have no fear, have no worries, Big Ben will soon send you a Platinum Plus FRB 0% credit card with instant cash back on every purchase, with no credit limit!
The truly big messes never are just one thing; they are usually a coincidence of several things. We have the low Fed rate, the house price bubble, the laxity of mortgage standards, the lack of due diligence by investment banks and by rating agencies, poorly thought-out 'innovative' financial instruments, astounding leverage used by hedge funds, the move to credit cards when the home equity ATM dried up...and possibly next we will have the slowdown of commercial real estate.
Some of these are inter-related, some are not or would not have to be.
I had to request that I NOT get a card upgraded to a "Signature Visa Platinum" version. First, it would have been a PITA for me to readjust all the bill payments I'd set up because the new card would have a new number.(gotta love those points! hint: redeem them for gift cards), and second, I read an article that this card bumped up the fees of the retailers (which I have some mercy for).
I'm waiting for the day where the cash vs credit pricing reappears at gas pumps and elsewhere.
"Affluent customers aren't paying their credit card bills?"
Yeah, those are those middle and upper class people who were reported to not be able to afford to pay for their own legal representation a few posts back. You know, the posers.
i expect that we will soon be hearing of problems in the hedge fund world as well as unwinding in the shadow 45T derivatives mkts. now that will be interesting. we're only in the 2nd inning folks.
I'm waiting for the day where the cash vs credit pricing reappears at gas pumps and elsewhere.
But until that day, it makes sense to put everything on your platinum card and pay it off at the end of the month. If Citi wants to lend me money at a -1 to -2% rate, I'm OK with that.
A cash discount definitely changes the equation, though.
Siv - Weird that you were talking about your ABK investment last night, and CR comes out with this post tonight. It's almost like he's trying to tell you something.
January 11 Financial Times (Francesco Guerrera, Aline van Duyn and Daniel Pimlott): The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moodys said The warning over the future of the triple-A rating granted to US government debt since it was first assessed in 1917 reflects growing concerns over the countrys ability to retain its financial and economic supremacy In its annual report on the US, Moodys signalled increased concern that rapid rises in Medicare and Medicaid would cause major fiscal pressures in years to come.
as much of financial community resists marking to mkt mortgage related derivatives and as their hopes for a NASDAQ lead recovery fade, i believe the leveraged speculating community (including market neutral and quants) are keen to short financial stocks against (now sinking) technology shares.
Dagnabbit, I really worry when I come across something that makes as much sense as this bit of history, and consider the source. And so early in 2007, too.
"Who knew?" becomes a scary question when the answer is, for example:
for those wondering about there SRS shares here are snippets from Doug Nolands site:
anuary 9 The Wall Street Journal (Kris Hudson): A common real estate maxim states that retail development follows new housing. These days, though, retail real estate may be following the home market off a cliff. Sparked by the housing boom across the country, shopping-center and mall developers have gone on a tear in recent years, delivering millions of square feet of new space in Phoenix, San Antonio, Cleveland, Tampa, Fla., and numerous other markets. Since 2005, developers in the U.S. have produced more retail space than office space, rental apartments, warehouse space or any other commercial real estate category. But just as that new space is hitting the market, demand is declining. Mounting home foreclosures have sapped the strength of previously hot markets like Phoenix and California's Inland Empire near Los Angeles, leaving retail-property owners with rising vacancies and slower leasing rates for new space. And anemic sales gains in the just-completed holiday season fell short even of the retail industry's tepid preseason forecast.
January 7 The Wall Street Journal (Jennifer S. Forsyth): For the first time in four years, the national vacancy rate for office buildings rose in the fourth quarter, as an unusually large amount of new space came on the market and tenants shied way from signing new leases. Demand for commercial buildings has begun to slow and vacancy rates to climb in several markets Coupled with last weeks disappointing employment report, the weak office-market figures are another signal the nations economy is weakening and possibly heading for a recession. Only last summer, commercial brokers were warning tenants that they needed to sign leases quickly at top rents because space was scarce. Now businesses in many markets are delaying leasing decisions in expectation that rents will fall.
January 7 Bloomberg (Simon Packard): LaSalle Investment Management put Condor House, a seven-story office building facing Londons St. Pauls Cathedral, on the market for 130 million pounds ($256 million) six months ago. The building sold last month for about 117 million pounds Appraisal values fell at a record rate in November and commercial real estate derivatives contracts indicate owners of British offices, shopping malls and warehouses may suffer their biggest annual losses in more than a quarter century. The U.K. market is falling apart, said Peter Hobbs head of research at RREEF Real Estate, a Deutsch Bank AG unit that manages about $100 billion.
i saw an additional article last wk that talked about Canadas CMBS mkt being "vaporized" as well.
O/T but interesting is the Countrywide takieover..no ther bids, no Countrywide Press Release, no discussion on the value...its just done..like an overdone trukey you prick the skin and it sprurts while the bird falls to pieces..What movie was that ?
CR's blog and most sites that give factual, accurate info are NOT MSM. CNBC, which i assume is your main source of info, is a bought and paid for bunch of shills.
the housing crisis is a slow burn issue and we bears are the contrarians.
I'm waiting for the day where the cash vs credit pricing reappears at gas pumps and elsewhere.
In my part of north Baltimore MD, it already has. It's a full 10 cents/gallon under normal retail (equal to the BP next door) if you've got cash on hand. The pumps at this chain (I pass 2 stations on my way to work each day) list 6 prices at the pump.. the credit and the cash price for each grade.
An optimistic scenario would be a short and shallow downturn. A second-best scenario would be for a sharp, but still short, recession.
A truly awful scenario would be a long recession.
I think one of the more important questions is whether a short deep recession is a better outcome than a long griding series of shallow recessions like the Lost Decade.
Idoc, I too am short Moodys. I can't read anything from the rating agencies anymore, (not wanting to risk a head explosion). I imagine I am not the only one that is ignoring their workproduct. I certainly as hell would not pay for it.
The truly big messes never are just one thing; they are usually a coincidence of several things.
That seems to relate to engineering principles:
If you don't test something frequently by subjecting it to stress, you can get a build-up of all sorts of defects in the system that set off a chain reaction of breakdowns ending in a system-wide failure the first time something that should be minor goes wrong.
We may have "engineered" the US economy for just such a systemic breakdown.
To all bears: where's the contrarian instinct when you find nothing but doom and gloom in the main stream media?
O-Joe,
It's a valid question. But a bear would only go contrarian after a sharp market drop that brings sentiment and valuations back in line with reality (events). That hasn't happened yet.
The market was late to recognize reality and recently it has just been tracking reality down, not getting ahead of it. Give me a fairly sharp 15% drop in the S&P and I might turn somewhat contrarian for a time, until a mild bounce-back rally. I would get out of shorts at that point and look for opportunity to get back in later. Long-run, there's a LOT more downside left.
CR,
2.5 years ago in Silicon Valley, housing optimists said confidently that housing prices never go down. Now they say (same confidence) that housing prices in the high end of the market (roughly prices greater than $1.2 million) never go down. I didn't believe them then, and don't believe them now; if we are all subprime and this isn't a credit worthiness problem but a solvency problem, the optimists seem less persuasive than ever.
exactly. we were still hearing nothing but bullish talk up until Nov when we got that first confirmed Dow Theory Bear Signal. now we got a second with a dip below. this wk will be interesting.
that was another in a series of telling events for me at least. ur talking about Meredith Whitney. my antennae went straight up when i heard she immediately started getting death threats from the Wall St community just for speaking her honest opinions. u know somethings wrong when that kind of sh*t happens.
I just finished "When Genius Failed" this morning and I can't help but notice parallels between the LTCM situation and the banks/hedge funds today. Overleveraged and probably undercapitalized and unable to get out of losing trades, I feel we could be very close to a cascade of falling prices and bankruptcies due to misjudging risk.
Just look at Citi and their current mad scramble for cash, could this be the same thing as LTCM and their bailout due to overnight catastrophic losses? I mean, we're talking billions of dollars here, that ain't chump change.
The thing I really worry about this time is that I doubt it's not just Citi in a bad spot, I bet it's every one of the IB's and there won't be enough foreign money to take care of the problem.
even if they can raise the money from SWF's i can't see how this is good longterm for traditional US capitalism and Wall St profits. the political interference in free mkts will significantly complicate things.
While few predict that investment could be blocked, one Washington attorney who works on cross-border transactions says he believed minority investments could become subject to reviews by the inter-agency Committee on Foreign Investment in the US (Cfius)that investigates foreign takeover of US assets.
