Chuck Ponzi January 18th, 2010
SCREBC has donated all earnings for the past year to relief efforts in Haiti. I recommend you take a serious look at your lives and how you might help others with a little less in yours.
Sphere: Related ContentChuck Ponzi January 13th, 2010
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Chuck Ponzi January 12th, 2010
Andy Xie of Morgan Stanley has written some of the best commentary describing the innerworkings and problems of the Chinese bubble (don’t ask me if there is one, although it sounds like there is, I have not done my homework, as I’m sure Andy has).
Some time ago, he wrote Chinese asset markets have become a giant Ponzi scheme that perked up my ears and got me to thinking.
But, his more recent piece in Caing has me thinking he’s talking about Southern California:
The overwhelming desire for getting rich quick dominates every nook, fissure and strata of Chinese society.
Ok, replace “Chinese” with California, and you’ve got a definite match.
Bubbles exaggerate reality but are not formed out of thin air. Cheap money and strong growth are the usual ingredients for bubble-making.
This is almost exactly what I wrote with “What is a bubble?” several years ago. However, most interestingly is what is happening in China, and happened in California:
China’s property market is creating winners and losers based on timing. All other factors – including education and experience — have been marginalized as the economy rewards speculators. And as more play the game, the speculator ranks rise and fewer people work, perhaps contributing to a labor shortage.
This is exactly what happened during Southern California’s property bubble. Many people got rich simply by being in the right place at the right time. Many of them were incapable of understanding the circumstances of the rise, and so therefore simply did more of the same (buy real estate) without understanding the underlying problem that widespread repetition of that practice would cause a housing shortage (too many people “storing” housing instead of allowing it to be bought). Rents reflected the “real demand”, and appreciated strongly. Meanwhile, properties exploded with enough appreciation in 2 years to account for 30 years of inflation to support the prices.
The most poignant in my mind was a short-sale that Brad (my co-blogger and realtor) and I visited. The original owner was trying to sell from a purchase made in 1996 at more than 300K lower than the short-sale. The “owner” was so destitute that when the pool pump broke and they were unable to replace the $800 unit, the resulting ground shift due to hydrostatic pressure when quickly emptying the pool caused many more thousands in damage to the surrounding concrete. They had been trying to support a 600K+ mortgage with a single income from working at Macy’s. When regular equity withdrawals worked, the Ponzi scheme continued.
In normal times, the ponzi would have never worked, but because of the bubble, it allowed the “owner” to continue to persist in a property many times more expensive than they could support. At the peak of the market, this would have sold for more than $1M, requiring the income of several well-paid professionals, not a single retail salesperson’s income. The world did not make sense in 2006.
This separation of is true of a speculation/investment-centric economy. This is part of the reason why most people make terrible investors; the concept of time is nebulous and fraught with uncertainty. Indeed, I wrote (and bolded) in What is a Bubble? the following:
The most fundamental concept of investing is the concept of timing. The most fundamental flaw in most participants logic is that the asset provides more than just money… everything that costs money is an investment and can be traded again for money, nothing more.
This Southern California phenomenon of irrational belief has been covered extensively in another blogger’s repertoire, Irvine Renter’s Southern California’s Cultural Pathology.
Sphere: Related ContentWe are quickly approaching the Day of Reckoning in our housing market. In my view this will be Armageddon for California debtors: the spending will stop, they will lose their homes and with it their illusion of wealth, and they most definitely will not be enjoying life. The cause of all the weeping and gnashing of teeth will not be some exogenous event, but rather a direct result of the circumstances they themselves created.
Chuck Ponzi January 5th, 2010
Visit msnbc.com for breaking news, world news, and news about the economy
Sphere: Related ContentChuck Ponzi January 5th, 2010
Chris Ripkey of the Bank of Tokyo-Mitsubishi says the Fed will be raising interest rates by June 2010.
I seriously doubt the FED funds rate will be raised anytime this year. The Deflation boogeyman is out to get us, and deleveraging is a bitch. I find it hard to believe, but I’m agreeing with Paul Krugman on many points… not the least of which in his landmark article That 1937 Feeling.
