Sense of something wrong

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Submitted by moneymaker on December 2, 2010 - 3:11am

Not really OT but wasn't sure which category was best. Lately driving around I've noticed a lot of commercial property sitting empty for a long time. Anyone else get a feeling that the pain is just starting to come around. Without government intervention looks to me like we're about to restart another recession which would violate the historical norm of having a recovery period last atleast as long as the last recession.

Submitted by SD Realtor on December 2, 2010 - 7:11am.

Seems pretty obvious to me that the so called recovery we started was simply the response to stimulus. Perhaps enduring the hard times of a recession/depression and not burrowing further and further into debt may be the bad medicine that will lead to a true recovery rather then simply building up more debt. Pretty much the US and Europe are essentially insolvent. Stimulating insolvent nations with worthless currency doesn't really solve problems as we are learning.

Submitted by UCGal on December 2, 2010 - 8:06am.

If you drive around Sorrento Valley/Mesa you'll see that most buildings have For Lease banners across them. (Except the Q buildings, lol)

My husbands firm (architect) has done a lot of tenant fit-out work in the past, but there aren't a lot of commercial/business spaces being modified for new tenants compared to 5-10 years ago. Most businesses are 'sheltering in place', downsizing, and renegotiating their leases. (His employer did that - has given up 2/3's of their office space as the business has shrunk.)

Submitted by CA renter on December 2, 2010 - 11:49pm.

SD Realtor wrote:
Seems pretty obvious to me that the so called recovery we started was simply the response to stimulus. Perhaps enduring the hard times of a recession/depression and not burrowing further and further into debt may be the bad medicine that will lead to a true recovery rather then simply building up more debt. Pretty much the US and Europe are essentially insolvent. Stimulating insolvent nations with worthless currency doesn't really solve problems as we are learning.

You've nailed it again, SDR.

You'd think most people should be able to grasp this, wouldn't you?

Just think, a few years ago, some of us were saying that we had to go through a rather brutal deflationary recession/depression in order to find a solid foundation from which to build a *sustainable* economic recovery. We said back then, *before any of the nonsensical and entirely unethical bailouts that have/will cost us trillions of dollars* that any government interference in propping up asset prices would **prolong and worsen** the recession/depression over the long run.

We aren't going to see a recovery until we endure the pain that the past few decades of too much debt/over-leveraging have caused us. We need to unwind the debt and the excess capacity, and we need to begin rewarding labor and productivity vs. gambling and speculation. It really is that simple.

Submitted by jeeman on December 2, 2010 - 11:59pm.

Yes, i agree with SDRealtor. It was a "sugar-high", and the positive GDP is mostly just growth in the government.

That is not growth, since government can only grow by taxing a growing private sector or by borrowing from foreigners (i.e. the Chinese). We have to pay all of this back one day. Obama has increased our debt in 2 years more than Bush did in all 8 of his years!

Submitted by CA renter on December 3, 2010 - 12:26am.

jeeman wrote:
Yes, i agree with SDRealtor. It was a "sugar-high", and the positive GDP is mostly just growth in the government.

That is not growth, since government can only grow by taxing a growing private sector or by borrowing from foreigners (i.e. the Chinese). We have to pay all of this back one day. Obama has increased our debt in 2 years more than Bush did in all 8 of his years!

True about Obama's debt, but most of that is due to various bailouts and programs that were meant to keep asset prices artificially inflated (not really what most would call a "liberal" cause).

Mind you, I think we needed to spend some public money, mostly to keep people fed and clothed -- unemployment insurance was reasonable, IMHO -- but the financial/housing/mortgage sector has sucked up trillions of dollars.

Submitted by Effective Demand on December 3, 2010 - 2:43am.

jeeman wrote:
Obama has increased our debt in 2 years more than Bush did in all 8 of his years!

This is absolutely true but people don't look at why it is the case.

Tax revenue dropped because of the recession and "transfer payments" (things like unemployment insurance) spiked.

