Suburban Housing Markets Are Unsustainable (Part 2) 90 comments
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Housing Has Bottomed
At the center of the Earth
In the parking lot
Of the 7-11 where I was taught
The motto was just a lie
It says home is where your heart is
But what a shame
Cause everyone's heart
Doesn't beat the same
It's beating out of time
Jesus of Suburbia – Green Day
There is no need to worry. Jim “Mad Money” Cramer assures us that the bottom is in for housing. Here are his words:
The bottom, well, is now. We are seeing a huge wave of buying of foreclosed homes in Northern and Southern California and in Florida. The numbers are too positive to think that these, the hardest-hit areas, aren't putting in long-term bottoms.
Jim Cramer – April 19, 2009
Of course, Jimbo has called more bottoms than a proctologist. His housing market bottom call of 2006 was off slightly, by about 4 years. His latest call will be off by two years, so he is getting better. Jim Cramer is the best salesman since P.T. Barnum. He is able to hock his 4 books and website twenty times in the space of an hour every night, while helping clueless morons lose what is remaining of their retirement savings. You will learn more and lose less by watching Cash Cab every night from 6:00 pm to 7:00 pm rather than watching the shameless shill Jim Cramer.
Based on past results, I think I’d rather put my faith in Professor Robert Shiller, who called the Tech bubble and the Housing bubble when others were proclaiming a new paradigm. According to the Case-Shiller Index, home prices have dropped between 25% and 30% since the mid-2006 peak.
Based on the Case-Shiller Futures Index which has performed better than a Jim Cramer appearance on the Daily Show with Jon Stewart, the bottom of the housing market will occur in late 2010, with further declines of 5% to 25% in major markets. Cramer’s house in Northern New Jersey will take a 24% hit by November 2010 according to the futures market. I’m sure he sees that coming. It would be refreshing if he ever looked at facts and based his ever changing recommendations on a sound basis in reality.
How can anyone in their right mind say that housing has bottomed when the months supply of new homes is at an all-time high of 13 months, the months supply of existing homes is 10 months, there will be 2.1 million foreclosures in 2009 versus 1.7 million in 2008, and 7 to 8 million more people will lose their jobs in 2009? Neither foreclosure counseling, foreclosure moratoriums or magic pixie dust will keep housing prices from completing their roundtrip back to 2000 levels. Bubbles never burst halfway. They burst completely and the mess spreads everywhere.
Boulevard of Broken Dreams
Now the bad news. We are in a momentary lull of mortgage resets. The subprime crisis is mostly behind us. Now the Option ARM and Alt-A crisis is coming down the track like a freight train. Even a Citicorp (C) or Bank of America (BAC) CEO could understand the following chart, given enough time and sixth grader to explain it to them. The Option ARM wins the prize for most creative financial product of mass destruction. These are ticking time bombs set to explode in 2010 and 2011.
The beauty of an Option ARM is that it usually has three options. You can make a principal & interest payment, just an interest payment, or a minimum payment that increases the principal balance. Most of these loans also had introductory low teaser rates. The resets for these loans skyrocket in 2010 and 2011. Payments on these loans will go up 50% to 80%. Most of these loans are already underwater. Millions more “homeowners” will walk away and foreclosures will grow. Luckily, the Federal Reserve and Treasury cut the Stress Test off in 2010. The coming enormous bank losses in 2011 would have put a crimp in their little confidence game. The government solution to this problem has been to coerce, threaten, and provoke fear in the populace to seize their tax dollars, pile the hundreds of billions into a giant dump truck and unload the pile of tax dollars onto the front steps of Citicorp, Bank of America, Goldman Sachs (GS), Wells Fargo (WFC) and JP Morgan (JPM). Creative market based solutions that require thought, rationale, wisdom, and fortitude are dismissed. John Mauldin’s proposal to grant a green card to any immigrant who buys a home and John Hussman’s PAR proposal that would solve the foreclosure problem aren’t even considered because they wouldn’t increase the power of government over the people.
Turning Japanese
The good news is that housing prices will eventually bottom. This will likely occur in 2010. Then what? The cheerleaders on CNBC expect 5% to 10% gains to resume as if nothing had happened. The example of Japan is more likely to be our future. Every circumstance leading up to the Japanese housing crash has been present in the U.S. during the last decade:
- Historically low interest rates
- Housing touted as a 'can't miss investment'
- Median home prices doubled
- Median home prices in largest markets tripled
- Lenders offered risky loans
- Government acted as a partner to industry
- Home price increases far outpaced wages and rents
After reaching peak values, Japanese home prices declined by an average of 40%. In the country's largest cities, the declines were worse, averaging 65%. Homes in Tokyo lost 80% of their value and are still on the downward slide to this day. National home prices in Japan were $125,000 in 1985. Twenty years later home prices are again at or near the $125,000 level. If the U.S. follows this path, median home prices will be $143,600 in 2020, the same level as 2000. You won’t hear any “experts” making this prediction, because the economic implications would be too dire. A nice dose of runaway inflation could solve this dilemma. Are you up for it?
Fraud, Lies & Deceit
“The lies the government and media tell are amplifications of the lies we tell ourselves. To stop being conned, stop conning yourself.”
James Wolcott
The entire suburban existence of the last twenty years has been a fraud, built on a foundation of debt, with bankers lying to investors and homeowners deceiving themselves. Fraud is the intentional perversion of truth in order to induce another to part with something of value. The CEO’s of major financial institutions intentionally created and marketed fraudulent mortgage products in order to enrich themselves. Why would someone create NINJA loans (No Income, No Job or Assets) unless you wanted to induce borrowers to commit fraud? What good business reason would a professional financial manager have for not wanting to know whether the person has a job or income when you are loaning them $400,000?
The reason is simple. They knew the loans they were making were frauds, but they didn’t care. They were bribing Moody’s and S&P with huge payoffs to buy a AAA rating for their packages of fraudulent loans, so they could sell them to unsuspecting investors throughout the world. Former banking regulator William Black described the process:
The way that you do it is to make really bad loans, because they pay better. Then you grow extremely rapidly, in other words, you're a Ponzi-like scheme. And the third thing you do is we call it leverage. That just means borrowing a lot of money, and the combination creates a situation where you have guaranteed record profits in the early years. That makes you rich, through the bonuses that modern executive compensation has produced. It also makes it inevitable that there's going to be a disaster down the road.
The executives of Countrywide, Indy Mac, Washington Mutual, among others committed this fraud on a gigantic scale. CEOs, Vice Presidents, mortgage brokers, appraisers, and loan officers all knew they were committing fraud. Were these people raised by moral parents or Satan? None of them are in jail. How could trillions be lost and no one goes to jail? Angelo Mozilo is working on his tan on a beach in the Caribbean enjoying the $140 million he sucked out of Countrywide, when he should be in prison worrying what will happen during his next shower. Our government is covering up. William Black explains why:
Geithner is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have massive losses, and that they're fine. These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed. AIG was being used secretly to bail out favored banks like UBS and like Goldman Sachs. Secretary Paulson's firm, that he had come from being CEO. It got the largest amount of money, $12.9 billion. And they didn't want us to know that. And it was only Congressional pressure, and not Congressional pressure, by the way, on Geithner, but Congressional pressure on AIG.
