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Gary Shilling On Why Underwater Homeowners Will Double From 23% to 40% Shortly

Tyler Durden's picture




 

Arguably nothing can ever be quite as amusing as the Michael Pento-Simon Hobbs incident from July in which the now brainwashed Brit told the recent EuroPac addition that he was just "peddling the power of nightmares" (not even Pento getting booted off by Erin Burnett, although the fact that some idiot uttered the now legendary phrase "nothing is in a bubble when people want to buy it" certainly gives the clip brownie points for retention in the annals of CNBC's worst all time bloopers) when all the outspoken critic of the Fed said was the truth. Alas, today's interview of Gary Schilling by the same British H1-B/Green card holder comes nowhere close, however it certainly should be highlighted. Following up on Diana Olick's presentation of Clear Capital surprising announcement that home prices had dipped 6% in just two months (we can't wait for Cramer's take on this development even as housing "bottomed" last June), and warning that fraudclosure will certainly cause prices to dip even more, it is Gary's turn to "peddle some nightmare powers" to Hobbs. To wit: the CEO of Gary Shilling & Co. sees home prices tumbling another 20% over the next few years, and the number of underwater mortgages nearly doubling from 23% to 40% (meaning nearly half of America will likely strategically default as nobody has any initiative to pay down their mortgage when they know there is no equity value left). And even when Hobbs tries to pull the old Pento one-two, and tells Shilling that "you do admit in your own writing that very few people would agree with you"  to which the old fox answers: "what forecast is really worth much if everybody agrees with a consensus: it doesn't add much value..." Sorry, Gary, you are preaching to the wrong propaganda station: this is easily the first time they have ever encountered such a radical and subversive idea.

Luckily, Simon for the first time reads the counter bullet points that anchors over at Comcast (or is that still NBC?) are fed: "The problem with what you are describing is if you have prices falling by that degree, you get some very bad negative feedback loops that are set up in the economy about the number of people that therefore go underwater and the grinding down of confidence that moves on and on and has serious repercussion in the economy overall."

Spot on old chap. It is far better if the vast majority is lied to using manipulated data day in and out, so that when the inevitable collapse finally does occur nobody is prepared for it. And Americans wonder why they are broadly viewed as sheep being led to the slaughter not only by their own government, but their media too. Of course, when one dares to question anything, the response if that one is a traitor, and either puts troops in harms' way, or is a conspiracy theorist, no matter how many times said theories are proven to be fact, or best of all, is "disappeared" on grounds of the greater good. Good thing the media also helps us clarify it was the USSR Ronald Reagan was talking about when he referenced the "Evil Empire"... cause one sure could get confused.

Anyway, Shilling also says some more things about deflation, and bonds going to zero which readers have heard or read about a million times so no point in rehashing boring details.

Full clip which confirms that anyone buying a home and putting any equity down, is mentally challenged.

 

 

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Fri, 10/22/2010 - 19:36 | 670793 rocker
rocker's picture

It must be time to buy the homebuilders again. Some went up today.  Yup.  Hurry, while they are cheap.  Yup. 

Fri, 10/22/2010 - 19:56 | 670835 flacon
Fri, 10/22/2010 - 20:13 | 670864 kaiserhoff
kaiserhoff's picture

Great leaping lizards!  OK, let's all do the Twilight Zone theme.

do do do do

do do do do

There, I feel better,   not.

Fri, 10/22/2010 - 20:27 | 670880 flacon
flacon's picture

I'ts only Friday evening and already I have the Sunday evening jitters! AND it's G20 tomorrow discussing... CURRENCY MANIPULATION! They ought to have their plates full and their speech writers may not get a wink of sleep tonight!

 

GEITHNER: "Strong dollar policy. Strong dollar policy. Strong dollar policy. Strong dollar policy."

Fri, 10/22/2010 - 20:36 | 670898 kaiserhoff
kaiserhoff's picture

I guess that's what Tyler would call "uncorellated."

Sat, 10/23/2010 - 05:49 | 671592 66Sexy
66Sexy's picture

schilling is right about housing, but all it hurts is the fiinancial system. free rent/non payment of mortgages means alot of freed up cash... cash not being wasted on crooked bankers (and, by association, crooked politicians), cash not wasted on banker interest and underwater mortgages, but on clothes, food, surival, and handheld digital bullshit. its actually a BOON... like an extra several thousand a month for many families. this means its 'fuck the banks', but corporate america and the consumer will sustain themselves just fine... for awhile.

 

the only casualties will be banking, credit, finance, and housing related investments. good for wall mart, target, apple,... and folks smart enough to stop paying their stupid mortgages.

 

as your squatting away, think of Dodd and Pelosi... Lieberman, and all those crooks in washington. you are just hurting their political campaigns, because the blood money siphons up from mainstreet to their coffers, so they can continue to screw over the american people with back door legislation and conspire with the banking elite.

 

nov 2nd, you know what to do. operation: sweep and clear.

Sat, 10/23/2010 - 19:03 | 672432 Minion
Minion's picture

That really sums it up.  But history seems to side with the banksters.  They threatened to implode the financial system in 2008 and could do it again with MBS putbacks.  The derivatives problem hasn't been solved. 

Sat, 10/23/2010 - 23:16 | 672772 No More Bubbles
No More Bubbles's picture

The financial system has already blown up. It's just running on fumes. The artifice that sustains this has never been more specious and weak.....

The collapse will happen overnight........

Fri, 10/22/2010 - 21:45 | 670970 boooyaaaah
boooyaaaah's picture

Finally Gary Shilling He had this right for years But could never convince Kudlow Now zero in on Glen Beck and the spooky dude And you will be getting closer to the Truth

He also has a book out predicting deflation

We shall see

Fri, 10/22/2010 - 22:20 | 671076 sourgrapesson
sourgrapesson's picture

Yeah I'd have to pass on the Glen Beck part.

I like food in my stomach and that dude makes me so ill I'd upchuck if I watched him.

 

Sat, 10/23/2010 - 08:28 | 671682 jomama
jomama's picture

Beck is less palatable than the chimp was.  And that's saying something.

