Steve, when I read Roubini's piece, I felt I was reading one of my posts (with more words!).
I think Roubini is correct to soften his earlier position. I don't think this is a clear cut call - we can be pretty confident that job growth will slow, foreclosures will rise, etc. - but we can't be as certain about a credit crunch and reduced consumer spending.
The transmission mechanisms just aren't clear, and there are significant uncertainities in each factor that Roubini mentions. As an example, no one is really sure how reduced MEW (or wealth effect) will impact consumer spending - or if consumers will just borrow more on their credit cards.
What about foreclosures? Clearly those will impact housing, but how do they impact the general economy? I don't think they have a direct impact - rather the impact is indirect from continued pressure on the housing market, and possibly tighter lending standards as lenders take some hits.
This is why I've been saying the first half of '07 is so important - we should start seeing if there are transmission mechanisms from each of Roubini's factors.
It does take time for an economy as large as the US to turn, and it takes a while as well, to capture the information and free it from "revisions". I think I can accept, that we won't enter recession in 1Q or 2Q. Beyond that - hmmm. Let's see how this inventory plays out.
I'd say things are still humming along pretty well in Charlotte. Retailers are busy, "help wanted" signs are posted by the windows.
Steve, for those of us that have read Roubini for years, we are not surprised. Roubini is very smart, and I enjoy reading his pieces, even when I disagree with him.
I find it interesting that we have converged. Roubini was very bearish last year when I wasn't so negative. Now I'm more cautious and he has moderated his views.
Hopefully we are both wrong - and we will be two ugly bears growing horns!
Actually I think the softer tone of his views can be contributed to the following quote from him in his comment section:
"I am still very strongly convinced that the US will experience a hard landing. I still believe that this hard landing is likely take the form of an outright recession; it will certainly be at least a growth recession. The op-ed was co-authored with a senior member of the WEF; so its tone and substance reflects our joint views that balance my stronger concerns on a US hard landing with his more cautious views."
For a better example check out his post from today.
Yes, he still thinks there's a recession coming, but he's not pounding his fist on the table and shouting, "Recession, recession, recession!" anymore. It seems he acknowledges it's not as certain as he thought it was, say, four months ago.
Still, there has been no signature event to rattle the markets. Given the lax lending standards during the frothy part of the housing cycle, it's premature to conclude there will be no fallout from risky, exotic mortgages.
Banks, like investors, have a history of aggressive lending based on the assumption that the underlying asset can never go down in price. In the 1970s and 1980s, it was loans to the oil and gas industry that went bad when the price of oil collapsed to $10 a barrel in 1986. Forays into emerging markets (aka ``less developed countries'') didn't work out so well either. And real estate has been a repeat offender.
Have lenders learned from past mistakes? The surprise would be if this time is different, not if it's the same.
Let's face it...recession are difficult to predict...a myriad of factors are working against a recession happening. Starting with, Gee, I better get out of bed this morning and go in and earn that measly paycheck.
...a myriad of factors are working against a recession happening.
BS (with emphasis on the B). More factors are working for one, and a really bad one at that.
Remember, we're not talking GDP, we're talking GDP growth. Like housing prices, the action is determined at the margins. Everyone in Japan has been getting up and going to work for the past 15 years, yet their economy hasn't grown.
The question of if CC or other debt can provide the massive influx of funds that refi and cash outs had been hash over before, the answer being not.
Still, we have problems analyzing things like the xmas sales, great volume says the bull, poor margins says the bear. Purged those inventories says the bulls gotta rebuild them, stole from future growth grows the bears and so on.
My measure? Firms going belly up at the margins. That don't happen on the upswings when anything can show a profit.
roubini is our modern day fezziwig, an anachronism at davos. how he puts up with the ridicule either shows strong conviction or a few screws loose upstairs.
Here's an excellent article by Estrella and Mishkin on the yield curve. Estrella did another one in August 2006. I've been following term spread since 1976 and it has never failed me. Ignore it at your own peril.
With the # of reliable recession indicators continuing to signal a coming economic contraction, I'm going with the odds.
It seems to me that the recession bears are now waffling a bit more and more each month. This make me even more convinced that the consensus opinion will again prove to be wrong ... and the reliable recession indicators will again prove to be right.
I can remember the decline in the number and attitude of the bears as the top of the dot com market approached. They had been proven so wrong so often that they gave in and joined the bulls.
We will see.
If I turn bullish, either the second coming is on the way or we have hit the top.
It's all probabilities. We don't know the future weather, financial events, government policy and the timing of the fed response to each. However, we do know that in the past when housing was this weak we usually got a recession or big slowdown. The world economy, especially 3rd World, still looks strong and credit is still very available so a recession may be avoided. Based on history my estimate of the odds of a recession in 2007, or growth under 1% that would have been a recession with old techniques for measuring inflation, is 60%+.
Low credit spreads seem crazy but in my 30+ years investing I've seen many crazy markets go to bizarre extremes before they broke. A major bankruptcy or two that caused credit spreads to widen materially would nearly guarantee a recession.
Since the Fed would respond quickly any recession would likely be fairly mild and short
While personal consumption expenditures (PCE) divided by GDP expressed as a % is 70%, personal consumption expenditures of goods and serviced produced in the US is certainly not 70% of the total value of goods and services produced in the US (which is what GDP purports to measure). A nontrivial amount of PCE on goods (about 44% of total PCE) are goods not produced in the US, and another good chunk are on good produced in the US but with material and supplies not produced in the US.
On the services side, about 19% of PCE on services is "imputed rentals on housing", which is what homeowners would pay themselves if they rented. It doesn't show much of any cyclical movement.
PCE on goods and services produced in the US ex imputed rentals is probably less than 60% of total GDP.
On a separate note, the estimated median value of a home for homeowners with no mortgage is about 32% lower than the estimated median value of a home for homeowners with a mortgage.
"no one is really sure how reduced MEW (or wealth effect) will impact consumer spending - or if consumers will just borrow more on their credit cards.'
Consumers may have some room on their credits cards thanks to MEW but credits cards also have maximum limits - negative saving can't go on forever (assuming home prices stop rising).
Tj The fed cuts short term rates,and yes the dollar tanks and long term interest rates may increase a bit. The Fed can do this since most of U.S, debt is in U.S. dollars.
I failed to mention that if derivative problems prove to be severe the recession could be worse and if the recession is delayed till 2008-2009 it is more likely to worse.
Nouriel Roubini has made many terrible, terrible calls when it comes to the economy over the last 5 years. He gets a lot of support because he's one of the few smart economists that is willing to stick his neck out, but it's constantly getting chopped in half because he is obsessed with predicting outlier events. To his credit, he backs up his calls with a lot of data, but the analyses seldom pan out. It's either an indication of the futility of predictive economics or a glaring lack of aptitude on his part.
