Bits Bucket And Craigslist Finds For August 15, 2007
Please post off-topic ideas, links and Criagslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Simple question. I’ve heard that when home prices are about 120X what it would cost to rent then it’s a good time to buy. Would one subtract a down payment from the purchase price before finding the rent to price ratio? i.e. 200K home - 40K downpayment = 160K….160K/120=$1300 or 200K/120=$1650? I’ve always assumed it’s the latter but I’m not sure.
Presumably not - since down payment size is very variable (I paid 60% down on my current house).
True, down payment is variable, however to determine a true price of property to value of rents you would need a standard to measure the potential investment. What if you paid 100% down, then… what would be your rental rate. Also, If you tie up too much money in the down payment, you could have put some of that money elsewhere and gain a better return. So unless the price of the property is increasing fairly fast, the down payment money is not increasing in value as fast as other investments may.
That word may is a *really* big word. Almost as big as the word if.
No offense - I always think it’s funny when people talk about how the money you paid towards down payment is lost opportunity cost. That’s not the way I see it.
I’m paying 6.25% interest rate on my mortgage. Thus that means I’m making exactly 6.25% on my investment. That’s guaranteed investment. Absolutely safe - safer than money market, safer than bonds, safer than CD’s, even safer than treasuries. Show me where you can get any absolute guaranteed investment for 6.25%.
It is true that you lose the benefit of mortgage interest deduction. This takes the gains down about 2% or so (depending on each person’s income) - for me about 4.25%. However this is true of other investments as well - the exact same tax reduction in benefit is realized in short-term capital gains. Long-term capital gains rate is lower, but you still pay 15% tax. Additionally the impact of mortgage interest deduction is reduced to zero as the loan is paid off. Towards the end of the loan period there is no mortgage interest deduction, so you’re making the straight percentage (6.25%).
Same principle applies to paying cash for a car - even more so since there’s no interest deduction.
Plus - I have no interest in lining the pockets of rich bankers via my debt. I abhor any debt - even mortgage. I was willing to take that on since I like doing handywork on my house and yard, and would lose any benefit if I were to do that on a rental.
Sorry I’m not crazy about preaching, especially when tooting my own horn - but the whole issue of down payment vs. leveraging always trips my trigger. IMO trading down payment for leveraging is largely a fallacy with bankers as its source. It has some merit for brief periods during real estate bull markets, but it’s hugely risky. I may actually get into the landlord game myself when this market finally bottoms and starts back up - but only because I’m not willing to pay someone else to do maintenance, and I won’t leverage my primary residence as collateral to do it.
good post… I absolutely agree. Do you pay off debt, or do you take that payment money to Vegas?
Although, we thought the same until we had to sell our home for less than we had into it. We owned it 100% and still lost 10% of our money. Your thinking works in the old real estate market, but not in the new real estate realtiy.
What you’re not realizing is that even if you had not had the house paid off - you still would have lost the same amount of money. You have to pay off the balance of your mortgage when you sell your house.
So let’s say you buy a house for $200k, and sell it for $180k (10% loss):
- If you own it outright, you’re down $200k until you sell, then the buyer pays you $180 - you’re down $20k.
- If you own 50% of it (100k downpayment), you’re down 100k until you sell. The buyer pays you $180k, so now you’re up 80k. You still have to pay the bank the $100k mortgage balance though - so you’re back to being down $20k.
I should add that in the latter case - you’ve lost 20% on your investment, whereas in the former case you’ve only lost 10%. This is the downside to leveraging real estate. If you had taken that 100k and bought a second $200k house and lost the same 10% on it - you’d be down 40k instead of only 20k.
Packman -
Great post.
Fantastic way to think about a mortgage downpayment
or early prepay!
I paid off my own home 21 years ago for
the very same reasons you enumerated in your post.
The way you frame your post is a perfect comeback to
all they hype from realtors, financial people about
how equity in your home is “dead” and “needs to be
put to work”, etc.
The reality is that these people are just trying to sell you
money at your expense while generating interest and
fees for themselves.
As for the “better return in other investements” hype:
In most cases a “better return” is a very small spread
between the cost of your mortgage and some other
investment. (ie stocks). So, a 6.25% (mortgage) vs.
8% (SP500 index) results in a small 1.75% spread.
(even assuming that stocks are risk free, which of
course they are not).
What amazes me over and over again is that the very
same people who claim that a high downpayment
or early mortgage prepay is a dumb idea are the
very same people who in fact have no idea what
kind of mortgage they even themselves have, and
even if they did don’t have the kind of financial
discipline needed to invest the spread in alternate investments with a supposedly “better return”.
Nope, these folks are busy spending their “better return”
down at the Hummer dealership or hanging that
new plasma TV..
I’m paying 6.25% interest rate on my mortgage. Thus that means I’m making exactly 6.25% on my investment.
I’m confused? Doesn’t this mean that the person who lent your mortgage is making 6.25% interest?
Years back everyone always said to get a 30 year and use the banks money. Accountants, economists, etc. So I did that. At the end of the first year when I was how little my balance had gone down, I financed to a 15 year. Glad I did. I’m a happy paid off homeowner instead of facing another 15 years of payments and tons more interest. In my book 15 years is always the best unless the interest rate is zero.
Probably too late to respond and have people read this, but you misunderstood my statement. When I say “my investment” I mean the down payment - not the house itself. With the alternative (for this discussion) being to still buy the same house but to put in a lot lower down payment. In this case the rise or fall of home values is irrelevant to the equation - it’s only paying less mortgage interest vs. other investments (stocks or whatever).
Traditionally the range of 100x to 120x was considered the standard. The inverse of 120 multiplied by 12 is 10%. This is your gross annual return, annual rent divided by the price you paid. Repairs, taxes, utilities get subtracted to give you your net. Depreciation allowance somewhat offsets and provides a tax deferral.
This is your yardstick for comparison with alternative investments and your mortgage rate (if any). Obviously, 100x is a better price, since the cap rate is 12%. Price appreciation traditionally (pre-bubble) kept up with inflation, but no more. Rental RE is an income investment, not growth.
It fits with other asset classes as well, since 10x earnings is generally indicative of a decent value/cash flow investment (most income trusts are generally priced at 10x dividends for example).
Although I don’t have the equation in front of me, I believe the 120X number comes from a comparison of your returns in other markets compared to the return on your rental given certain assumptions about interest rates, down payments, future inflation, appreciation (in RE vs. stocks), and risk. If you had the equation in front of you (Can probably find it on the internet. Maybe I will.), then you could change any of those assumptions and probably come out with a different answer. However, I don’t think that simply subtracting the down payment from the multiplier would make sense.
To Roger H:
The equation does not have you compare the median price of a rental to the median price of a home. It has you compare the price of renting a COMPARABLE house to the price of buying that house.
No, its purely a pricing/valuation mechanism for the asset, not a loan balance financing determination tool. Any loan balance determination would be based upon your personal financial situation, i.e. amount you can put down, current debt load, income etc.
FYI, I’ve heard monthly rental x 130
I have seen this ratio in this blog and other blogs as low as 80X.
Got 10% down?
No, you should not subtract the down payment. There is an opportunity cost to making a down payment, because you give up the gains possible by investing it somewhere else.
If you put down $50K, you’re foregoing about 50K * .05 / 12 = $208 a month that you could earn just in interest.
And the easiest way to see that the downpayment should not be included: If the downpayment is 99.9% of the price of the house, then the loan is for 0.1% of the price of the house, so it’s always a good time to buy.
“Would one subtract a down payment from the purchase price before finding the rent to price ratio?”
No. To take your example to an absurd extreme, think of the “100% downpayment” case.
I usually use the higher 200K value. Most renters move into a starter home with 5% down or less. However, I believe your comparison is only useful for typical starter homes. Therefore, I would use a 0.85(Median home price) value in the numerator of your calculation.
Very few renters are in the market to rent a typical middle class house. After all, renters are qualified based on their incomes and if they can afford the monthly payment. It is really not practical to compare the price of a typical middle class home to a rental since most people move into a typical (median value) middle class home with a significant amount of equity from a former starter home.
I agree with other posters, do not subtract the down payment in calculating the price to rent ratio. It’s called the “price” to rent ratio, not the “financed amount” to rent ratio, for a reason. Here is some other info on the historical price to rent ratio that may be useful…
Fortune Magazine discusses the historical price to rent ratio:
http://money.cnn.com/magazines/fortune/fortune_archive/2003/12/22/356104/index.htm
And a graphic showing the change in home prices as compared to the change in rents:
http://duende.uoregon.edu/~hsu/blogfiles/pricerent_NYT_05.gif
A down payment is a lost opportunity and should be part of your rent vs own calculations. Suppose I put a down payment of $100,000 on a house that costs $100,000 and the house loses 30% the first year. I could have put the money in my savings account. E*Trade provides 5% so I would lose $5,000 a year plus the $30,000 the first year. I’ve lost that money. I should have just rented and then I would be $35,000 better off. It only makes sense to to use a high down payment if my house is increasing at a higher percentage per year than a savings account provides.
Dear B.B. Slob:
In the scenario you describe, it would not make sense to buy a house at all, regardless of your down payment.
Big_Bob_Slob - you’re comparing apples to oranges. The comparison is down payment vs. no down payment - with the given condition that you’re buying a house. You’re comparing buying to not buying.
Although I don’t have the equation in front of me, I believe the 120X number comes from a comparison of your returns in other markets compared to the return on your rental given certain assumptions about interest rates, down payments, future inflation, appreciation (in RE vs. stocks), and risk. If you had the equation in front of you (Can probably find it on the internet. Maybe I will.), then you could change any of those assumptions and probably come out with a different answer. However, I don’t think that simply subtracting the down payment from the multiplier would make sense.
To Roger H:
The equation does not have you compare the median price of a rental to the median price of a home. It has you compare the price of renting a COMPARABLE house to the price of buying that house.
(Sorry, I accidentally posted this same comment in the wrong place above.)
Hobo - “Would one subtract a down payment from the purchase price before finding the rent to price ratio?”
