Steve Moyer: Real Estate/Credit Bubble Deflation 18: Tick-Tick-Tick…
Real Estate/Credit Bubble Deflation 18: Tick-Tick-Tick…
By Steve Moyer
“To restore the wealth lost in the current financial crisis, the Treasury would have to monetize some $30 trillion of toxic assets, almost ten times what the Geithner Treasury is currently contemplating, and twice the size of current U.S. annual GDP. Add to that about $10 trillion of value lost in the collapse of commodity prices and another $10 trillion in real property values, and we have a wealth loss of $50 trillion.”
~Henry Liu, Asia Times
via Mike Whitney
Move over Rocky Horror Picture Show, the article we penned in May of 2008 (Real Estate/Credit Bubble Deflation 16: The Next Dozen Shoes to Drop click here) has over time developed its own cult following, as not a week goes by that we don’t receive a request or two for an updated version along the same lines. Of course, this may have something to do with the fact that all of our shoes dropped right on schedule in ’08, including the initial, shuddering global stock market “crashâ€. Our small contingent of sharp and savvy readers told two friends and they told two friends and so on to the point people started saying, “OK, that was pretty good, Steve; now let’s see you make an ocean liner disappear.â€
The point is that while the clueless corporate media (and our policymakers) acted like this credit bubble implosion and across-the-board asset deflation were shocking and unexpected events, we gave our readers prior written notice several times — beginning in May of 2005 and straight through to last year. And while our minions sat safely in invisible plastic bubbles with storm windows in place, full rations in the cupboard and a warm, comfortable fire crackling in the hearth, the 2007-2012 global financial hurricane began to howl its way right over us, landing with a vengeance and laying waste to property values and asset portfolios and 401k’s from coast to coast.
Talk about mixed emotions. There’s nothing like watching your fellow countrymen get sawed off at the knees financially as you make a cold-blooded killing via ultrashort ETF’s and put options. What can I say? It’s a dog eat dog world out there, indeed.
Anyway, we certainly can’t make ocean liners disappear (heck, the economy will take care of that), but we can do our level best to connect the next several dots based on what has transpired to date. Hopefully you’re connecting them yourself, without much prodding, and are assuming a more conservative and protective posture going forward. Based on everything I’m observing, reading and hearing from clients, ordinary folks have had just about enough of risk, investment losses and eroding balance sheets. Speculation is soon to be dead, Zed; asset preservation is for the most part the new order of the day. And as to our lead quote from Henry Liu (above), the answer to your next question is no: Fed popgun printing will not keep pace with deflationary wealth destruction, at least not for a good while, especially when people are scared to borrow (other than to refinance what they already owe) and bankers are frightened to lend (except to borrowers who don’t really need the money).
So enough with the vamping; let’s see which shoes are in style this year.
The current stock market rally will have legs, and will run longer than most expect, confounding the short-sellers. The mother of all bear markets is in session right now, so it stands to reason that bear market rallies have the same potential to impress. The sell-off that took place from October of 2007 to March of 2009 was so relentless and steep, we could be in the midst of a fairly impressive countertrend rally despite utterly atrocious economic prospects worldwide.
Decide for yourself if you want to try to make money, salmon-up-river, on the long side, but remain alert and agile at all times — calling the top of this technical correction will likely be a difficult proposition. There will probably be a fake-out or three (or not!) as the market climbs the “wall of worry†investment veterans speak of. Before this rally is done, idiotic CNBC cheerleaders will chorus that the worst is over and shell-shocked short-sellers will be the ones using sleep aids. I wouldn’t be at all surprised if, as the next monstrous leg down begins, bears are hiding in the forest and the shorts aren’t in place to shore up the downdraft.
Make no bones about it, once this countertrend stock rally is over, the next leg down will make the October, 2007 to March, 2009 decline look like child’s play. The washout will go down in history as the greatest stock market collapse of all-time, bar none, and it will take real estate and commodity values down right along with it, to an almost shocking degree. Few will be ready for the devastation.
