Bits Bucket And Craigslist Finds For October 19, 2006
Plese 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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Name:Ben Jones
Location:Northern Arizona, United States
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http://www.bocanews.com/index.php?src=news&prid=17733&category=Main%20Headline&PHPSESSID=f7f210f3cf98d3b708d4e56b4242a00c
“Less and less students are remaining in Palm Beach County and even fewer in Boca Raton schools, according to a recent district report.
In fact, there are about 3,221 county students less than last year, according to Art Wittman, district demographer.
This finds the district with the biggest decline in student enrollment since 1971 – leaving the county with about 170,015 students.
And South County including Boca Raton is suffering the most from the shortage- declining by 2,880 students from last fall.
“Affordability of housing is thought to be a major reason for the decline,” said Wittman, referring to results from the district October FTE enrollment count.”
My only response to this article is “duh”!
Of course this was going to happen; they have priced most people out of the market, people with children are the first to go because of their increased costs to live in the same home (becuase of the expenses for children).
People down here are saying “That’s because all the baby boomers are coming with all the money; all the poor people are moving out”. I just don’t think that they realize what this means, you can’t price the lower (not poor, but slightly under median) to upper middle (2X median) out of the market!! If you do…. Ahh forget it, you guys all know what happens, and why it can never happen that everyone who does not make 3X the median is priced out forever..
all the schools will want mo money anyway
=megatrend
ryland out with numbers that beat the street.
but where are the writedowns with 1.4 b$ billion of landinventory ?
looks fishy to me!
http://immobilienblasen.blogspot.com/
I consider Ryland to have one of the stronger HB balance sheets with low long term assets as a % of equity and low short term debt as a percentage of equity. Although Ryland will have its share of problems I have the company ranked the strongest on my list of ten public HBs. Ryland also is not on my put list.
I agee with you about Ryland. Ryland is in much better shape than companies like WCI or CTX when it comes to debt to revenue ratio.
But Ryland’s report apears better than it really is since they sold land for a profit this quarter. This one-time gain increases earnings. It is also taxed at a much lower rate since it’s a long term capital gain for the company. So, the earnings needs to be adjusted for the one-time event inorder to see if they hit or not. My guess, is that they missed.
Yeah! Ryland is different than the other HB’s. What was that saying, All the ships in the harbor sink when the tide goes out?
New order units in the third quarter of 2006 decreased 45.6 percent to 2,372 units from 4,361 units in the third quarter of 2005; (orders in the west doqn 67%!)
Decrease in effective tax rate from 37.5 percent to 33.3 percent in the third quarter of 2006 generated a $0.12 per share benefit;
For the third quarter of 2006, new order dollars decreased 49.4 percent to $673.2 million from $1,329.3 million in the third quarter of 2005. New orders of 2,372 units for the quarter ended September 30, 2006, represented a decrease of 45.6 percent, compared to new orders of 4,361 units for the same period in 2005.
The dollar value of the Company’s backlog at September 30, 2006, was $2.1 billion, a decrease of 33.5 percent from September 30, 2005. Backlog units at the end of the third quarter of 2006 decreased 35.3 percent to 6,835 from 10,563 at the end of the third quarter of 2005.
Shares of the Company’s common stock repurchased during the third quarter of 2006 totaled 1,850,000, or 4.2 percent of its weighted-average shares outstanding.
The Company repurchased 1,850,000 shares of its common stock during the third quarter of 2006 at a cost of $75.1 million (40,50$). For the nine months ended September 30, 2006, the Company repurchased 4,700,000 shares of its common stock at a cost of $250.1 million (53$) . Outstanding shares at September 30, 2006, were 42,521,860, versus 46,659,446 for September 30, 2005, a decrease of 8.9 percent. At September 30, 2006, the Company had authorization from its Board of Directors to purchase approximately $26.6 million of additional shares.
stock after hours in thin trading 46.30 +2,64 (6.05%)
because of the not identical time period the numbers gives you no apples to apples comparisson but the trend is really obvious
30.09.06 31.12.05
cash and cash equivalantes $89.257 $ 461.383
total inventories $3.072.241 $2.579.667
debt $1.178.959 $ 921.970
plenty of money to buy back more shares………… they have to find a way to beat the eps number
the one thing that i´m missing and the reason why ryland has not to lower their numbers is the non existend writedowns
land under development and improved lots $ 1.370.797 vs $1.087.016
mhhhh, with over 300 mio added in land in the year 2006 and
writedowns from all competitors like nvr “by land deposit impairments of approximately $80,800,000. ”
and lennar “of $15.8 million of write-offs of deposits and pre- acquisition costs related to land under option that the Company does not intend to purchase and $11.8 million of inventory valuation adjustments”
just to name a few from the last days.
to put it mildly “not conservative”……..
A pity Ryland wasted cash buying back shares although buybacks are the rage among HBs. I guess the HBs like to drink their own Kool-Aid.
Assuming the change in tax rate was due to a lower tax rate on profits from land sale (long term capital gains rate), I estimated the earnings split between operations and land to be:
Earnings from operations: $1.38 per share
Earnings from land sales: $0.59 per share
If so, Ryland’s earnigns from operations missed BIG TIME!
Maybe those JVs Barron’s wrote about a few clicks back are paying dividends and don’t forget Ryland’s mortgage unit and its impact on ‘captured’ home buyers aka FBs.
update call
update conference call:
canrate 43%!
67000 lots 50% owned/50 optioned
lots locatet 12k california, 25k southeast, 16,5k north, 13,5k texas
debt to capital ratio 46% target year end 40%
bookvalue 32,50$
little exposure to joint ventures , only 13,5 mio$
not chasing volume like other builders
bought almost no land in washington dc in 2005+2006
san diego ugly, fort myers and naples floodes with speculaters
1950 spec houses / 50% under construction and 50% already build
landprices have to come down at least to 2004 levels before ryl will buy more (depends on region)
7.5 mio$ from landsales in the quarter. 7.2 mio$ from a flip on land in sacramento
writedown not imminent! when no recovery in 2007 the strategie not to chase volume will lead to bigger writedowns for sure . (good luck)!
L.A. Times Oct 19: More Homeowners Going Into Default
A housing market slowdown combined with rising payments on adjustable-rate loans is leading to a sharp hike in notices from lenders.