I think Kasriel is about ther best there is. He's willing to see all sides and call recessions where he sees fit. He believed in a housing bubble but does not believe in a recession. He's also been the most accurate forecaster over the last 5 years or so.
I enjoy and learn from this blog very much. So far world business community neglects every warning signal. I have been bull for last 4 years and made a lot of profit on that stance (so I'm not permanent bear as a lot of people would describe CR members, quite contrary). But from last fall I'm more and more bearish and I think for reason.
Anyway I would like to ask CR for his comment on new MBA stat published yesterday. Refinance Applications and Purchase Applications Both Decrease in this Week's Survey
...also...for traders, Roubini has been a GREAT fade. He basically gets really emotional with hist posts at big turning points. For example he was churning out extremely bearish blogs right as the stock market was bottoming from its selloff last spring. So if he turning less bullish, watch out...
"but it's constantly getting chopped in half because he is obsessed with predicting outlier events."
It's the correct strategy for predictions. No one remembers all the times you're wrong. They will remember the time you predicted a crash and there really was a crash. Eventually he'll get it right...
The home improvement contractors here in Connecticut are scrambling for work.
Looking to have work done in my main bathroom and kitchen- have received a half a dozen calls or more in the last 2 weeks from contractors seemingly looking for projects- they do not seem to be very busy these days.
I wonder what this tells us about the economic food chain?
Emerging hedge fund managers indicated they are largely "neutral" on the US economy (57.4%) and the US equity markets (44.3%) for 2007. Approximately one-third are "bullish" on the economy (32.8%) and "bullish" on US equities (37.7%). They believe a continued "Real state market slowdown" (29.5%) and "inflation" (21.3%) will play the biggest role in how the U.S. economy will fare this year.
In 2006, the Emerging Hedge Fund Manager Sentiment Survey results turned out to be quite accurate...
Thanks, Cal. The Triad release is certainly interesting from the pessimistic-but-not-melancholy perspective:
"In summary, given the information that we were presented with in the
fourth quarter, we believe it was necessary to increase our severity
factors to reflect the current conditions. Ignoring the signals from the housing market was not an option. House price declines on a year-over-year basis and the inventory of existing homes increasing from 5.1 months supply at December 2005 to 7.4 months at the end of October 2006 are facts that cannot be dismissed. We see nothing in the current economic environment that would lead us to believe that the severity factors will improve during the expected period of claim development on the existing defaults."
What seems to have happened is that the model said "sure, why not" until somebody with a mind at Triad updated the numbers:
"As new data emerges, we consider its impact on our reserve calculation and, when necessary, make changes to our estimates. During the first three quarters of 2006 we refined our segmentation for the reserve calculation and monitored emerging trends. The result of the changes through the first three quarters of the year was an 18% increase in reserves compared to a 5% decline in reserved defaults over the same period. . . . While the impact on paid claims for the quarter due to the severity increase was between $1 million and $2 million, it focused our attention on the potential effect on our future claim payments should this trend continue. We believe the primary cause of the shift towards full option settlement was the general weakness in the housing market reducing our opportunities to mitigate the claims through pre-sales prior to foreclosure, or through our own purchase of the property. As a direct result of the emergence of this new trend during the fourth quarter, and in light of the deteriorating housing market, it was determined that the prudent course of action was to increase our severity factors utilized in our reserving methodology."
This is a useful context in which to read the recent earnings releases from the lenders, whose attention sometimes does not appear very focused when it comes to reserve calculations. You do have to wonder what's distracting them.
Tidbits from MGIC (MTG), the gray-haired old dowager of the MIs:
"Approximately 8% of the Companys primary risk in force written through the flow channel, and 65% of the Companys primary risk in force written through the bulk channel, consists of adjustable rate mortgages (ARMs). The Company believes that during a prolonged period of rising interest rates, claims on ARMs would be substantially higher than for fixed rate loans, although the performance of ARMs has not been tested in such an environment. Moreover, even if interest rates remain unchanged, claims on ARMs with a teaser rate (an initial interest rate that does not fully reflect the index which determines subsequent rates) may also be substantially higher because of the increase in the mortgage payment that will occur when the fully indexed rate becomes effective. In addition, the Company believes the volume of interest-only loans (which may also be ARMs) and loans with negative amortization features, such as pay option ARMs, increased in 2005 and 2006. Because interest-only loans and pay option ARMs are a relatively recent development, the Company has no data on their historical performance. The Company believes claim rates on certain of these loans will be substantially higher than on loans without scheduled payment increases that are made to borrowers of comparable credit quality." [emphasis added]
"In general, the majority of the underwriting profit (premium revenue minus losses) that a book of mortgage insurance generates occurs in the early years of the book, with the largest portion of the underwriting profit realized in the first year. Subsequent years of a book generally result in modest underwriting profit or underwriting losses. This pattern of results occurs because relatively few of the claims that a book will ultimately experience occur in the first few years of the book, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as persistency decreases due to loan prepayments, and higher losses.
If all other things were equal, a decline in new insurance written in a year that followed a number of years of higher volume could result in a lower contribution to the mortgage insurers overall results. This effect may occur because the older books will be experiencing declines in revenue and increases in losses with a lower amount of underwriting profit on the new book available to offset these results."
If all other things were equal, we might not see this, via DataQuick:
"Most of the loans that went into default last quarter were originated between January 2005 and February 2006. The median age was 15 months."
It's been like 100 years since I last played bridge, but doesn't this look like a nice squeeze play?
You're kind of hard to take seriously when you say things like this.
Okay, maybe a slight exaggeration, but have you looked at M3 charts lately? The only thing saving the dollar right now is the fact that the whole world is inflating right along with us.
Inventories of unsold homes fell 7.9% to 3.51 million, representing a 6.8-month supply, the National Association of Realtors said in the report. "It appears we have established a bottom," said David Lereah, chief economist for the NAR.
I personally know of 4 house sellers who were told by their RE agents to take their homes off the market and relist it in the spring?
The inventory numbers don't reflect the real amount of people that want or need to get out.
I have been reading the same three pages (49-51) of NDE's 8-K this morning for the last 45 minutes (with occasional breaks to catch my breath). I'd love to hear from you, Lama (or anyone else with a taste for these things) if you get a chance. The folks who can read this sort of thing faster than I can don't seem impressed (down 5.00% at the moment).
Anyway, I'm putting this one in my "credit crunch coming?" file:
"In the second quarter of 2006, we repurchased $22.8 million of closed-end second loans from an investor due to an early payment default provision. In connection with this repurchase, we recorded an additional $5.2 million of provision. Our credit guidelines have subsequently been revised that will significantly reduce the origination of the lower credit quality closed-end second loans that gave rise to these repurchases. We relieved the reserve for $9.3 million through September 30, 2006, to establish discounts on these repurchased loans." pp 52-53
That's one of the footnotes that's supposed to make us feel better about the reserve calculations. It isn't working, in my case, but of course there's another side to the ledger:
"The increase in non-performing loans held for sale is attributable to our growth in mortgage production and an increase in early payment defaults on certain products. A substantial number of these non-performing loans are covered by the early default provision in the purchase agreements and are subject to repurchase by the sellers."
