"The Undaunted Spirit" by Lorenzo Ghiglieri

Will a Prolonged Bear Market Slow Seattle Real Estate?

"The Undaunted Spirit" by Lorenzo Ghiglieri
With stocks being hammered across the world since Friday, the price of oil in the gutter, and volatility through the roof, pundits are starting to get somber about the market’s prospects.

If we’re in the beginning of a serious bear market, will Seattle’s crazy real estate market finally start to slow?

One of the major causes of the last real estate bubble was capital flight from stocks into real estate, so it is possible that a crash in the markets will just heat things up even more. However, if a tanking stock market takes down the overall economy this year, it seems unlikely that already-high home prices will be able to keep increasing. Also, I haven’t done the in-depth research on this, but I feel like markets like Seattle and the Bay Area that are home to lots of tech companies probably have a soaring stock market to thank for much of the recent frenzy in the real estate market.

What say you? Assuming for a moment that the recent dip in the market isn’t just a temporary setback, will a bear market apply the brakes to Seattle’s speeding real estate market?


About 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.

55 comments:

  1. 1
    Ray pepper says:

    Bought GRPN at historic low this morning at market open!!! Giddy up! Never thought my strike price would get hit. 7k long but very tempting to sell now and have all summer camps and Disneyland trips paid for. Hmmm… As for real estate flatline for years ahead

  2. 2
    ess says:

    It may or may not, but one should consider the ramifications of the article down below, may have a profound impact on the American housing scene.

    But it is also wise to consider the fact that there have always been both corrections and bear markets over the years, but during that time, housing has generally tended to trend upward in price. The housing market over time is akin to the stock market, it goes up and down, generally in an upward direction.

    Furthermore, one can recall that we have been here before – the here being that prices are going up, and no one would be able to afford those high mortgage or rental payments. I would suggest that at present, monthly taxes on most Seattle property is higher than the total principle and interest payment on the same property just thirty years ago. And thirty years ago there was the same concern about rising prices and higher rents. Sometimes a longer term perspective is required to view the overall picture in it’s proper context

    Will the above scenario repeat itself in the next thirty years – no one knows for sure, but with inflation, shortage of housing, increased population due to net migration to this area, liberal immigration policies that is increasing the population of the US, the urbanization of the US, as well as restrictive land use and extensive building requirements, it is more likely than not. But more likely than not is not an absolute prediction.

    As they say – there are only two things that are certainties in life – death and taxes. I would add a third – that Seattle won’t install a Republican city council by popular vote. Other than that, uncertainty is the hallmark of the day.

    To make predictions about real estate and the stock market for the short term future in absolute terms one way or another are risky, proceed at your own peril. Over the long term, I would suggest that both will rise, although when and how fast are anyone’s guess.

    http://www.dailyfinance.com/2015/08/11/death-of-starter-homes/?icid=maing-grid7%7Cmain5%7Cdl25%7Csec1_lnk3%26pLid%3D368585882

  3. 3
    Shoeguy says:

    By ess @ 2:

    I would suggest that at present, monthly taxes on most Seattle property is higher than the total principle and interest payment on the same property just thirty years ago. And thirty years ago there was the same concern about rising prices and higher rents. Sometimes a longer term perspective is required to view the overall picture in it’s proper context

    Except that from 1965 to 1995 incomes rose along with house prices. After the mid 1990’s incomes flatlined while house prices skyrocketed, and you can’t have one go up without the other.

  4. 4
    Steve A says:

    I think the stock market instability will cause just the opposite effect that you predict. With financial market instability, the Fed Chairwoman, Janet Yellen, will likely keep lending interest rates are near zero.

    I fully believe much the current buying craze is being caused by people wanting to buy expensive homes, while locking in historically low rates. Once the Fed starts raising rates up a few percentage points, prices of homes will have to steady out and buyers of more expensive housing will start to thin out.

    Historically, when markets swing wildly one way (like the interest rate), the longer it stays at an extreme, the more likely it’ll swing strongly the other way. Think about the mortgage interest rates of the 1980’s, which were commonly in the 15% range. Imagine today’s housing market if mortgages were above 10% interest.

