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Generational Dynamics Web Log for 7-Jun-2010
7-Jun-10 News -- Globally, May was a month of ominous events

Web Log - June, 2010

7-Jun-10 News -- Globally, May was a month of ominous events

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Home sales in May apparently fell sharply as home buyer tax credit ended

When surging April new home sales were announced three weeks ago, they were hailed as evidence that the worst was over for the economy. Sales of single-family homes rose 14.8% in April, compared with March, and up a giant 47.8%, compared to April of last year, according to the Washington Post

The news stories pointed out that the surge in sales was undoubtedly a result of the imminent expiration of the federal government's home buyer tax credit. A credit of up to $8,000 was available to home buyers who entered into a contract by April 30.

The news stories said that the figures for May would undoubtedly be lower than for April, but they hoped that they wouldn't be much lower, and they expected the fall to have little effect on the economy. The article quotes one economist as saying, "Overall, this surge in sales may give the economy a short-term boost, not least as households furnish their new homes. But it will be only a matter of months before a double-dip in the housing market starts to act as a modest drag on economic activity."

So we'll have only a "modest drag" on the economy in a few months, according to this economist, expressing the usual Pollyannaish view of such things.

Preliminary figures for May are now available, and they're much worse than expected, according to an analysis by the Wall Street Journal:

"The withdrawal of federal tax credits for home buyers led to a steeper-than-expected plunge in May home sales in much of the U.S., as the housing market struggles to wean itself from government support.

Economists and real estate analysts expected home sales to slow after the tax credit, of as much as $8,000, expired at the end of April. But early data from real estate brokers indicate that the sales decline has been far more substantial than expected, with some markets showing declines of 25% to 30%.

"Anybody who wanted to buy a house probably did" before the tax credit deadline, said Jay Brinkmann, chief economist of the Mortgage Bankers Association, a trade group.

Housing analysts say that the May slump is ominous but that it's too early to tell whether it portends another serious downward lurch in a market that has generally been leveling off over the past year. ...

Despite the recent drop in mortgage rates to less than 5%, applications for home-purchase mortgages in late May were down nearly 40% from a month before and have fallen to their lowest level in 13 years, according to the mortgage bankers. Though interest rates are low, many potential buyers still can't get credit because lending standards have tightened."

Meanwhile the rate of foreclosures has not leveled off, but continues to grow. As I wrote in December in "'Shadow inventory' of unsold homes continues to grow," the growing shadow inventory must one day trigger a panic that will substantially lower housing prices.

A detailed analysis by Bloomberg of the Manhattan market shows just how dangerous the situation is. According to the article, there are 8,700 new condos sitting empty in Manhattan, with 75% not even listed for sale yet. Those are staggering figures. The article says that the developers who built these condos are expected to run out of money in the second half of 2010 and early 2011, which means that unless they can start selling them pretty quickly, there are soon going to be a lot of bankruptcies and fire sales.

One way to gauge the strength of a real estate market is to look at the ratio of rental prices to purchase prices. In Manhattan, a buyer often has the choice of buying an apartment or renting a similar apartment.

In the years 1991-97, before the international real estate bubble took off, the ratio was 8.1, meaning that the purchase price was about equal to 8.1 times the annual rental price.

However, things changed in 1998, when the real estate bubble began to gain leverage, and purchase prices went into bubble levels. Today, the multiple has gone up to 19 -- meaning that the purchase prices being asked today are 19 times the annual rental price.

This would indicate that Manhattan condos are still overpriced by a factor of about 2.5, which means that the prices can be expected to fall to levels 60% lower than they are today.

This appears to be a shocking figure, but frankly, with 8,700 NEW condos sitting empty in Manhattan today, and any additional shadow inventory from foreclosures of EXISTING homes and condos, it really would not be surprising.

Different cities and states have different housing characteristics, and so the 60% figure may be unique to Manhattan. In other regions the losses may be smaller, but as I've said before, my own estimates are that housing prices have already fallen to where they were in the early 2000s decade, and they can be expected to fall further to the 1990 levels.

Even as bad news as this is, none of it takes account of the fact that the huge Boomer generation is retiring. A December, 2008, research paper entitled Aging Baby Boomers and the Generational Housing Bubble: Foresight and Mitigation of an Epic Transition the collapse of the "small short-term housing bubble" that we've been seeing will be made worse by the collapse of the "generational housing bubble," as elderly people in the huge Boomer class sell their homes.

A month of ominous events

It's hard to get past the feeling that something major has changed in the last month.

New home sales fell sharply in May, as described above, portending a fall in housing prices.

The jobs report for May was much worse than analysts expected, as we described two days ago.

The European bond markets reached crisis levels, forcing a $1 trillion bailout on May 10, and bond markets are now once again approaching crisis levels, as if the bailout hadn't occurred.

