patrick.net

HARM, or anyone–care to explain the concept of “inversion” for those who aren’t finance/market types?

Basically, the way banks make money is by borrowing short-term (from the Fed) and lending long-term (to businesses and individuals). As long as interest rates ("yields") are higher for long money than short, this works. This is the normal state of affairs, as the extra risk premium for lending money long-term usually translates as higher long rates.

This doesn't work when short rates are equal to or lower than long rates. When long & short rates are roughly equal (we're nearly there now), the yield curve is said to be "flat". When short rates are higher than long rates, the yield curve is said to be "inverted". When this happens the money/credit supply typically shrinks (or at least stops growing). Yield curve inversion has hstorically been a a good predictor of recessions and asset-price squeezes.

Oops --meant to say "This doesn’t work when short rates are equal to or higher than long rates."

Just posted on Craigslist (tinyurl.com/a247v):

HELP HELP HELP I'm over extended.

...My house in Landsdowne is a single family home and is being built. I'm going to settlement next month. The House has 5 bedrooms and sits on a golf course. Similar homes in the neighborhood have sold for $973,000. I want $850,000. Why? I'm over extended. I don't know a lot about this house including the address, but I can assure you that it is a money maker for any investor or a great deal for a family looking to settle down.

Surfer-X - time for a 'crazy miner' dance?

It's interesting to note how the media is becoming more cautionary towards RE. Here's a news story from Sacto's NBC affiliate:

http://tinyurl.com/95vbu

They even quoted these guys before the realtors:

Chris Thornberg, a senior economist with the UCLA Anderson Forecast, argues that the dramatic rise in what he calls "ultra-high-risk" mortgage financing is a sign of a "distended market."

"What happens when you run out of people who could even qualify to buy a house with an interest-only, (zero-down), variable-rate mortgage?" Thornberg asked. "The answer is ... there are no more shills to enter the bottom of this pyramid and, therefore, the pyramid scheme will have collapsed into itself. We are in the midst of the biggest bubble we've ever seen."

fade in: creepy horror-flic organ music..

Well, demand is still strong and people can always sell one kidney to finance their homes. A household of four can sell four kidneys. Once the organ-mortgage market catches on, the market will take off again. :twisted:

While Los Angeles has rights to lots of Central Valley water, it doesn’t typically exercise those rights much because that water is expensive to transport to L.A.

Windog, thanks for the detail. Ok, perhaps I exaggerated...However, I do believe it was an impressive body of water, drained for agriculture, etc. Regarding transport, what about the California Aqueduct? Looking at the maps, I notice a long arm extends from the sacto delta to LA reservoir. This all a tangent really, I just remember some stuff from a documentary a few years back...

Once the organ-mortgage market catches on, the market will take off again.

Coming soon: organ-flipping! Buy organs on the cheap, flip for massive returns.
Next on the Discovery Channel: "Flip that Organ", hosted by Dr. Mengele...

"Once the organ-mortgage market catches on, the market will take off again."

and

"Please reply to retardedmofo@homedebtor.org"

LMAO!

"Next on the Discovery Channel: “Flip that Organ”, hosted by Dr. Mengele… "

Still LMAO... Reminds me, I recently saw ads for a show on one of the home improvement channels about homeowners who very much need to sell their homes. I even saw a show synopsis where one of the owners featured didn't succeed in selling by the end of the show. That doesn't sound all that dramatic, except that most of these home-oriented shows have exclusively happy endings.

tsusiat, don't get me wrong, I think Canada is a fine country. There is a good chance that I may move there someday.

Randy H.,
Don’t you think that every person is unique and can’t be labeled as being less beneficiary or more beneficiary based on ethnicity?
There is nothing wrong with people of different cultures living and working together. I have nothing against immigrants, being one myself. But there is now a whole new science of diversity - books, obligatory college classes, diversity specialists being hired all explaining how diversity benefits economy, society and anything else. It seems to me, this is an another ideological snake oil. The same applies to class theories.

I stated early, and will state again that I believe all forms of social engineering are dangerous and usually don't work. I am making statements about diversity as being driven by economic market forces. Remember, I'm a bit of a market pureist (but not entirely so, I realize that sometimes market controls are needed, but rarely in my opinion), and moreso I'm very much an Objectivist. Therefore, what I seek to prevent is any form of coercion, which in fact prevents optimal market function. I see a lot of the anti-immigration, cultural purity, religious hegemony arguments as vailed coercive acts by people in the "in-group" trying to block out other, often more competitive entrants.