  5. 5
    ess says:

    By Shoeguy @ 3:

    By ess @ 2:

    I would suggest that at present, monthly taxes on most Seattle property is higher than the total principle and interest payment on the same property just thirty years ago. And thirty years ago there was the same concern about rising prices and higher rents. Sometimes a longer term perspective is required to view the overall picture in it’s proper context

    Except that from 1965 to 1995 incomes rose along with house prices. After the mid 1990’s incomes flatlined while house prices skyrocketed, and you can’t have one go up without the other.

    Prices of all housing in the Seattle area, as well as rents have increased as of that time.

    As we have heard over and over again, the lower middle and middle class are moving out of Seattle proper so they can obtain affordable housing. I have met a number of financial refugees from Seattle that have relocated to South Snohomish County to buy or rent. But it can’t be that bad for Seattle, as recent population statistics indicate a dramatic net increase of Seattle residents over the past ten years

    In addition, there appears to be an increase of those sharing residences rather than obtaining their own separate digs for those who can’t afford their own place. A cursory glance at ads wanting to share or looking for a roommate will confirm this trend. Thus individuals solve their lack of resources by doubling or tripling up in order to remain in the trendier Seattle neighborhoods.

    And wages have increased for all employees over the years, perhaps as not as much as we would like for lower paid workers. But those lower paid workers are not driving the Seattle single family housing market at this time. It is the upper middle class and higher.

    Add in the mix all the high paid individuals and wealthy buyers competing for a limited resource – a single family residence in one of the more popular areas of Seattle, and here we are today.

    What exactly will happen in the short and mid term? We will all have to stay tuned to find out!

  6. 6
    Kip Wallbanger says:

    Knock, Knock

    Who’s there?

    Deflation

  7. 7

    RE: ess @ 4
    The Alleged Foreign Citizen Chinese Illegal Buyer in Seattle Won’t Save America at All

    “…“With the Chinese economy and real estate market slowing dramatically and a vociferous anti-corruption campaign in full swing at home, Chinese buyers have been scrambling in the past few years to buy real estate abroad,” said the Financial Times. It said they have become the biggest buyers of housing in many major English-speaking western cities with good education systems, excellent quality of life, strong rule of law and strong property rights, including New York, London, Sydney, Vancouver, Toronto and Auckland.

    People involved in the market say the vast majority of money for overseas property purchases is transferred out of China illegally, said the FT….”

    More:

    “…For the year ended March 2015, out of a total of $104 billion in international sales, buyers from Chinese (People’s Republic, Taiwan and Hong Kong) purchased $28.6 billion worth of property, 30% more than the previous year. While it accounted for 28% of total sales, it was just 16% of number of transactions. This far exceeded the $11.2 billion bought by Canadians, the second largest group of foreign buyers with 14% of total transactions.

    Five countries accounted for 51% of purchases by foreigners: Canada, China, Mexico, India, and the United Kingdom. Although Chinese buyers of American property overtook Canadian buyers in total transaction volume a year ago, they only overtook them in number of transactions in the latest 12-month period measured by the NAR report….”

    http://atimes.com/2015/06/china-tops-list-of-foreigners-buying-us-real-estate/

    Notice the data is a NAR report, highly trustworthy, LOL…..but it makes no difference to our American economy, its affect is moot. Hades we lost $9T in 2007 alone, $28B nationally….LOL, this discussion is a total joke. Open the whiskey bottle and pour yourself a drink. Stocks are still edging heavily down today, even with bargain hunters buying us out of the DOW 1000 pt plunge this morning….let’s watch YTD trends in stock market, much more meaningful…

  8. 8

    RE: Kip Wallbanger @ 5

    Oil at $39/bbl= Gas at $1-1.50/gal

    Not the present $2.6-3.1/gal….and don’t let me get into “it will hurt cafe standards pushing $30K pea car sales and Hybrids” becomes a joke too.

    Let’s give Americans a break and lower food costs ASAP, along with gasoline, maybe this will end food stamps?

