I believe due to the loss of the wealth effect, the decline in house prices, the dry up in consumer spending, and the tremendous job losses in the Real Estate Industrial Complex to come, we'll see the mother of all slowdowns. The train wreck has begun, Greenspan was drunk in the engine room, and Ben gets clean up duty.
The yield on the 10-year Treasury note Friday fell to 4.99%, below the Fed's benchmark short-term rate of 5%, an indication that bond investors share the view that the economy is cooling and that the Fed is nearly done raising rates.
"The economy is slowing fast," said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd."A few more months of payrolls like this and the unemployment rate will start slowly to rise," Shepherdson said. "In the past, that has always been a signal to ease" credit.
But if the upcoming consumer price report for May, to be released June 14, contains worrisome inflation news, the Fed could decide to further tighten credit, some economists suggested.
UCLA Anderson Forecast Director Edward Leamer said all the speculation about what the central bank and its new chairman, Ben S. Bernanke, should do about rates was folly because of a real estate slowdown that was well underway.
"I don't think the Fed, at this point, has much control," Leamer said. "We have a sick sector, the housing sector, and there's not a whole lot of medicine the Fed can provide."
Leamer's group sees declining home sales contributing to a broad economic slowdown that bottoms out at 2% growth and stays there for at least a couple of years."It's been a drunken party for several years," he said. "Now, we have to deal with the hangover."
June 04, 2006
"It's been a drunken party for several years. Now, we have to deal with the hangover."
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17 comments:
The feds WILL got to 5.25% and possibly 5.5% bc worries about the inflation and a declining dollar will trump the 'cooling' economy.
The goverrnment will fix it ... badly!
Bernanke will pump huge amounts of money into the banking system and mortgage rates will hit record lows this Winter. We will see 60, maybe 75 year mortgages so the fools can refi one more time and the feds can avert a meltdown.
Look at all of the new banks that are being built, does it make any sense if we're facing a depression? Hell no! The big guys at Chase and Citi know what's coming and they're going to get their vig as Uncle Sam hands out the candy to the dumb masses.
Yes, a few RE speculators will be burned badly, but the typical, drowning-in-debt homeowner fool will be "helped" out of this mess so our benificent federal government can put off the revolution for a few more years.
The Fed can manipulate short-term interest rates but long-term rates are set by the market based on expectations for inflation and developing economic conditions.
So, mortgage interest rates are not under the control of the Fed or the US gubbermint.
2% growth? That's not bad. It's not a recession. Ok, it's not 5%. So what? What we don't want is a recession with negative GNP growth or no GNP growth. That would spiral out of control. Then we would get the housing bust in spades. Bernanke really shouldn't do anything to help housing. It is sick, and the fever must run it's course.
Roid
If Bernanke floods the banking system with money, banks are not going to let that opportunity sit unused. They will lend it at rates set by the marginal demand. If the money supply available for mortgages increases, and demand remains constant, then rates will come down. Look what happened after 9/11.
Both GSEs are directly controlled by the Fed now -- they will buy up every bundle of mortgages or consumer debt any bank throws at them. Almost no risk for the banks as they skim off their cut in transaction fees.
Sorry to rain on your doom and gloom party boys and girls, but IMO the fix is in.
Nope, if Bernanke floods, the Banks would be flooded by foreigners getting their money out of America as the dollar disorderly collapses and hyper-inflation results making America's "dollar" just a stupid piece of paper.
He can "print" as many dollars as needed (gave an infamous speech to that effect) so let them come. Part of the plan is to inflate away the government's debts using devalued dollars to pay off holders of treasury bonds and IOUs.
Politicians will live with $6 gasoline and $150K Lexus SUVs if it will keep angry mobs from sacking the capital building. The problem is simply too big for them to let market forces clean the slate. It will be "managed" by Bernanke, Rubin and their budies at other central banks.
Basically, we're doomed. Best we can hope for is stagflation (ala 1972-74)'cause Bernanke won't allow a recession...he will make sure that interest rates are below the inflation rate.
2% growth is total BS, by the 4th quarter we will be in the first quarter of negative growth, by first quarter of 07, we will be in serious recession. Inventories building now, just in time for the fire sale in the 4th quater when massive layoffs start, but dont worry, the fire will be burning for the next 10 years.
Yes, you're "doomed" if you hold assets tied to the U.S. dollar. Bonds, equity in U.S. properties, cash, etc., will fall in value as the dollar is taken down. The central banks said last month they wouldn't have a problem with a U.S. dollar 30% below it's current exchange rates.
That puts oil North of $100/bbl and gold at about $1K per ounce. Start moving assets out of the doomed dollar now!
http://finance.yahoo.com/q/bc?s=%5ETWII&t=5d
Ouch.
http://finance.yahoo.com/q/cq?s=^HGX,FRE,FNM,HOV,TOL,NVR,MDC,BHS,CTX,DHI,KBH,LEN,PHM,WLS,MTH,DHOM,BZH,JOE,MTH,RYL,LOW,HD&d=v1
Ouch. FNM is looking really bad.
"What the industry is going through appears to be much more brutal than most had anticipated even just a few short months ago," wrote AG Edwards analyst Gregory Gieber. "Last year, our view was that it would be a soft landing, but as 2006 started to roll forward, our concerns grew and we abandoned the soft-landing view."
http://biz.yahoo.com/ap/060605/sector_snap_homebuilders.html?.v=1
Keith,
Here is a kindred spirit for you who has a better pic of a train wreck.
http://www.theinternationalforecaster.com/trainwreck.php?Id=126
Your are Excellent. And so is your site! Keep up the good work. Bookmarked.
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Hey... "Make Extra Money" guy.... KNOCK IT OFF.
Very pretty site! Keep working. thnx!
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