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Housing Bubble Bursting?

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Last night Cavuto was talking about the upcoming meeting of the big city mayors in Detroit on Tuesday to discuss a bailout of subprimers. He was interviewing a big city mayor and hit him from every angle with the fallout to the system from a bailout but the mayor parried every attempt. A bailout of some sort is in the works.

This just proves what I have been saying all along-any sale of real estate with less than 20% down is not a market, it is a welfare program. He who invest in charity should not expect to make money on the deal. That is one reason I don't do GSE appraisals-it's just a game of lets pretend and fill out all of these papers to make it look official. Look what has been done to these people in the name of compassion. Another example of feel-good unintended consequences. "We feel your pain. We are from the government and we are here to help you. We regulated and certified the appraisers to make sure you are protected."

PS: I forgot to mention that Cavuto also interviewed a lawyer who is suing for damages on behalf of these losers. The lawyers are in the game now, we are in election cycle and the big city mayors are hungry for more fed $$$$$$$. It's the perfect storm. Everything hitting at the same moment in time. Every day its gets deeper and deeper. 2008 is going to be a monumental year for the books.
 
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Our Assessor's Office is panicked, fearing a deluge of people requesting reductions in their assessments.
 
Our Assessor's Office is panicked, fearing a deluge of people requesting reductions in their assessments.
I know that our towns and county are concerned about the tax revenue going down. But, just like when times were good on the way up collecting $$$, now current sales and tax appeal Prop 8 are reducing all that tax revenue. :fiddle:
 
Give that Cigar a Cigar

Our Assessor's Office is panicked, fearing a deluge of people requesting reductions in their assessments.
Give that Cigar a Cigar!
Attorneys are calling here; They see some EZ money in representing people for property tax reductions, and need current appraisals.
-- and of course want a fee reduction for volume. :angry:
 
Why the US markets may slump for 15 years

He has never been more bearish

In a rare interview, the chairman of Fairfax Financial Holdings Ltd. said he thinks it's possible the United States is on the cusp of a prolonged market slide, similar to the one endured by Japan between 1990 and 2003, when the Nikkei index plunged 80 per cent.

The global credit squeeze is in its "early days," says investor Prem Watsa, who is so bearish that his insurance company has stashed the bulk of its $18-billion investment portfolio into ultrasafe government bonds.

"We raise the question, why can't the Japanese experience be repeated in the U.S.? We think it could be," Mr. Watsa said.

"I was in Tokyo in 1988-89. They said: 'We work together, we're not like the Americans, we're not going to let this happen, we're not letting our stock price come down.' Well, the bear market went 15 years," Mr. Watsa said.

"So today, you ask your American friends and they say, 'We're not like the Japanese, we're free enterprise, we face the problems head-on. We react. We're not going to hide the stuff like the Japanese did.'"

"We don't know how bad the recession's going to be, so credit is going to be tough," he said. "You're going to have these big losses, the banks are going to have big losses. So we are worried."

Mr. Watsa took particular aim - not for the first time - at the structured-products industry on Wall Street and Bay Street. Many of those securities got high ratings from the credit agencies, but have cracked under the strain of rising U.S. mortgage defaults.

The Fairfax chairman said the products were always flawed because they shifted the risk away from the person making the lending decision - which encouraged auto finance or mortgage companies to give loans to almost anyone, since they would not have to bear the losses on defaults.
If the securities markets ran up in value in the last 5 years do to credit financing based upon passing the risk to the investor from the originator, removing these securities out of the system will take some time. In addition, with nothing to take its place, the growth in spending without growth in credit will be sharply reduced. Investors in any debt, regardless of its rating, will be shunned except that which is guaranteed by the government. Risk based debt pricing will return to the market.

Wall Street will have a tough time going forward producing increasing earnings. That is the underpinning of value for any stock price; growth.
 
I think it's somewhat ironic that they're meeting in Detroit. Detroit has lost 1 million in population since its heyday. It lost 10% in population since 2000. Cleveland's also declining in population. How are cities like this going to recover when the inventory has no possiblity of absorption? Cleveland's actually talking about bulldozing whole blocks of vacant homes to eliminate the worst areas.

People go where the jobs are. No jobs, no people. No people, no recovery
 
US dollar now assumes roll for the carry trade

Something happened today that is a world event. The US Treasury yield shifted drastically lower with the 2-year T-note below 2.9% and the 10-year bond at 3.8%. Couple this with the falling dollar, the US is now taken over the roll of the carry trade from Japan.

