June 29, 2007

I think even the REIC and homedebtor trolls now know they're f*cked. Everyone to the lifeboats!


I've sensed a change.

Probably like the Titanic when finally, the people realized the ship was going down, there was no more arguing the basic fact that the ship was going down, and then the mad frenzy to secure a place on a lifeboat commenced.

The time for arguing is over.

Now it's time for the mad dash to the lifeboats.

Cash will be king. It hath been foretold:

· The upswing usually starts with an opportunity - new markets, new technologies or some dramatic political change - and investors looking for good returns.

· It proceeds through the euphoria of rising prices, particularly of assets, while an expansion of credit inflates the bubble.

· In the manic phase, investors scramble to get out of money and into illiquid things such as stocks, commodities, real estate or tulip bulbs: 'a larger and larger group of people seeks to become rich without a real understanding of the processes involved'.

· Ultimately, the markets stop rising and people who have borrowed heavily find themselves overstretched. This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'.

· The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

39 comments:

keith said...

http://www.europac.net/#

Subprime Shoes Continue to Drop


All of the pundits and so called “experts” who did not see this coming still do not appreciate the magnitude of the mortgage disaster and how it will impact the housing market in general, the economy, the stock market, the dollar, interest rates, inflation, and the price of gold. They are content to believe government hype about the resilience of the American economy. On Tuesday, just as home building giant Lennar reported huge losses due to a weak pricing environment, the government told us that new home prices basically held firm to last years gains. Later in the week, similar losses blamed on falling home prices were reported by KB Homes. Just like with the CPI, this is yet another example of government numbers being in sharp contrast with reality and why they should always be taken with a grain of salt.

The curtain has yet to close, but if you listen closely you can hear the fat lady warming up in the wings. It has been one hell of a show, but there will be no encore. For those holding toxic mortgage paper there is nothing left to do but sue. However, even those who do not own this stuff are not in the clear. A much larger disaster looms for holders of U.S. dollar denominated assets in general. It will not be long before our foreign creditors realize that Uncle Sam is the biggest subprime borrower of them all and will similarly mark down the value of its debts as well.

Anonymous said...

There will be a panic. It's just a matter of time.

However, I disagree with Keith somewhat, in that I don't think it's possible to know when the bubble peak has really been reached. Bubbles have an evil, sneaky way of faking us out. It is possible that prices will actually rise for a short time before the big fall comes (a "bear trap").

But, yes, eventually, PANIC. That much is certain.

flipping is for dolphins said...

The lenders and homebuilders are taking it up the arse. Lenders are going bankrupt left and right. homebuilders are losing humdreds of millions of dollars. Only the government and REIC trolls are still claiming that home prices are appreciating. They still can't explain why foreclosures are up 90% and lenders are going bankrupt. You would think that people would be selling their homes for big profits if the prices were up. You would think that the builders would be building more houses and making more money since prices are still increasing. So what gives? Realtrolls?

Anonymous said...

Where do you think we really are in this? I guess it depends on location location location.

I mean here in Colorado Springs most people are still playing with the ice on deck.

I imagine in California and Phoenix they are to the part were the a$$ end of the boat is coming out of the water.

In Floriduh and Loss Vegas The ship has broken in half and the arse is coming back up again for the final fall.

While other areas still are just looking for the iceberg.

sequoia512

Anonymous said...

Median home prices in LA in the upper 25% quartile are down from $1M to $800k in 12 months.

Basically that means if you thought you were going to make a mint last year in LA by buying a $1M dump, doing an option ARM and paying the minimum of about $3500/month, you now are upside down about $250,000.

And we still got another 20%-30% to fall in the next 2-3 years.

Bet that person cant wait for his option ARM to adjust in 24 months when he owes $1.15M on the house, is looking at $9.5k per month in payments, can't sell it because its only worth $640k and can't refinance cause nobody would touch a loan that upside down.

A half mil disappears pretty quickly on the downside,don't it?

Anonymous said...

Damn!

It's about time you broke out the Titanic Keith!

Now, where's the (CDO) iceberg that will do all the damage????

BuyBonds said...

