Capital Markets

More Scenes from the Economic Hyperpocalypse

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Somebody should tell the vice president.

It's late August, everybody's out of money, and all we've got's this sunny afternoon, so let's bask in the one thing we have in surplus: bad economic news.

Drudge has been highlighting a list of ominous stories, including some pretty interesting ones. Analyst Charles Nenner says the Dow will be down to 5,000 within 30 months. And Fast Money's John Melloy reports that nobody's buying stocks anymore: Equity trading in the slow month of August is the lowest it's been since 1999. Small investors are bailing on the stock market, and Melloy says many of them will never be back.

Calculated Risk has a roundup of causes for alarm, ranging from home sales to truck tonnage to an inevitable decline in the Case-Shiller housing index.

But strangely, the index has not come down yet: People are actually paying more for their worthless houses. I don't know what is more dismaying: that the National Association of Realtors brags about how the home buyer tax credit kept house prices rising even while sales were falling, or that Time titles one of its columns "The Curious Capitalist."

An AP double-dip story quotes the Sage of Moody's and provokes the truest comment of the day: "Mark Zandi has been WRONG on the economy every step of the way. 

And one bad news trend that may turn out to be good: The Mortgage Bankers Association continues to report that mortgage purchase activity is declining while refinance activity is increasing. Since personal debt is also falling, it's unlikely there's much HELOC activity in that figure, and since HAMP modifications have been underwhelming this means responsible borrowers are getting themselves into more attractive mortgages. The American government may be a slave to its spending habit, but Americans are getting their own debts under control.

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  1. It’s like the opposite of ‘Dow 50,000’. I guess that means it’s time to start buying equities.

    1. You should take what I said about balance with a grain of salt there is no poetic metastructure to how the world operates.

      1. But do not act incautiously when confronting a little bald wrinkly smiling man.

  2. Did Tim just summarize the Drudge news summary?

    Now that is fucking Meta.

    1. Tim did you cover the Morgan Stanly says government will default?

      You have covered that before and when i saw that on drudge i thought “hey Tim might talk about that”

  3. My favorite Drudge headline – which seems to have just vanished – had former Sen. Alan Simpson scolding some old battleaxes about Social Security saying it’s like a cow with 310 million tits.

    Beautiful and, since it’s true, his head’s being demanded on a plate.

    1. Yeah, he said “tits.” Feminists nationwide (or at least Rachel Maddow-wide) are outraged. Not sure why, unless they think of themselves as cows. Or “tits” is somehow offensive. Sheesh, it’s not like he said “300 million cunts,” which would only be half-right.

    2. I’m glad his head’s being demanded on a plate.

      At this poin t in time, nearly all the claims on social security are by people who paid into it – it’s hardly sucking off the government tit if all you are doing is withdrawing money from your own account.

      Simpson’s been such an asshole for so long, he practically deserves to get roasted for the wrong reason rather than the right one.

      1. all you are doing is withdrawing money from your own account.

        Someone else who managed to miss the thousands of articles explaining that this is not the way SocSec works at all, at all.

        1. Yeah it’s an issue that pops up here every now and then. Putting your own money into an account, vs. demanding that the government give you money it stole from other people, because the govt. in the past stole your money and gave it to others.

  4. Used car prices are up 30%.

    http://www.610wiod.com/cc-comm…..le=7510712

    of course none of this was entirely predictable.

    Government to the rescue!

  5. I think we’ve really turned a corner.

  6. NOT ENOUGH MOSQUES

    1. Need more…..ah, fuck off.

  7. The American government may be a slave to its spending habit, but Americans are getting their own debts under control.

    Like the Marxists believed that eventually, at the last stage of the Revolution, the state would merely fade away, my dream is at some point, the state will merely become irrelevant to the American people.

    1. I liked Snow Crash too.

  8. So is it time to to buy or not?

    ๐Ÿ˜‰

    1. King County Tax assessor’s office indicates housing prices have done nothing but gone up since 2007! It’s a decade of recovery over here!

      1. Here in Chelan county there was the simmering of a property tax revolt.

        But I think it died down.

      2. By the way you blog has not seen a new post since 2008….

        You should post:

        “King County Tax assessor’s office indicates housing prices have done nothing but gone up since 2007! It’s a decade of recovery over here!”

