Bits Bucket And Craigslist Finds For August 19, 2007
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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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Name:Ben Jones
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http://www.nytimes.com/2007/08/19/business/19credit.html
How Missed Signs Contributed to a Mortgage Meltdown
All through last year, Jim Melcher saw the signs of a rapidly deteriorating American housing market — riskier mortgages, rising delinquencies and more homes falling into foreclosure. And with $100 million in assets at his hedge fund, Balestra Capital, he was in a position to do something about it. So in October, as mortgage-backed bonds were still flying high, he bet $10 million that these bonds would plunge in value, using complex derivatives available to any institutional investor. As his gamble began to pay off in the first months of 2007, Mr. Melcher, a money manager based in New York, plowed the profits into ever bigger wagers that the mortgage crisis would worsen further, eventually risking some $60 million of the fund’s money.
“We saw the opportunity of a lifetime, and since then events have unfolded on schedule,” he said. Mr. Melcher’s flagship fund has since doubled in value, even as this summer’s market turmoil cost other investors billions, forced the closing of several major hedge funds and pushed the stock market down 7 percent since mid-July. This week, Mr. Melcher is heading to Paris for a vacation with his wife.
“Until recently, there was a lot of denial, but this is a big deal,” said Byron R. Wien, a 40-year veteran of Wall Street who is now chief investment strategist at Pequot Capital. “Now the big question is: Will this spill over into the broader economy?”
We had an economy fueled by $500 billion a year in equity extraction from the housing market. That money now must either be paid back, or be written off as a loss by the lenders.
How can that NOT affect the broader economy?
The FED will lower rates so people can refinance (eye roll), Fannie and Freddie will buy toxic loans that default out the arse. Hillary will then push for legislation to prevent foreclosures LOL.
People forget one thing. Without transactions, well, there are a LOT of people not able to pay their bills. Someone who sites a strong jobs report is an imbecile. Jobs at McDonalds don’t count the same as a job as an accountant or 3rd level manager (unless they are running the fry crew).
Two small planes are flying over the ocean, near a bunch of small islands. Each has a fuel leak; one is a fast leak and in the other, a band-aid slows the leak, but neither plane is going to make it to an airport. If I’m going down anyway, I’d just as soon get on with it and see if I survive the landing, rather than endure the added stress and blood pressure from sputtering along to the same inevitable fate many “hours” later. I suppose politicians would rather hang on longer so they can igure out someone else to blame for the debacle.
“Jobs at McDonalds don’t count the same as a job as an accountant or 3rd level manager (unless they are running the fry crew). ”
Even the 3rd level managers will bail when they see how upside down they are…bailout attempts or no…
I’m looking forward to lowballing an offer to where the mortgage (30 year fixed) is in-line with equivalent rents or damn close, and I’v got mega patience to do so. Having a nice time saving and living w/in my means.
It’s pretty freakin’ mazing how spot-on many of the observations have been here on this blog over the years. Where’s the TROLLS?!! LOL!! Remember the trolls?!!
Another valuable thing I’ve learned here is to take the mainstream media’s reporting with a grain of salt. Absolutely zero credibility–as they’re totally dollar-driven and pander to their advertisers and upper-management.
Here’s a nice nugget…
TV stations such as FOX, NBC, etc. consider actual shows and movies (the stuff we like to watch) “filler.” Commercials and advertising are called “content.” I’m thinking of cancelling my cable tv cause I’m so frickin’ sick of watching ten f**king commercials to get back to the good stuff.
Forget about balanced news and reporting from MSM. Chompsky asserts balanced medi died in the 1800’s/early 1900’s. I’m inclined to agree. You’ve got to be pretty goddamn shrewd to ferret out the facts nowadays…thank my lucky stars for the internet and blogs like this.
DOC
Nothing to see here - move along folks…
Do you mean that money wasn’t free? I was lied to.
“Do you mean that money wasn’t free?”
Somebody must have burned down the money tree.
This is some article. The finger pointing has begun and I’m betting complaints for lawsuits are being drafted. This quote stuck out to me:
“All of the old-timers knew that subprime mortgages were what we called neutron loans — they killed the people and left the houses,” said Louis S. Barnes, 58, a partner at Boulder West, a mortgage banking firm in Lafayette, Colo. “The deals made in 2005 and 2006 were going to run into trouble because the credit pendulum at the time was stuck at easy.
With apologies to Warren Buffet, subprime mortgages = housing market weapons of mass destruction.
Will this spill over into the broader economy?”
it appears wall street has a bit of short memory. this whole mess was caused in the “broader economy” when people started defaulting on loans.
it’s kind of funny to see main street bankrupt hedge funds run by people with hundreds of millions.
“…it’s kind of funny to see main street bankrupt hedge funds run by people with hundreds of millions.”
Poetic justice is sweet.
AMEN!
Well, the last may not be first yet, but the first shall certainly be last.
Hope he’s hedged and knows how to take the profit.
Tx,
What happened to Options on Friday after the FED took action? Who wins and loses?
I dont know about TX, but the last time the fed pulled this kind of rate cut was in 1998 to fix long term capital and third world currency problems.
I think it started the “dot com” bubble.
They also tried it in ‘01 and the mkt tanked another 40% or so.
There is more to this story. Forgive my coyness.
Dealers and bearish traders who were short August index calls and long puts got annhiliated on Friday a.m.
Winners were people who bought the bottom of that 10%+ correction Thursday afternoon. Probably any August call bought mid afternoon was a triple at least Friday a.m. upon expiration.
From here? I don’t know.
Thanks. I needed a perception check. The FED’s timing is so revealing.
A couple other sources said Greenspan pulled similar maneuvers during the latter part of his tenure ensuring featherlike (slow and orderly) downward market adjustments. Like you note above, in the end, the market tanked.
I suspect TA rules in this evironment. It allows you to see through the smoke and mirrors. No wonder you enjoy the volatility.
I lost some on Friday. However, I bought August XHB puts on Monday and Tuesday and sold them early on Thursday for 250% gains.
I lost some on Friday. However, I bought August XHB puts on Monday and Tuesday and sold them early on Thursday for 250% gains.
Where is the anti-Cramer screaming that the intervention cost people jobs?
OT. Posted in Calculated Risk’s blog comments:
“From someone who claim to be CFC employee:
“One of the things that shock me the most is “credit correction”. This will probably shock you too. What happens is this. If a CFC borrower wants/needs to refi and has mortgage late(s) that push them out of the program, they can call customer service for a “credit correction”. The customer makes the call and tells the rep whatever and 9 times out of 10 a letter is faxed that reports that the mortgage late(s) were reported incorrectly. Keep in mind the customer was late, CFC knew they were late — this isn’t because a payment was misapplied or anything. I have seen this done to the point where someone that has 2 60 day lates and multiple 30 day lates is given a letter that the lates were errors and all of their payments were on time payments. Now if the credit score is in the guidelines, the loan is just done considering no mortgage lates. If the credit score is out of program, the mortgage late letter is sent to the bureaus and a rapid rescore is done by Landsafe in 7 to 10 business days and the newly issued credit score (that improved now that the customer was “never late” on their mortgage is used. Now one can only go Fast&Easy with no lates. So imagine, you have a fast & easy loan with stated income and you never know if the prior mortgage history is accurate or not as a “credit correction” could have been done. ”
CFC Layoff’s in forum
(Shhh. Don’t tell the Germans. Everyone knows they don’t have the sense of humor required to handle this kind of thing
)
I went to a party in St. Pete last night and nobody talked about real estate!!
We’re gettin’ close!
You should have brought up the subject just to see which way it would turn. Does anybody know of a good class for ventriloquism? What could be cooler than starting a ragefest at a party while not being able to have it traced back to you?
“You should have brought up the subject just to see which way it would turn”
I have been doing that lately. Wife and I went out for drinks with some friends last weekend. I rubbed some peoples noses in this $hit. They were doubters last year and fought me hard on this subject. This year nobody brought up real estate. So I had to remind them of our previous conversation. And how we are #8 in foreclsoures in the USA.
It felt good, although the Mrs. asked why I want to argue with our friends…UGH!
Mention that… Bakersfried will be represented at the Doo Dah parade this year… just as an ice breaker…
I’ve been hanging out with this lady who tells me that Tampa is a great place to buy a house because it’s listed in Forbes top 10 or something like that. How can my logic compete with Forbes? ? She’s very intelligent (and hot) otherwise, so I choose not to talk real estate with her.
“She’s very intelligent (and hot) otherwise, so I choose not to talk real estate with her.”
Smart man.
Moman - “…because it’s listed in Forbes top 10 or something like that.”
The question might be, “Top 10 *what*?”
Top 10, you know… where you get to buy houses from the bank for a discount.
Top 10 best places to buy a house in America. It was in the Money, Fortune, or Forbes magazine in the past couple months. I almost gagged when I read the article, but she considers it a bible for real estate. Difference of opinions I guess, and my masters program in economics doesn’t seem to make a difference.
Top 10 best places to buy a house in America. It was in the Money, Fortune, or Forbes magazine in the past couple months. I almost gagged when I read the article, but she considers it a bible for real estate. Difference of opinions I guess, and my masters program in economics doesn’t seem to make a difference.
It was in the Money, Fortune, or Forbes magazine in the past couple months.
MONEY Magazine? Say no more! That’s how I make ALL my financial decisions! The families on the front cover every month look so wholesome and middle-MURKAN, how could they ever be wrong!
Well, don’t leave us hanging…how’d it turn out??
LOL !!!! Ok, the book you want is called “How to win Friends and Influence People” by Dale Carnegie. Written over 50 years ago, but it will prevent you from getting into the doghouse again
Given what I saw on my visit to your ‘hood a couple of weeks ago, it seemed like there was no shortage of For Sale signs (at least 1 in 10 single-family homes on each residential block had one out front).
Easily 1 in 10.
Anyone who wants their mind blown should drive south from the Clearwater Beach to Treasure Island. There are some stretches where literally everything is for sale, commercial included. There is a huge, Gulf-front plot by the Tom Stuart Causeway that was razed and is now for sale. It’s a beautiful view of the Gulf at the expense of a massive, ginormous FB. It’s glorious.
And, yup, they’re still building.
It was on Treasure Island where I made my observations. My “1 in 10″ was meant to be conservative (as many in the REIC have discovered, exaggerating the truth undermines credibility).
as many in the REIC have discovered, exaggerating the truth undermines credibility
… and improves employability.
1 in 10? I got that beat!
I was in Longmont Colorado for the last week and was amazed at the number of homes for sale. Longmont is about 30 miles NW of Denver. In some developments there were so many houses for sale. All at high wishing prices. In one development there were 15-20 houses for sale out of the 60-75 that were there. During my visit to this development I was lucky enough to see the Mighty Union Pacific pulling about 100 cars and blowing that whistle for all its worth. The train tracks are just about 100 feet from houses that are up for sale at mind blowing prices. Several of these houses had no window coverings. They were most likely flippers. On another street were there were 6 houses 3 of them were for sale. In another development there were so many houses for sale I stopped looking. In that development there were 5 houses for sale on one block that had about 15 houses in total. As I came to a stop sign I could see three more houses for sale to my left and two to the right before the street curved around. Most if not all of these houses were built since 2003. I talked with a realtor who said that many people bought with 100% loans in the area. The last time I was there was in 2003 and most homes were selling for $115-$120 a square foot. Now they are up to $175 and more per square foot.
In addition right now just in Longmont there are over 2500 houses for sale. In 2005 Boulder County had 74,249 owner occupied houses. In all of Boulder County there are almost 13,000 houses for sale. This is 17% of the number of houses in 2005.
I am looking to move there in 2008 or 2009 and expect to get a house for $110 per square foot with hardwood floors and granite countertops.
That area is TOAST!
“…I am looking to move there in 2008 or 2009″
WAman, since you have to wait…please join Salley & Snoopy & I at the “Great Pumpkin Patch” to await the arrival of the “Great Pumpkin” …There will be lots of “Neil’s Buttered Derivative Popcorn” to munch on…
Sincerely,
Linus
“The last time I was there was in 2003 and most homes were selling for $115-$120 a square foot. Now they are up to $175 and more per square foot.”
Hmmm…$115 per square ft seems high to me. A 3000 sq ft house with a 1000 sq foot finished basement down the street (in Loveland) sold for 285K. Even not including the basement that’s below $100/sq ft (and that house has a 12000 sq foot lot).
So $175 in Longmont seems way out of whack. I don’t think you could get that much even in Boulder these days.
^^And as a reference point, the neighbor’s house sold for about 250K in 1999. That price did not include:
a) any landscaping whatsoever
b) any fencing (they installed cedar)
c) the large deck the neighbor added
d) an A/C unit
So, bottom line, we are pretty much back to 1999 prices in Larimer county. I would say that that the “peak value” on that house was maybe 350-375K.
This is a regular stop-over for me. One of my former partners had 5 beach cottages in Indian Shores for 20 years. I stayed there often when he and his wife would travel to keep the place running. They bought the business in about 1978 for 165k. In about 1999, they sold it for $480k and purchased a waterfront home on Island Estates for about $265k. The old business sold for over a milliion dollars just a couple of years later. It has since been razed and converted to “luxury condos”, because it was about 1/2 acre of gulf-front property, located at the former Toll bridge on Indian Shores.
Since that time, about 3 years ago, my former partner died. His wife sold the home to leave for Boston to live near her daughter. The house sold for $740k. This is why real estate became an “investment”. The inflation rates in this area have been astronomical, as more and more “investors’ bought into this area to get in on the real estate appreciation ladder.
