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.

33 responses to “Mid-Week Open Thread (2013-03-06)”

  1. softwarengineer

    Congress Grew a Brain

    They passed a bill yesterday that averts the government shutdown March 27, only DOD civilians so far….and the $4 billion saved cutting just DOD civilians is not the $48B needed right now for the 7.8% DOD sequestration.

    Also the contractors like Boeing will have to absorb the $48B cuts and the DOD will administer the program cancellations. Which program(s) get butcher axed? Stay tuned, they haven’t figured that out yet….

    The rest of government is still getting furloughed for their 5% cut though….

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  2. Blurtman

    2016 Dow will be at______?

    Rate this comment: Thumb up 0

  3. softwarengineer

    RE: Blurtman @ 2

    Stocks Remind Me of a Stephen King Horror Book

    Scary to invest in and surprise endings too.

    What’s really a monitor of Seattle’s local economy and real estate is personal income….its down 4%.

    “…As I have been harping on about in these pages for far too long now, the unemployment situation in the U.S. economy is a big hurdle to overcome on the way to economic growth. There are millions of Americans still unemployed and looking for jobs—more job seekers than job openings. In real economic growth, you don’t have this scenario.

    Similarly, consumer spending, hands down the biggest contributor of economic growth in the U.S. economy, looks to be tumbling. In January, the disposable income of households in the U.S. economy, after taking into consideration inflation and taxes, dropped four percent—the biggest single-month drop in 20 years! If consumers in the U.S. economy don’t have money to spend, then economic growth becomes questionable.

    As for business conditions, they appear bright only if you look at the stock market. In reality, they are deteriorating in the U.S. economy. For the first quarter of 2013, the expectations of corporate earnings of companies in the S&P 500 have turned negative. Corporate earnings were negative in the third quarter of 2012, too….”

    http://smallbusiness.yahoo.com/advisor/american-consumer-real-tax-disposable-income-biggest-drop-155240084–finance.html

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  4. Blurtman

    RE: softwarengineer @ 3 – Yes. It has been pointed out that the stock market is no indication of the health of the USA.

    Here is another look: http://www.nakedcapitalism.com/2013/03/as-dow-sprints-to-new-high-the-middle-class-and-manufacturing-languish.html

    So is the stock market predicting an economic rebound?

    Is this too much liquidity with a need to go somewhere?

    One thing I do know. Never bet against the Fed.

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  5. redmondjp

    RE: Blurtman @ 4 – And as pointed out by a UW professor being interviewed on the radio this morning, using inflation-adjusted numbers, the Dow is still BELOW where it was at in 2000.

    Thirteen years, and no real equity value increase.

    Wrap your mind around that for a minute.

    It makes the mattress-stuffing of my grandparents’ generation look positively brilliant.

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  6. David Losh

    RE: Blurtman @ 4

    http://www.oftwominds.com/blogmar13/wage-effect3-13.html

    The words today in the stock market reports was the “wealth effect.”

    This article explains why that wealth effect isn’t as effective as we might think it is. Even though the economy looks to be booming, the government Beige Book today even confirms a slightly growing economy, our wage earners are just going deeper into debt.

    There is a very sever thing that is coming up with the Fed. At some point the economy will have to stand on its own. That means a rise in interest rates, or interest income for corporations. Once you take the speculation of quick returns out of the equation we’ll be stuck with long-term returns that will be based on other income, like interest income.

    All this debt that has been taken on, like with increased housing prices, will have to be paid in real dollars, rather than inflated dollars.

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  7. Blurtman

    RE: David Losh @ 6 – Yeah, but the Fed can hold to maturity, so it is paper losses till then for UST’s. For the toxic MBS, I don’t know what happens as some of this must be beyond dead. Tangible off-shoot is less earnings sent over to Treasury. So in that way, we all pay for the fraud of the investment banks. The Fed as the ultimate crap recycler, or waste processor. Imagine if banksters were on the board of the Fed. We’d all be screwed then. (snark.)

