Housing starts ignore affordability issues. Supply must conform to demand in a down market. Sticky prices tend to support the status quo. The status quo is dead.
CR - How do you factor in the fact that the current age of the housing stock in the US is at its oldest ever, meaning that more units are taken out of service each year than ever before?
Marcus Aurelius, This post argues for declining prices - because excess supply will linger - and pressure on home builders for several years. Sorry for the pessimism. It would be better if the builders pulled a Henry Ford and took '08 off!
r0m30, yes - I think the recession started in Dec '07. If so, I just made it since I thought a recession in '07 was better than a coin flip. It was definitely coming down to the wire.
Now we have to see if it last long enough to be officially declared a recession (I think the odds are high).
From the previous thread, there was a discussion of how a working person can best invest conservatively in this environment. Here's my 2 cents.
These are going to be tough economic times ahead. I don't think a non-retired person can just sit there in cash earning the inflation rate or less. You should try to help your money grow at least some.
My suggested portfolio is to put half your money in cash and the other half in RUT. This is the inverse of the Russell 2000 Index of U.S. small-cap. I think this gives you a shot for about 10% return over next two years.
Everything now is working against U.S. small companies. In about two years, investors will wonder why anyone would want to invest in common stock of small companies that don't pay dividends. It's just too risky.
Here's a twist that might add performance to this portfolio at low risk. Russell 2000 is now at around 670, down 20% from peak. If it goes below 550, sell RUT. If it then goes above 600, buy it back again. I think you might have 3-4 opportunities to do this in next 2 years, and each round-trip would earn you about 10%.
phs, this is true - the stock is aging - but housing is very durable. Just look at Detriot! (see this article about Edward Glaser)
Also, during an economic downturn, fewer homes are demolished to build new homes. Yes, some homes will be taken out of stock because they are in foreclosure and are essentially worthless. But we have to wait for the economy to recover before the number of units demolished picks up again.
Your attempts to study the market from the demand side has a lot of merit. But the problem is that there is a large and unquantifiable population of illegal aliens living in the U.S. that are not included in the historical population numbers. Some have even speculated, and I agree with them, that there is a minor but signficant connection between housing price increases in the bubble markets of CA, AZ, FL, and NV and the historic immigration from Mexico circa 2000-2005.
In AZ at least, it sure looks as if a lot of those immigrants are leaving because state law now puts employers on the hook, and construction jobs are disappearing fast. Friend who is in construction says many of his workers have returned to Mexico.
Volcker's Fed also elicited the strongest political attacks and most wide-spread protests in the history of the Federal Reserve (unlike any protests experienced since 1922) due to the effects of the high interest rates on the construction and farming sectors, culminating in indebted farmers driving their tractors onto C Street and blockading the Eccles Building (Eccles Building) - Wikipedia, the free encyclopedia.
Shull, Bernard. 2005. The Fourth Branch: The Federal Reserve's Unlikely Rise To Power And Influence. Praeger/Greenwood
My dream is that instead of farmers blockading the Eccles Building, we will have endless miles of SUVs filled with people from NAR, home builders, wallstreet mafia types also known as underwriters, all the banking and mortgage lenders and a Forest Gump-like parade of retarded con-artists that want bailed out. Then, everyone from inside The Eccles Building will come out and these people will all join hands, as they leave engines running, and listen to words of wisdom from President Bush, as he prays that America will understand why these suffering business people need more money....then he will sign a $5 Trillion check and offer free gas to the first million SUVs that have an I Voted For Bush bumper sticker.
I would venture a guess that construction financing is probably getting pretty difficult to obtain. The banks already own enough real estate to hold them for a while. If you are a builder, how do you show the economics of your project and the viability of your sales projections?
I don't buy that. The housing shortage story especially in CA is very misunderstood. Most of the immigrants coming through Mexico are non-monied immigrants. They could not afford to buy a home in Springfield MO much less a place like Los Angeles CA. The housing shortage in CA involves multi-tenet apartments. Trust me there is no shortage of over-priced SFR's in CA, AZ, etc. In fact last look indicated there is over a years supply in S. Cal. The housing appreciation was fueled by lax lending plain and simple.
CR, Is there anyway to factor in credit availability? If the GSEs are the only ones lending, high price areas like CA and NY should see additional constraints.
Home sales for December are reported next week. Market Watch is expecting bad numbers--isn't everyone? They say that the good news will be a decline in inventory. I guess that they are talking about the seasonal effect of people not keeping their homes on the market over the holidays. Hardly seems like evidence that the inventory excess is being solved. I guess that one issue is what part of the homes on the market have owners who really are serious about selling. My guess is that this percentage is at least as high as normal.
I agree with CR and many of you that the recession started in December or January. It will be interesting to see when this is confirmed officially or by the stock market, which seems rather close to confirmation already. When do the major jobs numbers adjustments occur? The birth and death rate numbers have been way off, as suggested on this blog and we can expect that a significant fraction of jobs over the last 6 months were just statistical errors.
I also agree that ways of shorting the Russell 2000 are a fairly safe way to hedge the market.
But the problem is that there is a large and unquantifiable population of illegal aliens living in the U.S. that are not included in the historical population numbers.
Oh yes they most certainly are included to the best of each agencies' ability. The Census misses a few but they also know almost exactly how many they miss. Disorganizations like the California DMV know. The Franchise Tax board knows, the local school district knows, lots of these enumerators are quite accurate. By and large however they are not creating housing demand except at the very low end with no upward pressure. If anything their presence depresses demand due to perceptions of school quality and congestion and crime.
In Colorado Springs some of the most expensive homes per sqft are the 100yo victorians. Why I have no idea expensive to heat expensive to maintain and the rooms are to small for furniture. So houses can last a long time if taken care of.
CR, I would appreciate your thoughts on the following contrarian viewpoint on future home sales.
Per Bloomberg, the interest rate on a 30 year mortgage has fallen 89bps in the last 6 months from 6.31% to 5.42%. Using the Yahoo mortgage calculator, the monthly P&I payment per $100,000 borrowed has fallen roughly 10% from $619.62/$100k to $562.78/$100k. Conversely, whereas 6 months ago a $619.62 monthly payment would get you a $100,000 loan, at today's rates, you would get $110,100. Therefore, someone who has been interested in buying a home might be willing to discount up to 10% in potential further declines in housing prices in exchange for very low interest rates today.
For the sake of argument, if mortgage rates continue to drop to 5.00%, the same monthly P&I payment would get you a 15% larger loan ($115,424).
Rates on Jumbo Loans are only 10bps lower than they were 6 months ago (6.46% vs. 6.56%), providing only a 1% benefit. Further, they are 39bps higher than they were one year ago. Should the ceiling be raised temporarily, then the cost advantage would increase 13% over 6 months ago (18% should rates continue to fall to 5.00%).
Very simplistic analysis I acknowledge. It does not take into account higher taxes and insurance, tougher credit standards and down payment requirements, new FHWA mortgage fees, declining housing affordability, etc.
Nevertheless, I suspect there are a number of potential homeowners who have been sitting on the fence, who will be encouraged to buy a house now that interest rates have dropped.
The housing market would get a very big lift from a temporary, higher ceiling for Jumbo Loans. This should act to spur folks off the fence since it would be time limited (similar in concept to a temporary investment tax credit to spur capital investment).
The lower mortgage rates may not only spur home sales, but they would also help to prop up housing prices.
Mortgage rates at 5.00% - 5.50% are historically very low.
Seriously, the "second home" phenomenon went through the roof during the boom. Do you have any charts showing rates and/or percentages of building/sales of non-primary residences?
I don't understand why ther are any home starts now. Why would anybody break ground now? Except maybe in the wealthiest of neighborhoods, it's a fool's errand.
Another way to slow the falling knife would be to let homeowners depreciate their homes for tax purposes. It could be voluntary using 10 year straight line. It would help those who are about to reset and lower overall homeownership costs. Plus, it is non targeted so that we hoi poloi could enjoy the benefits.
The Gov. takes a revenue hit up front but recaptures on an eventual sale.
Just a thought.
r0m30, yes - I think the recession started in Dec '07. If so, I just made it since I thought a recession in '07 was better than a coin flip. It was definitely coming down to the wire.
Now we have to see if it last long enough to be officially declared a recession (I think the odds are high).
Thank you, CR. If a smart person like you echoes something that a non-smart person like me said (first), then you have made my day. Just goes to show, experts shmexperts. Sometimes common sense rules.
CR, any predictions on Max month's supply numbers? We are at 10-11 now. Lenders have been hanging on by their fingernails and quietly unloading some directly to investor channels. Once that avenue hits a dead end or regulators hit the panic button we should see a flood.
BSNEATH - An interesting but superficial analysis. The credit/demand interlaced problem is that good mortgage rates are only available in most areas if you have a downpayment, or if someone will write you a second.
The problem is that not many FTHB do have that downpayment. The extremely lax credit standards sucked up a lot of individuals who would have been saving up one (and is now chewing up some of them and spitting them out).
So real prime rates have dropped, and I expect real prime buyers to be buying as housing discounts, IF they are unencumbered with a home. Real prime buyers are largely not FTHB with downpayments saved, and so must first sell their previous homes. This is becoming increasingly hard to do as credit standards tighten.
So net demand in 2008 compared to 2007 will be substantially down. It was not until the fall that most of the 100% loans went away, and as 2007 first-half loans start to detonate, it is certain that lending standards will continue to tighten a bit. Fannie's adjustments for March have already rolled into most of the originations going forward.
The bottom line is that if I am lending in one of the ever-growing list of declining areas, I do not want to get stuck holding 100% of the home purchase price if my non-recourse prime buyer walks away. I want my prime buyer to be losing money as well as me if he or she walks. An ever-increasing number of "prime" buyers with 100-95% CLTV at origination are walking away. Prime default rates are rising quite rapidly in the worst hit areas. Some of this is due to housing crossover (half the mortgage brokers in some areas, plus realtors and construction business employees/owners), but others are just someone doing the numbers and realizing that their position will get worse, not better. The very high DTIs which were common during the boom are now an undertow for the market.
Rich - RUT is the index - not the inverse. I do a little active trading - but I doubt many non-retired people have enough time to do it (or to do it successfully). And if you think the 2 year return will only be 10% - why not just buy a CD? For people who don't want to get fancy - just shop for plain vanilla CD rates both on line and locally. Local credit unions frequently offer excellent rates. For example, one local one I like has a 5 year CD with a one time interest rate option. Current rate for 5 years is 5.20% APY - and if rates go up any time in the next 5 years - you can "bump up" the rate on your CD to the current rate.
I suspect most people who shop CD rates are familiar with Bankrate - but here is a blog they may not have found yet:
Insightful as always MOM. I hadn't made the connection between down payments and non-recourse loans. As a lender holding a non-recourse loan you're going to want to make sure the borrower has something to lose also if you can't go after them if they walk. Those 100% CLTV non-recourse loans are going to hurt a lot lenders in the near future.
Makes me wonder how this is going to affect lending standards and down payments as more lenders are left feeling stung from 100%+ CLTV jingle mail walk aways. It also makes me wonder how many FTHB refinanced into recourse loans to pick up a fixed rate and will suddenly find out just how much skin they actually have in the game. Gonna be a whole lot of hard lessons being learned.
But the problem is that there is a large and unquantifiable population of illegal aliens living in the U.S. that are not included in the historical population numbers.
JD | 01.20.08 - 2:34 pm
Not just a little wrong but very wrong.
The census counts everyone including foreign-born. "The Census Bureau does not ask about legal (migrant) status of respondents in any of its survey and census programs."
census.gov
Robyn, unirealist, a lot of banks have been getting squeezed on the returns they can earn on investments and deposits recently. At the same time they need cash on hand even more desperately to increase reserves for losses. I wouldn't be surprised if we see the average for deposit and CD interest rates drop, while at the same time you'll see a few institutions that desperately need the deposits offering slightly higher rates (but probably not all that "high" by recent standards). It's going to be interesting to see what affect this is going to have on lending rates as liquidity dries up.
IMHO, without the recent cash injections by the Fed it's would be getting pretty parched out there by now. If the Fed ever feels it really needs to abandon economic stimulus in order to fight inflation, rates are probably going to get ugly and/or spike like they did in the early 80's.
Rich - RUT is the index - not the inverse. I do a little active trading
Thanks for catching this and correcting it. The symbol for the inverse Russell 2000 is RWM.
You missed the point of the portfolio. It's to make 10% over two years on the total portfolio. If you can get 5% in CDs, fine. But 5% is not 10%. 10% gives you six times the real (after inflation) return of 5%.
To get 10% in a portfolio divided 50-50 between CDs and RWM, you would be looking for a 15% annual return each year over two years in RWM. You don't have to trade it. Just buy and hold.
I am seeing work stop on more projects.here in sebastopol ca A developer has halted work on an 11 home infill project n a nice part of town.these were to be "craftsmen" style.the streets and sewers are in,the lots are graded and the grass is growing tall.given that the permits run $80k per lot there is a lot of $ tied up in these 4 acres...we have a green city council that wanted our PD to buy priusses for the entire dept,which gives a clue on how hard it is to get a project approved within city limits.oh,the land price was $400k per acre...
"It is an interesting theory that the durability of housing keeps cities from depopulating."
Glaeser's theory that it is the low cost of housing stock in cities like Detroit that prevents rapid depopulation makes sense, but I don't think that's the entire explanation. Places like Detroit or St. Louis have a much higher percentage of low-education, low-skill residents than do cities like Boston or Minneapolis, and it's precisely those residents who have the least prospects of landing a job in another city, absent any local connections. When you couple that with the importance of maintaining family ties that inevitably are already in place, it's not surprising to me at all that cities like Detroit are not depopulating more rapidly.
If my wife's family is any indication, the process of depopulating is also affected by how far family members go when they do move. She grew up in Detroit. While many of her cousins long ago moved out of the city proper, the vast majority of those that did went no further than the close-in Detroit suburbs. This made it far more feasible for her eight aging aunts and uncles to remain in their longtime homes in the city. And of her cousins who have remained in the city, it is clear that remaining close to their parents is of utmost importance.
one could go short the TLT or long bond fund but i was just wondering if there was a double short vehicle. i'm not saying now is the time to do this as i think it is a particularly risky bet, however, given the length of bull mkt in treasuries and the underappreciated rate of inflation, i think at some pt this could be a killer trade.
i do own some TWM already and its performed great.
in the back of my mind though i do worry somewhat about redeeming my "shares" at some pt in the future in these deriviatives vehicles. if the CDS mkt starts to unwind as viciously as some here think will happen i wonder just how much risk there is in these investments.
also, does anyone here have a good explanation as to why the Libor yield has dropped below the FFR recently? are banks really back to trusting each other via short term loans as this suggests? is this all due to the TAF?
Can anyone who knows the Bay Area or Silicon Valley explain why a nice, but pretty ordinary 3000 sq. ft. house on a pretty ordinary Los Gatos street would get 4 above-asking offers on its first day on the market and sell for $2.4 million dollars. Why, pray tell, would anyone pay that. Does Los Gatos defy the laws of economics. CR-ers, you are wiser than I am, please help me with this question.
rich, idoc, o-joe (you probably won't read this because the DOW wasn't up 100+ on Fri), others,
do y'all post on any other blogs/message boards specifically re investing ideas? I'd love to get the thoughts of some on this board, but don't want to derail the excellent commentary found here on the general economic/housing situation (scattered with investment thoughts) with any long and company-specific discussions.
While I have enjoyed a good January so far trading in and out of various ultrashort ETFs, there will be a time in the next 6 months when everybody hates stocks and we should be talking about which companies we can pick up cheap for the next run.
I trust everyone here does there own due diligence, of course, so any advice found should be taken at your own risk.
FWIW, stocks i'm interested in and watching carefully: CX, AEO, MIC (maybe), AAPL (at $120), MMM, GE, JPM, CAT, SBUX, MWA (maybe), RIMM, EBAY, and solars.
A recent study by Harvard economics professor Kenneth Rogoff examined the causes and consequences of 18 banking crises in advanced nations since 1945. The conclusions of Rogoff's paper, written with Carmen Reinhart of the University of Maryland, are not encouraging.
You might try Karl Denninger's MarketTicker Forum, though it is a bit of a bear's den and they do not suffer fools gladly (plus utterly non-PC)...I found some knowledgeable traders and great ideas there with all the usual caveats.
We're not going to have a depression. Why? Same reason we didn't have a "panic" in 1929. "Panic" was a word that TPTB thought they should avoid and the magically, nothing bad would happen.
