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David Rosenberg: The Action Is Always At The Margin... And The Margin Is Not Pretty
David Rosenberg has issued yet another piece of blistering common sense (which most mainstream and sellside economists seem to lack in wholesale amounts these days), in which he explains why the action at the margin is all that matters for asset prices and all that follows. As he says "this is about change, not levels" - a jab directly at the Federal Reserve, whose core underlying premise is that "stock" is all that matters, whereas "flow" (or change) is irrelevant. This is arguably one of the biggest errors that Fed chairman after Fed chairman perpetuates, and further explains why the Fed will always have to be engaged in some (ever greater) form of monetary intervention in order to simply keep asset prices constant as the "stock" theory is disproven time and time again. Alas, since we are dealing with brilliant PhD Economists they will never admit their foolish theory is flawed until it is too late. In the meantime, for everyone else who does not live in Bernanke's ivory towers, here is Rosenberg's explanation why what happens at the margin is all that matters.
Change Is At The Margin
One of the questions we have been asked recently was what underpinned our once-controversial but now more mainstream call that this economy was heading for a severe slowdown, which it certainly has this year. Our main message all along was that the debt binge of the past three decades was unsustainable. The pundits who insist that the American consumers will never retrench have been conditioned by the magnitude of the run of the super-credit cycle and are confusing "resilience" with "leverage". Meanwhile, only a recent decline in the personal savings rate has prevented more notable erosion in spending growth in recent months.
In order to forecast where we are going, it is essential to thoroughly understand where we have been. We came off the most pronounced credit cycle in history. Between the end of the 2001 recession and the end of the 2007 expansion, the aggregate household debt-to-disposable income ratio surged from 100% to a record of 136%. In just over six years, the personal sector was able to tack on as much debt to this ratio as in the prior 40 years combined. This six percentage point run-up per year was triple what was "normal" in other economic up-cycles. Most of this, as we found out in such dramatic fashion, were loans extended to households who were either dramatically expanding their real estate portfolio or tapping home equity through loans for consumer spending in other areas apart from housing.
Excessive debt has remained a problem across the full spectrum of households. The universal confidence in the quality of real estate as collateral fostered an environment in which borrowers and lenders alike were willing to abandon prudence in the rapid creation of residential mortgage debt. Sub-prime lending, to households with no stated income, no assets and poor credit history, was just the most glaring example of how widespread credit availability became dangerous in the face of the parabolic rise in home prices. In the mania, participation was extremely broad. The housing bubble was never about "consumer resilience". It was about leverage — unfettered access to credit. And we continue to pay the price for this largesse today as households continue in this deflationary deleveraging cycle and homebuilders continue to try and work off lingering excess inventory.
Those who assess the macro and market scene at the margin seem to consistently have an advantage over those who don't. In other words, this is about change, not levels. Arthur Zeikel, the renowned former president of Merrill Lynch Asset Management, presented a legendary report in the late 1980s titled On Thinking that illustrated the importance of understanding that change occurs at the margin.
Supply and demand at the margin in the real estate market consists of those who have "For Sale" signs on the lawn and those who are actively looking to buy. The price of the entire market is in their hands, not in the hands of those who are confidently sitting tight. This is important because it was the action at the margin that took prices parabolic, and all homeowners benefited during the bubble. Everyone except the 30% that rent felt the wealth loss as house price gains reversed course, even those with no mortgage debt outstanding. More sellers plus fewer buyers equals home price deflation, and that is still the excess supply backdrop prevailing today, fully four years following the initial detonation in residential real estate.
The movie is running backwards now because, at the margin, there are still many more sellers at all points on the spectrum, and fewer buyers as well. As a result, all homeowners will very likely continue to experience the effects of home price deflation in many urban areas. Yet, because home prices are such an emotional topic, most economists are afraid to consider what a sustained depreciation in housing prices will do to their forecast. In our opinion, they place their clients at a disadvantage.
From Arthur Zeikel;
"As all of us were taught, but most of us have long since forgotten, economic change occurs at the margin, where the action takes place... individuals who can think on the margin always have an advantage over those who cannot."
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Sell common sense...buy fairy tales.
