Greenspan Warns of Likely U.S. Recession

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  • Reply 61 of 76
    backtomacbacktomac Posts: 4,579member
    Quote:
    Originally Posted by trumptman View Post


    I find it hilarious that the parties on here who insult me call me a disjointed idiot and the fed chairman at the same time.



    I don't agree with all your points but I don't think you're an idiot either. I think the Fed will cave in this Fall and start lowering rates. Time will tell, you've made some interesting and provocative points, IMO.
  • Reply 62 of 76
    lfe2211lfe2211 Posts: 507member
    "You were just like those baaahhh'ing that I'm an idiot to buy so much real estate in early 2000. Everyone knows real estate is dead and gee... look at that NASDAQ."



    Oi vey. Groan. Why me? I sold my house on the south shore of LI in July, 2005 at the market peak for twice the price I payed in 2002. Don't presume that you know anything about what I do or don't do, know or don't know.



    I've layed out my bullish global infrastructure plays in great detail with references to actual companies I've bought over the last 15 months (as opposed to your Wiki references, bubble kaka and piddling PVX play). My inviolate strict sell rules are to get out of stocks on the way up at 2x, 2.5x and (oh joy) 3x as the situation dictates (AAPl included).



    There, you 've gone and done it--you made me angry enough to make unverifiable claims on a freakin' computer internet site--happy? Please, leave me alone and peddle your bullshit elsewhere.
  • Reply 63 of 76
    trumptmantrumptman Posts: 16,464member
    NY Times



    Quote:

    Only two months ago, it seemed as if almost any company could borrow money at low interest rates. Now loans seem to be drying up everywhere.



    What had seemed like a contained problem, involving home loans to people with poor credit, has suddenly mushroomed into a rout that threatens to make life difficult for everyone who needs to borrow money.



    MoneyCNN



    Quote:

    Turbulence in the credit markets has already claimed several casualties - from highly leveraged hedge funds to mortgage providers whose lenders have cut them off.



    But the fallout could get worse. Some experts say the debt crunch could squeeze underperforming companies that have, until now, been able to finance their way out of trouble - and trigger a wave of corporate bankruptcies.



    "There have been a lot of operational problems and other problems within some companies that have been masked by liquidity in the marketplace and the ability to refinance their debt," said Jeff Marwil, a partner in Winston and Strawn's restructuring and insolvency practice in Chicago.



    Economist.com



    Quote:

    The biggest risk to the global economy probably lies with debt-laden American consumers. They have been battered by falling house prices and expensive petrol, and their spending growth has already slowed sharply. A credit squeeze will aggravate the housing bust and falling house prices could drag spending down further. But the rest of the world is growing strongly and unemployment in America remains low, so a recession there is by no means inevitable. What's more, if the economy were to head downhill fast, the Fed, despite its public worries about inflation, has plenty of scope for cutting interest rates.



    All told, the credit wobbles so far are likely to have only modest economic consequences. But what if they prompt a broader market meltdown? After all, many of the newfangled instruments that dominate today's debt markets have never been tested in a serious panic. Credit derivatives have probably improved the stability of the global economy by dispersing risk, but it is no longer clear where that risk is being held. And many of the new risk-dispersing instruments are so illiquid that trouble may not emerge for some time. It was several months after the subprime mortgage market turned sour before the scale of the losses at two Bear Stearns hedge funds became clear.



    Marketwatch



    Quote:

    Could the turmoil in the markets in the past few weeks be the precursor of a full-blown credit crunch that could force the U.S. and global economies into a recession?

    Some observers think that the markets are exhibiting classic signs of a so-called "Minsky moment," when overleveraged borrowers must finally pay the piper for their euphoria. The result, they say, will be a credit shortage that could bring down even innocent bystanders in their wake.

    Academics, economists and money managers are all sounding the alarm. Financial markets are counting on the Federal Reserve to drop interest rates to cushion the fall, and yet senior officials at the central bank have insisted that the markets must discipline themselves.

    'I think the market wants to believe that we're pretty much done with the shakeout.'

