global bubble trouble

Real Estate Strong Despite Higher Rates

2005-08-14T13:17:00.000-07:00

"Rising interest rates are supposed to be an economic sedative, but the hyperactive real estate market has retained its vigor even as the prime lending rate has climbed to a nearly four-year high.

One of the biggest reasons for real estate's unusual behavior is that home mortgages are less expensive than they were 14 months ago when the Federal Reserve Board began to push up the short-term cost to borrow money.

That inflation-fighting effort has raised the prime rate from 4 percent in June 2004 to 6.5 percent today, making it more costly to buy cars, appliances and almost anything else on credit.

Meanwhile, home mortgages have remained a relative bargain. The average rate for a 30-year fixed-rate mortgage stood at 6.05 percent through Thursday, down from 6.41 percent during the first week of June 2004, according to HSH Associates, an industry research firm."

Real Estate Strong Despite Higher Rates

What do you think our trade deficit means or will mean for the economy?

2005-08-14T13:07:00.000-07:00

The U.S. trade deficit widened more than forecast in June to $58.8 billion, as a strengthening economy prompted companies to import more expensive crude oil and a record amount of goods from China.

A real estate boom where?

2005-07-10T10:44:00.000-07:00

Natchez real estate is booming. If you don't know where that is, you're not alone. One broker says, "I closed out $8 million last year, the best year I've ever had. I'm working 12 to 14 hours a day and need another day in the week."

Many buyers are from, you guessed it, California, Florida or New Jersey.

Natchez real estate is on the move. Young families are opting for bigger houses; newcomers are buying downtown buildings and residences; commercial property is under development on the north and south sides of town.

Real estate isn't the only thing booming...

2005-07-10T10:40:00.000-07:00

"Real estate prices are soaring, which means the real estate investment-seminar business is booming."

Getting rich in real estate is no easy matter

The new gold rush

2005-07-10T10:32:00.000-07:00

Thousands seek to join real estate sales force
Mamta Popat / Arizona Daily Star

Realty schools' enrollment spikes as home sales soar

By Joseph Barrios

ARIZONA DAILY STAR

In Tucson's modern-day gold rush, you don't sift dirt.

You sell it.

Local real estate schools and state officials say there's a boom in the number of people trying to get into the business. The number of licensed real estate agents in the state has jumped nearly 25 percent in the past year.
Thousands seek to join real estate sales force

Low savings rate leaves Americans vulnerable

2005-06-23T10:01:00.000-07:00

"According to the latest data, Americans save as little as 40 cents for every $100 of disposable income." My fears are when savings rates go up to normal, the economy will slow to bad levels- like a recession or worse. "Few economists believe that the savings rate will bounce back to its long-term average of 7.4 per cent. But even if Americans save at just half this rate they would need to set aside an additional $291bn a year which Capital Economics estimates might lead to a 1 per cent reduction in consumption growth for three years running." As usual, the asset bubble in real estate and stocks are part of the problem. "The appreciation of their houses and stock portfolios has been doing all the work for them, powering a $9,400bn increase in net household wealth over the past two years to $48,800bn." If only that weren't built on a real estate bubble!
Low savings rate leaves Americans vulnerable

Does everyone in the world have a shopping problem?

2005-06-20T09:44:00.000-07:00

Thais on a shopping binge, credit headache awaits
I've never seen a story like this about the US lately. US household debt is 85% of GDP.
Chart Library

Creative financing boosts risks in US housing boom

2005-06-20T09:38:00.000-07:00

Well, yeah. "The boom has led to fears that buyers and lenders may be squeezed by a sudden rise in interest rates or a drop in home prices."
"Creative financing" boosts risks in US housing boom

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate"

2005-06-19T22:50:00.000-07:00

"It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
-Andrew W. Mellon

To Liquidate or to Inflate?

Imagine hearing those words from a Secretary of the Treasury today? Or a central banker? Doug Noland has a good look at an era of economic thinking long gone.

The History of Bubbles Spells Trouble Ahead

2005-06-19T19:08:00.000-07:00

Bubbles cast long shadows after they burst

Ferdinand Lips interview

2005-06-19T18:57:00.000-07:00

He is the author of Gold Wars.

Interview With Ferdinand Lips

Why Paper Money Represents Theft

2005-06-19T18:52:00.000-07:00

Something to think about in this bubble economy.

Paper money works in the same manner as counterfeiting; only governments allow themselves the exclusive right to inflate the money supply. It still represents a morally lawless money because it is an artificial money, an unjust, unrighteous weight (really no weight at all). Inflation is the government creating spending power by “watering down” the money supply.

