Tuesday, July 04, 2006

America's Bubble

From the Daily Reckoning:

America's housing bubble
By Bill Bonner

Tomorrow is the 4th of July. Independence Day for the United States, the land of immigrants. Many people in America are taking a long holiday weekend. But here at The Daily Reckoning headquarters in London we recognise no national holidays. There is always something to be reckoned with, regardless of time of day or country of origin. Today, we reckon with the fact that gold has jumped back from its recent correction and now is once again over our dollar-target buying price of $600.

We laid out our best guess as to what is happening on Friday: The US is still following Japan into a long, hard slump – with softening real estate leading the way. That we had expected Britain to get their first has yet to change our opinion. “America’s day of reckoning is nigh,” says a headline in this week’s MoneyWeek. Quoting Barron’s Alan Abelson, MoneyWeek remarks that “it has been the greatest housing bubble since shelter-seeking man first crawled out of his dank cave.”
...
“A housing slowdown is especially ominous since the sector has underpinned growth over the past years...” MoneyWeek warns. Why? Because the US recession of 2001-2002 was followed by very weak job growth. Those few jobs that were created tended to be related to one of two big industries – housing and war. Both industries flourished on cheap credit. US homebuyers, just like their British cousins, need low rates in order to buy houses they otherwise can’t afford. They need cheap credit, too, so that they can refinance...taking out what little equity they have so they can spend the money on things they don’t really need. And the empire needs low rates in order to finance its war against terror - more specifically, its periphery wars to subdue the poppy growers of Afghanistan and the desert tribes of Mesopotamia.
...
But now, Ben Bernanke is fighting his own war. He is out to prove that he can battle inflation, and win. As we pointed out last week, this use of overwhelming force against a minor enemy may have unintended and unpleasant consequences. It may trigger an unexpected flank attack - by deflation! As the US housing bubble deflates, a lot of people are going to have a lot less money in their pockets – agents, brokers, granite counter-top makers, developers, road builders...and all the millions of people who have come to depend on rising house prices for their spending money. That’s why David Rosenberg of Merrill Lynch puts the odds of a US recession next year at 40%...and why we would put them even higher.

9 Comments:

Anonymous Anonymous said...

I agree with Mr. Bonner 100%.

Bill Bonner wrote a pretty good book called "Empire of Debt" with Addison Wiggin. You all should read it. They bring forth alot of good points. The only criticism I have about this book is their chapter on Vietnam. I think Bonner & Wiggin failed to realize that at the time, we didn't think that Russia was the paper tiger that they turned out to be. And we all know the god damn French can't do anything, but make good wine.
Last good French military person was Napoleon. (and I don't mean napoleon dynamite..he he...)
But, this criticism is just a minor criticism.

On a different note, interesting piece of news coming out on the wire: "Car Sales in U.S. Drop 10.5% in June"

http://www.latimes.com/business/la-fi-autos4jul04,0,6836407.story?coll=la-home-headlines

If I was a gambling man, and I am too, I would imagime if you go long on GM, you would make more money than buying a home in NJ ...lol....

SAS

7/04/2006 06:04:00 AM  
Anonymous Anonymous said...

GM , is finished. It won't be long
Mr. Wagoner will be gone.

Kirk, will not permit this
BS to go on.

7/04/2006 06:13:00 AM  
Anonymous Pat said...

"Fitch: Chargeoffs For U.S. Credit Card ABS To Tick Up With The Pump"


http://biz.yahoo.com/bw/060703/20060703005164.html?.v=1

"...The increase in late-pays also figures to have implications for excess spread though it fell 29 bps to 8.67% for the May collection period because, according to Ullrich, 'rising chargeoffs will erode excess spread and bring it down to historically observed levels.'

The latest edition of 'Credit Card Movers & Shakers', which covers the latest trends in the credit card ABS market, is available on the Fitch Ratings web site at www.fitchratings.com in the 'ABS' sector page under 'Newsletters'.'

Pat

7/04/2006 07:58:00 AM  
Anonymous Pat said...

Anybody need a job in PA - trying to escape NJ?

"Wachovia plans to bring 44 small business financing specialists into 31 branches across Philadelphia as part of its response to charges that it has a poor record of lending in minority and lower-income neighborhoods.

The move is part of an action plan the bank expects to file with the city of Philadelphia this week in an effort to keep the city's business...

...in Philadelphia, blacks constituted 44.8 percent of the population but only received 22.8 percent of all prime single family loans for purchase, improvement and refinancing. Yet, blacks received 46.2 percent of all subprime loans during 2004."

http://www.bizjournals.com/philadelphia/stories/2006/07/03/story11.html?from_rss=1

7/04/2006 08:05:00 AM  
Anonymous Anonymous said...

Hey SAS,

I agree with you. I'm bearish on the US economy, figuring on a recession later this year or early next.

Andy,

BTW I have to add that besides wine, the french put on a nice bike race.

7/04/2006 09:47:00 AM  
Blogger uknowwhoiyam said...

From the DailyReckoning article:

"We laid out our best guess as to what is happening on Friday: The US is still following Japan into a long, hard slump - with softening real estate leading the way. That we had expected Britain to get their first has yet to change our opinion.

I have a hard time trusting a media outlet that confuses "their" with "there."

7/04/2006 10:11:00 AM  
Anonymous Anonymous said...

Anon 7:13am said "Kirk, will not permit this
BS to go on."


Kirk doesn't control the availability of cheap credit...GM is toast.

7/04/2006 11:40:00 AM  
Anonymous Anonymous said...

The French Mas is a fine rifle.

7/04/2006 11:41:00 AM  
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7/05/2006 10:42:00 AM  

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