Love the Cramer cut! Keep in mind he is an edgy hedge fund trader...he swings between manic enthusiasm and depressive pessimism - so you might hear him be bullish on the market a week later.
For a less entertaining, but more intellectually stable perspective I would listen to his former partner Larry Kudlow. His view is that when the dust clears and credit markets resume functioning, the banks will divide up the loans and resell them (at high rates - and at a loss) to pension funds, insurance companies, etc. and life will return to normal. Lets hope he is right.
By the way...the perfect storm would be to allow protectionism (China trade tarriffs) to creep in as some in congress want. This would cause inflation, thus higher rates for the adjustable mortgages and more defaults. Remember Smoot Hawley tarriffs (1930)!!!
__________________ The next best thing
To playing and winning is playing and losing.
Robert Lee Castleman
What is history telling you about the state of the current market? Personally, I don't see a dip, or even a crash in the housing market as having a huge impact on the stock market. Especially since the housing market is overinflated. It will just be knocked back down to size. Happened to both New York and Texas in the recent past, no?
BF, you have to know how "money" and "wealth" are created in order to see the long term effects of a large scale housing bubble burst. Money as you know it is not the paper in your pocket or the digital numbers in your account, money is the "wealth" created but lending. Thats where your real purchasing power comes from, your ability to take on debt, not your ability to buy a $500 watch because it catches your eye. Lending practices of the recent past are going to kill lending to the majority in the future.....risk for the lender. When some lenders that are ranked in the top ten mortgage companies in the country go belly up, you know we have serious issues.
This whole situation you see now shows some very close similarities to the Japan crash of the 90s. Most people haven't heard of, or don't remember, the Japanese housing crash that stagnated their economy, because it's scary and it's the kind of talk that scares investors.
The "housing bubble" is quite similar to the "tech bubble" in that both were more illusionary than based on reality. Odd that while everyone seems to focus on the so-called "questionable lending" involved (actually fraudulent would be more accurate) as being a harbringer of doom, no one seems to notice some more concrete things to be worried about.
The Bush tax cuts are set to expire, thereby giving the Dems a way to raise taxes without having to actually vote for them. And the tax cuts have really been the major engine pulling the market ever upward. Add in the tax increase they recently voted on the oil industry (who do you think will actually pay that $16 billion? Not the oil companies) and you have a pair of VERY worriesome things on the horizon.
The market will correct itself, but it may get worse before it gets better. Especially if business loses it's incentive to invest and grow, rather than just hold on to what it has. Like it or not, believe or not, a rising tide does raise all boats, and trying to "soak the rich" and adding more government entitlements hurts those without, long before it hurts those with.
Currently back in New Bern, NC
__________________
John
Ontario 32 - Aria
Free, is the heart, that lives not, in fear.
Full, is the spirit, that thinks not, of falling.
True, is the soul, that hesitates not, to give.
Alive, is the one, that believes, in love. JCP
I don't claim to be a liberal, but I cannot either agree with Sapper's gloomy predictions. No end of the world of abundance is approaching. The economic model is much more complex and unpredictable than we can imagine: as demand shrinks, so does the offer (there is no money to gain and the plain folk players keep their cards closed being afraid that they will lose if they participate in market swings) and an overwhelming power is needed to turn the situation upside-down, like the boat that is not easy to be knocked down even when she heels excessively (she rather turns head to the wind!). Many may loose money, not all will die.
PS: This opinion is irrespective of the fact that USA represents a small part of the global population that consumes a disproportionately big (both quantitatively and qualitatively) chunk of the earth's natural resources. Hence its influence on the other living creatures on this planet should be limited and its appetite for expansion curbed. Some moderation in spending and consuming habits would be therefore very much welcome.
Unfortunately, many people were forced to use less conventional mortgage schemes to be able to afford the houses they wanted in the markets they wanted. Interest only loans, while incredibly unwise, became fairly popular, since they allowed one to buy much more house than would otherwise be affordable. However, as the price of the house fell with the collapse in the real estate market, and the interest rates started to climb, many of these people are finding themselves paying an inordinately high mortgage, which doesn't even begin to give them equity or pay down the principal amount borrowed. I would guess that many of these people, unless their fortunes were incredibly good, will end up in foreclosure or bankruptcy.
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Sailingdog Telstar 28
New England
You know what the first rule of sailing is? ...Love. You can learn all the math in the 'verse, but you take
a boat to the sea you don't love, she'll shake you off just as sure as the turning of the worlds. Love keeps
her going when she oughta fall down, tells you she's hurting 'fore she keens. Makes her a home.
—Cpt. Mal Reynolds, Serenity (edited)
If you're new to the Sailnet Forums... please read this POST.
