Basic Finance

A Sloppy 60 Minutes Segment on Oil Prices

Seems the point of the 60 minute piece was that supply and demand was not the most significant driving force behind the price swings of the last few years. The evidence presented...that supply was increasing at the time demand was decreasing while prices were going up seemed to be a pretty convincing argument and nothing I have seen here contradicts it:

1) Oil is priced in US Dollars.......OK so the stats should have been priced in some mixed basket currency. This might smooth out the swings, but it certainly doesn't EXPLAIN them.

2)Over the same period that Oil prices were rising, the US was fighting two major wars in the Middle East, Iraq and Afghanistan......Hmmm do the prices actually move with any war related stats? Death toll? Oil fields blown up? NO. Did we stop fighting these wars at some point in the last year? Not sure how that situation could lead to skyrocketing prices and then also lead to the recent price collapse.

3) Energy prices rose during an economic expansion (fueled by low rates and cheap money)....And now that we have lower rates and cheaper money...??? Prices fall?? Not sure I get that. If what you are arguing is that PERCEPTION of future growth drives prices, then you are actually agreeing with 60 minutes. If speculation isn't driven by the expectation of future oil prices, I'm not sure what the word means.


4) Since 2001, Commodities of all sorts rose significantly: Steel, aluminum, cement, foodstuffs, precious metals, etc. Were they all driven by speculation, or was something else going on?

.....I'm pretty sure 60 minutes was arguing that all commodities were being inflated due to speculation and that oil was the most obvious example...so Yes...they were all being driven by speculation.


5) Since the 1% Fed funds rate of 2003, inflation has had a dramatic impact on ALL prices — from medical costs to insurance to education to health care to housing to food and energy. That 60 Minutes failed to even mention inflation in a piece on Oil prices is a terrible oversight on their part........Oh so inflation increased prices 3x during the bubble? Aren't you putting the cart in front of the horse? Wasn't a lot of the actual price inflation DUE to the increase in oil prices? Do oil prices track well with any measure of monetary policy? Didn't think so.

6) Throughout the 1990s and 2000s, cars were increasingly replaced with SUVs and trucks. These got appreciably worse gas mileage, as the total US miles driven rose. Hence, increased US demand for energy accompanied increasing prices....... 60 minutes cited DEMAND. If you disagree with the stats, fine, give us another source, but it doesn't really matter what people do in cars since the measure of overall demand would already account for whatever people are doing with their cars. PLEASE. 60 minutes is wrong because they didn't specifically note the Bobby Joe bought an SUV! I'ts already in the stats for God's sake.

I'm sure the last few points were equally petty...I just don't have time to go over them.

30-Year FRM Rates: Who Says Lower Rates Won't Do Much Good?

Are new mortgage applications really a good measure of buyer demand? I signed my contract for a new condo almost a year ago, but didn't actually finalize the financing until today (at an amazing 4.375 with 3/8 points). I'm certainly happy about the lower rates, but it had NO impact on my buying decision. I think weekly fluctuations in mortgage applications are really just surges from a pool of buyers who have already decided to buy, but who are trying to time the rates, not from "new" buyers.

Are Home Prices Still Too High?

Sunil,

So what are replacement costs in the Bay Area and why do you think we are below them now? Are you factoring in the plummeting value of land in your equation? Just because Toll Brothers and others spent 3x what they should have for land in 2004-2005, doesn't mean the land is actually worth that.

The Next Bull Market Could Be Rentals

Agree with NoFate. Just because demand is increasing doesn't mean that rental prices will increase. Even if rent does increase, you aren't cash positive until the ownership costs (prices and or mortgage rates) drop further. Wait a year...AT LEAST

Home Prices Have Stopped Falling: The Statistics Are Skewed

Hey bds231...liked your GMAT analogy, I happen to be a GMAT tutor so let me know if you need any help. (Doesn't sound like you do)

It's Still About Affordability, Stupid [Housing Tracker]

I'm not sure I understand the "vulture" analogy. People who are willing to buy homes at this stage are running a pretty big risk of futher depreciation. Why does waiting for low prices make someone a "vulture"? I am about to buy a house to actually LIVE IN. I still think it is a bit overpriced, but it is the only unit on the market that I like. Whether I wait for the price to drop more does not make me a vulture. I don't think hernje's comment qualifies him/her as a vulture either.

