patrick.net

Lunchtime reading from Dean Baker:

http://www.cepr.net/documents/publications/forecast_2006_11.pdf

Reminded of two old jokes:

1) Economists have correctly predicted 7 of the last 5 recessions.

2) Prediction is difficult, especially when the future is involved.

Back to work...

dryfly,

Uh, that's actually a better explanation than I could provide. Maybe you were mistaking me for that....... Soros fellow?

Actually it can be done with the "same" currency where you are borrowing at the short end of the curve and buying the long end. Since our yield curve has been flat to inverted over the last year or so that's already dried up.

I really should start spending more time at Brad's blog. MISH does a pretty good job too but fretting endlessly over the carry trade just isn't as fun as the SSOTW!

speedingpullet,

Is that the one where it starts w/ a rooster crowing and then says; "Wake up homeowner's, it's time to refinance!"

Speaking of economic indicators, what do folks make of this trend?

http://money.cnn.com/2006/11/30/real_estate/mortgage_rates/index.htm?postversion=2006113012

Both fixed long-term mtg rates and adjustable rates are down recently. The long-term rates appear to be more drastically decreasing. Could it be the bond market is starting to get a little worried about the other side of the equation (recession)? Are investors looking more favorably at fixed mtg products as opposed to adjustable/subprimes in terms of MBSs? I haven't been following the bond market too closely, but it appears long-term rates have dropped a lot more than short term rates. There have also been reports of investors (like China) trying to get out of Dollar-based investments, and we have all heard how the dollar has been tanking of late.

Aside from dollar devaluation, how will this affect the RE market, I wonder? Could this spur more homebuying if rates get low, AND we have bad inflation, in terms of folks buying into real property and taking out debt as a shelter against inflation?

in short, we're screwed...

dryfly, your spelling reveals you must a very good engineer indeed... ;)

skibum,

Rat Patrol aired a similar stinker yesterday and likened it to the smell you get when you pee on a fire. (well, not exactly that)

I happen to believe your suspicions are correct w/ one possible exception. All this will facilitate is one last round of musical chairs* to allow FB's (I'm sorry, those fine individuals that were mercilessly duped into to taking on more debt than the other wise might have done) into being able to have "one last Christmas" and or get out from under their McAlbaltross if they're lucky and downsize assuming they can find a buyer! Nothing more.

This won't likely bring about The Boom "Phase II" no matter how much the REIC might want to think so.

*Robert Cote's preferred term.

Nice thread graphic, SP!

dryfly,

I'm going to differ w/ you only slightly. While this may create some much needed transaction/volume/NAR commissions most of it will be on a downward trajectory. I don't see too many buyers foaming at the mouth to "trade up" so this will be more facilitating "defense" than anything.

@ DinOR - I believe so - all I can remember about it now is that the tag goes ' 66- Faster....You've got the GREEN LIGHT!"
(I'm wrapped up on the sofa with the last vestiges of 'flu, so have the attention span of a goldfish at the moment...)

The thing that makes it stand out from the myriad of other loan sharks circling the waters is -
a) they're pretty much saying "if you can fog a morror, we'll lend you money (not having to deal with 'complicated paperwork' is a selling point, apparently) and
b) there's seems to be some tearing hurry to do it all by sunday...why sunday?

I've read alot on this website about what could possibly cause a correction, whether it's a small or big one.

But what would a correction cause?

there's a self-taught brilliant ag machinery inventor and engineer here who still visits his clients in bare feet... ;)

Scientists decode ancient astral computer

Ian Sample in London
December 1, 2006

A MYSTERIOUS device salvaged from an ancient Roman shipwreck has astounded scientists who have finally unlocked its secrets.

After a century of study, the 2100-year-old device, known as the Antikythera Mechanism, has been shown to be a complex and uncannily accurate astronomical computer. Recovered in 82 highly corroded fragments, it could predict the positions of the sun and planets, show the location of the moon and even forecast eclipses.

