Good news on the interest rate front

[Mango]

My opinion was the Feds have tightened too much already- maybe we will see some more real estate market activity.


U.S. Treasuries Gain After Bernanke Says `Moderation' Under Way
July 19 (Bloomberg) -- U.S. 10-year note yields fell the most in six weeks after Federal Reserve Chairman Ben S. Bernanke said ``moderation'' is under way in the economy, fueling speculation the bank will pause in lifting interest rates.

Traders bought Treasuries as Bernanke, in testimony to Congress, said policy makers must take into account ``the possible future effects of previous policy actions,'' while also remaining on guard against inflation. Treasuries fell earlier after a government report showed consumer prices excluding fuel and food rose in June by more than economists forecast.

``More people are betting on the notion that the Fed may be pausing sooner rather than later,'' said David Glocke, who manages $30 billion in Treasuries for Vanguard Group Inc. in Malvern, Pennsylvania. ``I would have anticipated a little more focus on the inflation front but there's more real estate devoted to the slowing in the economy.''

The yield on the benchmark 10-year note dropped about 8 basis points, or 0.08 percentage point, to 5.05 percent at 2:07 p.m. in New York, according to bond broker Cantor Fitzgerald LP. It was the biggest drop since June 2. The two-year note yield fell about 8 basis points to 5.10 percent.

The price of the 5 1/8 percent note due May 2016 rose 5/8, or $6.25 per $1,000 face amount, to 100 17/32. The note's price moves inversely to its yield.

Growth Outlook

Gross domestic product, which expanded at an annual rate of 5.6 percent in the first quarter, will probably cool to grow from 3.25 percent to 3.5 percent this year and 3 percent to 3.25 percent next year, according to Fed forecasts published today.

``Investors are looking at the economic outlook and changing their opinions on the marketplace,'' said Richard Volpe, head of U.S. government bond trading at Bear Stearns & Co. in New York. ``If you look at the forward assumptions in the economic outlook they were weaker than we anticipated.''

Treasury trading volume surged today, according to data from ICAP Plc, the world's largest broker of trades between banks. Volume was $290.5 billion as of 2 p.m., approaching the amount for the full day yesterday when it reached $293 billion, which was the most since June 14, and above the six-month average of $253 billion.

The Fed next sets rates on Aug. 8. Interest-rate futures showed traders see a 59 percent chance the Fed will lift rates a quarter-percentage point to 5.5 percent next month, down from above 80 percent odds after the consumer price report. The Fed has lifted borrowing costs at its past 17 meetings.

Bearish Bias

Investors in Treasuries were the most bearish in three weeks in the week through July 17, according to a JPMorgan Chase & Co. index released yesterday.

Bernanke said policy makers must be on guard against ``persistently higher inflation.'' At the same time, the Fed doesn't want to ``tighten too much,'' he said in his testimony.

The Labor Department said consumer prices rose 0.2 percent in June, after a 0.4 percent increase the month before. The median estimate of economists surveyed by Bloomberg News was for a 0.2 percent jump. Excluding food and energy, prices rose 0.3 percent, the same as May, and beating the median forecast for a 0.2 percent increase.

Goldman, Sachs & Co. economists today raised their forecast for the fed funds rate a quarter-percentage point to 5.5 percent, saying today's inflation report and remarks from Bernanke make it less likely policy makers will pause.

Less Aggressive

Investors interpreted the Fed chairman's remarks as less aggressive on raising interest rates, said Don Alexander, director of fixed-income and currency strategy in New York for Citibank Private Bank, which manages $222 billion.

``The Fed may need to do something more. But maybe not as much as people had thought,'' said Alexander. ``He's not coming through as very aggressive about raising rates.''

Two-year Treasuries yielded about 5 basis points more than 10-year notes, according to Bloomberg data. This so-called inversion of the yields may indicate that traders believe the economy will slow, and the Fed may be forced to cut interest rates.

Ten-year yields fell as low as 5.04 percent on July 14 amid escalating violence in the Middle East.

Losses earlier today were also tempered by a report showing U.S. homebuilders started work on fewer homes in June.

Housing starts fell 5.3 percent to an annual rate of 1.850 million, the Commerce Department said. Building permits, a sign of future construction, fell 4.3 percent to a 1.862 million rate, a three-year low.

``The housing numbers may be a typical example of where the Fed goes a little too far'' raising rates, said E. Craig Coats Jr., co-head of fixed income at Keefe, Bruyette & Woods Inc. in New York.



To contact the reporter on this story:
Michael McDonald in New York at
mmcdonald10@bloomberg.net;
Deborah Finestone in New York at
dfinestone@bloomberg.net.

[SHELLY]

My opinion is that it is still too early to tell...situation & markets changing minute-to-minute (stock screens have as of late looked like Christmas Trees--red, green, red, green--albeit mostly green today :biggrin: ).

If Fed stops tightening because economy is showing signs of cooling; dollar loses value in cooling economy; interest rates on new bonds (debt) stagnate; Chinese & others cut back on buying our debt (and start buying bonds of other countries who are raising rates); start selling off their US bonds; as bonds are sold off, US bond prices drop--and yield rises; 10-year bond yield is tied to mortgages; 10-year yield goes up--mortgage rates go up.

If the Fed stops tightening, we'll be venturing into uncharted waters...and if inflation continues to get worse (there's inflation, even though they say there is not because they think we're stupid enough to believe what they tell us) it's gonna get ugly.

The FED is damned if they do, and damned if they don't--either way, the economy is really, REALLY screwed up. We're on a tightrope, on one side is a den of hungry lions and on the other a tank of Great Whites.

[kurt]

http://www.tombraider4u.com/pictures/sadfaces.jpg

[SHELLY]

http://www.tombraider4u.com/pictures/sadfaces.jpg

There, there--just deposit your net worth in the Bank of Serta and drag it down to your bomb shelter and wait it out....the economy needs a good shake-out, (if they allow it to run its course this time) it may hurt a bit, but then the sun will shine again.

[Beachbummett]

There, there--just deposit your net worth in the Bank of Serta and drag it down to your bomb shelter and wait it out....the economy needs a good shake-out, (if they allow it to run its course this time) it may hurt a bit, but then the sun will shine again.

:eek: :shock: Is this the real Shelly?

[Mango]

My opinion is that it is still too early to tell...situation & markets changing minute-to-minute (stock screens have as of late looked like Christmas Trees--red, green, red, green--albeit mostly green today :biggrin: ).

If Fed stops tightening because economy is showing signs of cooling; dollar loses value in cooling economy; interest rates on new bonds (debt) stagnate; Chinese & others cut back on buying our debt (and start buying bonds of other countries who are raising rates); start selling off their US bonds; as bonds are sold off, US bond prices drop--and yield rises; 10-year bond yield is tied to mortgages; 10-year yield goes up--mortgage rates go up.

If the Fed stops tightening, we'll be venturing into uncharted waters...and if inflation continues to get worse (there's inflation, even though they say there is not because they think we're stupid enough to believe what they tell us) it's gonna get ugly.

The FED is damned if they do, and damned if they don't--either way, the economy is really, REALLY screwed up. We're on a tightrope, on one side is a den of hungry lions and on the other a tank of Great Whites.

