Okay, we have a new plan from the EuroZone—or, at least, the vague makings of a plan. And, as always seems to happen, stock markets all over the world rejoiced at the new plan…for about a day. Sarkozy and Merkel smiled at each other for the cameras (though there was a big hint this time of a strain in their relationship). And we read headlines declaring that the solution may have been found.
As usual, it didn’t take long to realize that the solution slips like a greased pig from the grasp of any analysis of the actual program.
For example, dig into the idea of asking creditors to cut in half the amount of interest they receive from Greek bonds. This would be done voluntarily.
In whose dreams?
At the same time that Greek yields are halved, the EU would guarantee the first 20% of the yield of new Spanish and Italian bonds bought by investors. Is that really supposed to calm the fears of investors? Surely, it won’t. Nor does it seem to have been dreamed up in the same universe as was the 50% haircut on Greek bonds. It all looks exactly as it is: a wild, unpredictable carnival ride with no clear idea of whether the little car you’re riding will end up with its wheels on the tracks.
Further, the banks of the region would be strengthened so that they can withstand the next inevitable credit crunch in which sovereign bonds lose a large share of their value.
And here’s the truly bad news: Europe is already edging back into recession. Waving magic wands over Greek, Spanish and Italian bonds won’t change that—but the current economics of these countries are exactly what needs changing.
In times like these, we turn to the master of bad news, Nouriel Roubini, who notes that, though the current suggestions will not work, they are necessary. Necessary but insufficient to create recovery. “Unless you have economic growth there is going to be a train wreck,” he says in his straight-forward way.
We need, Roubini adds, a major rate reversal and cut by the European Central Bank; a move of the euro toward parity with the U.S. dollar; and massive economic stimulus among Europe’s core nations. His odds on these things happening? Zero.
Does that mean his odds on an economic “train wreck” are about 100%? Yikes!
Lest we get completely caught up in this fiasco and lose our ability to think, though, it’s well worth noting that the data for the American real estate markets—perhaps especially the new homes market—are picking up a bit. So how bad you feel depends on where you’re looking.
How, then, can we reconcile an improving American real estate market with a deteriorating world credit market? This is a wild guess. The world credit and currency markets are deal with old problems in very old ways. They want to ante up more debt money so the affected countries have more wiggle room. That’s a weak policy, to say the least.
The real estate market, on the other hand, is in the beginning stages of approaching its problems in a more proactive fashion. Instead of simply waiting for a recovery to finally show up, it’s beginning to think about market-creating—developing new home styles that aren’t generally available in the resale market but that buyers want NOW. Infills and retrofits may become the order of the day among existing homes.
It’s exciting to watch—as we also crouch in fear of the damage the world markets may cause to everyone’s banking system.
by: Bill Fisher
As usual, it didn’t take long to realize that the solution slips like a greased pig from the grasp of any analysis of the actual program.
For example, dig into the idea of asking creditors to cut in half the amount of interest they receive from Greek bonds. This would be done voluntarily.
In whose dreams?
At the same time that Greek yields are halved, the EU would guarantee the first 20% of the yield of new Spanish and Italian bonds bought by investors. Is that really supposed to calm the fears of investors? Surely, it won’t. Nor does it seem to have been dreamed up in the same universe as was the 50% haircut on Greek bonds. It all looks exactly as it is: a wild, unpredictable carnival ride with no clear idea of whether the little car you’re riding will end up with its wheels on the tracks.
Further, the banks of the region would be strengthened so that they can withstand the next inevitable credit crunch in which sovereign bonds lose a large share of their value.
And here’s the truly bad news: Europe is already edging back into recession. Waving magic wands over Greek, Spanish and Italian bonds won’t change that—but the current economics of these countries are exactly what needs changing.
In times like these, we turn to the master of bad news, Nouriel Roubini, who notes that, though the current suggestions will not work, they are necessary. Necessary but insufficient to create recovery. “Unless you have economic growth there is going to be a train wreck,” he says in his straight-forward way.
We need, Roubini adds, a major rate reversal and cut by the European Central Bank; a move of the euro toward parity with the U.S. dollar; and massive economic stimulus among Europe’s core nations. His odds on these things happening? Zero.
Does that mean his odds on an economic “train wreck” are about 100%? Yikes!
Lest we get completely caught up in this fiasco and lose our ability to think, though, it’s well worth noting that the data for the American real estate markets—perhaps especially the new homes market—are picking up a bit. So how bad you feel depends on where you’re looking.
How, then, can we reconcile an improving American real estate market with a deteriorating world credit market? This is a wild guess. The world credit and currency markets are deal with old problems in very old ways. They want to ante up more debt money so the affected countries have more wiggle room. That’s a weak policy, to say the least.
The real estate market, on the other hand, is in the beginning stages of approaching its problems in a more proactive fashion. Instead of simply waiting for a recovery to finally show up, it’s beginning to think about market-creating—developing new home styles that aren’t generally available in the resale market but that buyers want NOW. Infills and retrofits may become the order of the day among existing homes.
It’s exciting to watch—as we also crouch in fear of the damage the world markets may cause to everyone’s banking system.
by: Bill Fisher
