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NEWS: Signs of economic peril ahead.

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posted on Apr, 8 2005 @ 06:35 AM
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Robert Shiller compares the current real estate and stock market environment to 1929. He describes the trading of condos in San Diego; some being held and sold over months, untenanted.
 



www.voiceofsandiego.org
"People can't imagine that this is a bubble, but it is," said Yale University economics professor Robert Shiller. Shiller is the author of "Irrational Exuberance," in which he predicted the collapse of technology stocks in 2000. Shiller says the frenzy of buying in San Diego real estate over the last four years mirrors what happened in 1929, and he says conditions are right for a major downward adjustment in overpriced real estate markets like San Diego.

"It's happening now like in the '20s," Shiller said of housing prices in San Diego. "People then thought that the market can only go up, and they were trading stories about how much money people made. And you had economists saying it was fundamentally sound, that prices would never go down."



Please visit the link provided for the complete story.


There is a real estate bubble. This is fact. It is not an isolated US phenomenon but global, or at least throughout Europe, the UK, Australia and parts of Asia. The trading of empty condos is just so reminiscent of tulip mania or the Japanese realestate madness of the 80s, that bubble status cannot be denied. This does not mean a bust is imminent. Tops are often broad and difficult to predict. However, Greenspan's recent warnings that Fannie Mae and Freddie Mac were too large, and that they should be limited to holding $100 to $200 billion in mortgages. Currently, these two guarantee roughly half of the $7.6 trillion mortgage market. To offset this enormous debt, they hold over $1 trillion in derivatives (end 2003). Greenspan said that the size of these two institutions pose a risk to the US and possibly the world's financial stability.
This certainly suggests they plan to rein them in. Does this mean interest rates are headed north? I'm not sure. I am sure its time to unwind highly leveraged positions and behave sensibly. Better to miss an opportunity then find yourself on the breadline.



Related News Links:
banking.senate.gov
www.reuters.com



[edit on 8-4-2005 by bookie]




posted on Apr, 8 2005 @ 07:31 AM
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I'm sorry - both that I made a mistake and now have to explain in public.

I meant to click "fix your intro" - and all I meant was put a bit more meat in the top section. But instead I clicked "fix your headline" - which probably has you scratching your head.

Then I have a question to the admin. When some one clicks a story as a "no - please fix THIS"...do we get to vote again after the fix? Because that would be unfair if we didn't - bein's, for example, I think this is a good article once the intro is beefed up.

clarification: I think it would be unfair to the WRITER - not me...lol.

[edit on 4-8-2005 by Valhall]



posted on Apr, 8 2005 @ 10:03 AM
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Bookie--I very well understand your intro and thank you for the post. I've been watching the housing market as well as the stock for a long time. Made money off of both, but right now, I'd encourage anyone to read this post of bookie's and then go out and find every indicator you can regarding the economy. We are heading for very deep recession and I'm one of those people that never agreed that we recovered from the last recession.
There's plenty of you who will say business is good, but it's not. The last few years companies have been recording phony profits. If they aren't lying like, Enron and Tyco, they have been cutting their workforce for the temporary boom they'll get out of selling inventory, or the're going offshore which has created a problem of lowering wages. Companies doing business in America are being forced to pass-on increased costs to the consumer, usually at inflated cost. It's this inflationary rise in prices, the lowering of wages and growing inability to keep up with cost of living that will finally burst the housing market. How many of you know of someone who just moved into a huge new home that for the life of you, you can't understand how they can afford it--and probably drive two new cars? Well they can't afford it and houses are being foreclosed at record numbers. Yes, I believe the housing boom is already over in some parts of the country and will soon slow everywhere. Hold-on to your money.



posted on Apr, 8 2005 @ 10:36 AM
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It's coincidence, but I have also just made a thread about a possible burst.

Again, we must not talk outselves into a crisis (that is the most dangerous what we now can do)- but we must be cautious, especially you guys in the USA with the trade deficit.

www.abovetopsecret.com...

