So CR, you do not expect these indicators to overshoot their long-term averages?
Also, I think things are more than a little worse than they were in 1990. Every day, we seem to get a new "unprecedented" action by governments and central banks worldwide. How this ends depends on whether those actions are successful.
The future now looks more uncertain to me than at any time in my life.
CR, I'm pretty sure your blog has been around longer than 2005 - I think I started reading around 2000 (can that be right?). Tanta was only a lowly commenter at the time. Those were the days! (in the sense that comments were few and astute).
People have been calling me a pessimist for the past few years, when actually, I'm optimistic about the future - AFTER - the correction. Been sitting in cash for that very purpose.
The financial crisis is worse today than in 1990, and there are many problems ahead (like less consumer spending and business investment), but I believe progress is being made.
We're getting rid of some of the bad debt. The system is getting a little more honest.
But personally I'm still not sure the patient can survive the surgery it needs to recover.
Nor am I convince the patient is even willing to undergo that surgery.
I wish I could be more optimistic like CR, but thus far I've been a dire pessimist, and what I'm seeing right now looks worse than anything I expected.
I know that attitude isn't necessarily helpful at times like this, but that's why I don't hold it against CR sometimes when I feel he's a bit too optimistic.
Progress? Assets and commodities plunging due to world economies falling off a cliff. What good are lower prices when credit is frozen and jobs are disappearing? Read Denninger's doomsday scenario just around the corner--chiling:
Although there is not an index for it, I think we will also see a change in peoples' attitudes about debt and saving.
In 2005, many people were intoxicated by debt and consumption. I think that within the last few months, more people are starting to see that savings and living below your means are more virtuous than they realized. Maybe changes in household values will eventually translate to changing choices among our politicians choices as well.
Nice rational post.
If you really want to stop this from toasting all of the banks you need to unilaterally declare all Credit Default Swaps and illegal contract and debook them now. If not, it will pop institution after institution, focusing the world's money into the hands of the best betters in this irrational market that has no basis in economic reality. Irnoically, since the money, such as it is, has to go somehwere, you may well find someone like Geroge Soros sitting on top of a pile of all of the world's money with a smile saying, "I win".
I think I'd rather be "there" than "here" or even "or here", with "there" being on the upswing.
But I guess "or here" will do for now.
as I said yesterday, I got OUT of all my proshares short funds because it's too much gambling now... and too many important financial events are being decided by just a handful of people.
that said, I do feel that we may be nearing the worst of the worst now... I say that because we now have concerted world intervention. Not that it'll cure anything, but it might delay the worst just like in 2001.
The one thing that is arguably worse about where we are today is that we have irrevocably passed by a lot of opportunities to manage the decline responsibly. You have a lot more traction when you are on the edge of the cliff than when you are in free fall.
On the other hand at least now people believe there is a problem, which is the most basic requirement to be able to do anything about it.
A nice, level-headed commentary.
I think my only objection is that the belief still exists that after the 'adjustment' there will be a return to 'normal'. OK. However, 'normal' does not mean what people have come to believe over teh last 10 or 15 years.
For one instance: no big homebuilders have yet gone BK. As soon as they think the storm is over, they will expect to return to the same level of building as before. Won't happen. That newly found balance of builds and sales is not a step to recovery - it is the recovery.
There's no bottom call in CR's post, and I think he's about correct. We now have a lot more information about how to deal with the crisis than we had. Over the -next- two years, Nouriel Roubini and his ilk will stop being prescient and start being Chicken Little again, and slowly, normalcy will return.
More than that, we might even start to have a stable balance of payments again, or something like it.
Duke writes:
Nice rational post.
If you really want to stop this from toasting all of the banks you need to unilaterally declare all Credit Default Swaps and illegal contract and debook them now. If not, it will pop institution after institution, focusing the world's money into the hands of the best betters in this irrational market that has no basis in economic reality. Irnoically, since the money, such as it is, has to go somehwere, you may well find someone like Geroge Soros sitting on top of a pile of all of the world's money with a smile saying, "I win".
Isn't that the true purpose of capitalism in it's raw form?
To the extent all the overbuilt housing is well constructed and will become useful over time, the loss is not so bad. To the extent that it sits empty and rots, it's a disaster.
Not sure about that, given that they may just ban mark to market accounting.
i think instead I'll say that we're sweeping most of the dust into the closet for now, but at least we all know that we shouldn't open the closet door.
Well said Bill! I started blogging in AUG 2005, and turned into doom & gloom in early 2007. Considerably later than you, the great one!!
I agree wholeheartedly HOWEVER, the problem is that we are entering a period of time where the credit platform, if you will, for growth will be much different than what we were used to. Wall street is forever changed, heavy regulation coming, securitization is virtually dead, and credit bust is yet to find a bottom; wherever that may be.
With that said, I feel that most people assume that since house prices fell 30-40%, they will bounce back and recoup some of those losses and see an nice gain. That is wishful thinking considering the world as we knew it is forever changed.
I think this will be an L shaped correction/adjustment, not a V, and people will have to deal with the fact their homes are now worth considerably less, and likely to stay that way for many years.
With regulation, they will not allow this to happen again, and that means much more subdued growth potential with a much smaller engine to drive it!
Panzer command AIG and Lehman units has called for a tactical retreat and deployment of artillery pieces to soften up resistance along tomorrow's advance...the advance units at Troyes have been encircled...
This will not be Japan redux. They were a nation of savers with a powerful manufacturing base and huge trade surpluses. We cannot survive even another year of ZIRP
Oh yes. A healthy correction. If only the keynesians could stop interfering.
Anyway, after this bear market ends in '10 we're on to a new bubble created by fiat money. Because that's what the people want. The ultimate collapse is the dollar.
Been lurking and sometime commenter since Nov '07. Best post I've read, this blog has been a source of comfort as well as gloom and doom. Thanks, CR and Tanta.
CR thanks for your continued great work and balanced approach.
I'm still concerned that things will get much, much worse. The US (and world) economy has been running on fumes, smoke and mirrors, and debt for too long, and there is still far too much unwinding to be done in too many sectors.
For example. A huge % of our exports are from Boeing alone, and much of their order backlog has been funded by orders from heavily subsidized Middle Eastern airlines. How many planes do Emirates / Etihad / flyDubai etc really need? what happens if/when tourism/biz travel crater and if oil prices collapse?
A similar analysis could be done for the auto industry, crap retail, extractive industries / finance / RE etc etc. har to be an optimist
I would agree, it's definitely better to be here. However, it's the government responses I fear now, rather than the necessary economic correction. A natural downturn of the economy and free market correction is fine: something people can prepare for, plan for, and deal with. The government actions using the correction as an excuse have the potential to be much, much worse.
I have more fear now than I did in 2005, personally, because I feel we're staring off the precipice of government intervention and manipulation on a grand scale, and the damage has the potential to be far worse and longer lasting than anything the free market would cause. That might just be me, though.
well, it's neither here nor there. It's really over the river and through the woods.
Here's the way I look at it: Banks are like stock cars in a race. They need to conserve enough fuel to make it to the pit stop. But, they don't how much further to the next pit stop or the terrain in between. The issue is not the fuel in the car; it's the load on the car, and the steepness of the course.
CR is implying that the car is not going off the course and over the cliff, which I agree with. My issue is that the road ahead is getting steeper (deleveraging), the load on the car is increasing (gov't screwups), and it's highly likely banks will have to turn off the car, and we'll all have to push it up to the next stop anyway.
I wish optimism were possible, but one can easily predict what is going to happen from this point forward, and it isn't good.
The bad debts will continue to be covered up with more and more paper. Confidence will continue to evaporate, and when unemployment tops 10% next year during the Obama Administration, we will see seemingly massive public spending works initiated to prop up demand, but the actual output will be next to nothing as government really is incapable of producing anything any longer that isn't vastly overbudget and behind schedule. More capital destroyed equals greater and greater poverty. Rinse and repeat until the revolution brings down the government. At that point, optimism may be appropriate, or maybe not- the outcomes of revolutions are always in doubt.
Not sure about that, given that they may just ban mark to market accounting.
Maybe I should have said a little bit more "sober". In the end I think it will be the market participants that force the honesty on the "system". I don't think the system will do it of it's own accord.
I think now market participants are waking up to reality and increasingly saying: "You will run things honestly, or I will not participate."
I know personally I used to be a bond bull because I implicitly trusted the US government.
In the last week or so I dumped the last of my treasuries because, frankly, I no longer feel that trust is warranted.
I'm starting to think that nationalizing the banking sector and canceling unsecured household debt and federal debt by printing money is probably the fastest way to fix things.
Yeah, some people will be getting a free ride, but the hurt will all come at once and it will be far cheaper than continuing to wait.
It's probably a pipe dream (although I'm straight edged, so no pipes here).
Gee, and folks are criticizing me for finally buying with my dry powder?
I am betting that we will enter a four to five year period of false stability that will end with other events. In other words, it is the end of the 74 oil crisis. So relax and buy some stocks!
1981 and the end is a long long long ways away.
The changes in the wind are going to be very interesting. The government has two choices to make up for the housing boom:
1) Inflate and let wages catch up with asset prices and real returns.
2) Tarp the real estate market in bubble areas and provide 1 or 2% long term financing to those caught by the bubble who occupy their homes.
A natural consequence is going to be more socialization of risk and reward in this country.
girlbear, I'm saying there will always be Depression callers - and they will usually be wrong. I think they are wrong again - and we are making good progress towards the eventual bottom.
We've come a long way over the last 3 years. I'm more sanguine today than I was in 2005 (I was more scared then than now). Yes, others are more scared today - but many of them apparently didn't see what was coming.
The next year or more will be UGLY. No question. But we are getting there. Unfortunately I think the eventual recovery will be sluggish too ... but that is a different story.
CR - reasonable post, but I think you left out some graphs, such as total federal/state/local debt and household debt service ratios. I don't think either have started to adjust, and addressing each will result in sustained (or permanent) reductions in personal consumption. Including these would paint a somewhat more negative picture.
Yay CR! i remember those early days, you had a Mug's Game of picking the start of the recession. we were all way early on that. fun to look at the names of the early commentators, dryfly, mish, movie guy.
Re: "Here is a look at some of the data. Where would you rather be?"
What about option #3, which adjusts for economic chaos? Home sales trends will be highly correlated to this financial systemic collapse and take away future value, in the form of future home prices, future asset prices, future savings, future down-payments, future buildup of inventory, etc...
Hence, IMHO, option #3, is a continued period of instability that will freeze current sales and force inventory to shoot higher while less demand impacts price.
third eye, I was writing other places before 2005 (although way back to 1997 on the internet), but I started this blog at the beginning of 2005. I wanted to find out what a blog was - and of course I started writing about housing right away.
I'm still bearish on housing and the economy - but I'm feeling better.
Bernanke and Paulson need to be indicted and jailed for criminal negligence (at best) and put in the stocks where the people can serve up some rotten tomatoes.
The other thing to watch for...
The government "solution" - worldwide - has been to shift the current dept loss onto future taxpayers where possible. Before it is over, trillions will have been thus shifted.
Step 2 will be to inflate that debt away. One or two countries cannot do it because that would put them at a competitive disadvantage. But if all the big economies do it (wink, wink) then we will see the future debts diminish... inflated away.
So you have to ask: who loses in that scenario? Well, you wouldn't want to be old, on a fixed income, have cash, not have debts and not own equities.
CR - "To be standing at the edge (in 2005) or to be much nearer the bottom in 2008?"
But how can we be near a bottom when there's no likely clear way out. What will lead us to grow out of the deep hole us USG deficits funded externally, trade imbalances and consumers deep in the hole. I don't see it. Consumers are conditioned to jump on the next bubble or throw in the towel. There is no discipline.
Progress is being made? Based on what? The bailout? CR- get real. Banks, former investment banks, insurance companies hold trillions of dollars in leveraged CDS obligations, and they're all going down. $700 billion doesn't even scratch the surface of how bad it's going to get.
McCain is right...the only way to really stop it is to reset mortgage loans to market value in all markets that dropped like a rock. Otherwise, it will be a painful and slow process of attrition over the next 10 years as people have to move for work, get sick, die, lose jobs, etc. To be fair, they have to reset people who are current as well, so as not to create a tidal wave of foreclosures. Retroactive forgiveness of foreclosures on credit scores would be nice for people who don't get to benefit. About $700 billion will pay for it. Forget top-down economics that Paulson has on the brain.
Hey at least you said that depression callers are "usually" wrong, so you're covered once we enter the depression. A K-Winter comes along once every lifetime - this is really a requirement of the K-Wave. As it turns out, the last depression was 78 years ago. Hmmm....that's about the lifespan of the average person. I'll stick with the depression call, but thanks for the optimism.
We now have negative real interest rates, even larger unfunded liabilities, under funded pensions, rising unemployment, falling real wages, falling asset prices, larger fiscal deficits, lower standing in the world, we're less competitive vs. Asia, retiring baby boomers, never ending wars, an exposed ponzi financial system, insolvent banks, oil is still higher today than in 2005.
Oh and to top it off, our personal freedoms and constitutional rights have been hi-jacked by the fed and treasury.
I won't even mention that the unpayable debts remain.
wally, exactly. There will be no sharp recovery for the homebuilders this time - and that is a negative for the economy too since residential investment is usually one of the key engines for a recovery. This is part of the reason I think the eventual recovery will be sluggish.
Of course we are getting ahead of the story since we are in for some tough times ahead.
Furthermore, it will take an act of God at this point for people to speculate on anything, like if they should buy a new TV, if they should cancel vacations, if they should buy a toaster, if they should buy a $4 coffee. This is not a period associated with a bottom, this is a period where relationships with old models are irrelevant and people are going to respond to emotions for many years and be very wary of spending cash.
I'm really just venting, this is not an attack, just ranting and your blog is really the best thing since machine guns!
Progress has been made. And mistakes were made too. But the mistakes have still not been accounted for, the mentality that brought us them is still in play, and the problems are largely still with us.
Re: Bernanke and Paulson need to be indicted and jailed for criminal negligence (at best) and put in the stocks where the people can serve up some rotten tomatoes.
Sorry, couldn't resist. But if I have to choose, I rather be in the present than in the past. Thank you for your blogging - it was miles ahead of the broadcasting media who felt forced to present with the reporting also the optimistic, irrational, reckless explanations.
I think we may be approaching a bottom that will hit a year from now perhaps, but the future past that bottom looks flat to me instead of up. The commitments the government makes to prevent a downside overcorrection will leave us hogtied for a decade -- a decade of relatively high unemployment and slow to no growth.
I'm starting to think that nationalizing the banking sector and canceling unsecured household debt and federal debt by printing money is probably the fastest way to fix things.
That's basically robbing all the savers and everybody who's made loans to the government.
If that happened why would anybody ever make loans to the government again?
You're basically taking the foundation of trust that the system is built on and reducing it to ash.
Will this really make things better?
How is this different from what Argentina and Zimbabwe tried?
Good post.
Nothing more to say other than what has already been said.
(I know, I know....the enormous brilliance of my comment will have many of you contemplating the very foundations of our society including your own mortality.)
Bearly writes:
But how can we be near a bottom when there's no likely clear way out.
It's hard to balance. The further depths we could fall are so clear; yet the amount of stimulus that has been pumped in does count for something. Perhaps it is the fact that the extent of the damage can now be estimated ??
It's nice to have some balance, but doesn't this assume that our current system is fundamentally tenable?
If it is, then we're free to believe that the ebbs and flows will continue, and that our long term trend will be slightly upward or flat.
But what if the system is untenable? Then we are watching the end of times for the system itself.
We are watching the realization that if you plan to grow at a mild 3% forever, you must ignore the probabilities of sustainable exponential growth. We are watching the death of a mindset that views consumerism the way ancient cultures viewed religion, as the fantasy of it all becomes apparent in its failure. It's a shame that we are unable to see our own collective madness until it births a human tragedy.
This system is coming to a close. There is no long term recovery. But that doesn't mean doom and gloom forever.
Like humans have done throughout history, when this system has run its course, the people at the top will implement a new system. They will sell it as more equitable than the one it replaces. And we will buy it.
So go ahead and plan tomorrow using yesterday's map. But this system is toast and the new system is still unknown. The belief in certainty or predictability will soon be vanquished. And we will be better for it in the end.