The stock market fell from Dow 11205 on April 26 to 9931 on Friday.

The U.S. National Debt topped $13 trillion dollars for the first time in history, reflecting a surge in government spending. CBS News.

National debt, 2007-present (Source: CBS News)

Relations between North and South Korea and between Israel and Turkey deteriorated rapidly, and there's a real possibility of war in either region.

From the point of view of Generational Dynamics, it's possible that all these events are related through generational attitudes.

As we go deeper and deeper into a generational Crisis era, and more and more nihilistic Generation-Xers are in charge, led by incompetent Boomers, people in general become angrier and angrier, less willing to compromise, more willing to argue and confront and defraud.

The relationship between the financial stories is most obvious. The world is in a deflationary spiral, meaning that there's less money in the world every day and there's less money for individual people. As people become poorer, they becoming angrier and more desperate. They tend to blame other people, as in the situation in the Koreas and the Mideast. This is how a generational crisis war gets launched.

But it has a "feel" of being more than that. I mentioned last week that I was surprised by how quickly, within a matter of a few days, relations between Israel and Turkey seemed to collapse. But now that I think about it, all of the events listed above have shown extremely rapid deterioration, all in the supposedly lusty month of May.

Recall that after the Lehman Brothers bank collapse in September, 2008, world trade and transportation almost came to a complete standstill. It began to recover in 2009, thanks to massive stimulus and bailout packages in America, Europe and China.

The effects of those stimulus and bailout programs are now running out, and the generational effects are re-asserting themselves again.

In fact, it's even possible that some sort of major generational change in attitudes has occurred around the world. These new changes may be taking the form of a more assertive, much more confrontational world all around. The next few months should reveal more.

From the point of view of Generational Dynamics, all of the above events are consistent with predicted trends, as we head for a major financial crisis and the Clash of Civilizations world war.

A catastrophe of 'biblical proportions'

It's really sinking in what an enormous catastrophe the Gulf of Mexico oil spill is.

Here's an excerpt from an opinion piece by self-defined progressive Rob Kall:

"By August, if the estimates of gusher flow are correct, at 50,000 to 120,000 barrels a day, the damage to the gulf and beyond, caused by the oil and by the-- by then millions of gallons of toxic dispersant-- will still be just starting. There's some speculation that even rain from gulf waters could make America's farm fields toxic. And, there's speculation that oil slicks will decrease evaporation and dramatically decrease rain, creating a drought. BY August, who know how far up the east coast the red crude-- sea of blood of biblical proportions-- will extend-- perhaps even, via the gulf stream, to the United Kingdom."

I'm going to assume, perhaps Pollyannaishly, that Kall's scenario is over the top, and it won't be that bad.

He refers to a "sea of blood of biblical proportions.' And indeed, it's such a huge disaster, that it actually seems like something out of the Old Testament. I'm not a religious person, but if I were, then I'd be wondering how the people of the U.S. had sinned so much that God had decided to inflict this disaster on the country. If I were a religious person, and given my view of what's happened in the past couple of years, I would probably wonder if God was punishing America for praying to a false god -- someone who claimed that Katrina wouldn't have been so bad if he had been President, and someone who then claimed that he would heal the earth when he became President. This would truly be Old Testament revenge against someone who is now reduced to helplessness, with nothing to do except complain about how BP shouldn't pay too much in dividends, as if that had anything to do with the catastrophe.

From the point of view of Generational Dynamics, disasters like the oil spill or the 1930s dust bowl occur at various times. Whether they're inconveniences or utter disasters depends on how people react, and that depends on the generational era.

Would the oil spill still be a catastrophe during an Awakening era, such as America in the 1960s and 1970s?

Well, there would be a much better quality of leadership, among Presidents (Kennedy, Johnson, Nixon, Ford, Carter) who had survived much worse horrors in World War II. There would have been a hell of a lot less political bickering, and a much more unified desire to solve the problem. Also, there would be a hell of a lot more money available, to send to the people of Florida and Louisiana to help them get their lives together, including starting new businesses to replace their lost fishing-related businesses, money that's not available now in a Crisis era financial crisis. When you're a survivor of a genocidal crisis war, with tens of millions of deaths and mass starvation, disease and slaughter, then later catastrophes seem smaller by comparison, and problems are seemingly easier to solve.

More on Generational Dynamics predictions

Last week, I posted an article titled "The rise of left-wing violence around the world." This led to a discussion in the comments section of the forum for this article, in which I was accused of bias, and it turned into something of a flame war. However, it appears to have ended well.

The discussion gave me an opportunity to repeat some things I haven't said in a while, and they're worth repeating here.

When I say that I'm not here to promote a personal ideology, I really mean it.

