Why the housing induced recession may be quick

[drunkle]

california alone is worth 17% of the entire US gdp. think about that.

[stockstradr]

“the duration will be shorter-this may hold true even for a housing market”

I have given this question considerable (previous) thought as my investing strategy is to anticipate economic (micro and macro) trends and inflection points, positioning investments ahead of those changes.

I agree with half your argument: Minsky Moments unfold at faster rates.

I believe Minsky Moments now involve more extreme economic swings away from steady-state, with more rapid onset, and may occur more frequently, but I figure markets take just as long (or longer) to be driven back to a safe equilibrium . The theory obviously is that technology has increased the transaction “speed” of money and information and vastly increased interconnection (interdependency) of global financial markets.

Obviously, volumes have been written on this very subject (comparing market instability vs. efficient markets theory) by quite intelligent and well-respected authors, such as Soros.

Also, many have argued that technology has brought certain new complex financial instruments and activity outside of the control of the Fed that inadvertently act to expand or constrict the money supply, or create instability. So the Fed’s toolbox is now relatively weaker to reign in these extreme swings.

Let’s revisit this say three years from now and see if your theory has held true for the mortgage meltdown crisis (and associated recession) being short-lived!

It seems the “Minsky Moment” economic theory of instability is gaining supporters, at least according to the WSJ:

In Time of Tumult, Obscure Economist Gains Currency

[stockstradr]

“the duration will be shorter-this may hold true even for a housing market”

I have given this question considerable (previous) thought as my investing strategy is to anticipate economic (micro and macro) trends and inflection points, positioning investments ahead of those changes.

I agree with half your argument: Minsky Moments unfold at faster rates.

I believe Minsky Moments now involve more extreme economic swings away from steady-state, with more rapid onset, and may occur more frequently, but I figure markets take just as long (or longer) to be driven back to a safe equilibrium . The theory obviously is that technology has increased the transaction “speed” of money and information and vastly increased interconnection (interdependency) of global financial markets.

Obviously, volumes have been written on this very subject (comparing market instability vs. efficient markets theory) by quite intelligent and well-respected authors, such as Soros.

Also, many have argued that technology has brought certain new complex financial instruments and activity outside of the control of the Fed that inadvertently act to expand or constrict the money supply, or create instability. So the Fed’s toolbox is now relatively weaker to reign in these extreme swings.

Let’s revisit this say three years from now and see if your theory has held true for the mortgage meltdown crisis (and associated recession) being short-lived!

It seems the “Minsky Moment” economic theory of instability is gaining supporters, at least according to the WSJ:

In Time of Tumult, Obscure Economist Gains Currency

[stockstradr]

“the duration will be shorter-this may hold true even for a housing market”

I have given this question considerable (previous) thought as my investing strategy is to anticipate economic (micro and macro) trends and inflection points, positioning investments ahead of those changes.

I agree with half your argument: Minsky Moments unfold at faster rates.

I believe Minsky Moments now involve more extreme economic swings away from steady-state, with more rapid onset, and may occur more frequently, but I figure markets take just as long (or longer) to be driven back to a safe equilibrium . The theory obviously is that technology has increased the transaction “speed” of money and information and vastly increased interconnection (interdependency) of global financial markets.

Obviously, volumes have been written on this very subject (comparing market instability vs. efficient markets theory) by quite intelligent and well-respected authors, such as Soros.

Also, many have argued that technology has brought certain new complex financial instruments and activity outside of the control of the Fed that inadvertently act to expand or constrict the money supply, or create instability. So the Fed’s toolbox is now relatively weaker to reign in these extreme swings.

Let’s revisit this say three years from now and see if your theory has held true for the mortgage meltdown crisis (and associated recession) being short-lived!

It seems the “Minsky Moment” economic theory of instability is gaining supporters, at least according to the WSJ:

In Time of Tumult, Obscure Economist Gains Currency

[kewp]

The big worry is that the world is now looking at the US with suspicious eyes and might not be so inclined to fund our debt anymore. If/when that happens in force we are in for a world of hurt.

Thats the problem I see as well. The market has a history of punishing participants for fraud pretty severely. Look at Lucent for an example.

