tranches of like writes:
Burst?
tranches of like | 03.30.08 - 4:02 pm | #

FFDIC writes:
Ah, blessed relief from the prior thread. Thank you CR!
FFDIC | 03.30.08 - 4:02 pm | #

Outsider writes:
As the dollar falls in value vs. other currencies, is there a chance that foreign buying of US homes will change the scenario?
Outsider | 03.30.08 - 4:03 pm | #

afferent input writes:
I have a question about home ownership. I assume that the percentages refer to the percentage of the adult population that "own" a home. Is that correct?

In addition, I assume that it does not take into account the number of homes owned by an individual. That leads me to another issue. There are many people in the Baby Boomer generation that own vacation homes. As they retire, they will probably sell one of those homes. Is there any analysis someplace on the effect of our aging population, as it retires, downsizing to only one home?

The problem, as I see it, is that baby boomers are retiring right now, just as the housing bubble is bursting. But I'd love to see a thorough analysis on this issue.
afferent input | Homepage | 03.30.08 - 4:07 pm | #

Binko writes:
Sorry, but global wage arbitrage combined with declining skills in the american workforce and rising skills in the global workforce means that housing prices will never "recover".

Sure, they will hit a true low maybe 20 years in the future once the transition of America into a Latin American style oligarchy of the rich is complete.

But most people are imagining prices bottoming out and starting back towards the levels of a few years ago when they speak of a housing "recovery".

American workers will never make the real wages they made a few years ago so housing will never return to the days of high prices and steady appreciation.
Binko | 03.30.08 - 4:09 pm | #

Average Joe writes:
"As the dollar falls in value vs. other currencies, is there a chance that foreign buying of US homes will change the scenario?"

I've wondered this myself, but since any rent they may get from their investment will be in dollars, well then there you have it.
Average Joe | 03.30.08 - 4:10 pm | #

Anonymous writes:
Outsider, two chances--slim and none.

look closer it's a M.I.R.A.G.E. (Moneyed Immigrants Rich Ancestors Generous Expatriots) not a life raft
Anonymous | 03.30.08 - 4:15 pm | #

AllenM writes:
A-Joe,
It would have to fall a fair bit more than it has so far,and then we would have all those nasty import effects driving domestic inflation- oh wait!

We already have that today!
Nothing like buying gas this weekend to clarify that 3 handle is here to stay.

Until the 4 handle.

As for housing, no bottom in sight was the thought yesterday as I tooled out to the far north of Phoenix yesterday and was confronted with houses still going up- starting in the 100s now, what used to be advertised as just under 300. Ulp, builders are throwing up sticks as long as the financing is still going, even if they are broke.

Which, I am convinced, most of them are indeed bk. But hey, remember Wall Street is funded by eternal optimism, and crass pessimism is dismissed as a *loser's* game.

Only the IRS knows the truth;-}

Someday this war's gonna end...
AllenM | 03.30.08 - 4:17 pm | #

FFDIC writes:
Binko,
"... housing will never return to the days of high prices and steady appreciation."
With one exception here in Texas. George Bush's ranch will enjoy steady appreciation because some crony will buy it or the poor taxpayers will end up with it like the LBJ ranch.
FFDIC | 03.30.08 - 4:18 pm | #

CalculatedRisk writes:
Outsider, yes. The falling dollar has to be helping some markets (but not most). Unfortunately housing doesn't transport very well - maybe Europeans will buy some of those condos in Miami!

afferent input, the homeownership rate is referring to primary residences for households (not adults).

Yes, many boomers might sell their 2nd homes as they age - but froma demographics perspective that usually happens when people feel the 2nd homes are too much effort (not being able to afford them is a different issue). When are talking about demographics, it's the "too much effort" that matters. With the leading edge of the boomers turning 63, we are a probably 10 to 15 years away from when they will want to sell for "effort" reasons. These are the years the leading boomers want to enjoy their 2nd homes!

Also, remember that the youngest boomers are in their mid-40s. If they own 2nd homes, they will not want to sell for 30 years or more for "effort" reasons. The younger boomers will probably be net buyers, not sellers over the next decade.

Best to all.
CalculatedRisk | Homepage | 03.30.08 - 4:19 pm | #

Anonymous writes:
youngest boomers 1964 ;-)
Anonymous | 03.30.08 - 4:22 pm | #

energyecon writes:
CR,

Presumably your view on homeownership rates factors in your forecast of a mild recession - what would your sense of that be if there is a brutally deep and grinding recession? Not an assessment of probability of that outcome, rather a bookend scenario...TIA.
energyecon | Homepage | 03.30.08 - 4:23 pm | #

Virgil writes:
Binko,

That's an interesting hypothesis about America turning into a Latin American style oligarchy. Obviously, you must have some insight into the subject. I would be fascinated to read some more of your thoughts on the subject...
Virgil | 03.30.08 - 4:23 pm | #

energyecon writes:
Anon,

That is something that always struck me as overly broad, what is the CW that Boomers are 1946-1964? All the other age cohorts that get discussed are ~10 years long - I am trying to recall a classification scheme that broke out a sub-cohort - 'Shadow Boomers' or some other designation...anyone knowledgeable?
energyecon | Homepage | 03.30.08 - 4:26 pm | #

Outsider writes:
I remember hearing that many South Americans were buying in Miami. Here is an article from 2005:

http://www.csmonitor.com/2005/07...01s03- ussc.html
House Not Home: Foreigners Buy Up American Real Estate

I wonder if that's still happening.
Outsider | 03.30.08 - 4:28 pm | #

Topher writes:
Also, remember that the youngest boomers are in their mid-40s. If they own 2nd homes, they will not want to sell for 30 years or more for "effort" reasons. The younger boomers will probably be net buyers, not sellers over the next decade.

Best to all.
CalculatedRisk | Homepage | 03.30.08 - 4:19 pm | #


CR, I don’t know how many people in their mid 40’s already own a second home. If they do own a second home I find it hard to believe they can afford it for 30 years (unless they are very well off already). I also find it hard to believe the younger boomers will probably be net buyers with the amount of debt most are carrying. I believe it would be the opposite, they will be sellers over the next decade. Where is the money coming from?
Topher | 03.30.08 - 4:32 pm | #

ac writes:

As the dollar falls in value vs. other currencies, is there a chance that foreign buying of US homes will change the scenario?

Now that the falling dollar is basically considered a law of nature, it makes me wonder if it's getting near that time to be long the dollar.

Note that doesn't imply being bullish on the dollar, just more bearish on other currencies.

Hmmmmm... decisions, decisions...

ac | 03.30.08 - 4:34 pm | #

ac writes:

I remember hearing that many South Americans were buying in Miami. Here is an article from 2005:

I wonder if those particular houses are still going up in value, and not imploding like the rest of Miami RE.

ac | 03.30.08 - 4:39 pm | #

Topher writes:
The way I see it is if you want to own a second home you would have to have about $5 million dollars with a 9% return at retirement to be able to afford it.
Topher | 03.30.08 - 4:41 pm | #

CalculatedRisk writes:
Topher, In the aggregate many younger boomers have high debt loads - but we have to look at the subset that doesn't - and those that are interested in a 2nd home.

People keep bringing up the Boomers, and my point is it's too early for older boomers to sell, and the younger boomers are moving into the buying years - the demographics for boomers is OK for 2nd homes.

This says nothing about all the people that speculated in 2nd homes - I expect prices to fall sharply in many 2nd home areas because of speculation and over-leverage - BUT NOT demographics.

energyecon, yes, a more severe recession will make all the numbers worse. Prices will fall further, sales will decline more, etc. I just think the Burns' numbers are inconsistent. If they are thinking severe recession - shouldn't they be thinking larger price declines?

Best Wishes.
CalculatedRisk | Homepage | 03.30.08 - 4:44 pm | #

dryfly writes:
What is something that always struck me as overly broad, what is the CW that Boomers are 1946-1964? All the other age cohorts that get discussed are ~10 years long - I am trying to recall a classification scheme that broke out a sub-cohort - 'Shadow Boomers' or some other designation...anyone knowledgeable?

I know what you mean - its not important since the definition is mostly artificial anyway as are all such classifications.

Best way to think of boomers is as the spawn of the depression & WWII generation... You had serious birth rate decline in those years (firs due to poverty then due war) followed by some serious 'catching up' right afterward (late 1945 & on).

So the question to ask is when would a 20 year old woman in say 1945 last be fertile? Answer - about 1964 plus or minus a little. That would be the biological end of the BB. However the bulk of the wave would be much earlier & closer to peak fertility years - say about 1950-1955... something like that.

Just a convenient way to think about the dating but really its way more complex & muddy than that.

dryfly | 03.30.08 - 4:51 pm | #

Anonymous writes:
Or,
From wiki-BabyBoomers

“There is some disagreement as to the exact beginning and end dates of the baby boom, but the range most commonly accepted is as starting in 1940 and ending in 1964. The problem with this definition is that this period may be too long for a cultural generation, even though it covers a time of increased births. If the gross number of births were the indicator, births began to decline from the peak in 1957 (4,300,000), but fluctuated or did not decline by much more than 40,000 (1959-1960) to 60,000 (1962-1963) until a sharp decline from 1964 (4,027,490) to 1965 (3,760,358). This sharp decline resulted from millions of women using birth control pills, which were introduced in 1960 in the U.S., and widely used by 1964. This makes 1964 a good year to mark the end of the baby boom in the U.S.”


on Shadow Boomers:
“In his book Boomer Nation, Steve Gillon states that the baby boom began in 1946 and ends in 1960, but he breaks Baby Boomers into two groups: Boomers, born between 1945 and 1957; and Shadow Boomers born between 1958 and 1964.”

