The Mess That Greenspan Made: 2008-08-17

Take a hike!

Monday, August 18, 2008

We will soon begin a 3,000 mile round trip journey to the Great White North to once again visit wonderful Banff and Jasper National Parks, doing our part to help support faltering energy prices.

While the laptop will be in tow, it will be used only sparingly - don't look for anything new here until the first week of September, by which time, who knows where the price of oil will be or how the financial world will look.

The image to the right is from the Lake O'Hara area in Yoho National Park (just west of Banff) and we may make a trip over there this time. We took quite a few day-hikes the last two times we visited in 2003 and 2006, but there are many, many more to go.

We'll get about $1.06 when we exchange our greenbacks on this trip - in 2003 it was about $1.34 and two years ago it was about $1.20. We were waiting until the dollar made a strong move back up before we returned in order to avoid the embarrassment that might result after we crossed the border and made a bee-line to the nearest bank.

Gas should be below four dollars as soon as we get out of California and it looks like it's only about $1.30 in British Columbia. Oops - that must be in litres. Over five dollars? Really? That's right, it was about four dollars a gallon a couple years ago and that seemed quite high at the time.

Here's the route (just as we prefer loop trails, we also like loop travel routes):
IMAGE NAME It should be an interesting trip and an even more interesting last four months of the year.

SoCal real estate - sales up, prices down ... way down

Earlier this morning, DataQuick reported on Southern California real estate sales activity for the month of July.

Sales were up 17 percent from a year ago, largely a result of foreclosures and short sales, but they came in 23 percent below the average July sales volume going all the way back to 1988.

More importantly, prices were down ... way down.

With the exception of Ventura County (our old stomping ground), where the median home price was flat at $420,000 (which still sounds like a lot of money for an average house), prices tumbled in every other area, the once-hot Inland Empire counties of San Berardino and Riverside now in a heated battle to see which will first claim the title of a 40 percent decline from the peak.

Riverside came within a whisker last month and, given its momemtum as shown below in light blue, it will be tough for San Berdu to make up that ground.
IMAGE NAME Los Angeles County holds the title of "least worst" decline with a year-over-year drop in median price of 27 percent, or, if you're keeping track, about a $150,000 haircut from the mid-2007 price.

That could be part of the reason lenders are yanking home equity lines of credit today as quickly as they were extending them a few years back.

Surely there are realtors out there who are telling their clients that sales have picked up and that they "gotta buy now" before prices go back up.

And surely, some will buy as a result.
IMAGE NAME For about the millionth time, an increase in sales volume is only an indication that a housing bottom has been reached if you sell real estate for a living. This means that you might earn a commission check or two this year. If you're a buyer, concerned more about sales price, your bottom probably won't come for a couple more years.

Since Marshall "almost all ~~if not all~~ of those gains are here to stay" Prentice has now retired, new DataQuick President John Walsh gets the DataQuick commentary duty:

What we're looking at is a fire sale of properties in newer affordable neighborhoods that were bought or refinanced near the price peak with lousy mortgages. What we're still not seeing is this level of distress spreading to more expensive or established neighborhoods.

So far, so good for the new guy. Just stick to the facts.

Prices have reverted to the 2003 or 2004 level, depending on the county, but there's still more work to do.

I don't know where it was, but, some dope in some newspaper the other day said that the ratio of home price-to-median family income had come down from somewhere around 13 to under 10 in some part of the country and that real estate was becoming affordable again.

He failed to mention that the historical average for this ratio is somewhere around 3.

You'll know when home prices hit a bottom - people won't be talking about them anymore.

The "decoupling" debate continues ... in some circles

Outside of the hedge fund community, where the votes seem to have already been cast over the last five weeks leading to broad-based declines in commodity prices, the China "decoupling" debate continues in some circles, the latest bit of data coming from this story in the current issue of The Economist with the telling graphic below.
IMAGE NAME That's not what was supposed to happen was it?

Absent growing demand from the West, particularly from the most important customer on the planet half way around the world, the great Chinese juggernaut was supposed to shrivel up and die.

Wasn't it?

Not yet, apparently.

For the first time in years, China’s exports are growing more slowly than America’s. In the 12 months to June (the latest month available for both countries), America’s exports grew by 23%, well ahead of China’s 17% (in dollar terms). Export volumes show a similar trend. China’s rose by 11% in the year to the second quarter, while America’s climbed by 12% (see left-hand chart). Stephen Green, an economist at Standard Chartered, expects China’s real export growth to fall to zero by the end of this year and to turn negative next year.
...
Meanwhile, in China consumer spending is now growing faster than exports (see right-hand chart). Retail sales jumped by 23% in nominal terms in the year to July, and 16% in real terms. Dragonomics, a Beijing-based research firm, estimates that consumption contributed two-thirds of China’s GDP growth in the first half of 2008, up from 44% in 2007.

Wow. Consumption was two-thirds of GDP growth in the first half of the year.

