Thursday, March 24, 2005

This Bubble Proves The Fed Must Be Eliminated reports this morning that new home sales were way up in February. As I discussed yesterday it is the nature of financial bubbles to balloon upwards just as the prices could not seem to go higher. Thats what makes them bubbles.

The troubling thing is that the longer this goes on the more painful the retraction will be. Please see the Japanese situation posted about yesterday. This mania could be so big it causes a major financial sea change. Perhaps the US dollar will finally be done in.

And if I am worried about the bust I am angry at the government and the central bank. As Jim Cramer said yesterday, why doesn't Greenspan just require banks to have a full 20% downpayment for home loans? If there is much economic pain in store for the markets, let us not forget who created this bubble. Maybe the sea change will include the elimination of the Federal Reserve. We can hope.


At 9:05 AM, Anonymous Anonymous said...

I recently did some research on bubbles and they always occur when money is injected into an economy and people start speculating.

Here are some examples:

1929: stocks could be purchased on margin. Result: stock market crash.

1987: junk bonds get protected by banks. This injects money into the market because people then buy them, making easy money for companies. Result: stock market crash.

1999: wealth effect from Internet stock speculation. Result: stock market crash.

2005: wealth effect/ leverage factor from housing speculation. Result: you tell me.

I'm very mad at Greenspan right now. The guy is basically an idiot, trying to make himself look good at the expense of the US economy.

House buyers are fools. They don't know anything about bubbles. All they know is that their neighbour made $xx,000 last year and they think they can do the same. People were fools in 1929, 1987, 1999 and they will be again in 2005.

As far as I am concerned the Fed needs a new mandate: to control inflation AND speculation.

This whole situation is going to end very, very badly.

At 9:13 AM, Anonymous Anonymous said...

I got one more thing to say and then I'll shut up: not only did new home sales rise, but so did jobless claims !

Furthermore, there are rumblings at the Wall Street Examiner that employment receipts are going to be way down for March. They can tell by the Fed's published receipt numbers.

So... we've basically got an economy that is slowing down, interest rates rising and people buying more houses than ever before. Can you say U-N-S-U-S-T-A-I-N-A-B-L-E ???

And yet Greenspan raises the prime rate by 0.25% ? Hell, I'll bet that inflation rose by more than that during the quarter ! (It did.) Inflation is probably running at 4% now in the US and money is available at 5-6%, making it essentially free, so everyone spends. Big surprize !

All we need is an "irrational exuberance" speach about housing and the whole economy is going to come crashing down.

I sold my stocks last week. I'm sitting on cash. I'll buy my house when things get sane again. Until then, I rent.

At 9:23 AM, Blogger Ben Jones said...

I agree anon.,
I rent a beautiful home for less than the property tax my landlord pays. Cash is king.

I really do want to focus on the Fed because when this thing goes south there will be a lot of anger. That will be a great time to push for the elimination of the Fed. A gold standard or something like it would have prevented this bubble.Thanks for commenting!..Ben

At 9:24 AM, Anonymous Anonymous said...

Thanks for the great web site, Ben. I've been following it since January.

At 9:26 AM, Anonymous Anonymous said...

Relax Ben -- the new home sales are a relatively small part (about 20%) of the residential market. Existing home sales actually declined in February.

The "rush to get in before rates go up" always strikes me as hilarous as well. This happened in 2004 when the ten-year bond went almost to %5. Aside from showing how absolutely saving-deficient, credit-dependent the US populace is, if it is actually a true interest-rate inflection point, such logic almost insures that buyers will be buying at the highest possible price (based on the long low IR cycle), right before the pricing worm turns.

At 9:43 AM, Anonymous Anonymous said...

Hello... just want to say that yes new homes sales did go up by 9.4 % in february... but they were down by 9.5% in january... it's basically a wash... sales are flat... fyi... here are the sales and prices for new home sales for the past 3 months...

december 2004 = 1.22 million
january 2005 = 1.13 million
february 2005 = 1.23 million

new home prices
december 2004 = $229,700
january 2005 = $199,400
february 2005 = $230,700

Also... remember that new construction starts are at a 21 year high... can you say over-supply?

