November 12, 2007

A Supply And Demand Problem And There Is No Demand

A report from the Arizona Republic. “The number of Valley homeowners losing their homes to foreclosure has shot up 566 percent so far this year, a result of the housing market’s slowdown and rising interest rates on a variety of risky mortgages. Through October, there were 7,139 foreclosures, according to Information Market. That compares with 1,072 foreclosures for the same period last year. Last month alone, 1,396 Valley homes fell into foreclosure, compared with 934 in September.”

“‘The foreclosure problem in Arizona is only going to get worse,’ said Fred Karnas, the new director of the Arizona Department of Housing.”

The Arizona Daily Star. “Sean Kennedy and his wife, Katy, worked for about a year at Tucson-based First Magnus Financial Corp. before the company laid off most of its employees Aug. 16.”

“Now Katy Kennedy is a La-Z-Boy salesperson, and Sean Kennedy is working odd jobs including occasional shifts at his family’s Dairy Queen while he looks for more permanent employment. The couple earned about $70,000 combined at mortgage lender First Magnus but are now making do with significantly less and have dipped into savings to help make ends meet.”

“Four of the 12 former workers interviewed for this story are still looking for permanent jobs. Of those who found jobs, two said they are earning less than they did previously. Five said they are making about the same but declined to be specific. Just one reported finding a better-paying job.”

“The Kennedys, for instance, both had jobs related to First Magnus’ practice of selling loans to investors on the secondary market. Such jobs would be difficult to find in Tucson, local industry experts said.”

“‘It’s hard when the market is flooded with everybody at once and everybody has the same qualifications or better than you,’ Sean Kennedy said.”

“Janice Boyd, also a former processor, said she is taking ‘a little break’ after months of job hunting by attending job fairs and applying to insurance firms and local government offices. But she’s staying away from the mortgage industry, she said.”

“‘I’m not looking for mortgage jobs,’ she said. ‘Not the way things are going right now with the mortgages, no.’”

“Pima County’s Development Services Department added $1 million in new staff costs over the last six months, despite running a projected deficit of up to $5 million. The department…has seen its revenues plummet along with new housing starts and now is struggling to find ways to cut expenses.”

“Development Services Director Carmine DeBonis said he did not anticipate the severity of the slowdown or how long it was likely to last when he was making hiring decisions earlier this year.”

“‘Hindsight always is 20/20,’ he said. ‘At the time we came up with the budget, no one anticipated the drop-off in the residential market that occurred.’”

“To meet its $15 million budget, the department needs to earn $1.3 million a month through permits, inspections, plan reviews, zoning and comprehensive plan changes and subdivision fees. But the county processed just 8,500 residential building permits last year, the lowest level since 2002, and permits may not break 5,000 this year.”

“In September, the department processed just 105 residential permits. Monthly revenue has dropped to less than $900,000.”

“Some builders and real estate experts questioned how the department could not have foreseen the decline. Duane LeGate, president of, said he realized the downturn was coming in June 2006 when his company saw a huge increase in the number of distressed properties for sale, and it was apparent to most observers by January 2007.”

“The slowdown was clear by January or February, said Tom Doucette, owner of local builder Doucette Communities. ‘It seems they ignored the signs of what was happening,’ Doucette said. ‘They hear the development community say things are bad, and they think we just don’t want to pay more fees.’”

“If the department saw continued activity through the first half of 2007, Doucette said, some of it may have been national builders continuing to request permits in the hopes the slowdown would be temporary. But local builders already had scaled back their activities.”

“Doucette said he, like many builders, already has laid off employees and may have to lay off more. He questioned why the department would consider raising fees instead of letting staff go.”

“‘What are these people going to sit around doing when nobody is applying for permits?’ he asked.”

The Review Journal from Nevada. “Consumers will have to wait a little longer than expected to buy into a major green-housing project. Pulte Homes has pushed back the opening of its Reverence community in Summerlin from July 2008 to sometime in 2009.”

“Company officials wouldn’t elaborate on the reasons behind the deferred opening beyond pointing to general delays in the land-development schedule.”

