Real Estate Market / Inflation / Recession / Depression (Denver, Colorado Springs: mortgage, environment, good credit)

[Bagz]

Originally Posted by Bob from down south

I guess there's no need for anyone to worry about overleveraging, since everyone learned their lesson...in 1925, then again in 1929...and then again in 2000. No way we'd see a brokerage with 80+ years in the business fold in a barrage of margin calls after living through those, right?

It was you that said credit worthy people couldn't get good loans. Presumably because the lending institutions were afraid of becoming over leveraged again. Now you are arguing that they didn't learn their lesson. Does that mean they are again giving out highly leveraged loans? Make up your mind. It looks like you are arguing with yourself.

I read yesterday that JP Morgan is currently leveraged at 74:1...no worries there, matey!

I'm not worried, I don't own the stock. Do you? If I did own the stock, I would know a lot more about the company than 1 ratio. Possibly it is leveraged appropriately. IF they are leveraged 74:1 they should be falling head over heals to find customers to lend money to with 20% down to get their position closer to 4:1.

Yesterday's 420 point gain was a lot of panicked short covering and irrational exuberance. Now that folks have had a chance to sit down and realize that there really is no fundamental improvement in the grim economic situation, reality is absolutely going to set in again.

If I felt as strongly about the future as you, I would be betting on it. How many short positions do you own? Or do you just complain about the investments of others? The market went up because lots of pretty smart people believe their investments will make them money.

"Panicked Short Covering" means that their belief that the market is going to go up is very strong.

I failed to note that yesterday's Dow, even after a 420-point crack-induced rocket shot, was actually significantly below the 1999 peak in real (inflation adjusted) terms...and only a few percent above the nominal value reached in '99. So the wider market has moved sideways for 9 years.

"Crack induced rocket shot" - another obvious attempt to try to turn good news into bad news using unsubstantiated emotionally based propaganda.

The slight increase ( or sideways movement if you prefer) is not surprising - We've had a major attack on our nation, additional security measures installed, and an unpopular war. The fact that the economy isn't down after all that is a testament to its strength and resilience.

For those contemplating a buy/rent decision now, well, whatever you can buy today, you will very likely be able to buy for much less in six months. Even assuming that fed govt action can get lenders lending again, the NINJA (no documented income, no job, no assets) loans with nothing down using an inflated broker-tainted interest-conflicted appraisal are a thing of the past. Without a sizeable increase in incomes, the income distribution does not line up with the market pricing distribution, meaning that there are not nearly enough buyers with incomes large enough to qualify for loans anywhere near the distribution of market prices. And that's assuming no recession-induced job losses impairing family balance sheets, which is a pretty rosy assumption at this moment.

Until house prices are in line with incomes, and broadly speaking that means median price at ~2.8 times median income, the vector is going to be south. Gravity wins. Prices have to come down in absence of stunt-man loan products that are inherently unsustainable.

That depends on the interest rate. Right now with the very low interest rates in the 4's, that number is higher than 4. And don't forget to use both incomes for dual income families. Another thing pushing that number well above 2.8 is the fact that improvements to your house that you do are not subject to the 100% tax on labor I mentioned earlier. Take everything into consideration when determining value and appropriate ratios and you will not be left behind. Then you won't have to whine when you see everyone else making money on good decisions.

And with fuel prices pushing over $4 a gallon, many irrationally optimistic and reality-challenged people are going to be discovering the reality of limited resources in the only terms they apparently can understand (an empty wallet at month's end). Ten mpg SUVs, decisions to live over an hour commute from work, and living in super-sized McMansions with super-sized utility bills won't make for a bright future. But even though the future's not so bright, they may still need to wear shades (so the process server and/or repo man doesn't recognize them).

