Misery Economic Theater 2011

[wblipp]

Originally Posted by Sam Harris quoted by cheesehead

Many of us have been extraordinarily lucky

Perhaps a forgivable rhetorical flourish, but if it has happened to "many" then it is "ordinary" not "extraordinary"

[xilman]

Originally Posted by wblipp

Perhaps a forgivable rhetorical flourish, but if it has happened to "many" then it is "ordinary" not "extraordinary"

William: your irony detector is starting to fail and I suggest that you get it checked out asap.


Paul

[ewmayer]

So Bernanke gave his much-awaited annual Jackson Hole speech yesterday. It was really "a speech about nothing" in that it was utterly devoid of anything remotely surprising. BB basically admitted "economy still sucks", made vague claims about the Fed "not being out of bullets" - a lie, but even if the Fed still has "things it can try", it's not as if any of its previous efforts have succeeded at anything but sponsoring another round of idiotic risk-taking by Big Finance - and hinted at "further measures possible" while committing to nothing. The only sign that anyone cared was an immediate low-volume ramp in US equities which had "HFT intervention" written all over it. I was offline all day, but fully intend to take advantage of any further government-sponsored levitation next week by going short, and this time not in small fashion. Financial markets around the world are flashing warnings of extreme events dead ahead, and I don't mean "extreme upside" events.

One ZH reader summed up "market" reaction to BB's speech pithily:

Bernank sponsored equity boner for Fraud Street".

By way of an aside, Jackson Hole is a truly lovely place, I encourage readers who have not already been there to add a visit to their bucket list. Try to go during the 360+ days of each year when JH happens to not be overrun by global-financial-engineering types:

[Fusion_power]

Distinctly off topic, but I agree re Jackson Hole. There are some outstanding nearby attractions such as the the Elk Preserve, Grand Tetons, and Yellowstone. It is also not far to Dinosaur National Monument. If you have an opportunity, this is an outstandingly beautiful region to visit. Please note that the JH/Yellowstone area generally is snowbound sometime in October so plan accordingly.

More on topic, there is growing recognition that QE has triggered an uptick in inflation. It is easily shown that the govt measure of inflation shows little to none, but if you go to a grocery store, you will see it in action. The current rise in food prices is insidious.

I'm curious if anyone can show that inflation has a very specific effect in transferring the cost of living from one generation to another and how that effect works.

DarJones

[Christenson]

Well, if you are a wage earner, and your wages follow inflation, with a lag, you pay a small price for inflation. If you are a retiree, and the value of your investment dividends fall with inflation, you pay a bigger price for inflation.

Inflation encourages spending of money in the short term, rather than saving it for the long term, since inflation will destroy the value of savings. That is, it encourages available money to be spent on something real that can be had today, and (hopefully) will have value tomorrow, over transferring the decision to, say, a banker or stock market as it would be if cash were saved or invested.

[ewmayer]

A friend from Oz sent me the link to this Australian-real-estate-centric blog posting, which I found quite interesting:

Real House Price Index Update | WhoCrashedTheEconomy

Compared to the flat-out insane valuations in Oz, U.S. housing looks downright affordable, though I would gauge that we still have 15-20% to fall before getting back to the long-term trendline, and of course that ignores the huge shadow inventory of properties still held off-market by the banks, which will be a drag on prices for years, and would need a downward price-overcorrection (which is what markets tend to do unless propped up by external forces, e.g. government intervention) to clear more quickly.

Now, despite the glaringly-evident bubble-spike in US home prices from 2000-2006, Ben Bernanke is on record saying that "bubbles are hard to spot in real time". So instead of leaping to a hasty "Oz is in a huge bubble which is beginning to deflate catastrophically" conclusion, let's ask the readership: Oz home prices in a bubble, or just taking a little breather on their way up to a "permanently high plateau". [Google that phrase with quotes and you'll get some quite-interesting links.]

[Christenson]

Originally Posted by ewmayer

A friend from Oz sent me the link to this Australian-real-estate-centric blog posting, which I found quite interesting:

Real House Price Index Update | WhoCrashedTheEconomy

Compared to the flat-out insane valuations in Oz, U.S. housing looks downright affordable, though I would gauge that we still have 15-20% to fall before getting back to the long-term trendline, and of course that ignores the huge shadow inventory of properties still held off-market by the banks, which will be a drag on prices for years, and would need a downward price-overcorrection (which is what markets tend to do unless propped up by external forces, e.g. government intervention) to clear more quickly.