AKA:

“Further, in Marketing to Leading-Edge Baby Boomers, author Brent Green defines Leading-Edge Boomers as those born between 1946 and 1955 . . . Green describes the second half of the demographic baby boom, born from the mid-1950s through the mid-1960s as either Trailing-Edge Boomers or Generation Jones.”
Anonymous | 03.30.08 - 4:52 pm | #

numbersman writes:
I have a general question about inflation,specifically why inflation is ex food, and gas. I heard Bob Brinker, on my car radio say the inflation index is calculated without it because gas, is not demand pull, and also not cost push either, so its neutral. I dunno but in my case, if I don't fill up my car to go wo work, I won't make any money, and get fired.Also if I don't eat for about three days, I"m a corpse. what is he or I missing here?
numbersman | 03.30.08 - 4:54 pm | #

dryfly writes:
on Shadow Boomers:
“In his book Boomer Nation, Steve Gillon states that the baby boom began in 1946 and ends in 1960, but he breaks Baby Boomers into two groups: Boomers, born between 1945 and 1957; and Shadow Boomers born between 1958 and 1964.”

Anonymous | 03.30.08 - 4:52 pm | #

Also called 'tail enders'... a truly 'lost generation'. I know many.

dryfly | 03.30.08 - 4:55 pm | #

Bill D. writes:
"That is something that always struck me as overly broad, what is the CW that Boomers are 1946-1964? All the other age cohorts that get discussed are ~10 years long - I am trying to recall a classification scheme that broke out a sub-cohort - 'Shadow Boomers' or some other designation...anyone knowledgeable?"
energyecon |

"Generation Jones": http://en.wikipedia.org/wiki/ Gen...eneration_Jones

People seem to universally assume that the demographically-defined Baby Boom Generation is also a culturally cohesive entity, which it's not. However, since demographics is what matters here we can reasonably refer to the Boomers as a "generation" in this context.
Bill D. | 03.30.08 - 4:56 pm | #

dryfly writes:
People seem to universally assume that the demographically-defined Baby Boom Generation is also a culturally cohesive entity, which it's not.

Boomers all know that - most others don't care as is appropriate (too much attention paid to boomers anyway).

dryfly | 03.30.08 - 4:57 pm | #

mort_fin writes:
CR

I don't know how on earth you can cite that Atlanta Fed paper as a "good overview." It's so fundamentally flawed as to be beyond belief. The wackiest claim in there is that the average FHA borrower is making an 18% down payment! If a borrower had 18% or more as a down payment why the hell would they be going FHA? I've looked at mean FHA down payments using FHA data. They are less than 5%. If you corrected for the fact that one-third of the down payments are bogus, the mean would be around 3%. On huduser.org there are at least half a dozen papers that analyze FHA data (search under the name Robert Cotterman, for instance). All of them have tables of FHA data from which you can get upper and lower bounds on average FHA down payment, and the upper bound from any of them is well under 10%. If their data analysis is that flakey, how can you trust the results?

As far as the model is concerned, they look at "down payment constraints" by ASSERTING that there was a 20% down payment constraint in 1995, based on the fact that the AVERAGE down payment in 1995 was 19%. I wouldn't trust their calculation, given the FHA mean that they present that I know is way off base, but even if their 1995 average is right, how could the mean down payment be less than the constraint???? The observed mean down payment is based on borrower choice, with a "down payment constraint" setting the floor. We know that for veterans, the down payment constraint was about zero at that time, and for non-veterans buying non-expensive housing it was 3% (FHA). Asserting that it was 20% in order to get a result by moving it from 20% to 5% seems downright crazy to anyone with an elementary knowledge of this market. The big innovations in mortgages over this time were slides down the FICO scale, and affordability products like IO
s, not relaxed down payments.

They also fundamentally misunderstand the down payment assistance programs. They assert that FHA closing costs have fallen (true) and link this to down payment assistance programs, which is nuts. The DAPs aren't paying closing costs, which the seller was always allowed to pay in FHA, the DAPs are paying down payments. FHA closing costs have fallen because FHA lowered the upfront mortgage insurance premium over this time.

The authors really seem clueless. The model is flawed. And the data analysis is deeply suspect. Other than that, I guess it isn't a bad paper.
mort_fin | 03.30.08 - 4:59 pm | #

dryfly writes:
As for boomers & housing - I think a lot will try to get out now (sell on this peak) - won't happen unless they got out a couple years ago they are too late.

I was at dinner with a buddy & family last night. He is 57 and trying to sell - just had the appraisal. We discussed at length - if he gets close to his price, he sells & rents - if not he stays put for as long as it takes. I told him (politely) to prepare for a long siege.

dryfly | 03.30.08 - 5:00 pm | #

SeattleSun writes:
Being an Older Boomer (DOB: 1947) and retired at age 61 from the Lazy B, I can tell you for the first time ever I am considering a second "home" (condo) in a resort area (Las Vegas). In the past I was always too busy with work and family to have anytime to consider a second home in a resort area.

I am actively looking and waiting for prices to fall over 50% from their peak which I think is doable in Clark Co, NV.
SeattleSun | 03.30.08 - 5:00 pm | #

Topher writes:
CalculatedRisk writes:
Topher, In the aggregate many younger boomers have high debt loads -
People keep bringing up the Boomers, and my point is it's too early for older boomers to sell, and the younger boomers are moving into the buying years - the demographics for boomers is OK for 2nd homes.


“but we have to look at the subset that doesn't - and those that are interested in a 2nd home.”

----------------------------------
Well that would be me and I still would refer to my comment.

Topher writes:
The way I see it is if you want to own a second home you would have to have about $5 million dollars with a 9% return at retirement to be able to afford it.
Topher | 03.30.08 - 4:41 pm | #
This is also not having a place in NY NY and Palm Beach. Just two nice places in the middle price point. I just believe you need a very hefty nest egg!
Topher | 03.30.08 - 5:03 pm | #

SeattleSun writes:
"Also if I don't eat for about three days, I'm a corpse. What is he or I missing here?"

It takes about 60 to 90 days to starve a person to death.

You can probably go without water for three days.

Maybe this was just a figure of speech rather than ingnorance of the facts?
SeattleSun | 03.30.08 - 5:04 pm | #

scotty at war writes:
Long Fight Ahead for Treasury Blueprint
Consumer Groups, Agencies Criticize Regulatory Overhaul

http://www.washingtonpost.com/ wp...d=moreheadlines

But Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, declined to give the administration credit for the proposals, saying its earlier inaction was responsible for the financial problems. "Regrettably, the Administration's blueprint, while deserving of careful consideration, would do little if anything to alleviate the current crisis -- which was brought on by a failure of will," Dodd said in a statement.

Re: >>Battle lines are already forming over Treasury's major proposals even though top officials have just begun to digest the 200-page regulatory blueprint, which was released to them late Friday night.

**** The battle is on, make no mistake!
scotty at war | 03.30.08 - 5:10 pm | #

sbarrkum writes:
Mauldin: or Maudlin

cheer
sbarrkum
sbarrkum | Homepage | 03.30.08 - 5:13 pm | #

CalculatedRisk writes:
mort_fin, OK, but I was focusing on the causes for the increase in homeownership over a 15 year period. I think this does provide some evidence that the homeownership rate won't fall back as far as Mauldin / Burns believe. If you have other academic studies, I'd like to read them.

I could say the same thing about Mauldin's letter "flawed" and the "analysis is suspect" but I actually I think it's a pretty good overview despite it's flaws.

Best to all.
CalculatedRisk | Homepage | 03.30.08 - 5:14 pm | #

Anonymous writes:
More stupidity and retarded bullshit:

John M. Reich, director of the Office of Thrift Supervision, discounted the importance of the blueprint, which calls for his agency to be merged with the Office of the Comptroller of the Currency to streamline the regulation of similar types of financial firms. In an e-mail to his employees, which was obtained by The Washington Post, Reich wrote that "you might be wondering whether financial services restructuring is an idea whose time has finally come. I don't think so."

Reich suggested that the current arrangement, of multiple banking regulators, offers important checks and balances. "When the Treasury Department issues its recommendations, expect to see news stories and renewed questions about what the future will hold," Reich wrote. "Take note of the fanfare, then look back to [past failed efforts to restructure financial regulation] and resume the important work that you continue to do so well."
Anonymous | 03.30.08 - 5:14 pm | #

ac writes:

Regrettably, the Administration's blueprint, while deserving of careful consideration, would do little if anything to alleviate the current crisis -- which was brought on by a failure of will..."

