Please vote in this poll using the sidebar.
Do you think the Dow Jones will drop below 10,000 in the next year?
- Yes (42%, 74 Votes)
- No (58%, 101 Votes)
Total Voters: 175
This poll will be active and displayed on the sidebar through 06.14.2008.
Poll: Do you think the Dow Jones will drop below 10,000 in the next year?
By The Tim on June 8th, 2008 at 12:05 AM · 62 Comments
This poll will be active and displayed on the sidebar through 06.14.2008.
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Chris » Jun 8, 2008 at 2:15 pm
Given that the DJIA has already dropped off its peak of 14,000 last October, I think its unlikely that it will fall further. I wouldn’t be shocked if it hit 10K either, but there are too many large, well diversified, global companies incorporated into it. That said, I don’t think its going to hit 14K again for a while.
b » Jun 8, 2008 at 5:25 pm
It most certainly will drop. Typical bear markets suggest it will likely end up 30-40% down by the end of it. The 2001 recession was slightly different because the DJIA did not decline very much, but the NASDAQ declines nearly 60%. Since the DJIA is composed of a lot of financial and consumer corporations right now I think we can expect it to decline more than the NASDAQ this time around, and will likely hit in the 8-9k rage, based on its 14k peak, before a new bull market forms. When this will be is highly determined by how the recession plays out and if the Fed et. al. can prevent further financial companies from collapsing.
softwarengineer » Jun 8, 2008 at 7:22 pm
$45,000 FOR BOTTOM PRICE LINE KIAS AND HYUNDAIS
That’s what continued dollar devaluation will do.
The good news, $15,000 Chevys and Fords will look cheap.
Ray Pepper » Jun 8, 2008 at 8:03 pm
Absolutely Not!
dogwood » Jun 8, 2008 at 9:29 pm
To see what a real estate implosion can do to a major index, check out the Nikkei. It dropped half of its value within 2 years of the peak and kept dropping for 11 more years after that. But we’re different, right?
Unfortunately, yes – as a nation, we’ve got a negative personal savings rate, a war bleeding us dry, two-tiered educational and healthcare systems, and a vanishing manufacturing base. Remind me again what makes the US immune to macroeconomic forces?
Ira Sacharoff » Jun 8, 2008 at 9:41 pm
I’m expecting a decline in the Dow, but I don’t think it’ll go as low as 10,000. Maybe 11-11.5.
Attention Deficit Disorder » Jun 8, 2008 at 9:43 pm
Not related to the poll but awesome:
http://www.newsweek.com/id/140553
” Lawrence Yun, chief economist at the National Association of Realtors, tells NEWSWEEK that “home sales and prices in most of the country will improve during the second half of 2008.” (Yun is the Little Orphan Annie of forecasters. He’s always sure the sun will come out tomorrow.)”
Scotsman » Jun 9, 2008 at 2:52 am
Under 10,000 seems a bit harsh- it will look like a buying opportunity to too many. But something under 11,000 seems almost a certainty.
Shane » Jun 9, 2008 at 6:30 am
Voted no. While I’m expecting a drop over the next year I don’t think we’ll hit 10K. Could be close though.
Sniglet » Jun 9, 2008 at 7:54 am
A 30% drop (or more) is typical in recessions. The DJIA isn’t down by even 20% so I don’t see how it would be much of a stretch at all to go below 10,000 in the next year.
The only thing, in my view, that would negate a drop below 10,000 would be if we never actually did have a recession, and that it turns out we have already “hit” bottom in the credit crunch. However, I give this likelihood a low propability. It boggles the mind to think that we can perpetually avoid any serious recessions. In fact, I would become EXTREMELY pessimistic about the future if the government is somehow able to inflate us out of our current downturn. Look what happened to the last recession bail-out in 2001/2001? All the easy credit pumped into the global economy just blew asset bubbles which led to our current mess.
At some point we have to let the economy purge itself or we are setting ourselves up for something MUCH nastier.
