Greenspan Warns of Likely U.S. Recession

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Comments

  • Reply 21 of 76
    backtomacbacktomac Posts: 4,579member
    My 2 cents.



    I don't think a major real estate decline will occur UNLESS we see a big jump in unemployment. Nobody will sell into a declining market unless they have too, i.e. they loose their job and can't make the monthly payment. The tightening of credit will actually be good,IMO, for real estate values as it will discourage speculative building.
  • Reply 22 of 76
    trumptmantrumptman Posts: 16,464member
    Quote:
    Originally Posted by BRussell View Post


    Nick, as a property owner, are you worried about this at all? I only have one mortgage, a 15-year fixed, so I don't see how it could harm me. But I have a friend who own about 100 properties in my city. He says he's not worried at all, because we're not in a bubble region, but I can't help but wonder.



    I personally am not worried because the properties I own have small mortgages and are not heavily leveraged at all. I could have both my houses sit empty for example and still make all the mortgage payments.



    The property values themselves are not the big concern. The principle issue is cashflow from the properties. It isn't as if people get in trouble because their home is worth $500,000 and they lose their job. They get into trouble because they believe that they do not need to save in case they lose their job because their home is worth $500,000.



    This is the prime point I try to put across when I discuss liquidity. I'm talking literally about being able to get cash into your hand. People have been able to just cash advance a credit card, or get a HELOC and so forth. They have also easily been able to manipulate and manage debt, toss the credit cards or car loans on to the house for example. Many folks have not had to go any extended period without employment and often can restructure debt in the event something does happen. That likely will end.



    We are going to come to a point where since debt will cost much more to originate, the terms for qualifying for it are going to tighten. If you have studied fiat money, banks and fractional reserves, you know that credit tightening has a multiplier effect in terms of dollars removed from the economy and circulation.



    People have had a negative savings rate, own less of their equity-wise than they have in the past, and are used to being able to easily get long term loans for vehicles and be granted large amounts of unsecured debt. That will become much less so and cash will again be king.



    So make sure you have some, not that you believe you can borrow some, but literally have savings on hand.



    Nick
  • Reply 23 of 76
    mydomydo Posts: 1,888member
    Any of you guys willing to set an outside date for all the doom and gloom? Let's say December 2008. No bubble burst by then and we'll all have a good laugh at the dire predictions.
  • Reply 24 of 76
    trumptmantrumptman Posts: 16,464member
    Well you never can be sure if Bernarke might throw dollars from helicopters, but I'm of the firm view that this recession will be here by Spring 2008.



    My mental timeline goes like this, the housing slowdown began this year. Many people have finally gotten the fact that the Spring selling season has arrived and amid record inventory, there is no rebound in prices. (When housing is at a normal level, not a red hot market, your home normally sells for more in Spring than trying to sell in December and the first denial claim was, "well now we are just returning to a regular cycle where you have to wait until Spring for further price appreciation)



    The truly deluded will hold onto their homes through the entire spring and through the end of the summer and note that they haven't sold. These are the hottest times of the selling season and so when the fall gets here, and the mix of patience, prep, and prayer haven't worked, you will get panic. By this I mean you will finally start getting real price drops instead of the nominal priced drops we have seen.



    Most people have been "dropping" their prices from an already overinflated sense of appreciation. They anticipated 10% appreciation, priced that in, it didn't move so they dropped it back down to the non-appreciation price and think they have done everyone a favor. The fall season is when we will see the first set of price cuts.



    This sets off a whole series of economic issues. For example if you are flipped on your home, sure you aren't being tossed in the street as long as you hold on and make the payment, but are you also going to drop big money on Christmas without a HELOC? Are you going to drop big money on Christmas when a reverse wealth affect has you feeling $40-50k dollars poorer or mentally tolerating being flipped $25-30k on your home?



    This is why you have seen Wall Street not just kick the hell out of certain subprime mortgage companies, you have started to see them kick the hell out of retailers. Again we already see slow down, but not negative growth. People are currently holding on just fine and hoping some good card turn on the river but the rest of us know the odds.



    So Spring 2008, Christmas is officially declared to have sucked, we will have the second year of no buyers returning, people will have clamped those wallets shut and recession will be here.



    Laugh away,



    Nick
  • Reply 25 of 76
    trumptmantrumptman Posts: 16,464member
    It's ARMageddon.