I'd say they'd better get a move on, while there are still sellers to repurchase:
"Lower of cost or market valuation adjustments related to the credit risk on loans held for sale totaled $39.2 million at December 31, 2006, up from $10.2 million at December 31, 2005, primarily due to the lower of cost or market adjustments on the loans repurchased during 2006 and increased delinquencies in the portfolio."
A company buys mortgages for mega millions from a outfit with a rented office space, rented people and rented furniture, and expects that (virtual?) company to make good those mega millions if things go south.
This is one of those things that keeps me in the bear category. I'd at least have some kinda of performance bond or default insurance/derivative to soothe my troubled sleep.
vader, last time I looked, your average mortgage broker that actually has a state license was required to obtain a surety bond in an amount not to exceed $50,000 or thereabouts. The bigger ones do have an "Errors and Omissions" policy that could be worth another $25,000 or so. Pity those don't cover fraud.
Budge up there in the bull camp, folks, vader's coming for a sleep-over.
Tanta, look at RDN numbers. They beat the number because they LOWERED the provision for losses! The provision for losses totaled $84 million, down $37 million(122% annl.), due to lower provisions for mortgage insurance (down $39 million)
I'm sticking with my bold prediction of a recession in 2007. None of the reasons cited by Roubini (or anyone else) for not having a recession have any great substance that I can see. And the burden of proof is on the optimists, in my opinion, to explain how consumption will continue to grow when borrowing capacity is clearly past its peak and headed down...
"David Hochstim - Bear Stearns - Analyst:
I wonder if you can talk a little bit about the credit outlook and how we should think about losses incurred and claims paid in MI over the course of '07. I guess really just wonder if you can expand on what seems to be an improved outlook for the macro
environment in the last quarter. You seemed a little more cautious the last couple of quarters. I was wondering what contributed
to that? Then I have another question.
Bob Quint - Radian Group, Inc. - EVP, CFO
I guess with regard to outlook for losses, we give the guidance on claims; and we did reiterate that the '07 claims guidance of
340 to 370 is still something we expect to happen.
The improvement, I think, we really believe that employment is the primary driver of losses in our business. And the employment
picture has continued to be strong and improved. In the second and third quarters, we did have some questions about certainly energy prices and what that would do to the economy. Housing, clearly. And we're really looking at the general outlook by
most economists, and the way housing is performing, and clearly employment being the primary driver. That has resulted in our improved outlook."
tj & the bear: We're already on the verge of hyperinflation.
Steve: You're kind of hard to take seriously when you say things like this.
Okay Steve, so in your eyes an 80% gain in housing nationally in 5 years is not hyperinflationary, nor is the 150% gain in oil (from $20/bl to $50/bl); because the gov't statistics say core inflation is the best indicator. Nor is the 50+% gain in the Euro to the dollar in the last 5 years a valid inflationary statistic. Nor is the price of gold, a nearly 300% gain in 5 years, an inflationary statistic.
You're wrong, Steve, Gov't statistics are manipulated lies.
So let's see, the core is supposed to rule temporary fluctuations, and oil has been over $50 for 18 months, hardly a temporary fluctuation.
Steve, that is hyperinflation. You are hard to take seriously when you say things like that.
The worst thing about hyperinflation happening before deflation is that the hyperinflation was built on debt, not actual earnings and savings. If it were built on actual savings, that would be great for the economy, this way it is purely pain.
When Lenin said the best way to destroy capitalism is to debauch the currency through hyperinflation he was right.
Interesting, I just went to the marxists.org site, and it has been hacked and attacked. Marxists Internet Archive File Not Found
You don't think the capitalist pigs are getting scared, do you? (I love how they are using Chinese servers to hide the true sources!)
My gold price increase stated above was incorrect, it should be half the gain I stated, or nearly 150% increase. It looks more like 277/oz to 655/oz, which is only a 136% gain.
I didn't pick the peaks, you did. I'm showing the trends...the five-year trends.
Who's doing the cherry-picking? You are, Stevie.
And by the way, when oil spiked in 1980, inflation numbers shot up to the high teens. Back then the government hadn't yet figured out to skew the numbers.
You just don't know how to argue, even with cherry-picking peaks.
How's that stock market indicator looking today? Eh, cherry-picker?
Yes, you're picking the 5 year trend. Why the five year trend? You have to provide a reason for doing so.
Why not the 2 year trend? Or the 1 year trend? Or the 6 month trend?
Why five years? Is it because 5 years is long than all those time periods?
Okay, so why not use a 20 year trend or the 30 year trend.
I mean, I understand why it's more valuable to you - it fits the argument you're trying to make. But that's not a very good reason, is it?
Again, if you're going to argue that we're experiencing hyperinflation based on five years worth of data, I guess you've have to conclude that we're in a longer-term deflationary trend since the early 80s.
Do you realize how stupid that sounds?
And you say "the government hadn't yet figured out to skew the numbers." Oh yes, of course, I forgot about that, but I'm not talking about the government, I'm talking about the market. Gold and oil were higher back then.
The USD actually did undergo a form of deflation after Volcker effectively squelched out the inflationary extremes of the late 70's and early 80's. It is probably better described as disinflation due to mildness of it, and that it was supported by a very strong economic contributor-technology.
The reason the dollar regained strength was this unique technological revolution that made American products globally desirable. As the dollar regained value against world currencies, the economy didn't suffer as the disinflation (mild deflation) didn't cause credit problems en masse because American jobs were creating wealth.
The dollar's deflation wasn't exposed as the M3 was increasing due to expanded markets and exports. The USD was indeed king during the 90's. It gained against everything. But there was legitimate reason supporting it, the computing revolution.
The recent hyperinflation (I was saying we are now in hyperflation, and the big D hasn't started yet) that was started to stop the further deflationary possibility was only initiated in late 2001, hence my choice to focus on the five-year trend.
Now, unless America has a rabbit up its sleeve to find another new technology that will propel its economy (say individual miniature flying machines running on water, or perpetual energy machines), the dollar will not deflate with strength, but rather with weakness.
I don't see that technology. I ,for one, do not believe that over-leveraged derivatives are a real economic pillar. And I don't think the tech revolution has much gas left in the tank.
The final result has yet to be played out: the Fed hasn't shown what the rates will do in the next year or 2 when the ARM's get adjusted. If, as when Volcker came in, they jack rates up to strengthen the USD, gold, oil, etc will come down, BUT the housing collapse will be ugly, and the disinflation it produces will be economically painful (see the 1930's). If the Fed chooses to lower rates to cushion the housing/credit collapse, the dollar will be hyperinflated and devalued to joke currency status. This would also be very economically painful.