So, we won't have another Great Depression. The d-word will never be allowed to be used again. We'll have, uh, a Great Recession.
No link, but today's Detroit Free Press has articles on beautiful 1906 houses 3500 to 4000 sqs for $175K - $350K; two of the nicest downtown areas, "worth a million". Mentions that winter heat for one was $800 / month! A few words about potential crime.
Also, I hear third hand that a new sub in Portland OR of $600K homes has every third "in auction" with $100K haircuts. Anyone have any specifics re: the lagging Pacific Northwest?
u mentioned solars. i made a killing off the volatility of FSLR on Friday. i think they're headed down further given the 135 PE ratio and the general downturn of energy in general in anticipation of recession. i keep anticipating a bounce but its been amazing just how straight down the major indices have fallen since the beginning of the yr which have ballooned my short profits considerably. i took off about 40% of my shorts on Thursday but left quite a bit of profit on the table as the mkt fell further Fri. oh well as i was able to make some of that up with FSLR. i think SPWR will be in trouble as well with that PE of approx 325.
i now have some dry powder for whenever that bounce comes btwn now and the Fed mtg 1/30. i will most likely just day trade until then unless we get more big pullbacks on EEV which i'm bullish on thanks to Rich.
i too enjoy Denninger, if not for his flambuoyance, then at least for his technical analysis. i disagree with his outlook on gold however and it should also be pointed out that he's missed a good portion of the recent drops in the mkt by overanticipating a technical bounce.
The accepted "PE" of a home is based on it's rental vs. mortgage cost. Many have suggested that rents would increase in price as sales of homes decrease. Thus, the market would return to its historical norms.
If rents are truly decreasing, shouldn't that mean that housing prices have much further to fall?
(OT on this article - what about the ratio of income vs. housing prices. Incomes have been mostly flat, while prices have soared. Taken the above and incomes into consideration, as well as tightening on credit and higher down payments needed, how can the housing market NOT drop considerably over the next few years?)
seneca,I am seeing similar oddities.It is simply a matter of intelligence and information asymmetries.I live in sebastopol and have recently seen several live/work lofts sell for the asking price of $735k.these are 2/2 condos,right on hwy 116,they do have offstreet parking and are walking distances to downtown.they are also "green" and 1425 sq ft.there is a home for sale in an equivalent neighborhood with a similar if 200 yd longer walk to downtown.It is in a quieter spot,on .46 acres,has a greenhouse and workshop as well as an attached 2 car garage,2300 sq ft 3/2 in good shape.80's built,nicely updated and in good shape.$545k...
In contrast, no significant customer withdrawals have been reported in the U.S. partly because most real-estate funds there are structured as limited partnerships for institutional investors. They are more restrictive about when investors can redeem their funds.
Technically, U.K. property-fund managers can limit redemptions, but until recently they have been flexible. Now, they are adhering rigidly to restrictions they are allowed to impose.
You know whats a pain in the ass? The fact that blogs are taking over as a source for news and instead of trained journalists that are paid to hype editorial approved stories, we now have blogs with narrow fragmented focused topics that are hot topics for about an hour, and then you have to go find another blog site to find another story that may or may not be mainstream. Does anyone see reality slipping away? Newspapers will be gone in 5 years or less and God forbid, Calculated Risk may be the only source available for Excel Pig Graphs. Is this an opportunity for more blogs or will the Universe be expanded with more and more mindless and fragmented distortion where chaos will be bought and sold like widgets?
Re: The Los Angeles Times fired its top editor after he rejected a management order to cut $4 million from the newsroom budget, 14 months after his predecessor was also ousted in a budget dispute, the newspaper said Sunday.
We had a little family get-together today and I was floored when a daughter-in-law mentioned that she knew some people who had already spent the upcoming Bush tax rebate 'stimulus'.
This addiction has GOT to end and the longer it is postponed the worse it will be. The housing charts heading this post clearly tell me that, given the info-collecting lag and the bias toward trend extensions, we will easily drop below the early 1980s lows for housing starts. The multiplier effect of the leveraging that built a whole economic boom on the backs of arms, subprimes, liar loans and inflated vasluations has still not halfway rippled through the system.
I just think some really bad days are ahead and I'm a naturally optimistic person.
I think you can add economists, financial analysts, credit analysts, any person that is an analyst that uses modeling, anyone in the government, well, just about anyone trained this days lacks skills and most have jobs because of nepotism, so journalism has certainly seen its hay day come and go. Long live wild beasts on blogs!
i see blogs differently from u. thank God for CR's blog and selected others. its made me a fortune. i think its an efficient way to quickly gather truthful info on whats really happening in the mkt. why do u think the visitor counter spikes during mkt volatility? its b/c ppl r coming here to find out whats really happening. btw, why the heck did CR allow that annoying Kaplan ad to replace this valuable volatility meter?
most of us insist on data links when claims r made by those claiming to know. i've found these to be very informative in that many of these sources i would never have been aware of.
the discussions r also educational and my level of financial understanding has grown considerably. u can tell when someone in bullsh*tting.
"It emerged yesterday that staff at some of the property managers have been informing key clients in advance that a fund is heading for suspension. The FSA said that such trading may fall foul of its rules regarding treating customers fairly."
the lawsuits r the next boom sector. anyone with a brain can tell that the longer these investors r locked in the less their property assets will be worth.
I have tried posting on some investment sites, but it's just boring. They always end up talking about what stocks or mutual funds to buy. There aren't any good places for bear investors.
This is the best site for bearish investors. The ideas are important to share. But it's also helpful just to hang out with other bears and, you know, do the secret bear handshake.
The MSM always tries to make bears feel small and inferior. Here, bears can stand tall.
if the CDS mkt starts to unwind as viciously as some here think will happen i wonder just how much risk there is in these investments.
There is no counterparty risk in ETFs, long or short. The funds hold assets directly, whether they are stocks, bonds or futures contracts, just like mutual funds.
As an ETF investor, you own a slice of those assets directly. You're confusing Authorized Participants, who add liquidiy, with counterparties, who take risk. APs do not take risk. They arbitrage and trade. Stop freakin out about ETFs.
We had a little family get-together today and I was floored when a daughter-in-law mentioned that she knew some people who had already spent the upcoming Bush tax rebate 'stimulus'.
There's nothing wrong with this. It's called an advance stimulus transaction. It's like getting a payday loan or cash from H.R. Block against your tax refund. It helps consumers buy more stuff sooner, which is the whole idea.
rich - CR is data-driven, not bearish. It's just that a lot of the data looks bearish right now. He'll look like a bull to a lot of people at some point in the cycle - though that point might be slow in arriving during this particular cycle.
(The lunchtime sake often sparks a rally, though.)
F. Frederson
Well I often joke to my wife as the evening unfolds: "Yup, its(Nikkei) dumping, the sake is taking effect" or "Just wait till they take their lunch" if the Nikkei is up in the morning and "I guess the sake is wearing off " if there is a late day rally.
I really should do a stat analysis but it would spoil the fun.
Yeah, bummed about the Packers. Nonetheless... the Giants will make better roadkill, because it hurts more to lose the Superbowl than to not make it there.
Thank you for the Market Ticker link, the technical analysis was excellent, though downright frightening if you are a bull.
Friday's analysis was interesting in that his opinion that the low put-buying ratio portends a lack of protection and possible strong downward move opinion runs contrary to the BS you read on some boards about the the "high call ratio means people are bullish and 'know something'" line of thinking.
Hello Idoc,
Funny how no-one is answering the question, Ha. TED spread and Commercial paper spreads are both narrowing. Looks like the recession will have to wait. We will have inflation induced nominal GDP growth this year. TAF operations took in lots of mortgage paper.
rich - CR is data-driven, not bearish. It's just that a lot of the data looks bearish right now. He'll look like a bull to a lot of people at some point in the cycle - though that point might be slow in arriving during this particular cycle.
Sure, this is true. All of us will be bullish at some point.
Just remember that the great bonus of being a smart and successful bear is that you are loaded at the time everybody else is in despair, so you have the confidence to buy stocks at the bottom and ride them up to leverage your profits.
Bonds represent promises.
Stocks represent hopes.
When hope is gone, when Kudlow throws in the towel, when even your relatives think the U.S. economy and market are doomed, that's when to start buying.
Frank Barbera & Robert McHugh have been saying the same thing -- in a bear, the worst crashes can come from deeply oversold market. Looks like even Richard Russell is spooked. Next week's action should prove absolutely riveting.
Bluestatedon - IMO - you bring up a very interesting aspect of the problem. I have family in the Detroit/Cleveland area. No question the area is an economic mess. Perhaps it will be on the upswing one day - but I don't see that happening any time soon. I cannot for the life of me understand why young people who can have a better life elsewhere don't go elsewhere (I have younger family members in that category so I am not talking in the abstract). If you have stubborn parents or grandparents who are retired - and need your help - and won't move - so be it. You really can't do a heck of a lot for them if you wind up un/under-employed a large part of your whole adult life. All you have to look forward to - especially if you're a woman - is being poor and tired (taking care of elderly kin).
At some point - if you have to take care of elderly relatives - you have to put your foot down. We have done that with elderly (80+ years) parents - in a couple of different situations - and it has worked out ok. OTOH - we have friends (almost all women) who are traveling 10,000+ miles a year to take care of parents who refuse to budge. Like I said - sometimes - especially if you're a woman - and expected to "deal" with these things - you have to be hard-nosed about it.
I sense that many of you here are both a lot younger than I am - and male. Your parents are probably my age - perhaps younger. But I am sure you see what is happening with your parents taking care of their parents. Do you see what I am talking about?
Rich - I think one of the problems in shorting - or using an inverse ETF - is that it requires very different trading systems than those with a "long" bias. A good "short" system is not simply the reverse of a good "long" system. I know there are people who are expert at them. I am not one of those people (smile). And you have to be a really dedicated person to develop good shorting systems - because bear markets are less frequent and tend to be shorter than bull markets. Which is not to say that you can't make a lot of money in them if you're positioned correctly when they occur. You just have to study and understand the nature of the beast.
Unirealist - brokerage and brokered CDs - as well as a lot of on-line CDs - react the fastest to changes in interest rates. They go up the fastest when rates are rising - and down the fastest when they're falling. Smaller local institutions sometimes tend to be a lot slower to react. At this point in the cycle - if other parts of the country are like where I live - the best deals will probably be found in places like local credit unions - many of which reset rates only once a month or so. Roby
dunham - "FWIW, stocks i'm interested in and watching carefully: CX, AEO, MIC (maybe), AAPL (at $120), MMM, GE, JPM, CAT, SBUX, MWA (maybe), RIMM, EBAY, and solars."
Am I the only one that thinks GE is very risky because of all their debt? Unless the statistics are wrong on yahoo finance, their debt is about 20x cash, or about 3x revenue. That kind of stuff scares me. FWIW, the quoted debt amount is nearly half a Tril. Those kinds of numbers are much worse than Ford and about the same ballpark as the USG (I think the USG is slightly higher debt-to-revenue ratio). At 3x revenue most mortals would be considered insolvent.
There's nothing wrong with this. It's called an advance stimulus transaction. It's like getting a payday loan or cash from H.R. Block against your tax refund. It helps consumers buy more stuff sooner, which is the whole idea.
rich
There's nothing wrong with this ?
Fact Sheet On Payday Loans
The fees for payday loans are extremely high: up to $17.50 for every $100 borrowed(1) , up to a maximum of $300. The interest rates for such transactions are staggering: 911% for a one-week loan; 456% for a two-week loan, 212% for a one-month loan.
While H & R block has got better recently in their disclosures,they are still being sued for past behavior, they still charge 2% of principal and this is some of their past behavior:
Fast tax refund loans cost borrowers from $29 to $89 for loans that last about ten days, resulting in annual interest rates of 67% to 774%, according to a new report issued by Consumer Federation of America and the National Consumer Law Center
it sure does look like the TAF and ECB auctions have done the trick for Libor but i'm not sure i understand why. and who says there's no inflation. supporting the prices of these mortgage assets as their value falls is the greatest form of inflation and is reflected by the gold price which is holding up remarkably well despite the generalized stock mkt plunges worldwide.
there was an excellent comment by Nick Barisheff who said that trying to do techical analysis on the gold chart is useless b/c its such a small mkt. all it takes is a few large funds to start buying in and it disrupts all the usual rules. if u look at a long term chart of gold esp. over the last yr u can see what he means. the lines gyrate all with no particular pattern except that there r long periods of consolidation after which there is a huge up thrust in price. same with the silver charts. this is what confounds guys like Denninger who keeps looking for traditional patterns that fit Elliott wave or Dow Theory. we'll be over 1000 by the end of the yr.
ROTFLMAO, I did not just read someone using the term "good stuff" in reference to denninger and market ticker.
He is entertainment, period.
you love his technicals, eh, technicals work til they don't, there is so much leverage in the system that one thing is for certain, this market can make a fool out of anyone at warp speed.
The quants couldn't handle the shit in august and they sure as hell aren't going to handle this environment well either.
I'm having dinner with some family friends on Friday. I've just been informed by my lovely significant other that one of the guests is beginning a new career in real estate. He apparently believes the bottom of the market will be reached in March. In Los Angeles.
So, any suggestions on how to handle this obligatory social event with grace and panache?
When hope is gone, when Kudlow throws in the towel, when even your relatives think the U.S. economy and market are doomed, that's when to start buying.
Can't disagree with that.
So, any suggestions on how to handle this obligatory social event with grace and panache?
Wally - re your comments about spending the proposed tax rebates. I am not all that liberal - but I think Bob Herbert in the NYT discussed very intelligently what is much more imporant than one time rebates: reliable jobs. Here's the op-ed piece.
Gloria Steinem has said that rich people plan for 3 generations - poor people plan for Saturday night. To be a solid member of the middle class (and I think it's desireable for all countries - including the US - to have a large middle class) - you have to be able to plan at least 5-10 years down the road. And you can't do that without a reasonable degree of job security. Roby
The important thing is for you to understand what's going on. This family friend is no different than 50 million Americans who are adrift in their careers and chasing crummy jobs and delusional dreams. It's not their fault everything fell apart.
It's better to get out of bed in the morning and try to sell real estate than not to get out of bed at all. So give the guy a pat on the back. Don't throw cold water on people's pipe dreams.
Can you tell me why we are spending 300M (per week or is it per month) defending the democratic movement in a land most of us have never been to but those in close geo-proximity are free to send the wealth out free of any attachments?
its amazing how many ppl still don't realize whats going on with RE. it'll take until the summer when all the inventory is rotting in the sun and prices r plunging for it to be general knowledge.
FT Woods, your mission; should you decide to accept it; is to record every word said individual makes for immediate transcription forthwith. Snickering will commence shortly thereafter.
On a more serious note, you can't change your guest's opinions without alienating him. We however, can gain insight if we understand how he came to his beliefs.
With the housing market frozen, the job market will become frozen. It will become harder for people to move to that next job in another town and harder for businesses to attract workers to overpriced towns.
nobody should base investment decisions on what they read or hear online, on tv, etc. all should do their own due diligence and form their own opinions.
since i don't spend a ton of time on TA, i personally find it interesting to hear commentary from those that study TA - it gives you another perspective, and may help in timing a buy or sell.
even you have to admit that the charts look ugly?
"works until it doesn't"
this is true for every investment strategy known to man. heck, this is true for every business strategy, football strategy, and dating strategy known to man.
everything we know today is the culmination of what we've learned both in our lives and in our history as a people. there is no guarantee that the lessons learned will serve us well in the future, aside from a handful basic life-sustaining practices. once you leave the realm of science (even then everything is a "theory") and math, its pretty much a crapshoot.
so, take everything with a grain of salt. this includes technical analysis, and fundamental/valuation driven analysis.
decoupling hard at work work tonight. nice to see! maybe dubya can extend his $800 to everyone in asia and europe too, so the decoupling stays in tact.
I wonder when peter schiff will finally eat crow. too bad. I like the guy. He articulates his bearish position well, without getting too passionate. Just totally whiffed on the global growth sustaining itself with 40% of the world's consumption engine sputtering.
At this point foreclosures need to happen to preserve worker mobility. Japan did not understand this and created a new class of homeowners that might be classified as mortgage serfs.
"Anyone have any specifics re: the lagging Pacific Northwest?"
Yes - Portland has been about a year behind the swell but is going through the phases right on schedule. We are at the slow appreciations / exploding inventory stage. And this week I saw the first real break in our neck of the woods. A place that zillows for $598K and would have gone in the mid 500's a couple of summers ago just went on the market at $440K - right at the conforming limit with a downpayment. Ouch! I'm sure the neighbors aren't amused. But this bitter renter is havign a shadenfraude moment...
