Jas, what do you think about the short end of the curve? Eurodollar futures seem like a screaming buy to me here... pricing in aggressive hikes and/or another blowout in the TED spread
It all depends on whether the Fed will do the conventional thing (brain dead) or actually think about it and do the unconventional.
I think an increase in the funds rate on good economic news will have the effect of showing the market that they are not afraid to raise interest rates. I think this could have a calming effect on both the dollar and long term interest rates- both beneficial to the economy. I don't believe that libor going from 0.63% to 1.5% has any impact on spending.
ZackAttack (homepage, profile) wrote on Wed, 6/10/2009 - 12:52 pm "30 year bounced around in the 7 - 8% range in the late 90s and it was never a problem then."
Zack--
True, I had a 7% loan on my first house in '99. But back then we hadn't yet had the massive ponzi runup of housing prices. The problem with 7-8% mortgages today is they would completely cut the legs out from under house valuations (even from the 2009 post-peak price levels).
"However, five of the Districts noted that the downward trend is showing signs of moderating. Further, contacts from several Districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year."
Signs of moderating? As in "This is your Captain speaking. We are continuing to take water." The good news is we are settling in the water slower so the Wed. night movie will be shown on the fantail?"
Expectations Improved? "We expect attendance at the movie will be high but do not see the need to schedule a new movie for the following week?"
Some here note that 30yr mortgage rates of around 6% are low, historically. However, that's not the point.
To slow the housing collapse and foreclosures (and more to the point, systemic-risk level losses at banks) the rates have to be lower than historic lows. They have to be lower than about 5%, or we risk falling back into the death spiral we were in a short while ago...
From last thread: "Fortress Sebastopol" gave me a big laugh. Maybe we should have military names for Bay Area housing markets: the San Francisco Redoubt, the Vallejo DMZ, Ground Oakland...
Help the chicken farmers with Cash for cluckers-trade a rooster for a hen..In education cash for flunkers- get cash if you go from Straigh A's to F's...preserves serfdom...
cash for truckers-turn in your rig for a cash and wagon-think green baby!!
The shooter at the Holocaust Museum today is a White Supremist who in 1981 tried to conduct a citizens arrest on the Federal Reserve, he was sentenced to six years in prison for that act...
As repugnant as white supremists are to me, he did seem to have the right idea about the FED.
Weak beige book, market pricing in unlikely fed hikes, yet bonds continue to be under pressure...could it have something to do with the fact the federal budget deficit has already hit the $1T level for the year? Hoocoodanode? Just the bbad bond vigilantes I guess.
I'm going to wait until the tax credit is a house.
Oh yea, like the Government cheese, that was some tasty stuff.
With all the mortgages getting piled up on the FED balance sheet it might happen, that or the corps of Engineers get to practice demolitions.
Pigged while playing with dinkytown, but I wanted to drive this point home...
"Blackhalo - Dinkytown generally has the best financial calculators for these sorts of exercises; here's one that would answer your question- http://dinkytown.net/java/MortgageMax.html"
Neat. So, just on the recent move from 4.5% to 5.5%, the affordable median house price goes from 143K to 128K,assuming flat income, but with rising unemployment, I doubt that is the case. Green shoot?
Using 5.8% mortgage borrowed money to time purchase a depreciating asset in a deflationary environment translates into an historically wide spread. It isn't interest rates in isolation but interest rates in context.
LOL nova, you couldn't even make this story up in your afterthecrash musings....It is really beginning to get scary out there. I joke, but all kidding aside, I am getting scared. People snapping is becoming the norm now, a weekly occurance. I am not one of those that has ruled out Mad Max....
The problem with 7-8% mortgages today is they will completely cut the legs out from under house valuations (even from the 2009 post-peak price levels).
So on many of the CRE projects under construction, what will end up happening? The developer has some sort of construction loan that he is unable to roll over at the completion of the project and he'll die under the short term debt?
I tell you one thing, the domino's seem to be lining up for what I see is absolute Deflation in housing, yet Higher Inflation and Higher Interest Rates.
expect June auto sales to really take a hit as people wait for something that won't help most of them...Finance apps for vehicles this month is spooky slow nationwide with best numbers coming from midwest.....
I have a spreadsheet that tracks this in relation to the minimum income required to purchase a median priced home using the 8k credit and FHA down payment requirements of 3.5%. The minimum was 55K last time I checked for Seattle, but with rates pushing upward, it will move higher unless prices move lower. I'm being way more generous than that calculator but there are so many less people above the 70k household income level in Seattle that it boggles that the median is what it is.
Neat. So, just on the recent move from 4.5% to 5.5%, the affordable median house price goes from 143K to 128K. Green shoot?
With the beaten to death caveat that all real estate is local, median income to median houses and the differences are massive in some bubble areas, and minor in some places.
I look at the affordable index for Hawaii and first of all it does not match with reality, IE it's median prices are much lower than what the real median price is. Also between neighbourhoods the median income is light night and day.
But yes I agree this rapid rise in the 10 year stands a very good chance of grinding what little movement in the residential real estate market to a halt, outside of knife catchers and other speculators.
More on topic, the big question is whether the Fed keeps monetizing and tanks the long bond, or will it slow down / stop and tank the equity markets, support the dollar and long bond. It is irritating that we have to try to guess the psychology of these guys to allocate capital correctly.
"8% mortgages and 20% down requirements are roughly equivalent to a 25% drop from current rates and requirements."
Then, does the gov have no choice but continue buying and buying? High interest = less houses and big ticket items purchased = bad things. Bad things can not be allowed so....
Every once in awhile I re-realize how screwed we are.
June 10 (Bloomberg) -- Lawmakers are pushing to revive legislation in the Senate that would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers.
Senator Johnny Isakson, a Georgia Republican, plans to introduce a bill today that increases the tax credit to $15,000 and removes income and other restrictions on who can qualify for the credit, according to his spokesman, Sheridan Watson.
The legislation, which is co-sponsored by Senate Banking Committee Chairman Christopher Dodd of Connecticut and other Democrats, would extend the homebuyer credit to multi-family properties that are used as the borrower’s primary residence. It would also eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit.
"I tell you one thing, the domino's seem to be lining up for what I see is absolute Deflation in housing, yet Higher Inflation and Higher Interest Rates."
Classic hyperinflationary situation - loss of faith in fiat currency (ies). Has nothing to do with demand (except for lack of demand for all the dollars floating around). How much do houses go for in Zimbabwe?
In case you deflationists haven't noticed, oil holding steady above $70.
And just wait until BB really cranks the presses after the next meeting. Whhooooo baby, $100bbl here we come.
Housing prices have only so far they can go down. If anything, banks are probably feeling guilty they stepped in and over refianced causing a slowing down in the fall of prices starting in 2006. That said, as long as the short end of the curve can be held down, they recap at a faster and faster rate pretty much making the price decline a non-loss to the bottom line, though it is nasty for the overindebted. My 2 cents from my sources.
I wonder how much longer the reinflation trade can keep going on. My bet some "poor" economic numbers from June is going to be coming out soon.
A little bit off topic, but some of you might find this of interest, watch the IP and Capacity utilization numbers when they come out next week, esp the mfg utilization numbers. They have a habit of turning up around NBER endo f recssion dates.
"Wow, something that might actually help me. I'm shocked."
My mother once told me, "A discount is only a good deal if you wanted to buy in the first place."
NateTG (profile) wrote (in reply to...) on Wed, 6/10/2009 - 11:27 am
"8% mortgages and 20% down requirements are roughly equivalent to a 25% drop from current rates and requirements."
That (optimistically) assumes that pricing is driven by the monthly, rather than down payment.
You are correct. I performed a conservative all other things equal analysis based just upon the "monthly nut." Once the inability of most potential buyers to come up with the 20% then supply/demand imbalances come into play. And on a sad note; there's a demographic wave coming soon. Too soon. Not only do boomers own too many houses but when they start dying there's a flood of very low cost basis supply ready to take the market down another notch as heirs suddenly find themselves triply over-housed.
"The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the lion lays down with the lamb."
And In some markets only people above that credit cap could actually afford a median priced house. This credit will do NOTHING to those who don't even satisfy cursory FHA guidelines.
Isakson's bill also removes the first-time home buyer restriction in order to stimulate the "trade-up" segment. while they're at it, they need to remove the principal home requirement for the capital gains exclusion
They have to keep monetizing. The Treasury is kicking out debt like there's no tomorrow, and the GSE's are still making mortgages despite the fact that the Fed is the only buyer of MBS.
There's no reversing course. They think they'll be able to once the economy jumps back up, but they don't realize it's hard to jump back up when you're legs are gone.
My mother once told me, "A discount is only a good deal if you wanted to buy in the first place."
I have wanting to buy a single family home for about 8 years now, I have also been howling at the moon at the outrageous prices for houses, far above anything that could be afforded. Thanks to this site and others I refused to listen to the "buy now or be priced out of the market forever". During that time I paid off the mortgage on my current condo, saved up a down payment on a house that I might be able to afford, and sat back and laughed and cried at what I was seeing around me.
Heck, a friend of mine has been living on a boat doing the same thing. Maybe I'm going to have to wait till interest rates go above 8%.
I agree, housing prices don't have much further to fall. in nominal dollars. i suspect that as the dollar gets crushed more and more, and oil rises, a lot of citizens of oil rich countries (Canada included) will be coming down/over to buy a lot of those Florida/Arizona/California/Nevada houses in popular tourist areas.
