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Price Trends / WAR OF THE WORLDS (Round # 2): If you use 120 years of data for your time horizon, and assume prices will return to the average, then our residential property bubble will fall 49% from the bubble peak to the long-run average (see above (a) aka “(x) - (z) / 202” aka “Projected Fall Peak to Trend”). This total projected fall is less than the 60% predicted in my recent post based upon 20 years of data and a trend line drawn with the eye (click here to see that post). Property Values Set to Fall 43%...

After spending more than a year in suspended animation, the commercial real estate industry is expected to hit bottom in 2010 with a wrenching thud. Owners of business properties such as office buildings, warehouses and malls will suffer a surge of painful defaults, write-downs and workouts with their lenders as the market finally faces up to the reality of its diminished conditions, according to a report set for release today. The long-awaited blood bath, however, will benefit investors who are able to swoop in to take advantage of record bargains. Unlike the formerly overheated housing market, which is in the...

Pimco's Gross calls top of rally in risky assets Almost all assets appear overvalued, bond investment giant warns By Alistair Barr, MarketWatch SAN FRANCISCO (MarketWatch) - Bill Gross, managing director at fixed-income giant Pimco, called the top of the recent rally in stocks and other risky assets on Tuesday. "The six-month rally in risk assets -- while still continuously supported by Fed and Treasury policymakers -- is likely at its pinnacle," Gross wrote in his monthly market commentary. The U.S. economy and most other developed economies became too reliant on rising asset prices, rather than the production of goods and...

Saturday, October 24, 2009 Gillian Tett: “Was October 2008 just a dress rehearsal?” /snip Second, she indicates that most observers recognize the rally is not the result of fundamentals (duh!) but the result of excessive liquidity chasing assets. /snip From Tett: Earlier this month, I received a sobering e-mail from a senior, recently-retired banker. This particular man, a veteran of the credit world, had just chatted with ex-colleagues who are still in the markets – and was feeling deeply shocked. “Forget about the events of the past 12 months … the punters are back punting as aggressively as ever,” he...

Hold the Champagne on China’s Economy By Michael Auslin Thursday, October 22, 2009 Filed under: World Watch, Boardroom, Economic Policy Those who witnessed Japan's spectacular rise and fall in the 1980s should get a familiar feeling watching China these days. This month in Hong Kong, a single bottle of wine sold at auction for $93,000 to a Chinese buyer. No matter how good the vintage, that's not something to pop a cork over and celebrate. Those who witnessed Japan's spectacular rise and fall in the 1980s should be getting a familiar feeling watching China these days. In the eyes of...

This bubble won't last long ft.com We did not need to wait until the Dow Jones Industrial Average hit 10,000. It has been clear for some time that global equity markets are bubbling again. On the surface, this looks like 2003 and 2004 when the previous housing, credit, commodity and equity bubbles started to inflate, helped by low nominal interest rates and a lack of inflation. There is one big difference, though. This bubble will burst sooner. So how do we know this is a bubble? My two favourite metrics of stock market valuation are Cape, which stands for the...

China’s Growth Picks Up Speed but Raises Concerns By ANDREW JACOBS and BETTINA WASSENER BEIJING — The Chinese economy, already one of the fastest-growing in the world, picked up more speed during the third quarter, adding fuel to a debate over whether, and when, the Chinese authorities might start reining in stimulus measures. Prompted by vastly increased bank lending, generous government support for exports and a $585 billion stimulus package that is spurring a dizzying array of building projects, the Chinese economy grew 8.9 percent from July to September, up from the year-ago period, according to government figures released Thursday....

As Credit Crunch II looms, we must learn to escape risk of moral hazard For all those people belly aching about bank bonuses and dodgy mortgage lending in recent days, a speech by the Governor of the Bank of England addressing reform of the banking system ought to have been a highlight of the week. By Damian Reece Published: 9:57PM BST 20 Oct 2009 Comments 2 | Comment on this article But as Mervyn King told his Scottish business audience last night: "If our response to the crisis focuses only on the symptoms rather than the underlying causes of the...