No. Ignore the down payment, as it pertains to the ratio per se. Whatever ratio you use, whether it is 100x, 120x, 150x or 200x (the ratios variously discussed on this board since day one, to my recollection), use the gross purchase price of the property.
Mind you, no one outside NYC or Malibu ever talked about 200x, that I remember. I think a lot of posters felt that 120x is an OK ratio in a balanced market, but not that there is blood in the water, why not look for 100x, or even 80x if you like the place. I think at 80x, you mostly would be dealing with short sales and REOs — this week and in most markets. But who know what next week or next month will bring — it’s not likely to be higher prices.
” but not that there is blood in the water” should be
but now that there is blood in the water
Market down another 200. 14000 to 13000. Is there and end? I see the “better buy now this price won’t last long” cr@p on craigslist. I have been tempted to send them e-mails that they are right, the price will go down!. I am a novice land lord, typically when I look at property I look at the price vs. the rents and for discussion lets say its a $100,000 property, I typically would expect to get $1000 per month. Does anyone know a good place where I can find some good educational information regarding rental property. I am not looking to purchase anything real soon, however, I would like to be better informed.
Right now I’m in Puerto Rico for Bissness. There are properties for sale but there does not seem to be the indication that prices are declining, of course I trully have not be watching the market real close. I have the feeling though that prices in areas are overvalued. I also see quite a few Mercedes and Beemers- I assume people are tapping into home equity.
regarding declining prices: the US is about the only country in the world were there are serious housing troubles. In Europe RE prices keep rising and nobody is worried, despite the fact that the EU stock markets made much bigger slides in the last few weeks. Don’t know any details regarding Puerto Rico RE, but I am sure many of the buyers in Central America and the Caribbean are Europeans who are spending their home equity on ‘investment’ properties. Wait a few years and there will probably be plenty of bargains to choose from.
nhz,
That is not true, many, many people in Europe are extremely worried. Firststrung out of the UK has been reporting about the severe housing bubble and the upcoming collapse since about ‘04-’05. Also, housingpanic is based out of the UK (even though many people believe it is US based). The housing bubble epidemic has been global for some time due to the global “loose” credit. That is what is so scary. The possiblity for a global depression increases daily due to the global lowering of interest rates and poor lending practices.
Yeah, it seems that the wave is breaking first in the US, but that doesn’t exempt Europe. By some accounts the EU-ization of the RE market has led to a situation where Spain is playing the part of Florida, with a huge jump in RE prices based on the idea that ageing boomers will sell out of their expensive homes in the North and retire to a Southern clime.
313: when it comes to RE there are far less worried europeans than worried americans (you can find those mostly on this blog). Visit some big EU investment websites or check the newspapers, those who are worried are a tiny tiny fraction of the population. The rest see the chance of even minor troubles in the EU housing market as extremely small and even if some troubles develop the government will bail them out (ECB just assured them of that policy).
I’m not saying that this majority view is correct (usually it isn’t), I’m just pointing out the general market psychology in Europe. I have been expecting a housing crash in the Netherlands for about six years (our bubble is now more than 15 years old and way bigger than in the US) but we are still seeing 5-10% higher prices every year.
Patience, nhz! I have a feeling you’re about to see some long-awaited price declines. Hope you guys won’t get hurt as badly as we will/might when this ripples through the economy.
Good luck!
It must be different there!
I returned from Spain. hey make our housing bubble look small. It is like San Diego over all the country. They are imploding now. It will take years.
If you can get $1,000 per month for a home that would sell for $100,000 then you would be doing very well. That seems like a couple hundred too much in rent per month to me, however.
Purchasing investments for 100 X monthly rent might be a worthy goal, and possible given the sheer volume of foreclosures coming, but I wouldn’t count on buying prime investment real estate in good condition for that.
I use multiple valuation methods, including 100 X annual gross rent (equiv. to 120 X monthly rent) as a quick and dirty valuation method, but the better formulas provide yield. Annual gross rent / 2 / price = yield is a good one, with a target of 5-7% or higher depending on current interest rates. Interest rates go higher, yield must go higher to compensate and price targets comes down.
Cap rate is another useful tool to determine effective yield of your investment: i.e. net annual rent / cash investment. Shoot for 10% or higher on this.
These are just guidelines and not hard and fast rules. Condition of the property, location of the property, the vacancy rate of the area, quality of the renter pool, quality of schools, proximity to jobs, etc. all play a part in the valuation of the property and need to be factored into your price targets. Remember that price appreciation is not a reliable investment strategy. If a property appreciates, that is a bonus, but cash flow and yield is the name of the game.
Follow these guidelines and you should do ok. Just remember that experience is the best teacher and mistakes are lessons to be learned.
Comment by Northeastener Excellant break down of investment goals, but I would add the one factor that destroys all calculations : competition. There are fools every where and late night tv graduates who will buy at any cost, and rent at any cost, just for the bragging rights. It’s crasy, but that factor will blow away all calculations. Check what your competition is doing first, and stay as far away from them as possible, then do your calculations
Also, be super-diligent in screening your prospective tenants. No matter how nice they may seem. I’ve seen a number of landlords and landladies get burned by bad renters.
“I am a novice land lord, typically when I look at property I look at the price vs. the rents and for discussion lets say its a $100,000 property, I typically would expect to get $1000 per month. “
Question to the board: shouldn’t 120xrent (or whatever the rule) be also adjusted for the “maintenance/tax” costs? In other words, if we want 10% return, then the “fair price” should be [120] x [rent - maintenance]?
Example: there’s a one-bedroom apartment for sale in a building where equal apartment is renting for $1,300/month. The asked sale price is $330,000. The owner will also have to pay the monthly maintenance of $500.
If the buyer gets a tenant, he’ll net [1,300 - 500] = $800 per month before costs of upkeep etc. So to get 10% return, the purchase price should be 120 X 800 = 96,000? That’s three times less than what they’re asking…
If not 10%, which absolute minimum “return” should be used to determine “fair” price?
NYchk,
That’s why I said they are quick and dirty guidelines at best. No one should be risking capital and taking on a loan commitment based on one simple formula. Though David Cee’s post regarding competition is spot on in that many investors did exactly that or worse (no due dilligence) during the bubble.
The reason I look at cap rates and yield is because they provide figures that are net of expenses and upkeep, which is a much more realistic number. It requires more research though, in that you need to know the gross rents, upkeep & maintenance, utilities, insurance and mortgage costs, average vacancy rate, etc. It takes time to compile and confirm these numbers and come up with a realistic return in which to base your decision. The “120 rule” helps to get you in the right bracket, then you fine tune from there using more accurate valuation methods.
Also, single family homes are rarely cash flow positive and condos even rarer still, exactly because maintenance, upkeep, vacancy and HOA are such a high expense. The rough calc you made regarding the condo cash flow is about right in that a wise investor would not pay more than about $100K for it, and even then it may not be a profitable deal. The fact that it is listed for $300K shows you how far things have to fall. You will need to steal that condo in order for it to pencil out…
The fact that it is listed for $300K shows you how far things have to fall.
The sad part? I actually rent a very similar apartment in that very building for $1000.
Since I would love to stop “throwing money on rent”, I went to an open house this weekend to see that other place. To pay $330,000 plus $500 monthly maintenance, instead of $1,000 rent I pay currently? That’s insane. I’ll keep renting for now, thank you very much.
Asian stocks down last night- way down. Europe still open but also way down.
Talking CNBC heads seen to have changed their tune. Billionare Wilbur Ross a quest and calling this an insolvancy crisis. And former goldylocks seem to be agreeing. Wilbur is hard to argue with because he commands much respect.
“Asian stocks down last night- way down.”
Clearly it is time to buy the dip!
Seems that Mr. Buffet did exactly that by buying 8.7 million shares of Bank of America. I guess my favorite blogger here will call him and idiot too.
Buffet’s stock picks always go up, thanks to the Buffet coat tail effect.
“Clearly it is time to buy the dip!”
I did. Call me old-fashioned, but I opted for onion. Already had the Scoops in the pantry.
Will the War on (U.S.) Savers end with a flight to quality move into U.S. Treasurys?
Investors take flight from Asian markets
By Andrew Wood in Hong Kong, David Turner in Tokyo and John Aglionby in Jakarta
Published: August 15 2007 05:16 | Last updated: August 15 2007 11:16
Subprime mortgage worries returned to the Asia-Pacific region on Wednesday after a lull Tuesday, sending share prices and currencies tumbling. Global investors showed a shrinking appetite for exposure to emerging markets.
The Jakarta Composite, Indonesia’s main stock index, led the fall with its worst day in more than two years. It fell 6.44 per cent to close at 2,029.08. The Philippine Stock Exchange Index dropped 4.08 per cent to 3,130.34. Taiwan’s Taiex Index slid 3.57 per cent to 8593.04. The MSCI Asia-Pacific Index dropped 2.3 per cent.
http://www.ft.com/cms/s/409bfd42-4ade-11dc-95b5-0000779fd2ac.html
Wouldn’t that flight cause treasuries to rise and lower the interest rate?
Correct - which is why treasury returns were really high during the recent bull run up to 14k Dow, but now are back down a fair amount as people get out of stocks.
Other factors come into play of course. My hunch is that over the next few years treasuries will rise a lot, due to a few factors -
- Trade wars with China will reduce their incentives to buy treasuries
- The world worldwide economic slowdown will leave investors with with less cash to buy treasuries
- The loss of U.S. gov’t revenue from baby boomers will drive up the debt faster
- Likewise the loss of U.S. gov’t revenue from capital gains taxes, due to the economic downturn, will also drive up the debt faster
I’d say we have official spillover to the general economy:
http://tinyurl.com/2pyv7k
“Retailers Fret That Credit Crunch Will Sap Spending”
Well, boody-hoody-hoo, retailers. Therein lies the problem. Credit. If people have to buy things on credit, then we’ve got inflation, no? Credit drives inflation, IMHO. Time for inflation to come to an end, so prices of everything can adjust to levels realistic with respect to incomes. I guess that’s called deflation. But what’s wrong with having prices realistic with respect to incomes?
We just need to keep in mind that eventually deflation hits incomes.