The lies we’ve been told by government, corporate America, and the media are no worse than the lies we’ve told ourselves. We have tripled the size of our houses, and reduced the sense of community in our nation. Many have perfectly manicured lawns, polished appliances, 12 spotless rooms and dysfunctional, aloof, joyless lives. A McMansion, stainless steel appliances, 6 flat screens, and granite countertops do not guarantee happiness. When all of these items are bought on credit, you have a tragedy. America has degenerated into a materialistic, corrupt, me first, soul-less society. Nobody is right. Nobody is wrong. Everyone deserves to win, even if they made horrible decisions. Unless this changes soon, this country is doomed. By 2020 the United States will essentially be an old aged pension fund with an army.
The time for fraud, lies and deceit are over. Anyone within the banking industrial complex, from CEOs to loan officers that committed fraud must go to jail. If individuals lied on their mortgage documents, they should be prosecuted for fraud. If Hank Paulson and Ben Bernanke told Ken Lewis to lie, they should be prosecuted. If you borrowed too much and can’t make the payment on the house you are occupying, move out. You lose. Let prices fall to bargain levels and the winners in society who didn’t take on 150% leverage will buy the houses. A twenty year period of economic stagnation may be the best thing that could happen to this country. Saving would again become a virtue. Materialism would be ridiculed. Homes would be a place to live, rather than an investment. Truly important things like family, friends, community, trust and faith might take precedence once again. Or we could go on flipping houses and keeping up with the Joneses. What would Jesus of Suburbia Do?
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This article has 90 comments:
Thanks for pointing out that the Alt-A/Option ARM cataclysm was not factored in to the "stress tests." This needs to be spoken loudly to Average Joes who are beginning to think that financial stocks and REITs are a great deal.
On May 14 11:20 AM Whippet wrote:
> Awesome, Jim. Do keep one eye open with Shiller- although I agree
> with him in "Irrational Exuberance" and appreciate his Case-Shiller
> index, he did sign off on a CFR "experts report" last week advocating
> an enormous expansion of Federal Reserve powers in systemic regulation.
>
> Thanks for pointing out that the Alt-A/Option ARM cataclysm was not
> factored in to the "stress tests." This needs to be spoken loudly
> to Average Joes who are beginning to think that financial stocks
> and REITs are a great deal.
How smart was it for US business to eviscerate the workers/consumers of their home market, the only market they can really count on.
To start, I'm not going to address the social commentary. My mother was one of those stay-at-home mothers. My wife is not. There are clear advantages and disadvantages to each. You may be nostalgic about the old days, but they were not unambiguously better. That's the pure nostalgia. I know my wife would not have survived if she'd been forced to stay at home with our kids, who turned out very well.
On the economics analysis, which I'm better trained to address anyway, your interpretation of the data is one-sided and colored by your social commentary. I'll make the point simply. Since you (and I) were raised, real family income has increased quite dramatically. Why would that increase in living standards not also show up in the size of people's homes or in the amenities in those homes? You can put a negative spin on this, as you did, by claiming that people have vastly more home than they need or show have. But that's your value judgment. If Paul Allen, to use your own example, can afford an outrageously large home, one large enough to house the student body of a small college, why should he not do that? Nor is this behavior new. Go to Newport Rhode Island to see the mansions built by the ultra wealthy for occasional use. Would you also criticize people today for getting a 42" HD TV if that's a priority for them? If so, then you maybe also think the government or some social agency should decide on our behalf what we may or may not buy?
Lastly, the forecasts that come out of such a dire judgment about where we are and where we came from are also silly. You either welcome or expect a 20 year period of "economic stagnation." That's not even a remote possibility. For that to occur, technology and productivity would have to stagnate, which is clearly totally wrong. In case, you hadn't noticed, many technology products become significantly better and cheaper very year and this is still ongoing. Even mature products become much better over time, whether washing machines, fridges, home furnaces, air conditioners, or cars. And what people think of today as necessities were luxuries not long ago. And the same will happen going forward. So, living standards are not going to be stagnant. Based on historical trends, average living standards should improve by between 2% and 2.5% annually.
I can understand your desire to spin our little predicament in a positive way since you manage other people's money. I'm sure you managed to make all your clients money in the last two years. You belong on CNBC with Cramer and all the other cheerleaders who never saw it coming and pray for return to normal.
On May 14 12:10 PM Charles Lieberman wrote:
> Great use of data to support a hodge podge of ideas. First, I'm not
> sure if this is social commentary, economic commentary or economic
> analysis. Those significantly different issues have been entirely
> blurred. So, I'll try to respond to each.
> To start, I'm not going to address the social commentary. My mother
> was one of those stay-at-home mothers. My wife is not. There are
> clear advantages and disadvantages to each. You may be nostalgic
> about the old days, but they were not unambiguously better. That's
> the pure nostalgia. I know my wife would not have survived if she'd
> been forced to stay at home with our kids, who turned out very well.
>
> On the economics analysis, which I'm better trained to address anyway,
> your interpretation of the data is one-sided and colored by your
> social commentary. I'll make the point simply. Since you (and I)
> were raised, real family income has increased quite dramatically.
> Why would that increase in living standards not also show up in the
> size of people's homes or in the amenities in those homes? You can
> put a negative spin on this, as you did, by claiming that people
> have vastly more home than they need or show have. But that's your
> value judgment. If Paul Allen, to use your own example, can afford
> an outrageously large home, one large enough to house the student
> body of a small college, why should he not do that? Nor is this behavior
> new. Go to Newport Rhode Island to see the mansions built by the
> ultra wealthy for occasional use. Would you also criticize people
> today for getting a 42" HD TV if that's a priority for them? If so,
> then you maybe also think the government or some social agency should
> decide on our behalf what we may or may not buy?
> Lastly, the forecasts that come out of such a dire judgment about
> where we are and where we came from are also silly. You either welcome
> or expect a 20 year period of "economic stagnation." That's not even
> a remote possibility. For that to occur, technology and productivity
> would have to stagnate, which is clearly totally wrong. In case,
> you hadn't noticed, many technology products become significantly
> better and cheaper very year and this is still ongoing. Even mature
> products become much better over time, whether washing machines,
> fridges, home furnaces, air conditioners, or cars. And what people
> think of today as necessities were luxuries not long ago. And the
> same will happen going forward. So, living standards are not going
> to be stagnant. Based on historical trends, average living standards
> should improve by between 2% and 2.5% annually.
upload.wikimedia.org/w...
Even using the fraudulent Federal Reserve inflation numbers real household income has gone from $37,000 to $47,000 between 1970 and 2005. Wow. You can take that to the bank. All is well. All is well.
On May 14 12:10 PM Charles Lieberman wrote:
> Great use of data to support a hodge podge of ideas. First, I'm not
> sure if this is social commentary, economic commentary or economic
> analysis. Those significantly different issues have been entirely
> blurred. So, I'll try to respond to each.
> To start, I'm not going to address the social commentary. My mother
> was one of those stay-at-home mothers. My wife is not. There are
> clear advantages and disadvantages to each. You may be nostalgic
> about the old days, but they were not unambiguously better. That's
> the pure nostalgia. I know my wife would not have survived if she'd
> been forced to stay at home with our kids, who turned out very well.
