Posted on 12/19/2006 7:14:11 AM PST by finnman69
Wall Street has a soft spot for the "soft landing" thesis, but to me it's crystal clear that a serious economic slowdown is under way. What has been surprising: not that the economy is weakening but that so many people seem to expect a soft landing, and therefore remain in denial about the seriousness of the slowdown.
I guess the predilection toward a soft landing is a function of the following: So many folks in the investment business -- and in the country at large-- haven't experienced a consumer-led recession in so long that they think this outcome is just not possible. That's because the Federal Reserve Board has evolved into being a business-cycle suppressor and bubble manager. Consequently, folks just assume that economic weakness is a feature of the business cycles of yesteryear.
(Excerpt) Read more at articles.moneycentral.msn.com ...
By the time it's all over, I predict the percentage losses in real estate value will be greater in the low-demand areas of the country than in the high demand areas. Meaning, the coastal bubbles will fall first, but won't ultimately unwind as far as the flyover country non-bubbles.
Not everyone built in the valley.
Bump to see what kind of man ex texan is. (I think I already know)
worth a listen to,streaming audio, about 50 minutes long. One of the guys is a Bush hating/antiwar economist, but otherise, I think the economic analysis is interesting.
http://globaleconomicanalysis.blogspot.com/2006/12/contrarian-debate-janszen-vs-mish.html
There is no transcript available but following are Mish's views on the parallels between now and 1929 and why this is not a repeat of the 70's. Let's discuss the 70's first.
70’s Rerun
Similarities
War in Vietnam war then vs. the war in Iraq now
Rising oil and commodity prices
Differences
Rising Oil prices [demand side shock vs. supply side shock]
Spiraling wages then vs. declining wages now
Wage and price controls then
Consumer Debt levels – Significant ability to take on more debt in the 70's
Housing down payments – 20% then 0% now
Two family incomes now vs. one family income then
The power of unions - then
Globalization & Global wage arbitrage - now
Outsourcing - now
Productivity improvements - The internet and other innovations - now
Declining credit standards - now
Downfall of communism
Long term interest rates under 5% - now
New creative financing ideas running rampant - now
Massive use of derivatives - now
China, India, and Emerging Markets
The differences noted above are staggering and Eric agreed.
20's Rerun
Throughout the 1920s, the Fed deliberately and unwisely stimulated the stock market by keeping the “call rate,” that is, the interest rate on bank loans to the stock market, artificially low. – Margin rates were just lowered here and the FF rate which was lowered to 1% supported a big housing boom.
In the late 1920s, bank credit propelled a massive real estate boom in New York City, in Florida, and throughout the country. We now have the biggest housing bubble in history.
In the 1920’s there was a massive infusion of money (gold) from war torn Europe stimulating our economy. We currently have a massive stimulus of cheap money from Japan and China via and various carry trades and cheap credit supporting our economy.
In the 20’s we intervened in foreign exchange markets to enhance or stabilize Europe’s power to buy our exports. We currently are involved in disputes with China over currency issues attempting to get China to buy more of our goods.
There were massive productivity improvements in the 20’s along with the industrial revolution and assembly line processing. The 90’s – 2000’s productivity miracle was the internet. Huge boom periods on account of disruptive innovation. By contrast there was no such innovative disruptions in the 70’s.
In late 20’s credit was expanding at a rapid pace but there was no need for additional productive capacity. Today GDP is rapidly falling but credit is still rising. There is no pent up demand for homes, restaurants, retail stores, strip malls, autos, truck, etc, just as there was no need for additional assembly line production in 1929. Speculation replaced productive capacity just as it is today.
In 1929 leverage was extreme via stock margin. In 2006 credit derivatives leverage is extreme to the tune of 340 trillion dollars worth with no one really understand exactly what the counterparty risk is.
A few days before leaving office in March 1929, Coolidge called American prosperity “absolutely sound” and assured everyone that stocks were “cheap at current prices.” Based on the “Treasury Model” and unsustainable earnings growth due to financing activities, we are once again told time and time again that “the economy is sound” and stocks are cheap at current prices.
"Keynesian Folly", along with other massive government interventions managed to convert what would likely have been a short, sharp recession into a chronic, permanent, stagnation with an unprecedented high unemployment that only ended with World War II. Massive government interventions between 2002 and 2005 prevented a badly needed recession and instead created the biggest asset bubble in history.