It is one thing if you have one or two of these smallish deals, the attorney says. It is quite another thing, when institutions are being propped up by a bunch of investors, all from the same three states.
Conjure Bag says, "Get ready, baby, there's going to be a LOT more of it."
Shallow recession, deep recession, short downturn, long recession? Why is everyone afraid to use the word "depression" and consider that we may experience a depression?
Fridays downdraft was very interesting in that some technicians expected a continuation from Wed rally thru to the end of this next wk when we get a phi mate turn date 1/18. this represents a Fibonnacci number of trading days from Jan 2000 top in the mkt. this was supposed to be an expected Elliott Wave countertrend rally to the overall correction we're in as predicted by the Dow Theory.
does Fridays downdraft portend a continuation of the drop against this prediction (like a mkt crash?). Doug Noland says we came very close to a crisis last Wed as CDS spreads blew out generally on the CFC BK rumor. were the BAC buyout and BB "substantial" assurances orchestrated to save the mkt? i would say yes.
my sister works for bremer bank in fargo. she told me over the holidays that they have cut their lending across the board due to the giant wave of FCs in minneapolis area. credit crunch hitting fargo
now if you want a loan for a new snowmobile, she might be able to help...
so if your bank where you deposited some dough into a cd...if it fails, how do you get your money back thru' fdic. how soon? do you get any of your interest (accrued??) too???
You've hit the nail on the head! The market internal structure has broken down. Right now all the technical traders are expecting a sharp clearing rally. At the same time the banks will be coming to the confessional with the governments of China, Singapore and the Sheikhs in tow. The problem for the banks is that they really don't know the extent of the losses and they can't "over-reserve". We've got another around of resets coming in this quarter for homeowners. Then there is counter-party risk issue that has yet to break. ACA, MBI & ABK have to raise significant capital over the next few weeks and even if they do its only a matter of time before folks need to deal with the fact they are not good for their end of the deal. Then we've got many leveraged corporates with debt structures put in place for stock buybacks, LBOs, etc when their cash flows going forward will get squeezed. Add delinquencies on credit card receivables. So the banks will have to keep coming to the confessional each quarter as all these shoes keep dropping. How long will the government of Singapore & China and the Sheikhs keep pouring in capital? Until they are the majority owners of American financial institutions? What happens when the demagogues then get into their act? Dubai ports anyone!
Its not a good strategy to catch a falling knife! I think we will see a rather similar pattern in the markets this time compared to the dot bomb era except this time the US consumer is basically tapped out. When we see panic in the streets with some big names on th verge of bankruptcy that may be the time to go long - and wait a while for the recovery. IMO, the recovery from the excesses of this credit bubble will be long and arduous.
my sister works for bremer bank in fargo. she told me over the holidays that they have cut their lending across the board due to the giant wave of FCs in minneapolis area. credit crunch hitting fargo
now if you want a loan for a new snowmobile, she might be able to help...
Mpls is teetering... early in 2007 only one zip had a lot of FC (only local zip with enough FC to make top 500 nationally)... and that was in Mpls 'North' - a previous 'red line' neighborhood where predatory lenders found happy hunting..
But I KNOW there will be a lot more... I was looking at the MLS for S Minneapolis near Minnehaha Creek & 'the lakes' and was stunned by all the outrageously expensive property being offered... up to a million dollars for some. That might fly in Cali but not won't cut it among most of my peers.
When I saw those I told my buddies we too are due for a fall.
The difference though between Minnie & Cali is that 30-50 minutes away are a glut of homes in the $100K to $200K range. People just have to decide they want to live in Farmington instead of near Lake Harriet.
The BKs are coming, no doubt, but what I have to wonder about is which one kicks over the CDS hornet's nest. Then we might just see what "counterparty risk" and "systemic risk" really mean.
We non-engineers, ac, use the analogy 'house of cards.'
mp, no stop at 12,000, I think; I expect that we'll just be waving as we crash on by.
awgee, I'm in for use of 'depression,' 'cause that's what our all-time high household debt-to-income and unusually low interest rates -- now rising -- guarantee.
i saw your Q earlier in the day about covering to try and pick the next top as Rich has advised. after Fridays down move i've decided to hold as i've done over the last yr as i think we're headed down further and i'm not confident in picking the next top. this strategy has paid off handsomely but i know one day i'll need to start moving in and out more regularly as we near the bottom. when that will be is anyones guess.
Nikkei down 277. i keep waiting for the day it'll drop 800 like back in Aug. but then again, good ol' Ben cut the discount rate 0.5 pts the day after which cost me a sh*tload.
Hey, now, being born in Fargo was not my idea. I'm upset you all associate my birthplace with woodchippers and excessive northern accents! What about the great lefsa and rummegrot?
Oh yeah some more anecdotes, my gparents live on a lake in central minnesota near detroit lakes. They seem to think all the people buying summer cabins (tear downs) near them are equity locusts with local ties who decide to move back and build year rounders for retirement homes.
tj, I'm with you: I'm guessing that the meaning of 'systemic risk' and 'counterparty risk' will become known to all, soon (later this year or in 2009, at the latest).
Larry Summers, smart guy and ex-President of Harvard, recently quoted a U. of Chicago professor that he held in high esteem. Words to the effect that, in economics, the trip point takes longer to reach than you would think, but once you hit the trip point, things move faster than you would have guessed.
If we posit that the current mess is the end result of the last 'fiscal stimulus package', why does anyone think more of the same is going to change anything?
Worse, this adminsitration has DOUBLED the national debt in just seven years, which is to say they have spent more in seven years than all 42 previous administrations combined!
Um, can anyone point to what we have to show for the 5 trillion dollars they pissed away?
Once upon a time, a hundred billion dollars was a lot of money but now is merely represents a fifth of what these idiots have sunk into that 'Black Hole' over in the Middle East.
Again, once upon a time, war was good business...where are the positive economic effects of the half a trillion dollars they've spent on the 'war' so far?
Which is the stunning question we don't have an answer for...5 trillion dollars in 7 years and our economy is in shambles...does anyone honestly think throwing more money at the situation will turn things around?
Again, once upon a time, war was good business...where are the positive economic effects of the half a trillion dollars they've spent on the 'war' so far?-Gegner
Bush-"u mean Irag wasn't enough? ok, we'll bomb Iran then."
I see several folks here talk about shorting the gold mining stocks. While I lean towards the deflationists camp, and while I think gold might suffer with all other assets, I say beware shorting the mining stocks... It feels like the "next bubble" is forming in gold, whether it's irrational or not. We've seen how far irrational bubbles can run (tech, housing). Watch out!
Just when I thought Conjure couldn't get any weirder... Duck Tales!? Bravo on the weird reference, BTW! I can't say I share his opinion on Fargo, but I feel him on Duck Tales!
It seems to me that momentum investors make money until a turning point is reached and sentiment changes. Contrarian investors make money precisely when (and after) a turning point is reached, at which point all other investors begin to see things their way.
Good point. Unless one is a nimble and experienced trader I would not recommend tangling with gold on the short side. Sure there will be corrections but its primary trend is bullish. And as long as CBs believe the answer to all economic problems is rate cuts and purchase of any collateral and governments think there's nothing else but stimulus packages there's going to be a constituency for gold!
The last time gold collapsed Volker was at the helm and we then had a multi-decade secular bull market in bonds. Yields were in their teens not low single digits as we have now.
Contrarian investors make money precisely when (and after) a turning point is reached, at which point all other investors begin to see things their way.
ShortCourage
Contrarian investing is NOT about doing the opposite of what the crowd does.. No, no, no. The trend is STILL your friend. and face it you need other people to join your side - if the masses are on the other side you STILL lose.
Contrarian investing is taking the side that you bet the masses will take, then STAY with that position, making money with the masses, just more of it since you got there earlier and then get off the trend when you see its exhausting but other don't. The key is analysis off your own todd, explicitly fighting off the herd instinct - but you STILL need the herd to join you later and you must STAY with the herd for quite a while. The trend is STILL your friend - even in contrarian investing.
I think of contrarian investing as recognizing when markets are placing too much (or too little) value on something, and knowing that the value of those assets will eventually come back to what is supported by fundamentals. The herd only comes back to realize the fundamental value of the assets because of, well, the fundamentals!
In a recession, refinery margins will continue to be under pressure. With worries over gasoline demand, there is no way retail prices increase this summer. This assumes crude prices remain unchanged from current levels.
