Bits Bucket And Craigslist Finds For June 24, 2007
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Thanks to all for the brilliant economic analysis. One of the ironies her is that the world is waking up to the trading strategy that we have been discussing here for months- Mark to Market. As mort loans and CMO /MBS owners get slaughtered,
1. Investment banks- which will fall next? (FBR)
2. Blackstone’s sale- did anybody get some? Was this the iconic “shoeshine” moment- the true market top signal for the historians?
3. BearStearns- how much of the 3.2 bil did they really put down? (
BX went over like a fart in church on Friday. That was the highlight of the day. I think everyboyd thought it would be like BIDU that went up nearly 100% the first day. BX came out at $31 and ended at $35, dropping all day, on a day that the market tanked due to fears about hedge fund-type activities. I don’t think that’s what these boys thought it would do. It will be interesting to see if this big black box goes to the stratosphere like some think it will. FIG certainly hasn’t done much. It was down 6% on Friday. The “we’re smarter than everybody else” crowd is in a position to look like the pompous a$$es they really are.
They are smarter. Look at the money they’ve made selling this junk to the public.
Are we mistaking dishonesty for intelligence?
Please remember that an IPO that goes up a 100% the first day or week makes a buzz and makes the insiders richer than they were when it forst sold, but all that appreciation is money they left on the table that could have gone into the company’s coffers. Ideally, the investment bankers are supposed to price the shares at what the market will support, not at one third to one half of what the market will support.
Not leaving money on the table is especially important to a company that uses leverage as a major business strategy.
I don’t think the investment bankers ever want to price an IPO fairly. They can’t make fortunes for all of their buddies, outside the company, if they truly price the thing right. They are much more dishonest than they are smart. Corporations are for the kings.
Investment bankers want to do what their clients tell them to do. Back in the early dot com days, the clients were naive, so the investment bankers got to dictate low prices so they (the ib’s) didn’t have to take any risk of holding unsold shares at the end of the day (unless they wanted them). Yeah, they got to tell their buddies that something was a sure thing if they wanted to risk going to jail, but there were institutional reasons for underpricing and the clients didn’t know enough to tell them to do otherwise. After all making gobs of money with no risk is a good deal - for the bankers.
Blackstone is not a naive client. Not a chance in hell. I bet they were VERY involved in pricing their own sale. If they sold near the eventual trading price, it is because that is were they wanted it. Again, because of the leveraged business model, they wanted to maximize the money coming into the company.
I doubt that news stories of Blackstone’s role in recent negotiations with China or other hints about crony capitalism connections hurt one iota in the IPO’s success. This is a company which is bound by politics to get special treatment.
Dishonesty and intelligence are not mutually exclusive.
Though I wouldn’t call the Blackstone guys dishonest…ruthless, relentless in their greed, and playing every insider card they have..but that’s what this admin promised the big boys, and plenty of ordinary folks were happy to vote for it.
“Blackstone is not a naive client. Not a chance in hell. I bet they were VERY involved in pricing their own sale.”
And how many palms do they need to grease to get their preferential treatment? I’m guessing they left some slack in the line, just in case their big buddies (Bush roomed with co-founder of the company at Yale) wanted to have a nibble.
I would call them dishonest every day of the week.
“…but that’s what this admin promised the big boys, and plenty of ordinary folks were happy to vote for it.”
Yeah, cuz they think they got it so good. Endless bills, student loans, wrestling with healthcare providers, more bills, soaring taxes, stagnant wages…all for a piece of the pie. Whatever, it won’t change - the TV will ensure that.
“…all for a piece of the pie.”
Too bad that corruption at the top has the long-run effect of shrinking the pie.
The Chinese government’s decision to invest $3 billion into the Blackstone Group investment firm is being seen as the first of an expected onslaught of Chinese investments in the United States — and a sign that China may be growing more sophisticated about U.S. politics.
http://www.npr.org/templates/story/story.php?storyId=10305714
“…more sophisticated about U.S. politics.”
Like crony capitalism, for instance?
Mabey a stupid question, but if it came out at $31 and was ” dropping all day, on a day that the market tanked due to fears about hedge fund-type activities.” how did it end up at $35?
I guess I am missing something.
It opened for trading around $37 I think then traded down from there. That way the brokers good customers got their guaranteed profit on the first day!
The one day chart shows activity at $43 to begin the day but the log shows that $38 was the high. It dropped to $35 and then didn’t move a muscle. FIG is down to $24 and change. That topped out at $37. It would be great to see all of these hedge fund stocks tank.
Only the insiders could buy at $31, the night befroe the IPO,
Initial indications were that it would open to the public above $40, meaning the insiders could start dumping their shares for an instant $10+ per share profit. Some activity was allowed at that level, but when they realized there would be heavy negatvie preasure at that price point, They “reassessed the price”. They opened at $36,45 instead, hoping to get upward movement from there. They are going to back out those trades above $36.45.
First time a regular Joe could possible buy was $36.45…. It then traded down all day from there.
So, the insiders that were hoping to make at least $10 per share actually made less than $5 a share… Just not enough suckers willing to buy their lipstick wearing pig.
They had to rush this thing to market to even get that.
How much did Bear Stearns really put up to save their hedge fund? It all depends on how much money the investors continue to try to yank out of the fund.
They pledged the money in hopes they can convince investors to leave their money in the fund, and lose slowly as the assets are liquidated. If investors see through this “slow loss” plan and pull out quickly, I think Bear will let this fund collapse. They promised the money, not to actually lose the money, but simply to try to restore investor confidence.
Unfortunatly, offering to put in a little money can’t stop the foreclosures or the mass loss in value of those foreclosed properties… Therefore, this fund will lose, and the investors will still pull out.
I think we’re in the end-game for the financial markets. Liquidity is drying up. No one is buying these CDOs. Everyone sees the coming collapse and wants out.
FL real estate market where all the investors pulled out at once and now no one can sell… Well, that is now the CDO market. EVERYONE wants out, but there is no one to sell to.
I thought that the brokers always have an agreement with their IPO buying clients that they must hold for a certain period of time so that it would not be possible to cash out with a profit so soon.
The only rational explanation for all the stupidity on display by financial wizards in the IB community is that they are expecting bailout money to make them look smart through the rear view mirror. I noticed stories the past couple of days mentioned the Bear Stearns bailout was the biggest since the 1998 LTCM bailout, but no mention was made of any role of the Fed. Perhaps taxpayer money was technically uninvolved in either case, but when you have a CB standing ready to print money and drop it out of helicopters in order to maintain financial stability, the prospect of a stealth inflation tax to pay for bailouts looms very large.
FBR riches to rags
what % of their action was MBS etc…….?
how about the advisory ,mutual fund and other parts of FBR
even GE will take a hit by the time this is over
Florida’s property tax situation was given an entire segment on last night’s NBC Nightly News (I remember when the host of the segment, Kerry Sanders, used to work as a local street reporter for one of the affiliates in Miami, now he’s network, but I think is Florida-based). They showed two similar houses, side by side. One house, purchased in 1969, still with the same owner, has around $2,000 in taxes under Save Our Homes. The other house, recently purchases, has $11,000 in property tax.
Naturally, the person who purchased during the bubble was whining “No Fair”. I wanted to give that homeowner “No Fair” right in the kisser. It’s folks like that who helped run up prices into outrageous territory in Florida, well beyond what property is worth and beyond the reach of many Floridians, so good on ‘em if they have to pay that tax. They didn’t have to purchase the home at such an outrageous price and they could have calculated the taxes before closing. But no, they’re stuck on stupid and now they want long time Floridian homeowners to share their misery.