Sat, 10/23/2010 - 09:27 | 671718 boooyaaaah
boooyaaaah's picture

You must be for the spookey dude (Sorros)

Strong stomach --- you

Sat, 10/23/2010 - 12:29 | 671892 pamriallc
pamriallc's picture

probably true.  **HOUSING AND EMPLOYMENT ARE LAGGING INDICATORS* so the "minions" are like the very last rats leaving the ship while the rest of the world gets back down to business.    shawn mesaros, pamria, llc

Fri, 10/22/2010 - 19:37 | 670796 hambone
hambone's picture
We are enjoying the fruits of our childrens future tax receipts...which will crush them trying to pay for our stupid lifestyles all subsidized by our government. I know you may think you don't work for the gov, you make money in the economy. But the economy is a fraud and you, me, and most of us are leaches living off a lie. Deficit spending, trade deficits, stimulus, all lies to avoid the truth. America has some real growing up to do and a revolution (hopefully peaceful) is what is needed to build a brighter future for generations to come. 40% of home prices underwater are the last straw of debt that can no longer be serviced...time to reset the game.
Fri, 10/22/2010 - 19:41 | 670804 rocker
rocker's picture

Every dollar carries debt. The FED guarantees it every time they print more to pay for their own debt.

And believe, printing is a full time job at the FED right now. Hell, they are still printing for 9 years of war.

Fri, 10/22/2010 - 20:28 | 670884 doolittlegeorge
doolittlegeorge's picture

tis true "no war pays for itself."

Sat, 10/23/2010 - 01:06 | 671453 BS Footprint
BS Footprint's picture

by rocker
on Fri, 10/22/2010 - 16:41
#670804

Every dollar carries debt. The FED guarantees it every time they print more to pay for their own debt.

FRNs *are* debt. They aren't dollars. They are a promise to pay... what? It's a note. They used to represent and be redeemable in honest money (at least they once said they were), but that was a long time ago. Back before I was born.

People who hold FRNs hold... nothing but a bag of promises.

Fri, 10/22/2010 - 22:49 | 671166 Eternal Student
Eternal Student's picture

"We are enjoying the fruits of our childrens future tax receipts"

That's certainly the myth which is propagated. The truth is that Sovereign debt default is the historical norm; our past several decades have been the exception.

Our kids won't be paying off that debt. My bet is that they are a heck of a lot smarter than we are.

Sat, 10/23/2010 - 09:11 | 671707 CH1
CH1's picture

While what you write may be correct, it avoids the main point: The current generation has put following generations in debt, to satisfy their own insecurity and to grasp at more than they had earned.

They sold their children's lives in advance.

At best, they can plead ignorance to this crime, which leads to them defending their ignorance - by all means necessary.

Fri, 10/22/2010 - 19:43 | 670810 Everyman
Everyman's picture

Just love this line and it speaks volumes:

"It is far better if the vast majority is lied to using manipulated data day in and out, so that when the inevitable collapse finally does occur nobody is prepared for it."

I still cannot believe how damn brain dead our Mainstream Media is.  They can't seem or are totally unwilling to actually learn and investigate a story.  The mortgage meltdown with fraudclosuregate coupled with the effect on all those pensioners and investors that are defrauded in the REITS and MBS that are what Karl Denniger says are "empty boxes".

I think differently of the fella's words though in this regard; there ARE people that ARE ready and positioned to be as ready as they can be for this fall.  I am just upset and about shooting mad at the FED RES and the SEC that I could spit, and I am POSITIVE I am not alone.

 

 

Fri, 10/22/2010 - 19:49 | 670817 hambone
hambone's picture

@ Everyman

+1000

BTW - my wife is a successful realtor here in Portland.  She and her office are typically one of the top producing offices here but can attest sales have fallen off a cliff the last couple months.  The worst they have seen.  Don't know if true nationally but definitely sales down, inventory up, prices down here.

Fri, 10/22/2010 - 20:30 | 670887 doolittlegeorge
doolittlegeorge's picture

is that Oregon or Maine?

Fri, 10/22/2010 - 22:04 | 671041 treemagnet
treemagnet's picture

I own a moving and storage agency for a large national van line and I can tell this housing mess is a mess - its locking up all over again.

Fri, 10/22/2010 - 20:50 | 670922 Eric L. Prentis
Eric L. Prentis's picture

Dear Everyman:

Think of the MSM media this way: owned lock stock and barrel by the financial/corporate elite. The MSM's job is to cover the ass of their masters, they care nothing about the truth or the greater good.

Fri, 10/22/2010 - 21:15 | 670947 Everyman
Everyman's picture

Well sadi Eric, however you would think there would be SOME professionals that WANTED to actually DO THE JOB they were trained to do to the highest ethical standards they could achieve.

At one time they did care about the "common good" however as the Jaun Williams/NPR story sadly shows, the MSM is in the toliet as bad as the SEC is at investigation.  And almost as bad as the Federal Reserve in terms of analysis skills and judgement.

Sat, 10/23/2010 - 12:54 | 671926 Commander Cody
Commander Cody's picture

Dylan Ratigan?

Fri, 10/22/2010 - 21:35 | 670976 Tapeworm
Tapeworm's picture

I have found Diana Olick to be a legitimate reporter-- one of the few on that operation. After all it was her lead in that provided the grist for the interview.

 Give credit where due, no?

Sat, 10/23/2010 - 00:04 | 671364 Everyman
Everyman's picture

Touche' and point taken, and I do follow what she and Meridith says, however, those are the few voices, and the many (insipent and ignorant) voices drown the few out.

Fri, 10/22/2010 - 23:41 | 671304 Fred Hayek
Fred Hayek's picture

And these are people who, so often, claim that they became journalists because they wanted to "change the world".   Maybe with a little sodium pentathol they would have said "become rich and a minor celebrity".

Fri, 10/22/2010 - 19:48 | 670821 masterinchancery
masterinchancery's picture

Only another 20%? That would't even bring prices back to the yr 2000 level in many areas.

Sat, 10/23/2010 - 00:36 | 671402 Village Idiot
Village Idiot's picture

I agree, in my area 20% brings us back to about 2000.  lets see, how were things going for the US economy in 2000?  Can someone extrapolate?  /sarc off

Fri, 10/22/2010 - 19:55 | 670834 Bill Lumbergh
Bill Lumbergh's picture

"Let's leave that hanging in the air"...

