patrick.net

No need for fear mongering actually the FED has been jawboning deflation to justify holding rates at 0% .
You can get a 10% return just by buying a rental property in Vegas. Prices could double and you'll still get a 5% return.
That's enough by itself to discourage people from saving.

how can inflation seriously set in when there is so much unemployment? inflation will only set when people start to get paid more. I suggest you go try to ask for a rise ....
Commodities and house price are derived from affordability (% of income).
We need true economic recovery, ie full employment like in the 70's to drive inflation.
Zimbabwe inflation is something else entirely, its a crisis of confidence. Nobody believe the government will be able to repay its debt. ( well actually they already defaulted http://www.jubileeresearch.org/worldnews/africa/zimbabwe_stop_paying.htm )

Camping,

That term your looking for is inflation. The law of supply and demand.

Bernanke's gamble is that the Fed can park trillions in the banks, buy mortgage back security's and US bonds. They are fighting a rear guard action to prevent the collapse of the housing market. Unfortunately, the problem is too big. Those naughty MBA's on wall street created a lot of debt.

The velocity of money has been low, not really moving in the economy (by design) which is what makes us different than Zimbabwe. He has been "successful" so far.

He will fail. Sooner or later people will figure out that the FED is the only buyer of government debt. The few other buyers will exit stage left.

Thats when the fun begins.

Just a note. I do not think any of this is really funny and I blame our government for letting it happen.

Vicente could you give an example of Bernanke "jawboning" inflation?

For the past 2 years he continues to denying it. Even to this day.
http://www.nytimes.com/2009/12/16/business/economy/16fed.html

I think you have it completely reversed. Inflation is the goal but they are not about to admit it.
The wealthy know this and are preparing for it. The poor are the ones who are in the dark about all of this and are about to get shafted once again.

They are all over the place. Search for "Bernanke jawboning inflation". He only flips the other way when he's looking out for his butt against Senators who doubt his ability to prevent Zimbabwe. Those people want to imagine he's the captain of the Titanic who can prevent the iceberg collision. He has to convince you inflation is INEVITABLE but that they hold the ability to TIGHTLY CONTROL it. See what I'm saying? They NEED for inflation to happen, and for it to happen, they need to convince you to keep every dollar circulating as fast possible. Savings are bad. But they need to project the image they are brilliant managers who know exactly where every lever is and just how to use them.

From his FRB speech in 2008:

"Some indicators of longer-term inflation expectations have risen in recent months, which is a significant concern for the Federal Reserve. We will need to monitor that situation closely."

http://www.federalreserve.gov/newsevents/speech/bernanke20080604a.htm

Imagine it's 2015 and still no Zimbabwe. Hope people enjoy eating their hoarded rice, and stroking their gold bullion.

Suppose the growing ranks of unemployed continue to cause declines in dollars circulated way down here at the peasant level. Suppose people start draining their 401K to keep the lights on. A consumer-led economy with an increasingly stressed consumer, is not a recipe for meaningful inflation IMO.

I could be wrong but I dont think there's much need to tell talk people out of saving when interest rates on savings are near 0%. Hence stock market is skyrocketing.

I agree that they secretly do want inflation but it's not done through jawboning it's gonna be done by pretending that there's no risk so they can keep their foot on the money pedal.

Why are you quoting a 2008 speech? We're about to enter 2010. Things have changed quite a bit since that speech. Everything he has been saying recently is that the Fed has to fight deflation - hence interest rates at 0-.25%. With such rates he's trying to create inflation - it's obvious.

Every person on the street will tell you that "the economy is bad" but these people are packing restaurants and stores. People are shopping for homes. People are spending money.

The economy has been eliminating unproductive sectors like the explosive growth of real estate agents and house flippers. Customer service has increased dramatically in retail jobs as older people have replaced stoner high school kids. People are working harder because they fear for their job. We finally have a working Windows product to power businesses.

The economy fixes itself. What we need is an educational stimulus to soak up some of the unemployed. Provide low interest loans and grants for people to go back to school and learn a new trade. Things will get better in 2010.

inflection point says

My predictions for 2010:

1. More bailouts
2. More foreclosures.
3. Increased interest rates.
4. Increased taxes.

basically you said it in a nutshell. i agree with your thinking, maybe add 5. More Job Losses, 6. Further Decreased Home Values, 7. Gold and Silver soar, along with agriculture, 8. Short sales become the new way of selling houses, 9. we start to look more and more like Zimbabwe did when they printed money out of thin air...

i hope everyone has a happy and healthy 2010! :)

Things will get better in 2010.

