Home Sales: Ignore Special Factors at Your Own Risk
Both Existing and New Home Sales disappointed economists this week. had they been savvier observers of Housing Markets, they should not have been surprised.
Existing Home Sales declined 2.7% month over month. They improved 3.4% above the August 2008 levels, as the national median existing-home price fell to $177,700 in August — down 12.5% from year ago levels.
New Home Sales also disappointed — coming in at 0.7% gain from the prior month, about half of consensus expectations. Again, sales disappointments took place despite a record drop in prices. Median new house price dropped 9.5% in August from July — the biggest decrease since records began in 1963. New Home Sales were off 3.4% from a year earlier, as prices fell 12% from August 2008.
Why? Start out with the end of the Tax Credit for First time home buyers — that sunsets November 30th. Given that most mortgage commitments are only 90 days, the August buyers of new (but already built) homes should make it. Then we move on to the Seasonality issue: With the heart of the Spring/Summer sales season behind us, experienced real estate folk know that (month over month) home sales are heading back down. Sales bottom every year in January, pick up throughout the spring, and peak in July/August. Then, begin to slide until January (see chart below).
For sheer entertainment value, you can do no better our all time favorite spinmeisters, the National Association of Realtors. They had the best excuse for why August sales faltered: According to their chief economist, Lawrence Yun, the problem was (brace yourself for it) a “rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process.”
You see, real estate is booming, and there have been so many sales, the entire system is backed up! WE SIMPLY CANNOT CATCH UP ON ALL THE PAPERWORK. (One has to conclude that to work at the NAR requires a unique combination of chutzpah and stupidity; they seem to have both in spades).
One last curiosity about recent sales: Despite the record drop in prices, sales continue to flatten out after several months of strong increases. Beyond the seasonal observations, consider the implications of such weak sales accompanying a “record drop” in prices. That suggests that 1) demand is not strong; 2) credit for purchases is limited in availability; 3) prices are still too high; 4) all of the above.
So to conclude: Sales have stopped free-falling year over year; The were improving, in part due to foreclosure driven bargains, and in part due to first time tax credits. We now enter the weakest stretch of the year for monthly sales — expect them to continue sliding until January . . .
>
click for ginormous chart
Chart via Calculated Risk
>
Sources:
NEW RESIDENTIAL SALES IN AUGUST 2009
SEPTEMBER 25, 2009 AT 10:00 A.M. EDT
Manufacturing and Construction Division
http://www.census.gov/const/newressales_200908.pdf
Existing-Home Sales Ease Following Four Monthly Gains
NAR, September 24, 2009
http://www.realtor.org/press_room/news_releases/2009/09/ease_four
Tweet
Facebook
Reddit
Digg this!
September 25th, 2009 at 1:00 pm
The downside “surprises” in New Home Sales today and and Existing Home Sales yesterday tells us less about the real estate market and more about some of the people who follow it.
September 25th, 2009 at 1:05 pm
BR:
I think the “surprise” was partially due to the fact that for the last several year, home sales went up month-over-month from July to August (although this trend is often flip-flopped). With that said, many idiots will probably be “surprised” that home sales will be lower for September 2009 than August 2009…
HCF
September 25th, 2009 at 1:10 pm
Indeed.
September sales often lower than August sales. October lower still. November “subdued”. December “quiet”.
True, dat.
September 25th, 2009 at 1:19 pm
If you shave 50K of the numbers in each of the months June, July and August (for additional sales caused by the 8K credit), then it looks like we are still looking for a low in sales numbers.
September 25th, 2009 at 1:20 pm
It appears there is a direct and positive correlation between US home sales and seasonal temperature fluctuations in the Northern hemisphere. Perhaps instead of just printing money and pixels, we should work on smoothing out the nasty temperature fluctuations that seem to be the root cause of this conundrum.
September 25th, 2009 at 1:26 pm
This is bullshit. Everybody knows that real estate never goes down in value.
September 25th, 2009 at 1:26 pm
That seasonality is pretty hard to ignore… You can add ” lack of functioning eyesight” to the list of NAR employment requirements including chutzpah and stupidity…
September 25th, 2009 at 1:36 pm
Do you mean all the people, back in June, who were talking “green shoots” because there were 4 straight positive months were ignoring seasonality?
GET RIGHT OUT OF TOWN!
September 25th, 2009 at 1:40 pm
WOW – Now I am rethinking that house I bought in SanFran, well at least I didn’t get priced out.
September 25th, 2009 at 1:42 pm
Has disappointment season started already? You’d think all that paperwork (the other paperwork known as Ben’s printed money) would have bought at least a couple charmed months. Not so I guess
September 25th, 2009 at 1:45 pm
Actually, I’m kinda glad that the MSM has been shoveling month over month on us for the last quarter trying to push past YOY. Now they have to look as corrupt as they are trying to explain their way out of this tangled web they have woven.
September 25th, 2009 at 1:48 pm
Real estate people are always busy, Barry, you know that.
When I read NAR, I always think of the Buddy King character in American Beauty.
“In order to be successful, one must project an image of success at all times”
September 25th, 2009 at 1:48 pm
Another part to note…
Look at the high end sales… they are abyssmal.
Nothing over 500K is moving.
Wonder why?
Most banks are requiring 20% down minimum on jumbo’s…
And the FHA wants NO part of jumbos.
Oh, so its reduced to REAL market demand… I think that tells the story.
September 25th, 2009 at 1:53 pm
the number of existing homes selling seems to be stabilizing – a little higher each of the last 3 months compared to 2008. but the dollar volume is still down 9.5% compared to last year and more important to builders, the dollar volume in new construction is down about 15% from last year. these numbers are less weak, but certainly not “green shoots”. still waitin’ for those, ben.