    — Paul Nolte, Hinsdale Associates

    Market professionals seem resigned that the fallout is inevitable, and has already begun with losses in several rocky sessions on Wall Street.

    "The feeling I have today is that of watching a very slow motion train wreck," wrote Jeremy Grantham, chairman of GMO LLC, which manages about $150 billion in assets.

    The S&P 500 index is now pricing in a recession starting in late 2007 and lasting for most of 2008, led by the financial sector, said David Bianco, chief equity strategist at UBS. "We believe the market expects this recession to slash S&P 500 [earnings per share] by about 10%," Bianco said.



    Not an absolute consensus, but people are writing about it because liquidity is coming up more and more. Form your own views, take your own actions, I'm simply posting what I see happening and information related to it.



    I leave you with this.



    Quote:

    That is the core of a financial crisis, when too many people head to the exits simultaneously,” said Robert Bruner, the dean of the business school at the University of Virginia.



    Mr. Bruner is the co-author of a book on the Panic of 1907, to be published next month, and he sees similarities between then and now. “It was a time marked by the rise of new financial institutions and new financial instruments,” he said. “It marked the end of a period of extraordinary growth, from 1895 to 1907.”



    The credit market has changed drastically in recent years, as banks grew far less important and credit rating agencies like Standard & Poor’s and Moody’s became the essential players in the new financial architecture.



    Many loans, whether mortgages or loans to corporations, were financed by selling securities. It was the credit agency ratings that determined if those securities could be sold, and deals were structured to meet the criteria set by the agencies.



    Those criteria turned out to be very generous. The agencies figured that even very risky loans were unlikely to cause big losses, and so most of the securities backed by loans to poor credit risks could get AAA ratings — the highest available — as long as those securities had first claim on loan payments. Investors bought the securities thinking they were completely safe, and some did so with borrowed money.



    Now, however, there is fear even about those securities. The rating agencies are changing their criteria for the loans, and many investors no longer trust the ratings.



    And this sage advice...



    Quote:

    “Financial panics don’t happen during depressions,” said James Grant, the editor of Grant’s Interest Rate Observer. “They happen on the brink of depressions. The claim the world is prosperous is beside the point.”



    Nick
  • Reply 64 of 76
    trumptmantrumptman Posts: 16,464member
    YouTube



    That is about all I have to say about that.



    Nick
  • Reply 65 of 76
    mydomydo Posts: 1,888member
    Quote:
    Originally Posted by trumptman View Post


    YouTube



    That is about all I have to say about that.



    Nick



    Makes me glad I don't watch that show.
  • Reply 66 of 76
    benroethigbenroethig Posts: 2,782member
    When Alan Greenspan talks, I listen.
  • Reply 67 of 76
    trumptmantrumptman Posts: 16,464member
    Some crazy guy named Jim Cramer makes the same point as some crazy poster around here.



    A few of the best ones...



    Quote:

    What do the woes of these folks have to do with you? Can a housing fire sale in Phoenix or Fort Myers really affect your Hamptons beach house or your newly purchased Upper West Side classic six? Well, yes, and in even bigger ways than you might think. That’s because the people who ultimately bought the bonds backed by what now look to be billions in bogus mortgages are those who run most of the big pension-, hedge-, and stock-and-bond-market mutual funds in this country. These suckers bought such bonds because bonds backed by mortgage-payment streams paid a tiny bit more than United States Treasuries, a comparable low-risk, if low-return, vehicle, and were supposed to have very little or no risk themselves. Some managers, however, borrowed huge sums to buy tons of these mortgages to turbocharge their results. And the most aggressive managers bought billions in mortgages given to less creditworthy individuals, the so-called subprime loans you keep hearing about.



    And...



    Quote:

    Now these funds, which were supposed to be brimming with cash—the “liquidity” you hear about all of the time—turn out to have not much at all, and there are virtually no buyers anywhere for these mortgage-backed bonds, because who knows if the mortgages that are in them are worth anything? We only know that each day they are worth less than the day before, because every week, thousands of borrowers are being foreclosed.



