Following last week’s NYT coverage of the blogger debate on excessive negativity, I was amused when I saw this blog post from my pal Herb Greenberg:
"But to be taken to task for having rightfully proven that much of
America is perched too precariously on too big of a pile of debt — and
that this housing thing wasn’t and still isn’t totally “contained” — is
simply, well, wrong-headed.(I can still see Larry Kudlow rolling his eyes at me, on set at CNBC,
when I would mention, for the umpteenth time, the significance of the
looming mortgage mess — and that this mess would extend beyond subprime
to cut across all FICO scores; notice that neither Barry nor I have been on his show lately.)"
Now, I’m friendly with Larry, and would never want to embarrass him on the air — but Herb is not the first person to make this point. Indeed, several other people — including some from CNBC — have also noticed, and commented, on that coincidence.
During the past year, on air, several of Larry’s guests have told me:
– I was too real estate obsessed (2006);
– Sub-prime was contained; (2007)
– Real Estate didn’t matter; Its a small portion of the economy (2006/07)
– The economy is fine (really) (2008)
The last was also the title of a recent self-delusion in the oft-hallucinatory WSJ Op-Ed pages.
Cognitive dissonance can be a bitch . . .
>
Source:
Too Negative — Who, Me?
Herb Greenberg
Marketblog, 7:51:47 PM January 27th, 2008
http://blogs.marketwatch.com/greenberg/2008/01/too-negative-who-me/
>
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ADS BY GOOGLE
Its a good thing no one takes the WSJ Op-ed page seriously. ;)
Don Coxe this morning. Whole thing is really good, but at about the 8 minute into it off and on, he gets into the housing market, financials,..all the relevant topics. Highly recommended listening.
http://events.startcast.com/even…nts/199/B0003/ #
Who did Kudlow used to shill for?
(ED: Bear Stearns)
speaking of CNBC promoters: does anyone know when Cramer came out and publilcly told his followers to sell the Fantastic 4, or at least GOOG and AAPL? i know he now poo-poos them, but when was the Sell?
I don’t want to upset you too much, but housing will improve this year. It’s is bottoming now and buyers will be out looking for deals. Spring will bring large groups of buyers. I don’t know if you noticed, but interest rates were just lowered a lot.
Where I live, prices haven’t been hurt much, although time on the market is longer than usual.
And everything that comes with improved housing markets will rise with the tide.
Anyone who thinks housing will stay depressed forever is, charitably put, wrong. The up-cycle will be strong by year end and the industry will look normal in a year. Perpetual goldilocks is wrong, but geez, why would anyone think that people will stop buying houses forever?
It could be I’m just a newb, but there is no subtlety whatsover in Kudlow’s attempts to push a positive-outlook message, despite the statements of his guests.
A few months ago, he had a young guy on (can’t remember the name, unfortunately) and the guy kind of went bulldog a bit, overriding Kudlow with negative (though very reasoned) statements about the current state of affairs and the likely worsening to come. Kudlow got a bit… cornered-sounding, let’s say, and went fully ad-hominem; he must have used the phrase ‘too many lattes’ about five times in the next 120 seconds, essentially accusing the guy of being an effete doomsdayist who couldn’t hold his caffeine.
This level of cynical message control would normally be pretty worrisome in any media, but it occurs to me that since so much of the stock market is perception and trend, perhaps the guy lying through his teeth telling everyone that things are going great is actually having a positive effect on the market, and is thus to be commended.
Kind of an interesting inversion of morality. I’d love to hear your thoughts on this.
Mr. Kudlow is belligerent. Mr. Kudlow is intellectually dishonest. He oft reminds me of a close relative who also kicked a problem with John Barleycorn. Regrettably the worst of behaviors persist even after the drink is long past abandoned. There is an old saying, “There is nothing worse than a dry drunk” – a saying Mr. Kudlow oft brings to my mind. I’ll have to say a prayer for him.
Morgan Stanley is Crudlow’s former employer
yesterday’s rally??? the repo money had to be returned today…….you know that pile of cash that is forked over for your neighbor’s boat loan they get. New one announced today.
http://www.forbes.com/afxnewslimited/feeds/afx/2008/02/01/afx4603830.html
The last sentence is not a good sign going forward….
Fresh Piles of cash to do what they please…except lend it to anyone….LOL
Ciao
MS
BR said:
The last was also the title of a recent self-delusion in the oft-hallucinatory WSJ Op-Ed pages.
reply: No argument there. Those people are batshit crazy.
cinefoz, I know I’ve called you out plenty, but seriously, your analysis of why certain markets (stocks, RE) look attractive is critically flawed. Is the foundation of your argument for why real property will do well this year actually “because it’s been going down for too long”? Do you have any conception of valuation, or that you can calculate a PE ratio for real property? I strongly suggest that you read Professor Schiller. The PE ratio for residential real property is currently far higher than the histroical average. Real property could conceivably fall by 30% this year and only then be fairly valued based on historical norms.
cinefoz-
you crack me up…
There is this little problem of increasing housing inventory that you (and many other’s seem to totally ignore) Based on resets that is about to get MUCH LARGER.
But go ahead buy, buy,buy, as you said it yourself “it’s all good”
please someone else pick this apart I laughed too hard and pulled something
“I don’t know if you noticed, but interest rates were just lowered a lot.”
Ciao
MS
Adam,
No, I don’t waste my time on that crap.
Thanks for asking.
the same valuation argument is being used for the financials.
“they’ve already gone done X so they HAVE to go up”
Good luck with that….
Ciao
MS
michael schumacher:
Didn’t Cramer also work for Goldman Sachs at some point?
MS,
Normally I wouldn’t respond to you because you really don’t make any sense most of the time. But, really, 1 + 1 does NOT equal 3, although it appears your mind might think that it does. Read some books.
cinefoz (or his kind) in Summer 2000:
“I think the NASDAQ is a raging buy right now. I mean, look how far it has already fallen. These companies will be the leaders for years to come.”
cinefoz, you are going to get burned badly unless you study your history soon.
yes he did and makes no bones abut it
Why his consistent pumping of GS is so comical.
Holes appearing in the MSFT/YHOO deal already
DJN -Microsoft may need more time, money to close Yahoo deal 12:13pm
Ciao
MS
Kudow’s Faith based Economics
Did anyone notice Larry Kudlow’s spirited response to Mc Cain’s criticism of the mortgage lending? “People were lying about their incomes…” in Kudlow world no credit checks needed.
Eveything cinefoz posted at 12:02:59 PM is true.
Anybody in here wanna’ buy a house?
based on your flawed reasoning since there is absolutely NO analysis whatsoever it seems that you have the math problem.
Go take a look at REAL interest rates for actual home loans….you’ll see they have not dropped AT ALL, in some cases they have risen.
Don’t let facts get in the way of a good story….that seems to be your canned response
The irony of your statement is that I really do not have to respond since you contradict yourself so well at 12:19…..
Good Luck with losing money….you will following that folly of a strategy.