Remarkably, scans showed the device uses a differential gear, which was previously believed to have been invented in the 16th century. The level of miniaturisation and complexity of its parts is comparable to that of 18th-century clocks.

Experts believe it to be the earliest-known device to use gear wheels and by far the most sophisticated object to be found from the ancient and medieval periods.

Fuzzy Math says:

Well said.

*Ahem*... the opposite of a lie is Truth, not another lie. Debunking baseless industry propaganda does not mean simply countering with equally vapid, opposing propaganda.

Gentlemen (and gentlewomen): We are at War. Like it or not, we are engaged in a battle for the hearts and minds of a math illiterate and confused public. The same public that's being fed a steady stream of lies and propaganda from a powerful and well financed REIC (I'm comfortable using this acronym, which I find completely accurate & fair --plus it's a lot faster than typing "Realtors/mortgage_brokers/banks/crooked_appraisers/speculators").

Excuse me for trying to "keep the faith" on one little itty-bitty blog. But I don't recall having $millions to spend on full-page ads in the NYTimes/LATimes/Newsweek/Time/Businessweek, like the NAR just did. Or tens of $millions to spend on prime-time TV commercials.

Many of the long-timers here originally came here because we found ourselves priced out of the market through no faults of our own (like Joe Schmoe & myself) and wanted to understand WHY? Why is the question that led us here, which quickly led us to ask other questions, like WHAT? (caused the bubble), WHO? (was responsible), HOW? (we got to where we are today), and WHERE? (do we go from here).

Together, thanks to the tireless efforts and contributions of the many (uncompensated) professionals and concerned people here from all different walks of life, we have pretty much figured out the answers to the questions above. A feat apparently beyond the abilities of most professional MSM "journalists". As SP has pointed out, the "question" of the Bubble's existence is now moot and its causes are general knowledge, even to some of the trolls.

This is largely thanks to people like us. Not too shabby for a broke, ragtag bunch of JBRs, no?

So, criticize me all you want for sounding repetitive, or for going too hard on the occasional troll or skeptical newbie. But I will never, NEVER apologize for having had the balls to ask questions most people are too afraid (or clueless) to ask. Or for coming to conclusions most people are too uncomfortable to even consider.

So, I remain a proud and unapologetic REIC contrarian. Semper Fi, bitches.

HARM - nice bear!

erm...can I just mention that someone who is 'math illiterate' is actually 'innumerate'?

Illiteracy applies only to reading/writing. Numeracy is a whole other kettle of fish.

Semper fi bitches? Mmmmmmm sweet delicious anger, HARM embrace the darkside, I'm your Father.

Many of the long-timers here originally came here because we found ourselves priced out of the market through no faults of our own (like Joe Schmoe & myself) and wanted to understand WHY?

Kindly add my name to this list. Well put HARM, as usual. Would you consider maybe using a tad more profanity?

speedingpullet,

Interesting point. However, while 'innumerate' may be a more technically precise term, I doubt most people know what it means. Besides, one of the accepted definitions of illiterate is "displaying a marked lack of knowledge in a particular field: He is musically illiterate."

Well put HARM, as usual. Would you consider maybe using a tad more profanity?

Thanks, X. Though I occasionally dabble in the Profane Arts form time to time (as required for troll suppression), I am a but a dilettante as compared to yourself.

I must recuse myself and defer to the Supreme Lord of Profanity.

but..but...muscial scoring is languge

....nuts, so is math...

ah, well.

@Max,

Good point. ;-)

hmm, yes, 'computer illiterate' - i think 'numerically illiterate' is a fine line tho, it's just one of those things...

Well, I may give BA another year or so, but after that we're bailing if the prices don't come down - our income could probably even buy a nice house in Boston - but not the BA! I wouldn't mind so much, but the education system here sucks - got my daughter's report today - she's a bright girl, top group in her class, yet the teacher has her marked as limited proficency - I bet next report card she improves, and then the last one will be great - making her teacher look like a really good one.

RandyH,

Not sure what I did to offend you.

