The Housing Bubble

this was his prediction from mid 2006

Housing prices will rise in each of the next four quarters, but by progressively slower rates year over year: 7.1% in 2Q 2006; 5.7% in 3Q 2006; 4.4% in 4Q 2006 and 3.5% in 1Q 2007.

-
When you factor in taxes, trading costs, your time, and your real actual honest gains/losses, I bet you, like most daytraders, are far, far behind the indices - and the farther back in time you look, the worse your performance looks.

The thing that’s most annoying to me? If I had just followed the herd in 2002, leveraged myself to death in the S. FL housing market, and held (even until today), I would be a very, very rich man. I am sure that using liar loans I could get 2-3 mil in finacing without working that hard (try getting a margin account like that with my income, good luck). And I would have been able to buy with 100% (or more) leverage. So, the way I figure it, I probably could have made about 40-50% return (on 2-3 million) in 3 years or so. That’s not bad! Especially when the only earnest money in the equation is to pay the interest on all the borrowed money. No margin calls to worry about!

So, yes, I understand your fustration. For once, following the idiotic masses would have been the correct way (finacially) to go.

True, but if you had gotten a liar loan, you would have compromised your integrity. In my book, that’s still worth a lot.

-
hindsight is 20/20. and just like that twilight zone episode, you never know how your decisions would ultimately play out. who knows, you could have leveraged yourself and bought that huge place in 2002 - but what might the ramifications would have been? perhaps you would have double or tripled down and used more leverage because of your new “winnings” and gotten yourself into big trouble? you never know what COULD have happened - and the game is not over yet. don’t beat yourself up over the past and idealize impossible perfect “in and out” scenarios and decision making.

Everything you’re feeling is what Wall Street is trying to make you feel. They’re trying to make bears capitulate while slowly repositioning into more defensive stocks. The dam will break by the end of January, I believe.

I have been riding my shorts and precious metals like a damn rodeo bull. Eight seconds my ass. I know where the macro economy is headed and they won’t shake me.

-
nah. it’s no conspiracy. it’s simple: Capital chases return.

I didn’t mean to make it sound like a conspiracy. It’s just the foolisheness of bulls moving capital after the worm has turned. They believe “there’s always a bull market somewhere” in stocks.

“That plus still fighting with the IRS”

Many months ago, when I was new to this board, I commented that when I see “Txchick57″, I see “Taxchick”, not “Texaschick”. That was simply because of my job. I did not know, at the time, that you’re embroiled in a battle with the IRS (for which you have my sympathy, of course). If I ruffled your feathers, I apologize.

“Where’s my bailout for the October put funeral I held?”

Which pastor did you use? I may want to hire him for the 3rd Friday in January, if he isn’t busy.

I’m no conspiracy theorist, but CNBC has me thinking otherwise. Turn it on and watch for a few hours, the unceasing bullish commentary is like watching Cal Worthington and his dog Spot selling cars. It’s easy to visualize most of the commentators wearing sweaters, pleated skirts and waving pompons.

Dont forget spinning signs.

Same thing with Fox on Saturday morning. First I watched that idiot Brenda Buttner and her carnival sideshow/game pushers, err stock analysts, tell us all that R.E. will keep going up next year and now is a good time to buy. Then when the analyst from Euro Pacific Capital coems on and challenges them and starts breaking it down and making them look like the liars they are, the fat guy tells him flat out “if you say that again you will never be on this show again”. In other words, keep making us look bad and you wont be back - tow the line and help us rip off everybody watching. My wife and I couldn’t believe the guy on the panel actually lost it and threatened the guest analyst right on tv.

But this is what we are dealing with. Analyst liars who just want to keep selling us crap investments and telling us that things are okay “just keep spending”.

Like someone else here says “nothing to see folks, just move along”…

Chrisusc, I watched the same program and was thinking similar thoughts… did you know that the realtor guy with the long hair that appears on that show is Brenda Buttner’s husband? Just remember that you’re watching a production. IMO, the only Fox morning show worth a damn is Cashin’ In because of Wayne Rogers; he tells it like it is and takes no BS. BTW, he’s saying to stay away from RE and not to touch it with a 10 foot pole.

