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	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 29-Dec-2010
29-Dec-10 News -- The real estate market is still crashing

Web Log - December, 2010

29-Dec-10 News -- The real estate market is still crashing

Russians are outraged over international reaction to Khodorkovsky conviction

The real estate market is still crashing

The 1930s Great Depression continues to be replayed, as the hopes and dreams of analysts and politicians that the worst of the financial crisis is over continue to be dashed by new data.

The S&P/Case-Shiller index of property values fell 0.8% from October 2009, the biggest year-over-year decline since December 2009, and substantially more than the 0.2% drop predicted by economists, according to Bloomberg.

According to one analyst, "We’ll remain in negative territory for several more months. The housing market does remain weak and none of the recent data suggest a substantial pickup."

Most analysts agree that the economy will not begin to improve until either the real estate market substantially improves or the unemployment situation substantially improves, but there is no sign of improvement in either of these areas. Furthermore, Generational Dynamics predicts that both of them are still going to worsen substantially.

According to Charles Biderman, CEO of investment research firm TrimTabs Investment Research, Inc., the real estate market is crashing again, and there's no sign of an improvement in unemployment. The stock market is doing well only because money from quantitative easing (QE) is being used to prop up stock prices, and that money is scheduled to end soon.

Here's his interview on Bloomberg tv on Tuesday (my transcription):

"The real estate market is not [healing]. There's seven million homes on which the mortgages are not being paid, that's in addition to the 5 or 6 million homes currently in the foreclosure process, and that's at least a two year supply. So real estate is resuming a downward slide again.

Charles Biderman

On the other hand, the trickle-down effect of the quantitative easing (QE) -- where the Fed is rigging the market, and saying, "Please buy assets - we're going to give you all the money - we'll buy all your bonds - take that money and buy assets" -- is apparently helping a little bit.
We are seeing a pickup in income tax collections, which suggests that more people are working.
On the other hand, some of that increase is probably due to early bonuses. A lot of bonuses were given earlier this year, we hear, because there was the uncertainty of the tax cuts, so bonuses were given this year instead of next year. We're not sure how much that is, if that's the cause of the pickup in [income tax] withholding. ...
There's no money [from individual investors] going into the market. Individuals keep selling. There's a huge shortfall individuals have. ... People are selling stock to pay bills. And that keeps on happening.
Hedge funds have gotten some inflows recently, but not a lot. Pension funds don't have new money to invest. So there's no money going into U.S. equities other than the U.S. government pumpting money in.
So as long as [the Fed] is going to keep rigging the market, they're paying us to be bullish.
[How long can this gon on?] That's a good question. The QE supposed to end in June. ... If the only buyer withdraws his support of the market, where's the money going to come from to keep prices at these very lofty levels? ...
[QE] is the only thing they've done that's worked to help the economy is rig the market. Nothing else they've done has worked to pick up incomes or help the economy. The real estate market is crashing again.
40% of all new jobs from '03 to '08 were as a result of real estate. And real estate has several years overhang, so there's not going to be any new jobs being created in the real estate market. So where's the new jobs gonna come from to employ all the recently unemployed? I don't see where the growth is going to come from."

As I've said many times, what we're seeing is a replay of the 1930s, where analysts and experts kept predicting that prosperity was just around the corner and that things would improve quickly. We've been hearing those things for three years now, and there's never any improvement, and it's for the same reasons as in the 1930s.

What happened is that there was an enormous tech bubble in the late 1990s, and then an enormous real estate bubble and an enormous credit bubble in the 2000s decade. The latter bubbles began bursting in 2007, but since they took over a decade to blow up, they're going to take over a decade to deflate. That's just the way it is.

I've been thinking recently of all the emotional stages I've gone through in the eight years since I started developing Generational Dynamics.

In 2002, I could see that the stock market was in a bubble, and I naļvely thought that all it would take would be an article or two for people to see what was going on and do something about it. I really have to laugh at how childishly naļve I was.

By 2003-2004, I was beginning to get really depressed, because I could see what was coming -- a huge financial crisis and a world war. There were many nights when I couldn't sleep.

By 2006-2007, I was becoming sickened and furious by what was going on. Sometimes I felt like vomiting when I realized how massive the level of fraud and corruption was.

Those were the days when people would question my sanity because I was talking about pervasive fraud being perpetrated by almost every financial and real estate firm in the world. At that time, the analysts were scoffing at the idea of a real estate bubble, and any talk of massive fraud was treated derisively.

At this point, I guess I'd have to say I'm in a state of benumbed shock. Everything I said in 2006-2007 turned out to be true, except that it was much worse than even I said it was. Today no one doubts that there was a real estate bubble, and no one doubts that there was massive fraud.

