Bits Bucket And Craigslist Finds For October 21, 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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Morning folks…
Finally, a small comment on the commonality of asset crashes. It’s small, but I’m happy to see generalized thinking:
http://biz.yahoo.com/rb/071019/usa_markets_1987.html
“All asset bubbles formed and imploded for the same reason: naive extrapolation,” said Jeffrey Gundlach, chief investment officer of TCW Group in Los Angeles, which manages assets worth $160 billion, commenting in a recent letter to clients.
“Choose your crash,” Gundlach said. “Some of us witnessed the collapse in precious metals in 1980. More folks probably can recall the emerging market debt crisis of 1998. All but the most inexperienced among us lived through the tech stock and corporate bond debacles which opened this decade.”
I worked for Exxon in the early eighties. I was amazed at their “naive extrapolation” forecasts. It resulted in the false start of the shale oil project, which disrupted life for hundreds of us malinvested engineers.
At least at the end of that project you had some useful information - the costs of extracting oil from oil shale and perhaps some knowledge about how to do it more efficiently. Not useful at that time, but it might be useful someday, even if just to tell people that it isn’t worth doing without a brand new technology.
No useful information from this bubble. Just rapidly deteriorating ugly, energy inefficient houses.
Wonder how useful and easy it is to find any of that data?
All bubbles tend to have a large upside that is hidden by all the downside. To a very real degree this blog is brought to us care of the Y2K dot com tech boom. The housing bubble has had various positive results including but not limited to increased development of transit corridors in dense metropolitan areas, development of modular and sustainable high return on investment building technologies, much reconsideration of zoning and the impacts of building regulations. Impacts vary in local areas, but the bottom line where I live is that a lot of greatly needed housing units were built. All bubbles are a nasty mess that should be avoided, but that make the positive elements all the more precious.
Jeez Mole Man, After reading this post and the one last night about how price inflation is a myth, I’m beginning to like where you live. Everywhere I’ve been traveling lately has had negative fallout from both price inflation and the housing boom/bust. Please share this place you have found because it sounds fabulous and I’m in the market to re-locate. Thanks!
Why is it that there is so little interest in what is actually going on? First houses only go up, then they only go down?
What I posted yesterday was about how it is hard to craft an appropriate index. This is a fundamentally hard problem. If you get an index that says to raise rates now, then that same index would say to raise rates at other times when it is not appropriate. If you can come up with an index that says to raise rates and the appropriate time then that index will almost certainly raise rates when it is not appropriate. Draw up you calculations, feed historical data into them, and then observe.
I most certainly did not say that inflation is a myth. In my work computers and network bandwidth are constraints. The prices of computer hardware and network bandwidth have dropped through the floor. You want me to pretend that critical things are getting more expensive when in fact they are becoming cheaper by orders of magnitude? That might work for you, but what will the tax man say.
There are six inflation indexes that the Fed uses for their calculations, and as I pointed out Ben Bernanke has himself said that none of them is perfect and the at the Fed are watching all of them very closely especially now that any real uptick in inflation means the rate needs to be raised back up. How do you get from this complex balance using a variety of inputs to insinuating that the Fed are stupid about using one calculation?
If you can’t get where you are going with facts, then your argument is probably useless. If the only way you can counter my arguments about core inflation being moderated by cheap tech and imports is to insinuate that I said price inflation is a myth then your ideas must be pretty much uttery worthless. Have fun with your simplified conspiracy theories while adults like me do the extra work to comprehend inflation index calculations and feed historical data in them. People who like simple answers are always angry with me, so I am used to it. BTW, I started calling bubble in 1998, long before you did.
Another straw man from Mole man.
Most people don’t consider network bandwidth a critical measure of inflation like say…food, or energy or healthcare. You see, most people don’t buy computer equipment regularly but they do buy gasoline. So using your measure, Mole, we are experiencing deflation because the cost of servers is dropping? Talk about selective sampling; you should really work for the Fed stripping out those pesky price increases from inflation and inserting such measures as bandwidth.
But I think you are just trolling.
“Another straw man from Mole man.”
I could drink a gallon of beer and not get the buzz that Mole Man has when he looks at prices. He’s just messing with us anyway. Mole Man, burrow back underground and leave us to figure out how to deal with this bubble and its aftermath. My guess is that by now your member is in a lot of pain, so give it a rest.
Hey, not angry at all. I was out for the day so sorry for not posting a bit earlier.
You see price deflation in your area of expertise. That is irrelevant to the idea that the amount of money circulating is increasing relative to the amount of goods which is causing the price increases, or so the theory goes. The fact that the dollar is losing value isn’t helping with the price of commodities purchased from other countries either.
Here is the key point though. The FED strips out food and energy because as you stated they are too volatile and cause big price swings. I’m sure you understand that stripping these out ONLY WORKS if the overall trend for these commodities is FLAT. That assumption is simply not true any longer although it probably was at one time. Oil has tripled in the past 5 years or so. That isn’t any short term deal and everything has an oil input. Therefore, the FED is purposely understating price inflation using their current methodology. It isn’t rocket science to apply a moving average to arrive at a trend and dampen the swings. They don’t do it because the whole purpose of this excersise is to show a low inflation rate. That was the purpose of the Boskin commission (google it) and they continue to come up with twisted logic to get the sheeple to buy it.
Anytime you are reading about “substitution bias” or “hedonic adjustments” what you are reading about is how the gov’t measures the publics REACTION to HIGHER PRICES. Folks will downgrade their purchases in order to stretch their purchasing power. Is this a news flash? So the gov’t comes forward and decides that they can adjust down the cpi because folks have decided that getting a pound of hotdogs will fill them up better than buying a quarter pound of hamburg that just went up in price (substitution bias)?.WTF kind of rationale is that? The whole purpose of the excersise is to figure out what the price of a basket of goods is doing. The SAME FRIGGIN BASKET OF GOODS, not some other bunch of goods because they don’t like what the prices are doing in the original basket. Understand? Everyone who buys groceries or fills up their car, pays for health insurance or any other of a dozen normal purchases sees this. Just not when they buy a pound of broadband width, apparently. Sheesh man, get out of your lab more often.
“energy inefficient houses”
I have always wondered why is wasn’t more popular to build solar homes across the sun belt. All those energy-sucking homes could have been energy-efficient solar homes. Where’s Jimmy Carter when you need him?
Von Mises said it most eloquently:
There is no means of avoiding the final collapse of a boom brought about by credit expansion.
The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Ludwig von Mises
The US seems to be choosing the later. In other words, continue printing ever more money. It’s like giving an addict a bigger and bigger fix each time he goes into withdrawal. Sure, the addict feels good for a while, but at some point the addict is going to keel over and die, as Von Mises so eloquently stated.
There simply is no tolerance for any kind of economic pain among the American population and the politicians will do whatever it takes to make sure the problem gets passed onto the next generation. We really have become like children, refusing to acknowledge any consequences for our selfish behavior.
I am seeing exactly the opposite. Housing units are only selling for much less than bubble highs. Wall Street giants are having to write off not just hundreds of millions, but billions in bogus assets. All that makes this bubble look like it is deflating almost as fast as it blew up. Do you really have any evidence that policy is causing property markets to sustain inflated prices?
Housing prices are coming down because all the reasons they became inflated are going away: namely, loose to zero lending standards. Basically, it was about how much someone’s signature on a loan app was valued at. In 2004, 2005, even a dickhead like Casey Serin’s signature was worth a lot. Now signatures aren’t worth much.
The money printing is continuing unabated. That’s why you are seeing prices soar for things that cannot be created out of thing air and for which there is strong demand: oil, gold, food, etc. Currently, there is near zero demand for housing. Who is left to buy?
But real things that are in real demand and must be paid for in real wealth, those prices are increasing.
That does not correspond with observations at all. Property prices are dropping because rampant speculation sent prices way too high and the credit magic that supported that is gone. Printing dollars is a big issue and in time will take a chunk out of prices as well, but that does not explain the 10-40% drops in listing prices in bubble areas that have been documented here.
The Fed ought to think about the implications of the above for their own survival. I suppose if they accidently destroy our currency, they will destroy themselves in the process.
‘The Fed ought to think about the implications of the above for their own survival. I suppose if they accidently destroy our currency, they will destroy themselves in the process.’
Unless they have a plan to offer a new,improved organization that lands them all in a more controlling role. OK,tin-foil hat off now.
If Ron Paul gets elected their survival is in doubt.
“If Ron Paul gets elected their survival is in doubt.”
Even though the GOP is finished, IMHO, Ron Paul is getting my vote. F##k the fed!
The next step is further consolidation of the world’s currencies down to a handful. Trading block currencys will start being talked about with the upcoming asian block, S.american block, N. american block and even an African block making their debut in the press. Gonna hafta break a few eggs to make that omelet though so it’ll be interesting.