U.S. trade deficit record in Q1

2005-06-18T21:27:00.000-07:00

"The U.S. current account deficit hit a record $195.1 billion in the first quarter, the U.S. Commerce Department reported Friday."
CBC News

Emerging markets become creditors

2005-06-16T23:06:00.000-07:00

"EMERGING market countries are about to become net creditors in the global financial system for the first time since the asset class was created, data from Fitch Ratings shows.

Fitch says the central banks of China, India, Russia, Brazil, South Korea and Malaysia added among them another $US100 billion ($131billion) of reserves in the first quarter of this year."

It's a strange era when the richest nation in the world borrows money from some of the poorest!

"The credit milestone, expected by next year, coincides with a record current account deficit in the US, the world's richest country."
Emerging markets become creditors

Charge those fries

2005-06-16T22:23:00.000-07:00

I hope people are paying off those purchasess! "n the first three months of this year, Americans charged $6.6 billion to pay for their burgers, fries and other fast food, according to CardWeb.com." I wonder if those charges are because people don't have a lot of money, or they just want to use their cards.
Want a fee with those fries?

U.S. accounting needs to improve

2005-06-16T22:17:00.000-07:00

I'd say.

"The state of American accounting is much better than it was before the Enron scandal, the U.S. Securities and Exchange Commission said Wednesday in a report to Congress and President George W. Bush. But it still needs a lot of improvement."

U.S. accounting needs to improve

"It’s only when the tide goes out that you discover who’s been swimming naked."
-Warren Buffett

European auto sales not motoring

2005-06-15T20:44:00.000-07:00

I can't help but wonder if a similar slowdown is destined to happen in the US.

"Sales declined 1.7 percent to 1.29 million vehicles from 1.31 million vehicles in May 2004, the Brussels-based European Automobile Manufacturers Association said in a statement today. Fiat's sales plunged 27 percent and Renault's dropped 8 percent."

European Car Sales Fall a 5th Straight Month on Italy

At least he didn't write a book about like "Median Home Price $360,000"

2005-06-15T10:11:00.000-07:00

James Glassman is at least worrked about some areas in the housing market, so we'll give him points for that. He may not have written a book about it, but we still take some issue.

1. "Also, remember that housing markets aren't stock markets. When tech stocks started to fall, investors panicked and dumped their holdings, but, even if the prices of new houses decline sharply, most homeowners won't sell their dwellings at a loss. They live in them! The value at any moment doesn't matter.

Except people have second homes and many have investment properties. The don't use those as their primary residence.

2. "The truth is that average U.S. home prices have been remarkably stable over time. Since 1950, they have never declined over the course of any year."

What about the 50-year period before 1950? Did real estate, I wonder, every have a national decline?

3. "Greenspan frets about froth in the mortgage markets, including "the dramatic increase in the prevalence of interest-only loans" _ which accounted for more than 40 percent of mortgages in such markets as San Diego, Denver and Atlanta last year _ and of "exotic forms of adjustable-rate mortgages."

Such mortgages tend to require low payments in the early years and high payments later. I don't think they're necessarily so risky _ especially for young people whose earnings are likely to rise as they get older."

I disagree, some of those exotic ARMS have payments that could rise quickly if interest rates do.

4. "Most Americans make good choices about their own finances. Household balance sheets are strong, reports David Malpass of Bear Stearns."

If household balance sheets are so strong, why do people need exotic mortgages? Why do they have such high debt and low savings rates?

James K. Glassman

A lone voice in the mainstream wilderness

2005-06-14T13:22:00.000-07:00

You can always count on Stephen Roach to tell it like it is. Mr. Roach believes that China may slow before the US. He also points out the importance of the US consumer for global growth. "The American consumer has long provided the major source of support to global demand. From 1997 to 2004, US private consumption growth averaged 3.9% per annum -- nearly double the 2.1% pace recorded elsewhere in the advanced world. As a result, by our reckoning, the US consumer accounted for 53% of total consumption growth in the advanced world over this eight-year period -- well in excess of America’s 38% share in the advanced world’s total GDP (as measured by the IMF’s purchasing power parity metrics)."

Roach notes the American consumer has been living beyond their means. "The US net national saving rate has averaged only about 1.5% of GDP since early 2002 -- far short of the 6% level prevailing in 1997. At the same time, America’s current account deficit is now in excess of 6.5% of GDP -- more than double the 3% shortfall evident in 1997. Lacking in income generation and domestic saving, the US consumer dynamic has been supported by the combination of the surplus foreign saving and the debt-intensive equity extraction that has been a key outgrowth of the rapid property appreciation of America’s Asset Economy."

Stephen Roach

Time for a real estate breather?

