Cherry Picking?

NEW -> Contingent Buyer Assistance Program
<p>Graphrix, </p>

<p>Sometime I will post saying "I own this"...or "someone own that." It's all b/c this is a public discussion. And I rather stay anonymous. </p>

<p>Yes, prices have been declining. I am not debating that. But I just find it hard to agree with the 30 - 40% decline. Again, time will tell. Not saying I am right or anyone else is wrong. We will see. But hey, if it will decline 40%. I hope to purchase a 2nd home. </p>
 
awgee, huzzah!





American incomes are have not risen markedly for a long time and on a PPP basis, not in a very long time. Sure the cost for a plasma TV has decreased, but education and health care continue to rise in double digits percentages relative to GDP and income.





*****


I know I'm moving off orignial post here, but I'm going to do it anyways as awgee's last comment reminded me of something.





I met a couple from Argentina who would ship every single discretionary dollar they had to the US because of the potential for collapse or inflation with the Argentinian dollar (called?). Even when it was illegal, it could still be done and I was told many people did. I find it an eerie irony where I'm am now in the US and the inflation is going to rise albeit to "normal" or "above normal" amounts, and I find myself shipping all my discretionary income into euro denominated securities.
 
<p><em>awgee - </em></p>

<p><em>"Do you also feel this way about incuring a mortgage during an inflationary period, considering that most folks do not buy a home, but rather incur debt in the form of a mortgage?</em></p>

<p><em>At first thought, it would seem logical to pay off a mortgage with inflated dollars, but what if wages do not rise, but prices on neccessities do?"</em></p>

<p>Tough questions for sure. Over time, real estate has been one of the best hedges against inflation. Nothing is perfect, and there is no sure solution, but one has to run for cover somewhere from a government printing money like a banshee.</p>

<p>"<em>And before a significant inflationary period, there exists a real possiblity that a derivatives meltdown could initiate a severe credit contraction."</em></p>

<p>One could argue it's reason to obtain credit now. It's exactly why there have been so many LBO's, etc over the past 2 years. They know credit is easy so they are taking heavy advantage of it.</p>

<p>...we live in tough times if you are an average Joe but not if you are a CEO...</p>

<p><em></em></p>
 
oc-conservative - I agree that re is a great hedge against many financial problems, but my point is most folks who have purchased a home, do not actually own anything other than debt. They are not invested in re. They are invested in debt.
 
<p>One thing I must say that I am alittle concern with though. A month ago, most "experts" have stated that the subprime delinquencies will not spill over affect the financial market. But, as of late, most are changing their tunes. Would anyone care to share what this will do to the overall economy?</p>
 
reason - For many great answers to your question, read the "Headlines" thread in this discussion area.<p>

But, for a quick sumation, IMO, a derivative meltdown is occuring and will take the US economy to a place it hasn't been in 75 years. Subprime mortgages are only a small part and only a marginal warning light.
 
Trooper - I think the next depression will be worse than the last.<p>



marty - Yes, my ideas may seem extreme, but that makes them no less valid. Have you ever been able to give any credible evidence disputing any of the information I have presented.<p>

Why do you feel it is neccessary to misrepresent everyone you disagree with? It lowers your credibility and makes you seem angry and mean. Can't you provide a idea based on fact or a cogent argument?<p>

I did not say all, and I never mentioned heading for the hills ... Just what do you think will be the ramifications of the $500 trillion of over the counter derivatives? And what do you think of Warren Buffett's description of them as financial weapons of mass destruction? Do you think he is extreme?
 
I agree I would like to see a cogent argument from a RE bull. I've asked several times that if they provided some sort of factual basis behind their opinion I would highly enjoy the discussion. However what I get is chirp chirp crickets or they get mad and try to insult me. So yes RE bulls what do you think of the CDO market with the CDO cubed getting hammered and the CDO squared getting nailed? Oh and please tell me why the foreclosure data is higher than the early 90s even when adjusted for the amount of added housing units. The NODs for the 18 business days of June are at 908 so far. Please add to the discussion as it would be interesting to read the opinions.
 
graphrix: I believe part of the problem with your challenge to bulls is that it requires at least a moderate level of analytical ability and understanding of finance. IMHO, many bulls (as with many people in general) are unable or unwilling to dig any deeper than the surface. Math scares 'em.
 
In my opinion, as long as the Chinese continue to buy our debt, and the Japanese continue to loan the world money a 1/2% interest rates (thereby flooding the world economy with cash), the problems created by our housing market crash will not lead to a global or US depression.





I do think the US economy will slip into recession because consumer spending is almost 70% of of the economy, and mortgage equity withdrawals have made up a significant portion of that. Elimination, or drastic reduction, of mortgage equity withdrawals as the housing market bubble deflates will be a serious drag on consumer spending and thereby a serious drag on the economy.





If consumers were actually making the money they are spending, I would not be so worried, but the prosperity is based on borrowing; therefore, it is by definition temporary -- debts must be repaid. When the debts are repaid, money that would have been available for spending is instead diverted to paying off debt. This exacerbates the problems created by the decline in consumer spending.