  9. 9
    wreckingbull says:

    RE: ess @ 4 – You left out synergistic leverage, not to mention compounding monetization. At the end of the day, it is what it is.

    https://www.youtube.com/watch?v=GyV_UG60dD4

  10. 10
    sleepless says:

    By Shoeguy @ 3:

    By ess @ 2:

    Except that from 1965 to 1995 incomes rose along with house prices. After the mid 1990’s incomes flatlined while house prices skyrocketed, and you can’t have one go up without the other.

    You can since most of the buyers are not regular Joes, meaning that incomes don’t matter. Thhe Chinese with suitcases of cash and institutional buys were driving the latest boom, not “high” paying amazon jobs. The home ownership rate is at something like 40 years low. It tells you something, doesn’t it? We have fewer and fewer home owners in this country because of the same reason. People who work cannot actually afford those prices and have to rent.

  11. 11
    sleepless says:

    Some people on this forum still don’t understand why we have the housing “boom”… The current Housing “boom” is the same “boom” as we had in 2002-2007 – the result of the FED monitory policies. Nothing else. Not “deregulating the Wall Street”, not NONJA loans, not other BS, it is the monetary policies of the FED, nothing else. Whatever drove the hosing prices higher during the recoverless recovery , same force drove the stock market higher as well as the bond market. All that nonsense about net migration and other BS is full of sh1t. It is the QE1, QE2, Operation Twist, QE3 and soon coming QE4 that drove the housing to its highs. All the “new jobs” were created in low paying service sectors. The IT jobs are result of malinvestment and the biotech bubble. All those snapchats and zillows will disappear as soon the liquidity disappears. The tech companies are at super valuations with P/Es in 50+ ranges, some even in hundreds (AMZN in 300+ range). I mean, look at it, if you think this biotech casino can just go on forever, then you are very short of memory of 2000. The tlaking heads are already asking for the FED not to raise rates and consider QE4 “to help the economy”. If you think the housing can go up forever in this environment, then you are naive at best, or just ignorant at worst. Also never mind the labor participation rate at the 40 years lows as well as 45 mil Americans on food stamps and 90+ million on other forms of the government assistance. Don’t look at the current market as it has any fundamentals because it doesn’t. It it looks like a bubble, walks like a bubble, talks like a bubble – it is a bubble.

  12. 12
    Erik says:

    RE: Ray pepper @ 1
    The real estate party is over, huh? Bummer.

  13. 13

    Again it would likely affect the high end more than the low end, because such buyers might be planning on cashing in stock to pay for the purchase. Or just feeling less wealthy might change their plans.

    BTW, few people (including agents) probably realize this, but second sentence of the boilerplate in a NWMLS purchase and sale agreement is a representation from the buyer that they have sufficient funds to close, and that they are not relying on any “contingent funds” including funds from “the sale of other property,” unless otherwise specified (e.g. a financing contingency or Form 22EF.) That means you’re not holding the funds in stock, because it just says property, not “real property.”

    So, if you make an offer on a piece of property, the offer is accepted, and you’re holding undisclosed stock to pay for the purchase, you will be in breach of contract if the stock falls in value and you can’t close.

  14. 14

    RE: Kary L. Krismer @ 12

    10 Year Bond Rates Went Below $2/share Today

    Think about that Kary, as investors bought 10 year treasuries and cashed in their stocks….ya won’t see them back in the stock market with that money for a decade.

    The short sellers were licking their chops as they bought bargains [what they thought were bargains] drove the -1000+ DOW drop to -200+, then more sold and it dropped about 600 points today….

  15. 15

    By softwarengineer @ 13:

    Think about that Kary, as investors bought 10 year treasuries and cashed in their stocks….ya won’t see them back in the stock market with that money for a decade.

    What, they bought treasuries that somehow cannot be sold? Most of what was bought might not even have been new issue (not replacing that maturing).

  16. 16

    RE: Kary L. Krismer @ 12

    Yes Kary

    I cashed in all my stocks earlier this year for a 2.5% safe haven retirement investment. No, I didn’t predict the roller coaster stock ride today, but YTD the DOW has been like -2-3%, now -5.5-6.5% with today’s losses….a mattress is a better place to invest….LOL….I did predict that.

