Economic Recovery

russ_watters

Looking back, I should have made it quarterly, since you did say say quarterly in your post. So that should be 0.44%. Again, hardly something to get excited about.

russ_watters

I think it is more likely that the consumers took out loans, making almost all of the money borrowed. But yes, I was using the best-case type logic thrown out by others. No need to go into all of my objections to the program there. Everyone is well aware of the flaws by now.

Astronuc

I think some are playing it up because it's + and not -.


Meanwhile - Some Analysts See an End to Market Rally
http://www.nytimes.com/2009/08/31/bu...31markets.html
GE has more than doubled from $6 to ~$14. They have substantially cut the dividend and are looking to sell some assets.

The point is not to panic but take advantage of opportunity.

Astronuc

The mob wants their piece of the action, too.


Concern Is High That the Mob May Seek a Cut of the Stimulus Pie
http://www.nytimes.com/2009/08/31/nyregion/31mob.html

russ_watters

And by "some", you mean you, right? I was responding to your words that it was a "big boost". If that's your opinion, so be it, but I just wanted to attach the numbers to what that "big boost" really means and provide a reasoning why I disagree that it is a "big boost".

Astronuc

The 'Cash for Clunkers' is a major reason for the growth being positive this quarter. Take that away, and the GDP would be slightly negative. That's what I was meaning by 'big boost'.

I'm not playing it up that the growth in the GDP is positive, but I'm looking at the reason that it is positive - because the government is providing subsidies to stimulate economic activity. I personally don't the government should be doing that.

I believe that the spending by those who receive their 'cash for clunkers' is measured not only in the money spent on the cars and the reduction in inventory, but one must consider the other spending that it stimulated.

If the government spent about $3000/car ($ 3 billion = 1 million new cars), and people went out and bought brand new models at ~$20K, then that's about $20 billion, which may have induced another $20 billion or so to replace inventory, service debt, . . . . On the other hand if the government subsidy was $4k per car then perhaps only ~750,000 were purchased and the economic boost was only $15 billion.

mheslep

What? The GDP for the 2nd quarter was still negative, -1% as shown up thread.

Where is the proof that on net the US economy has actually been stimulated by clunkers? Perhaps it did, but all we have before us is evidence that car sales were simulated. And perhaps that money was just robbing Peter (construction, computers, medicine, whatever) to pay Paul (cars).

See above. There's no evidence here that the net economy was stimulated.

The car sales boost, not the overall economy.

Astronuc

July, Aug, Sep are 3Q.

mheslep

Yes, and for which we don't get the official numbers until October.
http://www.bea.gov/newsreleases/news...t_national.htm

We do have predictions at this time, varying from 2 to 4% annualized in 3Q.
http://online.wsj.com/article/SB125137361057563285.html

Astronuc

Clunkers aid Ford, Toyota sales; GM, Chrysler fall
http://news.yahoo.com/s/ap/20090901/.../us_auto_sales

WhoWee

Chrysler and GM didn't have an inventory of eligible vehicles???

"Meanwhile, low supplies of fuel-efficient vehicles at Chrysler kept the automaker from benefiting more from the clunkers program, whose rebates encouraged customers to buy gas sippers in exchange for guzzlers with gas mileage of 18 mpg or less.

Chrysler sales fell 15 percent to 93,222 units. That was less than the combined sales of Hyundai Motor America and affiliate Kia Motors America, whose smaller sedans helped boost sales to a combined 100,665 for August.

Going into August, five of Chrysler's most efficient vehicles were already at low inventory levels. Those vehicles — the Dodge Caliber, the Chrysler Sebring, the Jeep Patriot, the Jeep Compass and the Dodge Avenger — all qualified as Cash for Clunkers purchases.

To make up for the shortfalls, Chrysler is boosting production by 50,000 vehicles of most of its vehicles through the end of the year.

At General Motors Co., sales fell 20 percent to 245,550. GM said its inventory levels hit an all-time low of 379,000 during August."