What to make of this? Advertisement in “embedded” in the article? I hear games and TV shows were doing product placements but now news articles, too?
Just Wednesday morning, Zhang dealt with a Lancaster resident who had taken out a $310,000 adjustable-rate mortgage with a starter interest rate of 5.4% and a monthly payment of $1,050.
In July, the interest rate climbed to 8.5% and the monthly payment jumped to $2,306. A year-end adjustment will send the monthly payment to $2,744.
“The borrower is totally unprepared for this rate adjustment,” Zhang said.”
AMAZING.
Some have lamented about LA holding up. Many have hypothesized that the big urban areas will hold out longer. Thus far this is the truth. The Bay Area Suburbs got hit before SF. And the outlying SD areas got hit before SD itself, and we see the outlying LA areas getting hit hardest right now.
It would seem that it’s a tumbling or momentum effect. Takes a lot of energy to slow the ship. Then a lot more to get it going the other way. But then it takes a lot to slow that new reverse momentum.
LA is enjoying the end of their forward momentum. They haven’t turned yet, but there seems to be a lot of energy pushing them the other way right now.
it’ll be intriguing to watch…
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8.5%? How did it jump to 8.5%??? Seems awfully high.
LEND just warned that they won’t be meeting their already lowered guidance. Subprime market falling apart. Stock down $4 premarket.
WaMu reported its Home Loan Group lost $33 million during the most recent quarter. That compares to a profit of $302 million in the year-ago third quarter. WaMu attributed the recent quarter’s results to fewer home sales and lower gains on sales of loans.
i have made a summary of the earnings and the conference call
And I assume that that $302M “profit” is from those option-ARM mortgages where the FB paid less than interest but WaMu booked the amortized amount. I’m not an economist, but this sounds eerily like that “mark-to-market” stuff that helped bring Enron down.
Don’t miss the fun in RDN — one of the major mortgage insurers out there. Major, major increase to the mortgage insurance loss reserve caused the company to miss earnings estimates … and it’s down about 10% right now.
Here’s a quote from BKUNA’s CFO that never gets old. I read it on occasion to laugh myself to sleep.
In the middle of one of the hottest U.S. markets, Coral Gables (Fla.)-based BankUnited Financial Corp. (BKUNA ) posted a $14.8 million loss for the quarter ended June, 2005. Yet it reported record profits of $23.8 million for the quarter ended in June of this year — $20.9 million of which was earned in deferred interest. Some 92% of its new loans were option ARMs. Humberto L. Lopez, chief financial officer, insists the bank underwrites carefully. “The option ARMs have gotten a bit of a raised eyebrow because we generate and book noncash earnings. But…it’s our money, and we do feel comfortable we’ll get it back.”
And I assume that that $302M “profit” is from those option-ARM mortgages where the FB paid less than interest but WaMu booked the amortized amount. I’m not an economist, but this sounds eerily like that “mark-to-market” stuff that helped bring Enron down.
Agreed. Over the next five years, I expect that there will be a major overhaul of accounting standards for the mortgage lending industry. Its ridiculous to count the fully amortized amount as earned revenue when the actual cash intake is well below that amount and the borrowers cannot be qualified for the mortgage even under the most liberal of lending standards.
A lot of ARMS are based on the 6 month Libor +3% that would be around 8.5% right now. Subprime can be LIBOR +5% or more.
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8.5%-10.5% reset rates? That’s nasty.
Thanks for the info.
I thought most of those ARMs had stipulations like the interest rate could only increase at most, like, 2% per year. Is that not the case? (I’ve heard this as an argument as to why ARMs and whatnot won’t be what brings down this “house” of cards, or at least not for years…)
“And I assume that that $302M “profit” is from those option-ARM mortgages where the FB paid less than interest but WaMu booked the amortized amount. ”
When a foreclosure occurs on a neg-am mortgage where they previously booked as earnings the neg-am portion, how will the banks account for the fact that their previously-booked earnings are then no longer collectable. Any thoughts?
You write down the unpaid interest and the uncollectable portion of the principle as they exceed your provisions, just like any other loan, it’s probably a bigger number in many cases.
As the GoldenWest bosses said, especially with NegAm it’s all comes down to the quality of your underwriting.
How could borrowers be “unprepared” for this? They got ARMs when interest rates were so low they could only go up….DUH!
$310k at 5.4% is NOT a monthly payment of $1,050. Try $1740.75. 8.5% yields a payment of $2,383.63 a month.
L.A. Times Oct 19: A Home Market That’s Tight: Rentals
Apartment rents climb 6% in California as they play catch-up with sale prices.
“We’re seeing a lot more smaller investors listing now,” Yannatta said. “We’re also seeing owners who are trying to sell but don’t want to take a price reduction, so they are willing to wait and rent their place out in the meantime.”
Yet the housing slowdown is crimping equity gains for many newer property owners who bought when values were at record highs. These owners are faced with pushing rents as high as they can to help cover ownership costs, said Lal Akatrai, a Long Beach-based investment property broker.
At some point, it may be hard for landlords to continue raising rents at the same rate and still attract renters.
“Something has to give,” Akatrai said. “I don’t know what will give first, landlords holding off on rent increases or simply selling their buildings.”
The fact is that a renter can move in with friends or relatives and shrink the number of renters. [We rent but if I become unemployed or the rent gets too high, you can be sure I'll move my family in with my relatives in a heart beat.] So chances are, rents will go down (but like home prices, rent won’t come down overnight).
Recently, I have seen many press articles claiming rent prices are on the rise–maybe so, but I see it differently. In 12/05 I moved out of a 2 bed.bth condo 2 blocks from the beach in Florida. I was paying $775.00. The landlord upgraded the place and put in back on the market asking $1,200. It was still on the market when I visited in 8/06. I moved into my girlfriend’s apt in central Florida and we pay $995, with a garage. Rent has gone up $60 in ‘06. There are ample units available and the management group added a second street sign. In both cases, certainly the first, the results of a landlord survey could claim rental prices are up but ‘actual’ rental income is down.
” During the housing boom — when rock-bottom interest rates made taking on a mortgage as affordable as renting for many people — landlords had a higher rate of tenant turnover.”