In short, let’s all pray that dow drops below 10,000 shortly. If it doesn’t, we are liable to see some sort of economic catastrophe years from now.
deejayoh » Jun 9, 2008 at 8:43 am
Well. that’s just plain wrong. Next time, before you post, spend 30 seconds on google and find the actual facts. Took me all of two searches. and I even handicapped myself by using Live!.
How the Dow has fared during recessions – and the year following those recessions.
Tempting though it may be to give into the gloom, January isn’t a foolproof predictor of things to come. The five worst January swoons since 1926 led to an average gain of 12.3% over the following 12 months and 26% over the next 24 months.
Dates Change in Dow during recession: Change in Dow one year after: Comments
August 1929 to March 1933 -84.20%
81.07%
In the depths of the Depression in the winter of 1933 folks had a hard time believing that spring, and a recovering economy, were around the corner.
May 1937 to
June 1938 -23.18
-2.43
In the midst of this recession the stock exchange floor on Wall Street was still busy, with traders in the pits and telephone men on the right, receiving orders to buy and sell.
February 1945 to October 1945 21.33%
-9.35%
The bombing of Hiroshima presaged the end of World War II but the U.S. economy was mired in recession even as the stock market continued to rise.
November 1948 to October 1949 -0.12%
18.71%
Staggered by the death of Roosevelt, the country welcomes President Harry S. Truman at his inauguration in the midst of another recession.
July 1953 to
May 1954 21.57%
29.73%
Amidst the international strife and domestic stresses of the early 1950s, the country continued to have confidence in progress-both in the economy and society. Here, Nathaniel Steward, 17, recites his lesson at the Saint-Dominique school, in Washington in 1954 after the Brown v. Board of Education decision outlawed segregation in state schools.
August 1957 to April 1958 -9.95%
36.83%
The shock of the Sputnik launch, the world’s first man-made satellite, in October 1957 drove the U.S. out of its economic doldrums as it raced to compete around the world and in space.
April 1960 to February 1961 7.48%
6.94%
The promise of a new president seemed to lift the economy out of recession.
December 1969 to November 1970 -1.36%
4.69%
While the U.S. ecoonomy had heartburn, China was recovering from the dislocations of the Cultural Revolution which was directed against those “party leaders in authority taking the capitalist road.”
November 1973 to March 1975 -19.04%
30.11%
The economy shrank under the shadow of Watergate and picked up quickly after the U.S. withdrawal from Vietnam.
January 1980 to July 1980 11.51%
1.92%
Reagan’s magical “Morning in America” theme helped keep markets moving up even though the nation was in recession.
July 1981 to November 1982 7.40%
22.78%
War in Lebanon prompted the U.S. to send peacekeeping troops, but the market continued to climb even though many sectors of the economy were hit hard by recession.
July 1990 to March 1991 1.15%
11.04%
Despite the quick victory in the first Gulf War the lagging economy continued to be on people’s minds-contributing heavily to Bill Clinton’s presidential victory.
March 2001 to November 2001 -5.73%
-9.70%
In an effort to bring the country out of recession, the U.S. government sent out 92 million tax rebate checks over 10 weeks as part of the Bush recovery plan. A year after the economy had begun to recover as markets continued in decline.
Source: BusinessWeek
deejayoh » Jun 9, 2008 at 9:02 am
ooh. maybe that was bit harsh. sorry, hadn’t had my coffee yet!
Ray Pepper » Jun 9, 2008 at 9:05 am
The brilliance of the World Savings founders to sell World to Wachovia at the high was remarkable. As a long time client of World I was fascinated when the merger was announced. Their track record was impeccable for decades.
At that very moment the shorting of WB should have been initiated. There was no reason for World to sell at the time. WB longs were upset at the merger taking on a large # of option arms and the stock sold off 3.00 to 61.00. Now WB trades at 19.00.
