"people are not going to rush to borrow to buy such big-ticket, long-lasting items anytime soon."

Sudden Debt with an interesting post about where we've been and where we might be going:

"Two of the largest sectors of the US economy are housing and automobiles. Both are reeling (see charts below).

Looking at the charts, we observe that both industries had been on a more or less continuous uptrend since 1990-92 - until they jumped off the cliff in 2007. What happened? It's quite simple, really: houses and autos are the #1 and #2 most significant purchases people make in their lifetimes, usually financing both ( TRUE ). That's where easy-easier-easiest credit came in: in just a few years household debt as a percentage of GDP jumped from 67% to nearly 100% (see chart below).
In other words, between 2000 and 2007 we over-borrowed and over-spent on houses and cars, satisfying future demand for many years to come. No matter how low the Fed takes its rates (a record low 0.0% - 0.25% as of yesterday), people are not going to rush to borrow to buy such big-ticket, long-lasting items anytime soon. They do not need them, because they've already bought them. It follows that household lending - the driving force behind finance in recent years - is also going to be down on its heels for many years ( TRUE ).

Conclusion: don't go bottom-fishing in these sectors just yet ( YOU CAN BUY INDIVIDUAL STOCKS IF YOU CAN DO THE RESEARCH ). Instead, investors will be better off looking for The Next Big Thing. What's that? My bet is on alternative energy and everything that revolves around it, such as smart electricity grids. A wholesale shift from "black" to "green" will necessarily require massive investment and will, also necessarily, lead to a shift from consumption to saving, in order to finance it( IT'S A VERY WIDE AREA, BUT THE GENERAL POINT SEEMS RIGHT ). This will pose significant challenges to the retail and traditional services sectors, too.

I fully expect a long period of massive Creative Destruction to unfold, i.e. OPPORTUNITY. ( I AGREE WITH THIS, AS DOES JIM GRANT )Any and all ideas from readers are welcome.."

One added point. I've said that houses are an investment, so that, theoretically, the money that had been used for buying houses would now be spent on other things. As well, it is important to remember that for the people who remain in their houses after buying in recent years, the house is still an investment which generally pays off better than renting. As for autos, that money should also go towards other purchases. I'm not savvy enough to know where that money is going to go. This is a version of Ricardian Equivalence.

"officials have moved from trying to rein in prices to encouraging buyers"

Fascinating post in the WSJ about what the Chinese government is doing about the housing crisis there:

"With economic growth also slowing more than expected, officials have moved from trying to rein in prices to encouraging buyers. This week they announced tax breaks, smaller down-payment requirements and lower loan rates for first-time buyers.

If housing continues to tank, China may not be able to keep growth above the 8% rate the government has long regarded as the minimum necessary for prosperity. More than 80 million people are employed directly in the construction industry, so a prolonged downturn also threatens to lead to more unemployment and social unrest.

"The real-estate market decides what happens to the economy," says Paul Cavey, an economist for Macquarie Securities in Beijing. Infrastructure spending is still strong and likely to accelerate, but exports are slowing and are expected to deteriorate rapidly in coming months as world demand weakens. That makes housing the "swing factor," he says."

So, they are :

1) Giving tax breaks.

2) Lowering down payment amounts ( percentages )

3) Lowering the loan interest rate

What's interesting, of course, is that the government can do these things. China has been on a building boom, so a downturn in housing construction would sharply increase unemployment. How come they couldn't rein in prices?

I love this quote. Heard it before?

"Now everybody believes the price will go down. And the developers don't want to sell at a lower price. Nobody wants to sell, and nobody wants to buy," says William Xin, chief financial officer of China Housing & Land Development Inc., a developer in the western city of Xi'an."

I guess the attitude of the developers was the reason they couldn't rein in prices. They don't want to sell at lower prices. Does that mean they sense a near turn comeback, or were they betting on the government stepping in and helping buyers? I'm guessing the latter. Heard that before?

And this:

"China has gone through property slumps before, most recently in 2004, only to have the boom resume. At some point, people will start buying homes again, since there is plenty of real need for housing. But how long the current downturn could last is far from clear, since no previous housing slump also coincided with an international financial crisis.

"This is the big difference with previous slowdowns in the property market," says Ye Jianping, head of the department of land and real estate management at Renmin University in Beijing. "Before it was only domestic factors affecting the market, now there are international ones, too. If China's economy has problems because of the U.S. crisis, then there won't be confidence in real estate."

Here again, globalization also means worldwide downward pressure if large markets are in a downturn. Eventually, the housing market will heat up because it is driven by real demand in China.