San Diego Housing Bubble News and Analysis

Unemployment hits 8.6% in CA and 6.8% in the USA. More lay-offs are being announced every day. The last 6 years of economic growth is really just massive credit expansion that is now contracting. The trend is markedly downward with strong momentum. But if you've got your health, you've really got everything. So that's what eveyone should be feeling good about. Making money happens up and down the cycle. Just play it. Dont judge it.

But I applaud your enthusiasm and positive spin as it will help propell this sucker rally into spring and set-up another fantastic shorting opportunity. It's a beautiful thing to work the market in both directions.

And for those tracking rents, I've been readiing Ward Hannigans' site lately and both he and Bruce Norris are seeing rents start to cave in Riverside County and some parts of SD county. Worth a read. These guys are pro's.

Merry Christmas.Happy New Year.

In the early 80's, things looked even bleaker than they do today. Unemployment was around 10%. Between mid-81 and mid-82, S&P lost 30%.

S&P bottomed on August 12, 1982, at 102. Unemployment rate continued growing steadily, gaining a whole percent until peaking in December. Official recession was over in November 1982. By the time the first drop in unemployment rate was recorded, S&P was already in 140's.

S&P bear market not unlike todays began on July 16, 1990. It coincided with a spike in unemployment. Between July 16 and October 11, S&P went from 368 to 295. Unemployment continued growing well past that date. Recession officially ended in March 1991. Unemployment didn't really begin to decline till July 1992, when S&P was above 400.

During the post-dot-com/9/11 recession, S&P bottomed in September 2002. Unemployment peaked in June 2003. Between September 2002 and June 2003, S&P gained 25%.

What's the lesson? Simply that unemployment is a lagging indicator and it will keep growing past the bottom. If you're fixated on high and growing unemployment, you will incorrectly identify true economic recovery as a "sucker rally". If you attempt to act on this misidentification, you can lose a lot of money. Shorting the market in May 2003 would have been a costly mistake.

And one more thing to consider: this is the first recession since 1961 that's going to be dealt with by a Democratic president and Democratic majorities in both chambers of Congress. It's unimaginable that anything like Obama's stimulus package could have come from the desk of Richard Nixon or Ronald Reagan. For the first time since 1961, we will see what recovery looks like when it's guided by real economics rather than supply-side pseudoscience or dogma of fiscal conservatism.

Good point to recount economic history, as I am a believer in it repeating itself, too. I believe your only mistake is in correlating this recession with the last two or three. This one has all the earmarks and fidelity of 1825, 1873 and 1929. They were massive credit bubbles that burst after many, many years of growth. They had multiple waves of corrections down, between which there were some strong relief rally's.

But logic should prevail and act as a confirmation of this as well. I have a lot of trouble determining what will cause employment to rise. Or more importantly, what will cause demand to rise and get the level of profitability needed to sustain the current P/E levels that are now projected and reflected in the market prices. We essentially need to find another real estate bubble to create or other such industry for the money to flow into. But nothing seems to be coming to the surface. I actually think this was the impending scenario in 2002, but extremely cheap money ran into housing and we were off to the races. That's all imploding now.
I stand by my thesis that the last 6 years was almost entirely a debt driven growth with little if any productivity gains or anything else of a sustainable nature. So we now must give it all back as it was not real nor sustainable. And if you count the DotCom as a bubble as well, then we need to give it back to about 1998 levels. I think this is very possible as well as an over correction to the downside as the market regains its mean.
Only time will tell, but we need another bubble and I dont see it anywhere. I think we are now stuck in reality and have to face the fact that the creation of wealth can only be sustained with innovation and gains in productivity and invention. These tend to take more time than creating bubbles.

A little bold asserting the market bottom in the middle of a recession. This will be worse than the 80's. That said I tend to believe the market has already priced in most of the recession.

However, higher mortgages aren't worth celebrating, neither are further Gov't bailouts, and I completely disagree in Spring 2009 being "the hottest RE selling season since 2004". The number of jobs lost last month alone will prevent that, plenty more layoffs are coming and if you're right about rates, even fewer will qualify.

