A thought to ponder Anyone?

My point was we owe more out to just a few countries than we will ever take in from our exports. It gets worse everyday. Sure we export our raw material to others who in turn manufacture goods with it and sell it back to us for 10 times what they paid us for it.

 

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Huh? We export over $1 Trillion worth of stuff per year. I don't have the exact figure for US debt held by China, Japan and Korea, but it can't be more than $2 Trillion. Anyway, why are you concerned about the ratio of export revenue to external debt?

Huh? US exports consists of stuff like airplanes, jet engines, turbines, microchips, industrial machinery, pharmaceuticals, chemicals, fertilizers, tractors, food and that sort of thing. And services; that's a big component of export revenue. Countries who export mainly raw materials include oil states, much of Africa, Canada, Brazil, etc. Certainly not the US.

 

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Part of "sub-prime" problem is that these mortgages were packaged together (for diversity/lower risk with same high yield) and thepackages repackaged etc and multipli resold and most ended up as "colateral" for loans so now no one is sure where the losses are and who is going to be stuck "holding the empty bag." Well, now we know:

Surprise! Surprise!
Oh, shucks, you guessed it.
That is right - you are. (assumoing you are a US tax payer) and it will not even require congress to pass some "domestic Bradie Bill." tghe FED will do it all for you and then you get to bail the FED out when the magnitude of the defaults is clear. (probably via inflation as they "monatize the bad collateral"):

"... Federal Reserve Bank of New York has affirmed its policy to consider accepting as collateral investment quality asset-backed commercial paper'' for discount-window loans, Andrew Williams, a spokesman for the bank in New York, said. ..."
FROM:
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahJj8F0ICjrM&refer=home

 

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Your ten months are not quite up yet, but here is some recent data that confirms my predictions and shows how wrong yours were:

" ... the housing market—was in even worse shape than many realised. The pace of new-home construction plunged in July while the backlog of existing unsold houses rose to a 16-year high. House prices have kept falling. According to the S&P Case-Shiller index, average prices in America's ten main cities fell by 4.1% in the year to June (see chart {in link only -it will not up load}).

A still-deepening housing bust left the economy vulnerable well before August's crunch. And that crunch has made the prospects for housing much worse. To see why, consider that the mortgage instruments that have disappeared, or become dramatically more expensive, account for more than half of all mortgages originated last year. They include subprime and Alt-A loans for the least creditworthy and ”jumbo” loans that are too big to be bought by the government-backed behemoths, Fannie Mae and Freddie Mac.

Not surprisingly, Wall Street's seers are chalking down their projections for construction and house prices. Economists at JPMorgan, for instance, now expect the pace of new-home building to fall by a further 30%, while they expect average house prices to tumble between 7.5% and 15% by the end of 2008. Jan Hatzius, an economist at Goldman Sachs, thinks that house prices could drop by between 15% and 30% over the next few years.

A construction bust will continue to drag down output growth. The bigger question is what effect double-digit house-price declines would have in a country where consumer debts have soared on the back of housing wealth. Optimists take comfort from consumers' resilience so far. That may be a mistake. Some 60% of people whose recent adjustable-rate mortgages reset next year, for instance, have less than 15% equity in their homes, suggesting double-digit price drops will bring far more financial distress. Problems are already emerging in other consumer debt (credit-card defaults, for instance, are rising), and lenders are likely to get tougher. Consumer spending will be crimped as homeowners feel poorer, particularly if stockmarkets continue to slide. ..."

FROM:
http://www.economist.com/finance/displaystory.cfm?story_id=9725698

 

"... Oct. 11 (Bloomberg) -- Countrywide Financial Corp., the largest U.S. mortgage company, said late payments at its servicing unit rose, foreclosures doubled and new loans fell 44 percent as housing sales slowed.
...
Countrywide's servicing business, which does billing and collections, serves as a barometer for current conditions in the mortgage industry. The company's report adds to evidence that the worst U.S. housing slump in 16 years is getting deeper. Nationwide foreclosures set a record in the second quarter, according to the Mortgage Bankers Association, and doubled in September from a year earlier, RealtyTrac Inc. reported today.

