September 22, 2006

Stephen Roach, Morgan Stanley chief economist, on housing recession - "we've run out of bubbles"


Man, when The Man's (Morgan Stanley) man (Roach) is this frank, exasperated, freaked out, direct and scary, you know you should be listening... After watching this video, even I'm more freaked out than before. I think I'll be visiting the local camping store later today... and moving all into diversified cash

Memo to world: We're crashing here, we're crashing hard, we've got a long way to go, and it's going to be very ugly - for us, and for you.

Here's some of Roach's quotes

"the housing section is in a recession that has just begun... going to take a big toll on the US economy"

"All investors are inherently predisposed to hope for soft landings"

"We have a major bubble bursting before our very eyes"

"We've run out of bubbles"

"We have the worlds worst savings problem in the history of the world"

"We've got too much consumption and too little national saving"

"We've got to have a pro-savings policy in the United States.. we're afraid to do it. You've got to bite the bullet and do unpopular things"

He also points out that just as consumers run out of excess cash (with the housing ATM closed) they'll have to increase their savings rate (to get ready for retirement) which will be the mother of all double whammy's for the US consumer-driven economy

Also, doesn't the Bloomberg bull broadcaster seem like she's personally freaked out about her home's price - affecting her responses? Maybe her husband has investment properties?

34 comments:

Anonymous said...

The obvious way to cut consumer spending, increase saving, reduce the trade deficit, and generate jobs here in the U.S. is to impose high tariffs on imported finished products. If we can't add value to it and export it at a profit it should be subject to import tariff. This is what the asian countries have done to us and it's time to fight fire with fire. It's time that the financial weenies were removed from the helm.

Anonymous said...

"20% growth in housing in some markets you expect a pull back."

WTF! Are you talking heads at Bloomberg idiots? The PEOPLE DON'T expect a pull back. They think it's normal, that's the problem.

I'm a homeowner (no mortgage). The housing market is going to crash up to 40-70% in some US cities. Expect East and West coast housing markets to crash. All of the "blue" states will suffer the most. Proving democrats are stupid and destin for poverty.
http://en.wikipedia.org/wiki/Red_state_vs._blue_state_divide

Anonymous said...

The really scary thing that Mr Roach said was relating to... what happens when everyone stops spending?. It's a bit like saying, when everyone is up to their eyeballs in debt, who is going to be doing the spending to keep the economy ticking over.

Tariffs won't do anything, except start a tariff war. Asia has all the US currency it needs (to destroy the US economy). A return to nationalism will just cause more pain. Sustainable economic development is what is called for. If your sucking in resources from other countries, while not producing much yourself, then what do you expect.

Anonymous said...

Doesn't anyone else see that paying an uneducated unionized blue collar working in Detroit $64/hour as being a cause for loss of US manufacturing jobs?
The auto industry was poorly managed and improperly supported by the dumbocrats.

Blue state real estate will collapse! A few red states will take a hit too. Arizona, Florida, and Ohio will be hit hard.

blogger said...

Unions caused the collapse of the US manufacturing industry, more so than cheap labor in China

Unions should be seen by their members and supporters as totally discredited, worthless, anti-productive and in some cases evil

You can be anti-union, which I am, and pro-manufacturing. Now that Unions have been descimated, it's time for a new model. Let's build stuff, but let's do it smartly, and let's pay people to do the job what they're worth, and not crazy wages (like $300,000 for airline pilots and $100 an hour for Delphi workers)

skytrekker said...

Roach is certainly right about asset bubbles being the economic paradigm of the last 10 years.

With two bubbles- the Post Man allways rings twice- and its now payback time.

With huge demographic changes around the corner- its hard to see presently how the economy can boom- unless another bubble is created- we have run out of bubbles as Roach has said- what happens now is anyones guess.

Anonymous said...

Poor Roachie. He has been so wrong (regarding his "Great Depression II" call) for so long (years now) that he has become a caricature of himself.

Sorry Steve, soon we will all witness the power of governments and their lackeys the central banks to continue the bubbles for the forseeable future.