I agree, but that failure of will originated back in the 90s and then was repeated again and again.

ac | 03.30.08 - 5:15 pm | #

tj & the bear writes:
energyecon,

Yes, CR is too optimistic about housing because he's too optimistic about the economy's prospects.  IMHO homeownership will go back to max 64%.

dryfly,

Interesting anecdote!  I've stated for quite a while that people would bail on their houses and their stocks once they realized their retirement was slipping away.

tj & the bear | 03.30.08 - 5:19 pm | #

MD Owner writes:
A little adecdotal evidence, things are turning a bit here. We didn't crash like FL of NV but for the past year or a little less sales have been slow, slower then none for a bit with the credit crunch. The builder had basically 4 then 3 then 2 then none under construction for a while, they went heavy on incentives 10 months ago, the went heavier for a bit then finally cut prices by 10% - 15%. Part of the cut is content. In the last month they are selling at the highest rate in the past 2 years, 7 lots with sold signs with 3 of those in the past week. These are middle of the market houses starting just over 300K, the more expensive stuff in other developments is still dragging to not selling at all.
MD Owner | 03.30.08 - 5:20 pm | #

Allen C writes:
"If they own 2nd homes, they will not want to sell for 30 years or more for "effort" reasons."

"the demographics for boomers is OK for 2nd homes."

What percentage of folks stretched for second homes and are getting adjusted on one or more mortgages?
Allen C | 03.30.08 - 5:21 pm | #

dryfly writes:
Interesting anecdote! I've stated for quite a while that people would bail on their houses and their stocks once they realized their retirement was slipping away.

I agree tj - the thing is this guy (like me) lives in a low cost town & has diversified savings so he can sit it out for a decade or two.

What about those that can't? That's where it gets interesting.

dryfly | 03.30.08 - 5:22 pm | #

waitinginPNW writes:
Outsider-

If you were an (informed) foreigner, would you buy a house in the US right now? With Congress falling all over itself to fix the housing "crisis"? And the Fed in meltdown mode to fix the housing "crisis"?

The "foreigners will 'save' US housing" meme worked okay last year. With every passing week, foreigners are becoming more and more informed.

The Mess We've Got just has too much visibility worldwide. High Visibility= a lot of people who otherwise wouldn't notice, are noticing now.
waitinginPNW | 03.30.08 - 5:25 pm | #

mort_fin writes:
http:// www.fannymayfoundation.co...02_carliner.pdf

and if you subscribe to sciencedirect,

http://www.sciencedirect.com/ sci...ed89fe4048b7651

A working paper version might be on one of the author's websites.
mort_fin | 03.30.08 - 5:26 pm | #

mort_fin writes:
CR - the only "evidence" I can get out of that Atlanta Fed paper is the trend in ownership rates over time. But you can calculate that for yourself with public data, and I'm just not sure I'd trust their programmer's ability to calculate a ratio.
mort_fin | 03.30.08 - 5:28 pm | #

tj & the bear writes:
No doubt!

Here in SoCal we have lots of retirees sitting on loads of equity, even after prices dropping.  Lots of incentive to cash out and move, too, what with pensions in trouble, healthcare skyrocketing as benefits are cut, inflation hammering their savings, etc.

tj & the bear | 03.30.08 - 5:30 pm | #

David Pearson writes:
Let's assume CR is right, and we don't lose those favorable demographic tailwinds.

The paper CR cites studies sources of INCREASE in the homeownership rate above a BASE rate. But are there any recent developments that might create, not the absence of tailwind, but an actual headwind? Factors that would actually reduce the BASE level of ownership?

Sure there are. The main barrier to ownership at the start of the study (1994) was savings for a downpayment. What was the savings rate in 1994? I don't have the data in front of me, but my guess is around 8%.

What is the savings rate today? Close to zero.

So how long will it take for erstwhile FTB's to ramp up their savings rate and accumulate the downpayment?

I don't know, but it seems there is a "catch up" period during which the base rate of homeownership falls below a "BASE" level as buyers build the necessary savings.

Then there's the question of what impact a higher savings rate will have on the 70% of our economy which is consumer-driven, and then the feedback this has on housing demand.

You don't want to go there.

Oh, and what about all those seniors? Haven't the "ownership society" cheerleaders been arguing that they are saving for retirement by owning appreciating assets? A house perhaps? So what happens when those retirees need to "tap" these savings, and does this reverse some of the favorable demographic tailwind?
David Pearson | 03.30.08 - 5:31 pm | #

tj & the bear writes:
Yeah, the "rich foreigners will save us" meme was always a laugher.  I'm mean, really now, how many of them can there be?

It's kind of like the "pent-up demand" argument of all those cash-rich Americans just waiting for the market to stabilize.  Yeah, right.

Neither group is enough to float much above a small town, let alone any city.

tj & the bear | 03.30.08 - 5:34 pm | #

anon writes:
talking about forigners this is of topic but very relevant to all of us.
I never thought I would see the day that I would read an article like this.

Mexico Gets Medical Tourists as Health Net Sends U.S. Patients

http://www.bloomberg.com/apps/ ne...id=aFXAEi5eek5I
anon | 03.30.08 - 5:38 pm | #

Topher writes:
"It's kind of like the "pent-up demand" argument of all those cash-rich Americans just waiting for the market to stabilize. Yeah, right."

lol
Topher | 03.30.08 - 5:38 pm | #

tj & the bear writes:
You don't want to go there.

We're likely headed there, regardless of what anyone wants.

Great points over all, David. I'd also add that the other sources of downpayments -- equity (for trade-ups) or parent's equity (for kid's first home) -- won't be there either.


tj & the bear | 03.30.08 - 5:38 pm | #

SeattleSun writes:
What will be the government intervention plan to save housing?

My children are all in their mid-twenties and are in the market for their first house. I am telling them to hold their fire until they can see the whites of the sellers eyes!

One of my guesses is that the Fed's will offer someting like "a $30,000 tax credit for first time home buyers" in an effort to prop up the houseing market?

Can I please get opinion on the probablily of that option happening and/or any other ideas of what the Fed might do.

TIA

SeattleSun
SeattleSun | 03.30.08 - 5:39 pm | #

anon writes:
An update on the UBS capital increase request to stockholders: (very concerning news)

http://www.bloomberg.com/apps/ne...oGVU& refer=home
anon | 03.30.08 - 5:40 pm | #

Anonymous writes:
The "foreigners will 'save' US housing" meme worked okay last year. With every passing week, foreigners are becoming more and more informed.
----
Foreigners were speculators and thus got out of the mess as of June last year. I myself was in SoCal at the time and witnessed myself that process. I'm a foreigner, as my IP may reveal.
Anonymous | 03.30.08 - 5:40 pm | #

anon writes:
Anonymous writes:
The "foreigners will 'save' US housing

I didn’t know this. http://www.pcworld.com/article/i...1/article.html/

Pretty easy to put in a transmitter
anon | 03.30.08 - 5:44 pm | #

Anonymous writes:
Re: An update on the UBS capital increase request to stockholders: (very concerning news)

However, it should be noted that Citi has been acting aggressively to address its precarious capital position. According to its annual earnings report filed this February, it has raised $30 billion in qualified Tier 1 capital since last November (which is the same amount Whitney said back in October that Citi would need).

At this point it looks like the bank is marginally overcapitalized. As it points out in its annual report, "To be 'well capitalized' under federal bank regulatory agency definitions, a bank holding company must have a Tier 1 Capital Ratio of at least 6%, a Total Capital Ratio of at least 10%, and a Leverage Ratio of at least 3%." According to that report, it has a Tier 1 ratio of 7.12%, a total capital ratio of 10.7%, and a leverage ratio of 4.03%.

Whitney: Citi to cut dividend again
Analyst predicted the bank's first cut, but has she stumbled with latest prediction?

http://money.cnn.com/2008/03/28/...vidend.fortune/
Anonymous | 03.30.08 - 5:51 pm | #

Octavio Richetta writes:
CR; And what do you think about Burns' prediction of a 16% decline (top to bottom) for the national average. Take a look at Kasriel "Bell curve of Doom":

http://web-xp2a-pws.ntrs.com/pop...nt/ dd032608.pdf


"'According to the Case-Shiller Composite 20 (metro areas) index, the price of an existing home peaked in July 2006. From the July 2006 peak through January 2008, the price of a representative home has fallen 12.5%. To"

From the chart (what a great picture!) We see that the 12.5% decline decline to this date puts as back to February 2005 prices.

So is Burns dead wrong? Or is he using a different "index", and thus we are talking apples and oranges here.
Octavio Richetta | 03.30.08 - 5:51 pm | #

rich writes:
I've studied Boomers quite a bit, and it might not be accurate to make the same forecast for all Boomers. It's possible that the older half of Boomers, born before about 1952-53, will align with today's older people. They will be focused on preserving their own pensions, Social Security and Medicare benefits -- to hell with younger people.

The younger half of Boomers will be stuck with the generations behind them (X and Y) and get screwed. They will have a combination of higher taxes (to support older people) and zippo benefits. So, they will have to save money. Fruality will return and they will become an austerity generation. No vacation homes for them.

Why do I think this? Because Congress can only ignore the problems for about another 4-5 years max. Also, I expect a lot of defined benefit pension plans and PBGC to go bust in about the same time frame.

As I've said before, the magic age for purposes of locking in retirement benefits is 60-62. It's going to be hard to take away benefits already given (except to tax them 100%), because it could wreck the economy and creating a powerful third political party, the Gray Party.
rich | 03.30.08 - 5:53 pm | #

Elvis writes:
"Also according to Burns, there are "3.5 million excess homes that need to be filled by qualified buyers". This is really a confusing metric."