You can see the Unemployment Insurance spiking here, the spike starts mid-2008:
http://research.stlouisfed.org/fred2/ser...

You see increases in Medicaid and Social Security because of the recession as well.. this is all baked into the cake no matter who is in office.

Then you look at receipts, tax receipts dropped tremendously because of both the lower tax receipts caused by fewer employed and lower tax rate (some of the lowest in history) because of the ARRA.

I would love to see anyones projections of how the budget would be different under anyones else administration. The vast majority of this was already baked into the cake before whoever came into office in 2009 was sworn in. Anyone believing any different is just believing political rhetoric instead of looking at the data.

As to the original posters post, I actually see many signs of things getting better (total auto sales, weekly unemployment claims, ISM, and just a guess.. todays NFP report). Not necessarily in the commercial RE space but I can tell more people have jobs (more people in stores both working and buying). Things are by no means rosey but I do not believe things are getting worse by any stretch of the imagination.

Submitted by sdrealtor on December 3, 2010 - 9:12am.

If you cant see signs of improvements you have your eyes closed and are unwilling to open them. People are spending again. The major driver of the market is consumer spending which in turn is driven by psychology which was improved. People have been hurt and are concerned about what is going on but they see hope and signs of progress. Stopping the freefall in consumer sentiment was the key to this all and they have. People are spending again albeit carefully and while incurring less debt. While raging good times are not on the horizon, fear of systemic collapse has passed. A continued sense of fear is paralyzing for many, I hope they can get past it.

Submitted by Arraya on December 3, 2010 - 10:02am.

I would say, a "sense of something wrong" is probably a sign of healthy instincts.

Submitted by patientrenter on December 3, 2010 - 10:08am.

CA renter wrote:
.....various bailouts and programs that were meant to keep asset prices artificially inflated (not really what most would call a "liberal" cause).

Mind you, I think we needed to spend some public money, mostly to keep people fed and clothed -- unemployment insurance was reasonable, IMHO -- but the financial/housing/mortgage sector has sucked up trillions of dollars.

Spot-on, on all points. And the desire to avoid fundamental restructuring that would make our economy healthier in the long term is completely bipartisan.

Submitted by NotCranky on December 3, 2010 - 10:08am.

Hooray the squirrel wheel is spinning again!

Submitted by Arraya on December 3, 2010 - 10:19am.

CA renter wrote:
.....various bailouts and programs that were meant to keep asset prices artificially inflated (not really what most would call a "liberal" cause).

In times like these, we need compassion for holders of large amounts of mortgage debt more than anything else.

Submitted by briansd1 on December 3, 2010 - 10:22am.

I agree with sdrealtor. We have growth and are no longer in a recession.

I think that it's better (at least for my generation) to arrest the decline and pay for it little at a time than to fall to a deep trough with strong recovery from the bottom (Mind you, a strong recovery from the bottom would not mean back to the peak output).

We are now back to peak output and growing slowly. The overpriced assets will stagnate and time and inflation will take care of them.

Submitted by moneymaker on December 3, 2010 - 1:22pm.

I have noticed many more workers @ Walmart and Home Depot lately, but as this is seasonal I guess the only comfort I find in this is that it is easier to get help finding stuff. I don't know about Home Depot but I'm pretty sure Walmart does not pay "a living wage".

Submitted by desmond on December 3, 2010 - 2:28pm.

briansd1 wrote:
The overpriced assets will stagnate and time and inflation will take care of them.

Yes the overpriced assets will be taken care of, although inflation will have nothing to do with it.

Submitted by briansd1 on December 3, 2010 - 2:55pm.

desmond wrote:
briansd1 wrote:
The overpriced assets will stagnate and time and inflation will take care of them.

Yes the overpriced assets will be taken care of, although inflation will have nothing to do with it.

If inflation is not the problem, then quantitative easing is all the more appropriate to support the economy.

