Sean Olender

Will Housing Bottom in 2010 or 2012?

The wildcard here is how people feel about housing as an investment. It's not just what people can afford, it's what they want to afford and what they choose to buy. The median American household could afford to pay $10,000 for a small pile of cat poop, but few people expect the price of a small pile of cat poop to rise that high in the near future.

Built into current prices was the expectation of price appreciation of 10% or 15% a year. Strip that out and it's uncertain what a "rational" consumer would pay for a house in any given area. It's also uncertain whether the average consumer will in fact be rational. Most consumers certainly weren't rational for the past eight years. They bet the farm tying themselves down with speculative debt and essentially betting years of future freedom in exchange for the chance to make a bunch of money. It's not unusual for a few people to do that, but for the majority to enter into that sort of speculative behavior is deeply disturbing.

In short, nobody knows where this is going to go because we aren't merely talking about homes returning to "affordable" levels. We're talking about at what price people will want to buy them, which may have only a little to do with whether they are affordable.

Finally, it is very difficult to say how this banking crisis will play out, how the absence of a new bubble to drive economic growth will play out, how the absence of an asset against which to borrow wheelbarrows full of money plays out. There's simply nothing hopeful on the horizon. The three big trends that drove speculative activity and the larger economy since the 1980s was the stock/investment bubble of the 80s, the tech bubble of the 90s and the housing bubble of the 00s. There's a small possibility that we're all out of bubbles.

Pundits have called for a purposeful energy investment bubble because the US economy simply can't operate without bubbles anymore. Sustainable growth is impossible without financial mania. Whether we get an energy investment bubble remains to be seen, but if we don't, what drives the economy from here forward?

If we have low or no growth for a long time, it will make stocks look overvalued by maybe 50%, maybe more. What about the huge unemployment that will likely flow from this?

The way I see it is housing may have started this, but housing is the least of our problems.

Mark Cuban, Is the Stock Market Still for Suckers?

Stocks are a great investment during a period when 401(k) plans from the 1980s to present were sold as "pre tax" retirement vehicles to baby boomers. It is hard to say where it will go from here. Mark's observation about the Ponzi scheme aspect is somewhat true for sure. The new money coming in props up prices. It's not just "great companies creating value!" It is the default money pouring into stocks through retirement plans and other sources.

The way I see it is the entire 401(k) system is viewed by the Federal Government and the corporations that rely on its tax and spend power for billings - they view it as an account receivable. It is reasonable to assume that current tax rates will not be sustainable unless the US government defaults on its obligations to lots of people. They already spent $2 trillion out of the social security trust fund that people paid to social security - they used it for general fund tax expenditures like war and they are going to double tax the same people who paid in to pay them back reduced benefits. That's the biggest regressive tax scam in history.

Additionally, an incredible amount of money is pilfered from the stock market by brokers, dealers, and firms that control things. Look at the spread between bid and ask prices on call and put options. It's incredible - like sometimes 10% or 12%. Look at mutual fund "management" fees. Look at firms like EverBank that provide a "New Zealand Dollar Denominated CD" at an interest rate of 6.75%, which is great except that actual banks in New Zealand are offering 8.8% and EverBank probably keeps the more than 200 basis point interest rate spread as profit. Now there's nothing wrong with profit, but there is an awful lot of profit built into the ethereal investment markets in the United States - enough where the people running that are more likely to be heading to dinner on a private Lear Jet than most of their investors.

The timing is also hugely important. Look at the NASDAQ today? 2,500? It was at 5,000 in 2000 and here we are almost eight years later. Inflation losses are also not usually considered when figuring stock market gains.

The whole economy is wired to make it tough to deal with things here because they inflate the money supply and credit to produce a constant positive rate of inflation that is difficult to accurately measure and is hugely misreported and then they tax you on capital and income gains from interest and capital gains including the amount that just made up for lost purchasing power from the inflation that they cause and control. That's quite a racket. It goes at least a little ways in explaining the savings rate here and the huge consumer and mortgage debt. It makes borrowing lots of money feel smart and saving money seem quite risky.

Cool Heads Will Prevail

Yes, I agree that once taxi drivers are betting on markets, or currencies, that it's bound to be late in the game. But I don't know if I can agree about super models who almost certainly have more income and assets than you do. People worth many millions are not usually the last to find out that something is a bad bet.

I'm not looking forward to this, but everything the Fed and Congress appears ready to do suggests absorbing the cost of the massive bad debt into the federal debt. That's something a banana republic does just before its leaders and the top 2% of income earners relocate to other countries.

