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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Tommaso who wrote (27893)3/7/2005 3:07:02 AM
From: John Vosilla  Read Replies (3) of 110194
 
I really cannot imagine what is going to happen when several million people find themselves looking at negative equity in their real estate and facing mortgage payments that rise monthly with adjustments to the interest rate

I think much of what you say is right on about where we are headed. Unless we get a fast sharp up move in long term rates of at least a couple of percent it is hard to see a true cleansing of debt, sharp falloff in consumer confidence and deflation. Higher cap rates and thus lower prices for real estate do not come in a declining rate environment which also bails out those existing marginal owners with ARMS's as well as keeps the first time homebuyer in the game..

People forget (perhaps Mish?) that the debt that was wiped out from the S&L debacle of only a little more than a decade ago was perhaps even more deeper and broadbased than this next downturn might be. All commercial property including just about every shopping center and office building in this country lost over half its value. Residential property lost at least 35% in the most populated areas such as California, Texas and the northeast. This time I think the bubble is much more concentrated in certain residential areas and even more overpriced this time out but doesn't even include Texas or the majority of flyover country. Mish should explain to us why it was that we did no enter a deflationary period in the first half of the 1990's.

I believe we are still in the early stages of a rolling stagflationary depression. The 1970's meets the overleveraged US consumer and coastal bubble markets.
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