If the DOW breaks below its current support of 12800, stocks will plummet. The NIKKEI is also at key 14000 support. As the financial stress deepens, protect yourself with physical gold and silver only.
--
"The strong investment in non-residential structures has been one of the keys to avoiding recession through Q3 2007. Now that commercial real estate appears to be slumping, it looks like non-residential investment will slump too - putting the economy into recession."
Hello CR,
I have been saying it for at least 3 months that CRE is coincident to lagging indictaor of the economy. Do you agree or disagree?
The economy has been in recession for 3 months and that is also when CRE started to roll over. More on the recession confirmation parade...
Looks like one by one many are falling in line to confirm the recession that has been here for 2-3 months. Sadly, they all forecast recession after it has already begun. All the y can do is to confirm it; never being able to forecast several months ahead of time. Who wants to run the risk of being early or wrong?
Economists exist to make weather forecasters look good!
Jas
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David Rosenberg, Merrill Lynch; 01/07/08:
Employment report suggests a recession has arrived
Fridays employment report confirmed our suspicions that the economy was transitioning into an official recession towards the end of last year:
1.At no time in the past sixty years has the unemployment rate risen 60 basis points (50 bps is the actual cutoff) from the cycle low without the economy slipping into recession, and here we now have the jobless rate hitting 5% in December versus the March/07 trough of 4.4%.
2.Aggregate hours worked in the economy contracted at a 0.4% annual rate in 4Q, and this comes on the heels of a 0.6% decline in 3Q. Back-to-back declines in total hours worked have always been associated with recession.
3.The breadth of the report was also very poor with the diffusion index slipping below the 50 cutoff mark, just like ISM, to 48.4% from 52.2% in November. A number below 50 indicates that a plurality of industries are now in the process of cutting jobs outright heading into the last recession, this index fell below 50 in February 2001 and the recession began exactly one month later.
4.The level of unemployment is up 13% YoY, again a development that has always been consistent with past recessions. The YoY rate of change in the level of the unemployed who have been idle for at least 15 weeks is particularly ominous +20%, which is a pace that prevailed in the early stages of prior economic downturns (hitting this trend in April/01 and in Aug/90 when the recessions were one-month old).
5.And we have Household Employment contracting 49,000 in 4Q and the YoY trend slowing to +0.2% in December from +2.2% a year ago, another classic recession signal. Consider for a second that in March of 2001 that trend was running at +0.8%, and in July of 1990 the pace was +1.1% those two months represented the onset of a technical recession and yet the trend in Household jobs is weaker now than it was then.
In sum, Fridays employment report strongly suggest
The chain-of-events for the severe slump in CRE has already begun. No stopping the inevitable now. Overbuilding, low cap rates, and excessive risk-taking, occur at the top of every cycle. On the downside, pain ensues. With a looming economic train wreck, it will be interesting to see how far CRE falls.
I wish haloscan would put poster names at the top instead of the bottom. That way, I wouldn't have to slog through posts and then discover who it was from.
Obviously the fall in nonresidential investment was related to the bursting of the stock market bubble.
I think that bubble only burst about halfway and was salvaged by continued consumer spending and the emergence of the housing bubble amidst Greenspan's 1% interest rate extravaganza.
I think a comprehensive bursting might have taken the S&P 500 closer to 400 (maybe lower).
I also think the economy today would be much better off if that had happened.
I believe the much lauded "soft landing" in the mid 90s was, in retrospect, the first warning sign -- the economic cycle had skipped a heartbeat.
Nice jas,
just make sure you don't have any super glue on your hands as you pat yourself on the back... you'd look kinda funny, especially as you tried with the other hand.
thanks CR for the detailed analysis. your site is the best. I accept your argument, and you have made your case well. So now i'm thinking how do we repair our economy?
We've analyzed how RE was the next big thing after the dot com / dow bust.
And many have said after RE and "creative" banking nonsense, CDOs , hedge funds, CDS and the likes, there's not much if anything left to help us re-flate.
I wonder if...if the federal government, (not this administration certainly, but the next) might try to implement a huge public works system to rejuvenate the domestic economy?
i'm thinking massive alternative energy generation...like hydro was during our grandparents youth, or the interstate system that Pres Eisenhower started.
This time, what?...tides, wind, solar and nuclear to gen huge quantities of electricity and power alternative transportation systems???
a new Manhattan project (and an investment opportunity)
I was watching CNBC (yeah yeah I know) and people brought up the fact that govt could stimulate spending... someone else also alluded to this (I think it was dryfly perhaps?)
could we avert recession if we gave an immediate extra cash refund of $1,000 as example to every taxpayer? it would be a shot of adrenaline no?
or if we ramped up public works projects or healthcare/govt jobs?
some of this would never happen in a lame duck election year... but some is feasible.
who could vote against medical programs for kids? or a tax rebate to the MIDDLE class?
I'd be interested to see what the govt/fed response was in the 10 of 13 recessions to see if this was implemented and failed, or not attempted.
Jas,
It makes for better reading and a less hostile atmosphere, if you write "I disagree" rather that "CR is wrong." By the way, I generally agree with your negative view on CR and RR. I must emphasize "generally," though. Take a few deep breaths...
Based on the run-up in house prices, I would have thought the increases in residential construction since 2000 would have been much greater. They actually look tame compared to the past.
Is it possible all the investment (money) got tied up in raw land??? Something has to explain the massive debt being carried by the public home builders.
Nice graphs CR. It looks like, even w/ the 5-month shift, that CRE got a late start this time. This likely means they tried to make up for lost time and/or there were more mega-projects in the pipeline. This may result in a later and larger momentum unwind at the end of the CRE cycle, lengthening the recession IMO.