“did you know that the realtor guy with the long hair that appears on that show is Brenda Buttner’s husband?”

Thanks for the info. I did not know that. But, yes I do agree that it is a production and nothing more.

The question is what a loan is worth if the underlying goes into foreclosure. It isn’t necessarily like a corporate bankruptcy where there can be zero return. To price it right you have to have an idea what can be eventually squeezed out of the F.B. in the end. And this, nobody really knows. But assuming the return will be 0% of capital is an unrealistic low-ball, as the implied price now of “soft-landing” is also unrealistic.

With you, jag. Cash is king, queen, parliament, judge & jury.

I think txchick comment wasn’t so much about being wrong on shorts but how the level of manipulation which is occuring today makes it harder to participate whichever direction that is.

Not to say “I told you so”, but I told many of you so.

I think the answer is FAR more simple than many are recognizing.

Money is leaving housing and going into the equities market.

Many have hypothesized, “where will the next bubble be?”

It may be stocks again.

The equities market goes up on good news and up on bad news too because “investors” (cough) are not looking at the news. They are escaping housing, and have to put their money somewhere.

there is tons of money sloshing around out there. That money has to go somewhere. why not equities market? The news is certainly bad enough that it’s not going to flock to housing. And commodities are already crowded. Bonds. blech. Based on the yields I’m seeing, more and more money is flowing into Treasuries as well.

In fact, look at all the LBO’s and takeovers and mergers that are going on. There is a lot of MONEY out there. There isn’t much PRODUCTION out there though, so the American “economy” is chugging around by just trading things back and forth. Take company X public. Make lots of money. Then load it up with debt. Then spin off some of it’s subsidiaries. Make lots of money. Then do a LBO and take one of the subsidiaries private. Then take it public again 6 months later. Make even more money.

Sounds kinda like flipping houses, doesn’t it.

We are living in a major credit/money bubble. This is the aftereffect of that… rampant inflation in multiple asset classes.

Sucks, don’t it.

hence, you gotta diversify. Me, I’m in RE (my house), gold/silver (stocks like CEF and also Perth Mint certificate), T Bills, Cash (under mattress, also high yielding accts like Emigrant Direct and HSBC), stock index funds, emerging market index fund, small stock index funds, Berkshire Hathaway (essentially a small index fund)

this way no matter how the wind blows, I won’t get killed (I also won’t make a killing). capital preservation is key here

HIC

Amen brother — couldn’t have said it better myself! LOL — we truly have an immense amount of liquidity/cash just chasing its tail. Kind of like late 1999, when you come to think about it. I wrote a piece about this a little while ago if you’re interested …

http://www.moneyandmarkets.com/press.asp?rls_id=575&cat_id=6&

M. Clouseau, where/when is our midwestern winter blizzard going to hit? I think stocks haven’t come down from the bubble formed in 1994! I have been sitting out of the stock market since early summer (with no regrets). Since May/June a lot of my investments are/were in foreign currencies, foreign bonds and some gold/ and gold mining stocks. I agree with you wholeheartedly that the issue is preservation of capital. I have always used a risk/reward ratio to evaluate my investment ideas. I find the risk to great to participate in this market and as Jim Rogers said “Throughout history the public has always piled into the latest bull market right at the top so few have caught on to the bull market in commodities.” This is another piling on at the top.

Mike _in_Fl, I read your free newsletter regularly, and value your insight into the markets, but I especially liked you in ‘Capote’, and the fact that you are living a double-life as Philip Seymour Hoffman.

I agree, but yesterday there was a thread in Pigginton wondering whether lenders would decide to take some losses by refinancing at rates that the FB can handle for another couple of years. This would prolong the pain and screw FBs and taxpayers, I suppose, but it would avoid the nightmare/apocalypse scenario.

exactly so when they do fall get ready for a sizable disintermediation!

bluto,
That’s a good one, had to look it up: “disintermediation”

dis·in·ter·me·di·a·tion /ˌdɪsɪntərˌmidiˈeɪʃən/ Pronunciation Key - Show Spelled Pronunciation[dis-in-ter-mee-dee-ey-shuhn] Pronunciation Key - Show IPA Pronunciation
–noun
the act of removing funds from savings banks and placing them into short-term investments on which the interest-rate yields are higher.