Commentators will say the deflation threat is behind us and you might even begin to believe it but to wait for inflation is to wait for Godot, at least for a few years. We’re in the third inning, at best, of asset and credit bubble deflation, and while the Fed and Treasury printing and currency debasement sounds inflationary, it is not close to keeping up with asset value destruction worldwide. We are absolutely nowhere near the deflationary nadir.
The real estate market topped in 2006 (give or take), the S&P in October of 2007 and the Commodities Index (CRB) on July 1 of ’08, and any moves up since have been merely technical in nature. The effects on the macroeconomy since all asset markets began to decline in concert, while already pronounced, are all in their early stages, and they will continue to feed one another to the point of creating an awe-inspiring deflationary monster. While we may get a respite here for a few months, courtesy of an oversold stock market, the next leg down will surprise even more, hurt even more and feel even more seismic. I expect many asset values to fall another 30% or more, and within a relatively short timeframe.
Suffice to say that when it comes to real estate, asset and credit bubble deflation, well, you ain’t seen nothin’ yet.
(Meanwhile, Mike Whitney — a fellow who gets it — adds a bit more to the deflation discussion: click here).
It’s all about the O’s: Overcapacity, overbuilding and oversupply. It’s as simple as this: Credit bubbles create excesses. The 2003-2007 reflation was an economic house of cards, built on loose monetary policy, leverage and debt. As “money†and credit seemed plentiful, people borrowed, spent and “invested†like crazy, while projecting out rising income and asset values for many years to come. Unfortunately, when credit bubbles burst, it’s as if a rug’s been pulled out from under the economy. In no time there is too much of everything, and the unanticipated reversal quickly clobbers demand.
Worse yet, each contraction begets more contraction. There are simply too many goods and services to offer, too many retailers to offer them, too many cars and houses to sell, too many restaurants and golf courses to frequent, too many commercial properties to occupy, too many consumers happy to leave the party. Overcapacity, overbuilding and oversupply all contribute to the problem, and to a greater degree each month. Each job loss, each decline in home value, each debt gone bad, each stock market hammering, each knock on consumer confidence, each consumer retrenchment, each bankruptcy, each foreclosure, each loan rejected, each budget reduced, each tax raised — they all feed the deflationary monster. Eventually all sorts of things get boarded up, shut down, torn down and sold for a loss. Those who used leverage to make money or to further previous trend growth become the first of many to go out of business.
It’s literally your last chance to sell real estate at values that will look nostalgic even a year or two from now. While good deals are indeed starting to pop up (a client of mine just “stole†a 21,000 square foot office building here in the San Francisco Bay Area), this last stock market rally — coupled with historically low interest rates — will convince others that the worst is over, prompting the suckers with money to lose to make more assertive offers on real estate. If you still own investment property, take advantage. Sell to the last few dunderheads now, even though such buyers are scarce, financing is difficult to procure and the sales price will almost certainly disappoint you. The next leg down in the stock market will DESTROY real estate buying psychology and further inhibit lending, while even farther down the road looms the piece de resistance: A bond crisis (based on a fairly sudden market recognition that U.S. tax revenue cannot service out-of-control national debt) which will prompt out-of-control financial markets to suddenly push interest rates up to 20% (or higher) at the worst conceivable time, courtesy of our slapstick Treasury and Fed, inept Bush and Obama administrations, and laughingstock Congress. At that point, few will be in the mood to buy real estate, and values will be in the dumper.
{While we’re at it, when interest rates skyrocket and governments everywhere are tearing down houses (and, in some cases, entire neighborhoods) in an attempt to ameliorate the effects of oversupply and blight, smart investors will start buying real estate — hopefully with safely set-aside, 2006-2007 cash}.
Rents will fall in every property category as the commercial and investment real estate decline intensifies. Rents are dropping and vacancy is rising rapidly throughout most real estate sectors (office, retail, industrial, warehousing, distribution, manufacturing, and so on), but the next leg down will find apartment rents joining the party, as well. Be prepared for ALL rents to continue their decline for more than a decade. Once the current stock rally is complete and worldwide economic problems intensify, more and more people will declare bankruptcy, share housing, and move in with parents and grandparents, making apartment investing much less profitable and more management intensive. The market will quickly price that trend reversal in (and then some), so it’s your last chance to sell and avoid the coming “haircuts†and headaches.
