--
I would say don't worry about the CRE bust because the CRE was not as overbuilt as RRE. Considering the fact that the recession is not going to be severe there is even less to worry about.
CR - in terms of dollar volume comparison to residential, where does CRE stand? That is, if $5 Trillion phantom "equity" evaporated so far in RRE, what losses might be expected in the CRE sphere?
In addition, CR, we are going to see a big slowdown in huge infrastructure projects financed with govt. or borrowed money.
Here in NY, we have 3 new giant sports stadium complexes all moving closer to completion (Yankees, Mets, Jets/Giants). They've all been financed with a combination of govt/private borrowed money. They were built to capitalize on the corporate spending/sponsorship/ luxury box greed cycle that soon will be no more.
I mean, how many luxury boxes do you think Lehman will be buying?
These projects alone juiced the NY metro economy big-time, because they also involved ungodly infrastructure, such as a whole revamping of the train tracks and stations around Yankee Stadium.
And there would have been a fourth giant sports complex (Nets), if Bruce Ratner had moved faster or smarter in Brooklyn.
Already, fans are growling about the exorbitant costs of paying for these stadiums and their seat licenses on top of ARod's salary. In 2-3 years, there will be lots of empty seats.
A snippet: "As Congress prepares to debate expansion of drilling in taxpayer-owned coastal waters, the Interior Department agency that collects oil and gas royalties has been caught up in a wide-ranging ethics scandal including allegations of financial self-dealing, accepting gifts from energy companies, cocaine use and sexual misconduct. In three reports delivered to Congress on Wednesday, the departments inspector general, Earl E. Devaney, found wrongdoing by a dozen current and former employees of the Minerals Management Service, which collects about $10 billion in royalties annually and is one of the governments largest sources of revenue other than taxes. A culture of ethical failure besets the agency, Mr. Devaney wrote in a cover memo. The reports portray a dysfunctional organization that has been riddled with conflicts of interest, unprofessional behavior and a free-for-all atmosphere for much of the Bush administrations watch. The highest-ranking official criticized in the reports was Lucy Q. Denett, the former associate director of minerals revenue management, who retired earlier this year as the inquiry was progressing. The investigations are the latest installment in a series of scathing probes of the troubled programs management and competence in recent years. While previous reports have focused on problems the agency has had in collecting millions of dollars owed to the Treasury, the new set of reports raises questions about the integrity and behavior of the agencys officials. In one of the new reports, investigators conclude that a key supervisor at the agencys minerals revenue management office worked together with two aides to steer a lucrative consulting contract to one of the aides after he retired, violating competitive procurement rules."
What a nightmare...there's a lot more to the article...this snippet was just the first few paragraphs. I'd say no new drilling until this gets fixed.
I worked at several companies that had luxury boxes at NBA arenas along with floor level tickets. There's no way that the expense was justified by any corporate benefit. Giving the occasional ticket to employees was OK, but it kind of made you sick to look at the $120 face price on the stub.
our architectural firm is busier than ever and is having its best revenue year in 5 years. but we are small and can take market share from the big lazy boys in town.
we also focus a lot on interior office space which tends to stay strong after the cranes come down.
my current company spends about 100 per employee for fun days.
at least once a year.
but this company is profitable. the last one i worked for wasn't and they would do the same thing. in march they got caught with their pants down and the credit squeeze put them out of business.
So now the treasury and taxpayers are paying out dividends that aren't there...This is out of control, where is the sec and attorney general
I wish this was on the front page of every newspaper and on the TV news tonight..wont happen....
we the sheeple of the united states pledge allegiance to the treasury and executives of wall street, one market under paulson with some libertys and no justice for all...
OT - Spot silver closed at $10.70. It's multi-decade high last was $21.44. That's slightly over a 50% drop!
I'm just finding this so amusing (someone called me an a--hole when posting a comment about my joy over such a phenomenon) because idiots like Peter Schiff and Jim Puplava mentioned on their weekly radio programs that they were buying tonnes of silver (which they already owned a bunch of anyway) at those $20+ prices. Good riddance to their portfolio returns.
OT - Spot silver closed at $10.70. It's multi-decade high last was $21.44. That's slightly over a 50% drop!...Good riddance to their portfolio returns.
Why don't you stick around here awhile and learn something about the silver market before you start gloating, a-hole?
There are people who buy some precious metals for strategic reasons. Tell me where it's at in 2-3 years. In the meantime, I don't care except for real dips and buying ops.
One good thing about the CRE over development here in Valencia (CA) is the "2 for 1 meal coupons" I get in the mail each day from the local restaurants. Most places around here a slow or just dying. Even got a coupon from Claim Jumper.
OT - When is Obama going to get off the canvass and start throwing some punches? Does he not understand that this is a knife fight he's in?
He cannot afford to let the media, with their idiotic tendency to cover this election like a celebrity gossip column, redefine him.
Where is his Carville, or Rove?
My advice - Unlike 1992, this really is the worst economy in 30 years, so hammer it every news cycle, relentlessly. Point out the fact that Fannie and Freddie shareholders got stiffed while Mudd and Syron slither away to the Hamptons with their golden parachutes. GOP crooks have ruined the country. Change means the pigmen must be destroyed.
If you want the presidency, be a lion not a sheep!
CR said: "...Note that any reading below zero for loan demand means less demand than the previous quarter. This is strong evidence of an imminent slump in CRE investment."
Then you're going to have to adjust your "probable recession" band forward in time. Based on your chart "Investment in Non-Residential Structures, etc.", non-residential investment was far weaker at the same point in the previous two recessions, suggesting we're still not in a recession even now.
I'll change my handle to anonyhole; I think sliver will be below $10.70 in 2/3 years. SPX will be below Oct. 2002 lows. FF rate will be 0%; nominal GDP sub-2%. $RUT off 80% from highs. Why can't I be bearish on precious metals here? No disrespect to anyone's feelings, but Mr. Market isn't about people's feelings.
Bear writes:
"hey, they dollar menu has great value"
Actually this crisis may have some significant side effects on the health of many people:
- buying cheap unhealthy calorie rich foods
- immune system affected by stress and no time to spend with family and friends
a whole new field of exploration is developing for Levitt et al. (U of C)
on the massive social effects of the housing crisis
NC,
It was decided long ago to go long on Moo Moos, because people will be eating those grease lathered, deep fried, two for $.99, delicious tacos from Jack-in-the-Box way too often over the next few years. Also go long on Spray And Wash, because it will be needed to remove those grease stains from those big Moo Moos.
anonymouse,
If silver is that cheap with a zirp rate, we are beyond deep doodoo and well into 1932.
I can't see the federal government not putting massive infrastructure programs and state government bailouts in place well in advance of that kind of situation.
Unless you are talking about an official price of silver, with folks south of the border offering a lot more of those "dollars" for the shiny metal.
I do not see a way for us to maintain the dollar as the reserve currency while printing like mad and expanding the budget deficit to prop up the US economy with the rest of the world accepting the status quo. Things go on until they can't proceed on that course.
I do not believe the Chinese are willing to hold $5 trillion of our paper (a guess based on today's expansion rate) without at some point forcing a collapse, or getting out of the dollar reliance.
This commodity collapse is manna from heaven for them, they will be able to lock in reasonable prices for resources.
central_scrutinizer writes:
"My advice - Unlike 1992, this really is the worst economy in 30 years, so hammer it every news cycle, relentlessly"
I agree it is the main issue. The candidate who will be able to formulate a clear discussion of the economy's issues will have a good chance to dominate both the air waves and the opponent ... like a large fish carrying his prey towards deep water
The candidate who will be able to formulate a clear discussion of the economy's issues will have a good chance to dominate both the air waves and the opponent ...
