Real Estate Market / Inflation / Recession / Depression (Boulder: mortgage, credit, loans)

[tfox]

I haven't checked this thread in a long time, but given the market turmoil, I thought I'd give it a try. After all, I figured that there might be some interesting insights here.

I find the usual cadre of doom and gloomers, ebullient for finally being proved "right" for once, practically giddy with every downtick of the market. The "information" being proffered proves as useless as ever. Predictions of recession are inevitably going to be proved right at some point; so that does not a prophet make.

Being neither a prophet nor a prophet's son, I fail to be impressed: after all broken clocks are right twice every day and manage to spare us the self-congratulating hooplah.

I'll quickly eat my words if I"m wrong, but I don't see the evidence that the recession that we have all known was coming for the last 24-48 months will prove to be aught more than that. If you think I'm wrong, prove it: give me some useful infomation to the contrary that can demonstratively be proved correct on an verifiable time scale. Give me that, and you'll get nothing but praise from me.

The economic and business cycles are called that for a reason. What goes up, must come down. Recessions are normal, and in fact, arguably a "good thing" for the long term. Overvalued markets need to fall and bring their valuations in line with reality. House prices will shrink. GDP will shrink. None of this is a surprise. Successfully predicting this without giving an exact time frame is unimpressive, since it's betting against an event that, indeed, must happen at some point.

I challenge the gloomers to prove, however, their larger claims, that somehow recession equals the end of the world, the collapse of the global economy as we know it, and all that. The Dow is down, surely, but arguably it's simply returning to more sane valuation levels. Hear the gloomers talk, and shortly there won't be a Dow. Think so? Then show me the money. Tell me when it's going to happen and we'll see. If you're right, you could be very rich men and women if you're willing to put your money where you're mouth is.

Part of my challenge is to give me some useful information. You say the Dow will fall further. Tell me when. When will the Dow hit 8000? or 7000? Do that correctly and consistently and I'll take your info and short the Dow and make a killing in the markets. Where is oil going to be in 6 months -- I've heard gloomers tell me everything from $200.00 to $20.00. Which is it? If you're going to make some predictions than I want something verifiable and falsifiable.

[jazzlover]

Originally Posted by tfox

Part of my challenge is to give me some useful information. You say the Dow will fall further. Tell me when. When will the Dow hit 8000? or 7000?

8,000 on the Dow tomorrow, maybe?

I was sitting eating lunch a few minutes ago, and the doorbell rang. It was a stockbroker from one of the major stock brokerage firms going door-to-door trying to drum up some business--honest-to-God, I'm not making this up! I had about a 5-minute conservation with him. In that time, the Dow declined another 150 points.

What we are seeing here is the slow-motion demise of the massively debt-fueled, automobile-dominated, consumption-driven suburban-loving American lifestyle of the last few decades. This is no longer anything like a typical cyclical "market correction." It's correcting all right--beginning the process of flushing out a whole bunch of credit-drunk companies, consumers, financial institutions, and--before it's all done--maybe a country or two. We are finally seeing the bitter harvest of several decades of misinvestment in an unsustainable lifestyle and non-productive assets like trophy houses, fancy cars, and other junk.

Is it the end of the world? No. But it will usher in a long period of huge re-adjustment in the American lifestyle--an adjustment that will be rife with severe financial pain for tens of millions in America alone.

So, some predictions--for Colorado specifically:

By early next year, construction of all kinds in Colorado will be comatose. Real estate sales will be almost non-existent--except for distress sales and foreclosures.

The automobile industry--specifically new car dealers here in Colorado--will also be in a coma. Probably half of the new car dealers in the state will close. This wreck is already starting.

Colorado ski areas (which are really land development vehicles that can't survive without that component) will have the worst season for visitation and profits (there probably won't be any profits) in decades. Several smaller ski areas and probably one or two big ones will probably close for good at the end of the season. Hundreds of Colorado tourist-dependent small businesses in the resort towns will fail, and a dismal 2009 summer tourist season will kill off hundreds more.

The Colorado energy industry may be the only "bright"--read: less dark--spot, but ONLY if demand destruction does not continue to collapse energy prices, especially natural gas.

People working in construction, real estate, new automobile, or the tourism industries had better be making serious alternative career plans right now. Tens of thousands of jobs in Colorado in those industries will evaporate in the next 12 months--many won't ever come back.

PS--As I write this, the NYSE has been closed for almost 20 minutes. The ticker has finally caught up, with the Dow showing down 679 points. S&P down about 40% from its all-time high one year ago. GM at a half-century low--both it and Ford stock priced in single-digits.

[Bob from down south]

Originally Posted by tfox

I haven't checked this thread in a long time, but given the market turmoil, I thought I'd give it a try. After all, I figured that there might be some interesting insights here.