Need more than my word that the markets are pricing in the next leg down in real estate? On April 7th, relatively dependable real estate investment trusts (REITs) offered a foreshadowing of what’s to come. In one day of trading, as the S&P 500 fell a mere 2.4%, industrial REITs lost 13.2%, diversified REITs fell 11.5%, and residential REITs sank 10.5%. Property values in those categories are set to get hammered over the next few years, and nosediving REITs will make it all fairly quantifiable.
Bankruptcy? Foreclosure? No problem! I’m being just a bit facetious but when “the system†(i.e. hard-earned taxpayer money) so readily bails the biggest U.S. banks, investment bankers and even insurance companies out of their financial transgressions, why should its citizenry hold itself to a higher standard? I greatly doubt the stigma previously attached to bankruptcy will be applied this time around. “Filing†is likely to be more popular than the Macarena ever was.
Our policymakers’ stated (and once again misguided) goal is to try to get people to borrow to spend again and they can’t effect that awful plan unless you have access to credit, so it’s not difficult to see some sort of free “credit pass” on the horizon. Methinks they’ll need you more than you’ll need them.
So if you’re upside down or close to it, don’t hesitate to play by the new rules of the game: Consult with a bankruptcy attorney, then allow the system to pick up the tab. Not only is it a prudent thing to consider when caught with negative net worth in a deflationary spiral; based on the shining example of our leaders and policymakers, it has quickly become The American Way.
The only thing “pent-up†is frustration. I call it the “Make-Do” Economy; my hero Mike “Mish” Shedlock (his site — a mandatory daily read) dubs this developing era, “The Age of Frugality”. Call it what you want, but when the trend reverses and easy credit and escalating home values go away, debt looks mountainous, and asset value and good jobs disappear, it’s the easiest door in the world to slam shut. Cars, clothes, furniture, toys, baubles — after a four-year spending orgy, there’s little any of us need; consumers can make do with what they have.
You know a consumer-driven economy’s in trouble when the national refrain becomes, “Hey, honey — let’s stop buying stuff and pay down these credit cards!” Not only that, even solvent Americans are discovering that cutting back is no great hardship. It feels GOOD to put money in the bank, wait for better deals to come along, and conserve. Surely it’s in our blood somewhere; in eras gone by, Americans were terrific savers.
Conspicuous consumption, Rest in Peace. A penny saved is once again a penny earned. Sorry, Wall Street, although if you really want to know — a lot of this was your fault.
Get ready for taxpayer revolts and social unrest. I live in California, where the cost of living is sky-high, home values are plummeting and unemployment already hovers above 10%. What better time for state legislators to deal with bloated budget shortfalls by enacting across-the-board tax increases, thereby dumping an additional $1100 a year tax burden onto the average California family?
A taxpayer revolt is surely on its way, as the Howard Jarvis Taxpayers Association is back to running ads on the radio (Jarvis was the original sponsor of the famous 1978 Prop. 13 tax initiative, which radically lowered property tax assessments throughout the state). Most residents here consider state-run operations to be wasteful at best, so expect the tax-revolt movement (“War on Taxes�) to start with a bang in California and spread like wildfire.
Along with that level of frustration, the next leg down will erupt in social unrest, protest, demonstration, vandalism, violence, white-collar and street crime, sabotage, suicide, murder-suicide, workplace homicide, hijacking, hostage-taking, occasional rioting and terrorism and other manifestations of a disillusioned society’s anger, frustration and despair. Sadly, for the first time in my 51 years, I’m arranging to purchase a shotgun and a handgun for my family’s eventual protection. I guess I’d be a fool not to at this point, knowing what lies ahead.
