We've seen these estimates before and places like CR and other blogs have been spot on for years. Saying a drop of 10% is easy. The bigger question is where do prices go once they hit bottom?
Do they stagnate and go sideways?
Bounce back up?
The futures markets are still seeing a much more significant drop in bubble areas. Los Angeles County for example is now at a median of $360,000 when only last year, it was at $550,000. The futures see an additional 20% cut putting the bottom price at $288,000.
Based on my analysis of the last real estate downturn in San Diego, only when employment was rising (two years before), defaults were falling (two years before), and sales were rising did prices increase.
Without a doubt, the particulars for San Diego may not hold for the U.S. as a whole, and the factors may have different lead times this time.
However, I will wager that no way are prices only going to drop a further 10%, and no way is this over in only 18 mos.
i think another 10% in Diego is entirely possible. The median is still to expensive for a large portion of the population. And there is more and more inventory still coming on line.
Prices will not level off until they are 1) supported by local income levels 2) proportionate to rents and 3) affordable with loans originated with responsible underwriting standards. Period, end of story.
Before reaching that place, they are likely to overshoot on the downside. But that's the long term equilibrium.
Some places have much further to go, some don't. The nation as a whole certainly does.
It's worth noting that places that inflated the most, will deflate the most. The nation's 20% drop translated into a 40% drop in California and Florida. 10% is a conservative estimate and might translate into 20% in CA/FL.
Note that a net 30% drop in house values is really more like 40%-50% due to the inflation over the years. I.e. House prices staying flat is a net loss.
This is why 2001 house prices is a reasonable baseline for comparison, because on one hand those prices were already inflated but on the other hand there's been a good amount of inflation since those days. On the other hand, salaries have actually dropped and will continue to for at least two years. We have a number of conflicting forces, but the bottom line is we're not near a bottom in houses yet. It's probably another 15% nationwide, but a lot of drastic things could happen in the meantime to push it deeper or less.
ades, do you think SD prices will only fall a further 10%?
Based on my projections of the household debt that we have to write-off --> fall in income --> return to price to income of 3:1, my estimate is that San Diego prices will fall 70% from year end '07 levels.
BDiego writes: Note that a net 30% drop in house values is really more like 40%-50% due to the inflation over the years. I.e. House prices staying flat is a net loss.
Unless of course you're income has been flat for say the last 7 years like much of America. Sure goods inflated but salaries have been stagnant.
I'm not even sure this is accurate at the national level. The Economist was already calling a bubble in 2003, and 10% more nationally would only bring us back to 2003 (or so).
Now add in excess inventory, negative sentiment, and the market could overshoot the long term fundamentals by a wide margin.
miss read your first post. i concur, there is much more pain on the horizon. esp considering employers are moving out and population hasnt really grown all that much in 5 years+
San Diego's a different world, and individual communities like Ocenaside and Chula Vista have dropped 50% already and counting. I guarantee you still would not want to live there.
A lot of communities like Mira Mesa suffered disproportionately due to massive fraud and speculation. That's why they feel hard and fast on the bubble burst - they inflated even harder running it up.
This is why comparing locations to their vintage prices (1999, 2001, 2003) is most insightful. A lot of the areas I named are merely back to moderately overpriced 2001 levels.
The squish down issue is what is next, I think FHA will effectively put a floor under pricing and higher than some might think (imho).
What happens is the bands above the median will narrow considerably. The downpayment requirement will see to that.
Declining markets in So. Cal. are now 10% down for non-FHA (can't get MI for over that) and 3.5% for FHA on January 1st. You'll also get the conforming limit dropping to 625k which will hurt the high end even more.
ades:
I noted that very point in the last paragraph - income has been relatively flat or in modest decline.
Income is the fundamental factor that determines house affordability. However, the reality is housing prices have not been dictated by income for 10 years. And that's not going to change until banks start enforcing sane lending standards, which they are slow to do. Countrywide is offering sub-prime loans again at conforming loan interest rates. It's just insane how lenders are repeating the same mistakes right now today that made them bankrupt.
Lenders eventually will return to sane standards, and then income is going to enter the picture. It's not going to happen any time soon.
Yep, BD-, it is amazing how stupidly folks will act when they think that they have a Federal backstop.
However, wait until the bond market wakes up to the Federal stupidity, and the mortgage bankers realize that there really is NO Federal backstop, there.
"danimal writes:
Bob Dobbs, how far down in the Cruz?"
Like I said, not much is moving. But looking at Redfin, I see houses that sold in 2006 and later listing for 20-25 percent less than the original price. Pricing on houses sold in '05 is relatively flat, plus or minus 5-10 percent.
Got a big sucker a block away that sold for $2.8M in 05, was fluffed up and put back on the market at $3.7M a few months ago, and is now back to $2.9M
Check it out, and no I'm not rich, just live near them.
This is why comparing locations to their vintage prices (1999, 2001, 2003) is most insightful. A lot of the areas I named are merely back to moderately overpriced 2001 levels.
Forget comparisons to price-in-a-given-year. Those numbers were skewed by stupid lending. We are now in a traditional 20% down environment. If this gets worse, it will go to 30% down.
All that matters is affordibility. When we are back to 3x median income, that will be the median case. Most likely there will be overshoot.
Unless FHA eliminates such amazingly low down payments (3.5%) the ease of qualifying and low barrier to entry allows higher competition for homes in areas like So. Cal.
I think this higher competition will absorb the excess supply at a higher level than say the 1996 down turn in which the local economy was both worse, rates were higher, and qualifying was tougher. The one thing the Fed is not letting fail is the mortgage market. They are keeping long rates low and the market liquid. They are trying to prevent an overshoot to the downside.
While I think that will build a bottom as far as how far the low end can fall. The mid to high end have a long way to drop to get into their proper place due to the fact that people will need higher down payments in order to move up. This will narrow the rungs of the "property ladder".
"Fitch then expects declines thereafter [+ 18 mos.] to moderate." The post 18 month part MAY be correct in the sense that the declines will continue but at a more moderate pace.
The 10% decline didn't factor in the ongoing job loss that will continue to increase with the newly discovered frugality. Oh, I forgot, let's solve a debt problem with more debt. All of these years I thought I was supposed to save. Let's party!!!!!!
If the federal gummint keeps the stimulus packages coming, and bails out the bubble area state governments, another 15-20% could actually prove the bottom in Cal, Florida, Nevada, and Arizona.
Or not. But with sufficient fiscal stimulus a bottom can be found.
Not that a lot of folks will be happy, not until some kind of real estate bailout allows people underwater to reduce their payments.
How about that nice big bounce off of 7600 at the bottom.
Now we get that horrible sideways motion that wrecks returns for years.
So everyone keeps saying load up on gold or other precious metals, but if you believe that deflation is just around the corner (some initial reports suggest this) then wouldn't a gold bet be bad?
Where do you run to in a deflationary environment?
NYC and the suburbs haven't even started to roll back. That muight be a good number for the entire US, but NYC is about to take a massive bath. It will take time for the psychology to break as people are still in the ewait and see mode. The 1 year time frame is too aggressive and doesn;t account for the lag that occurs as the psychology is broken.
Thanks, Bob. It's the entry-level properties around here (and all of the Bay Area, I guess) that seem so crazy. Three-quarters of a million for decrepit houses on small, crowded lots. Seems totally out of whack with area incomes, particularly in Santa Cruz. Suppose there are certain locales that are largely shielded from drastic real estate dips for geographic/demographic reasons.
"This is why 2001 house prices is a reasonable baseline for comparison, because on one hand those prices were already inflated but on the other hand there's been a good amount of inflation since those days."
What happens when we hit deflation sometime next year....
I would like your comment on this notion: I looked at the DOW and saw a consolidating symmetric triangle, which should be breaking down soon to resume the drop. Checking the weather by looking out the window, the break looks up.
The winner will be decided by the Fed. If it sloshes like crazy during the barrage of new Treasury paper this week, the market will go up. If they withold the slosh, it will break down badly.
I think the Fed's decision is new information that will invalidate TA in this case. What think?
JP:
Right now today, you can still buy a house you cannot afford. But standards are improving slowly.
I agree completely that someday house prices will have to match affordability. What I've disagreed on is that "today's the day" when it's going to happen. I've heard that line for the last 5 years on housing. I think we still have 1-2 years to go before we hit sane lending standards. Just FYI I still qualify for 5% down loans from several banks (not FHA).
On another point, take a look and see how many decades it's been since New York has been at 3x pricing. I'll bet you it won't happen in the next 20 years for New York. The point is each location has a different multiplier, and 3x is more a national guideline. There's no way middle America is the same multiplier as the coastlines, and the moment that happens is the day everybody evacuates to the coastlines en masse. I know I would.
Again I agree that eventually houses will be controlled by incomes, but look at what that theory got us the last 10 years. I think it'll happen in the next 1-2 years at the earliest. The fact is, housing prices been driven by the willingness of banks to hand out money. And in the last few months I've seen several lenders get back into the game with new toxic loans with Countrywide again leading the posse.
In light of the attention which Iceland has received in recent weeks as a result of the economic situation in which the country finds itself, we want to clarify some information, said Icelandair in a statement.
There is no shortage of food or other goods. Department stores, grocery stores, restaurants, hotels, bars, charter companies and other tourist attractions, etc. are all open.
The airline also takes time to assure potential travelers that their bank and credit cards can still be used in Iceland and that the countrys cash machines are still in operation.
In addition, Icelandair emphasizes that foreign currencies are accepted by many Icelandic merchants, and that the countrys banks will still exchange the foreign bills for Icelandic kronor.
The airline also does its best to put a positive spin on Icelands financial crisis by reminding travelers about the benefits of the weak Icelandic krona.
The exchange rate, which is expected to stabilize shortly, means that Reykjavik has become one of the Nordic region's cheapest cities, which has opened up possibilities for foreign visitors to make good deals, said Icelandair.
Anyone have a comparison to unemployment levels vs # home sales/pricing during previous recessions. Add in tougher credit standards and general pessimism and we have "wild ass guesses".
Wild cards are future fuel prices(suburbs price drop), global warming(coastal living questionable)and job creation(move where the jobs are). Foreclosed properties in existing neighborhoods can also have an adverse effect.
Immigration is a pretty big impact in the southwest. If the next administration continues the crack down on illegal immigrants and unemployment continues to rise then look for more walkaways in West Texas, So Cal and Phoenix.
I actually do believe all RE is local and the factors on pricing are wide and varied.
Why do analysts even come out with these reports? Motivation and intent?
Assuming sustainable mortgage underwriting, 10% further decline in my area leaves me permanently priced out in a career path as a PhD (Berkeley) engineer. Houses in San Fran and decent East Bay neighborhoods need to come down another 50-60%.
If this doesn't happen at some point, wages will need to go up that 50%, or there may well be brain drain out of here.
There is a premium for owning. As mentioned above it varies by location. Atlanta has been a negative one for years. San Diego has been a very positive one for years....
Prices in exclusive areas on the Penninsula, down to Los Gatos, have not rolled back.
Salaries might a factor, but even in 2001, housing in CA had to have been a much larger portion of an individual's income than in Lousiana...much higher. While LA might not have been over-priced in 2001, CA was! Looking at 3:1, or 4:1, CA continues to require a major adjustment in housing affordability. Another 10% would not make a difference at all.
dk - the conventional wisdom answers your question with sovereign bonds (unless you're a goldbug, then the answer to every question is gold).
In this case treasuries look more than iffy, so I have looked at bonds from countries where the populace tends to be savers that don't want their savings eviscerated (Germany, Japan). There are obvious problems with those two, but there are obvious problems everywhere you look. And, gold too in case the bugs are right.
same logic applies. Look for coutnries that have disciplined populations as you mention Germany, Japan (save, make things). The exact opposite of the US.
Word I am getting is that tech salaries are starting to drop. Lot of talent starting to become available, and willing to work for less than $100k for senior engineer level positions. Even money (or possibly considerably less than) dot com era.
Careful what you assume about Florida home prices, they went up fast but have dropped faster and started dropping eariler. I live in East Orlando, and prices have dropped below summer of 2004 levels already. There is a very good selection of homes built in 2005, over 2000 sq ft, for between $75 and $100 a sq ft. I think that price is below builders cost of new housing right now.
As I've been watching for a friend, who wants to buy in LG/Saratoga, I'm betting on the continued drop in stock price of AAPL and GOOG as the buy indicator (which was reached last week 100/399). This is because many folks in this area paid cash; a smaller portion of their entire investment portfolio. To me, AAPL and GOOG are a good representation of these homeowners. They'll need their cash soon!
Premium parts of South Bay are starting to drop now. I know multiple people that were actively looking to buy in Cupertino that tell me prices are now dropping and they have no intention of buying in the foreseeable future.
In addition, income may not matter for Los Gatos, Palo Alto proper, Los Altos but the following do:
Imploding hedge funds
Disappearance of VC funding and 0 IPOs in the last quarter.
Imploding stock options.
dk writes:
So everyone keeps saying load up on gold or other precious metals, but if you believe that deflation is just around the corner (some initial reports suggest this) then wouldn't a gold bet be bad?
The purpose of a gold investment should be used to preserve wealth, not for appreciation of speculation. The idea is that your purchasing power will be saved and you can buy the same amount of gasoline, food, or clothing in the future, regardless of what happens to the dollar.
During deflation, the price of gold goes down, but so does the price of other commodities. During inflation, price of gold goes up maintaining wealth. Gold is eternal.
If you are sure about deflation over a period of time, your best bet would be to hoard cash, because then your purchasing power would increase.
Since Bush took office, incomes adjusted for inflation, have drifted lower. Assuming 2000 home prices were affordable, that's where today's I wouldn't adjust 2000 prices for inflation because lending standards have gotten more difficult, lowering what mortgages are attainable.
If recession turns depression, 2000 prices are still way too high. NYC is due to see the high price speads decrease exponentially--many brokers and bankers will be downsizing. Actually, NYC's population will take a hit--there is no manufacturing in the city anymore--even the sweatshops have moved out of Chinatown.
The worst of it, what makes me absolutely gnash my teeth, is half of those women will eventually leave, either taking the house, or pushing it into sale (foreclosure more likely now).
The capital destruction of wealth induced by 50% divorce rate is stupendous. My ex took half and spent it. All gone now, bye bye.
Salaries might a factor, but even in 2001, housing in CA had to have been a much larger portion of an individual's income than in Lousiana...much higher.
Again, 2001 is a terrible year to choose for comparison. Money from the tech bubble was still flowing, although it was beginning to dry up.
3x median income. Anything more simply does not leave room for necessities.
Unless, of course, the banks forget about being paid back. However, the next round will have to be some other scam besides "securitization". That's already been milked.
"It's the unintended consequences that are going to screw everybody up with their planning, buying, selling, etc."
And what are the unintended consequences of the flood of treasuries required to buy and make whole all the mortgages?
I have a sneaking feeling that much higher mortgage rates, higher interest rates, private companies going BK due to crowd-out affect on availability of private capital.
Oh and throw in a few more Icelandic style bankruptcies.
Unintended consequences go both ways in this market.
The Santa Cruz Sentinel reports from California. Septembers median price for a single-family home in the county plunged to $475,000, down 32 percent from a year ago. Last month, the median was $582,000; in September 2007, it was $702,500. The median price hasnt been this low since January 2002. With so many homes for sale 1,286 listings, near last years peak sellers are at a disadvantage.
I have a question for CR, or whomever here might have read the various bailout proposals. Do you really think the conforming limits will drop on Jan 1, 2009? It really sounds like the kind of thing that will get stuck into some new bailout bill or reform.
Because I have cash and I'm looking at houses moderately over the $729k limit, I would be happy to have less competition. Still, can the politicians stop themselves from refilling this particular punchbowl?
Down in the Cruz, $600K buys you a starter home -- 55-yr-old 12-1400 square-footer with problems. Near the freeway. Parts of San Jose are cheaper now.
As for tech job pay, a co-worker's hubby just landed a QA job at Apple on a hot project. He's got tons of experience, and gets $70K for any 80 hours a week his boss wants him work. There "may" be a $10K bonus for good work; or, there may not.
Prices haven't budged much in Cupertino, Sunnyvale, Fremont, Los Gatos, Los Altos, the Peninsula, or SF proper. We've got a long way to go around here as people are holding tight in their Option ARM and I/O loans. I could see a crash of 40% quite easily in these areas and that would bring housing to 7x median income from 11x median income.
"As for tech job pay, a co-worker's hubby just landed a QA job at Apple on a hot project. He's got tons of experience, and gets $70K for any 80 hours a week his boss wants him work."
dk writes:
So everyone keeps saying load up on gold or other precious metals, but if you believe that deflation is just around the corner (some initial reports suggest this) then wouldn't a gold bet be bad?
Where do you run to in a deflationary environment?
Mish (uber deflationist) has said that gold would be just fine during a true deflation. As someone said earlier, think of it as a store of value as opposed to a speculation.
Assumes you hold physical and not paper gold. (Though Homestake Mining was one of the best performers during the Great Depression in the stock market.)
