Randolph Kinney
Elite Member
- Joined
- Apr 7, 2005
- Professional Status
- Retired Appraiser
- State
- North Carolina
Can we talk a recession into existence?
Can we talk a recession into existence?
By Mark Trahant
© Seattle Post-Intelligencer
If we talk about a recession, does that make it so?
Nouriel Roubini's Global Economic Blog says we should worry about "a sharp U.S. slowdown in 2006, that may turn into a recession in 2007."
One of the ways he measures his concerns is by using Google News as a barometer, showing an increased citation in the words "stagflation" and "recession."
"As the proverb says, talk is cheap (if so sweet) but in this case the evidence that many folks and leading media publications are increasingly and systematically talking about recession and stagflation to the tune of 1000s of recent articles and commentaries should be at least a signal, to policy-makers and market folks, that these risks may be rising," Roubini writes.
Where does this Google-talk come from? The official word from the government is about the strength of the U.S. economy right now.
Thursday the Census Bureau reported that new orders for manufactured durable goods in June increased $6.5 billion, or 3.1 percent, to $216.3 billion. This is the fourth increase in the past five months. (Although if you want to see really big numbers, look at the jump in the capital purchases by the military.) "You've got an economy that is expanding vigorously," White House Press Secretary Tony Snow said. "You take a look at the unemployment report, and what you have is a four-week track that shows continued growth."
If the economy is expanding so "vigorously," why are so many Americans unsettled about the prospects ahead? Why are we Googling "recession?"
One reason is that the numbers aren't particularly convincing. The Commerce Department says new home sales dropped by 3 percent in June -- and prices are starting to drop. Mark Zandi, chief economist at Moody's Economy.com, says the housing peak was a year ago and is now on a slow decline.
The routine spin on the housing slowdown is that there will be a moderate weakening in prices, returning housing costs to more normal levels.
But what if that's not true?
Bill Gross, managing director of PIMCO bond fund, writes in his August Outlook: "It's not looking good, folks -- housing that is. PIMCO's on-the-ground analysts, who for nearly a year have roamed the country with random real estate agents in search of local housing trend information, report that prices in many areas are actually declining, which has significant implications for the economy, inflation and interest rate trends."
Another piece of evidence that Gross mentions is a Federal Reserve study that says housing price booms are typically preceded by a period of easing monetary policy. That is followed by a decline in housing prices.
Yeah, my friends say, but not in Seattle. We're different. The thinking goes like this: The cost of single-family houses in King County continues to increase at double-digit rates and as long as the housing supply remains tight, our investments will be safe.
And may it always be so.
But what if the driving factor in housing prices is not land, new jobs or even an extraordinary community? What if the key element in housing prices is the ease of access to credit?
"The raising of interest rates on millions of adjustable rate mortgages over the next several years has all the makings of a classic horror story," Damon Darlin wrote in The New York Times earlier this month. " more Americans began using mortgages that allowed them to buy more house for less of a monthly payment. Next year, a large portion of those rates move up and homeowners who opted for the exotic mortgages could find their payments doubled. Talk about bloody. They need to find a way to minimize the pain."
The areas of the country most at risk: California, Denver, Washington, Phoenix and Seattle, where interest-only loans accounted for 40 percent or more of last year's mortgages.
"Well we shall see, won't we," Gross writes in his Outlook. "Tricky business this forecasting."
Tricky forecasting? Especially if it's an unpopular message -- unless you're typing words into a search engine.
Can we talk a recession into existence?
By Mark Trahant
© Seattle Post-Intelligencer
If we talk about a recession, does that make it so?
Nouriel Roubini's Global Economic Blog says we should worry about "a sharp U.S. slowdown in 2006, that may turn into a recession in 2007."
One of the ways he measures his concerns is by using Google News as a barometer, showing an increased citation in the words "stagflation" and "recession."
"As the proverb says, talk is cheap (if so sweet) but in this case the evidence that many folks and leading media publications are increasingly and systematically talking about recession and stagflation to the tune of 1000s of recent articles and commentaries should be at least a signal, to policy-makers and market folks, that these risks may be rising," Roubini writes.
Where does this Google-talk come from? The official word from the government is about the strength of the U.S. economy right now.
Thursday the Census Bureau reported that new orders for manufactured durable goods in June increased $6.5 billion, or 3.1 percent, to $216.3 billion. This is the fourth increase in the past five months. (Although if you want to see really big numbers, look at the jump in the capital purchases by the military.) "You've got an economy that is expanding vigorously," White House Press Secretary Tony Snow said. "You take a look at the unemployment report, and what you have is a four-week track that shows continued growth."
If the economy is expanding so "vigorously," why are so many Americans unsettled about the prospects ahead? Why are we Googling "recession?"
One reason is that the numbers aren't particularly convincing. The Commerce Department says new home sales dropped by 3 percent in June -- and prices are starting to drop. Mark Zandi, chief economist at Moody's Economy.com, says the housing peak was a year ago and is now on a slow decline.
The routine spin on the housing slowdown is that there will be a moderate weakening in prices, returning housing costs to more normal levels.
But what if that's not true?
Bill Gross, managing director of PIMCO bond fund, writes in his August Outlook: "It's not looking good, folks -- housing that is. PIMCO's on-the-ground analysts, who for nearly a year have roamed the country with random real estate agents in search of local housing trend information, report that prices in many areas are actually declining, which has significant implications for the economy, inflation and interest rate trends."
Another piece of evidence that Gross mentions is a Federal Reserve study that says housing price booms are typically preceded by a period of easing monetary policy. That is followed by a decline in housing prices.
Yeah, my friends say, but not in Seattle. We're different. The thinking goes like this: The cost of single-family houses in King County continues to increase at double-digit rates and as long as the housing supply remains tight, our investments will be safe.
And may it always be so.
But what if the driving factor in housing prices is not land, new jobs or even an extraordinary community? What if the key element in housing prices is the ease of access to credit?
"The raising of interest rates on millions of adjustable rate mortgages over the next several years has all the makings of a classic horror story," Damon Darlin wrote in The New York Times earlier this month. " more Americans began using mortgages that allowed them to buy more house for less of a monthly payment. Next year, a large portion of those rates move up and homeowners who opted for the exotic mortgages could find their payments doubled. Talk about bloody. They need to find a way to minimize the pain."
The areas of the country most at risk: California, Denver, Washington, Phoenix and Seattle, where interest-only loans accounted for 40 percent or more of last year's mortgages.
"Well we shall see, won't we," Gross writes in his Outlook. "Tricky business this forecasting."
Tricky forecasting? Especially if it's an unpopular message -- unless you're typing words into a search engine.
They don't care about no stink-en bubble talk, since they got a good deal in the here and now and wanted a place to live.