September 25th, 2009 at 2:01 pm
I-Man: I really can’t understand why they are not addressing the jumbo situation. Those rates need to come down. You can stimulate the hell out of the low end but in many cities it’s tough to find a house that fits neatly into the 417 confirming zone.
September 25th, 2009 at 2:04 pm
I-Man – are you sure? I have heard from a very good source that certain markets in high end neighborhoods in some cities are doing quiet well.
OK, that’s the last smart ass remark on housing, I promise.
September 25th, 2009 at 2:07 pm
“…had they been savvier observers of Housing Markets, they should not have been surprised.”
Yes, but economists today are ‘macro’. That means they don’t need to know any details. Everything comes from general principles now, you see.
September 25th, 2009 at 2:10 pm
Thor,
I will say – just anecdotally – that I have not seen so many higher-quality real estate listings still on the MLS this late in the year for quite some time (Minneapolis area). What I read from this is: they sat out last year but they have pressure to sell, so this year they listed them… and they are not moving. Prices are noticeably lower than 3 and 4 years ago for similar homes.
September 25th, 2009 at 2:14 pm
iman-
in many area FHA goes to $729,750- although your observation remains true- home prices above FHA limits have stricter loan requirements and require larger down payments resulting in lower sales for homes priced above that limit
September 25th, 2009 at 2:19 pm
Y’all just need to know how to see green shoots everywhere.
I bought a pair of green tinted glasses and now every graph I
see is a green shoot.
For example this graph is now an example of a green shoot because it is going up:
http://www.businessinsider.com/loan-losses-triple-slam-banks-25-09-09
September 25th, 2009 at 2:21 pm
@ Harry
>I really can’t understand why they are not addressing the jumbo situation. Those rates need to come down.
No they do not… PRICES of homes need to come down. You don’t solve the debt problem with more leverage. I have zero sympathy for someone who can’t “afford” an 800k house just because jumbo rates are high. Buy a cheaper freaking house!!! (or rent for that matter)
HCF
September 25th, 2009 at 2:25 pm
Wally thanks for that! I don’t really believe that higher end neighborhoods are doing well in any city – this was a reference to a claim made by another poster last weekend.
September 25th, 2009 at 2:26 pm
HCF-
for folks like Harry- he thinks it is the duty of the USG to lower rates so people can afford to buy larger homes that aren’t selling-
but maybe- going out on a limb here- they are priced above what people can afford- so possibly- another stretch here- they need to come down further in price-
could be wrong maybe- i don’t know- this economics stuff is hard to get a handle on
September 25th, 2009 at 2:29 pm
HCF: I was about to say the same thing.
Owners of “premium” properties in leafy Upper Waspsonlyville* will eventually find they PAID A PREMIUM.
* The code for these towns is “excellent school system” b/c saying other more racist stuff is illegal.
Lookin’ at you, New Canaan CT; Rye, NY; Alpine, NJ, etc…
September 25th, 2009 at 2:30 pm
So much for the SF Bay Area’s housing market.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/09/20/MNOR19N2B1.DTL
September 25th, 2009 at 2:31 pm
leftback-
what the eff unleashed you today? You’re killing me.
September 25th, 2009 at 2:32 pm
1. 77% of the sales are under 300k, the sector that will now suffer the most with the probably(?) end of the tax credit.
2. Median months for sale keeps extending. August estimate 12.9 months which is up from 9.9 months in February and 9.0 months in August ’08. If inventory is declining and sales are so good, why are the houses sitting so long?
3. Laurie Goodman, undoubtedly the best mortgage analyst out there, released a research report this week basically calculating, conservatively, the shadow inventory in the delinquency to foreclosure pipeline to be about 7MM units. As that increasingly flows into the market, prices have to decline and maybe even these ‘bargain’ prices are no longer appealing. Another leg down in demand psychology?
September 25th, 2009 at 2:37 pm
@Harry,
The rates need to come down? Complete rubbish man. HCF again is correct, it’s the prices that need to come down. All the sudden people have a harder time buying things they can’t afford (inevitable) and instead of saying they should save more or prices should come down you just yell; do something about the problem, people want a bigger house! In other words the solution to a debt problem is more debt? Is that how I’m to read that?
You know Harry, it’s o.k. that you were dead wrong on some of your predications today. We all expected you to be. A simple request though given your bomb on durable goods, can you please stop with the silly blanket statements like “the economic data is good and I see higher stock prices ahead” I’m sure today you are saying, it’s only one data point. The data you cite is backward looking and you don’t like TA other than “short term sticks”. It’s the same sort of crap you tried to pull yesterday in trying to question why I said momentum had peaked in July. Anyone following a simple a/d trend can tell you that it’s not as strong as it was and has gotten weaker the longer the rally has gone on. Can it change?, sure, and if/when it does I can’t make that statement but until it changes my statement was correct.
The reason you catch hell from everyone here is that you state things in a way that seem absolute. The outlook moving forward is cloudy, not clear. When I was bullish here early in the year nobody was giving me a hard time because I wasn’t saying it the way you are. There are no absolutes in the market, only probabilities. The market has a way of humbling people that act in such a way. If you want to bring something to the table here then you are going to have to come with some stronger stuff moving forward or you’ll get the same pushback. I’m hoping you step your game up, we’ll all benefit from it.
September 25th, 2009 at 2:38 pm
fix to my post above for Onlooker,
should read:
all of the sudden
September 25th, 2009 at 2:39 pm
HCF: 1, Harry: 0
September 25th, 2009 at 2:40 pm
“No they do not… PRICES of homes need to come down. You don’t solve the debt problem with more leverage. ”
Exactly. Housing price needs to come down to historical average Price/Rent ratio (12-15). Currently it is bloated to 35-40 ..well at least in NYC.
September 25th, 2009 at 2:42 pm
The Tyranny of the Incompetent lives on.
