Watching this unfolding drama is tragic and facinating. I wonder what the outcome will truly be be. Again totally fascinating- but in my heart I knew in the end this would be the result.
If it happens - a wicked slowdown - it will be spectacular and, as Peter remarks, "fascinating".
I must confess to kind of wanting to witness such an event, even though it will mean a lot of hurt. It's just that a sense of balance would seem to require pay-back for Greenspan's two-time easy money policy (Tech boom, Housing).
The interesting question of the day at Mr. Roubini's blog is whether the US takes down Europe and China with it. I'm guessing that a decline in the dollar will eventually help divert investment from US housing into export factories and services that can be traded for cash overseas. That's a long prospect. The imbalance between US imports and exports is almost as pronounced as the imbalance between income and spending.
I think we're beginning to see the political ramifications of what appears to be the first nationwide housing bust and a potential recession manifest.
Basically this could be a political catastrophe for the party currently in power. Declining home prices hit very close to... home. And every working American fears recessions.
Domestic problems could compound the current foregin problems the US has and lead to an election day rout. I think this is the source of a lot of the denial we're seeing on the part of more politically connected economists.
And I worry Bernanke could now face enormous pressure to make decisions that have a poor longterm outcome for the short term benefit of the current administration.
Obviously the Fed is taking heed. It's not by accident 10 year Treasury yields are down a whopping 40 basis points. Nor is it an accident that the Fed's done NOTHING to reign in its irresponsibly loose mortgage lending policies.
Seems to me, the sides are taking the extreme positions:
1.Side A thinks a major recession is coming that will challenge the early 80's recession in severity
2.Side B think it will be a slight blip to 5 more years of solid growth
The middle ground is more likely. Even another "weak" recession like 2001 will cause problems, especially with this government installed now.
Though, if housing really does crash, considering as mentioned above the FED's step to slow its descent, that would be really sad.
Seems to me, the sides are taking the extreme positions:
1.Side A thinks a major recession is coming that will challenge the early 80's recession in severity
2.Side B think it will be a slight blip to 5 more years of solid growth
I don't see how scenario #1 is an "extreme position". Looks more like one realistic position vs. one unrealistically optimistic/Pollyanna-ish position.
The U.S. consumer is already leveraged up to his eyeballs and so is the federal government. The housing ATM is toast and there is little chance of any "soft landing" for our debt-fueled economy.
Of course, the Fed could always try to hyper-inflate our way out of this mess, but even this will eventually require some WAGE INFLATION to be sustainable long term. They haven't been too successful on that score lately. The only thing the Fed has managed to inflate so far is RE asset prices and credit/debt (which are now in the end-game phase).
A moderately severe to extremely severe recession is on tap for Joe Howmuchamonth in the vey near future, and there's little industry or Capitol Hill cheerleaders can do about it.
There is still a great amount of complacency in the business community regarding housing. I heard one Wall Street Wag say today- 'A Hard landing for housing, and a soft landing for the economy...' Now thats a new concept to me- considering that housing has been the primary pillar of this economy for years. There are others who are more honest however, and say the chances of a recession are very strong
For those who think there will be soft landing and years of more solid growth- they are drinking cool aid.
Well I just got done watching NR on Kudlow... what a bizarre segment. Like they were BSing at the bar & Nouriel was the only sober one. Pouuuur sshhme anudder one...
I thought Larry's head was going to explode when NR said it could be the biggest housing bust since the thirties... pretty funny.
But there is one big thing Kudlow's guys have going for their argument - liquidity - until the money REALLY dries up (as opposed to just 'should be drying up')... the complete bottom won't fall out.
dryfly, Roubini argued borrowing is about to dry up (the often discussed decline in MEW). Merrill Lynch's Rosenberg argues money is already tight. Here is one of Rosenberg's graphs on MZM from his August 2006 Market Outlook presentation.
Other measures show liquidity is still strong growing.
dryfly, Roubini argued borrowing is about to dry up (the often discussed decline in MEW).
Yup - I got that. And I agree with his argument - MEW should be drying up, any day now. But it's been like waiting for Gadot waiting for that sucker to arrive.
