[North County Jim]

PS,

Do you know how many components make up the index for homebuilders? I was only able to locate the Philadelphia Housing Index, which consists of 20 individual issues.

Based on the PHI, I’m not sure I would draw the same conclusion as you from the comparison of the homebuilder index to the Nasdaq 100.

Wouldn’t you expect an index consisting of fewer components and a narrower focus to show more volatility than a more diverse group of stocks?

[North County Jim]

The internet is not a competitor to the industry. It’s a distribution channel.

[North County Jim]

Starting low(er) is probably a pretty smart idea.

Couldn’t agree more. With 340 homes to sell in a declining market, why even try and play the incentive game? Set yourself apart on price.

I suspect these prices will hurt the Hidden Trails subdivision (just to the southeast) rather badly.

Just to show how quickly this market has turned, we sold our 30-year-old, 1,500 sq ft home last fall in the same zip code for more than the 2,700 sq ft house being advertised.

[North County Jim]

PS,

There are some pretty sharp people out there taking the other side of that trade.

The PIMCO crew, just to name one, is very bullish on treasuries.

…foreigners will be able to outbid Americans for scarce consumer goods.

What consumer goods are, or will be, in short supply? You can make a case for a scarcity of commodities but it seems to me the world is awash in consumer goods.

[North County Jim]

I think Tim Iacono is the only person expecting deflation.

I know you read Mish. He makes some of the better arguments I’ve read for deflation.

[North County Jim]

As to the argument over Alan Gin, RE is more than a bit risky at this point. To not be publicly and loudly saying so is to be either a hypocrite, stupid, or a liar. There are VERY real consequences to what is happening, I know I have lived through them before. When you hear people who have a bully pulpit not using it honestly then you have a right to call them on it. The more mis-leading they are, they more vigorous your call-out should be.

Well put Josh. That’s the thing that has me scratching my head. How a PhD in economics with an emphasis in RE can’t acknowledge the risk in SD real estate right now is mind-blowing.

I don’t want to impugn the professor’s motives but if the market tanks, I think he should be called to account in no uncertain terms.

[North County Jim]

PS,

Do you know definitively whether there is a refinery planned for Yuma? It seems an odd place for a refinery.

Is there an existing infrastructure of pipelines for receiving crude oil and shipping refined products? If not, their competitive position would be less than ideal.

Furthermore, permitting a refinery is a multi-year endeavor. Has anything been done on the permitting end?

[North County Jim]

How can people cut back on oil use? Are they going to stop driving to work?

With the severe recession you are predicting, won’t there be fewer people driving to work?

Leaving that aside, people who are hurt by high oil and gas prices will find ways to reduce consumption. Some will trade in existing vehicles for more fuel-efficient cars. Others will reduce trips. You’ll see more people looking for car pools.

Most analysts attribute this spike in prices to an increase in demand as opposed to supply-driven spikes of the past.

By themselves, high prices serve to reduce demand. Throw in a recession and demand can be reduced pretty significantly.

[North County Jim]

The new number is 840, an increase of 300%.

No!

Increase = New Price – Old Price

Percent Increase = Increase/Old Price

Increase is the same as equity gained.

So a tripling in value is an increase of 200%

[North County Jim]

The homes I looked at in spring 2000 were in the mid 300’s, and had been in the high 200’s the year before. By 2004, they were in the high 700s to low 800s. That is a tripling, is it not?

PS, your math is off. Let’s assume $280k for your high 200’s and $820k for your low 800’s.

820-280=540

540/280=193%

A tripling in price is a 200% gain.

You need a quadrupling for a 300% gain.

[North County Jim]

But with rising oil and commodities prices, inflation will stay high and they cannot lower rates. Remember that 7% is our usual interest rate, so we should not expect the once-in-a-lifetime 1%-5% rates to come back. The low rates were an anomaly.

Your certainty continually amazes me. What you state is plausible, not certain. I would go as far as to say that it’s not even probable.

I’m not certain of how things will play out on a macro level but you ought to consider these questions.

Is it inflationary if noone is borrowing regardless of commodity prices?

Will growth in demand for oil and commodities continue in the face of the severe recession you predict? Please explain how you get to $200 oil in a recession.

Is it possible that the higher interest rates of the 70’s through the 90’s are the anomaly?

I don’t know the answers and neither do you.

[North County Jim]

Those who think the US is still a superpower, I disagree.

How would you define a superpower and by what measure would you exclude the US from that category?

I also think you need to get away from your focus on total debt and look at per capita debt. Per capita is a much better way to look at the ability to service the debt.

[North County Jim]

While it may be big brother, the Europeans are better at protecting their children from marketing through regulation.

NSR,

Could you clarify if you think the “European Model” is a good thing?

[North County Jim]

Natural gas is used to generate more than half of the electricity SCE delivers to its customers…The cost of natural gas has more than doubled…

Interesting claim. Natural gas had a huge run from July 2005 until December. During this period, it doubled from about $7.50 to $15.00. It has since given back all of those gains and now trades at around $6.00.

What am I missing here?

[North County Jim]

Reading through this thread, there seems to be a lot of agreement that China will overtake the US. Even assuming the days of American dominance are numbered, I just don’t see the Chinese ascending the throne.

We have a lot of long-term problems that have been discussed to death here (debt, debt and more debt) but I believe these pale in comparison to the Chinese.

First of all, they are still a totalitarian government. To my knowledge, there is not a great track record of commingling capitalism with a repressive government.

Second, they have a banking system weighed down by a lot of worthless loans to decrepit state industries.

Third, and I believe most important, they have a huge demographic time bomb looming that makes our social security problem look tame.

If you look at the recent history of the western countries, most were agrarian societies until the industrial revolution. As these countries became industrialized and wealthier, their birth rates gradually declined. The pattern that the western nations followed could be summarized as get rich, then get old. This is the SS problem in a nutshell.

China, on the other hand, will get old before it gets rich thanks to their one child policy.

If you think we’re going to have problems retiring the baby boom generation, how in the heck is China going to pull it off?

Oh, don’t they have a housing bubble as well?

[Author]

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