``The whole mortgage lending market is tightening very dramatically,'' Gary Gordon, an analyst in New York at Portales Partners. ``Home prices are falling, people have over-borrowed and employment growth is slowing. I'm convinced that we'll see that for the next three years.'' ..."
FROM:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHptyAhx_CSU&refer=home

SUMMARY:
Things are going much like I expected and predicted more than a year ago, but I still think that the central banks will crankout so much credit that he is wrong about it lasting three years more. By then the global economy will be well into the final "6L cycle" and not too many years from the run on the dollar that can not be stopped by cranking out even more of them. I.e that run quickly leads to deep depression, (stagflation type as Treasury prints dollars to payoff its bonds, which will not "roll" at any reasonable* interest rate.) in US and EU.

BTW, earlier today the DOW was less than 6% from hitting my predicted (several years ago) "flerting with 15,000" - that prediction was to come true prior to end of first quater of 2008 originally, but the way the dollar has been dropping in value, several months ago I shortened the window of the prediction to "the first 50 days of 2008." I am tempted to shorten it again, but that would be foolishly "cocky" so I will leave it as it is.

Today is 11th, thus 20 more in October. Nov + Dec gives 61 more for 81 in 2007 plus the 50 in 2008 for window of 131 days still for DOW to climb about 5%, mainly by the dollar dropping approximately that amount also (Dollar dropping was reason I predicted DOW would climb as it takes MORE of less valuable dollars to own the DOW stocks.)

I will consider coming within 2 or 3 % of 15,000 and falling back from that psychological level to be "Flerting with 15,000" - why only about 5% more climb is needed to fullfil my prediction.
Do you think my prediction will be accurate? If not, It will be first I have missed. My money is still on me,

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but who knows? :shrug: there are many factors that drive stock prices besides the dropping dollar. - If that were the only factor, it would be easy to predict as dollar will continue to go down, YoY, but with some yoyo movements.

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*I.e. a rate so high that it would do even more harm to the economy than the stagflation.

 

Ya ummm Billy, my money IS on you...where the hell do I put it???

 

ADRs apparently! lol

 

Did you predict this latest Sub prime problem a year ago?

 

Yes and No. I defintely noted several times that no established (not something new like the internet use, Google, etc.) sector of any economy could long grow at sevaral times the general rate of the economy. I specifically noted that the prices of home had been doing so for about a decade and that this was clearly unsustanable. I also noted that this false surge in values was very dangerous for the economy in general as many were refinancing while rates were low and SPENDING the monthly mortgage payment difference (due to both lower rate and often the pushing out of the mortage to again 30 years into the future.) All this was obvious to me then as it is to you now.

In the thread about rent or buy I also noted that renting would be better choice, from strickly economic POV.* (Because there was good chance, as has happened, that your house appreciation would be be negative and your mortgage could exceed your house value. - Some, with bad luck of losing a job etc. were already just walking away, AFTER SENDING THE BANK THE KEY.) For many younger, recent first-time buyers, what is happening did not seem to be possible in the USA - they are now learning the hard way (as are some of their banks, who should have known better).

To be honest, I did not know that the mortgage market had divisions like subprime, alt A, Prime, etc before "subprime" was in the news. Once every one knew about "subprime" most were saying that that is a small part of the market (even quadraphonics told me this). - That is why there is also a "no" part to my answer as you asked specifically about the "subprime" sector.
I could "smell the rotting fish" but did not know their name. Just as now I smell an unavoidable depression for all not supplying China is raw materials, energy and food stocks.

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:bawl:

I also pointed out that, except for the extremely expensive houses that are bought as they offer unlimited tax deduction (stupid US policy) to big income families, that there was "food chain" and almost all would be hurt. I.e. the owner of his starter home, purchased a decade or more ago with still good capital gain, can not "move up" as the mortgage for the buyer of his house can not get finacing etc. - all the way to near the top of this "food chain" - The "sharks at the top", especially under GWB, are not being hurt they can still deduct $50,000 of interest paid on the mortgage and that is why they bought their country estate, gold shower curtians, etc. (Fact that shower curtains or even light bulbs if installed by the builder are in your 30 year mortagae, is another stupidity of the tax laws, favoring the already rich - but do not expect any change soon.)

