Bits Bucket And Craigslist Finds For September 19, 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.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
To donate by mail, or to otherwise contact this blogger, please send emails to: thehousingbubble@gmail.com
PayPal is a secure online payment method which accepts ALL major credit cards.
Links
-
December 2024 M T W T F S S « Sep 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Photo Submission: hbbphotos@gmail.com
View the HBB Photo Gallery *updated 4/13/2008
i think this could be the blueprint for the us and other bubblestates.
Japan’s big cities post first land price gain since ‘90/ blueprint recovery usa and the rest ?
http://immobilienblasen.blogspot.com/2006/09/japans-big-cities-post-first-land.html
it’s a minor uptick in a few areas, based on the usual suspects like tax favours (REITS) and inflationairy policy (still deeply red REAL interest rates). So it is unlikely that this marks the end of the downturn, probably it is an echo bubble before we get some more downside.
Also, it is strange that average land prices are down just 35% from the top; I have read many reports citing 80-90% loss on Japanese land investments … in my country 35% down would be nothing more than a correction of the last few years in a huge 15-year bubble (current land values are 5-10x those from 20 years ago).
yes.
thought that too.
i think the key point is that even after 15 years there is only a bottomming in very selective areas.
Home Depot Downgraded On Weak Housing Market
A weakening housing market and a price war in appliances are likely to hurt Home Depot’s stock in the immediate future, a Credit Suisse analyst believes.
The research firm downgraded its rating of Home Depot (nyse: HD - news - people ) to “neutral” from “outperform” on Monday, and cut its 12-month price target to $37 per share from $45.
“We are at the beginning of a weakening housing market, a situation that at best would lead to meeting expectations, but could lead to earnings shortfalls for most housing related stocks we cover,” wrote Credit Suisse analyst Gary Balter in a research report. “Housing prices and spending usually begin to be impacted six to nine months after housing peaks and we believe we are not near the worst yet.”
The analyst said the eight-year run for a strong housing market has ended and Home Depot and Lowe’s (nyse: LOW - news - people ) have launched a price war in home appliances. This could erode margins if it goes on for a long period and extends to other sectors.
This is just as Home Depot is adding a lot of employees in an effort to change the image of its customer service. Might be a day late on that one.
So when does everyone think will be a good time to invest in housing related stocks again like Toll brother, Home Depot, etc. Toll already fell quite a bit and I think it will continue to go down. Any thoughts?
report from mish and mike morgan from florida.
really shocking and good describtion of the massive rippleeffect
http://globaleconomicanalysis.blogspot.com/2006/09/no-hard-landing.html
Its all good here in Orlando. This one from Craigslist;
http://orlando.craigslist.org/rfs/208950761.html
desperation!
lol
WOW! These loans must be assumable I guess.
“We will pay you to take over the payments on our houses.”
That last word triggered the clue meter. Wonder if these guys are in the funny-money loan business, scamming a commission somehow. I think there’s a good chance they are not actual flipper-owners, even though the wording is designed to make you think that.
I don’t think it’s a real ad. I did a Google search on the phone number and came up with this:
http://www.floridareinvestors.com/
Thanks for the post- good report
JMF - thanks for the link and kudos to Mish and Mike Morgan for the eye-popper.
i have an example of fantastic call from a wall street analyst that may can explain why the markets are near highs. crazy
wall street analysten / what are they smoking?
http://immobilienblasen.blogspot.com/2006/09/wall-street-analysten-what-are-they.html
One can always sell the bullish case no matter how gloomy the news gets by claiming that the news is already priced in and the sector / stock / whatever is oversold and a good value. I guess this is why the homebuilder stocks have reached a permanently low plateau, or at least why they are deflating much more slowly than the underlying assets which provide the fundamental support.
and another perfect example how they pump up the eps.
autozone / azo
Net income for the quarter increased 3.3% over the same period last year to $213.5 million, while diluted earnings per share increased 9.6% to $2.92 per share from $2.66 per share reported in the year-ago quarter.
Same store sales, or sales for stores open at least one year, were down 0.9% for the quarter.
Under its share repurchase program, AutoZone repurchased 3.7 million shares of its common stock for $340.0 million during the fourth quarter, at an average price of $91 per share. For the fiscal year ended August 26, 2006, AutoZone repurchased 6.2 million shares of its common stock for $578.1 million, at an average price of $93 per share.
