Steve Moyer: Real Estate/Credit Deflation 14: Anatomy of a Murder
Real Estate/Credit Deflation 14: Anatomy of a Murder
by Steve Moyer
“And there should be no doubt about who is really responsible for the subprime woes. The investment banks employ some of the country’s “best and brightest” — sharp guys who have studied at some of our finest colleges and universities. Does anyone really believe that a Harvard MBA — who understands all the fine-points of high-finance — really thought that ignoring all of the standard criteria for prudent lending, and issuing trillions of dollars in loans to applicants who had no job, no collateral, bad credit, and were unable to come up with a few thousand dollars for a down-payment — was a great idea?” ~Mike Whitney
Bill Gross of PIMCO, only the greatest bond manager on Planet Earth, says we’re in the “first inning” when it comes to the unfolding housing crisis. Look out, world; Mr. Gross and I are on the same page.
Rest assured, when the developing assortment of real estate bombs lays waste to the finances of most of my fellow Baby Boomer brethren, Americans will be walking around bitter and depressed, wanting to know “What happened?” At this point, most are just scratching their heads, wondering why Larry Kudlow’s “Goldilocks Economy” is turning out to be cold porridge and a broken chair, but my guess is folks won’t be that interested in getting to the bottom of everything until they’re standing in line for soup.
Heads, of course, will roll, beginning with whomever gets elected President in 2008 (too late for him or her to do anything about the problem but the sap in the Herbert Hoover role will get blamed), George W. Bush (not really his fault, but he’s certainly guilty of failing to provide any leadership as the real estate/mortgage bubbles inflated/popped/began to deflate), Alan Greenspan (guilty as charged) and Ben Bernanke (current Fed Chairman and Greenspan lieutenant when the Fed played chicken with the U.S. economy). Of course, lining these “leaders” up at the proverbial guillotine won’t give anyone his or her money back, so your irate neighbors and friends will still want to know what the hell happened.
This little ditty therefore offers readers a sneak preview of the autopsy, and asset preservationists everywhere (and I’m extremely proud of you all) will have a few years to practice their presentations before they break it all down at Hooverville-style moonshine parties. So here goes:
Once upon a time, Alan “It’s Not My Fault” Greenspan and his Unfabulous Federal Reserve failed to recognize America’s tech/dot-com bubble and therefore took no steps to contain it — choosing instead to bask in the glory of what they considered to be a “New Era” economy. The result was the biggest global investment mania of all-time, as Wall Street’s NASDAQ index soared from 1419.12 in October of 1998 to 5048.62 in just 17 months’ time and taxi drivers, bartenders and ditsy blondes were going “all-in,” generating impressive short-term paper profits speculating on an investment class most knew nothing about.
Despite the usual “It’s different this time!” hubris and Greenspan’s contention that it’s impossible to recognize and moderate investment manias, the NASDAQ bubble promptly popped and the stock market lost $9 trillion worth of value from peak to first-leg-down trough (October, 2002). The Fed could have elected to allow painful post-bubble adjustments to take place, of course, likely resulting in severe but relatively short-term anguish. Instead, Greenspan and his drunken mob attempted to go the Borrow From Peter to Pay Paul, “reflate the bubble” route, drastically cutting interest rates and throwing banking/lending regulatory safeguards out the window.
To make a short story long, the resulting, historically low interest rates allowed homeowners, lenders, buyers and sellers to rationalize property values. Yesterday’s $2000 a month payment could now bring you roughly twice as much loan, so — to be rough and dirty about it — $250,000 houses were recalibrated by market participants to be worth $500,000, and in a relatively short period of time. For purposes of this discussion, we’ll call this Fed-generated, lower interest rate/lower payment = higher value rationalization PHONY REAL ESTATE VALUE INCREASE #1.
Buoyed by these artificial value increases (that is, increases not driven by real estate market fundamentals or growth in personal income) and based on a sense that rapidly “appreciating” home values would continue in what many expected to be an “improving” economy, increasingly wacky mortgage instruments began to find their way to market. As Greenspan looked on in approval, zero-down loans popped up everywhere, soon to be followed by, ahem, LIAR LOANS — that is, “stated-income” (“Go ahead, jot down whatever you want”) loans and “stated asset” (“No, seriously — we’re not the least bit concerned that you have no collateral”) loans. “Rising” home values also brought to the world a litany of teaser adjustables (initial 1% interest rate and so forth), and soon the same $2000 monthly payment was able to bring a buyer even more leverage — say, a $750,000 home, along with enormous negative amortization (i.e., the borrower’s loan balance would increase substantially each year). “No problem,” suede shoe mortgage brokers would tell either suspecting or unsuspecting borrowers. “When the teaser ends and your rate and payment jump, you can just refinance again or sell the house for a nice profit.”