>
> On the economics analysis, which I'm better trained to address anyway,
> your interpretation of the data is one-sided and colored by your
> social commentary. I'll make the point simply. Since you (and I)
> were raised, real family income has increased quite dramatically.
> Why would that increase in living standards not also show up in the
> size of people's homes or in the amenities in those homes? You can
> put a negative spin on this, as you did, by claiming that people
> have vastly more home than they need or show have. But that's your
> value judgment. If Paul Allen, to use your own example, can afford
> an outrageously large home, one large enough to house the student
> body of a small college, why should he not do that? Nor is this behavior
> new. Go to Newport Rhode Island to see the mansions built by the
> ultra wealthy for occasional use. Would you also criticize people
> today for getting a 42" HD TV if that's a priority for them? If so,
> then you maybe also think the government or some social agency should
> decide on our behalf what we may or may not buy?
> Lastly, the forecasts that come out of such a dire judgment about
> where we are and where we came from are also silly. You either welcome
> or expect a 20 year period of "economic stagnation." That's not even
> a remote possibility. For that to occur, technology and productivity
> would have to stagnate, which is clearly totally wrong. In case,
> you hadn't noticed, many technology products become significantly
> better and cheaper very year and this is still ongoing. Even mature
> products become much better over time, whether washing machines,
> fridges, home furnaces, air conditioners, or cars. And what people
> think of today as necessities were luxuries not long ago. And the
> same will happen going forward. So, living standards are not going
> to be stagnant. Based on historical trends, average living standards
> should improve by between 2% and 2.5% annually.
Quite a career you got going there Cretin. Keep working at that math thing, eventually you'll understand basic mathematical concepts and can get a job as a kindergarten enthusiast. Nice beard.
On May 14 01:37 PM Cetin Hakimoglu wrote:
> Quinn, if you make enough predictions you'll eventually get one of
> them right.
I wonder what the percentage of single-income families was then compared to now? There's a reason it's not reported per capita...
And to Lieberman's comment regarding women:
my wife CHOOSES to stay home with our child, and we are happy to pay a severe penalty for this. I have myriad friends whose wives would LOVE to stay home and raise their children, but cannot afford to. Some because of poor financial choices, some because of dire need. Take your increasing living standards and shove 'em. If you're so confident of a 20-year period of growth, you should do as the Oracle and find a way to write 20-year strike S&P puts with your clients' money. You make me very happy with my decision to manage my own finances.
On May 14 01:30 PM James Quinn wrote:
> Your comment that standard of living will relentlessly improve is
> a complete falsehood. Please take a long look at this graph.
>
> upload.wikimedia.org/w...
>
>
> Even using the fraudulent Federal Reserve inflation numbers real
> household income has gone from $37,000 to $47,000 between 1970 and
> 2005. Wow. You can take that to the bank. All is well. All is well.
>
>
While I certainly don't believe any government or other organization should tell someone how to utilize their own family assets, it is very clear that housing space has increased a lot more than real income. And the point is clear that the debt loads are unsustainable. No money printing schemes or regulations will change the long term outcome. I'm afraid some down-sizing is bound to occur, one way or another. And based on my world travel experience, I don't think there is much correlation between living space per capita, and happiness.
We'll all see what plays out.
As always, Mr. Quinn, thanks for a well documented, well presented article.
Excellent article and a great reference for many analysts. What you didn't mention explicitly, and commenters such as Charles Lieberman are not recognizing, is that we may well be headed for a "new normal" (widely discussed lately, not my phrase), not what we have thought of as normal for the past 30 years. No one knows what this new normal is yet, but you have described some of the parameters that will define it.
Author uses the (excellent) credit Suisse graph of coming resets, which shows the last big wave doesn't crest until late 2011. Yet he says housing will bottom in 2010. How is all that shadow inventory going to get absorbed in 2011?
The snarky focus on the excesses of the largest homes is less than productive. Richest folks always finding weird ways to blow cash. Nothing new there.
And, dude, Green Day? Was that really the best you could do?
: )
On May 14 03:24 PM Jasper M wrote:
> Good article, but I have some complaints.
>
> Author uses the (excellent) credit Suisse graph of coming resets,
> which shows the last big wave doesn't crest until late 2011. Yet
> he says housing will bottom in 2010. How is all that shadow inventory
> going to get absorbed in 2011?
> The snarky focus on the excesses of the largest homes is less than
> productive. Richest folks always finding weird ways to blow cash.
> Nothing new there.
> And, dude, Green Day? Was that really the best you could do?
> : )
Another outstanding article.
"The median price of an existing home in 2000 was $143,600. It skyrocketed to a peak of $221,900 in 2006, a 55% increase in six years. Despite this tremendous rise, owner’s equity remained in the 60% range where it had been since 1990. The equity was frittered away on trinkets and baubles. Fast forward to today and median prices have plunged to $169,000, still 18% above the 2000 level, but owner’s equity is down to 43%. That is the amazing thing about debt, it remains in place as the asset behind the debt drops 24%."
Just so I can quote the numbers accurately, where did you get these from? Your articles are great reads not only because of the rhetoric, but also because of numbers which have borne scrutiny.
Fraud, Lies & Deceit
“The lies the government and media tell are amplifications of the lies we tell ourselves. To stop being conned, stop conning yourself.”
100% agree. We need to change our own habits before we can expect the government to change theirs.
"None of them are in jail. How could trillions be lost and no one goes to jail? Angelo Mozilo is working on his tan on a beach in the Caribbean enjoying the $140 million he sucked out of Countrywide, when he should be in prison worrying what will happen during his next shower. Our government is covering up. "
Our government has nothing to cover up. These people did what was legal. They are beyond the government's jurisdiction, unless we write a law that punishes retroactively. The fact is, the borrowers are responsible, as are the investors who bought this crap thinking they could earn an extra fifty basis-points.
"The lies we’ve been told by government, corporate America, and the media are no worse than the lies we’ve told ourselves. We have tripled the size of our houses..."
Again, 100% agree. Outstanding article. Thanks again.
www.flayme.com/troll/#Why
On May 14 01:53 PM James Quinn wrote:
> Quite a career you got going there Cretin. Keep working at that math
> thing, eventually you'll understand basic mathematical concepts and
> can get a job as a kindergarten enthusiast. Nice beard.
On May 14 03:31 PM Ricard wrote:
> Mr. Quinn,
>
> Another outstanding article.
>
> "The median price of an existing home in 2000 was $143,600. It skyrocketed
> to a peak of $221,900 in 2006, a 55% increase in six years. Despite
> this tremendous rise, owner’s equity remained in the 60% range where
> it had been since 1990. The equity was frittered away on trinkets
> and baubles. Fast forward to today and median prices have plunged
> to $169,000, still 18% above the 2000 level, but owner’s equity is
> down to 43%. That is the amazing thing about debt, it remains in
> place as the asset behind the debt drops 24%."
>
> Just so I can quote the numbers accurately, where did you get these
> from? Your articles are great reads not only because of the rhetoric,
> but also because of numbers which have borne scrutiny.
