I'm not sure that is all about that weird graph, something else may be wrong.
Case/Shiller index should not rise with gross income as it is supposed to measure house price appreciation without improvement or enlargement, or (not 100 % sure, would have to check)? So with real income gains going mostly into better and larger homes, Case/Shiller should substantially lag gross income.
the golden age of burlesque, yeah, I was going to reproduce the chart - gross income per household was easy, but the S&P Case-Shiller data doesn't go back that far (at least not the data online). Reading the bottom text, I see he used something from the NAR too - and that makes me think price changes prior to 1987 might have come from the NAR.
So yes, I think there are other problems with the graph.
What a misleading metric. Gross except gross don't pay the mortgage until after TAXES. Anybody here thinking the household tax burden in 1970 is proportional to 2008? Bueller? Bueller....
Household, jeez. And What one thing characterizes the growth in household income 1970 to present? The growth in two earner households perhaps? Got news, shocking as it may be that well is tapped out. We are nearing "peak two earner percentages." All that "gray area" to the right is wishful thinking.
Don't get me started again on the fatal flaws to C-S.
One of the most fundamental problems I think this economy faces is a deep decay in business ethics. Especially with regard to Wall Street. You can't have a successful economy when everybody is just trying to take somebody else's money so they don't have to do an honest day's work.
Again, this is precisely the sort of thing that rate cuts and government bailouts don't address... and may well make worse.
Credit Derivatives Head for Worst Week in More Than Two Months
By Kabir Chibber and Shannon D. Harrington
Jan. 4 (Bloomberg) -- The risk of companies defaulting rose the most in more than two months this week after U.S. reports showing a slowdown in jobs growth and manufacturing stoked concern that the economy will sink into a recession.
Credit-default swaps tied to the bonds of mortgage lender Countrywide Financial Corp., homebuilder Lennar Corp. and Citigroup Inc., the biggest U.S. bank by assets, increased. Defaults may rise almost seven-fold to 2.25 percent this year, analysts at New York-based JPMorgan Chase & Co., the biggest underwriter of high-yield, high-risk corporate bonds last year, said in a report yesterday
Two housing markets. For the working class w/ incomes of say $1 million, $3 million houses might as long as theirs keeps going up, while on the other hand if it don't ....
One thing I dont understand from the graph is how this would equate to the evaporation of the over-hang. There's still excess supply out there (as I've read here a million seven hundred thousand times).
But in the New eCONomy, Bubbles are normal! It is normal for housing to have double digit price increases per year while incomes remain flat to declining! Why, I bet the high unemployment numbers are GOOD for housing prices since it means more out of work people will now be able to go out and get zero-down loans to buy houses to flip since prices will never, ever, go lower than they are now! Now is a good time to buy or sell!
Hahahaha... Wow, the clowns running the game don't get it. Soon, people will wake up and realize that any house costing more than about 2.5 times household income (and probably less than that with the bold, new, ultra-long recession we've entered) is unaffordable. All the fancy graphs in the world and cries of how "normal" the Bubble was will fall on deaf ears as Joe Ultra-Light 6 Pack shells out $100 to fill his gas tank so he can drive to his minimum wage, no benefits, service-sector "manufacturing" job flipping burgers.
Two housing markets. For the working class w/ incomes of say < $100K $800K houses ain't a gonna and wouldn't even if their incomes were going up. For those making $1 million, $3 million houses might as long as theirs keeps going up, while on the other hand if it don't ....
Ouch a 33% fare increase for the tolls in NY and NJ. Lets see that would be 10X the stated inflation rate so if inflation moves up to 5% next year toll increase will be a 50% increase. Thank God the economy is healthy, wages have gone up 33%, and food prices are lower.
The leverage in the system makes it just plain scary.
People forget. Credit Suisse had to bail out First Boston twice in the last 10 years or so. Kidder Peabody went bust despite their relationship with GE. Goldman partners needed a foreign capital injection not so long ago. Barings vanished overnight. Salomon crapped out but for the likes of Buffet and Citi. Continental Illinois was bailed out by the Gov't as was the entire S&L industry.
All of the above occurred prior to the massive increase in derivatives, leverage and securitizations.
All this spin is to be expected from folks who derive their income from selling financial products.
CR,
I was tickled by the "Video of the day" at the bottom of the blog the other day - the FOX news program dealing with 2007 housing predictions. You should compile footage of 2008 "The housing market will bottom" while the year is still young, and YouTube it in December.
So the real question, as usual, is: do we have a challenged economist here or one that is mendacious enough to use "average" gross income as the metric?
Izit a "simple" error to overlook the vanishing previous housing booms in this graph which might give one pause about the m.o. or something much more committed to obtaining the desired result: a correction by June?
How ignorant do you have to be to know that "the present trends in income (from wages)" have not kept up with house prices? How careful was Glassman to avoid the parenthetical?
Me? Glassman is not this stupid. Therefore he is this mendacious, but we don't pay him to be honest and his employer pays him to be rosy, yes?
"just trying to take somebody else's money so they don't have to do an honest day's work"
Isn't this the essence of venture capitalism?
No, not at all. I think somebody risking their own capital as an investment and demanding a large portion of the returns is a legitimate and generally constructive thing to do.
I was more referring more to the practice of selling people toilet paper and trying to concoct an endless series of explanations to convince buyers that it's not toilet paper when you know damn well it's toilet paper.
Afterall, just think how much money you could make if people bought that kind of paper from you for, say, $100 a sheet.
I did graphs in November of S&P/Case-Shiller for Los Angeles compared to Santa Monica's per-capital income and median household income, and came to the opposite conclusion, that prices will fall at least 30-40%.
You're correct, CR, that the scaling of Case-Shiller to income is arbitrary and affects the projection.
When the world was on a gold standard, bankers loved to lend money to people who didn't need it. Loans were made with collateral and personal guarantees.
For a decade or so after 1971, underwriting remained serious business. Since Greenspan (1987), lending standards have all but disappeared.
Look at the results.
The worst thing you can do is to loan money to people who can't pay it back. This applies to banks and shylocks.
Oh BTW Mr. Glassman, what were energy costs as a percentage of household income in 1970? Or food?