  17. 17

    RE: Kary L. Krismer @ 14

    Oh, You Can Sell a 10 Yr Bond at 2%

    But you give up the interest, penalties, restrictions?

    “…You can choose to sell almost any bond on a secondary market before maturity. While you may lose money, you do not incur a penalty. You can also choose to exchange a U.S. savings bond before maturity, and in a few cases of very early exchanges you may have interest docked as a penalty. – See more at: http://wiki.fool.com/Penalty_for_Selling_a_Bond_Early#sthash.QWFTagDF.dpuf…”

  18. 18
    pfft says:

    By sleepless @ 10:

    Some people on this forum still don’t understand why we have the housing “boom”… The current Housing “boom” is the same “boom” as we had in 2002-2007 – the result of the FED monitory policies. Nothing else. Not “deregulating the Wall Street”, not NONJA loans, not other BS, it is the monetary policies of the FED, nothing else. Whatever drove the hosing prices higher during the recoverless recovery , same force drove the stock market higher as well as the bond market. All that nonsense about net migration and other BS is full of sh1t. It is the QE1, QE2, Operation Twist, QE3 and soon coming QE4 that drove the housing to its highs. All the “new jobs” were created in low paying service sectors. The IT jobs are result of malinvestment and the biotech bubble. All those snapchats and zillows will disappear as soon the liquidity disappears. The tech companies are at super valuations with P/Es in 50+ ranges, some even in hundreds (AMZN in 300+ range). I mean, look at it, if you think this biotech casino can just go on forever, then you are very short of memory of 2000. The tlaking heads are already asking for the FED not to raise rates and consider QE4 “to help the economy”. If you think the housing can go up forever in this environment, then you are naive at best, or just ignorant at worst. Also never mind the labor participation rate at the 40 years lows as well as 45 mil Americans on food stamps and 90+ million on other forms of the government assistance. Don’t look at the current market as it has any fundamentals because it doesn’t. It it looks like a bubble, walks like a bubble, talks like a bubble – it is a bubble.

    could you be more wrong? you don’t even get your first fact straight. home prices went down even though the Fed embarked on ZIRP. don’t you from the tim’s work that interest rates only explains SOME of the action in home prices. Interest rates were going up for a good portion of the housing boom. they were going down while home prices were falling.

  19. 19
    Sotocapo says:

    All I know is our family income is very high and in industries that are very recession proof but even with a large downpayment we are virtually priced out of the neighbourhood we want to buy in. Well we could buy but we decided to rent instead in the same neighbourhood this year when we relocated to the area. It felt like prices were topped out. Lots of stuff at the top of the market is not moving.

    Our very experienced Real Estate agent of 25 years said she also thought “something” will happen in the next 12 months. So we have been sitting out of the market and saving more.

    I just hope our money still has value when we decide to buy. We all still need somewhere to live.

  20. 20
    Erik says:

    RE: Kip Wallbanger @ 5
    Deflation who?

  21. 21
    m-s says:

    “De buying spirit is willing, so de flation is weak.”

  22. 22
    sleepless says:

    By Erik @ 11:

    RE: Ray pepper @ 1
    The real estate party is over, huh? Bummer.

    Not quite yet, but we are getting there :)

  23. 23
    Kip Wallbanger says:

    RE: Erik @ 19

    Deflation housing, auto, currencies, transports, shipping, and commodities.

    When it hits, there is no safe place to stand.

  24. 24
    sleepless says:

    By pfft @ 17:

    By sleepless @ 10:

    could you be more wrong? you don’t even get your first fact straight. home prices went down even though the Fed embarked on ZIRP. don’t you from the tim’s work that interest rates only explains SOME of the action in home prices. Interest rates were going up for a good portion of the housing boom. they were going down while home prices were falling.