>
>
> Fraud, Lies & Deceit
> “The lies the government and media tell are amplifications of the
> lies we tell ourselves. To stop being conned, stop conning yourself.”
>
>
> 100% agree. We need to change our own habits before we can expect
> the government to change theirs.
>
>
> "None of them are in jail. How could trillions be lost and no one
> goes to jail? Angelo Mozilo is working on his tan on a beach in the
> Caribbean enjoying the $140 million he sucked out of Countrywide,
> when he should be in prison worrying what will happen during his
> next shower. Our government is covering up. "
>
> Our government has nothing to cover up. These people did what was
> legal. They are beyond the government's jurisdiction, unless we write
> a law that punishes retroactively. The fact is, the borrowers are
> responsible, as are the investors who bought this crap thinking they
> could earn an extra fifty basis-points.
>
>
> "The lies we’ve been told by government, corporate America, and the
> media are no worse than the lies we’ve told ourselves. We have tripled
> the size of our houses..."
>
> Again, 100% agree. Outstanding article. Thanks again.
From what i see. It is the commercial lending to the banks pals. Buying foreclosures for cheap and using cash. (who's cash?) Mine and your tax dollar.
Marked money, that should have helped the people in trouble.
In trouble for the large part by enforced mark to market accounting used to manipulate and create this big scam on the taxpayers.
I live near one of the affected area's. Florida. and what I see happening is. Bankers depositing funds (our tax dollars) into investment accounts ran by their friends. The friends then show up at the Bank auctions and guess what; They get the low bid. The hedge taxbreaks, matching funds, all the Forida sunshine juice.
Just like the 80's when every banker lent his pals money to build condominiums. Going bust. Then repurchasing the property and converting tthem to section 8 housing. After buying them back from bank auctions at hugely dicounted prices.
So what has changed? The poor and displaced, will have plenty of shorted condo's to live in. The taxpayers get bilked, the banks and hedgies are grinning.
This is a very over simplified example. But why isnt the media jumping into the mind boggling end of this scam?
I also agree on these crooks going to jail. The unfortunate part is that crooked State banking commissions, congressmen, and state Legislators are legally covering thier backs. While the media sells soap for them.
I call MSNBC-- More Socialist News Broadcasting Core. I like your NINJA loan better
On May 14 04:39 PM Cetin Hakimoglu wrote:
> lol You should rename your website TheBurningAsshole.com Just kidding.
> I don't have anything against you or your website.
>
> You certainly got the anger part down pat.
>
> ----------------------...
> Beneath the finely groomed blissful suburban façade of America lurk
> desperation, denial, hypocrisy, and anger. The kids of suburbia today
> have an entirely different reality than the suburbs I grew up in
> during the 1970’s.
On May 14 01:37 PM Cetin Hakimoglu wrote:
> Quinn, if you make enough predictions you'll eventually get one of
> them right.
Personally, I partially agree with Quinn, but I can see Cetin's argument that hey it worked before, the can may be kicked down the road another 7 years only to be done again and again in perpetuity. As a result, I may be buying stocks both short and long, but that doesn't mean going long guns & ammo isn't a bad idea, financial crisis or not.
I came to the same conclusion by doing a simple analysis using only Case-Shiller.
1.) Perform a linear interpolation based on median homes prices between 1970 and 1995.
2.)Perform a 3rd order Gaussian interpolation based on median home prices between 2000-2009.
3.) Find the intersect, I did the analysis about a year back and the intersect happened in late 2010.
My guess is that all the government intervention might push back the intersect till 2011/2012.
Other possible major events like the reset of OPtion ARM rates could push the intersect forward.
Comments?
don
thelittleguylobby.org
On May 14 09:15 PM cretin sniffsglue wrote:
> I don't think there has been a housing crisis but even if there were,
> our US porn industry is booming due to the cheap dollar and tens
> of thousands of unemployed hotties. US porn and liquor sales are
> through the roof and taking up the temporary slack that may show
> up occasionally in housing or the financial industry. Foreigners
> love our porn and alcohol and these will be the new IBD 100 favorites.
> If you stick to high relative strength specialty stocks like transvestite
> porn and Jim Beam, you will be fine.
Another fine piece. Keep up the great work.
And, I would just like to add that I really support your replying to commenters attempts to demean, discredit or impugn your articles.. As they say down under.."Good on you"
Please try not to respond to Cetin, it was fun at start, but now is really draging down the level of discussion.
From a non US citizen I see the world as a round ball with 6 billion people and limited ressources that need to get shared.
I am seeing this happening between Austria and the CEE countries constantly. We can not sustain a 44.000 € GDP, when approx. 150 Mio people in CEE with a GDP from somewhere 2000€ Ukraine to 14000 € Slovakia live next to our door (austria 8mio inhabitants). Vienna to Ukraine is Detroit to Chicago.
There will, and there is a process of adjustment going on. We will have less while they will have a little more.
Or maybe we stop globalization, reintroduce the iron curtain and tell the people to free free, but please not here with me.
After getting a few emails from people in Miami and elsewhere, it sounds like late 2010 is a pipe dream. 2012 is looking more like it.
On May 14 10:25 PM Lies, and damned lies wrote:
> How are you arriving at your 2010 bottom call?
>
> I came to the same conclusion by doing a simple analysis using only
> Case-Shiller.
> 1.) Perform a linear interpolation based on median homes prices between
> 1970 and 1995.
> 2.)Perform a 3rd order Gaussian interpolation based on median home
> prices between 2000-2009.
> 3.) Find the intersect, I did the analysis about a year back and
> the intersect happened in late 2010.
>
> My guess is that all the government intervention might push back
> the intersect till 2011/2012.
> Other possible major events like the reset of OPtion ARM rates could
> push the intersect forward.
>
> Comments?
As for the social commentary, I think that everyone keeps missing a central point about laissez-faire capitalism. If one is living in such a system, then it is perfectly rational to be greedy. Mozilo and the others did commit fraud, but it was perfectly rational to do so. The odds of being punished were very low and the rewards were very high. A laissez-faire system is basically telling individuals that money is the only thing of value.
The author seems to believe that there are other things in life of value, and I agree. But our current economic system does not recognize any thing of value other than wealth. It says that those with money are living good lives and those without are not. Period. It says that Mozilo is a winner and the rest of us are losers. Period.
1. Huge new technology lever- the Internet, optical communications, and cyberspace;
2. Huge new labor pools globally accessible;
3. Huge new energy sources on the verge of economic viability;
4. Huge contraction in credit due to confidence destruction.
If you subscribe to the view that the earth is going to run out of raw materials and energy and growth must thus be limited, you hate my view. If, on the other hand, you see economic growth driven more by human factors (for example, more organic-based products, more solar energy, more healthcare providers, more educators, more entertainers) then increasing the money supply to match huge increase in potential goods and services supply makes sense (to offset deflation). As raw materials inflate (oil, Hummers), alternative solutions become economically viable (solar, electric cars).
What is troubling is the tendency for governments to corrupt. Instead of building where building is most economical, governments build expressways ringing around cities so land can be purchased for $2500/acre and flipped for 10X that or more. Former Speaker Hastert was investigated for such a deal. And now his son is running for office. When you see political leadership transferring between family members (Kennedys, Daleys, Strogers, Madigans, Bush, Clintons, Hasterts) you know something has gone wrong.