The news segment also discussed the exodus of Floridians to the Carolinas, Georgia and Tennessee. Overall, the piece was kind of a black eye for Florida, but hey, if it hastens a drop in prices, fine by me.
I’m with you palmetto. Even though I’d like to buy a place in Florida someday (my wife is from Bradenton, and in-laws from Pensacola) - when I do buy I expect to pay whatever property taxes are current, and I don’t expect the long-time residents to have to pay the same when they bought their property years ago for way cheaper. *That’s* what wouldn’t be fair. In Florida especially many residents are living on fixed income, and can’t afford to have their property taxes going up like that - *especially* when most of the increase is due to greedy flippers.
“*especially* when most of the increase is due to greedy flippers.”
Exactly. Interestingly, I’m watching a segment on the local news right now that shows the Florida Republicans want to phase out Save Our Home “because long time homeowners are not paying their fair share”. What a crock. Yes, the “super exemption” favors those who pay idiot prices. The whole “super exemption” proposal is a con game. As one community leader said, people ought to look at what Tallahassee did with “insurance reform”. “Property tax reform” in Florida is a shell game.
palmetto,
I had a workgroup meeting in tampa last week and i was pleastly surprised that nobody seemed interested in property tax reform. Everybody seemed to be on the page of “Just have values fall to affordable levels”. Most of the guys seemed to understand it would suck tax wise for a couple of years but that eventually everything will revert back to afforable…Taxes+insurance+payment…
Chris
Good to hear, Chris. That’s what it comes down to, letting the bubble deflate is the solution to all of this. I’ve noticed, most especially on this blog, that it is the newcomers to Florida DURING the bubble that have their noses out of joint about SOH. It’s just bad timing, is all. They would have felt differently had they purchased before the bubble and will feel differently afterwards.
But I do think that those who own rental property are taking it on the chin and NOTHING was done for them.
” In Florida especially many residents are living on fixed income, and can’t afford to have their property taxes going up like that”….
then they need to move. I have elderly parents and in-laws who downsized several times and have contingency plans for various events. It stinks that they might HAVE TO move but I’ve seen all too many elderly folks living in huge homes, falling into poor health and having their property virtually collapse around them.
Having the government subsidize bad decisions by the elderly to stay too long, in too expensive and too large homes isn’t doing anyone a favor. You want to live alone in a four bedroom house when your 80? Fine. Pay the same taxes as would a family of four. By moving out in a rational fashion the housing market supply is constantly refreshed, not artificially decreased by “feel good” tax policy.
Just because you grow older doesn’t mean you are immune from facing choices. They may be tougher choices and harder to make when you are quite elderly and, perhaps, infirm but allowing and encouraging people to not face reality isn’t a healthy practice whether its done by private individuals or public officials, is it?
Hmmmm. It seems to me that what you’re really saying in spite of the examples is that it’s good public policy to force them to move to cheaper and cheaper dwellings over time, NOT if they’re infirm, NOT because their properties are collapsing around them, NOT because they’re living in a 4 bedroom house when they’re 80, not for any other reason than that fixed retirement incomes do not keep pace with the real rate of inflation - suffice it to say that many people disagree.
Would you feel equally strongly in favor of your own child being forced to move from a small one bedroom condo in FL to a trailer park or crappy tiny room in a retirement home in Georgia in 50 years because s/he cannot afford the property taxes in FL based on bubble property valuations during the next bubble? Because while not the same as your ‘old lady living in a 4 bedroom house’ example, that would also be the impact of your policy decision - maybe you’re ok with it.
The “‘feel good’ tax policy” of which you speak with such apparent vitriol is not about having people not “face reality”, since the “reality” you’re talking about is just the one CREATED by the tax scheme in the first place - it’s obviously about allowing people to actually retire without worrying about things like idiotic housing bubbles, a conscious compromise in the government’s wealth-siphoning scheme toward increasing quality of life for the aging. If we’re going to get rid of “feel good” tax policies, let’s start with so-called “progressive” taxation rates, then move on to “sin” taxes on tobacco, gasoline, alcohol, and expensive and low-mileage cars, and work from there before we start putting grandma in the street…
Basically, Property taxes are simply paying the gov’t rent on property you own - which is Bullshit.
“Naturally, the person who purchased during the bubble was whining “No Fair”.”
Did the FB have a Long Island accent? Please tell me “yes” and start my morning out right.
Wish I could tell you yes, NYCityBoy. But I didn’t recognize a regional accent, particularly.
“Did the FB have a Long Island accent?”
Isn’t it ‘Lawn-guy land?’
Good Morning peeps:
I’ll tell ya what not Fair! My parents having my grandmother move into the upstairs 2 bedroom apartment, living on SS, and the city of Norwalk raising house taxes from $3K to 7K in 10 years….plus the hundreds a month my parents lost in rent, (vs renting to the public) by keeping my grandmother out of a nursing home, or off of public assistance.
This is criminal in America…..The state will pay $50K+ a year to put her in a nursing home but wont freeze the house taxes . Heck she couldn’t even get food stamps because she wasn’t consider poor enough to live in some ghetto apartment.
For one I don’t understand why the property tax is increasing so fast on homes that change owners. IF the state/local budget would increase by 3% per year, the kind of increases the rest of us has to make due with, there wouldn’t be a problem. It’s tax &spend politicians that are running up the taxes on homes, not speculators or anybody else. Fiscal irresponsibility at the government level is the culprit. Why should only new home buyers have to suffer? It’s like if you’re income tax could never go up, only young people entering the job market would be taxed at a higher rate, how is that fair?
I had no idea how bad it was when I moved here from NC. My job relocated here, so I came along. I am renting and will continue to do so. You got to be a retard to buy a home in Miami or anywhere else in Florida given the current prices, taxes and insurance rates.
I got a 50% raise for moving here and no state income tax, versus 7% in NC. Despite a 50% boost in take home pay I am not able to afford the same standard of living I was enjoying in NC. Housing being the main expenditure that is way out of line.
I think the Florida legislature is not doing themselves a favor by essentially making it impossible for people to move to Florida and purchase a home. In addition it will run off many of the out-of-state folks that own a vacation home along with landlords and rentors that are not shielded from tax increases as well. SOH is catering to a small special interst group at the expense of everybody else. Since I can’t change it I can only draw the consequeces by moving out of state to more accommodating legislatures.
“SOH is catering to a small special interst group at the expense of everybody else.”
As the news segment pointed out, there were no complaints about SOH until the bubble happened. It has only become an issue since the bubble happened. Further, during this crazy bubble, SOH has done exactly what it was designed to do: keep people from getting thrown out of their homes due to speculation. It also rewards people for stability and longevity.
I do not at this time own any real estate in Florida. But I strongly approve of SOH. I wouldn’t want my taxes to skyrocket just because a bunch of FBs and flopped flippers want people to share their misery.
Moving out of the state might be a threat to legislatures, but not to long time citizens who are being pillar-to-posted by a bunch of push-n-shove “investuhs” and “developuhs” and big swinging d*cks from the Northeast and Cali.
Of course, if the government based the mil rate from year-to-year on how much they need for that’s year budget (as a function of property values), then skyrocketing property values would have no effect on individual property tax.
That solves two things: (1) speculation can’t drive taxes. (2) Governments don’t have to worry about a tax shortfall when prices drop.