Most Americans will still be priced out since their wages will continue to decline, and they will be paying more and more for essentials like energy and food.
All part of the transformation into a banana republic.
"They have to keep monetizing"
Agree 100%. There is no way out now. No way. That $300B of Treasuries isn't nearly enough, I expect that to more than triple at the next Fed meeting. That promise is the only thing keeping the 10yr below 4% right now.
If the Fed doesn't increase QE, the 10 year goes to 5% in a flash.
Again, after the '90-'91 recession, SoCal home sales bottomed after 2 years, in 1992, while home prices continued on down 4 more years to a low in 1996, ending the six year price decline.
People who bought into that 6 year price decline were underwater for a decade, and many still in those houses after the unprecedented fed-sponsored credit-binge-housing-runup, are, amazingly, heading back underwater again.
IIRC, the 00-03 mkt downturn and recession followed a path where the market turned up on news recession end in sight but then a few months later, the market resumed its sell off and hit ultimate lows well after after the worst economic conditions had passed. the market generally seems to get too amped up a bit too early and then remembers that economies don't turn on a dime and they can take many quarters to get back to decent growth and earnings levels.
I think Chinese are about to make their brilliant master move. They are buying as much as possible of oil and other commodities, bidding up the prices in dollars. Then they stop supporting the dollar and let their currency to appreciate quite rapidly against dollar, maybe 40-50 percent easily.
During dollar collapse they start SELLING their commodities contracts to lessen the shocking price impact in the markets somewhat. At the same time issue alternative pricing system for commodities because "hey guys, dollar cannot be trusted anymore AS EVERYBODY CAN SEE". They are using the pricing in dollars against Americans themselves!
Total farce that they say they have not "monitized debt" because they say they will sell it later.
Hold and hope has been the view of the system for too long....the Fed reinforces this mantra on a daily basis.
Yalt (profile) wrote (in reply to...) on Wed, 6/10/2009 - 1:37 pm reply Ignore user Patience, Dirk. From the article:
"The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the lion lays down with the lamb."
Gee let's see how US economy is looking into 2011
CRE will be crushed
RRE still tanking
Continuing Unemployment (Jobless Recovery)
Consumer spending going down
from AP - Fed: Weakness Continues but Signs Recession Is Easing
OK ....keep the green shoots economy meme alive for the clueless
"The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the lion lays down with the lamb."
Just the federalization of the keiretsu concept. It's been almost 20 years now...
I agree, housing prices don't have much further to fall. in nominal dollars.
And I vehemently disagree. CRs post about IE prices going back to 80's nominal pricing is a foreshadowing of what's going to happen elsewhere, although admittedly not to the same degree.
There will be no broad-based inflation. Wages, houses, cars, and any discretionary assets will continue to decline in value, whereas anything that can be imported and/or exported (or is dependent upon same) will rise. The latter will exacerbate the former, too, as more money for necessities will leave less for everything else.
"Not only do boomers own too many houses but when they start dying there's a flood of very low cost basis supply ready to take the market down another notch as heirs suddenly find themselves triply over-housed."
I must be an eternal optimist because I agree with what you wrote, but the best action they could take would be to stop and let the markets work. We cannot realign the economy of the US and the world if they keep distorting the markets and since everything they do is unsustainable, they keep making the problem worse through constant misallocations. I think I just want them to stop and do the right thing, but you are probably right.
If they keep on monetizing and at an increasing rate, then I would imagine the following must happen:
temporary huge rally in the USD as something breaks in the world economy again
USD devalued to large extent versus commodities
long bond staying at relatively low level
huge dislocation in all markets as the Treasury market participants attempt to flee
I guess, the best way to profit / maintain wealth would then be to buy gold, wait for oil to fall dramatically and pick some up. All in a foreign currency. Interestingly enough, I have made these plays, but I still have hope and thus still play around in the US equity markets.
Dirk van Dijk (profile) wrote on Wed, 6/10/2009 - 11:46 am
"The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the lion lays down with the lamb."
I know Godot will be here any minute
We are all homeowners now and we aren't going to give anything away.
Gorbachev warns that the world’s current economic model, created by “America’s elite,” is “cracking”
As it comes undone, many will suffer, he predicted. “Including the United States.”
YUP !
I have heard of jobless recoveries, but I have never heard of a profitless recovery. Until the accounting rules makes sense to a 5th grader and true profits return I don't see any improvement.
Unless I'm missing something, all I have seen so far is shuffling of losses to tax credits, which mean nothing until you can make a profit.
"They think they'll be able to once the economy jumps back up, but they don't realize it's hard to jump back up when you're legs are gone."
Really. How many investors are still wanting to get into Maddoff's fund once the economy recovers? MBS are over. Of course GMGMQ makes me scratch my head in wonder.
"WASHINGTON (AP) -- The Federal Reserve lost $5.25 billion in the first quarter on the securities it acquired with last year's bailouts of Bear Stearns and insurer American International Group Inc., according to a report issued Wednesday.
The loss on the holdings, which include mortgage-backed securities, reflected a decline in their value as the recession carried over into the first three months of this year. The cumulative loss on the Bear and AIG holdings come to $16.46 billion since they were taken over last year.
The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the financial and credit crises are past."
--Who says hope is not a strategy? BB clearly has bought fully into the Obama Hope meme.
Blackhalo (homepage, profile) wrote (in reply to...) on Wed, 6/10/2009 - 11:48 am
Still a ways off I think.
Normally i'd agree but then these are not normal times. Severe recessions tend to "capitate" lifespans. Health care costs are self limiting as well. There's a a form of demographic compression going on. My mom and her multiple houses for example. She was born "the day the banks closed." Point being she just barely makes your list. Her extra house next door is so she isn't discomfited by visitors. You are correct it won't happen all at once but it will provide a new constant source of cheap housing that will undercut the entire market for a generation.
True, they must do "something", but we have big problems in the near term that need to be fixed. They could be seen to devote the money into green energy (I include nukes here). There needs to be a dramatic increase in nuclear capacity in the US, and transmission capacity, but it is unlikely it is possible with only the current gen reactors that we have. We need to invest in thorium reactors and breeders, otherwise, I don't foresee us really ever getting out of this downturn. That would be something and an incredibly useful something. Certainly better than just giving trillions to the banksters.
Yalt (profile) wrote (in reply to...) on Wed, 6/10/2009 - 1:37 pm
Patience, Dirk. From the article:
"The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the lion lays down with the lamb."
But the lions have eaten all the lambs and are forced to eat each other.
You're right, the quote doesn't convey what I meant... she also told me that a discount doesn't always turn a bad deal into a good one.
I fully agree, I will only buy a house when the numbers and the odds are in my favor. Which looks like it may be a long time for me here.
Unless I could get a good paying job in some place like Ohio were I could buy a house for what would be my 20% down payment here, and be able to live in it for 10 years while still being able to maintain a high savings rate.
blackhat (profile) wrote on Wed, 6/10/2009 - 11:53 am
Rob Dawg,
How do you see CA playing this July?
Default with USG assuming debt? --bh
CA will not default. CA will not even repudiate. There might be a few cram downs. We already have our bailout. The Feds gave us a zero interest balloon loan due 2011 to cover current unemployment benefits. You aren't going to ever see a penny. This is the new model.
Hi ghostfaceinvestah,
I understand your belief of future hyperinflationary situation. However, I see some other counter arguments from Bob Hoye that we have a huge debt market such that
a) the force of credit contraction is way more powerful than printing, and
b) bond vigelantie could run away (from credit market) much faster when significant monetization is in sight.
The huge credit market (gov and corp bond market) is the key difference between US dollar and the currency of say Weimar, Zimbabwe, Argentina, etc. More specifically, US gov's debt is denomated in its own currency while other's were in some other countries'.
By the way, this was also been pointed out by Robini some time ago.
Agreed. So far they're pretty content to just throw the money at the people that made the mess, though. Remember, the top economic advisers all come from the crowd that brought us here.
"There needs to be a dramatic increase in nuclear capacity in the US, and transmission capacity"
That would also reduce health care costs because pollution is directly related toward allergies, sinus infections, lung problems, ear problems. After Bush let up some regulations in 2001, all those problems have risen through the 00's.
But that is bad bad investment. You have to remember, everything is talk but no action.
Methinks one day soon we'll get what looks like the stick save surge but what will in reality be merely buying in anticipation of a stick save that doesn't come. That's when things could get ugly.
When elected government officials secretly collude with bankers to create a non-governmental Federal Reserve Bank that controls the currency of the country and systematically generates inflation to allow government to spend at an ever increasing rate.
Taxing citizens to create bureaucratic government agencies and programs that fail to accomplish their mission while continuing to grow in size as politicians use them to reward the contributors to their re-election campaigns.
"When elected government officials secretly collude with bankers to create a non-governmental Federal Reserve Bank that controls the currency of the country and systematically generates inflation to allow government to spend at an ever increasing rate."
Incorrect. The "Federal Reserve Bank" was already in use decades before the actual "offiicial" version was formal started in 1913, that was just making it official. The oligarch can go through or over the government. Not everything is done in open.
World B. Broke (profile) wrote on Wed, 6/10/2009 - 11:54 am
The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the financial and credit crises are past."
--Who says hope is not a strategy? BB clearly has bought fully into the Obama Hope meme.
James K. Galbraith is using ‘return to normal’ to the bubble fueled economy where debt does not matter that the US has has since the 1980’s.