I'd like to agree, but I think you're being either excessively optimistic or just highly insular. Maybe your personal outlook for the coming year has been burnished by some positive developments of your own. For that matter, I am in good health, sound financial standing, debt free, Scotchgardedâ„¢, etc., but just because I'm sailing along jim dandy, doesn't mean I'm blind to the rafts whizzing by me going upstream on Shit Creek. A more realistic prognosis is that things WON'T get better, they'll just get worse less quickly. Kinda like a repeat of this year. The big picture doesn't look too cool, either. That's because the same unsound fiscal policies that helped get our collective tit in the wringer are still in place and as indelible as ever.

The Economy doesn't fix itself, by the way. That's Free Market jazz. The Economy as we know and loathe it is a highly manipulated, booby-trapped, trickle-up system of smoke and mirrors that has been gradually engineered over the decades by self-interested, vaguely misanthropic, highly Plutocratic larcenists. Oversimple, perhaps, but basically true.

So, six predictions for 2010, fresh from my backside:

1. Debt relief repackaged in such a way that suggests something other than relief or continued stimulus, which would conflict with reports of a strengthening recovery. Think mortgage deferment programs and extensions on the 8K tax rebate plan -- possibly making it or some variation of it permanent.

2. Interest rates will continue to be suppressed downward. If they do inch up at some point by the middle of next year, there will likely be new loans introduced like the 50 year mortgage, or community service/vital organ/best looking daughter in lieu of down payment. Anything to perpetuate debt bias, the *real* engine of our economy.

3. Job numbers will appear better, (or less bad), but the tragedy will continue to play itself out in salaries and in the form of underemployment. Again, packaging.

4. House prices will continue to correct on paper, but asking prices will only barely flinch for most of the year.

5. The savings rate and household debt numbers will creep back down/up, respectively. In fact, they already are. The savings rate strengthened this year and household debt was down, thanks in large part to credit card defaults and foreclosed owners living in rent free limbo while the banks drag their feet.

6. Airstream trailers setup on five or six acres of ranchland will start to take off. Think Dune Buggies and Manson Girls without all the maiming. Sounds alright to me. Better than any of the lame Garage Mahals I see nerds drooling over.

http://www.airstream.com/products/index.html

Now, back to the Glad Game...

Home prices will drop 10-15% this year. I did my own research going back to the 30's.
Ecomony/Housing Crash spiritnewsdaily.com

I am expecting 2010 to be, for the most part a continuation of 2009. In other words, even higher unemployment and no real economic recovery.

I am expecting 2010 to be, for the most part a continuation of 2009. In other words, even higher unemployment and no real economic recovery.

You got it. I am guessing that a better picture of things to come for the next decade or two will start to emerge as we head into 2012. Everyone's talking inflation, but we've already been experiencing that for at least the last six years where commodities/consumer goods are concerned.

I also predict more high level heists and bank robberies in the coming years.

I should also add more terrorist attempts because it pretty clear homeland security and the airport screeners are not going to stop anything.

Perhaps they should spend less time with elderly folk and women with babies.

From CalculatedRisk:
---------------------------------------------------------------------------------------------------------
http://www.calculatedriskblog.com/2009/12/government-housing-support-update.html
As everyone knows there has been a massive government effort to support house prices.
# Housing Tax Credit Ends
# Federal Reserve MBS Purchase Program: This is scheduled to end March 31, 2010
# Treasury MBS Purchase Program: This program will end Dec 31, 2009
# HAMP Trial Programs Extended: The Treasury has extended any expiring trial modification program until at least Jan 31, 2010
# Support for Fannie and Freddie: Treasury has uncapped the support for Fannie and Freddie for the next three years.
# Fannie / Freddie Low-Cost Refinancing program. This is the program that allows homeowners with Fannie and Freddie mortgages to refinance loans up to 125 percent LTV. I believe this program expires June 10, 2010.
# FHA Loose Lending Standards: In his Dec 2nd testimony to Congress, HUD Secretary Donovan said the FHA would propose tighter lending standards by the end of January 2010.
# Various Holiday Foreclosure Moratoria: Fannie, Freddie and most of the large banks routinely suspend foreclosure activity over the holidays.
---------------------------------------------------------------------------------------------------------

Currently the real estate market is heavily supported by government intervention.
In 2010, many of these programs will end.

