September 10, 2012

Kerwin Charles on the Housing Bubble

Kerwin Kofi Charles and others at the U. of Chicago have a paper out documenting that, yes, the Housing Bubble temporarily papered over the impact of hollowing out America's industrial base:
We study the extent to which the U.S. housing boom and subsequent housing bust during the 2000s masked (and then unmasked) the sharp, ongoing decline in the manufacturing sector. We exploit cross-city variation in manufacturing declines and housing booms and jointly estimate the effects of both shocks on local employment and wages. Between 2000 and 2007, we find that a one standard deviation negative manufacturing shock increases the non-employment rate of non-college men by 0.9 percentage points, and a one standard deviation positive housing price shock is enough to fully offset this effect. We find that roughly half of the offsetting comes from increased construction employment and that other demographic groups are affected by both shocks, as well, though to a lesser extent. We also find that positive housing price shocks significantly reduce college enrollment, with the largest effects concentrated among community colleges and junior colleges. Finally, we use our estimates to assess how aggregate employment would have evolved absent the housing boom/bust cycle, and we find that roughly 35 percent of the increase in nonemployment between 2007 and 2011 can be attributed to the decline in manufacturing employment during the 2000s. In particular, we find that much of the recent increase in non-employment would have occurred earlier had it not been for the large temporary boom in local housing prices.

Not much good news here.

67 comments:

Anonymous said...

Well, in California Mexican men were employed in manufacturing from machinists and wielder to the very simple jobs like packing which are virtually disappeared today in the US, the lower skilled jobs. One mention that he left one of the factories that probably paid something like $10 and got more like $15 in construction during the boom. So, yes the shipping of manufacturing to China and Mexico left a lot of Mexican guys out of work. In fact stats shown Mexican cities in California by 2006 had higher unemployment compared to white and Asian cities that were more likely to be the engineers and sales people or managers in manufacturing those jobs were not hit as hard as assembler to machinist. Not saying that some engineers were not in source or outsourced but the data does show that Mexicans were shifted from manufacturing to construction of houses. Granted, there are some whites that are machinists too which were shifted to commercial construction since companies like to hire Hispanic immigration for the housing construction.

Anonymous said...

Yup.
It's easy to be wise after the event.
Why didn't all these 'experts' pipe up during the 'boom'.

Lugash said...



Don't worry, Ben Stein sez it's a blip.

Lugash said...

Getting off topic:

Did anyone else think that this was going to be a Gold Chain Homicide as soon as they saw the headline?

And Michael Clarke Duncan, RIP, was *awefully* muscular for a former basket ball player.

Anonymous said...

Why didn't all these 'experts' pipe up during the 'boom'.

No money in it. During a bubble there is a lot of money involved in keeping the bubble going.

DaveinHackensack said...

This confirms empirically what most of us probably understood intuitively. It also suggests a way for the GOP to win electoral majorities again: promote a renaissance of high paying blue collar jobs with good benefits. Make the case that Dems want you dependent on government assistance but the GOP wants you to have jobs you'll be proud of that will enable you to make a good living. Frame all related policy choices that way:

- Dems want more poor immigrants who will vote Dem for government handouts; the GOP wants tight labor markets so there's low unemployment and high wages (this may lose the GOP the restaurateur and landscaper vote, but so be it).

- Dems want to make energy more expensive through cap and trade and opposing drilling for oil and natural gas and digging coal; The GOP wants energy to be cheap and plentiful, to encourage more manufacturers to build factories and hire workers in the US. The GOP also recognizes that oil & gas and coal industry jobs are among the highest-paying blue collar jobs.

- Dems dogmatically embrace unilateral free trade that has lead to the loss of millions of high paying manufacturing jobs; the GOP will pursue balanced trade where countries running large trade surpluses with us will have to manufacture more of their products in the US, hiring US workers, to keep access to our consumer markets.

And so on. The GOP could welcome any private sector unions willing to work constructively with company management (closer to the German model than the disastrous UAW model) and position itself as the party of the private sector, from blue collar workers to senior managers.

Anonymous said...

American manufacturing is on the way back up. Energy prices in the US are getting cheaper and unions have caved in, agreeing to two tier wages that really reduces what younger members get.

dearieme said...

"ongoing decline in the manufacturing sector": do they mean that US manufacturing output is falling, or US manufacturing employment? Plain different things, those.

Anonymous said...