Every state should do what Colorado did a decade and a half ago. Freeze govt spending and then tie it to population and inflation changes. If govt wants to spend more, ir move money from account to account, they have to get voter approval.
Back in the dot com days, CO govt was collecting higher taxes, but couldn’t spend it. Part of it got returned to voters and the rest got stashed into a rainy day fund that was there waiting for the dot com bust.
Amazing what little things politicians find to argue about when they don’t have the ability to spend money.
Every state should do what Colorado did a decade and a half ago. Freeze govt spending and then tie it to population and inflation changes.
I would go one step further and not just freeze but roll back govt. spending.
It does hurt even people on SOH. How about a couple in a tiny house that needs to move up after they have children, how about older people in a larger house that need to move down to cut expenses and upkeep. If you can’t take it with you, you’re stuck in what you’re living in, even if you can’t afford the utilities after you retire.
Of course, if the government based the mil rate from year-to-year on how much they need for that’s year budget (as a function of property values), then skyrocketing property values would have no effect on individual property tax.
Exactly - the current “values” of properties as determined by govt appraisals should only affect the relative amounts of tax apportioned to different properties, not the absolute amount. The govt should determine how much it needs for a year, and divide by the total value of all properties to get the mil rate. The mil rate is then applied to each individual property value. This calculation would not be affected by pricing bubbles.
Of course in actuality many local govs have simply treated the bubble as a tax windfall.
Now I finally see the problem in Florida - no income tax. Thats is just plain nuts. I know that some will find a problem with that but running a state budget on only 1 type of tax is nuts. Oregon tried that with no sales tax and when the recession hit in 2001 they lost millions as workers were laid off. Some would argue that Oregon is still affected by that 2001 recession. Schools had to get money from parents so kids could be in chemistry class.
It works fairly well in Tennessee, but they talk about instituting an income tax almost every year.
TN does have an income tax (on capital gains).
Please explain exactly why the state “needs” so much money that they “must have” both a sales tax and an income tax. I get almost no benefits from the state I live in, but I do get to pay property taxes nonetheless, as well as a high sales tax. Adding an income tax would make it even worse.
WAman, I invite you to move to Massachussetts or California, which have high state income taxes. Seems you are one of the 5 people in the US who love state income taxes.
I do not call myself WAman for nothing I live in Washington state NO income tax here. I was mainly talking about the mess in Oregon. 9.2% income tax when I left and no sales tax. I am not for tax increases but tax fairness. Only one type of tax hits one group of people more than others. I believe that Oregon should lower its income tax and have a small sales tax 2-3%. When I lived in Colorado a few years back it was 5.2% income tax and 7.8% sales tax. No wonder they had TABOR!
Property tax is pretty low in Colorado. I pay $2200 per year on a house that is assessed at 380K.
WAman, I invite you to move to Massachussetts or California, which have high state income taxes.
Massachusetts’s income tax rate is a flat 5.3%. Compared to most states, that’s pretty low. California’s income tax rages from 1% to 10.3%.
I think my response got eaten by the spam filter. Anyway, Massachusetts’ income tax rate is a flat 5.3%. California’s ranges from 1% to 10.3%.
Mike in Miami:
Be patient, these numbers are headed south.
http://miami.craigslist.org/apa/
OMG- that’s an incredible amount of listings and it is 1/2 day’s worth.
If the folks bought these properties as new from the builder then they probably do have a valid gripe. Often the taxes paid at closing are just on the land and not the improvements. Usually it is 6 months or longer until the assessment is updated. I have been in this position many times and the builders/realtors never quote the real tax rate.
That’s not an excuse for someone not to ask what their eventual taxes are going to be. But I know that is the kind of information the FB’s didn’t want to know - just as knowing what their payment might be was irrelevant to them since they all assumed a refi would occur in the near future.
Back to Mike’s point - I think the reason taxes are going up so fast is because it’s a % based on sales price. The gov’t rightly assumes that if you can pay $500k for a house you can afford the taxes to go with that. They didn’t expect it would be people spending every nickel of income (and often fictitious at that) on their mortgage and not leaving anything left over for living expenses and trivial things like property taxes.
In a stable slowly rising housing market it’s a good system where eventually all of the home owners catch up to each other and it should keep pace with incomes over time. It’s the greedy flippers and stupid FB’s that created the problem and now are the ones whining. Serves them right. I agree to just let the problem revert over time as prices come down - it will speed the process along actually.
All anyone has to do is call the court house and they can give you an estimate on what your taxes will be when construction is finished. All you need to give them is the address of the property and the approx. market value of the house when it’s completed. I did that over 20 years ago when we built, and we had no surprises when the first tax bill came. I also did it many times when I used to sell real estate and someone was buying a new construction. Anyone buying should have enough brains to check the taxes or they should stay out of the market.
Thats one of the reasons I read this blog - thanks.
Of course, the simple way to prevent systematic increases in apraisals from raising taxes is to only collect the amount of tax that they need for that year. For example, if the budget needs to collect $10 million in taxes, then they collect $10 million in taxes (i.e. adjust the mil rate up and down). Of course, the proportion you pay depends on the value of your house relative to the rest in the community. As a tax payer that means if prices double in one year but the budget only goes up 2%, then your taxes go up 2%. It’s as simple as that, and no one get’s special treatment based upon when they bought their house, etc.
Three thousand threads…
Report on the US Home Auction in Sacramento Saturday.
About 800 to 1000 people attended the auction to bid on 107 homes owned by banks like La Salle and Deutsche. It was very interesting. The auctioneers had good control of the bidding hall. They screened off the back 30% of the room and as the hall filled up they expanded with just enough chairs to keep about 100 people standing in the back. They had lots of “helpers” in black tuxedos out in the hall pumping the crowd for bids. The deals were not very good, by my measure. Shill bidding auction employees are allowed to bid against you, up to some undisclosed reserve price. A lot of people got rolled, a few got some O.K. deals. I will give you specifics below.
On Friday, JP asked on this blog, “What happens when the auctioneer’s shill bidder wins?” JoeyinCalif answered “They reel in the bait and recast!” Joey is exactly right. Many houses that had “winning bids” would come back around for a second or third bidding, after the “buyer” mysteriously did not complete the sale. This assured the seller never sold below the reserve and there were a lot of new GF’s, FB’s and Knife Catchers.
Three sample deals below:
7633 Kensington Drive, Citrus Heights, CA. 1928 SF, 3/2, .25 acre lot. (This house was auctioned 3 times, probably because the auctioneer “won” the 1st & 2nd bids at $350,000 and $375,000 respectively!) Final sale price: $340,000, plus 5% fee, or $357,000 total. This is $184/SF. There are better deals out on MLS. Strangely, this house sold on July 2005 for $460,000, with 100% 80/20 financing brokered by ResMae. La Salle Bank was end servicer for the bag holding investors.
8650 Tegea Way, Elk Grove, CA. 2556 SF, 4/3, .12 acre lot. Final sale price $405,000 plus the 5% fee, or $425,250 total. This is $165/SF. This house sold for $510,000 in July, 2005 with 100% 80/20 financing brokered by Decision One. Deutsche Bank was the end servicer for the bag holding investors. The house sold in October 2000 for $245,000. I saw a similar lender owned (WAMU) house sell for $365,000 ($144/SF) last week in a comparable area.
2805 Piton Way, Rocklin, CA. 1924 SF, 4/2, .2 acre lot. Final sale price $325,000 plus the 5% fee, or $341,250 total. This is $176/SF. This house sold for $418,000 in September, 2004, with 100% 80/20 financing brokered by Alliance Bancorp. Deutsche Bank was the end servicer for the bag holding investors. The house sold in 1999 for $117,000.