Ciao
MS
Marcus
You continue to amaze. So few words, so much observation…
At least there is no fear that Murdoch will turn the op ed page of the WSJ into a group of babbling conservative fools. They are already there.
cinefoz–if housingtakes off later in the year as you so deleriously suggest, won’t that reinflate the bubble? The results of that would make what we are going through now look like T ball as compared to the majors.
Barry,
I sense that you and Herb pulling out the “I told you so’s” and reiterating the record of the many slings and arrows directed your way as you made the clarion call is another sign of a bottom. They are starting to pile up and it may be time to start putting some of this cash to work.
~~~
BR: Well, Pat, you may be right – But you are a little late.
We called for a tradeable low 10 days ago — On CNBC (Morning Call appearance) and right here on the blog here (NYSE % of stocks > than 200 Week Moving Average)
CINEFOZ
guys like you are gonna make me rich
that goes double for you PAT
Whoever posted the Don Coxe link, it’s not working. Please repost
Oh and Vive! Luskin and Jerry Bowyer. Everything is great!
Cinefoz said:
>>Anyone who thinks housing will stay depressed forever is, charitably put, wrong.
You need to climb out of that vacuum you are living in, the lack of oxygen must be mind numbing. I don’t know where you live but in the worlds, get it “worlds” seventh largest economy CA the decent hasn’t even begun and we’re already at historic foreclosure rates. How bout taking a look at the OFHEO series graphs I’ll provide a link then explain my “unwarranted pessimism”.
http://www.housingbubblebust.com/OFHEO/Major/SoCal.html
Then elaborate on where the debt servicing funds for these new purchases are going to come from, in a severely over priced market. And to indicate that these are contained to bubble markets is absurd because these bubble markets are the major US Metropolitan Economies. Then try to explain how this could be confined to sub prime, oops I’m sorry prime, opps the entire financial system, opps not even there as this, might as well be counterfeit, worthless paper, is the basis for many retirement portfolios. Arrests need to happen the fraud is beyond the scope of rationalization and as long as people stay complacent the theft will continue.
http://globaleconomicanalysis.blogspot.com/2008/02/jobs-contract-as-2007-job-growth.html
http://globaleconomicanalysis.blogspot.com/2008/02/countrywide-and-chase-shut-off-cash.html
In the spirit of figuring out just what the hell Cinefoz is using to make such grandiose assessments here are a few points that sort of need to be addressed before we can even begin to see a light at the end of the house appreciation tunnel
Among things to ponder:
1. if you were not dead in the last several years you got a loan (see number 3,4,5,and 6)
2. New buyers need spotless credit (I think that is the biggest issue here)
3. Down Payment anyone?? of at least 20%?..well if not then here’s your PMI.effectively INCREASING your payment
4. overcome the psychology of buying a depreciating asset (i bet there a few banks that could help out with that strategy-LOL)
5. So rates are lowered….big deal… how is that supposed to generate enough qualified (the big catch) buyers to off-set the amount of properties available?
6. Inventory in INCREASING not decreasing….correct me if I am wrong but that is basic economics. More supply = less demand
Please Cinefoz Educate us all so that we have to discount the above FACTS and throw caution to the wind
Ciao
MS
BR, out of curiosity, are the regular guests on the various CNBC programs compensated for their appearances? I’m sure the Fast Money crew is paid, but was not sure about those on Kudlow, morning call, etc. If they are not compensated, what is the incentive for busy executives such as yourself to participate? It must be quite time consuming.
Of course LK will stop inviting you on his program. You go on, he plugs your name and blog, viewers he *already has* hear it and check TBP out but find a wall of well-deserved anti-LK comments from the peanut gallery. What’s his gain? (LK isn’t an idiot, he’s just a miserable TV hack fighting for his place among miserable TV hacks…that’s his job.)
Now let me don my tin foil hat and say that as this months ration of “default in – opt out” 401K money has bought the rally we are now free to resume the decent, the fasten seat beat sign has been turned off you are free to move about the cabin.
larry asked
cinefoz–if housingtakes off later in the year as you so deleriously suggest, won’t that reinflate the bubble?
reply: Where in Stupid did you grow up? Across the street from MS, I suppose.
FYI, Housing ‘picking up’ does not mean the same as a housing bubble. I was going to try to explain the middle ground. But if you don’t already understand the distinction, then why waste the electrons?
FYI, lowered interest rates INCREASE the demand for money. Increased demand for money increases the demand for things you use money to buy, such as houses, idiot.
Kudlow and his perma-bullish, Pollyanna buddies are very annoying. His incessant invocation of Goldilocks every time the market has an up day has become enough to make me want to barf. I tune him out every time he is on regular CNBC (I already know what his perspective will be so why listen to his overbearing propaganda?)
I only watch his show to get the views of guests like Joe Battapaglia, Gary Shilling, Doug Kass, the guy from England whose name I can’t recall (whom I think are smart and have been mostly right in recent months) and those other guests who are really trying to be objective about the economy rather than attempting to sway people with their predetermined subjective view.
Beside Kudlow himself, I find Don Luskin and Brian Wesbury the most irritating. They are so arrogantly certain about the correctness of their views and so quick to criticize others who disagree with them, that I wish someone like maybe Battapaglia would pop them in the mouth one time.
To those who think Kudlow’s propaganda is a benefit to the stock market and is to be commended, I say take a hit off the bong, drop a Prozac, open a bottle of Jack Daniels, put on those rose-colored shades, and pour a glass of that special Kool-aid – everything will look just fine.
Personally, I prefer reality. And remember, the stock market may be driven by perception in the short-term, but it is still a weighing machine in the long run. If someone is overweight, then no amount of happy talk is going to change what the weight scale says.
Mustn’t scare the little viewers who might realize something is fundamentally wrong with the way business in America works, Barry….
Real estate is nowhere near the bottom. In the residential market there aren’t any cash flow positive properties available. End of story.
Hey CINEFOZ
CHEW ON THIS: Since August 2007, the Fed has reduced rates from 5.25% to 3%. During that same time, bank mortgage loan rates have increased, rather than decreased. For example, a 1 year ARM should bear a rate roughly 1% more than the Fed rate. Today, interest on a 1 year ARM loan is 2.5% more than the Fed rate. The Fed is lending $30 billion every few weeks through its discount window at 3% to the banks. In turn, the banks are lending these Fed funds at 5.5% or more today, versus 5.4% 6 months ago.
Almost every question Larry asks is slanted. He must want a cabinet position in the next Republican administration. He has a lot of blindspots for an intelligent person.
I am living on a quiet street in northern NJ lined with nearly identical split level houses. The one across the street is on the market for 690K, the one two houses down is for sale at 630K, and the one further down the street is up for sale (has been for about 6 months) for 595K. I’ve looked at them all…the only difference is the psychology of the sellers.
This price decline is JUST STARTING.
