Michael Moore: The Most Feared Film-Maker in America Strikes Again

Michael Moore, the most feared film-maker in America. The trailer for his latest film:

Uptick or Upstart? New Home Starts: UP

Just out, The Commerce Department reports this morning that:

The Commerce Department said the jump in housing starts to a seasonally adjusted annual rate of 583,000 units was the biggest percentage rise since January 1990.

That was also the first increase since April last year, when they advanced by 1.6 percent.

And the kicker? This is not what "the markets" had expected. Market analysts were expecting a smaller number.

Analysts polled by Reuters had expected an annual rate of 450,000 units for February.

The question now might be: with so many months of sinking new start numbers, is this just a natural uptick quirk within the larger trend, or is this a new inflection point that will reverse the trend?

Rest assured we are watching very very closely.

On a separate but related note, producer prices were announced at .1% rise, below market expectations. However the markets watch the "core" number, which excludes the traditionally more volatile energy and food costs. Those prices were slightly higher than expected. All said, this is very good news this morning. But with so much debt-financed stimulus, we have to keep an eye on inflationary dynamics. This isn't enough to be concerned this morning.

U.S. producer prices rose by less than expected in February as the pace of energy price increases slowed, government data on Tuesday showed, but prices excluding food and energy came in a bit above forecast.

Krugman: The Deficit Reduction Plan Can Work

In Saturday's New York Times, Nobel Laureate Princeton Economics Professor Paul Krugman sounds an optimistic tone about Obama's proposed new budget while still sounding a cautionary note about long-term economic challenges. It's worth a read.

Can he actually reduce the red ink from $1.75 trillion this year to less than a third as much in 2013? Yes, he can.

Right now the deficit is huge thanks to temporary factors (at least we hope they’re temporary): a severe economic slump is depressing revenues and large sums have to be allocated both to fiscal stimulus and to financial rescues.

But if and when the crisis passes, the budget picture should improve dramatically. Bear in mind that from 2005 to 2007, that is, in the three years before the crisis, the federal deficit averaged only $243 billion a year. Now, during those years, revenues were inflated, to some degree, by the housing bubble. But it’s also true that we were spending more than $100 billion a year in Iraq.

So if Mr. Obama gets us out of Iraq (without bogging us down in an equally expensive Afghan quagmire) and manages to engineer a solid economic recovery — two big ifs, to be sure — getting the deficit down to around $500 billion by 2013 shouldn’t be at all difficult.

Note all the big "ifs" however. They include a) a successful stimulus policy, which is still a working policy, and b) an ability to extremely reduce defense spending by achieving successful plans in both Iraq and Afghanistan (the new monster on our backs). Krugman also points to successful reform of spiraling health care costs for individuals and over-billing of Medicare to achieve substantial budget savings. These are big "ifs" indeed.

But won’t the deficit be swollen by interest on the debt run-up over the next few years? Not as much as you might think. Interest rates on long-term government debt are less than 4 percent, so even a trillion dollars of additional debt adds less than $40 billion a year to future deficits. And those interest costs are fully reflected in the budget documents.

This is somewhat more optimistic than yesterday's post here about the risks of overextending the national debt as a) tax revenues decline with contracting production in the economy, and b) federal debt-spending is required to unfreeze credit markets and replace lost demand (to preserve jobs basically). This is a double whammy, but Professor Krugman says these dynamics could feasibly be limited to the short term, an assumption on which all policy planning seems to depend right now.

The overall outlook is best summed in Krugman's closing lines.

So we have good priorities and plausible projections. What’s not to like about this budget? Basically, the long run outlook remains worrying.

Early Indicator: Interest Rates to Rise

I received the following from a lender at Network Funding LP, but I can't figure out who owns the copyright. At any rate, very interesting headline and information.

Supply Concerns Boost Mortgage Rates

... [M]ortgage rates rose slightly during the week. The reason is that concerns about the enormous supply of debt that the government will need to issue outweighed the other factors. [emphasis added]

...This week, the Obama administration proposed a $3.6 trillion budget plan, with an estimated deficit of $1.75 trillion, which is enormous by historical standards. The Treasury will need to issue debt to borrow money to fund all of this. As the government issues more debt, the interest rate offered generally must rise to attract additional investors. Interest rates on similar investments such as MBS then move higher as well to compete for funds from investors.