Washington Mutual's Cash May Be Claimed by FDIC (Update1)
By Steven Church
Oct. 20 (Bloomberg) -- Washington Mutual Inc., the bankrupt former parent of the biggest U.S. bank to fail, may be forced to fight the Federal Deposit Insurance Corporation for ownership of $4.4 billion in cash.
The FDIC said in court papers filed today it may claim part of the cash because it is the government agency responsible for selling WaMu's banking subsidiaries last month to JPMorgan Chase & Co. after the units were seized by regulators. Bankruptcy attorneys watching the case say the $4.4 billion is likely to become a prize fought over by competing bondholders owed billions by WaMu and its former units.
WaMu filed for bankruptcy Sept. 26, the day after it was seized by regulators and sold to JPMorgan for $1.9 billion. JPMorgan, the FDIC and WaMu are working on an agreement that would allow WaMu to withdraw the money, currently held by JPMorgan, WaMu attorney Marcia Goldstein said in court today. That move is opposed by noteholders of Washington Mutual Bank, who claimed in court papers that the withdrawal would be unfair without forcing WaMu to prove it owns the cash.
``No bank would ever let someone walk up to the teller window and withdraw even one dollar from an account without confirming that the account was actually established and that the account actually belonged to the customer,'' the noteholders said.
U.S. Bankruptcy Judge Mary F. Walrath in Wilmington, Delaware, scheduled an Oct. 27 hearing to decide whether to approve the proposed agreement to let WaMu withdraw the money.
Bondholders and other creditors for WaMu are losing money every day the cash sits on deposit with JPMorgan because it is not earning any interest, attorney Thomas Lauria said in court.
We're at almost a month and we still can't get the funds moved,'' Lauria said.There is harm to the estate and we need to get this issue cleared away.''
The case is In Re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
It costs you some cash to get, some cash to keep it, but it always has a value that is largely independent of who and where you are.
And gold does have some value. Notice you never see any pictures of the stuff for real unless it's locked up in huge vaults. People don't put stuff with no value in huge vaults. Barbaric relic my ass.
On this blog, I think it's easy to underestimate the effect of women in driving purchases. There's a lot of men posting here is my guess, more than 75 or 80% is my guess.
The consensus of posters here will definitely miss the housing bottom. It will turn up and they will remain in denial for the first 10%+ on the upside.
Like I was saying in my last post. East Orlando, P&I on a 2200 sq ft house is way less than rent on 1300 sq ft apartment in the same area.. say $1100 P&I vs. $1350 rent for the aprartment.
Buying is not insane now, by any stretch... unless you believe in some great deflationary spiral not fixed by printing money asap - but try to tell that to your pregnant wife, or to your wife & 2 kids. It doesn't fly when the house is easily affordable compared to rent of a MUCH smaller apartment.
CA unemployment could hit 9% by the end of the year and by the end of 2009 it will be in the teens. How can house prices not collapse 70% from the peak ?
Yahoo and EBay are about to ax 2500 combined while Goog is looking to shed a lot of contract employees (currently @ 10k). Look for PM's with typing skills to be looking at those admin rolls Housing will begin to crumble before you know it.
I can't see how it won't in every area except certain parts of the peninsula (pac heights, castro, noe valley, marina, russian hill), Piedmont, perhaps Kensington and parts of N. Berkeley.
On the other hand, all the DINKS that just can't quite make in the city may move to the flats in Richmond, driving up prices.
Bearly I'm absolutely convinced that Bay Area folks require a 2x4 to the side of the head before they get it drilled into them that housing isn't "special" in the Bay Area.
"The consensus of posters here will definitely miss the housing bottom. It will turn up and they will remain in denial for the first 10%+ on the upside."
Better to buy a little late when the slope is going up then to buy too early when the slope is still going down.
I will hate it, but I will stay employed by undercutting those people in salary/rates.
I am living really well on $2700/month take home. Really well. They can't touch what I will work for, if necessary, unless they're sitting on a pile of cash or willing to charge up their credit cards.
"Piedmont, perhaps Kensington and parts of N. Berkeley."
We are looking to buy in those areas. Piedment is coming down very fast now. Kensington as well.
The drop in median prices in no way indicates how much more you get for the dollar now in Berkely Hills, Montclair and even Piedmont versus a year ago.
"And what are the unintended consequences of the flood of treasuries required to buy and make whole all the mortgages?
I have a sneaking feeling that much higher mortgage rates, higher interest rates, private companies going BK due to crowd-out affect on availability of private capital."
All I'm saying is that both past and future (unknown) government bailouts make projections very difficult.
For the short-run, the government is going to win. If you pour enough money into anything, you can make it work to your satisfaction right away.
Long-term, I'm with you - higher rates are inevitable. But when? Six months? One year? Five years?
It's impossible to guess since we don't know who and what will be bailed out and at what cost. And as long as the treasury market doesn't punish such stupid behavior, my guess is that the Fed will operate even more recklessly in the months ahead.
I just don't see how anyone can forecast in this environment. It's unchartered territory and I wouldn't want to bet on it.
Be careful about Berkeley proper, the zoning and permitting is crazy stupid from everything I have heard.
Good to hear though.
I am not convinced that the whole City will come down. Some neighborhoods have had high demographic change over last 10 years, many more what we used to call "well-to-do" living in such neighborhoods compared to 10-15 years ago.
South Bay (Tech), Peninsula (Tech + some BioTech) and SF (Finance) are supporting the Bay Area. As these industries feel the impact of a deep recession, housing in every locale has nowhere to go but down. Yes even in Noe Valley, Piedmont, and Pac-Heights.
"Yahoo and EBay are about to ax 2500 combined while Goog is looking to shed a lot of contract employees (currently @ 10k). Look for PM's with typing skills to be looking at those admin rolls Housing will begin to crumble before you know it."
My boss is a project manager with heavy start-up experience -- kind of guy who breathes spreadsheets and Gantt charts.
He had to compete against people with twice as much experience for his piddly little civil service job that's well down into the five figures. And only got it because he'd already filled it on a contract basis for a while, and they knew he could deliver.
There's a lot of talent out there with not much to do.
The feds are "purchasing" a stock market, and it looks like they are going to continue to do this indefinitely.
Go figure.
Just think: they spend our tax dollars to bail out banks who can then turn around and loan us our money back, with interest... I'm in the wrong business. Anybody wanna start a bank?
Here's a thought to ponder. At fifty, I have no reason to buy a house and many reasons not to.
I can't get it paid off now, I doubt if I'll marry and I'll have no children now.
However, by not buying a house, I'm not beholden to the whims of company layoffs or... ultimately, economic policies of a country.
At the moment, Americans consume roughly twice as much as they produce. House prices are ultimately determined by income, so house prices in the US should probably be lower than comparable housing in China or India now.
Fitch-are they factoring in a major decline in employment numbers??
I hope theyr'e not using a GISS climate model!!
cd- have a look at the 1929-34 collapse, it too had a rally. History rhymes.
regards
It doesn't take many more months of 6%/mo. median home price declines to turn the current 40% SoCal drop into a home price collapse.
If that's approximately what's happening in the other bubble states, then maybe 50% of the national SFH market is months away from being down 60% plus.
Headlining "House prices to fall 10% over 18 months" while 50% of the market is falling 6% per month should win a lipstick the pig award for Fitch.
Knowing your house is on solid ground loses some meaning when your neighbors home is caught in a landslide. Ask people in Cali.
"As these industries feel the impact of a deep recession, housing in every locale has nowhere to go but down. Yes even in Noe Valley, Piedmont, and Pac-Heights."
When I knew it, Noe Valley was almost completely a creature of the Silicon Valley. You had fast and easy access to 280 via San Jose Avenue -- could get from your house to the Daly City line in 5-10 minutes.
You nailed it: I don't need to work for at least 6 years. Saving half my take home means for every day I work, that's a day in the future that I don't need to work.
Work is a funny thing. I think it's like women: the less you need it, the easier it is to get it.
"Better to buy a little late when the slope is going up then to buy too early when the slope is still going down"
Agreed. Momentum drives housing prices in the same direction for years. The turn will follow a long flatline. All those calling the bottom while prices are still crashing are nutz.
The consensus of posters here will definitely miss the housing bottom.
Possibly. But the core readership here will know to watch the national homebuilders' monthly survey for their region, and will be far less likely to be mistaken when deciding to move or to wait.
maybe bulls are right? This feels like similar setup as bear rallys after BStearns and Fannie sell offs...
It is such a hard call. So many people calling for a recession of 2 qtrs. to 2 years. DOW down what, 35% ytd.? Who knows. My gut tells me it's a head fake. I'm getting in in tthe morning and out in the afternoon trying to play that days trend. I hold just a couple of positions overnight. The general consensus is no V-shaped bounce, so if I miss a little bounce so be it. I'm still 90% cash, 10% equities
Television networks are going to take a big hit when the election ends. No more auto (dealer consolidation), political, mortgage or other ads with no successor in line to fill the air time.
EvilHenryPaulson writes:
Television networks are going to take a big hit when the election ends. No more auto (dealer consolidation), political, mortgage or other ads with no successor in line to fill the air time
Ford used to advertise here, no more. I wonder if CR ever got paid?
I have a plate full of projects myself, all of which I am putting off while I have revenue. In fact, I believe right now is an excellent time for starting a business.
Chill Bear writes:
I have a plate full of projects myself, all of which I am putting off while I have revenue. In fact, I believe right now is an excellent time for starting a business.
I enjoyed the fair hill international this past weekend goldman sachs sponsered 22a 22b turtle lodge and the terrapin they have the inside track i suppose
So Finch has creditability ? Breaking News Moody's says only 8% more drop. I think we have 25% till we see bottom. Wait till one of the great dumb ass leader stop foreclosures .Prices will plummet . Credit cost will run . On top of that we still have arms coming due to reset and the homeowner are underwater . A dismal Christmas . We are paying for are sins for the last 25 years . Just my 2 cents
I have 2 rental property that I had to drop the rents on because of competition for good tenants . I think the core group here will see housing bottom. The core group here saw it coming while the rest where drinking Kool Aid. Years away till bottom IMHO . Wait till credit raises and 20% down comes back .
Chill Bear,I have seen inflation adjusted prices in piedmont drop 30% in 2 years during a prior cycle.People with good credit either last longer due to more resources,or hybrid loans with longer fixed periods of 3,5,7 or 10 years.I Live in Sebastopol(W sonoma county) and a place up the street just sold for $800k.It last sold fall of '02 for $1.2MM.Coming to better neighborhoods throughout california SOON.Zillow shows a value of $1.4MM BTW...
If this news about bank lending unfreezing is accurate, it should be going down
Not surprised. Managing symptoms, not the disease, is the paradigm of the day. The cure would be too painful, Paulson and buddies would have to give up 75% of their wealth.
RE writes:
Can the US go tit-for-tat in supporting GM/Ford/Chrysler?
You mean will the U.S. one-up them again? Do I here 40?
U.S. car manufacturers are already assured $25 billion
GM buys Cerberus, GM gets 2/3rds and Chryslers $11b cash on hand and dumps the rest of GMAC on Cerberus. Cerberus then dumps the most toxic on US taxpayers via TARP and Hank. Win/Win. Got to happen before elections or inaguration though.
Sun (JAVA) another big loser AH.
["While it may have been a little better than the disaster scenario, I'm concerned about the long term and where Sun's going ... I'm concerned about their viability long-term and their ability to remain independent."]
They are a good indicator of corp spending along with TXN. I fail to see how this 10% rally can be sustained.
IMO what is important to consider here is that we have seen significant down payment destruction in the past few weeks.
A badly performing stock market combined with vanishing home equity is not a good environment for stabilizing house prices. Tougher credit with increased down payment requirements makes it even worse. I don't see much of a reason to be optimistic here.
RE,
I know they got the $25bn already, but Europe takes their union factory jobs seriously. Their opening salvo was 40bn Euro in this case and Porsche et al went in with big cushions of cash, not the piles of debt the US big 3 had
So now that government bank guarantees and automaker subsidies are a competitive game, will there be a continuation of tit for tat (seen it already with banks to be honest)
Will it extend to airlines, farmers (could they have any more subsidies?), ....
Normally in bad economies there are talks of tariffs and duties, this time it's all about direct subsidies and no one is complaining (other than the taxpayer)
I agree with you regarding EU union leverage and it obviously isn't just the unions, once the trough is opened everybody wants their share. Competitive "troughing".
This is why I expect currency destruction worldwide at an unprecedented pace. Yes, we are observing credit destruction but I expect concurrent currency destruction which is usually not the natural way of things.
sdtfs writes:
I expect most of the additional 10% to occur in the next three months before they moderate. Ummm, moderate means fall off a cliff, right?
ROTFLMAO. Yep. That's what they mean. As was noted early in this thread... when have they ever been right?!? With so many places ready to fall off a cliff, who really believes nationally its only 10% away? FL, CA, TX, and...
Comrade Loke writes:
Cali running out of Unemp. $$$ 404 - Not Found - sacbee.com 1296762.html
California is running out of unemployment $$$
Government $$$
Discretionary spending $$$
Movie budget $$$
and on... and on...
I just voted. Let's just say the bond propositions were usually an automatic 'no.'
So directly re-capitalizing the banks through purchase of a direct interest is much better than pass trough recapitalization(model $$$ for Level 3 assets)?
So the long view is a lot more unwinding of over-leveraged deflating assets. Correct? So much more taxpayer dollars need to back stop the banks (and anyone else deemed to big to fail- AMBAC anyone?).
Why we should be back to 14,000 DJIA real soon. WaHOOO the crisis is over!
God Bless Joe Six Pack, Joe the Plumber, et al. for believing the crony conservative capitalist boys are watching their backs. What swell, trusting folks. They will have their place in Heaven.
Okay off to WalMart to stock on more Chinese plastic crap for Christmas.
Although I am currently (renting) in the slagheap known as Phoenix, I spent most of my adult life in the bay area. Prices there took off in the late 70s. After that there was always a premium on ownership. It always seemed to me that prices in the south bay assumed a household with two professional employees, say two people making 100K a year, which makes "affordable" about 600K.
bearly, they may make economic sense based on one's cash flow, but putting your life savings in an investment that is likely to go down at least 10%, and stay flat for a number of years, doesn't make much sense.
From Comrade Loke's link: Officials with the California Chamber of Commerce and California Manufacturers and Technology Association said higher payroll taxes will make companies leave the state.
Another option: cut benefits or eligibility to shrink payouts. The average weekly benefit is $307 but can run as high as $450.
Yea... run up the taxes some more. I know more than a few small business owners thinking about cutting staff here and there. My employer is shifting jobs out of state. I'm sure higher employment taxes will help retain jobs... NOT!
Oh... The Hollywood types are seeing the money dry up in LA. Hmmm... They ran the market up at their Realtor's (tm) urging...
We're no where near 10% of the bottom just due to CA and FL! How can the most populous states crashing not take down the nation?!? The property ladder is officially broken thanks to MEW. Sigh... /rant-off
[alba writes:
Sun/JAVA hasn't even been a worthy acqusition for years. Dying of a slow death is optimistic for them. They're not an indicator of anything.]
Have you been in a fortune 50 IT server room? Sun still has a pretty large presence. If their sales are collapsing it means high end server demand is vanishing. linux is shoving them aside but not enough to explain their meltdown. Corp HW demand is drying up. fast.
To follow-up with an example. A house in Los Altos that sold for about 70K in the early 70s would now sell for between one and two million. A house in Los Altos in the early 70s was about two to three times as much as the typical 3/2 subdivision house in San Jose/Santa Clara.
bearly, I'm in that business. They're history; and the handwriting has been on the walls for quite a while. They are plainly losing market share at this moment; and have been for a long while. There's only so many ways you can dress up an x86 machine and compete against the commodity market.
"Although I am currently (renting) in the slagheap known as Phoenix, I spent most of my adult life in the bay area. Prices there took off in the late 70s."
I remember. I was working the summer of '77 in a department store warehouse in Campbell with a bunch of $4/hr lifers.
That was just about the moment that prices lifted off. It was all over the papers: housing prices in the Silicon Valley were going up 1 percent a month or more, speculators were buying valley homes (at around $70K then) and leaving them empty.
The lifers marvelled over the news every morning at the break, hunched over a shared Merc/News. Didn't realize how it was affect them.
EHP-Porsche et al went in with big cushions of cash, not the piles of debt the US big 3 had
The only reason they are sitting on cash is b/c they maxed out their credit lines a few months ago. I think it was B of A that had a huge credit line open with porsche.
I don't think they will crash. I'm optimistic that the wild 20% swing days are over for most of those stocks for a while.
Though I think a lot of TA has been invalidated in what another poster called this "brave new market", I still think the Elliott Waves analysis I saw on I think Mish's blog recently will hold out.
According to that, the big decline of the past weeks was wave 3 in a 5 wave cycle down. We're now in the 4th wave up before the final 5th down to the ultimate bottom of the market for this bust cycle.
That said, it's not going to happen fast, so I don't see the ultrashorts crashing.
Just a slow decline over the near-term followed by a rise as that 5th of 5 waves hits.