Nevermind, since a computer with the capacity for 25 gigaflops is one trillionth of the cost today by comparison, so I guess it all evens out. And don't even get me started on the cost of a Playstation versus Pong...
rich the Obama fascination facade will break as more Americans see Edwards as the 'real deal' who can deliver more than flowery speeches, hope and vacuous promises.
It is a proven fact that positive reporting gains more viewers than negative reporting. News is a business so to gain market share and higher ad revenues the MSM goes towards a positive bias everytime.
rich the Obama fascination facade will break as more Americans see Edwards as the 'real deal' who can deliver more than flowery speeches, hope and vacuous promises.
The speech Edwards gave last night after the election results...there was nothing shrill or angry about it. It was pure passion against corporate greed and health insurance companies.
Very moving for most people and very scary for Wall Street and the Greed Gang. Even if Edwards knows he can't win, I think he keeps giving this speech. There's a market for it and it uplifts Dems.
You have to give them credit for trying. So much of this market correction is perception. When people think the price drop is done, they'll come back into the market. Unfortunately, this one does sound like the Nat Assoc of Realt. forecasts that are invariably sunny.
We've had three business days in 2008 and every one of them has been a freaking nightmare. Can you imagine when what December 2008 will be like (when Bloomberg runs and the election goes into the House). CR-when will we see more on credit default swaps?
Using income which includes hedge fund manager, CEO, and other ruling class income to show a strong economy that will not fall into recession is a favorite trick of Larry Kudlow and other apologists of the Bush policies. In a "debate" today with Robert Riech(sp?), Kudlow used income which has been growing whereas Riech used wage growth which has been flat (at best) since 2000. Hence they were talking past each other.
Since Kudlow is almost certainly attempting to confuse the issue on purpose, I suspect Mr Glassman has also intentionally distorted the graph to arrive at a preconceived conclusion. The first casualty of war is truth - including political and cultural wars.
Correcting spin is the great contribution of the financial blogs. CR and The Big Picture are especially good at this role.
It is a proven fact that positive reporting gains more viewers than negative reporting.
What people want isn't positive reporting but consensus. Lay out the problem, show both sides, and then move towards a solution.
Back in the good old days, the news media used to help the process along. But today, with "balanced" reporting they'll give air time to any nut job.
And, if they can't find somebody nutty enough to provide balance to an issue they turn fatalistic. Can't be fixed! It's been turned into an art by the enviromental docu-dramas.
Of course, you can't expect insight when every bobble-head anchor is chosen strictly based on marketing appeal and ability to read a tele-prompter.
Naw ministry, if that were true, fires and floods and all disasters great and small would never lead the evening news. What the MSM really doesn't do is place news into context or get much beyond superficial reporting -- especially news about finance and consumer issues (another reason to celebrate the uniqueness of this blog).
Given that, I will say it's advertisers who truly love positive news, and of course have steered reporting of the bubble to the rosy side (and continue to do so quite aggressively here in nyc).
Given the money he's got and the manner in which he got - plaintiff bar in NC - I just can't quite buy the populist stuff coming from him.
Having money doesn't preclude you being populist, see either Roosevelt as an example, but he just doesn't strike the chord for me. That said, I will give Obama a further look.
That guy at least served time in the state chamber and made sausage for the locals.
I hope Edwards does catch on, but I don't think he will make it. The problem is that the primaries will be decided by February 5, when nearly all the states will have held primaries (due to the accelerated schedule this year).
I suspect if the primaries were held this Fall, we'd have a different slate.
"It is a proven fact that positive reporting gains more viewers than negative reporting. News is a business so to gain market share and higher ad revenues the MSM goes towards a positive bias everytime."
Well maybe in financial news as the finance industry funds it through ads. But I seem to remember a little phrase:
"EDWARDS: Regarding the H-1B visa question: I think it is important for us to have available, for the work that’s being done here in this valley, plus all over the country, the talent and the mental capacity we need.
So the H-1B visa program is important; it should be expanded, based on the needs that exist."
Edwards is nothing but a pathological liar. He is one of them, the rich ruling elite, it is his job to say what he says, nothing more.
Just like all the promises that bush handed out like candy, they would all melt in your hand, not in your mouth.
Are you guys following what's going to hit mexico?
Corn prices are skyrocketing, and Cantarell output is cliff-diving. Also cliff-diving is the flow of money headed from the US back into Mexico, as the housing crash cuts all the illegals income.
If you want a scary read, check out the operation endgame pdf on the DHS website. We are actively building "detention" centers to hold the influx of illegals that will result from the sharply increasing destitution.
Not sure if it's still available from DHS website. Was available for about a year, then became 403(Forbidden), somebody had actually changed the permissions so it couldn't be downloaded, without removing the file - shady if you ask me.
Immigration Emergencies: Detention can be affected by unforeseen events occurring in other countries, such as natural disasters (i.e., earthquakes, hurricanes, etc.), war, and economic/political crises.
I totally agree that the economic prospects won't be good here, however I don't think that will stop them from coming.
Just like during the dust bowl when so many people went to find that one job they had seen a flyer for, only to find tens or hundreds of families looking for the same job.
Also, I don't think it's prison industry lobbying that is causing this. I see this as a systematic plan to prepare the system for the coming chaos.
Another pdf that fits in with the endgame pdf is the "Civilian inmate labor program".
They aren't just planning for severe economic pain, they are also planning for war.
Hey NC Jim, watch out . . . that truth sounds awful partisan!
Rich, i was struck by how little attention Edwards got, despite coming in second. On MSNBC, they went to GOP shill Pat Buchanan, who concluded that it was now a two person race . . . between Obama and Clinton! I don't even think he mentioned Edwards name.
The media has become a corporate machine, and is actively working against non-corporate candidates.
Thank god for blogs. Thank god for CR and Tanta! (And I'm not even religious!)
"The Federal Reserve will increase the size of two scheduled auctions of emergency loans by 50 percent to $30 billion as part of a global attempt by central bankers to restore faith in the money markets."
So the toxic garbage already monetized still isn't enough, so they upped the bounty.