Following Vietnam’s property market collapse earlier this year, luxury apartment prices have fallen sharply, with a 30% drop in places like Phu My Hung and as much as 60% in other areas. The slump has been particularly hard in the luxury segment. Independent financial expert, Bui Kien Thanh, said local developers had focused too highly on luxury properties. He said the luxury segment is set for more trouble since customers have raised complaints about the quality of the apartments they have bought. Former deputy minister of natural resources, Dang Hung Vo, said that property prices would continue to fall if...

Seriously Folks, The Housing Bubble Is Back Joe WeisenthalOct. 15, 2009, 5:51 AM We mentioned this a week ago, though this story has been kind of flying under the radar: The housing bubble is back. No, home prices aren't (yet) at overinflated levels again, but the housing market is seeing a return of enthusiasm, mania, and speculation, the likes of which we haven't seen in a long time. Now CNBC's Diana Olick (via Calculated Risk) is talking about it. Here's an email a realtor sent to a friend of hers. The foreclosure capital of America, Vegas home prices are down...

Roubini Warns of ‘Significant Amount of Froth’ in Markets Nouriel Roubini, a New York University economist known as “Dr. Doom” for his warnings about the U.S. economy, said in an interview Thursday he is concerned about the run-up in U.S. stock prices since March, which seem priced for a V-shaped recovery that he says is unlikely to happen. “Some of [the rally] is fundamental,” he said. “We avoided Armageddon, there is a light at the end of the tunnel, and risk aversion is lower.” “But it has occurred so fast, so soon, in my view that it’s diverging from the...

The next financial bubble could come sooner than you think. A year after the collapse of home values triggered the financial crisis and Great Recession, another rapid and irrational rise in the price of assets - whether stocks, home values, oil or something else - would seem unlikely. After all, major bubbles through history have been spaced decades, if not centuries, apart. Today, though, amid the wreckage of the last bubble, the ingredients for the next are still with us. The price of gold spiking to unprecedented levels - $1048.60 an ounce on Friday - is one warning sign, as...

CAMBRIDGE, Mass. — Gone are the hot breakfasts in most dorms and the pastries at Widener Library. Varsity athletes are no longer guaranteed free sweatsuits, and just this week came the jarring news that professors will go without cookies at faculty meetings. By Harvard standards, these are hard times. Not Dickensian hard times, perhaps, but with the value of its endowment down by almost 30 percent, the world’s richest university is learning to live with less. The Faculty of Arts and Sciences, Harvard’s largest division, has cut about $75 million from its budget in recent months and is planning more....

Remember the 1990s tech bubble? When it burst, the experts were telling you - you should have been into Blue Chips. After you shifted your money - BANG - the market collapsed with ENRON, WORLDCOM and the others then Sarbanes-Oxley was enacted and the experts declared that you should have diversified and had some money into the "fourth asset class" - real estate. Many cashed out whatever was left in mutual funds and bought "investment condos" thinking they were going to "flip and buy" which was a strategy that lasted for a bit then they got caught up in the...

This time will never be different Review by Martin Wolf Published: September 28 2009 03:18 | Last updated: September 28 2009 03:18 This Time Is Different: Eight Centuries of Financial Folly By Carmen Reinhart and Kenneth Rogoff Princeton, $35; £19.95 The four most dangerous words in finance are “this time is different”. Thanks to this masterpiece by Carmen Reinhart of the university of Maryland and Kenneth Rogoff of Harvard, no one can doubt this again. As the authors note, “If there is one common theme to the vast range of crises we consider in this book, it is that excessive...

Andy Xie: Why One Bubble Burst Deserves Another 09-28 15:34 Caijing comments( 0 ) The financial crisis taught crucial lessons about the dangers of bubbles, loose regulation and debt. It's a pity we didn't learn. By Andy Xie, guest economist to Caijing and a board member of Rosetta Stone Advisors Ltd. (Caijing Magazine) Lehman Brothers collapsed one year ago. The U.S. government refused a bailout and warned other financial institutions to be careful. The government felt other institutions had already severed their dealings with Lehman's investment network, and that a collapse could be walled in. Little did the government realize...

