Current Affairs


Hi All! I want to share with you that I was cordially invited to start my own blog at Wall Street Examiner. You probably know this site very well as Russ Winter is contributing there as a blogger and Lee Adler is posting his excellent daily reviews for subscribers.

This is the location of my new blog, it’s titled “The yellow brick road” and I’m opening with a new installment of “Where is my recession?” serial.

Please share your feedback, do you like it, is it working well. I’ll continue to announce every post here for easy transition and I think I will keep this site for all posts that I will consider not applicable for WSE

You all know this popular graph, posted and re-posted in many blogs:

It shows a 79% correlation between 12-month delayed NAHB housing index and S&P 500. And you all know that this graph is cheating, as previous years are removed. The whole picture is not so convincing:

It shows that we may not be so sure about the direction of S&P 500, after all.

But you know what – I’ll give you a better graph to look
at the correlation between the same homebuilder index and the real consumer spending:

It clearly shows that we have to wait just about 9 to 12 months from the collapse of NAHB index to the collapse of consumer spending. The index crash started in April of this year, 9 month lag should give us December-January to see the consumer to zip his pants really tight.

And this time it’s for real, no gimmicks, no cheating, just a crash.

Thank you Elmer (Greenspan) for all this!

So Greenspan is saying that the worst is behind us. I would say the worst is still ahead. Why?

I think we fundamentally differ in the definition of the worst. If the definition of worst is the speed of nominal price declines (that will be about -10% for this year) then it’s probably over. We may have couple of years of -5% y/y declines, but the days of -10% are over.

But if we define the worst in the sense of spilling off the housing troubles into economy then the worst is in front of us. Let’s check.

1. The consumer perception of price declines is not there yet. Amazingly, as reported by Calculated Risk, 66% of people still think that the value of their home increased in the last year. Those people are in total denial, as I doubt there are any spots on U.S. maps where prices rose this year. Just check the housing tracker.

2. We don’t see any major contraction in construction and construction employment. It’s coming

3. We don’t see consumer spending declines. It’s coming soon. Just watch the price war between Wallmart and Target.

4. We don’t see record delequency and foreclosure rates yet. Look at England or Australia, they have it already. For U.S., it’s coming next year

Thank you Mr. Greenspan for this mess!

Now, after cleaning out our champagne glasses, I want to say to my fellow bloggers – we did it!

Bush came to his office 6 years ago when blogosphere was virtually non-existing. We, the people, lost badly then and our voices were muted. Two years ago, when blogosphere was still in its infancy – and we lost again. Now, when we are finally strong and we can fight – we did it!

Millions of people lined out this past tuesday to kick G.W. Bush into his stupid fat ass. I saw him yesterday on TV and his ass was swelling and it was red like a tomato. Not even a baboon has it so bad.

Me, and a million of my fellow bloggers, we give and accept congratulations for the great job we did for this country and its people.

Congratulations!

CNN called Rumsfeld “an obnoxious jerk” but later apologized.

Let me also callĀ  Rumsfeld an obnoxious jerk and I will not apologize :-)

4 months ago I’ve published the list of areas that were hit but housing decline the most. Frankly, looking back to June, it was not too bad back then.

Let me revisit the housingtracker and give you the list of the trouble zones that declined by more than 3% since July:

  1. Baltimore -4%
  2. Boston -3.4%
  3. Chicago -3.2%
  4. Cleveland -3.5%
  5. Detroit -3.4%
  6. Long Island (many small cities) -3.7%
  7. Miami -3.3%
  8. Orlando -4.8%
  9. Salt Lake City -5.4%
  10. San Jose -4.1%

This list leaves behind some trouble zones that declined back in spring and not so much lately. For example, Washington, D.C. had declined by 6.3% from April.

Thanks Mr. Greenspan for all our joys!

Nouriel Roubini, the Kassandra of Housing Bubble, is again demonstrating the amazing power of his predictions of GDP growth. Let see the numbers:

Today’s topic is U.S. current account deficit, which is a net inflow of capital that offsets the trade imbalance. In short, as you probably know, we are consuming more than producing and cover the rest by borrowing. This is how it looks:

The necessary readings are:

The first paper is discussing the fact that the reasons of CA deficit are not the “engineered” surplus in developing countries, as B. Bernanke beleives, but more the following reasons:

  1. The role that U.S. is playing in infrastructure and export needs of developing countries
  2. The U.S. military might that is aimed to enforce its economic policies
  3. The U.S. housing bubble, which triggers the wealth effect and increases consumption

The second paper, stolen from the working desk of U.S. congressmen, is discussing the impossibility of the CA deficit to run forever and the scenarios of its unwinding. Please read the paper for details, but in short we are talking about the constant decline of the dollar for the many years to come.

Let me say, as usual: thank you Mr. Greenspan for all this!

July new home sales posted a spectacular decline of 4.3% and inventories are at 11-year record level. But what about prices? So far the median prices are holding at national level in nominal (non-inflation adjusted) values.

But once hot markets are not feeling as good as average. In Massachusetts median home prices declined by huge 3.5% in just one month. At the same time condominiums got cheaper by a stunning 4.1%.

Despite the current housing slowdown is about 9-months old, the actual decline in nominal prices is something new. It will take another month for weak spots to drag the national price average down, but once it happens four weeks from now, the markets will have to respond with taking a possible recession into account. I wish the citizens will digest the new reality of falling real estate into account just before November elections.

Thanks Greenspan.

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