The problem with the Glassman graph (if the Fed is trying to inflate away the problem,) is that wages must rise nominal very quickly. The problem with the Fed's strategy, is that, unlike the 70's, that inflation isn't going to go to wages.
"Excess gone by spring?" How can these informed insiders declare prices won't fall back to affordable levels where the NPV of the now-uncertain "supporting" debt will be proven?
With nearly a year's supply of unsold homes currently listed, how will a sufficient number be purchased in the next 70 to 160 days (spring ends June 21st) to obtain equilibrium and assure that a bottom has been formed? It won't, because it can't.
Credit issuance is evaporating and the "sticky factor" has kept residential homes priced at 7 to 10X median pay. This is the anti-prescription for qualifying reluctant buyers. As NODs and FCs destroy comparative values, what's to stop the sticking from breaking into free-fall?
This vain yammering about the end of the correction doesn't recognize the magnitude of the mistakes. This isn't innocently obscuring the basis for calculation, this is a continuation of the thoroughly discredited (here in the blogosphere) disinformation campaign waged for the obscene profit of a few well connected elite financial con artists at the expense of everyone else.
That the MSM (owned by 6 giant corporate trough-feeders) has failed to explain this, to a largely financially illiterate population, is both obvious and self serving.
"I can explain it to you, but I can't understand it for you." - Unknow
"We believe that California has weathered the subprime storm of 2007, the market has almost corrected and that 2008 represents an opportunity to move forward," said Alan Nevin, the Sacramento association's chief economist, on a conference call.
:"I suspect if the primaries were held this Fall, we'd have a different slate."
This is where I think the parties might shoot themselves in the foot. Scenario: it's July or August, just a couple of weeks before the convention. One candidate is a shoe-in for the nomination; had it locked up in February in fact.
But the people have since had four more months to look at him/her, and don't like what they see. He's a loser in the polls. In fact, some of the guys he/she beat out in the primaries are higher-rated.
What'd happen? A lot of last-minute wheeling/dealing/screaming at the convention. The anointed nominee refuses to give up; the party leadership, or part of it, comes out dead against his/her nomination. Could end up bad, like Chicago '68. Party splits, all hell breaks loose. Or, the "leader" could be keelhauled by the party bosses and a dark horse pushed in front of the cameras.
At any rate, in trying to be smart and tweak the primary process in their favor, the big-money candidates may end up making hash out of the whole process. It'll be fun to watch; imagine, a political convention where something's actually decided.
It has a downslope. A huge downslope. Nothing like the 1990-1991 'blip' shown on the graph.
Its going down fast and yet in mid-2008 it suddenly and sharply flattens out?
Oh, I agree, the zero point on the line is off. But I would save this chart. It predicts a slowing of Case-Shiller dropping less in January and Febuary than the drop in 2007. Anyone else think the opposite is happening?
And they predict little undershoot... snicker... That theory shows a flat line into 2015... I'll agree that 2015 will be around or below 4Q2008.
Irvinghousingblog has a graph also. He tries to predict when the rent/buy calculation will signal when to re-enter the market. If I remember correctly it might be sometime in 2011-2012. He says the GRM of 160 is the magic number. I don't know noth'n.
I edited 2007 HPI to reflect an annual decline of 6.7% (10-City Composite).
Interestingly, my graphs don't match Glassman's graph on "Household Income". The gap from HPI to Mean Household income is over 22%, the gap from HPI to Median Household income is over 35%. The difference is Glassman's household income has increased faster than the stats I dug up.
On the DOC website it lists stats for per capita personal income which has grown faster than HPI and household incomes. I believe this is what Glassman is using (not household income). BEA File Error
Per the DOC website, personal income includes the most types of income: Personal income, in general, is a more comprehensive measure. For both the national and regional accounts, personal income is defined as the sum of wage and salary disbursements, supplements to wages and salaries, proprietorsÂ’ income with inventory and capital consumption adjustments, rental income of persons with capital consumption adjustment, personal dividend income, personal interest income, and personal current transfer receipts, less contributions for government social insurance. These measures of personal income include incomes of individuals, nonprofit institutions that primarily serve individuals, private noninsured welfare funds, and private trust funds. Life insurance carriers and noninsured pension plans are not counted as persons, but their income (and saving) is credited to persons.
Personal income is done on a per capita basis not on a household basis.
I am not sure what Glassman was using for Household income. You could flatten the slope of the Personal income to fit the line of HPI, but in doing so, you would bring the end close to where the Household income ends are (you would end up with a big gap suggesting housing is overvalued).
I think CR's initial reaction was right. Something doesn't look right on Glassman's charts. The household income measures look more inline with reality.
Also, I like Glassman's gusty projections on 2008. Yen will go to 119. Euro will be at 1.30 (Even though the Fed funds rate is at 3.5). S&P 500 will rise 12.2% and end at 1650. Inflation will drop to 1.9%. And finally crude oil will drop to $50.
Housing inventory does not turn 100% per year, thus this very idea that a median income earner should be able to purchase median-priced dwelling strikes me as dubious.
The difference between rents and purchase prices has probably more to do with growing income disparity in the country, credit bubble or not. 20% of the bottom earners barely have enough money to buy food, much less SFR.
The new housing is largely build for higher end of the market and sqf. of new construction is larger than that of existing stock.
It would make much more sense to track price per square foot or at least price of "standard dwelling" as done in Canada. This whole "research" is a poor joke.
FinancialSight:
Thanks for your version of the graph.
By including more information, you allow a comparison of the results when different inputs are calculated.
I agree; the real meat is in comparison of median values.
This gets at the root of the issue, which is affordability for the masses.
Comparing apples, and all that...
Although I am not nearly as pessimistic as most on this board, I would say that the graph is overly optomistic with regard to the selection of the historical norm.
Comparing home prices to incomes is grossly simplistic, and misleading - no matter which price index or income index you use.
The real measure for comparison is fundamental mortgage paying ability, which is a function of income and mortgage rates. The effect of changing interest rates is important.
Averages (incl medians) are misleading because they often are apples and oranges. This is the case with median income vs median home prices.
