Pessimists Are Basing Their Gloom On Old News

[interestrateripoff]

http://business.timesonline.co.uk/tol/busi...icle4412945.ece

A theme of this column for almost a year has been the contrast between apocalyptic views in the financial markets about the earth-shattering consequences of the credit crunch and the rather more mundane evidence from the real economy of a mild recession, at worst. My view has been - and remains - that this episode is likely to be remembered as one of those extremes of panic or euphoria in financial markets, which tend to reoccur once or twice every decade, when market prices - of bank shares, of oil, of the dollar and of several other assets - turn out to be simply wrong.

In making this argument, I have been accused of ignoring market realities and being blindly contrarian. And I fully agree that contrarian thinking as a general philosophy is often financially dangerous and intellectually self-deluding. Oddly enough, though, it seems that at present the analysts who are doggedly pessimistic are being contrarian and defying economic evidence. Meanwhile relative optimists, especially about the American financial system and housing markets, which are generally believed to be the source of all the world's economy problems, are merely putting forward a straightforward conventional view.

The consensus view among economists, as opposed to financiers, at present is that the United States is experiencing, at worst, a mild recession and perhaps only a typical mid-cycle slowdown. This consensus view is reflected, for example, in new economic forecasts published by the US Federal Reserve Board and the IMF in the past two weeks, both of which were revised significantly higher relative to their expectations of a few months ago. This relatively benign consensus view is also shared by stock market analysts outside the financial sector, who generally expect rising profits in most businesses apart from banking, retailing and real estate.

I would argue, therefore, that the true contrarians at present are the bankers and headline-writers who keep predicting economic Armageddon. And in the past two weeks the markets themselves seemed to be coming round to this viewpoint, taking heart especially from the government guarantees offered to Fannie Mae and Freddie Mac, the US mortgage giants. Hence the 40 per cent gain in financial stocks on Wall Street in the week since the US Government made its mortgage announcements - the biggest weekly gain ever recorded by any market sector monitored by the Standard & Poor's.

So the financial and economic world appeared to be moving towards a fairly benign convergence - until the end of last week, when the world economy was again hit by a flurry of shockingly bad news. Consider some of the announcements made over a few hours last Thursday and Friday: Britain revealed the biggest monthly fall in retail sales on record, combined with an abrupt slowdown in GDP growth. In continental Europe, there were plunging business confidence and industrial order figures in Germany, France and Italy. Japan saw its first monthly fall in exports for five years, while America reported worse than expected figures on home sales and unemployment claims. Does all this mean that the earlier pessimism in financial markets is proving to be right, after all?

Let me begin with the bad news. Conditions in Britain and continental Europe are certainly deteriorating faster than many investors had expected. But the shock about bad figures from Europe - for example, the biggest monthly fall in German business confidence since 9/11 - mainly reflects the refusal of euro-bulls to acknowledge previous evidence of a European slowdown, rather than any genuinely “new” news. It has been obvious for several months that British housing and retailing were on the verge of a breakdown and the continental economy's apparent strength in the first quarter was an illusion.

...............

The median existing-home sale price surveyed by the National Association of Realtors in June was $215,100. Bloomberg and Reuters reported this as 6.1 per cent lower than a year earlier. But it was 3.5 per cent higher than the median price in May - and that price, in turn, was 3.3 per cent above the price in April. In fact, US house prices, which almost everyone believes to be in freefall, have actually been going up for the past four months, after reaching a trough of $195,600 in February.

Of course, there are strong seasonal factors in house prices and the NAR cautions that its house price index should be used primarily for year-on-year comparisons. But even on this basis, June's 6.1 per cent year-on-year drop was smaller than the 6.4 per cent drop reported in May and a marked improvement on the record declines of 8 per cent plus in each of the previous three months. At the same time, the inventory of homes for sale was steady at 4.49 million homes, which amounted to 11.1 months of supply, down slightly from the supply level in April. In Britain and the rest of Europe, by contrast, house prices have started falling only recently, are still much higher above historical averages than in America and are suffering a rapidly accelerating rate of decline. The oversupply of unsold housing is also growing by the day.

In short, the housing correction - and related credit crunch - appears to be at or near its low point in America, while in Britain and the rest of Europe the trouble has only just started. Of course, it is possible to cite different housing indices, on both sides of the Atlantic, which tell different stories (although the NAR index is the one with the longest statistical history and most timely of all the indicators of house prices). All I want to emphasise at this point is that signs of stabilisation are starting to appear in US housing statistics, while all the economic figures from Europe continue to deteriorate fast. This is a contrast the markets do not seem to have noticed - yet.

The US it appears to be having a full blown recovery........

[Bloo Loo]

Yes they used to sell 2m homes a year now its a quarter of that, or whatever.

So the ones they are selling are a bit better.

[Elizabeth]

I would expect a slow down of the doom and gloom in america even if two more banks just popped their corks. The government of George Dubya Bush is starting to look decidedly socialist as it rips up the book of the free market at its convenience. Typical. Did anyone not notice how Dubya effectively distanced himself from the failed market with his 'wallstreet got a hangover' he is shifting the blame and owning the saviour complex. Its unlikely to work because effectively printing money can only weaken the dollar but it will stave things off for a while until the market stops sighing with relief for long enough to discover that this is a confidence trick.

[jdc]

This is why we shouldn't whinge about seasonal adjustment. Sometimes it works in our favour - here, the lack of it makes it appear there's a recovery.

[29929BlackTuesday]

Oh and the OP looked so good too. Never mind. Crash back on in USA then. YAY!

[interestrateripoff]

Yes they used to sell 2m homes a year now its a quarter of that, or whatever.

