09/30/09 London, England
Houses bounce too…
Not much happened yesterday. The Dow fell 47 points. The newspapers attributed the reversal to surprisingly low consumer confidence numbers. Apparently, consumers aren’t so sure this crisis is over. As we reported yesterday, they’re saving money…maybe even at an 8% rate.
Oil didn’t move yesterday. Neither did gold.
The Wall Street Journal reported that markets were reacting to “mixed data.”
That is to say, some reports were encouraging. Others were not. It was as if one weather forecaster called for a blizzard and the other for sunny skies and warm temperatures. Investors didn’t know how to dress.
Among the dark clouds was an item on the falloff in tax revenues. States are having a hard time balancing their books, because their tax receipts are declining. The WSJ reports that they are running 17% below last year. Since states cannot print money, they’re forced to make cutbacks – typically reducing hours worked per employee as well as the total number of employees. This is a bad thing, says the report, because it increases unemployment and lowers the wage base, leading to less consumer spending.
Another little cloud appeared yesterday (in addition to the consumer confidence numbers): the vacation timeshare market is collapsing at a record pace.
Well, don’t worry about it. We met a guy who explained the timeshare business to us.
“What you’re selling is a dream. You bring them to the property. You make sure they have a good time. And then you do to the numbers with them. You show them how much they save by coming to your property rather than on a typical vacation. And then you show them the other properties that they can exchange for. They think they can buy a cheap property and then exchange with an expensive timeshare. But it doesn’t work that way. They get stuck in the cheap unit and the dream gets a little faded. And then, they stop coming…and then they try to sell the timeshare. Timeshares are rarely a good investment.”
Besides, timeshares are a small, quirky part of the housing picture anyway. The real story is in the regular housing market. There, if you believe the forecasters, it’s sunny skies.
House prices seem to be stabilizing. In some areas, they are going up. Of course, in some places you can get a house at half the price it sold for two years ago. That lures buyers back into the market. If we wanted a house to live in, we might be tempted too. That’s why we like falling prices in housing; we get more for our money. But most people want a rising housing market. They think it makes them richer.
They’re likely to be disappointed. They show up at the beach with their umbrellas and sun tan lotion…just as a winter storm hits the coast.
Forbes lists eight reasons to “remain worried about housing”:
- The federal tax credit, worth $8,000, is set to expire at the end of November. That will make housing $8,000 more expensive for first-time buyers.
- The Fed is also ending its $1.45 trillion shopping spree. It has been supporting housing by buying mortgage-backed derivatives. What will happen when it stops?
- Mortgage lending standards are tightening up generally.
- Houses are still not cheap. Forbes cites Shiller’s numbers, putting the average house 41% higher than it was in 2000. Incomes did not increase during that period; ergo, houses are still too expensive.
- Damaged psychology. It will take time for potential homeowners to get over the shock of a bear market.
- The end of summer has arrived. Housing sales always go up in the summer. People relocate in summer, when school is out. Then, sales fall with the autumn leaves.
- There are still huge numbers of houses that will be foreclosed. Forbes says only 12% of option ARMs have been reset. More foreclosures will increase the supply of desperate sellers and decrease prices.
- There’s a ‘shadow inventory’ hanging over the housing market; it could be vast. Everyone knew it would be hard to sell a house in 2009. Many potential sellers held back, waiting for the market to stabilize. As they put their houses up for sale, that too will hold prices down.
Some wiseacre economist has probably already come up with eight reasons why housing prices will go up. But the key thing to recall is that this is a depression…a major restructuring of the economy, not a standard post-war recession. After 64 years, the consumer has finally rung a bell. He has reached his limit. He cannot borrow more. He cannot spend more. He is finally cutting back. That fact will echo through the entire world economy…and through the US housing market…for many years.
Houses, like stocks and corpses, may bounce. But they will not begin a real bull market again for a long, long time.
Our old friend Marc Faber is “highly confident” that things will turn out badly.
“The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults and the impoverishment of large segments of Western society,” he writes.
“We have a money-printer at the Fed,” he continues, “which guarantees runaway inflation, wholesale debasement of the dollar, and a major lowering of living standards for most Americans and many Europeans as well.
“Meanwhile, Paul Volcker says that China’s rise merely ‘highlights the relative decline of the US.’”
So there you have it: China on the way up, America on the way down.