Ron Paul has been doing just that and nobody wanted to listen.
I was just lamenting this problem to a friend. Until economic issues start smacking people up side the head (e.g. losing jobs), it will remain a personality contest and Caribou Barbie seems to be winning that one right now.
Twenty-eight legislators had between $598,100 and $1.7 million of their own money invested in Fannie and Freddie in 2007, the latest period for which financial disclosure forms are available, said the Center for Responsive Politics.
"For the Giants/Jets, you will have to cough up $5,000 or more to buy a seat license that gives you the right to buy astronomical tickets."
i go to the Jets game once a year with a friend who's had season tickets forever. He can easily afford it, but even he was bitching about the cost.
The faithful tailgaters, judging from my annual walk thru the crowd, are pretty much average Joes...how many of them can write a check for 5k plus the sky-high season pass? Empty seats for sure.
"Together, Daniel Mudd of Fannie Mae and Richard Syron of Freddie Mac are eligible for as much as $24 million in severance, retirement benefits and deferred compensation"
CR, I get a kick out of the cliff diving posts and other current calamity events but posts like this one, where you tie all the data together to present comprehensive analysis (rather than the anecdotal crap we from MS analysts), is why this site rocks...
Americans like happy news and overly optimistic candidates. Smart people are nerds and realistic economists are gloom and doomers. Until this blindness is corrected, too many will vote for the biggest liar, the one they'd like to share a beer with.
Leftys offers many choices for both gastronomic and healthy eating. Slim Jims, boiled eggs and Redman are available. Alcohol choices are reasonable, and, don't forget to see our lubricant ailse on the way out.
New Zealand's central bank cut its benchmark interest rate by a half point to 7.5 percent, more than expected by most economists, saying the economy is in a recession and inflation will slow
"AllenM aka Joliet Jake writes:
I do not believe the Chinese are willing to hold $5 trillion of our paper (a guess based on today's expansion rate) without at some point forcing a collapse, or getting out of the dollar reliance."
In either 2002 or 2003, in my proprietary research I came to the conclusion (roughly - wording is from memory): "Asian reserve growth will continue through the slowdown, but would be unsustainable beyond 2007 because nobody would be stupid enough to keep accumulating reserves at the current pace once the global economy starts expanding again. Their holdings of government securities relative to the market would be so large that there would be no exit strategy."
Guess what, I underestimated the stupidity of (some) central banks. And they're still at it.
bond guy,
I think their long term purchase contracts of raw materials can account for some of the willingness to keep growing, but even the Chinese are starting to acknowledge their appetite has limits for paper.
The bailout of fannie and freddie just made them whole for agency paper, I will be curious to see if they decide to start passing it on to the next holder of the old maids.
I think they vastly underestimated the amount of stimulation applied in 2002-2004 by the US Fed and government in running deficits with low interest rates. The resulting housing bubble sucked a tremendous amount of exports from China with huge increases in investments and reserves. Now they have to decide if they want to keep internal investment in infrastructure going to keep their own consumer economy afloat, while ours goes tits up.
I think they will vote to worry about their unemployment, and drop our bonds in the till for resources.
Just thinking we are done. Anonymouse's optimism notwithstanding, I think the dollar has some very heavy weather ahead, even without serious decoupling.
I vote for decoupling, which is the loss of reserve status for the dollar.
NC writes:
Mel writes:
"Americans like happy news and overly optimistic candidates"
it may be worth trying not to treat people like idiots for a change, they may like it. I am sure most of them know they have problems.
economics is similar to explaining science to complete outsiders, it is best done by non-scientists."
Adlai Stevenson tried talking up to the electorate--twice--as did Dukakis and Carter. The latter was successful once because he sounded so Southern. You know, being "elite" and charismatic is a negative to many.
agree with AllenM. Bailout this, bailout that ... where is this money coming from? I was surprised to see even logical Obama suggest we need a 2nd round of stimulus checks to bootstrap the economy. You ain't got it to give away, friend. So when the news is bad enough, a la FDIC insolvency, I suspect the UST bond dump will get into serious gear.
Until economic issues start smacking people up side the head (e.g. losing jobs), it will remain a personality contest and Caribou Barbie seems to be winning that one right now.
They already are. It's just that the pigmen are doing everything they can to turn the U.S. economy into a Potemkin village, complete with fake GDP, fake inflation (CPI shenanigans), and fake jobs (birth/death model). Anybody with half a brain can see through the facade, but most "born and bred dopes", as Jas likes to say, cannot.
One notable absence from the mainstream press this election cycle is any honest coverage of economic issues. In the past, a recession like this would elicit coverage from the press that would be sympathetic to the anti-incumbent. Perhaps even to the other extreme, as in 1992 when we got endless sob stories about a recession that wasn't nearly as bad as 1981. This gave Bill Clinton a nice tail wind.
Now that the media are in the hands of a few mega corporate interests (GE, Disney, etc.), all they care about is keeping the good consumerist tools buying their crap. Perhaps they also know that they've bought and paid for both parties, so they've gotten lazy and overconfident.
Obama must recognize this, and drive the discussion back to core economic issues, or he's toast.
cs,
And if he gets elected, deliver a swinging tax increase. Clinton did it and got 8 years of growth afterwards.
It was hard, but necessary.
As for this Bush, he is a total writeoff, he accelerated the dollar crisis by at least a decade- I used to predict 2019- now 2009.
I am amazed at how folks still think in terms of trading when the long term lines are drawn in the sand, and the obvious will eventually stare us all in the face.
What happens when the dollar loses reserve status and we look like Argentina to the rest of the world?
Have people discussed MER at all today? It's obvious what's happening to WM & LEH (throw in AIG as well), but if MER breaks $22.50, the price of the latest secondary, the stock will plunge to $2, according to several traders I respect.
Agree that long term tax rates have to go up. There is no other choice. This is coming from a conservative, BTW. One fine day, there will be an "oh shit" moment when Congress realizes the game is over.
However, in the short term I don't see DC mustering the courage to do the right thing for the future.
As far as trading goes, what better way to amuse myself while Rome burns?
the answer biden gave was: hillary might have been a better vp pick.
it was in response to this question: i am glad obama picked you and not hillary. biden can smell a set-up by fake media a mile away, so now they take his response out of context.
Maybe he want's to be toast after his recent update from Paulson on F&F, how else does one explain the lipstick on a pig comment. Sounds like he killed too birds with that stone.
I do not think people are aware of how the GSEs, credit markets and multifamilies became intertwined. About half of all CRE loans were securitized into CMBS. FH and later on FN could buy as many as the multifamily loans as passed their muster, and from about 2003 on, these loans got packaged into a bond which they then bought, satisfying their mandate to support real-estate lending. I believe that robot bids create asset bubbles, and now that that bid is gone it makes the fall that much more steep. Of all the types of securitized CRE so far it looks as if multifamilies are doing the worst. I hope I've made it clear to you why.
"Bailout this, bailout that ... where is this money coming from?"
See, the treasury backstops the agency paper, to protect the FCBs. Then the FCBs buy treasuries to provide the cash for the backstop so the agencies don't go kaput. Or something like that.
It will be quite interesting when the present sales of the dollar, like in Sputh Korea and Russia, reflect themselves in the market. Also, once China gets really pressured by the slowdown, they will be selling as well to finance domestic investment. Lots of foreign reserve dollars to sell in the world, like NEVER before. This present rally could really turn into a rout. We will see...
Can't blood out of a stone. Long term spending (entitlements) need to come down. No other way.
I couldn't agree more. Why are we paying people not to work for another generation?