September 25th, 2009 at 2:51 pm
@ leftback:
>* The code for these towns is “excellent school system” b/c saying other more racist stuff is illegal.
This really cracked me up! Only because it’s true…
HCF
September 25th, 2009 at 2:51 pm
Wow, I missed quite a thread here at lunch. Lefty on a tear today. Almost jumped out of my seat reading Wanger’s post about lowering rates so that people can afford to by high end homes. Incredible. Glad I don’t need to pile on and others took care of that one for me.
September 25th, 2009 at 2:52 pm
That chart would look even fuglier if it plotted total sales in $ instead of number of units.
Multiply by average sale price (not median) and….yucko!
September 25th, 2009 at 2:52 pm
Per the LA Times, California presently has a housing *shortage*:
“Some mortgage professionals say even more Californians would be applying for loans, especially to buy entry-level homes, if not for an unusual shortage of houses in some markets.
…
The housing shortage especially affects first-time buyers hoping to obtain Federal Housing Administration-insured loans, which allow down payments as low as 3.5% but require painstaking paperwork and additional payments for insurance premiums.
“The FHA buyers are getting outbid by people putting down 20% or 30%,” Arnold said. “Houses are affordable, rates are low, but there’s just not enough inventory.”"
http://www.latimes.com/business/la-fi-mortgage-rates25-2009sep25,0,7384998.story
September 25th, 2009 at 2:55 pm
just give it time f411- folks will be tripping over homes
September 25th, 2009 at 2:58 pm
Lower-priced homes will get even lower once the high end comes down, putting further pressure on everything below it. It’s going to take years to play out though, so people won’t believe it’s happening because it will seem like it’s in slow motion.
September 25th, 2009 at 3:01 pm
Barry or anyone, (off topic) someone once put up what the S&P500 looked like when viewing it “externally” through currency exhange. i.e., you live in Germany so if you bought it through a US exchange what it would look like through the lens of the dollar exchange. Does anyone know where to find that?
September 25th, 2009 at 3:04 pm
If the rates drop much more I might buy another house or two… financed through the merger of China Bank and Citi…. a nice little place I like to call Chiti Financing. (yeah, that’s right… say it again.)
September 25th, 2009 at 3:07 pm
READ MY LIPS…
Prices need to come down…
Now repeat that 10 to the hundreth time…
—
Let me make a prediction…
At this point in time, if you try to REFLATE the economy to the extent it would take to get people into the jumbo loan houses… Well, then a loaf of BREAD twenty years from now will cost MORE than the house you’re trying to buy today…
I counsel, just buy a loaf of bread today and put it in the freezer…
But then, I already DID…(I see myself as a landlord many moons from today)…
September 25th, 2009 at 3:08 pm
Lower home prices, not higher home prices would benefit society as a whole. The reason is that housing, first and foremost is a consumable good and NOT an investment.
As a consumable:
It is a warm place to raise a family, enjoy life, store your stuff, and which you can modify to your liking (within legal limits!). Incidentally, you can do all of those things (except the last) in a rental home, usually for much cheaper.
As an investment:
It’s an illiquid, high carrying cost, highly taxed, highly leveraged, high transaction cost entity that requires constant upkeep just to keep nature from deteriorating it into oblivion.
We’d all be better off if we could buy a house of our liking for 10% of our incomes and find better vehicles for our investment…
HCF
September 25th, 2009 at 3:10 pm
@thatguy ” By increasing the population and leaving the money supply (credit+currency) the same you are inherently going to have long term deflation.”
Which is why we have a fractional reserve system, or more properly a credit system which has nothing to do with reserves or savings. Above trend growth in demand for money creates asset price inflation when the banking system can create money on demand as it has done the past 30 years. When the money growth is not matched by purchasing power growth you get stagflation. That was caused by the very high burden of educating the baby boom generation.
@thatguy ” the velocity of money is generally static”
Is it? Why?
@mark – a dollar is a dollar each time it is spent. That is how GDP is calculated is it not – money supply x circulation.
September 25th, 2009 at 3:14 pm
@HCF: Which is precisely why the powers-that-be will do everything to prevent that from happening, even going to the brink of destroying the country. Think of who suffers the most in a deflationary environment: those who levered up and “own” the most assets = the elite.
September 25th, 2009 at 3:14 pm
HCF-
as i’ve said before- an RV-
a house- a vehicle- a vacation-
all wrapped into one-
who could ask for more
September 25th, 2009 at 3:14 pm
WRT to LAT article, I would like to note a few things:
1) Re inventory, not knowable- so Fred Arnold’s assertion is not credible to me [BTW-Fred Arnold, president of the California Assn. of Mortgage Brokers.]
2) The rhetoric in this piece is a huge tell. Narrative strategies need to be read BEFORE the reader attempts to glean ‘content’.
Here are a few gems:
“This is a pretty rare planetary alignment,” said Stew Larsen, head of mortgage banking at Bank of the West. “I don’t know if I’d call it a boom just yet, but it’s definitely a boomlet.” [on par with astrology]
The 5% level is “really the magic threshold,” said Brad Blackwell, a national sales manager at Wells Fargo Home Mortgage, the No. 1 home lender. As recently as early last month, the 30-year average was 5.38%. [magic- that's what we need, a little razzamatazz- that's the ticket]
“We got a lot more anxious,” said Andrea Morrison. “We were like ‘We’ve got to take advantage of this because it’s not going to get much lower.’ ” [we acted on emotion because that's the best way to operate in life]
In the last two months, however, 37% of the home loans made by the San Francisco bank have gone to buyers, reflecting the combination of more affordable — but no longer plunging — home prices, falling interest rates, greater consumer confidence and an $8,000 tax credit for first-time buyers that will expire Nov. 30 if it isn’t extended by Congress. [37% of how many?]