If you adjust for home size and match the income demographics to the homes being measured, and also incorporate interest rates in the calculation, the result indicates that the price distortion during the 1980s bubble was worse than what we have seen during the recent bubble.
It would take a miracle for the housing market to bottom in 2008. I expect home prices will decline into 2009.
Where is it written that a populist has to be dirt poor. Isn't it possible to have some money and still care about the majority of your fellow citizens, particularly those at the lower half of the distribution. Does your wealth have to come via inheritance like the Roosevelts and the Kennedy's to be a populist? Honestly I can't think of a more "populaist" way to get rich than to be a trail attorney that took on large corporations that act badly. John Edwards simply remebers where he came from. That being said, there is a real debate to be had about if the best way to get change accomplished is by reaching out to the other side (Obama), or by mounting a frontal assault on the entrenched powers (Edwards). The Obama method has the potential downfall of the compromise turning in to capitulation, something the Dems are very good at doing (see Harry Reid). The Edwards method runs the risk of failure through the entrenched powers being strong enough to throw up roadblocks to progress via filibusters etc. The Edwards method says the problem is not that there is to much partisanship in DC, but to little, at least on the Dem side. There is some merit to that, but I fear it could be a "charge of the light brigade". Ultimately I think Obama and Edwards want to bring America to about the same place, a place that would be far better and more fair than the U.S. today, however there is a real difference on how to get there. Honestly I'm not sure which approach is likely to be more effective. Thus the real issue would be which is likely to have longer coat tails. Its hard for me to think that the U.S. would be stupid enough to elect any of the GOP side for potus, but will the Dem nominee have long enough coat tails to get to 60 seats in the Senate. Then again perhaps I am being to optimistic about the intellegience of the U.S. population.
Why not?
Bush said financial markets are strong and healthy.
Don't shoot the messenger.
WHEW! Now I can crank up the MEW ATM again. YESSSSSSS!
I'm not sure that is all about that weird graph, something else may be wrong.
Case/Shiller index should not rise with gross income as it is supposed to measure house price appreciation without improvement or enlargement, or (not 100 % sure, would have to check)? So with real income gains going mostly into better and larger homes, Case/Shiller should substantially lag gross income.
There's Mortgage Pig and Bongwater humor, and then there's how-to-lie with multivariate graphs humor. Entertainment for everyone!
(no relation to James K. Glassman, co-author of “Dow 36,000″)
I'll bet he has that printed in bold on his business cards.
Perhaps part of dubyas stimulus package will include bulldozing all the foreclosed properties.
Excess homes gone, problem solved.
the golden age of burlesque, yeah, I was going to reproduce the chart - gross income per household was easy, but the S&P Case-Shiller data doesn't go back that far (at least not the data online). Reading the bottom text, I see he used something from the NAR too - and that makes me think price changes prior to 1987 might have come from the NAR.
So yes, I think there are other problems with the graph.
Best to all.
With brainiacs employed at Wall Street banks, does anyone wonder how we got into this mess in the first place?
Gross household income.
What a misleading metric. Gross except gross don't pay the mortgage until after TAXES. Anybody here thinking the household tax burden in 1970 is proportional to 2008? Bueller? Bueller....
Household, jeez. And What one thing characterizes the growth in household income 1970 to present? The growth in two earner households perhaps? Got news, shocking as it may be that well is tapped out. We are nearing "peak two earner percentages." All that "gray area" to the right is wishful thinking.
Don't get me started again on the fatal flaws to C-S.
With brainiacs employed at Wall Street banks, does anyone wonder how we got into this mess in the first place?
poor people are sharks.
Instead of
" Would you please pass the all fruit"....it more like...
"Would you please pass the Crack Pipe"
No way housing is going to recover...our foreign counter parts will not lend us any more of our fake money.
Has CR found his Gretchen in Glassman?
Tanta will be so pleased.
One of the most fundamental problems I think this economy faces is a deep decay in business ethics. Especially with regard to Wall Street. You can't have a successful economy when everybody is just trying to take somebody else's money so they don't have to do an honest day's work.
Again, this is precisely the sort of thing that rate cuts and government bailouts don't address... and may well make worse.
Asset prices for equities, most bonds and real estate are all over-valued based on all rational historical measures.
Can this overvaluation continue? Sure. But why take the chance.
Investors should get paid for risk, not pay for it.
AC,
Spot on.
"just trying to take somebody else's money so they don't have to do an honest day's work"
Isn't this the essence of venture capitalism?
Is this the other shoe?
Credit Derivatives Head for Worst Week in More Than Two Months
By Kabir Chibber and Shannon D. Harrington
Jan. 4 (Bloomberg) -- The risk of companies defaulting rose the most in more than two months this week after U.S. reports showing a slowdown in jobs growth and manufacturing stoked concern that the economy will sink into a recession.
Credit-default swaps tied to the bonds of mortgage lender Countrywide Financial Corp., homebuilder Lennar Corp. and Citigroup Inc., the biggest U.S. bank by assets, increased. Defaults may rise almost seven-fold to 2.25 percent this year, analysts at New York-based JPMorgan Chase & Co., the biggest underwriter of high-yield, high-risk corporate bonds last year, said in a report yesterday
- Bloomberg.com
With brainiacs employed at Wall Street banks, does anyone wonder how we got into this mess in the first place?
poor people are sharks.
Ha Hahahahahaha..... Who said that agian Mozillo?
Two housing markets. For the working class w/ incomes of say $1 million, $3 million houses might as long as theirs keeps going up, while on the other hand if it don't ....
One thing I dont understand from the graph is how this would equate to the evaporation of the over-hang. There's still excess supply out there (as I've read here a million seven hundred thousand times).
But in the New eCONomy, Bubbles are normal! It is normal for housing to have double digit price increases per year while incomes remain flat to declining! Why, I bet the high unemployment numbers are GOOD for housing prices since it means more out of work people will now be able to go out and get zero-down loans to buy houses to flip since prices will never, ever, go lower than they are now! Now is a good time to buy or sell!
