December 6, 2006

Bits Bucket And Craigslist Finds For December 6, 2006

Please post off-topic ideas, links and Craigslist finds here.

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Comment by Captain Credit
2006-12-06 05:00:10

I nominate Bob Toll for President of the Liars Club displacing GW. Check out his unrelenting and enduring raft of BS in a conference call with a CSFB analyst.

All I can say is WOW….

Comment by Craven Moorehead
2006-12-06 05:09:51

This is also covered in BusinessWeek Online today.

Credit Suisse First Boston accuses Bob of “drinking Kool-Aid” and calling a false bottom to appease Wall Street.

Toll Brothers: Scraping the Bottom?

Comment by flatffplan
2006-12-06 05:22:24

his brother bought a newspaper- at least bob’s smart
is he buying or just lying ?

Comment by Gekko
2006-12-06 15:21:36

two businesses i would not want to be in:

1. Newspapers - declining readership and going into the shiiter - everyone is starting to get their print news free and ONLINE. who buys newspapers anymore? maybe a few old people and pseudo-intellectuals?

2. Video Stores (Blockbuster) - with “Video On Demand” - who goes to the brick and mortar video store anymore when for $1.99 you can have the movie zapped to your TV in seconds? And with no late fees or hassles of returns!


Comment by Gekko
2006-12-06 05:56:55


“They’re going to live with us until they’re 40,” Toll said matter-of-factly. “And when they have their second kid, then we’ll finally kick them out and make them pay for the house that we paid for. And that house will cost them 45 to 50 percent of their income.”

“It’s all just logic,” Toll said. “In Britain you pay seven times your annual income for a home; in the U.S. you pay three and a half.” The British get 330 square feet, per person, in their homes; in the U.S., we get 750 square feet.

Not only does Toll say he believes the next generation of buyers will be paying twice as much of their annual incomes; in terms of space, he also seems to think they’re going to get only half as much. “And that average, million-dollar insane home in the burbs? It’s going to be $4 million.”

Comment by Captain Credit
2006-12-06 06:00:46

Don’t let Bob Troll’s words scare you Gekko…. You’re rich. :)

Comment by Sunsetbeachguy
2006-12-06 06:58:27

Captain Credit’s comment doesn’t add anything to the discussion.

If I recall correctly, Gekko has been posting much longer than you.

Mellow out. Go solve your problem with Gekko in the thread the problem started or get over it.

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Comment by Captain Credit
2006-12-06 07:06:04

Reread my friend. It was Gekko who responded to my post. I in turned made the comment in jest.

It seems you need to mellow out and get over it.

2006-12-06 07:18:57

Ladies pls, cant we all just bitch about housing and get along?

Comment by anoninCA
2006-12-06 07:46:05

Yes, cap’n crunch, but your comment was completely insubstantial (not in itself unusual) and relating to some ongoing BlogDrama; and THAT is getting more and more annoying by the day.

Comment by MikeinSB
2006-12-06 07:43:29

Is there are a reason you made such a rude comment, Captain?

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Comment by Sammy Schadenfreude
2006-12-06 17:45:19

Stop. Untwist panties.

Gekko adds a lot to this board. So do you, Capt. Credit. So please stop the sniping and fratricide & let’s stay focused on the issues at hand.

Thanks in advance,

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Comment by Russ Winter
2006-12-06 06:14:34

Toll Brothers conference call: Just the Facts Ma’am:

Comment by Hoz
2006-12-06 07:51:58

Mish has an interesting post on it today.

Comment by Captain Credit
2006-12-06 08:14:57

“Mish has an interesting post on it today.”

That fact has been obscured by the soft and sensitive.

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Comment by SunsetBeachGuy
2006-12-06 09:56:18

Captain Credit is the new blogDRAMA queen.

Take your issues with Gekko elsewhere.

Comment by Captain Credit
2006-12-06 11:31:48

Sorry softee. You’re the only one making it an issue.

Nice try though.

Comment by SunsetBeachGuy
2006-12-06 11:59:28

You haven’t read the comments. Your post below Gekko was out of line.

Posts such as yours in question are part of the reason for the decline in discourse on this blog over the last couple of months.

What were you trying to accomplish with your post?

Do you just like to pick fights and call names?

Comment by Captain Credit
2006-12-06 12:07:46

Sorry but your wrong again. Not only did I read the posts, I started the commentary regarding Bob Troll.

Read it yourself…. It’s interesting.

Comment by SunsetBeachGuy
2006-12-06 14:05:03

Hmm…Like these posts.

Comment by anoninCA
2006-12-06 07:46:05
Yes, cap’n crunch, but your comment was completely insubstantial (not in itself unusual) and relating to some ongoing BlogDrama; and THAT is getting more and more annoying by the day.

Reply here

Comment by MikeinSB
2006-12-06 07:43:29
Is there are a reason you made such a rude comment, Captain?
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Most bloggers here know how to find Mish’s blog and don’t need you to post it.

Comment by Captain Credit
2006-12-06 15:02:14

Isn’t it odd that the only one acting like a drama queen here is you??? ;)

Comment by Gekko
2006-12-06 15:18:23


no worries here. i’m a big boy, i can take it. all in good fun.

Comment by SunsetBeachGuy
2006-12-06 16:20:44

Point taken, but you are on notice :)

Comment by oxide
2006-12-06 07:49:50

Bob Toll was on Nightly Business Report last night. The PBS webstie is down so I can’t get to the transcript. But Bob said that this housing slowdown is unlike other slowdowns, because other housing slowdowns were accompanied by low employment and high interest rates and recessions. And that since interest rates were low and employment is great and the economy (the stock market) was going great, this housing slowdown will just be a little bump.