Subtract share
repurchases (339,955) (118,294) (578,066) (426,852)
——— ——— ——— ———
Cash flow before share
repurchases and changes
in debt $ 315,513 $ 168,401 $ 599,507 $ 432,210
the cost from the buyback exceeds the netearning by 60%.
at least azo has a bbb+ rating .
here the update from herb greenberg
Updated: AutoZone Reality Ch
Updated to further explain cash flow.
Here’s all you really need to know about AutoZone’s (azo) fourth quarter results: Sales up 3%, same store sales down 0.9%, sales per square foot down 0.4%, sales per average store down 0.3%, negative cash flow after share repurchases and increases in debt, earnings per share UP 14.6% to BEAT analyst estimates by 5%.
Think about it: Sales down, earnings not just up, negative cash flow after share repurchases/debt increases and changes in debt but up by a considerable amount. The reason: financial engineering, er, share buybacks, without which earnings per share would’ve been $2.78, or 1 cent BELOW analyst estimates. The only genuine bright spot was a one percentage point increase in gross margins, but that was due to something called “category management initiatives, which include management of procurement costs, continued optimization of merchandise assortment and an ongoing focus on direct importing initiatives.” Put another way, the company did a better job helping itself by lowering wholesale costs while sticking it to its customers with an assortment of higher-priced products.
No wonder sales were down: While the company did a better job buying, it wasn’t passing along savings to customers, who appear to have noticed.
Furthermore, if you take a look at the numbers, this is a company without any real growth in sales, net income or stock price over the past two years. Yet the stock was up considerably going into this quarter as investors, no doubt, guessed (wink, wink) the earnings per share would be a blow out. Nice quarter, guys.
UPDATE: Oops, misplaced a decimal in the earlier version and put in “negative” cash flow without explaining that was “after” share buybacks. (Memo to me: By now I should know not to write or report before I’ve had the morning espresso.) This from an AZO bear: “Not quite true that DPS would’ve been $2.78 without share repurchases because cash used to buy shares would’ve paid off debt, hence lower interest expense. The point is that AZO has failed to generate any sales and market share traction despite management’s so-called initiatives. Fourth-quarter EBITDA magin has never been higher yet sales per square foot, inventory turnover, etc, are making multi-year lows. Is this the right way to runa business for the long-term they claim they care so much about?” Wouldn’t appear to be so.
http://immobilienblasen.blogspot.com/2006/09/pump-up-eps-earningsquality.html
I think things are starting to turn in Chicago. I have seen more signs out and in never occupied windows now than at any point. In the midwest there is normally a drop around now where people just give up, keep the kids in school and try again next year. But investment properties don’t have children. I think that 2nd payment of property tax on 9/1 and steady stream of media coverage made people more convinced to get out of owning.
I’ve noticed condo inventory skyrocketing in Chicago too. The real estate market in Chicago is typically very slow in the cold cold winter, so next spring should be quite interesting.
A mixture of fear and nausea…
http://www.businessweek.com/investor/content/sep2006/pi20060919_269370.htm?chan=top+news_top+news+index_top+story
Can Wall Street Withstand Weak Housing?
Some pros say the real estate slump may spell trouble for equities. Others offer intriguing reasons why stocks might be just fine
If your nest egg is made of 2-by-4s and you’re watching the real estate slowdown with a mixture of fear and nausea, then this article is for you.
The question: If real estate tanks, will stocks follow? Or will the market ignore housing? Or maybe—just maybe—will a decline in housing trigger a rise in stocks? It’s something you really ought to think about if you’re trying to figure out where to put your money.
Conventional wisdom, and some historical evidence, suggests that a decline in housing is associated with a fall in stocks. Evidence of a slump continues to mount: On Sept. 18, the National Assn. of Home Builders said its monthly sentiment index fell to a 15-year low. That’s bad for homeowners, because it means that there’s no port in the storm. But the case isn’t completely closed: There’s some tantalizing counter-evidence that stocks might do just fine in a housing downturn, or even benefit from it.
TIME LAG. Let’s start with the main, bearish case. Making the rounds of investment advisers is a chart prepared by Merrill Lynch (MER) showing the Standard & Poor’s 500 stock index overlaid on an index of homebuilding activity from the National Assn. of Home Builders. The chart shows that the S&P 500 goes up one year after the homebuilding index goes up, and goes down one year after the homebuilding index goes down. (The correlation is 0.8, which means it’s pretty strong.)
The scary part: The homebuilding index has plunged over the past year. If you believe that history repeats itself, the S&P 500 is about ready for a nosedive.