Having observed the recent machinations of the white house and congress it would be hard to come up with a more deliberate attempt to crash this currency, so it is quite obvious this is where we are heading. Tin foil hat off.
Odds and ends from the SD U-T:
http://tinyurl.com/2fj58w
“A veteran watcher of the building industry with offices in Orange County and a home in North County, Meyers said buyers will be able to get 10 percent to 15 percent discounts off asking prices at certain projects. But they must be ready to close escrow without contingencies to meet the end of builders’ fiscal years, which can range from Oct. 31, Nov. 30, Dec. 31 or early into next year.”
Don’t miss out on those year end sales. Buy now so you’ll have something to massively regret by next year.
“Long-term, if you look at the San Diego marketplace, if consumers are waiting for the bubble to outright burst, this is a very controlled, stable market,” he said.”
It’s different here, sure. Just keep telling yourself that. So are 25 percent declines in prices, so far, what now constitutes a “controlled, stable market”?
“For Mike Railey, 44, hope outweighed fear as he closed escrow early this month on a $1.4 million, 1,500-square-foot penthouse at The Legend, Bosa Development’s 180-unit condo tower next to Petco Park.”
“He hopes to lease the unit out for the time being and bank on an invention he’s marketing – a motorized surfboard – to boost his earnings and stabilize his future.”
He works as a mortgage broker and his current home in Del Mar has a neg-am loan. Does that surfboard come with sharks?
wow, remember Jetboard ?- same idea failed in the 70’s
what a dork !!!!!!!
the surfboard (at least the prototype) comes with one shark, on top of it.
See one of the kids’ names is “Baylen?” Apart from the obviously snark about pretentious yuppie names, it’s an excellent metaphor for what this clown should be thinking about.
“Baylen”…. as in… “I’m Baylen on this $1.4M condo as soon as the neg-am loan re-adjusts & the value drops 20% next year”
He briefly considered backing out of the purchase until Bosa told him he could risk losing his 15 percent down payment.
I find it amazing the mentality of “Ok, I am already in a hole, my business is in an industry that is dying right now, I have little to no income…but I can’t lose my deposit so let me take on more debt…”
Have any of these guys heard that when times are tough you REDUCE your expenses not add on more…I don’t get the I “can’t lose my deposit” mentality…. I find it interesting that in the picture of his children on the balcony..you can see in the distance CRANES working on other condos in the area…
Nobody ever explained to concept of sunk cost? Or more coloquially, throwing good money after bad?
I am truely unsure of what this means to the local economy, but I have recently received two of those packs of half sheet discount coupons/ads. They were pathetically thin. One maybe a tenth of its usual size, the other about a third. back in Jersey, most of the ads were for pizza and chinese places that delivered. Here there is a little food, more most are for dentists and housing related services - driveway sealing, gutter repairs, chimney cleaning.
I thought the first reaction in a downturn was to increase advertising, not let it fall off a cliff. Perhaps the businesses are just reevaluating what advertising outlets actually produce results.
Anyone have an experience with this form of advertising? Other than throwing away the envelopes unopened?
I have noticed a significant decrease in all mail advertising, especially those ads in the local town paper..however I have seen an increase in advertising for the “small household repairs/jobs.” To me that signals alot of the workers associated with construction are trying their hat at being a small independent business. Better for homeowners as competition is always a good thing. Just have to make sure the person they are hiring is qualified and licensed…
Times were tough for “Jack” in Chicago in the late 1800’s. A Welsh immigrant and father of 12, he lost an arm in the bread factory. He raised those kids doing odd jobs. (insert joke about singlehanded) He put a sign in the window “Man on the Block”. It meant he would fix anything for a dollar. He worked. That was my dad’s grandfather.
That’s weird - I have noticed a lack of advertising as well. I just thought it was a quirk.
I’ve notice that supermarkets and now the Eckerds/Rite Aid merger…a lot less shelf space to the low profit house brands and more shelf space to national full price brands, and more high end products like $6.99 for a jar of homemade pasta sauce.
$6.99 WTF for pasta sauce?
Name brand products pay for shelf space.
You know nothing about retailing. The most profitable brands are the ‘house brands’, i.e. generic goods. While it’s true that some name brands pay for shelf space, that varies by location due to laws restricting it. If high end products like a $6.99 pasta sauce are being sold, it’s because of demand for that kind of product, and the convenience factor associated with drugstores vs. traditional supermarkets.
Does anyone know if there are blogs covering the property bubbles in India and the Middle East (especially Dubai)? I found a couple but the signal to noise ratio was too low
I know that in some south Indian cities, such prices have increased over tenfold in the last seven years. Salaries have increased too, but not by that much, and only for a small percentage of the population. It seems the time for a correction/bust is close, but I can’t tell for certain, there isn’t much data available. There’s also prevalent corruption in India - when properties are sold, a very low “official” price is reported, and taxes are paid on that. The real market price is paid for in cash. There’s a lot of underground economy money (”black money”) in India. Even so, I don’t see how that can support prices of $70/sq ft for empty land, in a city where an annual income of $20K is considered very high.
In Dubai, there’s tons of very real money, but there’s tons and tons of overbuilding. That’s where I live, and the construction has to be seen to be believed. Lots or projects has been delayed, some over 18 months, so supply is still tight, and rental yields are still over 10-12%. In Dubai monthly rent for a tiny 1br is around $1200. I remember when it would cost $250 15 years ago. Poorer people share a room with as many as 6 people. Advertisements for “bed space” are all over the local newspapers. This city has become crazy. I’ve lived here a long time, it now feels like I’ve moved to a new country without changing location.
Dubai - where you can ski indoors in the middle of a desert. (If you have enough money..) Once Dubai pops, the rest of the world can’t be far behind.
By simply living there, you are probably our best source of information. If I knew of any others I’d pass them along..
I follow the Indian property market because I have fantasies about living in South India. Jay Somaney talks about property there from time to time in this
http://www.globaltechstocks.com/disclaimer.php
He’s a DFW area fund manager. Very smart guy.
“I’ve lived here a long time, it now feels like I’ve moved to a new country without changing location.”
Welcome, abuismail. It is great to get a point of view on Dubai, which looks, from all reports, like the mother of all bubbles, although I have not been there.
As to your comment above, it is interesting to me that here in Florida, I feel very much the same as you do, about living in a new country without changing location. There are some similiarities. Whereas, in Dubai, people were advertising “bed space”, here in Florida, at the height of the bubble and just afterwards, people were advertising rooms in their homes and charging as much as I am now paying for a two bedroom condominium.
Have you heard anything about Dubai’s plans to invest in Florida? The Florida governor seemed anxious to reach a deal with Dubai to build and operate some sort of media center here.
Thanks for the welcome
I was born here, but am an Indian national because my parents were from South India. It’s next to impossible to get citizenship here, unless your father is one.
TxChick, I’ve lived a few years in India as well as the US. It’s not easy living in India. It’s not just the poor infrastructure, it’s relatively easy to get used to sporadic electricity and water supply, occasional Malaria, Typhoid and other exotic diseases from contaminated food, and high pollution. What’s difficult is the attitudes of the people. Honesty and trustworthiness are considered naivety. If you’re not alert at all times, you will be taken advantage of. Even US Realtors would have a hard time there :). The education system is a mess and produces mindless droids, except for a few institutes at the college level. Crime such as theft, rape, murder is so rampant in the major cities, that people are desensitized and pay no attention to it. Due to corruption streets are paved three times on paper, before the being done in the real world, with adulterated cement, and then someone steals the manhole covers. I could go on forever… Yes, they’re world class in space/missile technology, medicine and some other areas, but I think those accomplishments are mainly due to the huge population. A very very small percentage of skilled people is still large enough to do these things. I hope the recent economic growth improves the situation, but it will take at least two generations. One factor that is helping a lot is an increase in returning immigrants who have seen better in the US and elsewhere. I’m hoping the US housing bust will increase their numbers more.
I heard about Dubai’s investments in Florida. If I recall correctly they’re investing into some studio or hollywood type thing. I don’t know much about it, there’s no transparency here. gulfnews.com and ameinfo.com are two good sources of information. You have to hand it to Dubai when it comes to marketing. I read somewhere they’re even doing “product” placement in Hollywood movies, by casually mentioning Dubai. Under the marketing it’s an extremely racist country built by slave labor from Asia, working in 50celsius heat for $200 a month. I’ve been to the massive labor “camps”. Guantanomo is two stars up by comparison.