Every assistant manager at McDonald's knows enough to order more fries when fries are on sale. First year business students know better - who's running these companies?

russ_watters

It appears to me that that article is poorly written in a way that misleads people about what the data shows. They appear* to be comparing August '09 sales to August '08 sales, not to July '09 sales. So the statement in the title implies that GM and Chrysler weren't helped by the CARS program, but the data does not say one way or another whether that is true.

*I say "appear" because they only mention the timeframe once, attached to one set of data.

russ_watters

We have no data to support that assertion. All we know for sure is that the "big boost" for Q3 can only be 0.44%. So if gdp growth comes in between 0 and +0.44%, the boost from CARS will account for that. I don't consider a .44% swing to be very "big", though, considering that the last three quarters were -6.3%, -5.7% and -1%.
I'm not following - what other spending would it stimulate? It seems to me that CARS spending would inhibit other spending. The most obvious placee where spending is inhibited is in gas spending and maintenance spending, but also if someone is buy a car, they have less money to spend on other things. You're just double-counting. The car that last month the dealership couldn't get off the lot was gotten off the lot by CARS and is now replaced with a car that next month they won't get off the lot. Building a car and shipping it to a dealership isn't adding money to the economy, it is a pure liability by the car company until it is sold.

You can only add the cost of a sold good to the GDP once.
Debt service is money removed from the economy, not added to it. It is money that consumers won't have to spend on other things.

OmCheeto

But I lost $40 in the market today! OMG! OMG!

But then again, my risk management commodities broker acquaintance says;"Ommmmm..... Stay cool. In 5 years, I predict, you'll have doubled your post inflation adjusted investment."

Though I don't know if I should trust him. He's 32.

OmCheeto

And the Swiss.....

Well, at least we get 250 jobs out of the deal.
hmmm.... $30M/250 = $120,000 each
Assuming $120k/3 yrs = $40k/yr.
I guess it adds up.

Sure hope the batteries end up working.
That would be a boom to our economy.

WhoWee

A real estate overview.

http://realestate.aol.com/article/fi...00DYNLprim0001

"4 Signs Your Home Is About to Lose Value
Consumer Action by AnnaMaria Andriotis, SmartMoney

Despite signs that the real estate market is bottoming out, millions of homeowners are likely to find themselves in worse shape within the next two years.

Nearly half of the nation's 52 million mortgage borrowers will have negative equity by the end of the first quarter of 2011, up from the 14 million at the end of this year's first quarter, according to estimates in an Aug. 5 report by Deutsche Bank. With so many borrowers underwater -- or owing more on their home than it's worth -- the risk is high that they'll default and their homes will go into foreclosure, says Mark Zandi, the chief economist at Moody's Economy.com. (Moody's Economy.com estimates that 17.5 million mortgage borrowers will be underwater by early 2010.)

More From SmartMoney

Negative equity is the product of several factors. The most significant weight is the broad and persistent decline in home values. A Zillow.com index of home values fell 12.1% year-over-year during the second quarter, resulting in a total drop of 22.3% since the market peaked in mid-2006, according to an Aug. 11 report by the online real estate marketplace. Many buyers who bought their home around the peak with a 20% down payment have lost that dollar amount.

"The continued decline of U.S. home prices will contribute to rapidly rising rates of negative equity," Karen Weaver, a Deutsche Bank research analyst, wrote in the report. "The most obvious implication is for mortgage defaults."

Current homeowners, or those shopping for a home and who are concerned that they'll end up underwater, should consider how long they expect to live in their house. Being underwater doesn't affect homeowners unless they plan to sell, Zandi says.

Individuals who are staying put for at least the next five to seven years will likely recoup the lost value of their home, says Amy Bohutinsky, a Zillow.com spokeswoman. In addition, homeowners should refrain from borrowing against their mortgage, she says.

Those who find themselves underwater can turn to the federal Making Home Affordable plan, which can help you refinance or do a loan modification. You'll have to meet the eligibility requirements listed here.