Most Americans had better start making the gradual adjustment that the 'party' since Reagan in the 1980’s where deficits did not matter is over and there will be a leveling of the global playing field.
America needs ( or it will be forced ) to lessen it's dependencies on financial engineering and consumer spending ( 70% of GDP ) as key drivers of the debt laden ‘bubble’ US economy.
And I suggest that most should be recalibrating their American dream
Andy: I had Mr. Mozart to keep me company...[He points and taps his head] It was in here. [And he gestures over his heart] And in here. That's the beauty of music. They can't get that from you. Haven't you ever felt that way about music?...Here's where it makes the most sense. You need it so we don't forget...that there are places in the world that aren't made out of stone, that there's, there's somethin' inside that they can't get to, that they can't touch. It's yours.
Red: What are you talkin' about?
Andy: Hope.
Red: Hope? Let me tell you something, my friend. Hope is a dangerous thing. Hope can drive a man insane. It's got no use on the inside. You'd better get used to that idea.
Andy: Like Brooks did?
Red: I don't think you ought to be doing this to yourself, Andy. This is just shitty pipedreams. I mean, Mexico is way the hell down there and you're in here, and that's the way it is.
Andy: Yeah, right. That's the way it is. It's down there and I'm in here. I guess it comes down to a simple choice, really. Get busy livin' or get busy dyin'.
OT: Interesting article in the NYT today about Charitable giving. It fell to 307B in 2008 from $314B in 07, adjusted for inflation thats a 5.7% decline the biggest drop on record. Worse the only catagory of giving that is really going up is that which mostly just helps keep nice old buildings in shape, namely to religion. So much for the idea that we don't need gov't to help the poor, that private charity will do the job. Gifts to churches made up over 1/3 of all charitable giving in 2008.
And I suggest that most should be recalibrating their American dream Wink
How can you plan for the future when all the best and brightest have been so wrong for so long?
To be honest, Financially I'm paralysed since the rules keep changing, the market is as psychotic as I have ever seen, gold, bonds, everywhere just smells bad, just another trap.
Right now what little I have is in mostly cash, and what remains of my 401K is mostly bonds and cash. When I attempt to plan for retirement I have no clue what to predict for inflation, or future returns on savings. But once inflation goes over 3%, taxes increase, and earnings are below 6% I do know I'm kind of screwed.
Maybe I should change my handle to dazed_and_confused.
Hey, this is now popping up on MLS listings here in Hawaii:
"Short Sale (Note: Only 20% of Short Sales close and it normally takes 2 to 4 months before you know if your offer is accepted by the bank)"
Now why does that not give me a warm fuzzy, how long can you usually lock in a fixed rate mortgage? I thought it was usually 30 days.
"I think Chinese are about to make their brilliant master move"
Well.. that would be a great idea if their second largest single market was not the US. China screwing the US would result in massive damage to the low wage, mass labor sectors of their economy. Mass unemployment in China would not be pretty.
Screwing the US would also have a knock on effect for Europe, China's largest market and so even more of a downturn in China.
We can make the same crap here that they make there, it's the manipulated currency cost advantage which they have right now. Remove that and what do they have ?
Here's a really good piece by Michael Pettis on China's domestic growth situation: Stimulus – at what cost?
One quote:
"Beijing will have to jam on the economic brakes to save cities from bankrupting themselves, says a top Chinese adviser. He Fan, an assistant director at the Chinese Academy of Social Sciences who frequently advises top leaders, says as much as two-thirds of Beijing’s 4 trillion yuan ($A773 billion) stimulus program will be spent by local governments, financed mainly by state-owned banks.
“Some local governments will virtually go bankrupt,” Professor He told BusinessDay. “Previously, local governments got all their money from selling land. This is not sustainable. Some areas have already sold quotas from the next 30 years.” A number of large cities are thought to be at risk, including Kunming and Hangzhou, with their funding problems exacerbated by a slump in real estate sales."
@ Kauai_Kahuna (homepage, profile) wrote on Wed, 6/10/2009 - 12:14 pm
I hear you loud and clear !
I'm a freelance consultant that works with emerging software startups and things are good for me now
Too many Americans are still too clueless or just believe the MSM 'happy talk' and gross propaganda from Obamanomics to be dazed_and_confused
Kuaui, my shawshank redemption quote is in regards to your hope statement above...my bad multitasking here...
Yes, it is quite fitting, but I don't really look forward to crawling through miles of sewer to make it out of this mess, and too much drug war violence in central America.
Maybe New Zealand?
Hear, hear. I just initiated a long natgas / short crude trade based on 18 year high spreads between the two. One of the only things I could find that made sense. Of course the spread has increased by 15% since I bought in. Sigh.
"China screwing the US would result in the massive damage to the low wage, mass labor sectors of their economy. Mass unemployment in China would not be pretty."
About 20 percent of EXPORTS go to USA, less than 7-8 percent of their GDP. For more, GDP of China has been growing YEARLY more than their YEARLY US exports total. What makes you think they are dependent on Americans anymore?
China is the pusher, Americans are just delusional debt-junkies with their "my pusher needs me! my pusher needs me!"-talk. Americans actually need that cheap stuff from China through Wal Mart because many cannot afford higher prices!
Taking Stock: Lessons from History, MarketPlace [audio]: Kai Ryssdal: ...Anna Schwartz [is] 93 years old, an economist for more than 60 of them. Still working, every day, at the National Bureau of Economic Research in New York City. Her area of expertise is monetary policy... Specifically, she's an expert in how the Fed blew it during the Great Depression... When I sat down with her in her office..., she made it clear she's none too happy about all of Washington's bailouts, or how the Fed and the Treasury chose who got one and who didn't.
Schwartz: I think both Bush and the Obama administration have not been as hard headed with banks, it has been too lax. And instead if they had said if you cannot raise capital in the market, there is no reason for the government, the people of this country, to provide capital.
I say let's make Anna Schwartz Treasury Secretary ( get rid of Geithner ) or Head of Fed ( get rid of BB )
Economists View has full post on Anna Schwartz: The Fed's Performance "Has been Disappointing"
OT: Interesting article in the NYT today about Charitable giving. It fell to 307B in 2008 from $314B in 07, adjusted for inflation thats a 5.7% decline the biggest drop on record. Worse the only catagory of giving that is really going up is that which mostly just helps keep nice old buildings in shape, namely to religion. So much for the idea that we don't need gov't to help the poor, that private charity will do the job. Gifts to churches made up over 1/3 of all charitable giving in 2008.
It's hell down here in the charitable-giving boiler room; ever-increasing workload, fewer staff, a stress-related hospitalization or two. Just had a consultant tell us we'd have to run as fast as we could just to stay in place; if we wanted to do better than that, throwing more money into fundraising might help.
Comrade Knifecatcher - Of course the spread has increased by 15% since I bought in. Sigh.
The market can remain insane longer than I can remain solvent.
One rule is when your loosing principle on trades, stop and figure out what your doing wrong. My naive conclusion was the manipulation to suck in losers to help prop up the massive dumping due to deleveraging.
So when the game is rigged against me, I stop playing.
Is the end-of-day pump an institution now? Is there an End-Of-Day Pump office at the Fed? Do they do tours? Can I get my picture taken there with the pimply-faced kid in charge?
Well, this is 401(k) stuff - I have full control over how I get screwed, which is good. So it doesn't hurt me in the short term. Everything I have in taxable accounts is cash.
Speaking of full control over how I get screwed.
For the bond gurus here, with the strangeness in bonds, is PTTRX a good holding position, or should I be moving out of it into cash?
.Nah, Americans had their blinders on while shopping in Wallmart, everybody in Uncle's org. was pushing China trade whatever the cost to our own economy. Now, everyone I know want's nothing in their home, on their body or in their body that comes from China. The first US landfeilds were full of trash from Japan, Americans are just that way when the blinders are pulled off. There was something called Ben Franklins five and dime back in the day, it's where we will be again after the drip drip drip stops and we all have to face reality.
TJ and The Bear (profile) wrote on Wed, 6/10/2009 - 2:40 pm
* reply
* Ignore user
Kahne,
They have to keep monetizing. The Treasury is kicking out debt like there's no tomorrow, and the GSE's are still making mortgages despite the fact that the Fed is the only buyer of MBS.
There's no reversing course. They think they'll be able to once the economy jumps back up, but they don't realize it's hard to jump back up when you're legs are gone.
reminds me of researcher who pulled a leg of a centipede and then asked it to jump and it did and continued until he got the last leg. When he pulled that off and the centipede didn't jump he concluded that legless centipedes are deaf!!!
House prices in Central Jersey are dropping like a rock. I've been watching them in my area for over 2 years and the rate of decline has just recently
picked up big time. Maybe the big banks should hold on to their Tarp money just a little longer.
There was something called Ben Franklins five and dime back in the day, it's where we will be again after the drip drip drip stops and we all have to face reality.
Sam Walton got his start with a Ben Franklin store, FYI. It's capitalism; there's always an incentive to total market domination no matter what it takes. Absent any other moderating values or regulations, that's the point.
That said, the wife and I have a kitchen full of non-Chinese pots and pans. Cost an arm and a leg, but it's all sturdy as hell, probably last us a lifetime.
Here comes Kermit. How big do you think JPM's "market on close" order for SPY will be?
Someone must be worried about the follow on consequences of a down outside day followed by crappy retail sales and initial jobless claims reports pending in the premarket.
