San Diego Housing Bubble News and Analysis

The Obama rally continues apace.

Obama to the bottom
The DOW is down 3261 since the end of the D convention and down 850 since that ONES election. The Capitalist markets aren't very optimistic about the change in direction. Bush is now taking advice from N. Pelosi about economics. He can't wait to get back to Texas.
Maybe we should also bailout American Motors. The Matador would sell well now that gas is back to $2.50 and the Gremlin was so handsome. The Pacer was ahead of its time also. I could go on but will stop here to not threadkill.

You're confusing cause & effect.

I don't think the market collapse is related to the election. I think it's related to the fact that the credit derivative scheme has been exposed and the over leveraging has been exposed, and the market is seeking the actual value.

The housing market, we all agree, was falsely inflated by easy credit... Now it's correcting back to a more sustainable median price.

The same is true of the stock market - it was so out of wack with reality - with goods produced, with tangible value behind the price per share... And now it's correcting.

So much of the market seemed to be related, by a few degrees of separation, to mortgage backed securities and securitized credit.. Look at AmEx's statements begging for government money... they weren't in the mortgage business - but they did bundle the credit debt into securities - and that market has dried up.

I don't see how the election caused this particular mess... seems like those whiz bangs on wall street, who literally figured out how to make money out of nothing with these derivitives, are more to blame.

I don't think so esmith
Cause- Small percentage of US home loans given to fraudulent purchasers, sometimes referred to as the sub-prime mess.
Effect- Worldwide markets tumble. Dow will soon be at 50% of its high in just over a year. At least tens of trillions lost.
This is way out of proportion.The market reaction is not based on the cause but the reactions from the Governments and the votes of the lemmings. IMHO
Hemorrhaging trillions of dollars to business that need to go bankrupt and taxing the ones that hire more people and make a profit is straight out of Atlas Shrugged and against all principles of capitalism.

Ok, first you gotta lay off the Rush and Hannity, it'll rot your brain. Second if an entire global economy can be taken down from a small percentage of home buyers defaulting, there is something wrong with the model.

This is much bigger than that.

Personally I think the DOW has as much to do with Obama being elected as oil did with peak oil this past summer.

In a long term sense both are related to their counterpart. Peak oil will drive the price of oil up and up, until other sources of energy become dominate or the economic system that is reliant on oil breaks down. But in the short run, there is plenty of oil available to meet December 2008's demand levels, and demand is falling, so the price of oil is also falling.

The markets generally dont like uncertainty and they dont like regulation/taxes. Obama is currently bringing both as no one really knows the details of his future policies, and they are pretty sure there will be more regulation and taxes. (This may not end up to be a bad thing, who knows? Perhaps the hype is justified) But the current distruptions in the market place are much more related to the fact that there isnt enough liquidity in the market place and consumption is falling leading to job layoffs, which lower consumption, which lead to more companies going under wipeing out stock equity, which leads to more job losses......... etc etc

THe Dow is reacting to short term information, and as much as the Media and all of us like to relate everything to Obama, he is still long term news.

Obama was elected because of the drop in the DOW, not vice versa.

Markets don't care much about the resident of the White House. They don't like recessions and they don't like bad macro news, such as collapsing manufacturing and retail. All else equal, markets prefer regulation to depression, bailouts to letting megaplayers fail, rising government spending to contracting consumer spending.

For the last few months, it's been nothing but bad macro. Things are looking quite bleak. Obama will likely be positive for the stock market when he actually takes office - but that won't happen for another two months.

I agree with the brain rot comment.

However, I would submit that a small fraction (well less than 10%) of homeowners have defaulted on their loans thus far AND the result is that the entire economy is sucking wind because of it.

It's foolish to believe that the world has suffered huge losses because of the subprime(Fraudulent) lending practices here. I guess I need to speak slower for you all.
arraya- The point to my thread was that this is bigger than that.
esmith- Markets do not prefer regulations and they are always looking forward. Right now the only thing they see is an Obama team that is made up of the usual players that btw have all had a hand in the subprime mess. Nothing miraculous is on the table. They don't need him to be inaugerated before they can go up you know. Recessions are normal and easily expected but this is different.
Raising taxes will not make business more profitable. Increasing regulations will not decrease government spending. The government is a drag on GDP and bigger government is a bigger drag. The markets are pricing themselves for the future that they see.

So if McCain would have won, none of this would be happening, right? Riiiiggght...

I agree it was the trigger. My point was it should not be that fragile and if it is that fragile our economic and political "leadership" sure as hell should not encourage the behavior that could bring the whole thing to it's knees and be working on ways to make it more resilient. When in fact they did the opposite and exacerbated the problem.

This is a culmination of decades of bad policy or more appropriately, policy directed at benefiting a few at the top with absolutely no sustainability.

