The media, I believe, is blowing the idea that we are going into a recession out of proportion to make some ad revenue. I mean c’mon we are an industrialized state with people who will always demand and supply certain goods and services. The idea that trading with China is bad for the United States is ridiculous. The whole idea of trade is so that both parties benefit from the trade or else it isnt worth trading. TRADING WITH CHINA IS NOT BAD, AND EVENTUALLY OVERSPENDING WILL BE CURBED BY SOME OTHER ECONOMIC FORCE. I think that inflation is the result of huge government spending via the Iraq war and the war in Afghanistan which has and will increase the prices of goods, which increases profits, which eventually increases taxes, which means the government will be able to spend the money and blah blah blah blah. My whole point is that studying this economic stuff can sometimes be futile because for every action there is an equal and opposite reaction. The United States is basically a pendelum trying to get towards equilibrium from a very greedy time for the last 2 years. The world is still going to turn if we go into a recession and my god do you really think that the governent can accuratly measure GDP quarterly? Either way, my point is that the United States is not going to crumble like some of you people believe. Japan never took over the United States, and neither will China or another oil-producing state. So in conclusion if you want to be a value investor or contrarian investor, you have to start getting optimistic somewhere. Fundamentally, we still have to think if the homebuilding sector was that good to begin with and if prices are still high if we normalize and somehow extrapolate earnings to figure out what a company would financially be like during a non-boom business climate. Remember: I am just a student and could be wrong. What are your opinions?
My opinion is just about the opposite of yours (I could be wrong too). I believe that the US has been on a collision course with disaster for a long time, spending (borrowing) trillions of dollars that we don’t have. At some point (I believe soon), this ride will be over and we’ll suffer the consequences. We’re already in a pretty big jam, in my estimation. The US consumer is 2/3 of our economy and the consumer is broke. His imaginary wealth in his home is vanishing into thin air and he is maxed out on his credit cards. To make matters worse, millions of mortgages will go into default in the next 2 years and that will only add to the real estate collapse. I think we’re in big trouble.
Several of the big banks are in trouble, but can’t be allowed to fail. Therefore, the government will do what it always does by simply printing more money and transferring the resulting debt to the taxpayers through the invisible tax of inflation.
If my money wasn’t all tied up in real estate, I’d be buying some gold - actual gold that you can hold in your hand and use for bartering in an emergency.
Good Luck,
Mike
Personally, if things got that bad where I needed to barter with gold, I would buy a gun. To me I see no value in gold: it’s just a bunch of atoms. Where is the cash flow in gold? Its just like buying an apartment house with no free cash flow but thinking that it will rise in price. Gold = sports memorabilia. Not trying to offend you but food and or water would have more liquidity than gold. To me buying gold is like buying water and then stocking it in your garage because you think the United States is going to end. Remember in 2000 when people stocked up on water because we thought that all of the computers were going to crash! ( i am not trying to offend anyone or their opinions just trying to stir up a lengthy conversation to enhance our understanding of what is going on.)
I’m very hard to offend (unless of course you called me a legal aid lawyer)!
Personally, if things got that bad where I needed to barter with gold, I would buy a gun.
I’ve already got several guns and a bunch of ammo.
Not trying to offend you but food and or water would have more liquidity than gold.
I’ve got 25,000 gallons of water in the swimming pool - how much do you think that would be worth? I also have some food stored in the basement (more for a pandemic than a financial collapse, but would work for either one). The government is spending a LOT of money running all those radio and tv ads recommending that people have a stockpile of food and water - I think that’s interesting.
Where is the cash flow in gold?
There’s no cashflow in gold, but it would be worth infinitely more than paper money in a crisis. Throughout history, gold has had value in times of financial collapse.
Remember in 2000 when people stocked up on water because we thought that all of the computers were going to crash!
Personally, I thought the Y2K stuff was just nonsense, but I think there is a very real possibility of another depression in the relatively near future. We’re overdue!
