trader57

Wall Street and Main Street: How Long Before They Get it Right?

Keep in mind that existing home inventories are not the same thing as new home inventories. New homes have to be sold and have to be loaded up with incentives to sell in a weak market. Existing homes generally do not have to be sold because the owners can continue to live there. The increase in existing home inventories is just a supply curve effect: because the price of homes has risen so much there are more people willing to sell at higher prices. But many of them are just fishing for a high price and they will only sell if they get that high price. After 6-12 months, if they can't get the price they want, many of these owners take their homes off the market. We saw this in California a few years ago when we sold my parents' old home. There were a lot of people just fishing for a really high price and they never got it and then took their homes off the market.

In conclusion, I think new home inventories are a much better indicator of future housing prices.

Wall Street and Main Street: How Long Before They Get it Right?

I don't view any of those items as tsunamis, just typical storms in the economic seas. Housing prices will be down this year simply because they went up so much in the last five years. I'm surprised that this is the first time since the depression that average US home prices will decline, because home prices plunged in Northern California between 1990 and 1993 when I lived there. I know people who lost a bundle of money on townhoues in the Silicon Valley back then.

The mortgage companies going bankrupt are the ones who sold mortgages to be repackaged in the secondary market as mortgage-backed bonds. Because of defaults on subprime loans, mortgage-backed bonds are no longer marketable, so those companies were wiped out. But that doesn't mean the housing and mortage industries are in deep trouble; it just means banks will have to do all the mortgage lending now and keep the loans on their own books. The Fed had to lower rates to encourage more people with good credit to buy houses and to help the banks do more mortgage lending.

Check out the Fortune Magazine website and take a look at this article:

money.cnn.com/gallerie...

The general theme is that the subprime lending crisis is not as disruptive as the stock market crash of 1987 or the Russian bond default of 1998.

I don't know what you mean by "US consumption very low in the Q2 GDP number." Consumer spending grew reasonably well last quarter and it should pick up this quarter with lower auto loan rates and more mortgage refinancing. As the other guy said, you can pick and choose statistics to make your case either way. As for gold, it is an indicator of inflationary expectations to some extent, but otherwise the price of gold is really just a "miner issue."

Wall Street and Main Street: How Long Before They Get it Right?

From the article:

"There are simply too many tsunamis bearing down on the U.S. economy for policymakers to turn them all back with policy moves that offer little real aid to most individuals, and businesses."

I would like the writer to explain specifically what all these "tusnamis" are and explain why a half point cut in mortgage rates is not "real aid" to most individuals in our economy, especially when the economic multiplier effect from incrementally increased home sales is factored in.

Wall Street and Main Street: How Long Before They Get it Right?

The apparent disconnect between Wall St. and Main St. results from Wall St. looking ahead 6-12 months to stabilization in home sales and home prices and a continued very strong global economy. I feel sincere sympathy for the people who shorted commodity stocks last month on expectations that we would actually see "financial armageddon." I was buying commodity producers and tech stocks last month and that has turned out to be a good move. I view the writer's excessive pessimism as a positive contrarian indicator for the stock market. The negativity of the mainstream "news" media also helps to frequently purge sellers from the market and leads to a steady sustained uptrend instead of an unsustainable market bubble, as we saw in 2000.

Friday's Rate Cut: A Sign Things Are Really Bad

"The issue is that banks don't want to lend. Period. "

I disagree with that sweeping statement. Banks will still do mortgage lending but only to people with good credit. Countrywide just tapped an $11 billion credit line to fund new mortgage loans last week. I believe the Fed and the Bush Administration will never allow Countrywide to become insolvent. Whatever funds Countrywide needs for mortgage lending will be provided to Countrywide Bank by the Fed.

The Fed Panics and Cuts Rates

I expect a cut in the federal funds rate to happen next, and that will reduce mortgage rates for people with good credit. It looks like sub-prime borrowers will be effectively locked out of the mortgage market for some time.

The Fed Panics and Cuts Rates

I think the Fed made the right move today. Interest rates were too high to sustain the home building and retail industries, now that credit standards are tightening for borrowers. Rates had to be reduced to encourage more people with good credit to buy houses. This rate cut does not mean the economy is already in really bad shape. It means that the economy was heading for a recession at the previous level of interest rates. Wherever the financial markets go in the next 12 months, they will be doing better than they would have done without this rate cut. We're in a world of extremely fast communication of economic news and the media has been pounding on the housing slowdown for months. Events can move very rapidly these days and the Fed had to act to restore confidence in the financial markets and to support the home building industry and reasonable home prices.

I also view the extreme pessimism in the original article as a positive contrarian indicator.