Class theory is more well founded and studied. It's just a classification, not provable in it's own right, but then again biological nominclature is just a classification, and not provable. What is known is that strata of society, in all cultures, emerge and movement between those strata encounters friction. The US is famous for having less friction, historically, and this is what people are worried is changing.

The US is famous for having less friction, historically, and this is what people are worried is changing.

I recall some pretty high points of friction in US history (ok, not to the level of the Balkans), but as time wore on, didn't things usually level off? I'm thinking of initial friction towards a number of immigrant groups: japanese, jewish, chinese, irish, italians. Are these marginalized peoples now? Personally, I think anyone who works hard in the US still has a chance. By the same token, I don't think anybody should be coddled by the govt.; it only promotes apathy--a far worse enemy than prejudice.

What is known is that strata of society, in all cultures, emerge and movement between those strata encounters friction. Yes, it seems the "old guard" always reacts to outsider competition. However, their tactics to suppress seldom work long-term, and I believe the same holds true for today. Just my .02, I'm sure I've left something out...

Basically, the way banks make money is by borrowing short-term (from the Fed) and lending long-term (to businesses and individuals). As long as interest rates (”yields”) are higher for long money than short, this works. This is the normal state of affairs, as the extra risk premium for lending money long-term usually translates as higher long rates.

I think this is the arbitrage effect that occurs in response to inversion of the curve, not the cause of the inversion. It is correct that the "normal" state of affairs is an upwards sloping curve, which can be explained simply by liquidity preference.

When the curve inverts it does so for a number of reasons, many of which have to align to actually cause inversion instead of just flattening. The question everyone should ask is why, if short-yeilds are lower, would anyone borrow long? It strikes me that the duration-matching argument only goes so far. The tongue-in-cheek response (I read in the FT) is that borrowers better borrow at bad long-rates now before they have to borrow at worse long-rates later. I think this is a sentiment argument, but I'm not a behavioral finance expert.

The US is famous for having less friction, historically, and this is what people are worried is changing.

Yes, it is a slippery slope. No friction at all. Gravity applies though.

I see a lot of the anti-immigration, cultural purity, religious hegemony arguments as vailed coercive acts by people in the “in-group” trying to block out other, often more competitive entrants.

Randy, I agree with you that there's a strong element of xenophobia and economic protectionism at work among those seeking to reduce or eliminate ANY immigration. However, I'm not 100% convinced of the societal "benefits" of all forms of unlimited immigration, especially the illegal kind going on here in Cali.

Illegal immigration here has largely been used by big business as a blunt instrument to beat down wages and living standards for those "Working-class" and "Educated Skilled Class" you described earlier in great detail. It has also made it much easier for many industries to offload the burden of providing health insurance, pensions, etc. to the public sector (think agriculture, construction, hotels, food service, Wal-Mart, etc.).

While I am generall an advocate of free trade as well and oppose government/public efforts to interfere with well functioning markets, I also see how illegal labor arbitrage is damaging the standard of living for average working people here. I'm all in favor of free trade and market transparency; however, this doesn't mean that I support breaking any law so that multinational shareholders & executives can enrich themselves at my expense.

Even "free markets" must operate on specific rules that societies agree upon. Without any rules, you get chaos and fuedalism.

HARM,

I agree 100% with your comments. I'm not advocating we live in an anarchy without rule of law, and I agree that illegal immigration is generally negative. I simply mean that those laws must be color/religion/socioeconomic class blind, or they serve to have adverse effects. I'm glad you agree that it's the corporations which laregely benefit from "labor arbitrage", because I think this is a truism, but it contradicts the arguments made by many anti-immigration folk, including some on this board, who try to always blame "liberals" and "socialists".

Randy H,

Thanks for clarifying that --we are in complete agreement :-).

If I loose my job tomorrow, I feel I will move between strata with no friction at all. No reason to worry for me.

Fortunately, there is downward friction too. So long as you are educated or skilled, the chances of you moving down more than one strata are practically nil, short of self-destructive behaviors (alcoholism and drug abuse being the big 2) or mental illness. Pretty much the only way into the Poor is to be born there or forced there through specifically unfortunate divorce.

Harm,
We all like to feel as if we are protected by laws. However, you have to ask the question who is making and shaping the laws. Lobby groups, multinationals etc, I guess the final say the people have is at the ballot box, and it appears there too, there is substantial influence applied.