        It is a good one.

    2. So is it time to to buy or not?

      A House?

      It depends. There are deals out there that have hit bottom. A good thing to do is look at the prices in 2003 or before and look at the price of what you are buying. If what you are buying is the same or less then the 2003 price then that is probably the bottom.

      But everywhere is different. Check what the national trend was and see if your area was above it in 2003. If it was then adjust your prices.

      Also don’t buy expecting anything near the returns we saw between 2004 and 2007. It is not going to happen again….EVER!

      Also banks believe it or not are giving out loans again. And at rates nearing 4%.

      Put money down (20%) and make it a fixed rate. the inflation axe has not come down…yet. But if and when it does expect rates to rise.

      Good luck you poor poor doomed bastard.

      1. the inflation axe has not come down…yet.

        If you get a fixed rate, inflation won’t hurt you when buying a house. (Except for any savings you may have).

        1. If you get hurt and you miss work, it won’t hurt to miss work.

          AF-LAK

    3. I think it’s a good time to move up.

      If I can free up enough cash to pay for the overhead(moving, new drapes, etc), we’re going to try escaping the neighbor from hell and move into a nicer house in the more agricultural suburbs.

      At least if it all goes to shit I can sell tomatoes on the roadside.

      Sell-low, buy-low seems like a good idea. Less money goes to the realtor and you lock-in property taxes at a lower rate.

  9. Has a certain ring to it.

  10. This is terrible, I know. But I have to do it.

    Meanwhile, it looks like Michelle Obama hasn’t been gettin’ it at home.

    1. They really do all look alike to you racist libertarians don’t they?

      1. You racism-pimping liberals really don’t have a scintilla of humor in your dark souls, do you? (Sorry, I said ‘dark’).

    2. But she was not texting! See, the System works!

      1. And, thank god, “She was not…using the pipe while she was driving and masturbating.”

    3. Not her. Michelle is scarier looking.

      1. I read this blog because it’s one of the few places I can find intelligent people saying intelligent things. Congratulations for reducing the level discourse to the lowest common denominator.

        1. Lighten up, Francis.

  11. One thing that puzzles me about all this:

    Shouldn’t Realtors (and their org) want prices to quickly reach a fair market price(or even “over-correct)?

    Commissions would be lower but they could make it up, and more, in volume.

    Beats the hell out of unemployment anyways.

    1. I think they think the government can continue to keep the balloon inflated, or manage it to a soft deflation, or something like that. It may just be sinking in that the government can’t do that anymore.

      If you grew up believing in the million-dollar starter home, that can be hard to accept.

      1. I think they think the government can continue to keep the balloon inflated, or manage it to a soft deflation, or something like that. It may just be sinking in that the government can’t do that anymore.

        If you grew up believing in the million-dollar starter home, that can be hard to accept.

        Both these points are not specific to Realtors. They are the same nation wide regardless of ones profession.

        1. True. NAR is a trade group tasked with capturing regulation and largesse. So it benefits NAR to behave as if government can solve the problem, even if it really doesn’t believe that.

          I believe it’s the same principle as Pascal’s Wager, but what do I know — I don’t even understand COBOL’s Conundrum.

          1. That seems more like C’s Ultimatum to me.

          2. I always hated RPG’s Logic Cycle.

      2. If you grew up believing in the million-dollar starter home

        I guess if you believe in that you’re not really grown up yet, eh grandpa?

    2. It’s always a good time to buy or sell a house.

    3. Shouldn’t Realtors (and their org) want prices to quickly reach a fair market price(or even “over-correct)?

      Yes and no.

      yes cuz they know they can sell their listings if they can get their sellers to drop their prices. A low commission is always better then no commission.

      No cuz they are usually the ones who sold them the property in the first place. It is a tough mental exercise to tell a person their property is worth 40% less then what you sold it to them less then 4 years ago. Also if you tell them a too low of price the seller will give the listing to someone else.

      Also if ask a Realtor what her opinion is on broader economic issues and she will give you three conflicting answers. As a group they have no special insight into how the broad economy works or what the medium to long term solutions are. The Orgs tend to reflect this.