    Quote:

    NEW YORK (CNNMoney.com) -- More than two million subprime adjustable rate mortgages (ARMs) are poised to reset at much higher rates in coming months, worsening an already suffering housing market.



    Borrowers who took out hybrid ARMs in 2004 and 2005 to secure low "teaser" rates for the first two or three years of the loan may see their monthly mortgage payments climb by 35 percent or more.



    Consumer groups and politicians worry that hundreds of thousands of subprime ARM borrowers will be unable to keep up with their mortgage payments and will lose their homes.



    "In October alone more than $50 billion in ARMs will reset," according to Mark Zandi, chief economist and co-founder of Moody's Economy.com. That's a record, according to Zandi.




    Please, I cannot emphasize the lack of liquidity that will occur this time as we head into recession. I suspect this recession will be worse than 1991-ish but not as bad as the early 80's recession.



    Nick
  • Reply 26 of 76
    vineavinea Posts: 5,585member
    Quote:
    Originally Posted by trumptman View Post


    It's ARMageddon.



    Please, I cannot emphasize the lack of liquidity that will occur this time as we head into recession. I suspect this recession will be worse than 1991-ish but not as bad as the early 80's recession.



    Nick



    Mkay...so how much cash are you sitting on and don't have in the market. We were planning on moving but decided that selling our house now would be impossible and are going wait 5 years (or a really good buying opportunity that lets us keep both houses). So I'm sitting on a down payment in cash and dithering about putting it back into the market at this time.



    And I'm thinking how much we could have made if that had been in say...Apple shares.



    Vinea
  • Reply 27 of 76
    backtomacbacktomac Posts: 4,579member
    Quote:
    Originally Posted by trumptman View Post




    Please, I cannot emphasize the lack of liquidity that will occur this time as we head into recession.



    Nick



    Why do you say this? What would prevent the Fed from injecting liquidity into the market?
  • Reply 28 of 76
    trumptmantrumptman Posts: 16,464member
    Quote:
    Originally Posted by vinea View Post


    Mkay...so how much cash are you sitting on and don't have in the market. We were planning on moving but decided that selling our house now would be impossible and are going wait 5 years (or a really good buying opportunity that lets us keep both houses). So I'm sitting on a down payment in cash and dithering about putting it back into the market at this time.



    And I'm thinking how much we could have made if that had been in say...Apple shares.



    Vinea



    I keep a little over $10k in just pure cash and no consumer debt. Which market do you mean though, stock or housing? You seem to interchange the two. As long as you keep your stops short, you shouldn't feel too concerned about buying stocks, as you noted the housing market is weak right now. People are already declaring a bottom to housing but in my view that is just a dead cat bounce. I keep much more than that in the stock market and could easily sell it to obtain liqudity/cash. I'm not talking about retirement pensions/401ks or items like that. I'm talking savings or your after-tax dollar stock fund. Liquidity to me means money you can easily get your hands on that is not part of your retirement, home equity, etc.



    Quote:
    Originally Posted by backtomac View Post


    Why do you say this? What would prevent the Fed from injecting liquidity into the market?



    Injecting liquidity back into the market is possible, but it raises inflation which the fed has claimed to want to fight. Inflation is, depending upon the report either right on or already outside the cusp of acceptable. Many claim that inflation is already quite high and the fed has kept taking things out of the reporting basket of goods (that just happen to show inflation) for so long, it is no longer accurate.



    If they do inject liquidity and inflation is fully seen as returning, the cost of borrowing will rise anyway and thus the impact will be reduced as well. This is a real tight rope here and so far the fed has walked it pretty well but as the one article noted, the fed cannot do anything about the ARMageddon coming in terms of resetting home loans. That "wealth" will disappear as will any chance of a decent Christmas this year. Loads of these folks are already in a bad situation and are burning through their remaining liquidity as we type in attempts to wait out the situation. I suspect that when next spring arrives and there were no Christmas bonuses, instead possible new layoffs due to lack of sales/activity, we will finally start to see the shit hit the proverbial fan.



    Nick
  • Reply 29 of 76
    lfe2211lfe2211 Posts: 507member
    Quote:
    Originally Posted by trumptman View Post


    Batten down the hatches



    Another view is here.



    For a little historical context we can look here.



    Based off the average age of this forum, most people were not of an age where they would have really encountered and felt the last true recession in the United States. (1992 or so depending upon where you happened to be.)



    The second article notes the following information.