If what you mean are people who are buying foreclosed properties with the intention of flipping them in a year....OK...but I'm not sure I would call those people "SMART greedy".

Housing: No Bottom Yet in Sight

Flashrob: Please keep your pet issue posts (NAFTA/WTO) on discussion boards where they might actually be relevant. Your arguments are not only incorrect (most studies show that open trade increases average wages) but also beside the point (Even if wages could be higher under your proposed protectionist regime, housing prices are totally out of line with wages anyway. Increasing income by 0-5% doesn't fix this problem.)

Different Views on Housing Supply

Oh no! I don't want to miss the bottom. I better go out and buy a house in Sacramento.

Why in the world do you think REOs are going to run out any time soon? I guess I don't take seriously any article that cuts and pastes "significant pent up demand" directly from Lawrence Yun, the master of calling false bottoms.

The Housing Crisis: Personal Responsibility and Wishful Thinking

TheDanza has a good point regarding pirhanas. I think many on this discussion board knew the dangers of the housing market as early as 2003 or 2004, but you had Time magazine touting the house as ATM myth as late as 2005. I think most of us stay away from Time, but lots of people DO read it. The fact is that most people have no idea how to properly value an asset. If we are going to regulate anything, how about mandatory econ 101 for all high school graduates?

I also question how someone like Greenspan pretended not to recognize the bubble. You CAN recognize a bubble before it bursts. When an asset no longer can be related to the rent it can/will generate, it is overvalued. In some ways, the .com bubble was a bit harder to spot because the underlying assumptions for future revenue were so hard to pin down. Maybe people will buy everything online...maybe they won't. Who knew? With housing, no such upside argument could ever be made. Why would rents increase to the level needed to make the 2005 prices reasonable? No convincing argument was ever given.

Housing, Credit, Economy: At an Inflection Point

If we are at the inflection point, would that not put us only half way through the correction? Going back to the sine curve, if Vikram is correct, we are at or about Sept 21 in the year; it's getting really dark really fast. Knowing that we don't lose as much sunlight in November and December doesn't change the fact that we are in for another 3 months before we hit the longest night. (Apologies to those who live too close to the equator or in the southern hemisphere).

The Folly in Calling a Housing Market Bottom

"Sorry to break it to you like this. The boom started few months into 2004"

Evergreen16: Why do you think the boom started in 2004? Most graphs I have seen show a disconnect from fundamentals back in 2000. Hell, the PEAK of the boom was 2005. Was there really just a one year boom?

How Ivory Tower Economists Created the Housing Bubble

Why did everyone ASSUME that house prices would continue to appreciate? If you take that assumption out, the rent/buy equation would have told people to stop buying a long time ago, even if interest rates were not properly adjusted higher to counter higher inflation. So..ultimately it is NOT the economists who are to blame, but those housing speculators who never even bothered to do the rent/buy calculation you describe. Right now I rent an apartment for $3000/month that would cost me $1,000,000 to buy. How low would interest rates need to be to justify that buy decision? The numbers so heavily favor "rent", I'm not sure tinkering with the inflation numbers and its associated rise in interest rates makes any difference (or would have made any difference 3 years ago). All your solution would have done is to change a RATIONAL rent/buy decision from "you are an IDIOT if you buy" to "you are a TOTAL IDIOT if you buy."

Housing: When Magazine Covers Indicate a Clash

It's OK to say that the Economist is "inherently better." It is ;)

Pending Home Sales Down 19.6%

At what point does the University of Maryland, which granted Yun his Ph.D. rescind his degree? By so intentionally misreading his own statistics, Yun is an academic joke. How can he even sleep at night? This isn't an idiotic realtor with a high school degree. Yun KNOWS how to interpret statistics properly and he KNOWS he is misleading the public.

Foreclosure-Proof Homeowners

Not sure what "notsosmart" means by calling this "capitalism." The legal restrictions against quickly foreclosing on deadbeats is a RESTRICTION on capitalism, not a result of it. The only scam here is on the part of the home buyer who no doubt falsified the loan application and now doesn't want to pay back the money he/she borrowed to gamble on the housing market. I wish these banks would take a clue from organized crime and send a few guys out to "talk" to these deadbeats. Make sure they understand that when you borrow money you have "obligations" to pay it back. If you don't pay the money back, well....bad things might happen to you ;)