This should have been a week for traders in the stock market to feel good about life. US stocks have rallied by close to 60 per cent in barely six months since they hit bottom in March. The Federal Reserve meanwhile pronounced this week that “economic activity has picked up” – the most confident language the central bank has used for some time. But Crispin Odey, one of London’s most respected hedge fund managers, was seeing things differently. He chose Wednesday, the day of the Fed’s pronouncement, to ruminate, both in a note to clients and in the Financial Times,...

"Whether through exuberant hedgies or anxious private investors, gold just keeps pushing higher..." SO SPECULATIVE BETTING on gold going higher now equals a record-busting 752-tonne position in Comex futures and options, yet this is not a bubble according to Michael Pento of Deltaga. Let's say otherwise. Let's say that gold prices, surging by almost $100-per-ounce in barely a month, are very much in a bubble...blown up by near-zero interest rates worldwide and a sharply negative cost of borrowing after inflation. Were that the case, the question before potential and existing investors would be simple: Is this "irrational exuberance" or a...

One year after America's brush with economic catastrophe, there's plenty of looking back at the bubbles that caused financial chaos. But what's next? There are surely dangerous economic bubbles forming as we speak. As Alan Greenspan warned this week, "They [financial crises] are all different, but they have one fundamental source," he said. "That is the unquenchable capability of human beings when confronted with long periods of prosperity to presume that it will continue." The trick, of course, is spotting them. By definition, most people don't spot a bubble before they form and burst. Here's 10 for which you should...

Many are accustomed to thinking in terms of a 'housing bubble.' But this is only part of the story. In fact, the first decade of the 21st century brought us a real estate double bubble—one in housing, and one in commercial real estate. Many are accustomed to thinking in terms of a “housing bubble.” But this is only part of the story. In fact, the first decade of the 21st century brought us a real estate double bubble—one in housing, and one in commercial real estate. They both involved property prices increasing by an obviously unsustainable 90 percent over six...

DENVER – He bought his first home, spent $30,000 fixing it up, and now, six months later, Jonathon Kyte has learned the home doesn't belong to him. According to the City and County of Denver, Jonathon owns the dump, next door. He found out about the mistake almost by accident when he received a map which showed the unit he's living is actually unit No. 4. "I froze. My wife and I were just speechless," Kyte said. Kyte owns the deed and title to unit No. 5. Jonathon blames the Coldwell Banker listing agent for the mistake. She marketed the...

Shanghai Shares Tumble 6.75% By MARK McDONALD HONG KONG — The Shanghai composite index plunged 6.75 percent on Monday to close out August with a drop of 21.8 percent, the worst performance for the month among the world’s major exchanges. Monday’s fall, coupled with a drop of nearly 3 percent last Friday, has made for “a huge, huge decline,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong. The overall index was down 192.94 points on Monday to finish at 2,667.75, the lowest closing figure in more than three months. Shares on the Shanghai exchange had rocketed...

The troubling side of Ben Bernanke He has saved the world but he helped cause the crisis in the first place, writes Ambrose Evans-Pritchard. By Ambrose Evans-Pritchard Published: 8:29PM BST 25 Aug 2009 Comments 35 | Comment on this article Ben Bernanke has proved himself a heroic fire-fighter, saving world from a calamitous spiral into debt deflation by showering markets with liquidity. A good thing too. He helped cause the raging fire of 2007-2009 in the first place. As a Princeton professor and then a junior Federal Reserve governor, Mr Bernanke was the intellectual architect of his predecessor Alan Greenspan's...

JACKSON HOLE, Wyoming (Reuters) - The U.S. Federal Reserve's stated intention to keep interest rates exceptionally low for "an extended period" may conflict with its desire to avoid inflation, an academic economist told central bankers on Saturday. "The point of keeping interest rates low in the future is to promote economic activity today, but the price is a future rise in inflation," Carl Walsh of the University of California, Santa Cruz, wrote in a paper presented at the Kansas City Federal Reserve's annual Jackson Hole conference. "It is not clear how one has one without the other." Walsh's audience includes...

Is China the Next Real Estate Bubble? Weak export demand and looming Politburo changes are incentives to keep the monetary spigot wide open. By MICHAEL KURTZ Chinese policy makers have lately spooked markets into thinking they might soon take away the monetary punch bowl that's been fueling the local asset recovery. Don't be fooled. Beijing is likely to continue priming the monetary pump to support domestic markets. Exports remain weak despite positive signs from the U.S. and Europe, and domestic consumption has a long way to go to make up the gap. Spending on infrastructure is contributing massively to 2009...

