March 25, 2017

Less Than Clueless Of The Risks

A weekend topic starting with Imbibe.com. “Ever had a feeling that perhaps you missed the peak time to sell something? That by holding out for a better offer or chancing your arm a bit you ended up costing yourself money? Well if so, you can only imagine how the team at Ed’s Easy Diner feel. In 2015 the business was on the market for £90m. Just over a year later, in October 2016, after a spell in administration it was offloaded to Giraffe for just shy of £9m. Have we, after half a dozen years of solid – and occasionally frenetic – growth, reached Peak Restaurant? ‘I think so,’ says Charlie Young of the Vinoteca group of wine bars. ‘It’s not that it’s going to break – it’s actually breaking. We’re starting to see casualties.’”

The Lincoln Journal Star. “Nebraska’s land auctions still attract a crowd — farmers in co-op hats, curious neighbors, keen-eyed investors. ‘The crowds are about the same,’ said Travis Augustin, an auctioneer and managing broker with Hastings-based Ruhter Auction & Realty. But the bidders, he said, are raising their hands a little slower and less often than they did when farming was more profitable.”

“The University of Nebraska’s land-market survey, shows slower bids and land sales that have translated into a 10 percent decline in Nebraska’s average farmland value over the past year. It marks the third consecutive year Nebraska’s weighted average price for farmland has declined. The average, as of Feb. 1, was $2,805 per acre this year, which is 15 percent lower than the state’s 2014 peak of $3,315 per acre.”

From Realtytrac. “Housing prices may be appreciating at a seemingly unsustainable rate once again in some markets around the country, but Christopher Thornberg believes the nation’s economic fundamentals will continue to be much more sound in 2017 than when the market began to implode back in 2005.”

“‘There’s no housing bubble. Not even close,’ assures Thornberg, Founding Partner of Beacon Economics LLC in Los Angeles. ‘There are three basic worry indicators and all three were very scary in 2005 and all three today suggest, if anything, that the housing market is still in the process of recovery instead of being near a new bubble.’”

From USA Today. “According to Foreign Affairs magazine, Americans reject the advice of experts so as ‘to insulate their fragile egos from ever being told they’re wrong.’ That’s in support of a book by Tom Nichols called The Death of Expertise, which essentially advances that thesis. But it also seems pretty plausible that Americans might look back on the last 50 years and say, ‘What have experts done for us lately?’ Not only have the experts failed to deliver on the moon bases and flying cars they promised back in the day, but their track record in general is looking a lot spottier than it was in, say, 1965.”

“It was experts who brought us the housing bubble and the subprime crisis. It was experts who botched the Obamacare rollout. And, of course, the experts didn’t see Brexit coming, and seem to have responded mostly with injured pride and assaults on the intelligence of the electorate, rather than with constructive solutions.”

“As Nassim Taleb recently observed: ‘With psychology papers replicating less than 40%, dietary advice reversing after 30 years of fatphobia, macroeconomic analysis working worse than astrology, the appointment of Bernanke who was less than clueless of the risks, and pharmaceutical trials replicating at best only 1/3 of the time, people are perfectly entitled to rely on their own ancestral instinct and listen to their grandmothers.’”

“Then there’s the problem that, somehow, over the past half-century or so the educated classes that make up the ‘expert’ demographic seem to have been doing pretty well, even as so many ordinary folks, in America and throughout the West, have seen their fortunes decaying. Is it any surprise that claims to authority in the form of ‘expertise’ don’t carry the same weight that they once did?”

“If experts want to reclaim a position of authority, they need to make a few changes. First, they should make sure they know what they’re talking about, and they shouldn’t talk about things where their knowledge isn’t solid. Second, they should be appropriately modest in their claims of authority. And, third, they should check their egos. It doesn’t matter what your SAT scores were, voters are under no obligation to listen to you unless they find what you say persuasive.”

“And you know what makes you less persuasive? The kind of contempt displayed by Foreign Affairs. If expertise is dead, it’s because those who claimed it overplayed their hands. It’s not the death of expertise, so much as a suicide.”




