Housing Bubble Bursting?

[Cigar]

Austin:

When I took Economics back in the early 50s the professor told us that the reason for the Depression, and the run on the banks, was panic, in the future economists shouldn't inform the public so there would be no panic.

The CPI now doesn't include the cost of homes in it's "Housing" factor, they have substituted rental costs, cost of homes has gone down and rentals have gone up, we would look like we are in a lot worse shape than we appear if this fraudulent switch hadn't occurred.

The index for housing increased 0.4 percent in November, following a 0.2 percent rise in October. Each of the three major
housing groups contributed to the larger advance. The index for shelter, which rose 0.1 percent in October, increased 0.3 percent in
November.*

* http://www.bls.gov/cpi/cpid0711.pdf

 

[MARK JOLLIFF]

It appears that Christmas sales were not all that most economists were forecasting. Roughly 72% of our GDP comes from consumer spending. As consumers retreat from their spending habits, what is the logical conclusion? Barring any other additional component of GDP doubling to make up for the lack of consumer spending, GDP will be declining. Will that decline in GDP be reflected in the next few quarters? No, judging from how the government reports the figures on GDP. Will employment be impacted? It already has but it is not showing up in the unemployment statistics the way the government tracks employment.

So what happens? You can hear the politicians all speaking about a slow down and maybe a recession coming. How do they know? They can't point to GDP or unemployment data to prove their case. Yet, all politicians are on board with the plan of a tax cut and maybe increased government spending.

Lets look at monetary policy. All last year up until August we hear from the FED that inflation is the problem, not economic growth. We hear that housing is not causing a recession. But then the FED cuts the funds rate by a half of a percentage point. Why? Banks are not lending. And it is discovered that we have a slight problem with credit availability that flows throughout the credit system from commercial paper to Wall Street investment banking. What is causing this? Defaulting mortgages primarily.

Now we see huge write downs of asset backed paper from banks to Wall Street that amounts to 10's of billions of dollars. The FED appears to be concerned more so than before. It now signals that it will take aggressive action on the funds rate when it meets at the end of January. The funds rate stands at 4.25% currently (after cutting 0.75% last year) and the FED is expected to cut the rate by a half of a percent, down to 3.75%, by the end of the month.

Meanwhile, we see mortgage lenders like Countrywide, Washington Mutual and IndyMac tank in their stock price signaling that investors are doubting their financial viability. We see other financial institutions like Bank of America and JP Morgan Chase making the attempt to absorb these troubled lenders. We see foreign investors supplying 10's of billions of dollars as equity to Citibank and Merrill Lynch. This looks strangely like a solvency problem, not a credit problem.

Have you ever seen someone in so much trouble that they deny the existence of a problem? The magnitude of what is visible to us is enormous. Home prices are spiraling down and delinquencies on debt payment is spiraling up. Foreclosures are rising at alarmingly higher rates.

I suspect we are going to find out the hard way just how much of consumer spending was being propped up with increasing debt and increasing home prices and not with basic earnings and employment.

Tax cuts with increased government spending and lower interest rates will help but it may not cause consumer spending to increase. It will be back to easy credit with a twist of rolling over insolvent debt to lower interest rates and lower principle amount owed. Just like bankruptcy, consumers can reduce debt owed, and that gives the consumer a new starting point to spend all over again but with the help of, not taxpayers, but foreign investors that supply equity to these institutions holding insolvent paper.

Hey Randolph, Thanks for telling me to wait till the December shopping numbers came out. I'm very happy now! You sir are a true claravoyant! (I know that's spelled wrong). You remind me of Peter Schiff in a way. I remember you took some flak from quite a few people when this thread started out and things you and Moh predicted have come true. I don't see any detractors now!!! Anyway thanks again!

 

[Randolph Kinney]

The next insolvency wave hits home builders

Is Standard Pacific Contemplating Bankruptcy?


The housing market’s disaster du jour for Friday was builder Standard Pacific, whose shares plunged 17.6% on news it had retained restructuring and bankruptcy specialist Miller Buckfire as a financial adviser. The implication that the builder might be considering a bankruptcy filing was not lost on investors.

 

[Randolph Kinney]

What about IndyMac?

More Countrywide; What about IndyMac?

Mortgage Daily ran a story today about how a warehouse lender was shutting out Countrywide and IndyMac.

A Texas-based provider of warehouse lines is removing Countrywide Home Loans and IndyMac Bank from its approved investor list because movement in their share prices resembles that of other imploded lenders.

Southwest Securities FSB made the disclosure in a message to customers yesterday.

With warehouse lending lines being cut off, is the demise of IndyMac a foregone conclusion? Just waiting for that white knight to ride up and make an offer. There is a risk in all that ALT-A paper on the books. If Countrywide got $4 billion from B of A, what's IndyMac worth? Next to nothing?