Reflecting their concerns about an increase in supply, investors required higher interest rates at the large Treasury auctions during the week. The auction results showed that demand from foreign investors remained strong, which was very good news. If foreign investors should ever reduce their purchases of US bonds, then interest rates in the US would be likely to rise. [all emphasis added]

These are dynamics long discussed on this blog. Like day follows from night, so will inflation follow from the massive stimulus required to unfreeze credit and consumer markets where "scared money doesn't spend." Not to mention the very very real massive losses the banking sector faces from their catastrophic past lending practices, which further reduces available private money into the demand side of the economy.

These factors necessitate the enormous spending from the last credit-worthy entity capable of replacing all the lost demand (through debt-financed spending), namely the federal government.
Unstated in the quote however is the notion that investors/lenders require higher returns when loaning money even to the United States government because at some point, the investors/lenders begin to worry a little bit more about the government's ability to raise enough tax revenue from the economy's future production in order to pay for the national debt load (remember we're starting already over $10 TRILLION in the hole, with an actual doubling of the national debt in the last 8 years with nothing to show for it).

An important caveat: The United States will never default on its loans, that's the market assumption. But it may, if necessary, only avoid doing so essentially by printing money to pay down the debt, which only ends up causing inflation as new cash enters the system without being backed by any real production or assets. This raises prices of everything, yes, but it also reduces the real value of debt as "printed money" pays down the loan balances. Everyone loses.

To illustrate, imagine if you could pay off your mortgage not by keeping a job and making payments with the fruits of your labor or even by inheriting enough existing money to pay it off -- but rather you could just print your own money to pay it off, or successfully pay it off with a "valid" hot check. See? The only "winner" is the one printing the money, but then the printer will never get an affordable loan again either.

That's kinda the dynamic that gets figured in here, the risk level of that scenario above actually happening, as foreign and domestic investors consider issuing loans to the federal government. As the lenders' or "investors'" concerns rise, then so does the pay they demand in return for their loan -- the interest rate.

And all interest rates are related in some fashion. So when the federal government has to pay a higher interest rate for its debt, so too do individuals borrowing with mortgages, as no person or entity is seen as "more" credit-worthy than the United States government.

(In finance, the 10-year Treasury bond rate is often referred to as the "risk-free" rate.)

No, this will not be on the exam.

The Surging Populist Rage

In this morning's New York Times, the invaluable social critic Frank Rich writes about a familiar theme on this blog, namely the catastrophic policies set forth by both parties in the 1999 repeal of the depression era reform bill "The Glass Steagall Act" and the even more disastrous foundation for our current crisis, "The Commodities Futures and Modernization Act of 2000." From Rich:

Key players in the Obama economic team beyond Geithner are also tied to Rubin or Citigroup or both, from Larry Summers, the administration’s top economic adviser, to Gary Gensler, the newly named nominee to run the Commodity Futures Trading Commission and a Treasury undersecretary in the Clinton administration. Back then, Summers and Gensler joined hands with Phil Gramm to ward off regulation of the derivative markets that have since brought the banking system to ruin. We must take it on faith that they have subsequently had judgment transplants.

Truly any American should be concerned that the usual suspects of the 1990's whose policies caused so much international turmoil at the time, and whose policies (along with Chairman Alan Greenspan) set the stage for the gathering storm of the past eight years that culminated in this crisis of our own making we face today. Chillingly, Rich suggests that these players may not be fully rehabilitated.

A welcome outlier to this club is Paul Volcker, the former Federal Reserve chairman chosen to direct Obama’s Economic Recovery Advisory Board. But Bloomberg reported last week that Summers is already freezing Volcker out of many of his deliberations on economic policy. This sounds like the arrogant Summers who was fired as president of Harvard, not the chastened new Summers advertised at the time of his appointment. A team of rivals is not his thing.

Americans have had enough of such arrogance, whether in the public or private sectors, whether Democrat or Republican.

