage pay.
The chart porn is really well done. I might also add that MA posted the best numbers in the unemployment stats today. Don't exactly know what that means, but I'm sure it's the tech component and the fact that hiring is still strong that's keeping the area up. But we've been in decline here for a while and we're not facing anything that looks like depression, unemployment hasn't soared, and while foreclosures are high, people aren't walking away in droves...sorry to disappoint you nihilists.
the way i see it is this whole slow burn housing bust has Hank Paulson stamped all over it. i don't know how many times i've heard him state what i consider to be his mantra, "orderly unwind".
all the stopgaps; super SIV MLEC, TAF, TSLF, PDCF, BSC save have served this purpose and quite effectively i might add. but it won't stop the eventual outcome which will be a significant recession lasting yrs.
Ipodius, I think you forget that as a service economy many people work on commission but are not umemployed. The finance manager at a local car dealership is no longer making 120K a year, more like 80K. The mortage loan officer is no longer making 200K a year, try 75K if lucky, The credit reseller is no longer making 90K a year, try 60K. Etc, Etc, Etc...
unemployment is up and getting worse, but incomes are halved and that is ultimately worse..
Just curious to hear peoples' opinions on the market's almost refusal to go down over the past couple weeks. Considering that the volume has been so weak, it appears that the bulls have been able to manipulate stock prices more easily.
As such, what type of events do you think it would take to increase volume back to where it was from August through March, and how likely do you think such a scenario is in the next 1-2 months?
My personal opinion is that the market has continued to rally in part because earnings estimates became too negative, and that most companies have reported bad, but better than expected earnings. So, short of another huge individual event like a Bear Stearns or SocGen, earnings estimates will start to get revised up by those who are predicting a revocery in the 2nd half of 2008, and as the economy continues to deteriorate and unemployment continues rising, companies will once again start reporting worse than expected earnings, and maybe then the majority of investors and traders will realize that the market is very overvalued right now, and that the US economy cannot recover until most or all of the housing inventory is worked off and unemployment finally has bottomed, which most likely will take several more years to occur.
Agreed -- it is now very hard for Congress to restart the financing spigot.
Having said that, what are the reader's opinions on the Fed's new lending facilities -- now that we've had them running for a few months.
Here are my thoughts:
1) Bank runs are now less likely: any Fed friend can now temporarily park illiquid securities at the Fed.
2) Balance sheet "appears" healthier: With the Fed willing and able to hold your impaired assets, your balance sheet can appear healthy.
3) Opportunity to grow: With your balance sheet risk off the table, banks can think about lending again -- we're seeing this now with LBO bonds getting bids again.
Builders need to slash prices to compete with auctions and foreclosure sales. Also, they need to shut down building and permits in the high foreclosure areas for at least a year.
Jas
Jas Jain
I hope you suspended any put buying recently. A sure way to lose more money than any homebuilder.
O-Joe
I don't see a stock market crash. We'll see Level 4 assets or some other mark to myth nonsense if that's what it take to keep the system solvent. In the long run, we'll only get what we actually produce. That's what has me worried.
no longer making 120K a year, more like 80K. The mortage loan officer is no longer making 200K a year, try 75K if lucky
cd, welcome to my world circa 2001. all of us in tech survived when it was our turn in the barrel, so now it's someone else's. My recession call is shallow and longish. So far, all of this bears that out. There is nothing new pointing to anything approaching depression-level numbers at all or even close. Even the credit markets seem to be greased a bit more, as deals are getting done.
There are a number of scenarios for black swan events for the stock market:
1) Foreign CBs depeg from the dollar in order to reign in domestic inflation.
2) Oil prices continue their march upwards -- leading to an increase in inflation AND inflation expectations.
3) A large hedge fund blows up(without Fed window access). I suspect this is less likely -- because in today's world, the Hedge fundies will call the Fed for help.
