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"Standup Economics" This economy is a what? |
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Clues from Cramer Normally, I would not point you to a video as a touchstone in a market like this, but did you happen to catch Jim Cramer's near melt-down on national TV as the market collapsed on Friday afternoon? Click here if you haven't seen it yet. If you have a dial-up connection, go have breakfast while it's loading - it's worth the wait. It's not every day the market drops 281-points as it did Friday. Folks get a little worked up over it.
Sadly, the predicatively linguistics boys at www.halfpasthuman.com might offer simple advice to Cramer: "You ain't seen nothing yet."
Having known a few of the people who were early leaders in the collateralized mortgage obligation business that I have mentioned in past columns, I can see the fundamental assumption in stark relief. The flaw, so it seems, is that the originators of CMO theory believed that under almost all conditions they could think of (in more predictable times - pre-9/11) was that people would always pay their mortgage ahead of everything else.
That assumption seemed to be valid...at least until the Housing Bubble began to deflate. Suddenly, there were people stuck with over-priced homes who ended up owing more on the home than it was worth, and the CMO business didn't incorporate a mechanism, short of foreclosure, to deal with the "upside down mortgage". The results are just beginning to take their toll.
In the history of mortgage lending, there has almost always been a substantial down payment required to start up a loan. 20% is actually a small down by historical standards. And 125% LTV loans? It's never happened before.
The (predictable) results were summed up in John English & Gray Cardiff's book "The Coming Real Estate Crash" which you can still find on Amazon now and then as a used paperback. The 1980 paperback edition was waaaay early. But the key dynamics were nailed squarely. For example:
It's not like it hasn't happened before, either. Chapter Four of the book is a good review of the 1924-28 Florida land bubble.
The technical problem which is facing the stock market and I've been writing about since 1996, is that we are about to encounter a once in many generations financial storm of incredible proportions that government and 98% of humans have no idea how to survive.
Not only do we have a real estate market which is blowing up (because of speculation in CMO's and debt derivatives on the one hand, but the next trigger that gets pulled sequentially could very easily be the mutual funds, in a process outlined in "The Coming Mutual Fund Crisis" by Donald Christensen.
Again waaaaaaay early, but it's all coming into focus. We have a housing bubble meltdown occurring as predicted by Cardiff & English at about the same time that demographics (early Boomers retiring) starts to suck lots of investment back out of the mutual funds. In my nightmares, I see housing bubble getting halfway through the deflations and then a run on mutual funds beginning as Christensen describes.
There are more folks than just George in the outback of Texas saying this stuff. John Rubino and Jim Turk's "The Coming Collapse of the Dollar and How to Profit from It" is a fine example. And oh yeah, the dollar's diving, too.
The common theme to all three of these books is this: They were written by people who were way ahead of events. These books have been widely available and I've offered them (and many others) in the past. The average person won't invest the time to read a forward-looking book that doesn't go along with the "It's all good" mantra that spills into the living room from LameStreamMedia and the PR parrot press, which is sad. To them, this seemingly all of a sudden market action comes as something of a shock. You wake up for a cup of coffee and discover some on national TV has leaked the truth out.
"Armageddon is here."
But, don't worry - yet. As commodity legend Jim Rogers told a Bloomberg interviewer on Friday, these things take a lot longer than a month or two to work out - a couple of years minimum. There's still plenty of time to panic.
Loonie See
Want my opinion of "polls"? Average people aren't exactly financial geniuses. So rather than looking at polls, that may be based on the idea that if you get enough average people, it will add up to a bright one, just check out what the dollar did on Friday and where it could go next if it breaks 80 versus the market basket of currencies. Plus, Canada has energy and other natural resources and doesn't have a gazillion layers of derivatives in the wings, or helicopter Ben at the printing press. Skip the polls, read the tape.
Next week is Fed week. Will the Fed cave-in and lower rates? Depends if they watched Cramer, maybe?
Democorps Tap Dancing Big Brother is on the verge of getting bigger. The nearly irrelevant Congress is set to rubber stamp yet a further expansion of presidential powers to wiretap in the name of that many generations War on Terror. The Senate was the first to cave-in.
Disease Outbreak Foot and mouth disease has broken out in the UK. And here all this time you thought that was reserved for the politicos, huh?
Global Diaspora - Now Opening OK, this is only the leading edge of the entity from linguistic predictive modelspace, but we're seeing 20-million as the number now impacted by Asia flooding.
Chinese Power Stretch China tells the "Living Buddhas" they don't have permission to reincarnate. Now in my book, if a highly religious fellow like the Dalai Lama chooses to reincarnate, he ought to be welcomed as an enlightened fellow, but China's State Administration for Religious Affairs is a little more narrow-minded about such matters than me. Government beyond the grave. Quick: Look surprised.
Cash Call
Voting Machines Banned We read that California has banned most electronic voting machines.
Good Judgment A judge in Virginia has thrown out the "Ticket Tax" in the state under which out of state motorists would be treated differently than Virginia drivers. Betcha our "No Incumbents in 2008" stickers sell well in Virginia, huh?