Economists estimate that as a result of the Fed’s bond purchases, loan rates are two-tenths to one-half of a percentage point lower than they would be otherwise, according to Michael Fratantoni, an economist at the Mortgage Bankers Assn. [otherwise- I love that word; RIMM dropped by 15%, otherwise I would have made a bundle]
Many borrowers who have lost jobs or are in foreclosure proceedings, instead of trying to sell their homes as they normally would do, are negotiating with lenders to modify their loans and lower their payments, said Fred Arnold, president of the California Assn. of Mortgage Brokers. [many, is that more than several?]
“It was just one of those deals we couldn’t pass up — especially with the interest rate we got. If we didn’t take it we were crazy.” [I wouldn't want people to think I am crazy...]
September 25th, 2009 at 3:14 pm
@rob
Here’s what I think it looks like “graphically”
http://www.demotivateus.com/liberals-this-is-the-only-view-you-need-to-see-demotivational-poster/
Sorry, jk…I’m not referring to the politics, just the image :-)
September 25th, 2009 at 3:17 pm
Re: HCF@3:08
Well said, exactly correct.
But most folks want to believe its an investment, ’cause that’s where most of their money goes.
In the end, you cash out to pay for that delux assisted living facility. How much did you really gain?
September 25th, 2009 at 3:17 pm
@ ahab:
The RV: the mullet of the housing world!
HCF
September 25th, 2009 at 3:17 pm
@rob
Actually, let me be FAIR and change the text… It could read…
CONSERVATIVES: This is the one viewpoint you need to fixate upon…
September 25th, 2009 at 3:18 pm
This was posted somewhere else (I can’t say where) but it’s too good to not post here in response to your post:
http://www.theonion.com/content/news/nadir_of_western_civilization_to?utm_source=a-section
September 25th, 2009 at 3:18 pm
in respone to MRegan’s post, that is……..
September 25th, 2009 at 3:19 pm
@HCF
RV’s = Tornado magnets
Storm Chasers need only “Google” where there are condensed aggregates of RV’s to find where the next tornado is going to hit!
September 25th, 2009 at 3:20 pm
@cvienne: So they’re also an adventure as well. What more could a person want?
September 25th, 2009 at 3:20 pm
@Deflator Mouse:
I have a hard time convincing co-workers that housing is not usually great as an FINANCIAL investment (as a benefit to your psychological well-being, you can at least make a good argument). Of course, maybe the “forced savings” aspect on it is good, since most people would otherwise have NO investments whatsoever, and instead blow all their excess money on Cadillac Escalades, hookers, and coke…
HCF
September 25th, 2009 at 3:23 pm
c’mon HCF-
what about Charles Kuralt- definitely not mullet material :D
September 25th, 2009 at 3:24 pm
@HCF: “The reason is that housing, first and foremost is a consumable good and NOT an investment.”
Nodding and smiling in appreciation. The “housing crisis” was the appreciation in prices, not this correction.
September 25th, 2009 at 3:24 pm
“Storm Chasers need only “Google” where there are condensed aggregates of RV’s to find where the next tornado is going to hit!”
HAHAHAHAHA – LMFAO
September 25th, 2009 at 3:25 pm
I hear the mullet is making a comeback.
http://www.ratemymullet.com/?page=top
September 25th, 2009 at 3:26 pm
@leftback: But they’re not making any more land along the coasts.
September 25th, 2009 at 3:26 pm
Thank you all for responding to H. Wanger’s reply to my jumbo comment…
Thats exactly what we need… more negative equity on behalf of first time homebuyers… but instead of enabling it only on the low end, lets really leverage it up so the high end folks can play the game too…
all of courese subsidized by the US Taxpayer, our nations ATM machine.
September 25th, 2009 at 3:29 pm
I thought Denninger summed it up better than I ever could here…
http://market-ticker.denninger.net/archives/1457-So-What-About-Credit-Risk,-Bernanke.html
September 25th, 2009 at 3:30 pm
“I-Man: I really can’t understand why they are not addressing the jumbo situation. Those rates need to come down. You can stimulate the hell out of the low end but in many cities it’s tough to find a house that fits neatly into the 417 confirming zone.” Wanger at 2.01PM
~~~~~~~~~~~~~~~~~~~~~
You’re so right bro! Someone needs to dictate to that silly marketplace what the rates “should” be…There’s simply no room for the private marketplace to determine what the price of debt should be for the jumbo loans….friggin’ UnAmerican!
Funny stuff…I think we’re seeing a hint of what’s wrong in America with that kind of statement…the idea that “someone” should do “something” about markets that don’t “seem” right.
What’s the more accurate market rate for loans? The jumbo market or the FHA approved market? Hmmmm……
September 25th, 2009 at 3:32 pm
OT:
Important close coming up here…
Am I the only one planning on carrying “Risk Off” trades into the weekend?
September 25th, 2009 at 3:32 pm
Mutombo is wagging his finger at someone here TBP right now.
September 25th, 2009 at 3:33 pm
Mannwich-
I believe that I posted the Onion here a few days ago.
BTW to all, I posted on CWV a few weeks ago: http://www.google.com/finance?q=CVE:CWV
up 40%~.
Recommend a look at http://www.google.com/finance?q=TSE%3AVEM
Macusani, baby.
September 25th, 2009 at 3:34 pm
Q: How is a WVA divorce like a tornado?
A: Somebody’s gonna’ lose a double wide.
(sorry to pick on your state, cvienne)
September 25th, 2009 at 3:35 pm
@MRegan: Sorry, must have been asleep at the switch.
September 25th, 2009 at 3:41 pm
US housing mkt. thoughts:
1) US citizen (aka: consumer) is deleveraging. Cannot “stimulate” re-leveraging, esp. w/ unempl. still rising, even with very low mortgage rates (for now). Current cycle is credit contraction, not simple inventory correction recession.
2) Housing bubble will need to mean regress (with undershoot). Not there yet.