Certainly it’s a striking reversal of fortunes; the ultimate headfake. When people go from feeling artificially wealthy in 2006 to broke and without prospects in 2010, a visceral societal response — while not ever condoned — must be expected. When ALL institutions disappoint you in every measurable way — from Republican and Democratic administrations to government and Congress to complicit treasury secretaries and Federal Reserve chairmen to Wall Street crony capitalists to corporations and so on down the line — there really are two ways for disillusioned people to go: They can either sit down on the curb and mope, while accepting their fate, or they can express their anger and frustration and desperation by lashing out in every imaginable way. No doubt we’re several months from observing a whole lot of both.
As Sgt. Phil Esterhaus used to say on Hill Street Blues, years ahead of his time, “Hey, and — be careful out there.â€
The good news is: For those of us not inclined to act out and shoot people, I hope for a return to traditional American roots. The age of materialism is over; it is time to savor and appreciate family, good friends, relationships, neighborhood and community. The next ten years are going to be tough; we don’t need to waste money and buy things and run up debt to be happy. We can appreciate those around us, engage in meaningful and enjoyable conversation, watch after each other, instill proper values in our children, volunteer, coach little league, play board games, plant vegetable gardens, expand our horizons, further ourselves. We can take this time to become more enlightened, to read more, to speak out, to question our “leadersâ€, to say hell-no to bailouts, crony capitalism, federal deficits and backroom monetary policy shenanigans. We can “vote the rascals out†and work to elect people like Ron Paul to lead us back from the precipice.
As painful as this process is going to be, at some point America will have no choice but to pull itself up by its bootstraps. I must be an optimist; I think we can do it.
We’ve always been up to the task.
[...] Steve Moyer: Ballgame Over [...]
Mr. Moyer:
Similar to you, I’ve been warning about an upcoming financial collapse and deflation for a long time. Unfortunately, I was way too early. Except for a few die-hard followers, I’ve been totally discredited in the eyes of the majority who have followed me. I believe the time is now approaching where the super-bears will finally be vindicated. The credit system is falling apart, and confidence among the international banks is starting to evaporate. I believe the ultimate crisis will be so severe that even the super-bears will have a hard time holding onto assets — but at least we will have enough understanding about the situation to have a fighting-chance to hold onto any wealth we have retained.
Regards,
Steve Puetz
Steve,
One of the best prediction critiques I’ve read.
So the Fed is buying back some CDO and CMO paper to support the market and the bankers. Maybe their behind-the -scene heroic weekend efforts will slow down the crumble.
I am not so sure this is what will stem the tide.
To the thinking man this credit issue appears to be a designed plan.
Reality: The Fed knew it was coming a while ago and now hypocritically wring their hands while dour faced expressing they are and will do what they can.
Reality: The Feds were the mechanics of this current credit issue but not the engineers.The Fed could have stopped this a long time ago had they wanted. The thinking man says the Feds are not really in control and are themselves controlled.
Reality: This potential liquidity is the next big thing to shock the herd into the corrals.
From observation, it appears the U.S. herd will revert to less spending and holding cash.
Not so much that there will be good deals later but rather out of ignorance as they know nothing else to do but fiat currency.
The US herd is ignorant of metals, in fact I would say the most ignorant on the planet. The herd will hold on to an ever decreasing currency until even the most ignorant of the herd say “Oh S***” all about the same time.Then the jig is up.
The top question is what is the real reason behind this upcoming wham, bam, crash (WBC). Because no truly great event happens without a planned purpose ahead of that event.
Could the planned purpose be a new currency??? In part yes, but not entirely. (Not knowing anything but paper $, the herd will acceptv a new paper $ in the hope it will buy something.)
Could the plan be a new America merger system??? Could be, as the herd will be more pliable after the WBC, followed by the accompnying fallout.
One thing for sure: the dislocation, should it happen, will cause severe shortages of even the most basic of commodities. Tell that to the immediate gratification herd of today.
All that said, it appears the most prudent action is to obtain the basics now and be prepared to get out out of the cities before the WBC.
The thinking man thinks to act before the herd.
Hope this helps someone out there.
