Monday, April 14, 2008

I thought it was contained

I have heard lots of good stories about the housing crash recently. Most of them involve some kind of "we've bottomed" scenario. The others about how greedy Americans should learn from Europeans.

Americans are greedy. But so are Europeans. At least Americans don't hide the fact they're greedy and don't lecture anyone about it. European media can't quite accept this. Their deflating housing bubble is still blamed on the evil Yanks, as is everything else in the world. They can blame it on Santa Claus for all I care. Fact of the matter is, as I have stated numerous times before, this whole thing wasn't a housing issue. It was a global easy credit issue. Didn't matter if you were in Las Vegas or Miami or Barcelona or Dublin. The banks all over were handing out money to anyone with a pulse who said the world real estate. Kinda like in 1998 when all you had to do was say the words "dot com" and a check fro $5M would be written out to your name. Well, we all know how that turned out. And now the housing crash is happening worldwide, right on schedule.

Many in the media are still in the dark about the effects of this financial tsunami. So-called experts on CNBC are still talking about a mild recession and a housing bottom this summer. The same experts who said housing never falls.

So-called experts who are really real estate shills and charlatans like Dave Ramsey are telling their followers the economy is actually on an upswing now. The guy actually said he believes the economy bottomed 3 weeks ago. Never mind that it is impossible to pinpoint a bottom of a $13 trillion dollar economy to a specific day. Never mind that GE lost money for the first time in about 1000 years. None of that matters to Dave. His advice is always, go out and buy some real estate. And the fact he is in the real estate business is a moot point.

Maybe his listeners should read this from the International Herald Tribune:

The collapse of the housing bubble in the United States is mutating into a global phenomenon, with real estate prices down from the Irish countryside and the Spanish coast to Baltic seaports and even in parts of India.

This synchronized global slowdown, which has become increasingly stark in recent months, is hobbling economic growth worldwide, affecting not just homes, but also jobs. In Ireland, Spain, Britain and elsewhere, housing markets that soared over the past decade are falling back to earth. Experts predict that some countries, like Ireland, will face an even more wrenching adjustment than the United States, with the possibility that the downturn could turn into wholesale collapse.

To some extent, the world's problems are a result of American contagion. As home financing and credit tighten in response to the crisis that began in the U.S. subprime market, analysts worry that other countries could suffer the mortgage defaults and foreclosures that have afflicted California, Florida and other states.

2 comments:

FieldingHurst said...

I can tell by your post that you have not actually listened to Dave. This is not exactly what he said. He said thinks we may be at the bottom, but DOESN'T KNOW and isn't predicting the future. "He who lives by the crystal ball, eats glass." - Dave Ramsey His main point is telling people that we are not in a recession or if we are, it is the leading edge of it since a recession is by definition 6 quarters of receding growth. We have yet to have 1 quarter.

His advice is not always go out and buy more real estate. Yes, he tells people who have followed his plan and are debt free to invest in mutual funds and paid for real estate. Why? Now is an incredible time to get bargin properties. For people like Dave who actually have cash, buying real estate now is a great plan IF you want to own real estate.

From the sound of your post, you haven't listened to much of Dave's shows.

Fielding
http://www.daveramseyguru.com/

Ed said...

Fielding,

If you’ve read any of my blog, or just the title itself, you know I agree with Dave’s core message of don’t get into debt. No argument with him there.

I have listened to plenty of Dave's shows. I listened to it on Friday when he said in his opinion the economy had bottomed 3 weeks ago. And I think that is among the most ridiculous things I have ever heard. Not because he is wrong - which he is - but because it is absolutely impossible to pinpoint a bottom like that.

Granted I don't listen every day and I don't listen to the entire show when I do listen. But I have listened enough to know his stance on things. He has said on many occasions that buying real estate right now is a good idea because, and I quote, "it is on sale". That is like saying a Honda Civic at $80K is a good buy because at one point it was $100K and it is now on sale. What he doesn't tell his listeners is that this sale will go on for a long time and the deals will be getting better and better.

I have cash as well and I think buying real estate in a declining market is a bad idea. Buying any asset in a declining market, whether with cash or with borrowed money is a bad idea. Only people pushing real estate as an investment now are the likes of the NAR or home builders. Dave advising his listeners to buy real estate today is the equivalent of advising people to buy tech stocks in mid 2001 when it too was "on sale". This correction is not even close to done and anyone who doesn't realize it has no business being in the financial advice business.

And as long as I am on an anti-Dave state of mind, he tells people not to use credit cards. OK fine and good, don't use credit cards and pay 20% interest. However, telling people to never use ccs, even if you pay the balance on time every month is ridiculous. I use a cc for everything. Groceries, utility bills, gas, health insurance, you name it. I pay $0 in interest. So I get a 30 day interest free loan every month from the card company. And on top of it I get cash back and/or ff miles. This is tax-free income that according to Dave I should forgo and instead carry around a wad of bills with me everywhere I go.