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65 Comments »

Comment by In Colorado
2017-03-25 11:56:36

Ever had a feeling that perhaps you missed the peak time to sell something?

That fear is almost always eclipsed by the fear of selling too soon and leaving money on the table.

Comment by Apartment 401
2017-03-25 14:22:31

Renters don’t have that problem.

I have so much money left after “throwing money away on rent” every month that I drove all the way down to Buena Vista today to throw some away here. People with mortgages can’t do that.

Comment by Blue Skye
2017-03-25 14:49:07

But people with mortgages are without fear, because they know tomorrow will be exactly like yesterday.

Comment by FBI Agent
2017-03-26 00:23:36

EXACTLY!! You you were f..d yesterday, still will be f..d tomorow!

PS. Can still change the pig’s lipstick color…

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Comment by Professor Bear
2017-03-26 06:45:41

They also enjoy the assurance that real estate always goes up.

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Comment by Ethan in NoVA
2017-03-25 17:08:24

Can’t HELOC your apartment!

 
Comment by In Colorado
2017-03-26 08:10:08

Renters don’t have that problem.

They do if they have a stock portfolio

 
 
Comment by oxide
2017-03-25 15:50:27

JP Morgan (and others) famously said they got rich by selling too soon.

Comment by Jingle Male
 
 
Comment by Crow Breath
2017-03-25 17:15:10

Hope is worse than fear.

 
Comment by Jingle Male
2017-03-26 05:45:13

That is why I sold my Chipotle stock when it was at $425. The restaurant industry is suffering from over saturation. My dad always said you can’t go broke making a profit….Even a small one.

Comment by Karen
2017-03-26 07:58:37

My dad always said you can’t go broke making a profit….Even a small one.

It just figures that you wouldn’t know the difference between profit and cash flow. Profitable businesses end up in bankruptcy every day.

Comment by In Colorado
2017-03-26 08:29:31

I believe his dad was talking about “profit” at the simplest level: selling something for more than you paid for it. I doubt he was the comptroller of a business.

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Comment by Race Bannon
2017-03-26 08:34:35

And it figures more you’d show up to tidy up another faux paus.

 
Comment by In Colorado
2017-03-26 13:43:33

“faux paus”

That word doesn’t mean what you think it means.

 
Comment by Race Bannon
2017-03-26 13:55:56

Data my good friend ….

Woodland, WA Housing Prices Crater 11% YoY

https://www.zillow.com/woodland-wa/home-values/

 
Comment by Karen
2017-03-26 21:32:29

Businesses go broke every day “selling something for more than [they] paid for it.” You don’t need to be the comptroller of a business to understand this, but you shouldn’t ever go into business without a solid grasp of it.

Profit exists only on paper. Cash in the bank pays the bills. If your profit margin isn’t high enough, you may bump along if your business stays at the same level. But if you try to grow your business, you will sink deeper and deeper into debt. Without an adequate profit margin, growth eats up your cash and you have to borrow to pay your bills.

This is rampant these days because of what Ben refers to as the dry cleaner effect. With all of the Yellen bucks and easy credit sloshing around, any business activity that shows even a hint of profit potential attracts tons of clueless people who get so excited about making a “profit” that they are willing to take too-small profit margins. They drive the good people out of the business and eventually end up in bankruptcy themselves.

Eventually either your lenders refuse to roll over your debt and call your loans due, and/or the greater economy goes through one of it’s mania-induced crashes, and the result will be the same for you.

A whole lot of people and companies are about to get a real-world lesson in this.

 
 
Comment by Jingle Male
2017-03-26 08:59:37

My cash flow is quite positive. Buying real estate in 2008-8-10 has been the best investment of my life.

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Comment by Ben Jones
2017-03-25 12:18:45

‘The average, as of Feb. 1, was $2,805 per acre this year, which is 15 percent lower than the state’s 2014 peak of $3,315 per acre’

In 2013 the Federal Reserve woman in Kansas warned about a farm bubble. The media quickly waved it all off. The central bank did nothing. Yellen later openly warned junk bond and bio-tech markets they were looking bubbly. Did nothing. Now they talk about a commercial real estate bubble, but do nothing.