Roubini's consistently been about as wrong as wrong can be. Like Roach. Go back and read what these guys were saying 5 years ago, and compare it to what has actually happened - you would have missed a lot of opportunities to make a lot of money. Finally, in an act of desparation, he's nailed his colors to the mast of Q1, 2007. Q2 2007 he's going to look as foolish as ever. He gives good blog, but I pity the company that actually pays for his advice and then acts on it.
NR is making bold perdictions in order to make a name for him self. Although, I think he has facts on his side there are too many moving parts (and hidden parts) to consistently make specific economic calls (i.e., first quarter FY07 recession). Better to look at these calls in terms of risk management and assest allocation. I wouldn't want to be 100% long stocks at this point in the cycle even if they have a few more good quarters.
Excess liquidity can keep this economy alive alot longer. Look at the pre -1929 era. We probably still have a ways to go before we reach that amount of excess.
Then, all it would take is a small hint of taking that liquidity away for everything to come tumbling down.
Comment by ac on 8.23.06: This will be the US' first housing bust. INCORRECT see real estate boom & bust from 1837-1842. Fedrally subsidized land rush caused panic in financial and real estate markets., led to massive depression that did not really end until the mid civil war period (1860s).
BTW, EVERY financial bubble and subsequent bust has had a "spreading" effect into real estate. That is, people make money in whatever the financial bubble is then look to invest some of that money into lavish properties (whatever they define lavish to be) and when it eventually goes bust, real estate becomes very cheap again.
Example, where you aware that some of Dutch properties ( sorry, the name of the famous row escapes me right now), but right along the waterfront, right near tulip bulb Mania, were selling for > $1 million at its peak?!
Bet you thought, like I once did, that million plus properties were only a thing of recent history. History does seem to "find" a way to repeat itself.
This real estate boom is bigger than any in history, the bust will likely be as large, even thoug we can't see all its detail right now.
Watching this unfolding drama is tragic and facinating. I wonder what the outcome will truly be be. Again totally fascinating- but in my heart I knew in the end this would be the result.
If it happens - a wicked slowdown - it will be spectacular and, as Peter remarks, "fascinating".
I must confess to kind of wanting to witness such an event, even though it will mean a lot of hurt. It's just that a sense of balance would seem to require pay-back for Greenspan's two-time easy money policy (Tech boom, Housing).
The interesting question of the day at Mr. Roubini's blog is whether the US takes down Europe and China with it. I'm guessing that a decline in the dollar will eventually help divert investment from US housing into export factories and services that can be traded for cash overseas. That's a long prospect. The imbalance between US imports and exports is almost as pronounced as the imbalance between income and spending.
I think we're beginning to see the political ramifications of what appears to be the first nationwide housing bust and a potential recession manifest.
Basically this could be a political catastrophe for the party currently in power. Declining home prices hit very close to... home. And every working American fears recessions.
Domestic problems could compound the current foregin problems the US has and lead to an election day rout. I think this is the source of a lot of the denial we're seeing on the part of more politically connected economists.
And I worry Bernanke could now face enormous pressure to make decisions that have a poor longterm outcome for the short term benefit of the current administration.
Obviously the Fed is taking heed. It's not by accident 10 year Treasury yields are down a whopping 40 basis points. Nor is it an accident that the Fed's done NOTHING to reign in its irresponsibly loose mortgage lending policies.
Seems to me, the sides are taking the extreme positions:
1.Side A thinks a major recession is coming that will challenge the early 80's recession in severity
2.Side B think it will be a slight blip to 5 more years of solid growth
The middle ground is more likely. Even another "weak" recession like 2001 will cause problems, especially with this government installed now.
Though, if housing really does crash, considering as mentioned above the FED's step to slow its descent, that would be really sad.
Seems to me, the sides are taking the extreme positions:
1.Side A thinks a major recession is coming that will challenge the early 80's recession in severity
2.Side B think it will be a slight blip to 5 more years of solid growth
I don't see how scenario #1 is an "extreme position". Looks more like one realistic position vs. one unrealistically optimistic/Pollyanna-ish position.
