Housing Market Dead. Next: Equities Markets

[Michael Fisher]

Several news stories today show that the housing market actually started dying in many areas about 12 months ago, beginning with luxury home builders. A prominent Merrill Lynch analyst believes the stock market's drop will lag the housing market's drop by approximately 12 months, if history continues to repeat itself. New luxury home orders are down 48% in the last 12 months. The rest of the housing market should follow suit if the theories are correct.

We may be looking at a perfect storm due to various factors:
-Lax lending standards.
-Loans artificially guaranteed by the government.
-An economy now almost completely dependent upon consumption.
-Too much regulation in general, too many lawsuits, and overregulation of public equities markets have made IPOs in the US undesirable, and many public companies are now going private in order to minimize regulations such as Sarbanes-Oxley.
-A generation of dependent, financially irresponsible spenders who not only save none of their income, but actually spend more than they make.
-Growth of new economic powerhouses such as Brazil, India, China, etc., coupled with the collapsing dollar and offshore IPOs, leading to increased offshore ownership of US assets (our assets built up by prior generations are the only factor preventing future national bankruptcy, pending some financial miracle).
-The threat of skyrocketing interest rates.
-Vast inflation that finally started showing up recently through rising prices and thinning margins in many US-based businesses, with more such announcements each day.
-The threat of $100+ oil, through which Iran can rapidly destroy our economy with a few simple changes to their export policies.
-A significant lack of investment opportunities in the US, leading investors to increasingly look overseas.
-Thousands of neo-Keynesian economists running our country who will love to promote more enormous government programs to solve our problems when the stock markets finally tank.
-Increasing trade protectionism from well-meaning but brain-dead neoconservatives.

It seems wealth built from prior generations is the only thing preventing an immediate collapse of our economy. I'm sure today's children will find a way eliminate that wealth soon.

[Kat Kanning]

    

Recession will be nasty and deep, economist says

Rex Nutting, MarketWatch | August 24 2006

The United States is headed for a recession that will be "much nastier, deeper and more protracted" than the 2001 recession, says Nouriel Roubini, president of Roubini Global Economics.

Writing on his blog on Wednesday, Roubini repeated his call that the U.S. would be in a recession in 2007, arguing that the collapse of housing will bring down the rest of the economy. Read more.

Roubini wrote after the National Association of Realtors reported Wednesday that sales of existing homes fell 4.1% in July, while inventories soared to a 13-year high and prices flattened out year-over-year.

"This is the biggest housing slump in the last four or five decades: every housing indictor is in free fall, including now housing prices," Roubini said. The decline in investment in the housing sector will exceed the drop in investment when the Nasdaq collapsed in 2000 and 2001, he said.

And the impact of the bursting of the bubble will affect every household in America, not just the few people who owned significant shares in technology companies during the dot-com boom, he said. Prices are falling even in the Midwest, which never experienced a bubble, "a scary signal" of how much pain the drop in household wealth could cause.

Roubini is a professor of economics at New York University and was a senior economist in the White House and the Treasury Department in the late 1990s.

His firm focuses largely on global macroeconomics.

While many economists share Roubini's concerns about the imbalances in the global economy and in the U.S. housing sector, he stands nearly alone in predicting a recession next year.

Fed watcher Tim Duy called Roubini the "the current archetypical Eeyore," responding to a comment Dallas Fed President Richard Fisher made last week in referring to economic pessimists as "Eeyores" (after Winnie the Pooh's grumpy friend).

"By itself this slump is enough to trigger a U.S. recession: its effects on real residential investment, wealth and consumption, and employment will be more severe than the tech bust that triggered the 2001 recession," Roubini said.

Housing has accounted, directly and indirectly, for about 30% of employment growth during this expansion, including employment in retail and in manufacturing producing consumer goods, he said.

In the past year, consumers spent about $200 billion of the money they pulled out of their home equity, he estimated. Already, sales of consumer durables such as cars and furniture have weakened.

"As the housing sector slumps, the job and income and wage losses in housing will percolate throughout the economy," Roubini said.

