US consumer's insolvency, a catalyst of impact phase of the global systemic crisis

[DanielLCharts]

Re: US consumer's insolvency, a catalyst of the impact phase of the global systemic c

danny and bart... chart dudes. any take on the itulip housing permits chart?

I think this is the housing chart that deserves the most attention. It plots housing starts against unemployment, and to me it looks like the probability of a spike in the rate of unemployment is very, very high.

BTW, historically, spikes in unemployment are highly correlated with declines in the stock market.

[DanielLCharts]

Re: US consumer's insolvency, a catalyst of the impact phase of the global systemic crisi

Bart, your chart is intriguing, and I'm wondering if you can expand upon it a little. My questions are 1) was the relationship between Real GDP growth and lagged M3 this consistent during prior periods? The 70's? The 80's? 2) If real GDP is driven to a great extent by lagged M3 growth, how did we not have a recession midyear, 2005?

Your chart seems to imply that if the Fed creates enough M3 without managing to disturb the bond market, recessions won't materialize. That seems a little fishy to me. Maybe I'm misinterpreting things.

FWIW, in chart 2, some of the credit types look like they have peaked for this cycle.

[metalman]

Re: US consumer's insolvency, a catalyst of the impact phase of the global systemic c

I'm not sure what you're looking for, but I pretty much agree with EJs take* - the effects will not be pretty for many people and will have a larger effect than most think on the economy. Housing may bounce over the next few years on a face value basis, but not on an inflation adjusted basis.

Here's a housing chart I put together a while ago, showing both CPI and CPI+lies (shadowstats.com adjustments) median new housing prices since 1963. It rather illuminating - note that both CPI adjusted prices are on the right hand scale.




* (or EJ agrees with mine ;))

thanks. your nominal housing price gain idea... like this?

http://www.itulip.com/forums/showthr...=2080#poststop

you imply ej's getting his ideas from you. you got something to show from 2005? show me, baby!

[metalman]

Re: US consumer's insolvency, a catalyst of the impact phase of the global systemic c

I think this is the housing chart that deserves the most attention. It plots housing starts against unemployment, and to me it looks like the probability of a spike in the rate of unemployment is very, very high.

BTW, historically, spikes in unemployment are highly correlated with declines in the stock market.

thanks but i must be dense. the itulip chart shows not only strong correlation between building permits and recession, maybe even causation... doesn't claim causation, tho. your chart shows sometimes unemployment falls with housing starts... as in 1980 - 1990... and other times rises... like 1992 to 2000. don't see strong correlation. maybe i'm not reading it right...

[DanielLCharts]

Re: US consumer's insolvency, a catalyst of the impact phase of the global systemic crisi

As housing falls off a cliff from very high levels, unemployment tends to rise. Take note of how when the blue line drops from 2M monthly units to 1M, unemployment has risen about 3 percentage points each time.

On the graph below from Calculated Risk, note how residential construction employment is closely tied to housing starts. Calculated Risk expects about 600K from the residential construction sector to lose their jobs within the next 6 months.

[bart]

Re: US consumer's insolvency, a catalyst of the impact phase of the global systemic c

Bart, your chart is intriguing, and I'm wondering if you can expand upon it a little. My questions are 1) was the relationship between Real GDP growth and lagged M3 this consistent during prior periods? The 70's? The 80's? 2) If real GDP is driven to a great extent by lagged M3 growth, how did we not have a recession midyear, 2005?

Your chart seems to imply that if the Fed creates enough M3 without managing to disturb the bond market, recessions won't materialize. That seems a little fishy to me. Maybe I'm misinterpreting things.

FWIW, in chart 2, some of the credit types look like they have peaked for this cycle.

The straight answer on lagged M3 and a GDP relationship is that no - there isn't one. I can however make a case that taking velocity and M3 and credit, plus a little voodoo, does have a decent but far from perfect correlation (that formula is what I use to take a shot at forecasting GDP).

That's one of the problems with charts in general as you know, and I'm glad you asked - there's no way that one or two can show the full picture that I'm seeing, even if I wrote a bunch of supporting paragraphs.

Just for giggles though, here's nominal GDP & M3 going back a few decades:



I have three answers on 2005, the first being I really don't know - I only play an economist on the 'net. ;)
I was expecting it and I can even show a chart with shadowstats.com adjustments that hints that one started then -- but the NBER didn't call it. The third and I suspect the most accurate one was referred to a little above - the combination of credit creation being high and trending up, "help" from other central banks, and manipulation of sentiment partly in the form of Fed repos and Treasury TIOs is what avoided it.

Agreed on certain credit types being close to a peak.

[metalman]

Re: US consumer's insolvency, a catalyst of the impact phase of the global systemic c

As housing falls off a cliff from very high levels, unemployment tends to rise. Take note of how when the blue line drops from 2M monthly units to 1M, unemployment has risen about 3 percentage points each time.

On the graph below from Calculated Risk, note how residential construction employment is closely tied to housing starts. Calculated Risk expects about 600K from the residential construction sector to lose their jobs within the next 6 months.

thanks. also employment and housing prices have a strong correlation...

http://www.itulip.com/housingbubblecorrection.htm

...as housing prices fall unemployment rises, and as unemployment rises housing prices fall. this prediction is from dec. 2005 for a 10 yr correction. what do you think? i think its optimistic. "bust rate of decline" already looks sharper (worse) than what ej predicted. do you know of other predictions from back then to compare it to?