The biggest unknown IMO is the response from the rest of the world. As long as they continue funding our debt we'll be okay. But that will come to an end, the question is when.

I don't agree that the solultion is for banks to start being loose with money again, and until we cease operating as a debt society that's a risk.

How about a nice big war to fix the economy?
I just don't see anything that's going to help us out of this one. Government intervention to slow foreclosure rates is just prolonging the agony. The simple fact is that without the exotic loans, houses are too expensive.

double post

Now this is what I call a good thread...

It's way too early for a sustained rebound, esmith. We are just 2-3 years beyond the real estate peak, and the stock market was at a peak just a year ago.

But thanks for waking people up, even if only for a false alarm!

The bottom is when people give up.

When you mention 'real estate' and everyone leaves the room.

We are a *long* way from there. But it will happen.

OK, I'll play.

I am fairly certain on these predictions:

* Within 12 months, unemployment exceeds 10% in CA
* ..and exceeds 8% average across America
* S&P500 drops to below 650 sometime in 2009
* During the next SEVEN years, inflation adjusted S&P500 does NOT exceed peak of Oct '07
* Oil price exceeds $300/bbl within five years.
* Gold price exceeds $3000/ounce sometime within five years, and exceeds $1500/ounce within three yrs.
* At least two US automakers go bankrupt; cease operations, within two years.
* China's stock market recovers much sooner (and more significantly) than US or Europe stock markets. However, the SSE Composite first craters below 1,500 (25% drop from present value!). (And I kind think it could fall to 1,000). Then it takes off like a rocket.
* Government intervention in real estate markets becomes so significant it creates a false rally of at least 10% on mean condo prices in San Diego within the next year.
* US dollar collapses by at least 50% from current highs relative to basket of major currencies, during the next five years. Over a ten-year period it collapses by at least 90% from today's high. Deflating dollar will be the only option for USA to avoid defaulting on our debt payments.
* Within 36 months, we have US inflation AND 30-year mortgage rates both exceeding 12%
* Bubble in US Treasuries pops within twelve months, causing the 3-10 year US treasury funds to fall in value at least 30% off their peak values.

And now you learn just how pessimistic I am:
* Total US GDP contraction will exceed 8.0%, meaning worst economic downturn since the Great Depression. Yes, my GDP contraction estimate is at least twice what many respected economists are estimating (4%).

I'm rather guessing on these predictions:
* S&P500 ends 2009 at value BELOW 900!
* This will be an "L-shaped" recession/depression, meaning we fall off the cliff (which has already happened) and our economy gets stuck "waist deep in the Big Muddy" for at least FIVE years, w/option for ten years, Japan-style lost decade.

How long would you expect the bear market in equities to last?

2000 recession: 29 months (prolonged by inadequate government response and 9/11)
1991 recession: 3 months
1981 recession: 21 months
1973 recession: 21 months
1962 recession: 6 months

We're 14 months into the bear market, I'd argue that the correction has been helped along by the collapse of Lehman. So, what could've been a slow decline ended up a V-shaped market crash.

The markets crashed in 1929 after a decade of credit pumping into the economy

The markets bottomed and recovered with a rally into 1930

Many of the people who lost money in 1929 piled back into the 1930 rally and then rode there "investments" down to the ultimate bottom - I think the Dow actually bottomed at 42 points

~

The markets crashed in 2008 after 6 or more years of credit pumping into the economy

The markets bottomed and recovered with a rally into 2009 (according to esmith)

People who stayed in the markets during 2008 are down 30 to 50% on their "investments" and hoping for a recovery rally

A replay of 1929 / 1930 would have the Dow back to 11K or maybe even 12K before it breaks down and heads for its real bottom which will be below 1000 points sometime in the 2014 / 2015 timeframe

~

Smart money didn't stay in equities during 2008 so this advice only applies to people who still have "investments" in the equity markets

When the Dow rallies back over 11K in 2009, get the f*ck out of the markets or you'll be very sorry!!!