--
"...if you write "I disagree" rather that "CR is wrong."
Sorry, I prefer to be truthful as to what I think or "feel." If I believe that CR is wrong I would simply say so and no offense of any kind is intended. We are all big boys here and not here to boost egos, are we?
CR has a terrible problem with figuring out, and factoring in, the downturns in the economy; as do most MSM economists. He is better than MSM but has a long ways to go to take some risks in forecasting. What good is a weather forecast of a storm after it is here already? That is what the problem is.
CR likes to build in the downturns in his analysis after they are confirmed. I admit to being early, but seeing troubles early is far better than seeing them after the fact.
"I wish haloscan would put poster names at the top instead of the bottom. That way, I wouldn't have to slog through posts and then discover who it was from."
Do what I do; keep haloscan's window big (top to bottom of screen). If a post fills the whole window and goes beyond, scroll down to the end and check the poster name. Then you can either scroll back and read, or scroll on to the next message. A little extra effort, but it saves a lot of time.
could we avert recession if we gave an immediate extra cash refund of $1,000 as example to every taxpayer? it would be a shot of adrenaline no?
or if we ramped up public works projects or healthcare/govt jobs?
It seems to me that any long-term plan to get rid of recessions would also require getting rid of our free market economy.
Bascially, individuals and individual businesses can't be allowed to have free will because the leads to the business cycle, which leads to unlucky politicans getting thrown out of office during the down cycles.
So if that works, should we get rid of free market capitalism?
While I think removing economic freedoms might work to some extent to iron out the business cycle, I also think it would greatly limit our growth potential by making the economy far less dynamic and not capitalizing on innate human desires. Plus personally I wouldn't want to live in that type of economy.
I think the proper question is not whether we can avoid recessions, but whether we should avoid recessions.
If recessions are a necessary evil then (like the occasional forest fire, for example) then it becomes more a matter of educating people on the matter so it doesn't cause a panic among politicians to do something monetarily and fiscally stupid every time a minor recession looms on the horizon.
well you know it is spooky that almost on the day the administration realizes they may not be able to stop the economy from going negative, they're suddenly trumpeting that their warships are getting scared by iranians in acts of obvious provocation. Now that might really be the case ... but the US hasn't a great track record where it comes to exaggerating excuses for invasion so excuse me if I'm not ready to believe it.
I wish haloscan would put poster names at the top instead of the bottom. That way, I wouldn't have to slog through posts and then discover who it was from.
turd blossom
turd blossom,
I hope that you are not offended by some of the handles posters have chosen. I agree that some are over the top.
Spot on regarding recessions. I don't mind recessions. They are inevitable.
Its the foolish tinkering with the economy and the inane belief that inflation actually is necessary that infuriates me.
To me, stable prices mean a flat or falling CPI, not a controlled increase. The amount of effort that our country expends on beating inflation is mind boggling.
"Over the next two years, we ... face an unprecedented wave of 1.8 million subprime mortgage resets, raising the potential of a market failure," Paulson said in prepared remarks for a speech to be delivered Monday afternoon.
By creating the rate-freeze plan, the Administration is helping to prevent avoidable foreclosures and safeguard neighborhoods and communities, Paulson said.
I don't support the idea of tax cuts, or refunds etc at this time because it is likely the consumer will parlay this cash infusion into even greater consumption expenditures.
we need investment expenditures...energy infrastructure development provides that kind stimulus, and the added bonus of a move towards geopolitical energy independence.
by the way i recall much of the previous wave of tax cuts went off shore or spurred speculation rather than developing domestic production capacity...that's why the government awarding a contract to say, Bechtel to build a dam (an old fashion example) is more likely to ensure real investment in our domestic economy takes place.
CR, I must protest at your shameless lack of spin.
If you don't report it, it didn't happen! Why do you want the US to be in a recession? Are you un-American?
shakes cobwebs from head
Yeah, well, sorry about that.
Have the cyclical patterns of investment ever correlated well with FFR movements, with any imposed lag? I'm interested to see if any of the conclusions of Fed abolishment would have a significant effect on actual dollars.
By creating the rate-freeze plan, the Administration is helping to prevent avoidable foreclosures and safeguard neighborhoods and communities, Paulson said.
If they want to throw money at housing, fine. I'm not really against it.
But do it by raising taxes so people understand the costs. Quit trying to hide from accountability at every step by using excessive deficits to sweep the costs under the rug until some future politician is forced to raise taxes or devalue the dollar (stealth taxation) once you're long gone.
Everybody's willing to destroy wealth tomorrow to be Mr. Popular today.
At least we're beginning to finally to see the costs.
By market failure, does Poulson mean a complete systemic breakdown in the system?
If so, that makes two public figures (Krugman) in the last month quantifying the possibility of a complete collapse of the financial system possibly resulitng in a reset of the global currencies and banking system.
I am starting to believe that if any of the big global banks goes under, subsequently followed by another, it may be time to start liquidating cash...into any and all assets.
In 2005 and 2006 I was thinking that uncharacteristically the CRE top frothing was missing. Maybe because traditional CRE lenders had learned from '90s and dotcom experiences (nah, ya think?). It really might have been true, but the CDO perpetual motion securitization machine, and the smaller regional banks came in right in time for a blowoff overbuilding top just after the residential investment peak. So I think that explains the delay, but the results should be similar.
--
Bush is going to come out and talk about the economy soon.
Our economy managers by intervention, by definition Crooks (especially, for Republicans), are getting scared. These Crooks have gotten the economy in this bad shape by unrelenting interventions.
Everything they do from here onwards will be bad, long-term.
