The Hard Way or the Harder Way

[jk]

Re: The Hard Way or the Harder Way



u.s. interest rates have been supporting the dollar. when the housing bust forces rates lower, that prop will be kicked out from underneath.

[Jim Nickerson]

Re: The Hard Way or the Harder Way

u.s. interest rates have been supporting the dollar. when the housing bust forces rates lower, that prop will be kicked out from underneath.

The cyberspace in which I look is filled with stories to no end of the "housing bust." The "bust" strikes me as a fait accompli as well as is the "fact" that the FOMC is going to lower rates, likely sooner rather than later. What if the housing bubble doesn't burst because the Fed doesn't let it? Asked another way, is it impossible for the Fed to stop the housing bubble from bursting? What if the indomitable US consumer finds a way to keep on going to the mall and buying stuff?

It appears a lots of folks think and have thought the Bonar is doomed, but despite predictions (see jk's post above #18 for details of Stepahie Pompoy's sentiment 02/05--now 20 months ago), the Bonar is as high or a bit higher now as it was in 02/05, and for the most part over this time has been higher, and at the moment seems set to go up still.
http://stockcharts.com/h-sc/ui?s=$US...mn=0&dy=0&id=p

[jk]

Re: The Hard Way or the Harder Way

The cyberspace in which I look is filled with stories to no end of the "housing bust." The "bust" strikes me as a fait accompli as well as is the "fact" that the FOMC is going to lower rates, likely sooner rather than later. What if the housing bubble doesn't burst because the Fed doesn't let it? Asked another way, is it impossible for the Fed to stop the housing bubble from bursting? What if the indomitable US consumer finds a way to keep on going to the mall and buying stuff?

It appears a lots of folks think and have thought the Bonar is doomed, but despite predictions (see jk's post above #18 for details of Stepahie Pompoy's sentiment 02/05--now 20 months ago), the Bonar is as high or a bit higher now as it was in 02/05, and for the most part over this time has been higher, and at the moment seems set to go up still.
http://stockcharts.com/h-sc/ui?s=$US...mn=0&dy=0&id=p

housing is finally rolling over but it has to happen slowly at first. unlike a stock market in which there is liquidity and continuous pricing, the illiquid and lumpy nature of real estate makes the sellers disbelievers when told prices have to go lower. so there is instead a sharp reduction in transaction volume. in the meantime, inventory continues to rise sharply. so i think it's still early days in the housing bust. imo, the inventory overhang and the fear put into speculators prevent the re-inflation of the housing bubble any time soon.

lower rates have increased mortgage applications [reported today in a daily news with antispin post, i believe]. the ability to refinance now, before prices drop that much and in time to head off resets on a.r.m.s will soften the blow to the economy. [perhaps this moderating feedback is part of why ej says disinflation but no deflation.]

i've learned that everything, at least every big thing, in the markets takes much longer than i expect. i remember reading the barron's roundtable some time in the late 1980's. paul tudor jones was on the panel and said he wasn't going to recommend shorting the nikkei that year, because he'd recommended it the prior 3 years and it just kept going up. eventually, of course, it went down. a lot. but as keynes is famous for saying, the market can stay irrational longer than you can stay solvent.

i still think the dollar is doomed. eventually. the trick is to stay solvent long enough to cash in. in a crisis old habits may drive investors to the "safety" of the u.s. dollar, so the dollar could go up. a lot. so i can't bet the farm on the dollar's fall.

what's the difference between being patient as an investor and being stubborn as an investor? 1. whether you're right. that is, whether what you expect indeed comes to pass. 2. whether you're still financially healthy enough when the time comes to take advantage of your prediction.

[medved]

Re: The Hard Way or the Harder Way - my 2oz

housing is finally rolling over but it has to happen slowly at first. unlike a stock market in which there is liquidity and continuous pricing, the illiquid and lumpy nature of real estate makes the sellers disbelievers when told prices have to go lower. so there is instead a sharp reduction in transaction volume. in the meantime, inventory continues to rise sharply. so i think it's still early days in the housing bust. imo, the inventory overhang and the fear put into speculators prevent the re-inflation of the housing bubble any time soon.

This is what's going to happen, IMHO:

1. The bubble continues to deflate slowly.

2. As it approaches a critical level, the Fed, the gov't and the media get into action: excesses are blamed on the mortgage fraud, greedy speculators, uneducated massses etc. (similar to NASDAQ bubble).

3. Speculators/flippers get to feel some (or a lot of) pain, some little fish in banking/RE industry gets caught and fried. Some losses in the financial system are acknowledged and marked to market (not a big deal, because the risk was spread through the derivatives and passed to the big weak hands like pension funds).

4. Everybody is sure, RE market will collapse tomorrow, all realtors are criminals and renting is cool.

5. Fed begins (or continues) reducing interest rates. Gov't (most likely, Democrats) introduces new wonderful programs to help the affected communities. REO houses are bought by HUD, distressed homeowners get to refinance their loans at new subsidized rates etc., etc. Something like housing PPT.

6. In spite of low rates and subsidies nobody except professional RE speculators invests in housing. Precisely what the gov't and Fed needs: now, with the housing bubble out of the way, the *real* rates go down real hard.

7. If real low rates do not help, non-traditional measures (black helicopters) are used to reflate the economy. Another Ka is over, another poO begins.

8. At this point we enter unknown territory. Not many people predicted the housing bubble after stock market crash. Not many people can predict now, what's going to happen after housing Ka ('the next bubble' conundrum). What we do know, is the housing bubble will not be back, but neither will the housing crash. I am ready to believe, this process will repeat more, than once, in different markets, with different Ka's and poO's. This is what I call 'the KapoOKapoO correction of the KaPoom theory'.

i still think the dollar is doomed. eventually. the trick is to stay solvent long enough to cash in. in a crisis old habits may drive investors to the "safety" of the u.s. dollar, so the dollar could go up. a lot. so i can't bet the farm on the dollar's fall.

The dollar *is* doomed, but not the dollar-denominated US assets. Investors *will* be driven to the safety of US assets, but the US gov't will take care of the dollar and put it out of its misery. This combination of highly valued US assets and low-life US currency is what I call 'the M paradox of the KaPoom theory'.


Right now I just stick to PM, commodities and cash, and trying to find some decent dividend-paying companies in Canada and US. When we get to the point 6 described above, I may think of buyng a rental property.

m.

[Jim Nickerson]

Re: The Hard Way or the Harder Way - my 2oz

The dollar *is* doomed, but not the dollar-denominated US assets. Investors *will* be driven to the safety of US assets, but the US gov't will take care of the dollar and put it out of its misery. This combination of highly valued US assets and low-life US currency is what I call 'the M paradox of the KaPoom theory'.


Right now I just stick to PM, commodities and cash, and trying to find some decent dividend-paying companies in Canada and US. When we get to the point 6 described above, I may think of buyng a rental property.

m.

What do you mean: "the government will take the care of the Bonar and put it out of its misery"?

[medved]

Re: The Hard Way or the Harder Way - my 2oz

What do you mean: "the government will take the care of the Bonar and put it out of its misery"?

I mean, no matter demand for the safe haven currency, the US gov't will always issue enough of it to destroy the value of this currency.

m.