Sat, 10/23/2010 - 08:29 | 671683 equity_momo
equity_momo's picture

This limey telepromt reader is the worst of the lot. Talks total shit and in a manner that suggests his balls havent even dropped yet.

Fri, 10/22/2010 - 19:58 | 670839 Prairie Rose
Prairie Rose's picture

Home prices are STILL UNAFFORDABLE for the middle class.  It's no bargain to buy a home that in 2000 was "worth" (and I use that term loosely) $150,000, sold in 2005 for $300,000 and is now priced at $250,000.  Median wages went DOWN in the 2000-2009 period.  Shilling is right that prices need to come down, but I'd peg it at 25% in my market.  If the government would get out of the way, and if the Bubble People would get over themselves (but, but, but, my house is WORTH $300,000) then we'd be a lot further along in a housing recovery.

Fri, 10/22/2010 - 20:28 | 670879 TheGreatPonzi
TheGreatPonzi's picture

The real estate market being entirely funded by debt, seeing aberrant prices is the norm. It's easy to buy a house $500,000 when the bank doesn't care about being paid back, making enough dough with near-zero interest rates, betting on mortgage defaultings, and unlimited bailouts.

Up to the 1970s, having a debt was considered a shame. At least in France, where I come from. Mortgages were rare, people usually buying their real estate cash. Mortgages were mostly 'seller-to-buyer' agreements, which avoided bank interests. Adjusted for inflation and population growth, home prices were still ridiculously low.

Fri, 10/22/2010 - 22:45 | 671150 unum mountaineer
unum mountaineer's picture

but but but...haven't you guys been gaming the socialist system? not trying to offend..really curious..cuz if you have 10 kids from 10 different women, stay single and then collect the checks..well heck, you could be driving ferraris and paying cash money homie? or is there another variable I'm asking..no seriously, i'm asking ponz..

Fri, 10/22/2010 - 20:33 | 670891 DonutBoy
DonutBoy's picture

+1

Fri, 10/22/2010 - 22:51 | 671158 unum mountaineer
unum mountaineer's picture

exactly, so thank those bubble people, sit back and wait..but i wouldn't look at the 'burbs..so close in proximity..not the way to go imo..what's really important is arable land..look there if you can

 

the wife bithces to me of late..how can we afford anything at these still too high prices..I said look..i don't give a flying fuck if I live in box no bigger than a master bedroom..a home is 4 walls and roof..WITH NO DEBT..WITH NO MORTGAGE. she looked me square in the eyes and said i love you. and no, i didn't get any...lessons here?

Sat, 10/23/2010 - 00:47 | 671414 Village Idiot
Village Idiot's picture

"If the government would get out of the way, and if the Bubble People would get over themselves (but, but, but, my house is WORTH $300,000) then we'd be a lot further along in a housing recovery."

 

And a new cycle would be born.  Affordable housing for suitable buyers, suitable returns for investors.  A sustainable market for the trades that depend on housing, etc., etc. 

Anyone catch the William Black interview on Bloomberg today? Another good interview. I've seen a "clearing" of RE markets - it works.  Problem is, no one wants to pay the price this time around.

Fri, 10/22/2010 - 20:10 | 670856 kaiserhoff
kaiserhoff's picture

Vegas is now at 80% underwater.  So tell me again how to get rich flipping houses...

Fri, 10/22/2010 - 20:33 | 670892 doolittlegeorge
doolittlegeorge's picture

ask Harry Reid.  He's in danger of being hit by "the political upset of the century."

Fri, 10/22/2010 - 21:40 | 670981 TheMonetaryRed
TheMonetaryRed's picture

Yeah the RepubliKeynesians are about to beat the DemoKeynesians so they can put $700 billion of stimulus into the economy by borrowing in order to cut taxes and spend rather than borrowing about the same amount just to spend.

Wow. 

Things are really gonna change, huh?.

I'll bet the "elites" are really scared of all those Tea Partiers heading into D.C. to cut their taxes.

I'll bet they're shivering with fear.

Fri, 10/22/2010 - 22:41 | 671139 unum mountaineer
unum mountaineer's picture

ya know, I feel that politicans in general from the moment they exit their mothers' womb would sell said womb to the highest bidder..f-ing complicits..each and every last one.but as I have said before..i thank them and the fools who continually go tothe polls to vote for 'em..they afford me the fighting chance I need to make the moves I need to for my family and myself

Fri, 10/22/2010 - 22:58 | 671181 TheMonetaryRed
TheMonetaryRed's picture

Here's the truth: 

Adequate austerity and "Austrian" economics mean about a $1.4 trillion decrease in government spending (so, about 10% of GDP), plus a tax INCREASE of at least $400 billion, or about 3% of GDP.

Nobody is going to vote for that.

A true, Progressive stimulus will mean massive debt foregiveness and massive monetization to counter defaults or the country will be bankrupted by its sovereign debt. That will badly hurt asset values. 

Nobody rich is going to let anybody else vote for that.

Neither RepubliKeynesian nor DemoKeynesian policies are viable long-term. So what are they supposed to say?

Thanks for leaving the decision to the rest of us.  

Sat, 10/23/2010 - 00:50 | 671423 Village Idiot
Village Idiot's picture

"So tell me again how to get rich flipping houses..."

sell on the way down. and pray you don't get caught holding the bag.

Fri, 10/22/2010 - 20:12 | 670860 watt
watt's picture

" . .  by the same British H1-B/Green card holder comes nowhere close, however it certainly should be highlighted."

Reference to Hobbs nationality brings to mind BHO's reference to British Petroleum implying that part of the disapproval stems from he/it being non-American.

Good interview I thought by two polite gentlemen. I am a fan of Gary Shilling.

  

 

Fri, 10/22/2010 - 20:36 | 670896 doolittlegeorge
doolittlegeorge's picture

How about Calvin and Hobbes?  Or even Thomas Hobbs himself then?  "Short, brutish and nasty" could have made for some real fireworks, no?

Fri, 10/22/2010 - 21:10 | 670943 Tyler Durden
Tyler Durden's picture

If there is any disapproval it is not due to his nationality, it is due to his opinion. Propaganda is global.

