CR, your normalcy bias which has been running pretty strong the past year has finally caught up with you. Housing is not only crashing a second time but the twin effects of a burst credit bubble and peak oil foretold such an outcome. Pretty easily. You have been tagging your posts, however, the past year with the view that the economy was recovering, and that a second leg down in housing would be mild. More broadly, I have noted that you never include the energy component in your outlook except as a small, marginal factor. It's not marginal. My work on California's economy over the past two years, which has looked at the growth in food stamp useage and the effects of high energy prices on a massive auto and highway complex has shown that California has not recovered at all. I'm surprised that you have leaned positive on the US economy, when housing and California remained in such sorry condition. The data on California employment is grim, and the benchmark revisions released Friday were eye-opening. It really does seem to escape you that we are not in a recession but a depression, and I don't know why you're so averse to such terminology. This is a textbook depression, in the sense that its a long cycle debt-deflation. No, it's not the Great Depression. Not yet, at least.
The built environment of the US--and especially California--combined with the enormous debt overhang and a new price regime for oil means that wages are now at a ceiling. Indeed, they have been at a ceiling for some time in real terms. The American house, in this situation, used to function as a call option on future wage growth. But if you take future wages growth away, that reprices the call option. This is what's happened, and will continue to happen to US housing.
In short, I think your habit of downplaying this situation in your commentary is no longer...playing.
Let's see you address California.
Best,
Gregor |