Well, this housing is definitely different. Past housing bubble were NOT accmpanied by mortgage payments that were going to go up, or by massive speculation and fraud, or by a “great economy” which is great only for people who own Dow stocks, or by interest rates kept low only out of the goodness of Chinese hears, or by low unemployment solely caused by the housing industry and trickle-down industries.

He didn’t mention all that, did he? Oh nooo…

Comment by John Law
2006-12-06 08:20:36

“‘It appears that the current housing slowdown is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,’ said CEO Robert Toll. ‘Instead, it seems to be the result of an oversupply of inventory and a decline in confidence: Speculative buyers who spurred demand in 2004 and 2005 are now sellers; builders that built speculative homes must now move their specs; and nervous buyers are canceling contracts for homes already under construction.’”

“‘On certain land deals that no longer work due to today’s weaker market conditions and slower sales paces, we are willing to let options expire if we are unable to renegotiate the land purchase,’ Toll said. ‘We have seen an increase in our cancellation rates in a number of markets, including Orlando, Northern California, Palm Springs, Las Vegas, and Phoenix.’”

Comment by NYCityBoy
2006-12-06 05:08:23

Looking to a CEO for honesty is like looking to a porn star for celibacy.

He did later say he didn’t mean to come across as being so optimistic. I better go now. My wife and I are moving back in with our parents today. Bob Toll said we would all be living with our parents into our 40s. And then he traded in $150 million worth of TOL stocks.

Note to investors: Quit shorting HB stocks until the uptrend is broken. Ever since the last week of July HB shorts are getting killed. Let them begin to fall under their own weight before jumping back in.

Comment by txchick57
2006-12-06 05:37:18

The uptrend was broken several weeks ago, just long enough to suck in some new shorts before they rammed it the other way. I’ve seen this a few times in other battleground type stocks. RIMM for one. I made $1.05 shorting TOL and left $6 on the table on the long side. Being a permabear is a bitch sometimes :)

2006-12-06 07:23:20

As a novice investor but veteran Nfl football wagerer, i offer this advice. Take the other side. All thru the summer i heard you guys talk about shorting these stocks and over the last couple days everyone is suddenly afraid. Its time to place your shorts. Nobody wanted cleveland, tennessee, and detroit last weekend ….well noone except for the bookmakers.

Always bet with the house.

Comment by txchick57
2006-12-06 08:00:06

I’m thinking about it but won’t do it for a couple more weeks.

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Comment by feepness
2006-12-06 14:26:08

I’m holding my powder a bit too. This has gone on too long not to get some action before the end of the year. I’m thinking right before Christmas.

The thing is the time value has a factor, so the the longer you can hold out to start the short the better off you are.

Comment by zeke in va beach
2006-12-06 05:17:01

Just finished reading several days of input from the bears on this blog. While it now appears that the housing bulls and RE hype spinners have finally conceded that there is a slow down (not a bubble) there is no concensus on when or if the market will fall off a cliff. I believe that the time is at hand. The basis of this belief follows:
The number of print and air wave advertisements for RE, morgage/refi, $0 down and RE investment seminars are down to nothing compared to a few months ago. The replacement hussle is how to buy, rent and flip reposessed housing for pennies on the dollar. Want empirical? You got empirical. Now off to the seminar before the rest of you catch on and get all the good deals early.

Comment by Chicago guy
2006-12-06 05:50:06

Look at the banner ads at the top of this page….
That’s as empirical as you can get…

Comment by Sunsetbeachguy
2006-12-06 06:59:34

Ben doesn’t choose those ads, Google does.

A man has got to get paid and I find the irony funny and click on the ads to stay updated on lending standards and strategies.

2006-12-06 07:25:30

i wonder, in the history of this blog, if one dime of revenue was accrued from the banner ads on this blog?

Comment by motepug
2006-12-06 07:38:59

What banner ads? The Firefox browser with Adblock add-on gets rid of about 95% of the garbage cluttering up your screen.

Comment by Hoz
2006-12-06 07:56:36

Your money, not mine.

“… Based on the official housing statistics, you might have guessed that the sellers would have made out just fine, despite all the talk of a real estate slump. According to one widely followed real estate index …the average house in Naples sold for 20 percent more this summer than it would have a year earlier.

But that wasn’t what happened at the auction. In fact, if you were at the beach club that Saturday, you could have been excused for thinking that the real estate market was crashing.

One three-bedroom ranch house with a pool sold for $671,000. In 2005, the same house sold for $809,000. Another house, just steps from Naples Bay, sold for $880,000 at the auction., compared with $1.35 million a year earlier. On average, the houses that changed hands at the auction had fallen about 25 percent in value since 2005, according to Thomas Lawler, a real estate consultant who analyzed the auction’s results….”
New York Times
Dec 6,2006
What Statistics on Home Sales Aren’t Saying

Comment by cassiopeia
2006-12-06 14:27:48

Just another “empirical” comment. Today I was driving home from the gym and stopped behind a bus. There was an ad in the back of the bus for a new Channel 22 show (a local LA channel in Spanish) called “Operación Repo” and the teaser “if you can’t pay for it, don’t buy it” (in Spanish).

Comment by Sniggle
2006-12-06 05:20:22

Georgia foreclosures jump 99%; rate is nation’s 3rd highest
Homeowners feel pain as climbing adjustable mortgage rates bite back

Another factor in this rolling snowball…states that have expediated foreclosure laws will show the surge first, and foreshadow for the rest.

Comment by Peggy
2006-12-06 06:41:08

“‘There’s a death in the family, or someone is losing a job, or someone gets sick.’ That can mean trouble even for white-collar professionals. Phillip Newman is a mechanical designer. He bought a home in Lithonia two years ago, obtaining a mortgage that required a monthly payment of $1,260. Four months later, his company was purchased and his job eliminated. He was out of work for five months, then found a one-year contract job. When that ended, he scrambled for three months and in July found his current position — where he makes about 25 percent less than he had as a consultant.”

