The Outlawns have been at it again ripping up the fairways, in search of cinch bugs and underground-dwellers of every taste-treat imaginable, who had dwelled for generations 6 inches under my sod, wondering who the rain-god was that blessed them with water every day, but not worrying about it all that much, it was something you could set your clock to.
The Collossos (that's us) occasionally accidentally took some of them down, but never cold-blooded killing, and besides they were safe underground, as they had a decade to create little tunnels and amour bordellos and what have you.
Then one night, all hell breaks loose when the Puerco Ricans show up for a rumble/bug buffet. And then the next night they do it again, and then next night, and the next night...
I am a bit puzzled. Is Mortgatge equity extraction negative because people have given up trying to milk the mortgage cow due to fear of economic upheaval or is equity extraction negative because, well, equity is negative so no extra to milk?
this is partially because of debt cancellation per foreclosure sales (and a little from modifications), and partially due to homeowners paying down their mortgages (as opposed to borrowing more).
The question is: how much for each category? Are foreclosures a much bigger %, or is paying down the mortgage in the traditional way a bigger %?
If homeowners are not selling their homes to move up or move away, then that would show a change in statistics also over the past several years.
rsj,
Defaulting + writeoff = negative MEW
it's an accounting identity
So more loans are being paid or written off than there is new borrowing
At peak it was contributing $200bn per quarter of stimulus to the economy (> 5% of GDP)
dont you believe it, First, if there was no new debt - just the status quo - MEW would be negative. Most homeowners pay down the mortgage a little every month, and that is included. Also any foreclosure, or other debt reduction (like a handful of mods) would reduce mortgages. Being delinquent doesn't reduce the mortgage debt.
It is interesting to see that the recession in the early 80's has a similar negative MEW. Yet the bubble-icious dot-com/dot-gone recession has an increase in the MEW. Folks didn't adjust their standard of living that time - they just ATM'd their house.
So Ghostfacinvestah is this going to be like evaporated milk? Burninig off the extra, leaving just the little kernel of substance?
The way I figure it, the quicker and harder the foamy excess disappears the sooner a solid base can be formed. I mean there is a large percentage of people who really truly believed that cars, vacations, and extra money floated up from real estate and blew it all on puffery. Once people realize there is no more equity to extract and spend then they are left with the basics---a house and piece of land where they live. They can maybe get past bling-a-bling-bling and find out what is truly important to them and their continued existence.
What is truly annoying? IT telemarketing sales calls from India.
ROFL......Now THAT IS funny. Also collectors from India. Received a phone call from one re' 3rd son's delinquent bill......They don't understand American cursing, swearing, or insults.
"Folks didn't adjust their standard of living that time - they just ATM'd their house. "
There were a lot of people that did not believe it was really over.
After all, in some ways it wasn't - not every dot.bomb company went TU, just their stocks did. A lot of people confuse companies with the corresponding stock, and thought that the stocks were coming back. Thus it made a certain sort of sense to try to flywheel through with MEW.
Of course, it took a lot of Kool-Aid to believe that, but there was plenty going around.
What would you think if I lent to buffoons,
Would you stand up and walk out on me.
Lend me your fears and I'll string you along,
And I'll try not to lend out for free.
Oh I get by with a little help from my funds,
Mmm, I get high with a little help from my funds,
Mmm, I'm gonna try with a little help from my funds.
ucgal,
All recessions on record have ended led by inventory rebuilding or new borrowing. Inventory is is line with current sales, so barring an uptick from end demand somewhere it is not the answer now. New borrowing is not increasing because the losses in the banking system are so severe that all available money goes to reserves in case they have to recognize the losses, not to mention few borrowers represent a good credit risk given the economy.
You hit upon the exact point that individuals calling for an inventory led recovery miss out on. That recovery is contingent on end demand, and end demand is contingent on new credit creation.
so if i sell my ridiculously overpriced house to my friend who shortly thereafter defaults, is this negative MEW? or is his default canceled out by my windfall?
For those of you who have lived in CA and another state, is there anything that you think is better about anything your tax dollars paid for in CA versus that other state? For example, maybe universities?
Is there anything your tax dollars pay for in some other state which you feel is much better than in CA?
I grew up in So. Cal, spent several years in WA state, and even more years in the Philly metro area.
California freeways may be crowded - but they are there and they are FREE on a per use basis. (Unlike the PA turnpike). The Schulkyll expressway, Rt 202, etc are nightmares during rush hour. And for most commuters there are no freeways to support the traffic patterns other than 2 -4 lane roads with lots of stop lights (Rte 611 anyone?) I will take California freeway infratructure over PA lack of infrastructure any day.
Colleges - The Cal-state and UC systems are very good and very affordable. Having attended graduate school through a PSU satelite campus - the public universities in PA were more expensive for what you get.
Washington state seems to get it about right - decent roads, decent universities, and no income tax.
SM Landlord They still dont believe it is really over. If more people realized it was truly over then there would not be so many kick the can excercises and gimmicks because the people would lynch whatever politician or lobbyist was proposing it. If belief that it was really over took over there would be the ability to sit down, decide the best long term course of action and we would tighten our belts and take our medicine. It hasnt happened yet, and I dont think it will happen for a while.
i had a wonderful time with my MEW. i adopted george best's philosophy: "I spent a lot of money on booze, birds and fast cars," he once said. "The rest I just squandered."
"the quicker and harder the foamy excess disappears the sooner a solid base can be formed."
When is that likely to happen with Ben, Timmy and the banks working full time trying to froth things back up? It will be a sad day when Nemo's 100K home buyer credit, actually come to pass...
Basel Too,
The transaction between you and your friend is positive MEW in the amount between what you invested in the house and what you were paid. The transaction between your friend defaulting and the bank is negative MEW in the amount between the sum borrowed, and the payments made. Think of every house having a perpetual mortgage balance on it. When the mortgage goes up, that is positive MEW, when the mortgage is paid down (by homeowner or bank) that is negative MEW.
Much of the MEW was fed back into the real estate market. Thus, alleged home equity was used to buy more shares in the pyramid scheme. For example, "investment" property, additions, or a second home.
RSJ,
There are a lot of people who know its over, but just don't want to admit it. Ever known anyone who didn't think it was over even when they got divorce papers?
"You can check out any time you like, but you can never leave?"
