What is MIT doing dabbling in CRE? Go back to making perpetual motion machine or gold alchemy. That way we can inflate the supply of gold to get us out of this mess.

Not first.

Where was the 'bot?

Gosh, the robot is talking to me.

Tidal forces tearing us apart.

Heeelllllp!

Or NDD for short.

ow is the time to rent or not rent!

--
For the record...

A whole bunch of the bad prognosticators were claiming, 12-18 months ago, that CRE was either not overbuilt at all or was not as overbuilt as the residential real estate. Based on what evidence?! A very bad forecast for the future of the US economy—a mild, or garden variety, recession.

It is very important to get the depressions right way before they happen. Otherwise, you will make many bad economic forecasts.

Jas

Well, his car is a 12 year old Saturn. Not up to 200k miles yet, but really ratty looking inside. If we were gonna buy anyhow an interest deduction would be a good thing, or might tip him over. Since we have no more mtg deduction.

Off to eat something if I can pull myself away from this frickking keyboard.

A dollar not spent today is a cheap burger tomorrow.

lawyerliz writes:
now is the time to rent or not rent!

I was thinking more "there's never been a better time to lease or rent a home!"

Jas, you haven't published since April of 08' at FSU. You could kill two birds with one stone, man. Give us all a break, and write something of substance somewhere else.

briwerk
The market will become less competitive. We are already seeing that in layoffs, downsizing of American operations, and full withdrawal from the American market. Inventories may keep prices low, but they also expedite production cuts. That's just because Americans have stopped buying. The dollar index is 20% up (everything is 20% cheaper) than before last fall. What do you think these factors will do

and because you mentioned oil, OPEC is actually acting coherently in cutting production this time (among other producers that have put expansion on ice, while marginal fields have stopped)

sorry, just saw your last post briwerk. I didn't realize you still believed there was a middle of the road, business as usual, solution to the matter.

doh, I meant the post before your last post which said "unless they want a hyperinflationary..."

"market prices that makes it uneconomical to spend cash on exploration and development.
Kung Fu Panda"

Market prices were pretty good there for about 4 years. And exploration increased exponentially. Now it is grinding to a halt. Even if the oil companies find it, the price often doesn't justify the costs of drilling, pumping, and shipping.

PoiC
The oil bit was a side-note. It's overbought right now by people expecting a quick run up in prices that won't happen.

The point was that there will not be an enduring oversupply of oil through this recession/depression.

I also don't see the USD remaining strong, if for no other reason that when Japan hit its rough patch the result (optimistic scenario this time) was a ~30%? devaluation in the Yen, and the dollar is today 20% above where it was when the US was still running twin deficits ex-oil

CR (from previous thread)- Did he really just say "depression"?

Yes, CR, he did.

I don't understand your seeming reluctance to discuss the "d"-word.

Since Davos, the economic connoisseurs have not only learned how to say it, but spell it as well.

No less than Krugman, Buiter, Summers, Soros and DeLong are talking about the possibility quite openly now.

It isn't just Conjure and Rosenberg any more.

Best regards to all of you.

Conjure says, "Have a nice day."

"I don't understand your seeming reluctance to discuss the "d"-word."

I prefer the term lesbian myself. The d- word is rather crude and insulting.

E's back! GARRR!

Jas Jain wrote:

"People need to take criticism and move on rather than constantly trying to attack and discredit the critic."

OK, you first Jas.  Let's practice.  I'll criticize you, then you take the criticism and move on.

Ready?

Let's go.

Jas, you sure have some strongly held opinions, but . . . well . . . I don't know quite how to say this . . . and I mean this as constructive criticism . . . I mean, I'm just trying to help you . . . but, you know, you're . . . Oh God, I don't know if I can do this . . . remember, this is just practice, right? . . . OK, here goes . . . Jas, you remind me of my uncle back in Ireland.  His name is Dickless McFuck, and he's quite the asshole, and you remind me of him.  Actually, that's not quite right, you're a much, much, MUCH larger asshold than Dickless -- several orders of magnitude larger.  He was a little prick, just like you, and he thought everyone else was "X" (fill in the blank -- stupid, worthless, wrong, American), but he was "Y" (fill it in again -- magnificent, not at all a loathsome, borderline personality crank, sweet smelling, etc.).  But at least 'ol Dickless mixed up his tirades with some new material.  I mean you've been shouting the "Dopes" and "Crooks" and "Morality" bits for going on two years now, and even Uncle McFuck wouldn't have done that.