4) A string of Muni bond defaults as a result of bankruptcies (e.g. Vallejo).
Ipod, the 2001 dot bomb bust was mainly due to unreasonable and spectulative business plans being somehow sprinkled with fairy dust to VC who bought it..Go figure...Almost mirrors the housing pixie dust happenings of today..of course thiers a huge difference btwn vc, wall street money and housing..I'm not calling for depression but plenty of pain and recession. In auto industry were there already..
Mr Beach, I don't think we need any "black swan" events at all. All we need is for earnings to go nowhere and the market will respond. Right now, given projections of forward earnings, it's still over valued. The bulls are expecting the stimulus checks to do something or earnings to rebound in the second two Qs. It ain't gonna happen.
rex: "The builders have really thrown in the towel."
The builders have not thrown in the towel, that is precisely the problem. There have been relatively few bankruptcies, especially of the larger builders. That means they keep building even though they can't sell the homes, further deepening the housing market problems.
They were able to scrape through 2007 by axing home prices, because they still had big enough profit margins that they could cut prices (and undercut used home sales) and break even. Not so sure that strategy still works, as prices get closer to cost of construction. They had some money saved up and still had access to capital markets, but it's unknown how long that will last. The one thing that's certain is that there needs to be far fewer homebuilders. The industry right now is sized for the out-of-control growth that ended in 2006 and will not be repeating itself; the industry needs to be scaled way back, which means a lot of homebuilder bankruptcies. Not sure when that will happen, but it hasn't happened yet.
As I think about the "Global Pool of Money" video linked here last week that described the yield chasing post Greenspan 1% Fed, I am once beginning to wonder where the returns chasers are going now since they abandonned securitized debt. The low volumes on the exchanges don't make it conclusive, but equities might be the destination. Disconnect between economy and the equities market be damned.
You and Mish may be right afterall. We have deflation - in the NAHB expectations anyway.
It's an interesting mix Angry. On the one hand you have massive asset price deflation and destruction of money and credit. On the other you have rising commodity prices and price inflation creeping into divergent areas because of it. Top that off with banks that aren't lending and interest rates that aren't responding to the Fed drops and it's fascinating in an academic sort of way.
That's why I'm cutting the Fed some slack here. There are no easy soltions, unlike the yelling going on around here. But I do think that just the sheer size/scope of the US Economy is going to push us through this with a shallow but longish recession. And I'm still betting the Dow sinks close to the level I think at some point.
So today's rally was because GSE money that would have gone to support affordable housing projects will instead be used to backstop FHA loans?
Keep the funds moving from pot to pot fast enough and maybe nobody will ever notice that a lot of the pots are empty.
I'm reminded of a pleasant half hour or so I once spent on the red line in Chicago watching an expert shell game operator plying his trade. He had an associate get on about three stops after he did who of course volunteered to play, and was allowed to "win", while the operator watched everyone's reactions and selected his mark.
I don't make short term stock market predictions. I know that I don't know. Longer term, market returns from these levels are likely to be disappointing.
Again, you and Mish are confusing the evaporation of ficticious wealth with credit destruction. Take my house for example. It's down say 10% in the past year, but up 25% in the past 5 years. Credit was neither created nor destroyed in the past year or five years as no new loans or borrowing occurred.
Look at the aggregate credit and money supply numbers. By your own definition - no deflation. How? The miracle of fiat currency.
idoc said: "O Joe
lets see if you can get thru 1420 convincingly w/o getting your head cut off."
Let's make it 1600.
Sebastian
Surely we'll see new ATHs this year, but nothing goes up without a reaction which may be coming soon as a new buying opportunity. BTW, the credit crisis is yesterday's news. Who cares?
O-Joe
I'm not one to believe that another GD is heading our way, but I'm not sure that you can compare the unemployment rates of the Depression with today's and base your opinion on that, because an apples-to-apples comparison isn't possible. People who have stopped looking for a job are not counted in the "official" stats today, but I'd bet that the historical figures for unemployment during the '30s do not employ this ludicrous exception.
