Talked to Thornberg

[cyphire]

Gut instinct for me as well. I could be wrong – but i’m betting on it. Everything moves in cycles and at some point all cycles correct themselves. When fundamentals are skewed all the people who profit from them explain how ‘the new fundamentals are the new paradigm’.

Some examples – I had a web consulting company during the crazy years. 25 year old ‘executives’ of web firms were telling me how the new way of business is market share – profits don’t matter – no suits – p/e’s don’t matter (no profits so no ratio!, etc. They got destroyed and guess what – business got back to usual.

This ties in to Realtors explaining how prices are still going to go up despite only 5% of buyers being able to afford. (Will it go to only 1 of 25 affording? 1 of 30 affording!). They keep pounding the lie to the public then sheepishly admit they were wrong after the market plummets (it really hasn’t plummeted yet – it will keep correcting to the base line of affordability – it always eventually does.

I think that cycles correct because most buying decisions were outsourced to mob mentality. Everyone lives in the world where prices always go up. Now the smart money isn’t buying – they are actually giving incentives to buy houses (both new and resale) – this puts further pressure on prices – more buyers get scared as trend lines are established (we were only at the top about a year ago – or a little more) – the vast public hears about price declinations but havent seen the aftermath.

Debt. It is now at an overwhelming level both personally for people as well as our government paying for a war it can’t afford. Debt always needs some self correcting. This is happening now. The pressure from credit cards being given like candy and now the bush administration passes bankruptcy reform to protect the same people who gave anyone with a pulse a loan (same with mortgages).

Interest rates! (The big one) Prices have to rise and fall with interest rate costs. The bank of England has promised 2 more rate hikes. Our stock market got hit because the street got news that they cannot expect falling rates. Our debt actually has to increase rates because with falling dollar value – the interest rates have to go up to compensate or other currencies will be more attractive. This is the big killer.

What does this add up to? The consumer spending machine getting wacked. Along with a slump in housing construction the economy gets tanked for the next 5-10 years. So it goes…

Just a gut feeling.

By the way – there are more rich people now then ever especially along the coast in OC, in San Diego, La Jolla, ect. Of course their exposure is greater to – their money is made from the economy – and while executives protect their earnings on the backs of working people – as the economy gets weaker people lose good paying jobs and everyone suffers. So is La Jolla ready to tumble? (as an example). It will follow the rest of the market and the economy.

Anyway – I think that risk management is key. So many people I know are on the sidelines with their cash. Who has all the money in the market? Institutions, 401Ks (not well managed – mine is in as well I just ignore it), and Hedge funds. They would rather risk the investments for good returns than worry about a crash. They get paid on getting good returns, crashes affect everyone. They can’t afford to be ultra-conservative so when the crash comes – boom.

Just my 2+ cents. I am only going with these gut feelings. I think the tide has turned on interest rates and they will only go up from here. But I’m a computer dude and look at broad views – hope i’m right and hope i’m not right!

[cyphire]

Gut instinct for me as well. I could be wrong – but i’m betting on it. Everything moves in cycles and at some point all cycles correct themselves. When fundamentals are skewed all the people who profit from them explain how ‘the new fundamentals are the new paradigm’.

Some examples – I had a web consulting company during the crazy years. 25 year old ‘executives’ of web firms were telling me how the new way of business is market share – profits don’t matter – no suits – p/e’s don’t matter (no profits so no ratio!, etc. They got destroyed and guess what – business got back to usual.

This ties in to Realtors explaining how prices are still going to go up despite only 5% of buyers being able to afford. (Will it go to only 1 of 25 affording? 1 of 30 affording!). They keep pounding the lie to the public then sheepishly admit they were wrong after the market plummets (it really hasn’t plummeted yet – it will keep correcting to the base line of affordability – it always eventually does.

I think that cycles correct because most buying decisions were outsourced to mob mentality. Everyone lives in the world where prices always go up. Now the smart money isn’t buying – they are actually giving incentives to buy houses (both new and resale) – this puts further pressure on prices – more buyers get scared as trend lines are established (we were only at the top about a year ago – or a little more) – the vast public hears about price declinations but havent seen the aftermath.