I was going to buy a little beach cottage in 2001 for about 135k, which at the time seemed a bit high. I quit shopping to do some saving for a year and get a good down-payment. One and a half years later, they were asking $498k for similar properties. I was astounded and first started hearing about the “baby boomers” and the huge demand from foreigners and that we were running out of land………blah, blah, blah. I have lived here all my life. I had a real estate office in 1980-81 when interest rates hit 15% for a home loan.
I have seen insanity before. I witnessed the Condo Crash of the mid 1980’s when prices drop a full 50% and you couldn’t give a Florida Condo away.
This investment strategy is the worst I have seen. Clearwater Beach has several “pre-construction” deals that never got out of the ground. They bulldozed the old hotels and businesses and put up construction trailers to take money on down-payments. The trailers are gone and for=sale signs sit on the vacant land. Those were the late comers.
Other places have foundations poured with re-bar coming out of the foundations that are covered with heavy rust form sitting there over a year without any further work. Most of the bigger complexes are nearing completion.
I heard stories 3 years ago about Clearwater Beach becoming the “new MONTE CARLO” as foreign sheiks were buying up the pre-construction deals. The tales are endless.
But the bottom line is this: It was all a PONZI finance scheme. Most people didn’t have the money to buy these units and everyone was planning on selling to someone else at a higher prices.
Unfortunately from me, I simply wanted to move from Tampa to Pinellas County where I have worked for the past 15 years. I didn’t want a large mortgage, so I was saving money from 2001-2003 to buy a place before I sold my own. Needless to say, I am really really PO’d at all this crap.
I have had to continue my commute as i wait for all this excess to wind down.
It is happening, but as Bernanke and the Congress tries to keep “people being thrown out of their houses”, I fear it will drag on for several more years.
I really didn’t think things could get so far out of line with incomes.
Thanks, Mr. Greenspan, for making my money worthless and asset prices astronomical. You get the “real men of genius award”. Mister, Man who prints the money for the banker’s guy……….Here’s to you!!
I too feel your pain. Sometimes I just look at prices here in San Diego and shake my head with disbelief…it truly disgusts me.
Unfortunately from what I see the Fed has no compassion for the frugal American. They’re actions are focused on keeping the strong hands strong and if it hurts the little guy that is just collateral damage.
Damn Stucco, if I Had known you were going to be in town, I’d have treated you to a nice dinner.
Was it a party thrown by developers or someone trying to sell their house?
I’m told bubbles also have a steepening just before they pop as people rush to get the gains before the end. Stocks since March certainly showed that steepening of the gains.
http://www.bloomberg.com/apps/news?pid=20601087&sid=afht6zHeZrtA&refer=home
” Luxury-home prices in London climbed at a record monthly pace in July as buyers competed for a smaller number of properties, real estate broker Knight Frank LLC said.
The average price of houses and apartments in the U.K. capital costing at least 2.5 million pounds ($5 million) rose 3.9 percent last month from June,”
So, evn as stocks and the housing market collapsed, people rused to by $5 million+ properties in London.
That should end well.
The rich get richer. The economy is fine. They aren’t hurting. Let free markets work. The Gov’t doesn’t need to step in.
I was thinking about the Kudlow meltdown and the video of him posted yesterday where another pundit called him on hypocricy.
This must go so deep that they are going to be hurt in ways where they actually feel threatened (or their lifestyle feels threatened) for him to actually do this.
I met the guy once. He’s really short!
“I met the guy once. He’s really short!”
Many of the movie and TV stars are surprisingly short.
They know there are $400 trillion worth of derivatives out there - 10x global GDP. They realize that the Fed and all the other CBs together are powerless to stop this. Wall Street is hoping to delay it long enough to hand off as much risk as they can to the bagholding public. Credit deflation is inevitable as this mass of toxic waste implodes. The only thing that can prevent massive general deflation is literal currency inflation. Watch the bank deposits and consumer spending for unexplainable spikes which might indicate surreptitious currency printing. At that point, I will move a large percentage of my portfolio into silver (high beta), with some gold and other commodities. If RE has taken enough of a beating by then, it might be a good hedge after the downward momentum is broken.
Been in the Keys all weekend. What have I missed?
You tell us. What does the Keys look like these days?
I have gone back in time to try to understand what the RE nutcases where thinking earlier this year. Here is one nutcase with multiple houses and his posts in a RE investor board:
posted on 1/08/07 at 01:46 PM
…Basically I have turned a 198k equity position in my personal residence into a 300k to 500k equity position in 14 rental houses–plus the right to never pay Federal income tax again…
…My advice to others. Buy houses for very little money down, sell them when they go up a lot. If they don’t go up a lot then don’t buy them.
14 houses - endrogado. And then later in February he posted:
2/15/07 at 03:08 PM
…Anyway, am I happy I did it? You bet. I’ll be even happier in 20 years when I retire with 8 million in equity (assuming 6% appreciation).
Or I’ll go bankrupt in the next two years…one or the other.
So in one half of a working lifetime you can make yourself a multi zillionaire since RE always goes up, with the RIGHT to never pay a dime of Federal income tax along the way. (We all have our RIGHTS, but RE nutcases have more than others.) Nice.
And at the cornerstone of this voodoo money magic is the cashout refi. Every bit of it is tax free. In an earlier post from the previous year he shares his financial wizardry with the reader:
posted on 6/05/06 at 01:05 PM
…But perhaps you are forgetting that I am not selling these homes. So resell costs and taxes are not relevant to me (with the exception of the one LO I have in SLC…which will easily net me 35k-40k if I sold today). Instead of selling, my plan has always been to cashout refi in approximately 5 years or when the LTV is around 60%-65%. Cashout refi costs are small or even trivial and cashout funds are NOT taxed.
For the most part, the 5 year time period is very flexible, 7 of my 11 homes are 30 year fixed…
Well, these RE nutcases are learning differently right about now I guess…
Got 10% down?
So, his plan was to always be up to his crotch in debt? He’d “own” $6 million in R/E, but would owe $6 million on them?
Even if he had gotten 6% annual appreciation forever, and even if he got 6% interest rates forever, his annual house payments would have been rising just as fast as the mortgage payments.
This is not a sound business plan, no matter how you slice it.
So basically, this guy put up $200,000 cash and believes he has another $200,000 (+/-) in appreciation on 14 houses. Wow, he only put down $14,000 on each house? He must have two or three jobs to afford the negative cash flow today! With prices dropping 10% each year, I will bet you he is undewater with negative equity today. So let’s assume he carries $500/mon per house negative. $7,000/month before he even goes to work.
Now, what happens to his claim “….the right to never pay Federal income tax again…” when he starts losing the houses. Every time a $250,000 house goes back to the bank, and sells for $175,000, our genius Junior Trump gets a 1099 for phantom income of $75,000. If he loses all 14 houses, that is $1,050,000 in taxable phantom income. That will toss him into the 37% ordinary income tax bracket pretty quickly, so he will owe the feds about $350,000. Add interest, penalties, legal bills……..ouch. He lost $200,000 in cash and now has huge IRS bills. In the words of David Letterman… “I would not give his problems to a monkey on a rock.”
I say no IRS bailout for this debt=wealth crowd! Let them pay the full tax on their loan forgiveness. This will be the civics lesson that they so desperately need to learn, that citizenship requires payment of Federal income taxes. If they do not want to pay Federal income taxes then they can give up their citizenship and move to some other country where this voodoo money magic actually works.
Got 10% down?
I would have preferred that the BK law not been passed and that phantom gains not been taxed. The public will always have its share of the stupid and greedy. But the bankers used the BK law thinking that it would curtail BK with this penalty. And that they wouldn’t have to do their due diligence in handing out loans. Clearly the bankers were dead wrong. This law only contributed to bankers dropping lending standards by putting impediments in place to discourage BK filing when they should have just stayed with reasonable lending requirements.
Michael, the two items (Bankruptcy & Easy Lending) are unrelated. Phantom income on foregiven debt is a creation of the IRS. When an investor loses money (lender), that loss must be offset by a gain somewhere. The borrower excaped repaying part of the loan, so he pays tax on that gain.
That has to be Taco Bell Jeff. He went BK.
If he tried to short sale, well, he would be stuck paying taxes on all the forgiven income. That is the problem with short sales. People want to save their credit, but at the expense of what? Having to pay Uncle Sam taxes on $500,000 in forgiven income?
Mean forgiven debt that then counts as income.
Working with “short sales” during the RTC crises in the 90’s, you had to prove bad credit in order for the banks to consider short sale. In other words, the banks felt that if yoiu still had some kind of credit, you could find their money somewhere.
I think most of the “short sale” spinners are talking and not doing short sales.
Tom, even if Taco Bell Jeff went to bankruptcy court, he would not get out of paying the income tax on the phantom income from the forgiven debt. The IRS debt must be seasoned for 24 or 36 months before you can include it in any bankruptcy proceeding. He is screwed, blued and tattoo’ed for $1/2 million. He can work it off at the Bell…..in about 72,000 hours (at $7/hour). Using a 60 hour week, that would be 1200 weeks. Working 50 weeks a year (he needs some vacation time) he will break even in 24 years! Of course, he will have to live with mom and dad, since all his money will go to the IRS each week.
Jeff, are you starting to understand the value of a dollar, the importance of bubles, loose capital, affordability ratios, supply & demand, and most importantly for you…the double edged sword of high leverage financing?
I may be wrong, but I was always under the impression that IRS debt (or Fed income taxes owed) is something totally independent of the BK courts. BK courts can not dispatch IRS debt. It is up to the IRS to determine what break they will give a debtor, and a lot of what the IRS does depends on how old you are and on your earnings potential. So for example, TBJ is a young guy with potentially many years of fast food income (and I don’t mean dividend income from Wendy’s stock), so the IRS figures he can spend the next 20 to 30 years paying and they don’t cut him any slack. If TBJ was in his 60’s then the IRS would be more likely to forgive some or all of the debt.
If I am wrong can somebody please clarify this point for us?
Thanks…
Got 10% down?
“…or when the LTV is around 60%-65%. ”
…or when the LTV is around 120% - 130% …ooops.
So, his plan was to always be up to his crotch in debt? He’d “own” $6 million in R/E, but would owe $6 million on them?
So now he owns $2 million in R/E but owes $6millon on them.
“My advice to others. Buy houses for very little money down, sell them when they go up a lot. If they don’t go up a lot then don’t buy them.”
I’m surprised he released this money making formula to the public!
Few months ago I was trying to sell my house to bank the bubble prices. I used a broker that lowered herself to being an agent again. She owns the R/E office. I took it off the market a couple weeks ago when it was clear it wouldn’t sell, and even if it did, probobly wouldn’t close.
Friday I got an email from my realtor forwarding some drivel from an “analyst” on how the discount rae drop would turn things around.
So, I wrote her back and said no way… Fed is pushing on a string. They can’t make people loan money to people that hold MBS or CDO, or other exposure to the coming house value crash.
I added I was glad I took the house off the market since even if we’d gone under contract, it probably wouldn’t close… simply not worth having the house show ready all the time.
She wrote back again and agreed the rate cuts won’t help. Only FHA reform and opening of the Frannie, Freddie floos gates has a chance of helping.
Also, she spent all day Thursday and Friday trying to help people line up new loan funding. Her 17 agens have 10 houses under contract. 9 of the 10 have buyers that were using funders that have pulled the loan approvals. Scramble to find funding is on….
Of course, I told her I want no part of transferring all the crap mortgages to the U.S. Treasury.
I love these stories of all these patriotic Americans that believe in the American Dream of flooding Fannie Mae and Freddie Mac with debt. That should help us all in the long run. I really hate the REIC.
Funny how they jump on all this crap to say things are turning around. But when housing prices hit their all time high and became unaffordable, all was well.
Exactly, all is not well and affordable. Things are a real mess. The sheer amount of indebtness incurred as a result of this bubble is staggering. The so called wealth effect turned out to be more of a special effect - smoke and mirrors.
Once the real estate ponzi scheme was revealed, nothing is going to change investors opinions on it. We are at the part in every cycle where there will soon be no buyers at any price, as deflationary scenarios become common knowledge.
So if fannie et.al. go bankrupt and the government decides NOT to back them, who loses? The smart people that invested in a public company that didn’t state earnings for years, and their creditors (who?). (And all the real estate agents out of a job.)
Sitting outside the coffee shop yesterday and heard the people at the next two tables talking to one another. One was a young couple saying how they were waiting for prices to come down so they could by. The older guy next to them said he had just advised his daughter to wait another 6 months as prices were dropping. Seems like word on the street has changed from ‘buy now’ to “hey let’s wait 6 months or a year, no hurry; prices are going to tank”.
Yes, Professor Bear made the comment a few weeks ago that 100% of the people he knows who are at that stage in their life where they’re thinking about purchasing a home are aware of what’s happening with real estate and are choosing to rent now and buy much later.
This has all the makings of becoming a major crash, in line with the 30% to 50% correction in real dollar terms that the most bearish HBBers were predicting several months ago.
I tell everyone I know who’s renting to hold off on buying a home for at least 5 years and take advantage of the lower rental rates that are coming as all the bagholders have to scramble to find renters for their investment properties.
I hope the folks at the NAR, TOL, HOV, et al are reading this blog and understand that a whole passle of us renters are not buying their bullshit that this thing will turn around by 2009.
It is important that psycology has turned. However, I don’t think that is as important as the change in lending criteria.
The people that may have been willing to jump in with $0 down just to see what would happen, willing to walk if it implodes, are now locked out of the market.
“You mean I have to have $50K down, and I could lose it all of things go badly? Oh!!! Well never mind then.”
“I have to have $50K down to buy a house? UNFAIR!!!”
Hey, I have 50k to put down on a home but NOOOO f—ing way am I going to put down a dime right now just to watch it get wiped out. I’d rather rent & wait until prices drop 20-30% so that my 50k does not vanish!!