Does it hurt more when you fall off the cliff or hit the ground? My guess is when you hit the ground.
All the people who are completely tapped out are finally beginning to feel the strain of financial devastation. People I know and like will be wiped out. To use an analogy, many have been driving in the middle of the desert with the gas light on for some time. Now, the gas is gone and the car has stopped. It is very hot and there is nothing on the horizon. Will somebody pick them up and save the day or will somebody stop and rape the women and kill the men?
I too am have an optimistic slant like CR, but this is an uncharted desert. It might be all fine and dandy once people are rescued...or the car may have stopped right by the psycho ward just as the demented overthrew the guards and are running the asylum.
I will return:
as I live, as I breathe, as I burn
I swear I will come through,
with my hands stretching out in the dark,
with my eye pressed up tight to the glass,
wondering if it's all been true.
Wondering, wondering, wondering...
Wondering if it's all ... wondering if it's all been true...
How much of the $60 trillion in esoteric financial instruments have unwound? What is the home price to income ratio? What is the difference between Fed lending rates and core inflation? What is the outlook for employment over the next several years? Nope, reverting to 2005 conditions is nowhere near enough reversion never mind overshoot. Heck, no major homebuilder has even gone bankrupt.
CR, we are moving in the right direction but there just isn't anything on the horizon with which to pull out of this trend down.
We are standing on the precipice of state and municipal failures that will lead to huge pension plan shortfalls and massive public layoffs. Our banking system is more opaque than ever. Banks no longer have to mark to market (value their assets), so they can't be regulated as to their reserve requirements.
Banks no longer have to have cash reserves. The Fed can create billions out of thin air and is no longer required to have reserves. The Fed can lend on collateral with almost no value. The banks can borrow from the Fed without supplying the Fed with ANY collateral. The Banks no longer have to repay the Fed (Fed's new non-recourse policy). The Fed may soon be able to lend directly to corporations, with no collateral and no repayment required, and the Fed is adding another $2 trillion on top of the already existing 9.6 trillion dollar national debt.
Those who were put in charge of the US economy are the very criminals who, collectively, exited from Goldman Sachs with over a trillion dollars in personal wealth, after having engineered the subprime/alt-a CDO swindle that has destroyed the world's financial system. Unless Paulson, Forst, Wilson and Kashkari are stripped of their unlimited power, unfathomable wealth, and are sent to Federal prison, I'd rather be in 2005 working for a better outcome in 2008.
I agree that progress is being made and that there is more to go before we look back and laugh... but we are long ways toward a reasonable bottom.
The thing is in 2005 if you were prescient you could look forward at the imbalances and 'predict' future problems - and they occurred - but we really didn't start FEELING a lot of the associated pain from these drivers until fairly recently...
The bad news is that although a lot of the driving force imbalances have already corrected toward a more sustainable set point - the pain resulting from the correction already behind us will linger for a long time afterward - probably a couple more years assuming we don't fall a lot farther from here. Pain as in job loss, foreclosures, business failures and market weakness.
I think that is the problem with the public - they focus on the current symptoms they are experiencing at the time and not the causal factors that were in place a year or two earlier that got them there.
--
You are amazing, CR. Since you are born-and-bred in America excessive optimism comes naturally to you, I suppose.
More new homes are being built, started and permitted than the demand for housing, which is negative in all likelihood, something very common during recessions. I don't know if you know that fact or admit to it. Anyway, we shall find out in another 6-9 months where you stand on the subject of depression.
I shouldn't be critical of an economist because they CANNOT be too negative for too long lest they get branded as pessimists and perm-bears.
The problem for is imagining what will replace housing as a driver of economic activity and basis of credit issuance.
Eric Janzen thinks it will be a bubble in renewable energy. I doubt it. I think housing was probably the last bubble for quite a long time. In other words, I think we've got a lot further to drop and when we get there we'd better get used to calling it "home."
All depends on the linkage between cheap energy and the growth of debt.
"When a house becomes a home and stops becoming an investment, we will have reached bottom."
I get the point of this statement, but it has always annoyed me. If you save up and plop down 10 or 20% for a home, it is an investment in stability and a LT financial play. Otherwise, you would just rent.
"When a house becomes a home and stops becoming an investment, we will have reached bottom."
I don't know anyone PERSONALLY who considers their home an investment. Now I live about as far from bubbleville as a person can live... but if that is the measure - we're at or near bottom in a lot of interior USA.
If we had a decent government that concentrated on the basics of maintaining the value of the currency and maintaining a level playing field, rather then engaging in idiotic social engineering and favouring the criminals at top and bottom, then we might be better off now. Maybe.
In a quota system run by the most incompetent we most likely were better off then.
I responded as below just an hour ago, but it is applicable to your inquiry. In short, progress for banking and finance Crooks.
-x-x-x-x-x-x-x-x-x-
FWC: The biblical basis of the coming helicopter rescue
So the modern Joseph -Mr. Bernanke (hes even a member of the same tribe as Joseph) has already started the process of buying up assets and its only just begun.
Most of the money will go to cover the reckless lending practices of bad bankers and bad financiers to reward them for their service to the American People to lock them into Debt Concentration Camps (inside their own homes!).
This is NOT helicopter rescue by any means because the money never reaches those who need the most and want to spend more than they can. Inflationists are ignorant of what is going on. Inflation needs jobs and wages to push demand higher in the absence of being able to borrow more for consumption. Consumer Credit if finally declining and so is the mortgage debt.
But I have to say that I would feel a whole lot better if the current slope of the lines on those charts was a little less steep. Not to expect dramatic overshoot after a bubble like this one would be a very optimistic outlook.
"we're at or near bottom in a lot of interior USA"
They may not see price drops, but they will feel the slower economy... and they will be paying, paying, paying for it. The savers and conservative spenders are the only ones who CAN pay for it.
We are further along in the process of recognizing the imbalances in our economy. Unfortunately, the fix seems to be more debt to try to prop up the status quo. The actual adjustment to our new reality has barely begun. Americans will need to learn to live with less, and to save for the future. I see unemployment, delayed retirement, bankrupt states and municipalities (CA!). There is much, much that is yet to be written.
I saw what was coming back in 04/05, so it's good not to have people think I'm nuts anymore!
Thanks to the person who posted this the other day.
"In times of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists."
Eric Hoffer
Re: "The financial crisis is worse today than in 1990, and there are many problems ahead (like less consumer spending and business investment), but I believe progress is being made."
There is a lot of uncertainty as to what the derivative mkt is valued at, but IMHO, looking back at the financial impacts of 1990 and the correlations to global GDP, this is a whole new ballgame we are in today!
outdated FYI: Over the last several years, there has been a lot of discussion about the size of the derivatives market, and how much it has grown since 1990. That market was around $20 trillion in size in 90, and now is estimated by the BIS to exceed $600 trillion world wide.
Any way you tranche it, the survival equipment peddlers will be making out like banditos. If you buy cases of MRE's or similar, it works out to $6-$7 per meal at the sites I've seen so far.
As someone that is pretty high on the food chain in a medium sized construction management and general contracting firm, I have a pretty good idea of just how much farther down we have to go in this industry. I can tell you that the fun is just beginning.
According to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland -- the central bankers' bank -- the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion. The main categories of the USD 1.144 Quadrillion derivatives market were the following:
There hasn't been a single transaction within 40 miles of my current location in the last 10 years that wasn't explicitly made with the expectation/assumption/plan that there would be a substantial return on investment after expenses. Worse the calculation likely included an additional "return" of living for free in the case of owner occupied dwelling units. I'm confident CR can make the same claim.
If we were to set the "wayback machine" to 2004 and tell people buying then that they needed to purchase based upon their long term shelter needs with the certainty that their house would be worth less in 2010 then we'd see massive changes in what was purchased, what was paid and their MEW/lifestyle subsequent choices.
Builder Bob writes:
As someone that is pretty high on the food chain in a medium sized construction management and general contracting firm, I have a pretty good idea of just how much farther down we have to go in this industry. I can tell you that the fun is just beginning.
Builder Bob | 10.08.08 - 2:32 pm | #
Agree Bob...I am involved in the consumer business and CRE....we are screwed
But.....sometimes it really is the end...not of the world or of civilization or anything like that...but certainly the end of an era.....and the beggining of the end of dollar hegenomy and all that implies for the "american way of life".
I am a long time lurker and reader. One chart you used to do was a bar chart that depicted the annual (or quarterly) GDP growth AND the contribution of Home Equity extraction to that growth.
Those charts alone explained a great deal of the 00's in one simple image; and provided a very understandable explanation for why the economy seemed to be struggling and going gangbusters all at the same time.
I miss those charts! Do you think you could do an update?
For the poster a few threads back that was trying to "follow the money" of the Roubini enterprise, here is their "help wanted" page that identifies their production and their sales players.
"The problem is that the workforce is stuck in their non-salable homes. This is a huge problem."
For much of which there is a solution available. Many people could be working from home rather than huge "filing cabinets for people" located in central city locations. The justifications for consolidation of workers into hives are slipping away for many occupations.
This here blog thingy is one example of the communications infrastructure that could change many things. It no longer makes sense to move families around the country to follow jobs. Sure, there are exceptions, but now that we are a service economy, how far does an ex-master-of-the-universe need to move to get a job at Starbucks or MickyD's?
Good times in my neck of the woods. Saved by our new Abu Dhabian Overlords!!
Advanced Micro Devices Inc. said Tuesday it will move forward with plans for a multibillion-dollar computer-chip factory in Saratoga County after securing a $6 billion investment from the government of Abu Dhabi.
"If we were to set the "wayback machine" to 2004 and tell people buying then that they needed to purchase based upon their long term shelter needs with the certainty that their house would be worth less in 2010 then we'd see massive changes in what was purchased, what was paid and their MEW/lifestyle subsequent choices."
Well I tried back then. Got laughed at. If I pressed people they'd start to snarl. So I gave up and protected myself.
Bearly writes:
Everything is much worse and going downhill. I can't see any reason for optimism.
Whether it's accurate or not, I'm uncertain. I've been trying to reach a compromise in my own mind between the collective injected stimulus; the actual bottom; and how quickly the market would respond.
And I do not know. It's time for a counter-trend rally, and, perhaps that's all this is. However, I, for one am convinced that the stock market will find and rally off of a bottom long, long, long before real estate does.
Just a quick note to say thank you for all the excellent analysis over the past few years. I started coming to this site in the summer of '06 and it has become a daily ritual. First thing I do in the morning.
The relatively unbiased perspective you bring to economic matters is a much appreciated and, unfortunately, very rare contribution to the national debate on economic policy.
What you offer goes well beyond the hyperbole, ideological rigidity and limited focus of the typical mortgage or economics blog.
wally writes:
"we're at or near bottom in a lot of interior USA"
They may not see price drops, but they will feel the slower economy... and they will be paying, paying, paying for it. The savers and conservative spenders are the only ones who CAN pay for it.
Absolutely.
We have transfered a lot of 'private debt & liability' into 'public debt & liability'... that was phase one of the 'correction'... phase two will be monetization of the public debt through inflation [pure sense - money creation]. In the long runs the producers will pay along with savers... the price will be a reduction in purchasing power for the work they do and the return on their savings.
But that was in the works anyway - it was going to happen some how once those imbalances occurred. The symptoms were going to suck and they will linger long after the correction has approached bottom.
.I am involved in the consumer business and CRE....we are screwed
crispy& cole/i>
I'm not giving away any secrets; crispy&cole is in Bakersfield California. Gateway to the Central Valley. Birthplace of David Crisp's adventures. Bakersfield is indeed screwed.
"For much of which there is a solution available. Many people could be working from home rather than huge "filing cabinets for people" located in central city locations. The justifications for consolidation of workers into hives are slipping away for many occupations."
In theory, this sounds great, but there are practical impediments that make it unlikely. BTW, I don't feel like listing those impediments right now.
CR--great post. I was thinking something similar, I guess because at least everyone now knows about the probems, and we've come down a long ways as your charts point out. Sort of feels like the 2nd derivative is starting to go positive. I read somewhere that after the S&L crisis, it took housing another year (or so) to bottom and (I think) the economy a little bit longer. But the point was the problem got recognized and therefore, the mechanisms for putting in a floor were put in place.
It's still a long way to go to 11K, and the world is coming apart as we speak. I think you've got your numbers backward. Don't be fooled by this little suckers rally...
Krugman gets the fact that the rate cuts are a sham. He doesn't seem to get the reason why which is that rate cuts are not an action in themselves, but a signal than the Fed will provide more liquidity to maintain the new rate. When the Fed is tapped out for liquidity, its signals mean nothing.
We are due for another round of panic, IMO, as this realization works its way into the minds of the world.
I have heard it said, that going forward higher education will mean less, because there are fewer people to perform manual labor functions, which may be needed. Many kids in high school want to be connected to the lotto on wall street and get a big home, yet who will build homes and repair bridges and maintain the infrastructure during this global depression? We have a massive amount of brats that are focuses on Playstation Lotto mentality, so are these the kids that will be buying into this housing bottom? How will they make money to buy into The American Dream?
CR: It's nice to see that someone else also remembers the recession mugs game post. I found your thoughtful comments in late 2004 on Brad Setser's blog, and have had the privilege of following your blog blossom over the past four years.
Of course, addition of Tanta has been a great bonus. I deeply appreciate the role that your blog has played in educating me about the roots and likely effects of the current housing problems over all these years.
Sometimes, it pays to panic way before everybody else does. Then, it also pays to start looking ahead when all everybody can see is doom and gloom. Here is to the next four years of your blog and analysis!
Well I tried back then. Got laughed at. If I pressed people they'd start to snarl. So I gave up and protected myself.
Me too. The key question I asked them was: "Can you make the payments without hocus pocus and do you REALLY like living there - like it so much you don't mind living there for say... two decades?"
Most of the time I got the deer headlights gaze... [wtf you talking about?]... but out here in flyover a lot of folks told me 'Yes - I can afford and I'm not going anywhere...' So buying for them wasn't a big deal. And most of them are still plenty well off...
The first group [deer headlights club] not so much.
But this system is toast and the new system is still unknown.
Certainly mega investment banks are toast and unregulated creation of ABS will never be allowed again, there is hardly any market now for private bonds. We do get a glimpse of what the new system is like though, in the changes in banking that have already taken place. There will have to be a solution to the CDS mess and the use of CDS may well be outlawed or more likely forced to be traded openly on exchanges. I do think securitization will survive, but in a strictly regulated form.
At some point the powers that be will realize that energy futures trading must be regulated. You just can't tolerate small groups of traders hijacking the worlds power supply, whether its oil or electricity. The run up in oil prices risks starvation and mass death in countries that can't absorb the increase. Anyone who still believes that near 150 dollar oil a few months ago was supply and demand needs to be locked up because they are delusional.
Aside from architectural billings and new projects not being able to get funding, there are some additional issues people might not be aware of.
(A lot of this applies more to condos than houses)
There is still a ton on inventory about to come online. These are projects that everybody knows will not sell but the credit line is still open with the bank and monthly certifications are still being paid to the builder (for the most part). As these projects finish, this is what happens:
Blue collar employees laid off as there is no new work.
Developer and bank realize there is no market for the units.
Builder does not get paid their retainage from certifications (often 10%) as the units do not sell.
Nobody has money to pay for maintenance and the units begin to deteriorate.
Crickets chirp
Developer goes BK, Builder forced to layoff white collar workforce or go BK. Bank stuck with the ruins.
In short, we still are far from seeing tops on unemployment. Banks might do well to acquire demolition businesses at this point.
Coordinated rate cut prevented the drop in the $US that would have happened otherwise.
Coordinated currency as a new Free Market dollar will prevent huge currency diplacements AND eventually lead to coordinated inflation/hyperinflation in this one currency to allow elimination of the currently unpayable debt.
All good for the good ole USA, who sliced, diced and originally exported this problem to create a world-wide condition. They'll be able to keep their status as Lead Dawg.
wally writes:
A nice, level-headed commentary.
I think my only objection is that the belief still exists that after the 'adjustment' there will be a return to 'normal'. OK. However, 'normal' does not mean what people have come to believe over teh last 10 or 15 years.
Amen.
