Posted by: The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

327 responses to “Global Economic May Thread”

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  1. Kary L. Krismer

    By Blurtman @ 48:

    RE: Kary L. Krismer @ 47 – Larry Summers lost a ton of money managing the Harvard endowments funds. So perhaps your perception of fund managers is misguided.

    BTW, that should be in past-tense–was misguided. Same for the capabilities of MBAs.

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  2. pfft

    more good news blurtman.

    U.S. State Legal Chiefs Sharpen Mortgage Investigation, WSJ Says
    http://www.bloomberg.com/news/2011-05-23/u-s-state-legal-chiefs-sharpen-mortgage-investigation-wsj-says.html

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  3. pfft

    By Scotsman @ 42:

    RE: pfft @ 34

    Thanks for the links- they are a perfect illustration of just how useless your comments are. The first is about a guy who has a history of inaccurately predicting the rapture- a Christan event- and you think it has something to do with economics? The second is supposed to be an illustration of austerity’s failure- protesters in Spain- when in fact the conservatives (i.e. those for austerity) just swept the elections by a margin of 10% or so, ending the rule of the socialist party.

    Completely wrong in every way, unreasoned, and a waste of bandwidth.

    a rough count shows you support programs(or weren’t in favor of programs) that will add at least $5 trillion to the national debt over the next ten years.

    the 2nd ten years will see obamacare save over a trillion dollars according to the CBO.

    on spain:

    His popularity has plunged since a U-turn last year forced him to bring in a strict deficit-cutting plan, which he has pledged to stick to, along with labour and pensions reforms.

    http://www.guardian.co.uk/world/2011/may/23/zapatero-socialists-defeated-peoples-party

    voters will vote you out in favor of anyone who is in a different party.

    “when in fact the conservatives (i.e. those for austerity) just swept the elections by a margin of 10% or so”

    link please.

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  4. Blurtman

    RE: Kary L. Krismer @ 51 – MBA – More Bad Actors.

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  5. Blurtman

    RE: Kary L. Krismer @ 49 – Are public executions really a bad thing?

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  6. Blurtman

    RE: pfft @ 50 – Actually I chatted a few times with the King County pool’s investment manager. Nice fellow. Couldn’t go into specifics about a few things due to the lawsuits. Was shocked at the triple A to trash plunge.

    I had researched a few of the SIV’s and found information describing the imminent meltdown of the specific SIV’s prior to King County investing in them. So I think e-mails can be accessed at the brokers wh sold these describing them as pieces of dog doo. $10,000 gets you .01 point of the settlement money, but hurry, they are going fast!

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  7. pfft

    By Blurtman @ 56:

    RE: pfft @ 50 – Actually I chatted a few times with the King County pool’s investment manager. Nice fellow. Couldn’t go into specifics about a few things due to the lawsuits. Was shocked at the triple A to trash plunge

    that was then though. a lot of MBS has come back. the problem was they were illiquid assets that had to be dumped all at the same time by very large banks. what do you think would happen?
    see LTCM.

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  8. Kary L. Krismer

    RE: pfft @ 57 – I don’t think they had to be dumped so much as no one really knew what they were worth–due to the issues I mentioned in my ratings comments. To know what they’re worth you need to know what’s going on with each of the parties to the deed of trust.

    Eli Broad, if I recall correctly, pumped a ton of money into buying those things at one of the early points in the crisis. I wonder how that investment turned out. Given the wave of refinancing resulting from low interest rates, I suspect he made a killing.

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  9. Blurtman

    RE: pfft @ 57 – Well, when the music stops, that is, when banks, realizing how deceptive they had been to customers like pension funds, no longer trust each other, I suppose illiquidity would set in.

    But illiquidity did not cause the ratings crisis. Rather, the ratings were adjusted downward, drammatically, when it was obvious that the tiple A rated securities were actually junk.

    How exactly can you sell a security to anyone that later you will claim cannot be valued due to complexity and opacity?

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  10. Kary L. Krismer

    The Chrysler bailout is being repaid. Yet another cost of the bailout that was not a cost, and actually made the government some money (even ignoring the unemployment expenses that were avoided.)

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  11. pfft

    it looks like scotsman has been emailing krugman.

    Debt Arithmetic (Wonkish)
    http://krugman.blogs.nytimes.com/2011/05/24/debt-arithmetic-wonkish/

    The way the story is often told, deficits mean higher debt, which means higher interest payments, which can mean a spiral into bankruptcy. And qualitatively that’s not wrong. If you put numbers to it, however, for countries that are not facing huge risk premia, the spiral is very, very slow.