Darrell,
Yes, I agree with your comment on the return to conventional lending criteria.
What we’ve seen in the last few months is a sea change in both the psychology (hmm, maybe real estate isn’t such a safe investment afterall) and lending practices (zero down, no doc loans are now history). I reckon the sum of these two factors, plus the high probability that our economy will be in a recession by 2008, translates in to a 30% to 50% correction for a majority of the country.
“I tell everyone I know who’s renting to hold off on buying a home for at least 5 years and take advantage of the lower rental rates that are coming as all the bagholders have to scramble to find renters for their investment properties.”
The credit crunch is driving a wedge between rental and ownership costs through another channel: Higher rates on Jumbo loans (those for homes priced over $417K). A figure I saw in the paper recently suggests that at current rates, a conventional (30-yr fixed) loan on a $500K home will have a monthly payment of $3800, and that is just for principle + interest, not including insurance, taxes, maintenance, HOA, Mello-Roos fees etc. By contrast, we pay $2300/mo to rent a home valued at $500K, and get free yard care and recreation club membership as part of the deal. And we don’t have to worry about riding a falling knife down to the bottom of the price trough.
My apologies for pulling a copy cat of Professor Bear
The definition of Utility From Wikipedia:
In economics, utility is a measure of the relative happiness or satisfaction (gratification) gained. Given this measure, one may speak meaningfully of increasing or decreasing utility, and thereby explain economic behavior in terms of attempts to increase one’s utility.
Imitation is the sincerest form of flattery.
Imitation is the sincerest form of flattery.
Echooooooo
GS — there is a new semi-boonies neighborhood I follow in the South, mostly out of curiosity about how smaller builders deal (or not) with reality. The builder “moved up” to the $700K-$1M range from the $400K-$700K range in his previous ‘hood. Almost no one in the area except doctors (and soon, bankruptcy lawyers) earns enough to support such prices. Yet prices on the spec homes he’s completed (none at all sold, to my knowledge) haven’t dropped a penny. This, in the face of all the holy-crap in general and, particularly, jumbo mortgage news that’s been rolling out. It looks as if he thinks all this is temporary and that “things will come back.” But even if the Fed cuts the funds rate, no-money-down is gone, let’s-all-get-rich is pretty much gone, appraisals will pucker up, MBS have the plague, etc. The builder — a good-quality oner from what I can tell — is close to toast, yet he doesn’t budge. It’s like watching a ship sink.
My husband and I drove into the high-end hills east of Medford this morning. Dozens of huge, and mostly ugly, homes for sale, sitting cheek-by-jowl. Saw a slate-roofed, French-style I loved…..and took a look in the mls when we got home. $1,790,000. In Medford. Just one of many. 4400 plus sq. ft.
Old listing numbers for our county were 600 to 800 homes. Today, the mls has in excess of 3,000, and you can’t drive a mile without a FSBO or two.
Denial is very much the psycho-condition here. Wish the local mls broke out the number of listings in various price ranges. Houses still selling per jacstats.com. @ over 500/month. Breathtaking.
Lived here for years, and still can’t figure the astonishing number of high-end (over 1 mil $) homes….. Who builds/owns?/buys them?
Straddling I-5 as we do, with decent weather, we’ve a large and active transient population. Wonder when they’ll figure out they can sqat palatially if they’re willing to walk just a bit….
You don’t seriously expect him to mark all his assets down to zero do you? I mean, how could he get a commercial loan that way?
take advantage of the lower rental rates that are coming as all the bagholders have to scramble to find renters for their investment properties.
I’m not sure, those who’s gonna loose their houses may crowd the rental market, with high demand for rent - prices may go up…
exile,
Well, you may be right, and it may vary from city to city. But the HBBers have debated the elasticity of supply question before, and judging from my experience in DC and reading the article in today’s Washington Post (Is my mortgage to expensive?), I believe that we could see a lot of homeowners decide to rent out rooms to ride out this storm, and indeed there are already a large number of people doing this in places like DC or Boston.
Consider:
a) all the young couples or single folks who purchased in the last three years and are about to see their ARM reset in the next 2 years.
b) all the empty nest boomers who felt pretty confident about their financial position just a few short months ago, but are now less confident that they will be able to depend on selling their house to fund their retirement, and also are worrying if the stock market may be in for a rought couple of years.
I know we have profligate spending/consumerism in the USA, but even if people do find ways to economise (like car pooling, buying generic cola, cancle gym membership, etc), those things don’t add up to much in most cases, while renting out a room for $500 to $800/mo DOES add up to some serious cash…
Guess we’ll just have to wait and see, but my guess is that a lot of homeowners in high-density urban areas will have to do this to keep afloat.
Exile,
How do you factor in the possibility of the current Congress coming up with a bailout plan to help Hillary’s “invisible” Americans. How will a cradle to grave nanny state affect real estate? This will be fun to watch.
Exile, you are wrong. You fail to understand that for each person who does lose the house to foreclosure, there is someone who will be renting that unit. Banks and individual FBs will not let housing sit empty on the market when it gets to this point - probably 12 months from now. A property sitting empty is generating NO cash flow, and in most cases it’s better to rent out at $500 a month and lose $700 than lose $1200. Plus with renting you have tenants who will keep an eye on the place, reducing vandalism and squatting. Banks and funds that own many foreclosures will sell out to property management firms, who will own and rent houses until the market finally recovers.
Florida is a prime example of this: many apartment complexes in the Tampa Bay area were previously condos built and sold in the 1980s bust. When foreclosures hit, companies came in and bought up the units and repackaged them as apts, renting until 2004-2005 when they were sold again as condos. The place I live was one of those cases, built in 1986 and taken private as apartments in 1996, but not resold this time as the current owners remember well what happened last time.
Rents are only going one way, and that is down for a majority of the country.
“Banks and individual FBs will not let housing sit empty on the market when it gets to this point - probably 12 months from now.”
What if banks turn out to be as seemingly “market inefficient” about renting as they are about selling? Might not all the stuck housing units just stay off the market, so that EVERYBODY gets hurt (for a while at least), FB’s and ALSO renters.
Of course, eventually they should wise up (as in the post above), so the renters would see relief, eventually.
Hondje,
I think you are right. I think rents will come down in price over the next few years. My apartment complex sent me a thankyou card for renewing my lease. LOL! Next August I think my rent will come down, but slightly.
In February, I’m going to move my municipal bond fund into a Vanguard Admiral type of account in some federal tax-exempt bond fund to reduce my fund expenses and It will be nice to get a 4% return while rents are coming down.
I’m waiting to hear the young couples talk about saving up for a down payment.
You will have to wait for the next generation to hear this kindas talk. Saving for a specific goal is not something that was taught to this current generation of FTHBs; they are hardwired by their Religion to believe that they are God’s chosen few and are entitled to everything. (They want their MAYPO and they want it NOW.) The best home buying decision this generation can do is “wait and see what happens” while they continue to finance a lifestyle with their 24% CCs and 0% Detroit auto loans.
This is why I believe this RE downturn will be long lasting. Very few will have saved the DP, and parents or trust funds will be the source of DPs for some buyers.
Got 10% down?
I still think it should go back to how it was when we bought. No downpayments from anyone and they checked bank statements from quite a few years back to make sure there was no infusion of cash that couldn’t be explained. If buyers don’t have to save for their own downpayments, they’ll still be more likely to walk away.
“This is why I believe this RE downturn will be long lasting. Very few will have saved the DP, and parents or trust funds will be the source of DPs for some buyers.”
I agree completely. This bubble will not unwind for 10 years. This is an earthquake in the economic world
Considering our savings rate is in reality negative and the ponzi economy is totally dependent on that (i.e. keeping on borrowing more than we earn) a return to a positive savings rate will really drag on the economy since the home equity ATM is closed. Individually it is the right thing to do and will benefit the individual greatly if they can reduce debt and increase savings. Collectively it wipes out the underpinnings of the global economy.
“…a return to a positive savings rate will really drag on the economy since the home equity ATM is closed.”
That’s why I expect the Fed to prosecute its War on Savers with renewed vigor in the coming months.
I’m waiting for the revolt that’s due once those couples realize their savings is worth 50% of what it was a month ago. Thanks FED!
I’m anticipating my savings to increase in value, not be cut by 50%. Cash is king once again; That means cash is hard to get which causes the prices of goods that cash can be exchanged for decline.
Sure the FED dumped billions of dollars into the system, but those billions didn’t even begin to offset the trillions of dollars lost in the world’s markets these past several weeks. And this deflationary cycle is just getting started.
IMO.
And the FED is just getting started. Deflation or inflation ahead? What I remember of the housing run up is Inflation can trash any cash savings earmarked for a 20% downpayment. What new bubble is about to appear?
This FED has studied the 1930’s depression and thinks it knows cash hoarding was at the root of it. I beleive the FED will wage a war on savers and blow another bubble as investors try and get out of the FEDs way. I don’t know what the new bubble will be? whats left?
As others more wiser than Lost have said, the next bubble will probably be in alternative energy - it goes well with people’s fears of running out of energy, has a feel-good environmental aura to it, and seems like a sure bet for the future - expect some genius to come up with some sophisticated perpetual-motion type thing and make tons of money on it, as people will be desperately looking for new “safe” places for their money.
“What I remember of the housing run up is Inflation can trash any cash savings earmarked for a 20% downpayment.”
The Fed needs to choose between whether to respike the punchbowl enough to reflate housing prices and bail out the FBs, or protect the $US holdings of anyone who has savings or $US-denominated assets. I personally don’t see how they can reflate without further damaging Bernanke’s credibility as an inflation fighter, but I claim no special expertise in these matters.
Professor
I don’t think credibility will be an issue. The whole financial system is vapor locked. The CBs are pumping credit into a bottomless pit here as the banks take the loans to shore up their own liquidity and wait for the margin calls from each other. With another German bank failure-bailout and the Fed repo actions taking intraday Fed Funds to 0.0-0.5% lows over the past few days, we are already at the point of pushing on a string.
The zero bound in interest rates is already operative. That’s why the bankers are so terrified. Their usual credit tricks have completely failed except in the always gullible equity markets. I suppose if there are no further failures, bank runs, margin calls or spikes in defaults for a few weeks, the system might loosen up a bit if the CBs keep pouring in more credit. If that doesn’t happen, actual currency printing is the only way to induce more inflation. Since Bernake is such an expert on the Great Depression, I hope he studied the Weimar Republic as well as what happened in the US.
I, too, claim no expertise in these matters, but I sense Bernanke feel he needs to establish credentials as one willing to take a hard line against inflation and must live down the Helicopter nickname he acquired.
But recent events have forced him to give in to the immediate needs of a illiquid market and thus loosen up a bit.
But I sense this loosening is temporary; his long-term goal is to counter the idea of the market being blessed (cursed?) with a Bernanke Put. This will require lots of time and lots of pain.
“I sense Bernanke feel he needs to establish credentials as one willing to take a hard line against inflation and must live down the Helicopter nickname he acquired.”
I think the past couple of weeks’ helicopter of drops of liquidity plus Friday’s discount rate cut and hints that the FFR will go lower as needed have pretty much settled that question.
I wonder what would happen if symbolic protests were organized with say 1000 people marching on the various FED outposts at the same time with torches a la angry townsfolk to Frankensteins castle. Add in the requisite placards and posters with “Mad as Hell” kind of messages and see what kind of coverage and reaction comes of it.
I believe you may have to wait some time. Saving is difficult for most young couples as they spend more than they make often times living a life they can’t afford. Besides, they are entitled to 100% down, no risk capital from someone else.
Dean Calbreath is calling Karevoll for questionable bottom-calling tactics regarding the S.D. housing situation. Do you think Karevoll can even connect the dots between the credit panic currently underway on Wall Street and the implications for the price of homes priced over $417K (Jumbo loan limit)?
DEAN CALBREATH
S.D. housing market may only be in eye of storm
August 19, 2007
The release of the latest real estate figures last week – showing a 2.2 percent decline in the median price of a house in San Diego in July – prompted some observers to express the hope that things can only get better from here.
“Most of the declines in San Diego have happened,” John Karevoll, an analyst with La Jolla’s DataQuick Information Systems, said last week. “Now it appears to be re-establishing a balance we have yet to see for the (Southern California) region.”
But it might be premature to say we’re hitting a “balance,” especially because the median price reflects an upwardly skewed picture of the market. The real price declines are much worse, says real estate broker Bob Schwartz.
“One thing that those numbers don’t show is the amount of incentives people have to give to get someone to buy their house,” Schwartz says. “On a $500,000 home, you might have to give $15,000 in concessions, which doesn’t show up on the median price.”
Even if we are re-establishing a balance, it might only be the type of balance that a hurricane-battered ship achieves when it suddenly finds itself in the eye of the storm. The ship can stay in balance until the next round of winds hits.
For the San Diego housing market, the winds are already blowing hard.
http://www.signonsandiego.com/uniontrib/20070819/news_1b19dean.html
I guess my Econ 101 professor was wrong when he said lower prices would lead to higher sales?
A builder talks price
August 19, 2007
“This is the big problem with discounting … There will be a lot of people who say to themselves, ‘If they are dropping it $50,000 today, what are they going to be dropping it to next month or next year.’ Discounting drives people out of the market.” – San Diego builder Michael Pattinson in California Builder magazine.
http://www.signonsandiego.com/uniontrib/20070819/news_mz1h19refers.html
Bubbles do indeed break the rules of Econ 101. Prices were rising, so people rushed in to catch the updraft.
Falling commodity prices drive people out of the market for the short-term, but will bring more demand when the price returns to fundamental support levels.
Try reading up on Psych 101. It’s all there to explain the mess.
