Continued Deterioration In Sales And Pricing
Some housing bubble news from Wall Street and Washingotn. Reuters, “Facing continued deterioration in the U.S. housing market, upscale home builder Hovnanian Enterprises Inc. said on Monday that it expects to take a charge of $90 million to $110 million related to land impairments and write-offs. The third-quarter cancellation rate was 35 percent, compared with 33 percent a year earlier.”
“On a preliminary basis, net new contracts for homes fell 24 percent, excluding unconsolidated joint ventures.”
From MarketWatch. “In announcing limited results before its full quarterly report scheduled for Sept. 6, the company cited ‘continued deterioration in sales pace and pricing in certain communities.’ The company said it closed on 3,179 homes for the three months ended July 31, down 31% from the year-ago quarter.”
“The company said its cancellation rate represented 35% of gross contracts, underscoring the tough times in residential housing markets.”
“Banc of America Securities analyst Daniel Oppenheim said that it appeared Hovnanian saw more weakness at the start of the quarter and that management lowered home prices to maintain sales volume.”
“”However, we think the recent challenges in the mortgage market have led to worsening trends once again,’ the analyst wrote in a report to clients. ‘We expect the cancellation rate to continue to worsen in [the company's fiscal fourth quarter] as a result of the tighter lending, which started at the end of July,’ he added.”
The Star Telegram. “D.R. Horton used to say that only another Great Depression could stall its growth. It’s clear now that Horton bulked up at the wrong time, doubling its land position as the housing market was hitting its peak and not long before demand plummeted.”
“Sales have been in a free fall and, for the first time, the red ink is flowing.”
“Horton, the nation’s largest home builder, has tried myriad ways to stave off the housing downturn, without success. The company has eliminated 3,300 jobs, punted 60 percent of its option deals on land lots, slashed home prices, boosted buyer incentives, and bullied suppliers and subcontractors.”
“In April, it ordered division presidents to do whatever was necessary to hit sales targets. Instead of rebounding, Horton home sales fell 40 percent in the quarter ended in June. Nearly 4 of 10 buyers also walked away from their contracts.”
“‘D.R. Horton doesn’t see strength in any of its markets right now,’ CEO Don Tomnitz told analysts recently. ‘You hate to say it, [but the decline] is actually a little bit worse than [it] appears.’”
“In the West, excluding California, Horton sales fell 39 percent. In California, the decline was 53 percent. The best performer, the Southeast, was down 25 percent.”
“A whole class of home borrowers who could get easy money a few years ago can’t get any loans now. ‘If you told shoppers at Wal-Mart that they couldn’t use Visa or MasterCard for six months, many wouldn’t be able to buy anything,’ said Mark Dotzour, chief economist for the Texas A&M Real Estate Center.”
“Horton and others, it turns out, couldn’t resist the excesses of a market bubble. Now we’ll see how they work them off.”
The San Francisco Chronicle. “Kerry Killinger is chairman and CEO of Seattle’s Washington Mutual Inc. Killinger met with Chronicle reporters and editors at a time when turmoil from the subprime market meltdown was beginning to spread to other parts of the financial and housing markets.”
“Q: In broad terms, could you tell us your impression of what happened in the mortgage market and how it happened? Foreclosure activity is increasing as adjustable-rate loans are reset. Who is to blame?”
“A: ‘House price appreciation in the United States was significantly above normal for several years…That led to price increases growing above average. That then accelerated into a bit of a bubble as speculators came into the market thinking that housing was going to increase in value at an above-average rate forever. The market peaked about two years ago. Simply, prices were rising much faster than they should have.’”
“Q: Why would anyone make a stated-income loan in the first place? Why would a practice like that ever become the norm? A: ‘From competitive pressures, from significant excess of capital flooding into the business from Wall Street. That’s really what it was. Severe competitive pressures leading to a loosening of underwriting standards for the industry.’”
“Q: Other people were making them, everybody was on the boat? A: Very much. And the boat, again, the loans in the underwriting were predominantly being pushed by the money flooding in from Wall Street that wanted to buy the loans…we really pulled our horns in at the same time that Wall Street money was just flooding us.’”
“Q: And yet you’ve been making 2/28 and 3/27 loans up until last month? (These loans have a low interest rate for two or three years but then reset. Monthly payments can go up by hundreds of dollars.)”
“A: ‘But at significantly lower volumes. We tried to reduce our participation. The conclusion we have made is that the slowdown in housing prices and the risk of the housing market have increased this year, making the 2/28 and the 3/27 products less appropriate than they’d been in the past. Those products worked well when housing prices were continuing to increase.’”
The Rocky Moutain News. “The home buyers on Main Street…are feeling the brunt of what happened on Wall Street. ‘The best I can tell, mortgage bankers needed to find a way to prop up their loan volume a few years ago and decided to relax their underwriting standards a bit,’ said broker Brian Bartlett, in an e-mail to the Rocky Mountain News.”
“‘Then, as these higher risk loans were packaged (on Wall Street) and gobbled up by investors chasing higher yields, the bankers kept incrementally relaxing underwriting a bit at a time. . . . The assumption was made that increasing market values would offset the risks. That didn’t happen,’ he said.”
“‘It’s back to the future,’ said Lou Barnes, president of Boulder-based Boulder West Financial Services.”
“‘In the last nine months, the marketplace eliminated 25 percent of the worst nouveau lending practices, and in the last two weeks, the market eliminated the other 75 percent,’ Barnes added. ‘We set the clock back 10 years in two weeks.’”
“Peter Lansing, president of Universal Lending, who four years ago lost business by shunning ‘funny money’ lending, said he has never seen such turmoil in the market in 30 years in the business.”
“‘I really believe this is a pretty big watershed event in the mortgage banking business that is going to change the face of mortgage banking back to normal lending practices - that sounds like an oxymoron, a watershed event that takes us back to what is normal,’ Lansing said.”
“Realtor Bartlett thinks the hangover from the easy money party is not something that will end soon. ‘The final effects and ramifications won’t be seen for months or years,’ Bartlett said.”
The Financial Post. “Peter Morici has little sympathy for investors snared in the U.S. subprime mortgage meltdown.”
“Mr. Morici, the former chief economist for U.S. International Trade Commission and now a business professor at the University of Maryland’s School of Business, lays the blame squarely on what he calls the ’sinfully wealthy Barons of Wall Street’ who tried to pull off ‘an Ivy League Ponzi scheme.’”
“The recent market meltdown had much less to do with bad subprime loans than advertised,” he says. ‘It was caused more fundamentally by excesses at hedge-and private-equity funds.”
“In other words, inventors of these funds…attempted to pair put-and-call options with borrowed money. Under normal circumstances, he argues, these ‘buy-sell pairings’ can work in smaller markets since computers can establish patterns of stocks and other investment vehicles moving in different directions and then cash in on the difference or spread.”
“‘But when hedge funds multiply, they essentially bet against one another and require one another to validate their bets,’ he says. It was doomed to failure, he says.”
The Financial Times. “The much-heralded financial rocket scientists responsible for the explosion in complex mathematical trading strategies are bracing themselves for fresh pain after what one team of analysts called ‘the perfect storm’ last week.”
“Quantitative strategists, or ‘quants’ as they are known, attempt to profit from pricing inefficiencies identified through mathematical models. These send buy and sell signals on small variations in price between different securities.”
“One hedge funds manager said the average quantitative fund manager was down about 15 per cent in the first few days of August.”
“‘Nothing seems to be working. Previously uncorrelated factors have recently been falling with the same pace, leaving investors with very few places to hide,’ said Citigroup analysts in a report to clients last week.”
“One hedge fund manager estimated that statistical arbitrage funds with more than $100bn in assets had on average borrowed four times their actual assets. These borrowings magnify significantly any moves they may make in the market.”
“The wave of selling only exacerbated the problem by pushing down prices. As asset values fell, the ratio of debt to assets rose. This forced them to sell yet more assets.”
“One hedge fund manager said: ‘Nobody is happy with their credit position and everyone wants to de-risk and de-leverage. And it is global. The market has gone freaky.’”
From Newsweek. “An idea for a morality play: capture the madness of an era when investors, entranced by new technology, a novel set of economic assumptions and an all-powerful Federal Reserve, lost their heads, blew an exuberant bubble and suffered a painful bust.”
“It is, in a way, the Henny Youngman Economy. Lenders pleaded: ‘Take my money … please!’”
