A Drive By Recession?
From Flecks latest tells why this isn't a "drive by recession": Why We Can't Cruise Past A Recession
It would appear that the recent strength in the stock market has reinforced the opinion of those in the bullish camp that the worst has been seen for the economy.
It would seem that folks of this mind-set have taken a page from the shoddy appraisal tactics of
the real-estate bubble and have concluded that all the economy will experience is something on the order of a drive-by recession.
In the case of the most recent bubble, massive debt was applied to that asset class as folks borrowed against homes to make ends meet.
(That's now created an economic problem for both borrower and lender.) Is that a reasonable expectation, (we've seen the worst?)
given that mortgage resets will continue to increase (especially in the Alt-A mortgage universe between subprime and prime,
which is far bigger than the subprime universe was), housing prices continue to weaken and there is no possibility of a new housing ATM to resurrect the consumer?
Japan's bubble was primarily a real-estate bubble -- fueled by enormous debt creation.
That is one of the reasons Japan's real-estate market declined in excess of 80% over a decade and why it took so long for the Japanese economy to recover.
Those who are expecting a drive-by recession are liable to find that what we're really experiencing is the calm before the storm.
The Nattering One concurs... after the 2000 - 2002 dot com collapse,
there was a collapse in business capital spending, a sector that peaked at only 13% of real GDP.
The resulting bailout (1% interest rates) produced an echo bubble(real estate).
The collapse of home building (responsible for 80% of all new jobs since 2001);
real estate assets and its associated credit (debt) bubble was responsible for 78% of real GDP.
In early March, Stephen Roach at Morgan Stanley echoed our "Cut All You Want" sentiment:
"Interest rate cuts are unlikely to halt the decline in nationwide home prices.
Given the outsize imbalance between supply and demand for new homes, housing prices may need to fall an additional 20% to clear the market."
The MEW (mortgage equity withdrawal) ATM that supported the limited recovery from the first bubble is gone.
The durable economy that existed before the first bubble (manufacturing and automotive) is emasculated (outsourced) and gone.
Almost 90% of the economy is now based on services industries, which without external demand, have a dwindling internal base left to feed them.
It would appear that the recent strength in the stock market has reinforced the opinion of those in the bullish camp that the worst has been seen for the economy.
It would seem that folks of this mind-set have taken a page from the shoddy appraisal tactics of
the real-estate bubble and have concluded that all the economy will experience is something on the order of a drive-by recession.
In the case of the most recent bubble, massive debt was applied to that asset class as folks borrowed against homes to make ends meet.
(That's now created an economic problem for both borrower and lender.) Is that a reasonable expectation, (we've seen the worst?)
given that mortgage resets will continue to increase (especially in the Alt-A mortgage universe between subprime and prime,
which is far bigger than the subprime universe was), housing prices continue to weaken and there is no possibility of a new housing ATM to resurrect the consumer?
Japan's bubble was primarily a real-estate bubble -- fueled by enormous debt creation.
That is one of the reasons Japan's real-estate market declined in excess of 80% over a decade and why it took so long for the Japanese economy to recover.
Those who are expecting a drive-by recession are liable to find that what we're really experiencing is the calm before the storm.
The Nattering One concurs... after the 2000 - 2002 dot com collapse,
there was a collapse in business capital spending, a sector that peaked at only 13% of real GDP.
The resulting bailout (1% interest rates) produced an echo bubble(real estate).
The collapse of home building (responsible for 80% of all new jobs since 2001);
real estate assets and its associated credit (debt) bubble was responsible for 78% of real GDP.
In early March, Stephen Roach at Morgan Stanley echoed our "Cut All You Want" sentiment:
"Interest rate cuts are unlikely to halt the decline in nationwide home prices.
Given the outsize imbalance between supply and demand for new homes, housing prices may need to fall an additional 20% to clear the market."
The MEW (mortgage equity withdrawal) ATM that supported the limited recovery from the first bubble is gone.
The durable economy that existed before the first bubble (manufacturing and automotive) is emasculated (outsourced) and gone.
Almost 90% of the economy is now based on services industries, which without external demand, have a dwindling internal base left to feed them.
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