It is true that the focus will now be on inner cities. Builders will start to move back in to urban centers. Meanwhile, there will still be a demand for homes in the suburbs as teacher unions and private school unaffordability continue to handcuff education in urban areas and telecommuting allows people to work from home.
To get "more buyers" by opening immigration, possibly through special path to Citizenship, to those who have US dollars overseas and can afford homes. Skip the tedious entry process to those who are willing to write a check for $1,000,000 and give them Citizenship (with vesting parameters, no felonies in 10 years, etc).
A million entrants into the US with a $1,000,000 would provide not just an immediate injection in liquidity to the Federal Government's deficit, it should also provide an opportunity for all those empty (to be) homes to be sold, occupied with the new citizens who pay property taxes and increase the liquidity in the US system along with further spending amplifying effect.
The fact of the matter is America is the "ultimate gated community" in terms of people trying to get in. It is in fact American Dollars that are being sucked out of the country and a way of bringing those dollars back is to bring them along with the people.
The problem is not "too much" immigration, its not enough of the right immigration. Fill the empty homes, refund the banks and financial institutions, and get the economy back on track through high income, high talented, risk taking, willing supporters of American values who will write over a check. Give the 1,000,000 Squared plan a chance to work ( a million squared would provide a trillion dollars of economic effect, 1000000 immigrants * 1000000 dollars, yes!)
Suburbs will continue to expand and grow in direct proportion to the messy excesses listed above
Ritholtz is another who has earned respect for his early call on this. He is still bearish. Last night he posted his appearance one year ago on Kudlow. It was 5/14/08 well before the cliff diving event. The Dow was 13,000 having just rallied for 2 months from the Bear Stearns implosion, and the permabulls on Kudlow were doing what they ALWAYS do after a countertrend rally. It is important people recognize they ALWAYS do this. But Barry was right. I suggest you take your time to watch this video while you have a 2 year chart on your screen, and note the attitudes (arrogance) of a**holes like Don Luskin. . . just before he got face planted by the coming disaster.
www.ritholtz.com/blog/.../
It would be interesting if we could get data showing how much wealth is destroyed by rate resets and how much is being destroyed by unsustainable mortgages.
So if resets are a bigger issue than others would have me believe then I agree with your conclusion. The bottom will not happen until late 2011/2012. If resets are, in comparison to what is already happening, a minimally contributing factor - then I think 2010 is a reasonable bottom call.
Then you have to factor in the politico effect - I'm not sure that the government is trying to prevent the popping of this bubble as much as they are trying to turn a hard(er)-landing into a soft(er)-landing.
It's hard to go through them sequentially.
Carmer is a moron. The future of housing is like you reference not about the big wall street builders. It's back to the future and smaller "mom and pop" shops building to design to suit the needs of real people not those looking for the Toll Brothers "McMansion". The big builders sold investors on the idea that they had a better handle on "market research" with their "in house economists" and that they could avoid the pit falls of traditional housing cycles because of this. Well we all know how that turned out. Inevitably they started managing for each quarter and that meant building more and more houses with more and more square footage (price per square foot never changed). When you coupled this with the cheesy products being offered on mortgages (reverse amortization and the rest) coming from their wall street friends it spelled a disaster.
This brings me to John Maudlin. I am a subscriber to his news letter. You are dead right on home equities. They were the first things pulled in 06. The reason was that this is where the problems started arising. People were using these second mortgages or home equities for anything but putting equity back in their houses. They were going to Vegas, getting boob jobs and the rest with the money they were pulling out of their homes.
There are some stats of course you miss. One chart which is a little deceiving is your supply chart. It is correlated to sales. Well sales are in the toilet. IF, and that's a big IF, sales were to be at a normalized rate (say 6-8 million) then the supply would actually be below 6 months.
The other stat never sighted is that fact that 50% of homeowners don't have a mortgage. Of the other 50%- 75% have been in their homes 10 years or more.
The really scary chart I cannot fathom is the ALT-A and other reset mortgage chart. It's amazing to me that people are still in these products considering the mortgage rates. What makes it extremely troubling is it tells me that despite the mortgage rates people can't qualify and are thus trapped in those products. This makes the future very uncertain.
What one must realize now however is the M2 money supply. It is through the roof. This means that people have money. This also means that people who don't have to sell aren't. What they are doing instead is remodeling- this time with real income and improving the place where they live now by adding-on or just fixing up. This is great and plays right into your central point about the housing of the future.
The housing of the future is back to the future. It's builders building to design, it's people fixing up where they live for the long term and it is a much more stable environment. The only frustrating caveat to all of this is the employment picture- people have to have a job to stay in their house.
Quinn- that's why your thrust is right and it's the sentimate that counts.
Thanks for being objective. A very rare trait today.
On May 15 10:28 AM Jimbo wrote:
> Boy, this article really kicked over an ant hill! I learned in Economics
> 205, circa 1949, that we are all "economic men". Mr. Quinn has correctly
> pointed out that materialism, if it dominates your life, can be a
> snare and a delusion. About 20 centuries ago, someone said:"man does
> not live by bread alone". Two things I definitely know about everyone
> participating in this message board: we are all going to die. And
> when we die, all our "stuff" will belong to someone else.QED: care
> for the spirit as well and the material.
Sure, there are going to be people who just can't afford to stay in their house because of unemployment or bankruptcy, but it seems this ARM reset issue can be better dealt with now- given low short and long term rates- than they could in 2006 and 2007 when ARMs were resetting based on Libor at 5.25%.
On May 15 02:27 PM Dirk McCoy wrote:
> Don't you think many of these alt-a and option ARMs will be modified
> into fixed 5% loans? With low long term rates, an activist government,
> and banks wanting to avoid further writedowns, why wouldn't there
> be a massive push to restructure these into performing loans?
>
> Sure, there are going to be people who just can't afford to stay
> in their house because of unemployment or bankruptcy, but it seems
> this ARM reset issue can be better dealt with now- given low short
> and long term rates- than they could in 2006 and 2007 when ARMs were
> resetting based on Libor at 5.25%.
If you think the CPI data is fictitious, what do you use? Do you conduct your own survey?
Living standards have improved enormously over recent decades. You claim otherwise and I looked at the Wikipedia graph you used in response to someone else's question to make your point. That shows real median household income. Let me help you understand the data you used, First, since it is real, it is adjusted for the inflation data you think is inaccurate. Second, it is adjusted for the growth in households. Average household size has been declining in the U.S., so we have more households relative to our population, which has also grown. Even with all these adjustments, using the data you cited, the average annual growth rate has been 0.7% annually. Productivity data in the U.S. has been improving at a 2% plus rate for some time. I expect this to continue. Now do a reality check. When you and I were kids, if a family had one auto, they were above average in income. Now, we have almost as many cars as population. Few people had central air. Most people do now. Now, if you don't have a HD TV, you're deprived. Cell phones, iPods, VCRs have come and gone, and overseas vacations have become common, all of which you have ignored, yet they all represent improvements in our living standards. Unless you also think the GDP data is trash data, you need to figure out who gets it. All of this stuff is produced and someone egts to use it, eat it, or enjoy it. Even our sense of what is a necessity has changed.