The U.S. consumer is already leveraged up to his eyeballs and so is the federal government. The housing ATM is toast and there is little chance of any "soft landing" for our debt-fueled economy.
Of course, the Fed could always try to hyper-inflate our way out of this mess, but even this will eventually require some WAGE INFLATION to be sustainable long term. They haven't been too successful on that score lately. The only thing the Fed has managed to inflate so far is RE asset prices and credit/debt (which are now in the end-game phase).
A moderately severe to extremely severe recession is on tap for Joe Howmuchamonth in the vey near future, and there's little industry or Capitol Hill cheerleaders can do about it.
There is still a great amount of complacency in the business community regarding housing. I heard one Wall Street Wag say today- 'A Hard landing for housing, and a soft landing for the economy...' Now thats a new concept to me- considering that housing has been the primary pillar of this economy for years. There are others who are more honest however, and say the chances of a recession are very strong
For those who think there will be soft landing and years of more solid growth- they are drinking cool aid.
Well I just got done watching NR on Kudlow... what a bizarre segment. Like they were BSing at the bar & Nouriel was the only sober one. Pouuuur sshhme anudder one...
I thought Larry's head was going to explode when NR said it could be the biggest housing bust since the thirties... pretty funny.
But there is one big thing Kudlow's guys have going for their argument - liquidity - until the money REALLY dries up (as opposed to just 'should be drying up')... the complete bottom won't fall out.
So what is happening with liquidity?
Perhaps 'liquidity' at this point is like pushing on a string.
dryfly, Roubini argued borrowing is about to dry up (the often discussed decline in MEW). Merrill Lynch's Rosenberg argues money is already tight. Here is one of Rosenberg's graphs on MZM from his August 2006 Market Outlook presentation.
Other measures show liquidity is still strong growing.
Best Wishes.
dryfly, Roubini argued borrowing is about to dry up (the often discussed decline in MEW).
Yup - I got that. And I agree with his argument - MEW should be drying up, any day now. But it's been like waiting for Gadot waiting for that sucker to arrive.
"Merrill Lynch's Rosenberg argues money is already tight."
And he does so with a straight face. He's a funny one, that Rosenberg.
Roubini's consistently been about as wrong as wrong can be. Like Roach. Go back and read what these guys were saying 5 years ago, and compare it to what has actually happened - you would have missed a lot of opportunities to make a lot of money. Finally, in an act of desparation, he's nailed his colors to the mast of Q1, 2007. Q2 2007 he's going to look as foolish as ever. He gives good blog, but I pity the company that actually pays for his advice and then acts on it.
NR is making bold perdictions in order to make a name for him self. Although, I think he has facts on his side there are too many moving parts (and hidden parts) to consistently make specific economic calls (i.e., first quarter FY07 recession). Better to look at these calls in terms of risk management and assest allocation. I wouldn't want to be 100% long stocks at this point in the cycle even if they have a few more good quarters.
Excess liquidity can keep this economy alive alot longer. Look at the pre -1929 era. We probably still have a ways to go before we reach that amount of excess.
Then, all it would take is a small hint of taking that liquidity away for everything to come tumbling down.
Comment by ac on 8.23.06: This will be the US' first housing bust. INCORRECT see real estate boom & bust from 1837-1842. Fedrally subsidized land rush caused panic in financial and real estate markets., led to massive depression that did not really end until the mid civil war period (1860s).
BTW, EVERY financial bubble and subsequent bust has had a "spreading" effect into real estate. That is, people make money in whatever the financial bubble is then look to invest some of that money into lavish properties (whatever they define lavish to be) and when it eventually goes bust, real estate becomes very cheap again.
Example, where you aware that some of Dutch properties ( sorry, the name of the famous row escapes me right now), but right along the waterfront, right near tulip bulb Mania, were selling for > $1 million at its peak?!
Bet you thought, like I once did, that million plus properties were only a thing of recent history. History does seem to "find" a way to repeat itself.
This real estate boom is bigger than any in history, the bust will likely be as large, even thoug we can't see all its detail right now.