"Anyone have any specifics re: the lagging Pacific Northwest?"
The PNW is a bit behind the times, but our turn is coming. The housing bubble spread out like ripples from an earthquake and we're merely farther from the epicenter.
The Portland suburbs started to falter as last summer ended. In-town is just now starting to show some cracks. By summer the "it won't happen here" stage should be over.
Silicon Alley Insider is reporting that Yahoo is preparing to lay off up to 20% of its 12,000 strong workforce, a big purge as the Sunnyvale based company attempts to become more profitable.
Talks of staff downsizing at Yahoo have been doing the rounds since former CEO Terry Semel left Yahoo in June.
Despite traffic to Yahoo properties remaining ahead of Google (according to comScore), YHOO stock has performed poorly over the last twelve months months as the company has failed to convert that traffic to strong profit growth, unlike Google.
I agree that decoupling won't work as a short term investment strategy because when you look at the stocks readily available for Americans to invest in, most are big companies that make a lot of their money selling to the US (or even worse, financials lending money to people who are selling to the US). The exceptions (BAIDU?) are in an obvious bubble.
But that doesn't mean all the countries in the world are going to suffer economic distress in the same way as the US. Most of those folks aren't nearly as leveraged as people here. Maybe they'll do fine and there just won't be any convenient way for passive investors in the US to make money from it.
"Anyone have any specifics re: the lagging Pacific Northwest?"
I agree with ItsJustMe... although last month, Bend Oregon had negative home sales...more foreclosures than actual sales.
Home sales everywhere have slowed to a crawl, nobody denies it.
Anectdotal information.. where I live in Lake Oswego (pricier PDX area), there's infill development ... three million dollar homes for sale on one block, only one has sold in two years. Two hundred feet south, a million point five home, no takers for over a year. Three hundred feet south, two infill lots on a hill, graded ... but two months ago, the backhoes left, and the lots are now for sale. On my street, one teardown of an old home, lot now empty since July ... lot for sale. Next door, two 750k homes for sale, one sold at 700k, the other just reduced to 650k. No lookers.
On Mcgloughlin ave, CRE strip half finished, now for sale.
These and more will be in the stats soon. But for now, people are just looking at median home appreciation like that means something.
Seneca, that isn't happening everywhere in Los Gatos, a town about which I know a great deal. In fact, I spent several months there in both 2005 and 2006. Several of my friends live there. Only God knows why.
Fact is, you couldn't pay me to live there. It has become like a rabbit warren. Stock options from places like Apple and Adobe keep it going.
It's all about hype, and has been since about 1970, when the city fathers began to gentrify downtown. Til then, Saratoga was the place to live. You went to Los Gatos to drink.
Believe you me, they will end up feeling the pain along with everyone else.
Idoc - You have to distinguish between what works on charts - and what works in the markets. There are quite a few ways to trade gold. Everything from bullion to SA mining shares.
The most important thing to keep in mind when trading any market or security is liquidity and spreads. E.g., - I once tried trading options on futures in currencies. They kind of traded by appointment only - with huge spreads. Horrible way to do currencies.
Best I have figured out after all these years is that the most liquid markets for traders/speculators are the futures markets. You can trade futures 100% - no leverage - in which case you won't be riding a roller coaster all the time. OTOH - futures contracts tend to be big. Even the e-mini is $50,000+ a contract if I recall correctly. Which is why people tend to use leverage - usually a lot of leverage. Which makes it easy to get wiped out.
What is your trading horizon? Short term or position trading? What charting systems do you use (I'm a dinosaur - I'm still using Supercharts with DialData EOD data)? I only do position trades on the basis of EOD data. And something like FSAGX is fine for that. Roby
Lots of little things, but one big one... typically the very well off see these things coming. However, the inhabitants of Richistan have done so well in this environment that they've not seen the signs. Fascinating.
Share prices ended the morning sharply lower as banks were hit by fresh subprime worries after a local newspaper reported that Bank of China may post lower profit or even a loss for 2007 due to writedowns on US mortgage-backed securities.
Oil rising as well and Bush ratings going lower than CDO values
Can anyone who knows the Bay Area or Silicon Valley explain why a nice, but pretty ordinary 3000 sq. ft. house on a pretty ordinary Los Gatos street would get 4 above-asking offers on its first day on the market and sell for $2.4 million dollars. Why, pray tell, would anyone pay that. Does Los Gatos defy the laws of economics. CR-ers, you are wiser than I am, please help me with this question.
Seneca | 01.20.08 - 8:09 pm | #
Because it's still Silicon Valley. Silicon Valley is full up, there are no more buildable lots, and you don't want to be caught dead living in San Jose or Milpitas. That's why. Next question?
tj, everyone who frequents Calculated Risk should feel fortunate. The expertise of people like CR and Tanta gives one a heads up. As a consequence, folks here, "rich" or "poor," know what time it is.
i definitely agree with u on liquidity. u have to be able to get in and out quickly w/o having to take too big a haircut on the spread if ur wrong. this is what amazes me about these supposedly rich sophisticated investors who got themselves into these hedge funds that allow their redemptions to be suspended. i can't imagine the ferocity of all the lawsuits coming.
as far as gold. i have some bullion in my safe, both gold and silver. i have some GLD stashed in a CS acct in Switzerland and i have a bunch of junior mining stocks. all held for over a yr going back a few.
i've never traded futures or options since i like to keep it simple and not too leveraged. shorting eliminates the time risk for me and most of my shorts i've held for over a yr. Earlier last yr there were times when it looked like i was wrong as the bull mkt kept running up. but as i've said many times before the data as reviewed on this site kept my convictions in place and the shorts have paid off big. this last Th when i took 40% of my shorts off was the first big chunk i've covered in over a yr as i finally sensed some capitulation. we r due for a bounce as well. am looking for an opportunity to short again.
i also like to swing trade and day trade with certain stocks especially when there's alot of volatility.
...you don't want to be caught dead living in San Jose or Milpitas.
Whatever.
mp | 01.21.08 - 12:32 am | #
Couldn't make it in the Valley, eh? Well, that happens. People give up and move back to Ohio and gripe about how the Valley was a terrible place to live. Usually it's because they don't have good enough skills to land a higher-paying position, or are unwilling to join a start-up and work towards some equity. What was your experience?
idoc, you ask: "why the heck did CR allow that annoying Kaplan ad to replace this valuable volatility meter?"
The answer: I had nothing to do with it. I liked the visitor count too - unfortunately I have no control over Haloscan. All the ads here are for Haloscan - not Tanta or me.
A superdollar or super note is an almost perfect counterfeit of a United States banknote, believed to have been made by a specific unknown organization or government.
According to the FAZ, the forged dollars are used to finance international secret CIA operations by evading Congress control. Presently, there has not been an official response by the U.S. government to these accusations.[24]
peration Bernhard was the name of a secret German plan devised during the Second World War to destabilise the British economy by flooding the country with forged Bank of England £5, £10, £20, and £50 notes. A fully researched account, based on declassified archives in London, Washington, and elsewhere, was published in 2006 as "Krueger's Men" by Lawrence Malkin.
Japan hedge fund may be linked to: BOC may report lower profits or even a loss when it announces its 2007 results in April due to writedowns on its subprime investments, the South China Morning Post reported Monday.
The bank may announce a significant writedown on its 7.95 billion US dollars worth of investments in securities linked to subprime mortgages in the US, the newspaper said, citing unidentified sources.
HSBC Holdings, another global lender with subprime holdings, slid 3.10 dollars or 2.6 percent to 115.30. Its unit Hang Seng Bank fell 5.20 dollars or 3.4 percent to 148.90.
good read, in a story fashion, about who bernanke is, and his method of operation at the fed, and as a university department chair, and school board director.
reporter notes how ben conducts the meetings in reverse of the little emporer, i mean, maestro
in the article Volker is quoted as saying the current mess is beyond the feds control.
Ownership of more than one home is increasingly common. A 2005 NATIONAL ASSOCIATION OF REALTORS® survey of homebuyers found that 15 percent of recent buyers owned two or more homes. In addition, approximately 40 percent of home sales in 2005, equivalent to more than 3.3 million new- and existing-home sales,were second homes.
I would think that would have a rather pronounced (and transitory) effect on "household sizes".
"Can anyone who knows the Bay Area or Silicon Valley explain why a nice, but pretty ordinary 3000 sq. ft. house on a pretty ordinary Los Gatos street would get 4 above-asking offers on its first day on the market and sell for $2.4 million dollars. Why, pray tell, would anyone pay that. Does Los Gatos defy the laws of economics. CR-ers, you are wiser than I am, please help me with this question."
Becaue most of Silicon Valley is flat and butt-ugly and uninteresting, and Los Gatos is this little town with nice old Victorians and a cool downtown and trees spang up against the Santa Cruz Mountains so you have wooded hills to the south instead of strip malls and smog. Yah, yah, Saratoga, but that was already expensive 30 years ago. Los Gatos then was the place where yuppies could go and (they hoped) become old money. Anyway, it's one of the few places you can live in the Silicon Valley and fool yourself into thinking you don't. So of course the money wants to live there...
Many folks are expecting a nice bounce shortly since there are several indicators showing a rather oversold market and HeliBen is getting on deck within the next couple weeks with his rate cut along with Dubya & Congress on their fiscal stimulus.
What are the probabilities that the market tanks even further before the much expected bounce?
I mean 50bps is already expected - so like the last rate cut disappointed will the markets force Bennie to do 75-100 bps? Many also think that with new CEOs at MER & C they have taken most of the writeoffs and comps in the next quarters will show much smaller losses but as CR has shown with his cool spreadsheets cumulatively we have $100 billion in losses - that's nothing compared to the exposure to Residential & CRE + credit card + LBO debt + counter-party.
Curious what folks here think about the near term trajectory?
Have you heard of a financial institution (bank or credit union) missing quarterly payments on their CDs? Just wondering as I've recently heard a rumor re that.
malabar, Conjure and I think Dow 12,000 will be tested, but believe most folks will be selling into it. That's certainly the current thinking of at least one S&P technicians. We don't yet see a bottom on the Dow. There are still short side opportunities.
If the Dow industrials fall right through 12,000, it will probably mean the bulls are ready to capitulate.
We also believe many of the IBs and banks will be slaughtered before this is over.
We're becoming bearish on some commodities as well, but there's still a lot of homework to be done.
malabar, another thought. Check out the latest Fed H.3 release. The numbers are staggering. The Fed is pedalling as fast as it can--using the TAF--to keep the monetary base from falling.
Can anyone who knows the Bay Area or Silicon Valley explain why a nice, but pretty ordinary 3000 sq. ft. house on a pretty ordinary Los Gatos street would get 4 above-asking offers on its first day on the market and sell for $2.4 million dollars. Why, pray tell, would anyone pay that. Does Los Gatos defy the laws of economics. CR-ers, you are wiser than I am, please help me with this question.
Seneca | 01.20.08 - 8:09 pm | #
Funny, I think I know which house you are talking about! I went to go see the Open House (because it's in the neighborhood where we sold our house in 2005, and we watch the market closely), but the Open House was canceled and there was a "Sale Pending" sign up. The list price was $2.25M.
Here's my theory: (1) The loan types used for such neighborhoods have not started to blow up yet. I bet they will start to explode in '08 and '09. (2) Because they haven't started to blow up yet, people still believe these neighborhoods to be immune to the foreclosure monster. (3) There are enough wealthy fools that MUST have those neighborhoods with those schools, and the supply on the market is still relatively small. When one pops up, they gotta have it.
What's giving me pause from a trading standpoint is that I hear many folks expecting a near term bounce. But if we have flipped into a bear market its likely that markets really pressure the central banks and governments to do something that smells of panic!
The downturn seems too orderly and VIX has yet to really ratchet up.
malabar, I agree with you, but we both know that this thing can shift into high gear on a moment's notice. tj, for example, made a very good point upstream when he said things seem "too quiet."
Frankly, I think Mr. Market has already priced in a big Fed cut.
Also, the AMBAC thing represents another fork in the road. You've got to be ready for just about anything.
Although it's only been discussed in a few places, here's the type of scenario Conjure and I talk about at this time of night over cigars and cognac:
What if China melts down?
It's certainly possible. What if China and the U.S. trigger a global recession? Take a look, for example, at the Baltic Dry index. It's cliff diving, and it's an honest index because you only lease a cargo ship when you're moving goods. China, of course, isn't the only economy affecting the Baltic, but it's certainly interesting to talk about. It's a highly leveraged economy.
ACA Capital Holdings Inc. convinced its trading partners to give the bond insurer more time to get out of $60 billion in credit-default swap contracts that it can't pay.
ACA extended its forbearance agreements until Feb. 19, the insurer said in a statement last night.
Negotiations are made complex by the number of counterparties who must agree on a solution - between 10 and 50 banks, brokers and other parties - according to a person familiar with the last-minute talks. The person said ACA is hoping to find a permanent solution that could give contract holders ownership stakes, but may have to settle for agreement by the counterparties to extend the deadline for putting up collateral rather than throwing ACA into receivership.
Canadian Imperial Bank of Commerce (CM) said in December that ACA acted as a counterparty to $3.5 billion of its U.S. subprime real estate exposure and that the bank would likely take a "large charge" in its first quarter to cover potential losses. As of Nov. 30, it said its mark-to-market loss on the hedge was $2 billion. A CIBC spokesman declined to comment Friday on whether the bank will let ACA off the hook in posting collateral to cover potential losses.
Merrill Lynch & Co. (MER), another ACA customer, said Thursday it would set aside $1.9 billion for contracts insured by ACA's financial guaranty business. A Merrill Lynch spokeswoman said the company would not comment on whether it would agree to waive ACA's collateral.
According to an estimate by Oppenheimer analyst Meredith Whitney, UBS AG (UBS) will have to write down $1.4 billion in ACA-backed hedges. She estimates Citigroup (C) will write down $1.398 billion in losses. UBS declined comment on Friday.
In Securities and Exchange Commission filings, ACA has said it would be unable to come up with $1.7 billion in collateral if it lost its A rating.
The Maryland consent order acknowledges ACA's inability to post that money. At Sept. 30, ACA had approximately $426 million of statutory capital and approximately $712 of total admitted assets
I agree. I've been watching China for sometime. If you think our banks have bad loans then you aint seen anything yet when you consider that Chinese banks are forced to keep lending to state-owned loss making enterprises that keep expanding capacity. I have read that if Chinese banks had anything like mark-to-market it would completely deplete all their dollar reserves.
They'll try to keep it buttoned up till the Olympics but watch out after that. And as the Chinese economy slows down which it will inevitably as US demand falters it will bring down the rest of Asia who supply the Chinese final assembly plants.
Thats a very big plunge tonight totally across asia. Aus down 3%? HK and China down over 4%? .. and no US market to watch tonight! have they decided to get two trading sessions of decline in one shot?
A comment made by a politician(?) today in australia said (to those crying for help with the local market) 'our priority is fighting inflation not propping up stocks, mom and pop should not try to time the market'. Quite different from the fed.
on Sunday said it entered in to second forbearance agreement with its Structured Credit and other counterparties. The company noted that as per the agreement, the counterparties waived all collateral posting requirements, termination rights and policy claims relating to the rating of its subsidiary, ACA Financial Guaranty Corp.
The forbearance agreement would remain effective through February 19, 2008.
A lot more money up in smoke in East Asia. Will Europe follow?
On China, I don't think anyone has repealed the business cycle there either. Obviously any downturn here will affect them, but could internal demand there be raised to pick up the slack? Or will the high-saving, still-mostly-poor population pull back sharply, turning a mild local downturn here into a global depression? Nobody knows, and as big and diverse and fast-growing China is, I don't think anyone really could "know" (though many will guess right and claim they had knowledge - and none of them will agree on what that knowledge was).
My guess - growth will slow, but food price inflation stemming from real capacity limits will make a lot of Chinese very grumpy and restless.
Crude oil fell in New York, reversing earlier price gains as declines in Asian stock markets increased speculation about a "global economic recession", limiting energy demand.
Justin;
"A comment made by a politician(?) today in australia said (to those crying for help with the local market) 'our priority is fighting inflation not propping up stocks, mom and pop should not try to time the market'. Quite different from the fed."
That was Glenn Stevens, the Governor of the Reserve Bank of Australia. And yes, Quite different indeed from the US Fed. His mandate is price stability and to all intents and purposes remains honest to it.
US futures are suggesting that we may get our panic selling on Tuesday. IMO, that will only lead to a short term bounce.
