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Suntech Power Holdings Co. Ltd. Message Board

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  • lookoutgrady lookoutgrady Mar 21, 2008 10:50 AM Flag

    Accumulation vs. Distribution

    As everybody else I believe the housing sector is key to this. If the housing sector is indeed stabilizing and the problems are isolated or 'contained' to certain areas (California, Florida), then maybe we have a chance for a shorter lived recession. That's why the Fed took drastic measurements over the last few weeks. Much of the rest of the country actually is doing fine, e.g. the area where I'm living (mid atlantic east coast); we do have a slowdown in hiring and housing, but home prices haven't declined, and I doubt they will. Exceptions are the coastal properties, which declined about 20 - 30% (after increasing 150 % over the last 5 years), but now are stabilizing. I extensively traveled to SoCal and have many friend there. Some areas are brutal, and I believe we haven't seen much of the walkouts in those areas yet. It will hit in about 9 month as the foreclosures work through the system. However with the financial sector stabilizing, and the rate cuts working through the systems (lowering cost of lending and mortgages), and much strength in the rest of the country I start to believe that this could be digested. That’s why I am cautiously optimistic. Of course I won’t be doing anything stupid and try to let the market guide me. We’ll see where she leads us.

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    • I, of course, hope you are right. I guess what keeps me skeptical is that hardest hit states in terms of a bursting housing bubble, California ($1,727 billion), Arizona ($232 billion), Nevada ($117 Billion) and Florida ($713 billion), made up 21% of the US economy in 2006 (used the economy section of Wikipedia for each state to derive that number). It is hard for me to see how serious economic upheaval in those four states wont have some sort of spill-over effect on the remainder of the US economy.

      Add to that the fact that mortgages are harder to come by today as lenders return to 20 year old lending practices and it suggests that we may be further away from a bottoming of the real estate market than we would like (I was reading this morning that several major mortgage insurers have black balled entire regions of the country, making it hard to get mortgage insurance and thus freezing out buyers that do not have 20% to put down on a home).

      Again, I hope you are right but there are some huge macroeconomic factors to contend with right now.

      • 2 Replies to ianmud
      • You're right in that these states account for a big portion of our economy. At one point California alone was the fifth largest economy in the world (not sure about current situation). However I don't see how the housing situation is correlated to their economy. E.g. California's economy has multiple footings, e.g. high tec, enterteinment, agriculture, etc...and eventually the cheap money situation (rate cuts) will result in proping up the economy, while we're working through the housing inventory. Take a closer look at the housing situation. The root problem was the speculation driving housing prices up, which then lead to further speculation. Even 'ordinary' folks started to buy second homes as investment vehicles. At one point prices couldn't go higher, and the bubble burst. Now we are at a point, where the housing inventory is being worked through the system, and at one time new demand will prevail. First sign of recovery starts to show up as demand on coastal properties, the very same which took us down. So I am cautiously optimistic.

        I need to run. The family is ready to head into the long weekend.

        I wish everybody a great, long weekend...so we're ready for a new week of trading.

      • <<<California ($1,727 billion), Arizona ($232 billion), Nevada ($117 Billion) and Florida ($713 billion), made up 21% of the US economy in 2006

        Job losses just starting in NYC
        - won't be as bad as CA/FL but these are VERY well compensated people and their multiplier effect is much more than a guy working at Home Depot.

        And you left out MI and OH
        Ohio $461M
        Michigan $381M

        Do you consider PA to be a strength? IL? $1.1B GDP between those 2 - I am not saying they are as bad as MI/OH or CA but not exactly pillars of strength.

        They already have dropped so it won't be a new drop, but it is a permanent moribound situation. CA alone is enough to make most worry - I believe if it were its own country its GDP would be like 7th biggest in the world (or 8th)

        I think people who look at the economy or housing prices think its stock prices. Things do not turn on a dime. As for the mid Atlantic strength if you are talking Washington DC yeah - they have unlimited spending so there are no job cuts. Federal govt can add jobs.

        Have you thought about the impact of lower state revenues in our major states? As housing stock price falls, revenue fall WITH a lag. Then what happens to jobs? And spending? That doesnt turn on a dime as stock prices do. Same with house prices. Reluctant sellers still stuck in 2006 pricing don't sell and they sit and sit and sit. It took 4+ years for MI residents to finally get to the point they realize they have to sell and things won't "rebound". So for those states seeing a correction you wont see it in home prices in 6 months or 12 months. I saw on Fox Business this week a bunch of homes in DC area/Maryland. They are foreclosed (some brand new) and they want on auction where true supply/demand prices can be achieved. From the price they "last sold" (to the foreclosed owner) they dropped from 20-33%. So thats "true market" value. So are national home builders who are now selling at 30%+ below 2006 levels.

        Stubborn sellers who refuse to sell because they believe their house is worth more is not true value.

        But I think you really underestimate the hit to state governments - so much of our economy is based on inflated home prices. People just don't realize it. Schools will cut back spending, road work, city service like police/fire, etc - all those are jobs that need to be cut because revenues will be faltering but that stage has not even begun for most states. It will start to appear by end of THIS year. Then 2009 it will really hit.

        Maybe a better way to look at things is where is strength? Then balance against the ledger of where is weakness?

        Strength?
        Texas $1B GDP
        NC $375M
        VA $370M
        WA $300M

        and then some agricultural states which are far smaller

        So I buy the "its regional" thesis, but the states of strength ex Texas are not the size of the states of weakness.

 
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