A great summary over time. As the previous poster said, I couldn’t have written it better myself. I noticed the quote from Robert Prechter, a man who some think has been discredited because his timing was wrong. What Prechter said about credit, something I read in his At the Crest of the Tidal Wave some 10 years ago, was one of the most educational statements I have ever read. And I consider myself to be educated in this matter far beyond the norm. Somewhere, they are going to start checking under the hood to see what is really there. There will be no new credit when it is clear the lenders are not solvent. Thus, in God we Trust, all others pay cash.
Thank you all for your thought provoking comments.
you talk of a deflationary depression. what about a (hyper)inflationary depression?
i’d like to read your comment on this
Thank you for the panic spin. Someone explained this to me in 1968 and I didn’t understand. By 1980 I was a believer…but this real estate bubble has been an education. What I ask is where is this going? The vision I get is that we will return to the standards of 1910, when a days wage was a silver dollar and a months wage was two ounces of gold. Doing the reverse calculation puts gold at about $2000 and silver at $150 to $200. But those numbers are in times of stability. The immediate post bubble crash will not be one of stability. Instead it will be a period of dislocations when unemployment will be 30% and underemployment endemic. I remember the oldtimers from the 30’s saying things like, I don’t remember much from the depression but I one thing I do remember is I never had any money. When our money fails it will be at that moment that the public will be willing to accept the new money. E. Brandt
I watched Cramer’s video demanding a rate cut smiling. This is the same man I listened to telling me not to be a baby when I lost my lifes work in 2002. He was whining about a few of his do nothing financial managers losing their 25 year jobs. I suspect in 1920 there were people suffering… it only worked it’s way up the food chain in 1929. I have been living in a depression for a decade in my trade and almost all my competitors have washed out. The government has picked winners and losers.. and they chose big ticket cyclical businesses… the countercyclical ones like mine got melted down as unneeded and obsolete. As this plays out.. you will see… the normal growth of countercyclicals will not occur… they are dead. The governement murdered them with low interest rates.. So you have all of nothing undeneath. This is going to make the great depression look like a church bbq.
Hi,
Good analysis. I’m an English-speaker, living in Europe for the last ten years. Until about 3 years ago, you needed a minimum of 25% down to get a mortgage. Now you can get 100% mortgages, and most do. Meanwhile, ordinary 3-4 bedroom houses have doubled or tripled in the last 5 years, though wages have been stagnant. I wonder if the American domino will knock over the European one.
The best news of the week must surely be that greenspan is off to his new mates in Germany.
Germany? He’s no historian, either. Or, perhaps we should watch for a replay of 1923 - better there than amongst the coffers of the worlds coppers - whereupon even your comments would appear conservative.
The unfolding credit collapse makes hyperinflation a non-issue. The Fed simply cannot engineer their way out of this one. We may see hyperinflation down the road, but not before the deflationary depression wreaks havoc on real estate, stocks and commodities. For now, friends, it’s all about defense.
Thank you Steve. I agree with you wholeheartedly. One of the key errors that goldbugs seem to make is that they seem to have been infected with the inflationists’ view of the Fed as omnipotent. To me this seems a bit like a case of financial ‘Stockholm Syndrome.’
As you point out, “[t]he Fed simply cannot engineer their way out of this one.” They have been pumping credit into the system for years but the banks hedge funds, CDOs and other credit pumps are breaking down. The central banks injected huge reserves into the banking system and the banks still refused to make loans. That is probably the beginning of the futile “pushing on a string” exercises that should follow.
When the very machinery of credit inflation is breaking down, it’s hard to create more credit inflation. That seems axiomatic but bears repeating. In my mind the key risk of the goldbug hyperinflation scenario coming true in the short-run is currency inflation. That should be really easy to spot. Sudden increases in bank deposits and retail spending without corresponding credit or economic activity would be a dead giveaway even if the Fed tries to hide the ball.
The central banks will certainly try all their old tricks - likely several times before they even contemplate the drastic step of currency inflation. If so there will be plenty of time to buy gold at much lower prices than today.
