Tuesday, July 25, 2006

Recession in '07?

From the Globe and Mail:

Merrill economist sees U.S. downturn in May

Grab a red pen and circle May, 2007, on your calendar.

That month is full of foreboding for the U.S. economy, according to Merrill Lynch & Co. Inc. North American economist David Rosenberg, who sees inauspicious portents in the data.

"They all put a big fat bull's eye on May, 2007, as the month that we could see an actual economic turndown," he says in a note to clients.

The economist adds that the outlook is gloomy no matter what action the U.S. Federal Reserve Board takes on interest rates. "It may well be too late and the seeds could well have already been sown for an outright recession next year."
...
He reminds clients that, at this time in 2000, the Nasdaq composite index was down roughly 30 per cent from its peak and today the home building stocks are down more than 40 per cent from their highs. If the home building group were to mirror the performance of the technology bubble in the last cycle, then the group would have another 30 per cent to fall, Mr. Rosenberg cautions.

The historical record tells us that housing is the "quintessential leading indicator," says the economist, and as a result the impact on other segments of spending is significant.

35 Comments:

Anonymous Anonymous said...

to Grim - why do you call yourself grim? why did you start this site? did you cash in on the housing bubble and now want it to pop to buy back low...or did you miss the boat and now are envious of others? many thanks.

7/25/2006 05:42:00 AM  
Blogger grim said...

Grim was a 'handle' that I used on BBS systems, many years ago. I'd try to explain what that means, but unless you are a geek over 30 (or know what a 300 baud modem is), you'll likely have no idea what I'm talking about.

What you are really wondering is why I picked it. Again, the answer will be meaningless unless you know a little obscure late-80's collectible card trivia. There was a series of cards that went by the name "Garbage Pail Kids". They were a gory spin on the Cabbage Patch Kids from a few years earlier. I suppose they were pretty low-brow, but what most people don't know is that they were produced by Pulitzer prize winning cartoonist Art Spiegelman. Anyway, one card in the series was aptly named "Grim Jim". I don't know how I got the card itself, I think it was given to me (I don't ever remember buying a pack of these), but I still have it. I suppose if I had to give a reason for the handle, it would be that card.

grim

7/25/2006 06:29:00 AM  
Blogger grim said...

From Reuters:

Centex quarterly earnings and orders plunge

Centex Corp, the fourth-largest U.S. home builder, on Monday said its net profit fell 31 percent and orders were off 21 percent, prompting the company to slash its forecast in another sign of the eroding U.S. housing market.

"Centex is another confirming data point that the trends directionally are continuing to get worse as evidenced by Centex orders being down over 20 percent this quarter as compared with down about 12 in the March quarter," Raymond James analyst Rick Murray said.
...
Centex followed in step with U.S. home builders who have reported falling orders and have slashed their forecasts, bemoaning the flood of unsold homes on the market, especially from speculators dumping their investments that no longer rapidly increase in value.

7/25/2006 06:32:00 AM  
Blogger thatbigwindow said...

Although the first comment isnt directed at me, I will say I come to this blog because I am in my late 20's and was unable to buy a house when they were affordable. So, yes...I missed the boat because of my age.

7/25/2006 06:58:00 AM  
Anonymous Anonymous said...

you missed more than the boat.

7/25/2006 07:05:00 AM  
Anonymous Anonymous said...

The question of whether an economic slowdown will occur
is moot since it has arrived.

7/25/2006 07:12:00 AM  
Anonymous Anonymous said...

I'm not sure if the recession is here in the purely economic definition, but I don't think we'll have to wait until May either.

Also, Grim, I was to old for Garbage Pail Kids, but I think you underestimate their cultural impact. I remember them being all over the place at one point and they were immortalized in Faith No More's "We Care Alot," (along with Transformers) one of the truly great songs of the 80s.

Lindsey

7/25/2006 07:30:00 AM  
Blogger NJGal said...

"I am in my late 20's and was unable to buy a house when they were affordable. So, yes...I missed the boat because of my age."

Right there with you. People are always like, well, you should have bought years ago. Hello? I was in school...

7/25/2006 08:04:00 AM  
Anonymous leeS said...