They have a choice, and neither one resolves well.
And then we may find ourselves in a revolution of another kind.
The USD actually did undergo a form of deflation after Volcker effectively squelched out the inflationary extremes of the late 70's and early 80's. It is probably better described as disinflation due to mildness of it, and that it was supported by a very strong economic contributor-technology.
Disinflation is not a form of deflation. Of course, since you struggle with the meaning of hyperinflation, I can't say I'm surprised you would make that mistake. Here's a few things that might help:
Oh, and Steve, just in case you didn't get the memo:
The American elites know that they have no other economic pillar available, and that is why the intention is to invade Iran (Iraq already failed) to get their oil.
You see, war the theft is the only other plan they have to prop up the American capitalist lie.
Capitalism is already on life-support and a blackout is coming to kill the power.
The problem with these idiot elites is that they think they are secretive, but you can't pull a rabbit out of your sleeve, when the emperor has no clothes.
Great non-response, just as I would expect from a capitalist defender in denial. I shouldn't have expected a response to the valid points made, since it is clear you don't have any.
In economics, hyperinflation is inflation that is "out of control", a condition in which prices increase rapidly as a currency loses its value. No precise definition of hyperinflation is universally accepted. One simple definition requires a monthly inflation rate of 50% or more. In informal usage the term is often applied to much lower rates. The definition used by most economists is "an inflationary cycle without any tendency toward equilibrium." A vicious circle is created in which more and more inflation is created with each iteration of the cycle.
dotcommunists preferred defn: "an inflationary cycle without any tendency toward equilibrium." Steve mocked my preferred definition.
from Wiki: Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:
1. Outright lying as to official statistics such as money supply, inflation or reserves.
2. Suppression of publication of money supply statistics, or inflation indices.
3. Price and wage controls.
4. Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or similar.
5. Adjusting the components of the Consumer Price Index, to remove those items whose prices are rising the fastest.
None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency, causing further increases in inflation.
I've argued that we are presently seeing 1 (increasingly common statistical revisions), 2 (removal of M3) and 5 (housing and oil). I also argued that house prices, oil, gold and alternative currencies are, since 2001, collectively producing hyperinflation of the USD.
Disinflation is a decrease in the rate of inflation.
... Disinflation is generally considered to be a very positive state for the economy. Over the last twenty years North America has seen steady disinflation, and many credit this with the strong growth during this period. While disinflation is generally perceived as positive, it is not good for the effect to go so far as deflation, which is generally perceived to be a very negative state for an economy.
emphasis added
In my argument, I said that we had disinflation from the early 1980's until 2001. It is probably better described as disinflation due to (the) mildness of it. Steve responding by mocking my definition and ignoring the argument.
Deflation Deflation - Wikipedia, the free encyclopedia Deflation is a decrease in the general price level, over a period of time. Deflation is the opposite of inflation. The term is also used to refer to a decrease in the size of the money supply. During deflation the demand for liquidity goes up, in preference to goods or interest. During deflation the purchasing power of money increases.
I argued that a form of deflation was occurring for the USD since the early 1980's, specifically in gold and oil and other world currencies. While general prices were inflating slowly (internal to the US, such as services and internal goods like existing homes), a deflation relative to non-domestic goods was occurring yet was masked. I stated that M3 was rising and gave reasons why, including that it was not fully deflation. My intention was to state that price deflation was occurring but that was masked by money supply increases. No economists have defined this with a single word. I said it was a mild deflation. I stick with that.
Again, Steve simply dismissed the arguments he asked of me using the logical fallacy of argumentum ad personam [He asked why I've chosen 5-year trend analysis]. He chose to deflect the argument by attacking my definitions.
I stick by my definitions.
Don't address the arguments, simply attack the person. Seriously, Steve, you should read the links, you might learn something.
50% a months is a lot more than 300% in 5 years. This isn't hyperinflation though it does shows the same ills as true hyperinflation when its is smart to lend as much as possible.
Great thread ... I have a question for the group, related to the excellent discussion on mortgage insurers above. Aren't these insurers the ultimate bagholders if loan defaults skyrocket? For example, John FB and his wife Suzy Bling Bling purchase a McMansion, financed 100% with the latest exotic "pick your payment" loan from Fly By Night Mortgage co. Then they get over their heads when the rate jumps, and end up walking away from the place. Since they never got the required 20% equity, were they not paying PMI and won't the PMI outfit get stuck with the default? Or am I missing something? Wise hands, enlighten me ,,,
I'll give him credit for having the courage to be the lone bear at Davos, even if he did moderate his position.
Steve, when I read Roubini's piece, I felt I was reading one of my posts (with more words!).
I think Roubini is correct to soften his earlier position. I don't think this is a clear cut call - we can be pretty confident that job growth will slow, foreclosures will rise, etc. - but we can't be as certain about a credit crunch and reduced consumer spending.
The transmission mechanisms just aren't clear, and there are significant uncertainities in each factor that Roubini mentions. As an example, no one is really sure how reduced MEW (or wealth effect) will impact consumer spending - or if consumers will just borrow more on their credit cards.
What about foreclosures? Clearly those will impact housing, but how do they impact the general economy? I don't think they have a direct impact - rather the impact is indirect from continued pressure on the housing market, and possibly tighter lending standards as lenders take some hits.
This is why I've been saying the first half of '07 is so important - we should start seeing if there are transmission mechanisms from each of Roubini's factors.
Best Wishes.
It does take time for an economy as large as the US to turn, and it takes a while as well, to capture the information and free it from "revisions". I think I can accept, that we won't enter recession in 1Q or 2Q. Beyond that - hmmm. Let's see how this inventory plays out.
I'd say things are still humming along pretty well in Charlotte. Retailers are busy, "help wanted" signs are posted by the windows.
CR,
I agree that he is correct to soften his position, I was just surprised to see him do it!
Another SubPrime BlowUp:
Bakersfield Bubble
Steve, for those of us that have read Roubini for years, we are not surprised. Roubini is very smart, and I enjoy reading his pieces, even when I disagree with him.
I find it interesting that we have converged. Roubini was very bearish last year when I wasn't so negative. Now I'm more cautious and he has moderated his views.
Hopefully we are both wrong - and we will be two ugly bears growing horns!
Best to all.
Actually I think the softer tone of his views can be contributed to the following quote from him in his comment section:
"I am still very strongly convinced that the US will experience a hard landing. I still believe that this hard landing is likely take the form of an outright recession; it will certainly be at least a growth recession. The op-ed was co-authored with a senior member of the WEF; so its tone and substance reflects our joint views that balance my stronger concerns on a US hard landing with his more cautious views."
TN, thanks! OK, I guess we haven't converged ...
Best Wishes.
TN,
For a better example check out his post from today.