“Ken Perlman, VP of Sullivan Group Real Estate Advisors, said a development-related halt in activity at Reverence could benefit the project in the long run. Given the sluggish housing sector, sales of new homes fell 43.7 percent in September when compared with the same month a year ago, according to SalesTraq, opening later than planned could buffet the neighborhood from further fallout in a down market.”

“‘Instead of trying to jump-start a project in this kind of economic period, it makes excellent sense to work through (development) schedule issues as the market begins to sort itself out,’ said Steve Bottfeld, an analyst Marketing Solutions.”

The Las Vegas Buiness Press from Nevada. “Centra Properties, a local developer responsible for $3 billion worth of projects, has liquidated nearly all of its Las Vegas area assets.”

“Centra Point’s recent sale marks the latest in a series of company divestitures stretching back to 2005. In May 2005, Centra unloaded 25 acres to the Edge Group for $202 million. It marked a 62.8 percent premium over the original purchase price just two years earlier. The site was the location of the failed $3 billion Las Ramblas condo-hotel-casino complex that was canceled amid a high-rise market downturn.”

“‘Realistically, you cannot buy property at today’s retail prices and still build things, unless your have a competitive advantage,’ said Jeremy Aguero, principal of Applied Analysis. ‘Developers must now have cash on hand in order to make projects happen. Banks and Wall Street are tightening lending requirements. As a result, we’re dealing with a new reality that’s going to be around for a while.’”

“CB Richard Ellis brokerage is reporting 7.7 percent apartment vacancy for Las Vegas in September, down from 7.9 percent in August. The Class A segment showed 6.7 percent vacancy for 28,500 units reporting; the middle market (40,000 units) had 8.3 percent vacancy; and the bottom end (27,000 units) reported 7.8 percent vacancy.”

“‘We’re certainly being impacted by the number of single-family homes being rented,’ CB Richard Ellis apartment specialist Spence Ballif said. ‘Apartments are really getting back to stressing what they offer, the amenities and services and how quickly things get fixed. If you’re renting a house from an out-of-town investor and something breaks, good luck getting it fixed.’”

In Business Las Vegas from Nevada. “The supply of single-family homes in Las Vegas and slowing job growth are preventing apartment owners from raising rents as much as they did a year ago.”

“The reason for the slowdown in rent growth was increased vacancies. The occupancy rate dropped to 93.5 percent in the third quarter, down from 95.8 percent in the third quarter of 2006, Applied Analysis reported.”

“Aguero said the record level of existing-home inventory would begin to whittle down by then. As for prices, he said new-home prices, which have fallen 15 to 22 percent from their peak, don’t have much farther to go unless there is a broader correction to the market.”

“The Bureau of Land Management is considering whether to abandon its policy of refusing to sell land for less than its appraised value. Only one of 31 BLM parcels sold at the lackluster auction Nov. 1, which was the worst this decade by BLM standards.”

“The auction placed 167.5 acres up for grabs in Henderson, the southwest and other areas. Only the sale of one 15-acre site kept the auction from being a shutout.”

“Juan Palma, BLM’s Las Vegas field manager, he said it is possible that at the BLM’s next auction, tentatively scheduled for April, it may for the first time, allow bidding to start below the appraised value.”

“Bidders would be required to meet the reserve price, which is the appraised value, Palma said, but the more open bidding process would give insights as to the level of interest in the federally owned land and its current market value.”

“That could ultimately lead to changes that would allow property to be sold for less than appraised value, he said.”

“Palma said that with a slowdown in the housing market and softened demand for land in the Las Vegas Valley, the appraisals lag behind the current market and tend to look at what the land was once worth.”

“Palma…noted that with the housing slump and the appraisals’ failure to capture declining values, auctioned land is priced to the point where there are no bidders, Palma said.”

“‘When the market is in an upswing, the appraisal system works, but when the market is not going down, the appraisal system doesn’t work,’ Palma said.”

“Craig Cherney, director of Western operations of a private equity and land acquisition group, said it is not surprising that parcels didn’t sell at the auction in a market where prices continue to decline.”