OK, now he is talking. He is talking against mediocrity!
"I wish haloscan would put poster names at the top instead of the bottom. That way, I wouldn't have to slog through posts and then discover who it was from.
turd blossom "
I just read it all. The good, the bad, and the ugly!
I don't support the idea of tax cuts, or refunds etc at this time because it is likely the consumer will parlay this cash infusion into even greater consumption expenditures.
If we managed our money properly and had rainy day funds, etc. NOW would be the time for tax cuts and deficit spending. But we have not done that, and instead are begging for yet another free lunch. It's a little bit hard for me to sympathize at the moment.
If we managed our money properly and had rainy day funds, etc. NOW would be the time for tax cuts and deficit spending. But we have not done that, and instead are begging for yet another free lunch. It's a little bit hard for me to sympathize at the moment.
But that would require some self control. Something America isn't big on....
In sum, Fridays employment report strongly suggests that an official recession has arrived. The recession dating committee at the National Bureau of Economic Research (NBER) will be the final arbiters, but since it waits for conclusive evidence, including benchmark revisions, it may be at least two years before we are notified.
Recession no longer a forecast but a present day reality -- The NBER analyzes four broad categories (this is NOT about back-to-back quarters of negative real GDP growth indeed, if you go on the NBER website, you will learn that it defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months):
Employment, real personal income, industrial production, and real sales activity in the manufacturing and retail sectors. When we put all the pieces together after Fridays data, keeping in mind that these are the 4 major barometers that the NBER uses to define inflection points in the cycle, all seem to have peaked around the November-December period, strongly suggesting that we are actually into the first month of recession. So according to our analysis, this isnt even a forecast any more but is a present day
reality, and a reality that is particularly evident in the yield on the 2-year Treasury note, which is now trading at 2-3/4%, not to mention the Russell 2000 index, which is now just 400 basis points away from an official bear market.
Consensus remains in denial -- Some will say that a recession is just a label and that whether or not this is a recession, it will feel like one anyway. Others say the backdrop is recessionary or recession-like. There is a whole product line on Wall Street displaying recession probabilities the consensus, in our view, remains in denial at 38% odds (our own proprietary models have been between 60% and 100% for the last few months). So this isnt about labels. One can speak euphemistically if one chooses, but there are no substitutes for outright recessions to say that the backdrop is recession like is akin to an obstetrician telling a woman that she is sort of pregnant. You either are or you are not. And what is important about recessions is that while each may have its own set of particular characteristics, there are also unmistakable investment patterns that emerge time and again.
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BTW, Rosenberg is THE BEST of MSM. I heard from sources that he was really under the gun for the past year or so. Crooks at Merrill wanted his head. It is nice to see an economist with guts! So, few have it. It is hazardous to their health and wealth. Hence, they turn into intellectual whores. Most Americans have no idea how evil the economic Crooks at the top really are. They turn decent human beings into whores with the lure of money. What else is new!
What is this "recession" that you're always talking about....
From ThinkProgress.org
Today aboard Air Force One, a reporter asked presidential spokesman Tony Fratto if the Bush administration was at all worried about a recession, given that on Friday, Sen. Hillary Clinton (D-NY) said she think[s] the economy is slipping toward recession. Fratto brushed aside such concerns:
QUESTION: Senator Clinton said on Saturday that the U.S. economy was slipping towards a recession. Is that a view the White House shares; why or why not?
FRATTO: I dont know of anyone predicting a recession.
mock turtle/ YTL: I agree with you that a large-scale program to develop alternative energy is needed, not just as an economic stimulus, but to address peak oil and global warming, which will be threats long after the credit situation is a distant memory.
Tax cuts will only go into hummers and big screen TVs, which we don't need more of.
I am not sure why so many seem to argue that monetary policy won't help. Interest on debt is a major expense for houses and business. Lowering rates is equivalent to a pay or tax cut. Yes there are some who are so far in the hole that they can't service their debt even at 1 %. But there are alot more who are servicing their debt, but would have quite a bit of extra cash if the Fed cut aggressively. As for the dollar, as long as the cuts are coordinated with other CBs to maintain rate differentials, I don't think it would have much impact.
Around Q3 2006 (IIRC) he was forcasting a "hard landing" in the second half of 2007. If Dec 2007 is as bad as it looks right now, he end up being correct.
I don't know if he changed his view afteward, but I remember for almost a year and a half thinking that was the economic forecast I was most impressed by because it seemed to have the most merit in terms of quality of analysis.
Nice work, CR. Nice amplification of the work presented by the economist this summer at Jackson Hole, in which he laid out the unique 'canary in the coal mine' role of residential investment.
I think the key this time is 'wherewithal to pay': real disposable personal income (one of the four NBER recession metrics) fell in Oct. and Nov. Elements that fell included interest income and dividend income (17% of personal income).
It is a slam dunk that those two will continue to move south.
Wherewithal to pay is falling rapidly, as interest income and dividends fall and unemployment/underemployment and higher lending standards take hold.
And, just wait until we have more debt defaults and the risk premium on the trillions of debt goes north parabolically.
If we managed our money properly and had rainy day funds, etc. NOW would be the time for tax cuts and deficit spending. But we have not done that, and instead are begging for yet another free lunch. It's a little bit hard for me to sympathize at the moment.
Actually you can make the case that selective tax increases would be more 'stimulative'... or at least 'partial increases' balanced off against 'partial cuts' as being more stimulative.
For example raise marginal rates on high income earners (business & individual) then simultaneously offset it with 'increased depreciation' on fixed business investment. High income folks are the ones likely to invest so show them the carrot and stick. If its business investment that drives growth then that would sure send a message we want more of it.
