Real Estate Market / Inflation / Recession / Depression (Sterling: house, rent, travel)

[Bob from down south]

Originally Posted by NewAgeRedneck

Though I am a lifelong realist/pessimist, and currently an optimist in training ( I picked a hard time to make that transition ), I do not deny that all the crap hitting the fan espoused in this thread is happenning. However, I see no value in rehashing it over and over. By focusing on all this crap, we are perpetuating the problem(s) and doing nothing to solve them. Making these dire predictions ( even if they come to pass ) is merely an exercise in stroking the ego.

Every day now, the situation morphs. I disagree that this is just rehashing, unless you consider the daily news coverage of the Iraq war, where our kids are still dying daily, to be a rehash as well. I think it's classic head-in-the-sand flight from reality that drives people to want the news of an ongoing bad situation to cease. "Mommy make it stop!" Sorry, but the danger does not go away if we just stop acknowledging it.

In the developing economic downturn there are important issues of duration, depth, and spreading consequential effects which continue to bear watching. Some of these issues are global or national in scope...others uniquely local. And they're all connected. The credit crunch has implications for a prospective house seller in Colorado Springs. Gridlock in auction rate securities has potential implications for taxpayers in local municipalities that fund schools, hospitals, and roads that way.

Also, as Jazz points out, those who still don't "get it" can't take measures to protect themselves from a problem or problems they don't yet see or truly understand. Far too many people still haven't made the connection between their choices in the lifestyle they live and the pain they're only beginning to feel. I still have to explain...to people with masters degrees...why strapping on the maximum house payment a bank will let you get away with is not a good idea in a declining housing market. People can be smart and still childlike in their trust in what they think they know based on the old [failed] wisdom, i.e. housing always goes up, rent is just wasted money, dollar cost averaging works to build wealth in all kinds of markets, etc.

When the brokerage ads spout out their truisms about markets, note that they always start their view into history after the first Great Depression, or after WW II. Wall Street, the Dow, the bond market...those things existed long before GD I and WW II, and true understanding of the nature and real risks inherent in capital markets requires consideration of the catastrophe of the 1920s and 1930s. The situation we're in now has so many parallels to the 1920s...it's just not rational to assume away the risk of another terrific collapse. "Mommy!!!!"

[multitrak]

Originally Posted by NewAgeRedneck

Though I am a lifelong realist/pessimist, and currently an optimist in training ( I picked a hard time to make that transition ), I do not deny that all the crap hitting the fan espoused in this thread is happenning. However, I see no value in rehashing it over and over. By focusing on all this crap, we are perpetuating the problem(s) and doing nothing to solve them. Making these dire predictions ( even if they come to pass ) is merely an exercise in stroking the ego.

i'm just the opposite...i'm a lifelong optimist and realist that recognizes all of this dire stuff has been recycled but with different twists since the first arab oil shock in 1973. i got sucked in then, but never again! over all, we're moving from a stock, credit and housing market peak to an eventual low and in that process excesses in the system are being worked out like they have been in the past, for example, braniff then and frontier now, continental illinois bank then and bear stearns now, savings and loan default, enron scam, vietnam war, etc. that is function of a down cycle, it's sort of a built in feedback mechanism that corrects those past and present market excesses. what makes the market? people and governments with opinions, forecasts and predictions across a vast spectrum and who back up it with their own money. if everyone thought alike (totalitarianism), then there would be no markets and no opportunities to make money. yes, as difficult as it seems, hedge funds and everyday people alike make money, lots of it, even in and especially during the down times, as painful as it might be to the other folks on the losing end of the stick. at this time, smart investors and traders are buying companies, houses and commodities that are grossly undervalued while other folks are "hunkering down" with their collective heads in the sand. what separates these rugged individualists and serial contrarians from the rest? it's their decisive courage to act under fire, taking a stand and separating themselves from the herd, buying or selling at market extremes, and thus going against the collective "wisdom" of the herd no matter how illogical or crazy as it sounds. this is how i've maintained my realistic optimism (or is it optimistic realism) during the down swings, because i know that the market always swings up again, even against the backdrop of dire predictions from naysayers, talking heads and alleged experts. hopefully now you can understand why it is so difficult to buy at major bottoms (1982, 1987, 1990, 2002) and sell at major peaks (1987, 2000, 2007), it's because the herd psychology/mentality usually short circuits and plays havoc with most folks decision making processes. in retrospect, things are not nearly as good as they appear at tops nor nearly as dismal as they seem at bottoms; it's nothing more than good old human greed and fear emotions and fight or flight responses operating at our most basic instinctive level. why is the bad stuff rehashed over and over? first, people need to be reassured that things will eventually get better. second, why do people stop at train wrecks and car highway accidents, they are both horrified and intensely curious simultaneously at what has happened. similarly, visions of their retirement security melting away provokes some of the same emotions felt at wrecks. also, fear predators get a kick out of scaring folks when they are the most psychologically vulnerable. besides, you've got to admit it, nothing sells better than fear during market panics and downturns. i think that most folks have a basic predisposition for fear that gives rise to varying degrees of pessimistic personalities, and the internet gives these folks a soapbox and forum to preach or dissect ad nauseam their personal brand of doom and gloom. concluding, i don't predict the future direction of the markets, but only follow them as old cycles gives birth to a new ones. just as the economy grows the next time around, this stuff will get recycled again, but don't forget to add a another zero or two to the good and bad numbers then and that should put things into perspective. you must constantly remind yourself about the power that fear can hold in your life if you let it...that fear leads to futility, futility leads to hopelessness, and without any hope, you simply give up. but a positive mental attitude and hopeful expectation for the future gives you the necessary mental toughness and emotional stability to weather any storm that the markets or the wrong minded mob throws against you. and with such clarity of vision, comes the ability to admit when you are wrong (you will be at times), quickly shifting gears to plan b (always have an alternate plan or two), and continuing on without missing a step. finally, it helps to prepare for the worst, hope for the best, accept responsibility for your mistakes, and always think for yourself!

