Home prices continued to decline in April 2009, but at a slightly less bad rate than expected.

Don’t break out the champagne, just yet.

The reduced collapse speed (another  one of those famed 2nd derivatives)  is primarily a function of foreclosure moratoriums. The overall trend in housing remains weak, with soft demand, excess inventory and heavily indebted consumer unlikely to effect a V-recovery.

That is before we consider the ongoing NFP job losses, which have been contributing to additional foreclosures.

And once the various government stimuli gets withdrawn — very low rates, $8,000 first-time home buyer tax credit — we can expect even these weak reports to turn south.

>

case-shiller-april-2009

case-shiller-april-09-indices-20032

Source: S&P

Category: Data Analysis, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

190 Responses to “Case Shiller Index Falls 18%”

  1. AmenRa says:

    Green shoots!!! Better than expected!!!

  2. AmenRa says:

    btw that’s sarcasm

  3. franklin411 says:

    Green shoots, patriots. Green shoots!

    The S&P/Case Shiller 20-city home price index fell 18.1% in April from a year ago versus forecasts for a drop of 18.6%.

    But on a month over month basis, the index showed some improvement. Prices fell 0.6% versus March, after posting a 2.2% drop in the previous month.

    http://money.cnn.com/2009/06/30/markets/markets_newyork/?postversion=2009063009

  4. Marcus Aurelius says:

    See that little upturn at the far right? That’s proof that housing has turned the corner. Everyone currently under water in housing can rest assured that the value of their “investment” will return to, and exceed, it’s historical high before the end of the year. Condos will lead the recovery. Real estate never goes down. Buy now, or be priced out forever. Buy two, and rent one out.

  5. DeDude says:

    So the curve of actual prices in $ is going down at a less steep slope. I guess less brown is the new green :-)

  6. call me ahab says:

    Headline-

    “Conference Board’s Consumer Confidence Index Slides in June, Falls to 49.3 from 54.8 in May”

    Gee- I don’t know why- I thought the path for new prosperity was already in the bag

  7. Steve Barry says:

    I sent Barry my extrapolation of the 100 year chart…let’s see what that shows (hopefully he posts it above)

  8. franklin411 says:

    @Marcus
    Who said anything about a housing rebound? Green shooters only expect housing to reach a stasis point. The driver of future growth will not be housing; it will be the new economy the President is busily engineering.

  9. Steve Barry says:

    It would take tremendous manipulation and mortgaging the future (pun intended) to get housing to stabilize at this level. Rip the band-aid off quickly and we can get this over in 5 years.

  10. franklin411 says:

    @ahab
    I seem to recall that I was laughed at when I advanced the theory that the Chicago PMI contracted in May because the auto sector was weighing it down…

    But no matter. I’ll take a green shoot number in manufacturing as well, even if it’s a tad belated.

    Jun 30, 2009, 9:51 a.m. EST
    Chicago factory activity index improves in June

    WASHINGTON (MarketWatch) — Manufacturing activity improved in the Chicago region in June after a disappointing drop in the prior month. The Chicago purchasing managers index rose to 39.9% in June from 34.9% in May, according to a survey of corporate purchasing managers released Tuesday. Economists surveyed by MarketWatch had expected the index to rise to 39.0%. Readings below 50% indicate overall business contraction. The Chicago PMI is considered a leading indicator to the national Institute for Supply Management manufacturers’ survey to be released Wednesday. The increase in June brings the Chicago PMI in line with other regional surveys. Last month, the Chicago index had fallen more than other regions. Analysts blamed the drop on auto sector weakness. Economists expect a further improvement in the national ISM index in June.

    http://www.marketwatch.com/story/chicago-factory-activity-index-improves-in-june

  11. call me ahab says:

    Marcus-

    I agree- sunny skies from here on out- America- best country ever- passport?? who would want one of those?- once your blessed with being an American- why bother with all those other countries

  12. DeDude says:

    “Who said anything about a housing rebound? Green shooters only expect housing to reach a stasis point.”

    As I said above “less brown is the new green”. Set the bar low enough and even a toddler can be a winner.

  13. ben22 says:

    Erin Burnett was pretty excited about this today.

    They had a guy on CNBC from S&P talking about all the green shoots in this data. Then Mark Haines brought up the fact that it still looked like many of the worst cities weren’t improving all that much on the report. The guest from S&P had a hard time with this and tried to say it was only those cities that are still the problem.

    I got a laugh out of that. When real estate started to tumble I once heard a realtor say, “It’s only Miami and Vegas” but …. it wasn’t only Miami and Vegas.

    Anyway, Barron’s also recently had that nice cover about making sure you buy a luxury home and don’t forget the Forbes list from about two weeks ago of what to buy before the economy recovers, a home was #1.

    Pay no mind to the fact that unemployment is still rising, interest rates have gone up as have prime defaults on debt, and the Alt-A and Option ARM problems haven’t even really started.

  14. ben22 says:

    Steve Barry says:

    It would take tremendous manipulation and mortgaging the future (pun intended) to get housing to stabilize at this level. Rip the band-aid off quickly and we can get this over in 5 years.

    Hey Steve, I’m with you but don’t hold your breath.

  15. manhattanguy says:

    Consumer confidence crappola, S&P put a nice S-H-S pattern, we are going down. S&P tested 930 and couldn’t get past it.