Last week everything on US and world stock markets(except US home builders) seemed to have suffered big hits, including health care, energy, consumer staples and ag stocks.
Two interesting points on this week's Barons. The main article is bullish, suggesting buying a bottom that includes a recovery of RE this spring or summer (!). However, one of the experts on the roundtable is buying gold and selling (short/puts) the "four horsemen" (GOOG, RIMM, AAPL and MSFT). These guys are probably 50% of the NASDQ 100.
One interesting article on tech exposure to credit problems. It points out that many tech companies with high "cash balances" put their cash into CDO's. I wonder how many companies in the US (and maybe other countries) put their cash reserves into high risk investments to try to get a percent or two above treasury rates. It seems that the cash balance of companies unrelated to finance may be a good place to look for exposure to leveraged and failing financial vehicles.
One thing that seems to be happening in the stock market is that professional traders have been over confident in an oversold bounce and this has kept a bounce from occuring.
" We had a little family get-together today and I was floored when a daughter-in-law mentioned that she knew some people who had already spent the upcoming Bush tax rebate 'stimulus'."
You don't understand, now when the stimulus is less than $800 (for wasteful infrastructure spending or something like that), they can blame the Dems for bringing the economy to its knees.
Hmmm..., any odds on pre-market intervention on Tuesday?
I believe this may qualify as 'disorderly' to BB - this is beginning to look like some serious leverage unwinding - the times they are some interesting!
""I'm reasonably confident that French banks will weather this turmoil without major trouble even though they are clearly, like all banks, in the world still in the process of marking down assets," said Christian Noyer, governor of the Bank of France and a member of the European Central Bank's governing council, "
Gee, really? That bit of genius 'leverage in a bull market' cuts even sharper on the downside...there have to be some SERIOUSLY freaked peeps in Hedgistan this morning.
It points out that many tech companies with high "cash balances" put their cash into CDO's. I wonder how many companies in the US (and maybe other countries) put their cash reserves into high risk investments to try to get a percent or two above treasury rates.
Well, its short term money so vanilla CDOs is unlikely but yeah, Lawson software had to take a 2 cent EPS charge last quarter. They lost $5 million by investing their excess cash is triple A rated ( of course!) auction rate securities. As the earnings call poignantly put it:
We are not in the business of taking risk in the management of our cash resources. We are a software company. We are disappointed that an impairment charge is required. However, our existing cash resources, exclusive of the affected securities are more than sufficient to meet anticipated working capital needs and fund our business plan. We will continue to monitor the situation and update you in the future based upon market conditions.
"You cur-sed brat!, look what you've done!, I'm melting!" "What a world! "Who would've thought a good little girl like you could destroy my beautiful wickedness!"--
Can't you already see the MSM attribution that the US-centric holiday fed the panic that caused the market crash?
Actually, being it's the MLK holiday, maybe this way they can blame black Tuesday on black people. (See that works really well: b-l-a-c-k Tuesday, b-l-a-c-k people.)
Also: RE: FT Woods and the real estate mogul. IMHO, I haven't found a way to give people news they don't want to hear. I'm sure many here has been mentioning the downturn for some time and noone is patting them on the back for their foresight.
In addition, I figure unless I'm going to bail them out, I really have no business warning them off.
"It points out that many tech companies with high "cash balances" put their cash into CDO's. I wonder how many companies in the US (and maybe other countries) put their cash reserves into high risk investments to try to get a percent or two above treasury rates."
I invest primarily in the Canadian Venture market and I'm similarly concerned about the junior miners. These companies often have large cash reserves for exploration and the guys who run them are rogue geologists and not financeers.
I decided to buy back my short E-mini Dow contract with Dow futures down 350. $5k in one week is enough. The question is "What can the Fed do to stabilize the markets?" If they give a "surprise" cut on Tuesday that smacks of panic. Would they also cut again in about a week? I have lots of puts on weak stocks, so if the Fed doesn't figure out a surprise to help the market, Tuesday, in any case will be good for me.
If energy and tech tank this coming week, the Dow's next stop should be around 11000. If the market starts to price in a "deep recession" instead of a "recession light" we have a long way to go. This will also, IMO, lead to more carnage in the real estate markets. Most of the government and the presidential candidates don't understand that there is no way to save "in trouble" home "owners" when home prices are going down sharply. Also, foreclosure, sooner rather than later, is in the best economic interest of people who are well underwater.
"On China, I don't think anyone has repealed the business cycle there either. Obviously any downturn here will affect them, but could internal demand there be raised to pick up the slack? Or will the high-saving, still-mostly-poor population pull back sharply, turning a mild local downturn here into a global depression?"
The poor can't do much, and the middle-class will continue sitting on the vast reserves it has put away for medical care and old age and rainy days, in the absence of any state-supported safety net. You could possibly see some bargain-hunting in real estate, but not a lot of consumer demand.
The monolines are dead, their business model is dead,'' said David Roche, head of investment consultancy Independent Strategy in London.The government is going to have to recapitalize this industry or there will be communities in the U.S. where they can't even flush their toilets'' because they can't afford the services.
The arizona law is in effect, but no enforcement of it has been done yet.
Politicians in that state are already trying to scuttle a bill that started working (illegals leaving) before it became active. The one in oklahoma is working too
From another message board
"Also, Arizona Representatives are proposing changes to our new Employer Sanctions Law to take all of the teeth out of it and make it nearly useless. Two of the AZ Represantatives pushing the 'backpedal' measures are Bill Konopnicki and Theresa Ulma. Coincidently, Theresa represents the Yuma AZ area where the border patrol agent was murdered in the line of duty today. Bill Konopnicki, owns a chain of fast food restaurants, and feels that he has experienced firsthand the burden of verifying new employees and feels that it is too much to require from employers. ...This argument while law enforcement officers are giving their very lives...."
I read a lot about China recently, and I've been very surprized at the insights of their people and government. Would you believe that China has the highest "per capita" use of solar energy? They are investing like crazy on roads, airports and other infrastructure. I guess that the recession will hit them hard. However, unlike our government that has wasted huge amounts of money on "the war on terror" China will at least have gained something. The government has also done an about face and is starting to invest in pollution control.
Like I said: no one will ever call it a depression. Just like no one in 1929 dared call it a Panic (the old term for, well, a panic and its aftermath). We'll have some brand-new euphemism for it this time. But don't, please God, call it a depression! If you don't call it what it is, it won't happen!
German bank West LB (The one that took a huge hit bailing out SIVs in early december Blogger: Page not found to take a loss of 1Bn, and write down a similar amount due to exposure to bad debt. Will also cut 1/3 of its staff.
Despite govt. efforts to promote consumption, Americans will once again become savers. Big savings binge on the way. Empty stores, restaurants and movie theaters.
Then, in the future, we can have an economist's strict definition of a "humdinger" and lots of jargon-laden arguments by investors talking about the "H" word and how a humdinger is defined by this or that and we just aren't going to ever reach that point by the next quarter, etc etc.
Heh, that is where correction came from, I recall an old comic shwoing a bear den where one of the bears said, "What? No, no bears in here just us corrections..."
I still maintain my stance we'll turn this week meaningfully and there will be no recession in '08. In a few months it will become clear this was THE buying opportunity.
"Can anyone explain exactly what this "Non-Borrowed Reserves" stuff means? Is it important?"
hello | 01.21.08 - 5:47 am |
I really wish someone else had replied, but here goes:
I'm Treasurer of my church. We use a checking account to pay our bills. This checking account does not pay interest and requires me to maintain a minimum balance, otherwise the bank charges us a fee.
The commercial bank system of the U.S. has roughly the same relationship with the Federal Reserve System, each commercial bank has to maintain a minimum deposit, plus enough to cover its "checks" in an account at the Federal Reserve.
The big difference is that the commercial banks of the U.S behave exactly opposite to me (church Treasurer). Instead of maintaining the minimum required balance, plus more than enough to cover any checks I've written, this "Non-Borrowed Reserves stuff" shows that the U.S.commercial banks have to borrow every cent from anybody who'll lend it to them, just to maintain their account balance at the required level. Given the loans they've made and the goals they've pursued since 2002, this should be no surprise to anyone.
The big question is, are the banks
a) paying less interest on these shorter term loans than they are making loaning the money they've borrowed (e.g. bailout of U.S. Savings & Loan crisis)
OR
b) just making the payments coming due in the next 2 to 4 weeks is more than the commercial banks can handle.
If the answer is "b)", it means the commercial banks won't be loaning money, not even to people who can pay it back. This is called a Banking Crisis. Historically, when there's a Banking Crisis, asset values plummet as everybody tries to liquidate their assets to raise some cash. Good earning assets get sold at undeservedly low prices as everybody rushes to sell. In the last 400 years there are several well documented examples. John Law and the Mississippi Land Scheme (France 1721), the South Sea Island Bubble (England, 1720-1721), the Panic of 1907 (U.S., 1907), the 1929 Stock Market Crash(1932 low, when 30 of the 48 states had no operating bank and were pretty much on the barter system), Savings & Loan Crisis (U.S., 1988-1989, followed by the 1990-1991 recession when the Fed had to raise interest rates to quell inflationary pressures arising from the bailout).
This is not the first time since 1974 that Non-Borrowed Reserves have been negative. I say this because some big money can be made if Panic can be inflamed. I personally heed Buffett's words from a recent interview "The U.S. will be fine", tho' I note, for your sake, that he didn't specify exactly when. He has written that he gets as excited as an adolescent male in a harem at times like this.
"They" won't call this Depression anything. We'll be "almost in a recession" for a few years, and then "recovering from a recession" for a few more, but we'll never actually be IN the Recession, or Depression, or Panic, or whatever.
Can't spook the sheeple: they might stop spending!
"They" won't call this Depression anything. We'll be "almost in a recession" for a few years, and then "recovering from a recession" for a few more, but we'll never actually be IN the Recession, or Depression, or Panic, or whatever.
I disagree, the market is now acknowledging that housing was a bubble and CA consumers are talking to each other about how they don't have money. I believe the same will happen with recession feelings.
Housing starts ignore affordability issues. Supply must conform to demand in a down market. Sticky prices tend to support the status quo. The status quo is dead.
CR, Does this make your recession start call Dec 07? It sure felt like that in the Central Valley of Ca.
CR - How do you factor in the fact that the current age of the housing stock in the US is at its oldest ever, meaning that more units are taken out of service each year than ever before?
Marcus Aurelius, This post argues for declining prices - because excess supply will linger - and pressure on home builders for several years. Sorry for the pessimism. It would be better if the builders pulled a Henry Ford and took '08 off!
r0m30, yes - I think the recession started in Dec '07. If so, I just made it since I thought a recession in '07 was better than a coin flip. It was definitely coming down to the wire.
Now we have to see if it last long enough to be officially declared a recession (I think the odds are high).
Best Wishes.
From the previous thread, there was a discussion of how a working person can best invest conservatively in this environment. Here's my 2 cents.
These are going to be tough economic times ahead. I don't think a non-retired person can just sit there in cash earning the inflation rate or less. You should try to help your money grow at least some.
My suggested portfolio is to put half your money in cash and the other half in RUT. This is the inverse of the Russell 2000 Index of U.S. small-cap. I think this gives you a shot for about 10% return over next two years.
Everything now is working against U.S. small companies. In about two years, investors will wonder why anyone would want to invest in common stock of small companies that don't pay dividends. It's just too risky.
Here's a twist that might add performance to this portfolio at low risk. Russell 2000 is now at around 670, down 20% from peak. If it goes below 550, sell RUT. If it then goes above 600, buy it back again. I think you might have 3-4 opportunities to do this in next 2 years, and each round-trip would earn you about 10%.
Given that housing prices are sticky going down and the overhang of resets/recasts, I too believe that it will last long enough to be official.
phs, this is true - the stock is aging - but housing is very durable. Just look at Detriot! (see this article about Edward Glaser)
Also, during an economic downturn, fewer homes are demolished to build new homes. Yes, some homes will be taken out of stock because they are in foreclosure and are essentially worthless. But we have to wait for the economy to recover before the number of units demolished picks up again.
Best Wishes.
Your attempts to study the market from the demand side has a lot of merit. But the problem is that there is a large and unquantifiable population of illegal aliens living in the U.S. that are not included in the historical population numbers. Some have even speculated, and I agree with them, that there is a minor but signficant connection between housing price increases in the bubble markets of CA, AZ, FL, and NV and the historic immigration from Mexico circa 2000-2005.
In AZ at least, it sure looks as if a lot of those immigrants are leaving because state law now puts employers on the hook, and construction jobs are disappearing fast. Friend who is in construction says many of his workers have returned to Mexico.
I have a dream (related to the following paste):
Volcker's Fed also elicited the strongest political attacks and most wide-spread protests in the history of the Federal Reserve (unlike any protests experienced since 1922) due to the effects of the high interest rates on the construction and farming sectors, culminating in indebted farmers driving their tractors onto C Street and blockading the Eccles Building (Eccles Building) - Wikipedia, the free encyclopedia.
I would venture a guess that construction financing is probably getting pretty difficult to obtain. The banks already own enough real estate to hold them for a while. If you are a builder, how do you show the economics of your project and the viability of your sales projections?
JD,
I don't buy that. The housing shortage story especially in CA is very misunderstood. Most of the immigrants coming through Mexico are non-monied immigrants. They could not afford to buy a home in Springfield MO much less a place like Los Angeles CA. The housing shortage in CA involves multi-tenet apartments. Trust me there is no shortage of over-priced SFR's in CA, AZ, etc. In fact last look indicated there is over a years supply in S. Cal. The housing appreciation was fueled by lax lending plain and simple.
CR, Is there anyway to factor in credit availability? If the GSEs are the only ones lending, high price areas like CA and NY should see additional constraints.
Home sales for December are reported next week. Market Watch is expecting bad numbers--isn't everyone? They say that the good news will be a decline in inventory. I guess that they are talking about the seasonal effect of people not keeping their homes on the market over the holidays. Hardly seems like evidence that the inventory excess is being solved. I guess that one issue is what part of the homes on the market have owners who really are serious about selling. My guess is that this percentage is at least as high as normal.
I agree with CR and many of you that the recession started in December or January. It will be interesting to see when this is confirmed officially or by the stock market, which seems rather close to confirmation already. When do the major jobs numbers adjustments occur? The birth and death rate numbers have been way off, as suggested on this blog and we can expect that a significant fraction of jobs over the last 6 months were just statistical errors.
I also agree that ways of shorting the Russell 2000 are a fairly safe way to hedge the market.
But the problem is that there is a large and unquantifiable population of illegal aliens living in the U.S. that are not included in the historical population numbers.
Oh yes they most certainly are included to the best of each agencies' ability. The Census misses a few but they also know almost exactly how many they miss. Disorganizations like the California DMV know. The Franchise Tax board knows, the local school district knows, lots of these enumerators are quite accurate. By and large however they are not creating housing demand except at the very low end with no upward pressure. If anything their presence depresses demand due to perceptions of school quality and congestion and crime.
In Colorado Springs some of the most expensive homes per sqft are the 100yo victorians. Why I have no idea expensive to heat expensive to maintain and the rooms are to small for furniture. So houses can last a long time if taken care of.
cr....
Great link to the nyt/glaser article. It is an interesting theory that the durability of housing keeps cities from depopulating.
MBIA not going bankrupt -- Barron's
MBIA not goint bankrupt -- Barron's | FAX Message Board Posts
CR, I would appreciate your thoughts on the following contrarian viewpoint on future home sales.
Per Bloomberg, the interest rate on a 30 year mortgage has fallen 89bps in the last 6 months from 6.31% to 5.42%. Using the Yahoo mortgage calculator, the monthly P&I payment per $100,000 borrowed has fallen roughly 10% from $619.62/$100k to $562.78/$100k. Conversely, whereas 6 months ago a $619.62 monthly payment would get you a $100,000 loan, at today's rates, you would get $110,100. Therefore, someone who has been interested in buying a home might be willing to discount up to 10% in potential further declines in housing prices in exchange for very low interest rates today.
For the sake of argument, if mortgage rates continue to drop to 5.00%, the same monthly P&I payment would get you a 15% larger loan ($115,424).
Rates on Jumbo Loans are only 10bps lower than they were 6 months ago (6.46% vs. 6.56%), providing only a 1% benefit. Further, they are 39bps higher than they were one year ago. Should the ceiling be raised temporarily, then the cost advantage would increase 13% over 6 months ago (18% should rates continue to fall to 5.00%).
Very simplistic analysis I acknowledge. It does not take into account higher taxes and insurance, tougher credit standards and down payment requirements, new FHWA mortgage fees, declining housing affordability, etc.