Grim, I'm only 30, and used to dial into many a BBS myself. Hell, I had a friend that ended up running one out of his basement. The real lure was a combination of the chats and games. (If I remember correctly, my favorite was The Belfry with Stiggy the Martyr as Sysop.)

As for the Garbage Pail kids, I remember begging my parents to buy me some every time we went to the flea market by Green Acres Mall, I was amazed when I found out they made them in poster sized sheets and you could cut them out yourself. Ahh, the simple days...

7/25/2006 08:34:00 AM  
Blogger njresident286 said...

"Right there with you. People are always like, well, you should have bought years ago. Hello? I was in school... "


I am in the same boat. Mid 20's and living with my fiance in an apartment. People always tell us we missed the boat to buy in 2002. I was still in school and she was just srating a new unstable job. we would have been crazy to buy a house at that point.

If most people in there mid 20's can not afford, the people looking to sell lower end houses will have no one to sell to, and in turn they will not be able to purchase bigger more expensive houses. the whole fundemental of the housing market is screwed and then something will have to happen to change it.

Grim - Interesting piece on not only the recession, but Centex orders dropping so much. I would consider that an early indicator of the trouble we are going to see in the next 18-24 months

7/25/2006 08:47:00 AM  
Blogger grim said...

Existing home sales numbers due out in 15m..

grim

7/25/2006 08:50:00 AM  
Anonymous Anonymous said...

I was a Tomato Head Tommy fan : )

Maybe we should do a demographic study of visitors to the site.
I'm a 29 year old male.

7/25/2006 08:51:00 AM  
Blogger skep-tic said...

same here-- in my late 20's, just out of law school-- didn't even realize how crazy the real estate market was until I started applying for jobs about a year ago. Thought I was doing pretty well at the time until I realized you basically need to make at least $300,000 per year to afford a decent house anywhere near NYC or Boston.

there's an entire generation that is priced out of owning a decent home at this point, and we're not all deadbeat losers. As I have followed this thing over the past year, the aspect that has struck me the most is all of the people who think they are geniuses because they were born at the right time and happened to have bought a home before this all started.

7/25/2006 08:51:00 AM  
Anonymous UnRealtor said...

Here is a rarely-seen photo of Grim:

http://gpkcentral.com/individual.php?ver=&card=260

http://tinyurl.com/l9ucd

7/25/2006 08:53:00 AM  
Anonymous Anonymous said...

as a few have stated, similarly i'm in my early 30s and didnt get a chance to get in on time. now that i'm ready, but dont want to buy at the current time because of the current down turn.

1. is it wise to buy as a "tax shelter" because of my income bracket is in 40%?

2. or just wait it out til may of 2007?

thanks in advance.

7/25/2006 09:14:00 AM  
Blogger Flop that house said...

31 yr old male here too.

decided against buying a couple of years ago because I thought the price was too inflated already at that time.

Never in a million years would I think the price will keep on increasing in the last couple of years...

7/25/2006 09:18:00 AM  
Anonymous Anonymous said...

Is America Bankrupt?

In July of 2006 the St. Louis Fed dared to raise the question Is the United States Bankrupt? Here is the conclusion:

There are 77 million baby boomers now ranging from age 41 to age 59. All are hoping to collect tens of thousands of dollars in pension and healthcare benefits from the next generation. These claimants aren’t going away. In three years, the oldest boomers will be eligible for early Social Security benefits. In six years, the boomer vanguard will start collecting Medicare. Our nation has done nothing to prepare for this onslaught of obligation. Instead, it has continued to focus on a completely meaningless fiscal metric — "the" federal deficit — censored and studiously ignored
long-term fiscal analyses that are scientifically coherent, and dramatically expanded the benefit levels being explicitly or implicitly promised to the baby boomers.

Countries can and do go bankrupt. The United States, with its $65.9 trillion fiscal gap, seems clearly headed down that path. The country needs to stop shooting itself in the foot. It needs to adopt generational accounting as its standard method of budgeting and fiscal analysis, and it needs to adopt fundamental tax, Social Security, and healthcare reforms that will redeem our children’s future.

7/25/2006 09:22:00 AM  
Anonymous Anonymous said...

damn I'm old,

I was in Da Nang taking shrapnel, when all you fellow bloggers were not even a twinkle in your praents eyes.

