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FRED
08-23-06, 05:01 PM
Sell freezes over: Fewest homes moving since 1995 (http://business.bostonherald.com/realestateNews/view.bg?articleid=154034)
Wednesday, August 23, 2006 (Boston Herald)

Bay State house sales plunged a stunning 27 percent in July, the biggest drop in 11 years, new figures show, and experts see few signs of a turnaround any time soon.

“It’s a pretty dramatic decline,” said Tim Warren of market tracker The Warren Group, which reported yesterday that just 5,070 Massachusetts houses changed hands last month.

That’s the market’s worst July sales volume since 1995.

“We’re not pressing the panic button yet, but we are watching the trend lines very closely,” Warren said.

Prices are also dropping. Warren reported that median house-sale prices fell at a 6.1 percent annualized rate in July to reach $339,000. That’s 6.8 percent below last summer’s peak of $364,000.

Lots of would-be home sellers are finding no takers.

Erika Cummings hasn’t gotten a single offer on her West Roxbury home despite cutting her asking price three times since listing the place in May.

“It’s really weird,” said Cummings, who just four years ago had buyers outbidding each other for the last home she sold.

AntiSpin: "Really weird"? How about "sadly predictable." For those of you just joining us on iTulip.com, as explained way back in January 2004 (http://www.itulip.com/housingnotlikeequities.htm), when housing bubbles end, they end with a collapse in transactions, by seizing up. Then they head into a predictable series of step declines as we detailed way back in January 2005 (http://www.itulip.com/housingbubblecorrection.htm). That gave our readers plenty of time to prepare, just as we prepared them for the end of the stock market bubble in March 2000. So much for the "I told you so." This is all old news here.


http://www.itulip.com/homeequityextraction.jpg
Seven Step Housing Price Regression Starting 2005


The causes of the repetition of The Bubble Cycle (http://www.alwayson-network.com/comments.php?id=P9189_0_4_0_C) are no mystery, either. As long time readers of this site know, the forces that drive them move from one asset class to the next, and an industry grows up around it to produce asset based profits that substitute for profits from real production. Bill Gross calls it the Finance-Based Economy.

The asset that will be the object of the Next Asset Bubble is becoming increasingly obvious.

Fox
08-24-06, 03:44 PM
The asset that will be the object of the Next Asset Bubble is becoming increasingly obvious.
Hi everyone, just had to sign up to get an answer to this question:

I'm fairly convinced of what is in store for the US, however what does it mean to us foreigners that are dependant on US spending (I'm a Canuck btw).

My suspicion is huge deflation as our primary source of income turns off and US paper and assets become worthless.

Is this correct?

jeffolie
08-24-06, 07:08 PM
In a deflation fiat, paper money becomes more valuable because as the assets fall in price, then you get more asset for the buck.

I happen to be a deflationist as the primary asset of housing will collapse the consumer spending that came from home equity loans and refi's.

Housing busts last a long time, just look at 1990 here and in Japan.

jk
08-24-06, 09:39 PM
there are people i respect in both the deflationist and the inflationist camps. the deflationists see the high debt levels and the housing bust as crushing economic activity. the inflationists see the deflationary peril, but think the fed will pump hard enough to float us all on a sea of "money." and there's our fearless leader, e.j., who has it both ways with his "ka-poom" model. i think you have to consider outcomes probabilistically and prepare accordingly.

BK
08-25-06, 10:51 AM
I vote for Inflation/defaltion. Sure there will be assets that experience Deflation - but, I'll be really surprised if Bernanke and the other central Bankers of the World allow Deflation to rule the World.

Deflation leads to folks slowing their purchases and dramatically lower economica activity - this LEADs to Lower Tax Receipts for all Industrialized nations which only creates greater imbalances.

US and EU have large liabilities in the form of pensions and Healthcare - they'll inflate rather than allow deflation. There wil be asset classes that will deflate - but, many staples of ordinary life will soar as more and more fiat currency chases them.

bart
08-25-06, 12:58 PM
Sacramento area flippers in trouble (http://flippersintrouble.blogspot.com/)

EJ
08-25-06, 04:20 PM
there are people i respect in both the deflationist and the inflationist camps. the deflationists see the high debt levels and the housing bust as crushing economic activity. the inflationists see the deflationary peril, but think the fed will pump hard enough to float us all on a sea of "money." and there's our fearless leader, e.j., who has it both ways with his "ka-poom" model. i think you have to consider outcomes probabilistically and prepare accordingly.

