Time Tunnelling
The mistake we make, to listen to one of the more trusted individuals in American business today–the Oracle of Omaha–is to look back too much. Maybe because we’re out of practice, or maybe because there’s no such thing as being in practice, America and Americans aren’t getting it when it comes to reckoning that we’re in an economic state of war.
Warren Buffett may sit for hours on CNBC, and he may articulate in sweeping affirmatives what two million of the suddenly unemployed have been living–that the economy fell off a cliff since September 2008.
Our collective minds may gravitate back to the 1930s, or they may draw back to when this or that political party threw its weight behind policy that has come back to haunt us, or they drift back to when home prices de-coupled from the anchor economic trends that kept them sane until the early years of this millennium.
Importantly, and you can read it in the transcripts as well as to view it on video, it’s Buffett’s belief that it’s a moment that we have little choice but to get along together better than we’ve got a history of doing.
People–when you have a Pearl Harbor, you have to know the nation is going to be united on December 8th to take care of whatever comes up. And we have little squabbles, otherwise we put them aside and everybody goes to work on defense plans, we start building planes, we start building ships, even though they’re not going to be ready tomorrow, people join. The Army doesn’t blame the Navy because there were too many ships in Pearl Harbor, and it shouldn’t have happened. The Army doesn’t say, `Well, it was your fault, so we’re not going to send our troops.’ None of that sort of thing. We got united, and we really need that now.
It would be almost comical were it not so distressing, we have three forces at incredible odds with one another right now, locked in a no-win, no-win, no-win situation. Wall Street in one corner, Washington in another and Main Street in a third, with a cacaphony of economists trying to be heard in the din of it all.
If the housing crisis were but a housing correction, it would be a simpler world. But it’s not. As Michael Shedlock, a k a, Mish, says, we need to prepare to time tunnel backwards to an ear or a year when house prices were obedient asset values that never strayed from their mean relationships to incomes and rents.
Here’s the look and outlook posted on Mish’s site, an analysis of S&P Cash-Shiller data.
Click on image for enlarged view.
Here’s the commentary from Mish.
My take is unemployment is going to soar in 2009 along with foreclosures, credit card writeoffs, and bankruptcies. That will add to the inventory problems. Thus it is extremely unlikely that housing bottoms anytime soon.
And as much as housing prices have declined, take another look at the second chart in the news release above. Imagine where prices will be if they fall back to 2002 levels or worse yet 2000 levels. Moreover, why shouldn’t prices fall back that far? Finally, how many are prepared for it, if indeed that were that to happen?
Clearly, if you care to heed the Oracle of Omaha, being “prepared” is not simply an issue of “sizing” or “capacitizing” business to the level of some year in the earliest dawning of the 2000s. Being prepared will draw on resourcefulness and the opposite of “business-as-usual” behavior. It will involve working together creatively to get out of this thing, sometimes with the people one tends to want to trust the least. That’s what being at war means.
