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  1. #1
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    Default Housing collapse, economic cycles, capitalism

    [youtube="W8ha5FhoChI"]Walter Zimmerman Interview 1[/youtube]

    [youtube="7w3oPl-iKVY"]Walter Zimmerman Interview 2[/youtube]

    [youtube="sG5dKT5GDSc"]Walter Zimmerman Interview 3[/youtube]

    [youtube="IFN_PM2FgxQ"]Walter Zimmerman Interview 4[/youtube]

    Summary:

    Walter Zimmerman runs a business called Icap (vice president) which
    gathers data points for brokerages, houses, banks, etc., and is mainly a consulting/advising firm. He is meeting with some of the richest people in America next week to consult with them, and has been called "the smartest man in America on the economy". He has been warning about the current collapse for years, particularly in the housing market.

    Zimmerman calls the current economic crisis a once in a generation super event within a continuous long economic cycle. In history we see that the economy goes through boom and bust cycles, with depressions coming and going like clockwork, then giant events (depressions) occur once in a generation with a major contraction.

    *This cycle was outlined by a soviet economist under Stalin who described
    capitalism as being like the seasons, ever repeating. This economist studied
    socialism and capitalism, and was actually asked by Stalin which
    is better; capitalism or socialism. He was executed, in part,
    for his answer. He said capitalism was preferable because it
    cycles between great periods of growth and slowdowns. In spring and summer the economy grows, then in autumn it begins to slow down, until it hits winter when everything stops. The bigger the boon, the bigger the bust. He said it was a better system because the "winter"(recession/depression) resets the system, but socialism never resets. Socialism attempts to keep propping up its grievances until it hits a cataclysmic collapse where
    nothing is left. I know ptgatsby has been talking about
    economic cycles like this for quite some time time.



    The credit bubble has been collapsing, creating a deflationary contraction.
    The bubble burst, because easy money drove commodities, real estate, and equities to unsustainable levels. People then needed to raise cash and pay
    off debts leading to a collapse in equity prices, the stock
    market, real estate, and commodities. He defines a recession as being
    a correction in either real estate, stock market, or commodities, but
    not all 3. The combination of all 3 is what makes it greater (a depression).
    The credit bubble that burst was the greatest in the history of
    mankind. Massive leveraging at the top became unsupportable, with people not being able to deleverage fast enough.

    The S&P500 wont get below the 625~585 level this year. He expects a bare
    market correction, hitting a bottom by spring with a rebound into the end
    of the year. Then the longer term downward trend will resume, with
    the S&P going into the 330~350 area over the coming years.
    He thinks unemployment will go up to 15~20% at the bottom. Tax
    revenues for states are going to plummet. Cash is good during
    deflation, opposite of its value during inflation. Housing prices will worsen.

    He says to have cash freed up because there will be major buying
    opportunities when the economy hits bottom. He gives some investment advice, 401K's included. According to him, deflation will go on for a couple more years before we see any serious inflation. He says that in these cycles inflation is rampant but hyperinflation is rare, though we have seen it
    with Argentina, Zimbabwe, and Wymar in Germany. Long term, gold
    could be in the $2,000 range.

    One of the main aspects to this recession/depression, in his view, is the force of deflation bringing things back down to affordable levels, sustainable, REAL levels. The basis for a sustained recovery will in itself be in prices becoming cheap enough for them to really become affordable and in people rebuilding their savings.


    Related to this interview is another aspect to the economic collapse (also mentioned in the interview above). Housing prices. Our housing bubble has been the largest in the history of this country. In 2006 Home values peaked at over $200,000. That is nearly $80,000 above the 70's and 90's boom/peak, roughly $80,00 above ANY of the previous peaks. Now, average prices have fallen below $160,000. That is still well above the previous peaks, well above the mean value (around $100,000), and miles away from the levels of the great depression. Housing prices have to fall, but the government is trying to prop them up. This wont, and cannot last.




    [youtube="bRK_YEXzrGA"]Home Values Chart[/youtube]

  2. #2
    Minister of Propagandhi ajblaise's Avatar
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    Too... much.. Glenn Beck.....


  3. #3
    Senior Member Feops's Avatar
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    Very interesting audio clips, thanks for sharing.

    It's nice to hear someone talk through the entire cycle, the logic behind what's going on, what the government is trying to do, what the people are trying to do, and likely outcomes. Much better than politicians verbally flailing about.

    I'm not sure I see quite eye-to-eye on the severity of things, but that might be a result of my perspective north of your border. The basic concept seems quite solid - the markets are basically puking after a credit bender. Everyone's gotta sober up for a bit and lay off the loan sauce. Yes the hangover is going to hurt a bit. Put down that bottle. I'm talking to you, mister stimulus. People are going to prefer saving cash, so prices will go down, until prices go down enough and people's savings stabilize enough to have confidence in buying again.