I don’t subscribe to the “dead cat bounce theory on RE” therefore I think when you do see prices begin to rise and there is a meaningful cocommitant fall in inventories, the chances are high that the bottom may be in. Is it a sure thing? No, but it makes more sense to pay a few thousand more to have more confirmation than to buy right into the falling prices. Bernard Baruch, the famous investor, was quoted as saying the first 1/8 and the last 1/8 were the most expensive in the stock market. So true isn’t it. And in real estate it becomes even more important because you are talking about an asset with much lower liquidity and higher transaction costs than stocks.
I must say though, that it’s likely to be quite awhile before the buying opportunity to comes. Lately I have been more focused on the job losses which are coming and how those jobs will not be replaced so easily.
GS
The supply-demand equilibrium model works very well for real consumption goods: apples, books, ceiling fans, etc. It begins to break down for goods that can be hoarded as a store of wealth or used for financial speculation: wheat, oil and copper for example. The orthodox supply-demand model fails completely for pure financial assets: stocks, bonds, currencies, gold, etc. Observation tells us that price and demand for financial assets often move up and down together and there is no such thing as an equilibrium price. Houses have unfortunately become more financial than economic assets recently and have acted according to the unstable and self-reinforcing psychological trends that dominate finance. Hyman Minsky and Robert Prechter are the only economist I know of that have done an adequate job of describing this phenomenon.
Agreed!
That is certainly true. Look at the last 5 years. Raising the prices brings more demand. Everybody knows that!
Just recieved the local (Sarasota) social magazine. The glossy rag that really is a showcase for the local builders. Usually thick w/spreads of mcmansions and smug photos of realty whores. Well this months edition is as thin as I’ve ever seen it. Only a couple of the big builders with one page spreads.
Big time hurt still months away.
This week I was trying to read a cooking magazine at the library but it was so packed with RE related ads that you was challenged to find any reading on cooking. Why do people subscribe to these things?
Got 10% down?
I love this guy…
The failure of central banking
Stephen S. Roach
Chairman, Morgan Stanley Asia
For the second time in seven years, the bursting of a major-asset bubble has inflicted great damage on world financial markets. In both cases–the equity bubble in 2000 and the credit bubble in 2007–central banks were asleep at the switch. The lack of monetary discipline has become a hallmark of unfettered globalization. Central banks have failed to provide a stable underpinning to world financial markets and to an increasingly asset-dependent global economy.
The current post-bubble shakeout is hardly an isolated development. Basking in the warm glow of a successful battle against inflation, central banks decided that easy money was the world’s just reward. That set in motion a chain of events that has allowed one bubble to beget another–from equities to housing to credit.
When the bubble burst in early 2000, the optimists said not to worry. After all, Internet stocks accounted for only about 6% of total U.S. equity-market capitalization at the end of 1999. Unfortunately, the broad S&P 500 index tumbled some 49% over the ensuing 2 1/2 years, and an overextended corporate America led the U.S. and global economy into recession.
Similarly, today’s optimists are preaching the same gospel: Why worry, they say, if subprime is only about 10% of total U.S. securitized mortgage debt? Yet the unwinding of the far broader credit cycle…
http://money.cnn.com/galleries/2007/fortune/0708/gallery.crisiscounsel.fortune/9.html
Questions for Roach, or anyone else who can comment:
1) To whom is the Fed accountable?
2) How can the American people hold the Fed accountable for damaging our financial system and taxing the masses to pay for Wall Street’s big bonuses?
The FED is accountable to the banking system. Private banks and the Gov’t make up the Federal Reserve Banking System.
Our government is supposed to operate under a system of checks and balances. How did we manage to let the banking industry override the U.S. Constitution?
Are you talking about that silly Constitution? Nobody pays attention to that thing anymore unless they feel that their rights are being violated.
Because we let lawyers and other non-contributors to the financial well being of the country become politicians.
No, I’m not kidding.
“Nobody pays attention to that thing anymore unless they feel that their rights are being violated.”
I consider the Fed’s measures to bail out Wall Street at the expense of the U.S. labor force (whose pay checks are denominated in $US) a violation of most Americans’ rights.
the Constitution? another ‘quaint’ piece of outdated literature like the Geneva conventions that Attorney General Gonzales alluded to.
1) The Fed is accountable to a relatively small group of super-wealthy elites who control the international banking system, Rockefellers, Rothschilds, etc.
2) The American people must elect Ron Paul president and demand that senators and congresspeople carry out their sworn oath to uphold the Constitution. Ron Paul has said he would move to abolish the IRS and the Fed and put the US back on a gold standard.
The constitution is crystal clear on what kind of monetary system we are supposed to have. It becomes even clearer when you read the words of the founding fathers. The type of monetary system that we have now is the very type that the Constitution was supposed to outlaw.
To accomplish these things, Americans would probably need to:
a) Read the constitution and study it
b) Study what “money” is
c) Study what a “dollar” is
Unfortunately, I don’t see any indication that Americans are willing to do any of those things.
What BubbleViewer said. Testify.
And for those who have an objection to Ron Paul based on his personal views regarding choice, that’s all they are, personal views. He’s entitled to them. He had the courage to vote against the Iraq debacle.
If we get the FED out of our hair and the influence of money out of government, many of the social ills that we currently suffer from will dissolve.
We are going to have such a mess in the next few years that we will need a president that can unite us and not divide us. Therefore we cannot elect someone who has views that are way left or way right.
Hillary is who we should vote for. Why because she has the experience of being in the White House during the best economic time in my life and a whole lot more. Also she will put Bill to work as a roving ambassador helping to repair the badly damaged image of this country.
Kucinich is, in my mind, a much better choice than Paul
my 2¢
Non-conservatives seem overly concerned about “image”. Obviously, if everyone in the world is “reasonable” and willing to sacrifice themselves for other people, then it is very important to be liked so you can get in on the “free” help.
I submit that the reality is more important than the image. And the reality is you can’t con other countries into performing good works against their own interests no matter how many of their wives your roving ambassadors sleep with.
Vast majority of the public does not know or understand the federal reserve and still believes this is part of our government and that the system is controlled. Private banks do not ask permission on what they do or the amount of new “printed money” they decide to put into the system.
These last few weeks are evidence of this. We are on a fast train wreck and no government or the federal reserve can stop this train. Greed on Wall St. for fees etc. little or no guideline as to deratitives, lending, open up new money with their partner in crime the federal reserve printing money for everything and anything cased the “perfect storm” and the scam is now coming to light. Much damaged will be done, business and home losts in the millions all for the sake of the Wall St boys and private bankers who will have the cash to “pick up” real estate for 10 cents on the dollar. Read history and see who were the “lucky” few who got choice real estate in the depression. It’s all there in the history books but most people read little history now days. To bad for us.
Oh, the FED can just cut rates and that will solve everything they say.
Till 100 years from now, they look back and say, well the FED fired all their bullets and that made it worse, not better. Then they were left with nothing.
Then Jim Cramer acts like a Rabid Babboon telling the FED they know nothing and that they have to drop money out of helicopters as he didn’t know what Helicopter Ben referred to.
So far, the success of the Fed’s ad hoc bailout of Wall Street is somewhat in question.
Wall St rally fails to claw back losses
By Hal Weitzman in New York
Published: August 17 2007 14:07 | Last updated: August 17 2007 21:57
Wall Street stocks were boosted on Friday by the Federal Reserve’s surprise cut in the discount rate at which regional Feds lend to banks, but markets failed to recover fully from the heavy losses suffered in the week.
The Fed cut the primary discount rate by 50 basis points to 5.75 per cent, indicating it was concerned about financing conditions but that it would use a range of policies rather than just a cut in the main interest rate.
“Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward,” said the Fed.
Analysts at High Frequency Economics said the decision “may indicate that the Fed anticipates some institutional failure . . . probably not a bank, but rather an institution that has substantial bank liabilities that may not be able to clear”.
http://www.ft.com/cms/s/54b2375e-4c2a-11dc-b67f-0000779fd2ac.html
rumor is that Bear Stearns will get sold to the Chineese at a much lower price than what they offered for themselves in 2005
Couldn’t happen to a nicer bunch. The Chinese may put a cap on their “cowboy capitalism”.
The Chinese might buy them, relocate them to Shanghai, and then stick all the ex-worker down a mineshaft somewhere and flood it. Seems to be their M.O.
What a great idea! Just remember what happened to the Secretary of Health (executed!). Can we throw in Goldman Sachs and Halliburton while we’re at it?
“…but rather an institution that has substantial bank liabilities that may not be able to clear…”
This line from the Financial Times article is a riddle, wrapped in a mystery, inside an enigma. Which quasi-bank institution could they be talking about? Fannie Mae? Bear Stearns? Countrywide Financial Corporation? Some hedge fund bigger than LTCM with undisclosed losses?
Countrywide Financial Corporation had a mini run on its bank. probably scared the FED a bit .
I sure hope everyone is paying attention.
FED is in crsis management. They are trying in earnest to slow the shock to the system by acting unconventionally. These guys are pulling the old playbooks out, but its just not gonna work.
Expect more open market operations.
Expect the top brass to start signalling things such as, “Crisis intervention must be allowed as a rapid deteriorization of the fundamentals has excacerbated the liquidity prolems”
Expect lower lows.
Expect “sweet deals” for banks going forward as a strongly capitalized banking system is required in a deflationary spiral, this is system preservation.
Expect more layoffs in the private sector as cost cutting is one of the only ways to salvage EPS.
Expect more discounting of earnings going forward.
kinda spooky for a little guy like me. I know I dont have the answers, but I know whats in my control….debt payments, on time going forward (I usually pay at least a month in advance, but Im changing to two months in advance), lower consumption, and for the sake of being able to sleep better at night…..SAVE MONEY, cause your gonna need it.
This is an incredible collection of some brilliant investors on these bubble markets.
“…Because many of these institutions are highly leveraged, the difference between “model” and “market” could deliver a huge whack to shareholders’ equity. Indeed, for a few institutions, the difference in valuations is the difference between what purports to be robust health and insolvency. For these institutions, pinning down market values would not be difficult: They should simply sell 5% of all the large positions they hold. That kind of sale would establish a true value, though one still higher, no doubt, than would be realized for 100% of an oversized and illiquid holding….”
Warren Buffett
“…Normally you have markets go down 10% or so every couple of years. We haven’t had a 10% correction in the stock market in nearly five years. I don’t know if this is the beginning of it, but we’ve got a lot of corrections coming. It wouldn’t surprise me to see a little bounce–say if a central bank cuts rates. But that will just lead to the markets falling further late this year or next year. It would be better for the market, it would be better for investors, and it would be better for the world if we went ahead and cleaned out the system. If they do cut rates in the U.S., it would be pure madness. Because the market’s down 7% or 8% from an all-time high? My gosh, what’s that going to say about the dollar? What’s that going to say to foreign creditors? What’s that going to say about inflation? The Federal Reserve was not founded to bail out Bear Stearns or a few hedge funds. It was founded to keep a stable currency and maintain its value.
I have been and continue to be short the investment banks and the commercial banks. If they bounce up, I’ll probably short more. I’m certainly not buying anything. The market’s only down 8%. I don’t consider that a buying opportunity. The things that I’m short, some people probably think are buying opportunities, but I don’t. I’ve been short the banks for close to a year, and for a while it was not fun. But I added to my positions, and now it’s a lot of fun….”
Jim Rogers
“…We don’t know how bad this gets. The problem is we don’t know how bad the hole is. And by “the hole,” I mean not only what the bad credit is but also the accounting of it. I think we’re seeing that a lot of financial institutions probably weren’t as profitable as we thought they were. That is, they showed big profits and everyone got big bonuses on the way up, and there are going to be big write-offs on the way down….”
Jim Chanos
“….I think this is the very early stages of repricing risk, particularly in the stock market. It may be rapidly entering the middle stages in the fixed income market, although I think it will go quite a lot further in the next couple of years. But the equity markets have barely started to address this issue. Still, today the risky stocks are badly mispriced relative to the blue chips. They have a long, long way to go. I have no doubt they will do it. The pendulum always swings completely. In other words, you can guarantee that one day there will be a substantial premium for high quality companies.
There is a lot of pain still to be had in the equity markets, particularly aimed at the risky end of the spectrum. We think the fair value on the market is about a third lower in the U.S and EAFE from today and about a quarter less in emerging markets….”
Jeremy Grantham
and from the bull side
“…For the rest of us, the stock market is cheap on a price-earnings basis, profits are fabulous, Mrs. Clinton and Mr. Giuliani are far from being socialists and in the long run, both here and abroad, stocks are a lovely place to be. I have no idea what the S&P will be ten days from now, but I am confident it will be a lot higher ten years from now, and for most Americans, that’s what we need to think about. The subprime and private equity and hedge fund dogs may bark, but the stock market caravan moves on….”
Ben Stein
“They should simply sell 5% of all the large positions they hold. That kind of sale would establish a true value, though one still higher, no doubt, than would be realized for 100% of an oversized and illiquid holding….”
Buffett is spot on. But it must be kind of hard for these hedge funds to find the motivation to sell 5% (or whatever percent) of holdings to discover true market value, when the Bernanke Fed is openly indicating a willingness to act as buyer of last resort and supply market-distorting liquidity to prop up the bid distribution — anything to fend off the deflation bogeyman!
The moral hazard of free bailout insurance breeds systemic risk, and systemic risk fosters moral hazard for ad hoc bailouts of firms granted too-big-to-fail status (e.g. LTCM, CFC, FNM, and possibly many hedge funds yet to be announced). This vicious circle encourages stupid investments like the ones that are currently drowning many hedges.
http://en.wikipedia.org/wiki/Bogeyman
“If they do cut rates in the U.S., it would be pure madness. Because the market’s down 7% or 8% from an all-time high?”