The Republicans are just the ot-and-out paid for corpoarte whores of the 1%. They could not give a shit if 'blue collared whites' live, die, starve or just fade away.
All they are interested in is cosying up to the 1% in exchange for blatant cash handouts and/or the reflected glory of the 1%'s success. The worst and most shameless salad-tosser out there is Newt Gingrich, who cannot see a plutocrat's ass without having the irresistable urge to lick it clean, wag his tail and perform some doggy tricks in exchange for a chocolate drop or two - and then he'll roll over exposing soft under-belly and flaccid genitals.
One of the truths about human nature exposed by the Arab sprong, the fall of he Ceaucescu's etc is just how damn tenaiously politicians will hang on to power even though it's obvious they are not wanted and rivers of blood are shed in trying to boot them out.
The answer is,of course, that power once tasted is seductive beyond Joe Blow's imagination, in just the same way that 1% cash is seductive beyond imagination to yer typical snot-nosed Republican politico. A small example, whilst most of the beavises and Buttheads out there can only fantasise about 'doing' the porno stars they lust over on their internet toys, those connected to the 1% (such as great many Repub. politicoes), can actually taste the real thing by having their favorite little minx 'do the privates' (as in private bookings), as the unironic San Fernando lingo goes.

sykes.1 said...

Manufacturing per se in the US is healthy and expanding (current recession admitted), but manufacturing employment is declining. Over the last 20 to 30 years, industrial output doubled, but worker productivity tripled. Hence fewer workers more product.

The jobs did not go to Mexico or China, they just disappeared. People were replaced by machines.

The same process is underway in China. Overall, as world-wide industry modernizes, world-wide industrial employment declines.

How many of us are farmers? Very few of our grandchildren will be industrial workers.

This means there is no future for blue collar workers. And no future for the Republicans.

Anonymous said...

This is just national income accounting from Econ 101: the net trade deficit is equal to net private savings plus the net budget deficit.

The trade deficit in turn is driven by a high dollar, and exploded after the IMF's harsh response to the 1997 East Asian crisis when countries rushed for dollar reserves and centered economies on exporting to the US. Trade deficits are supported by Wall Street, holders of dollar assets, and companies who have moved operations offshore. This is what has hollowed out manufacturing.

So what are the implications for the budget deficit. Remember the accounting identity. During the housing bubble private savings were very low, since you don't need to save if your house is increasing in value. This stopped with the housing collapse. Many baby boomers aren't spending since they realized they have less saved than imagined. Since policy makers have been unwilling to reduce the dollar and trade deficit, the budget deficit has exploded. That's national income accounting!

The implication is that if you're worried about the budget deficit you either want (a) much lower private savings (seems like a bad idea since again, most people haven't saved enough) or (b) a more competitive dollar and reversal of trade policies that have caused a high trade deficit. But Republicans and (and especially libertarians) often whine about both the budget and "debasing" the dollar, so are showing their ignorance of accounting identities and arithmetic.


Anonymous said...

http://www.victorhanson.com/articles/hanson090712B.html

sunbeam said...

Anonymous said:

"The Republicans are just the ot-and-out paid for corpoarte whores of the 1%. They could not give a shit if 'blue collared whites' live, die, starve or just fade away."

As a non-Republican I think that is true.

I just hope you aren't expecting much different from the Democrats though. And to be blunt, Democrats don't really have any answers for non-white Blue Collar types as well.

All these great society public welfare programs really accomplish is keep the lid from blowing off.

Very little can get the American public to turn off the tube and get off the couch, but elimination of these payment would do it in my opinion.

The usual Republican mantra is they'll have to get jobs or something. That welfare has made them lazy and given them bad personal habits.

I think this is BS, because if someone like Paul Ryan got to accomplish his wet dreams, nothing much would happen on the employment front. Because those jobs are not there, and will not be there.

Even if he accomplished what he said he wants to, it won't change much. You are still better off with as much automation in a factory as possible, or doing manufacturing in China.

What he would accomplish is making a bunch of people desperate and angry enough to actually do something for a change. As ineffectual as it would probably be.

We are in a structural cul-de-sac as regards the economy. Probably better to keep on keeping on. Dancing with the Stars and cheap beer are much cheaper than bread and circuses or a full blown police state (though we are getting there).

I don't really get why some rich people are so angered by taxes. To my mind it is similar to paying for a municipal fire department. Some things have to be done. And rich people in the US are doing quite will, and have a light load on taxes as opposed to other first world countries.

Like a lot of other people I knew that housing was in a bubble for years before it popped. Despite what all the pundits said.

In the same way, I know that the US is a powderkeg waiting to explode. Take away the basic necessities for survival like food and housing, and remove the anesthesia and you have a restive mass just as unruly as in Egypt or any other country like that.

No one is happy. Most white people aren't happy. Most minority people aren't happy.

Rich people aren't happy, even though they should be.

What bugs me is the racial angle that might pop up. The US is primed for it IMHO.

And I really don't want to have a Rwanda replay or anything similar.

We probably wouldn't get that, probably just an Argentina moment that lasts a decade with a lot of racial emo that is a total downer.

Mr. Anon said...

"sykes.1 said...

Manufacturing per se in the US is healthy and expanding....."

What do they make? If american manufacturing is expanding, then why is more and more of everything made overseas? What, specifically, is the manufacturing sector making that is contributing to its health and expansion?