The withdrawal of funds from financial intermediaries such as banks, thrifts, and life insurance companies in order to invest directly with ultimate users. Disintermediation was more of a problem when financial intermediaries were limited in the returns they could pay to savers. Deregulation of financial intermediaries was intended to dampen the periodic swings toward disintermediation. Compare intermediation.
Somehow have to find a way to coalesce this word with “Indemnify”

A rough interpretation of sub-prime would be anyone who cannot qualify for a regular 30 fixed loan at prevailing rates (today around high 5’s). The reasons include high debt ratio or inablility to prove enough income, credit issues, lack of liquid assetts ( and borrowing a high percentage of your home value for cash out purposes.

“The reasons include high debt ratio or inablility to prove enough income, credit issues, lack of liquid assets and borrowing a high percentage of your home value for cash out purposes.”

You forget a most important reason: Buying stuff you cannot afford. The subprime crisis is due in part to homeowners who bought into markets which were beyond their means, thanks to the tacit encouragement of lenders who abandoned prudent underwriting standards.

great point…and that is the first question win jr that the government has probably kicked around…this “one time offer” comes with all the thrills and chills without the extra baggage…plus…don’t forget - polictical turmoil in many parts of the world - even a $100,000 fleecing is a bargan to plant your feet on American soil…WHAT THE PUBLIC DON’T KNOW WON’T HURT THEM…(quote from my economics teacher)….

“this “one time offer” comes with all the thrills and chills without the extra baggage…”

What are you suggesting? A special exemption from income and estate tax? With Congress now controlled by the Democrats? A Congress that will let the current estate tax exemption amount expire in 2010? A Congress that will no doubt roll back many of the tax benefits it perceives as benefitting the rich?

WILL NEVER HAPPEN.

make me laugh too much!

31% ?? You’re kidding right? You think that anyone is going to be taking W-2 or unqualified dividends? What kind of tax advisor are you?

Naturally, all income is thru cap gains and qualified divs. If the corp structures don’t exist, then you create them.

And since you’re an estate attorney, how about you tell me what you think the minimum is going to be to set up an irrevocable trust with donated low-priced shares that are later monetized with buyback from the corporation?

And then, assess for me how the plan is 100% bullet-proof.

As opposed to which country?

“31% ?? You’re kidding right? You think that anyone is going to be taking W-2 or unqualified dividends? What kind of tax advisor are you? ”

The kind that won’t knowingly cheat for a client, that realizes that U.S. citizens are taxed on world-wide income, from whatever source derived, that has been busted by the IRS on a few occasions for trying to flow through dividend income that was, arguably, wages for services provided and, most especially, the kind who’s first priority is too keep my clients out of jail.

“Naturally, all income is thru cap gains and qualified divs. If the corp structures don’t exist, then you create them.”

Huh? I’m dealing with an examiner right now who saw right through an identical scheme. A ton of so-called dividend income is going to be reclassed as wages.

If this is something that YOU’RE doing, then I suggest you revisit the issue.

“And since you’re an estate attorney, how about you tell me what you think the minimum is going to be to set up an irrevocable trust with donated low-priced shares that are later monetized with buyback from the corporation?”

I don’t give fee quotes over the internet.

“And then, assess for me how the plan is 100% bullet-proof.

As opposed to which country?”

The country is irrelevant. Once the individual in question becomes a U.S. citizen, the risk factor is Congress and the IRS.

The kind that won’t knowingly cheat for a client

More power to you.

that realizes that U.S. citizens are taxed on world-wide income,

But corps are not, until they repatriate the money.

I’m dealing with an examiner right now who saw right through an identical scheme.

And how many don’t get caught, because the structure is more airtight?

If this is something that YOU’RE doing, then I suggest you revisit the issue.

No, it’s more that I’m someone who saw how easily this thing could be abused. (By trade, I’m a serial entrepreneur, so I’ve set up both C and S corps.) Combined with the indictments involving one of the large accounting firms a couple of years back, well, let’s just say it just makes my blood boil that for every one getting caught, many more don’t.