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  8. softwarengineer

    RE: David Losh @ 6

    Yes David

    I hear raiding of the retirement 401Ks to buy today’s hamburgers is at an all time high. Many older workers laid off gave up and went on early retirements, same sort of thing as raiding 401Ks…..many of them flip burgers for their burgers too since their early retirement incomes are inadequate too.

    We don’t count ‘em as unemployed.

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  9. Blurtman

    The historical behavior of interest rates and growth rates in U.S. data suggests that the government can, with a high probability, run temporary budget deficits and then roll over the resulting government debt forever.

    The purpose of this paper is to document this finding and to examine its implications. Using a standard overlapping-generations model of capital accumulation, we show that whenever a perpetual rollover of debt succeeds, policy can make every generation better off.

    This conclusion does not imply that deficits are good policy, for an attempt to roll over debt forever might fail. But the adverse effects of deficits, rather than being inevitable, occur with only a small probability.”
    Ball, Elmendorf, Mankiw, The Deficit Gamble

    http://jessescrossroadscafe.blogspot.com/2013/03/fiat-monetary-theory-gamblers.html

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  10. David Losh

    RE: Blurtman @ 9

    Well… yeah…. fiat money theory versus fiat money may be a little bit of a stretch.

    Sure the Fed can run the debt out forever, but there is a point where we need to have an economy that is inclusive. All of these little games the Fed has played since the 1980s have to come to some logical conclusion. There’s no reason to think that we will just let the Fed run away with more, and more spending if it doesn’t give us results. We have no results, we got a bubble, maybe we are having a second bubble.

    The remarkable thing is that with all of this Fed spending we don’t have inflation. The Fed is talking about job creation, which would be a step before wage increases. We’re a long ways off from wage increases.

    So the more the Fed does, the deeper the hole for the consumer, and without inflation to cover that debt the consumer is in for many decades of pay outs.

    OK, your move, how is what the Fed is doing in any way helping the long-term economy?

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  11. redmondjp

    RE: David Losh @ 10 – David – do you live under a rock? If you don’t believe that there isn’t any inflation, you obviously haven’t been to the store lately. Here’s my example from just this week alone: sections of aluminum snap-together dryer vent (the kind you want – smooth interior doesn’t cause turbulence and doesn’t catch lint) used to be three feet long. Now they are TWO feet long. That’s 33% shrinkage! Of course, the price hasn’t changed.

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  12. David Losh

    RE: redmondjp @ 11

    Price increases don’t translate into inflation.

    There’s no doubt prices for everything are increasing, and that you have to spend more for what you want, or need. That is a credit trap, rather than inflation.

    As long as wages don’t track those price increases you are spending borrowed dollars, or not spending at all. You might substitute or do without.

    I buy less steak, and will forego repairs that I don’t really need. Higher prices don’t mean a booming economy if the majority of people, like yourself, are hip to the trick.

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  13. Chris

    RE: David Losh @ 12

    “Price increases don’t translate into inflation.” – this statement actually hurt my brain.

    From dictionary.com for “Inflation”:
    Economics . a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency

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  14. David Losh

    RE: Chris @ 13

    How are we losing the value of currency? We are simply paying more dollars for the same goods.

    That’s the point. The idea of QE was to devalue the dollar, and cause inflation, instead it’s looking like the dollar is a pretty safe bet, globally.

    My statement goes back to the fiat currency theory, versus fiat currency.

    Where would you want your money? Yuan, Euro, Rupie, Ruble, or dollars?