Roaches on the ceiling
Ripple wine on ice
And I said
We are all just prisoners here
Of our own device
And in the blogger’s chambers
They gathered for the feast
They stab it with their steely knives
But they just can’t kill the beast
Last thing I remember
I was running for the door
I had to get a refi back to the place I was before
Relax said the banker
We are programed to receive
You can cash out any time you like
But you can never leave...
I know I'm not the only one who has watched HGTV like I was visiting a zoo. For years I told the TV that adding a granite countertop does not add $25k to the house in value after costs. You should have fixed the cracked foundation instead! Stainless steel appliances, laminate 'hardwood' floors, converting a bedroom into a master bedroom closet extension ... I'm glad that it was at least documented and on record. My grandkids will never believe me when I try to explain it to them as I fly them back from space school
so i'm hearing that the FDIC's proposal to borrow from the banks was a trial balloon designed to pop. its purpose was to make borrowing from the Treasury more politically palatable.
oh, and don't get me started on people/companies that lay bathroom tiles directly on plywood. or floors that are nailed instead of screwed so that they squeak within a year
Blackhalo indeed. They are the biggest cheerleaders out there for the it-aint-over crowd. How many people are clinging to the theory that it is just a little bump in the road, it will pick up in 6 months or a year, we only need to hang on just a bit more because of the actions of the top trying so hard to keep it going?
They are keeping it going, sort of, and for longer than I figured they could. I dont think they will be able to do it forever though. I also dont think that there is a way to bridge over this little bump to new prosperity. That is what all the believers are hoping for. To just hang on until things bounce back.
I think that when it does pop that the reaction is going to be a lot harsher and meaner than if they had let it fall, cleaned out the dreck and started over. I think the average person is going to feel they got their hope yanked out from under them, the new reality is going to be cold and hard to face, and they are gonna be PISSED.
The more that gets thrown at this mess makes it that much unsteadier and as numbers get worse and worse despite the money thrown at keeping things the same more and more people will not be able to maintain the fiction of it getting better.
I hear you ghostfaceinvestah and yeah I know one man who has been divorced for 3 years now and still talks to his ex-wife about when they work it out. sigh.
"floors that are nailed instead of screwed so that they squeak within a year "
This has been going on for a long time. There are still parts of my mom's house that need the upstairs floors reattached to the structure. The house was built in 1972.
I am fascinated by Faber's comments, which were linked in the previous thread.
If Faber is correct, and the $US does become "worthless" along with US debt, we're talking about the Mad Max Scenario. There would be no avoiding it.
Now, Faber tends to the extreme at times, but I'd be the last person to ignore him. I've followed Faber for a very long time and have sometimes used his advice. I was not disappointed.
I noticed, in the interview, he mentioned buying US real estate and I've followed him long enough to know that, for Faber, he's talking farm land. He's been talking that for several years now.
Faber is getting extremely close to talking about the purchase of hard assets and I find that very worrisome. He is, in my view, now turning extremely bearish.
"If that happened, and if the expected high-yield bond comes on schedule, then the banks putting together the $4.1 billion financing would be left, at the end of the day, with nothing but a $250 million credit line — and a lot of very fat fees. This is the originate-to-distribute model coming back with a vengeance, and it’s being used to lend Warner Chilcott $4.1 billion towards a $3.1 billion acquisition: the buyer is putting no cash whatsoever towards the deal, and indeed is getting $1 billion cash back."
Basel Too,
I guess it makes sense. Politics has a funny sense of humor. I wonder why the FDIC borrowing from the Treasury is so contentious, it can't be avoided. Maybe legislators are being told that there isn't spending room for their pet projects because the Treasury cannot raise money any faster without a tax increase. Which could be where the debt ceiling grumblings come from
U.S. officials want the G20 to adopt a framework aimed at lifting growth in export-orientated members like China, Germany and Japan, while boosting savings and curbing consumption among import-hungry debtors like the United States.
How many housewives could have got the go-ahead to spend $30k on a new bathroom back in the day in the 60's?
Well first of all - it would have been something like a $8K ba in mid-60s money... and secondly it might have gone through IF they lived in a typical 3 br 1 ba 1950 'Levittown-style shoebox' and the addition resulted in an additional ba for their 3 teenaged kids.
Yuan: U.S. officials want the G20 to adopt a framework aimed at lifting growth in export-orientated members like China, Germany and Japan, while boosting savings and curbing consumption among import-hungry debtors like the United States.
Just saying that there is no way to have equity extraction if there is no equity.
Many, many houses are underwater today. No chance of getting a cash out or HELOC to extract equity.
Many new purchases that are financed are financed at nearly 100% via the FHA. In addition, most are fixed rate amortizing loans with relatively low interest rates, meaning amortization will occur more quickly.
Also, there is a large and growing delinquency inventory that will eventually need to go through foreclosure.
Going forward, the negative equity due to foreclosures and amortization will outweigh the positive equity due to cash outs and HELOCs, so MEW will be negative for years to come.
In this light, the government's attempts to prop up the equity markets make a lot of sense. With incomes stagnating, some source of wealth needs to replace home equity extraction.
I like Faber's ideas but I'd be very skeptical about being long much of anything right now. I think most assets classes are getting stretched to ridiculous levels and will be brought back to earth (say s&p 850 or so) over the next 6 months. Then is when I would look to buy hard assets, not now after they've ran up so much in close to a straight line.
mp - Faber is looking real short term & is in effect sayin'... "I don't know what assets to buy but just make damned sure they aren't dollars or dollar denominated debt." Not exactly the same thing as sayin'... "Buy equities because they are a good value"... its more 'any port in a storm'.
If home prices go back to 2000 levels, it seems like a pretty good approximation that MEW will have to drop by a similar amount to its cumulative rise from 2000-2007.
If this is the case, there is a lot more MEW to be repaid, amortized, forgiven, or defaulted upon.
Faber is looking real short term & is in effect sayin'... "I don't know what assets to buy but just make damned sure they aren't dollars or dollar denominated debt." Not exactly the same thing as sayin'... "Buy equities because they are a good value"... its more 'any port in a storm'.
Sounds like a solid call for Silver! :covers his ears while JD gets his vocal cords warmed up:
Geitner probably said 'Strong Dollar' then giggled...