"You can't buy your way to prosperity." Nice slogan. What do you mean? This is nothing more than classical Keynsian fiscal stimulus. You likely learned this is your econ 101 class.
If you feel a need to be personal, you must then understand your arguments are extremely weak.
On May 14 12:58 PM James Quinn wrote:
> Interesting that you didn't mention the word debt in your rant. Very
> convenient for someone who worked at the Federal Reserve, the organization
> that has caused the worldwide conflagaration. My point of the article
> is that you can't buy your way to prosperity. The debt remains while
> your asset depreciates. Using real CPI numbers, not the fake numbers
> created by your former weasel boss Greenspan, the average American's
> standard of living hasn't increased since 1970. I'm sure your standard
> of living has increased as you take the 2% off the top of the money
> you manage, with no downside for you.
>
> I can understand your desire to spin our little predicament in a
> positive way since you manage other people's money. I'm sure you
> managed to make all your clients money in the last two years. You
> belong on CNBC with Cramer and all the other cheerleaders who never
> saw it coming and pray for return to normal.
I was referring to all the debts you mentioned. How about total market debt of 350% of GDP, up from 150% in 1970.
National Debt at 80% of GDP, highest since 1950.
Homeowner obligations ratio of 17.5%, alltime high
Consumer credit outstanding as a % of GDP at 19% versus 12% in 1970 and 7% in 1950.
Your fantasy world has been built on a foundation of debt and the tide is coming in to wash it away. Your little housing recovery is a pipe dream.
If you want the data go here:
theburningplatform.com...
On May 15 03:38 PM Charles Lieberman wrote:
> What's odd is that your response is largely personal and not directed
> at my comments. When you say I don't refer to debt, which debt are
> you referring to? Federal debt, household debt, mortgage debt, or
> yet some other?
> If you think the CPI data is fictitious, what do you use? Do you
> conduct your own survey?
> Living standards have improved enormously over recent decades. You
> claim otherwise and I looked at the Wikipedia graph you used in response
> to someone else's question to make your point. That shows real median
> household income. Let me help you understand the data you used, First,
> since it is real, it is adjusted for the inflation data you think
> is inaccurate. Second, it is adjusted for the growth in households.
> Average household size has been declining in the U.S., so we have
> more households relative to our population, which has also grown.
> Even with all these adjustments, using the data you cited, the average
> annual growth rate has been 0.7% annually. Productivity data in the
> U.S. has been improving at a 2% plus rate for some time. I expect
> this to continue. Now do a reality check. When you and I were kids,
> if a family had one auto, they were above average in income. Now,
> we have almost as many cars as population. Few people had central
> air. Most people do now. Now, if you don't have a HD TV, you're deprived.
> Cell phones, iPods, VCRs have come and gone, and overseas vacations
> have become common, all of which you have ignored, yet they all represent
> improvements in our living standards. Unless you also think the GDP
> data is trash data, you need to figure out who gets it. All of this
> stuff is produced and someone egts to use it, eat it, or enjoy it.
> Even our sense of what is a necessity has changed.
> "You can't buy your way to prosperity." Nice slogan. What do you
> mean? This is nothing more than classical Keynsian fiscal stimulus.
> You likely learned this is your econ 101 class.
> If you feel a need to be personal, you must then understand your
> arguments are extremely weak.
I'm also all for productivity improvements bringing up the standard of living dramatically, but I'm certainly not for debt eating away at our future. Those are two separate points that both lead to perceived prosperity - it's just that the first one is actually real, and the second, which is what we've undergone according to every article and statistic out there arguing the point, is perceived, and fleeting. I've yet to see anyone make a direct counterargument to the rather dire debt picture. Until then, Mr. Quinn's got my vote.
On May 15 03:38 PM Charles Lieberman wrote:
> up for it?
You'd better be. Once the gravity of the situation became "clear" the Fed charted monetary policy that will result in inflation. I've been of the belief that was the end game all along to re-inflate housing prices "nominally". That will come at a price and there are already educated calls to take the foot off the peddle NOW before it's too late and we overshoot with hyperinflation. The fact that no one really knows where we are economically is partly a result of the aggressive counter measures. We're in uncharted waters everywhere you look.
Thank you for the article. More than any other I've read, it accurately summarizes cultural, economic and political facts regarding the financial crisis.
I like the difference in views with respect to housing, because I think that's a near term test of our differing opinions. Arguments over debt are complex and no obvious fallout will occur any time soon. That's a debate that can't be settled easily, so I won't bother engaging in it. The housing one is a situation I do expect to be settled sooner rather than later. Inventories are falling (fact-if you accept the data) and population growth is well above new housing construction (more fact, if you accept the data). I expect housing construction to turn in by early summer. OK, so I've made a simple, clear testable statement. Now, we can sit back and wait to see who's right. (I won't hold my breath waiting for a similar type of forecast from you.)
On May 15 04:43 PM Ricard wrote:
> While I do respect your opinion, and the method in which it was delivered,
> I must concur with Mr. Quinn, in that you conveniently left debt
> out of the picture.
>
> I'm also all for productivity improvements bringing up the standard
> of living dramatically, but I'm certainly not for debt eating away
> at our future. Those are two separate points that both lead to perceived
> prosperity - it's just that the first one is actually real, and the
> second, which is what we've undergone according to every article
> and statistic out there arguing the point, is perceived, and fleeting.
> I've yet to see anyone make a direct counterargument to the rather
> dire debt picture. Until then, Mr. Quinn's got my vote.
>
> On May 15 03:38 PM Charles Lieberman wrote:
I really enjoy your articles. We have many of the same problems here in Ireland. If half of what you say is true then the we are all in for a pretty rough ride over the next few years.
1) Americans are materially richer due to productivity gains, and
2) The housing market is about to bottom.
I agree with 1), except that I also see Mr. Quinn's numbers on debt per capita, and am convinced that we borrowed heavily to own a significant portion of our material goods. If YOU can't acknowledge such a basic reading of the facts presented in this article, then it WILL be very difficult to have much of a discussion, even if I also ignore the personal shots. (I've yet to insult you).
Regarding your argument that housing is about to bottom, I neither agree nor disagree with your views on housing. Case-Schiller just came out with a report citing an 'inflection point' regarding housing prices. Sure, that's better than not reaching an inflection point, but that just means that the fire in the crowded theater is under control and is slowly being put out. We're still counting the corpses, and people are still running out with their skirts on fire. Most importantly, there will be no rebuilding until the fire is completely out.
I'm sure there are plenty of markets in America that are growing, and that the overall housing market is heavily weighted towards depressed markets like the Inland Empire of SoCal, Arizona, Florida, and New England. But, in the end, those weights are there for a reason - they entrap a large amount of our aggregate wealth. I can still drive around California and see miles of communities that were never meant to be.
There is also the issue of another flood of foreclosures in the horizon due to Alt-A defaults that may or may not have a happy ending. I believe this is a direct result of the debt figures Mr. Quinn cites. Debt is complex, but it is absolutely relevant, and I appreciate efforts from people like Mr. Quinn to explain it to average joes like myself, or to at least elucidate a viewpoint to people like yourself.