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  15. willynilly

    RE: David Losh @ 14

    David,

    Seriously? “That is a credit trap, rather than inflation.” “How are we losing the value of currency? We are simply paying more dollars for the same goods.”

    more dollars for same goods = inflation
    hyper inflation = lots o’ dollars for the same goods

    I always enjoy the spirit of your posts and appreciate your wit and enthusiasm. Since I can only vote one thumbs down it would be grossly insufficient and I have crafted the following:

    For every email spam I have every received in my life I have hand carved one tiny thumbs down out of yew wood. Each is painted in a beautiful red hue, and is approximately 1″ long.
    Every one fully articulates with two joints, and is a 1/3 scale model of my right thumb. Seeing as I do not have your home address I did one of the following:

    a) Slipped a pallet onto an open UPS truck when the driver was not looking
    b) Left the pallet on the side of the road in Ballard.

    Label says “David Losh – have mercy on his soul”

    Pallet is approximately 42″ 48″ x 54″ high. Weight – 1240 lbs. 618,000 pcs.

    Look for it! A packing list is enclosed. No returns, these were custom made.

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  16. Howard

    By David Losh @ 14:

    RE: Chris @ 13

    Where would you want your money? Yuan, Euro, Rupie, Ruble, or dollars?

    Funny you should mention Rubles today. My brother lives in Moscow in a high end 900 sqft apartment building. He paid $100k cash Rubles for it in 2001. I read today that Moscow apartments are going for over $2000 per sqft. I wish I had that return. Granted he has had a wild ride over there, he has been there since 1992. He deserves every penny when he sells.

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  17. David Losh

    RE: willynilly @ 15

    Seriously?

    This is really simple; have your wages gone up? Are you making more dollars for the work you do?

    The answer is no, you are making the same amount of dollars you have for at least seven years, but probably longer. Those are your dollars, and the only dollars you’re getting, unless you speculate, work a second job, or get a better job.

    So you don’t have more dollars to pay for things. You are paying what the market will bear.

    Speculation is different than inflation. Speculation can drive up the costs of everything without granting you more buying power, without credit, substitution, or doing without.

    Inflation is across the board. Speculation is targeted.

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  18. Blurtman

    RE: David Losh @ 17 – The unemployed and flat wage earners are the anchor that counterbalances the QE bailout of the banksters. They are necessary to keep inflationary pressures at bay.

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  19. Blurtman

    OK. Criminal charges against the TBTF will destabilize the financial system. Even if one buys that argument, why are not individual bankers facing criminal charges? Surely there will be thousands of applicants to take their jobs and the banks would continue onward.

    Obama sucks!

    “Holder’s comments don’t come as a total surprise. His underlings had already made similar confessions to The New York Times last year, after they declined to prosecute HSBC for flagrant, years-long violations of money-laundering laws, out of fear that doing so would hurt the global economy. Lanny Breuer, formerly in charge of doling out the Justice Department’s wrist slaps to banks, told Frontline as much in the documentary “The Untouchables,” which aired in January.
    Some observers have defended the Justice Department, suggesting that prosecuting law-breaking banks would amount to a death penalty that could upset the financial system and trigger another recession — although nobody really knows if it would do any such thing. But by not prosecuting law-breaking banks, and confessing to its terror of prosecuting those banks, the Justice Department has waved a big checkered flag to the biggest banks to go ahead and break all of the laws they want.”

    http://www.huffingtonpost.com/2013/03/06/elizabeth-warren-eric-holder_n_2823618.html?1362616052

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  20. banjo country

    Bad news for the real estate bears and all the supposed shadow inventory: Ivy Zelman is the most bullish she’s been in her 22 year career.

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  21. David Losh

    RE: Howard @ 16

    http://www.cnbc.com/id/100528076

    According to this article Moscow, and New York are neck, and neck in price per square foot. It also happened all across Southern Europe where property prices mushroomed in a matter of a few years.

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  22. Blurtman

    RE: banjo country @ 20 – It’s a game of chicken, now. The on the fencers and the RE owners. Wait too long, and you can be priced out forever versus I’m bailing if this sucker goes up another 5% versus I could give a crap, I like my house.

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  23. softwarengineer

    This Blog Left Almost All American/Russian Home Buyers

    When it starts lamenting how nice it is that Russian Homes for the rich elite are out of sight.