Now consider that basically the entire United States has been committing securities fraud. How is the world market going to respond to buying our debt?

[kewp]

The big worry is that the world is now looking at the US with suspicious eyes and might not be so inclined to fund our debt anymore. If/when that happens in force we are in for a world of hurt.

Thats the problem I see as well. The market has a history of punishing participants for fraud pretty severely. Look at Lucent for an example.

Now consider that basically the entire United States has been committing securities fraud. How is the world market going to respond to buying our debt?

[kewp]

The big worry is that the world is now looking at the US with suspicious eyes and might not be so inclined to fund our debt anymore. If/when that happens in force we are in for a world of hurt.

Thats the problem I see as well. The market has a history of punishing participants for fraud pretty severely. Look at Lucent for an example.

Now consider that basically the entire United States has been committing securities fraud. How is the world market going to respond to buying our debt?

[temeculaguy]

Nice reference SD, here’s my take that won’t suck. I will not attempt to address the economy as a whole, just the R/E market, many of you have made cogent arguments on both sides as far as the economy relates to the internet. The R/E cycle will not follow the past trend, the availability of information has produced hundreds of thousands of arm chair quarterbacks. I have no work experience or education in the R/E market, yet I am arrogant enough to think I more informed than half of the professionals in the last downturn because I can access the information that used to be mostly private or difficult to access. Most importantly, I am not alone. We can seek out information that we want, not what is chosen for us and because of that most intelligent people (who are often those with the most money) can become immune to the spin. The crazy upswing was fueled by the internet in some respects and created a lot of amatuer investors, the downturn will create amatuer bottom feeders. R/E volatility won’t be smoothed out, the dips and peaks will become more severe or maintain the recent severity. Will we see chunks of drops, oh yes. I got an e-mail from D.R. horton yesterday about an unadvertised 50k price reduction on everything, 1800-2350 sq ft sfr’s that were 389-419, now 339-379, in a day. Temec is 6 months ahead of S.D. and probably 3 months ahead of the 78 corridor, so set your alarm clocks clones because the chunk theory is about to become reality. Rack that post (Jim Rome linguistics blamed on SD realtor for starting it).

[temeculaguy]

Nice reference SD, here’s my take that won’t suck. I will not attempt to address the economy as a whole, just the R/E market, many of you have made cogent arguments on both sides as far as the economy relates to the internet. The R/E cycle will not follow the past trend, the availability of information has produced hundreds of thousands of arm chair quarterbacks. I have no work experience or education in the R/E market, yet I am arrogant enough to think I more informed than half of the professionals in the last downturn because I can access the information that used to be mostly private or difficult to access. Most importantly, I am not alone. We can seek out information that we want, not what is chosen for us and because of that most intelligent people (who are often those with the most money) can become immune to the spin. The crazy upswing was fueled by the internet in some respects and created a lot of amatuer investors, the downturn will create amatuer bottom feeders. R/E volatility won’t be smoothed out, the dips and peaks will become more severe or maintain the recent severity. Will we see chunks of drops, oh yes. I got an e-mail from D.R. horton yesterday about an unadvertised 50k price reduction on everything, 1800-2350 sq ft sfr’s that were 389-419, now 339-379, in a day. Temec is 6 months ahead of S.D. and probably 3 months ahead of the 78 corridor, so set your alarm clocks clones because the chunk theory is about to become reality. Rack that post (Jim Rome linguistics blamed on SD realtor for starting it).

[temeculaguy]

Nice reference SD, here’s my take that won’t suck. I will not attempt to address the economy as a whole, just the R/E market, many of you have made cogent arguments on both sides as far as the economy relates to the internet. The R/E cycle will not follow the past trend, the availability of information has produced hundreds of thousands of arm chair quarterbacks. I have no work experience or education in the R/E market, yet I am arrogant enough to think I more informed than half of the professionals in the last downturn because I can access the information that used to be mostly private or difficult to access. Most importantly, I am not alone. We can seek out information that we want, not what is chosen for us and because of that most intelligent people (who are often those with the most money) can become immune to the spin. The crazy upswing was fueled by the internet in some respects and created a lot of amatuer investors, the downturn will create amatuer bottom feeders. R/E volatility won’t be smoothed out, the dips and peaks will become more severe or maintain the recent severity. Will we see chunks of drops, oh yes. I got an e-mail from D.R. horton yesterday about an unadvertised 50k price reduction on everything, 1800-2350 sq ft sfr’s that were 389-419, now 339-379, in a day. Temec is 6 months ahead of S.D. and probably 3 months ahead of the 78 corridor, so set your alarm clocks clones because the chunk theory is about to become reality. Rack that post (Jim Rome linguistics blamed on SD realtor for starting it).