5 bucks says this writer has a CA DRE license. Sure you can have mortgage payments close to the rent payment….. as long as you don’t use a fully amortized fixed interest rate loan, you don’t factor in property taxes, insurance, HOA dues, mello roos fees, etc.
Personal observation - I have several realtors send me listings, each is a type - either Priced Reduced, New Pictures, New Listing, etc. I have received absolutely no new listings this week from anyone, relatively few price reduced compared to last week or so and alot of new pictures (excuse for getting their listings sent out again?) And I normally receive a hundred listings a day or more (and compile them to track true progress here in my area). Anyone else seeing the new listings slow?
And btw, how is Lancaster? Someone brought me a real estate guide who is thinking of relocating out there (And become an NJ Equity Locust?) because there are beautiful homes in the 200-300 price range (And I’d imagine they were much cheaper not long ago) and places actually in the sub100K range (though most of those appeared to be in Lancaster City which I presume may not be the nicest place).
Listings were going down in my area (Fairfax VA, DC burbs)… but they didn’t go down far, and they’re starting to pick up again. Not sure whether the down motion or the up motion is the blip, to be honest.
Maybe people figure that this year is toast anyway. May as well pull the listing off the market/not lower price and hope for better opportunities next year. Just a guess.
Why It Takes a Doctorate To Beat Inflation
“The typical American worker with a four-year college degree earns a lot more money than a similar worker who didn’t go beyond high school — 45% more. Education does pay. But in today’s economy, getting a bachelor’s degree is no longer a guarantee of raises big enough to beat inflation.
“Although the best-paid college grads are doing well, wages of college grads have fallen on average, after adjusting for inflation, in the past five years. The only group that enjoyed rising wages between 2000 … and 2005 … were the small slice with graduate degrees.
“Think about that: Even though the economy and productivity have been growing smartly, lots of workers who played by the rules and went the distance to get a four-year college degree aren’t getting ahead. … The very best-paid workers are getting the bulk of the raises. …
“Before nitpicking emails arrive: No single set of numbers gives a complete picture. The data in this chart cover only cash wages — not health benefits or pensions. If they were included, … inequality wouldn’t disappear. The best-paid 20% of workers on private payrolls are three times as likely to have health insurance as those in the bottom 20%, and this tally doesn’t count stock options and the like — and you know who gets the bulk of those.
“The question isn’t whether the gap between winners and losers in the labor market is widening; it’s why. And it’s no longer as simple as saying: The more education one gets, the more one earns. Something more complicated is driving up pay at the top. …
[I]n the middle — where many four-year college graduates work — … imports, overseas outsourcing and technology seem … to be reducing U.S. employer demand … significantly, and thus restraining wages. That is the kind of shift in the tectonic plates of the economy that produces political earthquakes.”
You betcha. I just compared average wage data from the Current Employment survey with the Social Security cost adjustment since 1975. Over the long term, guess who comes out ahead, younger folks working and paying taxes or seniors living off those taxes after having paid far lower payroll taxes during their careers? The seniors! Although the mean (but probably not the median) wage has been doing better than the Social Security earners more recently. Those earning the minimum wage do far worse in any event.
Given tha productivity is rising it should not take a graduate degree just to beat inflation.
David
http://bubblemeter.blogspot.com
Most PHDs I have known are not especially wealthy. Sure they have decent jobs, but a doctorate is not for those who want to make a lot of money. An MBA on the other hand…
There is a self-selection effect which obscures the comparison. Most folks whose main focus is on making a lot of money will wisely avoid foregoing several years-worth of potential earnings with the vow of poverty needed to earn a PhD. These folks naturally select themselves into MBA programs. Conversely, PhD students (at least the ones who are sufficiently aware of what they are getting themselves into) do not strive to earn the degree for the money.
Even without the degree programs, the pool of $-driven types who favor MBA programs would earn more than the less $-driven types who go for PhDs.
It’s not just MBA’s–I believe the average income of M.A./M.S. degree holders is also higher than Ph.D.s.
I guess it depends what field you’re in. In my field, the average starting salary (in industry) for a PhD whomps the starting salary of someone with only an MA/MS from the same program.
The average wage earner will be a loser over the next decade too. You’ll need to be a star and indispensible to beat inflation.
I’m in the computer industry and see a widening gap between A and B players…”B” meaning good solid performers. “A” meaning stars. I suspect this is occuring in other areas based on anecdotal experiences…
(Many have hypothesized that the big urban areas will hold out longer. Thus far this is the truth. The Bay Area Suburbs got hit before SF. And the outlying SD areas got hit before SD itself, and we see the outlying LA areas getting hit hardest right now.)
Again, contra Matus, there has been a structural shift to the desirability of urban living vs. the exurbs. It’s supply and demand. Yes more people want the suburban life, but it is in plentiful supply. Meanwhile, since most urban neighborhoods and downtowns are slums/dead zones, there is a shortage to those that are vibrant. Thus pushing the cost of viable urban America through the roof.
All this is overwhelmed by the bubble of course. It will be interesting to see if a condo bust will kill the urban trend, or help it by making those “luxury condos” affordable to the middle class. It depends on if, given lower land and building costs but also lower prices, developers can afford to build more. Or if any will be left.
Could I trouble the group for some investment advice?
I put everything in an ING orange account in February thanks to someone here’s tip, but now I am ready to start doing something a bit more agressive and perhaps learn some about shorting varous builders and markets.
But I don’t know the basics about investing. Could someone help me out with the ‘how to get started for dummies’ details? Like-how do you trade? I assume you guys all work through a system like ETRADE or Scottrade rather than a human. Which do you prefer and why?
I know a few of you, like TxChick seem to know alot about how to manage and grow your money and i would be very grateful for a few pointers.
My solvency is not outlasting the exuberancy.
Thanks in advance.
Don’t short the builders. The time to do that was 2 years ago. Easy money has been made. In fact, don’t short anything until you’ve been in the market long enough to learn how to hedge and read indicators like sentiment, put/call ratios, seasonality, etc. Money made shorting “feels” better than being a monkey with a buy key but it’s a damn good way to lose your shirt too.
Good advice.