That’s the drama that we’re watching every day, here at The Daily Reckoning. In our view, the peak of US wealth and power probably came during the period between the fall of the Berlin Wall and the fall of Lehman Bros. But there are probably a lot more shoes to drop before people are fully aware of what is going on.
The way we see it, almost the entire 20th century was a mistake…a dead end.
Europeans were clearly on top of the world when the century began. Then, after WWI the Europeans in America took the lead role. But WWI shook their faith in their evolving political order. Not long after, the German hyperinflation and the Great Depression shook their faith in their economic and financial order. This left a huge vacuum, which was soon filled by ruthless adventurers and ideological schemers. Much of the rest of the century…from ’39 to ’89…was spent in hot wars and cold wars against these Bolsheviks, Fascists, Stalinists and Maoists.
In the end, the more reasonable and consensual societies of the West won the battle. But they, too, were transformed by 50 years of war and nearly a century of bad ideas.
“Whoever fights monsters should see to it that in the process he does not become a monster. When you look into the abyss, the abyss also looks into you,” Nietzsche warned.
Looking into the abyss created by Mussolini, Hitler, Tojo, Pol Pot, and the rest, Western societies decided both to fight them…and to join them. Tax rates soared. Regulations multiplied. University professors taught socialism, Freudianism, modernism, cubism, feminism, racism…and every other ‘ism’ they could think of. Parents spent good money to spend their children to universities that turned them into mush-heads.
And – perhaps most ominous – in the United States of America, the military grew into a greedy, grasping goliath…the very thing Eisenhower had warned against.
Then, there were counter-trends in the ’80s…led by Margaret Thatcher in England and Ronald Reagan in the United States. But these were mostly frauds. Top marginal tax rates were rolled back. And there were some cuts in regulatory procedures. But government spending tended to go up anyway. Worse, Ronald Reagan mistook the Soviet Union for a genuine threat and increased military spending even further to combat it.
And now, the United States staggers under the weight of its eternal wars…its imperial illusions…and its everlasting efforts to provide bread and circuses. If it kept its books like a private enterprise, it would be broke. If it were a public corporation, it would be de-listed.
Still, it spends and spends…and there is no stopping the spending. Trillions are spent on wars in Iraq and Afghanistan, for no apparent reason. But who complains? Too much money is at stake. There are too many lobbyists for too many industries and too many special interests involved. Military spending – even in a time when America faces no substantial challengers – cannot be rolled back. Neither can social spending.
Marc Faber is right. There too, there are too many people with too many dogs in this fight. Both military and social spending will continue to expand until the empire is ruined.
Until tomorrow,
Bill Bonner
The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
Wow what a column…it is very bleak. Of course housing won’t be so strong without the $8K tax credit, although Obama wants to extend it and increase the amount…thus, I’ve thought about buying a house but decided to wait to bigger price drops and greater incentives. The 20th Century as a dead end…that is quite a hard call to make. Yes, it was marred by two world wars and countless other conflicts. Yet, technology advanced by leaps and bounds–the century started out with horse and carriage, but in that century, people walked on the moon, most households had several cars, the Internet and cable TV. Life expectancy increased dramatically; antibiotics were discovered.
Re: Timeshare. I was in the Timeshare game. Nearly a total scam. Rarely does anyone make money on owning a timeshare – those days are long gone. But the real scam is in securitizing the timeshare mortgages that were sold to dumb investors. Nevada law (where most of the timeshare companies are domiciled) allows for a timeshare foreclosure without redemption once it is 30 days past due. The investor gets stuck with the bad paper and the Timeshare company gets the space back, so it can get sold to the next sucker.
“there are too many people” Thats it. Until we all realize that there are too many people and start figuring out how to stop population growth and cutting back on births all the rest is just putting on band aids.
It´s seems that Götterdämerung is nearest that We think. It´s true, the economic corpse is doped to do its last rales!!! We must be prepared to stop greedy oligarchies take out countries to a war, we can build a better society!!!
Consumer confidence is weak because this time they have got a clue what is going on and that is the big difference.Their relative youth in prior recessions gave them a sunnier outlook and rightly so .I am moving to where there are more young people with sunny outlooks because you can’t change the economy but you can change the company you keep.
Consumer Confidence is a shaky poll at best. Look at the hard economic numbers that have been coming in much stronger than anticipating and showing improvement, not some silly poll asking people about how they “feel”.
How miserable must you be to write this same drivel every day?? I’m seeing a lot of improvement out there and you’re still on the gloom and doom, scare the world road. Get with it!