    Another good point...



    Quote:

    Which brings us back to your money and why you’re losing it. Unless you keep your money in cash or Treasuries or CDs or the First National Bank of Sealy, there’s a pretty good chance that you’re in a fund or funds that are mismarked and worth less than they and you think. If you own a home, you’re in the financial crosshairs, too. It’s not just that the lending crisis is causing interest rates to rise, jacking up your monthly nut if you have an ARM. It’s that the value of your home is endangered because of the hit Wall Street—the industry, if not the stock market—is set to take.



    Finally...



    Quote:

    Thousands of miles from where the walls began tumbling down, New York, the town where the architects of card houses live, will soon feel the full force of the storm. So much of our economy depends on these financial builders and their minions who buy and sell the products that the pain may actually end up being felt worse here than in the epicenters of the problem. You just don’t know it or feel it yet. It’s all happened too fast, in just a few weeks of another sweltering summer, with the worst, much worse, yet to come. Which is why I bet that in the time it took for you to read this article, the Tom Joad effect just took another few bucks out of your pocket. Get ready, many more dollars will soon vanish before you discover you’ve been robbed.



    Give them a few months. Everyone is NOW writing about the liquidity crisis. Perhaps now they will move on to the... insolvency crisis.



    Nick
  • Reply 68 of 76
    addaboxaddabox Posts: 12,665member
    Quote:
    Originally Posted by Fellowship View Post


    I don't doubt that for a second...



    This is why I try to build wealth in my own ways.



    The corporate world is really sad these days.



    Fellows



    Oooh! Something sinister, I hope.



    Fellowship: Christian internet poster by day, ruthless syndicate boss by night!
  • Reply 69 of 76
    sdw2001sdw2001 Posts: 17,930member
    Quote:
    Originally Posted by trumptman View Post


    Some crazy guy named Jim Cramer makes the same point as some crazy poster around here.



    A few of the best ones...





    And...







    Another good point...







    Finally...







    Give them a few months. Everyone is NOW writing about the liquidity crisis. Perhaps now they will move on to the... insolvency crisis.



    Nick





    Well, far be it for me to dispute people like Cramer. But, suffice it to say I don't think this credit crunch will lead to massive numbers of foreclosures and the "house of cards" coming down as he says. That is, unless he and others panic so much that they create....panic.



    The vast majority of mortgages are secure. Yes, as Cramer says there are 7,000,000 teaser rates from 2005-ish coming due. But that doesn't mean those people cannot refinance and/or suck up the payment. One can't assume that "7,000,000 people are going to lose their homes." That's simply not going to happen.



    And while the Fed may "know nothing" as he says, they'll know plenty if there is a TRUE credit crunch. Rates will go down, and more liquidity will be put into the system. Right now, the reality is someone like me...middle income....can get a mortgage no problem. Now I see what you're saying...if the backers of those loans lose confidence and divest en masse, we could have an issue. But somehow I don't see the major banks losing their shirts here. They have very deep pockets.



    One other point: You're unlikely to see a 70's style credit market with 20% interest rates and no credit out there to be had. For one, we're not dealing inflation as we were then, so it will be easy enough to slash the Fed Rate to combat the problem. My feeling is the Fed is going to slash 50 basis points come September, perhaps before then if things get worse.



    Actually...last point: As a person that's going to be in the housing market next Spring, I am loving the Real Estate market right now. Burn baby, burn.
  • Reply 70 of 76
    backtomacbacktomac Posts: 4,579member
    Quote:
    Originally Posted by SDW2001 View Post


    Actually...last point: As a person that's going to be in the housing market next Spring, I am loving the Real Estate market right now. Burn baby, burn.



    That's Buffet style thinking.
  • Reply 71 of 76
    trumptmantrumptman Posts: 16,464member
    Quote:
    Originally Posted by SDW2001 View Post


    Well, far be it for me to dispute people like Cramer. But, suffice it to say I don't think this credit crunch will lead to massive numbers of foreclosures and the "house of cards" coming down as he says. That is, unless he and others panic so much that they create....panic.