Yes, I think you're right.
Everybody seems to know that there is a problem with real estate.
The MSM is even talking about the Boom and Bust. I don't see any running to the exits yet. Not yet.

lilBush said...

NO! The boat will stay afloat long enuf to rescue to arrive! You can bet your life on it.....

BuyBonds said...

An addendum to my previous comments after reading Flipping is for dolphins:
The foreclosure rate is going up. It's rising... Fast.
But being up 90% from an all-time low is still nothing. Even a 300% rise wouldn't be that much. But I do agree that the trend is fast, and significant!

Frank@NeverColdCall.com said...

You're not kidding when you speak of dramatic political change. Especially after today when the American people called victory on the immigration shamnesty bill.

The dem congress came in and in six months they've proven to be more of a spectacle and embarassment than Bush himself and have actually managed to get a lower approval rating than him. Change is a-coming.

Too bad Ron Paul is so ass-backwards on national defense or he'd stand a real chance. Yes, Bush mismanaged Iraq, but an isolationist policy is a one-way ticket to monthly 9/11 attacks.

Anonymous said...

We'd be fighting terrorists in our backyard because we pissed in the terrorists' backyard.

Perhaps we should stay out of their backyard?

Anonymous said...

Yes Keith you are correct. Everyone is so fucked. The economy is in the shitter. Oh but wait, here is a story that says parking lots at the airport are full. Hmmm I wonder how that works when nobody has any money. And last weekend I was in that situation myself. Got to the airport, all the lots were full, I had to go park at the Hilton 15 minutes away. Almost missed my flight, which was of course sold out.

Seriously amigo, you need to get out in the real world sometimes.

http://www.ajc.com/metro/content/metro/atlanta/stories/2007/06/28/0628metairport.html

Guy Daley said...

Frank - you simpleton doofus

Too bad Ron Paul is so ass-backwards on national defense or he'd stand a real chance. Yes, Bush mismanaged Iraq, but an isolationist policy is a one-way ticket to monthly 9/11 attacks.

We are spending 100s of billions all over the globe (that we can't afford) and anybody can come in on student or any of a dozen other kind of visas or just walk over the border. You call that national defense?

Until the borders are secure and we aren't importing millions of unknowns every year, there is NO national defense. Why isn't that apparent to you?

I'll make it extra simple just for you. Until the borders are secure, what difference if we spent one trillion gallivanting around the globe making the world safe for democracy? Which means we are flushing money down the toilet. Thanks for advocating the waste and being so simpleminded.

SPECTRE of Deflation said...

Keith, latest figures show M1 [cash] contracting while M2 growing at 6% and M3 growing at 13%. Got cash is right!

This is following the 1929 script so well that I have to pinch myself. History may not repeat, but it damn well does rhyme.

The sheeple are about to learn the difference between liquidity/debt/credit and money stock. Anything that can be liquidated will be to raise cash.

SPECTRE of Deflation said...

From Bloomberg today:

"S&P, Moody's Hide Rising Risk on $200 Billion of Mortgage Bonds."

The fox is most definitely guarding the henhouse. When this blows up, not in doubt, we will witness pain not seen since the Great Depression.

PS - Doesn't "hiding" have the same connotation as 'Underhanded" or "unlawful" in a case like this?

Old gringo said...

Generally when panics come, there is a rush to cash. In this case, cash is the U.S. dollar for us here. Since when prices fall, money that represented the higher prices essentially disappears (i.e. is destroyed) the result should be deflation. The Fed made it easy for credit to be extended, but to me this appears different than "money printing" since the government hasn't resorted to massive deficit spending to support the housing bubble. We do have massive deficits, but we had those before to help fund Social Security and Medicare. Does anyone think that the end of the housing bubble will somehow result in the dollar losing a lot of it's purchasing power in the next few years? If so, Why?

SPECTRE of Deflation said...

From the Bloomberg article this AM. So S & P got rid of a rule in Febuary that would of killed lots of deals. Isn't that just special:

Abandoned Criteria

``We're talking about massive, massive downgrades here,'' Dubitsky, the No. 2 asset-backed real estate debt analyst in last year's Institutional Investor magazine poll of researchers, said in a telephone interview.