Ahem…
“I have no idea what the S&P will be ten days from now, but I am confident it will be a lot higher ten years from now, and for most Americans, that’s what we need to think about. The subprime and private equity and hedge fund dogs may bark, but the stock market caravan moves on….”
Ben Stein
Right on, Ben. Like housing, the stock market always goes up in the long run.
Hoz — Here is a quote to add to your list from a smarter Stein than Ben:
“That which cannot go on forever won’t.”
–Herbert Stein–
And here is Professor Bear’s corollary to Herbert Stein’s Law:
“Any price trend which everyone learns to be a sure path to riches will imminently self destruct.”
Ben Stein, “It is the job of the federal government to protect investors.”
I just saw Ben on CBS Sunday Morning.
He basically said Hedge funds are no big deal, there aren’t a lot of subprime mortgages and, in the long term, the markets always go up. He also mentioned nuclear terrorism and staying calm.
Umm, yeah.
Unfortunately when it comes to money management, it just doesn’t pay to be an optimist all the time. Realism Ben, realism.
at this point, Ben Stein is profoundly useful as a contrarian indicator. That CBS slot was creepy. I was sickened by his attempts at mollification, as if he has some sort of following amongst the masses whom he might dissuade from closing their Countrywide accts.
NYCityBoy, “Ben Stein has turned into a doddering old moron.”
I agreed with his article in the NYT about taxing the hedgies and private equity guys like regular folks, but other than that, I think he needs to go back on his meds.
Ben Stein should stick to hosting game shows.
Got 10% down?
Bueller?
Here is a SD Union Tribune article that suggests those at risk of foreclosure might be wiser to unload their underwater asset(s) sooner, rather than bleeding themselves to death hanging on to houses they cannot afford.
There is also some bitter irony here: Who would have imagined that easily qualifying as a renter would become a new litmus test of credit-worthiness?
After foreclosure
It may be hard to find a new lease on life
By Emmet Pierce
STAFF WRITER
August 19, 2007
Some displaced homeowners are getting a cool reception as the surge in real estate foreclosures sends them back to the rental market in search of shelter.
NANCEE E. LEWIS / Union-Tribune
Sonya Fitzgerald (at sink) is now renting in El Cajon as a roommate. Her home was lost to foreclosure. “I couldn’t do it anymore. I used all my savings,” she said.
Although landlords welcome the business, they are carefully screening applicants to make sure they remain creditworthy.
Nevel DeHart of First Advantage SafeRent, a national tenant-screening company, warns that homeowners often are deeply in debt by the time a foreclosure occurs. With no financial reserves to fall back on, they sometimes make poor rental risks, he said. “There is just no margin for error.”
Ron Bowdoin, who oversees 2,500 rental units for the SARES-REGIS Group in Los Angeles and the Inland Empire, said foreclosure victims often fail to meet his company’s credit standards.
NANCEE E. LEWIS / Union-Tribune
Fitzgerald helped son Micah, 4, get ready for a beach outing in the apartment she now shares after disclosing to a rental agent the loss of her home.
“As they reach the brink of foreclosure, their credit reports have suffered tremendously,” he said. “We have to do a co-signer or large deposits to get them into apartments.”
http://www.signonsandiego.com/uniontrib/20070819/news_mz1h19after.html
From Brokersoutpost:
SDmortgagepro
Member
Registered: 12/19/05
Posts: 188
Loc: San Diego, CA
Online
I would suggest that agents use the current turmoil in the credit markets to their advantage when dealing with buyers.
Make them understand that if they are pre qualified and serious about purchasing a home, they must act quickly to make an offer, get under contract, get their documentation to their lender and get the transaction closed. They must understand that just because there is money available for their purchase today it doesn’t mean that money will be there tomorrow.
Use it to create a sense of urgency with your buyers.
Top
“Buy now, or be underwritten out forever.”
6% feet under
It’s never too late in a mania to get in on the chance to get rich quick! Take it from a Realtor and a physician…
Big on the basics but not much for details
By Robert Bruss
August 19, 2007
If you or someone you know wants to start investing in real estate but you aren’t sure what is involved, “Prepare to Profit” by Sheri Alford and Dr. Ahmet Ucmakli is a good beginner’s overview book. It provides an easy-to-read summary of the major benefits, and a few pitfalls, of owning realty investments.
Alford, a real estate agent, and Ucmakli, a physician, are investors who share their realty investment experiences in an organized format.
http://www.signonsandiego.com/uniontrib/20070819/news_1h19brubook.html
Somehow I doubt the “pitfalls” include things like the fact that over the last 130 years, house prices have risen, on average, at the rate of inflation.
Taking investment advice from a doctor…please, tell me you’re joking.
Be fair Darrell. It’s been inflation +0.3% annually.
A doc is almost always the last person who should be dispensing investment advice. Their business ventures tend to go in the tank at an amazingly high rate.
haha, too true.
I’ll never forget this. My dad (a doctor) exclaimed to me once about putting $20k into the stock market when George W was elected. Something about the market “always goes up” after a republican is elected or something. HA! I’ll never forget the vacant sparkle in his expression. Such bliss. I think I learned a lot about human beings in that moment.
For a doc it’s pocket change of course, but it’s funny how strongly that siren song still rings– “freeeeee moneeeeey…”
Would you take advise from someone who is too stupid to release a book several years ago when it actually may have sold? I’d look at their book and say, “A little late to party. Everyone already got drunk and went home.”
Hurricane relief is very good to “Gulf zone” investors…
Investors far from Gulf Coast cash in on Katrina tax breaks
By Jay Reeves
ASSOCIATED PRESS
August 19, 2007
TUSCALOOSA, Ala. – With large swaths of the Gulf Coast still in ruins from Hurricane Katrina, rich federal tax breaks designed to spur rebuilding are flowing hundreds of miles inland to investors who are buying up luxury condos near the University of Alabama’s football stadium.
About 10 condominium projects are going up in and around Tuscaloosa, and builders are asking up to $1 million for units with granite countertops, king-size bathtubs and ‘Bama decor, including crimson couches and Bear Bryant wall art.
While many of the buyers are Crimson Tide alumni or ardent football fans not entitled to any special Katrina-related tax breaks, many others are real estate investors who are purchasing the condos with plans to rent them out.
And they intend to take full advantage of the generous tax benefits available to investors under the Gulf Opportunity Zone Act of 2005, or GO Zone, according to interviews with buyers and real estate officials.
http://www.signonsandiego.com/uniontrib/20070819/news_1h19aid.html
It’s much easier to rebuild when you’re nowhere near the disaster zone. Part of the typical administration response. Do nothing when help is most needed. Then, realizing the “business opportunity”, provide no-bid contracts to cronies and other measures that do little to help those most in need and instead mostly help the wealthy and well-connected. Totally disgusting and completely unsurprising.
Was the Mortgage a Mistake?
They Bought the House They Wanted, and Now Everything’s Changed
By Michael S. Rosenwald
Washington Post Staff Writer
Sunday, August 19, 2007; Page F01
http://tinyurl.com/2d6tu6
Our bid won the house — our very own first home — and now we had to close the deal. The owners sat across the table. They seemed more nervous than we did, perhaps fearing we would have second thoughts — about our risky interest-only mortgage, about seeing them walk away with a $120,000 profit, about buying a house just as “bubble” was entering the regional lexicon.
They signed. We signed. Price tag: $459,275.
And then, as the saying sort of goes, the stuff hit the fan. The sizzling home market almost immediately began to cool off, which my wife and I sort of ignored. Interest rates started to creep up, and we sort of blew that off, too. We have time. This too shall pass. No worries. Life is good! We bought a flat-panel television, took a nice vacation, bought a dog, hired him a daily dog-walker, and then we got pregnant. We have time. This too shall pass.
But now, with our baby due in six weeks, the stock market has taken a serious drive south, with the Standard & Poor’s 500-stock index dropping 6.9 percent since its high on July 19 after problems emerged for subprime lenders, who gave loans to people with spotty credit at the height of the frothy housing market. The contagion from the busted subprime sector has hit credit markets hard, and now Brian Williams and Charlie Gibson and Katie Couric are talking every night on the national news about how hard it will be to get credit, perhaps leading to more problems in the housing market.
FB: “Honey, I think we may have just destroyed our lives financially.”
FB’s wife: “Oh, just sort of ignore it, dear.”
Other HBBers have commented on this, but since I moved to DC about a year ago, I’ve noticed that there are a lot of homeowners who’ve had to resort to renting out rooms. I share a townhouse in Arlington with a young woman who bought at the top in 2005 and I pay $700/mo in rent…I have a buddy from business school who lives with a couple who owns a house in downtown DC (800 block of O street) and he pays about $800/mo. It’s a very nice old house, with lots of character and close to all the action in DC and it has been appraised at around $1.2MM. I went on a match.com date with a woman in her early 30’s who bought a year ago in Bethesda and has to share her tiny place with a renter…Point is, I’m a new arrival to DC, I don’t know that many people here, but among my small circle of compadres and collegues, there seems to be a lot of people who are renting and living with recent home buyers.
I’m guessing that this is one option that lots of couples who are in a similar situation to the WP columnist (Did we make a mistake?) will have to take. Great to be a renter, and I believe it will only get cheaper to rent in the future if you’re willing to share a house with a young couple with a crying baby.
Hondje –
My ex is on eHarmony and in her early 30s and would love to meet someone who is not me. Her mommy and daddy bought her a house in Rockville or Bethesda last year because I wouldn’t. Heh. But she won’t have to take on a boarder since the ‘rents are loaded, so that’s good for you if you can find her. She’s probably listed under “Loves Puppys” or “Cats ROCK!” or some s*** like that.
She’s actually a nice person and I am the bitter a$$hat. So much better being a single guy in DC than in SF, I tell you that for nothing!
MrBubble
Wow, that’s not my experience at all. I loved many parts of SF life, and one of them was most definitely my ability to meet so many interesting single women. All a guy needs is a pulse and a job, and a well-spoken guy could probably miss on the job.
Thanks for the slam, Barry! You sound like a real stud.
I was just going by this map:
http://tinyurl.com/ywyxzw
but you must be right, based on your personal experience. Apparently, I just need to stop living in that KFC dumpster without my defibulator. Who would’ve thunk it?
“…if you’re willing to share a house with a young couple with a crying baby.”
Guess they didn’t use 3/4″ drywall in that custom home…
From the article they talk to a realtor.
In it he says this, “Now they are selling it and will probably make less than $5,000 on the deal. They are moving to North Carolina, into a new, single-family home with a two-car garage for not much more than they paid for the condo. “They are just pleased and tickled,” he said. “It’s amazing what you can afford in other places.”"
The key is, they have not sold the condo yet and are now carrying two mortgages. These people are smart, real smart.
My thought here was that the only way they’ll make any profit is if they get their asking price, which is no doubt way too high for the market. What they’ll probably end up actually making is a short sale.
I’d laugh, but it’s not funny.
I’m always amazed at how some people are able to go about their lives without a pending sense of doom — seriously, I always see the downside. These people apparently only see the upside.
The wife is a doctor…and the guy is a writer for the WaPost who decides to do his research after the fact.
Brilliant.
The money quote…”The world is a tricky place, and nobody teaches you this in school.”
WTF?? And these people vote.
Apparently the FED is poorly managing your expectations, thats gonna change. They may even come right out and say just how bad the situation is.
Poodle
In a way, blind optimism a survival trait. Many people would be completely unable to function if they saw the world as it really is. But eventually experience teaches us that we can’t ignore reality all the time - which is why older people are more cautious than younger folk.
Then add to the natural optimism and naivete of the young that there have been no real macroeconomic disruptions during their adult lifetime. 25 years and counting since the last real recession. 2000-2003 only affected stockholders and had little impact on the broader economy. This is normal to many people. There will always be jobs, credit and prosperity since in their experience there always has been. I’m afraid those folks are in for a rude awakening.
Oh $hit!!! “No real macroeconomic disruptions?!?”
And I’ve spent my 40 years Afraid and expecting one!
It can get worse?!!
F**K! Let me think! Let me THINK!! F**k!
I Don’t Know…!
Hey Paul:
I just wanted to say since we’re both on the blog at approximately the same time. WB if you’re still on. Just for fun.
-Big V
Tales like this are endless.
One of my former co-workers decided to RETIRE last year. His Realtor(tm) told him he could easily get $350k for his Pinellas Park house he probably paid 85K for in the late 1990’s. That sounded like a lot of money.
So, he found a trailer on 1.5 acres around Lake Panasoffkee?, somewhere around Ocala. It was only $150k. The spread………..$200k in additional retirement funds………….the game northerners have been playing with Florida for countless decades……….sell the more expensive NY or Boston home and retire to Florida on the proceeds.
But, my former friend and associate jumped the gun, counting the proverbial chickens as they say…………the house did not sell, and is still for sale at a reduced price more than a year later.
Fortunately for him, he bought when prices tracked incomes, so the mortgage was not too high…………but there goes the “equity”.
further from the Wash Post article: “Our parents bought homes at our age. It may sound crass, but we deserved a nice home. We did what we had to do to get one”
generational anxiety (got to keep up with the parents) plus an appalling sense of entitlement spells disaster for gens X and Y
Comment by kathleen
2007-08-19 08:42:15
further from the Wash Post article: “Our parents bought homes at our age. It may sound crass, but we deserved a nice home. We did what we had to do to get one”
generational anxiety (got to keep up with the parents) plus an appalling sense of entitlement spells disaster for gens X and Y
And at my age, my parents bought a shitty overpriced tract home in the 80’s, which they were unable to sell after the real estate market tanked in California, forcing them to miss various job opportunities and trapping us in a deteriorating neighborhood. My parent’s attitude was the same, “We deserve a nice home for a family,” was their excuse, even though the previous rental home we had occupied was a palace compared to that place. Who cared if the home was a piece of shit and the mortgage was sky high and the home was worth less than what they owed for it! They were “homeowners,” by gawd!