OK, I'm done, Jas.  Take it and move on.

We have the wealthiest bankers in history and the most indebted households in history.

That is not a coincidence. Neither is this eCONomic sh%t storm.

Smart guys. Total propaganda.

This Alt-A train is leaving the station. And it's likely to run some folks over.

"Train" isn't the right metaphor for the Alt-A mess. "Tsunami" is better. Plus Moody's is driving with the rear-view telescope as usual. The water is already to the second story - Alt-A has been a disaster for at least a year already.

Bwa wa ka boom! Alt-A apocalypse
From Metlife

What a coincidence. I played pool with a Met-Life IT guy last night. He wasn't worried about layoffs but.... he was running his own company on the side.
.

Agreed. Mish was all over that and followed that screenshot as it rolled downhill over several months. I remember when he first reported on that and how it just kept gettin' worse...

Subprime downgrades lit the wick.

Will Alt-A downgrades result in Deleveraging 2.0?

Fair Economist writes:
This Alt-A train is leaving the station. And it's likely to run some folks over.

"Train" isn't the right metaphor for the Alt-A mess. "Tsunami" is better. Plus Moody's is driving with the rear-view telescope as usual. The water is already to the second story - Alt-A has been a disaster for at least a year already.
Fair Economist | Homepage | 02.04.09 - 7:33 pm

FT story on massive treasury auctions in the works:

FT:

Unless the economy on the other side of the currency pair is deflating faster. A currency is a relative price, not absolute.

Currency pairs will be meaningless in a deflationary environment. The dollar will be king.

Thought I would add, judging by ex-Macy worker comments. Macy's executive is following Circuit City's exact playbook from about 18 months ago.
EvilHenryPaulson | 02.04.09 - 6:50 pm | #

That is sad.  CC was an also-ran dump of a retailier, while Macy's is an American institution.  To have them head down the same path is disappointing.

MP and Conjure...
great to see you, Kristina's working now, has been asking after you both. and you brought Hoops along with you.
This makes the depression a little more bearable.

Talk about massive obligations - If C & BAC get shut down this weekend we're lookin' at another ~5T in US shit assets on the Fed balance sheet.

How long can the USD take the hits ?

And, looking at Zappos today, I'm not seeing price "deflation" in my favorite brands. I expect they'll do much better than brick and mortar.

why not just cut a 4K check to every J6P

Tax breaks are progressive. A $4k j6p break translates into a $150k break for Mr. Money Manager.

WTF is with the (R) and tax breaks? Blackhalo | 02.04.09 - 7:41 pm | #

Yeah, this is obscenely bad. First, the benefits go primarily to the wealthy, because they pay more tax. Second, it's subsidizing a bad thing (more investment into housing). Helping the rich by messing up the economy - well, I guess I should expect that from Republican Senators.

briwerk,
There was a conscious choice last fall between deflation and hyperinflation. Changing course would cause more problems than it solves. Allowing deflation would have led to explicit bankruptcy. Allowing hyperinflation would be an implicit bankruptcy, with the bonus of transferring wealth denominated in USD in first.

I once thought there would be the chance to print enough up to the amount necessary to replace pre-existing private credit without causing inflation. However ongoing trade data suggests there is no incentive for creditors to stand by during a possible devaluation when there is no hope to continue exports/market access, or even hope for future growth there. Without private credit growth, there is no reason investments to go into the US. Also there has been some shaking of trust in the US markets (eg Indymac earnings backdating, Madoff, GE, etc)

Now if everyone is crawling back into their shells, and the popular investment simply becomes preservation of capital because of trade declines / credit growth declines, impacting real economic growth: then the one thing left for mobile money to do is exploit consumer surplus' around the world until currencies are forced into a reasonable import/export equilibrium. Pegging is done from the top down, and now we are going to see the opposite with a bottom up push back.

The reason why it didn't happen before was there were plenty of positive growth opportunities, but now these abberations just represent easy targets.

The financial system can only properly rebuild itself, by first tearing itself down. Wen Jiabo can protest all he wants about currency remarks, it doesn't change what will happen.

bond guy
I appreciate the differences with Japan, but it's still a good starting point. Yes there was the carry trade suppressing the Yen, at no direct balance sheet cost to the government. But the initial devaluation was necessary to get their economy moving. And now the Yen is too expensive as evidenced by the production flat-lining, beyond the change in global demand. One way or the other it will ease up, and given the investment opportunities/uncertainties abroad it will probably need to be the government. Unless the Yen holders are just waiting for something short term corporate profit repatriation to come and go.