It didn’t occur until a year after the ‘29 Crash, but it did happen.
On an aside, my husband’s national employer has been culling from the herd of late. They don’t have to have “layoffs” since they are quite heavy with contractors. Before last year some of those contractors had been there for 10 years. That sort of thing doesn’t make the papers.
Does where I live - one company town. Actually, more like a one company region.
The newspaper reports on contractors being let go? I’m impressed.
Not to worry, it’s contained. Only the housing, finance, and consumer spending sectors are affected.
You joke - but it’s always amazing how the downturn never seems to affect the government economy - at least the national government anyhow. Employment is booming!
Yeah, computer modeling of hypothetical jobs, and the life/death model can do magic to the BLS stats. Creative reporting and hyperbole for the masses to eat up. Add all the under reporting of the outsourced and under employed, and those who can’t find jobs.
All the government lies will catch up to them when they try to restore faith as this credit crunch deepens. They’ll find they have no influence, because no one believes them anymore.
Wow, even the local news and the cable access channels are picking up the credit bust here in MN. As soon as MTV and ESPN have specials, we’ll know most of the idiots out there have no excuse not to know.
Marketwatch again is pimping the idea of a rate cut because a cooked CPI number is supposed to be within the FED tolerance. One could draw parallels between easy money and meth - except the meth is less destructive.
BTW, is GetStucco now Prof. Bear or what? I missed something this weekend.
–Thus always to Realtywhores.
Professor Bear announced his moniker change over the weekend.
“One could draw parallels between easy money and meth - except the meth is less destructive.”
& less addictive!
The thing that caught my eye in the local paper was the front page yesterday. One story was on a kitchen and bath remodelling place going out of business. The other was a long-time construction company that had done work all over the state for schools, police departments, etc. I think that the latter company had about two million in other peoples money as deposits.
The speed at the financial meltdown (maybe I’m too dramatic) is breathtaking. Yesterday was remarkable for the amount of negative news that came out on one day and it was one of those days where my streamer had read all over the place a few times. Normally you see sectors going up and down but when you see all of one color making new highs or new lows, that usually implies the major direction for the day.
I see that there were big losses in Asia last night and moderate losses in Europe this morning. It’s been a pretty nasty summer for housing, credit and stocks.
Ben,
with the somewhat sudden passing of Goldilocks I was wondering if we could enlist the services of Professor G. Stucco-Bearly to write the Eulogy.
Here’s my submission:
“…and then it went dark.”
“Here lies Goldi, victim of one too many ‘liquidity injections’. Funeral services attended by ‘friends of the family’, the repo man and Auger Inn.”
Countrywide paying by check no longer good enough in Cleveland… cash, please.
http://blog.cleveland.com/business/2007/08/county_stops_taking_countrywid_1.html
Whoa. And they haven’t even bounced a check yet. Something tells me Ohio is good and pissed about the foreclosure situation in the state.
Yet realtors are not giving up. I was recently having lunch in a strangely empty restaurant in Baltimore County, Md and overheard a broker pitching a young family on a 55 acre property in the area. This place was a ‘rare opportunity’ and was ‘way undermarket’ simply because the maintenance costs were killing the owner and he was therefore willing to let it go for cheap. The realtor assured the guy and his wife that if they studied the house as an INVESTMENT versus a home, they’d be ahead of the game. His major argument was, believe it or not, that straw could be grown on the majority of the 55 acres — a crop which could be harvested four times a year. And what is straw but grass — ‘the same thing that’s growing outside your house right now. How hard is THAT?’ Straw which would sell for $6 a bale (’that’s $5,000 an acre!’) and make the ‘investment’ a profitable venture. [Just as a reference, I buy hay -- more valuable than straw -- at the local farm store for $5 a bale, and that's retail.] After the realtor left their table, the husband and wife talked among themselves and agreed to go look at the property. All I can say is, I hope they can’t qualify for the loan.
The watery eyes that they have thinking about there dreams will becom inves-tears. Thing is if it such a great deal, why doesn’t the realtor jump on the deal??
That pitch would make a used-car salesman blush.
Cant wait to be a future hay farmer, farming is such a lucrative small buisness these days. It is going to be the new “hay” bubble, invest now or be priced out forever!!
LOL. And making hay is such EASY work, it’s like going on vacation and making money doing it!
Bare land is such a loser deal regardless of price when it can be had about anywhere for less than $1000/acre. It’s called bleeding yourself dry. Land generates no cash and sucks up your income through property tax. Clearly, it is THE speculative bets of all bets. Some of the rationalizations used to justify buying land is laughable. Stuff like “If the world comes to end” or “I’m gonna retire here (in 30 years)”…
“People are Smart”- DiTech
Straw is the husk of grains like barley or wheat, they would need a Combine to separate the shaft from the grain. Which they could then sell both. But Combines cost above $200K (at least that is what my Dad paid in 1980) maybe a used one for $100K. They could pay someone to harvest it for them, but that cuts into their profit big time. They also must keep the fields sprayed as no one is going to want to buy straw full of thistle, and you can be fined if you allow certain weeds like Shattercane to grow.
It might be easier for them to grow hay, but you still need the proper equipment. But the realtor sure makes it sounds easy.
I should add that you then need to bale the straw or hay, and that is separate equipment. Then a barn to store they hay as I doubt you’ll sell it all as you produce it. And of course you’ll need people to stack they bales in the barn with other equipment as well. I can’t guess how much it would cost to contract all this out, I am sure there are some operations that might do all three (cut, bale, transport and stack), but add property taxes, maintenance, and well, you get the picture.
Not to mention tedding/drying hay with nearly perfect weather conditions.
“People are Smart”
LOL, great sig line, exeter (it’s from the new Ditech commercials, for anyone who doesn’t know).
Thanks. It enrages me so that I want to vomit when I hear it on TV.
“People are Smart”
It enrages me so that I want to vomit………..
Macaroni and cheese?
Hello sweet pea…
Hay, that’s not a bad deal compared to what my neighbor just bought into. He paid $850K for a canoe/tube rental business along a river here in the midwest. It only operates 3 months of the year, and business has been declining for several years. Owner agreed to carry a note. New owner paid a hefty down, then he must pay the former owner $50,000/year for the next 15 years. Customers must drive many miles to get to this remote location. Talk about a debtor’s nightmare, he’s in it.
You have to be kidding…
Wow — it’s rare that someone is both figuratively AND literally “up a creek”
And I’m sure they’re getting 4 crops THIS year. NOT. I mean I haven’t mowed my lawn in over a month, and I’m guessing that straw just doesn’t justify the cost of irrigation.
Due to the draught here in Southern Ohio, hay prices are up 100% this year! I don’t think the hay fields around me will get 4 harvests this year!
The horse owners are all mad at the doubling of price per bale.
It’s more likely that the people will have to pay someone to cut the “grass”. There’s more hay than demand.
Dunno about that. Given the drought here in California, I’m paying around $11/bale for grade alfalfa. Truckers have been bringing it in from as far away as Montana since spring, and I’m betting that by November folks who don’t have grass acreage are going to be in a world o’ hurt. Couple that with the price of feed corn (ethanol, anyone?) and I’d be buying cattle futures round about now…assuming there are any herds left by this time next year.
I guess it’s based on location. A friend bought farm property in upstate NY and can’t give the hay away.
I love it. The realtor was literally making a strawman’s argument!
Wisconsin’s foreclosure miseries deepened in July, new figures show.Creditors brought 1,662 new court actions against defaulting homeowners last month - 38% more than a year earlier, ForeclosuresWI.com reported Tuesday.
http://www.jsonline.com/story/index.aspx?id=647363
The Titanic Housing market is sinking the Credit Tsunami is getting bigger and I love the smell of napalm in the morning.
I need some popcorn for this show.
Foreign banks continue to take hits from US subprime losses…
Mitsubishi and Sumitomo down to 2 year lows…
UBS and Deutsche Bank…
Dutch investment Bank NIBC to be bought by Icelandic Kaupthing, with NIBC’s subprime portfolio severed from the deal…
(from Bloomberg, this a.m.).
Subprime is now contained globally.
Now that’s a rather large container
DR. EVIL- release the global contaiment!!! The shills will be out trying to reasure everyone that - it’s ok. Im ok, your ok, were all ok. not. When Walmart drops forcats, people are not spending as much. Alot of people shop at Walmart, and I’m sure they have not just decided to go somewhere else.
Blood is starting to boil too early in the morning. Paulson needs to be taken out to the woodshed & SHOT! Lies, damm lies and rosy guverment forecasts!
Yes, well, maybe now we’ll find out how much our guvmint officials and corporate whoremasters like globalization, if other countries start clamoring for Paulson, Greenspan and various Wall Street characters to show up at The Hague.
not likely … the Dutch government is playing along very nicely in this worldwide pyramid scheme, so they have nothing to fear.
besides, the Dutch minister of finance (labour party, former overpaid employee of Dutch ABNAMRO bank) just assured the citizens that everything is contained and that the ECB did the right thing with its massive liquidity injections (plenty of worried articles in the newspapers about that).
Didn’t the German central bank, or some such, just hire Greenspin??
HP and BB already severely undermined their credibility with the “subprime is contained” mantra earlier this year, which recent evidence has called into severe question. But if HP keeps saying “all is well,” perhaps the stopped-clock effect will eventually prove him correct.
I’d imagine that all government officials at that level have figured out that whatever they say won’t be remembered in 90 days — with the exception of Greenspam’s comments because they were so obtuse as to be memorable. Maybe I’ll try to figure out how to add “conundrum” to my epitaph.
Credit crunch likely to hit Aust investors, borrowers.
The global credit crunch took a double toll today on Australian borrowers and investors with the stock market falling to its lowest level in five months.
It has also become clear that the effects of the US mortgage meltdown will hit millions of home buyers and business borrowers.
http://www.abc.net.au/news/stories/2007/08/15/2006215.htm
Luvs — thanks — very interesting article. What’s Aussie for “Holy Crap!”?
