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Monday, October 6, 2008
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53 comments:
It doesn't seem the markets have much good to say about the bailout.
This mess has been building for well more than a year now. I am getting the feeling that it has finally reached a point where it will be impossible to deny that we are seeing a massive shift in global markets.
Much of the "growth" of the last 10 or so years has been the product of nothing more than financial wizardry and massive amounts of debt. I won't pretend to know what the end result of all this will be but I do know this is going to result in a major (and painful) restructuring of the world economy.
At the risk of making myself sound like lance... we might be seeing a paradigm shift here.
Where has Lance been, anyway?
For the life of me, how did so many people make the same mistakes/commit the same wrongs simultaneously, and no one hold up their hands and say "Stop!"?
Keeping it local, how did anyone come to think that run-down old split-levels in Manassas, VA were worth $600,000? And how did those same someones think that people lacking documentation of income and down payments would ever be able to pay back that $600K loan, even when the interest jumped up by hundreds and even thousands of dollars? Isn't all this on-its-face ridiculous?
"Where has Lance been, anyway?"
He reached the point where he couldn't pretend to be right anymore. He had to either run off or admit he was wrong.
"For the life of me, how did so many people make the same mistakes/commit the same wrongs simultaneously, and no one hold up their hands and say "Stop!"?"
It really is ridiculous. Some of us knew what was taking place was unsustainable and destined to end badly, but there are huge numbers of people(lance) who just lack critical thinking skills.
I think a lot of what allowed them to believe in the hype as long as they did is that they realized that if the bubble really did pop it would result in a huge financial upheaval.
I think faced with an opportunity to recognize that something very very big was unfolding their minds instead refused to accept what they were seeing.
Lance had an easy enough time declaring a "new paradigm" so long as it resulted in an outcome he thought would benefit him personally.
When faced with the possibility of an actual paradigm shift however... he refused to believe it could be true because it was simply too big for him to accept.
"Leroy said...
At the risk of making myself sound like lance... we might be seeing a paradigm shift here."
Sure looks like it. The market seems to be doing a lot of soul searching and it doesnt like what it sees. Credit Markets too. They arent getting worse, but they arent improving like we had hoped.
Nothing but a gut feeling here, but my guess is the last months turmoil is really going to hurt local sales. Probably not in Sept (which were booked in August), but certainly in Oct & November.
All those signs that we were very close to the bottom in terms of sales - lets just say they got pushed back a while further.
Leroy,
I believe you are in Europe now. How are people there reacting to this crisis? I don't know if Europeans are as widely invested in the markets as Americans do through 401Ks, IRAs, 529s, Pension Funds, etc. Europe may have old style guaranteed pension plans.
Leroy, Tabitha, everyone,
It is amazing that so many people were in denial in the recent past. But what I find even more amazing is that NOW, TODAY we have so many sellers with houses sitting on the market at prices that were inflated even by last year's standards. These sellers somehow believe that it is smarter to wait for that perfect buyer to come in the door than to cut their losses now and get real about the environment in which they are operating and will be operating in the future.
"I believe you are in Europe now. How are people there reacting to this crisis? I don't know if Europeans are as widely invested in the markets as Americans do through 401Ks, IRAs, 529s, Pension Funds, etc. Europe may have old style guaranteed pension plans."
I don't honestly have anything all that insightful to say as far as what the average person on the street thinks.
I have noticed a shift in how the crisis is described however. At first most articles seemed to refer to it as more or less an American problem. In the last few weeks people here have started to realize that what is taking place is much bigger than just the US.
Now it is just "the financial crisis."
Given the current realities, anyone considering a sterling property like this one for more than $50K?
http://www.franklymls.com/PW6811727
820 Locust St, 20170
Listing price $359,000 (-48.7%)
Previous Sales:
8/28/2008 $535,000 (foreclosure)
1/9/2006 $700,000
8/20/2004 $480,000
11/20/2000$287,000
ace, you call to mind a house in Manassas that has been for sale for more than two years. I think they were asking $800K in 2006, and dropped to $650K last fall, where they have stayed ever since. They have open houses at least once a month. I know of one offer last spring for the upper $400s; they countered $630K. I almost went to this weekend's open house just to berate the realtor. How long can this house sit vacant while the owners demand their money?