Comment by Ol'Bubba
2017-03-25 12:55:08

In commercial real estate, it seems that no one wants to go near retail. The retail sector seems to have undergone a sea change with online retail outlets like Amazon.

Last week Sears used the phrase “going concern” and some investors had a sh!t (although it came as no surprise to those that were paying attention).

In my opinion, the elephant in the room is the Bond market, as it always is. We’ve had a 30+ year run of falling interest rates, and the question is how do they behave from here going forward. Will they continue to fall? Will they bounce around at their current level for an intermediate or extended period of time? Will they take a sharp and sudden climb upward?

Comment by Ben Jones
2017-03-25 13:05:47

So it doesn’t have anything to do with the fact we have multiples of retail square footage per capita than other western countries? As one CEO said recently (describing it as a bubble), the overbuilding started in the late 90’s. There’s too much money chasing yield, convincing themselves there’s a market for this or that. Luxury apartments and condos are a perfect example: even with historic highs in renters and rents, they over did it.

Where are these experts? Does the food industry not have consultants? And malls? The Realtytrac article has another go-to expert, who can always be relied on to say everything is hunky-dory. We have a few hunky-dory’s that post here too.

Comment by Ol'Bubba
2017-03-25 17:23:07

Of course over building is a factor. I remember about 10 years ago someone in the RE industry quipped that “we don’t have an overbuilding problem, we have an under-bulldozing problem.”

Depreciation and its sidekick, obsolescence, are real, especially in the retail space. For examples, look at vacated Walmarts that were replaced by newer, state of the art editions a mile or so from the old one. Or look at the aging malls with empty (or soon to be empty) department store spaces and are located in declining areas.

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Comment by oxide
2017-03-26 03:23:03

The spaces in those declining malls are filled with declining stores which can best be described as “Made in China for the *ahem* Urban Market.” Such malls become hotbeds for evening flash mobs.

And how many people really need furniture? Any empty space around here is filled with Chinese furniture stores. Constantly “going out of business” of course. Do people really buy enough to support the space, or is this all money laundering fronts?

 
 
 
Comment by rms
2017-03-25 14:06:45

“In commercial real estate, it seems that no one wants to go near retail. The retail sector seems to have undergone a sea change with online retail outlets like Amazon.”

My wife and daughter enjoy shopping at the mall(s) in Wenatchee, WA and going out for lunch particularly in the winter months as cabin fever sets-in. My cursory observation on the state of the retail sector is that the consumers are tapped-out… based on the various stories in the news lately. Americans are consumers at heart, and given the means, credit, inheritance, etc., they will find a way to spend it.

Comment by Mr. Banker
2017-03-26 06:55:15

“Americans are consumers at heart, and given the means, credit, inheritance, etc., they will find a way to spend it.”

A nation of dummys - and am I ever glad.

Step 1: Dumb ‘em down.

Step 2: Profit.

Easy money.

Bahahahahahahahahahahahahahahaha.

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Comment by Mr. Banker
2017-03-26 06:48:37

“Now they talk about a commercial real estate bubble, but do nothing.”

Do nothing = push pain forward, into the future.

Do something = experience pain now.

Those who inflict pain are seen as the bad guys, hence pain is pushed into the future.

 
 
Comment by Senior Housing Analyst
2017-03-25 12:30:39

Mountain View, CA Rental Rates Crater 8% YoY

https://www.zillow.com/mountain-view-ca/home-values/

 
Comment by Ben Jones
2017-03-25 12:58:33

From the first link:

‘So what’s causing the problems? There are several major factors outside the control of the hospitality industry – rent and rate rises and, yes, Brexit – for instance. We’ll come to those in more detail later. But one of the most obvious issues has been the sheer number of openings.’

‘From Scotland to the West Country, everyone I contacted for this article agreed that there were probably more restaurants in their city now than the population could reasonably support.’