Can’t sell senior citizen condos? Then convert them to “single professional” condos. Yeah, that’ll work…
http://www.njherald.com/289592896182469.php
Another lovely “house in foreclosure” story…
http://tinyurl.com/2cefkn
Animal welfare workers pulled 23 dead dogs and cats from a multimillion-dollar Saddle River house on Tuesday, and rescued 68 others left to roam the feces-filled rooms of the stately home, authorities said.
The carcasses of the dead animals — some of which officials estimate died more than a year ago — were found wrapped in flannel shirts, tissue paper and towels and then sealed in shoeboxes, authorities said. The remains were discovered in plastic bags in the three-car garage of the house on Burning Hollow Road, they said.
Authorities later discovered the home was titled to Michael Vick…
Saddle River? Big bucks.
Sadly, mental illness is not exclusive to any socio-econic level.
I suspect they’ll have a hard time selling it for multi-millions now, even if housing recovers. I bet the realtors will refer to it as “Animal House” amoungst themselves.
How is the bank going to put this foreclosure on the market?
Maybe this has been discussed over the last few days, but I understand jumbo loans pretty much do not exist right now. Lenders can’t sell them, and banks don’t want to keep them unless you’re superprime credit and have 20% down. But this describes nobody, or at least nobody who feels like buying a house right now.
FED and Wall Street. I’d love to see an RIP for those two entities.
If you use the old 2.5 rule, you would need to earn $175k in order to afford the smallest jumbo–$417k. And you would have to have over 80k down. How many homebuyers are there like that?
i am like that…problem is that in northern va that 417k buys you a POS.
The only prospective buyer with that kind of income and cash is someone who has already sold a home, and those people have vanished!
Yeah, hard to have “already sold a home” in this market!
So ALL CA housing should be apraised at $417K for any chance of being sold.
Yep, so all those flippers who thought that the “McMan$ions” are immune from the housing slump…Wake Up..The Alarm Clock is Ringing…good luck selling those million dollar babies!
Arguably, that DOES describe those who should feel free to spend nearly half a million on a house. The fact that in places like much of CA and the DC suburbs that price level constitutes what many would consider working-class (or worse) housing simply shows how far prices could fall.
Jumbo loans in Los Angeles with good credit NOW at 8%
CNBC sent someone to a bank in Chicago this morning and they’ll do reg loans @ 6.5% 30 year fixed with 20% down, jumbo @ 6.9% with 20% down. All papers and docs have to be verified. This screws about 75% or more of the buyers we’ve seen over the last few years.
Did they mention the FICO required?
Who is to blame?
Realtors?
Appraisers?
The cheerleading press?
Lenders?
Flippers and speculators?
Living large home equity extractors?
Mortgage brokers?
The FED monetary policy?
Regulators?
The WSJ blames the rating agencies today.
I vote for American values in general, given that all can be implicated.
Kill the (ratings) messengers time…
How Rating Firms’ Calls Fueled Subprime Mess
By Aaron Lucchetti and Serena Ng
Word Count: 2,454 | Companies Featured in This Article: Washington Mutual
In 2000, Standard & Poor’s made a decision about an arcane corner of the mortgage market. It said a type of mortgage that involves a “piggyback,” where borrowers simultaneously take out a second loan for the down payment, was no more likely to default than a standard mortgage.
While its pronouncement went unnoticed outside the mortgage world, piggybacks soon were part of a movement that transformed America’s home-loan industry: a boom in “subprime” mortgages taken out by buyers with weak credit.
http://online.wsj.com/article/SB118714461352698015.html?mod=hpp_us_pageone
Great find.
(emphasis on a key word mine)
“Great find.”
It was not much of a find, really. It is hard to miss the front-right column of the dead tree version of the WSJ.
“Who is to blame?
I vote for American values in general, given that all can be implicated.”
I’d agree w/you on that one and isn’t that usually the culture that exists before a correction or crash? People, in general, will push the barriers of what a system can handle until the system pushes back. Then the consequences of their ways become apparent and conservatism returns to majority-think.
In the meantime they all scream “victim”.
I agree that it was ratings’ agencies most at fault.
You can’t blame people for being greedy. It’s pretty necessary for capitalism to work in the first place. So everyone else was greedy but at least doing their jobs except the ratings agencies– the underwriters that rule them all– who failed to do their jobs even remotely.
But but but but! We have this survey that says people pay their mortgage first and their credit cards last!
–
“I vote for American values in general, given that all can be implicated.”
That is why focus on beliefs and habits of populations. In America, for the past 10-20 years, especially, during the past five years, deception, fraud and manipulation became the “American values” to get ahead. Regrettably, this would end very badly for most, even those who are good Americans with old-fashioned values. The Crooks at the top would fare the best as they have already gotten more than they ever would have dreamed about. The sad part is who allowed this and why.
Jas
“Who is to blame?”
I vote for Greenspam. If Volcker had been Fed Chairman, for example, we likely would not have been in this mess, or at least not nearly so deep.
Looks like another hedge fund has bought it.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDTf1Df2Is78&refer=home
This is doing nothing good for tens of thousands of innocent hedges that have done nothing wrong…
Grass Hedges, that is
There are hedge funds out there that are up 300% and more on the year… they bought subprime credit default swaps.
There’s always a bull market somewhere.
Fairfax Financial Holdings, a Canadian insurance conglomerate, has been avoiding investing it’s float in mortgage-backed securities for a couple of years now for fear of a 1 in 50 or 1 in 100 year “event” in the financial markets (which it appears is finally happening). In addition, within the last year they loaded up on the credit default swaps on lots of companies in the home loan arena. I think they have something like $18 billion notional value of CDSs right now, the value of which is quite literally skyrocketing.
Ticker symbol is FFH in case anyone is looking for a place to park some money.
It will be interesting to seem them try to collect on their 300% gains.
The counterparties on those CDS trades are …
… other hedge funds. When the underlying bonds default, will the counterparties be able to pay off the “insurance” or will they default as well? This is about as smart as buying flood insurance from your neighbor when you both live in a river flood plain.
OR, those CDS can also be securitized and sold off as bonds in the same CDO structure… AND you can buy CDS against that as well!
Aren’t derivatives beautiful?
A riddle wrapped up in an enigma…
I love the flood insurance from the neighbors comment. Priceless. This credit crunch is going to serve up a lot of pain, in some unexpected ways.
LOL!
I like this:
“Hedge funds in Australia are open to retail investors, unlike in the U.S. where the largely unregulated pools of capital are generally limited to institutions and wealthy individuals.”
I can only imagine if they allowed it in the US.
Wowser…
You can get stuck into a hedge fund in Aussie, just as easy as buying a pack of Benson & Hedges.
Prepare the Subprimemarine for a prolonged emergency dive~
can we stop calling them hedge funds and start calling them what itulip.com calls them?
USIP’s = unregulated speculative investment pools.
thanks.
michael
There are still some real hedge funds left, in the sense of funds that actually hedge their exposures to reduce risk. But the majority are really just huge leveraged bets on something or other right now. They are employing what my boss used to call a “Texas Hedge.” They’re long the stock with margin and long the calls.
Why is the word “risk” excluded from any terminology describing these funds?
How do they factor in the export of toxic debt overseas in the trade deficit? LOL!!!
Good one. Perhaps we’ve been positive all along!
S&P now says oops! Only took them SIX YEARS to figure out that subprime piggyback loan is not such a good idea.
CREDIT AND BLAME
How Rating Firms’ Calls
Fueled Subprime Mess
In 2000, Standard & Poor’s made a decision about an arcane corner of the mortgage market. It said a type of mortgage that involves a “piggyback,” where borrowers simultaneously take out a second loan for the down payment, was no more likely to default than a standard mortgage.
While its pronouncement went unnoticed outside the mortgage world, piggybacks soon were part of a movement that transformed America’s home-loan industry: a boom in “subprime” mortgages taken out by buyers with weak credit.
Six years later, S&P reversed its view of loans with piggybacks. It said they actually were far more likely to default. By then, however, they and other newfangled loans were key parts of a massive $1.1 trillion subprime-mortgage market.
Today that market is a mess. As defaults have increased, investors who bought bonds and other securities based on the mortgages have found their securities losing value, or in some cases difficult to value at all. Some hedge funds that feasted on the securities imploded, and investors as far away as Germany and Australia have suffered. Central banks have felt obliged to jump in to calm turmoil in the credit markets.
http://online.wsj.com/article/SB118714461352698015.html?mod=hps_us_pageone
“Only took them SIX YEARS to figure out that subprime piggyback loan is not such a good idea.”
It was a great idea so long as real estate always went up…
F#####g anyone over 18 knew if you did not have any skin in the game it would be easier to walk. This was total BS by these southern orofices. It made them a great deal of money and made me just as cynical. Look at Enron, the dot-com BS, houses at ten time incomes. Total freaking BS
that’s what happens when you build nothing of value. artificially created wealth with no backup. it’s a friggin’ house of cards, full of sound and fury……signifying nothing.
BTW, someone tell Ben it’s August
Reamer doesn’t write nearly enough
http://www.minyanville.com/articles/BNP+Paribas-GS-LEH-fundamentals/index/a/13700
Good article, thanks txchick. It seems like the tide is turning against the Goldilocks bulls. Used to be only a minority questioned the risky strategies and now I see and hear more and more opinions calling for the “banquet of consequences” to commence without intervention.
Maybe Peter Schiff (Euro Pacific Capital), will finally get some much earned respect from the MSM.
http://europac.net/Schiff-CNBC-8-9-07_lg.asp
Schiff has been beaten to a pulp by the “Goldilocks” bulls. It’s high time he gets recognized for predicting this situation **years** in advance.
HEY BEN - ITS AUGUST !!!!!
OK, thanks for letting me know.
OK, he fixed it
ptb, do you have “Helpful White Guy Syndrome”?
I have a question for the day traders and other market savvy folks here. Why didn’t the PPT or HeliBen prop up the market yesterday? Volume dropped midday when the DJIA recovered a bit, but toward days end volume rose and the index fell. Based on what I have seen of late I expected PPT or FED intervention. Is it possible that both the FED and PPT want to moderate the decline and will only step in to control drops of a higher magnitude? Also, is the USD’s rise a result of anything the FED is doing or the result of other factors?