" individuals who can think on the margin always have an advantage over those who cannot."
so that's how banksters was able to pull off a leveraged buyout of our entire economy using highly levered, speculative bets.
and here is Zeikel's report from 1988
http://bit.ly/qQJVxP
As the lecherous brokers lust for their mail order ukrainian girlfriends, the gluttonous bank executives drip with excess in their Bentleys on the way to a porterhouse & martini lunch, and the insatiable greed of central bankers for not only money but power is flaunted in the face of the sloth of the broad electorate that has neglected to hold tight the reins of a vomitously prideful political class, save for small wrathful mobs of protesters driven more by envy than by justice in their objections. How could it all be anything but bullish?
redpill@16:09
That sir; is ultimate truth.
The big 7. They start subtley but end deadly.
That is an oxymoron.
+1... Broken buttons... Tyler fix the servers please...
+1 handy (Green arrow not working for me)
Then after everyone decides to give up and buy fairy tales, they cant complain when they lose everything 1 morning....there will be no sympathy anywhere, no shoulder to cry on.
SD 1 - we as a nation, a world are living the fairy tale...we've swallowed the hook and we are on the line and it's just a matter of time until we're surmarily chopped up and guts thrown to the gulls.
take for instance the fairy tale of a housing recovery - absent rising incomes (or ability to add 2nd, 3rd incomes) or alternative sources of greater credit or lower credit standards or rapid population growth...the only lever left to pull is lower credit costs. Done. Really, absent government mandated programs (or even w/ more), we've likely seen the lowest rates we ever will. From here, no more refi bubbles, no more lower rates to create interest...it only gets worse from here. That's not to mention oversupply, overindebtedness, slowing family formation.
And then repeat similar scenes in Ireland, China, Spain, blah blah blah. And yet conventional wisdom is still buy before those once in a lifetime rates are gone. We have bought the fairy tale again and again and...
BTW - interesting to note the coincident blow-up of PrimeX w/ the generational low in mortgage rates...every ARM from here, every refi, rollover, or sale from here will get progressively more difficult as there is no longer any organic (if today's rates are considered "organic") hope for a "lower rate". Seems someone is about to break it to aMericans that there is no Santa?
Yes, what the Fed in the past and today is doing is due to just making the same silly mistakes over and over again.
GMAFB. And this is guy is a legend?
Bernanke knows the world is going to implode. Did you not see him during the Congress testimony? dude looked sallow, and drained.
Looked like liver failure, or like he just ate a shit sandwich.
'As all of us were taught, but most of us have long since forgotten, economic change occurs at the margin, where the action takes place... individuals who can think on the margin always have an advantage over those who cannot."
So the 2008 tarp and such were margin calls. The free market of home sales is totally broken. Trust is lost, where buyers don't want to buy a depreciating asset and the seller, who has a vision that his house is worth more than it is, and then there are the banks. Stuck, up their collective ass, the worst deals, highest debt to value, piles of shit properties. THe most precious asset in the amerikan world is so fucked up and the markets are forced to pretend by national security and every excuse imaginable.
I've been here so many times since 2007, that the crash will be parabolic. Maybe it will. Maybe it won't.
A destressed sale might be someones advantage. Thus chaos is someones control.
Everyone is breathlessly awaiting the results of GOOG after the bell.
One look at that chart, and it is clearly untradeable.
Not me, I couldnt care less about Goog.
Where can I rent a unicorn? Will I need to buy bulk packages of skittles for him to eat? Is the horn sharp?
Goog ;noun > special needs forklift driver who in dire need of taking a crap almost runs you over in the warehouse.
not sure it's a tradeable commodity but who knows in the NWO there might be a great demand for Googs
Robo,
Please put that dick ,back into your mouth and shut the fuck up.
I will call your mother and bitch her out for the thousandth time about your uselessness and annoying existence.
The idea has been on my mind for a few days. Don't know if it's stupid, very real or just abstract.
If there is a cultural side to value (and that is the core of the Austrian school), perceived value can be established in society, as has for instance the wealth of the general public due to a continuous increase in real estate valuations. If that perceived value gets destroyed (bursting of the bubble), econimists argue that people now see the real value of their belongings,
Putting it a little different, that is deflation of the perceived value, a social constructivist value, if you like. Would the FED policy of printing but only in certain areas (such as deflated perceived values aka QE1) not serve to heal a defect regarding the assets with perceived cultural value.