I'd hate being the Japanese, German's, Chinese and having to deal with the dilemma of buying export growth by buying trash USD or facing internal pressures from export related job loss..
How do you see it helping/hurting American suppliers? As long as we aren't needing to bring in materials from overseas, it could be a production opportunity?
I was mostly in agreement until "With incomes stagnating, some source of wealth needs to replace home equity extraction. "
All you have to do is lower some expenses, like housing or energy, and people are equally well off. However, current homeowners vastly outnumber renters who will soon be homeowners, and they vote in high numbers.
As a young non-American, I can accept a USD devaluation on an emotional and logical level without obstacle. Yet, I think the USD is going to rise in the near term. There is more money to be made from a short squeeze than there is in further move into risk/yield. Then assuming we eventually get to the ultimate reconciliation between debt, income, and growth -- it's not the end of the world. You may not have seen it recently, but the US has a great endowment of natural resources, capacity for high tech, and capacity for manufacturing. There will be an internal shift of income by sectors. There probably will be a lower standard of living as prices rise because US demand is no longer growing like it could with unsustainable borrowing. It's not the end of the world. The global economy cannot afford to hold a grudge against the US, but even if it did the US would still benefit vs now because of reductions in imports. So the USD, or even a new USD, will not go to 0 like Zimbawbwe. It won't even be as bad as Russia's Rouble collapse. The only reason they were made so poor was that many other countries appeared to be relatively rich at the time. Granted, by the same token the path to recovery will not be as simple as exporting to restore the balance sheet
"All you have to do is lower some expenses, like housing or energy, and people are equally well off."
You are talking about what you think should happen, and I was talking about what the government thinks should happen. Two entirely different things. I was not expressing my view, I was commenting on what I think is the mindset of TPTB.
Further declines in housing and energy prices would be terrible for TPTB. Imagine chaos in the Middle East or Russia. Imagine further losses at banks, cascading as the walk away trend increases due to continued declines in house prices.
The US consumer's wealth will decline, one way or another, a propped up stock market is one way to ease the pain.
Not the way I would do it, but it is the way it is going to be.
What you wrote makes sense. it is also very logical. It does not mention the emotional impact. You are talking about a huge emotional and mental adjustment. Remember: We are the world. We are the best and brightest star that shines among the low powered flashlights that are the rest of the world. Excluding Africa, which is a candle or two
How do you see it helping/hurting American suppliers? As long as we aren't needing to bring in materials from overseas, it could be a production opportunity?
I've been saying all along - we could see a 'smaller pie' scenario here in the US end up being 'beneficial' for us... shrinking pie but our workers get so much more of the shrinking pie that it ends up a net gain for us. HUGE negative for the merchantilists but net gain for us.
Won't happen 'cause they get it too - it will force them to make tougher decisions though and up the ante - how badly do they want access to the [shrinking] US consumer market... and if they don't want to pay that price what are their choices.
The opposite of that is how happy is the US administration gonna be when they learn they are now 'pay go'... which is what happens when the merchantilists quit being merchantilistic. Another reason why it won't happen.
In sum, production opportunities 'cause TPTB & TMerchantistsTB will fight tooth and nail to ensure anything that they don't rubberstamp dies on the vine?
"Yet, I think the USD is going to rise in the near term."
On 0% interest rates and growing deficits? What exactly is going to drive that? The Dollar and FOREX seems to be a pretty big market, how exactly is that manipulated?
dryfly,
I was once told that a boat is safe in port, but that boats were made for sailing ^_^
some investor guy
I would say there are 3 key factors.
- When banks choose to recognize losses. Like Wells Fargo not long ago cut their loan loss reserves in half, despite having one of the worst loan performances of its peers, just so they could report a better number.
- Peoples savings are low. There is the chance of the 30% of American households without a mortgage, cashing out some equity.
- What inflation does
ucgal (profile) wrote on Tue, 9/22/2009 - 1:40 pm
It is interesting to see that the recession in the early 80's has a similar negative MEW. Yet the bubble-icious dot-com/dot-gone recession has an increase in the MEW. Folks didn't adjust their standard of living that time - they just ATM'd their house.
If you believe Broward, then the then entire period between the dot.com bust and today was financed essentially with MEW and other debt-
Yet, I think the USD is going to rise in the near term. There is more money to be made from a short squeeze than there is in further move into risk/yield.
Very possible - I don't equate market maneuverings with trends... I'd expect some of what you describe.
And you are right, exports won't save the day - there is no saving the day - only managing the fall out. We won't export more so much as import a lot less.
EHP, all true, however, until the median boomer dies, the decline in employment, standard of living, etc, will all deepen. I don't know if Canada is similarly cursed by demographics and the pressures of entitlements, I doubt it, hard to imagine big pharma having as much weight up there.
In sum, production opportunities 'cause TPTB & TMerchantistsTB will fight tooth and nail to ensure anything that they don't rubberstamp dies on the vine?
Like a Spaghetti Western version of a Mexican Stand-off
Faber is getting extremely close to talking about the purchase of hard assets and I find that very worrisome. He is, in my view, now turning extremely bearish.
Blackhalo,
AIG, Volkwagen, Ruby Tuesday, Citigroup, Crocs, GM
I would say there is more than enough precedent for a short squeeze. Gold, oil, etc has been was rising in every currency, not just the USD, and that is not devaluation -- it's a crowded trade of simpletons
Juvenal Delinquent (profile) wrote on Tue, 9/22/2009 - 1:52 pm
How many housewives could have got the go-ahead to spend $30k on a new bathroom back in the day in the 60's?
HELOCalifornia dreaming..*
In the '60s, my parents could have bought 2 houses with $30k-
Ya'll need to listen to Country Western radio. The politicians and party that preside over America becoming a 2nd rate country will buy the first messenger who tells them "You were stabbed in the back by xxxx" huge political power. The crash of the dollar would qualify for this
Like a Spaghetti Western version of a Mexican Stand-off
Err, I meant "no production opportunities". It's a shame that I don't feel a share of ownership in my country like I did years ago. I am willing to lay claim to some ownership of my town and county, but the rest of it makes me feel like an ignominious serf who still has the luxury of freedom of movement.
It isn't that complicated. The Fed is still printing dollars to buy MBS at a rapid pace, and will be forced to do so for a long time, at least until Fannie and Freddie are resolved. That will probably lead to another $2T being printed before that is done.