There are times that all the intervention in the world will not stop the drop. 9/17/01 was one of those days, one of those weeks. They cut interest rates and bought futures like crazy. Didn’t matter, there was a wholesale liquidation (by foreigners supposedly) and the market completely fell apart before bottoming.
Intervention is a bit like electroshock therapy. Apply it too often, and the patient dies.
No Brain, No Pain…
I have always felt that the FEDs know the economy is going into a recession. (Stock Market, RE markets, etc…) Their efforts are not to keep us out of a recession but to insure that the move to a recession is orderly and doesn’t turn into something more than a recession.
Goes without saying. I went to the L A Central Library and looked up 1930’s newspapers awhile ago. The headlines of today, mirror them. As Mark Twain said, history doesn’t always repeat, but it rhymes.
Ok, thanks, it’s like a train on a downgrade, the train is going down and there is no way around that short of bringing it to a dead stop. The brakeman just needs to keep the speed under control to get to the bottom safely.
My Favorite counterfeiting song…
(complete with PPT drop)
http://www.youtube.com/watch?v=fQvGplgXmNE
It is Armageddon out there because……………..
It is not Armageddon out there because…………
Off Craigs List - You Deserve a No Doc Loan
http://www.nodoq.com/?source=shareasale
“We are a direct mortgage banker, not a broker or middle man.
We work exclusively with A credit borrowers (680 score and above) who deserve to be rewarded with a no documentation loan. If you qualify, absolutely no documentation will be needed for your income, assets, bank accounts or employment history.
Receive real online approval in 5 minutes or less and close in 10 days or less, pending the appraisal of your home.”
If you qualify —, hmm, wonder what it takes to qualify for this now?
Did someone miss the email that was sent out last week?
easy, 40% down.
Question. I’m a relative novice here so go easy on me.
I did a bunch of research over the last several weeks and picked 8 stocks that I wanted to short. 6 of the 8 were refused. I didn’t understand so I called my broker. He says the reason I couldn’t initiate the trade was that essentially there is no market on the upside. He also added that he could not recall seeing that before. If that is valid then things are way scarier than I thought and I was pessimistic to start.
The risk that shorts face when “there is no upside” is that the PPT will feel compelled to manipulate the markets by creating an artificial upside. I believe this is whimsically referred to as “injecting liquidity.”
I don’t understand. The only reason you should be refused is that they are on the hard to borrow list and even if they are, if you’re a good customer with a lot of money with them, they should locate the stocks you want to short.
Alternatively, you could buy puts on them or do some kind of bear spread if you have a option account.
About a month ago Ameritrade refused shorting BZH, said no stock available. When the short ratio gets too high (take a look @ yahoo finance, under “Key Statistics” and “Short % of Float”. If it > 50% like BZH) you may have troubles. I am switching to puts, quite a bit LESS painful if the beast rallies on ya, BUT your timing needs to be very GOOD. And also, DON’T put high % of your net worth into this, it can be a scary ride.
Tx/Illinois,
As stated previously I am a novice at shorts/puts. Is there a document\book you might recommend, something like “trading puts for dummies”?
adamsoptions.blogspot.com
Go through the archives.
Thanks Tx and Vulture as well. I’m only playing with funds in amounts that I won’t lose sleep over. I figure I got out (condo sale $350 sf) earlier this year so I’m already a winner of sorts.
Shorts and puts can be very dangerous, shorts especially. My advice is to learn a lot about them before diving in, and even then, do it only with money you can afford to lose. For the typical investor, if you’re scared, just sell things to raise cash until you’re at the “Now I can sleep well” level. (And you might consider diversifying your cash into some non-US-dollar holdings.)
Options made easy….look for it in Amazon.com, it’s the book I’m currently reading and it’s been very helpful. if I hadn’t closed my TD Ameritrade account already I would have had a great July. of course, if I had bought a house to sell to some flipper in 2005……hmmmm
Thanks as well Moman
welcome to the party, you can go home now, the party is over.
Puts on GS & BZH have been good
Thinking of doing MORE like HOV & KBH Thoughts?
HOV was one of the stocks I was denied ability to short last week. Assuming their relatively illiquid assets I was amazed to see that their debt to cash ratio was something like 250/1.
Try Puts on MOC if you can find any at a decent price.
Remember to buy your puts for six months to a year out. You can make more money selling the puts a couple of months after you bought them then you think…
In Jan I loaded up on puts on KBH, CFC, CTX, HD, DRI
Man am I sitting pretty
Peter,
You mean MCO (Moody’s)?
Agree that is the next place to make money on the short side. Personally own LEAP puts on that. Expect it to be volatile, but there will be some opportunities coming, IMHO.
Hey Hedgies —
How does it feel when you can’t withdraw your own funds? It svcks to get a taste of your own medicine…
Sentinel halts client redemptions
By Anuj Gangahar in New York, Jeremy Grant in Washington and Doug Cameron in Chicago
Published: August 14 2007 19:05 | Last updated: August 14 2007 21:13
Sentinel Management Group, a fund firm that invests cash accumulated by commodity traders and other investors, has halted client redemptions after failing to meet mounting requests from investors to withdraw their money.
http://www.ft.com/cms/s/29160680-4a8f-11dc-95b5-0000779fd2ac.html
No more free home equity cash for 70-year-old-worker grannies with underwater assets…
How the Mortgage Bar
Keeps Moving Higher
Home Buyers With Good Credit Confront Increased Scrutiny
And Fewer Choices as Lenders React to Subprime Debacle
By JONATHAN KARP
August 14, 2007; Page D1
Frankie Van Cleave says she has paid all her bills on time for more than three decades, save one car payment that got delayed in Christmas mail. But neither solid credit nor her track record running a number of businesses is sparing the 70-year-old from the turmoil in the home-mortgage market.
Several mortgage brokers had courted her to refinance a $1 million adjustable-rate mortgage she currently carries on her home, on two acres of prime riverfront property in Marietta, Ga. But most of them “dropped me like a hot potato” last week after two appraisals came in below $900,000, she says. Her bank of three decades won’t help her after her monthly mortgage payments recently ballooned to nearly $8,200, so Ms. Van Cleave is working 80 hours a week as a technical writer to make ends meet.
“A good credit record doesn’t count for anything now,” Ms. Van Cleave says of her futile refinancing effort. “If you don’t have assets, forget it. If you’re self-employed, you have real problems in this market.”
http://online.wsj.com/article/SB118705311075996714.html?mod=most_viewed_day
Who doesn’t want to spend their golden years feeding the alligators?
Just amazing - how did people think that would work their way out of this. Why does a 70 year old person need a $1M house
Thoughts from watching my grandmother’s death: some people do not figure out that they, personally, are going to die until the grim reaper has rung the doorbell several times. (My grandmother accepted her death *maybe* year before her death at 88 and I’m pretty sure it pissed her off the moment it happened.) I’m going to guess that this 70 year old is “not ready” for retirement and it’s her “dream” to have this house she’s “earned” because after all, she’ll be living forever.
As someone who is near 70, I can comment on that. Around this age, it does dawn on you that you are a lot nearer the end than the begining. At 10 years old (you don’t think about it obviously) you have 70 years left, barring the minefield you have to go through which includes nasty diseases or accidents or self inflicted stuff like drugs or getting killed because you went out to foreign lands to protect the assets of people like Bush and Cheney who live long lives at your expense -but at 70 your options ain’t that great!
So, what do you do? You can either resign yourself to the fact that you might have 10 to 15 years left if you are lucky, sigh and basically give into inevitable or kick the inevitable in the face and not accept it - just yet. However, it does get worse. Those last years are usually NOT going to be your best years health wise. Parts are wearing out fast. When I see those stupid tv ads of 65 or 70 year old women pracing and dancing along the beach because they took some suppliment, I feel like smashing the damn screen. The last 10 or 20 years is when the bad crap happens.
A doctor friend of mine (who died at 49 of a heart attack in 1975) told me many years ago that whatever is going to kill you has probably started by the time you reach 40. So, if you are looking at a fast diminishing life span, what do you do? You can either resign yourself to the fact that it’s all over, pull be bedsheets over your head and wait - or try and cram in as much enjoyment into those few years you have left. I’m for the enjoyment version because, for me, 1 day above ground is better than 1 year underground.
So, for those who seem to be doing strange things at 70 + years (like buying a house) it’s not that they are in denial. It’s simply that they know what’s coming in the next 10 to 15 years (if they are lucky) but why give up when it’s usually only the last couple of weeks of life when the grim reaper tightens his grip.
Merv Griffin was a good example. Just one year ago (and some say 1 month ago) he was still enjoying life. He was on Larry King bubbling away. Then, at 82, he reached end of life but he enjoyed himself fully for 81 years and 11 months.
Thanks for the post, Mike. Good for us younglings to get some perspective once in a while.
Mike, an excellent post. You really made this curmudgeon’s day.
Great post!
Thanks Mike. This helps me understand my father better (and hopefully myself, some day).
Great post, Mike. Thank you.
Because she can, or I mean could, or I mean did. I don’t know who to feel sorry for. Her, the lender, or mortgage holder. Victims all over the place.
I don’t see how refinancing a home to it’s “appraised value” is enjoying life. I have nothing against being happy and having fun, but I do against being irresponsible. And who says you have to spend money to be enjoy life. My dad is going to be 79 in a couple of months and there’s nothing more that I want than for him to be happy and enjoy life everyday.
Shouldn’t a 70-year-old have long paid off her mortgage? What am I missing here?
why would a 70 year old not get that lenders don’t want to lend more than something is worth?
I get 20 yr olds can be stupid about mortgages; they’re probably 1st timers. but 70 yr old? really? you didn’t know that your home needed to be worth what you wanted to get for it?
New mortgage forms proposed:
http://www.msnbc.msn.com/id/20265376/
I suppose that on the top it should say in 18 point type IF YOU BORROW MONEY YOU HAVE TO PAY BACK EVEN MORE!
On the bottom: PEOPLE WHO BORROW MONEY GET TO SPEND LESS, BECAUSE THEY HAVE TO PAY INTEREST! PEOPLE WHO SAVE MONEY GET TO SPEND MORE, BECAUSE THEY EARN INTEREST!
