Naked Capitalism notes how the rates for shipping have plummeted. Too much. The ships are returning to port. Its not worth running them at today's rates:
http://www.nakedcapitalism.com/2008/11/yet-more-trade-finance-worries-not-for.html
There are several instances of letters of credit being refused. In particular, I'm hearing a TON of rumors from people who should know that Russia letters of credit no longer will be accepted and than cargos going to Russia are having to be reloaded as the payment cannot be completed.
Also I expect my readers to also be Calculatedrisk readers. Quite blunty, the commodities crash has created a very simple issue: Customers cannot afford to accept delivery of anything that has substantially decreased in value (copper, lumber, non-precious metals). Every is giving little examples here and there of deliveries being refused as payment would bankrupt the receiving company. Heck, with the reduction in consumer spending, who needs to produce more.
I also expect you to have been reading Calculatedrisk or Nakedcapitalism's articles
California is also trying to slow foreclosures. Basically the market is going from the roaring times at Point A (black dot). Due to job losses and tightening credit, we were moving to Point C via Point B. Why not direct? At first demand dropped while the sellers 'held out' in denial; In English, the demand curve shifted (From Demand1 to Demand2) while we stayed on the Supply1 curve. Thanks to foreclosures and underwater owners, we are now drifting to the Supply2 curve and the Demand2 curve (Point C).
California is tring to artificially limit supply. They think this will increase demand and put us back at A or C'. But...they cannot drive the demand curve, only the supply curve.
So the best case scenario is back to point B. (This won't happen, the economy is too broken.) There is a huge risk to this stupid strategy. 1. Banks go on a loan strike and buyers flee the state. It also could 3) keep housing costs so artificially high that it effect unemployment driving us to a new demand curve. So it will drive us to a new demand curve (Demand 3). So the question is... will we end up at point D or E? Heck, we could get a 'slingshot effect' with more supply and go to F!
Faith is being lost in the system. What I'm seeing with shipping and airline demand is past the breaking point. If the government doesn't stop treating the symptoms and instead offers a cure... we're going to go into Depression. If Obama does too much to bail out the auto industry or airlines... it will create a trade war and that will be Smoot-Hawley II. If the government doesn't stimulate demand... that too is really bad. I vote for infrastructure that will help stimulate business for decades. Other countries will not tolerate it if we become protectionist. Smoot-Hawley was bad as it destroyed import/export jobs faster than the manufacturing jobs it was supposed to create. Heck, it destroyed manufacturing jobs too as our exports were tariffed at the other end. Bailout packages that give our industries too much of an advantage will have the same effect.
Got Popcorn?
Neil
4 comments:
Neil.. I understand that the State of California is going to revoke the foreclosed owner's tax-free status on forgiven debt in January 2009 (meaning that if you're foreclosed on in 2008, the owner will not be taxed on forgiven debt - state and federal). But, in 2009, the state will be able to come after their share of the foreclosed owner's forgiven debt - federal will not change. Is this what you hear? Is so, no wonder the state is planning a 90-day grace period on all foreclosures in the state. I thought they were doing homeowners a favor.
Halting foreclosures does nobody a favor. If you can't afford the payments today, you also can't afford them tomorrow.
Actually, I should say, it does benefit the freeloaders. An extra 3 months rent free for the people who made bad decisions during the boom; while all of us pay for it in the long run.
Neil.. I understand that the State of California is going to revoke the foreclosed owner's tax-free status on forgiven debt
Ouch! Double whammy, we won't let them foreclose on you until the state gets their pound of flesh...
I'm livid at the foreclosure halt. A contract is a contract. The banks did the wrong of issuing stupid mortgages. But they still have a right to foreclose. The best thing for all of us is to speed up the process.
I'm also tired of the 'buy now' crowd not getting price/demand graphs. While mine is very over-simplified, the red path is where we are going.
Got Popcorn?
Neil
ps
To those in the fire zones, my heart goes out. I know of a family who has lived in their home 10+ years who had to flee last night. Quite a few of my coworkers were returning from travel and were unable to get to or assist their families. (None lost a home, thankfully.)
HometownRenter.com has the questions to ask yourself if it is better to rent or buy in your situation. Do you need the flexibility of renting? or can you afford to stay in your home for at least 5 years or longer?
* Can you afford a 20% down payment?
* Can you afford a monthly payment on a 30-year fixed mortgage?
* ask your CPA ... Does the tax benefit of home ownership offset a potential decline in home value?
* Have you reduced other real estate debt before you add more on this home purchase?
* Does a fixed monthly mortgage payment for the next 15 years outweigh the likely inflation of rents during that same time (called an inflation hedge)
These are broad questions that can have many variations for each individual situation. However, it is a good foundation from which to start your home buying process.
If you are in the market for a rental, visit www.HometownRenter.com to find your next rental home!
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