Yes, he still thinks there's a recession coming, but he's not pounding his fist on the table and shouting, "Recession, recession, recession!" anymore. It seems he acknowledges it's not as certain as he thought it was, say, four months ago.
Fourth-Quarter Economic Figures Don't Add Up: Caroline Baum
History Lesson
Still, there has been no signature event to rattle the markets. Given the lax lending standards during the frothy part of the housing cycle, it's premature to conclude there will be no fallout from risky, exotic mortgages.
Banks, like investors, have a history of aggressive lending based on the assumption that the underlying asset can never go down in price. In the 1970s and 1980s, it was loans to the oil and gas industry that went bad when the price of oil collapsed to $10 a barrel in 1986. Forays into emerging markets (aka ``less developed countries'') didn't work out so well either. And real estate has been a repeat offender.
Have lenders learned from past mistakes? The surprise would be if this time is different, not if it's the same.
Fourth-Quarter Economic Figures Don't Add Up: Caroline Baum - Bloomberg.com
Let's face it...recession are difficult to predict...a myriad of factors are working against a recession happening. Starting with, Gee, I better get out of bed this morning and go in and earn that measly paycheck.
I suppose three weeks into the new year is as good a time as any to start setting up your excuses.
Don't recessions start after the last bear turns bullish?
Well, a shortage of bears generally protends a top, though exactly how you quailify that and make predictions is dicey.
We will have to wait to see when the when is.
The people at Goldman Sachs who are feverishly trying to decide where to spend their bonus billions are not predicting a recession.
I think we should stick with the stock market as a surrogate for the economy.
If the stock market rides from high to high, then there's no recession.
I worry that the level of margin debt is as high as it was before the last time there was a new paradigm.
I don't think this is a clear cut call...
...and yet I don't see how it can't be, CR.
Housing basically rescued us from the stock bubble recession. If you take that boost and turn it into a drag, what's to keep things rolling?
People seem to think the economy is made of Adamantium, yet a closer look reveals rusted out pig iron.
...a myriad of factors are working against a recession happening.
BS (with emphasis on the B). More factors are working for one, and a really bad one at that.
Remember, we're not talking GDP, we're talking GDP growth. Like housing prices, the action is determined at the margins. Everyone in Japan has been getting up and going to work for the past 15 years, yet their economy hasn't grown.
The question of if CC or other debt can provide the massive influx of funds that refi and cash outs had been hash over before, the answer being not.
Still, we have problems analyzing things like the xmas sales, great volume says the bull, poor margins says the bear. Purged those inventories says the bulls gotta rebuild them, stole from future growth grows the bears and so on.
My measure? Firms going belly up at the margins. That don't happen on the upswings when anything can show a profit.
Yaaaay! DID is taking the gloves off again. Thank you, sir, may I have another? And could you do some of that wart doctor schtick?
roubini is our modern day fezziwig, an anachronism at davos. how he puts up with the ridicule either shows strong conviction or a few screws loose upstairs.
Here's an excellent article by Estrella and Mishkin on the yield curve. Estrella did another one in August 2006. I've been following term spread since 1976 and it has never failed me. Ignore it at your own peril.
The Yield Curve as a Predictor of U.S. Recessions - Federal Reserve Bank of New York
With the # of reliable recession indicators continuing to signal a coming economic contraction, I'm going with the odds.
It seems to me that the recession bears are now waffling a bit more and more each month. This make me even more convinced that the consensus opinion will again prove to be wrong ... and the reliable recession indicators will again prove to be right.
Callin' it as I see it.
Robert
I can remember the decline in the number and attitude of the bears as the top of the dot com market approached. They had been proven so wrong so often that they gave in and joined the bulls.
We will see.
If I turn bullish, either the second coming is on the way or we have hit the top.
It's all probabilities. We don't know the future weather, financial events, government policy and the timing of the fed response to each. However, we do know that in the past when housing was this weak we usually got a recession or big slowdown. The world economy, especially 3rd World, still looks strong and credit is still very available so a recession may be avoided. Based on history my estimate of the odds of a recession in 2007, or growth under 1% that would have been a recession with old techniques for measuring inflation, is 60%+.
Low credit spreads seem crazy but in my 30+ years investing I've seen many crazy markets go to bizarre extremes before they broke. A major bankruptcy or two that caused credit spreads to widen materially would nearly guarantee a recession.
Since the Fed would respond quickly any recession would likely be fairly mild and short
While personal consumption expenditures (PCE) divided by GDP expressed as a % is 70%, personal consumption expenditures of goods and serviced produced in the US is certainly not 70% of the total value of goods and services produced in the US (which is what GDP purports to measure). A nontrivial amount of PCE on goods (about 44% of total PCE) are goods not produced in the US, and another good chunk are on good produced in the US but with material and supplies not produced in the US.
On the services side, about 19% of PCE on services is "imputed rentals on housing", which is what homeowners would pay themselves if they rented. It doesn't show much of any cyclical movement.
PCE on goods and services produced in the US ex imputed rentals is probably less than 60% of total GDP.
On a separate note, the estimated median value of a home for homeowners with no mortgage is about 32% lower than the estimated median value of a home for homeowners with a mortgage.
"no one is really sure how reduced MEW (or wealth effect) will impact consumer spending - or if consumers will just borrow more on their credit cards.'
Consumers may have some room on their credits cards thanks to MEW but credits cards also have maximum limits - negative saving can't go on forever (assuming home prices stop rising).
Since the Fed would respond quickly any recession would likely be fairly mild and short.
And that response would be? The only ammunition they have left is the kind that would blow up in their face.
Print more money? We're already on the verge of hyperinflation. Lower short rates? Dollar tanks, long rates soar.
We're already on the verge of hyperinflation.
You're kind of hard to take seriously when you say things like this.
Tj The fed cuts short term rates,and yes the dollar tanks and long term interest rates may increase a bit. The Fed can do this since most of U.S, debt is in U.S. dollars.
I failed to mention that if derivative problems prove to be severe the recession could be worse and if the recession is delayed till 2008-2009 it is more likely to worse.
Nouriel Roubini has made many terrible, terrible calls when it comes to the economy over the last 5 years. He gets a lot of support because he's one of the few smart economists that is willing to stick his neck out, but it's constantly getting chopped in half because he is obsessed with predicting outlier events. To his credit, he backs up his calls with a lot of data, but the analyses seldom pan out. It's either an indication of the futility of predictive economics or a glaring lack of aptitude on his part.
I think Kasriel is about ther best there is. He's willing to see all sides and call recessions where he sees fit. He believed in a housing bubble but does not believe in a recession. He's also been the most accurate forecaster over the last 5 years or so.
I enjoy and learn from this blog very much. So far world business community neglects every warning signal. I have been bull for last 4 years and made a lot of profit on that stance (so I'm not permanent bear as a lot of people would describe CR members, quite contrary). But from last fall I'm more and more bearish and I think for reason.