This scenario of white-collar job loss followed by extended unemployment followed by either a temporary job or a “permanent” job that pays significantly less than the first job is IMO why Georgia is hurting so. For those who were laid off during the last downturn, there was no economic recovery in Georgia. I know people who were laid off from two and (in one case) even three white-collar jobs in the past five years in Georgia. Each time, these people ended up having to take a significant pay cut in order to find new employment.

What was it someone wrote yesterday on this blog about *any* mortgage being an anchor?

Comment by passthebubbly
2006-12-06 06:51:15

Ownership is slavery.

Comment by mrktMaven FL
2006-12-06 11:03:20

At today’s speculative prices, yes!

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Comment by mrktMaven FL
2006-12-06 11:09:48

Nice article — thank you. The people who claim this bubble is limited to both coasts, don’t fully understand the nature of speculative behavior and its relationship to financial instruments.

Comment by bubbleglum
2006-12-06 05:24:13

“Right now is a great time to buy a new luxury home. ” Bob Toll.

The mantra for our time. Easily rivaling:

“Damn the torpedos, full speed ahead!”

Comment by WT Economist
2006-12-06 05:26:20

The WSJ has an article on the “Shadow Supply” from excess condos weighing on apartment rents.

The Washington Post has this article on real estate and the economy
with the following little piece of sarcasm on the low rate of return on MBS and purchased commercial property.

“But not to worry, says just about everyone in the real-estate business. The prices for real estate aren’t too high because there’s a new paradigm in which the old rules no longer apply!

After all, in a post-inflation world with a glut of global capital, its only natural that risk premiums and rates of return are now permanently lower.”

Comment by scdave
2006-12-06 08:16:19

NICE post WT;….Its bad enough that the cap rates in the prime markets are this low but they are just as low in the sub-prime markets;…It is just plain stupid to purchase these properties @ these rates of return….

Comment by Sammy Schadenfreude
2006-12-06 05:31:42

Didn’t we recently have a New Economy where the old rules didn’t apply? We all know how that turned out….

Comment by Captain Credit
2006-12-06 05:34:27

Yes we did Sam. It was replaced with the New Paradigm heralded circa 2001. That one is falling apart too.

Comment by housegeek
2006-12-06 05:34:41

All of this week’s reach-the-bottom/stabilization spin prompts me again to ask: How about we make an effort on the blog to dart members of the press that still insist on using only Lereah, Toll, etc to comment on real estate data –without counterbalancing it at least with an independent view. These biased spinmeisters have built up an unblemished record of innacuracy over the past couple of years, and still the media turn to them for “analysis” of what the market is doing. Reuters and Robb at Marketwatch did it this week with Lereah. Next time Lereah speaks, it would be great to post and pass around a list of lazy, irresponsible media who passed his spin along unquestioningly. It’s not the Lereah/Tolls we should be mad at at this point — it’s the press for being their mouthpiece.

Comment by txchick57
2006-12-06 05:39:35

This is why the press is becoming irrelevant. Do you personally ever pick up a newspaper anymore or watch a network news program anymore? I sure don’t.

Comment by Sammy Schadenfreude
2006-12-06 05:44:31

The paper is still useful for local news, classifieds, sales, etc. Establishment rags like the NYT, WSJ, and Washington Post deserve their falling circulations, as they are nothing but mouthpieces and propaganda organs for the globalist oligarchs that own them.

Comment by Arizona Slim
2006-12-06 09:39:52

Craigs List and other online classified sites are eating the local papers’ lunch.

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Comment by cassiopeia
2006-12-06 14:36:53

I do read the paper. Sometimes I slam it down in frustration, but other times I’m glad they’re here. I know they will all be gone in a few years, but we’re going to throw many babies out with that bath water. I think part of the problem is that people don’t have the patience to read through a story, so they never get to the stuff that is buried in it. Network news are a joke.

Comment by eastbaycat
2006-12-06 07:30:07

I read David Lazarus in the Business section of the SF Chronicle. A truly great reporter who’s after the big stories, and also saves readers money on the small stuff.

Comment by scdave
2006-12-06 08:19:40

Interesting that you mentioned that Chick;…..I canceled my newspaper 5 months ago after receiving it for 27 years…I still watch the financials on cable though….

Comment by aladinsane
2006-12-06 10:17:20

I love the feel of holding a newspaper in my hands, or a magazine for that matter…

I am a dwindling breed.

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Comment by Chip
2006-12-06 12:39:00

“Do you personally ever pick up a newspaper anymore or watch a network news program anymore? I sure don’t.”

Nor I. So far it hasn’t seemed to cost me anything but losing out on a hot lease deal on Sequoias last month. Car deals would be my only motivation for picking up a print copy.

Comment by mina
2006-12-06 13:59:10

practical horseman and equus don’t have their content online yet. so I still subscribe. and I wait by the mailbox for them the 2nd week of every month.


Comment by Sammy Schadenfreude
2006-12-06 05:39:56

Not sure how bad things are going to get, but, for my fellow posters, particularly those in cities or areas prone to natural or man-made disasters (i.e. the LA riots), it might be good to review your emergency/contingency preparations to ensure you can ride things out. If there’s one enduring lesson of Katrina, it’s that counting on local, State, or Federal governments to come to your aid is pure folly.

Comment by txchick57
2006-12-06 05:47:38

I love reading that stuff. Gad, I’ve turned into a nutcase. LOL

Comment by Sunsetbeachguy
2006-12-06 05:50:58

Yep, Costco is selling 5 gallon buckets with 90 days of food inside.

I thought that was kind of startling.

If you are a Californian without a lot of water stored, you are dumb.

