scotty1560

On Bubbles and Depressions

our economic system is collapsing.. the signals are everywhere.
The middle class is about to vanish into poverty and the taxation
we are looking at will break all but the highest earners down.

Entitlements, global military presence, large government. These
things eventually break the back of any country, go read the history books. Cost of living from food to oil is a guaranteed way to kill a
society.

Read some books about the collapse of the Roman Empire or
other advanced societies. History repeats itself with slightly
different twists. Read about the laws of diminishing returns.

Seven Reasons the Market Has Already Bottomed

mlonz you have a bit of a point.
Real Estate is staircase stepping down, and for the moment at least in South Florida, there is some support.

OK, so we are in peak season for say another 3-4 weeks, then what? Very few of the sales are sellers with equity, they are mostly short sale or foreclosed. Lots of sellers just got cleaned out for hundreds of thousands of dollars in equity and improvements and taxes paid. I doubt many are in the mood to put hard earned money at risk, and they have damaged credit ratings.

Most people make less money or have no job at all, lending standards are tighter, the dollar for now is stronger. The bulls
are way early, the economic model for this country has major issues.

Is Gold a Better Hedge than Oil?

Hard to fight oil prices long term, humans keep populating the planet
and the stuff is getting costlier to extract.

Gold should do well down the road as well.

Mad Hedge Fund Trader makes nice points and Brad as well.

Housing Weakness Looms Large Over Market

Very high end, say 2+ million appears to be dead in the water, at least in South Florida.

Few buyers, lower ltv (more equity) requirements, stronger dollar vs Euro, to much supply.

I see the lower jumbo (500k- 1.5 mil) finding support, at least for the short term. The higher stuff was last to the party and is higher on the mountain. At least another year to fall on the top end thanks
to overbuilding and phony lending practices and stronger hands that maybe aren't so strong..

Why Is Oil Trading at $53 When Supply and Demand Is So Bearish?

I'm long term bullish oil, just not as sure about the next year or two.
Not convinced that the equities or real estate markets have bottomed.

Bailout stimulus is bound to boost the economy for a quarter or two, however, long term organic growth is something that seems hard to envision over the next few years. I'm also not sure how much burden the average middle class person can absorb, check out how NY is raising all the tolls on subways and commuting, it is stunning how our pathetic leaders keep going after the average guy.

We will witness a major collapse in our country, and we are all well on the way to witnessing it. We are in the third or fourth inning.

Quantitative Easing and the Disappearance of Income

Frankly, I have no problem with low mortgage rates. Believe me,
the cost of living is going up in every walk of life, so paying less in
interest to a bank is not the problem. If it spurs buying, good, as long as the buyer has traditional income ratios, 20+% equity, and a fixed rate with 15-30 year loans.

Problem, was in qualifying, appraisals, HELOC scams, and lack of
enough equity. If banks held the line at 20% equity with no 2nd mortgages allowed, then we would not have this massive problem.

The game in Florida flippers was a 90% first mortgage and 15-20% 2nd mortgage, aka 110% mortgages. Not very sound business and we can see where that lead to, a collapse of our markets.

A Graphic Depiction of Distressed Real Estate Sales

Not done yet... however,
bigger move is probably in, at least in South Florida.

1.5 mil land is now 450k, might drop to 300k-350k over the
next year or so, that would be about 80% haircut. That said
it could go sideways for another 3-4 years.

One could hunt around now if they want a prime location with limited downside. Otherwise, wait until next summer and you will be getting in on the new base building levels. Very high end still has plenty of room to fall, they were the last to get to the party, much like NYC.

As Mortgage Rates Plunge, 30 Year Fixed Rate of 3.5% Seems Likely

good article..
my only questions is at least in my area of South Florida there is no
equity thanks to 60+% corrections. Few people who purchased in the last 8-10 years have equity. And older owners I would think can see the risk in a re-fi, you also are on the back end of a mortgage which is rapidly building principal.

So for boom areas, I don't see re-fi as a big option. Might help
new loans if someone is walking around with perfect credit and
not going after a jumbo loan.

Why This May Have Been a Sucker's Rally

Too strong of a rally, too quickly, no base building.
No expert here but I agree with Andrew.

Smart traders can make some money here. I'm not
good enough, so I'll watch the action.

Home Prices Are Taking a Breather Before Heading Lower

South Florida is a horror show. At least 50% off in land cost. Recently saw an Intracoastal lot sell for $415,000 after selling for 1.4 Million 2-3 years ago.
Look for at least 2 summers for a bottom then look
for another 4-5 years of sideways drift.