But the money here is real. Average net worth for Abu Dhabi citizens is about $4.5 million. Lots of funny money as well. You can deposit a suitcase of it at any local bank, no questions asked, and enter it into the global economy. This serves a lot of very diverse groups very well. Thus this is a very safe and peaceful place
Dubai does look like the mother of all bubbles, but there is none of the funny neg-am loans and the like here. Most mortgages I see advertised are for at least 10% down, and paid off in less than ten years. And that’s very easy compared to a few years earlier. Credit cards are a relatively recent phenomenon as well. A lot of Muslims, including me stay away from these due to Interest being forbidden. We use Islamic banking ( http://www.islamic-banking.com/ , http://youthemerged.com/Islamic-Banks-t142.html ) instead. Nowadays big banks like HSBC, Deutcsh Bank etc have Islamic products.
It’s hard to call Dubai a bubble for certain, and I’m not sure if a bust will cause a downturn in the local economy. Occupancy is over 95%. Rents yeild as high as 15% in some places. Population is growing fast. A lot of the money in the property market came from abroad, especially Europe. There are no credit scoring and recording agencies, so banks are quite conservative. Defaulting on loans can lead to being deported, so people are cautious as well. The oil sheekhs build stupid designer islands and underwater hotels, but they can easily afford to lose it all with oil at $90 a barrel. Talk of a unified Gulf state currency like the Euro is going on a lot, and it’s expected by 2010. Kuwait already depegged their Dinar, and it appreciated 6% annualized, reducing inflation. The Saudi’s have to follow suite soon, or else they’ll surely face social unrest with over 4% official inflation (Dubai is about 12%).
I’m positive prices will come down, but I’m not sure about a US type crash.
Thanks for your Dubai viewpoint - very interesting. Hope you keep posting on this blog.
Sorry if this is a double, but it looks like the internet ate my long post.
—
Thanks for the welcome
I was born here, but am an Indian national because my parents were from South India. It’s next to impossible to get citizenship here, unless your father is one.
TxChick, I’ve lived a few years in India as well as the US. It’s not easy living in India. It’s not just the poor infrastructure, it’s relatively easy to get used to sporadic electricity and water supply, occasional Malaria, Typhoid and other exotic diseases from contaminated food, and high pollution. What’s difficult is the attitudes of the people. Honesty and trustworthiness are considered naivety. If you’re not alert at all times, you will be taken advantage of. Even US Realtors would have a hard time there :). The education system is a mess and produces mindless droids, except for a few institutes at the college level. Crime such as theft, rape, murder is so rampant in the major cities, that people are desensitized and pay no attention to it. Due to corruption streets are paved three times on paper, before the being done in the real world, with adulterated cement, and then someone steals the manhole covers. I could go on forever… Yes, they’re world class in space/missile technology, medicine and some other areas, but I think those accomplishments are mainly due to the huge population. A very very small percentage of good people is still large enough to do these things. I hope the recent economic growth improves the situation, but it will take at least two generations. One factor that is helping a lot is an increase in returning immigrants who have seen better in the US and elsewhere. I’m hoping the US housing bust will increase their numbers more.
I heard about Dubai’s investments in Florida. If I recall correctly they’re investing into some studio or hollywood type thing. I don’t know much about it, there’s no transparency here. gulfnews.com and ameinfo.com are two good sources of information.
You have to hand it to Dubai when it comes to marketing. I read somewhere they’re even doing “product” placement in Hollywood movies, by casually mentioning Dubai. Under the marketing it’s an extremely racist country built by slave labor from Asia, working in 50celsius heat for $200 a month. I’ve been to the massive labor “camps”. Guantanomo is two stars up by comparison.
But the money here is real. Average net worth for Abu Dhabi citizens is about $4.5 million. Lots of funny money as well. You can deposit a suitcase of it at any local bank, no questions asked, and enter it into the global economy. This serves a lot of diverse groups very well. Thus this is a very safe and peaceful place.
Dubai does look like the mother of all bubbles, but there is none of the funny neg-am loans and the like here. Most mortgages I see advertised are for at least 10% down, and paid off in less than ten years. And that’s very easy compared to a few years earlier. Credit cards are a relatively recent phenomenon as well. A lot of Muslims, including me stay away from these due to Interest being forbidden. We use Islamic banking ( http://www.islamic-banking.com/ , http://youthemerged.com/Islamic-Banks-t142.html ) instead. Nowadays big banks like HSBC, Deutcsh Bank etc have Islamic products.
It’s hard to call Dubai a bubble for certain, and I’m not sure if a bust will cause a downturn in the local economy. Occupancy is over 95%. Rents yeild as high as 15% in some places. A lot of the money in the property market came from abroad, especially Europe. There are no credit scoring and recording agencies, so banks are quite conservative. Defaulting on loans can lead to being deported, so people are cautious as well. The oil sheekhs build stupid designer islands and underwater hotels, but they can easily afford to lose it all with oil at $90 a barrel. Talk of a unified Gulf state currency like the Euro is going on a lot, and it’s expected by 2010. Kuwait already depegged their Dinar, and it appreciated 6% annualized, reducing inflation. The Saudi’s have to follow suite soon, or else they’ll surely face social unrest with over 4% official inflation (Dubai is about 12%).
I’m positive prices will come down, but I’m not sure about a US type crash.
Welcome to the blog. Your post was fascinating. Please continue to post.
I too found this post very interesting. Thanks and good luck in Dubai, and keep writing.
Signed,
Ground Zero of housing bubble (i.e. Florida)
–
Thanks, Abu Ismail, and welcome. I am sure that you have given Chick reasons for second thoughts.
The Indian economy bubble would end worse than the US bubble. All that we have in India, over the past 5 years, are few opportunists being able to get stinking rich and somewhat expanded middle-class. Beyond that it is the same old India. I seriously doubt that corruption is any less.
Jas
I doubt Dubai RE prices will come down as long as the oil money keeps flowing in; a Gulfstate currency would probably stimulate that even more because it would make it more attractive to invest all this money in the ‘local’ market. They are drowning in cash and it has to go somewhere.
Last year there were some documentaries on TV here (from BBC as far as I remember) about EU citizens working temporarily in Dubai. They also showed the endless building pits and huge income/cultural/education gaps in the country. But for the many highpaid EU workers in Dubai these issues are not important. Most of them get paid very well (sometimes 2-3x higher than in their native EU country) so an apartment of 5000 dollar/month or a 1 million dollar home is often no problem, they have to live somewhere and they have the money (or otherwise their company has).
For the next 10-15 years Dubai will probably need those technicians, managers etc. from Europe (maybe in future more from India/China etc.) for building up the infrastructure and as long as they are working on that, there is a market for overpriced homes. Also one should keep in mind that this kind of RE markets (around the financial hotspots) are ‘global’ when it comes to price level. From what I have seen, most RE in Dubai is still pretty cheap compared to the financial centres in Europe.
Appreciate you sharing your experience and opinion there.
A starving realtor..somehow i have very little sympathy…
http://philadelphia.craigslist.org/rfs/454904562.html
The number of people dependent on the real estate market for jobs is truely scarey. The CA post yesterday had a revealing stat - CA has matched the highest unemployment stat of the past three years already. Remember that the real estate shills tell us that this year will be the second highest year for sales (measured by $ volume, I assume, not transacation volume) ever. Sometimes I get really scared about how bad the economy is going to get - and I don’t even have job loss exposure.
Who watched Property Ladder last night? I don’t know where Culver City is located in California (OC, I think) but $812,000 for some generic 2 bed/2 bath home seems like insanity to me. Kaboom!
FYI, Culver City is just inland of Venice / Santa Monica. Kind of a boundary community between the extremes of West LA and South Central. I have some teacher/engineer/etc. (median income) friends who live there - rent or bought before the bubble.
I missed the show, but I can tell you Culver City is in LA county. And yes, $812K is insanity.
If she “did very well” the past 5 years, why is she starving now? Ridiculous.
Exactly - anyone every hear of a savings account. The whole idea of stashing away money for a rainy day seems so foreign to so many people.
As always, my only response is, “where does one get this saved money?”
http://tinyurl.com/37gth4
ROFL
And 5 years ago she was a “computer programmer”. That person needs another bubble to jump into.
she can still become a realtor in the Netherlands where the bubble hasn’t popped yet …
I was at a friend’s yard sale yesterday and we were chatting about how my hubbie and I were looking for a house to rent in our school district on Long Island. There are tons of houses that are trying to rent for $2500 and up (no way in hell) but we have found two recently that were $1800/mo with lawn care incl.
My friend had mentioned that a few of her neighbors, who I also know, noticed a house for sale down the block for “only” 419k and how it would be perfect if my family moved there. I smiled but explained that I’d rather rent.
She shook her head sadly and said “All that rent money thrown away….you don’t have a down payment, do you?” I grinned and said “Do you have 80k+ to put down and then kiss goodbye? Then would YOU want to pay the $1800 mortg. payment PLUS the crazy Nassau County taxes of $8000+ a year. ”
Then she said “But Danni, if you don’t buy now…..”