“Without continual growth and progress, such words as improvement, achievement, and success have no meaning.” Benjamin Franklin

for referenced market tops and bottoms, see here... S&P 500 Index (1960 - Present Weekly) - StockCharts.com

[Bob from down south]

Multitrak, dude, you must also constantly remind yourself of the power of the carriage return. [mod cut]
I can't accept that this is just any other cycle, because we're seeing something that magnifies the effects here, and that's massive leverage on a very broad scale. Adding the sorts of leverage we see now to the possibility of a 1929-style market event scares me.

The markets are irrational right now. Bad news results in major up moves because it wasn't as bad as it could have been. That sort of dynamic leads to a rather nasty reconciliation with reality at some point.

The rice-eaters of the world are having their own nasty brush with reality now too, with food riots breaking out in various locations around the globe. Perhaps we can get some of those starving optimists to post their thoughts here about the bright future?

I wonder how many folks noticed the 10 basis point spike in the 10-year bond while they were celebrating today's Dow bump up. Does anyone else but me think that might have an effect on the Colorado housing market?

[Bob from down south]

And this just in on Bloomberg News...not twelve hours after declaring publicly that the bulk of the credit crisis is behind us, JP Morgan Chase slips in a "little" $6 Billion sale of perpetual preferred stock, paying 7.9% for 10 years, and then 3.5% above the LIBOR after that.

They tell the world that things are looking up, and then hours later on the same day go prostrate to the capital markets after-hours for six thousand million bucks at loan-shark rates? Intel bumps the market up today, and IBM's gonna do the same tomorrow...guess they figured we wouldn't notice the clear evidence of dishonesty sandwiched in between. They simply have no shame.

We are in such serious trouble. Really.

[sterlinggirl]

Sallie Mae reported this morning that they are losing money on every school loan they're funding. CSU is going to be an unaffordable luxury if people can't borrow against HELOCs or get student loans.....

[Bob from down south]

Originally Posted by sterlinggirl

Sallie Mae reported this morning that they are losing money on every school loan they're funding. CSU is going to be an unaffordable luxury if people can't borrow against HELOCs or get student loans.....

And double that pain level for CC.

SLM (the largest student loan lender in the US) has over $3 billion in application volume and around $1 Bn in funding right now.

I'd guess we will see a Congressional backstop of some kind by early summer...this rivals social security in its potential to stir the sleepy masses into action. I'm certain that Congress can find another planeload of financial phenobarbitol and get it out on the street in time.

But at some point in this exercise, people are going to need to sit down and re-evaluate the wisdom of running up a six-figure debt (and just about the only kind of debt that cannot be discharged in bankruptcy) to earn a music degree. Nothing against music, but how is that going to translate into the means to pay down the equivalent of a house on a 10-year mortgage? Advanced education is an investment, unless you are wealthy enough to classify it as a pleasant diversion--and pay cash. As an investment, there should be some reasonable prospect of seeing returns commensurate with the expense.

Likewise, maybe we'll see a flight from the pricey name-brand schools towards quality state schools. Sucking the equity out of your house so Junior can get the private college T-shirt sure seems dumb to me with what's going on right now.

[jazzlover]

Also, Bob, whatever happened to that "quaint" idea of kids working after school and during summers to earn some of the money that they need for college? I was doing that from age 13 on, all the way through college (I attended a small state college, I might add). I graduated from college without a student loan. Somehow, without a degree from a fancy college, and without a huge student loan to pay off for it, I have managed to function quite well in American society. Working all of those summers when I was a kid didn't hurt me, either. Now, it seems that mostly what you see is a bunch of "mall-rat" teenagers who don't even try to get their first job until they graduate from college--if and when they graduate. Small wonder many of them have no clue how to manage their finances, keep from going bankrupt, or get and hold a decent job. They DO seem to know, however, how to spend their parents' (often borrowed) money pretty well to keep themselves entertained all of the way through secondary school and college (and often beyond).

[formercalifornian]

That seems a little harsh, Jazzlover. I know quite a few really great teenagers from middle-class and up families who are working after-school and weekend jobs, some of them as volunteers. Please don't paint with such a broad brush.

[multitrak]

Originally Posted by formercalifornian

Please don't paint with such a broad brush.

touche! my son has not accepted one penny of university support from us nor applied for any student loans. he works full time and goes to school part time. like us, he is debt free and saving for retirement. we instilled in him by our example the value of hard work, accepting responsibility for one's actions, and independent thinking from a very early age. it's too bad that many parents are not so forward thinking in dealing with their kids...

[jazzlover]

Originally Posted by formercalifornian

That seems a little harsh, Jazzlover. I know quite a few really great teenagers from middle-class and up families who are working after-school and weekend jobs, some of them as volunteers.

So do I, but I also see PLENTY who fit my description. It's also instructive that today's college students are graduating with an average of several thousand dollars of credit card debt in addition to their student loans. When I graduated from college, all of my belongings fit in the back of a pickup, but I didn't owe a nickel to anyone. I guess that's just another way that my view of the world is so "passé."