Willink's Econ Thread

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Re: Willink's Econ Thread

Postby APB » Mon Aug 24, 2015 3:57 pm

Willink wrote:China getting slammed today
http://www.theguardian.com/business/liv ... CMP=twt_gu

Along with everybody else.
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Re: Willink's Econ Thread

Postby Willink » Mon Aug 24, 2015 4:43 pm

APB wrote:
Willink wrote:China getting slammed today
http://www.theguardian.com/business/liv ... CMP=twt_gu

Along with everybody else.


The 600 run off the 1000 floor when dow opened looks like ppt rather than actual buying anyway, ways to go to the floor
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Re: Willink's Econ Thread

Postby Papa John » Mon Aug 24, 2015 8:17 pm

I'm having trouble believing this stock market hit is the result of China devaluation...
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Re: Willink's Econ Thread

Postby Willink » Mon Aug 24, 2015 8:45 pm

Papa John wrote:I'm having trouble believing this stock market hit is the result of China devaluation...


Since the nasdaq bubble stocks have been tied to central bank account balances sheets not actual market conditions, investors are spooked fed is gonna cut off the free money supply with rate hikes in q4 (tho look off the table for now) and now world markets are looking horrible, remember China is the second largest economy in the world and a large driver of world economic growth.
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Re: Willink's Econ Thread

Postby Waldo » Mon Aug 24, 2015 9:26 pm

Willink wrote:
Papa John wrote:I'm having trouble believing this stock market hit is the result of China devaluation...


Since the nasdaq bubble stocks have been tied to central bank account balances sheets not actual market conditions, investors are spooked fed is gonna cut off the free money supply with rate hikes in q4 (tho look off the table for now) and now world markets are looking horrible, remember China is the second largest economy in the world and a large driver of world economic growth.


Eh. I think this stock market hit is a result of China's massive struggles, the general idea that the market was long overdue for a correction, and the herd mentality of people; china spooked people, they expected a drop, and thus the drop becomes reality as people sell because people are selling. It hasn't yet hit the support of people looking for value, which will stop the pullback if the pullback is in fact a correction and not something broader.

This AM's trading, being down 1K right after the opening, is a dead giveaway. Lots of freaked out people put in sell orders over the weekend, afraid of an '08 level collapse, safer to get out now even if not an ideal time. The herd at work.
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Re: Willink's Econ Thread

Postby Papa John » Mon Aug 24, 2015 10:40 pm

China devalued its currency by like 20%- not that much of a fluctuation. Yes, they're a big economy but we are their biggest buyer and the dollar has been improving, so WTF? Something's not adding up IMO. Devaluation probably has some influence, but there must be something else going on...

Willink possibly on to something with fed spookiness.
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Re: Willink's Econ Thread

Postby Willink » Tue Aug 25, 2015 4:01 am

Papa John wrote:China devalued its currency by like 20%- not that much of a fluctuation. Yes, they're a big economy but we are their biggest buyer and the dollar has been improving, so WTF? Something's not adding up IMO. Devaluation probably has some influence, but there must be something else going on...

Willink possibly on to something with fed spookiness.


It's not the devaluation per say, its what the devaluation says about the state of the Chinese economy. Stocks will levitate on further Chinese cuts, same way they will if more QE is unleashed in response to spooked investors.

On the Fed spooking markets, Peter Schiff:

The Dow has now blown through the lows from October 2014, when fears over life without quantitative easing and zero percent interest rates had caused the markets to pull back about 5%. Back then when market fear began spreading, St. Louis Fed President James Bullard publicly issued a few choice words which reassured the markets that the Fed stood ready to reignite the QE engines if the economy really needed a fresh dose of stimulus. By the end of the year the Dow had rallied 10%.
Amid last week’s carnage, Mr. Bullard was at it once again. But instead of throwing the market a much needed life preserver, he threw it an unwanted anchor. He offered that the economy was still strong enough to warrant a rate increase in September. He was careful to say, however, that the Fed is still “data dependent” and will therefore base its decision on information that will come out over the next three weeks. So after nearly seven years of zero percent interest rates, the most momentous decision the Fed has made since the Great Recession will be dictated by a few weekly data points that have yet to emerge. Haven’t seven years of data provided them enough information already? What’s next? Will they have to check the five-day forecast to insure that there will be no rain before they pull the trigger?
As I have been saying for years, the Fed has always known that the fragile economy created through stimulus might prove unable to survive even the most marginal of rate increases. But in order to instill confidence in the markets, it has pretended that it could. Wall Street has largely played along in the charade, insisting that rate increases were justified by an apparently strengthening economy and needed to restore normalcy to the financial markets.
But the recovery Wall Street had anticipated never arrived, and traders who had earlier demanded that the Fed get on with the show, have now panicked that the rate hikes are about to occur in the face of a weakening economy. As a result, we are seeing a redux of the 2013 “taper tantrum” when stocks sold off when the Fed announced that it would be winding down its QE purchases of bonds.


Investors are definitely spooked. The Fed has allowed stocks to go on a record-breaking bull run purely off the strength of QE + ZIRP. QE supports already came out half a year ago and market progress has slowed, kicking out the ZIRP leg would definitely worsen a bleak worldwide economic environment.

See http://www.alhambrapartners.com/2015/08 ... y-wounded/ as well:

I think we are starting to see the legend of QE fade into nothing more than memory, exposing all these “markets” to the very real dangers of the fundamental economy, globally, that never joined the hype.


Edit: Shanghai composite getting blasted again today it looks like, opened 6.4% down
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Re: Willink's Econ Thread

Postby Papa John » Tue Aug 25, 2015 4:29 am

Thanks for explanation.
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Re: Willink's Econ Thread

Postby wallyuwl » Thu Aug 27, 2015 2:10 am

Willink wrote:
I think we are starting to see the legend of QE fade into nothing more than memory, exposing all these “markets” to the very real dangers of the fundamental economy, globally, that never joined the hype.


Edit: Shanghai composite getting blasted again today it looks like, opened 6.4% down


Wait, so just printing money doesn't work long-term? Imagine that.
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Re: Willink's Econ Thread

Postby Waldo » Thu Aug 27, 2015 3:29 pm

Willink wrote:Investors are definitely spooked. The Fed has allowed stocks to go on a record-breaking bull run purely off the strength of QE + ZIRP. QE supports already came out half a year ago and market progress has slowed, kicking out the ZIRP leg would definitely worsen a bleak worldwide economic environment.


There is a lot more economic strength than QE alone.

When it comes to market cap, the stock market is not the largest share of the US economy, that would be real estate. Real estate has a much higher mean participation rate than stocks as well (you are more likely to own real estate than stocks, and the average person has more money in real estate than the stock market). The US real estate market is strong.

And its not a bubble as it was before, underwriting requirements have not relaxed, bringing undue risk into the market. Low interest rates and low forclosures have allowed the real estate market to naturally reinflate in a sustainable manner.

One positive that is still unfolding, commodities are dirt cheap and that will likely last. Cheap commodities are a double sided coin, it can mean low demand but that isn't always the case. One fact that is true is that commodity prices were (quite) overinflated at the start of the great recession due to speculative derivative trading, and that has largely subsided. The inflation of commodity prices due to speculation occurred over a long time, it isn't yet fully appreciated that in the 10 years or so leading up to the great recession, some (or all of) real inflation was fake, a byproduct of speculation, not underlying production fundamentals. This is still unwinding from 2008, cheap commodities are a new normal, because that bubble also popped. All this has built up a huge latency, the economy can continue to rise for quite some time with no real threat of inflation, this inflation was "paid for" so to speak years ago.
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Re: Willink's Econ Thread

Postby flapackfan » Thu Aug 27, 2015 5:31 pm

Waldo wrote: "The US real estate market is strong."