One of the things that has changed in a good way, for me and probably many others, is the end of misplaced trust. I'm getting ready to renew my home insurance, for example. Instead of just sending the check, I'm reading the Best report on the company and then trying to figure out if the Best report really does justice to what would happen to the company in an earthquake, etc.
My stockbroker is getting a lot more questions from me too--even though he earned his pay earlier this year by talking me out of buying WaMu at what I thought was a bargain price...
G7 getting together on Friday to do more "planning"...will emerge with a SUPERPLAN!
They are trying to fix the stock market instead of attacking the real problem, which is the unchecked growth of debt because we are living beyond our means.
The tinkerers will come up with a new "Free World Currency" which will temporarily paper over all past accounting crimes.
Dave writes:
CR--great post. I was thinking something similar, I guess because at least everyone now knows about the probems, and we've come down a long ways as your charts point out. Sort of feels like the 2nd derivative is starting to go positive. I read somewhere that after the S&L crisis, it took housing another year (or so) to bottom and (I think) the economy a little bit longer. But the point was the problem got recognized and therefore, the mechanisms for putting in a floor were put in place.
So, to extrapolate, the next president of the US will be hailed as brilliant as he pulled from the depths of despair and put us back on our feet (regardless of who that will be) regardless of what they do.
Ergo - history will be repeating itself 10-15 years (a minirepeat) and 60-70 years (a major *cession)down the road .
Sometimes, I think I don't get it, because it just sounds too stupid, but I get it.
Me too. The key question I asked them was: "Can you make the payments without hocus pocus and do you REALLY like living there - like it so much you don't mind living there for say... two decades?"
In Orange County, I knew very few people who could afford to re-buy their own home during the boom. So I would ask, "Is everyone going to step down in neighborhoods? Are surgeons going to move into these 1968 single level SFRs in the older part of town?"
Nobody I knew, nor anyone they knew, could afford their own dang neighborhood 18 months after they moved in.
It's probably about time we start looking at what prices levels we'll reach and how. I'm not talking long term, but how we transition to that long term price.
Will the system be damped (slower/longer descent with no overshoot), critically damped (quickest descent no overshoot), or underdamped (overshoot, swings below then above long term price level)?
I know so much has been happening in the markets, but I would really be displeased if I didn't see what's coming in the next 2 years ahead of time. By hashing out some predictions/models now, we should better understand the path we observe prices take when the time comes.
Ok, this is the first rally in a long time, and I have no idea whether it will hold.
There is a larger point I "suspect" many of you are missing. That is that - whenever it actually occurs - the stock market won't wait for you.
Look at every past recession. No exceptions. The stock market rallied long before the recession ended.
You all have raised very valid points about the condition of the real estate market; the shaddow banking system; deleveraging and hyper inflation.
I choose not to believe the dollar will cease to be the reserve currency. Ergo, I believe the market will recover. Absent Armegeddon, history suggests the market will not wait for an economic bottom.
The GOP Peddles Economic Snake Oil
Suddenly Republicans are against market values?
By THOMAS FRANK
... "Free Market Protection Act," which is described on the Web site of the Republican Study Committee. ...
...
.... I asked William Black, the University of Missouri-Kansas City professor of economics and law whom I quoted last week, what he thought of this scheme. He replied, "This is significantly insane as a matter of finance ...."
Back at the study committee's Web site, I see conservatives call to "Suspend 'Mark to Market' Accounting." ...
...
... in discussing the derring-do of Mr. Hensarling and his hard-core colleagues, the New York Times chose to refer to them as "populists" -- friends of the common people. As an indicator of the confused state of our political discourse, the signals don't flash any brighter than this....
Only the well-to-do could possibly feel more comfortable at this point than at the peak. For youngsters like myself (23) and other not so well-to-do people, being at the bottom (If this even turns out to be a "bottom") really sucks. Quality of living is not going to hold up against this onslaught, even if one can maintain a job when they are rapidly disappearing
I came to the realization that America's Economy was addicted to cheap credit. Now that we've had a crisis, and people are finally admitting we now have a problem.
Right now, we are shuddering from the withdrawal of our drugs of choice and headed to the Betty Hank Paulson/Bernanke clinic. Hopefully their methadone relieves a lot of the withdrawal symptoms.
We have made some progress, as CR shows in his graphs. But housing cost to income ratio wasn't among them, and I think is key.
We have done nothing about the underlying financial insanity: (1) thinking that financial services is a productive business - it should be more like a utility; (2) enforcing sane leverage levels on debt instruments (3) forbidding the credit swaps that make all institutions suspect for trust (especially as unregulated 'insurance'); (4) emasculating the undue influence of financial institutions on legislation, both fed and state/local; (5) fighting the race to make the country a services economy through outsourcing; (6) reining in the monstrous income inequality that puts most of the income gains in the hands of the top few percentage points of the population. Those are for starters.
Let's face it. Cars are dead as a source of employment; High Tech (the manufacturing portion, which is the largest) being gone; Housing cannot be a high growth/high profit industry in a near stagnant population; and 'small business' is very precarious as nearly a sole foundation. Medicine/Health care will grow, but we have not much inherent advantage in that complex (university education and research being our current advantage).
I see only one potential growth industry for employment at good wages: conversion to non-petro (carbon) energy. There are several generations of citizens that can do well in the near-total economic remake that will entail. But we are not the leaders today in deployment or in development, although we can be huge reseachers, builders, deployers, and consumers - it we make it even bigger than the race to the moon or the Manhattan Project.
We have blown off the first decade of the 21st century on all of these issues. We also haven't internalized how major our lives need to change to do better in the 21st than in the 20th century.
Finally, our imperial military ambitions are totally out of control. What actual danger is bigger: that we go broke (or live like paupers) funding more military adventures, or we get 'invaded' or 'occupied' by some menace? Our fear has been carefully tended to grow by the present government. It is time to see the lesson of Rome: the legions mean nothing when the society is rotten.
I think CR's semi-rosy outlook is overlooking a number of things:
The fact that we are just now starting to fall off another cliff that has long been brewing- the one caused by an aging population and baby boomers starting to demand their entitlement benefits. The fact is we have a less productive population than we had 5 years ago and it's goigng to get worse every year.
The inflationary and dollar weakening effects of the $700 billion bailout, working in tandem with the debt caused by #1 and the recent Medicare prescription drug entitlement we passed.
We can't assume that the Chinese etc. are going to keep buying our debt. Sooner or later even they are going to wake up and realize that, like the good banana republic we are, we're going to have to deflate our national debt and repay them in cheaper dollars. They will demand higher interest rates to buy our debt, then hello inflation.
I'm agnostic about how big an impact Peak Oil will have, but it's certainly safe to say it's a concern. As soon as our economy starts grinding back up, oil prices will rise right along with it.
There are other things I could mention, but it just seems clear to me that the crisis is just speeding us faster into what was inevitably, as a matter of demographics, history and fiscal math, going to be a time of much reduced productivity in the US. I honestly don't look for the DOW to get back to 14,000 in the next few decades.
"For youngsters like myself (23) and other not so well-to-do people, being at the bottom (If this even turns out to be a "bottom") really sucks."
Man, you don't how good you have it. These are the times when you make your fortune. Become an expert in the problems and the rest comes easily. If you play your cards right, you should have "made it" by 30. Eat Ramen and have 4 roommates for awhile. Who cares?
Altair, good point about aging population. Do you feel that the crushing of retirement savings in 401ks and such will force near-retirement workers to work until they are 70 and/or pull their Social Security payments earlier than planned? (Imagine a huge number of baby boomers drawing on their SS over the next year...ouch!)
Elvis, I haven't been able to save money in my bank account month-to-month for almost 2 years now. I know exactly how "good" I have it. And I don't spend much money at all, and I actually do have 4 roommates and have for 3 years
The basic reality for young people is that unless you went to a premium university, you're going to be the first generation in a long time with a lower standard of living than your parents even though we're going to work 40-50 hours a week until we're 70
I have to agree with CR. I was a lot more bearish in 2006 than I am now. I would hardly say I'm optimistic though - I still think there's another 6-9 months of downward adjustment, followed by 1-2 years of flatlining. The interbank trading system is worse than ever today, so the fat tail risk of a financial meltdown is still there, but I think this will start to diminish markedly towards the end of the month.
Here in the northwest suburbs of Chicago, the fortress walls of sellers' denial have begun to crack in the last month. The number of homes up for rent has surged +50% over the already-high level of the summer.
And serious cuts are beginning to be made in asking prices and asking rents. But they are still much too high. There are 19 homes in the MLS rental listings with asking rents at or above $3000/mo in Palatine, and another 9 in neighboring Arlington Heights. I suspect that demand in that price range is near zero.
Foreclosures at the high end remain relatively few. But clearly more are coming. Last summer there were 36 homes on the Arlington Heights MLS with asking prices at or above $1 million. Although the asking prices have been cut by a hundred thousand or more, only a few have sold. As 3/4 of these are vacant spec homes, it's hard to believe that the developers or their banks can hold out much longer.
mykillk,
You are obviously not doing the right thing. Quit the whining. Go out there and be somebody. Show initiative. Show insight. Become an expert is something useful. It is hard and takes time, but, if you are willing to dedicate yourself to something you have a nature knack at, you will succeed. Or, you can just spend the rest of your time bitching...
I agree with you. We would have been well on the way to the bottom if the seeds for even greater chaos had not been lain by the Fed and treasury
black swan writes:
We are standing on the precipice of state and municipal failures that will lead to huge pension plan shortfalls and massive public layoffs.
Whatever, man. I taught myself computer programming when I was 11 and haven't stopped since. I am far away an expert in what I do, and I taught myself everything I know.
My brother basically did the same thing. The only difference, is that he is about 8 years older and made a ton of money working in the Silicon Valley boom.
He made more 4x money, 18 years old, straight out of high school in one year than I have my entire life so far.
You may call it whining, but I see it as simply recognizing that I don't get to ride the free money system like the rest of you did.
And just when the situation in housing appears to be nearing equilibrium (maybe 2 years?), we will probably be facing worldwide shortages of exportable oil. How will permanent gas shortages affect the value of exurban housing stock? Technofantasies will not effect a solution for shortages of fossil fuel. Enough electric cars may just permanently bring down the electric grid, thus ending the industrial civilization ex0eriment. (see Richard Duncan, PhD. "The Olduvai Theory")
Pay it with paper, it's one year's GDP, and the dollar will take a huge hit, then recover over time. The other option is to let the economy spiral downward to the point where you need to pay with paper and then float a new currency entirely.
You can do it now, or you can do it later. Doing it later just makes it harder.
I tend to think one key is revamping of that catch-all phrase, "standard of living".
As though we were entitled to the rapid and unsustainable disgorgement of energy, the commensurate high volume of engineered products and foodstuffs, topped off with 72" boobtubes, without having to suffer from the gout.
Well, here it is. We got gout. Now we just have to learn to live with less face-stuffing.
To the 23-year old guy; I'm 35 and have seen cash outperform stocks since I got out of grad school (2000). We've going to have a whole generation of young Americans who think investing in stocks and real estate is a completely retarded idea.
I am far away an expert in what I do, and I taught myself everything I know...You may call it whining, but I see it as simply recognizing that I don't get to ride the free money system like the rest of you did.
mykillk
From my experience one source of teaching does not make you an expert. But, if you are in fact an expert and you aren't making any money, you are doing the wrong kind of programming. Figure out where the money is going to be and get there. If your brother has so much money, have him fund your company. BTW, I didn't ride the free money system. I had to milk it like a cow. Damn that is refreshing.
I must take issue with your statement "The bulk of the resets are behind us" when your own graph presented in your Aug. 13 article indicated the majority of Option Arm resets do not start to occur until 2010 and into 2012 before a noticible decline.
""How will permanent gas shortages affect the value of exurban housing stock? "" FrankGifford
Well, you see Frank, that's not on the MEW or Pending Sales charts, so no one discusses it. Permanent gas shortages are going to surprise TONS of people, even though tens of thousands of people are aware that it will happen.
They'll call it a 'Black Swan'(it is, read Taleb's book), and we'll start the 'whocoodanode' thing all over again.
mykillk
I am not sure what industry you are in, but my daughter came out of college from a regionally prestigous college (but still a state university)and entered at a salary that it took her father and I 20 years to attain. Even at that she ended up going back and getting a graduate degree. Granted she works 50+ hours a week, but she sees future growth in her industry (tech), albeit more niche driven than previously. She was able this year to take one of those wretched condos (lol) off the market and lives quite well for a singleton at age 27. But she realizes for your generation a simple degree or two don't automatically leads to the top. It will be a constant learning and evolving career ladder you guys will have to adapt to.
I think you fail to understand the computer programming industry. It's one of the only industries out there where individuals can teach themselves as well or better than any university. All you need are some good books and the desire to follow through with it.
In fact, the silicon valley boom was only made possible by a huge import of self-taught programmers, many of whom were straight out of high school.
But post dot-com boom, programming has become as stale as any other industry. All that matters is what university you went to and how willing you were to torture yourself with post-graduate degrees. Outsourcing has ravaged employment.
Can I be obnoxious and correct your grammar? You mean "took her father and me..." You would not say "it took I 20 years to attain..." so you would not say "father and I" but rather "father and me.." This is a very common error among even well educated people. The actor Jake Gyllenhaal makes it and he had two years at Columbia. It comes I think from the "feeling" that "so and so and I" is always more elegant that "so and so and me" but it has to be "me" when the accusative case is called for.
TED Spread 4.0 writes:
To the 23-year old guy; I'm 35 and have seen cash outperform stocks since I got out of grad school (2000). We've going to have a whole generation of young Americans who think investing in stocks and real estate is a completely retarded idea.
TED Spread 4.0 | 10.08.08 - 3:19 pm | #
Exactly.
I'm beginning to wonder what the generational impacts will be. Like the Great Depression of the 1930s (temporal specificity still required), we might have an entire age bracket of people with no confidence in investing in the markets. Or banks, for that matter.
Whatever, man. I taught myself computer programming when I was 11 and haven't stopped since. I am far away an expert in what I do, and I taught myself everything I know.
You may call it whining, but I see it as simply recognizing that I don't get to ride the free money system like the rest of you did.
Then, sorry, but I for one don't know what to tell you. I don't know too many "experts", especially in technical fields, who can't find money to save at the end of each month, especially if living with 4 roommates.
I do IT project management for a F500 company. We throw $1,200, $1,500 a day at some of our "code jockeys" - I'll save you the math, that's $250-300K a year - and we still get million-dollar implementations hung up because we can't find enough good ones.
But it's not just enough to be an "expert" in one of these fields. You have to know how to juggle projects, and customers, and deadlines.
You have to know your little world inside and effin' out - so well that you can give instructions over the phone to a team of 5 or 6 offshore guys who will be doing the "grunt work" for you, who are 9,000 miles away, speak a different language, and have a 60% turnover rate, and come in the next morning to find them followed to the letter.
You have to be able to explain what you and your team have done to the people on the business side, some of whom might be from Marketing or HR and have never used anything more advanced than Hotmail.
And you need to do all that on time, on budget, and with a sense of professionalism.
Anything less, and you're the one competing against those guys 9,000 miles away, who by the way are getting paid $120 a day instead of $1,200. Good luck with that.
What I wouldn't give to have had the opportunities these next few years are going to bring when I was 23. Feel free not to take advantage of them, but don't blame us if you choose not to.
I originally became interested in these issues because I believed the increase in housing prices was unsustainable and I had a petty, vested interest to buy low, sell high, and then buy low again.
But it's become so much bigger than that. As I've learned here, the CDS shadow market has amplified housing losses. And the measures that are being taken now are distributing wealth inefficiently and hazardously. We may be making progress towards the bottom of the housing market, but I think we have bigger problems now. I don't understand the optimism.
Nice post, CR. Does "you can't get there from here" apply to this? I don't agree that this is whistling past the graveyard, although it is a very 'glass-half full' outlook. Given that I know I'm jumping off a building of indeterminate height, yes, I suppose I would rather be at the bottom, injured, but having survived the fall, than at the top.
Two problems: (1) we're not at the bottom yet, and there's no guarantee of survival; and (2) wouldn't it have been better not to have jumped in the first place?
