ERICOPOLY

It is sort of fun to go back and read some of CW's comments from October 2010. He say it's not just BAC, but "all lenders" that are in a crisis. Then he says the largest US banks are insolvent!: Mounting cash flow stress on all lenders is reaching crisis levels. Non-payment by borrowers and mounting foreclosure backlogs are creating the conditions for the collapse of some of the largest U.S. banks in 2011. The largest US banks remain insolvent and must continue to shrink. Failure by the Obama Administration to restructure the largest banks during the 2007-2009 period only means that this process is going to occur over next three to five years -- whether we like it or not. http://www.businessinsider.com/chris-whalens-foreclosure-crisis-2010-10#subprime-losses-have-been-hidden-by-bad-accounting-1

no. CW is basically still upset that usa did not nationalize the banking system back in 2008. Whalen writes that the US economy would improve if BAC were to be restructured: Economists from Irving Fisher to Henry Kaufman have noted that without credit expansion, the US economy cannot grow. In fact, credit is contracting with public confidence in America’s banks. The solution to the financial crisis affecting BAC and the US economic malaise are the same, namely an orderly, immediate public process of restructuring for the top banks and housing agencies. http://blogs.reuters.com/christopher-whalen/2011/08/09/uncertainty-and-indecision-threaten-bank-america-and-global-markets/ The trouble I see with his thinking is that we already have well capitalized banks with untapped excess lending capacity. So what will adding more untapped capacity solve? Nothing.

Which country of the three has the lowest minimum wage? A) United States B) Canada C) Australia Now, using your theories above, tell me which of the three has the most unemployment? Now predict what would happen if we merely raised it to meet the levels seen in Canada. Here they are: http://en.wikipedia.org/wiki/List_of_minimum_wages_in_Canada

Robert Shiller has commented that tax and spend would be his choice of policy to get GDP growth. He doesn't like borrow and spend. Investors only invest when final demand is there. Cutting taxes for capital gains, for example, won't boost investment if there is no increased final demand to invest in. Raising minimum wage increases final demand because if you are on minimum wage you spend it all. This encourages investment (to meet that higher final demand). When state workers wages are raised you can't make an argument that their wage will leave them unemployed (as is made in the case of minimum wage).

Dick Bove has made a lot of meaningless analysis, like when he says that the banks are trading for less than the cash on their balance sheets. And if you go back over his prior comments, he was saying Citigroup would be at $200 (split adjusted) a share by the end of 2011 or 2012. http://wallstnation.com/bove-citi-1122009 What did Dick do in his career that made people listen to him? He seems to not be a very good bank analyst at all.

I was reading that one of the main political contenders hopes to drop the overseas profits repatriation tax to just 5%. I think doing so will only make overseas operations even more enticing and profitable -- it's just obvious to me. So much for the middle class.

Happy Christmas!

Summary: 1) In Q1 2011, ownership rates were already below the 1995 levels for the under-65 demographic. 2) 1995 ownership rate was itself below the long term average that you cited to be 65% (I'm taking your word for it to be 65%). 3) no doubt the Q4 2011 ownership rate has gone even lower, as the data is now 9 months old. 4) More foreclosures to come! We're overshooting on the down side Mean reversion would suggest that we are done with the foreclosures. The home ownership rate has already oversteered to the downside. Yet we first must oversteer even more I suppose before we get back UP to the long term rate of ownership for the under-65 demographic.

I went as far back as I could find data broken down by age. Unfortunately it only goes back to 1995: http://www.census.gov/hhes/www/housing/hvs/qtr195/q195tab7.html I find that all the meaningful difference is in the age 65+ category! All the other age categories report home ownership levels below those reported in 1995. Except for the under-35 category, where there was 2/10 of a percent difference in favor of 2011. Overall home ownership rates: 1995 Q1: 64.2% 2011 Q1: 66.4% Age less than age 35: 1995: 37.7% 2011: 37.9% Age 35 - 44: 1995: 64.9% 2011: 64.4% Age 45 - 54: 1995: 74.9% 2011: 73.1% Age 55 - 64: 1995: 79.4% 2011: 78.6% Age 65+ 1995: 77.5% 2011: 81%

Read em and weep boys. As the boomer generation ages, it pushes up the ownership rate. This is such a no brainer I should have thought of checking for this sooner. The long term average of 65% would need to be adjusted for this. I mean, people over age 65 have an 81% ownership rate. Take a look at the census report, page 7: http://www.census.gov/hhes/www/housing/hvs/qtr111/files/q111press.pdf

Is there an official count anywhere (Census data?) of the number of homes destroyed each year? CBO estimates it at 250,000: http://www.cbo.gov/ftpdocs/98xx/doc9885/11-17-HousingStarts.pdf John Mauldin reports it's about 300,000: About 300,000 of these units are offset each year by dilapidated houses that are torn down, houses converted to nonresidential purposes and other factors that remove them from the housing stock. Some other website said 360,000: http://www.financialsensearchive.com/fsu/editorials/jain/2005/0731.html

That pace suggests 846,000 new households formed per annum if there are 2.6 per household. Very bad news -- time to let in some immigrants perhaps.