Consumers also face high energy prices, higher interest rates, stagnant wages, negative savings and high debt levels, he noted.

"This is the tipping point for the U.S. consumer and the effects will be ugly," he said. "Expect the great recession of 2007 to be much nastier, deeper and more protracted than the 2001 recession."

He also sees many of the same warning signs in other economies, including some in Europe.

[Michael Fisher]

It's nice to see some common sense economists once in a while!

Regarding what I said about assets being our only protection from complete economic collapse:

A large portion of national asset values are NOT objective values, but subjective values. With homes, most of the "asset value" is subjective, temporary, and artificially inflated by national, state, and local governments. In New England, many towns severely restrict development supposedly to prevent the influx of new families with school-age children, when in fact they're boosting their own property values (probably on purpose). Thus, most towns in New Hampshire are valued at over a billion dollars in total assets. This is highly distorted.

Also, if people lose confidence in the USA, who will want to buy land or own a home here? Many will leave the country, and asset prices will collapse. With no other foot left for our economy to stand on, that could result in another great depression.

The first great depression was caused by the US government. Why should we be surprised at the next one?

[CNHT]

There are currently 38 foreclosures and houses not selling in my town where the tax rate is going up $3.23/thousand thanks to the taj mahal school costing I think $68M <sigh>

[aries]

God we need another Regan

[Fluff and Stuff]

There are currently 38 foreclosures and houses not selling in my town where the tax rate is going up $3.23/thousand thanks to the taj mahal school costing I think $68M <sigh>

OMG, they are gonna build a high school in your town?  I thought that was defeated  ???

[Michael Fisher]

There are currently 38 foreclosures and houses not selling in my town where the tax rate is going up $3.23/thousand thanks to the taj mahal school costing I think $68M <sigh>

Many of today's American "Taj Mahal" exhorbitant schools seem to reflect communist China's schools. Here's a Chinese senior middle school:

[Michael Fisher]

God we need another Regan

No amount of Regans will fix this. We must go through this economic turmoil. There's nothing we can do to stop it.

On the bright side, "there haven't been any earthquakes lately."

[CNHT]

There are currently 38 foreclosures and houses not selling in my town where the tax rate is going up $3.23/thousand thanks to the taj mahal school costing I think $68M <sigh>

OMG, they are gonna build a high school in your town?  I thought that was defeated  ???

Sweetie, yes thanks to certain vigilant and good people, 3 times. But finally the spenders just wore them out...and drove a lot out of good people out of town with certain behavior which I will not get into here.

[CNHT]

Many of today's American "Taj Mahal" exhorbitant schools seem to reflect communist China's schools. Here's a Chinese senior middle school:
 

Well in NH this is what happens so quickly if you don't attend Town Meeting and get involved and actually  VOTE...   

[Lloyd Danforth]

There are currently 38 foreclosures and houses not selling in my town where the tax rate is going up $3.23/thousand thanks to the taj mahal school costing I think $68M <sigh>

Many of today's American "Taj Mahal" exhorbitant schools seem to reflect communist China's schools. Here's a Chinese senior middle school:

Looks like a hotel, a nice hotel.

[Michael Fisher]

Many of today's American "Taj Mahal" exhorbitant schools seem to reflect communist China's schools. Here's a Chinese senior middle school:
 

Well in NH this is what happens so quickly if you don't attend Town Meeting and get involved and actually  VOTE...   

[tracysaboe]

God we need another Regan

No amount of Regans will fix this. We must go through this economic turmoil. There's nothing we can do to stop it.

On the bright side, "there haven't been any earthquakes lately."

Abolishing SOx would help a lot though.

Tracy

[Transition Force]

Uh, didn't reagan begin the war on drugs?

I don't want another reagan. I want to buy my weed legally

[Pat McCotter]

Reagan didn't do anything for the economy. You have to remember that the IBM PC was introduced the year he was first elected president. That marked the beginning of "a PC on every desktop" and business has not been the same since.