I found the main conclusion here is that these are not great deals for the buyers. When you have to bid against the seller, up to the reserve price, there is hard for the seller to lose much. Toward the end of the auction, many houses were coming back for re-bidding and the auctioneer was imploring bidders to stay for the second and third rounds. When I left, all the houses had been bid at least once, but only 63 of 107 were crossed of the bidding board as completed sales.
What I found most interesting is that almost all these houses were sold in the last 3 years using 100% 80/20 financing. The auction bids invariably ended around 80% of the prior sale price, so the second mortgage holder got nothing, but the first mortgage was paid nearly 100%, less all the carrying and foreclosing costs. So basically, this auction shows the Sacramento market value has dropped in value 20% over the last two years.
It was funny how the bidding pattern worked and how many houses came up for re-bid, until some fool jumped in to finally make the last bid and “win” the deal. There are much better buys out in the open market, but you have to look for them. Anyone paying over $140/SF in Sacramento is the new Greater Fool for 2007. And I believe prices will drop. In 2000, you could buy a decent house for under $100/SF. Using 3% inflation, that brings the reasonable price today up to $125/SF? That is my prediction about where this market will finally tap out at the bottom, and where it will stay for 2-3 years.
All these auction houses sold at around 18-20 times the gross annual rent. In 5 years, rent will have increased 15% and sale prices will have dropped another 30%, putting your gross rent multiple at 10-12 times rent. If you buy then (assuming a 6% interest rate), you will get a 5% cash on cash return for your down payment. That is still not a great return for your risk and you have to still hope for appreciation as part of your overall investment strategy.
Great info! Many thanks for the details.
I really hope that bidders learn to knock 10% off their last bid every time the house is returned to the floor. It’s the only way to cause the right behavior among the auctioneers.
“I really hope that bidders learn to knock 10% off their last bid every time the house is returned to the floor.”
That’s why blogs like this are so great. Without a doubt, there’s a potential bidder or two reading this and learning something and perhaps other potential bidders know a poster or two, who will pass the word.
Very interesting. Is it legal for them to have shill bidders? Sorta defeats the notion of having an “auction”.
It is disclosed deep in the on-line bidding rules. Of course, there is no mention of it in the printed material they hand out.
I saw in another post they’ll often say in advance that the auctioneer can bid along side you. So it must be legal although to me it defeats the purpose of an auction. It happens on eBay all the time too though, when a seller gets their buddies to bid on their items. At least eBay says they don’t condone it.
OT..
I was at a “classic” car auction yesterday. Mostly heaps, a few really nice cars. Anyway, I thought the auctioneer was going to cry at the lack of bidding. He seemed truly bugged by the lack of interest. He kept calling the cars “investments”. I kept thinking about what a shill he is and if it’s an investment, where’s the prospectus. He saying things like, “this car will only appreciate”, “one in a lifetime opportunity”, etc.
In most cases, the reserves were not met. I guess the cars folks are also in the wishing price mindset.
I’m a car guy, so don’t get me wrong, but can anyone tell me why a 60s era GM car is worth $100K?
I am beginning to think, that unless one can buy at no more than 50, 60, 70 cents on the bottom dollar, then auctions really aren’t worth it. Other-wise, you might as well just shop until you find a deal from a desperate seller.
pen,
As a fellow car guy i to am baffeld at the absolute craziness of old car prices. It has to be the availability of cheap money fueling it. Look at it this way though…20 years ago model t’s were expensive,they have retreated a bunch. I honestly think this is a boomer bubble on the musclecars also…
Glad to hear nobody was bidding. Where was this auction at if ya don’t mind me askin ?
Chris
No problem with you asking, as I’ve got nothing to hide, which is why I am always straight-up.
This was the Kruse Auction in Topsfield, MA.
I can sort of understand the crazy, insanely high prices on the old Ferrarris, Porsches, Jags, Bentleys, etc. not because they are worth it, but more so because of the jet-set buyers that those cars attract.
Yep, I’d like a showroom condition 70 1/2 Z28, but I wouldn’t be willing to pay more than $20k for it (if that much).
I agree on the muscle car bubble and I suspect that at some point, once the rust starts to come through, that this bubble will also deflate.
As a general rule for investing, you should buy low, and that means buying only when you’re the only bidder around. Auctions are designed to help sellers, not buyers. Stay away from auctions unless (a) you want the thing for more than just an investment, or (b) you have the self-discipline to back away if someone outbids you.
The great investors act more like pawn shops (Buffett for instance): they advertise that they have cash, and wait for sellers to come to them.
(This is my ideal investing attitude, anyway. I have trouble sticking to it.)
Jingle, thanks for the great post. Of course, the local media never questions the shill bidding, but they did mention it their article.
From: http://www.sacbee.com/101/story/238605.html
“Bob Somal and his real estate broker father, Narinder Somal, bought two houses, paying $240,000 for one in Stockton and $400,000 for another in Elk Grove.
“We were going to go to $350,000,” said Bob Somal. “We decided to go to $380,000. And our winning bid was $400,000.”
But that was $20,000 less than the 2,460-square-foot house brought the first time it was sold Saturday. Several times during the day, houses returned to the auction block when buyers had financial issues. The Somals plan to resell both houses.”
It appear the shill bidding scam worked on the Somals. There’s one born every minute.
Another interesting part of the article was this, “The event lender, Irvine-based Impac Lending Group, offered four types of loans: 30-year fixed, interest-only, five-year fixed and stated income.”
So, they’re offering stated-income, interest-only loans on foreclosed properties? How may of these homes will end right back on the auction block 12 months from now?
What will be really interesting is to see how many of these homes end up on the MLS within a week and what they end up asking for the homes. I have a feeling there are going to be loads of FB’s out of this auction.
Jingle, if you follow the local market, please update us if you see any show up on the MLS.
Auction sales are not SOLDS until the deed actually changes hands. I wish people reporting on auction results put a disclaimer
on their reports. These winning bids are no more than low-ball offers. After the auctioneer says sold, we than have a buyer needing to qualify for financing, plus the enevitable buyers remorse. In auctions, buyers back out a a rate higher than the 33% from Home Builders. Reporting on sales from auctions is very misleading as to the true market conditions.
Outstanding post, thanks!
“The auction bids invariably ended around 80% of the prior sale price, so the second mortgage holder got nothing”
More fuel for the CDO fire. I’d like to know who the biggest player is in the second mortgage market.
HSBC is one very big player. Had to write down $8+ billion already. I think there will be much more to come for them. They stopped buying the seconds now, but they have a huge pipeline they are just starting to understand.
Thanks, Jingle. Appreciate the info. This should be interesting to watch.
Jingle,
Do you know if they can just stop buying the seconds anytime they decide to or if they are committed to buy a certain stream created in a 3 month or 6 month (or one or two year) period? I’m just wondering about the market practices in this market. They might have locked themselves into a long contract back when they wanted to keep a guaranteed flow of loans to package.
No long contract. HSBC just stopped buying them when they realized they were getting hosed. They held a lot of 20% 2nds on 150% financed property!
The other high risk part of the RMBS pools is the “B” piece, or non-credit tranch. The top 3% of each loan that goes into the pool. It used to be there were 10-12 buyers of the B-pieces, because they received 8-10% interest (a little interest is sliced from each lower tranch and added to the 3% top tranch to feather the yield and make it saleable). Today, most of the B-piece buyers have left the business. They realized a 10% return won’t hold up with a 20% reduction of principle!! The real keystone for MBS pools going forward is who will buy the B-piece.
