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I'd give Wiegand more credence if he didn't come across as another fearmongering gold salesman trying to spook the herd into a commodities bubble in metals that'll make him rich.
That said, the employment numbers show that the expected hits to employment are now taking place. The credit markets were an absolute debacle yesterday. The major investment banks are raising margins enough to virtually instantly euthanize leveraged hedge funds that rely on them as the last source of cash to keep their losing bets on the table. Pelaton...Carlyle...Thornburg Mortgage...there are more coming, too. This thing is in a self-feeding accelerating downward spiral, and the Fed can't fix that. They can slash rates again and administer the coup de grace to the dollar as a reserve currency while spiking inflation, or they can hold pat (or even do the right thing and raise rates) and watch the markets pay the piper for their crazy excesses these last five years.
Either way, like the old joke goes, "it's time to wake up Leroy, cause he ain't never seen no wreck like we's fixin' to have."
Carlyle Capital (a sub of Carlyle Group) is in the news today. They opened their doors in July, raised $670M, then leveraged it 30+ times to buy $21B of junk debt. Now it's an "oops" moment as the Dutch banks call for more collateral. Story at: washingtonpost.com
I've had a bad attitude towards buyout firms like the Carlyle Group, as for much of 2006 and into 2007, they and others like them, bought up many of the most profitable and best run corporations in the stock market, taking them private. My gripe is that every time they took a good company private, there was one LESS good firm for me to invest in. It seems that greed has no limit anymore. IMO they deserve the fate they've made for themselves, but its the rest of us who'll suffer in the coming debacle.
Last edited by Mike from back east; 03-07-2008 at 10:10 AM..
The destruction of the middle class in America is just about complete. This innocuous story reported by AP ( The Associated Press (broken link) ) basically says it all--quite simply.
Simply stated, Americans in aggregate now owe more on their homes than those homes are worth on the open market. For many middle-class Americans, that translates that the largest value asset he or she likely owns is now not worth as much as what he or she owes on the mortgage. Combine that with Americans' now long-term penchant for financing consumption with debt, and buying all kinds of relatively quickly depreciating "assets"--cars, computers, boats, RV's, etc.--with debt; along with a near net-zero savings rate, and what have you got?
A huge number of Americans whose Net Worth is effectively zero--de nada, zippo, zilch, squat. Put bluntly--walking bankrupts. This before the hare-brained recent flooding of the credit markets with money by the Fed sends inflation into the stratosphere, and before unemployment decreases income of millions of Americans even more--and depresses real estate sales even more. In short, middle class America has effectively bankrupted itself before a real recession or depression even began! We didn't manage to do that before the beginning of the first Great Depression in 1929! As has been noted before, we also have managed to squander most of our natural resource reserves, sent most of our manufacturing overseas, are now importing a sizable amount of our food, have amassed a record federal debt, and are rapidly debasing our currency.
As for Colorado, well, there are only a couple of bright spots I see. The energy industry will continue to hum along pretty nicely, but it can't support the whole state economy on its back. Agriculture might do pretty well if it could manage to keep from getting the **** kicked out of it continually by development pressures and water grabs--maybe those pressures will die with death of the real estate development and construction economy--we can hope. A few tourist-related businesses might do OK catering to some foreign tourists attracted by the favorable currency exchange rate they will enjoy. Of course, Coloradans will have to content themselves flipping burgers and changing sheets for those foreign tourists in resorts that most "middle class" Coloradans won't be able to afford to frequent--even for a weekend.
We have sure made one hell of a mess of this country with our greed, overconsumption, and debt-happy ways. Time to pay the piper . . .
A small question. If people are simply paying their mortgages in order to live in their homes (not to sell them or borrow against them), yes, on paper, their assets are down, but in reality, it doesn't have a real effect, does it? (The psychological effect, I understand, is sort of real).
I read an interesting thing that suggested the overall assumption that home-buying/ownership is always a good thing could have the flip side of keeping people in failing areas *because* they at least have a house, or certainly because they can't sell it and break even, or sell it at all, and therefore they stay in deteriorating economic areas.