Does the commerce department count fast-food jobs as "manufacturing" jobs? I remember the Bush administration tried to implement that little accounting change - I don't know how far they got with it.

Anonymous said...

Nothing showed me what was wrong with the Republican party more than when I was hanging out with a friend of mine who was a Republican state legislator. I was still very much in the lib Dem camp at the time. This was in 2000. I was complaining about the outsourcing of jobs. I used as a case in point the alternator rebuilding and wiring harness factories that were the only manufacturing in our rural Southern area. His reply was, "We don't need those jobs," explaining that we needed more high skill stuff. It was an epiphany for me. I said, " R__, I teach the sons and daughters of your constituants. I'm going to level with you. None of them are going to be designing chips or programming any time soon. Punching in every day to follow a sequence of 30-50 steps is as good as it gets. They graduate on a 5th to 6th grade reading level. Those jobs are as good as it gets for them. The jobs you're thinking of aren't coming here, and if they did, they wouldn't stay here long. A step up for them would be working CNC machines." It was the first time in my life that I realized that in some ways I was more conservative than some "conservatives".

Anonymous said...

"The jobs did not go to Mexico or China, they just disappeared. People were replaced by machines."


I haven't seen the proof the proof that there was a world-shaking revolution in manufacturing automation in the period 2000-2010:
Since 2001, the U.S. has lost 42,400 factories --
and its technical edge.

(...)
Indeed, the U.S. manufacturing sector never emerged from the 2001 recession, which coincided with China's entry into the World Trade Organization. Since 2001, the country has lost 42,400 factories, including 36 percent of factories that employ more than 1,000 workers (which declined from 1,479 to 947), and 38 percent of factories that employ between 500 and 999 employees (from 3,198 to 1,972).
(...)
Manufacturing employment dropped to 11.7 million in October 2009, a loss of 5.5 million or 32 percent of all manufacturing jobs since October 2000.
(...)

Truth said...

I like the way you included his middle name (Kofi, as in Annan) which he doesn't use, then backed it up with a hyperlinked picture (wink!) just for the readers who (somehow) missed the subtle implication (most of your 170 IQ denizens would have).

Quite cunning there, Steve-O!

Anonymous said...

As has been noted before, the Latin American style inequality that characterizes post-Reagan America is a major factor in the continual stagnation of the American economy.
I can't recall the correct figures, but you all know the score, whilst the 1% own something a huge chunk of the USA the bottom 50% or so own f*ck-all - only the pants that hide their bollocks from general view.
The 1% own everything they could possibly want all their excess cash (which amounts to trillions) is locked away in hedge funds garnering even more trillions.
The sans-culottes don't have enough surplus cash to buy a new pair of sneakers (or culottes, whatever they are, something dirty I expect, because it's got 'cul' -arse- in it). Therefore the economic demand of the losers, the fly-over people is just a little above marginal, rather than being the motor it could be, basically these empty shells of folk just exist for stringing along in their miserable way - they and the USA would be better off if they had been terminated before birth - another Repugnant hypocritical no-no.
Anyway, the point I'm making a hash of saying is that the 1% have snaffled the cookie jar for themselves, hoarded it, and the losers, the proles have been margianlized off into ineffectual, economic eunuch, ghost-like, no-mans land , hence trying to boost demannd is like pushing on a string.
In India these left-over, purposeless people are just left on the streets to fend for themselves, in the USA Repugnants for some inexplicable reason want to stop the mercy of pre-birth trmination on them and then mock and abuse once they are on the planet.
An f*cked-up political system, an f*cked-up nation.

Dutch Boy said...

As a prominent Republican once put it: "What difference does it make if we make potato chips instead of computer chips?" Snort!!!

Anonymous said...

"Manufacturing employment dropped to 11.7 million in October 2009, a loss of 5.5 million or 32 percent of all manufacturing jobs since October 2000."

America is the mind of the world. So it thinks and creates.

China is the body of the world. So it toils and manufactures.

Ironically, America, the mind of the world is becoming filled with 'diverse' peoples without brains, and China, the body of the world, has a lot of smart people with brains.

Anonymous said...

"The jobs did not go to Mexico or China, they just disappeared. People were replaced by machines."

I hope machines take over everything, and real humans can all live off them. Universal aristocracy is what we really want.

Anonymous said...

Well, factory jobs will never come back as you people think. In California most whites have not done factory work in years its done mainly by Hispanics and Asians. Factory work like call center work and other jobs in now done in several countries. Some factory work like the garment industry leads to a lot of illegal immigrants. American Apparel hired illegal immigrants to do the sewing. Garment is better to be done in Mexico and China. Let the Hispanic women return home to do the sewing.

Anonymous said...

I like the way you included his middle name (Kofi, as in Annan) which he doesn't use, then backed it up with a hyperlinked picture (wink!) just for the readers who (somehow) missed the subtle implication (most of your 170 IQ denizens would have).

Thank you for making me wake up and smell the Kofi.

Anonymous said...

