I thought this was a good argument, similar to HP's view of the viscous cycle we're now entering. Thoughts? And how do you best prepare now, especially how do you preserve your assets, cash and equity?
I thought about loading up on foreign funds, but even though those stocks will appreciate in dollar terms due to the dollar dive, the stocks themselves will decline due to the US catching a cold.
So back to currencies and gold.
Hat-tip patrick.net for the link
The U.S. housing bubble deflating will take down the global economy. Here's how.
1. The U.S. economy consists largely of consumer spending. This dependence has reached an unprecedentedly high level.
2. The global economy is heavily dependent on the U.S. consumer.
3. U.S. consumers have financed this vast spending spree by borrowing stupendous quantities of money from their home equity.
4. U.S. consumers are spending far more than they earn ( i.e. disposable personal income.) This reliance on borrowed money for spending is unprecedented.
5. Is this unprecedented borrowing and deficit spending sustainable? We all know the answer is
6. Housing need not drop precipitously to cause a precipitous drop in home equity extraction.
7. Once this monumental extraction of equity dries up, so will consumer spending
8. Once U.S. consumer spending plummets, our global trading partners will immediately feel the pinch.
The links of the chain cannot be denied; as the U.S. housing market rolls over into decline, it will take home equity borrowing with it, which in turn will take the U.S. economy and thus the world economy down into a prolonged recession. Skeptical? Watch what happens in October 2006.
May 08, 2006
Houston, we have a problem. Housing Bubble Bust Will Take Down the Global Economy
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Your logic is impeccable. But somehow the stock market isn't rolling over. It's usually pretty good at smelling these things out.
Was equity extraction really 250B in one QUARTER? I've read numbers from 400-600B per year.
What's really funny is that as the HELOC debt has piled up, no one has needed to really pay interest on it. They just go take out another 50K every year and pay the debt out of that. As well as go on vacations and buy a new SUV.
Now there's no new HELOC money to be had for our already 100% "loan to 2005 value" houses. Now they MUST start paying interest. So it's quite a swing in consumption. Mindless decadence for years and now no new HELOC money and they have to start paying the piper for all past loans.
And if they default that's another house on the market.
Only problem is housing prices haven't really started falling yet in the LA/Sacramento/SF area and have only started in SAn Diego, Phx, LV, Florida, MA.
now its oct, it was spring then summer. You will be saying 07 soon. your the guy in vegas who stands behind roulett table waiting for 10 blacks in a row so you can bet red but you lost the run of blacks. for the record utah still seeing gains along with seattle, maui, austin socal areas (check out S&S builders) there in valencia, thousand oaks, porter ranch and selling home no problems.
Yeah. October is when year over year numbers come out from the peak.
I'm saying Jan to June 2007 is when the builders will crash.
hovanian and centex dropped the price of new homes in the central valley$100k in one day last week 16%.me i'll buy stocks,safe as houses.
Doom and gloom. There are plenty of policies the FRB and Congress can enact to counter any calamity. I don't think we will have a national recession. Many areas of the country will have sluggish growth for a period of time (1 year beginning mid-end 2007?)
The Great Depression was mainly caused by the decrease in money supply after the stock market and property shocks. You can bet your last dollar that the Fed won't repeat that mistake again. Remember 9/11 and how the Fed pumped a staggering amount of money into the system overnight. They will do that again if necessary.
I am confused about a couple things.
1) Gold. Isn't it already really high? Is that you think it will still go up, stay up, or not fall much?
2) I worry about where to put my money as well. I agree with the logic here as well and think we are set for a serious recession(or depression). I would be happy just having most of my money sitting in my savings acount making crappy interest if I could be confident it was SAFE.
My question is basically this. Are banks safe? Seems they are tied deep with this bubble (granted I am not saavy in this field) and so will Banks roll up if things get really bad? FDIC insured banks a must? Or is that a scam too? What about credit unions?
Any thoughts appreciated.
Prices have begun to decay in the LA/SAC/SF region, your data is behind which is understandable since it just began a week ago. I would argue Builders probably BEGIN to crash this fall hitting their stride the first 2 quarters of 2007.
I suspect the economy may be on the tipping edge of recession by the 4Q of 2006 and will sink into it in 2007. But I may be off a Q here and there, so if it doesn't go recessionary to say, Q3 2007, don't kill me lol!!
It wasn't the FED that intially stopped the money supply after the crash, it was Bank failure. The FED didn't tighten to 1931, but the economy took two major hits the second half of 29 and the second half of 30. It was gonna be a depression no matter what.
Put your money in a large credit union. That's the safest place. In our city the largest credit union is paying 3.85% on high balance checking accounts : )
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