Debt. It is now at an overwhelming level both personally for people as well as our government paying for a war it can’t afford. Debt always needs some self correcting. This is happening now. The pressure from credit cards being given like candy and now the bush administration passes bankruptcy reform to protect the same people who gave anyone with a pulse a loan (same with mortgages).

Interest rates! (The big one) Prices have to rise and fall with interest rate costs. The bank of England has promised 2 more rate hikes. Our stock market got hit because the street got news that they cannot expect falling rates. Our debt actually has to increase rates because with falling dollar value – the interest rates have to go up to compensate or other currencies will be more attractive. This is the big killer.

What does this add up to? The consumer spending machine getting wacked. Along with a slump in housing construction the economy gets tanked for the next 5-10 years. So it goes…

Just a gut feeling.

By the way – there are more rich people now then ever especially along the coast in OC, in San Diego, La Jolla, ect. Of course their exposure is greater to – their money is made from the economy – and while executives protect their earnings on the backs of working people – as the economy gets weaker people lose good paying jobs and everyone suffers. So is La Jolla ready to tumble? (as an example). It will follow the rest of the market and the economy.

Anyway – I think that risk management is key. So many people I know are on the sidelines with their cash. Who has all the money in the market? Institutions, 401Ks (not well managed – mine is in as well I just ignore it), and Hedge funds. They would rather risk the investments for good returns than worry about a crash. They get paid on getting good returns, crashes affect everyone. They can’t afford to be ultra-conservative so when the crash comes – boom.

Just my 2+ cents. I am only going with these gut feelings. I think the tide has turned on interest rates and they will only go up from here. But I’m a computer dude and look at broad views – hope i’m right and hope i’m not right!

[cyphire]

By the way – London is also unstable – but it’s in Europe. Close to where the money is being minted in Russia, Middle east, etc. It is very space limited so they truly have a supply demand issue. They don’t allow huge amounts of suburban sprawl.. But that being said – the vast majority of people feel that prices are so disconnected from fundamentals that it will implode. It’s not the big money which really matters – the gap between rich and everyone else is getting more and more dramatic. It’s looking at 1 Million + for 1 bedroom apartments. They are all tulip buyers.

[cyphire]

By the way – London is also unstable – but it’s in Europe. Close to where the money is being minted in Russia, Middle east, etc. It is very space limited so they truly have a supply demand issue. They don’t allow huge amounts of suburban sprawl.. But that being said – the vast majority of people feel that prices are so disconnected from fundamentals that it will implode. It’s not the big money which really matters – the gap between rich and everyone else is getting more and more dramatic. It’s looking at 1 Million + for 1 bedroom apartments. They are all tulip buyers.

[patientrenter]

Well said, cyphire. I tend to agree with just about all of your points – predictable cyclicality driven by a herd mentality, underlying unaffordability, sensitivity to interest rate increases… Even your analogy with professional money managers investing regardless of fundamentals and thereby concentrating a lot of future market risk into a few very broad and bad events that they will say no one could plan for.

I hope we’re right. I want to buy a home some day without forfeiting an arm and a leg! I do think that prices in coastal California may well have gone up pretty permanently because of its high worldwide ranking as a place to live and an explosion of the mobile wealthy across the globe, and because loans with government guarantees and/or low early payments have arrived and will never disappear. But that hasn’t killed the up and down cycle altogether, and I think we’re heading down now.

Good luck hunting in La Jolla!

Patient renter in OC

[patientrenter]

Well said, cyphire. I tend to agree with just about all of your points – predictable cyclicality driven by a herd mentality, underlying unaffordability, sensitivity to interest rate increases… Even your analogy with professional money managers investing regardless of fundamentals and thereby concentrating a lot of future market risk into a few very broad and bad events that they will say no one could plan for.

I hope we’re right. I want to buy a home some day without forfeiting an arm and a leg! I do think that prices in coastal California may well have gone up pretty permanently because of its high worldwide ranking as a place to live and an explosion of the mobile wealthy across the globe, and because loans with government guarantees and/or low early payments have arrived and will never disappear. But that hasn’t killed the up and down cycle altogether, and I think we’re heading down now.

Good luck hunting in La Jolla!

Patient renter in OC

[Anonymous]

cyphire, London, though it may truly be ‘very space limited,’ will be about as immune as Tokyo — another ‘very space limited’ locale — was over ’89-’05 from the forthcoming depression in prices.

