Bits Bucket And Craigslist Finds For July 6, 2006
Please post off-topic ideas, links and Craigslist finds here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Anyone following the CME housing futures?
With little trading they can’t be that reliable, but they all forcast lower prices.
http://www.cme.com/trading/dta/del/product_list.html?ProductType=hng
I remained unconvinced that the price index which underpins these housing futures is sufficiently reliable to serve in the same capacity as the strike price on a regular option. There is risk that the lag in the price index will poorly represent the spot market price of housing, and that the level of aggregation in the index will accurately represent the value of the swath of homes that any particular individual is trying to hedge.
Strike “strike price” in the above and substitute “underlying price” (I am still on my first cup of coffee…)
any news on foreclosures?
Foreclosure.com shows 350,000 either in foreclosure or preforeclosure. Personally, I’m still getting foreclosure referrals for jumbo loans which issued in January, 2006. I did one three weeks ago where the owner worked in a hotel. Worked in it, didn’t own it or anything. Somehow, this enterprising fellow got himself a loan for over $550,000.00. Couldn’t carry it, of course, and got foreclosed, but somebody somewhere who gets stuck with this tab will want to know exactly how this happened. Investigations such as these will cause the first tremors of uncertainty and fear among MBS investors, then the money tap will be turned waaaayyyy down.
Right, KIA. It’s not just central bankers that have to tighten. The MBS market is like the central banking of the housing economy. There is a separate (although I’m sure somewhat correlated) flow just from them.
Fannie/Freddie borrow with subsidized rates. Most tranches are fixed rate securities. When rates rise, the value of your bond gets hit twice.
Once because of the inverse relationship between bond prices, and yields. The prices get a second time because when rates rise, fewer people refinance or sell and the security you own might go from a 5 year average maturity, to a 15 or 20 year average maturity. It all depends on the PSA or the prepayment rate of the tranche you own.
In 1994, I saw the face value of these securities go from par (100) to 78 cents on the dollar in about 6 months. That hurt. Of course everyone was still getting a 6% coupon, and eventually they got all of their principal back. They just had to live with their securities being below par for about 4-5 years.
Still giggling about this one: http://washingtondc.craigslist.org/nva/rfs/178796973.html
It seems that the condos they couldn’t give away at $70k five years ago are now being offered at $321k. RIGHT!!! The best part of the ad was the “Live a resort lifestyle” - in Penderbrook! It has a golf course, but it ain’t no resort.
the course is a pos- a mall lifestyle
If I read one more yutz say it’s a buyers market I think I will have a tizzy. It is not a buyers market. We are not on a permanent plateau, the market is not normalizing. This market is in a wooden barrel heading downstream towards Niagara Falls. It won’t be a buyers market for quite a few years. It cracks me up to see the equity vultures at the auctions overpay as well. They are the next wave of FBs. Buying real estate in this market for profit has got to be more nerve-wracking than doing a high-wire act with no net. You better get that puppy back on the market ASAP junior. You ain’t got no time to waste. Better move! Chop chop, gotta preserve that razor thin profit margin before the market slides any further. No mercy for the FBs. Take no prisoners. 2-3 years from now it’ll be like shootin’ fish in a barrel. Patience is its’ own reward. {cliche tag off}
Morning rant Mort . Tend to agree with you . There will be a new real estate sage that will lead the flock to foreclosure buying . “There has never been a better time to buy a foreclosure. “
Ah, so you’re the “Kurtis” who’s giving everyone a wedgie over on the SDCIA board. Too funny!
Can anyone remember for how long now we have been discussing the problem that falling land values pose for home builders? Because the story has finally hit the mainstream press this morning. (Sorry — no electronic links…)
I would like to hear fellow bloggers’ thoughts on the argument that using call options to purchase land poses less balance sheet risk than owning the land outright. Because so far as I am aware, if you already own land and its value drops by 50%, you still can sell at a 50% loss. If you merely owned an in-the-money call option to purchase the land and its value dropped by 50%, you would most likely be looking at a 100% loss. But maybe the value of the land on which homebuilders buy options always goes up, just like the value of the homes they build?
———————————————————————————————–
WSJ p. C1
Money & Investing
Land-Value Erosion Seen As a Problem for Builders
by Michael Corkery and Ian McDonald
————————————————–
Already reeling from slowing housing sales and worries about the economy, shares of home builders face another issue: the value of the land on their books.
