I think we'll be hearing a lot of this now, and it's my feeling that it's a sucker's rally. Every single one of those who correctly called the financial crisis are quite clear: it's not over by a long shot. The fundamentals have to return, and to do that we have to pay off debt and start having savings again, which means not spending (i.e. liquidity trap), which means that we'll go through a period of undervaluation, both in terms of assets and labor, before the smoke clears.
There's no happy six month reversal here; just a dead cat bounce. And those who are selling you that it's the end of the depression are those who sold you the whole Ponzi mess in the first place. Shame on them.
I'm afraid you're correct. I wish people would just pick up and read a history book. The Great Depression didn't start overnight. People have this misconception that things just got really sh*tty one day after the stock market crashed. Reality proved to be different. Things got a little better, then a little more worse. Rinsed and repeated until the Dow Jones lost 90% of its peak value. Couple this with a severe drought, the U.S. calling in its WWI loans from Europe, and a couple of other protectionist decisions, and you had yourself a depression.
Wishful thinking got us into this mess. And right now, we may as well view the stock market like a slot machine. It'll pay out a little, drag people in, and then take a lot of their money.
The other problem is that when lots of people start focussing on aggressively paying off their debt in bad times, it actually ends up temporarily hurting the economy. This is precisely what happened before the Great Depression. Why? Because they stop spending the money, and instead give money to big banks which do nothing but hoard it because the banks have lost paper money on the stock market. As the banks look to replenish their stock piles they largely refuse to loan the money out again. In a way, it's like chemo therapy in that the treatment for people's financial ailments might actually be the thing that kills them. But eventually the huge swaths of cash that the banks build up from debt repayments will come back into the market and there'll be a surge in investment activity, but that won't happen until the banks themselves are comfortable on their own feet, which is far from the case right now.
Oh, and here's the source for my pessimism. I've been following this website for a while now. The guy that runs it is a computer hacker to boot! I'm a big fan of his analytical skills and refusal to make predictions, just provide the numbers.
These broken clocks had reasoned arguments to justify their claims, similar to their claims as to where the bottom is. That's different than just being a pessimist.
Also, it's overly optimistic to presume those predicting this recession were just lucky.
Some of the people that called the financial crisis are perpetual bears. That said, many of their reasons for this bear market are sound. The bleeding has slowed a bit but the fundamentals just aren't there. Unemployment is still high, credit is still in a crunch, and banks are still over-leveraged. All that AND we haven't been hearing about the coming Alt-A mortgage flood.
Just because the bubble lasted longer than "perpetual bears" thought it would, does that mean their analysis was wrong? For instance, Andy Beal, the banker Forbes profiled (that was at the top of HN), saw the crazy deals being made in 2004 and got out of the market. If for the last 4-5 years you'd heard him argue that the fundamentals did not justify the credit bubble, would you call him a perpetual bear? The same happened with George Soros in 1997. He recognized that the stock market had become an enormous bubble, and he began shorting it. He lost a huge sum of money because the bubble went on for three more years. Was his analysis incorrect?
No one likes to hear that the party is over, or that things won't go back to the way they were in our lifetimes. During the bubble, people try to marginalize those opinions by calling them "perpetual bears". But we're finding out that they were right. It will probably take years for banks and households to fix the holes in their balance sheets. Even if GDP stops contracting, a "recovery" will likely be so anemic that it will feel like a recession. And job losses will continue to pile up. I'm afraid we haven't hit bottom yet - and maybe aren't even particularly close.
I could not agree more. I am a regular reader of The Economist, and they have been talking about the housing and credit problems for years. This magazine is certainly not one to make wild predictions.
I also find it annoying that article's title was significantly changed from "A faint sound of applause" to "The recession may be lifting". These do not remotely say the same thing, and this article is not saying that the recession is over, unless I am misunderstanding this quote: "Yet even if the bottom in economic activity is in sight, a robust recovery almost certainly is not."
Your reaction to this article makes no sense to me because the author is telling us how we are not leaving the recession any time soon. Your post post seems to imply that the author has something good to say, and I just don't see that at all. Quite simply it says that we have very small good signs, but most of the fundamentals are rubbish.
Some choice quotes:
"Yet even if the bottom in economic activity is in sight, a robust recovery almost certainly is not."
"The National Association of Realtors estimates that up to 45% of existing homes sold were “distressed” properties—those in, or close to, foreclosure." (This whole paragraph is explaining that the unexpected rise in property sales is attributed to homes being sold in distress)
"The tonic of lower interest rates has been dulled by the dysfunctional financial system."
"That is bad news, not good news: banks are lining up to repay the money to free themselves from political interference, even though the loss of capital will constrain their lending. That increases the odds of a multi-year, Japanese-style credit crunch."
I think the pessimists are missing one thing. India and China's economy, while hurt, still have positive GDP growth. While the US might continue to crater, 2.5 billion people are going to have higher standards of living next year, and the year after. That didn't happen in the depression.
That's a good point, and I think India and China will do well through it all. But remember that a lot of demand for manufacturing and production in these countries comes from Europe and North America. So while they won't dip nearly as low as, say, the States, it will still hit even these rising stars.
"Keith Kelley, a Las Vegas estate agent, has an investor interested in offering about $80,000 for a foreclosed, four-unit apartment building which, fully let, could bring in over $25,000 a year in gross rent."
Wow, when reading stuff like, I sometimes wonder if I'm not wasting time putting all my efforts into web apps, etc. Find a few deals like this, hire someone to maintain them, profit.
Of course, I'd probably hate every second of it, but still.