Just wanted to let you all know that the Kool Aide is (stunningly) still bein’ sipped on Long Island. Have prices gone down? I’d estimate 10% to 15% in my town but “it’s the down season and it’ll be bouncing back in Spring”
On the plus side, we may not have 20 % down YET but we DO have a healthy retirement account, 8 months of cash reserves that we don’t touch in case of lay offs, own our car and have no debt.
I wouldn’t trade places with her for all the tea in China.
Danni
Danni,
Us long Islanders will have to be patient. A foreclosure can take over a year, in New York. This will spread the mess out over more time. Prices are already going down. I’m seeing asking prices hit levels that I haven’t seen in years. One house I know of started at $1.1 million, a year and half ago. It’s now down to $775,000, and the seller can’t get any action on it. The seller bought another house, before selling, and the two mortgages are “killing” him. I’m also hearing stories of builders/investors who are getting eaten up by carrying costs. Inventories are continuing to rise, as are foreclosures. The next couple years will be ugly here.
Fu-k Long Island.
NYCityBoy,
Yes, it will be and I don’t plan on being sucked into it.
I was curious if you get the same “invincible” sentiment by you. My hubbie, who tends to ignore my tin foil hat said recently he had co workers (local 3) complaining that they are royally scr**ed because they can’t unload in Queens and Brooklyn. But every once in a while you get some guys with rose colored glasses saying they’re thinking of “trying that flipping thing”
A few weeks ago I posted about a couple we ran into at a bar on Hudson Street. They were telling us how terrible the Long Island market is. I have a co-worker that owns in Long Island. His wife gave me the “renting is throwing your money away” bulls–t last year. It was the typical, mindless spewing by a loudmouth “owner”. I don’t discuss housing with him but I take joy knowing that they are losing value every day. That’s just the way it is.
Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.
Charles Mackay
These are the stories that really make me believe this crash will be far worse than predicted. The fact that anyone at this point in time could still be stringing those words together in that combination (”But Danni, if you don’t buy now …”) is simply stunning. For people to still be believing such nonsense tells me that the mind control is far more sophisticated than I could have possibly imagined.
I’m gonna guess that as of now, about 70% of the general population still has no idea the RE market is in any trouble.. The Up escalator ride took about 5 years, the top floor was reached just a couple months ago when credit was constricted, and the trip down may take as long.
I keep revisiting (on Zillow) my favorite California zip code 90254 (Hermosa Beach). Typically a 2 bedroom 1300 square foot condo within two blocks of the beach was valued around $350,000 in 2003, yep 4 years ago today included. One year later - the Fall of 2004, a condo would typically be selling for $600,000. Just one year! In one case, a place I see was zillowed as high as $919,000 and is now being offered at $750,000. The 2003 Fall value of that same place was in the upper $300s.
There is a lot of free fall to go through, in my opinion. I think proper value in about 3 years will be $450,000 for that $750,000 place. I’ll do it. I certainly have the resources now. Climate is perfect for me and I’m a California boy anyway.
I think this is right. I have been looking at my client lists this weekend, and trying to estimate which ones may have trouble when a recession takes hold. I see so far just faint signals of trouble..my doctor friend with the I/o sold her Ducati as she told me frankly she needs the money, a client complaining of 40k in special assessments on her coop, and little talk of expensive vacations, or remodeling plans. The RE conversation that dominated everything a year or two ago is now gone, just a topic no one mentions. Everyone seems just a little less certain about things…
Be greatful for the knifecatchers. The knifecatchers are the ones that will offer up to the market their liquidity. It is the knifecatchers that will smooth out and ease the decline and prevent a sudden crash.
The knifecatchers are our friends.
As Marlin Perkins used to say on Mutual of Omaha’s Wild Kingdom,
“While it might appear cruel to us we have to accept that this is nature’s way of maintaining the balance of life in the Wild Kingdom”
The RE market has transitioned from “The Great Wealth Creation Machine” into “The Great Wealth Redistribution Machine”.
And here I always thought the latter is the Jackass party.
The knifecatchers are the folks who make a bailout completely unnecessary.
In yesterday’s bits bucket, Ben posted an article about the G-7 finance ministers and their problems with China and I responded to the post and this was Ben’s response back:
“I agree, but these guys have a playbook, and we should pay attention to what they put out. China doesn’t want to do this and it is the greatest tension amongst the globalist, IMO.”
I had to leave for a while yesterday and wasn’t able to engage in further discussion, but I wanted to say that this comment really nails it with respect to globalization and also helped me to formulate what it is I’m really objecting to when I say that globalization is the worst idea ever, the playbook of the globalists, which has to do with economic and monetary systems. No wonder Greenspan made the statement he made about politics not mattering, except in cases of national security.
The idiot Jesse Ventura was interviewed on Fox Business the other night. Okay, I couldn’t sleep and we don’t have Cinemax. He stated that he lives in Mexico half the year (please stay down there) and that we are all becoming part of one country. He seemed to welcome the thought. They were kissing his posterior and telling him to run for President. Let’s see, I get to choose between Hillary, Giuliani or Ventura? Now, there’s some choices. I think Jesse is right that we are headed towards this one-nation bull$hit but we should be fighting it with everything we have. Every step further that government is from the people, that government feels that much less responsibility for those people. Some decision-maker in Zurich doesn’t give two $hits about NYCityBoy sitting in his little studio apartment in lower Manhattan. I say “no to globalization”. Ventura is still a moron.
“I think Jesse is right that we are headed towards this one-nation bull$hit but we should be fighting it with everything we have.”
Testify, Brothah!
On Larry King, Vincente Fox came right out and said Bush and he had agreed on a future with a single currency…that would include the US and most of Latin America…only Chavez got in the way. (Bravo Chavez!!). Hilbil is a major globalization proponent…so the deal may still get done on her watch…and she has her China connections to feed.
Canada may be in a far better position…Canadians are adamantly independent, and have not yet been sold down the river by their politicians.
Sad to say, Americans no longer seem to cherish the idea of an independent republic…
http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=58052
Referenced article
fortunately there is a little bit more than just Venezuela in the way in South America. Don’t see it happening unless Bush restarts all the bad US practices from the previous century like military coups and stram men for Capital Hill. Of course Bush tries, but South America has grown up a lot in the last 20 years.
Latin America and the US have effectively had a single currency for as long as I’ve been traveling - the US Dollar. Sure, most places prefer that you trade it in for the local currency, but many small merchants are perfectly happy (and may appreciate) accepting the greenback.
IMF sees the elephant in the room:
Global economic leaders warned of inflation risks in advanced countries on the eve of the first World Bank meetings since Robert Zoellick took charge of an institution shaken by internal divisions and scandal.
The International Monetary Fund’s policy-setting committee on Saturday noted rising food and oil prices and other indications of inflation in urging finance ministers and central bankers to stay focused on achieving price stability as well as on smoothing global financial market turbulence.
http://www.abcnews.go.com/Business/wireStory?id=3756549
focus on price stability AND smooth global financial market turbulence: that probably means inflate as much as you can to keep nominal market values levitating (the only way to save this market of the living dead) and make sure you fudge the statistics enough so most of the sheeple don’t notice.
The ECB has been warning of inflation risks for years, but they do nothing … expect the same policy from the IMF. I guess they are changing their tune a little lately because they are aspiring to a new role (= income source) in international financial markets.
“they are aspiring to a new role (= income source) in international financial markets.”
Exactly. You nailed it.
Oil is going to continue up as “peak oil” draws near…inflation is not a matter of if but when.
Wouldn’t the increasing price imply that we’re on the other side of the peak?
(all other things being equal of course)
Parroted rhetoric is seldom useful. How about some oringinal thought? “Peak Oil”? Please define Peak Oil.
I was speaking to some people yesterday. They work for a large company here in the states. I won’t tell you which one but it rhymes with Bank of America. We discussed the bad quarter and the prospects for the future. One of the guys said that Countrywide is fine. A 2 or 3 percent default rate is nothing. I think CFC is defaulting at a higher rate but the militancy of their convictions scared me.
The person I spoke with most is a researcher and deals a lot with structured products. Much of what she said went over my head. But I told her we were in serious doo-doo because much of this packaged crap was built on an overpriced asset known as housing. She could not understand the concept. Her academic mind could not comprehend that homes doubling in prices for no reason and then the underlying mortgage being packaged to some “investor” might pose a problem. She was negative about the economy but did not agree that housing was the issue. She stated that subprime was a small sliver. Alt-A is no big deal. And all “prime” loans went to rich investment bankers. Her final conclusion was that I “didn’t believe in homeownership” for the American people. She was disgusted with my non-academic view of the world. Oh yeah, this was out in Williamsburg Brooklyn where we were flanked by million-dollar condos going up everywhere.
We are in deep. The people creating this mess still believe all of their assumptions are sounds, their models are good and that this is only a blip on the radar screen. This woman kept saying that “this whole credit crunch” had more to do with psychology than any fundamentals. God help us.