I find the usual cadre of doom and gloomers, ebullient for finally being proved "right" for once, practically giddy with every downtick of the market. The "information" being proffered proves as useless as ever. Predictions of recession are inevitably going to be proved right at some point; so that does not a prophet make.

Being neither a prophet nor a prophet's son, I fail to be impressed: after all broken clocks are right twice every day and manage to spare us the self-congratulating hooplah.

I'll quickly eat my words if I"m wrong, but I don't see the evidence that the recession that we have all known was coming for the last 24-48 months will prove to be aught more than that. If you think I'm wrong, prove it: give me some useful infomation to the contrary that can demonstratively be proved correct on an verifiable time scale. Give me that, and you'll get nothing but praise from me.

The economic and business cycles are called that for a reason. What goes up, must come down. Recessions are normal, and in fact, arguably a "good thing" for the long term. Overvalued markets need to fall and bring their valuations in line with reality. House prices will shrink. GDP will shrink. None of this is a surprise. Successfully predicting this without giving an exact time frame is unimpressive, since it's betting against an event that, indeed, must happen at some point.

I challenge the gloomers to prove, however, their larger claims, that somehow recession equals the end of the world, the collapse of the global economy as we know it, and all that. The Dow is down, surely, but arguably it's simply returning to more sane valuation levels. Hear the gloomers talk, and shortly there won't be a Dow. Think so? Then show me the money. Tell me when it's going to happen and we'll see. If you're right, you could be very rich men and women if you're willing to put your money where you're mouth is.

Part of my challenge is to give me some useful information. You say the Dow will fall further. Tell me when. When will the Dow hit 8000? or 7000? Do that correctly and consistently and I'll take your info and short the Dow and make a killing in the markets. Where is oil going to be in 6 months -- I've heard gloomers tell me everything from $200.00 to $20.00. Which is it? If you're going to make some predictions than I want something verifiable and falsifiable.

Well, I'm going to hold out that by acting on my beliefs as to what was coming, I have been spared the direct brunt of the market carnage. Timing a market with any precision is impossible (you know that)...were it possible, those who could do it would own the world already. But the storm that's taking off the roof right now has been gathering for some time...nope, we couldn't predict when it'd hit, but the fact that it would hit was obvious.

This is not a regular bear-market down cycle. This is the explosive unwinding of the unregulated and massive leverage that was employed to pump market prices to false and unsustainable levels. Much of the money being taken out of this market is literally disappearing due to the destruction of credit in a fractional reserve fiat currency system. Simple math, for those that understand it.

I haven't heard anyone say there won't be a Dow. Or a dollar. But they won't be what they used to be. We are on the cusp of something very ugly. I really don't care who believes me...those that took heed and repositioned themselves accordingly over the last six months are in much better shape today than those that chose to ride it down underneath the waves.

The talking heads on bubblevision like to spout out the figures on bear market history...but only in the post Great Depression I period. The history is much different when the entire history of the equity markets is considered. It took from 1929 to 1954 to recover from the crash of Oct 1929. The rapid upward moves in the great bull market over the last two decades were fueled by leveraged credit that won't likely be appearing again any time soon...why then does anyone expect a rapid recovery mirroring that same bull market?

The equities markets became a gigantic Ponzi pyramid, and as with any Ponzi scheme, those who get out early are the only ones who get out unscathed.

I think the Lehman CDS auction alone could take the Dow down 1,000 tomorrow.

[jazzlover]

Quote from CNBC a few minutes ago: "The Dow has crashed." No s***, Sherlock.

[Mike from back east]

Some musings in the press about some of today's fall may be due to the return of short selling on about a thousand stocks.

My musing is that big players are aware of what tomorrow holds (as per Bob's posting) and many decided to get out today.

Tomorrow might be a great day to watch the tube early. I've a buy list of energy trusts, both US and Canadian. The valuations have been knocked so hard that the div yield on some is over 20% and to me that's divine stuff. Ticker symbols are: AAV, PGH, PWE, PVX, DOM, CRT, HGT, LINE, and others. Demand for oil and gas is going down, but there's still going to be prodigious amounts used and thus the profits will be there to keep the dividends flowing, even though the amount may be reduced somewhat.

EDIT: I feel way better now, knowing that on Friday morning George Bush will reassure us that all is well.

[Bob from down south]

Originally Posted by Mike from back east

My musing is that big players are aware of what tomorrow holds (as per Bob's posting) and many decided to get out today.

You may be right about preemptory selling in advance of the Lehman CDS settlement tomorrow, given how the bow wave of sell orders came rolling in during the last 45 min or so.