“And this credit boom rested on the staunch belief in three pillars of faith, all of which, coincidentally, underlay the 1990s boom. Pillar #1. Technology. Pillar #2. Asset prices continually rise.”
“Pillar #3. In a pinch, the Federal Reserve would step in with a well-timed interest-rate cut, just as it did after various 1990s crises, flooding the system with cheap money.”
“As low rates proliferated, lenders fell over themselves to stuff cash in customers’ pockets. Bankers proved similarly accommodating to corporations, especially to private-equity firms.”
“It all worked fantastically well. But this year, one by one, the pillars underlying the Henny Youngman Economy crumbled. The securitization of subprime mortgages had the perverse effect of tethering more investors around the globe to the same crumbling assets.”
“Home prices fell nationwide for the first time in a generation, according to the Case-Shiller Index. And Alan Greenspan’s replacement, Bernanke, revealed himself to be more concerned with the prospects of inflation than with the prospect of unemployment among hedge-fund managers.”
“Chagrined lenders have been gripped by the sudden realization that debt can, and does, go bad. So just as rapidly as they rushed to lower standards, mortgage companies—the ones that remain solvent—and lenders of all types are rushing to tighten them.”
“Credit, the fuel that powers the economy, is becoming more scarce and expensive. Somewhere, in the great borscht belt in the sky, Henny Youngman is hoisting his violin.”
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/11/ccom111.xml
BB is a great foil to the hysteria-mongering Cramer.
The soft-spoken professor made his name at Princeton studying how mayhem in the banking system can lead to economic slumps, where he published his famous tract: Inside the Black Box: the Credit Channel of Monetary Policy Transmission.
So far, he has kept a cool nerve, ignoring a growing chorus of traders, bankers, and pundits on Wall Street pleading for swift action to prevent the sub-prime mortgage debacle spreading through the US economy.
CNBC commentator Jim Cramer caught the mood of mounting anguish with his trademark hyperbole: “It is no time to be an academic. Open the darn Fed window. Bernanke has no idea how bad it is out there. The Fed is asleep,” he said.
If Mr. Cramer were to study a little bit of history, he may learn that “…a central bankers job is to remove the punch bowl when the party gets started.”
Perhaps Mr. B’s helicopter comment was no indication of how he will behave?
Ha-ha! When was the last time that happened? Read “The Creature From Jekyll Island” by G. Edward Griffin to find out the real job of a central banker.
As long as Helicopter Ben’s nickname continues to have credence, I’ll continue to post this…
The helicopter comment was in response to a question about very extreme circumstances– the verge of deflation. Confidence is so low that despite near-zero interest rates, people don’t want to borrow because they can’t anticipate any return… the dollars they’ll pay back with will be worth more than the ones they borrow. And banks can’t be “infused” because they don’t want to lend at low interest rates on the verge of deflation.
Utter despair. In that circumstance, according to Mr Helicopter, the best option is to bypass the lending institutions and prevent deflation directly. By this same reasoning, I would guess we won’t see a rate cut until either wages drop or unemployment jumps. Significantly.
This Cramer guy is insane. He is on speed for sure. Who exactly is hurting? I think it’s himself. He invested in the mortgage back junk and has lost 90% of its value. The guy is insane. Do we want such a personality on the air way? My guess is that he will be fired once all the dust settles. The network exec will see to that.
He is great at attracting the college kids. And, since thee is a totally new batch of tehm every 4 years, I think his job is safe. Even when he gives horrid advice, who cares. The next batch of kids is only a few years away, and they’ll have no knowledge of his pathetic track record.
(or crack record, because he must be on crack based on some of his recomendations)
Anyone that paid in full for an MBS is not hurting. As of todays date not one MBS has missed a payment, the problem is that margins on MBS were 0.5% recast to 5% (app nos). To meet margin calls, borrow moneys or sell. There were no bids (my bid did not count - wishful dreaming on my part). There were no lenders.
So this mess is entirely about leverage, and not about ROI at all?
It appears to be so,
Ms. Caroline Baum at Bloomberg posts an analogy worth reading
“… Enter Wall Street, which is essentially in the sausage- making business. It takes meat and meat by-products and processes them into wurst, which it hawks to investors both sophisticated and naive.
In the case of subprime loans, which were packaged into mortgage bonds and sliced and diced into collateralized mortgage obligations, there was just enough real meat for the securities to be certified as kosher (AAA) by the rating companies.
Beer ‘n Brats
In an environment of low interest rates, earning a little extra on AAA-rated securities seemed too good to be true. And it was.
Eventually the knockwurst and bratwurst started to make people sick. Upon testing, the sausage was found to contain too little meat and too much by-product. It wasn’t kosher after all.
On further examination, the entire sausage production and distribution chain — from homebuyers to mortgage lenders, from mortgage brokers to securitizers — was found to be operating under unsanitary conditions and pretty much shut down until further notice. …”
http://tinyurl.com/2bxmr8
Absolutely the Funds tried to make an extra point or more. They never properly evaluated risk. The funds were warned by people a lot smarter than me that their risk analysis was faulty.
It is kind of ironic that a few years ago I posted that the problem would start in France (believing France would dump its US T Bonds) never dreaming that they were stupid enough to buy toxic waste from us. This last weekend I heard that President Bush invited President Sarkozy to his summer cottage in Maine and served a traditional American meal of Hot dogs and beer.
“we all got ground to sausages in Dunderbeck’s machine”
Aladin Sane you can rewrite the lyrics. LOL
Dunderbeck Lyrics
Oh, Dunderbeck, oh, Dunderbeck
How could you be so mean
I’m sorry you invented
That wonderful machine
For all the cats and long-tail rats
Will never more be seen
They’ll all be ground to sausage meat
In Dunderbeck’s machine
I posted a lengthy reply which I did not save and got lost in the I sphere, but the short answer is YES!
It is all about leverage: leverage in the financial system, and leverage by the average home “buying” schmuck who figured he doesn’t have to pay off the house - ever - because it will keep going up, Up, UP!!! in value.
por que’
gold soft even w botox injections
Even with the cash injections, banks still need more cash. That measn selling assets.
Not to mention, the ECB was MUCH more agressive than US Fed. As a result, the exchange rate is starting to adjust in favor of the dollar. Gold up relative to Euro, down on the dollar?
As soon as they stop the cash injections the stock market lands with a thud. ‘He’s dead, Jim’.
McCoy: That’s generations ahead of where these people should be technically. How did they manage that?
McCoy: “Damn it, Jim… I’m a doctor, not a bricklayer”
Or, the recent sell-off is a forced margin call that has little or nothing to do with general market sentiment. As US stock prices are way, way, way flat versus Europe, Asia, and Emerging Markets, and there’s gobs of Middle East oil money floating around, I wouldn’t look for a big decline. Instead, inflation is in the cards.
Never meet your margin call. Liquidate first.
“In April, it ordered division presidents to do whatever was necessary to hit sales targets. Instead of rebounding, Horton home sales fell 40 percent in the quarter ended in June. Nearly 4 of 10 buyers also walked away from their contracts.”
I guess lowering selling prices until the homes sold wasn’t “doing whatever they could!”
“…in the quarter ended in June”
Talk about a silent spring. Overall sales down 40% - and then buyers walk on 40% of even that depressed amount? Ugh, anyone care to take a shot spinning that one? Oh yeah, we still hear now again that sales will turn around in the 4Q - sure they will.
Its not the 40% of buyers that walked that amazes me. Its the 60% that didn’t.
These builders were reluctantg to lower the prices as they did not want to upset the previous FB. Now the liquidity dried and lending standards are gettign back to what used to be norm, I challange them to keep the price flat and add more and more incentive. They will not get the buyers to qualify for the loan amount. After few months when the prices are deep in doo doo they will realize the problem and start lowering the prices where they will start seeing qualified buyers.
Whoops !!!
http://www.mercurynews.com/ci_6610386?source=most_viewed
“than $300 a square foot for one-story, concrete tilt-ups”
Residentials are over $800/sq ft. Certainly a major difference if you consider one piece of land over another.
OT, but relevant:
RealtyTrac reports that Total Foreclosures in Humboldt County, California have fallen from 203 to 137 from July 31 to Aug. 13. This appears to be an error, unless they’ve changed the way they collect/report the data.
Has anyone else found a massive drop in their area? Any ideas what’s going on? I’m waiting to hear back from them.
Not massive drops here in Colorado, but flat due to gubmint employees being overworked by the sheer numbers . . . they can’t keep up! I would guess your numbers are the result of vacations, training, etc. Longer term, the numbers will likely bounce back and slowly creep up.