  16. rtol says:

    Don’t forget most of the owner occupied sales were financed around 4.75% in April. Things are about a half percent higher today.

  17. DeDude says:

    “Rip the band-aid off quickly and we can get this over in 5 years”

    That “take the quick pain now and all will become rosy by itself” ideology is BS and completely unsupported by history. If housing were to quickly fall another 20% financial institutions and the economy would collapse. We would drop into the new depression with huge numbers of new unemployed who would have no money to consume and, therefore, the GDP would nosedive and we would be in a negative spiral. From where would the money come that could turn that around?

    The only reason we got out of the great depression was that we had this huge public works program called world war II. In todays environment where would you get the political will for such enormous amounts of deficit spending? not to talk about who would lend us the money to do it?

  18. call me ahab says:

    manhattanguy-

    you are not a very good American- predicting a downturn in the SPX- Pulease keep your unbridled pessimism to yourself

  19. Bruce N Tennessee says:

    http://www.concordcoalition.org/learn/debt-facts

    “Spending for interest on the debt in fiscal year 2008 ($249 billion) equaled 21.7% of all individual income tax revenue ($1.146 trillion) and more than the federal government spent on energy ($531 million), environment ($30.2 billion), education ($89.1 billion), veterans benefits ($84.7 billion), and agriculture ($27.8 billion) combined .”

    OK..Ofranka….let’s do a little math. 21.7% of income tax revenue was spent in 2008 on the national debt service…fine…now we know that this year, already, tax revenues are down 34%….follow me so far?

    Let’s call tax revenues for 2008 “x” and let’s call tax revenues for 2009 “.66x”

    We can set up a simple equation from high school algebra…21.7 is to x as (unknown percentage) is to .66x….

    …Franklin…we will spend 32.87 percent of all tax revenues on interest on the debt this year.

    1/3 of tax revenues for debt service….

    This thing has just gotten started good…

  20. ben22 says:

    manhattanguy,

    everyone and their mother can see the H&S pattern so it will most likely fool people. fwiw I don’t see the start of a real downtrend confirmed yet in the indexes but the rest of this week should give us more clues.

  21. franklin411 says:

    Agreed, DeDude.

  22. ben22 says:

    Franklin,

    I’m in a great mood today so I want to be nice and try to help you out. Just a word of caution, when you start siding with analysts looking for reasons they got a forecast wrong re your 10:12, well, you are probably setting yourself up for some trouble. Analysts are classic herders. Also, large countertrend moves in bear markets, which is exactly what we are having right now, tend to produce numbers that almost look good as it starts to peak out. It’s social mood driving these things, hope you can recognize when it is about to change, it’s not very far away.

    good luck in your investing.

  23. Andy T says:

    DeDude Says:
    June 30th, 2009 at 10:26 am
    “Rip the band-aid off quickly and we can get this over in 5 years”

    That “take the quick pain now and all will become rosy by itself” ideology is BS and completely unsupported by history. If housing were to quickly fall another 20% financial institutions and the economy would collapse. We would drop into the new depression with huge numbers of new unemployed who would have no money to consume and, therefore, the GDP would nosedive and we would be in a negative spiral. From where would the money come that could turn that around?
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

    Where would the money come from? From all the cash on the sidelines…..

    There are a lot of smart people sitting around in cash waiting to pick up assets and rebuild this country with a sound footing…not the current sand castles we’re sitting in….

    DeDude, many high population parts of this country are already in a depression…the crap we’re doing right now is only delaying the process of wiping out the bad debts and crappy assets….too many strip malls were built; too many poor business plans were finanaced; too many flat screens were rung up on credit; too much plastic crap from China was purchased on a credit card. All of that debt has to go away….

    Then we rebuild…..

  24. pmorrisonfl says:

    @DeDude

    If housing were to quickly fall another 20% financial institutions and the economy would collapse.
    We would drop into the new depression with huge numbers of new unemployed who would have no money to consume
    and, therefore, the GDP would nosedive and we would be in a negative spiral.
    From where would the money come that could turn that around?

    I’m an econ-newbie, but there’s something I don’t follow in your logic.

    If, apart from 2002-2207, house prices are supported by people’s incomes and
    people’s incomes haven’t really gone up in the last decade
    then how can house prices stay at the elevated levels of the last eight years?

    Who exactly will be living in these houses?
    I suppose that JPM and GS can take their profits and go buy housing stock,
    maintaining prices with their extra dollars, but where will their renters get the money to pay rent?

    Equating the health of the financial institutions with the health of the economy is certainly fashionable
    in certain circles, but how does that serve the rest of us?

  25. Mannwich says:

    @ben22: And naturally that social mood will darken again once the summer ends. Even the unemployed are in decent moods in the summertime. Heck, that just means more time off to enjoy the good weather, sun, and fun of the summer. Might as well be happy and pull out/use the plastic, right? It’s all green shoots anyway and we’ll have jobs again soon to pay it off, right? That mood will darken in the fall once the hangover and reality hits again.

    This GD II. The good news is that Ben can at least he say after the fact that without his efforts it would have “been even worse”, so he can declare victory and move on. The rest of us won’t be so lucky.

  26. Marcus Aurelius says:

    Observations from the field:

    Here in the mid-Atlantic, there’s an interesting conflict between “new” and existing housing sales and between REO and non-distressed sales.