I was waiting for Shelly's economic opinion. I am totally convinced you work for the Federal Reserve Bank. or your Greenspan himself laughing with your young wife. :D ;-)

You make some good points, but the labor reports come out that we had an increase in jobs, then a week later, ooops we we were wrong. There are people losing jobs all over. Three calls from past clients in a week who maxed out their equity lines due to job losses. American corporations can not expand if they keep raising the Bank lending rate. No jobs, no house buying. Home buying has been what has driven this country's economy for the past 5 years and the service industries associated with it.

We are walking a tightrope, I agree, we always are, but there is a thing as too much too fast, and I am still of the opinion that that was the case with the Fed increases. I don't profess to be an economist and I don't have a crystal ball on my desk. There are too many other factors affecting what happens on a day to day basis.
My post was meant to bring some optimism.

[TooFarTampa]

I was waiting for Shelly's economic opinion. I am totally convinced you work for the Federal Reserve Bank. or your Greenspan himself laughing with your young wife. :D ;-)

:floor: :floor: Now that's funny!

You make some good points, but the labor reports come out that we had an increase in jobs, then a week later, ooops we we were wrong. There are people losing jobs all over. Three calls from past clients in a week who maxed out their equity lines due to job losses. American corporations can not expand if they keep raising the Bank lending rate. No jobs, no house buying. Home buying has been what has driven this country's economy for the past 5 years and the service industries associated with it.

I don't know what to make of any of it. I personally feel like I've been through (and learned from) three boom/bust cycles already, including rampant speculation on my husband's company stock that has come waaaaay back to earth. There are so many factors that I keep reading about that it seems to me that anything could be the tipping point. Hoarding a larger cash cushion and stuffing it in a money market (not Serta :D ) is great for anyone who can do it.

I do have a hunch that while home buying has slowed, if rates stay steady, home improvements will continue to help the economy. I think we'll just be moving away from the trophy-kitchen-remodel-to-add-equity-and-impress-neighbors phase to adding space and increasing livability of existing homes. For example: We have a 3BR house with detached guest house/office. Kidlet No. 3 is on the way. Obviously we would love a 4BR house and looked into the one across the street, but the cost basis would be nearly 500K more than what we paid for our current home and taxes would double thanks to Florida's, ahem, unique property tax structure system. That is ridiculous so the boys are bunking together and we will add on, when the time is right.

I know someone with 4BR and 4 kids who wants to move to a 5 BR place, but has the same issues. In Florida at least the threat of higher property taxes due to a move is the big fear factor. People are staying put and will end up keeping a lot of contractors in business. Meantime, I read this little nugget the other day:

"As of June 30, 15,134 Pinellas County houses or condos were for sale, up from 3,795 a year ago. Only 1,331 units were sold in June, down from 2,172 last June, according to the Pinellas Realtor Organization."

:eek: That's a lot of inventory. :bang:

[Bob]

If oil prices keep going up, rates are not going to come down. Unless we get a group hug in the Middle East, don't bet against a good ole fashioned recession.

[redfisher]

My God, I don't get all this blah, blah, blah...How can an economy w/less than 5% unemployment, a moderating gdp of 3-3.25%, a downwardly revised deficit, at the top end of a rate cycle equate to all this "down in the mouth" postulating...Shelly, you are unbelievable...How is the Fed pausing uncharted territory (I can't imagine why they think your stupid)...that's what you get after a RAISING CYCLE - A CUTTING CYCLE...A great many "true" economists call these situations Goldilocks

Bob, if oil prices keep going up how can rates do anything but come down...the market will be doing the Fed's job for them and they'll be forced to cut...the Middle East has been screwed up for 60 years, this time is no different except that by giving the Iranians a bloody nose maybe they'll slow expansion...

[bdc63]

I also feel that the economy is in a very fragile state, and that it really doesn't matter much if Bernacke raises one more time or not -- the outcome will be same.

This economy has been completely held up by the American consumer -- the same consumer that has managed to have a NEGATIVE savings rate and has zero equity in their primary asset ... their home. I heard yesterday that 50% of 50 year olds have not started saving for retirement :eek:. "No need to save, our house value is going through the roof! When it's time to retire, we'll sell the main house and bank a tidey profit to live on in retirement. Like our new kitchen and the new BMW? -- we took out just a bit of the appreciation from our house, but its okay because real estate only goes up!"

That same consumer is just now getting a big wake-up call ... that "real estate only goes up" is the second greatest lie. The consumer is starting an abrupt halt in spending. When the consumer stops buying stuff, companies start laying people off. I heard that 30% of all new jobs created during the "recovery" were real estate related (construction, agents, banks) ... where are those people going to get jobs?

The FED has to see that the economy is tanking ... at the same exact moment that inflation is ramping up. It's not too difficult at this point to take yourself down the path of the worst case senario -- high unemployment, high inflation, stalled economy, and a worthless dollar.

Well I've managed to really depress myself now ... excuse me for awhile while I go down to my bomb shelter and count my gold bars.

[dsilvar]

My opinion is that we're on a tightrope, on one side is a den of hungry lions and on the other a tank of Great Whites.
Aaaahhhh..this is why I love your posts, SHELLY. Keeps us bulls grounded for sure.
I cannot help but wonder, however, how physcoanalysis would help you. You must have had some deep economic trauma in your past life..this is evident. Your deep desire to have the US economy tank is very revealing..lions and tigers and great whites..oh my!
I love you man!

[redfisher]

In this economic environment, if your depressed its because you allow yourself to be...the facts are inarguable...Right on, dsilvar

[SHELLY]

.Bob, if oil prices keep going up how can rates do anything but come down...the market will be doing the Fed's job for them and they'll be forced to cut...the Middle East has been screwed up for 60 years, this time is no different except that by giving the Iranians a bloody nose maybe they'll slow expansion...

Rising oil prices= rising consumer goods products (lots of plastic, shipping of goods, farming crops, gas to get to work, etc. etc.)

Raising consumer goods =pressure to raise wages (which have been flat--adjusted for inflation--for several years for 80% of Americans)

Raising wages = Rising price of goods/service passed on to consumers

Rising price of goods/service = Inflation

Fed VOWS to fighting inflation = raising Funds Rate

Raising Fed Funds rates = Raising interest rates

Shampoo, rinse, repeat.

[bdc63]

In this economic environment, if your depressed its because you allow yourself to be...the facts are inarguable...Right on, dsilvar

spoken like someone that has an interest-only loan, who buys stocks on margin, and carries credit card debt ... I would agree that the facts are inarguable as long as you look at ALL of the facts and not just the ones that feel good

(I'm back up from the bomb shelter ... it turns out that my gold bar doesn't take all that long to count, and Dick Chenny really isn't very good company)

[redfisher]

Its Cheney, scholar...and I hear he's looking for a hunting partner...

And I'm not sure I understand how rising prices are passed thru as wage pressure...Wage pressure is generated by a full workforce...btw, I'm not in the 80% category...

