Housing Bubble Correction Update: Here comes the jobs crash (Part I)

[FRED]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

I current live in Northern Ohio and comparing this chart to overall Ohio one, as well as my own person experience, seems to indicate that Ohio could be split more into two regions; North & Centeral/South.

Nothern Ohio is manufacturing heavy with large amounts of businsses supplying the American auto industry. The only sector that is probably still holding is heathcare (the world-class Cleveland Clinic), but with a shrinking population, I'm not sure how much longer that will hold too. I would expect that if you did a chart for Detriot and the surrounding areas, it would be very similar to the one above.

The Central/Southern part of the state is more diversified accross multiple sectors: technology, military/government (Dayton), consumer staples (P&G), banking, retail, as well as the entire state having a strong agriculture industry. The greater weighting of these parts of the state are probably what gave the suprising rating of "fair" for the overall State of Ohio.

It would be interesting to compare the chart above to Detroit, as well as the Columbus, Dayton, and Cincinnatti areas of Ohio. I'm curious if what I suspect holds true.

We do not have Columbus and Dayton data so we created a chart to compare Cleveland and Ohio without Cleveland, plus Detroit. As you suspected, the auto recession is hurting Detroit as much as Cleveland. But even outside of Cleveland, Ohio is experiencing a big spike in unemployment.

[World Traveler]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

Zoog, I think you made a smart move, based on my experience in a housing bust. Better to sell too soon than too late, in a major bust like this is shaping up to be. At least that's been my Lesson Learned. Too late, and you either lose a substantial sum at closing, or you end up stuck with a house for maybe a lot longer than you want.

In Houston housing bust, we stayed put in our first house far too long, mainly because spouse worked near our suburban sub-division, at least until laid off in 1986. After lay-off, we wanted to move, but house prices in neighborhood were nose-diving. In 1993, I was finally able to sell the house we bought in 1982, for a little less than we had paid. I had to sweeten the deal, by allowing them, with VA approval, to assume our existing mortgage.

It was an arduous process and I wouldn't want to do it again. I played realtor on this deal, put the ads in newspapers, did all the showings myself, etc., etc. I also looked up price of every house for sale in sub-division and slightly priced my house below them. By 1993, the nominal price people in sub-division were asking was back to 1982 prices, but I noticed that houses priced at that level were not really moving much. To get rid of our first house, I was willing to take a small loss, in nominal dollars 11 years later, and I felt it was worth every penny of that small loss. It had finally sold!!

[rchdenton]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

Hmm, fascinating stuff. To what extent could New Zealand, where I live, be considered an outer state? And are we like Wisconsin???

For my part I have sold all residential real estate in the last few months and now live much more comfortably in a brand new rented house.

Having made the change it now seems like the right move.

What is entirely unclear to me is whereto next.

[Master Shake]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

So, when do energy prices start reflecting the decreased demand brought about by the crappy economy? A good chunk of my 403(b) is in Fidelity's various energy and natural resources funds.

[GRG55]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

So, when do energy prices start reflecting the decreased demand brought about by the crappy economy? A good chunk of my 403(b) is in Fidelity's various energy and natural resources funds.

When the FIRE economy was roaring along, generating GDP through printing all manner of toxic waste paper and flogging it around the world, how much real energy did that require?

OK, I'll grant that all those contractors in California, Arizona and Florida, flinging up pressed-oatmeal-panel tract houses used some fuel in their pick-ups.

But Wall Street was the bulk of the action, and as the much-touted "less energy intensive per unit of GDP" US FIRE economy implodes, we may be surprised at how little influence it has on total global energy demand [barring a BRIC meltdown] compared to the last really deep recessions in the 1970's and early 1980's. ;)

[EJ]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

So, when do energy prices start reflecting the decreased demand brought about by the crappy economy? A good chunk of my 403(b) is in Fidelity's various energy and natural resources funds.

Perhaps not for a long time. Our working definition of Peak Cheap Oil:

Peak Cheap Oil™, n. (iTulip): Global oil depletion will result in oil output declines worldwide just as oil output peaked and declined in the US in the mid 1970s and many other countries before and since. We will only known in hindsight when the peak was reached. Years before physical oil production peaks, sophisticated market participants, such as governments and institutional investors, will begin to price in the economic and market impact. The primary impact is inflationary: rising energy costs exert a growing tax on economic surplus, eventually slowing and eventually reversing growth in countries that are unable to reduce oil energy demand quickly through efficiency gains.