No way you print an additional $2T from here and not pressure the currency downward.
dryfly (profile) wrote (in reply to...) on Tue, 9/22/2009 - 2:13 pm
mp - Faber is looking real short term & is in effect sayin'... "I don't know what assets to buy but just make damned sure they aren't dollars or dollar denominated debt." Not exactly the same thing as sayin'... "Buy equities because they are a good value"... its more 'any port in a storm'.
Despite the fact that I linked and read that article, I don't recall him saying anything about gold [sic] as usual-
HollywoodHack,
I don't know about demographics. All projections assume that Canada, Australia, USA, Europe will retain their current status and be able to bring in immigrants on demand. I would at least consider the alternative. Then there is no getting around how catastrophic events determine global demographics.
They're reporting on the radio though that there is a baby boom going on right now, which fits with what I have seen on the streets. They say it's the first children of the baby boomers in their mid 30s leading the increase, but there was an increase in all child bearing years.
As a young non-American, I can accept a USD devaluation on an emotional and logical level without obstacle. Yet, I think the USD is going to rise in the near term.
I usually agree with most everything you write, EHP, but the ability for the USD to depreciate is going to be tempered by the speed at which the dollar is arbitraged into other currencies through exports and flows. While we may all bemoan the reduced capacity of the US economy, if the US gets in a position where a lower-valued currency puts them in a low cost position against another country, US exporters will absolutely crush that economy with a tsunami of goods. The target economy will founder, as domestic production wanes and the trade balance shifts, and within a short time the exchange rates will rebalance, albeit with a tattered and torn foreign economy.
Just look at the milk trade in Canada; fluid milk is protected by tariffs in the hundreds of percent range; yet, as the USD/CAD exchange rate approaches parity and the US price for fluid milk drops to its lowest level in many many years, US fluid milk begins breaching those tariff barriers and landing in the Canadian market. Fluid milk is one of the most difficult markets to trade in, and yet US exporters are able take advantage of very short windows of opportunity and launch a few truckloads here and there when circumstances permit.
Just imagine how resourceful they would be with a built-in 30% currency advantage and the WTO giving them the keys to the kingdom.
In a manner of a few weeks a small foreign economy could be completely flooded with cheap imports.
yagij,
I was thinking about the great improvements in quality of life in Vancouver over the past few decades. Pretty much none of it shows up in GDP. All the great public spaces. The spontaneous coming together of art, music, sport, ...
noob goldberg,
How did the USD spike to 90 on the dollar narrow index all the other times in the last year?
edit: I'm a bit confused by your post. It would all make sense if you meant to say the ability for the USD to depreciate, instead of appreciate.
I would first say that financial flows dominate trade flows, which in turn are dominated by trade ex-internal corporate movement. There would be that arbitrage based on cheap inventory, but then new/replacement production would be at a higher cost. Both as cost of inputs rise (commodities, capital goods, interest rates) and the value of subsidies decreases (priced in USD of course). Then there is the room for unexpected events like tax increases
GFI, agree with the gist and don't think we'll stop until the fed hits 10 tril on the balance sheet, and even that will just a be a pause.
but the reality is even if they DID print and soak another 2 tril (which is inevitable), that's still a small fraction of the pace necessary to even offset the disappeared equity.
How did the USD spike to 90 on the dollar narrow index all the other times in the last year?
Oh, sorry EHP for not responding. I had wandered off to the other thread while I attempt to actually finish my work here. I think I covered it in my last post re: irrational covering. A misunderstanding on my part. I don't think our views differ all that much.
edit: I'm a bit confused by your post. It would all make sense if you meant to say the ability for the USD to depreciate, instead of appreciate.
Dammit. That's like the third time I've done that; my brain is obviously broken. I certainly meant the Canadian dollar appreciating against the USD, or the USD depreciating against the CAD. I appreciate the mental model you provided as well; I just wanted to highlight the speed at which some of these economies could find themselves inundated by foreign products given a certain favourable factors. There will be no structural weakening of the USD because there is no country--at this current time--who can absorb the productive capacity of the Americans.
Home ATM will be re-opened soon.
Looking forward to the $100,000 home buyer tax credit.
My Black Swine Story
The Outlawns have been at it again ripping up the fairways, in search of cinch bugs and underground-dwellers of every taste-treat imaginable, who had dwelled for generations 6 inches under my sod, wondering who the rain-god was that blessed them with water every day, but not worrying about it all that much, it was something you could set your clock to.
The Collossos (that's us) occasionally accidentally took some of them down, but never cold-blooded killing, and besides they were safe underground, as they had a decade to create little tunnels and amour bordellos and what have you.
Then one night, all hell breaks loose when the Puerco Ricans show up for a rumble/bug buffet. And then the next night they do it again, and then next night, and the next night...
A piteous MEWling heard around the block. A kitten, a sack, a stream. The end.
C
I am a bit puzzled. Is Mortgatge equity extraction negative because people have given up trying to milk the mortgage cow due to fear of economic upheaval or is equity extraction negative because, well, equity is negative so no extra to milk?
Oh the sorrow as the tide of equity ebbs
How is MEW different from choosing not to pay the mortgage? Is that perhaps whats seen in your chart?
......I want some of what that guy at the bar (JD)'s drinking.....
this is partially because of debt cancellation per foreclosure sales (and a little from modifications), and partially due to homeowners paying down their mortgages (as opposed to borrowing more).
The question is: how much for each category? Are foreclosures a much bigger %, or is paying down the mortgage in the traditional way a bigger %?
If homeowners are not selling their homes to move up or move away, then that would show a change in statistics also over the past several years.
What did people buy with MEW? Most of that is going away. Which is a lot of going away.
rsj,
Defaulting + writeoff = negative MEW
it's an accounting identity
So more loans are being paid or written off than there is new borrowing
At peak it was contributing $200bn per quarter of stimulus to the economy (> 5% of GDP)
I'm pretty sure he stopped drinking hours ago and has been holed up in the bathroom with a large supply of what appears to be icing sugar.
I assume he's making us cupcakes.
Thinks on the house for everybody, on me.
My thanks to Jim Kennedy and the other contributors for the pervious MEW updates.
As opposed to all those other impervious updates we get from the Fed.