2005-06-13T23:05:00.000-07:00

How long can real estate go up? I would have loved it for this article to examine how many years real estate can go up with out suffering a downturn. 13 years sounds like a long period of time for any asset to go up!

No Slowdown in Housing Market Seen, Report Says

In a Real Estate Boom, Many Try Life as a Landlord

2005-06-13T22:53:00.000-07:00

What I note are two things. People mentioning getting burned is stocks seems to pop up with some frequency in real estate articles. It astounds me that people that thought they couldn't lose in stocks, did lose, and now they think there is no way to lose in real estate. Didn't they learn the first time? The other is how tough the rental market is for the landlords.

1. People who invest in rea estate are wary of stocks. One rea estate investor says "is the next stock I buy going to be the next Enron?"

2. One landlord notes about renters "I thought it would be easier to find people." Indeed, rents are down as people rush into homes.

In a Real Estate Boom, Many Try Life as a Landlord

Borrowers may live to regret joining the boom

2005-06-12T19:46:00.000-07:00

True. Here is a list of cities with high interest-only loans, with San Diego in the #1 spot for interest-only loans as a share of all mortgage loans.
Top cities for risky, interest-only mortgages
01. San Diego
02. Atlanta
03. San Francisco
04. Denver
05. Oakland, Calif.
06. San Jose, Calif.
07. Phoenix-Mesa
08. Seattle-Bellevue-Everett
09. Orange County, Calif.
10. Ventura, Calif.

If incomes and all other excuses for homes going up are really factual, why are people having to turn risky mortgages to buy a home?

The US Trade Deficit is Unsustainable

2005-06-12T19:06:00.000-07:00

Bud Conrad has an interesting article about the trade deficit. some interesting facts.

1. The US is importing $700B more in goods and services than it sells abroad.
2. We have $4 trillion in debt.
3. The US absorbs 75% of the world's export surplus.
4. At 6% of GDP it[current account deficit} is bigger than the level that brought Argentina into collapse. Mexico got to 8% before its last collapse.

None of that sounds like good news.

The US isn't the only nation with potential lax lending standards

2005-06-12T19:03:00.000-07:00

The BBC says, "Many financial advisers are not carrying out proper checks before recommending equity release products to clients, the City watchdog has warned." That sounds very much like warnings we've heard in the US.

Halifax sees 'flat' house prices

2005-06-12T18:57:00.000-07:00

"The market is broadly flat, with prices down 0.3% in the past three months." I guess maybe real estate DOES not always go up, even on an island.
Halifax sees 'flat' house prices

A bubble in personal chefs?

2005-06-04T14:35:00.000-07:00

In a New York Times article from May 29th about how the "crowd" is becoming classless, I noted this:

"...Americans employ about 9,000 personal chefs, up from about 400 just 10 years ago, according to the American Personal Chef Association. "

The cause of this new classless society is none other than our very own credit bubble.

"Social class, once so easily assessed by the car in the driveway or the purse on the arm, has become harder to see in the things Americans buy. Rising incomes, flattening prices and easily available credit have given so many Americans access to such a wide array of high-end goods that traditional markers of status have lost much of their meaning."

When the Joneses Wear Jeans

Homes prices jump

2005-06-02T12:05:00.000-07:00

"The average price of a U.S. home jumped 12.5% from the first quarter of 2004 to the first quarter of 2005 - one of the heftiest increases in the past 25 years, the government said Wednesday." say a USA Today article . Prices rose fastest in the first quarter in Arizona. North Dakota had the only first quarter decline among states.

The Curse of Cheap Credit?

2005-06-02T09:12:00.000-07:00

Finally more people are stating the obvious. Washington Post article.
"Call it cheap credit's revenge. We seem to have arrived at the curious juncture where the low interest rates that rescued us from the last recession might be the cause of the next -- or, at any rate, might be the cause of some serious economic or financial unpleasantness. It turns out (not surprisingly) that cheap credit, when continued too long, inspires suspect and speculative borrowing. It becomes a formula for its own undoing."

Perhaps some of that credit is invested in your own backyard, literally. The New York Times notes in an article about lawn furniture, "more people have second homes, and the garden is becoming an extension of the living room." You bet. According to the article, "Room & Board, the national chain, has doubled sales of outdoor furniture every year since 2001, a buyer, Amy Backman, said." Sales of lawn furniture reached $3 billion in 2004.
New York Times

Indeed, in these days of cheap credit, lots of people do have second homes.
Second homes reach record level

I'm reminded of this quote by Ludvig von Mises

"Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand."

Canary Island?

2005-06-01T11:20:00.000-07:00

Australia’s first quarter GDP disappoints

“The economy is in the midst of a much-needed transition from previously booming house construction and soaring household spending, to business investment and overseas exports,” said Mr Walters.