Submitted by enron_by_the_sea on December 3, 2010 - 3:17pm.

threadkiller wrote:
I'm pretty sure Walmart does not pay "a living wage".

The people who make "living wage" do not shop at stores that pay "living wage"

Submitted by Werewolf on December 3, 2010 - 5:43pm.

Asset prices are propped so people start to spend again. Remember the recession is not 10% unemployment / spending cuts across the board; it's brutal for 10% and worrying for the 90%. Getting the worried 90% to spend again is the trick. And it's a trick.

Submitted by sdrealtor on December 3, 2010 - 5:44pm.

a trick that is working.

Submitted by CA renter on December 3, 2010 - 7:05pm.

sdrealtor wrote:
a trick that is working.

For how long do you think this consumer-fantasy will last? At some point, reality will set back in.

It's not about psychology. It's about a lack of money. Right now, so many people aren't paying their debts, so they have money/credit to spend. How long do you think that will last? If it lasts for a long time, and if there are no negative consequences for the deadbeats, at some point, the few remaining responsible people will throw in the towel and default on their debts as well.

Over the past few years, the irresponsible have been bailed out at the expense of the responsible, and everybody knows it. On one hand, some complain about our deficits, but on the other, they complain if asset prices fall. They can't seem to understand the correlation between the two. Those deficits are a direct result of our propping up the prices of worthless assets.

Submitted by CA renter on December 3, 2010 - 7:06pm.

patientrenter wrote:
And the desire to avoid fundamental restructuring that would make our economy healthier in the long term is completely bipartisan.

Absolutely correct.

Submitted by sdrealtor on December 3, 2010 - 7:12pm.

CA renter wrote:
sdrealtor wrote:
a trick that is working.

For how long do you think this consumer-fantasy will last? At some point, reality will set back in.

It's not about psychology. It's about a lack of money. Right now, so many people aren't paying their debts, so they have money/credit to spend. How long do you think that will last? If it lasts for a long time, and if there are no negative consequences for the deadbeats, at some point, the few remaining responsible people will throw in the towel and default on their debts as well.

Over the past few years, the irresponsible have been bailed out at the expense of the responsible, and everybody knows it. On one hand, some complain about our deficits, but on the other, they complain if asset prices fall. They can't seem to understand the correlation between the two. Those deficits are a direct result of our propping up the prices of worthless assets.

The non-payers are diminishing, at least around here. People have money and things are starting to get better little by little. Did you see the article in the UT about unemployment rates in Sd County last week? While it was in double digits in east county and south county, it was around 5% in NC (both coastal and inland). You really have a very distorted view of reality. Do you really believe that there are only a few remaining responsibile people? please stay responsible. i'm looking forward to dinner;)

Submitted by permabear on December 3, 2010 - 8:08pm.

Local vs. state vs. national trends are hard to distinguish.

High-paid workers are doing ok. But there's a chasm. Uneducated or "manual labor" or "admin" or "clerk" or "apprentice" or "assistant" or whatever you want to call them jobs are evaporating. Blame computers.

I don't think this is a short-term trend. Like the auto industry, automation and computers and Google Docs and Docusign and Adobe and VMWare and Amazon Cloud and Redfin are going to permanently eliminate jobs. I ran into an ex-employee from an ex-company at Trader Joe's the other day (an admin assistant) and she's been out of work over 2 years. She was not that good - nice, a great person, but poor at her job. I doubt she will EVER get another job without significant restraining.

But:

All that said, it's somewhat irrelevant to CAR's point. The point was whether enough people would be left to buy real estate at current prices.

No.

Computers can't buy real estate. And the remaining employed are not at 200% or 300% of previous salaries, which would enable them to buy the houses of those that are now making 0%.

I don't claim to know the future, but the pool of available buyers seems to continue to shrink.

Submitted by SD Realtor on December 3, 2010 - 10:35pm.

I cannot agree that increased consumer spending is an indicator that the systemic problems are healed. The fundamental problems that plague our country and Europe are not going to go away simply because we greased the skids with trillions of dollars and have seen increased spending and such.