Makes me keep reading posts here by Paladin, for example.
It also struck me that the larger the sum involved, the more opportunity to play.

The question is what will happen going forward in regards the IRS. If you are currently paying attention JP, you know that they are cracking down on PCa’s and soon will be publishing a listing of those who are presumed to have done something “bad”. Even though the Constitution says that we are innocent until proven guilty, the IRS feels otherwise. Do you want to be a CPA on that list.

Recently in our firm, one of the Partners was investigated by the IRS due to having set up a pension for a client (many moons ago before this type was on the IRS “list” of no-no transactions). The IRS agent found that this Partner was the agent for service of process on the client being audited. The IRS agent then went on to pull every single entity that the Partner was invovled in, did background check, etc. The IRS agent told the Partner that “you came up clean, but you have no idea what we have now and in the works - it makes the NSA look low-tech”.

No do you really want to be the one setting up these structures and/or advising your clients when the sh*t hits the fan. And dont forget, the country is BK, so eventually all the tax loopholes and low rates that you see now will be disappearing (I also believe mortgage interest will go bye bye as well). They have to get the tax somewhere. I think that is what winjr was basically saying.

-

“Liberals saw the savagery of the 9/11 attacks and wanted to prepare indictments and offer therapy and understanding for our attackers. Conservatives saw the savagery of 9/11 and the attacks and prepared for war.”

“Conservatives saw the savagery of 9/11 and the attacks and prepared for war.”

And failed at that one too.

Try again.

-
Al Qaeda is coming back for us. They won’t stop. They want to kill as many of us as possible. Liberals forget 9-11. I don’t.

Paxil does wonders for paranoia. Try it sometime Gekko.

Gekko,
W is going to ratchet up the troop in Iraq…looking for volunteers. We’ll look forwad to hearing from you on Real estate in Baghdad and environs. Keep us posted, patriotic one.

Gekko,
The conservatives are hysterical cowards. We live in a free country. That opens us up to taking some hits. That sucks, but this is war, and in war people die and things get broken. Our freedom and our values are all that separate us from our enemies. Taking away our civil rights, our right to privacy, and our freedoms are the actions of terrified children who can’t bear the idea that there are bad people out there who want to kills us. I live in NYC, I know the horror of terrorism, but I’d rather die in another terrorist attack on a free America than live in a police state under the constant babbling of fearmongers.

There are bad people coming for us. Suck it up. Keep America free, keep our rights intact, and fight the enemy lawfully. Chin up and soldier on, enough with the shrill warning of end times.

The US should stop giving free money to Israel and mind its own business. Then no one would have reason to attack US civilians. (Someone may attack anyway, but at least the US would be innocent.)

Gekko said:

“Al Qaeda is coming back for us. They won’t stop. They want to kill as many of us as possible. Liberals forget 9-11. I don’t.”

Sounds like Al Qaeda and their brand of “terrorism” has worked well on you, as you are playing right into their hand.

Libs want the Islamic fundamentalists to take over America. Libs hate freedom and capitalism. Anything pro-America is bad for Libs. If you want me, a 47 year old, to go into combat, I will do so, after you move to Iran.

Very low vacancy rates here on the FOBs in Baghdad. I had to wait weeks before being moved out of the transient tents.

Bill,

One of my NCOs here is 57 years old and is a great soldier.

Is it a sign of weakness when a nation spends 4% on defense (including the war) and 16% of GDP on medical care? Is it a sign of weakness when a nation gets hysterical about 3000 unfortunate deaths when the French even in May of 1940 had 100,000 killed? Freedom isn’t cheap. In a historic perspective this has been a cheap (lives and money) war. Is it possible that fighting in Iraq and Afhganistan has saved American lives by taking the war to the homeland of the enemy?

” In a historic perspective this has been a cheap (lives and money) war.”
Please do not describle 3000 American dead as “cheap”–please.

erm….its not 3000 American dead.
Remember it was the World Trade Center. About 400 of those people were British. Plus about another 1,000 came from various different countries.

Sorry, don’t mean to fan the flame on either side - but if you’re going into rant-mode, then at least be accurate.

Ben,
Forgive me for interjecting, but it would seem rather impossible to extract the housing/credit bubble from the politics of economics.