Mike
So you guys think another Great Depression is coming?
Sounds like a good way to buy houses dirt cheap because people will be needing money 
1 more year till investing!
You could be like old man Potter in the movie “It’s a Wonderful Life”. He was buying people’s assets for 50 cents on the dollar because everyone wanted to pull all their money out. It never dawned on me what he was doing until I started learning about money,savings and investing. Pretty slick Potter :cool
The media loves to wallow in gloom and doom. So things are never quite as bad as the media is portraying.
At the other end of the cycle, things are never as good as the media portrays.
In fact, the media in this country acts suspiciously like it is manic depressive.
Strictly from an economic standpoint, wars are good for the economy. They get money circulating.
The economy (and real estate) runs in cycles. Always has; always will. Right now things are slowing down. Later, things will speed up again. Then we will repeat the entire cycle again.
The biggest economic problem in this country is the price of oil, and that is out of our control. High fuel costs drive up production cost and they drive up transportation costs. Thus the purchase price of goods goes up-- and with the current price of oil, with no end in sight, prices are going to go waaaayyy up.
There is money to be make at any stage of the economic cycle. Y’all just need to adjust your investment strategies to fit whatever is going on in the economy at the moment.
Forget the media…that’s all BS. What I look at is DATA. It’s absolutely no different than looking at a home. What do you do when you check out a house?? You get IN there and look at REAL things. Foundations, structure, wiring, plumbing, roofing, neighborhood. You don’t listen to a realtor/or the media. I have had people tell me all sorts of things while looking at houses… This neighborhood is coming back!!! (as I hear gun shots on the next street) Yea, right??? No THANKS. Or my personal favorite…a neighbor comes over and says…“WOW, that place needs a TON of work, I wouldn’t go near that thing.” BINGO!!! INSTANT WINNER!!!
The point is forget what anyone in the media says about ANYTHING. Look at FACTS… Here some intersting ones…
In 1987 the U.S. was the single largest creditor on the planet. WE LOANED MONEY TO THE WORLD!!! As investors, we all know it’s better to be making those loans than PAYING those loans. In the time since 1987 the U.S. has done a complete 180 degree turn.
We now OWE more money than any nation in the history of the world. This debt is currently over $13 TRILLION, that’s TRILLION. The scary part is the DEBT is GROWING at a rate of an ADDITIONAL $1 TRIILION every 15 months. We HAVE to make these payments, if we don’t the same thing that happens to idiots that don’t pay their mortgages happens to our COUNTRY. WE WON’T BE ABLE TO BORROW. When you spend MORE than you take in, you HAVE to borrow. Thanks George BUSH!!!
The FED…Where do I start??? The stock market has dropped from a high of 14,000 to right around 12,000. That 2000 point drop has caused a PANIC response from the FED. They DUMPED rates as a result. Here’s the interesting part… If a 2000 point drop in the DOW caused the FED to make EMERGENCY cuts, what the hell does he do if the market drops to 9000???
This country is devaluing it’s currency at a rate NEVER before seen in our history.
The U.S. DOLLAR has NEVER been lower than it is RIGHT NOW!!!
Uncle BEN yesterday warned that an ADDITIONAL 9,000,000 U.S. homes could go into foreclosure in 2008 IF the banks don’t CUT the amount owned by the borrowers???
Are you kidding me??? HOW DO I GET IN ON THIS DEAL!!! Propertymanager…you should be as rich as Bill gates once those bad Wall Street guys FORGIVE 40% of your loan balances!!!
Let’s put this in language we can all understand.
I go out in 2005 and buy a house I can’t afford. I use a no doc, interest only ARM to do this. Investors on Wall Street provide the money for the loan. 3 years later I walk away from the house I purchased for $300k because it is now worth $220K and my interest rate tripled. The question now becomes…
Do the banks just write off that $80K for me??? If that happens THE WALL STREET INVESTORS ARE NOT GOING TO BE HAPPY!!! When they aren’t happy THEY TAKE THEIR MONEY OTHER PLACES!!! Which is EXACTLY what is happening NOW.