People are discovering these things and the market is adjusting. That's why the price of SUV's has dropped dramatically and the price of fuel efficient cars is way up. I would venture to say that the people with McMansions have a much better understanding of the Economy than people in smaller houses and can figure out how to handle the situation just fine. If it is your true belief that the stupid decisions of smart people will adversely impact you, I would argue that their decisions have impacted you in a much more possitive manner than you can imagine in the past and that your decisions will impact you to a much greater extent in the future. Since the value of the dollar is in such peril, maybe the only people who will do well are the people who bought too big when times were better. Even though they own 10 bedrooms, they still only have to heat one (volume dampers) when times get hard, and their property taxes will fall if the dollar value of the house falls. But the dollar value of the house can't fall because the value of the dollar is falling. There I go arguing with myself again - or maybe you are just confused again.

Future's gettin brighter.....

[Bob from down south]

Creditworthy people can't get good loans because the major banking institutions have overleveraged themselves into dangerous territory. And no, clearly they didn't learn their lesson.

If JPM implodes, you will care.

I don't day trade. I also do not play with derivatives. The wild swings we are seeing in this market is killing bulls and bears alike. You might find interesting what the Dow did right before the Oct 1929 crash. Lots of wild high-percentage swings up/down in the weeks before the big "uh-oh." BTW, short covering is done when day traders think the market may spike up in the short term as well as long term. Short positions can be killed by margin calls just like long ones...so short covering is often done when a short-term leg up occurs. Back to the investopedia for you. I'd lend you some of the books I studied while earning my MBA if I thought it'd help...

Clearly, today the market had second thoughts about yesterday's "good news." A credit-crack-induced rocket shot it was.

A major attack on our nation? Gotta raise the BS flag on that one. Two buildings were attacked in a city with thousands of buildings, and two cities were attacked in a nation with thousands of cities. A major attack? Our B-29s did a hundred times the damage in any number of night incendiary raids on Tokyo in WW II. If that kind of flea bite on a bulls arse is capable of flattening our economy for almost a decade, then we're weak and ripe for a takedown. (Hint: we're not)

Interest rates in the 4s? A 30-year fixed rate mortgage in Colorado Springs is around 6.25%, not 4-something. Most prospective buyers don't have money saved for a down payment, much less are they able to pay more per month for a 15-year mortgage. Also, the higher payment on a 15-year loan (vice 30) will more than offset the lower interest rate, making the allowable price-to-income ratio lower, not higher. The affordability of a loan is based on the payment, not the duration.

I do not for a second believe that I live in isolation from the effects of my neighbors' bad decisions. I breath the pollution produced by their energy overconsumption, suffer the bad decisions made by the government elected with my neighbors' votes, pay higher prices for health care due to decisions of others to smoke and eat themselves into obesity, and now I face the ugly spectre of an unstable economy at the hands of thieves, swindlers, and greedy countrymen who recklessly overextended themselves and the nation's economy right up to the point of failure.

Larry Yun needs your help over at the NAR, though...

[Bob from down south]

A most-excellent March 18th interview with Paul Volcker, former fed chairman, about the current situation.

Charlie Rose

[Bagz]

Originally Posted by Bob from down south

Creditworthy people can't get good loans because the major banking institutions have overleveraged themselves into dangerous territory. And no, clearly they didn't learn their lesson.

Still waiting for you to find me a single example of that.

If JPM implodes, you will care.

That's a pretty big IF

I don't day trade. I also do not play with derivatives. The wild swings we are seeing in this market is killing bulls and bears alike. You might find interesting what the Dow did right before the Oct 1929 crash. Lots of wild high-percentage swings up/down in the weeks before the big "uh-oh." BTW, short covering is done when day traders think the market may spike up in the short term as well as long term. Short positions can be killed by margin calls just like long ones...so short covering is often done when a short-term leg up occurs. Back to the investopedia for you. I'd lend you some of the books I studied while earning my MBA if I thought it'd help...

No need I still have the books from my MBA. Just thought you might be interested in investopedia. "panicked short covering" is a far cry from margin calls and most people in short positions concerned about margin calls would have covered before the interest rate announcement.


A major attack on our nation? Gotta raise the BS flag on that one. Two buildings were attacked in a city with thousands of buildings, and two cities were attacked in a nation with thousands of cities. A major attack? Our B-29s did a hundred times the damage in any number of night incendiary raids on Tokyo in WW II. If that kind of flea bite on a bulls arse is capable of flattening our economy for almost a decade, then we're weak and ripe for a takedown. (Hint: we're not)

Finally some positive news. My point was that the economy didn't tank even though a major sector (the travel and hotel industry) took a major hit. The relative size of the attack was irrelevant.