    Consumers also face high energy prices, higher interest rates, stagnant wages, negative savings and high debt levels, he noted.



    Some of these factors, for example energy prices, can't be controlled for with regard to personal choice. However some of the other factors, higher interest rates, negative savings and high debt levels can be controlled.



    As someone with a few more years under the belt than some on here, I cannot emphasize the effect that lack of liquidity will have on this next recession. Debt has been so readily available and cost so little for so long in this country that it will truly be interesting to see how people deal with less availability of it in a the future. Credit has so distorted the economy that things are no longer valued on what they are worth, but on what they can get in terms of credit. It is so strange to think of people thinking of interest rates being at 6.25 percent for homes loans as being high or even crippling. I still have an 8% mortgage on one of my properties and was thrilled to get it that rate because that was so much lower than the previous rates.



    So the point of the thread, if you have experiences of memories of prior recessions, please post them here. If you have any advice or thoughts, add them as well.



    Nick



    I missed your post first time around. IMO, you're way off the mark with your predictions of a 1992 recession repeating itself in 2007. Why? The world economy is much different than it was 1992 (yes I remember 1992 very well). We now have a global economy whose growth is booming in places like China,India, Russia, Brazil and elsewhere. In fact, many US companies like John Deere, Catepillar, Cummins Engines, Foster Wheeler, Fluor, Dell (alas not Apple yet) and many, many others are participating in this infrastructure/agriculture/industrial boom, creating a significant number of new jobs in the US, higher wages and increased liquidity to fuel consumer spending without increasing inflation due to the Fed's over-arching fear of the inflation monster. This situation is much different than 1992 when the global economy was much, much different. Think about the state of China and Russia in 1992. Also Real interest rates compared to 1992 are actually quite low. Finally, I think the Fed will ease in Q4 07 or Q1 08, negating many of the large increases in sub-prime mortgages and allowing recovery of the US housing industry, thereby creating more jobs, increasing consumer spending, etc.
  • Reply 30 of 76
    lfe2211lfe2211 Posts: 507member
    Quote:
    Originally Posted by trumptman View Post


    I keep a little over $10k in just pure cash and no consumer debt. Which market do you mean though, stock or housing? You seem to interchange the two. As long as you keep your stops short, you shouldn't feel too concerned about buying stocks, as you noted the housing market is weak right now. People are already declaring a bottom to housing but in my view that is just a dead cat bounce. I keep much more than that in the stock market and could easily sell it to obtain liqudity/cash. I'm not talking about retirement pensions/401ks or items like that. I'm talking savings or your after-tax dollar stock fund. Liquidity to me means money you can easily get your hands on that is not part of your retirement, home equity, etc.







    Injecting liquidity back into the market is possible, but it raises inflation which the fed has claimed to want to fight. Inflation is, depending upon the report either right on or already outside the cusp of acceptable. Many claim that inflation is already quite high and the fed has kept taking things out of the reporting basket of goods (that just happen to show inflation) for so long, it is no longer accurate.



    If they do inject liquidity and inflation is fully seen as returning, the cost of borrowing will rise anyway and thus the impact will be reduced as well. This is a real tight rope here and so far the fed has walked it pretty well but as the one article noted, the fed cannot do anything about the ARMageddon coming in terms of resetting home loans. That "wealth" will disappear as will any chance of a decent Christmas this year. Loads of these folks are already in a bad situation and are burning through their remaining liquidity as we type in attempts to wait out the situation. I suspect that when next spring arrives and there were no Christmas bonuses, instead possible new layoffs due to lack of sales/activity, we will finally start to see the shit hit the proverbial fan.



    Nick



    I totally disagree. You are completely ignoring the global boom which has allowed non-inflationairy expansion of the US job market, wages,etc. See my previous post.
  • Reply 31 of 76
    trumptmantrumptman Posts: 16,464member
    Quote:
    Originally Posted by lfe2211 View Post


    I missed your post first time around. IMO, you're way off the mark with your predictions of a 1992 recession repeating itself in 2007. Why? The world economy is much different than it was 1992 (yes I remember 1992 very well). We now have a global economy whose growth is booming in places like China,India, Russia, Brazil and elsewhere. In fact, many US companies like John Deere, Catepillar, Cummins Engines, Foster Wheeler, Fluor, Dell (alas not Apple yet) and many, many others are participating in this infrastructure/agriculture/industrial boom, creating a significant number of new jobs in the US, higher wages and increased liquidity to fuel consumer spending without increasing inflation due to the Fed's over-arching fear of the inflation monster. This situation is much different than 1992 when the global economy was much, much different. Think about the state of China and Russia in 1992. Also Real interest rates compared to 1992 are actually quite low. Finally, I think the Fed will ease in Q4 07 or Q1 08, negating many of the large increases in sub-prime mortgages and allowing recovery of the US housing industry, thereby creating more jobs, increasing consumer spending, etc.