Land values are becoming a flash point for investors and analysts who watch the builders sector. Bears say the companies’ land might not be worth what they paid for it, which could lead to painful write-downs.
If they are right, it will be a blow to the already battered sector. After a 28% average fall so far this year, many stocks of home builders trade close to — or even at — their “book value,” which makes them tantalizing to bargain hunters. Book value is a company’s assets minus its liabilities and is often seen as a rough approximation of how a business would be valued if liquidated.
But if some land on builders’ books is overvalued, their shares might also be overvalued.
“People are looking at book value as a possible floor for the stock prices. The question is ’should that be a floor?’ Ther could be some risk to that book value from land recently acquired or put under option contract,” says Banc of America Securities analyst Daniel Oppenheim, whose firm does business with several builders.
The debate is lively because the true extent of land risk is tough to quantify. Many builders use options, where they put a deposit on a parcel to be purchased at a later date. Builders say options minimize their losses because they let them walk away from overpriced land, sacrificing typically no more than a 5% to 10% deposit.
“I would like to hear fellow bloggers’ thoughts on the argument that using call options to purchase land poses less balance sheet risk than owning the land outright.”
**************************************************
It all depends on the depth of the chasm that raw land prices fall into. For example, if a builder pays $10 million for a tract and the price falls 50%, the loss is $5 million. But if an option is taken on the same tract, the cost might be $500,000 to $1 million. Although the loss on the option is 100%, the dollars are considerably less. Much better to lose 1 million than 5 million, right?
If, however, the price falls just 10%, the loss on the option is 100% and the loss on owned land is just the 10%. The dollars are the same, though. The loss is $1 million in both cases.
Now if you are an optimist with experience, you might doubt that the fall in raw land prices will just be 50%. How about 90% and no buyers in sight? The value of raw land depends upon demand for building lots. Since that demand is already falling, the raw land prices are falling sharply. Will we reach a point when there is no effective demand for building lots? When TOL goes bankrupt, it not only won’t be buying land, it will be dumping it at distress prices.
When times are bad, no real estate is more illiquid than raw land!
These aren’t stock options, these are contract purchase options. The HBs do with the land what their customers are doing to them; walk away from the earnest money, no harm, no foul, no further exposure/recourse. What may be interesting is if the contracted sellers were already counting their chickens and now that the juicy HB land deal falls through they need to sell. That eventual sales number could be ugly and that will hurt the HBs even more.
“sellers were already counting their chickens”
Good point Cote;…If the sellers went out and leveraged into another deal through a delayed exchange the seller may take a bigger hit than the HB….
“These aren’t stock options, these are contract purchase options.”
You missed my point, which perhaps I should have spelled out more clearly. As far as I understand this, the option to purchase land only differs conceptually from a call option on a stock in the sense that the underlying asset is a parcel of land, and not a corporate stock. In either case, exercising the option is only profitable if the value of the land on the exercise date exceeds the strike price plus the option premium. If the value of the land falls below the strike price and stays there, the option expires worthless. At values of the land between the strike price and the strike price + option premium, the option can be exercised at a loss which partially covers the option premium.
Since the value of individual land parcels are far less liquid (i.e., more risky) than that of your typical corporate stock, the options written on them are commensurately more risky.
http://www.nupplegal.com/optopur.html
No, they don’t work like stock options. They are far more primitive and work like this.
Homebuilder X pays land owner Y $50,000 for the option to purchase 10 acres of farmland for $1,000,000 at any time within the next two years.
If the two year term of the option expires, homebuilder X loses $50,000. That’s all X can possibly lose.
The fact that fair market value of the 10 acres of farmland has fallen by 50%, to $500,000, is irrelevant. X cannot lose more than the $50,000 he paid for the option.
Joe Schmoe –
That is a perfect description of a call option, at a strike price of $1,000,000 over a two-year time horizon until the expiration date. The limit of loss to the amount of the option premium is the advantage of an option. The disadvantage is that you can easily lose 100% of the option premium if prices move against you.
If you believe the price falling by 50% is not relevant to the value of the option, then perhaps you ought to check out whether the asset price enters the Black-Scholes option valuation formula.
Yep. GS is right on this one. The options work the same way. Only difference is what for the underlying takes (land or stock). Same thing.
Can’t buy stock options with all borrowed money. Can buy land contracts with all borrowed money. Ain’t the same animals.