Nevertheless, I suspect there are a number of potential homeowners who have been sitting on the fence, who will be encouraged to buy a house now that interest rates have dropped.
The housing market would get a very big lift from a temporary, higher ceiling for Jumbo Loans. This should act to spur folks off the fence since it would be time limited (similar in concept to a temporary investment tax credit to spur capital investment).
The lower mortgage rates may not only spur home sales, but they would also help to prop up housing prices.
Mortgage rates at 5.00% - 5.50% are historically very low.
Very contrarian, I know.
Henry Ford and took '08 off
huh....
gotta google that one...
how bout the big 3 take off the rest of the decade.
BSNEATH,
Yeah, better financing always makes falling knives attractive.
CR,
Where's the "houses built for flipping" category?
Seriously, the "second home" phenomenon went through the roof during the boom. Do you have any charts showing rates and/or percentages of building/sales of non-primary residences?
I don't understand why ther are any home starts now. Why would anybody break ground now? Except maybe in the wealthiest of neighborhoods, it's a fool's errand.
Another way to slow the falling knife would be to let homeowners depreciate their homes for tax purposes. It could be voluntary using 10 year straight line. It would help those who are about to reset and lower overall homeownership costs. Plus, it is non targeted so that we hoi poloi could enjoy the benefits.
The Gov. takes a revenue hit up front but recaptures on an eventual sale.
Just a thought.
r0m30, yes - I think the recession started in Dec '07. If so, I just made it since I thought a recession in '07 was better than a coin flip. It was definitely coming down to the wire.
Now we have to see if it last long enough to be officially declared a recession (I think the odds are high).
Thank you, CR. If a smart person like you echoes something that a non-smart person like me said (first), then you have made my day.
Just goes to show, experts shmexperts. Sometimes common sense rules.
CR, any predictions on Max month's supply numbers? We are at 10-11 now. Lenders have been hanging on by their fingernails and quietly unloading some directly to investor channels. Once that avenue hits a dead end or regulators hit the panic button we should see a flood.
17 Months supply in Q3.
barely,
Another spring selling season coming, combined with all the layoffs in the works, should make for a good bounce in 2Q.
any of u guys know of a double short on the 10 y UST?
BSNEATH - An interesting but superficial analysis. The credit/demand interlaced problem is that good mortgage rates are only available in most areas if you have a downpayment, or if someone will write you a second.
The problem is that not many FTHB do have that downpayment. The extremely lax credit standards sucked up a lot of individuals who would have been saving up one (and is now chewing up some of them and spitting them out).
So real prime rates have dropped, and I expect real prime buyers to be buying as housing discounts, IF they are unencumbered with a home. Real prime buyers are largely not FTHB with downpayments saved, and so must first sell their previous homes. This is becoming increasingly hard to do as credit standards tighten.
So net demand in 2008 compared to 2007 will be substantially down. It was not until the fall that most of the 100% loans went away, and as 2007 first-half loans start to detonate, it is certain that lending standards will continue to tighten a bit. Fannie's adjustments for March have already rolled into most of the originations going forward.
The bottom line is that if I am lending in one of the ever-growing list of declining areas, I do not want to get stuck holding 100% of the home purchase price if my non-recourse prime buyer walks away. I want my prime buyer to be losing money as well as me if he or she walks. An ever-increasing number of "prime" buyers with 100-95% CLTV at origination are walking away. Prime default rates are rising quite rapidly in the worst hit areas. Some of this is due to housing crossover (half the mortgage brokers in some areas, plus realtors and construction business employees/owners), but others are just someone doing the numbers and realizing that their position will get worse, not better. The very high DTIs which were common during the boom are now an undertow for the market.
Rich - RUT is the index - not the inverse. I do a little active trading - but I doubt many non-retired people have enough time to do it (or to do it successfully). And if you think the 2 year return will only be 10% - why not just buy a CD? For people who don't want to get fancy - just shop for plain vanilla CD rates both on line and locally. Local credit unions frequently offer excellent rates. For example, one local one I like has a 5 year CD with a one time interest rate option. Current rate for 5 years is 5.20% APY - and if rates go up any time in the next 5 years - you can "bump up" the rate on your CD to the current rate.
I suspect most people who shop CD rates are familiar with Bankrate - but here is a blog they may not have found yet:
Bank Deals - Best Rates and Deals
Roby
Idoc - Futures on 50% margin.
Why short the 10 year - as opposed to the 2 year or 30 year? Roby
TWM: Proshares Ultrashort Russell 2000
BTW, I've been shorting the Russell via PUTs on IWM, which is the index ETF .
Insightful as always MOM. I hadn't made the connection between down payments and non-recourse loans. As a lender holding a non-recourse loan you're going to want to make sure the borrower has something to lose also if you can't go after them if they walk. Those 100% CLTV non-recourse loans are going to hurt a lot lenders in the near future.
Makes me wonder how this is going to affect lending standards and down payments as more lenders are left feeling stung from 100%+ CLTV jingle mail walk aways. It also makes me wonder how many FTHB refinanced into recourse loans to pick up a fixed rate and will suddenly find out just how much skin they actually have in the game. Gonna be a whole lot of hard lessons being learned.
Baltic Dry Index-
Shipping index plunges to six-month low; global cooling on cusp? - MarketWatch
But the problem is that there is a large and unquantifiable population of illegal aliens living in the U.S. that are not included in the historical population numbers.
JD | 01.20.08 - 2:34 pm
Not just a little wrong but very wrong.
The census counts everyone including foreign-born. "The Census Bureau does not ask about legal (migrant) status of respondents in any of its survey and census programs."
census.gov
Robyn, CD rates suddenly dropped over the past two weeks. USB dropped from about 5% for short term (5-7 mths) to 3.8%.
rc,
The Baltic's definitely joining the cliff-diving party, no? Should bode extremely bad tidings for exporting countries.
should be an interesting open-
Japan's Nikkei 225 Declines at Open on U.S. Recession Concerns - Bloomberg.com
ready for some moron to throw out the decoupling bullshit-
http://www.nni.nikkei.co.jp/CF/FR/MKJ
off topic-
robyn-
your husband ever talk to you? forget I asked.
Robyn, unirealist, a lot of banks have been getting squeezed on the returns they can earn on investments and deposits recently. At the same time they need cash on hand even more desperately to increase reserves for losses. I wouldn't be surprised if we see the average for deposit and CD interest rates drop, while at the same time you'll see a few institutions that desperately need the deposits offering slightly higher rates (but probably not all that "high" by recent standards). It's going to be interesting to see what affect this is going to have on lending rates as liquidity dries up.
IMHO, without the recent cash injections by the Fed it's would be getting pretty parched out there by now. If the Fed ever feels it really needs to abandon economic stimulus in order to fight inflation, rates are probably going to get ugly and/or spike like they did in the early 80's.
tj-
that index keeps moving down, we are likely to see some real hedge fund pain.
OT but related to th '08 recession call implicit in the graph (a fat bar too):
Baltic Shipping index down 30%.
Thanks for catching this and correcting it. The symbol for the inverse Russell 2000 is RWM.
You missed the point of the portfolio. It's to make 10% over two years on the total portfolio. If you can get 5% in CDs, fine. But 5% is not 10%. 10% gives you six times the real (after inflation) return of 5%.
To get 10% in a portfolio divided 50-50 between CDs and RWM, you would be looking for a 15% annual return each year over two years in RWM. You don't have to trade it. Just buy and hold.
sorry, anonymous above is me.
Sorry link is getting correpted:
http://www.marketwatch.com/news/story/shipping-index-plunges-six-month-low/story.aspx?guid={AC84B011-BD0B-4522-92FF-4BA4CEEB302C}&dist=hplatest
OT (or maybe not)
I just looked at the calendar.
ONE MORE YEAR!
Unfortunately, a leap year but 366 days and counting.
Housing starts are going to plunge over the next few years as our depression gets underway.
Over '29-'33, per BEA, residential investment moved from $4.0B --> $2.4B --> $1.8B --> $0.8B --> $0.6B.
85% drop in residential construction, coming soon to a country near you.
I am seeing work stop on more projects.here in sebastopol ca A developer has halted work on an 11 home infill project n a nice part of town.these were to be "craftsmen" style.the streets and sewers are in,the lots are graded and the grass is growing tall.given that the permits run $80k per lot there is a lot of $ tied up in these 4 acres...we have a green city council that wanted our PD to buy priusses for the entire dept,which gives a clue on how hard it is to get a project approved within city limits.oh,the land price was $400k per acre...
ONE MORE YEAR!
Yeah we get rid of one incompetent and get another. Who ever it is is going to be damn sorry they won:-0
"It is an interesting theory that the durability of housing keeps cities from depopulating."
Glaeser's theory that it is the low cost of housing stock in cities like Detroit that prevents rapid depopulation makes sense, but I don't think that's the entire explanation. Places like Detroit or St. Louis have a much higher percentage of low-education, low-skill residents than do cities like Boston or Minneapolis, and it's precisely those residents who have the least prospects of landing a job in another city, absent any local connections. When you couple that with the importance of maintaining family ties that inevitably are already in place, it's not surprising to me at all that cities like Detroit are not depopulating more rapidly.
If my wife's family is any indication, the process of depopulating is also affected by how far family members go when they do move. She grew up in Detroit. While many of her cousins long ago moved out of the city proper, the vast majority of those that did went no further than the close-in Detroit suburbs. This made it far more feasible for her eight aging aunts and uncles to remain in their longtime homes in the city. And of her cousins who have remained in the city, it is clear that remaining close to their parents is of utmost importance.
one could go short the TLT or long bond fund but i was just wondering if there was a double short vehicle. i'm not saying now is the time to do this as i think it is a particularly risky bet, however, given the length of bull mkt in treasuries and the underappreciated rate of inflation, i think at some pt this could be a killer trade.
i do own some TWM already and its performed great.
in the back of my mind though i do worry somewhat about redeeming my "shares" at some pt in the future in these deriviatives vehicles. if the CDS mkt starts to unwind as viciously as some here think will happen i wonder just how much risk there is in these investments.
also, does anyone here have a good explanation as to why the Libor yield has dropped below the FFR recently? are banks really back to trusting each other via short term loans as this suggests? is this all due to the TAF?
Can anyone who knows the Bay Area or Silicon Valley explain why a nice, but pretty ordinary 3000 sq. ft. house on a pretty ordinary Los Gatos street would get 4 above-asking offers on its first day on the market and sell for $2.4 million dollars. Why, pray tell, would anyone pay that. Does Los Gatos defy the laws of economics. CR-ers, you are wiser than I am, please help me with this question.
Nikkei down almost 400 points.
NY is the only market closed on Monday so Wall Street gets to sit back and watch (helplessly.)
Let's hope the decoupling theory has at least some truth to it; otherwise we'll have to listen to Roubini's ego drown out his considerable knowlege.
Stream of consciousness over, time for bed.
rich, idoc, o-joe (you probably won't read this because the DOW wasn't up 100+ on Fri), others,
do y'all post on any other blogs/message boards specifically re investing ideas? I'd love to get the thoughts of some on this board, but don't want to derail the excellent commentary found here on the general economic/housing situation (scattered with investment thoughts) with any long and company-specific discussions.
While I have enjoyed a good January so far trading in and out of various ultrashort ETFs, there will be a time in the next 6 months when everybody hates stocks and we should be talking about which companies we can pick up cheap for the next run.
I trust everyone here does there own due diligence, of course, so any advice found should be taken at your own risk.
FWIW, stocks i'm interested in and watching carefully: CX, AEO, MIC (maybe), AAPL (at $120), MMM, GE, JPM, CAT, SBUX, MWA (maybe), RIMM, EBAY, and solars.
DryShips Inc. - Daily Market Report
Check out the first chart, there's some real cliff diving for ya.
One of many to come I am afraid...
Atty: Personal Problems Led to Slaying
A recent study by Harvard economics professor Kenneth Rogoff examined the causes and consequences of 18 banking crises in advanced nations since 1945. The conclusions of Rogoff's paper, written with Carmen Reinhart of the University of Maryland, are not encouraging.
dunham,
Six months is both too long and too short a time frame.
Too long in that we'll see some vicious bear-market rallies, with the first possibly starting this coming week.
Too short in that the bear market won't be over this year.
dunham,
You might try Karl Denninger's MarketTicker Forum, though it is a bit of a bear's den and they do not suffer fools gladly (plus utterly non-PC)...I found some knowledgeable traders and great ideas there with all the usual caveats.
The conclusions of Rogoff's paper... are not encouraging.
Please elaborate!
energyecon,
If nothing else, Market Ticker is highly entertaining!
We're not going to have a depression. Why? Same reason we didn't have a "panic" in 1929. "Panic" was a word that TPTB thought they should avoid and the magically, nothing bad would happen.
So, we won't have another Great Depression. The d-word will never be allowed to be used again. We'll have, uh, a Great Recession.
No link, but today's Detroit Free Press has articles on beautiful 1906 houses 3500 to 4000 sqs for $175K - $350K; two of the nicest downtown areas, "worth a million". Mentions that winter heat for one was $800 / month! A few words about potential crime.
Also, I hear third hand that a new sub in Portland OR of $600K homes has every third "in auction" with $100K haircuts. Anyone have any specifics re: the lagging Pacific Northwest?
For those who enjoy following the Baltic Dry, try out railfax.transmatch.com and the more current weekly report from The page cannot be found
dunham
i rarely post on Winters blog but thats it.
u mentioned solars. i made a killing off the volatility of FSLR on Friday. i think they're headed down further given the 135 PE ratio and the general downturn of energy in general in anticipation of recession. i keep anticipating a bounce but its been amazing just how straight down the major indices have fallen since the beginning of the yr which have ballooned my short profits considerably. i took off about 40% of my shorts on Thursday but left quite a bit of profit on the table as the mkt fell further Fri. oh well as i was able to make some of that up with FSLR. i think SPWR will be in trouble as well with that PE of approx 325.
i now have some dry powder for whenever that bounce comes btwn now and the Fed mtg 1/30. i will most likely just day trade until then unless we get more big pullbacks on EEV which i'm bullish on thanks to Rich.
i too enjoy Denninger, if not for his flambuoyance, then at least for his technical analysis. i disagree with his outlook on gold however and it should also be pointed out that he's missed a good portion of the recent drops in the mkt by overanticipating a technical bounce.
Home-Sellers-Pain-Is-Renters-Gain: Personal Finance News from Yahoo! Finance
The accepted "PE" of a home is based on it's rental vs. mortgage cost. Many have suggested that rents would increase in price as sales of homes decrease. Thus, the market would return to its historical norms.
If rents are truly decreasing, shouldn't that mean that housing prices have much further to fall?
(OT on this article - what about the ratio of income vs. housing prices. Incomes have been mostly flat, while prices have soared. Taken the above and incomes into consideration, as well as tightening on credit and higher down payments needed, how can the housing market NOT drop considerably over the next few years?)
Repoman
by golly, i think he's gaut it.
Repoman,
Exactly -- prices have all kinds of room left to fall. The idea that rents would rise was a fantasy, one that I believe CR himself has dispelled.
Nikkei down - 466.01
come on, i'm waiting for at least a -800 drop like last August.
seneca,I am seeing similar oddities.It is simply a matter of intelligence and information asymmetries.I live in sebastopol and have recently seen several live/work lofts sell for the asking price of $735k.these are 2/2 condos,right on hwy 116,they do have offstreet parking and are walking distances to downtown.they are also "green" and 1425 sq ft.there is a home for sale in an equivalent neighborhood with a similar if 200 yd longer walk to downtown.It is in a quieter spot,on .46 acres,has a greenhouse and workshop as well as an attached 2 car garage,2300 sq ft 3/2 in good shape.80's built,nicely updated and in good shape.$545k...
In contrast, no significant customer withdrawals have been reported in the U.S. partly because most real-estate funds there are structured as limited partnerships for institutional investors. They are more restrictive about when investors can redeem their funds.
Technically, U.K. property-fund managers can limit redemptions, but until recently they have been flexible. Now, they are adhering rigidly to restrictions they are allowed to impose.
Property Crunch Deepens - WSJ.com
never ceases to amaze me how investors allow themselves to be locked in. small investors like us really have an advantage in this regard.
The World Melts for Gold - WSJ.com
who's a gold bug?
You know whats a pain in the ass? The fact that blogs are taking over as a source for news and instead of trained journalists that are paid to hype editorial approved stories, we now have blogs with narrow fragmented focused topics that are hot topics for about an hour, and then you have to go find another blog site to find another story that may or may not be mainstream. Does anyone see reality slipping away? Newspapers will be gone in 5 years or less and God forbid, Calculated Risk may be the only source available for Excel Pig Graphs. Is this an opportunity for more blogs or will the Universe be expanded with more and more mindless and fragmented distortion where chaos will be bought and sold like widgets?