    First all those things are indeed true and demonstrate why we have gone since 1992 within a major contraction of any sort. However as with all good things, they must come to an end. China, India Russia and Brazil are going to play Japan in this version of the recession. The insane growth within their own economies are leading to issues with possible hyperinflation already. When the U.S. slows even a bit, their own lack of domestic demand will cause their respective speculative bubbles to burst, force their exporters to cannibalize each other, and finally will lead them in a deflationary recession just as they did Japan.



    The United States, as you noted has had no liquidity issues at this point because the excess profits from these exporters, profits which are not being used to create domestic demand, are instead being sent here and trying to earn a return. The trade surplus has continually been held and invested into dollar-based investments. When that paper speculative wealth evaporates within their own countries, those monies will be needed more at home and will not be able to be sent back over here. This means less liquidity here, and higher borrowing costs.



    People have been arguing that the fed has essentially been outsourced because they had raised the overnight borrowing rate so many times and had seen no corresponding rise in bond and interest rates for mortgages and other types of lending. Those rates have finally started budging up because inflation is not tamed, and secondly because there is simply less money chasing a return here. The overseas markets are providing insane returns and people will begin pulling their dollars and converting them into their own respective currencies to grab those gains. Those created bubbles will pop and their deflationary cycles will start.



    China, India and others do not keep this from being 1992. They will insure it is just like 1992. Trade imbalances and an unbalanced economy driven totally towards exports and not at all towards generating domestic demand cannot be sustained.



    Quote:

    I totally disagree. You are completely ignoring the global boom which has allowed non-inflationairy expansion of the US job market, wages,etc. See my previous post.



    It wasn't non-inflationary. The inflation was merely siphoned off. Trade deficits are basically just knocking part of our GDP off and sending it abroad. That money has kept coming back and looking for a return creating speculative bubbles here in housing. If it had been converted to the currencies of the respective countries, then it would have created speculative inflationary bubbles there. However now we have the perfect storm. We have a deflating housing bubble here, due in part to ridiculous financing schemes with neg-am, crazy ARM loans that should not be made available to the general public, and seeing the slower growth here, countries have already started converting dollars (raising rates here) and creating speculative bubbles within their own economies. What they invest in though are export driven sectors which leads to bubbles within the export based industries.



    China Bubble



    The bubbles will pop. Growth will revert to the mean. Nothing new is revolving around the sun.



    India Bubble



    Nick
  • Reply 32 of 76
    lfe2211lfe2211 Posts: 507member
    Trumptman,



    Japan in the 1990s does not in any way equal BRIC and ROW in 2007.That's an overly simplistic FUD opinion. You've been listening too much to Uncle Al (thank god he 's retired except he won't go away!). If you really believe in your (Greenspan) doom and gloom recession bubble hypotheses, in Q4 07 just short all the companies I mentioned along with Paccar, McDonalds, Yum, US Steel and about 100 others I can give you.



    Let's just agree to disagree. I do not wish to get into a protracted economics debate with you on an Apple site.
  • Reply 33 of 76
    trumptmantrumptman Posts: 16,464member
    No problem. I don't know who you mean with regard to Uncle Al. You are welcome to give me the list of companies. I'll be happy to research and make money off them.



    Nick
  • Reply 34 of 76
    backtomacbacktomac Posts: 4,579member
    Nick



    I think he's referring to Greenspan(uncle Al).



    Anyway while I think your scenario is possible, I don't think it will occur. What appears to be unfolding reminds me a bit of the S&L crisis of the 90s. It will have some impact but the US economy is pretty resilient.
  • Reply 35 of 76
    I've pulled most of my cash out of the market except for a single mutual fund that happens to have a good bit of Apple stock (the only thing keeping it a float)



    I probably have too much cash in multiple money markets right now, however I am not comfortable with the risk of the market. I know I am just keeping up with inflation, but the 5.35% is helping me sleep at night. Not sure when/if I will jump back in.