I cant resist coming back to this one as well. It was said about the great depression that the smart money was lost in 1930. As in, they jumped into the sucker rally after the October 1929 crash and got slaughtered on the next leg down. This bear market started in Oct 2007. So we're in about a year or so. All recent data suggests at least another year. Especially since non of the govt stimulus seems to be doing anything except loading up banks balance sheets. The multiplier effect is not gaining it's declining.Demand destruction is gaining as well, not declining.
But, by the govt allowing the banking system to survive and not mark to reality, this is looking a lot like Japan in 1990's. And I agree that the govt needs to do this as that injecting reality in our banking system would be fatal. IMO. It's that bad and systemic. But repairing this type of damage does not happen in a year or two. That's why the delay tactic by our govt. They're giving the banks time to syphon off the garbage and start to restore their solvency. But this is the hardest time to do this. If they pull it off, it will be a long time in coming.

To think that we can somehow magically get rid of these huge problems is rather short-sighted. This is not like the last few contractions we've experienced. It's global and deep. Banks around the world are insolvent, auto industry sales down 30% or more, global housing values cratering, Stock market losses at $30T. And who knows exactly how bad the whole CDS,CDO's etc really are. Even the guys that invented them cant say!!
I see no way that this is subsiding in 2009. And to think that the new administration can somehow change all this....well, rebuilding bridges and roads will not put Humpty back together again. Shovel jobs will not be an adequate replacement for the FIRE economy that we're now losing.

We're not going to have the replay of 1929, because we didn't have Keynesianism, we didn't have FDIC, we didn't have unemployment insurance. Some people say that what made the Great Depression so bad was really the chain of bank failures in 1931-32. That had the effect of destroying vast amounts of wealth and scaring people away from keeping money in banks. And then deflation led to double-digit unemployment, and Hoover basically sat and watched Rome burn.

If anything, you can draw a parallel between January 2009 and March 1933.

FDR came into office in March 1933. On the day before his inauguration, Dow closed at 54. By the end of June, Dow passed 100.

Shovel jobs will not be an adequate replacement for the FIRE economy that we're now losing.

They will be more than adequate. That FIRE economy you're talking about was nothing more than borrowing money from the Chinese, giving many little pieces to guys on Wall Street, and giving the rest to an unemployed Hispanic homeowner in Chula Vista. If we replace THAT with shovel jobs paid for by borrowing more money from the Chinese, aggregate output of our society will increase.

"We're from the government and we're here to help"
The NY Fed threw 6 times it's allowable level of funds at the banks in 1930. It didnt help. Again, our problem is not liquidity, it's solvency. $12/hour jobs will do nothing more than keep us from riots. And that's for those that are able to do this kind of work. All these tactics and govt intervention is to stave-off collapse and choas. I would not characterize this as a recovery. Life-support would be more accurate. Much like FDR's WPA projects. War in the Europe brought us out of this contraction, not works projects. First by paying us to supply them, then by us joining the conflict.

Check out the technical charts and series of events. The paralell is very much in 1929, not 1933, as you suggest. I really dont see how you can come to such a conclusion?! If anything, one could contend that we're in 1930, but not 1933! The Dow had fallen about 80% by then and completed a 3 year contraction. which is a historical norm.

I strongly agree with the posts by 4plexowner and peterb, essentially warning everyone: "when you are sure this US stock market has bottomed, think again (because it might still have a very nasty leg down ahead of it)"

Just guessing here, but this is the future I envision:

I think US stocks will eventually come down to about 600 or 650 (S&P500) then I'll jump to ride the expected nice fool's rally, and sell as soon as it has come up say 20%. This will be sometime in 2009. Then after the mini-rally, I will get out of US stocks and stay out, but I will buy heavily into Chinese stocks when I see Shanghai index fally below 1200.

So I believe returns for US stocks will be horrible for many years to come.

"what made the Great Depression so bad was really the chain of bank failures in 1931-32"

two more bank closures friday after the close

that puts us to 25 so far for 2008

add in a handful of credit unions going into receivership

do you define almost 30 as a chain of bank failures or do we have to wait a few more weeks?