Well, with the exception of machinists or some wielders or if work for a car company most manufacturing jobs don't pay what they use too, they are advertise between 8 to 15 per hr in most newspapers, they sometimes work overtime and full time which is better than the service jobs but they are not the 20 to 25 per jobs that the average show because they include engineering which will make the averages a lot higher.

Frank Winston said...

Despite the housing bubble we're now below long-term trend on new housing. Look at a chart.

Anonymous said...

ompany
PACIFIC RIM RESOURCES
Location
Garden Grove, CA 92843
Industries
Manufacturing - Other
Job Type
Full Time
Temporary/​Contract/​Project
Years of Experience
1+​ to 2 Years
Education Level
High School or equivalent
Career Level
Entry Level
Salary
10.​00 - 15.​00 USD /​hour
Contact Information
This is an example of what I was discussing in terms of pay and its in Garden Grove which means probably few whites will be hired for the job, its a Mexican/Asian town.

Frank Winston said...

I used to work for a high-tech company that hired high-skilled manufacturers. The company hoped to greatly expand but such plans were contingent on getting robots from Sweden to replace the high-skilled, well-payed workers in the factory.

In the not-too-distant future, all manufacturing jobs will have been replaced by robots. You can bank on it.

Ex Submarine Officer said...

Yup.
It's easy to be wise after the event.
Why didn't all these 'experts' pipe up during the 'boom'.


The conventional wisdom spouted by TPTB the past 2 decades is worse than useless, it is downright folly.

That is what happens when the elites stop having any concern whatsoever for the proles and just want them to believe what is good for the elites.

Back in 2000, I exited every bit of money from equities on 3/15, two days after NASDAQ hit 5k. I gabbed about this to friends and family, who universally thought I was a crank.

Put most money in real estate, just in time for the run up.

In 2007, sensing the oncoming crisis, moved majority of wealth to PM's and Japanese Yen. Again, anyone who would listen thought I was a crank.

As a result of those three bets, our family is in pretty good shape. And even better, my wife has a lot more regard now for my strange notions.

Jim Rogers says a key to successful investing is making just a few large all-in bets rather than a series of diversified small bets. I agree with this.

Currently, it is hard to go wrong betting against a corrupt establishment that is clinging to power in a declining situation by telling self-serving lies, even though they may believe them, to the masses.

pat said...

sykes.1 said:
The jobs did not go to Mexico or China, they just disappeared. People were replaced by machines.

I fear he's right. Basically the Republicans favor supply side remedies. They point out correctly that the Obama administration for rather crude ideological reasons has favored poverty. People continue to be surprised that gas prices are high when the Obama administration has promoted higher gas prices. Turn that around, say Republicans and things will get better. That's true as far as it goes. Republicans also point to the burden of regulations imposed on small business. Remove those, say Republicans, and things will also get better. Republicans want you to drive a Chevy Cruze. Democrats want you to drive a Chevy Volt. Essentially the same car but twice the cost.

Democrats on the other hand emphasize the demand side. Deficit spending and Quantitative Easing are based on the notion that the government needs to supplement the private market workers demand so that the economy can buy back its own product. They believe that the workers are now so efficient that they can produce more products than they can consume. To fix this they want to give the people some more money so that they can consume more and they want the government to step in and consume too. That's why they are relatively deaf to the Republican's ideas for increasing the economies output. They think we already have too much output.

The Democratic mind set is more forward thinking in a way. The Republicans just want to return to business as usual. Democrats think the structure of the economy has changed in fundamental ways.

sykes.1 suggests the terrible possibility that this current downturn is not just a cyclical downturn. If you think it is, you just vote for Romney and he allows the economy to correct itself. Obama has certainly imposed all sorts of policies that have kept recovery at bay, but is there something more going on?

It may very well be that the machines are indeed taking over. I just read an old Griff du Lion article in which he pointed out that Mississippi blacks didn't just begin The Great Migration for civil rights. They were run out of the South by automeation in the fields. They went to Detroit and other cities to work in factories. Now they have been run out of Detroit by automation too.

Blacks were brought to this hemisphere by my distant ancestor to work in the sub-tropical fields of Virginia. The whites field workers died to fast. Blacks were vital in 1610. Today blacks are obsolete. There simply is no need in America for black people. We have machines now to do most everything that blacks are good at.

Blacks are the first victims of the nmachines. All other more talented races won't be far behind. I hope I'm wrong.

Albertosaurus

Anonymous said...

"America is the mind of the world. So it thinks and creates. "


michio kaku has a secret to tell you

Anonymous said...

"Well, factory jobs will never come back as you people think. "

The Future of Manufacturing: America not China

last two comments relate to a frequent discussion here.

agnostic said...

"How many of us are farmers? Very few of our grandchildren will be industrial workers."

An important difference in the two transitions is that the farm-to-industrial shift came along with a huge rise in real wages for the lower and average parts of society, compared to the top. It was a lifter and equalizer.