You're arguments about transparency, regulation, etc. are all spot on, but they don't do anything to resolve record personal, corporate & public debt levels that are increasingly unsecured. How can the consequences of those be avoided?
mp, i was kind of ribbing you about the noon o'clock thing. what happens when the clock strikes midnight?
all of my eggs are in (oklahoma university town) real estate and foreign currency. I just worry about my siblings who give their eggs over to Edward Jones and don't like to think on the matter.
tj- "How can the consequences of those be avoided?"
Not to sound trite, but a massive federal program would be necessary to refinance those who could make it, and cut loose the rest. And by "those" I mean personal, corporate, etc.
We have the technology and could do it a lot faster than it was done during the New Deal.
Gold is so wacky that even Casey Serin was able to clear $10,000 on his hail-mary GSPG buy (from his shell corp's credit no less) from last spring.
Assuming he didn't sell when it was down 50%.
As for O Joe, just because all the news is bad doesn't mean the contrarian voice is right.
Reality is what it is. The past six-seven years' stellar growth numbers (ha-ha) were built on borrowed money, not wise investments in productive capacity or social capital.
After the binge comes the purge.
Having lived in Japan 1992-2000 I know what to expect somewhat; details are going to be different here due to the major differences in household income, population growth, consumerism, consumer sector efficiencies.
IMO dotcoms and significantly lower energy prices were responsible for the 90s boom. Five trillion of consumer borrowing was responsible for the 00s boom.
The 2010s features federal budget crises, medicare blowups, and towards the end the SSTF going revenue-negative by design.
ow if the FRB would mark their 'inflation expectations' models to market then we wouldn't have stories like this :
"Jan. 14 (Bloomberg) -- Just because oil trades above $100 a barrel, gold fetches more than $900 an ounce and U.S. consumer prices climb at the fastest rate in two years, now is not the time to buy U.S. government securities protected from inflation."
One additional thought. If this economy does implode, the first thing the government will do is make it illegal to own gold, and they will confiscate it if they know you hold it, just like they did in the 30s.
Why? Because they don't want you to decide that glass beads or coon pelts are worth more than a Federal Reserve Note. It's all about THE GAME.
Isn't THE GAME the problem? Everything since 2001 has been about keeping THE GAME going. Sustainability involves ending the game and rejoining reality.
Yes, there's that game, and that game starts and ends, then starts over again.
Some people call those Long Waves, K Waves, or even EW super-cycles. IMO we're near the end of this game and the start of the next. The board must be cleared for the new game to start, and THAT is unavoidable.
We cannot live with a euro at this level with three other currencies which are weak,'' France's European Affairs Minister Jean-Pierre Jouyet said in a Jan. 12 interview in Malta. He was referring to the yuan, the yen and the dollar. Italian Prime Minister Romano Prodi told reporters a day earlier thateverybody is concerned'' over the appreciation.
``We cannot live with a euro at this level with three other currencies which are weak,'' France's European Affairs Minister Jean-Pierre Jouyet said in a Jan. 12 interview in Malta.
Conjure and I remain bullish on the euro. Having said that, if this thing does melt, it's just assumed that we're going to have a new international monetary system. Everyone knows that, right?
CONJURE AND I WOULD LIKE TO RE-ITERATE FOR ALL THE LURKERS OUT THERE THAT WE THINK A 'MELTDOWN' IS EMMINENTLY AVOIDABLE IF THE FED ACTS PURPOSEFULLY TO PREVENT IT.
I used to be an optimist, but my mood darkened significantly in 2005. That year, several friends and collegues left their engineering jobs and went to work in financial services. One quit his job at a packaging machinery firm, got an MBA (on borrowed money) and went to work at Nat City selling some (now probably worthless) pieces of paper. Another friend quit his job at an industrial coatings company to be a mortgage broker. These people weren't starving; they were making good money as engineers. However, they were seduced by "easy money". Designing stuff is really hard; selling some ignorant (or greedy) fool a loan is easy.
That's when I realized that the entire boom was a sham. Say what you will about the "dot bomb", but a lot of real wealth was created in the nineties. Entire industries were created from scratch, or rose to prominence during the last decade. Internet is the most obvious example, but let's not forget Biotech and wireless telecommunications (in 1989, cells phones were a novelty. By 1999, they were ubiquitous). The infrastrucutre buildout alone created millions of jobs: server farms, cell phone towers, fiber optic networks, labs, etc.
What have we created in the last 8 years? McMansions, casinos (every F****** city and county is building one simultaneously to solve their economic problems), shopping malls and fly by night financial services companies. The vast misallocation of resources were have witnessed in the past decade will unwind, and the collateral damage will be immense. I am not happy about it, but, as Maggy Thatcher would say, "There is no alternative".
Deflation may be coming, but not in the guise you expect. Fiat money is inflating, while real money is now deflating. Real money is gold and silver and these are deflating right now. I.e. they are increasing in purchase power, while fiat money is losing purchase power.
A credit collapse does not destroy real money; it destroys fake money--credit. Fiat money, of course, is no more than gov't credit, issued by the Fed and leveraged up by banks.
Hey, y'all, this has been informative and entertaining, but Conjure and I are expecting some action in the morning, so we've got to be alert enough to push the right buttons.
We'll leave it to you guys to figure out the fiat money thingy.
BTW, maybe we need to discriminate between a financial meltdown and an economic depression. I do believe a financial meltdown can be avoided, I just don't believe that'll prevent a severe and protracted economic contraction.
A credit collapse does not destroy real money; it destroys fake money--credit. Fiat money, of course, is no more than gov't credit, issued by the Fed and leveraged up by banks. - unirealist
Did you notice that Bernanke did not even mention hedge funds in his Thursday speech about how the financial markests encountered turmoil in August and Nov-Dec?
even if they can raise the money from SWF's i can't see how this is good longterm for traditional US capitalism and Wall St profits. the political interference in free mkts will significantly complicate things.
If IBs look to being going bust and can't get more infusions from SWF, I would expect that the US Treas would propose to nationalize them, at least for a while. Hasn't that been one of the solutions for Northern Rock in the UK? This makes it hilarious to watch the Congress "investigate" SWFs, worrying that they might introduce governments in our capitalist system.
What are the chances of the Fed creating inflation to limit chances of deflation?
BTW: The LA Times has a good piece regarding the "new bubble-prone economy" starring the housing market. Why this downturn may be no run-of-the-mill recession - Los Angeles Times
The growth of the housing bubble is clear in a chart published by Yale economist Robert J. Shiller in 2006. It contains an index of U.S. housing prices going back to 1890. The chart, which set the 1890 benchmark at 100, showed that prices fell only about 30 index points during the Great Depression and rose only about 40 points during the giant postwar housing boom. In the decade after the late 1990s, however, the index jumped 100 points.
"If I were the Fed, I'd think twice about continuing to say we can't identify bubbles," Makin said. Given the threat now posed by sagging house prices, the sub-prime mess and a more general financial constriction, "we'd better work harder learning how to identify bubbles and preempt them."
I see it as the US has a major debt bubble that needs to be unwound and it could take years of recessionary conditions to work it out, like Japan or 1930s America. They were able to keep the bubble going by inflating housing but they have run out of assets to inflate and here comes the reckoning.
"cost effective means to change from an option ARM to a less costly financing alternative" and ..."modify their loans into 5-year hybrid ARMs or ARMs with interest rates that adjust annually but do not permit negative amortization"
My understanding of the vast utility of the Great Depression is that both the under, middle and affluent classes got whacked and thus became allies.
During the last generation, the GOP was able to destroy this alliance.
Keep in mind, that the only thing that kept the affluent classes whole in the last 5 years especially and generally in the last 20 is that instead of having to reduce their income as the wages of the lower classes stagnated, they could take credit cards and lately the cash from the cash out ATM and put the credit risk on others. So as the lower classes went to hell in a hand basket, the affluent did not notice and even could charge more for their services.
In times past, they would have been more immediately affected as their bad debts ballooned or income dropped as the income of their customers fell. This time was different. And the GOP prospered.
When the last measure of liquidity for the lower classes ends, Credit Cards to my knowledge, then income to the affluent will dive. Worst they will have no advance warning as in the past, with income starting to drop and bad debts starting to pile up, but it will be a cliff as the Credit supplies just dry up affecting millions at a time.
I'm waiting for the day where the cash vs credit pricing reappears at gas pumps and elsewhere.