Even if relatively few major homebuilders have gone BK so far, that doesn't mean that many thousands of subcontractors haven't or aren't hanging on by their fingernails. The major HBs have financial resources to rely on, or assets to sell if necessary, to enable them to hang on. Most contractors aren't in that position.
There seems to be a big disconnect between these facts and the XHB?
I feel like it's just a false bottom. Still too much volume in all the individual house builder stocks on a historical basis. Seems like there's still too much hot money in the homebuilders waiting for a rebound.
Anybody have a rational explanation for why XHB is rallying?
Housing has bottomed!
No V means no immediate recovery. No immediate recovery means the cash burn continues. Cash burn means bankruptcy. Sentiment will drop of course when builders start busting in larger numbers.
Most think that L turns into a U. This time it's a step on the way down. A pause.
Therefore no immediate pop up means it's only a pause to the bottom.
Sentiment will skyrocket when the last ones remain standing.
Like Bubba-Gump's Shrimp Boat, which didn't depend upon an increase in shrimp demand, but skyrocketed on an absolute destruction of all competition for what demand there was.
The hurricane continues.
Gee, I was wondering, do you think they may have overbuilt?
I think builder sentiment is low because they all dread the day when the SEC or DOJ comes knocking, and they spend their "golden years" in jail.
Is this because they have invested in thousands of residential/commercial development projects and have no offers on any of them?
Just consider, if you will, billions and billions of bakesales for builders. That might perk up sentiment.
OT, but germain...
April TIC -48.2 Billion. Appears the foreigners are saying 'No Mas' on T's.
HP-977: Treasury International Capital (TIC) Data for March
Hmmm....
Back to your regularly scheduled hand wringing.
An L is only half the shape. The other half, the recovery will be a long, slow tapering climb that starts eventually.
Like the bottom of a swimming pool. We've just fallen in the deep end. And we can't swim very well. Gotta walk our way up the gentle slope to the shallow end and hope we don't drown in the meantime.
It's counter-intuitive...but not unlike the Dotcoms of 2001-2...which had several good bounces off their lows, only to crash and burn to zero in just months later....the housing and homebuilder stocks, many of which are 30%, 40%, and others over 50% above their lows....REMAIN THE BEST SHORTING OPPORTUNITIES IN THE MARKET TODAY...IMO. Watch and learn....
Ralph,
You are right. They will crash, again. My guess is late July or early August.
Despite the Federal Reserves concerted efforts to lower short-term interest rates, free up credit markets and shore up the national economy, the housing market has shown no evidence of improvement thus far. In fact, conditions have continued to deteriorate in recent times, said NAHB Chief Economist David Seiders.
You can't make a healthy economy by handing out pieces of paper.
A lot of economists these days have Flat-Earth-Syndrome.
"A lot of economists these days have Flat-Earth-Syndrome."
And they forgot about the whole supply and demand thing.
Can anyone explain why the homebuilders are up 30 - 50% despite unrelenting bad news?
CR,
NAHB is an index of change. So for the L-shaped building activity, the index must stabilize at about 50. If it looked like "L", there would be constant deterioration.
Bottoms are the new black.
Housing Has Not Bottomed
Housing Market Index at 19 is in horrible territory (any number below 20) and down from a month ago. Traffic of Prospective Buyers at 17 is close to an all-time low and also in horrible territory.
Builders need to slash prices to compete with auctions and foreclosure sales. Also, they need to shut down building and permits in the high foreclosure areas for at least a year.
Jas
--
CR, do you still believe that "the inventory is being worked off?"
Jas
--
"Alan Greenspan writes: Housing has bottomed!"
Greenspan hasn't! He will rot in hell.
Jas
The builders have really thrown in the towel. The only thing they can hope for is a tax credit to buyers to support prices. That's not much of a business model.