Another chart—this one from InvesTech Research—correlates changes in private residential construction with recessions. Going back to 1968, it shows that with just one exception, every time there has been a downturn in residential construction, a recession has occurred at the same time or shortly after. (The exception: 1995.) That indicator, too, is flashing red, because residential construction has shrunk over the past year. “Being a student of history, I would think I would want to play it very cautiously from a stock standpoint,” says Standard & Poor’s Chief Investment Strategist Sam Stovall.
WEALTH EFFECT. It makes some sense that a housing slump would be bad for stocks. First, there’s the direct effect on jobs in construction, real estate brokering, mortgage lending, and so on. Goldman Sachs (GS) estimates that housing and related industries account for nearly 10 million jobs (payroll and nonpayroll combined).
Second, consumer spending has been buoyed by the housing boom. People spent more freely because they felt wealthier and because they turned their homes into piggy banks through home equity loans, cash-out refinancing, and other means. Take away jobs and consumer spending, and it’s no wonder that many experts expect a housing slump to hurt stocks.
By this view, stocks aren’t a good choice right now. What, then? Barry Hyman, equity market strategist for EKN Financial Services, says that the same rising rates that have squeezed housing have given investors a nice alternative: money market accounts, which are yielding better than 4%, and bank certificates of deposit, some of which yield 5% or more.
“DOWN BUT NOT OUT.” Super-bears on housing have different advice. John Talbott, author of the none-too-subtly titled Sell Now! The End of the Housing Bubble, recommends avoiding not only the stock market, but banks, too, since lots of banks could be hurt by lax mortgage lending standards.
But not everyone is convinced that housing will crush stocks. Why? Some figure that the housing slump won’t be severe or prolonged. Robert DiClemente of Citigroup (C) argues that the adjustment to a slower rate of sales is well under way. He says that the issuance of building permits is actually 10% below the rate of new-home sales. This process “will clear the overhang of houses within the next six to nine months,” DiClemente predicts in a recent research note. The headline on his report: “Down But Not Out.”
Others say it’s too soon to declare the stock market dead because of housing. “Summing it up, I’m in the camp that says I don’t know and the jury is still out,” says Jeffrey Saut, equity strategist for Raymond James Financial (RJF).
BACK TO THE FUTURE. Then there are the outright optimists. Bob Carey, chief investment officer for First Trust Advisors in Lisle, Ill., says that the stock market is 20% to 25% undervalued at current levels and should reach full valuation by sometime next year, which means: Get ready for a heck of a bull market. Carey says the demand for housing is driven by incomes and jobs, and since corporate profits are extremely strong, the outlook for income and job growth is good. Says Carey: “It’s hard to imagine Corporate America doing well and somehow people not doing well on the employment side.”
Carey has seen Merrill Lynch’s chart showing a tight correlation between homebuilding and the S&P, but he says the pattern dates back only a decade or so. Before then, there was very little correlation, and he says the economy might return to that older pattern.
It’s also possible that the housing slowdown could prod the Federal Reserve into cutting interest rates, which could boost stocks. Maybe, too, speculative investors will go back to dabbling in stocks instead of real estate, the way they did before the dot-com bubble burst and the real estate boom began.
TODAY’S MARKET. But the most intriguing evidence that the stock market might not go down because of a housing slump is simply this: So far, it hasn’t gone down. It’s gone up. The stock market is famous for looking ahead, and it seems that investors collectively may have decided not to blow a gasket over housing. This past June, the S&P 500 got down to around 1,220. Now, with the news about housing getting steadily worse, it’s up to 1,321, and on the verge of setting a five-year high.
Money seeking alpha has to go somewhere. Look at all the buyouts and deals being done. Only question I have is why now and not in ‘02 and ‘03 when things were really cheap.
Tx:
I was trying to get at this point the other day. To me, the market is acting totally irrationally… unless I think about it as “too much money needs to go somewhere”
I know that common consensus here is that stocks will nosedive immediately… but as people have lamented time and time again, the market goes up higher with any tidbit of BAD news. Even the homebuilders rise with bad news.
I am starting to wonder if it’s simply money leaving housing (and maybe leaving oil, and perhaps commodities too?) and going into equities.
many have hypothesized: WHERE is the next bubble gonna be. It may be stocks again.
I too personally feel that stocks SHOULD nosedive… but I thought that months ago, and we’re nearing all time highs again. The Elliot wave folk would remind us that this is typical before a massive fall… and they may be right.
