| Malcolm Evison (9/16/2005 9:59:00 AM) | |
| Humorous as it may be with regards to Class and social mores, flirtations with theosophy etc., one is brought up with a start... the realization that this was written in 1937 and, the more specific social unrest in Spain and Germany... the fall of the glass is unstoppable! |
...This is not a simple problem...
...Restore normality too soon...
...and the risk is that a weak recovery will double dip into a second and deeper recession...
...Restore it too late and inflation will already be ingrained"...
PAINT AT THE END OF THE TUNNEL
petey :
...here in ...
...palookagrad...
...we are...
...uncertain...
...we would have been much happier...
...if the politix...
...had let the markets sort out the mess...
...but...
...vested interest...
...has stolen the day...
THE ONLY GAME IN TOWN
...yes the game is fixed...
...and yes you have to play...
...just don't be under any illusions...
...about efficient markets...
...or best advice...
...or rules...
...or solvency...
...smoke and mirrors...
...shifting sands...
...moving goal posts...
...it's economics jim!..
...but not as we knew it...
The good news is that in some US regions, prices have already fallen so sharply – often by more 30 per cent – that property is already very affordable, relative to incomes and on a historical basis.
But the bad news is that houses are not yet cheap enough to prevent more price falls. On the contrary, this particular team of analysts thinks that when the problems of excess house inventory and rising unemployment are added into the model, average US house prices will still fall by another 14 per cent in the next few years – on top of the declines seen so far.
That headline figure conceals some startling regional discrepancies. Colorado is reckoned to be through the worst. In New York, though, the pain has barely started. Prices there are projected to decline by another 30 per cent or so. Taken as a whole, these projections imply that about 25m households in America end up in negative equity.
This projection is gloomier than those made by the US government and many large US banks. But the 25m number is currently being echoed by other investment groups, such as Pimco. If it turns out to be correct, it raises two crucial questions. One is the degree to which the western banking system could face a secondary round of real estate losses (particularly as these analysts are even more alarmed about the commercial property outlook than the residential sector.)
But the second fascinating question is what further house prices falls might do to consumer psychology. America has never experienced negative equity on this scale before. Thus nobody is entirely sure how households might respond. Will they default en masse? Will voters become so angry that they demand more populist public bail-outs of the housing sector (or financial reform)? Will consumers cut spending further?..." Gillian...
“Buyers and sellers have come together and begun to agree on a fair price following the powerful rally, which is why we have seen sideways trade.”
But Tim Howkins, chief executive of IG Group, said: “Equities need to go down again. They bounced too quickly and the feeling is
we still need to see a complete capitulation.”...FT
Housing is still central to the stabilisation and eventual recovery of the US and global economies. Any further decline in house prices will erode the collateral many Americans borrowed against, dampen their already-fragile consumption appetite, and increase the headwinds facing a banking system that is finally regaining its footing. The US can ill-afford a further sell-off in US bonds at this stage in the economy's rehabilitation process. Yet there is no easy way for policymakers to address this challenge.
As an illustration, consider the dilemma facing the Federal Reserve. Should the central bank step up its purchases of both Treasuries and mortgages in order to stabilise interest rates, but at the risk of adding to the distortions in these markets; or should it refrain from intervening further and risk a return of widespread economic and financial disruptions?
I suspect that, when push comes to shove, policymakers will opt for greater purchases of mortgages and Treasuries – not because they really want to, but because the alternative is viewed as worse.
Believe it or not, there is a silver lining in all this. As they contemplate this difficult situation, they can draw some comfort from one thing: with the anchoring of the short-term policy rate near 0pc, the steepening of the yield curve is generating significant profits for banks.
Remember, banking is fundamentally about mobilising cheap deposits (at the short end of the curve) and, supported by deposit insurance and central bank liquidity windows, lending at the longer-end of the yield curve. Come to think of it, the smartest trade for investors today is to find a bank that, unencumbered by legacy issues, is able to take advantage of an enormously attractive environment for old-style banking."
...Mohamed El-Erian is chief executive of Pimco....