While I predicted a change in real estate emotions happening hard this fall and a quick change by spring... the rate things are going is scary.
Exactly what does the FDA say about too much Schadenfreude? And yea... I realize none of us are getting out of this unscathed. But If I'm going to have to pay for the ride... I might as well enjoy it.
Ummm, Misean & Neil,
You mean entitlements like the ~$24M golden parachutes for the CEOs of Fannie and Freddie? And what did Carly Forina get from HP after laying off 1,000+? Tax the hell out of the pig people, I say.
I think they will vote to worry about their unemployment, and drop our bonds in the till for resources.
Allen M, my thinking is similar. China will use their bonds to cushion the effects of the worldwide slowdown, unloading them to by oil and anything else they need to keep their economy moving. As you point out decreased commodity prices works in their favor, giving them a chance to recoup some of the losses they've suffered from the dropping dollar. Of course once they start unloading dollars this opportunity is unlikely to last long.
I hope I'm wrong, but I'm betting that the next administration will try to play the same deficit spending stimulus game that's been going on for 25 years now. The public is unlikely to tolerate calls for austerity, and the only way to maintain and expand spending is going to be through federal spending. If foreigners refuse to keep lending, I think the fed will accommodate by buying treasuries.
My current thinking is that this will start in earnest early 2009, maybe sooner, and while assets may continue to depreciate, the price of everything else will resume the upward climb. It won't really matter if the average person's wages are falling and they can't afford it, since the buying will be carried out by the gov.
As we've learned, the housing bubble was really a credit bubble. And I believe we're soon going to learn that the credit bubble is really the USD bubble.
I'll change my handle to anonyhole; I think sliver will be below $10.70 in 2/3 years. SPX will be below Oct. 2002 lows. FF rate will be 0%; nominal GDP sub-2%. $RUT off 80% from highs. Why can't I be bearish on precious metals here? No disrespect to anyone's feelings, but Mr. Market isn't about people's feelings.
Anonymouse | Homepage | 09.10.08 - 6:31 pm | #
You are right the market is not about anyone's feeling but no need to change your handle. IMHO Anonymouse has more " je ne sais quoi". At the current point your position is the better one and us glodbugs may have fallen in the same trap as the real estate afficionados. We were a little bit succesfull and we thought it was different this time. I still think it is and am starting to buy stock of liars standing next to holes in the ground. Good luck in your positions.
We're nowhere near 1932. They're attempting to prevent 1932. I suspect in a few months many more will begin to realize the consequences of the necessary deleveraging.
@anonyhole (mouse): No reason to be sarcastic. I respect and enjoy your reading your posts here.
The Japanese were very slow to rescue their banks. They allowed zombie institutions to linger on nearly forever.
Bernanke has suggested that he can effectively that in cooperation with the Treasury, the Fed can effectively run an open-market operation in private assets.
Anytime anyone pushes the deflation meme, I'm going to once again encourage everyone to reread Bernanke's anti-deflation speech. Google: bernanke deflation speech.
Quoting Bernanke: Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior)
The Fed is far more afraid of deflation than inflation. If we get close to the abyss, they'll inflate like crazy.
Although I liked Ike in 52 (twas but a wee laddie), if this himmicane comes on shore where projected, it will hit the King Ranch. Might uproot a few mesquite trees and tip a few steers, but no significant dammage to infrastructure.
Lefty, I still say we hijack an ethanol truck. We de-denature it, cut it down to 100 proof with branch water, mix in a little carmel color and distribute through Piggly Wiggly.
There has to me a cheaper substitute for Vasoline, though. Valvoline?
If we get close to the financial abyss, the problem will become political. Many solutions are possible: the government can send all home-owners checks depending on the median price of property in their zipcode.
All government may build a massive bad-bank (ala RTC) to buy up and absorb the losses on the books of major financial institutions.
All these actions will induce gag and vomit reflexes.
Lastly, I think the problem is not a housing bubble, not a credit bubble, but a USD bubble.
"You mean entitlements like the ~$24M golden parachutes for the CEOs of Fannie and Freddie? And what did Carly Forina get from HP after laying off 1,000+? Tax the hell out of the pig people, I say."
What does this have to do with the price of beans in China? The pig men don't pay income taxes...they pay cap gains. Nice. Because increasing cap gains also torches actual reinvestment income of businesses. Thus curbing growth. Be nice if you could, buy that requires major changes in tax law. Further, it is still not anywhere close enough.
A prolonged period of deflation will threaten the balance sheets of families, local governments, state governments, corporations, and the Federal government.
Do you guys really think that the powers-that-be will allow deflation to truly set in?
All you inflationists, I've asked, how do they do it?
Ya'll keep talking about a printing press, whcih shows complete ignorance as to how the FRB works. They buy and sell debt. That's how money enters and exits the system from FRB.
Now, If the FRB started monetizing debt, what do think would happen? I've offered this challenge in the past...explain to me me how they inflate when no one wants to buy debt?
No one has yet answered this. This is deflation, pure and simple.
Bummer, Obama is being outshone in the popularity contest. This country was f'ed anyhow. The Anti-Christ or Religious Hockey Mom... who's your pick White America?
"If we get close to the abyss, they'll inflate like crazy"
What makes you think they are not already doing all they can to inflate ? Their faux concerns about inflation ? Rates are already 3% negative and TAFFY is non stop.
They say that the dividend had already been declared, on Aug 8th, payable to holders of record on Sep.15th - so the claim is that this was already committed to prenationalization.
Its a hefty chunk too, as low as 17 cents/share to as high as 65 cents, depending on the series. I can't figure out which series, if any at all that FNA represents but that certainly popped on the news up from 1.90 to 2.81.
While I'm firmly in the deflation camp, I don't believe that the government has played it's ultimate card yet.
Let's see the Fed Funds rate go to 0.025%. If the stock market/commodities/real estate still remain moribund in, say 2015, the last bullet in the chamber is hyper-inflationary printing of money.
I doubt they'll do it, because that destroys the banks. It's the financial equivalent of the pigmen drinking a coffee cup full of rat poison (hmm, somewhat fitting!)
Misean: If the problem is sufficiently large, it moves from economic to political. The answer is We-The-People become the buyers. Here is how it works:
Congress raises the debt ceiling.
The Fed acquiesces and buys Treasury debt. Congress spends the newly created/borrowed money however it sees fit: give it away willy-nilly, create MLEC, setup the world's largest bad bank, etc.
DRI....Darden Restaurants.....$4.2 BIL
ANF....Abercrombie&Fitch.......$4.3 BIL
WM.....WAMU........................$3.9 BIL
BKC....BurgerKing.................$3.4 BIL
Misean: explain to me me how they inflate when no one wants to buy debt?
Here's your answer: the fed buys the debt from the treasury, and the government spends. There are other variants of this, but the basic idea is the same.
DRI....Darden Restaurants.....$4.2 BIL
ANF....Abercrombie&Fitch.......$4.3 BIL
WM.....WAMU........................$3.9 BIL
BKC....BurgerKing.................$3.4 BIL
Hi, I'd like a whopper and a 5% CD?
Or do I repeat myself?
sebastian still harping on 'recession metrics'.
the banking system is crapping out , the biggest socialism experiment is out of the gate,, and silly seb is worried about technicalities.
"Misean: If the problem is sufficiently large, it moves from economic to political. The answer is We-The-People become the buyers. Here is how it works:
Congress raises the debt ceiling.
The Fed acquiesces and buys Treasury debt. Congress spends the newly created/borrowed money however it sees fit: give it away willy-nilly, create MLEC, setup the world's largest bad bank, etc."
What happens when the FRB heavily monetizes debt?!?!?!?!?!?