    The manifestation of the monetary policies are not instant. It takes time to thing to go either way. The fed tapered the QE about a year ago and now we are below the post QE level. You can say the stock market kept going up even after the QE was over, that automatically assumes that the QE has nothing to do with assets inflation? Yes, the stock and the housing went up for a while on the momentum. But now, since the drag is worn off and the is no more drug available for the addict, the inflated assets will have to go thru the withdrawal effect. The only way for the FED to stop… hm… my bad, to postpone the disaster is keep the rates at 0 or/and introduce the QE4. Keeping the rates at 0 no longer works, as they were at 0 for the last year. We “need” more QE to save the bubble that is deflating at full speed…. And keep in mind one thing. The FED monetary policies do not always cause inflation, as often, they prevent deflation. Which means dropping the rates to 0 and adding QE on top of it might not have pushed the housing prices higher at the beginning, but it has prevented them from falling further.

  25. 25
    sleepless says:

    By Erik @ 19:

    RE: Kip Wallbanger @ 5
    Deflation who?

    The “assets” : stocks, bonds, housing, etc…

  26. 26
    sleepless says:

    Yup, tight credit means no more “easy money” to buy cars, to go to college , etc. The college bubble will push lots of colleges out of business and leave a lot of “professors” unemployed. The auto loans bubble will leave the auto industry wrecked. The mortgage bubble will leave the investors out of the hosing industry – aka significantly reduced demand. The stock market crash, specifically in biotech will leave a lot of unemployed “high paying” professionals. Look at the oil and other commodities industries, the are evaporating. Same you can expect with snapchats, teslas, zillows, twitters and other BS companies that make $0 in profits and were the result of malinvestment practices. See how many people won’t be laid off when they market values drop 30%. The whole “recovery” was built on one thing, re-inflating 2000 – 2008 bubble. And you know, sooner or later all bubbles burst…

  27. 27
    Kip Wallbanger says:

    RE: pfft @ 17

    Sorry pfft, but I believe Sleepless is very correct.

    I believe you may have discounted the expansion of credit and how it encourages overproduction / oversupply. It works fine until demand contracts.

    If QE4 occurs, it will on delay the inevitable contraction, while compounding the problem.

  28. 28
    sleepless says:

    By Kip Wallbanger @ 22:

    RE: Erik @ 19

    Deflation housing, auto, currencies, transports, shipping, and commodities.

    When it hits, there is no safe place to stand.

    Gold and silver?

  29. 29
    Kip Wallbanger says:

    RE: sleepless @ 25

    Funny you mention education and automobiles. I was just thinking about this.

    Who in their right mind pays $72,000 for a Suburban? 8 year auto loans? Nutz

  30. 30
    Kip Wallbanger says:

    RE: sleepless @ 27

    Gold and Silver with a caveat. Physical only. I believe gold and silver paper will be decimated.

    Because of that, I believe the buy in will be south of here. Everyone will get to grab their ankles this go around.

  31. 31
    sleepless says:

    By Kip Wallbanger @ 28:

    RE: sleepless @ 25

    Funny you mention education and automobiles. I was just thinking about this.

    Who in their right mind pays $72,000 for a Suburban? 8 year auto loans? Nutz

    There you go :), same with housing and everything else. “Easy money” is what was driving the recovery. Lets see how the “economy” can sustain itself without 0% interest and no QE…

  32. 32
    sleepless says:

    Remember one thing, when ever the grubberment wants to make something affordable (housing, education, healthcare) or help the economy (ease the credit standards, high/low taxes, borrowing more money), run the opposite direction. I have to yet find case in the history when the grubberment got its hands on something and succeeded.

  33. 33
    Sotocapo says:

    Even if QE4 finished last year lots of money for stocks comes from abroad, so as some Americans were cautious overseas investors were not. We are out of the stock market right now and we paid cash for our cars and other assets. I don’t think anyone truly knows what to expect as I don’t believe the U.S. has printed money on this scale before so don’t know how it will unravel. Also this involves the entire globe, Germany is already in an “official” Bear Market.

    Can someone explain the rule 48 or whatever it was this morning that the stock market invoked? It seemed a manipulation of the market.