Anyway I would like to ask CR for his comment on new MBA stat published yesterday.
Refinance Applications and Purchase Applications Both Decrease in this Week's Survey
Sorry for my english.
...also...for traders, Roubini has been a GREAT fade. He basically gets really emotional with hist posts at big turning points. For example he was churning out extremely bearish blogs right as the stock market was bottoming from its selloff last spring. So if he turning less bullish, watch out...
"but it's constantly getting chopped in half because he is obsessed with predicting outlier events."
It's the correct strategy for predictions. No one remembers all the times you're wrong. They will remember the time you predicted a crash and there really was a crash. Eventually he'll get it right...
OT: I thought this quarterly release by a mortgage insurer had a lot of interesting tidbits and wanted to share the link:
Best Practices for Driving Sales Force Excellence
Also the new PMI study was out today and those are always interesting.
The home improvement contractors here in Connecticut are scrambling for work.
Looking to have work done in my main bathroom and kitchen- have received a half a dozen calls or more in the last 2 weeks from contractors seemingly looking for projects- they do not seem to be very busy these days.
I wonder what this tells us about the economic food chain?
Emerging hedge fund managers indicated they are largely "neutral" on the US economy (57.4%) and the US equity markets (44.3%) for 2007. Approximately one-third are "bullish" on the economy (32.8%) and "bullish" on US equities (37.7%). They believe a continued "Real state market slowdown" (29.5%) and "inflation" (21.3%) will play the biggest role in how the U.S. economy will fare this year.
In 2006, the Emerging Hedge Fund Manager Sentiment Survey results turned out to be quite accurate...
The page cannot be found
Thanks, Cal. The Triad release is certainly interesting from the pessimistic-but-not-melancholy perspective:
"In summary, given the information that we were presented with in the
fourth quarter, we believe it was necessary to increase our severity
factors to reflect the current conditions. Ignoring the signals from the housing market was not an option. House price declines on a year-over-year basis and the inventory of existing homes increasing from 5.1 months supply at December 2005 to 7.4 months at the end of October 2006 are facts that cannot be dismissed. We see nothing in the current economic environment that would lead us to believe that the severity factors will improve during the expected period of claim development on the existing defaults."
What seems to have happened is that the model said "sure, why not" until somebody with a mind at Triad updated the numbers:
"As new data emerges, we consider its impact on our reserve calculation and, when necessary, make changes to our estimates. During the first three quarters of 2006 we refined our segmentation for the reserve calculation and monitored emerging trends. The result of the changes through the first three quarters of the year was an 18% increase in reserves compared to a 5% decline in reserved defaults over the same period. . . . While the impact on paid claims for the quarter due to the severity increase was between $1 million and $2 million, it focused our attention on the potential effect on our future claim payments should this trend continue. We believe the primary cause of the shift towards full option settlement was the general weakness in the housing market reducing our opportunities to mitigate the claims through pre-sales prior to foreclosure, or through our own purchase of the property. As a direct result of the emergence of this new trend during the fourth quarter, and in light of the deteriorating housing market, it was determined that the prudent course of action was to increase our severity factors utilized in our reserving methodology."
This is a useful context in which to read the recent earnings releases from the lenders, whose attention sometimes does not appear very focused when it comes to reserve calculations. You do have to wonder what's distracting them.
Tidbits from MGIC (MTG), the gray-haired old dowager of the MIs:
"Approximately 8% of the Companys primary risk in force written through the flow channel, and 65% of the Companys primary risk in force written through the bulk channel, consists of adjustable rate mortgages (ARMs). The Company believes that during a prolonged period of rising interest rates, claims on ARMs would be substantially higher than for fixed rate loans, although the performance of ARMs has not been tested in such an environment. Moreover, even if interest rates remain unchanged, claims on ARMs with a teaser rate (an initial interest rate that does not fully reflect the index which determines subsequent rates) may also be substantially higher because of the increase in the mortgage payment that will occur when the fully indexed rate becomes effective. In addition, the Company believes the volume of interest-only loans (which may also be ARMs) and loans with negative amortization features, such as pay option ARMs, increased in 2005 and 2006. Because interest-only loans and pay option ARMs are a relatively recent development, the Company has no data on their historical performance. The Company believes claim rates on certain of these loans will be substantially higher than on loans without scheduled payment increases that are made to borrowers of comparable credit quality." [emphasis added]
Moreover . . .
"In general, the majority of the underwriting profit (premium revenue minus losses) that a book of mortgage insurance generates occurs in the early years of the book, with the largest portion of the underwriting profit realized in the first year. Subsequent years of a book generally result in modest underwriting profit or underwriting losses. This pattern of results occurs because relatively few of the claims that a book will ultimately experience occur in the first few years of the book, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as persistency decreases due to loan prepayments, and higher losses.
If all other things were equal, a decline in new insurance written in a year that followed a number of years of higher volume could result in a lower contribution to the mortgage insurers overall results. This effect may occur because the older books will be experiencing declines in revenue and increases in losses with a lower amount of underwriting profit on the new book available to offset these results."
If all other things were equal, we might not see this, via DataQuick:
"Most of the loans that went into default last quarter were originated between January 2005 and February 2006. The median age was 15 months."
It's been like 100 years since I last played bridge, but doesn't this look like a nice squeeze play?
exv99
You're kind of hard to take seriously when you say things like this.
Okay, maybe a slight exaggeration, but have you looked at M3 charts lately? The only thing saving the dollar right now is the fact that the whole world is inflating right along with us.
Inventories of unsold homes fell 7.9% to 3.51 million, representing a 6.8-month supply, the National Association of Realtors said in the report. "It appears we have established a bottom," said David Lereah, chief economist for the NAR.
I personally know of 4 house sellers who were told by their RE agents to take their homes off the market and relist it in the spring?
The inventory numbers don't reflect the real amount of people that want or need to get out.
I have been reading the same three pages (49-51) of NDE's 8-K this morning for the last 45 minutes (with occasional breaks to catch my breath). I'd love to hear from you, Lama (or anyone else with a taste for these things) if you get a chance. The folks who can read this sort of thing faster than I can don't seem impressed (down 5.00% at the moment).
Anyway, I'm putting this one in my "credit crunch coming?" file:
"In the second quarter of 2006, we repurchased $22.8 million of closed-end second loans from an investor due to an early payment default provision. In connection with this repurchase, we recorded an additional $5.2 million of provision. Our credit guidelines have subsequently been revised that will significantly reduce the origination of the lower credit quality closed-end second loans that gave rise to these repurchases. We relieved the reserve for $9.3 million through September 30, 2006, to establish discounts on these repurchased loans." pp 52-53
That's one of the footnotes that's supposed to make us feel better about the reserve calculations. It isn't working, in my case, but of course there's another side to the ledger:
"The increase in non-performing loans held for sale is attributable to our growth in mortgage production and an increase in early payment defaults on certain products. A substantial number of these non-performing loans are covered by the early default provision in the purchase agreements and are subject to repurchase by the sellers."
