The Darkest Storm is About to Descend - You Can't Imagine the Carnage

the OP may have been a little dramatic in his description but the main point is solid I think.

Often industry insiders know stuff long before it becomes media discussion. One street banker opined to me about 18 months ago that neither Bear nor Lehman could could survive as independent entities and he had a detailed argument about their balance sheet. All public info, but the smart money knows first. The top New York law firms are often good sources of whats happening behind the scenes because of their tight working relationship with the banks.

When the Savings and Loan debacle and see-through office building bust happened, securitization and off-balance sheet financing barely existed. The 50+ trillion dollar (notional amount) CDS market didn't exist either.

Fannie and Freddie stepped in (massively) during the past 15 years and up to to provide credit to borrowers where the S&L's once did making that credit crunch temporary by taking approx 50% market share of the entire residential mortgage market. Note that their debt is "off balance sheet" too. If it were recorded properly our national would almost double.

The credit contraction this time around is on a much bigger scale. The commercial real estate shoe has yet to really fall as it had its version of no money down 100% too. Oh sure, the loans were made at 80% of "value", appraised value that is that magically was always way higher than acquisition price (I know a thing or 2 about that market). Now these loans need to be refi'd and there's no equity and there will be no "save the commercial real estate victims" plan from Washington.

Relevance to trading? Plenty if you trade currencies, REIT stocks, retail stocks, financials etc. etc..
 
Quote from ElCubano:

Im afraid we gots lots to go around these here parts...Ugly isnt here yet IMO....so while its nothing new housing is going down...it going to be a surprise to see the magnitude when its all said and done...Cranes as far as the eye can see...just like we were in awe when it went up...we aint there on the other direction yet...people are going to start jumping off them overpriced boxes in the sky...:D
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I've been with you but I'll tell you why the worst is probably over in SoFla.

It's all about competing markets.

Take a look at condo prices in L.A. Or Chicago. Let's not even talk about NYC. Even Brazil has beachfront condos trading at higher prices than SoFla.

Displaced Angelenos are ignoring the humidity and buying in Miami. 55 year olds on the Westside of L.A. or in suburban Boston are figuring out "hey I can sell my place for 700k take 300k of it and buy a place in Miami and now have 400k to live on." Just like in stocks-spreaders move markets. Value after all is relative.

Remember when we used to think those empty units on Brickell would produce unheard of cheap rents? It's not happening. Why? For the same reasons. If you're a 30 year old kid from Jersey who's locked out of the high paying Northern job market and it's corresponding high rents, you'll instead move to SoFla.

Except for next to the ghetto or in the middle of no where housing-there really hasn't been a crash. Just because a 1br in SoBe went from a bubblesque 500k to a still ridiculous 340k isn't what I call a bust. It's a correction. Just like L.A. from 89-93. chicago has barely downticked. (if at all)

The risk going forward is INFLATION. Period. Those who're washed out of the housing market on this break may NEVER be able to afford buying again.

Edit: I made 4k while I was writing this post. :) WTF happened?
 
The spine of housing has been broken. Just like stocks, when the spine of anything is in momo mode is broken then it will just keep falling and then lurk around in a tight range for years never ever getting back to the original price. Look at CSCO, YHOO, etc. have those ever been back to their 2000 highs? No they will not.

I predict housing will fall to a point where it will consolidate and sell in a tight range for many years. Not just a few years, but I say decades. Price will lurk and troll at a fraction of 2006 highs perhaps for 20 or more years.
 
Port1385:
I predict housing will fall to a point where it will consolidate and sell in a tight range for many years. Not just a few years, but I say decades.
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I'm on that train. I was just telling someone that if we ever move the only way we would buy a house is if we planned to keep it in the family for generations to come because we will never get our money back out of it. They thought I was crazy.

I am far from a doom and gloom type as I am a strong believer in American ingenuity and flexibility, but I think we have a huge problem that the general public doesn't quite understand yet. As long as the US Gov. keeps trying to provide back stops it is only going to get worse.

The other thought, move out of the US and become a citizen of a more fiscally responsible country.
 
Quote from Pa(b)st Prime:


The risk going forward is INFLATION. Period.
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What does it take to create deflation?clearly money printing is not a silver bullet to get out of that as the japanese has proven, so the dollar slides and import prices go up, so what, m1 and m2 are low, the banks are cutting back and assets are bursting everywhere. I mean seriously is it really necessary for C or Wachovia be taken over by the FDIC for some of you guys concede that it isnt a one way trade like that?
 
Quote from Daal:

What does it take to create deflation?clearly money printing is not a silver bullet to get out of that as the japanese has proven, so the dollar slides and import prices go up, so what, m1 and m2 are low, the banks are cutting back and assets are bursting everywhere. I mean seriously is it really necessary for C or Wachovia be taken over by the FDIC for some of you guys concede that it isnt a one way trade like that?
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If you think housing in Toyko is deflationary then you and I are using quite different yardsticks:

"In Tokyo, Japan, in the Shibuya neighborhood (which is the equivalent of the upper East side in New York), you'd pay an average of $1.84 million for a 1,450 square foot two-bedroom condominium. In Hong Kong, in an area called the Peak, you'd pay $1.7 million for a home the same size.

In New York, on Fifth Avenue, you'd pay just $1.3 million for a slightly larger two-bedroom apartment. In the Pacific Heights neighborhood, in San Francisco, you'd pay only $900,000 for the same apartment.

According to the Corcoran Group, the top ten most expensive cities in the world, by price per square foot, are: Toyko, Japan ($1,271 per square foot); Hong Kong, China ($1,220); London, England ($1,101); Singapore ($906); New York ($890); Kobe, Japan ($884); Sydney, Australia ($839); Stockholm, Sweden ($753); Paris, France ($700); and Zurich, Switzerland ($667)."
 
Quote from Daal:

I mean seriously is it really necessary for C or Wachovia be taken over by the FDIC for some of you guys concede that it isnt a one way trade like that?
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Were there a couple of MAJOR bank failures in the early 1970's. Sure were. Irving Trust was one of the biggest banks in the U.S.

Was Irvings failure in an a deflationary period? Yea. It lasted about a year before inflation took off once more.
 
Quote from Port1385:



I predict housing will fall to a point where it will consolidate and sell in a tight range for many years. Not just a few years, but I say decades. Price will lurk and troll at a fraction of 2006 highs perhaps for 20 or more years.
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Agree, I think once housing finds a bottom its going to take many years before it even starts to rebound, I dont think we will revisit another housing boom for many decades, with the millions of houses in foreclosure its going to take a really long time before this situation turns around. Everyone thinks this is the 1988-1992 housing situation where a bottom is found and back up we go, no no no, this time is different, I think we will see housing prices on average fall another 20-30% over the next 2-3 years. I dont think we see rising prices for at least 10 years.
 
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