This only makes sense since available equity has evaporated.
This should continue to be negative for several more years.
As per negative MEW - just ask boat salesman, furniture stores, travel agents, appliance & big boxers - everywhere MEW went... its not there anymore.
My theory on MEW.
MEW is considered free money, hence it is spent freely. Money that is earned is, well, considered earned and given a second thought before spending.
Not very encouraging if the consumer is to lead us out of the recession.
When all those folks that are forced into retirement go for the reverse mortgage, how does that show up in the stats?
dont you believe it, First, if there was no new debt - just the status quo - MEW would be negative. Most homeowners pay down the mortgage a little every month, and that is included. Also any foreclosure, or other debt reduction (like a handful of mods) would reduce mortgages. Being delinquent doesn't reduce the mortgage debt.
best wishes
MEW decline plotted against port and truck traffic might be interesting
ROFLOL. Fixed the typo. Dr. Kennedy did an excellent job - and highlighted a real problem (excessive use of the home ATM).
best wishes
OT:
What is truly annoying? IT telemarketing sales calls from India.
It is interesting to see that the recession in the early 80's has a similar negative MEW. Yet the bubble-icious dot-com/dot-gone recession has an increase in the MEW. Folks didn't adjust their standard of living that time - they just ATM'd their house.
Thanks EHP.
So Ghostfacinvestah is this going to be like evaporated milk? Burninig off the extra, leaving just the little kernel of substance?
The way I figure it, the quicker and harder the foamy excess disappears the sooner a solid base can be formed. I mean there is a large percentage of people who really truly believed that cars, vacations, and extra money floated up from real estate and blew it all on puffery. Once people realize there is no more equity to extract and spend then they are left with the basics---a house and piece of land where they live. They can maybe get past bling-a-bling-bling and find out what is truly important to them and their continued existence.
ROFL......Now THAT IS funny. Also collectors from India. Received a phone call from one re' 3rd son's delinquent bill......They don't understand American cursing, swearing, or insults.
MEW. Because Escalades don't buy themselves.
Remember, remember the fifth of October,
The financial treason and plot,
I know of no reason
Why the financial treason
Should ever be forgot.”
"Folks didn't adjust their standard of living that time - they just ATM'd their house. "
There were a lot of people that did not believe it was really over.
After all, in some ways it wasn't - not every dot.bomb company went TU, just their stocks did. A lot of people confuse companies with the corresponding stock, and thought that the stocks were coming back. Thus it made a certain sort of sense to try to flywheel through with MEW.
Of course, it took a lot of Kool-Aid to believe that, but there was plenty going around.
What would you think if I lent to buffoons,
Would you stand up and walk out on me.
Lend me your fears and I'll string you along,
And I'll try not to lend out for free.
Oh I get by with a little help from my funds,
Mmm, I get high with a little help from my funds,
Mmm, I'm gonna try with a little help from my funds.
ucgal,
All recessions on record have ended led by inventory rebuilding or new borrowing. Inventory is is line with current sales, so barring an uptick from end demand somewhere it is not the answer now. New borrowing is not increasing because the losses in the banking system are so severe that all available money goes to reserves in case they have to recognize the losses, not to mention few borrowers represent a good credit risk given the economy.
You hit upon the exact point that individuals calling for an inventory led recovery miss out on. That recovery is contingent on end demand, and end demand is contingent on new credit creation.
so if i sell my ridiculously overpriced house to my friend who shortly thereafter defaults, is this negative MEW? or is his default canceled out by my windfall?
From the pigged thread... Some Investor guy asked
I grew up in So. Cal, spent several years in WA state, and even more years in the Philly metro area.
California freeways may be crowded - but they are there and they are FREE on a per use basis. (Unlike the PA turnpike). The Schulkyll expressway, Rt 202, etc are nightmares during rush hour. And for most commuters there are no freeways to support the traffic patterns other than 2 -4 lane roads with lots of stop lights (Rte 611 anyone?) I will take California freeway infratructure over PA lack of infrastructure any day.
Colleges - The Cal-state and UC systems are very good and very affordable. Having attended graduate school through a PSU satelite campus - the public universities in PA were more expensive for what you get.
Washington state seems to get it about right - decent roads, decent universities, and no income tax.
LOL - good one. Beatless songs are a glod mine.
The only way to win playing the housing bubble was to sell your over-priced place and move somewhere cheaper...
Those hitting up the First National Bank Of Their Home, were collecting their winnings from the casino, but didn't leave the casino and kept playing.
Whoops~
SM Landlord They still dont believe it is really over. If more people realized it was truly over then there would not be so many kick the can excercises and gimmicks because the people would lynch whatever politician or lobbyist was proposing it. If belief that it was really over took over there would be the ability to sit down, decide the best long term course of action and we would tighten our belts and take our medicine. It hasnt happened yet, and I dont think it will happen for a while.
Basel - bound to be inflationary.
And anyway, why would you care?
C
For those borrowers who stay in their homes with their current loans, amortization increases rapidly with time. The paydowns get faster and faster.
i had a wonderful time with my MEW. i adopted george best's philosophy: "I spent a lot of money on booze, birds and fast cars," he once said. "The rest I just squandered."
"the quicker and harder the foamy excess disappears the sooner a solid base can be formed."
When is that likely to happen with Ben, Timmy and the banks working full time trying to froth things back up? It will be a sad day when Nemo's 100K home buyer credit, actually come to pass...
Basel Too,
The transaction between you and your friend is positive MEW in the amount between what you invested in the house and what you were paid. The transaction between your friend defaulting and the bank is negative MEW in the amount between the sum borrowed, and the payments made. Think of every house having a perpetual mortgage balance on it. When the mortgage goes up, that is positive MEW, when the mortgage is paid down (by homeowner or bank) that is negative MEW.
How many housewives could have got the go-ahead to spend $30k on a new bathroom back in the day in the 60's?
HELOCalifornia dreaming...
SM Landlord,
Much of the MEW was fed back into the real estate market. Thus, alleged home equity was used to buy more shares in the pyramid scheme. For example, "investment" property, additions, or a second home.
RSJ,
There are a lot of people who know its over, but just don't want to admit it. Ever known anyone who didn't think it was over even when they got divorce papers?
"HELOCalifornia dreaming... "
You can check out any time you like, but you can never leave?