My greatest concern is about "the arrogant" Larry Summers. And while I have to honor a confidentiality oath, I can say that Summers is one of the creepiest people I have ever met and listened to in person, when he was President of Harvard University. One gets the sense that this man's sense of self-supremacy is unlimited and untempered even by recent years' evidence of his past failures. He is brilliant, the youngest professor ever to be tenured at Harvard University, practically at the moment he received his PhD. But academic brilliance does not translate into policy brilliance, which is fraught with unintended consequences if implemented poorly. This man rose too far too fast and was handed policy reigns when he should have been relegated to an advisory position and nothing more.

In 1999, he succeeded Rubin as Secretary of the Treasury. A year later, he was, with Alan Greenspan and Rubin, a leading advocate of the derivatives deregulation. Also during his stint in the Clinton administration, Summers was successful in pushing for capital gains tax cuts.

Larry Summers also deserves credit for advocating Washington Consensus policies during the Asian Financial Crisis. He eschewed Keynesian policies in favor of fiscal austerity, forcing the Korean government to raise its interest rates and balance its budget in the midst of a recession, policies criticized by liberal economists such as Paul Krugman and Joseph Stiglitz.[2] According to the book The Chastening, by Paul Blustein, during this crisis, Summers, along with Paul Wolfowitz, pushed for regime change in Indonesia. On May 4, 1998, when the Indonesian government began to raise fuel prices as part of an IMF program in exchange for hard currency, students started to protest, and in the ensuing riots, hundreds burned to death as blazes swept shopping centers in Jakarta.[2]

During the California energy crisis of 2000, then-Treasury Secretary Summers teamed with Alan Greenspan and Enron executive Kenneth Lay to lecture California Governor Gray Davis on the causes of the crisis, explaining that the problem was excessive government regulation.[4] Under the advice of Kenneth Lay, Summers urged Davis to relax California's environmental standards in order to reassure the markets. [5] It was later conclusively revealed that Enron traders were the cause of the California electricity crisis.

Here's a taste of the 1990's shenanigans by Summers and his ilk, and now ask yourself whether you want these "thinkers" in charge of turning around the American economic crisis we face.

Many critics of trade liberalization... see the Washington Consensus as a way to open the labor market of underdeveloped economies to exploitation by companies from more developed economies. The prescribed reductions in tariffs and other trade barriers allow the free movement of goods across borders according to market forces, but labor is not permitted to move freely due to the requirements of a visa or a work permit. This creates an economic climate where goods are manufactured using cheap labor in underdeveloped economies and then exported to rich First World economies for sale at what the critics argue are huge markups, with the balance of the markup said to accrue to large Multinational corporations. The criticism is that workers in the Third World economy nevertheless remain poor, as any pay raises they may have received over what they made before trade liberalization are said to be offset by inflation, whereas workers in the First World country become unemployed, while the wealthy owners of the multinational grow even more wealthy.

[C]ritics further claim that First World countries impose what the critics describe as the consensus's neoliberal policies on economically vulnerable countries through organizations such as the World Bank and the International Monetary Fund and by political pressure and bribery. They argue that the Washington Consensus has not, in fact, led to any great economic boom in Latin America, but rather to severe economic crises and the accumulation of crippling external debts that render the target country beholden to the First World.

Bear in mind that all the globalization of that decade still led to unending massive trade deficits that helped mushroom the national debt more in the last eight years than in all prior American history combined. Now our foreign debt is held by Japan and China, and our economy is subject to enormous economic and political threats by our adversaries. To me, that is not good policy, Professor Summers.

I had the good fortune to hear a small-room lecture by a past-president of a small Latin American nation, a man who experienced the ravages of the IMF first-hand and was ousted from his position because of his own country's crisis. This stuff is not theory.

Further alarming is Rich's claim that Paul Volcker, Alan Greenspan's predecessor whose leadership of the Fed laid the policy groundwork to save America from its last economic crisis in the late 70's to early 80's, is being "shut out" by Larry Summers today. Here's Volcker's previous work:

Paul Volcker, a Democrat[4], was appointed Chairman of the Federal Reserve in August 1979 by President Jimmy Carter and reappointed in 1983 by President Ronald Reagan.[5]

Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983.