But what is even more befuddling to me are those who buy high these days. They are the exception, but they are out there. Some sale prices I see make my eyes cross. Do people still "fall in love" with a particular house and lose their senses?
Another question: will tightening credit really affect EVERYONE? We are still hoping to settle here, if my husband can get a job outside the Marine Corps, and buy the house we are currently renting. We have access to Navy Fed and Marine Fed, as well as a VA loan. Will even these insitutions not be offering mortgages, even if we have perfect credit?
"Another question: will tightening credit really affect EVERYONE?"
Yes. It will affect everyone. Some folks will be affected directly and some will be affected indirectly.
For everyone that can get financed there are countless others that can't get financed. That can't be good for values because it correlates to prices having to come down for people to be able to buy, i.e., get financed.
On another note......I had a buddy put an offer on a foreclosure. He came to the table and had 20% down. He said he offered 130k on a property the bank was trying to sell for 150k....his offer was rejected.
He couldn't figure out why.....I told him it was because the bank knows the govn't will eventually buy the note....likely at a higher price then his offer.
What say you?
Tabitha, some people dont really look into things that deeply. They just go look at homes in their price range, find one they like and buy it. They dont look into what it sold for back in 2002 or its prior history. I guess they dont care as much about getting the best possible deal.
It seems stupid, but lots of people are like that - they pay list price for their cars and get jacked by the dealers for all kinds of things. I know a guy at work like that.
For what it's worth, I subscribe to itulip.com which called the dot-com crash, housing bubble, stock top and crash almost to the nose.
They also called the current Russia crash well before *anyone* else I know of.
They subscribe to a theory called "Ka-Poom". In short, everything was so highly leveraged that when the great unwinding comes, there is a liquidity trap, forcing companies to sell valuable assets at any price.
Cash becomes king and hard assets fall dramatically. To fight this, the government does massive intervention injecting cash into the system to prevent deflation (all this sound familiar? they were stating this three years ago). This eventually succeeds -- all too well leading to the POOM which will be high inflation.
They tend to recommend treasuries and precious metals. I've some basic exposure to them but I remain long-term in the market in our 401K since we've got a 30-year timeline.
Also, we have very little debt (to which I'm thankful to them for -- this is the site that first taught me about the housing bubble)
Besides, if it comes to the point where I need physical gold coins, I don't need gold -- I need shotguns.
joelandsonia,
Gold isn't just for this place . . . it's in case you need to get the heck out of dodge with something of worth (reverse illegal immigration??)
By the way, I subscribe to the Ka-Poom theory.
One thing is for certain, the gov. will not allow deflation to happen.
I would just suggest that if this mess settles down to remember the lessons and be prepared b/c at some point the system will go bellyup.
GTE,
Are you talking about emigration? Where are you going to get physical gold to leave with at this point and how are you going to safely get it out of the country? Where do you plan on going?
I am as much "doom and gloom" as the next guy. Hey, my wife and I even sold our place and began renting, but this country rebounded back from The Great Depression. If this is The Great Depression Part II, why wouldn't we bounce back? And again, where else are you going to live.
I keep hearing the deflation v. inflation arguments. Despite the Feds best efforts, I think deflation will win for a time...and then we will have inflation. Regardless, we're in for a rough time, but this area will do better than most. President Bush was just in Chantilly saying just that...and we know "W" knows his stuff.
http://www.breitbart.com/article.php?id=D93LAKT01&show_article=1
Well, that's disappointing. Both that Frank is that naive (though is anyone surprised) and that this would be a topic of discussion at all and that it would come up so fast.
Sorry, didn't link it.
I know better than that!
@zmonet
"Where are you going to get physical gold to leave with at this point and how are you going to safely get it out of the country?"
I've already got mine :-). The nice thing about metals is that they are very transportable. 100 oz. is only ~6.5 lbs yet 100 oz of gold would be ~100k. I'm pretty dang sure I can figure out a way to hide 7-10 lbs of stuff.
