The good news is that inventory in some markets that had been exploding last year seems to be stabilizing ... albeit it might be stabilizing at a high enough level that prices continue to fall (e.g. HousingTracker.net | Residential Real Estate Listing Statistics by City ... see Orlando, Miami -- its better in Sacramento, and looks real ugly in Los Angeles).
the blow up starts this week. kudlow just stated that the fed needs to talk hawkish tomorrow and then stocks can rally.. well, 3 weeks ago, ben stated the economy wasnt doing so badly (his version of hawkish talk)..since that comment, the djia has gone from 13100 to 11700..ben knows this...he may talk hawkish tmmrw and if he does, cmmdties will call his bluff...and to think a mere 25 bps tightening in aug or spet will stave off the inflation menace is sheer lunacy..ben needs to tighten hard and quick, like %4.00 in one move. the stock mkt wont allow him to do this...when are investors going to jump ship from these paper fnncl mkts? the time has come...
WaMu Raises Bet on Blemished Borrowers by Offering Credit Cards
Washington Mutual Inc., burned by subprime mortgage losses, has been issuing credit cards to borrowers with blemished credit records as it tries to rebound.
Washington Mutual, the biggest U.S. savings and loan, moved into credit cards in 2005 with the $6.45 billion takeover of Providian Financial Corp. It has since increased accounts 56 percent to 14.7 million as of February while running up the highest proportion of overdue loans among the top 15 providers, according to data compiled by trade publication Nilson Report.
You know, one of these days, some other guest or commentator sitting beside Kudlow will finally have enough of his ranting BS tirade and tell him on air with the cameras rolling to STFU! That will be a good day.
Speaker73 writes:
Wow. Stupidity with a capital "S".
The whole policy is wrong, we can't spend out way out of it. Bet we see more defaults on cards soon.
If there's no confidence it doesn't matter what rates the FED provides. Bottom of this is when we begin to see housing prices stabilize and then recovery in the financials.
Dow Chemical Co, the biggest U.S. chemicals manufacturer, said on Tuesday it will boost its prices by as much as 25 percent, institute freight surcharges and cut output of some products because of soaring energy prices.
The price hikes come after last month's across-the-board 20 percent increase by the Midland, Michigan-based company, which makes thousands of products ranging from plastic wraps to car parts and insecticides.
"What we're doing is trying to protect our earnings," Chairman and Chief Executive Officer Andrew Liveris told broadcaster CNBC.
I've had a suspicion that the broad economy, labor market, housing prices, and equity markets will take a nosedive come early next year. It has nothing to do with the timing vis a vis the Nov. election, but rather the tension building up that's gathering momentum to break down - a synergetic effect that hasn't shown its true colors yet.
CR called the housing price decline well over a year ago and it must have been a lonely place to be for a few months. Now it is unfolding as predicted with millions of people underwater on the their mortgages and HELOC. Little pleasure in being right when the result is so disasterous but congratulations to cr anyway.
For starters, everywhere in California, we will see 65% off in the starter homes built for the Hispanics, legal and illegal, in inland and outlying areas near urban centers, and in the countless small and large farming areas.
I'm expecting 80% drops in some of those tracts that will be ghosttowns.
There's no way they can re-fi; there are no "new" buyers; the falling prices are like being on the ground floor during the WTC tower collapses. When they reach competitive rental rates for the high end income field worker, rurally, or have-truck-will-travel gardener, landscaper, non-union shop-worker, cleark...tnen they'll stop falling.
The losses on the massive number of buildings I'm talking about will yank the floor out from under the banks. We're going back to 1993 prices in California, finally, and unstoppably.
All the fereeners who own the leveraged paper on most of CA's homes might as well write off their reckless dabbling in the US bond markets; they're smoked kippers and they better get used to it.
CS is late, repeatedly, in its reporting. It's like applying a tourniquet to a dead man. Why waste one's time looking at this stuff? Are we historians?
CR is way too conservative. If we bet his line, we'd be showing up on the CS charts in a few months, down the next "17%".
Step away from the table. Drop everything in your economic clutches that says RE acquired after 2000, and if you do that, you'll stay alive. Only the very rich will not be impacted.
And on that note, anecdotally, out where I am in rarified mid-range richville, I'm discovering that lots of the neighbors are renting out their guesthouses. What one seens when driving by, reasons for awe and envy, are really populated with kings in their underwear. Don't get me wrong,
the very rich here are and will be unaffected, but that means current, sustained income levels of a solid $500MM or more. The rest are conscious something's happening. The medical and dental professionals are seeing their business revenues drop like a sack of cement; so they ain't in the "solid" category.
The nuke has gone off, the mushroom cloud is disapating. However, the financial system has gotten a lethal dose of radiation. There is nothing that can be done; just keep the patient comfy for their limited lifespan.
After recieving a lethal dose of radiation, patients feel wonderful at first. Then every organ system fails suddenly and spectularly.
Yearning to Learn-- The pain is all taking place off stage-- as it has been over the last 30 years-- with ordinary people (now referred to as 'consumers') blaming themselves for their inability to do more than tread water and papering over the long-term decline in real incomes with credit card debt and windfalls from bubble profits.
What will it take to bring the pain on stage? Widespread loss of credit and perhaps the spreading of the pain up the ladder to the top 10%-- the last remnants of our old, broad-based middle-class. Then, perhaps, it will begin to dawn on people that the picture drawn by the media of the whole problem being stupid and profligate behavior like borrowing against the house to buy a hummer has as little to do with reality as a Hollywood movie.
Yearning I'm with you, this is still relatively mild. Low unemployment, relatively strong consumption etc. If there is a paradigm in consumer psyche then we'll see pain.
And Corzine telling the truth about a probable 1.5 year slowdown, already having reduced NJ expenses, balanced the state budget without raising taxes, plus starting to pay down the pension deficit.
Compare to Cali having done nothing, adding $1 BIL per month to the $18 BIL deficit, budget due in days, no plan.
Hello Ahnnolld? (No answer.) Busy listening to Lipstick Larry for some ideas.
"either BenB et al are doing a great job, or we have some hidden zombies in the closet?"
Yearning To Learn | 06.24.08 - 10:35
One thing to remember. There are people who never bought the hype. I never jumped in. My parents didn't. Heck my younger brother has 7 house payments left at 38. He has never made over 40k a year...A lot of these people will be o.k. through this downturn. The overleveraged idiots...Screwed blued and tatooed...
I also think the real pain will be after November. And I will be the first to predict: the next president will be impeached due to he declining economy.
Low unemployment, relatively strong consumption etc.
Well of course nominal consumption looks strong when the price of oil and food are going up so much. Combine with underreported price inflation and everything looks good. Also low unemployment doesn't say anything about real wages.
Wait till the J6P's start maxing out en masse - it's already under way.
you guys who lambast CR for being to conservative, give it a rest.
If his whisper number(if he has one) were touted, he'd come off reading like Denninger.
yearn, I know and that's what I keep saying. For all the posts on these threads, there just isn't any evidence of wide-spread pain, panic, or even revolt. No food riots, no great public outcries...not even anything exciting in the election process.