    New, mid-range THs in close-in/infill areas seem to be doing well. Luxury, not so much (although mid-range now assumes the ubiquitous granite counter tops and SS appliances).

    Mid-range (there does not seem to be a lower range) SFHs are seeing a smaller number of sales, but the builders are making more concessions. Those closer to metro areas/commuting routes are doing better than those on the fringes. Luxury on the fringes is getting killed. The builders have cut profit margins to the bone, but I don’t think that’s enough to get the shit through the goose.There’s the horrendous situation of holding a physically and financially deteriorating asset and being unwilling or unable to liquidate without taking a huge loss. Much of the new housing stock in inventory is effectively going to waste.

    The condo market is DOA. Prices are stuck at unaffordable levels. Condo fees are outrageous (gone are the days when builders could roll the first 2-5 years of fees onto the mortgage). There will be much pain and suffering when these white elephants find their true price. A prominent DC area marketer of Condos (not a builder — but interesting in that they market most of the large condo projects in the area, for all of the builders), recently did a very nice, glossy mailer of properties they currently represent. The builder names were not used in conjunction with the properties being shown (something that would never have happened during the boom). Overall, prices had not come down to anywhere near a reasonable price (to sell the available units in any reasonable period of time, I’d say prices still need to drop another 50% (no shit)). These are the same folks who used to set up pre-construction sales “parties” where people waited in line and actively bid the prices up. Sucks to be them.

    A broker friend tells me that he’s getting competing offers on his listings. He says that many buyers have come in looking for short sale/REO properties (of which he has a portfolio), but that the banks are unresponsive to offers on the properties. On more than one occasion, he’s had ratified contracts and settlement dates on short sale/REO properties repeatedly extended or put off indefinitely by the banks. In the end, the buyers have gotten their deposits back, but he doesn’t want to waste his time or that of his prospects. As a result, his buyers have concentrated on the MLS listings, where more reasonably priced homes are being bid on by multiple parties.

    Some of the larger projects run the real risk of becoming derelict or slums, IMHO.

    Again, the banks, like the builders, are holding physically and financially deteriorating assets off of the market in apparent hopes of some miraculous increase in demand will pull their sorry asses out of the fire. Mark my words: We will end up holding this bag o’ crap before these houses are put on the market at a fair price (a fair price, in this sense, being a price someone would pay).

    Someone needs to capitulate, and it’s not going to be the buying public. A ClustreF* is a’brewin’.

  27. Marcus Aurelius says:

    The “larger projects” sentence should have followed the condo paragraph.

  28. Mike in Nola says:

    Franklin:

    When you feel the green shoots mania coming over you, think of this cartoon from the New Yorker that graced the paperback edition of Galbraith’s The Great Crash. It promotes a healthy skepticism.

    http://cdn.comixology.com/assets/frueh.jpg

  29. Steve Barry says:

    @DeDude

    I guess you prefer the Japanese Solution…20 years of malaise and stocks still 75% off all-time highs. That’s fine…I guess it comes down to personal preference. I’d rather get to reality quicker.

  30. ben22 says:

    Mannwich,

    Yes, I agree, I just dont’ know exactly when it will turn, the underpinnings of that social mood shift are already in place.

  31. manhattanguy says:

    @ahab: Ok Mr Blind Optimist. Join F411′s club.

  32. AmenRa says:

    I’m still trying to figure how the economists underestimated Consumer Confidence by such a wide margin. Is is that the public has gotten wise the the green shoots lie?

  33. call me ahab says:

    manhatteguy-

    dude- you may be snarking me back- but- just in case-

    please note- my 10:28 post should be tagged w / [snark] label

  34. The Curmudgeon says:

    @Dedude; Steve Barry:

    There can be no reality in residential real estate pricing until the Fed gives up. It now owns more gse debt than anyone, buying it way above market, which is why everyone (mostly sovereigns) was willing to sell.

    It is pumping $1.25 trillion into the housing market this year, which will far exceed all the mortgage originations for the entire year.

    And Dedude and F411: What the hell is nearly $2 trillion in fiscal debt, never mind the monetary stuff the Fed is cooking up? And more where that came from next year.

    But the quote for the day:

    “The driver of future growth will not be in housing, it will be the new economy the President is busily engineering.”

    Indeed. A presidentially-engineered economy is our salvation. Just like the presidentially-engineered economies of the old Soviet Union, of Mao’s China, of North Korea and don’t forget East Germany and Cuba proved so fruitful for each of them. Everyone knows that all wealth is created by government and should therefore be controlled by government. Never mind the twenty million dead of starvation after Mao’s presidentially-engineered Great Leap Forward. Never mind the millions dead of starvation in North Korea. Never mind the Soviet Union no longer exists because its presidentiall-engineered economy couldn’t compete. Just never mind. We will prove our Great Leader much greater than theirs. History doesn’t apply to us. We’re American.

  35. Steve Barry says:

    Forget my extrapolation on the 100 year chart…extrapolate the second chart above, the 22 year chart, and we could fall another 50%…most bubbles get fully wiped out.

  36. Steve Barry says:

    Forget my extrapolation on the 100 year chart…extrapolate the second chart above, the 22 year chart, and we could fall another 50%…most bubbles get fully wiped out.