Yeah, household sizes spike during recessions. We're currently building smaller single family homes and apartments -- I'd say the adjustment has been made already. Homebuilders aren't turning out homes that don't sell -> look at the record low inventories of new construction.

We aren't seeing eye to eye on what the results really are.

BofA reports that investors are briskly snapping them up: http://online.wsj.com/article/SB10001424052970204323904577039930179775556.html LPS, an unbiased source, says foreclosure starts are 3X sales.That leaves a great many unsnapped. You have to read close as to what the two sources say. BofA: "Where you've had the ability to get ahold of properties ... get them cleaned up, back on the market, they have moved," he said. "It moves as fast now as it's ever moved." In states like Florida, "where that process has been slower, it's going to take a lot longer," he said. LPS: . The slowdown is most pronounced in judicial foreclosure states, which maintain a foreclosure and seriously delinquent pipeline that is more than three times as long as non-judicial states.

BofA reports that investors are briskly snapping them up: http://online.wsj.com/article/SB10001424052970204323904577039930179775556.html

100% of homes are owned. That's my point.

I agree. Note that we're agreeing on a completely obvious thing, which is a good start :D It's not that simple? Oh yes it is. I own my own house and I have it filled with furniture and pay the heating bill. So does my neighbor (has it filled), except that he is renting the house. Both houses are the same size. Their house is every bit as full of furniture as mine. Don't you reckon the houses across America going into foreclosure are being bought by investors (if not owner-occupiers) who wish to rent them out? I presume that's what they intend to do with them. If not, then what?

What's the importance of ownership rates? A household needs a place to live. It's merely paperwork whether they own it themselves or rent it from an investor.

My last post claimed that 1.3m net new households were formed per year over the 10 years ending in March 2010 (despite the ongoing joblessness associated with depressed home-building). We have (over 10 years ending in Dec 2009): 1.562m housing units built per year 1.3m households formed per year That creates an excess of 262k per year before accounting for destruction of housing units. I've read before that destruction averages about 300k per year. 262k per year is probably close enough to average that I don't want to get too precise about it, but if anything it argues that maybe we've moved towards an actual housing deficit during the 10 year period of 2000-2009.

Where did you pull the number 1350 from?

But I suppose comparing decade to decade is problematic without taking into consideration the shifts in new household formation. In the twelve months ended March, 2010 only 357,000 new households were formed (net number). This was a record low for the history of the U.S. Census data base, which goes back to 1968. The number is also nearly a million short of the ten-year average of 1.3 million net new households per year. As a result of The Great Recession, by the end of March, 2010 there was a cummulative deficiency of 2.3 million net new households from the recession. That implies a normal net new household formation rate without effects of The Great Recession would have been over 1.5 million per year. http://econintersect.com/b2evolution/blog1.php/2011/05/04/increase-expected-in-u-s-new-household-formation

Furthermore, 1.35m per yer average built over 11 years from 1990-2000 1.52m per yr average built over 11 years from 1979-1989 1.62m per yr average built over 11 years from 1968-1978 I'd say 1.39m for the past 11 years is on the low end of the past 44 year experience.

So let's get down to brass tacks shall we? The numbers on housing completions per year (in thousands): 2001 1,570.8 2002 1,648.4 2003 1,678.7 2004 1,841.9 2005 1,931.4 2006 1,979.4 2007 1,502.8 2008 1,119.7 2009 794.4 2010 651.7 source: http://www.census.gov/construction/nrc/pdf/compann.pdf 14,713 built across 10 years. Then add in 600k estimated for 2011, and you have 15,313 built in past 11 years. That's 1.39 million housing units completed per year. How does anyone justify the claim that we have an oversupply because we built too many? It looks to me like we merely have an unemployment problem (and Buffett thinks it's because of the unsustainable slump in homebuilding).

I have far too much upside concentrated in BAC. You should all just get out now.