    4. I think the problem is, SIV, is as long as people see that housing prices are “low” (aka, not where sellers want them to be) the volumes are low AND commissions are low, too.

      Sellers are still holding out for a recovery so they can unload their upsidedown mortgages.

      All of this probably results in a very slow, long, thin pipeline of homesales.

      So ultimately, realtors want to convince sellers that prices and the market are strong and vibrant.

      On the flipside, they’re probably sending out mailings to buyers saying “now is the BEST TIME TO BUY!!!”

  12. Small investors SHOULD flee the market. It treats them like shit.

    http://www.taxpolicycenter.org…..?Docid=205

    Small mutual-fund investors (401ks, IRAs, etc) are lagging “market” returns by around 5%, implying that they have barely beaten inflation the last twenty years (despite 8% “market”) returns.

    When are you guys going to admit that it is absurd to expect people who have a hard time balancing their checkbook to somehow compete with Goldman Sachs?

    1. it is absurd to expect people who have a hard time balancing their checkbook to somehow compete with Goldman Sachs

      We have only the highest hopes for you, Choad. Just keep trying.

      No homo.

    2. When are you guys going to admit that it is absurd to expect people who have a hard time balancing their checkbook to somehow compete with Goldman Sachs?

      I have no problem admitting that. That is why Obama is a pile of shit for not letting those to-big-to-fail fuckers burn in the bankruptcy pit.

      If I could get a multi-billion dollar TARP loan for free then use it to buy treasuries with a 1% plus return I would be making better then 8% returns as well.

    3. When are you guys going to admit that it is absurd to expect people who have a hard time balancing their checkbook to somehow compete with the government Goldman Sachs?

      FTFY

      When the fuck are you liberal retards gonna figure out that corporate cronyism is only possible with an expansive government?! Just think, all of those bastards at Goldman could be working solar panel factory jobs if the gubmint didn’t bail it out.

    4. They lag the market because they chase performance and try to beat the market rather than accepting market returns.

      Pick an allocation, buy index funds, and leave it alone. It’s simpler than balancing a checkbook.

    5. When are you guys going to admit that it is absurd to expect people who have a hard time balancing their checkbook to somehow compete with Goldman Sachs?

      Chad the Strawman:

      The problem isn’t the market treating them like shit, the problem is the GOVERNMENT treating them like shit, forcing them INTO a market they don’t understand because there’s no other choice.

      Government inflation policies force the little guy to get into riskier investments if he wants to preserve the value of his money. Savings accounts, et al all pay interest BELOW the rate of lost purchasing power of the dollar.

      Even eliminating loss of purchasing power, there’s the problem of having cash in the first place. Possessing over 10K in cash in your house in a safe puts you under immediate suspicion for terrorism or drug dealing. You’ll lose a portion of the savings trying to defend yourself.

      Eliminate inflation and the cash penalty, and you have the problem of increased taxation.

      So Chad, you are probably the devil if you think its wrong for people to want to try to preserve the value of their money. That’s why they put the stuff into assets that retain or increase in value. Better to try hard and lose 4% than do nothing and lose 10%. I can understand the scorn towards banks for coaxing the little guy into buying overpriced houses with large debt loads, but the problem never would have gotten this large without government encouragement.

    6. When you admit that it is absurd to expect people who have a hard time balancing their checkbook to somehow compete with Goldman Sachs for government largesse.

  13. Now that is fucking Meta.

  14. It’s always a good time to buy or sell a house.

    1. I especially enjoy doing that when I don’t have the money to pay for it. You get the most interesting letters from strangers.

      1. Doug…

        You are talking to a Spambot

        1. I hope the Spambot uses that comment.

        2. Spambot, fembot, whatever.

        3. I just thought it was joe.

  15. Both these points are not specific to Realtors. They are the same nation wide regardless of ones profession.

  16. The American government may be a slave to its spending habit, but Americans are getting their own debts under control.

    Hey, the government must pick up the slack of the declining “aggregate demand” because we all know that an economy is driven by profligacy – Paul Krugman told me so!