The only thing anyone seems fixated on is the price of gas. But overall consumption isn't down all that much beacuse of it. Color me perplexed.
So maybe just as the wealth was illusory, the loss of wealth is illusory and only affects those who were overleveraged or in a quintile where their base expenses are what they are regardless of the economy.
BTW - we won't see 'pain' on a massive scale until 'cash flow events' hit employers - it is one thing to have paper write downs and its a 'hole nuther thang' to actually run out of cash & not be able to meet immediate obligations. They get close to that and you'll see your pain.
That in a nutshell is why you see United Airlines taking 1 of 7 planes out of the sky (and furlowing the pilots) and Dow raising prices something like 40-45% and simultaneosuly cutting output.
They are both hemorrhaging cash in this environment and have to stop NOW.
BTW - fed can't do squat to change any of this. The cake is baked. We aren't going to see prices come down much in stuff OTHER than assets until we get some significant consumption declines worldwide. It's happening - these are all symptoms of the drivers forcing that result.
Now - off to a conference call where I'll be locked down discussing - are you ready for the shocking news - material cost increases & do we walk from a customer or do they let us pass on the increases. Odds either way are a coin flip. These discussions are going on everywhere - worldwide.
How many people lost their lives in lakes wherein the average depth was 2 feet?
If you want to play make believe, CS and the utterances of the SEE IT NOW people will assure you'll be crushed economically. This is a roiling sea, blown by unstoppable reality facts. Look at the motivating facts. Ignore the CS BS.
The pain is moving center stage quickly--like cascading derivative defaults we will see shortly, which will be the stake in the heart of the financial system as we know it And neither presidential candidate has a clue what's about to hit(or they know and won't talk about it) As far as main street? mm let's see-90K jobs already lost on Wall St. United laying off(not furloughing) 10% of their pilots; consumer confidence down 50%; and oh yes, 6 million homes under water,most of which will go FC as layoffs accelerate without a massive taxpayer bailout which the country can't afford. $5 gallon gas alone is enough to bring down the economy within the next several months. Just open your eyes and look around Yearn..the Shock Doctrine has finally been turned loose on us here at home. Game up.
OT anti Citi rant:
They are idiots; I used to be able to call a 1 800 number to check balance on my credit card and the computer would give the answer...no human interaction required. Now when I call the call is directed to a person who tries to convince me to use cash-out checks or transfer balances. Ticks me off...I guess they figure they make up the personnel cost on the fees charged when someone does fall for the cash out check scam.
"So maybe just as the wealth was illusory, the loss of wealth is illusory and only affects those who were overleveraged or in a quintile where their base expenses are what they are regardless of the economy.
ipodius | 06.24.08 - 10:56 am | # '
Retracements after large run-ups are quite normal. The pain is felt by those who leveraged to buy at peak. I don't know any way in the real world to prevent that. My powder is dry.
we won't see 'pain' on a massive scale until 'cash flow events' hit employers
I agree with you dryfly. Right now, we're seeing the evaporation of a lot of paper, and not real hard coin. The cake that is baked, however, is the fact that, since we don't have wage increases, raising prices will cut demand as people balk at paying more. They'll simply do without.
I'm not paying $20 a pound for steak. I won't buy it. Same goes for anything else. If my heating bill goes up by 40%, then I'll cut that amount out of new clothes or household items I buy. I'll put things off as long as I can. Those are the drivers of the business cycle.
But I might also argue that globalization has also caused the pain to be diffused. Manufacturing for the goods I'm likely to buy isn't happening in scale here, so there has been no huge unemployment jump at this point, and why I think unemployment will likely be lower than in past downturns.
But if energy prices don't recede by the fall, the airlines are going to be toast, anything that ships is going to be hurt, and Dow Chemicals can raise prices by 40% and they'll sit there causing more pain. Profits are going to be bleak as the costs can't be passed along to the consumer.
It's especially hard to get a feel for the national economic difficulties here in Houston. Employment still growing. CRE still strong. That is why CR and the comments are so important to me. Great data and anecdotes.
There are some ripples in the serene waters around here. Roads are less congested on the weekends. Home prices have decreased in all categories expect the very top. Foreclosures increasing. A couple of the newer neighborhoods targeting lower middle class buyers have significant foreclosures. Electricity prices, which are based on production of natural gas fired plants, are going to hammer us this summer.
Congrats to all of you with "dry powder". But if you think this economic "perfect storm" will only seriously impact the overleveraged, you are sadly misguided. The systematic destruction of the dollar will be felt by all.
The systematic destruction of the dollar will be felt by all.
yes, until the euro-zone tanks, the Fed actually does raise rates, and we recover before the UK-Euro area does and oil decreases.
Then those who are talking about the systemtic destruction of the dollar will go back into hiding once again with the goldbugs. sort of like the 17 year cicada cycles...
Hope you don't get your wish and it feels much worse.
My wishes have nothing to do with anything. I didn't wish us to have a credit bubble, but it happened anyway.
I personally will likely do as well as anybody through this downturn, I've set myself up as well as one can being only 34 yrs old. But I'll get slammed because of my family, who have not done well. (partly due to not trying, partly due to their options). so I have no "wish" to see anything bad.
I agree with all of you that there are some significant headwinds, and that the outlook looks very dire. I also see very little wiggle room to get out of this.
my comments are only about what things look like NOW, and that I'm surprised that things aren't worse NOW. (they are bad, but not as bad as I would have envisioned given a 15-20% RE drop)
I think I agree with ipodius and dryfly... much of the runup was paper, and that paper is blowing up... but it hasn't affected cash flow enough. Yet.
has BenB altered this future? can he keep the paper losses from affecting cash flow?
as far as I can tell, the drop in the FFR has helped nobody except the banks/Ibanks. despite lower a lower Fed Funds rate: mortgage, car, and other consumer loan rates are up. thus the spread for the banks/Ibanks is increased... meaning increased profits. that and the various lending facilities...
is this why it doesn't feel as bad as it should? has benB been relatively successful? giving the banks a freebie (in the form of extra profits) to help them deal with the losses from the past... but keeping them solvent on a cash flow basis for now at least?
if so, what happens as his ammo runs out?
I feel like I'm in a forest... I don't know how far I've gone in, or how far I have to get out. so far the forest is dark and a little scary, but the monster I thought would eat me hasn't shown up yet. but then again I don't know where that darn exit is, or how far away it was... and I don't have any food or water.
"Just over half of affluent baby boomers born in 1948 who have both mortgages and investable assets of at least $1 million do not plan to pay off their mortgages until their 70s, if ever, according to a recent survey of 500 people by investment management firm Bell Investment Advisors.
"Mortgages help free up funds that otherwise would be tied up in property ownership for investment in equities," says Jim Bell, the firm's founder and president. Investing in the stock market money that would otherwise be tied up in home equity also gives you the option of raising cash to deal with unexpected expenses like medical bills or even rising gas prices."
and even better...