Of course a decade later we'd have half of California covered in empty business parks... but at least we wouldn't have a recession.
There are worse things than recessions.
And I'm pretty liberal too - don't like seein' people hurtin'... breaks my bleeding liberal heart. But some times the best thing to do is directly aid those 'hurting' but let the system chug along... ie don't let folks starve on the street but for the most part let the business cycle mostly run its course with as little stimulus as possible
That way if you REALLY need stimulus - you still have the ammunition and haven't already covered half the earth with unnecessary business parks (and other distortions like business deductions for monster truck SUVs).
Actually you can make the case that selective tax increases would be more 'stimulative'... or at least 'partial increases' balanced off against 'partial cuts' as being more stimulative.
My main argument is that excessive deficit spending is just a much more nefarious form of tax increases since the costs are merely deferred. Especially if it manifests as future inflation, which is in effect a tax on savings where a lot of people don't realize they're having wealth taken from them as the government devalues its debt.
It's an underhanded, arbitrary, and IMO dishonest way of accomplishing the same thing as tax increases.
"Our most immediate goal is to minimize the impact on the real economy."
Anything related to the bubble was not 'real' (prices, jobs, loans, earnings, etc) and suspect nothing will be done before it all unwinds.
No bailout, no 50bp cut, no nothing.
Definitely nothing that will fuel inflation, which would worsen the position of the banks when considering outstanding loans, leverage and the fractional reserve system.
Slow burn deflation always was, and still is, in the cards.
I wonder if CRE construction might have lagged a little more on the upside due to shortages of skilled labor and materials owing to the massive amount of homes being built/remodeled (remember when contractors had waiting lists). Also in 2005 you had Katrina which resulted in all kinds of materials issues as we made up for a real or percieved failure to evacuate residents with a massive overbuilding of manufactured housing.
A small anecdote for the gang. Had lunch with a buddy of mine last week. He is a Candian based real estate developer. He has some limted holdings in the US and here is a summary of what he told me (in no order)
Cap rates have risen 80-100 basis points in a very short span;
There is a great deal of distressed commercial property in the southwest that can be had for 30 cents on the dollar and if you have cash people are begging for help;
Basically the commercial lending market is closed;
What he is seeing is other overlevered developers bailing out of secondary markets and doing everything they can to enable themselves to hold onto properties in core cities like LA, SF etc.
Not good Mav, NOT GOOD!
Banker | 01.07.08 - 5:42 pm | #
I'm starting to hear stories of mfgrs producing product (tools) for the builders either not getting paid or sales falling off the table and either way subsequently not paying suppliers (yikes! that could be me!).
ac, just to follow up on that thought re: deficit spending:
Almost all of our existing debt was incurred under two GOP presidents: Ronald W. Reagan and George W. Bush.
And the corollary? Tax cuts for the rich, in both cases. It is the number 1 reason for being of the Republican Party - increase the enrichment of the top 1-2% of the population.
We've been facing non-stop class warfare for the past 27 years (with a mild respite under Clinton, but only mild).
I am not personally advocating tax cuts or public works/programs.
I merely bring them up as possibilities that may/may not thwart a coming recession.
I am a strong fiscal conservative. I don't care personally how much we spend or how much we tax, so long as it is balanced (with small short term gyrations allowed).
thus, tax and spend is ok by me. so is cut spending and cut taxes.
But I dislike cut tax and still spend... the mantra of the political parties this day.
I disagree partially with AC however. It is cutting taxes and still spending is not necessarily ONLY deferring payment to the future. It may be a set-up so that we can DEFAULT on future payments.
Not caring about the size of the taxation or the spending buckets, only that they match, doesn't make you a fiscal conservative. At one end of the spectrum you are a communist and at the other an anarchist. Just sayi
Banker...nice to see you are back these past few days.
I would agree with everything you said in your previous post except...at the other end of the spectrum from communist, is, i believe, fascist not anarchist.
I would offer the idea that anarchists are off the spectrum.
Communism is where the government owns the means of production.
fascism is where the means of production (the companies) owns the government
Yeah but what does one call a system of no taxation and no spending? Isn't that anarchy? I'll admit I was scratching my head on that one and I am happy to be corrected.
If the DOW breaks below its current support of 12800, stocks will plummet. The NIKKEI is also at key 14000 support. As the financial stress deepens, protect yourself with physical gold and silver only.
Fireworks
--
"The strong investment in non-residential structures has been one of the keys to avoiding recession through Q3 2007. Now that commercial real estate appears to be slumping, it looks like non-residential investment will slump too - putting the economy into recession."
Hello CR,
I have been saying it for at least 3 months that CRE is coincident to lagging indictaor of the economy. Do you agree or disagree?
The economy has been in recession for 3 months and that is also when CRE started to roll over. More on the recession confirmation parade...
Looks like one by one many are falling in line to confirm the recession that has been here for 2-3 months. Sadly, they all forecast recession after it has already begun. All the y can do is to confirm it; never being able to forecast several months ahead of time. Who wants to run the risk of being early or wrong?
Economists exist to make weather forecasters look good!
Jas
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David Rosenberg, Merrill Lynch; 01/07/08:
Employment report suggests a recession has arrived
Fridays employment report confirmed our suspicions that the economy was transitioning into an official recession towards the end of last year:
1.At no time in the past sixty years has the unemployment rate risen 60 basis points (50 bps is the actual cutoff) from the cycle low without the economy slipping into recession, and here we now have the jobless rate hitting 5% in December versus the March/07 trough of 4.4%.
2.Aggregate hours worked in the economy contracted at a 0.4% annual rate in 4Q, and this comes on the heels of a 0.6% decline in 3Q. Back-to-back declines in total hours worked have always been associated with recession.
