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A Bear? On Bulls & Bears?

Monday, December 18, 2006

Finally, a bear showed up on Bulls & Bears, the adorable business news show on the Fox network hosted by the effervescent Brenda Buttner. He was not given a warm welcome.

Despite the name of the program that would seem to welcome and encourage alternative view points, like other fare on this network and on CNBC, the fast-paced infotainment style program is often times a poor excuse for business news and opinion.

It's hard to imagine that the Fox network has planned an entire channel devoted to business news, given their experience to date with the quartet of weekend shows collectively dubbed The Cost of Freedom.

Despite its shortcomings, this program and others like it do provide a window into contemporary mainstream thinking that clearly leaves little room for anything other than bullish views (there are a few exceptions on the other Fox business shows, Bulls & Bears seems to be the most bullish of the lot).

Naturally, this begs the question of why they bothered to invite someone with an alternative viewpoint onto the program at all.

It started out innocently enough with this teaser at the beginning of last weekend's program, designed to entice viewers to stick around for the full thirty-minute show.

Predictions the housing market could be back on solid ground next year? Not a chance. That's the word from someone here who says you can't ignore the one thing that will destroy home prices.
About fifteen minutes later...
Buttner: Joining us now is Peter Schiff, president of EuroPacific Capitol. You know there's lots of optimism about the housing market in 2007, many experts have called the bottom, but Peter, you think that interest rates going higher in '07 means what to home prices?

Peter Schiff: Well, anyone calling the bottom in the housing market, including Alan Greenspan, is just wishful thinking. Interest rates are one of the problems for the housing market and they're going a lot higher.

See, the problem is, interest rates, like all prices are determined by supply and demand. In America, we've got lots of demand - everybody is borrowing money. The problem is that nobody is saving it. So our domestic pool of savings is very shallow. Now we've been able to borrow a lot of money from abroad, they save a lot, particularly in Asia.

Buttner: OK, so interest rates are going up and so you think that's going to kill the housing market. But, Charles, interest rates are going down - mortgages are ... you can get a good rate on mortgages now.

Charles Payne: Yeah, interest rates have gone down. I've got to tell you, we saw the CPI number this week on inflation. You know the economy is stronger than everyone thought it would be. The U.S. economy is not going to go off the cliff. The Fed might be able to slow the housing market down, but I think home prices are going to be up big time next year. So, I disagree 100 percent.

Schiff: The U.S. economy is not strong. All we're doing is borrowing money from abroad.

[The entire panel shouts their disagreement]

Buttner: Hold on. We're not going to get into that now. Alright. What do you think about this link between interest rates and housing Gary B.

Gary B. Smith: I tell you what Brenda, I don't think that there is a link between rates and housing. It depends on what you're talking about - new home sales, existing home sales. I'm talking about median home prices - it's like a freight train. They just keep going up - they went up in the 70s, they went up in the 80s. The only think that derails the housing market is high unemployment. We don't have that right now.

Schiff: We don't have it yet.

Gary B: As far as what Peter's talking about, we have heard that people aren't saving and yet, as we discussed in the first segment, household net worth is at an all-time high. So I don't know where that's coming from.

Schiff: Gary, that net worth is from all these phony inflated housing prices. Once housing prices start to come back down, the net worth is gone, but the mortgages are still there.

Buttner: Tobin.

Tobin Smith: You know, Peter, this is really good for selling newsletters and I happen to be in the newsletter business. We should talk after the show. But this is bunk for two reasons.

Number one, as you said, "Geez, the American country doesn't save enough money". Well, 1980s, 1990s, 1970s - anytime - we are a country that imports excess capital because other countries are bad users of capital. We're the best users of capital, that's why ...

Schiff: We're not using capital, we're destroying it.

[The entire panel shouts their disagreement]

Buttner: Hold on.

Smith: Peter, Peter, just start selling the [inaudible - sounded like "dry suits"??].

Scott Bleier: Of course there's a link between interest rates and housing, but if rates go up, it could slow housing, it won't kill it. Housing is bumping along the bottom. It is bottoming - that's the key. But interest rates are remarkably low historically and remarkably stable and my guess is that they will be for the next several years.

Schiff: You guys sound like the people calling for the bottom in the Nasdaq when it was at 4,000.

Smith: Hey Peter, you want to come back on this show?

[The entire panel laughs]

Buttner: No, we appreciate having another point of view and Pat I want to ask you yours.

Pat Dorsey: As painful as it is to agree with Scott, he does bring up a good point that rates are low in absolute level and it's the absolute level of rates that determine affordability more than anything else.

So, absent a massive spike in mortgage rates, I don't think that's what's going to affect the housing market, but the larger issue is the inventory overhang. Too many houses got built because builders were assuming that demand would go up at too high a rate - that's what's holding things down.

Schiff: Not only that - a big factor is going to be the re-emergence of lending standards that have been completely absent for the last few years.