3) Unemployment still rising – see 1, above.
4) Stagnant/falling wages
5) …
6) …
7) etc…
Cash-for-houses (like all other “cash-for-x” gov’t programs) not reducing debt, just xfer from consumer to gov’t. US must reduce debt, not increase to exit from econ. malaise.
Debt is slavery:
“The rich rule over the poor, and the borrower is servant to the lender.” – Proverbs 22:7
“At risk of sounding glib and dire, we have to go back to the concept of what mean-reversion really means. And when you come through a 25 year secular credit expansion, regressing to the mean isn’t going to take months or a quarter. It will take years to bring levels of outstanding credit into realignment with the country’s debt-servicing capacity. We are really in this deleveraging process. It is inescapable.”
- David Rosenburg (Gluskin Sheff & Assoc.) – Barron’s: Aug. 14, 2009
” Give me control over a nations currency, and I care not who makes its laws.”
- Baron M.A. Rothschild
September 25th, 2009 at 3:41 pm
@I-Man
Depends what you mean by “risk-off”…
If you’re talking about from the Wanger perspective, yeah – RISK OFF
Me? I’m riding my “short” positions (especially FINANCIALS, which ain’t lookin too pretty)…
September 25th, 2009 at 3:42 pm
cvienne..
i have been saying this since a year now….reflation is the only way out…..and it will be tried to the max possible.
proof: 11.5 trillion(direct/indirect) used by FED/Gov to stem the huge deflation monster which was making the banks/automakers/etc insolvent.
i am not saying thats the right thing….just that it is the only option left since this country was left in a bankrupt state by previous admins (some responsibility to be shared by admins before that….).
now i just need to see how long can this go on before we have a major currency crisis or trade war….or commodities inflation(if producers refuse to sell for USD).
the housing credit will be extended and expanded.
every form of credit will be doled out…soft student loans, loans to doubtful small business etc..
govt funded entities like NASA, NHS etc will have billions more in fund this year….to help employment.
state governments will be given aid by FED
it has to be done slowly so that we dont scare the world….who keeps accepting our paper in exchange for real stuff.
September 25th, 2009 at 3:43 pm
MA-
cv’s farm is in Charles Town- still Virginia in my book
September 25th, 2009 at 3:44 pm
@I-Man
& 3 lovely letter my mello…
T – L – T
Live it…breathe it… OWN it!
September 25th, 2009 at 3:47 pm
You know what I mean, CV… :)
I’m holding my TLT calls, my ZSL, and my VXX over the weekend.
If we close at the lows today, my money is on a nasty gap down on Monday.
Markets dont usually like closing at the lows on a Friday… especially after a huge bear market rally and three days of “profit taking”…
September 25th, 2009 at 3:48 pm
@ Scepticus
Which is why we have a fractional reserve system, or more properly a credit system which has nothing to do with reserves or savings.
Response – This could be both correct and incorrect dependent on how you look at it. If you have been following Steve Keen and his concept of “credit money” then you are probably right that it doesn’t have much to do with savings and reserves, however if you subscribe to neoclassical economics, then you are way wrong. I fail to see how this matters to the topic however because we were discussing a system in which the money supply remained constant, not the current status quo.
Scepticus says – Above trend growth in demand for money creates asset price inflation when the banking system can create money on demand as it has done the past 30 years. When the money growth is not matched by purchasing power growth you get stagflation. That was caused by the very high burden of educating the baby boom generation.
Response – In our example we disussed keeping the money supply (currency + credit) static, if you assume an increase in credit in the example then you are de facto increasing the money supply. If you keep credit the same and hence the money supply the same and have an increased demand for money, then deflation is the result. In your example you are toggling both the demand for money and the supply (similar to the way the government toggles the unemployed and the labor force when calculating U3 – it becomes a moving target).
@thatguy ” the velocity of money is generally static”
Is it? Why?
As I said earlier, its largely determined by the ability to access and use money, also known as “financial innovation.” I used the example of ATM’s and credit cards as financial innovations that increase velocity. These changes are usually evolutionary in nature and take a long time to penetrate and bring online so there isn’t usually a lot of volatility in the value, unless you start “innovating” world ending financial products that do nothing but boost velocity on a short term basis only to have it grind to a halt when they prove to be folly. Hence my reference to a stable economy, which is light years away from where we are today. I’m going out on a limb here and this conclusion is largely based on my own experience and opinion so please feel free to enlighten me if I’ve largely missed the mark.
September 25th, 2009 at 3:50 pm
Hmmm….no need to apologize, maybe I’m just a dolt:
contrabandista13 Says:
September 23rd, 2009 at 2:40 pm
OT: This is a very amusing article, probably much more interesting than anything the Fed has to say and mush more valid….
Nadir Of Western Civilization To Be Reached This Friday At 3:32 P.M.
SEPTEMBER 22, 2009 | ISSUE 45•39
http://www.theonion.com/content/news/nadir_of_western_civilization_to?utm_source=a-section
“We’ve been charting this cultural descent for generations now, from the advent of New Wave music, to the rise of scientific creationism, right through to the trampling death of several Wal-Mart greeters on the morning after Thanksgiving. Everything has been leading up to this Friday.”
Best regards,
Econolicious
September 25th, 2009 at 3:51 pm
“the housing credit will be extended and expanded.
every form of credit will be doled out…soft student loans, loans to doubtful small business etc..
govt funded entities like NASA, NHS etc will have billions more in fund this year….to help employment.
state governments will be given aid by FED”
techy- i think they- being the USG- have stretched the budget deficit as far as is politically possible internally and externally- the ROW will turn away from the $ and treasuries if we go too much further down that road-
but a thought- maybe deflation is the cure- not the disease
September 25th, 2009 at 3:53 pm
@I-Man
Stu Nahan: “Clubber Lang (Mr. T), what is your prediction for this fight?”
