Wednesday, January 2, 2008


A sparkling winter beach day (yes, we have Winter here, only it looks like this!), and a new year that I'm looking forward to.

Ok, there is that "R word", that so many act as if would be the end of the world. Here's one of Calculated Risk's graphs with past recessions illustrated with gray bars (just for the bars, not the graph).

I see it more as a natural cycle. Like night is part of a day and winter is part of a year, recession is part of a business cycle. (How do you feel staying up all night?) It's coming, if not already here, reinforced by some good new commentaries in addition to Saturday's Market Ticker I previously linked.

Nouriel Roubini summarizes it today,
The combination of the worst housing recession ever getting worse, a severe liquidity and credit crunch being worse now than in August, oil close to $100, capex spending by the corporate sector falling for four months nows, commercial real estate being in serious trouble, the labor market beginning its slack (as initial claims and continuing claims are surging), and a shopped-out, saving-less and debt-burdened consumer having stopped its shopping spree this holiday season will all lead to a severe - rather than mild - recession in 2008.
Paul B. Farrell notes,
America's high-on-the-hog, deficits-don't-matter lifestyle is unsustainable. Wall Street knew this would happen, but was in total denial, self-absorbed in its greed-is-good world milking the subprime-credit bubble.
James Howard Kunstler 12/31/07 vivid as usual, includes,
The housing market is in a death spiral. Eventually, the median price of a house will have to fall back to the median income, and it has a very long way to go, perhaps 50 percent. Until that happens, houses will be generally unsellable. At the same time, of course, an anxious finance sector will be offering fewer mortgages and on much more rigorous terms, so there will be far fewer qualified buyers even for distress sales. And the median income itself may soon not be what it has been.
Charles Hugh Smith's "Brain-Dead Predictions about Housing" begins with,
1. Housing prices will fall farther and longer than every guess being bandied about in the mainstream and financial media.

2. The housing market won't turn around in 2008--or 2009, 2010, 2011, either.
And see Mish, especially, "How Does One Invest For 'Muddle Through'?" and "Things That 'Can't' Happen", and Calculated Risk's "NY Times Article in Pictures" summary today.

Ok, so I read a lot of bear-ish commentators. But the bears' recent track records have called the underlying issues and direction, if not the precise timing, while the bulls have been left looking rediculous. (Remember the "soft landing" predicted by the NAR a year ago? Now they're just calling the bottom every month.)

Yet I'm optimistic. Let's get on with it, and move toward a more balanced economy after we get past the accumulated trash of the bubble, like when prices returning to a level real people could afford in the earlier 1990s.

So what do we do here on Westside Bubble in 2008? Enjoy our ringside seat of history in the making. I and other bloggers (especially Santa Monica Distress Monitor and Dr. Housing Bubble will keep documenting how it plays out, with highlights of Westside properties that you probably wouldn't want to buy at current prices.


Anonymous said...

Slightly off-topic, but I've seen people referencing the crazy housing market in London several times on this board and I thought this article was interesting.

dlp said...

2 pts - I just read that 19% of England's GDP is based on the financial industry (the city.) SCARY! (See "Cityphilia" in London Review of Books)

Also, Westside, at least nighttime is a great time for parties and if you like to ski or ice skate, winter can be a joy.

But its hard to find much fun when inflation is on the uptick and the rest of the economy is in a slide.