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Bill Gross insists Fed charter includes propping up housing bubbles


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2007 Nov 5, 7:12am   16,723 views  141 comments

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PIMCO says housing delinquencies to rise into 2008

NEW YORK, Nov 5 (Reuters) - The Federal Reserve will have to cut its federal funds target rate to prevent a dramatic fall in housing prices in the wake of the subprime meltdown, said the manager of the world's biggest bond fund on Monday.

Thank God for Bill Gross being around to clear up this sort of thing. I had been operating under the mistaken impression that the Fed's Charter had something to do with ensuring the soundness/stability of the banking system and protecting the USD. But evidently, they're in the business of protecting inflated asset prices and propping up housing bubbles.

Whew, glad that's all settled...
HARM

#housing

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69   Paul189   2007 Nov 6, 9:15am  

I like the currencies I could see myself using if/when I leave the USA. Those would be Canadian and/or Euro. Of course, my gold will be accepted globally so that is the preferred money these days!

70   justme   2007 Nov 6, 9:25am  

Duke,

"Innovation" in the field of finance is usually a sign of bad things to come :-)

71   Peter P   2007 Nov 6, 9:29am  

Another thought. JPY is tracking the dollar, so not much use for devaluation hedge. You’d have to be looking for that unwind and be patient.

So... what do you think about the AUD/JPY "carry trade" ? :)

Hedging and income at the same time?

Not investment advice

72   Peter P   2007 Nov 6, 9:31am  

Silver still looks attractive because it is not as high-flying as gold. I still like gold though.

Which would you prefer: Canadian currency or Canadian stocks?

73   SFWoman   2007 Nov 6, 9:45am  

FAB,

That place on Clay Street reminds me of when I was looking in '94. Owned by a bank that just wants to get rid of it. In a year or so there will be nice places 'For Sale By Creditor'.

74   StuckInBA   2007 Nov 6, 10:28am  

Peter P:

I like AUD and have a position in FXA. It will be affected when the carry trade unwinds. But it's also a currency of a country that has lot of "stuff". The stuff keeps getting more and more valuable as we approach ZIRP.

75   Peter P   2007 Nov 6, 10:46am  

I like AUD and have a position in FXA.

I have FXA too. However, I think they are charging too much. :(

76   Peter P   2007 Nov 6, 11:05am  

I like country with more stuff than people. Canada and Australia.

I am not very optimistic about UK. China has too many people.

People = Liability

Or... people = resource consumers :D

77   StevenB   2007 Nov 6, 11:07am  

Is it wrong for me to WANT a massive downturn, a prolonged recession during which people can't make payments on their debt, cut back on discretionary spending, fear for their jobs and struggle to hang on to their dwindling assets?

For the past 5-10 years, I've lived on extremely modest means, I haven't been able to buy a house in this ridiculous market, but instead I've learned to enjoy the simple things. I'm not a conspicuous consumer, I don't buy the latest gadgets (my 3 yr-old MP3 player and cell phone are working just fine, thank you), and I try to ride my bike or use public transit instead of shelling out $3.50 for gas. All the while, I've looked at those around me with envy (yes, I'll admit it), knowing that as soon as my education is complete (next year I'll be board-certified in psychiatry), I can join the ranks of the privileged.

Now, for the first time, I'm looking around me and I'm GLAD I don't have what others have. I'm no financial expert, but it seems like the ride down will be prolonged and painful. And since, in a very real economic sense, I'm already there, I'm ready to just carry on with life as usual. And as a psychiatrist, I have no fear that there won't be a need for my services for many, many years to come.

78   Peter P   2007 Nov 6, 11:22am  

Is it wrong for me to WANT...

It is not wrong to want anything.

79   StuckInBA   2007 Nov 6, 11:39am  

StevenB :

Welcome to the dark side of Schadenfreude !

On a serious note, most of my dear friends are homeowners. They bought the house to live in, not to flip. The bought mostly out of fear of being priced out. I hope they will be OK, and I think they will survive the downturn.

But there are a few acquaintances whose smugness was too much to take. Some of the conversations I have had with them will live forever in my memory. They were proud of winning the bidding war, had figured out the economy, considered zestimates as dicted by God himself, worshiped Greenspan as his only prophet and were "set for life". The naysayers were ridiculed as jealous losers.

I would have loved to met them for lunch now, but since they are not of the type to admit mistakes, there is not much point.

80   StuckInBA   2007 Nov 6, 11:46am  

This is what happens where you are the bearer of bad news.

http://tinyurl.com/2j7un8

THE analyst whose downgrade of US investment bank Citigroup sparked a broad stock market sell-off last week said she has received several death threats stemming from her research, the Times of London said.

81   danville woman   2007 Nov 6, 11:51am  

I have just been reading the posts about Bill Gross.

A few years ago he seemed to be an upstanding, ethical guy. About 2 years ago, I sensed he turned to the dark side. It's amazing what can happen to people who love fame, power and money too much. He should have retired at the top of his game - goodness knows he had enough money to do so. He himself was aware of the housing problems but somehow let himself get snarled up into this loan mess.