P.S. Two years ago, my neighbors bought their equally similar house for 750K. Do you think they’re happy ;^)
let cinefoz be romanced by his own words. It seems he is the only one who see’s it that way.
If I had a home for sale I would be finding out where he lives so I could make sure he gets one before the “big run up”
Comedic Gold
Ciao
MS
SWF,
You lived next door to larry?
Do you just make that shit up?
Since this is about talking heads, I think it fair to mention that all of this happy talk is eerily reminiscent of the justifications and rationalizations the selfsame talking heads gave about a certain massive international commitment we made in 2003. Think about it–no matter what happened, everything was always justified, everything was going swimmingly, the next six months would be “crucial” and then we’d turn the corner, we’d see the light at the end of the tunnel. Now we’re at a point where the talking heads are saying that our commitment there should be determined by the state of domestic politics of another nation. But not by the domestic politics of our own.
Think about it. Matt Lauer actually asked Jim Cramer if by talking the economy down, it makes the economy down, as if it were possible to make perception of the market into reality as it is to frame presidential candidates into the self-fulfilling “narrative” that defines the media’s relationship with their campaigns, and thereby determines the elections. But the state of the economy that underlies who purchases how much of what, and whether they’re able to afford it anymore, simply can’t be talked away or ignored by Larry Kudlow or the WSJ editorial board. The money’s gone, poof.
And though I usually love contrarian opinions, Cinefoz’s assertion that RE will come back in 2008 just doesn’t seem to make any sense. Who will underwrite mortgage lending? With what money? Does it make any business sense to do that if they can’t bundle it up any more? What will it take to insure those mortgages? Again, with what money? There are real questions about whether the nation’s largest financial institutions have enough reserves to even stay afloat in the next few months. Are there enough Europeans and Asians willing to take a gamble on US real estate securities?
As long as the rates continue to go down, and take the dollar with them, it doesn’t make sense to invest anywhere here unless and until rates stop falling and the market finds and annihilates securities and institutions with too much crap on their books.
SWF stole my thunder…mortgage rates have been increasing.
Moreover, at this point, WGAS about what the rates are, because the lenders have tighten their standards to the point that you need stellar credit to squeeze any money out of them.
Some kinda important news that is being overlooked:
Countrywide Financial Corp. (CFC) sent letters to 122,000 customers last week telling them they could no longer borrow against their credit lines because the total debt on the home exceeded the market value of the property. The lender says it is using computer modeling to determine which of its customers would have their cash spigot shut off.
Among the lenders tightening as the Fed loosens, Chase Home Lending (JPM), which has been slowly raising credit standards since last summer, will start imposing new guidelines Monday that further restrict who will be granted a home equity line, the company said. This week, California homeowners can tap as much as 90% of the equity in their homes. Starting Monday, however, Chase won’t let homeowners in certain parts of the state — including Los Angeles, Orange and Imperial counties — borrow more than 70% of the value of their homes.
Fannie Mae (FNM), the giant government-sponsored mortgage investor, this month told lenders that sell it mortgages that they couldn’t loan as much money to homeowners in areas that have had significant price declines, including much of Southern California. The company reduced its maximum “loan to value” ratio in those areas by five percentage points.
One result of Fannie Mae’s change: On a highly promoted Bank of America loan that charges no upfront fees to borrowers, the maximum loan amount is now 90% of a home’s value, down from 95%, bank spokesman Terry Francisco said. And on a program that gives mortgages to firefighters and police, the limit has been reduced to 95% from 100%.
To get a 5.25% mortgage, you need to put up 1.25-1.5 points, unlike last year when that rate was free.
Not to mention the plethora of resets coming in the next couple of years….
These philosophical quotes (all from Michel de Montaigne) are all quite applicable to the theme of Barry’s post as well as the comments that follow it (choose your own application):
“The beautiful souls are they that are universal, open, and ready for all things.”
“Stubborn and ardent clinging to one’s opinion is the best proof of stupidity.”
“There is no conversation more boring than the one where everybody agrees.”
“It is good to rub and polish our brain against that of others.”
“He who establishes his argument by noise and command shows that his reason is weak.”
http://events.startcast.com/events/199/B0003/#
RE: the broken Don Coxe link…should work now.
Also, don’t let the increase in mortgage apps fool you. Here are some posts from a mortgage broker forum:
—-
I have a client I am trying to refinance who bought their primary home in NC in March of 2007 (they used a mortgage broker who went left the business in September). They did a 100% loan with a rate of 6.50% on a 3 year arm and were told they could refinance down the road because their PMI would be high initially because of their credit. HIGH, I have in front of me their ‘payment letter’. When looking at the ‘Detail of Monthly Payment’ their P&I payment is $1,106.12 and their PMI monthly payment is $441.88!!!!! I had to pull out my old PMI tables (based on an A-Minus/ Expanded Criteria mortgage with credit scores between 575-599 as of January 2007) and they have a PMI premium based on 35% coverage of about 3.02.
Unbelieveable, can you imagine being stuck in that situation. Well, guess what, they could barely afford it then and now they may not be able to. You see their first mortgage was with Heartwell Mortgage Corporation and now it is with WestStar. Well WestStar has called them up saying their payments are going up because Heartwell did not collect enough escrows last year.
Needless to say, this may be one that is added to our county foreclosure list in the near future……….
Any other examples out there in which you looked at a refinance that was done by another broker where it ‘blew your mind’ recently?
Stormrunner said:
this months ration of “default in – opt out” 401K money has bought the rally we are now free to resume the decent
sigh. no tin foil hat required. it’s depressing as hell because it is true.
i always wondered when the parasite would kill the host. now i’m living it.
Pot calling kettle black. Herb Greenberg is a permabear, and as dogmatic as Kudlow.
Add Fleck, Shilling, and Kass to the perma bear camp.
I must admit that the bearish case usually sounds more analytical and well thought out than the bullish case, which on a large part is based on long term optimism.
However, it has been my personal experience that long term optimists, with a nose for value (price + margin of safety), and a disregard for short term fluctuation end up with greater wealth than the glass half empty crowd, which invest based on emotion (trying to game and have an explanation for every market move).
Real Estate will again be a positive investment one day, with the bottom that people are currently so fixated about, only evident through the rear view mirror (as all bottoms are viewed). I would also suspect that in years to come, the winners that found value in the real estate carnage, never made their buying decisions based on the Case Schiller housing index.
MS Wrote ” that is basic economics. More supply = less demand”
MS,
You must be reading your self-written economics book. More Supply doesn’t mean Less Demand. More Supply with Less Demand means Low Prices and vice versa. If Demand increases at the same rate as Supply does, then Prices remain unchanged. THAT is basic economics.
Now…with this knowledge, go back to bashing cinefoz ;)
What people forget (or they want everyone to forget is) this crisis has revealed: we are not standing on a solid foundation. The economic fundamentals are HORRIBLE.