Fri, 10/22/2010 - 21:31 | 670966 TheMonetaryRed
TheMonetaryRed's picture

Prediction: Unless Bernanke is put out of office (and probably even if he is), over the next 5-10 years effective U.S. debt will go down by about five trillion dollars. 

The U.S. can use massive monetization, therefore the U.S. will use massive monetization. It will be sudden, controversial, but orderly and make essentially no difference to the lives of 98% of people. 

Likewise, Japan and Europe. 

Currencies will be revalued between developed and emerging countries - not by the market, but by sovereigns. Currency unions will become much, much stronger and we'll move on.

China will be VERY pissed off, but then they'll have a lot of money, too. 

Rich people will get skinned a bit on their investments.

Boo.

Hoo.

Fri, 10/22/2010 - 22:38 | 671130 unum mountaineer
unum mountaineer's picture

too simplistic...there is definitely a resource grab going on. even when there is plenty to go around, human nature is to not want a piece of the pie..get the whole damn thing..with these maniacs at the helm..watch the fuck out.

 

USD below 77, know its the weekend..and won't matter most likely come sunday evening. but what happens from here.

Fri, 10/22/2010 - 22:46 | 671156 TheMonetaryRed
TheMonetaryRed's picture

In a resource-grab world, you cut your debt. 

The U.S. can cut its debt through monetization, therefore it will.

Sat, 10/23/2010 - 06:58 | 671631 A Man without Q...
A Man without Qualities's picture

I don't agree.  For the effective debt to halve, this requires devaluation, or inflation.  The idea that it will make no difference to 98% of the people is wrong.  What about the impact on Social Security (inflation adjusted) annuities (inflation adjusted) pension funds, insurance companies?  Most people are hugely effected by the real value of Treasuries.  

There is this bizarre idea that devaluation only hurts the Chinese for example, but it hurts US citizens who are savers or who are reliant on the money taken by the government to save on their behalf.

Currency devaluation will benefit the most leveraged (govt, banks and heavy borrowers) but will eviscerate the wealth of those who tried to be prudent over the last few decades.  

Fri, 10/22/2010 - 20:14 | 670866 eigenvalue
eigenvalue's picture

Just wanna know how this fraudclosuregate would affect PMs. In 2008, the subprime crisis knocked the shit out of PMs. :(

Fri, 10/22/2010 - 22:34 | 671112 unum mountaineer
unum mountaineer's picture

you concentrate on repition...think about it in terms of rhyming...just saying..the game has progressed..action is heating up. you have currency wars now..and soon..well its only natural that it will get physical. central banks seem to like au..the "little people" get ag and just about whatever else they can get their hands on. personally i don't think either is the end all do all..it's a transitionary thing to get what you will need for the huge ass paradigm shift approaching.like if i needed to GTFO quick, i will barter with whatever i have cash included...keep every option open..you just never know with these 'tards.

running water, land that you can grow stuff on..weapons and ammo will be key..hunting, protection, and for "close" situations is how i'm thinking. lots of guys go bow peep and arrow, not b/c they like fucking around with those things..ammo is too damn high..get it? i'm drunk and punchy again..cheers friend.

Fri, 10/22/2010 - 20:14 | 670867 f16hoser
f16hoser's picture

Thank God Harry Reid saved us from this depression!!!! He rocks!!!!

I also think Harry would look good in a Columbian Necktie!

Fri, 10/22/2010 - 21:29 | 670961 Bill Lumbergh
Bill Lumbergh's picture

We should also be thankful he is certain all Nevada construction works are indeed citizens:

http://www.youtube.com/watch?v=qWrvudsi5qI

Fri, 10/22/2010 - 20:20 | 670873 Miles Kendig
Miles Kendig's picture

Gary's call to go long ust in '07 and rotate out of equities made some people very happy.

Fri, 10/22/2010 - 20:40 | 670905 repo 105
repo 105's picture

I love it when the plan comes together. How do you own all the shelter in the country and get the residents so broke they become 100% dependant on you at the same time? MBS, that's how. Oh, and let's shut down the internet soon due to the increased risk of cyber attack in the name of national defense as well. That should help with all those pesky robo signing foreclosure thingys.

Slow motion train wreck, but all we can do is watch.

Fri, 10/22/2010 - 20:48 | 670918 doolittlegeorge
doolittlegeorge's picture

Is housing the spark that leads to "an arrest" after the election?  I'm not holding my breath.  does it "undermine confidence" thereby forcing "QE 2" to be effected?  Something must be done by DC and to date I can't think of a single thing they have actually "effected."  Passed legislation?  Certainly...but "when it came to the oil spill that was BP's responsibility."  It's hard to say what policy options are available outside of outright nationalization should this prognostication become true.  Needless to say "I hear of no options here."

Fri, 10/22/2010 - 20:51 | 670923 Rich_Lather
Rich_Lather's picture

I'm in the market for a house,so I have taken to checking zillow for their estimate of houses I am familiar with in the market. Since the government ceased their stimulus through bogus tax credits, housing prices have declined 3.5% a month here....and I live in a city where the biggest employer is the state of Florida.

When I wikipedia'ed housing bubbles in 2004 I found that they are roughly semetrical and act somewhat like a derivative of foreclosure + a constant. As forclosure action peaks, housing prices bottom.Semetrically, it should bottom in late 2012, but due to foreclosure hold-offs and government intervention it may take longer.

My realtor, though, says it's a good time to buy. LOL!

 

 

 

Sat, 10/23/2010 - 01:35 | 671496 Pondmaster
Pondmaster's picture

Lather -

Don't realtors always say its a good time to buy? Same as stock brokers . Now lawyers are saying its a good time to sue . And the Treas is saying its a good time to print. And the world is saying its a good time to devalue. Its all insane . Its all self serving . Its all a lie .   

Sat, 10/23/2010 - 07:34 | 671648 Snidley Whipsnae
Snidley Whipsnae's picture

Oregon is in process of cutting state workforce by 30%+. The same will happen in all states as tax revenues continue to decrease.

There will come a time to buy houses. Now is not the time.

Patience is a virtue. 

 

Fri, 10/22/2010 - 21:01 | 670937 Hollywood
Hollywood's picture

Has the fat lady starting singing yet?