Interest rates in the 4s? A 30-year fixed rate mortgage in Colorado Springs is around 6.25%, not 4-something. Most prospective buyers don't have money saved for a down payment, much less are they able to pay more per month for a 15-year mortgage.

Before the rates were dropped this week, we got a loan for 4.75 No points. If they cant get a 15 year loan, no need to figure out how to pay more, they simply must get a house they can afford.

I do not for a second believe that I live in isolation from the effects of my neighbors' bad decisions. I breath the pollution produced by their energy overconsumption, suffer the bad decisions made by the government elected with my neighbors' votes, pay higher prices for health care due to decisions of others to smoke and eat themselves into obesity,

What percentage of the consumption do you consider overconsumption?

You don't pay more for health care for that reason. You might pay more for health insurance if you choose to enter a pool with smokers and over-eaters. The best way to get health care costs down is to actually pay for your health care and shop around.... better than you shop for mortgage rates.

We all suffer from the bad decisions of voters and politicians, we also benefit from the infrastructure and legal framework government provides. The best way to eliminate the bad doings of government is to limit it's size. (I think we might agree on this one)

and now I face the ugly spectre of an unstable economy at the hands of thieves, swindlers, and greedy countrymen who recklessly overextended themselves and the nation's economy right up to the point of failure.

Right up to the point of failure? Why just a couple of paragraphs ago, you said that we are not weak and ripe for a take down. Again your comment sounds like unsubstantiated propaganda. This is the exact type of comment I am trying to put into perspective. Not saying the picture is super rosy, just not to the point of failure. Perspective

Future's so bright....

[Bob from down south]

I'm not going to post names of those I know having loan difficulties...but one need not look very hard to find multiple references to buyers havings difficulty getting loans.

People with heavily leveraged short positions might have covered before the announcement, but those with less leverage and/or more reserves and/or less risk aversion (and longer-term short positions) could afford to wait and see how the market reacted (or put in a stop) before deciding to cover. Panicked short covering happens when they see it spiking farther and faster than they expected. 420 pts is a major move...we've had two days like that in as many weeks, as well as several ~300 pt down days. This is one more similarity to the pre-1929 crash that has the hair standing up on the back of my neck right now.

If you advocate people down-size their expectations and buy housing they can better afford (we're in violent agreement here), then the number of buyers able to buy at higher price-points is greatly diminished...more so than if people buy the most they can afford with standard 20% down 30-year fixed loans and 28/36 DTI ratios. My point is that housing prices are destined to fall because the easy money has dried up and isn't coming back. Responsible borrowing and lending behavior necessarily drives a reduction in consumption.

For many (most?) people, they can't get a better deal doing without employer contributions and going it alone to shop for their own health care insurance.

The fed's panic-induced actions in the last 60 days is enough evidence for me to conclude that the economy has been pushed right the brink of disaster. It has a few other folks, like Alan Greenspan, quite concerned, too. His comments paint a picture of dire circumstances.

[Charles]

LA Times had an angle on this discussion

A new Great Depression? It's different this time - Los Angeles Times

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[Bideshi]

Originally Posted by Bagz

Future's gettin brighter.....

You need to cut back on the St. John's wort Sunshine! In your spare time and while you're in a good mood, it might be a good idea to learn a few useful phrases in Chinese and Hindi and get a shoe shine kit.*






*For those of you that are perpetualy offended and perceptualy challenged, this is a joke.

[Bob from down south]

Check out this article in Dow Marketwatch. Citigroup analysts now calling in fire on themselves and the rest of the US economy. This is some really telling stuff...I can't imagine what Citi is thinking to let a salvo like this go.

The Great Unwind has started, avoid leverage, Citigroup says - MarketWatch

[multitrak]

Originally Posted by Bob from down south

Check out this article in Dow Marketwatch. Citigroup analysts now calling in fire on themselves and the rest of the US economy. This is some really telling stuff...I can't imagine what Citi is thinking to let a salvo like this go.