Noticed a new (and strange) strategy for attracting buyers to the high end of the market in the DC area this week.
“The Express” is a free tabloid paper put out by the Washington Post. It has a few redacted versions of major stories, some AP articles, sports scores, lottery, a celebrity page, a few comics and an easy crossword. It is distributed exclusively in little plastic boxes near Metro stations and on sidewalks - a few Metro stations have a human being passing it out as well.
Oh, and it has ads, lots of ads: lose weight, fix IRS problems, AKC registered puppies, participate in medical reseach, see this movie opening soon - you get the idea.
Real estate classifieds tends to run to one and two bedroom condos and houses in the $350K to $500K range. I’ve seen houses up to about $800K occasionally, but not that often.
This week, I saw ads for 3 houses in a whole new category: in Woodley Park neighborhood of DC, 2819 27th Street NW for $1,375,000; in Chevy Chase, 2923 Northampton Street for $1,995,000; and in Bethesda, 9131 Aldershot Drive for $2,495,000.
$2.5 million bucks advertised in a free paper aimed at Metro riders! Federal workers get a public transportation subsidy (up to $110 per month for use on public transportation only) so a lot of Metro riders are moderately compensated feds. DC isn’t like NYC where even $300K per year lawyers take the subway. Those folks drive in DC.
2.5 million? The ad mentioned the granite countertops and stainless steel appliances. Oh, well, that must be OK then. Not FSBO. number was for agents.
Funny you should mention this. I often see ads in the Boston Globe for multi-million dollar properties. Somehow, I just can’t see a buyer at this price level of flipping through the Globe for a house.
I would think that once you break though the million mark (yes, I now a million isn’t what it used to be), but that these folks would be working an agent.
At least in Boston the Globe is the paper of record for the local community. This is a giveaway rag targeted to the lower 4/5’s of the commuter market. I keep my Express because I sometimes do the crossword on the ride home. Most people toss them in recylce bins on the way to the escalators of their arrival station in the morning.
In my wanderings around the Golden State…
The only places you really see billboards are close to bigger cities and i’d say that 80% of them were for new housing developments~
The builders are laying out some serious cash of the realm and when you hit the mother lode of signage, (interstate 15 from Glen Halen, all the way down to San Diego) it works out like this:
Going south from Glen Halen
60% New housing developments
30% Casinos
10% New car dealers
Going north from San Diego
90% New housing developments
10% New car dealers
This is so TRUE, most of the time the subway is way faster then a car, plus you have to Pay up to $50 in midtown to park…
But drive around Manhattan on a Sunday morning, i did 70 last week on the FDR drive, hardyl a car in sight at 10 am
======================================================
DC isn’t like NYC where even $300K per year lawyers take the subway. Those folks drive in DC
$2.5 million = approximately 250 pounds of gold.
I’m not a gold bug but I thought it would be interesting to put this into perspective. Is that place worth 250 pounds of gold or 6 tons of silver?
Gives new meaning to the phrase “worth your weight in gold”. But I’m not 250, so my house would cost less. Really, I’m not.
Just wait until all these fools find out the implications of a bond market crash for their loan resets. (What’s a bond?)
NATION’S HOUSING KENNETH HARNEY
Loan terms baffle many borrowers
June 24, 2007
WASHINGTON – With mortgage delinquencies and foreclosures soaring, federal researchers have identified a key contributing factor: Large numbers of consumers simply do not understand their own mortgages – especially subprime loans that come with complex features and costly penalties.
As a result, too many people are ill prepared to handle jolting payment hikes and rate reset deadlines.
http://www.signonsandiego.com/uniontrib/20070624/news_1h24harney.html
The researchers tried out the simpler, better-targeted disclosures on consumers participating in the study and found a big jump in understanding: Eighty percent of those using the new form could answer 70 percent or more of all questions about their mortgages correctly, compared to only 29 percent of those using the current truth-in-lending and good faith estimate disclosures. The performance was particularly stronger when the mortgage features were more complicated – with rate resets, variable payments and the like.
I am skeptical - since these folks knew what to look for maybe they used more diligence - come on these folks did not want to look stupid!
“Large numbers of consumers simply do not understand their own mortgages – especially subprime loans that come with complex features and costly penalties.”
I remember one time larry kudlow asked “you think borrowers are stupid, don’t you?” he then went on a little rant defending borrowers and probably capitalism. someone should right a book on how wrong he’s been.
Moscow rated world’s most expensive city
ASSOCIATED PRESS
June 24, 2007
NEW YORK – Moscow is the world’s most expensive city for the second year in a row, thanks to an appreciating ruble and rising housing costs, a new survey reports.
The cost of living for expatriates in the Russian capital is nearly 35 percent higher than in New York, which served as the base city for the survey.
http://www.signonsandiego.com/uniontrib/20070624/news_1h24expens.html
Forecasting can be hazardous to a real estate trade group’s reputation.
Declining home sales are forecast
ASSOCIATED PRESS
June 24, 2007
LOS ANGELES – Sales of single-family homes in California will slow by 14 percent on an annual basis this year, while the state’s median home price will rise just short of 2 percent, a real estate trade group said.
Statewide sales for the year will total 410,000, compared to 477,460 last year, according to the California Association of Realtors’ midyear forecast.
The trade group expects the median price of a California home will increase 1.8 percent to $566,500.
http://www.signonsandiego.com/uniontrib/20070624/news_1h24predict.html
Borrowers face difficult choice as rates creep up
By Bob Tedeschi
NEW YORK TIMES NEWS SERVICE
June 24, 2007
…
Until recently, interest rates on long-term fixed loans were in the low 6 percent range – a month ago, for example, rates on 30-year fixed-rate mortgages hovered at about 6.25 percent. Melissa Cohn, chief executive of Manhattan Mortgage Co., a brokerage, said that with such a large difference between the higher adjustable rate and the fixed-loan rate, the decision to refinance to a fixed-rate loan was easy for her clients.
But as of last week, many lenders were charging 6.75 percent for a 30-year fixed-rate mortgage. And while even the 6.75 percent rate is still much better than the high 7 percent range, Cohn said, some borrowers are holding off in the hope that if they wait, rates on the fixed-rate loans will come down again and they will get a better refinancing deal.
“If we sit down rationally, we’ll see the rates are historically very, very low still,” Cohn said, referring to the long-term loans. “But we’re a greedy crowd.”
http://www.signonsandiego.com/uniontrib/20070624/news_1h24choice.html
I don’t understand the ‘higher adjustable rate’ comment. Aren’t fixed rate loans (all else being equal) always higher then ARs? The lender has to take the interest rate risk for fixed rates not ARs.
if rates are still low, why all the pain? this is basically foreshadowing, wait until rates are not at historically low levels, but at historical levels. my parents interest rate on their mortgage was almost 3X these levels.
1/4 percent of $1m is more than 1 percent of $200,000.
An interesting story of 50 years in the life of a city block, in Detroit…
http://detnews.com/specialreports/2001/elmhurst/
Home price drop makes some job candidates think twice
By Amy Hoak
MARKETWATCH
June 24, 2007
CHICAGO – Convincing job candidates to relocate can be a challenge even when the housing market is strong. But with homes in many markets around the country taking longer to sell and prices either flat or declining, employees being asked to relocate are starting to balk in greater numbers.
