I'm gonna miss the easy party days of H2 Hummers, granite countertops for everyone and around the world cruises funded with the housing ATM and credit bubble
We're heading toward a period of bankruptcies (thanks Congress for making that tougher though), plunging consumer confidence, a plunging dollar, higher interest rates, and record after record deficits, debt, trade imbalance and entitlement spending.
The perfect storm is another way to describe this mess.
Sorry to bum you out. But you can prepare now to weather the storm. Selling your house was a good first step. Gold is looking better to me every day. And if I could just find a fiat currency that I could take comfort in, I'd get rid of these doomed dollars.
It's amazing this buildup happened under tenure of our first MBA president, and the watchful eye of the genius Greenspan.
Economic Armageddon
Stephen Roach, Managing Director, Chief Economist, and Director of Global Economic Analysis of Morgan Stanley, has stated that “America’s record trade deficit means the dollar will keep falling, interest rates will rise further and U.S. consumers, in debt up to their eyeballs, will get pounded with no better than a 10% chance of avoiding economic Armageddon.”
Financial Apocalypse
Kurt Richebacher, former Chief Economist of the Dresdner Bank, has stated that “the bubble-driven consumer-spending boom we are currently in represents artificial, unsustainable demand and further rate hikes by the Fed will prick both the carry trade bubble in bonds and the bubble in housing. A financial Apocalypse will follow. The U.S. economy will lose its chief liquidity source with disastrous effects on a wide range of asset prices.
March 04, 2006
The words of some economists: "Economic Armageddon" & "Financial Apocalypse"
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14 comments:
I read the entire article posted at the site that sells precious metal warrants.
How many of the "experts" predicted that oil would go to $70 when it was at $10?
We could be seeing the top of an inflationary blowoff. "Experts" declaring $100 oil after oil has gone up 600% are an indicator of market reversal. Remember the "experts" who recommended houses at the top?
In terms of commodity prices, the dollar has been declining for years. Gold has doubled. The "experts" are warning that the dollar will decline. Buy gold after it's doubled? How about buying a new home after it went up 30% in one year?
What I'm reading is strong evidence that the "expert herd" is getting bullish on inflation. Hmm, and how does a credit bubble get resolved? Not through inflation. Inflation causes the bubble. More inflation doesn't end it.
Question:
If inflation is cut by Mr. Ben will the price of Gold drop?
Thanks, 41cadillac
Taking a world view on this, I think the collapse of the American Empire can be a good thing in the long run even though it will hurt me in the pocketbook.
We'll no longer be able to borrow hundreds of billions of dollars to start wars and force our view of the world on other countries. At least I hope we don't go down the road of Germany during our financial collapse and turn our current fiasco into world war 3.
To Joe Zychik:
I interpret your post to mean that you believe we will see deflation rather than inflation in the near future. If we had a responsible Federal Reserve and Congress that might be true. As I see it, Congress and the Fed will simply pump money into the economy at whatever levels are needed to make the Boogey Man go away.
As a result we'll likely see significant price inflation and the standard of living for most Americans will decline. The folks in DC and NYC will be just fine as they read the bad news in the NYT financial pages. Sadly, these guys actually believe the fix is in, and they can manipulate the various levers to make the economy do what they want. Chief among them is the new Fed Chairman, Ben Bernanke, who commented that we will never experience Japanese-style deflation in the U.S. because he can "print" whatever money is needed to avoid falling prices.
If inflation drops significantly, gold drops.
The world has changed and inflation is not as easy to implement as it was in the past.
First and foremost, the US is a debtor nation, first time in modern history.
Last round of inflation (70's) US was creditor nation. This time it is different because debtors don't have as much control over their currency as creditors do.
There's never been such a pervasive credit expansion as we've seen in the housing bubble. IMO, housing prices are like gold was at $850. Gold is a hard asset. So are homes. I believe the hard money inflation has already occured - in housing prices and oil.
The US had a choice between hyperinflation and contraction in 1982. The choice was to avoid hyperinflation. Bernanke talks about deflation, but that's not what he's faced with now. Today the problem is inflation.
I think there will be a serious contraction before gold makes a big move. I think we'll see $500 gold before $850 gold.
corrected for inflation, the all time peak gold price about 25 years ago was around 2000 bucks an ounce in 2006 dollars. Don't be too convinced 850 will be tough to reach.
Sky is falling Keith
Such doom and gloom I feel like I'm back in my youth listening to all the preachers of the Second Coming of Christ when the Jews took back Jerusalem! Oye! The whole world has fallen into the apocolypse mentality, the Jews, The Muslims, the Christians...maybe a world war is what everyone wants to mop up excess capacity and we can all start at zero and rebuild.
I'm sick of people reading tea leaves and prophecies without context or fact. Seven months of doom and gloom and tossing out statistics that are twisted to the writer's point of view. When will we compare apples with apples, and dollars with dollars. The population of the US is larger than in 1989, the dollar is worth less, homes are larger with more amenities, and everyone wants to get out of college, get married and buy a 4400 sq ft house and cry about affordability.
Home prices are still more affordable than other industrialized or even third or second world economies. For those who have fixed rate mortages more protection than those who don't (and a lot of other countries like Canada don't). There are more jobs and more opportunities to earn money here. Have you looked at the price of homes in Bagdad? In Belize? In Costa Rica for similar quality homes as bought in the USA? Oh and London! Give me a break.
And again what percentage of people buy anything at the top of a market? And maybe too many people who can't afford to buy a house have (because they can't save and spend, spend, spend or don't improve their education to get paid more) but most of the people I know 35 and older have lots of assets and good jobs and good incomes and low debt and low mortgage payments. Most of my friends plan on paying their houses off in five to seven years and most earn $100-200,000 a year with their two professional incomes, and that doesn't count our bosses!