Consumers are absolutely riddled by debt, salaries are stagnating or decreasing for a huge percentage of people, creative and technical fields are now being outsourced (these are the jobs the government told people to ‘retrain’ for in the 90s when the manufacturing jobs were sent overseas), and the ultra-heavy topsidedness of our economy is increasing prices due to competitive demand for basically every part of life.
Yet, the economy’s just fine … because the stock market’s going up again. Do these fools realize what this crisis has taught us? It probably has–learn to hide the problems better, I guess. How long can this keep going on?
nice try bystander….
it’s not as hard as you try to explain it to be. We are talking houses……not anything else.
In the context of this discussion it is as simple as supply and demand. making it anything else is wrong.
Ciao
MS
I don’t really believe anyone here is arguing that a bottom will occur or that is is not in sight, it is in sight but a very long way down the road, gander the graph as I have suggested many times. Even if these homes were to correct by 50% they would barely be reaching the scale of the ’89-’91 highs, which by the way in ’96 overshot the mean. Mean reversion is a powerful force, point taken optimism is also. The fundamentals just do not support the optimism in light of the facts and the current rate of wage inflation, a 6 or 8 month target on a bottom or even a meaningful return to transaction levels pre bubble is unwarrented.
Price does have a factor in the overall equation but it has nothing to do with why we have record supply and levels of demand so low that price ceases to be a major factor. That is where we are at right now.
only when Prices are realistic do they become any sort of driver in the home market.
If homes were all of a sudden slashed by 20% would that do anything about decreasing the supply??? It may have a halo effect but with the amount of inventory set to only increase price plays less of a role in defining why.
Ask the banks how much price matters right now.
Ciao
MS
kk, very well said. I could not agree more.
So…are traders just waiting until after 2:30 so that the circuit breakers don’t trip, or are they still thinking that some lame bailout for AMBAC is going to save the whole American economy?
“However, it has been my personal experience that long term optimists, with a nose for value (price + margin of safety), and a disregard for short term fluctuation end up with greater wealth than the glass half empty crowd, which invest based on emotion (trying to game and have an explanation for every market move).”
And please explain how this is ANY different from the standpoint of a perma bull who buys based on the same emotion???
Circle Jerk reasoning……that can be applied to both sides.
Funny stuff though.
Ciao
MS
cinefoz, I’ll buy you a big expensive bottle of whatever you want to drink, because apparently you’ve been drinking some cheap shit lately.
Waay OT but does anyone know why Palladium is scortching higher?
Maybe Rooskies didn’t ship out of stockpile to Swiss? Cold fusion nonsense?
Anybody who thinks the housing market is likely to recover any time soon; do a simple experiment:
Go over to Bankrate.com and search for a mortgage rate (doesn’t matter whether conforming/non-conforming, 15/30/40, etc.)
Note how many lenders come up per search.
When I re-fi’d in ’05, there were typically 30 to 40 different lenders coming up for each type of loan.
Today, you’re lucky if you get 5.
Also, as SWF has mentioned; go check the actual rates, they’re going up…
Michael Schumacher, the glass is half full, drink.
Your friend Jim Jones
cinefoz said… I don’t want to upset you too much, but housing will improve this year. It’s is bottoming now and buyers will be out looking for deals. Spring will bring large groups of buyers. I don’t know if you noticed, but interest rates were just lowered a lot.
30 year fixed rates are currently about a point less than they were in summer ’06 and summer ’07 (and about same as a lot of ’05). The savings difference on a $300,000 mortgage is less than $200 per month.
I think confidence in the job market is going to have more to do with a future recovery at this point. If people are nervous about their jobs, then they’re really nervous about pulling the trigger on the single biggest purchase of their lives. And I doubt that confidence in the job market will recover by spring.
After all the diatribes about the reality of market economics and endless blather cheerleading the economy why doesn’t Mr. K at least take the Obama team (God help us) to task when he has them on when they show they know nothing about economics? Why is he so nice to them! He takes on the wrong people! I used to learn a lot from his show..but I am finished with it.
Larry should just go over to FBN and be done with it. I think he has ‘earned’ a spot in the Fox quality programing line up.
Barry, I admire your loyalty.
I just pray you won’t drink the koolaid.
steve brophy:
So the financial geniuses in the race would be…?
Cinefoz wrote:
“I don’t know if you noticed, but interest rates were just lowered a lot.”
AND
“And everything that comes with improved housing markets will rise with the tide.”
Seriously son, I mean seriously, if this is the kind of logic and rigorous analysis that allowed you to pull out of cash and call the bottom in November making a nice chunk of change…
All I can say is good luck.
Kudlow and Cramer? Why do you pinheads spend any time on them? Cut my cable years ago – and it was the single best trading/investing decision I have ever done. Must be the effete East Coast prigs who can’t get enough of those two, then whine about all their talky talky talk. Put a gigantic electric fork in both those a-holes. Nothing would please more than to see Kudlow shivering and squirming like the worm he is. Air drop Cramer in Mogadishu now. Hey! I just joined your side of the debate. Yes, it was that easy (lol).
terrence – Kudlow thinks hes the second coming of William Safire. Kramer should just go over in the corner and kiss himself alot. Is this a great country or what?
So the financial geniuses in the race would be…?
John McCain…for advocating interest rates of zero percent.
My Gawd! Now I see it clearly. How could I have been so confused?
Life is pain. Searing pain. Life’s a bitch and then you die. Horribly. In even more pain. Alone. In filth and bodily waste.
Thanks to all for clearing this up. Now I’m on the same wavelength as many here … those who know how miserable the world is and will be for all, probably forever. Thanks to the wretched financial markets. And probably Satan.
But I’m not going to give the money back. I think I made a boatload today. Woo Woo!
Just another low volume distribution day. The Nasdaq “Mega-Merger” could not push QQQQ volume much above its 100 day avg volume. All that merger did was destroy 7 Billion in combined market cap in an up market.
“Real Estate will again be a positive investment one day, with the bottom that people are currently so fixated about, only evident through the rear view mirror”
You’ll know real estate is bottoming very simply; the median price will crash. When the bottom of the market is finally reached the lowest guy on the pyramid will be buying. That will mean more transactions, at lower price points, dragging the median down.
Right now the median isn’t falling all that much or fast because the majority of transactions that make up this statistical pool are those involving relatively higher end properties where buyers are less sensitve to both economic issues and interest rate levels.
When transaction volumes pick up at the low end, the bottom will be solidified and the median will be pulled down because of the disproportionate number of sales at the bottom end of the spectrum. The bottom will be obvious, frightening, but obvious to anyone who understands how the “median” is constructed.
MS,
Please reread my post which is based on long term optimism with a nose for value – (price + margin of safety)which is a far cry from blind optimism.
I have invested long enough (with the scars to prove it) to develop a style that works for me. Times like today, when a large percentage of the population already know things are bad, I tend to start looking at possible possitive outcomes, as I believe (rightly or wrongly) that things will work out in the end. As to the timing of this outcome, I really haven’t a clue, but then again neither does anybody else that is being honest. We can throw down statistics, talk about the weak dollar, gold, Bernanke, and roll with our conformation biases, but in the end timing and the “bottom” is only a guess.
