Posted on 06/06/2006 12:25:55 PM PDT by ex-Texan
..The golden age of liquidity is drying up...Our guess is that we will see the results of this fundamental shift towards tighter money over the next decade or two...
We don’t know what this portends, but yesterday Ben Bernanke slouched over to Congress. He must have worn lifts. For somehow he managed to remind the world of old Paul Volcker. We remember when the giant Paul walked the earth over at the Fed. It was a different world back then, with consumer prices rising at double-digit rates, and interest rates over 15%. But Volcker stood up and did what a Fed chief is supposed to do; he stopped inflation.
Even recently, speaking to an audience that included an intrepid reporter for the Daily Reckoning, Volcker said he was surprised the country had gotten away with such a long period of credit expansion, without setting off a new round of consumer price inflation. He wondered out loud how it came about and when it might end. But he, like the rest of us, had no sure answer.
And now cometh his successor, Ben. Speaking in public yesterday, the former head of Princeton’s economics department sounded if not like an inflation fighter, like an inflation taunter. Inflation, he said, was "unwelcome." Not exactly inflation-fighting words, but it was enough to lead investors to fear another .25% rate increase was coming. Stocks sold off, taking the Dow down by nearly 200 points.
Meanwhile, the European Central Bank seems to have found a touch of Volckerismo, too. "ECB rate hike done deal," says AFP.
"Golden age of liquidity is drying up," adds the International Herald Tribune. "Cash, credit, related financial instruments; liquidity surged in the past decade, fuelled by relaxed monetary policies of central banks, globalization, new technologies and such exotic financial instruments as derivatives. They in turn drove down interest rates and bond yields and encouraged investors to pump more money into riskier assets, propelling stock markets."
But now...
"The era of under-priced capital in constant supply is ending," adds David Roche, a financial strategist in London.
Our guess is that we will see the results of this fundamental shift towards tighter money over the next decade or two. We also guess that trying to fight this trend by selecting stocks carefully will be like flossing your teeth before the battle of the Little Big Horn. If we are right, asset prices are going down no matter how much financial hygiene you practice. And it will mean, among other things, fewer Fed chiefs on the cover of TIME magazine and fewer Treasury secretaries from Goldman Sachs. Speculation will cease to pay. In fact, maybe our next Treasury secretary will come from the legal profession, where he will have made his reputation in Chapters 7 and 11.
It was cheap money as well that fuelled America’s property bubble. Now, that bubble seems to be losing gas.
From Las Vegas comes news that takes our breath away. There were 2,992 houses for resale in the city in 2004. The following year there were 10,493. This year there are 17,121 – far more than 5 times as many as there were 2 years ago. Including new houses, there are some 20,000 dwellings for sale in Las Vegas right now. And they are still putting them up, with hundreds of new projects still being built out and more than 500 sales offices open for business.
Meanwhile, over to the right, on the Florida coast, comes news from our own family sources that real estate is getting hard to sell.
We recall a realtor quoted in the NY TIMES only a year ago:
"South Florida," he said, "is working off of a totally new economic model than any of us have ever experienced in the past." Explaining how limited supply and unlimited demand would create a situation in which prices rose forever.
Many people thought so. But now it looks as though this economic model was not so different after all.
"Yes, we missed the top," reported our source yesterday. "Now, we’re definitely on the downhill slope. We reduced the price twice already. We’re getting plenty of lookers but no takers. Basically, we’ll sell for whatever we can get at this point, even less than we paid two years ago."
And thus we see, dear reader, something interesting. Inflation may be ‘unwelcome’ in the dewy eyes of the economics professor who now rules the Fed, but the lack of it is terrifying to the wide open peepers of Speculation Nation.
"In a nutshell," explained Joseph Quinlan, chief market strategist at Banc of America Capital Management, "the era of easy and abundant global liquidity is coming to an end – a change in the global monetary backdrop that usually inflicts pain on those asset classes highly dependent on easy money."