Hahahaha... Wow, the clowns running the game don't get it. Soon, people will wake up and realize that any house costing more than about 2.5 times household income (and probably less than that with the bold, new, ultra-long recession we've entered) is unaffordable. All the fancy graphs in the world and cries of how "normal" the Bubble was will fall on deaf ears as Joe Ultra-Light 6 Pack shells out $100 to fill his gas tank so he can drive to his minimum wage, no benefits, service-sector "manufacturing" job flipping burgers.
"just trying to take somebody else's money so they don't have to do an honest day's work"
Isn't this the essence of venture capitalism?
Isn't this the essence of arrested development?
Liars, lying liars, and damnable liars. Spin, spin, spin.
GWB is indeed a fortunate son--the public phase of the collapse of the economy will be hidden behind the noise of the election campaigns.
For every new way of making money, there are new ways of losing money.
Trying again:
Two housing markets. For the working class w/ incomes of say < $100K $800K houses ain't a gonna and wouldn't even if their incomes were going up. For those making $1 million, $3 million houses might as long as theirs keeps going up, while on the other hand if it don't ....
Ouch a 33% fare increase for the tolls in NY and NJ. Lets see that would be 10X the stated inflation rate so if inflation moves up to 5% next year toll increase will be a 50% increase. Thank God the economy is healthy, wages have gone up 33%, and food prices are lower.
I'll say it again, its the derivatives STUPID!
The leverage in the system makes it just plain scary.
People forget. Credit Suisse had to bail out First Boston twice in the last 10 years or so. Kidder Peabody went bust despite their relationship with GE. Goldman partners needed a foreign capital injection not so long ago. Barings vanished overnight. Salomon crapped out but for the likes of Buffet and Citi. Continental Illinois was bailed out by the Gov't as was the entire S&L industry.
All of the above occurred prior to the massive increase in derivatives, leverage and securitizations.
Leverage is a real bitch in reverse.
All this spin is to be expected from folks who derive their income from selling financial products.
CR,
I was tickled by the "Video of the day" at the bottom of the blog the other day - the FOX news program dealing with 2007 housing predictions. You should compile footage of 2008 "The housing market will bottom" while the year is still young, and YouTube it in December.
The best to all!
Roubini talks about the 10:1 leverage ratio in reverse. It's great on the way up; very, very, very bad on the way back down.
Hmmm. On further inspection, maybe he's the SON of James K. Glassman?
That graph is a joke.
So the real question, as usual, is: do we have a challenged economist here or one that is mendacious enough to use "average" gross income as the metric?
Izit a "simple" error to overlook the vanishing previous housing booms in this graph which might give one pause about the m.o. or something much more committed to obtaining the desired result: a correction by June?
How ignorant do you have to be to know that "the present trends in income (from wages)" have not kept up with house prices? How careful was Glassman to avoid the parenthetical?
Me? Glassman is not this stupid. Therefore he is this mendacious, but we don't pay him to be honest and his employer pays him to be rosy, yes?
"just trying to take somebody else's money so they don't have to do an honest day's work"
Isn't this the essence of venture capitalism?
No, not at all. I think somebody risking their own capital as an investment and demanding a large portion of the returns is a legitimate and generally constructive thing to do.
I was more referring more to the practice of selling people toilet paper and trying to concoct an endless series of explanations to convince buyers that it's not toilet paper when you know damn well it's toilet paper.
Afterall, just think how much money you could make if people bought that kind of paper from you for, say, $100 a sheet.
Quite the markup, huh?
Did anyone see this yet... Comedy!
http://www.irvinehousingblog.com/wp-content/uploads/2008/01/lereah-books.png
http://www.irvinehousingblog.com/wp-content/uploads/2008/01/david-lereah.jpg
ROTFL ! ! ! ! !
The not so funny part is he released another book:
Amazon.com: All Real Estate Is Local: What You Need to Know to Profit in Real Estate - in a Buyer's and a Seller's Market (9780385519229): David Lereah
Whatever makes the Realaturds feel better since Anthony Robbin seminars are now out of reach.
I did graphs in November of S&P/Case-Shiller for Los Angeles compared to Santa Monica's per-capital income and median household income, and came to the opposite conclusion, that prices will fall at least 30-40%.
You're correct, CR, that the scaling of Case-Shiller to income is arbitrary and affects the projection.
Household, jeez. And What one thing characterizes the growth in household income 1970 to present? The growth in two earner households perhaps?
Also add the pig-the-python boomers who are reaching their peak productivity/earnings years.
Good analysis. And why could Glassman not figure that out????? He wouldn't be speaking JPM's book would he......
When the world was on a gold standard, bankers loved to lend money to people who didn't need it. Loans were made with collateral and personal guarantees.
For a decade or so after 1971, underwriting remained serious business. Since Greenspan (1987), lending standards have all but disappeared.
Look at the results.
The worst thing you can do is to loan money to people who can't pay it back. This applies to banks and shylocks.
Very nice graphage!
Oh BTW Mr. Glassman, what were energy costs as a percentage of household income in 1970? Or food?
Nevermind, since a computer with the capacity for 25 gigaflops is one trillionth of the cost today by comparison, so I guess it all evens out. And don't even get me started on the cost of a Playstation versus Pong...
OT
We all know the MSM is biased in favor of sunny reporting on housing the economy, the market...
It's interesting to watch how biased the MSM toward the Democratic candidates.
They don't like Edwards because they think he's angry at corporate America and shrill.
They don't like Hillary...because she's Hillary.
They faun over Obama because he's calming and...sunny.
I wonder if there will be a backlash against Obama by people who are tired of all the media distortion and manipulation. I think maybe so.
Markets are 'strong, solid'...'This economy is on a solid foundation' says The Idiot in the WH ( thank goodness just for 1 more yr. )
rich the Obama fascination facade will break as more Americans see Edwards as the 'real deal' who can deliver more than flowery speeches, hope and vacuous promises.
It is a proven fact that positive reporting gains more viewers than negative reporting. News is a business so to gain market share and higher ad revenues the MSM goes towards a positive bias everytime.
Way OT: Most important issue in election
Poll: Bullshit Is Most Important Issue For 2008 Voters | The Onion - America's Finest News Source
It will be intersting if DOW closes in on 10.5 K by November. That would make it 0% market growth in 8 years.