I think that is probably true. I live in Humboldt, and while housing is definitely sitting on the market much longer, nobody here seems in any hurry to cut their prices. Many are very much convinced that the good ol’ days of 2005 will be back soon.
However, the washed-up retirees from SoCal–people this market relies on– will likely find it harder to get here. Most are dead broke except for their house, and those aren’t selling well…so they can’t move here. I also notice far more homes are dropping out of the MLS and are going the FSBO route.
I was in cresent city last week. Some really nice trophy homes on Pebble Beach drive right on the Ocean for sale. In fact about 40% of the ocean front homes were for sale.
Horrible analogy, for several reasons:
- Most things at Wal-mart the average person doesn’t have to get financing for. The average person does have to get financing to buy a house.
- You can’t rent toys (for the most part). You can rent a house.
- Even if you didn’t change people’s credit-card limits - If you doubled or tripled the price of items at Wal-Mart - people wouldn’t buy them - not because they would exceed their credit limits, but because they’re just too dang expensive to be worth the cost.
“If you doubled or tripled the price of items at Wal-Mart - people wouldn’t buy them”
They would if they thought that they could re-sell them again in a year for double what they paid for. After all, “they aren’t making any more lawn chairs”.
“they aren’t making any more lawn chairs”
LOL. Then the full absurdity of the comment this is mocking becomes apparent (again).
While that may be a poor analogy, the more important message is the impact of debt on fueling the American economy. If the credit contraction in the mortgage market spreads to credit cards, how many American consumers will be able to make a whole range of purchases? This would seem to more immediately impact the economy than anything that’s happened in the housing market so far, though those impacts should eventually be enormous.
That’s exactly it. What’s possibly unique about this housing bubble is that Wall Street is up to it’s eyeballs in junk mortgage paper. That affects the entire financial sector. I’m getting more and more worried about the economy as each day passes, and we finally start to see where the “bodies are buried,” so to speak.
imo, credit contraction extending to CCs is a certainty. People will be forced to purchase only what they can afford, not that this is at all a bad thing.
Educate and discipline your children or the cold, cruel world will do it.. without mercy.
Ben Stein on Kudlow says that the consumer is still spending, no problem. Another guest said that things were only going to get worse as people who were just starting to miss a house payment may not be in full dire straights until another 6 months. Ben put him down. But what Ben forgets is how people use their CC’s. Example: I just got a statement from Macy’s where my wife charged $150 dollars on her Macy’s card to get an additional discount. The bill said that the minimum payment was $5. What the hell is that! That is 30 months without adding interest to the balance. Needless to say I remitted the $150 but the point is J6P and wife will continue to run up the tab until they can’t get another dime and then some of these Wall Street figureheads may get the picture, albeit too late.
The following is a link to an interesting post on itulip:
http://tinyurl.com/yt3a7k
Go to the graphic on “Household Cash Less Liabilities…”. It’s stunning. In every year in the post war era up until 1997 this number was positive. Since then, we’ve plunged progressively deeper into debt. If you turn off the credit, does the economy collapse?
economic collapse?
I think it’ll be more like putting a dangerously obese person who has no self control on a forced diet.. lots of whining and complaining .. might upset the furniture looking for forgotten secret food stashes but, in the end, healthier.
Collapse is probably (hopefully) too strong a term. However, there could be quite a lot of pain if there’s not some order to the transition. Smarter use of money would be a good thing. There’s no way I will defend those who’ve done multiple refi’s to buy new and better toys or other purely discretionary purchases.
However, there are others that have used credit cards to make up for stagnant/declining wages, to cover medical expenses for those not having insurance, etc. For these people, there will be real pain. Whether items purchased with credit cards were necessary or not, someone was employed as a result of these purchases. As the purchases decline, so will employment. The cascade could spread and deepen the pain.
In the end, a correction to a sustainable path is more desirable than a collapse and the resulting experiences of 1930’s Germany/Italy/Japan. Put people in enough pain and you may get a response that’s very different than desired or anticipated.
Precisely: keep wages stagnant to declining, pump up inflation to pay for more boondoggles, and then pour out debt and credit to hide the problem. Works great until people can’t pay anything off… then… oops…
Walked into a Big Lots store in Northpark, San Diego. Purchase a small item and gave the clerk a $10 bill.
Her response….OMG Cash!!!!
(It just happens to be next door to a pawn shop you would think they might see cash now and then.)
‘If you told shoppers at Wal-Mart that they couldn’t use Visa or MasterCard for six months, many wouldn’t be able to buy anything,’ said Mark Dotzour, chief economist for the Texas A&M Real Estate Center.”
and that’s doubly true in College Station! He would know.
This reminds me of that inane commercial for Visa, where the synergy comes to a stop when someone uses cash or a check for a purchase, then it starts back up again.
My favorite thing about that commercial is the theme music is from “Brazil”. Some sound editing minion got the joke.
The Financial Times. “The much-heralded financial rocket scientists responsible for the explosion in complex mathematical trading strategies are bracing themselves for fresh pain after what one team of analysts called ‘the perfect storm’ last week.”
“Quantitative strategists, or ‘quants’ as they are known, attempt to profit from pricing inefficiencies identified through mathematical models. These send buy and sell signals on small variations in price between different securities.”
new decade new name. this was what LTCM essentially did in the 1990’s and fell because people figured out what they were doing. in the 1980’s the guy who started LTCM was the first to use MIT phd’s to manage money based on physics and mathematical models.
“These send buy and sell signals on small variations in price between different securities.”
What kind of signals do their models send when the variations in the price of securities already held in the portfolio are very large and negative?
“It was great while it lasted, alas” or
“We knew the party had to end sometime.” or
“What are you going to do with your retirement funds Bob?” or
“I can’t believe it lasted as long as it did!”
I suspect the last
I thought you were asking about a different king of model! LOL
“Yes, the Goldman Alpha Fund is down big, as are many other quant funds. And the people running these funds are smart people, probably a heck of a lot smarter than me, (and in spite of what the NY Post says, they’re even smarter than Paris).”
you have to read When Genius Failed: The Rise and Fall of Long Term Capital Management
http://www.amazon.com/When-Genius-Failed-Long-Term-Management/dp/0375758259
the models are good when you are the only one following it. when everyone is on the game they fall apart just like in 1998. and what happens is the hedge funds need the big boys to handle backroom things like handling trades and lines of credit for margin.
what happens is when people start copying you, the returns fall and you increase leverage, play with the model and take more risks. just like LTCM, at some point things fall apart because you pay too little for risk. and when things fall apart everyone is trying to sell the same things so they fall apart even more.
“Quantitative strategists…mathematical models”
For those in the know, does quantitative analysis use past events to model future events? And did the “past events” include “housing prices always go up”?
If so, then I have to mutter yet another: “Idiots!”
What about stress testing with all PLAUSABLE scenarios, and not just HISTORICAL scenarios? And what about the PLAUSABLE, REASONABLE, and even PROBABLE scenario of house prices going down?
And these guys get paid $200K-$500K a year?
(Again, correct me if I’m wrong here)
That is essentially what they do.
In the fields they were originally designed for, such models work well. No one believes that the physics of particles will be different tomorrow than it is today - even if you believed that the particles themselves will *behave* differently tomorrow, you would not call that belief physics. In addition, like all scientific models, the true function of the model lies in where it breaks (where your assumptions are incorrect or where your understanding is incomplete), not where it predicts the future exactly.
Of course, most of the finance guys are not trained in rigorous analysis, so they take the numbers and run, with predictable results. (I guess in that respect, the future *does* behave like the past …)
Thanks for the info, Annata.
“Of course, most of the finance guys are not trained in rigorous analysis, so they take the numbers and run”
It’s funny, many of the quants are now software guys as well (C++), and THEY should have known better about stress testing with even improbable events. In computer processing the saying is “Garbage in, Garbage out” (GIGO). Anyways, it will be an interesting story on how these models were developed, and how they failed.
In computer processing the saying is “Garbage in, Garbage out” (GIGO).
GIGO?!! I loved that movie. Maurice Chevalier rocks!