    As I’ve often written, we’re in a strange state now where people who actually take textbook economics and simple arithmetic seriously are seen as dangerously radical and irresponsible, while people who believe in invisible bond vigilantes and confidence fairies, who claim to know what the market will want even though there’s no sign of that desire in current asset prices, are viewed as Very Serious.

    brilliant and confirmed by the bond market for going on 4 years.

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  12. pfft

    By Blurtman @ 59:

    RE: pfft @ 57 – Well, when the music stops, that is, when banks, realizing how deceptive they had been to customers like pension funds, no longer trust each other, I suppose illiquidity would set in.

    But illiquidity did not cause the ratings crisis. Rather, the ratings were adjusted downward, drammatically, when it was obvious that the tiple A rated securities were actually junk.

    How exactly can you sell a security to anyone that later you will claim cannot be valued due to complexity and opacity?

    MBS are not liquid like stocks. heck even bonds aren’t all that liquid if they aren’t government bonds. even munis aren’t that liquid. one of the reasons bonds were downgraded most likely is because the models changed as the housing market crashed and recovery rates plunged. the models were wrong(garbage in garbage out).

    as an investor I wouldn’t blame the ratings agencies. as a citizen I would. if something is AAA and not a government security it is probably not AAA. if a bond is AAA but has a higher yield it probably isn’t AAA. many investors made the classic mistake of reaching for yield.

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  13. Blurtman

    RE: pfft @ 62 – Well. it is not as if we are arguing if AAA really meant AA. I don’t think investors should have recognized that AAA really meant C.

    Another reason why the MBS and related mortgage backed securities crashed is because they were loaded with junk mortgages. And one (not the only one) reason the ratings plummeted is because the banks that created the MBS knowingly misrepresented the quality of the mortgages, that is, they committed fraud. And it became apparent that the gold was really doggie doo.

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  14. pfft

    By Blurtman @ 63:

    RE: pfft @ 62 banks that created the MBS knowingly misrepresented the quality of the mortgages, that is, they committed fraud. And it became apparent that the gold was really doggie doo.

    not necessarily. that means that everyone knew that housing would tank and if that were true there wouldn’t have been a bubble.

    I know what you’re going to do. you’re going to post some emails where people said these mortgages were garbage. the fact is that there are hundreds even thousands of people working in these departments. one email may not represent the view of everyone or the people who matter- management and investors. like all assets there is ALWAYS someone who is bullish or bearish. there are always people who are right but too early and etc.r

    what you’re basically saying is that you think bankers are smart…

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  15. pfft

    the auto bailout has been a success.

    Chrysler Pays Back Rescue Loan
    http://www.nytimes.com/2011/05/25/business/25chrysler.html?_r=1

    great video about all the wrong republicans.

    “Let Detroit Go Bankrupt?”
    http://www.democrats.org/video/let_detroit_go_bankrupt

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  16. David Losh

    RE: pfft @ 64

    The banks were never the issue. It’s the people who packaged the debt for resale who most certainly knew they were bundling junk. The financial markets were buying what ever was available without consideration.

    The bubble happened because of the exhuberance of the economy. I, for one, saw a robust “global” market that was adding trillions of dollars in net worth. Feet on the ground never saw the over all picture that was a pile a poo.

    Banks, lenders, and financiers are paid to know what was in the pipe line. Claiming ignorance isn’t a defense. Not only that, they relied on the law. They followed the letter of the law. They had learned from the Savings and Loan scandal, and this time involved the consumer.

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  17. Blurtman

    RE: pfft @ 64 – Please read the Congressional report on the rating agencies. You will read there, as well as has been posted on blogs, rating agency managers ordering their analysts to not examine the mortgage files of the underlying mortgages securities they were rating. Why was that?

    The CitiGroup head auditor is on record stating 80% of the mortgages Citi was selling were non-conforming. Hardly isolated e-mail strawmen.

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  18. Scotsman

    “The truth? QE2 has created a massive new bubble in dollar-based financial assets, from stocks to gold. Meanwhile, it has had zero visible effect on the real economy.”

    ” Turns out the program has created maybe 700,000 full-time jobs — at a cost of around $850,000 each.

    House prices are lower than before QE2 was launched. Economic growth is slower. Inflation is higher.