I know, this is a very abstract and rather academic exercise, but I think taking an almost theological position such as the absolute truth of supply and demand-driven market pricing from an objective mind demands constructing an antithesis.
This is sure not meant to defend the banking cartel and the bernankster, it is more concerned with the social effects and an analysis and assessment thereof.
I would really appreciate your thoughts, if they are not ideologicaly or politically motivated.
As the great global reset draws near
Consider the things you hold dear
Will others agree
With the value you see?
If so, you have nothing to fear
Beware of invoking Austrian theory then immediately talking of things in aggregates, especially value. The Austrian theory is based on individual value perceptions, and the dynamic and spontaneous society that exists as individual actors make decisions. The attempt to aggregate perceived value and try to "lead" society based on that is the danger that Austrians warn against.
The idea that the Fed can possible first evaluate the perceived value of, say, homeowners, then use that information to print in "certain areas" to try to force a change in valuation on an aggregate scale, is precisely the thinking that got us into this mess.
Perceived value is established in society by INDIVIDUALS. There is no way for TPTB to possibly know the changes in valuations that would occur in each and every individual's mind as a result of public policy or printing or any other attempt to "shape" cultural value perceptions. Policy does have an effect, but it is always with distortions, as the policy-maker never truly accounts for the changes in thought that will occur and spur individual action.
Hayek on the price mechanism: "I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind. Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do. But those who clamor for “conscious direction”- and who cannot believe that anything which has evolved without design (and even without our understanding it) should solve problems which we should not be able to solve consciously - should remember this: The problem is precisely how to extend the span of our utilization of resources beyond the span of the control of any one mind; and, therefore, how to dispense with the need of conscious control and how to provide inducements which will make the individuals do the desirable things without anyone having to tell them what to do.
The problem which we meet here is by no means peculiar to economics but arises in connection with nearly all truly social phenomena, with language and most of our cultural inheritance, and constitutes really the central theoretical problem of all social science. As Alfred Whitehead has said in another connection, “It is a profoundly erroneous truism, repeated by all copy-books and by eminent people when they are making speeches, that we should cultivate the habit of thinking what we are doing. The precise opposite is the case. Civilization advances by extending the number of important operations which we can perform without thinking about them.” This is of profound significance in the social field....
The price system is just one of those formations which man has learned to use (though he is still very far from having learned to make the best use of it) after he had stumbled upon it without understanding it. Through it not only a division of labor but also a coordinated utilization of resources based on an equally divided knowledge has become possible. ... All that we can say is that nobody has yet succeeded in designing an alternative system in which certain features of the existing one can be preserved which are dear even to those who most violently assail it - such as particularly the extent to which the individual can choose his pursuits and consequently freely use his own knowledge and skill." From Use of Knowledge in Society
Thank you! That wae really enlightening and refreshing.
I have understood the idea of the individual (why I pointed to cognition) perception of value. But as I mentioned in another comment below, i believe marketing or in general the artificially complicated realization of a quality/price combination or a risk/return combination or the need/price combination over time increasingly deprives the individual of the very basic system to have an individual perception of price. Like a third generation urban New Yorker trying to perceive fears in the jungle.
Suffering from a degenerated cognitive, individual value perception system, we indeliberately open the door for other, possibly more socially induced value attribution systems. I consider this an extremely dangerous development, as political will, societal value are capable of overruling the - in theory - more efficient individual value attribution system. This is what I refer to when saying, that for whatever reason ( the construction businesses for instance) governments over generations plant the idea of value of owning a home in peoples' heads. Without a competing value attribution system, people will not onyl follow it, but follow it at any price.
So, my thought about the selective fixing of perceived, culturally unduced value by the FED may - even if unintentionally - serve a social purpose. If you read me between the lines, my criticism is that indirectly the FED collects the mess created by a national policy that looked at from different perspectives ensures growth, creates private profits, allows the infection of the people with a value attribution dogma without any sense of price or risk.
I very much honour the ideas and pholosophical thoughts of some of the Austrian school, but I am not sure if its due to a different time or the level of abstraction, I believe, the perspective of individual motives, drivers and the efficient competition of individual value attribution given the very subtle but long-lasting power elite agenda and influence has to some extent altered the underlying structure.