The timing of all of this is just so darned hard.
I’ve said it 1,000 times (and i DO understand it): the random walk is alive and well. Equities are poised for a monstrous fall. Inverted yield curve, slowing economy, decreased wealth effect, slowdown in housing, etc etc etc… But when? Will it be September as forecasted? Or years from now?
I’m thinking about pulling the trigger and converting my 401k (where all my stocks are) to cash positions… but the choices suck big butt.
ack.
(and to reiterate: I am NOT trying to get anyone into stocks. I haven’t put a penny into stocks in over 2-3 months since I finished my 2006 401k contributions… All my money lately has gone into pure cash positions. I diversify to as many classes as possilbe because I don’t feel comfortable with ANY of the short term forecasts out there)
I don’t think it would be unusual for fund and money managers to put excess cash to work as a quarter or year winds down to bump up their performances to make their respective prospectuses look better. I don’t think it is atypical to dump an extra few million into a stock to drive up its price to enhance performance data.
As Bill Fleckenstein aptly put it, we are at an “inflection point.” A run-up is something he’s expected since July, but it amounts to nothing more than a sucker’s rally. It’s an attempt at momentum creation. Trying to get the herd to run in the same direction. But the cattle dogs are running out of Alpo…
It’s not only not unusual, it’s to be expected and can be reliably played almost every year.
i think it is
“great that the economy is slowing because that means rates are going down” now
“uh. the economy is slowing. that means profits going down, junkbonds will fail, hedgefonds are forced to liquidate there positions and maybe will go short etc”
sometime in the next 3 to 6 month
it is a fine line.
Doc;…..I don’t own ANY stock….I have no interest in dancing with the Elephants…….
“many have hypothesized: WHERE is the next bubble gonna be. It may be stocks again.”
HIC, I have found where the next bubble will be (besides my bathtub)! This incredible find was prompted by a discussion last week on this very blog. And out of the courtesy of my heart - flint like steel that it is - I am posting for the whole world to read and compliment me on how brilliant I am!
“GENEVA — Investors who have seen energy prices rocket due to scarce supplies are starting to wager that forecasted shortages will cause the value of water to skyrocket, offering big gains to companies active in the sector.”
http://tinyurl.com/my6ga
Moscow Times 19 September
Actually a reasonable strategy.
i always feel that i can learn more on this blog about investing than on actual investment blogs…at least if i was’nt so ignorant. what’s a put ? and what is a short? is that the same thing as short-selling ? i have read several descriptions of how short-selling works and have never been able to grasp the concept. help me! i have some money coming soon and don’t know which way the proverbial cat is going to jump.
susanmenchey;……Just keep reading….Most posters hear are sharing a Plethora of educated information at a price that can’t be beat…..
SusanM, IMHO the easiest way to become a millionaire without a profound grasp of the concepts of “short-selling” and “put(s)” is to start with 2 million! It is not something to be gleaned from a few paragraphs, books or comments. I suggest you google “bear funds”, “profound bear funds”, “short funds” etc. There are some excellent short funds out there that will do the work for reasonable fees. In fact since I am very bearish on Hedge funds there is even a “bear fund” that is short basket hedge funds. Before investing, determine how much you are willing to lose.
http://www.cboe.com/LearnCenter/Tutorials.aspx
susan:
there are some great books on the subject. don’t invest in shorting/options until you know what you are doing though. (like any investment)
to be brief:
When you SHORT a stock, you borrow that stock from somebody and sell it immediately. You owe them the STOCK, not the money you got from the stock. Later on, you have to buy back the stock and give it back to it’s original owner.
You do this if you think the stock will go down in price.
Example: I borrow 10 shares of stock HIC and sell them for $500/share. I now have $5000. Later on, the shares are worth $400/share. I thus buy 10 shares and give them back to the original owner, this costs me $4000. My profit is $5000 minus $4000 minus transaction fees. *(you have to pay to buy and sell, and often you pay an interest charge to borrow those shares).
If the stock HIC went up to $750/share though, I’m in trouble. I have to now buy 10 shares at $750 or $7500. In this case I lost money. ($5000 minus $7500 minus transaction fees)
Puts are similar, but a little different (called “options”). A put is the OPTION to sell a stock at a certain price. So you can sell a put, or buy a put. If you buy a put, you give money to someone for the OPTION (not obligation) to sell them a stock at a certain price in the future, by a certain date. If you sell a put, you get money from someone, and in return you give them the OPTION (not obligation) to sell a stock to you at a certain price for a certain time period.