An insignificant number of houses will be required in insignificant markets over the next few year. Not much help to builders who will be bankrupt and wondering how they could screw up such a good thing. (Starts with G and ends with D -- And it is not God's fault.)
From what I remember builders are getting to apply losses to previous year's tax payments to get a refund. This should keep them afloat for quite a few years as the good times were really good. There's nothing like a government subsidy.
"This should keep them afloat for quite a few years as the good times were really good."
Or a few months. When you are bleeding cash and have no viable, sustainable method of making cash, you are dead even when you are alive.
We're simply not going to need new homes built in this country for a decade or so. That's a 'I' shaped "recovery" ...straight down.
New bubblevision market descriptor - "Goldilocks Recession". Heard it today! No joke!
LMAO!
Oct.1929 - June 1930: Fed slashes discount rate from 6% to 2.5%.
Nov.1929 - Apr.1930: Dow +48%
I don't believe in the 2nd coming of the Great Depression (though I do believe in a prolonged slowdown). My point is the Fed can't stop the inevitable, but it does appear to be able to delay it for about 6 months...
"Goldilocks Recession"
wow. Doublespeak in this administration is incredible.
Orwell couldn't have come up with a better phrase.
New bubblevision market descriptor - "Goldilocks Recession".
Goldilocks and the 3-million bears ?
Don't know why all are so concerned. The tax rebate checks are coming! And to paraphrase Nancy Pelosi's remark when the current rebates were announced: "If needed, there's more where that came from!"
I think I'l change my moniker to GoldilocksDepressio
Much as I love to be pessimistic about housing, I suspect there is going to be a big drop in inventory over the next few quarters, allowing a resumption of home building at a pace close to its normal relationship to GDP, household creation and the like.
That's because those unoccupied houses are going to get nasty. The quality of materials used on recent years will contribute to the process, but the real issue is nobody living in them.
Who knows? Maybe there is a cottage industry in refurbishing long-empty houses in our future.
"My point is the Fed can't stop the inevitable, but it does appear to be able to delay it for about 6 months..."
Gee, we're having a presidential election in six months. What a coincidence.
The stocks of builders go up every day, or nearly so. The worse the news, the more money it costs me.
To reiterate my point....builders can't survive an L. An L by defination can't be a U because the act of staying low for so long is destructive to the builders in the form of bankruptcies. Cash flow won't last the bottom. Bankruptcies equal more sentiment drops. A final spiraling collapse followed by a rapid pop by the survivors who see the competition is gone, regardless of demand.
To use an analogy....I can pull a swimmer underwater deeper and deeper....the deeper I pull them the quicker they swim up to surface. The swimmer, as I pull them down, continues to guage where the bottom is, knowing the moment I let them go, they will swim up.....every time I pull them down, there is a V shaped recovery and euphoria. But if I pull them down and hold them there...then by definition there is no rapid rebound, but a long pause as they run out of breath and then a slow final sinking to the depths. Most can't and won't survive long enough to outlast the L. It's a V or death.
And they forgot about the whole supply and demand thing.
And that pesky affordability thing.
Bizarro world sure seems to work.
it could also be called Costanza
(do the opposite of what you would normally do)
OT:
best Google Street View evar:
18830 May St., Homewood, IL
Can anyone explain why the homebuilders are up 30 - 50% despite unrelenting bad news?
Once you get enough shorts concentrated in a sector the hedge funds and deliberately start going long and force short covering to drive it up even further.
It makes prefect sense if you're making short-term bets -- not only do you make money on the long side, but after you've driven out a lot of the shorts you can go short yourself at a much more attractive position.
I seems to me a lot of people that trade stocks here haven't played much poker.
I don't believe in the 2nd coming of the Great Depression
If you read the history, most did not believe in the 1st coming either.
The supertanker analogy still applies; these things take forever to change direction & speed.
and the XHB rallies on the news...