So the ones they are selling are a bit better.

Your just being cynical and not wanting to hear good news

It's time to buy everything is going to be OK and Brown will win in 2010!!!

[yellerkat]

Just searched Google News for US housing and it's doom and gloom from sea to sub-prime sea.

So I think as Bloo Loo says, the median has leapt upmarket.

Kaletsky being disingenuous. Again.

[Bloo Loo]

Just searched Google News for US housing and it's doom and gloom from sea to sub-prime sea.

So I think as Bloo Loo says, the median has leapt upmarket.

Kaletsky being disingenuous. Again.

Please bear in mind that my reply was based on no research whatsoever.

[interestrateripoff]

Please bear in mind that my reply was based on no research whatsoever.

Spoken like a true economist, was it based on any chart you had randomly seen?

[Bloo Loo]

Spoken like a true economist, was it based on any chart you had randomly seen?

Indeed you are most perceptive

http://www.youtube.com/watch?v=g81mR89gdi4

[BandWagon]

http://business.timesonline.co.uk/tol/busi...icle4412945.ece

The US it appears to be having a full blown recovery........

Anatole Kaletsky.

[gordonbrown]

http://business.timesonline.co.uk/tol/busi...icle4412945.ece

The US it appears to be having a full blown recovery........

U.S. Stocks Fall, Led by Banks on Outlook for More Housing Woes

By Elizabeth Stanton

July 28 (Bloomberg) -- U.S. stocks fell and the Dow Jones Industrial Average lost more than 200 points for the second time in three days after the International Monetary Fund said there is no end in sight to the housing slump.

He's a card is'nt he that Anatole Kaletsky. You have to wonder if he ever feels ashamed or just a bit thick.

Edited July 28, 2008 by gordonbrown

[interestrateripoff]

He did describe the start of the credit crunch as a "storm in a teacup".

Don't think economics is his strong point.

[Guest Steve Cook]

I would expect a slow down of the doom and gloom in america even if two more banks just popped their corks. The government of George Dubya Bush is starting to look decidedly socialist as it rips up the book of the free market at its convenience. Typical. Did anyone not notice how Dubya effectively distanced himself from the failed market with his 'wallstreet got a hangover' he is shifting the blame and owning the saviour complex. Its unlikely to work because effectively printing money can only weaken the dollar but it will stave things off for a while until the market stops sighing with relief for long enough to discover that this is a confidence trick.

There aint no such thing as a "free market" or "socialism". There never have been. Both of these ideologies are just the bullsh*t handed down from elites.

There are just people at the top of the food chain who seek, at all costs, to maintain their position. Any "ideology" will do. And, when all else fails, there is always brutal, unadulterated force.

That's it.

That's all there has ever been.

Edited July 29, 2008 by Steve Cook

[interestrateripoff]

http://www.guardian.co.uk/business/2008/ju...risis.useconomy

US house prices plummeted at their fastest pace on record in the year to May, with each of the 20 regions monitored showing annual declines for a second month, according to a report out today.

Standard & Poor's/Case Shiller home price index, which tracks changes in the value of the residential market in 20 metropolitan areas, fell 0.9% in May from April and 15.8% since the same period a year ago. This is the biggest annual decline since the series began in 2000.

The sharpest decline in the index was in Las Vegas, where prices fell 28.4% in the year to May. Miami was just behind, with prices down 28.3% over the year.

S&P's composite index of 10 metropolitan areas fell 1% in May, for a 16.9% annual drop.

Gary Thayer, senior economist at Wachovia Securities, said: "This is still showing weak home prices, but the situation may be getting a little better. On a month-to-month basis, the price decline was not as bad as what we saw earlier this year.

"If home prices continue to slide that would continue problems for a lot of institutions. But before prices stop going down, we need to see the rate decrease and level off.

Do you think Kaletsky gets irony???

[Joey Buttafueco Jr]

http://www.guardian.co.uk/business/2008/ju...risis.useconomy

Do you think Kaletsky gets irony???

The numbers were actually better than expected

[RajD]

The numbers were actually better than expected

Phew. That's a relief. Everything's just okily-dokily then.

[thefinalbear]

or not....

http://news.bbc.co.uk/1/hi/business/7531560.stm

[Little Professor]

And...

http://news.bbc.co.uk/1/hi/business/7529277.stm

[Nicholas Cage]

I spen 60 seconds searching google for the report and the subnotes.

http://www.realtor.org/press_room/news_rel...hs_down_in_june

The national median existing-home price3 for all housing types was $215,100 in June, down 6.1 percent from a year ago when the median was $229,000.

3The only valid comparisons for median prices are with the same period a year earlier due to the seasonality in buying patterns. Month-to-month comparisons do not compensate for seasonal changes, especially for the timing of family buying patterns. Changes in the geographic composition of sales can distort median price data. Year-ago median and mean prices sometimes are revised in an automated process if more data is received than was originally reported.

So comparing May 2007 to June 2007 or whatever should not be done because of the distortion.

But I don't think anyone cares, it's only the Times, and he gets attention therefore readers for the paper.

[RajD]

I was being sarcastic. I have changed my signature to emphasise the point.

[Nickolarge]

There aint no such thing as a "free market" or "socialism". There never have been. Both of these ideologies are just the bullsh*t handed down from elites.

There are just people at the top of the food chain who seek, at all costs, to maintain their position. Any "ideology" will do. And, when all else fails, there is always brutal, unadulterated force.

That's it.

That's all there has ever been.

Agreed. I always allow myself a wry smile when I see those 'Free Enterprise Works' stickers in the back window of some dodgy old car