It kind of makes sense psychologically, too: big crash (3 of 5 wave), people freak and think it can't get worse=bottom=4 of 5 wave up on bottom-hunting, followed by return to noticing the fundamentals which will be the horrid Xmas season which will initiate the 5 of 5 wave down.
I'm nearly split on up and down proshares right now, but net weighted toward down, planning to sell the up when I think this 4th wave has expended itself but keeping the ultrashorts as insurance for a big crash day and for the long-run down.
I'm curious to know whether any market players here typically short are taking some leveraged long bets, on the assumption that there will be a jump back to 1000+ on the S&P before reality (and headlines) start to sink in?
I took out some call options with play money but the problem is vols are dropping so fast that this is negating the market rise.
Rock on Chill Bear - we can be neighbors in a few years...Im targeting Kensington, Cragmont, and Piedmont as my top three choices for 2011 at earliest. At current rate should be able to do pretty well with 50% down. Ive been watching those prices head down on the zillow and ziprealty for sale sections. Give it time, give it time....
Neil - I like your voting style. Mirrors what I told my GF when she asked about the ballot items she doesnt have time to read about. Just absurd how we want to borrow our way into more trouble here. When might we learn? Never?
"the assumption that there will be a jump back to 1000+ on the S&P before reality (and headlines) start to sink in?"
I think we are definitely in a short-term rally, the end of which will be signaled by a Fed rate cut. Exuberance followed by realization that there's not much more that can be done to ignore what will surely be a rancid consumer spending season.
Broward Horne, So I assume you're planning for a complete destruction of 401K plans?
What amazes me is that it isn't just the Fed but central banks worldwide (OECD and beyond) joining in while their treasuries just play along.
IMO this is only the start. At this point we have seen the financial system get its share and I don't think its the end for them. We now are seeing bond insurers and the bigger industrials as well as the states get into the act. All this at the very early stages in the economic down cycle.
Yes, we are hearing about stimulus and we already had some. But the voter is just starting to really feel the downturn. So, from my perspective, we will see much increased public spending to support the social safety net which will clearly rival what has and will be spent in support of the corporate sector. As I mentioned above, I expect this to happen in just about all developed economies.
It isnt in the standard sense competitive devaluation but amounts to the same. I like gold here an awful lot and given supply and demand balances in the sector, I dont think it will be just about preservation of capital. Note also that Mundell (who is advising China) is recommending that China acquire all IMF gold sales in one shot.
RE,
That'll teach those emerging market exporters.
First they reinvested/spent all profits, and then they learned the financial forces they were up against.
Then they diligently saved and built up reserves. This time they learned how quickly we could pull a switcheroo on them.
Outright globalization kills itself because you can never depend on the world economy for more than 5-10 years at a time.
.................
It sounded plain crazy at first, but the more I ponder a block of western currencies devaluing themselves in unison, the more it sounds crazy like a fox.
The biggest consumers also have incredible market pricing power. Since the west can't cut back consumption, and does not wish to declare bankruptcy to initiate debt restructuring, then this will essentially be the west betting the emerging markets cannot replace a significant portion of that consumption.
That view glosses over the issuing of new debt where needed. I think food prices are an inevitable bull market, but I'm not sure about many other commodities in terms of how they could inflate and then be offset by demand realignment
Can anyone give some examples about governments intentionally inflating money supply to boost growth in the great depression? other than Weimar Germany
Can anyone give some examples about governments intentionally inflating money supply to boost growth in the great depression? other than Weimar Germany
I consider devaluing the dollar vs gold by 40% in 1934 just such an example.
It sounded plain crazy at first, but the more I ponder a block of western currencies devaluing themselves in unison, the more it sounds crazy like a fox.
we will see much increased public spending to support the social safety net
Man, I hope so.
I could use a free ride for awhile.
It's a little surprising to see the central banks in sync, I see it as a symptom of three things -
1) 60 years of Keynesian conditioning. Very hard to break the mindset.
2) Easiest thing for now.
3) Silent admission that "wealth destruction" is going to happen anyway.
There's little doubt in my mind that currencies will be back on a de facto gold standard in the near future. It may not be strictly gold but this fiat experiment confirms thousands of years of history. Ultimately, even independent central banks cave to political pressure.
RE,
I guess we can add Nixon's emergency financing of Vietnam by smashing Bretton Woods as another.
I'm just trying to picture what amounts to a trade war between debtors and creditors playing out.
It actually wouldn't be west vs emerging markets. There would also be the public vs private savings in conflict. United States/Switzerland (when they bail out their banks)/United Kingdom would definitely benefit in net exposure.
It would be a major gambit for any country dependent on commodity/basic material imports though. At least the US could hedge its exposure with the domestic production it does have
The biggest consumers also have incredible market pricing power. Since the west can't cut back consumption, and does not wish to declare bankruptcy to initiate debt restructuring, then this will essentially be the west betting the emerging markets cannot replace a significant portion of that consumption.
It might be an accidental strategy but I cannot see that it will work. I expect to see a second coming of OPEC for different and more varied resources before we see the emerging economies get back to the old days. In fact, it wouldnt surprise me to see Russia assemble such a force and at the same time outmaneuver Saudi Arabias clout within OPEC.
Natural resources and not just food arent anywhere near as plentiful as people think based on the severe price drops in the commodities but especially in stocks. In commodities it is the small companies that really drive discovery and development. These small companies had a short bull market in 2005 but have been decimated since and cannot obtain financing.
The fact is that many projects in the works are now not feasible and some will likely get cancelled leading to a much bigger shortage earlier than most people think and I am not just talking about oil here. It really has only been in the past two years that CAPEX for new resource projects in the on oil area have significantly expanded even among the big players.
These developments will put emerging players, if properly organized, into an extremely strong position. I expect the Russians to take advantage of this opportunity.
Broward Horne,
The way in which central banks reel in all the new facilities/guarantees will definitely have a long term impact. Many choosing of national champions remains to be done.
The United States is very unique globally for the number of banks it supports. Expect (government-financed) consolidation. We've already seen it with the tax-code rewrite (illegal but unchallenged) to give Wells Fargo Wachovia. Once the Treasury has finished its approved/denied list for the $250bn, it should not take long before the smaller players get squeezed into the hands of someone bigger.
I thought that inflation was baked-in with the Iraq war spending -- that's what I attribute the late 70s and early 80s inflation to (the Vietnam war). Now, with this crisis/bailout, I don't know what to think, but do think that some inflation is inevitable.
Cliffs Natural Resources Inc. topped the list of Biggest Percentage Price Gainers among common stocks on the New York Stock Exchange at the close on Monday
I think many mainstreamers are not factoring the following factors in their price drop estimates-
Will homebuyers get loans like they used to- before the bubble? The current official assumptions seem to suggest that we go back to late 90s standards for mortgages. I am not sure we will have a functioning debt market for real estate for a few years.
Who has a 20 % or even 5% downpayment? Have you looked at people around you recently. Most potential homebuyers (younger) are one paycheck away from ruin. The older crowd is one job loss away from slow career destruction.
Job loss/ mobility issues - Many in the younger generation no longer expect jobs that last more than a few years. Add that to low rates of marriage, high job mobility and current falling home prices and you get a much higher reluctance to buy. High and rising rates of unemployment won't reduce the reluctance.
Many homebuyers in recent years bought them predominantely for price gain, multiple MEWs, refinancing, flipping, investments opportunities and other 'get rich quick' schemes. Now that house prices are falling, those reasons are no longer valid.
Inventory and demographic trends!!
Why do people believe that a large earthquake in the bay area is unlikely? Do you think we will have a financial industry in NY like we had in the last couple of decades. There may be other black swans that could hit our best designs. Histoical changes appear obvious only in hindsight.
Wow, how stupid is Oracle? I was just thinking about shorting them. Guess I'll wait until after they buy back
Depends on who the "them" are. Stock buybacks basically serve two purposes: (1) massage earnings per share by reducing common outstanding and (2) boosting prices before employees and directors exercise their options.
For the most part, the only parties that get screwed are creditors (in the case of liquidation) and common stockholders, whose loss is somewhat offset by the higher stock price.
Bond Girl,
I wouldn't expect them to agree, form a consensus, or act in a strategic manner overtly.
I considered outlining several scenarios that would result in the creditor-debtor trade war, but I think an analogy is more apt.
Look at a flock of birds or a school of fish. Each individual makes small choices based on its immediate neighbours, or if it is on the edge of the flock then the air/water pressure/temperature.
At the individual level those are simple, logical decisions with no obvious pattern. Step back and you can see the flock acting as what appears to be a single unit.
I'm just musing about one possibility. By Occam's razor, we should see all parties with power cause unnecessary and unintended consequences for the global economy.
Then after too long the global economy will be united by some purpose that will enable all parties to overlook things such as debts that cost the creditor more when they are paid than when they are forgiven (fighting for existing share of pie instead of a smaller share of a larger growing pie)
In a matter of weeks, a Russian naval squadron will arrive in the waters off Latin America for the first time since the Cold War. It is already getting a warm welcome from some in a region where the influence of the United States is in decline.
"The U.S. Fourth Fleet can come to Latin America but a Russian fleet can't?" said Ecuador's president, Rafael Correa. "If you ask me, any country and any fleet that wants can visit us. We're a country of open doors."
The United States remains the strongest outside power in Latin America by most measures, including trade, military cooperation and the sheer size of its embassies. Yet U.S. clout in what it once considered its backyard has sunk to perhaps the lowest point in decades. As Washington turned its attention to the Middle East, Latin America swung to the left and other powers moved in.
The United States' financial crisis is not helping. Latin American countries forced by Washington to swallow painful austerity measures in the 1980s and 1990s are aghast at the U.S. failure to police its own markets. ...
Basel too - we've just seen this with Australia and
New Zealand, two countries The Economist describes as exceedingly pure on not having deposit insurance, bring on some schemes in the last week. Problem seems to be that the fundamentals of the policy or the transparency of the market were not at issue, but given the crisis a confidence and run-risk mentality took hold, thus leading to new policy.
I think these economies are great canaries in the mine, on anything from metals and extractives, to food commodities, to financial system interrelationships and risks. Can't believe not many people are looking at this.
There's far more processing going on between the central banks which means there's a lot of data input and higher capacity for mistakes that disrupt the coordindated movements. Lots of subtle differences in inputs and measurements.
EHP: IMHO, At this point, there are too many independent actors with access to too much capital for a coordinated worldwide market control mechanism.
There are huge mountains of malinvestment all over the world. No one wants to see the aggregate demand for their goods to slow further and prices to drop.
Now the question we're all waiting to see resolved is whether these Keynesian tricks manage to goose the economy to restart.
Will people start overbidding for houses again? I think not.
Good morning and I have a few questions that are interrelated. You didnt quantify how many of your businesses are impacted by the prime LIBOR inversion and I want to be clear in terms of the decline in originations on your mortgage portfolio, was that more credit based or in terms of tightening underwriting standards or prime LIBOR challenge?
James Dimon
Prime LIBOR has a huge negative effect on card; it has a modest beneficial effect across some other businesses. So thats not a big deal and it doesnt affect, directly effect the origination business. The origination business and I think this is true for a lot of people in the industry, people have gone back to old fashioned 80% LTV, real verified income, more disciplined appraisals, and in some areas they wont even go to 85% LTV because of expected home decreases. So we are not at 80% in California, Nevada, or Florida, were at 65%. Thats why its down and I think thats true for us and everybody else, almost everything being originated is eligible for Fannie Mae, Freddie Mac, or FHA and so therefore you have this great reduction for us and for other people in origination. Obviously the quality of that stuff is going to be much higher.
Frank Says FDIC's Bair Should Lead U.S. Anti-Foreclosure Effort - Bloomberg.com
Frank, a Massachusetts Democrat, and Representative Maxine Waters, a California Democrat, sent President George W. Bush a letter today urging him to appoint Bair as leader of a government-wide effort'' to keep struggling borrowers from losing their homes. The lawmakers said they have beenvery impressed'' with Bair's work on modifying loans to curb foreclosures.
It is hard to tell whether they are talking just about their deals or the whole industry there (not having applied for a mortgage in those areas recently, I wouldn't know). But either way, that does not bode well for Fitch's predictions, unless Fitch is hedging its bets on future government participation in the mortgage market. It's hard to tell how much our noble leaders will care about the mortgage market or any of this mess after the election.
Regarding manipulating the money supply in unison, I suppose it is not impossible for that to happen, since that is kind of how the bailouts unfolded internationally.
I'm hoping that somebody mails it to me in a reverse-Nigeria scheme. I'n not choosy, I'll take Canadian $, Austalian $, even pesos (please, no Zimbabwe paper).
Prices in the Seattle/Eastside still have another 36.8 percent to fall to affodibility per the Fitch chart. I believe it. Boeing has caved on the salary issue during the strike (hence our blue collars will be making 85K plus the 8% they wanted in three years) so I see no reason for home prices to take too much of a dive here. Small haircuts in undesirable locations.
ova,
I've had a few requests along those lines (not under this pseudonym), newsletter/blog. It does flatter me. I may do one yet because it would help me share the tidbits I have analyzed and help to bring thoughts together, and build a reputation from the times I am correct in predictions.
For now I am in my last semester at school (adding Bachelor econ to existing Bachelor Electrical Engineering.) Will be heading off into EE/management/consulting almost certainly, however I am tempted to look at the financial sector. In any event, I should take the CFP exam in the next year.
A homeowner who borrowed too much to buy a house should lose that home! At the very least, it's a learning experience.
Over the weekend, the radio talk show host Bob Brinker was whining on his program that if mortgage write-downs weren't allowed (or other government programs not started) people were going to be "thrown into the street" or end up living "under a bridge" (his phrases) or have to move in with family. Not once did Bob say that they'd just have to rent an apartment, like a real grown-up.
Frank, a Massachusetts Democrat, and Representative Maxine Waters, a California Democrat, sent President George W. Bush a letter today urging him to appoint Bair as leader of a government-wide effort'' to keep struggling borrowers from losing their homes. The lawmakers said they have beenvery impressed'' with Bair's work on modifying loans to curb foreclosures.
Do Congress critters even look at the law? Bair's modifications of mortgages that are part of IndyMac's (ergo FDIC's) portfolio is one thing. Modifying mortgages that are part of a MBS without jumping through about a billion hoops is slightly illegal under the Trust Indenture Act.
Beer lesson: (disclaimer - Fun, but I don't claim to know the source)
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good customers, he said, 'I'm going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now paid $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
'I only got a dollar out of the $20', declared the sixth man. He pointed to the tenth man,' but he got $10!'
'Yeah, that's right', exclaimed the fifth man. 'I only saved a dollar, too. It's unfair that he got ten times more than I!'
'That's true!!' shouted the seventh man. 'Why should he get $10 back when I got only two? The wealthy get all the breaks!'
'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor!'
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
DENVER (Reuters) At least five branches of Chase bank in Colorado and Oklahoma received threatening letters on Monday, some containing an unidentified white powder.
A spokeswoman for Chase said the letters were delivered to three branches in the Denver area and locations in Oklahoma City and Norman, Oklahoma.
Some of the envelopes contained the white powder, Chase spokeswoman Mary Jane Rogers said, and one employee was treated for a rash as a precaution, but it was not clear if the skin irritation was caused by the powder or had already been there.
She identified the Colorado branches as being in Lakewood and Arvada.
Fire Marshal Kevin Ferry of the Cunningham Fire Protection District near Denver said the powder in one package was found to be harmless, though the substance had yet to be identified.
That branch was inside a supermarket in the Denver suburb of Centennial. The supermarket was evacuated as a precaution.
Several bank employees who had close contact with the package were sent to a local hospital for evaluation, he said.
A police department spokesman in nearby Lakewood, Steve Davis, said a white substance found on a parcel there appeared not to be dangerous and resembled talcum powder.
JPMorgan Chase & Co last week surpassed Citigroup Inc to became the largest U.S. bank, and has aggressively acquired other assets as the financial system has weakened, including the banking assets of Washington Mutual Inc.
Rogers said Chase would not release the total number of banks affected until they were sure all the letters had been found.
"We immediately called the FBI and Postal Inspection Service to handle the matter and ensure the safety of our customers and employees," Rogers said.
She did not know the contents of the letters or if they contained return addresses.
(Reporting by Dan Whitcomb and Steve Gorman; Editing by Doina Chiacu)
Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
Or you just do what Putin did with Yukos. Give them a trillion dollar tax bill that they can't possibly pay and then collect the assets.
One thing I can't figure out... since Congress decided Chinese citizens were more important than American citizens and sent all the jobs there.... how are they planning to collect income tax?
So where is all this cheap money going to go?
Comrade Beach (aka Mr.) | 10.20.08 - 8:59 pm | #
The simple answer would be a new gilded age. Much wealth concentrated in the hands of the few. Not forgiving the debt would choke what is the economic growth engine and so things stagnate until there is a wealth redistribution (without sounding too much like a communist)
Bond Girl
I trust Fitch least of them all. I don't know why but the Federal Reserve stopped tracking their ratings for CP, and call me paranoid but I have seen no good reason to trust them and that is a bad omen.
re: Dimon remarks, I took them to be a reflection of both their business and the industry trend. Any one mortgage provider that was out of step with the others would realize it either through their own research or from their increased traffic pretty quick.