Fri, 10/22/2010 - 22:24 | 671089 sourgrapesson
sourgrapesson's picture

Hell no that fat lady hasn't even cleared her throat yet.

Sat, 10/23/2010 - 00:54 | 671432 Village Idiot
Village Idiot's picture

The fat lady needs to hurl.

Sat, 10/23/2010 - 13:40 | 672021 Uncle Remus
Uncle Remus's picture

In Ben's lap.

Fri, 10/22/2010 - 21:10 | 670942 Spitzer
Spitzer's picture

This Shilling gets the housing market yet he doesnt get the bond market.

He is a believer in things returning to norms. How about interest rates above 0% gary ?

Fri, 10/22/2010 - 21:15 | 670945 bob_dabolina
bob_dabolina's picture

I agree.

Interest rates were at 15-18% at one point.

Did that deter people from buying homes? No. I think that housing is the patsi for ZIRP. I think there is a far more ominous reason the FED has enacted ZIRP, I don't understand it but I'm sure it has to do with the banks.

In fact I have talked to people who want to buy a home but the fact that interest rates are so low has them worried (obviously these are the responsible people)

Sat, 10/23/2010 - 07:38 | 671651 Snidley Whipsnae
Snidley Whipsnae's picture

ZIRP is for the Wall St banks use. They borrow at near zero % and lend to those foolish enough to carry credit card balances at various interest rates up to 31%.

It is called recapitalization of the big banks.

I call it the rape of the public.

When I was a kid loansharks were put in jail for charging 17% interest (the vig).

Fri, 10/22/2010 - 21:16 | 670949 bdrichards
bdrichards's picture

Reversion to the "mean" often overshoots to the downside, so I would not be surprised to see single family residences  lose even another 30% or 40%.  I remember John Templeton, prior to his death in 2008 saying that housing would decline 90%.

Fri, 10/22/2010 - 21:56 | 671021 TheGoodDoctor
TheGoodDoctor's picture

Wow that is a steep death bed confession by John Templeton. I am curious about a graph for wages and housing prices from 1970. I bet they are about the same. :p

Sat, 10/23/2010 - 00:34 | 671398 ATG
ATG's picture

Or CPI and housing

JMT, who worked on Wall Street in the 30's, said all assets eventually correct the amount they were financed.

Ally GMAC Ditec made 125% loans

Sat, 10/23/2010 - 00:49 | 671420 RockyRacoon
RockyRacoon's picture

Wonder if that is applicable to bank leverages?

Sat, 10/23/2010 - 02:23 | 671525 pitz
pitz's picture

Absolutely, the bottom of an asset class is when *all* leverage has been removed against it.  In other words, the mortgage market collapses, and houses become cheap enough that all buyers are entirely cash buyers.

People who think they can get a good deal by taking out a 4% mortgage and buying at today's inflated prices, hoping hyperinflation will save them, are just catching a falling knife. 

Sat, 10/23/2010 - 10:26 | 671756 Prairie Rose
Prairie Rose's picture

+ 1 trillion

Sat, 10/23/2010 - 00:48 | 671417 RockyRacoon
RockyRacoon's picture

Shilling probably thinks that but can't find the guts to say it.  At least he can be absolved of responsibility for the ultimate decline by going with 20%.  I wouldn't go that far myself publicly, but that proves that 20% is a starting place for the final decline.

Fri, 10/22/2010 - 21:31 | 670969 tony bonn
tony bonn's picture

"And Americans wonder why they are broadly viewed as sheep being led to the slaughted not only by their own government, but their media too"

is there any other outcome: the banksters own the cia, the cia owns the press, and press owns the sheople.....the circle it won't be broken, by and by lord by and by.....clap yo hands....

Fri, 10/22/2010 - 21:33 | 670972 RobD
RobD's picture

Yesterday the local talker in Reno had on a lawyer that specializes in foreclosure mediation(Nevada has a mandatory mediation law) and he had some very interesting insights into the foreclosure fiasco. Here is the link to the podcast:

http://www.kkoh.com/sectional.asp?id=25323

It would have been much better if Bill had kept his mouth closed and just let the guy talk.

Sat, 10/23/2010 - 07:04 | 671637 Judge Smales
Judge Smales's picture

I agree RobD. I listened to the whole show and the host kept interrupting when the guest was on the verge of making a great point. But lots of good information.

Sat, 10/23/2010 - 12:33 | 671900 Rusty Shorts
Rusty Shorts's picture

 - the host needs to shut-up, jeeeeze.

Fri, 10/22/2010 - 21:34 | 670973 roymunnson
roymunnson's picture

It is by design. It has to be

Fri, 10/22/2010 - 22:08 | 671050 lolmaster
lolmaster's picture

Shilling is a shill, shrill permabear, a watch pointing to midnight during a noontime solar eclipse. He may be correct again, but it doesn't give him predictive power. To paraphrase the senile old loon, what worth is a forecast that one won't bet on? When JP turns bearish, only then should one GTFO, until then learn to love the Fed. (They intend to **** you until you do.)

Fri, 10/22/2010 - 22:30 | 671108 Buck Johnson
Buck Johnson's picture

They need to allow real price discovery, but they can't.

Fri, 10/22/2010 - 22:40 | 671136 apberusdisvet
apberusdisvet's picture

And if they allowed real price discovery, most of the TBTF would have to shut their doors.  Look for a bank holiday after the election.  Mattress time for FRNs, certainly not in a bank.

Fri, 10/22/2010 - 22:42 | 671143 prophet
prophet's picture

I like the house, I like the neighborhood, I can get a 15 year mortgage for next to nothing at a payment I can afford, and in fifteen years I'll have no base rent to pay.  The price now, in fifteen years and in between matters not.  A very small percentage of buyers are in this boat but for those who are and know they can settle down, things are good.

For those more mobile, they were and will be akin to renters trying to bank profit as they move.  Works when prices are rising, wipes you and the banks out when prices fall.  Great system.       

 

"Americans wonder why they are broadly viewed as sheep being led to the slaughter (ed.) not only by their own government, but their media too"

I think they wonder how they can do anything about it.  That is why they mostly, watch movies, buy and sell stuff, talk on the phone, and surf the net.  Who Cares We'll Just Kick Their Ass.