“If you’re in a market where prices have declined significantly, that’s a huge challenge for folks who bought at the top of the market,” said Kathy Morris, director of global consulting for Prudential Relocation.
http://www.signonsandiego.com/uniontrib/20070624/news_lz1h24reloc.html
Thnks for the link, GS.
Once again, this blog and its predictions are correct. The deflation of the housing bubble will impact employment opportunities. Those who can’t sell, will have to forgo new or better jobs elsewhere. Mobility, once a leading factor in US employment, will belong to renters and those sellers smart enough to underprice their competition and unload their houses.
I haven’t read the article carefully yet, but it seemed unduly focused on the problem relocating homeowners face with having to sell when underwater, without recognizing the risk of catching a falling knife by purchasing a home in my new city where prices are dropping. I guess we will have to wait six months until many individuals have fallen into this money trap in order to read about it in MSM accounts.
GS,
Do you know my brother?
I thought you might be referring to him. He moved from Sonoma (a 750k crapbox mcmansion with more soundwall in the backyard than backyard) to Austin where he bought a new home in Austin before selling the old one. He has never been to Austin, but thinks he got a good deal.
Mom referred to him as a “Texas Land Baron.” I referred to him as recklessly irresponsible, and insufferably clueless. The conversation awkwardly changed subjects at that point…
Paul
This is very interesting, because at a time when maintaining professional adaptibility, flexibility, and mobility are so crucial to remaining employable - so many are limiting their options with RE. Not only are they spatially constrained, as discussed in this article, but they are monetarily constrained too - unable to enter new fields of work because their mortgage precludes any thought of returning to school - or enduring a temporary wage setback in order to build new skills.
How come so many people waited until the 2000s to behave like they have the long-term employment prospects of 1950s?
How come so many people waited until the 2000s to behave like they have the long-term employment prospects of 1950s?
————————————————————————
I think people know they don’t have good long term employment prospects or even a good chance of retiring. Thats why they gambled in the housing market. A desperate attempt to keep even as the middle class goes away.
I don’t think people knew they were gambling in most cases. They simply believed Lereah and his minions who kept saying, “Real estate always goes up.”
Beachfront property, anyone?
SMOKESTACKS & GERANIUMS
ROGER SHOWLEY
Brace for high tide
Rising sea levels send ripples through real estate industry
June 24, 2007
It’s clear that global warming isn’t going to be put on ice.
In a world that has awakened to alarms on climate change, San Diego finds itself facing drastic coastal alterations in the decades ahead as the sea level rises – and prime coastal real estate ends up in Davy Jones’ Locker.
http://www.signonsandiego.com/uniontrib/20070624/news_lz1c24smokes.html
“Until the trend worsens, no one is going to be thinking about it,” he said. The winter flooding, he said, is simply “the price you pay for living down at the beach.”
Once the flooding really starts what we these places be worth? Get ahead of the curve.
Is it too early to think about investing in Greenland real estate?
Haha funny but you do bring up a good point. Where do you buy RE if you expect things to get hotter? I live in Phoenix and its hot enough here already. I was thinking Tucson but maybe Colorado is a better choice? Oregon or Washington east side of the coast ranges?
I have friends who live on the northern CA coast, several hours north of SF.
A climatologist from MIT just bought a house in their area. He said that when global warming ramps up, their cold, foggy climate will turn into something much more pleasant.
I used to live in Hillsboro Or. Nice climate most of the year. Little snow - great blueberries - and only a few really hot days (95+). On those hot days Oceanside, Cannon Beach, Seaside are only an hour and a half away. Perfect day trip when it gets hot.
TAXES
Lose Home, Pay More Tax
As foreclosures soar, a cruel tax rule rears its head.
By Kevin McCormally
June 13, 2007
At first blush, the double whammy seems so cruelly unfair that it must be untrue.
First, you lose your house in a foreclosure — perhaps you fell behind in the payments after you lost your job, you got sick or your husband or wife died. Then the law orders the IRS to pile on the grief by charging you income tax on part of your loss.
http://www.kiplinger.com/features/archives/2007/06/foreclose.html
Or you lost your home to foreclosure after you lied about your income, used an I/O mortgage and decided not to bother to read the mortgage documents, used your house as an ATM to buy expensive toys and vacations, didn’t bother to save a nickle for property taxes, and assumed you were entitled to live like a millionaire on a modest salary.
Tough. Those same people were happy to take a tax free capital gain and claim tax exemptions for interest every year.
I had assumed that a short sale and a foreclosure were different in this regard. Apparently not.
Source: Federal Home Loan Bank of Cincinnati
Federal Home Loan Bank Introduces Program to Help Lenders Relieve Threat of Foreclosure
CINCINNATI, June 22, 2007 (PRIME NEWSWIRE) — A new funding program to help mitigate rising numbers of foreclosures in Kentucky, Ohio and Tennessee was unveiled today by the Federal Home Loan Bank of Cincinnati.
Through the new HomeProtect Program, the FHLBank will make available $250 million in Advances to member financial institutions at the FHLBank’s cost of funds. The financial institutions can then use those funds to help homeowners at risk of foreclosure to refinance their homes on more favorable terms. The FHLBank’s Board of Directors approved the program this week.
“The surge in home foreclosures nationally is having a devastating effect on many neighborhoods. There are thousands of families who will be put at risk of foreclosure when interest rates are recalculated on their adjustable-rate mortgages,” said David Hehman, President and CEO of the FHLBank. “Everybody loses when there’s a foreclosure — the homeowner, the lender, the community. We hope that HomeProtect can help resolve some of these situations without foreclosure.”
http://www.primenewswire.com/newsroom/news.html?d=121818
Here is a cautionary tale for those who find it too onerous to carefully read closing documents.
June 24, 2007
Santa Cruz resident says her home was stolen in foreclosure scam
By Jondi Gumz
Sentinel staff writer
SANTA CRUZ — When a home goes into foreclosure, a rising trend in the county, the home-owner is often deluged with mailings and solicitations offering financial help. Santa Cruz homeowner Laura Merchant responded to such an offer three years ago.
Leonard Bernot, the man who offered to help her, ended up owning her property, and now he faces felony charges on grounds he induced her to enter into an unlawful “equity purchase” contract, violated the foreclosure consultant law and committed grand theft.
Like most Santa Cruz real estate, Merchant’s 1,382-square-foot home had escalated in value. It was reappraised at $625,000 when Bernot took title to the property in 2004, five days after Christmas.
“Among the paperwork he had her sign was a grant deed turning over ownership to him,” county prosecutor William Atkinson said.
http://www.santacruzsentinel.com/archive/2007/June/24/local/stories/02local.htm
June 23, 2007, 12:56AM
Activists warn seniors of foreclosure scams
Advocates worry some companies exploit older adults with bad credit
By ROBERT CROWE
Copyright 2007 Houston Chronicle
…
In 2005, the AG’s office issued a restraining order against the owners of a company that promised consumers it would negotiate with their mortgage lenders to avoid foreclosures. In one case, Houstonian Jackie Grounds, then 85, signed paperwork he assumed would authorize the company to contact the mortgage company on his behalf.
“In reality, these forms are deeds which transfer ownership in the home from the consumer homeowner to” the company, the restraining order states.
http://www.chron.com/disp/story.mpl/metropolitan/4914084.html
http://blogs.ocregister.com/mortgage/archives/2007/06/subprime_borrowers_pay_credit_1.html
“A new study by Experian, the Costa Mesa-based credit bureau and information services company, shows that subprime borrowers are now paying their credit cards first and getting behind on their mortgages instead.