  34. 34
    greg says:

    By sleepless @ 10:

    Some people on this forum still don’t understand why we have the housing “boom”… The current Housing “boom” is the same “boom” as we had in 2002-2007 – the result of the FED monitory policies. Nothing else. Not “deregulating the Wall Street”, not NONJA loans, not other BS, it is the monetary policies of the FED, nothing else. Whatever drove the hosing prices higher during the recoverless recovery , same force drove the stock market higher as well as the bond market. All that nonsense about net migration and other BS is full of sh1t. It is the QE1, QE2, Operation Twist, QE3 and soon coming QE4 that drove the housing to its highs. All the “new jobs” were created in low paying service sectors. The IT jobs are result of malinvestment and the biotech bubble. All those snapchats and zillows will disappear as soon the liquidity disappears. The tech companies are at super valuations with P/Es in 50+ ranges, some even in hundreds (AMZN in 300+ range). I mean, look at it, if you think this biotech casino can just go on forever, then you are very short of memory of 2000. The tlaking heads are already asking for the FED not to raise rates and consider QE4 “to help the economy”. If you think the housing can go up forever in this environment, then you are naive at best, or just ignorant at worst. Also never mind the labor participation rate at the 40 years lows as well as 45 mil Americans on food stamps and 90+ million on other forms of the government assistance. Don’t look at the current market as it has any fundamentals because it doesn’t. It it looks like a bubble, walks like a bubble, talks like a bubble – it is a bubble.

    I agree with much of what you are saying.
    To me it is clear prices are too high compared to incomes. I am seeing low quality housing in low quality areas selling at prices which are completely unsustainable . Homes listed and selling for what I consider to be far too much given the local incomes and costs of living in the USA.

    My current plan is to keep my powder dry until I sense a real distaste for stock, as for housing it all seems to high to be worth the risk.

  35. 35
  36. 36
    whatsmyname says:

    By sleepless @ 27:

    Gold and silver?

    Oldest bubbles of all. Priced above any value for their practical applications, their “fundamental” value is as a medium of exchange for a pre-industrial world. And those who fetishize them as “investments” can hope only for panic and chaos to realize that value. Hence, they do.

    Silver is off over 60% since peaking in 2011; gold is off 37%.

  37. 37
    Ray pepper says:

    Grpn grpn grpn. All day long at 4.00!!!!

  38. 38
    sleepless says:

    By whatsmyname @ 35:

    By sleepless @ 27:

    Oldest bubbles of all. Priced above any value for their practical applications, their “fundamental” value is as a medium of exchange for a pre-industrial world.

    . So… you are suggesting that the printed paper out of thin air has more value that one of the rarest metal on earth that has been around for thousands of years? How exactly is it? Why the US dollar used to be backed by gold and silver. Since the establishment of the FED, the US $ lost 98% of its value. We are now in the ginormous bubble never seen thruout the human history. What is the alternative? The US $? The only reason why gold and silver is no longer “officially” considered “money” is because no grubberment can print it. The only reason the US $ has any value whatsoever is because it is backed by oil (ever heard of petrodollar)… oops… i just spoiled it. You do actually have to have something backing up your currency, don’t you? Do you want to be in control of your money or you want the grabberment to do it by mandating the value of the currency (via interest rates and QE) and how much you can buy with it? If it is the latter, then there is nothing to discuss. Keep your worthless paper money, i will keep my gold and silver. Lets see whose money lasts longer…

  39. 39
    sleepless says:

    And, to be clear, I have never said the real estate is a bad investment. I do believe you should invest in stocks and real estate and bonds. The only problem is that all of those assets are currently in the bubble… this is why I see no value in stocks or bonds or housing. When it drops 50% or more, then we can talk. Until then, it is a bubble.

  40. 40
    whatsmyname says:

    RE: sleepless @ 37

    I’ll take my “paper” down to the store, and get some food and gas. You take your gold. We’ll see who comes back first, and with something they need.

    Gold lost 37% of its value since 2011 – and that’s against the “worthless” dollar.

    The dollar and gold are mediums of exchange, not productive assets. You can speculate in them, but they are not investments.

  41. 41
    redmondjp says:

    By whatsmyname @ 39:

    RE: sleepless @ 37

    I’ll take my “paper” down to the store, and get some food and gas. You take your gold. We’ll see who comes back first, and with something they need.