  4. #4
    Senior Member Lateralus's Avatar
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    Yep, housing prices are still way too high. Adjusted for inflation, the median home value is still roughly 60% higher than its historical value. The economy cannot support that price level.
    "We grow up thinking that beliefs are something to be proud of, but they're really nothing but opinions one refuses to reconsider. Beliefs are easy. The stronger your beliefs are, the less open you are to growth and wisdom, because "strength of belief" is only the intensity with which you resist questioning yourself. As soon as you are proud of a belief, as soon as you think it adds something to who you are, then you've made it a part of your ego."

  5. #5
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by Lateralus View Post
    Yep, housing prices are still way too high. Adjusted for inflation, the median home value is still roughly 60% higher than its historical value. The economy cannot support that price level.
    Well, it could support it - it just doesn't make any sense to. And hopefully the rational market will come back.

    It's not as far away as stated though, as it should revert to inflation adjusted prices;

    http://mysite.verizon.net/vzeqrguz/h...ted_states.png

    Although it is likely to overshoot, the median house price should drop ~10% now to be in line. Of course regionally... yah. There are some places that have a long ways to go. And of course, other issues might make it go the way of Japan;

    http://upload.wikimedia.org/wikipedi...es20050615.jpg

  6. #6
    Senior Member Lateralus's Avatar
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    Quote Originally Posted by ptgatsby View Post
    Well, it could support it - it just doesn't make any sense to. And hopefully the rational market will come back.

    It's not as far away as stated though, as it should revert to inflation adjusted prices;

    http://mysite.verizon.net/vzeqrguz/h...ted_states.png

    Although it is likely to overshoot, the median house price should drop ~10% now to be in line. Of course regionally... yah. There are some places that have a long ways to go. And of course, other issues might make it go the way of Japan;

    http://upload.wikimedia.org/wikipedi...es20050615.jpg
    I don't know where that data comes from. It looks like it may be average home prices, since those numbers are higher than any median values I've seen for the 70s and 80s. Regardless, according to your graph, homes are still overvalued by 50%.

    My opinion is based on data I had access to when I was a commercial real estate appraiser. Historically, the economy supports ~$100,000 median home value, adjusted for inflation. This is going all the way back to 1890. There have been variations. During the Great Depression, median home values dropped to as low as $60,000, but returned to their previous $100,000 baseline value in the 50s. That level was consistent until the 80s, when the median value jumped up to ~$110,000. Then in the mid/late 90s the latest real estate bubble began. Values peaked at more than $220,000 in 2005. That's a 120% increase over the baseline.
    "We grow up thinking that beliefs are something to be proud of, but they're really nothing but opinions one refuses to reconsider. Beliefs are easy. The stronger your beliefs are, the less open you are to growth and wisdom, because "strength of belief" is only the intensity with which you resist questioning yourself. As soon as you are proud of a belief, as soon as you think it adds something to who you are, then you've made it a part of your ego."

  7. #7
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by Lateralus View Post
    I don't know where that data comes from. It looks like it may be average home prices, since those numbers are higher than any median values I've seen for the 70s and 80s. Regardless, according to your graph, homes are still overvalued by 50%.
    Case shiller index. Raw data and methodology available here.

    For it to be 50% overvalued, you have to assume your benchmark of 100,000, which the index clearly shows is not accurate - in today's dollars, it should be about 150,000 (assuming bottom line average growth), and likely higher if you consider average pricing.

  8. #8
    Senior Member miked277's Avatar
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    very good stuff, thanks for the post.
    I'm feeling rough, I'm feeling raw, I'm in the prime of my life.

  9. #9
    Senior Member Lateralus's Avatar
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    Quote Originally Posted by ptgatsby View Post
    Case shiller index. Raw data and methodology available here.

    For it to be 50% overvalued, you have to assume your benchmark of 100,000, which the index clearly shows is not accurate - in today's dollars, it should be about 150,000 (assuming bottom line average growth), and likely higher if you consider average pricing.
    Nope, I assumed a baseline of $125,000. Your graph has home prices still over $180,000. 180-125/125.
    "We grow up thinking that beliefs are something to be proud of, but they're really nothing but opinions one refuses to reconsider. Beliefs are easy. The stronger your beliefs are, the less open you are to growth and wisdom, because "strength of belief" is only the intensity with which you resist questioning yourself. As soon as you are proud of a belief, as soon as you think it adds something to who you are, then you've made it a part of your ego."

  10. #10
    Senior Member ptgatsby's Avatar
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    Quote Originally Posted by Lateralus View Post
    Nope, I assumed a baseline of $125,000. Your graph has home prices still over $180,000. 180-125/125.
    Ah... you expect it to return to 1975 levels? And stay there?

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