Someone get these OLD WORLD CEO”s in for a 60 minute interview. Their track record for decades was impeccable. In the end they called it quits at the very highs. **BRILLIANCE** It will be the BEST in Business Journalism.
Ray Pepper
Broker
http://www.500Realty.net
Sniglet » Jun 9, 2008 at 9:41 am
No problem. Thanks for setting me straight. I was certainly getting a little carried away. Nevertheless, looking at Deejayoh’s numbers it certainly looks as if 20% is not out of line, and even 30% is possible. I also still firmly believe that the recession we are headed to will be more severe than the ones of recent memory, since there is MUCH more mal-investment to clear out. According to that theory I think we should expect a bigger hit to stocks than the most recent recessions have seen.
Markor » Jun 9, 2008 at 9:46 am
But we needed to bring
democracyour own brand of dictatorship to Iraq!Inflation will factor greatly into where the DJIA is headed. It could be 20,000 five years from now, but be less than today’s value after adjusting for inflation. I doubt it will drop below 10,000 in the next year.
Brian » Jun 9, 2008 at 9:59 am
Wow, for the near 50% that actually voted that it will, put your money where your mouth is, and go into bonds and cash, or buy some put options?
Not ready to do that? Then you should have voted No.
No way it’s going to fall that low.
Jonny » Jun 9, 2008 at 10:03 am
I personally think a better question is whether it will go below 8000 when you consider inflation adjustment.
deejayoh » Jun 9, 2008 at 10:11 am
Interesting point I saw today in one of the newsletters I subscribe to. The gulf states are literally awash in cash. They are getting tens of billions of dollars a week with oil prices as high as they are. More money than their investment managers can even begin to think about how to invest. That money is going to have to go somewhere. Where do you think it will go? I think its reasonable that a good portion of it will go into equities.
Sometimes things are not as straightforward as they seem.
Alan » Jun 9, 2008 at 1:18 pm
Why does this sound like an echo of the housing market bulls last summer?
Bits_of_Real_Panther » Jun 9, 2008 at 1:19 pm
“That money is going to have to go somewhere. Where do you think it will go?”
Seattle real estate!
b » Jun 9, 2008 at 3:31 pm
Brian -
I did do that. I cashed out of the market in my 401k and went into the safest vehicles possible right around peak of the market. Saved myself the 15% or so its dropped since then, how is your 401k faring since the peak? I am also holding a small amount of short ETFs, but mainly just as play money. Do you really think we are not entering a bear market? Seen the write downs on financials lately? The next time one of them goes boom, the Fed bailout (if it occurs) will not matter and equities will be slaughtered.
b » Jun 9, 2008 at 3:33 pm
deejayoh -
If the dollar wasn’t dropping I would agree with you. However, they can seek much better returns than current US equities will provide when compared against dollar strength. There are plenty of places outside of the US to invest these days. Just wait for some of the SWF’s who bought into the big financials to get burned, that money will dry up very quickly when they realize Wall St. sees them as dumb money.
deejayoh » Jun 9, 2008 at 3:57 pm
I’m betting the dollar will be back – at least against the euro – in the next 6-9 months. I don’t think that the EU economy is fundamentally any stronger than ours,
I also think that the ECB’s ability to dictate monetary policy is probably weaker than the Feds. Right now it is straight interest rate arb that is killing the dollar. But sooner or later you are going to see some of the weaker economies threatening to leave the Euro behind (think Spain) and they will cave on interest rates.
Nolaguy » Jun 9, 2008 at 6:08 pm
Brian,
Like B, I too cashed out my 401k – just last month. I’m in treasuries with a bit in ultra-short ETF’s.
Did you guys see bernanke’s speech today? He’s hinting that he’s going to raise rates… Historically, the market doesn’t go up when that happens – but bonds do…
Joel » Jun 9, 2008 at 7:47 pm
IRA in cash, 401k in the safest investment possible (some MM fund) and I bought XLF puts near the close on Thursday. That good enough for you?