Oh it has. I know several stations in south Georgia (Citgo branded) that advertise a big cash price on the sign out front, but when you pull up to the pump, there is a decal that indicates a surcharge (4% ?) per gallon from CC purchases.
Besides that, just about every truck stop I know of adverts the truck diesel prices in cash. Presumably the CC prices are higher.
I was looking at the MLS for S Minneapolis near Minnehaha Creek & 'the lakes' and was stunned by all the outrageously expensive property being offered... up to a million dollars for some. That might fly in Cali but not won't cut it among most of my peers.
When I saw those I told my buddies we too are due for a fall.
The difference though between Minnie & Cali is that 30-50 minutes away are a glut of homes in the $100K to $200K range. People just have to decide they want to live in Farmington instead of near Lake Harriet.
Dryfly, a few things from a guy who lives right near Lake Harriet... you need to raise your scale buddy! The homes around "the lakes" and Minnehaha creek don't go "up to" $1 Million, they START at $1 Million for anything near the actual lakes. (you can get a nice home for $750 a few blocks away, and $350k-500k 10 blocks away). The condos around Lake Calhoun start above $1M! The homes'll be in the $3-6 Mill range!
There are certain segments of insanity in our market, which I feel is set for downturn (in this order):
1) Minneapolis north (the hood, victims of subprime)
2) far out exurban McMansions
3) new condos
4) some of the stuff right on/near the Lakes. ($3 Million condos and whatnot)
to make this on-topic: it's the people who live in #2,#3,and #4 who are considered "affluent" but who are very housepoor.
The simple reaason that those AMEX cards and similar are going delinquent is that the cardholder can no long refi the house to pay the debt. I have quite a few tax clients who have refied the house and taken cash out almost annually the last few years. Can't do that now.
Also, because of all the refi action there will be a lot more people, upper middle class people, underwater on house loans than is anticipated by the market.
"In 1933 when Roosevelt made it illegal to own gold, what happened?"
RU12 | 9:06 am
It was also illegal to hoard cash IIRC.
Mainly, lotsa gold went to Europe (illegally), which helped "reflate" the U.S. $ from $22/oz. to $35/oz, FDR & Morgenthau's target rate.
More importantly, it became difficult for private parties with gold in U.S. to get any cash for it.
Until 1972, yer net return on gold was about the same as sticking cash in a mattress for safety's sake.
That bankruptcy bill that passed congress these two years past, as I understand it, basically made it harder to get out of credit card debt than out of your mortgage- so once you're broke, you'd ditch the mortgage first, instead of the card.
And it's not even entirely a credit crisis.
The surplus of housing alone would probably be a crisis and that's entirely a problem with the real economy.
But it is not, and nor will it be over soon.
Yup.
A truly awful scenario would be a long recession.
uh huh, and what's after that?
have no fear, have no worries, Big Ben will soon send you a Platinum Plus FRB 0% credit card with instant cash back on every purchase, with no credit limit!
I can't wait for the liquidity trap to arrive
The truly big messes never are just one thing; they are usually a coincidence of several things. We have the low Fed rate, the house price bubble, the laxity of mortgage standards, the lack of due diligence by investment banks and by rating agencies, poorly thought-out 'innovative' financial instruments, astounding leverage used by hedge funds, the move to credit cards when the home equity ATM dried up...and possibly next we will have the slowdown of commercial real estate.
Some of these are inter-related, some are not or would not have to be.
I had to request that I NOT get a card upgraded to a "Signature Visa Platinum" version. First, it would have been a PITA for me to readjust all the bill payments I'd set up because the new card would have a new number.(gotta love those points! hint: redeem them for gift cards), and second, I read an article that this card bumped up the fees of the retailers (which I have some mercy for).
I'm waiting for the day where the cash vs credit pricing reappears at gas pumps and elsewhere.
I have a platinum card, so they can't be all that hard to get.
Gold. Silver. Platinum.
"Affluent customers aren't paying their credit card bills?"
Yeah, those are those middle and upper class people who were reported to not be able to afford to pay for their own legal representation a few posts back. You know, the posers.
i expect that we will soon be hearing of problems in the hedge fund world as well as unwinding in the shadow 45T derivatives mkts. now that will be interesting. we're only in the 2nd inning folks.
Gold. Silver. Platinum.
Bubbles
My Black Card is immune
I'm waiting for the day where the cash vs credit pricing reappears at gas pumps and elsewhere.
But until that day, it makes sense to put everything on your platinum card and pay it off at the end of the month. If Citi wants to lend me money at a -1 to -2% rate, I'm OK with that.
A cash discount definitely changes the equation, though.
Siv - Weird that you were talking about your ABK investment last night, and CR comes out with this post tonight. It's almost like he's trying to tell you something.
I'm waiting for the day where the cash vs credit pricing reappears at gas pumps and elsewhere.
Already here -- the Mobil directly across from NBC studios.
I have a platinum card, so they can't be all that hard to get.
They're only limited if they're AmEx; everyone else hands'em out like party favors.
CR
the entire US is subprime:
January 11 Financial Times (Francesco Guerrera, Aline van Duyn and Daniel Pimlott): The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moodys said The warning over the future of the triple-A rating granted to US government debt since it was first assessed in 1917 reflects growing concerns over the countrys ability to retain its financial and economic supremacy In its annual report on the US, Moodys signalled increased concern that rapid rises in Medicare and Medicaid would cause major fiscal pressures in years to come.
"A cash discount definitely changes the equation, though."
I get rebates on my credit card purchases. Can cash compete?
as much of financial community resists marking to mkt mortgage related derivatives and as their hopes for a NASDAQ lead recovery fade, i believe the leveraged speculating community (including market neutral and quants) are keen to short financial stocks against (now sinking) technology shares.
idoc,
Isn't this the same Moody's than threatens to downgrade the bond insurers unless they change their ways (add more capital)? Perhaps it was S&P.
No matter. I'm sure the U.S can get a capital infusion by another sovereign nation.
son of zinger
yeah they are. thats why i'm short Moody's too.
Dagnabbit, I really worry when I come across something that makes as much sense as this bit of history, and consider the source. And so early in 2007, too.
"Who knew?" becomes a scary question when the answer is, for example:
Lessons From FDR's Handling Of the Housing Crisis
for those wondering about there SRS shares here are snippets from Doug Nolands site:
anuary 9 The Wall Street Journal (Kris Hudson): A common real estate maxim states that retail development follows new housing. These days, though, retail real estate may be following the home market off a cliff. Sparked by the housing boom across the country, shopping-center and mall developers have gone on a tear in recent years, delivering millions of square feet of new space in Phoenix, San Antonio, Cleveland, Tampa, Fla., and numerous other markets. Since 2005, developers in the U.S. have produced more retail space than office space, rental apartments, warehouse space or any other commercial real estate category. But just as that new space is hitting the market, demand is declining. Mounting home foreclosures have sapped the strength of previously hot markets like Phoenix and California's Inland Empire near Los Angeles, leaving retail-property owners with rising vacancies and slower leasing rates for new space. And anemic sales gains in the just-completed holiday season fell short even of the retail industry's tepid preseason forecast.
January 7 The Wall Street Journal (Jennifer S. Forsyth): For the first time in four years, the national vacancy rate for office buildings rose in the fourth quarter, as an unusually large amount of new space came on the market and tenants shied way from signing new leases. Demand for commercial buildings has begun to slow and vacancy rates to climb in several markets Coupled with last weeks disappointing employment report, the weak office-market figures are another signal the nations economy is weakening and possibly heading for a recession. Only last summer, commercial brokers were warning tenants that they needed to sign leases quickly at top rents because space was scarce. Now businesses in many markets are delaying leasing decisions in expectation that rents will fall.
January 7 Bloomberg (Simon Packard): LaSalle Investment Management put Condor House, a seven-story office building facing Londons St. Pauls Cathedral, on the market for 130 million pounds ($256 million) six months ago. The building sold last month for about 117 million pounds Appraisal values fell at a record rate in November and commercial real estate derivatives contracts indicate owners of British offices, shopping malls and warehouses may suffer their biggest annual losses in more than a quarter century. The U.K. market is falling apart, said Peter Hobbs head of research at RREEF Real Estate, a Deutsch Bank AG unit that manages about $100 billion.
i saw an additional article last wk that talked about Canadas CMBS mkt being "vaporized" as well.
O/T but interesting is the Countrywide takieover..no ther bids, no Countrywide Press Release, no discussion on the value...its just done..like an overdone trukey you prick the skin and it sprurts while the bird falls to pieces..What movie was that ?