Now, despite the glaringly-evident bubble-spike in US home prices from 2000-2006, Ben Bernanke is on record saying that "bubbles are hard to spot in real time". So instead of leaping to a hasty "Oz is in a huge bubble which is beginning to deflate catastrophically" conclusion, let's ask the readership: Oz home prices in a bubble, or just taking a little breather on their way up to a "permanently high plateau". [Google that phrase with quotes and you'll get some quite-interesting links.]

Let's see Mr Bernanke take out a huge personal position in Mortgage-Backed securities and home equities in Oz....otherwise, bubble, bubble, boil and trouble... fire burn and cauldron bubble....tulip bulbs, anyone?

[markr]

Originally Posted by ewmayer

A friend from Oz sent me the link to this Australian-real-estate-centric blog posting, which I found quite interesting:

Real House Price Index Update | WhoCrashedTheEconomy

Compared to the flat-out insane valuations in Oz, U.S. housing looks downright affordable, though I would gauge that we still have 15-20% to fall before getting back to the long-term trendline, and of course that ignores the huge shadow inventory of properties still held off-market by the banks, which will be a drag on prices for years, and would need a downward price-overcorrection (which is what markets tend to do unless propped up by external forces, e.g. government intervention) to clear more quickly.

Now, despite the glaringly-evident bubble-spike in US home prices from 2000-2006, Ben Bernanke is on record saying that "bubbles are hard to spot in real time". So instead of leaping to a hasty "Oz is in a huge bubble which is beginning to deflate catastrophically" conclusion, let's ask the readership: Oz home prices in a bubble, or just taking a little breather on their way up to a "permanently high plateau". [Google that phrase with quotes and you'll get some quite-interesting links.]

Well, I live in Sydney, so that automatically makes me well informed on our housing market... riiiiiight Regardless, I'll go with "it's a bubble" - but very unlikely to deflate catastrophically, more likely a slower decline in real terms, and fairly likely in numbers-of-$ as well.

Firstly supply & demand: the amount of new land becoming available for housing around our major cities has not kept pace with population growth (including significant immigration) for several years now.

Secondly borrowers here can't just walk away from their mortgage: if they're under water on the loan there's a strong tendency to sit it out & hope the market improves before they have to sell. The alternative is a personal loss, possibly even bankruptcy. Forced sales by the lender are fairly rare (subjective - IMHO) although increasing.

[Christenson]

Being underwater isn't what makes most walk away from loans...it's simply being unable to make the payments.

In the US, we got into a situation where houses would appreciate, in terms of the resale value, to the point where you could sell your house, make a down payment on a bigger one, and use the excess to pay the new, larger mortgage for a few years. Works fine until your measly salary has to actually make the monthly mortgage payments.

[markr]

Today's news down here in Australia included this timely release - two sources supplied to give me more choice of quotes to cherry-pick.

House prices continue downward trend
The average home price fell for the seventh straight month in July as uncertainty over the direction of interest rates and the economy's health weighed on homebuyers.

The RP Data-Rismark home value index showed capital city home values fell 0.6 per cent in seasonally adjusted terms in both regional areas and capital cities.

House prices extend falls in July
"I wouldn’t be surprised if we see further month-to-month falls," [RP Data research director Tim Lawless] said, with the declines so far on track to push capital city house prices down between 6 and 8 per cent for 2011.

Sounds like the bubble is deflating gently - so far anyway. According to the graphs in the article linked to in post #457 - and my own impressions - the peaks in the last couple of cycles (1970s & late 1980s) were followed by declines over a few years then a longer period of stability / plateau / stagnancy - depending what you think house prices "ought" to do. Of course this time the bubble is bigger...

[markr]

Originally Posted by Christenson

Being underwater isn't what makes most walk away from loans...it's simply being unable to make the payments.

True, but the consequences are different so people's thresholds are different - there is more incentive to hang in there longer scrimping more or ask family for help if most of the loss would be one's own rather than the bank's.