patrick.net

e.g.

Overstated GDP growth has meant that the 1990 and 2001
recessions were much more severe than recognized, and that lesser
downturns in 1986 and 1995 were more or less missed entirely.

http://www.shadowstats.com/cgi-bin/sgs/article/id=344

Jimbo,

I've always felt it was far more important for investors (and consumers) to be able to recognize the early warning signs of recessions and have plans in place to contend with them. A recession has different implications for each of us. Being able to customize our responses to them, is a basic survival skill. Taking away the "R" word (or "masking" it as DS implies) takes away the need for those basic skill sets.

Oh and btw, (don't tell HARM AG has always been there for him!)

You guys love to complain about Greenspan but you have him to thank for the fact that none of you under 40 have ever had to live through a real recession ever in your entire working career.

@Jimbo,

First, you make an assumption that recessions are necessarily bad things. Sure, that's true for the individuals who suffer financially. However, many would argue that recessions are unavoidable, natural components of the normal business cycle. They are needed to clean out the excesses of high-growth periods. One could argue that the LACK of a real "serious" recession during the AG years was artificial and only serves to destabilize the economy into a higher likelihood of either a serious recession or depression down the road.

Take the current situation. If Bernanke forgets about inflation risk and re-inflates assets, its likely the "true" fall down the road will be that much more severe.

Also, on your other point, as I think you yourself pointed out, the tech recession post dot-con was certainly a recession for the Bay Area that many people suffered through.

Stuck,
"We have apologizers of politicians, CEOs, Fed chairman … you name it. It may not be intentional spin, but still a spin."

I wondered when it would be written that I am an apoligist of Greenspan. :)
I am not. Something worth noting on his now famous speech about ARMs is that once how he was misinterpretted was made clear to him he gave another speech clarfying his statement. THAT speech was not carried widely by the media. So, the media's cheerleading of the housing boom certainly has its part to play.
In the end, I feel history will not really deal with Mr Greenspan at all. Volcker was hated for years but now is respected. Whomever is the Fed chief when Medicare either goes bankrupt or has its benefits radically changed will raise to the level of historical significane.

But back to the basics of this Blog - actionable information about housing. I maitain that the Fed will lower rates by years end to 4.5%, then a late 70s era style of massive rate hikes to combat huge inflation will begin in earnest by late 2008. A strong cash position in '09 and beyond will give people a chance to buy much more reasonably priced homes. By '11 we may see the best buying opportunities. Given the factors stay the same. For my part, I keep wondering when technology will solve the Bay Area housing problem by allowing the virtual office. I have been wondering this for over a decade. Sigh.

Jimbo Says:
You guys love to complain about Greenspan but you have him to thank for the fact that none of you under 40 have ever had to live through a real recession ever in your entire working career.

I have lived through two - the early 90's recession and the short one following the dot-com bust. In the Bay Area, that period _was_ a significant recession.

I don't see recessions as necessarily bad - it is a little bitch-slap of reality in the face of complacency. It forces businesses (and people) to be adaptable and productive, and shakes out speculators and unproductive remoras from the system. Not letting this happen is a bad thing.

I would not complain if it was part of the Fed's charter to let mild recessions happen once every five years. Put a basic social safety net in place to catch the people involved so they don't have to go begging, and aggressively let bad businesses die. Unfortunately, we seem to be doing exactly the opposite of this.

SP

First, you make an assumption that recessions are necessarily bad things.

One of my lib/democrat-type friends thinks that recessions are bad and that not only should the government avert recessions, they should step in and keep stock prices up.

I don’t see recessions as necessarily bad - it is a little bitch-slap of reality in the face of complacency.

Liquidate labor, liquidate stocks, liquidate farmers.
-- Andrew Mellon

What needs to happen needs to happen. Delaying the inevitable is not necessarily wise. If we really slip into a depression, we just need another war.

Duke :

Sorry if my responses were harsh. There is more to despise in Greenspan than that infamous speech. We can debate endlessly about the actual motivation of that speech or the "clarification" speech. But "Greenspan put", bailouts, liquidity injections etc is there for all of us to see.

During the late 90s leading to the dot com boom I saw people deifying Greenspan, Abby Joseph Cohen, Cramer etc. My tolerance level for these people is especially low. Greenspan refused to accept the existence of the bubble. Then he created another one. Without learning any lesson from not so distant past. And refused to accept existence of that bubble either.

Now he is pathetically trying to rewrite history. And I do believe that history will not forgive him. The same people who were thanking him for creating a housing ATM will blame him for their misery. My views won't matter.

Put a basic social safety net in place to catch the people involved so they don’t have to go begging, and aggressively let bad businesses die.

If we let the market work its way, poor people will be disincentivized from procreation. Over time, poverty will be eliminated.