Pass the Cool Aid and the waters fine.
jo6pac
The speech Edwards gave last night after the election results...there was nothing shrill or angry about it. It was pure passion against corporate greed and health insurance companies.
Very moving for most people and very scary for Wall Street and the Greed Gang. Even if Edwards knows he can't win, I think he keeps giving this speech. There's a market for it and it uplifts Dems.
You have to give them credit for trying. So much of this market correction is perception. When people think the price drop is done, they'll come back into the market. Unfortunately, this one does sound like the Nat Assoc of Realt. forecasts that are invariably sunny.
We've had three business days in 2008 and every one of them has been a freaking nightmare. Can you imagine when what December 2008 will be like (when Bloomberg runs and the election goes into the House). CR-when will we see more on credit default swaps?
Using income which includes hedge fund manager, CEO, and other ruling class income to show a strong economy that will not fall into recession is a favorite trick of Larry Kudlow and other apologists of the Bush policies. In a "debate" today with Robert Riech(sp?), Kudlow used income which has been growing whereas Riech used wage growth which has been flat (at best) since 2000. Hence they were talking past each other.
Since Kudlow is almost certainly attempting to confuse the issue on purpose, I suspect Mr Glassman has also intentionally distorted the graph to arrive at a preconceived conclusion. The first casualty of war is truth - including political and cultural wars.
Correcting spin is the great contribution of the financial blogs. CR and The Big Picture are especially good at this role.
Keep up the good work!
Jim
I hear the helicopters warming up!
You guys all know my favorite video...
Cue the helicopters, get ready for a bailout that just might be the last bailout of this dollar.
Nothing left to do but get under cover, and wait for this to finally blow over, in about four years.
Even the yen is soaring, news, we got no good news.
Someday this war's gonna end...
It is a proven fact that positive reporting gains more viewers than negative reporting.
What people want isn't positive reporting but consensus. Lay out the problem, show both sides, and then move towards a solution.
Back in the good old days, the news media used to help the process along. But today, with "balanced" reporting they'll give air time to any nut job.
And, if they can't find somebody nutty enough to provide balance to an issue they turn fatalistic. Can't be fixed! It's been turned into an art by the enviromental docu-dramas.
Of course, you can't expect insight when every bobble-head anchor is chosen strictly based on marketing appeal and ability to read a tele-prompter.
Conjure Bag has now entered the building ... wearing his Elton John sunglasses.
rich agree that Edwards gave a very passionate and compelling speech.
Obama's a nice guy, but hoping and nicing ain't gonna change anything in our broken and rigged political and corporate systems where greed is blatant.
John Edwards is our only hope for real change. I'm voting for John Edwards.
Naw ministry, if that were true, fires and floods and all disasters great and small would never lead the evening news. What the MSM really doesn't do is place news into context or get much beyond superficial reporting -- especially news about finance and consumer issues (another reason to celebrate the uniqueness of this blog).
Given that, I will say it's advertisers who truly love positive news, and of course have steered reporting of the bubble to the rosy side (and continue to do so quite aggressively here in nyc).
OT perhaps but it has been the subject of much interest in the past.
Products and Services Overview
Not new lows, but not happines either.
As to Edwards...
Given the money he's got and the manner in which he got - plaintiff bar in NC - I just can't quite buy the populist stuff coming from him.
Having money doesn't preclude you being populist, see either Roosevelt as an example, but he just doesn't strike the chord for me. That said, I will give Obama a further look.
That guy at least served time in the state chamber and made sausage for the locals.
Westside Bubble,
NICE work westside, just one quibble. The downtrend could go cliff diving. Not saying it will, but it could.
Cheers,
WHAT! Is that a Conjure sighting?
YouTube - Elton John-Goodbye yellow brick road
Not DH
Rich and KM4
I hope Edwards does catch on, but I don't think he will make it. The problem is that the primaries will be decided by February 5, when nearly all the states will have held primaries (due to the accelerated schedule this year).
I suspect if the primaries were held this Fall, we'd have a different slate.
Ministry of Truth,
"It is a proven fact that positive reporting gains more viewers than negative reporting. News is a business so to gain market share and higher ad revenues the MSM goes towards a positive bias everytime."
Well maybe in financial news as the finance industry funds it through ads. But I seem to remember a little phrase:
"If it bleeds it leads."
Cheers,
"EDWARDS: Regarding the H-1B visa question: I think it is important for us to have available, for the work that’s being done here in this valley, plus all over the country, the talent and the mental capacity we need.
So the H-1B visa program is important; it should be expanded, based on the needs that exist."
Edwards is nothing but a pathological liar. He is one of them, the rich ruling elite, it is his job to say what he says, nothing more.
Just like all the promises that bush handed out like candy, they would all melt in your hand, not in your mouth.
Why is greed getting such a bad rap? Fear and greed are givens -- it's incompetence that worries me.
I hear he was one of these:
Cerebral Palsy Attorneys and Lawyers
Are you guys following what's going to hit mexico?
Corn prices are skyrocketing, and Cantarell output is cliff-diving. Also cliff-diving is the flow of money headed from the US back into Mexico, as the housing crash cuts all the illegals income.
If you want a scary read, check out the operation endgame pdf on the DHS website. We are actively building "detention" centers to hold the influx of illegals that will result from the sharply increasing destitution.
Thanks Journeyman
SweetHomeKilla
Do you have a link?
SweetHomeKilla,
"We are actively building "detention" centers to hold the influx of illegals that will result from the sharply increasing destitution."
Erm...we're building them because of the lobbying strength of the "private" prison system.
I mean, what are they gonna do when they get here with the sharply increasing destitution threat the Greater Depression will bring.
Cheers,
"We are actively building "detention" centers to hold the influx of illegals that will result from the sharply increasing destitution."
Conjure says, "Halliburton has the contract."
Greed isn't getting a bad rap. It's gotten too good a rap, for several decades now.
You know, there used to be something called "enlightened self-interest." Folks seem to have forgotten.
mp,
Conjure is indeed correct. I'm just tired of talking about President Dickhead and his trained monkey.