As a result house prices will drop.
I believe the effects will be felt nationally, and significantly in 2010 and beyond.
More than a 5% drop but potentially, and I think more likely, a larger median price drop.

We are nowhere near a normal real estate market. at least in the SF bay area.
When more than 2/3 of sales are foreclosures and distressed property there is no reason for prices to increase, yet in some areas this is exactly what happened.

Once the government has scaled back it's housing stimulus we should slowly see prices adjust to rational levels in the bay area. Prices are still too high. I make good a good salary and I can only afford a crapshack in a bad neighborhood(without over extending myself on payments). No way that's a stable market.

thomas.wong89 says

Blue Swan says

I have been forecasting a Jobs Boom in technology at the 100K range. There will be numerous opportunities for hard hit technical workers who will finally get the best of management.

Here is what is happening with out of work Accounting & Finance /Tech workers…

Former CFOs are getting VP/Controller jobs with Paycut

Former Controllers are getting Accounting Manager jobs with Paycut

Former Accounting Managers are getting Sr Accounting jobs with Paycut

Former Sr and Staff Accountants are perm unemployed because they cant get jobs.

Anyone coming out of Unversity with Accounting/Finance Degree will be really out luck!
And many who have jobs are seeing paycuts 5-10% pulling away below $100K !

Consulting jobs are also trimmed and contracts are 30% off price.
This is happening! ask any headhunter on what jobs are open and candidates are being hired.

And its happening with Engineers and Marketing professionals as well. Salaries are being cut

along with no of openings.

All true. I offer consultants 50% less than they were earning last year. Some balk. Some end up with jobs working for me. Dozens of other firms contact me looking to place their consultants with me. And it isn't like I have an infinite number of jobs opening. I have filled maybe 10 roles on projects in the last quarter. A good quarter, but in the old normal I wouldn't be getting this sort of attention from vendors & independents.

Troy says

E-man says

Home prices will increase 5% compared to 2009.

This is going to depend on prevailing interest rates. If they stay under 5%, perhaps. If not, I fail to see how this is going to be possible, unless other “affordability” measures are taken like outright payment assistance.

Yeah E-Man, the people cannot afford 400k homes that are being sold on the coasts but are breaking their necks to buy because of emotional attachment will continue to buy....however, there are still a lot of underemployed people that wont buy into the 8K tax credit gimmicks.

I dont agree that prices will rise 5%...that means in 10 years home prices will go back to 2006 prices...your thoughts?

ZippyDDoodah says

Bubbles never deflate in a straight line. The current bounce in home prices in some markets is almost entirely the result of artificial lowering of interest rates coupled with govt spending through tax credits and loose credit money with HUD. E-man makes an interesting prediction, but I’ll take the other side.. home prices will drop 10% average nationwide in 2010 as compared to 2009 even with massive govt deficit spending to prop it up. The S&P will hit a euphoric 1350 on the “hope” that things are turning around before sliding below 800

I predict the same...

Elevator go UP
Elevator go DOWN
Elevator go UP
Elevator go DOWN
Elevator go UP
Elevator go DOWN

The bubble will be up and down for the next 5 seasons of football then it will stabilize just in time for me to buy...or it could go up, up, up and I will continue renting in the same areas for 1/3 the cost.

ROTF

inflection point says

Camping.
The point is that there is a practical limit to how far anyone can extend a ponzy scheme. The ponzies are you and me. A ponzy scheme assumes there are willing victims. If printing money was a good solution don’t you think Zimbabwe would be a world power?
My predictions for 2010:
1. More bailouts
2. More foreclosures.
3. Increased interest rates.
4. Increased taxes.
For Christmas I would like to see Bernanke, Geithner, Obama, and Congress resign.

What, you want more Bush in your life?...If I remember it was his continuance of Bush Sr., Clinton policies that brought us to this point. Lets judge Obama in 4 years when the facts are in.

SMH

4X,

I do not have any respect for either Bush or Clinton.