Mozillo was told to sit down, shut up, its not your company anymore.
So I keep digging, and find this from a politically very different position -- same conclusion, though:
Hmm.
To all bears: where's the contrarian instinct when you find nothing but doom and gloom in the main stream media?
O-Joe
OJoe,
CR's blog and most sites that give factual, accurate info are NOT MSM. CNBC, which i assume is your main source of info, is a bought and paid for bunch of shills.
the housing crisis is a slow burn issue and we bears are the contrarians.
I'm waiting for the day where the cash vs credit pricing reappears at gas pumps and elsewhere.
In my part of north Baltimore MD, it already has. It's a full 10 cents/gallon under normal retail (equal to the BP next door) if you've got cash on hand. The pumps at this chain (I pass 2 stations on my way to work each day) list 6 prices at the pump.. the credit and the cash price for each grade.
Hey OJoe
listen to this:
Bloomberg News
An optimistic scenario would be a short and shallow downturn. A second-best scenario would be for a sharp, but still short, recession.
A truly awful scenario would be a long recession.
I think one of the more important questions is whether a short deep recession is a better outcome than a long griding series of shallow recessions like the Lost Decade.
It's probably going to be a grinder.
it'll be a grinder.
Oh yeah, it'll definitely be a grinder. Even if it wasn't meant to be, the politicians will assure it is so.
mp&idoc, It's going to be more than a grinder for banks...
Idoc, I too am short Moodys. I can't read anything from the rating agencies anymore, (not wanting to risk a head explosion). I imagine I am not the only one that is ignoring their workproduct. I certainly as hell would not pay for it.
The truly big messes never are just one thing; they are usually a coincidence of several things.
That seems to relate to engineering principles:
If you don't test something frequently by subjecting it to stress, you can get a build-up of all sorts of defects in the system that set off a chain reaction of breakdowns ending in a system-wide failure the first time something that should be minor goes wrong.
We may have "engineered" the US economy for just such a systemic breakdown.
Zombie banks make the recession a painful grinder.
O-Joe,
It's a valid question. But a bear would only go contrarian after a sharp market drop that brings sentiment and valuations back in line with reality (events). That hasn't happened yet.
The market was late to recognize reality and recently it has just been tracking reality down, not getting ahead of it. Give me a fairly sharp 15% drop in the S&P and I might turn somewhat contrarian for a time, until a mild bounce-back rally. I would get out of shorts at that point and look for opportunity to get back in later. Long-run, there's a LOT more downside left.
Zombie banks make the recession a painful grinder.
Just think of all those people playing solitaire all day instead of trying to find some way to make energy cheaper, or to make...
FFDIC- "It's going to be more than a grinder for banks..."
I think we all agree on that one.
OJoe,
i'll give you this. i just went long some refineries like ALJ and FTO. i may be too early.
CR,
2.5 years ago in Silicon Valley, housing optimists said confidently that housing prices never go down. Now they say (same confidence) that housing prices in the high end of the market (roughly prices greater than $1.2 million) never go down. I didn't believe them then, and don't believe them now; if we are all subprime and this isn't a credit worthiness problem but a solvency problem, the optimists seem less persuasive than ever.
Hell, less than three months ago the top analysts, optimists all, were putting buy recommendations on Citi.
I hope everyone remembers that.
It wasn't until that cute analyst with the wrestler husband called Citi's bluff that all of them started to backpeddle.
mp
exactly. we were still hearing nothing but bullish talk up until Nov when we got that first confirmed Dow Theory Bear Signal. now we got a second with a dip below. this wk will be interesting.
Next stop: Dow 12,000.
mp
that was another in a series of telling events for me at least. ur talking about Meredith Whitney. my antennae went straight up when i heard she immediately started getting death threats from the Wall St community just for speaking her honest opinions. u know somethings wrong when that kind of sh*t happens.
I just finished "When Genius Failed" this morning and I can't help but notice parallels between the LTCM situation and the banks/hedge funds today. Overleveraged and probably undercapitalized and unable to get out of losing trades, I feel we could be very close to a cascade of falling prices and bankruptcies due to misjudging risk.
Just look at Citi and their current mad scramble for cash, could this be the same thing as LTCM and their bailout due to overnight catastrophic losses? I mean, we're talking billions of dollars here, that ain't chump change.
The thing I really worry about this time is that I doubt it's not just Citi in a bad spot, I bet it's every one of the IB's and there won't be enough foreign money to take care of the problem.
I guess we'll see, won't we?
lunatic
u got that right:
FT.com / Companies / Africa - Kuwait set to invest as Merrill seeks $4bn
this is way bigger than LTCM.
"I bet it's every one of the IB's and there won't be enough foreign money to take care of the problem."
Lunatic, you don't have to bet on that one. The pucker factor at all the IBs is VERY high right now.
The bulls will try to shake off the bears but, with sentiment being what it is, we're headed down.
even if they can raise the money from SWF's i can't see how this is good longterm for traditional US capitalism and Wall St profits. the political interference in free mkts will significantly complicate things.
If this continues,
How will it impact investments into alternative fuels?
From IDOC's link:
While few predict that investment could be blocked, one Washington attorney who works on cross-border transactions says he believed minority investments could become subject to reviews by the inter-agency Committee on Foreign Investment in the US (Cfius)that investigates foreign takeover of US assets.
It is one thing if you have one or two of these smallish deals, the attorney says. It is quite another thing, when institutions are being propped up by a bunch of investors, all from the same three states.
Conjure Bag says, "Get ready, baby, there's going to be a LOT more of it."
Shallow recession, deep recession, short downturn, long recession? Why is everyone afraid to use the word "depression" and consider that we may experience a depression?
If this continues,
How will it impact investments into alternative fuels?
Ack | 01.14.08 - 12:02 am | #
It will accelerate the only 'alt fuel' that really matters - conservation. Especially when folks don't have money to buy fossil fuels.
But that probably wasn't what you wanted to hear.
Fridays downdraft was very interesting in that some technicians expected a continuation from Wed rally thru to the end of this next wk when we get a phi mate turn date 1/18. this represents a Fibonnacci number of trading days from Jan 2000 top in the mkt. this was supposed to be an expected Elliott Wave countertrend rally to the overall correction we're in as predicted by the Dow Theory.
does Fridays downdraft portend a continuation of the drop against this prediction (like a mkt crash?). Doug Noland says we came very close to a crisis last Wed as CDS spreads blew out generally on the CFC BK rumor. were the BAC buyout and BB "substantial" assurances orchestrated to save the mkt? i would say yes.
What will happen to the widows and orphans? Wait a min, I know some of them and they gave their money to wall st....What should I tell them?
Oh wait, I got it, I'll tell them to wait for the helicopters! Just like in New Orleans!!
"It will accelerate the only 'alt fuel' that really matters - conservation."
Amen, Dryfly.
dryfly
my sister works for bremer bank in fargo. she told me over the holidays that they have cut their lending across the board due to the giant wave of FCs in minneapolis area. credit crunch hitting fargo
now if you want a loan for a new snowmobile, she might be able to help...
so if your bank where you deposited some dough into a cd...if it fails, how do you get your money back thru' fdic. how soon? do you get any of your interest (accrued??) too???
thanks
We may have "engineered" the US economy for just such a systemic breakdown.
No "may" about it.
Fargo? man that was one weird movie.
"Fargo? man that was one weird movie."
Conjure loves that movie. It's his all-time favorite next to Duck Tales.
poor USD. gold to the moon.
FT.com / Financials - Saudis urged to revalue riyal
INteresting concept about having re-engineered the system for increased prospect of blowout.
If I look at a schematic of this new and improved system, where will I find the squirrel in the wheel and the boiling teakettle?
And did Rubin Goldberg have much of a hand in the design?
With Bernanke promising lower rates and ponies, Conjure and I are bullish on the euro.