    Gold lost 37% of its value since 2011 – and that’s against the “worthless” dollar.

    The dollar and gold are mediums of exchange, not productive assets. You can speculate in them, but they are not investments.

    Yes, all true in a normal economy. But as Greece has shown, the powers that be can instantly restrict access to your money. Got lots of physical paper money? You might be a criminal then (so the police and the gov’t assume and they will readily separate it from you unless you can PROVE that it is yours, even if legally obtained by a W2 job).

    And at the very end of a fiat currency, hyperinflation happens very suddenly until the currency is worthless (see Venezuela for the most recent example). THEN is when your physical metals really shine – they will never be worth zero, unlike fiat currency which will litter the streets.

    So in normal times, it doesn’t make sense to have a whole lot of gold & silver. Are these times normal? Only you can decide that. As any investment adviser would say – it’s best to have a diversified portfolio!

  42. 42
    Kip Wallbanger says:

    RE: sleepless @ 37

    Technically they have printed gold too, in promissory notes and options.

    I can’t wait to see the run to the goldsmith’s vault. ;)

    Alcapone’s vault. :p

  43. 43
    David says:

    I think the money flowed from Stock market to Housing during early 2000s is because interest rates kept dropping and houses became more affordable.

    Interest rates won’t drop from where they are now. Lets think about 2 (or 3) scenarios:

    1. QE4 which also means lower interest rates – Stock market will continue to go higher, real estate will cotinue to boom.

    2. No more QE but Interest rates remain the same for extended period – Stock market will continue to go sideways, real estate market will cool down a bit but not in Seattle

    3. Interest rates go up – Money will flow into bonds, stock market comes down to fundamentals, economy stabilizes and houses continue to be flat because they become a bit less affordable.

    What do you guys think?

  44. 44

    RE: Sotocapo @ 32
    Yes Sotocapo

    No one likes being the sap at the end of a pyramid scheme, the one that makes money for the lucky few pyramid investors at the top. 0% interest and no QEs, get used to it. The Fed Budget uses 15% of its total base to pay interest on the debt and what is the interest for the debt? 1-2% interest? Imagine this doubling (30% of total base), quadrupling (60%), etc. Imagine the budget cuts with reduced lower wage IRS revenue and the cost of the debt interest eating up the rest of entitlements and all our jobs.

    Scary thought, so it won’t/can’t happen. Get used to 0% interest and $1-2M retirement 401Ks that only last 18 years at low interest savings rates. Pensions disappearing at the same time.

    The stock market started trade at 930A, instead of 900A…..the selloff data was on a computer in a DOW -600 point chunk before trading began, to be first in line?

  45. 45
    Rumpole says:

    By sleepless @ 27: “Since the establishment of the FED, the US $ lost 98% of its value.”

    Is this a serious comment or just a number you think is cool to trot out? You do realize that prices move as well? If the relative use of the dollar stays constant, who cares about comparing it to 1790 or 1913?

    Since the establishment of the Fed, the US has experienced epic economic growth, and our citizens have a incredible proportion of the world’s wealth. Would you rather trade places with any other society during that time? I wouldn’t.

    Spare me any comparisons to Weimar, Zimbabwe and Venezuela. US GDP was $17.4 trillion 2014 and the USD reigns supreme; how’s that up and coming Yuan doing? Everyone have any confidence in that currency? On a long enough time horizon, we all turn to dust and all currencies go away; in the meantime, I’m investing in the best game in town, the US economy.

  46. 46
    redmondjp says:

    RE: Rumpole @ 44 – So which investment advisor company do you work for?

  47. 47
    ongsomwang says:

    By Rumpole @ 44:

    By sleepless @ 27: “Since the establishment of the FED, the US $ lost 98% of its value.”
    Since the establishment of the Fed, the US has experienced epic economic growth, and our citizens have a incredible proportion of the world’s wealth. Would you rather trade places with any other society during that time? I wouldn’t.

    .

    That might be true for boomers, and first wave generation X. Boomers benefited most from Fed Policy. But it sure feels like the “quality” of life has been going down for later generations.