HELOCalifornia is a very aMEWsing place.
10 Reasons the Market Could Crash in October
"You can check out any time you like, but you can never leave?"
Roaches on the ceiling
Ripple wine on ice
And I said
We are all just prisoners here
Of our own device
And in the blogger’s chambers
They gathered for the feast
They stab it with their steely knives
But they just can’t kill the beast
Last thing I remember
I was running for the door
I had to get a refi back to the place I was before
Relax said the banker
We are programed to receive
You can cash out any time you like
But you can never leave...
I know I'm not the only one who has watched HGTV like I was visiting a zoo. For years I told the TV that adding a granite countertop does not add $25k to the house in value after costs. You should have fixed the cracked foundation instead! Stainless steel appliances, laminate 'hardwood' floors, converting a bedroom into a master bedroom closet extension ... I'm glad that it was at least documented and on record. My grandkids will never believe me when I try to explain it to them as I fly them back from space school
so i'm hearing that the FDIC's proposal to borrow from the banks was a trial balloon designed to pop. its purpose was to make borrowing from the Treasury more politically palatable.
I'm rather partial to the idea of War Bonds...
"we're all in this together, but some war bonds today !"
oh, and don't get me started on people/companies that lay bathroom tiles directly on plywood. or floors that are nailed instead of screwed so that they squeak within a year
Blackhalo indeed. They are the biggest cheerleaders out there for the it-aint-over crowd. How many people are clinging to the theory that it is just a little bump in the road, it will pick up in 6 months or a year, we only need to hang on just a bit more because of the actions of the top trying so hard to keep it going?
They are keeping it going, sort of, and for longer than I figured they could. I dont think they will be able to do it forever though. I also dont think that there is a way to bridge over this little bump to new prosperity. That is what all the believers are hoping for. To just hang on until things bounce back.
I think that when it does pop that the reaction is going to be a lot harsher and meaner than if they had let it fall, cleaned out the dreck and started over. I think the average person is going to feel they got their hope yanked out from under them, the new reality is going to be cold and hard to face, and they are gonna be PISSED.
The more that gets thrown at this mess makes it that much unsteadier and as numbers get worse and worse despite the money thrown at keeping things the same more and more people will not be able to maintain the fiction of it getting better.
I hear you ghostfaceinvestah and yeah I know one man who has been divorced for 3 years now and still talks to his ex-wife about when they work it out. sigh.
gag-reflex?
"its purpose was to make borrowing from the Treasury more politically palatable."
If not for FDIC then for who? Treasury as central bank in the near future?
"floors that are nailed instead of screwed so that they squeak within a year "
This has been going on for a long time. There are still parts of my mom's house that need the upstairs floors reattached to the structure. The house was built in 1972.
I am fascinated by Faber's comments, which were linked in the previous thread.
If Faber is correct, and the $US does become "worthless" along with US debt, we're talking about the Mad Max Scenario. There would be no avoiding it.
Now, Faber tends to the extreme at times, but I'd be the last person to ignore him. I've followed Faber for a very long time and have sometimes used his advice. I was not disappointed.
I noticed, in the interview, he mentioned buying US real estate and I've followed him long enough to know that, for Faber, he's talking farm land. He's been talking that for several years now.
Faber is getting extremely close to talking about the purchase of hard assets and I find that very worrisome. He is, in my view, now turning extremely bearish.
The home ATM may be closed but the corporate ATM is WIDE open if this is any indication. He calls it partying like it's 2006.
Reuters.com
"If that happened, and if the expected high-yield bond comes on schedule, then the banks putting together the $4.1 billion financing would be left, at the end of the day, with nothing but a $250 million credit line — and a lot of very fat fees. This is the originate-to-distribute model coming back with a vengeance, and it’s being used to lend Warner Chilcott $4.1 billion towards a $3.1 billion acquisition: the buyer is putting no cash whatsoever towards the deal, and indeed is getting $1 billion cash back."
Basel Too,
I guess it makes sense. Politics has a funny sense of humor. I wonder why the FDIC borrowing from the Treasury is so contentious, it can't be avoided. Maybe legislators are being told that there isn't spending room for their pet projects because the Treasury cannot raise money any faster without a tax increase. Which could be where the debt ceiling grumblings come from
Moronic main stream media alert
Brilliant!
U.S. economy at "beginnings" of recovery: Geithner
Some of you that think the unthinkable could never happen, ought to re-think your position and ask yourself this question...
99% of the hoi ploy have their money in greenback dollars, do you feel lucky hanging with that crowd punk, well, do ya?
Juvenal Delinquent wrote:
Well first of all - it would have been something like a $8K ba in mid-60s money... and secondly it might have gone through IF they lived in a typical 3 br 1 ba 1950 'Levittown-style shoebox' and the addition resulted in an additional ba for their 3 teenaged kids.
Yuan:
U.S. officials want the G20 to adopt a framework aimed at lifting growth in export-orientated members like China, Germany and Japan, while boosting savings and curbing consumption among import-hungry debtors like the United States.
Oh that'll work.
Just saying that there is no way to have equity extraction if there is no equity.
Many, many houses are underwater today. No chance of getting a cash out or HELOC to extract equity.
Many new purchases that are financed are financed at nearly 100% via the FHA. In addition, most are fixed rate amortizing loans with relatively low interest rates, meaning amortization will occur more quickly.
Also, there is a large and growing delinquency inventory that will eventually need to go through foreclosure.
Going forward, the negative equity due to foreclosures and amortization will outweigh the positive equity due to cash outs and HELOCs, so MEW will be negative for years to come.
In this light, the government's attempts to prop up the equity markets make a lot of sense. With incomes stagnating, some source of wealth needs to replace home equity extraction.
I like Faber's ideas but I'd be very skeptical about being long much of anything right now. I think most assets classes are getting stretched to ridiculous levels and will be brought back to earth (say s&p 850 or so) over the next 6 months. Then is when I would look to buy hard assets, not now after they've ran up so much in close to a straight line.
mp - Faber is looking real short term & is in effect sayin'... "I don't know what assets to buy but just make damned sure they aren't dollars or dollar denominated debt." Not exactly the same thing as sayin'... "Buy equities because they are a good value"... its more 'any port in a storm'.