That being said, if I had the money to make long term investments right now, I think we're probably close to the bottom in equities. But the market will rebound long before the economy. Just my $0.02. Which is about all I have to invest, so take that for what it is worth.
p.s. I see Jim breaking out the grammar nazi. Fight the good fight, man. Cthulhu would be happy if people stopped spelling "lose" as "loose." Keep that extra "o", people- inflation's coming and you're going to need it.
How many of those code monkeys who make 250k a year are 23 and straight out of a plain vanilla state university?
And the reason I haven't been saving money from month to month is because I work in a job that's not in the technical industry because I can't find a single programming job out there where the HR will even give me the time of a day, much less a first or second interview.
So what "opportunities" am I supposed to be taking advantage of over the next few years? I'd love to know about what I'm apparently going to miss out on.
I've been looking at property in three states, including two of the really hard hit ones. There is a TON of property available at "cheap" prices - unfortunately it is mostly all crap. What isn't crap is cookie cutter. There are NO quality properties available at anything resembling prices compatible with fundamentals (ie, a reasonable carry vs rent ratio, etc).
IMO housing prices need to fall another 40% from here - and since the crap has already depreciated in some cases to next to nothing - that means everything but the crap needs to take significant cuts.
In my small neck of the woods, Tucson, where I own a townhouse inside a golf course, there are four similar units for sale. Every one of them is overpriced by about 30-40% if you use Zillow as a guideline. I intend to sell mine at a price that will get it sold. But this will infuriate all my neighbors and they will hate me as a result. Fortunately I don't much care, but I suspect this is one reason prices haven't declined as much as they should...community cohesion. Along with a number of other reasons, of course.
That's funny. Well if you're so wise I guess I should follow your advice. I'll pretend that there are no economic difficulties at the moment and any failure to satisfy my desire for an improved standard of living is purely of my own failure as a lazy, whining person. All I have to do is use The Secret (TM) and a great job that fits my expertise will fall into my lap.
"I'll pretend that there are no economic difficulties at the moment and any failure to satisfy my desire for an improved standard of living is purely of my own failure as a lazy, whining person."
The first step to recovery is recognizing the problem. Be the master of your own destiny. If you fail, at least, it is at your own terms. Good luck. I really do hope you the best, but the best will only come if you want it enough.
Well, I went to Vanilla State U. myself - chemical engineering grad, no fancy resume, no advanced degrees - and I was doing that sort of thing by 27. (Not making $1,200 a day, mind you, but at least getting billed out at that. Cold comfort, perhaps.)
Honestly, from the brief snippets I've read, you've got great communications skills and have some sense of perspective and vision (albeit a moderately jaded one). If you have even moderate technical skill in any sort of IT field, those two things alone will put you ahead of 95% of the pack.
Find a functional area that interests you and that has high business value. Manufacturing, operations, supply chain, sales, compliance - doesn't matter as long as YOU enjoy it.
Spend a couple months getting up to speed on that area from a business perspective. Get some books from B&N or half.com. Find out where businesses have been in that area, where they're going, what they're missing, what the "next new things" are.
Start portraying yourself as a "problem solver" who can serve as that linchpin in between the code monkeys and the people setting the budgets and making the five-year plans. Don't just lean on your programming skills, play up your functional knowledge and your communications skills. Start asking HR guys and headhunters about that specific area and what you can offer them there. Most of them won't know what you mean, but to them it signifies focus and a career path, and that's what they're looking for - anyone can punch buttons.
Look at smaller firms where you can jump into high-value-add activities right away instead of spending 10 years on the ladder. Again, think functionally rather than technically in terms of where to look.
Good news is that getting your foot in the door is the hardest part. As long as you are adaptable and don't get yourself "pigeonholed", any decent-sized company will always need the combination of skillsets above.
Man, all that jabbering and I haven't even answered your question about the "opportunities" yet. Ah well, perhaps another time.
Yes, I would rather be where we are today than where we were three years ago, but then mine is a (sort of) special case.
I bught my first stocks in 1963. Then about 8-9 years ago I got completely out of stocks -- no 401(k), no IRA, no nothing. Not because I was smart, but because I needed the money, being as I was caught in the middle of a downsizing and trying to start a "consulting" business to tide me over to retirement.
Then, last year we sold our house and moved to a rental apartment. Again not because I was smart, but because I was 68 and didn't want to work to support a mortgage any more. Plus I had been reading CR.
For about 6 months I was 100% in cash. Again not because I was smart, but it just worked out that way. Then 2 months ago I started moving about 1% of my cash into stocks each month (dollar cost averaging you know).
OK. I started back into stocks 2, perhaps even 6, months too early, but as someone said on this blog perhaps 18-24 months ago, you can't time the market, but you can time an era. And as Dr. Baker at CEPR said yesterday -- this collapse in stock prices is a gift to long term investors.
Yeah, CR, I'd lots rather be where we are today, searching for the bottom, rather than where we were 2-3 years ago searching for the edge of the cliff.
Mook, sounds like you think the "meat" of the IT industry has shifted away from programming itself and to the organization of programming and IT related activities. Is this right?
CR,
The assertion is that's better to have been stabbed and bleeding than to not yet have been stabbed is bizzare logic my friend. It sounds like you are trying to talk your way into optimism with no logic. Hmm...I would bet that you were short real estate but are long equities?
Mook, sounds like you think the "meat" of the IT industry has shifted away from programming itself and to the organization of programming and IT related activities. Is this right?
Absolutely - and not just in IT. If it can be conveyed in bits and bytes and can be done programmatically, it's being done offshore already; the only question is to what extent. The real "80/20 rule" at big companies these days is that people in India, Vietnam, wherever, will give you 80% of the quality at 20% of the cost - and believe me, that's plenty good enough in their eyes.
But you will always need someone here, locally, to translate from one "language" to another, be the "face" of the work to the client - and yet be good enough behind the keyboard to occasionally "fight fires" by fixing things that some other code-slinger well and truly screwed up.
You can write the most elegant code in the world and most businesses don't care - if they can get it 80% there for 20% of the price, you stand no shot. On the other hand, I can count on both hands the number of programmers I've ever met who could stand up in front of a VP of marketing or finance, and explain in 100 words or fewer what he just spent 100 hours bringing to life with a team of a half-dozen guys who don't speak 1,000 words of English between them, and what it's going to do for them.
I have met them at close of day
Coming with vivid faces
From counter or desk among grey
Eighteenth-century houses.
I have passed with a nod of the head
Or polite meaningless words,
Or have lingered awhile and said
Polite meaningless words,
And thought before I had done
Of a mocking tale or a gibe
To please a companion
Around the fire at the club,
Being certain that they and I
But lived where motley is worn:
All changed, changed utterly:
A terrible beauty is born.
We are just waking up in Hong Kong so I have not had the benefit of all the previous comments, but I must thank you for this meta-post. It is just the right time for this perspective and I share the feeling of relief.
I make a trip or two per year back to the US, and the anxiety and confusion I experienced in the early to mid 00's was acute. Setting aside the post 9/11 mania, there was also this rampant consuming orgy going on that to my mind was just nuts.
Turning from that spending spree inward, I was personally aggrieved that I had missed the leveraged locomotive to riches-- as a saver I was a relic.
Today, I have no (OK maybe a little) schadenfreude about those who got in too deeply, and little (OK maybe a lot of) rage at the continued attempts to inflate a broken model.
And while I'm still a relic, at least I know I'm not the only one.
Throughout the work out process and the aftermath, I have come to depend on CR, Tanta, and many of the gallery of commentors for understanding, humor and insight into what the future holds for us all.
I've changed my handle a couple times, but my appreciation of this blog has been a constant.
I very much appreciate your blog and even more so your optimism in this post. It is certainly difficult to judge if the crisis of the early 90s can be compared to the current one.
After today's global central bank rate cut overnight LIBOR, 1-mo and 3mo-LIBOR moved significantly higher. On April 30, the last time the Fed cut 25 bp to 2pc the 1-mo and 3mo-LIBOR rate moved significantly lower.
It is a too early to be sure but it looks like the Fed is pushing on a string which would make this crisis certainly different from others.
CR,
thank you and Tanta also for this wonderful blog. Your perspectives and so generously shared knowledge and analysis of current events qualify you both for hero status.
Great blog. Question how long will it take local government to start reducing their tax digest for lower taxes on delflate home prices of today and tomorrow?? NEVER?
"C'est l'histoire d'un mec qui tombe d'un immeuble de cinquante étages au fur et à mesure de sa chute il se répète sans cesse pour se rassurer: jusqu'ici tout va bien, jusqu'ici tout va bien, jusqu'ici tout va bien... mais l'important, c'est pas la chute, c'est l'atterrissage."
Or to put it another way -- you knew we were going to fall off the cliff, so being here shouldn't change anything, unless you now see any new signs that the landing will be softer than you thought when we were at the peak. Do you?
Primo ?= Nemo
emo!!
I'd definitely rather be "here".
Until I know the ultimate destination I can't be certain where I would rather be.
Thank you CR,I appreciate your balance and common sense.Give my best to Tanta,I suspect no news is bad news regarding her condition.
So CR, you do not expect these indicators to overshoot their long-term averages?
Also, I think things are more than a little worse than they were in 1990. Every day, we seem to get a new "unprecedented" action by governments and central banks worldwide. How this ends depends on whether those actions are successful.
The future now looks more uncertain to me than at any time in my life.
CR calling bottom?
Well he's usually a bit early. So I call bottom in 1 Year.
Progress? I guess you could say a progression to the bottom. Are you saying that if you get so low the only way to go would be up, eventually?
CR, I'm pretty sure your blog has been around longer than 2005 - I think I started reading around 2000 (can that be right?). Tanta was only a lowly commenter at the time. Those were the days! (in the sense that comments were few and astute).
Progress towards what?
People have been calling me a pessimist for the past few years, when actually, I'm optimistic about the future - AFTER - the correction. Been sitting in cash for that very purpose.
Yeah! The roller coaster ride could possibly end before I throw up! Yeah!
The financial crisis is worse today than in 1990, and there are many problems ahead (like less consumer spending and business investment), but I believe progress is being made.
We're getting rid of some of the bad debt. The system is getting a little more honest.
But personally I'm still not sure the patient can survive the surgery it needs to recover.
Nor am I convince the patient is even willing to undergo that surgery.
I wish I could be more optimistic like CR, but thus far I've been a dire pessimist, and what I'm seeing right now looks worse than anything I expected.
I know that attitude isn't necessarily helpful at times like this, but that's why I don't hold it against CR sometimes when I feel he's a bit too optimistic.
Optimism bias exists for a reason.
Progress at what price would be my thought? Insert list of calamities here...
Progress? Assets and commodities plunging due to world economies falling off a cliff. What good are lower prices when credit is frozen and jobs are disappearing? Read Denninger's doomsday scenario just around the corner--chiling:
The Market Ticker
Great post.
Although there is not an index for it, I think we will also see a change in peoples' attitudes about debt and saving.
In 2005, many people were intoxicated by debt and consumption. I think that within the last few months, more people are starting to see that savings and living below your means are more virtuous than they realized. Maybe changes in household values will eventually translate to changing choices among our politicians choices as well.
Nice rational post.
If you really want to stop this from toasting all of the banks you need to unilaterally declare all Credit Default Swaps and illegal contract and debook them now. If not, it will pop institution after institution, focusing the world's money into the hands of the best betters in this irrational market that has no basis in economic reality. Irnoically, since the money, such as it is, has to go somehwere, you may well find someone like Geroge Soros sitting on top of a pile of all of the world's money with a smile saying, "I win".
CR:
thanks for the breath of fresh air.
I think I'd rather be "there" than "here" or even "or here", with "there" being on the upswing.
But I guess "or here" will do for now.
as I said yesterday, I got OUT of all my proshares short funds because it's too much gambling now... and too many important financial events are being decided by just a handful of people.
that said, I do feel that we may be nearing the worst of the worst now... I say that because we now have concerted world intervention. Not that it'll cure anything, but it might delay the worst just like in 2001.
The chance of Japan-like scenario playing out in the U.S. seems to be getting higher.
But can we restructure our economy to adequately address the imbalances that exist? Will their be enough pain felt to drive the primal need to adapt?
The one thing that is arguably worse about where we are today is that we have irrevocably passed by a lot of opportunities to manage the decline responsibly. You have a lot more traction when you are on the edge of the cliff than when you are in free fall.
On the other hand at least now people believe there is a problem, which is the most basic requirement to be able to do anything about it.
A nice, level-headed commentary.
I think my only objection is that the belief still exists that after the 'adjustment' there will be a return to 'normal'. OK. However, 'normal' does not mean what people have come to believe over teh last 10 or 15 years.
For one instance: no big homebuilders have yet gone BK. As soon as they think the storm is over, they will expect to return to the same level of building as before. Won't happen. That newly found balance of builds and sales is not a step to recovery - it is the recovery.
There's no bottom call in CR's post, and I think he's about correct. We now have a lot more information about how to deal with the crisis than we had. Over the -next- two years, Nouriel Roubini and his ilk will stop being prescient and start being Chicken Little again, and slowly, normalcy will return.
More than that, we might even start to have a stable balance of payments again, or something like it.
easily one of the best posts cr has made.
Duke writes:
Nice rational post.
If you really want to stop this from toasting all of the banks you need to unilaterally declare all Credit Default Swaps and illegal contract and debook them now. If not, it will pop institution after institution, focusing the world's money into the hands of the best betters in this irrational market that has no basis in economic reality. Irnoically, since the money, such as it is, has to go somehwere, you may well find someone like Geroge Soros sitting on top of a pile of all of the world's money with a smile saying, "I win".
Isn't that the true purpose of capitalism in it's raw form?
To the extent all the overbuilt housing is well constructed and will become useful over time, the loss is not so bad. To the extent that it sits empty and rots, it's a disaster.
Wow CR, no one made comments back then, I guess I better go back in the time machine and offer some future advice:
Calculated Risk: The Impact of a RE Slowdown on Employment
The system is getting a little more honest.
Not sure about that, given that they may just ban mark to market accounting.
i think instead I'll say that we're sweeping most of the dust into the closet for now, but at least we all know that we shouldn't open the closet door.
I'm just [beaver house] glad I found this site when I did. Thank you CR.
Well said Bill! I started blogging in AUG 2005, and turned into doom & gloom in early 2007. Considerably later than you, the great one!!
I agree wholeheartedly HOWEVER, the problem is that we are entering a period of time where the credit platform, if you will, for growth will be much different than what we were used to. Wall street is forever changed, heavy regulation coming, securitization is virtually dead, and credit bust is yet to find a bottom; wherever that may be.
With that said, I feel that most people assume that since house prices fell 30-40%, they will bounce back and recoup some of those losses and see an nice gain. That is wishful thinking considering the world as we knew it is forever changed.
I think this will be an L shaped correction/adjustment, not a V, and people will have to deal with the fact their homes are now worth considerably less, and likely to stay that way for many years.
With regulation, they will not allow this to happen again, and that means much more subdued growth potential with a much smaller engine to drive it!
Panzer command AIG and Lehman units has called for a tactical retreat and deployment of artillery pieces to soften up resistance along tomorrow's advance...the advance units at Troyes have been encircled...
This will not be Japan redux. They were a nation of savers with a powerful manufacturing base and huge trade surpluses. We cannot survive even another year of ZIRP
Oh yes. A healthy correction. If only the keynesians could stop interfering.
Anyway, after this bear market ends in '10 we're on to a new bubble created by fiat money. Because that's what the people want. The ultimate collapse is the dollar.
this blog will continue to bring you the doom and gloom
oh, seb's not going to like that.
Kona
Too funny...
Been lurking and sometime commenter since Nov '07. Best post I've read, this blog has been a source of comfort as well as gloom and doom. Thanks, CR and Tanta.
CR thanks for your continued great work and balanced approach.
I'm still concerned that things will get much, much worse. The US (and world) economy has been running on fumes, smoke and mirrors, and debt for too long, and there is still far too much unwinding to be done in too many sectors.
For example. A huge % of our exports are from Boeing alone, and much of their order backlog has been funded by orders from heavily subsidized Middle Eastern airlines. How many planes do Emirates / Etihad / flyDubai etc really need? what happens if/when tourism/biz travel crater and if oil prices collapse?