This industrial-to-whatever shift is coming along with a stagnation or slight fall in real wages for the lower groups, and widening inequality.

Our reactions to the two should not be the same.

Anonymous said...

"The jobs did not go to Mexico or China, they just disappeared. People were replaced by machines.

The same process is underway in China. Overall, as world-wide industry modernizes, world-wide industrial employment declines.

How many of us are farmers? Very few of our grandchildren will be industrial workers."

1)If they disappeared why do so many products say made in China?

2)None of us are farmers because demand for agricultural products is inelastic. Demand for manufactured goods is elastic, and will not drop off in a similar way.

Anonymous said...

"As a prominent Republican once put it: "What difference does it make if we make potato chips instead of computer chips?" Snort!!!"

The exact quote was "potato chips, microchips, whats the difference.". And in a just world he'd have been shot right there, if only we lived in one.

Marc B said...

It was quite apparent to me in 2001 that the Bush administration worked hand-in-hand with the Federal Reserve and the loan industry to artificially prop up the housing market in the wake of 9/11/2001 and the lingering effects of a cooling off tech sector. As of 1998, the housing sector had peaked in every single 1990's boom town, and prices should have stabilized at that level instead of steadily climbing throughout the Tech Bust of 1999-2000 and beyond.

I got out of the mortgage industry in late 2000 for a lot reasons, but mainly because I knew the fundamentals were not in place to maintain the breakneck level we had gotten used to, and the large and numerous commissions would eventually dry up. I also had an inside track, witnessing a lot of early (1996-2000) foreclosures on the kind of people you'd never expect to ever lose a home. Over-leveraging was an epidemic among both the very well-off and new rich, and I had become savvy at helping people get out of a houses with jumbo mortgages quickly while avoiding foreclosure because equity was escalating so fast that they would gladly leave that for us to divvy up just to avoid foreclosure and get some walkaway cash. I also wanted a break from the Californicated, yuppie hell Denver had become.

DCThrowback said...

The only Kerwin I'd ever heard of before was the (white!) Florida/WLAF QB, so I am glad the link was there.

Peter Schiff's comments on the Fed's meetings at Jackson Hole seem relevant to this post.

"The simple truth," counters Peter Schiff, CEO & Chief Global Strategist at Euro Pacific Capital, "is that our economy has a disease that all the quantitative easing in the world can't cure. And while the wrong medicine may make us appear healthier in the short term, we will continue to deteriorate beneath the surface."

"Because the Fed has kept interest rates too low for too long, Americans have saved too little and borrowed too much; consumed too much and produced too little; and imported too much and exported too little. Too much of our labor is devoted to the service sectors and not enough to goods production. Too much capital goes to Wall Street speculators and not enough to Main Street entrepreneurs," Schiff wrote in his economic commentary on Friday.

The harder questions remains how does a country get back those jobs. Libertarians and free traders would argue against raising import tariffs on imported goods. Is there another alternative? How do you encourage domestic production (and this ties into Steve's previous post) so that we "take care of our own" in the bottom 40%? And is it even possible, given the automated future we seem to be headed for?

alonzo portfolio said...

Energy prices in the US are getting cheaper.

Whiskey Tango Fruitjuice?

Anonymous said...

I don't really get why some rich people are so angered by taxes. To my mind it is similar to paying for a municipal fire department. Some things have to be done. And rich people in the US are doing quite will, and have a light load on taxes as opposed to other first world countries.

Well I'll just speak for myself.

My household pays CA income tax and for our money what we don't get are public schools we can use, a trustworthy court system, reliable law enforcement, functional physical infrastructure, or any of the other things you Euros get for yours.

Moreover, everyone I know who's getting hosed on income tax - ie not the super-rich - is ALSO paying out for their older relatives' care, educational costs for their children, child support, and/or inflated housing costs.

So it all really depends on what you mean by "the rich." I doubt the real rich care. They can afford it, and have the perspective needed to understand what they're buying. But they can get votes by pandering to people at my income level who are paying first world taxes for third world services, and turning us against the proles on the dole.

Anonymous said...

The Republicans are just the ot-and-out paid for corpoarte whores of the 1%.


In fairness, the Democrats are that as well.

Anonymous said...

Does the commerce department count fast-food jobs as "manufacturing" jobs?


I know that it's common to count the television, movie and music business as "manufacturing". That's one way the "US manufacturing business" manages to look healthy, in dollar terms.

Anonymous said...

His reply was, "We don't need those jobs," explaining that we needed more high skill stuff. It was an epiphany for me. I said, " R__, I teach the sons and daughters of your constituants. I'm going to level with you. None of them are going to be designing chips or programming any time soon. Punching in every day to follow a sequence of 30-50 steps is as good as it gets. They graduate on a 5th to 6th grade reading level. Those jobs are as good as it gets for them. The jobs you're thinking of aren't coming here, and if they did, they wouldn't stay here long. A step up for them would be working CNC machines." It was the first time in my life that I realized that in some ways I was more conservative than some "conservatives".

