What is going to happen to all of us? where r we going?

uws1313: I disagree. One of the major challenges facing society right now is the general discontent with our economic system. The average household has gone from 1 to 2 wage-earners over the past few decades while their perceived economic standing has stayed the same, or possibly worsened. All the while, they hear stories about $100m apartments in NYC. Inflating our way out of this will hurt those in the bottom half of the economy disproportionately as real wages fall and cost of living increase. Inflationary policies will be perceived as helping the rich. The risk we run in that scenario is not only hyperinflation but total economic and social collapse as the public revolts (potentially even a Civil War).

While a deflationary bust will entail some pain I think it would actually be welcomed by the majority of the population as a means of bringing down living costs, redistributing wealth, and redefining the economy. Watching asset value get wiped out is painful but it at least provides the silver lining that in a reconstruction of the economy everyone will have a chance to partake in a cyclical upturn. As of now, a cyclical upturn for the average person just means they can watch their relative economic standing continue to erode while the government pursues policies that favor asset inflation and wage deflation.

BTW, The Fourth Turning is a great book that addresses the topic in a very unique way (bear in mind it was written in 1998).

totally agree UWS, those that are 65 or above and never had the inclination to learn how to be a good investor could be too late, but at the same time they have the free time that the young lack. learning how to be a good investor is the gift that keeps on giving but it's best to start young IMHO (like almost anything!).

there are some basics though that the old can take advantage of. and yes, the only way is to read BOOKS (and papers in my case) but not the nytimes nor money magazine. reading the financial times, for example, is something that any 65 year old can take advantage of.

"admin anecdotal info and amazon books"

finally UWS, the use of the "anecdotal" word and the mention of a nyt article forces me to try to get you to avoid taking what you read in the nyt seriously. their articles are structured the same way: "data on this topic is hard to find (most of the time not true!) but the anecdotal evidence is compelling" and they go on to describe 3 cases cherry picked as a proof their "thesis". journalism like nyt's is not going to help out on the adventure of becoming a good investor.

mbz - way too much leverage in the system. if debt levels were not as high as they are right now, i agree that a good old fashioned work-out and restructuring across the board would work wonders. that option is not feasible. we are talking about wiping out the capitalist system as we know it with debt at 3.5x GDP!!!

admin nytimes article was a report on economic data, not an editorial rant, like mine.

"allow the deflationary cycle to persist effectively wiping out the banking sector, consumer, corporates and govts. alike why? while debt service costs are still modest in terms of historical levels (36% of income), the absolute levels of debt in the economy are at all time highs (3.5x GDP!!) this debt will continue to get marked down as the underlying assets to deflate, which it is what is happening with greater velocity at present. as banks watch their asset base deteriorate they don't lend. when banks stop functioning the credit markets which are so vital to the global economy effectively shut down. this deflationary, negative feedback loop lays the entire global economy to waste. NOT GOING TO BE ALLOWED to HAPPEN!!!"

I couldn't have explained it better myself.

It's not a question of allowing, it IS HAPPENING. There may be no way to stop it, as we've never been in this situation before, except when the margin debt in the stock market in the 20s brought us to similar debt levels. Today the problem is mortgage debt.

Equity market down 56% -- I say that is a pretty compelling forecast for DEFLATION
Record foreclosures across the US -- The debt liquidation is happening and coming to Manhattan

You can say we cannot allow it, but I say we are powerless to stop it. We may in fact make it worse by having a depression with inflation. This is what one of my mentors that lived through the Depression believes.

i was walking down park ave this morning and saw a unicorn. do you believe that?

show me depression with inflation!!!! if that's what your mentor tells you he lived through he is lying. from 1929-1933 the us gdp did contract 46% from $103bn to $56bn. meanwhile prices of us goods fell on average 27%! from '29-'33. in 1933 the US dropped the gold standard and started printing $$. the result inflation - 40% inflation in the 2H 1933. oh and just check the stats please. from that point forward the US gdp grew virtually uninterrupted for 7 years and doubled over that period. the govt changed the rules of how to value the currency, started printing the stuff and voila - inflation and gdp growth. your "mentor" is twisting the facts.

ben bernanke, the world renowned expert on the depression, learned that the govt sat back as the deflationary cycle began in '29 and did not do enough. he flippantly said that if the govt wants to end deflation right now they can just throw money out of helicopters. helicopter ben? a joke, but that's what is happening amateur.

