Some GREAT News for the Manhattan RE Market

I'm not convinced(a little dated but still relevant)

The Supercycle of Debt - America's Growing Burden
John Mauldin
Debt and the dollar, employment and interest rates, the U.S. economy and world trade,
money supply and inflation/deflation, taxes, deficits, commodity prices, politics, war,
regulation plus a host of other variables. They are all related in a very complex and
dynamic fashion. Changing one of them may change each of the others in often
unpredictable ways, which in turn affect all the others.
We are in a stimulus driven recovery. I think it will last for most of this year, if not the entire
year. Yet, easy money and stimulus are not without a price. Messing with a free market is a
perilous task. On the other hand, to have not acted would have insured a double-dip
recession of what I think would have been of serious proportions. Will the stimulus be
enough to start a self-reinforcing growth cycle? Perhaps... perhaps not. But it is still useful
to understand what the effects of current trends and policies are likely to be.The Butterfly
Effect is the theory that the flitting of a butterfly in Costa Rica can change the weather
patterns for the world. Everything is connected to everything else. It makes for an
interesting New Age proposition or a late night philosophical conversation.
But the items mentioned in the first paragraph above are not butterflies. They are not even
whales. They are volcanoes and earthquakes and ocean currents. They are the fuel and
engine and tires and transmission of the world economy, not the fine Corinthian leather or
color of the paint.
Let's look at two quotes. The first is from the respected (and currently quite bullish) Bank
Credit Analyst. As part and parcel of their views, they have an over-riding theme on what
they call the Supercycle of Debt. This view is widely held by many market observers,
including me, but their explanation is far simpler than most. Let me quote from their recent
January issue (www.bcaresearch.com):
"The Supercycle is a description of the long-term decline in balance sheet liquidity and rise
in indebtedness during the post-WWII period. Economic expansions have always been
associated with a build-up of leverage. However, prior to the introduction of automatic
stabilizers such as the welfare state and deposit insurance, balance sheet excesses
tended to be fully unwound during economic downturns, albeit at the cost of severe
declines in activity.
"Government policies to smooth out the business cycle were successful in preventing the
frequent depressions that plagued the pre-WWII economy, but the downside was that the
balance sheet imbalances and financial excesses built up during each expansion phase
were never fully unwound.
"Periodic 'cyclical' corrections to the trend occurred during recessions, but these were not
enough to reverse the long-run trend. Each time that liquidity was rebuilt during a
recession, it failed to bring the level back to the previous recovery high. Meanwhile, the
liquidity rundown during the next expansion phase established new lows.
"These trends led to growing illiquidity, vulnerability and volatility in the financial markets.
The greater the degree of illiquidity in the economy, the greater the threat of deflation.
Thus, the bigger that balance sheet excesses become, the more painful the corrective
process would be. So, the stakes have become higher in each cycle, putting ever-
increasing pressure on the authorities to reflate demand, by whatever means are available.
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Copyright © 2000-2004 Agora Publishing, Inc. All rights reserved.
The Supercycle process is driven over time by the building tension between rising
underlying deflationary risks in the economy, and the ability of policymakers to create
inflation."
From there let us go a quote brought to my attention by Michael Lewitt in the HCM Market
Letter by economist Joseph Schumpeter. As you read the following, think about the nature
of our current recovery. Is the stimulus for the current recovery real or is it artificial?
"Our analysis leads us to believe that recovery is only sound if it does come from itself.
For any revival which is merely due to artificial stimulus leaves part of the work of
depression undone and adds, to an undigested remnant of maladjustments, new
maladjustments of its own." - Jospeh Schumpeter
Liquidity, as used by BCA, refers to the ability of businesses and consumers to put their
hands on cash, either for purposes of investing or consumption. The appearance of home
equity loans and mortgage refinancing has the effect of increasing liquidity. It clearly
created a great deal of consumption in the late 90's and more recently, in the massive
wave of re-financing last year.
But once debt is used, that source of liquidity is no longer available until the debt is repaid.
As noted last week, predicting the demise of the American consumer has been a losing
bet, but that does not mean that all is well. Much of the available liquidity in the form of
debt has been used. How much more is available? No one knows. But let's look at some
numbers from Applied Income Sciences in San Francisco:
"U.S. consumer debt is at a historic high. Excluding mortgages, the average personal
consumer debt is about $18,654 per person. This is up more than 41% from 1998. The
cost of servicing consumer debt is also at record levels: the average American now spends
18.1% of their disposable income servicing personal debt."
U.S. household debt as a percentage of GDP has risen from below 50% in 1984 to almost
90% today, almost doubling in the process. That is in just 20 years. From 1964 to 1984,
debt as a percentage of GDP was essentially flat, rising only a few percentage points.
Clearly debt has played a large part of the growth of the last two decades, and is equally
important in the sustained consumer spending of the recent recession. The recent ability of
consumers to access debt in the midst of a recession was unprecedented in world
economic history, and along with the housing boom was responsible for a very mild
recession. The U.S. government and the Fed applied a very powerful cocktail of stimulus
from low interest rates, tax cuts and deficit spending. The rest of the world obliged by
buying our national debt in massive amounts. Combined with consumer debt, it worked to
produce a recovery, and recently a most powerful one.
Will the Fed's cocktail be enough to induce a self-perpetuating recovery? The answer
remains to be seen... when the effects of the U.S.'s credit intoxication eventually wear

"2. Morgan Stanley is boosting the salary of their executives (let's hope Barney Frank does not find out)"

How many employees are they laying off too boost the salaries of their executives?