“Her final conclusion was that I “didn’t believe in homeownership” for the American people. She was disgusted with my non-academic view of the world.”
I got the same sort of crap from one of the staffer’s at the Washington offices of one of my representatives. NYCityBoy, here’s the problem for folks like you and me, and others on this blog: we’re insisting that folks who have an insane point of view become sane. Sigh. The insane need to be isolated from the sane, so that sane people can go about their lives and get things done. Maybe we could construct some sort of alternate reality institution where these people can go and delude each other.
Deep down those types know that this housing collapse will bring their system and their beliefs into question - and IMHO nothing scares them more than being asked questions.
–
As of 8 months ago, Bernanke believed that home prices will not fall and the increase will fall to 3-5%. He knew the mess it would generate when home prices started to fall in most of the areas of the US.
He wants banks to make loans to consumers, but banks can’t commit suicides by lending to bad risk consumers.
Jas
… but banks DO commit suicide by lending to bad risk hedgefunds.
Are you referring to Jim Davis?
Hi Palm,
This is why the Super SIV (or whatever the heck they’re calling it) will not get off the ground. My head hurts when I think about how skewed the economic fundementals are tilted. The academics have not seen ground level…and therein lies the problem.
We are a minority…very few understand the enormity of this situation. Sigh.
Leigh
I believe the “street” is calling it the “frankenfund”. Just FYI.
This is curious. I had a similar conversation with a Structured Products Trader this weekend. He was specifically talking about the Mortgage Insurers (PMI,MTG, etc) stating that there was no way that these guys can go under as the sub prime problem is contained. My response is that while that may be quantified, 08 will be the failure of alt-a and 09 will be prime and these guys have insured this crap. He couldn’t understand it.
http://www.technologyreview.com/Biztech/19529/?a=f
Thanks for the link. A lot to think about. Funny how the quants can’t see how their “models”
are changing the behavior of what they’re modeling.
“…it rhymes with Bank of America.”
Skank of America?
Seriously GS, can you stop interjecting Hillary Clinton into every thread?
OHHHHH!
Good one.
just hope that all these academics have put their money where their mouth is and get a lesson in the next years that they will NEVER forget; should make them a bit more humble about the value of their official education (especially if it is related to economics).
NYCboy,
I was wondering if you had a chance to specifically discuss the $75-100 billion bail out fund w/the BofA researcher. I was under the impression that the amount in and of itself got people’s attention.
Barclays and Royal Bank of Scotland have lined up emergency funds of up to $30bn (£15bn) from the US Federal Reserve to bail out American clients caught up in the global credit crunch.
…
The letter to RBS made particular reference to investors holding mortgage-backed securities – which have been at the centre of the sub-prime crisis.
…
Barclays has been given permission to borrow up to $20bn through the facility, while RBS can borrow up to $10bn. The banks would have to put up assets as collateral with the Fed to gain access to the cash.
Telegraph: http://tinyurl.com/ynjwmg
Two things.
I HATE the damn “sub-prime” meme. We need to come up with a short catchy substitute that means “loans to people who could never afford to repay them given their incomes.” Any ideas?
I am afraid I can’t say anything at all about the details, but I am seeing indicators at work that hedge funds are in serious trouble. It is probably the execs trying to do self-financed bail-outs to get them through the next round of redemption requests. Doing whatever it takes to keep the whole house of cards from collapsing, which, of course is what would happen if they actually had to sell currently marked-to-model assets to carry out the redemptions.
Polly
I’ve taken to using the terms “debt bomb” with laymen and “insolvency revelation” with other financial folks. A couple of year ago, Warren Buffett referred to an impending “Sharecropper Society” - I kinda like that one.
But, now the FED is accepting crappy mortgages as collateral. In other words, it’s assuming the bad paper to get somebody off the hook, and somebody somewhere is funding this. You don’t think something underhanded is going on, do you? Hum? Huh?
I’ve been watching RBS in the US, steady stock price. RBS on the UK exchange has had its head in the toilet for many months.
Investor buys Tampa home from contractor who may have buried his wife in the foundation.
http://www.sptimes.com/2007/10/20/Hillsborough/Investor_irritated_by.shtml
That must be one crazy dig site. Look at those two guys. They seem to be having so much fun. I almost wish I could participate. Who knew digging for a body in a foundation could be such a blast? I wish they would bury more bodies in foundations. There would be a lot fewer depressed people in the world.
“Hey, Johnny, where are you going?”
“Well, I was feeling kind of blue so I’m going to the old Wilson place. They’re digging up a body. It should be great.”
“Don’t forget to bring some beer.”
Do these sites have editors that might think this wasn’t the best picture for this story?
News outlets are just more examples of the “Flooreeduh Syndrome.” Last night a Sheriff was interviewed regarding the discovery of two stabbed baby pigs. He was suppressing a boyhood chortle the whole time as if he wished he’d stabbed the piglets himself.
The people photographed most likely are enjoying the dig. That is Florida.
Stab. Chuckle. Dig. Chuckle. Stab. Move.
I noticed that, too. It was disgusting. I hope they catch the freak(s) responsible, and make him or them work on a pig farm for next hundred years. The cruelty of humans is astounding.
Meh. The bubble lives
http://www.washingtonpost.com/wp-dyn/content/article/2007/10/19/AR2007101901089.html
I was speaking to somebody yesterday about whether or not it was morally right to profit on foreclosures. She raised the question. I told her I didn’t think it was a matter of morals. It was a matter of, “you better know what the heck you are doing” if you want to play that game. I think very few of us, even on this blog, would be well advised to be buying foreclosures.
Considering that foreclosures are going to make up a significant portion of inventory I think I’m going to have to give bank owned properties consideration. The bank owned houses I’ve seen listed have a 20% reduction in price and we are just beginning in the housing bust. 100k or more is a lot of money. I wouldn’t touch anything at auction though, too much risk and prices aren’t good enough.
Franchise RE/business opportunties? Moneymakers for the FRANCHISOR or Franchise?
“The largest organization of such entrepreneurs is HomeVestors, a Dallas franchiser started in the mid-1990s. Its more than 260 franchisee partners are on track to buy more than 7,100 individual houses in 35 states this year at value discounts averaging 35 percent to 45 percent, said John Hayes, president and chief executive….
Best known for its advertising slogan “We Buy Ugly Houses,” HomeVestors trains its franchisees to spot and capitalize not only on houses that need work, but also on what Hayes calls “ugly situations” — people with problems who are motivated to sell for cash. Among the most common situations: divorce, death, job loss, problem tenants and mortgage delinquencies caused by unaffordable financing.
HomeVestor franchisees pay a $49,000 fee upfront and must have net assets of $200,000 in cash or cash equivalents. They also pay the parent company $775 for every house they acquire, plus interest on credit lines the company extends to enable them to buy multiple properties. Some HomeVestor franchisees buy, fix, rent or resell 100 or more houses a year, thanks in part to high volumes of potential sellers — more than 200,000 this year, Hayes said — who are driven to them by the company’s advertising campaigns.”
Personal Observations:
I hate franchise business ventures period! They are money generators for the Fanchisor. Better to be on your own and avoid paying those steep franchise fees, whether its buying distressed properties, starbucks, pizza parlors, Quiznos, whatnot.
I would qualify for this franchise but can do better on my own as far as searching out and buying ‘distressed’ propertes. Only lazy stupid people who cannot think for themselves pay a $49,000 up- front franchise fee to do what? look for distressed properties? A few hrs a day spend on a computer and doing some legwork and reseach and i can do this stuff myself. I will wait till 2008-10 and look for some cheap crap out in the IE at 80% of current valuations.
“at 80% of current valuations.”
I mean’t 80% off current valuations!!!
Get Ready for the Big Squeeze
THE big banks that reported earnings last week made clear that the days of fat profits are over. Now the questions are these: How long will the lean times last, and what will they do to banks’ earnings and stock prices in the future?
NY Times: http://tinyurl.com/yq9edz
Here’s one for David Cee. Gotta give her credit, she’s gotten me off the sidelines which I did not think could ever happen
http://www.powells.com/review/2007_10_09.html
Just amazing. That is scary to read. This tale seems like something written by Dostoyevsky or Camus.
–
Welcome o the dysfunctional political system. Let us export it to our enemies! Right behind our export of fast foods.
Jas
Txchick:
This excerpt is really what is truly wrong with our “leaders”
They don’t hire people like you or me, to provide the credible alternative views or to have critical thinking skills.
Thats why Sen Schumer was all hot about bailing out the FB’s.
=======================
What’s more, her engagement with the issue bears all the markings of Hillary projects as we have come to know them: She saw a great wrong, and she wanted to right it; she was terrific on the details but blind to human weakness; and so the elegance of her reasoning was undone by the mess and squalor of the world as it actually exists.