  37. DeDude says:

    Yes Andy; I am also one of those people with cash so I know that there is a lot of people waiting to pick up cheep assets. However, that may make those people happy and “rich”, but it will not grow the economy or get us out of a depression.

    The only thing that can grow the economy out of a big ressesion, is a massive overall increase in consumption. After consumption starts increasing, the prospects of companies growing and making more money, would entice people like me to invest that cash in those companies, so they can hire more people who can become consumers etc. etc. and the spiral goes up. If the prices of a stock goes way down I may use my cash to buy that stock, but that does not create anything for the economy, no new jobs, no increased GDP, nothing, my cash simply fills the hole from the cash lost by the previous owner of that stock. Someone got richer and someone got poorer, net gain is zero. Same goes for any other asset.

    Will I increase my consumption because I feel richer owning more stuff that I got for what I considered a good price; hell no, the reason I have cash now is that I am a fisically conservative guy and until I see the GDP going up at least 2-3% per year I will hoard all the cash and assets I can to guard against the meltdown.

    The only thing that can bring us out of a massive ressesion or depression is increased consumption. Anything that reduces consumption (such as you and I getting some great deal on an asset, that some baby-boomer now don’t have to “consume” in his retirement) is bad for the economy. Anything that gets people into paying jobs so they can increase their consumption is good for the economy.

  38. The Curmudgeon says:

    @MA:

    I’m in the business, too. I see the same type things. The Fed is doing everything it can to reflate the bubble. If successful, then it will pop for good in another year or so. If not successful, then comes the pain, but the pain will come no matter. The sooner the better.

  39. Steve Barry says:

    @Curmudgeon;

    Well said…under the engineered economy, I am willing to pay even less for stocks as growth will be muted until further notice…let’s see…7 times estimates of $40 per share in 2010 gives an S&P price of…280.

  40. olephart says:

    franklin411

    Message from HMS Titanic:

    Water inflow at 11000 gallons per minute versus prediction of 12000 gallons per minute, will update further upon arrival New York.

    Smith

  41. The Curmudgeon says:

    Dedude…God help us all if our only salvation lies in consuming a bunch more useless baubles and trinkets with money and time borrowed from the rest of the world. The notion of consumption as salvation, which permeates the thinking of our government shepherds by the way, are why we are on a long slow slide to hell. For crying out loud, the prescription for the economic blip of late 2001 was for everyone to go shopping. I suppose it was meant to get our minds off the burning towers. Is shopping really the cure-all for everything?

  42. manhattanguy says:

    @ahab: see I am not so good at detecting snark..ignore my comment

    added more to my $DUG and $COF shorts..tomorrow might be an up day. I still stand with my prediction that S&P will test low 800s by end of July.

  43. call me ahab says:

    would everyone please understand that Obama will invest in the future of America- more money for education and then more more for more education- PhD’s for everyone- health care- more nurses please- and other great jobs- high paying PhD jobs-

    I can’t wait- this newly engineered economy is going to be the best

  44. Mike in Nola says:

    Just noticed that SRS is negative again today. When will Credit Suisse be forced to disgorge some of it’s holdings of 104% of the IYR?

  45. DeDude says:

    Pmorrisonfl;

    The important part is not the price but the monthly payment. The thing that people can or cannot afford is the monthly payment. I would not suggest that we do not need to get prices down from where they were at the top of the boubble, just that any further reduction need to happen slowly so the economy (and consumers) can absorb it.

    I am in no way shape or form saying that we have to shield the leaders of the financial system, hell lets put them all in jail. I hope that the Obama administration within the next year allow a couple of those “to big to fall” institutions to go bankrupt. But if you get into a panic where it all collapses or as in October there is a massive panic, then everybody gets hurt. At that time there were perfectly good profitable businesses that had to close because they could not get any credit. People lost their jobs for no other reason than that a financial panic forced perfectly good businesses to close their doors. And as explained above, that kills consumption and the economy goes down the drain.

  46. Andy T says:

    DeDude:

    Thanks for the response….and I understand your point….I guess what I’m suggesting is this:

    We (America) used credit to build a bunch of strip malls that contain Nail Salons, Tanning Salons, Financial advisory firms, CellPhone shops, dry cleaners, maybe a Mexican/Chinese restaurant, and the obligatory Applebee’s/Chotckies out on the corner…not to mention the stand alone WaMu/Wachovia/BoA/NameYourLocal Bank buildings that litter the canvass….

    This is just one of numerous examples of how we (America) took on too much credit to build assets with no value. Dumb investors were allowed to take on debt to build poor performing assets. All that has to go away….

    The capital and debt of this country was deployed in an extremely POOR manner the last several years….so I’m not just talking about people like you and me buying “cheaper” toys….I’m talking about smart money now deploying capital on better investments….this will not be allowed to happen until the bad debts get expunged….

  47. Bruce N Tennessee says:

    Franklin, this is from CR’s website, but it should help you see the BP about housing:

    http://www.occ.gov/ftp/release/2009-77.htm

    Seriously delinquent mortgages increased. Seriously delinquent mortgages (60 or more days past due or involving delinquent bankrupt borrowers) increased as economic pressures continued to weigh on homeowners. Prime mortgages, which represented two-thirds of all mortgages in the portfolio, had the highest percentage increase in serious delinquencies, climbing by more than 20 percent from the prior quarter to 2.9 percent of all prime mortgages.