As I've been arguing for two years, this is a rather obvious number easily derived from the LT new home sales chart. It is the area between the actual new home sales during the bubble of 2001 to 2007 and the normal cyclical downturn that should have occurred between 2001 and 2007.
Elvis | 03.30.08 - 5:55 pm | #

barely writes:
" mortgage innovation accounted for between 56 and 70 percent of the recent increase in homeownership"

Nice! It's still called innovation? I can think of many terms for the ponzi finance schemes designed to skim as much loot out of the system as possible and drive finance and our economy into total ruin, but innovation is hardly one of them.

The greatest *innovation* of all, CDS derivatives, has yet to collapse. As the leverage comes out the tipping point can't be far off. I wonder what euphamism will used to describe that devious invention?
barely | 03.30.08 - 5:55 pm | #

John Stark writes:
Today is my 58th birthday. I've got a few more years of wage earning ahead of me, I hope, before retirement. I would like the gov to start the move toward a rational social security system right now. Raise my taxes, trim back the promises made to me in the past, but give me a system where the math actually works, for me and for those younger than me. I think that's what most of us want: predictability and transparency, not promises that can't be kept.
John Stark | 03.30.08 - 5:58 pm | #

dryfly writes:
Fruality will return and they will become an austerity generation. No vacation homes for them.

Hasn't happened. Xers & Nexters & tail end boomers are (so far) the BIGGEST spenders & borrowers of all.

Tell me about it when it happens.

dryfly | 03.30.08 - 5:58 pm | #

Bob_in_MA writes:
Nice critique, CR.

The one point I think he's spot on about is how, as an investment, housing is going to lose its allure. After the 1930s, middle-class, even upper-middle-class individuals shied away from the stock market for a good 30 years. Essentially, until the people who lived through it as adults began dying off in big numbers.

I think we'll know when we hit bottom when there are no more seminars, infomercials, etc., about getting rich on real estate.

First, a lot of people thinking they're bottom feeders have to get burned...
Bob_in_MA | 03.30.08 - 6:00 pm | #

Bob_in_MA writes:
Hasn't happened. Xers & Nexters & tail end boomers are (so far) the BIGGEST spenders & borrowers of all.

Yeah, but ATM just closed for some serious repairs...

I agree with rich. I don't see what else you can see happening. There is no way we are going to grow our way out of this painlessly.
Bob_in_MA | 03.30.08 - 6:04 pm | #

procyclical margin calls writes:
Lessons from leveraging and pains of deleveraging


http://www.todayszaman.com/tz-we...? haberno=135986

The financial intermediary institutions, mostly traditional banks which can fund their loans and securities (assets) through either equity capital or debt (liabilities), are highly leveraged, i.e., their total asset to equity capital ratio is very high; the study estimates roughly 12. The study shows that during the last two decades, the asset growth and leverage growth of major commercial banks have been positively correlated. In the pro-cyclical “leverage circle” that helps us understand the nature of financial contagion, during an asset price boom with stronger balance sheets, banks leverage more and increase balance sheet size by lending more. But during an asset price bust, with weaker balance sheets, they deleverage and decrease balance sheet size by lending less.

The study assumes in its baseline scenario that deleveraging by 5 percent and through recapitalization, the banking system will recoup about half of its $200 billion estimated loss. Based on these and other plausible assumptions, the study estimates that the balance sheets of financial intermediary institutions, due to their capital losses from subprime mortgage-related securities, will contract by $1.98 trillion, of which $910 billion will be a reduction in their lending to households and businesses. Such a sharp fall in the supply of credit to non-leveraged borrowers will lead to a drop in the rate of growth of real gross domestic product (GDP) by 1-1.5 percent next year. The study cautions that these scary numbers can get scarier with a continued decline in house prices, resulting in negative equity for an increasing number of households with mortgages. They can get even scarier -- especially if the economy becomes mired in a deep recession -- due to the wider potential losses of leveraged financial institutions from knock-on effects beyond the residential mortgage market. The deterioration in the credit quality of commercial debt and non-mortgage household debt, e.g., credit cards, would further exacerbate the problem.
procyclical margin calls | 03.30.08 - 6:07 pm | #

Octavio Richetta writes:
anon writes:
An update on the UBS capital increase request to stockholders: (very concerning news)

http://www.bloomberg.com/apps/ne...oGVU& refer=home
anon | 03.30.08 - 5:40 pm | #

Looks like you lifted part of my post from NR. I always give CR people credit when I post their stuff over at NR:-)

More details on UBS's mark down of client's ARS:

http://money.cnn.com/news/newsfe...13- 24120585.htm

An update on the UBS capital increase request to stockholders: (very concerning news)

http://www.bloomberg.com/apps/ne...oGVU& refer=home


Written by Octavio Richetta on 2008-03-30 16:16:32
Octavio Richetta | 03.30.08 - 6:09 pm | #

Bob Dobbs writes:
Many foreign buyers, as far as I've seen so far, are a subset of retirement buyers and older second-home buyers.

With their increased buying power in California, they're looking into condos in SF, houses in Palm Beach (Canadians, anyway), and so on.

This is highish-end stuff. Which is why I expect no influx of foreigners to bail out the Inland Empire or the Northern San Joaquin.
Bob Dobbs | Homepage | 03.30.08 - 6:09 pm | #

barely writes:
Open in Asia should be fun. Expecting a new record visitors count by the US market open. Unless Ben comes up with one hell-uva new set of responsibilities like supporting every global exchange from losing value we should see some pretty serious selling.
barely | 03.30.08 - 6:09 pm | #

Octavio Richetta writes:
barely, how is your mom in law doing?
Octavio Richetta | 03.30.08 - 6:11 pm | #

ac writes:

One of my guesses is that the Fed's will offer someting like "a $30,000 tax credit for first time home buyers" in an effort to prop up the houseing market?

Can I please get opinion on the probablily of that option happening and/or any other ideas of what the Fed might do.

The problem with an idea like that is that everybody who didn't get a $30,000 tax credit when they bought a house will be all up in arms. The typical homeowner is likely put 2 and 2 together and figure out that if a new homebuyer is getting a tax credit then maybe they're going to have to pay more taxes to make up for the deficit.

The question becomes what kind of "bailout" is most politically feasible.

My concern is that we're going to have the IRS send out more and more tax rebate checks until US consumers are addicted to tax rebates and the country effectively goes bankrupt.

ac | 03.30.08 - 6:12 pm | #

Outsider writes:
My concern is that we're going to have the IRS send out more and more tax rebate checks until US consumers are addicted to tax rebates and the country effectively goes bankrupt.

Whoo hoo! The next bubble!
Outsider | 03.30.08 - 6:15 pm | #

tj & the bear writes:
ac,

The country already *is* effectively bankrupt!

tj & the bear | 03.30.08 - 6:15 pm | #

Anonymous writes:
Remarks by Mark Carney, Governor of the Bank of Canada, to the Toronto Board of Trade

http://news.gc.ca/web/view/en/in...9& categoryid=16

By reflecting market moves, fair value accounting certainly increases the volatility of reported earnings. Whether it contributes pro-cyclically to market volatility depends on the behaviour of management. Management's incentive to realize mark-to-market losses depends not only on their expectations of future market moves but also, importantly, on the extent to which investors reward them for capping downside risk or penalize them for higher book leverage caused by unrealized losses. This depends, in part, on investors' interpretation of existing rules.

Investors should keep several factors in mind. First, in volatile markets, reported earnings will be volatile. Second, investors should distinguish between realized and unrealized losses. Third, securities may be marked-to-market using imperfect proxies, such as thinly traded derivative indices. As a consequence, investors should be wary of assigning unwarranted precision to such valuations. Fourth, for many complex securities, valuation might be better expressed as a range of outcomes. Since current accounting rules do not permit this, investors must use their judgment to construct valuation distributions. Institutions should provide the information necessary to facilitate such judgments.
Anonymous | 03.30.08 - 6:19 pm | #

Tim writes:
Given that housing prices are declining and it is effectively dragging the United states into a recession what would bring us out of a recession once housing hits bottom. I see no catalyst for a economic recovery down the road. If anyone has any ideas please share
Tim | 03.30.08 - 6:19 pm | #

barely writes:
"barely, how is your mom in law doing?"

She put in an order Friday to liquidate her entire UBS portfolio. Unfortunately about 5 months too late. I informed her that she should do it in Dec during a rally. Oh well.

I'll be disabling the doorbell and blocking her number.
barely | 03.30.08 - 6:19 pm | #

barely's Mom writes:
Bless you Octavio, for thinking of me!
barely's Mom | 03.30.08 - 6:22 pm | #

YLSP writes:
Re: Boomer's and house sales
My dad was born in 1949 (so now he is coming up on 60), took an early-retirement from the Federal Government and sold our house in Northern Virginia to move to Tampa, on a golf course. I want to say he sold for $400k and bought for $230k in 2003.