Good luck on your prediction, and you were right not to hold your breath. I for one have no idea when it's going to bottom...I just know it won't be tomorrow.
Thanks for the thought-provoking articles. We in Ireland face many of the same problems as you in the U.S. It looks like we could be in for some tough times.
old houses in Flint, MI probably have the right idea. Some
neighborhoods will probably be taken off the market and the land
put to better use.
A friend of mind once opined that the 50's were a great time in the US, "Unless you happened to be part of some minority", at which point I thought, 'You mean, like Women?!?' (though technically, there' Not a minority)
On May 15 03:37 PM user396040 wrote:
> I grew up in the kind of household you describe in the 1950's . . .
Gwinner,
I think the collapse of confidence in, well, Everything, is going to do so much damage to the credit pool in this country (by some measures, over 99% of $ denominated purchasing power), that it is going to be Years before they powers that be Can inflate, however much they might want to.
Quinn,
Re the Credit Suisse numbers: what percentage of the total housing market value do those resets represent? Can't find a total to compare it the numbers on the graph to.
> As for the social commentary, I think that everyone keeps missing
> a central point about laissez-faire capitalism. If one is living
> in such a system, then it is perfectly rational to be greedy. Mozilo
> and the others did commit fraud, but it was perfectly rational to
> do so. The odds of being punished were very low and the rewards were
> very high. A laissez-faire system is basically telling individuals
> that money is the only thing of value.
Er, no. Mozilo could not have existed without Fannie and Freddie, FHLB, VA, FHA, securitization backed by the Greenspan put, etc. It's commonplace and idiotic to blame liberty for the sins of Congress and the Federal Reserve.
19th century laissez faire capitalism gave you everything of lasting value. Railroads, electricity, telecoms, roads, bridges, oil refining, steel mills, cargo ships, mechanized planting and harverting, and the equity markets to fund crazy new ideas like penicillin, vitamins, aircraft, and supermarkets.
----------------
Jim, your best ever. Thank you.
> It is very real--impossible to ignore, I think--that our country
> is producing vastly more GDP over the years and that product is growing
> significantly faster than population
Goodness gracious, Charles. Are you including government spending and 'tape painting' leveraged velocity in GDP? Think private sector.
On May 16 12:34 AM mwfall wrote:
> And don't forget the union clowns!
174,000 is probably a reasonable sustainable number, assuming unemployment numbers from 2006 and optimum workforce participation of potential wage earners in the household. March 2009 new home prices were 201,400. These prices are not sustainable and probably haven't been for years. Needless to say, employment numbers aren't even close to 2006 and won't be anytime soon. You can't get good GDP growth absent new home construction and sales. Construction is such a huge multiplier in the economy. Prices of consumer purchases must reflect what the consumer can afford, not what he can borrow to replace income he does not have and which banks can no longer lend.
The world is about to change. One thing will never change. Cetin will continue to be clueless.
The REIT Way to Solving the Credit Crunch
I don't see any way in which there can be a solution based upon creation of further debt, but there are interesting possibilities in a new take on equity. ie through creating a new form of networked/pooled REIT redeemable in the right to occupy property/land.
Also, this presentation I made in Ireland, which is in the doo-doo even deeper than the US...
A Solution to the Credit Crash
The difference between someone who makes their living off managing money and me is that AUM is all that matters to you. If you were to forecast a continued recession for the next 3 years, your clients would take their money out of your funds. I make no money from my articles. I give people the straight facts with no spin. Wall Street has no credibility in my book. I;m tired of all the politically correct BS. Housing will not recover in 2009. Book it Dano.
On May 15 05:22 PM Charles Lieberman wrote:
> It is very real--impossible to ignore, I think--that our country
> is producing vastly more GDP over the years and that product is growing
> significantly faster than population. There's just more goods and
> services per person. If you can't acknowledge such a basic statistical
> fact, then it very difficult to have much of a discussion, even if
> I ignore the personal shots.
>
> I like the difference in views with respect to housing, because I
> think that's a near term test of our differing opinions. Arguments
> over debt are complex and no obvious fallout will occur any time
> soon. That's a debate that can't be settled easily, so I won't bother
> engaging in it. The housing one is a situation I do expect to be
> settled sooner rather than later. Inventories are falling (fact-if
> you accept the data) and population growth is well above new housing
> construction (more fact, if you accept the data). I expect housing
> construction to turn in by early summer. OK, so I've made a simple,
> clear testable statement. Now, we can sit back and wait to see who's
> right. (I won't hold my breath waiting for a similar type of forecast
> from you.)
Knock off 1 point for the phony numbers and you have GDP at zero. Stagnation. Permits, starts, and payrolls will not show gains commensurate with Q4 GDP because these stats are not so easily doctored.
On May 16 10:32 AM James Quinn wrote:
> Again, you do not address the undeniable debt statistics that I noted.
> You also didn't address my contention that CPI has been manipulated.
> As you know GDP is adjusted by an inflation deflator. If CPI has
> actually been 4% to 5% above the government figures, you contention
> about GDP is out the window. This is why you conveniently ignore
> it. Go to Shadowstats.com and get a broader view of the world.
On May 15 05:22 PM Charles Lieberman wrote:
> It is very real--impossible to ignore, I think--that our country
> is producing vastly more GDP over the years and that product is growing
> significantly faster than population. There's just more goods and
> services per person. If you can't acknowledge such a basic statistical
> fact, then it very difficult to have much of a discussion, even if
> I ignore the personal shots.
I'd like to ask you a few questions, and maybe then you'll understand the point that people approving of this article would like to advocate:
What drives productivity? Ingenuity, or debt?
Who contributes more to our society - someone who took on debt to pursue an education, or someone who took on debt to buy an extra 1000 square feet of house for his or her own gratification?
What does maxing out your credit cards and the equity in your over-sized house have to do with production and productivity?
I don't think there's a right or wrong answer, but there certainly is a bias towards capital (including human capital) contributing to productivity, and not consumption.
By reading the comments here very closely I and can find a very clear acceptance of the articles Mr Quinn writes, and he is very acknowledged by the readers.
Looking into the failures of so many US industries which where powers only years ago, I often wonder about the discussion of a very few commenters. There are still very many big international corporations, so I don't think that everything is moving out the US, but it surely will get very hard for the uneducated lower class, that once used to make garments and toys.
But arguing to the fact that you can not build wealth with TO much debt, is just simply absurd. It's like every body taking 1 mio credit to buy a house to rent away, wont work.
One has to find sustainable levels, for ALL factors in live. Partnership, environment, resources, energy and debt.
The curve does not always go up, and the US is not inviolable to receiving a crash, done it before.
Housing prices are simply inflated.
Lopsided growth is not healthy for a nation and we have finally reached a point where reality has crushed people's motivation to live like Reaganites. As many have already mentioned, people are entitled to their own dreams. Housing prices dictate what dreams should be and about 150,000,000 of us under 40 don't agree.
Does anyone have information as to what the current pre-reset default rate on these mortgages is?
Another home run. Based on the comments, a sensitive issue.
BTW "Jimbo has called more bottoms than a proctologist"
LOL. Never seen his show, I have an aversion to his kind of puff.