Eleua » Jun 9, 2008 at 9:40 pm
I don’t see why a historically overpriced stock market would hold above the 10K level. I think Japan’s market, as well as our own in the 30s might be a guide.
My target is the 6000s with sub-5K being possible.
How long? Anyone’s guess.
Keep in mind that the Boomers’ stock portfolios are all in the same 600 stocks. Once their McMansion goes for 30c on the dollar, I can’t imagine that they will stick around to see if their stock portfolios will hold up any better.
Panic now. Beat the rush.
Ivan » Jun 11, 2008 at 10:36 pm
One thing I wanted to point out about deejayoh’s posting about recoveries after recessions is that a large percentage recovery isn’t actually all that great, especially after big drops. For example: – 80% and then + 80% … approximately the great depression as listed. Well, that means 0.2 * 1.8 = .36, so still a decline of 64 percent. Simple math that a lot of people overlook.
One thing I’d like is input on whether boomers cashing out their portfolios at the same time will significantly affect the market. Do you think our growing population or overseas investment be enough to offset / make up for this investment?
Eleua » Jun 12, 2008 at 12:36 am
No.
A growing population may not be in our future. If the economic output in the developing world is stunted by a severe recession in the G-8 (sans China), then it is quite possible that world population will start to decrease.
If the US has a recession/depression people will not want to invest in the US.
Remember what you are asking. You are asking that someone else become the bagholder for the US economy, when their own economy already is the bagholder for US import demand. They would have to eat two helpings of whatever is on the menu.
This is the same conundrum that the Boomers face with their homes. They are PEAK demand. How, exactly, were a smaller and poorer group of GenXers supposed to buy out the Boomers in a fashion that would allow all of them to retire? The Boomers’ exit strategy never penciled-out.
We live in a credit economy. There isn’t a fixed amount of dollars that needs to go somewhere. When that economy starts to reverse, the money is simply destroyed. China and Japan are going to be wondering where the next bowl of rice is coming from. The last thing they are going to want is a few shares of GOOG, RIMM, AAPL, CAT, JWN, etc.
What you are seeing at your real estate agent’s office, and on Wall Street is the realization that an entire generation can’t simply “own” its way to wealth. At some point, there has to be sustainable production.
biliruben » Jun 12, 2008 at 1:32 am
[i]Once their McMansion goes for 30c on the dollar, I can’t imagine that they will stick around to see if their stock portfolios will hold up any better.[/i]
Sheeeeeeeet, Eleua. THIRTY cents?!? I thought it was 20 cents. I was going to post something just for you quoting land in the central valley of Cali going for 20 cents on the dollar, but now that you are waffling, I’m not going to bother.
Color me disappointed.
Eleua » Jun 12, 2008 at 7:59 am
bill,
20c was always for the most egregious examples. My guess is the average will be somewhere in the 30c range.
Sorry to disappoint. Don’t think I’ve suddenly become a real estate bull.
Matthew » Jun 12, 2008 at 8:09 am
And the trolls on this site thought that calls for 50% percent drops were crazy, how do you like that call trolls, 20-30 cents on the dollar!
[troll] » Jun 12, 2008 at 8:13 am
l sys:
My trgt s th 6000s wth sb-5K bng pssbl.
Hw lng? nyn’s gss.
Kp n mnd tht th Bmrs’ stck prtfls r ll n th sm 600 stcks. nc thr McMnsn gs fr 30c n th dllr, cn’t mgn tht thy wll stck rnd t s f thr stck prtfls wll hld p ny bttr.
……………….
Dw 6000?
Rl stt sllng t 20-30 cnts n th dllr?
