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Housing, Homer, and Space… December 26, 2007

Posted by shubber in Uncategorized.
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(apologies to those who have never watched the Simpson’s, as this reference may very well be lost on you…)

And for those of you who may wonder why I bring up the housing market on a site dedicated to the promotion of the Space Cynic (tm*) way of life, consider this: externalities are those pesky things that can change your entire industry, economy, or even civilization while you aren’t paying attention. It happened to the buggy whip manufacturers (when the internal combustion engine brought about the auto industry), it happened to the steamship industry (international air travel) and it happened to the big iron computer manufacturers (the personal computer revolution). It also happened to the Aztecs (the Spaniards showing up) and the Dodo (tasted like chicken, apparently).

The housing market has the potential to dramatically worsen our economy – through the ripple effects already being felt in decreased private sector consumption of goods & services, decreasing taxes for cities and counties from properties going into foreclosure, losses in the banking sector from the CDO’s and other exotic “but it seemed like a good idea at the time” instruments, and the moral hazard of creating a safety net that encouraged such nonsense, and the destruction being wreaked on towns across America as foreclosed-upon houses become targets for thieves, squatters, and drug dealers, further worsening the spiral of problems…

And when the economy goes south, as it is already doing so (don’t kid yourself about the Dow reaching new highs – adjusted for inflation, the Dow is not even close to it’s all time high), government spending priorities will get shifted. Pet projects will get axed, Congress will scramble to fund the “necessities” – with sacred cows being ungoreable (Social Security, Medicare, and of course Defense – especially as our wars continue for years to come), the discretionary will suffer the greatest cuts. Think about what this means for visions of Mars or a lunar colony.

When the dot com bubble popped at the beginning of the decade, the Nasdaq began a rather long and devastating (for some) slide from highs of 5000 to a low of almost 1000… along the way, I kept hearing my friends (who were heavily invested in the tech sector, and loathe to give up paper profits that had already vanished) say “4000… that’s as low as it’ll go, now it’ll recover…. 3000, ok NOW it’s hit bottom, I’ll buy up some extra and dollar cost average to get my gains back when the price rises….

…. 2000…. ok THERE IS NO WAY FOR IT TO GO ANY LOWER…. “

Well, we all know how that turned out, don’t we?

It appears that people in the real estate sector, for a variety of individual reasons, are chanting the same mantra – that we’ve had about as much deflating as was necessary and that the market should stabilize about now. Those of us Cassandras out there of course would beg to differ… and I’m pretty certain that a number of you would agree with me that the market still has another 30-40% to devalue before housing prices are back into intelligible realms…

So where’s the Homer moment?
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For those of you who *are* aficionados of the Simpson’s, recall the episode where Lisa interrupts Homer’s big backyard BBQ:

(Homer and Bart chase after the roasted pig Lisa pushes with the lawnmower, and it goes through a bush.)
Homer: It’s just a little dirty. It’s still good, it’s still good…
(The pig goes across a road, hits a wall, and flies off the rotisserie grill and into the river.)
Homer: It’s just a little slimy. It’s still good, it’s still good…
(The pig goes down river into a dam where it gets stuck. Water builds up and sends it propelling into the air.)
Homer: It’s just a little airborne. It’s still good, it’s still good…

Methinks the people who have their fingers in their ears and their eyes closed as the housing market falls apart are saying the same thing… and those who think that the government is going to spend more (or even the same amount) on space are IMHO kidding themselves as well.

(*note – it’s not actually trademarked)

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1. Ed Minchau - December 26, 2007

“And when the economy goes south, as it is already doing so”

According to Instapundit:

“CHRISTMAS RETAIL SALES UP, BUT BY A MODEST 3.6% — but online sales were up 22.4%. The New York Times calls those numbers “bleak,” a term that’s more accurately used in reference to its stock prices . . . .”

What economy are you looking at? Is instapundit lying, or are you projecting some wishful thinking? No matter which way you slice it, those retail numbers are not an economy going south.

2. shubber - December 26, 2007

What economy are you looking at?

The US economy, actually.

Is instapundit lying, or are you projecting some wishful thinking? No matter which way you slice it, those retail numbers are not an economy going south.

Instapundit is, ahem, a little optimistically slanted, methinks. Here’s a couple of data points on our oh so rosy economy…

Headlines from today’s Wall Street Journal (arguably they have a slightly better grasp on business trends and big picture issues regarding the economy than Instapundit)

Home Price Drops Accelerate; Miami Metro Area Leads Declines

Stocks Flat on Retail Woes

Intel, STMicro Feel Credit Crunch

Profit Outlook Darkens for Big Banks

Major retailers declined in trading, including Target, down 2.5%, and Wal-Mart Stores, off 0.7%, and J.C. Penney, down 3.1%. Target, the second-largest discounter in the U.S. (behind Wal-Mart), warned Monday that its December same-store sales were running below its previous forecast and may actually jeopardize its earnings growth.