The fact is that there are many many many people who are flush with worthless dollars right now. My investment group has completely stopped flipping because of the swarms of people involved. Margins are miniscule and our goal was to be tactical and it worked out well. So yes these people are spending. So are the engineers working at Qualcomm and Broadcom, and the biotech and attornies and many others. Of course anyone employed by the govt is doing well also.

However looking at the fundamental issues I cannot share the same optimism that some have.I look at our employme nt numbers, I don't share that optimism. I don't even trust the numbers we are told. Nor do I seem to see a big burst of employment happening or about to happen. Basic things like food and energy costs are going up in price. Any parent will tell you that.

It is entirely feasible to me that housing prices in San Diego can and will remain high. That is the way it has been, and the the way it will always be. However as the dominoes fall in Europe I believe things will deteriorate. You cannot monetize debt. You cannot have have substantial portions of the GDP used to simply cover the interest on your debt. You cannot have housing deflation while the price of energy, commodities, and food and move steadily higher. Great I can get a nice flatscreen and a great cell phone plan for cheap but a gallon of milk and a carton of eggs and some butter costs 10 bucks today. Fantastic. You look at the current finances of California (16% of our national gdp) and New York and they are in shambles. Yet there is no plan in place to reform these states. They simply keep bumbling along and we all know an inevitable bailout of these and other states will be necessary.

I am not a fan of the current administration but I do agree that these problems we see have anything to do with either party.

It is a very simple fact that in order to deal with all of this we very much need to take some damn painful medicine at the state and federal level. Higher taxes and reduced spending HAVE to happen. Severe restriction of the money supply needs to happen. Higher rates are needed. Harsh stuff now but way way harsher stuff later. My big concern is that it will be later because no party will do what needs to be done, it is political suicide.

CAR you and I agree on what is happening and what has happened. While everyone says the fed and treasury NEEDED to do what they did or else all hell would have broken loose I don't agree. I agree with you, some help was/is needed. However to see many institutions post record profits in 09 was absolutely laughable. Revelations now coming out that the fed greased many other industries, other banks and other countries is not really news to me. Just more of a sad confirmation of something some of us presumed.

So yes I agree about the sense that something is wrong. I don't see this severe sky is falling disruption just yet. However I do think it is out there and becoming more probable as we continue to act like an ostrich and stick our heads in the sand.

Submitted by AK on December 3, 2010 - 11:49pm.

I'm not usually known for my optimism ... but I have noticed a distinct lack of good s*** for sale on Craigslist these days. I consider this a positive sign for the economy.

Submitted by sreeb on December 4, 2010 - 1:25am.

sdrealtor wrote:
While raging good times are not on the horizon, fear of systemic collapse has passed. A continued sense of fear is paralyzing for many, I hope they can get past it.

My fear of systemic collapse has not passed. I still believe we are headed toward a debt crisis which will result in either outright default or hyperinflation. It could take months or years but we won't get through another decade unscathed.

I also see perpetual unemployment problems as we continue to lose our manufacturing sector.

If you want to see our future, look to Europe. Then factor out any chance the IMF will bail us out.

Submitted by SD Realtor on December 4, 2010 - 8:48am.

I believe that the larger a system/market is, the harder it becomes to have a secular change that is defined by a single direction. Translation, things do not go straight down or straight up. We are not going to have a system collapse all at once. Just like anything else, lower lows and lower highs. Our currency for instance just doesn't nose dive all at once. It becomes more worthless in fits and starts, over a period of many years. I also believe that for a period of time, the worse things get that we will be told the better they are.

If you believe a system that operates with a govt in severe debt that cannot help but spend more then it has, then is consistently forced to service its debt by selling that debt to other countries, and now services debt by printing its own money and buying its own securities, and it has also provided money to other countries, and has municipalities and states within it that are essentially insolvent, and buys the majority of goods from those same countries that are it's creditors and has a shriveled manufacturing base, and has the majority of it's large companies manufacture and produce overseas... well if you think that "this" system is A-OK because of increased consumer spending, and/or less Craigslist postings.... well I guess we have quite differing views.