PS…..Maybe Sen Schumer is finally Reading THIS BLOG…ya think????
Senator Schumer says SEC should investigate Countrywide Financial
Posted Oct 19th 2007 7:33PM by Zac Bissonnette
Filed under: Scandals, Countrywide Financial (CFC)
Earlier this week, the SEC reportedly launched an informal investigation of Countrywide Financial Corporation (NYSE: CFC)’s CEO Angelo Mozilo’s stock sales, specifically the acceleration of his pre-arranged share-selling program.
Now New York Senator Charles Schumer is calling for more blood — he wants the investigation expanded to include the company: In a statement, he said that the SEC should “expand its informal probe of suspicious stock sales by Countrywide CEO Angelo Mozilo to include the company itself, which may have taken steps to enable Mozilo’s stock dumping as the subprime crisis heated up and Countrywide’s stock prices plunged… Did Countrywide repeatedly adjust Mozilo’s prearranged selling plans at his request, such that the intent and purpose of these plans — the prevention of insider trading — was undermined?”
It’s a little weird for a Senator to offer advice on an SEC investigation, and it’s hard to understand what exactly Schumer’s point is — other than trying to look tough on fraud and go after a company that is deservedly unpopular for its role in the subprime meltdown.
But I think the SEC probably has thing under control, and I’d be surprised if the investigation didn’t expand to include the company.
Election 2008: An ambitious presidential front-runner. A hot scramble for campaign cash. A corner-cutting past. And now red lights are flashing that she could be in hock to foreign interests. This is going downhill fast.
Voters must pay attention to this because for the first time in our history, we could be electing a Manchurian candidate — someone who is loyal to foreign and unseen donors rather than voters.
What do these hidden interests want in exchange for marshaling the dishwashers of Chinatown to contribute to Clinton’s campaign coffers? What has she promised them in exchange?
Knowing that the Chinese seek greater access to U.S. technology, how will this serve their national interests over our own? Will voters find themselves in the situation of watching a President Hillary Clinton sit on her hands after an American aircraft is shot down because of what someone in Beijing knows about cash she accepted?
For now, Sen. Clinton needs to start answering questions about the mysterious patterns in her campaign donations. Better yet, the electoral system needs to be strengthened with far tougher laws and penalties so that this doesn’t endanger our democracy.
http://www.ibdeditorials.com/IBDArticles.aspx?id=277686434782223
I’m on the guest list to Hillary’s 60th birthday party at Rob Reiner’s house tonite, Sun Oct 21, in West LA I will bring her your best regards, and another check for her campaign, compliments of txchick57.
Have fun, partisan.
That would be fine and tell her that a few of her old friends from the Rose firm remember it all.
I just can’t believe Hill would give that cat away. I had always heard she liked pussies.
Txchick!!
Love it.
Tell Ms. Commie that this high income guy has a tax shelter and offers her my best - a one fingered wave.
Enjoy the free food, chump.
Hey David…Tell Hillary I NEED A JOB & HEALTH INSURANCE and i would be glad to work for her campaign….
PS…i’m not voting for her, i just need some cash and my teeth fixed and a complete physical..
Here’s hoping Barack “Wilson II” Obama surprises her at the primaries.
You can’t put lipstick on a pig. Even if it’s Revlon.
txchick57 - you must be one of the 24% of republican women that plan on voting for Hillary. I cannot wait until November 2008 - the exit polls will say that somebody other than Hillary got the vote, but then when the votes are counted she WINS!!! That’s because so many southern women would not dare to say that they had voted for Hillary.
This one is a beaut as well.
http://www.prisonplanet.com/articles/october2007/161007_b_Hillary.htm
She who must not be named…
Her hubby looked the other way while missile tech was transferred to China, then gave the companies responsible a slap on the wrist when they got caught. Meanwhile he was getting large sums of cash from Chinese expats, often with no visible source of income. Certainly smacks of straw donors laundering money from China as a quid pro quo. Hillary is just keeping the pipeline open.
If Hilbil is nominated and is a serious contender in the polls, i will hold my nose and vote republican. anything to break the hegemony of the clinton and bush clans.
This is a story of two identical houses in Sacramento. The exact same 3,000sf model, the exact same builder, 6.3 miles from each other, but vastly apart in one major way……
House 1: Puchased in 2001 for $502,000. For sale today for $699,000 after being reduced from $759,000 in stages, then taken off the market for 30 days and relisted after the owners moved out.
House 2: Purchased new by a flipper for $645,000 in April, 2006. Foreclosed by Deutsche Bank in June, 2007. Listed at $575,900, dropped to $564,000, then dropped to $575,000, then $546,000, then $499,000, then $464,900, and finally, $424,900 today.
House #2 is now for sale for $75,000 less than the seller of house #1 paid in 2001! And it has been sitting for 43 days without an offer. It is priced $275,000 less than the identical house some pour FB purchased in 2001.
Someone needs to email the REO listing to the FB with house #1 and tell him/her to get with the program! Hehehe, sounds like a serious financial ass-pounding to me. Let the good times roll!
Yes Auger-inn, there is a huge disparity among many, many listings today in this bubble market. It is all out there for anyone to see, starting with this blog, but many will not look. They continue to pay huge money every month to carry these monsters.
A good friend of mine purchased a home in in Las Vegas for $410,000 in 2005. I spent quite a bit of time working with him, helping him understand the markets. The Bubble Markets Inventory Tracking blog and this site helped the most. He sold for the home $340,000 about 4 months ago and parked the money in T-bills. He was anxiuos to buy a new home (has all cash) but after tracking the Sacramento market with me for 2 months, he began to see the real price disparities and patient buyer’s opportunities. We had dinner last night and I asked him how his house hunting was going. He paid me a great compliment and said he is in no hurry to do anything now.
The three houses he would consider buying in Sacramento have all seen 2%-11% price reductions in the last 60 days. Oh, and the Las Vegas market continues to crater deeper than where he sold in May. He is quite satisfied he sold and is renting today, as he banks $1500/mon on his T-bills.
Thanks, great story!
Thank you Jingle! Excellent research!
I have seen things like this for many years in my area of the Netherlands; seems like people don’t care what they pay for a home (sometimes 100-200K difference for nearly or exactly the same home in the same area), as long as they get the financing. Maybe they don’t compare prices at all, and maybe something fishy is going on behind the scene (but it’s difficult to know for sure). I’m often surprised how even ‘educated’ people react in total disbelief when I tell them what price that home was purchased for 5 or 10 years earlier, while it costs just a few euros to check in the official registers. Apparently people only listen to the quotes from the realtors and appraisers. Clearly demonstrates the kind of financial stupidity that the politicians always are happy to bail out
WASHINGTON (Reuters) - Bankers remain wary of plans to launch a massive investment rescue fund to soften the blow of the U.S. subprime meltdown, saying it could interfere with a market recovery and stall a resolution to the credit crisis.
Carl Stalberg, executive chairman of Swedbank (SWEDa.ST), said on Saturday he doubted the fund would be an effective way for banks to liquidate billions of dollars in structured debt in markets where buyers have effectively gone on strike.
http://news.yahoo.com/s/nm/20071020/bs_nm/financial_fund_banks_dc
‘ole Al spouted off to - what exactly is he trying to do?
“U.S. Treasury officials had brokered talks ”
This line reminds me of something out of the Sopranos. “Hey, Little Carmine, can you broker a sitdown between me and Philly Leotardo? I need somebody that can guarantee my safety.”
“No problem, Tony.”
Mervyn King, Northern Rock, and Moral Hazard:
http://www.youtube.com/watch?v=br8mOmH9frE
That is fantastic! British comics show how the highly-sophisticated mortgage securitization business has become the laughing stock of the globalized economy!!!
Q. “Can we talk about moral hazard?”
A. “I know what hazard means, but what was the other word?”
BRILLIANT!
“I’ve learned one very important lesson. If you’re going to make a cockup, make it a really enormous cockup. That way the government will have to bail you out.”
Good comedy always has truth at its core.
Structured Investment Vehicle ie. SIV— Is this a joke, sounds like the banks are seeing if anyone notices.
I don’t think anything with the name SIV comes without ill consequences.
SIV / HIV — The Economist magazine noticed…
Credit markets
Curing SIV
Oct 18th 2007 | NEW YORK
From The Economist print edition
A bail-out fund raises more questions than answers
YOU know a market has seen better days when some of its leading actors are compared to a deadly virus.
http://economist.com/finance/displaystory.cfm?story_id=9993423
http://www.syracuse.com/articles/cny/index.ssf?/base/living-0/1192784489203660.xml&coll=1
Homes Still Selling Quickly in Syracuse
I checked NYSAR numbers for September. Onandaga County (Syracuse and major burbs) are essentially flat compared to last year which is better than the headlines from other areas.