I’d rather not repeat their mistakes, thank you.
Just hideous. Hey, my parents bought their first in 1971 at 23 and 21. I didn’t buy until I was 30. Who cares?
By working two jobs, my dad (with mom’s help) managed to save the DP. When they closed, they had $100 to their names until the end of the month. THEY deserved to have a home (and not even a nice one). You, my friend, deserve a bag of fried a$$holes.
Scary. This comment sent shivers down my back when I read it.
In the 1960s a guy who worked with me was married to the daughter of one of the executives of our corp. He bought a big, nice home - as big and as nice as his in-laws. with whom he was trying to keep up. That went well until he couldn’t pay for it. Stuck a gun in his mouth one night on the way home.
From the article:
“He (a mortgage broker) told me about a young couple who had purchased a small condo a couple years ago in Maryland. Now they are selling it and will probably make less than $5,000 on the deal. They are moving to North Carolina, into a new, single-family home with a two-car garage for not much more than they paid for the condo. “They are just pleased and tickled,” he said. “It’s amazing what you can afford in other places.”
Nothin’ could be finer than to be in Carolina. Or Georgia. Or Tennessee.
And be stuck with two mortgages! I bet they are really tickled.
down 7% isn’t even really a big drop.
But it’s a good start to a big drop.
Funny clip of Erin Burnett.
http://www.thevanguardian.com/news.php?id=12
She is a heinous little biiitch. She was clearly a tool in Cramer’s famous rant of two weeks ago. She is a pawn and an annoying one at that. Her head is too pig. I can’t believe a pigeon hasn’t smacked into her melon by now. Maybe it has. That would explain a lot.
NYCityBoy, you’re not mincing words today. ROTFLMAO!!!
Classic line from the comments below the video window… “Any normal person that has basic survival mechanisms and a functioning brain would immediately come to the conclusion that Erin Burnett is insane.”
Painted herself into a corner.
I just saw on TV the other night that fake diabetes test strips from China were sold in the US for Ultra One Touch testing machines.
We should all be looking at products labeled Made in China and put them back on the shelves but it’s hard to find anything not made there. It’s getting scary.
Exactly.
To China, go ahead and sell our dollars. LOL! So we have to stop buying your overpriced crap!
Ghostwriter,
good heads-up. Also, Johnson and Johnson investigated and traced this counterfeiting back to China themselves. No help from the FDA. Said the boxes were perfect duplicates, but the strips themselves were useless. Saw it on Bloomberg, but not the local press…how many diabetics,clinics and hospitals may still have the fakes?
Go to a thrift store.
Seriously for most kitchen things you can go to a thrift store and find things that are 30 years old — back then it was mostly made in the US.
I cook using (mostly) cast iron and most of my stuff was made in Erie PA way back when. Also lodge is still made in the US.
Lodge makes good stuff — their pre-seasoned pans are a great idea that I wish they’d thought of 30 years ago.
Wow.
Don’t know what to say other than a repeat of NYCityBoy that Burnett is at best insane. This b!tch endorses the eating of poisonous food and toys? Have we come to this? Unreal.
The government, the media, and the bankers are doing everything in their power to destroy Americans. That’s the only conclusion I can come to based on recent events and trends.
Fire up the guillatine. Its getting high time for a revolution.
“The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.”
— Thomas Jefferson
Test
when a poster like poper is testing, the inigma may be plugged in “testing” the posts that are hard hitting and right on the money
LOL!
i love the smell of tin foil hat in the morning.
heh, I wouldn’t be so sure that it’s not a lead-foil hat made in China that we’ve been donning for all this time.
Speak for yourself.
Mine is homemade using high quality Russian aluminum foil from the Krasnayarsk Aluminum Factory (KRAZ), triple folded for extra protection.
“lead-foil hat”
LOL
Is Erin Burnett still making her little comments about how she doesn’t see how housing can get that bad when rates are still “historically low”. She’s an idiot but I guess that’s a requirement for CNBC. I can’t watch it anymore….
Personally, I give her points for wearing a giraffe dress while anchoring CNBC; it shows how seriously that channel should be taken. If you’re going to hate someone on there (other than the obvious Cramer and Kudlow), hate Ron Insana. He was halfway sharp as an anchor, but now that he’s left to run a hedge fund or some such, he’s completely full of shyte and has turned into a Kudlow Klone.
I think she must be suffering from lead poisoning. Possible she could have been sucking on one of those tainted lead bibs when she was a baby
Lending Tree is still offering shady loans:
200,000 for only $644/mo
400,000 for only $1287/mo
It was a side ad on my computer this morning. Interest rate is good for “30 days”, but you have the option to pay an interest only loan for 12 months. Extra interest will accrue onto the loan balance. If the government is tightening, when are they going to shut this stuff down.
This stuff has always been out there but it was a niche product until housing prices went so high that they became popular. I would like to think that all the morons who could not afford housing are stuck now and won’t be able to make that decision anytime soon.
It has to be a bait and switch. Nobody would buy those loans anymore. Does anyone really think that Wall Street is going to buy more MBS’s?
90% of foreclosures go back to the bank:
http://www.bakersfield.com/hourly_news/story/216316.html
Wow — 90% of auctioned properties unsold (back to the bank), versus 95% sold to real bidders two years ago.
Couldn’t happen to a nicer bunch…
“Lenders have even started discounting deeply, sometimes starting bids at 80 percent of the amount owed on the first loan. The second loans left from so-called 80/20 “piggyback” deals, which required no money down, typically get eaten.”
Countrywide was offered better than this on a short sale and rejected it. That’s the most they’ll get any time soon. Do they think this will turn around in 2 or 3 years and they’ll be able to get out from under this for less? Are investors saying no to these deals? Are their loss mitigation models as flawed as the underwriting models?
“Are their loss mitigation models as flawed as the underwriting models? ”
The moment that they mark one of these houses to market they will have to revalue all of their inventory and they will be insolvent. Selling one of these houses at market rate is identical to declaring bankruptcy. They won’t do it until they’re forced to.
roflmao
You mean the bank is bidding 20% less than the total balance just to repo the pos!
Great! That is a big FU to the FB, and any fool who is subordinate!
I wonder how low those bids can go? Didn’t think it was legal.
Paul
What a difference a week makes…
Fed brings relief to the markets
By Krishna Guha in Washington
Published: August 17 2007 14:27 | Last updated: August 18 2007 00:04
The US Federal Reserve took radical steps to combat financial market contagion on Friday, making direct loans available to cash-strapped banks on more favourable terms and signalling it would cut its main interest rate if necessary.
http://www.ft.com/cms/s/0/0df7c8c0-4cc4-11dc-a51d-0000779fd2ac.html
The number of homes (SFRs+Condos) on the SD MLS is steadily pulling away from 20K now. I am wondering if the inventory correction will pick up steam in the wake of the credit panic underway on Wall Street?
“Your search has returned the first 200 of 20313 homes”
(SD ziprealty.com)
I would begin to expect rapid deterioration in the MLS homes on the market, as these are gonna just begin going to banking database storage….
expect the unexpected.
Professor:”Who can tell me the definition of virtual reality?”
Professor: “How bout you J6P.”
J6P “uhh, Not Really”
Professor:”Now that kind of thinking will get you an A Doubleplusgood”
Creative financing tools now biting homeowners
http://www.chron.com/disp/story.mpl/business/5066087.html
“Despite their less-than-stellar credit, the Halls were able to finance 100 percent of the $186,000 home with an interest rate that would reset after two years. The initial monthly payments were about $1,600.
“It seemed so affordable at the time,” said Hall, 34, who’s now scrambling to refinance his family’s home because the payments have risen to $2,400 and are scheduled to jump again next month. He’s worried about foreclosure, especially since he’s already been turned down for a new loan.”
For a $186,000 house? A 30-year fixed at 6.5% is $1100/mo.
“In a matter of four days, he had to come up with $18,000 to buy this house,” said Baba, owner of Savings Road Mortgage Group.
I think the biggest downfall is going to be the downpayments. For all of you out there with savings, when prices come down you’ll be way ahead of the rest of the crowd. Even realtors will recommend taking offers from someone with a downpayment, vs no downpayment, even if your offer is lower. Pretty soon it’s going to be too risky to take an offer from someone with nothing down. They won’t want to lose a good buyer if the other falls thru, which soon it’s likely to.
This story still doesn’t sound right. His loan has adjusted to 16%? I have to be missing something here.
No one gets 100% financing.
That’s how the boyz on Wallstreet sold all this stuff as SAFE investments.
He gets 80% at 7% adjustable loan, because his credit sux.
He then gets 20% at 16%, with a second mortgage.
The combined payment terms and conditions are a lot higher than a simple fixed-rate loan, but that is not a problem, because when they re-set, they are planning on re-financing.
See! It’s really easy………………..just re-fi the loans and consolidate the credit cards and car payment while you’re at it.
How can you lose something that was never yours? He had no skin in the game with the zero down loan and spent two years paying a teaser rate. It’s time to move back to the trailer park.
I could buy that home on my CC and get a better interest rate!!
Plus taxes, insurance, HOA, and probably some bonds. Plus the 100% loans are 1% higher on the 80% first and run 3.5% + LIBOR (5.5%) for the 20% tail. $148,800 at 7.5% I/O is $868/mon. Amortized, it is probably $1050. Add the 20% tail at 9% & the I/O payment is $279/mon. Amortized, it is $340.
Fully amortized 100% = $1390.
Taxes = $390
Insurance = $70
HOA = $120
Bonds = $200
Total payment = $2170. I little here, a little there…it adds up, but none of the FB’s can add.
The Original HBBer
When I was in Pensacola earlier this summer I often drove my mother to work in the morning and we passed through some of the old neighborhoods of Pensacola. On one of these trips Mother remarked,
“Do you see that house over there (pointing to a quite large house)? Nanny and Papa (my great grandparents) rented that house when I was a little girl. Papa would get up early every morning and walk to work although if it rained Nanny would drive him to work in their car. Of course when your grandfather was a little boy they lived on such and such street (later that day I check this house out and it was also quite large). You know he always lived close to downtown so he could walk to work.”
“I thought Nanny and Papa owned their house and as I remember it was quite small? Maybe two bedrooms ?”
“You are thinking of the house in East Hill. That was the only house Papa owned and he bought it in the mid 60’s.”
Some weeks later I was at my grandmother’s house looking through old photos and noticed one of a strong, handsome guy, standing next to a big automobile. The auto looked like one of those big black Packards or Buicks from the old gangster movies. Pretty impressive automobile. There was a woman in the photo also dressed quite attractively in a dark colored dress with gloves (the photo was black and white) whom I instantly recognized her as Nanny though I did not recognize my great grandfather.
I remarked to my grandmother that the automobile looked quite substantial for a Railroadman. My grandmother said that during the Depression their were few occupations that brought in pretty good money but railroadmen were one of them. She also said that Papa always had an impresive automobile though he rarely drove it. A few minutes later my grandmother remarked that it also didn’t hurt that Papa had stashed up a bunch of silver dollars during the good times and even had a little bit of gold. She said that she had seen the gold on one occasion after she married my grandfather (she was married in 1945).
“Do you remember those silver dollars that your grandfather showed you when you were a little boy and were collecting coins?”
“Yeah.” Remembering the four or five big silver Morgans and Peace Dollars, all dated in 1920’s or earlier if my memory serves me right. I also remember my grandfather pulling them out of an old black sock. I must have been about twelve or so.
“Those silver dollars are what was left of Papa’s “treasure”.
The above events and conversations came back to me the other day and connecting the dots I came to understand that Papa was an HBBer.
I never considered him to have a substantial amount of wealth and he probably didn’t. But as Aladinsane one time posted up about the Great Depression, “Steak was a dime but nobody had a dime.” Well here is a man that had that dime during the Depression due to having secure if not highly paid employment, renting for the majority of his life, and stashing away a few silver dollars and a bit of gold when the times were good. He was able to own a substantial automobile during the Depression because when prices collapsed he was able to buy. Papa also put my grandfather though Undergraduate and Law School at the the University of Florida during the Great Depression (my grandfather graduated from Law School in 1940). I am not even sure if my Grandfather worked during the time he was in University.
The other thing is that when Papa finally did buy a house it was only in the mid sixties. The house he bought though arguably in one of the most prominent neighborhoods at the time was a small two bedroom house. When it came to housing he rented big and bought small. Quite different from what we have seen in recent years.
True story. Hope you enjoyed it.
I did enjoy it, thank you. It illustrates how different our country was simply a generation or two ago and how much more realistic people were. We’ve been so manipulated into consumerism that we’ve forgotten there’s more to life than shopping. Values sure have changed.
Nice story…
I think we will react the same way Russia & the communist block did, after 1989~
People didn’t like communism all that much, but had learned the system and it’s foibles and most importantly, they were used to it.
It’s those 40 and older, that were most affected, when capitalism replaced the former model…
Lost to utterly lost, most of us really do stop learning in our 20’s~
Younger people will adopt better, to whatever will replace consumerism.
I expect a variation of the cargo cult, with lost angle-nos hanging out at all hours @ San Pedro
Waiting for their consumer goods laden ships, to reappear~
Great post!
Love this story…my grandparents lost their grocery stores in the depression, but managed to hold onto the house, even with six kids. In a nice neighborhood, they kept chickens in the garage, all the kids had some kind of job–delivering newspapers, houskeeping for elderly neighbors, whatever. They scraped by until the war started.