    Prime mortgages…..highest increase….

  48. I-Man says:

    @ Mike:

    CS is screwed… maybe even worse than UBS but they’re the ones getting all the bad press. Let them hang onto that bag of shit called IYR… they will hit the panic button… soon.

    That dude who said on ZeroHedge that thing about seeing a Swiss bank doing one thing and then immediately running in the opposite direction was dead on.

    Seen a IYR chart lately? … talk about precipice.

  49. uno says:

    Back on the stock market farm: a right shoulder is potentially forming now in the Russell 2000 as measured over 3 months. Reality may indeed bite.

  50. call me ahab says:

    Headline-

    “As Rally Stalls, Tech May Be The Answer”

    http://www.cnbc.com/id/31610435

    get in now- don’t walk- but run- to your nearest broker- this is a can’t lose investment opportunity- don’t let the fact that the Nasdaq is up 30% in the last 3 months scare you- or P/E values- that’s old school

  51. DeDude says:

    Steve;

    I understand; you are from the investor class and a stock market that is not producing big profits is a disaster for the investor class. However, I was born and grew up with parents of the hardworking struggeling consumer class and have myself experienced going to Price Chopper for a sack of potatoes and the cheep ground meat – hoping it would last until the next paycheck. I worry a lot more about huge unemployment numbers and people being stuck in minimum wage jobs, than nursing the big shiny “Las Vegas” on Wall Street back to health. Yes the millionaires in Japan are sad that their stock market have not recovered to its previous boubble levels, but most people in that country are doing just fine.

  52. Wes Schott says:

    Bruce in Tn@12:00 -

    did you look at the tables in the attachment to that article?

    modified home loans are pretty consistently defaulting at a rate of 50% within 90 days or so after the modification

  53. Bruce N Tennessee says:

    Wes:

    Yes, and that is what most blogging sites had predicted…apparently only Uncle Stupid thought differently…

  54. karen says:

    Would a nice deflationist please read Hugh Hendry’s latest and put it in a nutshell for me?

    http://www.greenlightadvisor.com/glablog/2009/06/18/hugh-hendry-june-2009-letter/

    Meanwhile, what we all need to keep our eyes on in addition to the $usd:

    http://www.stocktiming.com/Tuesday-DailyMarketUpdate.htm

  55. hopeImwrong says:

    Re: “rip the band-aid off”

    It’s just not the american way. We will not change the behavior of what got us here until our backs are against the wall. The path forward will be determined by what cannot be controlled by the government. They will run out of ammo, and chips will start to fall. The path forward will not be a strategy for economic recovery, it will be a strategy for slow death.

    What got us here? We were a producer for the world, then globalization happened, we scammed being the service provider for the world, then the internet happened, we scammed being the financial provider for the world and bubbled ourselves into oblivion trying to keep the party going. The rest of the world no longer is willing to play our game.

  56. DeDude says:

    Curmudgeon;

    Yes capitalism and private markets have shown their dysfuntion, so the government have had to step in and save us. If private capital has become so scared that it fails to purchase gse debt for a fair price, then we can either let those scared lemmings take all of us over the clif – or government can step in and do what it is supposed to do (save us from the attack of destructive forces – whether they are Russian or Market forces).

    Right now capital owners are scared to death and refuse to put money in anything than short-term treasuries. So government is saving us from the attack of these enemy market forces by borrowing in short-term treasuries and lending it out to those healthy borrowers that the markets have shunned. That may look horrible on the balance sheet with trillions of borrowed (and spend?), and it sure gives the idiots on Fox something to yell about. However, its no big deal for those who care to understand what is going on, rather than try to use it as a political weapon. After capital markets get back to normal again (maybe after a few years of stocks and other assets going nowhere) they will purchase that gse debt from government and government will retire those short-term treasuries, and the balance sheets will get back to where even the worst idiot or political hack will no longer be paniced about them.

    It’s all good, trust the big O :-)

  57. call me ahab says:

    It’s all good, trust the big O

    hahahahahahaha- good one- I thought you were serious for a second

  58. uno says:

    I would aspire to be a nice deflationist, Miss Karen…but chicks dig the bad boys.

    Hugh may be summed up nicely via one cogent paragraph:

    “Regardless, it is my contention that many are investing in risk once more almost oblivious to the notion that a heavily indebted economy is confronted by a very real tightening of monetary policy. It is not inconceivable that the macro compass could swing violently towards deflation and wrong foot them again.”

    Take your favorite mortgage broker out to lunch, or better yet to the ball park as I did, and ask them a few leading questions. Among the many tales of woe, you’ll likely hear that many self-employed types who write off everything but puppy food cannot get a new/modified mortgage because their tax returns don’t support the new-new income requirements. That’s a lot of people…and very much includes the would-be entrepreneurs that drive economies upward.

  59. karen says:

    Thank you, uno, so Hugh is still in total disregard of worldwide QEing. He did warn in his first sentence, “I am about to repeat myself.” Nice point about those self-employed types.. also difficult for most to qualify now that the lenders are actually concerned about getting their money back..