Speaking of South Florida, property taxes and insurance
and maintenance are now unsustainable for most owners.
Local governments have attacked the property angle while the FED goes after capital gains and income. States attack the sales tax angle. They have us blanketed and it no longer makes sense to own property here. Tax write off is not enough of a carrot.

The Rally, When It Comes, Will Be a Doozy

Depression era equities corrected 90% and post 1926 real estate corrected as much as 80% in Chicago and Florida.. what makes this so different..bailouts for the cronies?

100 years ago the government was much more supportive
of middle class policies. That has changed post 1980
America via all the presidents..status quo elites
throw bailout money to the same people who created
the problems, while throwing the masses to the wolves.
Tax codes, bankruptcy laws, Glass-Steagall repeal,
property and capital gains.. all favor the wealthy.
Didn't Warren Buffet have that famous quote about his 60k secretary paying higher tax rates than he?

Rallies will happen but the trend will be down through
2011 in both equities and real estate. My friends tell
me inflation will save them...sorry, look at Japan.

New York Fed's Model Predicts End of Recession in 2009

The Great Real Estate Bubble of the 1920's

by Polly Cleveland

Economists conventionally attribute the Great Depression to blunders by the then-new Federal Reserve Bank. According to this story, promoted by Milton Friedman and the Chicago School, after the stock market crash of 1929, the Fed kept interest rates too high, strangling the economy. This story made most economists confident that it couldn't happen again.

But there's a different story: the story of the giant 1920's real estate bubble. It began with cars.

Starting in 1899, the auto industry took off exponentially, dipped for two years during World War I, then took off exponentially again during the 1920's. Production reached a peak of over 4 million vehicles in 1929, before collapsing. It did not again pass 4 million until 1949!

The auto suddenly opened up vast suburban and rural areas to housing. Developers--legitimate and bogus--leapt at the opportunity. Banks jumped in too, creating so-called "shoestring mortgages"--effectivel... allowing property purchases on margin. Within a few years, tens of thousands of acres around major cities had been subdivided and sold. In rural areas, developers bought up farms, dug a pond, built a "club house" and sold cheap "vacation" lots. As reported in Homer Hoyt's classic One Hundred Years of Land Values in Chicago, from 1918 to 1926 Chicago population increased 35% and land values rose 150%, or about 12% a year.

In 1926, land values stagnated, then fell. By 1933, Chicago land values had fallen some 70% overall; peripheral areas fell even more dramatically. After 1929, home construction collapsed, and--paralleling the auto industry--did not again pass the 1926 level until 1950. Around Detroit, over 95% of recorded lots were vacant as of 1938. Nationally, there were an estimated 20 to 30 million vacant lots, compared to about 30 million occupied housing units. According to economic historian Alex Field, the barren subdivisions ringing the cities hindered the recovery of construction: Missing titles of defaulted owners and poor physical layout created de facto brownfields.

The real estate bubble helped set off and then worsen the Depression. Collapsing land values left people suddenly much poorer, so they cut spending. They also defaulted on mortgages, sticking the banks with "toxic" assets: liens on near-worthless property. The struggling banks in turn cut off lending even to good customers. Bank runs--panicky depositors withdrawing cash--further crippled the banking system. Between drops in spending and lending, businesses failed, unemployment soared, and prices fell.

Thus a radical innovation of the early 1900's--the automobile--set off a destructive real estate bubble in the 1920's. Another radical innovation took hold in the late 1990's: "securitization", that is, the aggregation of consumer debts, especially mortgages, into marketable packages known as "collateralized debt obligations" or "CDO's." CDO's set off another giant real estate bubble by making houses "affordable" to poorer Americans. The collapse of the CDO bubble stuck banks once again with "toxic" real estate.

Fortunately, economists--and markets-- now recognize that to limit damage, we must force banks to write down the garbage quickly. But write-downs will reveal that some big banks' liabilities exceed their assets, requiring drastic remedies, including restructuring, breakup, and possibly temporary nationalization. Unfortunately, so far our new Treasury Secretary, Tim Geithner, either lacks the nerve or the authorization. Unless he acts soon, we face another "lost decade" like the 1930's.

Five Predictions for This Market

The Great Real Estate Bubble of the 1920's

by Polly Cleveland

Economists conventionally attribute the Great Depression to blunders by the then-new Federal Reserve Bank. According to this story, promoted by Milton Friedman and the Chicago School, after the stock market crash of 1929, the Fed kept interest rates too high, strangling the economy. This story made most economists confident that it couldn't happen again.