You think holders of Fed debt are going to be happy? What are they going to do? Everyone forgets that bit.
"Misean: explain to me me how they inflate when no one wants to buy debt?
Here's your answer: the fed buys the debt from the treasury, and the government spends. There are other variants of this, but the basic idea is the same."
Again...what do the other players do when the FRB outright monetizes debt? That's the friggin' linchpin. Answer please!
You think the PTB want to destroy the dollar? They could give a F&&k about you. The petro-dollar/reserve currency...what do you think the friggin' FRB cares more about?
You think holders of Fed debt are going to be happy? What are they going to do? Everyone forgets that bit.
Misean, of course they won't, and they aren't now; just ask PBOC. This hasn't stopped monetization in the past, and it won't now. Push comes to shove, politician's first reaction is to try and push the problem off to someone else, whether it be foreign banks, or citizens in the future, and this is the only way they can do it.
Misean, didn't see this 'til I'd written the last post. No, I don't think so. But they have monetized by this route in the past, and they will again. I believe that they'll try to walk a fine line, monetizing enough to avoid deflation, with moderate inflation. The big question is: can they pull it off? I think we'll find out soon.
I've offered this challenge in the past...explain to me me how they inflate when no one wants to buy debt?
From a highly BS unlikely point of view what if the Fed started purchasing cows with their debt. We know they can take different assets on their books as collateral. Cows may have more value than some of the stuff they currently have on their books. "We will buy 2 million cows this month and ongoing for the next two years,no matter what costs" What would happen to the price of cows? feed? labor? farm land? What if a foreign CB said they would outbid our government for cows. If they use the infinite to buy the finite they can always create inflation. Now they might not feel that it is a good idea but it seems to me they could. Especially if they wanted to use a better suited commodity.
I've offered this challenge in the past...explain to me me how they inflate when no one wants to buy debt?
MISHian,
Google Keynes. He influenced this nobody academic, Prof. Benjamin Bernanke, who wrote a paper about dropping cash out of helicopters BEFORE deflation starts. No one reads any more. The paper is on the web.
Oh, and be sure to duck the bales of cash dropped from helicopters.
"Google Keynes. He influenced this nobody academic, Prof. Benjamin Bernanke, who wrote a paper about dropping cash out of helicopters BEFORE deflation starts. No one reads any more. The paper is on the web.
Oh, and be sure to duck the bales of cash dropped from helicopters."
I read that paper. It really comes down to 2 questions.
Will the "printing" be enough.
Which comes first? The end of the deflationary deleveraging cycle or an empty vault.
For all the theories out there, no-one knows because the game hasn't finished.
Where's everyone?
first
damn
Cheers,
first
--
I would say don't worry about the CRE bust because the CRE was not as overbuilt as RRE. Considering the fact that the recession is not going to be severe there is even less to worry about.
Go CR! Go CRE!!
Jas
CR - in terms of dollar volume comparison to residential, where does CRE stand? That is, if $5 Trillion phantom "equity" evaporated so far in RRE, what losses might be expected in the CRE sphere?
In addition, CR, we are going to see a big slowdown in huge infrastructure projects financed with govt. or borrowed money.
Here in NY, we have 3 new giant sports stadium complexes all moving closer to completion (Yankees, Mets, Jets/Giants). They've all been financed with a combination of govt/private borrowed money. They were built to capitalize on the corporate spending/sponsorship/ luxury box greed cycle that soon will be no more.
I mean, how many luxury boxes do you think Lehman will be buying?
These projects alone juiced the NY metro economy big-time, because they also involved ungodly infrastructure, such as a whole revamping of the train tracks and stations around Yankee Stadium.
And there would have been a fourth giant sports complex (Nets), if Bruce Ratner had moved faster or smarter in Brooklyn.
Already, fans are growling about the exorbitant costs of paying for these stadiums and their seat licenses on top of ARod's salary. In 2-3 years, there will be lots of empty seats.
CRE: The pebble that sank the ship!
This just hit the NYT's website:
Wide-Ranging Ethics Scandal Emerges at Interior Dept
A snippet: "As Congress prepares to debate expansion of drilling in taxpayer-owned coastal waters, the Interior Department agency that collects oil and gas royalties has been caught up in a wide-ranging ethics scandal including allegations of financial self-dealing, accepting gifts from energy companies, cocaine use and sexual misconduct. In three reports delivered to Congress on Wednesday, the departments inspector general, Earl E. Devaney, found wrongdoing by a dozen current and former employees of the Minerals Management Service, which collects about $10 billion in royalties annually and is one of the governments largest sources of revenue other than taxes. A culture of ethical failure besets the agency, Mr. Devaney wrote in a cover memo. The reports portray a dysfunctional organization that has been riddled with conflicts of interest, unprofessional behavior and a free-for-all atmosphere for much of the Bush administrations watch. The highest-ranking official criticized in the reports was Lucy Q. Denett, the former associate director of minerals revenue management, who retired earlier this year as the inquiry was progressing. The investigations are the latest installment in a series of scathing probes of the troubled programs management and competence in recent years. While previous reports have focused on problems the agency has had in collecting millions of dollars owed to the Treasury, the new set of reports raises questions about the integrity and behavior of the agencys officials. In one of the new reports, investigators conclude that a key supervisor at the agencys minerals revenue management office worked together with two aides to steer a lucrative consulting contract to one of the aides after he retired, violating competitive procurement rules."
What a nightmare...there's a lot more to the article...this snippet was just the first few paragraphs. I'd say no new drilling until this gets fixed.
It's going to be hard to inflate real estate (residential or commercial)this go-around with rate cuts.
I think this time, the fed inflates CPI inflation with their re-flation attempts.
I don't think BB raises rates for at least 6 months, likely not anything before a year.
CRE investments are circling the toilet.
anybody see this-unreal
FNM] Fannie Mae allowed to pay Q3 preferred stock dividends
I worked at several companies that had luxury boxes at NBA arenas along with floor level tickets. There's no way that the expense was justified by any corporate benefit. Giving the occasional ticket to employees was OK, but it kind of made you sick to look at the $120 face price on the stub.
our architectural firm is busier than ever and is having its best revenue year in 5 years. but we are small and can take market share from the big lazy boys in town.
we also focus a lot on interior office space which tends to stay strong after the cranes come down.
Jas,
you don't do sarcasm so well...
stick with born and bred...
my current company spends about 100 per employee for fun days.
at least once a year.
but this company is profitable. the last one i worked for wasn't and they would do the same thing. in march they got caught with their pants down and the credit squeeze put them out of business.
Fannie allowed to pay third-quarter preferred stock dividend
Fannie allowed to pay third-quarter preferred stock dividend - MarketWatch
hey, they dollar menu has great value..
Daniel writes:
I don't think BB raises rates for at least 6 months, likely not anything before a year.
I shall lower again before i raise.
So many posts!! I would have to spend my entire day reading CR to keep up.
Actually, I think this is a baaaddd sign. Too much news is bad news.
The following article is from July. Banks have trillions of $ of assets in off-balance sheets entities.
Citigroup's $1.1 Trillion of Mysterious Assets Shadows Earnings - Bloomberg.com
So now the treasury and taxpayers are paying out dividends that aren't there...This is out of control, where is the sec and attorney general
I wish this was on the front page of every newspaper and on the TV news tonight..wont happen....
we the sheeple of the united states pledge allegiance to the treasury and executives of wall street, one market under paulson with some libertys and no justice for all...
Daniel writes:
I don't think BB raises rates for at least 6 months, likely not anything before a year.
No offense, is this a joke? Everything's indicating that our s.t. interest rates are being Japanized; we're heading to the floor by next year.