[sogon]

Omega Point,
I think the US economy is less diversified. It seems to me that most if not our only “real” industry left is finance, which is now imploding. Sure we still make the occasional airplane and other goods sold worldwide but our trade deficit shows that the economy really isn’t producing anything. Even companies like Microsoft depend on investing their large cash pool to actually make the company profitable. Sure they make “software” but they are primarily a finance company.

[sogon]

Omega Point,
I think the US economy is less diversified. It seems to me that most if not our only “real” industry left is finance, which is now imploding. Sure we still make the occasional airplane and other goods sold worldwide but our trade deficit shows that the economy really isn’t producing anything. Even companies like Microsoft depend on investing their large cash pool to actually make the company profitable. Sure they make “software” but they are primarily a finance company.

[sogon]

Omega Point,
I think the US economy is less diversified. It seems to me that most if not our only “real” industry left is finance, which is now imploding. Sure we still make the occasional airplane and other goods sold worldwide but our trade deficit shows that the economy really isn’t producing anything. Even companies like Microsoft depend on investing their large cash pool to actually make the company profitable. Sure they make “software” but they are primarily a finance company.

[Bugs]

The big difference with the RE markets vs. the stock markets is that it’s possible to know exactly what you’re buying and what it’s worth in relation to the various alternatives. For a home buyer, those alternatives are not just limited to other homes for purchase, they also include rental housing and housing located in other areas.

TGs hundred thousand armchair quarterbacks is a great way to look at it. Sure, some of them are trend-following lemmings and have little depth in the subject themselves, but a lot of them follow because the message resonates with them.

These losses were completely foreseeable and avoidable, that fact being vividly demonstrated by the people who did see it coming and who did get out of the way. Some of the losers this time will choose not to repeat their mistake, and after a brief search they will find the sources of information they need to get ahead of the curve instead of behind it.

The way I see it, there are more people during this cycle who were well informed in advance and well prepared for the outcome than there were in the previous cycle. I fully anticipate that group will grow in volume during the next cycle. The only question will be whether or not they’ll be outnumbered by the additional speculators who will jump onboard next time after having missed out this time.

But make no mistake, the next time the market enters into an upcycle the REIC will rewind their jukebox to belt out all those golden oldies about how there’s a huge shortage of land, everyone wants to live in SD, the weather is great, jobs are great, RE never goes down, and this time it’s different. You’ll be able to set your watch by that.

[Bugs]

The big difference with the RE markets vs. the stock markets is that it’s possible to know exactly what you’re buying and what it’s worth in relation to the various alternatives. For a home buyer, those alternatives are not just limited to other homes for purchase, they also include rental housing and housing located in other areas.

TGs hundred thousand armchair quarterbacks is a great way to look at it. Sure, some of them are trend-following lemmings and have little depth in the subject themselves, but a lot of them follow because the message resonates with them.

These losses were completely foreseeable and avoidable, that fact being vividly demonstrated by the people who did see it coming and who did get out of the way. Some of the losers this time will choose not to repeat their mistake, and after a brief search they will find the sources of information they need to get ahead of the curve instead of behind it.

The way I see it, there are more people during this cycle who were well informed in advance and well prepared for the outcome than there were in the previous cycle. I fully anticipate that group will grow in volume during the next cycle. The only question will be whether or not they’ll be outnumbered by the additional speculators who will jump onboard next time after having missed out this time.

But make no mistake, the next time the market enters into an upcycle the REIC will rewind their jukebox to belt out all those golden oldies about how there’s a huge shortage of land, everyone wants to live in SD, the weather is great, jobs are great, RE never goes down, and this time it’s different. You’ll be able to set your watch by that.

[Author]

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