“PEOPLE WHO BORROW MONEY GET TO SPEND LESS, BECAUSE THEY HAVE TO PAY INTEREST! PEOPLE WHO SAVE MONEY GET TO SPEND MORE, BECAUSE THEY EARN INTEREST!”
Where do you get these crazy notions?
P.S. My favorite personal finance lesson came during an LDS church talk. The speaker said, “Them that understands interest, gets it. Them that don’t understands it, pays it.”
They may occasionally look like wingnuts to the rest of us, but they do have a consistant history of being prudent wingnuts. Not being stuck with lots of debt is the modern suburban equivalent of the increasingly old fashioned agrarian year’s supply of food.
You could say that people that got in over their heads buying overpriced real estate…
Ate their $eed corn
I think that quote originated with Ben Franklin.
I’m stealing that!
Right — but just at 1% interest — at least according to all those flyers I get in the mail. There’s a lot of other tiny print at the bottom, but I figure it’s just standard legal stuff.
Merrill downgrades Countrywide to sell, says it could go bankrupt.
Good thing Godzilla managed to sell so many shares before this unfortunate analyst’s call was made…
Actually, Merrill downgrades are sometimes good trading opportunities on the long side. That’s been the lore for a couple of years anyway.
and apropos to that, from Minyanville:
Trade post on CFC:
I just got this from some excellent sell side coverage:
“Just saw 2 mln Countrywide (CFC) 3.25% May 2008 trade at 90. 18% yield.”
That may some sort of bottom near term.
(I’d cover if I were short and look to reshort)
August 15th…Redemption Day….start of all them certified letters and notices that we want our money back out of hedgie funds….expect blood in streets (Wall Street that is) for the next 45-60 days when they find out there ain’t no money in that bogus paper they were sold.
Countrywide going down would be the end of a lot of stuff….if this is a panic….hopefully it will be over fast and no one bails out the “too big to fail” types.
‘Countrywide going down would be the end of a lot of stuff….if this is a panic….hopefully it will be over fast and no one bails out the “too big to fail” types.’
If CFC goes BK, you can bet there will be double-digit price declines in home prices in local housing markets formerly referred to as ‘a bit frothy.’
And where CFC goes WM tends to follow.
The IV on CFC has been through the roof over the last two weeks or so. Looks like the option market is predicting BK.
haha! Cuyahoga not accepting checks from CFC!
———————————–
The Cuyahoga County Recorder’s Office has stopped taking checks from Countrywide Financial Corp., the nation’s largest mortgage lender, because of the California company’s warning last week of possible financial problems.
Countrywide traditionally would pay the county by check for mortgage filings it makes by mail, but the recorder’s office now will accept only money orders or certified checks for payment of those fees, said Thomas Roche, the recorder’s chief of staff.
already posted
Hyper-inflation, Fiat currency, Gold or ?? Something a friend sent me that I did not know …
http://www.webofdebt.com/articles/bankrupt-germany.php
“English economic theory”
I’m telling you, when it comes to economics and globalization, England is an infected state that needs to be quarantined.
Hedge fund investors are starting to suspect they may have got stucco.
Investors Mull How to Get Out Of Hedge Funds
Market Turmoil Highlights Notoriously Tricky Rules For Redeeming Shares
By JEFF D. OPDYKE and ELEANOR LAISE
August 15, 2007; Page D1
With a number of hedge funds hammered by market turmoil, the question some hedge-fund investors are now dealing with is: Should I be heading for the exit?
The subprime-mortgage turmoil and the subsequent volatility in financial markets — including the nearly 1,000-point drop in the Dow Jones Industrial Average in the past month — have shaken the world of hedge funds. Spooked investors in these private, lightly regulated partnerships can have difficulty knowing what to make of their investments, which are generally not as transparent as mutual funds, and which often pursue substantially more complex assets and strategies.
Hedge funds with exposure to risky home loans run by Wall Street firm Bear Stearns Cos. and Swiss banking giant UBS AG recently collapsed, rocked by market woes. And Goldman Sachs Group Inc. this week announced it was injecting $2 billion of its own money, and $1 billion from outside investors, into its Global Equity Opportunities Fund after that fund lost more than 30% of its value last week amid global-market turmoil. The Goldman vehicle, known as a “quant” fund, relies heavily on computer-driven programs to buy and sell.
http://online.wsj.com/article/SB118713667527197942.html?mod=todays_us_nonsub_pj
Let me give you a hint. Hedge funds are like mutual funds, except that they use massive leverage to generate massive profits — or massive losses, which charging massive fees. The profits and losses go together. But if you own enough hedge funds, the profits and losses offset, and you are left with a typcial mutual fund return — minus the massive fees.
It must be tough to pay massive up front fees, only to then take a major bath in the credit crunch.
“Market Turmoil Highlights Notoriously Tricky Rules For Redeeming Shares”
Hmmmm…..sounds strikingly similar to the situation where we insist the masses should have read their mortgage papers before signing. So excuse my indulgence when I ask: Shouldn’t people with this much to invest already know they should read the fine print first?
When did this word “redeeming” show up, pertaining to hedge funds?
“Should I be heading for the exit?”
Bugs: “eh, Daffy did you forget to close the “gate”…Taz is ruining my carrot patch”
Daffy: (eyes spinning, like in a trance) “Bugsy… Martin the Martian says that all “gates” must remain open… all “gates” must remain open…all “gates” must remain open….”
Who moved my cheese?
http://en.wikipedia.org/wiki/Who_Moved_My_Cheese
HEARD ON THE STREET
When Buyers Snub Sellers
Valuing Debt Holdings Turns Tricky as Funds Struggle to Find Market
By IAN MCDONALD, CARRICK MOLLENKAMP and DAVID REILLY
August 15, 2007; Page C1
The seizing up of some debt markets because of the subprime-mortgage shakeout has left some investment funds wondering how to value their holdings.
Last week, France’s BNP Paribas SA said it would stop the flow of money into and out of three of its investment funds because it couldn’t “fairly” value securities in the funds. That, the bank said, made it impossible to come up with a net asset value for the funds that would allow investors to get in or out.
[Losing Appetite for Risk]
When the bank, for example, recently tried to sell about $60 million of bonds backed by U.S. mortgages, it couldn’t find any buyers. Among the brokers it called, “some of them weren’t even answering the phone,” says Alain Papiasse, head of BNP’s asset-management and services division.
Similarly frustrated with shaky market prices last month, French insurer AXA SA opened its wallet to cash out investors of two funds rather than sell securities at fire-sale prices.
The oft-repeated problem is that the funds, and even some companies, can’t get prices for many debt securities and derivatives with direct or indirect links to loans made to homeowners with spotty credit histories. Given that, they ask, how are they supposed to mark holdings to market when there is no market?
http://online.wsj.com/article/SB118713803111597956.html?mod=todays_us_nonsub_money_and_investing
Comment by GetStucco
2007-08-15 06:16:45
Professor Bear…you’re causing me to develop a split personality
Who is Professor Bear? Is this Stucco with two different names? I missed the memo.
Given that, they ask, how are they supposed to mark holdings to market when there is no market?
Acknowledge that the holdings are worthless? Seems reasonable to me.
I’ll give ‘em a dollar. See? Now there’s a bid - so stop saying there’s no bids. Sheesh.
Reported on p. C12 of today’s WSJ:
BREAKINGVIEWS:
In Rout, Quants Go AWOL.
Automated Trading Funds Left Post as Market Makers, But Is Human Touch Better?
Investors used to rely on market makers and the specialists on stock-exchange floors to stand by their posts when the going got tough. Not anymore.
Wall Street unofficially handed over these roles of ensuring the orderly trading in a company’s stock to hedge funds, specifically quantitative funds engaged in statistical arbitrage — trading strategies that exploit small price anomalies. ISN’T THIS THE SORT OF THING LTCM WAS DOING WHEN IT BLEW UP IN 1998? As recent turmoil in stock markets suggests, these de facto market makers have failed in their new roles.
…
Yep, except there are hundreds of quant funds with tens of billions of dollars instead of one fund with a few billion. Also, it’s deadly trying to unwind since it’s yet another CROWDED TRADE. As each fund fails or unwinds, it pushes all the others with the same strategy and positions towards insolvency.
It’s all good in a bubble as long as more money keeps coming in. When it stops, look out below. The early quant funds benefitted as more and more money poured into the style, bidding up their long positions and knocking down their short positions. This produced outsized returns for a few years, pulling even more money into the style. Now it’s all going in reverse. Exactly like in the RE market. I’ll say it again:
Crowded trades are dangerous trades.
‘Quant’ funds should be labled ‘Lemming’ funds. After all, they are designed to accept unyielding assumptions, march in lockstep, blind to approaching cliffs, and swoon emotionlessly .
Where’s the bid?
http://www.marketwatch.com/tools/marketsummary/
Conjecture: The PPT will draw a line at 13K on the DJIA and make sure today’s close is higher than that psychologically-important (but otherwise completely arbitrary) support level.
“The PPT will draw a line at 13K on the DJIA and make sure today’s close is higher than that psychologically-important”
Psychologically-important to whom? Sounds like a Crammer quote. Is there anyone in the market with major money or a little brain power who actually goes for this psych babal.
Those computer generated buy/sell templates are, in my opinion, garbage. There is no base line that is going to make anyone feel safe with this volatility
12,999.58 is an odd level for the DJIA to get stucco, no?
Dow 12,999.58 -29.34
Time to buy the dip!
BULLETIN>> DOW INDUSTRIALS BELOW 13,000 MARK FOR FIRST TIME SINCE APRIL 25
As predicted, PPT life-support intervention appears to be underway to support the DJIA at 13K…
I sure hope I’m in the majority on this blog to say that I fail to see how that could appear to be the case to anybody rational. Still waiting to hear what the mechanisms used by the PPT are - the players, the meetings, the conversations, the sources of funds, the accounting, etc. needed to operate this mysterious enterprise.
got a little longer on the flush under 13K
sell the rumor (hedge fund redemptions), buy the fact?
Where be the managers this morning?
