Housing Bubble Bursting?

[moh malekpour]

You should consider a more limited statement. For example, I believe the trend depicted may continue for 6 months After that...who know

I agree but investors who are buying long term bonds are thinking the trend will countinue downward for the next 10 or may be 30 years otherwise they wouldn't buy them.

 

[JSmith43]

I agree but investors who are buying long term bonds are thinking the trend will countinue downward for the next 10 or may be 30 years otherwise they wouldn't buy them.

If investors seeking safe parking think there will be no substantial uptick in competing 10 year rates and see short term rates as ......short term, I think that is enough to get them to buy.

I wonder what the average length of time investors hold 10 year bonds? Maybe 3 years until they are bored to tears or tortured by the profits others are making in stocks....or, once again, in RE ?

 

[moh malekpour]

I wonder what the average length of time investors hold 10 year bonds? Maybe 3 years until they are bored to tears or tortured by the profits others are making in stocks....or, once again, in RE ?

Some economists, whom I don’t know if they are correct or not, believe the US long bond investors are mostly central bankers from some emerging market countries who badly need US consumers for their exports. Some of them have had 9-12% yearly economic growth last few years and cannot afford to stop it. They are willing to sacrifice small loss of buying high priced US bond in exchange of gaining a huge US consumer market that they need to sell their goods. Besides the exporting advantage, they can also use accumulated US bonds as a bargaining chip in the case if the US legislators tried to put tariff on their exports. They can retaliate and dump accumulated US bonds and force the inflation in US market. Does it make sense to you?

 

[Dee Dee]

Yeah. You're saying that they own our asses....errrr....assets.

 

[JSmith43]

They can retaliate and dump accumulated US bonds and force the inflation in US market. Does it make sense to you?

Off the top of my head, if a particular country dumps bonds quickly they will, in the short run, screw their remaining position as they are selling mass quantities. They would have to move out of their position slowly so as not to depress the price.

It would put upward pressure on rates since the remaining investors need to be attracted with higher rates in order to clear the market. Higher interest rates in dollar denominated investments generally tends to strengthen the dollar compared to other currencies, which would weaken demand for US denominated goods and services. Our appetite for imports would increase but that would lead to high balance of payments deficits which Democrats could mischaracterize as a "problem" caused by Bush. They could sweep the House and Senate, bankrupt the country even faster by spending, taxing and crushing incentives and productivity along the way which would solve the balance of payment "problem" (which is actually a blessing, not a problem) because we would go into hyper inflation after about a 7 year time lag which the instigators will escape blame since it is a long lag time and the explanation is too complex to fathom by the punch ballot crowd.

 

[moh malekpour]

Off the top of my head, if a particular country dumps bonds quickly they will, in the short run, screw their remaining position as they are selling mass quantities. They would have to move out of their position slowly so as not to depress the price.

When they do it, they already are screwed so they want to revenge and you are right, the result would be either depression or recession because the rates would go to the roof to take back those notes and bills

 

[JSmith43]

because the rates would go to the roof to take back those notes and bills

I would be curious as to how high they really would have to go, since greed is mighty powerful when it comes to attracting $$. Also, I have a hard time imagining countries holding dollars acting in concert, sort of like a more well disciplined OPEC.

Even junk bonds and penny stocks attract $$, not to mention some pretty poorly run countries with two bit dictators, as long as they defend investor rights consistently & the wire transfers don't get hijacked every 5th time.

I wish there was a decent simulator out there in mass circulation. A World Economy computer game:new_all_coholic:

 

[Brad Ellis]

Moh,

The Moody's article and predictions are interesting.

I note (and thanks for the link as their web site is far more readable- not complaining-than your list) about 5 markets whose average prices are expected to decline more than 15% by 2010 or so. 2 in FL, 2 in CA and Reno, NV. None of these are really major markets but all are statistically noteworthy.

If we look at the balance of these markets and assume (I do not have the numbers) that they on average will produce an overall decline of no more than 10% nationally, then I think this supports what I have been calling a correction vs. a bubble.

I did define a bubble as an average national price decline of 15-20% over about 5 years. If memory serves, Randolph found the FDIC definition of a bubble being a decline of 15% over 5 years.

Now, I have no idea if Moody's will be accurate. For me, trying to predict what will happen with housing over a 4 years period is fraught with danger. There are simply too many things that can happen and none of us even know what those things might be.

So, for now, I'll stick with my characterization of all this being a natural correction in the housing market. I still am seeing far more of the known experts calling this a correction than a bubble.

Still comfortable out here in the Inland Empire...

Brad

 

[JSmith43]

I did define a bubble as an average national price decline of 15-20% over about 5 years. If memory serves, Randolph found the FDIC definition of a bubble being a decline of 15% over 5 years.

I missed that...some definitional commitment! It would be nice if the bubble and non bubble prognosticators would publicly commit to a definition for a national housing bubble, if they haven't already done so.

 

[Austin]

Question for Brad"

If someone came to you and made this statement: "I am recovering by drinking must less than I used to," what would this infer?
Is this a correction, from drinking too much, or is this an admission of a chemical dependence? What is drinking too much a symptom of?
It seems to me that Brad is falling into the trap. He is one of those people that says, “I can handle my drinking and quite anytime I want too, I just don’t want to” which indicates a dependency. Same principle in this argument: Brad wants a correction but refuses to say from what is being corrected. Is it housing prices being too high or do we have a bank regulatory little problem? Maybe we need a 12 step recovery program.
Go ahead Brad, stand up and spill your guts...