Here’s an excerpt from today’s market commentary regarding prior one day high percentage sell offs:
Tuesday’s 400 plus point drop was a wake up call. Let’s
take a look at the most recent periods of major 3%+ sell offs, to see what the
markets did subsequently.
Note that single
variable comparisons are rarely valid; we prefer to control for multiple
factors rather than looking for just one single element as being determinative
of what the markets are likely to do in the future. Note also that these three
periods were part of the secular Bull Market of 1982-2000, and also reflect the
final bubble expansion of the NASDAQ. However, we thought readers might find
these studies of 1997, 1998 and 2000 as somewhat instructive:
1997 Market (Thai Baht / Asian Contagion)
1998 Market (LTCM)
2000 Market (Tech and Telecom Peak)
I strongly suggest checking out Tickersense’s post on 3% corrections…fascinating!
Barry:
Have you seen David Lereah’s interview with Fortune? It is…..interesting….worthy of its own post, for sure:
http://money.cnn.com/2007/03/01/magazines/fortune/nar.fortune/
Q: But many think we still have a long way to go.
A: If you look at local areas, that statement is true. California has a long way to go. I expect them to continue to experience pain all throughout this year. Southern Florida, same thing. Las Vegas is probably going to take a little longer to correct as well.
A quarter of the country is still feeling pain, and I can’t guarantee that it’s going to be over by the end of 2007 for some of those areas.
Q: So they could decline into 2008 or longer?
A: They could. It’s hard to tell right now. The real key for some of these areas that are having problems is prices. Prices need to come down to bring buyers back to the market. And until they do, they’re going to experience drops in sales. California is experiencing some serious drops in sales – 30 percent drops in some places.
So when we talk about real estate are you talking about local or national? If you¹re talking about national, I think we’ve bottomed out, and it looks like we’re going to come back very modestly throughout this year. And then in 2008, it will be back off to the races again in my opinion. But for a quarter of the country, that’s not the case.
Q: What do you predict for price appreciation for 2007?
A: My forecast is 1.4%
Q: What about the problems in the subprime market?
A: I was giving a speech in Atlanta about two years ago. During the question and answer period, someone asked me something about interest-only loans. I said, they’re kind of dangerous and you have to be careful. Someone rose their hand and said, Did you know that in Atlanta, the percentage of interest-only loans in 2005 was 40 percent of the market? Atlanta didn’t even have a boom.
That’s when I knew we were in trouble. Regulators and the big lenders need to get together and work out some arrangements to accelerate refinancings. They need to take people out of these crazy loans and get them into longer term loans that work for them over the next 10 or 15 years.
Q: Will problems with subprime have any effect on your sales numbers?
A: I think in some areas yes. Foreclosures are going to happen in California.
You may see a rise in Las Vegas or Phoenix or Washington DC and parts of Florida, but it’s not all over the country. The big problem right now is borrowers with a loan balance that may be greater than the value of their home. They have no incentive to make the mortgage payment. They’ll say, I don’t need it, take it. That’s going to occur in some of the real unaffordable areas, like San Diego and San Jose.
Q: What surprised you about the boom?
A: The share of second home buying. It was 40 percent of the market in 2005. I was in shock. When you have a lot of second home buying, that’s volatile, whereas when people buy a primary residence, they’re buying it to live in.
I never anticipated that type of market share in second home buying. That proved to be the end of the boom.
—
Somehow I missed DL warning us about those subprimes and 2d homes…
David Lereah = burn in hell
James Kramer = burn in hell
Larry Kuldow = burn in hell
Dick Cheney = burn in hell
burn in hell = the predicament Joe and Jane six pack face over the net decade…
Reports out of New York City indicate that the real estate market there is “hot”. Other news reports indicate that some banks nationwide are “bailing out” homeowners in distress with new mortgages AT NO COST FOR THE REFINANCING. I’m wondering if we going to see subprime become the new prime to alleviate the real estate glut since banks are reluctant to foreclose and seem to be in no hurry to take a loss. And we all know that Fannie and Freddie are still buying subprime loans, I think at a 25% of loans rate.
Other news reports indicate that some banks nationwide are “bailing out” homeowners in distress with new mortgages AT NO COST FOR THE REFINANCING.
Who is doing that?
Boy, ‘Ol Kudlow sure was hot under the collar this evening with Alan Greenspans’ comments about a ‘possible’ recession while speaking Monday in Hong Kong. “When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign,” For example in the U.S., profit margins … have begun to stabilize, which is an early sign we are in the later stages of a cycle.”
Kudlow seems to think Greenspan is undercutting Bernanke — comparing Jimmy Carter to Bush 43. I just don’t see it that way. I think Greenie see’s the incoming data (once you get past some of the Rosy numbers from the Commerce and BLS departments) much as it has been presented here on this Blog– A Big slump in the Housing Market, subprime market problem spill-over into equities, tighter lending standards, lower consumer spending, reduced capital spending by big business, Inflation continuing to be a problem due to Higher energy and commodity prices, trade and budget defits amidst a falling dollar. The Global equity Markets are way overdue for a sizable correction.