SD - I wouldn't say forced, so much as seduced. These sub-prime lenders exist because people were willing to forego making a responsible decision by the siren call of home ownership and/or "keeping up with the Jones". Builders couldn't build, if there was no one to buy the houses, and people couldn't buy them, unless there was someone to make it possible, when they couldn't actually afford them.
What happened is, rather than let the market set the prices, based on what people could actually afford, they came up with a scheme to give the illusion of affordablility, that kept the prices inflated beyond what the real market would bear. In the end, it really comes down to the people who were willing to "buy into" the whole scheme.
This isn't without precedent either. It happened back in the eighties as well with the advent of condo's.
Currently back in New Bern, NC
__________________
John
Ontario 32 - Aria
Free, is the heart, that lives not, in fear.
Full, is the spirit, that thinks not, of falling.
True, is the soul, that hesitates not, to give.
Alive, is the one, that believes, in love. JCP
Having spent the last 20 years, before I retired, in the investment industry, I'm not all that surprised by the current state of affairs. I (luckily) cashed out of my house and all of my non related sailing stuff last November. As the saying goes, I'd rather be lucky than good. I believe that we are in the early stages of a cyclical bear market that will last probably around 10 years or so.
I'm not suggesting/forcasting doom and gloom, but rather a general downward trend. There will be rallies for sure, but the direction will be mostly lower. I feel for the folks who bought homes using ARM's. Very bad move. Also thouse who re-fi and pay off the credit card debt. Now they carry the debt for 30 years. If they maxed them out once, what are likely to do now that the balance is zero. My opinion only, worth exactly what you paid for it.
Unfortunately, not all of the financial institutions offering these kinds of loans were sub-prime institutions IIRC. It was far too lucrative and seductive a profit engine for some of the bigger banks to resist.
The only problem with today is that rates are relatively low and have a good way of room to rise, back in the 1980s, the interest rates were pretty much maxed out IIRC, and had a good deal of room to drop. All of the interest only loan schemes I've heard of are ARMs, not fixed... so they get really screwed over.
Quote:
Originally Posted by PBzeer
SD - I wouldn't say forced, so much as seduced. These sub-prime lenders exist because people were willing to forego making a responsible decision by the siren call of home ownership and/or "keeping up with the Jones". Builders couldn't build, if there was no one to buy the houses, and people couldn't buy them, unless there was someone to make it possible, when they couldn't actually afford them.
What happened is, rather than let the market set the prices, based on what people could actually afford, they came up with a scheme to give the illusion of affordablility, that kept the prices inflated beyond what the real market would bear. In the end, it really comes down to the people who were willing to "buy into" the whole scheme.
This isn't without precedent either. It happened back in the eighties as well with the advent of condo's.
Currently back in New Bern, NC
__________________
Sailingdog Telstar 28
New England
You know what the first rule of sailing is? ...Love. You can learn all the math in the 'verse, but you take
a boat to the sea you don't love, she'll shake you off just as sure as the turning of the worlds. Love keeps
her going when she oughta fall down, tells you she's hurting 'fore she keens. Makes her a home.
—Cpt. Mal Reynolds, Serenity (edited)
If you're new to the Sailnet Forums... please read this POST.
So the subprime borrower had a loan at 4% for 30 years. Now they can refi at 8% for 40 years or even 50 years and keep their payment relatively stable. May not be the ideal solution for them but it will work. Those interest payments are tax deductable and they'd have to pay rent if they weren't financing a home.
Remember that in the early 1980's mortgage rates were around 9% to 11%!!!
Remember, the number of homes that will go into forclosure is a very small percentage of all homes.
SD - I wouldn't say forced, so much as seduced. These sub-prime lenders exist because people were willing to forego making a responsible decision by the siren call of home ownership and/or "keeping up with the Jones". Builders couldn't build, if there was no one to buy the houses, and people couldn't buy them, unless there was someone to make it possible, when they couldn't actually afford them.
What happened is, rather than let the market set the prices, based on what people could actually afford, they came up with a scheme to give the illusion of affordablility, that kept the prices inflated beyond what the real market would bear. In the end, it really comes down to the people who were willing to "buy into" the whole scheme.
This isn't without precedent either. It happened back in the eighties as well with the advent of condo's.
Currently back in New Bern, NC
I agree, and what gets me about it is that everyone's crying about it when it's been in the news for months (years?) that housing prices were growing at an 'unusual' rate. People who expected that to continue were naive and/or fools. "I'll just pay 400,000 for this house and resell it next year for 500,000, so it doesn't matter about the loan terms" Kind of like musical chairs, andthose who play the game risk ending up on their ass in a big way
__________________
"... the only matter of consequence before me is what I will do with my alloted time. I can remain on shore, paralyzed with fear, or I can raise my sails and dip and soar in the breeze." - Richard Bode, First you have to row a little boat (pg. 94)