I also remember my dad telling me he made extra change as a kid occasionally making deliveries for the neighborhood bootleggers.
Something I try to remember when I see kids in the hood working the street corners.
Nice story. I’ll share one about my grandparents.
From the time I was a kid, I always thought gramps and gramm were rich. They always had a shiny new Chevrolet truck and some nice, newer Buick or Oldsmobile. They lived on a 40 acre farm in southern Missouri and spent the weekends camping and tending to crops. When I was 12 my cousin told me that g&g always paid cash for their cars and that boggled my mind so much I had to ask, and gramm said “it’s true we always pay cash”. So in a young man’s mind they must have been rich.
My grandfather grew up on the farm. 5-6 of his siblings died in the early 30s from contaminated well water (cholera?). Money was tight and they almost lost everything when great grandpa died, but when WW2 came gramps went to Germany and sent every penny home, making extra money selling cigarettes, etc. Thus, he was willed the farm and returned home in 1946 to get married and he built a house paid for with cash. They lived in that house until 2002.
I know things were sometimes tight, but my grandparents have been to China, europe, Canada, all over the world. They recounted this story to me about two years ago, saying the only loan they EVER had was to buy a 1966 Pontiac Tempest new, and my grandpa said it was the stupidest purchase he ever made. They even bought a nice place to spend the remainder of their lives near the city and paid cash for it. My grandpas’ proudest possession is his John Deere 420 tractor he purchased brand new in 1959 with savings from his job. He told me he wouldn’t sell it today for a million bucks.
Unforunately, stories like this will grown more scarce as my generation (and myself included) are guilty of excess, especially bad with delaying gratification. I can only hope that story has rubbed off on my somehow, and I can live my life in a similar fashion in the near future (debt free and happy).
That was a good story, too. My great grandpop had a grocery store that he and his sons ran. Of course when the depression came their customers could not pay. Great grandpop would not cut people off from food. Eventually he had to close the store. But he and his sons worked through the rest of the depression up to WWII to pay their suppliers. They would just not think of not honoring their debt. Lots of the retail customers paid back great grandpop. Lots did not. He was happy to have been able to help those who paid him back and those who wanted but could n’t (the elderly, windows, the sick.) As for those who did not pay him back it was just water under bridge. Figured he was blessed enough to bother worrying about that.
Its a shame that the war on savers makes this sooo much more difficult today.
Paul
Hey Popper:
I know you’ll never read this, since it’s already 22:24, but I called my parental grandpa (not great, though) “Papa” too. Kinda neat.
BTW, my maternal grandpa was an HBB’er too.
“People are screwed.”
-Big V
JoCo DA: Women used dead people’s Socials to help illegal immigrants get home loans
http://blogs.kansascity.com/crime_scene/2007/08/joco-da-women-u.html
sheeple now pay for their own slaughter - simply make your $16,000
payment to Noveau Riche University
http://money.cnn.com/2007/08/06/magazines/fsb/real_estate.fsb/index.htm?postversion=2007080816
What was noticeable, while German media has been spewing out clouds of expert speak (i.e. useless commentary that misses the whole situation), the comments of regular folks to these articles showed that they mostly ‘got’ it, incl. role of Fed.
Clock is Ticking on Las Vegas’ Water Supply
Aug 17, 2007 05:43 PM CDT
The news coming from the Southern Nevada Water Authority Thursday about the valley’s future water supply is worrisome. Unless we act quickly, there will be no water for hundreds of thousands of Las Vegas Valley residents in just three years.
http://www.lasvegasnow.com/Global/story.asp?S=6943263
uhhh, its a F-KING desert. Never had water to support millions playa hate-uz………..if your long Vegas, its a really short trip home.
As much as I hate PA at times this is one of the reasons I’m reluctant to leave it. It has a good water supply it has good energy (coal, timber heck I think it even has oil). It has fertile land.
Oil? That’s where it all started…
http://www.priweb.org/ed/pgws/history/pennsylvania/pennsylvania.html
I know this is where it all began what I don’t know is how much oil is still in these parts (if any).
You could probably still get some since I doubt that it’s been economical to use secondary extraction techniques (steam, CO2, etc.). At least enough to run your own BarterTown.
MasterBlaster: “Who run BarterTown?!”
Auntie: “MasterBlaster runs BarterTown.”
Went fishing with my buddy out here in Colorado yesterday. He’s a smart guy, but a housing bull. He recently purchased an REO, and claims to have acquired a 30-year interest-only loan on it. I thought full-term interest-only loans have been banned since the Great Depression, but wasn’t sure, so didn’t call bullshit. Anyone know?
If you find out where he got the loan with no principle payment requirements, please share with the blog. I would even buy a house if I could get a loan which required no principle payments before I am an old geezer. (P.S. Seriously, I think your buddy is lying through his teeth!)
I think he may have a fixed rate for the full 30 year term, but the interest only portion will last maybe 5 years. After that time, the loan will switch to fully amortized and his payment will go up.
Explain the difference between a 30 year IO loan and 30 years of renting with an option to buy for cash at the initial price. If the IO rate floats… none?
Also, personal fallout: acquaintance with a number of “investment properties’ that she is having trouble renting stopped speaking to me. Oh, well.
Glad you used the term “acquaintance,” rather than “friend.”
Funny how that works. I had a relative who was a real jerk about the stock market when he was making money day-trading in the 90s. But I didn’t stop talking to him, just because he was making money and I wasn’t.
Guess it’s because I didn’t gamble, and therefore I had no claim to winnings; the “acquaintance,” whom Sagesse describes, gambled and lost, and just about no one wants to admit they’re a loser.
acquaintance with a number of “investment properties’ that she is having trouble renting stopped speaking to me.
Shorter acquaintance: “I hate you because you were right.”
San Diego DataQuack numbers are out for June 2007. So far, the main aggregate evidence of a major bust shows up in the pace of sales, not prices. For instance, “resale houses” hit peak monthly sales rates of close to 4000 in the summers of 2003 and 2004; this year, at best they touched on 2000 this spring before dropping off to their June level of 1,711. Just wait until the effects of the credit panic show up in the pace of sales — the worst is yet to come.
Meanwhile, prices for San Diego as a whole appear to have reached a permanently high plateau. But there are some isolated formerly-hot zip codes where large price declines are showing up. For instance, Rancho Bernardo West (92127), where I happen to reside, shows a drop in the median used SFR price from $817,500 to $655,000 (-19.9%) from June 2006 to June 2007, on an increase in the volume of sales from 23 to 38. Meanwhile, the last time I checked (just now!), the median SFR list price on ziprealty.com for 92127 was $1,298,030 — a gap of $643,030 between the median bid and median asked price. Given that all real estate is local, that looks to me like evidence of a local market crash. It looks like roughly a 50% drop from here would restore prices to normalcy.
Another local market I follow is Rancho Santa Fe (92067) — not that I will ever be able to afford to live there. Their median used SFR sale price dropped from $3,155,750 in June 2006 to $2,518,000 in June 2007 (-20.2%). By comparison, the current median list price for used SFRs in 92067 is $3,995,000 — a bid-asked gap of $3,995,000 - $2,518,000 = $1,477,000. It looks to me like high-end San Diego investers are going down in flames.
http://www.dqnews.com/ZIPSDUT.shtm
“Another local market I follow is Rancho Santa Fe (92067) — not that I will ever be able to afford to live there.”
Never say never. Half of building wealth is not losing it to ponzi schemes and other scams and bubbles meant to separate you and your money. The question isn’t whether you will be able to affford to live there - save enough and buy at the right time you might - but whether you value living in the most expensive neighborhood in the US just to say you live there. (It’s not enough ocean front for gosh sakes!)
I think many of us here will be the next generation of Millionaires Next Door. And most of us will never flaunt our hard-gained wealth through flashy houses and cars. I, of course, plan on having a trophy boyfriend, but let’s face it - they’re a lot cheaper than trophy wives.
“…save enough and buy at the right time you might - but whether you value living in the most expensive neighborhood in the US just to say you live there.”
Thanks for helping me keep things in perspective. You are spot on — at the risk of sounding as though I am eyeing sour grapes, I don’t really feel any strong desire to live on a ten acre lot with 10000 sq ft of house to maintain. These kind of trophy homes are for men with different values than mine.
While driving yesterday I heard an ad from Barron’s on the radio that was vetting Cramer’s picks against actual returns. It ended with something like “you would do best to do the exact opposite of what Cramer recommends …” LOL
That’s been a winning trade strategy for years!
I enjoy reading articles by Richard C.Cook. He has a simplicity for us not well versed in economics. This his latest from today. An excerpt. link below:
How Far Will the Crash Go and What Do we Do Now?
The “Crash of 2007-8” is underway
‘….if you wondered where the Fed got the $34 billion in liquidity it pumped into the markets on Friday, August 10, you weren’t the only one. The answer is that the Fed has a secret room upstairs where it keeps a large “printing press.” It’s legalized counterfeiting, but as with any counterfeit money, if people accept it in trade it acts just like the real stuff—for a while.
The danger, which many commentators are pointing to, is that the Fed will ignite a hyperinflation, which may be what is happening and may actually be intentional because it devalues debt.’
http://www.globalresearch.ca/index.php?context=va&aid=6575
(how does one get tinyurl?) thanks
Just go to http://www.tinyurl.com and copy and paste your link into the box for a tiny url.
Downtown SD condo construction mania STOPPED DEAD IN ITS TRACKS! The problem is tighter lending rules — forget about the role of irrational exuberance.
Condo growth slowing down
Construction costs, stricter lending rules blamed; some projects sold, others are redesigned
By Jeanette Steele
STAFF WRITER
August 19, 2007
…
The site of what was supposed to be almost 80 “luxury live/work units for a life well-designed” at Fifth Avenue between Beech and Ash streets.
George Tybor would much rather see a new condo going up in his Marina district neighborhood than a site with nothing happening.
“As lots stay empty, they become homes for the homeless and a potential for increased crime,” Tybor said.
http://www.signonsandiego.com/uniontrib/20070819/news_1m19condo.html
Again Cook in article linked above. He offers a solution. I concur.
‘Low-cost credit overseen by the federal government was the basic building block of the New Deal. It was done by strong people with an ideal of public service, though in many respects they didn’t go far enough and relied too much on World War II and armaments to attain a full-employment economy. We now need a New Deal for the 21st century that would correct the flaws of the last one, resolve the present crisis, and carry us into a future that will benefit everyone, not just the privileged few.’
Since we live in a world of sheeple, would anyone want to predict what will happen Monday to Countrywide. After Friday’s run on CFC, and it being all over the net, I would guess, that Monday, they will
overrun with withdrawals..any comment?
I have a few questions about Friday’s efforts to resuscitate CFC and the implication that the Fed has made a de facto 180 degree turn on their “no bailout” policy.
1) Is CFC a Federal reserve member bank? If not, then how do they qualify for plunge protection services?
2) Given the affirmation of an implicit commitment by the Bernanke Fed to support asset prices at their recent (inflated) levels with discount rate cuts and Fed Funds Rate cuts as necessary, have they inadvertently chosen to protect Wall Street financial interests at all costs, including further deterioration of the exchange value of the dollar?
3) Given record trade deficits and a historically high level of dependence of U.S. consumers on imports, isn’t letting the dollar go to waste tantamount to abandoning the Fed’s top priority of fulfilling its inflation-fighting mandate?
4) Does Poole’s credibility suffer thanks to a policy flip-flop within 48 hours of a “no bailout” announcement?
GS,
CFC is a reseve member bank… and as I posted, Poole was complicit in Bernanke’s scheme…lied on Thursday with his “no cut speech, barring a “calamity” then as reported by Bloomberg, skipped the secret meeting so as not to tip his hand that a cut in the discount rate was in the offing.
Poole, who retires next year, has zero credibility.
RE: #3) “…The reaction of the world’s central banks to the freezing-up of the leveraged speculating community has, predictably, been to create massive amounts of new fiat currency and hand it to the banking system. They’re not dropping twenties out of helicopters yet, but functionally it’s the same thing. By swapping dollars, euros and yen for no-longer-money bonds that are plunging in price, creating some paper profits where there once were catastrophic losses, the Bankers hope to revive the animal spirits of the leveraged speculators. Specifically, they hope to stop the financial community from going further down the moneyness checklist and eliminating any more instruments.
But you don’t forget a brush with death that easily. The process of debt reclassification has a momentum that a few hundred billion new dollars won’t stop. And once corporate bonds and agency bonds and emerging market bonds have been crossed off the list, the system will start eyeing the dollar. Is it really a store of value after falling by half against oil and gold in the past five years? Didn’t the Fed just create a tidal wave of new dollars and promise to create infinitely more if needed? Isn’t the U.S. economy hobbled by the implosion of housing and mortgage finance and hedge funds and (soon) derivatives? Don’t Americans owe more per capita than any people in human history? And a realization will begin to dawn: Maybe the paper currency of an over-indebted country isn’t money either…”
from
Nope, That’s Not Money
John Rubino
8/19/2007
http://tinyurl.com/yudtpk
From a communications perspective, the “surprise” was well timed and executed. On Wednesday, the team floated Poole. When last has a member gone on prime time TV? On Thursday, every media outlet reported and repeated Poole’s message. On Friday, options expiration day, out comes the FED with its announcement. It was all smoke and mirrors and it worked.
Got PPT?
GS:
I only know enough to be dangerous to myself when it comes to the market but based on a lot I have read in the past two days, the FED, especially Poole, destroyed its/his credibility amongst investors outside of the big boys they may have temporarily saved.
Question #3) Answer: yes.