OT - USD <a href="http://quotes.ino.com/chart/?s=NYBOT_DX&v=s>officially hits 80!??!
haha
suck it up you bunch of whiny babies!
bush,bernanke,hanky panky and co own your ass!
demand justice now or STFU
OT - Spot silver closed at $10.70. It's multi-decade high last was $21.44. That's slightly over a 50% drop!
I'm just finding this so amusing (someone called me an a--hole when posting a comment about my joy over such a phenomenon) because idiots like Peter Schiff and Jim Puplava mentioned on their weekly radio programs that they were buying tonnes of silver (which they already owned a bunch of anyway) at those $20+ prices. Good riddance to their portfolio returns.
Anonymouse, yes =) ...raising rates dramatically has a Known Outcome. BB&HP&Friends only do things with Unknown Outcomes.
Finally, Calculated Risk recognizes the coming CRE downturn.
ot-was anybody else expecting 3rd qtr divi's being paid on preferred?
I'm a little thrown off by this announcement..
ot- wages falling
Economist's View: "Wages are Falling for Just about Everybody"
Maybe they found some coins in the cushions.
At the new Yankees and Mets stadiums, you will be lucky to find a $120 face price ticket in the furthest nose bleed section.
For the Giants/Jets, you will have to cough up $5,000 or more to buy a seat license that gives you the right to buy astronomical tickets.
ot-wages are falling and ikes pressure is too..Ike could cause some serious damage if it gets near houston-galveston...
this looks like the real deal...
best of luck to all in that area....
Why don't you stick around here awhile and learn something about the silver market before you start gloating, a-hole?
There are people who buy some precious metals for strategic reasons. Tell me where it's at in 2-3 years. In the meantime, I don't care except for real dips and buying ops.
One good thing about the CRE over development here in Valencia (CA) is the "2 for 1 meal coupons" I get in the mail each day from the local restaurants. Most places around here a slow or just dying. Even got a coupon from Claim Jumper.
OT - When is Obama going to get off the canvass and start throwing some punches? Does he not understand that this is a knife fight he's in?
He cannot afford to let the media, with their idiotic tendency to cover this election like a celebrity gossip column, redefine him.
Where is his Carville, or Rove?
My advice - Unlike 1992, this really is the worst economy in 30 years, so hammer it every news cycle, relentlessly. Point out the fact that Fannie and Freddie shareholders got stiffed while Mudd and Syron slither away to the Hamptons with their golden parachutes. GOP crooks have ruined the country. Change means the pigmen must be destroyed.
If you want the presidency, be a lion not a sheep!
CR said: "...Note that any reading below zero for loan demand means less demand than the previous quarter. This is strong evidence of an imminent slump in CRE investment."
Then you're going to have to adjust your "probable recession" band forward in time. Based on your chart "Investment in Non-Residential Structures, etc.", non-residential investment was far weaker at the same point in the previous two recessions, suggesting we're still not in a recession even now.
Sebastia
FNM Fannie Mae allowed to pay Q3 preferred stock dividends
cd
WTF?
rich,
I'll change my handle to anonyhole; I think sliver will be below $10.70 in 2/3 years. SPX will be below Oct. 2002 lows. FF rate will be 0%; nominal GDP sub-2%. $RUT off 80% from highs. Why can't I be bearish on precious metals here? No disrespect to anyone's feelings, but Mr. Market isn't about people's feelings.
Grouchy people.
Bear writes:
"hey, they dollar menu has great value"
Actually this crisis may have some significant side effects on the health of many people:
- buying cheap unhealthy calorie rich foods
- immune system affected by stress and no time to spend with family and friends
a whole new field of exploration is developing for Levitt et al. (U of C)
on the massive social effects of the housing crisis
NC,
It was decided long ago to go long on Moo Moos, because people will be eating those grease lathered, deep fried, two for $.99, delicious tacos from Jack-in-the-Box way too often over the next few years. Also go long on Spray And Wash, because it will be needed to remove those grease stains from those big Moo Moos.
Now if the dollar manages to become three-ply, there's going to be a whole lot of hurt on them exporters.
anonymouse,
If silver is that cheap with a zirp rate, we are beyond deep doodoo and well into 1932.
I can't see the federal government not putting massive infrastructure programs and state government bailouts in place well in advance of that kind of situation.
Unless you are talking about an official price of silver, with folks south of the border offering a lot more of those "dollars" for the shiny metal.
I do not see a way for us to maintain the dollar as the reserve currency while printing like mad and expanding the budget deficit to prop up the US economy with the rest of the world accepting the status quo. Things go on until they can't proceed on that course.
I do not believe the Chinese are willing to hold $5 trillion of our paper (a guess based on today's expansion rate) without at some point forcing a collapse, or getting out of the dollar reliance.
This commodity collapse is manna from heaven for them, they will be able to lock in reasonable prices for resources.
Someday this war's gonna end...
central_scrutinizer writes:
"My advice - Unlike 1992, this really is the worst economy in 30 years, so hammer it every news cycle, relentlessly"
I agree it is the main issue. The candidate who will be able to formulate a clear discussion of the economy's issues will have a good chance to dominate both the air waves and the opponent ... like a large fish carrying his prey towards deep water
hoping for some interesting UNSCRIPTED debates
NC sez:
The candidate who will be able to formulate a clear discussion of the economy's issues will have a good chance to dominate both the air waves and the opponent ...
Ron Paul has been doing just that and nobody wanted to listen.
"Ron Paul has been doing just that and nobody wanted to listen."
Ron would give us an instant depression, the rest of these clowns just want to prolong the misery.
I was just lamenting this problem to a friend. Until economic issues start smacking people up side the head (e.g. losing jobs), it will remain a personality contest and Caribou Barbie seems to be winning that one right now.
Page not found - - CNBC.com
Twenty-eight legislators had between $598,100 and $1.7 million of their own money invested in Fannie and Freddie in 2007, the latest period for which financial disclosure forms are available, said the Center for Responsive Politics.
Anon-Ron couldn't give us instant depression, because bush, paulson, benarke, cox, congress and ofheo gave us the one were going into...
Elvis,
same principle as the financial crisis: eat now - pay later
I guess long MOO and long companies like DVA
After Ron Paul's announcement this week, I'm hoping that he can be the Ralph Nader for the GOP in '08.
"For the Giants/Jets, you will have to cough up $5,000 or more to buy a seat license that gives you the right to buy astronomical tickets."
i go to the Jets game once a year with a friend who's had season tickets forever. He can easily afford it, but even he was bitching about the cost.
The faithful tailgaters, judging from my annual walk thru the crowd, are pretty much average Joes...how many of them can write a check for 5k plus the sky-high season pass? Empty seats for sure.
paul_in_sb writes:
I was just lamenting this problem to a friend. Until economic issues start smacking people up side the head ...
it is unfortunate to say: let us hope there are enough salient events in the news to give a jolt to enough people (I think we are getting there)
at least OB has got people's attention to begin with, it is now about the skill in bringing up the issue
O/T
Did anybody see this?
"Together, Daniel Mudd of Fannie Mae and Richard Syron of Freddie Mac are eligible for as much as $24 million in severance, retirement benefits and deferred compensation"
Reduced exit packages urged for ousted executives at Fannie and Freddie - The New York Times
CR, I get a kick out of the cliff diving posts and other current calamity events but posts like this one, where you tie all the data together to present comprehensive analysis (rather than the anecdotal crap we from MS analysts), is why this site rocks...
Sebastian, you little pump monkey...we missed you! Glad to see you are in good health.
Americans like happy news and overly optimistic candidates. Smart people are nerds and realistic economists are gloom and doomers. Until this blindness is corrected, too many will vote for the biggest liar, the one they'd like to share a beer with.
