Inman Bull vs Bear Video
A: You need a membership to view the Inman Conference video, but in case you don't, here is a transcript of what I said at the JAN 7th conference, that was more of a national / macro economic discussion on the housing problems facing this country. I'll try to write down here as much as I can so you get the gist of what I was saying, but unfortunately I don't have time to do this for all the speakers on the panel.
On National Housing / Overall Health Banking System
14:30: NOAH ROSENBLATT - "On the macro side, I think we still have structural problems, and I have been thinking about this before the conference, I don't think we should even discuss a recovery at this point, instead we should discuss a stabilization, because there is not going to be a 'V' shaped recovery.
People are really expecting us to just stop the freefall, reverse, and rise again. We are going to have a muddled 'L', and Prof. Shiller discussed the chart of Japan urban land prices in the 90s and that is what it will likely be similar to because of the structural problems we face.
The banks, I hate to say this, but there was a reason $700bln was devoted to the banks. Whether the TARP funds are being used the way it was originally sold to the American public is a different story. Paulson called an audible, there was something he didn't like, and he decided to use the funds in a different way, fine, you should change when you see something change. But you have $350Bln there that will be used to inject into the banking system, with the biggest banks probably getting half of that, and the reason is that you still have a lot of these securitized assets on the balance sheets of these banks, and that whole unwind that Barry was just talking about, is NOT just subprime, its alt-a, prime, jumbo, leveraged loans, commercial, HELOCs, credit cards, auto loans, student loans, it can go on and on; and it will take years for this to unwind and until this happens and time is the only cure for that, we are not going to have a system of credit that is going to power what we saw in the last five years.
Until then, its a matter of correcting the inventory problem by natural market forces, and unfortunately what I see is rising unemployment and the price to house income ratio that we were just talking about, was 5 standard deviations above normal, actually has come down and is about 60% corrected, and is still correcting, we still have to correct. Basically what I am saying is that housing is still unaffordable. If unemployment is going to rise, how can that possibly help the housing situation en mass.
Also, what nobody is really talking about is the savings rate. For the first time in 20+ years, the savings rate is spiking. This is very interesting. We went from a negative savings rate a year ago, to about 3% right now. People are getting very frugal. Consumers are buckling down, everybody is buckling down, they see friends losing their jobs, they see their net worth & homes go down, their portfolio go down and they are starting to save. Now think about the adverse feedback loop that a higher savings rate has on corporate America. If people aren't spending for products, what is going to power corporate profits or power corporate stock performances?
Ben is trying to inflate, inflate, inflate, and is printing money and not all of it is reaching the ground/main street, because you have a huge destruction of wealth in the shadow banking system. And the more money Ben creates, he is trying to make up for the gap of all the hundreds of billions of dollars that disintegrated as these derivatives lost value, so its an adverse feedback loop and its going to play out over years, not quarters. Time is our ally here.
I'm less bearish today because the process is happening, as a year and half ago I was way more more bearish than I am today. And as time goes on, I will probably become even less bearish.
BRAD INMAN: Well, your in real estate, so how do you manage your business if you believe the way you do?
NOAH ROSENBLATT: You are going to see a lot of real estate agents die out, and take time to die out as they go into another business and you will see the more established agents take up more market share over time. Nobody likes bear markets, nobody likes dull markets, and we all want volume to come back. My sales volume may be down, but you have to tell people what is really going on, and hopefully earn their business. I learned early on that in a service industry, honesty & integrity builds good business and ultimately takes you further.
On Gov't Meddling w/ Rates
28:06: NOAH ROSENBLATT - One problem with bringing rates down, is first of all, if you can't afford to buy something with a 5.5% interest rate, I'm not so sure you should be buying with a 4.875% interest rate. We are getting awfully close to that boundary that started this mess to begin with. Maybe they will be affordable for 6 months or a year, but ultimately they could get stretched and default.
#2, there is a price to pay for government meddling to get rates down. They are conducting Quantitative Easing now, and buying up agency debt and perhaps treasury, and that is ultimately inflationary. Now, I don't think you will see inflation end up in higher real estate prices, but I do think you will see inflation come in the form of commodities, precious metals, food, health care, and these aspects of the economy and that could put another crunch on consumers and businesses.
BRAD INMAN - Where will we be in a year from now?
NOAH ROSENBLATT - You will see unemployment close to 9% by the end of the year, and you will start to see the pace of national housing metric declines slow.
Comments (13)
Was there any debate between the presenters? (OK, with Yun) Or just straightforward presentations with followup questions from Inman?
Posted by Rodalpho | February 3, 2009 12:09 PM
Nice work!
Posted by Vega | February 3, 2009 12:10 PM
Rodalpho - umm, a little bit, but not much. Barry disputed something Carter said, but to be honest, I had limited time so I didnt go and watch the entire 50 min video in entirety.
The overall tone on trends was still down, and even Yun didnt really argue that.
Posted by Office - Noah | February 3, 2009 12:22 PM
Noah,
Do you really think we will see a decade long decline like in Japan? For one thing, the Japanese have a declining population while we have an increasing one, so isn't that better for us since that translates into more consumers?