'"If you have your money tied up in a paid-off mortgage, in order to access that equity which is in your house, you have to go pay the bank to get your money [by refinancing the loan]," says Elisabeth Plax, a Beachwood, Ohio, financial planner and wealth manager for Plax & Associates Financial Services. "If you invest it, all you have to do is liquidate it" by selling."'
...money tied up in a payed off mortgage... oh no!
"The Conference Board's confidence index fell to 50.4, the lowest level since February 1992, from a revised 58.1 in May. Consumers were the most pessimistic about the future in the 41- year history of the index."
Check that last sentence. The consumer knows this is bad and getting worse.
And how will the Fed raise interest rates without destoying Wall St-their number one priority? Watch what they do, not what they say. Yes, the euro-zone is in trouble, but it's demise would only temporarily help the dollar. Such an event would seriously set back the cabal's grand scheme for one world currency domination.
The dollar is reflecting the transition from a unipolar worls to a multipolar world. In the long run the world and the US will be better for it. The pound used to be worth $5 when Britain was the dominant nation in the world. Yet the British Empire did not necessarily make life better for the average Brit; in fact Britain today may be a better and more livable country for the average Brit than it was at the heights of the Empire.
"Mortgages help free up funds that otherwise would be tied up in property ownership for investment in equities," ...
In the bear markets that have followed previous bull markets, P/E ratios have typically fallen to 11 or less. They now average about 22 -- 22 on earnings inflated to a record percentage of GDP by conditions that aren't going to last (among those conditions, the fact that a large fraction of financial company earnings were phony).
At a P/E of 11 or less on much lower earnings, those equities bought using mortgages as margin loans won't be worth much. And as their owners start having to sell them off in a weak market to make their mortgage payments, they may be worth even less.
Yes Ahead, you are right. The multipolar world has realized holding dollars is a financial death sentence. Just look at bond yields--and rising mortgage rates, despite all the Fed cutting. See how much better off you and others will be holding dollars in the not too distant future
psst yearning! when the forest is dark, don't look at the ground or you'll never find your way out. look at the sky. if you can read the stars you'll find your way out.
and there are some stars on here about every 50th post.
If you are looking for pain, it is there, just not in the papers. I was talking with an old client last night, one whose account was over 1MM when we left the business in '99. He now tells me he 'followed the firm's recommendations' all the way down. His account is now worth 50K and his house is not paid off--- he is 66. There are thousands just like him to add to the housing bust people, and probably a lot like him with a new mortgage, upside down, and no money. When you look at the Dow, look at the stats. Today 35 new highs, 325 new lows! Lots of those 325ers in people's portfolios. Interesting times.
...
The world's biggest financial firms may lose as many as 175,000 jobs by this time next year as Citigroup Inc. and other banks shed workers amid slowing revenue and billions in writedowns, executive recruiters say.
Well, "by this time next year" won't be in time for the recovery next week. But goodness knows, there's a growing shortage of credit-repair consultants already. I just hope we can weather the shortage between now and then.
in fact Britain today may be a better and more livable country for the average Brit than it was at the heights of the Empire.
No maybe, it is for certain. The period post-WWII when the Empire was being dismantled was also the period of the greatest gains in living standards for the ordinary people. Of course that same period was the time of the greatest gains in the US too, but the UK was overextended coming out of WWII and the US wasn't.
The market has turned green today. Pass the cheap wine. Bubblevision is featuring three money making picks for the third quarter. I think cheap wine will be my sale item this weekend.
"Tom Stone writes:
If you don't think the general population has been affected call your local food bank or consumer counseling service and ask how business is."
I hear that. The food banks in my area are raising the red flag. But people at the low end of the economic spectrum don't tend to make a fuss, don't give tearful TV interviews from the porch of their foreclosed McMansions because now they'll have to live in a rental and give up one of their three cars. They just try to survive, and they're afraid to make a stink.
The pain is there. Just not among the "people who matter." But it will be.
BB: No clue. Naz100 gaps at 1850 down 3% and then 1800 down 6% will be filled soon though and are good indicators. After a no-surprise fed = Dow down 300 and later 600 for lower 2008 low near 11000, maybe by Friday?
Britain, ground zero for bubble traders, SUV, CDOs,et al. is going the way of the US. Housing bubble popped, commercial nose diving, foreclosures soaring. The City has been propping up the UK economy for years. Game up for Britain as well.
1) I have some sort of mental condition. I am physically unable to understand the words that come out of economist's mouths. so I am safe
2) and there are some stars on here about every 50th post. ROFL. Ipod: you and I disagree on some of the finer points here and there, and I know that I grill you sometimes (even when I agree with your gist) but I often use your star to find my way. even if I do use it to make my own constellation. There are others as well, no need to name names. with success CR has had an increase in the noise ratio to be sure, but I still haven't found a better place and doubt that I will.
Y-T-L-, it IS getting warm here in in the water, in the pot, on the stove, for us frogs
jg: agreed. And again, let me restate: it's not that i'm not seeing pain. it's that I'm not seeing as much pain as I thought I would when housing hit minus 17% from peak.
I thought we'd all be fricasseed... but instead the slow boil it is.
although I'm not sure that BenB should be doing what he is doing, I'm also amazed that he's been able to pull it off. Volker may be the strongest Fed chair of all time, but BenB may be the most ingenius.
but as Austin Powers says: "who does Number 2 work for?"
The first thing the next president should do is fire BB. In fact, throw out the Fed altogether. They are responsible for most of this pain. Unfortunately, not likely to happen.
yearning, it sort of makes sense with housing, doesn't it? Most of that is paper, not hard currency. And the only way you're really screwed is if you bought at the bubble and didn't put anything down. Or you have to sell. Most people don't fit that. And as long as they can afford the payment, they'll just stay put. No pain there.
So now we'll find out where all that HELOC money went, and it looks like autos were a big part. Furniture, kitchens, etc too. Travel and airlines, given the price of fuel and the dollar. So those areas will suck for a long time as people pay off the binge and can't tap any more.
But broader sections of the economy? There is a certain level of spending that is static and that's the bulk of the figure. And as I've said we're not manufactuing most of the stuff (except autos) that won't be selling. So where's the pain? In the percentage of the population that overleveraged. And what will happen to them? They'll default and rent. And as soon as this blows over, the credit card apps will come in the mail again.
I was just thinking about what I said and it merits some further thought. Perhaps this isn't bad yet because, for the average person, this access to credit just gave access to luxuries. Or faux luxuries. Now that it's gone, people will just stop buying them. No one really needs to shop at Neiman or Whole Foods, has to take the whole family to Disney or pack them up on a plane every year or take big vacations all the time, or buy 50k autos. No one needs jewelery, or $200 jeans, or $150 sneakers. Or $3 coffees 3x a day at starbucks. And certainly no one needs 2 houses.
So maybe this will just wring the excess out of everything and, as much as the paper gains were illusion, the excess won't be missed much either.
And maybe that's why there is no pain now, or less than you'd expect with most property being around 20% down now.
The S&P 500 isn't flat since 2000 because businesses aren't doing better, or have no better prospects, than in 2000. That isn't true. The businesses in the S&P 500 are doing substantially better (P/E ratios are half what they were in 2000).
The difference is the interest of investors in equities as a class of investments; they aren't sexy anymore, not since the rise of fixed-income derivatives (IE - structured finance) and commodities. Of course, it is a truism that capital supports the industries it's invested in. The paper oil market encourages development in petroleum. Structured Finance supported a boom in housing.
The flight from equities, then, means less capital available to non-natural resources, non-housing businesses, with concomitant implications for business investment (weak ever since the tech bubble) and economic growth.
Remember, with the real estate crash, we're seeing real growth wiped out - every house built and sold during the boom was value added to national income figures. Drop all those numbers by 5, 10, 17% (or more to come) and you would see a significant fall in national income figures going back to 2004 or so.
My view, currently, is that anemic national growth and failures of business investment are essentially regulatory phenomena; government policies, from the major (giveaways to mortgage originators through HMID and low short term rates, overregulation of corporate governance under sarbox, the continuing treatment of customs and immigration as a national security issue rather than an economic issue) to the minor (biofuels subsidies, immigrant roundups, talk about taxpayers rescuing mortgage lenders or borrowers or both).
Fix the ways hedge funds and private equity can engage in rent-seeking behavior (biofuels) and moral hazard (rule out bailouts in housing), and they'll be back to quantitative analysis of the S&P 500 (and thereby, back to supporting broad based, productive investment)
I'm getting pretty far afield here, so I'll stop for now. Sorry for the OT.
el pres/ipod- To sort of riff off you guys. There was a big overinvestment in real estate, which is now being wrung out. This was a totally non-productive investment, hence the growth has been sub-par. This may explain why the equity markets have fallen less than the majority opinion here thinks they should. Big equity crashes (1929, 2000-2001) happen following periods when EVERYONE is in the market and boasting about how great their stocks are doing. Did you hear that in 2003-2007? I sure didn't. You did hear people boasting about their houses-so that is where the crash is.
ahead, i think you're on the money. the evidence is that what's causing the consumer pain is oil, not housing curiously enough. housing is causing the banks pain, but honestly, what does that mean to joe6P in immediate terms? Nothing. It barely means anything to me.
To investments it means a lot too. But the fact that my 401k went down, or any fund did doesn't alter my daily spending habits. So this is just the excess being worked off. It will, however, cause a recession.
I find it extremely odd that I've heard people say that this situation is evidence that recession is anything other than a monetary phenomenon, though. The credit contraction post-summer-2007 has massively contracted the money supply no matter what the Fed does.
Inflation is on the rise because commodity prices are high and China/India are suffering from a combination of a weak dollar and high (actual) inflation at home because their economies have overheated. Without the China/India outsourcing and import effects to counterweight rising commodity prices, producer and consumer prices will rise in the United States.
Inflation isn't bad if it's a product of rising commodity prices; it's a price mechanism, not a purely monetary (in the Friedmanite sense)phenomenon. When commodities relax, the inflationary effect will relax as well.
My other point is that there's nothing wrong with recession. Every now and again we need a little scrape with failure to knock the bad investments into BK, wring bad debt out of the system, and remind speculators of the fundamentals. People are fired, capital freed, and can be put to work in new, more productive surroundings.
The concern this time is capital flight overseas, I suppose. A serious audit of the financial system (avoiding criminal prosecutions wherever possible in favor of cleaning up balance sheets) would to a lot to restore confidence.
actually ipodius, my investment accounts are flat to slightly up on the year. And without any of the double-secret ultrashort end of the world funds that some here are enamored of. As for spending, I'm a certified cheapskate, so I spend when I have a need to spend. I bought a car last year not because of what my house or investments were doing, but because the old one died. I will make as many hiking trips as ever this year; the weather is the issue, not gas prices. Not everyone splurges wildly when things are good and cuts back when things are bad-I prefer an even keel.
huh? must go check last thread, something good must be going on there.
Only the beginning
jo6pac
The race to the bottom continues
So then the vast majority of HELOCs issued in these markets where the original LTV was greater than 85% are now unsecured. Amazing.
The good news is that inventory in some markets that had been exploding last year seems to be stabilizing ... albeit it might be stabilizing at a high enough level that prices continue to fall (e.g. HousingTracker.net | Residential Real Estate Listing Statistics by City
... see Orlando, Miami -- its better in Sacramento, and looks real ugly in Los Angeles).
Wake me up when we roll back to 1999 prices.
It's not fallen enough by half.
the blow up starts this week. kudlow just stated that the fed needs to talk hawkish tomorrow and then stocks can rally.. well, 3 weeks ago, ben stated the economy wasnt doing so badly (his version of hawkish talk)..since that comment, the djia has gone from 13100 to 11700..ben knows this...he may talk hawkish tmmrw and if he does, cmmdties will call his bluff...and to think a mere 25 bps tightening in aug or spet will stave off the inflation menace is sheer lunacy..ben needs to tighten hard and quick, like %4.00 in one move. the stock mkt wont allow him to do this...when are investors going to jump ship from these paper fnncl mkts? the time has come...
Consumer confidence down to 50.4 in June vs 58.1 in May.
S&P should go below 1300. DOW cracked below 11750.
Interesting times.
Kudlow paints the house price pig. Lipstick Larry.
I have to admit.... this RE downturn hasn't been as painful as I thought it would be
don't get me wrong, there's a lot of pain... but we are having 20% YOY downturns... and it certainly doesn't feel that bad to me.
in other words:
where is the pain?
is it in zombie banks?
stealth bailouts?
am I living in an ivory tower somewhere?
Wow. Stupidity with a capital "S".
WaMu Raises Bet on Blemished Borrowers by Offering Credit Cards
Washington Mutual Inc., burned by subprime mortgage losses, has been issuing credit cards to borrowers with blemished credit records as it tries to rebound.
Washington Mutual, the biggest U.S. savings and loan, moved into credit cards in 2005 with the $6.45 billion takeover of Providian Financial Corp. It has since increased accounts 56 percent to 14.7 million as of February while running up the highest proportion of overdue loans among the top 15 providers, according to data compiled by trade publication Nilson Report.
WaMu Bets on Blemished Borrowers With Credit Cards (Update3) - Bloomberg.com
You know, one of these days, some other guest or commentator sitting beside Kudlow will finally have enough of his ranting BS tirade and tell him on air with the cameras rolling to STFU! That will be a good day.
Speaker73 writes:
Wow. Stupidity with a capital "S".
The whole policy is wrong, we can't spend out way out of it. Bet we see more defaults on cards soon.
If there's no confidence it doesn't matter what rates the FED provides. Bottom of this is when we begin to see housing prices stabilize and then recovery in the financials.
Looks like we may be hitting the inflection point. Thoughts?
in other words:
where is the pain?
Foreclosures. SUV sales. Heating oil/gas prices. Gradual tightening of budgets all across the country. It's there. Just spread out.
Dow Chemical Co, the biggest U.S. chemicals manufacturer, said on Tuesday it will boost its prices by as much as 25 percent, institute freight surcharges and cut output of some products because of soaring energy prices.