For some of us, it's already here. DH and I have only bought one house that we still live in but have sold or are in the process of selling 3 houses we've inherited. One of them was part of a messy estate that had 3 houses and 3 sort of related siblings. For us, they are just a money sink since we're not landlords so we've unloaded them as quickly as we could.
Market Update 3:35 pm "August gold futures gyrated just below the unchanged level for most of the session. The contracts finished down $0.70 at $954.00 per barrel."
The American consumer is not blindered, he simply does as he must.
Americans began to shop at discount retailers because that is where they could afford to shop.
As more Americans were down-sized and right-sized and re-tooled and re-schooled, the numbers grew.
Americans have always preferred well-made, attractive goods. But when they can't afford such, they choose the only available alternative, which by definition is low-quality trash. "Hedonic Substitution," I believe they call it.
The low-quality trash is not a statement of the buyer's preference, or of his or her taste in goods, but rather a demonstration of the buyer's means.
"Fontainebleau Las Vegas, a $3 billion resort project on the Las Vegas Strip, filed for bankruptcy-court protection late Tuesday, the project's owners said.
The filing comes after a protracted battle with a group of lenders who pulled out of an $800 million loan needed to finish building the hotel and casino resort -- one of the most lavish planned for Las Vegas.
Fontainebleau is suing the lenders. But its owners said they were still pursuing alternate financing to finish the project."
According to the WSJ...another empty monument in the desert.
For some of us, it's already here. DH and I have only bought one house that we still live in but have sold or are in the process of selling 3 houses we've inherited. One of them was part of a messy estate that had 3 houses and 3 sort of related siblings. For us, they are just a money sink since we're not landlords so we've unloaded them as quickly as we could.
This has always been the way in retiree-heavy communities. Dad's dead, mom dies, and the kids come in from 200 - 2000 miles away to sort things out as fast as they can. They price the houses to sell so they can be shut of it all. Depresses prices beyond where they'd be otherwise.
So yeah, as a nationwide phenomenon, this'd be a pisser.
I would also expect people to try to unload their second or vacation homes as well as they age, either because they're underwater or need the money.
timmyone -
Yes, but I hate being reminded that I'm not nearly as smart as I think I am.
I have to stop letting my ego write checks that reality can't support, but then again I'm still trying to actually see any reality. So I return to my dazed and confused mode, maybe I'll brew up some more beer this afternoon, at least I get something productive out of that.
Everyone seems to know what's happening however there are no laws that are broken...only morality...not that it was very present in year's past but the consequences of it now are too big and far-reaching to be ignored.
Rocky-
some of us do that....it doesn't make it right though.
Bob Dobbs, absolutely correct. Therein lies the "poverty penalty ..."
(Frequent $500 or more repairs of a $500 car is a similar phenomenon ... one effectively buys the same car over and over, because one cannot afford better quality to begin with.)
Bob Dobbs said, "I would also expect people to try to unload their second or vacation homes as well as they age, either because they're underwater or need the money."
Or because they cannot mangage the upkeep on one house, let alone two.
My in-laws fit this category. Their house is a mess, and it's falling apart. They spend some effort keeping up the getaway home at the lake, simply because they know that it is used by others in the family, and guests. They keep it up somewhat out of the shame factor. But they're in their mid-70's and they simply cannot keep up.
Piggy piggy
hyper-inflationary to the core
NPR’s interview (yesterday) with Anna Schwartz. Anna’s interview starts around 09:00 time.
Taking Stock: Lessons from history | Marketplace From American Public Media
kilroy was here beat me to the "beige shoots" line!
best to all
Jas, what do you think about the short end of the curve? Eurodollar futures seem like a screaming buy to me here... pricing in aggressive hikes and/or another blowout in the TED spread
print baby, print it like you stole it.
CRE will be crushed this year and into 2010.
- CR
into 2010, 2011, 2012, 2013, 2014.....
i'm gonna wait until the tax credit goes up to $25K to buy my house.
Isn't the ball in Calvinball beige?
Basel Too,
I'm going to wait until the tax credit is a house.
--bh
I'm sure the offer will be buy a house, finance it at a TARP bank and get a free GM mid-size car.
Rob Dawg (homepage, profile) wrote on Wed, 6/10/2009 - 2:08 pm reply Ignore user Isn't the ball in Calvinball beige?
Only sometimes Dawg. It's Cavlinball.
--bh
Has any scientist ever studied the life span of 'green shoots'?
3 months = how many 'green shoots' years?
We could expand the cash for clunkers idea. Clunker houses and clunker stocks come to mind.
I'm picturing Ben and Timmy standing in front of a giant leaky dike with worried expressions. "We're going to need more fingers."
It all depends on whether the Fed will do the conventional thing (brain dead) or actually think about it and do the unconventional.
I think an increase in the funds rate on good economic news will have the effect of showing the market that they are not afraid to raise interest rates. I think this could have a calming effect on both the dollar and long term interest rates- both beneficial to the economy. I don't believe that libor going from 0.63% to 1.5% has any impact on spending.
Pigged from the last thread:
ZackAttack (homepage, profile) wrote on Wed, 6/10/2009 - 12:52 pm "30 year bounced around in the 7 - 8% range in the late 90s and it was never a problem then."
Zack--
True, I had a 7% loan on my first house in '99. But back then we hadn't yet had the massive ponzi runup of housing prices. The problem with 7-8% mortgages today is they would completely cut the legs out from under house valuations (even from the 2009 post-peak price levels).
"However, five of the Districts noted that the downward trend is showing signs of moderating. Further, contacts from several Districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year."
Signs of moderating? As in "This is your Captain speaking. We are continuing to take water." The good news is we are settling in the water slower so the Wed. night movie will be shown on the fantail?"
Expectations Improved? "We expect attendance at the movie will be high but do not see the need to schedule a new movie for the following week?"
I thought less deterioration was the new advance?
Also pigged from the last thread:
Some here note that 30yr mortgage rates of around 6% are low, historically. However, that's not the point.
To slow the housing collapse and foreclosures (and more to the point, systemic-risk level losses at banks) the rates have to be lower than historic lows. They have to be lower than about 5%, or we risk falling back into the death spiral we were in a short while ago...
Tom Stone:
From last thread: "Fortress Sebastopol" gave me a big laugh. Maybe we should have military names for Bay Area housing markets: the San Francisco Redoubt, the Vallejo DMZ, Ground Oakland...
Help the chicken farmers with Cash for cluckers-trade a rooster for a hen..In education cash for flunkers- get cash if you go from Straigh A's to F's...preserves serfdom...
cash for truckers-turn in your rig for a cash and wagon-think green baby!!
OT, but sorta on on topic
The shooter at the Holocaust Museum today is a White Supremist who in 1981 tried to conduct a citizens arrest on the Federal Reserve, he was sentenced to six years in prison for that act...
As repugnant as white supremists are to me, he did seem to have the right idea about the FED.
Weak beige book, market pricing in unlikely fed hikes, yet bonds continue to be under pressure...could it have something to do with the fact the federal budget deficit has already hit the $1T level for the year? Hoocoodanode? Just the bbad bond vigilantes I guess.
Oh geez it gets better, he was a real estate broker as well...You can't even make this crap up anymore...
Turbo (profile) wrote on Wed, 6/10/2009 - Just the bbad bond vigilantes I guess.
Clearly the federal government has to ban the selling of treasuries to stop the carnage. Extraordinary circumstances and all that.
blackhat -
Basel Too,
I'm going to wait until the tax credit is a house.
Oh yea, like the Government cheese, that was some tasty stuff.
With all the mortgages getting piled up on the FED balance sheet it might happen, that or the corps of Engineers get to practice demolitions.
Pigged while playing with dinkytown, but I wanted to drive this point home...
"Blackhalo - Dinkytown generally has the best financial calculators for these sorts of exercises; here's one that would answer your question- http://dinkytown.net/java/MortgageMax.html"
Neat. So, just on the recent move from 4.5% to 5.5%, the affordable median house price goes from 143K to 128K,assuming flat income, but with rising unemployment, I doubt that is the case. Green shoot?
Using 5.8% mortgage borrowed money to time purchase a depreciating asset in a deflationary environment translates into an historically wide spread. It isn't interest rates in isolation but interest rates in context.
I thought a realtor lic. came with AARP membership?
nova,
the opposite headline would be 7 of 12 districts see deterioting conditions...can't have that.....
Comrade Kristina -
The shooter at the Holocaust Museum today is a White Supremist who in 1981
There is no age limit on hate, or insanity.
LOL nova, you couldn't even make this story up in your afterthecrash musings....It is really beginning to get scary out there. I joke, but all kidding aside, I am getting scared. People snapping is becoming the norm now, a weekly occurance. I am not one of those that has ruled out Mad Max....
Rob Dawg: It isn't interest rates in isolation but interest rates in context.
/ding ding ding
--bh
The problem with 7-8% mortgages today is they will completely cut the legs out from under house valuations (even from the 2009 post-peak price levels).
Minor correction.
"I thought a realtor lic. came with AARP membership? "
Pretty sure it is the other way around...
I didn't think anyone read my doom porn anymore. Go economic collapse! Green shoots for potential readership !
8% mortgages and 20% down requirements are roughly equivalent to a 25% drop from current rates and requirements.
head line from Bloomberg _ "Fed Beige Book says recession may be moderating"
Are they reading the same Beige book.?