How you buy them is not, strictly speaking, a characteristic of the option — that is rather like saying that a stock purchased on a margin account is somehow different from a stock purchased with cash. But as you probably realize, buying options with borrowed money is riskier than buying them with cash, as leverage is layered on top of leverage in that case.
And just how does one go about purchasing a stock option on zero margin? I can tell you how to do it with a land purchase earnest money deposit.
“If, however, the price falls just 10%, the loss on the option is 100% and the loss on owned land is just the 10%. The dollars are the same, though. The loss is $1 million in both cases.”
Thanks, dawnal, for reiterating my point. The other posters here are clueless in this realm.
Stuc, What Joe S. is saying is there is no time-value to the option to purchase which is why it differs from a call option.
If the homebuilder paid 50k for the option to purchase the land anytime in the next 2 years, the homebuilder can not sell back (or close out the option) with the seller for a fair market price of say $25k if the price of the underlying falls.
It’s 50k or nothing.
What you possibly meant to say is that this is a call option with no secondary market. It is a call option, which simply means the option to buy an asset at a preset price within a limited time period.
There is still time value. If you think not, then ask yourself whether the option would be worth the same if the two year period were shortened to, say, ten minutes.
Stucco;…..”sacrificing typically no more than a 5% to 10% deposit.”
This is fairly typical in my experience….Remember we are talking about big numbers (20-40 mil ?) so a 5% option check to the seller is still serious money….I am sure some builders made the mistake of taking down the land in the face of fierce competition for it but, I think we will find that the write downs are mostly for option forfiture…..Will see…..
Good point. We seem to be thinking along similar lines this morning. Some of these options may have been strategic market manipulation. Keeping the supply tight and maximizing unit profits. TOL in particular, as I have reported previously, carries a lot of potential land on their books. THey know from their market segment that it is easy to make more land and they concentrate in places where they can control that issue politically. Look at the places with really really high prices. Now look at the list of the most restrictive land use places. Same list. It isn’t an independent correlate but it is why TOL makes so much money.
Damm right…They are very shrewed….A lot of the optioned land they never intended to close but by taking it out of the market place, thereby limiting supply, they drove up the value of their intitled land….Manipulative B>;stards….
5% to 10% of what? If I spent $100m directly on land which went down by 50% in value, I would lose less money than if I had spent $100m on options to buy the land that went down by 50% in value.
Seems like apples and oranges…$100 million in options should control $1 billion in land. Why compare $100 million owned land with $1 billion in optioned land?
The comparison is between investing $100m directly in land, or using it to buy options. In both cases, the amount invested is identical, but the options are far more leveraged and risky.
I know you are very technical. Does it matter to you that options are a business tool and not really an investment item unto themselves? If 90% of the option contracts entered into by the builder do exactly what they are supposed to do, which is secure land at a fixed price during an era of appreciation and be built out in a time frame favorable to profits, then the expense of the option is a worthwhile “Cost of doing Business”. The builder has rights to the land without the carrying costs(depending on the contract terms). It guarantees that the builder will be in the game for the duration of the boom with limited risk when the bust arrives. They then dump the dumb options and can buy land or new options at the new deflated prices instead of eating it on large land holdings. Hopefully cheaper land aquisitiions allow the builder to sell for less, as the new market demands, and protect the companies profit margin and viability at least enough to survive to the next boom. Taken like this there is not any risk at all in options… compared to being on title.
GetStucco,
I agree with you that the options on land are no different than call options (with no secondary market, of course). It’s an interesting question as to if they represent more risk than buying the land outright. If you view the homebuilders primarily as land companies and you are purchasing them for the land on the books, then you are right; the options represent more risk than owning land outright. However, a homebuilder’s ongoing business is building houses and they are buying the land for that purpose. It’s far more likey that they will buy as much land as they need to build houses. Buying options reduces the risk for the same amount of land.
For you argument to prevail you would have to assume that the builder is just investing a fixed amount of dollars in land with no regard to how much land is needed for building purposes and they can use it on options or just buying land. This would only be less risky because you would wind up with much less land. I think it far more likely that if they didn’t use options, they would buy the same amount of land by borrowing against it. That would certainly put them more at risk than if they used options.
“It’s an interesting question as to if they represent more risk than buying the land outright.”
Not all that interesting, if you once survived a graduate course in finance. The answer is “Yes, they are more risky than buying the land outright.”