The price hikes come after last month's across-the-board 20 percent increase by the Midland, Michigan-based company, which makes thousands of products ranging from plastic wraps to car parts and insecticides.
"What we're doing is trying to protect our earnings," Chairman and Chief Executive Officer Andrew Liveris told broadcaster CNBC.
Dow Chemical sets more price hikes
| Reuters
Hope all of you got a 45% raise in the last 2 months to protect your earnings. LOL
JR,
I've had a suspicion that the broad economy, labor market, housing prices, and equity markets will take a nosedive come early next year. It has nothing to do with the timing vis a vis the Nov. election, but rather the tension building up that's gathering momentum to break down - a synergetic effect that hasn't shown its true colors yet.
Just a reminder:
"Myself, I think next spring is going to see a resurgence of home-buying caused by a stronger economy and lower interest rates."
Sebastian
Sebastian | 08.30.07 - 11:01 am
CR called the housing price decline well over a year ago and it must have been a lonely place to be for a few months. Now it is unfolding as predicted with millions of people underwater on the their mortgages and HELOC. Little pleasure in being right when the result is so disasterous but congratulations to cr anyway.
For starters, everywhere in California, we will see 65% off in the starter homes built for the Hispanics, legal and illegal, in inland and outlying areas near urban centers, and in the countless small and large farming areas.
I'm expecting 80% drops in some of those tracts that will be ghosttowns.
There's no way they can re-fi; there are no "new" buyers; the falling prices are like being on the ground floor during the WTC tower collapses. When they reach competitive rental rates for the high end income field worker, rurally, or have-truck-will-travel gardener, landscaper, non-union shop-worker, cleark...tnen they'll stop falling.
The losses on the massive number of buildings I'm talking about will yank the floor out from under the banks. We're going back to 1993 prices in California, finally, and unstoppably.
All the fereeners who own the leveraged paper on most of CA's homes might as well write off their reckless dabbling in the US bond markets; they're smoked kippers and they better get used to it.
CS is late, repeatedly, in its reporting. It's like applying a tourniquet to a dead man. Why waste one's time looking at this stuff? Are we historians?
CR is way too conservative. If we bet his line, we'd be showing up on the CS charts in a few months, down the next "17%".
Step away from the table. Drop everything in your economic clutches that says RE acquired after 2000, and if you do that, you'll stay alive. Only the very rich will not be impacted.
And on that note, anecdotally, out where I am in rarified mid-range richville, I'm discovering that lots of the neighbors are renting out their guesthouses. What one seens when driving by, reasons for awe and envy, are really populated with kings in their underwear. Don't get me wrong,
the very rich here are and will be unaffected, but that means current, sustained income levels of a solid $500MM or more. The rest are conscious something's happening. The medical and dental professionals are seeing their business revenues drop like a sack of cement; so they ain't in the "solid" category.
Foreclosures. SUV sales. Heating oil/gas prices. Gradual tightening of budgets all across the country. It's there. Just spread out.
yeah I guess... but I guess in my mind I had an assumption that the economy/life would have been a lot worse given 20% losses in just a year!
and again, yes things are bad... but in general it seems like life is going on...
either BenB et al are doing a great job, or we have some hidden zombies in the closet?
Yearn,
The nuke has gone off, the mushroom cloud is disapating. However, the financial system has gotten a lethal dose of radiation. There is nothing that can be done; just keep the patient comfy for their limited lifespan.
After recieving a lethal dose of radiation, patients feel wonderful at first. Then every organ system fails suddenly and spectularly.
Just wait...
Yearning to Learn-- The pain is all taking place off stage-- as it has been over the last 30 years-- with ordinary people (now referred to as 'consumers') blaming themselves for their inability to do more than tread water and papering over the long-term decline in real incomes with credit card debt and windfalls from bubble profits.
What will it take to bring the pain on stage? Widespread loss of credit and perhaps the spreading of the pain up the ladder to the top 10%-- the last remnants of our old, broad-based middle-class. Then, perhaps, it will begin to dawn on people that the picture drawn by the media of the whole problem being stupid and profligate behavior like borrowing against the house to buy a hummer has as little to do with reality as a Hollywood movie.
Yearning I'm with you, this is still relatively mild. Low unemployment, relatively strong consumption etc. If there is a paradigm in consumer psyche then we'll see pain.
MTHood writes:
Just a reminder:
"Myself, I think next spring is going to see a resurgence of home-buying caused by a stronger economy and lower interest rates."
Sebastian
MTHood, do you have the quote from O-Joe torching CR over his Dow 500 pt futures post?
That I'd like to see.
And Corzine telling the truth about a probable 1.5 year slowdown, already having reduced NJ expenses, balanced the state budget without raising taxes, plus starting to pay down the pension deficit.
Compare to Cali having done nothing, adding $1 BIL per month to the $18 BIL deficit, budget due in days, no plan.
Hello Ahnnolld? (No answer.) Busy listening to Lipstick Larry for some ideas.
"either BenB et al are doing a great job, or we have some hidden zombies in the closet?"
Yearning To Learn | 06.24.08 - 10:35
One thing to remember. There are people who never bought the hype. I never jumped in. My parents didn't. Heck my younger brother has 7 house payments left at 38. He has never made over 40k a year...A lot of these people will be o.k. through this downturn. The overleveraged idiots...Screwed blued and tatooed...
Chris
Right on the front of finance.yahoo.com was this creepy piece:
Should-You-Pay-Off-Your-Mortgage-Before-You-Retire: Personal Finance News from Yahoo! Finance
Yearn,
I also think the real pain will be after November. And I will be the first to predict: the next president will be impeached due to he declining economy.
MTHood writes:
Just a reminder:
"Myself, I think next spring is going to see a resurgence of home-buying caused by a stronger economy and lower interest rates."
Sebastian
Half of what he said was right, namely the lower rates
AMZN down 3 bucks on only 2mm shares this am.
story has it shippers layin down the law per cost increase.
ad libbed
Iceman,
Sorry. I haven't been tracking O-Joe -- one buffoo, er, visionary, is enough.
However, I could add that all 20 cities in the Case-Shiller 20 showed year-over-year negative prices.
Including Charlotte!
Charlotte!
Only -0.1, but still!
Low unemployment, relatively strong consumption etc.
Well of course nominal consumption looks strong when the price of oil and food are going up so much. Combine with underreported price inflation and everything looks good. Also low unemployment doesn't say anything about real wages.
Wait till the J6P's start maxing out en masse - it's already under way.
"Half of what he said was right, namely the lower rates :)"
Well, when I look at a one year chart from bankrate.com, here's what I see (eyeballing):
So, um, good point.
kudlow: it is good news because it is very bad news that was expected, versus very bad news that was unexpected.
Slept in, almost missed the show........
Man I hate popcorn for breakfast.........
More butter please.............
you guys who lambast CR for being to conservative, give it a rest.
If his whisper number(if he has one) were touted, he'd come off reading like Denninger.
Speaker73 writes:
Wow. Stupidity with a capital "S".
