patrick.net

HB: "A question for you Pete P; would be do you think the Fed and the government can create another bubble in somthing else thereby decreasing the effects of any slowdown in housing?"

++

This is one of the strong arguments against the bear case in housing: the Fed can keep this thing pumping for quite some time if they so choose. And its not clear that they can turn it off without the consent of the Chinese at this point.

Cheers,
prat

And its not clear that they can turn it off without the consent of the Chinese at this point.

Very good point Prat.

Sqt: "Wouldn’t that just increase the damage in the long run? Wouldn’t we be better off for a correction now when the damage might still be minimized?"

That is certainly the opinion of many people on this board. However, Greenspan has adopted the strategy of treating symptoms rather than causes. In fairness to him, thus far it has worked out pretty well. It is hard to say what the long term ramifications will be however. It certainly *seems* like the debt party can't go on forever, but then it *seemed* like that a year ago too.

_smile_

Cheers,
prat

Prat

I see what you're saying, but lately we seem to be measuring *forever* as a span of 5 years. When you want to buy into a crazy market, 5 years can seem like forever. Heck, this market can march merrily along for another 5 years, and that will still not constitute forever. I say, even if this goes on for several years more, it still doesn't make the housing bulls right, it just means we may see a reckoning later than we thought. But doesn't that always seem to be the case in bubbles?

BTW, US dollar can remain weak so long as the exporter countries make their currencies weaker.

This begs the question: and for how long can this continue?
Is there a practical limit to how much MBS/Treasury debt asian central banks can purchase? If so, what is that limit?

SactoQt, don't worry. Individual bubbles do go bust. The FED could not do much to stop the tech bubble from bursting. The only question is whether they can prop up another bubble to "contain damage".

HARM, a further question would be: if countries are entering this devaluation arm race, what will happen to the purchasing power of their currencies. Will they all use voodoo inflation indice to cover their tracks?

Treating symptoms rather than causes is unproductive in the long run. However, as Keynes had said, in the long run we are all dead.

Now, political careers even shorter than lifetimes...

Jack, I am not upset. The numbers are expected. I am not going to get depressed over DQ.

I am just a bit concerned over the FED buying MBS, if this is what they are doing.

Heck, this market can march merrily along for another 5 years, and that will still not constitute forever.

Gotta 2nd Peter here --highly unlikely the current housing bubble can go on that long, for reasons we've discussed here ad nauseum. What I think Prat meant by "debt party" is the successive chain of related asset bubbles (the Tech bubble spawns the Housing bubble spawns yet another bubble).

My husband told me something interesting today. A guy he knows who is a mortgage broker is having one of those RE investing seminars, and asked my husband to attend as the financial guy. (he's having other "experts" in various fields like RE brokers, lenders etc. attend) My husband tells me that the mortgage guy will broker any deal and doesn't turn down ANY applications. What does he care, he's not holding the bag on the money. I was fairly disgusted when my husband told me this. In fact, the guy has had employee's quit because they can't stomach lending to people who are virtually guaranteed to default.

My husband is going to go ahead and attend and try to educate the attendee's on P/E ratio's and anything else he can think of to make sure no one just blindly jumps in. He's not sure that anyone will listen because they will just think he wants people to put their money in stocks and bonds since that's where his business lies. But at least there will be one voice in the room that urges caution. And I suppose if people still jump after being warned, they only have themselves to blame. Boy this reminds me so much of the day-trading days.

Harm

I seriously doubt the RE market could sustain another 5 years. My point is only that a lot of people go on about *forever* when talking about market cycles. It just amazes me that there are bulls out there who think this is sustainable long term. So when Prat said "It certainly *seems* like the debt party can’t go on forever, but then it *seemed* like that a year ago too." I just had to remark on the use of *forever* followed by mentioning 1 year ago.

Jack, I am not upset. The numbers are expected. I am not going to get depressed over DQ.

Ditto - We were just ruminating on how long the overall "debt party" can go on, not the current HB. My best guess is HB1 can't last longer than 2007 (when $1.5 Trillion in IO & neg-am loans adjust), but could pop sooner than that.

As far as the DQ Y-Y price increases go, yes, they're all positive, but in most areas considerably off the peak levels reached in 2004. It's starting to look like the "2nd shoulder" of the classic head-and shoulders bubble pattern. Like Peter has argued, prices seem to be more of a trailing, not leading indicator. Falling sales volume and rising inventory have preceded price drops in previous market drops.

Time Will Inevitably Tell...

I hope that last post makes some kind of sense, I'm not even sure I can translate it.

SactoQt, most people go to seminars to hear what they want to hear. I doubt that they will be open to any caution.

My worry is that people may be downright unfriendly to the "one voice in the room that urges caution". I tried to warn some of my friends, but they thought affordability was my issue and urged me to buy anything just to get a piece of it and move up later.

_nod_ to SactoQt

Peter P

My husband's worried about being the voice of caution too. He's trying to figure out how to throw out the numbers without trying to sound like he's discouraging anyone. To me this just sounds like a bad deal, but I'm not sure I can talk him out of it.

