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.
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