    No consumer debt. Home morgage is "0"



    Yes I remember '92
  • Reply 36 of 76
    vineavinea Posts: 5,585member
    Quote:
    Originally Posted by trailmaster308 View Post


    I've pulled most of my cash out of the market except for a single mutual fund that happens to have a good bit of Apple stock (the only thing keeping it a float)



    I probably have too much cash in multiple money markets right now, however I am not comfortable with the risk of the market. I know I am just keeping up with inflation, but the 5.35% is helping me sleep at night. Not sure when/if I will jump back in.



    No consumer debt. Home morgage is "0"



    Yes I remember '92



    You're getting 5.35% in a MMA? I need to move from ING. AmTrust right?



    Hmm, can one do a trailing stop on an index fund without micromanagement? I guess I'd have to use an ETF. I don't have time to research individual companies and do the analysis that individual stock picks require.



    I dunno...if folks really believe in a large decline around the corner I would expect them to have reverse funds in their portfolios to protect gains/hedge against losses.



    Vinea
  • Reply 37 of 76
    lfe2211lfe2211 Posts: 507member
    This is really very sad. You guys are missing out on one of the greatest Bull Markets ever (an undisputed fact) because of the nonsensical doom & gloom postings of people like trumptman. China and the global economy are booming. Many US companies are partcipating in that boom. Will the boom end? Perhaps. But not until at least August,2008 when China will host the Beijing Summer Olympics.



    http://www.mercurynews.com/breakingnews/ci_6347872



    I suggest you take some time and do your own research on what the prospects for a US recession are. And, don't take as gospel the predictions of anyone on a computer forum, whether they be bullish (me) or bearish (T-man). That's what you do in every other aspect of your life so why not do it for your money as well?
  • Reply 38 of 76
    vineavinea Posts: 5,585member
    Quote:
    Originally Posted by lfe2211 View Post


    This is really very sad. You guys are missing out on one of the greatest Bull Markets ever (an undisputed fact) because of the nonsensical doom & gloom postings of people like trumptman. China and the global economy are booming. Many US companies are partcipating in that boom. Will the boom end? Perhaps. But not until at least August,2008 when China will host the Beijing Summer Olympics.



    http://www.mercurynews.com/breakingnews/ci_6347872



    I suggest you take some time and do your own research on what the prospects for a US recession are. And, don't take as gospel the predictions of anyone on a computer forum, whether they be bullish (me) or bearish (T-man). That's what you do in every other aspect of your life so why not do it for your money as well?



    Who's missing out? Trumptman is sitting on no more than $10K. I have a pile of cash because we expected to have to put a down payment on a house but that isn't all my assets and I'm looking to get back in. trailmaster308 is the only one out of the market.



    Also, my reading of the Chinese is that they indictated in June that they are unwilling to allow the bubble to continue to grow until after the Olympics and has allowed their market to adjust and increased the stock trading stamp tax to try to achieve a softer landing. The Shanghai composite looks to have leveled out without becoming a smoking hole. If they can stay comfortably above 3000 through the Olympics they'll have a soft landing and a good basis for future growth. If they hit 5000 they're going to pop and thud. IMHO from very casual analysis.



    Vinea
  • Reply 39 of 76
    fellowshipfellowship Posts: 5,038member
    Quote:
    Originally Posted by vinea View Post


    Who's missing out? Trumptman is sitting on no more than $10K. I have a pile of cash because we expected to have to put a down payment on a house but that isn't all my assets and I'm looking to get back in. trailmaster308 is the only one out of the market.



    Also, my reading of the Chinese is that they indictated in June that they are unwilling to allow the bubble to continue to grow until after the Olympics and has allowed their market to adjust and increased the stock trading stamp tax to try to achieve a softer landing. The Shanghai composite looks to have leveled out without becoming a smoking hole. If they can stay comfortably above 3000 through the Olympics they'll have a soft landing and a good basis for future growth. If they hit 5000 they're going to pop and thud. IMHO from very casual analysis.



    Vinea



    There is always money to be made..



    I have just made over $1,300 in three trades in and out of COH



    Coach handbags are very popular with the ladies and their stock only goes up over the long haul.



    Fellows
  • Reply 40 of 76
    lfe2211lfe2211 Posts: 507member
    Quote:
    Originally Posted by Fellowship View Post


    There is always money to be made..

    Fellows



    You got that right! Congrats Fellows.
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