  48. 48
    Blake says:

    By Kip Wallbanger @ 41:

    RE: sleepless @ 37

    Technically they have printed gold too, in promissory notes and options.

    I can’t wait to see the run to the goldsmith’s vault. ;)

    Alcapone’s vault. :p

    Yes, it seems that the central bankers and their friends that run the world’s largest banks have been manipulating the precious metals markets for years. They don’t want anyone to have any safe havens from their fiat currency craziness…
    http://www.bloomberg.com/news/articles/2015-08-25/eu-commission-is-probing-precious-metals-operations
    “Jesse” (aka Arthur Cutten) has been following this closely for many years…
    http://jessescrossroadscafe.blogspot.com/

  49. 49
    Blake says:

    By Ray pepper @ 36:

    Grpn grpn grpn. All day long at 4.00!!!!

    Groupon…? Come on Ray! You like to buy “real”estate… you should buy real companies too!
    (I like Costco… kind of a negative consumption item company… does well in recessions… or depressions!)

  50. 50
    Blake says:

    RE: David @ 42
    I think … the Fed and central banks are out of bullets! Deflation is setting in an debts will not be paid!
    This is not 2008… it’s worse!
    http://www.washingtonsblog.com/2015/08/why-the-bear-of-2015-is-different-from-the-bear-of-2008.html
    The author – Charles Hugh Smith – concludes by asking: “Are there any conditions now that are actually better than those of 2008? Or are conditions now less resilient, more fragile and more dependent on unprecedented central bank interventions?”

    Are there????

  51. 51
  52. 52
    David says:

    RE: Blake @ 49

    I don’t think Fed is out of bullets. They printed $85B * 12 ~ $1 trillion. US GDP is $18 trillion.
    JCB printed almost $43B * 12 ~ $500 B. Japanese GDP is around $500B. So basically they printed as much as 1 year GDP.
    Please correct me if my numbers are off by a lot.

    The point I am trying to make is, there are a lot of bullets Fed can still use.

    Imagine printing $170B / month. Gold will go to $2500-3000, big deal? Not a lot of Americans own gold anyway.
    I am not sure how much Chinese own but lets say 4000 tons. That’s my case to own a lot of SLV!

    If Fed does that (printing $170B/mo), Chinese can’t match money printing to have same RMB/USD parity without causing a runaway inflation. This gives us a lot cheaper USD. Very attractive to bring some of the businesses over.

    I am a Software Developer and everywhere I see a lot of companies are bringing back jobs from India/China because it makes easier to have people here even with higher salaries. Dovish Fed like Yellen WILL weaken our currency!

  53. 53
    Blake says:

    RE: David @ 51
    The whole point of Quant easing etc. was not just to “print” dollars, but to drive interest rates down to stimulate economic activity. They are out of bullets because interest rates are already rock bottom! How much more bang for their bucks do you think the Fed will get now? They estimate that the Bank of Japan is basically buying ALL of the Japanese governments bonds now! EVERY government is devaluing their currencies and these “beggar thy neighbor” policies of competitive devaluations is what prolonged the 30’s depression… I haven’t read any analysts who think the US dollar is going to weaken any time soon. u r dreaming… US gov bonds have much better yields than Japanese or European gov bonds… so the dollar will continue to get stronger.
    https://en.wikipedia.org/wiki/Beggar_thy_neighbour
    … the current financial crisis is largely because of China starting the devalue it’s currency and it’s neighbors responding… i.e. currency war!

  54. 54
    Blake says:

    One more related item from Bloomberg today:
    The U.S. Is Short on Options to Confront Next Crisis
    http://finance.yahoo.com/news/u-short-options-confront-next-160217806.html
    … Partly for that reason, the Bank for International Settlements has warned that still-low rates around the world pose a looming economic risk. “Restoring more normal conditions will also be essential for facing the next recession, which will no doubt materialise at some point,” according to an annual report from the organization of central banks. “Of what use is a gun with no bullets left?”

  55. 55
    Ray pepper says:

    GRPN up up and away!!!!!

Leave a Reply

Use your email address to sign up with Gravatar for a custom avatar.
Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Please read the rules before posting a comment.