Re: The Los Angeles Times fired its top editor after he rejected a management order to cut $4 million from the newsroom budget, 14 months after his predecessor was also ousted in a budget dispute, the newspaper said Sunday.
We had a little family get-together today and I was floored when a daughter-in-law mentioned that she knew some people who had already spent the upcoming Bush tax rebate 'stimulus'.
This addiction has GOT to end and the longer it is postponed the worse it will be. The housing charts heading this post clearly tell me that, given the info-collecting lag and the bias toward trend extensions, we will easily drop below the early 1980s lows for housing starts. The multiplier effect of the leveraging that built a whole economic boom on the backs of arms, subprimes, liar loans and inflated vasluations has still not halfway rippled through the system.
I just think some really bad days are ahead and I'm a naturally optimistic person.
It's about time for a change, considering where all these "trained journalists" have gotten us.
tj,
I think you can add economists, financial analysts, credit analysts, any person that is an analyst that uses modeling, anyone in the government, well, just about anyone trained this days lacks skills and most have jobs because of nepotism, so journalism has certainly seen its hay day come and go. Long live wild beasts on blogs!
Anon
i see blogs differently from u. thank God for CR's blog and selected others. its made me a fortune. i think its an efficient way to quickly gather truthful info on whats really happening in the mkt. why do u think the visitor counter spikes during mkt volatility? its b/c ppl r coming here to find out whats really happening. btw, why the heck did CR allow that annoying Kaplan ad to replace this valuable volatility meter?
most of us insist on data links when claims r made by those claiming to know. i've found these to be very informative in that many of these sources i would never have been aware of.
the discussions r also educational and my level of financial understanding has grown considerably. u can tell when someone in bullsh*tting.
Panic selling shuts £2bn fund |
Money |
The Guardian
just posted on Mish's blog. see what i mean Anon?
go SRS!!!
Rowell Auctions is handling the online bidding. The company, on its web site, spells out what's involved to seal a deal.
Hare says a credit card deposit is required to become a bidder.
The homes on the First Coast include a 6,000 square foot home in Orange Park. Hare says the opening bid was for $100,000.
On line bidding on these properties ends Tuesday, January 22nd.
"It emerged yesterday that staff at some of the property managers have been informing key clients in advance that a fund is heading for suspension. The FSA said that such trading may fall foul of its rules regarding treating customers fairly."
the lawsuits r the next boom sector. anyone with a brain can tell that the longer these investors r locked in the less their property assets will be worth.
What's with the Japanese market? Don't they know they are supposed to follow not lead? (The lunchtime sake often sparks a rally, though.)
I have tried posting on some investment sites, but it's just boring. They always end up talking about what stocks or mutual funds to buy. There aren't any good places for bear investors.
This is the best site for bearish investors. The ideas are important to share. But it's also helpful just to hang out with other bears and, you know, do the secret bear handshake.
The MSM always tries to make bears feel small and inferior. Here, bears can stand tall.
There is no counterparty risk in ETFs, long or short. The funds hold assets directly, whether they are stocks, bonds or futures contracts, just like mutual funds.
As an ETF investor, you own a slice of those assets directly. You're confusing Authorized Participants, who add liquidiy, with counterparties, who take risk. APs do not take risk. They arbitrage and trade. Stop freakin out about ETFs.
P.S. HOW BOUT THEM GIANTS!
There's nothing wrong with this. It's called an advance stimulus transaction. It's like getting a payday loan or cash from H.R. Block against your tax refund. It helps consumers buy more stuff sooner, which is the whole idea.
rich - CR is data-driven, not bearish. It's just that a lot of the data looks bearish right now. He'll look like a bull to a lot of people at some point in the cycle - though that point might be slow in arriving during this particular cycle.
(The lunchtime sake often sparks a rally, though.)
F. Frederson
Well I often joke to my wife as the evening unfolds: "Yup, its(Nikkei) dumping, the sake is taking effect" or "Just wait till they take their lunch" if the Nikkei is up in the morning and "I guess the sake is wearing off " if there is a late day rally.
I really should do a stat analysis but it would spoil the fun.
-K
Yeah, bummed about the Packers. Nonetheless... the Giants will make better roadkill, because it hurts more to lose the Superbowl than to not make it there.
Thank you for the Market Ticker link, the technical analysis was excellent, though downright frightening if you are a bull.
Friday's analysis was interesting in that his opinion that the low put-buying ratio portends a lack of protection and possible strong downward move opinion runs contrary to the BS you read on some boards about the the "high call ratio means people are bullish and 'know something'" line of thinking.
Good stuff.
It's just that a lot of the data looks bearish right now.
Nicely understated; almost CR-like!
Hello Idoc,
Funny how no-one is answering the question, Ha. TED spread and Commercial paper spreads are both narrowing. Looks like the recession will have to wait. We will have inflation induced nominal GDP growth this year. TAF operations took in lots of mortgage paper.
Dh, formerly known as the fertilizer man.
Sure, this is true. All of us will be bullish at some point.
Just remember that the great bonus of being a smart and successful bear is that you are loaded at the time everybody else is in despair, so you have the confidence to buy stocks at the bottom and ride them up to leverage your profits.
Bonds represent promises.
Stocks represent hopes.
When hope is gone, when Kudlow throws in the towel, when even your relatives think the U.S. economy and market are doomed, that's when to start buying.
dunham,
Frank Barbera & Robert McHugh have been saying the same thing -- in a bear, the worst crashes can come from deeply oversold market. Looks like even Richard Russell is spooked. Next week's action should prove absolutely riveting.
Bluestatedon - IMO - you bring up a very interesting aspect of the problem. I have family in the Detroit/Cleveland area. No question the area is an economic mess. Perhaps it will be on the upswing one day - but I don't see that happening any time soon. I cannot for the life of me understand why young people who can have a better life elsewhere don't go elsewhere (I have younger family members in that category so I am not talking in the abstract). If you have stubborn parents or grandparents who are retired - and need your help - and won't move - so be it. You really can't do a heck of a lot for them if you wind up un/under-employed a large part of your whole adult life. All you have to look forward to - especially if you're a woman - is being poor and tired (taking care of elderly kin).
At some point - if you have to take care of elderly relatives - you have to put your foot down. We have done that with elderly (80+ years) parents - in a couple of different situations - and it has worked out ok. OTOH - we have friends (almost all women) who are traveling 10,000+ miles a year to take care of parents who refuse to budge. Like I said - sometimes - especially if you're a woman - and expected to "deal" with these things - you have to be hard-nosed about it.
I sense that many of you here are both a lot younger than I am - and male. Your parents are probably my age - perhaps younger. But I am sure you see what is happening with your parents taking care of their parents. Do you see what I am talking about?
Rich - I think one of the problems in shorting - or using an inverse ETF - is that it requires very different trading systems than those with a "long" bias. A good "short" system is not simply the reverse of a good "long" system. I know there are people who are expert at them. I am not one of those people (smile). And you have to be a really dedicated person to develop good shorting systems - because bear markets are less frequent and tend to be shorter than bull markets. Which is not to say that you can't make a lot of money in them if you're positioned correctly when they occur. You just have to study and understand the nature of the beast.
Unirealist - brokerage and brokered CDs - as well as a lot of on-line CDs - react the fastest to changes in interest rates. They go up the fastest when rates are rising - and down the fastest when they're falling. Smaller local institutions sometimes tend to be a lot slower to react. At this point in the cycle - if other parts of the country are like where I live - the best deals will probably be found in places like local credit unions - many of which reset rates only once a month or so. Roby
dunham - "FWIW, stocks i'm interested in and watching carefully: CX, AEO, MIC (maybe), AAPL (at $120), MMM, GE, JPM, CAT, SBUX, MWA (maybe), RIMM, EBAY, and solars."
Am I the only one that thinks GE is very risky because of all their debt? Unless the statistics are wrong on yahoo finance, their debt is about 20x cash, or about 3x revenue. That kind of stuff scares me. FWIW, the quoted debt amount is nearly half a Tril. Those kinds of numbers are much worse than Ford and about the same ballpark as the USG (I think the USG is slightly higher debt-to-revenue ratio). At 3x revenue most mortals would be considered insolvent.
Am I missing something?
There's nothing wrong with this. It's called an advance stimulus transaction. It's like getting a payday loan or cash from H.R. Block against your tax refund. It helps consumers buy more stuff sooner, which is the whole idea.
rich
There's nothing wrong with this ?
Fact Sheet On Payday Loans
The fees for payday loans are extremely high: up to $17.50 for every $100 borrowed(1) , up to a maximum of $300. The interest rates for such transactions are staggering: 911% for a one-week loan; 456% for a two-week loan, 212% for a one-month loan.
While H & R block has got better recently in their disclosures,they are still being sued for past behavior, they still charge 2% of principal and this is some of their past behavior:
Fast tax refund loans cost borrowers from $29 to $89 for loans that last about ten days, resulting in annual interest rates of 67% to 774%, according to a new report issued by Consumer Federation of America and the National Consumer Law Center
Press Release of the Refund Anticipation Loan Report
There's nothing wrong with this ? Sheesh..
-K
Dh
not quite.
FRB: Commercial Paper Rates and Outstandings
A2/P2 spiked back up to about 85.
it sure does look like the TAF and ECB auctions have done the trick for Libor but i'm not sure i understand why. and who says there's no inflation. supporting the prices of these mortgage assets as their value falls is the greatest form of inflation and is reflected by the gold price which is holding up remarkably well despite the generalized stock mkt plunges worldwide.
there was an excellent comment by Nick Barisheff who said that trying to do techical analysis on the gold chart is useless b/c its such a small mkt. all it takes is a few large funds to start buying in and it disrupts all the usual rules. if u look at a long term chart of gold esp. over the last yr u can see what he means. the lines gyrate all with no particular pattern except that there r long periods of consolidation after which there is a huge up thrust in price. same with the silver charts. this is what confounds guys like Denninger who keeps looking for traditional patterns that fit Elliott wave or Dow Theory. we'll be over 1000 by the end of the yr.
"Good stuff."
ROTFLMAO, I did not just read someone using the term "good stuff" in reference to denninger and market ticker.
He is entertainment, period.
you love his technicals, eh, technicals work til they don't, there is so much leverage in the system that one thing is for certain, this market can make a fool out of anyone at warp speed.
The quants couldn't handle the shit in august and they sure as hell aren't going to handle this environment well either.
Yeah, I know, Karl's got your back.
WTF?
I'm having dinner with some family friends on Friday. I've just been informed by my lovely significant other that one of the guests is beginning a new career in real estate. He apparently believes the bottom of the market will be reached in March. In Los Angeles.
So, any suggestions on how to handle this obligatory social event with grace and panache?
When hope is gone, when Kudlow throws in the towel, when even your relatives think the U.S. economy and market are doomed, that's when to start buying.
Can't disagree with that.
So, any suggestions on how to handle this obligatory social event with grace and panache?
Talk about Britney Spears.
Wally - re your comments about spending the proposed tax rebates. I am not all that liberal - but I think Bob Herbert in the NYT discussed very intelligently what is much more imporant than one time rebates: reliable jobs. Here's the op-ed piece.
OP-ED COLUMNIST; Good Jobs Are Where The Money Is - NY Times
Gloria Steinem has said that rich people plan for 3 generations - poor people plan for Saturday night. To be a solid member of the middle class (and I think it's desireable for all countries - including the US - to have a large middle class) - you have to be able to plan at least 5-10 years down the road. And you can't do that without a reasonable degree of job security. Roby
FT Woods,
The important thing is for you to understand what's going on. This family friend is no different than 50 million Americans who are adrift in their careers and chasing crummy jobs and delusional dreams. It's not their fault everything fell apart.
It's better to get out of bed in the morning and try to sell real estate than not to get out of bed at all. So give the guy a pat on the back. Don't throw cold water on people's pipe dreams.
So maybe I am a prude!
Can you tell me why we are spending 300M (per week or is it per month) defending the democratic movement in a land most of us have never been to but those in close geo-proximity are free to send the wealth out free of any attachments?
I am confused by this.
Sale of ‘Top Whack Mansion’ is £50m record - Times Online
its amazing how many ppl still don't realize whats going on with RE. it'll take until the summer when all the inventory is rotting in the sun and prices r plunging for it to be general knowledge.
FT Woods, your mission; should you decide to accept it; is to record every word said individual makes for immediate transcription forthwith. Snickering will commence shortly thereafter.
On a more serious note, you can't change your guest's opinions without alienating him. We however, can gain insight if we understand how he came to his beliefs.
What's with the Japanese market?
Rumor is hedgie blew up, can't confirm but looks possible. Small caps trading below book value.
With the housing market frozen, the job market will become frozen. It will become harder for people to move to that next job in another town and harder for businesses to attract workers to overpriced towns.
rc,
nobody should base investment decisions on what they read or hear online, on tv, etc. all should do their own due diligence and form their own opinions.
since i don't spend a ton of time on TA, i personally find it interesting to hear commentary from those that study TA - it gives you another perspective, and may help in timing a buy or sell.
even you have to admit that the charts look ugly?
"works until it doesn't"
this is true for every investment strategy known to man. heck, this is true for every business strategy, football strategy, and dating strategy known to man.
everything we know today is the culmination of what we've learned both in our lives and in our history as a people. there is no guarantee that the lessons learned will serve us well in the future, aside from a handful basic life-sustaining practices. once you leave the realm of science (even then everything is a "theory") and math, its pretty much a crapshoot.
so, take everything with a grain of salt. this includes technical analysis, and fundamental/valuation driven analysis.
TJ & the Bear,
Not sure whether you found it--it took me a while.
"Is The 2007 U.S. Subprime Crisis So Different? An International Historical Comparison"
http://www.economics.harvard.edu/faculty/rogoff/files/Is_The_US_Subprime_Crisis_So_Different.pdf
decoupling hard at work work tonight. nice to see! maybe dubya can extend his $800 to everyone in asia and europe too, so the decoupling stays in tact.
I wonder when peter schiff will finally eat crow. too bad. I like the guy. He articulates his bearish position well, without getting too passionate. Just totally whiffed on the global growth sustaining itself with 40% of the world's consumption engine sputtering.
At this point foreclosures need to happen to preserve worker mobility. Japan did not understand this and created a new class of homeowners that might be classified as mortgage serfs.
FT woods: Get stoned. I haven't done it in years, but it might make the bizarre seem, well, just normally bizarre.
Oh, oh what will Jas Jain say to this estimate... probably way to optimistic.
O-Joe
"Anyone have any specifics re: the lagging Pacific Northwest?"
Yes - Portland has been about a year behind the swell but is going through the phases right on schedule. We are at the slow appreciations / exploding inventory stage. And this week I saw the first real break in our neck of the woods. A place that zillows for $598K and would have gone in the mid 500's a couple of summers ago just went on the market at $440K - right at the conforming limit with a downpayment. Ouch! I'm sure the neighbors aren't amused. But this bitter renter is havign a shadenfraude moment...
R,
Thanks for the link -- interesting read.
"Anyone have any specifics re: the lagging Pacific Northwest?"
The PNW is a bit behind the times, but our turn is coming. The housing bubble spread out like ripples from an earthquake and we're merely farther from the epicenter.
The Portland suburbs started to falter as last summer ended. In-town is just now starting to show some cracks. By summer the "it won't happen here" stage should be over.
Silicon Alley Insider is reporting that Yahoo is preparing to lay off up to 20% of its 12,000 strong workforce, a big purge as the Sunnyvale based company attempts to become more profitable.
Talks of staff downsizing at Yahoo have been doing the rounds since former CEO Terry Semel left Yahoo in June.
Despite traffic to Yahoo properties remaining ahead of Google (according to comScore), YHOO stock has performed poorly over the last twelve months months as the company has failed to convert that traffic to strong profit growth, unlike Google.
I agree that decoupling won't work as a short term investment strategy because when you look at the stocks readily available for Americans to invest in, most are big companies that make a lot of their money selling to the US (or even worse, financials lending money to people who are selling to the US). The exceptions (BAIDU?) are in an obvious bubble.
But that doesn't mean all the countries in the world are going to suffer economic distress in the same way as the US. Most of those folks aren't nearly as leveraged as people here. Maybe they'll do fine and there just won't be any convenient way for passive investors in the US to make money from it.
"Anyone have any specifics re: the lagging Pacific Northwest?"
