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Thread: weekend commentary - Deja Vu all over again ...

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    Banned Melonie's Avatar
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    Default weekend commentary - Deja Vu all over again ...

    uncanny similarities between September 2000 and September 2006 ...

    (snip)"In September of 2000, economists and bullish money managers were telling us that "This time it is different." They specifically pointed to the fact that the market was close to making new highs. We were heading for a soft landing. Not one of the Blue Chip economists at the time was predicting a recession. As an aside, we now know the economy was slowing dramatically and would be in recession by March of 2001, two quarters before the normal four quarters the Fed study suggested.

    The Fed would be cutting rates less than five months later, but as we know, a recession came anyway"(snip)

    from


    while author John Maudlin only touches on this data to support a larger point, his chart 55 also makes an ominous prediction ... that US investment in housing over the next few months is very probably going to fall by some 2.5-3% of GDP based on past cycles ...




    what makes this important is that 2.9% is the current growth rate of the GDP, meaning that housing alone could turn the GDP negative without beginning to count in 'ripple effects' in other industries.

    What's also important is that in dollar terms 3% of the GDP means 3% of 50 TRILLION dollars ... in other words 3/4 of a TRILLION dollars of US economic activity is likely to soon disappear. That's $2,500 per year disappearing for every man, woman and child in America's 300 million population, or $10,000 per year for a typical family of four !

    Obviously, it won't be hard to figure out how Americans are likely to alter their financial spending habits to compensate ... by massive reductions in spending levels for anything that is not 'essential'.
    ~
    Last edited by Melonie; 09-02-2006 at 09:55 AM.

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    Default Re: weekend commentary - Deja Vu all over again ...

    Quote Originally Posted by Melonie
    Obviously, it won't be hard to figure out how Americans are likely to alter their financial spending habits to compensate ... by massive reductions in spending levels for anything that is not 'essential'.
    ~

    Already there - but the damn shit keeps getting more expensive!

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    Banned Melonie's Avatar
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    Default Re: weekend commentary - Deja Vu all over again ...

    yeah, well, the 'next phase' is likely to follow a few months from now ... Americans cutting their spending back to just the essentials (like taxes, mortgage/rent, food, gasoline, car loan, insurance, utilities) and STILL coming up short at the end of the month!!! This is going to be a major kick in the head to virtually every segment of the new American 'service' economy ... as Americans will no longer be able to afford theaters, restaurants, hair/nail salons, lawn care, vacations, trips to the mall, toys, strip clubs, home improvements, you name it !

    Some official stats already show that 'cracks' are appearing ... a larger negative US savings rate last month (Americans spent 1% more than they earned - again !), sharp rises in the number of 3 months late mortgage payments / loan payments / credit card payments, 'small investor' money starting to come out of the stock / bond markets, increasing numbers of cars and houses showing up on the auction block etc.

    The 'tin foil hat' crowd is of the opinion that the vast majority of Joe Sixpacks are still living beyond their means, first sustaining their spending habits by mortgage refis with equity extraction (which has now become impossible due to stagnant / falling real estate values) - followed by running up their credit cards to cover the shortfall (which is now becoming impossible due to rising monthly payments caused by higher interest rates, plus maxxing out credit line limits) - and now is being sustained by liquidating assets (i.e. selling stocks / bonds / cars / houses) with the pool of willing and/or qualified buyers starting to dry up. The most insidious stat relates to the 1 TRILLION dollars worth of ARMS that are going to reset in the next year and add hundreds of dollars per month worth of mortgage payment to millions of Joe Sixpacks' essential item spending obligations (12% of all mortgages are now ARMS).

    One prophecy that the NY Times got exactly right ...


    IMHO A brick wall awaits a few months down the road unless the fed drops interest rates and starts printing new US dollars like there's no tomorrow (which of course will just create a different set of problems). The 'tin foil hat' crowd is of the opinion that the fed has already blown it i.e. that the higher interest rates already put into effect have popped the housing / easy credit bubble and that the snowball is already rolling downhill towards a 'hard landing' of bankrupt Joe Sixpacks as well as bankrupt companies that Joe Sixpacks owed a lot of money to. If you're not buying this theory, check out this little tidbit ...



    (snip)" Fresh anecdotal evidence of defaults came last week not from a bank but from H&R Block, whose shares fell 9% after it annoucned an unexpected $102.1 million charge related to its Option One mortgage business.

    Option One, which specializes in mortgage loans to borrowers with credit scores at the lower end of the spectrum, said the losses aimed to cover loans it could be required to buy back should a borrower default on the first payment.

    Banks have yet to report similar losses. But "there is the word out there that defaults are rising very sharply even on first payments," said Bret Witter, vice president at investment advisor Witter & Westlake.

    In California, one of the hot markets where home prices had soared in recent years, defaults surged 67% in July from the year earlier.

    Mortgage-lender National City said recently that, while it has refrained from entering the more risky areas of mortgage-lending, it has seen a marked increase in first-payment defaults on loans, while average balances in checking accounts are dropping and there are more and more overdrafts. "(snip)
    ~
    Last edited by Melonie; 09-02-2006 at 03:15 PM.

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