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« Talking down to the audience | Main | The Mayor on protest petitions »

Mar 14, 2008

Comments

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mick

This guys obviuosly smarter than me but Im callin BS anyway.

Ed Cone

On which part of the long, detailed argument are you calling BS?

I don't think one has to accept every facet to see that there's substance there.

Obviously I agree with the core argument that the system now makes bubbles more frequent and more likely, having said the same thing (far less well) six months ago: "The similarities between the current meltdown and the Internet bubble that preceded it -- by a very short time in historical terms -- make yet another round of market mayhem in the not-too-distant future seem almost inevitable."

Jon

That's a fascinating read, Ed.

Taking the author's assumptions, I wonder if a reason for the frequency of bubbles now could be the vastly greater base of investors. About a decade ago a milestone was reached wherein a majority of Americans also owned stock. I don't know what the proportion is at present, but I expect it's higher now. (The milestone was itself a repudiation of a key assumption in Marxism, with a majority being essentially the owners of capital.)

Along with the conflicting government signals, with so many investors interpreting them along with market signals, could not greater variances occur?

mick

38% decline in housing prices.

Ed Cone

Housing may be different in meaningful ways from other bubble assets, making his historical numbers less relevant. We'll see. Housing markets are localized -- until this disaster, people argued that discussing a single national market was meaningless -- so obviously we're dealing with something unlike a stock index.

In at least some places, though, his numbers seem to be well within the realm of possibility. LAT: Southern California home prices are now 19% below their peak last year, and the surprisingly rapid decline is leading experts to predict that the housing slump will be worse than initially thought...Los Angeles economist Christopher Thornberg projects that home values will sink 40% from their peaks reached last year.

And remember, the housing bubble was not just about housing prices (ask Bear Stearns).

In any case, I don't think the argument behind the article rises or falls on the specific accuracy of that number. What if he's way off, and it's only $8 trillion?

Mick

I dont like it when the possible worst case scenario (ie Cali or southern Fla) numbers are touted as "The Numbers". Makes things appear worse than they actually are (barely possible at this point). That is part of the the equally inaccurate argument that the press is talking us into a recession.

Ed Cone

This isn't about cringing at the worst-possible-case, Mick. Janszen is using historical data to make a projection. The current numbers from SoCal (hardly an insubstantial market) are real, and the projections are based on the latest data. So it's not like people are just shouting "fire!" and running scared.

In any case, dwelling on projections and trying to politicize them obscures the main point: our economy seems to be structurally inclined toward the bubble/bust cycle, and that's not healthy.

mick

To a certain extent, agreed on many of your points. This, however, does not exclude my elbow pointing BS call on the 38% figure. BTW: He doesnt say 38% decline in SoCal or Fla or "in hardest hit markets" or even more generic "some areas".

Whatever the case we shall all see over the next 2-3 years.

Ed Cone

Nor does he say, "here's a number I pulled out of my hat." He says "Because all asset hyperinflations revert to the mean, we can expect housing prices to decline roughly 38 percent from their peak as they return to something closer to the historical rate of monetary inflation."

In other words, a projection ("expect") based on historical data. Housing may be different in some ways, maybe the decline will be 25%...it doesn't change the point of the article.

And of course "housing prices" is a vague measure -- it was on the way up, too. He doesn't mean that housing prices in lessly bubbly markets like, say, Greensboro will do down 38%, but that they will revert to the mean.

jimcaserta

Just for reference's sake SoFL, Dade/Broward/Palm Beach has 5 Million residents, or bigger than 30/50 states, while the LA portion of SoCal, LA & Orange Counties have about 12.5 Million residents, or bigger than all but 4 states.

The Triad will not feel this as much because it did not see much home price appreciation. All of the decline so far as been deflating of bubblecious home prices, but there's more air to let out. Just because the Triad will see less direct impact does not mean that it is not a big national story.

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