However much we might not like it , maybe globalization is a good answer, after all , won't the majority of jobs be somewhere else and that will attract the illegals somewhere else?

You never know, sometime in the future, China and India might be the desirable place to be .......... :) ;) ;) ;)

HARM, Randy H,
I feel I can't agree about illegal immigrants being a problem.

First off, what percentage of jobs do the illegals have.

Second, don't the factories in Indonesia that make NIKE's pay alot less than workers in America. Therefore there are none of these factory jobs in America to be had by illegals??

The benefactor in this is the American consumer that has the oppurtunity to pay less for goods.

So long as you are educated or skilled, the chances of you moving down more than one strata are practically nil, short of self-destructive behaviors (alcoholism and drug abuse being the big 2) or mental illness. Pretty much the only way into the Poor is to be born there or forced there through specifically unfortunate divorce.

Hmmm... not so sure about this one, having witnessed a number doing so first-hand (and almost ending up there myself during the early 1990s). It's less likely than moving down from the working-class, true, but I can assure it possible, even without self-destructive behavior or divorce. I can name a few other trigger events: (1) being downsized in a major recession or depression, (2) having your "skilled" job outsourced or rendered obsolete due to technological advances, (3) being bankrupted due to medical expenses not covered by insurance.

sorry about the extra italics --not intentional

I feel I can’t agree about illegal immigrants being a problem.

The problem is arbitrary enforcement. Legitimate businesses should not be force to break immigration and labor laws just to stay competitive.

First off, what percentage of jobs do the illegals have.

In some industries, such as agriculture, construction, hotel staff, food preparation, etc. the percentage is almost 100%. Of course, it's hard by definition to produce exact stats, because such hiring is illegal.

Second, don’t the factories in Indonesia that make NIKE’s pay alot less than workers in America. Therefore there are none of these factory jobs in America to be had by illegals??

The benefactor in this is the American consumer that has the oppurtunity to pay less for goods.

AntiTroll, I'm not sure I get your point here. Are you arguing that because there's so much offshoring/outsourcing to asia, there can't be much illegal immigration in California? The census here (and direct observation) says otherwise. I can assure you as a native Californian that the flood of illegal immigration is very real, and labor arbitrage here is alive and well.

The benefactor in this is the American consumer that has the oppurtunity to pay less for goods.

How is this an advantage? Well, it masks true inflation. Then what?

Taking the topic further, can we predict the social impact after an RE bust?

Some things I see:
• Homebuyers become much more skeptical towards realtors, demanding objective appraisals and other market info.
• A lot of lifestyle down-sizing. After many retailers slide into the red, a secondary market of slightly-used goods will boom: buy that Wüsthof knife set for 1/2 off. A lot of estate sales to get cash flow.
• Many will have less money to play with, and consequently find ways to actually do something with their lives. I predict higher-quaility cultural output: pain is good for the soul.
• Of course, there will those who whine, blame and point fingers at whomever they can--despite the fact they followed the herd. I'm sure some will even get litigious.
• Others will predict the "next big opportunity" just around the corner. Some fools will actually buy RE low, expecting an upturn soon.
• Some Americans may actually demand the govt. focuses its attention on the domestic scene--and get its butt out of Iraq.
• Will credit debt become unfashionable?

AntiTroll, I’m not sure I get your point here. Are you arguing that because there’s so much offshoring/outsourcing to asia, there can’t be much illegal immigration in California? The census here (and direct observation) says otherwise. I can assure you as a native Californian that the flood of illegal immigration is very real, and labor arbitrage here is alive and well.

I'm not saying that illegal immigration is not happening.
What I am saying is that if a business can only stay competitive by using illegals then wouldn't the business have to close without the use of illegals (hence loss of jobs, both legal and illegal).

AND if many businesses are competiting so hard, doesn't the consumer see lower prices as a result?

What I am saying is that if a business can only stay competitive by using illegals then wouldn’t the business have to close without the use of illegals (hence loss of jobs, both legal and illegal).

Huh? Compete against whom?

Harm,
I am also saying that by using outsourcing etc, the low paid job is somewhere else and not as noticable as having an illegal living next door!

I am also saying that by using outsourcing etc, the low paid job is somewhere else and not as noticable as having an illegal living next door!

But how can we "outsource" hotel maids and gardeners? We can outsource construction workers using the concept of modular homes though. ;)

Peter P,
How many jobs have been created by illegals?