While our current crisis is different in nature to be sure, it is no less urgent and its eventual solutions will be no less controversial than the policies Volcker implemented in the early 80's to arrest the inflationary spiral of that time.

The New "1/20" Rule
Here's where the new "populist rage" enters, as millions of Americans find themselves very recently out of work in the last three months alone. Again from Rich:

But we do know that the system has been fixed for too long. The gaping income inequality of the past decade — the top 1 percent of America’s earners received more than 20 percent of the total national income — has not been seen since the run-up to the Great Depression.

Yes, it's hard to believe, harder to fathom, that only 1% of the American population received more than 20% of the entire national income. When candidate Barack Obama said inartfully that he wanted to "spread the wealth," he wasn't talking about socialism. He was talking about this issue, about the need to rebuild the middle class, which brought this country to the peak of its economic and global power in the 20th century, so that more people can earn a better share of the nation's "pie," and so we can make it as big as we possibly can, together. That's not welfare. It's not socialism. It's how to build a healthy, diversified, and strong national democratic capitalist economy.

The strongest punch and thematic statement from Mr. Rich comes in his opening paragraphs this morning. And if the president, the senate, and the congress do not come to terms with this warning soon, it won't just be "the president's best-laid plans" that get "maimed."

SOMEDAY historians may look back at Tom Daschle’s flameout as a minor one-car (and chauffeur) accident. But that will depend on whether or not it’s followed by a multi-vehicle pileup that still could come. Even as President Obama refreshingly took responsibility for having “screwed up,” it’s not clear that he fully understands the huge forces that hit his young administration last week.

The tsunami of populist rage coursing through America is bigger than Daschle’s overdue tax bill, bigger than John Thain’s trash can, bigger than any bailed-out C.E.O.’s bonus. It’s even bigger than the Obama phenomenon itself. It could maim the president’s best-laid plans and what remains of our economy if he doesn’t get in front of the mounting public anger.

May We Live In Interesting Times

A fellow alum friend of mine who works for a custom builder on the east coast presented a very interesting idea in a recent email exchange.

what I don't understand is why the talk of a $1T stimulus package doesn't get evenly divided by the 305M Americans to send a tax-free check for $3k to every man, woman and child? then a typical family of 4 gets $12k

then tell the banks they can't foreclose in Jan/Feb so people have time to get current on their mortgage and debts, but in March the banks have 30 days to get it done

we will quickly find out who really wants to stay in their homes and who doesn't and all the uncertainty is resolved in 90 days to know what debt is good or bad and all the middle-men get taken out of the process so the funds go directly to those who need it
maybe I'm too cynical, but I doubt Congress will come up with any plan half as good, simple or effective

Now that's interesting. And creative. So I replied with what you've read about here, to see how he might fit it all together:

Honestly I think it's because housing is no longer the biggest problem, but rather the $45 TRILLION derivatives market in unregulated legal "betting" in a shadow market of CDS's -- like $45 trillion in bets with no bookie -- and mostly on the balance sheets of major financial institutions. Honestly I think that's why, because you're right, the housing problem alone would be solvable.

And bear in mind that the Alt-A's have yet to ramp up in resets, which will rise in '09 and '10 and could rival the subprime mess. With declining tax revenue & credit downgrades, muni's could be in trouble as well, then watch out all over again........

But with all the side bets representing multiple payouts on the same debt including houses, muni bonds, corporate bonds, etc...... well that's a much bigger problem and one that's very hard to explain to the public, much less congress and even CEOs wrapped up in it.

Add to that the liquidity trap and a growing deflationary environment and it gets really messy really fast.

All I know is that I think that deflationary pressures require inflationary responses. But that could trigger a currency war with China and petrocurrency. At least, however, we know how to kill inflation I think. Ain't nothin gonna be easy for a while.................... [Omitting gratuitous dig at Larry Summers]

So his reply? Fitting, insightful, pithy.

at least we're living in interesting times, right?
here's to a better 09

And then I laughed out loud.