3.The breadth of the report was also very poor with the diffusion index slipping below the 50 cutoff mark, just like ISM, to 48.4% from 52.2% in November. A number below 50 indicates that a plurality of industries are now in the process of cutting jobs outright heading into the last recession, this index fell below 50 in February 2001 and the recession began exactly one month later.
4.The level of unemployment is up 13% YoY, again a development that has always been consistent with past recessions. The YoY rate of change in the level of the unemployed who have been idle for at least 15 weeks is particularly ominous +20%, which is a pace that prevailed in the early stages of prior economic downturns (hitting this trend in April/01 and in Aug/90 when the recessions were one-month old).
5.And we have Household Employment contracting 49,000 in 4Q and the YoY trend slowing to +0.2% in December from +2.2% a year ago, another classic recession signal. Consider for a second that in March of 2001 that trend was running at +0.8%, and in July of 1990 the pace was +1.1% those two months represented the onset of a technical recession and yet the trend in Household jobs is weaker now than it was then.
In sum, Fridays employment report strongly suggest
The chain-of-events for the severe slump in CRE has already begun. No stopping the inevitable now. Overbuilding, low cap rates, and excessive risk-taking, occur at the top of every cycle. On the downside, pain ensues. With a looming economic train wreck, it will be interesting to see how far CRE falls.
I was interested in this idea that private fixed investment fell 13 times, with 3 NOT going to recession.
those 3 times were linked to times of ramped up military spending.
I can't help but to comment on the fact that we are currently at war (x2)...
I wish haloscan would put poster names at the top instead of the bottom. That way, I wouldn't have to slog through posts and then discover who it was from.
Obviously the fall in nonresidential investment was related to the bursting of the stock market bubble.
I think that bubble only burst about halfway and was salvaged by continued consumer spending and the emergence of the housing bubble amidst Greenspan's 1% interest rate extravaganza.
I think a comprehensive bursting might have taken the S&P 500 closer to 400 (maybe lower).
I also think the economy today would be much better off if that had happened.
I believe the much lauded "soft landing" in the mid 90s was, in retrospect, the first warning sign -- the economic cycle had skipped a heartbeat.
Nice jas,
just make sure you don't have any super glue on your hands as you pat yourself on the back... you'd look kinda funny, especially as you tried with the other hand.
thanks CR for the detailed analysis. your site is the best. I accept your argument, and you have made your case well. So now i'm thinking how do we repair our economy?
We've analyzed how RE was the next big thing after the dot com / dow bust.
And many have said after RE and "creative" banking nonsense, CDOs , hedge funds, CDS and the likes, there's not much if anything left to help us re-flate.
I wonder if...if the federal government, (not this administration certainly, but the next) might try to implement a huge public works system to rejuvenate the domestic economy?
i'm thinking massive alternative energy generation...like hydro was during our grandparents youth, or the interstate system that Pres Eisenhower started.
This time, what?...tides, wind, solar and nuclear to gen huge quantities of electricity and power alternative transportation systems???
a new Manhattan project (and an investment opportunity)
It would seem that our govt is getting desperate.
I agree that the Fed alone cannot stop recession.
but what about Fed + congress?
I was watching CNBC (yeah yeah I know) and people brought up the fact that govt could stimulate spending... someone else also alluded to this (I think it was dryfly perhaps?)
could we avert recession if we gave an immediate extra cash refund of $1,000 as example to every taxpayer? it would be a shot of adrenaline no?
or if we ramped up public works projects or healthcare/govt jobs?
some of this would never happen in a lame duck election year... but some is feasible.
who could vote against medical programs for kids? or a tax rebate to the MIDDLE class?
I'd be interested to see what the govt/fed response was in the 10 of 13 recessions to see if this was implemented and failed, or not attempted.
Jas,
It makes for better reading and a less hostile atmosphere, if you write "I disagree" rather that "CR is wrong." By the way, I generally agree with your negative view on CR and RR. I must emphasize "generally," though. Take a few deep breaths...
oops... mock turtle posted as I was typing.
excuse the redundancy.
Based on the run-up in house prices, I would have thought the increases in residential construction since 2000 would have been much greater. They actually look tame compared to the past.
Is it possible all the investment (money) got tied up in raw land??? Something has to explain the massive debt being carried by the public home builders.
Jerry?...anyone seen Jerry Spinger?
Nice graphs CR. It looks like, even w/ the 5-month shift, that CRE got a late start this time. This likely means they tried to make up for lost time and/or there were more mega-projects in the pipeline. This may result in a later and larger momentum unwind at the end of the CRE cycle, lengthening the recession IMO.
Not DH
fantastic post, as usual CR. Thanks!
Just me, or is there a "Mission Accomplished" moment going on with respect to the current/imminent recession?
CR and I agree on something: It's business investment that's the key to whether there's continued economic expansion or recession.
Sebastia
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"...if you write "I disagree" rather that "CR is wrong."
Sorry, I prefer to be truthful as to what I think or "feel." If I believe that CR is wrong I would simply say so and no offense of any kind is intended. We are all big boys here and not here to boost egos, are we?
CR has a terrible problem with figuring out, and factoring in, the downturns in the economy; as do most MSM economists. He is better than MSM but has a long ways to go to take some risks in forecasting. What good is a weather forecast of a storm after it is here already? That is what the problem is.
CR likes to build in the downturns in his analysis after they are confirmed. I admit to being early, but seeing troubles early is far better than seeing them after the fact.
Jas
"I wish haloscan would put poster names at the top instead of the bottom. That way, I wouldn't have to slog through posts and then discover who it was from."