Which makes me wonder. Krugman is hardly even close to a contrary indicator, but has nevertheless been a strong supporter of even more fiscal stimulus as the problem increased in intensity. One cannot fault him for being a flip-flopper. When he takes a point, he sticks with it. Which is why it’s not surprising to see him write this:
As you read the economic news, it will be important to remember, first of all, that blips — occasional good numbers, signifying nothing — are common even when the economy is, in fact, mired in a prolonged slump. In early 2002, for example, initial reports showed the economy growing at a 5.8 percent annual rate. But the unemployment rate kept rising for another year.
And in early 1996 preliminary reports showed the Japanese economy growing at an annual rate of more than 12 percent, leading to triumphant proclamations that “the economy has finally entered a phase of self-propelled recovery.” In fact, Japan was only halfway through its lost decade.
Such blips are often, in part, statistical illusions. But even more important, they’re usually caused by an “inventory bounce.” When the economy slumps, companies typically find themselves with large stocks of unsold goods. To work off their excess inventories, they slash production; once the excess has been disposed of, they raise production again, which shows up as a burst of growth in G.D.P. Unfortunately, growth caused by an inventory bounce is a one-shot affair unless underlying sources of demand, such as consumer spending and long-term investment, pick up.
Which brings us to the still grim fundamentals of the economic situation.
The bigger question is… is this just part of the schtick, or is it a really likely to be that bad.
My gut reaction after absorbing current economic news is that it is. However, it is easy to make 2 types of mistakes in a deep recession:
The first one is that momentum has a lot to do with the physics of the downturn… it will go along until there is sufficient uplift from other economic factors which counteract the downward pressure caused by household deleveraging. At this time, I cannot forsee what that is, but it’s normal to not be able to see the next growth area until it is upon us. Personally, I wouldn’t be surprised to find it being related to energy, alternative or otherwise, since at current oil prices, many alternatives can still be profitable (just not ethanol or solar).
The second one is that growth does not normally come from the area of the last economic bubble… housing will not lead us out of the downturn, and this is where much of the economic commentary is now. Think 2003 when journalists were still covering the tech stock market, while housing was going gangbusters. It wasn’t until we were deeply entrenched in a bubble of absolutely massive proportions that the general focus changed.
At the same time, a grave risk has arisen with respect to another bubble, especially one in gold. Unlike the 2 previous bubbles in stocks, which provided useful (albeit squandered) capital to very useful web-based technology and increased productivity and bubble in housing, which substantially increased and improved our housing stock, gold does little to provide anything of use to our country. You can’t eat it, you can’t live in it, it doesn’t improve productivity, and it certainly doesn’t earn any income; which makes this the worst kind of bubble; an unproductive one. At the end of it, we will only have great piles of shiny yellow metal. Difficult to store, illiquid, and barely wanted. But, that is looking past the peak. In the meantime, we can all feel safe in saying that we will continue to delude ourselves that little blocks of shiny yellow metal makes us safer, or richer, or god forbid happier. Personally, I’d be more interested in ensuring that we have adequate stocks of food, water, and financial reserves, both in households, and in government to prepare us for further downturns. As sure as the famine of 7 years came after the 7 fat years, so too will recessions follow booms; it’s the natural order of things.
This natural order has not been able to take its natural course; the worst banks in lending are still wards of the state. Instead of our chance to build a smart, efficient, and secure banking system, instead, we are perpetuating a bloated, mismanaged, stupid, and short-sighted banking cartel. Eventually, nature will have to be satisfied. As sure as the invisible hand balances the supply and demand, so too will the banking system that never cleansed itself of debt through bankruptcy stagger on, zombified with bad housing bets that the population can never and will never pay for.
Housing, on the other hand is woefully oversupplied, with shadow inventory reaching monumental proportions, with only more stacking up behind it faster than it is depleted. We’ll drag this housing recovery out another 10 or 15 years at this rate.
Sphere: Related ContentChuck Ponzi January 4th, 2010
Can you guess what the new year is going to be like? Chuck’s predictions coming soon.
Chuck Ponzi December 31st, 2009
Any thoughts as to why over the last 1.5 years, 90 day lates have doubled while bank owned halved?
Any conspiracy theories?
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