FUNDWATCH
Fund managers still positive on equities - survey
Far fewer managers expected volatility to increase
By Sarah Turner, MarketWatch
Last Update: 8:30 AM ET Aug 15, 2007
PrintPrint EmailE-mail Subscribe to RSSSubscribe to RSS DisableDisable Live Quotes
LONDON (MarketWatch) — Fund managers remain relatively positive about the prospects for global equity markets, even after the recent market downturn, according to Merrill Lynch’s monthly fund manager survey for August.
“Fund managers have turned more risk adverse but still believe equities offer value, particularly relative to bonds,” the survey said.
http://www.marketwatch.com/news/story/merrill-lynch-survey-shows-managers/story.aspx?guid=%7B61391F2F%2DA699%2D4E3E%2DB37C%2D492CC8674EC9%7D
“Where’s the bid?”
What I want to know is, Where are all the gold banners on CNBC, saying “Dow 18 points below 13K level”? They were everywhere when the Dow was RISING toward 13K. Matter of fact, I didn’t even hear them mention Dow 13K this morning. It’s almost like they’re biased.
Banks Refusing to Lend Against Hedge Fund Portfolios (marketwatch)
LONDON (MarketWatch) — U.S. banks caught in the credit market upheaval have started refusing to lend money against hedge funds’ subprime credit portfolios, the Financial Times reported Wednesday. Hedge funds said several banks in recent days had cut off lending to funds that use credit portfolios, including mortgages, collateralized debt obligations and subprime securities, as collateral, the newspaper said. That leaves the highly leveraged funds heavily reliant on their prime brokers for borrowing, the report added. The report said the banks mentioned were Bank of America and Countrywide, although there were believed to be others. Bank of America declined to comment to the newspaper and Countrywide did not return calls.
Now the hedgies get to find out how their investers feel when they find out there is no way to get back their money…
Even The Onion weighs in:
http://www.theonion.com/content/statshot/how_are_we_paying_off_our
Priceless, zero, here I am wiping a late coffee off the computer screen and mopping up under my nose. Thanks!
Dang, zero, I’m still laughing. My fave is the 18% one. I know people just like that.
Strange to see the sheep be totally in the dark as to the time bomb that was destined to go off ,to seeing it come out in the open on prime time business news in a matter of about a week .
On the plus side ,with credit getting tight it will tend to foil the fraud /cash back aspect of the lending that was becoming so widespread . I see the current situation as a forced purge . Investors don’t like to lose money and right now they don’t even want to buy good loans .
One of the business heads on the tube was reporting that a poor lady in Burbank with good credit couldn’t get 100% financing . I say ,”so what” ,give me some skin in the game .
Borrowers/brokers/realtors have been spoiled so long with these easy credit terms that their demands make you want to puke .
The loan investors no longer trust the borrowers /loan brokers/realtors etc. and they can’t count on real estate going up to cancel out all sins of the industry .
I really don’t care if the whold damn RE industry comes to a standstill because it’s a reap what you sow type of thing . The truth is that nobody is a good borrower right now because you have the aftermath of a inflated RE mania where a major adjustment in real estate pricing is in order . Even if you make a 20% loan today it could become a 100% loan in 6 months . The banks and loan investors are into protection mode, finally .Interesting how hard lenders are on loan pricing and qualifying when they think they might have to hold the bag .
Aug. 15 (Bloomberg) — Countrywide Financial Corp., the biggest U.S. mortgage lender, was downgraded to “sell” by Merrill Lynch & Co., which raised the possibility of bankruptcy if the company loses access to short-term financing.
“We cannot understate the importance of liquidity,” Kenneth Bruce, a Merrill analyst in San Francisco, said in a research note today. “Effective insolvency” would result should Countrywide’s creditors force it to sell assets at depressed prices or investors lose confidence in its ability to raise cash, he wrote
“Effective insolvency’’ …yeah babeeeeeeeeeeeeeeeeee
Bring on the Doo Dah parade!
Congrats to those who shorted CFC or bought puts on this tvrd. I’d like to see Leatherface put in the slammer but the $$$ are pretty sweet too.
(formerly PDXrenter)
My (rental) neighborhood is called ‘desirable’. My street is 300 yards long. There are four houses for sale, and yesterday I saw a staging crew in one of them. Owner hoping to hang on to 100 percent paper gains? Realtors seem to think just because it is 2007, the price tags should be 30 % higher than they were a year ago, when some of the same houses were for sale. I do hope they all take their swagger and navigators and merge into the sagebrush.
Bwahahahaha!
http://www.marketwatch.com/news/story/funds-redemption-day-looms-how/story.aspx?guid=%7B023D26F2%2D9F69%2D4DD7%2DA861%2DC557FFDE6C2C%7D
TODD HARRISON
Redemption songs
Commentary: As funds’ redemption day looms, how to redeem ourselves
By Todd Harrison
Last Update: 12:19 AM ET Aug 15, 2007
Todd-o dumped all his puts into the flush this a.m. It’s the right thing to do at this moment.
DAVID CRISP renter in another defaulted home:
http://www.eyeoutforyou.com/home/9160746.html
“…Much of Atondo’s business is in Lamont, where he spends four or five evenings each week sitting in the McDonald’s on Main Street, fielding requests for help from distraught homeowners.”
Isn’t Lamont…just down the road from: Weed Patch CA?
“…bringing Bakersfield to its knees”
I’m updating my Bakersfried motto:
Bakersfield,
Oil, carrot, pesticide dust and foreclosed houses
I’m re-updating my Bakersfried motto:
Bakersfield,
Oil, carrots, pesticide dust and foreclosed houses…& free blanket & free one way bus ticket to WeedPatch
I’m re-re-updating my Bakersfried motto:
Bakersfield…2007,
Oil, carrots and pesticide dust & 1 new Lennar built house.
Bakersfried… pray for us, pray for ALL of us.
From the next post on Bakersfield being in the top 10 cities in the nation in foreclosure actions, we get:
Bakersfield: Detroit without the winters.
Prayers for the victims:
http://www.bakersfield.com/hourly_news/story/213121.html
LOL…what a surprise…NOT
Nice post crispy.
Thanks!
Preyed on the victims…
I’m glad I added a modest 100 shares to my BAC holdings @ 47.85 per share. Seems that I’m not the only one who recognized BAC is bargain-priced:
http://biz.yahoo.com/ap/070814/berkshire_investments.html?.v=2
“Berkshire added to its banking holdings with a new investment in 8.7 million shares of Bank of America Corp., worth about $425.3 million. Berkshire also added to its already sizable investments in Wells Fargo & Co. and U.S. Bancorp during the quarter and maintained its 6.7 million shares of M&T Bank Corp.”
Goes to show that some of the bad apples were affecting solid banks. Some laughable financial Einsteins we know were turning up their noses at BAC recently. I laugh back at them and will enjoy the ride.
Since historically the markets tank about 25% in a recession and we have some very treacherous waters ahead of us due to the major cr@pping of the credit markets–have you thought or researched the use of SPY puts as a hedge against your long positions as an insurance policy? Most people do buy insurance against their major assets and it would seem to me that it would be financial prudent to buy insurance against your long portfolio. A 5% insurance premium against the value of your portfolio made up of December SPY puts say 10%-15% out of the money would seem prudent, no?
Do your own due diligence obviously but do give it a thought.
I don’t do puts. I am ignorant about that area and do not have the time to study sophisticated investing techniques. I’m a software engineer by profession. My hedge against my “idiot” (someone else’s words) financial decisions are my substantial holdings in Arizona municipal bonds, savings bonds (both EE and I), and T-bills. I won’t need to cash out my BAC stock for another 10 to 15 years. Buffett is no day trader, unlike the local genius. Nor am I.
Bill
Please be sure the finances of the municipalities whose bonds you’ve bought are solid. I’ve seen stories about many such in Florida running into real trouble. Given the growth rates of both states, I’d say that Arizona might be even more vulnerable to revenue losses from the RE industry’s decline since the AZ growth rates were higher and the industry undoubtedly accounted for a higher percentage of the economy. Good luck to you.
Governments around the country are already seeing falling property tax revenue as a result of falling home prices. Add to that, the looming recession, and income and sales tax revenues will also decline.
AAA and AA mostly.
Buffet also bought 600m worth Pier one stock (PIR) back in 2005, google it to see how that turned out. Buffet can afford to lose a few hundred million…
MarketMaven,
You are correct about municipal govts. Seems many don’t realize how precarious their budgets are. IMO, there is ample opportunity for municipalities to default in the coming years.
Did Buffett buy BAC, or was it Lou Simpson?
I wish BiP would learn to read SEC filings.
BA pretty much sucks as a bank. Teenaged tellers and managers standing around badgering me and … NO MORE COOKIES! ( I guess teenagers can’t bake. ) Oh well, if they weren’t paying me a whopping 0.27% interest my money would be walking.
I’m hoping they will double the interest rates soon to boost reserves once the 6 month checking accounts start defaulting. I am a bit concerned that if they sneakily put in some $2.00 cash machine fees though, that two of these before I notice them will wipe out a year’s worth of interest on my minimum balance.
Funny how people resort to trashing something that is valued by those individuals who they hate.
Got a good reason for investing while everybody’s getting out
Got a good reason for investing while everybody’s getting out now?
He was a day trader, believed in stocks oh yeah
It took him so long to find out, to get out
He’s a big teaser, he’s gonna lose all his cash
He’s a big teaser, he’s gonna lose all his cash now
He was a day trader, a Wall Street investor yeah
It took him so long to find out, what we found out…
In the hopes of vee4ring off into the obscure once aga…
RE: Quantitative Hedge Funds.
As DavidInAL and I both conjectured yesterday, there is a good chance that Quant funds didn’t take into account the effects of their own participation in the market (DavidInAL likened it to Heisenberg’s principle in physics: Observing a particle changes the behavior of a particle.). Pretty funny as one of the original uses of quantitative analysis was for physics.