Leftys offers many choices for both gastronomic and healthy eating. Slim Jims, boiled eggs and Redman are available. Alcohol choices are reasonable, and, don't forget to see our lubricant ailse on the way out.
Mel writes:
"Americans like happy news and overly optimistic candidates"
it may be worth trying not to treat people like idiots for a change, they may like it. I am sure most of them know they have problems.
economics is similar to explaining science to complete outsiders, it is best done by non-scientists.
Lefty, do you carry Val-U-Rite vodka?
"When is Obama going to get off the canvass and start throwing some punches"
He's not getting off the canvas. It's over. Time to get your next 2nd rate prize fighter warmed up for 2012.
Kiwi's cut rates by 50bps...the global slowdown grows and "decoupling" goes back into the closet!
New Zealand's central bank cut its benchmark interest rate by a half point to 7.5 percent, more than expected by most economists, saying the economy is in a recession and inflation will slow
crispy&cole writes:
Kiwi's cut rates by 50bps...the global slowdown grows and "decoupling" goes back into the closet!
But they still have the second hottest women on the planet, so it's not all bad
Leftys Liquors
Slim Jims: that belongs to the category of "food-flavored solids" no?
-hole, who's first brazilia?
"AllenM aka Joliet Jake writes:
I do not believe the Chinese are willing to hold $5 trillion of our paper (a guess based on today's expansion rate) without at some point forcing a collapse, or getting out of the dollar reliance."
In either 2002 or 2003, in my proprietary research I came to the conclusion (roughly - wording is from memory): "Asian reserve growth will continue through the slowdown, but would be unsustainable beyond 2007 because nobody would be stupid enough to keep accumulating reserves at the current pace once the global economy starts expanding again. Their holdings of government securities relative to the market would be so large that there would be no exit strategy."
Guess what, I underestimated the stupidity of (some) central banks. And they're still at it.
In summary, don't hold your breath.
bond guy,
I think their long term purchase contracts of raw materials can account for some of the willingness to keep growing, but even the Chinese are starting to acknowledge their appetite has limits for paper.
The bailout of fannie and freddie just made them whole for agency paper, I will be curious to see if they decide to start passing it on to the next holder of the old maids.
I think they vastly underestimated the amount of stimulation applied in 2002-2004 by the US Fed and government in running deficits with low interest rates. The resulting housing bubble sucked a tremendous amount of exports from China with huge increases in investments and reserves. Now they have to decide if they want to keep internal investment in infrastructure going to keep their own consumer economy afloat, while ours goes tits up.
I think they will vote to worry about their unemployment, and drop our bonds in the till for resources.
Just thinking we are done. Anonymouse's optimism notwithstanding, I think the dollar has some very heavy weather ahead, even without serious decoupling.
I vote for decoupling, which is the loss of reserve status for the dollar.
Someday this war's gonna end...
NC writes:
Mel writes:
"Americans like happy news and overly optimistic candidates"
it may be worth trying not to treat people like idiots for a change, they may like it. I am sure most of them know they have problems.
economics is similar to explaining science to complete outsiders, it is best done by non-scientists."
Adlai Stevenson tried talking up to the electorate--twice--as did Dukakis and Carter. The latter was successful once because he sounded so Southern. You know, being "elite" and charismatic is a negative to many.
Democratic VP candidate Joe Biden says Hillary would have been a better choice for VP than him. (Video).
agree with AllenM. Bailout this, bailout that ... where is this money coming from? I was surprised to see even logical Obama suggest we need a 2nd round of stimulus checks to bootstrap the economy. You ain't got it to give away, friend. So when the news is bad enough, a la FDIC insolvency, I suspect the UST bond dump will get into serious gear.
Until economic issues start smacking people up side the head (e.g. losing jobs), it will remain a personality contest and Caribou Barbie seems to be winning that one right now.
They already are. It's just that the pigmen are doing everything they can to turn the U.S. economy into a Potemkin village, complete with fake GDP, fake inflation (CPI shenanigans), and fake jobs (birth/death model). Anybody with half a brain can see through the facade, but most "born and bred dopes", as Jas likes to say, cannot.
One notable absence from the mainstream press this election cycle is any honest coverage of economic issues. In the past, a recession like this would elicit coverage from the press that would be sympathetic to the anti-incumbent. Perhaps even to the other extreme, as in 1992 when we got endless sob stories about a recession that wasn't nearly as bad as 1981. This gave Bill Clinton a nice tail wind.
Now that the media are in the hands of a few mega corporate interests (GE, Disney, etc.), all they care about is keeping the good consumerist tools buying their crap. Perhaps they also know that they've bought and paid for both parties, so they've gotten lazy and overconfident.
Obama must recognize this, and drive the discussion back to core economic issues, or he's toast.
Slim Jims are good catfish bait.
cs,
And if he gets elected, deliver a swinging tax increase. Clinton did it and got 8 years of growth afterwards.
It was hard, but necessary.
As for this Bush, he is a total writeoff, he accelerated the dollar crisis by at least a decade- I used to predict 2019- now 2009.
I am amazed at how folks still think in terms of trading when the long term lines are drawn in the sand, and the obvious will eventually stare us all in the face.
What happens when the dollar loses reserve status and we look like Argentina to the rest of the world?
Someday this war's gonna end...
Have people discussed MER at all today? It's obvious what's happening to WM & LEH (throw in AIG as well), but if MER breaks $22.50, the price of the latest secondary, the stock will plunge to $2, according to several traders I respect.
Agree that long term tax rates have to go up. There is no other choice. This is coming from a conservative, BTW. One fine day, there will be an "oh shit" moment when Congress realizes the game is over.
However, in the short term I don't see DC mustering the courage to do the right thing for the future.
As far as trading goes, what better way to amuse myself while Rome burns?
the answer biden gave was: hillary might have been a better vp pick.
it was in response to this question: i am glad obama picked you and not hillary. biden can smell a set-up by fake media a mile away, so now they take his response out of context.
Maybe he want's to be toast after his recent update from Paulson on F&F, how else does one explain the lipstick on a pig comment. Sounds like he killed too birds with that stone.
2 birds, like he and Biden.
I do not think people are aware of how the GSEs, credit markets and multifamilies became intertwined. About half of all CRE loans were securitized into CMBS. FH and later on FN could buy as many as the multifamily loans as passed their muster, and from about 2003 on, these loans got packaged into a bond which they then bought, satisfying their mandate to support real-estate lending. I believe that robot bids create asset bubbles, and now that that bid is gone it makes the fall that much more steep. Of all the types of securitized CRE so far it looks as if multifamilies are doing the worst. I hope I've made it clear to you why.
oink, oink
This pig (US economy)is soooooo bad lipstick ain't gonna help it. Time to bail and let McPain and Lipstick Barbie wallow in it. Fine by me.
Saying that on video is not being taken out of context. Maybe Biden was being gracious, but he sure was explicit.
I'm beginning to wonder myself if Obama, in his heart, really wants to win. Could he be "tanking"?
And he should have refused to even meet with Paulson. That crook needs to rot inside a cell.
crabsofsteel,
"Bailout this, bailout that ... where is this money coming from?"
See, the treasury backstops the agency paper, to protect the FCBs. Then the FCBs buy treasuries to provide the cash for the backstop so the agencies don't go kaput. Or something like that.
Cheers,
quasi-OT:
My neighbor who works at Fannie HQ said Paulson came to give them a pep talk today. However he (the neighbor) did not sound very peppy.
central_scrutinizer,
"Agree that long term tax rates have to go up."
Can't blood out of a stone. Long term spending (entitlements) need to come down. No other way.