    Well first it is a lot more than Cramer, but I like tossing out people who basically repeat points I noted after I've said them especially since I(and you) get accused of parroting others so often. Cramer is noting what I mentioned several months ago so I'm sure Jimmac or someone else will accuse me of just reading him on Free Republic and repeating his points here any second now.



    Now let me get a bit into why you are not fully comprehending the issues surrounding the credit crunch. First there is the origination side. Through a process called securitization, these mortgages did not have to be held by the parties originating them. They could easily sell them off. Additionally this process which takes several different types and grade of debt and mixes them together was often taking riskier debt and using mortgage debt to help it gain a higher rating.



    Take this and apply it to yourself rationally. You are agreeing to buy a bond with a mix of debt. The good debt, that makes the bad debt more easy to stomach is mortgage debt, because housing never goes down. I mean sure it has regional issues, but as a whole it never goes down.



    That maxim was just proven wrong. It just did go down nationally. Now again consider this within the securitization process, the mortgage debt and the income stream from it was what made more readily available other debt of lower grades.



    So as a buyer of debt, what do you do when the "safe" debt is not longer secure, yet it was what was making it easier to issue and keep the rates down on "risky" debt that was bundled with it?



    I'll tell you what you do, you stop buying the debt and that is what has happened. When no one buys, new debt cannot be created and issued.At the fed or market rate which is why when the rate jumped to 6%, the fed jumped in with enough liquidity (fed lending) to defend the rate



    Also about the panic, your (or any) home has no more intrinsic value than the "comps" around it. Even if the majority are safe it only takes a few bad "comps" or comparable apples to ruin the entire real estate market. If three of the condos in the building sell for $75k because they are foreclosures, are you really going to buy the non-foreclosures for $125k even if that was a good value relative to their bubble value? You won't because the comps show you could be flipped $50k very quickly.



    Quote:

    The vast majority of mortgages are secure. Yes, as Cramer says there are 7,000,000 teaser rates from 2005-ish coming due. But that doesn't mean those people cannot refinance and/or suck up the payment. One can't assume that "7,000,000 people are going to lose their homes." That's simply not going to happen.



    The reason those mortgages are so risky, even if they are secured by people who have good jobs, can afford the payment, and won't lose their homes is because many of them were structured so that the buyers have "no skin in the game." They have no down payment, or they did a 80% first with a 20% second, rebated back, etc or worse still have a HELOC on top of all that.



    Again think about what you would do yourself. You own a home that you bought with 0%, an 80/20 loan and it had an $1800 a month teaser negative am payment which is now going to reset to a $3200 a month payment. You can refinance to get it down to say $2900 using a new 30 year conventional loan with zero down a product that no longer exists because it was subprime or perhaps $24-2600 if you have a large down payment.



    The problems, well first of all the home was worth say $350k when you bought it, you owe say $370k to on it now. Real estate was appreciating at 10-20% a year and you thought you would be ahead because it would be worth $425k-$450k by now. You never saved a down payment, you just thought a few years later you would have one by virtue of price appreciation.



    Now lets add to that the fact that the home is no longer worth $350k, but is now would not move even at $325k. You are flipped from the purchase price. This would be strike one, the most conventional loans with no negative am. The second strike, well you did negative am and as such, you own $370 on a $325k home. Finally strike three, you have nothing in the game in terms of skin (money) or if you want to get into the game now you need a down payment of 20% or so so over $60k.



    Now think about this for a second. You are smart. Even if everything is perfect for you job and downpayment-wise, why would you toss all that into a loser deal? Why would you drop all this money to be upside down on your current home when you could start right-side up and purchase another home, probably better even for cheaper with more conventional loan terms. You do it and then walk away from the previous home, take the hit on your credit score, but you don't live in your credit score. You live in your home.



    Understand that is the best scenario. Most people have no down payment. They cannot afford the new payments. They have no incentive to stay in a flipped home because they have nothing to lose with regard to down payment. All they lose is some points on their credit score and they can make tens of thousands of badly originated debt on terrible terms for them disappear.