Dorsey: That is true.

Buttner: OK, alright. Thank you so much. And we all have something to worry about if Tobin is determining who's on this show from now on. Thanks guys.
This exchange covered the entire gamut - savings glut, dark matter, and much more. Peter Schiff had sharp replies to many of the counterpoints, but was anyone really listening?

As for the Nasdaq 4,000 comparison, who knows were home prices are going to head from here. But, it does feel a lot like that nine-month period after the early 2000 Nasdaq high.

People had been conditioned for some time to expect prices to continue going up and the "piling on" effect was self-reinforcing. Once there was an appreciable decline from the top - in the case of the Nasdaq about 30 percent from the peak to where it began to bounce back, then the psychology had forever changed, but many months went by before the downward trend resumed in the fall.

In the U.K., home prices headed back up after their Nasdaq 4,000 moment last year, so you never know what to expect here. Given the excesses in our mortgage lending industry here, a bounce back up may be more difficult to accomplish in the U.S. housing market.

We will see.

14 comments:

Anonymous said...

Tim,

I know you like Jim Rogers on Cavuto, but except for maybe Jonathan Hoenig on Cashin' In, those other shows are just loopy (and way too political for business shows).

Please tell me that you don't spend two hours every weekend watching these.

Ron S.
(long time reader)

Ivan said...

I like it. Whenever someone says something about the economy that makes perfect sense, everyone else is all, "Aww, don't be such a downer!" Clearly, our bottomless pit of enthusiasm will prevent recession.

Also, I liked this one: "median home prices - it's like a freight train." By that analogy, I guess when it finally stops, you're really screwed.

Tim said...

Ron,

When I watch these shows (about once every two or three weeks), I watch them in fast forward on a Tivo, so I can see who's on and read the discussion topic at the bottom of the screen. Unless there's something good on, the whole process takes about ten minutes.

Aaron Krowne said...

What a great transcript -- Peter Schiff will be a new addition to my "sane people" list. "We don't use capital, we destroy it" has to be quote of the month, if not year or decade.

People had been conditioned for some time to expect prices to continue going up and the "piling on" effect was self-reinforcing. Once there was an appreciable decline from the top - in the case of the Nasdaq about 30 percent from the peak to where it began to bounce back, then the psychology had forever changed, but many months went by before the downward trend resumed in the fall.

That's the key, right there. And just think about how many more hedge funds there are, and how much more investment banks run mostly on trading, and how much more leverage there is in play now. Much more than five years ago; this makes the "pile-on" effect much much bigger.

I wish I could call when it ends; but I can't, so I must be content with less-than-perfect gains from getting the long-term fundamentals right.

Meanwhile, more M&A, which is like blood in a pool of sharks, even while the other big news is the record size of the trade deficit.

Anonymous said...

Well, it seems to be true. I just saw the video:

http://www.europac.net/video.asp

Anonymous said...

This show will have plenty of bears on them if the political party in the white house ever changes. Then they will be happy to talk about the negative news.

ECONOMISTA NON GRATA said...

It's kinda like being an atheist at an evangelical meeting. However, you have to understand who these people are preaching to. No offence to anyone but I get better financial advice from Championship Wrestling.

TJ & The Bear said...

AK,

They post Schiff's stuff -- always good reading -- at "safehaven.com".

Anonymous said...

A freind of mine who works at TGIFridays corporate told me that they have seen a slow down of 10% since last year - they are blaming the slow down on ARM resets.

Just an FYI

Anonymous said...

Uranium spot +$7 to $72 for the week. The feeding frenzy has started.

Anonymous said...

What a depressingly bad video. I think the takeaway here is that the television "discussion" format Fox news was using there simply does not work for a discussion of complex economic trends. It seemed like I was watching the halftime highlights show in the middle of a football game.

fish said...

Schiff: We're not using capital, we're destroying it.

[The entire panel shouts their disagreement]

Buttner: Hold on.

Smith: Peter, Peter, just start selling the [inaudible - sounded like "dry suits"??].


I'm pretty sure Smith said the following: Smith: Peter, Peter, just start selling the dried food!

As in freeze dried foods! You know the foods all we goldbugs have...reportedly....stashed with our AK-47's and copies of the "Turner Diaries"!

I like Schiff because he never lets himself be steered to the dominant position of the group....and he is frequently set against a panel of 4 or 5 empty suits that hold spout the "conventional wisdom!

john_law_the_II said...

[inaudible - sounded like "dry suits"??].

it was dry goods, something about selling dry goods, meaning you're a survivalist if you aren't bullish.

Anonymous said...

Thanks for documenting that. I’m getting used to the TV crowd cajoling the serfs to borrow and buy and never, ever -- not once think about selling stocks. But I couldn’t help but feel that I was watching one of those watershed moments that are only recognized as such in hindsight.

Hope that piece shows up on YouTube some day .

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