Do what I do; keep haloscan's window big (top to bottom of screen). If a post fills the whole window and goes beyond, scroll down to the end and check the poster name. Then you can either scroll back and read, or scroll on to the next message. A little extra effort, but it saves a lot of time.
hey, yearning to learn
i appreciated your post...not a redundancy...similar thinking.
now we need to continue looking at legislation etc to see if gov action verifies our thinking or if we are off target.
Any suggestions about the best CRE stocks to short?
TIA
could we avert recession if we gave an immediate extra cash refund of $1,000 as example to every taxpayer? it would be a shot of adrenaline no?
or if we ramped up public works projects or healthcare/govt jobs?
It seems to me that any long-term plan to get rid of recessions would also require getting rid of our free market economy.
Bascially, individuals and individual businesses can't be allowed to have free will because the leads to the business cycle, which leads to unlucky politicans getting thrown out of office during the down cycles.
So if that works, should we get rid of free market capitalism?
While I think removing economic freedoms might work to some extent to iron out the business cycle, I also think it would greatly limit our growth potential by making the economy far less dynamic and not capitalizing on innate human desires. Plus personally I wouldn't want to live in that type of economy.
I think the proper question is not whether we can avoid recessions, but whether we should avoid recessions.
If recessions are a necessary evil then (like the occasional forest fire, for example) then it becomes more a matter of educating people on the matter so it doesn't cause a panic among politicians to do something monetarily and fiscally stupid every time a minor recession looms on the horizon.
well you know it is spooky that almost on the day the administration realizes they may not be able to stop the economy from going negative, they're suddenly trumpeting that their warships are getting scared by iranians in acts of obvious provocation. Now that might really be the case ... but the US hasn't a great track record where it comes to exaggerating excuses for invasion so excuse me if I'm not ready to believe it.
turd blossom,
I hope that you are not offended by some of the handles posters have chosen. I agree that some are over the top.
As far as handles...
It's better to be recognized for your accomplishments (turd blossom), than something you pretend to be (rich).
Sorry, i couldn't resist.
dd
AC,
Spot on regarding recessions. I don't mind recessions. They are inevitable.
Its the foolish tinkering with the economy and the inane belief that inflation actually is necessary that infuriates me.
To me, stable prices mean a flat or falling CPI, not a controlled increase. The amount of effort that our country expends on beating inflation is mind boggling.
OT: Paulson to defend 'freeze' plan
Paulson: Rate freeze helps avert 'market failure - Jan. 7, 2008
"Over the next two years, we ... face an unprecedented wave of 1.8 million subprime mortgage resets, raising the potential of a market failure," Paulson said in prepared remarks for a speech to be delivered Monday afternoon.
By creating the rate-freeze plan, the Administration is helping to prevent avoidable foreclosures and safeguard neighborhoods and communities, Paulson said.
I don't support the idea of tax cuts, or refunds etc at this time because it is likely the consumer will parlay this cash infusion into even greater consumption expenditures.
we need investment expenditures...energy infrastructure development provides that kind stimulus, and the added bonus of a move towards geopolitical energy independence.
by the way i recall much of the previous wave of tax cuts went off shore or spurred speculation rather than developing domestic production capacity...that's why the government awarding a contract to say, Bechtel to build a dam (an old fashion example) is more likely to ensure real investment in our domestic economy takes place.
Jas, can you post the rest of the Rosenberg piece?
Freeze??
the checks were written... someone , somewhere, must lose money if there's a freeze.
oh, wait....
must return to the occ report, page 5.
no one loses, ever
I tihnk the reasoning goes.... 'collateralized on a daily basis' !!
NY Times - Paulson Warns Against Rushing Economic Stimulus
- NY Times
Press release: Remarks by Paulson in NYC, Jan. 7, 2007:
HP-757: Remarks by Treasury Secretary Henry M. Paulson, Jr.on Housing and Capital Markets before the New York Society of Securities Analysts
CR, I must protest at your shameless lack of spin.
If you don't report it, it didn't happen! Why do you want the US to be in a recession? Are you un-American?
shakes cobwebs from head
Yeah, well, sorry about that.
Have the cyclical patterns of investment ever correlated well with FFR movements, with any imposed lag? I'm interested to see if any of the conclusions of Fed abolishment would have a significant effect on actual dollars.
By creating the rate-freeze plan, the Administration is helping to prevent avoidable foreclosures and safeguard neighborhoods and communities, Paulson said.
If they want to throw money at housing, fine. I'm not really against it.
But do it by raising taxes so people understand the costs. Quit trying to hide from accountability at every step by using excessive deficits to sweep the costs under the rug until some future politician is forced to raise taxes or devalue the dollar (stealth taxation) once you're long gone.
Everybody's willing to destroy wealth tomorrow to be Mr. Popular today.
At least we're beginning to finally to see the costs.
"raising the potential of a market failure."
By market failure, does Poulson mean a complete systemic breakdown in the system?
If so, that makes two public figures (Krugman) in the last month quantifying the possibility of a complete collapse of the financial system possibly resulitng in a reset of the global currencies and banking system.
I am starting to believe that if any of the big global banks goes under, subsequently followed by another, it may be time to start liquidating cash...into any and all assets.
In 2005 and 2006 I was thinking that uncharacteristically the CRE top frothing was missing. Maybe because traditional CRE lenders had learned from '90s and dotcom experiences (nah, ya think?). It really might have been true, but the CDO perpetual motion securitization machine, and the smaller regional banks came in right in time for a blowoff overbuilding top just after the residential investment peak. So I think that explains the delay, but the results should be similar.