‘Places are starting to close,’ said Bristol restaurateur, Kate Hawkings. ‘It’s not that fewer people are going out, it’s that more places are opening at an unbelievable speed. There are so many now that you rarely eat at the same one twice.’

Comment by In Colorado
2017-03-25 14:25:11

And, IIRC, they don’t have anywhere nearly the number of chain restaurants in the UK as we do here. There is no equivalent of the pervasiveness of places like Applebee’s, Chili’s, Ruby Tuesday, Olive Garden, Old Chicago, etc. like here in the USA.

 
Comment by Taxpayers
2017-03-25 19:07:04

3-3.5% sba loans cause a lot of high capitalised stupidity
Anyone know their deflation rate ?

Comment by In Colorado
2017-03-26 08:36:36

FWIW, Ben was talking about the UK, not the USA, though I’m sure the Brits must have something similar to SBA loans.

I used to know a woman who borrowed almost a million dollars from the SBA to open an independent dollar store. I haven’t kept in touch with her, but I do know that her store closed. I’ve wondered how much of that loan was unpaid. From what I have read, you can discharge SBA debt in bankruptcy.

Comment by Hi-Z
2017-03-26 08:57:42

When my partner and started our engineering/contracting business 30 years ago, we tried to apply for an SBA loan for startup. The agent told us not to bother; we were the wrong gender and the wrong color.

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Comment by In Colorado
2017-03-26 13:39:22

My acquaintance was a Hispanic woman I met during a master’s degree program. She told me that she borrowed a cool million to open the store. I visited it once. She sold breakfast cereal imported from Egypt. IIRC, her store closed after 2-3 years, which makes me think that most of that 1 million went poof in BK court.

 
 
 
 
 
Comment by Karen
2017-03-25 13:16:37

“If experts want to reclaim a position of authority, they need to make a few changes. First, they should make sure they know what they’re talking about…”

LOL

You can smell the desperation and fear of these people who are being given da meddle fanger.

Sorry, Glenn, but there’s no going back.

Comment by Ben Jones
2017-03-25 14:09:14

‘According to Foreign Affairs magazine, Americans reject the advice of experts so as ‘to insulate their fragile egos from ever being told they’re wrong.’

What used to be an insult: elites, is now mentioned as often as possible referring to globalists, etc. And they wonder why our fragile egos would like to stick a pitchfork up their a$$es.

I was thinking about this last night: when I was growing up there were three TV channels. Each had national and local news of about an hour combined with commercials. A lot of that was weather. How many new channels are there now? We’ve even got multiple 24 hour foreign stuff. And it takes a lot of experts to fill that up. But it sure seems like it was more objective when we just had 1 hour a day. Most of what I see looks like propaganda of one sort or another.

Comment by Blue Skye
2017-03-25 15:20:41

Usually I only got to watch TV on Saturday mornings when I was a kid. We didn’t actually have a TV until around 1958. It was totally morality indoctrination. Roy Rodgers, Rin Tin Tin, Superman, Sky King, that sort of stuff. Now I think all the heroes are mutants.

The news is totally mutant spin.

 
Comment by GreenEggsAndSpam
2017-03-25 16:40:50

Experts sold us a cr@p sandwich because they were making tons of money off of it. Notice USA today didnt include the peddling of:
affirmative action
open borders
global warming
endless wars

Its all by design to make $$$. Obamacare rollout? LOL, how many 100s of millions were “spent” by states that failed to produce a functioning website? Lots of votes were bought that way. Everything is a giant FRAUD!

Comment by MacBeth
2017-03-26 05:10:36

Once all of the inherited post-World War II societal and fiscal capital is spent, much of what you refer to as a crap sandwich will disappear.

We’re almost there….there’s just a little bit more blood in the turnip to squeeze out. Ten more years and all will be gone.

To be replaced with… what? Outright theft of land, property, 401Ks by the US government? Once all capital is spent, anything is possible.

It’ll all depend on the ethics and morals of Xers and Millennials and what they decide is worth saving, if anything.

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Comment by In Colorado
2017-03-26 08:44:21

To be replaced with… what? Outright theft of land, property, 401Ks by the US government? Once all capital is spent, anything is possible.