Obama has owned this since January. No one said he would have it easy or he did not start off with a handicap. His honeymoon is over.

There are already many facts in. Perhaps you could see them if there was a little more transparency in Government. I am sure that is coming any day now.

Home prices on 2010 will depend on the Government's ability to keep the public call and prevent mass walk-aways.

If people think there's a chance we're near bottom, they may accept a mod and try and stick it out. If they start feeling like everyone else is bailing, then they will too.
Then, the downward spiral begins again.

http://immoralhazard.housingstorm.com/2009/12/29/will-we-keep-our-faith-in-2010/

One word, "Crash!"

wish i was lucky says

Do you really think Social Security will last much longer? They aren’t paying a cost of living increase this year - even though food and medical costs are going up.

LOL, people who've been paying into SS have over-paid by over two trillion dollars, including accrued interest. If the General Fund defaults on that debt it will be the greatest theft in history, since the people (and their heirs) who benefited from the tax cuts vs.the FICA payers who funded those cuts are largely disjoint sets.

maybe then people will realize that they really cannot afford to pay more than $1000 for rent or mortgage. Then what will that do to the housing market?

This is my thesis, yes. Real estate is not a good like new TVs and cars. It has a VERY low production cost, in economic terms the amount we pay for housing is dominated by economic rent, ie pure surplus. A house once built also continuously provides its utility for decades, unlike TVs and cars.

IMO you don't understand economics if you don't internalize this very simple fact. Housing is not a secondary part of the economy, it is the dominant expense in most of our lives. We can bid it up to fantastic heights, and it can crash spectacularly, but it can never be truly affordable, since demand for usable land always exceeds the supply.

Troy says

This is my thesis, yes. Real estate is not a good like new TVs and cars. It has a VERY low production cost, in economic terms the amount we pay for housing is dominated by economic rent, ie pure surplus. A house once built also continuously provides its utility for decades, unlike TVs and cars.

I'm not sure I understand your thesis. When you say real estate, do you just mean land? Or do you mean shelter? Because I would argue that someone's house is a good, and it doesn't have a very low production cost. Try getting a house built and tell me how low the production cost is...

Ultimately, house prices, like the price of any good, is driven by supply and demand. The cost to make it is really irrelevant. Price and cost of any good theoretically should have no correlation.

And the last decade notwithstanding, house prices have pretty much followed inflation. That is, they haven't risen in real dollars so I'm not sure why they would drop dramatically. Once this bubble has popped, of course.

tatupu70 says

When you say real estate, do you just mean land? Or do you mean shelter?

Both. What secures the mortgage we get. During the boom, while the physical shelter component increased in size, quality, and labor costs, the main price increases came from extrinsic valuation, since the replacement cost of the improvements sure as hell didn't double or triple, 2000-2008.

Try getting a house built and tell me how low the production cost is…

Construction has a very long service life, 50 to 100 years on much of it. A $250K construction should depreciate at $400/mo or so IMO.

And the last decade notwithstanding, house prices have pretty much followed inflation. That is, they haven’t risen in real dollars so I’m not sure why they would drop dramatically.

In the past, general inflation has come with wage inflation, ie a wage-price spiral. Thanks to NAFTA, a new middle class in India willing to work @ 10c on the dollar, a working class in China willing to work at 4c on the dollar, even with a deflating dollar I think we may see wages NOT rise to keep up with overall inflation.

This is a core problem of a service economy untethered to fundamental wealth production.

The primary sector of resource extraction generally has low economic rents and is thus enjoys pricing power to that extent. If they can't raise prices to cover production cost, they will just leave the land fallow and the pithead closed. Sucks for them on the micro scale, but the sector overall will reduce supply and prices will adjust upwards for those able to survive the adjustment.

Manufacturing has been largely offshored except for the aerospace and military niche. Labor in this sector does have some pricing power, due to unions and the national security aspect both limiting offshoring and H1Bs from entry.

So I think it's possible that as OPEC extorts higher prices from us, the healthcare sector continues its similar rack rent extortion, taxes are re-set back to 1990s levels at least, unless the consumer can get a raise from the boss, something's gotta give. And that something is land value and the rents that drive it.