While we came out of the GD okay, I seriously worry if we could come out of another GD. I would be seriously concerned about a false hope leader coming to power a la Hitler or any # of dictators.
Where would you go? Well right now, nowhere . . . the US is the best. But it doesn't necessarily mean that it will always be that way.
In all honesty, I don't think it will get that bad. However, it never hurts to be prepared or to understand what you will or won't do in such a situation.
I guess it's sort of like recessions, people don't want to move out of the city they live in for xyz reason. I say screw that, I go where the job is, or where the opportunity lies.
At this point, the best opportunity is the US. That may or may not always be the case. I'm prepared in case its not.
The principles upon which this country are founded are absolutely phenomenal . . . unfortunately, no one, or very few seem to care about those principles anymore. So we have become just like most other 1st world countries. There really isn't much that really sets the US apart anymore.
I think the thing that bugs me the most about our attitudes (or the portrayed attitudes anyways) is the hubris that "it can't happen here". It very well can happen here if we are not vigilant.
GTE --
Those are some very rational points. I'm not sure how far $100K will get you, but it will certainly get you further than nothing and who knows what a world that has you emigrating from the US would look like. Maybe 100 oz of gold will actually be a couple million.
One comment you made struck me particularly hard: "I guess it's sort of like recessions, people don't want to move out of the city they live in for xyz reason. I say screw that, I go where the job is, or where the opportunity lies."
I guess everyone has their line. If I had children, I think I would do anything to get them out of this country if it meant they would have a better life (Wow, isn't that what people from the 3rd World say?). I don't have children though and have two sick parents. I rather ride it out here, whatever that means, than risk not seeing them again.
I'm thinking that the recession/depression will reset people's take on money. It appears that there already has been a move from "I want to grow my money" to "I want to preserve what I have." Maybe much like wars, people of newer generations need to learn a lesson -- this time about fiscal responsibility. We'll see...
Leroy said: "At the risk of making myself sound like lance... we might be seeing a paradigm shift here."
Ah! You're finally getting it! And btw, I don't hang out here much anymore because the window where I could make a difference to those possibly thinking the BHs might be right, has passed. I can no longer be of helpt to them. Mortgage money is hard to come by, and properties that were "good values" have since continued to escalate in price, while only the valueless properties continue to decline in price. And of course, the inflation I predicted has started. God speed, God bless.
zmonet,
I didn't mean any offense to you. I understand that people for whatever reasons stay in the locations they are. Everyone makes the choice that is hopefully the best for them and their family.
My family is just starting, I have a 4.5 month old son . . . so my whole purpose is trying to make sure he (and future siblings) are provided for and have a better future than mine.
Let's just say I believe in honoring and obeying the law . . . however if I were a latino in a neighboring country, I'd be figuring out a way to get here, even if that meant crawling on my knees. It doesn't make it okay, the law is the law and I'm against illegals . . . but if I were in their shoes I'd prob. do the same thing.
lance said
"And btw, I don't hang out here much anymore because the window where I could make a difference to those possibly thinking the BHs might be right, has passed."
Ah crap! that means I need to start really looking for a place. When lance has thrown in the towel, maybe the turnaround it closer than I thought . . . nah . . . I still need to wait until he's washed out of his 10/30 IO mortgage . .. then I know it will be safe to jump it.
"Ah! You're finally getting it! And btw, I don't hang out here much anymore because the window where I could make a difference to those possibly thinking the BHs might be right, has passed. I can no longer be of helpt to them. Mortgage money is hard to come by, and properties that were "good values" have since continued to escalate in price, while only the valueless properties continue to decline in price. And of course, the inflation I predicted has started. God speed, God bless."
LMAO
Spare us any more of your garbage lance. We were all here for your dumb predictions and you never predicted anything like this.
Lets review... "normal cycle," "90% of DC area is stagnant or climbing," "buy now or be priced out forever," "the bottom has already passed..."(2007)
Your whole "new paradigm" was a childish attempt to explain why real estate in DC would continue to shoot up despite the lack of any fundamentals to support such a conclusion. "next manhattan" ... lol
You weren't here to help anyone but yourself. Your continual attempts to talk people into buying into the market at the absolute top of the bubble... or on the way down... would have caused a potential buyer a great deal of unnecessary financial hardship.