…not only your shirt, you could lose your shorts too
txchick posts ” but it’s a damn good way to lose your shirt too.”
and your skirt too!
wait for a correction - then SWZ-PID - EMF
US stocks look expensive now w/o housing boost
Sometimes simplicity is best. If you think a stock is overpriced and will come down, just don’t buy it and hold onto your cash.
That’s what I do. You need to manage your risk as an investor or else you will have nothing to invest.
Read, read, read. Everything you can get in your hands.
The problem with trading is that it’s very liquid and brutally competitive (so sharing how it’s done with you directly reduces the gains for the sharer). In addition, a decent part of being a good trader is knowing thyself. If you don’t have the same feel you may well not experience the same level of success as the other party even if you are both applying the exact same strategy.
Great places to begin learning (I assume you can read financials and know most of the terms–if you don’t then buy a good managerial accounting text and read throug that very first), at first, are seekingalpha.com, dailyspeculations.com, and bankstocks.com. Keep in mind that not every idea they will have is a great one (some more and some less than others), and they can only get you to a very low level of proficiency. Things that will probably help you move up from there are experience, and less specific books like The Richest Man in Babylon.
Then open a small long only account and begin to learn how the markets work (I suggest opening an account because the lessons stick much better when you have skin in the game–long only because that’s what most brokers will allow and in general inflation will be on your side in nominal terms). When you get to that point, you’ll have a much better idea of what you want to do, and can make an informed decison about which broker you want to use as there are tradeoffs to all of them. Once you have an understanding of what risk management is and how your risk tolerances and your own behaviors impact your decision making then you have a fighting chance of making money in all directions and any market.
For a conservative contrarian viewpoint, start with the NPR article with Swenson:
http://www.npr.org/templates/story/story.php?storyId=6203264
“So he wrote a book, Unconventional Success, with advice for the average investor. Swensen warns there’s no “one-size-fits-all” approach to investing. But if you want to follow his advice, he shares some basic tips below.”
Then learn as much about political economics as you can, to learn what you don’t know. Then find a quiet, humble and independent investment advisor you can understand. Talk to the guy that comes once a week or so to your local bank branch. Not independent, but will be a benchmark. Compare him/her to the person you meet at Scottrade, when you go in to pick up the forms. I’m not recommending anyone in particular, just trying to give you a truly basic starting point.
With your investment experience and knowledge, I would suggest you stay very very far away from shorting, options trading, and the like. At your current experience level, you are like the “greene at the poker table.” The pro traders will simply take your money and say good day. These investment vehicles are for knowledgeable, experienced traders. If you want to work in these areas, get a job at a brokerage firm or trading house working under a mentor for a few years. Just like land development, you can make good money in shorting but there are a lot of “land mines” along the way.
However, there is a bigger issue here – it’s your mentality. I think you are hoping for an almost instant 100% return. This type of mentality is the best indication of a guy that will loose everything on “the next new thing.” People have been hoping to earn easy money since the days of Adam. In the 80’s, it was oil and defense stocks, in the 90’s it was internet and tech companies, now, it’s housing (and for those that are really creative, shorting home builders on the way down). Your mentality matches the same as the property flippers or some real estate agents.
Warren Buffet, one of the world’s most successful investors made his money not by looking for home run stocks but instead trying the pick a lot of single hitters and double hitters – in baseball lingo. Statically it’s been proven that you can do a lot better in the long run by focusing on a good steady set of companies instead of rapid fire trading. My suggestions, Valero Refining (VLO), Form Factor (FORM) or even Texas Utilities (TXU). Good Luck to you.
I am
I agree with posters above me: read and start slow. In fact, set up several dummy accounts in yahoo finance or other web sites and do pretend trades to see how you do. And then start with real money slowly. [Once you have real money in the game, your emotions will take over, much like the current home owners trying to sell in the [ex-]bubble zones. So, watch out: less money you have in the game, the easier it’ll be to walk away from. I know because I lost money in the late 90’s by letting my emotions get into my buying/selling decisions waiting for one last turn for the better or shorting a stock too soon. Let your emotions run when you are making money but as soon as you start losing (say 10% from the last peak or whatever you decide is good for you), turn off your emotions and start cutting your losses. And like with leveraged homes, margined stocks can hurt you when the prices go against you so the best thing is don’t borrow (other than to short).]
You should also track your results against basic index like QQQQ or SPY or specific industry [like Oil stocks index] to gauge your results. If you consistently do worse than the indices, give up and buy a low fee index fund [which is what I'm doing now].
I used to read fool.com as good source of ideas but there are plenty of free blogs out there to check out (I don’t read any investment advice anymore since my investments are in money market or S&P 500 index fund)…..
Thanks to all! I will re-read all of the above and check out suggested resources. To avoid wasting anyones time- I will do that first- and ask more questions and keep you all apprised of my development as I go along- if thats ok and not a misuse of the blog (how to stay afloat in a busting market).
I don’t think you wasted our collective time. Just that investing isn’t easy (it can be fun though) and your post reminded us of the attitude of people who think it will be and proceed to find that it’s much more difficult than they imagined. More often than not investors love to talk about investing (although it might not seem like they are all the time).
Thanks for the advice. I will take most of it. I wish I had said more about myself in my initial post though- I think I might have led you guys to think I am a bit more of an idiot than I am. While I have been a lurker rather than a regular poster for most of the last 2.5 years, I love this blog. Even thought I bought in late ‘03 (I agonized over this), during my period of two years as a homeowner I followed Ben’s blog regularly and did things differently because of the blog (e.g. paid off more than I needed to of ‘good debt’ like student loan debt and the mortgage). I sold in Nov of ‘05, in large part because of this blogs growing influence on my financial life. I have had some money in savings now for almost a year (less than 5% interest) and I know I need to get more diversified with it for a number of reasons. I plan on using multiple banks, probably getting some CD’s, and yes, doing some trading with a very small proportion of the money. I know I may lose some of it. My hope (not expecation) is to eventually make over the less than 5% i am not making in savings. 7% would be great.
I feel I have prepared for this moment by trying to learn from you all (whom I respect tremendously) for this 9 months, and also studying individual markets religously and also trying to learn more about understanding the reality and meaning behind general economic news. I also have a doctorate in psychology, which I feel does aid me in my growing understanding of mass psychology and market forces.
In terms of moving on to something a bit more agressive than savings, everyone to get started sometime, right? I was mainly wondering what people thought about Scottrade vs. Etrade (although the reading tips are great and i will pursue).