  60. DeDude says:

    Curmodgeon;

    Consumtion is 70% of the GDP directly [BR: Not anymore] , and the rest of the GDP would also disappear if there was absolutely no consumption of anything anywhere. So yes consumption is the only thing that distinguish us from a third world country. However, there are two types of consumption the private and government. Right now we may try to get people to be a little less self-absorbed and accept that the government may have to consume more to invest in updating our infrastructure and repair all those roads, bridges, and energy infrastructure; and maybe also get us off our dependence on fosile fulls etc. So maybe we can forget all those Chinese trinckets and invest in a better and more sustainable future for our children.

    Andy;

    I am perfectly good with the idea that all this self-indulgence spending has to go away. I think we should have used all that money to get a top-of-the-line competitive updated infrastructure and and education system. However, that requires more taxes (at least on the rich) and a bigger government, and we just didn’t have the country willing to stop self-indulgence and accept bigger government. So here we are in a hole of our own making. Maybe some of the new energy infrastructure can be build be private investment, but that will require that government interfere with market pricing and that seems to be as hard to swollow for the conservatives as “tax and invest in our kids” appers to be.

  61. uno says:

    Many years later, the Japanese stock market appears to still be in total disregard of quantitative easing. It makes for less crash-boom-bam…and that may be the only real objective of it…but short of paying people to borrow money the QE concept has its limitations, particularly in regard to stock market valuations. Debt is debt.

  62. franklin411 says:

    @hope
    I agree and have posted many times that we have to return to a production economy. The question is: how? Only one person had advanced a feasible plan for doing so: President Obama. His argument is that we need to invest heavily in education, research/development, and make targeted bets on the high tech industries of the future, such as green energy. Nobody has offered a feasible alternative to that plan.

    A lot of posters here say we just need to pull the carpet out from under the economy and let it plunge to its natural stopping point (wherever that is). I have no idea what it is that gives them such blind faith in the idea that the economy and government we end up with will be an economy and government we’d want to live under. I have no idea what it is that gives them such blind faith in the idea that doing nothing will produce change–that we won’t just end up with another 70% consumption economy as well by doing the same things we’re doing now. I have no idea what it is that gives them such blind faith in the idea when we hit bottom without a gov’t issued parachute, we won’t end up as a red splat on the ground.

    Gut thinking and the blind faith that “the market is always most efficient” is what got us in this mess.

  63. Bruce N Tennessee says:

    Gut thinking and the blind faith that “the market is always most efficient” is what got us in this mess.

    …oops, I forget the government is most efficient…give me three lashes with a wet GM stock certificate…

  64. Mike in Nola says:

    Wes and Bruce:

    Don’t think we have to be concerned with too many loans getting modified:

    http://www.cnbc.com/id/31609070/site/14081545

    If it weren’t such a serious subject for so many, it would be funny.

    Karen and uno:

    Hendry gave a nice interview to CNBC EU. While it’s labelled as being about Madoff, it’s got a lot more to it.

    http://www.cnbc.com/id/31652780/site/14081545

  65. Andy T says:

    Karen. That’s the first time I’ve read one of Hendry’s letters…..I think you should go ahead a read the entire thing…a cliff’s notes version might not do it just. Also, he quotes some of favorites….

    “the news at turning points is just too strong for most people to act contrarily to it…fundamentals so intensely support the continuation of a trend just when it is ready to reverse” – Prechter.

  66. ben22 says:

    Karen,

    Warning, I am about to repeat myself:

    For QEing to work you need cooperation from people that are willing to go into debt. That doesnt’ seem to be happening. The Fed tried so hard last year, really starting back in September of 2007 to reinflate or to force liquidity and not only were they not successfull, we crashed. This is what happens when you go after symptoms instead of the actual problem. Have you seen consumer prices of anything jump besides gasoline? Why isn’t gold confirming for us that QE has worked, it has not been able to match or eclipse the high from last year. What about the banks all out effort to raise and conserve capital? The banks are so desperate for it that they are selling some of their best assets. California is issuing IOU’s and talking about selling assets such as LA Coliseum. Yankees tickets have been slashed by 50%. All around the country people are selling prized possesions or collections to get their hands on cash. Etc, etc, etc.

    All that has happened is a temporary rise in social mood to make people think that what the Fed has done is working. It seems pretty obvious to me but clearly a lot of people are crying about inflation/hyperinflation so either I’m missing something or they are. As I claim to know above, the setting is already set for that social mood to change.

  67. karen says:

    My contention is that a lot of bank debt has been forgiven, swept under the rug, or into the abyss with accounting sleight of hand.. What’s a few trillion among the Fed, Treasury and their banking brothers? Fiat currencies and electronic banking make it too easy…

  68. I-Man says:

    @ Karen:

    Just read it in entirety… and of course, I think its spot on. At least thats where my moneys at. But I’ve been a bit more eager to fight this than he has.

  69. packman says:

    “The only thing that can grow the economy out of a big ressesion, is a massive overall increase in consumption. ”

    That mindset pretty much sums up the cause of the current problems.

    Reliance on “massive” consumption = economic failure.

  70. call me ahab says:

    “blind faith”

    that’s funny franklin- I was thinking the same thing about you

  71. packman says:

    “For QEing to work you need cooperation from people that are willing to go into debt. That doesnt’ seem to be happening. ”

    If you can’t get people to cooperate, then just force them into debt-by-proxy – i.e. federal government debt. That *is* very much happening – at light speed. If the people won’t borrow and spend – then by golly we’ll borrow and spend for you via bailouts, stimulus, etc.