In 1933 gold coins were confiscated – now we have a threat of nickels being confiscated.
At the time, the stock market of 1929 was the biggest asset bubbles in history. We have now vastly exceeded all previous credit bubbles.
The Smoot-Hawley Tariff was signed into law on June 17, 1930. There are renewed threats of tariffs in the U.S. Congress right now.
??? Being an idiot and being a Democrat is most definitely not mutually exclusive. The author is probably both.
I'd be shocked if he actually apologized.
OK, go ahead and open your mouth and remove all doubt.
Why? The low-demand areas have not seen the anual double-digit rise in prices, how could they fall more?
The NAHB index is bumping along at a 15 year low.
http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2006-12-18T180044Z_01_NYD000046_RTRIDST_0_USA-HOMEBUILDER-INDEX-URGENT.XML&rpc=66&type=qcna
NEW YORK, Dec 18 (Reuters) - U.S. homebuilders' sentiment dipped slightly in December, although they expressed greater confidence for mid-2007, the National Association of Home Builders said on Monday.
The NAHB/Wells Fargo Housing Market index fell one point to 32 but held above the 15-year low of 30 reached in September as lower mortgage rates and cheaper new home prices buoyed buyer demand, the group said.
Economists expected the index would rise to 34, based on the median forecast in a Reuters survey. Just three of 31 economists polled forecast a drop, with Citigroup Inc. and 4Cast Ltd. economists predicting a jump to 37.
Readings below 50 mean more builders view market conditions as poor than favorable.
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2006-12-18T232649Z_01_N18205500_RTRIDST_0_HOVNANIAN-RESULTS-UPDATE-1.XML
UPDATE 1-US homebuilder Hovnanian posts 4th-quarter loss
LOS ANGELES, Dec 18 (Reuters) - Home builder Hovnanian Enterprises Inc. (HOV.N: Quote, Profile , Research) said on Monday that $315 million in land-related charges led to a quarterly loss in a weak U.S. housing market.
For the fiscal fourth quarter ended Oct. 31, Hovnanian posted a net loss of $117.9 million, or $1.88 per share, compared with a profit of $165.4 million, or $2.53 per share a year earlier.
Revenues fell to $1.7 billion from $1.8 billion.
Hovnanian said it incurred $336 million of charges related to inventory impairments and land option write-offs in all of 2006, including $315 million in the fourth quarter.
It is very hard to tell when some posters are lying. One poster claims there 'is no bargain hunting in CT.' The jerk just ignores the fact that median prices just crashed $ 24,000 throughout the state. They just stick their heads in the sand, clinch their teeth and lie.
254 posted on 12/13/2006 11:15:30 AM CST by ex-Texan (Matthew 7: 1 - 6)
Parsed like a lawyer! Good job!
The number of houses on the market has been declining for 5 to 6 months in northern Virginia. Soon it will be below the levels it was when the housing economy slowed down. A George Mason Univ professor predicts prices are headed up in 7 percent the spring due to continuing strong demand "as far as the eye can see."
He'll be back to challenge your falsehoods and generally bogus doom&gloomery.
I knew you wouldn't apologize for calling me a liar and a jerk. Your skating around the fact is further proof f your character, or lack there of.
Like I said - not doing great but not too bad considering all the doom and gloom talk...
That's the one. I said the words to which he refers, but he doesn't refer to me by name.
Smarmy schmuck, and the claim in his post IS a lie.
I'm not referring to anyone specifically, but we know 'he' is the jerk & liar.
Well there was this post: "It is very hard to tell when some posters are lying. One poster claims there 'is no bargain hunting in CT.' The jerk just ignores the fact that median prices just crashed $ 24,000 throughout the state. They just stick their heads in the sand, clinch their teeth and lie."
And you were talking about Fierce Allegiance, since he was the one who made the statement about bargain hunting. You are trying to split hairs by saying you did not specifically call him a liar.
see post #38
Because in a slump, those areas will go to zero-demand. And in the event of a US housing slump, a lot of foreign money is going to come into the market and keep prices high in popular places like Boston and San Francisco, while suburban Houston just isn't going to get any.
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