WaMu Raises Bet on Blemished Borrowers by Offering Credit Cards
"Just when I thought you couldn't be any dumber you go and do something like that...
AND TOTALLY REDEEM YOURSELF ! ! ! ! !"
kudlow: it is good news because it is very bad news that was expected, versus very bad news that was unexpected
That's almost as good as Rumsfield's Known-Unknown speach
MTHood writes:
So, um, good point.
Not talking bout those rates. But thanks for the info.
Sell now, or be priced out forever.
Nate, I just read the first paragraph of the Yahoo piece and hurled into the wastebasket.
Yearning To Learn,
"A recession is when your neighbour loses his job a depression is when you lose yours."
Hope you don't get your wish and it feels much worse.
Most ordinary American don't directly buy from DOW chemicals. So there is nothing to worry about.
yearn, I know and that's what I keep saying. For all the posts on these threads, there just isn't any evidence of wide-spread pain, panic, or even revolt. No food riots, no great public outcries...not even anything exciting in the election process.
The only thing anyone seems fixated on is the price of gas. But overall consumption isn't down all that much beacuse of it. Color me perplexed.
So maybe just as the wealth was illusory, the loss of wealth is illusory and only affects those who were overleveraged or in a quintile where their base expenses are what they are regardless of the economy.
"Not talking bout those rates. But thanks for the info."
Oh, sorry, I thought you meant mortgage rates when you were talking about housing.
My bad.
...the loss of wealth is illusory...
shakes head
So much complacency.
Okayy.. DOW prediction time.
What's it going to close at today?
BTW - we won't see 'pain' on a massive scale until 'cash flow events' hit employers - it is one thing to have paper write downs and its a 'hole nuther thang' to actually run out of cash & not be able to meet immediate obligations. They get close to that and you'll see your pain.
That in a nutshell is why you see United Airlines taking 1 of 7 planes out of the sky (and furlowing the pilots) and Dow raising prices something like 40-45% and simultaneosuly cutting output.
They are both hemorrhaging cash in this environment and have to stop NOW.
BTW - fed can't do squat to change any of this. The cake is baked. We aren't going to see prices come down much in stuff OTHER than assets until we get some significant consumption declines worldwide. It's happening - these are all symptoms of the drivers forcing that result.
Now - off to a conference call where I'll be locked down discussing - are you ready for the shocking news - material cost increases & do we walk from a customer or do they let us pass on the increases. Odds either way are a coin flip. These discussions are going on everywhere - worldwide.
any of the oil junkies think that $5.00 gas is here to stay?
I seem to remember a couple of people pretty savvy in oil market understanding....
CS figures are BS.
How many people lost their lives in lakes wherein the average depth was 2 feet?
If you want to play make believe, CS and the utterances of the SEE IT NOW people will assure you'll be crushed economically. This is a roiling sea, blown by unstoppable reality facts. Look at the motivating facts. Ignore the CS BS.
The pain is moving center stage quickly--like cascading derivative defaults we will see shortly, which will be the stake in the heart of the financial system as we know it And neither presidential candidate has a clue what's about to hit(or they know and won't talk about it) As far as main street? mm let's see-90K jobs already lost on Wall St. United laying off(not furloughing) 10% of their pilots; consumer confidence down 50%; and oh yes, 6 million homes under water,most of which will go FC as layoffs accelerate without a massive taxpayer bailout which the country can't afford. $5 gallon gas alone is enough to bring down the economy within the next several months. Just open your eyes and look around Yearn..the Shock Doctrine has finally been turned loose on us here at home. Game up.
OT anti Citi rant:
They are idiots; I used to be able to call a 1 800 number to check balance on my credit card and the computer would give the answer...no human interaction required. Now when I call the call is directed to a person who tries to convince me to use cash-out checks or transfer balances. Ticks me off...I guess they figure they make up the personnel cost on the fees charged when someone does fall for the cash out check scam.
Fist of Gork writes:
OT anti Citi rant
Thay have the most writedowns followed closely by UBS.
This is desperation.
"So maybe just as the wealth was illusory, the loss of wealth is illusory and only affects those who were overleveraged or in a quintile where their base expenses are what they are regardless of the economy.
ipodius | 06.24.08 - 10:56 am | # '
Retracements after large run-ups are quite normal. The pain is felt by those who leveraged to buy at peak. I don't know any way in the real world to prevent that. My powder is dry.
we won't see 'pain' on a massive scale until 'cash flow events' hit employers
I agree with you dryfly. Right now, we're seeing the evaporation of a lot of paper, and not real hard coin. The cake that is baked, however, is the fact that, since we don't have wage increases, raising prices will cut demand as people balk at paying more. They'll simply do without.
I'm not paying $20 a pound for steak. I won't buy it. Same goes for anything else. If my heating bill goes up by 40%, then I'll cut that amount out of new clothes or household items I buy. I'll put things off as long as I can. Those are the drivers of the business cycle.
But I might also argue that globalization has also caused the pain to be diffused. Manufacturing for the goods I'm likely to buy isn't happening in scale here, so there has been no huge unemployment jump at this point, and why I think unemployment will likely be lower than in past downturns.
But if energy prices don't recede by the fall, the airlines are going to be toast, anything that ships is going to be hurt, and Dow Chemicals can raise prices by 40% and they'll sit there causing more pain. Profits are going to be bleak as the costs can't be passed along to the consumer.
And the US auto industry is done.
If you don't think the general population has been affected call your local food bank or consumer counseling service and ask how business is.
Yearning to Learn,
It's especially hard to get a feel for the national economic difficulties here in Houston. Employment still growing. CRE still strong. That is why CR and the comments are so important to me. Great data and anecdotes.
There are some ripples in the serene waters around here. Roads are less congested on the weekends. Home prices have decreased in all categories expect the very top. Foreclosures increasing. A couple of the newer neighborhoods targeting lower middle class buyers have significant foreclosures. Electricity prices, which are based on production of natural gas fired plants, are going to hammer us this summer.
Best,
Congrats to all of you with "dry powder". But if you think this economic "perfect storm" will only seriously impact the overleveraged, you are sadly misguided. The systematic destruction of the dollar will be felt by all.
The systematic destruction of the dollar will be felt by all.
yes, until the euro-zone tanks, the Fed actually does raise rates, and we recover before the UK-Euro area does and oil decreases.
Then those who are talking about the systemtic destruction of the dollar will go back into hiding once again with the goldbugs. sort of like the 17 year cicada cycles...
Hope you don't get your wish and it feels much worse.
My wishes have nothing to do with anything. I didn't wish us to have a credit bubble, but it happened anyway.
I personally will likely do as well as anybody through this downturn, I've set myself up as well as one can being only 34 yrs old. But I'll get slammed because of my family, who have not done well. (partly due to not trying, partly due to their options). so I have no "wish" to see anything bad.
