xmas13

http://news.yahoo.com/s/ap/20080719/..._ge/oil_prices

"The price of oil recorded its biggest weekly drop ever. Light, sweet crude for August delivery fell 41 cents Friday to settle at $128.88 on the New York Mercantile Exchange ? well below its trading record of more than $147 a week earlier."

http://news.yahoo.com/s/nm/20080719/...oup_housing_dc

"Citigroup chairman Win Bischoff has warned that house prices in Britain and the United States are likely to keep falling for another two years."

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Barefootsies

Delicious.

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Enough Said.

"Would you rather live like a king for a year or like a prince forever?"

GetSCORECash

Hope this guy is calling it wrong, just like his buddies called it wrong when they rode the bubble up.

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Pleasurepays

gee... bush is sure an asshole for announcing they would be proposing a bill to allow more drilling... that bastard made speculators panic and oil start to drop. what a prick.

yys

I don't see them being wrong with this call. One of the main reasons there was a bubble in R.E. was due to houses being built and sold, mortgages being approved, too people who had no business owning a home in the first place. With all these owners and buyers knocked out of the market for the foreseeable future prices have no where to go but down; certain markets excluded. Or in short; too much supply and not enough demand.

kenny

http://en.wikipedia.org/wiki/Economic_bubble

Possible causes
The cause of bubbles is a puzzle to science. It has been variously suggested that bubbles may be rational,[7] intrinsic,[8] and contagious,[9]. To date, there is no widely accepted theory to explain their occurrence.

Puzzlingly, bubbles occur even in highly predictable experimental markets, where uncertainty is eliminated and market participants should be able to calculate the intrinsic value of the assets simply by examining the expected stream of dividends.[3] Nevertheless, bubbles have been observed repeatedly in experimental markets, even with sophisticated participants such as business students, managers, and professional traders. Experimental bubbles have proven robust to a variety of conditions, including short-selling, margin buying, and insider trading.[1]

While it is not clear what causes bubbles, there is evidence to suggest that they are not caused by bounded rationality or assumptions about the irrationality of others, as assumed by greater fool theory. It has also been shown that bubbles appear even when market participants are well-capable of pricing assets correctly.[5] Further, it has been shown that bubbles appear even when speculation is not possible[4] or when over-confidence is absent.[5]


[edit] Social psychology factors

[edit] Greater fool theory
Popular among laymen but not fully confirmed by empirical research,[4][5] greater fool theory portrays bubbles as driven by the behavior of a perennially optimistic market participants (the fools) who buy overvalued assets in anticipation of selling it to other rapacious speculators (the greater fools) at a much higher price. According to this unsupported explanation, the bubbles continue as long as the fools can find greater fools to pay up for the overvalued asset. The bubbles will end only when the greater fool becomes the greatest fool who pays the top price for the overvalued asset and can no longer find another buyer to pay for it at a higher price.


[edit] Greed
A related explanation is that economic bubbles are favored by the greed and irrational exuberance of overly bullish investors. The argument is that investors tend to extrapolate past extraordinary returns on investment of certain assets into the future, causing them to overbid those risky assets in order to attempt to continue to capture those same rates of return. Overbidding on certain assets will at some point result in uneconomic rates of return for investors; only then the asset price deflation will begin. When investors feel that they are no longer well compensated for holding those risky assets, they will start to demand higher rates of return on their investments.


[edit] Herding
Another related explanation used in behavioral finance lies in herd behavior, the fact that investors tend to buy or sell in the direction of the market trend. This is sometimes helped by technical analysis that tries precisely to detect those trends and follow them, which creates a self-fulfilling prophecy.


[edit] Liquidity
Others argue that the cause of bubbles is excessive monetary liquidity in the financial system. However, this explanation cannot be complete, because bubbles appear even in experimental markets that are carefully controlled.[3] According to the explanation, excessive monetary liquidity (easy credit, large disposable incomes) potentially occurs while central banks are implementing expansionary monetary policy (i.e. lowering of interest rates and flushing the financial system with money supply). When interest rates are going down, investors tend to avoid putting their capital into savings accounts. Instead, investors tend to leverage their capital by borrowing from banks and invest the leveraged capital in financial assets such as equities and real estate.

Simply put, economic bubbles often occur when too much money is chasing too few assets, causing both good assets and bad assets to appreciate excessively beyond their fundamentals to an unsustainable level. The bubbles will burst only when the central bank reverses its monetary accommodation policy and soaks up the liquidity in the financial system. The removal of monetary accommodation policy is commonly known as a contractionary monetary policy. When the central bank raises interest rates, investors tend to become risk averse and thus avoid leveraged capital because the costs of borrowing may become too expensive.


[edit] Other possible causes
Some regard bubbles as related to inflation and thus believe that the causes of inflation are also the causes of bubbles. Others take the view that there is a "fundamental value" to an asset, and that bubbles represent a rise over that fundamental value, which must eventually return to that fundamental value. There are chaotic theories of bubbles which assert that bubbles come from particular "critical" states in the market based on the communication of economic factors. Finally, others regard bubbles as necessary consequences of irrationally valuing assets solely based upon their returns in the recent past without resorting to a rigorous analysis based on their underlying "fundamentals".

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DBS.US

Good reading

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roly

surely that's a good thing? at least as far as the world economy and 99.9% of the worlds population.

stereolab

why? low home prices makes for good investment opportunities. same with stocks. i'll never figure out why people go apeshit when stocks drop. buy low and sell high.

oh, and i love the alarmist oil headlines "BIGGEST TUMBLE YET!:

too bad it's still $130 a barrel

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DateDoc

it will be in the $75 - $90 range by the end of the year.