BTW, The Super Colander Tin Foil Hat is picking up radio signals from the early 30's.
Cheers,
Looks like it orgignally was here:
http://www.ice.gov/doclib/pi/dro/endgame.pdf
But various copies are floating around:
http://www.yuricareport.com/Civil%20Rights/Endgame.pdf
Wikipedia:
Operation Endgame - Wikipedia, the free encyclopedia
http://gothinkblog.com/gblog/wp-content/uploads/2006/03/endgame.pdf
Not sure if it's still available from DHS website. Was available for about a year, then became 403(Forbidden), somebody had actually changed the permissions so it couldn't be downloaded, without removing the file - shady if you ask me.
Conjure says, "It's cough about more than cough Mexican illegals.cough"
The idea of a trial lawyer as potus is chilling. They seem to be having some pr problems also with Millberg Weiss and Scruggs.
Milberg - Wikipedia, the free encyclopedia
Lawyer Battling for Katrina Payments Is Indicted - NY Times
mp,
....shudder....
Page 2-12, point 5:
Immigration Emergencies: Detention can be affected by unforeseen events occurring in other countries, such as natural disasters (i.e., earthquakes, hurricanes, etc.), war, and economic/political crises.
Re: This graph is incorrect
Where is the correct graph?
Dh
Conjure Bag says he has nothing further to add on that particular subject.
Misean-
I totally agree that the economic prospects won't be good here, however I don't think that will stop them from coming.
Just like during the dust bowl when so many people went to find that one job they had seen a flyer for, only to find tens or hundreds of families looking for the same job.
Also, I don't think it's prison industry lobbying that is causing this. I see this as a systematic plan to prepare the system for the coming chaos.
Another pdf that fits in with the endgame pdf is the "Civilian inmate labor program".
They aren't just planning for severe economic pain, they are also planning for war.
Hey NC Jim, watch out . . . that truth sounds awful partisan!
Rich, i was struck by how little attention Edwards got, despite coming in second. On MSNBC, they went to GOP shill Pat Buchanan, who concluded that it was now a two person race . . . between Obama and Clinton! I don't even think he mentioned Edwards name.
The media has become a corporate machine, and is actively working against non-corporate candidates.
Thank god for blogs. Thank god for CR and Tanta! (And I'm not even religious!)
SweetHomeKilla,
I'm going along with mp on this one...nuff of this said here. Remember, I wear a Super Colander Tin Foil Hat.
Cheers,
Bloomberg,
"The Federal Reserve will increase the size of two scheduled auctions of emergency loans by 50 percent to $30 billion as part of a global attempt by central bankers to restore faith in the money markets."
Fed Boosts Next Two Special Auctions to $30 Billion (Update2) - Bloomberg.com
So the toxic garbage already monetized still isn't enough, so they upped the bounty.
The problem with the Glassman graph (if the Fed is trying to inflate away the problem,) is that wages must rise nominal very quickly. The problem with the Fed's strategy, is that, unlike the 70's, that inflation isn't going to go to wages.
Cheers,
"Excess gone by spring?" How can these informed insiders declare prices won't fall back to affordable levels where the NPV of the now-uncertain "supporting" debt will be proven?
With nearly a year's supply of unsold homes currently listed, how will a sufficient number be purchased in the next 70 to 160 days (spring ends June 21st) to obtain equilibrium and assure that a bottom has been formed? It won't, because it can't.
Credit issuance is evaporating and the "sticky factor" has kept residential homes priced at 7 to 10X median pay. This is the anti-prescription for qualifying reluctant buyers. As NODs and FCs destroy comparative values, what's to stop the sticking from breaking into free-fall?
This vain yammering about the end of the correction doesn't recognize the magnitude of the mistakes. This isn't innocently obscuring the basis for calculation, this is a continuation of the thoroughly discredited (here in the blogosphere) disinformation campaign waged for the obscene profit of a few well connected elite financial con artists at the expense of everyone else.
That the MSM (owned by 6 giant corporate trough-feeders) has failed to explain this, to a largely financially illiterate population, is both obvious and self serving.
"I can explain it to you, but I can't understand it for you." - Unknow
I presume he's related, at least intellectually, to Flabby Cone.
Not related to James K. Glassman of Dow 36,000 and yet the resemblance is eerie.
In the spirit of unbridled optimism, the SF Chronicle presents...
California builders say housing slump will turn around this year
"We believe that California has weathered the subprime storm of 2007, the market has almost corrected and that 2008 represents an opportunity to move forward," said Alan Nevin, the Sacramento association's chief economist, on a conference call.
picosec - SF is the heart of denial in NorCal
I think Glassman should start writing comic books! Or at least a good fiction novel. What an absolute joke.
Someone take away that man's Etch-A-Sketch.
Are you sure this graph didn't come from The Onion?
Glassman definitely wants to set himself apart from the "other guy" by demonstrating that he is by far a bigger idiot.
:"I suspect if the primaries were held this Fall, we'd have a different slate."
This is where I think the parties might shoot themselves in the foot. Scenario: it's July or August, just a couple of weeks before the convention. One candidate is a shoe-in for the nomination; had it locked up in February in fact.
But the people have since had four more months to look at him/her, and don't like what they see. He's a loser in the polls. In fact, some of the guys he/she beat out in the primaries are higher-rated.
What'd happen? A lot of last-minute wheeling/dealing/screaming at the convention. The anointed nominee refuses to give up; the party leadership, or part of it, comes out dead against his/her nomination. Could end up bad, like Chicago '68. Party splits, all hell breaks loose. Or, the "leader" could be keelhauled by the party bosses and a dark horse pushed in front of the cameras.
At any rate, in trying to be smart and tweak the primary process in their favor, the big-money candidates may end up making hash out of the whole process. It'll be fun to watch; imagine, a political convention where something's actually decided.
It is not a 'simple error'. It is a intentional error to mislead people
That guy at least served time in the state chamber and made sausage for the locals.
Oh, please...
I'm waiting for a candidate to come along who is proud to send his children to a public school.
Does anyone know the last Presidentital candidate (let alone President) who could say that?