“Buying options reduces the risk for the same amount of land.”
This is where our views seem to diverge. You and several other posters want to hold the acreage constant in your comparison. I hold the dollar outlay constant, as it seems more relevant. If someone loaned a company $100m which it could use to grow its business, purchasing options with that $100m would be much more risky than purchasing whatever proportional share $100m would buy of the land to which the options pertained.
In my years of college, it was constantly drummed into my head that there was a risk/return tradeoff. Leverage costs you more up front. You can make more, or lose more. Pretty simple. What are we not understanding?
How would you like to live next door to this dump?
“The large lot needs work to clear as previous owners hadn’t mowed in several years.”
http://washingtondc.craigslist.org/nva/rfs/178609433.html
Purchased for 430k in June 2006…
Sounds more like they found something really ugly in the remodeling process and now want to dump it - preferably for a handsome profit. Sheesh.
Most people that do renovations though, do put the house on the market the second they own it. As they do improvements, the house is still for sale, just the price tag goes up ( in their mind). My point is this is not that unusual.
Seller want 100k profit within 1 month without doing anything ? Could it be that they got the property cheaper because it’s a dump that needs 100K worth of work ? Seller is looking for a greater fool .
KIA…Looks like we had the same thoughts . Did you notice how the seller is saying the reason for the sale is that he has another project he wants to start . What a bunch of bull .
I bet he just found some dead bodies in the back yard…
Yuk, yuk — that’s what I was thinking.
Here is an investment opportunity in one of Sacramento’s most bubbly exurban communities for you bloggers out there.
http://sacramento.craigslist.org/rfs/178879735.html
How much are the payments on that puppy? Overhead is a killer.
‘If you want to buy it for the same price that I paid for, you can flip it and make money.”
If you can flip it and make money, why don’t you do it you Moron….Pleeeeese…..
ohmigod. the guy can’t even spell foreclosure! Or benefit. I’m surprised he had the balls to put his picture on the listing. “Hi mom! I’m in foreclosure and I can’t spell”!
Well, I am a daily reader of this site and rarely post. But now it is time to make my contribution.
Last Friday, at noon, I left San Diego on a fact finding mission. Destination, Iraq? Iran? North Korea? Nope, my destination was a bit more dangerous. Queen Creek, Arizona.
One cracked windshield, one nail in the tire, and one sunburn later I confirmed what I expected (the stuff on the internet really IS true). First, the obvious. There are a ton of houses for sale. Sometimes as many as 4 houses in a row had For Sale signs. There appear to be tons of projects in progress- but it is only speculation if these developments will come to fruition. For the most part, all the tidbits you read on the various housing bubble sites are pretty accurate.
The Queen Creek area looks exactly like the Hemet, CA area in southern California. All the way down to the cow farms, the stench, the horses, dust, heat, oversized houses on tiny lots, 2 lane streets in and out of the neighborhoods (what a nightmare in rush hour) etc etc etc…..
One thing I did not understand. The 900K houses in the Queen creek area or nearby basically compared (more or less) with 900K houses in Scottsdale. It seemed to me that Scottsdale was a much nicer area……perhaps a local could explain why someone would choose to live in the Queen Creek sector as opposed to a Scottsdale sector??
What struck me most in the greater Phoenix area was the size and number of commercial buildings dedicated to the housing industry. It is unbelievable. But it is something that you will only notice if you make a deliberate effort. Lenders, brokers, realtors. These huge buildings filled with these worker bees. The whole weekend I simply wondered about all those jobs. How secure were they? My guess, not very. I did see a Motorola plant and some sort of GM facility.
I sort of equated my road trip to visiting the NASDAQ floor in 2000. I just wanted to see things with my own eyes.
It is with an Austrian economic background that I made this trip. And to me that is the most interesting aspect that is seldom discussed here.
LOL! Did you take any pictures?
I did take some pics. One of which was a billboard that said “Stay Safe: Dont Touch Power Lines”
Uh? Is that happening a lot out in PHX?
Nothing you say about Queen Creek is wrong in my book. The comparison to the NASDAQ floor in 2000 is spot on (metaphorically speaking as there is no actual NASDAQ floor. I’m not sure how many $900,000 houses there are in Queen Creek but if there are, they are hosed!
A San Diego resident coming to Phoenix in June/July? Now that is a first.