Posted by Donald | February 3, 2009 1:00 PM
Nah, prob bot that long, but you must understand that the context of that statement was based on a topic that Prof Shiller discussed just before we went on; Japan Urban Land prices and that the chart showed a muddled L shape, with a good 5-6 years of a slow bottoming out process after the initial boom/bust. So lets say we are 3 years in now for our national market.
So, I think that we may follow the 5-6 year or so pattern in regards to the stabilization/bottoming process of this national housing mess. Many false bottoms as bulk foreclosure sales kick in for states outside of FL/CA/NV...
Posted by Office - Noah | February 3, 2009 1:14 PM
Everyone is talking about declining populations like they are a bad thing -- they're not.
Less people = more resources available per person, more employment opportunity, smaller government, etc.
Posted by Thisson | February 3, 2009 1:39 PM
Rodalpho - umm, a little bit, but not much. Barry disputed something Carter said, but to be honest
Posted by St. Louis Commercial Buildings | February 3, 2009 2:46 PM
Noah said:
" I do think you will see inflation come in the form of commodities, precious metals, food, health care"
Huge mistake! Price inflation has nothing to do with monetary inflation unless you believe that the USD will depreciate relative the currencies around the world at an unprecedented rate.
Commodities, precious metals, food, and health care are a function of supply and demand. Price inflation will only be caused by supply destruction that will never return which is wrong. Demand destruction for these listed items is occurring and will continue to occur at an unprecedented rate and it will not return in our life times as the middle class in emerging markets will get pushed back into the working class and/or poverty to never afford these 'luxuries' again.
The middle class (i.e. union workers) in the US will also be pushed back into the working class and/or poverty. You truly fail to grasp what is happening at the federal, state, and local government level. The Detroit Three are the canary in the coal mine. What happens to the UAW and in Vallejo, Florida, California, Ohio, etc. will dictate what happens in every municipality nation wide.
The commodity bubble was pure speculation through leverage and that will not change. Only supply destruction will set a new equilibrium which has nothing to do with quantitative easing in the US.
Don't bet that monetary inflation will cause a price change in commodities, food, health care, etc. Either you are talking your position or you do not understand Austrian economics or both.
We are stuck in the third inning because of our government's meddling and that will not change soon barring a catastrophic collapse of numerous industries simultaneously.
I do not dwell in the Street's 'fire house' and as an engineer through academia see no alternative outcomes.
Posted by JT | February 3, 2009 3:19 PM
"unless you believe that the USD will depreciate relative the currencies around the world at an unprecedented rate"
ultimately, this is what I think. Granted, its all relative as you say, and deflationary forces may bring with it a strengthening of the dollar, in the end, Im not crazy about any fiat currency
Posted by Office - Noah | February 3, 2009 3:22 PM
fyi - I have a recent small position in USO/DIG and I have had a position in GOLD from low 600s since early 2007 that I am holding.
I do not trade at the level to talk up any position! I talk based on my view. Im certainly not always right and I certainly am no expert on austrian economics, nor do I pretend to be.
I just enjoy learning and this blog is for me to talk out loud and express some thoughts.
Posted by Office - Noah | February 3, 2009 3:30 PM
Noah wrote:
"ultimately, this is what I think. Granted, its all relative as you say, and deflationary forces may bring with it a strengthening of the dollar, in the end, Im not crazy about any fiat currency"
It is all relative and the USD is decreasing in value but a slower rate than other fiat currency. They are all in a race to the bottom which is something we can agree upon.
Where we disagree is what does the rest of the world have if the American consumer takes their ball and goes home...nothing. The civil unrest and debilitating depression that is staring the European union, China, Russia, Brazil, etc. in the face will be much too difficult for these countries to bear.
Half of the European Union, Japan, and China (yes, China) are in the throws of 1930s style depression.
The USD sucks but each and every other fiat currency swallows (maybe the Nori gets a pass for now)!
If China allowed their currency to float it would collapse like the Russian Ruble.
Think about it.
Posted by JT | February 3, 2009 4:31 PM
Look at the fundamentals. Historically, China has been making stuff and sending it here. If we no longer will take delivery of their stuff and giving them (worthless?) iou's, I don't see them suffering (other than a temporary dislocation as they reallocate their resources). They will simply have more stuff (or more unused capacity to make stuff).
They can either trade that stuff to other countries in exchange for that other country's stuff (or currency, or iou's) OR they can consume that stuff domesticly.
All fiat currencies are harmful, because they allow governments/central banks to distort prices, and distorted prices cause unsustainable mal-investment.
Posted by Thisson | February 4, 2009 11:25 AM
Thisson-
Your assertions are nothing more than economic theories that only pan out in a 'text book' scenario. Don't bet on it.
China's depression will rival most countries. Their entire economic model was based on the American consumer as was the rest of the world. China's consumers save equivalent to 40% of China's GDP and will never spend...most definitely not into the headwinds of Depression 2.0. They can try to reallocate to whatever they want but over capacity will vanish to never return. You cannot reallocate capacity that should never have existed in the first place.
FYI - There is no one to trade with and China's domestic based consumption will tank from their current inconsequential levels.
It is never different 'here'.
Posted by JT | February 4, 2009 3:47 PM