Snowflakes melting in your... shampoo, rinse, repeat... or something :blink:

[Bob]

My God, I don't get all this blah, blah, blah...How can an economy w/less than 5% unemployment, a moderating gdp of 3-3.25%, a downwardly revised deficit, at the top end of a rate cycle equate to all this "down in the mouth" postulating...Shelly, you are unbelievable...How is the Fed pausing uncharted territory (I can't imagine why they think your stupid)...that's what you get after a RAISING CYCLE - A CUTTING CYCLE...A great many "true" economists call these situations Goldilocks

Bob, if oil prices keep going up how can rates do anything but come down...the market will be doing the Fed's job for them and they'll be forced to cut...the Middle East has been screwed up for 60 years, this time is no different except that by giving the Iranians a bloody nose maybe they'll slow expansion...Redfisher, your view of the economy through Republican sunglasses is mighty bright. I hope you are correct, but the stated goal of the Fed is to fight inflation. If oil continues to rise, core inflation will accelerate well ahead of depressing aggregate demand. Do you think the Fed would ease rates in response to higher inflation figures? The last time we had a recession, oil was one sixth the cost of current market prices for crude. Real Estate prices were well connected to wages, and there existed a budget surplus. The last time we had a killer recession[25 years ago], we had high energy prices, rampant inflation, and a stagnant economy. The Fed's response? Volker raised rates to the moon. Inflation was tamed when no one could find a job. Hopefully history will not repeat itself, and my daughters will stop asking me why I voted for Bush twice.

[redfisher]

Bob respectfully, I'm not sure I understand...are you suggesting that high energy prices (doubling) are going to drive ci to the point that demand will be overwhelmed...When?...do they need to double again?...The Fed hikes revolve soley around the idea that the economy is growing too fast...There is no hyperinflation or stagnation of the economy...Real GDP will "moderate" to 3.25% from 4-5%, inflation to 2% at statistical full employment...Are you really suggesting, like some of these other knuckleheads, that a Volker-type response is possible...Bob, don't doubt the supply side...

[Pirate]

Does it not concern anyone here that a large chunk of the economic expansion of late has been due to the explosion of debt levels? With increasing construction costs, increasing intrest rates and stagnant or nonexistant sales prices the market and economy are in for a rough ride. It might not even matter if the fed holds the rate, most of the equity based economic expansion is past tense and with construction costs out of control new starts are destined to come to a halt.

Why the discussion about intrest rates anyway? I thought all the houses in Sowal were paid for with cash :floor: :rofl:

There are so many negative signs I don't understand how anyone can look past them ALL. I look at RE every time I come there and it is still way too high for investment.

[SHELLY]

Does it not concern anyone here that a large chunk of the economic expansion of late has been due to the explosion of debt levels?

Absolutely! During the stock market bubble there weren't nearly as many "ordinary citizens" with a pony in that race as there are in this Real Estate run-up (wacky loans, equity loans, refi cash outs). And for so many folks it's not going to be a quick "pop" and rapid decline--it's going to be a slow, aching, net-worth-declining ride to the bottom.

In Florida in 2000 there were 67,388 licensed RE agents, in 2005 that number jumped to 144,174--add to that all the other folks associated with the housing market (title, brokers, construction, furnishing, banking, appraisers) and you can understand why our state had such a great unemployment rate.

Housing over the last couple years fueled the economy's fire--they're crossing their fingers that businesses are going to take over where housing left off...personally I think they're hoping a Band-Aid will do when what's really needed is a tourniquet.

[Indigo Jill]

In Florida in 2000 there were 67,388 licensed RE agents, in 2005 that number jumped to 144,174--add to that all the other folks associated with the housing market (title, brokers, construction, furnishing, banking, appraisers) and you can understand why our state had such a great unemployment rate.

Housing over the last couple years fueled the economy's fire--they're crossing their fingers that businesses are going to take over where housing left off...personally I think they're hoping a Band-Aid will do when what's really needed is a tourniquet.

Zero-profit condition

From Wikipedia, the free encyclopedia


Jump to: navigation (http://en.wikipedia.org/wiki/Zero-profit_condition#column-one), search (http://en.wikipedia.org/wiki/Zero-profit_condition#searchInput)
Zero profit condition is a term in the theory of competition (http://en.wikipedia.org/wiki/Competition) in Economics (http://en.wikipedia.org/wiki/Economics). It describes the condition that occurs when a business or industry has an extremely low (near-zero) cost of entry.

In these cases, people tend to join the industry until all the money is gone. This means that a person's ability to make a lot of money in that industry is low, because when others see the opportunity to make money, they will also join the industry, thus cutting into your profits.

Take, for example, the real estate (http://en.wikipedia.org/wiki/Real_estate) industry. In the mid 2000's there has been a huge real-estate boom, but real estate agents are not making any more money then previously. Why? Because it is very easy to become a real-estate agent, so when profits start to rise, more people become agents, and each agent already in the industry starts to sell less houses.

[SHELLY]

Zero-profit condition

From Wikipedia, the free encyclopedia

Take, for example, the real estate (http://en.wikipedia.org/wiki/Real_estate) industry. In the mid 2000's there has been a huge real-estate boom, but real estate agents are not making any more money then previously. Why? Because it is very easy to become a real-estate agent, so when profits start to rise, more people become agents, and each agent already in the industry starts to sell less houses.

Wikipedia's definition is far too simplistic for such a complex situation, but in keeping with Wikipedia's lead, I offer up this:

What happens if..., say...., there are 100 agents and 100 condos sold in a year at $100,000 each @ 6% commission= Each agent sells one condo and makes $6000 per year.

Now, there is a condo boom, so another 100 agents pass the test and enter the profession--making 200 agents. The number of condos sold increases to 200 condos AND the price goes up 20%. So the condos are now selling at $120,000 @ 6% commission = Each agent sells a single condo and makes $7200 per year (the original 100 are making $1200 more than the previous year as a result of the increase in sales price). Even with the additional agents in the market, and even though they sold only one condo, they still made more profit than the previous year--albeit not as much had the barriers to entry into the profession been higher.

The boom continues, and the builders keep clearing and building, the developers keep the pre-sale condo market well stocked, and the investulators scour the market snapping up anything they can find hoping for a killing on a quick turnaround; prices continue to show double-digit increases year-after-year. More agents can enter the field and this will work fine and dandy as long as prices keep going up and the demand exceeds the supply (multiple offers).

But then, the market tops out (which in this area was about this time last year) and buyers stand on the sidelines--the investulators start dumping their properties. Now there are multiple offerings for each buyer and multiple agents chasing down that buyer. Prices are still high, but not much is selling...there is a real estate stand-off. There presently is a glut of inventory--more than ever before--with very few buyers interested to buy at these asking prices and sellers refusing to lower their prices. The RE profession is still staffed as though the market is firing on all cylinders (although the mortgage companies and banks have been slicing and dicing their staffs and development plans are being scrapped). With less sales and increasing inventory (and if the glut of agents aren't culled) it will turn into a worse than Zero-Profit condition.

A zero-profit condition during a real estate price/supply boom is assuming the original 100 agents sold the same number of units at the $100,000 (no price appreciation) and just the number of units for sale increased exponentially with the number of agents passing the test. I assume a large number of the newbie RE agents were used by the BIG GUN real estate companies to generate profits by throwing them less profitable properties that the "star players" felt weren't worth their time (which benefits the old-timers at the expense of the newcomers). With more boots on the ground, it certainly wasn't a Zero-Profit situation for the "star players" and the Big Gun Companies.

During the boom, there was PLENTY of money being made and there weren't many RE agents in line at social services drawing unemployment checks and food stamps. Older agents (meaning those who know what it's like to change a typewriter ribbon) who were smart enough to know the run-up was a fluke, probably are well-prepared for the market that is ahead (i.e., they leased, not bought, that Lexus). The others who thought RE was a quick and easy road to riches, where the toughest part of the job was to decide which dress to wear to the Condo Kick-0ff Party on Saturday or which of the multiple offers to accept for their client, will find comfort in that fact that Florida's unemployment is among the lowest in the nation and there are many opportunities for jobs in the service sector.