A similar analysis could be done for the auto industry, crap retail, extractive industries / finance / RE etc etc. har to be an optimist
I would agree, it's definitely better to be here. However, it's the government responses I fear now, rather than the necessary economic correction. A natural downturn of the economy and free market correction is fine: something people can prepare for, plan for, and deal with. The government actions using the correction as an excuse have the potential to be much, much worse.
I have more fear now than I did in 2005, personally, because I feel we're staring off the precipice of government intervention and manipulation on a grand scale, and the damage has the potential to be far worse and longer lasting than anything the free market would cause. That might just be me, though.
No Capitulation = No Recovery
That's all fine and dandy. But we don't live on a graph and unfortunately human suffering has just begun.
The real tragedy still lies ahead...
Tis the gift to be simple, 'tis the gift to be free,
'Tis the gift to come down where we ought to be,
And when we find ourselves in the place just right,
'Twill be in the valley of love and delight.
When true simplicity is gain'd,
To bow and to bend we shan't be asham'd,
To turn, turn will be our delight,
Till by turning, turning we come round right.
Maybe at thre bottom we will start to exchange Bling for simplicity.
well, it's neither here nor there. It's really over the river and through the woods.
Here's the way I look at it: Banks are like stock cars in a race. They need to conserve enough fuel to make it to the pit stop. But, they don't how much further to the next pit stop or the terrain in between. The issue is not the fuel in the car; it's the load on the car, and the steepness of the course.
CR is implying that the car is not going off the course and over the cliff, which I agree with. My issue is that the road ahead is getting steeper (deleveraging), the load on the car is increasing (gov't screwups), and it's highly likely banks will have to turn off the car, and we'll all have to push it up to the next stop anyway.
I'm just glad I brought my bicycle.
I wish optimism were possible, but one can easily predict what is going to happen from this point forward, and it isn't good.
The bad debts will continue to be covered up with more and more paper. Confidence will continue to evaporate, and when unemployment tops 10% next year during the Obama Administration, we will see seemingly massive public spending works initiated to prop up demand, but the actual output will be next to nothing as government really is incapable of producing anything any longer that isn't vastly overbudget and behind schedule. More capital destroyed equals greater and greater poverty. Rinse and repeat until the revolution brings down the government. At that point, optimism may be appropriate, or maybe not- the outcomes of revolutions are always in doubt.
Here ya go:
YouTube - You'll Never Walk Alone Liverpool V Barcelona
"The system is getting a little more honest."
Not sure about that, given that they may just ban mark to market accounting.
Maybe I should have said a little bit more "sober". In the end I think it will be the market participants that force the honesty on the "system". I don't think the system will do it of it's own accord.
I think now market participants are waking up to reality and increasingly saying: "You will run things honestly, or I will not participate."
I know personally I used to be a bond bull because I implicitly trusted the US government.
In the last week or so I dumped the last of my treasuries because, frankly, I no longer feel that trust is warranted.
It has not been earned.
CR, I agree with everything you're saying, but think you'd agree that a general collapse is no longer a tail event.
If it wasn't a tail event, the monetary and treasury people across the globe wouldn't be pedaling as fast as they are now. They've been blindsided.
Conjure and I aren't saying it's going to happen, but we now have to think about the unthinkable and plan accordingly.
To do otherwise would be irresponsible.
The trade deficit does not include the 6 billion roughly of Fannie/Freddie Debt that the Treasury has implicitly guaranteed
I'm starting to think that nationalizing the banking sector and canceling unsecured household debt and federal debt by printing money is probably the fastest way to fix things.
Yeah, some people will be getting a free ride, but the hurt will all come at once and it will be far cheaper than continuing to wait.
It's probably a pipe dream (although I'm straight edged, so no pipes here).
Gee, and folks are criticizing me for finally buying with my dry powder?
I am betting that we will enter a four to five year period of false stability that will end with other events. In other words, it is the end of the 74 oil crisis. So relax and buy some stocks!
1981 and the end is a long long long ways away.
The changes in the wind are going to be very interesting. The government has two choices to make up for the housing boom:
1) Inflate and let wages catch up with asset prices and real returns.
2) Tarp the real estate market in bubble areas and provide 1 or 2% long term financing to those caught by the bubble who occupy their homes.
A natural consequence is going to be more socialization of risk and reward in this country.
Sweden anyone?
Boring, but safe as houses!!
Someday this war's gonna end...
I think all of this gloom is priced into the stock market but what we haven't priced in is duration. I say we stay below Dow 10000 for years...
girlbear, I'm saying there will always be Depression callers - and they will usually be wrong. I think they are wrong again - and we are making good progress towards the eventual bottom.
We've come a long way over the last 3 years. I'm more sanguine today than I was in 2005 (I was more scared then than now). Yes, others are more scared today - but many of them apparently didn't see what was coming.
The next year or more will be UGLY. No question. But we are getting there. Unfortunately I think the eventual recovery will be sluggish too ... but that is a different story.
Best Wishes.
CR - reasonable post, but I think you left out some graphs, such as total federal/state/local debt and household debt service ratios. I don't think either have started to adjust, and addressing each will result in sustained (or permanent) reductions in personal consumption. Including these would paint a somewhat more negative picture.
Buffett's Goldman, GE Warrants Worthless After Rout (Update1) - Bloomberg.com
Hey MS,
warren's got that look.
i think that's level 2, from your photo index
Secular psychological change in spending habits coming to a mall near you...
The new 'normal' spending will be a lot different from the old 'normal'...
This one is much better:
YouTube -
Will there emerge a new "Plaza Accord" this week? Is bond market spook signaling something is in the work?
Fun Memories
Like it Lots!!!!
Isn't the Adjustment Process the same thing as the great unwind?
Yay CR! i remember those early days, you had a Mug's Game of picking the start of the recession. we were all way early on that. fun to look at the names of the early commentators, dryfly, mish, movie guy.
Calculated Risk: The Mug's Game Challenge: Predict the Start of the Next Recession
Are you saying we've reached the bottom already? Buy stocks now!
CR,
Re: "Here is a look at some of the data. Where would you rather be?"
What about option #3, which adjusts for economic chaos? Home sales trends will be highly correlated to this financial systemic collapse and take away future value, in the form of future home prices, future asset prices, future savings, future down-payments, future buildup of inventory, etc...
Hence, IMHO, option #3, is a continued period of instability that will freeze current sales and force inventory to shoot higher while less demand impacts price.
Thanks CR!
Awesome perspective to read on a gloomy Virginia weekday.
I am convinced once George Bush leaves office everything will be alright and return to normal. He's been nothing but bad luck.
third eye, I was writing other places before 2005 (although way back to 1997 on the internet), but I started this blog at the beginning of 2005. I wanted to find out what a blog was - and of course I started writing about housing right away.
I'm still bearish on housing and the economy - but I'm feeling better.
Best to all.
To quote Denniger:
Bernanke and Paulson need to be indicted and jailed for criminal negligence (at best) and put in the stocks where the people can serve up some rotten tomatoes.
got tomatoes?
The other thing to watch for...
The government "solution" - worldwide - has been to shift the current dept loss onto future taxpayers where possible. Before it is over, trillions will have been thus shifted.
Step 2 will be to inflate that debt away. One or two countries cannot do it because that would put them at a competitive disadvantage. But if all the big economies do it (wink, wink) then we will see the future debts diminish... inflated away.
So you have to ask: who loses in that scenario? Well, you wouldn't want to be old, on a fixed income, have cash, not have debts and not own equities.
CR - "To be standing at the edge (in 2005) or to be much nearer the bottom in 2008?"
But how can we be near a bottom when there's no likely clear way out. What will lead us to grow out of the deep hole us USG deficits funded externally, trade imbalances and consumers deep in the hole. I don't see it. Consumers are conditioned to jump on the next bubble or throw in the towel. There is no discipline.
Progress is being made? Based on what? The bailout? CR- get real. Banks, former investment banks, insurance companies hold trillions of dollars in leveraged CDS obligations, and they're all going down. $700 billion doesn't even scratch the surface of how bad it's going to get.
McCain is right...the only way to really stop it is to reset mortgage loans to market value in all markets that dropped like a rock. Otherwise, it will be a painful and slow process of attrition over the next 10 years as people have to move for work, get sick, die, lose jobs, etc. To be fair, they have to reset people who are current as well, so as not to create a tidal wave of foreclosures. Retroactive forgiveness of foreclosures on credit scores would be nice for people who don't get to benefit. About $700 billion will pay for it. Forget top-down economics that Paulson has on the brain.
so like, the 7th inning stretch?! cool?
What song shall we sing?
Take me out to the shell game...
Hey at least you said that depression callers are "usually" wrong, so you're covered once we enter the depression. A K-Winter comes along once every lifetime - this is really a requirement of the K-Wave. As it turns out, the last depression was 78 years ago. Hmmm....that's about the lifespan of the average person. I'll stick with the depression call, but thanks for the optimism.
I was frustrated buyer in 2006, It seemed like everything didn't make sense.
Now I'm a happy renter in 2008 and it seems like the world is starting to make sense again.
That is a good thing.
Double top today???
Where do I begin. Compared to 2005:
We now have negative real interest rates, even larger unfunded liabilities, under funded pensions, rising unemployment, falling real wages, falling asset prices, larger fiscal deficits, lower standing in the world, we're less competitive vs. Asia, retiring baby boomers, never ending wars, an exposed ponzi financial system, insolvent banks, oil is still higher today than in 2005.
Oh and to top it off, our personal freedoms and constitutional rights have been hi-jacked by the fed and treasury.
I won't even mention that the unpayable debts remain.
wally, exactly. There will be no sharp recovery for the homebuilders this time - and that is a negative for the economy too since residential investment is usually one of the key engines for a recovery. This is part of the reason I think the eventual recovery will be sluggish.
Of course we are getting ahead of the story since we are in for some tough times ahead.
Best Wishes.
2P PUMP!
Furthermore, it will take an act of God at this point for people to speculate on anything, like if they should buy a new TV, if they should cancel vacations, if they should buy a toaster, if they should buy a $4 coffee. This is not a period associated with a bottom, this is a period where relationships with old models are irrelevant and people are going to respond to emotions for many years and be very wary of spending cash.
I'm really just venting, this is not an attack, just ranting and your blog is really the best thing since machine guns!
Progress has been made. And mistakes were made too. But the mistakes have still not been accounted for, the mentality that brought us them is still in play, and the problems are largely still with us.
You need to define progress up front when establishing a goal.
I think progress is being made with the economic equilibrium as noted in the blog entry.
I'm less certain progress is being made on the policy or cultural aspects of the housing/credit bubble.
The entitlement mentality, and the policies that support it, are clearly still a problem.
Until the speculation mindset changes and the govt stops trying to force asset prices up, then we will have true equilibrium.
When a house becomes a home and stops becoming an investment, we will have reached bottom.
I don't know if that ever happens again, but the closer we get to that, the better.
Great post CR
Re: Bernanke and Paulson need to be indicted and jailed for criminal negligence (at best) and put in the stocks where the people can serve up some rotten tomatoes.
Thanks for your response CR, Roger that..
Dow 3,600?
Dow 30 down 508 yesterday.
Strange.
October 1987 huge 1 day crash Dow 30 also down 508.
Are the gods talking?
Would you rather be here or there?
I wouldn't like to be anywhere.
Sorry, couldn't resist. But if I have to choose, I rather be in the present than in the past. Thank you for your blogging - it was miles ahead of the broadcasting media who felt forced to present with the reporting also the optimistic, irrational, reckless explanations.
I think we may be approaching a bottom that will hit a year from now perhaps, but the future past that bottom looks flat to me instead of up. The commitments the government makes to prevent a downside overcorrection will leave us hogtied for a decade -- a decade of relatively high unemployment and slow to no growth.
I'm starting to think that nationalizing the banking sector and canceling unsecured household debt and federal debt by printing money is probably the fastest way to fix things.
That's basically robbing all the savers and everybody who's made loans to the government.
If that happened why would anybody ever make loans to the government again?
You're basically taking the foundation of trust that the system is built on and reducing it to ash.
Will this really make things better?
How is this different from what Argentina and Zimbabwe tried?
I'm concerned that the crisis will move from how the markets are doing to the US government's solvency.
How long will foreigners float our deficits? Maybe they will forever, I can't say.
It will be interesting to see what happens though.
Progress? What progress? The Fed is simply plugging holes...the mess is uncontrollable.
CR,
Good post.
Nothing more to say other than what has already been said.
(I know, I know....the enormous brilliance of my comment will have many of you contemplating the very foundations of our society including your own mortality.)
Bearly writes:
But how can we be near a bottom when there's no likely clear way out.
It's hard to balance. The further depths we could fall are so clear; yet the amount of stimulus that has been pumped in does count for something. Perhaps it is the fact that the extent of the damage can now be estimated ??
Yes, great post, CR. Read you since late 05. You've been a superhero of the truth. Thanks for all your great work.
When I read the first paragraph, it sounded like you were bidding farewell. Are you planning to continue blogging through the recovery?
Nice post CR, pulling a few g's here, but hey, gotta breathe....now if we could only completely replace Congress with the phone book.
I appreciate the cool-headed article with documented points, because my instincts say otherwise--but instincts can be wrong.
It's nice to have some balance, but doesn't this assume that our current system is fundamentally tenable?
If it is, then we're free to believe that the ebbs and flows will continue, and that our long term trend will be slightly upward or flat.
But what if the system is untenable? Then we are watching the end of times for the system itself.
We are watching the realization that if you plan to grow at a mild 3% forever, you must ignore the probabilities of sustainable exponential growth. We are watching the death of a mindset that views consumerism the way ancient cultures viewed religion, as the fantasy of it all becomes apparent in its failure. It's a shame that we are unable to see our own collective madness until it births a human tragedy.
This system is coming to a close. There is no long term recovery. But that doesn't mean doom and gloom forever.
Like humans have done throughout history, when this system has run its course, the people at the top will implement a new system. They will sell it as more equitable than the one it replaces. And we will buy it.
So go ahead and plan tomorrow using yesterday's map. But this system is toast and the new system is still unknown. The belief in certainty or predictability will soon be vanquished. And we will be better for it in the end.
Does it hurt more when you fall off the cliff or hit the ground? My guess is when you hit the ground.
All the people who are completely tapped out are finally beginning to feel the strain of financial devastation. People I know and like will be wiped out. To use an analogy, many have been driving in the middle of the desert with the gas light on for some time. Now, the gas is gone and the car has stopped. It is very hot and there is nothing on the horizon. Will somebody pick them up and save the day or will somebody stop and rape the women and kill the men?
I too am have an optimistic slant like CR, but this is an uncharted desert. It might be all fine and dandy once people are rescued...or the car may have stopped right by the psycho ward just as the demented overthrew the guards and are running the asylum.
Popeye made the right call, 150 points up today, let's see if the rally holds
"When a house becomes a home and stops becoming an investment, we will have reached bottom."
Thread music:
YouTube -
I will return:
as I live, as I breathe, as I burn
I swear I will come through,
with my hands stretching out in the dark,
with my eye pressed up tight to the glass,
wondering if it's all been true.
Wondering, wondering, wondering...
Wondering if it's all ... wondering if it's all been true...
This rally wont hold..
we will end up in RED for sure
CSC, nice insight...
Nice contrarian viewpoint.
When the gloom is on the cover of Time, US News, Newsweek, all over CNN, etc. then it may be time to look for the bottom.
I don't think we are there yet. There is still a lot of optimism that all these tricks to "fix" it are going to work.
But once everyone realizes nothing will work, then maybe we have reached the bottom. Capitulation.
How much of the $60 trillion in esoteric financial instruments have unwound? What is the home price to income ratio? What is the difference between Fed lending rates and core inflation? What is the outlook for employment over the next several years? Nope, reverting to 2005 conditions is nowhere near enough reversion never mind overshoot. Heck, no major homebuilder has even gone bankrupt.
CR, we are moving in the right direction but there just isn't anything on the horizon with which to pull out of this trend down.
"The further depths we could fall are so clear; yet the amount of stimulus that has been pumped in does count for something".
Hyperinflation?
"When a house becomes a home and stops becoming an investment, we will have reached bottom."
When politicians start talking about propping up real wages, and not propping up asset prices, we will at least be making progress towards a bottom.
Great post, CR.
From a market perspective, we're probably one or two more big big down days in the stock market before hitting a bottom.
