You are right about that. US real estate and properties etc are approximately 3 % of GDP and the economy. So if things went nuts in that 3% ( which is what has happened) we still function as a growing economic world power. It however is dragging the GDP and the tail is kind of wagging the dog. But there is nothing to be alarmed about it since Feds are determined to see it through with aggressive rate cuts in the future. Real estate will pick up sooner or later. With lots money supply, lenders will go back to doing business lending money. It takes a few months for rate cuts to work its way through the economic channels. But the DOOM & GLOOM crowd is nitpicking its ass hairs meanwhile and going in a tizzy fit... Oh the sky is falling, oh there is nothing good, oh real estate will never come back, oh we are done, oh its all over now!!!!
I've tried to say it in other threads but many don't want to hear the facts. If you care to elaborate on what " the bigger picture " is, I'm only to happy to blow 90% of the negative facts out of the water with actual data. That's not to say that I don't agree with the fact that traders could and should take advantage of price movement in either direction. But the doom sayers are trying to report "facts" to support their opinions when they are not looking at the bigger picture. We've heard about banks, derivatives etc etc but nobody ( and I do mean nobody) makes a factual case for why these issues spell doom for the market. There's a whole thread on banks running out of capital, it's taken 10 pages of posts for someone to actually report the real deal - let's see how many of the doom and gloomposters come back to that thread now and say, "s**t, i was wrong". Not many I'll bet. Never let ego get in the way of a good story. Sure, sentiment is gloomy. That's a part of normal market action. Please enlighten me with the bigger picture and I'm happy to enlighten back.
I think you are right, quite right in your evaluation. These sissy girlie men are bathing in the river of doom and gloom and peeing like little girls on the floor. The behavior is well documented in the halls of Psychiatric wards, where lunatics gather around for group therapy. Suppose we are in recession so what? Accept it and move on. Life is not going to end here or is it? Whats the worst that can happen? Of course that is a subjective feeling and you think the world will end and sky will fall? Its this What iffing madness that drives a schizophrenic to a catatonic state on mind and clouds Judgement and sanity and the whole outlook and that in turns brings his world to a grinding halt. He sits in the armchair vacantly staring into the void... Go suffer, you puny little brains . You deserve every minute of it.
I will take a swag at this later on. It also depends on what your definition of doom is? I don't think the world will end. I don't think banks will run of capital. I don't think we'll go into a depression, but rather a "great recession". My definition of doom as it relates to the stock market is that we'll see equities continue to fall as the consumer has his ATM card taken away. Your math models have no variables for "Psychology". All I see you pointing out is that the total value of homes that would be in default as it relates to a percentage of the GDP. That is simply way too trivial for how the economy really works. A lot of boomers are counting on the equity in their homes for retirement. And all the recent data does indeed point to slower consumer spending. Foreclosures, increased credit card delinquencies and lower same store sales suggest that the consumer is getting closed to tapped out. Further, as housing values slide, I think it will slow even more. There was a positive wealth effect on the way up, and we will see the reverse on the way down. Here is an excerpt from http://www.minyanville.com/articles/index/a/15789 which I think is relevant to our situation in the US. Although Japan was rapidly printing money, a destruction of credit was happening at a far greater pace. There was an overall contraction of credit in Japan for close to 5 consecutive years. Property values plunged for 18 consecutive years. The stock market plunged from 40,000 to 7,000. Cash was hoarded and the velocity of money collapsed. Those are classic symptoms of deflation that a proper definition incorporating both money supply and credit would readily catch. Those looking at consumer prices or monetary injections by the bank of Japan were far off the mark. In the end, one factor alone is going to seal the fate. That factor is called the psychology of deflation. Simply put, the Fed cannot force consumers or businesses to borrow or banks to lend. Also, another good read http://www.minyanville.com/articles/SBUX-SPY-recession-depression/index/a/15784 Notice GDP in the last recession. It was mild because home values continued to rise, therefore consumers continued to tap equity and spend, making this one of the mildest recessions. Consumer is 70% of the GDP. This graph clearly shows that GDP in the last 5 years has been inflated by MEW.
***Hey, you're putting words in my mouth. I didn't say nothing about ARMs in my response. When I said, "It worked before", I was referring to putting down less than 20%. Like 5%. Heck, I don't think you should have to put anything down as long as you can pay the closing costs, have good credit, and its a fixed rate note. If the banks did more due diligence on the front end and were responsible about who got them, even a zero down loan would be OK, IMHO. Secondly, I was talking about Apartment houses. I was simply making the point that investors (i.e., apartment owners) buy the houses that the others can't afford. That shouldn't be discouraged, or those folks won't be able to find a place to live. SM
Even if a borrower appears to be a good credit risk, it's still a good idea to have a down payment. 20% was formerly thought of as (1) adequate "cushion" against unforseen difficulties, and (2) if there's 20% down, less likely for the homeowner to try to "walk". Of course, most borrowers could get a 5% down mortgage, but had to get PMI to make up for it. Having many things "leveraged to the hilt" has risks... some dire, as some of us "slow" ones are now finding out.
Yeah, count me as a slow one. But I was raised to believe in personal responsibility. You don't sign a contract unless you'll carry it out or take the consequences. But because people don't, you have to set up your laws for the lowest common denominator. The people who have no fiscal discipline make terrible choices, and so laws or rules get passed that make it harder for those of us that do. So say, if someone got a great deal on a house, or perhaps had lots of money in the bank it wouldn't matter. Though I have pledged assets on loans before instead of made a down payment. But in those cases, you really can't move switch in and out of assets very easily. Ah well... SM
move on ! LETS JUST BURY OUR HEADS IN THE SAND. EVERYTHING WILL PASS OVER OUR HEADS THAT WAY. right? bgp