I'd say they'd better get a move on, while there are still sellers to repurchase:
"Lower of cost or market valuation adjustments related to the credit risk on loans held for sale totaled $39.2 million at December 31, 2006, up from $10.2 million at December 31, 2005, primarily due to the lower of cost or market adjustments on the loans repurchased during 2006 and increased delinquencies in the portfolio."
Boy, everybody liked that Triad release. TGIC (Thank God It's Collateralized), -9.31%.
Let me see if I get some of this straight.
A company buys mortgages for mega millions from a outfit with a rented office space, rented people and rented furniture, and expects that (virtual?) company to make good those mega millions if things go south.
This is one of those things that keeps me in the bear category. I'd at least have some kinda of performance bond or default insurance/derivative to soothe my troubled sleep.
vader, last time I looked, your average mortgage broker that actually has a state license was required to obtain a surety bond in an amount not to exceed $50,000 or thereabouts. The bigger ones do have an "Errors and Omissions" policy that could be worth another $25,000 or so. Pity those don't cover fraud.
Budge up there in the bull camp, folks, vader's coming for a sleep-over.
Tanta, look at RDN numbers. They beat the number because they LOWERED the provision for losses!
The provision for losses totaled $84 million, down $37 million(122% annl.), due to lower provisions for mortgage insurance (down $39 million)
I'm sticking with my bold prediction of a recession in 2007. None of the reasons cited by Roubini (or anyone else) for not having a recession have any great substance that I can see. And the burden of proof is on the optimists, in my opinion, to explain how consumption will continue to grow when borrowing capacity is clearly past its peak and headed down...
OCRenter, from RDN's conference call:
"David Hochstim - Bear Stearns - Analyst:
I wonder if you can talk a little bit about the credit outlook and how we should think about losses incurred and claims paid in MI over the course of '07. I guess really just wonder if you can expand on what seems to be an improved outlook for the macro
environment in the last quarter. You seemed a little more cautious the last couple of quarters. I was wondering what contributed
to that? Then I have another question.
Bob Quint - Radian Group, Inc. - EVP, CFO
I guess with regard to outlook for losses, we give the guidance on claims; and we did reiterate that the '07 claims guidance of
340 to 370 is still something we expect to happen.
The improvement, I think, we really believe that employment is the primary driver of losses in our business. And the employment
picture has continued to be strong and improved. In the second and third quarters, we did have some questions about certainly energy prices and what that would do to the economy. Housing, clearly. And we're really looking at the general outlook by
most economists, and the way housing is performing, and clearly employment being the primary driver. That has resulted in our improved outlook."
Sorry, Mr. Link is:
http://media.corporate-ir.net/media_files/irol/11/112301/RDNQ406transcript.pdf
Tanta, thanks for the link. I didn't know transcripts for conference calls existed.
tj & the bear: We're already on the verge of hyperinflation.
Steve: You're kind of hard to take seriously when you say things like this.
Okay Steve, so in your eyes an 80% gain in housing nationally in 5 years is not hyperinflationary, nor is the 150% gain in oil (from $20/bl to $50/bl); because the gov't statistics say core inflation is the best indicator. Nor is the 50+% gain in the Euro to the dollar in the last 5 years a valid inflationary statistic. Nor is the price of gold, a nearly 300% gain in 5 years, an inflationary statistic.
You're wrong, Steve, Gov't statistics are manipulated lies.
So let's see, the core is supposed to rule temporary fluctuations, and oil has been over $50 for 18 months, hardly a temporary fluctuation.
Steve, that is hyperinflation. You are hard to take seriously when you say things like that.
The worst thing about hyperinflation happening before deflation is that the hyperinflation was built on debt, not actual earnings and savings. If it were built on actual savings, that would be great for the economy, this way it is purely pain.
When Lenin said the best way to destroy capitalism is to debauch the currency through hyperinflation he was right.
John Maynard Keynes - Wikiquote
And it is being hidden just as he said.
Lenin isn't rolling over in his grave, he's freaking jumping out of it laughing!!
The Greenspan Legacy
Inflation or Deflation? 2
Interesting, I just went to the marxists.org site, and it has been hacked and attacked.
Marxists Internet Archive
File Not Found
You don't think the capitalist pigs are getting scared, do you? (I love how they are using Chinese servers to hide the true sources!)
But they can't kill the TRUTH:
Lenin: Imperialism, the Highest Stage of Capitalism
Correction:
My gold price increase stated above was incorrect, it should be half the gain I stated, or nearly 150% increase. It looks more like 277/oz to 655/oz, which is only a 136% gain.
Gold Price History
ONLY? Yep, no inflation here!
dotcommunist,
I guess we've been in a deflationary spiral since 1980, then. You know, back when gold was over $800.
Oh, and in inflation adjusted terms oil was $92.26 in 1980.
dotcommunist,
The only thing you've done is demonstrate that you can argue just about anything if you carefully cherry-pick the time period.
I didn't pick the peaks, you did. I'm showing the trends...the five-year trends.
Who's doing the cherry-picking? You are, Stevie.
And by the way, when oil spiked in 1980, inflation numbers shot up to the high teens. Back then the government hadn't yet figured out to skew the numbers.
You just don't know how to argue, even with cherry-picking peaks.
How's that stock market indicator looking today? Eh, cherry-picker?
halo won't let me sign this right
dotcommunist
Marxists Internet Archive
Yes, you're picking the 5 year trend. Why the five year trend? You have to provide a reason for doing so.
Why not the 2 year trend? Or the 1 year trend? Or the 6 month trend?
Why five years? Is it because 5 years is long than all those time periods?
Okay, so why not use a 20 year trend or the 30 year trend.
I mean, I understand why it's more valuable to you - it fits the argument you're trying to make. But that's not a very good reason, is it?
Again, if you're going to argue that we're experiencing hyperinflation based on five years worth of data, I guess you've have to conclude that we're in a longer-term deflationary trend since the early 80s.
Do you realize how stupid that sounds?
And you say "the government hadn't yet figured out to skew the numbers." Oh yes, of course, I forgot about that, but I'm not talking about the government, I'm talking about the market. Gold and oil were higher back then.
I didn't pick the peaks...
No, you picked the trough. Funny that you don't have a problem with that.
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
I'll correct my high teens claim so you don't have to:
1979 Dec-Dec yoy inflation 13.3%, ave monthly change 11.3%
1980 Dec-Dec yoy inflation 12.5%, ave monthly change 13.5%
1981 Dec-Dec yoy inflation 8.9% ave monthly change 10.3%
Of course, in 1946 when housing show huge price gains, the gov't stats show it:
1946 Dec-Dec yoy inflation 18.1%
They sure were smart to pull the housing price out of that inflation calculation!
dotcommunist
Marxists Internet Archive
Okay, Steve, I'll attempt an explanation
The USD actually did undergo a form of deflation after Volcker effectively squelched out the inflationary extremes of the late 70's and early 80's. It is probably better described as disinflation due to mildness of it, and that it was supported by a very strong economic contributor-technology.