You've just put your finger on why these jobs are worthless. Being a hair stylist or a store salesperson involves more skill than these mindless, repetitive jobs. At bottom, it comes down to people yearning for the days when industry-wide unions forced employers to pay their workers several times what their labor was worth. It was never that these jobs gave us a competitive edge - the destruction of our heavy industry at hands of these unions is proof that industry-wide unions are leeches that won't let go until their host industries are defunct. If we want higher salary levels, the simplest and most equitable mechanism would be to double the minimum wage and index it for inflation, while dismantling every union in the country.

Anonymous said...

So is it time to buy a house? I've been renting...

Svigor said...

Here we go with the 1% shit again. Get back to me when you're talking about the .01%, the .001%, the .0001%.

Anonymous said...

Some numbers for perspective.

Total number of people employed in manufacturing in the US: 12 million.

Highest number ever employed in manufacturing: 20 million (in the late 1970s)

Total number of people employed in the US: 133 million.

Anonymous said...

Mask” that’s a good term. Was it intentional or not intentional? Hmmm.

I was in real estate in the 1990s and started telling a few of my clients in 2002 to get out because we were at a top of bubble.

Only about one in five listened. The rest either thought I was crazy or that the downturn would not be as bad as I feared.

One of my clients, a young man, did listen to me and sold and managed to turn $250,00.00 into $600,000.00 by buying in 1998 and selling in 2002 ( I was in area of the country where prices were rapidly accelerating in the late 1990s and starting to go a little crazy I thought.) He worked for a large mutual fund and had background in finance so when I explained market cycles and the warning signs I saw he understood what I was talking about.

Yes, I was off by a few years and early, but the bull market in real estate started in the early 1990s (after the real estate crash of 1989-1990) so many of my clients were already sitting on hugh profits. According to Bernard Buruch “nobody rings a bell at the top” and he made all his money according to him by “buying too late and selling too early.”

Think about it. Nobody, or very few, can call the exact top of a bull market or the exact bottom of a bear market so its best to take your profits somewhere in-between by following a trend and not getting too caught up in it.

How did I see it coming? First, of all I had friends who got caught in the real estate crash of 1989 and I was also aware of the Japanese real estate boom and bust from the same period (from which they still haven’t recovered… though they are not as bad off as people make out for various reasons that were discussed on another recent thread on this blog) so I knew things couldn’t go on forever and started studying market cycles and bubbles.

In 2002 I started to see more liar loans and lenders basically throwing out standards for issuing mortgages… Because I am very cynical by nature, I assumed they were trying to get the least credit worthy people onboard because they were running out of buyers. Many of these people who were late to the real estate market were minorities or other newcomers to the U.S. and they took the biggest hit when the market finally cracked in 2006 or so.

I may have mentioned on another thread on this blog a while back that it looks to me that the U.S. has undergone a “bust out.” In a bust out, the mob takes over a legitimate business and begins to borrowing heavily using the legitimate company’s excellent credit rating knowing that they have no intention of paying the money back.

In this case, the financial elites like those at Countrywide, AIG, etc.. seemed to have done the same thing ….

Regarding the U.S. deindustrialization. It all started with Clinton and NAFTA, GATT, repealing Glass-Steagall, making it legal to short on the down tick in the commodities market… etc... Oh yeah … and putting pressure through the Community Reinvestment Act to lend to non credit worthy minorities (greasing the real estate market)

One of my friends worked in management for a U.S. factory that closed and relocated to Mexican 6 weeks after NAFTA was signed. According to him, the top echelon of the company had to know it was going to be passed in order to plan so far ahead for the move.

Clinton and the Democrats betrayed the American people (not that the Republicans are any better just a different type of betrayal).

To this day, I still see people, who are completely ignorant of finance, history, and the concept of cause and effect lauding Mr. Clinton. It’s astounding real… it makes you realize how dumb and gullible the average American is.

On another thread on this blog one of the posters said he thought Bill Clinton was the “Anti-Christ.” In terms of what he did to the American economy and how he enriched himself and his Wall Street friends he has my vote without question.

Nobody has managed to financially benefit his banking friends and shift the blame for disastrous policies for the average American he initiated better than “Slick Willie.”

Anonymous said...

Anon at 11:57 PM (1st comment): Mexicans aren't machinists, they are machine operators.

E. Rekshun said...

OT: The worship of rookie Redskins quarterback RGIII has begun.

Whiskey said...

Republicans like Romney are far more manufacturing friendly than the Democrats. For one thing, in a repudiation (thanks to the Tea Party) of "Free Trade" the Romney platform calls for trade sanctions against China. For another, pushing tax credits for manufacturing in the US.

