Sunday, Nov 23, 2008
Video - Rebound in housing coming says Dr Doom
CNBC: Strong Rebound Coming: Dr. Doom
Marc Faber says it is likely that reflation efforts of Central Banks will succeed and cause a rebound in asset prices, and yes that includes real estate - housing (he says this at 5.26 in the video). This will happen as money flows out of cash & Treasuries seeking higher yields. If this rebound does not happen and instead things go lower then it means we are in for something worse than 1929-1930.
Posted by mountain goat @ 04:55 PM (1957 views) Add Comment
23 Comments
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1. Rimmer said...
Well technically he is correct in what he says, however note he says "Might", didnt say when and was talking about the US, i can see what he is saying is correct, however if your house is worth 25% of what it was in 2006 and it doubles in price its still only worth half what it was.
Its all a matter of relativity, the UK is correcting and UK house prices as a matter of value have been many times higher than the US for many years
2. techieman said...
MG am still waiting for this year end rally to kick in! I think hes right but maybe not Gold. "Right now we have a collosal deflation". Yes. I am looking to dip my toe back in the water again soon. Then I think we go short..
3. mountain goat said...
TM he was cautious on gold in this assett rebound but positive on gold stocks. Do you think that gold will appreciate?
By the way did you see this Elliott wave analysis on the dollar?
4. icarus said...
so he's saying that assets will rebound on the back of reflation by governments, or they won't and there'll be a depression. Not very helpful.
5. mountain goat said...
Icarus it can be seen that way or seen as 2 likely scenarios. So he is saying muddle through as we are is not an option. Either Central Banks fail and we in for continued deflation Great Depression style or they succeed in the short term at least and we get a rebound. This makes sense since we have a very unstable system at the moment unprecedented Central Bank stimulous versus unprecedented fear. One has to win, the stand-off can't last.
6. drewster said...
Interesting post, thanks mg. I watched the whole thing.
To summarise, Faber thinks the markets are oversold; he says banks are sitting on cash and waiting to pile back into the markets:
"a lot of financial institutions [...] sit on very considerable cash"
If that's the case, why aren't they lending it out instead of sitting on it? Maybe the banks know there are a lot more writedowns to come and are holding back their cash for such an eventuality. Commercial property mortgages, corporate debt, municipal debt, credit card debt, car loan debt - there's still a lot of debt out there of unknown quality.
(Off-topic: why is it that you can no longer get a mortgage with 100% LTV but you can easily buy a new car with no money down? Aren't they the same thing? Worse still, if you buy a car you're in negative equity the moment you drive it off the forecourt.)
On gold though, he seems to think shell-shocked investors are all going to sell off their gold and pile into cheap-looking equities, causing a nice rebound. Given that (psychologically) most gold buyers are highly risk-averse, that seems very unlikely to me.
Faber also suggests that the USD is overbought - which I agree on. Again that looks bullish for gold. Apologies for being an unrelenting gold bull. Caveat investor.
"If governments throw enough money at the system, a strong, near-term rally should happen, investor Marc Faber told CNBC. But if it fails to materialize, prepare for an unprecedented depression."
Translation: "There might be a strong rally. Or there might be a further collapse."
With insights like that, even I could be an analyst.
7. drewster said...
mg I see your point re "muddling through is not an option". But it doesn't mean that stocks and property have to recover this soon. There was a lot of leverage propping up those asset values, the leverage has now gone and there's no reason to expect it to come back. As MoneyWeek wrote recently, "Mr Margin packs a far greater punch than Mrs Money Printer". Have we seen the end of deleveraging yet?
8. techieman said...
icarus - you pays your money and takes your choice i think he says he favours a short term rebound as everything is oversold. i have been expecting a move up (and been wrong and nursed some losses) for a while. He then says if he is wrong its armageddon (i think he implies its armageddon anyway -its just it might be a final suck in first). Thats why imo we might have a move back up re houses next year in the spring, but ill admit id be in a massive minority (and even then i think thats a short term blip). Perhaps GB will use that to say look i can save us and he will then go to the polls.
MG yes ive not seen that monthly before but on the dailies the top (ie @ 1.60 euro) was a classic top and the 38.2% level looks kind interesting to me @ 9002 on his chart. As for Gold I have been quiet on this for a while as although i was bearish i didnt think it would do me any good talking it down esp. when i still am holding a fair bit. I feel it bottoms out soon if that helps! As for the miners i was not surprised in the least at that. I dont think he is right though that the miners will go up substantially UNLESS gold starts to appreciate.
Based on this : http://www.elliottwave.com/freeupdates/archives/2008/11/19/EURUSD-Up-200-Pips-Down-300…Where-to-Next.aspx
it looks pretty much that the dailys show a triangle with a final thrust down (weakening Euro) followed by a reversal. Having said that i must admit i thought the Euro wouldnt appreciate so much against sterling. I did have a large cash position which i hedged 30% of at around 8050 - 8150. Still i have 70% left and it looks to me like i should be hedging some more soon!
9. Highland Property Bubble said...
Is anyone able to explain why banks have been begging for financial bailouts from the taxpayer if they are sitting on lots of cash? Doesn't make any sense to me, but I'm not an economist. Then again neither is Alistair Darling.
10. mountain goat said...