Ojoe,
oh yeah. i forgot to mention that i'm long junior gold miners. does that make u happy?
idioc
You've hit the nail on the head! The market internal structure has broken down. Right now all the technical traders are expecting a sharp clearing rally. At the same time the banks will be coming to the confessional with the governments of China, Singapore and the Sheikhs in tow. The problem for the banks is that they really don't know the extent of the losses and they can't "over-reserve". We've got another around of resets coming in this quarter for homeowners. Then there is counter-party risk issue that has yet to break. ACA, MBI & ABK have to raise significant capital over the next few weeks and even if they do its only a matter of time before folks need to deal with the fact they are not good for their end of the deal. Then we've got many leveraged corporates with debt structures put in place for stock buybacks, LBOs, etc when their cash flows going forward will get squeezed. Add delinquencies on credit card receivables. So the banks will have to keep coming to the confessional each quarter as all these shoes keep dropping. How long will the government of Singapore & China and the Sheikhs keep pouring in capital? Until they are the majority owners of American financial institutions? What happens when the demagogues then get into their act? Dubai ports anyone!
Its not a good strategy to catch a falling knife! I think we will see a rather similar pattern in the markets this time compared to the dot bomb era except this time the US consumer is basically tapped out. When we see panic in the streets with some big names on th verge of bankruptcy that may be the time to go long - and wait a while for the recovery. IMO, the recovery from the excesses of this credit bubble will be long and arduous.
how dare u call me an idioc!
malabar, I think that's a very nice summary. Bravo!
When we see panic in the streets with some big names on th verge of bankruptcy that may be the time to go long -malabar
see Ojoe!!! we're really all bulls!!!
my sister works for bremer bank in fargo. she told me over the holidays that they have cut their lending across the board due to the giant wave of FCs in minneapolis area. credit crunch hitting fargo
now if you want a loan for a new snowmobile, she might be able to help...
Mpls is teetering... early in 2007 only one zip had a lot of FC (only local zip with enough FC to make top 500 nationally)... and that was in Mpls 'North' - a previous 'red line' neighborhood where predatory lenders found happy hunting..
But I KNOW there will be a lot more... I was looking at the MLS for S Minneapolis near Minnehaha Creek & 'the lakes' and was stunned by all the outrageously expensive property being offered... up to a million dollars for some. That might fly in Cali but not won't cut it among most of my peers.
When I saw those I told my buddies we too are due for a fall.
The difference though between Minnie & Cali is that 30-50 minutes away are a glut of homes in the $100K to $200K range. People just have to decide they want to live in Farmington instead of near Lake Harriet.
Conjure loves that movie. It's his all-time favorite next to Duck Tales.
mp | 01.14.08 - 12:15 am | #
Tell conjure dryfly inherited a wood chipper from his late father - that and a pistol. I'm sure he'll approve.
The BKs are coming, no doubt, but what I have to wonder about is which one kicks over the CDS hornet's nest. Then we might just see what "counterparty risk" and "systemic risk" really mean.
The BKs are coming, no doubt, but what I have to wonder about is which one kicks over the CDS hornet's nest.
As malabar pointed out, I would be culling the list of recent LBOs as flame-out candidates.
mp,
Not looking for investment opportunities; I want an idea of when to head for the hills!
"Tell conjure dryfly inherited a wood chipper from his late father - that and a pistol. I'm sure he'll approve."
Conjure is rolling around on the floor, laughing hystically.
We non-engineers, ac, use the analogy 'house of cards.'
mp, no stop at 12,000, I think; I expect that we'll just be waving as we crash on by.
awgee, I'm in for use of 'depression,' 'cause that's what our all-time high household debt-to-income and unusually low interest rates -- now rising -- guarantee.
tj
i saw your Q earlier in the day about covering to try and pick the next top as Rich has advised. after Fridays down move i've decided to hold as i've done over the last yr as i think we're headed down further and i'm not confident in picking the next top. this strategy has paid off handsomely but i know one day i'll need to start moving in and out more regularly as we near the bottom. when that will be is anyones guess.
Hystically? No, hystericly.
Nikkei down 277. i keep waiting for the day it'll drop 800 like back in Aug. but then again, good ol' Ben cut the discount rate 0.5 pts the day after which cost me a sh*tload.
idoc,
Thanks. FTR, I don't think either of us will have to worry about a bottom any time soon.
idoc,
You do realize that's Friday's number?
Hey, now, being born in Fargo was not my idea. I'm upset you all associate my birthplace with woodchippers and excessive northern accents! What about the great lefsa and rummegrot?
Oh yeah some more anecdotes, my gparents live on a lake in central minnesota near detroit lakes. They seem to think all the people buying summer cabins (tear downs) near them are equity locusts with local ties who decide to move back and build year rounders for retirement homes.
tj, I'm with you: I'm guessing that the meaning of 'systemic risk' and 'counterparty risk' will become known to all, soon (later this year or in 2009, at the latest).
Larry Summers, smart guy and ex-President of Harvard, recently quoted a U. of Chicago professor that he held in high esteem. Words to the effect that, in economics, the trip point takes longer to reach than you would think, but once you hit the trip point, things move faster than you would have guessed.
We are moving smartly towards the trip point.
tj
expect more short vicious rallies like early Dec. we also might get one right now but after that down.
jg- "the meaning of 'systemic risk' and 'counterparty risk' will become known to all, soon (later this year or in 2009, at the latest)."
Yes. Conjure and I agree with that.
If we posit that the current mess is the end result of the last 'fiscal stimulus package', why does anyone think more of the same is going to change anything?
Worse, this adminsitration has DOUBLED the national debt in just seven years, which is to say they have spent more in seven years than all 42 previous administrations combined!
Um, can anyone point to what we have to show for the 5 trillion dollars they pissed away?
Once upon a time, a hundred billion dollars was a lot of money but now is merely represents a fifth of what these idiots have sunk into that 'Black Hole' over in the Middle East.
Again, once upon a time, war was good business...where are the positive economic effects of the half a trillion dollars they've spent on the 'war' so far?
Which is the stunning question we don't have an answer for...5 trillion dollars in 7 years and our economy is in shambles...does anyone honestly think throwing more money at the situation will turn things around?
idoc,
Can you give me specific dates & times? That'd be so much more useful!
since CR has been neglecting his daily Markit responsibilities i thought i'd pt out Fridays corporate defaultometer blowout:
Markit Homepage
idoc
Apologies, dude! I'm not known for my typing skills
Gegner- "does anyone honestly think throwing more money at the situation will turn things around?"
But, we'll get lower rates, another BUBBLE, and PONIES!
tj
talk to Conjure. he's got the stopwatch.
Conjure Clock
11:59:01
Again, once upon a time, war was good business...where are the positive economic effects of the half a trillion dollars they've spent on the 'war' so far?-Gegner
Bush-"u mean Irag wasn't enough? ok, we'll bomb Iran then."
is that a good enuf stimulus package for u?
A grinder...hmm, I think not. A hoagie, perhaps, or a submarine. Not a grinder. Those are heated, and this S&^T sandwich is going to be served cold.
so what happens when the conjure clock hits noon? do we all go outside and burn some more $?
I usually check the nikkei, but i just found out they are on holiday today.
my fave terms for the year are double dip, liquidity trap, and fat tails!
When does recesssion balance out peak oil in the crude markets?
Is there a US traded ETF for the nifty-fifty Indian stocks? Emerging markets are another unwind waiting to happen!
I see several folks here talk about shorting the gold mining stocks. While I lean towards the deflationists camp, and while I think gold might suffer with all other assets, I say beware shorting the mining stocks... It feels like the "next bubble" is forming in gold, whether it's irrational or not. We've seen how far irrational bubbles can run (tech, housing). Watch out!
Stinky, if you want to know what happens if the Conjure Clock hits noon, reads "Grapes of Wrath."
tj
thx for the heads up on the Nikkei. i don't celebrate Japanese holidays.
For whatever it's worth, Conjure and I stay away from gold. It's too kinky.
mp, I live in Oklahoma. They fed us that when we were little epsilons.
Just when I thought Conjure couldn't get any weirder... Duck Tales!? Bravo on the weird reference, BTW! I can't say I share his opinion on Fargo, but I feel him on Duck Tales!
Well, stinky, it may come to pass:
'We're all Okies now.'
Kind of like 'We're all subprime now.
Campbeln, Conjure feels your pain.
O-Joe,
It seems to me that momentum investors make money until a turning point is reached and sentiment changes. Contrarian investors make money precisely when (and after) a turning point is reached, at which point all other investors begin to see things their way.
ShortCourage
Good point. Unless one is a nimble and experienced trader I would not recommend tangling with gold on the short side. Sure there will be corrections but its primary trend is bullish. And as long as CBs believe the answer to all economic problems is rate cuts and purchase of any collateral and governments think there's nothing else but stimulus packages there's going to be a constituency for gold!
The last time gold collapsed Volker was at the helm and we then had a multi-decade secular bull market in bonds. Yields were in their teens not low single digits as we have now.
grinder.