Ben Bernanke's shift from wanting Fannie and Freddie trimmed down in size because of the "systemic risk" they present shifted on Friday to Mr. Bernanke suggesting Congress should raise Fannie's loan cap to $1 million and provide an explicit guarantee rather than the previous implicit one. This sort of shift doesn't happen unless people are expecting catastrophically bad things to happen. Fannie just turned in a big loss for the last quarter and has already huge exposure to the US real estate market - a market that is facing a very severe and imminent downturn.

With this sort of bailout, it is hard to imagine that the resulting chaos won't cause the dollar to slip much, much further. And the fact that it's being proposed at all suggests that major players have more to gain with a bailout and dollar collapse than taking their medicine. These people wouldn't choose to permanently damage the mortgage market in the United States unless they believed that it wasn't going to be a business at all for 10 or 20 years.

We're on borrowed time for sure. When investment banks, banks, investors and others are willing to terminate a huge industry just to get out of their liabilities, you can bet they expect that things are going to be very, very bad.

Within six months there will be a massive bailout and within 18 months there will be a massive default on the debt that was transferred from investors to the US government. I think investors should consider investing exclusively outside of the United States until this blows over... if it does indeed blow over.

Cool Heads Will Prevail

Yes, I agree that once taxi drivers are betting on markets, or currencies, that it's bound to be late in the game. But I don't know if I can agree about super models who almost certainly have more income and assets than you do. People worth many millions are not usually the last to find out that something is a bad bet.

I'm not looking forward to this, but everything the Fed and Congress appears ready to do suggests absorbing the cost of the massive bad debt into the federal debt. That's something a banana republic does just before its leaders and the top 2% of income earners relocate to other countries.

Ben Bernanke's shift from wanting Fannie and Freddie trimmed down in size because of the "systemic risk" they present shifted on Friday to Mr. Bernanke suggesting Congress should raise Fannie's loan cap to $1 million and provide an explicit guarantee rather than the previous implicit one. This sort of shift doesn't happen unless people are expecting catastrophically bad things to happen. Fannie just turned in a big loss for the last quarter and has already huge exposure to the US real estate market - a market that is facing a very severe and imminent downturn.

With this sort of bailout, it is hard to imagine that the resulting chaos won't cause the dollar to slip much, much further. And the fact that it's being proposed at all suggests that major players have more to gain with a bailout and dollar collapse than taking their medicine. These people wouldn't choose to permanently damage the mortgage market in the United States unless they believed that it wasn't going to be a business at all for 10 or 20 years.

We're on borrowed time for sure. When investment banks, banks, investors and others are willing to terminate a huge industry just to get out of their liabilities, you can bet they expect that things are going to be very, very bad.

Within six months there will be a massive bailout and within 18 months there will be a massive default on the debt that was transferred from investors to the US government. I think investors should consider investing exclusively outside of the United States until this blows over... if it does indeed blow over.

Cool Heads Will Prevail

Yes, I agree that once taxi drivers are betting on markets, or currencies, that it's bound to be late in the game. But I don't know if I can agree about super models who almost certainly have more income and assets than you do. People worth many millions are not usually the last to find out that something is a bad bet.

I'm not looking forward to this, but everything the Fed and Congress appears ready to do suggests absorbing the cost of the massive bad debt into the federal debt. That's something a banana republic does just before its leaders and the top 2% of income earners relocate to other countries.

Ben Bernanke's shift from wanting Fannie and Freddie trimmed down in size because of the "systemic risk" they present shifted on Friday to Mr. Bernanke suggesting Congress should raise Fannie's loan cap to $1 million and provide an explicit guarantee rather than the previous implicit one. This sort of shift doesn't happen unless people are expecting catastrophically bad things to happen. Fannie just turned in a big loss for the last quarter and has already huge exposure to the US real estate market - a market that is facing a very severe and imminent downturn.

With this sort of bailout, it is hard to imagine that the resulting chaos won't cause the dollar to slip much, much further. And the fact that it's being proposed at all suggests that major players have more to gain with a bailout and dollar collapse than taking their medicine. These people wouldn't choose to permanently damage the mortgage market in the United States unless they believed that it wasn't going to be a business at all for 10 or 20 years.

We're on borrowed time for sure. When investment banks, banks, investors and others are willing to terminate a huge industry just to get out of their liabilities, you can bet they expect that things are going to be very, very bad.

Within six months there will be a massive bailout and within 18 months there will be a massive default on the debt that was transferred from investors to the US government. I think investors should consider investing exclusively outside of the United States until this blows over... if it does indeed blow over.