The Great Unwind has started, avoid leverage, Citigroup says - MarketWatch

The difference, or spread, between interest rates on investment-grade corporate bonds and Treasury bonds has jumped in recent months, even though most companies aren't very leveraged.

This widening may be caused by leveraged investors such as hedge funds having to sell good quality assets to meet margin calls, or requests for more cash or collateral.

what's interesting about this week is that gold is strongly down $100/oz, crude oil is strongly down $10/bbl, gasoline, silver, copper, wheat, corn, euro, swiss franc, brit pound, etc., are all strongly down. the only commodities up are lumber and meats; the only currency up is japanese yen. and yes, the stock indices are up! not too shabby for a holiday weekend...

why? major hedge fund liquidation (unwinding long positions) from futures to cash. good news? yep, it should cause basic raw materials to spiral down giving consumers cheaper food, goods, and yes, gasoline. plus the dollar's strengthening. sorry kunstler and disciples, i don't see any $4.00 gasoline or shortages this summer...happy easter!

go here Futures Trading and Commodities Trading : Discount Brokerage Services and see for yourselves...just click on "C" on the right (under links) for the chart.

[Bagz]

Originally Posted by Bob from down south

Since these are your friends and there is no need to get personal, I will just repeat what I said earlier. Credit worthy people are not having problems finding good loans. I've read lots of articles about people that cant refinance their ARMs and in every article I find one of the following things that make the people not credit worthy. The people having problems either borrowed too much from their equity or bought too big a house or missed some payments.

Day traders might have panicked, but that is not enough for such a big swing. People who invest on fundamentals that believe the stock is overpriced will cover their short positions before a margin call then immediately invest in a short position again because the higher price is even better for them than they had before. The only reason not to invest is if they fear that the market will continue to go up unchecked. IF they are panicked, they think that the market will go up or at the very least could go up.

It appears to me that you are predicting based on the shape of the graph rather than fundamental analysis of each company. I expected more from a fellow MBA.

This is pretty much true, but it is somewhat offset by the lower interest rates. Keeping the same DTI, A house payment at 7% interest is about equal to the payment on a 20% more expensive house at 5% interest.

So now you are saying that being in a group actually lowers your insurance costs even though some people in the group are smokers and over eaters. Using the concept of personal responsibility, I consider that my obligations are what I use - even for health care. That is my base line. It sounds to me like your base line is the lowest possible cost for you in a perfect world where everyone acts according to the master plan. I can find a better deal than my base line and you will never be able to. Then you blame others for your unhappiness.

Most of the articles I read a couple months ago said that the Fed was too slow in reducing rates. Now that they are reducing them, you are saying the actions are panic-induced. Yet another example of trying to turn positive news into negative news.

Originally Posted by Charles

LA Times had an angle on this discussion

A new Great Depression? It's different this time - Los Angeles Times

If you need a login and password:

Bugmenot.com - login with these free web passwords to bypass compulsory registration

This was a good article

Originally Posted by Bob from down south

Check out this article in Dow Marketwatch. Citigroup analysts now calling in fire on themselves and the rest of the US economy. This is some really telling stuff...I can't imagine what Citi is thinking to let a salvo like this go.

The Great Unwind has started, avoid leverage, Citigroup says - MarketWatch

This is also a good article, demonstrating my point that companies really are learning their lessons.

I've been thinking about this this week and realized that some people just like to whine. The same people that complain that their neighbors over leverage their house also complain when they get caught and have to foreclose. Having to foreclose isn't necessarily good, but if you whine about the fact that they shouldn't be doing it, you shouldn't whine about the fact that people are getting punished for it.

Another example: People complain that manufacturing is going overseas, then when the dollar becomes weak (the economical solution to the problem) people whine about that. That shows a fundamental lack of understanding of basic economics. I normally take a more stoic position, but when I see a thread like this with lots of negativity feeding off of itself, and sometimes a lack of understanding, I like to come in and ruffle a few feathers (which is pretty hard to do because most of the feathers were pretty ruffled before I got here)

I'm goin on a cruise...See you in a couple weeks.

Future's sooooo bright.....