Thus, If I felt that HIC was going to go down from $500/share to $400/share, I could buy a put. (I’m grossly oversimplifying here). As example, I could buy a put that gives me the OPTION to sell HIC to a person for $450 by January 1. Let’s say the put cost me $50.
So I give dude A $50 bucks. He pockets this. I get the “put” option.
Then let’s say the stock drops to $400/share. I now have the right to SELL the stock to the dude A for $450, and he has to buy them. Thus, I would buy 10 shares from the market at $400/share (or $4000) and then immediately sell them to dude A at $450 x 10= $4500. My profit is $4500 minus $4000 minus $50 (the cost of the put) minus transaction costs.
If dude A sells me the put, and the price of HIC never drops below $450, then my put is worthless. (because why would I go through the hassle of buying HIC at $450/share then selling to him at $450/share). But I don’t HAVE to sell to dude A. So I only lose out on the original $50 cost to buy the option.
So options can be used to limit risk. The problem: they have that time qualification. They’re only good for so long. But when you actually sell a stock short, you can repay whenever (but interest accrues etc).
hope that helped
since corporate profits are extremely strong, the outlook for income and job growth is good. Says Carey: “It’s hard to imagine Corporate America doing well and somehow people not doing well on the employment side.”
I think the outlook for income growth has been good for some years already, but it simply has not materialized except for the highest paid jobs. Not only in the US, but same story in most of Europe. The division between the super-rich and the middle class is growing at unprecedented pace.
I can perfectly imagine that Corporate America is doing extremely well and the people who do the work are doing a little worse every year; that’s the reality of the last years. I wouldn’t bet on this relation shifting into reverse because the powers that be would not like it. Of course, we can still have corporate profits increasing for a few years while average workers and savers are squeezed even more than in the last years.
U.S. AUG. BUILDING STARTS FALL 2.3% TO 1.722 MILLION RATE
U.S. AUG. HOUSING STARTS FALL 6% TO 1.665 MILLION RATE
U.S. HOUSING STARTS DOWN 19.8% YEAR-ON-YEAR
U.S. AUG. HOUSING STARTS WEAKER THAN 1,75 MILLION EXPECTED U.S. AUG. SINGLE-FAMILY PERMITS FALL 3.5% TO 1.279 MLN
U.S. AUG. SINGLE-FAMILY HOUSING STARTS FALL 5.9% TO 1.36MLN
New construction on U.S. homes was weaker than expected in August as builders adjusted to a rapidly collapsing market.
U.S. housing starts fell 6% in August to a seasonally adjusted annual rate of 1.665 million, the lowest since April 2003, the Commerce Department estimated Tuesday.
Housing starts have fallen in six of the past seven months.
Building permits, meanwhile, fell 2.3% to a seasonally adjusted rate of 1.722 million, the lowest since August 2002. Permits have fallen seven months in a row, as builders adjust to a significantly weaker sales market.
The figures were weaker than expected by Wall Street economists. According to the MarketWatch survey, housing starts were expected to sink about 2.5% to 1.75 million, while permits were expected to drop 1.6% to 1.74 million.
Housing starts in July were revised lower to a 3.3% drop to 1.772 million from 1.795 million reported earlier. Permits in July were revised higher to 1.763 million from 1.747 million earlier.
Housing starts are now down 19.8% in the past year. Building permits have fallen 21.9% year-on year.
New-home sales are down about 22% from the peak last July.
“Builders are adopting an increasingly cautious attitude in their near-term outlook for new-home sales,” said David Seiders, chief economist of the National Association of Home Builders. “They’re experiencing falling sales, rising sales cancellations, and increasing inventories of unsold units.
The NAHB reported on Monday that its survey of builder sentiment fell for the eighth straight month in September to the lowest level in 15 years.
The Commerce Department said starts of single-family homes declined 5.9% in August to 1.36 million, the lowest since February 2003. Single-family starts are down 20.6% in the past year.
Permits for new single-family homes fell 3.5% in August to 1.279 million, the lowest since December 2001. Single-family permits are down 25% in the past year.
Starts fell in three of four regions. New construction rose 5.4% in the Northeast, but fell 12.2% in the Midwest, 6.1% in the South and 5.5% in the West.