Since, as a percent of overall economic activity, consumption is still a small component (as compared to most western countries), if they keep that up, they'll slowly wean themselves from their reliance on exports and develop a robust economy with a solid underpinning of domestic consumption.

Where will that leave us?

If things turn around in the West, sometime in the years ahead, will we still be able to buy cheap imported goods from them?

A hundred-year event every few years

Caroline Baum at Bloomberg has penned another Greenspan tribute column today wondering why, with the The Maestro's hand on the tiller, the U.S. financial system seemed to have a hundred-year event every few years or so.

And lookee who managed to get a few words in when the subject turned to last week's housing market bottom forecast.

No Limit to Greenspan's Once-In-A-Century Events
Alan Greenspan has presided over more hundred-year events in the last 20 years than the rest of us do in a lifetime.
...
The burst tech-stock bubble exposed a rash of corporate malfeasance and accounting scandals. An ``infectious greed seemed to grip much of our business community,'' producing a ``once-in- a-generation frenzy of speculation that is now over,'' Greenspan told Congress on July 16, 2002.
Even as he was declaring an end to that generational frenzy, another one was already unfolding. Millions of condo flippers were riding ultra-low interest rates to ultra-high profits, extracting equity from their homes in the process. Now many homeowners find themselves owing more than their house is worth.

Of course, Greenspan argued against the idea of a ``bubble in home prices for the nation as a whole,'' conceding only ``signs of froth in some local markets.'' At the time, home prices were rising at a 15 percent annual rate.
...
Last week, Greenspan showed up on the front page of the Wall Street Journal -- just like old times -- with a forecast for a bottom in housing.

``Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009,'' Greenspan told the Journal.

Lest he be too clear, the master of garblements qualified his forecast, saying ``prices could continue to drift lower through 2009 and beyond.''

``It's a flexible bottom,'' said Tim Iacono, who devotes a blog to ``The Mess That Greenspan Made.''

What doesn't seem to have dawned on Greenspan or those who interview him is the thread that connects all these disparate events: Greenspan himself.

As noted here the other day, the former Fed chief has mounted "a strong defense that continues to be effective on a disturbingly large percentage of the population".

That may be changing, but it's not changing fast enough.

Paul Kasriel's closing comment summarizes this still small, but growing view:

"I'm reminded of the song by Dan Hicks & the Hot Licks,'' Kasriel said. "How Can I Miss You If You Won't Go Away?''

Monday morning links

The other Dr. Doom

Sunday, August 17, 2008

The Wikipedia disambiguation page for Dr. Doom looks like it is in need of a little updating. While Marc Faber easily makes the grade, Peter Schiff is noticeably absent along with the subject of this excellent piece in today's New York Times Magazine that carries the descriptive URL - http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html. Who's Henry Kaufman anyway?

The NYT Magazine piece about Nouriel Roubini is must-read material for anyone who's been paying attention to the housing bubble over the last few years. There's lots of great biographical material (he speaks four languages) and at least one disturbing revelation (he likens himself to Alan Greenspan).

But, most of all there's that cool black-and-white photo that just oozes doom. In fact, it looks like Nouriel has just caught a glimpse of some alien space monster that is about to squash him like a bug.

Dr. Doom
On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

The audience seemed skeptical, even dismissive. As Roubini stepped down from the lectern after his talk, the moderator of the event quipped, “I think perhaps we will need a stiff drink after that.” People laughed — and not without reason. At the time, unemployment and inflation remained low, and the economy, while weak, was still growing, despite rising oil prices and a softening housing market. And then there was the espouser of doom himself: Roubini was known to be a perpetual pessimist, what economists call a “permabear.” When the economist Anirvan Banerji delivered his response to Roubini’s talk, he noted that Roubini’s predictions did not make use of mathematical models and dismissed his hunches as those of a career naysayer.

Yes, economists and their models...

When will the dismal set learn to set aside their precious models once in a while and apply what, in engineering, we used to call the "stink test"?

That is, when you'd look across the table and ask, "Does this make sense?"

This is the question economists should have asked each other when reports began emerging early in the decade of ordinary people waiting in lines to buy houses with no income, bad credit, and no money down.

Instead, economists tried to justify the abysmally low savings rate by arguing that it should factor in such things as home equity.

ooo

This week's cartoon from The Economist:

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Take a hike!

Monday, August 18, 2008

SoCal real estate - sales up, prices down ... way down

The "decoupling" debate continues ... in some circles

A hundred-year event every few years

Monday morning links

The other Dr. Doom

Sunday, August 17, 2008

Sunday morning links

Wikinvest Wire

Recent Posts

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FOLLOW

SEARCH

PREVIOUSLY

Labels

THINGS YOU SHOULD KNOW THE PRICE OF

STATISTICS AND STUFF

LINKS

Take a hike!

Monday, August 18, 2008

SoCal real estate - sales up, prices down ... way down

The "decoupling" debate continues ... in some circles

A hundred-year event every few years

Monday morning links

The other Dr. Doom

Sunday, August 17, 2008

Sunday morning links