He is tarnishing his reputation even more now with his inappropriate requests. It is almost as if he has made a deal with the devil.

82   OO   2007 Nov 6, 12:59pm  

USD is falling like a stone now!

83   OO   2007 Nov 6, 12:59pm  

sorry, I meant US Peso.

84   OO   2007 Nov 6, 1:16pm  

RBA raised target cash rate by 0.25%.

AUD on the path to parity! Which currency is the next to parity with us? NZD?

I think Yen is about to move very soon, because oil is causing inflation spike in Japan. If BOJ raises interest rate, that will be the beginning of the end.

85   coretexity   2007 Nov 6, 1:56pm  

Why don't all the banks just put their money in AAPL and GOOG? They never go down, and in a couple of months they'd double their money to start lending to anyone with a beating heart again! Like the annoying ad on radio - this is the biggest no-brainer in the history of mankind. Also, I heard GOOG and AAPL are nice people too.

86   hugel   2007 Nov 6, 3:44pm  


coretexity wrote:
Like the annoying ad on radio - this is the biggest no-brainer in the history of mankind.

LOL! I kept hearing that on radio and could stop wondering what it was referring to: the loan or the borrower?

87   SP   2007 Nov 6, 4:45pm  

# hugel Says:
re: the biggest no-brainer in the history of mankind.

wondering what it was referring to: the loan or the borrower?

Nominate this for "Best of Patrick.net"

SP

88   Duke   2007 Nov 7, 12:03am  

StevenB,
Board-certified psychiatry? That was so unexpected. I tend to think of many people attracted to that field as wanting to learn how to identify certain conditions, (envy, entitlement) understand their conseqences, then learn how to get past them to a more heathy existence. It sounds like you are learning how to identify conditions but you accept them in yourself, and that is just really interesting to me. As not-a-physchiatrist I can't say what that all means. However, as an armchair economist I can say that people may need your services more then ever (assuming you help them not only identify their pain but get past it?) but they will not be able to afford it. As Maslow would say, until food, clothing, shelter and safety needs are met people will not be heading down a lot of other paths towards self actualization. Sessions on the couch are a pretty easy choice for elimination when eviction and hunger are in play.
I sincerely wish you the best of luck on 'joining the ranks of the priveleged' - especially since you of all people must know it does not come from fancy homes and, presumably, thess then 3 year old cell phones and mp3 players.

89   SFWoman   2007 Nov 7, 12:21am  

StevenB,

I think seeing and wanting nice things is fine, but if you find yourself becoming bitter or disparaging of what you have it's time to re-evaluate yourself. I have two friends with young children who have suddenly developed life threatening illnesses, They'd give their big houses and everything they have to have healthy kids. Always try to keep perspective on what's important and what actually makes you happy. A hint- a few of my friends in those big houses are miserable, and a few are so financially strapped they have trouble sleeping.

OO,

I believe the correct term is 'dollarette'.

90   justme   2007 Nov 7, 1:50am  

SFWoman,

Dollarette, that;s a good one. Same taste, less filling?

91   DinOR   2007 Nov 7, 1:55am  

"wanting nice things is fine"

I must have fallen head first into the *SP "not wanting to trade my dollarettes for YOUR cr@p mode"? But then how did BMW's #'s turn out so sweet? Last hurrah?

92   Duke   2007 Nov 7, 2:40am  

DinOR,
BMW's numbers look good only if they don't do their own financing. :)

93   FormerAptBroker   2007 Nov 7, 2:48am  

StevenB Says:

> Is it wrong for me to WANT a massive downturn,
> a prolonged recession during which people can’t
> make payments on their debt, cut back on discretionary
> spending, fear for their jobs and struggle to hang on to
> their dwindling assets?

It is wrong to want bad things to happen to others (but I think that most of us struggle with this and it would hard NOT to be happy if some people (like the “my neg am loan helped me by big rims and a loud stereo guy”) went BK…

> For the past 5-10 years, I’ve lived on extremely modest
> means, I haven’t been able to buy a house in this ridiculous
> market, but instead I’ve learned to enjoy the simple things

If you look around you will see that the really happy people focus on the simple things. It took me a long time to figure this out and as a poor kid growing up around rich kids I was always focused on getting new stuff and would by new stuff just because a new product came out. Now I only get something new if I really “need” it…

P.S. There was an interesting quote in the NY Times recently that said “Bling is for wannabes. Suits are for funerals”…

94   DinOR   2007 Nov 7, 2:58am  

I don't follow the company (so I don't have a dog in the fight) but it just seemed that their sales were strong across the board. Bimmers, motorcycles and even Rolls were strong.

95   DinOR   2007 Nov 7, 3:02am  

"but I think that most of us struggle with this"

Yes we do. I'm not sure HOW.. to feel about this?

www.housingdoom.com

First post is "Preview of Housing Armageddon"

(All those little gavels represent foreclosures in a trendy neighborhood in PHX) The HOME of big rims and loud stereos!