The government’s housing data are subject to large sampling and other statistical errors. It can take five months for a new trend in housing starts to emerge from the data.
In the past five months, housing starts have averaged 1.81 million, down from 1.87 million in the five months ending in July and 2.115 million in February
Crammer and CNBC look at these figures and see boom times ahead for the homebuilders. What a great investment choice to buy stock in companies that are losing their shirt. PT Barnum was the greatest economist ever “Sucker Born Ever Minute”, and most of them watch CNBC
this is one reason i watch no financial tv.
main reason was of course cnbc
CNBC guy’s & Gal’s think they are actors…Bloomberg is my pick….
“CNBC guy’s & Gal’s think they are actors”
and they are right
In North Carolina, they are giving away a free can of beans if you buy a house. This is not a joke:
http://www.citizen-times.com/apps/pbcs.dll/article?AID=/20060919/NEWS01/60918067/1149
Thacker estimated that Homes America has gotten an extra half-dozen calls a day since placing classified ads promising the can of beans with the purchase of a new home….{ } your choice of pintos, green beans or limas .
oh boy! pintos!
Can we also call that a free tank of GAS ???
Ha ha — that is pretty clever. Works only once, but clever. It generates calls and calls are gold for these guys.
Plus, free gas with each can!
How much of a bubblehead am I? How far will I go to advance the bubblehead cause?
Well, initially I spent about 30 minutes using my cellphone attempting to type this in on the train ride home but found out it wouldnt properly transmit my typing.
Well, my Portfolio Theory class last night had a guest lecturer, Harry Markowitz, Nobel laureate and father of modern portfolio theory.
Towards the end of his lecture, he displayed a project he was currently working on which was a computer simulation of markets. He was fraught with the problem that when momentum investors were a somewhat significant percentage of the market in comparison to fundamental investors, the market invariably exploded into absurdity with the market valuation increasing several thousand fold in relatively short order.
Seizing upon the opportunity and recognizing the parallels, I suggested that the trader templates might be improved by adding a proclivity to rationality factor to the various templates and increasing the number of templates (Instead of simply momentum, have Momentum investor X currently in fundamental mood, has high probability to switch back once a moderate level of rationality has returned), basically giving them some chance of changing method of investing when market valuations significantly depart from long term historical norms using a fundamental approach and vice versa. Such a movement would cause these irrational build-ups to crash back down as the templates were switched, the more likely to switch the farther from rationality the prices get. Obviously I had to take every opportunity to draw parallels to the current housing market, hoping I’d convert another member of the class. Mr. Markowitz though it was a good idea, would improved the model and mirror what happens, and agreed with my conjectures about the housing bubble.
Are the simulations published anywhere? Or even better, is the simulator?
You can buy one at the adult store on 5th.
great piece from itulip
http://www.itulip.com/forums/showthread.php?t=428
More pain than gain
“Rich countries have democratic governments, so continued support for globalisation will depend on how prosperous the average worker feels. Yet workers’ share of the cake in rich countries is now the smallest it has been for at least three decades (see chart 5). In many countries average real wages are flat or even falling.”
The link above has the full text of the Economist article. Very interesting.
indeed.
very good.
thanks.
make sure you read this about the hedgefunds
This is why I find it even more disturbing when I read about the “infrastructure” players of markets further reducing margin requirements. These requirements used to be put in place for fundamental solvency reasons–not because they were dictated by fiat, but because they limit market participants’ ability to take on so much leverage they hurt not only themselves but others through default. Examples that worry me greatly are the NYSE paring back specialist reserve requirements by 40%, brokerage banks nearly eliminating margin requirements on the trading they do for hedge funds, Joint-Back Office agreements giving hedge funds access to “house capital” of banks, and the Federal Reserve itself allowing banks to skimp on reserves (severely).
rest of the story
http://www.autodogmatic.com/index.php/sst?blog=10&title=a_broken_risk_management_paradigm&page=1&more=1&c=1&tb=1&pb=1&disp=single#c3076
correct link
http://www.autodogmatic.com/index.php/sst/2006/09/18/a_broken_risk_management_paradigm
You’d drop your cookies if you saw the leverage I have from my terminal here. I rarely use much more than 10-20% of what I have though.
Hedge fund fears loss of billions as gas price drops
“AMARANTH ADVISORS, the $9.5 billion (£5.06 billion) hedge fund manager, has told investors including clients of Morgan Stanley and Credit Suisse that it may have lost billions of dollars after it was wrong-footed by a drop in American natural gas prices….