    Who the Hades cares? Its like saying some nut bought a 900 SF home in Seattle for $1M….geez, the blog goes off on the weirdest tangent(s) that have nothing to do with general pricing or predicting the future prices….

    “..Today, the minimal cost a new home in Moscow is estimated at $5,000 per sq.m. (with the average Russian salary $550 per month), which is too expensive even for foreigners….”

    http://www.worldpropertychannel.com/international-markets/residential-real-estate/real-estate-news-russian-home-buyers-chesterton-homes-for-sale-in-moscow-moscow-price-values-new-home-sales-in-russia-london-home-sales-new-yorkhome-sales-2218.php

    .

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  24. pfft

    By Blurtman @ 4:

    RE: softwarengineer @ 3 – Yes. It has been pointed out that the stock market is no indication of the health of the USA.

    well that is wrong. it’s not a perfect indicator but it’s a good one.

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  25. pfft

    By redmondjp @ 5:

    RE: Blurtman @ 4 – And as pointed out by a UW professor being interviewed on the radio this morning, using inflation-adjusted numbers, the Dow is still BELOW where it was at in 2000.

    Thirteen years, and no real equity value increase.

    Wrap your mind around that for a minute.

    It makes the mattress-stuffing of my grandparents’ generation look positively brilliant.

    did he adjust for dividends though?

    a 10 year chart views a dow up over 100% but I don’t think that’s inflation-adjusted.

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  26. pfft

    By Blurtman @ 7:

    RE: David Losh @ 6 – Yeah, but the Fed can hold to maturity, so it is paper losses till then for UST’s. For the toxic MBS, I don’t know what happens as some of this must be beyond dead.

    not sure about that dude. last time I looked MBS was recovering big time. did you used to freak out about maiden lane 2?

    we made money on that.

    http://online.wsj.com/article/SB10000872396390444270404577607420573052532.html

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  27. Blurtman

    Elizabeth Warren for President!

    Obama – what a sad tool.

    http://www.youtube.com/watch?feature=player_embedded&v=7cKTBy7_S_I

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  28. Blurtman

    RE: pfft @ 24 – Really. So I suppose it was just a dandy indicator in April 2008. Doh!

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  29. David Losh

    RE: pfft @ 26

    You didn’t look at MBSs, you are quoting stocks that made money from MBSs.

    http://seekingalpha.com/article/1256121-ben-bernanke-s-diabolical-plan-to-turn-mortgage-backed-securities-into-pristine-collateral

    Tax payers are on the hook for all of this.

    Which also reminds me, for those of you who are quoting Inflation Figures, you’re forgetting about how lending. for everything, has changed the way we look at money. Credit is a new kind of fiat currency, no government needed.

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  30. pfft

    By Blurtman @ 28:

    RE: pfft @ 24 – Really. So I suppose it was just a dandy indicator in April 2008. Doh!

    if the stock market tanks bears like you won’t say I told you so? riiiiiight.

    wit they stock market so high where is kerry telling us how awful Obama is for business?

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  31. pfft

    if I told you over 10 years both the total return of the S&P 500 and a balanced 50/50 fund were both up 100% would you believe me? how many know this?

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  32. Blurtman

    RE: pfft @ 30 – I’m not a bear. I am just disputing your nonsensical statement.

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  33. pfft

    By Blurtman @ 32:

    RE: pfft @ 30 – I’m not a bear. I am just disputing your nonsensical statement.

    the problem with that is the stock market is almost ALWAYS making new highs. Of course it would make new highs before a bear market. That’s almost the definition of a bear market. The stock market now is climbing a wall of worry. In April of 2008 almost nobody was concerned. People were sure we had brushed off the summer of 2007.

    Here is the market today:

    Two Traders Just Had An IM Conversation That Reveals How Market Sentiment Really Works

    Read more: http://www.businessinsider.com/two-traders-just-had-an-im-conversation-that-reveals-how-market-sentiment-really-works-2013-3#ixzz2MvaUxJrM

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