And then I sighed. Interesting times indeed.

On the Credit Crunch Deniers

Yesterday, Hale "Bonddad" Stewart takes the Minneapolis Fed to task for a paper issued recently that seemed to minimize the reality of the existing credit crunch. Stewart notes that the Boston Fed took the unusual move of issuing a rebuttal paper to its sister Fed -- very unusual. Stewart suspects the Minneapolis Fed paper is result of a) the astoundingly bungled TARP program ($700 billion "rescue"), and b) the anti-Wall St zeitgeist. Proponents of the Minneapolis argument suggest that the credit crisis, to some extent, might have been artificially created in order to trigger a sweet-heart government pay-out to Wall St banks. Don't worry -- Stewart puts this argument firmly to rest.

Some of Stewart's more interesting tidbits:

As we've recently discussed here, Treasury rates have fallen in some cases to 0% and even to negative rates. Says Stewart:

What the Minneapolis Fed report fails to take into account is inflation [is] one reason for investors to purchase Treasury bonds. Another is safety. Because US Treasury bonds are considered the safest in the world, people are buying them at a high [price], meaning Treasuries are yielding an incredibly low rate right now.

Some T-Bills have recently been issued at 0% interest! That in and of itself tells us the level of concern is abnormally high and a credit crunch is indeed going on - people don't want any return; they simply want their money back! In short, inflation expectations are one reason why people buy Treasury bonds. But another very important reason is safety. And investors are clearly concerned mostly with safety right now if they don't even want a return on their investment.

I love his next paragraph because it highlights another theme mentioned here before -- never look at just the "headline" numbers to draw conclusions about something, because it's the underlying character of the data that tells the most complete and insightful story. To wit:

The Bank of Boston adds other extremely credible explanations for the lack of decline in lending. They note that in a credit crunch companies rely more on their existing lines of credit as other sources of funds (the stock market, commercial paper and new lines of credit) dry up. In addition, banks are unable to securitize loans in the current environment and are therefore forced to keep more loans on their books, thereby increasing lending. The paper also shows that lower grade corporate issuers (single A) have seriously cut back on their commercial paper issuance, indicating that only the very best credit quality issuers are able to obtain short-term funding in the commercial paper market.

In short, because companies can no longer find success raising money from investors, they have to tap their "credit cards" for cash. This causes an increase therefore in loan balances (to substitute what otherwise would be investor cash and not loans in normal times), which causes a "headline" appearance that lending is increasing, which is a completely inaccurate read of what's really going on. New credit is not being issued, and banks can't sell their "old credit" loans so they have to keep them - because there is a crunch.

But then there's this tantalizing nugget regarding the currency issues we've discussed here, from a Stewart reader, Jonathryn:

Jonathryn said...
Okay, yes, very well. There's a bubble in Treasuries. Under what circumstances or in what manner could that bubble blow up? What would be the consequences?

If Paulson, Bernanke, and their successors tried to inflate the hell out of the currency to avoid deflation, would this not precipitate some sort of currency devaluation trade war with China? Isn't that why Paulson went over there?

December 19, 2008 11:40 AM

I love it. I've been arguing here in favor of inflationary measures to combat a deflationary environment. Inflation of the US dollar would cause our exports to become cheaper internationally, which could therefore increase the value of our exports and help combat the national debt -- thereby "giving back" some of the inflation and decline in dollar value dynamic.

Jonathryn points out that China, which is deeply dependent upon its exports to the US and other western nations, might economically "retaliate" by inflating its own currency to support its exports (it's been doing this to an extent for decades already, and we've let them). I don't know enough to say. But it's terribly interesting, terribly.

Are we looking at the prospect of a new "currency cold war"? If so, it could make the War on Terror look quaint.

[I'll get back to writing about real estate shortly.]

Bonddad: Now is the Time to Spend

If you are not already familiar with famed online financial commentator Hale "Bonddad" Stewart, I'm glad to introduce you. Hale Stewart is a Houstonian and bond trader. He is also an attorney specializing in estate, international tax, M&A and business issues. He is a frequently recommended luminary for lay people at Daily Kos, which features his latest post in support of the Keynesian "spend now and spend big" arguments such as those featured on this blog.