I prefer Scottrade. Back in 1998-1999 I had ETrade so my experience is more dated, but and found that Scottrade is far cheaper on almost all fees without a noticable difference in execution quality (neither is amazing but neither is terrible either) but I’m not dealing in huge figures (the bigger you are the more execution matters). If you were tossing around more than a few hundred grand it might be worth asking around for some of the better boutique execution shops.
As you decide to become more speculative, I’d suggest starting small enough that you’ll prick your ego a little without too much damage to your nest egg. That way you learn how greed and fear work on you. If you can learn how two manage those two without actually losing some cash, more power to you, but almost every successful investor or spec I know had to buy the top a time or two and sell the bottom before they figured themeself out and could then short circuit their emotions.
Another good read is the Economist. You might want to take a good look at insurance preferred stock for a slightly more agressive play that’s still got some decent uptrends.
Thank you Bluto!!!! If I was proposed another year of reading without anyone saying Etrade vs. Scottrade I was gonna lose it. Yes, I love the Ecomomist…
I recommend reading Burton Malkiel’s _A Random Walk Down Wall Street_ and John Allen Paulos’ _A Mathematician Plays the Stock Market_.
Thanks Jim.
Don’t invest aggressively until you know what you are doing. Read as many reputable books as you can (Intelligent Investor is a good one) and realize that you will lose money if you aren’t at least as smart as the average dollar in the market…and thats not even including transaction fees. Be very very careful with shorting. In fact I would recommend not doing it at all unless it is some kind of hedge.
How about shorting as a hedge on the collapsing value of your flip properties?
when you short a stock you have a limited gain (it can only go to zero) but an UNLIMITED potential loss. Shorting is not a game the inexperienced should play.
My suggestion is to read, read and read some more. Make some “bets” in your head or spreadsheet for at least a year. Track your reason for buying and for selling. See how you do.
Read Peter Lynch’s book(s). If you don’t understand what he’s talking about, understand you’ve got a lot more to learn. Even in his prime his goal was to beat the market by 1-2%…..yes 1-2%. The fact is; few beat the performance of indexes consistently (though there are plenty of well run, conservative, funds that are worth the premium you pay).
In my opinion, you should “speculate” on what you know or understand very well, something in your industry or field of interest. Don’t speculate with more than you can afford to TOTALLY lose. If you’re young, you’ll learn from your (hopefully modest) mistakes. But bear one thing in mind; if you lose 50% of your capital it will take 100% in gains JUST TO GET EVEN.
If you know anything about investing you’ll know how incredibly hard it is recovering from a significant loss.
In my opinion, what you need to learn MOST is that the time to buy anything (of REAL value) is when no one else wants it or is even talking about it. That is when your risk is minimal and your upside is greatest. Unfortunately, most people only want to own things that have SHOWN appreciation (the higher and more recent the better). This, of course, is the exact WRONG time to buy; your risk is higher, the relative value is lowest and you are in a game where you have to time your exit better than the fool who buys your shares.
If you don’t understand the counterintuitive nature of investing you’ll lose your shirt. Just like the buyers of property who leveraged themselves at the very top of the recent real estate bubble.
1. Don’t take investment advice from anyone who makes less money than you do!!
2. Go to all the FREE infomercial confrences in your area and leave your wallet locked up in your car. Listen to some good info, but always keep asking your self, why are these people working so hard on, weekends or week nights, to give away information that made them millions of dollars…and it only costs $7,000. If they could garantee me a million, I’d glady give them back 50% of the million. See what they say to that proposal
Never invest anything you cannot afford to lose.
1)Make a lot of little mistakes and learn from them.
2)Play “what if” games
3)The world is a “global” economy - what happens in Doha effects the prices in the US.
4) Try some on line trading games. The Timesonline has a real nice foreign exchange and it is free and you can win money with real time transactions. see link below.
http://tinyurl.com/ya7275
Sandpapered:
http://www.xanga.com/home.aspx?user=russwinter&nextdate=10%2f19%2f2006+23%3a59%3a59.999
Thanks for posting (on your blog) the comments by OCC czar John Dugan on impending, purportedly stricter state mortgage lending guidelines. Looking forward to that other shoe falling (how hard is anybody’s guess).
Yet another headliner on the business page in Dallas where the bubble does not exist:
http://www.dallasnews.com/sharedcontent/dws/bus/stories/101906dnbushaney.31b24c8.html
This time, DR Horton screwed a local golf professional - a local celebrity - out of a multimillion dollar real estate deal - and did not even bother to tell him about it before the closing. In fact - it appears they did not even bother to show up at the closing - that sounds like a company on the move to me
Washington Mutual: The Good, The Bad, The Ugly
John Succo
Oct 19, 2006 8:47 am
Bottom Line: It was a really bad quarter
The Good:
Washington Mutual (WM) Grew Accounts
Mitigating factor: Interest-bearing deposit costs seem to be growing faster than other banks.
The Bad:
The Numbers:
Missed consensus, by a lot, everywhere.
Credit quality deteriorated:
NPA’s rose 69 bps to 62 bps in 3Q as the resident mortgage book saw an 11 percent increase in NPA.
Compounding this: It would have been worse if WM did not transfer $403 million of higher risk credit card accounts to HFS.
The Ugly:
Reason for the earnings miss:
NIM compression.
Flat yield curve: Rise in short term rates drove up funding costs. ARMS reprice with lag. Led to NIM compressing even greater than expected.
Result:
Drop in long-term rates resulted in a revaluation of the company’s mortgage servicing rights greater than its hedges could offset.
I do not think that WM is the only bank facing this issue (JP Morgan (JPM) showed some of this, but had a broader business line to cushion blow. Regionals and mortgage lenders do not have this luxury and should start showing misses)
Bottom-line: It was a really bad quarter. Analysts will take down numbers, more interestingly, reading through reports, it actually has the lot rethinking the NIM compression questions. Most are starting to become bearish (as if they didn’t know this was going to happen). The same trends that appear under the ugly section at WM, will be present at any mortgage lender or non-diversified financial. For my firm’s stocks, any of the regionals will/should face pressure, as should H&R Block (HRB)—if there isn’t a blow-up, there should at least be earnings problems.
