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(former)FormerSanDiegan
Participant… the other factors
Upward revision were due to
1. reduced imports
2. increased personal consumption expenditures for services (remember we are a service dominated economy)
3. inventory investmentThe upward revision was partially offset by downward revisions due to:
reduced personal consumption expenditures for durable goods.So people bought fewer durable goods (reducing the GDP), but more than made up for it in Personal Consumption Expenditures for services, along with the reduction in imports.
Net result. More growth than previously thought. The inventory issue is relatively small potatoes, 0.16% of the increase, and has been overblown.
I agree the quarter to quarter trends are not strong, but the 3rd quarter wasn’t as bad as previously thought.
ParticipantPS –
If you read the report it states that “The real change in private inventories added 0.16 percentage point to the third-quarter change in real GDP …”
So, the inventory increase that you are citing added 0.16 to the GDP.So, let’s discount the 0.16% due to inventory increase and we get a GDP revised upward to better than 2%% from 1.6%. Still not great, but better than previously thought.
So the invenotries contributed, but over 70% of the revision upwards came from other factors. What are these factors ?
ParticipantIf an economist selectively ignores components when they go against their view, do they also ignore them when they support their view. Auto sales added significantly to the number this time. What were people saying when auto sales decreased the GDP last quarter ? That the consumer was tapped out and this was a leading indicator ! What does it mean now.
While we may disagree whether the glass is half full or half empty, can we at least agree that it is at 50% capacity.
GDP was a bit higher than expected, but not great. Housing trimmed it significantly since the beginning of the year. Roubini will eventually be right about a recession, it’s just that his timing may be off by a month, 6 months, a year or 2 years. After all, he is an economist. After it happens he’ll explain why.
ParticipantI would have to agree that a large percentage (maybe even 75%-90%) of those who took out 100% LTV option ARM in 2005 with Debt ratios of 40%+ whose loans reset in 2007 and who can’t refinance will default.
I think the point is what percentage of the 25% of all ARMS that reset in 2007 fall into this category.
ParticipantJG –
Yes, some stealing of Q4 GDP into 3Q via inventory, so expect weaker 4Q. Thanks for the link. I wonder if Bernanke read it.
ParticipantPS –
It sounds to me like you are assuming most of the ARMS that are resetting in 2007 are from people who purchased in 2004-2005 with 0% down.I know for a fact that the most popular ARMS in the 2002 to 2–3 time frame were 5-year interest-only ARMS. So all those people who purchased in 2002 will have theirs re-set next year as part of that 25%. The 25% ARM resets does not include solely the 1-year and 3-year option-ARM purchasers in 2004-2006. Might it also include people who had traditional ARMS (not interest-only) ?
Without these details it would be difficult to asses the impact and predict 75 % or 90% default.
For the record, I have an interest-only ARM at 5.625% on a SFR rental property I purchased in 2002 (refied in 2003) for less than 350K in Central Coastal SD. This ARM has a balance of ~270K and it re-sets in 2008. If I paid points I could refi it to 30-year fixed today at less than 6% for costs of less than 10K.
ParticipantSo, if people are smart enough to change their financing to avoid default/foreclosure, that shouldn’t count ?
If they are able to refinance, that means that they presumably had the economics means to do so. This biases the result in favor of the person predicting high default rates.Why not just bet that a high percentage of those that are more than 60-days late on their payments are more going to default ?
ParticipantBy soft-landing, I meant for the overall economy, not necessarily housing, which I think will continue to drag the economy. For what it’s worth I think that recession in 1Q 2007 as defined by negative GDP growth for the quarter is not likely, and more likely to happen later in the year.
As for the two spins, I have a twist on your second one …
GDP is up = inflationary pressures follow = higher interest rates = higher rents
continued, but no increase in downward pressure on housing
(inflation/rents counteracts interest rate increases).
So, housing remains 20% overvalued and still due for more correcting.ParticipantMy take is that this signals a reduced probability of recession in 1Q 2007. Perhaps recession will be staved off until later in the year, or the dreaded soft-landing scenario will occur.
ParticipantSo, we couldn’t trust the Median reports because they are not representative of the market and now we can’t trust the Case-Shiller index ?
I disagree. I think both are decent indicators of the market. They just lag what you are seeing on the streets. The 4th quarter numbers from Case-Shiller will likely contain the data supporting your assessment of today’s market.
ParticipantHere’s another idea …
Another opportunity is perhaps purchasing farmland in Colombia, Afghanistan or perhaps Peru. You can use the proceeds from the cash crops to develop the land for when these future powers become more powerful than the US because of our addiction to substances caused by severe depression.ParticipantNot currency, but I’ve put a portion (less than 10%) of my portfolio into foreign ETF index funds. Primarily EFA (Europe and Far East) and EWJ (Japan). Kinda boring, foreign stocks, but they have benefitted from the dollar drop over the last couple years, especially EFA.
Foreign Fishponds ? Now that’s creative.
ParticipantI stand corrected … but I’m not holding my breath.
ParticipantWhat if they set up automated speed traps on the freeway, similar to red light cameras ?
That would really suck.
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