It’s too late for anyone to read this but for posterity or someone reading tomorrow I will ppost (I print out a few of the days posts and read them on the train ride home and the train ride back in) but quants are almost NEVER “technical” trading schemes. Examples of a quant model would be it scans all the prices of bonds, convertible bonds, equities, the prices of currency hedges, the prices and availability of shorting the equity and the price of a default swap and looks for pairs that, when “THEORETICALLY” all equivalent features of the two pairs are equal, their cash flows and yields should be equal. If a mismatch is found, the rich one would be shorted while the cheap one would be longed, and through the use of the aforementioned derivatives and/or additional leverage, you profit/alpha from the difference between the two (of course the model should also account for the friction costs). This is a relative value or credit or convertible arb quant model, there’s also several other variants that can be done/used. For example, AQR, besides their quantitatively derived “optimal” portfolio, their model actually has time horizons and determines patterns of liquidity and illiquidity in the market and basically plays market maker as it slowly shifts into its optimal portfolio supposedly at the optimal price…. I asked one of the men behind the algorithim what happens if a catastrophic market event occurs or an unwinding of a trend occurs and liquidity is being sought yet most likely securities will not return to their previous prices and I was advised that there are failsafe triggers that will suddenly wake up all the traders who supposedly will analyze the situation and take over. Heard they went down 15% in two days. Guess it didn’t work the way he had planned.
2-5 million a year or more.
Yup - I recall reading in a few places that even flat housing prices broke most of the models. Duhh… Gee, why can’t housing prices keep going up much faster than salaries, forever?!
I guess once this is done, they may have to go back to earning money the old fashioned way: by providing a good or service. The horror!
“manage money based on physics and mathematical models.”
Stochastic modeling?
Yes. Stochastic calculus is the language of finance. As with physics, if you do not understand the limitations of your model, you get into big trouble.
(OT: The gents that designed the A-bomb were well aware of the fact that they may have overlooked something critical in their analysis. There was discussion around the first tests: What if the chain reaction spreads to everything around us because of some overlooked phenomena?)
Brings to mind Fermi’s famous estimate about the power of the Trinity bomb test. Basically, he said ‘if we’re right, about 20 kilotons. If we’re wrong, about half of New Mexico.’
The quants were wrong.
These guys may be rocket scientists with Mensa IQs but they lack one essential quality: common sense. In effect they are trying to tell the time on a clock with no hands, and the results are now all too plain to see.
I have been involved in many very, very complex mathematical processes and systems over a period of more than 30 years. I suspect that those folks developing these investment systems are very bright, good mathematicians and physicists. However, that doesn’t mean that they’d necessarily have the requisite experience to allow for all contingencies in their mathematical modeling development.
I’ve discoverd (thru a lot of hard work) that a lack of comprehensive knowledge of a discipline does result in product failure. Sounds the same in this case.
Have to agree with Hazard on that one. On top of that toss in a bit of arrogance and ego, and you’ve got yourself a recipe for interesting times.
Also, these guys probably start out not trusting their models too much, but the more the model actually works, the more trust they place in it. Big mistake in investing. “Picking up nickels in front of a steamroller” as they say, which kills lots of investors.
The genius of Warren Buffett is that he is constantly focused on what could go wrong with an investment, rather than the shoot-for-the-stars best case analysis. Yet being ultra-conservative is actually the best approach longterm, when combined with independent, intelligent thought.
Wall St. boys playing in one big sand box and don’t know what to do except shouts of crying to their protected mother, the private federal reserve; “print more money, print more money, now!
As I mentioned in a previous thread, this strategy seems to be producing only very short-lived, artificially engineered rallies.
More like chimps in a cage throwing caca at each other, Jerry F, as things start to heat up and claims and counterclaims and side bets (derivatives) are called in as cash endlessly disappears down the black hole of hedgies, CDO and MBS’s.
The Cramer TV meltdown which I finally saw is below the layer proof that they do not want capitalism, only crony capitalism, financed by the taxpayer or inflation or state control.
Privatize the profits, socialize the costs.
Let them all fail.
here here!
did you see cramer on colbert, where he pretended to be interested in the poor folks about to lose their jobs? it was sickening…
“‘D.R. Horton doesn’t see strength in any of its markets right now,…’
What? Horton isn’t hearing a Who anymore?
my favorite book
& goodnight moon
new titles to inlcude
so long al
bye bye dollar
and the scary movie “I see debt people”
Saw a Horton billboard being changed on Beach Blvd. in Jacksonville this afternoon. Could it be that cash flow is that bad? I think the builders are so fried that they can’t even be bothered with billboards and sign twirlers and open houses any more, especially in this late summer heat.
Horton really appears to be sucking it big time here. They apparently own a lot of land in St. Johns County south of Racetrack Rd. here because they’ve got big time roads and up until recently big time signage but they ain’t building much.
Have you noticed that you almost never see any fliers in the little boxes under the For Sale signs anymore? The RealtorTM has to pay for those.
Come to think of it, I’m not seeing so many of those either. I used to gather up quite a collection while riding my bike around Tucson. Those darned Realtors have spoiled my fun.
Is that how you stay Slim?
Luv,
Jen
They should of put in their model that people walk when they don’t have skin in the game and they are forced to walk when they can’t make the payments.
HW, it does appear they need to work on their event trees.
“Kerry Killinger is chairman and CEO of Seattle’s Washington Mutual Inc.”
Kerry goes on to tell us that Seattle and San Francisco markets won’t fall. Let’s see if he’s right.
Why doesn’t he say LA and OC?
Might as well swing for the fences on these.
yeah, they’ll be affected. maybe less-so in some locations (I know, location, Location, LOCATION), but it’s already started in many areas. he’s just being Salesman Sal with his comments, but that’s part of his job req.
so many people took out second-mort that are adjusting soon. means lot less expendable income, basically. THAT is going to hit everywhere.
So far, I’ve avoided the Stock Tech Bubble and the Real-estate Bubble. If it looks too good to be true, just do a Cramer and Walk Away. Money makes people do the most foolish things.
Bwa ha ha ha. He also says:
=================
‘House price appreciation in the United States was significantly above normal for several years…That led to price increases growing above average.
=================
I think he just said: housing prices went up because housing prices went up.
I want the video of the Chronicle reporters nodding sagely and recording that gem for posterity.
“Q: Other people were making them, everybody was on the boat? A: Very much. And the boat, again, the loans in the underwriting were predominantly being pushed by the money flooding in from Wall Street that wanted to buy the loans…we really pulled our horns in at the same time that Wall Street money was just flooding us.’”
No bailouts for Wall Street. Let them lie down in the bed they made that temporarily destroyed the U.S. lending market.
“an Ivy League Ponzi scheme.”
Love it!
Yep…those clowns started a money vrs credit fight and now they’re SUDDENLY looking straight into the Eye of the Tiger
Somebody is about to get badly clawed and then EATEN Alive !
Burp!
But, but, but real estate always goes UP… Suzanne researched it!!!!
Bwahahahahah.
“Suzanne researched it!!!!”
For those that are not long term THBB readers, required viewing (consider it homework):
http://www.youtube.com/watch?v=Ubsd-tWYmZw
“I love that house…plus the schools!”
“What…WHAT!!!”
The trouble with loving houses is that they never love you back.
Okay, I’ll add my usual. . .
But they do occasionally F you.
Who’s Suzanne?
You don’t want to know…
LOL. You know, at the end of that commercial they show a business card that looks real. I can’t read the last name with my eyes, but it’s Suzanne somebody. I’d love to know if it’s an actual realtor.
http://www.youtube.com/watch?v=Ubsd-tWYmZw
Realtor helps woman make her PW husband buy a new home. ARG… the WORST commercial EVER!!!!
Did you scream loudly at the screen when you saw it? Roar epithets? Bellow advice to the cringing wussy-man?
I sure hope so.
I think you would have to go back and look, but I believe the consensus of the blog was “death to the weenie”.
LOL
“One hedge fund manager said: ‘Nobody is happy with their credit position and everyone wants to de-risk and de-leverage. And it is global. The market has gone freaky.’”
Crack that whip
Give the past the slip
$tep through a crack
Break your banker’s back
When a hedgefund comes along
You must de-risk it
Before the facts get out, that you went long
You must de-risk it
When something’s going wrong
You must de-risk it
Now de-risk it
Into shape
Shape it up
Get straight
Go forward
Move ahead
Try to detect it
It’s not too late
To de-risk it
De-risk it good
Sung to the theme from our Spud Boys from Ohio…..”Whip It!!”
I think RE and the markets have a better theme— “Careering” off of the Metal Box album by Public Image Limited.
Thanks for reminding me of “Careering.” I haven’t heard that song in 20 years.
Career Opportunities Lyrics The Clash
They offered me the office, offered me the shop
They said I better take anything they got
Do you wanna make tea at the BBC?