I know that there are many dumb Californian’s.

Comment by aladinsane
2006-12-06 07:15:22

Saw those @ Costco and hadn’t seen something in that vein since so many people were convinced to buy backpacking food (tastes good in the backcountry, but then again, everything does) in the run-up to Y2K.

Our well pumps 35 gallons a minute and we own 800 feet of the Kaweah River, so we should do better than most of our fellow Californians, water-wise.

Comment by Ken
2006-12-06 09:52:17

I bought whatever Art Bell told me to for the Y2K disaster…I’m having a garage sale.

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Comment by aladinsane
2006-12-06 10:22:32

Why’d Art up and move to the Philippines?

Comment by crisrose
2006-12-06 12:23:24

Art was so brokenhearted after the ‘love of his life, soul mate, greatest woman who ever lived’ died, a mere THREE WEEKS later he left the country and shacked up with a 20-year-old hottie.

Comment by fred hooper
2006-12-06 05:58:58

Here Sammy, you’ll find this interesting:
“Post-Soviet Lessons for a Post-American Century”
by Dmitri Orlov (3 parts)

Sunsetbeachguy, that stuff at Costco is crap, but the fact they’re carrying it is telling. I recommend Mountain House #10 cans, Smith & Wesson + Glock, and a good bug-out bag if you live in a big city.

Comment by Sammy Schadenfreude
2006-12-06 06:34:09

Good stuff, Fred. Thanks!

Comment by Sunsetbeachguy
2006-12-06 07:01:43

I didn’t say I would buy it, just noting the trend.

Any camping supply shop like REI you can get better food than that tub.

Comment by crash1
2006-12-06 16:27:46

check. check. oh crap, I need more ammo.

Comment by passthebubbly
2006-12-06 06:55:05

Yeah, maybe eventually you’ll be able to put those Y2K bunkers to good use.

Comment by winjr
2006-12-06 05:46:50

A subprime lender goes under when it’s biggest MBS buyer says “no mas”:

Comment by WT Economist
2006-12-06 05:55:02

Here’s the problem. In theory the market should discipline lending, as those who made bad loans go under.

The problem is that anyone who didn’t make bad loans went under in the bubble, or lack of business, or was acquired by a more “aggressive” company.

I call this the “flight to stupidity.”

Comment by scdave
2006-12-06 08:31:39

Note the “Denver Area Office”;…

Comment by crispy&cole
2006-12-06 08:07:11

Good link! THanks!

Comment by Captain Credit
2006-12-06 06:13:37

MBA Purchase Applications up 4.9%. Biggest jump since Q01 2006.

Anyone know how much of this 5% was re-fi?

Comment by winjr
2006-12-06 07:14:50

None of it. The increase of 4.9% was for the purchase index. The refinance index jumped 13.7%. The combined index is at a level 1.9% higher than the same week one year prior.

Comment by Captain Credit
2006-12-06 06:16:34

Chitigroup upgrades hov, dhi, kbh, ryl, len, mdc….. unbelievable.

Comment by dawnal
2006-12-06 06:25:41

More and more Americans are realizing that the stock market is rigged. Yesterday’s performance of TOL is the most recent example of how rigged the homebuilders are. Since mid-summer, we have watched a barrage of negative news about homebuilders met with rising prices. TOL’s plummeting earnings were met with a price rise of 3%.

Looking back, this Sep 15, 2006 quote from Richard Daughty is revealing:

“This is also probably pretty funny to Chris Laird, of the Prudent Squirrel newsletter, who writes “As financial markets start to show big stress, the central banks and plunge protection teams are going to spend a gigantic sum of money trying to support them. Previous economic collapses have not had the present battery of coordinated central banks and programs such as plunge protection teams to manage their crashes. We now are in a situation where, the next time we have major stock drops, these CB’s and PPT’s are going to pull out all stops to try and stop a stock panic.” ”

Comment by Structured Finance Guy
2006-12-06 09:23:00

It is not rigged in the long term. Day to day movements are subject to manipulation and busting the shorts out. If you are an investor and not a speculator the market is not rigged. Bad stocks can not be supported indefinatley with declining fundamentals but if people are willing to throw money at them they can be shored up for a time. This is a market inefficiency that can be exploited.

Comment by Desert Dweller
2006-12-06 10:57:25

Sorry, that explanation is too rational and well thought out for this blog. It’s much easier to rant and blame it on the PPT or some gov’t conspiracy. Don’t you know we’re on the verge of the Great Depression part II? Go stock up on gold, guns, and ammo and build a bomb shelter :)

