On the housing market woes, Buffett noted how Berskshire’s housing-related businesses are getting hit. Unlike many overeager investors today, who feel compelled to run into burning buildings by buying flaming housing-related stocks on the theory that the worst is over, Buffett offered a contrary view: ‘My guess is that it continues for quite a while.’

On the private equity bubble - which involves so-called private equity firms raising huge pools of money and then borrowing a lot more to buy whole companies - Buffett noted a great flaw in the scheme. Private equity firms have a ‘great compulsion to invest quickly.’ That way, they can go out and raise another fund and keep the fees coming in. Basically, private equity firms are paid for activity, not results. And the nature of the business means that we won’t know who is successful until many years have passed. Buffett said the ’score card is lacking.’

On fears of a crash or meltdown or bad things happening in the market, Buffett offered wise words: ‘Something bad will happen, but you could go back at anytime in the last 100 years and say the same thing… you can freeze yourself out indefinitely.’

enframed wrote:

DazeyDiver wrote:I would go see a band called 'The Sub-Prime Blowout and The Con Man Exodus.'

that track is on the next fall album.

the market oracle wrote:Trouble in Squanderville - Two years ago, anyone who wrote about the housing bubble was dismissed as a conspiracy nut. Now hardly a day goes by that the headlines aren't splattered with the details of the massive meltdown in the real estate market.

What changed? The facts are essentially the same today as they were back then. In fact, the “Economist” — as well as many independent journalists — had already shown that the Fed's low interest rates had inflated the biggest equity bubble in history which could potentially bring down the entire economy.

Now, all of a sudden, the media is acting as if the problem sprouted up overnight?

Why?

The notion that the media was unaware of what was going on is ridiculous. The business pages in America's newspapers are written by some of the country's “best and brightest”... most of them have MBAs which they earned at our finest universities.

Is it possible that they were oblivious to the trillions of dollars that were funneled into the real estate market to unqualified loan applicants? Or that they didn't know that the rising prices had no relation to GDP, increases in wages or productivity?

Is it possible that some of our best educated business prognosticators don't understand the effects of low interest rates or the speculative bubbles they naturally create?

It's simply not possible — the effects of interest rates are the first thing that one learns in Econ 101.

The real problem is that the media obfuscates information that conflicts with the interests of management or their constituents. Their main goal is to promote consumer spending regardless of its effects on the nation's economy. In this case, they managed to hide an $11 trillion economy-busting bubble and nudge us ever-closer towards catastrophe. That takes a pretty talented public relations team. In fact, we've probably underestimated how powerful and persuasive the corporate propaganda-system really is.

While housing prices rose at 10% to 20% per year, the American people were duped into believing that such huge leaps were just part of the normal business cycle — just supply and demand. They never dreamed that the surge in prices was engineered at the Federal Reserve through artificially low interest rates. Everyone believed that things were just hunky-dory — that it was springtime in “the land of the free and the home of the chronically indebted”. Those who disagreed were derided as doomsayers or lunatics.

It didn't seem to matter that the skyrocketing prices had no historical precedent. After all, housing prices ALWAYS go up — everyone knows that. Even questioning the “irrational exuberance” in the real estate market was tantamount to heresy. Housing wasn't like the dot.com fiasco — where zillions of dollars were sluiced into a hyper-inflated, speculative frenzy. Housing is the brick-n-mortar expression of the American dream — a rock solid investment from top to bottom — a vital part of the American psyche as true as Old Glory or the Continental Congress in 1776.

CEPR 6-7-07 wrote:Ratio of Mortgage Debt to Housing Value Hits New Record

At the end of the first quarter of 2007, the ratio of equity to home value stood at 52.7 percent, another record low. This ratio stood at 54.3 percent at the end of 2005. It had been at 57.9 percent as recently as 2000, and was close to 70 percent until the nineties. This drop in the ratio of equity to value is especially disconcerting given the country's demographics. With much of the baby boom cohort at the edge of retirement, it would be expected that the ratio of equity to value would be near record highs.
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The continuing drop in the ratio of home equity to value shown in this report implies both serious short-term and long-term problems for the economy. The short-term problem is that the home equity financed consumption boom which has supported the economy since the recession is likely to be coming to an end. The long-term problem is that tens of millions of baby boomers are approaching retirement with relatively little equity in their homes and almost no assets outside of their homes. Their retirement income will be almost entirely dependent on Social Security.

clocker bob wrote:My positions are exaggerated constantly on this forum, which is pretty hard, since they're so exaggerated to begin with. I live with it.