I still think once the coasts and other areas correct, with our high taxes our “cheap housing” won’t look so cheap anymore. The equity nomads won’t be able to cash in when they transfer here, and the slow down will shortly rear its ugly head. In either Onandaga or Madison County, the median price was markedly lower in September. (Odd thing about those numbers, I went back to the website to check my facts and the Sept info is no longer posted. They are instead linking to August numbers.)
Just a thought about the current real estate market. How many folks who are having a house built think that they have 20% down, but that 20% is in their current house and when they have to cut the price - whoops there goes the 20%?
Whoops — there goes the building contract.
Superfund resistance is growing.
WASHINGTON (Reuters) - Bankers remain wary of plans to launch a massive investment rescue fund to soften the blow of the U.S. subprime meltdown, saying it could interfere with a market recovery and stall a resolution to the credit crisis.
…
“Markets are rather suspicious about that policy. It could interfere with the market mechanism and introduce biases,” said Olivier Garnier, deputy general manager at Societe Generale Asset Management.
…
Perhaps the sharpest indictment came from Alan Greenspan, the former chairman of the U.S. Federal Reserve, who said the fund may hurt more than help. Greenspan told Emerging Markets magazine the fund runs the risk of further undermining already brittle confidence in besieged markets.
http://tinyurl.com/2ldckd
No need for a Superfund when hedgies are prowling about, adding liquidity to the housing market through snapping up housing market assets at fire sale prices. Bail out the markets and fund a D-ratic Congressman’s campaign through hedge fund contributions.
NATION’S HOUSING KENNETH HARNEY
Speculators are pouncing on distressed housing
October 21, 2007
http://www.signonsandiego.com/uniontrib/20071021/news_1h21harney.html
Perhaps AG detects a risk that with a bit more off-balance-sheet opacity, the U.S. banking sector could easily morph into the Japanese banking sector circa 1990.
Greenspan questions ‘superfund’
By Krishna Guha in Washington and David Wighton in New York
Published: October 19 2007 17:12 | Last updated: October 20 2007 01:51
Alan Greenspan on Friday raised serious doubts over the plan to create a $75bn-plus investment fund to buy the assets of troubled investment vehicles, warning that it could prevent the market from establishing true clearing prices for asset-backed securities.
“It is not clear to me that the benefits exceed the risks,” the former chairman of the Federal Reserve told Emerging Markets magazine. He added, “The experience I have had with that sort of intervention is very mixed.”
His comments came amid growing speculation on Wall Street that the current Federal Reserve has mixed feelings about the superfund plan, which was put forward by Citigroup, Bank of America and JPMorgan Chase with the active encouragement of the US Treasury.
http://www.ft.com/cms/s/0/0f79b248-7e5c-11dc-8fac-0000779fd2ac.html
P.S. Last I heard, the fund’s anticipated size had shrunk down to $60bn. It must be nice to live on a planet where within $20bn-$40bn qualifies as “close.”
Banks May Pony Up $60 Billion for SIVs
By RANDALL SMITH and CARRICK MOLLENKAMP
October 20, 2007; Page A3
Banks and other financial firms have expressed interest in putting up more than $60 billion toward a super-size investment fund to prop up parts of the ailing mortgage-securities market, according to one banker involved in the process.
If the expressions of interest turn into firm commitments in the next few weeks or months, the three U.S. banks organizing the fund would come close to their goal of raising a fund of $80 billion to $100 billion.
http://online.wsj.com/article/SB119283647044065499.html?mod=googlenews_wsj
Kathleen Pender: Bank bailout plan doesn’t solve underlying problem
Tuesday, October 16, 2007
The three banks participating in the supposed bailout plan engineered over the weekend by Treasury Secretary Henry Paulson are calling it a “master liquidity enhancement conduit,” probably because that sounds much better than “shell game.”
http://www.sfgate.com/cgi-bin/article.cgi?f=/chronicle/a/2007/10/16/BUF3SQCHQ.DTL
An NFL cheerleader is helping to shore up morale at Countryslide…
Ex-Charger leads morale building at top lender
PR blitz aims to repair reputation
By James R. Hagerty and Jonathan Karp
THE WALL STREET JOURNAL
October 21, 2007
http://www.signonsandiego.com/uniontrib/20071021/news_lz1h21lender.html
From the article: “Our divisions will have clear goals, built on our ruthless attack strategies to continue to grow profitably. Growing, winning and being the best is also hard-wired into our DNA.”
“Ruthless attack strategies”? When your company is being “demonized” - shouldn’t you pay better attention to word choice?
Hurry up and buy before the housing market runs out of falling knives!
No time out for builders
Down-market home prices could be alluring, but buyers should be prepared to move fast
By Roger Showley
STAFF WRITER
October 21, 2007
The fourth quarter of the year had hardly begun Oct. 1 when home builders and industry experts wrote it off as a disappointment and gloomily predicted 2008 won’t be much better.
However, what’s bad news for builders may be good news for savvy buyers.
JOHN GASTALDO / Union-Tribune
In Escondido, The Briars at Eureka Springs is one of several Lennar developments that offered up to $70,000 in discounts and incentives in a special weekend sales campaign. Prices start in the mid-$500,000s on floor plans of 2,750 to 3,198 square feet.
“Coming up on year’s end, I guarantee that in December you’ll see some of the best deals that you’ll see all year,” said industry consultant Jeff Meyers.
http://www.signonsandiego.com/uniontrib/20071021/news_lz1h21build.html
Unfortunately for you, the calendar ends in December and a new year begins in January.
Always end on a down note?
I would not recommend anyone buying in coastal areas of California until after prime and Alt-A resets have peaked. But then I am admittedly a bear.
U.S. HOME OWNERSHIP MAY HAVE HIT ITS PEAK
The days of steadily rising homeownership rates appear to have come to an end, based on projections calculated by economists with Moody’s Economy.com.
Looking more than a decade into the future, Moody’s expects the national homeownership rate to hold steady at around 68 percent, down slightly from the early 2005 peak of 69 percent.
http://www.signonsandiego.com/uniontrib/20071021/news_lz1h21porch.html
Yesterday people here were talking about inflation and several mentioned $90 per barrel for oil as proof of inflation. However oil maybe at $90, but I am paying almost .40 less for gas this year over last year. That is not inflation but deflation. Also with the economy slowing down less gas will be needed. Just think about all of those realtors and ex-realtors who do not need to drive all over the place.
Years ago when I was a realtor in the Denver area I filled up my tank 2-3 times a week. Now I fill up about every 10 days.
Gasoline is up over 30% from a year ago. That’s not deflation.
forgot the gas price chart:
http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_home_page.html
From your chart:
The average from your hand picked dates - 2006 $2.59, 2007 $2.66. Up by 2.7% which is just about what inflation is running YOY
I don’t know who made that chart up but I can check my purchases for gasoline thanks to my bank credit card and I am paying .40 less than the summer price of 2006. I was on the Oregon coast last weekend and bought gas just east of Portland for $2.69 a gallon. Last year I paid over $3.00 a gallon.
Then you paid too much last year; the chart is from the Dept. of Energy.
this weekend southern Oregon, I-5 corridor, 1gl gas=$3.20
50 cents in a week= volatility.
Oil is coming back to earth, by earth I mean the US. If demand for cheap stupid crap does not come back into fashion, we may need another lesson in spending faster than we cant make money. Just look at the ads starting on the boomer generation on “how to spend”…..guess they have been saving too long.
With oil at $90/barrel, you can expect the price to go up. The price is being kept artifically low now to keep people from rioting in the streets. You’ll see higher prices in food, packaging, frieght, airline tickets, etc. You’ll pay, boy how we’ll all pay.
Let’s not forget some of the increase is due to cheaper dollars, so a 30% devaluation of the dollar will cause oil prices to rise 30% to match previous buying power.
GAIL MARKSJARVIS
Investors, beware of ‘playing the bounce’
October 21, 2007
It’s called “playing the bounce,” a stock trading strategy that sounds like light entertainment but isn’t.
…
Home builders are by far the worst area of the market – down about 50 percent for the year, according to Leuthold data. The builders climbed about 11 percent in September after a rate cut by the Federal Reserve gave investors an optimistic breather. But after dreary reports on the housing market last week, builders dropped again, giving up what they had gained.
Financial companies, too, gained amid the relief from the Fed’s 0.50 percent rate cut. But the stocks headed down again recently as investors digested sobering words from Fed Chairman Ben Bernanke and hidden weaknesses in financial institutions became somewhat exposed.
Treasury Secretary Henry Paulson is facilitating discussions between large investment banks about setting up a fund that will help financial institutions avoid losses on financial transactions tainted by the mortgage mess. The structured investment vehicles and conduits, which would get relief from the fund, do not show up on banks’ balance sheets.
The negotiations helped investors see anew that despite a 57 percent drop in profits reported by Citigroup for the third quarter, problems buried within financial institutions have not yet been fully addressed.