Needless to say he says his community has a number of foreclosures and prices are quickly approaching $230k again. They also owned a second home and sold in 1999, I suspect to pay for my college or help pay for my brother's law school. I really am grateful they didn't want me to work my way through college but it would've been a good way of calibrating a healthy mindset.
YLSP | 03.30.08 - 6:26 pm | #

anon writes:
Tim
the cataylist for recovery is thal all the nations that we owe money to anc cant pay back will buy our rel estate on the cheap from the USSA. Better than nothing.
anon | 03.30.08 - 6:26 pm | #

tj & the bear writes:
it is effectively dragging the United states into a recession

No, we were already there in 2001. Everything since has been a temporary credit-fueled adrenaline high, but now that's over and reality is setting back in.

tj & the bear | 03.30.08 - 6:29 pm | #

mack writes:
Note regarding the studies: rates, ratios and prices are very different animals.

Specifically, homeownership rates *may* be correlated to prices but absolutely do not imply them.

Double note: should be homeownership "ratios".

E.g.- one could tell me the homeownership ratio in Spain is 32%, but I could not reliably parse prices from this data.

So, even if I believed the predictions of the authors, I'd be hesitant to assume a future median price based on the percentages of ownership.
mack | 03.30.08 - 6:43 pm | #

mbartv writes:
1. On homeownership percentage. Everyone that could, bought a house or two when it was a rational investment (high appreciation, cheap leverage, lack of alternatives). Now that it isn't, that exerts a downward pressure. Lots of folks like me can buy or rent, but prefer to rent for the flexibility.

2. The amazing thing is that this bubble burst with no precipitating events from the rest of the economy. A real, good '70s-80s style recession, or worse will really drop homeownership rates, as folks move in with roomies including the parental type.

3. South Americans have been the Deus ex Machina for south Florida since Evita was in pigtails. They buy until one day they don't. Also now, we have the TSA Gestapo treatment of foreign visitors. They don't like it, and they've got alternatives what with RE crashing in Spain, etc.
mbartv | 03.30.08 - 6:44 pm | #

quartz writes:
I agree that we will not see a bottom in 2008. I was struck by an article this weekend about a area with rising foreclosures, although not the point of the article a few things were clear. Many homeowners in the area not in foreclosure are struggling or are already behind, so it is set to get worse there. These people still expect to sell for more than paid, often only a year or so ago. Realtors when speaking of sales said most buyers were still putting less than five percent down, and up to 40% of sales are still no money down. It appears that despite tightening there is still a lot of relatively risky lending going on; that prices are still above a level people sustainably can pay, and that even more people are struggling with payments than the already frightening delinquency numbers indicate.
quartz | 03.30.08 - 6:46 pm | #

Anonymous writes:
Wall Street Awaits Government Plan (BailOut)

http://www.washingtonpost.com/ wp...8033001437.html


What remains unclear is exactly how much the Fed would be able to control Wall Street's freewheeling investment banks _ the banks including Bear Stearns that have lost billions of dollars over the past six months from buying risky mortgage-backed securities. While the proposal will for the first time impose regulation of hedge funds and private equity firms, some say it is lacking the kind of muscle to curb the Street's appetite for risk.
Anonymous | 03.30.08 - 6:54 pm | #

ac writes:

What remains unclear is exactly how much the Fed would be able to control Wall Street's freewheeling investment banks _ the banks including Bear Stearns that have lost billions of dollars over the past six months from buying risky mortgage-backed securities.

If the Fed would simply refrain from aborting market and inventory corrections many of these problems would be self-solving.

There's a reason they call them "corrections" after all.

Markets and industries that don't experience corrections are simply going to decay until they experience one final supercorrection.

I guess the problem now is that the Fed may be afraid that it is facing precisely that scenario and will do anything to stop it.

ac | 03.30.08 - 7:07 pm | #

Anonymous writes:
How are condo sales in Kona??

Re: Aloha has canceled Monday flights from Hawaii to the West Coast and between several cities in California and Nevada. It's last day for interisland travel will be Monday.

Aloha advised passengers who don't want to fly another airline and who want a refund to contact their travel agents or credit card companies. Those who paid by cash or check may file a claim in bankruptcy court.

The shutdown will affect about 1,900 employees. The company said air cargo services are to continue.
Anonymous | 03.30.08 - 7:15 pm | #

Tim writes:
i think tomorrow will be a 300 down day at least as people take any profits that they have for the quarter. Take 'em where you can get 'em.
Tim | 03.30.08 - 7:16 pm | #

Anonymous writes:
Instead of our government placing restrictions on CEOs, America bails out the company with tax payer cash and then makes sure the CEO has a limo to go to a private jet, where the crook then takes a few hundred million and a house in Aspen, where more tax free cash is waiting, along with keys to The treasury!

Re: Meanwhile, downunder:

THE OUSTED chief executive of collapsed brokerage Opes Prime Group has been barred from leaving the country, while up to 1200 clients are still in the dark about what will happen to their frozen accounts.
Anonymous | 03.30.08 - 7:23 pm | #

Tripleplay writes:
"Leading edge" boomer (souds better than older) here. Retired last year. Will not downsize my house. Do not own a second since I don't want to spend the time on upkeep. I just rent houses/cottages when the need arises.
Tripleplay | 03.30.08 - 7:27 pm | #

Anonymous writes:
Krugman on McCain

His chief economic adviser is former Senator Phil Gramm, a fervent advocate of financial deregulation. In fact, I’d argue that aside from Alan Greenspan, nobody did as much as Mr. Gramm to make this crisis possible.

Seriously, the Gramm connection tells you all you need to know about where a McCain administration would stand on financial issues: squarely against any significant reform
Anonymous | 03.30.08 - 7:29 pm | #

rich writes:
>John Stark writes:
but give me a system where the math actually works, for me and for those younger than me.

John, the only math that actually works for Social Security long-term assumes that the U.S. economy keeps growing in the future at least as much as in the past.

But it's hard to see how that could happen, short of just flooding the country with immigrants and then giving them every possible opportunity for upward mobility.

In other words, throwing young middle-class and upper-middle class Americans under the bus. A lot of the anti-immigration movement you are now seeing (Republican-driven) is anticipating this and you can see how politically powerful it is.
rich | 03.30.08 - 7:32 pm | #

andiron writes:
CR:
why won't 0.5 mil so called rental units impact 1 mil so called vacant homes..
many condos are being, or will be, rented out, for example//
meseems, 1.5 mil ought to be taken as an excess vacant invenory..
andiron | 03.30.08 - 7:32 pm | #

Bob Dobbs writes:
"No, we were already there in 2001. Everything since has been a temporary credit-fueled adrenaline high, but now that's over and reality is setting back in."

I've thought of it as the cocaine economy. Feed a sick man enough stimulant and he'll look pretty good. Until an organ fails or a blood vessel bursts, or the stimulant runs out. This economy is having a stroke _and_ running out of coke.
Bob Dobbs | Homepage | 03.30.08 - 7:33 pm | #

Anonymous writes:
Coke Whores Cutting Back On Crack?

Traders in London's financial district have seen their salaries and bonus payments drop as much as 40 percent amid a worldwide tightening of credit, according to recruitment company Napier Scott Executive Search Ltd.
Anonymous | 03.30.08 - 7:35 pm | #

fireinthehole writes:
"anon writes:
Tim
the cataylist for recovery is thal all the nations that we owe money to anc cant pay back will buy our rel estate on the cheap from the USSA. Better than nothing.
anon | 03.30.08 - 6:26 pm | # "

-------------------------------------


Maybe in a few of the nicer areas, but it will not help 90% of the housing market.

Tim I have also pondered where the growth and recovery will come from.

Anon is grasping for straws.
fireinthehole | Homepage | 03.30.08 - 7:37 pm | #

Bob Dobbs writes:
Vis-a-vis the bottom in the commercial market, here's a pretty good interview with the CEO of the Shorenstein Co. huge old-time SF Bay office and commercial landlord.

They sold heavily over the past few years, are seeing the downturn coming as leveraged deals start to fall apart, and are gearing up to buy with actual non-leveraged cash.

http://www.sfgate.com/cgi-bin/ar...0/ BUUAVQQDJ.DTL

I like this quote: "If somebody is willing to pay a lot more than I would pay, then we're a seller."
Bob Dobbs | Homepage | 03.30.08 - 7:39 pm | #

Anonymous writes:
CalculatedRisk writes:

"Also, remember that the youngest boomers are in their mid-40s. If they own 2nd homes, they will not want to sell for 30 years or more for "effort" reasons. The younger boomers will probably be net buyers, not sellers over the next decade."

Curious, why do believe these young boomers will be net buyers? Most of them have already purchased their last McMansion and will stay put for quite awhile while paying down the mortgage. Granted, these boomers might be buyers for second homes but most boomers I know are looking at lots to buy in cheaper more rural locations where they can eventually built a retirement home.
Anonymous | 03.30.08 - 7:39 pm | #

John Stark writes:
But it's hard to see how that could happen, short of just flooding the country with immigrants and then giving them every possible opportunity for upward mobility.

Like the way we always used to run the economy?
John Stark | 03.30.08 - 7:40 pm | #

ac writes:

I've thought of it as the cocaine economy. Feed a sick man enough stimulant and he'll look pretty good. Until an organ fails or a blood vessel bursts, or the stimulant runs out. This economy is having a stroke _and_ running out of coke.

The Federal reserve is basically like a doctor whose only tool is a bag full of amphetamines. Whatever the patient, whatever the ailment, the remedy is the same.

Pneumonia?