Look for all manner of interest rate manipulations, currency debasement, monetization of ALL debt/MBS/stocks/bonds, securitization, derivatives shenanigans, state-sponsored debt moratoriums, "RTC II-The Sequel", Deficit spending, special grants for homedebtors and the entire housing industry, helicopter drops of money and credit--you name it.

Nope, there is too much at stake here to allow a little thing like a couple of trillion dollars in real estate losses screw up the global economy...

David in JAX said...

There is a very interesting show on The History Chanel called The History of The American Union. It's very interesting. The first unions in the united states were formed by the NY mafia in order to control the docks in New Jersey. If you control the docks you can control the drug and illegal imports/exports trades. The mafia then branched out into other areas like transportation, construction, refuse, etc. in order to hide illegal activities and shake down businesses for money.

Unions were never designed to help American workers and have played a large part in the destruction of the American economy.

Anonymous said...

W. Edwards Deming was the American that nobody wanted to listen to. So we sent him over to Japan to help rebuild after World War 2. In 1960, the Prime Minister of Japan acting on behalf of Emperor Hirohito, awarded Dr. Deming Japan’s Order of the Sacred Treasures, Second Class. The citation on the medal recognizes Deming's contributions to Japan’s industrial rebirth and its worldwide success. He later in 1982 wrote the book “Out of the Crisis” in order to help American manufacturers learn the principals that brought Japan worldwide success. Unfortunately we never listened. Dr. Deming passed away in 1993.

Anonymous said...

to anon 11:11:54 AM

Hey idiot. It's both parties. MORON.

skytrekker said...

Red states like Nevada, AZ and Florida have had horrendus bubbles.

skytrekker said...
This comment has been removed by a blog administrator.
skytrekker said...

Anon- about Roachie

I think its now too late to save this meltdown- it looks like manufacturing may be following housing into the toilet. If in fact this is what happens, the worse case scenario may be possible. The hope that manufacturing would take the baton and save us may be fading- and it was a forlorn hope anyway. Most economists have hoped for that soft landing- it may turn out to be much worse then many anticpated.

Anonymous said...

Real estate in blue states ran up because everyone was trying to get out of the red states full of idiots that voted for Bush twice. Somehow blue states have all of the jobs which is why people have stretched themselves to live in them. If only all of the red states weren't in the middle we could just secede

Anonymous said...

:W. Edwards Deming was the American that nobody wanted to listen to.

Dude, Deming isn't alone. Brilliant American (esp eastern-European American) scientists in control theory (Zadeh [sp?], Kosko, etc) were shunned by US R&D labs and they'd consulted for the Mitsubishi's of Japan to help them build their bullet train controllers, etc. So it's not just management consulting that gone's awry but also basic R&D.

Anonymous said...

Abby Cohen says stocks are going to outperform bonds...

You know what that means, right?

You can absolutely take it to the bank that bonds will outperform stocks.

Anonymous said...

"$64 an hour union guy."

"unions caused the collapse..."

WRONG!

how about corp management that ddecided to build crappy cars to begin with. how about the management decision to build crappy cars like the AZTEC or the beancounters that only added shitty parts. Or the decision by management to add shitty cheap parts to boost the quarters bottom line, thus boosting the stock so THEY made more money on options for that quarter, screw the rest of the year or decade or future of the company.

screw you all that blame the union blue collar "just doing" his job guy. HE's NOT the problem! it was management that decided to save a nickle and out in crappy ttransmissions. thos union guys just put in the parts they were given.

american have the right to buy the best product. period. the japs gave it to them. honda toyota and now the koreans are doing it too.

greedy ass management, stupid ass management.
thats your problem.

facism is alive and well in the usa today - CORP FACISM.

oh by the way i'm not a union guy. but i realize for all of us who collect a paycheck the union IS neccessary. you know, the whole checks and balances theory.

unions keep some honesty in the pay, well that was untill the chinks started doing out jobs. that just means the unions need to offshore too. they give a voice to the little guy but when you do your job and do it well the union mentality of "thats his job" doesnt cut it.

Anonymous said...