Steve Zausner also contributed to this article.
Position in WM, HRB, JPM
I have some thoughts on the broader trend evident in the WM numbers and in the LEND news out this morning at my blog. Suffice it to say the subprime market ain’t what it used to be, and the overall mortgage market isn’t so hot, either. I’m very curious to see over the next few quarters how much loan loss reserves rise due to the deterioration in mortgage credit quality.
http://interestrateroundup.blogspot.com/
This is why I think the Fed will hold next week, and maybe through the year, and then lower the FFR.
Gotta save WAMU, and LEND, and Wells Fargo, and Countrywide.
Way OT but since I now come to these sage quarters for the best financial talk…
Any tips on studying for the series 7? I have heard the best way to study for it is to shut yourself in your house for XX days and cram, rather than take a leisurely, protracted approach. What study packages did you use? What was your score?
I want to transition out of a technology career and into financial services, and figured that getting my series 7 out-of-the-box would make me more employable… any thoughts?
It’s not difficult. Don’t worry. A monkey could pass it. I was hung over the day I took it. After that, though, get your 63 and options licenses too. The option principal one is harder but it makes you more employable, as a trader that is.
I was hung over the day I took it.
Now THERE’s a story I’d love to hear!
The Series 7 is easy. I suggest you read through the material once and then drill over and over on practice exams. That is where you will learn the most. You’ll see how the questions are asked, why the answer is correct, and why the other answers are wrong. Half the battle is reading the questions carefully and understaning what they are asking. The exam covers a lot on options and muni bonds so pay close attention to those sections. After the the 7, take the Series 66. It is a combo of the older 63 and 65. Those two licenses will help get you hired. You may want to consider your states Insurance License as well depending on who you want to work for.
How do you get to take the series 7, 63, etc without being sponsored for it? Did the rules change or something? If you are being sponsored for it, then your company should be providing you with all the help you would need.
there are some firms that will “sponsor” you in name only. you pay for everything.
also, the test may or may not be easy. it depends. it is easy if you ALREADY understand the concepts and only need to memorize them. if you need to do both, i’t appreciably more difficult.
It’s easy. I agree with the above, read a book and take a lot of practice tests.
But if you’re like me and have trouble with self motivation, pony up and take a class. I read the books once through (I can’t remember the brand, “Kaplan?”) took a five day class, and then took the test and aced it.
The test taking classes teach you the “style” of questions, and give you time management tricks, and ways to at least narrow down your choices if you don’t know the answer. Also, the teacher often makes guesses as to what he/she believes will be emphasized in the next round of tests. My teacher was right on.
Thanks to you all for your advice and insights! I have an opportunity to be sponsored by a firm INO (in name only) and the study and fees are on my nickel. If I take the exam (and get a decent grade) I’ll let you all know how I did!
“Germany economic institutes forecast GDP growth at 2.3% this year, while 2007 growth will slow to 1.4%. Meanwhile, inflation is seen reaching 1.7% this year and 2.3% next. The forecasts are slightly more optimistic than central bank projections, but are likely to be broadly in line with the German government’s new projections due to be presented on Friday. Meanwhile, ECB council member Jose Manuel Gonzalez-Paramo said that the central bank must be vigilant on inflation risks, adding that inflation is likely to be above 2% at the end of the year. He also noted that in the short run, there is no new information that would require a change in market expectations, while there is no information to give beyond December. The comments are in line with expectations for another rate hike before year end and also confirm that the ECB has not made a decision about the direction of monetary policy next year. ”
http://tinyurl.com/sdhzk
DailyFX Oct 19
IMHO inflation is picking up worldwide and the Fed is thinking about lowering rates. Not!
China has much of our manufacturing, now it is going to be the largest stock exchange/ foreign currency exchange and probable derivative exchange in the world.
from Bloomberg
“…ICBC has planned to sell 35.4 billion shares in Hong Kong at HK$2.56 to HK$3.07 apiece, and 13 billion shares to domestic Chinese investors. Underwriters have an option to increase the size of the IPO by 15 percent to almost $22 billion depending on demand. The sale represents about 15 percent of the bank’s enlarged capital. Shares will begin trading in Hong Kong and Shanghai on Oct. 27.
Institutional Investors
Institutional investors have so far ordered about $300 billion of ICBC shares, or more than 27 times the stock available to them, two of the three bankers involved in the sale said, declining to be identified. …”
http://tinyurl.com/yh3a6r
as an aside Goldman will earn ~4 Billion
This is the first of the many upcoming IPO’s that formerly would have happened in NY.
OT - but interesting. Living with 47 items of clothing and a backpack, suitcase, television, computer, bath towel, single set of sheets, toothbrush and bottle of witch hazel.
The Imperfectionist
By GINIA BELLAFANTE
Published: October 19, 2006
DAN HO likes to get rid of things. For the past eight years he has committed himself to a project of aggressive divestment, letting go of houses, sofas, refectory tables, electric mixers, Georg Jensen silverware and a collection of ceramics. Earlier this year, a failed marriage behind him, Mr. Ho, 40, decided to reduce the sum of his possessions and eventually winnowed them down to about 55. Motivated neither by debt nor by environmentalism but simply by a compulsion to unburden himself, he moved from a 1,200-square-foot house in Portland, Me., to a rented apartment one-quarter the size in Greenwich Village, where he now lives with two roommates (one of them a retired judge who sells purses), 47 items of clothing and a backpack, suitcase, television, computer, bath towel, single set of sheets, toothbrush and bottle of witch hazel.
rest of article here…
The Imperfectionist
Link: http://tinyurl.com/uv6aj
less is more. In 1996 I went from a 3 bedroom 2 bath house I made mortgage payments on, to a 2 bedroom 2 bath apartment (with roommate). Then a one bedroom place for awhile, then a roommate again (my girlfriend), and now I’m with a roommate again. In 2003 I sold my Chevy Silverado CK-1500 pickup and bought a Toyota Matrix. People who do not know me (people on the web, for example), think I’m wierd because I’m in my 40s and have a roommate and don’t own a house. My possessions are all in my bedroom and in two storage units @ $75 per month each. I’ll get a whole 2 bedrooms to myself in a few weeks and will then empty one of those storage units. Big econ collapse coming up and I like to stay footloose. In January I will be anywhere in the U.S. for another engineering contract position. Much of my income after taxes and expenses goes to government securities. I agree with Dan Ho’s idea. It’s reassuring that I’m not the only eccentric!