Comment by dawnal
2006-12-06 06:31:37

More on stock market rigging:
Government Intervention in Stock Market Is Detailed by New Report, GATA Says Gold Anti-Trust Action Committee Tuesday 06 September 2005 Manchester Conn. - A major Canadian financial management firm that a year ago published a compilation of evidence of central bank manipulation of the gold price has just done the same in regard to the US stock market and has reached a similar conclusion. The new report is titled “Move Over, Adam Smith: The Visible Hand of Uncle Sam,” and has been published by Sprott Asset Management of Toronto. It was written by the firm’s president, John P. Embry, and his assistant, Andrew Hepburn, and concludes that the US government has intervened to support the stock market so many times that “what apparently started as a stopgap measure may have morphed into a serious moral hazard situation, with market manipulation an endemic feature of the US stock market.” The new report relies largely on reports of news organizations and the essays and research papers of economics academics that, as might be expected, have not been well-publicized in the United States. But some of these reports have been circulated by the Gold Anti-Trust Action Committee over the years. The Sprott report does not maintain that the government should never intervene in the stock market; it recognizes that certain emergencies may argue strongly for temporary intervention, such as the 1987 stock market crash and the terrorist attacks of September 2001. But, the Sprott report notes, frequent surreptitious intervention, conducted through intermediaries, the government’s favored financial houses in New York, gives those intermediaries enormous advantages over ordinary investors. Frequent intervention, the Sprott report adds also makes it impossible to distinguish between national emergencies and political expediency. The Sprott report concludes: Given the available information, we do not believe there can be any doubt that the US government has intervened to support the stock market. Too much credible information exists to deny this. Yet virtually no one ever mentions government intervention publicly, preferring instead to pretend as if such activities have never taken place and never would. It is time that market participants, the media and, most of all, the government acknowledge what should be blatantly obvious to anyone who reviews the public record on the matter: These markets have been interfered with on numerous occasions. Our primary concern is that what apparently started as a stopgap measure may have morphed into a serious moral hazard situation, with market manipulation an endemic feature of the US stock market. We have not taken a position on the wisdom of intervention in this paper, largely because exceptional circumstances could argue for it. In many respects, for instance, the apparent rescue after the 1987 crash and the planned intervention in the wake of September 11 were very defensible. Administered in extremely small doses and with the most stringent safeguards and transparency, market stabilization could be justified. But a policy enacted in secret and knowingly withheld from the body politic has created a huge disconnect between those knowledgeable about such activities and the majority of the public, who have no clue whatsoever. There can be no doubt that the firms responsible for implementing government interventions enjoy an enviable position unavailable to other investors. Whether they have been indemnified against potential losses or simply made privy to non-public government policy, the major Wall Street firms evidently responsible for preventing plunges no longer must compete on anywhere near a level playing field. It is most unfair that the immensely powerful have been further ensconced in their perched positions and thus effectively insulated from the competitive market forces ostensibly present in our society. In addition to creating a privileged class, the manipulation also has little democratic legitimacy in the sense that the citizenry has not given its consent. This has tangible ramifications. By not informing the public, successive US administrations have employed a dangerous policy response that is subject to the worst possible abuse. In this regard, the line between national necessity and political expediency has no doubt been perilously blurred. We can only urge people to see what the evidence indicates and debate what is and ought to be a very contentious matter. The time for such a public discussion is long overdue.”

Comment by flatffplan
2006-12-06 06:36:17

UK- a year after their slump
house up 12%
and now

Comment by Chip
2006-12-06 12:46:42

Flat — just personal opinion, and not meaning you are making such a comparison here, but I think comparisons of home price increases between the UK and the US are seriously flawed because they do not factor out the cost of land and do not take into account the potentially large difference in tax effects.

Comment by Mike_in_Fl
2006-12-06 07:16:34

Mortgage applications are rising again, that much is clear. It looks like November will be a stronger sales month, when all is said and done, than the months before it. But is this “THE BOTTOM?” I’m skeptical. I shared some thoughts on why — including the gigantic inventory glut we’re still staring in the face — at my blog if you’re interested in reading the full comments…

Comment by diemos
2006-12-06 08:47:28


If credit is tightening and people are being turned down then could the rise in applications be partially caused by people applying multiple times with various lenders?

Comment by Chip
2006-12-06 12:49:03

Diemos — excellent question.

Comment by ubaldus
2006-12-06 08:50:40

shows that the Fed will be able to push on a string, if necessary… Look for interest cuts in 2007 to restart the insanity. Very possibly, we are going to go by UK scenario here - one year pause, mild correction, then restart.

Comment by Desert Dweller
2006-12-06 11:03:46

I’m starting to think this is a definite possibility. I can’t friggin get over mortgage rates being as low as they are. They’re creeping down by the hour right now. If they get even lower into next year this could really dampen the effect of the resetting ARMs next year.

Comment by finnman
2006-12-06 12:29:49

How would lower mortgage rates help those who owe more than their house is worth, or if they can barely afford their teaser rates?

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Comment by Desert Dweller
2006-12-06 12:47:47

I agree, it wouldn’t, but not everyone is upside down. Also, why would appraisals suddenly be accurate?

Comment by Chrisinpnw
2006-12-06 11:34:57

And then the $US will………………crash?

Comment by Hoz
2006-12-06 11:48:41

IMHO it is a difficult choice - inflation or recession. I happen to believe that fed fund rate will be raised but that the federal reserve will continue to expand the monetary supply. Stagflation

Comment by Chip
2006-12-06 12:49:56

My bet is with Hoz.

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Comment by tj & the bear
2006-12-06 22:58:06


Comment by CA renter
2006-12-07 02:12:54

Thirded. ;)

Comment by Arizona Slim
2006-12-06 07:19:13

NPR ran this story on Morning Edition:

“The mortgage business could be heading for trouble as the housing market slumps, especially lenders who dealt in high-risk loans. One big bank, HSBC, announced that its losses from bad loans would probably grow this quarter.”

Listen to the sorry tale (and weep crocodile tears for the subprime lenders while doing so) at:

Comment by salinasron
2006-12-06 07:48:49

This is why the press is becoming irrelevant. Do you personally ever pick up a newspaper anymore or watch a network news program anymore? I sure don’t.

You and I are on the same page.

Comment by octal77
2006-12-06 07:51:30

Interesting Listen

NAR MLS pricefixing and exclusion of discount brokers


Realtors tampering with MLS listings

The NAR is now removing discount brokers
from the MLS in an effort to keep all
the business for themselves.

file name is 112906_1b.mp3

Comment by Hoz
2006-12-06 08:14:20

China Posts $23.4 Billion Trade Surplus, Xinhua Says
“…China’s ballooning trade surplus has flooded the economy with cash and sparked calls from the U.S. and Europe for the nation to let its currency gain faster and crack down on counterfeiting. U.S. Treasury Secretary Henry Paulson travels to Beijing next week to discuss trade relations with China’s leaders….”
Bloomberg Dec 6, 2006
China has no reasons to agree to anything with the U.S. - we do not provide for their security. They are more likely to tell the U.S. to start saving instead of borrowing more.