[redfisher]

More ordinary citizens participated in the 2001 stock market recession than in the R/E mkt...The previous stmt is incorrect...

[surfer]

Does it not concern anyone here that a large chunk of the economic expansion of late has been due to the explosion of debt levels? With increasing construction costs, increasing intrest rates and stagnant or nonexistant sales prices the market and economy are in for a rough ride. It might not even matter if the fed holds the rate, most of the equity based economic expansion is past tense and with construction costs out of control new starts are destined to come to a halt.

Why the discussion about intrest rates anyway? I thought all the houses in Sowal were paid for with cash :floor: :rofl:

There are so many negative signs I don't understand how anyone can look past them ALL. I look at RE every time I come there and it is still way too high for investment.

You hit the nail on the head. We are a way from the trough. I will buy once I see the trough in big bold letters.

[Mango]

Originally posted by Pirate:
It might not even matter if the fed holds the rate, most of the equity based economic expansion is past tense and with construction costs out of control new starts are destined to come to a halt.

The Bank Lending Rate also affects corporations and manufacturers who wish to borrow money for expansion. Expansion means more jobs, more spending, and home buying.
Many people are under the impression that the Fed Funds Rate directly affects bond rates. It has some impact, but there is no direct relationship.
There are many other economic indicators, factors nationally and globally that can impact bond rates.
I would also like to add that quite a large majority of the mortgages I procured for people in the past 5 years during the "run up" were low Combined loan to values 55-65% average, had low debt, and excellent debt to income housing ratios. They also had savings.

[kurt]

You hit the nail on the head. We are a way from the trough. I will buy once I see the trough in big bold letters.

That sounds great!!!! Let me know when that is and then after we buy we'll let everyone else know that the only direction is up.

[SHELLY]

More ordinary citizens participated in the 2001 stock market recession than in the R/E mkt...The previous stmt is incorrect...

Please give your rational for this statement.

[30A Skunkape]

The funny thing about this this thread is that in taking two required economics courses in college, all I remember was 'guns and butter' and being really bored. Your blood and guts economics makes great theater-please, continue! :clap_1:

[Mango]

Yeah, it's been a hoot!

[SHELLY]

I would also like to add that quite a large majority of the mortgages I procured for people in the past 5 years during the "run up" were low Combined loan to values 55-65% average, had low debt, and excellent debt to income housing ratios. They also had savings.

Looking at your industry--nationwide--would you say your experience was "the exception" or "the rule" over the past 5 years.

[Mango]

Looking at your industry--nationwide--would you say your experience was "the exception" or "the rule" over the past 5 years.

I only am licensed in N.Y. and CT., and I run my shop differently than some brokers and Bankers. I won't do a loan if I do not think that someone can not afford it regardless of the fact that I can place it with a Lender that will do the deal or not. I also wouldn't put people with fixed incomes in ARM loans simply because the rate was lower, and it could get them a bigger house.

I did receive calls like that. From what I have seen is there was no middle ground. You either had the Borrower who was maxed out on everything based on their income which was average, or the conservative higher income Borrowers.

I suppose you could say that that was the rule, because the Banks that offered the HELOC's originally did not have any draw requirements. Then they added a minumum draw requirements and pre-payment penalties because people were refinancing or purchasing, adding equity lines just to have access to the funds if they wanted them, but not using them. The people I refinanced and added lines of credit simply did it because they could borrow money at about 4% at that time and they were savvy financially and they always had the ability to pay the line off somehow either with investment money or bonuses.

There has been a slight increase in the foreclosure rate in areas of fast and high appreciation, but not what I was expecting yet.

[SHELLY]

[QUOTE]The Bank Lending Rate also affects corporations and manufacturers who wish to borrow money for expansion. Expansion means more jobs, more spending, and home buying.

Truth be told, many corporations are sitting on a MOUNTAINS of cash (the markets have been berry-berry good the last couple of years) with nowhere to put it and it is a problem. Companies like Microsoft and Exxon are making big bucks just in interest income alone. A lot of the companies are using excess cash to buy back stocks, some are buying up other companies, some are considering increasing dividends. Making loans is the least of their worries; finding ways to turn this money into profits for the shareholders is a major concern.

Many people are under the impression that the Fed Funds Rate directly affects bond rates. It has some impact, but there is no direct relationship. There are many other economic indicators, factors nationally and globally that can impact bond rates.

You're right, but it is a bit complicated to explain without textbooks, a flip chart, and PowerPoint slides but here goes.

Essentially what the FED does is raise the target for the "discount" rate which is the rate banks have to pay the Federal Reserve for overnight loans. (Which increases the amount of money they can lend out).

Which in turn has an effect on the "Fed Funds Rate" which is the rate banks charge to each other for overnight loans.

Which has an effect on the "Prime Rate" which is the rate banks charge their best customers and sets a "floor" for interest rates charged to customers who make loans for cars, plasma TVs and HELOCs (although HELOCs can be indexed to other things like LIBOR or Treasury Bonds rates) . Although banks are free to set their own Prime Rates, they all usually are the same; the prime rate runs about 3% above target discount rate (5.25%) and is currently 8.25%.

Therein lies the problem. The American population, as a whole, is swimming in debt--a lot of which is credit card and equity debt tied to prime. Inflation results when there is too much cash chasing too few goods which bids up the price of the goods. America has been awash in "free" money for the past couple years and now the FED is attempting to turn off the money...they're doing this by raising the target on the discount rate so it will trickle down to the consumer's level and get them to stop using their credit and pulling money out of their homes (that the banks are happy to give you today, if you pay them back interest--like...forever).

Where does the FED get its money in the first place? Here's the other side of the equation: It gets money by selling US debt in the form of bonds. Bonds are sold (mostly to foreigners--it appears) who hand over their money to the FED in return for interest rates they believe are attractive given the risk involved (which for quite a while wouldn't budge even as the FED raised rates again and again--Al's Conundrum). The money turned over by the foreigners then flows into the Federal Reserve and the FED lends it out overnight to banks that pay the "discount" rate, who in-turn lend it to other banks overnight who pay the "fed funds rate," who lend it to you at "Prime+" to buy the Plasma TV which is made in China. The money you borrowed eventually makes it over to China who then buys more US debt...... and......ALL TOGETHER NOW GANG!......Shampoo, Rinse, Repeat. :biggrin: :

[SHELLY]

I only am licensed in N.Y. and CT., and I run my shop differently than some brokers and Bankers. I won't do a loan if I do not think that someone can not afford it regardless of the fact that I can place it with a Lender that will do the deal or not. I also wouldn't put people with fixed incomes in ARM loans simply because the rate was lower, and it could get them a bigger house.



I wasn't referring to your business specifically; I'm sure you did the right thing by your clients.

But as I see it, the way you ran your business WASN'T the "rule" for the majority of the industry --I doubt NY and CT were any different from the other 48 states where illegal and unethical practices were pretty much business du jour.

[Mango]

I wasn't referring to your business specifically; I'm sure you did the right thing by your clients.

But as I see it, the way you ran your business WASN'T the "rule" for the majority of the industry --I doubt NY and CT were any different from the other 48 states where illegal and unethical practices were pretty much business du jour.

Shelly, you make it sound like the majority of anyone in the real estate services industry is totally responsible for the woes of the entire nations economic condition and everyone who was in the business was a pig.

