WillG

Home Prices Down 32% from Peak

No one should be surprised, as the market for housing was highly inflated due to government (Fannie/Freddie/Community Reinvestment Act) distortion of the market.

Although I have written about this numerous times, it bears repeating that credit was too easily available, and that the lenders were attempting to spread the risk on loans they were being negatively incented to make.

China Is Now in Firm Control of U.S. Debt Markets

You make an excellent point about the disproportionate concentrations of wealth in the city. China lacks effective, commercial transportation routes inland, as well as sufficient infrastructure to support inland industrial expansion. China also suffers environmental catastrophes that they can no longer hide demonstrated by increased desertification and sandstorms.

China's rapid industrialization and acquistion strategy is designed to finally shake free its "developing nation" status. However, the human costs are excessive.

They are acknowledging the environmental impact though, with their plans for Dongtan, a new green city (cleanerairforcities.bl...)

Ultimately, China is flush with export profits and is diversifying. They will continue to consume US Treasuries, because they offer low risk (and low returns) and meet the Chinese state investment strategies. Additionally, US Treasuries will continue to hold its position as one of the most desirable instruments, even as the US begins its government-induced, hyper-inflation cycle.


On May 26 07:47 AM Uppai Mappla wrote:

> I still think that it is China being trapped under their excess capacities
> while rural China wallows in poverty, yet fully aware of the luxurious
> life in their cities. Chinese need to continue producing and exporting
> to prevent civil wars and take care of their soon-to-start-ageing
> population. US has nothing to lose except paper. We see here American
> long term economic policy in action, defined as follows:
> "If you've got them by the balls, their hearts and minds will follow."
>
>
> What would happen when the Chinese discover that they got worthless
> paper for their exports? Here's a possible scenario:
>
> "Meanwhile the timber was being carted away at high speed. When it
> was all gone, another special meeting was held in the barn for the
> animals to inspect Frederick's bank-notes. Smiling beatifically,
> and wearing both his decorations, Napoleon reposed on a bed of straw
> on the platform, with the money at his side, neatly piled on a china
> dish from the farmhouse kitchen. The animals filed slowly past, and
> each gazed his fill. And Boxer put out his nose to sniff at the bank-notes,
> and the flimsy white things stirred and rustled in his breath.<br/>
>
> 'Three days later ... a choking roar of rage sounded from Napoleon's
> apartments. The news of what had happened sped round the farm like
> wildfire. The banknotes were forgeries! Frederick had got the timber
> for nothing!
>
> 'Napoleon called the animals together immediately and in a terrible
> voice pronounced the death sentence upon Frederick. When captured,
> he said, Frederick should be boiled alive."
>
> - George Orwell, The Animal Farm.

Personal Consumption Retreats, Again

Wow, I think consumption trends at the national level disguise a lot of distress at the state and local level. While I fortunate enough to have gainful employment and live in a high-employment part of the country, the psychological climate is one of fear and conservation.

As it has been reported through various media outlets, US consumer savings is up, and many still employed are spending less. There is fear and concern, as well as uncertainty. Those making $200,000 plus are dreading a massive tax hit next year and are considering their options. Those below that income level are very seriously preparing for layoffs, foreclosure, and bankruptcy.

While there may some technical signs of the recession easing, or growing, or plateauing, the fact of the matter is that the market is going to take a heck of a long time to recover. It will take even longer with the inevetable appearance of inflation from the trillions of dollars of deficit spending.

Sellers are stepping it up after Chrysler's bankruptcy-filing announcement, with indexes striking new intraday lows, and two now in the red. DJIA -0.1% to 8180. S&P -0.02% to 873. Nasdaq +0.8% to 1726.

Perhaps sellers are forseeing that GM will be next on the bankruptcy block. Also, consider stocks like GT (Goodyear). They are major suppliers to the auto industry, and with the inevitable decline in demand, all of the other suppliers are going to suffer also.

The US auto industry is a multi-billion dollar business, so a major firm failure will have significant market ripples.

Let us also consider the uncertainty of the market in response to the new administration's interference in the auto industry, as well as banks, etc. People are nervous that new taxes, inflation, and expensive regulation are just around the corner.

Tata Motors and the Rumble in Singur

The update was that Tata was leaving Singur for Sanand in Gujarat, and I say good for them!

The local politicians were not interested in the well-being of their constituents, but rather their own power. Even the communists wanted Tata to stay, but the local ruling party only wanted agitation.

I read a great article titled "Tata Says 'Tata' to Singur" at economicefficiency.blo...