No problem.

Get out of bed, take a handful of these, and get back to work.

Spinal meningitis?

No problem.

Get out of bed, take a handful of these, and get back to work...

ac | 03.30.08 - 7:40 pm | #

Billy Shears writes:
No, we were already there in 2001. Everything since has been a temporary credit-fueled adrenaline high, but now that's over and reality is setting back in.

tj & the bear | 03.30.08 - 6:29 pm |
_____________________________
If you're a technical chart watcher, it looks the the S&P 500 just made the largest double top in history, with the second top occurring last October. Recovering to the old highs set in 2000, only to have it fall back again. As far as fundamentals, this whole economic boom, fueled by credit that won't be paid back, was one of the weakest expansions since WWII. Lots of minimum wage jobs were created and that's about it.
Billy Shears | 03.30.08 - 7:48 pm | #

daisycolorado writes:
Was in Toronto last week on business, lots of ads and talk about condo sales in Flordia. With prices down and the C$ up, it looks really cheap from up there.

My partner and I used to own 3 places, NYC, West Palm and Colorado. It was not that hard to do and takes less cash flow than you think. We owned the West Palm place outright and bought into Colorado on the cheap.

The bigget challenge was the hassle factor CR mentions and it limits where you can vacation. We sold Florida early last year and are thinking about selling NYC as well.
daisycolorado | 03.30.08 - 7:48 pm | #

sk writes:

If you're a technical chart watcher, it looks the the S&P 500 just made the largest double top in history, with the second top occurring last October. ...
Billy Shears


OT I know,but yeah what Billy said. Here's the proper chart:
http://finance.yahoo.com/ echarts...ource=undefined

I say proper because projections ( cf Gail-Peters map projection versus Mercator projection ) and scales matter.

If ever one could see the future with a sense of a foreboding this chart is it.

-K
sk | 03.30.08 - 8:08 pm | #

Anonymous writes:
"Yes, many boomers might sell their 2nd homes as they age - but froma demographics perspective that usually happens when people feel the 2nd homes are too much effort (not being able to afford them is a different issue). When are talking about demographics, it's the "too much effort" that matters. With the leading edge of the boomers turning 63, we are a probably 10 to 15 years away from when they will want to sell for "effort" reasons. These are the years the leading boomers want to enjoy their 2nd homes!

Also, remember that the youngest boomers are in their mid-40s. If they own 2nd homes, they will not want to sell for 30 years or more for "effort" reasons. The younger boomers will probably be net buyers, not sellers over the next decade."

CR, that is a great insight, thanks. You should append that to the original post, or maybe expound in a different full blog post so it isn't buried in these comments. Important info, that is.
Anonymous | 03.30.08 - 8:12 pm | #

Spiv writes:
AllenM

I'm just back from Scotland a week ago, paid 1.16 GBP a liter for Diesel (for a 4 cylinder Volvo wagon that averaged more than 30 miles per gallon even climbing over the Grampian mountains).

Working out the exchange rate and liters to gallons, fuel was in the:

8 handle.

So we have a ways to go!!!
Spiv | Homepage | 03.30.08 - 8:13 pm | #

12th Percentile writes:
Perhaps it is due to my spending a weekend at a family funeral and getting to see all my "uncle dryflys" but also missing those that have "passed". But i really fucking miss MP and Conjure. Ok. Sorry for my outburst.
12th Percentile | 03.30.08 - 8:18 pm | #

Marcus Aurelius writes:
daisycolorado | 03.30.08 - 7:48 pm

The Canada and US dollars have been trading back and forth +-.02 off of parity for a couple of months now. Canada can't afford a stronger currency than ours (up to a point, and that point might be coming).

____________

sk | 03.30.08 - 8:08 pm

Those peaks are awfully far apart. Then again, those are some massive waves. I wonder if the expected behavior will follow. This will be interesting.
Marcus Aurelius | 03.30.08 - 8:18 pm | #

Dorothea Salo writes:
A quick peek through SSRN didn't turn up the specific paper mort_fin cites, but there is this one, by one of the same authors on a similar theme.
Dorothea Salo | Homepage | 03.30.08 - 8:21 pm | #

TradingStats writes:
LEH color: Yesterday,(3/27) the action was in the options market where 250,000 puts (notional of nearly 1Billion USD) traded. The July 40-17.5 put spreads traded on 1million shares and that set off the frenzy. After that, April 45, 40, 35, 30, and 20 puts traded to the tune of 2million shares each. CDS widened and vols / skew screamed higher. The market for July variance was 110-130. that means the market is predicting the stock moves an avg of 7.6% (or roughly 3 bucks) everyday for the next 3 months
TradingStats | 03.30.08 - 8:21 pm | #

Spiv writes:
Concerning the start/end of the Baby Boom:

I was born in 1955 and have always described myself (or my birth) as "late middle third" of the BB.
Spiv | Homepage | 03.30.08 - 8:24 pm | #

CalculatedRisk writes:
Octavio, Mauldin asked Burns about the Goldman forecast (based on Case-Shiller), and Burns "just laughed". If Burns was using OFHEO or some other measure, it would have helped if he said so when asked about Goldman.

Best Wishes
CalculatedRisk | Homepage | 03.30.08 - 8:42 pm | #

Zack writes:
More articles this weekend on proposals to assist the homeowner (or banks, mortgage holders, etc) by inducing a voluntary reduction in the loan principal. [see the Washington Post Saturday].

I keep wondering--why are the banks and other mortgage holders so reluctant to do this? Can someone please clearly explain the reasons? Thank you in advance!
Zack | 03.30.08 - 8:54 pm | #

Joe Six Pack writes:
It's Sunday. Where the hell is this weeks surprise bailout announcement?
Joe Six Pack | 03.30.08 - 9:13 pm | #

ac writes:

It's Sunday. Where the hell is this weeks surprise bailout announcement?

Surprise bailout announcements are far more effective during the trading day when there's 800 visitors online celebrating the fact that the market is down 350 points.

ac | 03.30.08 - 9:16 pm | #

barely writes:
"I keep wondering--why are the banks and other mortgage holders so reluctant to do this?"

Not sure but it could have something to do with the insurance the mortgage holders have. They may forgive, once the counterparties go TU.
barely | 03.30.08 - 9:18 pm | #

idoc writes:
Zack

i would guess that its part of the same resistance of banks to mark to market. afterall, if the Fed is gonna bail your ass out why not wait it out so you can dump the bad loans onto taxpayers?
idoc | 03.30.08 - 9:22 pm | #

Virgil writes:
sk,

Technical analysis is great for some things, but it can fool you the rest of the time. Take a look at this chart and compare it with the one you posted earlier:

http://finance.yahoo.com/ echarts...ource=undefined

This might have told some folks to bet the farm and sell short. But they would have been direly wrong.

What will be, will be.
Virgil | 03.30.08 - 9:23 pm | #

crispy&cole writes:
Just finished doing some CPE on the mortage forgiveness bill.

I think many former homedebtors who walked away are going to be very surprised that they will owe federal tax on the debt forgiveness.

The intial release of this bill (late last year) stated (from the MSM) that anyone could walk away with no liability, not true - as usual, the devil is in the details.
crispy&cole | Homepage | 03.30.08 - 9:24 pm | #

barely writes:
"It's Sunday. Where the hell is this weeks surprise bailout announcement?"

Futures appear to be holding steady. I hope it holds.

NIKKEI is digging itself a hole to start off the week.
barely | 03.30.08 - 9:25 pm | #

crispy&cole writes:
Example -

But the problem is it is only acquisition [debt] and what happened during the real estate market run-up, especially in parts of the country where we saw a significant run-up in real estate, like the Phoenix area that I am practicing in, is clients would go out and borrow out the equity. They would refinance and take cash, refinance and take cash. Those individuals are not going to find relief. If I bought the house in 1962 for $40,000 and it's now worth $1 million…. By the way, I have clients who are virtually in that position, who went from a $40,000 house to $1 million house; they have been sitting on it for 40 years, but it's gone that far. If I had refinanced and borrowed out $900,000, and now it has gone down to $800,000 and that home is taken back, I have a sale for $800,000. That is bad news because my gain is in excess of the $500,000 [exclusion] for a married couple. The debt forgiveness on top of that is not going to be subject to relief under the mortgage relief forgiveness because that is not acquisition indebtedness. So, it leaves anybody out who is in that position.


(this is NOT TAX ADVICE!!)
crispy&cole | Homepage | 03.30.08 - 9:27 pm | #

Billy Shears writes:
Zack writes:
More articles this weekend on proposals to assist the homeowner (or banks, mortgage holders, etc) by inducing a voluntary reduction in the loan principal. [see the Washington Post Saturday].
__________________________
A lot of the remedies from this administration has asked for voluntary this or that, and self-regulation (that worked well, huh?).

I think we are beginning to see homeowners make 'voluntary' payments as their ARM resets.
Billy Shears | 03.30.08 - 9:30 pm | #

lawyerliz writes:
Oh, CR, condos in Miami indeed.

Snicker. . snort. . .

They will be welfare hotels before they are full of Europeans.
lawyerliz | 03.30.08 - 9:38 pm | #

lawyerliz writes:
ac, please, I thought you were a very smart person. Europeans do buy some real estate in Miami. If they decided to buy 100 times the normal amount, it probably wouldn't be enough. Those towers won't be filled for 5 to 10 years. The best solution is to turn them into hotels, where appropriate. I know at least one was some months ago. A lawyer buddy told me; he was involved in it.