But the main point remains: I do not try to aggregate individual motives to a collective value perception, but argue that deprived of individual perception, a collective dogma determines individual perception.
This is exactly how we get to the world described in "Extraordinary Popular Delusions and the Madness of Crowds"
Individual perceptions can be swayed, can run amok and lead to disastrous consequences. But the Austrian school argues that government intervention creates distortions that lead us faster towards the cliff. That the more we work to preserve individual perceptions/valuations (and keep in tact the structure which will PUNISH that individual for mistakes made in valuations), that is what provides a return to sanity. The less distorted the information is that tells the individual if he made a mistake in valuation, and the more immediate that information is to his action, the faster and more accurately he can correct his mistakes.
The risk of these perceptions is a benefit rather than a curse. An individual (or group of individuals, as we Americans are), who allows valuations to be made for him, and allows TPTB to replace his own good judgement in his decision making, takes on a risk that is so great that it leads to tyranny/war/societal upheaval. That is precisely the message Austrians are focused on.
And we HAVE made that mistake. And this is why individuals like those here on ZH, who choose not to listen to the MSM, but to think for themselves, have without realizing it, proven the Austrians right. Austrians do not believe that the "madness of crowds" will cease to exist. They argue in fact for a method of individuals to exist within that system, and to see it for what it is. While Austrians would like to see the economy on a sound footing, backed by gold, and a world where market actors take on the risk of their own actions, and reap the rewards as well -- although that is the dream of Austrians, their theory still holds in the world we have today, IMO. The powers that be, the elite, are driven by the same forces, as they too are individuals. Stepping back and realizing they are only men, they do not have the knowledge nor the control, (although they have been granted power, but power and control are not the same thing).
Nowhere do the Austrians say that individual perception is not affected by other individuals and groups of individuals. Nobody knows this more than Mises, who did most of his work while watching the rise of socialism. He knew more than anyone the power of mob thinking, of trends in economic thought, as he was a lone voice in opposition to one of the most powerful of those collective dogmas, socialism. http://www.youtube.com/watch?feature=player_embedded&v=eoFi0Q1zmb8#
P.S. ME, in the spirit of individuality, you really need an avatar. The paper bag does not suit you!
Look forward to seeing more of your comments!
I've noticed a strange situation
The gold price and Dow correlation
It's easy to see
The Powers That Be
Have ordered this manipulation.
There once was a man from Jeckyl Island
Whose debt was so high it was blindin'
So on a whim
He decided to swim
In corruption, swindlin, and lyin'
A do-it-yourselfer named Alice
Used a dynamite stick for a phallus
They found her vagina
In South Carolina
And part of her anus in Dallas
There once was a man named Bernanke
Who deserved more than one great big spanky
He had a coarse beard
Sound money he feared
If only he'd smoke some green stankey...
The notion that a few individuals in key positions have made mistakes or "errors" in judgment is naive. There have been people who are evil to the core, working in tandem for many, many years to effect this patheitic condidtion we find ourselves in. It didn't just happen.
Yea, 'mistakes' my ass. I'll try to rob an armored truck one of these days and see if I can get the charges dropped by saying I made an error in judgement.
you mean blurring the threat of (also perceived) absolute value? Agree, but I would argue even if without manipulation, the perception of an unbribable relativator in times of total value intransparency and insecurity thorugh demand increase in gold unleashes a price dynamic in gold that kills its prayed for characteristic of absolute value.
Again, at the core of the Austrian school, there is no value construct outside personal cognition. Having been tought and believing in the absoluteness of the market mechanism and watching the flaws in that thesis, makes people run for the next absolute value contruct. But you will have to realize that value is a social phenomenon without the ability to be absolut.
It's funny, the looks I get when I try to explain to someone how ALL valuations are subjective as they are merely personal, human values. The rebuttal, of course, is always an example of the 'intrinsic' value of something. To which I reply that it still takes a human to recognize/utilize the value before it exists as a meaningful measure in the human sphere. Usually they get my point, but still cannot detach from the idea that value exists outside/regardless of their valuations.
To them it is right up there with the question, "Does a tree falling in the forest make a sound if no one hears it?"