Do you wanna be, do really wanna be a cop?
Career opportunities are the ones that never knock
Every job they offer you is to keep out the dock
Career opportunities, the ones that never knock
I hate the army and I hate the RAF
I don’t wanna go fighting in the tropical heat
I hate the civil service rules
And I won’t open letter bombs for you
Career opportunities are the ones that never knock
Every job they offer you is to keep out the dock
Career opportunities, the ones that never knock
Bus driver!
Ambulance man!
Ticket inspector!
They’re gonna have to introduce conscription
They’re gonna have to take away my prescription
If they wanna get me making toys
If they wanna get me, well I got not choice
Career opportunities are the ones that never knock
Every job they offer you is to keep out the dock
Career opportunities, the ones that never knock
Careers
Careers
Careers
Ain’t a-never gonna knock
Sandinista album of 1981…great 3 l.p. set.
“It Fast, Rough, Factory Trade!” (r.i.p. Tony Wilson 1950-2007)
“The mutants, creeps, and musclemen”
“are shaking like a leaf”
“it blows a hole in the radio”
“when it hasn’t sounded good all week”
One gem after another on that album.
Nice work on the Devo! I’ve was humming “Beautiful World” as I biked through SF after a dentist appt, wondering how much longer we have to put up with monied hipsters hanging out at coffee shops at 2:30 (ie. not working) and guys wearing their hats wrong with pants falling down driving Escalades with spinners and the idle rich getting their weekly mani/pedis. Not much longer, I hope. This whole s–thouse is going to go up in flames…
Back to basics, baby!
Mr. Bubble: SF - is that San Francisco or Santa Fe?
LOL.
Q: Are we not men?
A: No, we are De-risko.
Aladin and Et - this is the best in a couple of weeks.
Good one Aladinsane!
Good one, aladinsane. Funny for me, because a friend and I did a similar thing with that song, about house flipping. “When a fixer comes along, you must flip it” type thing.
“One hedge funds manager said the average quantitative fund manager was down about 15 per cent in the first few days of August.”
What next? A LTCM-style bailout for the entire global hedge fund industry?
As your video post from last night said at the end - “pray …”
There is not enough moneys available to bail out the 20% that had no idea what they were doing. Let alone the average mopes like me. The 3% , those that knew what they were doing, did very well.
LOL… “What? Horton isn’t hearing a Who anymore?”
Thanks, Anon.
Luv,
Jen
“It is, in a way, the Henny Youngman Economy. Lenders pleaded: ‘Take my money … please!’”
More like ‘Take my assets, please!’
quants
This stuff qualifies as investing? This is clearly gambling…. and they lost.
At least in Las Vegas they put a drink in your hand while you flush your money away…
But Vegas doesn’t offer govt bailouts for gamblers who lost their shirts.
“At least in Las Vegas they put a drink in your hand while you flush your money away…”
Let’s see you walk away from your marker in LV (akin to a mortgage) and see how well you fare! You couldn’t buy enough medical insurance to cover the pain and suffering.
Oh, I didn’t say it was any less painful in Lost Wages, just that you get that nice free drink or two to go along with the pain…
Some geniuses. They were all on the same side of the trade; who did they think was going to buy when they wanted to sell? Their Uncle Sam or no one.
Apparently they were hoping some govt entity would offer mop up operations after their Ponzi scheme blew up (Fannie Mae? The Fed?).
“Who” is never part of the input variables. It is assumed a constant, as if there will always be a buyer, if it makes it into the model at all.
When you are optimizing the hell out of something, you have to really smooth those inputs. Can’t have any nasty corners in the model, no sir.
“A doctor gave a man six months to live. The man couldn’t pay his bill, so he gave him another six months.”
Henny Youngman
I said doctor it hurts when I do this…he said don’t do that.
Quote of the year from the Star Telegram item:
“A whole class of home borrowers who could get easy money a few years ago can’t get any loans now. ‘If you told shoppers at Wal-Mart that they couldn’t use Visa or MasterCard for six months, many wouldn’t be able to buy anything,’ said Mark Dotzour, chief economist for the Texas A&M Real Estate Center.”
It’s stuff like this (link below) that may get people thinking “oh, those poor people, why isn’t the government doing something to help them out with this mortgage mess? People are missing out on the american dream!”
Heartbreaking Mortgage Story (Video, ABC news):
http://cosmos.bcst.yahoo.com/ver/237/popup/index.php?cl=3688850
Family was renting, was buying a house with two loans (probably first and second), credit tightened up and loans ended up not funding, they had to stay renting, now the girl doesn’t get her own room, now they can’t get a pool, and they will “never getting a chance at the American Dream” (actual quote). The family is feeling pain and anger because they feel “at the mercy of the bank”.
They also state that “costly interest rates are forcing homeowners into foreclosure”.
No mention of the fact that until recently, people could have used historically low fixed rates, and they would have been relatively safe (baring job changes, etc.)
*Sigh* It’s as if they are saying that people DESERVE to have these homes, no matter if they could afford them or not…just look at their shattered dreams, now they will have to stay renting instead of having a “home”.
What ever happened to “home is where you lay your hat”, or “home is where the family is”? Have we gotten to be so materialistic that we don’t have a “home” until we buy a structure that we can not afford?
If there is bail-out, I am going to be SO MAD.
Wonderful lies, the truth is that they could RENT a place two-three times bigger than any REAL house they could afford barring IO/teaser rate loans. Or they can rent the same-size house and pocket 50-75% in CASH to a savings account. Thanks for filling in those details ABC, you provide a great service
From each according to his ability. To each according to their need. One of the Marx brothers coined that phrase. I think it was Oucho describing an experience in Stalingrad that is akin to what we are seeing played out today. It was also what a guy named Galt saw that drove him to organize a strike against the “Destroyers” in an old novel some poll listed as the “2nd most influential” book in America.
Pretty soon it’ll be “home is were you parked it.”
“…When rain turns to hail…run!”
“Everyone always waits until the last second to get out, and (Wednesday) is the last second,” said Mike Hennessy, managing director at hedge fund of funds Morgan Creek Capital.
But exiting can be a difficult process in an industry where managers routinely lock up money for months, if not years, and often require 45 days’ advance notice before returning it.
To pull out at the end of the third quarter, investors will have to notify their managers by August 15.
http://www.reuters.com/article/ousiv/idUSN1334595320070813
” …and then it went dark.”
Note to self: restock pantry ob Tuesday Aug 14th with:
“Neil’s Buttered Derivative Popcorn” & 2-buc-chuck.
One wonders what they will be selling to pay off investors.
Their vacation homes?
JK.
“Q: In broad terms, could you tell us your impression of what happened in the mortgage market and how it happened? Foreclosure activity is increasing as adjustable-rate loans are reset. Who is to blame?”
“A: ‘House price appreciation in the United States was significantly above normal for several years…That led to price increases growing above average. That then accelerated into a bit of a bubble as speculators came into the market thinking that housing was going to increase in value at an above-average rate forever. The market peaked about two years ago. Simply, prices were rising much faster than they should have.’”
This is a classic case of what came first, the chicken or the egg. They fail to mention that the reason prices were rising much faster than they should have was in part due to all of the crazy financing available from said mortgage companies.
“House price appreciation in the United States was significantly above normal for several years…That led to price increases growing above average.”
Double speak. It’s the SAME DAMNED THING!!!
Jim Cramer’s looking more erudite every day, isn’t he?
All the billions of fiction money poured into the markets over the weekend by the Fed and the ECB and the NYSE is stuck in neutral for today?
Remove the fiction money and hedgie funds, MBS and CDO’s would suck the markets of “liquidity” dry in hours.
It is just like using all the tractor beams and deflectors from getting sucked down a black hole gravity well.
Sure feels like another big downdraft is coming in the next day or two. The only thing contained is the bad news, but it wants air.
The news to come - a rapidly slowing economy. In the back of the theatre, we hear a few voices crying, “Do something.” In a few months it could be a chorus, then it will be a scream: DO SOMETHING. It will get very loud, and sad to say the American public won’t care if it’s communism or hyperinflation, just DO SOMETHING!
I expect within a couple of months, a large chorus of Cramers will be cursing Bernanke’s name.
The only way for Ben to make a name for himself (and keep his name) is to go the Volcker route. Otherwise he continues Greenie’s mistakes.
But in a country where corporations have all the power, can Ben survive the storm if he doesn’t lower rates?
I doubt it.