Your question to me was did I think that my clientele was the norm nationwide. I told you I was only licensed in 2 states. These states amongst others nationwide had large appreciation jumps. Those states are usually the ones which have more employment opportunities, and I was basically saying and responding to pirate as well, that not all the money dumped into the economy was from used equity run up. Some people simply used money that was available to them cheaply and had the ability to repay it when rates go up.
I am sure that in the States that did not have appreciation run up (and there were) there were more unethical practices to maximize financing and or to get higher sales prices and I can honestly say that some of the things I saw go on in the panhandle from a real estate perspective would have never occurred in States that had more regulation in place.

All I did was post originally that the Feds did not raise as anticipated, and instead of discussing the possible economic paths that move may bring forth, we are once again in a debate over real estate practices.

[SHELLY]

Shelly, you make it sound like the majority of anyone in the real estate services industry is totally responsible for the woes of the entire nations economic condition and everyone who was in the business was a pig.


No, not everyone, but certainly all those who knowingly took advantage of naive people and put them into a position where they would be financially crushed as a result.

...and certainly those who pulled political strings in order to allow destruction of protected wetlands, beaches, and wooded areas to reap big profits.

...and also the cabal of thieves who colluded amongst themselves in order to maximize ill-gotten gains.


For those who ran a clean business throughout.... :clap_1:

[Bob]

Bob respectfully, I'm not sure I understand...are you suggesting that high energy prices (doubling) are going to drive ci to the point that demand will be overwhelmed...When?...do they need to double again?...The Fed hikes revolve soley around the idea that the economy is growing too fast...There is no hyperinflation or stagnation of the economy...Real GDP will "moderate" to 3.25% from 4-5%, inflation to 2% at statistical full employment...Are you really suggesting, like some of these other knuckleheads, that a Volker-type response is possible...Bob, don't doubt the supply side...Redfisher, believe it or not, but we could end up in a stagflation scenario in a few months. Bernanke is an academic whose focus is on targeted inflation rates first and foremost. In the near future oil prices could easily force CI too high. The Fed can only influence the cost of borrowing, not oil. A Volker-like response would stop inflation at the cost of the economy. Just look what a 1.5 point bump to the 30 year money has done to real estate...lights out, because home prices became disconnected to wages. Supply side tax cuts plus massive spending deficits,Greenspan's free money policy, and unlimited cheap labor by millions of illegals have been the bedrock of the latest economic expansion. OPEC has already brought Detroit to its knees, and now I hope that OPEC will not corner us with $100/barrel oil stagflation. How long can Washington maintain 200-400 billion dollar budget deficits, and how long can John Q Public borrow on home values going nowhere. I believe the absence of dissent caused the war in Iraq, and easily the most chaos the Middle East has seen in 60 years. I am only a regular knucklehead who does not look to the 3 mil a year bimbo reading the news on CNN or Fox to question our leaders. P.S. Supply side theory holds that tax cuts stimulate savings for investment. What's the personal savings rate in the U.S. now?

[redfisher]

Please give your rational for this statement.

My rational should be obvious...Stock option plans (technology or otherwise), 401k participation, equity mutual funds and the rise of discount brokers, at the time Enron was part of the S&P 500...

http://money.cnn.com/2001/11/29/funds/enron_funds/

How many people would you estimate participated in the 5 mutual funds listed (through 401k's, other retirement plans, or direct investment) in the above link???....

[Pirate]

More people own stock than own homes?

I wanted to point out the fact that the new method of computing CI (formulated in the late 1990's) really hasn't been tested and is ridiculous in my opinion. Substitutions make it unreliable and risky to use as any kind of benchmark. Keep in mind housing ownership isn't included at all. I would also add that the disconnect between the cost of housing and wages happened because the Fed lowered the rate too low for too long, not because the rate is being raised too high. The CASH price of a house should be the only method used to make any computation, not how much you have to give to the bank every month for the pleasure of maintaining it. The credit mentality just kills me.

The cheerleaders here keep saying price fluctuations always happen with beach real estate but name another period where there were 200-300+ percent increases in a few years. Ummmm ... never happened.

[redfisher]

[QUOTE=Bob]Redfisher, believe it or not, but we could end up in a stagflation scenario in a few months.

Bob, I'd like to ask a couple of questions;

1. Are you suggesting a Volker-like response would somehow reduce the cost of oil or simply limit demand while keeping oil prices high?

2. In what area of r/e are the lights out...In our own little slice of heaven, it seems prices are down 30% (homes) - 50% (lots) from highs to mid-04 levels?

3. How has OPEC dropped Detroit to its knees? Is the global auto industry on its knees?

4. As a percentage of GDP, what is the average budget deficit? What is the cause of the current decline of the deficit?

http://www.cbo.gov/budget/historical.pdf
http://www.cbo.gov/showdoc.cfm?index=7184&sequence=0


5. Is the current Middle East conflict more or less extreme than the oil embargo in '73 or the Lebanese occupation from '82-'2000

6. http://www.bea.gov/bea/newsrel/pinewsrelease.htm Bob, you are absolutely correct that Supply Side theory holds that tax cuts stimulate capital to do a variety of things...Is the saving of that capital somehow dictated by the government, or is it the individuals right to spend or save the surplus?...

Bob, sorry it took me a bit to respond..I missed your response...Regards, Red

[SHELLY]

How many people would you estimate participated in the 5 mutual funds listed (through 401k's, other retirement plans, or direct investment) in the above link???....

Many of the same speculators who got caught up in the stock market bubble are the same people who are now caught up in the real estate frenzy. Add to those folks the home owners who cashed out equity to finance "bread and circuses," the people who were able to borrow large sums of money just by "fogging a mirror" using NINA (no income no assets) or "liar loans." And then the worse case of all--those who have daisy chains of houses who bought a $90,000 shack for nothing down, cashed out inflated equity, used that equity to buy 2 more homes, cashed out equity, used that equity to qualify for 2 condos and 2 pieces of land, etc., etc.

All the money tied up in the stock market at the bubble pales in comparison to the debt that is wrapped around housing market. And a whole heck of a lot of that debt is tied up in the U.S. banking system, 401Ks, nest eggs of grannies everywhere, and in 69% of the Americans who are "Home-OWERS."

The unluckiest speculators in the stock market lost ALL of their money when they bought Enron at $90 and rode it down into the ditch (and usually doing "mon-backs" as the price dropped day-by-day). HomeOWERS who cashed out equity in their homes or paid sky-high prices based on fantasy appraisals in a hot-hot-hot market may have to bring a check to closing because they find they are underwater on their loan--now that is a bad "investment."

For those of you who like a graphical representation: Here is a chart showing the NASDAQ vs Housing Stocks (http://photos1.blogger.com/blogger/1783/1012/1600/adj_hom2.0.gif)

As this housing situation continues to unwind, we'll see just how hard a "soft landing" can be.

[redfisher]

[QUOTE=SHELLY]. All the money tied up in the stock market at the bubble pales in comparison to the debt that is wrapped around housing market. And a whole heck of a lot of that debt is tied up in the U.S. banking system, 401Ks, nest eggs of grannies everywhere, and in 69% of the Americans who are "Home-OWERS."


Quantify the stock market losses globally (2000-2002) as compared to speculative loans on housing (2001-2005) please...

[SHELLY]

[QUOTE=SHELLY]. All the money tied up in the stock market at the bubble pales in comparison to the debt that is wrapped around housing market. And a whole heck of a lot of that debt is tied up in the U.S. banking system, 401Ks, nest eggs of grannies everywhere, and in 69% of the Americans who are "Home-OWERS."


