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this histogram (which is found on every housing bubble/bust/whatever site) is a snapshot from over a year ago. the data is stale. if you could find an updated graphic, the subprime and option arm loan "peaks" would probably disappear at best or be substantially reduced as folks now have either refinanced their loans with or without the government's help, gone into foreclosure, or declared bankruptcy. hence my interpretation that the worst of mess will be done by summer's end.
No, despite hopes and "probably" interpretations, that's not what I'm seeing or hearing. The news tells the story every day about how few actual workouts are being accomplished due to a littany of problems, and according to industry insiders, the POA problem is still enormous because so many people used those loans as negative amortization affordability tools and were underwater coming right out of the gates...and with declining values they are so hopelessly underwater that they cannot refi out of the mess. But the beauty of the POA is you can keep paying the minimum payment, going further into debt while remaining "current" on your payments until the principal hits 115% of the original principal balance and triggers a recast...so you can live in a house you can't afford for 4-5 years until the loan recasts, and then you default and figure out something else. That's why the industry calls them "exploding ARMs."
And what's even cooler, is the banks report that negative amortization that they will likely never ever collect as realized gains. Look up CINA (Capitalization of Income from Negative Amortization) and see how a bunch of crooked accountants and bankers can turn night into day, and report unpaid interest as current actual income. Then you may wonder how many more of these little corporate accounting tricks have your retirement savings hanging over a barrel by a smoldering thread...can you spell E N R O N??
Late last month, Credit Suisse estimated that one in eight mortgages in the U.S. will end in foreclosure by 2012. That tells me they're not seeing those wondrous changes you think probably might maybe possibly have happened to make things all better again by this summer.
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Originally Posted by multitrak
where does that money come from to refi? well, many families are working 2 to 3 jobs outside of their primary jobs and saving that money to work out their problems. imagine that, people actually taking responsibility, adapting to a bad situation, and changing their destructive financial behavoir. and for those who don't change, expect more "help" via housing subsidies in an election year.
Well, the data says that refis are way down and that credit card debt is skyrocketing, which tells me that most people are simply trying to keep the debt ship afloat with more debt. Granted that there are some of those people who "get it" and are working hard to get out from under, but I don't see any evidence of that sort of behavior change on a widespread basis.
But I do hope you're right. The optimist in me gives me high hopes...but the realist in me gives me low expectations.
“Gasoline, at least in the short-run, has traded more like an annoying by-product of crude than as its core fundamental driver,” Goldman’s report said.
Meanwhile Murti says demand for middle distillates, like diesel, gasoil, heating oil and jet fuel and kerosene is racing up.
But other oil traders agree with Murti’s analysis. It’s tightness in the so-called middle part of the barrel that is sending oil prices higher. U.S. gasoline consumption patterns are no longer relevant.
sw airlines managed to make a profit because of their jet fuel hedging activities. so gasoline is fast becoming an "annoying" crude oil byproduct like propane...imagine that... bottom line: don't expect higher crude oil prices to necessarily translate into higher gasoline prices. but apparently diesel and jet fuel are forecasted to move higher with gusto.
Multitrak just hit the nail on the head about fuel prices, and that is part of the reason that I'm so damned pessimistic about the mess this country is in. While the general public is all twisted off about gasoline prices and not being able to afford to drive their 12 mpg SUV cross-country because of it, it is the price of diesel fuel that will send this country into a inflationary/depressionary economic tailspin.
No amount of fuel-tax holidays or other political horse**** is going to change the equation--diesel fuel is what runs most of the world's food production and transportation systems, and demand for it is outstripping available supplies. The days of cheap diesel fuel are gone forever, and we are going to have to figure out how to use less of it. If it is not to mean a drastic decline in our living standards, it means taking some pretty drastic measures to improve transportation fuel efficiency. That is going to mean getting freight out of trucks and back on rails wherever possible. It will mean abandoning a lot of our "just-in-time" product distribution systems in favor of those that may be somewhat slower, but much more fuel-efficient. Since jet fuel, like diesel fuel, is a middle distillate, it will also mean downsizing the airline industry significantly (which, I believe, has already begun, and will likely accelerate).
To those who think that bringing on a bunch of additional production of oil from new "exotic" sources (like Colorado oil shale) will solve the problem, it won't. Why? Because, any of that production will NOT be CHEAP, and our current transportation system will crater without CHEAP fuel unless it is modified. So, higher efficiency is our only real salvation.
In Colorado, that means re-developing a bunch of the state's moribund rail system, quitting the subsidization--direct or indirect--of the fuel-inefficient trucking industry, and discouraging the kind of stupid development that encourages the wasteful use of fuel resources we simply don't have or can't afford over the long term.
Finally, to put this stark perspective: If there is a severe gasoline shortage, it means you may not be able to drive for a few days; if there is a severe diesel shortage, you may not be able to EAT for a few days.
sw airlines managed to make a profit because of their jet fuel hedging activities. so gasoline is fast becoming an "annoying" crude oil byproduct like propane...imagine that... bottom line: don't expect higher crude oil prices to necessarily translate into higher gasoline prices. but apparently diesel and jet fuel are forecasted to move higher with gusto.
Ah, I love the confluence of business and engineering.
First, hedging is a business strategy using derivatives to trade off potential windfalls from a price drop for insurance against potential losses due to price spikes. Southwest did themselves well by hedging wisely...but keep in mind that those futures they hedge with only work in the short term. In a year of sustained high prices, even the well-hedged operation will be buying jet fuel at much higher prices.
The crack ratios between gasoline and distillate fuel oil (including diesel, jet fuel, kerosene, and heating oil) are not easily changed at the refinery. But they *can* be changed (with limits) if a perceived long-term change in the relative demand of the various cracks occurs. The crack spread futures traded on the NYMEX are there because a hedging mechanism was needed for refiners to balance profit margin because of the disparate and sometime nearly disconnected natures of the markets for the two cracks.
This is nothing new...a very cold winter can and has driven up heating oil demand enough to make gas a so-called by-product of the more profitable middle cuts for fuel oil. And gas demand, particularly in the summer driving months, has done the opposite, making diesel fuel a cheap by-product of the more profitable gas production.
Note that Murti caveats this phenomena as being "in the short run." If indeed the proportioning of fuel demand is changing long term towards the mid cuts, then, first, refineries will change the crack ratios, from 2:1 gas to mid cuts, to 3:2, for example. And second, pricing pressures associated with a long-term trend will tend to drive users from the mid cuts to gas or other alternative fuels (i.e. heating oil to natural gas or propane).
All that said, the idea that increases in crude will not affect gas prices in the medium and long term just isn't right...in the short term the price increase may not be proportional to the rise in crude prices, but the market will adjust to an equilibrium.
Bottom line...has anyone not seen significant price increases for gasoline, given this observed increase in gas inventory? I think the best that can be said is that a 50% increase in crude prices won't immediately cause a 50% rise in gas prices. It will cause a price increase, though, and in the non-immediate future gas prices will go up appreciably as a result, if for no other reason than the increasing demand from other developing parts of the world market.
I'm not sure I agree with Jazz' stark perspective here. I would re-phrase it like this:
If there is a severe gasoline shortage, it means you may not be able to drive for a few days; if there is a severe diesel shortage, you may not be able to FLY for a few days.
I have to believe that long before diesel fuel is cut off sufficiently to stop flow of goods on the ground, we will clamp off fuel to aviation.
Sterlinggirl is right--what we really need to do is perfect the use of thermal depolymerization to convert underutilized Colorado prairie dog and skunk carcasses into complex hydrocarbon fuels. Sound goofy?
I'm not sure I agree with Jazz' stark perspective here. I would re-phrase it like this:
If there is a severe gasoline shortage, it means you may not be able to drive for a few days; if there is a severe diesel shortage, you may not be able to FLY for a few days.
I have to believe that long before diesel fuel is cut off sufficiently to stop flow of goods on the ground, we will clamp off fuel to aviation.
I would agree that aviation fuel might get cut real short first if a "diesel fuel crisis" develops, but I think some very disconcerting problems will manifest themselves first. One of the very vulnerable aspects is our "warehouse on wheels" "just-in-time" retail food distribution system which is heavily reliant on trucks. It wouldn't' take a huge hiccup in diesel availability to send this thing into a tizzy that would leave most Americans stunned--empty grocery store shelves are not something that most Americans have ever experienced for more than a day or so. If that type of a disruption were to occur on a widespread basis across the US--even for a very short time--I think it would break the back of American confidence in itself quite severely. The only positive outcome I can see from that would be that the American public might pull its collective head out of its ***, and figure out what a vulnerable rickety mess our whole energy/transportation system is. Maybe then, Americans would actually demand that something constructive be done to shore up our energy-inefficient transportation system, instead of just incessantly pining for cheaper fuel and more highways--the former not being very likely and the latter not being any solution at all.
what we really need to do is perfect the use of thermal depolymerization to convert underutilized Colorado prairie dog and skunk carcasses into complex hydrocarbon fuels. Sound goofy?
The Fischer-Tropsch process that's used to convert coal into synthetic distillates (like diesel and jet fuel) needs a lot of energy to produce the large quantities of hydrogen gas needed for it to work. A small nuclear plant can be used to produce heat, which is used in a thermocatalytic sulfur-iodine water splitting plant to make the hydrogen, which is then used with coal slurry to produce synthetic distillates. The US Air Force is already flying aircraft on a test basis using Fischer-Tropsch synfuels made from natural gas. And you can also take waste CO2 from industrial processes and turn it into F-T derived synfuel as well. A single plant can produce ~440,000 gallons of coal-based synthetic diesel fuel a day at around $2 a gallon.
The thermodynamic depolymerization process instead takes energy from the input product--around 15% of the input product is consumed to power the process. TDP also can produce virtually any fuel cut made in a refinery today (i.e. gasoline), whereas F-T so far is really only useful for the middle cut distillates. And TDP produces fuel at around the $2/gal point as well.
They're both very interesting ways of producing fuels, but would take a long time to field and develop in the scale needed. I doubt we will have the foresight to build these sorts of capabilities until shortages of petroleum-based fuels smack us in the nose like a 2x4. Plus we have to get away from petroleum based politicians who have their campaigns financed in large ways by the oil baronny. And I don't think these processes will prove to be much more than a bridging capacity to keep us limping along while we reorganize how we live, work, and play to accomodate much more expensive and less freely available energy in the future.
I don't think we're going back to the dark ages, but the process of getting from where we are to where we will be is likely to be ugly. I think it'll probably be something like entire decades of ugly.
The Fischer-Tropsch process that's used to convert coal into synthetic distillates (like diesel and jet fuel) needs a lot of energy to produce the large quantities of hydrogen gas needed for it to work.
or utilize geothermal for the energy source to produce the required hydrogen. coal gas-to-liquids engineers estimate that converting 5% of the u.s. coal reserves using the f-t process could yield 22 billion bbls oil. colorado has both abundant coal and geothermal energy resources. the downside is that coal has sulfur, nitrogen, radioactive elements (potassium, thorium, uranium), and toxic heavy metals (mercury, cadmium, arsenic) waste products that would have to be dealt with when large scale commercial operations commence.
better yet explore for renewable liquid hydrocarbons created naturally from mantle methane according to the f-t type reactions (see below). apparently major oil company research labs are "getting it" and going for it since it's no longer in the realm of science fiction any more...
Quote:
A long-standing question, important not just for petroleum resources but possibly in the origin of life, is the degree that a series of inorganic reactions that lengthen carbon chains (known as Fischer-Tropsch type reactions) might yield hydrocarbons from mantle methane. Although several examples of such hydrocarbons have been inferred, it has been difficult to demonstrate a purely mantle, abiogenic origin in the face of abundant biogenic hydrocarbons. Proskurowski et al. (p. 604) now show that the abundance of hydrocarbons in the Lost City vent field, an off-axis system in the Atlantic Ocean, decreases systematically with chain length in a manner predicted by Fischer-Tropsch type reactions. Analysis of carbon isotopes further support an inorganic origin. Because this system is likely representative of many similar systems in the oceans, an abundant source of mantle-derived hydrocarbons may be present on Earth, as well as during Earth's early history. [from science citetrack: this week in science provided as a free email service (aaas science volume 319, issue 5863 dated February 1 2008)]
It's interesting to observe the psychological dynamic of the downturn in the real estate markets, locally and on a broader scale.
The RE industry understands that buyer psychology is the key lubricant that keeps the wheels turning. And that's what the realtors want...is turnover. Just as with stock brokers, it doesn't matter so much if prices are rising or falling, it only matters that they keep buying and selling.
Unlike the stock market, though, housing is a relatively illiquid market. When prices fall, many people will be less inclined to sell as they hope and wait for a turnaround. And buyers sit on the sidelines, expecting prices to improve. All that's normal in a regular cycle.
But I think we've got another dynamic at work here. For the first time in 80 years, faith in RE as an investment has been shaken. for several decades, we've had many, many people buying as much house as the lending industry would allow, under the illusion that their house--any house, in fact-- was also an investment...in fact their best investment. Now, with prices falling dramatically, that leveraging--buying of investment assets with borrowed money--is proving to be a financial killer for millions of poorly-structured family balance sheets, and millions are waking to the possibility that their overbought home is going to be more like a pair of cement shoes than airy, golden wings lifting them to the heights of prosperity.
The RE industry is pulling out the stops to get buyer sentiment back into gear...because things aren't moving very well at all, up or down. "It's only a buyer's market if you buy" says a homebuilder commercial in Phoenix, where prices are free falling like Wile E Coyote going off a cliff. Even as Case-Shiller numbers show prices falling at double-digit annual rates, market wonks and real estate industry shills like the infamous Larry Yun have been continuously calling bottom after bottom for a year and a half. The goal is to turn sentiment around, not to be accurate or truthful in their cheerleading. Anyone else remember the daily bottom calls on the NASDAQ as it fell in spring of 2000? The punditry called bottoms every week trying to get people to buy, even as it passed through more than 60% down from its peak.
Now enter inflation. Oil hit $126 a barrel yesterday. Fuel prices are going up every day. Food staples are up on a double-digit basis. For the family budget, does it make sense to buy so much house that there's little or no room left to absorb higher inflation-driven costs of basic goods and services? Colorado Springs economic pundit Fred Crowley says inflationary pressure has people "hoarding" cash. Where I come from, they call that "saving," and it's a good thing. But Americans got away from saving as they reduced their budget margins to dangerous levels and dropped into negative savings territory...spending more each month than they make, and sinking further into debt each month.
The American consumer is now wide awake, and in fact spooked by the precarious nature of his budget with the triple-threat of rising prices, stagnant wages and threat of job loss. Should we expect the masses to continue chasing the illusion of wealth building in housing they truly cannot afford? And should we expect that overleveraging ones self to the eyeballs in mortgage debt will continue to be common behavior in the face of so many other budget pressures?
I like financial talk-show host Dave Ramsey's basic plan...no consumer debt, 3-6 months of expenses in cash savings, and a 15-year mortgage with a payment of no more than 25% of take home pay. That sort of financial management leaves maneuvering room when shocks like inflation or a mdeical crisis strike. But it doesn't allow a family with a $50,000 income to go right out and buy a $300,000 house. But after more than a decade becoming accustomed to living far above their means, that's going to be the hard part...getting back to reality as to what is safely affordable in a threatening economy. And housing prices are going to have to fall to the "new" (old) affordable before things get back to anything even resembling normal.
Psssst...we're nowhere near a bottom in housing.
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