Locally, I think the economic contraction will be severe -- perhaps even a depression. A 40% decline in housing prices is going to result in an 80% decline in personal wealth in this area as most peoples paper wealth is tied up in the inflated valuations of the home (or homes) they own. There will also be a severe decline in area income as all the easy (borrowed) money that used to enter the area through mortgage loans and get distributed through real estate commissions and mortgage origination fees will drop significantly. We have already seen a 50% drop in sales volume. Couple that with a 40% drop in prices, and a great deal of money which used to flow into the Orange County economy simply disappears. IMO, things will be very, very bad locally.
 
<p>It will be interesting to see if there are as many folks out and about at restaurants and movie theaters this summer. Also, will the malls be less crowded come Christmas time in 6 months?</p>

<p>We may be in the "Denial" phase where people believe their house is still worth the 2006 value, but they may start behaving a little more differently when it comes to spending money.</p>

<p>We'll see.</p>
 
<i>"In my opinion, as long as the Chinese continue to buy our debt, and the Japanese continue to loan the world money a 1/2% interest rates (thereby flooding the world economy with cash), the problems created by our housing market crash will not lead to a global or US depression."</i><p>

Depression, recession, I don't know. Maybe it is like the old saying, It is a recession when your neighbor loses his job, and it is a depression when you lose yours.<p>

Agreed on Japan and their IR, and although I use to think similarly with you on China's holding of US treasuries, I have recently read some info which is leading me to think otherwise. I thought it wouldn't be difficult to watch to see if China started unloading their US notes and I thought it would be seemingly unwise for them to do so, as it would be akin to shooting themselves in the foot, but it has recently come to my attention that more than half of their holdings are short term, (less than six months). They don't have to dump a thing in order to diversify out of US debt. All they have to do is to redeem their existing notes without turnover. And guess what? The last few months data have shown that they are doing exactly that. They have even gone on record more than once saying they are diversifying out of US debt. Do they have to hit us in the face to get us to pay attention? Probably.<p>

The Chinese central bank holds at most $1.2 trillion of US debt, and Japan about $800 billion; total $2 trillion. Devastating if they choose to unload or redeem, huh? But, get this, total over the counter derivatives are over $500 trillion and that is including the leverage. At least $50 trillion of that total is based on the US CDO market and what do you think that is worth? And from what I can tell, it sure seems like the remaining $450 trillion is connected and leveraged to the $50 trillion. China and Japan can hold forever, but if the derivative market has a meltdown, China's and Japan's holdings, interest rates, GDPs, and money supplys become irrelevant.<p>

Heck, maybe nothing negative will result from a $500 trillion derivatives market based on a credit expansion, but look at the history of credit expansions. Of course I don't have a crystal ball and the fact is I do not know what will happen. But, and here is the <b>big but</b>, I don't think it hurts too much to be prepared.
 
<em>I could be wrong here, Graphix / IrvineRenter please correct if I am, but mortgage rates do not necessarily follow the Feds Fund Rates...per se. Mortgage Rates typically follow the 10 yr T-Note, therefore when consumption of T-Notes increases smaller yields are seen and smaller yields typically decrease Mortgage Rates and vice versa. Investors will start buying into T-Notes when the stock market starts to decrease to protect the principal on their investments. </em>

<p>They don't follow *exactly* because there are dozens of factors that can cause small change in interest rates. In general the direction moves the same way as the govt interest rate.</p>
 
<p>mino2126 - Fed fund, 10yr T-note and mortgage rates generally move in the same general direction but they do not move at the same time or at the same speed. When the Fed lowered rates this last time mortgage rates were dropping at the same time as the Fed. On the way up this time mortgage rates haven't really moved up with the Fed. When people are buying bonds they buy T-notes first and mortgage bonds last and when they are selling they sell mortgage bonds first and T-notes last. On the most recent sell off it was mortgage bonds that lead the way to selling T-notes which lead to more selling of mortgage bonds. If you compared the 10yr T-note and mortgage bonds in the last sell off the price drop for MBs was nearly twice as large. Of course if the AAA mortgage bonds start getting infected by defaults expect more selling and possibly buying of T-notes for a flight to quality.</p>

<p>As for the economy as a whole we are one economic hiccup away from a recession. Housing is in the tank and the auto industry here just needs to pack up their bags and start all over again. If the consumer stops spending i.e. no more housing ATM or the CDO market does fall apart i.e. Moodys or S&P actually rate them properly that will be the hiccup that does it. I really hate being a bear but if you can't see that we one straw away from breaking the camel's back you will get burned.</p>

<p>As for OC I don't think the RE industry dropoff is being seen in the numbers yet. I know a lot of people in the industry that are in survival mode. I'm talking about people with Range Rover payments making Honda Civic money right now. I know someone who worked in the design center for a builder making nice six figure money and got laid off. Her husband was a stay at home dad because why not his wife was making plenty and now working as a restaurant manager. It pays the bills but not provide the lifestyle of last year. I could give even more examples but the point is we haven't seen the pain being felt by many right now.</p>

<p>On another side note I was searching the Register's archives in either 89 or 90 and saw the headline that was something like "Despite a housing slowdown OCs job market is doing fine with professional services, education and medical jobs creating the most jobs." Funny that sounds really familar. I will have to dig it up again and post it. </p>
 
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