Economists are giving up on the idea that the U.S. housing slump will be quick and relatively painless.

Instead, more are concluding, the downturn that began nearly two years ago will last at least through the end of 2007, remaining a major drag on the U.S. economy. The culprits: a glut of homes for sale and growing caution among lenders who now regret being so free with their mortgages during the boom.

matthew wauck 11-2-2006 wrote:The whole "housing bubble" is crap.

The rise in interest rates is only adding to the gloom. The average rate for 30-year fixed-rate mortgages stood at about 6.65% Friday, up from 6.35% in early May. Though that rate remains far below the 8.2% average of the 1990s, the recent jump makes it harder for many Americans to afford new homes. "That's putting more pressure on housing and delays its ultimate recovery," says Andrew Tilton, a senior economist at Goldman Sachs in New York.

matthew wauck 11-2-2006 wrote:My sister is an associate VP of institutional sales at FBR and my brother-in-law is a senior analyst at a hedge fund which spun off of SAC (he was at SAC before he went over to the fund he's at now). I've had numerous discussions about the whole housing bubble thing with them and have done my own homework on it. My sister deals with mortgages all day long.......that's pretty much all she does......and she says that there's no bubble.

Federal Reserve Chairman Ben Bernanke acknowledged in a speech Tuesday that the housing market remains weak, and warned that residential construction "will likely remain subdued for a time, until further progress can be made in working down the backlog of unsold new homes."

matthew wauck 11-2-2006 wrote:It's not there....the whole housing boom (not bubble) is so unlike, say, the tech/'net bubble of the gay '90's that it doesn't even bear comparison. So please don't throw terms like "housing bubble" around so carelessly, Captain Kirk.

matthew on March 7, 2007 at 2:46 PM wrote: Consider this my last forum post for at least a very, very long time and possibly ever. Send me a PM if you want to talk one on one though. I won't promise you a response however.

Bye, it was a trip

Matthew G. Wauck.

clocker bob wrote:Wall Street Journal, June 8, 2007:

Economists are giving up on the idea that the U.S. housing slump will be quick and relatively painless.

Instead, more are concluding, the downturn that began nearly two years ago will last at least through the end of 2007, remaining a major drag on the U.S. economy. The culprits: a glut of homes for sale and growing caution among lenders who now regret being so free with their mortgages during the boom.

matthew wauck 11-2-2006 wrote:The whole "housing bubble" is crap.

The rise in interest rates is only adding to the gloom. The average rate for 30-year fixed-rate mortgages stood at about 6.65% Friday, up from 6.35% in early May. Though that rate remains far below the 8.2% average of the 1990s, the recent jump makes it harder for many Americans to afford new homes. "That's putting more pressure on housing and delays its ultimate recovery," says Andrew Tilton, a senior economist at Goldman Sachs in New York.

matthew wauck 11-2-2006 wrote:My sister is an associate VP of institutional sales at FBR and my brother-in-law is a senior analyst at a hedge fund which spun off of SAC (he was at SAC before he went over to the fund he's at now). I've had numerous discussions about the whole housing bubble thing with them and have done my own homework on it. My sister deals with mortgages all day long.......that's pretty much all she does......and she says that there's no bubble.

Federal Reserve Chairman Ben Bernanke acknowledged in a speech Tuesday that the housing market remains weak, and warned that residential construction "will likely remain subdued for a time, until further progress can be made in working down the backlog of unsold new homes."

matthew wauck 11-2-2006 wrote:It's not there....the whole housing boom (not bubble) is so unlike, say, the tech/'net bubble of the gay '90's that it doesn't even bear comparison. So please don't throw terms like "housing bubble" around so carelessly, Captain Kirk.