Nails in your car tires; another perk of living in a subdivision still under construction.
Well done with primary research! Sounds like a fun trip, if you like to witness that sort of thing. Personally I enjoy watching the streets around me for Sale signs (all types, house, boat, garage).
Queen Creek avg houses are in the range of 300-450k. Don’t ask what they SHOULD be. Yes, it makes no sense to spend that kinda money & have a commute that’s worse than LA/SD. Yup, you can certainly order up a good pounding for these areas.
LM — nice post.
“One thing I did not understand. The 900K houses in the Queen creek area or nearby basically compared (more or less) with 900K houses in Scottsdale. It seemed to me that Scottsdale was a much nicer area……perhaps a local could explain why someone would choose to live in the Queen Creek sector as opposed to a Scottsdale sector??”
Mispricing of assets is a hallmark of the conundrum.
The Queen Creek area is more overpriced than Scottsdale because it is/was more undeveloped, hence cheaper, than Scottsdale before the boom. This created demand, driving up prices. People kept buying even as prices rose, with the thought that the area was so young, houses would appreciate at a greater rate than most other places in the valley. Before long, you have prices comprable to Scottsdale, even well-located Scottsdale areas, just because of expectation of greater future gains. Queen Creek seems to have further to adjust than a lot of areas.
That is a lot of lipstick that dude in DC is putting on that big, fat, ugly PIG.
Here’s another liar in Northern Virginia:
http://washingtondc.craigslist.org/nva/rfs/178892987.html
for 570K, and it says quote: “Builder homes start at $619,000 without options”.
Uh, nooooo, the base price from this builder in this neighborhood for this model is “Mid $530’s” http://www.ryanhomes.com/findhome/community.asp?CID=1836
Oh, and I went to the agent’s website and there’s a ton of snow all over the picture. Maybe the base price was $619 back then.
The Sacramento house mentioned above - first, that desperate seller needs to use spellcheck - he was atrocious. Whatever price he is talking about will be cut in half (at least) real soon. So, he is looking for a greater fool than himself to go down with the ship.
LM, nice summary of Queens’ Creek. I loved it.
LM, post more often. That was a great post.
Unintentionally hilarious headline of the day, courtesy of Utah’s Deseret Morning News:
“Families pile on debt: But rising real-estate values help homeowners”
http://tinyurl.com/hlbg8
From your article, Jerry:
Kelly Matthews, executive vice president and economist at Wells Fargo, said that while households are taking on more debt, appreciating home values have put homeowners in a solid financial position.
“In the period since that study has occurred,” Matthews said, “real estate values and the improvement in our stock portfolios suggest to me that net worth is increasing and, I believe, increasing noticeably faster than aggregate debt levels.”
That Kelly person needs to step away from the bong, like walk outside and take a wiff of fresh air. She (he) can’t possible believe what they just said. The “perceived” appreciating home values is only on paper until you sell the damn thing, and this dip (an economist??) knows (or should know) that. What is wrong with these people? The FBs reading the article who are in pre- or full foreclosure would probably want to kick his/her a$$ for saying such a thing. We all know that no matter what kind of equity you think you have, if you can’t sell it, can’t afford the payments and can’t refinance…you are majorly screwed.
Unbelievable…..
BayQT~
Last time I checked, the level of the headline US stock market indexes were below their bubble peak six or so years ago. What kind of stocks is Kelly talking about?
My international and small caps are way up from six years ago. Tech and large cap are not. The power of a well diversified portfolio.
Small and mid-caps have been very good to me in recent years, but I think I should avoid them and avoid commodities, for now. Where is the next prudent move for retirement dollars?
600k in Warrenton-what a joke.
“What struck me most in the greater Phoenix area was the size and number of commercial buildings dedicated to the housing industry. It is unbelievable. But it is something that you will only notice if you make a deliberate effort. Lenders, brokers, realtors.”
I had the same thought driving up the 101 to Ventura, CA last weekend.
This is a absurd and humorous article in the Washington Post. I guess this is where some of the HELOC money has been flowing. It also sheds some light on the power of the “wealth effect”.
http://tinyurl.com/jtqhe
I saw that - a 9×4 shower to clean soap scum off of. My back is hurting already.
