Housing Bubble Bursting?

[Randolph Kinney]

A couple things are different between the Japan asset bubble and ours ....

Peak oil had not been reached ..... (Today we are crossing unchartered waters)

Japan is a net exporter (We are a net importer)

Japaneese have a savings rate of about 4% (Our savings rate is -1%)

Japan controls its borders (we have wage regulations yet import illegals)

David, you are correct in that the U.S. is not Japan and its policies are different.

Japan did not practice monetization of its debt although the interest rates on their 10 year bond was under 1%. They had deflation as a result because as you point out, their population are net savers.

Japan lost significant share of its export markets to Taiwan, South Korea and now China. It is no longer the low cost producer and it has been loosing its ability to control is currency exchange rates.

Japan really had no way to increase its imports because they are not consumers like we are. That hurt their economy. They are outsourcing now, however. But they have too because their population growth is slightly negative; their birth rate is less than the replacement rate and they don't allow immigration like we do to add to their population numbers.

Japan does not have a social security system like we do. Their population has to supply their own retirement income. That comes from savings or you keep working until you die.

The way the Japanese economic system is with its population growth (negative), any down turn in Europe or the United States means deflation in Japan as their export markets shrink. In order for them to maintain market share, they have to either cut their prices on exports or manipulate their currency to devalue it, or both.

We have a problem in this country. We don't save, we spend. The government makes up the difference in our income and our spending with social programs (transfer payments) and government spending (deficit spending). The government makes up the difference it has in tax receipts (income) with borrowed money. If the money is not printed, it must come from savers. We don't save. That means the rest of the world is buying our debt. Who? Japan, Korea, Taiwan, China, Europe, oil exporting countries, etc. They are net exporters to us and net savers. They have excess dollars. They recycle dollars to us, buying our debt.

It is a wonderful world that will allow us to consume without real payment, just dollars. :Eyecrazy:

 

[Big ole Boy]

Financial energy

Randolf,

You know as well as anyone that in the end - Japan per individual creates more financial energy than a US citizen.

Our military investment can not prop up the dollar forever. A country that spends 50% of the worlds military dollars per year is an empire on the way out.

THink about it, we have no ability to democratize Iraq with all our military might ..... we have planes and bombs, but no real heart persuasion in the world ......

We chose to have a miliatry engine to perpetuate our ability to consume so that the stupid USA masses could line the pockets of the greedy .....

..... cowboy diplomacy is dead - so says the cover of TIme Magazine .....

.... we have lost our economic edge and people would rather do business with anyone else in the world "except us" ......

.... that is a loss of real financial energy in the qualitative scheme of things. .

 

[Couch Potato]

Tick, Tock.

It is a wonderful world that will allow us to consume without real payment, just dollars. :Eyecrazy:

For a while. Its an economic time bomb. One day some country will decide they don't want dollars and the fuse will be lit.

 

[Randolph Kinney]

For a while. Its an economic time bomb. One day some country will decide they don't want dollars and the fuse will be lit.

There are several countries right now that want to be paid in Euros, not dollars. They are not that big in the world game of trade so it does not matter, right now.

We can wait and see just how bad the housing bubble plays out. If the government steps in to shore up the secondary market when the defaults occur to maintain some degree of confidence and liquidity, that is going to support the housing market. I believe the investors are counting on the government to guarantee payment. If they don't ...

 

[Big ole Boy]

Investment opportunites in closed economic systems

I would think it would become risk prudent in this day and age to allign investments that are part of small closed economic systems.

Economic trade reservations within the US where all forms of barter can transfer .... large land areas could circumfent state and federal restrictions through underground barter systems ...... which operate outside the confines of a dollar.

I'd like to be part of a system where I was assured an ample supply of beer and coffee along with steak and eggs.

 

[Randolph Kinney]

Home Builders See Downward Trend

Home Builders See Downward Trend

Published: July 10, 2006 9:16 AM

By John Spence

A pair of home builders said the U.S. housing market continues to soften, reflected by weaker orders and higher cancellations, and one of them warned that the downturn could continue into next year.

Despite a healthy backlog of homes awaiting construction, KB Home (KBH) said in a Securities and Exchange Commission filing Friday that its outlook is cautious "as conditions in many of the markets we serve across the U.S. have become more challenging in recent months."

The Los Angeles company added that several of its markets "have been affected by a buildup of new and resale home inventories, higher interest rates and higher cancellation rates, particularly markets that have experienced rapid price appreciation or substantial investor activity, or both, in the past few years."

For the quarter ended May 31, KB Home, the nation's No. 5 builder by 2005 deliveries, said net orders fell 19% from the year-ago period to 9,908 homes.

Although the company is positive on the long-term outlook for housing on strong demographics and job growth, it cautioned that it expects "the current negative trends in the U.S. housing market to continue for the remainder of 2006 and, possibly, into 2007."

 

[Randolph Kinney]

SW Valley home prices flat

SW Valley home prices flat

Christine L. Romero
The Arizona Republic
Jul. 10, 2006 12:00 AM

Across the southwest Valley, homes stayed on the market longer and fewer homes overall were sold, according to an analysis of sales by ZIP code.

The latest data compares the first three months of this year with the final three months of 2005.