Which given cheap shale gas, which Dems HATE HATE HATE, and Republicans LOVE LOVE LOVE, means American manufacturing advantage. Already plastics manufacture has moved back here, and a $200 million steel plant in Youngstown OH built to serve the Frackers (tube steel of high strength and no seams).

Dems after all are the "gentry" -- semi-hereditary, NGO/Gov/Law/University/Infotainment. They want a "romantic" landscape with impoverished people and no resource usage; a park for them to play in. Reps are everyone else.

Somewhat OT, a mob in Cairo today scaled the embassy walls, tore down and burned the American flag, and put up the Black one of Islam. In Benghazi they burned the consulate down. Over some video criticizing Mohammed I'd never heard of. Done today, the 11th anniversary of 9/11.

Steve -- it doesn't look your Obama-fied theory of being weak and unthreatening worked. No one apologized MORE for America than Obama (and he did so in Cairo). No one has groveled more to Islam than a fairly ill-disguised Muslim like Obama. No one has been weaker than Obama. Heck he's refused to see Netanyahu who wants to talk to him about Iran.

And it got us on the anniversary of 9/11 Muslim mobs invading our embassies and a "Welcome Back Carter" 1979 flashback.

Anonymous said...

"It also suggests a way for the GOP to win electoral majorities again: promote a renaissance of high paying blue collar jobs with good benefits."

But if GOP does this, it will lose support of globalist Wall STreeters with big money.

Anonymous said...

Steve, there was the perception during the housing bubble that the US needed immigrants from latin america in order to work construction. That perception is gone now but still the high paid professionals in both political parties are pushing for more latin american immigration - and i think the reason is their need for nannies.

Think about it, Steve, One thing that unites the SWPL types with 2 kids and the non SWPL elites with 2 kids is the intense desire for nannies -

EVEN those people who know in their heart that HBD is true - even those people that will ADMIT that HBD is true are still strongly in favor of massive immigration from Latin America if their family needs nannies.

The HBD movement needs to come up with a program that gives the elite of america their foreign nannies and still doesn't result in immigrants becoming citizens.

We need to be realistic. The policy makers in Washington - in both political parties - have nannies working for their family.

This is just as true on the Republican side as on the democratic side - just about every Republican Senator, Congressman, and Supreme court justice has daughters, nieces, or nephews that depend on nannies.

I am a race realist, but I am also a realist. our nation is going down the tubes. We have to throw a bone to the thought leaders of America who use nannies. And the business leaders who use nannies. Even the people that work at the conservative think tanks use nannies.

I don't know what will work, but I know that the current path will not work.

If you get out in to big cities all over our country and talk to the successful people in America - the people that are at the top of their professions and the people that are making incomes in the top 10% you will find that the desire for a nanny is pretty strong.

Now the argument has frequently been made that somehow the people not in the top 10%, the broad middle of America that doesn't use nannies will rise up against the elite - but I just don't think that is going to happen. Never has happened in American history. If the HBD and race realist meme wants to win, it has to convert a chunk of the American elite over to the HBD point of view.

The only way to do that is to solve the nanny problem

Eric said...

Jim Rogers says a key to successful investing is making just a few large all-in bets rather than a series of diversified small bets.

Heh. Oddly enough that's also the key to going broke.

Anonymous said...

a mob in Cairo today scaled the embassy walls, tore down and burned the American flag, and put up the Black one of Islam. In Benghazi they burned the consulate down. Over some video criticizing Mohammed I'd never heard of. Done today, the 11th anniversary of 9/11.

The Arab Spring is showing its true colors. Expect mass emigration of the Christian Copts. The ones who come to America will be caucusing with the "Europeans and Mediterraneans".

The only allies left in the middle east are Israel a nation founded on race and religion; Saudi Arabia a nation run by a family; and the kingdoms and sheikdoms of Gulf.

David Davenport said...

Manufacturing per se in the US is healthy and expanding....."

What do they make? If american manufacturing is expanding, then why is more and more of everything made overseas? What, specifically, is the manufacturing sector making that is contributing to its health and expansion?


Civilian and military aerospace and other mil. equipment.

Anonymous said...

It also suggests a way for the GOP to win electoral majorities again: promote a renaissance of high paying blue collar jobs with good benefits.

You are asking the GOP to go against its core values.

DaveinHackensack said...

"You are asking the GOP to go against its core values."

Not really. Historically, the GOP was in favor of a strong manufacturing sector and advocated tariffs to protect it. The free traders & cheap (slave) labor advocates were the confederates. The current bipartisan status quo of dogmatically embracing unilateral free trade dates only from post-WWII. See Ian Fletcher on this.

Anonymous said...

Historically, the GOP was in favor of a strong manufacturing sector and advocated tariffs to protect it.

But when has the GOP ever been in favor of giving high wages and good benefits to blue collar workers?

That has always been the demand of Labor Unions, the arch enemy of the Republican Party.

NOTA said...

Anon 1:10:

Amen. High taxes and dysfunctional government are a pretty bitter mix.