I believe you have overlooked and important factor. The credit crunch is occuring is because investors have lost faith in the investments they have purchased. Your argument reflects only the actions that the Fed can use to fight deflation, but ignores the potential action by the federal gov’t to provide a massive bailouts. The perception of federal bailouts would be that these risky investments are federally guarenteed. Investors would likely return to investing in these risky investments since they will believe they will be bailed out if investments should begin to fail again. Faith in the credit markets could be restored for a period depending on the size and how quickly bailouts occur.
I believe in the near future, that US gov’t and other overseas gov’ts will begin to bailout investors in order to prevent loss of confidence in the credit markets. While this would not re-ignite the housing bubble it would almost certainly avoid deflation led by a loss of investor confidence in the credit markets
Of course bailouts are just another short term fix, and creates another set of problems. Investors become over confident and wouldbe drawn to ever increasing risky investments with the highest returns. This results in increasing inflation cause by money invested poorly and by increasing the money supply from bailout money
I cannot say with certainty that whether we will experience deflation or inflation. Its will depend on several factors which are unpredictable, such as how quickly congress authorizes bailouts or how much currency is used for bailout. All I can suggest that deflation is by no means certain to happen and we should not pat ourselves on the back fooling ourselves that we got this all figured out.
However I am absolutely certain about one future outcome, that market instability and volatility will increase in our future. We indeed live in interesting times.
http://www.youtube.com/watch?v=QqkbHV3C9L4
Bailouts sound like they’re politically expedient but we’re talking about a $330,000,000,000 (that’s trillion) elephant. The problem is much too large. Any knee-jerk government response will be a temporary, band-aid solution at best.
The biggest lender in the U.S. (Countrywide) is just about to go bankrupt. Just to prove my point, keep an eye on that situation. The “government” won’t even be able to bail that one entity out.
It makes for interesting conversation, but it’s like trying to stop a hurricane with a pop gun. Whatever you do, don’t bet money on it.
>Bailouts sound like they’re politically expedient but we’re talking about a $330,000,000,000 (that’s trillion) elephant. The problem is much too large. Any knee-jerk government response will be a temporary, band-aid solution at best
Bailouts don’t need to be anywhere near that figure to affect investor confidence. All they need to do is target selected businesses. Not all loans and investments are bad, but investor lack of confidence is bringing down the good and the bad. While I cannot say how much bad debt exists in the US, I would guestimate its probably between one and two trillion. While that seems a huge sum, it doesn’t all need to be bailed out at once.
If Congress acts soon with a bailout of in the billions, it will likely end investor panicing, at least for a period. Even a broad discuss in Congress of a bailout would likely remove some market volatility.
However, I do believe the longer they wait the problem will continue to grow because of a cascading effect on investor confidence and more businesses will end up in trouble as their liquidity disappears. Its like a cancer, If the cancer is treated early, its usually much easier to cure. If they wait, the subprime cancer spreads to other markets increasing the damage done and increases the amount of effort to restore investor confidence. If they wait too long I believe your interpetation will be correct.
While I would agree with your assement that a bailout would only put a band aid to the problem, Its should be fairly apparent to everyone that every action passed in Congress is nothing more than a band aid. I don’t see them changing their ways anytime soon. Its what they do best.
>The biggest lender in the U.S. (Countrywide) is just about to go bankrupt. Just to prove my point, keep an eye on that situation. The “government†won’t even be able to bail that one entity out.
This is a great example and thanks for bring it up. I don’t think the gov’t will have any trouble balling out Country Wide. The gov’t doesn’t need to bailout all of Country Wide’s loans, they just need to provide Countrywide with a line of credit so it remains solvent. Currently Country wide is facing a lack of confidence by investors to loan it money.. If investors see that the gov’t is bailing out Countrywide, they would percieve that Countrywide debt is federally securized. Of course this largely depends on how fast Congress acts. If Congress fails to act soon, then its likely that they will have much more trouble getting Countrywide back on its feet.
>It makes for interesting conversation, but it’s like trying to stop a hurricane with a pop gun. Whatever you do, don’t bet money on it.