This is like watching a dog chase it’s tail. Either way the dog loses. He catches his tail and takes a bite (that HURTS) or he gets exhausted from the chase.
Now the BEST PART!!! The Democrats are going to kick John McCain’s @ss in November. (not because of me, I’ll be voting for him) But watch what happens. I’ve already seen the clips of McCain saying we could be in Iraq for 100 years. (which is HONEST, but we all know Americans don’t want honest, they want make believe) The DEMS must have thanked GOD when he said that. Also watch what those scumbags in Iraq start doing to our boys over there. Think these people are stupid??? THEIR NOT. My guess is they ratchet up the IED’s and the suicide attacks a few months BEFORE the polls and Americans vote us out of there by electing a DEMOCRAT.
Then the Democrats will DESTROY what’s left of our economy by killing trade agreements that are the last leg this chair has on it. Think about this…
The US (democrats) think their just gonna cancel NAFTA and bring all those lost jobs right back??? HELLO…those jobs are GONE!!! The WORLD BUYS FROM CHINA NOW. Those jobs are never coming back because AMERICAN business can’t compete with China’s wages.
Sorry to rant here, but this show has just started and it’s gonna get uglier every month.
FDJake,
So, what do you think is going to happen? I’m betting that we’ll wake up one sunny morning when everything seems fine and dandy. We’ll turn on the TV to discover that there is a run on a major bank (like happened recently in England). The market will finally realize the gig is up, and the market will drop 2,000 points in one day. That will only be the START of things.
Do you agree or do you see another scenario playing out? Are you or RookieNYC hearing anything from your contacts?
Mike
I think you hit it right on the head Mike. A BIG US bank will go under. There’s already whispers of this happening on Wall Street, not in the media, but from people I am close with at some regulating agencies.
Right now we’re in that phase of the market that tricks people. This exact same thing happened in 1929. The markets broke sharply in March of '29, then they traded within a range (sound familiar?) for months. People started TRADING those price ranges. Then the hammer came down.
Incidentially, the crash which occured in 1929 was actually brought on by BANK FAILURES DUE TO A REAL ESTATE BUBBLE. Real Estate broke first, then it ripped through the banking system (like now) When the first BIG bank went under that was it. People pulled their money out of ANYTHING not tied to real assets like gold.
It’s no coincidence that Gold, oil, natural gas, and grains are going through the roof. Very smart people are quietly REMOVING their assets from ANY TYPE of security and putting them in hard commodities. You can see a PERFECT example of this today in the oil markets. Supply data was released this morning showing a BUILD in inventory, at the same time OPEC says they ARE NOT cutting production, yet OIL GOES UP $5/barrel??? What is happening is money is being POURED into these markets by people who are looking to just GET OUT of anything that is falling in price. Now, as all this is happening the DOLLAR is falling through the floor. If things go out the window your pool water could be worth some serious dough Mike. Seriously,
When our own currency is falling BY THE DAY, WE ALL better start thinking about ANY kind of appreciating asset class. Real Estate isn’t appreciating, stocks aren’t, bonds are garbage, that doesn’t leave a lot of choices.
Of coarse our BRILLIANT population will just STAND there while this all happens around them and think they got screwed.
Make your plans folks…there is NO ONE there to save any of us. This is a house cleaning that has been 30 years in the making and it’s gonna be a GOOD one!!
fdjake,
You predicted this a year ago (if I remenber correctly) and I believe your senarios are playing out as you said. Pretty impressive.
So, let’s say the senario that you and Mike laid out becomes reality. How do you guys think it will affect RE assets? Particularly the rental buisness? If the Dems get the white house, I forsee alot of government subsidized rent. Of course, where would that money come from?
Keep the posts on the economy/stock market coming! I enjoy your insight (rookieNYC too).