Again, we have the opposite.

Logic dictates that we end all means-based welfare programs.

I couldnt find a job in 1989. That was a major depression for me. I wondered why I went to college.

Oil is the reason we are in the Middle East. The Chinese are doing the samething in other areas. And arguably it is the best reason to go to war. Certainly more meritorious than saving Hawaii for rich Asians to vacation to. We sufferred 550k casualties in WW2 so that Russia could extend its Communist Empire. Is that a better reason that pursuing oil reserves?

And arguably it is the best reason to go to war.

I agree!

We sufferred 550k casualties in WW2 so that Russia could extend its Communist Empire. Is that a better reason that pursuing oil reserves?

Now, there is a much better peace-keeping tool. Mutual Assured Destruction.

It is not just about pursuing oil reserves. It is also about securing oil reserves.

I just wish that the war was managed slightly better.

The only just cause of war is the pursuit of resources.

StuckinBA,

Like many here, I've dedicated altogether too much of my life trying to read between the lines? The way that I understood "that infamous speech" was;

"Look, we all know the 2 year cap gain exemption is quite possibly the most generous table scraps we've EVER allowed to fall off the table. So let's quit pretending Joe and Jane Sixpack have ANY interest in building up long term equity in their primary "ATM" and have totally bought into the "buy to flip model". Housing consumers should take advantage of the even LOWER rates ARM's offer b/c we all know full well you'll be dumping it long before they've built up any paid in equity anyway! It's "The New American Way!"

Or... was that just me reading too much into it?

Salk

Sorry, you need to read up on your history, WW2 was not just about Hawaii and extending Russias empire.

I personally have know people who lived with the horror of Dunkirk, I dread to think what it was like for those in the concentration camps!

salk Says:
We sufferred 550k casualties in WW2 so that Russia could extend its Communist Empire.

That was the (unintended) consequence of the war, not the reason for American participation. The US joined the war to support the English, and to prevent German consolidation of power in Europe. It is arguable that the war on the Russian front actually reduced the number of allied (US/UK) casualties in the west. So that 550K number could have been a lot higher.

SP

Also, without that WW2, things will be a lot different now. I doubt even air travel would be popular/affordable.

I think this talk from Greenspan about interest rates needing to go into the double digits is no more than just candy to bring confidence to the dollar which is doomed anyway. I think Ben and Alan are on a tag team; Ben wants to cuts rates as Alan baffles everyone with bull$hit with false hope that the dollar will eventually rally. It's funny how this information gets out just before an expected rate cut.

Did Bush appoint Bernanke? I'm surprise he didnt appoint MLM guru Kiyosaki instead. That wouldnt surprise me at all. So many clowns and cronies surrounding bush (remember harriet myers?)

salk,

I'm going to guess that you didn't wonder much about history while in college. Your claims about Americans dying to make Hawaii safe for rich Asians and USSR expansion is particularly prepostrous.

1. Wouldn't Hawaii be even more welcoming if the Japanese were in control and spoke Japanese (and everyone in East Asia spoke Japanese because they're members of Imperial Japan's Co-Prosperity Sphere)?

2. Most successful Communist movements, especially in Asia and Latin America, was nationalistic in nature. USSR's "empire" was sufficiently unwieldy to distract it from America for a good chunk of the cold war and ultimately brought its downfall in the Afghan war.

Actually, the core of both WWI and WWII was largely about empire - between the first wave empires of Great Britain/France/Benelux and the second wave empire wannabes Germany/Japan. The heavy tolls on both sides created a power vacuum that was filled by the US and USSR. US and USSR, barred from direct confrontation due to the insanity of MAD, fought limited wars in Korea, Vietnam and Afganistan...and suffered mightily for it.

There is an important takeaway from this: modern empires should avoid armed conflicts, even regional conflicts, as much as possible. Any such conflict is likely to weaken its position domestically and internationally, conveniently creating a power vacuum for...if we're lucky then the EU/Japan/Korea; if we're unlucky then Russia/China/India.

Most people on this blog are interested in the Fortress and nearby areas. I like to play a lot more attention to the Fringe, as I consider it a sneak preview - to a certain extent.

So this morning's bit on KCBS about Mountain House caught my attention. For those not in BA, this is a completely new town built near Tracy. Seems like it is becoming a foreclosure city. The reporter pointed out the irony of the street names like "Prosperity". Vacant houses and brown lawns and all that stuff. One guy commented that the foreclosures and short sales are not really selling. The reason ? Builders are still building and offering discounts of 100K.

A person I know first hand had booked a house there. About 2 years ago. A brand new, huge house less than 600K. Suddenly he got cold feet and surrendered his deposit. I was quite surprised, as the conventional wisdom even then was "BA and everything around it is special". I don't know what research he did. Maybe he discovered a blog or two. But I commented to my wife that he paid a small price and saved himself from making a huge mistake. She didn't believe me then. I am sure the guy is feeling much better now.