"I wonder why the FDIC borrowing from the Treasury is so contentious, it can't be avoided."
It's no secret that Bair and Geithner hate each other. It is as simple as that - she doesn't want to borrow money from him.
Take a look at these 2 charts tell me what you see.
What if the 1938 rally is mirrored into Summer 2009 - StockTock Social
Old yes but relative.
Scary month coming.
If home prices go back to 2000 levels, it seems like a pretty good approximation that MEW will have to drop by a similar amount to its cumulative rise from 2000-2007.
If this is the case, there is a lot more MEW to be repaid, amortized, forgiven, or defaulted upon.
Sounds like a solid call for Silver! :covers his ears while JD gets his vocal cords warmed up:
mp-
faber has been saying "farm land and a shotgun" on cnbc asia for the last 6 months.
where you been?
Shill,
Based on that link, looks more like a cluttered poorly explained month coming.
Byzantine_Ruins wrote:
Geitner probably said 'Strong Dollar' then giggled...
I'd hate being the Japanese, German's, Chinese and having to deal with the dilemma of buying export growth by buying trash USD or facing internal pressures from export related job loss..
How do you see it helping/hurting American suppliers? As long as we aren't needing to bring in materials from overseas, it could be a production opportunity?
MEWsy loans and debt notes and little lamsy divey kiddly divey too wouldn't you ?
....that sounds damned familiar and comfortable.......
Ghost,
I was mostly in agreement until "With incomes stagnating, some source of wealth needs to replace home equity extraction. "
All you have to do is lower some expenses, like housing or energy, and people are equally well off. However, current homeowners vastly outnumber renters who will soon be homeowners, and they vote in high numbers.
As a young non-American, I can accept a USD devaluation on an emotional and logical level without obstacle. Yet, I think the USD is going to rise in the near term. There is more money to be made from a short squeeze than there is in further move into risk/yield. Then assuming we eventually get to the ultimate reconciliation between debt, income, and growth -- it's not the end of the world. You may not have seen it recently, but the US has a great endowment of natural resources, capacity for high tech, and capacity for manufacturing. There will be an internal shift of income by sectors. There probably will be a lower standard of living as prices rise because US demand is no longer growing like it could with unsustainable borrowing. It's not the end of the world. The global economy cannot afford to hold a grudge against the US, but even if it did the US would still benefit vs now because of reductions in imports. So the USD, or even a new USD, will not go to 0 like Zimbawbwe. It won't even be as bad as Russia's Rouble collapse. The only reason they were made so poor was that many other countries appeared to be relatively rich at the time. Granted, by the same token the path to recovery will not be as simple as exporting to restore the balance sheet
Yeah, check out dot.bomb favorite JDS Uniphase... now at $8, it peaked over $1000/share. Buy and hold, baby!
You repeated yourself a few times. Are you clicking your ruby red slippers together while you say it?
"All you have to do is lower some expenses, like housing or energy, and people are equally well off."
You are talking about what you think should happen, and I was talking about what the government thinks should happen. Two entirely different things. I was not expressing my view, I was commenting on what I think is the mindset of TPTB.
Further declines in housing and energy prices would be terrible for TPTB. Imagine chaos in the Middle East or Russia. Imagine further losses at banks, cascading as the walk away trend increases due to continued declines in house prices.
The US consumer's wealth will decline, one way or another, a propped up stock market is one way to ease the pain.
Not the way I would do it, but it is the way it is going to be.
Everybody should own as many 3-Letter-Montes, as humanly possible.
EHP,
What you wrote makes sense. it is also very logical. It does not mention the emotional impact. You are talking about a huge emotional and mental adjustment. Remember: We are the world. We are the best and brightest star that shines among the low powered flashlights that are the rest of the world. Excluding Africa, which is a candle or two
If you'd sold at $1000 you would have missed today's 9% gain.
I've been saying all along - we could see a 'smaller pie' scenario here in the US end up being 'beneficial' for us... shrinking pie but our workers get so much more of the shrinking pie that it ends up a net gain for us. HUGE negative for the merchantilists but net gain for us.
Won't happen 'cause they get it too - it will force them to make tougher decisions though and up the ante - how badly do they want access to the [shrinking] US consumer market... and if they don't want to pay that price what are their choices.
The opposite of that is how happy is the US administration gonna be when they learn they are now 'pay go'... which is what happens when the merchantilists quit being merchantilistic. Another reason why it won't happen.
I'd love to be a fly on the wall there.
Can I buy shares of C, R, & E and claim to own a 3-Letter-Monte?
In sum, production opportunities 'cause TPTB & TMerchantistsTB will fight tooth and nail to ensure anything that they don't rubberstamp dies on the vine?
"Yet, I think the USD is going to rise in the near term."
On 0% interest rates and growing deficits? What exactly is going to drive that? The Dollar and FOREX seems to be a pretty big market, how exactly is that manipulated?
TLM SRO
dryfly,
I was once told that a boat is safe in port, but that boats were made for sailing ^_^
some investor guy
I would say there are 3 key factors.
- When banks choose to recognize losses. Like Wells Fargo not long ago cut their loan loss reserves in half, despite having one of the worst loan performances of its peers, just so they could report a better number.
- Peoples savings are low. There is the chance of the 30% of American households without a mortgage, cashing out some equity.
- What inflation does
Izhmash, official maker of the AK and Saiga rifles, filed for bankruptcy!!!
Izhmash, official maker of the AK and Saiga rifles, filed for bankruptcy!!! | The Firearm Blog
Damit!!!!!!!!
If you believe Broward, then the then entire period between the dot.com bust and today was financed essentially with MEW and other debt-
EvilHenryPaulson wrote:
Very possible - I don't equate market maneuverings with trends... I'd expect some of what you describe.
And you are right, exports won't save the day - there is no saving the day - only managing the fall out. We won't export more so much as import a lot less.
EHP, all true, however, until the median boomer dies, the decline in employment, standard of living, etc, will all deepen. I don't know if Canada is similarly cursed by demographics and the pressures of entitlements, I doubt it, hard to imagine big pharma having as much weight up there.
i'm kinda more partial to FAZ
Day's Range: 19.40 - 20.25
52wk Range: 19.29 - 2,018.60
yagij wrote:
Like a Spaghetti Western version of a Mexican Stand-off
I thought I knew something when I was about your age, and I knew a little, but I had no idea how little I knew until I got older.