Fed-generated nothing-down loans, other goofball mortgage instruments and “teaser” rates therefore resulted in PHONY REAL ESTATE VALUE INCREASE #2.
As the ludicrous mortgage market hummed along and appraisers were able to show that houses selling for $250,000 a couple of years earlier were now “worth” hundreds of thousands of dollars more, the previously legitimate mortgage-backed securities (MBS) industry went bonkers. Ratings agencies assigned “investment grade” status to this assortment of goofy loans, and loan portfolios were packaged and sold off to investors, freeing the lenders up more money to make even goofier loans.
And sell off to investors the Wall Street boys did. Risky, leveraged “structured finance” became the new order of the day, and the MBS industry went from hanky to panky in just a few short months. “Collateralized Debt Obligations” (CDO) allowed hokey loans to be sold off in pieces to widows and orphans, at which point those CDO’s begat “Structured Investment Vehicles” (SIV’s), which leveraged the already-frothy game to the moon. Market participants the world over, awash in House-of-Cards (borrowed) liquidity, competed for these “investments” and Wall Streeters eventually levered portfolios as much as $70 for each dollar’s worth of debt. At this point, real estate’s wheels had become fully greased, in a perilous way, while Greenspan, Bernanke & Co. stood there with their hands in their pockets.
Free-flowing money was increasingly available to lend, and demand needed to be generated to lend it. Accordingly, heavyweights like Countrywide Financial (America’s largest) and most big banks started extending those same no-money-down and teaser loan offers to terrible credit borrowers. This meant that under the Greenspan/Bernanke Fed’s watch, credit, income, equity, collateral, savings and cash down payments no longer mattered when it came to purchasing a home in the United States. Sources tell me that it was at this exact moment the earth began to tilt on its axis; its gravitational pull affected by millions of traditional bankers all spinning in their graves at the same time.
To Wall Street and mortgage/banking hot-shots, none of the stodgy, traditional stuff mattered anymore. “Doesn’t matter,” they’d tell you behind the scenes. “We’re gonna pass those crappy loans along like hot potatoes anyway.”
The worst (subprime) mortgages eventually even sold for a premium, as poor credit borrowers tended to pay higher interest rates and were more likely to “stay in the loan” for longer periods of time. It didn’t take long for everyone, including terrible credit borrowers, to figure the new game out: It was easier to finance a house than it was a refrigerator.
The limitless availability of mortgage money and the sucking action of “hot potato” structured finance brought an end to “lending standards” and created another artificial boost for all markets, this one from the bottom up. The Fed-supported market inclusion of historically unqualified buyers with no savings, no down payment, no collateral and “stated income” was the impetus for even greater demand and PHONY REAL ESTATE VALUE INCREASE #3.
When a counterfeit economy feels strong, home “values” are “rising” rapidly, home buyers believe there is no end in sight and goofball, nothing-down teaser loans are available to anyone with a pulse, homebuilders can throw up just about anything and there’ll be a market for it. Developers and builders large and small did just that and began making money hand over fist, thereby producing an insatiable appetite for more buildable and entitled land, and providing domino-style stimulus for all segments of the real estate marketplace. Phony market momentum rolled along and with it came soaring incomes for homebuilders, developers, realtors, real estate executives, real estate speculators, “flippers,” mortgage brokers, title insurers, architects, general and sub-contractors, construction workers, insurance brokers, Mercedes dealers, home improvement retailers and tradespeople of all types. It is unlikely most of this would have taken place without Phony Real Estate Value Increases 1 through 3, so Fed-generated “boomtimes” in the real estate, homebuilding, construction, home improvement, mortgage and finance industries were key to PHONY REAL ESTATE VALUE INCREASE #4.