Cheers,
AllenM,
It will be quite interesting when the present sales of the dollar, like in Sputh Korea and Russia, reflect themselves in the market. Also, once China gets really pressured by the slowdown, they will be selling as well to finance domestic investment. Lots of foreign reserve dollars to sell in the world, like NEVER before. This present rally could really turn into a rout. We will see...
porky/petunia 08
Can't blood out of a stone. Long term spending (entitlements) need to come down. No other way.
I couldn't agree more. Why are we paying people not to work for another generation?
While I predicted a change in real estate emotions happening hard this fall and a quick change by spring... the rate things are going is scary.
Exactly what does the FDA say about too much Schadenfreude? And yea... I realize none of us are getting out of this unscathed. But If I'm going to have to pay for the ride... I might as well enjoy it.
Got Popcorn?
Neil
Ummm, Misean & Neil,
You mean entitlements like the ~$24M golden parachutes for the CEOs of Fannie and Freddie? And what did Carly Forina get from HP after laying off 1,000+? Tax the hell out of the pig people, I say.
SPG(Simon)is toast?
"Agree that long term tax rates have to go up."
thank you, at least someone see beyond what they want to see.
I think they will vote to worry about their unemployment, and drop our bonds in the till for resources.
Allen M, my thinking is similar. China will use their bonds to cushion the effects of the worldwide slowdown, unloading them to by oil and anything else they need to keep their economy moving. As you point out decreased commodity prices works in their favor, giving them a chance to recoup some of the losses they've suffered from the dropping dollar. Of course once they start unloading dollars this opportunity is unlikely to last long.
I hope I'm wrong, but I'm betting that the next administration will try to play the same deficit spending stimulus game that's been going on for 25 years now. The public is unlikely to tolerate calls for austerity, and the only way to maintain and expand spending is going to be through federal spending. If foreigners refuse to keep lending, I think the fed will accommodate by buying treasuries.
My current thinking is that this will start in earnest early 2009, maybe sooner, and while assets may continue to depreciate, the price of everything else will resume the upward climb. It won't really matter if the average person's wages are falling and they can't afford it, since the buying will be carried out by the gov.
Obama has a deer caught in the headlights look. He may turn out to be a mile wide and an inch deep. Interesting times!
Arriving late for the discussion.
Here is my take:
2000-2006: Housing Bubble
2006-2008: Credit Bubble
200X-****: USD Bubble
As we've learned, the housing bubble was really a credit bubble. And I believe we're soon going to learn that the credit bubble is really the USD bubble.
This was me:
Housing->Credit->USD Bubble.
For you deflationists: Our fractional banking cannot survive in a deflationary spiral. We are not on the gold standard anymore.
I think if we get really close to the abyss, their will be a coordinated monetary/fiscal policy effort to massively reflate.
Mr. Beach writes:
I think if we get really close to the abyss, their will be a coordinated monetary/fiscal policy effort to massively reflate.
Gosh, you're right. Because it worked so well in Japan for the last 20 years - why was ignoring that?
Forever in debt,
anonyhole - formerly Anonymouse
Smart move by the FED and the Treasury.
The real reason commodities are tumbling.
This page is available to GlobePlus subscribers
"While I predicted a change in real estate emotions happening hard this fall and a quick change by spring... the rate things are going is scary."
Neil, what do you mean by quick change(of emotions)?
munch munch munch
Mr. Beach,
By what means will they reflate??
I'll change my handle to anonyhole; I think sliver will be below $10.70 in 2/3 years. SPX will be below Oct. 2002 lows. FF rate will be 0%; nominal GDP sub-2%. $RUT off 80% from highs. Why can't I be bearish on precious metals here? No disrespect to anyone's feelings, but Mr. Market isn't about people's feelings.
Anonymouse | Homepage | 09.10.08 - 6:31 pm | #
You are right the market is not about anyone's feeling but no need to change your handle. IMHO Anonymouse has more " je ne sais quoi". At the current point your position is the better one and us glodbugs may have fallen in the same trap as the real estate afficionados. We were a little bit succesfull and we thought it was different this time. I still think it is and am starting to buy stock of liars standing next to holes in the ground. Good luck in your positions.
For those speaking of Hurricane Ike earlier, anyone notice that it's heading almost directly for the South Texas Nuclear power plant?
Although I'm sure the plant is built to withstand it, the electrical towers running power to houston and dallas certainly aren't...
Misean at 8:01
We couldn't get them to take Lehman stock or the once-AAA rated 2nd lien toxic mortgage junk bonds...
oob: There's nukular in texas? Whodathunkit.
Seriously tho, Cat 4 predicted. Yikes.
Hurricane Ike : Weather Underground
"Why can't I be bearish on precious metals here?"
The Hunt brothers learned that silver isn't all that precious.
El Cliffo,
Most of our patrons cannot afford the overpriced Val-U-Rite Vodka. However Marketing is suggesting we cut it with water and reseal the bottles.
"and well into 1932."
We're nowhere near 1932. They're attempting to prevent 1932. I suspect in a few months many more will begin to realize the consequences of the necessary deleveraging.
@anonyhole (mouse): No reason to be sarcastic. I respect and enjoy your reading your posts here.
The Japanese were very slow to rescue their banks. They allowed zombie institutions to linger on nearly forever.
Bernanke has suggested that he can effectively that in cooperation with the Treasury, the Fed can effectively run an open-market operation in private assets.
Anytime anyone pushes the deflation meme, I'm going to once again encourage everyone to reread Bernanke's anti-deflation speech. Google: bernanke deflation speech.
Quoting Bernanke: Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior)
The Fed is far more afraid of deflation than inflation. If we get close to the abyss, they'll inflate like crazy.
"where is this money coming from?"
It's coming from the promise of future, collective productivity. Given reform, we're likely good for a few more tril...
Although I liked Ike in 52 (twas but a wee laddie), if this himmicane comes on shore where projected, it will hit the King Ranch. Might uproot a few mesquite trees and tip a few steers, but no significant dammage to infrastructure.
Lefty, I still say we hijack an ethanol truck. We de-denature it, cut it down to 100 proof with branch water, mix in a little carmel color and distribute through Piggly Wiggly.
There has to me a cheaper substitute for Vasoline, though. Valvoline?
@Mike in Long Island:
If we get close to the financial abyss, the problem will become political. Many solutions are possible: the government can send all home-owners checks depending on the median price of property in their zipcode.
All government may build a massive bad-bank (ala RTC) to buy up and absorb the losses on the books of major financial institutions.
All these actions will induce gag and vomit reflexes.
Lastly, I think the problem is not a housing bubble, not a credit bubble, but a USD bubble.
If the USD bubble pops, then all bets are off.
skewed,
"You mean entitlements like the ~$24M golden parachutes for the CEOs of Fannie and Freddie? And what did Carly Forina get from HP after laying off 1,000+? Tax the hell out of the pig people, I say."
What does this have to do with the price of beans in China? The pig men don't pay income taxes...they pay cap gains. Nice. Because increasing cap gains also torches actual reinvestment income of businesses. Thus curbing growth. Be nice if you could, buy that requires major changes in tax law. Further, it is still not anywhere close enough.
Cheers,
A prolonged period of deflation will threaten the balance sheets of families, local governments, state governments, corporations, and the Federal government.
Do you guys really think that the powers-that-be will allow deflation to truly set in?
Do you guys really think that the powers-that-be will allow deflation to truly set in?
They may not have a choice.
All you inflationists, I've asked, how do they do it?
Ya'll keep talking about a printing press, whcih shows complete ignorance as to how the FRB works. They buy and sell debt. That's how money enters and exits the system from FRB.