A lot of the posters on here know their markets really well. A further 20% national decline is a relatively calm and stable prediction (eg JPM's worst case option presented in their earnings). The way the economy is going, we have until fall 2010 to see the national price declines level off.
Comrade Beach (aka Mr.)
There is always the possibility of uniting/better servicing the existing econo-crisis blog community. Appropriating comment threads as they come up is feasible, but obviously not optimal.
Man, I used to wonder why French guys sat around cafes drinking coffee all day instead of working but after two years of it (on and off), I'm starting to like it.
Some of you guys complaining that Fitch's 10% was a poor prediction evidently didn't RTFA and missed the nifty link to the WSJ infographic. It gives much more region-specific info, which is worth your time. Shocking how far Cthulhu's 'hood still has to go.
P.S. Chill Bear said: 80% of divorces are initiated by women.
Chill Bear, I'm so betting you can't provide a link for that.
The rating agencies really struggle to remain relevant, and Fitch has long been the stepchild of the group. You could argue that they accelerated this crisis, but it was not by any power they established for themselves.
bearly,
The structure of income tax rates is a simple thought game anyone can play with.
A flat-tax is non-distortionary (good, no disincentive to work more, no need to schedule income to avoid taxes)
However, if using a flat-tax, you might need a 35% tax rate with no available deductions to maintain revenues. I haven't gone through it recently, but whatever the number comes out to it simply isn't feasible.
So the problem with that analogy is that, in real life, the tenth man also owns a company that holds weekly corporate events at the bar and pays nothing for the 1000 beers they drink then. ie, pays no corporate taxes. Plus the tenth guy has recently found a way to hide all his money in the caymans, so he now pays nothing like the first three. Guys 4 through 9 now pay double to make up the difference.
Chill Bear, I'm so betting you can't provide a link for that.
Margin Call of Cthulhu | 10.20.08 - 9:33 pm | #
Almost 75% of Canadian divorces are being initiated by women. Divorce Rates in Canada : Canada Divorce Rate
BondGirl, Don't worry about the EHP/EVP. I'm not that easily confused.
re: Fitch, Change to Credit Rating Agencies Considered
On June 18, 2007, the Federal Reserve Board stopped using Fitch Investors Service as a credit rating source. Classification as AA or A2/P2 for rate calculations and classification as Tier-1 or Tier-2 for outstanding calculations are done using Moody's Investors Service and Standard & Poor's.
They never explained it so I figured they were just being polite about a messy situation.
re: tax rates.
There is 0 corporate income tax in Nevada yet not all businesses relocated to Nevada. Once you come up with an answer for that, realize that a government has as much pricing power within the tax market as companies do in their fields. If they can charge that rate, then the market says its worth it (let's ignore wasteful government spending because that is about politics and poor choice, not something that a flat tax can solve)
Yeah, it's a tough statistic, which I have seen cited anywhere from 60-91%.
My personal experience from living 47 years on the planet is that it's at least 2-1, which is 65%. Although to be fair, I can't actually at the moment think of any men at all: it's always the woman in my circles that takes off. Must be something about engineers and scientists. I dunno.
Almost 75% of Canadian divorces are being initiated by women.
Wiki says 90% of divorces between "educated couples" is initiated by the woman.
That syncs well with my dating experiences of the past three years. Even in their forties, women are still seeking the "perfect mate" for child-bearing puposes, as per their genetic programming. So they'e more likely to trade up for better mates than men.
My ex-wife is Canadian and I've been trying to divorce her for three years but she keeps hanging in there. She got my default judgement reversed last year but it looks like I'll be getting another default judgement this month.
Some of you guys complaining that Fitch's 10% was a poor prediction evidently didn't RTFA and missed the nifty link to the WSJ infographic. It gives much more region-specific info, which is worth your time. Shocking how far Cthulhu's 'hood still has to go.
Are those figures from Fitch in WSJ? I thought they were economy.com
Women don't need men for anything other than emotional validation and entertainment these days
Over the past three years, I've discovered that I need them less than they need me. Both dating services I was using are now showing a dramatic downturn in male participation.
Once I quit goofing with the parasites, I met a couple of wild ones and now my sex life is awesome. It's the only reason I'm still looking for work in Seattle.
Although to be fair, I can't actually at the moment think of any men at all: it's always the woman in my circles that takes off. Must be something about engineers and scientists. I dunno.
Chill Bear | 10.20.08 - 9:42 pm | #
its that damn Asperger's Syndrome that drives them off
You have no clue about how stable society works... do you? without peace and order in their immediate vicinity the rich cannot make money. They end up dead.. then the cycle starts again.. have you not read any history?
The top 1% of earners pay 40% of all incomes taxes, so I guess he's not sending too much of his money to the Caymans.
Corey,
The top 1% of reported taxable income pays 40% of income taxes....
If my name was 'A. Hedgefund Manager' for example, you can bet that I structured my pay almost entirely towards capital gains for the past 7 years to take advantage of the 10% rate
[Guys 4 through 9 now pay double to make up the difference.
kis]
Right. Capital flight isn't that tough to pull off. A lot of money is already overseas and just won't get repatiated if taxes don't soften up.
If Obama had any sense he would propose shitcanning the tax code and delivering a flat tax. Otherwise those in the middle will pay and what doesn't get paid adds to our insolvency.
Chill Bear writes:
Women don't need men for anything other than emotional validation and entertainment these days.
The state takes the role of the husband now.
Spot on. I have sometimes wondered if one of the perverse results of welfare is to make women less selective about whom they mate with, and more likely to get a divorce. Why care whether or not the husband will be a good provider and will stick around, if the government is there to take care of the woman and her child[ren] anyway? Similarly, are men more likely to abandon their children knowing that the state will provide for them?
David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia
Hah a Ph.D that actually thinks that the richest pay taxes according to the IRS tables on taxable income?
the middle class salaried employee pays the highest tax as a percentage of their productive time. The uber rich (equivalent to a corporation in many ways) pay accountants & tax lawyers to minimize their taxes: defer, shelter income and finesse capital gains.
there is a reason they can flee so easily if there was a concerted effort to tax them: the guts of their financial affairs are already in tax havens.
There is 0 corporate income tax in Nevada yet not all businesses relocated to Nevada. Once you come up with an answer for that, realize that a government has as much pricing power within the tax market as companies do in their fields.
For most companies, the choice of domicile is based on where the business is; creating the two state structure (other than DE) is simply way to onerous. But more important from a taxation perspective is the fact that the income tax rate is minor compared to the other provisions of a state's tax code (e.g. property tax breaks, the designation IRBs, etc.)
For a case study on an "effective" zero-tax rate policy, simply look at the faux Celtic Tiger economy. For years, everyone looked at as a marvel in internal education investment, but in reality, IP-intensive MNCs used Ireland as a tax and IP haven.
TANTA BAIT ALERT! ALERT! ALERT! ALERT!
Women 'prefer computers to men'
Women office workers spend almost three times as much time with their computer than their husbands or boyfriends and they prefer it that way, an American study has revealed.
89th
10% is not that bad.
FIRST!
first?
Name me one mainstream house price prediction in the last two years who over estimated.
Bah, I had to try. 10% is at the national level. A lot of places it'll be a lot more than that
Interesting reads :
The World of MLM's - Greatest Ponzi Scheme in History Part1
The World of MLM's - Greatest Ponzi Scheme in History Part1 :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website
The End Game- Greatest Ponzi Scheme in History Part2
The End Game- Greatest Ponzi Scheme in History Part2 :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website
We should be so lucky. Not in Fla, Cal, AZ, NV, NM, NYC...maybe in Kansas
probably accurate on a national level. The stupid places like California and Florida have more to drop.
CR,
how would an additional 10% decline effect total people breathing out of a snorkel? (Underwater)
......
We've seen these estimates before and places like CR and other blogs have been spot on for years. Saying a drop of 10% is easy. The bigger question is where do prices go once they hit bottom?
Do they stagnate and go sideways?
Bounce back up?
The futures markets are still seeing a much more significant drop in bubble areas. Los Angeles County for example is now at a median of $360,000 when only last year, it was at $550,000. The futures see an additional 20% cut putting the bottom price at $288,000.
I expect most of the additional 10% to occur in the next three months before they moderate. Ummm, moderate means fall off a cliff, right?
Based on my analysis of the last real estate downturn in San Diego, only when employment was rising (two years before), defaults were falling (two years before), and sales were rising did prices increase.
Without a doubt, the particulars for San Diego may not hold for the U.S. as a whole, and the factors may have different lead times this time.
However, I will wager that no way are prices only going to drop a further 10%, and no way is this over in only 18 mos.
Fitch should stick to rating bonds.
Oh, they don't do that too well, either.
jg,
i think another 10% in Diego is entirely possible. The median is still to expensive for a large portion of the population. And there is more and more inventory still coming on line.
.....
Prices will not level off until they are 1) supported by local income levels 2) proportionate to rents and 3) affordable with loans originated with responsible underwriting standards. Period, end of story.
Before reaching that place, they are likely to overshoot on the downside. But that's the long term equilibrium.
Some places have much further to go, some don't. The nation as a whole certainly does.
Average price isn't the key metric. Total dollar amount in securitized mortgages under water or likely to go -- is.
It's worth noting that places that inflated the most, will deflate the most. The nation's 20% drop translated into a 40% drop in California and Florida. 10% is a conservative estimate and might translate into 20% in CA/FL.
Note that a net 30% drop in house values is really more like 40%-50% due to the inflation over the years. I.e. House prices staying flat is a net loss.
This is why 2001 house prices is a reasonable baseline for comparison, because on one hand those prices were already inflated but on the other hand there's been a good amount of inflation since those days. On the other hand, salaries have actually dropped and will continue to for at least two years. We have a number of conflicting forces, but the bottom line is we're not near a bottom in houses yet. It's probably another 15% nationwide, but a lot of drastic things could happen in the meantime to push it deeper or less.
10% more of a decline with lower mortgage rates sounds right. Mortgage rates will be higher, qualifying harder, price declines deeper.
ades, do you think SD prices will only fall a further 10%?
Based on my projections of the household debt that we have to write-off --> fall in income --> return to price to income of 3:1, my estimate is that San Diego prices will fall 70% from year end '07 levels.
BDiego writes: Note that a net 30% drop in house values is really more like 40%-50% due to the inflation over the years. I.e. House prices staying flat is a net loss.
Unless of course you're income has been flat for say the last 7 years like much of America. Sure goods inflated but salaries have been stagnant.
......
Can't be good news for Boomers watching their 401k go up in smoke.
I'm not even sure this is accurate at the national level. The Economist was already calling a bubble in 2003, and 10% more nationally would only bring us back to 2003 (or so).
Now add in excess inventory, negative sentiment, and the market could overshoot the long term fundamentals by a wide margin.
jg,
miss read your first post. i concur, there is much more pain on the horizon. esp considering employers are moving out and population hasnt really grown all that much in 5 years+
....
10% fine. How about they make a prediction how far below that 10% they'll go in the next 18 months
San Diego's a different world, and individual communities like Ocenaside and Chula Vista have dropped 50% already and counting. I guarantee you still would not want to live there.
A lot of communities like Mira Mesa suffered disproportionately due to massive fraud and speculation. That's why they feel hard and fast on the bubble burst - they inflated even harder running it up.
This is why comparing locations to their vintage prices (1999, 2001, 2003) is most insightful. A lot of the areas I named are merely back to moderately overpriced 2001 levels.
Bob Dobbs, how far down in the Cruz?
ades, I agree with you on employment cuts and folks moving out.
It is going to be terrible, unfortunately.
Do a final load up on gold after the forthcoming stock market drop. My sense is that is as low as the price is going to get.
Uncle Billy, Adenoid writes:
Has anyone seen our Fun Bob (Currently Smoking Cannabis) since Lahde sang his swan song?
The squish down issue is what is next, I think FHA will effectively put a floor under pricing and higher than some might think (imho).
What happens is the bands above the median will narrow considerably. The downpayment requirement will see to that.
Declining markets in So. Cal. are now 10% down for non-FHA (can't get MI for over that) and 3.5% for FHA on January 1st. You'll also get the conforming limit dropping to 625k which will hurt the high end even more.
ades:
I noted that very point in the last paragraph - income has been relatively flat or in modest decline.
Income is the fundamental factor that determines house affordability. However, the reality is housing prices have not been dictated by income for 10 years. And that's not going to change until banks start enforcing sane lending standards, which they are slow to do. Countrywide is offering sub-prime loans again at conforming loan interest rates. It's just insane how lenders are repeating the same mistakes right now today that made them bankrupt.
Lenders eventually will return to sane standards, and then income is going to enter the picture. It's not going to happen any time soon.
® writes:
The squish down issue is what is next, I think FHA will effectively put a floor under pricing and higher than some might think (imho).
How? Why? When?
Has anyone seen our Fun Bob (Currently Smoking Cannabis) since Lahde sang his swan song?
You're wondering if they're one in the same?
BDiego,
Interesting thought that income hasn't been in the equation for ten plus years. I like that point, haven't read it put that way yet.
Then again what does income matter when you can just borrow borrow borrow!
......
Yep, BD-, it is amazing how stupidly folks will act when they think that they have a Federal backstop.
However, wait until the bond market wakes up to the Federal stupidity, and the mortgage bankers realize that there really is NO Federal backstop, there.
"danimal writes:
Bob Dobbs, how far down in the Cruz?"
Like I said, not much is moving. But looking at Redfin, I see houses that sold in 2006 and later listing for 20-25 percent less than the original price. Pricing on houses sold in '05 is relatively flat, plus or minus 5-10 percent.
Got a big sucker a block away that sold for $2.8M in 05, was fluffed up and put back on the market at $3.7M a few months ago, and is now back to $2.9M
Check it out, and no I'm not rich, just live near them.
120 GREEN St, Santa Cruz, CA 95060 | MLS# 80908304
You're wondering if they're one in the same?
JP
I know I have been!
i guess fitch needs to believe that otherwise they would have to down grade additional securities and who would pay them then?
JP: I'm the last of the great wonderers.
nades: ?
This is why comparing locations to their vintage prices (1999, 2001, 2003) is most insightful. A lot of the areas I named are merely back to moderately overpriced 2001 levels.
Forget comparisons to price-in-a-given-year. Those numbers were skewed by stupid lending. We are now in a traditional 20% down environment. If this gets worse, it will go to 30% down.
All that matters is affordibility. When we are back to 3x median income, that will be the median case. Most likely there will be overshoot.
Much pain still lies in our future.
Take a Name,
Unless FHA eliminates such amazingly low down payments (3.5%) the ease of qualifying and low barrier to entry allows higher competition for homes in areas like So. Cal.
I think this higher competition will absorb the excess supply at a higher level than say the 1996 down turn in which the local economy was both worse, rates were higher, and qualifying was tougher. The one thing the Fed is not letting fail is the mortgage market. They are keeping long rates low and the market liquid. They are trying to prevent an overshoot to the downside.
While I think that will build a bottom as far as how far the low end can fall. The mid to high end have a long way to drop to get into their proper place due to the fact that people will need higher down payments in order to move up. This will narrow the rungs of the "property ladder".
Is Fitch run by the French, or by that enigmatic Canadian Thomson person?
"Fitch then expects declines thereafter [+ 18 mos.] to moderate." The post 18 month part MAY be correct in the sense that the declines will continue but at a more moderate pace.
The 10% decline didn't factor in the ongoing job loss that will continue to increase with the newly discovered frugality. Oh, I forgot, let's solve a debt problem with more debt. All of these years I thought I was supposed to save. Let's party!!!!!!
Hmmm, well, maybe.
Not much more to say than that.
If the federal gummint keeps the stimulus packages coming, and bails out the bubble area state governments, another 15-20% could actually prove the bottom in Cal, Florida, Nevada, and Arizona.
Or not. But with sufficient fiscal stimulus a bottom can be found.
Not that a lot of folks will be happy, not until some kind of real estate bailout allows people underwater to reduce their payments.
How about that nice big bounce off of 7600 at the bottom.
Now we get that horrible sideways motion that wrecks returns for years.
Someday this war's gonna end...
Fitch Ratings is a majority-owned subsidiary of Fimalac, S.A., an international business support services group headquartered in Paris, France.
Maybe Fitch went into a time machine, and got confused when they returned. In 18 months, there will only be a 10% further decline
Uncle,
When i read that diatribe on hemp i couldnt help but laughing and thinking what if this was the same as that exec who was posting on Yahoo boards.
Then again I have wondered which handle Bill Gross goes by too...
What about Krugman?
....
David writes:
probably accurate on a national level. The stupid places like California and Florida have more to drop.
David | 10.20.08 - 5:46 pm | #
I love living in a stupid place!
from an earlier thread:
Ministry of Truth writes:
Jas I will pay you to put advertising on your pony.
LOL ! ! ! ! !
......
ades: both Bill Gross and Krugman look like they blaze
Nanook writes:
Can't be good news for Boomers watching their 401k go up in smoke.
Nanook | 10.20.08 - 5:55 pm | #
At current pace it will be back to 10K by Friday.