Financial stocks dropped about 4.4 percent in the week after a peak Oct. 9. During the same period, the S&P 500 lost about 1.7 percent.
For the year, financial stocks – especially banks, investment banks and consumer finance companies – are down about 7 percent. The S&P 500 is up more than 8 percent. “Conditions in financial markets have shown improvement since the worst of the storm in mid-August, but a full recovery of market functioning is likely to take time, and we may well see some setbacks,” Bernanke said.
He also suggested more deterioration in housing is likely.
Bernanke’s observations were demonstrated last week in a dismal report focusing on home builders. The National Association of Home Builders sentiment index fell to its lowest level on record. Merrill Lynch economist David Rosenberg called the picture “grim.”
“Clearly the situation is dire for U.S. home builders,” Rosenberg said.
While analysts are not as concerned about financial stocks, many are warning investors to stay away.
“The sector is still caught in the cross hairs of the main source of financial and economic angst (subprime lending and housing) and it will take time, even lower interest rates and a steeper yield curve to reinvigorate profit growth,” said BCA Research in a report.
http://www.signonsandiego.com/uniontrib/20071021/news_1b21marks.html
You can see it in the charts. Many are breaking to new multi-year lows. My short portfolio of Financial Enablers took a hit after the discount rate cut but made a new high (5% higher) before the fed funds rate cut. Made another new high last week. Best performers to the downside were MTG, DSL and DHI. Laggards have been MCO and LEH. Denial is still strong in anything not directly related to housing.
Here is a dream home in Utah!!
http://saltlakecity.craigslist.org/rfs/453839943.html
It’s nice, but I’d be chased out of Utah for being “not one of them.”
half of Slat Lake is non-Mormon
I’m sure he was talking about the other half.
LOL. I’m a womanizing atheist.
two quotes from the economic press today, something does not compute:
1. Fed’s Mishkin: “Overall inflation likely coming down”
(while the US dollar is declining …)
2. Weber fears broad-based rise in German inflation (while the euro is appreciating …).
“What worries us is that the prices are rising across the board — and not just energy and foodstuffs. Industrial goods have also become more expensive and the same is true for imports.” … “most economists expect the ECB to keep rates on hold through 2008″
Got gold?
Signal of economic trouble
By John Browne
October 21, 2007
CRISTINA MARTINEZ BYVIK
/ Union-Tribune
This weekend, finance ministers and central bankers of the world attend their annual meetings at the World Bank, here in Washington. Listening to the usual discussions about the prospects for the American economy, I sense a greater confidential concern: What happens if the U.S. dollar continues to plummet?
…
In order to disguise the debasement of their currencies, our government persuaded a group of key countries to join in “manipulating” the market price of gold downward. The central banks agreed to sell parts of their vast gold reserves in a program of sales coordinated by the IMF. It was executed according to the so-called Central Bank Gold Agreement. Most political acts have a “good” and a “real” reason. The declared “good” intention was to “demonetize” gold. The “real” reason was to disguise the debasement of each member country’s currency, by their politicians. Nothing unusual there, you might think!
Therefore, the fall in our currency is far worse than it appears, according to published statistics.
Despite its political “independence,” our Fed has failed in its central, but sadly not exclusive, mandate to ensure a sound currency.
Does this affect all Americans? Yes, it affects us in four ways.
http://www.signonsandiego.com/uniontrib/20071021/news_lz1e21browne.html
Another one bites the dust…
another one bites the dust…
In London, a Mortgage-Bond Pioneer Gets Hit
By Alistair MacDonald
Word Count: 330
Wharton Asset Management, one of London’s oldest and largest hedge funds, has been hit hard by declines in a market where it was a European pioneer: mortgage-backed securities.
http://online.wsj.com/article/SB118953507742223988.html?mod=sphere_ts
MORTGAGE MELTDOWN
Jumbos making a rebound
Kathleen Pender
Sunday, October 21, 2007
* Financial skies are much bluer 20 years after Black Monday
10/18/2007
* Kathleen Pender: Bank bailout plan doesn’t solve underlying prob…
10/16/2007
The jumbo-mortgage market, which went into a deep freeze in late August, is starting to thaw.
Some large lenders have begun pricing their jumbo loans more aggressively in the past few days and weeks, bring rates closer to where they were before the credit crunch hit.
Jumbo loans are those that exceed $417,000, the maximum size that can be sold to Fannie Mae or Freddie Mac. In late August, when problems in the credit markets reached a crescendo, investors stopped buying jumbo and other nonconforming loans that can’t be sold to Fannie or Freddie.
In response, many lenders and brokers exited the jumbo market. Others, such as Wells Fargo, jacked up rates on jumbo loans sold through brokers, but not their retail branches.
“As far as I was concerned, Wells Fargo was out of the wholesale market,” says Robert Jackson, a mortgage broker with BayCal Financial Corp. in San Francisco.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/10/21/BUA4ST1AF.DTL
Financial skies are much bluer 20 years after Black Monday
Kathleen Pender
Thursday, October 18, 2007
Friday marks the 20th anniversary of Black Monday, the biggest one-day percentage plunge in U.S. stock market history.
On Oct. 19, 1987, the Dow Jones industrial average fell 508 points, or 22.6 percent.
An equivalent drop today would strip more than 3,100 points off the Dow, which closed Wednesday at 13,892.54.
To put that in perspective, the biggest drop we’ve had this year was 416 points, or 3.3 percent, on Feb. 27, after a sharp sell-off in the Chinese stock market. And that was pretty scary.
Of course, Black Monday also went down as one of the great buying opportunities. The Dow regained nearly 300 points over the next two days, although it would take more than 14 months to recover the entire one-day loss.
http://www.sfgate.com/cgi-bin/article.cgi?f=/chronicle/a/2007/10/18/BUODSRIN6.DTL
Agree. It was a wimper of a drop on Friday. I’m putting a wimper of a sum of $300 into stocks this week, but taking $12,000 out in December.
The Fed will have to escalate the War on Savers to drive investers away from highly-attractive 2-year T-Notes.
SIV Shock, Inflation Make U.S. Treasury Notes Unbeatable Bonds
By Daniel Kruger and Liz Capo McCormick
Oct. 22 (Bloomberg) — The combination of record U.S. home foreclosures, rising defaults and simmering inflation is making two-year Treasury notes and their equivalents unbeatable in the bond market.
Anxiety over the $300 billion owed by structured investment vehicles, or SIVs, is pushing investors into the relative safety of two-year notes sold by the government and the most creditworthy companies at the same time that rising consumer prices reduce the appeal of 10-year securities. The gap in yields between the bonds is getting wider, reminiscent of 2001, when the Federal Reserve began cutting its target interest rate for overnight loans between banks.
http://www.bloomberg.com/apps/news?pid=20601103&sid=afkqmVHh.kW4&refer=us
Subprime Meltdown, portrayed by British comics
http://www.youtube.com/watch?v=Z5VeNwG3xms&NR=1
China’s Bid to Tame Economy Begins a Real Estate Busthttp://www.washingtonpost.com/wp-dyn/content/article/2007/10/17/AR2007101702217.html?hpid=sec-business
“Real estate agents such as Xiao Fan, 24, and Li Gang, 31, have resorted to holding signs in the streets of Shenzhen, China, to encourage buyers.”
The obvious problem is they’re not twirling them.
I was following the conversation yesterday about inflation. if you think inflation is 2-3%, I’ve got a bridge to sell you. inflation is everywhere. just look at gas prices.
Food inflation hits the staff of life
Nashville bakers, consumers pay price
By RANDY McCLAIN
Business Editor
http://www.tennessean.com/apps/pbcs.dll/article?AID=/20071021/BUSINESS01/710210390
Another fire bug.
http://www.suburbanchicagonews.com/heraldnews/news/613157,4_1_JO21_KNAPP_S1.article
OT: I know many of you don’t think that we have inflation, but I have receipts to prove it. While cleaning out the file cabinet today I found a grocery store receipt, a receipt from home depot, and several department receipts from ‘04, ‘05, and ‘06. I was able to compare what I spent then, and now:
eggs, ‘05, $.99 yesterday $1.79
orange juice ‘04 $.89 yesterday 2.09 (on sale)
fish fillets ‘06 $3.99/pd yesterday $5.99 pound
mushrooms ‘05 $.79/12 oz yesterday $1.79 12oz
avacados ‘05. $1.19/ea, yesterday $1.99 ea
can soup ‘06 $1.29, yesterday $2.29
dog food ‘05 $1.19, yesterday $2.39
milk ‘04 $2.29/gal, yesterday $4.19/gal
laundry soap $2.59, yesterday, $3.89
I could go on, but I think I proved my point. I have been shopping at the same grocery store, buying the same brands. Yes, Jas Jain, we have inflation.