-K
The American Express Gold Card: Don't Walk Away From Your Home Without It. (tm)
Gold will be a bubble, but it's far from there yet.
Buying puts on miners to play a brief correction? Could be lucrative, but that's a game for someone with a lot more money than I have.
"Buying puts on miners to play a brief correction?"
No, thanks. There are too many easy pickings out there to screw with something like that.
Contrarian investors make money precisely when (and after) a turning point is reached, at which point all other investors begin to see things their way.
ShortCourage
Contrarian investing is NOT about doing the opposite of what the crowd does.. No, no, no. The trend is STILL your friend. and face it you need other people to join your side - if the masses are on the other side you STILL lose.
Contrarian investing is taking the side that you bet the masses will take, then STAY with that position, making money with the masses, just more of it since you got there earlier and then get off the trend when you see its exhausting but other don't. The key is analysis off your own todd, explicitly fighting off the herd instinct - but you STILL need the herd to join you later and you must STAY with the herd for quite a while. The trend is STILL your friend - even in contrarian investing.
Here endeth the lesson.
-K
By the way, stinky, et al, Conjure and I are still of the opinion that a meltdown is avoidable.
However, the window of opportunity for preventing it is closing quickly.
sk,
You just made the case for gold!
sk,
That's an interesting way to view it.
I think of contrarian investing as recognizing when markets are placing too much (or too little) value on something, and knowing that the value of those assets will eventually come back to what is supported by fundamentals. The herd only comes back to realize the fundamental value of the assets because of, well, the fundamentals!
In a recession, refinery margins will continue to be under pressure. With worries over gasoline demand, there is no way retail prices increase this summer. This assumes crude prices remain unchanged from current levels.
mp,
You're arguments about transparency, regulation, etc. are all spot on, but they don't do anything to resolve record personal, corporate & public debt levels that are increasingly unsecured. How can the consequences of those be avoided?
mp, i was kind of ribbing you about the noon o'clock thing. what happens when the clock strikes midnight?
all of my eggs are in (oklahoma university town) real estate and foreign currency. I just worry about my siblings who give their eggs over to Edward Jones and don't like to think on the matter.
gas prices are increasing now:
U.S. Retail Gasoline Prices
in the absence of gov't regulation, gas prices will only increase as peak oil asserts itself.
good nite all!
idoc,
FYI, futures have declined from +.25% to just about even the past hour or so.
tj- "How can the consequences of those be avoided?"
Not to sound trite, but a massive federal program would be necessary to refinance those who could make it, and cut loose the rest. And by "those" I mean personal, corporate, etc.
We have the technology and could do it a lot faster than it was done during the New Deal.
stinky- "what happens when the clock strikes midnight?"
stinky, the clock will only make it to noon, then it melts down.
Doesn't "massive federal program" scream monetization? Wouldn't that instantly destroy the dollar??
The dollar will be destroyed if you don't. We're between the Devil and the deep blue sea here.
Gold is so wacky that even Casey Serin was able to clear $10,000 on his hail-mary GSPG buy (from his shell corp's credit no less) from last spring.
Assuming he didn't sell when it was down 50%.
As for O Joe, just because all the news is bad doesn't mean the contrarian voice is right.
Reality is what it is. The past six-seven years' stellar growth numbers (ha-ha) were built on borrowed money, not wise investments in productive capacity or social capital.
After the binge comes the purge.
Having lived in Japan 1992-2000 I know what to expect somewhat; details are going to be different here due to the major differences in household income, population growth, consumerism, consumer sector efficiencies.
IMO dotcoms and significantly lower energy prices were responsible for the 90s boom. Five trillion of consumer borrowing was responsible for the 00s boom.
The 2010s features federal budget crises, medicare blowups, and towards the end the SSTF going revenue-negative by design.
tj, at the end of the day it's all about confidence. It's all about making people want to believe.
If the Fed can demonstrate that they recognize the problem and are dealing with it in a purposeful way, they can restore confidence--and credit.
My point exactly -- damned if you do, damned if you don't. Doesn't sound "avoidable" to me. Got anything more?
tj, you've got a 'thing' about monetization. Who cares whether it's monetized or not as long the game keeps going? After all, IT'S ALL ABOUT THE GAME.
ow if the FRB would mark their 'inflation expectations' models to market then we wouldn't have stories like this :
"Jan. 14 (Bloomberg) -- Just because oil trades above $100 a barrel, gold fetches more than $900 an ounce and U.S. consumer prices climb at the fastest rate in two years, now is not the time to buy U.S. government securities protected from inflation."
Oil, Gold Show Inflation; TIPS Traders Say Forget It (Update2) - Bloomberg.com
who whudda thunk?
mp,
Agreed that psychology is the key to any way out, and this time it'll take convincing the whole world (since they're our suppliers and creditors).
Nonetheless, you're only talking about housing, and that's just the tip of the proverbial iceberg. What about everything else that's unsustainable?
One additional thought. If this economy does implode, the first thing the government will do is make it illegal to own gold, and they will confiscate it if they know you hold it, just like they did in the 30s.
Why? Because they don't want you to decide that glass beads or coon pelts are worth more than a Federal Reserve Note. It's all about THE GAME.
mp,
Isn't THE GAME the problem? Everything since 2001 has been about keeping THE GAME going. Sustainability involves ending the game and rejoining reality.
tj- "psychology is the key to any way out"
tj, brother, it is the ONLY way out. It is about "In God We Trust." It really is as simple as that.
If you don't their hearts and minds, it all falls apart.
tj- Isn't THE GAME the problem?
tj, THE GAME has been going on in one form or another for at least 10,000 years. As Conjure says, "It's the same old GAME. Do you BELIEVE?"
mp said "the clock will only make it to noon, then it melts down"
I hope the Conjure Bag clock is made of platinum
Naw... a gold Conjure Bag clock would do just fine (as it'll ding before the gold bubble pops
Just be sure to sell it's resulting bullion quick!
We're talking in circles here.
Yes, there's that game, and that game starts and ends, then starts over again.
Some people call those Long Waves, K Waves, or even EW super-cycles. IMO we're near the end of this game and the start of the next. The board must be cleared for the new game to start, and THAT is unavoidable.
By the way, the insurers and the banks are, relatively speaking, easy problems to solve. The BIG PROBLEM is HOUSING and PERSONAL CREDIT.
tj- "The board must be cleared for the new game to start, and THAT is unavoidable."
If you believe that, you and dotcommunist have a lot to talk about.
BB will only create more world wide inflation:
We cannot live with a euro at this level with three other currencies which are weak,'' France's European Affairs Minister Jean-Pierre Jouyet said in a Jan. 12 interview in Malta. He was referring to the yuan, the yen and the dollar. Italian Prime Minister Romano Prodi told reporters a day earlier thateverybody is concerned'' over the appreciation.
``We cannot live with a euro at this level with three other currencies which are weak,'' France's European Affairs Minister Jean-Pierre Jouyet said in a Jan. 12 interview in Malta.
Conjure and I remain bullish on the euro. Having said that, if this thing does melt, it's just assumed that we're going to have a new international monetary system. Everyone knows that, right?
mp,
Isn't quite as dire as you'd think. I picture it as essentially a national chapter 13 bankruptcy.
mp,
BTW, have you read "America's Bubble Economy"?
America’s Bubble Economy - Profit When it Pops
have you read "America's Bubble Economy"?
no, tj, I haven't. Should I?
Lots of confirmation bias, if you're into that.
tj- I picture it as essentially a national chapter 13 bankruptcy.
I hope you don't mean like the Ottoman Empire.
CONJURE AND I WOULD LIKE TO RE-ITERATE FOR ALL THE LURKERS OUT THERE THAT WE THINK A 'MELTDOWN' IS EMMINENTLY AVOIDABLE IF THE FED ACTS PURPOSEFULLY TO PREVENT IT.
O-Joe,
I used to be an optimist, but my mood darkened significantly in 2005. That year, several friends and collegues left their engineering jobs and went to work in financial services. One quit his job at a packaging machinery firm, got an MBA (on borrowed money) and went to work at Nat City selling some (now probably worthless) pieces of paper. Another friend quit his job at an industrial coatings company to be a mortgage broker. These people weren't starving; they were making good money as engineers. However, they were seduced by "easy money". Designing stuff is really hard; selling some ignorant (or greedy) fool a loan is easy.