Rivals expressed concern last night that the natural gas markets could be affected if Amaranth has difficulty liquidating its trades. Its problems could be exacerbated if investors demand their money immediately.
In an attempt to raise cash to meet margin calls and investor demands for their money, Amaranth is selling most of its ¤ debt, traders said.
Amaranth may not find it easy to exit its positions quickly because the natural gas futures market is highly volatile and dominated by a handful of large players, including Morgan Stanley, Touradji Capital and Goldman Sachs. Amaranth has said that it has met all its margin calls.
Prime brokers, the investment banks that lend hedge funds money to trade, have tended to demand that their clients increase collateral on their trades when they fall into financial difficulties. ”
TIMES ON LINE
http://tinyurl.com/rxkzm
This is just the beginning and if the funds take down the world economy…
here is a good piece on the relation of hedgefundsimplosions and the price action from rudger rafter
http://www.rebalancing.blogspot.com/
Would anyone care to play a game of hangman?
http://tinyurl.com/fvju7
Fooled by Randomness — AGAIN!
HaHaHaHaHa!!!
“…may have lost billions”
Well either you did or you didn’t? Hedge funds are another wreck that is starting to unfold.
Eurotunnel Bankruptcy Ensnares `Jerks in Manhattan’ Hedge Funds
… The operator of the U.K.-France rail link under the English Channel used a French law that came into effect Jan. 1 and that gives bond investors no vote in how a company reorganizes in bankruptcy proceedings. Eurotunnel, based in Paris and Folkstone, England, filed with the French court on July 11.
As a result, the sophisticated investors have little prospect of recovering all their losses. Eurotunnel bonds have tumbled as much as 30 percent in the past four months, reducing their value by about $250 million.
The investors, typically the first to exploit profit opportunities, didn’t even know the company had entered bankruptcy proceedings until hours after the filing during a meeting with company officials, according to ARCO, which represents bondholders who own $3.37 billion of Eurotunnel bonds.
No Power
“These guys should have thought of this when they put all of this dough into Eurotunnel,” said Eric Cafritz, a Paris- based lawyer for creditors including Deutsche Bank. “The standard hedge fund approach of kicking everybody’s butt or pulling every lever just doesn’t play out. They can’t get their minds around it. It’s hard for them to intervene.” …
http://tinyurl.com/qpu6w
Bloomberg
I believe that if you do not know how you are going to get out of a position then you should not be in that position. When the hedge funds are all in the same position and have to bail out - sayonara.
So Amaranth’s clients include Morgan Stanley and Morgan Stanley is one of the handful of large players who dominate the natural gas futures market. And how is that *supposed* to play out?
Hoz posts “Hedge fund fears loss of billions as gas price drops”
Oh man I hate, when that happens!
The poor, ruined sap stories are continuing to come out of Denver:
http://www.denverpost.com/business/ci_4347686
“In interviews with dozens of homeowners in foreclosure, The Post found that life events such as job loss, medical problems and divorce often precipitate a default. But lack of equity, which gives homeowners options when they face financial problems, was a factor in nearly all cases….”
Article continues to say this is only the beginning, just wait until all those ARM resets next year.
Sorry, don’t have a whole lot of sympathy. This is a family with three (soon to be 4!!) children, with the father (the only breadwinner in the family) makes a whopping $30k/year. I don’t care what the mortgage broker tells you, anyone with an ounce of common sense should realize this a disaster waiting to happen. The parents who decided to purchase this albatross are not children.
All of this ridiculous lending was just fine when the boom was in full swing … in fact, everyone celebrated that more and more minorities (like the Latino family in this article) were achieving home “ownership”, regardless of whether it made sense financially.
Now that the housing market has gone south, suddenly everyone’s blaming the lenders.
Ownership Society right ??? IMHO, its was always about Guns & Butter…Keep the Indians happy (Butter/Money) and they will not care what you do with the Guns (Iraq)….Now the indians are starting to get restless….Butter is gone….
“its was always about Guns & Butter”
The timing certainly seems to have worked for that. But now what?
This just in: Most people still clueless…. at least in AZ.
Residents expect spike in housing prices
Interesting:
“House Buyer Network is North America’s largest home selling solutions company, catering specifically to those who need to sell a home fast. The company has been providing solutions since 2002 and annually processes billions of dollars in real estate.