[bart]

Re: US consumer's insolvency, a catalyst of the impact phase of the global systemic c

thanks. your nominal housing price gain idea... like this?

http://www.itulip.com/forums/showthr...=2080#poststop

you imply ej's getting his ideas from you. you got something to show from 2005? show me, baby!

Two great minds with but a single thought? ;)

Seriously though, EJ and I do seem to look at things in a similar way but he has a lot longer public track history than I. I frequently defer to him and not just because its his site - the man is damn good at what he does.

But I actually do have an answer for you on 2005 - check the forecast page on my site and you'll see that I also called for real estate to peak at virtually the same time he did.
I've only been back doing significant market analysis and data gathering since early 2004 and I'm barely back up to speed. The last time I was this close to the markets was the late '70s and early '80s, and I had a decent track record then - I sold 90% of my and my photofinishing company's PMs in early to mid January 1980 for example.

[Chris Coles]

Re: US consumer's insolvency, a catalyst of the impact phase of the global systemic crisi

if anything the UK has by far the worse scenario than the USA. In my opinion, the collapse in the UK will far outweigh the US. Here, UK house prices have been rising unchallenged since 1998 and are the sole driver of the UK economy. Add to that the collapse of manufacturing that has been "outsourced" to the new European market entrants and you have a nation with the middle classes up to their eyes in debt, hundreds of thousands of young people so disconnected to their future, they get drunk at any opportunity and a government in complete denial. (Does that sound familiar?)

[spunky]

Re: US consumer's insolvency, a catalyst of the impact phase of the global systemic c

if anything the UK has by far the worse scenario than the USA. In my opinion, the collapse in the UK will far outweigh the US. Here, UK house prices have been rising unchallenged since 1998 and are the sole driver of the UK economy. Add to that the collapse of manufacturing that has been "outsourced" to the new European market entrants and you have a nation with the middle classes up to their eyes in debt, hundreds of thousands of young people so disconnected to their future, they get drunk at any opportunity and a government in complete denial. (Does that sound familiar?)

Yes, but here in the states they ( young folks) are playing video games, and our government is crooked , much more sooo than any form of denial

[jk]

will asia pick up the slack?

will asia pick up the slack? shilling thinks not.

http://www.forbes.com/guruinsights/2...apbox_inl.html

It will be a global recession, since U.S. consumers will retrench and curtail the imports the rest of the world depends on for growth. I continue to believe that the domestic spending in China and other Asian lands principally results from the spending of export earnings and direct foreign investment money. Their middle classes aren't yet big enough to generate domestic-led economic growth. So, a U.S. recession will create severe problems in those countries.


In the long run, supply-demand balances may be auspicious for the prices of some commodities. But in the next year or so, few will escape the bursting of the commodity price bubble, aided and abetted by global recession.

[DanielLCharts]

Re: US consumer's insolvency, a catalyst of the impact phase of the global systemic crisi

thank you for sharing. i too believe your analysis. while, from my understanding, creative financing doesn't seem as pervasive in the UK, you do have bubblicious anecdotes like strangers teaming up to put down payments on properties on your island.

yet you're the first british person i've heard that actually thinks the uk is primed for a recession. it has the worst yield curve inversion in the first world, yet every brit i've heard from thinks the british economy is invincible.

if anything the UK has by far the worse scenario than the USA. In my opinion, the collapse in the UK will far outweigh the US. Here, UK house prices have been rising unchallenged since 1998 and are the sole driver of the UK economy. Add to that the collapse of manufacturing that has been "outsourced" to the new European market entrants and you have a nation with the middle classes up to their eyes in debt, hundreds of thousands of young people so disconnected to their future, they get drunk at any opportunity and a government in complete denial. (Does that sound familiar?)

[Chris Coles]

Re: US consumer's insolvency, a catalyst of impact phase of the global systemic crisis

The UK has not been a First World nation for decades. In fact, I have for a long time been using the acronym of Fourth World nation. Over a decade ago someone said to me "You do not realise how far this nation has sunk until you return from a supposedly Third World nation and look around you". They were talking about the lack of investment in public transport infrstructure. Everything got privatised, but no one wants to invest for the long term, only take as much profit as possible, including the government.

Historically, the UK has been led by a cabal of privately educated people that have never had to struggle and so do not "see" it at all. At my level, as a struggling UK inventor, I have seen the indifference to the idea of investing in the nation first hand. A couple of days ago I met a senior RAF officer that has just signed up for New Zealand. Last summer I met a young police officer from London that admitted to me, (privately), that in his opinion, crime pays in the UK. Particularly for the younger man in London.

The UK is living in cloud cuckoo land with the majority believing the PR from the banks and the government. Our entire economy is built upon the inflation of assets such as houses. No one has any sense of the dangers of our increase of national overhead against the overhead costs of the likes of China, India and Eastern Europe. During a period of time when common sense should have pushed the nation to reduce its overhead, instead, we have, particularly since what was described as "privatisation" was created as a government policy back in the 1980's, pushed the national overhead through the roof.

I firmly believe that the UK is facing a complete collapse as house prices fall. But as with any forecast, I could be proven to be completely wrong. Time will tell the tale.