Be ready to buy a nice London flat at a very attractive price in 10 years, at the trough of the Depression.

[Anonymous]

cyphire, London, though it may truly be ‘very space limited,’ will be about as immune as Tokyo — another ‘very space limited’ locale — was over ’89-’05 from the forthcoming depression in prices.

Be ready to buy a nice London flat at a very attractive price in 10 years, at the trough of the Depression.

[patientrenter]

jg,

I really don’t think it’s inevitable that London will go down dramatically within 10 years. It could happen, but it’s not exactly a foregone conclusion.

Patient renter in OC

[patientrenter]

jg,

I really don’t think it’s inevitable that London will go down dramatically within 10 years. It could happen, but it’s not exactly a foregone conclusion.

Patient renter in OC

[cyphire]

Even if London does drop as much as we do, our currency is crap compared to theirs. I remember reading about 5 years ago that the average American makes 1/2 as much as the average UK resident.

Don’t count on being able to afford London – I was there during new years and a cup of noodles was 14$.

PatientRenter – people in the UK, etc. don’t come and live in Carmel Valley because of the awesome climate… They might buy a second home on the beach in La Jolla or Newport – but they aren’t buying a home in a planned community.

The people living in So Cal make their money from being in finance, services, and other consumer driven things. You are in OC and OC has lost thousands? of jobs in mortgage brokering alone.

I think that as the economy cools and contracts – consumer spending will suffer and will drag down the economy. That and interest rates. Plus really greedy wealthy people and the folks that they keep electing.

Time will tell

[cyphire]

Even if London does drop as much as we do, our currency is crap compared to theirs. I remember reading about 5 years ago that the average American makes 1/2 as much as the average UK resident.

Don’t count on being able to afford London – I was there during new years and a cup of noodles was 14$.

PatientRenter – people in the UK, etc. don’t come and live in Carmel Valley because of the awesome climate… They might buy a second home on the beach in La Jolla or Newport – but they aren’t buying a home in a planned community.

The people living in So Cal make their money from being in finance, services, and other consumer driven things. You are in OC and OC has lost thousands? of jobs in mortgage brokering alone.

I think that as the economy cools and contracts – consumer spending will suffer and will drag down the economy. That and interest rates. Plus really greedy wealthy people and the folks that they keep electing.

Time will tell

[Anonymous]

U.S. per capita GDP: $46.5K
https://www.cia.gov/library/publications/the-world-factbook/geos/us.html#Econ

U.K. per capita GDP: $31.4K
https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html

Wow, cyphire, you have a odd view of the world if you thought that Brits had 2X the income of Americans. I was a businessman for a year in Europe. There are small, rich countries, such as Luxembourg and Switzerland. But, mostly, folks make do — very well — with less: fewer things, smaller things. Hence, their lower income is not an impediment to a comfortable life.

[Anonymous]

U.S. per capita GDP: $46.5K
https://www.cia.gov/library/publications/the-world-factbook/geos/us.html#Econ

U.K. per capita GDP: $31.4K
https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html

Wow, cyphire, you have a odd view of the world if you thought that Brits had 2X the income of Americans. I was a businessman for a year in Europe. There are small, rich countries, such as Luxembourg and Switzerland. But, mostly, folks make do — very well — with less: fewer things, smaller things. Hence, their lower income is not an impediment to a comfortable life.

[cyphire]

??? I am talking wages and you are talking per capita GDP. Gross domestic product isn’t median income per worker.

71% of UK families are dual income, 84% of US are.

Median UK salary (per person, not per household!) = 22,500 (pounds) or $43,600

Median US salary $32,000.

Guess I was wrong – the average British citizen makes only 50% more than their US counterparts.

We also work like dogs compared to them, have 2 weeks vacation (if lucky) – I think they get 8 weeks, etc.

Also – just to keep things real – the top 20% of US households got every dollar of wage appreciation since 1975. Thats right – the top 20% got all the money above 1975 levels.

Hard to find these general statistics on the internet – but GDP only shows how wealth the wealthy have become since Reagan and of course how much the gap has dramatically changed since George Bush and his thieving Republicans have had the keys.

Keep up the greed baby!

[Author]

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