Every asset has some theoretical price that will make it an attractive investment. Even a condo in Florida.
If you think this puts me in the “Circle Jerk” reasoning, then so be it.
cinefoz, didn’t you just get done trying to lecture someone else about “middle ground”?
Is it possible that people can believe that life is wonderful, but that the housing market has not bottomed?
“I think I made a boatload today.”
You actually think???
Either you did or you didn’t but I see how it would be hard to quantify hope….
Good luck with “hope”
Ciao
MS
Barry, Not late at all. I read your piece and saw your appearance ten days ago and have been trading this low ever since…(actually started trading it about a day before but who’s counting ;)
However, now I’m confused because now that you are touting yourself for making that call does it mean we’ve topped here and are heading back down? The Ritholtz Indicator, also known as the Patyourselfonthebackollator is pretty reliable but sometimes tricky to divine. Keep up the good work.
goody for you KK sounds like you didn’t read it before you posted.
All I see is a perma bull who is talking book.
If you changed just a few words in your statement it would be bearish. That’s why it’s worthless.
You sound like Cramer….
Ciao
MS
Isn’t this a great market. Gotta love it. Shorts! Shares are on sale…
Jan. 31st FRB: H.3 is now deeply negative. -8.1B non-borrowed reserves.
http://www.federalreserve.gov/re…ses/h3/Current/
NOT good… how’s that for an understatement. The Fed is supporting the banks… out of cash as they try and shore up their reserves. Crazy, absolutely crazy.
Cinefoz..
yes interest rate is falling..
and i am in the housing market.
but guess what…….what if the market continues to fall….what if i am left holding a bag to this mcMansion of 500k which is still priced 7 times the median income over here in california…
see thats a simple reason, i am postponing the buy till i can see the economy reverse its path…
what if jobs start falling…do you think that will help the housing?
Wait, so let me get this straight…
Goldilocks basically got taken out back and bludgeoned a few weeks back. Now she’s in a coma and her fingers are twitching and all the Kudlow-esque perma-bulls say she’s made a miraculous recovery.
I say she’ll be back, EVENTUALLY, but it’ll take a lot time, a lot of therapy, and perhaps a few more near death experiences before the Goldilocks economy is back…
Just my two (now worth less against other major currencies) cents…
“Isn’t this a great market”
Except for the “interest rate news” and knee jerk,
All I saw this whole week was a black box program buying.
The broad major indexes pretty much ended at the High of Day(again)- and High of week.
The big kicker is the new FED auctions—
$60 billion a month “FOR AS LONG AS NEEDED”
There is A FREE LUNCH
Michael, with > 4 million homes on the market and the million + annual homes sales now cut to 3/4, and with the larger number of mortgage loans yet to reset, how is it that people are talking of a bottom in housing? Makes no sense to me.
http://www.federalreserve.gov/releases/h3/Current/
take II.. $!@
Hate to say it but there were pigs flying on Wall Street today. Dogs were airborne too. I know cause I own’em. Enjoy this rally while its here and drop a few crumbs on the short side as you go so you can find your way back to the lows later. Thanks to our host for the oversold heads up last week. The good guys are the pros like Leuthold and Lowrys, the talking heads are just filling time like showing last years game during a rain delay. Ah weekend.
techy2468,
Sorry about your California problem. If you bought at the top of a bubble in California or somewhere like that, sorry. You lose. You’ll probably have to live there for a few years to get your money out of it.
The majority of people didn’t go subprime or go crazy during the bubble. A lot of people have no job problems or job worries and were only waiting for the bottom, so they didn’t end up like you. Now, they are free to run.
They are the tide that will raise all boats. Not the financial incompetents who the press likes to tell stories about.
larry Kudlow = educated imbecile
this guy has to be the most connected, but
most idiotic person on TV.
I can’t believe that he went through university.
“notice that neither Barry nor I have been on his show lately.)”
You know I’ve always wondered, do guests on Kudlow’s show get paid OR are they on there to promote their business, blog, book, etc. OR both.
“The majority of people didn’t go subprime or go crazy during the bubble.”
No, they didn’t. However, everyone is affected by what goes on at the margin. We reached a record high level of home “ownership”, nearly 70% at the peak. If you think about that for a minute you have to imagine that’s just about it….anybody who had ANY interest in owning, was in.
Now if everyone is “in” where’s the NEW buyer going to come from? If massive numbers of people are being foreclosed that means they won’t be able to buy for some time to come (even if they wanted to). So, again, there is a massive mismatch in the numbers of available homes and the numbers of available buyers.
Prices will fall as long as that imbalance exists (all things being equal as they say). There is no “tide” in home buying, just individual buyers and individual sellers. If there are two homes for sale in an area and only one buyer why would any buyer not play the two off each other?
Houses aren’t liquid, like the stock market. If you ever owned a home, tried to sell it but had NO offers (not just no good offers), you’d know how terrifying that state is. That’s what the spring is going to be like and its going to be VERY ugly.
On another note, I just don’t believe the situation Motorola is in. If anyone ever doubted the wasting effect of six sigma on creative innovation … here is the poster child. It’s now worth less than the sum of its parts. Thanks in large part to the six sigma bureaucracy. Take a big bow, you useless meddlers.
You housing hand wringers .. here is a true sinking ship.
Ouch MS?
Looks like your getting under a few skins.
Sorry but I was thinking the same thing about old Cinefoz. I hate feeding the Trolls but it’s hard not to with this guy. “I think I made a boat load?” Sounds like my 15 yo when I ask if he did his homework.
Cinefonz, you remind of the ESPN commercials with guy talking out of his ass to his friends about sports. Your statements are that ridiculous here. It’s not a question if housing is going to be in the crapper for the next 5 or so years. It’s a fact. Just ask Countrywide, B of A, WAMU, The President, Paulson, Congress, All Monolines, and on ,and on. If you happen to have any facts to the contrary, instead of conjecture, please post it. Your lower intereest rate BS has already been shot down, anything else? Otherwise STFU.
Sorry for the language Barry, I’ll pray for the little pigmies in south america!
Carry on MS.
Jag,
You are correct. Homeownership at highest levels ever. Also, those great loans that helped fuel the bubble are no longer available. I am trying to do a loan for an old client. Investor property, jumbo, loan. Rates are at 8.0% right now!! I put her in a lower rate last year, when the 10yr note was obviously higher. Jumbo paper is very expensive right now.
I enjoy watching Kudlow, I dont agree with his ‘bullish’ stance and I really dislike when he talks over his guests (all 15 of them at 1 time). But I watch it.
ON THE FINANCIAL GENIUSES IN THE RACE (DEMS)
“The biggest danger facing American consumers is the free market system”.
-Hilary Clinton
and she’s the smart one between the 2.