Sm Rntrs r nt jst fnncl lsrs, thy r mrns.< hrf="#" clss="rplyt" nclck="rplyt('50046','∓#91;trll∓#93;','32'); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('50046','∓#91;trll∓#93;','l sys:\r\nMy trgt s th 6000s wth sb-5K bng pssbl.\r\nHw lng? nyn&crc;€™s gss.\r\nKp n mnd tht th Bmrs&crc;€™ stck prtfls r ll n th sm 600 stcks. nc thr McMnsn gs fr 30c n th dllr, cn&crc;€™t mgn tht thy wll stck rnd t s f thr stck prtfls wll hld p ny bttr.\r\n...................\r\n\r\nDw 6000?\r\nRl stt sllng t 20-30 cnts n th dllr?\r\n\r\nSm Rntrs r nt jst fnncl lsrs, thy r mrns.','32'); rtrn fls;">Qt
[troll] » Jun 12, 2008 at 8:18 am
Mtthw,
thnk Y r TRLL !!!!< hrf="#" clss="rplyt" nclck="rplyt('50047','∓#91;trll∓#93;','33'); rtrn fls;">Rply – < hrf="#" clss="qt" nclck="qt('50047','∓#91;trll∓#93;','Mtthw,\r\n\r\n thnk Y r TRLL !!!!','33'); rtrn fls;">Qt
Eleua » Jun 12, 2008 at 8:53 am
Rentersarelosers,
Perhaps I don’t get your point.
How did the NAZ do in the previous bubble? 14c on the dollar rings a bell, and that was WITHOUT a consumer recession.
How did the Nikkei do since its property bubble went kablooie? We are looking at somewhere in the 20c on the dollar range. That was with a vibrant export economy and a huge Japanese savings rate. They had cash to burn.
How did Japanese real estate do? 20 year bear market seems eerily familiar.
How about our own market back in the 30s? That was when we had a much lower debt/GDP ratio and produced most of our own stuff.
Tell me, what keeps our markets above 6K? What prevents our real estate from losing 2/3 of its peak value?
Without a major financial panic, banking failure, or stock market swoon, parts of California are already selling for 60 and 70c on the dollar.
Go look up the latest Federal Reserve H.3 and get back to me with an educated opinion.
jon » Jun 12, 2008 at 9:51 am
Japanese real estate never recovered because they are just starting to go into negative population growth. Prices went down in anticipation of people being unable to find enough buyers for the existing properties. Basically the entire country is about to become one giant Riverside, and prices are falling in anticipation of that. The US has enough immigration to prevent that from happening here.
The H.3 is interesting. $100B in borrowing is not fun to read about, but that is not new news. Against base of $40T in real estate, it is not the end of the world. If it keeps the overall system running smoothly until banks can recover, then it is worth it.
Eleua » Jun 12, 2008 at 10:00 am
Jon,
That -130B is the amount of reserves the depository institutions have at the FED. Since the number is negative (first time since records have been kept going back to the ’50s), that means the FED has put its own money into the banks to keep the banks afloat
This money is used to keep the lights on and the paychecks clearing. What is happening is the money that banks borrow to fund their lending operations is gone.
$40T in real estate will vaporize without borrowing.
It is a HUGE deal. At some point (very soon) the FED has to move to save itself. The amount of assets the FED has in the slosh and at the depository banks is climbing at a rate that will bankrupt the FED by late summer.
jon » Jun 12, 2008 at 10:05 am
Where is the amount that the FED has left listed?
Eleua » Jun 12, 2008 at 10:26 am
Awww, shucks. I navigated away while I had a bunch written.
Here are the relevant links.
http://research.stlouisfed.org/fred2/series/BOGNONBR
http://www.gmtfo.com/
http://www.federalreserve.gov/releases/h3/Current/
Long story short: the FED was doing just fine until December when commercial credit just flat-out collapsed. Banks could not renew the money they need to continue to operate, so the FED gave them their reserves. Then, it gave them more than their reserves. Then a lot more.
The slosh went up dramatically to force the EFF down. Because of the shaky condition of the banks, they didn’t want to lend money to each other, for fear of a default. This would have caused the EFF to rise, and forced the FED to hike the FFT. Had this occurred against the backdrop of the MLK-meltdown and BSC debacle, there would have been a financial panic.