Funny, but what this proves is capitalism really doesn’t work in the long run. Eventually money will corrupt the entire system, and then it will be impossible to take prudent steps to save the system when things get out of control.
Ben will be forced to lower. And this will bring about the collapse.
“Realtor Bartlett thinks the hangover from the easy money party is not something that will end soon. ‘The final effects and ramifications won’t be seen for months or years,’ Bartlett said.”
Wow, a realtwhore speaking the truth?? What is the world coming to!
Didn’t he get the memo??? Real estate always goes up and now is the best time to buy. All those wimps cancelling contracts on new homes will regret it when they see those fabulously built newhomes appreciate 300000% per annum for eternity. It’s the new paradigm! It’s the permanent plateau! It’s the Trump/Kiyosaki/Lereah mantra!
Honestly, why would ANYONE want to pay 6% comission to an ex-con, ex-burger flipper, ex-crackhead, ex-pole dancer, ex-homeless con man/woman when there are THOUSANDS of MILLIONS of buyers just waiting to throw their money at you for the privilege of joining the ownsership society that Dubya dreamed for us?????
The only thing that makes me sad (a little) is the children who will undoubtedly be paying in tears and pain for their parent’s laziness and irresponsibility. But this will be a good lesson for them. Work hard, save some, be smart with your money.
Maybe the pole dancer, a dollar at a time.
Can anyone offer a prediction of where this stock price is heading (BZH)? (So much for the new business model…)
http://tinyurl.com/3dk7gb
Once BK is clear the threat of short squeeze is over no matter how large the short position. The stock will probably never trade much below its low of 8 or so due to short squeeze worries until BK- then it will go to 1-2.
I’d like to send a little thank you out to the fed for injecting some currency in to the big banks. I’m sure they needed it. We all could use just a little bit more debt.
If anything I’d prefer the treasury to print the money and hire people to do work. Heck, plenty of projects out there that have at least some social value beyond expanding wall streets pockets.
Not to mention GS is sitting on what…. 600 billion in cash???
If it is even a marginal investment then GS can go after it. Since they are not then it means….. ITS GAME OVER MAN
I think that is what gs cash infusion was, they are going to let investors out and take the hit.
I posted yesterday about the D. R. Horton housing developments in Oxnard, ca. The developments are overpriced, on the edge of gang territory in an area which is made up mainly of low paid workers. The cheapest unit (small) was $400,000. If I owned D.R Horton stock now I would be dumping it like there’s no tomorrow ESPECIALLY now that sub-prime has gone bye-bye. My guess at the TRUE and eventual value of these $400,000 units is around $200,000 give or a take $25,000. Those that buy at $175,00 will have won thermselves a badly made, tacky, cookie cutter shi*box ar around the right price if that’s where they want to live. Those that buy around $225,000 will have paid top dollar but prices might catch up around 2015. Those that paid over $225,000 are idiots. I would NOT be surprised to see several of the large builder companies, including D. R. Horton go belly up in the next 12 to 18 months. That will bring up another round of problems for buyers. Don’t expect a lot of these builders to be around to fix (under the contract buyers signed) the many problems these newer buildings are going to have because of the rush to build - fast and badly.
“Don’t expect a lot of these builders to be around to fix (under the contract buyers signed) the many problems these newer buildings are going to have because of the rush to build”
Put that on the “for sale” sign. lol
This happened to my grandfather. Bought a house years ago in a development, had no end of problems with the builder. They finally finished the house, and behold! years later the foundation started to sink because the worthless builder used construction debris as the foundation?! Naturally, the builder had gone out of business by then - typical tactic! Cost my grandfather a fortune to fix, but it was eventually corrected…
Those that buy at $175,00 will have won thermselves a badly made, tacky, cookie cutter shi*box ar around the right price….
That’s about right: 17500.
Luv,
Jen
“I would NOT be surprised to see several of the large builder companies, including D. R. Horton go belly up in the next 12 to 18 months.”
Heck, I expect one or two to be kaput in 12 to 18 DAYS. DHI is withering and dying as we speak, but BZH and HOV look like the faves.
Giuliani now on CNBC, saying if you invested in subprime, you knew you were taking on greater risk for a greater return, don’t come crying to the govment for a bailout.
Yeah, and sticking a AAA rating and selling it to foreigners and pension funds is a great idea. They don’t deserve a bail out, they deserve jail time.
“AAA rating and selling it to foreigners and pension funds”
The thought was: “we are calling these ‘AAA’ rated, but not the same way you are used to. It’s not like these are high grade debt or anything. We were going to call them ‘trash’, ‘garbage’, and ‘toxic waste’, but marketing thought that that was a dumb idea, so they had us use the letter ratings. Just be aware that the letter designations are meaningless when you compare them to other ‘AAA’ investment vehicles.”
Pension fund manager: “Just as long as they have the letters ‘A’, ‘A’, and ‘A’ on them, I can buy them, I don’t care what sort of cr@p is in them. I’ll take a million.”
Does any of this really matter anymore? The sh*t continues to hit the fan and is being fed by the conveyer belt of bad news.
I have been vindicated and validated so now I just hope my 401K and IRA don’t get hurt too much by this.
Here in the Bay Area it’s funny how they now expect Fannie Mae and Freddie Mac to change the loan limit amount up from $417,000 to continue to float these ludicrous prices. Let them sink! Let these fools who decided a dump like Livermore is worth $4,000 a month in housing expenses to own a 3 bedroom dump next to the railroad tracks in fall and fall hard. I have no pity for the fools. Am I angry renter? No, I am smirking and chuckling everytime I read an article about the woes this self-proclaimed paradise has brought upon itself.
NO BAILOUTS! Let them fall and fall hard. Pain is the only teacher to get this lesson taught.
Actually the problems just got bigger for SF. “Declining markets” now have higher rates and stricter standards in place at major banks. Gosh, these feedback loops are a bad thing. Luckily SF has plenty of CS and engineers so they’ll have no problem understanding feedback loops.
“Gosh, these feedback loops are a bad thing.”
Feedback loops are almost another form of leverage…magnifies the party going up, and magnifies the pain going down.
You should say positive feed back loops. There is a big difference between negative and positive feed back loops. (Another way of saying high leverage?)
“Am I angry renter? No, I am smirking and chuckling everytime I read an article about the woes this self-proclaimed paradise has brought upon itself.”
It’s funny how people think anyone who doesn’t like high house prices has some sort of ax to grind.
I own two properties, both to live in. Neither is an “investment.” I don’t care what some website or “realtor” thinks they’re worth.
And I don’t want the “value” to rise, at least not faster than inflation. That means property taxes will go up, and who wants that.
Only a complete idiot would think that somehow the “value” of his primary residence translates into “wealth”.
I have been vindicated and validated so now I just hope my 401K and IRA don’t get hurt too much by this.
Three words of advice: CEF, MERKX, PSAFX.
Two more (these are harder): Au, Ag.
Luv,
Jen
Oh, no, those two aren’t that hard, Jen.
Luv ya back.
Just thought of a pun clue.
One is actually pretty soft.
http://www.thestreet.com/s/no-quick-and-easy-fix-for-this-market/markets/activetraderupdate/10373920.html?puc=_tsccom
Tx I respect you etc. , but why do you like theStreet.com ? To this country boy it appears to be no more than an advertisement for some of the worst advisers in stock market history.
Talk about being wise after the event. Where were these “gurus” in July 2005?
Unfortunately, our elected officials want to protect “homeowners in trouble” which means people who lied on mortgage applications to buy houses they couldn’t afford.
I’m not saying that the loan companies aren’t responsible, too, but irresponsible borrowers need to take some responsibility.
I’ve been contacting my elected officials with this suggestions:
“We need a law to make it possible for the IRS to collect income tax on the income stated on a mortgage application if it’s greater than what they did report AND if the mortgage was picked up by a Federally subsidized agency”
So far, I’m getting a cold response.
I want to see a new savings program that is tax deductible for first time buyers. All money put into the account is tax deductible just as if it were money paid in interest on a mortgage. If the money is taken out and used for anything other than a downpayment on a house it is taxed and penalized like an early 401k withdrawl.
Reform the tax laws to be fair and NO BAILOUTS!
I disagree with you. ANY tax break for buying a home simply would translate into higher house prices.
If they eliminated the mortgage interest deduction (something I support doing, even though I have benefited from it!) house prices would simply drop.
These tax breaks don’t help anyone, and they make hard working folks like me have to pay more than their fair share.