Drewster - deleveraging is not finished but neither is the financial system. What I mean is there is nothing stopping leveraging bouncing back if some confidence returns thanks to $1 Trillion injections. Bankruptcies havent hit a level to destroy the financial system yet. Lehman went down but the system has not had a meltdown yet.
11. planning4acrash said...
If this happens, nominal prices will go up, but your currency will be worth NOTHING.
12. Vstor said...
What about all that housing inventory in the USA, this will keep prices pegged down. Don't forget this is all about real estate bubble and it can't be reinflated because securitization is permanently broken.
13. mountain goat said...
TM thanks, so one more surge for the dollar in the next weeks? Maybe gold into the $600's? Anything's possible although I agree with Drewster that when the dollar reverses that will be positive for gold. I'll be getting out of my commodity ETFs in this rebound. But what to put it in for the next wave of deleveraging later next year, GBP, dollar, euro?
14. plato said...
What a shocking month this has been. Volatility is the norm but stocks have been savaged in one direction down. The upward movement I was expecting before the new year will have to be pretty dramatic now. Could well happen ! I've taken the plunge anyway and moved my pension into the Far East . I'm going s*** or bust as it's so damn cheap and I'm a gambler by nature. Maybe I can even recover my early 90s losses as well.Can't get any cheaper short term surely and I can't believe a bounce is not imminent.
Can see a mini rebound in housing too next year but short-lived.
15. techieman said...
i didnt realise id changed my sign on to "plato" :-). Good luck mate. We did have some upward move but i was expecting a retrace from that and then some more upside. Still its dangerous to play the upside in the bear.
16. mark said...
i don't believe it will re-inflate as we have past the point of no return, the public are cutting back, people are losing jobs etc..........
17. plato said...
Here's a great article : The Global Financial System is Coming to an End (http://www.marketoracle.co.uk/Article7432.html)
techie........ Yes....... I'm just fed up trying to play safe. There is only one rule : Get in and out quick and often,then stash it. The big problem now is stashing it..........we need stability......... You know,(apart from the possible complete collapse of the financial system ruining everyones' plans) it could all end up in bricks & mortar......... how ironic is that?
18. icarus said...
There may be some short-term rebounds - there always are; graphs are always jagged even if they're moving inexorably upwards or downwards.
Faber's analysis is fundamentally flawed. He's saying that all the bailouts and liquidity injections should eventually work. This won't happen. The combination of a massive build-up of private and public debt and lack of savings in the west has finally come to a head. All the barriers that governments have erected against debt liquidation and deflation, and all the leaks plugged by taxpayer money - in mortgages, the interbank market, commercial paper, consumer credit, AIG, Fannie & Freddie, etc. - have failed to work.
By using the bailout strategy governments are supressing the economy's main mechanism for re-stabilising itself - recession, bubble deflation and liquidation of malinvestments. Governments and central banks can avoid debt liquidation, deflation, bank and other commercial failures only by risking hyperinflation and the destruction of currency and government bond markets.
There's a version of the Great Depression that says it lasted for so long because governments didn't pump in enough liquidity and bailouts to reflate the economy. But there's another version that says it lasted for as long as it did because governments did too much. Eventually the US government stopped propping up bad banks and bad assets and started segregating good assets from the toxic stuff, allowing the system to cleanse itself.
19. mountain goat said...
While we watching videos this is pretty good Niall Ferguson talking on Bloomberg about his book the Ascent of Money also on Channel 4 on mondays.
20. bellwether said...
Bear in mind that this is about trying to reset a game. Currency is illusory, the losses and the gains. What is real are resources and labour. These were sufficient to support ou way of life yesterday and should hold today and tomorrow providing the system can be manipulated to allow that.
What manipulation cannot do long term is mask the problems of increasing populations vs resources. There is no solution to this other than a massive reduction in population. That we will find a technological solution is a fantasy.
I think Faber is suggesting that the effective devaluation of currencies might work ie chucking money (that effectively doesn't exist) might reset the system - I think the resetting of gold prices in 1933 by FDR was an example of this. This would increase asset values (albeit against a devalued currency) while killing the debt that is currently the problem within the current game.
The usual objection to this is that China would never allow it, this presupposes that China can go it alone (and therefore dictate terms) which is way overstated I think. Note Faber seems to think China would fare worse in a depression than the US. A large population is I guess a hungry one.
21. icarus said...
'Currency is illusory' 'inflate away the debt' - but hyperinflation is devastating, and if govts cannot sell bonds and borrow, what then?
'What is real is resources and labour'. But what is the mechanism that brings them together and directs productive activity? Functioning markets.
22. bellwether said...
Thanks Icarus. Hyper inflation only exists as relative to other currencies that are not inflating, it is an isolated and relative phenomenon. This would be a global reflation
23. icarus said...
bellwether - I don't see why hyperinflation cannot be pretty widespread - it's simply the result of governments that are unable or unwilling to borrow or tax to meet their funding requirements deciding to print their way out. Nothing to stop too much money chasing too few goods in any number of countries. This was the general situation in Europe after WWI according to Keynes.
One problem with global reflation is that it would be uneven and cause all kinds of dislocations and conflicts, not least between savers and others. Relativity comes in when the monetary base flees the country (dollarisation) - it may flee to a less inflationary or sounder currency. How long may that currency be the US Dollar - fundamentally weak because of deficits but strong because it's the reserve currency?