I agree with all of you that there are some significant headwinds, and that the outlook looks very dire. I also see very little wiggle room to get out of this.
my comments are only about what things look like NOW, and that I'm surprised that things aren't worse NOW. (they are bad, but not as bad as I would have envisioned given a 15-20% RE drop)
I think I agree with ipodius and dryfly... much of the runup was paper, and that paper is blowing up... but it hasn't affected cash flow enough. Yet.
has BenB altered this future? can he keep the paper losses from affecting cash flow?
as far as I can tell, the drop in the FFR has helped nobody except the banks/Ibanks. despite lower a lower Fed Funds rate: mortgage, car, and other consumer loan rates are up. thus the spread for the banks/Ibanks is increased... meaning increased profits. that and the various lending facilities...
is this why it doesn't feel as bad as it should? has benB been relatively successful? giving the banks a freebie (in the form of extra profits) to help them deal with the losses from the past... but keeping them solvent on a cash flow basis for now at least?
if so, what happens as his ammo runs out?
I feel like I'm in a forest... I don't know how far I've gone in, or how far I have to get out. so far the forest is dark and a little scary, but the monster I thought would eat me hasn't shown up yet. but then again I don't know where that darn exit is, or how far away it was... and I don't have any food or water.
Priceless quotes from the article I posted:
"Just over half of affluent baby boomers born in 1948 who have both mortgages and investable assets of at least $1 million do not plan to pay off their mortgages until their 70s, if ever, according to a recent survey of 500 people by investment management firm Bell Investment Advisors.
"Mortgages help free up funds that otherwise would be tied up in property ownership for investment in equities," says Jim Bell, the firm's founder and president. Investing in the stock market money that would otherwise be tied up in home equity also gives you the option of raising cash to deal with unexpected expenses like medical bills or even rising gas prices."
and even better...
'"If you have your money tied up in a paid-off mortgage, in order to access that equity which is in your house, you have to go pay the bank to get your money [by refinancing the loan]," says Elisabeth Plax, a Beachwood, Ohio, financial planner and wealth manager for Plax & Associates Financial Services. "If you invest it, all you have to do is liquidate it" by selling."'
...money tied up in a payed off mortgage... oh no!
"The Conference Board's confidence index fell to 50.4, the lowest level since February 1992, from a revised 58.1 in May. Consumers were the most pessimistic about the future in the 41- year history of the index."
Check that last sentence. The consumer knows this is bad and getting worse.
yearning-Just don't look to economists to guide you through the forest.
And how will the Fed raise interest rates without destoying Wall St-their number one priority? Watch what they do, not what they say. Yes, the euro-zone is in trouble, but it's demise would only temporarily help the dollar. Such an event would seriously set back the cabal's grand scheme for one world currency domination.
"Washington Mutual Inc....has been issuing credit cards to borrowers with blemished credit records as it tries to rebound."
Sort of like a pusher giving his strung-out junkie customer free heroin because he doesn't have any money.
The dollar is reflecting the transition from a unipolar worls to a multipolar world. In the long run the world and the US will be better for it. The pound used to be worth $5 when Britain was the dominant nation in the world. Yet the British Empire did not necessarily make life better for the average Brit; in fact Britain today may be a better and more livable country for the average Brit than it was at the heights of the Empire.
I suspect the same may prove true for the US.
bluestatedon writes:
Sort of like a pusher giving his strung-out junkie customer free heroin because he doesn't have any money.
Quit talking about oil now
"Mortgages help free up funds that otherwise would be tied up in property ownership for investment in equities," ...
In the bear markets that have followed previous bull markets, P/E ratios have typically fallen to 11 or less. They now average about 22 -- 22 on earnings inflated to a record percentage of GDP by conditions that aren't going to last (among those conditions, the fact that a large fraction of financial company earnings were phony).
At a P/E of 11 or less on much lower earnings, those equities bought using mortgages as margin loans won't be worth much. And as their owners start having to sell them off in a weak market to make their mortgage payments, they may be worth even less.
Yes Ahead, you are right. The multipolar world has realized holding dollars is a financial death sentence. Just look at bond yields--and rising mortgage rates, despite all the Fed cutting. See how much better off you and others will be holding dollars in the not too distant future
psst yearning! when the forest is dark, don't look at the ground or you'll never find your way out. look at the sky. if you can read the stars you'll find your way out.
and there are some stars on here about every 50th post.
If you are looking for pain, it is there, just not in the papers. I was talking with an old client last night, one whose account was over 1MM when we left the business in '99. He now tells me he 'followed the firm's recommendations' all the way down. His account is now worth 50K and his house is not paid off--- he is 66. There are thousands just like him to add to the housing bust people, and probably a lot like him with a new mortgage, upside down, and no money. When you look at the Dow, look at the stats. Today 35 new highs, 325 new lows! Lots of those 325ers in people's portfolios. Interesting times.
Financial Firms May Make More Cuts, Eliminate 175,000 Jobs Amid Writedowns
...
The world's biggest financial firms may lose as many as 175,000 jobs by this time next year as Citigroup Inc. and other banks shed workers amid slowing revenue and billions in writedowns, executive recruiters say.
Well, "by this time next year" won't be in time for the recovery next week. But goodness knows, there's a growing shortage of credit-repair consultants already. I just hope we can weather the shortage between now and then.
in fact Britain today may be a better and more livable country for the average Brit than it was at the heights of the Empire.
No maybe, it is for certain. The period post-WWII when the Empire was being dismantled was also the period of the greatest gains in living standards for the ordinary people. Of course that same period was the time of the greatest gains in the US too, but the UK was overextended coming out of WWII and the US wasn't.
InvestmentBanker-Since the S&P 500 is about flat from 1999 to today that firm must have had quite a stellar group of stockpickers to be down 95%.
Y-T-L-, it IS getting warm here in in the water, in the pot, on the stove, for us frogs.
In six-to-nine months, with crumbled access to credit and continued layoffs, it will be really warm here in the water.
But, no doubt, subtly and slowly, now increasingly, the water temperature has been rising in the pot.
The market has turned green today. Pass the cheap wine. Bubblevision is featuring three money making picks for the third quarter. I think cheap wine will be my sale item this weekend.
"Tom Stone writes:
If you don't think the general population has been affected call your local food bank or consumer counseling service and ask how business is."
I hear that. The food banks in my area are raising the red flag. But people at the low end of the economic spectrum don't tend to make a fuss, don't give tearful TV interviews from the porch of their foreclosed McMansions because now they'll have to live in a rental and give up one of their three cars. They just try to survive, and they're afraid to make a stink.
The pain is there. Just not among the "people who matter." But it will be.
BB: No clue. Naz100 gaps at 1850 down 3% and then 1800 down 6% will be filled soon though and are good indicators. After a no-surprise fed = Dow down 300 and later 600 for lower 2008 low near 11000, maybe by Friday?
Britain, ground zero for bubble traders, SUV, CDOs,et al. is going the way of the US. Housing bubble popped, commercial nose diving, foreclosures soaring. The City has been propping up the UK economy for years. Game up for Britain as well.
correction..thats' SIVs
1) I have some sort of mental condition. I am physically unable to understand the words that come out of economist's mouths. so I am safe
2) and there are some stars on here about every 50th post. ROFL. Ipod: you and I disagree on some of the finer points here and there, and I know that I grill you sometimes (even when I agree with your gist) but I often use your star to find my way. even if I do use it to make my own constellation. There are others as well, no need to name names. with success CR has had an increase in the noise ratio to be sure, but I still haven't found a better place and doubt that I will.