The reason the dollar regained strength was this unique technological revolution that made American products globally desirable. As the dollar regained value against world currencies, the economy didn't suffer as the disinflation (mild deflation) didn't cause credit problems en masse because American jobs were creating wealth.
The dollar's deflation wasn't exposed as the M3 was increasing due to expanded markets and exports. The USD was indeed king during the 90's. It gained against everything. But there was legitimate reason supporting it, the computing revolution.
The recent hyperinflation (I was saying we are now in hyperflation, and the big D hasn't started yet) that was started to stop the further deflationary possibility was only initiated in late 2001, hence my choice to focus on the five-year trend.
Now, unless America has a rabbit up its sleeve to find another new technology that will propel its economy (say individual miniature flying machines running on water, or perpetual energy machines), the dollar will not deflate with strength, but rather with weakness.
I don't see that technology. I ,for one, do not believe that over-leveraged derivatives are a real economic pillar. And I don't think the tech revolution has much gas left in the tank.
The final result has yet to be played out: the Fed hasn't shown what the rates will do in the next year or 2 when the ARM's get adjusted. If, as when Volcker came in, they jack rates up to strengthen the USD, gold, oil, etc will come down, BUT the housing collapse will be ugly, and the disinflation it produces will be economically painful (see the 1930's). If the Fed chooses to lower rates to cushion the housing/credit collapse, the dollar will be hyperinflated and devalued to joke currency status. This would also be very economically painful.
They have a choice, and neither one resolves well.
And then we may find ourselves in a revolution of another kind.
dotcommunist
Marxists Internet Archive
The USD actually did undergo a form of deflation after Volcker effectively squelched out the inflationary extremes of the late 70's and early 80's. It is probably better described as disinflation due to mildness of it, and that it was supported by a very strong economic contributor-technology.
Disinflation is not a form of deflation. Of course, since you struggle with the meaning of hyperinflation, I can't say I'm surprised you would make that mistake. Here's a few things that might help:
hyperinflation
disinflation
deflation
Oh, and Steve, just in case you didn't get the memo:
The American elites know that they have no other economic pillar available, and that is why the intention is to invade Iran (Iraq already failed) to get their oil.
You see, war the theft is the only other plan they have to prop up the American capitalist lie.
Capitalism is already on life-support and a blackout is coming to kill the power.
The problem with these idiot elites is that they think they are secretive, but you can't pull a rabbit out of your sleeve, when the emperor has no clothes.
dotcommunist
Marxists Internet Archive
great links, Steve, you are truly a joke (wow, you can use google.com)
dotcommunist,
Seriously, what color is the sky in your world?
And don't mock the links, read them. I think they could help.
Great non-response, just as I would expect from a capitalist defender in denial. I shouldn't have expected a response to the valid points made, since it is clear you don't have any.
Here's a link just for you:
Ad hominem - Wikipedia, the free encyclopedia
dotcommunist
Marxists Internet Archive
Hyperinflation
Hyperinflation - Wikipedia, the free encyclopedia
In economics, hyperinflation is inflation that is "out of control", a condition in which prices increase rapidly as a currency loses its value. No precise definition of hyperinflation is universally accepted. One simple definition requires a monthly inflation rate of 50% or more. In informal usage the term is often applied to much lower rates. The definition used by most economists is "an inflationary cycle without any tendency toward equilibrium." A vicious circle is created in which more and more inflation is created with each iteration of the cycle.
dotcommunists preferred defn: "an inflationary cycle without any tendency toward equilibrium." Steve mocked my preferred definition.
from Wiki:
Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:
1. Outright lying as to official statistics such as money supply, inflation or reserves.
2. Suppression of publication of money supply statistics, or inflation indices.
3. Price and wage controls.
4. Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or similar.
5. Adjusting the components of the Consumer Price Index, to remove those items whose prices are rising the fastest.
None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency, causing further increases in inflation.
I've argued that we are presently seeing 1 (increasingly common statistical revisions), 2 (removal of M3) and 5 (housing and oil). I also argued that house prices, oil, gold and alternative currencies are, since 2001, collectively producing hyperinflation of the USD.
contined below...
...continued from above
Disinflation
Disinflation - Wikipedia, the free encyclopedia
Disinflation is a decrease in the rate of inflation.
... Disinflation is generally considered to be a very positive state for the economy. Over the last twenty years North America has seen steady disinflation, and many credit this with the strong growth during this period. While disinflation is generally perceived as positive, it is not good for the effect to go so far as deflation, which is generally perceived to be a very negative state for an economy.
emphasis added
In my argument, I said that we had disinflation from the early 1980's until 2001. It is probably better described as disinflation due to (the) mildness of it. Steve responding by mocking my definition and ignoring the argument.
Deflation
Deflation - Wikipedia, the free encyclopedia
Deflation is a decrease in the general price level, over a period of time. Deflation is the opposite of inflation. The term is also used to refer to a decrease in the size of the money supply. During deflation the demand for liquidity goes up, in preference to goods or interest. During deflation the purchasing power of money increases.
I argued that a form of deflation was occurring for the USD since the early 1980's, specifically in gold and oil and other world currencies. While general prices were inflating slowly (internal to the US, such as services and internal goods like existing homes), a deflation relative to non-domestic goods was occurring yet was masked. I stated that M3 was rising and gave reasons why, including that it was not fully deflation. My intention was to state that price deflation was occurring but that was masked by money supply increases. No economists have defined this with a single word. I said it was a mild deflation. I stick with that.
Again, Steve simply dismissed the arguments he asked of me using the logical fallacy of argumentum ad personam [He asked why I've chosen 5-year trend analysis]. He chose to deflect the argument by attacking my definitions.
I stick by my definitions.
Don't address the arguments, simply attack the person. Seriously, Steve, you should read the links, you might learn something.
50% a months is a lot more than 300% in 5 years. This isn't hyperinflation though it does shows the same ills as true hyperinflation when its is smart to lend as much as possible.
Great thread ... I have a question for the group, related to the excellent discussion on mortgage insurers above. Aren't these insurers the ultimate bagholders if loan defaults skyrocket? For example, John FB and his wife Suzy Bling Bling purchase a McMansion, financed 100% with the latest exotic "pick your payment" loan from Fly By Night Mortgage co. Then they get over their heads when the rate jumps, and end up walking away from the place. Since they never got the required 20% equity, were they not paying PMI and won't the PMI outfit get stuck with the default? Or am I missing something? Wise hands, enlighten me ,,,