ARROYO GRANDE, Calif. (MarketWatch) -- Something's in the air. You can feel it. A new bull. Hype? Maybe, but also a roaring new bull -- and eventually another meltdown. [...] Yes, folks, a new bubble cycle is already in motion. You can feel the energy building, the kind that fueled the meltdowns of 1998, 2000 and 2007. We never resolved the problems fueling the dot-com insanity. We made matters worse feeding the subprime credit-derivatives disaster with cheap money, Reaganomics ideology and two costly wars. Lessons were never learned, nothing was resolved. Today matters continue deteriorating. Behind the hoopla, the Wall...

By: MISES We now have the diametrical opposite of the famous "Peter Schiff Was Right" video (a compilation of 2006 and 2007 clips in which Schiff, a financial expert who subscribes to Austrian economics, predicted the deep recession that would follow the bursting of the housing bubble). "The new, opposite video" is a compilation of the 2005–2007 prognostications of Federal Reserve Chairman Ben Bernanke. In it, Bernanke is shown to have been just as embarrassingly wrong as Schiff was uncannily right.Could their differences in economic understanding have anything to do with this remarkable dichotomy? I have transcribed most of the...

So we've got "green shoots" in the market eh? Very nice chart, this, right? img src=”http://market-ticker.denninger.net/uploads/Charts-2009-08/spx-1y.png>. Hmmm... how do you square that with the fact that earnings are dropping like a stone on a year-over-year basis, revenues (the more important indicator of economic activity) are down double-digits on average, and consumer purchasing power (as measured by tax receipts, down 22% at a federal level year over year, the worst since the Depression) is in the toilet? We're told this is "money was on the sidelines" and "people are rushing in." But the statistics say otherwise: Only $400 billion has shifted...

BEIJING – The middle-aged crowd in the packed Guosen Securities office jostle around buzzing printers that spit out receipts for their share buys, hoping to cash in on China's stimulus-fueled stock market boom. "The central government has to fulfill their promise of 8 percent economic growth," said Wu Jun, 62, a retired civil servant who invested part of his life savings of 50,000 yuan ($7,300) and lives on a 2,000 yuan-a-month ($290 a month) pension. "They'll come up with measures to keep the market in good shape." But while investors expect the market — up more than 80 percent this...

Goldman Sachs is expected to report record profits this week. Rolling Stone's Matt Taibbi calls the giant investment bank a "vampire squid," and notes how many Goldman alumni were involved in last year's financial bailout, which benefitted the firm. Taibbi concludes: It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs - its employees paid some $981,000 to his campaign - sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting...

<p>RMB 1.5 trillion in new Chinese lending — can we turn this thing off?</p> <p>July 8th, 2009 by Michael Pettis | Filed under Banks, NPLs.</p> <p>I don’t have time to do a long entry today, but in my June 30 entry I marveled at the huge explosion in new lending, and claimed that credible rumors suggested that total new loans for June would be an astonishing RMB 1.2 trillion. That would bring total new lending for 2009 to RMB 7.06 trillion, nearly three times last year’s first-half total of RMB 2.45 trillion.</p>

The worst economic crisis since the Great Depression has prompted a reassessment of how financial markets work and how people make decisions about money It has all the makings of a classic B movie scene. A gunman puts a pistol to the victim’s forehead, and the screen fades to black before a loud bang is heard. A forensic specialist who traces the bullet’s trajectory would see it traversing the brain’s prefrontal cortex—a central site for processing decisions. The few survivors of usually fatal injuries to this brain region should not be surprised to find their personalities dramatically altered. In one...

Earlier this week I noted that I had changed my mind on the Community Reinvestment Act. Contrary to my initial conclusion, the evidence is overwhelming that the CRA played a significant role in creating lax lending standards that fueled the housing bubble. Once I realized this, I had to abandon my suspicion that the anti-CRA case was a figment of the rhetoric of Republicans attempting to distract attention from their own role in the mortgage mess. So I laid out the facts and arguments that had convinced me to switch sides in the CRA debate. It was a long series...