When it does, then we know we have the real deal. But for now, Obama or Edwards is the best we can hope for.
One comment on the graph:
It has a downslope. A huge downslope. Nothing like the 1990-1991 'blip' shown on the graph.
Its going down fast and yet in mid-2008 it suddenly and sharply flattens out?
Oh, I agree, the zero point on the line is off. But I would save this chart. It predicts a slowing of Case-Shiller dropping less in January and Febuary than the drop in 2007. Anyone else think the opposite is happening?
And they predict little undershoot... snicker... That theory shows a flat line into 2015... I'll agree that 2015 will be around or below 4Q2008.
Got popcorn?
Neil
Irvinghousingblog has a graph also. He tries to predict when the rent/buy calculation will signal when to re-enter the market. If I remember correctly it might be sometime in 2011-2012. He says the GRM of 160 is the magic number. I don't know noth'n.
Here is my recreation of the graph.
http://bp3.blogger.com/_KmhLSrQWxsg/R38LSJ6un2I/AAAAAAAAAH0/DXFCfmmnzs4/s1600-h/SHILLER+HPI.jpg
I used household income from Historical Income Tables - Households
I projected 2007 income at the 2006 growth rate.
I used HPI data from Shiller's website. He updates the chart in his book. His book, "Irrational Exuberance", is a must read IMHO.
http://www.irrationalexuberance.com/Fig2.1Shiller.xls
I edited 2007 HPI to reflect an annual decline of 6.7% (10-City Composite).
Interestingly, my graphs don't match Glassman's graph on "Household Income". The gap from HPI to Mean Household income is over 22%, the gap from HPI to Median Household income is over 35%. The difference is Glassman's household income has increased faster than the stats I dug up.
On the DOC website it lists stats for per capita personal income which has grown faster than HPI and household incomes. I believe this is what Glassman is using (not household income). BEA File Error
Per the DOC website, personal income includes the most types of income: Personal income, in general, is a more comprehensive measure. For both the national and regional accounts, personal income is defined as the sum of wage and salary disbursements, supplements to wages and salaries, proprietorsÂ’ income with inventory and capital consumption adjustments, rental income of persons with capital consumption adjustment, personal dividend income, personal interest income, and personal current transfer receipts, less contributions for government social insurance. These measures of personal income include incomes of individuals, nonprofit institutions that primarily serve individuals, private noninsured welfare funds, and private trust funds. Life insurance carriers and noninsured pension plans are not counted as persons, but their income (and saving) is credited to persons.
Personal income is done on a per capita basis not on a household basis.
I am not sure what Glassman was using for Household income. You could flatten the slope of the Personal income to fit the line of HPI, but in doing so, you would bring the end close to where the Household income ends are (you would end up with a big gap suggesting housing is overvalued).
I think CR's initial reaction was right. Something doesn't look right on Glassman's charts. The household income measures look more inline with reality.
Also, I like Glassman's gusty projections on 2008. Yen will go to 119. Euro will be at 1.30 (Even though the Fed funds rate is at 3.5). S&P 500 will rise 12.2% and end at 1650. Inflation will drop to 1.9%. And finally crude oil will drop to $50.
Any comparison of housing costs between 1985 and 2005 tht does not in some way account for cost of debt is st.
Disingenuous bullst.
Housing inventory does not turn 100% per year, thus this very idea that a median income earner should be able to purchase median-priced dwelling strikes me as dubious.
The difference between rents and purchase prices has probably more to do with growing income disparity in the country, credit bubble or not. 20% of the bottom earners barely have enough money to buy food, much less SFR.
The new housing is largely build for higher end of the market and sqf. of new construction is larger than that of existing stock.
It would make much more sense to track price per square foot or at least price of "standard dwelling" as done in Canada. This whole "research" is a poor joke.
FinancialSight:
Thanks for your version of the graph.
By including more information, you allow a comparison of the results when different inputs are calculated.
I agree; the real meat is in comparison of median values.
This gets at the root of the issue, which is affordability for the masses.
Comparing apples, and all that...
Although I am not nearly as pessimistic as most on this board, I would say that the graph is overly optomistic with regard to the selection of the historical norm.
Comparing home prices to incomes is grossly simplistic, and misleading - no matter which price index or income index you use.
The real measure for comparison is fundamental mortgage paying ability, which is a function of income and mortgage rates. The effect of changing interest rates is important.
Averages (incl medians) are misleading because they often are apples and oranges. This is the case with median income vs median home prices.
If you adjust for home size and match the income demographics to the homes being measured, and also incorporate interest rates in the calculation, the result indicates that the price distortion during the 1980s bubble was worse than what we have seen during the recent bubble.
It would take a miracle for the housing market to bottom in 2008. I expect home prices will decline into 2009.
Where is it written that a populist has to be dirt poor. Isn't it possible to have some money and still care about the majority of your fellow citizens, particularly those at the lower half of the distribution. Does your wealth have to come via inheritance like the Roosevelts and the Kennedy's to be a populist? Honestly I can't think of a more "populaist" way to get rich than to be a trail attorney that took on large corporations that act badly. John Edwards simply remebers where he came from. That being said, there is a real debate to be had about if the best way to get change accomplished is by reaching out to the other side (Obama), or by mounting a frontal assault on the entrenched powers (Edwards). The Obama method has the potential downfall of the compromise turning in to capitulation, something the Dems are very good at doing (see Harry Reid). The Edwards method runs the risk of failure through the entrenched powers being strong enough to throw up roadblocks to progress via filibusters etc. The Edwards method says the problem is not that there is to much partisanship in DC, but to little, at least on the Dem side. There is some merit to that, but I fear it could be a "charge of the light brigade". Ultimately I think Obama and Edwards want to bring America to about the same place, a place that would be far better and more fair than the U.S. today, however there is a real difference on how to get there. Honestly I'm not sure which approach is likely to be more effective. Thus the real issue would be which is likely to have longer coat tails. Its hard for me to think that the U.S. would be stupid enough to elect any of the GOP side for potus, but will the Dem nominee have long enough coat tails to get to 60 seats in the Senate. Then again perhaps I am being to optimistic about the intellegience of the U.S. population.