That would be a bothersome task, although I believe these folks hire someone to do it for them. I have always felt that quality family time is best spent together lounging in a large shower. What better way to teach ones children the finer points of life than in your home spa. Think of the possibilities. When your kids come home from college, instead of spending some quality time with them chatting, hiking, or playing golf you can take a shower with them.
$129k on a bathroom– makes me wanna hurl. Betcha in a year or two those heated floors are gonna be a bit cool.
This has nothing to do with housing, but it’s one of the strangest Craigslist classifieds I’ve come across. I wonder who this seller thinks their buyer is?
http://losangeles.craigslist.org/wst/bab/178685718.html
That is funny.
Re-the ad on Craigslist. The latest scam at work. Here’s how it operates: The person listing is simply selling some item, which in this case is possibly a skin cream, that can be purchased bulk or they get a very large economy size bottle or jar from the local drug store. Usually the product is safe. It’s either a name brand or a generic. They purchase a quantity of small jars or bottles and print up pretty labels and transfer the economy size cream or lotion into smaller jars or bottles then attach the new labels. Result: The $6 jar or bottle has been either doubled or tripled. They then advertise the product on e-bay or someplace like craigslist for $4 a bottle as a product they really works. Thus a $6 jar x 3 reaps $12. It used to be that a sucker was born every minute. Now it’s every split second.
I just saw a full bottle of that on sale at Safeway for $6, and they want $4 for half a bottle, and who knows where it’s been.
I read that–what was up with the programmable toilet? I mean, what else is there besides “flush”? “flush twice”?
Wash….
heat. massage perhaps…
Record, Rewind, Play, …
I remember a bad joke about a guy using a woman’s bathroom once in an emergency and being told not to push any buttons. Let’s just say teh automatic tampon remover is not a great thing for a guy.
wash, heat, blow dry (not kidding)…you’d be amazed
Hope you all had a great 4th -
Enjoy this tasty tidbit from January 2006 - It is going to be ugly soon!
Originally from the January 9th, 2006 The Financial Times
“…A major reason for the dollar’s current overvaluation is the widespread misunderstanding of the nature of capital flows to the US. The business press and many financial analysts provide the reassuring message that the flow of capital to the US substantially exceeds the amount needed to finance the US current account deficit, and that that inflow is coming primarily from private investors who are attracted by the strength of the American economy….The US current account deficit increased … in the first three quarters of last year and is widely predicted to move much higher in 2006. This unprecedented level is equal to 6.4 per cent of US gross domestic product. Experts estimate that the real trade-weighted value of the dollar must fall by at least 30 per cent just to shrink the trade deficit to a more sustainable level of 3 per cent of GDP. Much larger dollar declines are also possible. ..
(currently running at 7%of GDP)
http://tinyurl.com/pjexf
and for the more current news on the dollar debacle
Oil Prices and External Imbalances
The Emergence of Oil Producers as Net International Creditors:
Possible Implications for the Global Financial System
(paper presented to the International Conference of Commercial Bank Economists - Milan, Italy_)
from June 22, 2006
Caution PDF 12 pages - well worth the time to read
http://tinyurl.com/q6vy9
or don’t assume it is reasonable for oil exporters to accept or hold dollars any longer.
So much news today
from the Standard (HK) July 7, 2006
…Speculation that the yuan will be allowed to appreciate at a faster pace also helped provide support for the market, especially mainland stocks.
“China is likely to let the yuan appreciate further in order to cool its over- heated economy,” said Alvin Chong Kok-ming, head of research at Sun Hung Kai Investment Services.
“The 12-month yuan forward contract indicates that the yuan will be stronger than the Hong Kong dollar. The only meaningful way to profit from the appreciation is to invest in China stocks listed in Hong Kong.”
http://tinyurl.com/qfnlk
And from The Moscow Times
July 6, 2006
…”I think that Russia is working as a monopoly supplier and it is essential for Europe to have a coordinated energy policy to be able to stand up as equal partners in negotiating with Russia,” Soros said. “If it is unable to do it, I think the dependence on Russia is excessive.”…
(George, if I were in your position I would be scared too)
http://tinyurl.com/pvrwm
This is from the Craigslist housing forum. This guy is screwed every way but Sunday.
My friend Dan bought a boat last year … 07/05 17:48:43
He bought his house in 1999 for $350,000. Has re-fi’d twice, taking out over $500,000, and he also has a $100,000 line of credit equity loan.
He has a BMW M5 and his wife drives a Volvo twin turbo SUV. He has four motorcycles, two Jet Skiis, and a forty-five foot long RV.