Blobber



posted on Apr, 8 2005 @ 10:42 AM
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No, it's not only a real estate problem (though I too believe that is a bubble). If you look at the trade deficit, it may be also a structural shortcoming in your import-export ratio. So, it may be you guys have been living for far too long on a bubble which does not reflect the actual economy of the US: i.e. say like someone who everytime makes debts believing he can pay it back, then realizes after spending the money that his monthly wages are actually too low relative to the loans that he has been given.

Blobber



[edit on 8-4-2005 by Blobber]



posted on Apr, 8 2005 @ 11:23 AM
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Blobbe--I didn't mean to sound like I thought it was only a housing boom. I totally agree with you that we've been living under the false impression that our economy is fine. For the last two years our idiot finance guru, Alan Greenspan, has been dangling by Bush's puppet strings--telling a bored and nodding congress what good shape were in, While Bush takes to war ,cuts taxes for the rich and passes a staggering medicare plan that only helps the pharmacutical companies. Forget about the staggering trade deficit he seems to enjoy.



posted on Apr, 8 2005 @ 03:28 PM
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when housing prices increase over 100% in some places in a single year, when a run-down shack is over $500K, when only 16% of families can afford a *median* priced home, anywhere within a hundred miles of their jobs, then obviously something is wrong.

The problem is, the increased need by everyone to "make money" off of everything. People buy and sell a house simply to make money off of it. People with liquid cash, alread affluent, buy something that is a bargain, on a whim, and sell it at a profit-their profit is the increase on the property. Now that property is "worth" more. People desperate for a home for their families will go to great lengths to finance one, so the increased price homes sell. This raises nearby properties as well, and the whole thing spirals upward. Good for the rich who have the income to risk, and the liquid cash to spend, on property, sitting on it until they can sell at a profit.

Some, playing the game, simply so they can afford a quality home. Buying a home that's practically condemned. Because "everyone knows" property values increase. So they're willing to spend more, and over time, the same run down home is sold for enough of a proft the family can finally get something worth living in. Meanwhile, the entry level homes have increased another 10-25%. Pricing most people out of the market.

Now you get condos-apartments with a $200K price tag and all the parking and noise problems ...

but, that's okay, it's Capitalism In Action. Who cares if families need to sell themselves into indentured servitude for twwenty five years or more, to have a home?



posted on Apr, 8 2005 @ 03:36 PM
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Originally posted by Phugedaboudet

Now you get condos-apartments with a $200K price tag and all the parking and noise problems ...



Actually you don't. In Manhattan, you get those for close to one mil.

The thing is, people who can afford it are well of and I won't be worrying about them in case of an economic downturn. A few years on Ramen noodles haven't hurt anybody yet (I know)



posted on Apr, 8 2005 @ 05:06 PM
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Originally posted by Aelita

The thing is, people who can afford it are well of and I won't be worrying about them in case of an economic downturn. A few years on Ramen noodles haven't hurt anybody yet (I know)


Aelita, many of these condo traders are only "well off" on paper, relying on "free"/borrowed money, highly leveraged on extremely low interest rates and reliant on the "greater fool" principle of trading up. While the party continues everyone's happy. Its a pyramid scheme. Its funded by extremely low interest rates and a monkey who has printed more cash per capita then ANY leader in history. Ultimately the music stops and someone gets left with a worthless chair, the USD gets flushed down the sewer and its Ramen noodles for EVERYONE....if your lucky.

My understanding of the 1929 environment is that the stock could be bought on 10% leverage. Its currently easier. I can buy or sell the major indices on a 1% margin and stocks on 5%. Currency traders have internet accounts on up to .3% margin. That means $10,000 will buy you a $3,000,000 position. Aelita, YOU can open one of these accounts tomorrow, no questions asked. YOU can buy $500,000 worth of IBM with 10k. Now does it sound like 1929. In the crash of 29, leveraged stock positions were forced to unwind then realestate got hit as it had to be sold to fund liabilities. If you were flush with cash you could buy mansions on the Riviera in Europe for nicks. And there lies a thought provoking truth.


[edit on 8-4-2005 by bookie]



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