--
Bush is going to come out and talk about the economy soon.
Our economy managers by intervention, by definition Crooks (especially, for Republicans), are getting scared. These Crooks have gotten the economy in this bad shape by unrelenting interventions.
Everything they do from here onwards will be bad, long-term.
OK, now he is talking. He is talking against mediocrity!
Jas
"I wish haloscan would put poster names at the top instead of the bottom. That way, I wouldn't have to slog through posts and then discover who it was from.
turd blossom "
I just read it all. The good, the bad, and the ugly!
I don't support the idea of tax cuts, or refunds etc at this time because it is likely the consumer will parlay this cash infusion into even greater consumption expenditures.
If we managed our money properly and had rainy day funds, etc. NOW would be the time for tax cuts and deficit spending. But we have not done that, and instead are begging for yet another free lunch. It's a little bit hard for me to sympathize at the moment.
thanks FFDIC for the link
Does Paulson's NYTs piece smell a bit like "hey we placed a bet on the short side,,,don't mess it up"
hey i guess i spent too much time researching the grassy knowll.
He's probably just trying out for the part of secretary Andrew Mellon in the movie,The Great Depression Part Deux.
The only answer...
If we managed our money properly and had rainy day funds, etc. NOW would be the time for tax cuts and deficit spending. But we have not done that, and instead are begging for yet another free lunch. It's a little bit hard for me to sympathize at the moment.
But that would require some self control. Something America isn't big on....
--
More Rosenberg...
In sum, Fridays employment report strongly suggests that an official recession has arrived. The recession dating committee at the National Bureau of Economic Research (NBER) will be the final arbiters, but since it waits for conclusive evidence, including benchmark revisions, it may be at least two years before we are notified.
Recession no longer a forecast but a present day reality -- The NBER analyzes four broad categories (this is NOT about back-to-back quarters of negative real GDP growth indeed, if you go on the NBER website, you will learn that it defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months):
Employment, real personal income, industrial production, and real sales activity in the manufacturing and retail sectors. When we put all the pieces together after Fridays data, keeping in mind that these are the 4 major barometers that the NBER uses to define inflection points in the cycle, all seem to have peaked around the November-December period, strongly suggesting that we are actually into the first month of recession. So according to our analysis, this isnt even a forecast any more but is a present day
reality, and a reality that is particularly evident in the yield on the 2-year Treasury note, which is now trading at 2-3/4%, not to mention the Russell 2000 index, which is now just 400 basis points away from an official bear market.
Consensus remains in denial -- Some will say that a recession is just a label and that whether or not this is a recession, it will feel like one anyway. Others say the backdrop is recessionary or recession-like. There is a whole product line on Wall Street displaying recession probabilities the consensus, in our view, remains in denial at 38% odds (our own proprietary models have been between 60% and 100% for the last few months). So this isnt about labels. One can speak euphemistically if one chooses, but there are no substitutes for outright recessions to say that the backdrop is recession like is akin to an obstetrician telling a woman that she is sort of pregnant. You either are or you are not. And what is important about recessions is that while each may have its own set of particular characteristics, there are also unmistakable investment patterns that emerge time and again.
-x-x-x-x-x-
BTW, Rosenberg is THE BEST of MSM. I heard from sources that he was really under the gun for the past year or so. Crooks at Merrill wanted his head. It is nice to see an economist with guts! So, few have it. It is hazardous to their health and wealth. Hence, they turn into intellectual whores. Most Americans have no idea how evil the economic Crooks at the top really are. They turn decent human beings into whores with the lure of money. What else is new!
Jas
What is this "recession" that you're always talking about....
From ThinkProgress.org
Today aboard Air Force One, a reporter asked presidential spokesman Tony Fratto if the Bush administration was at all worried about a recession, given that on Friday, Sen. Hillary Clinton (D-NY) said she think[s] the economy is slipping toward recession. Fratto brushed aside such concerns:
QUESTION: Senator Clinton said on Saturday that the U.S. economy was slipping towards a recession. Is that a view the White House shares; why or why not?
FRATTO: I dont know of anyone predicting a recession.
(end quote)
A new potted plant promoted to a speaking role...
Greatest Story Over Sold
Any suggestions about the best CRE stocks to short?
Take a look at SRS
mock turtle/ YTL: I agree with you that a large-scale program to develop alternative energy is needed, not just as an economic stimulus, but to address peak oil and global warming, which will be threats long after the credit situation is a distant memory.
Tax cuts will only go into hummers and big screen TVs, which we don't need more of.
I am not sure why so many seem to argue that monetary policy won't help. Interest on debt is a major expense for houses and business. Lowering rates is equivalent to a pay or tax cut. Yes there are some who are so far in the hole that they can't service their debt even at 1 %. But there are alot more who are servicing their debt, but would have quite a bit of extra cash if the Fed cut aggressively. As for the dollar, as long as the cuts are coordinated with other CBs to maintain rate differentials, I don't think it would have much impact.
BTW, Rosenberg is THE BEST of MSM.
Around Q3 2006 (IIRC) he was forcasting a "hard landing" in the second half of 2007. If Dec 2007 is as bad as it looks right now, he end up being correct.
I don't know if he changed his view afteward, but I remember for almost a year and a half thinking that was the economic forecast I was most impressed by because it seemed to have the most merit in terms of quality of analysis.
Nice work, CR. Nice amplification of the work presented by the economist this summer at Jackson Hole, in which he laid out the unique 'canary in the coal mine' role of residential investment.
I think the key this time is 'wherewithal to pay': real disposable personal income (one of the four NBER recession metrics) fell in Oct. and Nov. Elements that fell included interest income and dividend income (17% of personal income).