Last summer, he paid $60,000 down and financed the rest of a $375,000 36-ft cabin cruiser. It costs him $455/month to dock it at a marina.
Two weeks ago he lost his job. Actually, it’s worse than that. He got fired for cause, which means his contract and pension benefits are revoked. He was making over $250,000 a year. I went over to his house to commiserate, and asked him how long he could go without earning any money, and his response was basically, “Dude, I don’t have next months mortgage payment. Can’t pay my credit card bills. Don’t have the car payment.” We sat down and did a quick budget: his fixed-payments monthly nut is $21,000 and that doesn’t include groceries or utilities or gas money! I asked him how he was managing this considering his monthly salary was only $20,000 a month gross. He said he used his home equity line to cover the gaps. I asked about the several hundred thousand in equity extractions he’s made. He literally almost started to cry: he invested a huge chunk into Google, another huge chunk into treasury funds. Lost enormous amounts of money on both investments. Plus he paid cash for his toys, and used the money to supplement his monthly budget.
I told him to sell his house and cars as quickly as possible, and he’s taking the advice, but I spoke to another friend recently and the story just gets worse:
He got fired because the company couldn’t reconcile six invoices he approved for payment to four vendors. It appears that the vendors don’t exist, and the endorsee on one of the checks turns out to be Dan’s cousin in Minnesota.
I’ve known this guy since high school. When I think of greedy people, I think of the Ken Lays and Duke Cunninghams of the world.
Greed is a disease … materialism is a disease … too bad it’s what makes our economy run.
http://forums.sandiego.craigslist.org/?ID=45631
Tx - He isn’t under arrest yet! And think of the fun he had while playing with his toys. I have no sympathy for the thief. He is getting off better than the woman who steals a loaf of bread to feed her children.
Wonder how well his “war stories” will go over in Folsom.
How did he lose tons of money on Google? Did he buy a few months ago at $475? Now it’s at $423 but even so that’s only an 11% loss. And how do you lose money in Treasury funds? Bought a bunch of 30 year bonds when the Fed rate was 1%? Still doesn’t seem like it would a major loss even if he sold at the worst possible time. Me thinks we have an urban legend in the making attempting to be a moral tale.
I too smelled b.s. in that post. Not that I don’t agree with the moral of the story.
We don’t know who’s the confabulator here. He may have lost money gambling but wanted to invoke sympathy from his friends. Somehow gambling losses fit right into this story.
He probably bought a ton of Google on margin interest. So not just an 11% loss.
i’m watching a thread at sdcia, some guy is talking up the wsj story yesterday, and getting a lot of return fire from the bulls.
the complaint? he’s not being very tactful in his approach.
excuse me sir, if you don’t mind, but a large 18 wheeler has just lost control and is heading straight towards the spot where you are standing. if it’s not too much inconvenience, would you mind stepping aside until the danger is over?
I don’t think I’ve ever seen a bear on that board before I took the plunge
I think it would be funny if the hypesters caught a bunch of flak from here on out.
txchick - may sound cold , but it’s hard to have any sympathy for the person you describe. Sad part is , they’ll just declare and file, and walk away from the whole mess if they realize they can’t cover all the liens with proceeds of the sale.Hard to imagine that this person has any feelings of accountability. Not easy to feel any sympathy for the people who will get stuck holding the bag he pukes up either though. They’re just as reckless. I can see this scenario being played out thousands of other times acroos the country over the next few years. Don’t know if I should go back to school and get a degree in bankruptcy law , or just buy some long term puts in all the lenders.
I’ve spent an interesting couple of days reading “Inside the House of Money” (highly recommended), a book about the philosophies of some of the best global macro minds/hedge fund managers around. They’re pretty bearish as a group on the big picture. I’d recommend this book to anyone.
Hahah. This is a new one. Why does the loon officer have to be female? Isn’t this ad an EEOC violation?
http://dallas.craigslist.org/acc/179036153.html
That one got zapped fast enough.
Its amazing that you can be smart enough to a 250,000 salary and yet be so so so stupid.
Maybe he was just “slick” enough to get a $250K salary. Four motorcycles? There apparently is a personality type that is “Crash and Burn.” These people just cannot handle success, but in a different way than lottery winners — they work hard, often with good ideas, and then when they appear to be succeeding fully, they lose it all by making stupid decisions. I knew one such fellow 30+ years ago and from what I hear, he repeats the behavior to this day.