Today the company declared a bust in several U.S. real estate markets as real estate prices driven to unsustainable levels by years of activity by real estate speculators and increased reliance by homeowners on low down-payment, short-term ARMs have created a glut of motivated home sellers. That increase in homeowners needing to sell fast has, in turn, created great opportunity for both true real estate investors and real estate agents who specialize in quick sales.”
http://www.housebuyernetwork.com/PR/20060919.htm
Another out of state mullet who thought TX was the promised land. All those cheap houses, you know. Note the Phoenix area code on the phone number:
http://dallas.craigslist.org/rfs/209353152.html
poor debbie is not exactly hooked on phonics.
the earl slaughter school does however sound appealing
You can buy in Del Mar for only $50,000!
http://sandiego.craigslist.org/rfs/206520706.html
Five feet wide! — hmm, wonder what the side setbacks would be.
i give up. just what CAN you do with a 5 foot wide strip of dirt?
I was at the university yesterday and parked beside a Chevy truck that had a window cover that said “Ryland Homes Tampa Bay 40% off sale”. I took a picture with my cell phone and will send it in to the photos, but it is a telling sign of the local market conditions.
News from SD foreclosure market. Went downtown to 10am auction last friday. 6 auctions that day, all “no-bid” because they were upside down. This means the next stop is REO. Ended up talking to one of the guys that works in the industry. His job is to show up and bid to protect 2nd mortgages. Said lots of action “down here” (meaning San Diego) these days.
Sunday went for a car tour of REOs in same market. Ending up finding as many by chance as from using the Yahoo foreclose search (which withholds street number). Still early as most of these places are the worst places on the worst streets. Didn’t stop anywhere because wanted to avoid dealing with P.O.d FB’s.
us networth down after inflation!
U.S. Q2 BORROWING GROWS 6.4%, SLOWEST IN 4 YEARS
U.S. Q2 HOUSEHOLD NET WORTH SLOWEST GROWTH IN NEARLY 4 YEARS
U.S. Q2 HOUSEHOLD NET WORTH UP 0.1% TO $53.3 TRILLION
Household net worth up 0.1% in Q2
Borrowing slows to 6.4% growth, weakest pace in four years
The net worth of U.S. households increased 0.1% in the second quarter to $53.3 trillion, the slowest gain in nearly four years, the Federal Reserve said Tuesday.
After adjusting for inflation, net worth fell in the quarter.
Net worth had increased 13% in 2003, 9.7% in 2004 and 8.5% in 2005.
Net worth is calculated by subtracted liabilities from assets.
Household assets grew by $332 billion to $66 trillion in the second quarter, while liabilities increased by $278 billion to $12.7 trillion. The value of real estate holdings increased by $402 billion, but the value of financial assets fell by $128 billion. The value of corporate equities and mutual-fund shares dropped by $253 billion.
Household net worth dipped to 5.60 times disposable income from 5.67 times in the first quarter. Owners’ equity in their real estate fell to a record low 54.1% of market value from 54.4% in the first quarter and nearly 58% in 2000.
Meanwhile, nonfinancial borrowing grew at the slowest rate in four years, rising at an annual rate of 6.4% after a 9.5% increase in the first quarter.
Borrowing by households grew 9.1%, also the slowest in four years. Mortgage debt decelerated, while other forms of household credit perked up.
Mortgage debt increased 9%, the slowest pace since the recession of 2001. Consumer credit, such as credit cards, increased at a 6.6% rate, the fastest in four years.
Borrowing by businesses increased at a 7.6% rate, the slowst in five quarters. Corporate debt grew at a 6.7% pace, the second fastest pace in six years following an 8.8% gain in the first quarter.
Borrowing by the federal government fell at an annual rate of 2.4%, the first decline in five years. State and local government debt grew at a 6.6% pace, rebounding from a 3.5% pace in the first quarter.
increase in re value in q2?
from the yhoo warning!
said a slowdown in advertising revenues from its auto and financial features over the last three to four weeks will impact its upcoming third-quarter sales financial results
Today for the first time I noticed three new properties that have come on the target market I am following and they are listed 30% less on a square foot basis than comparable properties in the same area (like five houses down) in two of the finer area neighborhoods. Granted the properties at the lower listing do not look like they have been “upgraded” but are very good well maintained upscale houses. Checking the property appraiser logs/sale activity I found that the lower listed properties are the original owners which purchased fiften years ago and who obviously have a significant lower cost basis.
Hopefully It will only take a few of these “scab” sellers to break the ranks of the “union” sellers!