Can't comment about the US, because those stats aren't available nationally, but Wi's market is far from strong. Sale Price to List Price, ratio is less than 100%, somewhere in the low 90's %, on residential property. Meaning, combined with average days on market of over 100, there is no competition on most property's, and sellers are forced to capitulate not only on price but also on provisions to complete transactions. Most FHA, VA, USDA, WHETA, loans, are requiring the seller to pay closing costs because buyers aren't able to come up with the necessary 3.5% down. Those prepaids aren't deducted from closing prices, so quite often those completed transactions are netting for sellers 3.5% lower than recorded.

Vacant land, buildable lots, and commercial sales are rare. Hunting land is strong, which I sell a lot of, but of course buyers of hunting land tend to be those nasty 1%'ers.
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Re: Willink's Econ Thread

Postby Waldo » Thu Aug 27, 2015 8:25 pm

flapackfan wrote:Waldo wrote: "The US real estate market is strong."

Can't comment about the US, because those stats aren't available nationally, but Wi's market is far from strong.


That is pretty much a Wi problem

Rust belt areas in general aren't doing great, and Wi is kind of a member, but Wi's relative economic strength (as compared to other midwestern states) has dropped a good bit since the recession.

Why would people want to move to (or stay in) Wi? That is the problem. Manufacturing is declining, there isn't the infrastructure for major corporate investment, and despite being a big producer of tech talent (at least at one time), it is a tech barren wasteland.

In my neck of the Woods, ITP Atl, prices have fully rebounded and the market is white hot; a dramatic undersupply condition, every reasonably priced property is under contract within days, if not hours. We moved last summer, sold our house over list in a multi-offer situ, the place we bought had multiple offers within 2 hours of listing. My coworkers that are house hunting are dealing with the 10 buyers to every seller in-town problem; gotta pull the trigger on the spot and get immediate showings, or no house for you.

The real estate market has fully rebounded in most of the US.

http://www.cbsnews.com/news/in-hot-hous ... ual-perks/
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Re: Willink's Econ Thread

Postby JustJeff » Sat Aug 29, 2015 11:24 pm

For six years, builders have lived on multi-family units and very high dollar homes. Middle class home buying has been pitiful. A lack of inventory is not a strong market; it's an under-supplied market.
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Re: Willink's Econ Thread

Postby Waldo » Mon Aug 31, 2015 2:47 pm

JustJeff wrote:For six years, builders have lived on multi-family units and very high dollar homes. Middle class home buying has been pitiful. A lack of inventory is not a strong market; it's an under-supplied market.


Not necessarily. Prices tell you where the market is, and prices at setting new peaks in most areas.

You can only build where there is land. You can only build economically (IE middle class) where there is cheap land. The places where land is cheap has dropped a good bit in desirability over last couple decades (though the bubble helped mask that trend for a while).

You have to remember, the "middle class family" is not a growing demographic, there is little need for build more homes for them. American middle class infrastructure is largely built for boomers, and they are retiring and downsizing.

On top of that, new constructions reputation turned to garbage in the mid 90's and further degraded in the 00's. If you want a good house, you certainly don't buy a new one.
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Re: Willink's Econ Thread

Postby Willink » Mon Nov 02, 2015 2:22 am

Meant to write up a post here on housing a while ago, but suffice to say I think housing writ large given its status as the largest capital investment most people have in the US has been unduly inflated by the asset inflation wave ZIRP has brought to the financial sector of the US economy. As JJ (RIP) noted the massive expansion of the upper end of the market suggests as much, especially when you look at the housing market from the measure of "how affordable is it to meet a persons needs" rather than "how high the price is", where you find housing prices, especially in the boom places like SF, CT, etc is completely lapping wage inflation. Luxury markets even in recessed economies of Europe and Asia are starting to pause after having boomed even in spite of horrific national economies.

http://www.realtytrac.com/news/home-pri ... -recovery/
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