“‘There is no demand, and basically it is a supply and demand problem,’ Cherney said. ‘There is overhang in the private real estate market and until that is burned through, there is going to be little demand from public and private homebuilders.’”

“Cherney said he doesn’t believe going to a process of accepting bids lower than appraised value while setting a reserve price will generate more interest in the bidding process. If the buyers know they have to meet the reserve price, they’re not going to take a half a day to go bid on properties they know they won’t buy.”

“What would work, Cherney said, is an auction that starts at appraised value and ratchets down in increments to a point that bids are made. Then, the price can go up from there, he said.”

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Comment by Ben Jones
2007-11-12 13:46:12

‘Realistically, you cannot buy property at today’s retail prices and still build things, unless your have a competitive advantage,’ said Jeremy Aguero, principal of Applied Analysis.’

Yes, the good ol’ dead end of the housing bubble. And BLM can tap their foot all year and strangle the local economy. There is a solution, that could get Arizona and the west growing and building again. Give the land to the people:

‘ Flagstaff and Sedona, it turns out, are not alone. Even in the wide open spaces of rural Arizona, there’s a squeeze on land for affordable housing. That’s because 60 percent of Arizona is publicly owned, according to a report by NAU’s Arizona Rural Policy Institute.’

‘Wayne Fox, the director of the Center for Business Outreach at NAU, said the Arizona Department of housing distributed a chart showing how the wages of nurses, teachers, firefighters stack up against local home prices and rents.’

‘He said the chart showed problems in various cities across Arizona, but Flagstaff had the dubious honor of being unaffordable for all segments of the workforce.’

Comment by txchick57
2007-11-12 14:05:28

“Flagstaff had the dubious honor of being unaffordable for all segments of the workforce.’”

and yet you live there, lol. Are you going to try and buy in Flag when things finally come apart? If you can find something there you can live with pricewise, you’re way ahead of me. I gave up.

Comment by Ben Jones
2007-11-12 14:21:26

It is landlocked, after all. There are new condos that they rent as they finish, but the local paper hasn’t picked up on the reversion yet.

Comment by AZ-IT
2007-11-12 18:33:04

It was that way when I went to NAU in the 83 (and stayed through the end of 89) - nothing much seems to have changed… there was no way I could buy a house on what anyone up there paid.

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Comment by are they crazy
2007-11-12 18:49:27

Used to go to Flag for summer camp in the mid 60s - 70. Camp was on a dirt road (Shnebly Hill Road) that ran from Flag to Sedona. Sedona was nothing then and you could mud bath in Oak Creek. Slide rock was really only known to locals. It was so beautiful there. Now lots in that area are $300K.

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Comment by AZ-IT
2007-11-12 19:02:41

The best part of “slide Rock” became a parking lot in the late 80’s. It *USED* to be a great place - haven’t bothered going back in over a decade…

Comment by Pondering the Mess
2007-11-13 10:04:45

Maryland is working towards this “goal” - median income of $60K, median sales price of a house, over $300K. And once one removes the unlivable houses in Baltimore City (since being shot isn’t much fun), the situation gets worse.

What really peaves me is that there IS demand for housing (though not as much as before now that the speculators are gone), but NOT AT THESE PRICES!!! We want houses at AFFORDABLE prices, but since that would break down the “debt chains” that are being shackled onto people, well, we just can’t allow that and every effort will be expended to prevent housing from being affordable. It probably won’t work, but it will drag things out even longer.

Comment by Devildog
2007-11-12 14:07:26

Utah had (has?) and even higher percentage of fed owned land. I’ve never understood how the federal government can own state land. I’m sure with some areas that are “national” parks it comes down to who wants to pay for maintenance (I still think it should be state run), but the vast majority of BLM land isn’t a tourist attraction. At least out west much of it is either vacant desert or pasture that gets rented out to ranchers for grazing.

Comment by Johnny B. Good
2007-11-12 15:03:09

It was all originally Federal land. About 100 years ago the Feds tried to give large swaths of western lands to the states (much of it dry), but were refused. The cost of developing and maintaining the land was more than these states could bear at the time.

It has turned out better. The helter-skelter approach to water management and reclamation currently in place have could have been complete chaos.

