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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: ChanceIs who wrote (196784)	4/18/2009 8:56:41 AM
From: ChanceIs	Read Replies (2) \| Respond to of 306849

RE: Comments on the Hassett/Fed's Flood Article I have seen Hassett speak several times. He coauthored "DOW 36K with Jeremy Siegel -and has gotten more than a little grief since the DOW retreated into the 6K region. Several observations on Hassett and economists in general: 1) It has become axiomatic that the government needs to intervene in a radical fashion to buy assets and support prices. Hence Hassett's comment: It might be that voters are too stupid to understand that government officials should get as much bailout money as they desire. The financial rescue might have been precisely what the doctor ordered. I think that the cat is out of the bag....the toothpaste is out of the tube. Investors and financial managers know that the banks hold a lot of very questionable assets which secure their loans and hence capital ratios/leverage. That isn't going to change. The only unknowns are: 1) whether the Fed will remove the assets (directly or through the PIPP), at what price, and/or prop up housing prices - an indirect way to prop up the toxic debt and/or bank balance sheets, and 2) how much of the bag will the bank bond holders hold, and how much will the taxpayer hold. 2) I again doubt whether the government can be effective in propping up house prices. Here too the cat is out of the bag. The magic of permanently rising house prices is gone. It has become socially acceptable to walk on underwater mortgages, if not a sign of stupidity to not do so. Then there is the little matter of unemployment. Throw in the fear factor and anticipation of yet lower prices, and there aren't too many buyers. Oh. Throw in rising mortgage rates. Unless the government starts giving houses away, I don't see a lot of new owners/price support. Oh. Then there is the new house/inventory overhang. 3) I have to wonder if in fact we will be experiencing inflation. The notion of printing followed by inflation is also axiomatic. I reason that there are two forms of money: 10 that which the Fed prints, and 2) that which banks create through fractional reserve lending. I think it the second kind that represents a real contraction in the money supply. Are bank car loans any good any more??? We are discovering that cars as well as houses were enormously over priced. Why??? Supply and demand. How about credit card purchases? The security behind them - J6P's balance sheet is laughable collateral. Wages? Supply and demand. So I see all of these minor bank loans going bad and requiring more forced liquidation....at Macy's where nobody will buy existing inventory, at used car/repossession lots, at retail space/rents and in commercial RE. The Fed prints and the fractional reserve lending contracts. I don't know where the balance lies. 4) When the Fed starts to dump its Treasuries to damp inflation, why wouldn't the Chinese want to front run them buy dumping their US Treasuries first to secure a higher market price. The Chinese seem to be morphing to copper as a reserve asset - in lieu of the increasingly worthless greenback. As a corollary, consider that the Chinese might solve our inflation for us - by selling these same Treasuries, and maybe the Fed won't dump. What are the implications of the Fed holding a mountain of Treasuries?? I will have to think, but at a minimum, they will be printing a lot more money just to pay the interest. Remember that the rest of the government will be selling Treasuries at enormous levels to fund the record federal deficits. 5) I am sickened and pleased that Obama is maintaining/escalating the wars. Sickened in the sense that we continue to throw good after bad. Pleased in that I called this. Wars are stimulative as hell, and I figure that he figures that after all the flowery campaign talk, he knows that he dare not "destimulate" in that arena. There is talk of shovel ready projects. There really aren't any to speak of. The highway system will be overwhelmed with cash Perhaps 20X their normal maintenance budgets. 6) I heard yesterday, that the amount of money to be spent on energy projects is 5X the Manhattan project. (This comment really belongs in #6 above, but I wanted to emphasize.) Most of that will be money down a rat hole. 7) I think that Hassett is spot on about democracy being severely undermined. Increasingly the government is assuming management control of all industry. Can the car czar really manage Detroit??? Hey!! All they needed was about $20 billion in December, and everything would be rosy. Oh. Include automobile factories in asset price deflation/forced selling. I was blessed by never having taken too much economics. All of those cats are bought into the mantra that we really need to take action to prevent a total collapse (cat is already out of the bag), and that printing will solve everything. I see zombie nation and a Japanese lost decade on these shores.