(Give me any Republican)
Hey, foz. Here’s an article from the Boston Globe that talks about the rise in foreclosures. A money quote:
The number of US homeowners entering foreclosure climbed 75 percent in 2007 from a year earlier as mortgages became more difficult to refinance and falling property values made it tougher to sell.
As somebody mentioned upstream, it’s supply and demand. An increase in foreclosures means an increase in supply, and the need for the financial institutions to dump the properties quickly puts a downward pressure on prices. I think that makes it tough for the real estate market to recover quickly.
Another money quote:
Mortgage originations are expected to decline another 34 percent to $1.55 trillion in 2008…
That also does not sound great. They may be wrong, but…
Finally, there are a boatload of ARMs due to reset over the next 2 years. Here’s a quote on just the sub-primes.
A record $375 billion of subprime loans reset to higher payments in 2007 and another $340 billion will reset this year.
If the job market goes soft, resets will cause problems for mortgage owners outside of sub-prime. That all seems to point to continuing foreclosures.
I don’t think anybody is saying real estate is doomed, but I think recovery by spring is a bit aggressive.
lfc said:
I don’t think anybody is saying real estate is doomed, but I think recovery by spring is a bit aggressive.
reply: I really hate arguing with people who can’t read. I never said it would recover. I said it would turn upwards this spring and keep going. It will be a normal market in a year. Jesus, learn to read and attempt basic comprehension.
cinefoz..
“I said it would turn upwards this spring and keep going”
sorry to nitpick…but isnt above means reovery??
its going down, and you are saying, it will not only stop its descent but will start its ascent..
Uncle Ben’s counting on optimists like Cinefoz to make his illusionist magic work.
Cinefoz, however, is correct that housing will re-inflate soon. Hell, I just closed a cash-out refi where the ppraiser/mortgage company (is there really any difference?) claimed the property had appreciated 20% in six months–the last six months. Yeah, right. And my calendar tells me there’s a bunch more on the way.
None of this re-inflation will be real, just smoke and mirrors dollars, but it will have the illusion of reality, and it will make people feel better. And that’s why the fed always chooses inflation over deflation: It makes people feel better.
See how good Cinefoz feels? Must be working.
steve brophy:
You want smart, and then call for any Republican? Have you checked who they’re running? With all of their intellects combined, these dudes are dumber than a bag of hammers. After everything we’ve seen over the past 7 years? Ha!
How does this tie in to economics?
The last time, they told us we were getting an “MBA” President. You know what we got instead?
We. Got. Robbed!
BTW: You really don’t like Obama, do you? Wink, wink, nudge, nudge!
God help us.
What’s wrong with the statement cinefoz made? Why do you care so much if you believe the worst is yet to come? I’m glad I went long a few days ago, do I care about the doom and gloom articles at this point? NO, I can care less. Portfolio up very nice today! To be fair, the Dow and the Nasdaq are going to drop hard, absolutely, BUT NOT ANYTIME SOON so wait until then to start posting links to how bad the situation is. I don’t see this rally stopping anytime soon by the way, same pain longs felt the last couple months when the Markets kept going lower and lower, well guess what, now is time for the bears to feel that pain. Look at retailers, some of them are up already 50% if not more. Same with homebuilders. Give if a few months, relax, save the conspiracy theories for later.
Suge aka “Bernanke’s boy for now!”
sorry to nitpick…but isnt above means reovery??
I always thought so, but maybe there’s a different definition of recovery I’m not aware of. (See just about any Bush Administration prognostication on Iraq for the past 4 years.)
Dear Suge Knight,
A bear market rally is a thing of beauty the way it squeezes shorts until they squirt up. I celebrate that you were obviously long today. However, when you start counting your winnings, I suggest you use the GLD ETF as your inflation benchmark. You’ll see that it is possible for a market to be going up in currency and down in buying power simultaneously.
Middle America will be pounded, oh in about 5 minutes, on the nightly network news about the jobs numbers. Dow is right at massive resistance. Possibly the biggest tech merger ever lost the combined companies 7 Billion in cap in an up market. Typical of all rallies since last year, volume was not great…on QQQQ it was below 100 day MA. But goldilocks will live on Kudlow and Company I’m sure.
They have Cramer on NBC network news with Brian Williams…folks America is in deep trouble.
This ought to be interesting…Cramer on Mad Money on CNBC and on NBC at the same time…hmmmm. For anyone who ever wondered, Mad Money is on tape delay. I always wondered why nobody ever cursed him out on the air.
Thought I would share my thoughts :
Reply #1 (Person #1):
lol… i’m glad to see that you are all so passionate about the subject… but you are forgetting a few key things…
1) like you said, the gen public is immature… but you’re forgetting that even the ron paul’s and ralph naders are still disconnected from the people… which leads to
2) i dont think there is a single person in the upper levels of goevernment that is feeling the effects of this “economic crisis”…. its the reason they don’t care to handle it properly….
3) last but not least…. we are pretty much stuck in this system because points 1 and 2 feed off of each other… MOST of the “uneducated” and “underpowered” don’t care to be educated or in power (remember we are the fattest country in the world)… and the one’s that do become educated or get power….
END UP IN THE GOVT!!!! LOL!
Unfortunately, those congressmen need fast food resturaunts, maid services, walmarts, etc… so that people can spend less time @ home and more time @ work, working for them… keeping them in power, and with all the MULAH ;-)
like i said, you don’t like it…. either find 500 ppl with no self interest… or move to an island where you can make your own govt :)
Reply #2 (Person #2 <- that's me): The problem that I have is not w/ the people who want to dwell in the bottom wrungs of life because they just dont give a shat and the people who say to them.. O.K fine....My problem is with the rich and upper class getting so greedy that they dont even want competition anywhere near them on the ladder. My problem is what I am starting to believe is a systematic attack on the 'middle class'..... The feeling like the rich are more or less at this point like : Sorry middle class, you made it late to the party... *party doors shut in our faces and they tell us to go out to the parking lot and maybe join the 'help' pulling their $200k cars to the front of the party for pickup.. And how soo many dumbass middle class Americans are getting so caught up and excited about the short rides from the parking space to the front door in 'luxury' that they forget that they have joined the 'help' and are just temporarily 'borrowing' something of wealth... My problem is w/ a system that is doing this to my face and laughing about it as they walk out the door to reclaim what was 'theirs' (the foreclosure and seizing of assets).... and sprinkling some change, in the form of a 'tip', in my hand for a job well done.. Thanks for keeping her safe (bush's tax rebate). For those who are uneducated in the middle class, we will soon see that they wont be returning these assets (Valet Guy M.I.A in your Venron... youwalkaway.com) or they will return your nice BMW just a little fucked up ;) (Burning homes down, looting them or causing other forms of social unrest) ... Maybe even taking your cousin for a spin in the back seat of your car when you send her out to fetch your iphone... Hey hey .. over here girl..). For those educated middle class people.. They are either consumed with a scheme to become the valet manager to be at the top of the 'help' and are competing with like 400 other dudes for the same dam position and $1 more an hour or they are : 1.) Sitting there at the front door in disbelief like.. did this muther fucker just try me like that? 2.) Plotting to bring the whole party down 3.) Trying to figure out how to get early to the next party 4.) Making plans to start our own party... For #4, the most that you will get at this point is a bunch of the 'help' to attend... And you will be soo busy trying to ensure they dont l00t the liquor that you wont be able to enjoy yourself... I dont consider myself to be an idle person so after #1 came and went.. I started looking out for just wtf I am going to do.. and instead of being selfish I decided I am going to ensure some of my boys from the middle class come with me...