I am not betting on either way. I am just pointing out an alternative path that could occur that your article did not discuss at all. As I stated in my earlier message, I really don’t know which way it will swing. I believe your argument in support of deflation should include at least some discussion of a bailout for it to be complete. I believe its important to discuss all options, not just the ones that we strongly believe is going to happen. Thanks for the reply, and best of luck.
Techguy - what your post explains, intentionally or not, is how credit bubbles are created and maintained via government intervention into the marketplace. One major problem (among a number) of government interventions into the marketplace is that they create further imbalances which build up to hinder the efficient functioning of markets.
We have been witness to a long run of government interventionist policy, both via monetary and fiscal policy (your article highlights fiscal policy). Both interventionist measures have been used to a ridiculous degree and have allowed for the expansion of positive psychology to a ridiculous degree, certainly not sustainable over a long run.
What we need to understand is that continuing the process of government intervention is something that is getting more and more taxing upon ourselves. It takes more to “save” an economy that has been tampered with so vigorously for so many years.
At some point, perhaps now, perhaps down the road, the gross imbalances will reach a level that no form of government intervention will be able to help. With the EXTREME imbalances in our current credit economy (compared to any point in financial history) and the rapid dissolving of many fully levered institutions, it is looking like now is the time when a certain tipping point takes place.
It may be postponed. If so, the final bursting will only be made worse.
You cannot continue to sweep risk under the rug without creating a massive lump that eventually is too large to ignore. Right now, I believe that lump cannot be denied any longer, even if large attempts are made by government actors to the contrary.
TechGuy, you do a fine job presenting your point of view and I respect your thoughts, but I must continue to disagree. We have really just begun the credit contraction and already more than 70 lenders have already gone out of business. This problem is massive, much bigger than your guesstimate, due to leveraged hedge funds and derivatives exposure. The country’s 10th biggest mortgage lender went bankrupt in the blink of an eye and no one said a word about bailing them out.
If you choose one random corporation to “save” with our tax dollars, the move will quickly will lose its luster as others fall all around it. Besides, this is called throwing good money after bad.
The fact that the Dow has barely fallen 9% from its all-time high and people are already frantic portends poorly for all markets. Usually you can expect this kind of “fix it!” mentality as things are falling through the floor but not when you’re less than 2 months off of all-time highs. The music has stopped and now it’s just a matter of how long it takes each entity and individual to notice.
I’m sorry; I couldn’t cover your take in my premise because, other than whipping out an occasional band-aid, I believe the Fed is powerless to deal with the unwinding of this credit bubble. Catch the cancer early? The malignant tumors have already spread throughout the patient’s body. I’ll let all the other writers pretend that the “potent directors” (one of the great market fallicies) will ride in and save the day.
I’m glad you are watching over your own investments. Be careful out there. Again, thanks for writing.
Are you still around Steve? E-mail me if your still monitoring this thread. I am interested in your thoughts now that the fed has cut rates and commodities have risen significantly (no rant or gloating - I promise) TechGuy-5002 at the yahoo mail. no dash between 5002 and my name.
Not that I disagree with your thoughts that the fed is powerless, but Ben’s actions certainly haven’t prevented inflation from taking a toll, at least for the short term. Powerless to prevent the credit crunch, but bad policy causing inflation to go up a notch. Worse of both outcomes.
[...] Steve Moyer: Ballgame Over [...]
Reading these comments 7 months later, I have to say that TechGuy had the best crystal ball. Nice job to all, though.
I saw a real estate sign today in San Jose that had a smaller sign hanging from it that said “Short Sale.” Houses have fallen about $200,000 in south San Jose off the peak two years ago from $750,000-$800,000 to around $550,000-$600,000 now in April, 2008. Mr. Moyer is unfortunately right on target with his dire predictions.
OK, so the economy is going to hell in a handbasket….no argument there.
But what would be a smart investment strategy from this point on? Are there any asset classes which are likely to appreciate in this forthcoming Depression?
Everyone, please let’s share our ideas on where smart money should go. Thanks!