Well, it's great for the economy. The long bond should be at least 4% IMO and 5% would be better.

Fair, you're my hero! :

but service went away too.
scone | 02.04.09 - 7:48 pm | #

I think you hit upon a very key point.  For a certan clientelle, and a particular price point, department stores have thier place.  A race to the bottom is not it.

The long bond should be at least 4% IMO and 5% would be better.
Fair Economist | Homepage | 02.04.09 - 7:51 pm | #

I would not buy one for less than 12%, but I fear that they will get there soon enough.  One of the big three is going to stop buying at single digits eventually.

Oil industry works on very long time lines, not on one year profitability. Cheaper to drill on Wall St than in any of the areas likly to produce big reserves.

Absolutely agree. I just think we are facing a serious world wide slow down and that does not bode well for U.S. oil company profits.

Angry Saver,
The USD is also home to the world's largest financial markets, and the majority of money in those markets is foreign.

Deflation means debt is even more expensive. Given the net indebtedness in America, that only means even more defaults/bankruptcies=losses to creditors=why stay in the market.

Capital outflows = depreciation = inflation (eg the UK)

or you could look at
no (private) credit growth = market demand is shrinking, faster than elsewhere = companies pulling out of the market = more job losses = more defaults = more reason not to extend credit => government is borrower of last resort = ...

There's more than one order or path for events to take, but the destination is the same.

"i think the high-end retail chain is going to way of the dodo and dinosaur. "

It's a chance for well-run local retailers to show what they can do. Like somebody said, it's all about service. Service means little when buying $5.99 Indian-made polo shirts, but service a lot when choosing (and tailoring) a good suit, a home theater system, a set of appliances, the right guitar, etc.

I'm old enough to remember when you could get good service at Macy's, and at the old home town independent department stores that any town of size used to have. Once you were in the door, you had a salesman with you who helped you figure out what you want, made intelligent suggestions, and so on. If Macy's doesn't have that anymore, it's just Target with nicer rugs.

and movie ticket prices
Dave | 02.04.09 - 8:04 pm | #

Yeah, not going to happen I think.  That is one of those Razor/Blades, Printer/Ink Cart things.  Get you in to the theater with the loss leader ticket and make it up on the back end with the popcorn and soda.  I hate to imagine what the unsubsidised tickets cost.

Women are not shopping. Doom follows.

And doom follows when women do shop.

What's your point?
.

re: Lewis purchases of BAC - there was massive insider buying of Bank of New England stock throughout the fall of 1990, often cited at the time as a good reason to bottom fish in the shares.

On Jan 6, 1991 Bank of New England went under. Nothing like the totally clueless racing to get to the cliff faster . . . . .

EHP,

I differentiate between dollars and credit. During inflation, a lot of credit is accepted as a near dollar equivalent. In a deflation, private credit and dollars are clearly not the same.

During the Great Depression, dollars buried in the back yard appreciated ~ 30% in terms of purchasing power. That is not weak by any definition. Deflation is great for dollar holders, a catastrophe for dubious credit holders.

Bernanke has sworn he will not let that happen. I take him at his word. Be it inflation or deflation, I see tough times ahead.

Careful buying BAC stock.
Pissed Off In California | 02.04.09 - 8:16 pm | #

Nice!  Although I have trouble imagining the size one's balls must be to do so.

On hyperinflation - I don't see how it could happen as unemployment continues to swell. Maybe after we hit a bottom somewhere.

Bin Laden's been dead for 6 years.

"Hey, when will saying "Hi. I have a job." start to impress the ladies???
Dave"

"I'll give you a ride to work" already impresses the pretty real estate agents.

What asset was the best to own during the Depression (besides a still)?

I hate coming off sounding like a crazy

I need to step away and line my ducks up in a row

"In fact, I'll bet the mall rats' jobs are helping Mom pay the mortgage now, just as I helped my parents pay theirs."

I doubt it. I bet they are helping their bando moms forge leases though so they can get utlilities and cable. Perhaps their jobs help with the cable bill, though.

I leave you with an article updated Jan 29
<a href="http://www.cbpp.org/9-8-08sfp.htm">STATE BUDGET TROUBLES WORSEN
By Elizabeth McNichol and Iris J. Lav

States are facing a great fiscal crisis.  At least 46 states faced or are facing shortfalls in their budgets for this and/or next year, and severe fiscal problems are highly likely to continue into the following year as well.  Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total more than $350 billion.</a>

Just a few months ago it was a dozen states and a $71.8bn deficit in FY'09

"FaradayShieldedHeadgearBrigade"

Thanks.