The water diamond paradox example seems to work well. Try it on them. Suddenly "intrinsic value" is obviously driven by human perception.
http://www.thefreemanonline.org/columns/tgif/value-cost-marginal-utility...
"It's funny, the looks I get when I try to explain to someone how ALL valuations are subjective as they are merely personal, human values."
Water has intrinsic value... without water all that we know, including humans, ceases to be.
Spend three days without any liquid intake then explain to me how subjective the value of water is.
A wild deer is not human but it certainly realizes the intrinsic value of water.
housing bubble; too much debt; supply & demand
just when europe was really starting to get moving, economically, too!
Or so they want us to believe.....'recovery right around the corner, should come into view any minute now'....they been saying that for 3 years.
and how many of these bridges would you like to buy, SD1?
Slewie, SD1... This is one hell of a round about, long winded way of saying prices are set at the margin...duh... Not only are prices set at the margin but the margin varies according to how good the salesmen are at bull shitting the marks...and the shills? They are the fools that have already purchased at outrageous prices and on view to the prospective marks.
No one mentioned that the gov has been in the biz of promoting home ownership for Americans for a very long time through various fiscal policies.
Expanding the various fiscal home ownership policies along with 'new financial products' provided by secruitizers/bankers simply expanded the pool of avalilable home owners to include pizza drivers that wanted $750K homes.
What could have possibly gone wrong? After all, we had lots of PHD economists over seeing this entire process...
well, snidley, it was a fabulous bubble! and less than a decade after the tech bubble, too!
don't worry, old sport, they're working on another one!
I get it.
housing is (up/down) on no volume
this applies to other asset classes
did I miss anything?
I'm glad somebody got it. I was just going to post, "huh?"
It is Up on No Volume.
And it is Down on High Volume.
Get that?
I trade currencies, and those " Netherlings" , that think " leverage" , will buy their ways' out. Well I'll leave ARMAGEDDON to it's own [ Devices].
PHD=Pfucking Hopeless Douchebag
PhD; The more you know about less and less, the less you know about more and more.
That was a great comment! s2man) Keep up the good posts!
The issue is not science, the issue is what is made of science. Science was the answer to religion, overcoming the undisputable theological position of some. Today, especially in economics (and specifically as promoted by the Harvard Keynesians last century), personal and school reputation are raped in a classically theological fashion, that is to manifest opinion as thruth.
I was pretty much disillusioned having participated in a European PhD program, always having looked up to these figures. Ralizing the ideology, power and politics when defending controversial ideas at conferences or journal submissions. If you do not support their school, you are not suitable to be read or listened to by others, especially intellectually reflective people.
Economic science today is a perversion of the idea of science. So, I agree with detesting the elitist pseudo-scientists, but not for them drawing from science but for making ideology and opinion look like science.
By the way, has anyone realized how the market mechanism is promoted as successor of science being the successor of religion. I bet the potential reflectivity of some intellectuals has caused doubts concerning the reliability of the scientific regime concerning the interests of the power elites.
Let the market be media, creating reality, pricing defining value, polls defining truth. Like the mother of all derivatives, with the same background. Between reality and reflection of reality there is always an agent.
Until you know everything about nothing. The opposite is true for someone like an architect that learns less and less about more and more until they know nothing about everything. People who actually build real things of great value are the only ones that tend to a lot about everything.
I'll second that comment as well. Tangible assets have merit. The euro is so pathetically over valued. The euro is just a washing machine. From the other side of the " MOON".
The mistake is to believe in possibly having knowledge of reality, science is more about an attempt to understand. But I agree, it has increasinly become the fatal aspiration to pretend to know instead of a humble attempt to understand. But then again, that appears to be the devestating influence economics itsself and competition specifically has exerted on science.
Go back to philosophy and all those metric systemic flaws are gone, only it will at first sight not seem very pragmatic or efficient :-)
Ego is the great disabler of science, and not just science.
'Experts in their fields' write books based on their theorys, which contain assumptions piled upon assumptions, and these books become unassailable texts for 'student scientists'.
Challenge one the 'experts' and a ruined career results.
Normally only a die off of 'experts' allows new theories to emerge... trouble is, the new theories soon become the new dogma expounded by the 'new experts'.