As it stands, that panic was put off into the future, but it still accrues interest.
-130B in reserves needs to be paired with the slosh. With that, you have almost half of the FED’s assets being compromised by being on loan with insolvent banks. The FED has also taken non-USTreasury paper as collateral, which makes the crap being held by banks (CDOs and MBS’) valued at Treasury rates, rather than on the deep discount that the open market would bring.
(this is why CFC and BSC were taken under by BAC and JPM)
If these ever get revalued to their proper market value (close to zero), the banking system is finished.
Right now, we are only waiting for the FED to move to save itself. All the FFT drops have not moved the interest rates for homes. Ask anyone. It is much harder to get a loan today, and the interest rates are not dropping by any significant amount.
Anyway…gotta run and try to make some dough to feed the family.
jon » Jun 12, 2008 at 10:28 am
That number went negative for the first time because they starting doing something in December they never did before, so it looks different. It would be better if they didn’t have to do that, but it is working so far. If the damage can be contained, then the loans will be paid back.
The $40T is based on the economic value of the assets. If there is a liquidity problem, then yes the value will go down. That’s why they are lending the reserves, so that doesn’t happen. As long as the institutions remain working as they are now, the $40T in value will remain because that real estate has value based on it allowing people to live close to where they work. The value comes from the productivity of the US, and that is doing fine.
Even if the Fed runs out of money, the US Government will step in some other way to keep things running, using the credit of taxpayers as needed.
It’s interesting that the meltdown happened just about the time the immigration bill failed last year. I wonder if that was the cause, in the same way that Smoot-Hawley triggered the Great Depression. Fewer immigrants means less demand for real estate, which caused a credit contraction. I knew failure of that bill would be bad for the economy, but I didn’t expect it to be so fast or so deep.
Eleua » Jun 12, 2008 at 10:29 am
Better link for slosh
http://www.gmtfo.com/reporeader/OMOps.aspx
Eleua » Jun 12, 2008 at 10:39 am
Jon,
The taxpayer doesn’t have the money to bail out all the banks. The banks are on the hook for serveral orders of magnitude above their market cap. Federal lending is a drop in the bucket compared to private lending. Seriously.
Your rosy scenario has quite a few “ifs” built into it. Look at where things are going, not where you want them to go.
The new facilities that came out in December were a result of non-borrowed reserves being drawn down below the limit. The facilities are a way to get around the statuatory requirements for those reserves, but at the end of the day, the reserves are still gone, regardless of what heading under which they disappeared.
Finally, equating immigration reform failure with Smoot-Hawley is the best belly laugh I’ve had in some time. Americans making more money while supporting fewer Third-world immigrants would be good for the economy. It is precicely because Americans can’t make the wages they need that all the speculation started in the first place.
Vegas is not the boulevard of dreams. It is the highway of desparation.
The financial implosion came from the popping of the real estate bubble and the supporting financial engineering on Wall Street. Banks loaned money to people that could never have paid it back. At some point, income is needed to pay down the debt that was created to buy homes for prices that could never have been sustained.
There STILL isn’t a free lunch.
jon » Jun 12, 2008 at 11:03 am
Yes federal lending is a drop in the bucket, that’s why $130B is not going to collapse the system. It preserves the market of $10T in mortgages already out there.
I went round and round on the immigration bill last year, so I know people didn’t like it. But less demand but for lower real estate lowers its value, and that may be what triggered the pop of the bubble. You might not think the US was getting enough value for the cost of the immigrants, but that was not my point. I agree that the financial engineering had too much leverage built in to it for the amount of positive feedback in the system. My only point was the drop in demand is what set that off.
Eleua » Jun 12, 2008 at 11:59 am
Jon,
You don’t seem to understand where the $130B went. It didn’t go to real estate. It went to bank operating costs and short term loan maturities.
If the -130b wasn’t growing, you might have a point, but it is growing.
