Bubble Money in OC

Submitted by Rich Toscano on March 20, 2006 - 10:33am

In the OC Register, Jonathan Lansner connects the dots about housing and Orange County's economy. In discussing a burgeoning slowdown in OC (corroborated by slowing profits by businesses and increased skipped payments by consumers), Lansner notes:

In the past year, $100 billion was lent against Orange County property - a sum equal to the gross domestic product of nations such as Iraq or New Zealand.

Local lending's totality is up 2 percent in a year. That ample flow of money, if nothing else, may be allowing troubled property owners in this town to put off harsh decisions.

Yes, exactly. The press is slowly but surely coming around to the idea that the housing bubble's enormous (but temporary!) stimulative effect on the economy is an issue of great import.

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Submitted by contentrenter on March 20, 2006 - 5:10pm.

I'm genuinely worried about what'll happen to our local and national economies when the wheels start coming off. Based on history, what should we expect? It seems like the tax base will have to plummet, and then what? How painful can we expect this correction to be?

Submitted by LookoutBelow on March 20, 2006 - 5:26pm.

How Bad ?

REALLY BAD !! Do the math.

Submitted by powayseller on March 20, 2006 - 5:35pm.

The tax base will go down, and unemployment will rise as most of those recent contractor/RE/loan officer jobs disappear, as well as the retail/fast food jobs resulting from home equity spending sprees.

What's new this time is the unprecedented number of people with loans in over their heads; how many foreclosures will we see, how will this affect the prices that other sellers can get, and where will the people who can no longer afford their homes move to?
Will they rent, or just leave CA?

Impact on banks w/ risky loans on their books, pension funds and investors who have MBS and other GSEs. We could see a massive gov't bailout of the banking system. Greenspan warned of a systemic risk to the financial system.

Fannie Mae, mortgage companies, and others who were thriving may be exposed for all the shenanigans that could be pulled off when times were good.

Impact on foreign investors and interest rates as the economy goes into recession? I don't know. Will foreigners still want our $$s, now that they know they probably can't use them to buy assets (UNOCAL, ports deal denied). As long as our gov't bonds pay well, they'll keep buying.

Invest in recession proof stocks, make sure your job is secure, and that you can handle your mortgage as it adjusts and your job is stable. Make changes now if you need to.

Submitted by contentrenter on March 20, 2006 - 7:15pm.

I'm not worried about myself -- I sold in April 2005, and I'm one of those people who decided to wait it out. However, my initial warm feelings of personal satisfaction have slowly turned to alarm. How on earth are we going to pay for schools, food programs for the elderly, mental health clinics and libraries if the economy tanks? I'm afraid that the people who can least afford it will get the trickle down from this mess. Scary....

Submitted by sdduuuude on March 20, 2006 - 8:42pm.

Could you say more 'bout "resession-proof stocks"

Not looking for stock tips, but just wondering in what industries those might lie, and why?

Submitted by powayseller on March 20, 2006 - 10:22pm.

I don't know, but wish I did. Consumer staples will still be purchased, but is Gillette priced well now? I haven't checked into this. I did a google search on recession, but could not find anything. Perhaps because the last recession occured before the internet was popular. Just think about what people will buy, regardless of the economy, or new industries that might spring up (productivity products for businesses). Then make sure the P/E ratio is low, so it's a good buy. That would be my strategy, but I still don't know which industries do better in a recession. It seems that everyone would do worse. Auctioneers would have more work, but they are not publicly traded.

If shorting were not so risky, I could do well in just shorting retailers, home improvement stores, finance and credit card companies, builders, etc. But with all the automated computer trading at price dips, I'm not skilled enough to figure this out.

I wouldn't mind giving out stock tips if I had any, but I don't. If I had a good tip, and gave it out and others bought it, making the stock go up, that would be helpful. So no need to keep a good stock idea a secret.

Submitted by picpoule on March 21, 2006 - 9:13am.

I thought the last recession occurred AFTER the internet and because of the internet bust? Maybe you didin't feel that recession in CA, but boy, we sure did here in Colorado. I think we're starting to come out of it here, finally.

If you want cheaper real estate, you guys should think of Colorado. If you want metro, Denver would be the place.

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