Comment by octal77
2006-12-06 08:52:44

…China has no reasons to agree to anything with the U.S. - we do not provide for their security.

Sure going to get interesting when China decides that
they want Taiwan back. All they have to do is stop
buying US debt for the USA to cry uncle. I am
amazed that it hasn’t happen already. Gonna’
to play out as the first war won not by bullets
but with mouseclicks.

Comment by Hoz
2006-12-06 09:11:07

China’s response to the U.S. - different from my thoughts
There is difference in statistical criteria
“…this is the gist of an exclusive interview given by Chen Wenjing, vice-president of the Chinese Academy of International Trade and Economic Cooperation with reporters of “People’s Daily”, a leading newspaper in China.
Q. In what fields is the U.S.’ trade surplus in its China trade manifested?

A. Service trade is neglected or overlooked from the deficit statistics in Sino-US trade. The service trade surplus for the American side is not mentioned every time the U.S. speaks of its trade deficit. As a matter of fact, the U.S. has all along maintained a surplus in its service trade to China and with a good momentum recorded in the past dozen years….
Q. How much overblown are the statistics with China’s export value?

A. Processing trade constitutes a crucial component part of China’s external trade, making up more than 50 percent. In its processing trade, however, China only earned a very tiny proportion of the fees from the processing business. But at the arrival of these products in the U.S. and other overseas markets, they are reckoned for their export value instead of the added value, so China’s actual export volume is over-exaggerated…
Q. How do you look at the Sino-US trade surplus?

A. Surplus is not an issue worth being quibbled over, and I hope that the issue will be looked upon with a sober mind.

Trade surplus is merely a statistical parameter, and trade deficit cannot be simply termed as a loss, or trade surplus regarded simply as a profit. From the economics point of view, it would be meaningless if the sole attention is given to a single topic of bilateral trade deficit….
(and lastly)
Q. What do you think both sides should do to ease bilateral trade surplus?

A. The United States and China are the biggest trade partners and they can acquire their respective interests in the course of globalization. Hence, they should not quibble over this issue but actively resort to measures to alleviate trade surplus. China should, among other viable measures, spur the upgrading of its industries, expand its domestic consumption, inspire its enterprises to invest in the U.S. and implement the strategy for diversified markets. At the same time, the United States also needs to take some substantial and rational moves to enlarge bilateral trade by the means of extending service trade and lifting ban and restrictions on its high-tech export to China, so as to maintain the healthy growth of bilateral trade. Provided these measures are taken, it can be rested assured that the perspectives for Sino-US trade are splendid.”

I get it now there is no trade deficit to worry about.

Comment by BearCat
2006-12-06 09:22:17

There are some good points there. Just one example: if you buy a new AMD microprocessor, it will say “Malaysia” on it, because that’s where it’s packaged. But most of the value is added in Germany, because that’s where the silicon is created (Dresden), and it was designed in the US (and maybe India - core team is in US).

Comment by scdave
2006-12-06 08:40:19

OK;..Get out the Barf Bag;…

Just now on CNBC, some model agency is getting into the RE brokerage business (On The Don’s recomendation)….So if you are a buyer, you get toured through the property with a supermodel….One buyer said he liked the concept because it “Insured the quality of the people around you”…..Made me sick…

Comment by John Law
2006-12-06 08:43:38

ssssooooooo, what’s the name of that company?

Comment by scdave
2006-12-06 09:09:42

Missed the name, but it was in New York…

Comment by mad_tiger
2006-12-06 08:47:20

At least Liz Claman commented after the piece: “I’ve seen that tried on used car lots”.

Comment by John Law
2006-12-06 08:42:19
Comment by Hoz
2006-12-06 08:54:11

Iran recently repatriated its gold from Switzerland, and has been a major dumper of dollars since June, 2006.

Comment by rms
2006-12-06 21:03:46

“Iran recently repatriated its gold from Switzerland…”

It’ll be very interesting to observe Iran’s maneuvering as they brace for the inevitable bombing. Technology has removed most of the infantry’s threat from armor, and the days of unchallenged air power are almost over too.

Comment by Clogged Drain
2006-12-06 08:46:10

A situation I experienced yesterday during a real estate forecast conference at a major university adds credence to the often commented upon tendency of the press and real estate industry to try to spin the current downturn into something positive.

Following an upbeat assessment of the commercial market under discussion by a panel of experts with a vested interest in maintaining a “let the good times roll” perspective (to be fair there were two panelists who provided some cautionary comments), the moderator asked for a show of hands from the assembled group as to how many in the audience felt we were headed for a hard landing (I observed a few raised hands and a number of folks who tentatively move their hands from armrest to about shoulder level), a series of comments were made by a few bold souls, generally along the lines of the major points regularly made on this blog.

Subsequently, the moderator, after acknowledging that there was press in attendance, made the statement that based on the collective discourse, in general, the consensus was that we would experience a soft landing. This was sort of framed as a question to the audience, but it was nearly impossible for there to be any disagreement with this “conclusion”.

My sense was the most in the room didn’t buy this and that there were a lot more folks in the camp of the hard landing group who were insecure about stating their honest views.

Hard to go against the flow, which of course is one of the reasons we have business cycles, and thankfully, this blog.

Comment by rms
2006-12-06 21:32:59

“Subsequently, the moderator, after acknowledging that there was press in attendance, made the statement that based on the collective discourse, in general, the consensus was that we would experience a soft landing. This was sort of framed as a question to the audience, but it was nearly impossible for there to be any disagreement with this “conclusion”.”

