Daily Archives: April 2, 2009

Gloomy housing outlook in the WSJ

Prices still have a way to go, this analyst says.

How much further will prices fall across the country? Nobody knows, of course. But history says the bigger the bubble, the bigger the crash.

Those “professionals” in the market continue to be wrong-footed. Early last year I wrote that even though prices in Florida and California had collapsed, those markets were still overvalued. Naturally I was on the receiving end of lots of angry emails from real estate brokers who told me I was an idiot (or worse). Events since then have borne out my analysis.

House prices nationwide have now fallen about 30% from their 2006 peak. At these levels the contrarian, inevitably, starts to wonder if they have fallen far enough.

Certainly there are great deals out there. It is a buyer’s market. The aggressive and opportunistic can probably find the worthwhile bargains.

But for the market overall the picture isn’t as hopeful as you’d like.

Even today, prices overall have only reverted to levels seen in late 2003. Yet by that stage the bubble was already well inflated. You would expect a crash of this scale to retrace its steps much further. To find pre-bubble prices you have to go back to about 2000 – when values overall were about a third lower than they are today.

Is there a bullish scenario for house prices? Sure. If all the government spending to turn around the economy reignites inflation in a year or two—as some predict—house prices could begin climbing again. But if the current price deflation continues, look for house prices to keep dropping. [I'd bet on wild inflation -Ed]

Over the long term, average home prices have tended to track average earnings. And by this measure the market may have much further to fall.

I looked at Case-Shiller’s index back to 1987 and compared it to federal data on average earnings. The result, rebased to 100 in January 1987, can be seen here. And it’s alarming. By this (admittedly very simple) measure, today’s home prices are actually more expensive, in relation to average earnings, than at the peak of the 1989 property bubble.

Equally noteworthy is that when the last property bubble burst, it took about eight years before the market showed really strong signs of revival. This bubble was far, far bigger.

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The black helicopters have taken off

G-20 summit approves limits on pay, new regulations on business to establish ” the new world order.” 

The Group of 20 policy makers, meeting in London, called for stricter limits on hedge funds, executive pay, credit-rating firms and risk-taking by banks. They tripled the firepower of the International Monetary Fund and offered cash to revive trade to help governments weather the turmoil resulting from the surge in unemployment. They avoided the divisive question of whether to deliver more fiscal stimulus to their own economies.

The statement amounts to an effort to rewrite the rules of capitalism to address an integrated world economy that has outgrown the ability of nations to keep it in check. The assembly echoed — on an international stage — the introduction in the U.S. of securities regulation after the 1929 crash.

“By any measure the London summit was historic,” President Barack Obama said after the talks. U.K. Prime Minister Gordon Brown said, “we have reached a new consensus that we take global actions together to deal with the problems we face.”

Even as the G-20 leaders said they will maintain power over their own markets and companies rather than cede it to a cross- border regulator, they closed ranks behind “greater consistency and systematic cooperation” to flesh out a new regulatory order first outlined at a November meeting in Washington.

The crackdown is “a major step forward,” Nobel laureate Joseph Stiglitz, a professor at Columbia University, said in an interview. “It’s a historic moment when the world came together and said we were wrong to push deregulation.”

Blaming “major failures” in regulation as “fundamental causes” of the credit crunch, the G-20 said national regulators will be revamped to better monitor threats to the international system.

A new Financial Stability Board will be established to unite regulators and join the IMF in providing early warnings of potential threats. Once recovery is underway, work will begin on new rules aimed at avoiding excessive leverage and forcing banks to put more money aside during good times.

Hedge Funds

Hedge funds that are “systemically important” will be subjected to greater oversight as will all key financial instruments, markets and instruments, the G-20 said. That signals a setback for German Chancellor Angela Merkel and French President Nicolas Sarkozy, who wanted all of the investment funds to brought under the spotlight.

Principles will also be introduced on pay and bonuses to create “sustainable compensation schemes” after concern that executive remuneration rewarded short-term risk-taking over the long-run interests of companies. Accounting-standard setters were urged to improve valuation methods and credit-rating companies will be forced to meet a code of good practice.