In the 1970s, when steel was collapsing out around Pittsburgh, I remember (in my harsh young person way) wondering why people were so distressed about "leaving the community" or whatever, and wondered why they didn't just get on the road and go somewhere else, assuming somewhere else would work better. Now, I understand a bit better the intangibles of community and staying/becoming rooted and all.
But back to my question, unless someone *has* to sell (job loss, divorce, job relocation) does the paper value of a lived-in house mean much as it goes up and down?
(Disclaimer- I live in my dream house, built in 2001, have a hefty but managable mortgage, and as secure a job as you can have in this world as long as I keep my health).
Housing market catching steam, an article from the Rocky Mountain News, reports that based on data from Metrolist, independent broker Gary Bauer released a report on Thursday that shows home sales activity picked up in February, while record foreclosures continue to keep prices down on previously owned homes sold in the Denver area. In February, a total of 5,126 single-family homes and condominiums sold by Realtors were placed under contract, a 4% increase from the 4,929 in February 2007, according to reports. In the first two months of the year, 9,676 homes were placed under contract, a 4.9% increase from the 9,221 placed under contract in January and February of 2007. Larry McGee, president of the Berkshire Group said, "This is very encouraging because it is indicative of strength in the Denver-area market, which will lead to a healthy spring market." Housing market catching steam : Real Estate : The Rocky Mountain News
I can't be too excited about that report because sales always pick up as Winter begins to fade. Compare those figures with a year ago and two years ago to see the way it's going.
Housing market catching steam, an article from the Rocky Mountain News, reports that based on data from Metrolist, independent broker Gary Bauer released a report on Thursday that shows home sales activity picked up in February, while record foreclosures continue to keep prices down on previously owned homes sold in the Denver area. In February, a total of 5,126 single-family homes and condominiums sold by Realtors were placed under contract, a 4% increase from the 4,929 in February 2007, according to reports. In the first two months of the year, 9,676 homes were placed under contract, a 4.9% increase from the 9,221 placed under contract in January and February of 2007. Larry McGee, president of the Berkshire Group said, "This is very encouraging because it is indicative of strength in the Denver-area market, which will lead to a healthy spring market." Housing market catching steam : Real Estate : The Rocky Mountain News
Sorry guys, I don't think Denver is immune to the repercussions that are coming.
I'm proud to say I bought my house in '98 and had the smarts NOT to use it as an investment vehicle for stupidity. I have no sympathy for those who did.
Last edited by Mike from back east; 03-07-2008 at 11:25 AM..
One always has to question how the caveats are weasel-worded when the NAR and their pack of shills start declaring victory.
For example, I find lumping single family homes and condos together misleading when reporting statistics.
Reporting the number of units placed under contract rather than actually sold obscures the rapidly rising number of contracts being cancelled due to buyers not able to secure financing. That number is in the 25-35% range now.
There likely is some seasonal stirring in the Denver market...but not hardly what I'd call "strength" entering the peak buying season in Mar-Apr. Those who buy into the "it's different here" mantra trumpeted by starving realtors at every hint of the slightest uptick do so at their own peril.
Regarding the credit markets and panic in financial circles, the WaPo reports today that the Fed is putting $200B into the credit markets to ease fears. See: washingtonpost.com
Part of the Fed action is: "The central bank said it will auction $100 billion to financial institutions, injecting money into the banking system by trading cash for troubled securities." Later, it says: "the Fed will also make another $100 billion in cash available in exchange for securities issued by Fannie Mae and Freddie Mac, trying to restore confidence to the market for home mortgages."
As I understand it, this "exchange" of my taxpayer cash for dubious paper held by "financial institutions" is not considered a bailout, but my knowledge here is real thin. It looks and smells like Uncle Sam is bending over again for the fat cats, many of whom sure belong in an "institution" of some sort, especially ones having guard towers and bars on the doors - or padded rooms and Nurse Ratchet cooing for them to stop by for 'medication time.'
Rumors I'm hearing are the credit markets are spooked and seizing up (again) by the rumored impending catastrophic collapse of a major bank...my guess would be Washington Mutual, given that Fitch slashed them all the way down to BBB on Friday.
Also interesting is Krugman's latest on where this is going:
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re: Carlyle
Caveat Emptor