(The only true fair tax is a flat tax: Every man, woman, and child should have to pay, say, $9,000/year in taxes! What could be fairer? Anything else is socialism.)
I got mine, now do away with it. uhhhh….try again.
and, flat tax? Dont kid yourself. Not only is it regressive in nature, it kills an industry that prides itself on complication.
So, 0-2, one more swing?
exactly, Rueven
My income is $12,156 dollars a year. Household income until last February 1 was $24,000. Then the other half of the income died. I’m old, my health won’t let me work. Oh, how I would love to be working again, being able to afford a life. How can I pay a $9,000 flat tax? I have a home, paid for, I can’t afford now to pay taxes, insurance, and upkeep on. I am trying to sell to support myself until I expire, but no one can buy even though I’m tens of thousands cheaper than similar homes selling even now in my area. Can’t afford a real estate agent. This mess hurts a lot of people, not only the rich and the banks. It hurts orsinary people caught up sometimes in extraordinary situations. It’s a lot easier to become poor than it is to become rich, especially if you’re at a time in life where there’s not enough time to make any more.
I love the flat tax theoretically, but I can’t support it because I’m enough of a realist to know that it will get hijacked into a national sales tax which will simply add onto and not replace other taxes.
In fact, what I expect to happen (when Ms. Clinton or whoever is elected) is a fancily-named national sales tax of 3-4% which will be sold not as a tax but as an “insurancer premium” - a way to pay for National Health Care. This will morph into a European-style VAT (on top of our state sales taxes and myriad other taxes.) which will quickly reach double digits.
“fair tax”? Please. No such thing.
Median income is $46K a year and family of 4 gets a tax bill of $36K? Not going to happen.
I prefer a multiple of the living wage.
Let’s say the living wage is just enough to afford a lower quartile apartment, a low end car (or taxi/bus/subware fare), groceries, gas, catastrophic medical (like expenses over $3000 a year per person), etc. $15K a year for someone living alone. $25K a year for a couple. ($10K a year if you live with someone for more than half the year that is claiming the full $15K.) Add $5K per kid.
You get your first $x free of tax. The next $x at y% tax rate. The next $x at 2y%. Etc.
So, for a couple with 2 kids:
$0-$35K = $0 tax
$35K-$70K = y% tax
$70K-$105K = 2y% tax
$105K-$140K = 3y% tax
Cap it at, maybe 5y% tax.
Capital gains treated like regular income, except it is taxed at the rate of what it would have been had it been made evenly across the years heald. If I bought something 5 years ago for $50K, and sold it today for $100K, then I have to claim the $50K as income… But at a rate as if it were $10K a year added to my other income.
The y% is simply set by how much revenue is needed.
If y comes out to be 5%, then the family of 4 making $140K would pay:
6 y’s of tax on their living wage income = $10500
Breaking it down, that is
$0-$35K = 0
$35K-70K = $1750
$70K-$105K = $3500
$105K-$140K = $5250
Of course, to generate the income needed to run this country, it would probably have to be closer to 10-15%.
So, if it were 10%, then the same family of 4 making $140K would be paying 6 * .1 * 35K = $21K.
In short, it is taking the current system, making the brackets all the same size, giving everyone the first full bracket free, the second bracket is the base tax rate, and each successive bracket is a multiple of that basic tax rate.
No deductions. No complicated tax preparations. (okay, running your own business or having capital gains would be a pain, but no more than the curent system, so deal with it.)
Oh, and dump the social security tax and roll it into this one tax. Social Security payments for EVERYONE 65+ is the living wage for their situation… subtract $.25 for every $1 of other income.
I was KIDDING about the flat tax! Really! I’m an old leftie. (But I am against mortgage interest deduction. It’s unfair and simply inflates house prices.)
No way– this would not help to depress house prices. Agree: no bailouts, but also no government intervention. Let the market sort it out.
It’s unethical to try cases that actually are a “slam dunk”. Since any monkey could do that, it lowers the value of the lawyer brand. Could also lead to offshoring to India like Y2K, due to the overload. Night Court here we come…
Ben Stein just said on CNBC that the sub-prime mess is no big deal. Nothing like the S&L or dot.com crisis.
Hey, Ben’s a smart guy, isn’t he?
Ben’s a bull; hence, anyone on the other side of his trades will win Ben Stein’s money.
Luv,
Jen
(sincerity off)
I like your posts. You are funny.
Great! Actually, I do think that this blog is a good place to start some romantic introductions. After all, a lot of people share the same views and those are hard to find. I think Ben could start a parallel dating service as well. It would be a hit! I want to meet some intelligent woman, who looks for much much more than material gratification. Nothing wrong with it, just look for more. There is art, there is education, there are friendships, relationships and there is MUSIC! So much more than running in an extreme capitalistic society being scared if you have enough and comparing yourself with a loosers.
life is great and it is just right and it is amazingly full of surprises!
I’m not so sure. I’ve been trying to get Bill In Phoenix into bed for months, but he keeps rejecting my advances. Who’s your Chicken Little, baby!
Kidding of course. I’m not gay. Not that there’s anything wrong with that.
He’s a neocon shyster who got his start as a speechwriter and lawyer for Nixon. I wouldn’t trust him with the combination to my smelly gym locker.
if only Stein wrote Carter’s speeches we might believe what he has to say now..
Not really. Anyone who writes this type of drivel is not to be trusted:
http://www.google.com/search?sourceid=mozclient&ie=utf-8&oe=utf-8&q=site:www.spectator.org+ben+stein
OMG! It’s a jewish Conservative. Hide the women and children!
“It’s clear now that Horton bulked up at the wrong time, doubling its land position as the housing market was hitting its peak and not long before demand plummeted.”
A while back Horton argued it was in the best postion to gain market share when the market contracted. As a result, land position increased. Obviously, they did not anticipate overall unit contraction coinciding with market share growth.
Let me illustrate. If you have 20 pct market share in a 1,000 unit market and it contracts by 40 pct to 600 units, you would have to increase your overall market share position by 13 percentage points to 33 pct in order to keep building at a 200 unit pace.
What’s more, market share is not easily gained. Competitors don’t just give it away. They fight tooth and nail to keep their own. As noted above, Horton doubled its land position at the peak.
“Money is like manure, it should be spread around”
Brooke Astor
Thanks for the Museums
For those who haven’t heard, she died today at the age of 105.
R.I.P.
Grab your raincoats folks! The mother of all mayhems is upon us.
Aug. 13 (Bloomberg) — Coventree Inc., the Canadian finance company that went public in November, failed to sell asset-backed commercial paper to replace maturing debt because of the credit crunch caused by U.S. subprime mortgage losses….
Coventree is among the first companies to delay payments on asset-backed commercial paper in the U.S. and Canada in the 12 years since the debt was created. The company’s inability to find buyers for its short-term debt shows the extent to which the slump in subprime mortgages has spread to other assets.
“There’s so much CP out there, and if one part of the market locks up, it tends to be contagious,” said Brian Yelvington, a strategist at CreditSights Inc. in New York.
In the U.S., asset-backed commercial paper, which comprises about $1.15 trillion of the $2.16 trillion in commercial paper outstanding, is bought by investors such as money market funds. The cash allows entities such as those owned by Coventree to buy mortgages, bonds, credit card and trade receivables as well as car loans….
http://www.bloomberg.com/apps/news?pid=20601087&sid=aE1vxmCwxMy0&refer=home
So it begins. Alas
Good heads up. If there are even hints of problems in the U.S. commercial paper market Wall Street and the American public won’t be able to tolerate it. Many if not most seem to think MM funds, which generally invest heavily in commercial paper - unsecured short-term debt of supposedly strong corporations and finance companies - are somehow insured. Of course they aren’t, except by the idea that they are too important to fail. And they are, at least in the short term! Which is why inflation is like the tropical wave headed west from Africa - currently not a problem, but looming, threatening.
BTW, back in 1980-82 it was not uncommon to have commercial paper problems, especially for companies like GMAC and Ford Motor Credit, and there were a few defaults. I can remember short-term CP trading with at least a 23-handle - that’s right, 23%. Same or worse for non-top-tier CDs, which back then were restricted to the NY money center banks plus the Texas banks (oil) only.
A lot of good companies went under during those years.
Yep. First the extensions hit. Those were the short-term paper equivalent of lock the investors into a burning house. Now we get outright default.
