patrick.net

So, here's a meta-question:

Why have the trolls come out in such force the past few days? Ben's LA times coverage?

Cheers,
prat

you are currently so Bubbleheaded that you missed the whole point of the article. The gist of the article is merely to let people know that cashing out for the sake of fearing a bubble burst alone is bad.

I seriously doubt that. Case in point: calling people cashing-out "the biggest gamblers". Biggest gamblers --excuuuuse me??? No, not the RE seminar day-trader style "investors", no. Not people who have sucked out most of their existing home equity to finance current consumption --no, not them, either. It's people who are selling their homes to sit out the market a while.

Show me an article quoting the SAME insiders denouncing flipping and debt-financed RE speculation and maybe I'll reconsider my position.

hellboy, you described my position quite accurately. But I am expecting more of a credit market event than a housing market event.

And Btw, I think the REAL point of the article was very self-serving -- to postpone and/or minimize damage from what they know to be the inevitable crash. Yes, agents/brokers get a commission if people buy foreclosed REO property later on. But they will get much smaller commissions then, not to mention the sales volume after a crash is bound to be much lower.

So, here’s a meta-question:

Why have the trolls come out in such force the past few days? Ben’s LA times coverage?

The meta-answer is: trolls are metaphysical begins coming out of metamorphosis. Why now? Planet alignments.

hellboy, MarinaCrime is not the original MarinaPrime though. The newest one is sort of a parody.

hellboy - re-read the last post

I’ll get to continue my education. My first class is 7th grade math. I hear that we learn about negative numbers — Whatever they are.

Also note the name change (MarinPrime to Marina"Crime"). I think we have a Sauce impostor here. ;-)

hellboy, I maintain that the credit market is already rotting from the inside. It is just going to take the usual September/October volatility for us to see it.

Chicken or the egg? I like to eat both. :)

BTW, I think the credit market will be the first to have troubles. I will look for hedge fund failures.

Let me think about it for a while. I am detecting some flaws in my line of thought.

Troll alert. No response policy applies.

hellboy, the Russian debt crisis still caused a lot of pain in the hedge funds (and even some bond mutual funds).

Even if the FED can contain the hedge fund failures this time, the resulting knee-jerk action will trigger a new wave of flight-to-quality. Many exotic MBS will become tough-sells.

For example, if NAAVLPs are to go, many speculators who count on being able to refinance every year to new NAAVLPs will freak out.

I will put more though into this.

Truth is, RE agents don’t want everyone putting their houses up for sale now and glut the market.

Yes. In fact, there is already a glut of houses on the market in Vegas.

hellboy, in your opinion, how much can the FED do to maintain the credit spread without the effect showing up on the CPI?

hellboy, do you think that we have to wait for a retreat of collateral values for the credit/housing bubble to collapse? Or you you think it is possible that a "10-sigma event" (that happens onces every couple year for some odd reasons) will cause panic in the credit market?

hellboy, I am thinking about the possibility that they may already be "bailing out" the mortgage industry before the fact. When there is no panic, it is relatively easy to cover-up problems. The recent TOMO trades may be for precisely this reason.

If the credit market remains orderly, home prices will take longer to correct and busts will less less contagious.

What do you think?

MarinaPrime Says:
Hey hellboy,
Thanks for your message.

hellboy,

See what happens when you feed the troll? I know you meant well, but... Oh well, I had to learn my lesson the hard way too. :-)

now all of a sudden the Fed official purchases are up from historical norms. I think they bought, I want to say $68 billion last quarter ...It's kind of ironic becasue they come out with this joint lending statement about lending standards and then they turn around and start buying up a bunch of mortgages; effectively helping to keep this game going.

Great observation - btw, so you have the link for this? I tend not to take anything that comes out of AG's mouth at face value --the Fed's (and government's) interests are too closely aligned with the credit/lending industries they're (in theory) supposed to regulate. IMO, the only reason AG & Co. issued those spring warnings/criticisms about Fannie/Freddie was to prepare the public for the likelihood of a future GSE default, and to deflect any blame for the credit/housing bubble AWAY from the Fed.

RE: another bubble

I doubt that the FED has control over which asset class excess liquidity will go into. But when housing goes down, money will go to other assets, most likely stocks and bonds again.

Do you think that Bush will try to eliminate dividend tax again? This will channel money into certain stocks.

Check out the latest and historical DataQuick data
for your favourite Californian County here

http://www.housingbubblebust.com/DQTrack.html

Here are the recent TOMOs (Temporary Open Market Operations) of the FED:

http://tinyurl.com/8zygh

On the site, I do not see much recent permanent operations though.

Thanks Peter,

Btw, agree about the Fed not having control over where the bubbles happens. I doubt they "wanted" the housing bubble to happen --it was probably just an unintended side effect. I think their main aim was to contain the damage from the tech bubble and prevent long-term deflation/recession.

If Bush is successful in eliminating the dividend tax, then at least we'll have some idea of where the next bubble could start: dividend-paying stocks. That would include lots of non-tech/IT mature comapnies, S&P 500, etc.

HARM, one thing though, many tech companies will start paying dividends if the tax is gone.

Peter - here's a fun "what if?":

What if... the Dtax is gone and tech companies do start paying big dividends. Housing collapses under the weight of bad debt, and those speculators smart/lucky enough to cash out early go and start a new Tech stock bubble. This eventually collapses, and the money rushes back into housing.... so the whole cycle starts over.

Could the Fed's easy money policy keep this thing going indefinitely? At what point do the accumulated losses of wiped out suckers --er, investors-- prevent new bubbles from forming?

HARM, hellboy, it seems that the TOMOs are mostly short-term repurchase agreements (http://tinyurl.com/a9rew). Is it possible that the FED is just providing liquidity of MBS?

On the other hand, I do not see recent purchases on their permanent account (SOMA). Am I missing something?

Could the Fed’s easy money policy keep this thing going indefinitely?

So long as the rest of the world allows it to continue for whatever reason. Other countries are not dumb, but they may have reasons to keep US consumption going.

Waiting in Vegas, please do not feed the troll.

TWIT, what do you propose?

Do you agree that Dollar weakness will continue unless the bubble bursts and deflation descends upon us?

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

Could the Fed’s easy money policy keep this thing going indefinitely? At what point do the accumulated losses of wiped out suckers –er, investors– prevent new bubbles from forming?

This is an interesting question to me. But I wonder how possible something like this is. Isn't a bubble created by market's that are out of whack? Would continuous bubble's be sustainable? I guess what I'm getting at is that we're already looking at an unstable economy, and trying to keep it propped up by an economic shell game seems like that would just continue to further destabilize things. 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?

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.