Give it up, we know you are a fool.
LOL, he got KTFO.
GTE -- No offense taken. Ideas like yours, given without ridicule and ill intentions, are the exact reason why I read blogs. The world would be a pretty boring place if we all just dealt with people who thought exactly the way we did. I'm smart enough to know that I don't have all the answers and getting some different perspective can be helpful in getting to the truth.
I have my own "doomsday" plan and have done a few things to make that happen, but I'm hoping that it doesn't come to that.
I'm wondering about the stability of this area. Anyone know the last time the federal government layed people off. I know they have done several hiring freezes, but I'm talking about actually letting people go.
"Zmonet said
I'm wondering about the stability of this area. Anyone know the last time the federal government layed people off. I know they have done several hiring freezes, but I'm talking about actually letting people go."
I dont know about the actual govt layoffs per se, but this is where the perversion of this city kicks in. As it turns out, one of the greatest population spikes this area ever had was during the great depression - huge ramp up as the new dealers cascaded upon the city.
In a lot of ways, it depends upon what the new administration wants to do - how deep is this crisis, and how much energy (and money) do they plan to commit to "fixing it".
I personally find the 175k salary for the governor revolting (ditto for congressmen).
Wow, 5% cut . . . we should give him a cookie!
If it was just a straight 175k salary, I'd still think it's high but I could stretch it. Hmm 175k plus mansion + mansion grocery bill, plus reimbursements on just about everything . . . Just about all of your living is paid for, except for maybe clothes. So having all your living expenses + 175k seems a little ridiculous to me.
Contrarian said: "I don't remember the last time, but the Post Office is currently talking about layoffs for the first time in it's history."
It's not because of the current financial upheavals -- it's because e-mail means far fewer letters are being sent. Postal Service volume has been on a steep decline for years. Read the article you linked.
zmoment, gte,
I think the right comparison for the current crisis is not the Great Depression but the 1973-74 bear market or the long Japanese bear market in the 1990's. No doomsday planning from me as I don't expect it. But the last few weeks have shown that the current wealth destruction is much worse than what even extreme bears had expected. So who knows?
Contrarian:
"By 2014 - expect Dow 400.
I sold stocks at the top in March 2000. I sold real estate at the top. Cash, T-bills, Gold."
You make it sound like it is simple to identify the tops and bottoms. How do you handle it psychologically when an ounce of Gold goes up to $950 and quickly reverses to $800? To me, it seems metals are just as risky as real estate and stocks.
If you think that the governor's salary is offensive at $175k, then Alan Merten's salary should make you ill. Merten, the president of George Mason (a state school), makes $404k -- over twice what the governor makes.
I actually had heard that he makes $700k, but my most recent search turns up $404k.
Lance said...
Ah! You're finally getting it! And btw, I don't hang out here much anymore because the window where I could make a difference to those possibly thinking the BHs might be right, has passed. I can no longer be of helpt to them
Well Lance, seems there’s much ado about a “normal” down turn and a “non-bubble” market huh?
A quick tid bit:
Lance said...
robert said:
"Please, enlighten us with any data that shows trends of sales increase, an inventory decrease, a reduction in foreclosures, and/or a reduction in the number of ARM’s resetting."
again, for whatever reason Robert, I have learned that won't cannot see the forest for the trees ... even if it jumped out and bit you in the face. you keep looking for validation of your position in numbers that I and others have gone round and round with you explaining why they mean NOTHING ... absolutely NOTHING ... but yet you persist ... and I am not playing this game with you.
July 21, 2006 9:09 AM
@tedk
"How do you handle it psychologically when an ounce of Gold goes up to $950 and quickly reverses to $800? To me, it seems metals are just as risky as real estate and stocks."
Well have a look at this:
http://www.finfacts.com/Private/curency/goldmarketprice.htm
Is it that gold really goes up and down in value? Notice the times gold deviated was in the 1860s (Civil War inflation) and after 1930 (finally had to admit the inflation since 1913).
