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powayseller
Participantdavelj, I’m not interested in debating your writing style or assailing your character. I think that often your posts come across as condescending and both-sides-of-the-coin, so the above summary on your positions was helpful. I value your and your contributions to this forum.
ParticipantI agree completely with Stephen Roach.
His last paragraph sums it up well
” An export-dependent world economy has leaned too hard for too long on the American consumer as the sustenance of economic growth. As the housing bubble bursts, overextended U.S. consumers can’t afford to carry that load any longer. Other countries must now learn to grow the old-fashioned way—drawing greater support from their home markets rather than free-riding on the United States.”As I’ve said since early 06, when the US goes into a recession later this year, the rest of the world will follow. Because they are export dependent on the US consumer.
Today’s Bloomberg story is a perfect example that it’s already happening:
“European stocks declined for a third day, led by companies that depend on exports, after a Federal Reserve report showed slowing growth in the world’s largest economy.
Tomkins Plc, the world’s biggest maker of windshield wipers for cars, had its steepest drop since 1992 after it said profit will miss analysts’ estimates on slowing demand in North America. Ericsson AB and Bayerische Motoren Werke AG declined on concern their U.S. sales will drop. ”
ParticipantChris, I really enjoy these lively discussions with you, because you are so smart and such a good trader. I wish I could fast forward time, to see how the stock market and economy will be in one year. I place Chris and Roubini in equal high regard. Chris uses technical analysis, and expects a stock market gain of over 20%, while Roubini uses economic analysis and expects a stock market fall of 28%. We’ve got a #1 trader vs. a #1 economist. Who will be right?
As we head into the fall, I expect that the technical indicators will start showing the bear market approach. As housing continues cooling, companies’ earnings will keep getting hit, and as foreclosures rise, investors will start worrying about lenders and the consumer’s ability to keep consuming. It just takes time for this all to unravel.
I don’t know what Roubini risks in the market, but he is certainly risking his reputation and future income as a consultant by his predictions. He is boldly sticking out his neck in predicting a recession. I don’t consider accurate analysis “doom and gloom”. By 2008, as foreclosures mount and the stock market is caught in a rut,, I hope Roubini and I will be blogging about the next upturn; nobody will believe it though.
Chris, let me ask you this: if I say that tonight at 8pm it will be dark, would you call me a doom and gloomer for bringing up the subject? The economy is the same way: it goes in cycles of bull and bear markets. It’s the law of nature at work. Rest and activity are the steps of progress. It is one of the laws of nature.
ParticipantFormerSanDiegan, where do you think the S&P500 will end up?
ParticipantI’m not saying we are either, although no one knows for sure. I have no idea where the S&P is going.
It’s important to know that recessions are a lagging indicator. The stock market declines before a recession, and starts rising in the middle of it. You can see this in the charts in Ahead of the Curve.
Roubini writes that the market peaks 9 months before a recession, and recovers about 5 months before the recession ends. This is because the equity market is forward looking.
The peak to trough resulted in a 28% drop in the S&P500 in the last 6 recessions, taking anywhere from 3 to 18 months to reach the trough.
Thus, if we have a recession, the S&P 500 will most likely bottom out at a little over 900.
You can read Roubini’s entire post, with charts of the past 6 recessions.
ParticipantI don’t know anything about banking regulations, so take this for what it’s worth: these guidelines won’t do a thing. First, the guideline language is voluntary (I read it when it was introduced). Second, it will apply only to banks regulated by the OCC, not to private companies. As long as investors crave MBS, the products will flow.
ParticipantThis lady has an anger management problem.