I agree with ItsJustMe... although last month, Bend Oregon had negative home sales...more foreclosures than actual sales.
Home sales everywhere have slowed to a crawl, nobody denies it.
Anectdotal information.. where I live in Lake Oswego (pricier PDX area), there's infill development ... three million dollar homes for sale on one block, only one has sold in two years. Two hundred feet south, a million point five home, no takers for over a year. Three hundred feet south, two infill lots on a hill, graded ... but two months ago, the backhoes left, and the lots are now for sale. On my street, one teardown of an old home, lot now empty since July ... lot for sale. Next door, two 750k homes for sale, one sold at 700k, the other just reduced to 650k. No lookers.
On Mcgloughlin ave, CRE strip half finished, now for sale.
These and more will be in the stats soon. But for now, people are just looking at median home appreciation like that means something.
Thank you for the advice. I'm morbidly curious to hear what he has to say. I'm just stunned that he thinks now is a good time to get in.
I will dutifully report back.
Seneca, that isn't happening everywhere in Los Gatos, a town about which I know a great deal. In fact, I spent several months there in both 2005 and 2006. Several of my friends live there. Only God knows why.
Fact is, you couldn't pay me to live there. It has become like a rabbit warren. Stock options from places like Apple and Adobe keep it going.
It's all about hype, and has been since about 1970, when the city fathers began to gentrify downtown. Til then, Saratoga was the place to live. You went to Los Gatos to drink.
Believe you me, they will end up feeling the pain along with everyone else.
Especially the Ferrari crowd.
Idoc - You have to distinguish between what works on charts - and what works in the markets. There are quite a few ways to trade gold. Everything from bullion to SA mining shares.
The most important thing to keep in mind when trading any market or security is liquidity and spreads. E.g., - I once tried trading options on futures in currencies. They kind of traded by appointment only - with huge spreads. Horrible way to do currencies.
Best I have figured out after all these years is that the most liquid markets for traders/speculators are the futures markets. You can trade futures 100% - no leverage - in which case you won't be riding a roller coaster all the time. OTOH - futures contracts tend to be big. Even the e-mini is $50,000+ a contract if I recall correctly. Which is why people tend to use leverage - usually a lot of leverage. Which makes it easy to get wiped out.
What is your trading horizon? Short term or position trading? What charting systems do you use (I'm a dinosaur - I'm still using Supercharts with DialData EOD data)? I only do position trades on the basis of EOD data. And something like FSAGX is fine for that. Roby
mp,
Doesn't it seem like this particular downturn is occurring somewhat backwards?
tj, they're all different. This one is no exception, but it does have some very unusual characteristics, to say the least.
Lots of little things, but one big one... typically the very well off see these things coming. However, the inhabitants of Richistan have done so well in this environment that they've not seen the signs. Fascinating.
Share prices ended the morning sharply lower as banks were hit by fresh subprime worries after a local newspaper reported that Bank of China may post lower profit or even a loss for 2007 due to writedowns on US mortgage-backed securities.
Oil rising as well and Bush ratings going lower than CDO values
Kansas City Star - Bad mortgages weigh on Kansas City banks (yes, they have more than one bank there)
KansasCity.com | 404
TOKYO 2007 CONDOMINIUM SALES DOWN 18.1 PERCENT
Can anyone who knows the Bay Area or Silicon Valley explain why a nice, but pretty ordinary 3000 sq. ft. house on a pretty ordinary Los Gatos street would get 4 above-asking offers on its first day on the market and sell for $2.4 million dollars. Why, pray tell, would anyone pay that. Does Los Gatos defy the laws of economics. CR-ers, you are wiser than I am, please help me with this question.
Seneca | 01.20.08 - 8:09 pm | #
Because it's still Silicon Valley. Silicon Valley is full up, there are no more buildable lots, and you don't want to be caught dead living in San Jose or Milpitas. That's why. Next question?
...you don't want to be caught dead living in San Jose or Milpitas.
Whatever.
tj, everyone who frequents Calculated Risk should feel fortunate. The expertise of people like CR and Tanta gives one a heads up. As a consequence, folks here, "rich" or "poor," know what time it is.
Most folks don't.
robyn
i definitely agree with u on liquidity. u have to be able to get in and out quickly w/o having to take too big a haircut on the spread if ur wrong. this is what amazes me about these supposedly rich sophisticated investors who got themselves into these hedge funds that allow their redemptions to be suspended. i can't imagine the ferocity of all the lawsuits coming.
as far as gold. i have some bullion in my safe, both gold and silver. i have some GLD stashed in a CS acct in Switzerland and i have a bunch of junior mining stocks. all held for over a yr going back a few.
i've never traded futures or options since i like to keep it simple and not too leveraged. shorting eliminates the time risk for me and most of my shorts i've held for over a yr. Earlier last yr there were times when it looked like i was wrong as the bull mkt kept running up. but as i've said many times before the data as reviewed on this site kept my convictions in place and the shorts have paid off big. this last Th when i took 40% of my shorts off was the first big chunk i've covered in over a yr as i finally sensed some capitulation. we r due for a bounce as well. am looking for an opportunity to short again.
i also like to swing trade and day trade with certain stocks especially when there's alot of volatility.
...you don't want to be caught dead living in San Jose or Milpitas.
Whatever.
mp | 01.21.08 - 12:32 am | #
Couldn't make it in the Valley, eh? Well, that happens. People give up and move back to Ohio and gripe about how the Valley was a terrible place to live. Usually it's because they don't have good enough skills to land a higher-paying position, or are unwilling to join a start-up and work towards some equity. What was your experience?
idoc, you ask: "why the heck did CR allow that annoying Kaplan ad to replace this valuable volatility meter?"
The answer: I had nothing to do with it. I liked the visitor count too - unfortunately I have no control over Haloscan. All the ads here are for Haloscan - not Tanta or me.
Best Wishes.
The expertise of people like CR and Tanta gives one a heads up.
AMEN!
Not to mention all the other commenters who's industry-specific insight continues to blow me away on a daily basis.
CR,
See my question about plotting "second homes" earlier?
Hey, newbie dillon, lose the attitude.
They guy you're attacking, mp, is one of the top dogs here. And Conjure Bag is immortal.
Simmer down.
If you could pick between an ounce of gold or Bush SuperDollars, which would you trust?
Superdollar - Wikipedia, the free encyclopedia
A superdollar or super note is an almost perfect counterfeit of a United States banknote, believed to have been made by a specific unknown organization or government.
According to the FAZ, the forged dollars are used to finance international secret CIA operations by evading Congress control. Presently, there has not been an official response by the U.S. government to these accusations.[24]
Operation Bernhard - Wikipedia, the free encyclopedia
peration Bernhard was the name of a secret German plan devised during the Second World War to destabilise the British economy by flooding the country with forged Bank of England £5, £10, £20, and £50 notes. A fully researched account, based on declassified archives in London, Washington, and elsewhere, was published in 2006 as "Krueger's Men" by Lawrence Malkin.
WTF is the movie??
Here, bears can stand tall.
I wonder how big conjure bag is going to get?
tj & the bear, sorry, just catching up. I don't have the data for second homes - it would be interesting!
Best Wishes.
Conjure Bag is 2'-3" on his tall days.
What's with the Japanese market?
Rumor is hedgie blew up, can't confirm but looks possible.
Any further info?
Japan hedge fund may be linked to: BOC may report lower profits or even a loss when it announces its 2007 results in April due to writedowns on its subprime investments, the South China Morning Post reported Monday.
The bank may announce a significant writedown on its 7.95 billion US dollars worth of investments in securities linked to subprime mortgages in the US, the newspaper said, citing unidentified sources.
HSBC Holdings, another global lender with subprime holdings, slid 3.10 dollars or 2.6 percent to 115.30. Its unit Hang Seng Bank fell 5.20 dollars or 3.4 percent to 148.90.
good read, in a story fashion, about who bernanke is, and his method of operation at the fed, and as a university department chair, and school board director.
reporter notes how ben conducts the meetings in reverse of the little emporer, i mean, maestro
in the article Volker is quoted as saying the current mess is beyond the feds control.
The Education of Ben Bernanke - NY Times
2006 NAR PROFILE OF SECOND-HOME OWNERS
Ownership of more than one home is increasingly common. A 2005 NATIONAL ASSOCIATION OF REALTORS® survey of homebuyers found that 15 percent of recent buyers owned two or more homes. In addition, approximately 40 percent of home sales in 2005, equivalent to more than 3.3 million new- and existing-home sales,were second homes.
I would think that would have a rather pronounced (and transitory) effect on "household sizes".
"Can anyone who knows the Bay Area or Silicon Valley explain why a nice, but pretty ordinary 3000 sq. ft. house on a pretty ordinary Los Gatos street would get 4 above-asking offers on its first day on the market and sell for $2.4 million dollars. Why, pray tell, would anyone pay that. Does Los Gatos defy the laws of economics. CR-ers, you are wiser than I am, please help me with this question."
Becaue most of Silicon Valley is flat and butt-ugly and uninteresting, and Los Gatos is this little town with nice old Victorians and a cool downtown and trees spang up against the Santa Cruz Mountains so you have wooded hills to the south instead of strip malls and smog. Yah, yah, Saratoga, but that was already expensive 30 years ago. Los Gatos then was the place where yuppies could go and (they hoped) become old money. Anyway, it's one of the few places you can live in the Silicon Valley and fool yourself into thinking you don't. So of course the money wants to live there...
As for not making it in the Silicon Valley,
"
As for not making it in the Silicon Valley,"
scratch that, that'd be a book.
well, monday will give all a chance to sit and stew...
Nikkei 225 \t13,344.90 \t- 516.39 \t15:00
FINALLY broke 500....been toying with it all day.
A -3.73% move. The sake was fuel on the fire instead of nerve tonic today. I think I can smell the smoke from here. So sad...
Worse: the Nikkei is ~27% off its 52-week high. Ouch.
Many folks are expecting a nice bounce shortly since there are several indicators showing a rather oversold market and HeliBen is getting on deck within the next couple weeks with his rate cut along with Dubya & Congress on their fiscal stimulus.
What are the probabilities that the market tanks even further before the much expected bounce?
I mean 50bps is already expected - so like the last rate cut disappointed will the markets force Bennie to do 75-100 bps? Many also think that with new CEOs at MER & C they have taken most of the writeoffs and comps in the next quarters will show much smaller losses but as CR has shown with his cool spreadsheets cumulatively we have $100 billion in losses - that's nothing compared to the exposure to Residential & CRE + credit card + LBO debt + counter-party.
Curious what folks here think about the near term trajectory?
Nikkei final (per Bloomberg) at 13325.94, off 535.35 -- essentially closing at the low. Wonder what it'll do tomorrow...
Have you heard of a financial institution (bank or credit union) missing quarterly payments on their CDs? Just wondering as I've recently heard a rumor re that.
malabar, Conjure and I think Dow 12,000 will be tested, but believe most folks will be selling into it. That's certainly the current thinking of at least one S&P technicians. We don't yet see a bottom on the Dow. There are still short side opportunities.
If the Dow industrials fall right through 12,000, it will probably mean the bulls are ready to capitulate.
We also believe many of the IBs and banks will be slaughtered before this is over.
We're becoming bearish on some commodities as well, but there's still a lot of homework to be done.
FWIW
malabar, another thought. Check out the latest Fed H.3 release. The numbers are staggering. The Fed is pedalling as fast as it can--using the TAF--to keep the monetary base from falling.
It's very sobering reading.
It's actually been pretty quiet since the Ambac downgrade... "too quiet"?
OMIGOD mp,
-1407M non-borrowed reserves (NSA)?!?
The MoM trend for nbr looks like yet another cliff dive. WOW, just WOW.
Can anyone who knows the Bay Area or Silicon Valley explain why a nice, but pretty ordinary 3000 sq. ft. house on a pretty ordinary Los Gatos street would get 4 above-asking offers on its first day on the market and sell for $2.4 million dollars. Why, pray tell, would anyone pay that. Does Los Gatos defy the laws of economics. CR-ers, you are wiser than I am, please help me with this question.
Seneca | 01.20.08 - 8:09 pm | #
Funny, I think I know which house you are talking about! I went to go see the Open House (because it's in the neighborhood where we sold our house in 2005, and we watch the market closely), but the Open House was canceled and there was a "Sale Pending" sign up. The list price was $2.25M.
Here's my theory: (1) The loan types used for such neighborhoods have not started to blow up yet. I bet they will start to explode in '08 and '09. (2) Because they haven't started to blow up yet, people still believe these neighborhoods to be immune to the foreclosure monster. (3) There are enough wealthy fools that MUST have those neighborhoods with those schools, and the supply on the market is still relatively small. When one pops up, they gotta have it.
Buyers remores will be a bitch though.
mp
What's giving me pause from a trading standpoint is that I hear many folks expecting a near term bounce. But if we have flipped into a bear market its likely that markets really pressure the central banks and governments to do something that smells of panic!
The downturn seems too orderly and VIX has yet to really ratchet up.
That should have read, "Buyers remorse will be a bitch though".
malabar, I agree with you, but we both know that this thing can shift into high gear on a moment's notice. tj, for example, made a very good point upstream when he said things seem "too quiet."
Frankly, I think Mr. Market has already priced in a big Fed cut.
Also, the AMBAC thing represents another fork in the road. You've got to be ready for just about anything.
tj-"The MoM trend for nbr looks like yet another cliff dive. WOW, just WOW."
Yeah, pretty sobering.
*HONG KONG'S HANG SENG INDEX EXTENDS LOSSES, NOW DOWN 1,026.17 PTS AT 24,175.7
ACA Capital Gets More Time to Unwind $60 Billion in Credit-Default Swaps
Although it's only been discussed in a few places, here's the type of scenario Conjure and I talk about at this time of night over cigars and cognac:
What if China melts down?
It's certainly possible. What if China and the U.S. trigger a global recession? Take a look, for example, at the Baltic Dry index. It's cliff diving, and it's an honest index because you only lease a cargo ship when you're moving goods. China, of course, isn't the only economy affecting the Baltic, but it's certainly interesting to talk about. It's a highly leveraged economy.
ACA Capital Holdings Inc. convinced its trading partners to give the bond insurer more time to get out of $60 billion in credit-default swap contracts that it can't pay.
ACA extended its forbearance agreements until Feb. 19, the insurer said in a statement last night.
Negotiations are made complex by the number of counterparties who must agree on a solution - between 10 and 50 banks, brokers and other parties - according to a person familiar with the last-minute talks. The person said ACA is hoping to find a permanent solution that could give contract holders ownership stakes, but may have to settle for agreement by the counterparties to extend the deadline for putting up collateral rather than throwing ACA into receivership.
Canadian Imperial Bank of Commerce (CM) said in December that ACA acted as a counterparty to $3.5 billion of its U.S. subprime real estate exposure and that the bank would likely take a "large charge" in its first quarter to cover potential losses. As of Nov. 30, it said its mark-to-market loss on the hedge was $2 billion. A CIBC spokesman declined to comment Friday on whether the bank will let ACA off the hook in posting collateral to cover potential losses.
Merrill Lynch & Co. (MER), another ACA customer, said Thursday it would set aside $1.9 billion for contracts insured by ACA's financial guaranty business. A Merrill Lynch spokeswoman said the company would not comment on whether it would agree to waive ACA's collateral.
According to an estimate by Oppenheimer analyst Meredith Whitney, UBS AG (UBS) will have to write down $1.4 billion in ACA-backed hedges. She estimates Citigroup (C) will write down $1.398 billion in losses. UBS declined comment on Friday.
In Securities and Exchange Commission filings, ACA has said it would be unable to come up with $1.7 billion in collateral if it lost its A rating.
The Maryland consent order acknowledges ACA's inability to post that money. At Sept. 30, ACA had approximately $426 million of statutory capital and approximately $712 of total admitted assets
mp
I agree. I've been watching China for sometime. If you think our banks have bad loans then you aint seen anything yet when you consider that Chinese banks are forced to keep lending to state-owned loss making enterprises that keep expanding capacity. I have read that if Chinese banks had anything like mark-to-market it would completely deplete all their dollar reserves.
They'll try to keep it buttoned up till the Olympics but watch out after that. And as the Chinese economy slows down which it will inevitably as US demand falters it will bring down the rest of Asia who supply the Chinese final assembly plants.
Thats a very big plunge tonight totally across asia. Aus down 3%? HK and China down over 4%? .. and no US market to watch tonight! have they decided to get two trading sessions of decline in one shot?