Patches of the Valley, including parts of the West Valley, continue seeing rising prices, while pockets saw dips of as much as 12 percent from the fourth quarter of 2005 to the first quarter of this year, according to figures from the Arizona Regional Multiple Listing Service.

About one-third of all metro Phoenix neighborhoods experienced drops in price, according to the service.

Meanwhile, the number of resales is down 34 percent for the year.

"The Valley's housing market is going to be dicey for a while, and it's best to track it by neighborhood," said Terry Turk, president of Sun American Mortgage of Mesa.

"It's possible that home prices will drop 5 to 10 percent overall," said Jay Butler, director of the Arizona Real Estate Center at Arizona State University's Polytechnic. "There have already been significant declines in some areas of the Valley."

 

[JSmith43]

Hi. Just checking in to read Randolph's blog

The bubbletalk forum has taken on a different feel with Mike Simpson off the case. Are there no volunteers that will attempt to fill his shoes?

Someone needs to put this "it's just a matter of time" stuff into perspective.

Supply and demand works everywhere, you know. Try and corner any market and then try and get out of your position quickly. There aren't static trades.

Would any of you out there choose to exclusively hold your savings in Euros over dollars??? The answer is my "fundamental" analysis.

I'm not even sure I like the idea of more than 10% of liquid funds in Euros. Right now, it would be fun to hear from someone that runs private money for a few whale clients. What are the big boys thinking along these lines?

 

[moh malekpour]

Hi. Just checking in to read Randolph's blog

The bubbletalk forum has taken on a different feel with Mike Simpson off the case. Are there no volunteers that will attempt to fill his shoes?

Someone needs to put this "it's just a matter of time" stuff into perspective.

Supply and demand works everywhere, you know. Try and corner any market and then try and get out of your position quickly. There aren't static trades.

Would any of you out there choose to exclusively hold your savings in Euros over dollars??? The answer is my "fundamental" analysis.

I'm not even sure I like the idea of more than 10% of liquid funds in Euros. Right now, it would be fun to hear from someone that runs private money for a few whale clients. What are the big boys thinking along these lines?

Try this new article from US House of Representative Dr. Ron Paul, Republican from Texas’s 14th congressional district and see if you can get something out of it.

http://www.house.gov/paul/tst/tst2006/tst071006.htm

Federal Reserve Policy Destroys the Value of Your Savings
July 10, 2006
For years officials at the Federal Reserve Bank, including Chairman Bernanke himself, have assured us that inflation is under control and not a problem-- even as the price of housing, energy, medical care, school tuition, gold, and other commodities skyrockets.
The Treasury department parrots the Fed line that consumer prices, as measured by the consumer price index (CPI), are under control. But even many mainstream economists now admit that CPI grossly understates true inflation. The most glaring problem is that CPI excludes housing prices, instead tracking rents. Everyone knows the cost of purchasing a home has increased dramatically in the last ten years; in many regions housing prices have more than doubled in just five years. So price inflation certainly is alive and well when to comes to the largest purchase most Americans make.
When the Federal Reserve increases the supply of dollars in circulation, both paper and electronic, prices must rise eventually. What other result it possible? The supply of dollars has risen much faster than the supply of goods and services being chased by those dollars. Fed policy makers have more than doubled the money supply in less than ten years. While Treasury printing presses can print unlimited dollars, there are natural limits to economic growth. This flood of newly minted US currency can only increase consumer prices in the long term.
Mr. Bernanke has stated quite candidly that he will use government printing presses to stimulate the economy as necessary. He is famous for joking that he would endorse dropping money from helicopters if needed to prevent an economic slowdown. This is nothing short of an express policy to destroy our money by inflation. Every new dollar erodes the value of existing dollars based on simple supply and demand. Does anyone really believe the Treasury can make us rich simply by printing more money?
The coming dollar crisis is not likely to be “fixed” by politicians who are unwilling to make hard choices, admit mistakes, and spend less money. Demographic trends will place even greater demands on Congress to maintain benefits for millions of older Americans who are dependent on the federal government.
Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available-- and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. The Fed is the enabler for the spending addicts in Congress, who would rather spend new fiat money than face the political consequences of raising taxes or borrowing more abroad.
The irony is that many of the Fed’s biggest cheerleaders are the same supposed capitalists who denounced centralized economic planning when practiced by the former Soviet Union. Large banks and Wall Street firms love the Fed’s easy money policy, because they profit at the front end from the resulting loan boom and artificially high equity prices. It’s the little guy who loses when the inflated dollars finally trickle down to him and erode his buying power. Someday Americans will understand that Federal Reserve bankers have no magic ability-- and certainly no legal or moral right-- to decide how much money should exist and what the cost of borrowing money should be.

 

[Big ole Boy]

Pathetic deficit news

Budget deficit news shows a sure sign that Wall Street is desperate for good news these days. Usually deficit forecast figures reflect what has happened in arrears and not what is going forward. I remember when Bush took office the deficit was running around a little around 100 Million to the plus side and then quickly dropped off.

After all the huge spending by Americans using the asset equity bubble as a catalyst to help spur the consumption economy forward we now have a blip on the deficit screen from which the White House will have a news conference over.

Pretty pathetic.