Ultimately, if memory serves me, Japanese real estate prices fell about 75 percent from the peak of the bubble, in the late 1980s, to the trough, just a few years ago. Throughout that period, but especially at the beginning, there were many times when forecasters were saying that improvement was just around the corner.
In the event, a long, steady grind continued to destroy real estate wealth for more than a decade.
Maybe this will prove a better guide to our experience than will the Great Depression.
In some of the other boards I read, people are optimistic about Congressional proposals to help housing. Specifically, the expansion of FHA coverage and the lifting of Fannie/Freddie conforming limits. In their worldview, buyers will return in droves as soon as the financing spigots are reopened (at taxpayer expense).
RE: "Goldilocks Recession" and
doublespeak....
Today I was listening to the show "Forum" on NPR, and they had some political hack from Team Terminator (Governor Arnold).
I caught myself swearing out loud at the guy. He tried to explain how the plan to borrow from future State Lottery revenues was not actually borrowing money, even though it might look that way. He claimed that somehow "redirecting future revenues" was different than borrowing.
When you scream in your car, nobody can hear you... I think I will call and scream on the phone at my congressmen.
In their worldview, buyers will return in droves as soon as the financing spigots are reopened (at taxpayer expense).
theres no way that will can happen for several yrs. in my area of coastal Cal, prices were run up at least as high as anywhere else. i saw a client of mine yesterday who's a bankruptcy atty and she said she is swamped with filings from "anything RE". another client said the local schoold district one city over is firing all the district supervisors except 2 from lack of money. also kids are being forced back to their original school districts next yr again from lack of money.
also conducting interviews for 2 new employees and i'm seeing many more elderly women in their 50's and 60's applying who used to be retired and living off their RE or stocks. with inflation they realize they need to get off the stick and work. sad really but good for me as i think i will be able to lower my wage pay.
For those that insist the paradigm is the depression instead of the 80's/90's bust, try reading this, in which he does a comparion of then and now.
PaperMoney
The chart porn is really well done. I might also add that MA posted the best numbers in the unemployment stats today. Don't exactly know what that means, but I'm sure it's the tech component and the fact that hiring is still strong that's keeping the area up. But we've been in decline here for a while and we're not facing anything that looks like depression, unemployment hasn't soared, and while foreclosures are high, people aren't walking away in droves...sorry to disappoint you nihilists.
Shnaps, that chick is cool.
--
"Average Joe writes: To reiterate my point....builders can't survive an L."
And they wouldn't. 80% will go bankkrupt before 2010. Are they going to be bailed out by the taxpayers?
Jas
the way i see it is this whole slow burn housing bust has Hank Paulson stamped all over it. i don't know how many times i've heard him state what i consider to be his mantra, "orderly unwind".
all the stopgaps; super SIV MLEC, TAF, TSLF, PDCF, BSC save have served this purpose and quite effectively i might add. but it won't stop the eventual outcome which will be a significant recession lasting yrs.
Average Joe,
Your Forrest Gump analogy was great!
Ipodius, I think you forget that as a service economy many people work on commission but are not umemployed. The finance manager at a local car dealership is no longer making 120K a year, more like 80K. The mortage loan officer is no longer making 200K a year, try 75K if lucky, The credit reseller is no longer making 90K a year, try 60K. Etc, Etc, Etc...
unemployment is up and getting worse, but incomes are halved and that is ultimately worse..
Just curious to hear peoples' opinions on the market's almost refusal to go down over the past couple weeks. Considering that the volume has been so weak, it appears that the bulls have been able to manipulate stock prices more easily.
As such, what type of events do you think it would take to increase volume back to where it was from August through March, and how likely do you think such a scenario is in the next 1-2 months?