Be sure to have a nice cushion in ultra-liquid, cash-like investments. It never hurts to have this, and especially at times like these. For people wary of being too long US$ denominated assets, there are times when holding investments in precious metals and other commodities as well as other ultra-safe investments based in strategic foreign currencies. All-in-all, it will pay to be both liquid and diversified. Risk should be extremely calculated at this time.
Need not Repeat that the article is parexcellence what has utterly surprised me that there are only 24 responces till date 3/10/2008 –the exact reason that even those who read do not belive ( till their a** get kicked ) i happen to share this same warnings to several of my relatives but of no use .
You are a Saint —– giving financial warnings to people free of cost –may god bless you and u live a long and healthy life.
G.V.SHAH–INDIA
That was a pretty cool post. Thanks, Girish. I wish you, too, a long and healthy life.
For Steve: Your referenced $330,000,000,000 is $330 billion, not trillion. Since derivatives exceed $500 trillion, I assume it is that number which is your “elephant.” Just add 3 zeroes to the above numerical string.
In your “Foresight is 20/20″ summary of deflation warnings back to May of 2005, you’ve had remarkable phrasing detailing our problems and recent attempted solutions. Way to go!
Thanks, MB. You’re right, I was 3 zeroes short.
Based on the emails, I think our readers are and have been ahead of the game. When I worry about things, I do take a bit of solace in that.
Of course, today I received an email from someone in Australia who said he had lost almost everything buying Chinese and Indian stocks on margin about a year ago, right before both started to nosedive. His question for me: “Is it too late to sell?” Letters like that just break my heart.
Very impressive piece.
Steve,
Wow!!!! Thank you for the truth and wisdom!. I have watched and read so many different points of view over the past 10 months trying to figure out where we are going in this country. YOU… sir, have got it figured out. I will be ” googling” your name often hoping that you continue to post more articles so I have a real sense of what to do. P.S. I am scared. Thanks again.
Steve - I was doing some reading on the current financial situation we all are experiencing and came across some of your work. Consider me a loyal reader from this day forward. I can’t wait to read your next article.
Margie and Boomer -
Thanks for visiting the site and for taking the time to comment. We truly hope our writings will help you and others like you weather the current storm and any others that may come. We sincerely hope for your best.
Stay up!
Kemp
Thanks, you guys. Please stay in touch. It’s going to be a challenging environment from this point forward so a full awareness of what’s going on can only benefit.
Based on the emails I have received, I think our readers are some of the most enlightened people in the U.S. It gives me hope for the future.
namaste steveji, —i am from india–read most of the articles on the oracle site–you and john mauldin also nadeem walayat, & other writers too have done service to mankind by guiding the flock to a safe place away from the wolves .may god and the almighty bless you all and a big thank’s from all the reader’s have a nice christmas and comming new year!
nb: WHEN EVER I HAVE THE URGE TO GO LONG /INVEST OR BUY I RE READ YOUR ARTICLE ITS LIKE A DOSE AGAINST THE FEVER OF INVESTING
Enjoyed the article. For those interested in a good investment regardless of inflation/deflation I strongly recommend ….. topsoil. Sure I’ve got gold and cash and some stocks… but my big investment of 2009 is topsoil, a greenhouse and 30 dwarf fruit trees. I also plan to lay up about 1000lbs of fertilizer. Got food?
John, I agree wholeheartedly with your investment decision!
Cheers,
Kemp
I sense a return to our roots in many ways. Living off the land is obviously a great idea. How long before I have chickens and pigs running around my backyard?
Namaste Stevebhai,
I just love the way you are confident of your thought process something which many of us lack.. Your article reads like a synopsis from the book “THE NEW GOLDEN AGE—THE COMMING REVOLUTION AGAINST POLITICAL CORRUPTION AND ECONOMIC CHAOS —BY RAVI BATRA” (i specially got it from usa to india) I was just wondering inspite of the several writings i keep reading that is the worst over? So as usual i began to read your article (saved in my favourites)which ened my confusion!!!!! only one request please put the date of your article at the beging of you article MANY THANKS ONCE AGAIN!