Paper Economy - A US Real Estate Bubble Blog: Question of The Day

Friday, October 17, 2008

Question of The Day - GM-ization of America?

Are we seeing the “GM-ization” of America whereby the stock market plunges to shocking lows and scores of macro-economic data (housing starts, consumer confidence, real home prices, etc.) head to the lowest readings in 60 years?

Labels: economy crisis, economy recession, GM, stock market crash

16 Comments:

oui....expect soup lines

By Anonymous, at 10:23 AM
Housing starts may be at those levels already.
I am not sure.
If you adjusted Housing starts for the population, where would we be on a timeline?
static

By static, at 11:07 AM
Bad news came and the stock market rallies, is that the buffet effect only?
The credit market is improving by the way.

By jgu, at 11:56 AM
What we are seeing today is just more of the same short term thinking that gave us prior rallies... These notions of "oversold" and the stock market "pricing" in the recession are just bunk.

It looks like we are on the verge of another down-leg for home prices and there is simply no way the stock market is going to rally through even more housing depreciation.

By SoldAtTheTop, at 12:18 PM
They could not build a single new home for 10 years and we still wont have sold off the existing stock.

They built way too many homes, and nobody could afford them! I remember during the boom I would see adds for new "luxury towmhome" developments, starting at 1.1M. A bunch of speculators bought them - now they are on the market for 450k with no buyers. Who can afford a 450k townhoue? Nobody who would want to live in that area thats for sure. Its not like its in the middle of the city, they put them up in little mexico.

By Doug, at 1:07 PM
I don't understand the question.

They could not build a single new home for 10 years and we still wont have sold off the existing stock.

I agree. And once the existing building permits and houses already started are done, a lot of homebuilders will be going out of business.

By Phil, at 2:20 PM
phil,

I'm sitting on the bank of really amazing little but completely typical New England trout stream smoking a nasty old dried out cigar so you'll have to excuse me if I'm sounding a bit more contemplative ... The question might have been better stated as Have we entered a new era?

Is that what this decline is all about?

It seems to me that it's been almost three decades of wall street expansion into our economy... In a way we have been plagued by bull markets in so much as they have been excessivly speculative.

Have we finally reached a turning point?

A point where we are forced to accept lower expectation (sensible PE ratios, realistic profit, a real crackdown on accounting misdeeds and rampant finaicial engineering) and more realistic results.

If so, the market needs to come down and it may be shocking.

GM has fallen to a low that many percieve as shocking but it's stock price is just reflecting a new reality for a company who made it through so many decades, even the 70s, at higher valuation.

Could this be a harbinger of things to come for the whole of the US?

Many economic indicators are falling to levels not seen in the post WWII era ... Are they giving us a sneak peak if this new reality?

Well enhough of my ramblings I need to see if I can snake out one of these trout to make the visit worthwhile...

By SoldAtTheTop, at 2:58 PM
Is it a turning point? a new era?

I think "Yes", without a doubt.
but to finally get to that point, we have to get to that point. LOL
right now we have the treasury absolutely pouring cash on 9 or 10 top prime broker banks.
SATT is right when he says this has been thirty years in the making.The unwind here is of Mega proportions.Look at the commodities being hammered right now, is it because of less global demand or the removal of the hedge fund positions?, are the hedge funds being attacked by the big cash flush banks, instituting a spiral down feed on itself raid on them for their own gain just because it's an easy bet with all that cash now backing them. They still aren't gonna lend cash to the mostly low FICO score public. And why are interest rates still climbing, when the cash is supposedly flowing like water again.
Silver dropping 30% in one week?
Fundamentals don't merit that move.
Something is fishy here, and it ain't SATT's catch of the day.

static

By static, at 3:50 PM
Static,

Not much fish today but your right something is fishy!

By SoldAtTheTop, at 8:55 PM
GM has fallen to a low that many percieve as shocking but it's stock price is just reflecting a new reality for a company who made it through so many decades, even the 70s, at higher valuation.

I personally see GM's low stock price as an indication of the disconnect that has grown between stock prices and real stuff. GM is in the doldrums in the US, but they still make a lot of stuff, and their worldwide production is good. They are very competitive in Europe.

They are a real company with real plant and materials with a real range of real products. They may slow doen for a while, but they still have a future, their "Volt" vehicle has the potential to really transform one of their primarey markets.

The fact that the stock has gone down so far indicates to me personally that the connection between stock price and actual value or real contribution to the industrial output of the country (or the world for that matter) has been completely discombobulated.

By Phil Hamm, at 9:56 PM
check out this ridiculous article from the NYTimes Joe Nocera...
http://executivesuite.blogs.nytimes.com/2008/10/17/the-freedom-recovery-plan/#comment-2508
He is advocating a "Freedom Recovery Plan"
Might be a good blog topic for you.
He wants to create a new housing bubble to replace the old one.

By Anonymous, at 7:24 AM
Through conditioning of the last several years, I think everyone gets a sense of dread whenever you see some plan or operation couched in terms of "Operation Freedom", "Freedom recovery plan", "Housing Justice Freedome America Plan", etc. This almost invariably is some attempt to slip under the wire some plan that screws a large number of US taxpayers to bail out the unworthy, be that group comprised primary of the foolish, the risk takers that gambled badly, the greedy or the unlucky.
Joe Nocera's article does capture the reality that we had a HUGE bubble and house prices went up 100-150%, way beyond what is supportable by incomes. The return to equilibrium is inevitable. This will create many losers but also some will benefit. Those who were prudent, who saved their money, renting in substandard housing will now finnally be able to realize the american dream and own a home.

Who are these people? These are the exemplars of the american dream actually. Hard working young families. Many struggling to pay off student loans and raise young kids. These young professionals are exactly the life blood that cities need to retain to keep vibrant economies going.

If you look at Boston, the population has been graying because the vast number of young people who attend the great universities here, even the ivies, cannot afford to live here due to the outrageous home prices.
We should be applauding the reality correction to home prices. Your advice that this group of people, should "get over themselves" and pay their tax money and take away from the carefully growing savings for a home of their own and give it away to that population of people who were imprudent, greedy and foolish is ridiculous.

What do you say to the person who is working two jobs, taking time away from his family to stay in his home? Sucker?
The faster the reality correction occurs in home prices, the quicker the overall economy can adjust. These sort of measures only prolongs the pain.

Homes that are forclosed only stay vacant and lead to the social ills of a neighborhood because we have not let home prices re-adjust. Once there is a healthy sales market going at prices people can afford, foreclosed homes will quicly get back into circulation and not languish on a market. As we saw lampooned on Saturday Night Live, there are many sellers crying and wailing that they can't sell their home...because they would only get 20% above what they paid for it. These are the people who should get over themselves.

Sorry for the long screed, but bailing out idiots makes my blood boil.

By Anonymous, at 7:27 AM
http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking

buisness as usual

static

By static, at 5:43 PM
http://online.wsj.com/article/SB122428279231046053.html

take it from someone who's been there!

static

By static, at 10:33 PM
I'd like to know what metric is used to determine the market is oversold? I suspect it's directly related to the position of the person making the statements just like the self purposed talk of $200/brl oil back in August.

By David, at 11:54 PM
David,

Wish I knew... I don't quite get it either... I suppose that you could make the argument that certain fundamentals might indicate a floor value and hat values below that would be "oversold" but I think it might be easier to make with some physical asset rather than shares of stock.

By SoldAtTheTop, at 9:39 AM