“As consumers have historically paid mortgage debt over bankcard debt, this finding represents a significant departure from conventional behavior,” Experian said.
Foreclosure hot line lends hope on paying mortgage
Solutions offered to those falling behind to keep homes
By Eve Mitchell, BUSINESS WRITER
Article Last Updated: 06/23/2007 07:34:14 AM PDT
Robert Harrell faced losing his Richmond home to foreclosure but was able to avoid it with the help of the toll-free HOPE hot line.
Like a growing number of homeowners these days, Robert Harrell found himself falling behind on his mortgage payments.
The 63-year-old Richmond resident started missing payments in January as a result of losing his job and finding that the income from a pension and Social Security payments were not enough to keep up with the mortgage.
It’s an increasing problem these days. Foreclosure activity has more than doubled in the past year in Alameda County, nearly tripled in San Mateo County and more than tripled in Contra Costa and San Joaquin counties, according to RealtyTrac.com.
http://www.insidebayarea.com/timesstar/localnews/ci_6212634
Is Wall Street’s spin cycle about to end? It may soon be time for the stock market to go through the wringer.
Market Week
Subprime Fallout Could Hit Shares
By CONRAD DE AENLLE
Published: June 24, 2007
THE long-scheduled meeting of Federal Reserve policy makers is a highlight of the calendar this week, but with no change in rates expected, investors may focus instead on subprime mortgages, where rates have been changing for the worse.
…
One investment adviser warns that continued weakness in the subprime market could bode ill for stocks. The potential source of trouble is not just what investors know about the subprime market and the hedge funds, run by Bear Stearns and others, that made big bets on it, but also what they do not know.
“It’s all out there in front of us, and it will all come out in the wash,” said Henry J. Herrmann, chief executive of Waddell & Reed. “We just don’t have any idea when the washing machine will finish its cycle. It could be two weeks or two years.”
http://www.nytimes.com/2007/06/24/business/yourmoney/24mark.html?ref=yourmoney
Somewhere between 14 and 730 days…
October is just about 100 days away right now, isn’t it? They’ve been working overtime lately to pump up and sell the notion of a 2Q economic turnaround, plus lots of nebulous and optimistic predictions for “late 2007″…you never know…
Deadly ripples threaten subprime funds
Troubles at two Bear Stearns funds could trigger a selloff that deepens losses, hurts credit markets.
By Grace Wong, CNNMoney.com staff writer
June 21 2007: 4:01 PM EDT
LONDON (CNNMoney.com) — The fallout from problems at two Bear Stearns hedge funds that may be on the verge of collapse could roil the bond market and lead to a tightening of credit, analysts said Thursday.
http://money.cnn.com/2007/06/21/markets/bear_fallout/?postversion=2007062116
Is Cerberus the private equity face of the PPT?
Market Scan
H&R Block Submerged By Subprime
Evelyn M. Rusli, 06.21.07, 8:47 PM ET
…
Strong gains in H&R Block’s tax and financial services lines could not offset the heavy losses incurred by Option One Mortgage, the company’s subprime lending arm, which it plans to sell to Cerberus Capital Management by Oct. 31. (See “Option One Sold to Private Equity” )
As a major lender to risky borrowers, the unit has been hit hard by the subprime implosion. Defaults are rising as home owners who took out adjustable-rate home loans during the real estate boom grapple with higher loan rate resets. While some have weathered the rate crunch, many others have defaulted on their payments. Option One’s drag on H&R Block’s balance sheet was acutely notable in the fourth quarter. For discontinued operations, which includes Option One, the company logged a loss of $676.8 million, or $2.07 a share, for the period.
http://www.forbes.com/markets/2007/06/21/hrblock-subprime-closer-markets-equity-cx_cg_0621markets47.html
A fund management compay can have several funds. The PPT can provide the capital and Cerberus can “manage” it. There could be a lot of this sort of thing going on.
The PPT can have trillions of dollars at its disposal, which can then be levered into further trillions. The scale is potentially quite amazing.
you got this info at kitco?
Oh, I see. Nathan Lewis. Does Nathan Lewis have a verifiable track record? If not, then Nathan Lewis’ advice is worth what you pay for it.
paraphrasing Carl Sagan: “trillions and trillions and trillions…”
takes your breath away….
“The PPT can have trillions of dollars at its disposal,…”
If so, why did they let Bear Stearns hedges go down the drain. I thought the PPT’s job was to protect everything; do they play favorites?
Maybe because when LTC went under in the 1990’s BS was the one firm that did not cooperate with the feds and other firms looking for a solution. Pay backs are hell.
spam alert
Why are you spamming Ben’s blog, Brad?
troll alert
(Maybe we should offer ESA protection for trolls like brad, as they are definitely at risk of extinction.)
Where does the govt subsidy enter this deal? Or is it just a case of “pass the trash?”
Saturday, June 23, 2007
Colleges may buy subprime loans
Defaults an investment opportunity
By Matthew Keenan BLOOMBERG NEWS
U.S. university endowments may be raising their stakes in high-risk mortgage-backed securities to take advantage of market turmoil as Bear Stearns Cos. tries to rescue one of its hedge funds.
Increased defaults in so-called subprime mortgages have created opportunities for endowments and other investors with long-term outlooks, said John Griswold, executive director of the Commonfund Institute in Wilton, Conn.
“If you can buy an asset that’s distressed at such a discount, that can mitigate part of the risk,” said Griswold. “The long-term nature of endowments makes them well-suited to sustain volatility.”
The investments are occurring in what may be the biggest hedge-fund crisis since 1998. Bear Stearns plans to add $3.2 billion of loans to stop creditors from taking over assets of one of its funds.
College funds may get access to the loans cheaply, said Louis Morrell, treasurer of Wake Forest University. The committee that oversees the Winston-Salem, N.C., school’s $1.2 billion endowment yesterday discussed putting $25 million into a hedge fund that invests in subprime mortgages, Morrell said.
“These are opportunities for people to buy this stuff at good rates,” Morrell said.
http://www.telegram.com/article/20070623/NEWS/706230328/1002/BUSINESS
TREASURIES-Bonds gain on subprime concerns, stocks fall
Fri Jun 22, 2007 4:18pm ET160
Bonds News
Fed’s Mishkin: China finds safety in US Treasuries
By John Parry
NEW YORK, June 22 (Reuters) - U.S. Treasury debt prices rose on Friday, halting a two-day decline, as nervous investors dumped stocks and shifted into government bonds as fears of the subprime mortgage problems reverberated through financial markets.
A classic safe-haven bid drove the two-year Treasury’s yield to its biggest weekly fall in two months. Bond yields and prices move inversely. When riskier assets such as stocks and corporate bonds sell off, investors often seek refuge in less volatile short-dated Treasuries.
“This is a risk aversion trade,” said Matthew Moore, economic strategist with Banc of America Securities in New York. The bounce in Treasury prices “is just these mortgage fears continuing to play out,” he said.
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-06-22T201835Z_01_N22183830_RTRIDST_0_MARKETS-BONDS-UPDATE-6.XML
Fed’s Mishkin: China finds safety in US Treasuries
Sat Jun 23, 2007 5:39pm ET160
DURHAM, North Carolina, June 23 (Reuters) - Federal Reserve Governor Frederic Mishkin said on Saturday that China invests so heavily in U.S. Treasury debt because its domestic financial system makes domestic alternatives unattractive.