So on many of the CRE projects under construction, what will end up happening? The developer has some sort of construction loan that he is unable to roll over at the completion of the project and he'll die under the short term debt?
::scratching head:::
rising dollar, rising oil.
nova, I DO!!! Entertaining stuff...
I tell you one thing, the domino's seem to be lining up for what I see is absolute Deflation in housing, yet Higher Inflation and Higher Interest Rates.
Ouch: Yahoo! 404 - Page Not Found
CRVIX in the mid 700s. Big green shoot up since the beige shoots withered an hour ago.
ot- Re-cash for clunkers..
expect June auto sales to really take a hit as people wait for something that won't help most of them...Finance apps for vehicles this month is spooky slow nationwide with best numbers coming from midwest.....
Assume Crash Positions wrote:
I'm picturing Ben and Timmy standing in front of a giant leaky dike with worried expressions. "We're going to need more fingers."
Actually, I picture them with their heads stuck into the holes, but that is just me.
I have a spreadsheet that tracks this in relation to the minimum income required to purchase a median priced home using the 8k credit and FHA down payment requirements of 3.5%. The minimum was 55K last time I checked for Seattle, but with rates pushing upward, it will move higher unless prices move lower. I'm being way more generous than that calculator but there are so many less people above the 70k household income level in Seattle that it boggles that the median is what it is.
when do we start the pillaging?
Blackhalo -
Neat. So, just on the recent move from 4.5% to 5.5%, the affordable median house price goes from 143K to 128K. Green shoot?
With the beaten to death caveat that all real estate is local, median income to median houses and the differences are massive in some bubble areas, and minor in some places.
I look at the affordable index for Hawaii and first of all it does not match with reality, IE it's median prices are much lower than what the real median price is. Also between neighbourhoods the median income is light night and day.
But yes I agree this rapid rise in the 10 year stands a very good chance of grinding what little movement in the residential real estate market to a halt, outside of knife catchers and other speculators.
Thanks TJ.
But may I add The inflation will not be from demand inflation,payroll inflation or housing inflation
"8% mortgages and 20% down requirements are roughly equivalent to a 25% drop from current rates and requirements."
That (optimistically) assumes that pricing is driven by the monthly, rather than down payment.
CR,
Did you mean "Economic Conditions"?
More on topic, the big question is whether the Fed keeps monetizing and tanks the long bond, or will it slow down / stop and tank the equity markets, support the dollar and long bond. It is irritating that we have to try to guess the psychology of these guys to allocate capital correctly.
russia's move out of treasury
The Debts of a Nation: The Debts of the Lenders: Bond Vigilantes Migrate To Russia Part 2
Forget all this esoteric econometricalizationariafying. The real important number: Obama's negatives have tripled since Jan 21st.
Gallup poll.
Higher oil prices doesn't mean inflation if the prices depress demand for other goods.
It is irritating that we have to try to guess the psychology of these guys to allocate capital correctly.
+1!!!!!!
Elmer Fudd asked:
when do we start the pillaging?
Not soon. With the brand new paygo rules from Obama, Congress is having trouble finding the money to pay for the burning and the looting.
Rajesh,
O.k. Higher oil prices means it takes more dollars to buy the same amount of oil because the dollar is tanking.
your point?
--bh
"8% mortgages and 20% down requirements are roughly equivalent to a 25% drop from current rates and requirements."
Then, does the gov have no choice but continue buying and buying? High interest = less houses and big ticket items purchased = bad things. Bad things can not be allowed so....
Every once in awhile I re-realize how screwed we are.
"Using 5.8% mortgage borrowed money to time purchase a depreciating asset in a deflationary environment translates into an historically wide spread."
Ding, ding!!!
"Higher oil prices doesn't mean inflation if the prices depress demand for other goods."
If inflation means 'drop in dollar buying power' then it can still mean that.
Actually It's not inflation, it's bankruptcy.
June 10 (Bloomberg) -- Lawmakers are pushing to revive legislation in the Senate that would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers.
Senator Johnny Isakson, a Georgia Republican, plans to introduce a bill today that increases the tax credit to $15,000 and removes income and other restrictions on who can qualify for the credit, according to his spokesman, Sheridan Watson.
The legislation, which is co-sponsored by Senate Banking Committee Chairman Christopher Dodd of Connecticut and other Democrats, would extend the homebuyer credit to multi-family properties that are used as the borrower’s primary residence. It would also eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit.
"I tell you one thing, the domino's seem to be lining up for what I see is absolute Deflation in housing, yet Higher Inflation and Higher Interest Rates."
Classic hyperinflationary situation - loss of faith in fiat currency (ies). Has nothing to do with demand (except for lack of demand for all the dollars floating around). How much do houses go for in Zimbabwe?
In case you deflationists haven't noticed, oil holding steady above $70.
And just wait until BB really cranks the presses after the next meeting. Whhooooo baby, $100bbl here we come.
Housing prices have only so far they can go down. If anything, banks are probably feeling guilty they stepped in and over refianced causing a slowing down in the fall of prices starting in 2006. That said, as long as the short end of the curve can be held down, they recap at a faster and faster rate pretty much making the price decline a non-loss to the bottom line, though it is nasty for the overindebted. My 2 cents from my sources.
I wonder how much longer the reinflation trade can keep going on. My bet some "poor" economic numbers from June is going to be coming out soon.
Nemo - "10-year auction is done, so I bet the yield does not climb much higher today."
Only if Ben holds the line @ 4%. Dollar should drop, if he does.
fried -
It would also eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit.
Wow, something that might actually help me. I'm shocked.
A little bit off topic, but some of you might find this of interest, watch the IP and Capacity utilization numbers when they come out next week, esp the mfg utilization numbers. They have a habit of turning up around NBER endo f recssion dates.
Cap Utilization to Give Clues
"Housing prices have only so far they can go down."
Housing prices in Japan declined for 15 years.
"Wow, something that might actually help me. I'm shocked."
My mother once told me, "A discount is only a good deal if you wanted to buy in the first place."
NateTG (profile) wrote (in reply to...) on Wed, 6/10/2009 - 11:27 am
"8% mortgages and 20% down requirements are roughly equivalent to a 25% drop from current rates and requirements."
That (optimistically) assumes that pricing is driven by the monthly, rather than down payment.
You are correct. I performed a conservative all other things equal analysis based just upon the "monthly nut." Once the inability of most potential buyers to come up with the 20% then supply/demand imbalances come into play. And on a sad note; there's a demographic wave coming soon. Too soon. Not only do boomers own too many houses but when they start dying there's a flood of very low cost basis supply ready to take the market down another notch as heirs suddenly find themselves triply over-housed.
"Housing prices in Japan declined for 15 years"
Look at the speed, snails pace.
Patience, Dirk. From the article:
"The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the lion lays down with the lamb."
NateTG-
My mother once told me, "A discount is only a good deal if you wanted to buy in the first place."
mine used the bread or butter line...bread you need not so much the butter..
Actually, I picture them with their heads stuck into the holes, but that is just me.
I figured their heads were already shoved up other holes that aren't in the dike.
And In some markets only people above that credit cap could actually afford a median priced house. This credit will do NOTHING to those who don't even satisfy cursory FHA guidelines.
Isakson's bill also removes the first-time home buyer restriction in order to stimulate the "trade-up" segment. while they're at it, they need to remove the principal home requirement for the capital gains exclusion
Kahne,
They have to keep monetizing. The Treasury is kicking out debt like there's no tomorrow, and the GSE's are still making mortgages despite the fact that the Fed is the only buyer of MBS.
There's no reversing course. They think they'll be able to once the economy jumps back up, but they don't realize it's hard to jump back up when you're legs are gone.
"People snapping is becoming the norm now, a weekly occurrence."
.....Chill, CK.......Most drinkers never hurt their bartender.....(who would serve the next one)?
Basel Too,
Agree. Also need a time-share investment clause (beach house), and of course, the cabin in the country clause.
--bh
If Isakson's bil is passed how many are going to swap houses with neighbors and collect the 15K?
NateTG -
My mother once told me, "A discount is only a good deal if you wanted to buy in the first place."
I have wanting to buy a single family home for about 8 years now, I have also been howling at the moon at the outrageous prices for houses, far above anything that could be afforded. Thanks to this site and others I refused to listen to the "buy now or be priced out of the market forever". During that time I paid off the mortgage on my current condo, saved up a down payment on a house that I might be able to afford, and sat back and laughed and cried at what I was seeing around me.
Heck, a friend of mine has been living on a boat doing the same thing. Maybe I'm going to have to wait till interest rates go above 8%.
Why can't the govt. buy houses and give them to people ? Wouldn't that be an excellent stimulus for the economy ?
Amid all the QE and monetizing, this will get zero airplay anywhere.
BP World Energy Review out today. Read the first sentence on this page:
Oil reserves | Statistical Review 2009 | BP
This is the first year since data has been collected that world reserves were lower than the year before.
If you tool around the site, there's also a nifty charting tool that lets you look at the data a lot of different ways.
I agree, housing prices don't have much further to fall. in nominal dollars. i suspect that as the dollar gets crushed more and more, and oil rises, a lot of citizens of oil rich countries (Canada included) will be coming down/over to buy a lot of those Florida/Arizona/California/Nevada houses in popular tourist areas.
Most Americans will still be priced out since their wages will continue to decline, and they will be paying more and more for essentials like energy and food.
All part of the transformation into a banana republic.