The system is unstable and getting worse by the day.
Eleua » Jun 12, 2008 at 12:34 pm
Jon,
The demand for real estate in those classes was driven by speculative demand. Once the speculation ended (and it always does), the bubble popped. The Mexicans were a small part of demand in those price brackets.
The failure of the immigration reform (or amnesty) didn’t change anything. If the demand was caused by the Mexicans, they would still be buying. Their status has not changed one bit.
http://anon688.googlepages.com/Mort.xls
Click on that link for a basic spreadsheet that illustrates why you can’t have real estate run ahead of incomes. At some point, 100% of income will be consumed by debt service, and that person still needs to buy food, energy, medicine, tax amnesty, insurance, transportation, etc.
All bubbles pop. It’s what they do. Housing is in a bubble and the top has been seen.
Immigration patterns did not drive this. Speculation did.
If anything, the peculiar lack of economic downturns made this inevitable. If businesses never go out of business, then the herd becomes too large for the economy to sustain. If we had normal economic downturns, we would lose productive capacity, which would raise margins for the survivors. They would be able to pay people a wage that would afford them a lifestyle according to their productivity.
As the field becomes saturated, margins compress. This forces businesses to look for lower wages to help stay profitable. As long as an inexhaustable supply of cheap, non-union labor is available, businesses will hire them and avoid CH7. This squeezes the local labor sources and they resort to gambling to make ends meet.
Look back at the history of American outsourcing and immigrant labor and plot it against the growth of the finance and gaming industries. You will see that they correlate quite nicely.
A good, nasty recession is EXACTLY what our economy needs to stay healthy. Our margins are too low and businesses can’t sustain themselves with local labor.
jon » Jun 12, 2008 at 12:36 pm
The operating losses are due to the real estate losses, and the collateral is mortgages. The losses caused the banks to be unable to meet their short term obligations. But yes, it’s not like the Fed went out and started buying real estate.
The Fed must have some forecasts of how deep it is going to go, but there is a lot of unknowns because there is no way to really know when we will reach time bottom nationwide.
jon » Jun 12, 2008 at 12:51 pm
Well, I have a rather different view of the economic role of immigrants. To me, the low cost labor allowed business to reach record levels of profitability up until last year. There are a lot of reasons for low margins with today’s technology, but cheap labor helps not hurts. Sending a lot of Mexicans back pushed low end houses onto the market and brings the market down as a whole as a result.
To me, recessions are a result of a lack of transparency that causes companies to make overly optimistic investments. There is also the problem that competitors will over-invest trying to grab market share.
B&W Nikes » Jun 12, 2008 at 12:58 pm
I was just re-thinking the question about whether the DJIA will drop below 10,000 in the next year and I found myself wondering whether we are correct in imagining it as 10,000 points in 2008 dollars? Maybe the DJIA will surprise us and hit 14,000 again, but it might not at all be worth what it was when it crossed the 10,000 point in 1999.
Eleua » Jun 12, 2008 at 1:08 pm
Cheap labor is anethema to innovation. Why invest in capital equipment to make labor more productive, if I can rent cheap labor to do it by hand?
The Romans had the steam engine, but it was never developed because 1/3 of the Romans were slaves.
How many Mexicans have been sent back? The Bush Administration has had almost zero workplace enforcement of immigration laws. It is a disgrace, but that’s what you get when the Chamber of Commerce is running the country. Even if your theory is correct (and it isn’t), there are more Mexicans living in the US today (June 12, 2008) than at any time in our history, so lower end properties should be selling as soon as they hit the market.
Recessions are caused by excessive debt to GDP production. They always have been and always will be. Debt needs to be worked out, and that is the job of the recession.
This recession is long overdue. The debt/GDP ratio is off the charts and in record territory, and we technically are not in a recession. When the GDP drops, the ratio will spike even higher.
Cheap labor is always a short-term benefit, and a long term problem.