600K in Mountain House didn't seem that bad then, because similar houses even in Los Banos had similar range, Tracy was 700K and Dublin was 800K. Now all these prices seem ridiculous. A lot changed in last few months. But this is also how the wave retreats. Since you can get a house for 400K in Mountain House, you won't pay 700K in Tracy and 800K in Dublin. And so on.

There is an important takeaway from this: modern empires should avoid armed conflicts, even regional conflicts, as much as possible.

I thought modern empires should facilitate other people's conflicts as much as possible. ;)

Peter P,

Possibly the case in theory, but likely to yield unpredictable blowback in real life. See also modern histories of Russia, Iran, Iraq and Afghanistan.

"It is arguable that the war on the Russian front actually reduced the number of allied (US/UK) casualties in the west."

The Red Army kept 190 German divisions occupied that would have been free to fight elsewhere. The Red Army also took casualties in the range of 100,000 dead per week for about 4 years, while killing about 7 million or so Germans (and it wasn't the "winter" that defeated the Germans, as the Germans were at the outskirts of Moscow for three years. German defeat came from the 360 Red Army divisions that the Soviets were able to put together after retreating, scorching the earth, and regrouping after the surprise German invasion). Yes, I'd say the Soviet efforts in their Great Patriotic War saved a few Anglo/American lives.

Astrid,I essentially agree with most of what you have written. However, I abhor the term "Cold War". War involves bullets, bombs, and mass casualties. Hundreds of millions of christian europeans were enslaved by Communist Russia (our ally!). 550k US casualties so that we would have to spend trillions to counter Communist China and Russia? Only Japanese militancy and its threat keep Asia peaceful currently. Only the threat of Germanic militancy kept Russia from conquering Europe the last 60 years. It is only the blood of Japanese and Germans that have prevented global Communism (and with it the death of western civilization). Asia is in many ways a big winner. By my point is pursuing oil (which the free world needs) at the expense of 3000 casualties is more easily defensible than 550k US casualties and the expansion of Communism.

Our allies, China and Russia, could teach us something about death camps.

"Only the threat of Germanic militancy kept Russia from conquering Europe the last 60 years."

Both Germany and Japan have been rather pacifist these last 60 years. Something other that fear of the Bonn government kept the Soviets out. Maybe NATO and US nukes.

Headset, there is no debating that our ally,Communist Russia ,did most of the dying and fighting. And it was very late in the day when our Generals said "Hey, without the Germans, Russian is gonna steam roll Europe and us real soon. " Well Communist Russia eventually did conquer most of christian europe anyway. And we spent trillions in the succeeding decades fighting communism and building atomic weapons. My point is that we are very susceptible to propaganda and that our government will sacrifice trillions$ and hundreds of thousands of US lives to achieve nebulous goals.

Wow, half point cut federal funds and discount rates.

Party on. Meh.

Headset, atomic weapons would not be part of any military scenario in Europe. Not one US soldier fired a single bullet against the Communists. Stalin was aware of our poor performance against the Wehrmacht despite outnumbering them 10:1. We also sufferred casualties in 10:1 ratio despite having the most well equipped military. The Communists realized that despite its numbers, it could not defeat Germany unilaterally. This saddened Stalin because he had overt plans for world domination. And with a military of its preWW2 size, it could have been realized.

Market loves this half point rate cut, it's rallying.

"Wow, half point cut federal funds and discount rates."

Damn, now we can't see if the selloff Justme predicted will come true if we had less than a .5 rate cut.

Ben is bending over. He is cutting rate when we should have much higher interest rate.

wow. 1/2 point afterall.

http://www.npr.org/templates/story/story.php?storyId=14502179

Let's go into inflation mode strategies.

It is sad that a fine businessman like Kennith Lay was prosecuted to death while our currency is allowed to be destroyed. Which is a greater crime?

salk,

You really need to re-read some history books, man. Or look up some post-war maps. Most of the post-war "christian Europe" was either under NATO influence or neutral.

Thanks, HeadSet :)

Here is something interesting: After the initial "Bernanke pop" 15min ago, CFC has now retraced back to its pre-pop value. Several other stocks are taking a similar turn, although less dramatically so.

Is it a good time to buy home Builder stocks? They started going up.

"Is it a good time to buy home Builder stocks? They started going up."

Yes, you do that. We'll be right behind you.

Headset,

LOL! Yeah the NAHB sentiment is at 22 year low. Even Cheerleader in Chief David Seiders doesn't see "a gradual recovery" until the 3rd. qtr. of NEXT year (but I'd sure hate to get left at the station).