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

To: TobagoJack who wrote (67732)	11/3/2010 2:00:18 AM
From: energyplay	1 Recommendation Read Replies (3) \| Respond to of 220023

I think that for the next 18 months - 2 years the Fed will be able to do some QE without much inflation, because the private sector will be paying down debt, thus erasing much of the money created. Also expect some sort of help for the banks on the foreclosure crisis. I would expect: 1) cheap loans to banks to buy back the bad paper they put out and at least two kinds of relief for homeowners - 2) an interest rate cut, sort refi with cheap money from the FED, 3) and a reduction in principal owed, with the forgiven principal (limited to maybe 30%, or $80,000 maximum) covered by another low interest loan from the FED, or the FED via another agency. There will be some tax treatment deal on the forgiven amount, possible letting it be spread over 5 -10 - 15 years or so. The extra tax burden would be very light for low income people, but would get some revenue from the higher income people. This tax burden would reduce the complaints about giving free money to those who abused the system. This will not really let the housing market hit market clearing prices, but would get some of the mortgage values closer to a realistic market price. It will also stop the huge foreclosure inventory from hitting the market. It will take another 2-3 years to get the distressed properties out of the good markets. The really bad markets - Las Vegas and Reno, Inland Empire & Central Valley California, much of Florida, Arizona and Detroit. Those markets are not fixable. They are also where most of the worst excess occurred, janitors stating $180,000 income to move into 5 bedroom house on an interest only no documentation loan. Except for Detroit, which has other issues. The bad places will be triaged.... I expect the policy in the bad areas will be to foreclose, and then get the best renters you, and/or sell to a landlord who then rents it out. Some of the neighborhoods will turn into artist's colonies, student neighborhoods, ethnic enclaves (all the Estonians can live here cheap !), and retirement centers (few jobs around most of these bad places anyway). And a bunch will become crime centers. Some will just be bulldozed, maybe turned back into farmland. So about 2 to 3 years out, there will some recovery in the housing sector of the economy, and the big homebuilders will start a few projects in selected areas - prosperous farming areas, oil and gas areas, low tax states like Texas, and other very specific projects. Beyond the next 6 months or so, de-leveraging of the private sector and households will continue, even after QE is stopped. Part of the recovery occurring world wide is a recovery from the sudden Lehman BK freeze, which stopped commerce all over the world. This recovery will continue, and we will see US employment slowly improve (and I do mean slowly) I would expect that two years from now, gold will be about 1800-2000 USD, but not 3000. Fed funds rate maybe 2.75 to 4.00 %, probably about 3.5 %. Headline unemployment (the published number) will be around 7 to 9 %, after excluding everyone who has "left the labor market". ****** A few years later, say 2014-2025, the US will face very strong demographic headwinds, and a strong temptation to inflate away problems. That temptation will continue for about 8-12 years. That's a long time to resist temptation. Much of the household and private sector debt will have been paid off, and the velocity of money will likely be much higher. I don't think the US blows up in the next 2 or 3 years, however.