Nice to see you mp.  A visit from you or Conjure is always welcome by me.

an educated mind

An asset in a meritocracy.

However, in today's U.S. it's probably a liability.
.

"Now this looks like a bubble"

I'm not sure if those will be good assets to own in the Naked Depression 2 and 1/2 -- The Smell of Fear or not. I'm leaning toward no, because they use alot of soap and pain medicine for your back, so they have high holding costs.

The underground economy was the best way to make money during the Depression. I'm confident it will be the same way this time. Meet the new mob, same as the old mob.

"hate to say this, but I will : Aloha state, you brought this on yourself. You finally get what you wish for, not so many haole and Japanese tourists."

I know many Hawaiians. They are great people as long as you don't try to steal their waves.

"America has very bad leaders and too many rogue economists with bad and immoral policy prescriptions. The outcome is certain—Greater Depression. Immorality of the economic and political leadership has consequences."
......it scares me when I agree with Jas

"What asset was the best to own during the Depression?"
.......a milk cow

With no shoulder to cry on banks would have been better behaved.

'Banks' have no free will. The people who worked at those banks have already cashed their checks and face no prospect of jail time. And Lehman and the Bear -- not backstopped by the government -- weren't better behaved. Guess again.

FHA just accepted a $35K bid on a 2-acre plot with an old double wide on it here. Land had all infrastructure (well, septic, elect, and phone), and qualified for no impact fees (of $7500). Killer deal here.

>The price declines will impact property owners who are now underwater and can't refinance, and also impact banks and other investors in CMBS who will experience see higher default rates.

"other investors" = pension funds and life insurance companies

One idea behind the creation of this index was that it would become the basis for settling OTC swap transactions on CRE. If the market had ever fully developed, it would have allowed those banks and other investors to hedge price risk in physical property portfolios. In another year or two of "normal times," that swap market might have materialized.

Of course, the gains of some swap investors would have become the losses of others. Sounds a little like CDS, no?

A key point is that this index has enough method and legitimacy to have been a viable swap index, and that's because it's based on a fairly large data base of repeat transactions on the same properties. So, the losses are real.

briwerk(Unrated) writes:
\t"That might get our juices flowing."

As long as jobs are uncertain, any extra money is destined for the mattress.
\t briwerk | \t \t \tHomepage | \t02.04.09 - 6:44 pm | #

Ed Zachary!
We're actually in the market for a truck, but I'm not going to run out and grab something just because of a rebate or tax credit. We'll keep shopping for the right used vehicle and buy on our terms, not the gubmints. In the meantime, the cash is going someplace safe.

"Tax credits are a bonanza if you owe taxes."

Right. I was just assuming that you were thinking like a welfare recipient who was about to get a free double wide. "Good gawd, Betsy, we got ourselves a free home. USA! USA!"

As someone, maybe Mal, pointed out, it's the freaking income that needs to be addressed.

You are so right imo. Too much debt, not enough income.

I'd be worried if I thought 2 billion Chinese and Indians would be willing to work for less than Americans - d'oh!

"They keep passing these bills as if there is pent up demand. Yesterday it was credit for new cars, today houses. Why are they so intent on trying to get...."

.....They wonder why there's no confidence from the public point of view. Their actions remind me of a bunch of meth-heads trying to come up with assorted ideas how to make money.

Stupid CPAs.
Elvis | 02.04.09 - 9:09 pm |

Ame

RIP Reaganomics, 1981-2009.

Thank God the failed ideology is finally dead.
Kirisdad | 02.04.09 - 9:08 pm

You got it almost right: Rest in Hell instead of RIP.

Their actions remind me of a bunch of meth-heads trying to come up with assorted ideas how to make money.
Black Star Ranch | 02.04.09 - 9:11 pm | #

I have a cunning plan...

My rent is being raised next month and the only deal I could negotiate is a six month lease vs. the former 12 month lease. It's a big management company and the clerk who does the leases really has no power. There in no place cheaper to move to, yet. There are several thousand "luxury," apts coming on line in the neighborhood, priced way out of everyone's league.

The local Craig's list is full of "pre-forclosures." The owners have moved out and are, "several months behind on payments." But, they are still trying to let out the houses. It's a very slick and automated system. Can it even be legal?

Time is on my side. Mean while, I am so happy to help pay for this $15,000 home buyer's credit.