To all the bears,
If the Dow goes up to 14,000 then you should be glad since it gives you the opportunity to make a killing shorting an ‘overbought/overpriced’ market. So why complain so much about conspicary theories, Bernanke, etc.?
Suge
suge knight..
all bulls are saying the same thing…
market is up….todays it up becuase of MSFT & yahoo news..
else it would have been down because of job report.
you are talking as though you knew about the big news
market is waiting for a reason when it can start going down….but i dont know when(but very soon)
Kudlow has taken over Ruckeyser’s place in the panthenon of hucksters….he has been employed by and given advice to numerous companies only to br wrong so often….anyone who watches his shows for any worhtwhile information is delusional, especially when he has the other person of dubious financial acumen, Arthur Laffer……
techy,
Market is up, my long portfolio doesn’t ask questions as to why. I see the Dow going up to 13,500. Call me crazy if you like but there were some ‘crazies’ here calling 10,000 for the Dow not too long ago. Please put aside Bernanke and the rate cuts (the story is getting old). If you believe in conspiracy theories and the Fed being a bitch to the markets then go long and you won’t have to worry about that (Plain and simple).
Suge
Steve,
“They have Cramer on NBC network news with Brian Williams…folks America is in deep trouble.”
And he said we shouldn’t be beating up on Exxon for making a $40 Billion profit by price-gouging and ripping us all off.
.
“He who establishes his argument by noise and command shows that his reason is weak.”
I find TV too distracting and devoid of information. It’s noise.
I don’t think it is too much to ask of people for them to read a couple of basic books for the biggest purchase of their lives. History also has a lot to say about these types of situations. I am quite comfortable with my financial plan going forward in the next couple of years.
It is quite the show isn’t it? So much sound and fury.
suge..
but we wont get another rate cut till march..
and we will get bad news on regular basis…
i guess i will stay in cash…or maybe its time to go short.
techy,
It’s your call to go short or not, personally I wouldn’t go short at this time but maybe I’m a good contrarian. The markets are going to get hit hard, I agree, trust me, I’m not saying Dow 15,000 in 2 months without a single day going down. But it is possible we go to 13,500 first and then visit 11,500. Since I’m long now I see bears doing the same thing bulls were doing a few weeks ago (last week). Why is the market going up if bad news keep coming out? It’s called frustration.
Suge
Cinefoz may be on to something…
Banks seem to be buying more houses (through foreclosure) than anyone, so a reduction of the rate that banks lend to each other overnight obviously will help the banks buy more.
Just so you guys have an idea how strong the market is at this time:
BEBE (symbol), a retailer, reported earnings yesterday, profit down (slightly) and gave a lower 3rd quarter profit estimate during the Conference Call. The stock is up today and is up after hours. 3 weeks ago, this stock would have dropped at least 20% for missing estimates and giving a weak outlook. Not anymore, so don’t expect a correction anytime soon. For those who will say that’s one stock, not the market, think again, most retailers are up already 30% to 50% in some cases and may continue to go up even after providing weak earnings and outlook so good luck shorthing those ;-)
Suge
Suge,
You might be painting the picture with too broad of brush – it appears to me that the key to earnings reactions has turned to profit margins – a lot of the lowered guidance has been discounted, so the winners are those that give the impression of managing the downturn best.
Reactions appear to be more case-by-case than by sector.
Winston,
From your perspective then, you’re agreeing with me. If the lower guidance has already been discounted then retailers, homebuilders, financials, tech, etc., have a lot of room to go up even more. Therefore, this rally is far from over.
“the winners are those that give the impression of managing the downturn best.”
There will be a lot of winners based on that statement.
Suge
Hsa lower guidance been built into stocks? Look at estimates for Countrywide. Someone still has an estimate for 2008 of 2.98.
CFC estimates
Someone still has Citi at 3.95, Ambac at 8.20.
Suge,
Kind of yes and kind of no. I agree that in the short-to-intermediate term (2 weeks to 2 months) the downside risks have been relieved to a degree – I would call it a “relief” rally – relief that something is being done about the problems, i.e., rate cuts, fiscal policies, etc.
More specifically, homebuilders I wouldn’t touch with your money. Financial is on a case-by-case basis, as is tech, and retailers. (In other words, I think now is a stock pickers market.)
Longer term, there is much more downside risk. The problems have not gone away – but the fears have been temporarily set aside.
I am mostly long at the moment, but picking and chosing specific short targets based on personal parameters. However, I am using smaller positions and mostly still in cash: 20/80.
Steve,
That’s why I believe this is a “stock pickers” market right now – trading a short term relief rally. If you notice, I said “a lot of lowered guidance has been discounted.” I didn’t say it a-l-l had been discounted.
My thoughts are that areas of overhead resistance will become key tests as to the sustainability of this rally – without penetration of these areas on high volume the likelihood would be a failed rally.
But that is just one opinion – what do I know?
Krudlow the clown is a right wing blowhard that stacks his panel with others that share his views and bullies those that don’t by talking over the top of them.
I don’t know why Barry wouldn’t want to embarras him on the air, he thoroughly deserves it, although he does a good job of embarrassing himself with the selective data points he uses to bolster his already weak arguments.
suge and winston.
so you guys are saying that all the fear has just gone away…all those sell offs?
10-15% asia and europe down days?
i am sure if not for the MSFT-Yahoo news, we would have had a down day.
it feels like everyday you have to evaluate your positions and brace for the big shocking sell-off, which may not stop easy this time.
ok so we have monetary easing and free for all liquidity, but thats not going to help housing, bond insurers, jobs etc immediately.
what if we get a bad news about one of the bond insurers going into trouble…or another financials coming out with more write downs…or layoffs getting started or retails sales trending down…
it does appear that everyone is trading right now with the same idea that this rally can end any time, make hay while the sun shines….everyone thinks he is going to be quick and out.
so is tight stops the key to playing this market….looking at volatility, tight stops does not make sense, for some stocks i will have to keep the stops at 5-7%, and even then the suckers bounce back up.
but i will hold on my shorts since i do not want to fight the herd.
techy,
Crashes occur from oversold conditions, so the rally has reduced that risk.
I think it is foolish to bottom guess the sectors – and the stocks that have been hammered have been hammered for a reason, so I wouldn’t touch them just because they look “cheap”.
However, select stocks that have withstood the onslaught should have a reasonable degree of safety for a long position if the rally persists longer than we think it should.