Bill, Bill, Bill, what a downer you can be! I’d be willing to bet that the 18th and 19th centuries were no picnics either. What exactly is the purpose of a century anyhow? How would we know if we got it right? And since when has humanity not been a disaster for the most part?
Yeah, I agree that many of us are about to get our comeuppance for the fiscal foolishness of the last 30 years but we have also been lucky enough to have lived through a period of freedom and prosperity that few people in the history of the world have experienced. Most of us in the west the last 75 years have lived full and rewarding lives that our ancestors could not even have dreamed of.
I have spent the principal portion of the last 18 months obsessing about and making any number of personal preparations for this looming disaster. I have decided that despite my best efforts I will probably suffer financially in the future relative to the past. Yes it sucks now that I have just about reached retirement age, but I reached the point of maximum fear and despondency last year and I am now moving beyond that and trying to focus on the positive things that will always be available to me, walking my dogs for instance. I have done all that I can but the constant negativity of this situation has taken a decided toll on my psyche. If I can quit focusing full time on these disaster scenarios I am sure I can find some simple reasons to continue living and probably be happier for it. As if I were back in my twenties/thirties again when I was far less focused on money and far more focused on living in the moment.
The thing I have realized in my 55 years is that humanity as a group will NEVER get it right. Once you abandon the idea that such a thing is possible you may be able to move on to a happier place for yourself.
Dave: That was an excellent post!
Bors you are right, everything else is a side issue.
Any suggestions on how to fix the problem.
The real “house bounce” will come from inflation. The only way the “upside-down” (who don’t walk away from their mortgages) are going to go from red to black on their homes is if the Fed prints more money, inflating away their debt. Since faith in U.S. currency waning and government “obligations” and debt are rising, the only way to close the gap will be printing…and the resulting inflation will be spun by politicians as a positive thing that helps the indebted (provided they aren’t too distracted by the price of food).
And there we have it. “The Big Picture”. The difference between Bill Bonner and the Mainstream Media: Honesty. Now what I’d like to know is: Is the destruction of our economy an accident of circumstance, or has it been planned?
Danny, We need to develop a picture of a better reality that our primitive consciousness has not been able to imagine given the biological imperative we have used for survival for a million years. It will take a better cultural consciousness and a better personal consciousness to create. This probably will be done by realizing how primitive our sense of reality is and expanding our idea of reality. This can be done but at the moment most cannot concentrate enough because if the short attention spans we have developed.
The “Recovery” song:
Sung to the coke song:
I’d like to build a baboon den,
And furnish it with Bens,
Grow carbon tax trees,
Add some debt-slave bees
And Baucus mandated Prozac….
Chorus: It’s the real thing… Bernanke told us so…
Ghost of George Harrison: “smoke pot, smoke pot, everybody smoke pot…”
Living in the moment means being aware. This includes the realities and challenges facing the human race. While ignorance may be bliss, I rather see life in all it’s entirety, warts included. To be kind is to be honest. Kindness breeds happiness. Shoot the messenger if you want (Harry and Dave), but I thrive on knowledge, it’s what makes me happy.
Bloomer – I certainly appreciate Bill’s viewpoints, after all I read them everyday and for the most part agree with them. I get it that the govt and powers that be cannot fix this fiasco with more debt and deficit spending, can’t re-inflate this bubble when the govt and people are tapped out. Advice taken.
But I think it’s a bit arrogant to state that the century has been a failure. Perhaps it is, though it seems preferable to me than those centuries that went before, but none of us are smart enough to make that determination. And even if the USA/worlds leaders made consistently correct economic policies, to Bill’s way of thinking, I doubt that would lead to any kind of perfect world or century.
My point is that this relentless daily message that there is no recovery possible leads to an overall despair that is really not necessary. We will recover at some point, although it may be twenty years which is basically the remainder of my life if I’m lucky! Prepare as best you can and then try to figure out how to live the rest of your life in some positive fashion. I am sure people were able to be happy and enjoy life in the midst of the great depression. And I know I have been quite happy even without any money to speak of. And Bill seems to be doing fine over there in France worrying about how much tax the Obama govt will try to take from him. If I ever have problems like that I guess I’ll be in pretty good shape.
BB shows information to prepare for a worst scenery. If you don´t understand it, then good luck, go ahead within rosy life!
Bernardo, learn to speak (type) English, please…….