Y-T-L-, it IS getting warm here in in the water, in the pot, on the stove, for us frogs
jg: agreed. And again, let me restate: it's not that i'm not seeing pain. it's that I'm not seeing as much pain as I thought I would when housing hit minus 17% from peak.
I thought we'd all be fricasseed... but instead the slow boil it is.
although I'm not sure that BenB should be doing what he is doing, I'm also amazed that he's been able to pull it off. Volker may be the strongest Fed chair of all time, but BenB may be the most ingenius.
but as Austin Powers says: "who does Number 2 work for?"
indeed.
I work for the man.
The first thing the next president should do is fire BB. In fact, throw out the Fed altogether. They are responsible for most of this pain. Unfortunately, not likely to happen.
"1) I have some sort of mental condition. I am physically unable to understand the words that come out of economist's mouths. so I am safe'
Economists don't understand the words that come out of their mouths either.
yearning, it sort of makes sense with housing, doesn't it? Most of that is paper, not hard currency. And the only way you're really screwed is if you bought at the bubble and didn't put anything down. Or you have to sell. Most people don't fit that. And as long as they can afford the payment, they'll just stay put. No pain there.
So now we'll find out where all that HELOC money went, and it looks like autos were a big part. Furniture, kitchens, etc too. Travel and airlines, given the price of fuel and the dollar. So those areas will suck for a long time as people pay off the binge and can't tap any more.
But broader sections of the economy? There is a certain level of spending that is static and that's the bulk of the figure. And as I've said we're not manufactuing most of the stuff (except autos) that won't be selling. So where's the pain? In the percentage of the population that overleveraged. And what will happen to them? They'll default and rent. And as soon as this blows over, the credit card apps will come in the mail again.
I was just thinking about what I said and it merits some further thought. Perhaps this isn't bad yet because, for the average person, this access to credit just gave access to luxuries. Or faux luxuries. Now that it's gone, people will just stop buying them. No one really needs to shop at Neiman or Whole Foods, has to take the whole family to Disney or pack them up on a plane every year or take big vacations all the time, or buy 50k autos. No one needs jewelery, or $200 jeans, or $150 sneakers. Or $3 coffees 3x a day at starbucks. And certainly no one needs 2 houses.
So maybe this will just wring the excess out of everything and, as much as the paper gains were illusion, the excess won't be missed much either.
And maybe that's why there is no pain now, or less than you'd expect with most property being around 20% down now.
Dow angry about bad news, Dow getting angry Dow turn Green and then smash bad news
Now, here's the weird part:
Proof: http://www.comstockfunds.com/files/NLPP00000%5C026.pdf (yes I know it's a fund site, but they can make a graph, for heaven's sake, just ignore the trendlines)
The difference is the interest of investors in equities as a class of investments; they aren't sexy anymore, not since the rise of fixed-income derivatives (IE - structured finance) and commodities. Of course, it is a truism that capital supports the industries it's invested in. The paper oil market encourages development in petroleum. Structured Finance supported a boom in housing.
The flight from equities, then, means less capital available to non-natural resources, non-housing businesses, with concomitant implications for business investment (weak ever since the tech bubble) and economic growth.
Remember, with the real estate crash, we're seeing real growth wiped out - every house built and sold during the boom was value added to national income figures. Drop all those numbers by 5, 10, 17% (or more to come) and you would see a significant fall in national income figures going back to 2004 or so.
My view, currently, is that anemic national growth and failures of business investment are essentially regulatory phenomena; government policies, from the major (giveaways to mortgage originators through HMID and low short term rates, overregulation of corporate governance under sarbox, the continuing treatment of customs and immigration as a national security issue rather than an economic issue) to the minor (biofuels subsidies, immigrant roundups, talk about taxpayers rescuing mortgage lenders or borrowers or both).
Fix the ways hedge funds and private equity can engage in rent-seeking behavior (biofuels) and moral hazard (rule out bailouts in housing), and they'll be back to quantitative analysis of the S&P 500 (and thereby, back to supporting broad based, productive investment)
I'm getting pretty far afield here, so I'll stop for now. Sorry for the OT.
el pres/ipod- To sort of riff off you guys. There was a big overinvestment in real estate, which is now being wrung out. This was a totally non-productive investment, hence the growth has been sub-par. This may explain why the equity markets have fallen less than the majority opinion here thinks they should. Big equity crashes (1929, 2000-2001) happen following periods when EVERYONE is in the market and boasting about how great their stocks are doing. Did you hear that in 2003-2007? I sure didn't. You did hear people boasting about their houses-so that is where the crash is.
ahead, i think you're on the money. the evidence is that what's causing the consumer pain is oil, not housing curiously enough. housing is causing the banks pain, but honestly, what does that mean to joe6P in immediate terms? Nothing. It barely means anything to me.
To investments it means a lot too. But the fact that my 401k went down, or any fund did doesn't alter my daily spending habits. So this is just the excess being worked off. It will, however, cause a recession.
I don't disagree.
I find it extremely odd that I've heard people say that this situation is evidence that recession is anything other than a monetary phenomenon, though. The credit contraction post-summer-2007 has massively contracted the money supply no matter what the Fed does.
Inflation is on the rise because commodity prices are high and China/India are suffering from a combination of a weak dollar and high (actual) inflation at home because their economies have overheated. Without the China/India outsourcing and import effects to counterweight rising commodity prices, producer and consumer prices will rise in the United States.
Inflation isn't bad if it's a product of rising commodity prices; it's a price mechanism, not a purely monetary (in the Friedmanite sense)phenomenon. When commodities relax, the inflationary effect will relax as well.
My other point is that there's nothing wrong with recession. Every now and again we need a little scrape with failure to knock the bad investments into BK, wring bad debt out of the system, and remind speculators of the fundamentals. People are fired, capital freed, and can be put to work in new, more productive surroundings.
The concern this time is capital flight overseas, I suppose. A serious audit of the financial system (avoiding criminal prosecutions wherever possible in favor of cleaning up balance sheets) would to a lot to restore confidence.
actually ipodius, my investment accounts are flat to slightly up on the year. And without any of the double-secret ultrashort end of the world funds that some here are enamored of. As for spending, I'm a certified cheapskate, so I spend when I have a need to spend. I bought a car last year not because of what my house or investments were doing, but because the old one died. I will make as many hiking trips as ever this year; the weather is the issue, not gas prices. Not everyone splurges wildly when things are good and cuts back when things are bad-I prefer an even keel.
ice thread guys, thanks.
when the comments get serious and insightful the trolls stay away
danke
The concern this time is capital flight overseas, I suppose.
Er, the US is importing capital to the tune of $2bn/day. That what a current account deficit means.
There might be (or should I say might continue to be) a flight from USD nominal assets, but that's not the same thing as capital flight.