My personal opinion is that the market has continued to rally in part because earnings estimates became too negative, and that most companies have reported bad, but better than expected earnings. So, short of another huge individual event like a Bear Stearns or SocGen, earnings estimates will start to get revised up by those who are predicting a revocery in the 2nd half of 2008, and as the economy continues to deteriorate and unemployment continues rising, companies will once again start reporting worse than expected earnings, and maybe then the majority of investors and traders will realize that the market is very overvalued right now, and that the US economy cannot recover until most or all of the housing inventory is worked off and unemployment finally has bottomed, which most likely will take several more years to occur.
Agreed -- it is now very hard for Congress to restart the financing spigot.
Having said that, what are the reader's opinions on the Fed's new lending facilities -- now that we've had them running for a few months.
Here are my thoughts:
1) Bank runs are now less likely: any Fed friend can now temporarily park illiquid securities at the Fed.
2) Balance sheet "appears" healthier: With the Fed willing and able to hold your impaired assets, your balance sheet can appear healthy.
3) Opportunity to grow: With your balance sheet risk off the table, banks can think about lending again -- we're seeing this now with LBO bonds getting bids again.
Are we back to Goldilocks?
What happens in the next 12 months?
Builders need to slash prices to compete with auctions and foreclosure sales. Also, they need to shut down building and permits in the high foreclosure areas for at least a year.
Jas
Jas Jain
I hope you suspended any put buying recently. A sure way to lose more money than any homebuilder.
O-Joe
Inflation/cost ofliving is increasing faster than incomes. That's not a strong economy.
And the markets are . . . up?
I don't see a stock market crash. We'll see Level 4 assets or some other mark to myth nonsense if that's what it take to keep the system solvent. In the long run, we'll only get what we actually produce. That's what has me worried.
O Joe
lets see if you can get thru 1420 convincingly w/o getting your head cut off.
no longer making 120K a year, more like 80K. The mortage loan officer is no longer making 200K a year, try 75K if lucky
cd, welcome to my world circa 2001. all of us in tech survived when it was our turn in the barrel, so now it's someone else's. My recession call is shallow and longish. So far, all of this bears that out. There is nothing new pointing to anything approaching depression-level numbers at all or even close. Even the credit markets seem to be greased a bit more, as deals are getting done.
There are a number of scenarios for black swan events for the stock market:
1) Foreign CBs depeg from the dollar in order to reign in domestic inflation.
2) Oil prices continue their march upwards -- leading to an increase in inflation AND inflation expectations.
3) A large hedge fund blows up(without Fed window access). I suspect this is less likely -- because in today's world, the Hedge fundies will call the Fed for help.
4) A string of Muni bond defaults as a result of bankruptcies (e.g. Vallejo).
What would you add to the list?
Ipod, the 2001 dot bomb bust was mainly due to unreasonable and spectulative business plans being somehow sprinkled with fairy dust to VC who bought it..Go figure...Almost mirrors the housing pixie dust happenings of today..of course thiers a huge difference btwn vc, wall street money and housing..I'm not calling for depression but plenty of pain and recession. In auto industry were there already..
bonds and equities headed in the same direction again. WTF is going on.
Mr Beach, I don't think we need any "black swan" events at all. All we need is for earnings to go nowhere and the market will respond. Right now, given projections of forward earnings, it's still over valued. The bulls are expecting the stimulus checks to do something or earnings to rebound in the second two Qs. It ain't gonna happen.
Beach
both of these are not to far off.
17? they must have found the builder bar, cause they've been talking to the optimists.
WTF is going on.
opex for one.
Those red lines enter the blue shaded areas higher than where they
exit.
Is that.....bad?
"Those red lines enter the blue shaded areas higher than where they exit"
I doubt it. This recession is led by housing. It might lead it out too.
idoc said: "O Joe
lets see if you can get thru 1420 convincingly w/o getting your head cut off."
Let's make it 1600.
Sebastia
Ipodius,
You and Mish may be right afterall. We have deflation - in the NAHB expectations anyway.
rex: "The builders have really thrown in the towel."