I wouldn’t try to establish new shorts at the moment – And any longs would be small, partial positions – capital preservation is still the name of the game.
.
Techy,
Here are your first few problems..
“i am sure if not for the MSFT-Yahoo news, we would have had a down day.”
You are?
First as a trader, you can never be “sure” of anything. You can have thoughts, but never let that invade on rational trading decisions.
Now, just look at a daily chart for S/P. It looks like it wants slightly higher, till we get to some resistance 1400-1420, first level. Also look at some of the volume over this run-up. Either short covering or bulls buying into it, but its had some nice volume.
So now we are ready to make some trading decisions.
Winston is correct, its a bit late to participate in this rally, and its not quite time yet to ss.
5 year support as been broken now and we have lots of areas of resistance above. Wait for CNBS to declare the bull market is intact, then its time to looks for SS’s. Never get married to your opinions. Always keep an open mind, and that first loss is usually the smallest. Good luck out there.
If the market continued going down, people would start moving to money market with their 401Ks, you have to take 2, give them 1 so they have some hope and are afraid to leave the market, then you take another 2 or 3, then give them some. You can’t do this forever since they will see it, so all of a sudden you have to take it down 5-10 so they will think “well I lost a ton already how much more can it go down”
All these inner conversations of main street eventually reveals itself as Fibonacci series, trading channels, waves, etc.
Step back and look at it…It is playing out as it has to….the technicals, merging news, fed cuts, etc., they are all excuses and details in the great scheme of things…
It will go where it has to go.
Nasdaq 1881
thanks guys..
i have not started short positions yet. i am 100% cash.
but it does appear that the market is completely trading on psyche….all of a sudden people have started buying homebuilders, retails and financials….the bad boys of 2007.
its not like all retail will make a ton if we go into recession. or homebuilders will start raking profit. or financials have nothing else to write down.
i guess everyone is just trading the market, because everyone else is trading.
i am a newbie…not so nimble…hence i will stay away for a while..
techy,
One last comment – actually, a quote from John Hussman as he explains better what I have been trying to say.
Quote: “It’s generally the case that a good number of stocks achieve their bear market lows during the initial phase of a market decline and then scrape along their lows for a while (although with good strength relative to the major indices), while stocks that dominate the indices often hit their downside stride well after the average stock has turned down. As I’ve noted before, increasing dispersion in the valuations of various stocks and sectors tends to be a favorable development because it tends to improve the potential for good stock selection to perform differently than the major indices. It isn’t always comfortable when a particular overweight gets hit harder than the market for a few days, but we expect that from time to time, and it’s a short-term risk that we’ve typically been compensated for over the long-term.” End Quote.
Those of you who think that real estate will suddenly bottom and immediately start a climb should look at the historical numbers. Typicallly declining housing markets last for 2-3 years. After a fairly sharp decline, housing prices tend to just bounce along at the bottom for several years before resuming the increase.
Historical average increases: about 3% per year.
Time it typically takes to get back to peak levels: 10-12 years. (Which is a nice way of saying if you buy at the peak you can be underwater for a decade!)
And the interest rates don’t matter as much as people’s ability to qualify for them. My brother is likely to refinance soon because interest rates for him ARE down. But of course, he put more than 25% down. Even with a recent decline in values, he probably still has 15-20% equity and a very solid income and net worth that make him a good risk. And he’s not going to try to extract equity, just lower his payment and convert to a fixed rate. Most people who have bought in California in the past 6-8 years could only dream about having a 20% downpayment. They won’t be getting new mortgages anytime soon…
-btc
Here, in a nutshell is what caused the mortgage meltdown and how we can stop the downward spiral.
When the Federal Funds rate went down to 1% after 9/11, mortgate rates were so low that it allowed many buyers, who otherwise couldnt afford to buy a home to now buy one. There always existed subprime loans in one form or another, but after 9/11 subprime loan products were derived that allowed Borrowers to use Stated Income loans rather than Fully Documented loans with no money down and 100% financing.
The problem is that 100% Stated income loans were supposed to be for Buyers acquring the home as a primary residence. However, investors would apply for numerous 100% stated income loans at a time with no money down before they showed up on their credit reports in order to ‘flip’ the homes to someone else for a profit. These investors had no intention of using the home as their primary residences.
The buying frenzy exploded as legitmate home buyers some who lied on their credit applications that their stated income was higher then it was and those who didnt lie were now competing with the investors who all were lying. As prices escalated, the federal Reserve began to raise interest rates which caused the housing market to peak in the summer of 2004 which caused the real estate market to get shaky and then when all sub-prime lenders pulled back from stated income loans in early 2007 the elimination of the 100% financing and no money down loans has caused a triple whammy.
1) Legitimate buyers who could make payments now couldnt make payments because interest increases caused their payment to rise.
2) Investors who lied couldn’t make payments because payments rose above what rents they could collect on the homes they bought. 3) First time home buyers couldnt qualify for loans, cuz they now needed a down payment and the interest rates were now to high for them to qualify.
Kudlow and Company recently stated in one of their programs that 70% of all sub prime mortgages were misrepresented by either investors who said they were going to live in the homes and they didn’t intend to live in it; and by both , buyers who did intened to live in the home and investors who over stated their income to an amount sufficient to allow them to buy the home. Not only did buyers lie, but lenders were making so much money they never audited the loans that came in or never trained their mortgage underwriters or officers to make sure that people were not lying on their applications. In some cases, borrowers deliberately lied in other cases mortgage brokers lied and misled the borrower so they could make a commission.
You can now see the result. The demand for homes has slowed to a trickle causing homes to go to foreclosure and people wanting to sell their homes now having to compete with repos and short sales. When will it stop ? Nobody knows !
Prior to 9/11, FHA loans were basically the subprime loans used by buyers with little down payment and low credit standards with the only exception that FHA would verify and document income. However, after 9/11 borrowers moved to the creative loan products by conventional lenders because conventional lenders did loans on stated income and lenders never verified the income or truthfulness of the Borrowers.
Now that we have the mortgage mess, foreclosures will stay on a credit report for 7 years for conventional loans and only 3 years for FHA. There are many people who could get an FHA loan right now with little money down and make payments, but cant for three years under FHA guidelines. The way to create demand for more homebuyers and to keep prices from spiraling downward would be some form of amnesty to buyers who have good credit with the exception of the foreclosure. This would get demand back into the housing market to help support the prices and help keep them from falling further
Our economy is tanking because of the real estate problem. The stimulus package approved by congress won’t fix this. Lowering interest rates won’t harm, but won’t help because long-term rates have actually increased. Easing regulations with conventional lenders won’t work because they have been burnt badly by the mortgage meltdown. The only way I can see to stimulate the demand side would be an easing of regulations by FHA to allow legitimate borrowers back into the market who got displaced by illegitimate borrowers and lenders. FHA will verify the viability of the borrower that hadnt happened before with subprime lenders.