Quantify the stock market losses globally (2000-2002) as compared to speculative loans on housing (2001-2005) please...

Sure...

Stock Market Crash: $1.7 Trillion (http://money.cnn.com/2000/11/09/technology/overview/)

Housing Bubble Equity Withdrawl: $2.8 Trillion (http://www.cbsnews.com/stories/2006/04/03/opinion/main1464727.shtml)


Mortgage Market and Bonds Supporting that Market: $7.6 Trillion (http://www.bloomberg.com/apps/news?pid=10000103&sid=aDSB370ItSJU&refer=us)

``Froth'' in housing markets may be spilling over into mortgage markets, Fed Chairman Alan Greenspan warned an American Bankers Association convention in September. A rise in interest- only loans that initially don't pay down principle and the introduction of ``exotic'' variable-rate mortgages ``are developments that bear close scrutiny,'' he said.

(NOTE TO AL: The horses have rushed out of the stable, you can close that door now.)

[redfisher]

[QUOTE=SHELLY][QUOTE=redfisher]

Sure...

Stock Market Crash: $1.7 Trillion (http://money.cnn.com/2000/11/09/technology/overview/)

How can an article written in Nov of 2000 possibly quantify cumulative losses that didn't end until 2002 and why do you limit your response to only tech stocks (which were down another 55% from Nov 2000-to bottom)...I seem to remember liquidity draining from most indices worldwide


http://www.cbsnews.com/stories/2006/04/03/opinion/main1464727.shtml

The article states that only 1/2 the 2.5 trillion w/dn was spent on consumer items...

http://www.bloomberg.com/apps/news?pid=10000103&sid=aDSB370ItSJU&refer=us

Do you truly believe that the 7.6 trillion dollar market didn't exist before r/e became spec...The article clearly states that of 7.6 trillion only 476 billion were to high risk borrowers (6.26%)

Forgive mispellings, I'm lunching @ the moment...Red

[SHELLY]

[QUOTE=SHELLY][QUOTE=redfisher]

Sure...

Stock Market Crash: $1.7 Trillion (http://money.cnn.com/2000/11/09/technology/overview/)

How can an article written in Nov of 2000 possibly quantify cumulative losses that didn't end until 2002 and why do you limit your response to only tech stocks (which were down another 55% from Nov 2000-to bottom)...I seem to remember liquidity draining from most indices worldwide


http://www.cbsnews.com/stories/2006/04/03/opinion/main1464727.shtml

The article states that only 1/2 the 2.5 trillion w/dn was spent on consumer items...

http://www.bloomberg.com/apps/news?pid=10000103&sid=aDSB370ItSJU&refer=us

Do you truly believe that the 7.6 trillion dollar market didn't exist before r/e became spec...The article clearly states that of 7.6 trillion only 476 billion were to high risk borrowers (6.26%)

Forgive mispellings, I'm lunching @ the moment...Red

:roll: Is that your best shot?

Here's something to read while you're Out to Lunch.

Ghost Housing Market: By a Florida Realtor (http://www.howestreet.com/articles/index.php?article_id=2760)

[redfisher]

I was hoping for a logical rebuttal...Did you even look at the date of your first article before you threw it up?...Regards, Red

What are Mike Morgan's credentials?

[Indigo Jill]

Add what an oil crisis will do to the economy on top of the housing bust and...:shock:

THE COMING OIL CRISIS
http://finance.yahoo.com/columnist/article/richricher/3721

[SHELLY]

I was hoping for a logical rebuttal...

And I didn't expect one.... :cool:

Well, I've exceeded my quota of dalliances for the day, gotta run....but I'll leave it open to others who find your arguments sound.

[redfisher]

Bye...

[6thGen]

Add what an oil crisis will do to the economy on top of the housing bust and...:shock:

THE COMING OIL CRISIS
http://finance.yahoo.com/columnist/article/richricher/3721

Does this idiot offer any substance to his platitudes? Renting copy machines doesn't qualify one to offer an educated opinion on economics. Remembering that oil used to be expensive and we used to be in an unpopular war is not the same thing as showing that crude oil supplies are at their highest levels since 1998. Gas prices will always go up, just like real estate. Or is it that higher prices slow consumption and encourage investment? Does this best selling author have any other banal nonsense to back up what he says or is he going to ride the coattails of the surfer wallet craze a little bit longer?

[Mango]

[QUOTE=redfisher]

Sure...

Stock Market Crash: $1.7 Trillion (http://money.cnn.com/2000/11/09/technology/overview/)

Housing Bubble Equity Withdrawl: $2.8 Trillion (http://www.cbsnews.com/stories/2006/04/03/opinion/main1464727.shtml)


Mortgage Market and Bonds Supporting that Market: $7.6 Trillion (http://www.bloomberg.com/apps/news?pid=10000103&sid=aDSB370ItSJU&refer=us)

``Froth'' in housing markets may be spilling over into mortgage markets, Fed Chairman Alan Greenspan warned an American Bankers Association convention in September. A rise in interest- only loans that initially don't pay down principle and the introduction of ``exotic'' variable-rate mortgages ``are developments that bear close scrutiny,'' he said.

(NOTE TO AL: The horses have rushed out of the stable, you can close that door now.)

I read the housing bubble article and it states that of the 2.8 billion borrowed, half of that was funneled back into the economy, so that would make that 1.4 trillion. This 50% figure matches what I said in earlier post. So let's put ther correct #.?

As far as Greenspans' warning who is employed by the Government, he should have been giving that warning to the government agencies, Fannie Mae and Freddie Mac- which compete with each other to buy loans from Banks, that offering 100% financing and also approve interest only loans. The banks will only offer products that are saleable to these agencies and follow their guidelines. Banks don't portfolios these loans.
The only loans that these agencies do not buy are the exotic ones which is one called an Option arm which quite often if the equity was low enough and the Borrower had decent enough credit scores, could get that loan as a no income check. (BTW- I never placed this loan)

[Indigo Jill]

Does this best selling author have any other banal nonsense to back up what he says or is he going to ride the coattails of the surfer wallet craze a little bit longer?

Probably ride the coattails of the surfer wallet craze a bit longer but he'll continue to laugh all the way to bank as he does so. :lol: His simplicity has worked in his favor, although I too am annoyed at how he ties his personal stories into his "advice". But, he paints it simple for us simple folk and has been right on about pretty much everything he talks about of late which works for me. I also don't have expensive degrees or a lofty title to protect so I'm not intimidated by his approach and can read his column with an open-mind and perspective.

P.S. For the record, I haven't ever read this guy's books - just happened upon his column a month or so ago and what I've read has made sense to me.

[TooFarTampa]

Probably ride the coattails of the surfer wallet craze a bit longer but he'll continue to laugh all the way to bank as he does so. :lol: His simplicity has worked in his favor, although I too am annoyed at how he ties his personal stories into his "advice". But, he paints it simple for us simple folk and has been right on about pretty much everything he talks about of late which works for me. I also don't have expensive degrees or a lofty title to protect so I'm not intimidated by his approach and can read his column with an open-mind and perspective.

P.S. For the record, I haven't ever read this guy's books - just happened upon his column a month or so ago and what I've read has made sense to me.