Anyways, to get to the point, I can envision a day when quants experience a “quant cascade”…basically a feedback loop where quant funds, using similar algorithms and trading strategies, start to lose money all at once, triggering a a large collective movement to mitigate the loss. However, as the models didn’t take into account the existence of quants effecting the market, the large collective mitigating move sends a false “market signal” to the quant algorithms, causing a large number of the quant funds to execute an erroneous corrective action, trigering more losses. This large, collective, quant fund driven action then gets fed back into the algorithms, and even more, erroneous, and correlated actions are then taken.
So on and so on until someone notices what’s going wrong and “unplugs the computers”.
Is this sort of quant cascade scenario possible?
[T]he large collective mitigating move sends a false “market signal” to the quant algorithms, causing a large number of the quant funds to execute an erroneous corrective action, trigering more losses….
Similar to Lemmings flying off a cliff.
Yeah, it was screwed UP, why not screwed DOWN.
Wall St is full of lemmings, one sells so another sells. Then each justifies his selling because the other guy is selling. Throw in the computer models and you get a feed back loop.
The Loan Ranger…
A fiery loan given at the speed of light, a cloud of i/o’s and a.r.m.’s and a hearty Hi-Yo foreclosure!
O.C. home sales still sliding
Year-over-year sales drop for the 22nd month in a row
http://tinyurl.com/3dlxwh
And now that jumbo’s are rumored to be hard to get we may start to see sales drop even further. I say rumored because just this am I heard a radio add for what I thought were jumbos at 5.5%.
Yeah, especially in the OC where nearly everything needs a jumbo. Haven’t talked to my lender recently, it would be interesting to see what they offer now…
Don’t believe it unless they tell you the loan’s VIN number
Sorry if posted already.
Consumers’ free-spending ways face obstacles
http://tinyurl.com/2wsy2l
from the article:
“Some key indicators suggest that another consumer-led recession isn’t on the map. U.S. consumer confidence in July was the highest in six years, according to an index calculated by the Conference Board, and the government said all retail sales were up a slightly more-than-expected 0.3% in July.”
I would tend to agree, - IF - there were new Harry Potter books and movies coming out every month. July’s Harry Potter sales accounted for a lot of the retail sales in the US.
“Retail sales rose 0.3% in July, following a 0.7% drop in June. Estimates for May and June show small upward revisions. The introduction of the iPhone and the new Harry Potter novel gave an extra boost to total retail sales in July.”
FXStreet Aug 14, 2007
http://tinyurl.com/2t4wns
Just a little data on the effects of Fed enabling over the last few days. Weighted average Fed Funds rate for the last 3 days: 4.54, 4.81, 4.68. High: 5.28, 5.50, 6.05. Low: 0.5, 0.0, 0.0. Unless they were targeting Bluto Blutarsky’s GPA, this was a massive overreaction on the part of the Fed. Temporary version of the emergency rate cut.
The data can be found on the NY Fed’s website:
http://www.ny.frb.org/markets/omo/dmm/fedfundsdata.cfm
Thanks for that.
May have been posted.
Home Sales to Hit Five-Year Low in 2007
http://tinyurl.com/398ymb
“Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets.”
Acutally, “recent mortgage disruptions” are the only reason for “stabilizing price trends in many local markets,” as only higher-end homes are still being sold.
Nice catch.
Is this the NAR’s monthly revision? Or have they gone to weekly revisions to try to catch up with the market?
Jumbo 30 year 20% down loans are *sill* getting tighter…e*trade bank is telling me that a loan at 8% would require 1.75 points…just a day or two ago, I am pretty sure that rate was available at 1.25 points.
The credit sphincter is getting even tighter…how’s Goldilocks doing?
I think she is taking a vacation at Joshua Tree National Park this year.
LOL!
Good article
http://www.harvardmagazine.com/2007/07/debtor-nation.html
Anyone know when shares of “NewBank” will go public? I’m interested in buying. You can google it for a prospectus.
Here’s a link to the prospectus….
http://tinyurl.com/2tn6j7
Do you think it has started operations already? If not, how much longer before it does.
I remember that. Amazing that it was back in 2005. No doubt they will break this “NewBank” out by the time the year is out, IMHO.
Lee population grows by 5.15 percent
Lee County’s population increased by 5.15 percent, with Cape Coral seeing the biggest growth among permanent residents a 6.5 percent in the 12 months ending on April 1.
Lee County’s population hit 615,741 — an increase of 30,133, according to the Bureau of Economic and Business Research at the University of Florida.
http://www.news-press.com/apps/pbcs.dll/article?AID=/20070815/NEWS0101/70815022/1075
According to this at least, people are still flocking to Lee County. Roughly 30,000 people between April 2006 and April 2007. And this is still one of the worst housing markets in the country.
They probably all lost their houses somewhere else in FL and are moving in with relatives.
Dow took 57 trading days to rise from 13,000 to 14,000 (to July 19).
Dow took 17 trading days to fall from 14,000 under 13,000 (July 20 to today).
Right, everything’s just fine.
– Judge Smales
“You’ll get nothing and like it”
Here’s another gem from the Judge, which also may be apt for the last few days:
“It’s easy to grin / When your ship comes in / And you’ve got the stock market beat. / But the man worthwhile, / Is the man who can smile, / When his shorts are too tight in the seat.”
Well played, zeropointzero.
– The Judge
“You’ll get nothing and like it”
Local real-estate lawyers say HomeBanc checks bouncing
http://www.ajc.com/business/content/business/stories/2007/08/15/homebanclawyers0815.html?cxntlid=homepage_tab_newstab
http://tinyurl.com/2sxdet
Amgen to Cut Up to 2,600 Jobs
Heard this on CNBC today and the reporter also commented that Amgen and Countrywide are in the same general neighborhood (Thousand Oaks vs Calabassas) and may impact the economy (read housing) in that area.
http://www.marketwatch.com/news/story/only-panic-left/story.aspx?guid=%7b175F20E8-7018-41A8-AC95-53D18D5A1D38%7d&print=true&dist=printTop
THE GURU’S CORNER
Only panic is left
Commentary: Time to fix the roof of your financial house
By Harry Schultz, International Harry Schultz Letter
Last Update: 12:47 PM ET Aug 15, 2007MONTE CARLO, Monaco (IHSL) — For years, greed has been the underlying force in the markets. Now fear is replacing it.
Once underway, fear is an even stronger force. While central banks try to hose down the market’s fear-flames with money, it doesn’t change the liquidity problem. Lenders fear to lend and borrowers fear to borrow. Money “in the system” is of no real help. Someone has to borrow it. Who will?
THE GURU’S CORNER
Only panic is left
Commentary: Time to fix the roof of your financial house
By Harry Schultz, International Harry Schultz Letter
Last Update: 12:47 PM ET Aug 15, 2007MONTE CARLO, Monaco (IHSL) — For years, greed has been the underlying force in the markets. Now fear is replacing it.
Once underway, fear is an even stronger force. While central banks try to hose down the market’s fear-flames with money, it doesn’t change the liquidity problem. Lenders fear to lend and borrowers fear to borrow. Money “in the system” is of no real help. Someone has to borrow it. Who will?
Fearthis Americans will only exacerbate things…
Get out of anything financially, that you do not have complete control over~
AN OPEN LETTER TO LARRY KUDLOW
You cannot have it both ways. To claim be a capitalist and worship at the “free market altar”, and then insist that the FED save you from your own foolishness is being a hypocrite. Maybe at some point you can justify your program today, but I doubt it.
Roidy
Did you send that to him? You should!
I just did.
Roidy
Spillover to commercial real estate deals. Concern over billion dollar properties?
http://www.nypost.com/seven/08152007/business/buyers_face_tight_credit_business_lois_weiss.htm
THE credit crunch is hitting the big time as bankers inhale more equity from buyers.
One broker reports the buyer on a $100 million deal copped out after talking with “40 banks” because he couldn’t put down 40 percent - i.e. $40 million - for equity.
“Eighteen months ago, you could put down 10 percent on a $50 million deal and treat it like a split level ranch in Westchester and borrow 90 percent or more,” said the broker.
“You can’t do that now. Now the equity required will be closer to 40 to 70 percent of the value.”
Another broker noted, “There is still credit available, but you are tripling the amount of equity you have to put up.”
Some bankers tell borrowers they are taking a breather until after Labor Day when they believe everything will be fine.
“They are saying, ‘Let’s back off for a few weeks,’ ” another broker explained.
Many investment banks are now sitting on the sidelines because the loan spreads are “all over the place and they can’t give a quote that will be there in a few weeks.”
But offshore banks and life insurance companies are meeting the market on the spreads.
“If people know they can’t get the loan or equity, they are being honest with themselves and not bidding - so they aren’t spending the money to go through the due diligence,” said one investment broker.
That means the pool of buyers, which has been getting thinner as portfolios and projects thicken, is being culled.
We now wonder, with less competition and more expensive money, will prices come down and capitalization rates come up?
Meanwhile, Commercial Mortgage Alert is worried that Macklowe Properties might be $1 billion short for a refinancing and could lose the GM Building next spring.
However, Macklowe Properties doesn’t share the newsletter’s worry, insisting some of the information is wrong.
Yen carry trades melting down.
(as of 12:20 AM Eastern Time)
The Yen is up nearly 1% vs the US dollar.
Aussie dollar down over 2% vs USD
Kiwi dollar down 4% vs USD
British pound down 0.5% vs USD
Canadia dollar down 0.6% vs USD
That implied declines vs the Yen
-3% Aussie
-5% Kiwi
-1.6% Loonie
-1.5% GBP
These are huge positions unwinding. More deleveraging as financial assets get sold to pay back the yen loans. In the target currencies we have instant deflation - just add water. At this time gold is down $4 as leveraged holders unwind and deflation takes a firm hold despite uncertainty.
My boss kept asking today why I didn’t look happy. Gee boss, maybe because your new plan to save the company by selling marketing services to the real estate industry seems…. so 2005.
I have a question about how to read this blog. I usually read all the posts around 5:00 in the evening, but sometimes I’ll check back in around 10:00 pm. Is there a way to not have to reread everything I read earlier, and just read the new stuff?
Thanks
Anagram for housing bubble = ugh bible bonus
Ha! Maybe there’s something to this ARMageddon stuff!