But there's a different story: the story of the giant 1920's real estate bubble. It began with cars.

Starting in 1899, the auto industry took off exponentially, dipped for two years during World War I, then took off exponentially again during the 1920's. Production reached a peak of over 4 million vehicles in 1929, before collapsing. It did not again pass 4 million until 1949!

The auto suddenly opened up vast suburban and rural areas to housing. Developers--legitimate and bogus--leapt at the opportunity. Banks jumped in too, creating so-called "shoestring mortgages"--effectivel... allowing property purchases on margin. Within a few years, tens of thousands of acres around major cities had been subdivided and sold. In rural areas, developers bought up farms, dug a pond, built a "club house" and sold cheap "vacation" lots. As reported in Homer Hoyt's classic One Hundred Years of Land Values in Chicago, from 1918 to 1926 Chicago population increased 35% and land values rose 150%, or about 12% a year.

In 1926, land values stagnated, then fell. By 1933, Chicago land values had fallen some 70% overall; peripheral areas fell even more dramatically. After 1929, home construction collapsed, and--paralleling the auto industry--did not again pass the 1926 level until 1950. Around Detroit, over 95% of recorded lots were vacant as of 1938. Nationally, there were an estimated 20 to 30 million vacant lots, compared to about 30 million occupied housing units. According to economic historian Alex Field, the barren subdivisions ringing the cities hindered the recovery of construction: Missing titles of defaulted owners and poor physical layout created de facto brownfields.

The real estate bubble helped set off and then worsen the Depression. Collapsing land values left people suddenly much poorer, so they cut spending. They also defaulted on mortgages, sticking the banks with "toxic" assets: liens on near-worthless property. The struggling banks in turn cut off lending even to good customers. Bank runs--panicky depositors withdrawing cash--further crippled the banking system. Between drops in spending and lending, businesses failed, unemployment soared, and prices fell.

Thus a radical innovation of the early 1900's--the automobile--set off a destructive real estate bubble in the 1920's. Another radical innovation took hold in the late 1990's: "securitization", that is, the aggregation of consumer debts, especially mortgages, into marketable packages known as "collateralized debt obligations" or "CDO's." CDO's set off another giant real estate bubble by making houses "affordable" to poorer Americans. The collapse of the CDO bubble stuck banks once again with "toxic" real estate.

Fortunately, economists--and markets-- now recognize that to limit damage, we must force banks to write down the garbage quickly. But write-downs will reveal that some big banks' liabilities exceed their assets, requiring drastic remedies, including restructuring, breakup, and possibly temporary nationalization. Unfortunately, so far our new Treasury Secretary, Tim Geithner, either lacks the nerve or the authorization. Unless he acts soon, we face another "lost decade" like the 1930's.

Five Predictions for This Market

I wouldn't count on any real turn around for at least 2-3 years.
Yes, counter rallies will come along...dow to under 4000.
This is an "L" and life will not be the same for my generation..
the damage is to deep on to many levels... not to mention
the corrupt leaders intent on taxing people into poverty.

Stop down in South Florida and look at all the brown lawns..
it's depressing down here... Real estate has fallen off a cliff and
has at least 3 more years of downside to weed out foreclosures.
People here are just starting to realize it's over..middle classes wiped out... pilots, realtors, dentists, yacht industries, hotel, restaurant, financial
services, merchants... I could give you a long list of successful people who
are losing their homes...not flippers either.

Go read some books on the depression- here's one:
"Hanging on or How to Get Through a Depression and Enjoy Life"
or "Only Yesterday" by Frederic Lewis Allen.

What happened to civil unrest in this country.. bonus marchers...
war protest, Vietnam, Watergate... we, including me, are nothing more
than domesticated sheep.. no stomach to tackle the octopus in power.

GE: The Decimation Continues

agree.. most of the CEO's need to go....time to send some messages.
what position have they placed the company or in a bigger picture this country .
No parachutes.. let's start over.. the next guy can't possible do worse..

I only hope Obama starts to back up some of the campaign promises..
appears he is content to let the train wreck at full speed.. unless I am
missing something in his same old same old policies and cabinet picks..
We in the masses are going to have to do something drastic to shake up
policy making at all levels.. government refuses to do the right thing...
taxation in the last ten years blows my mind..unrelenting assaults.
left of the philosophy that the founders put in place..