The church didn’t care much for the news that the earth was round either, and early detractors were outcast or mutilated.

Nobody wants to see RE valuations drop. Virtually every community’s tax base is established on RE holding steady or rising. This is why you’ll never see a huge block of discount homes built and sold at half of the existing market price eventhough it could be done and still show a profit; the permits will never be issued unless a levy or tax will bring the prices in line with existing RE valuations. You see open competition with tools, the Chinese stuff undercutting the Snap-On stuff, but RE doesn’t operate in the same free market — it’s controlled.

Comment by Richard Allen
2006-12-06 09:01:48

My contribution for today……
Go ahead, its really something you wont believe…….especially if you were around the NYC area in the 90’s

Comment by dawnal
2006-12-06 09:24:11

On a somewhat similar line, here is a quote from today’s International Forecaster:

Our corporate-government crime is entering its seventh year and part of the structure in addition to the “Working Group on Financial Markets” is the committee on Capital Markets Regulation. The CCMG’s latest report recommends less law enforcement and accountability via deregulation. They have made 32 recommendations that will be lobbied in 2007 with the SEC and Congress. Here are several of the items. Limit how and when state enforcement agencies can pursue cases of financial fraud on investors. This is the no more Eliot Spitzer law. When you control the Justice Department and the SEC you don’t want or need real enforcement. Don’t sue corporations - only culpable officials. That allows dumping blame on a few so the corporation can escape blame. Make it much more difficult to convict defendants by requiring proof of actual knowledge of the specific fraud. This allows malefactors to get off the hook for criminal negligence. One of the most important is to weaken the Sarbanes-Oxley Law, including the key section 404 on internal accounting controls to foreign companies if they have to meet comparable standards in their home country. This is a recipe for delay and loopholes. This would gut the law. They want stricter cost-benefit analysis to any new SEC rules than is now in place to produce endless delays in issuing any rules – a device that has devastated updating or declaring new health and safety standards in the consumer, worker and environmental areas. Shareholder approval for “poison pill” defenses against takeovers that the company officers institute. This is a device to make companies vulnerable to the lucrative business of mergers and acquisitions. They want to either cap liability for auditors or give them outright immunity. That is pure insanity. This action of recommendations makes it significantly more difficult to hold corporate criminals accountable for their crimes.

These corporate criminals have looted trillions of dollars from workers, their pensions and millions of shareholders in just the last six years. This is truly what corporatist fascism is all about.

Comment by Captain Credit
2006-12-06 09:38:55

Great post Dawnal. The problem is that the naysayers and global corporatists have hired apologists to continue the charade.

Comment by Hoz
2006-12-06 09:02:13

I know hedge funds have been ripped on this blog by myself and others, but this is too funny to not post.

Cameco’s Grandey Says Investors Confuse Uranium, Oil

“… Demand for uranium is relatively insensitive to price, unlike oil or natural gas, Grandey said. A rise or fall in oil or gas has no effect on uranium because utilities that use it to generate electricity have no substitute fuels, he said.

No Correlation With Oil

Some hedge funds and money managers are buying Cameco shares in anticipation the company will somehow benefit as oil advanced….”

What me worry? These managers all know what they are doing.

Comment by John Law
2006-12-06 09:40:21

a higher oil price could mean that more nuclear power plants will be constructed which will increase the demand for uranium. I bet that the secular price movements of oil and uranium are closely related.

Comment by Hoz
2006-12-06 09:44:11

“..Since 1992, the correlation coefficient, a measure of the similarity in swings in returns for a pair of investments, shows a high correlation of 0.75 for Cameco’s shares and the price of uranium. The scale is from 1, meaning they move in lockstep, to -1, meaning the returns offset. For the same period, the relationship between the shares and oil is a weak -0.14….”
Same article

Comment by Hoz
2006-12-06 09:48:54

I doubt very much that any new nuclear power plants will be built in the U.S. over the next 20 years. The lack of an effective energy policy along with the pervasive NIMBY attitude precludes any firm commitment to construct. There have been several new proposed studies - so I hope I am wrong, but there hasn’t been a new plant in 30 years.

Comment by CashOnlyPlease
2006-12-06 10:00:19

Westinghouse, AREVA, and GE(Mitsubishi) would all disagree with you. They are all staffing up in the US, and getting approvals for their latest nuclear power plant designs. They are all putting money on their bet that new nuclear plant construction will begin within the next 5-10 years.

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Comment by Hoz
2006-12-06 10:38:06

Westinghouse and GE are staffing up for the 40+ reactors being constructed in China - there are 4 early site reviews that have been submitted to the NRC. I doubt very much that these will amount to anything as they have not amounted to anything in the years since they have been submitted.

Comment by NoVa RE Supernova
2006-12-06 17:57:44

South African-designed Pebble Bed Nuclear Reactors, which are inherently far safer than traditional designs (virtually meltdown-proof) are poised to revolutionize the nuclear power energy. Westinghouse is licensing the design in the US.

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Comment by John Law
2006-12-06 23:24:30

what about the last five years and when oil has been in a secular bull market?

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Comment by NoVa RE Supernova
2006-12-06 18:05:59

An excellent article by Jonathan Tannebaum: The Isotope Economy, offers a way ahead in the face of rising energy consumption and our dangerous reliance on Mid-East oil (and the fraud of such ‘alternative’ energy sources as ethanal and windmill farms. (PDF format)

Comment by Premature Curmudgeon
2006-12-06 09:48:36

Article from Calling BS on all the “Shocked to find gambling at Rick’s” articles in the media.

Nobody expects the subprime inquisition

The Wall Street Journal led off a Monday story on trouble in the subprime housing loan industry with the following sentence: “Americans who have stretched themselves financially to buy a home or refinance a mortgage have been falling behind on their loan payments at an unexpectedly rapid pace.”