Not to mention we are all going die anyway.

I saw this CNBC thing you speak of yesterday morning for a few seconds.  Fascinating.  There was a person who was a billionaire and managed OPM.  He said people hate loses more than they like gains and they also despise giving money to those who need it more than the people who need it appreciate getting it.  I'm sure its in his writings too.

If one could run and then catalogue just the nuggets of wisdom and a few humourous bits too that run across all the mediums what a treasure trove it would be.

Been thinking about "best ofs" and polling too.  That Contract from America thing was done via inet poll.  Perhaps, American Remedy.

-profd    

Sat, 10/23/2010 - 07:48 | 671657 Snidley Whipsnae
Snidley Whipsnae's picture

"I like the house, I like the neighborhood, I can get a 15 year mortgage for next to nothing at a payment I can afford, and in fifteen years I'll have no base rent to pay."

Will you have the same job in the same area in fifteen years?

What will happen to the US dollar in the interim?

I have been buying, with cash, prime commercial re for 30 cents on the dollar of highs. No office space, no retail. All the purchases I have made have been commercial re owned outright by an individual. No phony baloney paperwork trail to unravel.

I would not touch residential re with a ten foot pole now unless I was buying for cash from an individual that owned the property outright with no encumberances and I found a dependable title insurance company to back the deal.

All residential re is now suspect if not owned outright by current owner. Why would anyone put themselves at risk of future claims?

Sat, 10/23/2010 - 10:29 | 671760 Prairie Rose
Prairie Rose's picture

You've hit the nail smack on the head, Snidley.  No one's really talking about this.

Sat, 10/23/2010 - 19:23 | 672453 prophet
prophet's picture

Do you think new construction purchases mitigate most of the title risk? = Buy home builders?

I've seen people burned by title, by hidden easements, and by "brown" land or buildings.  Title risk has always been there too. = Always complete diligence. 

Owned outright definite premium, for sure. = Opportunity.

(Appreciate your insight, thanks.)

 

Fri, 10/22/2010 - 23:53 | 671322 Downtoolong
Downtoolong's picture

It’s interesting to think about the end game for the residential real estate market. People have to live somewhere. It seems to me if they aren’t going to be legitimate owners then somehow they must become tenants.

 

I just became a landlord by default myself after hopelessly trying to sell my condo (six months on the market and not one firm offer). The interesting thing is, my new tenant is now paying rent equal to what she would be paying after tax (for mortgage, insurance, taxes, and maintenance) if she had bought my condo for 25% above what I was asking for it. I’ve never seen the rent premium to ownership cost that high before. Probably just another measure of how the banks new lending policies have distorted the natural market balance. It seems like any way you look at the real estate market now it is out of whack.

 

If the banks were smart, instead of dumping all their foreclosed properties back on the market at distressed prices (thus destroying the market price for all their future foreclosures too), they could manage the properties as rentals instead. There are a number ways this could be done, all of which require that the banks have competence in the physical real estate market vs. the fantasy paper real estate market they have constructed. Unfortunately we all know that is never going to happen.

Sat, 10/23/2010 - 01:05 | 671450 Village Idiot
Village Idiot's picture

"If the banks were smart, instead of dumping all their foreclosed properties back on the market at distressed prices (thus destroying the market price for all their future foreclosures too), they could manage the properties as rentals instead. There are a number ways this could be done, all of which require that the banks have competence in the physical real estate market vs. the fantasy paper real estate market they have constructed. Unfortunately we all know that is never going to happen."

 

I appreciate your thoughts, but beg to differ.  Fuck the banks taking over ownership of the housing market.  There's good money to be made in RE when the price is right. Try accumulating some correctly priced RE and feel the joy of big cash-on-cash return.  You'll say good bye to the stock market.  And who would you rather rent from anyway, a bank?  No.

Sat, 10/23/2010 - 02:21 | 671522 pitz
pitz's picture

Renting should always be more than owning on a monthly payment basis because the renter doesn't take any risk of depreciation, can leave on almost a moment's notice without loss of equity, and because renting typically includes a range of property management services.

If the banks operated foreclosures as rentals, they'd kill the market rents.  So either way, either the prices of the houses gets whacked (if they unload quickly), or the rents get killed.  Both will end up happening, BTW, until rent and prices both comes out to being something near zero.

Sat, 10/23/2010 - 10:08 | 671739 Downtoolong
Downtoolong's picture

So either way, either the prices of the houses gets whacked (if they unload quickly), or the rents get killed.

 

Yep, that’s the problem, isn’t it? There really is no way out, to stop declines in housing prices or rents when the banks are dumping so much property on the market. Realistically, we won’t see any stabilization in prices until the absorption rate of foreclosures reaches the rate of supply. Meanwhile, the banks keep shooting themselves in the foot and every other property owner in the head. For every nickel they might be saving themselves in this tragedy they are costing the rest of us a dollar.

 

Sat, 10/23/2010 - 00:07 | 671370 johngaltfla
johngaltfla's picture

20% is spot on. Believe or not if you'd like. But for those that think that just because a central bank elects to "print" to bring asset values up, perhaps a study of the 1836-1841 Great Depression is in order. It didn't work then to save Real Estate valuations, it didn't work in 1934, and it won't work now.

Sat, 10/23/2010 - 01:06 | 671446 BS Footprint
BS Footprint's picture

[[comment deleted and reposted in reply to some other comment]]

Sat, 10/23/2010 - 06:12 | 671610 Lord Peter Pipsqueak
Lord Peter Pipsqueak's picture

Reversion to the mean?Deflation,lower 30 year yields?Has Gary Shilling ever heard of the Federal Reserve? 

I can't believe Simon Hobbs didn't challenge him on this,he weakly mentioned the authorities "flailing around" to prevent falling prices at 4:35,but Shilling just dismisses it by saying it will just delay the inevitable falls.Of course,being a CNBC employee, Hobbs of course couldn't just come out and say Bernanke was going to print trillions of dollars to keep house prices up and stock prices up could he?