ParticipantAdam, go over to the economics and investing forum, and read my thread on shorting WaMu. Yes, it is true! WaMu must have $1 bil of neg-am income on their books by now. 15% of their income is neg-am, that is income earned but not received, and I doubt it will ever be received. (Ok, some people will call me a doom and gloomer,but be real: if they can’t even afford to pay all the interest now, how will they afford it when the interest rate rises, and the higher loan balance is amortized over a shorter time period.) For this reason, I’m interested in shorting some of these crazy lenders…
Participantbgates, are you referring to me saying, “I am 100% certain that this asset bubble will revert to its mean” Fascinating, it you have any doubts it will….Anyone who believes this asset bubble will not revert to its mean is clearly delusional. But hey, it’s different this time, it’s San Diego, we’re running out of land, the air is great, the sun always shines, the Fed will save the housing market…
San Diego’s housing bubbles go back t the late 1880’s. Read on :
“It was the coming of California Southern’s trains in 1885 which touched off the Great Boom of the Eighties. Buildings spread over the landscape, with “gingerbread” at every turn. San Diego’s population rocketed up to 40,000 in 1887. The price of downtown lots doubled and tripled over and over again.In the spring of 1888 credit tightened and numbers of land speculators had to offer their holdings for sale, to pay off creditors on whose capital they had been operating. Their need to sell forced prices down, and shattered land values which had been artificially inflated by unrealistic speculation. A great “bust” followed the Great Boom. Ten thousand people left town in the first few months after the bubble broke. Houses stood deserted all over town. Public and private improvement works were suspended, making unemployment a pressing problem.”
So if you think at all, that this time is different, you are clearly deluded. The masses fall for it every time: on the way up, they think the prices will keep going up, or they will fall only a little bit and then stabilize and rise again. Finally, at the bottom, they are afraid to buy, fearful of further declines. They fail to use data and history to truly understand the market. I’ve spent enough time explaining asset bubbles, and given resources for exploring this further. It’s all in the archives, so I’m done with this topic. I’m done debating that this bubble will revert to a mean of 7x per capita income or 10-15 x annual rents… that’s a closed chapter. Anyone who thinks it won’t, probably owned tech stocks in 1999 or 2000.
The examples in your post were predictions, and of course they are often wrong. But don’t confuse predictions with economic and business and housing cycles which are repetitive and cyclical and don’t need predicting; they only need to BE UNDERSTOOD. Don’t confuse predicting with understanding market cycles.
nancy-soothsayer, you described perfectly the posts by davelj.
ParticipantOFHEO data ignores the tremendous amount of dollars put into kitchen remodels, additions, pools and backyard barbeques, and myriad other contracting work on the house. A kitchen remodel typically costs $60K, so it could increase the value of a $600K house by 10%. Thus, the OFHEO data is somewhat overstating the changes in price.
Campbell used DataQuick for Existing Home Sales, Construction Research Industry Board for New Building Permits, the SD Cty Recorders Office for NODs and Foreclosure Sales. The appendix of his book lists this data from 1988 – 2004 in 4 tables. Table 5 is interest rates.
ParticipantHow can the new regulations affect existing loans? How could you change the terms of a loan after the loan is made?
BTW, these are not new mortgage products. Just today, someone was telling me that in the late 80’s, ARMs were prevalent. What is different this time, I think, is the looser underwriting guidelines which allow layering of risk. ARM plus no money down plus low FICO plus stated income.
This guy also told me that the number of Poway students applying for payment plans for their $350/yr bus passes, has gone up 4x in the last year. These parents are complaining about their high mortgages and that they can’t come up with the money for the bus pass. More kids live in 3-generation homes, i.e. grandparents, parents, kids, to make ends meet. The money problem is particularly bad in the western section of our school district, west of I-15.
ParticipantLarry J, I concur with you. It’s too late: the banking demise is in the pipeline, and the OCC rules will affect only a portion of lenders. If they are rules at all; perhaps it will remain guidance only.
bigtrouble, I don’t need data, but some explanation of what you mean would be helpful. We already know that banks are not revealing their loans, the extent of the problem, and their knowledge of the problem. Yet, they continue making these loans. So how concerned are they? Is there a specific event or condition you are referencing?
ParticipantAct with what? They don’t want to force borrowers into foreclosure, and are working hard to come up with options for defaulting borrowers. bigtrouble, you remind of auction_heaven_in_07, who writes on another blog about a big secret happening in September. Some people delight in blowing hot air all around, but not I. This isn’t a playground, but a place for exchanging knowledge. So either play someplace else, or bring something to the table.
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