The "peak oil" concept hasn't gone too mainstream yet. I'm not sure I buy into the doomsday scenario, but I do agree that it's a major long term concern, not just because of politics but because -- from what I understand, and someone correct me if I'm wrong -- the countries that do control the oil are not required to disclose exactly how much they believe they have left. So no one knows when the peak might be. Since our entire economy depends on oil, the implications are frightening. Mostly it makes me worry about my grandchildren. Here's the article that got me thinking, from Fortune magazine no less. Long but interesting:

Investing genius Richard Rainwater is freaked out (http://money.cnn.com/magazines/fortune/fortune_archive/2005/12/26/8364646/)

[6thGen]

Probably ride the coattails of the surfer wallet craze a bit longer but he'll continue to laugh all the way to bank as he does so. :lol: His simplicity has worked in his favor, although I too am annoyed at how he ties his personal stories into his "advice". But, he paints it simple for us simple folk and has been right on about pretty much everything he talks about of late which works for me. I also don't have expensive degrees or a lofty title to protect so I'm not intimidated by his approach and can read his column with an open-mind and perspective.

P.S. For the record, I haven't ever read this guy's books - just happened upon his column a month or so ago and what I've read has made sense to me.

I've linked an article below, and there have been several of the like in the WSJ and the like as well. I've always found it better when authors quote Friedman rather than some second rate hippie professor.

http://article.nationalreview.com/?q=ZGE4M2RlMDM1MmI0OGM1M2ViMGQ4MWUyYzc2YmEyZWU=

[spinDrAtl]

Many of the same speculators who got caught up in the stock market bubble are the same people who are now caught up in the real estate frenzy.

Do you know these people?

Add to those folks the home owners who cashed out equity to finance "bread and circuses," the people who were able to borrow large sums of money just by "fogging a mirror" using NINA (no income no assets) or "liar loans."

Wrong. A NINA loan is not a 'liar loan' as you call it. These loans are typically available to people with top credit scores that were built by paying their debts on time and in full. These customers are not required to provide income/asset documentation due to the fact their lofty credit scores satisfy the lenders that they will pay their debts.

And then the worse case of all--those who have daisy chains of houses who bought a $90,000 shack for nothing down, cashed out inflated equity, used that equity to buy 2 more homes, cashed out equity, used that equity to qualify for 2 condos and 2 pieces of land, etc., etc.

Nothing wrong with this unless fraud is involved.

HomeOWERS who cashed out equity in their homes or paid sky-high prices based on fantasy appraisals in a hot-hot-hot market may have to bring a check to closing because they find they are underwater on their loan--now that is a bad "investment."


Personal responsibility is a b*tch, ain't it. Fraud aside, some folks just make bad decisions.

[Indigo Jill]

The "peak oil" concept hasn't gone too mainstream yet. I'm not sure I buy into the doomsday scenario, but I do agree that it's a major long term concern, not just because of politics but because -- from what I understand, and someone correct me if I'm wrong -- the countries that do control the oil are not required to disclose exactly how much they believe they have left. So no one knows when the peak might be. Since our entire economy depends on oil, the implications are frightening. Mostly it makes me worry about my grandchildren. Here's the article that got me thinking, from Fortune magazine no less. Long but interesting:

Investing genius Richard Rainwater is freaked out (http://money.cnn.com/magazines/fortune/fortune_archive/2005/12/26/8364646/)

As far as the oil crisis goes, I'm not so concerned about running out of oil as I am about the economic consequences we could see with a greatly diminished supply - remember the billions of people in China and India with the evolving ability to afford cars and such? It's our reliance on oil at this point in time and all the other things going on in the economy simultaneously (the real estate/housing mess, devaluing of the dollar, our collective debt as a country, etc. etc.) that have me spooked. I have confidence in the human race, though, to innovate and come up with a viable solution - and I won't buy into the doomsday scenarios. I just fear the process won't happen quick enough and as we all know, desperate people do desperate things. I don't want to be witness to that.

If nothing else, we just need the discussion to start as Mr. Rainwater stated.

[Babyblue]

My God, I don't get all this blah, blah, blah...How can an economy w/less than 5% unemployment, a moderating gdp of 3-3.25%, a downwardly revised deficit, at the top end of a rate cycle equate to all this "down in the mouth" postulating...Shelly, you are unbelievable...How is the Fed pausing uncharted territory (I can't imagine why they think your stupid)...that's what you get after a RAISING CYCLE - A CUTTING CYCLE...A great many "true" economists call these situations Goldilocks

Bob, if oil prices keep going up how can rates do anything but come down...the market will be doing the Fed's job for them and they'll be forced to cut...the Middle East has been screwed up for 60 years, this time is no different except that by giving the Iranians a bloody nose maybe they'll slow expansion...

The feds have blown it again just like they did with the stock market in late 90's. The party is over and the fat lady is singing! :funn:

[redfisher]

Babyblue, please quantify...

[Sandcastle]

Richard Rainwater is truly a genius, and he’s had a lot more winners than losers. However; not everything he touches turns to gold, at least not for other investors. He founded CEI (Crescent Real Estate Investment Trust) to buy properties in Houston. I’ve been underwater on that one for years – but it’s done better than Enron.:idontno:



A very good friend of mine worked for Rainwater and the Basses. He has nothing but praise for Rainwater.

[SHELLY]

[font=Times New Roman][size=3]Richard Rainwater is truly a genius, and he’s had a lot more winners than losers. However; not everything he touches turns to gold, at least not for other investors. He founded CEI (Crescent Real Estate Investment Trust) to buy properties in Houston. I’ve been underwater on that one for years – but it’s done better than Enron.:idontno:

My checking account interest has done better Enron :biggrin:

[goofer44]

I am bullish on American ingenuity and resourcefulness. We will muddle through all these obstacles as we have always done in the last hundred years through hot AND cold wars. Innovation and new technologies will be the problem solvers as they always have been. And many of these innovations will be coming from the Far East and from India too. The profit motive is the greatest of all incentivizers. As far as the death knell in real estate and banking.....I think their demise is a bit premature. Part of the normal business cycle. We survived the RTC debacle of the 80's.....the debacle of the over leverage hedge funds like Long Term Capital and the currency fiascos of Asia and Russia of the late 90's. Whatever the next financial calamity will be, and there always is one lurking out there, we will survive it and move on. That is the way the "system" heals itself. Life goes on and opportunities always present themselves. Stay Tuned.

[SHELLY]

Do you know these people? .

I know a few--and I think one or two of them are still convinced that "Grandpop" really can pull a quarter out of their ear :blink: .

Wrong. A NINA loan is not a 'liar loan' as you call it. .

The operative word in the statement was NINA "or" Liar's Loans--I explained NINA after the statement and I'm pretty sure a goodly amount of the viewing audience know what liar's loans are ;-) . I also know that both have been used during the RE boom a wee too much for comfort and in some cases stretched beyond the limits of intention and the law.

Personal responsibility is a b*tch, ain't it. Fraud aside, some folks just make bad decisions.

Yeah, during the boom there's been a good amount of fraud and much stupidity...But since "stupid" is still legal in 50 states (and the D.C. area, which is ground zero), I guess there will always some way to part a fool from their money (interest-only and option ARMs spring to mind).

But as they say in the biz:

INTEREST: The financial process whereby money is transferred from stupid people to smart people.

[Mango]

The operative word in the statement was NINA "or" Liar's Loans--I explained NINA after the statement and I'm pretty sure a goodly amount of the viewing audience know what liar's loans are ;-) . I also know that both have been used during the RE boom a wee too much for comfort and in some cases stretched beyond the limits of intention and the law.

