Trading Now

Trading Now

Friday, August 28, 2009

It's WAGES stupid

A truly scary chart from

*I had a conversation with a friend today on real estate and where I thought it would be in terms of price for years to come. She felt it would rise. I said due to a collapse in wages, NO WAY! But I also told her that I heard the Treasury and the fed are trying to get the banks to do a 40 year mortgage. And I feel that if this happens, then things will turn around. You have to consider prices people. If you want to drive them up artificially or otherwise, you need a catalyst. Low interest rates are one way and exotic mortgage backe securities (MBS) like Pick a Payment Options or ARMs are another. But if you want people to stay in the house that they scratched and saved all of their life for (and there are many more people like this than the country realizes) then a 40 year mortgage for a house that costs more than its worth ($500,000) or a 6 year auto loan (for an average price per ccar of $20,000 and cash for clunkers helped to stabilize artificially high prices, but with a 5 yr auto loan) is the way to go. Frankly, if they had been doing that all along, we probably wouldn't be in nearly half the mess we are today.
Debt is a way of life. You want to buy a house or a car or get a college degree? Then you need to borrow money and banks need to lend in order to stay in business. Do we want the government dictating lending rules and requirements? You bet your bootie we do, when we have decided to BACKSTOP their profligation of risk without concern for the long term but rather only how much is in it for me. I may not like it, but government does have to regulate morality. And who could argue except those that proffer, with putting up enough collateral to offset your risk. The problem becomes dicey when we live in a world with more and more people to share in the ever shrinking pie of resources both real and imagined. Money is a funny thing, you can't live without it. But how much does one person need in order to survive? That depends. If you live in America, where greed is prevalent, you need a whole lot more than minimum wage. But if you live in say Iraq, the cost per gallon of gas can fill your car up and drive you back and forth for a month compared to what we pay here.
So extending loan terms to better reflect a changing economic world is LONG overdue. So JOBS and WAGES are at the heart of any recovery and price stabilization. -Tradebum

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