Really? This was unexpected? Come on — when housing prices crash, a speedy increase in foreclosures and late payments on mortgages are as predictable as sleepless nights for real estate agents, especially for loans that were risky to begin with!

“Subprime mortgages” explains the Journal, “are loans made to borrowers who are considered to be higher credit risks because of past payment problems, high debt relative to income or other factors. Lenders typically charge them higher interest rates — as much as four percentage points more than more-credit-worthy borrowers pay — one reason subprime mortgages are among the most profitable segments of the industry.”

Does the Journal really expect us to believe that none of the observers of the economy who worried about the surge in subprime lending during the height of the boom were ready for a harsh morning after? Quite the contrary: Just as the surge in popularity of fancy adjustable rate mortgages elicited contemporaneous concern about what would happen when interest rates rose, so did the spread of subprime lending lead plenty of sensible people to warn of hard times ahead.

It may seem like I’m picking at a tiny point here, but the addition of that one word, “unexpectedly,” says that the editorial judgement on the story is that the news is not that Americans are getting in trouble on their loans at a rapid pace, but that nobody predicted it would happen this fast. And that’s just not true. And it puts into serious question the much more significant conclusion of the piece (echoed in a New York Times story on subprime loans today) that the rise in foreclosures and late payments will have no significant impact on the mortgage industry and the American economy as a whole. Because it’s exactly the same people who didn’t expect quickly accelerating subprime loan trouble who are now telling us that they “don’t expect any significant harm to the nation’s economy or financial systems.”

I guess if that does happen, the Journal will tell us it was unexpected. And it will be big news!

For a look back at someone who did predict, pretty closely, what would happen this year, we can go to Center for Economic Policy Research co-director Dean Baker’s piece on the housing bubble published in January 2005, where he noted that “widespread declines in house prices will lead to a surge in mortgage foreclosures.”

For an even gloomier update on Baker’s views on the economy, take a look at his most recently published analysis. What does he expect for 2007?


Comment by aladinsane
2006-12-06 10:19:31

“Nobody expects the subprime inquisition”

An instant klassic!

Comment by feepness
2006-12-06 15:16:49

I’ve said this many times already to many people:

“Oh, so the people who did not expect a downturn now expect that the downturn they didn’t expect will be brief.”



Works every time.

Comment by bj
2006-12-06 10:16:02

Andersen Windows in MN: lay-offs due to slowing of construction market

2006-12-06 12:19:34

guys- need some help. I have a customer that our bank is offering a 5.875 fixed 30 year loan. He is turning us down to go wth the option arm. Anyone have a clear and consise link explaining the dangers of this loan. The customer is rather simple when it comes to financial matters. Thanks for any help.

Comment by jag
2006-12-06 12:33:33

You’ll never convince him. When someone is “infatuated” with something they go blind and deaf. He’s sees only the current, low, rate and has no ability to imagine a future, higher, rate.

Kind of like arguing religion….its a belief, don’t go there.

Comment by luvs_footie
Comment by Gekko
2006-12-06 15:24:26

Vanguard 500 Index Fund Inv
1 Year 3 Year 5 Year 10 Year Since Inception 08/31/1976
14.08% 11.67% 5.96% 7.97% 12.22% (as of 11-30-06)

2006 YTD 15.09%

10 Year Average is 7.97% (and climbing)
30 Year Average is 12.22%
80 Year Average is 10.40% (historical mean)


Comment by diemos
2006-12-06 17:40:56


Past performance is not a guarantee of future results?

Comment by Gekko
2006-12-06 18:48:24

yes! the sun may not rise tomorrow as it did for the last 4.5 Billion years!

Comment by GetStucco
2006-12-06 22:27:29

Gekko — I get your point! Because the sun is certain to rise tomorrow, higher stock prices are a certainty as well :-)

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Comment by tj & the bear
2006-12-06 23:04:39

Great stuff:

Bill Bonner, Daily Reckoning
A man can make a fool of himself whenever he wants. Generally, he pays the price himself and the rest of the world goes on with its business. But in order to get a real public spectacle going you need to separate cause from effect. Because it is only when a fellow thinks he can get away with something that he really lets loose.

One of the great innovations of the lending industry during this period was that it broke the link between the person who made the loan and the person who would suffer the loss if the loan went bad. That was what made the housing bubble possible. While the marginal lumpen took out I.O. low-doc ARMs, the hedge fund, pension fund and insurance fund geniuses bought MBSs - mortgage-backed securities. The securities were backed by the mortgages, which were in turn backed by the imaginary incomes of the borrowers and inflated house prices.

The credit agencies rightly judged the quality of the mortgages as less than perfect BBB and then with the miraculous powers of modern finance these same mortgages were put into MBSs and turned into triple-A credits! This transformation of bad credits into good ones, in front of the very eyes of Ph.D. mathematicians and hedge fund quants, must be rated along with Christ’s performance at the marriage of Cana, where the Nazarene turned ordinary tap water into wine. Scientists often suggest that the Gospels lie. But as to the veracity of modern finance, they are mute.

Richard Russell, Dow Theory Letters
I just placed a one dollar bill on my desk, and next to it I placed a hundred dollar bill. What’s the difference between the two bills?

Both bills are composed of the same thing — linen and cotton. So what’s the difference. The difference is the writing on the two bills. Both say they are legal tender “for the payment of all debt, public and private.” The only real difference between the two items is that the Treasury states that one will pay off a dollar of debt while the other will pay off a hundred dollars of debt.

Thus, this nation’s money has been degraded to the point where the writing on a piece of paper tells you what the thing is worth. This is money by government edict or by fiat. Intrinsically, neither bill is worth a damn thing. And ultimately, they’ll both end up as bookmarks or museum pieces.

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