A comment made by a politician(?) today in australia said (to those crying for help with the local market) 'our priority is fighting inflation not propping up stocks, mom and pop should not try to time the market'. Quite different from the fed.
on Sunday said it entered in to second forbearance agreement with its Structured Credit and other counterparties. The company noted that as per the agreement, the counterparties waived all collateral posting requirements, termination rights and policy claims relating to the rating of its subsidiary, ACA Financial Guaranty Corp.
The forbearance agreement would remain effective through February 19, 2008.
Anon- "The forbearance agreement would remain effective through February 19, 2008."
You've put up some good stuff, but you needn't post it twice. We get it, we really do.
Make it short and sweet. That gets my attention. Books don't.
A lot more money up in smoke in East Asia. Will Europe follow?
On China, I don't think anyone has repealed the business cycle there either. Obviously any downturn here will affect them, but could internal demand there be raised to pick up the slack? Or will the high-saving, still-mostly-poor population pull back sharply, turning a mild local downturn here into a global depression? Nobody knows, and as big and diverse and fast-growing China is, I don't think anyone really could "know" (though many will guess right and claim they had knowledge - and none of them will agree on what that knowledge was).
My guess - growth will slow, but food price inflation stemming from real capacity limits will make a lot of Chinese very grumpy and restless.
F. Frederson- "Will Europe follow?"
Well, our French friends are sure trashing some banks this morning.
CORRECT: European shares down; French banks slide - MarketWatch
Regards to all of you.
Crude oil fell in New York, reversing earlier price gains as declines in Asian stock markets increased speculation about a "global economic recession", limiting energy demand.
Crude Oil Declines in New York, Reversing Earlier Price Gains - Bloomberg.com
Lions and tigers and bears. Oh My!
Any one got the odds on another "Black Tuesday" tomorrow?
Can anyone explain exactly what this "Non-Borrowed Reserves" stuff means? Is it important?
Justin;
"A comment made by a politician(?) today in australia said (to those crying for help with the local market) 'our priority is fighting inflation not propping up stocks, mom and pop should not try to time the market'. Quite different from the fed."
That was Glenn Stevens, the Governor of the Reserve Bank of Australia. And yes, Quite different indeed from the US Fed. His mandate is price stability and to all intents and purposes remains honest to it.
Any one got the odds on another "Black Tuesday" tomorrow?
100%
US futures are suggesting that we may get our panic selling on Tuesday. IMO, that will only lead to a short term bounce.
Last week everything on US and world stock markets(except US home builders) seemed to have suffered big hits, including health care, energy, consumer staples and ag stocks.
Two interesting points on this week's Barons. The main article is bullish, suggesting buying a bottom that includes a recovery of RE this spring or summer (!). However, one of the experts on the roundtable is buying gold and selling (short/puts) the "four horsemen" (GOOG, RIMM, AAPL and MSFT). These guys are probably 50% of the NASDQ 100.
One interesting article on tech exposure to credit problems. It points out that many tech companies with high "cash balances" put their cash into CDO's. I wonder how many companies in the US (and maybe other countries) put their cash reserves into high risk investments to try to get a percent or two above treasury rates. It seems that the cash balance of companies unrelated to finance may be a good place to look for exposure to leveraged and failing financial vehicles.
One thing that seems to be happening in the stock market is that professional traders have been over confident in an oversold bounce and this has kept a bounce from occuring.
S&P futures down 62, Dow 473-
These TA assholes looking for a bounce on Thursday and Friday look like they are about to get their asses handed to them.
This is not your mother's market, she was not leveraged.
Dax down 7%, FTSE 5.5%, Nasdaq futures down 80+
not pretty this morning.
Dax down 7%, FTSE 5.5%, Nasdaq futures down 80+
not pretty this morning.
" We had a little family get-together today and I was floored when a daughter-in-law mentioned that she knew some people who had already spent the upcoming Bush tax rebate 'stimulus'."
You don't understand, now when the stimulus is less than $800 (for wasteful infrastructure spending or something like that), they can blame the Dems for bringing the economy to its knees.
Hmmm..., any odds on pre-market intervention on Tuesday?
I believe this may qualify as 'disorderly' to BB - this is beginning to look like some serious leverage unwinding - the times they are some interesting!
energy-
looks like these comments unnerved some people-
""I'm reasonably confident that French banks will weather this turmoil without major trouble even though they are clearly, like all banks, in the world still in the process of marking down assets," said Christian Noyer, governor of the Bank of France and a member of the European Central Bank's governing council, "
How a French banker's comments helped derail global stocks - MarketWatch
Hmmm..., any odds on pre-market intervention on Tuesday?
Rate cuts won't save this market only massive fiscal stimulus which looks to be to little to late. She's coming down like a ton of shit Mr. Spock!
Yes, unnerved is beginning to look a bit like capitulation, no?
Anon,
Gee, really? That bit of genius 'leverage in a bull market' cuts even sharper on the downside...there have to be some SERIOUSLY freaked peeps in Hedgistan this morning.
Except for the ones who went short already that is!
It points out that many tech companies with high "cash balances" put their cash into CDO's. I wonder how many companies in the US (and maybe other countries) put their cash reserves into high risk investments to try to get a percent or two above treasury rates.
Well, its short term money so vanilla CDOs is unlikely but yeah, Lawson software had to take a 2 cent EPS charge last quarter. They lost $5 million by investing their excess cash is triple A rated ( of course!) auction rate securities. As the earnings call poignantly put it:
We are not in the business of taking risk in the management of our cash resources. We are a software company. We are disappointed that an impairment charge is required. However, our existing cash resources, exclusive of the affected securities are more than sufficient to meet anticipated working capital needs and fund our business plan. We will continue to monitor the situation and update you in the future based upon market conditions.
http://seekingalpha.com/article/59308-lawson-software-f2q08-qtr-end-11-30-07-earnings-call-transcript?source=yahoo&page=3
Separately, Dow Futures per Bloomberg are down 473 !
-K
"You cur-sed brat!, look what you've done!, I'm melting!" "What a world! "Who would've thought a good little girl like you could destroy my beautiful wickedness!"--
World Financial Markets
Wow Asia down -535....who was it that said the global economy would not be bought down by a US recession?
Gravatar Hmmm..., any odds on pre-market intervention on Tuesday?
If the Dow futures are down 300+ on Tuesday morning, I think we're getting 100 bp cut on Tuesday. It could be the mother of all volatile days.
Can't you already see the MSM attribution that the US-centric holiday fed the panic that caused the market crash?
Actually, being it's the MLK holiday, maybe this way they can blame black Tuesday on black people. (See that works really well: b-l-a-c-k Tuesday, b-l-a-c-k people.)
Also: RE: FT Woods and the real estate mogul. IMHO, I haven't found a way to give people news they don't want to hear. I'm sure many here has been mentioning the downturn for some time and noone is patting them on the back for their foresight.
In addition, I figure unless I'm going to bail them out, I really have no business warning them off.
"It points out that many tech companies with high "cash balances" put their cash into CDO's. I wonder how many companies in the US (and maybe other countries) put their cash reserves into high risk investments to try to get a percent or two above treasury rates."
I invest primarily in the Canadian Venture market and I'm similarly concerned about the junior miners. These companies often have large cash reserves for exploration and the guys who run them are rogue geologists and not financeers.
I decided to buy back my short E-mini Dow contract with Dow futures down 350. $5k in one week is enough. The question is "What can the Fed do to stabilize the markets?" If they give a "surprise" cut on Tuesday that smacks of panic. Would they also cut again in about a week? I have lots of puts on weak stocks, so if the Fed doesn't figure out a surprise to help the market, Tuesday, in any case will be good for me.
If energy and tech tank this coming week, the Dow's next stop should be around 11000. If the market starts to price in a "deep recession" instead of a "recession light" we have a long way to go. This will also, IMO, lead to more carnage in the real estate markets. Most of the government and the presidential candidates don't understand that there is no way to save "in trouble" home "owners" when home prices are going down sharply. Also, foreclosure, sooner rather than later, is in the best economic interest of people who are well underwater.
It's going to be a long bear market, so invest short for the long-term.
I had a dream last night. I had lost my job
"On China, I don't think anyone has repealed the business cycle there either. Obviously any downturn here will affect them, but could internal demand there be raised to pick up the slack? Or will the high-saving, still-mostly-poor population pull back sharply, turning a mild local downturn here into a global depression?"
The poor can't do much, and the middle-class will continue sitting on the vast reserves it has put away for medical care and old age and rainy days, in the absence of any state-supported safety net. You could possibly see some bargain-hunting in real estate, but not a lot of consumer demand.
In other words, IMO, no.
The monolines are dead, their business model is dead,'' said David Roche, head of investment consultancy Independent Strategy in London.The government is going to have to recapitalize this industry or there will be communities in the U.S. where they can't even flush their toilets'' because they can't afford the services.
ACA Capital Gets More Time to Unwind $60 Billion in Credit Default Swaps
ACA Customers Allow More Time to Unwind Default Swaps (Update3) - Bloomberg.com
@larryk - re: illegal immigrants leaving.
The arizona law is in effect, but no enforcement of it has been done yet.
Politicians in that state are already trying to scuttle a bill that started working (illegals leaving) before it became active. The one in oklahoma is working too
From another message board
"Also, Arizona Representatives are proposing changes to our new Employer Sanctions Law to take all of the teeth out of it and make it nearly useless. Two of the AZ Represantatives pushing the 'backpedal' measures are Bill Konopnicki and Theresa Ulma. Coincidently, Theresa represents the Yuma AZ area where the border patrol agent was murdered in the line of duty today. Bill Konopnicki, owns a chain of fast food restaurants, and feels that he has experienced firsthand the burden of verifying new employees and feels that it is too much to require from employers. ...This argument while law enforcement officers are giving their very lives...."
Please explain how a 100 bps cut, or any cut would help in the short term ?
TSX down 524 and venture down 92 at the open. That's about 4%.
I read a lot about China recently, and I've been very surprized at the insights of their people and government. Would you believe that China has the highest "per capita" use of solar energy? They are investing like crazy on roads, airports and other infrastructure. I guess that the recession will hit them hard. However, unlike our government that has wasted huge amounts of money on "the war on terror" China will at least have gained something. The government has also done an about face and is starting to invest in pollution control.
100bps Fed cut in the bag
Like I said: no one will ever call it a depression. Just like no one in 1929 dared call it a Panic (the old term for, well, a panic and its aftermath). We'll have some brand-new euphemism for it this time. But don't, please God, call it a depression! If you don't call it what it is, it won't happen!
stock markets finally wake up: recession coming, and it's a humdinger.
BBC NEWS | Business | WestLB expects billion euro loss
German bank West LB (The one that took a huge hit bailing out SIVs in early december Blogger: Page not found to take a loss of 1Bn, and write down a similar amount due to exposure to bad debt. Will also cut 1/3 of its staff.
Bank of China also set to report losses.
"Wir sind alles sub-prime jezt."
Despite govt. efforts to promote consumption, Americans will once again become savers. Big savings binge on the way. Empty stores, restaurants and movie theaters.
How about "The Great Humdinger"?
Then, in the future, we can have an economist's strict definition of a "humdinger" and lots of jargon-laden arguments by investors talking about the "H" word and how a humdinger is defined by this or that and we just aren't going to ever reach that point by the next quarter, etc etc.
Heh, that is where correction came from, I recall an old comic shwoing a bear den where one of the bears said, "What? No, no bears in here just us corrections..."
"100bps Fed cut in the bag"
at least half of that better be announced 1st thing tomorrow morning or we'll see 600-700 pt DOW down day...
Banks have negative reserves now....wow
I still maintain my stance we'll turn this week meaningfully and there will be no recession in '08. In a few months it will become clear this was THE buying opportunity.
O-Joe
Banks have negative reserves now....wow
Stuart | 01.21.08 - 10:30 am | #
Stuart--what are you referring to?
The surreal joke is people are buying dollars... it's the currency with the greatest spiral exposure... monopoly money.
New post, China woes
O-Joe, I'm not wading back in. Wall Street isn't fit for decent society right now.
"Stuart--what are you referring to?"
Winter (Economic and Market) Watch » Show Me the Money
We'll have some brand-new euphemism for it this time.
Shock and awe, perhaps?
And now for the document that Northern Rock doesn't want you to see:
Project Wing Northern Rock Executive Summary
https://secure.wikileaks.org/leak/Project_Wing_-_Northern_Rock_Executive_Summary.pdf
"Can anyone explain exactly what this "Non-Borrowed Reserves" stuff means? Is it important?"
hello | 01.21.08 - 5:47 am |
I really wish someone else had replied, but here goes:
I'm Treasurer of my church. We use a checking account to pay our bills. This checking account does not pay interest and requires me to maintain a minimum balance, otherwise the bank charges us a fee.
The commercial bank system of the U.S. has roughly the same relationship with the Federal Reserve System, each commercial bank has to maintain a minimum deposit, plus enough to cover its "checks" in an account at the Federal Reserve.
The big difference is that the commercial banks of the U.S behave exactly opposite to me (church Treasurer). Instead of maintaining the minimum required balance, plus more than enough to cover any checks I've written, this "Non-Borrowed Reserves stuff" shows that the U.S.commercial banks have to borrow every cent from anybody who'll lend it to them, just to maintain their account balance at the required level. Given the loans they've made and the goals they've pursued since 2002, this should be no surprise to anyone.
The big question is, are the banks
a) paying less interest on these shorter term loans than they are making loaning the money they've borrowed (e.g. bailout of U.S. Savings & Loan crisis)
OR
b) just making the payments coming due in the next 2 to 4 weeks is more than the commercial banks can handle.
If the answer is "b)", it means the commercial banks won't be loaning money, not even to people who can pay it back. This is called a Banking Crisis. Historically, when there's a Banking Crisis, asset values plummet as everybody tries to liquidate their assets to raise some cash. Good earning assets get sold at undeservedly low prices as everybody rushes to sell. In the last 400 years there are several well documented examples. John Law and the Mississippi Land Scheme (France 1721), the South Sea Island Bubble (England, 1720-1721), the Panic of 1907 (U.S., 1907), the 1929 Stock Market Crash(1932 low, when 30 of the 48 states had no operating bank and were pretty much on the barter system), Savings & Loan Crisis (U.S., 1988-1989, followed by the 1990-1991 recession when the Fed had to raise interest rates to quell inflationary pressures arising from the bailout).
This is not the first time since 1974 that Non-Borrowed Reserves have been negative. I say this because some big money can be made if Panic can be inflamed. I personally heed Buffett's words from a recent interview "The U.S. will be fine", tho' I note, for your sake, that he didn't specify exactly when. He has written that he gets as excited as an adolescent male in a harem at times like this.
Some helpful links:
mp's original response to the issue showing M. mp is good for a bit more than pouring Conjure Bag's cogna
(Who knew you can have "too many links" in a post to Haloscan?)
Some helpful links (cont'd):
mp's original response to the issue showing M. mp is good for a bit more than pouring Conjure Bag's cognac and lighting his macanudos.
the H.3 report that started it all
(Who knew you can have "too many links" in a post to Haloscan?)
Some helpful links (cont'd):
a good starting point for all Fed reports, esp. H.3 and H.4 reports
Explanation #1 part A
Explanation #1 part B
(Who knew you can have "too many links" in a post to Haloscan?)
Some helpful links (final):
a technical detail
some good background (2MB ".pdf" file)
Down 5-6% Europe. Another few days like this and stocks might be priced close to reality.
"What's with the Japanese market?
Rumor is hedgie blew up, can't confirm but looks possible.
Any further info?"
R, this may be the link you are looking for. It was originally posted above by idoc.
Panic selling shuts £2bn fund |
Money |
The Guardian
They can drop rates to zero...wont do one bit of good...the only good it will do is collapse the dollar even further....hmm all according to plan..
Conjure Clock
11:59:04
"They" won't call this Depression anything. We'll be "almost in a recession" for a few years, and then "recovering from a recession" for a few more, but we'll never actually be IN the Recession, or Depression, or Panic, or whatever.
Can't spook the sheeple: they might stop spending!
"They" won't call this Depression anything. We'll be "almost in a recession" for a few years, and then "recovering from a recession" for a few more, but we'll never actually be IN the Recession, or Depression, or Panic, or whatever.
I disagree, the market is now acknowledging that housing was a bubble and CA consumers are talking to each other about how they don't have money. I believe the same will happen with recession feelings.
Why should americans live in 3500 sq.ft house. It will divided into two and one of them rented. This way glut seems to be even bigger
you couldn't pay me to live there. It has become like a rabbit warren.
Tactical Flashlights
r c helicopter
video game
it's scary what I see in america today.
Thank you for the info.