 

[Greg Bell]

Stock market is due for a suckers rally followed by a dead cat bounce.Looking for the bottom just like all the EXPERTS found the bottom in 1931,oops , false bottoms can take down the most savvy investor.Watch housing in England and Spain .They are starting to tank.Looks like Canada will be the last one to the party.Quick but some beans and ammo..:new_snipersmilie:

 

[Terrel L. Shields]

Looks like Canada will be the last one to the party

I wonder if taxes are a leader or a follower? I mean taxation in Europe has a big effect upon homeownership. And Canada recently added big taxes to the petroleum companies. QUite a few rigs are now laying down and coming across the border to the U. S. as Canadian oil companies look for greener pastures. The same with the U. S. The run up in home values has been a windfall for the tax assessor and the counties have rapidly spent that money like water. Now what? IF tax values drop, takes drop, then the states have to up the tax rates which piles on more taxes to people already stung by high property taxes. They quit buying. The sales taxes drop and state and local governments are pinched even more. We'll see what we see. Taxes could slow the economy even worse.

During the depression the inability of people to even pay taxes meant many people who were otherwise solvent and owed no money on property, simply left and went west and let the tax man sell the property. part of my own place was sold for back taxes in the 1930's.

 

[Austin]

My grandfather and farm neighbor would be about 115 years old now. Their prime years were during the depression. The one thing I heard both of them say many times was: "I could have made a killing during the depression but back then you couldn't get your hands on a dime of money."

My deceased neighbor once told me that during the depression his family took the entire tobacco crop to the warehouse to sell. Didn't get one bid on it. They left it stacked in a pile with all the others and went home. Entire years income and didn't even get enough to pay for the seed and fertilizer. I was farming around 1976 and we had back to back the worse droughts in local history. Old Jim told me the facts of farming business: 'Never use hired help because sooner or later they will end up with the money and you will end up with the bag." The drought took his entire 1976 crop and he lost about $300. Jim told me that around 1935 the finally got electricity to the house. They purchased a refrigerator. He said he laid awake in the bed at night listening to that refrigerator run knowing it was costing him 5 cents a day. This illustrates the other extreme.

 

[Greg Bell]

There must be much bigger problems that the scummy government will not report.Citibank needs cash from Kuwait and China to continue operation.The day that one of the largest banks needs to borrower cash tells me that our prosperity resembles that of 1928.The next crash will take years to develop due to government intervention and a myriad of useless regulations , should be a hoot watching the experts squirm as all the nations debt comes due.Quick , buy some beans and ammo..

 

[Randolph Kinney]

Consumer spending dropped - look out below!

Americans Cut Back Sharply on Spending

Strong evidence is emerging that consumer spending, a bulwark against recession over the last year even as energy prices surged and the housing market sputtered, has begun to slow sharply at every level of the American economy, from the working class to the wealthy.

The abrupt pullback raises the possibility that the country may be experiencing a rare decline in personal consumption, not just a slower rate of growth. Such a decline would be the first since 1991, and it would almost certainly push the entire economy into a recession in the middle of an election year.

There are mounting anecdotal signs that beginning in December Americans cut back significantly on personal consumption, which accounts for 70 percent of the economy.

Fresh evidence of a pullback is pouring in from many quarters as Americans confront the triple threats of higher energy costs, falling home prices and a volatile stock market.

Perhaps the strongest barometer over the last 30 days is the performance of the country’s big chain stores. December turned out to be a blood bath for retailers at every rung on the economic ladder, with sales for the month growing at the slowest rate in seven years.

But it is the trouble at the highest reaches of retailing that has economists most worried about a recession. Over the last year, even as low-wage and middle-income consumers have cut back, the wealthy have spent freely, keeping high-end chains insulated from the economic turbulence.

That started to change in December, as shoppers held off on buying $300 designer shoes and $500 dresses. For example, store sales fell 4 percent at Nordstrom, the high-end department store.

“We are seeing a correlation with housing prices,” said Michael O’Neill, a spokesman for American Express. “The falloff in spending is everywhere in the country, but it is greatest in those areas like south Florida and California, where home prices have fallen the most.”

The market opened up this morning on IBM earnings news.

The FED funds rate will be cut by a half of a percent with more to come.

Credit delinquencies are rising with housing and auto loans passing the last recession peak. Credit card delinquencies are rising but not yet past the last recession peak. It has been said that consumers are choosing to pay the credit card payments ahead of house payments and now car payments.

And we don't have rising unemployment claims yet indicating that layoffs are not that big at major companies. I guess the panic really starts when unemployment claims have a continuous rise for a period of time.

It will be interesting to see what NAR reports for housing sales and median price for December 2007. I wonder if their economist will blame the consumer he continues to revise and reduce the NAR forecast? :laugh:

 

[Mr Rex]

There must be much bigger problems that the scummy government will not report.Citibank needs cash from Kuwait and China to continue operation.The day that one of the largest banks needs to borrower cash tells me that our prosperity resembles that of 1928.The next crash will take years to develop due to government intervention and a myriad of useless regulations , should be a hoot watching the experts squirm as all the nations debt comes due.Quick , buy some beans and ammo..

I still have some left over from Y2k.