Whether you're at risk for falling behind may have more to do with the economy and your neighborhood than your job, your credit or your income. Here are four warning signs that you're heading underwater.

Foreclosures in your neighborhood
The quickest way to end up underwater is to live in a neighborhood that's plagued by foreclosures.

When one home on your block goes into foreclosure, your home's value drops by 1%, Zandi says. But that isn't a one-to-one relationship. If two homes on a block go into foreclosure, your home's value will drop by more than 2%.

As homes go into foreclosure, they create a domino effect, lowering home values throughout a neighborhood in a cascade beyond homeowners' control. (For more on factors that reduce a home's value, read our story.)

Homes lingering on the market
When "For Sale" signs linger in a neighborhood for three or more months, that may mean buyers and sellers can't agree on a price. In that environment, homes are unlikely to sell unless the seller lowers their asking price.

"The time on the market is always a good barometer of demand for homes and for the price homes are transacting at," Zandi says. "The longer it appears that neighbors are taking to sell their home the more likely it is they're not getting the price they want and that prices are falling."

Compare the time it took for homes to sell in your neighborhood three years ago vs. today; if it's taking weeks or months longer to sell, the prices homes can fetch are dropping, Zandi says.

Increasing unemployment
In most cases, the cities where homes have lost the most value during the past year also possess the highest unemployment rates.

Homes in Merced, Calif., have lost 40.2% of their value year-over-year, the biggest loss of home values in the nation, according to Zillow.com. The city's unemployment rate is the fifth-worst among 372 metropolitan areas at 17.6%, according to June data from the Labor Department. El Centro, Calif., where home values plunged 37.6% year-over-year (the second-biggest drop in the country), has the worst unemployment rate at 27.5%.

Individuals living in areas battered by high unemployment are likely to see their home values drop further, especially if they live in areas dependent on dwindling industries -- like Central Valley, Calif., and the mortgage lending business or Detroit and the auto industry, Zandi says.

Homes in disrepair
Dented siding, peeling paint and broken porches could be signs that neighbors are having trouble making ends meet and can no longer pay to take care of their home, Zandi says. Or they may have gotten an appraisal and discovered their homes have dropped in value and are no longer worth the cost of repairs. Inevitably, as the condition of homes in your neighborhood worsens, home values are likely to drop.

"The mere fact that they're not investing in their homes will affect you too," Zandi says.


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What Underwater Borrowers Have Common
Risky mortgages
Some 77% of option-ARM borrowers and 50% of subprime mortgage borrowers were estimated to be underwater as of the first quarter of 2009, according to the Deutsche Bank report. With option-ARMs, borrowers could make minimum monthly payments that didn't even cover the loan's interest. As the market declined, these balances grew over time. With subprime mortgages, borrowers often had poor credit scores and little documentation of their financial situation. In both cases, borrowers often ended up with a large motgage relative to the house's price.

Date of purchase
Individuals who bought their home between 2003 and 2008 are at risk of being underwater because they bought while prices were rising, Zandi says. The risk is greater for those who bought between 2005 and 2006, as the market approached its peak.

Excessive borrowing
Many individuals borrowed against their home when it appreciated in value during the bubble by taking out a second mortgage or tapping into a home equity line of credit or home equity loan. This borrowing left their home with less equity to weather the drop in home values.

Home's location
The areas that have been hit the hardest by plunging home values include the "sand states" of Arizona, California, Florida and Nevada because they brought the most speculation, easy credit and overbuilding during the bubble, Zandi says. Also hurt: the states where unemployment is especially high and manufacturing jobs have been eliminated like Michigan, Ohio and Indiana, Zandi says."

Astronuc

How this for recovery?

Where the Players Landed
One year after the worst week of the financial crisis, some of the most famous names on Wall Street are still looking for jobs or fighting lawsuits
http://www.nytimes.com/interactive/2...-they-now.html

Richard S. Fuld Jr.
Charles O. Prince III

One of the good guys

Nouriel Roubini