Weekending This weekend the projects here at the ranch include working on the goat fencing (till it gets too hot) then on to the new and expanded chicken coop - more birds seems likely at some point. Where would I rather be? Well, as long as we're headed into the mid 90's today, I think the final sets at the Stanford Jazz Festival today sounds good. Unfortunately, I figure if we drove out this morning we might make it as far as the eastern border of Arizona before the last set is over. Grrr...fencing...grrrr....
Consumerism: Oil & Monkeys on Crack I had first starting writing about what I projected would be labeled the "Manufacturer's Resource Wars" by future historians in one of my free UrbanSurvival.com articles in September of 2002, or maybe earlier. At the time, it was not-yet-in-vogue to view the future as holding an end of cheap energy and the planet running out of resources as main lifestyle-driving issues. Amazing what a few years will do, though, isn't it? This week, we focus on an interesting duality emergent here on the ant farm called "Earth": The emerging differentiation between declining choice in physical goods and the increasing choices in intellectual content and how declining energy resources will likely push that gap wider. Our first stop: The U.S.S. Enterprise...
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"No Incumbents in 2008" Bumper Sticker To get your "No Incumbents in 2008" click here. They're just $5. And no, that would not keep Ron Paul from running for the White House - he is not an incumbent there - having never held that job before, got it?
Tell your friends about this site! I'd really appreciate it if you would tell all your friends that you read UrbanSurvival or Independence Journal, or even our Peoplenomics newsletter. That way, more people will become aware of what's going on in the economy, and with more smarts, maybe we can wake up America. Click here to shake them from their sleep.
Lower Your Cost of Living Order our handy ebook "How to Live on $10,000 a year or less - and learn to live like a Third World person now. It's coming anyway, with big job layoffs this summer - and by ordering now, you can beat the rush...You may have more time to read this fall if the economy falls apart as I expect...
Friday August 3, 2007 Special Update: Civilians Being Searched at BUS STOPS This is a mind-boggling report: http://dailykos.com/storyonly/2007/8/3/03736/76330 "Federal Agents searching people at Indianapolis Bus Stops: Air Marshals Patting Civilians Down."
Confirmed in the Indystar.com which headlines" TSA checks IndyGo bus passengers."
Intimidation of the public? Is our beloved Constitution dead?
Live Like You're Crazy I really have to write a book; a long serious book about people and money. Not "economics" in the conventional sense of it, but a book about how people have these incredibly dysfunctional, denial-driven, guilt-tripped-up views about money and ethics. I've decided that if I ever come to write such a thing, it will be simply titled "Live Like You're Crazy."
Stumbling through your first cup this morning, you might well ask, "OK, Econobozo, what's this about?" Well, let me tell you, it started with a conversation from my good friend, and ace deflationist, (Dr.) Jas Jain (it's safe though - the doctorate is in digital signal processing). The phone call went something like this:
"Well..." I was stalling to get my bearings - realizing that Jas lives east of Los Angeles and that's close enough to La-La land that anything is possible, especially because the whole south half of the Golden state is built over the ancient river bed of De Nile, I finally got around to muttering "Er...sure, Jas!" after feigning academic thoughtfulness.
Jas then took me to task for my comments earlier this week in which I started to lay out some of the incongruities contained in the latest batch of "Good Times is Just Ahead" stats from the Bureau of It's All Goodness, often mistakenly called the Bureau of Economic Analysis by LameStream media.
"Ah.....well...er...yeah, I guess so...." Had me on that one. Balance of Trade, even if in unsafe toys and rotten shrimp, isn't going well and it keeps building...
What ensued was complex and somewhat at times erudite/academic discussion of the fine points of excess consumption, wherein we agreed that investment in future production such as capital expenditures in plant and equipment {slang: "Capex" among vulture capitalists trying to sound econohip} to improve production in the future is OK as its a form of savings. But, yeah, the rest gets papered over as new debt somewhere and Jas and I both being perma-bears don't see it happily. We've both read enough history, and participated in the old University of Colorado Longwave discussion group (along with greats like HH, BB, EvB, and SS), to know this kind of economic episode usually ends in either a dictatorship, revolution, of general economic collapse, point to (pick one) Germany of the 1930's, a French Revolution, or an American Great Depression #1.
Following that, Jas really got down to his point:
This was sounding way too simple and way too logical. So how does that apply to the housing bubble, I was thinking to myself.
A dandy conversation it was - but off in the background I was remembering a passage from "Hard Times: The Way In, the Way Out" by Robert T. Ely of Northwestern University. Our problem is on Page 36. The Answer on Page 37 from a 1931 economist's perspective:
I stand today in awe of Robert Ely's simple 1931 poignant view of construction then and what we modest call a Housing Bubble today. I'd give anything to see how such an honest economist would view today's headlines like "American Home Mortgage to close Friday: Report" and "Countrywide tries to sooth liquidity concerns - Mortgage Lender says it has almost $50-billion financing cushion available"
Jas' comments jilted me back to the here and now:
The worst thing we could see would be a flat-to-weak employment report. And that brings me to this morning's second headline...the employment numbers...
Employment Report: Flat |