Foreigners find it cheaper to borrow in US dollars, with the added bonus of a falling dollar, and they buy foreign securities that yield higher than US Treasuries.

This is going to affect our economy, to some degree, like what happened in Japan; falling real estate values and falling stock markets. We also have defaulting debt. This is going to make it very expensive to attract foreign capital.

The FED is now so far behind the yield curve that I really expect it to cut 0.5% of the current 4.5% FED funds rate.

Life gets interesting. I thought the play for banks would be a good one, assuming that the worst was behind us. Well it isn't. All bets are off. Cash is king and diversified foreign funds will continue to out perform anything in the US.

Look for more pressure on the US dollar as oil exporting countries continue shifting out of dollars and China caves in allowing the Yuan to rise taking the rest of Asia with it.
 
The call for massive monetary and fiscal policy intervention

Wake up to the dangers of a deepening crisis

Even if necessary changes in policy are implemented, the odds now favour a US recession that slows growth significantly on a global basis. Without stronger policy responses than have been observed to date, moreover, there is the risk that the adverse impacts will be felt for the rest of this decade and beyond.

First, forward-looking indicators suggest that the housing sector may be in free-fall from what felt like the basement levels of a few months ago. Single family home construction may be down over the next year by as much as half from previous peak levels. There are forecasts implied by at least one property derivatives market indicating that nationwide house prices could fall from their previous peaks by as much as 25 per cent over the next several years.

Second, it is now clear that only a small part of the financial distress that must be worked through has yet been faced. On even the most optimistic estimates, the rate of foreclosure will more than double over the next year as rates reset on subprime mortgages and home values fall. Estimates vary, but there is nearly universal agreement that – if all assets were marked to market valuations – total losses in the American financial sector would be several times the $50bn or so in write-downs that have already been announced by big financial institutions. These figures take no account of the likelihood that losses will spread to the credit card, auto and commercial property sectors. Nor do they recognise the large volume of financial instruments that depend for their high ratings on guarantees provided by credit insurers whose own health is now very much in doubt.

Third, the capacity of the financial system to provide credit in support of new investment on the scale necessary to maintain economic expansion is in increasing doubt. The extent of the flight to quality and its expected persistence was powerfully demonstrated last week when the yield on the two-year Treasury bond dropped below 3 per cent for the first time in years. Banks and other financial intermediaries will inevitably curtail new lending as they are hit by a perfect storm of declining capital due to mark-to-market losses, involuntary balance sheet expansion as various backstop facilities are called, and greatly reduced confidence in the creditworthiness of traditional borrowers as the economy turns downwards and asset prices fall.

What concrete steps are necessary? First, maintaining demand must be the over-arching macro-economic priority. That means the Fed has to get ahead of the curve and recognise – as the market already has – that levels of the Fed Funds rate that were neutral when the financial system was working normally are quite contractionary today. As important as long-run deficit reduction is, fiscal policy needs to be on stand-by to provide immediate temporary stimulus through spending or tax benefits for low- and middle-income families if the situation worsens.

Second, policymakers need to articulate a clear strategy addressing the various pressures leading to contractions in credit. Very likely this will involve measures that are non-traditional, given how much of the problem lies outside bank balance sheets. The time for worrying about imprudent lending is past. The priority now has to be maintaining the flow of credit. The current main policy thrust – the so-called “super conduit”, in which banks co-operate to take on the assets of troubled investment vehicles – has never been publicly explained in any detail by the US Treasury. On the information available, the “super conduit” has worrying similarities with Japanese banking practices of the 1990s that aroused criticism from American authorities for their lack of transparency, suppression of genuine market pricing of bad credits, and inhibiting effect on new lending. Perhaps there is a strong case for it, but that case has yet to be made.

Third, there needs to be a comprehensive approach taken to maintaining demand in the housing market to the maximum extent possible. The government operating through the Federal Housing Administration, through Fannie Mae and Freddie Mac, or through some kind of direct lending, needs to assure that there is a continuing flow of reasonably priced loans to credit worthy home purchasers. At the same time there need to be templates established for the restructuring of mortgages to homeowners who cannot afford their resets, so every case does not have to be managed individually.

All of this may not be enough to avert a recession. But it is much more than is under way right now.
 
A summary of doom and gloom coming

Nouriel Roubini's Global EconoMonitor

This worsening of the financial markets turmoil has occurred in spite of the hundreds of billions of dollars and euros that have been injected in the financial system by the Fed, the ECB and other central banks and in spite of the 75bps cut in the Fed Funds rate by the Fed.
 
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