96   StuckInBA   2007 Nov 7, 3:05am  

OO :

Fleckenstein at MSN coined another great term. He is proposing to rename USD to "xera".

Thanks to the suggestion put forth by a reader of my daily column, I have come up with the new name for our currency. Henceforth, it shall be called the xera. That's a combination of Xerox, for the piece of Xerox paper that it is; lira, which in the past was one of the world's chronically weak currencies; and, most importantly, the fact that it sounds like zero. That is ultimately where the xera is headed.

97   anonymous   2007 Nov 7, 3:39am  

DinOR - It's been strange coming back here to N. AZ where I started my small biz (which I eventually tanked) and seeing how much this place up here just does not change. Used books are still a dime or a quarter, and the Coffee Gram is still in all of the restaurants. The Coffee Gram is a sort of classified ads thingie (with a few jokes and quips and a lame cartoon) that's the size of a placemat, great for reading while you wait for your food and then slopping said food on. The one thing I notice are TONS of rent-to-own schemes. Those were very rare in the late 90s.

Rent-to-own is huge out here, maybe because the property owner can make a living from selling the place over and over as various hopeful rent-to-owners fail, or maybe because a lot of property owners out here are flippers and desperate.

98   KurtS   2007 Nov 7, 3:40am  

"I like country with more stuff than people...Canada"

That's part of the problem, imho. In the past few years, investors have come in and overprojected/overbuilt everything. There is a plentitude of houses, condos, strip malls, that can't be accounted by the local population. I just wonder how long these companies (many American) will throw their money into the wind and affect Canada's upbeat employment figures?

99   DinOR   2007 Nov 7, 4:24am  

ex-sunnyvale renter,

If you get a chance check out www.independentamerica.net. I was watching IFC and they had a couple (two journalists) that set out on a road trip with an agenda. No super highways, No chain stores!

In search of "mom and pop America" they only ate at local diners and stayed at ind. owned hotels. Their findings were startling, in "some" cases WMT could actually be GOOD for some communities, yet devastating for others! There was also a message of hope as they talked w/ bus. owners that found ways to combat Corp. America.

Given we've discussed these issues before I think most here would find it interesting.

100   Peter P   2007 Nov 7, 4:35am  

There is a plentitude of houses, condos, strip malls, that can’t be accounted by the local population.

When dust settles, it may be prudent to move there. :)

For now, I think CAD is a rather nice oil-proxy.

Not investment advice

101   anonymous   2007 Nov 7, 7:45am  

DinOR - Looks like a DVD I'd have to buy, can't do that right now, but it sounds like a NEAT idea - if I'd had the spare money and time to get a video camera, I wanted to do videos of weird places and people etc that I see around, in sunnyvale and santa cruz, all over the place really, and put 'em on YouTube. You know, kinda like Huell Howser but funnier and more weird stuff.

102   DinOR   2007 Nov 7, 8:01am  

ex-sunnyvale renter,

Oh I'm not hawking for them (besides you can see it for FREE on IFC!) They talked with bus. owners on successful tactics they'd employed to stay competitive with "Big Box" and won!

They also drove through towns where there was no one left to talk TO!

If town (A) gets a Box and people from (C) have to drive through (B) to get there....! Well then town A + B win and town C eventually ceases to exist. Really, it's a study that seems in it's infancy, and hardly an exact science. I hope in time we can have a more complete study to confront Big Box with and say (with relative certainty) this is what the impacts will be! Then use that as a starting point for planning?

103   Peter P   2007 Nov 7, 8:05am  

RE: big box vs. small business

Whoever wins... that's what the market wants.

104   GallopingCheetah   2007 Nov 7, 8:05am  

Was in Vancouver this weekend, chasing skirts. Canadian girls are fitter (though not as pretty). At the border, I didn't see a single US plate; basically, the Canadians coming back with busloads of merchandises. On the way back, I was the only one entering US. The hotel clerk told me that Vancouver economy was suffering. Cheap dollars are good for US.

105   Peter P   2007 Nov 7, 8:08am  

Cheap dollars are good for US.

Expensive loonies are good for Alberta.

Canadians coming back with busloads of merchandises

How should we capitalize on that?

106   Peter P   2007 Nov 7, 8:08am  

GC, perhaps the Canadians are going to buy up Seattle condos next.

107   GallopingCheetah   2007 Nov 7, 8:17am  

It's OK with me. I don't intend to own anything when I die. It's not necessary that I must own a house or condo, although having a good place to stay without the worry of being kicked out would be nice. My building is under a contract to sell. Those assholes. If they convert it into condos, I'll have to look for a new place to live.

I may end up f'king sell everything and go to live in a different country.

108   Peter P   2007 Nov 7, 8:24am  

I may end up f’king sell everything and go to live in a different country.

Like... Canada? :)

Or Australia?

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