Friday, December 24, 2010

Eating Fair Traded, Shade Grown, Free-range, Crow

One unfortunate feature of being an economic gadfly is the the field of economics is fraught with prediction, most of it coming from the third bend in an economist's colon.  At the Institute For Economic Reality, the convocation of macro-economic realists strives not to source its predictions in the same manner.  Even so, reality often intrudes in the most obsene fashion for those of us trying to politely cajole the mildly curious out of the dark arts of economic superstition and down the marble colonnade to economic reality.  Even the IER's predictions did not take into account the serialized criminal actions by the financial elites in this country to prevent the collapse of the debt-fueled consumption binge of the last 20 years.

That's a fancy way of saying that we didn't think the FED and US Treasury would resort to freebasing several trillion dollars worth of economic crystal methamphetamine to keep the party going. 

The IER's predictions of an 80% (minimum) peak to trough decline in sexy, bicoastal residential real estate by the end of 2010 is a bust.

Yes, the IER was wrong.  You heard it here, first.  The homes of the vainglorious twits (the ones that drone on endlessly about how valuable their homes are and how they are special and immune from the macro economic forces that subjugate the rest of us) only collapsed 30-40%, which is 80% lower than where said twits thought they would be.

As one of my favorite hockey players, Grant Marshall, would say when the Dallas Stars would lose a hockey game, "They didn't beat us; we just ran out of time."  He was implying that the Stars were better, but didn't get enough time to demonstrate it.

The same is at work here.  2010 has come and gone, but the game isn't over.  The only part of "20 cents on the dollar by 2010" that isn't true is the time element.  Make no mistake - we are going to 20 cents as soon as the FED runs out of ammo, and they are running out of ammo.

There is no better time to gun the financial markets higher than in the low volume trading days surrounding Christmas.  Even with this, the debt markets are getting crushed, and equities aren't exactly rebounding like they should.  With the FED now holding in excess of a cool trillion in US debt, they are very, very sensitive to the value of that debt.  Some students of this phenomenon have predicted that the FEDERAL RESERVE is going to be frozen solid if the 10 year US Treasury hits 4.5%.  Absent some flood of money hitting the debt auctions over the next few months, we should be there by Spring 2011.

How would you like to sell a home in a market that doesn't have loans available at any price?  If the FED freezes up, we get to find out.

Just as any tweaker knows, once you start meth, you have to keep on it to get the same high, while at the same time, your brain's ability to manufacture its own "happy drug" is essentially detroyed.  That's the situation with the Treasury and the FED.  13% of GDP is borrowed money, and that gets us a 2% growth rate.  Think about that and what happens when the government can no longer borrow 40% of what it spends.

The economy is just reacting to government spending, rather than to a genuinely expanding manufacturing base.  The deficit spending is killing off the private economy because the risk/reward is distorted.

So, for the record, and so everyone on "Rain City Guide" and the detractors on "Seattle Bubble" can rub my face in it, "20 cents on the dollar by 2010" is dead. 

Recipies for crow are being accepted.  In the interest of the sensitivities of those living on the southern 7 miles of SR-305, the crows must be fair traded, shade grown, and free range.


Anonymous said...

Keep the faith. The more that they push off the day of reckoning, the greater the fun when it finally occurs.

Anonymous said...

It was fun to see you on the Ticker Forum. Just think, little ol' Bainbridge Island represented on such a worldwide furum. Way to go!

Eleua said...

I'm not only keeping the faith, I'm hosting a 'big tent' revival.

This is by no means over.

Meg said...
This comment has been removed by the author.
Anonymous said...

"Time, time, time, it's on my side, yes it is"

We'll get there, but it may be 2014. Those who understand the foundations are always early, rarely wrong.

Eleua said...

Sometimes I wonder just how many more trillion dollar rabbits they have in their hats.

Look at the action in the bond market the past two weeks. It has been a horror show, but the bond market doesn't make headlines until it is too late. The lumpeninvestoriat doesn't track the bond market, only the stock market. With the drubbing the bond market has taken recently, the equity market should look like November 1999, but it is just hanging there with no real conviction.

Money is flowing out of the markets because money/credit is being destroyed in the private economy faster than the .gov and FED can artificially create it.

Today's action in the 5yr was horrific, and that was with the FED's wholesalers (the Primary Dealers) being forced to eat almost 60% of the offering, up from 40% just a couple of months ago. This tells you there is a rapidly declining appetite for .gov debt at these rates, which means that if things don't change STAT!, we are looking at further bond market destruction, and rapidly rising yields.

Goodbye Bainbridgeislanddreamhomes.

This is the time of year for low volumes, which means it is the time for the market being gunned higher on relatively little money. It is not happening. I am wondering if they even can do it now, or if THIS IS the market being gunned "higher."

Mr Market is a world classed jerk. He typically reverses when he does the most damage. Some of the debt zombies out there are hitting ChinaMart with the plastic, because their 401K has been stable for a few quarters. Yeah, pull the other one.

When? I'm out of that business. I can tell you for certainty "what" but the "when" is a function of a nation of "rational" adults still believing in the financial version of Santa Claus.

As soon as wealth not equating to the difference between production and consumption, I'll buy into the fantasy. Until then, as long as debt keeps driving northward, the outcome is certain. The only variable is how spectacular the reentry will be.

Stay solvent,
Ernst Stavro Bloviator

Matthew said...


It is starting to look more and more like there will be no QE3. Could we see the FED finally exiting the debt markets and rates starting to rise in June? I think your predictions were just a tad early but I think a rise in the 10 year will finally be the nail in the coffin of the housing market.

ARDELL said...

E! Didn't know this post was here. Just saw a reference to it on Seattle Bubble.

Well at least you now know why "I don't give a rat's ass about Banks." LOL! Just when you think they're dying, someone runs in with a blood transfusion and a heart transplant. OR someone farms all their organs and they continue to live under an assumed identity. :)

You can always pull a Kary and say you meant twenty cents OFF the dollar instead of twenty cents ON the dollar.

If it makes you feel any better I may pull off a twenty cents on the dollar shortly. It's a long shot, but I'll come back if it closes so you can start eating some decent food.

Love ya! Keep on keeping on.


I do not know if If I would like to eat that stuff.