"Izhmash, ...filed for bankruptcy!!!"
That must have taken an unimaginable feat of incompetence.
mp,
Good commentary on your part.
Blackhalo,
AIG, Volkwagen, Ruby Tuesday, Citigroup, Crocs, GM
I would say there is more than enough precedent for a short squeeze. Gold, oil, etc has been was rising in every currency, not just the USD, and that is not devaluation -- it's a crowded trade of simpletons
The hottest gun market ever, and 2 big players are going BK.
How is that possible?
In the '60s, my parents could have bought 2 houses with $30k-
Ya'll need to listen to Country Western radio. The politicians and party that preside over America becoming a 2nd rate country will buy the first messenger who tells them "You were stabbed in the back by xxxx" huge political power. The crash of the dollar would qualify for this
Err, I meant "no production opportunities". It's a shame that I don't feel a share of ownership in my country like I did years ago. I am willing to lay claim to some ownership of my town and county, but the rest of it makes me feel like an ignominious serf who still has the luxury of freedom of movement.
Maybe, but they're hard to dance to-
EvilHenryPaulson wrote:
Ever read 'The Boat That Wouldn't Float' by Farley Mowat? One of my very favorite Canadian authors... he'd made a good investor in this market.
shhhhort da gunmakers.....
Agree, the dollar is going nowhere but down.
It isn't that complicated. The Fed is still printing dollars to buy MBS at a rapid pace, and will be forced to do so for a long time, at least until Fannie and Freddie are resolved. That will probably lead to another $2T being printed before that is done.
No way you print an additional $2T from here and not pressure the currency downward.
Russian bankers do the following:
-lever up
-extract cash
-leave the government holding the bag
-profit!
This has to be pretty embarrassing for the Russian government.
Despite the fact that I linked and read that article, I don't recall him saying anything about gold [sic]
as usual-
HollywoodHack,
I don't know about demographics. All projections assume that Canada, Australia, USA, Europe will retain their current status and be able to bring in immigrants on demand. I would at least consider the alternative. Then there is no getting around how catastrophic events determine global demographics.
They're reporting on the radio though that there is a baby boom going on right now, which fits with what I have seen on the streets. They say it's the first children of the baby boomers in their mid 30s leading the increase, but there was an increase in all child bearing years.
I usually agree with most everything you write, EHP, but the ability for the USD to depreciate is going to be tempered by the speed at which the dollar is arbitraged into other currencies through exports and flows. While we may all bemoan the reduced capacity of the US economy, if the US gets in a position where a lower-valued currency puts them in a low cost position against another country, US exporters will absolutely crush that economy with a tsunami of goods. The target economy will founder, as domestic production wanes and the trade balance shifts, and within a short time the exchange rates will rebalance, albeit with a tattered and torn foreign economy.
Just look at the milk trade in Canada; fluid milk is protected by tariffs in the hundreds of percent range; yet, as the USD/CAD exchange rate approaches parity and the US price for fluid milk drops to its lowest level in many many years, US fluid milk begins breaching those tariff barriers and landing in the Canadian market. Fluid milk is one of the most difficult markets to trade in, and yet US exporters are able take advantage of very short windows of opportunity and launch a few truckloads here and there when circumstances permit.
Just imagine how resourceful they would be with a built-in 30% currency advantage and the WTO giving them the keys to the kingdom.
In a manner of a few weeks a small foreign economy could be completely flooded with cheap imports.
yagij,
I was thinking about the great improvements in quality of life in Vancouver over the past few decades. Pretty much none of it shows up in GDP. All the great public spaces. The spontaneous coming together of art, music, sport, ...
"This has to be pretty embarrassing for the Russian government. "
From Dmitri Medvedev's blog:
President of Russia | On the fight against corruption. New Recording on Dmitry Medvedev's Video Blog.
Posted without comment.
dryfly,
I know Mowat, haven't read that one.
noob goldberg,
How did the USD spike to 90 on the dollar narrow index all the other times in the last year?
edit: I'm a bit confused by your post. It would all make sense if you meant to say the ability for the USD to depreciate, instead of appreciate.
I would first say that financial flows dominate trade flows, which in turn are dominated by trade ex-internal corporate movement. There would be that arbitrage based on cheap inventory, but then new/replacement production would be at a higher cost. Both as cost of inputs rise (commodities, capital goods, interest rates) and the value of subsidies decreases (priced in USD of course). Then there is the room for unexpected events like tax increases
That must have taken an unimaginable feat of incompetence.
I read it as: the looting of assets by management is complete.
GFI, agree with the gist and don't think we'll stop until the fed hits 10 tril on the balance sheet, and even that will just a be a pause.
but the reality is even if they DID print and soak another 2 tril (which is inevitable), that's still a small fraction of the pace necessary to even offset the disappeared equity.
...the destruction of the physical and spiritual center of town with ugly empty glass boxes...
Oh, sorry EHP for not responding. I had wandered off to the other thread while I attempt to actually finish my work here. I think I covered it in my last post re: irrational covering. A misunderstanding on my part. I don't think our views differ all that much.
"...the destruction of the physical and spiritual center of town with ugly empty glass boxes... "
You have to give the Canadians a break on that. They have an ugly empty glass box shortage in their cities.
Dammit. That's like the third time I've done that; my brain is obviously broken. I certainly meant the Canadian dollar appreciating against the USD, or the USD depreciating against the CAD. I appreciate the mental model you provided as well; I just wanted to highlight the speed at which some of these economies could find themselves inundated by foreign products given a certain favourable factors. There will be no structural weakening of the USD because there is no country--at this current time--who can absorb the productive capacity of the Americans.
I suppose that is my embryonic thesis...
noob goldberg,
Around here, that's why we call this a "manic depression"
Big swings
This is stale but it goes also to the Architect bookings thread of yore.
A proper floor floats! And it takes a somewhat specialized architect to know that. We have parquet floors in mosaic and they don't squeak.
I have installed some fancy floors myself, and I can tell you that its all in the joists. If the rest is correct of course.
There is an art to it. So good luck with that!
Pavel mentioned he was familiar with French cabinet makers. I'm sure he knows but didn't say that the correct trade is 'Ebonist'.
Things of value have become too dear for even the rich.