If you resort to stealing assets (such as land) who will you sell it to? Any buyer will know full well that you’ll probably confiscate it again, which renders it fairly worthless.

Notice how multinationals are simply walking away from Venezuela. They know better than to invest a single penny there and have written off any assets they own their as having zero value.

 
Comment by cactus
2017-03-27 12:24:18

To be replaced with… what? Outright theft of land, property, 401Ks by the US government? Once all capital is spent, anything is possible.”

Anyone receiving money from various government , state, local, federal but not working is probably going to be in trouble.

Governments will have to save their cash for actually work.

Have a 401k you will get means tested , social security will turn out to just be another tax.

Outright theft of land” Russians did it to the Germans after WW2 but that’s a extreme circumstance.

 
 
 
 
 
Comment by Senior Housing Analyst
2017-03-25 14:15:25

Hillcrest San Diego, CA Housing Prices Crater 9% YoY

https://www.zillow.com/hillcrest-san-diego-ca/home-values/

Comment by In Colorado
2017-03-26 08:45:48

Hillcrest has long been known as the hub of the San Diego LBG-etc community. So I guess they’re broke too.

 
 
Comment by San Diego RE Bear
2017-03-25 14:44:40

(I was off work this week and missed my calendar pop-up yesterday. And I have the memory of a gnat. So apologies in advanced.)

Happy Belated Birthday Ben! One day late, but hopefully you believe in birthday weeks.

I hope you had (and continue to have) a great birthday, and I hope for a fantastic year!

Check your PayPal for my support of this information sharing site!

 
Comment by Professor Bear
2017-03-25 19:13:14

“Ever had a feeling that perhaps you missed the peak time to sell something? That by holding out for a better offer or chancing your arm a bit you ended up costing yourself money?”

I believe lots of homeowners in tony Rancho Santa Fe are there just about now. Based on a couple of drive throughs over the past week, every fourth home is on sale with nary an all-cash Chinese buyer in sight.

Is anyone reading here on the market for a $2+ million estate?

Comment by Throbert
2017-03-26 08:15:21

I live near Poway and was thinking the same thing as I look at Redfin properties above $2M. There are a ton on the market!

 
Comment by In Colorado
2017-03-26 08:48:06

It would be interesting to know who is selling. Speculators? Down on their luck San Diegans? Absentee owners who suddenly can’t pay the monthly nut or who need the cash for something else?

 
 
Comment by Senior Housing Analyst
2017-03-25 19:25:19

Kent, WA Rental Rates Crater 12% YoY

https://www.zillow.com/kent-wa/home-values/

Comment by redmondjp
2017-03-26 21:15:05

You need to cut back on the crack, Race.

Comment by Race Bannon
2017-03-27 08:10:59

Boots on the ground data my friend. Boots on the ground data.

Camarillo, CA Housing Prices Crater 11% YoY

https://www.zillow.com/camarillo-ca/home-values/

 
 
 
Comment by Albuquerquedan
2017-03-26 06:18:30

Have not had the time to read never mind post on this blog the last week but this might be of interest, about Vancouver
http://www.chinadaily.com.cn/business/2017-03/24/content_28663400.htm

Comment by Albuquerquedan
2017-03-26 07:33:45

Excerpt:

Fewer Chinese prospective buyers are considering Vancouver properties in the Canadian province of British Columbia (B.C.), following its implementation eight months ago of a 15-percent tax on foreign residential real estate buyers.
Brad Henderson, president and CEO of Sotheby’s International Realty Canada, told Xinhua on Tuesday that the B.C. foreign buyers tax, which was levied for the first time in Vancouver, has scared off prospective Chinese buyers from Vancouver.
His remarks were based on a new study entitled China to Canada: International Home Buyer Insights, which was co-released on March 7 by Sotheby’s International Realty Canada and Juwai.com, an international property website for Chinese buyers of overseas property.
“I think what’ve seen is a consistent, not only drop in interest from people looking on Juwai, but also from people in buying in the Vancouver marketplace as a result of that tax,” Henderson said.
According to the study, Chinese inquiries for listings in the Vancouver property market fell by 81 percent year-over-year in July 2016, the month the B.C. government unveiled its 15-percent tax on foreign buyers of residential property.