With absent regulations & regulators (and the govt’s willingness to turn a blind eye to it), tax policies, downpayment assistance & “low income” programs, GSEs, potential bailouts, currency considerations, laws WRT precious metals, hyperinflation/deflation, etc. — we cannot avoid discussing the possible political causes & effects. I believe the housing bubble was intentionally created, by a very willing govt, in order to prop up the balance sheets of corporations (and the wealthy who run them), among other things.

IMHO, the credit bubble does not exist in a vacuum, and we should be open to discussing the political causes and potential bailouts in order to be prepared for what lies ahead.

That being said, there is too much name-calling, and not enough true debate over the issues which really matter. It’s been said before, but the two-party system isn’t the issue. We need to examine how politics affect money and the economy. Those are real issues which have a direct influence on the housing market — and will determine whether or not we are all “brilliant bubble-sitters” or fools. We cannot be sure which, at this point.

Sorry to get in the middle of this. Just think we need to be open to discussing all aspects of our economy (which is heavily influenced by politics).

Thank you for this blog, and all your hard work, Ben!!!

I don’t think most posters/readers mind someone making a relevant, political point from time to time. But I do think it is better not to get dragged off too deep. For instance, I don’t think anyone will have their mind changed on a subject like terrorism policy via a housing blog.

Hi Ben:

I am sure the last thing you wanted was to start a discussion about wheather we should have a discussion, but as a long time reader of this blog, I have to say that, while I agree that political commentary that is not related to housing in at least some indirect way should be tempered, I have to agree with Gekko that the reprimand would have been more fairly directed to the individual that started the political non housing related thread, rather that those that responded to it, regardless of their political position.

“That being said, there is too much name-calling, and not enough true debate over the issues which really matter”

Agreed. It gets to be nauseating seeing it over & over again. It has a very junior high feel to it. ick!

I’m just surprised this blog is able to maintain such a balance of political opinions while simultaneously everyone is a housing bear.

I was thinking the same thing. Politics really has become too much of a my side your side thing.

Ben posts:
For instance, I don’t think anyone will have their mind changed on a subject like terrorism policy via a housing blog.
Amen to that! You can’t even change people’s minds on the housing bubble via a housing bubble blog!

To be fair to Gekko, his earlier posts did meet Ben’s Bits Bucket criteria…(Oracle Dumps Valley Office Space and the CSM piece). Don’t be too harsh on Gekko, Ben, if he sometimes can’t resist the bait when it is cast.

This blog is a source of great information and is now attracting MSM attention. IMO, these periodic food fights undermine the good work that Ben is doing by obfuscating the issue at hand. The credibility of the message could be damaged by HBBers trading insults and pejorative comments.

http://www.irmep.org/Policy_Briefs/3_27_2003_Clean_Break_or_Dirty_War.html

“A Clean Break: A Strategy for the Defense of the Realm” (Israel) was authored by Wolfowitz, Wurmser, and the other neo-con leading lights, originally for Israel’s Likud Party, then later repackaged as US foreign policy.

“Core members of the group have been able to raise the primacy of Israeli issues to a level that Americans would find absurd if the group were promoting the interests of any other state, (such as Italy or Mexico). Their level of vitriol, hubris and war-mongering by power of the pen and influence over American policy has been stunning. Many have personally engaged in activities that derailed official U.S. foreign policy initiatives in the interest of improving Israel’s power. Others have systematically chipped away at the U.S. constitution by supplanting Israeli interests for legitimate U.S. interests in the Defense Department and Executive branch of the U.S. government.”

“The gaping divide that separates this group’s lobbying on behalf of Israel and the true interests of the United States also defines this group with the very label they so frequently hurl at others: traitors to the United States of America.”

Have a look at how vociferous the pro-Israeli shills are in attacking anyone who wrote favorable comments on Amazon regarding Carter’s new book.

Anyone here will be happy to respond to logic. Now go ahead and post something besides apologies for the fear mongering silliness.

Funny how it dropped the months before the election and went up instantly after election, isn’t it? He’s not the World Emperor, just the US Emperor. Check the facts, profit margin on gasoline dropped to nearly nothing before the election. Big oil wants their guys in the government.