But how will I know how good I am without posessions to compare to others?
here’s the third part to the series on San Diego’s 4S Ranch development: 4Closure Ranch Part III: I Think I Smell a Rat.
UFB. And we’re fed pablum that this was all normal supply and demand.
“One emerging story involves a Realtor (TM) helping clients with their zero down/100% financed purchases. Brought (bought?) as investment properties, the Realtor (TM) told his clients he will be responsible for the negative balance between the rent and the monthly carrying cost until the homes can flip for untold thousands of dollar of profit.
The catch is with each of the properties, his buddy would mark up the appraised value by $80-$100,000 over the actual value. The loans would be funded at the inflated value and the said realtor would pocket the excess cash, in theory to help with the negative balance each property generates.”
Sounds like a brilliant scam! By the way, how could one determine “actual value” in a market with prices going up 10%-20%+ each year? Couldn’t the appraiser just argue that he was making a reasonable estimate of the current value of the home given that the comps reflected last year’s prices? And if there were willing buyers and willing lenders, who is to say the appraisal was not the best available?
LEND-
down 12% looks like the sub-prime is no longer the darling of wall street!
Today’s WSJ, p. D1:
“More Home Loans Go Sour
Though New Data Show Rising Delinquencies, Lenders Continue to Loosen Mortgage Standards”
Who wins when lending standards get increasingly loose in the face of rising foreclosure rates???
There’s possibly a small minority of homeowners who are facing a temporary strain on finances but could weather the storm if allowed to refinance one last time. More than likely though, most of them will find out the hard way that their “temporary” hardship last longer than they anticipated and they’ll ultimately lose their homes in the longrun.
I would appreciate some information from you Tucson area people on this blog. We sold our home in the Pacific NW at the peak last year and are renting a nice town house. Later this month we are flying down to TUS to check out the Oro Valley and Saddlebrooke area where some friends live.
We are NOT buying now, just want to get a feel for the area. We hear the area is as good as it gets around TUS. True? Any other info?
I know that inventory is more than double last year and prices are down. Saddlebrooke is offering about 10% off now. Yep, I know there is more to come……..I just want to be really if/when the right deal comes along. Thank you for any information.
Arizona Slim checking in from Tucson. Oro Valley seems to have a lot of properties on the market right now, Judging from what I hear via an OV friend who stays in touch with her real estate agent, nothing is flying off the proverbial shelves right now.
As for Saddlebrooke, it’s one of those golf-centric retirement communities that is a LONG way from anywhere. As in, you’ll have to fight through thickets of traffic to get to decent cultural events, most of which are in Tucson. And that’s a 20-mile drive one way. Also keep in mind that if you’re on in years and your health isn’t the best, you are quite a distance away from the nearest decent hospital.
Maybe asset prices (e.g. house prices) actually have something to do with inflation after all? Will rising rents force the Fed’s hand? Or could a new statistical procedure for reflecting rents in the CPI save the day?
“Rents rising as home-buying slows
S.D. sees year-over-year increase of 3.8 percent
STAFF AND NEWS SERVICES
October 19, 2006
Apartment rents in many of the West’s major markets – including San Diego – are rising at their fastest pace in years, driven by a home-buying downturn that has empowered landlords to demand more money.
(Union-Tribune file photo
With an average rent of $1,298, San Diego ranked as California’s sixth most expensive market, according to RealFacts.)
As higher interest rates and eroding home prices discourage prospective buyers, more people are deciding to lease – a choice that is filling up once-vacant apartment units and lifting rents.
The San Francisco Bay Area, where home prices in September fell for the first time in more than four years, epitomized the trend.
In Silicon Valley, for instance, the average September rent climbed by more than 10 percent from the previous year to $1,450, according to data released today by RealFacts Inc., a Novato-based research firm.
It marked the first double-digit increase in the high-tech heartland since the early stages of the dot-com bust in early 2001 when Santa Clara County’s average rent peaked at $1,959.
Rents also shot up by 7.5 percent to a September average of $1,443 in five other Bay Area counties defined as the greater San Francisco market.”
http://www.signonsandiego.com/uniontrib/20061019/news_1b19rents.html
GS, thought of you when I read this. Put your AFDB on (I wear mine at all times):
A Swap Story: Borrowed From The Bank of England
by Rob Kirby
October 18, 2006
http://www.safehaven.com/article-6115.htm
Also, a good article here for bubble watchers:
Housing Correction Just Getting Started
By Liz Peek
October 17, 2006
http://www.nysun.com/article/41659
FWIW, I view the coming housing crash as symptomatic of a much larger systemic financial mess and looming banking crisis. My background of 20 years in real estate and finance provided me with the knowledge to assess the scope and cause of the housing bubble.
Our financial system probably has terminal cancer, i.e. the housing bubble. During the last year, I have conducted extensive research in a wide variety of economic and financial arenas. I have found NO information to cause me to believe that conditions will improve in any meaningful way, and sadly, I fear that the standard of living in America has reached an apex. I anticipate a recession will begin in 2007 if it hasn’t already started. In addition, it’s probable that a disruptive event will occur at some time in the future (within my remaining life expectancy-today to 25 years), causing a global systemic financial crisis of unprecedented proportions. I believe ‘The Big Event’ will occur before 2010, but I thought that housing was a bubble in 1998, so what do I know? In any case, life goes on and I will be developing low-cost, green-sustainable, senior-living housing communities.
I might post macro-economic, financial and tin-foil-hat comments at Ben’s M&M site instead of HBB as I realize some of this stuff is of no interest to the housing bubble crowd, and those of us watching M&M would like to see more action in that vein.
So Fred, are you suggesting the government is manipulating the price of gold? Yawn…
http://en.wikipedia.org/wiki/Black_Friday_(1869)
Mish had this on his blog last Sunday, so it may be posted on another thread. It’s well worth the read……..
http://www.howestreet.com/articles/index.php?article_id=3184
Well, I had a lengthy post that didn’t.