But we're getting very close.
cash
"There is still a lot of optimism that all these tricks to "fix" it are going to work."
I don't think the govt will ever give up. Negative feedback loop.
So CR, you are saying we should all get our money out of the bank, right now?
We are standing on the precipice of state and municipal failures that will lead to huge pension plan shortfalls and massive public layoffs. Our banking system is more opaque than ever. Banks no longer have to mark to market (value their assets), so they can't be regulated as to their reserve requirements.
Banks no longer have to have cash reserves. The Fed can create billions out of thin air and is no longer required to have reserves. The Fed can lend on collateral with almost no value. The banks can borrow from the Fed without supplying the Fed with ANY collateral. The Banks no longer have to repay the Fed (Fed's new non-recourse policy). The Fed may soon be able to lend directly to corporations, with no collateral and no repayment required, and the Fed is adding another $2 trillion on top of the already existing 9.6 trillion dollar national debt.
Those who were put in charge of the US economy are the very criminals who, collectively, exited from Goldman Sachs with over a trillion dollars in personal wealth, after having engineered the subprime/alt-a CDO swindle that has destroyed the world's financial system. Unless Paulson, Forst, Wilson and Kashkari are stripped of their unlimited power, unfathomable wealth, and are sent to Federal prison, I'd rather be in 2005 working for a better outcome in 2008.
When the gloom is on the cover of Time, US News, Newsweek, all over CNN, etc. then it may be time to look for the bottom.
LOL. Where have you been hiding this week?
Maybe this is the way CR feels?
"L'Homme Qui Tombe"
The Falling Ma - Wikipedia, the free encyclopedia
Thanks CR - great recap.
I agree that progress is being made and that there is more to go before we look back and laugh... but we are long ways toward a reasonable bottom.
The thing is in 2005 if you were prescient you could look forward at the imbalances and 'predict' future problems - and they occurred - but we really didn't start FEELING a lot of the associated pain from these drivers until fairly recently...
The bad news is that although a lot of the driving force imbalances have already corrected toward a more sustainable set point - the pain resulting from the correction already behind us will linger for a long time afterward - probably a couple more years assuming we don't fall a lot farther from here. Pain as in job loss, foreclosures, business failures and market weakness.
I think that is the problem with the public - they focus on the current symptoms they are experiencing at the time and not the causal factors that were in place a year or two earlier that got them there.
The question is: Progress for whom?
Cordially,
K. Trout
--
You are amazing, CR. Since you are born-and-bred in America excessive optimism comes naturally to you, I suppose.
More new homes are being built, started and permitted than the demand for housing, which is negative in all likelihood, something very common during recessions. I don't know if you know that fact or admit to it. Anyway, we shall find out in another 6-9 months where you stand on the subject of depression.
I shouldn't be critical of an economist because they CANNOT be too negative for too long lest they get branded as pessimists and perm-bears.
Jas
The problem for is imagining what will replace housing as a driver of economic activity and basis of credit issuance.
Eric Janzen thinks it will be a bubble in renewable energy. I doubt it. I think housing was probably the last bubble for quite a long time. In other words, I think we've got a lot further to drop and when we get there we'd better get used to calling it "home."
All depends on the linkage between cheap energy and the growth of debt.
McCain's Mansion sold
YouTube - I can see Russia from my house
Kona, that was awesome. See my comment back in 2005 - we're millionaires now.
CR,
This is a super great post.
You are correct as far as housing goes - but this is much bigger now.
The addication tio cheap credit will be easy to let go:
Here are the lessons of the credit crunch - but will we learn them? - Telegraph
Looks to me we're about half-way through this. Going by ARM reset charts I always pegged the bottom of the 'U' around 2009-2011.
"When a house becomes a home and stops becoming an investment, we will have reached bottom."
I get the point of this statement, but it has always annoyed me. If you save up and plop down 10 or 20% for a home, it is an investment in stability and a LT financial play. Otherwise, you would just rent.
Dow 30 down 508 yesterday.
Strange.
October 1987 huge 1 day crash Dow 30 also down 508.
Are the gods talking?
It's not a good idea to read too many "signs" into pure coincidences. See the movie A Beautiful Mind for more details.
CR.
Thank you for talking me off the ledge.
I will continue to strive to be cool under pressure and make decisions instead of reactions.
"When a house becomes a home and stops becoming an investment, we will have reached bottom."
I don't know anyone PERSONALLY who considers their home an investment. Now I live about as far from bubbleville as a person can live... but if that is the measure - we're at or near bottom in a lot of interior USA.
A sign of recovery MAY be when the fraudulent executives at these banks and lenders start heading to jail (if trials ever happen).
i'd say we're in the 3rd inning.
lot's of highly leveraged derivatives to unwind.
lot's more crazyness from various world legislators still to come.
lot's of personal debt of citizens to be dealt with.
lot's of sovereign debt to deal with.
lot's more companies and banks to go belly up.
probably skipping a bunch.
Depends who you are, no?
If we had a decent government that concentrated on the basics of maintaining the value of the currency and maintaining a level playing field, rather then engaging in idiotic social engineering and favouring the criminals at top and bottom, then we might be better off now. Maybe.
In a quota system run by the most incompetent we most likely were better off then.
The problem for is imagining what will replace housing as a driver of economic activity and basis of credit issuance.
Credit must be issued on the ability of the borrowers to pay it. This requires an able, motivated, educated, productive workforce.
It is extremely dangerous to think that anything else can serve as a stand-in for this.
Our economic future depends on the ability of our population and businesses to be economically productive.
Unjustified credit expansion is totally anathema to this, as history has shown over and over and over again.
--
"The question is: Progress for whom?"
Comrade Kilgore Trout,
I responded as below just an hour ago, but it is applicable to your inquiry. In short, progress for banking and finance Crooks.
-x-x-x-x-x-x-x-x-x-
FWC: The biblical basis of the coming helicopter rescue
So the modern Joseph -Mr. Bernanke (hes even a member of the same tribe as Joseph) has already started the process of buying up assets and its only just begun.
Safe Haven | Preservation of Capital |
Most of the money will go to cover the reckless lending practices of bad bankers and bad financiers to reward them for their service to the American People to lock them into Debt Concentration Camps (inside their own homes!).
This is NOT helicopter rescue by any means because the money never reaches those who need the most and want to spend more than they can. Inflationists are ignorant of what is going on. Inflation needs jobs and wages to push demand higher in the absence of being able to borrow more for consumption. Consumer Credit if finally declining and so is the mortgage debt.
Jas
I'm with CSC -- the current system is untenable.
Just like the IB model which is now dead, the current system will have to change, and that change will be extremely painful.
Depression dead ahead.
Great Post, CR
UB,
That was a little weird, but I'm adapting
I would rather be in 2005 right now. I could liquidate my portfolio and sit on the cash and miss out on this 40% drop!
Great Post, CR.
But I have to say that I would feel a whole lot better if the current slope of the lines on those charts was a little less steep. Not to expect dramatic overshoot after a bubble like this one would be a very optimistic outlook.
CR lives in the 51st state of the union, the great state of Denial.
"we're at or near bottom in a lot of interior USA"
They may not see price drops, but they will feel the slower economy... and they will be paying, paying, paying for it. The savers and conservative spenders are the only ones who CAN pay for it.
We are further along in the process of recognizing the imbalances in our economy. Unfortunately, the fix seems to be more debt to try to prop up the status quo. The actual adjustment to our new reality has barely begun. Americans will need to learn to live with less, and to save for the future. I see unemployment, delayed retirement, bankrupt states and municipalities (CA!). There is much, much that is yet to be written.
I saw what was coming back in 04/05, so it's good not to have people think I'm nuts anymore!
OMG - The Dow is drawing the Dolly Parton formation today. Big trouble.
I'm with Comrade Bear and others. Unsustainable is unsustainable, and we will have pain until we change.
Thanks to the person who posted this the other day.
"In times of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists."
Eric Hoffer
Cover your shorts - the market has turned. Wait and you could find yourselves wearing undies on your heads instead of tinfoil hats.
"This requires an able, motivated, educated, productive workforce."
We also need a mobile workforce. The problem is that the workforce is stuck in their non-salable homes. This is a huge problem.
My question is, after the bottom is reached and we've been there for a while, long enough to call it the new normal, what's it going to look like?
In my opinion we've got a while to go before we get there though.
Dow + 1000
Called it this morning!
The end is in!
Go ride your ponies and start shopping for christmas!
Thanks Kona. It was meant to be uplifting which I do know is sometimes hard to adapt to.
CR, great post.
Re: "The financial crisis is worse today than in 1990, and there are many problems ahead (like less consumer spending and business investment), but I believe progress is being made."
There is a lot of uncertainty as to what the derivative mkt is valued at, but IMHO, looking back at the financial impacts of 1990 and the correlations to global GDP, this is a whole new ballgame we are in today!
Consumer debt higher
Job losses mounting
USG debt + ~25% since 2005
Inflation much higher
Everything is much worse and going downhill. I can't see any reason for optimism.
Another pessimistic indicator: "stopping the fall in home prices" and "get rid of mark-to-market" are still bobblehead talking points.
While some economic issues have been reconciled (and others haven't), I think as a country we are still more or less delusional.
No bottom until WW III.
And that's only if the sucker isn't nuclear.
Wars put you into these crisis' and then get you out(If you "win").
Asia -8%, Europe -6%, USA +2-3%
Bwahahahaha--really becoming a disconnect. Decoupling going on in the world, USA still holding on to the helium, everything else is dropped ballast.
"long enough to call it the new normal, what's it going to look like?"
I don't know how it will look, but it could sound an awful lot like Chinese.
Any way you tranche it, the survival equipment peddlers will be making out like banditos. If you buy cases of MRE's or similar, it works out to $6-$7 per meal at the sites I've seen so far.
Agree, great post, CR.
But I also agree with Robert M. -- I'm still very worried by all those Option ARM resets still to come.
As someone that is pretty high on the food chain in a medium sized construction management and general contracting firm, I have a pretty good idea of just how much farther down we have to go in this industry. I can tell you that the fun is just beginning.
More weird thoughts:
The Invisible One Quadrillion Dollar Equation
Asymmetric Leverage and Systemic Risk
mi2g
According to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland -- the central bankers' bank -- the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion. The main categories of the USD 1.144 Quadrillion derivatives market were the following:
Comrade Bagholders,
Well at least we know who the bagholders are now CR.
I'm in the deflation camp.
Nostrovia,
There hasn't been a single transaction within 40 miles of my current location in the last 10 years that wasn't explicitly made with the expectation/assumption/plan that there would be a substantial return on investment after expenses. Worse the calculation likely included an additional "return" of living for free in the case of owner occupied dwelling units. I'm confident CR can make the same claim.
If we were to set the "wayback machine" to 2004 and tell people buying then that they needed to purchase based upon their long term shelter needs with the certainty that their house would be worth less in 2010 then we'd see massive changes in what was purchased, what was paid and their MEW/lifestyle subsequent choices.
Builder Bob writes:
As someone that is pretty high on the food chain in a medium sized construction management and general contracting firm, I have a pretty good idea of just how much farther down we have to go in this industry. I can tell you that the fun is just beginning.
Builder Bob | 10.08.08 - 2:32 pm | #
Agree Bob...I am involved in the consumer business and CRE....we are screwed
bob shiller is on bloomberg now.
at long last...
Very nice post CR.
But.....sometimes it really is the end...not of the world or of civilization or anything like that...but certainly the end of an era.....and the beggining of the end of dollar hegenomy and all that implies for the "american way of life".
Sometimes Depressions do happen.
CR,
Great Post.
I am a long time lurker and reader. One chart you used to do was a bar chart that depicted the annual (or quarterly) GDP growth AND the contribution of Home Equity extraction to that growth.
Those charts alone explained a great deal of the 00's in one simple image; and provided a very understandable explanation for why the economy seemed to be struggling and going gangbusters all at the same time.
I miss those charts! Do you think you could do an update?
I am looking forward to being in February, 2009, when hopefully I can start actually believing in the future again.
For the poster a few threads back that was trying to "follow the money" of the Roubini enterprise, here is their "help wanted" page that identifies their production and their sales players.
RGE Help Wanted aka Revenue Model
cripy&cole: You aren't David Crisp himself are you?
"The problem is that the workforce is stuck in their non-salable homes. This is a huge problem."
For much of which there is a solution available. Many people could be working from home rather than huge "filing cabinets for people" located in central city locations. The justifications for consolidation of workers into hives are slipping away for many occupations.
This here blog thingy is one example of the communications infrastructure that could change many things. It no longer makes sense to move families around the country to follow jobs. Sure, there are exceptions, but now that we are a service economy, how far does an ex-master-of-the-universe need to move to get a job at Starbucks or MickyD's?
Good times in my neck of the woods. Saved by our new Abu Dhabian Overlords!!
Advanced Micro Devices Inc. said Tuesday it will move forward with plans for a multibillion-dollar computer-chip factory in Saratoga County after securing a $6 billion investment from the government of Abu Dhabi.
Comrade Bagholder Rob Dawg,
"If we were to set the "wayback machine" to 2004 and tell people buying then that they needed to purchase based upon their long term shelter needs with the certainty that their house would be worth less in 2010 then we'd see massive changes in what was purchased, what was paid and their MEW/lifestyle subsequent choices."
Well I tried back then. Got laughed at. If I pressed people they'd start to snarl. So I gave up and protected myself.
Nostrovia,
Bearly writes:
Everything is much worse and going downhill. I can't see any reason for optimism.
Whether it's accurate or not, I'm uncertain. I've been trying to reach a compromise in my own mind between the collective injected stimulus; the actual bottom; and how quickly the market would respond.
And I do not know. It's time for a counter-trend rally, and, perhaps that's all this is. However, I, for one am convinced that the stock market will find and rally off of a bottom long, long, long before real estate does.
jus sayi
Stated yesterday:
We will touch 11,000 before 8,500.
CR:
Just a quick note to say thank you for all the excellent analysis over the past few years. I started coming to this site in the summer of '06 and it has become a daily ritual. First thing I do in the morning.
The relatively unbiased perspective you bring to economic matters is a much appreciated and, unfortunately, very rare contribution to the national debate on economic policy.
What you offer goes well beyond the hyperbole, ideological rigidity and limited focus of the typical mortgage or economics blog.
Many, many thanks.
~e
wally writes:
"we're at or near bottom in a lot of interior USA"
They may not see price drops, but they will feel the slower economy... and they will be paying, paying, paying for it. The savers and conservative spenders are the only ones who CAN pay for it.
Absolutely.
We have transfered a lot of 'private debt & liability' into 'public debt & liability'... that was phase one of the 'correction'... phase two will be monetization of the public debt through inflation [pure sense - money creation]. In the long runs the producers will pay along with savers... the price will be a reduction in purchasing power for the work they do and the return on their savings.
But that was in the works anyway - it was going to happen some how once those imbalances occurred. The symptoms were going to suck and they will linger long after the correction has approached bottom.
.I am involved in the consumer business and CRE....we are screwed
crispy& cole/i>
I'm not giving away any secrets; crispy&cole is in Bakersfield California. Gateway to the Central Valley. Birthplace of David Crisp's adventures. Bakersfield is indeed screwed.
Comrade Misean: You have no hope against the persuasive powers of the MSM talking bobbleheads. People will believe everything they say.
"For much of which there is a solution available. Many people could be working from home rather than huge "filing cabinets for people" located in central city locations. The justifications for consolidation of workers into hives are slipping away for many occupations."
In theory, this sounds great, but there are practical impediments that make it unlikely. BTW, I don't feel like listing those impediments right now.
CR--great post. I was thinking something similar, I guess because at least everyone now knows about the probems, and we've come down a long ways as your charts point out. Sort of feels like the 2nd derivative is starting to go positive. I read somewhere that after the S&L crisis, it took housing another year (or so) to bottom and (I think) the economy a little bit longer. But the point was the problem got recognized and therefore, the mechanisms for putting in a floor were put in place.
"We will touch 11,000 before 8,500."
It's still a long way to go to 11K, and the world is coming apart as we speak. I think you've got your numbers backward. Don't be fooled by this little suckers rally...
USG backing the CP market. Who needs to seek the low yielding treasuries when CP market has the same risk ?
CP == UST
Yields to converge but which way ?
