Mortgage Delinquencies Continue To Rise

[shalab]

It seems more like Japan than anything else at the moment. The government is trying to inflate but the population is trying to save and deleverage. The savings rate is expected to go up even further from where it is today. ( somewhere in the 8% range ). The prices wont fall like it did in Japan as US economy is pretty open and there isn't much room for prices to go down. The economy is pretty slack and a lot of people need to be employed before the economy takes off again. I dont see huge inflation for another two-three years and then we may get inflation and no growth for a few more years. The only upside for the US is that the population is going up and not down.

 

 

 

 

[Rabbitisrich]

There going to be a shortage of qualified labor in the U.S starting this decade...Japan has very low unemployment and we're heading the same direction.

 

These "corrections" do wonders for efficiencies, production per working hour was rising at a 9% rate in the U.S last quarter...will probably be even higher this quarter.    The question than is...will the increase in efficiency offset the loss in income...well if 95% of the people employed last year are still employed and on average they received a 2% raise the net loss of income is only 3% overall. If a 3% drop in income results in a 10% increase in delinquencies...does than a 3% gain U.S total incomes results in a 9% drop in delinquencies? (Hell No!)

 

Unemployment does not explain a 9% rise in delinquencies.

 

 

Even the productivity gains may be the result of short-term accounting froth. Businessweek has an interesting article about temporary bumps in gdp due to the deferral of R&D: http://www.businessweek.com/magazine/content/09_45/b4154034724383.htm

 

Measuring intangible investments such as business R&D and worker training isn't easy—which is one reason why government statisticians haven't yet done it. But including such expenditures could make a big difference in the way companies, investors, and others understand the economy. Let's do a back-of-the-envelope calculation. In the four quarters ended last June, business spending on tangible investments—equipment and structures—as reported by the BEA dropped by about 20%. If intangible investments had dropped at the same rate, it might have knocked an additional 1.5 percentage points off the -3.8% GDP growth rate. If intangibles fell by only 15%, that might have taken 1 percentage points off GDP growth. (These calculations require making heroic assumptions about price changes and other difficult-to-observe figures, so they should be treated as very rough estimates.)

[GaliPart]

Parsad,

 

Two quick questions on your response.  First, are you saying that you are a neo-classicist (at least with regards to the issue of stagflation in this instance)?  And although I realize that this second question may be taking us somewhat off-topic, but what is your take on the criticism that people aren't rational (and utility-maximizing), but rather behavioral?

 

Thanks,

 

GaliPart

[Parsad]

Parsad,

 

Two quick questions on your response.  First, are you saying that you are a neo-classicist (at least with regards to the issue of stagflation in this instance)?  And although I realize that this second question may be taking us somewhat off-topic, but what is your take on the criticism that people aren't rational (and utility-maximizing), but rather behavioral?

 

I'm neither classical, neo-classical, nor Keynesian.  The study of economics is about as accurate as the study of meteorology...don't bet your life on either one!  ;D 

 

My main point is that I agree with how the supply/demand curve will move when implementing the current monetary policy and combining that with the current high levels of unemployment.  If they continue to inflate then the best case scenario is stagflation.  If they stop the stimulus in the next year or two, then there is the very real possibility of a significant deflationary environment.  I do not see any return to sustained normal growth...3-4% GDP...in the next 2-3 years. 

 

On the question of people being rational...I don't believe they were in March, and I don't believe they are now in November.  They were far too pessimistic back then, and are far too optimistic today.  Cheers!

 

[uncommonprofits]

My main point is that I agree with how the supply/demand curve will move when implementing the current monetary policy and combining that with the current high levels of unemployment.  If they continue to inflate then the best case scenario is stagflation.  If they stop the stimulus in the next year or two, then there is the very real possibility of a significant deflationary environment.  I do not see any return to sustained normal growth...3-4% GDP...in the next 2-3 years. 

 

So your 'guess' on Stagflation (ie. best case scenario) would then be 3+ years out?  Do I understand this correctly?

 

And further to this -- are you then forecasting a total of 4-5 years of <3% GDP?  I am saying 4-5 --- as 2009 is almost behind us.  [According to the figures I am looking at, 2008 GDP was +2.6%, 2009 at Q3 was -1.7% YOY  ... of course the Real GDP #'s are even worse!!]. 

 

UCP / DD

 

 

 

 

[Parsad]

So your 'guess' on Stagflation (ie. best case scenario) would then be 3+ years out?  Do I understand this correctly?

 

Possibly sooner.  If they continue to inflate into 2010 and unemployment continues to rise, then we could be in that environment before the end of 2010.

 

And further to this -- are you then forecasting a total of 4-5 years of <3% GDP?  I am saying 4-5 --- as 2009 is almost behind us.  [According to the figures I am looking at, 2008 GDP was +2.6%, 2009 at Q3 was -1.7% YOY  ... of course the Real GDP #'s are even worse!!]. 

 

Yes, I think that is probably correct, but averaged out.  We could have a couple of quarters of significant GDP growth, simply because of huge amounts of stimulus and low interest rates.  But, the long-term GDP over the next several years should average out to well below 3-4% annualized since they cannot inflate for several years...we just don't have the firepower to do that without creating other enormous problems.  Cheers!

 

 

[bernard2]

 

parsad,what do you think of the FFH bond portfolio?are you comfortable with that bet?

 

 

[Parsad]

Yes, they've got primarily BRK-insured municipals and quality corporate debt.  That should provide them plenty of income in this low interest rate environment, without the volatility and risk of dividend-paying equities. 

 

If we were going to see a high-inflation environment, then it might be more of a concern, but I think the risk of sustained hyper-inflation is very, very low.  Deflation is more likely than hyper-inflation.  Cheers! 

[bernard2]

thanks parsad,

 

my concern is not credit or hyperflation,is just long term rates going up by 1-2 percent

[Parsad]

Fairfax has said in the past, that if the prices of their bond portfolio drop significantly, then they are comfortable holding them to maturity.  I believe most of their bond portfolio is strictly to generate income, so interest rates moving up may create a temporary mark-to-market loss, but the income would still be the same.  Cheers!