That's when I realized that the entire boom was a sham. Say what you will about the "dot bomb", but a lot of real wealth was created in the nineties. Entire industries were created from scratch, or rose to prominence during the last decade. Internet is the most obvious example, but let's not forget Biotech and wireless telecommunications (in 1989, cells phones were a novelty. By 1999, they were ubiquitous). The infrastrucutre buildout alone created millions of jobs: server farms, cell phone towers, fiber optic networks, labs, etc.
What have we created in the last 8 years? McMansions, casinos (every F****** city and county is building one simultaneously to solve their economic problems), shopping malls and fly by night financial services companies. The vast misallocation of resources were have witnessed in the past decade will unwind, and the collateral damage will be immense. I am not happy about it, but, as Maggy Thatcher would say, "There is no alternative".
Deflation may be coming, but not in the guise you expect. Fiat money is inflating, while real money is now deflating. Real money is gold and silver and these are deflating right now. I.e. they are increasing in purchase power, while fiat money is losing purchase power.
A credit collapse does not destroy real money; it destroys fake money--credit. Fiat money, of course, is no more than gov't credit, issued by the Fed and leveraged up by banks.
Heh heh... no. Was that a CB comment?
Hey, y'all, this has been informative and entertaining, but Conjure and I are expecting some action in the morning, so we've got to be alert enough to push the right buttons.
We'll leave it to you guys to figure out the fiat money thingy.
Good Luck.
mp,
BTW, maybe we need to discriminate between a financial meltdown and an economic depression. I do believe a financial meltdown can be avoided, I just don't believe that'll prevent a severe and protracted economic contraction.
Does that help?
tj- Does that help?
IF the Fed doesn't act decisively, that's certainly a possible scenario, sure.
A credit collapse does not destroy real money; it destroys fake money--credit. Fiat money, of course, is no more than gov't credit, issued by the Fed and leveraged up by banks. - unirealist
Mish, is that you?
idoc,
Re: hedge funds and second inning?
Did you notice that Bernanke did not even mention hedge funds in his Thursday speech about how the financial markests encountered turmoil in August and Nov-Dec?
Bill Slowsky:
"and/or... duuuhhhh"
even if they can raise the money from SWF's i can't see how this is good longterm for traditional US capitalism and Wall St profits. the political interference in free mkts will significantly complicate things.
If IBs look to being going bust and can't get more infusions from SWF, I would expect that the US Treas would propose to nationalize them, at least for a while. Hasn't that been one of the solutions for Northern Rock in the UK? This makes it hilarious to watch the Congress "investigate" SWFs, worrying that they might introduce governments in our capitalist system.
What are the chances of the Fed creating inflation to limit chances of deflation?
BTW: The LA Times has a good piece regarding the "new bubble-prone economy" starring the housing market.
Why this downturn may be no run-of-the-mill recession - Los Angeles Times
The growth of the housing bubble is clear in a chart published by Yale economist Robert J. Shiller in 2006. It contains an index of U.S. housing prices going back to 1890. The chart, which set the 1890 benchmark at 100, showed that prices fell only about 30 index points during the Great Depression and rose only about 40 points during the giant postwar housing boom. In the decade after the late 1990s, however, the index jumped 100 points.
"If I were the Fed, I'd think twice about continuing to say we can't identify bubbles," Makin said. Given the threat now posed by sagging house prices, the sub-prime mess and a more general financial constriction, "we'd better work harder learning how to identify bubbles and preempt them."
I see it as the US has a major debt bubble that needs to be unwound and it could take years of recessionary conditions to work it out, like Japan or 1930s America. They were able to keep the bubble going by inflating housing but they have run out of assets to inflate and here comes the reckoning.
sK's take on contrarian investing (1:16am) perfectly expresses my own. I couldn't improve it even on one of my rare lucid days.
Oh. Look at the yen/dollar.
INO Foreign Exchange - US Dollar/Japanese Yen (FOREX:USDJPY) Price Chart and Quote
There's nothing wrong with a white beard. But it lacks credibility to have a white beard and black hair.
Most Americans don't trust it.
If we're going to avoid deep recession, Bernanke needs a makeover.
Can someone explain this:
"cost effective means to change from an option ARM to a less costly financing alternative" and ..."modify their loans into 5-year hybrid ARMs or ARMs with interest rates that adjust annually but do not permit negative amortization"
this seems like a contradiction.
Expired
My understanding of the vast utility of the Great Depression is that both the under, middle and affluent classes got whacked and thus became allies.
During the last generation, the GOP was able to destroy this alliance.
Keep in mind, that the only thing that kept the affluent classes whole in the last 5 years especially and generally in the last 20 is that instead of having to reduce their income as the wages of the lower classes stagnated, they could take credit cards and lately the cash from the cash out ATM and put the credit risk on others. So as the lower classes went to hell in a hand basket, the affluent did not notice and even could charge more for their services.
In times past, they would have been more immediately affected as their bad debts ballooned or income dropped as the income of their customers fell. This time was different. And the GOP prospered.
When the last measure of liquidity for the lower classes ends, Credit Cards to my knowledge, then income to the affluent will dive. Worst they will have no advance warning as in the past, with income starting to drop and bad debts starting to pile up, but it will be a cliff as the Credit supplies just dry up affecting millions at a time.
DSL had $493.6 million of its $13.54 billion in total assets in Nov counted as nonperforming. This was 3.65%.
Because of accounting change they now grow NPA by $99M to about $600M - this should have come out around 4.6% of their total (declining) asset base.
But it came out as 7.18% ....
which means that 2.48% (at least) were added last month w/o the accounting change.
Think about it - a jump from 3.65% to 6.13% in one month....
I'm waiting for the day where the cash vs credit pricing reappears at gas pumps and elsewhere.
Oh it has. I know several stations in south Georgia (Citgo branded) that advertise a big cash price on the sign out front, but when you pull up to the pump, there is a decal that indicates a surcharge (4% ?) per gallon from CC purchases.
Besides that, just about every truck stop I know of adverts the truck diesel prices in cash. Presumably the CC prices are higher.
I was looking at the MLS for S Minneapolis near Minnehaha Creek & 'the lakes' and was stunned by all the outrageously expensive property being offered... up to a million dollars for some. That might fly in Cali but not won't cut it among most of my peers.
When I saw those I told my buddies we too are due for a fall.
The difference though between Minnie & Cali is that 30-50 minutes away are a glut of homes in the $100K to $200K range. People just have to decide they want to live in Farmington instead of near Lake Harriet.
Dryfly, a few things from a guy who lives right near Lake Harriet... you need to raise your scale buddy! The homes around "the lakes" and Minnehaha creek don't go "up to" $1 Million, they START at $1 Million for anything near the actual lakes. (you can get a nice home for $750 a few blocks away, and $350k-500k 10 blocks away). The condos around Lake Calhoun start above $1M! The homes'll be in the $3-6 Mill range!
There are certain segments of insanity in our market, which I feel is set for downturn (in this order):
1) Minneapolis north (the hood, victims of subprime)
2) far out exurban McMansions
3) new condos
4) some of the stuff right on/near the Lakes. ($3 Million condos and whatnot)
to make this on-topic: it's the people who live in #2,#3,and #4 who are considered "affluent" but who are very housepoor.
In 1933 when Roosevelt made it illegal to own gold, what happened? Did people actually turn it in? How could the government go about confiscating it?
Fargo? It's a fine movie, but I prefer the OTHER movie with Frances Mcdormnd that came out in 1996: Lone Star
The simple reaason that those AMEX cards and similar are going delinquent is that the cardholder can no long refi the house to pay the debt. I have quite a few tax clients who have refied the house and taken cash out almost annually the last few years. Can't do that now.
Also, because of all the refi action there will be a lot more people, upper middle class people, underwater on house loans than is anticipated by the market.
"In 1933 when Roosevelt made it illegal to own gold, what happened?"
RU12 | 9:06 am
It was also illegal to hoard cash IIRC.
Mainly, lotsa gold went to Europe (illegally), which helped "reflate" the U.S. $ from $22/oz. to $35/oz, FDR & Morgenthau's target rate.
More importantly, it became difficult for private parties with gold in U.S. to get any cash for it.
Until 1972, yer net return on gold was about the same as sticking cash in a mattress for safety's sake.
Hmmm....
That bankruptcy bill that passed congress these two years past, as I understand it, basically made it harder to get out of credit card debt than out of your mortgage- so once you're broke, you'd ditch the mortgage first, instead of the card.
and today, here we are.