My mentor expects a depression with inflation, in other words worse than we experienced in the Great Depression, when he said, if you were out of work you COULDN'T GET A JOB. Remember, the stagflation in the 70s--only think multiple times worse. We can have a collapse in asset prices, and inflation of living costs if the US dollar collapses, which could lead to hyper-inflation. Hyperinflation leads to the same result as deflation paradoxically--in both cases the value of financial assets is destroyed unless you can invest in a currency that doesn't devalue. Manhattan real estate may hold up better than financial assets, but that is not saying much.

What I see is speculators even in NYC who cannot afford to pay their mortgages at current lease rates and nearly everyone is suffering income loss or the threat of income loss. I forecast a sharp decline in Manhattan real estate prices unless Helicopter Ben forgives these investors their mortgages.

OMG. This thread is so depressing and serious. How can you stand it!? Join me in the Renovations Tips thread for debates about door knobs or TV thread for chat about RE shows. Who on earth begins a thread called "What Is Going To Happen To All of Us"? Eeesh. That is not the attitude of someone I'd want to be sitting next to when the chips were down in an emergency. Buck up! It is what it is out there and there is really little you can do other than get up each day and live your life best you can. Work hard, act sanely, be nice to people and yourself. That's my formula. Does it show I don't have an MBA?

the nerve of these impostors posing as the next dr doom - they're forecasting a depression to scare themselves into believing that NYC RE is going to be as cheap as cincinnati.

i just bought lovely rectangular silver door knobs for my newly renovated 3 br. the renovation went as well as could be expected and the price/sq ft i paid pre-renovation is right where i hoped. let's just say for the price i sold in july 2008, i got 50% more space in a better building.

in the meantime, as you suggest kyle, i will continue to fight the good fight.

Wheeeeee! Another thread high-jacked by door knobs! Yay! Rectangular ones--that's so uber fab. Can I ask who makes them? Are they so shiny you can see your face smiling back at you? Did you get any "snibs"? I LOVE the work snib. The little lock thing under the door knob for bathroom or bedroom. Snibs are h-o-t!

frank allart ltd with snibs and all.

kylewest, the Majestic thread could use your high-jacking abilities. It sounds as though it needs a gut reno (both the apartment and the thread), some of you must have some opinions which doorknobs would look best in such a setting.

UWS1313: those are beautiful! I didn't even know about this company. Now I'm wondering if I should start my renovation all over. Very nice. (and no, I'm done with the Majestic thread--it got too nasty and not fun. I prefer fun)

"Over the past 35 years it has seemed as if everyone in finance has wanted to be someone else. Hedge funds and private equity wanted to be as cool as a dotcom. Goldman Sachs wanted to be as smart as a hedge fund. The other investment banks wanted to be as profitable as Goldman Sachs. America's retail banks wanted to be as cutting-edge as investment banks. And European banks wanted to be as aggressive as American banks. They all ended up wishing they could be back precisely where they started." (The Economist, "A special report on the future of finance," January 24, 2009, p. 17.)

Interest rates have dropped to zero.
Bank stocks have plunged by 90 percent or more.
The Federal Reserve's balance sheet has exploded.
Credit spreads have widened to historic levels.
The economy is seeing massive asset deflation.
Debt is being destroyed in record amounts.
Unemployment is increasing each month.
The financial industry is shrinking radically.
Manufacturing activity has slowed sharply.

HT1: I don't get it. What is your point?

Look forward. Bernanke is going to push rates down on both the short and long end of the yield curve. Banks are rallying and more importantly starting, just starting to lend. i do hope mortgages in manhattan pick up soon as well.

for the first time in over 3 months i am starting to feel more confident in our collective future. whilst i have no forecast of manhattan real estate prices, i do feel that forecasting a deep drop is fashionable, not scientific. if condo and co-op lending returns, prices will stabilize at the very least.

any other new thoughts out there?

