Roubini/Ritholtz Conference Call
This would have been an interesting call to listen in on. Big Picture has posted some live blogging of it.
At 5:30 they talk depression... Ritholtz doesn't think it will be as bad but says it will be a fair depression.
What my biggest fear about the whole thing is that I think lending standards today are by far much looser then what lead to the great depression. Low interest rates are the problem. They cause the asset price inflation and when you borrow to an income level with low interest rates you simply aren't empowered to pay back that debt fast.
I did a series of posts showing the difference in the person who puts extra money on a mortgage when rates are higher and then like they are now. With low rates you pay extra and you pay extra and you pay extra and it hardly puts a dent into reducing what has to be paid back. With higher rates just a small sacrifice of increasing your payment by 10% can take years off of paying your mortgage back. The inablity to pull oneself out of debt and get ahead when indepted to income level with low rates is simply under appreciated. Low rate are only beneficial for those already have debt at a higher level and they can refinance at a lower rate. Assuming they don't then borrow to that percent of income, they are much better off.
So, what I understood of the depression was that mortgages were about 15 years. Low interest rates were part of the problem then just as today, however, what they were able to pull out of their battle chest that can't be done today was to extend the length of the load. Going from 15 to 30 years take 20-25% off the load payment. That can save some households. Going from 30 to 40% saves about 5% and that just isn't going to help households in trouble. Add to that problem, they increased the percent of income that could be used for mortgage payments. I've heard as high as a whopping 50%.
So, you have people indebted to a higher percent of income for debt servicing at low rates for longer term mortgages then what they faced in the Great Depression. This is much, much worse. Who really knows how bad this is going to be? I don't, but I consider this difference and I think this difference is worse.
5:37, that's a 975 P/E for the S&P based on earnings and using a P/E of 15.
5:39, $50 oil?