Tuesday, January 01, 2008

Market Oracle 2008 predictions.

Five Mega-Trends Unfolding In 2008
Stock-Markets / Financial Markets Dec 28, 2007 - 09:25 AM
By: Money_and_Markets

Selected Excerpts:

Mega-Trend #1: The Housing Downturn Will Drag On ... And On ... And On

...Sales and construction activity have collapsed: Existing home sales have plunged 31% from their 2005 peak. New home sales are down even more — around 48%. Meanwhile, single family housing construction activity has tanked 55%. And the decline isn't over: The issuance of new building permits — an indicator of future housing starts — has dropped to its lowest level since 1991.

...The outlook has worsened as empty homes have piled up: An index that measures home builder optimism, buyer traffic, and expected sales has plunged from the 70s during the boom to 19, a record low. And the nationwide home vacancy rate has surged to a near-record 2.7%, a testament to the dramatic glut of empty, depreciating homes sitting on the market.


Mega-Trend #2: Commercial Real Estate Ready For Its Turn On The Chopping Block

...The result: Commercial property values will likely deteriorate in 2008, and commercial foreclosures will escalate. Heck, the process is already underway — as the Wall Street Journal reported on Wednesday:

"For the past few months, the [commercial real estate] sector has been in a state of near-paralysis, as financing has nearly dried up. The number of major properties sold is down by half, and many worry that the market will continue to deteriorate as property sales remain slow, prices continue to drop and deals keep falling apart."


Mega-Trend #3: The Party's Over For The Financial Sector

...Suffice it to say that the notional, or face value of global over-the-counter derivatives soared to a stunning $516.4 TRILLION in the first half of 2007! That was up 40% in a year and up almost six-fold since the turn of the century, according to the Bank for International Settlements.

...Unfortunately for many financial firms, that business model is now shot. Complex debt securities are blowing up. The risk of parties to derivatives transactions actually failing to meet their obligations — known as "counterparty risk" — is rising fast. And the origination and packaging of all kinds of debt is grinding to a halt.


Mega-Trend #4: Election Year Politics Will Spur Epic Bailout Efforts

...The 2008 election process is starting to kick into high gear. This will be one of the most pivotal presidential election years in decades — not only because no incumbent is running but also because the hottest days of the campaign are likely to coincide with some of the worst shocks of the housing bust.

...I can think of nothing that could be a more riveting, baseball-and-apple-pie issue for politicians than the prospect of millions of voters losing their home. It's the American Dream turned into the American Nightmare.


Mega-Trend #5: Despite All This Money Pumping, The U.S. Has A Date With Recession

...Companies borrow money to build factories. Developers take out loans to put up apartment complexes and strip malls. Consumers use credit cards and home equity loans to finance their spending. But now, that flow of credit is being squeezed everywhere.

...It's also getting tougher and tougher for businesses to obtain commercial and industrial loans. In fact, half the lenders recently polled by the Fed say they're tightening standards on commercial real estate loans.

...With the "housing ATM" spitting out fewer and fewer dollars ... and standards tightening across a wide range of loan products ... the economy is starting to roll over.


For a not-so-fun look at the reality of this situation on one Florida community, see this article:

This Is the Sound of a Bubble Bursting
By PETER S. GOODMAN Published: December 23, 2007
Cape Coral, Fla. [Excerpts from a 4 page article]

...Families seemingly disconnected from real estate bust are finding themselves sucked into its orbit, as neighbors lose their homes and the economy absorbs the strains of so much paper wealth wiped out so swiftly.

...AS construction and real estate spiral downward, the unemployment rate in Lee County has jumped to 5.3 percent from 2.8 percent in the last year. With more than one-fourth of all homes vacant, residential burglaries throughout the county have surged by more than one-third. “People that might not normally resort to crime see no other option,” says Mike Scott, the county sheriff. “People have to have money to feed their families.”

...At Selling Paradise Realty, a sign seeks customers with a free list of properties facing foreclosure and “short sales,” meaning the price is less than the owner owes the bank. Inside, Eileen Rodriguez, the receptionist, said the firm could no longer hand out the list. “We can’t print it anymore,” she says. “It’s too long.”

...In late November, more than 2,600 of the 5,500 properties for sale in Cape Coral were short sales, says Bobby Mahan, the firm’s owner and broker. Most people who bought in 2004 and 2005 owe more than they paid, he says....

...Many others are in similar straits, and the situation has had a ripple effect on the local economy. Scanlon Auto Group, a luxury car dealer, says it has seen its sales dip significantly — the first time that’s happened in 25 years. Rumrunners, a popular Cape Coral restaurant with tables gazing out on a marina, says its business is down by a third, compared with last year.

...Furniture dealers are folding. Hardware stores are suffering. At Taco Ardiente in Lehigh Acres, business is down by more than three-fourths, complains the owner, Hugo Lopez. His tables were once full of the Hispanic immigrants who filled the ranks of the construction trade. The work is gone, and so are the workers.

...AT the state level, Florida’s sales tax receipts have slipped by nearly one-tenth this year, and by 14 percent in Lee County. That is a clear sign of a broad economic slowdown, said Ray T. Kest, a business professor at Hodges University in Fort Myers. “It started with housing, the loss of construction jobs, mortgage companies, title companies, but now it’s spread through the entire economy,” Mr. Kest says as he walks a strip of mostly empty condo towers on the riverside in downtown Fort Myers. “It now has permeated everything.”

...Mr. Browder points out an upside of the housing downturn: Hiring people has become easy. In recent years, the school system struggled to find bus drivers, given the abundance of jobs at twice the pay driving dump trucks in home construction. “Now, we get 14 applicants for every job,” he says.

...The county’s Department of Human Services has seen a substantial increase in applications for a program that helps pay rent and utility bills for those in need. Half the applicants say they have lost jobs or seen their work hours reduced, said Kim Hustad, program manager.

...Last month, the city eliminated 18 building inspector jobs and 20 other positions within its Department of Community Development. They were no longer needed because construction has all but ceased. The city recently hired a landscaping company to cut overgrown lawns surrounding hundreds of abandoned homes.

...“People are underwater on their houses, and they have just left,” Mr. Feichthaler says. “That road widening may have to wait. It will be difficult to construct the high school. We know there are needs, but we are going to have to wait a little bit.”

...Waiting, scrimping, taking stock: This is the vernacular of the moment for a nation reckoning with the leftovers of a real estate boom gone sour. From the dense suburbs of northern Virginia to communities arrayed across former farmland in California, these are the days of pullback: with real estate values falling, local governments are cutting services, eliminating staff and shelving projects...

...Local officials counter that they are already being forced to contemplate significant changes that could affect everyday life. The county’s public safety division, which operates ambulance services, says it could be obliged to cut staff. The county’s Natural Resources Department recently delayed a $2.1 million project to filter polluted runoff spilling into the Lakes Regional Park — a former quarry turned into a waterway dotted by islands and frequented by native waterfowl.


The ripples are spreading out, class. Don't think you are somehow immune.

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