    These people aren't just going to walk, they are going to run away from their homes. Some of them will rent. Some of them will buy on much better terms while defaulting on their other terms. However the original loans are bad and their holders will be screwed.



    Quote:

    And while the Fed may "know nothing" as he says, they'll know plenty if there is a TRUE credit crunch. Rates will go down, and more liquidity will be put into the system. Right now, the reality is someone like me...middle income....can get a mortgage no problem. Now I see what you're saying...if the backers of those loans lose confidence and divest en masse, we could have an issue. But somehow I don't see the major banks losing their shirts here. They have very deep pockets.



    This has been the great debate among economic types. You can't solve an insolvency problem with more fed "liquidity" and keep inflation and interest rates low. I could type ten paragraphs explaining it, but you can't. It is akin to having your cake without the calories.



    Quote:

    One other point: You're unlikely to see a 70's style credit market with 20% interest rates and no credit out there to be had. For one, we're not dealing inflation as we were then, so it will be easy enough to slash the Fed Rate to combat the problem. My feeling is the Fed is going to slash 50 basis points come September, perhaps before then if things get worse.



    The fed can slash rates and if they do, people will know they have given up the inflation fight and the actions that go with such expectations will follow. In my view the rate cut is still a fantasy because the fed has not stopped talking at all about inflation. Many like myself believe the inflation measurement is still too low because the fed has taken out too many items they don't like that happen to show... you guessed it, higher inflation.



    Do some reading on securitization. This thing is a house of cards with a firecracker in the middle.



    Nick
  • Reply 72 of 76
    The jobs number has contracted for the first time in 4 years. Credit crunch in action. Dollar lower against the Euro and Gold over $700 an ounce.



    Roger Nightingale of Millennium Asset Management says that the overall global economy is not as strong as many like to think. He says Europe just had a horrible quarter in general and that in the two economies China and India which are growing that they are simply taking away marketshare from North American and European economic parties which he suggests will lead to a global economic meltdown in light of a perceived weaker American consumer. He said 50 basis points is neither here nor there that the US economy in his view has been slowing for between 18 to 24 months and it will take more like 150 basis points to catch up with the lagging response of the Fed. He also said many have no business having their jobs at the fed after their failed management of the rates.



    http://www.consensus-inc.com/biograp...lenniumbio.htm



    Other than my mutual funds I am not in the market (for trading purposes) for the rest of September. I am not quite sure where the bottom will be but I am making a list of things to buy.



    Fellows
  • Reply 73 of 76
    trumptmantrumptman Posts: 16,464member
    03-19-2007, 01:16 AM



    Quote:
    Originally Posted by trumptman View Post


    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



    So...how did I do?



    Buffett, economy in recession



    Quote:

    Billionaire Warren Buffett said Monday that the U.S. economy is essentially in a recession even if it hasn't met the technical definition of one yet.



    Buffett said in an interview with cable network CNBC the reports he gets from the retail businesses his holding company owns show a significant slowdown in purchases.



    The chairman and CEO of Omaha-based Berkshire Hathaway Inc. said millions of people have also lost equity in their homes because home prices have dropped.



    The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation's gross domestic product.



    "I would say, by any commonsense definition, we are in a recession," Buffett said on CNBC.



    I think I did pretty well.
  • Reply 74 of 76
    trumptmantrumptman Posts: 16,464member
    So now how did I really do?



    Nice list of previous recessions there too.
  • Reply 75 of 76
    vineavinea Posts: 5,585member
    Quote:
    Originally Posted by trumptman View Post


    So now how did I really do?



    Nice list of previous recessions there too.



    You did well.
  • Reply 76 of 76
    Quote:
    Originally Posted by vinea View Post


    You did well.



    I feel good about getting completely out when I did in all cash (i totally forgot about this thread)



    Some of my friends are down 40-50% ish.



    No one listened to me and Peter Schiff. \
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