A friend of mine likes to tell the story of him discussing a technology idea with a business-owner friend of his. The reaction of the businesss guy was "you know, I see all these tech guys building these grand online empires that never make them a dime. Meanwhile, Town Hall has a contract out for $100,000/year to vacuum the floors and scrub toilets and no one is bidding on it!" Just something to think about :-)
Most governments (city, county, state, and even national) are required to post all requests for proposals (RFPs) publicly and consider all proposals they receive. As with any business or political process, it helps if you know people.
In addition to the other link posted, all the RFPs (Request for Proposal) are listed at FBO.gov, browsable by type of work, agency, etc.
That said, a lot of it is hard to get into. The list of company requirements for non-special bids is pretty long, and that's BEFORE you get into exclusive work that only 8A, Disabled-Veteran-Owned or Minority-Owned businesses can bid on.
It's harder to get a government contract than it is to get a government job (read Federal Wasteland [http://federalwasteland.blogspot.com/]) for more on that.
If you're really interested, it's probably easiest to find a prime contractor that regularly does business with the government and sub-contract to them.
Of course, I'm speaking of federal contracts, and all my experience is with IT. If you're really wanting to clean floors at your local town hall, it's probably outside the scope of what I know.
That depends. If the building has been so broken-down that it will cost a lot to put it in rentable condition (e.g., people came in and stripped out all the copper wiring while it was foreclosed and abandoned) or if there simply isn't much demand for rental housing in Las Vegas right now, then the investor can still lose money on this deal.
Yes, but the payments on a loan of that size are laughable. $70,000 at today's rates is $375/mo ($4,500 a year) for a 30 year. You could rent it out for a couple of years and pay off the loan free and clear.
Break even is just barely making the payment on the loan. Repaying the loan - a 30 year mortgage - in 3-4 years is not only good, it is astronomically good. Because at the end of three years you have $25K gross/yr, and you own the building. When you own it, you can sell the building and make $75K (or whatever its value then is) in a lump sum.
Ha! I love comments from people who have never been landlords. Key here is even after 3-4 years the building is YOURS. Which means you fix it, you maintain it, and you deal with late/lazy/messy/loud/obnoxious tenants every single day. And when they walk out without paying the rent, how much success do you think you'll have in small claims court recouping your rent? (hint: not much)
Believe me, if it was "that easy" to buy and rent a place ... everyone would be doing it. Do yourself a favor and talk to someone who owns multi-unit buildings first.
Hey, believe me I know its not that easy! I'm no real estate guy but I know you can't repay the loan in 3-4 years. The comment I replied to was deleted, but I was addressing it, which said 'breaking even in 3-4 years is not a good investment,' by saying 'no, paying for the property in 3-4 years would be GREAT.'
What do you mean break even? Take in $80,000 in rent? I'd say buying the building and taking in more money every month in rent than I'm paying on the loan is more than breaking even. And that's day one.
People always say that, but it applies only in an ordinary, garden-variety recession. In the great depression, payrolls started dropping around May of 1930, roughly 8 months after the financial contagion began (where are we now? 7 months after the financial contagion began). Then they kept dropping for about 2 years. Each time someone was laid off, they spent less, which meant some other business took in less revenue, which meant they had to lay off people, who in turn spent less...
It's too soon to tell, but I'd bet this recession is a lot more like the Great Depression than the 91 or 01 recessions, or even the 80-82 and 73-75 recessions. 91 and 01 were fueled by the bursting of economic bubbles in specific sectors of the economy (S&L and tech, respectively). 73-75 was an exogenous supply-side shock (oil crisis), and 80-82 was because of monetary policy (Volcker lifting rates to squeeze out inflation). Both 29-32 and 08-?? came about because the consumer is tapped out - they've taken on more debt than they can possibly service, so there needs to be a period of deflation while those debts are unwound and prices readjust.
As you said, it's too soon to tell. I think a lot of consumers (me included) aren't tapped out - they've been furiously saving money since September or October, and are feeling the urge to spend. Admittedly I live in a government town so we're somewhat sheltered but the lineups I see in stores (which have cut back on staff) are getting pretty long and annoying.
Another link just submitted to HN says that the recession will last for a long time. Somebody is wrong. My bet is that the recession will last longer than indicated by this Economist article, based on other trends that The Economist (a good magazine, which I like a lot and subscribe to) has missed in the last few years.
The problem with trying to pick the bottom of a slide is that you never know until you're many months if not years out of it. It could just be a bear bounce. I certainly wouldn't start proclaiming that people have missed the boat on the value.
Either way, the bottom line is that there's historic value out there today and it just depends on your level of optimism whether America and the civilized world in general (and their economies) will be around for another 100 years.
So unless you're glenn beck, there's cause of optimism.
If you're looking for a long term investment, then I don't think anyone's missed the boat. In the long run, buying in a few months late won't affect you much right now. IMO Apple is pretty much guaranteed to double in value when the economy returns to normal, so if I had a spare $20,000 I wouldn't mind putting it into the company, if they pulled off another iPod effect on their stock then all the better.
I bought AAPL on the way down and am quite happy with my decision so far. I was also curious to see if the S&P 500 would get to where the name was an indication of the value as well as the strategy. I am not as well versed in the DOW (partially because I'm not well versed in trading in general) to know where the world ends, but I suppose if the ship has turned around there will be some really insightful postmortem activity going on and I can't wait.
There's no happy six month reversal here; just a dead cat bounce. And those who are selling you that it's the end of the depression are those who sold you the whole Ponzi mess in the first place. Shame on them.