Naturally, those who already owned property couldn’t resist the asp’s apple, either, and the “reflating” U.S. economy got an additional boost from a populace willing to borrow at historically low interest rates against the growing “equity” in their real estate. Almost anyone who had purchased a home before 2003 felt “wealthy,” and the additional $100,000 to $600,000 worth of “equity” turned their homes into ATM’s for a time. People tapped this immediate source of new-found manna to pay for pretty much everything — automobiles, computers, PDA’s, plasma TV’s, clothing, accessories, home décor, jewelry, art, collectibles, toys, games, vacations, timeshares, college tuition and so forth. Everyone had “bonus” money to spend — and all the credit cards and lines of credit to spend it with — along with the ultimate “Get Out Of Debt-Jail Free” card (“We’ll just refi our revolving debt back into our home loan!”). As long as values continued to “rise,” the artificial economy not only sustained but flourished; the (borrowed) boost to commerce resulting in relatively high employment, unchecked consumer spending, rising corporate earnings and a general sense of economic well-being. Homeowners borrowed money against their equity to invest in the (now rising, except for the NASDAQ) stock market, as well.
While not of the same magnitude, this four year, Fed-generated, house-as-an-ATM consumer economy, brought about by low interest rates, loose money and easy credit, was the force behind PHONY REAL ESTATE VALUE INCREASE #5.
As long as the borrow-against-the-equity-in-your-home economy was able to maintain itself and people had money to burn, commerce continued to take place, and American business was able to hire, develop and grow. Despite the fact goofball loans were not available on the commercial side and price appreciation was therefore more muted, the bottom-up, loose credit environment (combined with historically low interest rates) provided enough economic stimulus for space demand across the commercial real estate board — retail, warehousing and distribution, office, research and development, live-work and commercial land. More commerce and more hiring created upward pressure on apartment rents and income property, too, and those “values” ratcheted up in anticipation of a continued booming economy and expected higher rents. The artificial, Fed-generated, borrow-to-buy-things economy resulted in (temporarily) increased earnings, hiring and demand for housing and space, which produced PHONY REAL ESTATE VALUE INCREASE #6.
Add all of this together and the Fed literally “created” (for a time, anyway) an environment where consumer confidence surged, business “boomed,” stocks rose, real estate buying psychology peaked, and, given that surging home equity seemed assured, there existed no notion to spend less or to set money aside for a rainy day. Given that by all appearances Greenspan & Co. had responded to the NASDAQ collapse “successfully,” Americans felt even more “Faith in the Fed.” This sense of “insurance” gave market participants yet another reason to feel complacent — nay, reckless — about post-bubble economies in general terms.
When I penned these columns as the real estate/credit deflation bubbles began to deflate, we received emails from hundreds of readers, the majority of whom thought our economy was out of the post-NASDAQ bubble woods. The few who thought the Fed’s reflation play was risky or could implode usually had faith that our central bankers or “the government” or “the great American financial system” could fix things if anything went wrong. Few felt there was anything to be concerned about; “THEY will never allow that to happen,” they’d say.
Those of us familiar with 18th, 19th and 20th century post-bubble economies were the ones asking questions as the Fed took its indefensible course of action. You know, questions like:
“What happens when the music stops playing? What happens when the real estate market no longer benefits from falling interest rates? What happens when people can no longer buy houses on margin? What happens when home values drop a trillion dollars at a time? What happens when equity shrinks? What happens when teaser and liar loans are taken off the table? What happens when lousy credit borrowers can no longer qualify for loans? What happens when homes stop selling? What happens when fully-leveraged homeowners start walking away from their homes? What happens when millions of properties face foreclosure at the same time? What happens when those foreclosures come back on the market? What happens when homebuilding, construction, real estate and financing boomtimes end? What happens when houses no longer function as ATM’s? What happens when homeowners stop tapping the shrinking equity in their homes? What happens when houses no longer “appraise?” What happens when consumer credit defaults mount? What happens when banks take away equity lines of credit? What happens when financiers lose trillions of dollars on leveraged and poorly-collateralized loan portfolios? What happens when investors don’t want hot potatoes anymore? What happens when credit market begins to seize up? What happens when consumer confidence declines, the economy contracts, earnings turn down, jobs are lost, the stock market drops, people begin to cash in their 401(k)’s, structured finance unravels, Fannie Mae wobbles, the Fed becomes powerless, buying psychology is damaged and there are no savings to fall back on?
“In other words, what happens when the post-NASDAQ-crash, Fed-generated real estate and credit bubbles implode?”
Have a seat; it’s still the first inning. You haven’t missed much of the game. Take action now and you might end up owning the Yankees.
[…] 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.