And today the same people in financial institutions are still defrauding investors in the same way. The only difference, as Biderman points out, is that individual investors are no longer willing to give their money to these crooks, and so the financial institutions have to make their money by taking advantage of the Fed's QE money to rig the stock market and continue to keep the bubble inflated. (See "Updating the 'real value' of the stock market.")

I had to laugh a few days ago when I saw the great Nouriel Roubini in a tv interview where he said the worst was over.

From the point of view of Generational Dynamics, the worst is far from over. The stock market has been overpriced by 150-200% since 1995, and by the Law of Mean Reversion, will have to fall below the Dow 3000 level and stay there for an equivalent length of time, about 15 years. And housing prices are also well above their long-term trend lines, so they also have much farther to fall, as today's Case-Shiller report suggests.

Once again, I have to warn web site readers to take whatever steps you can to protect yourselves. Treasure the time you have left, and use it to prepare yourself, your family, your community and your nation.

Case-Shiller price change table

The following table is from the Bloomberg article referenced above:

     The following table shows the historical price change
according to the S&P/Case-Shiller home price indices. Cities are
ranked by largest monthly gain using non seasonally adjusted
data.
===========================================================
               1-months 3-months  1-year  2-years  3-years
               earlier  earlier  earlier  earlier  earlier
===========================================================
US Composite-20  -1.32%   -2.39%   -0.80%   -8.08%  -24.70%
------------------------------------------------------------
Washington DC    -0.20%   -0.28%    3.65%    1.00%  -17.97%
Las Vegas        -0.21%    0.06%   -3.57%  -29.26%  -51.61%
Denver           -0.57%   -1.65%   -1.79%   -1.90%   -6.98%
Los Angeles      -0.75%   -1.26%    3.34%   -3.21%  -30.24%
Tampa            -0.90%   -2.19%   -3.61%  -18.27%  -34.48%
Miami            -1.11%   -2.60%   -3.39%  -16.95%  -41.06%
Phoenix          -1.11%   -3.93%   -4.28%  -21.61%  -47.21%
Dallas           -1.13%   -3.83%   -3.13%   -3.68%   -6.66%
Charlotte        -1.14%   -2.54%   -4.19%  -10.90%  -14.87%
===========================================================
               1-months 3-months  1-year  2-years  3-years
               earlier  earlier  earlier  earlier  earlier
===========================================================
Boston           -1.23%   -2.82%   -0.23%   -3.03%   -8.85%
Seattle          -1.34%   -2.66%   -4.11%  -16.03%  -24.61%
Portland         -1.48%   -4.16%   -5.15%  -14.59%  -23.20%
San Diego        -1.50%   -3.05%    2.97%    0.55%  -26.28%
Cleveland        -1.52%   -4.76%   -2.64%   -6.03%  -11.83%
New York         -1.61%   -1.99%   -1.67%   -9.58%  -16.56%
San Francisco    -1.91%   -3.07%    2.23%   -0.43%  -31.28%
Minneapolis      -1.91%   -4.35%   -2.80%  -10.79%  -25.18%
Chicago          -1.99%   -3.08%   -6.48%  -15.95%  -25.04%
Detroit          -2.45%   -3.25%   -5.52%  -20.02%  -36.33%
Atlanta          -2.90%   -6.11%   -6.19%  -13.77%  -22.83%
===========================================================

Additional links

Russia's Foreign Ministry is expressing outrage at the international reaction to the conviction of Mikhail Khodorkovsky that we reported yesterday. Journalists and politicians around the world are saying that the conviction was dictated by Vladimir Putin for political reasons. According to the Foreign Ministry, international "attempts to exert pressure on a [Russian] court are unacceptable." Itar-Tass

Turkey's foreign minister accused the Israeli government of not being sincerely interested in resolving current tensions. Relations all but collapsed after the flotilla incident last May, and now tensions are flaring again because of Israel's refusal to apologize for the deaths of 8 Turkish citizens. The ship on which the Turks died only returned to Istanbul on Sunday, and was greated by 10,000 people, who turned the welcome into an anti-Israeli demonstration. Generational Dynamics predicts that Israel and Turkey will be on opposite sides in the clash of civilizations world war. VOA

Egyptian security forces have discovered a large weapons storage facility, with weapons that include explosives and anti-aircraft missiles, in the Sinai desert, meant to be smuggled into the Gaza Strip. Palestinian News Network

(Comments: For reader comments, questions and discussion, see the 29-Dec-10 News -- The real estate market is still crashing thread of the Generational Dynamics forum. Comments may be posted anonymously.) (29-Dec-2010) Permanent Link
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Generational Dynamics Web Log for 29-Dec-2010 29-Dec-10 News -- The real estate market is still crashing

The real estate market is still crashing

Case-Shiller price change table

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Generational Dynamics Web Log for 29-Dec-2010
29-Dec-10 News -- The real estate market is still crashing