Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Lazarus_Long who wrote (25070)	11/11/2007 6:02:10 PM
From: abuelita	Respond to of 217764

laz- perhaps it's a start and maybe a good one. under pressure people tend to become very creative and resilient and begin to work together. it won't hurt. -rose

To: Lazarus_Long who wrote (25070)	11/12/2007 2:53:51 AM
From: elmatador	Read Replies (2) \| Respond to of 217764

housing crisis, credit crisis, now the US consumer confidence crisis. It is time to admit that the US economy is headed for a serious economic downturn Aftershocks make the credit crisis rumble on By Wolfgang Munchau Published: November 11 2007 17:51 \| Last updated: November 11 2007 17:51 After the housing crisis and the credit crisis, now comes the US consumer confidence crisis. It is time to admit that the US economy is headed for a serious economic downturn – much bigger than suggested by the central bankers’ euphemism when they talk about “downside risks to growth”. The world economy can now look forward to confronting four ugly and partly interrelated shocks at the same time: a US economy heading for the rocks, a rise in global inflation, a collapse in the dollar’s exchange rate and a credit market crisis. I was a pessimist on the severity of the credit crisis from the outset, but events turned out even worse. I would now expect the time horizon of this financial crisis to be measured in years rather than in weeks or months. My own guess is that we are about 10 per cent through this, in terms of timing, less than 10 per cent in terms of costs to the financial sector, and much less in terms of the macroeconomic impact. The reason why this crisis is so nasty has to do with the deep inter-linkages within the credit market, and between the credit market and the real economy. Take, for example, a synthetic collateralised debt obligation, one of the most complicated financial instruments ever invented. It consists of a couple of credit default swaps, credit linked notes, total return swaps, all jointly connected in a wiring diagram that looks as though the structure was about to explode. And, as many people with credit cards and housing debt in the US know, the linkages between the credit market and the real economy are only too real. The credit crisis affects the world economy asymmetrically. The Anglosphere is harder hit than the rest of the world. The eurozone and Asia are much less dependent on consumer credit for economic growth. And, despite some spectacular early examples to the contrary, the eurozone banking system is holding up surprisingly well. For example, Deutsche Bank said last week that there would be no further subprime-related write-offs. The French banks are also in relatively good shape. So one should expect the credit-related economic downturn to be much harder in the US than in the eurozone, where it probably follows on eventually, but with some delay. One of the most important adjustment mechanisms is the dollar’s exchange rate. The euro is now closing in on $1.50. No matter whether you are looking at global monetary policy or at US growth forecasts, inflation or other technical factors, there is not much left to support the dollar. Avinash Persaud, a well-known foreign-exchange expert, believes that the euro will go up to $1.70. I am not sure about the exact magnitude, but would certainly agree about the direction. The only factor that could mitigate, or even prevent, an outright recession in the US is a very sharp further fall in the dollar. What turns a spanner into this adjustment mechanism is the rise in global inflation. The big question is not whether the economic downturn or the rise in inflation currently poses the bigger threat. The really troubling question is whether both can happen at the same time. Unless there is a steep fall in oil and food prices soon, there is a strong possibility of stagflation in the US next year. In such a situation, there are no easy policy choices. Monetary policy will probably not be able to support the economy in the way it did in past recessions. Even a further decline in the dollar might not do the trick. When the recession finally strikes, corporate and private bankruptcies would almost certainly start to rise, which may well trigger the next crisis in the credit market. How will this adjustment process end? There are several possibilities. The best outcome would be a symmetric slowdown in global economic growth – enough to take pressure off global inflation, but not big enough to do any damage – plus a gradual slide of the dollar, ideally against the currencies of countries with a high current-account surplus with the US. If you are an optimist, stick with this scenario. A less benign scenario would be an economic implosion in China, where annual inflation has gone up from around 2 per cent at the beginning of the year to more than 6 per cent in September and October. Unless China starts to revalue the renminbi, Chinese inflation may well go through the roof and do real damage. When that happens, the world could be a little less flat for a while. Another possibility would be a devaluation-cum-inflation scenario in the US, with the euro at $2 and the pound at $3. Such an extreme devaluation in the dollar might well be accompanied by a permanent rise in US inflation. This could lead to extreme shifts of global trade and financial flows, and most policymakers would probably want to avoid this. I would not bet any hard currency on it. There are undoubtedly many other adjustment scenarios, all difficult to pin down, given the prevailing uncertainties. The various adjustments will have to happen in any case, so it is probably better for them to happen now. In a couple of years, it will be over. The bad news is that this is an environment in which it is easy for policymakers to make mistakes – and some probably will.

To: Lazarus_Long who wrote (25070)	11/12/2007 1:48:03 PM
From: Ilaine	Read Replies (2) \| Respond to of 217764

A way out of the mortgage mess? Just speaking from personal experience, I am not seeing a "mortgage mess" for ordinary people like you and me. I am seeing a "mortgage mess" for people who made crazy choices during the blow-off top of the housing bubble, that is to say, 2006. I am seeing (1) people who put no money down on a new, interest only, variable rate home loan on a very expensive house, and now have negative equity, or (2) people who cashed out all their equity in 2006 to "consolidate their debt", or remodel their kitchens with granite counter tops, etc., so they own fancy cars free and clear, no credit card debt, gorgeous kitchens, and negative equity. Neither category can refinance, due to negative equity. The only thing that can save them is if they can bring cash to the refinance table, get a much lower interest rate, and have a high enough income to keep making payments. Borrowing money to make the mortgage payments on a house with negative equity makes zero financial sense, especially since housing prices continue to drop. They have the following economic choices: pay $1000-$1500 a month for an apartment; pay $1500-$2000 a month for a house, or pay $4000-$5000 for the mortgage on a house whose FMV continues to drop. I am looking on the bright side. Housing is becoming affordable again. Yes, housing prices will continue to drop. Yes, we are going to have a recession. How long and how deep is anybody's guess. So, would I advise someone to take on more debt to stave off the inevitable? No, I'd advise them to rent, save their money, and wait.