  72. I-Man says:

    The Prechter quote was awesome too… says alot about how I feel right now.

  73. packman says:

    http://img190.imageshack.us/img190/5350/graphsectorldebtpercent.jpg

    Note that while mortgage debt is flat now – federal debt is skyrocketing. We are going into debt at an even faster rate now than ever – it’s just being shifted from personal/mortgage debt to government debt.

  74. karen says:

    ben, please stop confusing prices falling with the inflation/deflation debate. you still don’t see the bond bubble? the world is still awash in money… look the spx is in the 900s. gold is in the 900s, wasn’t too long ago it was under $300. a triple plus rise in 9 years? look at the $usd… from 121 in 2001 and 2002 to a low of 70.70 in 2008… that is what i see…

  75. call me ahab says:

    “massive overall increase in consumption”

    wow- same old, same old- so much for change- don’t let anyone here stop you though- do your part- doesn’t mean anyone will follow

  76. hopeImwrong says:

    Karen,

    Thanks for the link to Hugh Hendry. I didn’t know him before, now I’m a big fan.

  77. Bruce N Tennessee says:

    Packman…I like the debt-by-proxy…sums it up very well..

    But the result will be more debt in the form of higher taxes on John Q. Public…so won’t the final effect be less money for the consumer to spend? I mean all of us except Franklin are assuming public expenditures can’t be self-sustaining, the unencumbered private taxpayer will need more money to spend…right?

    This is the problem I have with Keynes…the back-end loading that I’ve mentioned before…doesn’t go away once you’ve spent the stimulus on the front end. Just makes it that much harder for the private citizen to spend on the back end…

  78. The Curmudgeon says:

    “What’s a few trillion among the Fed, Treasury and their banking brothers? Fiat currencies and electronic banking make it too easy…”

    And the congregation and choir all said “Amen”.

    If someone could name me one instance in history where a declining empire did not devalue its currency in a vain attempt to create the illusion of continued prosperity, power and wealth, well, I might be more willing to abide the deflationist argument. The incentive to inflate is just too great.

  79. uno says:

    @franklin411: If we’re truly relying on one man out of 306,790,000 to save the economy, then frankly speaking I don’t like the odds.

    As to terminology, “investment” happens via capital reserves. “Gambling” happens when “borrowing” via credit cards at the cashiers kiosk when one is not only lacking in capital reserves but is in fact losing by way of ill-founded “thinking.”

    Quoth the Ed Seykota: “Everyone gets what they want from the markets.” Ditto in Vegas/D.C.

    Having said that, Obama is not the pox that some would make him out to be…but he’s missing some major points, and for that I would give him a grade of C-, leaning towards a D. In particular, the housing problem is a supply & demand issue…plain and simple. Bulldozing some of the supply in Detroit is moronic; that’s sort of like laying people off until there’s no one left all in the name of profitability.

    One important solution to the S&D issue — so far unintelligently addressed by the Big O — is fixing the immigation problem…and by that I mean eliminating or vastly increasing the caps that exist, particularly for those nations that are highly competent in terms of technology. We want and need the world’s best & brightest. As it stands, we’re only protecting/amnesty-granting towards the honest & good people that keep our homes built and clean. I love ‘em every one, but let’s not forget to tap into the best & brightest, or we’ll all be sweeping for a living.

  80. Wes Schott says:

    @karen-

    as an old inflationista and gold lover myself, i am of the persuasion that the debt bubble is bigger than the fed

    the good ol’ shadow banking system (at the fed’s – read bubbles greenspan – encouragement) has created ~60 trillion USD in debt!

    all the fed can do with QE is match or slow down the rate at which the bubble deflates – the fed cannot replace all of this debt.

    banks are hording cash and not lending – the investment banks become commercial banks and have to reduce their leverage from 30/40:1 down to 10/12:1 – so we are not seeing the money multiplier effect

    there are several more years of mortgage resets – prime resets are ending now (see BnTn article quoted above) we have alt-A’s and option Arms until Q2 2011. when these start defaulting, then the banks will have to delever again => sell off

    maybe that’s when ben22′s USD takes off again

    inflation will come…some day…….the fed can force it’s banks to lend

  81. Andy T says:

    MikeinNola….

    Thanks for the Hendry link….too bad the american version of CNBC can’t have “clear thinkers” like that on…I probably would still be watching CNBC….

  82. leftback says:

    “Would a nice deflationist please read Hugh Hendry’s latest and put it in a nutshell for me?”

    Buy the long bond. See, that was easy – and I’m not even nice… :-P

  83. karen says:

    Curmudgeon, from now on, you can speak for me.. you are far more eloquent.

    hopeImwrong, you must seek out Hugh on the internet, he’s even produced his own sensationalized videos not to mention his run-and-hide-under-the-bed cnbc interviews…

  84. DeDude says:

    packman;

    If I had seen evidence of anything else but massive consumption (external or internal) drag any economy out of a big ressesion then I would be happy to change my opinion. It’s hard for us who refuse to base our opinions on ideology and insist that facts should be the basis for all opinions and political actions. The reality is that with consumption being 70% of the GDP, that is who is driving this train. I wish the facts were different but they are not.