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Keynesian economics were very much in place during the 20's and 30' - not sure what you are saying with your comment - you might argue that the electronic financial system of today allows us to pump Keynesian economics more effectively than was possible during the 20's/30's but Keynesian economics was alive and well during that time frame

extra credit question: why do Austrian economist never earn the Nobel prize?

With the commercials at their largest net short position in the indexes ever this makes this rally unlikely to last too much longer. It is being pushed by the PPT in futures, which has translated into stock arbitrage and combining that with the seasonal tendency, has gotten this little counter trend rally going. I do not believe it can last much longer, mid Jan is about as long as I think it can go, but doubt it goes on for that long. I would only change my mind on this if I found out my gay little stalker friend in here who just reappeared from under his rock was bearish, that would make me bullish.

If those lows get taken out we will be at 5500 in the Dow in a flash. I also have a hard time imagining how employment can increase with everything that is happening. 10% national rate certainly seems possible, although I doubt we get that high, but 8 to 8.5 seems likely. I also agree that the last several years were a mirage, and this needs to be fully unwound. How trillions of government spending and higher taxes on those that have money can solve this is beyond me.

I am bullish on the dollar over the next few years due to long term cycle analysis, and am gearing up to buy this dip any day now, especially now that I see the commercials buying it last week. I also think Gold continues in it's downtrend for awhile, the seasonal peak on average is January, so a rally into the end of the year sets up a wonderful short sale opportunity in that market, however I could re-short that any day between now and then depending on the patterns. These really high gold predictions are being made by everyone I have heard talk about it, which makes me think that is why it won't happen.

I have never seen a trade with nobody on the other side of it work in my 25 years of trading. Also, all the selling of GOld coins and pushing of that by the investment community seems very similar to the RE push in 2005, you just can't lose doing this etc.. I traded through a 20 year Bear market in the metals during which time we had several bad economic cycles that did not rally the metals. However, I look at the next few months in trades, not years, so I am not a great predictor of prices several years down the road, no interest in that. The fundamentals I watch are bearish for the next few months, and that is my focus.

As always, I could be wrong and that is what stops are for.

This recent bounce in the Market is probaly going to be the last chance to get out of the market before we fall to 600 levels in the S&P. I moved all my 401k into goverment securites, and out of equites. I have told anyone that will listen to do the same.

Since this is Christmas, and to better the mood I believe there is some money to be made by buying into SSO, and SDS. Both are ETF's, and this will payoff once this market retests the lows.

I am invested in both, and if the market still has fools buying to inflate it more, then I will continue to load up on the ETF's. I may be wrong, but from the data I have seen its a better play.

However, the goverment has been manipulating this market, and I was denied a nice payoff Friday morning with the White House stepping in to bailout the Autos. These bailouts will only delay the inevitable.

Esmith are you looking for a job? I need to hire a salesman with false sense of reality! Wow, those claims were mighty bold, but I like the enthusiasm.

We can talk numbers, graphs and charts all you want, but in my opinion they mean nothing. Every move made by our government is unprecedented. There is no possible way any one of us can predict what will truly happen because our economic situation is currently controlled. Maybe Esmith is right from the standpoint that we need to hedge our bet on the opposite of our emotions, but my gut tells me to stay in my short ETF positions and ride them like the wind.

I have heard some interesting moves by the FDIC as of late, which leads me to believe they are expecting some serious trouble here in the near future. They recently leased a 200,000sqft building in Orange County to hire some 600 employees. I also heard a rumor that they only have $6 billion left in cash (not sure if that means anything as they are heavily insured themselves).

Unemployment is a ridiculous topic. If you everyone took a moment to see how unemployment was calculated you would laugh (door to door by the census bureau). By almost all normal calculations you would see that we are already over 10% nationally. 6.7% is merely a way of keeping emotions high in this country.

Let's be honest we are still greedy and until that changes we won't see any progression with our economy. We try to help the auto makers and the UAW said that laborers were not willing to take a pay cut to save their companies. What kind of world are we in? Our government has offered our tax dollars to save the Big 3 and they balk because they feel that they deserve $65/hour+/- to build a pile a junk!