There's ice on the export side, while there's flame on the real estate market side, and China's effort to create internal demand is being distorted. China's economic stimulus, which is bulldozing ahead, is causing problems for China's economic recovery. Manufacturing is steadily declining, employment and consumption growth are weak, but bubbles are beginning to gather in the real estate industry. In May, China's import and export totaled $164.13 billion, down 25.9%, year on year, and 3.9%, month on month. Export totaled $88.86 billion, off 26.4%, year on year, and 3.4%, month on month, and imports reached $75.37 billion, down 25.2%,...

There has been much confusion with all of the different explanations as to how we got ourselves into this housing collapse. The following is a simple story that may shed some light on the events. Big Jimmy’s Liquor Store had been a fixture in Jonesville for over twenty years. Big Jimmy was as you might suspect, a rather robust, affable man, who never met a stranger. Small town life suited him just fine and he felt like he was friends with the entire town. One of his close friends, Clive, started up Clive’s Liquor Store about ten years ago. There...

Insight: Recovery not as easy as U, V, W By Gillian Tett Published: May 28 2009 20:09 | Last updated: May 28 2009 20:09 Are you expecting a “V” shaped recovery this summer? Or do you anticipate a scenario more like a “U” or a “W”? That is the question I have been asked repeatedly this month, as the debate about “green shoots” roars on. Personally, though, I suspect that none of the letters in the Roman alphabet quite captures what is most likely to go on. To be sure, the last year might seem to correspond to the start...

Thomas Sowell on how government policies made the housing crisis possible Thomas Sowell, prolific public intellectual and the Rose and Milton Friedman Senior Fellow at the Hoover Institution, is one of America's greatest economic thinkers and educators. He's taught the fundamentals through such books as Economic Facts and Fallacies and Basic Economics and chronicled economic history through such scholarly works as Marxism: Philosophy and Economics and On Classical Economics. In his classic work Knowledge and Decisions, he espoused a sophisticated, largely Hayekian approach, revealing how the efficient spread of relevant knowledge is shaped by our social institutions, and often warped...

The Next Great Bubble: China By Vitaliy Katsenelson One more bubble, please. After the bubbles in technology, housing, and commodities, we saw the mother of all bubbles: the one in global liquidity. The world economy seemed to require bubbles for its continued functioning. I get the distinct feeling that investors’ prayers are now being answered: There’s a new bubble now - or an old one is being re-inflated, depending on your perspective even as I type this. I’d like to call it the Troubled China Revival Program (TCRP). Why start reserving bubble-naming rights? Well, I recently received an email from...

REAL ESTATE APRIL 14, 2009, 4:02 A.M. ET Older Borrowers, Out in the Cold By ELLEN E. SCHULTZ YUBA CITY, Calif. -- In 2006, Carol Couts, a 66-year-old widow in Yuba City, Calif., was living in her home, payment-free, when a mortgage broker persuaded her to refinance her no-cost mortgage for one that exceeded her monthly income by more than $400. She can't afford the payments, and unless her lender modifies the loan to make it affordable, she'll lose her home of 25 years.

Two years away from the peak of the great housing bubble, the talk has turned to whether we've reached a bottom. And whenever there is talk of a bottom, there is the inevitable talk of recovery, the speculation about just how long -- five years? 10? -- it will take for us to get back to where we were. Even at this point, the idea that there is simply no going back -- not for decades -- is still hard to stomach for Americans who have never seen or imagined a more or less permanent drop in value of housing....

-- snip -- But what sparks bubbles? Why does one large asset bubble -- like our dot-com bubble -- do no damage to the financial system while another one leads to its collapse? Key characteristics of housing markets -- momentum trading, liquidity, price-tier movements, and high-margin purchases -- combine to provide a fairly complete, simple description of the housing bubble collapse, and how it engulfed the financial system and then the wider economy...