"They have to keep monetizing"
Agree 100%. There is no way out now. No way. That $300B of Treasuries isn't nearly enough, I expect that to more than triple at the next Fed meeting. That promise is the only thing keeping the 10yr below 4% right now.
If the Fed doesn't increase QE, the 10 year goes to 5% in a flash.
agents ... reported an uptick in home sales.
Again, after the '90-'91 recession, SoCal home sales bottomed after 2 years, in 1992, while home prices continued on down 4 more years to a low in 1996, ending the six year price decline.
People who bought into that 6 year price decline were underwater for a decade, and many still in those houses after the unprecedented fed-sponsored credit-binge-housing-runup, are, amazingly, heading back underwater again.
load the helicopters Ben, stop beating around the bush
IIRC, the 00-03 mkt downturn and recession followed a path where the market turned up on news recession end in sight but then a few months later, the market resumed its sell off and hit ultimate lows well after after the worst economic conditions had passed. the market generally seems to get too amped up a bit too early and then remembers that economies don't turn on a dime and they can take many quarters to get back to decent growth and earnings levels.
feels eerily similar this time.
So when do we start eating each other?
Yes....Waiter can I have the blond 5' -3 110 pounds medium rare and a side of gravy.
yuan (profile) wrote on Wed, 6/10/2009 - 1:35 pm replyIgnore user"Housing prices have only so far they can go down."
Housing prices in Japan declined for 15 years.
True, they do not tend to go below zero, even in the worst hoods of Detroit
"Housing prices in Japan declined for 15 years"
And their problem was actually CRE, which should theoretically have had limited bleedover into RRE.
I think Chinese are about to make their brilliant master move. They are buying as much as possible of oil and other commodities, bidding up the prices in dollars. Then they stop supporting the dollar and let their currency to appreciate quite rapidly against dollar, maybe 40-50 percent easily.
During dollar collapse they start SELLING their commodities contracts to lessen the shocking price impact in the markets somewhat. At the same time issue alternative pricing system for commodities because "hey guys, dollar cannot be trusted anymore AS EVERYBODY CAN SEE". They are using the pricing in dollars against Americans themselves!
Black Star Ranch -
.....Chill, CR.......Most drinkers never hurt their bartender.....(who would serve the next one)?
You never poison the well you drink from.
cummon hockey-stick, we're counting on you!
splat- good one you beat me to it.
Total farce that they say they have not "monitized debt" because they say they will sell it later.
Hold and hope has been the view of the system for too long....the Fed reinforces this mantra on a daily basis.
Ciao
MS
Yalt (profile) wrote (in reply to...) on Wed, 6/10/2009 - 1:37 pm reply Ignore user Patience, Dirk. From the article:
"The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the lion lays down with the lamb."
I know Godot will be here any minute
Gee let's see how US economy is looking into 2011
CRE will be crushed
RRE still tanking
Continuing Unemployment (Jobless Recovery)
Consumer spending going down
from AP - Fed: Weakness Continues but Signs Recession Is Easing
OK ....keep the green shoots economy meme alive for the clueless
"The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the lion lays down with the lamb."
Just the federalization of the keiretsu concept. It's been almost 20 years now...
I agree, housing prices don't have much further to fall. in nominal dollars.
And I vehemently disagree. CRs post about IE prices going back to 80's nominal pricing is a foreshadowing of what's going to happen elsewhere, although admittedly not to the same degree.
There will be no broad-based inflation. Wages, houses, cars, and any discretionary assets will continue to decline in value, whereas anything that can be imported and/or exported (or is dependent upon same) will rise. The latter will exacerbate the former, too, as more money for necessities will leave less for everything else.
Table 9. Death rates by age and age-adjusted death rates
for the 15 leading causes of death in 2005: United States, 1999-2005
"Not only do boomers own too many houses but when they start dying there's a flood of very low cost basis supply ready to take the market down another notch as heirs suddenly find themselves triply over-housed."
55-64 years 65-74 years 75-84 years
906.9/100K 2,137.1/100K 5,260.01/100K
Still a ways off I think.
TJ and the Bear,
I must be an eternal optimist because I agree with what you wrote, but the best action they could take would be to stop and let the markets work. We cannot realign the economy of the US and the world if they keep distorting the markets and since everything they do is unsustainable, they keep making the problem worse through constant misallocations. I think I just want them to stop and do the right thing, but you are probably right.
If they keep on monetizing and at an increasing rate, then I would imagine the following must happen:
I guess, the best way to profit / maintain wealth would then be to buy gold, wait for oil to fall dramatically and pick some up. All in a foreign currency. Interestingly enough, I have made these plays, but I still have hope and thus still play around in the US equity markets.
Splat asks:
Why can't the govt. buy houses and give them to people ? Wouldn't that be an excellent stimulus for the economy ?
When Sarcasm Loses It's Punch.
Dirk van Dijk (profile) wrote on Wed, 6/10/2009 - 11:46 am
"The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the lion lays down with the lamb."
I know Godot will be here any minute
We are all homeowners now and we aren't going to give anything away.
Gorbachev warns that the world’s current economic model, created by “America’s elite,” is “cracking”
As it comes undone, many will suffer, he predicted. “Including the United States.”
YUP !
I have heard of jobless recoveries, but I have never heard of a profitless recovery. Until the accounting rules makes sense to a 5th grader and true profits return I don't see any improvement.
Unless I'm missing something, all I have seen so far is shuffling of losses to tax credits, which mean nothing until you can make a profit.
"They think they'll be able to once the economy jumps back up, but they don't realize it's hard to jump back up when you're legs are gone."
Really. How many investors are still wanting to get into Maddoff's fund once the economy recovers? MBS are over. Of course GMGMQ makes me scratch my head in wonder.
can you buy one of those $1 houses in Detroit and get the tax credit?
but the best action they could take would be to stop and let the markets work
Not in the politician's -- and I count the Fed Govs among them -- playbook. They have to "do something".
"I have wanting to buy a single family home for about 8 years now, ... to wait till interest rates go above 8%."
You're right, the quote doesn't convey what I meant... she also told me that a discount doesn't always turn a bad deal into a good one.
Rob Dawg,
How do you see CA playing this July?
Default with USG assuming debt?
--bh
Alas Comrade Elmer, the credit is currently limited by the value of the house.
Yahoo! 404 - Page Not Found
"WASHINGTON (AP) -- The Federal Reserve lost $5.25 billion in the first quarter on the securities it acquired with last year's bailouts of Bear Stearns and insurer American International Group Inc., according to a report issued Wednesday.
The loss on the holdings, which include mortgage-backed securities, reflected a decline in their value as the recession carried over into the first three months of this year. The cumulative loss on the Bear and AIG holdings come to $16.46 billion since they were taken over last year.
The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the financial and credit crises are past."
--Who says hope is not a strategy? BB clearly has bought fully into the Obama Hope meme.
I guess the $11BB they bought this week is not monetizing?
Federal Reserve Bank of New York - Permanent Open Market Operations
I am sure they will sell them eventually.
Blackhalo (homepage, profile) wrote (in reply to...) on Wed, 6/10/2009 - 11:48 am
Still a ways off I think.
Normally i'd agree but then these are not normal times. Severe recessions tend to "capitate" lifespans. Health care costs are self limiting as well. There's a a form of demographic compression going on. My mom and her multiple houses for example. She was born "the day the banks closed." Point being she just barely makes your list. Her extra house next door is so she isn't discomfited by visitors. You are correct it won't happen all at once but it will provide a new constant source of cheap housing that will undercut the entire market for a generation.
TJ and the Bear,
True, they must do "something", but we have big problems in the near term that need to be fixed. They could be seen to devote the money into green energy (I include nukes here). There needs to be a dramatic increase in nuclear capacity in the US, and transmission capacity, but it is unlikely it is possible with only the current gen reactors that we have. We need to invest in thorium reactors and breeders, otherwise, I don't foresee us really ever getting out of this downturn. That would be something and an incredibly useful something. Certainly better than just giving trillions to the banksters.
Yalt (profile) wrote (in reply to...) on Wed, 6/10/2009 - 1:37 pm
Patience, Dirk. From the article:
"The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the lion lays down with the lamb."
But the lions have eaten all the lambs and are forced to eat each other.
NateTG -
You're right, the quote doesn't convey what I meant... she also told me that a discount doesn't always turn a bad deal into a good one.
I fully agree, I will only buy a house when the numbers and the odds are in my favor. Which looks like it may be a long time for me here.
Unless I could get a good paying job in some place like Ohio were I could buy a house for what would be my 20% down payment here, and be able to live in it for 10 years while still being able to maintain a high savings rate.
"Hope is not a strategy?", yes it is. But usually it is not a workable plan.
blackhat (profile) wrote on Wed, 6/10/2009 - 11:53 am
Rob Dawg,
How do you see CA playing this July?
Default with USG assuming debt? --bh
CA will not default. CA will not even repudiate. There might be a few cram downs. We already have our bailout. The Feds gave us a zero interest balloon loan due 2011 to cover current unemployment benefits. You aren't going to ever see a penny. This is the new model.
I know Godot will be here any minute
Yes, now I remember, yesterday evening we spent blathering about nothing in particular. That's been going on now for half a century.
potential stick save alert
Hi ghostfaceinvestah,
I understand your belief of future hyperinflationary situation. However, I see some other counter arguments from Bob Hoye that we have a huge debt market such that
a) the force of credit contraction is way more powerful than printing, and
b) bond vigelantie could run away (from credit market) much faster when significant monetization is in sight.