I have been wondering how long it was going to take until a Money Market Fund won’t be able to maintain its $1 share value. At the rate the contagion is spreading world-wide, it looks like we may only be weeks away. As soon as savers hear that even a small part of their money market funds are at risk, an avalanche of redemptions are going to hit these funds. Since the majority of a Money Markets funds are invested in short-term commercial paper, how in Gods name are they going to meet these redemptions when the commercial paper market is beginning to freeze up? As of now, the Fed doesn’t accept commercial paper for loan purposes. I suppose it would change that in an emergency. Boys and girls, we could once again have a run on the Money Market Funds similar to the run on the banks in the 30’s. With the speed of the internet, the run may only last a few hours before the money runs out. And the beauty of all this is there is no insurance on this money.
My advice if you prefer holding US dollars, invest them yourself directly with the treasury @ http://www.treasurydirect.gov Otherwise, you are taking on a layer of risk that you may not of thought about before. 28 day T-Bills are paying nearly 5% and have tax advantages and most importantly, no commercial paper risk. Except for a couple of Bubble Heads on CNBC, I’ve got to believe almost everyone knows that the economy is headed off of a cliff and this time when the Fed does lower interest rates down to the levels where the Japanese are, who is going to be able to borrow our way out of the mess we have gotten ourselves into? Japanese 2nd Quarter GDP for 2007 was out earlier today. It did increase 0.1% A real barn burner. Low interest rates don’t mean a whole lot if you can’t find enough borrowers who qualify.
Here’s an idea for the next Wall Street scam. Issue credit cards to illegle immigrants and package their charges at Wal-Mart into triple A rated paper (thanks to the rating agencies) and sell it to mutual money market funds so we will have a place to put our 401-K’s and IRA funds. Whenever a credit card users gets a little behind on their payment, just let them refinance that debt with a new credit card with a higher balance. They could even offer them a teaser rate of 0% for 6 months before it jumps to 27% The most important thing to remember is that a rolling loan gathers no loss.
I have a feeling Wal-Mart is going to be getting really busy. And hedge funds could buy this debt and leverage it 15 times easy. I can hardly wait for the next bubble.
Oprah’s talking housing bubble and giving sellers staging tips. She has a realtor on who says house prices fell 2.5% just last month. The featured couple live in Redondo Beach, where there are 120 similar townhomes on the market. They are still asking 600K
http://www2.oprah.com/tows/pastshows/200611/tows_past_20061121.jhtml?promocode=HP11
Gotta love the O. Did the O bring out the suffering these poor people are going through, and how we can all donate and help them in their time of need?
Oprah knows how to polish a terd, or in this case, make a touching anectdote out of the Bubble in sunny OC. She’s incredible.
A new home for you! A new home for you! A new home for you!…
LOL I bet this sets the market into a panic. We know many Americans don’t watch the news, but we do know that your upper middle class stay at home soccer mom watches Oprah and she has gotta be flipping out right now.
*The husband comes home from work*
Wife: “Honey, OMG our house lost 2.5% last month. She says we are in a housing bubble.”
Husband: “I told you were were in one years ago, but you refused to listen. I can’t believe you and those other soccer moms got together to flip condos.”
Wife: “Oh Sh*t! I forgot about those condos. That must be why Betty and Mary Lou don’t answer when I call. I talked them into it because I saw people flipping condos on Oprah!”
Funny,
My wife is always pushing me to purchase a second house. According to her friends, “Housing prices never will drop in the Silicon Valley”.
I put my foot down and said, “We will wait 2 or more years before buying.” She thinks I am an idiot, but better to be thought of as an idiot than to be an actual idiot.
Okay, I admit it. I watched the whole damn show. Oprah paid for $10K in upgrades, and the realtor marked the price up $20K. 60+ people at first open house, lots of exclamations about how nice it was compared to other townhomes in the price range, no offers. Oprah says, if it doesn’t sell after being on my show, it will never sell.
What are the odds Oprah will have a “let’s get back to reality about real estate” show? Low to zero, I’d say. The only attraction of this one was the combination of very sad story about the owner’s brain tumor and remodeling by a couple of handsome young men.
Dr. Phil, maybe. But that’s months away, and who would want to watch that? Folks like to see people have who’ve made mistakes they can fix relatively fast. Not people who get caught up in a global financial disaster from which it will take years to recover.
Still, at some point the Oprahs and Dr. Phils are going to have to realize that $$$$$ is a big concern for their viewers. Oprah thought it was a real innovation to keep the remodeling budget to $10K. And here was a family selling a house to pay off credit cards and medical bills so they wouldn’t feel guilty about buying groceries.
I guess Oprah was ahead of her time. Turns out that show was a rerun from last November.
“Oprah thought it was a real innovation to keep the remodeling budget to $10K.”
she sure as hell aint no Martha Stweart.
The gagging sound is me eating crow. Oprah’s financial guru, Suze Orman, has a whole bunch of columns in O Magazine going back to early 2006 re. avoiding ARMs, waiting for house prices to fall, etc.
http://www.oprah.com/omagazine/200601/omag_200601_suze.jhtml
So I guess it was husbands went overboard in 06
Maybe Oprah should have thrown in a Ford Focus as an incentive for buying the condo (apartments for FB’s).
“Facing continued deterioration in the U.S. housing market, upscale home builder Hovnanian Enterprises Inc. said on Monday that it expects to take a charge of $90 million to $110 million related to land impairments and write-offs. The third-quarter cancellation rate was 35 percent, compared with 33 percent a year earlier.”
HOV has not taken nearly as much in writeoffs as most of the competitors. They also have one of the weakest cash flows and cash positions on the balance sheet. The popup in the stock from $11-12 to north of $15 was a gift and another chance to play whack a mole with a terrible company.
In case this has not been cited already, a nice pessimistic article full of good quotes:
http://www.smirkingchimp.com/thread/9290
(The Grim Reaper pays a visit to Wall Street)
Some random paragraphs…
On Thursday, Alan Greenspan’s low-interest, “supply side” bandwagon tipped over on Wall Street sending the Dow Jones for a 387 point nosedive. In overnight trading in Europe and Asia, the equity-rout continued despite the European Central Bank’s (ECB) unprecedented injection of 95 billion euros ($135 billion) into the region’s banking system. The ECB’s emergency action has had no manifest effect on the slumping indexes. Global markets have been roiled by the dramatic downturn in the US housing market and the subprime contagion which is unwinding trillions of dollars of over-leveraged bets in the secondary market. There’s no doubt now that the euphoric-days of easy money and soaring markets has come to come to an end. In a matter of hour’s Maestro’s Bull Market Sideshow has deteriorated into a full-blown credit crunch.”
“I’ll put it bluntly: if you operate a non-depository mortgage firm and don’t have a deep-pocketed parent or hedge fund as a sugar daddy you’re likely to be out of business by year-end, probably sooner. In the 20-plus years that I’ve been covering residential finance I haven’t seen a financial meltdown this swift since the S&L crisis of the mid-to-late 1980s. One subprime executive who closed his shop a few months ago told me, ‘This is a liquidity crunch the likes I have never seen.’ Meanwhile, the mudslide is rolling downhill from Wall Street to mortgage bankers, to loan brokers, and then the consumer.”
“A report in the U.K.’s Daily Telegraph that China, the second-largest foreign holder of U.S. government debt with $407 billion, is prepared to sell its holdings in the event of U.S.-imposed trade sanctions. Japan owns $615 billion of Treasuries.”
That ought to stop congress in a hurry. China has $1.3 trillion of US paper they can toss into the jet-stream and crash the greenback whenever they choose. That’s why they’ve stockpiled dollar-backed assets for the last decade—not because they like us. They don’t. They intend to use their massive FOREX reserves like a cattle-prod to keep us in line. That’s how bankers always do it. And China is now America’s banker. That’s why it pays to run the country the old fashioned way; by strengthening the manufacturing sector, increasing exports and building up national savings. Debt is just the fast-track to slavery.
…
“For July, corporate bond issuance was down 77% from June.”
…
“One can only imagine the number of cell phone minutes racked up this weekend out in the Hamptons by players trying desperately to finagle their way out of the brutal fact that their firms and funds suddenly lay exposed to the cruel ravages of reality. A lot of catered crab tidbits and mini-quiches must have gone uneaten out along the dunes as weeping men in blazers realized that “marked to market” had come to mean the same thing as “holding a bundle of shit.”
Sorry bronco, but I believe this is one time where they feds do need to get involved. Would be nice to see them lower rates a bit, but even nicer if they raised the FHA maximums to allow more borrowers to qualify.