Looking back three years ago, it is hard to fathom how much has changed from the frenzied pace of development then going forward. Land and housing prices were still rising, ever-larger development projects were being launched, and growth debates were raging across Southern California. That’s all gone now. As key real estate players suddenly find themselves without jobs, as more developers file bankruptcy, and more projects bite the dust, the depth of this “downturn” is sinking in. Many, of course, have “been through this before.” By that they mean, they’ve weathered the cyclical postwar busts that have intermittently interrupted the...

San Diego County agent and blogger Jim Klinge revels in exposing the greed and excess blamed for the housing crunch.Sometimes the truth hurts. Real estate salesman Jim Klinge doesn't care. Cruising through the sunny hills of Carlsbad in a massive silver Mercedes-Benz, he looks like any other pitchman of the California dream. But Klinge, 50, has become a notorious Internet chronicler of the real estate crash in north San Diego County, where he has lived and worked for decades. Rather than downplay the greed and excess that caused the region's travails, he revels in exposing them. He surveys the wreckage...

As a growing number of gun shoppers are discovering these days, it's becoming easier to buy a gun than it is to purchase the ammunition for it. Shortages of popular handgun calibers in particular have dealers and customers fuming, and ammo makers have shifted their production lines into overdrive to keep up with the demand. How long will the "bullet bubble" last? That depends in large part on politics in Washington and in statehouses across the land, and the messages that various legislative efforts convey. ---------------------------cut-------------------- "From what we've heard, ammunition manufacturers are operating at full capacity in an attempt...

Our economy is broke due to inflationary compassion as much as it is from inflationary greed by Wayne Lusvardi What shall we make of the following? Homeless Sensitivity Sleep-overs Overhead at the Fuller Seminary Bookstore in Pasadena recently: Guy talking on cell phone: "Hello. Yes, we're organizing churches to have a homeless persons sleep-over at their church to sensitize congregations to the homeless problem. If I heard the following cell phone conversation correctly, someone at Fuller Seminary was organizing a revolving homeless persons sleepover at different churches. Which jogs my memory as to what year it was that mainline liberal...

It's become conventional wisdom that Alan Greenspan's Federal Reserve was responsible for the housing crisis. Virtually every commentator who blames Mr. Greenspan points to the low interest rates during his last few years at the Fed. [Commentary] Martin Kozlowski The link seems obvious. Everyone knows that the Fed can drive interest rates lower by pumping more money into the economy, right? Well, yes. But it doesn't follow that that's why interest rates were so low in the early 2000s. Other factors affect interest rates too. In particular, a sudden increase in savings will drive down interest rates. And such a...

Our economy is broke due to inflationary compassion as much as it is from inflationary greed What shall we make of the following? Homeless Sensitivity Sleep-overs Overhead at the Fuller Seminary Bookstore in Pasadena recently: Guy talking on cell phone: "Hello. Yes, we're organizing churches to have a homeless persons sleep-over at their church to sensitize congregations to the homeless problem. If I heard the following cell phone conversation correctly, someone at Fuller Seminary was organizing a revolving homeless persons sleepover at different churches. Which jogs my memory as to what year it was that mainline liberal Pasadena All Saints...

"It surprises me that it surprises anyone - that Gold and other commodities would rally in this environment. Some are even calling this rise in gold a bubble. In each of the bubbles of the past 12 years, gullible investors essentially had to make the case that the fundamental laws of economics would cease to apply to their situations. During the tech bubble...

Here it is. It's long for you small minded, entertainment needy, slow witted folks, but really a concise, entertaining 1 hour 16 minute explanation of how we got here, who's responsible, and what to expect. If you listen, you will find out what YOU and WE THE PEOPLE, need to do in the next 6-10 years so the country doesn't go bankrupt. I challenge you to listen first, then comment. link is http://blog.mises.org/archives/009620.asp

Outside Edge: The book that’s in and out of fashion By Jonathan Guthrie Published: March 13 2009 22:08 | Last updated: March 13 2009 22:08 Who is Ayn Rand? The answer is critical to understanding Atlas Shrugged, the libertarian blockbuster written by this Russian-American author. A book of big ideas first published in 1957, it is selling strongly again. Its depiction of a US enervated by interventionism has struck a chord as Washington spends billions on bailing out banks and businesses. The literary device that underpins a plot Wagner would have considered over-elaborate is the question: “Who is John Galt?”...