But Kudlow blasts the Man. Was Larry busting on him when Greenspan cut rates to decade lows during the 2000-2002 bear market (while Inflation was arguably less of a problem then it is now…)
And did I hear Steve (Mr. Smiley) Forbes right that the excess in global money supply was what is primarily responsible for the commodity bull market??
I’m curious to see just how far this market corrects… I’m betting on something more than just a 10-15% percent correction (although I’m sure if we hit those levels it will produce a “prophesized”, feel good, Oh THANK GOD it’s all over, sizable bounce). If we get some hard and fast down days (like we’ve just had) i expect it would be more than just an Aramanth blowing up — what with the leveraged positions as they are in the credit markets, (some Hedge Fund(s) that have a lot of exposure in the U.S. Mortage Markets, especially if the subprime markets continue to have problems….
Barry, something’s going wrong here. the charts are so small no one can glean any information from them and then you two guys posting comments about real estate . . . who goofed?
Warren Buffet in his letter today: “How that will play out in markets is impossible to predict – but to expect a “soft landing” seems like wishful thinking.”
David Diarrhea said:
I was giving a speech in Atlanta about two years ago. During the question and answer period, someone asked me something about interest-only loans. I said, they’re kind of dangerous and you have to be careful. Someone rose their hand and said, Did you know that in Atlanta, the percentage of interest-only loans in 2005 was 40 percent of the market? Atlanta didn’t even have a boom.
That’s when I knew we were in trouble.
Then he says:
I think in some areas yes. Foreclosures are going to happen in California…That’s going to occur in some of the real unaffordable areas, like San Diego and San Jose.
???
There should be a Bitch-Slap David Learah line. He’s so oblivious to anything that he probably wouldn’t even know what was going on before we all got a few good swipes in.
This man should be taken for what he is…a used car salesman (see link).
As for Kudlow, I was thinking the same thing. You know the market is on shaky ground when you get all worked up over something as trivial as what Greenspan said. I am no fan of Greenspan, but Kudlow twisted his word so much to fit his argument it was absurd…..and Kudlows reference to a bottoming on manufacturing after a one month slight uptick was hilarious coming from a guy who thinks we are a services economy and manufacturing doesn’t matter anyway.
http://www.youtube.com/watch?v=lPnA1cnewLA&mode=related&search=
I have no idea what he is trying to prove with those charts. Thai baht Asian contagion? I read charts all day and not impressed at all.
Maybe its some new age ink blots. Project your beliefs onto something abstract.
Whipping out charts and saying see look what happened in ….. is useless. Go back and step thru the charts slowly. Day by day or candle by candle and try to make trading decisions. If your waiting for the big fall you will lose all your money before it comes. Equity markets spend very little time actually going down. They mostly go sideways 50% of the time and trend upwards 35% and only spend around 15% going down. Its a hard way to make money trying to find those 15% periods.
Wow, that Lereah is unbelievable.
I guess things must be getting serious if he’s starting to cover his ass.
recommended addition to blogroll:
http://alephblog.com/
I am a premium subscriber, and the charts make a lot more sense with the accompanying text and explanations in the PDF version. I have also complained as a paying subscriber when Barry gives away what I pay for . . .
When the warehouse is full, everyone eats even while the current crop fails.
When the warehouse is empty, crop failures are much more significant.
Kudlow has been the biggest cheerleader as the seed corn has been eaten over the past six years. The problem is that we no longer have the slack to expand debt, give away jobs to ChinaMart, or make work through a real estate bubble.
There are no more miracle cures. Pick your poison. Stagflation followed by a downturn or just the downturn. Option 1 has allready been played for the last 10 months and may have limited play time left.
Now that all the cops on the beat are finally getting religion (Greenspan, SEC) it’s time for the bubbles to collapse.
Kudlow seems to think Greenspan is undercutting Bernanke
The only thing I want to know is would Greenspanic have said what he said were he still sittin’ on the throne?
If he wouldn’t have, and I strongly suspect he wouldn’t have, then it is highly unethical for him to say what he said when he did when everyone knows his mouth still carries weight.
If I didn’t know better I’d say he’s not to happy that the market has moved on and they don’t ‘need’ him any more. Could he start talking in a way that people begin to run to him for ‘advice’ again thus usurping Bernanke’s role? I wouldn’t put it past him. His ego is huge
“I have also complained as a paying subscriber when Barry gives away what I pay for…”
Andy, these giveaways have led me to seriously contemplate becoming a subscriber. Barry’s advertising methods may appear to dilute the product’s value, but the growing subscriber base likely keeps your costs lower than they would be otherwise. Are you really that miffed?