Let's say I want to buy a house. I want to buy it next month. Is "inflation" a factor in my thinking? If so, why should it be?

The original point about "inflation" is qute nebulous to me. It apparently involves guessing about the impact of inflation as a long-term major input on real estate values.

Ordinarily when I think about buying a house, I look at my finances and the mortgage and that's it. If a wizard with a crystal ball could tell me what the inflation rate was going to be over the next 30 years and what impact this will have on real-estate that might be useful. Absent such data we have to go with what we have.

Inflation as I perceive it is prices go up and hopefully my salary goes up by that or more. I am not an economist, please elucidate.

I bet next report card she improves, and then the last one will be great - making her teacher look like a really good one.

Funny, this is almost the exact same formula most companies use for employee reviews. Regardless of actual performance, you start out the year at "needs improvement", followed by "making progress', and ending up at "satisfactory". That way, they can give you your obligatory 3% raise and look magnanimous about it.

Did you see the yield curve over at Bloomberg this morning? You like to ski… (guess by your handle)… the drop from 6m-2y is steeper than the bowls at A Basin & K’stone.

dryfly,

Yup, I ski...way too friggin' much, in fact. Nice analogy, btw. I did check out the yield curve today, in fact. It's still sortof blue square to single black diamond in steepness. Plus, top elevation (short term rates) is not very high in historical terms. Either way, the yield curve has been screaming recession for a while now, yet, the economy has ignored to date. What gives?

How do dramatic housing price declines hurt the overall economy?

Jakob,

Yes, you're basically correct, but are missing a large part of the equation in today's unusual situation. Basically since the dot-bomb implosion, there has been an unprecedented phenomenon of significant extraction of equity from houses in the form of cash-out refinancing and HELOC's for anything from paying down consumer debt, to paying for luxury items, cars, home remodeling, etc by "homeowners." Folks on this board call it mortgage equity withdrawl (MEW). It's more or less widely accepted that this effect has to a large extent kept the American consumer-based economy humming the last few years. This process *requires* appreciating prices so that every refinance sets a home's assessment higher, thereby allowing cashing out some or all of the increased assessment value. If prices drop, this whole process grinds to a halt, and places like Walmart start hurtin'.

The issue of declining sales due to buyers sitting on the sidelines certainly plays a part, too, but probably not so much. That fits in with the larger context of a slowing real estate market drying up the food supply for all the carnivores in the housing industry (known here as the Real Estate Industrial Complex - REIC), including realtors (commissions), assessors (fees), mortage folks (fees and commissions), builders, suppliers of raw goods for builders, home improvement stores (check out Home Depot and Lowe's stocks of late), furnishing stores (check out Pottery Barn stocks too), illegal immigrant day laborers, on and on down the line.

That's why many (including the realtors) cry foul about not letting prices tank to "save the economy."

Hope that helps.

I've been thinking of becoming a looky Lew at the pet stores post x-mas for a bubble pop on their largest dog igloo. They have good thermal properties and efficiently reflect back body heat. On especially cold nights I could always invite Fido in to gain more BTU. If this trend catches on a housing recovery can then be posted for '07. #8^))

Either way, the yield curve has been screaming recession for a while now, yet, the economy has ignored to date. What gives?

As I recall, in the past, yield curve inversions generally precede recessions by 6-12 months (or more). So we might expect a recession sometime early next year (?). Of course inverted YCs do not have a perfect 1:1 correlation in terms of preceding recessions (80-85% correlation?), but they're pretty decent as crude bellweathers.

@dryfly,

Yup, this is the real "new paradigm" ...

It makes me wonder. I know Bendover Ben and co. are well aware of the effect of currency manipulation on long-term bond rates - in fact, it's been their "excuse" as to why long mtg rates have been so stubbornly low despite their manipulations of the Fed rate. I wonder if this fact has any significant effect in the Fed's decision to hold rates where they did, to avoid a resultant potentially large yield curve inversion? I know this thinking may be a bit simplistic, but hey, who knows! After all, recession and inflation are in large part determined by investor (as well as average joe) expectations.