The huge credit market (gov and corp bond market) is the key difference between US dollar and the currency of say Weimar, Zimbabwe, Argentina, etc. More specifically, US gov's debt is denomated in its own currency while other's were in some other countries'.
By the way, this was also been pointed out by Robini some time ago.
Your thoughts?
kahne,
Agreed. So far they're pretty content to just throw the money at the people that made the mess, though. Remember, the top economic advisers all come from the crowd that brought us here.
Man, who pushed the button on the 10 - year?
"There needs to be a dramatic increase in nuclear capacity in the US, and transmission capacity"
That would also reduce health care costs because pollution is directly related toward allergies, sinus infections, lung problems, ear problems. After Bush let up some regulations in 2001, all those problems have risen through the 00's.
But that is bad bad investment. You have to remember, everything is talk but no action.
potential stick save alert
Methinks one day soon we'll get what looks like the stick save surge but what will in reality be merely buying in anticipation of a stick save that doesn't come. That's when things could get ugly.
When elected government officials secretly collude with bankers to create a non-governmental Federal Reserve Bank that controls the currency of the country and systematically generates inflation to allow government to spend at an ever increasing rate.
Taxing citizens to create bureaucratic government agencies and programs that fail to accomplish their mission while continuing to grow in size as politicians use them to reward the contributors to their re-election campaigns.
good articles for slow news days: Econ & Finance Articles Updated Daily
"When elected government officials secretly collude with bankers to create a non-governmental Federal Reserve Bank that controls the currency of the country and systematically generates inflation to allow government to spend at an ever increasing rate."
Incorrect. The "Federal Reserve Bank" was already in use decades before the actual "offiicial" version was formal started in 1913, that was just making it official. The oligarch can go through or over the government. Not everything is done in open.
World B. Broke (profile) wrote on Wed, 6/10/2009 - 11:54 am
The Fed is hoping that if it holds onto the securities long enough, they will eventually rise in value once the economy returns to full health again, the housing market heals and the financial and credit crises are past."
--Who says hope is not a strategy? BB clearly has bought fully into the Obama Hope meme.
What nonense...There will be no No Return to Normal No Return to Normal - James K. Galbraith
James K. Galbraith is using ‘return to normal’ to the bubble fueled economy where debt does not matter that the US has has since the 1980’s.
Most Americans had better start making the gradual adjustment that the 'party' since Reagan in the 1980’s where deficits did not matter is over and there will be a leveling of the global playing field.
America needs ( or it will be forced ) to lessen it's dependencies on financial engineering and consumer spending ( 70% of GDP ) as key drivers of the debt laden ‘bubble’ US economy.
And I suggest that most should be recalibrating their American dream
Hope according to red in Shawshank redemption..
http://www.youtube.com/watch?v=hWUfFwoe8ko
Andy: I had Mr. Mozart to keep me company...[He points and taps his head] It was in here. [And he gestures over his heart] And in here. That's the beauty of music. They can't get that from you. Haven't you ever felt that way about music?...Here's where it makes the most sense. You need it so we don't forget...that there are places in the world that aren't made out of stone, that there's, there's somethin' inside that they can't get to, that they can't touch. It's yours.
Red: What are you talkin' about?
Andy: Hope.
Red: Hope? Let me tell you something, my friend. Hope is a dangerous thing. Hope can drive a man insane. It's got no use on the inside. You'd better get used to that idea.
Andy: Like Brooks did?
Red: I don't think you ought to be doing this to yourself, Andy. This is just shitty pipedreams. I mean, Mexico is way the hell down there and you're in here, and that's the way it is.
Andy: Yeah, right. That's the way it is. It's down there and I'm in here. I guess it comes down to a simple choice, really. Get busy livin' or get busy dyin'.
It's out there somewhere, and my kids will need to know about it: The Recoveryless Job.
OT: Interesting article in the NYT today about Charitable giving. It fell to 307B in 2008 from $314B in 07, adjusted for inflation thats a 5.7% decline the biggest drop on record. Worse the only catagory of giving that is really going up is that which mostly just helps keep nice old buildings in shape, namely to religion. So much for the idea that we don't need gov't to help the poor, that private charity will do the job. Gifts to churches made up over 1/3 of all charitable giving in 2008.
Charitable giving... fell to 307B in 2008 from $314B in 07
A thousand points of blight.
Gifts to churches made up over 1/3 of all charitable giving in 2008.
how else could you fake that line item cash charitable deduction to the church you never go to? too bad IRS keeps tightening the rules
"If the Fed doesn't increase QE, the 10 year goes to 5% in a flash."
I do not think that will work, if the goal is to keep interest rates low, as inflation will kick their ass if they QE.
km4 -
And I suggest that most should be recalibrating their American dream Wink
How can you plan for the future when all the best and brightest have been so wrong for so long?
To be honest, Financially I'm paralysed since the rules keep changing, the market is as psychotic as I have ever seen, gold, bonds, everywhere just smells bad, just another trap.
Right now what little I have is in mostly cash, and what remains of my 401K is mostly bonds and cash. When I attempt to plan for retirement I have no clue what to predict for inflation, or future returns on savings. But once inflation goes over 3%, taxes increase, and earnings are below 6% I do know I'm kind of screwed.
Maybe I should change my handle to dazed_and_confused.
QE is for the short curve, not the long. People still don't get it. Watch the short side.
Hey, this is now popping up on MLS listings here in Hawaii:
"Short Sale (Note: Only 20% of Short Sales close and it normally takes 2 to 4 months before you know if your offer is accepted by the bank)"
Now why does that not give me a warm fuzzy, how long can you usually lock in a fixed rate mortgage? I thought it was usually 30 days.
Someone please turn the lights off on the way out.
"I think Chinese are about to make their brilliant master move"
Well.. that would be a great idea if their second largest single market was not the US. China screwing the US would result in massive damage to the low wage, mass labor sectors of their economy. Mass unemployment in China would not be pretty.
Screwing the US would also have a knock on effect for Europe, China's largest market and so even more of a downturn in China.
We can make the same crap here that they make there, it's the manipulated currency cost advantage which they have right now. Remove that and what do they have ?
Here's a really good piece by Michael Pettis on China's domestic growth situation: Stimulus – at what cost?
One quote:
"Beijing will have to jam on the economic brakes to save cities from bankrupting themselves, says a top Chinese adviser. He Fan, an assistant director at the Chinese Academy of Social Sciences who frequently advises top leaders, says as much as two-thirds of Beijing’s 4 trillion yuan ($A773 billion) stimulus program will be spent by local governments, financed mainly by state-owned banks.
“Some local governments will virtually go bankrupt,” Professor He told BusinessDay. “Previously, local governments got all their money from selling land. This is not sustainable. Some areas have already sold quotas from the next 30 years.” A number of large cities are thought to be at risk, including Kunming and Hangzhou, with their funding problems exacerbated by a slump in real estate sales."
Kuaui, my shawshank redemption quote is in regards to your hope statement above...my bad multitasking here...
@ Kauai_Kahuna (homepage, profile) wrote on Wed, 6/10/2009 - 12:14 pm
I hear you loud and clear !
I'm a freelance consultant that works with emerging software startups and things are good for me now
Too many Americans are still too clueless or just believe the MSM 'happy talk' and gross propaganda from Obamanomics to be dazed_and_confused
creditcriminalslovetarp -
Kuaui, my shawshank redemption quote is in regards to your hope statement above...my bad multitasking here...
Yes, it is quite fitting, but I don't really look forward to crawling through miles of sewer to make it out of this mess, and too much drug war violence in central America.
Maybe New Zealand?
Kauai, Actually I like Northern Uruquay or Costa Rica..
Hear, hear. I just initiated a long natgas / short crude trade based on 18 year high spreads between the two. One of the only things I could find that made sense. Of course the spread has increased by 15% since I bought in. Sigh.
"China screwing the US would result in the massive damage to the low wage, mass labor sectors of their economy. Mass unemployment in China would not be pretty."
About 20 percent of EXPORTS go to USA, less than 7-8 percent of their GDP. For more, GDP of China has been growing YEARLY more than their YEARLY US exports total. What makes you think they are dependent on Americans anymore?
China is the pusher, Americans are just delusional debt-junkies with their "my pusher needs me! my pusher needs me!"-talk. Americans actually need that cheap stuff from China through Wal Mart because many cannot afford higher prices!
Taking Stock: Lessons from History, MarketPlace [audio]: Kai Ryssdal: ...Anna Schwartz [is] 93 years old, an economist for more than 60 of them. Still working, every day, at the National Bureau of Economic Research in New York City. Her area of expertise is monetary policy... Specifically, she's an expert in how the Fed blew it during the Great Depression... When I sat down with her in her office..., she made it clear she's none too happy about all of Washington's bailouts, or how the Fed and the Treasury chose who got one and who didn't.
Schwartz: I think both Bush and the Obama administration have not been as hard headed with banks, it has been too lax. And instead if they had said if you cannot raise capital in the market, there is no reason for the government, the people of this country, to provide capital.
I say let's make Anna Schwartz Treasury Secretary ( get rid of Geithner ) or Head of Fed ( get rid of BB )
Economists View has full post on Anna Schwartz: The Fed's Performance "Has been Disappointing"
OT: Interesting article in the NYT today about Charitable giving. It fell to 307B in 2008 from $314B in 07, adjusted for inflation thats a 5.7% decline the biggest drop on record. Worse the only catagory of giving that is really going up is that which mostly just helps keep nice old buildings in shape, namely to religion. So much for the idea that we don't need gov't to help the poor, that private charity will do the job. Gifts to churches made up over 1/3 of all charitable giving in 2008.