The predictions and analyses that I post are mathematically derived from the Generational Dynamics theory and methodology that I've developed. I've posted many things that I find hard to believe, or that are counter-intuitive, or that seem completely wrong, or that I hate, or that keep me awake at night, but I post them anyway.

My educational background is as an undergraduate and grad student at MIT, studying mathematics, specializing in Mathematical Logic. I spent six years studying mathematical logic, and I passed the course and exam requirements for a Ph.D., but didn't complete my thesis. Thus, I sometimes claim to have an "all but thesis" degree for a Ph.D. in Mathematical Logic at MIT.

I mention this now, because it's relevant to the point I want to make. Generational Dynamics is essentially a mathematical model for how the world works. The predictions and analyses that I post are derived from that model. Based on my education, I am perfectly capable and qualified to separate out mathematical conclusions from my own hopes, desires, dreams, wishes, and beliefs. It's like saying that 2+2=4, irrespective of your ideology.

I know that a lot of people don't believe this, but the "List of major Generational Dynamics predictions" is nothing short of breathtaking, a breakthrough of major historical proportions. Speaking as a mathematician and historian, before I became aware of generational theory, I would not have believed that such a list was possible. Today I know that there's no web site in the world with the predictive success of this web site, because I know, as a mathematical conclusion, that no world model could be more accurate than the Generational Dynamics model.

One of the issues that people have raised has to do with the time frames for predictions to come true.

So it's worth pointing out that there are some "negative predictions" -- predictions that something won't happen -- that are less susceptible to this problem. In fact, it's the negative predictions that have really convinced me personally that this stuff was working.

The predictions for the Awakening era countries -- Lebanon, Iraq, Iran and Thailand -- have been negative predictions, usually predicting that there won't be a civil war, or that once started, a civil war will fizzle quickly. Particularly in Lebanon and Iraq, and to a lesser extent in Thailand, the world's analysts and journalists were absolutely certain that there would be a full scale civil war, and there wasn't. These negative predictions turned out to be very convincing.

The case of Sri Lanka was both positive and negative predictions. It was clear that the Sri Lanka civil war was climaxing, and I was able to predict that it was coming to an end with an explosive climax. But I was also able to predict that there would NOT be further violence after the climax, just as there was no further violence after the fall of Berlin. Everyone else in the world was predicting that the 30-year long civil war would continue for many years, but indeed all violence stopped after the Tamil Tigers were defeated. I was actually very nervous about making the "no further violence" prediction, and I've always felt that the sudden and immediate end of violence was almost an "eerie silence." But there it is.

That leaves the "big ones," the predictions of major financial crisis and world war, and related predictions. What I'm afraid of is that all of these will come true almost simultaneously through a domino effect. When that happens, I guess that it will really prove that Generational Dynamics predictions are valid, but I don't know how many of us, including me, will be around long to see it.

Over the years, many people have assured me that I'm completely wrong. I tell those people to be careful, because they're not disagreeing with me. They're disagreeing with a mathematical model that has proven correct over and over again for many years now. Occasionally when someone tells me that I'm completely wrong, I give a very simple answer, that I'll repeat now:

I hope you're right.

Additional links

On Sunday in Normandy, France, veterans and politicians commemorated the 66th anniversary of the D-Day landings. Some 215,000 Allied soldiers, and roughly as many Germans, were killed or wounded. Associated Press

This year's World Cup soccer championships will be held in South Africa starting Friday, but it appears that Africa itself will suffer a major humiliation, in that no African nation is expected to come even close to winning. They have the talent, but corruption by their government officials ruins their chances. For example, when an African team does well and wins large bonus payments, government officials pocket the money, and the players don't see a cent. NY Times

The loony left in South Korea are making up fantastic tales to explain how North Korea didn't sink the warship Cheonan, some even accusing the South Korea government of causing the explosion to gain an election advantage. Asia Times

Belgium is really two countries in one: 6 million Dutch speakers in the flat, northern lands of Flanders (the Flemish), and 4 million French speakers in the southern region of Wallonia (the Walloons). The relationship has always been difficult, but polls show a sharp change in attitude among the Flemish, who are now seeking independence. Global Post

(Comments: For reader comments, questions and discussion, see the 7-Jun-10 News -- Globally, May was a month of ominous events thread of the Generational Dynamics forum. Comments may be posted anonymously.) (7-Jun-2010) Permanent Link
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Generational Dynamics Web Log for 7-Jun-2010 7-Jun-10 News -- Globally, May was a month of ominous events

Home sales in May apparently fell sharply as home buyer tax credit ended

A month of ominous events

A catastrophe of 'biblical proportions'

More on Generational Dynamics predictions

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Generational Dynamics Web Log for 7-Jun-2010
7-Jun-10 News -- Globally, May was a month of ominous events