    (Yet somehow we’re supposed to believe people are stupid and the government is populated by omniscient beings…)

    1. You posted an independent comment before addressing Chony! Wtf?

  17. case-schiller isn’t down yet because its a 3 month rolling average, and its based on existing home sales, which are reported when they close (new home sales are reported when the contract is signed). So the huge drop seen this week will only be 1/3 of next months index, with the preceding 2 months making up the other 2/3.

    thats why the index isn’t down yet. Read CR he explains it all in small words.

    1. I wasn’t indicating otherwise, IDB, but in case it seems I was, I second your recommendation to get the details at CR.

      1. Sorry, I now realize your larger point of “how could the prices have not dropped already” . . . spending a lot of time at CR tends to exacerbate my normal douchy/depressive tendencies. . . .

    2. Case-Shiller’s also really lagged. The most recent is from three months ago, which means the March-May average. So really, the index rising just means that May’s prices were higher than February’s. Although CR seems to feel prices peaked in July, at least conceptually prices could have peaked back in March — 5 months ago — without it being reflected in a Case-Shiller decline by now.

      It’s regarded as a lagging indicator by anyone in the know for somewhat obvious reasons.

      1. Housing prices are going to fall until the 30-ish year olds that you know personally can afford typical starter homes with an honest mortgage and a serious downpayment.

        If you think we are there yet, pass me some of whatever you are smoking.

  18. Re: Mosquevite Sandwich,

    You posted an independent comment before addressing Chony! Wtf?

    No dice – the “reply to this” link is not working ๐Ÿ˜›

  19. Re: Chad,

    Small mutual-fund investors (401ks, IRAs, etc) are lagging “market” returns by around 5%, implying that they have barely beaten inflation the last twenty years (despite 8% “market”) returns.

    That’s because the returns are nothing more than a mirage. The market valuated in gold has not grown. GDP adjusted has been going down since 1982, meaning the economy has been SHRINKING. The ONLY reason it would seem to be “growing” is because of inflation (the increase in the money supply.)

    http://www.shadowstats.com/alt…..uct-charts

    Ain’t Keynesianism grand???

    1. GDP adjusted has been going down since 1982

      US population 1982 – 231,000,000
      US population 2010 – 310,000,000

      If what you say is true then why am I looking at a 23 inch screen typing on the internet and not starving in a ditch?

      Note: I am actually kind of hungry.

      1. Hunger increases your productivity.

        1. So does anger.

      2. Re: Joshua Corning,

        If what you say is true then why am I looking at a 23 inch screen typing on the internet and not starving in a ditch?

        Did you pay cash or credit for your 23″ screen? Is is made in the US or in China? Is your food cheaper NOW than in 1982, or not? The point is that the economy has been driven by debt and that production shifted from the US to everywhere else. REAL GDP (production purchases like machinery, parts and materials) has not GROWN since 1982, if you adjust for the monetary supply.

  20. So, what happens when the bond bubble bursts?

    I heard on CNBC that ETF sales are up. They also said (Larry Kudlow) that there is NO bond bubble.

    Isn’t corporate media grand?

    1. Poor Larry Kudlow; he’s wrong almost as often as Mark Zandi is.

      When the international government bond bubble bursts (and this is the final bubble before the worldwide collapse of the Bismarckian welfare state), these fools like Bill Gross at PIMCO are going to lose more wealth than anyone has ever lost in the history of earth. It’s going to make the collapse of the housing bubble look like a good day by comparison.

  21. How about an analysis on the problem of fiat currency in a reserve banking system, Reason?

    If not you, then who?

    http://www.youtube.com/watch?v=vVkFb26u9g8

    The problem isn’t the measure of its symptoms.

    1. How about we start smaller, and just reinstate FASB (157), for now, and force the banks to write down their losses, instead of enabling them to hide them?

      I agree with the ends, the question is, how do you get there, after decades of fraud, ranging from fractional reserve lending and fiat currency to accounting control fraud?

      Start small and relieve Bernanke of his “duties”. Bring in a stern, no shit regulator, like William K. Black. Nominate an inflation hawk, like Hoenig or Plosser to head the Fed. Gradually bring interest rates up to a more market level, and gradually raise reserve requirements.

      Just for a start.

      Then there’s taxes. Cut the corporate rate from 35% to 15% across the board, to start.