FedSpeak: The Big Decision
Central Bank Speak from Around the World
Tuesday, 04 July 2006 10:51:43 GMT
What they said before the hike that sparked rumors of 50 basis points and continuous rate tightening…
IMHO this is a quick interesting scan on the worlds primary banking leaders and their quotes that sent the international markets topsy turvy over the last week.
for example “Richard Fisher, Dallas Fed President
“Everyone is concerned about the possibility of the passing through of gas and oil energy pressures.” – June 13, 2006
http://tinyurl.com/qu79y
Hey Hoz,
I’ve been reading a lot today on the speculation of oil as money moves from the dollar to gold and other commodities. What do you think of a continued upward trend in oil based on a sustained demand given the growth of India and China? Is a massively devalued dollar the only way out?
Priced Out
Some very smart individuals believe oil will be $100 by November 2006 and $200 by 2009 - without any terrorist activity. If you include the possibility of terrorist activity in Saudi Arabia - OIl will be $150 by May 2007
There is no slacking in demand for oil. India, China and japan consume 18 million bbls per day the US 13 million. As long as China is willing to finance our current account deficit, the US will be continuing to consume oil at that rate. China is currently buying gold.
http://tinyurl.com/sydfg
The UAE is buying gold.
http://tinyurl.com/ogdb9
Iran is buying gold.
Russia appears to have no more dollars in its foreign currency reserves currently worth 287 billion - they diversified since May 18th.
And please check out that link above
Oil Prices and External Imbalances
The Emergence of Oil Producers as Net International Creditors:
Possible Implications for the Global Financial System
I expect a 40% devaluation of the dollar. I am not capable of carrying a barrel of oil. I have previously posted my investments and objectives.
US spends its way to 28 Eiffel towers: made out of pure gold
From Tim Reid in Washington
IF YOU are worried about how much you owe on your credit cards, this might put things in perspective: America’s national debt limit was increased yesterday to $9 trillion. That’s $9,000,000,000,000 — enough to buy Buckingham Palace 9,000 times.
$9 TRILLION
Is roughly four times Britain’s GDP
Equates to $1,500 for every man, woman and child in the world
Would buy all the tea in China. In fact it would buy all the tea in the world for the next 2,000 years.
Is enough to solve the Palestinian crisis by rehousing every Israeli and Palestinian family in a £1.5m detached house in Henley-on-Thames
And would build 28 Eiffel Towers — constructed out of gold.
http://tinyurl.com/ptux4
I attempted to post a detailed response and I believe it is now in some of Ben’s junk mail. But please check the link I posted above for
Oil Prices and External Imbalances
The Emergence of Oil Producers as Net International Creditors:
Possible Implications for the Global Financial System
(paper presented to the International Conference of Commercial Bank Economists - Milan, Italy_)
from June 22, 2006
Caution PDF 12 pages - well worth the time to read
http://tinyurl.com/q6vy9
This (IMHO) is an important paper.
Thank you, Hoz! Always good to have your insight here.
Absolutely no sympathy for that guy making $250K a yr, and bankrupt. He should be spending the rest of his life in some prison cell with his future friend Bruno. This guy is inexcusable.
Totally agree. My monthly nut is something like 1/10 of this idiot’s, and I’d be embarassed to be seen in public with even one of the toys he has. Guess I live under a rock.
That jewel amongst us, txchick57, has put some wickedly funny comments on that sdcia board. Talk about a bunch of whiny losers…
From the Springfield, MO newspaper a few days ago (July 3, 2006)
Inflated real estate prices put home ownership out of reach
A pretty good article about not only the local real estate market but also the rest of the country.
The average home sale here is $145K and people are struggling to buy.
I don’t know if anyone posted on this last month, but Salon.com has an article on TheHousingBubbleBlog (this blog, silly!):
http://tinyurl.com/rr72a
And then we could talk about foreclosure sleaze starting to ooze over those unfortunates.
As rising interest rates, high energy costs and skyrocketing insurance premiums put more homeowners in danger of falling behind on their mortgages, a new crop of investors — drawn to South Florida by soaring real estate values — is looking to capitalize on their hard luck. As a result, consumer advocates have seen a spike in the number of homeowners losing their homes in so-called foreclosure rescue schemes.