The next bubble (purchase, interest, money, financing)

[Wild Style]

i posted this to test the waters (interest) in this sort of discussion. Keep the opinions coming, all very good insights! For those who don't know how the economy works I hope this post helps to clear the fog. I will be making another post on the housing market and where it is headed in a minute.

peace

[bale002]

Originally Posted by bhcompy

yea, but a return to basic manufacturing will be impossible without increased tariffs on imported goods. labor and real estate costs in the us are light-years ahead of China, Taiwan, Malaysia, etc where many of these basic goods are manufactured. I don't see it happening with the "global economy" buzzword being pushed around like it is by everyone and anyone.

While I would agree that a return to basic manufacturing is not likely, the reason is lack of will and policy, not because it is not possible, and high tariffs would not be necessary to achieve it.

As tallrick mentioned, a severe further drop in real estate prices could be one factor in favor. Second, all these defaulters, other debt slaves, and immigrants could be put to work at low wages. A revision of zoning laws and regulations would be another factor.

With the strong euro, Germany has to deal with the challenge of an inverse tariff, so to speak, not to mention high labor costs, yet its manufacturing exports continue at high levels.

Cost management and high quality are keys to export manufacturing, and even strong-currency countries can remain successful. What are all these MBA graduates in the US being taught? How to run an economically sensible enterprise, or something else?

To be sure, it is easier for the rich to increase their wealth through bubbles than through the hard work of actually making useful things again.

[chuck22b]

What about the commodities bubble? While investors are waiting for more favorable legislation (subsidies, grants, etc.), aren't commodities the precursor to the alt energy bubble?

Bubbles are essentially high variance/velocity business cycles. They are more frequent and are more pronounced now because more people are able to play the game (directly through brokerages, and indirectly through mutual funds, pensions, hedge funds, etc.) and with higher velocity (because of information being more readily available - down to the common man).

Either way, if another bubble starts... and especially one that creates job growth... the affects of the housing bubble would be drastically reduced. This is because job growth/unemployment is highly correlated with housing. Therefore, if another bubble/boom were to start/grow, I seriously doubt this housing slump would last the 5-6 years as stated.

In addition, if alt energy actually works out... a side effect of using our own energy is that it reduces our trade deficit. A large part of our rising trade deficit is because of imported oil ($27.1 billion out of $206 billion or 13% of trade imports - Jan '08). Alt energy actually addresses that.

-chuck22b

[Wild Style]

chuck

the housing downturn isn't because of layoffs. Remember, this decline started in 06 and started to grow legs in 07. Downturn in the economy came in last quarter of 07. Bubble burst because 1. easy credit which reated faux wealth is no longer available. 2. loans are now resetting so that put a lot of inventory on the market. So now with ARMs and other exotic loans gone bye bye, less people qualify and less people have the money to buy homes. In actuality, they never had the money, it was exotic loans with intro rates and payments that allowed them to purchase these homes. Once the intro rates were over these people could no longer offered. Funny thing is, even with a 30 yr fixed, at present rates people still can't afford these homes. Example, average family in Ft. Lauderdale makes 60,000 a year. In terms of a 30 yr fixed, the general rule of them is you can afford a house that cost 3 to 3.5 times your annual income. So at 60,000 people can afford 180,000 to 200,000 dollar homes. Yet in Ft. Lauderdale average price of a home is 400,000. So that means, there still is a 50% correction before everything is said and done here in Ft. lauderdale.

The only way things would pick up in housing at current rates if is the fed inflated wages (which they can do). Then prices could remain where they are. I don't see that happening anytime soon though (maybe later when inflation really gets out of hand).

[chuck22b]

Originally Posted by Wild Style

chuck

the housing downturn isn't because of layoffs. Remember, this decline started in 06 and started to grow legs in 07. Downturn in the economy came in last quarter of 07. Bubble burst because 1. easy credit which reated faux wealth is no longer available. 2. loans are now resetting so that put a lot of inventory on the market. So now with ARMs and other exotic loans gone bye bye, less people qualify and less people have the money to buy homes. In actuality, they never had the money, it was exotic loans with intro rates and payments that allowed them to purchase these homes. Once the intro rates were over these people could no longer offered. Funny thing is, even with a 30 yr fixed, at present rates people still can't afford these homes. Example, average family in Ft. Lauderdale makes 60,000 a year. In terms of a 30 yr fixed, the general rule of them is you can afford a house that cost 3 to 3.5 times your annual income. So at 60,000 people can afford 180,000 to 200,000 dollar homes. Yet in Ft. Lauderdale average price of a home is 400,000. So that means, there still is a 50% correction before everything is said and done here in Ft. lauderdale.

The only way things would pick up in housing at current rates if is the fed inflated wages (which they can do). Then prices could remain where they are. I don't see that happening anytime soon though (maybe later when inflation really gets out of hand).