CHEWBECCA

Peter P,
How many jobs have been created by illegals?

Maybe quite a few. My point is: perhaps we should legalize them so that law-abiding businesses can hire them. However, we cannot have a wink-wink quasi-law.

The Association of Realtors’ predictions have been wrong because they assumed interest rates were going to go up a lot more than they have….if/when that DOES happen, then sales and prices will subside.

Also, this shows that their studies have been completely useless.

"Taking the topic further, can we predict the social impact after an RE bust?"

Maybe there will even be a cultural renaissance of sorts. If everyone isn't out buying crap, maybe there will be a renewed interest in composing great music, writing great books, creating great art... Kids will read books and the next generation will become brilliant scientists, mathmaticians, artists...Hey, I can dream right?

But more realistically...

Board game nights will be really hip.

Cheap liquor will suddenly be in. People will drink wine coolers instead of wine.

Walmart will be the new Bergdorfs.

Garage sale chic will be bigger than ever (and recalling HARM's reference to Zoolander and the Derelictque (sp?) line of fashion...)

America will finally embrace hybrid vehicles...if car makers get a clue and stop making them look like weird little bubble cars.

Walking/biking to work will be the new form of exercise. Gyms across the country will go out of business as people finally figure out that if they'd just get off their asses they wouldn't need to go to the gym.

Americans will lose weight. Or maybe not...just recalled that study about how poorer people have a greater chance of obesity. Hmm.

Jack, it is a stated-OUTCOME study. They wanted a conclusion that looks sustainable and plausible. Hence the "correct" direction and inaccurate magnitude.

I’m not saying that illegal immigration is not happening. What I am saying is that if a business can only stay competitive by using illegals then wouldn’t the business have to close without the use of illegals (hence loss of jobs, both legal and illegal).

AntiTroll, this argument is used here quite often (mainly by businesses trying to justify their hiring of illegal workers). I see it as disingenuous and a self-fulfilling justification. In the current environment, yes, many honest companies are pretty much forced to lower wages/cut benefits in order to "compete" with dishonest ones exploiting cheap illegal labor. However, if immigration (and hiring) laws were enforced, there would be no pressure for them to do so. They would not be at a competitive disadvantage by not hiring illegals.

AND if many businesses are competiting so hard, doesn’t the consumer see lower prices as a result?

Possibly in some areas --food prices for one-- but not in others. For example, housing is almost 100% built by illegal labor. Do I see prices falling in CA? I don't think so! ;-). Personally, I'm willing to pay a few extra cents on a head of lettuce to keep wages high, our state infrastructure maintained, and cut down on pollution & overcrowding.

...I am also saying that by using outsourcing etc, the low paid job is somewhere else and not as noticable as having an illegal living next door!

Well... this may be a comparative benefit of outsourcing over illegal immigration, but it doesn't address the economic & social problems caused by illegal immigration here. I doubt there's much we can (or should) do about outsourcing, as it's a function of macro globalization, and erecting trade barriers would likely make things worse. There is something we can do about illegal immigration though: enforce our borders and employment laws, and fine/punish those who break them.

3.2 AND GROWING RAPIDLY BY THE DAY is what they should say.

Add to the mix, data on growing inventory/lagging sales:
http://tinyurl.com/aocnh
http://tinyurl.com/a2gz8
This is something we've observed too!

And, just now--this was overheard from my coworker's office:

"Bubble? there is no bubble. (sounding dismissive)...California is going to be fairly immune to it"

So much confidence...so little data.

Of course--coming from a guy who's heavily invested/HELOC'd (just bought a new Land Rover and M5) If a bust comes, think he'll be blindsided? I do. Last week, I sent him some cautionary data; he seems as locked in as MP.

There is something we can do about illegal immigration though: enforce our borders and employment laws, and fine/punish those who break them.

Maybe employ the illegals for border patrol, and enforement? ;)

Maybe employ the illegals for border patrol, and enforement?

Good idea!

What I am saying is that if a business can only stay competitive by using illegals then wouldn’t the business have to close without the use of illegals (hence loss of jobs, both legal and illegal).

Here's a need that illegals cover in California: agricultural labor. I may have mentioned it before, but how many CA residents would want an ag job, especially given the current cost of housing? It won't happen, therefore the illegals meet the need. The same applies in Europe; transients perform the jobs that Germans, Swiss, etc. don't want to "dirty their hands" on.