This may bore some of you, but for the real economists on this blog (not the bubble sitters, it might bore you). I recommend you familiarize yourself about the "monetary control act of 1980". Why you say?

It is because of this act, that sometimes you can't always believe what you see, hear, or read. Its is why sometimes things can appear as a mirage. Remember everything in economics is based on confidence (or false confidence, or lack of confidence). Learn to know what is called the "plunge protection team" and how this team can sometimes pull the wool over the markets eyes and your eyes.

But to really learn and understand, you have to peel deep within the layers of power and money, where most people dare not tread (because you may wake up with a severed head of a horse in your bed).

You may be thinking, this guy is nuts? But there is at least one person on here who knows what I am talking about.

yes, I am speaking in Greenspanisms.

SAS

7/25/2006 09:43:00 AM  
Blogger wfmukerm said...

McDonalds profit up.

Tylenol's parent was up last week.

so headaches and value meals....

isn't there 1 more component that you always see before a big bust

7/25/2006 09:43:00 AM  
Blogger Bob said...

Hey you 20 and 30 year olds;

For some idiot to post that you missed the boat is totally ridiculous. Do they think they are a genius because their POS was, note was, outlandishly inflated in this bubble!!!!!!! These are probaly the same people who in the late 90's and early 2000 thought that they were experts in the NASDAQ (NASQUACK!!!!!!!) Remember these experts sucked out ficticious equity in their house to buy a Hummer!!!!!! Now they can't afford to buy gas for their Hummer and as their adjustables go up, they won't be able to make their house payment!!

Missed the boat???? Hah, Hah,Hah!!!!! The boat is slowly sinking right before their eyes. You will be able to pick up their sunken boat at 30-50% less than today's prices in 2-3 years. These same a...holes that say you missed the boat will be begging you to buy their worthless POS!!!!! By the way, I'm 48 and have owned properties for the past 20 years and liquidated in Aug 2005. Patience, Patience, Patience!!!!!!!!

7/25/2006 09:52:00 AM  
Blogger NJGal said...

"s it wise to buy as a "tax shelter" because of my income bracket is in 40%?"

Anon, no. First, I have always heard that the tax break should never be an issue. It's more like the cherry on top, but not a reason to buy. Besides, as someone in that same bracket, don't we get screwed by AMT? Doesn't that somewhat eliminate the advantage?

Frankly, the way I see it, the tax break isn't going to come close to the money I'm saving now, and the freedom that I have in my life - low housing costs, freedom to go to dinner and a movie, join a gym, etc., all because I am not tied to paying 5K a month in housing costs.

Have patience. I plan to save save save and buy when I am ready and when prices see fit.

7/25/2006 10:05:00 AM  
Blogger njresident286 said...

"Frankly, the way I see it, the tax break isn't going to come close to the money I'm saving now, and the freedom that I have in my life - low housing costs, freedom to go to dinner and a movie, join a gym, etc., all because I am not tied to paying 5K a month in housing costs."

NJ Gal I could not agree more. Right now I save over 50% of my pay after all my bills and entertainment for the month are paid off. That could never happen if I owned a house. At this point in my life, I do not want the stress of a mortgage. I like being able to walk into work and quit if I wanted!

7/25/2006 10:15:00 AM  
Anonymous Anonymous said...

NJgal

what is AMT?

7/25/2006 10:15:00 AM  
Anonymous Anonymous said...

I'm 30 and recently married. We've looked at houses in Northern New Jersey and Westchester mostly for the comedic value of seeing POS houses that are asking $1M (not that we would pay that). We plan on waiting until 2008, as even a modest $100K drop in price is equivalent to three years' rent even in Manhattan.

7/25/2006 10:19:00 AM  
Blogger skep-tic said...

the property taxes in the town I live in just about equal my yearly rent, so the idea that owning a home could be a tax advantage for me seems far-fetched to say the least.

7/25/2006 10:20:00 AM  
Blogger NJGal said...

AMT = Alternative Minimum Tax - meant to make sure the Rockefellers paid some taxes, now insuring that anyone earning over 100K is seriously f-cked.