I would add more but I gotta get those leaches off a couple of my patients that are turning white...
All price discovery in this market occurs at the margin of the unicorn's butt, the end that the skittles come out.
Ben has prostituted his position to serve the needs of a socialist administration.
Let's see, people with a ton of money to invest see their holdings skyrocket in value. The rest of the vast majority of people who can barely afford to drive to work can't invest, so the small amount of cash they have declines in value due to inflation. Eventually the majority is forced to ask the minority for shelter and we head back to feudalism.
Nope sounds like good economic policy to me.
The other option is instead of asking for shelter the masses head to the homes of the minority with pitchforks and guillotines. I'm thinking that is the option we will be going with.
Yet another "assblast" into the bell.
In a week, the JPM warning will probably all but forgotten.
I tawt I tawed an assblast from an assclown. I did, I did.
"Sold! To the big titted wonder in the mezzanine."
Real estate appraisal is done "at the margin". That is what "comparable sales" means. The vast majority of property is not for sale, and has not recently sold. Yet, the current "value" is based on recent sales.
Currently we are in a foreclosure driven market, with a huge "shadow inventory". Getting a mortgage for a purchase now is very tough. First of all, there is a very real possibility that your lender is going out of business. Next the criteria of qualification is a moving target.
Finally, there is a good chance that the appraisal for your purchase is not going to "come up".
Blood is running in the streets...
The underlying assumption of mankind's belief evoluted via generations is that of constant growth. Debt has been an instrument to counter the missing capability and competence to grow. It has been a tool to save us from the devestating psychological effect of giving up the basic premise underlying everything.
So, on a shorter time-scale, we sure need to face that debt is not the solution, but we will only be open-minded enough to do that, if we allow for doubts regarding the endless growth paradigm.
Fscing that question may well show us that we need to develop new capabilities and competencies to achieve further growth, but if so, then this development is utterly important. Alternatively, and that would not resemble the human race, we give up on growth and averything, we believe in.
Debt is a cheap trick like pushing a poorly engineered product with excessive marketing to compete with a masterpiece of engineering. Such strategies have never been sustainable.
I think your ignoring the difference between "a little" debt being useful, and "a lot" of debt being destructive.
No, absolutely not. A little debt fixes the friction of growth in the evolutuion but that does not mean an excess of debt manages to the crack in the growth paradigm,
I would not argue against debt in total, most innovations only manage to surface with the inclusion of HY debt, but that does not mean all of the debt in the world turns a flawed idea into a great innovation.
OK. We're on the same page, I think.
Also important to note: private debt, voluntary in contract, in a free market
is not the same as debt backed by taxpayer funds, used not for the creation of real wealth, but to perpetuate a ponzi.
All debts are not created equal.
GOOG skying $30 on yearnings. Street loves it.
GOOG still a 6-bagger off its IPO in 2004, sailing right through two of the worst credit crises in 50 years.
LOL....
Does your mom know where you're hanging out these days?
GOOG still a 6-bagger off its IPO in 2004, sailing right through two of the worst credit crises in 50 years.
LOL....
LOL? Really?
Why is it ? Every "douche bag" , overheats my lap top, when I post on Z/H? They try to hijack my synaptics, and bombard me with ( SHITE), those North Koreans are soo giddy, when they are starving... sarc/on
Here is a previous post by Rosie.
http://www.demandsideeconomics.net/2011/01/transcript-forecast-1-recession-of-2011.html
Link to "On Thinking"
http://www.capatcolumbia.com/reading%20packet/On%20thinking.pdf
And other articles posted at the same site related to "Thinking":
http://www.capatcolumbia.com/Reading%20Packet.htm
Rosenburg? I guess he is now the patron saint of the ZH Sheeple. Always wrong and proud of it!
Seems that those here that went in a bunker last year might want to get out into the sunshine. The world is turning and not about to end anytime soon. Why even Greece hasn't fallen off the edge of the world.
Join the rest of us (look at GOOGLE!!) and enjoy life. Things are going to be fine :)
A mile ago, I lost a wheel, now the breaks no longer work, the steering is suddenly dead, just remain calm my son, as long as the car is moving, we will be alright.
More sellers than buyers in Real Estate... hmmm
Why is that?
