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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: bobby beara who wrote (49074)	5/2/2000 9:47:00 PM
From: John Madarasz	Read Replies (1) \| Respond to of 99985

Holy triple mortgage Von Bobanov... it's America's best kept secret. <g> This is starting to sound like Japan all over again... 216.46.231.211 During the past two years equity margin debt increased by almost $140 billion, to over $278 billion. Hardly a scintilla of attention was paid to this obvious sign of speculative excess until, of course, a spectacular drop in Internet stocks incited widespread trading losses and margin calls. After the fact, as is typically the case, the media jumped on the story, becoming quite attentive to the fact that so many were involved in what at the time was and should have been recognized as patently reckless use of credit. But why the attention only after the fact? Presently, as ebullient American homeowners watch their equity mushroom like never before - providing certainly no ?newsworthy? accounts of a rash of foreclosures - scant attention is paid to the continued egregious use of credit that has for some time fueled an historic real estate bubble. In fact, the enormous real estate bubble is today the best-kept secret in US finance and economics. Total household mortgage debt ended 1999 at more than $5 trillion. During just the past two years, household mortgage debt increased by almost $770 billion, or five and one-half times the increase in margin debt. During 1999 alone, $473 billion of new household mortgage debt was created, a 60% increase from 1998?s mortgage debt creation. 1999?s additional mortgage credit was almost double 1997?s $250 billion, and 150% greater than 1995?s $188 billion. At the same time, new housing starts during 1999 were only 3% above 1998, 13% greater than 1997 and 23% above 1995. Obviously, it is not the financing of new housing construction that is behind the unprecedented explosion in mortgage credit. Instead, this massive over-expansion of credit is feeding directly into inflated housing prices. Despite obvious signs of imbalances and desperately overheated markets, mortgage finance appears today more out of control than ever ? not an easy accomplishment considering recent historic excess! It is certainly our view that an enormous nationwide real estate bubble deserves considerable responsibility for the distorted and maladjusted white-hot economy. From yesterday?s report, we see that consumer spending surged at a rate of 8.3% during the first quarter, the strongest spending increase since coming out of the early 80?s recession. Additionally, the GDP report had growth surpassing 5% for three straight quarters, the first such occurrence since 1983/84. And with virtually no available workforce, and imbalances and bottlenecks having developed throughout, it should come as no surprise that inflationary pressures are now building rapidly. Indeed, after years of egregious credit excess and rampant asset inflation, inflation is now firmly manifesting in wages, as well as goods and services prices. Any doubt that this is the case should be laid to rest after yesterday?s first-quarter Employment Cost Index report, the largest increase in 10-years. Also yesterday, it was reported that the GDP deflator grew at the fastest pace in three years. When it comes to inflation in asset prices, and now wages, goods and services, it is certainly our belief that the current real estate bubble is grossly unappreciated in its momentous role in creating systemic money and credit excess. Last month the Seattle Times did an excellent exposition into the region?s real estate boom with a series of articles under the title, ?Stock-market wealth is driving a real-estate boom filled with bidding wars and multimillion dollar sales. Is this madness, our new reality, or WILL THE BUBBLE BURST? Pulled from this article, ?The 64-year-old brick and wood house in the regal Washington Park neighborhood has views to die for?The owner put it on the market last month for $1,695,000 ? more than double what the 3,080-sqaure-foot house had sold for five years earlier. But that price was way off. After a quick, intense bidding war, the owner is now waiting to close on an offer of more than $2,600,000 - $1 million over the asking price.? p.s. I thought you turned bully on us in the end of April, but now your beating up the new kids on the block ! I'm confused<ggg> and I'm taking my gold stocks and going home... You Remain, bearic von bobulation<ggg>

To: bobby beara who wrote (49074)	5/2/2000 10:44:00 PM
From: pater tenebrarum	Read Replies (3) \| Respond to of 99985

Bobby, i agree we have a cyclical inflation episode to go through...finally the enormous money creation by the Fed is beginning to affect the supply/demand picture sufficiently to have inflation spill over from assets into goods, services and wages, in spite of the ever larger looming trade deficit. this is probably due to the cyclical upswing in foreign economies exerting demand pull on everything...the CRB speaks for itself. i am not so sure however that the secular deflationary trend is really over...i think it has merely been postponed. eventually, the mountain of private sector debt awaits liquidation under unfavorable circumstances - at which point i'd expect the secular trend to re-assert itself. in the meantime, get ready for more inflation scares... regards, hb