• The governments of both net oil consuming and net oil producing counties begin to hoard oil
• Producers hoard oil in ground, consumers in storage (e.g., US strategic oil reserve)
• More desirable higher quality sweet light crude is hoarded first before heavy, sour crude
• Institutional investors are the first to anticipate an incipient rise in inflation
• Investors purchase hard assets and claims on hard assets, including oil itself, to hedge inflation
• Demand falls as prices rise, except among producers that subsidize oil either to fund government and early growth stage economies (e.g., China and India) that cannot produce economic output at high energy costs as can mature economies
• As energy inflation intensifies, investment in hard assets widens to include all investor classes
• Hoarding and investment in inflation hedges increases claims on physical assets, driving prices up even as demand falls
• Governments respond to slowing economic growth with traditional reflation policies that result in global currency depreciation, accelerating energy price inflation in all currencies, which gradually feeds into pricing throughout the economy starting with energy-sensitive goods such as food and chemicals
• The energy induced inflation spiral only ends when a new energy-based monetary policy orthodoxy is developed and deployed, including an energy based global currency regime, a process that may take as much as a decade

[Master Shake]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

Thanks, EJ.

I'm sure you've covered this before but just what does this mean?

The energy induced inflation spiral only ends when a new energy-based monetary policy orthodoxy is developed and deployed, including an energy based global currency regime, a process that may take as much as a decade

Does that mean an end to central banking and fiat money as we know it and a return to asset-backed money?

[ax]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

My poor home town of Cleveland is in rough shape. Despite excellent medical and legal communities, it hasn't been able to attract/keep young people for years. The urban sprawl is almost down to Columbus and I fear it won't be long before we have a Detroit like situation. It's Florida minus the boom that never came. Feel for you Dbarberic. A survey to prepare for the week ahead.

Bloomberg Survey
================================================== ==============
=
Release Period Prior Median
Indicator Date Value Forecast
================================================== ==============
=
PPI MOM% 7/15 June 1.4% 1.3%
Core PPI MOM% 7/15 June 0.2% 0.3%
PPI YOY% 7/15 June 7.2% 8.6%
Core PPI YOY% 7/15 June 3.0% 3.2%
Empire Manu. Index 7/15 July -8.7 -7.8
Retail Sales MOM% 7/15 June 1.0% 0.4%
Retail ex-autos MOM% 7/15 June 1.2% 1.0%
Business Inv. MOM% 7/15 May 0.5% 0.5%
IBD/TIPP Conf. Index 7/15 Dec. 37.4 36.8
ABC Conf Index 7/15 14-Jul -41 -42
Mortgage Apps. WOW% 7/16 12-Jul 7.5% n/a
CPI MOM% 7/16 June 0.6% 0.7%
Core CPI MOM% 7/16 June 0.2% 0.2%
CPI YOY% 7/16 June 4.2% 4.5%
Core CPI YOY% 7/16 June 2.3% 2.3%
Core CPI SA Index 7/16 June 214.832 n/a
CPI NSA Index 7/16 June 216.632 217.907
Net Long Term TICS $ Bl 7/16 May 115.1 67.5
Total TICS $ Blns 7/16 May 60.6 57.5
Ind. Prod. MOM% 7/16 June -0.2% 0.0%
Cap. Util. % 7/16 June 79.4% 79.4%
NAHB Housing Index 7/16 July 18 18
Housing Starts ,000's 7/17 June 975 960
Building Permits ,000's 7/17 June 978 965
Initial Claims ,000's 7/17 13-Jul 346 380
Cont. Claims ,000's 7/17 6-Jul 3202 3180
Philly Fed Index 7/17 July -17.1 -15.0
================================================== ==============
=
http://www.bloomberg.com/apps/news?p...bXU&refer=home

[Uncle Jack]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

I don't think you mentioned it anywhere in the article, but I just thought I'd point out that I recognize the picture at the top of the article. It's Smiler Brogan's car going over the side of the highway in the movie, "It's a Mad, Mad, Mad, Mad World."

Nice.

[Guest]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

EJ - As I have long concluded, once you got interested in the many, many ramifications of Peak Cheap Oil, you would bring to bear a level of financial scrutiny, and resulting insights regarding it's myriad economic implications, that are even more probing than many others that have been all over this topic for the better part of a decade. This is where iTulip's existing strong suits (finance / econ) brought to bear, can peel back entire new layers of forward looking, invaluable intelligence for your readers. Way to go! I will follow this new / old iTulip line of inquiry, opening up that entire can of worms with lively interest.

Perhaps not for a long time. Our working definition of Peak Cheap Oil:

Peak Cheap Oil™, n. (iTulip): Global oil depletion will result in oil output declines worldwide just as oil output peaked and declined in the US in the mid 1970s and many other countries before and since. We will only known in hindsight when the peak was reached. Years before physical oil production peaks, sophisticated market participants, such as governments and institutional investors, will begin to price in the economic and market impact. The primary impact is inflationary: rising energy costs exert a growing tax on economic surplus, eventually slowing and eventually reversing growth in countries that are unable to reduce oil energy demand quickly through efficiency gains.