Now, If the FRB started monetizing debt, what do think would happen? I've offered this challenge in the past...explain to me me how they inflate when no one wants to buy debt?
No one has yet answered this. This is deflation, pure and simple.
Cheers,
Bummer, Obama is being outshone in the popularity contest. This country was f'ed anyhow. The Anti-Christ or Religious Hockey Mom... who's your pick White America?
"If we get close to the abyss, they'll inflate like crazy"
What makes you think they are not already doing all they can to inflate ? Their faux concerns about inflation ? Rates are already 3% negative and TAFFY is non stop.
RE: Fannie Mae preferred shares dividend.
They say that the dividend had already been declared, on Aug 8th, payable to holders of record on Sep.15th - so the claim is that this was already committed to prenationalization.
Its a hefty chunk too, as low as 17 cents/share to as high as 65 cents, depending on the series. I can't figure out which series, if any at all that FNA represents but that certainly popped on the news up from 1.90 to 2.81.
Yup, shameful in the extreme I reckon.
-K
I wish I could put my finger on the bottom, but it always seems like more room to fall.
While I'm firmly in the deflation camp, I don't believe that the government has played it's ultimate card yet.
Let's see the Fed Funds rate go to 0.025%. If the stock market/commodities/real estate still remain moribund in, say 2015, the last bullet in the chamber is hyper-inflationary printing of money.
I doubt they'll do it, because that destroys the banks. It's the financial equivalent of the pigmen drinking a coffee cup full of rat poison (hmm, somewhat fitting!)
JP: I didn't know that either...I just happened to wander by the site on Google Earth and wondered what the funny looking lake was about.
Apparently they're getting ready for it though:
South Texas nuclear plant readies for hurricane
| Reuters
Misean: If the problem is sufficiently large, it moves from economic to political. The answer is We-The-People become the buyers. Here is how it works:
Congress raises the debt ceiling.
The Fed acquiesces and buys Treasury debt. Congress spends the newly created/borrowed money however it sees fit: give it away willy-nilly, create MLEC, setup the world's largest bad bank, etc.
OT:
Tonight's Selected Market Caps:
DRI....Darden Restaurants.....$4.2 BIL
ANF....Abercrombie&Fitch.......$4.3 BIL
WM.....WAMU........................$3.9 BIL
BKC....BurgerKing.................$3.4 BIL
Misean: explain to me me how they inflate when no one wants to buy debt?
Here's your answer: the fed buys the debt from the treasury, and the government spends. There are other variants of this, but the basic idea is the same.
OT:
Tonight's Selected Market Caps:
DRI....Darden Restaurants.....$4.2 BIL
ANF....Abercrombie&Fitch.......$4.3 BIL
WM.....WAMU........................$3.9 BIL
BKC....BurgerKing.................$3.4 BIL
Hi, I'd like a whopper and a 5% CD?
Or do I repeat myself?
Just for fun:
Green Acres
YouTube - Green Acres intro 1966
You either have a whopper or you don't. How about fries with that CD?
sebastian still harping on 'recession metrics'.
the banking system is crapping out , the biggest socialism experiment is out of the gate,, and silly seb is worried about technicalities.
Mr. Beach,
"Misean: If the problem is sufficiently large, it moves from economic to political. The answer is We-The-People become the buyers. Here is how it works:
Congress raises the debt ceiling.
The Fed acquiesces and buys Treasury debt. Congress spends the newly created/borrowed money however it sees fit: give it away willy-nilly, create MLEC, setup the world's largest bad bank, etc."
What happens when the FRB heavily monetizes debt?!?!?!?!?!?
You think holders of Fed debt are going to be happy? What are they going to do? Everyone forgets that bit.
Cheers,
anotherajh,
"Misean: explain to me me how they inflate when no one wants to buy debt?
Here's your answer: the fed buys the debt from the treasury, and the government spends. There are other variants of this, but the basic idea is the same."
Again...what do the other players do when the FRB outright monetizes debt? That's the friggin' linchpin. Answer please!
You think the PTB want to destroy the dollar? They could give a F&&k about you. The petro-dollar/reserve currency...what do you think the friggin' FRB cares more about?
Answer please.
Cheers,
You think holders of Fed debt are going to be happy? What are they going to do? Everyone forgets that bit.
Misean, of course they won't, and they aren't now; just ask PBOC. This hasn't stopped monetization in the past, and it won't now. Push comes to shove, politician's first reaction is to try and push the problem off to someone else, whether it be foreign banks, or citizens in the future, and this is the only way they can do it.
You think the PTB want to destroy the dollar?
Misean, didn't see this 'til I'd written the last post. No, I don't think so. But they have monetized by this route in the past, and they will again. I believe that they'll try to walk a fine line, monetizing enough to avoid deflation, with moderate inflation. The big question is: can they pull it off? I think we'll find out soon.
I've offered this challenge in the past...explain to me me how they inflate when no one wants to buy debt?
From a highly BS unlikely point of view what if the Fed started purchasing cows with their debt. We know they can take different assets on their books as collateral. Cows may have more value than some of the stuff they currently have on their books. "We will buy 2 million cows this month and ongoing for the next two years,no matter what costs" What would happen to the price of cows? feed? labor? farm land? What if a foreign CB said they would outbid our government for cows. If they use the infinite to buy the finite they can always create inflation. Now they might not feel that it is a good idea but it seems to me they could. Especially if they wanted to use a better suited commodity.
I would be happy to be in inflationist camp if any one of you can tell me how are we going to inflate our employement.
By the time it is reaches stability, 1932 would be walk in the park. I see falling down to valley and flat for ever there on.
S N
Forever is a very long time. 100 years ago who could have imagined where we are now?
JP: And wasn't it GoldMine Sachs' email that they were Not accepting BSC counterparty risk that started the Bear collapse?
U.S. Must Buy Assets to Prevent `Financial Tsunami,' Gross Says - Bloomberg.com
buying assets
Yes, the price of cows would temporarily go up, but well before that became a problem, people would switch to goats' milk and pork chops.
In your scenario, will the Fed also print Cow certificates, redeemable at any Federal Reserve Bank for one cow?
In your scenario, will the Fed also print Cow certificates, redeemable at any Federal Reserve Bank for one cow?
El Cliffo | 09.10.08 - 11:41 pm | #
No silly if they need inflation it would be good for 98% of a cow with a 2-3% decrease per year.
And why buy a cow when I can milk my neighbor's cow through the fence?
And why buy a cow when I can milk my neighbor's cow through the fence?
Because like marriage it is a blessed event.
YouTube - Peter Cook - The Princess Bride
I've offered this challenge in the past...explain to me me how they inflate when no one wants to buy debt?
MISHian,
Google Keynes. He influenced this nobody academic, Prof. Benjamin Bernanke, who wrote a paper about dropping cash out of helicopters BEFORE deflation starts. No one reads any more. The paper is on the web.
Oh, and be sure to duck the bales of cash dropped from helicopters.
"Google Keynes. He influenced this nobody academic, Prof. Benjamin Bernanke, who wrote a paper about dropping cash out of helicopters BEFORE deflation starts. No one reads any more. The paper is on the web.
Oh, and be sure to duck the bales of cash dropped from helicopters."
I read that paper. It really comes down to 2 questions.
Will the "printing" be enough.
Which comes first? The end of the deflationary deleveraging cycle or an empty vault.
For all the theories out there, no-one knows because the game hasn't finished.
El Cliffo writes:
Democratic VP candidate Joe Biden says Hillary would have been a better choice for VP than him.
Joe's wrong. Hillary wasn't even Bill Clinton's first choice when a woman was needed in the oval office.
Good morning all,