Clubber Lang: “PAIN”
September 25th, 2009 at 3:53 pm
Sell em Lloyd. Sell em.
September 25th, 2009 at 3:55 pm
@I-Man
You see…J6P is still showing “profits” on the money he gave to Brian the Broker on the Labor Day BBQ…
He must first give those back, THEN, double down on those before he can be initiated into the tribe…
September 25th, 2009 at 3:58 pm
Getting very interesting here. Time to double down. Buy the dips, Johnny.
September 25th, 2009 at 3:58 pm
“Cut me, Mick”
September 25th, 2009 at 3:59 pm
sharkbait,
Nice Context!~ Historical Memory has beautiful way of Framing the bigger, necessary, picture.
much like MR pointed out w/: 2) The rhetoric in this piece is a huge tell. Narrative strategies need to be read BEFORE the reader attempts to glean ‘content’.
and this ex. ““We got a lot more anxious,” said Andrea Morrison. “We were like ‘We’ve got to take advantage of this because it’s not going to get much lower.’ ” [we acted on emotion because that's the best way to operate in life]
~~
past that, this: “@mark – a dollar is a dollar each time it is spent. That is how GDP is calculated is it not – money supply x circulation.”
scepticus, base money/money supply x velocity= GDP, no?
September 25th, 2009 at 3:59 pm
ahab:
i would love deflation…..since i have enough savings to last me 10 years…which means with deflation that will get better.
but deflation if uncontrolled can lead to sharp decline in unemployment(17-20% was possible if banks,autos other insolvent companies would have gone bankrupt and laid off their employees leading to a domino effect….shrinking of economy).
if i am not wrong….if USG is the borrower in USD, it will benefit the most if USD keeps going down??
plus…imagine the possibility of better exports and revival of local manufacturing if USD keeps going down??
September 25th, 2009 at 4:04 pm
Nice synthesized thoughts David…
September 25th, 2009 at 4:08 pm
@techy
I’m not saying this to be belligerent or mean, but do you think the ROW is going to stand around and just let us devalue our currency…
Even if they can’t really do anything, they’ll at least just try to race us to the bottom…
Right now, the American economy is at a place where it’s basically just trying to lick a piece of paper to keep trying to get it to stick to the wall when they slap it on…
There IS a world beyond this…Let’s just GET TO IT already!
September 25th, 2009 at 4:15 pm
@techy:
During inflation, the USG’s real debt burden decreases, but it will also face higher real interest rates (lenders demand an inflation premium) when it tries to roll over its debt.
Our export position in the higher-end would not improve much, since wages, environmental regulations (we “export” our pollution to the Third World), and non-unionized foreign labor are still major factors in the export of our manufacturing jobs.
September 25th, 2009 at 4:16 pm
cvienne..
i would love to hear the solution from you.
other than saying let deflation rule…let everything fail if they are not strong enough etc..
dude what were you doing the past 25 years??
forget about 25 years, what were you doing between 2000-2008?
right now maybe 10% of the population have any money to manage their life if things go to hell, rest all are dependent on the market, jobs etc…
i would like to hear from dudes like you who so idealogical want the market to play it out….even it means a death spiral.
September 25th, 2009 at 4:19 pm
I-Man Says: Am I the only one planning on carrying “Risk Off” trades into the weekend?
I’m in 99% cash and t-bills at the moment, and still fuming about getting stopped out of my TLT on Wednesday. I thought I’d left plenty of room for pre-FOMC whipsaws, but apparently this bear-trap of a market can stay irrational longer than I can resist chewing off my leg. I guess I should be happy with my little profit, but honestly, I wish I’d just gone to cash in June and walked away for three months.
September 25th, 2009 at 4:23 pm
emmanuel117 :
you mean we cannot print some more to pay interest??
come on, we owe the debt in USD, and we print USD……..the end game is as bad for the ROW as to us.
if we can stock pile enough commodity….i will just blow away the ROW tomorrow…by printing and funding local manufacturing.
but why take such extreme measures when the slow process is working not so bad.
but where will exporters find a market like USA??
not matter how bad it feels….china/india/etc.. will have a hard time if their currencies appreciate compared to USD.
September 25th, 2009 at 4:27 pm
” so idealogical want the market to play it out….even it means a death spiral.”
Hmm… would it really be a death spiral for anyone except IBs, CRE and highly leveraged debtors? We will never see the results of the “control experiment” where Hanky Panky doesn’t inject Lispy Lloyd with the anti-serum… instead of big bonuses, Goldman dies like a dog in the street, but life goes on for most people in the US.
Even in Argentina, the sharp deflation did not bring the world to an end, or even the country. The currency devaluation was brutal for the middle class. The poor had a hard time but in Argentina they always do. The rich carried on as before, and nothing much really changed.
Anyway this is all speculation. We are a big version of Japan, with less savings, so GET FRUGAL, AMERICA. We are not going to default, we are going to grind through this debt deflation in true Japanese style.
September 25th, 2009 at 4:28 pm
techy-
i don’t cv was trying to bait you- and- i agree w/ you-
there is something to be said for the USG doing something- its job in the end is to be responsive to people and their hardships- especially when it is large percentage of the population-
thus the unemployment insurance extensions- record food stamps- etc- helping people survive- i don’t think anyone is against that-
but credits for home purchases and automobile purchases- i don’t see that as a net positive- cost more than the benefit- and caters to lobbies who are only looking out for their industries at the expense of taxpayers from all walks of life
September 25th, 2009 at 4:37 pm
Sales in south florida are booming; that’s the good news. Selling prices are so low as to be rediculous. One house in a town just south of Sarasota had 6 bids and sold over the asking price. You might ask what the selling price was — would you believe $25,ooo for a two bedroom house near the water? You would have to pay more for a camper!