1. Sellers owned multiple homes and wanted to sell the second/third etc home.
2. Owners wanted to become renters.
3. Foreigners were selling some of their investment property/vacation homes.
4. Slightly-older-than-Baby-Boomers started dying and their inheritors were selling because they would rather have cash than an expense.
5. Owners of single dwelling houses wanted to move into condos and apartments (perhaps generally slightly-older-than-Baby-Boomers).
6. People are repatriating to Canada and Mexico.
7. Over-building of new single-dwelling homes and condos/apartments.
...
All of the above?
Think about the concept of perceived value. If you owned three houses for speculative reasons, you tried to play someone with regard to their perceived value, yourself, you assign no value to that second and third house.
The aspiration to own a home has culturally been embedded in not only Americans for generations. Only that is was economically not feasible for some. There you have the evil political play of generations of US admins, Bush being the worst marketer, pretending, now, everyone could afford, what had a high cultural value perception. They knew, if the government told them it was possible, the people would be culturally blinded enough to purchase, independent of the price tag.
Leverage or margin sure is the issue. But it is not a naturally occurring phenomenon. It is the intention by the powerful to turn an ability or a virtual value into a real one. Sounds nice and entrepreneurial for now.
Only that the process of materialization requires one party owning the asset and another party paying for the asset that has materialized. That's why along with leveraging the social divide has gapped to tremendously.
You may call it a bubble bursting, but IMHO it is the exercised plot by the power elite to create more relative power by letting something materialize that the remainder of society is for whatever reasons willing to pay them for, thereby shifting money/taxes/votes/lifes/futures. That works only as long as the promises by the remainder of society to give for the materialized asset do not oppose human instincts. Hunger, survival will make that a very costly game to play for the power elites.
But then again, they have seen this forecoming and pushed (assisted) mobility, virtual reality (be it TV, games, FB) and most importantly, cheap and unhealthy food. It even deprives people of their instincts.
Realize the Latin origin of the words debitor and creditor, provider and believer.
I like Rosie, and in a free market context, this analysis works, but current conditions are worse, much worse.
The Fed's errors are cumlative. As Mercury pointed out recently, we have a world-wide conspiracy to avoid risk recognition. We also have a world-wide conspiracy, at the highest levels, to avoid price discovery. That implies that the inevitable snap back to fair value will be violent and huge.
With respect to real estate, the great majority do not understand the shadow inventory, or the extent of manipulation. I can't document that, but think about it. Why are there any buyers under these conditions? It has to be because they don't see the risks clearly.
Large markets with lousy liquidity always overshoot. Fasten your seat belts.
Do you realize that in the early 20th century there were two different schools of business studies, the German school in the early twenties, building a value concept based on balance sheet entries, ie on what is. As opposed to that th US-based marketing school emerged. If you look at the very core, the idea of marketing is to blur the appropriate or true - even if individual - assessment of quality/price combinations. With the US economy after WWII being steered by the scholars of that marketing concept, US products with the expansion of US power politics entered global markets to compete with domestic products. Strategically, the blurring allows for manipulation on either side (quality/price) without the customer being able to realize a relative change in comparison to a marketing-free product. That way, you creative a competitive advantage and political and private profits.
The negative side effect, people have entirely lost the sense for the existence of a quality/price combination like an urbanized person dying in the wild due to unlearned instincts such as fear, the perception of risk etc.
I firmly believe that this loss of instict has created the opportunity for the evil-caused asset bubbles, nth-degree derivatization, leveraging etc. Without those instincts assuring survival, people follow their culturally dogmatized beliefs such as the value of owning and providing your family with a home. If there are no counterarguments from instincts whatsoever, plant a belief and they will comply.
No doubt, urbanization is part of the problem, the lack of basic knowledge and living at a human scale. The rate of change is disorienting. The simple thing is to believe in something, almost anything, until it is too late.
It would all be so simple, if it weren't for addictive behavior.
http://georgesblogforum.wordpress.com/2011/10/13/fiat-addiction-update-1...
Precisely why you want to own gold and silver because until the Case Schiller moves up for at least several months, the Fed (and the rest of the CB's will simply print money. Stock prices always respond to liquidity and until the ligidity spigots are turned off, share prices are headed sharply higher.