Anonymous said...

An important difference in the two transitions is that the farm-to-industrial shift came along with a huge rise in real wages for the lower and average parts of society, compared to the top. It was a lifter and equalizer.

How much of that bump was related to the ability of unions to extort money from large corporations where farmers had to put up with whatever the market would bear or face antitrust prosecution? It may well be that all those decades of manufacturing union supremacy were an extended pipe dream that tailed off with the invention of the shipping container.

NOTA said...

Pat 9:31:

What happened to gas prices under Bush? Should we also ascribe that to Bush or the Republicans hate-hate-hating cheap gas?

Svigor:

I think "the 1%" has become a catch phrase which refers to whatever top fraction of income or wealth the speaker resents. You're right, though, that the top 1% aren't driving the destructive changes in the society. I'm not sure how much the top .01% are, either--wealth is part of what lets you influence the world, but it's not the only thing. There are people in the top 1/10000 of wealth or income who aren't all that influential or connected, and people who aren't in that income or wealth class, but are very influential and connected.

My current favorite 1%er example is Jon Corzine. If I ran a small business that stole its clients money on 1/1000 the scale of his company, I'd be spending the next decade in prison, and the cops would certainly not find the whole thing too confusing to charge anyone. Somehow, things just work differently if you're rich and connected.

Truth said...

"There are people in the top 1/10000 of wealth or income who aren't all that influential or connected..."

No, there aren't. You don't get to that level without being influential and connected.

Anonymous said...

The nanny thing again.

No one prefers a Spanish speaking peasant to an American girl. People hire the former because it's too expensive to employ the latter, and the higher quality latters can't get a good husband if they don't go to college.

Guys, it's normal to have household help, it's not some kind of horrible result of female liberation. What else are girls supposed to do in between completing high school and getting married? How are they supposed to learn how to run a house? Why do you hate your wives so much? Really, it's ok for them to hire someone so that someone else can hold the baby while they pee.

beowulf said...

Great thread, its a pity neither party is serious about eliminating the trade deficit. If they were, they'd endorse something like Warren Buffett's import certificate cap and trade market. Until one of the parties signs up for that, its just talk.

Bob Arctor said...

No, it's not remotely "normal" to have have a nanny in America; less than 0.5% of middle class Americans have one, and only 3.3% of wealthy American families have one. No one I know of who makes less than $300k a year has a nanny or wants one.

NB: The "why do you hate your wives by not hiring a nanny" line is too idiotic to be worthy of a response.

Anonymous said...

Someone is using a very narrow definition of 'nanny'. Relatively few people have full time, pension and health care paid-for nannies, certainly. But many people at all income levels have varying degrees of part-time or full-time paid childcare.

In Texas and other non-California border states, you can get an English-speaking Mexican girl to live in as a housekeeper/nanny full time for 1-2 years at 8-10$/hr before she gets married. People employing such girls are not at all making any 300k/yr. But their quality of life is significantly better.

Truth said...

BTW, the top 1% in America "only" earn about $330,000 a year.

The top .1% about $1.6m from what I've read, and the top .01% about $5.5m annually.

Anonymous said...

It started with what's called the "Greenspan Put" which then morphed into the housing boom. It was basically a giant credit bubble to distract people while TPTB harvested our collective industrial organs.

.
"The jobs did not go to Mexico or China"

Yes they did.

Alongside mass immigration into the currently relatively wealthy parts of the world, being able to offshore jobs wherever they like is what is allowing them to grind down wages in their quest to turn the entire planet into a gigantic slave plantation.

Some of those jobs will come back again - more mechanized as you say - and then be offshored again and then come back again and then offshored again as many times as it takes to complete the grinding process.

.
"The harder questions remains how does a country get back those jobs."

The only way is through Wall St. and the criminal fraud masquerading as a financial system we are currently ruled by. In particular it means somehow getting back control of how political parties are funded. Personally i don't think it can be done in time.

.
"My current favorite 1%er example is Jon Corzine. If I ran a small business that stole its clients money on 1/1000 the scale of his company, I'd be spending the next decade in prison..."

Exactly. Corzine and MF Global should be all you need to know to realize you're not living in any kind of democracy or republic and the rule of law simply does not apply to the overclass. They own the politicians and the media and they will keep going until it's just them and a 99.99% underclass or the system collapses whichever comes sooner.

Matthew said...

"The only way is through Wall St. and the criminal fraud masquerading as a financial system..."

Back in the 70s the financial sector earned about 17% of all profits. By 2001 it briefly reached 46% (when Bush slashed cap gains taxes, iirc) and was around 41% just before the market collapsed. Its sahre of the rpofits from American industry was back up to 29% as of a year ago, even though the sector accounts for only about 10% of all value-added in the US economy.

All the work done that creates real products that real people want to consume: cars, clothes, homes, electroni gadgets, food, oil, coal, you name it - the financial sector earns almost as much in profits as all of that combined.