But all of America is now highly dependent on easy money. The US government relies upon it to pay for its bread and circuses. Wall Street needs it to keep stock and bond prices elevated. The lumpen need it too – their house prices will fall without it. And when housing falls, the whole kit and kaboodle comes down with it. The US economy will be in recession within 6 months.
We suspect that is it Hank Paulson’s job to let the Fed chief know.
On the other hand, if you are one of the lucky souls that sold your properties at the peak -- you may be sitting pretty right now. Just wait, watch and listen. By the end of next year, there will be hundreds of foreclosures to invest in and make real money. "Location, location, location. Buy low, sell high. Nada por nada." This is not a "gloom and doom" post. It is a helpful post. And very hopeful post. Good times are coming just around the corner!
For the naysayers, I reiterate your mantras: "Nothing to see here. Not in my neighborhood. Prices are sill going up. No foreclosures near me today. Time to move on"
There is a famous piece of art entitled: "Ce n'est pas une pipe". It depicts a pipe.
Might be in the house market in a few years. Should be a good time to buy.
Let's look at Las Vegas, which the writer uses a "breathtaking" example. The 2,900 homes for sale in 2004 was an incredibly low number for the size of the city. The 17,000 currently on the market is an admittedly high number, caused by the bailing out of speculators. The average of these two numbers (10,000) represents a proper balance. As soon as the speculators wash out, we should be right back where we belong.
70% of homes in LV are selling in under 90 days, even today. What does that tell you? It says that despite the increase in inventory, the sky is not falling yet. And how could it? 6,000 a month move here. These people need places to live.
I believe prices will fall here and across the country, and this is a good thing. Will it lead to economic calamity? No. In fact, unless one is in foreclosure, it really won't even matter. It will greatly help people like my sister, a school teacher, who currently can't even afford a modest condominium.
But I'm not being deceptive at all. Not in the least.
It's the perfect storm. Clamping down at the border will cause it to be so. Now we are going to have to lower wage pressure the hard way.
We'll just keep paying on our less than $200,000 ten year mortgage for fourteen acres above Silicon Valley, thank you. To get out and then buy in again later would triple our property taxes.
interesting tidbit from the article:
"It was cheap money as well that fuelled America’s property bubble. Now, that bubble seems to be losing gas."
I'm surprised you missed it, ET. ;)
EXTEXANSUCKS; HOUSING; SAMEOLDSHT; SPAM
Posting HATE SPEECH and personal attacks in the KEY WORDS is like throwing rotten eggs at houses on Halloween. Pathetic. Childish. Cowardly. Run away little vandals. Run away. Run away and hide behind your screen names.
I just don't get what you are talking about with keywords. What is their relevance?
The same old same old. If they will not debate why even come on the threads.
Pity those who still have interest only, adjustable rate mortgages, for they shall soon be known as Dual Income No Equity (DINES).
Ex-tex. I believe the Moderators can tell who posted the keywords. Apparently the posters didn't know that.
Now would be a good time for a lot of peopel to start figuring out how to pay off debts and live within their means. Having a low debt to earning ratio is great.
No they will be known as the renting poor after they are foreclosed on.
You must be joking. Or have on blinders. Go up to the primary post. Look at the KEY WORDS. This is abusive conduct. Hate speech. Personal attacks. Cowardly vandals take pot shots from behind rocks. FR allows them to do it.
See my # 16.
I only know one thing for sure...no matter the finacial environment, there are people ALWAYS buying jewelry, fancy cars, boats, Hummers, and big houses......there are people at every NFL game paying top dollars and Southwest at least seemed very very busy in January, and February, and March....
No different from FR allowing you to post your near daily prophecy of housing bubble burst. How long have you been doing this? Anyway, if you aren't willing to risk a good old fashioned stoning, you shouldn't be in the prophecy business. It doesn't matter if you are right or wrong, you have painted yourself "Bubble Bursting Red", and it's a loud bright color that attracts attention. Don't get upset about it.
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