"But the point was the problem got recognized and therefore, the mechanisms for putting in a floor were put in place."
Dave
Is the problem recognized yet by the gov't?
Sort of feels like the 2nd derivative is starting to go positive.
Only some are going positive; and for only so long.
Anonymous | 10.08.08 - 2:40 pm | #
I just bet $50k against you, before you even knew what to type.
Krugman gets the fact that the rate cuts are a sham. He doesn't seem to get the reason why which is that rate cuts are not an action in themselves, but a signal than the Fed will provide more liquidity to maintain the new rate. When the Fed is tapped out for liquidity, its signals mean nothing.
We are due for another round of panic, IMO, as this realization works its way into the minds of the world.
I have heard it said, that going forward higher education will mean less, because there are fewer people to perform manual labor functions, which may be needed. Many kids in high school want to be connected to the lotto on wall street and get a big home, yet who will build homes and repair bridges and maintain the infrastructure during this global depression? We have a massive amount of brats that are focuses on Playstation Lotto mentality, so are these the kids that will be buying into this housing bottom? How will they make money to buy into The American Dream?
CR: It's nice to see that someone else also remembers the recession mugs game post. I found your thoughtful comments in late 2004 on Brad Setser's blog, and have had the privilege of following your blog blossom over the past four years.
Of course, addition of Tanta has been a great bonus. I deeply appreciate the role that your blog has played in educating me about the roots and likely effects of the current housing problems over all these years.
Sometimes, it pays to panic way before everybody else does. Then, it also pays to start looking ahead when all everybody can see is doom and gloom. Here is to the next four years of your blog and analysis!
Best Regards.
Well I tried back then. Got laughed at. If I pressed people they'd start to snarl. So I gave up and protected myself.
Me too. The key question I asked them was: "Can you make the payments without hocus pocus and do you REALLY like living there - like it so much you don't mind living there for say... two decades?"
Most of the time I got the deer headlights gaze... [wtf you talking about?]... but out here in flyover a lot of folks told me 'Yes - I can afford and I'm not going anywhere...' So buying for them wasn't a big deal. And most of them are still plenty well off...
The first group [deer headlights club] not so much.
CR:
Do you have a housing price model based on median family income, interest on a conforming mortgage and house prices?
It would seem quite odd that we would get a big jump in pending sales if we are not reaching clearing prices.
But this system is toast and the new system is still unknown.
Certainly mega investment banks are toast and unregulated creation of ABS will never be allowed again, there is hardly any market now for private bonds. We do get a glimpse of what the new system is like though, in the changes in banking that have already taken place. There will have to be a solution to the CDS mess and the use of CDS may well be outlawed or more likely forced to be traded openly on exchanges. I do think securitization will survive, but in a strictly regulated form.
At some point the powers that be will realize that energy futures trading must be regulated. You just can't tolerate small groups of traders hijacking the worlds power supply, whether its oil or electricity. The run up in oil prices risks starvation and mass death in countries that can't absorb the increase. Anyone who still believes that near 150 dollar oil a few months ago was supply and demand needs to be locked up because they are delusional.
I'll be more specific for anyone who cares.
Aside from architectural billings and new projects not being able to get funding, there are some additional issues people might not be aware of.
(A lot of this applies more to condos than houses)
There is still a ton on inventory about to come online. These are projects that everybody knows will not sell but the credit line is still open with the bank and monthly certifications are still being paid to the builder (for the most part). As these projects finish, this is what happens:
In short, we still are far from seeing tops on unemployment. Banks might do well to acquire demolition businesses at this point.
Coordinated rate cut prevented the drop in the $US that would have happened otherwise.
Coordinated currency as a new Free Market dollar will prevent huge currency diplacements AND eventually lead to coordinated inflation/hyperinflation in this one currency to allow elimination of the currently unpayable debt.
All good for the good ole USA, who sliced, diced and originally exported this problem to create a world-wide condition. They'll be able to keep their status as Lead Dawg.
wally writes:
A nice, level-headed commentary.
I think my only objection is that the belief still exists that after the 'adjustment' there will be a return to 'normal'. OK. However, 'normal' does not mean what people have come to believe over teh last 10 or 15 years.
Amen.
One of the things that has changed in a good way, for me and probably many others, is the end of misplaced trust. I'm getting ready to renew my home insurance, for example. Instead of just sending the check, I'm reading the Best report on the company and then trying to figure out if the Best report really does justice to what would happen to the company in an earthquake, etc.
My stockbroker is getting a lot more questions from me too--even though he earned his pay earlier this year by talking me out of buying WaMu at what I thought was a bargain price...
In order to make progress there has to be less consumer spending and more savings, then, after that, there will be business investment.
Real estate will have hit bottom when most big US cities look and feel like Detroit.
G7 getting together on Friday to do more "planning"...will emerge with a SUPERPLAN!
They are trying to fix the stock market instead of attacking the real problem, which is the unchecked growth of debt because we are living beyond our means.
The tinkerers will come up with a new "Free World Currency" which will temporarily paper over all past accounting crimes.
The underlying problem will remain.
Dave writes:
CR--great post. I was thinking something similar, I guess because at least everyone now knows about the probems, and we've come down a long ways as your charts point out. Sort of feels like the 2nd derivative is starting to go positive. I read somewhere that after the S&L crisis, it took housing another year (or so) to bottom and (I think) the economy a little bit longer. But the point was the problem got recognized and therefore, the mechanisms for putting in a floor were put in place.
So, to extrapolate, the next president of the US will be hailed as brilliant as he pulled from the depths of despair and put us back on our feet (regardless of who that will be) regardless of what they do.
Ergo - history will be repeating itself 10-15 years (a minirepeat) and 60-70 years (a major *cession)down the road .
Sometimes, I think I don't get it, because it just sounds too stupid, but I get it.
"Well I tried back then. Got laughed at. If I pressed people they'd start to snarl. So I gave up and protected myself."
I pressed and lost a bunch of pseudo-relationships with people. Now they are probably getting divorced, because they din't listen to me. Such is life.
Me too. The key question I asked them was: "Can you make the payments without hocus pocus and do you REALLY like living there - like it so much you don't mind living there for say... two decades?"
In Orange County, I knew very few people who could afford to re-buy their own home during the boom. So I would ask, "Is everyone going to step down in neighborhoods? Are surgeons going to move into these 1968 single level SFRs in the older part of town?"
Nobody I knew, nor anyone they knew, could afford their own dang neighborhood 18 months after they moved in.
It's probably about time we start looking at what prices levels we'll reach and how. I'm not talking long term, but how we transition to that long term price.
Will the system be damped (slower/longer descent with no overshoot), critically damped (quickest descent no overshoot), or underdamped (overshoot, swings below then above long term price level)?
I know so much has been happening in the markets, but I would really be displeased if I didn't see what's coming in the next 2 years ahead of time. By hashing out some predictions/models now, we should better understand the path we observe prices take when the time comes.
ew thread folks
Thanks CR
made me think of Ted Geisel... Dr. Seuss.
'Top 10' Dr. Seuss Quotes
Quote #3: From there to here, and here to there, funny things are everywhere.
ouveau fil
Thank you CR...that's the best piece that's been posted in weeks...of course, all the others were good too.
The best education I've ever received. Thanks CR!
CR,
I advice you to read The Aleph Blog » Blog Archive » Entering the Endgame for Monetary Policy, Part II
"What we are seeing at present is not a reduction of the debt structure of the economy, but a shift from public to private hands."
IMHO, the things will get a lot worse than everyone is thinking.
You were warned...
Ok, this is the first rally in a long time, and I have no idea whether it will hold.
There is a larger point I "suspect" many of you are missing. That is that - whenever it actually occurs - the stock market won't wait for you.
Look at every past recession. No exceptions. The stock market rallied long before the recession ended.
You all have raised very valid points about the condition of the real estate market; the shaddow banking system; deleveraging and hyper inflation.
I choose not to believe the dollar will cease to be the reserve currency. Ergo, I believe the market will recover. Absent Armegeddon, history suggests the market will not wait for an economic bottom.
jus sayi
THE TILTING YARD
OCTOBER 8, 2008
The GOP Peddles Economic Snake Oil
Suddenly Republicans are against market values?
By THOMAS FRANK
... "Free Market Protection Act," which is described on the Web site of the Republican Study Committee. ...
...
.... I asked William Black, the University of Missouri-Kansas City professor of economics and law whom I quoted last week, what he thought of this scheme. He replied, "This is significantly insane as a matter of finance ...."
Back at the study committee's Web site, I see conservatives call to "Suspend 'Mark to Market' Accounting." ...
...
... in discussing the derring-do of Mr. Hensarling and his hard-core colleagues, the New York Times chose to refer to them as "populists" -- friends of the common people. As an indicator of the confused state of our political discourse, the signals don't flash any brighter than this....
Only the well-to-do could possibly feel more comfortable at this point than at the peak. For youngsters like myself (23) and other not so well-to-do people, being at the bottom (If this even turns out to be a "bottom") really sucks. Quality of living is not going to hold up against this onslaught, even if one can maintain a job when they are rapidly disappearing
Drug Addiction
I came to the realization that America's Economy was addicted to cheap credit. Now that we've had a crisis, and people are finally admitting we now have a problem.
Right now, we are shuddering from the withdrawal of our drugs of choice and headed to the Betty Hank Paulson/Bernanke clinic. Hopefully their methadone relieves a lot of the withdrawal symptoms.
Fewlesh
We have made some progress, as CR shows in his graphs. But housing cost to income ratio wasn't among them, and I think is key.
We have done nothing about the underlying financial insanity: (1) thinking that financial services is a productive business - it should be more like a utility; (2) enforcing sane leverage levels on debt instruments (3) forbidding the credit swaps that make all institutions suspect for trust (especially as unregulated 'insurance'); (4) emasculating the undue influence of financial institutions on legislation, both fed and state/local; (5) fighting the race to make the country a services economy through outsourcing; (6) reining in the monstrous income inequality that puts most of the income gains in the hands of the top few percentage points of the population. Those are for starters.
Let's face it. Cars are dead as a source of employment; High Tech (the manufacturing portion, which is the largest) being gone; Housing cannot be a high growth/high profit industry in a near stagnant population; and 'small business' is very precarious as nearly a sole foundation. Medicine/Health care will grow, but we have not much inherent advantage in that complex (university education and research being our current advantage).
I see only one potential growth industry for employment at good wages: conversion to non-petro (carbon) energy. There are several generations of citizens that can do well in the near-total economic remake that will entail. But we are not the leaders today in deployment or in development, although we can be huge reseachers, builders, deployers, and consumers - it we make it even bigger than the race to the moon or the Manhattan Project.
We have blown off the first decade of the 21st century on all of these issues. We also haven't internalized how major our lives need to change to do better in the 21st than in the 20th century.
Finally, our imperial military ambitions are totally out of control. What actual danger is bigger: that we go broke (or live like paupers) funding more military adventures, or we get 'invaded' or 'occupied' by some menace? Our fear has been carefully tended to grow by the present government. It is time to see the lesson of Rome: the legions mean nothing when the society is rotten.
I think CR's semi-rosy outlook is overlooking a number of things:
There are other things I could mention, but it just seems clear to me that the crisis is just speeding us faster into what was inevitably, as a matter of demographics, history and fiscal math, going to be a time of much reduced productivity in the US. I honestly don't look for the DOW to get back to 14,000 in the next few decades.
"For youngsters like myself (23) and other not so well-to-do people, being at the bottom (If this even turns out to be a "bottom") really sucks."
Man, you don't how good you have it. These are the times when you make your fortune. Become an expert in the problems and the rest comes easily. If you play your cards right, you should have "made it" by 30. Eat Ramen and have 4 roommates for awhile. Who cares?
Altair, good point about aging population. Do you feel that the crushing of retirement savings in 401ks and such will force near-retirement workers to work until they are 70 and/or pull their Social Security payments earlier than planned? (Imagine a huge number of baby boomers drawing on their SS over the next year...ouch!)
mykillk writes:
cripy&cole: You aren't David Crisp himself are you?
LMFAO!!!
No!
Elvis, I haven't been able to save money in my bank account month-to-month for almost 2 years now. I know exactly how "good" I have it. And I don't spend much money at all, and I actually do have 4 roommates and have for 3 years
"Les empires ne se conservent que comme ils s'acquièrent, c'est-à-dire par la vigueur, par la vigilance et par le travail."
Louis XIV
"Les empires ne se conservent que comme ils s'acquièrent, c'est-à-dire par la vigueur, par la vigilance et par le travail."
Louis XIV
I agree with CSC's perspective. Though I respect CR's post, I can't take the view that "progress is being made" (wish I could, though).
The basic reality for young people is that unless you went to a premium university, you're going to be the first generation in a long time with a lower standard of living than your parents even though we're going to work 40-50 hours a week until we're 70
I have to agree with CR. I was a lot more bearish in 2006 than I am now. I would hardly say I'm optimistic though - I still think there's another 6-9 months of downward adjustment, followed by 1-2 years of flatlining. The interbank trading system is worse than ever today, so the fat tail risk of a financial meltdown is still there, but I think this will start to diminish markedly towards the end of the month.
Here in the northwest suburbs of Chicago, the fortress walls of sellers' denial have begun to crack in the last month. The number of homes up for rent has surged +50% over the already-high level of the summer.
And serious cuts are beginning to be made in asking prices and asking rents. But they are still much too high. There are 19 homes in the MLS rental listings with asking rents at or above $3000/mo in Palatine, and another 9 in neighboring Arlington Heights. I suspect that demand in that price range is near zero.
Foreclosures at the high end remain relatively few. But clearly more are coming. Last summer there were 36 homes on the Arlington Heights MLS with asking prices at or above $1 million. Although the asking prices have been cut by a hundred thousand or more, only a few have sold. As 3/4 of these are vacant spec homes, it's hard to believe that the developers or their banks can hold out much longer.
mykillk,
You are obviously not doing the right thing. Quit the whining. Go out there and be somebody. Show initiative. Show insight. Become an expert is something useful. It is hard and takes time, but, if you are willing to dedicate yourself to something you have a nature knack at, you will succeed. Or, you can just spend the rest of your time bitching...
I agree with you. We would have been well on the way to the bottom if the seeds for even greater chaos had not been lain by the Fed and treasury
black swan writes:
We are standing on the precipice of state and municipal failures that will lead to huge pension plan shortfalls and massive public layoffs.
Elvis,
Whatever, man. I taught myself computer programming when I was 11 and haven't stopped since. I am far away an expert in what I do, and I taught myself everything I know.
My brother basically did the same thing. The only difference, is that he is about 8 years older and made a ton of money working in the Silicon Valley boom.
He made more 4x money, 18 years old, straight out of high school in one year than I have my entire life so far.
You may call it whining, but I see it as simply recognizing that I don't get to ride the free money system like the rest of you did.
And just when the situation in housing appears to be nearing equilibrium (maybe 2 years?), we will probably be facing worldwide shortages of exportable oil. How will permanent gas shortages affect the value of exurban housing stock? Technofantasies will not effect a solution for shortages of fossil fuel. Enough electric cars may just permanently bring down the electric grid, thus ending the industrial civilization ex0eriment. (see Richard Duncan, PhD. "The Olduvai Theory")
ac
Pay it with paper, it's one year's GDP, and the dollar will take a huge hit, then recover over time. The other option is to let the economy spiral downward to the point where you need to pay with paper and then float a new currency entirely.
You can do it now, or you can do it later. Doing it later just makes it harder.
Paulson is doing a good job at READING from his script.
What A Fucking Tool.
I really want to see the market turn now.
CSC - good summation.
I tend to think one key is revamping of that catch-all phrase, "standard of living".
As though we were entitled to the rapid and unsustainable disgorgement of energy, the commensurate high volume of engineered products and foodstuffs, topped off with 72" boobtubes, without having to suffer from the gout.
Well, here it is. We got gout. Now we just have to learn to live with less face-stuffing.
To the 23-year old guy; I'm 35 and have seen cash outperform stocks since I got out of grad school (2000). We've going to have a whole generation of young Americans who think investing in stocks and real estate is a completely retarded idea.