      Any suggestions?

      1. How is fractional reserve listing fraud?

        I know my bank is only keeping a fraction of my deposits and loaning/investing the rest. Where is the fucking fraud?

        “Fractional reserve banking is fraud” types may be the biggest retards on the internet.

        1. s/listing/lending/

        2. It’s not fraud if you consent to it, expressly. I have no idea if that’s in the standard T&Cs; for banks, so maybe everyone has. If not, there’s a good case to be made it’s fraud.

          1. You dont have to expressly consent to it. They arent hiding it, its common knowledge. The “reasonable man” can be expected to understand that banks only keep a fraction of deposits on hand.

            Plus, if the standard is “must be in T&C”, it would be there (I have no idea if it is or not).

            1. The only reason your expectations are what they are is because of the regulations and laws surrounding banking. Those regulations and laws wouldn’t exist without the inherent fraud in the practice.

              People have modern expectations about credit cards, too. But 80 years ago it was known as loan sharking.

              1. Why would I oppose loan sharking either?

                Yes, my expectations are becuase of the regulations. However, without them, they would just have to explain it. As x,y says, put it in the Terms & Conditions. So, still no fraud.

                Neither fractional reserve banking nor high-interest credit cards nor usury are anti-libertarian.

                1. Plenty of deceptive T&C out there.

            2. The “reasonable man” can be expected to understand that banks only keep a fraction of deposits on hand.

              But the greedy, multinational corporations are preying on the poor, common man with all of these complicated schemes. More regulations, please.

            3. When there is run though, the only govnerment involvment should be bankruptcy court.

        3. I know my bank is only keeping a fraction of my deposits and loaning/investing the rest.

          That’s not really how fractional reserve banking works.

          To a bank, your deposit is a liability, because it is obligated to pay it out on demand

          A loan made by the bank is an asset, because it represents revenue owed to the bank.

          The bank is allowed to make loans that are multiples of its deposits. It doesn’t take your deposit and loan it out to someone. It takes your deposit, and makes loans that are worth many times your deposit.

          1. That’s not it. In fractional reserve banking you lend out a fraction of deposits and reserve the rest. The money lent then winds up in another bank, which again reserves a fraction and lends out the rest. It’s not all the same bank.

            The result is that you divide the original deposit by the reserve requirement in %, and that’s how much it funded in loans. For example, with a $10,000 deposit and a 10% reserve requirement, that’s funded up to $100,000 in loans (10000/.1) for all banks, including $90,000 in deposits for those loans’ recipients. The important point is that all banks have deposits backing their assets (they would have to, due to the accounting identity that assets = liabilities + equity); it’s just a question of whether those deposits are base currency or created artificially via lending.

            Full-reserve banking is where banks are depository institutions and cannot make loans, at least in any real capacity. Their reserve requirements are 100%, and therefore they must keep all of the money, which leaves none for lending. Banks would basically stop being financial intermediaries.

  22. If Chairman Obama would just sing, this will work

    ??Sum-mer Re-cov-ery??
    ??Sum-mer Re-cov-ery??
    ??Sum-mer Re-cov-ery??
    Come On! Everybody!
    Sing Along NOW!
    ??Sum-mer Re-cov-ery??
    ??Sum-mer Re-cov-ery??

  23. The people who run mutual funds are, basically, restricted as to what types of things they can buy due to their prospectus. If you’re running a High Yield Bond fund, you’re limited to High Yield bonds, in essence. If you’re in Mid Cap Growth funds, you can basicaly only invest in equities with high market capitalization that fit your fund’s “growth” criteria.

    Folks are scared and are saving like madmen, a lot going into their retirement accounts. So all the rubes who are invested and diversified in 401(k)s, 403(b)s, etc. are propping up the equity market because their money is really not allowed to go anywhere else. A U.S. Large Cap Value manager can’t go and put his money in German Bonds and/or Asian startups, and most 401(k)-based investors aren’t savvy enough to pull out of all those equity funds, largely because no one knows what is going to be safe in the coming months and years.

    The question is: will the ongoing retirement deposts be enough to keep the equity markets propped up? Or will the market drop as many fear it should and, in the process, destroy middle-class America’s retirement plans in the process?