• The governments of both net oil consuming and net oil producing counties begin to hoard oil
• Producers hoard oil in ground, consumers in storage (e.g., US strategic oil reserve)
• More desirable higher quality sweet light crude is hoarded first before heavy, sour crude
• Institutional investors are the first to anticipate an incipient rise in inflation
• Investors purchase hard assets and claims on hard assets, including oil itself, to hedge inflation
• Demand falls as prices rise, except among producers that subsidize oil either to fund government and early growth stage economies (e.g., China and India) that cannot produce economic output at high energy costs as can mature economies
• As energy inflation intensifies, investment in hard assets widens to include all investor classes
• Hoarding and investment in inflation hedges increases claims on physical assets, driving prices up even as demand falls
• Governments respond to slowing economic growth with traditional reflation policies that result in global currency depreciation, accelerating energy price inflation in all currencies, which gradually feeds into pricing throughout the economy starting with energy-sensitive goods such as food and chemicals
• The energy induced inflation spiral only ends when a new energy-based monetary policy orthodoxy is developed and deployed, including an energy based global currency regime, a process that may take as much as a decade

[bill]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

when a new energy-based monetary policy orthodoxy is developed and deployed, including an energy based global currency regime, a process that may take as much as a decade

http://www.itulip.com/forums/showthr...33297#poststop

A controllable resource with few competitors, limited resource extraction, energy security, completely controlled processing, strict distribution management, enhanced environmental friendly product, and waste control management.

Who will be part of the new reserve basket?

[ocelotl]

Re: Housing Bubble Correction Update: Here comes the jobs crash (Part I)

Regarding the fundamental premise of this thread, the loss of jobs due to the declining value of both housing and the USD, it has been posted in this site that there is also a lack of wage inflation within US, but there is a sector that is going to face hard downgrades on revenues due to their same composition and that there are at the first row on this job loss stage: Non US based transnationals whose costs are not in USD but their sell prices are in USD.

Dissecting this sector, we see there is a clear wage and cost inflation (appreciating salaries, manufacturing and shipping costs costs due to the declining value of USD against several currencies, as well as the increasing oil costs) even when there is not a nominal increase of salaries.

As selling prices cannot increase according to costs due to competition with american counterparts, there is a loss of revenue in this sector, so we are in the way to a contagion of US recession conditions into the largest non USD transnationals due to this same effect.

[LargoWinch]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

Hmmm I am a little confused regarding crude oil.

On one side, crude is under pressure from a slowing economy (at least in the US) and on the other side, inflation is picking up.

Both Marc Faber and Stephen Leebs think that crude oil and industrial commodities are headed lower during 3Q and 4Q of this year, but will then pick-up their long-term bullish trend.

Can someone shed some light on this for me?

[GRG55]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

Hmmm I am a little confused regarding crude oil.

On one side, crude is under pressure from a slowing economy (at least in the US) and on the other side, inflation is picking up.

Both Marc Faber and Stephen Leebs think that crude oil and industrial commodities are headed lower during 3Q and 4Q of this year, but will then pick-up their long-term bullish trend.

Can someone shed some light on this for me?

I would assume they believe that slowing global growth will dampen demand for raw materials and energy, but the usual Central Bank (particularly Fed) response to same will cause dollar denominated commodities to return to an inflationary price trend after that.

[Slimprofits]

Re: Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs cra

My mother, in a desirable, suburban Massachusetts town, is just a few months away from paying off her mortgage. I've been trying to convince her to sell while some of the idiots in Massachusetts are still buying. Hopefully it is not to late and for her sake, she'll listen to E.J., if not me.

I wuz wrong (nothing new).

EJ:

Since this article was published several readers emailed to ask me if I own a home. My wife and I purchased our home in a suburb of Massachusetts in 1999. Current market price is approximately twice what we paid for it. We do not have a mortgage. Housing in our area did not participate significantly in the housing bubble price inflation. Prices increased only moderately during the 2002 to 2005 inflation period so there has been minimal asset bubble deflation here. The town is at low risk to significant further home price declines due to a well diversified state and regional economy, unique proximity to several world class universities, and one of the best K-12 school systems in the US. Areas of the US that produce and retain highly trained and thus globally competitive workers will continue to attract population from other areas. For that reason, and due to the strong euro attracting European buyers, home prices actually increased 5% between 2006 and 2007 here and the appreciation is accelerating this year, as a result of migration from areas of the country and European buyers.