If Hill-yuri gets in, it’s gonna be "Katy-bar-the-door, lights out, full-court press towards Socialism – it’s who she is, it’s what she does…“been there seen that, got the T-shirt”!
Keith
This is a pretty interesting (if not scary) scenario. I worked in the credit area in the mid/late 1990’s and even back then it was starting to show. People started treating bankruptcy as a personal finance strategy, not a personal shame. They are now doing the same thing with forecolsures.
There is so much debt out there, public and private, that it really does scare me. Jobs in my area are plentiful right now, but I remember the way things crashed after 9/11 well enough to know that can go away overnight.
Do you agree or do you see another scenario playing out? Are you or RookieNYC hearing anything from your contacts?
You rang?..I’m in the middle right now how things are going to play out…Because I dont have a crystal ball…Both sides have valid points…I do feel that the US is overleveraged and long overdue for a serious economic setback,possibly for multiple years…At the same time I fully understand the depth of manipulation that takes place in the markets…We will never see downturns like the The Great Depression etc again in our time…The main reason is because of there is too much foreign money in our economy… Markets can and will be manipulated and injected with liquidity to keep saving it…And the economy will follow eventually…A downturn/slowdown has been inevitable for a many years now but at the same time money keeps coming to the plate…
Oil is up %5 ($5) today to $104.75 per barrel…I said this weeks ago about moron Bernanke and his slashing of interest rates…Now he is set to do it again…Oil is destroying businesses everyday…The average American is in so much pain right now and they don’t even understand why it’s happening…
My contacts change their opinions hourly (traders often do)…Like I said before I don’t see much good coming out of the next 6 months to ?? years…From where I’m sitting things don’t look to good…
I agree with that.
Rookie is 100% right. Entire divisions of goverment were set up to keep a COMPLETE economic collapse from ever happening again. I guess I use 1929 as a way to convey how much WORSE this downturn COULD be compared with anything “we” have seen in our lifetimes. I could be wrong here too. I actually hope I am, but I have to say this looks like one big pile of swirling garbage.
Keith, I agree… Hillary as President would be the absolute LAST THING this economy needs right now. It’s OVER if that happens, and though I don’t like to say it…She’s probably gonna win.
Here’s what we ALL are dealing with…
In 2001 right after 911 a barrel of OIL cost $17.50!!! I just wrote that and I CAN’T BELIEVE IT!!!
Same barrel of oil now costs $105!!
I don’t want to make this overly simplistic buy if you had $10,000 in cash in 2001 by 2008 you just lost 500% of it when it comes to OIL.
The BAD thing about that is OIL is in EVERYTHING…EVERYTHING. Food, building materials, cars, toys, drugs. INFLATION IS GOING TO START KILLING THIS COUNTRY!!!
Add to this Uncle Ben dropping rates like beads at Mardi Gras and it’s a vicious cycle. He HAS to drop rates (he thinks) to keep Wall St. from blowing up. He HAS to drop rates inorder to at least ATTEMPT to ease the Housing crisis. BUT…as he does this it ACTUALLY CAUSES PRICES TO RISE!!!
As far as real estate goes…THE GREAT DEALS ARE JUST GETTING STARTED!!
I own some commercial property, not a lot, but it’s been a good investment. I fully expect to lose some tenants because of this downturn. Lucky, I’m not leveraged to my teeth, but to be honest I’M GOING TO FEEL THIS. NO ONE… NO ONE, is getting out of this mess without a few battle scars before it’s over.
I plan on buying property during this mess because a few years from now, the same idiots who created it will be out there buying like drunken teenagers. The key for me is to buy it for DIRT. If I can’t STEAL it, I’ll pass.
Check this little GEM out www.investopedia.com/features/crashes/crashes4.asp
Same circus, different clowns.
Put a fork in it, I think we’re done.
Hi Folks,
Interesting comments!