The builders have not thrown in the towel, that is precisely the problem. There have been relatively few bankruptcies, especially of the larger builders. That means they keep building even though they can't sell the homes, further deepening the housing market problems.
They were able to scrape through 2007 by axing home prices, because they still had big enough profit margins that they could cut prices (and undercut used home sales) and break even. Not so sure that strategy still works, as prices get closer to cost of construction. They had some money saved up and still had access to capital markets, but it's unknown how long that will last. The one thing that's certain is that there needs to be far fewer homebuilders. The industry right now is sized for the out-of-control growth that ended in 2006 and will not be repeating itself; the industry needs to be scaled way back, which means a lot of homebuilder bankruptcies. Not sure when that will happen, but it hasn't happened yet.
1423-will it hold....
As I think about the "Global Pool of Money" video linked here last week that described the yield chasing post Greenspan 1% Fed, I am once beginning to wonder where the returns chasers are going now since they abandonned securitized debt. The low volumes on the exchanges don't make it conclusive, but equities might be the destination. Disconnect between economy and the equities market be damned.
You and Mish may be right afterall. We have deflation - in the NAHB expectations anyway.
It's an interesting mix Angry. On the one hand you have massive asset price deflation and destruction of money and credit. On the other you have rising commodity prices and price inflation creeping into divergent areas because of it. Top that off with banks that aren't lending and interest rates that aren't responding to the Fed drops and it's fascinating in an academic sort of way.
That's why I'm cutting the Fed some slack here. There are no easy soltions, unlike the yelling going on around here. But I do think that just the sheer size/scope of the US Economy is going to push us through this with a shallow but longish recession. And I'm still betting the Dow sinks close to the level I think at some point.
So today's rally was because GSE money that would have gone to support affordable housing projects will instead be used to backstop FHA loans?
Keep the funds moving from pot to pot fast enough and maybe nobody will ever notice that a lot of the pots are empty.
I'm reminded of a pleasant half hour or so I once spent on the red line in Chicago watching an expert shell game operator plying his trade. He had an associate get on about three stops after he did who of course volunteered to play, and was allowed to "win", while the operator watched everyone's reactions and selected his mark.
Lots of fun to watch....
Ipodius,
I don't make short term stock market predictions. I know that I don't know. Longer term, market returns from these levels are likely to be disappointing.
Again, you and Mish are confusing the evaporation of ficticious wealth with credit destruction. Take my house for example. It's down say 10% in the past year, but up 25% in the past 5 years. Credit was neither created nor destroyed in the past year or five years as no new loans or borrowing occurred.
Look at the aggregate credit and money supply numbers. By your own definition - no deflation. How? The miracle of fiat currency.
idoc said: "O Joe
lets see if you can get thru 1420 convincingly w/o getting your head cut off."
Let's make it 1600.
Sebastian
Surely we'll see new ATHs this year, but nothing goes up without a reaction which may be coming soon as a new buying opportunity. BTW, the credit crisis is yesterday's news. Who cares?
O-Joe
I'm not one to believe that another GD is heading our way, but I'm not sure that you can compare the unemployment rates of the Depression with today's and base your opinion on that, because an apples-to-apples comparison isn't possible. People who have stopped looking for a job are not counted in the "official" stats today, but I'd bet that the historical figures for unemployment during the '30s do not employ this ludicrous exception.
Even if relatively few major homebuilders have gone BK so far, that doesn't mean that many thousands of subcontractors haven't or aren't hanging on by their fingernails. The major HBs have financial resources to rely on, or assets to sell if necessary, to enable them to hang on. Most contractors aren't in that position.
There seems to be a big disconnect between these facts and the XHB?
I feel like it's just a false bottom. Still too much volume in all the individual house builder stocks on a historical basis. Seems like there's still too much hot money in the homebuilders waiting for a rebound.
Anybody have a rational explanation for why XHB is rallying?
Lastest.