He talked a lot more sense here just after joining the US show last year.

http://www.topgunfp.com/simon-hobbs-goes-off-on-the-fast-money-traders/

Sat, 10/23/2010 - 07:38 | 671650 tom
tom's picture

Capitulation - gradual, neighborhood by neighborhood. It started with the most undesirable neighborhoods - they're like Zimbabwe already, only with Fannie or Freddie trying to get you into a 3% down 4% 30 year loan, so you can afford a $20-30k house. Which has been sitting on the market for 6 months, since before Fannie and Freddie realized there's just no damn point foreclosing in these neighborhoods. And gradually moving up the market, neighborhood by neighborhood. We've got a long ways to go before banzai's North Queens McMansions succumb. But we'll get there.

Sat, 10/23/2010 - 08:11 | 671666 Snidley Whipsnae
Snidley Whipsnae's picture

Perhaps the Fed will succeed in keeping residential re prices up in dollars that have greatly decreased purchasing power. However, I doubt the Fed can accomplish even that.

Meanwhile, all that want to preserve their individual purchasing power are heading for commodities, ag land, museum quality art...hard assets iow.

Sat, 10/23/2010 - 08:18 | 671670 Chartist
Chartist's picture

It's not realestate, but I dabble in handmade high end bamboo fly rods....The dealers I know say their only sales are coming from foreign buyers....Domestic business is non-existant....I tell them, it makes perfect sense given how poorly our US dollar is doing.

Sat, 10/23/2010 - 13:11 | 671967 yabyum
yabyum's picture

Iam a cane man myself, the cost of the old rods is holding better than my house!! Bamboo Bitches!

Sat, 10/23/2010 - 08:22 | 671674 Sabremesh
Sabremesh's picture

Look, there are two meanings of the word "bubble", and this is causing a lot of people, including ZH some problems.

The first meaning of "bubble", as per Simon Hobbs, and which most ordinary people think when hearing the word, is "an inflated market on the verge of collapse". Clearly, this is not somewhere you want to be investing in.

The second meaning of bubble (as understood by more sophisticated people) is "a market which is growing on sentiment rather than fundamentals, and which could continue expanding for an indeterminate period". This could well be a good place to invest in, at least for the short to medium term, or until the parabolic phase appears to stalling. 

There's no point ridiculing people for using the word until you know which definition of "bubble" they actually mean.

 

Sat, 10/23/2010 - 08:38 | 671687 Snidley Whipsnae
Snidley Whipsnae's picture

Your second definition of bubble, and a willingness by speculators to participate, can create great gains or great losses for the speculators.

Since my crystal ball is out of order and all markets are now moving, or not, on Fed actions, I will stick to that which has worked in the past...as enumerated in my post above.

I am purchasing price commercial re but not office or retail space. I am buying only from individuals that own outright and I am paying only cash. This has allowed me to buy some excellent properties for ~30% of former peak prices.

Bargains do come onto the market in commercial re but I have found nothing in residential re that I consider a bargain.

My biggest concern regarding productive commercial re is that the taxing authorities will go nuts before they get thrown out of office. Big cuts in government sector jobs in states are coming and that should offer some relief to those, like myself, in the private sector that are attempting to bring work back to America. I own welding shops, body shops, small manufacturing, freight distribution centers, and the like. All these properties are employing Americans. 

Sat, 10/23/2010 - 11:21 | 671810 Implicit simplicit
Implicit simplicit's picture

Good for you SW. You do things that actually add value to the economy as opposed to the banksters which suck the everliving life out of it.

Sat, 10/23/2010 - 09:21 | 671715 Surly1
Surly1's picture

In re the function of media: when a man's job depends upon him not understanding something, it is odds-on likely he won't understand it. Or report it.

Sat, 10/23/2010 - 10:36 | 671769 gkm
gkm's picture

I read somewhere that during the Great Depression about 40% (or was it 50%) were underwater on their mortgages at the bottom.  Of course at that time only about 45% of homes were owned by the citizenry versus 65% today.  Also, I don't know if there were the same level of demographic issues like the boomers present today and the persons per household is much lower today versus say 1915 (2.6 vs 4.5).

These create a lot of room for home ownership contraction.  Therefore a meaningful bounce in home prices will likely be a long time coming.

Sat, 10/23/2010 - 11:56 | 671850 Rainman
Rainman's picture

More than a year ago, Deutschebank predicted a 50% underwater mortgage figure by 2013 ......so their prediction makes Shilling look like a bull at 40%. That bank projection sounds reasonable, since gimmick financing resets continue through 2012 and will swamp the underwater hangers on who can't refi out of the mess. 

Sat, 10/23/2010 - 11:13 | 671797 tom
tom's picture

You got it, shrinking numbers of households despite growing population.

http://www.marketwatch.com/story/recession-culls-12-million-us-households-2010-04-07

Sat, 10/23/2010 - 12:03 | 671856 no life
no life's picture

All economists think they understand things perfectly, but if that were so true they wouldn't be sitting there pontificating or trying to sell another one of their books.  They continually say that the real estate market is overvalued.  How do they know?  I guess it just seems easier to sell a pessimistic view instead of actually thinking it through.  They never to bother to realize that the point of the real estate is not to be cheap enough for everyone to buy one.  The point of real estate as an asset, is not to crater in value so that it's owner is losing money.  It takes their loss in order to create affordability for someone else, so the benefit that the economist is basing him assumption on isn't really there.  Ever notice that the rich get richer even though the real estate market is cratering?  They have ways to switch their investments around in order to profit as the real estate and equities market loses value.  Money is simply transferring from one pocket to another.  That's why the rich are not outraged by all of this.. it doesn't really matter to them money-wise.  Money isn't created or destroyed. So my thought is, why assume that all of us who own real estate need to sit back and watch our primary asset drop further? Is it gospel that this is what has to happen?  No such thing. Again, all it means is the money flows somewhere else.   Besides, the real estate market can't tank the way people are thinking it will without taking down all the banks and most if not all of our society with it.  Ghost towns everywhere. Yes, there has been overbuilding of real estate, there always is.. but not by that much.  I think we are going to find that the way this thing plays out, which will leave us all better served, is that, rather than completely having the bottom fall out, the parties will construct ways of allowing the market to at the very least plod along.. and over the course of several years, real estate will stabilize back into a functioning market.  If we think that real estate is going to go to zero then we have to remember what that spells.. how many interests are at stake. Of course, the rich can always make money no matter what.. but not if we hit ground zero..  and they know that.  All the hand-wringing by the players is just for MSM and scared citizen's benefit.  It makes for a good magazine cover. 