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*I even advised, in that thread I am almost sure, but in some thread, that the renter to sign a fixed-price, multi-year lease as rents were going up relative to home prices (when the correction hits) because while that correction was in progress, many would enter the renter group while waiting for the house price to come down. If they timed it correctly -buy later would be cheaper when their last year of the fixed rent was ending. - They could then easily sub-let at more than the rent - profiting both ways on the correction.

 

Countrywide's business was not only unsustainable on ordinary economic grounds, but fueled by what is probably criminal fraud.

This housing bubble, like the energy crisis in California a few years back, had deliberate arrangements behind it on top of the basic economic setup.

It isn't just mismanagement and failure to govern that is creating these messes - organized crime is a big factor.

The business model the Japanese had in mind, back before their lack of banking regulation tripped them, was China as factory, Europe as boutique, and the Americas as farm, with Japan as management.

Except for Japan as management, it seems to be working out.

 

How does "ORGANIZED CRIME" act? Is it making offers "you can not refuse"?

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Seriously, if you have any reason for saying this, I would like to hear what they might be (Other than rent a few houses to keep their "hookers" under covers or at least active in beds.) Hee, hee hee, all the way to the clap clinic*
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*For the benefit of the younger readers, That is an old fashion term for VD clinic.

PS and more on subject: Nice bar chart on various estimates of chance of recession in US at:
http://www.oxan.com/worldnextweek/2007-10-11/USRecessionrhubarb.aspx?WT.mc_id=TWNWads2&

All the way down from Merrill Lynch's "65% probable" to some at around 15% from some I never heard of. Lower end of the well known are "big Al"** Greenspan at 45% now and UBS and Moodies both at 40%

** Thought I would call him that again as few do anymore. let that be a lessen for you young whipper snappers - treat us old guys with some respect. Hee, hee hee, all the way to the bank.

 

I was thinking more of Enron than the Godfather.

But a simple google of Countrywide will turn up a growing number of investigations into various business practices not usually considered legal, and they are not alone in the field in that respect. The CEO cashed out with excellent timing, for example.

IIRC back in Reagan's S&L deregulation fiasco, a lot of the shenanigans were in real estate.

 

OK, I agree there are often dishonest people in corporations who take advantage of their postion to profit at the expense of at least the share holders and some times the employees who are not share holders (Kill the company, end their jobs etc. as in Enron, but that is not "organized crime" even when a dozen or so colaborate to effectively steal.) The current air bus insider trading now being investigated in France is probably an example of one very common means of doing this - It sent Martha Sweart to a country club prision in W.Va. recently. (Some criminals are "more equal than others")

 

The FED is trying but still losing ground:

13 October07: "... The dollar approached an all-time low against the euro on speculation the interest-rate advantage that U.S. securities hold over Europe debt will narrow.
The U.S. dollar fell against 13 of 16 most-actively traded currencies this week, and reached a 31-year low against Canada's dollar. A government report on Oct. 17 is forecast to show U.S. housing starts declined to the lowest in 12 years, adding to expectations the Federal Reserve may cut borrowing costs to prevent the economy from going into a recession. ..."

FROM:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aGNA27UjWZfU&refer=home

Also US Treasury is trying by:

"... Citigroup Inc. and JPMorgan Chase & Co. are leading a group of banks that are in talks with the U.S. Treasury about a plan to revive the asset-backed commercial paper market. Discussions over the past two weeks addressed Structured Investment Vehicles, units set up by banks to finance purchases of assets including subprime mortgage debt, said a government official and a banker with knowledge of the deliberations. Under one plan being considered by the banks, lenders would establish a fund of as much as $100 billion to buy assets from the SIVs ..."