September 25th, 2009 at 4:39 pm
ahab.
i dont agree with everything that was done in the past 12 months to fight this crisis….but at the same time…i am pragmatic enough to understand i dont have all the data.
and the only reason i support reflation(even though i have zero debt…and have ton of cash earning nothing) is that i would rather have a stable job market than cheap housing/auto etc…
if you guys really want to change the political system(so that we do not get into similar mess again…so that lobbyist dont control things always).
how about:
1. campaign funding reform
2. taking religion out of politics
when 35% of the retarded religious throw away their votes for dumb politicians whose strength is support of their stupid views….what do you expect from the system??
if it cost around $20 billion to run for one elections for all politicians…….compare that to the bonus pool of goldman.
imagine how many times the industries can buy the politicians over and over.
but what can the citizens do about it……..Nada.
35% will vote republican due to religious beleifs…..35% will vote democrats to oppose these right wing lunatics…….15% too disgusted to vote.
September 25th, 2009 at 4:41 pm
@techy
death spiral = good
AND DON’T TAKE THAT AS AN EFFING “LET MARKETS WORK” STATEMENT…
My name ISN’T Glenn Beck for crying out loud!
Look dude, when there are hurricanes, floods, tornadoes, People band together to see others through (government or NO government)… Let that happen… Get off your mothers nipple for crying out loud!
September 25th, 2009 at 4:43 pm
@ahab
It wasn’t Wanger, it was THIS dude, that sent me to (where you know) I’m going now…
September 25th, 2009 at 4:59 pm
cv..
this is the best you can come up with….
i did not expect much anyways….so surprise me with some intelligent thoughts.
I have heard the below before from the delusional crowd(the fairy tale beleivers)
when there are hurricanes, floods, tornadoes, People band together to see others through (government or NO government)… Let that happen
let me see:
government is elected by the people to serve the common interest.
so when there is a hurricane…i should beg some church to have mercy??
or rather have a co-operative funded by people money….where emergency aid will be my right.
co-operative funded by people money =government.
it can get better if the effing religious crowd can grow some brain and vote on real issues.
September 25th, 2009 at 5:03 pm
btw people money=my money, since i do pay around 30% in tax….and it will be nice to see my tax money put to use to help me when i need it.
September 25th, 2009 at 5:04 pm
hah – since we’re talking about trailers and tornado’s I think now is the appropriate time to share one of my very favorite public service announcements.
Enjoy!
http://www.youtube.com/watch?v=loa2YHv84ck
September 25th, 2009 at 5:13 pm
And how many young people are up to their necks in college loan debt?
http://online.wsj.com/article/SB10001424052970204731804574388682129316614.html
September 25th, 2009 at 5:15 pm
techy-
1. campaign funding reform
2. taking religion out of politics
i agree with both- from my stand point- most nonreligious myself- bit pagan maybe- like all the old school ones myself- Zeus and whatnot-
but on #2- i don’t know how that can be done – legally- but maybe gradually over time people will understand that it is essentially unknowable and not worth fighting about
September 25th, 2009 at 5:17 pm
@techy: Is this this government “serving the common interest” right now? I think not.
September 25th, 2009 at 5:26 pm
cvienne/techy-
“can we all just get along”- Rodney King
September 25th, 2009 at 5:26 pm
Spell check people, spell check!
September 25th, 2009 at 5:29 pm
mannwich:
but did this government create the mess?
i am surprised by the black and white crowd….they want things sparkling white on day one.
if we dont fix #2….. #1 is enough to win elections…….why should politicians bother with taking care of people? all they need is enough money to foold the stupids come election time.
September 25th, 2009 at 5:32 pm
thor-
thx for the PSA- brought a tear to my eye- especially the reference to hundreds of dollars of damage-
good thing there’s insurance :-)
September 25th, 2009 at 5:36 pm
Techy – yes, in great part they did create this mess. Are you implying that they did not?
September 25th, 2009 at 5:43 pm
i am going to have to side w/ techy here-
don’t get me wrong- don’t like the government is our savior crowd either- but the dogmatic religious folk are such a downer-
they are always tripping over their own commandments- and come off like such hypocrites-
i don’t know who said it- but it was a politician on one of the MSM- and he was so right-
“live by family values- die by family values”
and i always say- who’s family and who’s values-
undefinable
September 25th, 2009 at 6:05 pm
“2. taking religion out of politics”
Yeah that’s a difficult one. How do you get the idiots out of an idiocracy ;-)
September 25th, 2009 at 6:05 pm
@techy: No, this president did not create this but many in Congress helped out.
I don’t think anyone expects perfection and immediate results but we don’t like many of the things the administration is doing right now to seemingly keep the status quo. I think many of us see this as a slow motion train wreck in the offing because they fail to offer any real bold (or different from the last administration) policy prescriptions. They’re still not really fixing the problems. Maybe the problems are too big and unfixable, but at least do something that inspires confidence that they’re trying. I don’t see that from the adminisration right now.
September 25th, 2009 at 6:09 pm
“I think many of us see this as a slow motion train wreck in the offing because they fail to offer any real bold (or different from the last administration) policy prescriptions. They’re still not really fixing the problems.”
ditto that
September 25th, 2009 at 6:27 pm
YAWNNNNN!!!!! Looks around – scratches ass, for a moment – It is just TBP people trying to talk sense, in to someone who looks like they have an agenda.
Techy – I enjoyed your comment “when 35% of the retarded religious” Does that mean 35% of religions are retarded or 35% of the people who are religious?
Dude there is no, one answer to any of these questions, no matter what happens the world will not end, but at the same time any solution will be painful, some just propose a different road then the one now taken.
Yes the church should be a source of offering “mercy” and/or help and that has NOTHING to do in having faith in if God exists or not.