What law are you referring too? :roll:
and FYI- a good many loans came on my desk as full doc loans, but when uploaded to FNMA or Freddie Mac (government agencies :eek: ) for a feedback response- if the credit scores were good, they put down a decent DP and had good employment history, the only thing the Bank would require is an appraisal, contract and then verified the person worked at closing. They didn't ask for paystubs, 401k or copy of savings acct. etc.

I think it is a bit presumptuous for you to imply that everyone on this thread or Board knows what a "liar loan" is. :bang:

Of course there was misuse of this loan, and the stupid LO's or Bankers that took these loans in repeatedly do get investigated, fined and even incarcerated by the FBI.

and once again, we are back discussing the real estate services industry. :pissed:

Everyone is entitled to their opinions, let's try not to be vicious folks.

[Bob]

Mango, Shelly paints with a big brush. Based on her statements about "interest", she may be NINA.

[redfisher]

Personal responsibility is a b*tch, ain't it. Fraud aside, some folks just make bad decisions.


Finally, all this talk over I/O's, losses, overextensions...Where is the individuals responsibility to take control over his own actions...If your in a "malaise", its because you choose to be there...

By the way, I love I/O's....

[spinDrAtl]

Sometimes when there is a term or acronym used followed by "or" and another possibly unknown term, it could be misconstrued as implying "also known as", which I guess I did on the NINA or Liar's Loans statement.

There is nothing wrong with any of these types of loans when used responsibly - i/o, option arms, nina's, stated income, etc. People with 720 or 800 credit scores that can qualify for these types of loans did not get credit scores like that by being stupid.

I've got an interest only loan on an investment property right now. I got the property at auction a couple years back, took some equity out of a second home that had appreciated considerably with a no closing cost equity line. Total loan to value on that property is around 33% now. This allowed me to pay cash for the new property, avoiding a bunch of closing costs on that one. Yes, the rate has gone up some, but the interest only payment is lower than any fixed rate I could/can get and the low payment allows this property to cash flow while it appreciates (which it has already). I'm not going to own this newer property for 15 years so I don't care about paying the principal - I'm concerned about positive cash flow.

Again, personal responsibility is a key issue. Just because someone will let you sign a contract doesn't mean you should do it.

[Bob]

Stagflation speak....http://www.forbes.com/home/investmentnewsletters/2006/07/28/gdp-fomc-rates-in_vj_0728soapbox_inl.html

[bdc63]

GDP numbers released Friday ...


http://www.epi.org/webfeatures/econindicators/gdppicthd.GIF

July 28, 2006

GDP growth slows, housing continues to weaken

by EPI economist L. Josh Bivens (http://www.epi.org/content.cfm/economist#bivens)

Economic growth slowed to 2.5% in the second quarter of 2006, down from 5.6% in the previous quarter, according to data released today on gross domestic product (GDP) from the Bureau of Economic Analysis (BEA).

The deceleration in GDP was broad-based. Personal consumption expenditures grew 2.5% in the latest quarter, following a 4.8% growth rate in the previous quarter. Private investment growth fell to 1.7% following the previous quarter's 7.8% growth. Export growth slowed to 3.3% from the previous quarter's 14.0%, and growth in federal government expenditures actually declined 3.4% compared to 8.8% growth in the previous quarter.

Residential investment contracted for the third straight quarter, and by a large 6.3%. This is the first three-quarter span of residential investment decline, and, the largest quarterly decline since 1995. There seem to be strong signs that the housing sector in the U.S. economy will no longer be providing a big boost to the aggregate economy in the near future. The figure below shows the growth rate of residential investment and its share in GDP in recent years, pointing to a sharp slowdown in this sector's contribution to growth. A key question about the economic outlook for the next year will be the degree to which other sectors can take up this slack.

http://www.epi.org/images/gdppict20060728.gif

Net exports (exports minus imports) contributed slightly to growth this quarter. Export growth was only 3.3%, but import growth was almost flat (rising only 0.2%). The result was a 0.33% contribution to GDP growth this quarter. While small, this is a good sign: net exports will surely have to take up some of the slack generated by a declining housing market referenced above.

The 1.6% growth in domestic demand (i.e., final sales to domestic purchasers) was a marked slowdown relative to the 5.4% reported for the previous quarter. Real disposable personal income grew less than 1% (on an annualized basis) in this quarter. Despite the slowdown in domestic demand, the savings rate of U.S. households continued to be negative (-1.5%)—marking the fifth straight quarter of negative household savings rates.

Core annualized inflation (i.e., inflation in market-based personal consumption expenditures minus food and energy prices) spiked upwards to 2.7% for the quarter, compared to 1.6% the previous quarter. While this spike may spur some to argue for interest rate hikes by the Federal Reserve to stem this inflationary pressure, the slow growth rate reported in this quarter argues otherwise. GDP in the second quarter essentially grew only as fast as productivity, which is a recipe for anemic job and wage growth in the future.

On this score, today's GDP report also includes annual revisions that show labor income growth was slower between 2003 and 2005 than previously estimated, and another government release today—the Employment Compensation Index—shows year-over-year declines in inflation-adjusted wages of 1.2%. All in all, recent labor market trends (the rapid deceleration of job growth in the last quarter) should be weighed at least as heavily as the inflation number in this report by monetary policy makers.

Today's BEA report shows signs that the economy is undergoing a transition from an economy based on strong domestic demand and a booming housing market to one that will have to rely more on net export growth in the near future. This adjustment will also require strong growth in wages and salaries to support consumption while also allowing some household savings. Though showing some encouraging signs, this report does not allay all concerns that the adjustment over the medium-term will be painless

[Mango]

Good article :clap_1: Thanks for sharing. Another reason why the Feds may not tighten again at the next meeting. I also own a headhunting firm with my sister and we specialize in manufacturing, (this business is up when mortgages are down, so they balance) We have had job orders and placements increase dramatically in the past 6 months.

[SHELLY]

Good article :clap_1: Thanks for sharing. Another reason why the Feds may not tighten again at the next meeting.

I wouldn't pop those champagne corks just yet.... :cool:

[Mango]

:confused: Simply noted that it was a good article. I didn't say it was positive.
But we do pop champagne corks with our manufacturing executives who are placed in well paying jobs they are happy with and the commissions do not stink either! :lol:

[bdc63]

Personal Income and Spending data released yesterday ...

PI prior 0.4,now 0.6
PS prior 0.6, now 0.4

from msn money:

The worrisome inflation numbers

The government's numbers on personal spending and the price component in the Institute of Supply Management's manufacturing survey put traders "in a foul mood," CNBC's Bob Pisani reported. The year-over-year rise in one of the Fed's favorite inflation gauges pushed the probability of an interest rate hike next week higher before the bell.

The core PCE index -- personal consumption expenditures excluding food and energy prices -- rose 0.2% in June, the Commerce Department reported. The rise was in line with economists' expectations, but compared with last year, the core PCE index is up 2.4%. That's the largest rise since April 1996.

The probability of a quarter-point interest rate hike, based on fed funds futures (http://www.cbot.com/cbot/pub/page/0,3181,1563,00.html) contracts trading on the Chicago Board of Trade, rose to 40% from below 30% at Thursday's close.

And shortly after the opening bell, the ISM said the prices-paid component of its manufacturing activity index rose to 78.5 in July from 76.5 in June. Economists surveyed by Bloomberg had predicted a drop to 75.2.