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Barefootsies

Or less....

An Indian refinery will come online this fall. The U.S. is predicted to be it's main customer in conversion of oil to gasoline. It's the biggest refinery in the world.

Once that comes online, that should end the "glut of crude" (i.e. the Saudi's supply and demand arguement), and not enough refining capacity.

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Enough Said.

"Would you rather live like a king for a year or like a prince forever?"

ADL Eddie

Yeah just depends on whether you plan to be a bet buyer or seller for the next x years

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GregE

Consider too that:

1) Those who get foreclosed on will be knocked out of the housing market pretty much forever, regardless of how much they might earn in the future, due to their credit scores having been effectively nuked.

2) With the inevitable heavy duty inflation heading this way interest rates will go through the ceiling resulting in even more foreclosures. Meanwhile, new mortgages will become unaffordable for an ever increasing percentage of the population despite the drop in housing prices.

3) Then, of course, there's that upcoming recession we keep hearing about. Add job losses and higher taxes to the mix and the housing market gets kicked in the teeth yet again.


I sure as hell hope that I'm wrong... but the future looks pretty damn grim

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DateDoc

Then you should buy rental property.

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Pleasurepays

do they have sarcasm where you're from?

if not, would you like to buy some... take it home and play with it for a while and get to know it?

Defiance Inc

Foreclosure doesn't nuke you're credit like a bankruptcy. 36 months of good payments on
other debts and you'll be on your way. In the mean time save up for 20% down, pay off all your bills, use cash and fuck the system. Its fixed to keep you a slave. Your credit score gets hosed if you don't use your credit cards or loans, and it gets hosed if you do. They ding you for checking it too much and they ding you for transferring balances... among a million other bs reasons
You could also try a short sale which is even better.

Another thing to remember is the baby boomers... They're getting to retirement age, or
nursing home. How many of these people are going to buy homes? Especially if their
retirements are being wiped out as the months roll along. Also the middle class is getting hacked away like no tomorrow, people won't be able to afford homes until they reach poverty level pricing. America will end up being a two tier society just like Mexico.

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candyflip

I have a friend who's a bankruptcy lawyer. He claims that you can have new credit cards, car loans and even a mortgage almost immediately after filing. I don't know what truth there is to that, as I've never been in that situation...but I'm inclined to think he's telling me the truth.

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Defiance Inc

Yeah its true, I've known a couple people that have done it. Most lenders will
be tougher on you though, or charge much higher rates. And I believe the laws passed recently make it tougher to claim bankruptcy.

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Barefootsies

Lots of bad financial, and bankruptcy advice in this thread.

You can get credit cards almost right after. The important thing is that you, after bankruptcy, make all your payments on time from that point on. In 18-24 months you will be able to buy just about anything you want.

Sure, there are a few banks who will not lend to you. Chase, Bank of America, and some other well known. Those store cards will be iffy. Maybe a local bank or two will not loan you shit (go to a credit union). But the gold rule of finance is a strong 18+ months of paying your shit, and making sure no red marks, and you're fine for 90% of what you want out there.

You may not get 9% interest rates on car loans and cards, or 5% on your mortgage, but you'll still be able to get a lot.

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Enough Said.

"Would you rather live like a king for a year or like a prince forever?"

fuzebox

I don't know about you guys, but dropping house price sounds golden to me

spunkmaster

The problem is you can't claim a BK anymore unless you are really broke.

The new law two years ago stopped most people from claiming a BK. You now have
to pay off the old debts with payment plans until you pay off your debts !

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roly

yes, but it's not allways obvious in posts. there's people making money out of the high oil price i assumed you were one of them or just an idiot, however now i realise you're just a prick.

Due

It will go up again, oil investors on vacation + lots of businesses shut down or running with minimum staff due to vacations cause a low demand = lower prices.

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candyflip

You can do it every 7 years, at least Chapter 11. I have an uncle who seems to be a real pro at this scheme and does so every 7 years, no fail.

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IllTestYourGirls

or more US is threatening heavy sanctions on Iran in two weeks

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Peaches

Taking care of the elderly baby boomers (me being one of them) is going to be the next HUGE economic problem for the US. Especially with the "give everyone free medical care forever" mentality we've taken on.

Peaches

You sure he's doing Chapter 11?

Barefootsies

Actually, I think 13 (the one where you repay) is 7, and 11 (or the one you give creditors the finger) is 10.

Same for on your credit report. One drops at 7, the other for 10. But it could be 7 and 13. I would have to look to tell you for sure. But I know that the repayment one is less on the credit report.

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Enough Said.

"Would you rather live like a king for a year or like a prince forever?"

kenny

Credit reporting is 7 years for bad reporting and 10 years for bankruptcy/judgments.

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kenny

Credit reporting only reflects the credit reports.. obviously

If a person gets a judgment in a state and the law of that state says a judgment is good for 20 years than the creditors can still collect after it falls off the credit report (10 years)


Same thing with a credit card. If you stop paying a credit card it will reflect negative for a maximum of 7 years on the credit report. If the statute of limitations in the state where the default occured is 15 years than the creditor can still sue you after it falls off the credit report. If the state SOL is 3 years than the creditor can't sue past 3 years even if it is still on the credit report.

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Violetta

I can live with two years... As long as they start rising after that!

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