Help should come in this order.1) Family 2) Friends 3) Church 4) Community 5) State 6) Federal. Yet everyone now seems to think it should come from the feds and to hell with the rest.
Anyway…..
September 25th, 2009 at 6:39 pm
F420 – well said!
September 25th, 2009 at 6:56 pm
franklin420d@6:27 –
they must not have 1) Family 2) Friends 3) Church 4) Community 5) State
September 25th, 2009 at 7:34 pm
wtf church has to do with my welfare??
why should i fund something like that with the hope that they will be merciful?
i want my own co-operative ….where i pay for that insurance, where i have a right?
btw i have enough insurance of all kinds that i hope i will never need government assistance..(but well due to lack of regulation nobody can stop those companies from failing when i need them)
i would have gone to church for the company of people….but I cant stand the delusionals..who really think that the man in the sky somehow matters.
wtf is community? (in india…community is a bad word…it means people of your faith, and it is associated with muslims…who owe more allegiance to their community than to the country….i guess they are one step ahead of christians in this country)
and isnt the state same as government?
September 25th, 2009 at 7:39 pm
techy – uuuuhhh, yeah, sure.
September 25th, 2009 at 8:28 pm
Techy – The beauty of the church is you do NOT have to fund it and/or if they do something you are against, you can stop giving it your funds. No one is asking you to fund it, what about the welfare system, they do a lot of things a lot of people disagree with, can you or any of us stop funding welfare? I would rather give my money to something I at least have a little control over
You want your own co-operative – Good go get one. What that has to do with church is any bodies guess.
In India….community is a bad word…. *Looks outside– Hmmm Looks like we are in America* So, why are you dragging poor India into this? And to tell you the truth your whole sentence makes no sense, according to you “community is a bad word “ then you say “it is associated with muslims…who owe more allegiance to their community than to the country….i guess they are one step ahead of christians in this country” So which is it, are you saying community is good or saying it is bad?
Schools, City, County, State, Federal, yup they are all a form of govement, but guess which ones you have the most control over.
Anyway, I really do not care what your answer is, because you are angry about something and will turn what you want into an argument – So would a hug help?
Does Techy-Wechy want a huggy wuggy?
September 25th, 2009 at 9:12 pm
when you owe more allegiance to your community….which is people of same religion in case of muslims….that is divisive since you dont beleive in unity of the country…and thats what i meant.
over here christians are doing the same….they would watch their country burn if we do not bow to their demands about changing our constitution as per the 1000 year old book they think came from god..
so you would be interested with a religious church rather than a secular government?
every country has their problems….in america it is the religious right.
in europe it is the welfare state.
well i guess this is the best humans can achieve…..or maybe the relgious will get sidelined into a 10-15% minority, just a pain in the ass….but not a huge roadblock which they are now.
September 25th, 2009 at 9:15 pm
btw..
my own co-operative is the government….which is right now remotely mine since in a democracy even the an idiots has the same vote as mine.
September 25th, 2009 at 9:47 pm
techy-
stop the h8n my friend-
the world is full of all kinds-
the way it is- not going to change-
no need stressin’ over it
September 25th, 2009 at 9:53 pm
Techy – You are correct, every country does have it’s own set of problems, but it is also nice to be in a country were people can be both religious right wingers and those who want to speak out against them.
If the religious right had it’s way it would be illegal to say anything against them and that is wrong. If (Not you) enuff people had your mind set they would make the religious right illegal and that would also be wrong.
Thank you for restating your previous post as your point is much more clear……. Ummm….. You still want that hug?
September 25th, 2009 at 9:56 pm
Hey Sailor man – how goes it?
Techy just needs a hugg’n
“even the an idiots has the same vote as mine.” puts us all in the same boat, donit? :)
September 25th, 2009 at 10:26 pm
420d-
hey man-
life is too short to go around hating people- not a religious man myself- but try to let people make their own way as best they can-
no absolutes- everyone has something to say that may be beneficial
September 25th, 2009 at 10:32 pm
Hear you there 100%
I guess techy didn’t want a hug :(
September 26th, 2009 at 12:08 am
After seeing cv, lb and most of the rest of the commentators try to refute Wanger and techy, it reminded me of a quote from Mises that really applies to this blog.
“The liberals (classical, not present day. cv, lb, franklin 420d, etc.) were of the opinion that all men have the intellectual capacity to reason correctly about the difficult problems of social cooperation and to act accordingly….They never grasped two facts: first, that the masses lack the capacity to think logically; and secondly, that in the eyes of most people (even when they are able to recognize the truth) a momentary, special advantage that may be enjoyed immediately appears more important than a lasting greater gain that must be deferred… The slogans of interventionism and of socialism, especially proposals for the partial expropriation of private property, always find ready and enthusiastic approval with the masses, who expect to profit directly and immediately from them.”
Times and dates may change, but human behavior does not.
September 26th, 2009 at 7:19 am
Outstanding debate here . . .
September 26th, 2009 at 10:42 am
i agree with you skysurfer..
the limit of any democracy….>70% of idiots vote based on non-issues, >70% of politicians dont care about people’s benefit since they cannot be held accountable…since the masses dont have enough intelligence to see that their future is getting destroyed.
the limit in every system(socialism, marxism, democracy etc) is the human element….we human are too short sighted…too selfish…too much ego etc..
few smart/fortunate people end up as controllers and the rest help them rape the system..
September 26th, 2009 at 2:45 pm
To a buyer in this market in the San Fernando Valley area of Los Angeles, it seems like business is booming because the inventory is so low, there are multiple offers on every property listed under $400K.
Obviously, the banks can’t manage what’s in the pipeline.
I don’t understand how these bankers can justify their bonuses. They’re just not able to get the job done.
September 26th, 2009 at 3:28 pm
over here christians are doing the same….they would watch their country burn if we do not bow to their demands
…..sounds more like the government to me