SactoQt,

Maybe your husband should go dressed as a matador.

Lol

I'll mention it.

SactoQt, it is an impossible task. Those lemmings have trouble understanding the situation even if you use plain English. They will probably leave when you show them numbers and equations.

Maybe your husband should go dressed as a matador.

No, the Greenspan costume will be more effective.

Personally, I think the numbers will go in one ear and out the other.

This reminds me of a tech bubble story too. My husband had a client who wanted to put all her money into a risky tech stock at the height of the bubble. He urged her not too, but she wouldn't listen. She told my husband "I have a friend who made tons of money on Cisco, this is MY Cisco." Of course she lost nearly every penny she put into this stock. The most frustrating part is my husband can't even say "I told you so." Well, he could, but he's nicer than I am and doesn't do it.

Personally, I think the numbers will go in one ear and out the other.

If they even go in at all. I can imagine them covering their ears and say, LA LA LA LA LA.

Lol

They'll probably do that when someone try's to low-ball a bid on their property too.

FogHorn, thanks for your story. It illustrates that the past downturn was more than a minor correction.

Each round of the bubble musical chairs does leave permanent damage in the system, though. Tech stock bubble = lost retirements of millions of folks.

But each round also makes some people wealthy, at least for a while. Most people care only about the upside and ignore the downside completely. They look only at people with million dollar homes who drive Escalade bought with home equity and they fail to realize the risks.

Well, I tried to caution one of my other friend and he said, "I have nothing to lose." Perhaps credit and integrity do not mean anything anymore.

He actually said he had nothing to lose? Does no one care about their credit rating anymore? Or has lending gotten so loose that it doesn't matter?

They’ll probably do that when someone try’s to low-ball a bid on their property too.

Someone from another blog actually suggest going out and low-balling houses that are on the market for a while. :)

But I do not waste my time or my agent's time. Also, I fear that the bid might actually get acceptable. I will be doomed.

Someone from another blog actually suggest going out and low-balling houses that are on the market for a while.

That sounds like that game you play as a kid where you ring someone's doorbell and then run away. Fun until you get caught.

He actually said he had nothing to lose? Does no one care about their credit rating anymore? Or has lending gotten so loose that it doesn’t matter?

With Fog-a-mirror loans, credit rating is as old a concept as Newtonian physics. In the Quantum Age, even dead people can get loans.

However, low-balling can be a strategy when you are ready to buy.

The goal is to play psychological games with the seller until he falls apart. Sounds cruel? They are pretty much doing the same to buyers in bidding wars nowadays.

What about the aftermath when people's credit is ruined? Do you think the bank's will keep overlooking bad credit? We've talked about banks eventually having to tighten lending standards. Do you think that will happen sooner or later?

Having been on the buying end in a sellers market, I have no pity for a seller who falls apart.

Do you think the bank’s will keep overlooking bad credit?

When the stuff hits the fan, any imperfection in the credit history can be detrimental. People still think that the same credit standard will apply regardless. This is a dangerous assumption.

I think lending standard is already being tightened. This may be why there are more transaction fall-throughs recently. I am not sure about this though.

I have to call it the night. Getting late. "See" you all tomorrow.

Of course the banks and credit card companies encourage people to use their product! Why would anyone with an IQ of more than their age be surprised by this?

So many people borrow “too much” but who is to blame? Most people eat too much for their own good as well. Should we blame that on the supermarket for selling so much food? …for offering special deals and cheap calories?

Everyone must be responsible for their own actions. Many people are fools. Why look for some conspiracy when the answer is obvious. No matter what we do there will be fools who have no self control and will eat their way to obesity and borrow their way to financial weakness.

Food is cheap. Credit is cheap. Of course people over consume them. In a time of unprecedented prosperity it is very easy to do these things.

I don’t agree with bond bulls that deflation is coming. I was in deflation cample last year, but now don’t see any way for bond and housing bubbles to unwind without double digit inflation.

News, why is that?

I’ve been looking strongly into Forex. I think that might be a smart thing to learn a lot about. It might be a place to play with some small part of a portfolio in the near future.

TWIT, will you take the buy-and-hope approach or the trend-following way?

Individual bubbles do go bust. The FED could not do much to stop the tech bubble from bursting. The only question is whether they can prop up another bubble to “contain damage”.

I'm reading 'Devil in the Hindmost', a great read on the modern history of speculation. One theme that comes up over and over again is that the swan song of any doomed market is when investors shrug and think "this is too big to fail".

If you think about the high priced counties like San Mateo and Marin, they are the same “money volume” (volumeXprice) as last year that indicates the top.

Yes, this indicates that the money flow into real estate is not increasing. Also, there is divergence between price and volume, indicating a non-continuation of trend.

matt_walsh, that book is fund to read, no?

The "too big to fail" line of thinking is truly flawed because The Roman Empire failed even though it was too big. Moral decay did it on.