Sat, 10/23/2010 - 13:02 | 671942 Prairie Rose
Prairie Rose's picture

Real estate (read: primary residence for the Middle Class) is NOT an asset unless and until the debtor owns it free and clear.  In (pick one) 30, 40 or 50 years.  After you've saved for 20 years for the downpayment and paid (pick one) 3, 4 or 5 times' the home's value in interest to the Bank (or whomever it is that owns the note).  95% of the Middle Class can't leverage their paltry wages in the same manner as the Elites.  Too many other demands like for instance, food, health insurance, a couple rags for clothes and a couple sticks of furniture.  Wage earners, like me, are stupid.  I should've learned the game long ago.

 

 

 

Sat, 10/23/2010 - 13:24 | 671986 tom
tom's picture

Well, I'm an economist and I don't understand things perfectly. For example, I have no idea what you're trying to say.

I do know that market forces inherently have more staying power than credit bubbles and government manipulation.

Sat, 10/23/2010 - 14:04 | 672063 no life
no life's picture

What I'm saying, economics is b.s.  Market forces and all the other barrage of cliches are just as valid as the credit bubbles and government manipulation.  Everything is manipulated in one way or another.  The power players control most of it while the little guy tries to cope. All the conjecture that comes from economists and media barely touches the surface of the real issues.  They just dance around it because that's all they know enought to do.  They're happy employing the same old 'theory' that they've heard someone else say, never bothering to wonder if they are just being taken for a ride.  I think things are not as bad as all the pundits say...  Once that becomes clear, then you'll hear all the economists flip flopping their commentary so they can still get on for interviews with CNBC.  The economist waits for something to happen, then jumps on tv to claim they predicted all along.  Everyone else parrots the doom scenario (or boom scenario, depending) because they want to be right.. they want to believe in 'certainty'..  which doesn't exist.

Sat, 10/23/2010 - 20:06 | 672514 Minion
Minion's picture

All this is explained by socionomics - the study of social mood on group behavior.  It tends to move in waves.  Humans are excellent dreamers of impossible explanations for irrational asset valuations......... ;)

It creates a feedback loop where everyone reacts to everyone else. 

Sat, 10/23/2010 - 14:56 | 672129 CrashisOptimistic
CrashisOptimistic's picture

You guys are still not thinking this through.

A 20% cut in house prices will destroy all property tax revenue.  That will ripple into enormous numbers for local / state government spending and THAT, like it or not, is a big part of GDP.  As that collapses so does Federal tax revenue.  Try challenging your house appraisal and see what they say.  I'll tell you what they say.  NO.  The county will not reduce your house appraisal, regardless of the market.  In fact, in that context, they have a great deal of incentive in preventing home sales, because that resets the appraisal.

There cannot be allowed to be a further house price crash, just as there cannot be allowed a bond price crash.  I know the whimsical wave of the hand reply is to say it will all be done with cheaper dollars, but dollars are not getting cheaper with respect to other currencies, and they are not getting cheaper with most of the CPI.  

A Volkswagen Jetta costs $15,100.  It cost $16,700 last year.  

Food and oil will rise (not in that order), but nothing else will.  This is a problem with no solution.  It's all downhill from here.  Forever.

Sat, 10/23/2010 - 17:54 | 672354 gigeze787
gigeze787's picture

It takes an idiot to make a village (of collapsing tax valuations):

http://www.cnbc.com/id/31388528/site/14081545

Cramer: Housing Has Officially Bottomed
Tuesday, 16 June 2009
6:34 PM ET
Here’s how you trade it.
Source: cnbc.com | By: Tom Brennan

Sat, 10/23/2010 - 18:39 | 672417 Rainman
Rainman's picture

I'm convinced Jimmy Fukstik must have a compromising video on some corner office big shot at CNBS. Or maybe a brother-in-law who owes him a lot of kaching. I just don't get it. All carnival rants, not deep, funny or even interesting. I don't get it.

Sat, 10/23/2010 - 23:59 | 672828 Bow Tie
Bow Tie's picture

so the mortage market needs to come down because it went up too much. sounds about right, but on the current course moreso in real terms, not necessarily nominal. stocks and bonds rallying together as a confusing indicator. inflation or deflation? i'll answer this one - it's inflation and a lot of manipulation.

Sun, 10/24/2010 - 13:05 | 673474 Minion
Minion's picture

I'm not sure if I'm correct in this, but don't all asset classes trade together against cash during a deflation?  In that case, wouldn't we be in a deflation with heavy monetization?  Deflation in real terms (unemployment, leveraged assets crashing in value) but rising prices in nominal terms (consumable commodities going up in proportion to the printing press speed)?

:D

Sun, 10/24/2010 - 12:15 | 673393 Stun Gun
Stun Gun's picture

Has anybody looked out the window lately to see just how broken the system is? It seems no one even pays attention to weekly bank closures anymore. It amazes me how we are lulled into acceptance of the "New Normal" while we are slowly being brought to a boil.

 

http://www.stungunstopepperspray.com/

Sun, 10/24/2010 - 15:15 | 673700 Rider
Rider's picture

Do the right thing:

Just the_fault, all the way...

Sun, 10/24/2010 - 16:35 | 673802 Expat
Expat's picture

Median house price headed to about $135k, possibly slightly lower.  Of course, QE2, QE£, and QE4 could change that nominal figure, but unlikely since wages are doomed to stagnate at best over the next few years even with massive printing.  So, that's about 25% more.  It's easy...the long-term median price to median income ratio will mean-revert, but can only do so by going below the long-term average, hence the further move below 3.   If things get really bad (or the market realizes how bad they already are and stops playing games), we could hit 2.5 times income.

All this bull about deflation being bad is driving me nuts.  It's based on a false premise of debt and indirect taxation being good!  Price deflation is one of the basic premises of economics.  A modern economy is supposed to produce goods more cheaply with every additional unit produced and every innovation.  Inflation is not "good"; it's a political tool which undermines the real economy.

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