The technical arguments against spending are obvious and reasonable under normal circumstances. However these are anything but normal times. Stewart takes a moment to address why threading this needle has a better chance of working at this point in time than other options (such as Hooverism).

The thrust of his arguments are this:

1. The US Dollar has, after a 20% run up in recent months, room to give up value in the wake of new spending;
2. 10-Year Treasury interest rates are at multi-year lows, indicating a continued strong demand for US debt; and
3. Nothing is certain and there are no sure-fire solutions

I couldn't agree more, except I think he's too cautionary, as if we have any other option. Like I've said previously, when a nation is in a deflationary spiral, the only sensible action is to apply inflationary pressures. If the inflationary demons start to rear their little heads, then deflationary controls must be put in place. Rinse and repeat until things stabilize. This is no time for nibbling around the edges or quibbling around theory.

Oh, About That Deficit...

Some people think I've become too cavalier about the nation's budget deficits and overall debt in recent posts. Anyone who knows me knows that I'm one of the most fervent deficit hawks that exist. However in recent months it has become clear to me that we have no choice as a nation but to spend whatever is necessary to restart the economy, or we risk losing a whole lot more than we stand to spend and invest.

Warren Buffett and other luminaries are in clear agreement. Only the US government has the strength to spend what is needed to jump start the economy back to sustainable growth. I look at it this way: when you're in a deflationary spiral, you have to react by applying inflationary pressures.

Inflationary pressures mean: lower interest rates, higher spending. Period. Some on the right have taken to calling Ben Bernanke "Helicopter Ben." That's a fair nickname, I think, because right now it does appear that Bernanke and Treasury are dropping tonnes of cash from helicopters over the American landscape. Actually, it's not a terrible idea. Instead, though, it's more like they're building pipelines to pump that cash directly into banks, and frankly to little effect. (Spending for spending sake also makes no sense. Investment is the only best spending strategy.)

But the bottom line, no matter what we do, is that as long as government spending is backed by loans, then the government is not "printing money." This is how the U.S. is avoiding the inflationary effects of massively higher spending -- by adding that spending to the national debt instead of just "printing the money," which would dilute the dollar and could lead to inflation. However ironically, inflation is exactly what we need, which is why this approach is so wrong-headed and to date so ineffective.

So right now, the untold story is that the U.S. government is betting, along with our international investors who buy our U.S. debt in the form of government bonds, that all of today's massive spending will be repaid with interest at some point in the future when the economy turns around. Do you have faith in that? As long as the world does, we're okay. But if the world starts to doubt our ability to pay off probably $15-18 trillion in national debt, then nobody will want to buy the government bonds anymore, which means the government will have to raise the interest rates offered to its bond investors, which will drive up interest rates to our economic peril. Or, conversely, the government can throw up its hands and just print whatever money it needs to pay off its debts, but that will have equal peril in the form of massive over-inflation. But that's not the concern today.

Right now, to head off falling prices and falling credit as the values of American assets fall, the government is spending, spending, spending by borrowing, borrowing, borrowing -- and I think they are making a fundamental mistake by using all loans to get around inflation. The whole idea right now should be to put inflation into the market. Once the market regains traction and the pendulum swings, then the Fed and Treasury can tighten up policy and reign in the inflation. This is just as clear as night is to day.

Unless you're an economics PhD egg-head or Wall St banker.

If you know nothing else about the condition of the economy and its impact on increasing demand for housing, know this: nothing will happen until the masses of Americans are confident in their jobs. J-O-B-S. As long as Americans are insecure about their jobs, be they manufacturing, service, or civil, Americans will not feel comfortable making major purchases and will not have confidence in their long term ability to sustain major purchases -- such as homes.

So watch the unemployment numbers, both nationally and especially locally. Regardless of what's going on on Wall Street, without confidence in our jobs as Americans, we cannot and will not have the confidence required to do business with one another -- and that includes buying and selling each other's homes.

