the tail of the summer

The death of free money is the death of New York. The entire boom over the past 15 years has been predicated on bad Fed policy that led to one boom and bust cycle after another. Right now we're in the latest. No coincidence that rents rise precisely when QEII takes effect, whereas they fall in the rest of the country.

Take away all of this free money, and what are you left with? New York, 1985.

But maybe worse, because as NYC rose, so rose the pensions of state workers - the whole state basically runs off of Manhattan. Whatever happens here - and it won't be pretty - will be magnified elsewhere.

The government is in an impossible situation: they can't control what Wall Street does. They pump more money into the economy, the banks don't put it to work. They put it into another bubble. It's a vicious cycle. When it becomes obvious that the Fed is onto their game - and I think Bernake now is - then there will be no more free money, and Wall Street is going to go into a hissy fit, and crash. It will take another Volcker to show the banks who's actually the boss, and say he doesn't care what Wall Street does.

I think right now you're seeing the beginning of a massive stock market correction. The Fed can't pump more money into the economy, because the same thing will happen over again: commodity inflation, slowing economic growth to a trickle. To burst the current commodity bubble will also require bursting the stock market bubble, as it's part of the same phenomenon.

There is actually no other way out but the counter-intuitive way out, which is to let interest rates rise to market levels. That's what Volcker did in the 80's, and it ushered in a 20 year period of prosperity: Volcker stopped worrying about interest rates, and merely managed the money supply.

Interest-rate interventionism, started by Greenspan, has been a dismal failure. Time to give it up.

I think they call you a scarecaster.
http://online.barrons.com/article/SB50001424053111903588204576369661532710914.html?mod=googlenews_barrons#articleTabs_panel_article%3D1

"Scarecaster"? What a novel title!

But nah! All you need to do is look at the charts, and look at the leverage ratios on the stock market. Interest rates will immediately go up when the Fed stops QEII - even if they replenish their maturing stock, there will be no one out there buying up all of those treasuries, artificially lowering rates. Rates will go up more when the Fed stops replenishing the maturities and lets them run off of its balance sheet. It doesn't even have to start to resell its its holdings, or increase rates to cause this to happen.

If rather than look at the side of Bernake I think is true - the dumb side - we were to give him the benefit of the doubt, then he will always have known that QEII would cause a spike in stock and commodity prices, which would burst when it ended. However, the burst of the bubble will not affect the money supply because the money supply hasn't actually increased: it's all parked by banks right back in the Fed as excess reserves. Under this scenario, Bernake would be hoping that the spike in inflation will burst, and the excess money supply will slowly trickle into the economy, increasing both the money supply and the velocity of money, and thus creating economic growth.

That's the positive spin on what the Fed is doing. I don't believe it, & I don't believe it will work - I believe that significant damage has already been done to the economy through commodity inflation and very negative real interest rates - but it is one way to look at it. In either scenario, however, both the stock market and the commodity market will have to fall precipitously to cool the inflation in food and energy prices.

Smuckers said its costs have risen 25% in the last year. That can't be good - even for a name like Smuckers.

HAHAHAHA!

Can't rule out exogenous events on NY RE. I don't imagine much top end real estate will be sold until after June when forecasting will be a little clearer. More and more, pundits are raising alarms about Europe in American press -- the European press has been raising alarms for over a year. Thursday, Blackrock's Larry Fink repeated again that the the thing he was most frightened of was Europe. And this was a quote from Felix Zulauf in the cover story of Barron's this week - pretty mainstream. Most pundits say there is no way around a Greek default.

"Greece is bust but it isn't allowed to default. If it does so you could see a bank run throughout the European and the global banking system. The ECB and Germany are trying to force a Teutonic fiscal program on Europe. They are on a collision course with economic reality. If Greece defaults, the ECB probably will lose 30 billion to 50 billion euros. The bank's equity capital is €10 billion. The Irish and probably Portugal and Spain would default. Germany's Bundesbank owns more than €300 billion of European debt. A default would be worse than the collapse of Lehman Brothers."

Other reports from Europe have the Europe Bank exposure up to 444 Billion. Leaks from the ECB are always cast in apocalyptic terms. I can't imagine hedge funds guys will be buying RE until some of this is sorted out.

How in the world does everyone not see this coming?
It's like the housing bubble. Everyone praises the great Roubini for calling the bubble. I'm not an economist and I called it long before 'wonder boy' and nobody gives me credit. I kept wondering why everyone didn't see it. They ALL saw it and nobody wanted to leave the big party until the punch bowl had been drained. So the fed whipped up a new batch of punch and poured it on New York....two times. I'm praying for a third batch because I actually think that the actions of the fed. will damage the US economy for the foreseeable future.

Now,
the Chinese RE bubble is showing signs of popping. Oddly enough, Chinese nationals who find themselves under water might just take a clue from their American counter parts and just do the same (Hello Chinese jingle mail). As it turns out, our fortunes are more tightly woven together than everyone thinks.

Didn't we have apt23 posting on this before:
http://streeteasy.com/nyc/talk/discussion/27072-does-ny-re-have-exposure-to-ecb-stress

Or of course this famous one from apt23 that not a single person agreed with:
http://streeteasy.com/nyc/talk/discussion/25684-w-67s-prediction-come-to-pass-thru-the-backdoor

It's crazy slow out their with little to no interesting news or inventory.
Good day for dusting off the crystal ball, Ouige board, tarot cards, devining rod, re section of the NYT.
All of equal value.