This site isn't a rational site to discuss house or asset issues since it is so biased and individuals who love to remain ANONYMOUS refuse to produce clear and comparable evidence on costs and value.
If you don't like reading these, "just say 'no' "!
I'm so glad you are a WASP earning a kazillion $ per year. How special you must think you are. Better go to work now!
foxwoodlief,
Checked out your blog. Nice call.
Thanks Joe! I think Anonymous is a bitter, cynical loser from all his comments on this site. I read this blog hoping to get the pulse in markets OTHER than Phoenix or Miami or SD! I have always bought a home with VALUE in mind and never for speculation or really for investment though if I make money GREAT. I buy for neighborhood, location, I hate to commute so won't live out in never never land just to afforda a house. Oh, and that idea is an illusion. I'd rather pay $100,000 more and live near my job instead of commute two hours a day, pay for a new car every five years, gas etc., there is more to price than the minimum payment.
Historically house prices are flat adjusted for inflation with moments of price spikes based on supply and demand and SPECULATION. I try to always base my purchase on VALUE and inflation adjusted costs plus the value added for location. If those losers out there want to buy affordable houses there are many homes for them say in South Dakota, Detroit, inner city Philidelphia or Pittsburgh where they can buy a house for less than that house can be built today.
We all have choices. I left California to go to College in 1974 and never went back, too pricey for me then and even more so now. I've owned homes in Tampa and Phoenix and now Austin. I've never paid over $100 a sq foot for a fully decked out house with all the ammenities and I"ve paid as low as $6.16 per sq ft for a 3300 sq ft fixer in Tampa build in 1905. Also just because I personally feel that many homes are over valued and choose not to buy them doesn't mean I believe in the impending doom and gloom many speak of here because I know that most homes were not purchased at the TOP of any bubble and believe only a small percentaage of home owners are at risk if prices decline as long as they have fixed mortgages, didn't buy at the top of their market, have a payment that doesn't exceed 30% of their income. Most the people I know fall into that category. Remember not all of us home owners are over extended Californians or low income workers.
I chose to sell my home last March in Phoenix because I belived a $100,000 increase in my home in two years was excessive (and it went up another $150,000 after I sold). I've always set a goal of owning for five years with a 5% appreciation (minimum for a great location) and then sell when my five year goal is met, even if that occurs in two. Then I look for another home in a growing market with good job growth and climate and buy a home that meets my value test for affordability and cost per sq ft. It took me six months to find a house in Austin that met those goals since even there a lot of the areas I would live have homes that cost more than $100 a sq ft as a fixer, which doesn't fit my mind set no matter how much I love the area of the house.
I built a semi-custom on a 1/2 acre, 3300 sq ft, imported stone and brick on all four sides, 13ft ceilings, 11 ft windows, granite, cherry cupboards tile, and every upgrade you can put in building a quality home in a small neighorhood 9 miles from downtown Austin but in the hill country and all for $101 a sq ft.
Bottom line is you have to choose what you want, what you will pay and stick with it until you find it. If you have to move then you move if you won't or can't pay the price. Fourteen years in Phoenix were enough for me and the charm has gone with the populaton explosion and high cost to live here.
Do I think certain areas are prone to price declines? Yes. Will Phoenix be near the top of the list? I think so but I'm no prophet and prices may just stay flat (which is a price decline in disquise) like Austin did from 2000 to 2005. Are some markets over built? Yes, Miami for one and San Diego.
I think the biggest problem for America isn't house prices but our trade deficeit and our national debt. But then look at Japan and their national debt and it hasn't hurt their currency or GDP. If we experience a deflationary cycle then it won't matter if you bought your house five years ago for 1/2 of todays prices it will cost more however if we go into an inflationary cycle like we had in the early 70s then that $300,000 mortgage fixed at 5 1/2 percent will look like an great investment.
I hope that most the people reading this site will not sit back passively and gleefully wishing for a melt down since that isn't in anyones best interests. What I would like is honest questions to value and home price trends and quality of life issues related to home owning instead of just attacking the market or other bloggers who want a rational discussion.
Tell me you situation. Do you own? Did you buy in the past two or three years? Can you weather the prices come back to a normal, inflation adjusted cost for you location? Do you know good places to live and have a good job and where homes are in line with the local economy?
Too many bloggers have no clue on what it is like to live in other countries or how their house markets work or the cost to live in other countries and so not only do they not compare apples with apples here they try to compare the US with other countries as well. I'm sorry but an $80,000 house in Ecuador isn't a bargain up against a $300,000 house in the USA. Again, local incomes, jobs, currency stability, the ability to even get a mortgage are just some of the issues.
Yes prices go up and prices go down. Losers and winners. I'd hope this site would help people understand how to balance their investment in a home and not to be scarred into apocalyptic thinking. The Dot com melt down was't the end of the world and neither will price moderation or decline in home costs end the world. Look at Iraq for one and people continue to exist, live, eat, die. and homes in Bagdad are expensive!
Hi Foxwoodlief,
We own. Sold out of CA moved to NV. Bought reasonably priced home and ended up putting a lot more in upgrades than we had planned. But did it expecting house to decline by 1/3. We plan to here for at least 10 years.
Am very concerned about the future. Not so worried about housing ups and downs. It's the effect on the rest of the economy. I don't think the economy has ever been as dependent on housing and credit as it is now.
would like to discuss further.
Please drop me a note at:
NoMindNoFeet@netscape.net
best
JoeZychik
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