And they are still building them. It is unbelievable. Miamians look at the cranes and marvel.
lawyerliz | 03.30.08 - 9:43 pm | #

Marcus Aurelius writes:
Hotels? Who will want to go to Miami when it's a gigantic ghetto?
Marcus Aurelius | 03.30.08 - 9:45 pm | #

rich writes:
>Like the way we always used to run the economy?
John Stark

Yes, but it wasn't opening the floodgates to immigrants and giving them every possible opportunity for upward mobility.

Substitute "women" for "immigrants" and the above statement would be true.

The flood of women into the workforce and the growing paychecks they earned was largely responsible for the great U.S. economic miracle of 1970-00.

Like a gold mine, that trend finally played out after 30 years.

Immigrants were a much smaller wave over these 30 years. The point is -- women have topped out their contribution to GDP at the same time that a backlash against immigrants is occurring and Baby Boomers are starting to retire. It means that the single most important variable behind GDP growth, civilian participation rate, has finally turned from positive to negative.

Also, there was a big one-time boost to GDP that came from technology-driven productivity gains from about 1985-2005.

Over the next decade, real GDP growth in the U.S. will probably be close to zero = permanent stagnation/borderline recession.

In zero real GDP environment, Social Security is not sustainable.
rich | 03.30.08 - 9:49 pm | #

Nova writes:
See also: http:// cpdocket.cp.cuyahogacount...PickSearch.aspx

Also: http://news.enquirer.com/apps/pb...080349/1001/ BIZ

Gloria Byrd, a 66-year-old former Methodist minister with a ballooning adjustable-rate mortgage and a fixed retirement income, was typical of the more than 8,000 local homeowners who faced a foreclosure lawsuit this year.

Until she and her husband, Ellsworth, won.

Last week, a Hamilton County Common Pleas Court judge ruled that Wells Fargo Bank couldn't foreclose on the Byrds' North College Hill home because its lawyers didn't prove that Wells Fargo was the legal owner of the mortgage.
Nova | 03.30.08 - 10:01 pm | #

Cobradriver writes:
They will be welfare hotels before they are full of Europeans.
lawyerliz | 03.30.08 - 9:38 pm | #

Liz,

Every single foreign owned property I have ran across in the counties records were bought at or near the peak. Are they currently buying...yes. It amounts to pissing in the wind though.

The more I explore the rural areas here in Florida all I can say is "Hold on for the ride..It's about to get real fucking interesting".

The mls numbers are exploding at the same time we have the 6th month in a row where FC's are equaling sales.

BTW,I walked around a 2/2 right near Punta Gorda that the seller wants 7k for. Looks like it needs 8-10k worth of work.
I can rent it for 300-350 and be 200.00 under everyone else...

Man it's gonna be a long summer.

Chris
Cobradriver | 03.30.08 - 10:02 pm | #

lawyerliz writes:
Seven? Seven? Wow. You are in the center of the circle of doom.

Marcus: why would Miami be a giant Ghetto? Yeah, Miami is full of Cubans, etc. Cubans are the most successful immigrant group in American history. They know what it is like to have nothing. they aren't scared of it and are willing to take a risk.

Still.
lawyerliz | 03.30.08 - 10:11 pm | #

lawyerliz writes:
Also, as to SS. One thing to do, is do again what was done. People are living longer and are more healthily, so what you do is raise the age of retirement. You could do a mindless proportional thing, so the congress doesn't have to think about it. For every extra year of life, the age of retirement goes up x months. Reduce the benefits a little and make ss taxable up to say a million of income. My hub is 65, and intends to work til 70. Are boomers actually retiring as scheduled? Frankly, I doubt it.
lawyerliz | 03.30.08 - 10:14 pm | #

Zack writes:
Found this answer to my own question thanks to the Center for Responsible Lending:

"Why aren’t more mortgages modified?
The fact that most loans are “securitized” – i.e., packaged as investments – has resulted in
conflicting financial interests among the different players involved:

• Loan servicers frequently fear that modifications will trigger lawsuits by particular
tranches, or classes, of investors;16
• Loan servicers often have stronger financial incentives to foreclose than to work with the
loan. (Servicers are reimbursed for foreclosing, but must generally cover the cost of loan
modification, on average $750-1,000 per loan, out of their own pockets.);17
• The common presence of “piggy back second mortgages” often precludes the
modification of both mortgages because the second mortgage holder has no incentive to
cooperate.18

Now I ask: Would the Frank bill change any of those things?
Zack | 03.30.08 - 10:15 pm | #

Don writes:
Just because houses are cheap doesn't mean buyers will come. Lots of nice little places in the plains states you could pick up for less than the taxes on a McMansion on the Coasts. Most don't sell, they rot.
Don | Homepage | 03.30.08 - 10:20 pm | #

Marcus Aurelius writes:
lawyerliz:

Wasn't thinking about Cubans - I was thinking about FL in general. Crackers, too. Down and out in FL is way down and out.
Marcus Aurelius | 03.30.08 - 10:20 pm | #

km4 writes:
My hub is 65, and intends to work til 70. Are boomers actually retiring as scheduled? Frankly, I doubt it.
lawyerliz | 03.30.08 - 10:14 pm |

Bingo ! I know I'll be working until 70 and the good news is I've made a successful living as solo consultant for past 15+ yrs.

It will be interesting to see how corporate white collar workers in their 40's, 50's and 60's prevail in next 5 yrs( i.e the higher middle to upper ones ) as the US economy reverberates !!!
km4 | 03.30.08 - 10:21 pm | #

Marcus Aurelius writes:
Plus, I liked it better when we spoke of cheese.
Marcus Aurelius | 03.30.08 - 10:22 pm | #

jm writes:
For the home ownership rate (and "rate" is the term Census uses) to overshoot it would have to decline below the 64-65% range in which it held for so many years. In 1985 it was 63.5%, then rose a little and fell back to 63.8% in 1988-1989. It did not rise above 66% until 1998.

Note that it is falling now even though interest rates are still near historic lows, and the fact that housing is not a surefire investment is just beginning to penetrate the public consciousness.

Going forward, it seems likely that down payments are going to be required. The young people whose demand was pulled forward by this boom and who are going to lose their homes in the coming recession aren't going to have them.

You're way too optimistic, CR.
jm | 03.30.08 - 10:23 pm | #

Tim writes:
Boomers might want to work longer but their bodies may not hold up. Diabetes and other lifestyle associated diseases are increasing as the boomers get old. Some may be in good health but they are in the minority. Ask Gm where most of their costs are? One thing is indisputable the US workforce is shrinking. Forget about any gains in productivity, think about what that will do for excess housing units
Tim | 03.30.08 - 10:26 pm | #

Tim writes:
Posters on this site have legitimate argument for condo towers to be slum towers. If these towers sit empty than cities and counties may buy and use them for low income housing. Another Scenario is that the prices drop until only the poor and working class (defined as those who can't afford stable housing, a growing demographic) find them desirable.
Tim | 03.30.08 - 10:30 pm | #

lawyerliz writes:
Marcus--we'll always have cheeze.

Or--The time has come the walrus said, to speak of many things.

Of shoes and ships and sealing wax; of cabbages and cheeze.
lawyerliz | 03.30.08 - 10:34 pm | #

manu06 writes:
Lawyerliz,

Please don't volunteer me to work longer. If you
and yours want to make the sacrifice go ahead.
My body is falling apart right now and I'm only
45.
manu06 | 03.30.08 - 10:34 pm | #

lawyerliz writes:
Umm, way, way OT, but are you eating your 5 fruits and veggies, manu06? Avoiding high frutose corn syrup?

Doing stuff yo mama told you to do, like not smoking and getting some excercise? And not drinking too much? Get yourself to a good health food store and start reading about health, not sickness.
lawyerliz | 03.30.08 - 10:38 pm | #

lawyerliz writes:
I wasn't volunteering you to work longer, but me and the hub, who is 20 years older than you. He has some stuff wrong with him, but nothing which would preclude continuing to work. At NASA. He loves it, except the paperwork is huge and growing.

Well, yes, I guess I was.
lawyerliz | 03.30.08 - 10:41 pm | #

Cobradriver writes:
lawyerliz writes:
Seven? Seven? Wow. You are in the center of the circle of doom.

I just found it on the counties tax records...Owned by none other than our friends at JPMorgan/Chase.

My parents have 5 REO's on their street. I was mowing this morning and the realtor was yanking the sign from the REO 2 homes away. I ride the mower over and ask whats up. Seems US Bank has not got a single offer even after reducing asking from 175k to 110k. I figure the place is worth 50-60k.

Chris
Cobradriver | 03.30.08 - 10:42 pm | #

manu06 writes:
Lawyerliz,
I do eat right. I am not overweight. I don't smoke.
I do have a very physical job and have too much
time invested to switch careers. I am doing my part
to fund my retirement. On one hand I'm told to take
better care of myself and on the other I'm told because I ( and others) are living longer SS can't keep the promises made.
manu06 | 03.30.08 - 10:51 pm | #

ac writes:

ac, please, I thought you were a very smart person.