We gutted our economy with globalization, filled the hole with debt based consumption growth needing an ever increasing amount of new debt creation just to not collapse. We ran out of people in 03-04 and started giving loans to everybody under the sun just to keep the party going, it was just a matter of time until the house of cards came down. Subprime was the pinprick of a 30 year credit binge.

Now, due to the credit contraction dynamic from lack of trust and no capitial, banks are not lending and this is affecting businesses which have become completely reliant on debt just to fund operations, this is causing the layoffs-->layoffs to more defaults--->to more credit contraction. It's going to be a viscous cycle and the inherent faultiness and hollowness of the model will become quite apparent.

The Checkbook republic is going down.

In other news:

http://www.cnbc.com/id/27641538

The United States may be on course to lose its 'AAA' rating due to the large amount of debt it has accumulated, according to Martin Hennecke, senior manager of private clients at Tyche.

"The U.S. might really have to look at a default on the bankruptcy reorganization of the present financial system" and the bankruptcy of the government is not out of the realm of possibility, Hennecke said.

"In the United States there is already a funding crisis, and they will have to sell a lot more bonds next year to fund the bailout packages that have already been signed off," Hennecke told CNBC.

In order to solve or stem the economic slowdown, Hennecke suggested the US would have to radically reduce spending across all sectors and recall all its troops from around the world.

On topic: With the US caught in a self-reinforcing deflationary death spiral and BK looming in the background on the doorstep of terminal world oil production decline I'm going to have to say the DOW is going much lower. In fact, I'd say we are going to a new economic paradigm that quite possibly will not be denominated in dollars. But that's just me;)

Maybe, maybe not. The fact that Obama's plan is screwy doesn't mean that McCain's plan was wise, although the promised corporate tax cut might have had a positive effect on companies considering RIFs and slashing capex.

That's irrelevent, though. Perhaps the judgement is fully rendered at this point, but the market has judged Obamanomics harshly, as well it should. Bailing out the UAW, hiking effective corporate tax rates, and building more Big Digs and bridges to nowhere? Please.

Maybe, maybe not. The fact that Obama's plan is screwy doesn't mean that McCain's plan was wise, although the promised corporate tax cut might have had a positive effect on companies considering RIFs and slashing capex.
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Tax cuts don't mean anything when there are no profits to tax.

There are no profits because the plankton that feed the entire world economy (U.S. consumers) are dying off at an unprecedented rate. They are dying off because housing prices stopped rising...and their access to tens or hundreds of thousands of dollars per year is no longer there.

The plankton needed access to massive credit because their wages have been falling/stagnant for many years (the "stagflation" situation was exacerbated by the cost inflation that resulted from all the credit expansion).

This was a CREDIT bubble, not a housing bubble. ALL assets were affected on the way up, and ALL assets will be affected on the way down. This goes for stocks, bonds, real estate, commodities, precious metals, etc. Look at the price movements of all these assets since 1982, and then look at the parabolic move from 2000-2007 (the stock market obviously declined during the dot.com bust, but rallied back rather quickly). Look at the credit markets over those years, and you will see a direct correlation.

Add to all this the unregulated derivatives that were betting on all these credit movements (by an order of magnitude...and then more derivatives that were indexed to the other derivatives, and so on...), and you will understand why we are where we are right now.

This has nothing to do with Obama...nothing at all. While there are politicians on both side of the aisle who are largely responsible for blocking regulation of these markets, it is the Republicans who came out publicly in support of massive deregulation of the financial industry.

I agree partially, all the investment money that drained out of the tech bubble created a huge pool of loan money, at the same time interest was still way low. This had the net effect of inflating prices of all big ticket items as people were 'flush' with excess cheap money and they spent like there was no tomorrow.

Once underway, housing became a bubble in itself, blowing it way above what even the credit bubble could pump into it.

Thus, we now have two very big bubbles deflating, which is bringing nearly everything else down with it.

What a wild ride!

To get back on topic that started this thread, Thursday was quite a comeback rally, and Friday was a continuation, right up to the point where people pulled out to put their money back into cash for the weekend.

The question is, whether we're in for a continuation of the rally next week, or are dropping further down the slope? My gut tells me we'll be headed further down, but I seem to be a contrary indicator of late, so it may be good advise if you bet against me LOL.

I had a Gremlin once. It had 50k miles on it when I bought it from my sister when I got out of College.

Certified death trap. I carried a can of brake fluid with me and a long screwdriver to jump the starter.

I read yesterday where GM pays $80 bucks per hour including pension and health benefits.

I think its amusing that some talk about how America should care more about what the world thinks but still think American auto workers should make 3 time whats the Japanese make for building a worst product.

I say let the American auto makers go chapter 11.

John