{Guess who will pick up the tab, to protect these banks from the SIV losses - that is correct - Joe American's taxes will increase.}

FROM:
http://www.bloomberg.com/apps/news?pid=20601087&sid=al1pBplw2gaU&refer=home

I still think, as stated in post one of thread "Is today the start of the "perfect financial storm? (caused by the "6L cycle")" that they they will get the global economy thru the current crises, by starting the next "6L cycle," but that one ends in deep depression in US and EU as then printing more money will only make the confidence in the dollar completely fail in a run to get out.

 

Up date on the Treasury's efforts:

"Oct. 14 (Bloomberg) -- Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. will announce as soon as tomorrow that they are establishing a fund of about $80 billion aimed at reviving the asset-backed commercial paper market, said people familiar with the plan.

The fund, to which other firms will probably contribute, will buy some assets from Structured Investment Vehicles, or SIVs, the people said. SIVs are units set up by banks to finance purchases of assets including subprime mortgage debt. ...Treasury Secretary Henry Paulson, a former chief executive officer of Goldman Sachs Group Inc., also made calls.

``Paulson definitely has the cachet to bring everyone to the table, because of his long experience on Wall Street,'' said Joe Mason, associate professor of business at Drexel University in Philadelphia and a former financial economist at the Treasury's Office of the Comptroller of the Currency.

The fund would help SIVs, which own $320 billion of assets, avoid selling their holdings at fire-sale prices, further roiling the credit markets. ... Fed officials have said this month that while there are signs of improvement, some markets remain under stress.

``Some markets have been experiencing illiquidity,'' San Francisco Fed President Janet Yellen said in an Oct. 9 speech in Los Angeles, referring to mortgage-backed securities and asset- backed commercial paper. ``This illiquidity has become an enormous problem for companies that specialize in originating mortgages and then bundling them to sell as securities.'' ..."

{Billy T comment: Ain't that bold text a fancy way to say: "bank BANKRUPCIES"? Joe American will be happy to pick up their "foolishness losses" in his taxes.
Joe would not want any bank or it subsideraries to get hurt, I am sure.

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Now they can feel free to do it all again in the next "6L cycle." - To hell with "moral hazzards." - Get those printing press ready, well oiled up and get a good supply of the special bond paper ordered, we are going to need a lot more new dollars near the end of the new 6L cycle now under way.}

Quote above from:
http://www.bloomberg.com/apps/news?pid=20601087&sid=asyX8HjRCE34&refer=home

 

Forbe's report on the Treasury bank negotiation is at:

http://www.forbes.com/2007/10/13/ba...pm_1013citicorp.html?partner=daily_newsletter

but not much different from the post 316's up date. It did however state:

"... Citicorp, which invented the SIV in the 1980s, has seven such funds with $100 billion in assets. It has warned shareholders that third-quarter profits would fall 60% thanks to $5.9 billion in charges and losses from the late-summer market rout and which has led to a shake-up at the bank's top management. ..."

I wonder if Quadraphonics still thinks there is no need for concern as the sub-primes mortgages are such a small fraction of the mortgage market and only a small fraction of them are in default?

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For the latest fall-out on this (in Asia, even) see:

http://www.bloomberg.com/apps/news?pid=20601087&sid=ajC0LVTMrCF4&refer=home

Quad also ridiculed my suggestion that $100/ barrel oil would appear any time in the forseable future. Well one dose not need to have great long distant vision as it is now at $86/ barrel (16% increase still to go.) see:

http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aHoS5p90QflU

 

Who? (the US mint?) Why (sounds like it)? Please be more clear what you are speaking about.

 

"... America growth is already fading. In Britain and the euro zone it may also be scaled down, partly by weakening exports and partly by tighter credit conditions. Japan's economy has stuttered all on its own. The great hope is that the fast-growing emerging economies, notably China, are strong enough to come to the rescue. This year for the first time China alone will contribute more to global GDP growth than America, even if the American economy does not slow. ..."
From:
http://www.economist.com/specialreports/displaystory.cfm?story_id=9972568