Hi Wild Style,
I have no doubt that prices were inflated. All I'm saying is that the corrections/adjustments are a lot faster now as well (in one quarter we fell 15%-30% depending on location). Therefore, the duration of the bottom of the bubble should be shorter.

Jobs have some factor in play. With the slow down of the housing sector... hundreds of thousands of construction/mortgage, FIRE jobs have been lost. With the advent of a new bubble... a lot of new jobs can be created softening the blow of the housing bubble.

Obviously there is money flowing around in the economy... or else the stock market and commodity prices would of fell back to the 2002s along with the housing market so the bubbles have created some additional wealth (or inflated wealth?).

-chuck22b

[Wild Style]

Ah i see what you mean i THINK. When you say "softening the blow" you don't mean prop housing prices up. You mean soften the affects on the over all economy? If so then yes I agree with you 120%. That is how they softened the blow of the previous financial bubble in the 90s. They created the tech bubble and when the tech bubble went down they created the real estate bubble. what a way to run a economy. Huge ups and downs and the average Joe looses a mega ton of wealth.

[tallrick]

Alternative energy holds a lot of promise, just like tech did. We have the internet and all kinds of useful gadgets because of the tech craze. The bubble really hit the speculators, but with housing everyone suffers. Only the big money traders get off scot-free. I have been hit hard by outrageous taxes, inflation, and a reduction in quality of life due to the real estate bubble. Alternative energy has the possibility to restructure our lives for the better and lead the world in innovation again. The trick is to blow up that real estate bubble that has been weighing us down for 2-3 decades since we left the gold standard. Also we have to get rid of the zoning that causes us to waste time and energy and remove unnecessary Government control of innovation.

[chuck22b]

Originally Posted by Wild Style

Ah i see what you mean i THINK. When you say "softening the blow" you don't mean prop housing prices up. You mean soften the affects on the over all economy? If so then yes I agree with you 120%. That is how they softened the blow of the previous financial bubble in the 90s. They created the tech bubble and when the tech bubble went down they created the real estate bubble. what a way to run a economy. Huge ups and downs and the average Joe looses a mega ton of wealth.

Yup, that's what I meant by soften the blow... and eventually housing prices and inventory will get back to normal appreciation, etc. and someday hit back to 2005/6 prices in 2011-2015? That's if all things being the same, ceteris paribus, without government intervention, international investors, city affordable housing legislation, or new financial instruments.

Otherwise, if more foreigners jump into the market, cities end up buying foreclosures for low income housing, buyer pools, and investors get another knack for cdo's and mortgage backed securities, REITs, etc. (which is kinda possible since other investments have such low yields), things might turn out different.

The market's are more volatile and intertwined globally today... people just have to adapt, educate, re-educate, and be constantly learning/adapting. That's why the booms and busts are shorter and faster. We are no longer living in a world of 20 year job tenures and retirement safety nets.

Average Joes can turn out alright in bubble markets... some turned out really well in the last boom/bust cycle. That's because today's market lets everybody and anybody to enter/exit the market. It's just more riskier now. "Change is the Only Constant" - Heraclitus

-chuck22b

[Wild Style]

Originally Posted by chuck22b

Yup, that's what I meant by soften the blow... and eventually housing prices and inventory will get back to normal appreciation, etc. and someday hit back to 2005/6 prices in 2011-2015? That's if all things being the same, ceteris paribus, without government intervention, international investors, city affordable housing legislation, or new financial instruments.

Otherwise, if more foreigners jump into the market, cities end up buying foreclosures for low income housing, buyer pools, and investors get another knack for cdo's and mortgage backed securities, REITs, etc. (which is kinda possible since other investments have such low yields), things might turn out different.

The market's are more volatile and intertwined globally today... people just have to adapt, educate, re-educate, and be constantly learning/adapting. That's why the booms and busts are shorter and faster. We are no longer living in a world of 20 year job tenures and retirement safety nets.

Average Joes can turn out alright in bubble markets... some turned out really well in the last boom/bust cycle. That's because today's market lets everybody and anybody to enter/exit the market. It's just more riskier now. "Change is the Only Constant" - Heraclitus

-chuck22b

I disagree with this bold part. Unless they inflate wages.

[chuck22b]

Originally Posted by Wild Style

I disagree with this bold part. Unless they inflate wages.

The years 2011-2015 I don't know about... but eventually inflation will get prices back to 2005/06 levels (typical home appreciation tracks inflation 3-4%). That's unless you think our dollar's are going to appreciate, and buy more in the future. Wages will inflate as well over time... it should track inflation or cost of living (COLA). Also not to mention, wages of the upper 10%, or .1% of Americans increase in the double digits.

-chuck22b