All arrows point south at this time and even if the Fed pushes the interest rate down it will do nothing but prop home prices up for a little while longer. When the new shift in inventory begins at the end of Q1, beginning of Q2 we should see some additional corrections in home prices. It is possible that things will stabilize for a short period of time if rates do actually make it as low as 4%, but that seems highly unlikely. At the current rate of 5 3/8% a $500K loan with 10% down is still roughly $3,700+/- PITI with MI. So unless everyone moves to Temecula or Santee I can't imagine prices won't continue to move downward. Those $100K salaries for $10K of production are long gone.

I am with those that question WHERE America is going to find that next big bubble to rely on. Right now we can't build a car right, we are too prideful to flip hambugers, yet we aren't too proud to beg! Let's make Americans work hard again for the American dream and stop handing everything out on a silver platter!

This is the kind of thread that makes me glad I read Piggington.com tonight. A thread with very smart fellow members writing brilliant posts, particularly in this thread.

And of course it wouldn't be Piggington.com unless we have (as we do) at least one or two obligatory morons entertaining us with THEIR posts. (You don't know who you are, but WE know who you are!) Ah, but alas, it is all part of the Grande Parade of opinion

I agree with Chris about needing people on the other side of the trade to have it work out.
Henry Ford once said,"If I have two guys that work for me and they always agree with eachother...I dont need one of them."
Beware of group-think. I think it's great that we have opposing view points here. It makes us all sharpen our logic towards our thesis. And if appropriate, change our thesis. This has made me very good money over the years. When it comes to investing, leave your ego at the door. Cut your losses at no more than 10% off your buy and let your winners ride as long as the cycle indicates it's safe. Your opinion does not matter, the market will tell you what's right. Listen to it and you'll make money.

I am bullish on the dollar over the next few years due to long term cycle analysis, and am gearing up to buy this dip any day now...

This is one of the few of Scoreboard's opinions that I am certain will be proven wrong within 24 months.

One need not look at cyclical trends of the dollar. Intead, just punch the numbers into your calculator: 1) The total amount of debt (known including unfunded oblications=SS, Medicare..etc, plus inevitable additional "emergency" expenditures) the US Fed must auction in the next 24 months. 2) The now insanely high ratio of our total national debt to GDP, where total debt must include various unfunded obligations: war, SS, Medicare.

Plus those nations that have previously bought hundreds of billions of US securities - mostly to manage their currency against the trade deficit now see the USA dramatically reducing our purchases of their exports (not keeping up our end of the bargain), plus they themselves are now in recession.

750 bottom on the S&P is a pipe dream as long as there is no transparency in the financial system and we don't know who is dead and who isn't. There is no reason to invest in a questionable company when you can't see the fundamentals backing them. Until all of that is fixed the S&P can go much lower than 750. In a worst case scenario no viable financial institutions are left and S&P races towards ZERO.

Investments are all relatively based. That is, they compete with one another for resources or investment money. The US$ competes with other currencies and investments. What makes anyone think that the other world currencies are fundementally stronger than the US$? Perhaps gold as it now is in a money behavior mode? But other fiats? I dont see it. The first worlds share equal problems of aging demographics and escalating deficits. Emerging markets like China need a host to sell to. History has a strong correlation to the senior currency being chronically strong after a global credit bust like we're going through right now. Look for more Euro infighting and protectionism from everyone as this unwinding keeps going. With every drop in the markets, the US$ should bounce up. IMO.

I noticed Jim Cramer has, as of today, given up on doomerism and positively declared that we are not about to experience the Great Depression II. Of course, what this means is that we are, absolutely, positively about to experience the Second Great Depression. The only thing worse would be Bernanke or Paulson declaring that "our financial system is sound."

Someone put up a compilation on youtube on Cramer. It showed him recommending buying a stock one week and then running it into the ground the next week. And it showed this for about a 3 weeks period where he did this multiple times with multiple stocks. Why anyone listens to this guy is a total mystery.

Thank you.

The word around youtube is that the dollar has turned - on it's way down.

The high was on November 21, it's been heading down since that day as I understand.