Oh, it all depends on which one of us is using the computer.

ac | 03.30.08 - 10:58 pm | #

jg writes:
OT -- great game by Davidson. Too bad they did not pull it off.

Great coaching and great fight by those smaller guys. They sure did better against big guys than my 'Horns did earlier in the day.

Good to see a small, good school do well.
jg | 03.30.08 - 11:10 pm | #

Anonymous writes:
"Are boomers actually retiring as scheduled?"

Some of us retired way ahead of schedule but then again we didn't drink the kool-aid. It just didn't make since to work for a currency that is being purposely devalued and get the hell taxed out of you on top of that.
Anonymous | 03.30.08 - 11:18 pm | #

sbarrkum writes:
WSJ: HUD Chief Is Expected To Announce Resignation
By Damian Paletta and Michael M. Phillips

WASHINGTON -- Housing and Urban Development Secretary Alphonso Jackson is expected to announce his resignation Monday, according to people familiar with the matter, a decision that will deal a blow to the Bush administration's efforts to tackle the housing and mortgage mess.

The exact reasons for Mr. Jackson's decision couldn't be learned. The secretary has been beset recently by allegations of cronyism and favoritism. Earlier this month, two ...
sbarrkum | Homepage | 03.30.08 - 11:35 pm | #

crispy&cole writes:
"The secretary has been beset recently by allegations of cronyism and favoritism."

If that is the reason, everyone in the Bush Admin should resign!
crispy&cole | Homepage | 03.30.08 - 11:40 pm | #

Anonymous writes:
As the once-mighty U.S. dollar continues to sink against other currencies, some San Diegans are confronting the reality that their money is worth a lot less than it once was.

Environmental consultant Kevin Clark in Mira Mesa has started looking at Tijuana as a potential place to open a savings account, since the peso is stronger than the dollar right now and Mexican banks offer higher interest rates than their U.S. counterparts.

http://www.signonsandiego.com/ ne...1b30dollar.html

Capital flight, Dollar carry trade soon to follow.
Anonymous | 03.30.08 - 11:42 pm | #

MLM writes:
You could do a mindless proportional thing, so the congress doesn't have to think about it.

I can just see the headlines now: Bureau of Longevity Statistics announces that this year's median core lifespan (ex illness and accident) is 105.
MLM | Homepage | 03.30.08 - 11:45 pm | #

spike66 writes:
HUD Chief Is Expected
To Announce Resignation
By DAMIAN PALETTA and MICHAEL M. PHILLIPS
March 31, 2008
WASHINGTON -- Housing and Urban Development Secretary Alphonso Jackson is expected to announce his resignation Monday, according to people familiar with the matter, a decision that will deal a blow to the Bush administration's efforts to tackle the housing and mortgage mess.

The exact reasons for Mr. Jackson's decision couldn't be learned. The secretary has been beset recently by allegations of cronyism and favoritism. Earlier this month, two Democratic senators, Patty Murray of Washington and Christopher Dodd of Connecticut, sent a letter to President Bush urging him to request Mr. Jackson's resignation, arguing that the distraction has made him ineffective.
WSJ, 3/31/08
spike66 | 03.30.08 - 11:47 pm | #

Bob Dobbs writes:
"My hub is 65, and intends to work til 70. Are boomers actually retiring as scheduled? Frankly, I doubt it."

Most of the civil servants and teachers I know bail by the early '60s, at 60-80 percent of their final pay.

They're the exceptions, of course. They still have pensions. And unions.

I can think of very few people I know who retired at or before 60 who were not civil servants, or married to one. Or covered by a corporate defined retirement benefit plan, in a couple of cases. The rest of them are still out there, as am I.
Bob Dobbs | Homepage | 03.30.08 - 11:49 pm | #

rgd writes:
i suspect many americains will be retiring in other poorer countries - en masse.
rgd | 03.30.08 - 11:49 pm | #

spike66 writes:
Food Stamps Surge at Record Pace as Jobs Vanish.

1 in 8 in Michigan now on food stamps.
http://www.nytimes.com/2008/03/3...dstamps.html? hp
spike66 | 03.30.08 - 11:53 pm | #

Joe Six Pack writes:
Not if the dang dollar keeps dropping. The Philippines is about as cheap as it gets, and their peso has dropped to around 40 from 52 last year.
Joe Six Pack | 03.30.08 - 11:54 pm | #

AnnS writes:
Tim writes:
Given that housing prices are declining and it is effectively dragging the United states into a recession what would bring us out of a recession once housing hits bottom. I see no catalyst for a economic recovery down the road. If anyone has any ideas please share
Tim | 03.30.08 - 6:19 pm | #
________

And therein, Tim, lies the problem. The US doesn't MAKE anything anymore. It simply borrows money from China to buy stuff made in China. It doesn't matter if it is an individual or a country - you simply can not go on forever spending more than you earn from producing something of value.

All those frou-frou jobs - personal trainers, massage therapists, consultants (parenting, home interior, diet and lifestyle.....), stores that sell frivolous junk (just ballons, baskets, candles, knick-knacks), dog groomers (never paid for such a thing in my life and I started showing obedience dogs 45 years ago at age 9 - I just say "get in the tub NOW" and 125+ lbs on canine obeys now), kayak shops, and all the rest of the silliness that was paid for with borrowed money - will be out of a job. There is no real work that produces an item of value for so very many people.

What happens now that lenders are cutting off the credit spigot in the form of HELOCs and credit cards? The estimates on how much spending was fueled by credit that I have seen vary 20-40% of all consumer pruchases. Take that money out of the economy and it is going to get very very nasty.

The wages of college graduates have been falling steadily for the past 6 years. Not enough jobs and too many people with the same degrees. 40 years ago they could have gone to work in a manufacturing plant and made enough to support a family and even risen to be lead foreman or lower/mid-level management. Now there are endless numbers with their BAs and MBAs in business or computers from every cow college in the US. Where will they all work? And moreover earn what? Get enough business BAs floating around and they too will be working for $8-10 an hour - in many industries, BAs/MBAs are working for around $15 an hour.

All the talk about 'green jobs' and 'alternative energy jobs' is just that - talk. Those jobs will not yield the kind of wages that manufacturing did 30 years ago. They will just be more $8, 10, $12 an hour jobs.

Bottom line is 80% of the US has a household income at or below $75,000. Those households can NOT afford $30,000 SUVs, $250,000 houses, $1200 a year at the gym, $4000 vacations (yep, you will easily spend that to spend a week in my village), $2000 plasma TVs, $400 Iphones and all the rest.

So the only option is that all the stuff starts being made in the US so the money stays here and circulates here or the society as a whole gives up its cellphones, SUVs and all the other toys and learns to live in very very reduced circumstances.
AnnS | 03.30.08 - 11:54 pm | #

ron writes:
Affordability is the key issue. median price RE SFH prices are still 8X to 10X household median incomes. More foreclosures as the country hits the economic skids,more layoffs, commerical RE in the tank and the gov't borrowing money like a drunk and people talk about the RE market bottoms. Consumer driven recession get use to it.
ron | Homepage | 03.31.08 - 12:02 am | #

MLM writes:
The US doesn't MAKE anything anymore.

Although I am sympathetic to the general argument, I think you may be overstating the case a bit. The US is still the number 3 exporter in the world. And it isn't all scrap metal to China...

https://www.cia.gov/library/publi...r/ 2078rank.html
MLM | Homepage | 03.31.08 - 12:03 am | #

Viewing with alarm writes:
Interesting article in Orange County Register today about arab investors looking for opportunities to develop $12,000 houses in southern US. What do they know that we don't? Are they going to turn us in to a nation of serfs? I am only four generations from that and will not go quietly in to the dark ages.
Viewing with alarm | Homepage | 03.31.08 - 12:14 am | #

AllenM writes:
Spiv,
don't scare the folks with that 8 handle!

Boomers will retire en masse to a much poorer country all right. They will be retiring here.

Everyone is pointing out the problems, but hey- as long as Fox has news- the world is right.

Ah well, cobra, your stuff is definitely starting to sound cheap enough. A whole bunch of rustbelt retirees would just love a cheap squat for the winter to avoid that snow in Ohio.

You are going to be very rich buying and renting to the right crowd.

Things are still waaaaay too expensive here in the desert. We have four years to the true bottom.

Someday this war's gonna end...
AllenM | 03.31.08 - 12:15 am | #

ferg writes:
"In zero real GDP environment, Social Security is not sustainable."

This is a silly statement.

It's always possible to turn SS into a pure pay-as-you-go system. It has a dedicated revenue stream. Just match expenses to income. Voila, sustainability.
ferg | 03.31.08 - 12:20 am | #

Viewing with alarm writes:
OC Register article refers to Laings Dubai Investors for the curious.
Viewing with alarm | Homepage | 03.31.08 - 12:24 am | #

dryfly writes:
This is a silly statement.

It's always possible to turn SS into a pure pay-as-you-go system. It has a dedicated revenue stream. Just match expenses to income. Voila, sustainability.
ferg | 03.31.08 - 12:20 am | #

Exactly - plus there isn't a finite amount of money - just a finite amount of resources & wealth to buy with a variable money supply. Gov't might make the dollar balance work but those dollars might not buy what people hoped they would buy.

There is no law of nature say