Also, what wish i was lucky said ^. Land value is a very funny thing that I didn't grok to really late in life. It is like a treadmill, the further we get ahead with productivity and wealth-creation, the more we bid up land values, resulting in nobody getting ahead, unless they're lucky in the real estate speculation game (and millions of people are given the positive trend of the latter half of the 20th century).

What a funny way to run an economy.

Troy will be bitching about the Obama administration before the year is out.

He's like the only one of 5 people in America that still clicks the yes button on the CNN Obama popularity poll.

^ LOL. I really fail to see what the best (edit: least crappy) course of action is going forward.

My favorite analogy is the Thunderbird crash at Mountain Home AFB in 2003.

http://www.youtube.com/watch?v=LuzVl5Z4xdU

When the pilot went inverted at 0:19 the situation was dangerous but retrievable, say like 2004 was.

But at 0:22 the pilot committed his aircraft into a maneuver he didn't have the energy budget to complete in the little airspace he had. Once his velocity vector was sufficiently off the horizon, there was nothing that he could do but pick along which axis to crash his aircraft.

After 2004 Americans owed $8.2T on their homes. At Peak Debt, 1H08, this was up to $11.1T.

Three trillion dollars of borrowed money in three years, largely spent on consumption and not capital formation.

Three trillion dollars of bad bank assets held in RE loans. A couple of years ago on CR I was saying 10% losses were guaranteed, 20% likely, and 30% losses entirely possible. I was optimistic.

Someone set us up the bomb in 2004-2006. If I were on Obama's team I'd look at Jobs, Jobs, Jobs. And higher taxes on the wealthy, phased in over 10 years, to pay for it all.

Basic Socialism 101.

No if I was Obama(and I'm not thank God) first thing I would have done was end every bad Bush policy he promised he would. Which he hasn't even stopped one frigging disastrous thing Bush did. He's a perfect course of Bush's policy.

It wouldn't have been hard to tell Wall Street to get a Job.
It would have been very easy to Veto the military Pork.
It would have been very easy to "Draft" his own medical plan(since he proposed the idea and all.)

This is just taxing the Democrats out of office for at least 40 years.

America will take 10 Bush's moving forward, and that's the sick part.

Everyone should be screaming for a third party(No not some Zombie made up rehash of the Republican or Democrat party) but refresh America's core fundamental ideas.

A party that recognizes the minimal social services we need in a society with out the poor turning Helter Skelter on the rest of us. And some of Conservative views that knows what it takes to foster a healthy economy. Somewhere in the middle of the two Zombie parties we have now.

I agree with Tenouncetrout. Obama is just not reversing any of the harms Bush caused or ignored. We're still sold out to Wall Street, maybe even more so now. We're still in Iraq. The very rich still pay only 15% income tax while the middle class pays 28%. Lobbyists still protect unreasonable medical (especially insurance and drug) profits and force us to choose between bankruptcy and death. We still don't have the campaign finance reform needed to defeat lobbyists.

As president, he could talk to the country in very simple terms and get them to FORCE their Congressmen to do the right things by naming names on national TV.

But he won't, and that's why we need the Bull Moose party back, with a basic platform of getting corporations out of government.

Tenouncetrout says

It would have been very easy to Veto the military Pork.

Yeay, more unemployment. I was on the ground in Southern California 1990-92, and it wasn't pretty. All Clinton managed to do was hold growth under GDP. If I were King I'd shoot for a $150B/yr defense budget, but to get there from here is pretty non-trivial.

It would have been very easy to “Draft” his own medical plan(since he proposed the idea and all.)

Congress makes the law. The Executive administrates it.

A party that recognizes the minimal social services we need in a society

30% of the country has no discretionary income after the rent and food. 10% of the country owns two-thirds or more of the wealth. Two-thirds of the country believes mankind magically appeared on the planet as described in the Jewish creation myths.

And some of Conservative views that knows what it takes to foster a healthy economy

What would that be? It's been all downhill on that front since Henry Ford and Henry Kaiser -- they would be considered socialists today by the teabaggers.

AFAICT as long as we think high land values and home prices are a good thing we will continue to be fucked as a nation.

Clinton was rotten at military stuff. He just didn't need a Military, he didn't piss people and their countries off.

But he didn't LIE to them either.