And then Fitch can start increasing the ratings on MBS/CDO's.
In 36 months they will all be AAA again.
The DOW
DC area seems relatively immune. Sales are slower but prices don't seem to have fallen much.
So everyone keeps saying load up on gold or other precious metals, but if you believe that deflation is just around the corner (some initial reports suggest this) then wouldn't a gold bet be bad?
Where do you run to in a deflationary environment?
NYC and the suburbs haven't even started to roll back. That muight be a good number for the entire US, but NYC is about to take a massive bath. It will take time for the psychology to break as people are still in the ewait and see mode. The 1 year time frame is too aggressive and doesn;t account for the lag that occurs as the psychology is broken.
Thanks, Bob. It's the entry-level properties around here (and all of the Bay Area, I guess) that seem so crazy. Three-quarters of a million for decrepit houses on small, crowded lots. Seems totally out of whack with area incomes, particularly in Santa Cruz. Suppose there are certain locales that are largely shielded from drastic real estate dips for geographic/demographic reasons.
Where do you run to in a deflationary environment?
To your mommy
"This is why 2001 house prices is a reasonable baseline for comparison, because on one hand those prices were already inflated but on the other hand there's been a good amount of inflation since those days."
What happens when we hit deflation sometime next year....
Esteemed Persecuted Comrade Anonymouse,
I would like your comment on this notion: I looked at the DOW and saw a consolidating symmetric triangle, which should be breaking down soon to resume the drop. Checking the weather by looking out the window, the break looks up.
The winner will be decided by the Fed. If it sloshes like crazy during the barrage of new Treasury paper this week, the market will go up. If they withold the slosh, it will break down badly.
I think the Fed's decision is new information that will invalidate TA in this case. What think?
"You'll also get the conforming limit dropping to 625k which will hurt the high end even more."
The current conforming limit will probably be extended.
Uncle Billy when I read the Lahde letter the first thing I thought about was CSC.
JP:
Right now today, you can still buy a house you cannot afford. But standards are improving slowly.
I agree completely that someday house prices will have to match affordability. What I've disagreed on is that "today's the day" when it's going to happen. I've heard that line for the last 5 years on housing. I think we still have 1-2 years to go before we hit sane lending standards. Just FYI I still qualify for 5% down loans from several banks (not FHA).
On another point, take a look and see how many decades it's been since New York has been at 3x pricing. I'll bet you it won't happen in the next 20 years for New York. The point is each location has a different multiplier, and 3x is more a national guideline. There's no way middle America is the same multiplier as the coastlines, and the moment that happens is the day everybody evacuates to the coastlines en masse. I know I would.
Again I agree that eventually houses will be controlled by incomes, but look at what that theory got us the last 10 years. I think it'll happen in the next 1-2 years at the earliest. The fact is, housing prices been driven by the willingness of banks to hand out money. And in the last few months I've seen several lenders get back into the game with new toxic loans with Countrywide again leading the posse.
Icelandair to Swedish press:
Fitch is worthless. They couldn't have predicted the rising sun, yet we're supposed to listen to whatever they have to say about anything?
Not likely.
Anyone have a comparison to unemployment levels vs # home sales/pricing during previous recessions. Add in tougher credit standards and general pessimism and we have "wild ass guesses".
Wild cards are future fuel prices(suburbs price drop), global warming(coastal living questionable)and job creation(move where the jobs are). Foreclosed properties in existing neighborhoods can also have an adverse effect.
Immigration is a pretty big impact in the southwest. If the next administration continues the crack down on illegal immigrants and unemployment continues to rise then look for more walkaways in West Texas, So Cal and Phoenix.
I actually do believe all RE is local and the factors on pricing are wide and varied.
Why do analysts even come out with these reports? Motivation and intent?
Anonymous,
They had a chance to extend the conforming limit and passed.
I think 625k on Jan. 1st is baked in the cake.
They'll go after DPA before the conforming limit imho.
In Houston it is still (TODAY, october 20th) 100% more expensive to own than buy.
100%.
Buy something=6K/mo.
Rent same thing=2500/mo.
I don't know if we have any students of history here tonight....
But, that's spells 50% haircut to me..
Assuming sustainable mortgage underwriting, 10% further decline in my area leaves me permanently priced out in a career path as a PhD (Berkeley) engineer. Houses in San Fran and decent East Bay neighborhoods need to come down another 50-60%.
If this doesn't happen at some point, wages will need to go up that 50%, or there may well be brain drain out of here.
sorry, "rent" than "own".
duh.
Good news for all those people who have their loans recast to fully amortized in the 19-36 month period.
"They had a chance to extend the conforming limit and passed."
If this is true, that makes me very happy. This will put even more pressure on the SF/Bay Area.
one more time..."own" than "rent."
Sorry, I'm a tard.
But, that's spells 50% haircut to me..
fastcart11
There is a premium for owning. As mentioned above it varies by location. Atlanta has been a negative one for years. San Diego has been a very positive one for years....
10% nationwide sounds about right to me, allowing for more in the stupid areas of CA and FL.
I just commented on the last blog post that my (stupid) area is down 46% from the peak and I thought it would bottom at down 55%.
That's not a further 9% of course, but a further 17% from the peak.
Prices in exclusive areas on the Penninsula, down to Los Gatos, have not rolled back.
Salaries might a factor, but even in 2001, housing in CA had to have been a much larger portion of an individual's income than in Lousiana...much higher. While LA might not have been over-priced in 2001, CA was! Looking at 3:1, or 4:1, CA continues to require a major adjustment in housing affordability. Another 10% would not make a difference at all.
dk - the conventional wisdom answers your question with sovereign bonds (unless you're a goldbug, then the answer to every question is gold).
In this case treasuries look more than iffy, so I have looked at bonds from countries where the populace tends to be savers that don't want their savings eviscerated (Germany, Japan). There are obvious problems with those two, but there are obvious problems everywhere you look. And, gold too in case the bugs are right.
Talking my book, and YMMV.
Premium for owning... count me out permanently.
At this point I feel I should be paid for the hassle of owning a house.
I save half my take-home anyway. A mortgage would seriously cut into my retirement plan.
Premium for owning? Owners are on the hook for the maintenance, taxes, and value depreciation.
2X the price for more risk?
This. Deal. Will. Not. Last.
. Ummm, moderate means fall off a cliff, right?
No, "moderate" means fall 2-3% each year for fifteen more years, a.k.a The Tokyo Syndrome (can we get Jane Fonda to star in it?)
EvilHenryPaulson --
That is awesome. "No, really, visit Iceland! You probably won't starve..."
But just in case, better BYOB.
MLM writes
same logic applies. Look for coutnries that have disciplined populations as you mention Germany, Japan (save, make things). The exact opposite of the US.
fastcart11 writes:
Premium for owning? Owners are on the hook for the maintenance, taxes, and value depreciation.
2X the price for more risk?
Sounds like you dont have a wife.
alba:
Word I am getting is that tech salaries are starting to drop. Lot of talent starting to become available, and willing to work for less than $100k for senior engineer level positions. Even money (or possibly considerably less than) dot com era.
ades:
Good point, there's a premium for marriage and no shortage of people willing to pay it.
Bottom line if you're not willing to pay a lifestyle premium, don't buy a house or get married.
Home ownership is so 20th century
Careful what you assume about Florida home prices, they went up fast but have dropped faster and started dropping eariler. I live in East Orlando, and prices have dropped below summer of 2004 levels already. There is a very good selection of homes built in 2005, over 2000 sq ft, for between $75 and $100 a sq ft. I think that price is below builders cost of new housing right now.
I can't speak to Peninsula prices in the Bay Area, but nice areas of San Jose are getting hammered - Willow Glen and Rose Garden to name two.
ades:
My refusal to buy helped lose my last girlfriend.
Good riddance.
And homeowners spend time doing getting it fixed too.
I'm w/Chill Bear. I'd need a lot of cash to assume all that risk and do all the work. And with 20% down, my capital is tied up too?
I'd never ever sign up for that....drop 75% & we'll talk.
Bottom line if you're not willing to pay a lifestyle premium, don't buy...
A-f'in-men.....
bnades:
Marriage is a hideous risk for men.
Marriage contract is only contract I know where one party can break the contract, for no reason, and be rewarded for it.
80% of divorces are initiated by women.
Chill Bear,
I cant tell you how many guys i know are looking cause of the wifey. Worst part is they get stuck with the repairs and maintenance.
Poor guys...
fastcart:
Damn straight.
Come down 75%, then show me why it's in my interest to tie up my money.
Cali running out of Unemp. $$$
404 - Not Found - sacbee.com
Nades,
Awesome! Not sure what I'd use one of those for...
As I've been watching for a friend, who wants to buy in LG/Saratoga, I'm betting on the continued drop in stock price of AAPL and GOOG as the buy indicator (which was reached last week 100/399). This is because many folks in this area paid cash; a smaller portion of their entire investment portfolio. To me, AAPL and GOOG are a good representation of these homeowners. They'll need their cash soon!
Premium parts of South Bay are starting to drop now. I know multiple people that were actively looking to buy in Cupertino that tell me prices are now dropping and they have no intention of buying in the foreseeable future.
In addition, income may not matter for Los Gatos, Palo Alto proper, Los Altos but the following do:
Imploding hedge funds
Disappearance of VC funding and 0 IPOs in the last quarter.
Imploding stock options.
This tiny article doesn't say what happens to prices when THE GOVT BUYS ALL THE BAD MORTGAGES and makes people whole.
Once that happens, and it will happen, the market will drop a little more, then hit bottom.
All of these forecasts are absent govt bailouts.
All your forecasts are absent the same.
It's the unintended consequences that are going to screw everybody up with their planning, buying, selling, etc.
it's cheaper to keep her
Marriage contract is only contract I know where one party can break the contract, for no reason, and be rewarded for it.
dk writes:
So everyone keeps saying load up on gold or other precious metals, but if you believe that deflation is just around the corner (some initial reports suggest this) then wouldn't a gold bet be bad?
The purpose of a gold investment should be used to preserve wealth, not for appreciation of speculation. The idea is that your purchasing power will be saved and you can buy the same amount of gasoline, food, or clothing in the future, regardless of what happens to the dollar.
During deflation, the price of gold goes down, but so does the price of other commodities. During inflation, price of gold goes up maintaining wealth. Gold is eternal.
If you are sure about deflation over a period of time, your best bet would be to hoard cash, because then your purchasing power would increase.
Since Bush took office, incomes adjusted for inflation, have drifted lower. Assuming 2000 home prices were affordable, that's where today's I wouldn't adjust 2000 prices for inflation because lending standards have gotten more difficult, lowering what mortgages are attainable.
If recession turns depression, 2000 prices are still way too high. NYC is due to see the high price speads decrease exponentially--many brokers and bankers will be downsizing. Actually, NYC's population will take a hit--there is no manufacturing in the city anymore--even the sweatshops have moved out of Chinatown.
ades:
The worst of it, what makes me absolutely gnash my teeth, is half of those women will eventually leave, either taking the house, or pushing it into sale (foreclosure more likely now).
The capital destruction of wealth induced by 50% divorce rate is stupendous. My ex took half and spent it. All gone now, bye bye.
Salaries might a factor, but even in 2001, housing in CA had to have been a much larger portion of an individual's income than in Lousiana...much higher.
Again, 2001 is a terrible year to choose for comparison. Money from the tech bubble was still flowing, although it was beginning to dry up.
3x median income. Anything more simply does not leave room for necessities.
Unless, of course, the banks forget about being paid back. However, the next round will have to be some other scam besides "securitization". That's already been milked.
Bottom line if you're not willing to pay a lifestyle premium, don't buy a house or get married
NOW you tell me.
"It's the unintended consequences that are going to screw everybody up with their planning, buying, selling, etc."
And what are the unintended consequences of the flood of treasuries required to buy and make whole all the mortgages?
I have a sneaking feeling that much higher mortgage rates, higher interest rates, private companies going BK due to crowd-out affect on availability of private capital.
Oh and throw in a few more Icelandic style bankruptcies.
Unintended consequences go both ways in this market.
danimal: The Housing Bubble Blog » A Housing Cycle Gone Bad In California
October 18, 2008
A Housing Cycle Gone Bad In California
The Santa Cruz Sentinel reports from California. Septembers median price for a single-family home in the county plunged to $475,000, down 32 percent from a year ago. Last month, the median was $582,000; in September 2007, it was $702,500. The median price hasnt been this low since January 2002. With so many homes for sale 1,286 listings, near last years peak sellers are at a disadvantage.
I have a question for CR, or whomever here might have read the various bailout proposals. Do you really think the conforming limits will drop on Jan 1, 2009? It really sounds like the kind of thing that will get stuck into some new bailout bill or reform.
Because I have cash and I'm looking at houses moderately over the $729k limit, I would be happy to have less competition. Still, can the politicians stop themselves from refilling this particular punchbowl?
anonymous:
You can want to keep her all you want... no-fault divorce means your opinion of the matter is irrelevant.
This tiny article doesn't say what happens to prices when THE GOVT BUYS ALL THE BAD MORTGAGES and makes people whole.
ROFL!!!
Dude, have you been watching what the gov. has been doing for the last 8 years?
Yes, that's what's going to happen. They are going to "make the people whole again." EXACTLY.
LOLLLLLLLLLLLLLLLLLLLLLLLLLLL
Down in the Cruz, $600K buys you a starter home -- 55-yr-old 12-1400 square-footer with problems. Near the freeway. Parts of San Jose are cheaper now.
As for tech job pay, a co-worker's hubby just landed a QA job at Apple on a hot project. He's got tons of experience, and gets $70K for any 80 hours a week his boss wants him work. There "may" be a $10K bonus for good work; or, there may not.
He'd be better off as an accountant.
Prices haven't budged much in Cupertino, Sunnyvale, Fremont, Los Gatos, Los Altos, the Peninsula, or SF proper. We've got a long way to go around here as people are holding tight in their Option ARM and I/O loans. I could see a crash of 40% quite easily in these areas and that would bring housing to 7x median income from 11x median income.
"As for tech job pay, a co-worker's hubby just landed a QA job at Apple on a hot project. He's got tons of experience, and gets $70K for any 80 hours a week his boss wants him work."
I know admins who make more than that.
dk writes:
So everyone keeps saying load up on gold or other precious metals, but if you believe that deflation is just around the corner (some initial reports suggest this) then wouldn't a gold bet be bad?
Where do you run to in a deflationary environment?
Mish (uber deflationist) has said that gold would be just fine during a true deflation. As someone said earlier, think of it as a store of value as opposed to a speculation.
Assumes you hold physical and not paper gold. (Though Homestake Mining was one of the best performers during the Great Depression in the stock market.)
Washington Mutual's Cash May Be Claimed by FDIC (Update1)
By Steven Church
Oct. 20 (Bloomberg) -- Washington Mutual Inc., the bankrupt former parent of the biggest U.S. bank to fail, may be forced to fight the Federal Deposit Insurance Corporation for ownership of $4.4 billion in cash.
The FDIC said in court papers filed today it may claim part of the cash because it is the government agency responsible for selling WaMu's banking subsidiaries last month to JPMorgan Chase & Co. after the units were seized by regulators. Bankruptcy attorneys watching the case say the $4.4 billion is likely to become a prize fought over by competing bondholders owed billions by WaMu and its former units.
WaMu filed for bankruptcy Sept. 26, the day after it was seized by regulators and sold to JPMorgan for $1.9 billion. JPMorgan, the FDIC and WaMu are working on an agreement that would allow WaMu to withdraw the money, currently held by JPMorgan, WaMu attorney Marcia Goldstein said in court today. That move is opposed by noteholders of Washington Mutual Bank, who claimed in court papers that the withdrawal would be unfair without forcing WaMu to prove it owns the cash.
``No bank would ever let someone walk up to the teller window and withdraw even one dollar from an account without confirming that the account was actually established and that the account actually belonged to the customer,'' the noteholders said.
U.S. Bankruptcy Judge Mary F. Walrath in Wilmington, Delaware, scheduled an Oct. 27 hearing to decide whether to approve the proposed agreement to let WaMu withdraw the money.
Bondholders and other creditors for WaMu are losing money every day the cash sits on deposit with JPMorgan because it is not earning any interest, attorney Thomas Lauria said in court.
We're at almost a month and we still can't get the funds moved,'' Lauria said.There is harm to the estate and we need to get this issue cleared away.''
The case is In Re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
dk:
Gold is easiest thought of as "insurance."
It costs you some cash to get, some cash to keep it, but it always has a value that is largely independent of who and where you are.
And gold does have some value. Notice you never see any pictures of the stuff for real unless it's locked up in huge vaults. People don't put stuff with no value in huge vaults. Barbaric relic my ass.
I know admins who make more than that.
Tell them to enjoy it while they can.
Thanks, Uffish. It's about time reality began to set in.
I know admins who make more than that.
not for long.
ades - I agree!
On this blog, I think it's easy to underestimate the effect of women in driving purchases. There's a lot of men posting here is my guess, more than 75 or 80% is my guess.
The consensus of posters here will definitely miss the housing bottom. It will turn up and they will remain in denial for the first 10%+ on the upside.