    I wish I knew the answer to that question.

    1. I disagree.

      There is very little “propping up” going on. The money would be somewhere – if not in the form of currency under a mattress it would be in a pension (invested in the market) or precious metals, or bonds, or commercial paper, etc.

      We’re experiencing a very large credit deflation, after decades of inflation expectations. People aren’t really saving like madmen, what they’re doing is paying down debt. I doubt we’ve had a net decrease in the percentage of debt-free people in the last 2 years, it’s just that their aggregate debt is smaller.

      If equities are being propped up, it’s by public employee pensions doubling down. Banks are actively discouraging deposits right now, credit card interest rates have returned to historic norms (read: high) and cash-out refi’s have been reduced drastically. People are reducing debt like crazy right now. If that trend continues, then there will be an increase in debt-free people and they may be putting money into equities. But I wouldn’t consider than propping up, I’d consider that somewhat normal. If anything is being propped up at this moment, it’s US government debt.

    2. I hate paperwork, so it’s becoming less likely I’m really going to do this, but I’ve been threatening the other voices in my head that I’m going to implement my own “barbell” pretty soon, with 1 of my three 401k’s: Cash it out, bite the bullet on the penalty and taxes, then put half the proceeds down on the principal of my mortgage (possibly do a “cash-in” refi at the same time), and with the other half buy bullion and bury it in the back yard.

  24. Thanks Tim, for simply summarizing most of Drudge’s headlines from yesterday. Most of them fyi, in typical Drudge fashion, are cherry picked (the Dow 5,000 one has refutations from multiple other experts saying that there’s no way it’s going that low).

    Man, I realize that most libertarians/tea party people (is there any difference) welcome and embrace the country/markets/poor people/economy to fail, but try to hide it a little better next time Timmy.

    1. You are an idiot.

      1. Many/most libertarians arent tea partiers.

      2. No one welcomes/embraces the economy failing, some of us see it as inevitable if we continue down the path we are on. And, historically, all countries fail. Period. No exceptions. Just like we are all going to die.

      1. It also is a stretch to say the economy is failing.

        People are out of work – saying an abstract thing like “the economy” is failing avoids confronting the real problem. We have personal and governmental policies that are failing.

        It’s been that way for around 40+ years, but we’ve thrown money-and-leverage at the problems to avoid addressing the policies. People are beginning to finally address the problems directly (though they would probably rather not), but government is still trying to throw money-and-leverage at the problems.

    2. Mr. Magoo and I both went to Rutgers. That explains everything.

  25. If the Dow falls to and stays around 5,000, the United States of America as we know it ceases to be.

    If you think we have pension problems now, wait until pretty much every penions fund goes from dangerously underfunded to flat-out bankrupt. Along with skyrocketing unemployment, state and local governments would cease to provide services (i.e., employee anybody) and have to renege on many of thier promises to government workers.

    If the market fails, our society fails, and I fear that what you saw in Greece recently might only be a tame preview of what awaits the rest of the world.

  26. Markets never fail.

    If the economy fails, its because the market is working. If the economy doesnt fail, its becuase the market is working.

    1. That was in response to Sean.

  27. Ive been trying for a long time to get someone to make a “Dow 30000” bet with me.

    Here is the bet:
    If the Dow hits 30k, you owe me $x. If the Dow ends without ever hitting 30k, I owe you $x.

    No one has ever taken me up on the bet.

  28. “We said, ‘God, wouldn’t it be wonderful? Why don’t we invest $100 billion? Let’s just go build it!’ ”

    Read more: http://www.time.com/time/natio…..z0xjC280kE

  29. all the rubes who are invested and diversified in 401(k)s, 403(b)s, etc. are propping up the equity market because their money is really not allowed to go anywhere else.

    Not true. Even within a retirement plan, you will have investment options other than stocks. And more money is going into bonds than stocks these days, to the point where the current bubble talk is all focussed on bonds.

    Well, bonds and gold, because you can always find people who think gold is a bubble. Plenty of “experts” though gold set a top at $600, $800, $900, $1000, $11000 . . . .

  30. here are nice burberry scarves at a good discount,great welcome everyone order from us.

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