John Lounsbury:
"we may well be headed for a "new normal" (widely discussed lately, not my phrase), not what we have thought of as normal for the past 30 years. No one knows what this new normal is yet, but you have described some of the parameters that will define it."
A steady decline in the standard of living does not have to be (as the mathematicians say) a continuous function. What we are living here is a discontinuity, which is why is seems "new". Articles like Jim's point out that they are not in fact new. Such things as the increase in involuntary two-income families in the 70's are evidence.
On May 16 09:47 PM bricki wrote:
> Interesting article. I think the biggest potential for a prediction
> error with this assessment comes from the observation that Alt-A/Option
> ARM owners are defaulting much earlier than the reset date. After
> all why pay into something that you know will be unaffordable in
> two years when you can bail out early and use your resources more
> productively. Not to mention that these people are those most likely
> to be suffering from economic stress right now due to credit limit
> and credit card interest resets.
>
> Does anyone have information as to what the current pre-reset default
> rate on these mortgages is?
>
If they stick to their little plot of land we refer to them as "subsistance farmers" as if that was something laughable and shameful.
Great article Jim
On May 16 03:28 PM Vienna wrote:
> I really like Mr. Quinns articles, not are they written in a good
> style which make them very enjoyable to read, but they also follow
> to the root of problems with a nice story, which actually also gives
> me to think about the days playing in a small house, and they where
> good days. I think we have just forgotten it.
>
> By reading the comments here very closely I and can find a very clear
> acceptance of the articles Mr Quinn writes, and he is very acknowledged
> by the readers.
>
> Looking into the failures of so many US industries which where powers
> only years ago, I often wonder about the discussion of a very few
> commenters. There are still very many big international corporations,
> so I don't think that everything is moving out the US, but it surely
> will get very hard for the uneducated lower class, that once used
> to make garments and toys.
>
> But arguing to the fact that you can not build wealth with TO much
> debt, is just simply absurd. It's like every body taking 1 mio credit
> to buy a house to rent away, wont work.
>
> One has to find sustainable levels, for ALL factors in live. Partnership,
> environment, resources, energy and debt.
>
> The curve does not always go up, and the US is not inviolable to
> receiving a crash, done it before.
More seriously I think we cannot blame "the people" for being materialistic and being hooked on 42 Inch Screens and I think is it a pity that Mr. Quinn, probably by lack of time, did go into this deeper. Personal Debt has increased solidly since the role of the state decreased, we could simply state that it has largely helped to create the 1982-2007 bull market rally of a lifetime, and we should know: huge rally = huge pile of debt created somewhere. The old mechanism, where we funded development through taxes and government bonds was a healthy mechanism, as it made people handle money in the present, with government creating the leverage. This model has flaws as well: it tends to create performance sclerosis by big government and state subsidized and/or partially state owned companies (cfr European situation until mid-end 80ies). In the end the model gets crushed by it's own weight, largely something happening between end of 60ies-beginning of 80ies depending on where you live. For banks it has another disadvantage: default management is very tricky if your debtor is a government. So the mega double decennial rally we just ended co-incided with a move away from this model and the adoption of a new model where state interference was eliminated and debt brought back into the personal realm, largely facilitating default management. This means that banks could work balance sheets much more efficiently, on a larger scale. Combine this with the introduction of electronic money and banks get more and more independent from M1, fueling expansion on individuals. Some people will argue that this is false as government spending did not go down significantly. This is true, but I would argue that we have not just seen the above move, but also a move towards distribution from poor(er) people to rich(er) people with government helping to "pump". Several "oil" related wars have put great strains on the budget. War spending (in the modern sense) is highly capital intensive and is perfect for wealth re-distribution to the holders of capital. So please Mr. Quinn, don't blame your fellow citizens, they just have difficulty with grasping time and velocity as a concept when it comes to handling money (does anyone want them to grasp this?) and they sell their opinion to cheaply: in a world where we try to develop the "left" brain, who can blame people from following the consensus, in a society where community judgement is so wide-spread instead of the sense of community?
That single sentence alone informs me that you are severely ill informed (know nothing) about the US military, military spending and defense spending vs entitlement spending. Furthermore, if the US ever has a "very, very large army" again (which it does not now), it will be by conscription (the draft) under a Democrat president and Congress (the left). "Straighten those shoulders, Comrade!"
I sense a little reinventing of history tinted by nostalgia going on here...cars were better, films were better, clothes were better, design was better and we were world leaders in industry and quality control, but there was clearly never a Wellville, USA. Civil liberties, the draft, asbestos and Dippity Do spring to mind...
On May 16 12:37 AM Jasper M wrote:
> User 396 & change, GrREAT post.
>
> A friend of mind once opined that the 50's were a great time in the
> US, "Unless you happened to be part of some minority", at which point
> I thought, 'You mean, like Women?!?' (though technically, there'
> Not a minority)
>
> On May 15 03:37 PM user396040 wrote:
Check out the book Imaginary Weapons to get taste of some of the more ostentatious wastes of your heard earned anemic dollars!
On May 18 11:40 AM Buckoux wrote:
> "And what really frightens me, as you point out, is that we're going
> to end up being a very angry nation with a very, very large army.
> What happens when a nation that spends more on its military than
> every other nation on Earth." Comment by steve graves.
>
> That single sentence alone informs me that you are severely ill informed
> (know nothing) about the US military, military spending and defense
> spending vs entitlement spending. Furthermore, if the US ever has
> a "very, very large army" again (which it does not now), it will
> be by conscription (the draft) under a Democrat president and Congress
> (the left). "Straighten those shoulders, Comrade!"
>
Charles Lieberman is right in believing in technological growth. But think of the debts. Who will be able to afford the new technology? Think of a diversion of the society in two parts 20% will consume as before, 80% will live by welfare and charity.
On May 14 12:10 PM Charles Lieberman wrote:
> or expect a 20 year period of "economic stagnation." That's not
> even a remote possibility. For that to occur, technology and productivity
> would have to stagnate, which is clearly totally wrong. In case,
> you hadn't noticed, many technology products become significantly
> better and cheaper very year and this is still ongoing. Even mature
> products become much better over time, whether washing machines,
> fridges, home furnaces, air conditioners, or cars. And what people
> think of today as necessities were luxuries not long ago. And the
> same will happen going forward. So, living standards are not going
> to be stagnant. Based on historical trends, average living standards
> should improve by between 2% and 2.5% annually.
www.realestatechannel....
At first I was shocked when I read that. Then I remembered where I live.
On May 15 08:10 AM James Quinn wrote:
> I guessed.
>
> After getting a few emails from people in Miami and elsewhere, it
> sounds like late 2010 is a pipe dream. 2012 is looking more like
> it.
Electricity was not built by anyone. It is simply part of nature. But the electrical grids, powerplants, etc. were built, but also with massive government subsidies.
The myth that the 19th century was some laissez faire golden age is simply a that, a myth.
On May 16 12:58 AM Alan von Altendorf wrote: "19th century laissez faire capitalism gave you everything of lasting value. Railroads, electricity, telecoms, roads, bridges, oil refining, steel mills, cargo ships, mechanized planting and harverting, and the equity markets to fund crazy new ideas like penicillin, vitamins, aircraft, and supermarkets.'