From what people have explained to me, once you reach the stage where you are paying this, it significantly reduces the benefit of the mortgage interest tax deduction. But I'm not entirely sure - can anyone explain the whole thing to me?

7/25/2006 10:50:00 AM  
Anonymous Anonymous said...

I was in my 20's in the 80's. I had the same angst I'm hearing here. Worked out great. Bought in the early 90's.

Don't fret young people. Prices will come down. How much? Dont know. But I'd say 20% off Summer 2005 is inevitable.

7/25/2006 11:25:00 AM  
Anonymous Anonymous said...

"...at least one person who knows.."

Don't worry, there are more than one. Lurkers, but there.

Some of us will occasionally toss a spot of grease on the fire to see if we get any signs of life.

It's enough.

7/25/2006 11:32:00 AM  
Anonymous Anonymous said...

I'm intrigued. Please pass on a bit more of your wisdom regarding how the Monetary Control Act of 1980 relates to the current real estate bubble and imminent real estate bust.

7/25/2006 11:54:00 AM  
Anonymous Anonymous said...

njgal and others,

thank you for sharing your thoughts. i've been reading quite a bit on this blog, and amazed with the volume of information!

wonder if anyone here can explain more about tax break for single individual, who's making about 150k+/yr.

honestly, i dont care if my tax money is well spent, but i'm reluctantly to see my tax money is spending on bullets.

thanks in advance.

7/25/2006 12:14:00 PM  
Blogger NJGal said...

"honestly, i dont care if my tax money is well spent, but i'm reluctantly to see my tax money is spending on bullets."

Ha. My friend, the way your tax dollars are spent will always be out of your control - it spends how the gov't sees fit, be it bullets or welfare or new roads, etc. People always complain about that stuff.

If you mean that you are thinking about buying a place for the tax breaks so that they government gets less, well, that's your own prerogative. Someone more knowledgeable will have to explain the details (chicagofinance, you usually know this stuff!) But a little or a lot, as I said, you have little say as to where your money goes.

7/25/2006 12:38:00 PM  
Anonymous Anonymous said...

{{{{in my late 20's, just out of law school-- didn't even realize how crazy the real estate market was until I started applying for jobs about a year ago. Thought I was doing pretty well at the time until I realized you basically need to make at least $300,000 per year to afford a decent house anywhere near NYC or Boston.}}}}

You need to make at least $100,000 a year just to be able to afford (or qualify) to rent a one bedroom apartment in any of the 5 boros, Long Island or North / Central Jersey.

Buying real estate is out of the question unless you make in the mid six figures, but even renting is very difficult if you are single and making only in the high five figures.

{{{there's an entire generation that is priced out of owning a decent home at this point, and we're not all deadbeat losers. As I have followed this thing over the past year, the aspect that has struck me the most is all of the people who think they are geniuses because they were born at the right time and happened to have bought a home before this all started.}}

Yeah right. This generation of 20 & 30 something is one of the most entitled, arrogant, self centered, materialistic groups. The attitude above says it all. You aren't entiled to anything because you spent money on some degree.

Most are more concerned with going into credit card debt to spend thousands every month on clothes and finance a car that they could never afford. The typical 20 something in NY makes in the six figures but spends every dollar on Rent, Clothing, Drinks & Car Payments. Maybe try investing money rather than spending a few grand on drinks & clothing every week.

7/25/2006 07:30:00 PM  
Anonymous Anonymous said...

How about expanding the Earned Income tax credit to single individuals making less than $100,000 a year and married couples making less than $150,000 a year??

Single lower middle class people in NYC making between $60,000 - $120,000 a year feel the tax burden the most but make too little to be able to qualify to buy a home in any of the 5 boros, Long Island or NJ.

But meanwhile you have a group of people who claim to be making some pathetically low wage, but get all sorts of gov't handouts while they drive around in luxury SUV's and buy a truck load of food at the supermarkt.

7/25/2006 07:34:00 PM  
Blogger skep-tic said...

This comment has been removed by a blog administrator.

7/25/2006 08:54:00 PM  
Anonymous Anonymous said...

NJgal: try here for a calculator when you need something to calculate at lunchtime. ;)

http://tinyurl.com/qkqb2

7/26/2006 12:58:00 PM  

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