HARM,

Excellent post! Let's face facts, most newspapers today are just cover to cover advertisements for the REIC (with an actual article thrown in from time to time!) They 'own' what little circulation these guys DO have left.

Semper Fi bitches!

skibum,

Not simplistic at all! There was a time when the bubble could feed off itself. As dollars made an exodus from the stock market they had to go 'somewhere'? So the uncontrollable appetite for bonds drove prices up, and yields down. More free money for the bubble!

What they never banked on was the fact that they have utterly killed the longer maturities. They are now in fact a totally "seperate" asset class! Attempting to sell 30 yr. paper comes off sounding more like a "crank" call than a sales call.

Add us in too - whoda thunk that making 125K + in Los Angeles would mean having to rent for 6 years?

I thought London had the most insane house prices until I moved here....

In my trawls of ZipRealty over the last few weeks - SFRs around Westside and sth SFV - I've noticed an alarming trend to take places off the MLS, wait a few days and relist them - normally at the same price, or a little higher. Only 3 honest price reductions in the last 10 days (out of about 85 houses I'm tracking). Lots and lots of places becoming inactive too - I guess the sellers are waiting for the mythical Spring Bounce 2007.
Also, all the 'quality' places are either being sold, or taken off the MLS - a ton of McMansions (3000+ sq ft) on 5000K lots seem to be the sole offerings these days.
Please, someone let me know when L.A finally somes to its senses....

SP: You forgot the biggest demographic of all! Baby Boomers who are "living it big" today, relying on their continuously appreciating houses for retirement funds instead of saving. Especially the ones who HELOC'ed away to get themselves a Lexus or put their kid through an expensive university at full price (hint: if you aren't rich and your kid doesn't get a scholarship, they shouldn't be going to Cornell).

I am curious, though. If inflation and interest rates did take off, wouldn't that do a lot to ease the burden on people in my own age bracket, who have gone nuts with credit card debt and large college loans? Now they're paying everything back with inflated dollars, and their life savings and retirement accounts haven't been eaten away by inflation.

I'm surprised mortgage brokers aren't sending out "offers" like this one from VW:

http://www.consumerist.com/consumer/lending/volkswagen-why-not-skip-a-payment-217946.php

HARM said: Many of the long-timers here originally came here because we found ourselves priced out of the market through no faults of our own (like Joe Schmoe & myself) and wanted to understand WHY?

To be fair though, are any of us -really- priced out?

If you really wanted the $800k starter in Mountain View, you could get it. $0 down, no doc.

But... I suppose that's not what people want.

dryfly and HARM :

The "conundrum" remains. I have no knowledge of economics - apart from reading such blogs and some sites like Barrons - but what I find perplexing is that almost all economists are perplexed !

If there was too much liquidity, then shouldn't there be inflation, or at least an increase in the commodity prices ? Oil is way below summer highs, so is gold.

If a recession is going to happen, why is the stock market partying like there is no tomorrow ?

If housing is in trouble, then why are home builder stocks rallying ? (Even before today. Today a bearish analyst became less bearish, and HB stocks took off).

If mortgage rates are dropping - even the 30 yr fixed - then why will there be a "crash" ? And that gets me back on topic. If the 30 yr fixed rates keep dropping, the correction is going to drag forever. I will definitely reevaluate my position if 30 yr fixed gets closer to 5%.

The most important thing I have learned from this blog - paradoxically - is debt is not all that bad if you can comfortably service it.

So Randy, I would specifically thank you for this, forget calling for your head.

Max,

What is USA M3 these days? I can't seem to find that data anywhere!

Paul

StuckInBA,

As for commodity prices like gold and oil, we may be off the highs but I would just call that volatility. In other words, check again in a few weeks!

Paul

"To be fair though, are any of us -really- priced out?

If you really wanted the $800k starter in Mountain View, you could get it. $0 down, no doc.

But… I suppose that’s not what people want. "

SP - yes - I really am priced out!

I want to be able feed my family too -

@ dryfly

Thanks !