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Tea bag sent as protest to Congressman paralyzes office in fear

The revolt of the tax payers. Imagine the havoc if we sent them all CFLs!

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Here’s one of the “greater good” we have a moral obligation to care for

Rapist of six-year-old boy, on probation for attempted rape of 7 -year-old boy, gets life sentence – eligible for parole in 15 years.

NEW BEDFORD, Mass. (AP) — A man who raped a 6-year-old boy in a public library, while on probation for an attempted rape, was sentenced Thursday to life in prison.

Corey Deen Saunders pleaded guilty in February to the January 2008 rape of the boy at the New Bedford Public Library.

Prosecutors said Saunders lured the boy into a reading room at the library while the victim’s mother worked on a computer only a few feet away. At the time of the attack, Saunders was a convicted sex offender who was on probation after serving four years in prison for the attempted rape of a 7-year-old boy.

The Bristol District Attorney’s office sought a life sentence for Saunders in part because of the ages of the victims in both cases.

Saunders, 27, will be eligible for parole after 15 years. He was also sentenced to lifetime probation.

Saunders was released from prison in December 2006, despite objections from prosecutors and three psychologists who said he was too dangerous to be let out. He is a Level 3 sex offender, a designation given to those believed most likely to re-offend.

The case reignited debate over a civil commitment law that allows prosecutors to request that sexual offenders be locked up indefinitely after completing their prison terms.

Prosecutors sought to have Saunders committed after he served his term. But a judge rejected the request, citing Saunders’ history of being sexually abused as a child and his lack of sexual crimes while in prison.

Well gee, he was on his best behavior for 13 months after his release – that should count for something.

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Well damn – jury finds in Ward Churchill’s favor

The Colorado jury hearing Ward “Little Eichmans” Churchill’s suit against CU for firing him has determined that he was terminated for political reasons. The man was a plagiarist, a seller of forged art work, and an academic fraud who suckled at the governmental teat for decades because of his fales claim to be an Indian and hence entitled to special consideration for his slipshod work. He should have been horsewhipped, not fired, but there you go. The jury did award this charlatan just $1 in damages, though, so they must have found him as repellent as I do. Still, too bad.

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Channeling Bernie

A reader sent me this link to Bernie Madoff’s Blog from Prison.  The poor guy’s pining away, waiting for Walt to join him. Just think, if they end up in Connecticut, they can marry!

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Our next senator at work

Overlawyered.com reports on an NPR story debunking the phthalates plastics ban

Although most coverage of the CPSIA debacle (this site’s included) has focused on the lead rules, the phthalates ban (phthalates are an ingredient often used to make plastic soft and bendable) is also extraordinarily burdensome, for a number of reasons: 1) as readers may recall, a successful lawsuit by the Natural Resources Defense Council and others forced the last-minute retroactive banning of already-existing playthings and child care items, costing business billions in inventory and other losses; 2) vast numbers of vintage dolls, board gamesand other existing playthings are noncompliant, which means they cannot legally be resold even at garage sales, let alone thrift or consignment shops, and are marked for landfills instead; 3) obligatory lab testing to prove the non-presence of phthalates in newly made items is even more expensive than testing to prove the non-presence of lead.

Earlier coverage: Feb. 6(NRDC and allies win court case on retroactivity); Feb. 7 (various points, including Connecticut Attorney General Richard Blumenthal’s vow that his office will “take whatever steps are necessary[emphasis added] to ensure this phthalate ban is enforced”)

Frankly, I could care less about infant toys – what really gets me hetted up is that the ban caused the disappearance from the market of Nalgene water bottles, the best backpacking invention since the Kelty pack. Until Nalgene, hikers were forced to choose between crappy polyethylene bottles that imparted a stench of plastic to every mouthful or a heavy metal container. We’re back to that now, for no good reason. And in case you’re not a hiker, you might want to thank Blumenthal for his efforts for another reason: IV bags, that replaced glass and were stronger, cheaper and lighter, contain phthalates – so they’re gone too. But again, if it saves the life of one polar bear,….

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