OK, Today is Scary

Unemployment rose to an "official" level of 6.7% today as DOL reports 533,000 jobs lost just last month. This is the worst jobs report in 34 years, since 1974. Merry Christmas indeed.

The name of the game in any recovery is not the Dow, it is not financial stocks, it is not even rising house prices (which are a lagging indicator).

By far the most important leading indicator of a possible turnaround in the overall economy is J-O-B-S. Without jobs, and without confidence in jobs and employment overall, there can be no confidence in the economy, no confidence in one's personal income, and no confidence therefore in new personal or business spending. And that means no quick turnaround.

This means houses will continue to be difficult to sell, although by no means impossible.

On CNBC just now, a trader referred to the jobs report as a "lagging indicator." This may be a technical point, but for most people not on the floor in Chicago or New York, the employment statistics are a tremendous insight into the true state of the economy and the longer term trend.

And when we are measuring economic statistics by the decades in terms of new lows, and not month-to-month, the jobs reports becomes an important forward indicator.

Employers do not like to get rid of experienced employees out of short term pessimism. When employers let employees go, you can be assured that executives believe the company will not be replacing those jobs in the short-term.

The only "silver lining" (I know, I know...) is that oil prices just fell over $1 per barrel, to lows not seen since 2004. It's not 1984, but it's relief. But of course, if you don't have a job to commute to, the price of gas becomes highly irrelevant. Who wouldn't pay 3x per gallon just to keep their job?

And who knew six months ago that it would feel gloomy to fill up my V8 with premium gas under $2 per gallon?

The only true good news is that Europe is in worse shape than we are, which means that although we're not doing well, investors should not be pulling money out of the U.S. any time soon. If another region in the world starts to pull away ahead of the U.S., then... well let's not talk about it unless we have to. So far, so "good."

Indeed.

For the Record: November Three Years Ago...

For the record, I wrote the following three years ago this November. Humility is no virtue of mine. However I'm in no way saying this view has been vindicated -- instead, I think the ultimate outcome of the housing market, particularly in Houston, very much remains to be seen. Even more has been thrown into the immediate mix, including the increased (!) volatility in oil-producing nations from even just 3 years ago, to the increased volatility of refinery capacity (when is hurricane season over!?). At any rate, there were some things quite structural in nature that were visible three years ago that are hot topics today. So not everything should come to us as a surprise, and for many besides myself I know it doesn't. ;-)

From November 2004:

Usually I don't like to speak on issues that are already well-covered, but the economic position of the U.S. right now is a topic that cannot be spoken of enough. With real estate and talk of currency troubles (aka: interest rate watch), we are watching like hawks these issues. Builders all around many metro suburbs are speculating with relatively cheap money, and banks are loading their balance sheets with really shaky things like "100% loans" (like an ARM with a balloon payment/refi instead of an adjustment). It looks scary. Moreover, it can happen like dominoes -- one big entity makes a move, and everyone (foreign financiers of U.S. debt) starts second guessing.

If only this stuff didn't matter. Again, there are many more factors now with which to analyze the situation than there were back in 2004, and there is plenty of reason to be hopeful, particularly in the strong Houston market area and economic sector. Locally here in N Houston Metro we have seen no notable decline in demand and continue to describe the specific Houston area as relatively balanced in supply and demand, as has been the case historically for many years.

[Update 11/24/2008: One year later, demand in the Houston area has definitely softened, with overall sales volume year-over-year in excess of 20%. The silver lining is that prices are holding relatively stable for now. But then we never had the pricing bubble that other areas of the country experienced.]

How Long Has This Been Going On?

[originally posted November 2004] Usually I don't like to speak on issues that are already well-covered, but the economic position of the U.S. right now is a topic that cannot be spoken of enough.

With real estate and talk of currency troubles (aka: interest rate watch), we are watching like hawks these issues. Builders all around many metro suburbs are speculating with relatively cheap money, and banks are loading their balance sheets with really shaky things like "100% loans" (like an ARM with a balloon payment/refi instead of an adjustment). It looks scary. Moreover, it can happen like dominoes -- one big entity makes a move, and everyone (foreign financiers of U.S. debt) starts second guessing.