Like I was saying in my last post. East Orlando, P&I on a 2200 sq ft house is way less than rent on 1300 sq ft apartment in the same area.. say $1100 P&I vs. $1350 rent for the aprartment.
Buying is not insane now, by any stretch... unless you believe in some great deflationary spiral not fixed by printing money asap - but try to tell that to your pregnant wife, or to your wife & 2 kids. It doesn't fly when the house is easily affordable compared to rent of a MUCH smaller apartment.
CA unemployment could hit 9% by the end of the year and by the end of 2009 it will be in the teens. How can house prices not collapse 70% from the peak ?
Yahoo and EBay are about to ax 2500 combined while Goog is looking to shed a lot of contract employees (currently @ 10k). Look for PM's with typing skills to be looking at those admin rolls
Housing will begin to crumble before you know it.
European automakers getting their own bailout
Can the US go tit-for-tat in supporting GM/Ford/Chrysler?
From what I'm hearing Senior Software Engineers who could have gotten 120K++ last year are looking at closer to 100k now in the Bay Area.
bearly:
I can't see how it won't in every area except certain parts of the peninsula (pac heights, castro, noe valley, marina, russian hill), Piedmont, perhaps Kensington and parts of N. Berkeley.
On the other hand, all the DINKS that just can't quite make in the city may move to the flats in Richmond, driving up prices.
Who can say?
Bearly I'm absolutely convinced that Bay Area folks require a 2x4 to the side of the head before they get it drilled into them that housing isn't "special" in the Bay Area.
"The consensus of posters here will definitely miss the housing bottom. It will turn up and they will remain in denial for the first 10%+ on the upside."
Better to buy a little late when the slope is going up then to buy too early when the slope is still going down.
Anon,
"The Federal Housing Finance Agency (FHFA) expects to announce 2009 conforming loan limits for Fannie Mae and Freddie Mac by November 7."
Its baseline, plus a max of 150%...as I read it.
The page cannot be displayed
It will turn up and they will remain in denial for the first 10%+ on the upside
Upside? If you're still worried about catching the upside, we aren't even close to a bottom.
unearthly:
I will hate it, but I will stay employed by undercutting those people in salary/rates.
I am living really well on $2700/month take home. Really well. They can't touch what I will work for, if necessary, unless they're sitting on a pile of cash or willing to charge up their credit cards.
"Piedmont, perhaps Kensington and parts of N. Berkeley."
We are looking to buy in those areas. Piedment is coming down very fast now. Kensington as well.
The drop in median prices in no way indicates how much more you get for the dollar now in Berkely Hills, Montclair and even Piedmont versus a year ago.
Upside:
It doesn't matter to me whether I "catch the bottom" or not. What matters is only that the cash flow makes sense. That is all.
Pissed Off in California writes:
"And what are the unintended consequences of the flood of treasuries required to buy and make whole all the mortgages?
I have a sneaking feeling that much higher mortgage rates, higher interest rates, private companies going BK due to crowd-out affect on availability of private capital."
All I'm saying is that both past and future (unknown) government bailouts make projections very difficult.
For the short-run, the government is going to win. If you pour enough money into anything, you can make it work to your satisfaction right away.
Long-term, I'm with you - higher rates are inevitable. But when? Six months? One year? Five years?
It's impossible to guess since we don't know who and what will be bailed out and at what cost. And as long as the treasury market doesn't punish such stupid behavior, my guess is that the Fed will operate even more recklessly in the months ahead.
I just don't see how anyone can forecast in this environment. It's unchartered territory and I wouldn't want to bet on it.
PO'ed:
Be careful about Berkeley proper, the zoning and permitting is crazy stupid from everything I have heard.
Good to hear though.
I am not convinced that the whole City will come down. Some neighborhoods have had high demographic change over last 10 years, many more what we used to call "well-to-do" living in such neighborhoods compared to 10-15 years ago.
What matters is only that the cash flow makes sense. That is all
At $2700 / month, I can see why you're focused on cashflow.
South Bay (Tech), Peninsula (Tech + some BioTech) and SF (Finance) are supporting the Bay Area. As these industries feel the impact of a deep recession, housing in every locale has nowhere to go but down. Yes even in Noe Valley, Piedmont, and Pac-Heights.
FYI: I went out to dinner last Thursday in Palo Alto (California St.) and the restaurants were full with 20 minute waits. No recession here.
+12% gain on dow since thurs low....
maybe bulls are right? This feels like similar setup as bear rallys after BStearns and Fannie sell offs...
Broward:
I intend on cutting that back as well.
About $400/month can be written off as business overhead too.
Pretty sure I can get it to about $2100-$2200. Much less if I decided to get a roommate.
I save more than half my take home.
"Yahoo and EBay are about to ax 2500 combined while Goog is looking to shed a lot of contract employees (currently @ 10k). Look for PM's with typing skills to be looking at those admin rolls
Housing will begin to crumble before you know it."
My boss is a project manager with heavy start-up experience -- kind of guy who breathes spreadsheets and Gantt charts.
He had to compete against people with twice as much experience for his piddly little civil service job that's well down into the five figures. And only got it because he'd already filled it on a contract basis for a while, and they knew he could deliver.
There's a lot of talent out there with not much to do.
"I went out to dinner last Thursday in Palo Alto (California St.) and the restaurants were full with 20 minute waits."
Are you sure you don't mean University Ave? California Street restaurants are usually pretty dead even during the good times.
cd:
12% up but the fundamentals haven't changed.
The feds are "purchasing" a stock market, and it looks like they are going to continue to do this indefinitely.
Go figure.
Just think: they spend our tax dollars to bail out banks who can then turn around and loan us our money back, with interest... I'm in the wrong business. Anybody wanna start a bank?
Tomorrow will be another telling day...with Lehman's (their counterparties') liabilities being exposed.
Here's a thought to ponder. At fifty, I have no reason to buy a house and many reasons not to.
I can't get it paid off now, I doubt if I'll marry and I'll have no children now.
However, by not buying a house, I'm not beholden to the whims of company layoffs or... ultimately, economic policies of a country.
At the moment, Americans consume roughly twice as much as they produce. House prices are ultimately determined by income, so house prices in the US should probably be lower than comparable housing in China or India now.
"Are you sure you don't mean University Ave?"
My friend who works in downtown PA says the lunch crowd has really fallen off.
Fitch-are they factoring in a major decline in employment numbers??
I hope theyr'e not using a GISS climate model!!
cd- have a look at the 1929-34 collapse, it too had a rally. History rhymes.
regards
It doesn't take many more months of 6%/mo. median home price declines to turn the current 40% SoCal drop into a home price collapse.
If that's approximately what's happening in the other bubble states, then maybe 50% of the national SFH market is months away from being down 60% plus.
Headlining "House prices to fall 10% over 18 months" while 50% of the market is falling 6% per month should win a lipstick the pig award for Fitch.
Knowing your house is on solid ground loses some meaning when your neighbors home is caught in a landslide. Ask people in Cali.
--
Prices are falling at 17.5% YoY, for the US as a whole. How long would it take to get 10%?
Priven agents of the Crooks cannot be relied upon for negative forecasting. Hell, most economists cannot be relied upon.
Reporting from a nation of proven born-and-bred dopes led by proven Crooks,
Jas
"As these industries feel the impact of a deep recession, housing in every locale has nowhere to go but down. Yes even in Noe Valley, Piedmont, and Pac-Heights."
When I knew it, Noe Valley was almost completely a creature of the Silicon Valley. You had fast and easy access to 280 via San Jose Avenue -- could get from your house to the Daly City line in 5-10 minutes.
Broward:
You nailed it: I don't need to work for at least 6 years. Saving half my take home means for every day I work, that's a day in the future that I don't need to work.
Work is a funny thing. I think it's like women: the less you need it, the easier it is to get it.
"Better to buy a little late when the slope is going up then to buy too early when the slope is still going down"
Agreed. Momentum drives housing prices in the same direction for years. The turn will follow a long flatline. All those calling the bottom while prices are still crashing are nutz.
The consensus of posters here will definitely miss the housing bottom.
Possibly. But the core readership here will know to watch the national homebuilders' monthly survey for their region, and will be far less likely to be mistaken when deciding to move or to wait.
Not for nothin' does CR provide those data.
bob dobbs: still can. Noe valley is pretty good location if you like to surf too.
cd writes:
+12% gain on dow since thurs low....
maybe bulls are right? This feels like similar setup as bear rallys after BStearns and Fannie sell offs...
It is such a hard call. So many people calling for a recession of 2 qtrs. to 2 years. DOW down what, 35% ytd.? Who knows. My gut tells me it's a head fake. I'm getting in in tthe morning and out in the afternoon trying to play that days trend. I hold just a couple of positions overnight. The general consensus is no V-shaped bounce, so if I miss a little bounce so be it. I'm still 90% cash, 10% equities
There's a lot of talent out there with not much to do
That's been true since the 2001. It's been masked by political games and empire building and padding.
Television networks are going to take a big hit when the election ends. No more auto (dealer consolidation), political, mortgage or other ads with no successor in line to fill the air time.
EvilHenryPaulson writes:
Television networks are going to take a big hit when the election ends. No more auto (dealer consolidation), political, mortgage or other ads with no successor in line to fill the air time
Ford used to advertise here, no more. I wonder if CR ever got paid?
I have a plate full of projects myself, all of which I am putting off while I have revenue. In fact, I believe right now is an excellent time for starting a business.
Chill Bear writes:
I have a plate full of projects myself, all of which I am putting off while I have revenue. In fact, I believe right now is an excellent time for starting a business.
Repo. consignment store, thumb breaker?
I enjoyed the fair hill international this past weekend goldman sachs sponsered 22a 22b turtle lodge and the terrapin they have the inside track i suppose
So Finch has creditability ? Breaking News Moody's says only 8% more drop. I think we have 25% till we see bottom. Wait till one of the great dumb ass leader stop foreclosures .Prices will plummet . Credit cost will run . On top of that we still have arms coming due to reset and the homeowner are underwater . A dismal Christmas . We are paying for are sins for the last 25 years . Just my 2 cents
bearly writes:
"The turn will follow a long flatline. All those calling the bottom while prices are still crashing are nutz."
Probably like the '90s RE bust which was apparently followed by a sales bottom in '92 and a price bottom in '96. I'm going to find those stats.
When the bottom occurs, most will have forgotten the boom.
Re: not catching the bottom: I consider a 10 percent premium good insurance against catching the knife.
I have 2 rental property that I had to drop the rents on because of competition for good tenants . I think the core group here will see housing bottom. The core group here saw it coming while the rest where drinking Kool Aid. Years away till bottom IMHO . Wait till credit raises and 20% down comes back .
"I consider a 10 percent premium good insurance against catching the knife"
That's for sure. The 10% gain up from the price bottom will be measured in years. No rush. There are no "V" bottoms in house prices.
TXN rained on the rally parade by laying a rotton egg.
or a rotten one.
Chill Bear,I have seen inflation adjusted prices in piedmont drop 30% in 2 years during a prior cycle.People with good credit either last longer due to more resources,or hybrid loans with longer fixed periods of 3,5,7 or 10 years.I Live in Sebastopol(W sonoma county) and a place up the street just sold for $800k.It last sold fall of '02 for $1.2MM.Coming to better neighborhoods throughout california SOON.Zillow shows a value of $1.4MM BTW...
Fid MM rate keeps going up. If this news about bank lending unfreezing is accurate, it should be going down.
Chill,
Where is the surfing in Noe Valley?
Actually driving in bay area is getting better now that less people are doing it...
Thanks folks for thoughts on bear vs bull....
bearly,
You don't consider WFC minimizing its losses by cutting their loss reserves by 50% to be a bad egg fishing for a good headline?
If this news about bank lending unfreezing is accurate, it should be going down
Not surprised. Managing symptoms, not the disease, is the paradigm of the day. The cure would be too painful, Paulson and buddies would have to give up 75% of their wealth.
TXN rained on the rally parade by laying a rotton egg.
All eyes await AAPL. For some reason, AAPL seems to be the barometer for the consumer. If it misses, I think we'll see a BIG sell off.
Can the US go tit-for-tat in supporting GM/Ford/Chrysler?
You mean will the U.S. one-up them again? Do I here 40?
U.S. car manufacturers are already assured $25 billion.
If this news about bank lending unfreezing is accurate, it should be going down
Unintended consequences of everyone guaranteeing everything. Hot money is chasing the highest yielding guaranteed debt.
RE writes:
Can the US go tit-for-tat in supporting GM/Ford/Chrysler?
You mean will the U.S. one-up them again? Do I here 40?
U.S. car manufacturers are already assured $25 billion
GM buys Cerberus, GM gets 2/3rds and Chryslers $11b cash on hand and dumps the rest of GMAC on Cerberus. Cerberus then dumps the most toxic on US taxpayers via TARP and Hank. Win/Win. Got to happen before elections or inaguration though.
Sun (JAVA) another big loser AH.
["While it may have been a little better than the disaster scenario, I'm concerned about the long term and where Sun's going ... I'm concerned about their viability long-term and their ability to remain independent."]
They are a good indicator of corp spending along with TXN. I fail to see how this 10% rally can be sustained.
bearly writes:
"The turn will follow a long flatline."
In this environment, newspapers should be adding pre-written obits for corporations and sectors too.
IMO what is important to consider here is that we have seen significant down payment destruction in the past few weeks.
A badly performing stock market combined with vanishing home equity is not a good environment for stabilizing house prices. Tougher credit with increased down payment requirements makes it even worse. I don't see much of a reason to be optimistic here.
"AIG CEO Demands Apology from Mad Moneys Jim Cramer"
LOL!
AIG CEO Demands Apology from Mad Money’s Jim Cramer - Deal Journal - WSJ
In FL, that may now make sense if owning is less than renting...Houston still is 100% more to be an "owner"
"It will turn up and they will remain in denial for the first 10%+ on the upside."
Hmmmmmm...turn when? 2015. Lot of property taxes btw. now and then...
RE,
I know they got the $25bn already, but Europe takes their union factory jobs seriously. Their opening salvo was 40bn Euro in this case and Porsche et al went in with big cushions of cash, not the piles of debt the US big 3 had
So now that government bank guarantees and automaker subsidies are a competitive game, will there be a continuation of tit for tat (seen it already with banks to be honest)
Will it extend to airlines, farmers (could they have any more subsidies?), ....
Normally in bad economies there are talks of tariffs and duties, this time it's all about direct subsidies and no one is complaining (other than the taxpayer)
In this environment, newspapers should be adding pre-written obits for corporations and sectors too.
only if they include their ow
EHP,
I agree with you regarding EU union leverage and it obviously isn't just the unions, once the trough is opened everybody wants their share. Competitive "troughing".
This is why I expect currency destruction worldwide at an unprecedented pace. Yes, we are observing credit destruction but I expect concurrent currency destruction which is usually not the natural way of things.
sdtfs writes:
I expect most of the additional 10% to occur in the next three months before they moderate. Ummm, moderate means fall off a cliff, right?
ROTFLMAO. Yep. That's what they mean. As was noted early in this thread... when have they ever been right?!? With so many places ready to fall off a cliff, who really believes nationally its only 10% away? FL, CA, TX, and...
Comrade Loke writes:
Cali running out of Unemp. $$$
404 - Not Found - sacbee.com 1296762.html
California is running out of unemployment $$$
Government $$$
Discretionary spending $$$
Movie budget $$$
and on... and on...
I just voted. Let's just say the bond propositions were usually an automatic 'no.'
Got Popcorn?
Neil
Sun/JAVA hasn't even been a worthy acqusition for years. Dying of a slow death is optimistic for them. They're not an indicator of anything.
One caveat - Almost no one buys the median house for the median price. There will be individual deals that make economic sense in the next year or so.
10% more to go over 18 months huh?
So directly re-capitalizing the banks through purchase of a direct interest is much better than pass trough recapitalization(model $$$ for Level 3 assets)?
So the long view is a lot more unwinding of over-leveraged deflating assets. Correct? So much more taxpayer dollars need to back stop the banks (and anyone else deemed to big to fail- AMBAC anyone?).
Why we should be back to 14,000 DJIA real soon. WaHOOO the crisis is over!
God Bless Joe Six Pack, Joe the Plumber, et al. for believing the crony conservative capitalist boys are watching their backs. What swell, trusting folks. They will have their place in Heaven.
Okay off to WalMart to stock on more Chinese plastic crap for Christmas.
Anybody notice the HUGE double bottom forming on all ProShares ultrashorts charts?
re: SF bay area.
Although I am currently (renting) in the slagheap known as Phoenix, I spent most of my adult life in the bay area. Prices there took off in the late 70s. After that there was always a premium on ownership. It always seemed to me that prices in the south bay assumed a household with two professional employees, say two people making 100K a year, which makes "affordable" about 600K.
"I just voted. Let's just say the bond propositions were usually an automatic 'no.' "
Hear that. Some of the bond measures are good ideas. Bu, too bad: CA doesn't need to be borrowing money now.