  85. karen says:

    leftback, i’ll buy tbt when the time is right… not yet : )

  86. leftback says:

    This is one of the reasons that the $ ain’t dead yet. There are other countries and currencies that are in way deeper doo-doo. This is a race to the bottom, and the $ is some way back in the pack for the time being. Remember that although Ireland’s debt is worse than the UK, they are unable to devalue because they are on the € whereas the Brits can and will devalue their merry way out of this depression. There’s your inflation, before we will see it here.

    http://www.bloomberg.com/apps/news?pid=20601170&sid=aptnrMueIerQ

  87. ben22 says:

    Karen,

    I’m not confused.

    I see the falling prices as a result of credit deflation, not as the deflation itself, demand is weak all over because it was credit that has been fueling that demand for years, not real wage increases. It allowed billions of people all over the world to fast forward consumption, and often consumption they didn’t need. Yes, there is a bond bubble, it has developed over decades, it won’t blow up in a few months.

    I’m also very bullish on the dollar. The dollar decrease that happened during the time you discuss also occured during massive issuance of credit/debt based in dollars, now that debt is being paid down or defaulted on faster than new dollars are being created, it makes the dollars that remain more valuable.

    As for gold, when credit deflation really took hold last year, it went down just like everything else. Seems to me that since it didn’t go down nearly as much as other commodities (b/c it never went up as much as the others!) people are using that to explain how it holds up in inflation and is protection during deflation. I’d be happy to take the other side of that. You will be able to buy gold much cheaper than you can right now imho.

  88. leftback says:

    “leftback, i’ll buy tbt when the time is right… not yet : )”

    Me too. Late December. I very much like the “replay” aspect of Hendry’s forecast, the mini-crash of 2009 is coming.

  89. uno says:

    @Curmudgeon: And who, my friend, was buying the T-bill equivalents in all those historical references you’re implying? Oh…oh…so there weren’t any highly-objecting foreign buyers of T-bill equivalents in those examples. OK. So is this not a different lesson being served up than the ones you refer to…?

    @Karen-the-lovely: Regarding “ look at the $usd… from 121 in 2001 and 2002 to a low of 70.70 in 2008… that is what i see…“…are you saying that the dollar is headed up off of its lows? ;-)

  90. karen says:

    Andy, I can’t read it. My eyes blur over.. seriously. I much prefer to watch him on video… he is so earnest, so imploring.. : )

  91. manhattanguy says:

    Why TBT? I prefer TMV….i am too waiting for a good entry point.

  92. karen says:

    uno, of course, i’m looking for the dollar to rebound here and now… that’s why i’m short gold and crude oil. also bot FAZ yesterday because of the absurdity of it all. that’s a the hot potato, though.

  93. karen says:

    manhattanguy, one word, volume.

  94. leftback says:

    @uno: Not only are there foreign buyers, but there will be domestic buyers – pension funds, individuals and broker-dealers will migrate to Treasuries from high yield and equities DURING THE NEXT CRASH. This is one of the lessons of Japan, that domestic demand stabilized the yen and the JGB market because a segment of the investing public simply gave up on stocks completely.

    You know me, I just like to be ahead of the herd. That’s why I was buying at 4% on the 10-year.

    @Karen-the-lovely: LB is earnestly deflationary, he said imploringly….

  95. ben22 says:

    @manhattanguy,

    I’d be careful TMV, I’ve seen several of the thinly traded ETF’s just get shut down and your money can hang in limbo for a time while that is going on. I’d also rather use the TBT.

    PRFM and PRFE are recent examples I can think of.

  96. cvienne says:

    I love Hugh Hendry…

    During my dozen years living in Europe, he was on CNBC Europe all the time…I’d catch him at least about once a week in the morning…

    Funniest guy you’ve ever seen in an interview…Someone like Dennis Kneale would probably turn into a pillar of salt, start to crack, and blow away in the wind in his presence…

  97. thetanman says:

    DeDude sez,

    Consumers won’t have money to spend.

    Don’t you dunderheads realize that if we keep this up we’ll have money but it won’t buy jack. That’s history for you. Jeesuz H Christ! Anyway, back to the salt mine.

  98. Andy T says:

    karen Says:
    June 30th, 2009 at 1:08 pm
    ben, please stop confusing prices falling with the inflation/deflation debate.
    ~~~~~~~~~

    Karen,

    How else would you define deflation, if not a “general decline in prices”?

    Some might define DEFLATION this way:

    A decline in general price levels, often caused by a reduction in the supply of money or credit. Deflation can also be brought about by direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending. Deflation has often had the side effect of increasing unemployment in an economy, since the process often leads to a lower level of demand in the economy. opposite of inflation.

  99. cvienne says:

    More on Hendry…

    What’s interesting to me is that I remember him [Hendry] talking about the same thing that Matt Taibbi did in the Rolling Stone article…Mostly on the NEXT BUBBLE (and the formation of a “carbon credit” exchange)…

    …Yet Hendry was talking about this in 2004!

  100. leftback says:

    Schadenfreude is doing sweet FA today after a bit of a late night.

    Watching some $ rally trades start to come around. DZZ, SCO, DUG. Net short here, with a view to managers taking a few profits to tie up their Q2 performance, window dressing presumably having already occurred. Expecting more weakness in commodities tomorrow and next week.