Here are the fundamental problems:

(1) Lenders have tightened standards. They will continue to be tight, of course, as they should. We don't want a repeat of the past 6 years of irresponsible lending, now, do we? What this means is that responsible, qualified buyers will still be the only ones who can borrow. You may push some of these buyers into the market with lower rates, but it's on the margins.

(2) Folks are cutting back on spending, and, therefore, borrowing. I wouldn't expect to see too many qualified borrowers willing to leverage up in an environment of economic (and job) uncertainty.

The Fed's move will move the needle a bit, but it's largely pushing on a string (albeit with a tank).

I beg to differ. Give me your best estimate on the allegorical string, $3 Trillion of bad assets?

What is the estimated credit loss assuming a deep recession, say 7-8% decline in GDP, versus a full blown 30% decline in GDP depression? I'd guestimate another 2-3% of credit losses. What's your guess?

When and if the TALF goes online, that tank you refer to is nearly as large as the assumed credit losses. Your estimates may be much more pessimistic, but we are not talking about an endless cycle of credit losses given the capital injections, quantitative easing, and the TALF, which has not yet kicked in. In short the Fed and the US govt's total capital commitment will exceed the level of toxic assets. if you've taken any economics that signals reflation turning into inflation. it may take another 6 months, but it's coming.

real estate, even nyc real estate will follow in the reflation/inflation trend. lastly, responsible should not equal ridiculous. i think 20% down with credible income and liquidity will return to nyc lending. baks can and will make a ton of money when nyc real estate stabilizes.

UWS1313 - cheerlead away, hope away, but (1) we're not going to see anything more than modest inflation (2) it won't affect NYC real estate as long as there is EXCESS CAPACITY in NYC, which there is, in abundance. And will be for a long time.

Excess NYC capacity: rising unemployment, lower income levels, rising vacancies, rising inventory (now at 10,700).

Inflation will hit items with limited availability/capacity, which have no cheaper substitutes (whereas NYC has a cheaper substitute - rent).

Sorry, NYC real estate will be the last to be affected, if at all. Little consolation for sellers, owners and brokers.

Not to mention, UWS1313, as long as there is considerable excess capacity (slack) in the economy, don't even expect to see considerable inflation. Right now there is a tremendous amount of excess capacity (unemployment probably over 10% as we speak, plants idled in droves, etc.). The items most likely to experience inflationary pressure: oil, food, industrial commodities (although don't expect the builders to return to health for years).

Failed to mention the shadow inventory in NYC housing (estimates at approximately 22,0000.

Not looking good, UWS1313.

Sorry, 22,000.

not cheerleading or hoping farquhar, just asking about money supply and inflation. you seem to believe that 22,000 units of excess inventory, which i also believe will rise in the short term, cannot change when money supply, interest rates and ultimately lending may return. re: builders, what was tuesday's announcment re: an uptick in housing starts all about?

certainly i am realistic that the current mood and environment in our fabulous congress for wall st is terrible. furthermore, job losses are continuing. i just believe that the tension in the markets will ultimately break in favor of reflation. the epicenter of the financial crisis is housing and that is where most of the fed's purchase of us govt debt is directed, mortgage and agency debt. and why? to get primary mortgage lending, securtization and trading revived.

i did not say that prices will turn back to 2007-2008 highs. i think they will begin to stabilize as lending comes back.

so, where are the bears now?

here is my 12 month view. wall st layoffs bottom out, as do hedge fund redemptions over the next 6 months. geithner's plan today creates a profit making environment for wall st the like of which we have not seen since the reagan '80s. just to put some meat on the bone - the treasury and FDIC are going to offer ridiculously cheap financing at 6 to 1 leverage or higher. that means if you buy some of the rmbs and cmbs currently called legacy or toxic assets at say a reasonable discount of 15%, you could a multiple of your money if we see the economy begin to recover.

so i'll leave to smarter people to determine what that means for real estate broadly speaking, as well as nyc real estate.

as an aside, obama will kill the house bill on 90% bonus tax. the clearest indication of that is geithner's remark on how the talf will not carry comp restirctions for those who buy the legacy assets.

MAN UP WALL ST!!!