Disappointing retail sales suggests consumer spending habits may be curtailed, while rising energy prices might cause the Federal Reserve to be more cautious in lowering rates, making it less accommodative than people want, said Jack Caffrey, an equity strategist at JPMorgan Private Bank.

U.S. home prices fell in October for the 10th consecutive month, declining a record 6.7% compared with a year ago, according to the Standard & Poor’s/Case-Shiller home price index.

From Global Economic Trend Analysis blog, written by a guy I know and highly respect:

Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.

An Associated Press analysis of financial data from the country’s largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.

Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.

“Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa,” said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. “We’re starting to see leaks now.”

Hmm, now that I read those articles, and the trends across multiple segments of the economy, it appears that we are in the salad days of the economy…. what was I thinking?!?!

3. red - December 26, 2007

“the discretionary will suffer the greatest cuts. Think about what this means for visions of Mars or a lunar colony.”

It’s too bad that when NASA made the Ares I/Ares V/Orion plan to get people to the Moon, they didn’t consider that maybe there would be funding bumps along the way.

The Cynics probably take the position that any human Moon plan would be a waste. I’d agree if the wording is “any human Moon plan NASA is likely to try”. It would have been nice if they’d done it in a way that did useful things along the way, in small, deliberate, and manageable chunks. Now would have been a good time for a modest few lunar satellites/robots, some COTS for ISS if we must have ISS, no Ares/Orion, and leaving the rest of the NASA budget safe for more Earth science sats, planetary probes, etc. Among other advantages that would be more resiliant in the face of budget crunches. All IMHO of course. Unfortunately (and not surprisingly) the actual NASA plan drives me towards the Cynics camp in this instance.

4. Eric Haynes - December 27, 2007

Shubber, you’re right, the economy has been and will continue to head for a serious downturn. It’s no big shock either. In 2000 we had the dot.com bust and all the way through 2002 the stock market declined. Then, in 2003 the bull market came back (ironically at the same time the gulf war started) and with the government keeping interests low the housing market went sky high. Interest rates stayed low, Americans kept on spending and spending. Heck, they even refinanced their houses to spend even more.

Sooo, of course we’re going to have a downturn, the last four or five years have been just too good (or BAD if you really want to know my opinion). Will this downturn be serious? Yes, VERY SERIOUS, possibly RECESSION SERIOUS. Will this affect NASA’s VSE? YES, NASA won’t get any extra billions of dollars or so to make VSE work.

In the end, NASA retires the Space Shuttle and VSE fails. With no NASA manned space program wouldn’t it be fantastic if there was some American civilian rocket company out there? Some American company that could transport supplies/humans to the ISS for NASA and for low cost? It’d be nicer if there was some American civilian rocket company that could maybe even possibly go beyond earth orbit and launch to the moon or even MARS! If this impossible civilian space company existed I would think that people would look at NASA and say, Man, having a Government Space Agency run a manned space program is pathetic, I’m glad the economy tanked in 2008 and our goverment got rid of VSE.”

Of course, this is just a pipe dream. There isn’t any such American civilian Space Company, is there?

5. Jonathan Goff - December 29, 2007

Shubber,
Good article. The sad thing is that it isn’t just going to be government funded space projects that get hit with the economy slowing down. Many if not most private space projects are going to be hurt or at least impeded substantially. Especially those groups that are still in the startup mode (such as companies pursuing CRAATS). It’s not the end of the world for sure, but it sure makes an already challenging technical/economical/business problem that much more difficult.

~Jon

6. Ken Murphy - January 3, 2008

Since I work in the banking industry I hate to talk shop outside of work hours, but Ed’s way wrong on this one. Way wrong. The recession has already begun, it’s just a question of when the mainstream press starts doing their job and figuring it out for themselves.

The kinks in the financial system run far beyond things like subprime mortgages or increased credit and auto loan delinquencies. It also lies in the corporate side as well, as leveraged buyout firms (what you call hedge funds and private equity) engorged on bank loans dividended up to their billion-dollar bonuses. Companies are having a harder time making sufficient EBITDA for debt service on the bank loans, and this will only be compounded by a slowdown in consumer spending. You haven’t heard about these things because they don’t occur in the usual markets. TOUSA and Buffets are just a tiny glimpse at the dancing and shuffling that’s going on behind the scenes right now. The fun (and, unfortunately, pain) has not yet even begun.

7. Kevin M. - January 4, 2008

I agree that the sooner we axe VSE, the better. It is a purely political initiative, which will act like a lead weight on Nasa’s balloon. The US is in denial of its collapsing economic viability.

8. Paul F. Dietz - February 3, 2008

I am reminded again of this posting I made five years ago:

http://groups.google.com/group/sci.space.shuttle/msg/d14d4b0618ee6f6b

>What types of projects are given priority / what means of manned
>transportation are in use / is the space shuttle still in use / what
>happened to ISS / US partnerships with Russia, China?

I’ll paint a dark scenario: In 2010, economic stagnation, increasing
deficits, and an unsustainable trade imbalance have caused the dollar to collapse against other currencies. Oil hits $100/barrel,
unemployment exceeds 20%, and the space program is a memory.

Paul


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