At 10:05 AM, Anonymous Anonymous said...

FYI... in february 2005, new homes unsold increased to an all-time high of 444,000... again... can you say over-supply?

At 10:47 AM, Anonymous Anonymous said...

Here is what I'd like to know... how is this all going to shake out ? Will the US economy go into a big recession ? Will the DOW drop ? Will house prices drop fast or slow ? Is inflation going to spike ?

Its like we can see a big storm gathering but can't decide if we'll get floods or lightning or hail or a tornado.

Another thing is, who is going to make money from all of this and who is losing it ? Obviously, people who buy at the top of the peak are the ultimate losers, but what about everyone else ? Do very many people really cash out in housing ? Generally, if people sell their house they buy another one. So... who loses ? The mortgage companies ?

At 11:21 AM, Blogger Ben Jones said...

(how is this all going to shake out ? Will the US economy go into a big recession ? Will the DOW drop ? Will house prices drop fast or slow ? Is inflation going to spike ?)

I think many countries will have a recession hangover from RE. The Dow, S&P, Nasdaq are already dropping and should fall hard. It will probably take years for house prices to bottom. Right now I am inclined toward the deflationary scenario. We've had the inflation, the let down may be coming. The consumer is the real hot-button. If it gets tough the malls will be empty. IMHO...Ben

At 7:55 PM, Anonymous Anonymous said...

who is going to lose out?

Assett inflation via the credit expansion mechanism is not wealth creation but wealth transfer. During the credit expansion credit is transfered from savers to those who own the asset. Since credit expansion cannot last (it always ends in bust or hyperinflation) during the bust the wealth is transfered back again.

Thinking this through one can see that those you buy at the top of the market lose twice. They have wealth transfered from them during the expansion. Then again during the bust.

Since this credit expansion has been goin on sinmce 1982 the bust is going to be a doozy. VERY , VERY, VERY important not to buy at the toip.

At 6:51 AM, Anonymous Anonymous said...

i'm not a bull nor an extreme bear... i just like to think of myself as a realist... and i think that there are some signals right now that are telling us that the real estate market is a little bit past the top... that the market is moving more towards a buyer's market... but i really do believe that it's going to take a long time for the momentum of this market to significantly slowdown and unwind... i live in northern new jersey and just last summer i saw small capes, 2/3 bedrooms, on the market for about 475K-499K... now, they're about 425K-450K... that's a significant price adjustment... but in my mind, that's still absolutely crazy... this market has changed... and realtors are now changing pricing points, whether they admit it or not... but it still has a long way to go before it becomes rational again...

At 7:59 AM, Blogger Ben Jones said...

(the bust is going to be a doozy. VERY , VERY, VERY important not to buy at the top.) Thats how I feel. Better out two years early than one day too late.

(this market has changed... and realtors are now changing pricing points) Picking the turn is difficult, but I too am feeling a change in the air. Thanks for dropping by..Ben

At 8:18 AM, Anonymous Anonymous said...

Also... i think it's very important for people to really understand that the methodology has been changed for existing home sales... for the first time ever, condo sales are now being included in this number... it just started this past january... previous to that, existing home sales only included single family homes... so... apples to apples... in 2004, the final sales number for existing home sales was 6.65 million... now, the february 2005 number, excluding condo sales, is 5.9 million... 6.65 million vs. 5.9 million... this is a very bad, odious shell game that they are playing...

At 3:05 PM, Blogger Ben Jones said...

(i saw small capes, 2/3 bedrooms, on the market for about 475K-499K... now, they're about 425K-450K.)

Thanks, all readers please post any first hand info; it is very helpful!
I agree that it is turning in several markets.

(this is a very bad, odious shell game that they are playing)
True. When I started this blog, I was stunned by the amount of BS that passes for truth in the financial/RE media. Thanks for commenting..Ben


Post a Comment

<< Home