It is a slam dunk that those two will continue to move south.
Wherewithal to pay is falling rapidly, as interest income and dividends fall and unemployment/underemployment and higher lending standards take hold.
And, just wait until we have more debt defaults and the risk premium on the trillions of debt goes north parabolically.
If we managed our money properly and had rainy day funds, etc. NOW would be the time for tax cuts and deficit spending. But we have not done that, and instead are begging for yet another free lunch. It's a little bit hard for me to sympathize at the moment.
Actually you can make the case that selective tax increases would be more 'stimulative'... or at least 'partial increases' balanced off against 'partial cuts' as being more stimulative.
For example raise marginal rates on high income earners (business & individual) then simultaneously offset it with 'increased depreciation' on fixed business investment. High income folks are the ones likely to invest so show them the carrot and stick. If its business investment that drives growth then that would sure send a message we want more of it.
Of course a decade later we'd have half of California covered in empty business parks... but at least we wouldn't have a recession.
There are worse things than recessions.
And I'm pretty liberal too - don't like seein' people hurtin'... breaks my bleeding liberal heart. But some times the best thing to do is directly aid those 'hurting' but let the system chug along... ie don't let folks starve on the street but for the most part let the business cycle mostly run its course with as little stimulus as possible
That way if you REALLY need stimulus - you still have the ammunition and haven't already covered half the earth with unnecessary business parks (and other distortions like business deductions for monster truck SUVs).
But maybe that's just me.
Any suggestions about the best CRE stocks to short?
I think CRE Discount Emporium Inc. is in a hellavu lot of trouble.
I think CRE Discount Emporium Inc. is in a hellavu lot of trouble.
But isn't that the one rumored to be bought by Buffet? Or was Google eying it? I always get those two confused.
Actually you can make the case that selective tax increases would be more 'stimulative'... or at least 'partial increases' balanced off against 'partial cuts' as being more stimulative.
My main argument is that excessive deficit spending is just a much more nefarious form of tax increases since the costs are merely deferred. Especially if it manifests as future inflation, which is in effect a tax on savings where a lot of people don't realize they're having wealth taken from them as the government devalues its debt.
It's an underhanded, arbitrary, and IMO dishonest way of accomplishing the same thing as tax increases.
from Paulson statement:
"Our most immediate goal is to minimize the impact on the real economy."
Anything related to the bubble was not 'real' (prices, jobs, loans, earnings, etc) and suspect nothing will be done before it all unwinds.
No bailout, no 50bp cut, no nothing.
Definitely nothing that will fuel inflation, which would worsen the position of the banks when considering outstanding loans, leverage and the fractional reserve system.
Slow burn deflation always was, and still is, in the cards.
Not DH
I wonder if CRE construction might have lagged a little more on the upside due to shortages of skilled labor and materials owing to the massive amount of homes being built/remodeled (remember when contractors had waiting lists). Also in 2005 you had Katrina which resulted in all kinds of materials issues as we made up for a real or percieved failure to evacuate residents with a massive overbuilding of manufactured housing.
It's an underhanded, arbitrary, and IMO dishonest way of accomplishing the same thing as tax increases.
I think you left out 'inevitable'.
A small anecdote for the gang. Had lunch with a buddy of mine last week. He is a Candian based real estate developer. He has some limted holdings in the US and here is a summary of what he told me (in no order)
Not good Mav, NOT GOOD!
Not good Mav, NOT GOOD!
Banker | 01.07.08 - 5:42 pm | #
I'm starting to hear stories of mfgrs producing product (tools) for the builders either not getting paid or sales falling off the table and either way subsequently not paying suppliers (yikes! that could be me!).
Also anecdotal but sum of anecdotal is data...
ac, just to follow up on that thought re: deficit spending:
Almost all of our existing debt was incurred under two GOP presidents: Ronald W. Reagan and George W. Bush.
And the corollary? Tax cuts for the rich, in both cases. It is the number 1 reason for being of the Republican Party - increase the enrichment of the top 1-2% of the population.
We've been facing non-stop class warfare for the past 27 years (with a mild respite under Clinton, but only mild).
FWIW:
I am not personally advocating tax cuts or public works/programs.
I merely bring them up as possibilities that may/may not thwart a coming recession.
I am a strong fiscal conservative. I don't care personally how much we spend or how much we tax, so long as it is balanced (with small short term gyrations allowed).
thus, tax and spend is ok by me. so is cut spending and cut taxes.
But I dislike cut tax and still spend... the mantra of the political parties this day.
I disagree partially with AC however. It is cutting taxes and still spending is not necessarily ONLY deferring payment to the future. It may be a set-up so that we can DEFAULT on future payments.
in that case, you get your money for nothing...
and your chicks for free.
I can't wait.
careful what you wish for ytl; you may end up with a blister on your little finger . . . maybe get a blister on your thumb.
chicks for free . . . blister on your thumb . . !?!
I don't think we have to move so many refrigerators or color TVs these days.
Consumer discretionary has got to be dropping pretty fast.
Yearning,
Not caring about the size of the taxation or the spending buckets, only that they match, doesn't make you a fiscal conservative. At one end of the spectrum you are a communist and at the other an anarchist. Just sayi
Banker...nice to see you are back these past few days.
I would agree with everything you said in your previous post except...at the other end of the spectrum from communist, is, i believe, fascist not anarchist.
I would offer the idea that anarchists are off the spectrum.
Communism is where the government owns the means of production.
fascism is where the means of production (the companies) owns the government
mock,
Yeah but what does one call a system of no taxation and no spending? Isn't that anarchy? I'll admit I was scratching my head on that one and I am happy to be corrected.