Anyway, GetStucco, put your AFDB on. It’s worth reading in full:
October 18, 2006
A Swap Story: Borrowed From The Bank of England
by Rob Kirby
http://www.safehaven.com/article-6115.htm
Don’t miss the part where Kirby quotes an email from a “fellow writer/researcher” who calls it a Jewish conspiracy, with lots of exclamation points, even in mid-sentence.
Noted with disdain.
Finally: A Santa Barbara realtor actually acknowledging a drop in prices!
Sorry for the long post, the Santa Barbara News-Suppress is subscription only for many articles:
Realtor: Market forecast gloomy
VLADIMIR KOGAN, NEWS-PRESS STAFF WRITER
October 19, 2006 7:15 AM
The prices of some homes on the South Coast may have fallen by 10 percent from the highs of a year ago, a top Santa Barbara realtor estimated Wednesday, warning that he is seeing the first rise in foreclosures in nearly a decade.
Speaking to an audience of several hundred homeowners at the second annual Williams Systems Real Estate Conference, the firm’s president, Scott Williams, painted the most pessimistic picture of the local housing market to date.
“Whatever the future holds, the present doesn’t look good,” he said.
Mr. Williams’ analysis, which compared homes sold this year to what he described as identical properties that closed escrow in 2005, has found that the prices of condominiums and single-family dwellings have posted a dramatic slump, though the prices of “luxury” homes — those costing more than $3 million — are continuing to rise at a healthy 6 percent annual rate.
For example, though a two-bedroom home on San Clemente Street sold for nearly $1.1 million in March, an nearly identical property fetched only $960,000 in August, according to Mr. Williams, representing an annualized drop of 10 percent.
However, he admitted that there is no way to know whether his numbers, which show a much more pronounced dip than many other recently released figures, are indicative of statistical anomalies instead of larger trends.
Statisticians normally aggregate data for time-series comparisons because direct comparisons of individual transaction data often can be misleading.
Sales figures published earlier this week by the Santa Barbara Association of Realtors, based on the value of all area homes sold in September, put the price of a median home at $1.2 million, or down 5 percent from last year. Prices of condos were up slightly from a year ago, the association said.
And a respected statewide survey by La Jolla-based DataQuick Information Systems, published Tuesday, concluded that median prices across California grew a modest 2.4 percent in the year ending in September, though Mr. Williams warns that this gain “is in the process of being erased.”
Overall, however, Mr. Williams called the long-term prospects for the market positive, explaining that Santa Barbara is faring far better in the current slowdown than some other hard-hit areas, including Florida and Massachusetts.
“There is pain, but (my wife) and I continue to sell a home every two weeks,” he said. “Expect the rate of decline to moderate, plateau and reverse. I would contend that the values you’re seeing now are the bargain in this particular marketplace.”
That sentiment was echoed last week by the National Association of Realtors, which said that home sales are “showing signs of life.”
“Many potential home buyers who have been taking a wait-and-see attitude or taking their time and being methodical in the search process are being enticed by lower home prices,” said David Lereah, the association’s chief economist. “Given a positive economic backdrop of lower interest rates and job creation, we expect sales activity to pick up early next year.”
The future real estate trends, economists say, may carry the rest of the economy with them. Earlier this month, Federal Reserve Chairman Ben Bernanke predicted a “substantial correction” in the housing market, warning that it could take an entire percentage point off economic growth in 2006.
Retirement plans flame out-
http://registeredrep.com/retirementplan/finance_home_sweet_piggy/index.html
Good article–possibly deserving of its own thread.
I looked in the “new” listings this week and found these “to be built” offerings. This first one is an 8000 sq foot model w/6 full baths. No photos.
I guess the full insanity of the bubble has officially hit the Syracuse region.
162049 - 5067 Bergenfield Way, Manlius
Hunt Real Estate ERA
Mark Tetley
Bedrooms: 5
Full/Half baths: 6/0
Price: $1,200,000
——————————————————————————–
162052 - 5101 Bergenfield Way, Manlius
Hunt Real Estate ERA
Mark Tetley
Bedrooms: 5
Full/Half baths: 5/1
Price: $1,125,000
——————————————————————————–
161948 - 5109 Bergenfield Way, Manlius
Hunt Real Estate ERA
Mark Tetley
Bedrooms: 4
Full/Half baths: 4/1
Price: $969,000
——————————————————————————–
162048 - 5100 Bergenfield Way, Manlius
Hunt Real Estate ERA
Mark Tetley
Bedrooms: 6
Full/Half baths: 7/0
Price: $885,000
And don’t forget the tax bill….the sales sheet on another Manlius million $$$ home built in 2001 shows a tax bill of $36k/yr. (That’s probably based on the previous sale price) I can only imagine what they’re attaching to newer construction.
Lest I be accused of immigrant hate, note the names of the crooks in this story.
http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2006/10/19/national/a071058D77.DTL&hw=real+estate&sn=003&sc=883
Here’s another one from CA — lady goes to open houses as a pretend home buyer … unlocks a door … then shows back up later to rob the place. Sellers were probably happy just to have some traffic!
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/10/19/BAGRDLSBP16.DTL
Happy Anniversary!
Today is the 19th anniversary of the 1987 market crash.
Luckily the markets have subsequently been inoculated against the various disease vectors known to result in market contagions and crashes.
$194900 I just want my money back!! You can have the equity!!
——————————————————————————–
I can’t qualify for the loan so the builder is allowing me to tranfer the contract. I just want my earnest money back ($7500). You can have all the equity I have built up over the last two years. I signed the contract about two years ago and construction is just about done, but I can’t close on it!!
http://phoenix.craigslist.org/rfs/220544875.html
Um, what equity would that be? Oh right, none. This idiot makes it sound like they earned it or something. Just by overpaying for a house at the top of the bubble.
Business Week article on the high cost of commuting:
http://www.businessweek.com/bwdaily/dnflash/content/oct2006/db20061019_563545.htm
I’ve always scratched my head over people who buy a house out in Pleasanton to commute to a San Jose or Silicon Valley job….wouldn’t their quality of live be higher if they learned to be happy in an apartment and lived close to work?
This BW article shows that it’s cheaper, too.
So, let’s see…you save money, and 2 hours a day of commute time. Sounds like a no-brainer to me.
test
RealtorTM
test
Realtor(tm)