2010 WHAT I WANT: Bay Area home prices will revert to 1997 prices + inflation
2010 WHAT WILL HAPPEN: Same thing as always. A shit load of people in the Bay Area will continue to receive multi-million dollar inheritances and keep prices ridiculously high... everyone except me.

inflection point says

4X,
I do not have any respect for either Bush or Clinton.
Obama has owned this since January. No one said he would have it easy or he did not start off with a handicap. His honeymoon is over.
There are already many facts in. Perhaps you could see them if there was a little more transparency in Government. I am sure that is coming any day now.

I understand, some of the decisions that have been made I dont agree with but I also see a certain level of pragmatism that is necessary when making decisions. Obama has to counter the negative attacks made by Republicans and choose the right paths else he will open the flood gates for negative attacks. Even if Obama chose the Republican views for healthcare, economy and war he will still get attacked.

Healthcare - If he did nothing to push reform, Republicans would attack that he did not fulfill his campaign promise

Economy - If he did not push tax credits, cash for clunkers, bailouts, etc., Republicans would attack that he sat on his hands.

War - He sent more troops, which is exactly the same thing Republicans have been preaching about not standing down....yet Republicans attack him for spending more.

There is no winning for President Obama, Republicans are going to attack everything in attempt to sway public opinion.

Tenouncetrout says

Troy will be bitching about the Obama administration before the year is out.
He’s like the only one of 5 people in America that still clicks the yes button on the CNN Obama popularity poll.

The Republican attack machine is swaying public opinion, even convinced many of you that Healthcare reform is a bad thing making it difficult to cut profits of the doctors, insurance companies that are gouging. I see you are joining the sheeple Trout, you might want to try thinking about the benefits of these bills before allowing the Republican attack machine to influence your stances.

"The Republican attack machine"

Where do they keep it, next to their "Republican Love Machine"

You guys invent the craziest shit, when you can't explain your parties crappy policies.

At LEAST republicans that loved Bush and his practices, just keep focused on the man, when you talked about him. They didn't venture off and give the Democrats credit for his failings.
My brother would defend Bush as long as the day light. Never blames the democrats, just admits those things we hated, is what he likes about him. He's a career military though, where did you get your Koolaid?

At the risk of being stoned as a false prophet, I predict housing, with the exception of various but very limited pocket markets, will continue to be stagnant, in spite of the predictable hype that prices and sales are "increasing." The banks are withholding literally millions of foreclosed properties from the market in an attempt to keep the supply somewhat manageable. Unemployment will continue to worsen which will further diminish the confidence of a high percentage of otherwise potential home buyers. Also, buyers of foreclosed properties have decreased which will further increase the glut of the unsold foreclosed units. The next huge financial shoe to drop will be commercial foreclosures which will further erode confidence. 2010 will be a very pivotal year. The Federal Government has already played most of the cards they have in the deck and it hasn't worked. Borrowing huge amounts from foreign lenders, printing enormous sums of fiat money without obtaining results spells a lot of trouble if things don't turn around dramatically in the very near future.

He’s a career military though, where did you get your Koolaid?

It's pretty simple. There's only two choices right now, seeing my country actively destroyed by the far-right or somewhat mismanaged by the center-right.

Can you honestly attempt to say the 1990s and the 2000s were equally bad??? Granted, a lot of the bad stuff of the 2000s got rolling in the late 90s (trade deficit with China, expansion of the money supply).

It's a scam, but I don't blame the parties, I blame the American people, nearly half of whom now think Palin might make a good president.

Social Conservatives form a pretty impressive voting bloc; they may only be 30% of the vote, but they swing 80-90% Republican. That's a pretty strong core to build a coalition on, as demonstrated by the Bushies in 2000 and 2004.

I'm not a Democrat because I love their policy, I'm a Democrat because Republicans are fucking idiots. I hope we can at least agree on that.

again your making my case, but you fail to realize that Obamamonium is just a continuation, he hasn't exhibited one single thing that would suggest to me. That we will have any positive growth moving forward. I don't care who started it, he's been at this for a year. And until someone actually addresses all of the leaks that is killing free trade and market forces turing around and creating a healthy economy, it will be a year or so from that point. He's been in office since Janurary. We should be at a turning point, where the horizon is literally months away. But it's still years.

Obama is really putting that... that thing... that stuff... umm umm, he does to use...

What did he say his qualifications were when he was running, again?