Real Estate Market / Inflation / Recession / Depression (Denver, Aurora: mortgage, environment, credit)

[Bob from down south]

Well, the 90% marginal tax rates were for very high incomes...I'd guess in the $400K/yr+ range in inflated dollars.

The Laffer curve makes some sense in the middle of the income distribution curve, but I don't believe for a second that the uber-wealthy are likely to produce significantly less if they are taxed at a rate that makes staying uber-rich something less than a self-perpetuating state of affairs.

Look at the wild and crazy swings in the markets of late. That's not the work of capital investors, that's the work of gamblers known as market speculators. Why we have a capital gains tax less than income tax rates, when all this profit from speculation produces net diddly squat, escapes me. OK, not really...it's set that way because the wealthy earn vastly more via equities than the working class, so they have voted themselves (through the power of paid lobbying and other forms of legal and illegal graft) a tax benefit that places them at significant advantage to the smelly diesel-stained masses.

Somewhere along the way, we lost sight of the goal of saving part of your income for retirement, and now the expectations of the majority seem to be that retirement is afforded by virtue of successfully playing the Wall Street lottery with whatever minimal amount of savings is left over after the payments on the McMansion and the BMW. Expectations of double-digit returns on investment as a steady-state fact of life is only possible if you do not understand how exponential growth works. Returns on retirement savings simply cannot outstrip GDP growth to the tune of 5-7% a year long-term, just as the NASDAQ could not continue to grow at 25% above GDP per year long-term, nor housing at 15% or more above wage appreciation. The difference between an unsustainable delta of 5% and one of 15% is just the time-to-detonation.

We're seeing some rather anguishing signs right now as to the likelihood that the boom of the 80s and 90s was more illusion than reality. And today, the market-marooned pension savings of millions are still being accounted for through the distorted lenses that produced the disastrous and now-shattered delusional fantasies of wealth suffered during the tech and housing bubbles.

I know quite a number of people whose retirement plans require 8%+ rates of return on their investments for the next 15-20 years. From a macro perspective, I cannot reconcile 8% equity growth with even a robust 4% growth in GDP. And there's good reason to believe that the next few years could be in solidly negative territory in nominal GDP growth, making the desired outcome even less probable.

We are betting on having something like the "Lake Woebegone Retirement Plan," where everyone's returns will be above average...

[Bideshi]

Originally Posted by Bob from down south

I know quite a number of people whose retirement plans require 8%+ rates of return on their investments for the next 15-20 years. something like the "Lake Woebegone Retirement Plan," where everyone's returns will be above average...

Mine requires 3.5% and I'm not at all confident of that!

[jazzlover]

Well, the latest consumer confidence numbers are out--and they show the biggest drop since the Arab oil embargo of 1973. I'd bet a lot of Coloradans reading this weren't even born yet in 1973. Some of the financial "gurus" are trying to shake this off, but this is probably one of those cases where the "Average Joe" has got this figured out a lot better than the experts.

Let's think about the average Coloradan: Every time he or she goes to the grocery store, prices are higher. For families with a couple or more of "grocery grinders" (i.e., kids, especially teenagers), those price increases are significant. Gas station--same story. If the folks are unlucky (or unwise) enough to have an SUV or pickup in the family auto fleet, those $75 fill ups now the norm start to really hurt. Utilities? Going up. The housing ATM many have used for financing their consumption (dumb, but common) is now drying up. Chances are that their home's value is stagnant, at best, and likely declining. If they are fortunate enough to have any savings, the rates they are getting for them have now dropped below the national inflation rate (thanks, Fed). If their pensions, IRA's, 401k's, etc. are invested in the stock market (most usually are, at least indirectly), those aren't doing great, either.

Here's the dark part. Right now, the average Coloradan still has his or her job. But, at some point, all of this is going to translate into job losses. My suspicion is that the big job losses are going to come in the industries least sustainable in this economic environment, and those will be construction and real estate. When that happens, because Colorado's economy so over-relies on those industries, the hit to Colorado will be huge. Tourism probably won't be far behind. Energy will continue to hold its own, but it can't--as I've noted before--support the whole economy. If you want to see a near "pure" energy economy, you need look only one state north into Wyoming. Wyoming produces about 10 times as much energy as Colorado. With all of that, it can support a population of just over 500,000--Colorado's population is just under 5 million. Do the math. Ironically, to the extent that the natural gas industry in Colorado booms because it is getting the new pipeline capacity to export gas to the east and west, retail natural gas prices for Colorado consumers will rise, as local retail natural gas suppliers will now be competing with numerous out-of-state buyers for those supplies.