It's hell down here in the charitable-giving boiler room; ever-increasing workload, fewer staff, a stress-related hospitalization or two. Just had a consultant tell us we'd have to run as fast as we could just to stay in place; if we wanted to do better than that, throwing more money into fundraising might help.
what gives on the 10-year?
Comrade Knifecatcher - Of course the spread has increased by 15% since I bought in. Sigh.
The market can remain insane longer than I can remain solvent.
One rule is when your loosing principle on trades, stop and figure out what your doing wrong. My naive conclusion was the manipulation to suck in losers to help prop up the massive dumping due to deleveraging.
So when the game is rigged against me, I stop playing.
Yes we do!
COME ON, YA KERMIT...... YA!
cummon, JPM, you know you can do it...
Is the end-of-day pump an institution now? Is there an End-Of-Day Pump office at the Fed? Do they do tours? Can I get my picture taken there with the pimply-faced kid in charge?
QE is for the short curve, not the long. People still don't get it. Watch the short side.
could you expand on this? it appears to my naive eyes that there is more than just QE on the short curve.
Thanks in advance.
Is the end-of-day pump an institution now?
Only until the proles step and and start buying at 3pm.
Then it will turn into "end of day dump".
"The major indexes bounced off of their session lows to post very moderate losses today."
No, Mr. Beach, Timmay is much too busy pushing the buttons for photo ops...
JPM doing rapid-fire bids on 5K lots of SPY above the last ask.
It's been their MO for days/weeks now. They don't even bother obscuring what they're doing now.
Well, this is 401(k) stuff - I have full control over how I get screwed, which is good. So it doesn't hurt me in the short term. Everything I have in taxable accounts is cash.
-Jason
Hrm. PPT may have taken the day off.
PPT may have taken the day off
They're just taunting the bears.
I might have to amend my headline. Looks like Kermit will make his appearance shortly.
Speaking of full control over how I get screwed.
For the bond gurus here, with the strangeness in bonds, is PTTRX a good holding position, or should I be moving out of it into cash?
We need krugman to call the end of the recession every day.
that looked like another round of big buys
"r when significant monetization is in sight. "
ANY monetization is significant....the only reason bonds have not puked is the "nudge,nudge, wink,wink" Gross gets from the two headed monster.
Ciao
MS
This is just genius. Print enough cash and give it out to banksters instead of nationalizing them and you get this - a casino.
When the history of this period is written, the historians will be confused as to why we didn't see our future coming. It was so obvious in hindsight.
BTW I think JPM uses MWSE on the SPY....whoever does is the likely suspect.
Ciao
MS
.Nah, Americans had their blinders on while shopping in Wallmart, everybody in Uncle's org. was pushing China trade whatever the cost to our own economy. Now, everyone I know want's nothing in their home, on their body or in their body that comes from China. The first US landfeilds were full of trash from Japan, Americans are just that way when the blinders are pulled off. There was something called Ben Franklins five and dime back in the day, it's where we will be again after the drip drip drip stops and we all have to face reality.
TJ and The Bear (profile) wrote on Wed, 6/10/2009 - 2:40 pm
* reply
* Ignore user
Kahne,
They have to keep monetizing. The Treasury is kicking out debt like there's no tomorrow, and the GSE's are still making mortgages despite the fact that the Fed is the only buyer of MBS.
There's no reversing course. They think they'll be able to once the economy jumps back up, but they don't realize it's hard to jump back up when you're legs are gone.
reminds me of researcher who pulled a leg of a centipede and then asked it to jump and it did and continued until he got the last leg. When he pulled that off and the centipede didn't jump he concluded that legless centipedes are deaf!!!
House prices in Central Jersey are dropping like a rock. I've been watching them in my area for over 2 years and the rate of decline has just recently
picked up big time. Maybe the big banks should hold on to their Tarp money just a little longer.
There was something called Ben Franklins five and dime back in the day, it's where we will be again after the drip drip drip stops and we all have to face reality.
Sam Walton got his start with a Ben Franklin store, FYI. It's capitalism; there's always an incentive to total market domination no matter what it takes. Absent any other moderating values or regulations, that's the point.
That said, the wife and I have a kitchen full of non-Chinese pots and pans. Cost an arm and a leg, but it's all sturdy as hell, probably last us a lifetime.
Here comes Kermit. How big do you think JPM's "market on close" order for SPY will be?
Someone must be worried about the follow on consequences of a down outside day followed by crappy retail sales and initial jobless claims reports pending in the premarket.
Dawg: heirs suddenly find themselves triply over-housed.
For some of us, it's already here. DH and I have only bought one house that we still live in but have sold or are in the process of selling 3 houses we've inherited. One of them was part of a messy estate that had 3 houses and 3 sort of related siblings. For us, they are just a money sink since we're not landlords so we've unloaded them as quickly as we could.
"The market can remain insane longer than I can remain solvent."
Have markets actually EVER been sane? Like "I remember back in 5th of September, 1975. For seventeen minutes 32 seconds the markets were SANE!"
Have markets actually EVER been sane?
If you're winning, they're sane. If you're getting calls from Mr. Margin, then not so much.
Typo or a look into what the future holds?????
Market Update 3:35 pm "August gold futures gyrated just below the unchanged level for most of the session. The contracts finished down $0.70 at $954.00 per barrel."
Market Overview - Yahoo
timmay lights cigarette, takes a big drag, exhales and looks at the ceiling
The American consumer is not blindered, he simply does as he must.
Americans began to shop at discount retailers because that is where they could afford to shop.
As more Americans were down-sized and right-sized and re-tooled and re-schooled, the numbers grew.
Americans have always preferred well-made, attractive goods. But when they can't afford such, they choose the only available alternative, which by definition is low-quality trash. "Hedonic Substitution," I believe they call it.
The low-quality trash is not a statement of the buyer's preference, or of his or her taste in goods, but rather a demonstration of the buyer's means.
buy the call, make money. buy the put, get soaked. got it. lesson learned.
"Fontainebleau Las Vegas, a $3 billion resort project on the Las Vegas Strip, filed for bankruptcy-court protection late Tuesday, the project's owners said.
The filing comes after a protracted battle with a group of lenders who pulled out of an $800 million loan needed to finish building the hotel and casino resort -- one of the most lavish planned for Las Vegas.
Fontainebleau is suing the lenders. But its owners said they were still pursuing alternate financing to finish the project."
According to the WSJ...another empty monument in the desert.
Dawg: heirs suddenly find themselves triply over-housed.
For some of us, it's already here. DH and I have only bought one house that we still live in but have sold or are in the process of selling 3 houses we've inherited. One of them was part of a messy estate that had 3 houses and 3 sort of related siblings. For us, they are just a money sink since we're not landlords so we've unloaded them as quickly as we could.
This has always been the way in retiree-heavy communities. Dad's dead, mom dies, and the kids come in from 200 - 2000 miles away to sort things out as fast as they can. They price the houses to sell so they can be shut of it all. Depresses prices beyond where they'd be otherwise.
So yeah, as a nationwide phenomenon, this'd be a pisser.
I would also expect people to try to unload their second or vacation homes as well as they age, either because they're underwater or need the money.
Setting a stopwatch to see how long it takes Tyler Durden's head to explode..
t-minus....
timmyone -
Yes, but I hate being reminded that I'm not nearly as smart as I think I am.
I have to stop letting my ego write checks that reality can't support, but then again I'm still trying to actually see any reality. So I return to my dazed and confused mode, maybe I'll brew up some more beer this afternoon, at least I get something productive out of that.
If jobless claims come in under 600,000 tomorrow, the market may rally 300 points.
nice jam-job in the last 3 minutes......
Everyone seems to know what's happening however there are no laws that are broken...only morality...not that it was very present in year's past but the consequences of it now are too big and far-reaching to be ignored.
Rocky-
some of us do that....it doesn't make it right though.
Ciao
MS
The low-quality trash is not a statement of the buyer's preference, or of his or her taste in goods, but rather a demonstration of the buyer's means.
And in the end he pays more -- maybe buying the same cheap item three times as each goes bad instead of paying more for a quality item of long life.
MS,
It's OK. Easiest 10% I've ever made.
"If jobless claims come in under 600,000 tomorrow, the market may rally 300 points. "
Sure it may rally 300 points. Or it could drop 300 points. Or it could trade sideways. Or it could do any damn thing it pleases.
Bob Dobbs, absolutely correct. Therein lies the "poverty penalty ..."
(Frequent $500 or more repairs of a $500 car is a similar phenomenon ... one effectively buys the same car over and over, because one cannot afford better quality to begin with.)
Aaaack! Pigged!
Bob Dobbs said, "I would also expect people to try to unload their second or vacation homes as well as they age, either because they're underwater or need the money."
Or because they cannot mangage the upkeep on one house, let alone two.
My in-laws fit this category. Their house is a mess, and it's falling apart. They spend some effort keeping up the getaway home at the lake, simply because they know that it is used by others in the family, and guests. They keep it up somewhat out of the shame factor. But they're in their mid-70's and they simply cannot keep up.
I love it when my wacky demographic trend predictions get confirmed so quickly. Thanks all.