Okay off to WalMart to stock on more Chinese plastic crap for Christmas.
fallonpdx
Do me a favor, pick me up some lead paint and melamine while you're there.
bearly, they may make economic sense based on one's cash flow, but putting your life savings in an investment that is likely to go down at least 10%, and stay flat for a number of years, doesn't make much sense.
I expect concurrent currency destruction which is usually not the natural way of things
RE: Yes. It's amazing to watch the Treasury and Fed heap ever increasing "work" onto the dollar to maintain an illusionary, disfunctional system.
I thought there'd be a depression but I didn't believe the Feds would destroy the financial foundation.
So I assume you're planning for a complete destruction of 401K plans?
From Comrade Loke's link:
Officials with the California Chamber of Commerce and California Manufacturers and Technology Association said higher payroll taxes will make companies leave the state.
Another option: cut benefits or eligibility to shrink payouts. The average weekly benefit is $307 but can run as high as $450.
Yea... run up the taxes some more. I know more than a few small business owners thinking about cutting staff here and there. My employer is shifting jobs out of state. I'm sure higher employment taxes will help retain jobs... NOT!
Oh... The Hollywood types are seeing the money dry up in LA. Hmmm... They ran the market up at their Realtor's (tm) urging...
We're no where near 10% of the bottom just due to CA and FL! How can the most populous states crashing not take down the nation?!? The property ladder is officially broken thanks to MEW. Sigh... /rant-off
Got Popcorn?
Neil
you mean toys for the kids, baby food for the new one, and dog food for the pooch!
[alba writes:
Sun/JAVA hasn't even been a worthy acqusition for years. Dying of a slow death is optimistic for them. They're not an indicator of anything.]
Have you been in a fortune 50 IT server room? Sun still has a pretty large presence. If their sales are collapsing it means high end server demand is vanishing. linux is shoving them aside but not enough to explain their meltdown. Corp HW demand is drying up. fast.
re: SF bay area
To follow-up with an example. A house in Los Altos that sold for about 70K in the early 70s would now sell for between one and two million. A house in Los Altos in the early 70s was about two to three times as much as the typical 3/2 subdivision house in San Jose/Santa Clara.
s_puttnick writes:
Anybody notice the HUGE double bottom forming on all ProShares ultrashorts charts?
s_puttnick
No. Someone else was saying those are going to crash. Is that what you're saying?
Home prices may be dropping but there is clearly inflation in other, more competitive sectors of the US economy.
Rising cost of crack cocaine allegedly leads to Fort Pierce man's arrest» TCPalm.com
bearly, I'm in that business. They're history; and the handwriting has been on the walls for quite a while. They are plainly losing market share at this moment; and have been for a long while. There's only so many ways you can dress up an x86 machine and compete against the commodity market.
"Although I am currently (renting) in the slagheap known as Phoenix, I spent most of my adult life in the bay area. Prices there took off in the late 70s."
I remember. I was working the summer of '77 in a department store warehouse in Campbell with a bunch of $4/hr lifers.
That was just about the moment that prices lifted off. It was all over the papers: housing prices in the Silicon Valley were going up 1 percent a month or more, speculators were buying valley homes (at around $70K then) and leaving them empty.
The lifers marvelled over the news every morning at the break, hunched over a shared Merc/News. Didn't realize how it was affect them.
That was how it began. This is how it ended.
Hear that. Some of the bond measures are good ideas. Bu, too bad: CA doesn't need to be borrowing money now.
Bob Dobbs
Some are good ideas. I voted for one. Yes, the state cannot afford more debt...
I cannot wait to see October's retail report... The stores are vacant.
Got Popcorn?
Neil
EHP-Porsche et al went in with big cushions of cash, not the piles of debt the US big 3 had
The only reason they are sitting on cash is b/c they maxed out their credit lines a few months ago. I think it was B of A that had a huge credit line open with porsche.
take a name,
I don't think they will crash. I'm optimistic that the wild 20% swing days are over for most of those stocks for a while.
Though I think a lot of TA has been invalidated in what another poster called this "brave new market", I still think the Elliott Waves analysis I saw on I think Mish's blog recently will hold out.
According to that, the big decline of the past weeks was wave 3 in a 5 wave cycle down. We're now in the 4th wave up before the final 5th down to the ultimate bottom of the market for this bust cycle.
That said, it's not going to happen fast, so I don't see the ultrashorts crashing.
Just a slow decline over the near-term followed by a rise as that 5th of 5 waves hits.
It kind of makes sense psychologically, too: big crash (3 of 5 wave), people freak and think it can't get worse=bottom=4 of 5 wave up on bottom-hunting, followed by return to noticing the fundamentals which will be the horrid Xmas season which will initiate the 5 of 5 wave down.
I'm nearly split on up and down proshares right now, but net weighted toward down, planning to sell the up when I think this 4th wave has expended itself but keeping the ultrashorts as insurance for a big crash day and for the long-run down.
I'm curious to know whether any market players here typically short are taking some leveraged long bets, on the assumption that there will be a jump back to 1000+ on the S&P before reality (and headlines) start to sink in?
I took out some call options with play money but the problem is vols are dropping so fast that this is negating the market rise.
Rock on Chill Bear - we can be neighbors in a few years...Im targeting Kensington, Cragmont, and Piedmont as my top three choices for 2011 at earliest. At current rate should be able to do pretty well with 50% down. Ive been watching those prices head down on the zillow and ziprealty for sale sections. Give it time, give it time....
Neil - I like your voting style. Mirrors what I told my GF when she asked about the ballot items she doesnt have time to read about. Just absurd how we want to borrow our way into more trouble here. When might we learn? Never?
s_puttnick writes:
take a name,
I don't think they will crash...
Thanks. I think we are in agreement.
@ anon 8:02 PM
"the assumption that there will be a jump back to 1000+ on the S&P before reality (and headlines) start to sink in?"
I think we are definitely in a short-term rally, the end of which will be signaled by a Fed rate cut. Exuberance followed by realization that there's not much more that can be done to ignore what will surely be a rancid consumer spending season.
Broward Horne,
So I assume you're planning for a complete destruction of 401K plans?
What amazes me is that it isn't just the Fed but central banks worldwide (OECD and beyond) joining in while their treasuries just play along.
IMO this is only the start. At this point we have seen the financial system get its share and I don't think its the end for them. We now are seeing bond insurers and the bigger industrials as well as the states get into the act. All this at the very early stages in the economic down cycle.
Yes, we are hearing about stimulus and we already had some. But the voter is just starting to really feel the downturn. So, from my perspective, we will see much increased public spending to support the social safety net which will clearly rival what has and will be spent in support of the corporate sector. As I mentioned above, I expect this to happen in just about all developed economies.
It isnt in the standard sense competitive devaluation but amounts to the same. I like gold here an awful lot and given supply and demand balances in the sector, I dont think it will be just about preservation of capital. Note also that Mundell (who is advising China) is recommending that China acquire all IMF gold sales in one shot.
Someone wrote:"Where do you run to in a deflationary environment?"
You must be a creditor in a deflationary environment, assuming that your debtor will keep paying, ahem!
Home prices may be dropping but there is clearly inflation in other, more competitive sectors of the US economy.
Didn't I tell you guys that this crisis was going to create massive demand?
Broward Horne,
So I assume you're planning for a complete destruction of 401K plans?
Oh and as to the 401k, I see it grow nominally and suffer significantly in real terms starting six months from now.
RE,
That'll teach those emerging market exporters.
First they reinvested/spent all profits, and then they learned the financial forces they were up against.
Then they diligently saved and built up reserves. This time they learned how quickly we could pull a switcheroo on them.
Outright globalization kills itself because you can never depend on the world economy for more than 5-10 years at a time.
.................
It sounded plain crazy at first, but the more I ponder a block of western currencies devaluing themselves in unison, the more it sounds crazy like a fox.
The biggest consumers also have incredible market pricing power. Since the west can't cut back consumption, and does not wish to declare bankruptcy to initiate debt restructuring, then this will essentially be the west betting the emerging markets cannot replace a significant portion of that consumption.
That view glosses over the issuing of new debt where needed. I think food prices are an inevitable bull market, but I'm not sure about many other commodities in terms of how they could inflate and then be offset by demand realignment
Can anyone give some examples about governments intentionally inflating money supply to boost growth in the great depression? other than Weimar Germany
Oh and as to the 401k, I see it grow nominally and suffer significantly in real terms starting six months from now.
RE
I don't know about the 6 months. 4th qtr, 1st qtr earnings. Not being political but, Obama won't be as pro-business as Bush/McCain.
Can anyone give some examples about governments intentionally inflating money supply to boost growth in the great depression? other than Weimar Germany
I consider devaluing the dollar vs gold by 40% in 1934 just such an example.
It sounded plain crazy at first, but the more I ponder a block of western currencies devaluing themselves in unison, the more it sounds crazy like a fox.
Interesting perspective, Evil. Very interesting.
we will see much increased public spending to support the social safety net
Man, I hope so.
I could use a free ride for awhile.
It's a little surprising to see the central banks in sync, I see it as a symptom of three things -
1) 60 years of Keynesian conditioning. Very hard to break the mindset.
2) Easiest thing for now.
3) Silent admission that "wealth destruction" is going to happen anyway.
There's little doubt in my mind that currencies will be back on a de facto gold standard in the near future. It may not be strictly gold but this fiat experiment confirms thousands of years of history. Ultimately, even independent central banks cave to political pressure.
More like 10% in the next 9 months, and another 10% in the nine months after that.
RE,
I guess we can add Nixon's emergency financing of Vietnam by smashing Bretton Woods as another.
I'm just trying to picture what amounts to a trade war between debtors and creditors playing out.
It actually wouldn't be west vs emerging markets. There would also be the public vs private savings in conflict. United States/Switzerland (when they bail out their banks)/United Kingdom would definitely benefit in net exposure.
It would be a major gambit for any country dependent on commodity/basic material imports though. At least the US could hedge its exposure with the domestic production it does have
It's a little surprising to see the central banks in sync, I see it as a symptom of three things
You missed another critical point: competitive disadvantage. Any nation/FCB that doesn't guarantee its banks' debt would see a national bank run.
I consider devaluing the dollar vs gold by 40% in 1934 just such an example
Agree. Biggest bubble in history, Greenspan is a worthy contender to John Law.
You missed another critical point: competitive disadvantage
Okay, yes, I buy that as long as you qualify it as "short-term competitive advantage".
But what about any of this is long-term, yes?
How could that possibly happen, politically speaking, when they can't agree to anything else?
WSJ: Oracle stock buyback of $8B
The biggest consumers also have incredible market pricing power. Since the west can't cut back consumption, and does not wish to declare bankruptcy to initiate debt restructuring, then this will essentially be the west betting the emerging markets cannot replace a significant portion of that consumption.
It might be an accidental strategy but I cannot see that it will work. I expect to see a second coming of OPEC for different and more varied resources before we see the emerging economies get back to the old days. In fact, it wouldnt surprise me to see Russia assemble such a force and at the same time outmaneuver Saudi Arabias clout within OPEC.
Natural resources and not just food arent anywhere near as plentiful as people think based on the severe price drops in the commodities but especially in stocks. In commodities it is the small companies that really drive discovery and development. These small companies had a short bull market in 2005 but have been decimated since and cannot obtain financing.
The fact is that many projects in the works are now not feasible and some will likely get cancelled leading to a much bigger shortage earlier than most people think and I am not just talking about oil here. It really has only been in the past two years that CAPEX for new resource projects in the on oil area have significantly expanded even among the big players.
These developments will put emerging players, if properly organized, into an extremely strong position. I expect the Russians to take advantage of this opportunity.
Broward Horne,
The way in which central banks reel in all the new facilities/guarantees will definitely have a long term impact. Many choosing of national champions remains to be done.
The United States is very unique globally for the number of banks it supports. Expect (government-financed) consolidation. We've already seen it with the tax-code rewrite (illegal but unchallenged) to give Wells Fargo Wachovia. Once the Treasury has finished its approved/denied list for the $250bn, it should not take long before the smaller players get squeezed into the hands of someone bigger.
Wow, how stupid is Oracle? I was just thinking about shorting them. Guess I'll wait until after they buy back
I thought that inflation was baked-in with the Iraq war spending -- that's what I attribute the late 70s and early 80s inflation to (the Vietnam war). Now, with this crisis/bailout, I don't know what to think, but do think that some inflation is inevitable.
China's cash and communism, no lobbies, bothersome opposing parties, will come in handy.
I think good days may be ahead for China's middle class
I'm just trying to picture what amounts to a trade war between debtors and creditors playing out.
Louvre Accord (1987) to stop the yen's appreciation against the dollar?
Cliffs Natural Resources Inc. topped the list of Biggest Percentage Price Gainers among common stocks on the New York Stock Exchange at the close on Monday
you heard it here!
CLF
Wow, how stupid is Oracle?
FYI - I don't think it was released publicly but I worked with some Oracle folks - there's been two layoffs in the past few months.
I thought that Shiller et al were predicting a drop another 20% or so . Hows Lee County FL ?
No worries you weenies.
Here is how we will solve this problem.
Once we hit the zero fed funds rate bound, everyone (states, corporations, individuals) will replace ALL their loans with interest-only loans.
So imagine, you're got a really high payment on a $900K mortgage. No problem, refinance it into a interest only mortgage at 0.0%.
Then regularly make your monthly interest payments of $0.0 and you'll be fine.
Want to buy a car, a company, invest in a bridge. No worries.
So all these losers predicting further drops in housing. Just wait till the ZIRP gets you.
I think many mainstreamers are not factoring the following factors in their price drop estimates-
Sent from my iPhone..
Wow TSX over 10,000, energy up over 9% on the day.
Wow, how stupid is Oracle? I was just thinking about shorting them. Guess I'll wait until after they buy back
Depends on who the "them" are. Stock buybacks basically serve two purposes: (1) massage earnings per share by reducing common outstanding and (2) boosting prices before employees and directors exercise their options.
For the most part, the only parties that get screwed are creditors (in the case of liquidation) and common stockholders, whose loss is somewhat offset by the higher stock price.
Bond Girl,
I wouldn't expect them to agree, form a consensus, or act in a strategic manner overtly.
I considered outlining several scenarios that would result in the creditor-debtor trade war, but I think an analogy is more apt.
Look at a flock of birds or a school of fish. Each individual makes small choices based on its immediate neighbours, or if it is on the edge of the flock then the air/water pressure/temperature.
At the individual level those are simple, logical decisions with no obvious pattern. Step back and you can see the flock acting as what appears to be a single unit.
I'm just musing about one possibility. By Occam's razor, we should see all parties with power cause unnecessary and unintended consequences for the global economy.
Then after too long the global economy will be united by some purpose that will enable all parties to overlook things such as debts that cost the creditor more when they are paid than when they are forgiven (fighting for existing share of pie instead of a smaller share of a larger growing pie)
Latin American nations edge away from U.S.
Latin American nations edge away from U.S.
In a matter of weeks, a Russian naval squadron will arrive in the waters off Latin America for the first time since the Cold War. It is already getting a warm welcome from some in a region where the influence of the United States is in decline.
"The U.S. Fourth Fleet can come to Latin America but a Russian fleet can't?" said Ecuador's president, Rafael Correa. "If you ask me, any country and any fleet that wants can visit us. We're a country of open doors."
The United States remains the strongest outside power in Latin America by most measures, including trade, military cooperation and the sheer size of its embassies. Yet U.S. clout in what it once considered its backyard has sunk to perhaps the lowest point in decades. As Washington turned its attention to the Middle East, Latin America swung to the left and other powers moved in.
The United States' financial crisis is not helping. Latin American countries forced by Washington to swallow painful austerity measures in the 1980s and 1990s are aghast at the U.S. failure to police its own markets. ...
Basel too - we've just seen this with Australia and
New Zealand, two countries The Economist describes as exceedingly pure on not having deposit insurance, bring on some schemes in the last week. Problem seems to be that the fundamentals of the policy or the transparency of the market were not at issue, but given the crisis a confidence and run-risk mentality took hold, thus leading to new policy.
I think these economies are great canaries in the mine, on anything from metals and extractives, to food commodities, to financial system interrelationships and risks. Can't believe not many people are looking at this.
CC
Wasn't it from the JPM call that they were saying they wanted 65% LTV in hard-hit areas? That pretty much eliminates most first-time homebuyers.
Tom Stone: thanks for the info. Zillow sucks.
cd: Noe Valley is about 15-20 minutes from OB and no traffic going that way. Sharp Park, a little further out.
The benefit of Noe Valley being (of course) you get the opportunity for a normal social life rather than being halfway to Japan out at 51st and Judah.
Look at a flock of birds or a school of fish. Each individual makes small choices based on its immediate neighbours
Bad analogy. There is no "choice" made. Each participant has the same programming, only synchronization information is exchanged.
An altruistic network -
http://www.realmeme.com/roller/page/realmeme?entry=altruistic_networks
There's far more processing going on between the central banks which means there's a lot of data input and higher capacity for mistakes that disrupt the coordindated movements. Lots of subtle differences in inputs and measurements.
Comrade Rally Monkey writes:
my bet already placed...long steel
down huge.