HI-B visas make American sources of IT harder to come by, thus requiring the need for more HI-Bs, which disincentifies kids to want to go into IT, which makes Bill Gates lobby for more HI-B…
TJ_98370 » Jun 12, 2008 at 8:00 pm
Eleua-
Where the hell have you been?
I, for one, miss your input!
Matthew » Jun 12, 2008 at 9:34 pm
It’s like the bus driver (Eleua) has loaded up the bus and is taking all the noobs to school!
Eleua » Jun 12, 2008 at 10:53 pm
TJ,
I’ve been making and losing and making and losing a fortune short-selling banking, housing, and brokerage stocks.
I miss the open threads as they were the best opportunity for general education regarding the issues surrounding Seattle real estate.
It’s also not the same without ‘Shug. He was fun to smack around and was the best illustration of what is wrong with Seattle RE.
This thread was general enough to get a good discussion going.
I don’t have a SB “program” so I don’t know who the modern players are. Who is the modern “Meshugy?”
Glad to be missed.
TJ_98370 » Jun 13, 2008 at 2:32 am
Alas, I think Meshugy may have been one of a kind. I think you can pick out the most recent Meshugy wannabes by skimming the “May Reporting Roundup” thread though.
Lake Hills Renter » Jun 13, 2008 at 9:30 am
Yea, the trolls and/or bulls these days are a far cry from even Meshugy. At least he tried to back up his points with articles and data, even if they were cherrypicked. These days it’s just insults and stereotypes, and rehashing the same points over and over.
Alan » Jun 13, 2008 at 10:29 am
To be fair, there isn’t really much to argue with. Prices are falling (although I still see the occassional argument that they are not falling) and there is no way to predict the bottom. So now arguments devolve into shouting matches where one person says “this is the bottom” and another person says “no, it isn’t”.
My basis for believing prices would drop was based on income levels. Results have been consistent with my model. My model predicts future drops, but because I don’t have very good data on income I don’t know exactly where the bottom will be. And I accept that I might be wrong.
The great thing about this though is that we aren’t arguing about religion or something else unknowable. Time will reveal the truth even if it does so at a snail’s pace.
Tsuru » Jun 13, 2008 at 10:38 am
There’s another argument that I find very amusing – it’s the “it doesn’t matter what price you buy at since RE always goes up in value” argument. That is, if you buy now and the value goes down 20% in the next 5 years it doesn’t matter because it’s going to go up 100% in the next 10 years.
In the collector car market, they say “you didn’t pay too much, you just bought it too soon”.
deejayoh » Jun 13, 2008 at 11:19 am
So, as an alternative – as an asipring troll, you can come here and do a few things
1) call people “losers” (or my personal favorite “”loosers”)
2) brag about how much money you made on real estate you bought in the 70’s, acting as if that has great relevance today and is imminently repeatable
3) make fun of Tim’s fund raising – thus spurring another round of donations
And I don’t think even the ‘Shug couldn’t find much in the way of good news to post links to these days.
The Tim » Jun 13, 2008 at 12:01 pm
Oh, I don’t know. It looks like his Zillow value got a great little spring bounce:
Looks like it’s up about 2% since April! To the moon!
TJ_98370 » Jun 22, 2008 at 9:47 am
The Wall Street Journal say that “Short Selling on NYSE Sets Record”. That means that alot of investors believe the Dow is going to take a dive, right?
matthew » Jun 26, 2008 at 4:50 pm
DOW down 3.03% on the day and sitting at about 11,453. We’ve already lost 1,000 pts on the DOW since this poll was started. Anyone that voted no care to change their vote???? We are going to surpass 10k in a blink of an eye.
The Tim » Jul 11, 2008 at 10:14 am
Looks quite likely that we’ll close below 11,000 today…
Chris » Jul 11, 2008 at 11:39 am
I my “no” vote may be hitting me over my head very soon.
Poll Update: Dow Drops Below 10,000 | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area. » Oct 6, 2008 at 8:08 am
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