I’m not an economist and don’t have contacts in financial markets but I do read a lot of economic articles and the general consensus is that the world cannot and will not allow US economy to sink. As bad as things are and have been handled with the national debt and credit markets the bottom line is every major economic power on this planet is, in one way or another, dependent on the economic vitality of United States. Countries like China, India,… must have a strong (or relatively strong) US economy because their money is invested here. As much as we need China and Japan to purchase our debt they need us to purchase their goods. Without US their economies will falter. So things might get bad but no one is going to let US economy and banking system crash…
no one is going to let US economy and banking system crash...
What will they do?
I’m highly skeptical of the world economies jumping in and voluntarily pumping billions of dollars into America and keeping it on life support…
I'm highly skeptical of the world economies jumping in and voluntarily pumping billions of dollars into America and keeping it on life support....
Even if they do pump billions or trillions of dollars into our economy, that will still CAUSE a collapse. Pumping a huge amount of worthless peices of paper into our economy will only cause runaway inflation. When it takes $1,000 to buy a loaf of bread, most people will be pretty well done!
This has happened over and over throughout the history of the world. Every time a banking system is based on fiat money, it collapses. It’s only a matter of time. Now, I know what you’re going to say: “somehow it’s different this time.” I imagine that’s exactly what they said every other time.
Mike
Mike
These topics are interesting banters, but little more, boys and girls. No one really knows what is going to happen with the economy. Heck, just check out past posts of the main posters, myself included, and see how much we’ve flip-flopped, depending on posts and the “current” condition of the markets and it’s plain to see WHY we can’t even guess. If WE don’t know what WE’RE doing, then HOW can you attempt to determine what the economy may or may not do? Sad truth is that I believe most of the posters have made better valid points than the “experts” have which is where the media is getting their info.
You like numbers? Look at them at a different way and you may decide on a different view. For example, the “National” housing crisis and depreciation. Did you know that during the boom period that only about 1/3 or so of markets were actually experiencing runaway appreciation, that is, double digit annual increases? Or that during this time of depreciation that only about 1/4 of markets are suffering major depreciation? Check the numbers yourself.
Look on a more local level, too. NC for example. During the boom time, the only major appreciating area of NC was the coast. Greatly boosted numbers for NC appreciation. Now, the coast is a bust, which is hurting the numbers for the state, even though most middle area cities are still appreciating and the mtns and foothills area is actually getting stronger (YAY!).
Oil prices, IMO, is much more important to the current state of the economy than the housing issues. I believe the oil situation will be handled within the year. In fact, I will be VERY surprised if oil doesn’t make a major drop AFTER the election. If not, I believe that there will be a much stronger push toward alternative fuel which will decrease oil dependency, though may create other problems, but that’s for a later discussion.
Raj
More data on the “Housing Market Crisis.”
Top ten worst markets reported. Worst is 18% depreciation. Best of the worst, 7.1% depreciation.
Now, behind the numbers. Atlanta, Ga and Detroit, MI both made the cut of worst. Both have been in decline for more than one year. Hardly a surprise.
Of the ten, 7 have depreciation rates of 12% or LESS. Only the top three posted losses of 17-18%. Now all of them (CA and NV areas) during the boom posted gains of 20-30% ANNUALLY for what, 3-5 years?
Is it really a fallout when you only have a max of a 18% adjustment on markets that have increased in value 100-200% in a matter of 3-5 years? Is it really a “crisis” when the best of the worst market has only a 7% depreciation?
Now, the article goes on to say that 88% of 330 major markets have “suffered” a decline in value. REALLY!? Okay, 88% is about 290 of those markets, and ten of them have already been accounted for that leaves 280 markets that have “suffered” a decline of 7% or LESS. And let’s be very specific on what they classify as a “decline.” That is any market that has had a depreciation of .1% (that’s POINT one percent).
Interesting to note that markets that ARE still appreciating and markets that are STILL considered booming, though mentioned, are not discussed.
Find article at Yahoo.
Raj