They apply a fix but if the average investor with some money and has saved via 401k for a long time thinks that the fix is in and there is no way to judge what the FED might do to save the big boys at the expense of market order (well unless that guy Tobin is right when he said that the top 1% are responsible for the health of the economy) that lack of confidence on the part of someone like me tends to make people pull back and wait.
I don’t know if that will make a difference (my guess is that it will) FBs are hurting. Unless their home prices can be inflated to rescue them, how are THEY really going to be saved? Everyone is scrambling to protect themselves in one way or another.
The internet makes a big difference. Information is quickly passed. Even though the FED did what it did, the overwhelming amount of what I’ve read this weekend has been advice to the average jane like me to protect what you have and EXTREME negativity towards the FED for trying to bail out their friends at the expense of everyone else.
I’m not reading that even savvy investors have any idea how to judge the market based on what the fed did. I’m not talking about you or txchic who know things so well that you can read the voodoo good or bad, but people like the options trader link I read yesterday where they got burnt terribly on Friday.
If those investors who really have knowledge but are not expert are pissed enough to go into self protective mode over the FED move, that to me speaks volumes.
The FED screwed itself and did not live up to it’s mandate.
Maybe they will continue to do the bid of Cramer and Kudlow and screw the other 90%, I don’t know. But they certainly drew first blood on Friday, it will be interesting to see how things go over the next few weeks and to see how other markets react to it.
To you TX and others on this blog, thanks for the education. It’s been more than eye-opening to say the least.
” the FED, especially Poole, destroyed its/his credibility amongst investors outside of the big boys they may have temporarily saved.”
Couldn’t agree with you more. I would only add that prior to Friday mornings suprise rate cut before the market opened on OpEx Friday, Bernanke was a Fed Governor with friends and no enemies but after the rate cut his friends have probably lost some degree of respect for him and he has gained a great deal of enemies. Bernanke weakened his position in relation to the major participants in the financial markets and created an opposition literally overnight.
“well unless that guy Tobin is right when he said that the top 1% are responsible for the health of the economy”
Reference please?
MoT test.
My responses have not posted yet but here’s a quote that will make anyone gag, given the current situation.
New Wave Thinking
Only the top 10% of the country matters anymore.
If the super spenders are doing OK everything will be fine.
Bankruptcies and foreclosures at the bottom 90% of the population are “heartbreaking” but otherwise meaningless “from a pure economic standpoint”.
The world is “almost three times as wealthy” as before because there is “a huge amount of capital”.
We are insulated from risk because we are bigger and more powerful.
“When people understand how much safer from an economic standpoint this overall global economy is, they’ll probably do one thing — and that’s price stocks even higher”.
link: http://globaleconomicanalysis.blogspot.com/2007/02/new-wave-thinking.html
I don’t get how to paste tiny into these posts. Sorry. But I will say: I don’t take much personally on my part or for anyone else. But when I heard this, many moons ago, I really was enraged. It seemed as if he was saying, “Who gives a sh!t about the little guy.” I’ll be fine, but I care about the little guy too. I’m freaking lucky. I live a very basic life by today’s standards, but you know what, it ticks me off to no end to see someone dismiss the motor of the economy like they don’t matter. It really pisses me off.
Especially when I NOW see Kudlow and Cramer and the like calling for a bailout when they said that they were all that was necessary to make the world better.
FEH!
Forgive me my rant. There’s not a lot that get’s me going, but the last week and remembering this shit has definitely got me going.
nova
About the only thing left unsettled is the deflation/inflation direction?
We’ve gone through deflationary times before, as a strong country and came out of it not all that worse for wear, looking back…
But that was then and this is now. Inflation of the Hyper variety has happened dozens of times in the past century to countries that got weak and went out and printed more money, as it gives the mopes the illusion of wealth, initially…
That illusion being tempered by the fact that all oil imports are priced at worldwide market rates, and a gallon of it will be around $17.76~
“The wave of mortgage defaults in the US has raised the spectre of similar problems in the UK and cast doubt over how much longer the house-price boom can be sustained.”
“House repossessions rose 30% in the first six months of 2007 while research by credit rating firm Fitch argued that the UK housing market was among the most over-valued in Europe.”
http://news.bbc.co.uk/2/hi/business/6953779.stm
Based on this MarketWatch article it looks like the REIC is endorsing playing “low ball” in order to book some sales and the related commissions. Don’t catch that falling knife!
MarketWatch
The art of the aggressive offer
How to make a lowball offer a home seller just might accept
http://tinyurl.com/392htq
The word panic seems to be cropping up in commentary on the world financial situation with increasing frequency. How do you know whether you are in one, and not just in a “normal” correction phase of the business cycle?
And I wonder about how well this writer’s advice would have panned out for anyone who held on to their stocks during one of history’s great panic episodes, such as the 1929 Wall Street debacle?
Never Sell Into a Panic
By Terry Savage
TheStreet.com Contributor
8/19/2007 10:52 AM EDT
Is this the end of the bull market, and is it too late to sell?
http://www.thestreet.com/s/never-sell-into-a-panic/newsanalysis/opinion/10375108.html?puc=_googlen?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA
Just like in the dying days of the housing bubble when the REIC put on a full court press to keep housing sales going in the face of overwhelming data pointing to an overpriced teetering market, we can expect to see a similar blast from the Masters of Wall Street to keep the sheeple buying equities in the first stage and in the second stage sowing confusment in order to keep their (sheeple’s) fingers off the sell button while the fat cats unload.
We’ve all seen this game played over the last year in the RE market. Now the tactics and focus have shifted to the financial markets.
“Between the devil and deep blue sea”
In difficulty, between two dangerous alternatives.
http://www.phrases.org.uk/meanings/between%20the%20devil%20and%20the%20deep%20blue%20sea.html
Carry Trade in Yen Smackdown…
A doubling in currency volatility since June has knocked the “carry trade” off its perch as the most profitable strategy in foreign exchange, hurting investors from John W. Henry & Co. to Campbell & Co.
In one of the more popular carry trades, a U.S. investor who borrowed in yen to buy high-yielding Australian dollars enjoyed a return of 11 percent this year through June 5, data compiled by Bloomberg show. The gains have since been wiped out.
Chalk up another victim to the spreading U.S. subprime mortgage contagion. The fallout from losses on loans made to people with poor credit is spreading so fast that investors are selling any asset smacking of high risk around the globe, causing wide swings in exchange rates that weren’t anticipated. New York-based JPMorgan Chase & Co.’s index of volatility on options for the most-traded currencies reached 13.4 percent last week, the highest since 1999.
(per Bloomberg).
From Mish (http://tinyurl.com/d8q6j)
Helicopter Available - Does Bernanke Need a Spare?
In light of Friday’s Futures Fireworks and Moral Hazards Bernanke better have a spare helicopter ready just in case he burns out the motor in his current one too quickly. I have located one for him already.
In a hedge fund blowup liquidation sale John Devaney who previously put his boat “Positive Carry” up for sale is now seeking to dump his helicopter for $11 million.
The reason cited for the sale was “changing corporate travel requirements”.
And just as Devaney’s need is diminishing, it is increasingly clear that Helicopter Ben needs some emergency backup. It’s funny how the market works that way.
Mike Shedlock / Mish
I read an article from the Riksbank that said they would not have the problems that would develop in the US because 99.9% of all loans had to be proven that the loans could be paid back. Still no apparent problems, just a different form of monetary policy than in the US.
“…Now a few words on household borrowing and house prices. The Riksbank does not have, and this is worth pointing out over again, any target for house prices or household indebtedness. However, it is clear that house prices and household indebtedness are now growing at a rate that is not sustainable in the long term. There will probably be an orderly return to a more sustainable rate of increase. However, at the meeting in June I pointed out that we cannot rule out the possibility that the adjustment will be more abrupt, which would then have consequences for both growth and inflation. Raising the interest rate reduces the probability of such a scenario and thereby contributes to a balanced economic development,” said Ms Wickman-Parak. ….
…. However, it is clear that the problems in the US subprime market have led to increased uncertainty more generally in the financial markets. We will return to the issue of how these and other factors will affect our overall assessment in connection with the next monetary policy meeting. We will of course follow developments closely. With regard to the Swedish money market, there are at present no liquidity problems. The market is functioning well”….
Wickman-Parak: The Riksbank and monetary policy
http://tinyurl.com/269ftp
Well, it looks like the Fed’s discount rate cut was sucessful - NOT! The ABS commercial paper market treated it like a terrorist attack. Spreads widened massively Friday and that was before the Sentinel bankruptcy and the bailout of the latest landesbank failure. The bond market saw this for the panic move that it is.
http://www.bloomberg.com/apps/news?pid=20601009&sid=aiULRnJ7B8Lo&refer=bond
—————–
“Asset-backed commercial paper yields soared by the most since the Sept. 11, 2001, terrorist attacks after the Fed cut the discount rate today. The average spread on securities backed by home-equity loans widened to 376 basis points from 355 basis points yesterday, according to Merrill Lynch & Co. index data.”
“The ABS commercial paper market treated it like a terrorist attack.”
I personally think the PPT would have been wiser to keep its market interventions secret. Announcing them has naturally backfired by leading the MSM to publish scary articles that have panicked the sheeple.
I know this is a little late for today but still:
http://losangeles.craigslist.org/lac/bfs/396129187.html
Is anyone stupid enough to pay full price for this “investment”?
Secured Investment note for sale : $27725.00 at 10.4713% effective annual interest rate.
41 payments made so far by the borrower with no late payments.
Borrower has $15275 equity in the home as of 8/15/2007.
Receive $546.31 a month for the next 67 months.
I have the title on this manufactured home located in the Covina Hills Mobile Country Club in La Puente, CA.
You will take over the note, take title and receive the remaining payments for 67 months.
If the borrower defaults, you have a very straight forward 30 day foreclosure remedy in California. Principals only, and I’m not encouraging any offers at less than 100% value.
Contact : Henri 323-XXX-XXXX
They sell titles on craigslist now? Me confused.
How much has the pace of housing starts slid off the peak for the current cycle?
Peak level (seasonally adjusted annual rate) = 2.292m (Jan 2006)
Most recent level = 1.381m (July 2007)
Percentage decline of housing starts off peak level =
(1-1.381/2.292) X 100% = 39.7%.
As Professor Stucco Bear has often noted, every time since 1955 (seven times out of seven) that U.S. residential construction has dropped by over 25%, the national economy went into recession.
Jumbo loan rate in early July 2007 was about 6.9%. Now it is about 8%.
This implies a 10.2% drop in the purchase budget constraint of a household trying to buy a home valued over $417,000 (the Jumbo loan conforming limit).
For instance, a household which could have barely qualified for a Jumbo loan to buy a home valued at $500,000 six weeks ago can now only qualify to buy a home valued at $448,781. D’ya think the sellers know about this little issue?
Note: Census data on monthly housing starts at a seasonally adjusted annual rate are available here:
http://www.census.gov/const/www/newresconstindex.html
Well the Nikkei is happy.
but the hang seng…not so much
A country blues song for all you hedgies!
http://www.youtube.com/watch?v=LtcnXLDnXvs
Sorry if its been posted - These threads are soooo loooonngg!!
Is the Fed playing games by creating a chasm between its announced Fed Funds rates versus the underlying reality? Normally a 5 percent plus Fed Funds rate is not associated with a 3-month T-bill rate under 4 percent. Can anyone who understands what is up please explain this?
http://www.bloomberg.com/markets/rates/index.html
HOLY CRAP!
That’s totally insane. It looks like the bond market is saying “recession for sure”… or maybe “forget everything the FED has said… turns out he’s chickensh*t. We know where rates are going.”
or maybe investors are saying hey, we need somewhere to park this $ til the credit crisis blows over. Whatever it is, it’s BAD news. The question is whether it’s just bad news for us (inflation, and 10yr yield starts rising), or bad for everyone– recession sooner than later.
It seems the world’s CBs are all standing in the ready with liquidity fire hoses in hand…
Fed will be judged on panic levels
By Krishna Guha in Washington
Published: August 19 2007 22:22 | Last updated: August 19 2007 22:22
The coming days will test whether the Federal Reserve’s emergency action on Friday will be enough to arrest the spread of financial contagion and stop extreme nervousness in credit markets turning into full-blown panic.
The US central bank made direct loans available to banks on favourable terms and hinted at a possible interest rate cut after policymakers concluded that a sharp deterioration in market conditions on Wednesday and Thursday threatened to develop a momentum of its own and run out of control.
At this stage, policymakers are first and foremost concerned with doing what they can to ensure there will be no self-perpetuating crisis of confidence.
http://www.ft.com/cms/s/0/84cc5cce-4e7f-11dc-85e7-0000779fd2ac.html
I guess as long as all rich country CBs stand ready to dump boatloads of freshly-printed fiat currency on the markets, no stock market investors should worry?
European central banks on stand-by
By Chris Giles in London and Krishna Guha in Washington
Published: August 19 2007 22:22 | Last updated: August 19 2007 22:22
European central banks are standing ready this week to take further steps to ease the credit squeeze following the US Federal Reserve’s unexpected move on Friday to stem the turmoil in money and credit markets.
Financial markets rallied after the Fed made direct loans available to banks on favourable terms and hinted at an interest rate cut. If the move calms US nerves this week, European central bankers are likely to follow to ensure a similar effect is achieved across the Atlantic.
One policy lever the Europeans are considering is the extension of more credit to banks for longer periods than are normally available in an attempt to bring market interest rates closer to the central banks’ main interest rates.
Fed officials do not expect a quick recovery in credit market conditions, and another volatile week on the stock markets is thought to be in prospect.
http://www.ft.com/cms/s/0/84911cc6-4e94-11dc-85e7-0000779fd2ac.html
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