My real estate investing is making a lot more money than my stocks

2005-06-01T10:57:00.000-07:00

This seems to be a common theme among real estate investors in many articles. She also believes, as does everyone, that she'll get out of the market before she gets burned. "She’s confident she can build her nest egg before the bubble springs a leak."

Is the housing bubble about
to burst?

The Kids Are Not Alright and They Will Get Fooled Again

2005-05-31T09:17:00.000-07:00

An interesting end to Rick Ackerman's Lending Standards Plumb New Lows article.

"I used to help people by getting them into the best loan possible and got paid for it. Now, large portions of my time and money are spent trying to keep these kids from making a huge mistake.”

Prudent Bear is a great site. I recommend you look at it each day!

CBC News asks: Is U.S. housing market a 'bubble' waiting to burst?

2005-05-30T18:02:00.000-07:00

Is U.S. housing market a 'bubble' waiting to burst?

It's amazing how many articles mention the fact that that stocks are not as good as real estate. "U.S.consumers believe because they see that their homes have appreciated much more steadily and rapidly than other investments. While home prices were going up up better than 15 per cent (and much more in some markets), the stock market has been stagnant. As of the end of March, for instance, the one-year increase in the Dow Jones Industrial Average was a miserly 1.4 per cent."

American's attitudes towards housing has changed. "Many Americans no longer think of their home as just a place to live," a story in the Wall Street Journal said this week. "Instead, it's a cash machine that can be used to rapidly build wealth."

U.S. living beyond means, Dodge warns

2005-05-30T12:26:00.000-07:00

There is no dodging the important issues with the Bank of Canada governor who "offered a bankerly rebuke to the United States on Monday for its borrow-and-spendthrift ways, which he suggested are a threat to world economic stability." The CBC article noted "At some point, they will have to be resolved. Why? For one thing, a country's external indebtedness cannot keep growing indefinitely as a share of its GDP. Eventually, investors will begin to balk at increasing their exposure to that country, even if it is a reserve-currency country, such as the United States."

Agreed. The full text of his speech is available HERE

Experts: Petroleum May Be Nearing Peak

2005-05-29T14:26:00.000-07:00

Experts: Petroleum May Be Nearing Peak

Matt Simmons has a new book out on this topic called Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy

How strong is an economy that relies on "unprecedented borrowing" from foreigners?

2005-05-29T09:15:00.000-07:00

That's the what the staff here at GBT is thinking. The IMF says the economy is getting better but it depends on "unprecedented borrowing" from foreigners. Of course, when talking about the economy or finance, "unprecedented" isn't a word you like to hear. What's even worse is the IMF says US growth is "the main locomotive of global growth." I'm sure that's not the words the world will want to hear.

Here is the Yahoo! News article.

The IMF had this to say about consumer spending and housing:

"This unusual constellation of financial flows has sustained growth by keeping long-term interest rates low and stimulating house prices. However, this creates a number of vulnerabilities, including the possibility of a marked slowdown of household spending, particularly were the housing market to cool."

Real wages barely rise

2005-05-28T18:34:00.000-07:00

That's what the title of this article from the Washington Post by By Nell Henderson probably should have been.
Income Rose in April, But Barely Beat Inflation
That's the name of the game, beating inflation! Of course, are the inflation numbers real? Jim Willie opines about inflation in his new article:
RISKS FROM DOCTORED STATISTICS

You can't keep a good blog down...

2005-05-28T16:10:00.000-07:00

If you somehow got here, by not going here, I think you're missing out

High-price sales aren't just a US thing

2005-05-28T15:03:00.000-07:00

Sales of million-pound houses across Scotland have soared nearly six-fold over the last five years, according to latest figures.

One house sold for way over asking:
House sells for £1m over asking

Mirroring the US, housing is becoming too expensive for important

workers

England is in on the act too, with the "number of homes sold for more than £1m in Britain rose by a third during 2004, the Halifax bank has said."

£1m property sales jump a third

The "Neutral Rate"

2005-05-27T23:07:00.000-07:00

May 27th Doug Noland Column

How can you go wrong with analysis like this?

"The extent of losses that arise with the bursting of Bubbles has very much to do with the degree of excess and duration of the speculative blow-off period. We all better hope and pray that the Fed doesn’t buy into the inflationists "Neutral Rate" fallacy."

Bond bubble, American-style

2005-05-27T21:44:00.000-07:00

By Jack Crooks

"We believe a nasty popping of the bond-market bubble lies in wait for investors. Why? In short, yields are too low, bond prices too high, and quality spreads too tight."

as written in the Asia Times Online