Sad to say, but things are going to get worse economically--a lot worse.

[Shuffler]

I'm feeling it. I used to get out of the store every few weeks on $150 or so...now it's $200 or more. Bread, coffee, meat...everything is going up. But I knew this was coming. Fuel prices....especially the diesel.

My employer put us on a new sales plan this year which equates to a $1K/month pay cut for everybody. Their 'spin' is that we can make up the difference IF we hit our quotas, which of course are unattainable, especially when our customers are budget-constrained and forced to 'do more with less'.

"Future's SOOO bright"....

[Bideshi]

Originally Posted by jazzlover

Sad to say, but things are going to get worse economically--a lot worse.

I would very much like to say you're wrong, but...

[multitrak]

than the rest of the nation.

latest s&p500/case-shiller housing index press release below:
http://www.globalindices.standardand...ce_Release.pdf

and to put a "face" on the numbers:
Paper Economy - A Real Estate Bubble Blog

and regarding the "gloomy" consumer (lack of) confidence numbers, if all the pessimistic talk on this forum is any guide, then i'm not too surprised that they're low. but today the stock market is rising in defiance of permabear expectations, and right now it's doing a yada yada yada talk to the hand to those "experts." too funny! it's not what the numbers are, but how the market reacts to those numbers over time that counts.

the future is as optimistic as you are willing to make it...i live in a no-fear zone...

[jazzlover]

Here's a great article by Bill Fleckenstein, from MSN money. ANYBODY who thinks this mess is anywhere near over should read this: Catering to the bailout nation - MSN Money . All that is happening in the markets right now is that investors are enjoying one more big slug of whiskey bought for them by the Fed (that means YOUR money down the road, by the way) so the drunken binge can go a little longer. It does nothing to change the facts that most Americans owe more money than they have assets, that the US is becoming ever more dependent on foreign resources (energy, money, even food), that our manufacturing base has largely moved to other countries, and our government's answer to this is to engage in completely inflationary money creation.

For the average person, when a bullet is coming straight for your head, you'd better have enough "fear" to duck. Otherwise, the "no-fear" zone is also a kill zone.

[multitrak]

if we are going through an inflationary cycle (the truth is we have been for years; examine commodity price charts), then home ownership represents the best hedge (even better than stocks) for the average american in which to protect themselves. the second best hedge is owning a non-hobby small business. but home ownership and its tax shelter benefits should be viewed as the financial equivalent of kevlar...no fear!

[sterlinggirl]

This morning Boone Pickens pointed out that we're exporting around 5 trillion dollars a decade to buy oil.....I wonder how long we can keep that up.....

He is in favor of replacing electricity generation with renewables to save natural gas for transportation, and pointed out that natural gas is 3 times cheaper per BTU than regular gas. When the scales finally balance out (by finishing the pipelines), we're going to see more than just a little rise in the cost to heat our homes during the winter.

[Bob from down south]

Originally Posted by multitrak

latest s&p500/case-shiller housing index press release below:
http://www.globalindices.standardand...ce_Release.pdf

and to put a "face" on the numbers:
Paper Economy - A Real Estate Bubble Blog

and regarding the "gloomy" consumer (lack of) confidence numbers, if all the pessimistic talk on this forum is any guide, then i'm not too surprised that they're low. but today the stock market is rising in defiance of permabear expectations, and right now it's doing a yada yada yada talk to the hand to those "experts." too funny! it's not what the numbers are, but how the market reacts to those numbers over time that counts.

the future is as optimistic as you are willing to make it...i live in a no-fear zone...

First, look at the startling deceleration in the real estate prices in the "papereconomy" chart. The 5.1% Case-Schiller drop doesn't tell the whole story...look at how far and how fast the trendline has been dropping in the most recent months.

"it's...how the market reacts to those numbers over time that counts."

Agreed. And how have the markets reacted over time? The worn-out sound bite used to be that there was never a 5-year period in which the stock market lost money. (and that only works if your knowledge of history only goes back to the end of the Great "You-Know-What." From today's date in 1998 to today in 2008, what kind of annual rate of return has the Dow, S&P, and NASDAQ produced? In nominal terms...and then in real (inflation adjusted) terms?

Originally Posted by multitrak

if we are going through an inflationary cycle (the truth is we have been for years; examine commodity price charts), then home ownership represents the best hedge

Absolutely NOT. Were home prices close to the historic price trend line, maybe. But buying a home at today's bubble-inflated prices is not a hedge unless you are truly expecting sustained double or triple-digit superinflation to quickly wipe out the overvaluation. In real, inflation-adjusted terms, housing has to fall a long way before prices reach sustainable levels.