    Yes, it’s sparked a massive boom on the stock market. . . But even the stock market boom hasn’t been what it appears. An analysis shows that most of the rise in the Standard & Poor’s 500 Index under QE2 has simply been a result of the decline in the dollar in which shares are measured.”

    http://www.marketwatch.com/story/qe2-was-a-bust-2011-05-21?Link=obinsite

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  19. Kary L. Krismer

    By Scotsman @ 68:

    Yes, itâ��s sparked a massive boom on the stock market. . . But even the stock market boom hasnâ��t been what it appears. An analysis shows that most of the rise in the Standard & Poorâ��s 500 Index under QE2 has simply been a result of the decline in the dollar in which shares are measured.”http://www.marketwatch.com/story/qe2-was-a-bust-2011-05-21?Link=obinsite

    That doesn’t make a lot of sense. First, we’re Americans, so that decline is effectively irrelevant to us. If you were investing in foreign equities, that would be relevant. Second, unless foreigners investing here are expecting the slide of the dollar to turn around, that would cause less investment by foreigners in US equities, and a decline in stock prices.

    I would add, correlation does not prove causation.

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  20. Scotsman

    RE: Kary L. Krismer @ 69

    That’s not what’s going on here. It’s an accounting quirk where overseas operations of multinational companies (much of the exchange) look better than they actually are when adjusted for currency valuations on the home country’s books. You can even have falling sales and profitability, but when adjusted for changes in currency valuations suddenly profits appear and stock values soar. One of the great potential illusions of international business.

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  21. pfft

    By Blurtman @ 67:

    RE: pfft @ 64 – Please read the Congressional report on the rating agencies. You will read there, as well as has been posted on blogs, rating agency managers ordering their analysts to not examine the mortgage files of the underlying mortgages securities they were rating. Why was that?

    The CitiGroup head auditor is on record stating 80% of the mortgages Citi was selling were non-conforming. Hardly isolated e-mail strawmen.

    I wasn’t talking about the rating agencies. I was talking about the big banks.

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  22. pfft

    By Scotsman @ 68:

    “The truth? QE2 has created a massive new bubble

    I stopped reading right there. A massive new bubble? like 2000? idiot.

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  23. Scotsman

    Recovery is about to fall flat:

    “New orders for manufactured durable goods in April decreased $7.1 billion or 3.6 percent to $189.9 billion, the U.S. Census Bureau announced today. This decrease, down two of the last three months, followed a 4.4 percent March increase. Excluding transportation, new orders decreased 1.5 percent. Excluding defense, new orders decreased 3.6 percent.”

    http://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf

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  24. Scotsman

    “U.S. commercial property prices fell to a post-recession low in March as sales of financially distressed assets weighed on the market, according to Moody’s Investors Service.

    The Moody’s/REAL Commercial Property Price Index dropped 4.2 percent from February and is now 47 percent below the peak of October 2007, Moody’s said in a statement today.”

    http://www.bloomberg.com/news/2011-05-23/u-s-commercial-real-estate-prices-decline-to-post-crash-low-moody-s-says.html

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  25. pfft
  26. pfft

    By Scotsman @ 73:

    Recovery is about to fall flat:

    so you finally agree there was a recovery?

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  27. David Losh

    RE: Scotsman @ 74RE: Scotsman @ 73

    You happened to pick two of the articles that I was reading.

    First commercial Real Estate inflated before housing. You can blame Walgreen’s, Wal Mart, Chili’s, Outback, Urban Outfitters, and Starbuck’s. We don’t need them. They, in many cases were the anchors to residential housing development. What was missing is job centers. I would love to debate that because financing, banking sector jobs, over ran manufacturing in this country. Finance collapse means job loss.

    Durable goods isn’t far behind. If we don’t have factories, we don’t have equipment.

    We can also look at lending as killing durable goods. We can’t afford $1K for a washer or dryer. $500 gets you a base model of a stove. Forget about cars when GM introduces a tree hugger model, the Volt for $30K or was it $40K. We have the most screwed up sense of value in the world. We finance everything so money is no object. Let’s sell less for a higher price, that’s the Home Dopey motto.

    Did I forget to mention Home Dopey, and Lowe’s in the commercial Real Estate section?

    What you have pointed out is another area of opportunity. Commercial Real Estate is especially over built, but even at that it was twice over priced. First in terms of how many players would use the warehouse style of construction, and second is that as national franchises did income averaging it pushed up the price of all locations of retail space. The price per square foot was used to sell commercial paper that also ended up as security instruments.

    More plainly, there is a lot that can be done for cheap, and getting cheaper.

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