S&P abandoned seven-year-old criteria for determining a bond's protection against default in February.

Under the old guidelines, S&P said a bond's ``credit support'' must be twice the rolling 90-day average of the sum of value of mortgages delinquent by three months or in foreclosure plus real estate that has been seized by the lender.

Credit support for a bond is determined by looking at the number of lower-rated securities that would have to go bust before it suffered losses, the dollar amount of mortgages available to pay back the interest and the annualized interest the mortgages generate in excess of what needs to be paid to bondholders.

The measure was one of four tests used by S&P, said Chris Atkins, a spokesman for the company, a unit of New York-based McGraw-Hill Cos. A failure to meet the credit support standard wouldn't have automatically resulted in a downgrade, he said.

Anonymous said...

Keith,

You have stated this has been more or less, a global run-up in real estate. So, the dollar deflates, the US economy collapses, what happens to the rest of the global economies? It has been said if the US sneezes, the rest of the globe catches a cold, what are your thoughts on the subject. Jake

Mammoth said...

"While other areas still are just looking for the iceberg."
--------------
This sums it up for Seattle.

Meanwhile, in the outer 'burbs north of the city, as well as on the other side of Puget Sound, housing had REALLY slowed down.

From my observations it appears that most sellers are following the market down by making meaningless incremental cuts in their asking price.

The less clueless sellers will need to get out a machete and make a substantial price cut in order to move their properties.

-Mammoth

Anonymous said...

Yeah, last week another 5 townhomes in the development that I live went up for sale (Alexandria, Va). I think the smart ones are finally now heading for the exits while they still can.

vegas crash watcher said...

Flight to safety means the US$ strengthens, gold and silver go down to the usual $250-$400/$4-$8.
Real estate down at least 50% nationwide, 80% in coastal areas.

Anonymous said...

When the tide goes out, you start to see some Bear Stearns.

shakster said...

Amazing,Lennar,KB,Tool Bros,Beazer,and Pulte are taking huge losses month after month,and cleary blame it on pricing.But if the government,msm ,or banks said prices haven't budged well thats good enouph information to invest on right there.
Meanwhile ,well we know whats really going on.Anyone here buy a new home in the last 5 months?

Mark in San Diego said...

"Airport parking lots are full". . .so was the party room on the Titanic. . .and in 1929 (summer) people were partying on. . .actually even into early 1930, because Wall Street meltdown took 3 years to impact all of the county. . .we all know the housing meltdown is a slow-motion train wreck.

Anonymous said...

Oh Oh, There's not enough lifeboats!

borkafatty said...

I will say this and most likely get
slammed for it..(so be it) This goes a lot deeper than what we are seeing in the MSM IE: Sub prime problem...This is a Hedge, CDO, and Bond problem...the Subprime is a fraction of the problem...and yet look at todays Market watch...things are looking up...ya ok

edd said...

At some point, buying a home will
make sense, maybe this year if the
price, location, home, terms, fees,
and financing are right.

The bottom in the general market
won't be this year, but locally
or individually it might be low
enough in 2007.

Any advice on buying in a weak
market ?

harrahs said...

When a recession or depression hits, there will be inflation of necessities and deflation of luxury items. That means prices on food, energy and medical necessities will rise. Prices of homes will decrease because there is clearly a surplus, especially with second homes. People will have to buy food and gas before they pay the mortgage on their second home. Boats, luxury cars, consumer electronics and other gadgets will depreciate.

K.W. - Southern Ca. said...

This is exactly what is now happening within the beach cities - Huntington Beach, Belmont Shore to name just two over-priced areas with poorly built (often falling apart) houses.

Anonymous said...
Median home prices in LA in the upper 25% quartile are down from $1M to $800k in 12 months.

Basically that means if you thought you were going to make a mint last year in LA by buying a $1M dump, doing an option ARM and paying the minimum of about $3500/month, you now are upside down about $250,000.

And we still got another 20%-30% to fall in the next 2-3 years.