Gold really isn't that volatile . . . it's the underlying thing it's denominated in that is volatile ($s).
Let's see the Fed has created over 2.5T of dollars in all the bailouts so far . . . I think I'll take Gold as a store of wealth vs. the paper dollar-which will eventually go to what it is worth . . . what it costs to print.
contrarian,
Thanks. Though we can try to locate peak in Real Estate--because of the sticky nature of housing prices, it is a bit easier to recognize signs-- it is harder to do with stocks and commodities.
You bring up Buffett, but how is your claim that Dow would go to 400 by 2014 consistent with his vote of confidence in Goldman and GE? He has said that this time the recession will be deeper and prolonged, which of course I agree with, but his actions don't suggest
that severe depression is going to be here.
"I personally find the 175k salary for the governor revolting (ditto for congressmen). "
I don't find that revolting at all, if anything I think their salaries should be higher.
175k is simply not that much money when you compare it to almost anyone in the business world.
Part of our problem is that we want our senior civil servants and elected officials to accept salaries that are only a fraction of what they would make in the private sector in a similar position. I am not advocating the sorts of ridiculous pay packages seen in parts of the corporate world, but why should the head of a major government agency have their salary capped at the same level as Congress? (and why such a low level?)
If you are capable of being a senior executive in a governmental organization with thousands, if not tens of thousands, of employees I think you should be paid more than a mid level manager doing nothing special in the business world.
Note, I am not talking about raising the salary of every run-of-the-mill civil servant, but I do think senior government executives should be paid more competitive salaries to limit the incentive for the good ones to keep jumping ship.
Just because Buffet could sell at any time, doesnt mean he will. This guy has a history of buying for the long term - forever is his typical holding period.
Putting that aside, it begs the question, why would he buy anything if he could buy it 95% cheaper (i.e. dow 400) only a few years from now.
Lance said,
"I don't hang out here much anymore because the window where I could make a difference to those possibly thinking the BHs might be right, has passed."
So true, Lance. Nobody ever bought your crap, and history has proven you not only wrong, but a cataclysmic embarrassment to thinking people every were. I accept your acknowledgement of defeat. Maybe, in another 8 years or so, when your I/O portion is up and you realize you have been renting for 10 years, your house will be worth what you borrowed on it and you will be exactly even, save 10 years of interest payments.
Bon chance, sucette.
gte,
You say Gold is not that volatile, but it is the currency that is. In practice, when Gold falls, say from $1000 to $800, one can't really see gold as a safe haven or store of value.
Also, you say, "Let's see the Fed has created over 2.5T of dollars in all the bailouts so far . . . I think I'll take Gold as a store of wealth vs. the paper dollar-which will eventually go to what it is worth . . . what it costs to print."
Take a look at this for a discussion on the Fed's balance sheet. The amount of currency in circulation has not changed much, so the notion that the Fed is 'printing' money is not accurate. Sure it adds to the debt and the Treasury has taken a lot of risks, but depending on how the bailout investments work out, hyperinflation is not an inevitable outcome.
tedk,
"In practice, when Gold falls, say from $1000 to $800, one can't really see gold as a safe haven or store of value."
Geez . . . I just provided you with data that over what like 300 years gold/silver were extremely stable and you say its not a safe haven. What has changed . . . paper money!
As far as paper money going to 0.
Name me a fiat currency that has been around longer than 30-40 years. Please, I'm dying to know. We have only have fiat money (paper, worthless, not backed by anything) since 1973.
The US dollar today is not the US dollar pre-1973 (dollars bills were silver certificates).
So after 35 years you are ready to declare that the US dollar will never hyperinflate?
That seems a little ludicrous to me.
Paper money has NO intrinsic value.
Paper money with no backing will eventually fail. It is a system that is unstable, it cannot survive.
I fail to see why this is so hard to understand.
Look at the history of fiat currencies, they either hyperinflate or default and restart. The third option is they peg their currency to the US dollar, so they peg their fiat money to the US fiat money.
The system is not stable. So maybe right now we have deflation . . . but the typical gov. solution to deflation is inflation! And inflation caused the problem of deflation in the first place!