Comrade Rally Monkey | 10.16.08 - 2:33 pm
Comrade Rally Monkey writes:
Anybody who touches this market with a ten foot pole within the next 20 months is an effing idiot.
Scooby
that's me...
down 50g's today...CLF
Comrade Rally Monkey | 10.15.08 - 4:51 pm |
EHP: IMHO, At this point, there are too many independent actors with access to too much capital for a coordinated worldwide market control mechanism.
There are huge mountains of malinvestment all over the world. No one wants to see the aggregate demand for their goods to slow further and prices to drop.
Now the question we're all waiting to see resolved is whether these Keynesian tricks manage to goose the economy to restart.
Will people start overbidding for houses again? I think not.
So where is all this cheap money going to go?
Bond Girl,
Jamie Dimon himself mentioned the 65% LTV in Florida... I thought I heard it on the conference call
EvilHenry
Ever thought of doing a blog?
I've got some anecdotal evidence. Recently I found in my change -- drum roll! -- a 1964 dime!. This weekend a 1953 penny!
Are people raiding their coin hoards?
Frank Wants Bair to Lead Anti-Foreclosure Efforts
Frank Says FDIC's Bair Should Lead U.S. Anti-Foreclosure Effort - Bloomberg.com
Frank, a Massachusetts Democrat, and Representative Maxine Waters, a California Democrat, sent President George W. Bush a letter today urging him to appoint Bair as leader of a government-wide effort'' to keep struggling borrowers from losing their homes. The lawmakers said they have beenvery impressed'' with Bair's work on modifying loans to curb foreclosures.
EHP,
It is hard to tell whether they are talking just about their deals or the whole industry there (not having applied for a mortgage in those areas recently, I wouldn't know). But either way, that does not bode well for Fitch's predictions, unless Fitch is hedging its bets on future government participation in the mortgage market. It's hard to tell how much our noble leaders will care about the mortgage market or any of this mess after the election.
Regarding manipulating the money supply in unison, I suppose it is not impossible for that to happen, since that is kind of how the bailouts unfolded internationally.
So where is all this cheap money going to go?
I'm hoping that somebody mails it to me in a reverse-Nigeria scheme. I'n not choosy, I'll take Canadian $, Austalian $, even pesos (please, no Zimbabwe paper).
ova - please no! Do not get EHP involved in managing his own blog. The transaction costs vs public benefit of his posts here wouldn't work out.
Posting again about 14 days after first, that cbpp was running the states going broke story a month ago, which LA Times has now picked up:
Recession Continues to Batter State Budgets; State Responses Could Slow Recovery — Center on Budget and Policy Priorities
Clearly, the fundamentals of the bailout are strong.
CC
Prices in the Seattle/Eastside still have another 36.8 percent to fall to affodibility per the Fitch chart. I believe it. Boeing has caved on the salary issue during the strike (hence our blue collars will be making 85K plus the 8% they wanted in three years) so I see no reason for home prices to take too much of a dive here. Small haircuts in undesirable locations.
ova,
I've had a few requests along those lines (not under this pseudonym), newsletter/blog. It does flatter me. I may do one yet because it would help me share the tidbits I have analyzed and help to bring thoughts together, and build a reputation from the times I am correct in predictions.
For now I am in my last semester at school (adding Bachelor econ to existing Bachelor Electrical Engineering.) Will be heading off into EE/management/consulting almost certainly, however I am tempted to look at the financial sector. In any event, I should take the CFP exam in the next year.
A homeowner who borrowed too much to buy a house should lose that home! At the very least, it's a learning experience.
Over the weekend, the radio talk show host Bob Brinker was whining on his program that if mortgage write-downs weren't allowed (or other government programs not started) people were going to be "thrown into the street" or end up living "under a bridge" (his phrases) or have to move in with family. Not once did Bob say that they'd just have to rent an apartment, like a real grown-up.
Renters. Unpatriotic scum.
Frank, a Massachusetts Democrat, and Representative Maxine Waters, a California Democrat, sent President George W. Bush a letter today urging him to appoint Bair as leader of a government-wide effort'' to keep struggling borrowers from losing their homes. The lawmakers said they have beenvery impressed'' with Bair's work on modifying loans to curb foreclosures.
Do Congress critters even look at the law? Bair's modifications of mortgages that are part of IndyMac's (ergo FDIC's) portfolio is one thing. Modifying mortgages that are part of a MBS without jumping through about a billion hoops is slightly illegal under the Trust Indenture Act.
Beer lesson: (disclaimer - Fun, but I don't claim to know the source)
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good customers, he said, 'I'm going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now paid $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
'I only got a dollar out of the $20', declared the sixth man. He pointed to the tenth man,' but he got $10!'
'Yeah, that's right', exclaimed the fifth man. 'I only saved a dollar, too. It's unfair that he got ten times more than I!'
'That's true!!' shouted the seventh man. 'Why should he get $10 back when I got only two? The wealthy get all the breaks!'
'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor!'
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
Yahoo! 404 - Page Not Found
At least five Chase banks hit with letter threats
DENVER (Reuters) At least five branches of Chase bank in Colorado and Oklahoma received threatening letters on Monday, some containing an unidentified white powder.
A spokeswoman for Chase said the letters were delivered to three branches in the Denver area and locations in Oklahoma City and Norman, Oklahoma.
Some of the envelopes contained the white powder, Chase spokeswoman Mary Jane Rogers said, and one employee was treated for a rash as a precaution, but it was not clear if the skin irritation was caused by the powder or had already been there.
She identified the Colorado branches as being in Lakewood and Arvada.
Fire Marshal Kevin Ferry of the Cunningham Fire Protection District near Denver said the powder in one package was found to be harmless, though the substance had yet to be identified.
That branch was inside a supermarket in the Denver suburb of Centennial. The supermarket was evacuated as a precaution.
Several bank employees who had close contact with the package were sent to a local hospital for evaluation, he said.
A police department spokesman in nearby Lakewood, Steve Davis, said a white substance found on a parcel there appeared not to be dangerous and resembled talcum powder.
JPMorgan Chase & Co last week surpassed Citigroup Inc to became the largest U.S. bank, and has aggressively acquired other assets as the financial system has weakened, including the banking assets of Washington Mutual Inc.
Rogers said Chase would not release the total number of banks affected until they were sure all the letters had been found.
"We immediately called the FBI and Postal Inspection Service to handle the matter and ensure the safety of our customers and employees," Rogers said.
She did not know the contents of the letters or if they contained return addresses.
(Reporting by Dan Whitcomb and Steve Gorman; Editing by Doina Chiacu)
Why is the richest guy drinking beer instead of wine?
Tax them too much, attack them for being wealthy, and they just may not show up anymore
Good, let them not show up. I'll take their job that still pays enough to live well.
Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
Or you just do what Putin did with Yukos. Give them a trillion dollar tax bill that they can't possibly pay and then collect the assets.
Good, let them not show up. I'll take their job that still pays enough to live well.
Yeah, but defending your salary to Congress is not as much fun as it used to be.
One thing I can't figure out... since Congress decided Chinese citizens were more important than American citizens and sent all the jobs there.... how are they planning to collect income tax?
So where is all this cheap money going to go?
Comrade Beach (aka Mr.) | 10.20.08 - 8:59 pm | #
The simple answer would be a new gilded age. Much wealth concentrated in the hands of the few. Not forgiving the debt would choke what is the economic growth engine and so things stagnate until there is a wealth redistribution (without sounding too much like a communist)
Bond Girl
I trust Fitch least of them all. I don't know why but the Federal Reserve stopped tracking their ratings for CP, and call me paranoid but I have seen no good reason to trust them and that is a bad omen.
re: Dimon remarks, I took them to be a reflection of both their business and the industry trend. Any one mortgage provider that was out of step with the others would realize it either through their own research or from their increased traffic pretty quick.
A lot of the posters on here know their markets really well. A further 20% national decline is a relatively calm and stable prediction (eg JPM's worst case option presented in their earnings). The way the economy is going, we have until fall 2010 to see the national price declines level off.
Comrade Beach (aka Mr.)
There is always the possibility of uniting/better servicing the existing econo-crisis blog community. Appropriating comment threads as they come up is feasible, but obviously not optimal.
"In fact, they might start drinking overseas where the atmosphere is somewhat friendlier."
See-ya. Don't the door slam you in the ass on the way out. Go enjoy your slaves in Dubai. Get the hell out of our country.
Good riddance!!! F'ing wealthy crooks. Take your sleaze with you, too.
"In fact, they might start drinking overseas where the atmosphere is somewhat friendlier."
Yeah like this place -
Fired Indian Workers Kill Boss : NPR
Man, I used to wonder why French guys sat around cafes drinking coffee all day instead of working but after two years of it (on and off), I'm starting to like it.
Go, Obama!
Give me free stuff, I don't need much!
So we are not at 80% in California, Nevada, or Florida, were at 65%.
So much for my prediction of 25% down payments being the norm.
Got Popcorn?
Neil
Some of you guys complaining that Fitch's 10% was a poor prediction evidently didn't RTFA and missed the nifty link to the WSJ infographic. It gives much more region-specific info, which is worth your time. Shocking how far Cthulhu's 'hood still has to go.
P.S. Chill Bear said:
80% of divorces are initiated by women.
Chill Bear, I'm so betting you can't provide a link for that.
EVP,
The rating agencies really struggle to remain relevant, and Fitch has long been the stepchild of the group. You could argue that they accelerated this crisis, but it was not by any power they established for themselves.
See-ya. Don't the door slam you in the ass on the way out. Go enjoy your slaves in Dubai. Get the hell out of our country.
Good riddance!!! F'ing wealthy crooks. Take your sleaze with you, too.
Better yet. Why don't you leave our country
For some reason I keep typing "EVP" instead of "EHP." Apologies.
bearly,
The structure of income tax rates is a simple thought game anyone can play with.
A flat-tax is non-distortionary (good, no disincentive to work more, no need to schedule income to avoid taxes)
However, if using a flat-tax, you might need a 35% tax rate with no available deductions to maintain revenues. I haven't gone through it recently, but whatever the number comes out to it simply isn't feasible.
bearly -
So the problem with that analogy is that, in real life, the tenth man also owns a company that holds weekly corporate events at the bar and pays nothing for the 1000 beers they drink then. ie, pays no corporate taxes. Plus the tenth guy has recently found a way to hide all his money in the caymans, so he now pays nothing like the first three. Guys 4 through 9 now pay double to make up the difference.
Barney Frank is part of the problem .He should do the patriotic thing for his country and jump out a window.
Chill Bear, I'm so betting you can't provide a link for that.
Margin Call of Cthulhu | 10.20.08 - 9:33 pm | #
Almost 75% of Canadian divorces are being initiated by women.
Divorce Rates in Canada : Canada Divorce Rate
BondGirl, Don't worry about the EHP/EVP. I'm not that easily confused.
re: Fitch,
Change to Credit Rating Agencies Considered
On June 18, 2007, the Federal Reserve Board stopped using Fitch Investors Service as a credit rating source. Classification as AA or A2/P2 for rate calculations and classification as Tier-1 or Tier-2 for outstanding calculations are done using Moody's Investors Service and Standard & Poor's.
They never explained it so I figured they were just being polite about a messy situation.
re: tax rates.
There is 0 corporate income tax in Nevada yet not all businesses relocated to Nevada. Once you come up with an answer for that, realize that a government has as much pricing power within the tax market as companies do in their fields. If they can charge that rate, then the market says its worth it (let's ignore wasteful government spending because that is about politics and poor choice, not something that a flat tax can solve)
McCain's first wife:
Yeah, it's a tough statistic, which I have seen cited anywhere from 60-91%.
My personal experience from living 47 years on the planet is that it's at least 2-1, which is 65%. Although to be fair, I can't actually at the moment think of any men at all: it's always the woman in my circles that takes off. Must be something about engineers and scientists. I dunno.
Almost 75% of Canadian divorces are being initiated by women.
Wiki says 90% of divorces between "educated couples" is initiated by the woman.
That syncs well with my dating experiences of the past three years. Even in their forties, women are still seeking the "perfect mate" for child-bearing puposes, as per their genetic programming. So they'e more likely to trade up for better mates than men.
My ex-wife is Canadian and I've been trying to divorce her for three years but she keeps hanging in there. She got my default judgement reversed last year but it looks like I'll be getting another default judgement this month.
Margin Call of Cthulhu writes:
Some of you guys complaining that Fitch's 10% was a poor prediction evidently didn't RTFA and missed the nifty link to the WSJ infographic. It gives much more region-specific info, which is worth your time. Shocking how far Cthulhu's 'hood still has to go.
Are those figures from Fitch in WSJ? I thought they were economy.com
Here's a nice synopsis of the Fitch racket:
Stocks: The Mathematics and Reality of Trading: The French Connection: Ackman, Fimilac, and MBIA
Broward:
Women don't need men for anything other than emotional validation and entertainment these days.
The state takes the role of the husband now.
bearly,
Nice pull.
And your last 2 sentences...priceless.
Nostrovia,
Well there is always the guillotine and the incinerator
Tax them too much, attack them for being wealthy, and they just may not show up anymore
kis writes:
in real life ... the tenth guy has recently found a way to hide all his money in the caymans, so he now pays nothing like the first three.
The top 1% of earners pay 40% of all incomes taxes, so I guess he's not sending too much of his money to the Caymans.
I suspect you would be in the "no explanation is possible" category.
Women don't need men for anything other than emotional validation and entertainment these days
Over the past three years, I've discovered that I need them less than they need me. Both dating services I was using are now showing a dramatic downturn in male participation.
Once I quit goofing with the parasites, I met a couple of wild ones and now my sex life is awesome. It's the only reason I'm still looking for work in Seattle.
Although to be fair, I can't actually at the moment think of any men at all: it's always the woman in my circles that takes off. Must be something about engineers and scientists. I dunno.
Chill Bear | 10.20.08 - 9:42 pm | #
its that damn Asperger's Syndrome that drives them off
You have no clue about how stable society works... do you? without peace and order in their immediate vicinity the rich cannot make money. They end up dead.. then the cycle starts again.. have you not read any history?
The top 1% of earners pay 40% of all incomes taxes, so I guess he's not sending too much of his money to the Caymans.
Corey,
The top 1% of reported taxable income pays 40% of income taxes....
If my name was 'A. Hedgefund Manager' for example, you can bet that I structured my pay almost entirely towards capital gains for the past 7 years to take advantage of the 10% rate
[Guys 4 through 9 now pay double to make up the difference.
kis]
Right. Capital flight isn't that tough to pull off. A lot of money is already overseas and just won't get repatiated if taxes don't soften up.
If Obama had any sense he would propose shitcanning the tax code and delivering a flat tax. Otherwise those in the middle will pay and what doesn't get paid adds to our insolvency.
Bond Girl,
"For some reason I keep typing "EVP" instead of "EHP." Apologies."
Good. Cuz I thought they were going to make a movie called "Elvis vs. Predator"
Doesn't sound promising. A comedy perhaps.
Nostrovia,
Broward,
I gotta haul out here now.
Catch me some other time. I'd
like to compare notes on dating.
I'm in San Fran myself, which is
an awesome place for dating.
For men...
80% of divorces are initiated by women.
Chill Bear, I'm so betting you can't provide a link for that.
43% of all statistics are made up on the spot.
Chill Bear writes:
Women don't need men for anything other than emotional validation and entertainment these days.
The state takes the role of the husband now.
Spot on. I have sometimes wondered if one of the perverse results of welfare is to make women less selective about whom they mate with, and more likely to get a divorce. Why care whether or not the husband will be a good provider and will stick around, if the government is there to take care of the woman and her child[ren] anyway? Similarly, are men more likely to abandon their children knowing that the state will provide for them?
So many people here with issues with women - sheesh.
I am so used to EVP for executive vice president.
David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia
Hah a Ph.D that actually thinks that the richest pay taxes according to the IRS tables on taxable income?
the middle class salaried employee pays the highest tax as a percentage of their productive time. The uber rich (equivalent to a corporation in many ways) pay accountants & tax lawyers to minimize their taxes: defer, shelter income and finesse capital gains.
there is a reason they can flee so easily if there was a concerted effort to tax them: the guts of their financial affairs are already in tax havens.
taxes are for the little people.
There is 0 corporate income tax in Nevada yet not all businesses relocated to Nevada. Once you come up with an answer for that, realize that a government has as much pricing power within the tax market as companies do in their fields.
For most companies, the choice of domicile is based on where the business is; creating the two state structure (other than DE) is simply way to onerous. But more important from a taxation perspective is the fact that the income tax rate is minor compared to the other provisions of a state's tax code (e.g. property tax breaks, the designation IRBs, etc.)
For a case study on an "effective" zero-tax rate policy, simply look at the faux Celtic Tiger economy. For years, everyone looked at as a marvel in internal education investment, but in reality, IP-intensive MNCs used Ireland as a tax and IP haven.
Women 'prefer computers to men' - Telegraph
TANTA BAIT ALERT! ALERT! ALERT! ALERT!
Women 'prefer computers to men'
Women office workers spend almost three times as much time with their computer than their husbands or boyfriends and they prefer it that way, an American study has revealed.