Bet that person cant wait for his option ARM to adjust in 24 months when he owes $1.15M on the house, is looking at $9.5k per month in payments, can't sell it because its only worth $640k and can't refinance cause nobody would touch a loan that upside down.

A half mil disappears pretty quickly on the downside,don't it?

SuddenlyKindOfCold said...


When the tide goes out, you start to see some Bear Stearns.


Laughing my Stearn off!!

Kenduffelsniffenspotzen said...

"Probably like the Titanic when finally, the people realized the ship was going down, there was no more arguing the basic fact that the ship was going down, and then the mad frenzy to secure a place on a lifeboat commenced."

What lifeboats? Everything is crape.

Anonymous said...

Too bad Ron Paul is so ass-backwards on national defense or he'd stand a real chance. Yes, Bush mismanaged Iraq, but an isolationist policy is a one-way ticket to monthly 9/11 attacks.

Wow, I think you're suffering from Kool-Aid poisioning. The reason we were attacked on 911 is because of our support of Israel. If we were isolationist we would not have been attacked. I'm not opposed to supporting Israel but your theory that being isolationist would lead to attacks is utter nonsense. The exact opposite is true.

Anonymous said...

We do have massive deficits, but we had those before to help fund Social Security and Medicare.

Um....excuse me but the taxes collected for social security and medicare are more then enough to support them now. The federal government takes the excess and spends it and writes IOU's to social security. The reason SS will be in so much trouble in the future is because the government can't possibly pay back all the money it took from the SS trust fund. When Bush took office there was a budget surpluss. An expensive war on top of tax cuts put us where we are now.

bitterLArenter said...

My friend bought a 70's condo in Huntington Beach a couple years ago for 370k, and boasted how it had gone up in value 25k just during escrow. Can't lose, right? I talked to him last night, and he's nervous because they're thinking about having a second kid and need a bigger space, but 6 similar condos are on the market for 399 and not selling. Of course he took out an 80/20 loan.

He's much less obnoxious than most 'proud owners', but if he knows the writing is on the wall, he's my canary in the coal mine.

vegas crash watcher said...

Re: Ron PauL
The US deserves all the attacks it gets for selling its soul to the Israelis (who are not Americans).
The fedgov taxes US workers and sends that money to Israel.

Colonell Angus said...

Anonymous said...
We'd be fighting terrorists in our backyard because we pissed in the terrorists' backyard.

Perhaps we should stay out of their backyard?

Spoken like a true terrorist. FBI track this person down now!

Anonymous said...

when will people get it through their thick skulls?

Ron Paul is NOT an isolationist. He is a non-interventionist.

In case you're really stupid, that means:
- make friends with your neighbor
- don't go next door with a gun and tell him how to run his life

cobra2411 said...

Yes, I smell fear... Only a faint whiff, but it's fear....

The best part will be when Hillary gets into office and kills the long term cap gains tax.

I believe that Hillary has a good change to be elected because all the crap that's going to blowup. The US has been on one hell of a bender and is about to perform the technicolor yawn. What better thing to do then put a woman in office and say "It's all her fault!" ???

The dumbass people will just fall in line...

The good thing is that if the dollar blows chunks too we'll become the next China. Because of FX it will be cheap as hell to have us make crap for the rest of the world.

Buy gold, sell for some strong currency (euro?) and invest in the emerging US manufacturing industry and make a ton of money... :) Buy houses at 20 cents on the dollar and rent them with huge cashflows and make a ton of money... Sell everything at the next bubble...

Yes there will be a next bubble... and another, and another... Gold's the next one for those keeping score. When the dollar falls people will rush in. Sell when they start explaining how this time is different... :)

cobra2411 said...

My take on the US $ loosing value is this... We are borrowing a ton of money to support ourselves. If that stops (foreign countries stop lending) then we have to print more money inflating it's supply. That lowers it's value.

Now the best part. We buy a ton of crap from over seas. As the dollar looses value everything gets more expensive.

Am I totally sold on this happening? No, but I still have a good amount of gold. About 5%. I also have some euro's in case gold isn't the way to go. Gold can be sold for euros so I don't think it's a real bad bet.