Those who feel we can simply press a reset button and default on our debt are as ostrich like as anyone else. Follow the trail... if we do default on our debt then what? Who will be our creditor? How can our govt continue to provide more services, entitlements, even universal healthcare, when nobody will credit us? Any ideas? Who will pay to build the superdeeduper high tech railroads that will save our economy?

Yes I hear the crickets chirping...

The answer is nobody. We will have to bite the bullet and live within our means.

This doesn't mean that everyone will be broke. This doesn't mean lots and lots of engineers, attorneys, biotech guys, service workers, and DINK families in San Diego will not be buying in Carmel Valley and Encinitas. However it does mean there will be fairly major changes that are most probably defined by much higher taxes at both state and federal levels and lower standards of services by those same govt entities.

Doesn't seem that hard to figure out and it isn't gonna happen tomorrow or the next day. Yet to think we will simply push our way out via revenue increases or some other entity coming to our rescue please tell me who or what will do that.

Submitted by sdrealtor on December 4, 2010 - 9:59am.

Sounds like you need to have a drink or six. The things you worry about are very far out. So much can and most likely will happen to push that reset button slowly over time. Think Shawshank Redemption....time and pressure. We got plenty of both. The civilized world has been around for centuries and will be around for many generations after us. The problems that seem insurmountable will seem less so decades down the line just as those in the past did.

Submitted by NotCranky on December 4, 2010 - 10:31am.

American elites have known for decades that as white European descendants they can not even hold onto the domestic masses via "democracy". Having a multi-racial puppet government will not mask the white oligarchy much longer. We will become increasingly managed on the already intense divide and conquer plan.Obsessed with self preservation they are throwing the public under the bus by dereliction of anything like legitimate leadership.You think on average the standard of living trajectory will "recover"?

Debating economic recovery as if the world is not changing rapidly is nonsense. We are no longer to the same extent priveleged americans anymore, we are at some rate becoming international underlings.

Submitted by NotCranky on December 4, 2010 - 10:35am.

sdrealtor wrote:
Sounds like you need to have a drink or six. The things you worry about are very far out. So much can and most likely will happen to push that reset button slowly over time. Think Shawshank Redemption....time and pressure. We got plenty of both. The civilized world has been around for centuries and will be around for many generations after us. The problems that seem insurmountable will seem less so decades down the line just as those in the past did.

In a sense you are probably right. If one buys a house the risk of losing it is not at all time highs, for instance. At the same time, the likelyhood that in the future repairs will be less affordable for more people seems higher.

Submitted by SD Realtor on December 4, 2010 - 10:48am.

Thanks for the offer but I don't drink. The changes we are going through do not keep me awake at night. They do however guide some decisions I make regarding longer term issues for myself and family. Just because I look reality square in the eye doesn't mean I run away and hide from it. You only get one chance to live life so choosing to shrink and hide is a sad decision.

Many years ago I came to the realization that trying to fight or change things that are insurmountable or manipulated by the powers that be is a waste of my time and effort. Trying to time markets for absolute bottoms and such is another waste of time. In a manipulated housing market I found flipping was a great short term opportunity. In a rock bottom interest rate environment there are other golden opportunities for people to take advantage of cheap money. Similarly when interest rates are sky high other opportunities will be there.

I am a realist and thinking Shawshank redemption and smiling and thinking well in 40 years this will all be different and things will have magically taken care of themselves is not something I prefer to rely on. In the grand scheme of things opportunities always present themselves and that is what I look out for.

However things are not changing for the better and I think many people will be challenged. At some point our lives will change and the adult lives for our kids will be much different then ours because they will not enjoy as robust an economy as we did. As Rus implied, (not sure if he was joking or not) maybe they will be international slaves whatever that means.

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