Monday, October 20, 2008

crash of the titans

This pic has been used beyond redemption..., I redeemed it

Slow motion train wrecks and all...

I'm still digesting the last weeks, and there is ever-more to digest. It is difficult (for me) to look at markets, bail-outs, etc., without getting into politics, but I'll do my best.

Trillions of dollars lost in the stock markets, and governments pumping trillions into the banks to "save" them, but who, and what, is being saved? Those trillions (or, in the case of Canada, billions), are not magic dollars pulled out of a hat, they are dollars from central banks, and have interest attached to them. We, or more accurately, our children and grandchildren, will be on the hook for that. Who benefits? It could be said that we benefit; by not having bank failures (yet), by not having our economies wiped out (yet), by saving jobs (so far), by propping up RE markets, and businesses that have made record billions (and collectively, trillions) in profits. Nobody "knows" if these cash infusions are going to make any real difference (well, I know that they won't), but what the heck, eh? It's just Other People's Money. My own feeling is that it is just delaying the inevitable, and we are still going to have a global recession, or worse (worse is my feeling). It's a bit like the guy who is over-leveraged, and keeps borrowing more to make the payments on what is already borrowed. It just can't end well.

85% of Canadians' wealth is in their homes, and those homes have fallen almost 7% in value nationally, and 8% in Vancouver since May. And it has just begun. American RE is still falling. But, it's different here, right? Then there are all of those hedge funds and mutual funds and such that make up the rest of the wealth. That has only fallen 40% since July. Oil has fallen 50% since July, and with all of that, a large chunk of government revenues. Just wait for the lay-offs, when even more tax revenues will be lost, and unemployment benefits, welfare benefits, CMHC insured mortgages go belly-up, etc., start to suck evermore money. Then there are the consumer goods that will not be purchased, leading to even more tax revenues foregone, plus more unemployment.

The only prediction that I can make right now, is that it is going to get very ugly, soon. I know that my predictions are worthless - I am not an expert, or highly educated and paid economist, but were they not the ones talking about slowing appreciation in the housing markets that would be confined to single digits? Were they not the ones saying that oil was going to $300/bbl within a year? That the Canadian economy was as "solid as the Canadian Shield"? That the government would never run deficits? Insert your own platitudinous reassurances here ___________.

I've got more to say on this, but have not the time right now. I'll be back.


Art Vandelay said...

They can't cure a credit bubble by creating more credit. At some point, we will feel the pain.

My biggest chuckle is the focus on daily stock market gyrations. Those wild trades by institutions trying to make back the billions they've lost, have nothing to do with the economy on the street. But it's a great diversionary tactic.

M- said...

...if worst comes to worst, we'll be saved from the strong demand for our million-dollar westside shacks and Whalley condos by rich asians and rich arabs...

blueskies said...

Insert your own platitudinous reassurances here ___________.

it's different here... :-)

kabloona said...

Hey, did anybody else watch the CBC national news last night and catch the item about Beijing real estate? I had to laugh...not at the plight of the people who are losing money, but in the similarity of the message from the real estate agents.

They showed a guy who sank his life savings into a condo near the Beijing Olympics site, now the condo has dropped 25% in value and nobody wants to buy condos anymore. The piece then showed some agent in a crappy looking condo saying they still got looky-loos, but those people just wanna rent - not buy!

The purchaser's remarks: "The real estate agent said the price could only go up. I think the developer should do something about this situation..."

Welcome to Capitalism, comrade....

Money Talks said...

Great Blog.
The Coming Depression

solipsist said...

They can't cure a credit bubble by creating more credit.

What the heck though, might as well give it a try. "They" have golden parachutes, etc. Who cares about you and me? Just so many pawns to "Them".

rich asians and rich arabs...

Those Asians are not quite so rich as they were 6 months ago. Sheesh! The Chinese economy is "crashing", and only has 8% growth now (down from double digits). The Arabs will remain rich, until the oil is all gone. I read somewhere that Dubai is buying the US, one piece at a time.

it's different here... :-)

Whew! I feel better already! Thanks blueskies!

kabloona - I caught that too. I guess they don't have the mountains, and the weather, in Bejing. Suckers.

money talks - is this blog great? Or did you mean yours? (grin) I'll let you know when I get over there.

Panamericana said...

How the markets really work: