Wednesday, October 10, 2007

Interesting Article: America After the Party?

Stock markets closed lower today, Wednesday, October 10, 2007
by Alan Hall

Is the party winding down for the American economy? If empty condo towers, leveraged loan auctions, vacant strip malls, steeper declines in home sales and vapid political discourse are indicators, then maybe it is. But wait… vapid political discourse is a constant, right?
A few snapshots:

One: Today's CNN headline says, " Existing home sales expected to drop 10.8%." The National Association of Realtors made their eighth consecutive lower forecast for existing home sales and says new home sales should finish 2007 at a ten-year low. The article begins with bad news and ends with a rosy description of selected markets and an upbeat forecast, much like I once described my homework to my mom.

Two: Good news first on this item -- Wall Street banks happily sold $30 billion of the highest quality portions of leveraged buyout loans, even though they lost money. Now, they merely have to figure out how to quickly dispose of the remaining 90% of the LBO loans in the pipeline. If they don't sell fast, banks could get stuck with hundreds of billions in loans for months, risking a fire sale and major losses.

Three: All bad news on this one -- People are walking away from $80,000 and $130,000 deposits on condos in Miami and Las Vegas. Others who placed deposits -- believing they could flip the properties before closing -- are hiring lawyers to extricate them from deals. “In this market downturn, even the most successful developers with the best projects and the best geographic locations are going to take hits.” (New York Times)

Four: Bad news first again -- U.S. strip-mall vacancies hit a 5 1/2-year high as consumers cut back and renters vacate. The arteries of suburban America are a little shabbier, lonelier and quieter. At the end comes the good news, the CFO of an Ohio strip-mall developer says, "...we are still cautiously optimistic." (WSJ)

Meanwhile, the two political parties generate record funding to run on the same old stories they've used for decades. One party espouses low taxes, fiscal discipline, less regulation, free trade and government as the problem. The other offers populism and government as the solution. The environment has changed but the responses have not. Both seem ready for war-as-usual.

Speaking of war, that other albatross of bear market psychology, the U.S. Army is considering several names for its modernization effort, the $200 billion Future Combat Systems. asked its readers for suggestions, and when the votes were tallied, the three-to-one favorite was Battle-Oriented Optical Networking Data Operations Ground-Geared Linkage Elements, or BOONDOGGLE.

Like the real estate bust, leveraged debt and political somnolence, the boondoggle acronym might be funny if it weren't so serious. To write or read about the above topics is one thing, to be subject to them is quite another.

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