You make some vaild points Dave, I agree that in our lifetime the current system for the most part, has served the Western World well. My beef is our culture has become intolerant to those who voice a contrary opinion of the status-quo. If one is a believer of Global Warming, he becomes a racial environmental terrorist or doomsayer. To be critical of Big Business and Financial Institutes, one now becomes an enemy of capitalism. Oppose the war, you are with the terrorist.
This crisis occur become we marginalize and ignored voices to the contrary. Until partisan, self-interest politics, is put aside, and we can carry out open honest respectful discussion, I can’t see us working ourselves out of this debacle.
“Out of ashes, Phoenix rises”; when dollar collapses, the new INTERNATIONAL currency will arrive and usher us into One World Government/Economy.
I am so surprised nobody is mentioning this, and yet it is so obvious. Not guaranteed though.
Armywifescientist, good points, it almost seems like a conscious decision was made at some level to withhold millions of homes from the market until the dollar is totally trashed. A really sick, disgusting and unfair ending for those of us who waited patiently for a good deal on a property, apparently as usual the financially responsible will be thrown under a bus while the reckless homedebters will be spared.
Y’all are missing an important point. All the stimulus is coming to an end.
Get it?
Why is it coming to an end?
Because the worlds central banks ( not your penny ante friends on Wall St. ) are not selling gold, and/or are ( big )buyers of gold.
The US$ may be “legal tender” stateside, but the rest of the world is about to say “What!?” We want real money… and most of them have figured out that SDRs are a fantasy… evidently even the Chinese got the message.
Your friend Ben ( NOT! ) may indeed start adding to the money supply… real soon… to pay 30% interest rates ( IF that’s enough ) on gov’t debt. All to prevent a radical discounting of the entire US economy should world trade be forced into the gold market… which it will.
Bonner is a astute historian. Empires begin, rise, decline and eventually fall. It reminds one of natures cycle of spring, summer, autumn and winter. Its just the way things work and no amount of government propaganda can stop this process only hurry it along. This doesn’t mean that empires, or the people within them don’t create some positive things. It is just that government creates too many negatives that destroy themselves and others with them. Don’t believe government propaganda think for yourself. The West is now on a collison course of war with Iran and its allies Hezbollah and Syria. Russia and China could take their side as well. This is not inevitable, but highly likely unless cooler heads prevail. Lets hope they do. This is not meant to depress you just to let you know it is coming. Because after winter’s destruction there is always spring’s rebirth.
I believe the beginning of stupidity really began with the Reagan era. That is when we learned that we could spend money that we did not have and the right took on its big nanny state govt role mentality. The failure of a war on drugs and the irrelevant abortion debate. Stupidity flourished as Limbaugh preached his Democrat against Republican mentality, but really they were equally useless .I very much blame pseudo conservatives for the mess we are in as much as liberals. Because the last time I checked conservatives believe in small govt something that has not been practiced by either party since Reagan.
Ah, the ultra-orthodox libertarian ideologue, and, of course, bosom buddy of all the powerful corporate and political “intelligensia” around the world, again rant on about “empire” and “war”. It’s really like being trapped in a bumper car visiting this site. You want to pick up some information on general financial and economic conditions that you hope comes from some information and knowledge that you, as a lay investor, don’t have. Instead of that it’s hysterical rants about government expenditures for nefarious (according to him) military expenditures. The truth unfortunately is quite different. The USG has turned into a giant vacuum cleaner sucking up the financial property of those who worked for it to give to the “poor and oppressed.” Well over 50 percent of the budget consists of income transfers. On the other hand the defense budget, a explicitly delgated power under the Constitution, accounts for about 21 percent, i.e. it is now a marginal governmental activity. And how about this one. According to the CIA World Factbook, where does the U.S. defense budget rank in comparison with other countries as a percentage of GDP? Anyone? You, Mr. Bonner? The U.S. ranks 28th on the list, preceded by those other mini-empires and war mongers such as Singapore, Burundi and, tah dah, No. 1 Oman. You cannot possibly be this ill informed. Or maybe this is only the tip of the iceburg and all the other info is equally specious.
If Practicality is right…then look out below…the time for real estate bottome fishing might be at hand…then again, what is the value of real estate going forward located within a declining empire with rising taxation and income redistribution?
I read and benefit from Bill Bonner’s analysis and thoughts but I agree with Dave that Technological developments and innovative spirit can keep us going forward despite all the misguided Govt. policies.
Chami