Comp is not changing, just the ratio of salary to bonus.

"Morgan Stanley is boosting the salary of their executives"

Wow. That's enough to affect to real estate market all the way from East 72nd to East 73rd!

i think this map says it all about the near term future of NYC RE:

http://www.creativeclass.com/creative_class/_wordpress/wp-content/uploads/2009/05/housingbubblemap1.jpg

Wow, alpine is a moron.

nyc10022,
agree or disagree, this comment 'Wow, alpine is a moron' is not that helpful. OK, you disagree. Refute his argument with you own analysis and data. Any 'moron' can chuck rocks from the side of the road. Alpine is not just pontificating, he's linking you to some of the data that supports his argument. I might not be swayed by the data but it's great to have someone who is taking the time to support it and potentially enlighten others.
If name calling is all you got...stick with your strenghts. I would encorage you to pick apart his argument with a bit of the intelect that you have brought to other threads.

Falcogold, tell me you aren't serious. This is so dumb it doesn't need refuting. Alpine will take ANY headline and say "this is good news" at the end.

Notice he does NO ANALYSIS.

And you're expecting us to?

Well, for the slow folk...

> Two pieces of positive news for the Manhattan RE market in the link below:
> 1. The Fed is pledging to keep interests rates near ZERO

Bad news... the Fed HAS to keep interest rates near zero because lending still bad.

Whoops.

> 2. Morgan Stanley is boosting the salary of their executives (let's hope Barney Frank
> does not find out)

Article HEADLINE says "Morgan Stanley To Boost Executive Salaries As Bonuses Decline"

Salaries are going up because they KNOW THEY WILL HAVE TO LIMIT BONUSES.

And that's good news?

Seriously, falco, expecting us to give any respect to complete moronic statements without any analysis... wow

> Alpine is not just pontificating, he's linking you to some of the data that supports his argument.

Falco, you really need to read more before you complain.

He simply didn't do that.

> but it's great to have someone who is taking the time to support it and potentially enlighten others.

Yes, that would be great.

But thats not alpine.

The guy didn't even finish reading THE HEADLINE!

ROTFL.

Sorry, still laughing about this one.

"The Fed is pledging to keep interests rates near ZERO". BWAHAHA! Where to start? Should we start with the fact that interest rates take their cue as much from long term rates as short term ones? And that the market, not the Fed, sets LT rates? And that they have spiked up lately? Or that even Obama concedes that inflation will pick up? Or that the Fed's primary mission is to combat inflation, and if that spikes up their is NO WAY in hell the Fed will honor any pledge to "keep interest rates near ZERO". Or, should we ask to see this pledge? I certainly don't recall Chairman Bernanke saying that. Did he capitalize ZERO, like Alpine? Or is Alpine referring to the economist at the San Francisco federal reserve bank who predicated that rates will be near zero for some time? Since when do forecasts of government economists amount to a "pledge"? And of what value would such a pledge be, given that the Governors of the Federal Reserve Board vote on interest rates, not low-level economist staffers. Finally, haven't Fed Funds futures been a much better predictor of Fed Funds rate than "pledges" and forecasts? Forwards indicate that rates will stay near zero for the rest of 2009, but that's it.

This guy is very clearly a broker. And the only thing he's seen of Alpine, NJ is when he caddies at the country clubs on weekends to make ends meet.

Falcogold1 wtore "agree or disagree, this comment 'Wow, alpine is a moron' is not that helpful. OK, you disagree. Refute his argument with you own analysis and data."

That's not necessarily true, Falco. "Naming and shaming" has a value to boards like this and to society at large- it embarrasses the perpetrators of hoaxes and it warns others, like me, to avoid wasting precious time reading their works of dissumulation. This is why the police post the names of johns caught soliciting prostitution in the newspaper - to embarrass and discourage. In medieval times, people were put in stocks in the town square medieval times for the same reason: Passers by would see them and mock them. I respect nyc 10022 and am familiar with his postings and his line of thought. If he tells me that a poster is to be avoided, I have likely saved myself five minutes of pure, unadulderated aggravation.

Thanks Dwayne. And I was laughing too hard that I did completely miss the logic point about short term vs. long term.

My big point is that alpine's posting has just become stupid, and pretending it deserves respect is stupid... especially when he doesn't even try and put any time or thought into them.

"That's not necessarily true, Falco. "Naming and shaming" has a value to boards like this and to society at large- it embarrasses the perpetrators of hoaxes and it warns others, like me, to avoid wasting precious time reading their works of dissumulation. This is why the police post the names of johns caught soliciting prostitution in the newspaper - to embarrass and discourage. In medieval times, people were put in stocks in the town square medieval times for the same reason: Passers by would see them and mock them. I respect nyc 10022 and am familiar with his postings and his line of thought. If he tells me that a poster is to be avoided, I have likely saved myself five minutes of pure, unadulderated aggravation."

Great point. Rufus got shamed out of here, as have some other putzes (although way too many remain.

"This guy is very clearly a broker. And the only thing he's seen of Alpine, NJ is when he caddies at the country clubs on weekends to make ends meet."

LOL.