 
Comment by Race Bannon
2017-03-26 08:20:09

Mr. Crowman…… You never left.

 
Comment by palmetto
2017-03-26 08:58:54

This might be of interest, too:

China Vice Premier Sees `Unstoppable Momentum’ of Globalization

Vice premier speaks at Boao Forum for Asia in Hainan, China
Zhang Gaoli serves on the Communist Party’s standing committee

https://www.bloomberg.com/politics/articles/2017-03-25/china-vice-premier-sees-unstoppable-momentum-of-globalization

Bwahahahaha. The “unstoppable momentum”. Brought to you by commies. Frauds and fakers.

Comment by albuquerquedan
2017-03-26 09:28:44

No country benefits more from globalization than China. When the powers that be brag that globalization has taken one billion people out of poverty they are virtually all in China.

Comment by Blue Skye
2017-03-26 09:49:58

Yeah, if you can call making $100/mo not poor.

The 1%ers do not a billion people make.

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Comment by Prime_Is_Contained
2017-03-26 10:00:47

Yeah, if you can call making $100/mo not poor.

If that $100 can provide all that they need to be reasonably well fed, clothed, and housed, then perhaps they aren’t poor? I’m not arguing that that is the case—just pointing out that the costs of daily living there are _wildly_ different than they are here.

 
Comment by albuquerquedan
2017-03-26 10:01:23

Most of them are making far more than $100 a month. The absolute numbers are still not impressive but the speed of increased wages certainly has been:

http://www.tradingeconomics.com/china/wages-in-manufacturing

 
Comment by Race Bannon
2017-03-26 10:14:11

Most of who? The unemployment rate there is as bad as it is here.

 
Comment by Blue Skye
2017-03-26 10:31:38

We already discussed that the average take home wage in the city is $2500/yr and 1/3 of that outside of the city. How a reportedly horrendous wage disparity pans out for the majority is unclear, but it’s not impressive.

Palmy, let us know how you would budget your money with this cost of living. Hey don’t forget the water bottles. My friends in China wouldn’t dream of drinking water from the tap.

https://www.numbeo.com/cost-of-living/country_result.jsp?country=China&displayCurrency=USD

 
Comment by Blue Skye
2017-03-26 11:08:16

Oops, Prime!

 
Comment by Albuquerquedan
2017-03-26 15:49:16

Prime you seem to get it and the CIA backs you up:

https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html

Most of the rest of the board can hope the Chinese GDP is smaller than the government claims. The CIA states it is actually around twice what it is claiming. This is because the purchasing power of the Chinese currency is very undervalued at the official rate. Hope is not a strategy and sticking your head in the sand never works. China is a risk due to its true success

 
Comment by Karen
2017-03-26 21:39:32

Most of the rest of the board can hope the Chinese GDP is smaller than the government claims. The CIA states it is actually around twice what it is claiming.

This is the same CIA that lied to us endlessly during the cold war about how big the Soviet Union’s GDP was.

 
Comment by Blue Skye
2017-03-27 07:34:40

I showed Dan a while back that the CIA data is tragically wrong. He doesn’t care.

 
 
 
 
 
Comment by Senior Housing Analyst
2017-03-26 07:34:59

“Home Prices Fall In The Greater Vancouver; Prices Will Continue To Reduce”

http://hibusiness.ca/2017/03/25/home-prices-fall-in-the-greater-vancouver-prices-will-continue-to-reduce/

 
Comment by Mickiezmouse
2017-04-02 19:11:11

Suicide….. kind of like Hillary’s campaign. Lol. Obamacare? You really think that smoking turd bomb was a good idea? And let me guess…you’re a Berne fan too! There are plenty of countries that have stronger socialist leanings. Why don’t you pick one up north, across the pond or down closer to the equator.

 
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