Japan's Nikkei took another brutal hit and is down another 11% tonight near their end of trading as I write this. Hang Seng down another 7%, Australia down over 8%. Dow, S&P, and NASDAQ futes are pointed towards the sewer again.

In Oct 1929, the Dow took a ~25% hit in two days. We're already at 20% in the last week. One could argue that we're seeing the same magnitude of crash as '29 but spread out over a few days more due to influences of electronic info distribution and trading. And a lot of gov't meddling that's only making it worse. Much worse.

No way this doesn't translate into a tsunami of unemployment. GM is on its death bed, at a 58 year (nominal) low. They're going to bad credit hell, and all those high-pay low-skill union jobs with them. Does Colorado have any GM-related manufacturing??

Anyway, it would seem that now's a good time for us to start compiling the lessons and the history that caused what is about to follow, with the intent that we can, maybe, pass on to those coming up behind us those lessons, as my grandparents did for us w/r/t the first Great Depresson. Maybe, just maybe, we can get another 80 years before we permit the pigmen to do it to us again.

I saw a bumper sticker today that said "Bankers Suck"...I nearly ran the guy off the road to try and find out where to get one.

I did obtain a preview video of the President's speech tomorrow: "Remain calm...all is well!"

"Debt is Dumb"

[Bideshi]

Originally Posted by Bob from down south

Better than lapsing into a semicolon, I guess.

[Mike from back east]

Originally Posted by Bob from down south

You may be right about preemptory selling in advance of the Lehman CDS settlement tomorrow, given how the bow wave of sell orders came rolling in during the last 45 min or so.... snip....

True, and perhaps a more plausible cause was that fearful institutional or private investors sold tons of mutual funds to get cash out of the market for whatever their reasons (*more on this later). Doing this forces mutual fund firms to liquidate massive amounts of stock to pay the clients for what they redeemed before 2PM. When massive amounts of stock are dumped on the market after the 2PM (Eastern) cut off time for mutual fund transactions, the flood of shares triggers the basic law of supply & demand, which manifests itself in a strong drop in prices in order to entice buyers to come into the market and take the shares off their hands - usually at distressed prices.

*Investor psychology is a wondrous thing to behold. A massive amount of investors have it backwards. When fear grips the market, they sell at a loss "to protect their money" or to "stop the losses" and thus they incur actual losses to their accounts. That's backwards of what should be done. Pro's tell us to get out when the decline in a stock is 8%, just take the loss on the mistake but cut the loss at 8%. Most people stay in too late and sell into the panic. Conversely, when there is euphoria in the market during market highs, that is when the "little investor" typically piles their money into the market to "get in while the getting is good" so they don't miss out. That's also backwards. Real investors, especially the big ones, know to buy when the market is in a panic and shares are dirt cheap and then they sell those shares as the market rises to new highs. Myself, I got 80% out of stocks last fall and have that 80% split between cash and treasuries, just waiting for the bottom to get back in and ride it up, though this cycle may take a lot longer this time around.

Many of us on this list know these things. I've explained it a bit for the casual reader who is not well grounded in how to win in the markets, which can be summed up on the old phrase "buy when blood is running in the street" which I'm prepared to do. I read reports that trillions of dollars (including some of mine) are sitting on the sidelines; when they strongly feel we're at the bottom, they'll start buying, the decline will stop and the rise may begin. Conversely to blood in the streets, the time to SELL your holdings is when the small investor re-enters the market when the market is flying high, as this is the well known signal that the end of a bull market is near, like in 1929 when every waitress in every diner had a hot stock tip and had money in the market, often leveraged on margin. Smart investors get in at the base/bottom/blood point in the cycle, and get out during the high flying / irrational exuberance / giddy days of "the market hit another new high today / happy days are here again / ain't we got fun."

Warren Buffet started this year sitting on his own $44B in cash. He just did some bottom fishing the past few weeks, buying a large utility firm in Baltimore and he just bought $8B of GE preferred stock that carries a huge dividend of 10%. That GE deal means he'll sit back and collect $800M PER YEAR in dividends from GE, awesome income. The utility he bought will be minting money too, as there is NO real competitor to any local gas and electric company - a typical Buffet ploy (like buying railroads) where there is a near monopoly situation and virtually impossible to generate any kind of competition since 'entry' costs to get into those businesses are astronomical and require government approval.

At this moment, the Dow is down $315 to $8264. Perhaps were at the bottom, time will tell. It dipped below 8000 earlier and buyers flooded in to snap up bargains. Buying time may be right around the corner....

[sterlinggirl]

Originally Posted by Mike from back east

Buying time may be right around the corner....

I've got a feeling you're right.

[Sockeye]

Too many negative feedback loops at work in this meltdown. I'm remaining very cautious, and prefer to be the second mouse to the cheese.