Calling all economists, part 1
The housing market’s been flagged for years now as being in a bubble. Clearly it is, especially around the bay area. (Come on, 1/10 of an acre with 1200sq feet of living space is not worth $800k. Build from scratch with reasonable options and I think you’ll find it hard to break the $650/sq.ft. mark without doing something pretty stupid.)
There are a lot of factors here that I won’t go into, but the correction people have been talking about is getting closer. Housing construction’s dipping, values in most major markets are slipping, and the subprime/ARM resets should really start to hit in the next few months.
On top of this, the national saving rate’s been negative for some time, bouyed supposedly by pulling equity out of housing. I haven’t seen much real data here binding the negative supply to housing, but I guess it doesn’t matter whether it comes from savings, housing, or anything else, right? If you’re running in the red, and pulling money from anything means an overall loss in my book. Pulling money from an equity line or credit card is worse than a savings account due to payback interest, I suppose, but the point stands.
The overall trend seems to be complaints about what’s going to happen to the US economy. There are lots of people saying the bottom’s going to fall out, the bubble will be worse than the .com boom/bust cycle, and so on. (Primarily because consumers actually have ‘real’ investments in their houses, whereas the .com cash was play money, or at least not directly the average family’s cash.
Neat. That’s a great point to complain about. If you extrapolate and add in all of the factors, you can correlate the current environment to Britain’s fall from being a world power almost 100 years ago. (Hey, it could be right on target. It sure makes sense.) Wow.
The interesting piece is getting lost in all of the noise here. And that is, the answer to the question “How are the smart people going to make money on this?” Because, in the end, that’s how this works. There’s a bubble here or there, and the smart crowd (or at least the ones with the money for the best advisors) always come out ahead. So they’re out and onto the next big thing. Where did they go?
It may be that there’s actually a soft landing here. If the dollar falls further, there’s a slim chance that US goods and labor costs start to look viable again, exports go up, trade imbalances rebalance, and everything becomes rosy again.
I don’t really buy that scenario - our trade imbalance is really far off. Plus, we don’t really ‘make stuff’ anymore. All of that infrastructure migrated out of here years ago - can anyone imagine Detroit coming back for real? We build services and ideas now, and while it sounds corny, that’s what we’ve got. Our future depends on a wobbly set of intellectual property support models being supported by the world - more on this later.
This is a distracting subject - my nature tends to draw me off into the weeds of what’s going to go wrong, how bad it could be, and how we’re all screwed. But that’s not the important point. The focus should be on where the next bubble is - even if this all collapses, and the world falls into a global recession for 10 or 20 years, there’s money to be made there on the way down. Someone always makes money, no matter what.
This time it might be the policy setters - has Cheney really dumped all his money out of the country in preparation for heavy inflation and/or a collapsing dollar? If so, where did it go? I’ll follow quickly behind, if there’s time.
Part 2 will go through some processes of elimination to make some hopeful guesses as to what areas we don’t want to be in, in hopes of figuring out where we all should be. Maybe something magical will happen and it’ll all start to become clear.