Hyperinflation may not happen right now . . . but like I've said before, with the amount of debt this country has, there are only two options, default or inflate. There is no other option.
Based upon past gov. history, I vote inflation. Sure, we might have "deflation" for a bit, but we will inflation. If we don't we will default.
It is inevitable.
To borrow from STNG.
"Resistance is futile"
Ted K - if I may, I think GTEs play here in gold is more of a long term one. Long term, I agree with him 100% - long term, I see the govt starting up the spending/printing machines and inflating their way out of the problem.
Short term is much more interesting. Short term, it sure does look like deflation. Look too at the chaos overseas. The inability of the europeans to coordinate their moves (i.e. put eurozone interests over national interests) is a big vote of no confidence in the Euro itself. Iceland, Estonia & Ireland's growth now look to be paper tigers. In short, there really is no clear safe haven right now and this only became clear about 3 weeks ago - amazing.
Absent any obvious safe harbor, it seems like the short term play is the US & the Greenback. We are the most stable country out there - we have the most stable currency out there. Thus, given the deflationary environment, it seems everyone is looking to us and our currency for stability.
That said, long term I dont expect this contininue. My guess is the price of gold is 5 years too early, and could really collapse in the short term. Then again, if your window is longer than that, seems like a pretty good place to be.
gte, crt,
Yes, when I say 'safe haven', I mean a haven in the short term from all the turmoil in the market now. I agree with you on the long-term inflation; in fact I have said so elsewhere in other discussions.
But in reality, currencies and metals trade based on so many complex factors that it is hard to have any real confidence in such analysis, even for the long term.
tedk,
I apologize if I might have been too harsh.
"I mean a haven in the short term from all the turmoil in the market now"
I guess it depends on what a haven means and what short term means.
To me, a haven is something that has intrinsic value that is not overvalued.
Housing could be a haven . . . but it's way overvalued based upon historical indicators . . . so unless you already have it, it does you no good.
Stocks could be a haven . . . but are overvalued. Too many people, in fact the entire country has bought into the idea that stocks are "safe". Just put your money in stocks and you can never go wrong. We are seeing the bad effects of that.
Holding cash is great, except inflation eats away at it all the time.
I guess the bottom line is that everything changes, US dollar, gold, commodities, stocks, houses, etc. Nothing in reality is a "haven". Everything has risk associated with it.
The one thing I feel strongly about however .. .the US dollar is toast, how it dies will be interesting.
Ok, normally I stay out of the whole gold discussion because so far as I have been able to determine those who spend all day talking about gold believe in it religiously, and I never discus religion on an investing board...
Getting to my point,
Gold is little more than a fiat currency itself. That is to say that its value is based on little more than the perception it is valuable. (The difference is that nobody is going to turn on a gold printing press, but its value is just as arbitrary.)
Obviously it has useful properties that make it desirable for certain applications, but it isn't actually valued based on anything fundamental. Most of the world's gold is locked in a vault somewhere doing nothing.
Now if you want to jump into a wildly speculative market driven by emotion... buy gold. Just don't go around pretending that gold is somehow the embodiment of value. It is nothing more than a pretty hunk of metal... the recent fluctuations in its value should tell you that if nothing else does.
Leroy - you took the words right out of my mouth. Gold is indeed a fiat type currency (sans printing presses) in that everyone wants it but yet it has little true value. It is an adornment, a status symbol, and it has a few practical applications.
The truest commodities are scarce, widely accepted, and are truly useful in an end of the world type scenario - food, shelter, etc. If there are 3 people on a desert island - one has gold, has cash, and one has food, the guy the gold and the cash both have next to nothing.
Short of that, golds value is that other people still believe in it. They believe if they acquire it, they can barter it to others for goods and services - essentially the same thing the dollar does right now.
The big differnce between the two is the govt can fire up the printing presses, totally depressing the dollars value. However, if a big gold mine was found, or if the midevial practice of alchemy was ever perfected, gold would be just as worthless as the dollar. The possibility alchemy or a big find is remote, so gold is indeed less risky. However, given the lessons learned in the past, I seriously doubt we will see hyperinflation in our lifetime.
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