I am far away an expert in what I do, and I taught myself everything I know...You may call it whining, but I see it as simply recognizing that I don't get to ride the free money system like the rest of you did.
mykillk
From my experience one source of teaching does not make you an expert. But, if you are in fact an expert and you aren't making any money, you are doing the wrong kind of programming. Figure out where the money is going to be and get there. If your brother has so much money, have him fund your company. BTW, I didn't ride the free money system. I had to milk it like a cow. Damn that is refreshing.
I must take issue with your statement "The bulk of the resets are behind us" when your own graph presented in your Aug. 13 article indicated the majority of Option Arm resets do not start to occur until 2010 and into 2012 before a noticible decline.
""How will permanent gas shortages affect the value of exurban housing stock? "" FrankGifford
Well, you see Frank, that's not on the MEW or Pending Sales charts, so no one discusses it. Permanent gas shortages are going to surprise TONS of people, even though tens of thousands of people are aware that it will happen.
They'll call it a 'Black Swan'(it is, read Taleb's book), and we'll start the 'whocoodanode' thing all over again.
mykillk
I am not sure what industry you are in, but my daughter came out of college from a regionally prestigous college (but still a state university)and entered at a salary that it took her father and I 20 years to attain. Even at that she ended up going back and getting a graduate degree. Granted she works 50+ hours a week, but she sees future growth in her industry (tech), albeit more niche driven than previously. She was able this year to take one of those wretched condos (lol) off the market and lives quite well for a singleton at age 27. But she realizes for your generation a simple degree or two don't automatically leads to the top. It will be a constant learning and evolving career ladder you guys will have to adapt to.
I've got another photoshop request:
Mr. BerHanky, a composite of ben's head, or even just a gray beard, on South Park's Mr. Hanky, the Christmas Poo.
Any artists on duty?
Good to see you whistling in the dark, CR. Keep it up, the whistling I mean.
Elvis:
I think you fail to understand the computer programming industry. It's one of the only industries out there where individuals can teach themselves as well or better than any university. All you need are some good books and the desire to follow through with it.
In fact, the silicon valley boom was only made possible by a huge import of self-taught programmers, many of whom were straight out of high school.
But post dot-com boom, programming has become as stale as any other industry. All that matters is what university you went to and how willing you were to torture yourself with post-graduate degrees. Outsourcing has ravaged employment.
it took her father and I 20 years to attain....
Can I be obnoxious and correct your grammar? You mean "took her father and me..." You would not say "it took I 20 years to attain..." so you would not say "father and I" but rather "father and me.." This is a very common error among even well educated people. The actor Jake Gyllenhaal makes it and he had two years at Columbia. It comes I think from the "feeling" that "so and so and I" is always more elegant that "so and so and me" but it has to be "me" when the accusative case is called for.
TED Spread 4.0 writes:
To the 23-year old guy; I'm 35 and have seen cash outperform stocks since I got out of grad school (2000). We've going to have a whole generation of young Americans who think investing in stocks and real estate is a completely retarded idea.
TED Spread 4.0 | 10.08.08 - 3:19 pm | #
Exactly.
I'm beginning to wonder what the generational impacts will be. Like the Great Depression of the 1930s (temporal specificity still required), we might have an entire age bracket of people with no confidence in investing in the markets. Or banks, for that matter.
Whatever, man. I taught myself computer programming when I was 11 and haven't stopped since. I am far away an expert in what I do, and I taught myself everything I know.
You may call it whining, but I see it as simply recognizing that I don't get to ride the free money system like the rest of you did.
Then, sorry, but I for one don't know what to tell you. I don't know too many "experts", especially in technical fields, who can't find money to save at the end of each month, especially if living with 4 roommates.
I do IT project management for a F500 company. We throw $1,200, $1,500 a day at some of our "code jockeys" - I'll save you the math, that's $250-300K a year - and we still get million-dollar implementations hung up because we can't find enough good ones.
But it's not just enough to be an "expert" in one of these fields. You have to know how to juggle projects, and customers, and deadlines.
You have to know your little world inside and effin' out - so well that you can give instructions over the phone to a team of 5 or 6 offshore guys who will be doing the "grunt work" for you, who are 9,000 miles away, speak a different language, and have a 60% turnover rate, and come in the next morning to find them followed to the letter.
You have to be able to explain what you and your team have done to the people on the business side, some of whom might be from Marketing or HR and have never used anything more advanced than Hotmail.
And you need to do all that on time, on budget, and with a sense of professionalism.
Anything less, and you're the one competing against those guys 9,000 miles away, who by the way are getting paid $120 a day instead of $1,200. Good luck with that.
What I wouldn't give to have had the opportunities these next few years are going to bring when I was 23. Feel free not to take advantage of them, but don't blame us if you choose not to.
CR, great post.
Most of Europe seams to be where USA was in 2007 ???
This is it a hard bottom!
Reprise:
(1)BSC save
(2)Emergency 3/4 pt. cut
(3) Alphabet Soup borrowing facility
(4) AIG,LEH,WM saves
(5) TARP passage
(6) Coordinated CB rate cuts
Yeah I tried stopping freight trains with a penny on the track when I was younger too.
I originally became interested in these issues because I believed the increase in housing prices was unsustainable and I had a petty, vested interest to buy low, sell high, and then buy low again.
But it's become so much bigger than that. As I've learned here, the CDS shadow market has amplified housing losses. And the measures that are being taken now are distributing wealth inefficiently and hazardously. We may be making progress towards the bottom of the housing market, but I think we have bigger problems now. I don't understand the optimism.
jim - yes you can.
just joshing.
Pitch
popeye,
I just talked to my Dad who is 10 days older than God.
Keep your powder dry.
I can't correct Paulson's flawed bailout scheme, but I can correct someone's grammar. Gives me the feeling of power.
Nice post, CR. Does "you can't get there from here" apply to this?
I don't agree that this is whistling past the graveyard, although it is a very 'glass-half full' outlook. Given that I know I'm jumping off a building of indeterminate height, yes, I suppose I would rather be at the bottom, injured, but having survived the fall, than at the top.
Two problems: (1) we're not at the bottom yet, and there's no guarantee of survival; and (2) wouldn't it have been better not to have jumped in the first place?
That being said, if I had the money to make long term investments right now, I think we're probably close to the bottom in equities. But the market will rebound long before the economy. Just my $0.02. Which is about all I have to invest, so take that for what it is worth.
p.s. I see Jim breaking out the grammar nazi. Fight the good fight, man. Cthulhu would be happy if people stopped spelling "lose" as "loose." Keep that extra "o", people- inflation's coming and you're going to need it.
I don't think the govt will ever give up. Negative feedback loop.
DaddieMac | 10.08.08 - 2:16 pm | #
hyperinflation then
we're doomed
Mook:
How many of those code monkeys who make 250k a year are 23 and straight out of a plain vanilla state university?
And the reason I haven't been saving money from month to month is because I work in a job that's not in the technical industry because I can't find a single programming job out there where the HR will even give me the time of a day, much less a first or second interview.
So what "opportunities" am I supposed to be taking advantage of over the next few years? I'd love to know about what I'm apparently going to miss out on.
I've been looking at property in three states, including two of the really hard hit ones. There is a TON of property available at "cheap" prices - unfortunately it is mostly all crap. What isn't crap is cookie cutter. There are NO quality properties available at anything resembling prices compatible with fundamentals (ie, a reasonable carry vs rent ratio, etc).
IMO housing prices need to fall another 40% from here - and since the crap has already depreciated in some cases to next to nothing - that means everything but the crap needs to take significant cuts.
As I've learned here, the CDS shadow market has amplified housing losses.
That is exactly backwards.
"Elvis:
I think you fail to understand..."
No, I get it. You want a hug and somebody to tell you it is not your fault. Wrong blog, mykillk.
Elvis, I'm curious, how old are you by chance?
In my small neck of the woods, Tucson, where I own a townhouse inside a golf course, there are four similar units for sale. Every one of them is overpriced by about 30-40% if you use Zillow as a guideline. I intend to sell mine at a price that will get it sold. But this will infuriate all my neighbors and they will hate me as a result. Fortunately I don't much care, but I suspect this is one reason prices haven't declined as much as they should...community cohesion. Along with a number of other reasons, of course.
Elvis, I'm curious, how old are you by chance?
mykillk
Not old enough to be your father, but wise enough to be your grandfather.
That's funny. Well if you're so wise I guess I should follow your advice. I'll pretend that there are no economic difficulties at the moment and any failure to satisfy my desire for an improved standard of living is purely of my own failure as a lazy, whining person. All I have to do is use The Secret (TM) and a great job that fits my expertise will fall into my lap.
"I'll pretend that there are no economic difficulties at the moment and any failure to satisfy my desire for an improved standard of living is purely of my own failure as a lazy, whining person."
The first step to recovery is recognizing the problem. Be the master of your own destiny. If you fail, at least, it is at your own terms. Good luck. I really do hope you the best, but the best will only come if you want it enough.
Can you two get a room, please?
Elvis, I'll take that to heart.
mykillk,
Forget The Secret. Read Atlas Shrugged.
mykillk:
Well, I went to Vanilla State U. myself - chemical engineering grad, no fancy resume, no advanced degrees - and I was doing that sort of thing by 27. (Not making $1,200 a day, mind you, but at least getting billed out at that. Cold comfort, perhaps.)
Honestly, from the brief snippets I've read, you've got great communications skills and have some sense of perspective and vision (albeit a moderately jaded one). If you have even moderate technical skill in any sort of IT field, those two things alone will put you ahead of 95% of the pack.
Find a functional area that interests you and that has high business value. Manufacturing, operations, supply chain, sales, compliance - doesn't matter as long as YOU enjoy it.
Spend a couple months getting up to speed on that area from a business perspective. Get some books from B&N or half.com. Find out where businesses have been in that area, where they're going, what they're missing, what the "next new things" are.
Start portraying yourself as a "problem solver" who can serve as that linchpin in between the code monkeys and the people setting the budgets and making the five-year plans. Don't just lean on your programming skills, play up your functional knowledge and your communications skills. Start asking HR guys and headhunters about that specific area and what you can offer them there. Most of them won't know what you mean, but to them it signifies focus and a career path, and that's what they're looking for - anyone can punch buttons.
Look at smaller firms where you can jump into high-value-add activities right away instead of spending 10 years on the ladder. Again, think functionally rather than technically in terms of where to look.
Good news is that getting your foot in the door is the hardest part. As long as you are adaptable and don't get yourself "pigeonholed", any decent-sized company will always need the combination of skillsets above.
Man, all that jabbering and I haven't even answered your question about the "opportunities" yet. Ah well, perhaps another time.
Lisa: Thanks for the suggestion. I think I will. I've heard it does wonders for the entrepreneurial spirit.
Interesting viewpoint from CR.
Yes, I would rather be where we are today than where we were three years ago, but then mine is a (sort of) special case.
I bught my first stocks in 1963. Then about 8-9 years ago I got completely out of stocks -- no 401(k), no IRA, no nothing. Not because I was smart, but because I needed the money, being as I was caught in the middle of a downsizing and trying to start a "consulting" business to tide me over to retirement.
Then, last year we sold our house and moved to a rental apartment. Again not because I was smart, but because I was 68 and didn't want to work to support a mortgage any more. Plus I had been reading CR.
For about 6 months I was 100% in cash. Again not because I was smart, but it just worked out that way. Then 2 months ago I started moving about 1% of my cash into stocks each month (dollar cost averaging you know).
OK. I started back into stocks 2, perhaps even 6, months too early, but as someone said on this blog perhaps 18-24 months ago, you can't time the market, but you can time an era. And as Dr. Baker at CEPR said yesterday -- this collapse in stock prices is a gift to long term investors.
Yeah, CR, I'd lots rather be where we are today, searching for the bottom, rather than where we were 2-3 years ago searching for the edge of the cliff.
mykillk:
If you are looking for a tech/programming job:
get a degree
Mook, sounds like you think the "meat" of the IT industry has shifted away from programming itself and to the organization of programming and IT related activities. Is this right?
Alas, there is one front where progress is still wanting, namely smart policy to deal with this crisis.
Wolfgang Munchau: Policy Errors Risk Turning Credit Crunch Into Depression « naked capitalism
This guy pull no punches.
CR,
The assertion is that's better to have been stabbed and bleeding than to not yet have been stabbed is bizzare logic my friend. It sounds like you are trying to talk your way into optimism with no logic. Hmm...I would bet that you were short real estate but are long equities?
Mook, sounds like you think the "meat" of the IT industry has shifted away from programming itself and to the organization of programming and IT related activities. Is this right?
Absolutely - and not just in IT. If it can be conveyed in bits and bytes and can be done programmatically, it's being done offshore already; the only question is to what extent. The real "80/20 rule" at big companies these days is that people in India, Vietnam, wherever, will give you 80% of the quality at 20% of the cost - and believe me, that's plenty good enough in their eyes.
But you will always need someone here, locally, to translate from one "language" to another, be the "face" of the work to the client - and yet be good enough behind the keyboard to occasionally "fight fires" by fixing things that some other code-slinger well and truly screwed up.
You can write the most elegant code in the world and most businesses don't care - if they can get it 80% there for 20% of the price, you stand no shot. On the other hand, I can count on both hands the number of programmers I've ever met who could stand up in front of a VP of marketing or finance, and explain in 100 words or fewer what he just spent 100 hours bringing to life with a team of a half-dozen guys who don't speak 1,000 words of English between them, and what it's going to do for them.
If you've got that talent ... run with it.
CR--your graphs are missing an important element: the oubliette
This is the crying phase of the breakup.
dont stand too close to someone throwing up........it splatters ya know!
Exceerpt from W.B. Yeats, April, 1916:
I have met them at close of day
Coming with vivid faces
From counter or desk among grey
Eighteenth-century houses.
I have passed with a nod of the head
Or polite meaningless words,
Or have lingered awhile and said
Polite meaningless words,
And thought before I had done
Of a mocking tale or a gibe
To please a companion
Around the fire at the club,
Being certain that they and I
But lived where motley is worn:
All changed, changed utterly:
A terrible beauty is born.
CR,
We are just waking up in Hong Kong so I have not had the benefit of all the previous comments, but I must thank you for this meta-post. It is just the right time for this perspective and I share the feeling of relief.
I make a trip or two per year back to the US, and the anxiety and confusion I experienced in the early to mid 00's was acute. Setting aside the post 9/11 mania, there was also this rampant consuming orgy going on that to my mind was just nuts.
Turning from that spending spree inward, I was personally aggrieved that I had missed the leveraged locomotive to riches-- as a saver I was a relic.
Today, I have no (OK maybe a little) schadenfreude about those who got in too deeply, and little (OK maybe a lot of) rage at the continued attempts to inflate a broken model.
And while I'm still a relic, at least I know I'm not the only one.
Throughout the work out process and the aftermath, I have come to depend on CR, Tanta, and many of the gallery of commentors for understanding, humor and insight into what the future holds for us all.
I've changed my handle a couple times, but my appreciation of this blog has been a constant.
Thanks again for all your hard work.
Anak
I very much appreciate your blog and even more so your optimism in this post. It is certainly difficult to judge if the crisis of the early 90s can be compared to the current one.
After today's global central bank rate cut overnight LIBOR, 1-mo and 3mo-LIBOR moved significantly higher. On April 30, the last time the Fed cut 25 bp to 2pc the 1-mo and 3mo-LIBOR rate moved significantly lower.
It is a too early to be sure but it looks like the Fed is pushing on a string which would make this crisis certainly different from others.
the history of the 2 bubbles is already clearly written already in de S&P500
S&P 500 INDEX - Google Finance
(click on max.zoom)
CR,
thank you and Tanta also for this wonderful blog. Your perspectives and so generously shared knowledge and analysis of current events qualify you both for hero status.
Great blog. Question how long will it take local government to start reducing their tax digest for lower taxes on delflate home prices of today and tomorrow?? NEVER?
From La Haine:
"C'est l'histoire d'un mec qui tombe d'un immeuble de cinquante étages au fur et à mesure de sa chute il se répète sans cesse pour se rassurer: jusqu'ici tout va bien, jusqu'ici tout va bien, jusqu'ici tout va bien... mais l'important, c'est pas la chute, c'est l'atterrissage."
Or to put it another way -- you knew we were going to fall off the cliff, so being here shouldn't change anything, unless you now see any new signs that the landing will be softer than you thought when we were at the peak. Do you?