The mistake that most make in trying to predict deflation or inflation as a result of the current credit bubble is that they view the outcome as a monetary event whereas Ka-Poom theory attempts to describe a monetary, banking system, financial markets and political process. I have an entire bookcase filled with books on economic history and dozens of attempted and discarded models, as I'm sure others who attempt to guess at the future do as well. Perhaps more importantly, I think know how these guys think, that is, I understand the way they make decisions and get themselves into trouble.

You might wonder, why do hyperinflations ever happen? Why can't a central bank simply decide to stop printing money? The reason is that a hyperinflation is an Nth degree result of politically motivated decisions made and actions taken years earlier. I don't think the Fed collectively knows that they are already painted into the inflation box by allowing so much private and public sector debt to accumulate inside the US and out. There may be individual Fed governors who do, but I very seriously doubt anyone on the current board wants to take the career risk entailed in proposing that the Fed needs to address asset bubbles directly because today's credit bubble is tomorrow's a) politically impracticable deflationary collapse or b) a lesser-of-two-evils inflationary blow-out. A hyperinflation logically follows from earlier policy errors, but is itself a kind of political and monetary chaos.

jk
08-26-06, 10:37 AM
The mistake that most make in trying to predict deflation or inflation as a result of the current credit bubble is that they view the outcome as a monetary event whereas Ka-Poom theory attempts to describe a monetary, banking system, financial markets and political process. I have an entire bookcase filled with books on economic history and dozens of attempted and discarded models, as I'm sure others who attempt to guess at the future do as well. Perhaps more importantly, I think know how these guys think, that is, I understand the way they make decisions and get themselves into trouble.

You might wonder, why do hyperinflations ever happen? Why can't a central bank simply decide to stop printing money? The reason is that a hyperinflation is an Nth degree result of politically motivated decisions made and actions taken years earlier. I don't think the Fed collectively knows that they are already painted into the inflation box by allowing so much private and public sector debt to accumulate inside the US and out. There may be individual Fed governors who do, but I very seriously doubt anyone on the current board wants to take the career risk entailed in proposing that the Fed needs to address asset bubbles directly because today's credit bubble is tomorrow's a) politically impracticable deflationary collapse or b) a lesser-of-two-evils inflationary blow-out. A hyperinflation logically follows from earlier policy errors, but is itself a kind of political and monetary chaos.

i agree that given the choice, the powers that be will choose inflation. i think inflation will be the more palatable way to deal with the overwhelming debt and unfunded liabilities. so i think inflation is the greater probability.

on the other hand, i think there is a possibility of processes spiralling out of control, a daisy-chain of bankruptcies and derivative counterparty failures, leading to a high desire for liquidity and a sharp reduction in monetary velocity, which could produce deflation.

EJ
08-26-06, 01:46 PM
i agree that given the choice, the powers that be will choose inflation. i think inflation will be the more palatable way to deal with the overwhelming debt and unfunded liabilities. so i think inflation is the greater probability.

on the other hand, i think there is a possibility of processes spiralling out of control, a daisy-chain of bankruptcies and derivative counterparty failures, leading to a high desire for liquidity and a sharp reduction in monetary velocity, which could produce deflation.

You are describing a banking system failure. If it's US only, the dollar crashes and we will not have deflation. Do you expect the processes spiralling out of control, a daisy-chain of bankruptcies and derivative counterparty failures to be a global event?

jk
08-26-06, 04:00 PM
You are describing a banking system failure. If it's US only, the dollar crashes and we will not have deflation. Do you expect the processes spiralling out of control, a daisy-chain of bankruptcies and derivative counterparty failures to be a global event?

i don't expect that event, i just think it is possible. i don't know enough to really address the question of whether it would be global. but were it to happen, why would it not be global?

WDCRob
08-27-06, 09:24 AM
I'd be curious to know just what probabilities you all put on the inflation/deflation scenarios. EJ seems convinced it's the former not the latter, JK somewhat less so, but how much? I'm assuming no one is 100%/0% for either outcome, is anyone 90/10?

This might make a good poll.