I think we in America finally realized the importance of QUALITY and has now started to embrace the philsophy of Dr. Deming. Continuous improvement and TQM are now being practiced in manufacturing and service industries. I wish we've started earlier, but I also hope that it's not too late. More power to all who embrace quality management practices.

Anonymous said...

Skytrekker 2:14:40 wrote:
“I think its now too late to save this meltdown- it looks like manufacturing may be following housing into the toilet.”
__________________________
Skytrekker where have you been? Manufacturing in the US went into the toilet years ago. These were the first jobs to go offshore - first to Mexico and Taiwan, and then to China.

What items, besides automobiles, are still manufactured in the US? And for all of you readers who do not like buying products made in China, buy things at thrift stores and garage sales instead. It may not bring jobs back to America, but it won’t contribute to the offshoring of more jobs, either.)

Anonymous said...

Check out BEARX mutual fund.

Heavily (43% of assets) short the market, primarily the market indices.

Also short homebuilders, tech, etc.

Note how BEARX jumped during the last bear market in 2002.

It's coming again.

Anonymous said...

"Ohio will be hit hard"

You're having a laugh right?
You mean that rustbelt property will dive from $5000 to $1500?

Anonymous said...

:Note how BEARX jumped during the last bear market in 2002.

I held BEARX in '02 and half of '03, made some 60+% along with some put options for Lucent (banked ~50%).

I did better in those years than during the rah-rah 90s when I was mainly on the sidelines except for the SP500 index.

seamus said...

Could we please stop referring to the house as an "ATM"? It's really a terrible analogy. An ATM gives you access to your money, which you can spend however you choose, and then it's gone. A home equity loan is an obligation you have to pay back. That's very different from an ATM; you're not borrowing from an ATM.

seamus said...

By the way, all you "Blue State/Red State" commenters are idiots who need to leave America.

Anonymous said...

"Real estate in blue states ran up because everyone was trying to get out of the red states full of idiots that voted for Bush twice."

++++++++++++++++++++++

YES! YES! YES! The truth at last!

Anonymous said...

"By the way, all you "Blue State/Red State" commenters are idiots who need to leave America."

++++++++++++++++++++++

Hey, wait a minute. I resemble that remark! (And I'd leave, but I can't afford to emigrate....)

Anonymous said...

I can't find the correct link on Stephen Roach's comments?

Was it moved? Can someone post the link?

Thank you.

Disgorge! said...

...what happens now is anyones guess.

That's what Jim Puplava says too. He points out that we are living in unique times, and nobody knows what comes next because we've never been exactly here before.

Anonymous said...

f it, I'm going camping!

Anonymous said...

Get your political heads out of your asses. The blue and red states are more similar than you realize, as are the candidates.

Anonymous said...

Anonymous said......

unions keep some honesty in the pay

Anonymous said......

unions keep some honesty in the pay

Like hell they do. Having decimated our manufacturing sector, the big unions main base is now in the "public" sector. You know, state employees UNION, county employees UNION, teachers UNION, the perfect locals.
There is NO product made, NO competition, and NO accountability!
Unions had their day and should go the way of the dinosaurs! Now they are just sitting back and living the good life on our tax dollars that go to their overpaid, overcompensated members!

Anonymous said...

"Real estate in blue states ran up because everyone was trying to get out of the red states full of idiots that voted for Bush twice."

Please take your simplistic political babbaling elsewhere. People are leaving California in Droves for places like Texas because the cost of a crap house in L.A. is unbearable. California's population is actually falling if you remove the illegals, who are ruining middle-class neighborhoods and are sh*tting on our craps (can you say "ecoli").

BTW -- I don't like Bush either, but he never would have been elected had the Democrats not nominated a moron like Al Gore!

Anonymous said...

"Real estate in blue states ran up because everyone was trying to get out of the red states full of idiots that voted for Bush twice."

Please take your simplistic political babbaling elsewhere. People are leaving California in Droves for places like Texas because the cost of a crap house in L.A. is unbearable. California's population is actually falling if you remove the illegals, who are ruining middle-class neighborhoods and are sh*tting on our crops (can you say "ecoli").

BTW -- I don't like Bush either, but he never would have been elected had the Democrats not nominated a moron like Al Gore!

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