“The explanation is that it’s poor financial development,” he said in response to questions after a speech at Duke University.
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-06-23T212810Z_01_N23221592_RTRIDST_0_USA-FED-MISHKIN.XML
UPDATE 4-Bear Stearns bails out hedge fund
Fri Jun 22, 2007 7:28pm ET135
RPT-Wall St Wk Ahead: Fed meeting, subprime jitters on tap
UPDATE 4-Bear Stearns bails out hedge fund
By Dan Wilchins
NEW YORK, June 22 (Reuters) - Bear Stearns Cos. Inc. on Friday said it would provide up to $3.2 billion in financing for a struggling hedge fund it manages, raising concern about other funds that invested in bonds linked to subprime mortgages.
The biggest bailout since Wall Street’s 1998 rescue of Long-Term Capital Management signaled that the funds’ main investments — a type of bond known as a collateralized debt obligation (CDO) — may be riskier than previously reckoned.
“The big worry is: Are there other funds like this out there? Are whole markets going to seize up?” said James Ellman, president of financial services hedge fund Seacliff Capital, adding that he thought concerns were overblown.
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-06-22T232827Z_01_N22483393_RTRIDST_0_BEARSTEARNS-HEDGEFUND-UPDATE-4.XML
dont be stupid and buy real estate in south florida read the three ads and tell me if im wrong , dont make the mistake and buy , the only people that tell you the real estate market is fine is real estate agents , there liars dont listen to them , they lie , real estate is the wost it ever been dont make a mistake and buy now , you could ave thousands of dollars buy waiting ,please help me spread the word ,, evrybody need to stay strong and be smart and not buy prices have reduced over 100,000 from last year on a 400,000 home it will redice another 100,000 or maybe more by next year , DONT BUY
For sure OT, but for those who asked to be updated - the baby finch I rescued a week ago and have been hand feeding (every 20 minutes from dawn to dusk) is now a real bird!! very cute and will go to the bird rehab people in a few days to learn to feed itself and fly. great experience. Taught him the Jimny Cricket tune, Hey Diddley Dee, an actor’s life for me… but he changes the wwords to suit himself (churp, churp…) Thanks for the encouragement, everyone.
Economic View
How Bernanke Made Them Believe
by EDMUND L. ANDREWS
Published: June 24, 2007
WASHINGTON
http://www.nytimes.com/2007/06/24/business/yourmoney/24view.html?ref=yourmoney
Sorry if previously posted…
Continued slow for Southland home sales
June 13, 2007
La Jolla,CA—-Last month was the slowest May for Southern California home sales in 12 years, mainly because of sharp declines in lower-cost markets. The Southland’s median sales price was unchanged, a real estate information service reported.
A total of 19,874 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 3.1 percent from 19,269 for the month before, and down 34.4 percent from 30,303 for May last year, according to DataQuick Information Systems.
Last month’s sales were the lowest for any May since 1995, when 17,712 homes sold. The May 1995 total was the lowest for any May in DataQuick’s statistics, which go back to 1988. The strongest May was in 2005, when 35,557 homes sold. May has averaged 27,123 sales.
http://www.dqnews.com/RRSCA0607.shtm
San Diego Union Tribune Zip Code Chart
for Home Sales Recorded in May 2007
% Change is for the median price from the same month last year
http://www.dqnews.com/ZIPSDUT.shtm
Rancho Bernardo W 92127
May 2007 SFRs
No. sold / median sale price / YOY median sales price % change
34 $816,000 -11.1%
Current median SFR list price (ziprealty.com): $1,395,000
Gap between current median SFR list price and median May 2007 sale price:
$1,395,000 - $816,000 = $579,000
A graphic which accompanies the DQ chart in the print edition of the SD U-T’s homes section show the rate of “ALL HOUSES AND CONDOS” sales peaked at around 6,500 in summer 2004. The current rate is 3,385.
Wife and I went out to eat in Hillcrest (SD) last night. We had an entertainment book coupon for the first place we visited (one $20 meal free), but our waitress informed us they do not accept entertainment book coupons any more. In the blink of an eye, we excused ourselves and went to look for another restaurant. They looked like they could have used our business, as the place was only about 5% full.
The next place we went was also about 5% full; we ate there and had an OK meal.
Two restaurants do not make a statistically valid sample, but I can pretty much assure all who read here that if we had gone out on a Saturday night two years ago, we would have had little chance of finding a seat in any restaurant in San Diego without a reservation. Without reading too much into a sample of size two, I view last night’s experience as an indication that the restaurant business here is suffering the reverse wealth effects of the uncontained foreclosure crisis.
This sounds very much like what occurred in San Francisco beginning in late 2001 and afterward for a couple years.
In the latter period one could almost always get a table and find parking. Not so in ‘98 thru ‘00, during the height of the venture idiot and credit-fed silly-funny-money dotcom bubble.
The contrast in some neighborhoods was remarkable.
All the more remarkable again when one knew that economic activity had tumbled and house prices, yet, took off again with renewed vigor…
Many thanks to the Greenspan Fed for both bubbles!
If not noted previously, an amusing/infuriating account of attempted fraud (cash back at closing) in the San Fernando Valley:
http://tinyurl.com/2mk4ag
That agent should be reported. That is out an out fraud. That’s the reason I got out of the business several years ago, even though the market was at it’s peak. Dishonest agents, sellers, buyers and mortgage brokers. Dishonest agents and mortgage brokers get tagged quickly in the business and a lot of agents try to stear clear of working deals with them. Unfortunately with the crazy market the last few years and the greed, the honest agents are a small minority now.
In case the FOMC members are puzzling over the true level of U.S. $ inflation as their next meeting approaches, I highly recommend the following insightful articles:
Inflation
Core principles
Jun 21st 2007
From The Economist print edition
Bond investors are living in a world where nobody eats or drives
DO THE financial markets believe that the typical American consumer is on a permanent fast, walks everywhere and survives without heating or air conditioning? After a jittery few weeks, bond markets rallied on June 15th on news that America’s core consumer price index rose by just 0.1% in May. The data were warmly greeted by stockmarkets too. The Dow Jones index rose by 86 points on the day. Investors decided that the absence of price pressures would calm the nerves of rate-setters at the Federal Reserve, who have been worrying out loud about “elevated” core inflation.
What the markets blithely ignored was the day’s bad news. Headline consumer prices rose by 0.7%, the biggest monthly increase for nearly two years. Unlike core inflation, the headline measure includes fuel costs, which rose sharply, as well as food prices. For bond prices to rise on such a big jump in inflation, markets must be placing a great deal of faith in the core index as the true gauge of price pressures. Is that wise?
http://economist.com/opinion/displaystory.cfm?story_id=9366299
Finance & Economics
Agricultural commodities
Biofuelled
Jun 21st 2007
From The Economist print edition
Grain prices go the way of the oil price
EVERY morning millions of Americans confront the latest trend in commodities markets at their kitchen table. According to the United States Department of Agriculture, rising prices for crops—dubbed “agflation”—has begun to drive up the cost of breakfast. The price of orange juice has risen by a quarter over the past year, eggs by a fifth and milk by roughly 5%. Breakfast-cereal makers, such as Kellogg’s and General Mills, have also raised their prices. Underpinning these rises is a sharp increase in the prices of grains such as corn (maize) and wheat, both of which recently hit ten-year highs. Analysts are beginning to ask, as they have of oil and metals, whether higher prices are here to stay.
http://economist.com/finance/displaystory.cfm?story_id=9378875