Read Wallace Stegner’s ‘Beyond the Hundredth Meridian’ for a good discussion of these issues.

Comment by David Carroll, Amarillo TX
2007-11-12 14:24:32

I’ve only been to Flagstaff once, but it and Sedona are beautiful places. Driving into Sedona there were thunderstorms building and lightning was striking the cliffs. Very awe inspiring.

I don’t know what to think about the artificial land scarcity. I feel for the people who can’t afford housing, but I also feel a need to preserve beautiful places. I would like to go back and spend some more time around Flagstaff.

Comment by txchick57
2007-11-12 14:28:26

I used to climb up and down the canyons, especially in the early 90s when that Hantavirus thing was freaking everyone out. Made it much more exciting ;)

I agree that Flag and Sedona are two of the most desirable places in the U.S.

Comment by Ben Jones
2007-11-12 14:32:50

Nothing was held back in Sedona, it is/was covered by development. As for Flag, it’s specuvestors. There are empty houses everywhere. Prices will fall and hard, IMO.

Comment by cactus
2007-11-12 18:32:28

I need to visit up there again. Nice in the summer when Phoenix is way too hot. Hows Prescott holding up?

Comment by Il Grande Silenzio
2007-11-12 15:35:45

Well, they sure have built up what they could in Flagstaff. Back when I was at NAU, there was virtually nothing west of 17 or south of 40. Even the area west of Milton up to old 66 was mostly trees once you got back past the strip malls.

Comment by Professor Bear
2007-11-12 13:49:55

“What would work, Cherney said, is an auction that starts at appraised value and ratchets down in increments to a point that bids are made. Then, the price can go up from there, he said.”

What he is talking about is a Dutch auction, where the offer price starts above market value and is lowered until a buyer is forthcoming. The price cannot go up from there, because if someone in the room had been willing to pay more, they would have already said so.

Comment by Ben Jones
2007-11-12 13:53:11

I know, the smarts from these land ‘experts’ is amazing at times.

‘If the department saw continued activity through the first half of 2007, Doucette said, some of it may have been national builders continuing to request permits in the hopes the slowdown would be temporary.’

The national builders: ‘we learned our lessons from the last bust.’

Comment by housing hanky panky
2007-11-12 14:03:45

Tom Doucette !!!!!! :smile:

another classic Ben

Comment by Arizona Slim
2007-11-12 15:14:23

Hanky, Tom’s a real person. And he’s actually one of our better local developers.

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Comment by Hoz
2007-11-12 14:04:15

This article is a lie! There is no more land available to develop.
Suzanne said so.

Comment by txchick57
2007-11-12 14:08:17

Did you hear anything about a forced liquidation at day’s end? It was nuts the way the bottom suddenly dropped out.

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Comment by Matt
2007-11-12 14:28:01

I went out to the mar 40 puts on GE today, not much out there on bad loan exposure. They do have a significant amount of debt.

Comment by flat
2007-11-12 15:26:06

bingo, GE is a bank !

Comment by Neil
2007-11-12 16:27:02

E-trade slipped the “Bankruptcy” word. (As a possibility for them is liquidity stays tight.)

That scared the market a bit. But was it more?

Got popcorn?

Comment by Professor Bear
2007-11-12 14:18:35

I really don’t buy the idea that there is a liquidity problem in either the housing market or the credit markets. Sale by an auction without a reserve price is about 100 percent certain to result in a sale.

The problem is that the would-be sellers of devalued assets are deluding themselves into the belief that they will still be able to find greater fools willing and able to pay 2005 mania prices. Hence they are unwilling to lower the asking price to a level where a buyer is forthcoming.

Comment by michael
2007-11-12 14:24:13

for the right price (the price it should be) my wife and i would pay cash money. we are literally just waiting.

Comment by Neil
2007-11-12 14:27:17


But my idea of the right price probably isn’t there idea. Heck, we’d even buy in an area we don’t want to live long term for the right money. But for now, they like empty homes looking for buyers. ;)

Got popcorn?

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Comment by Professor Bear
2007-11-12 14:37:31

It just seems so wasteful to keep all those 17m+ homes vacant, given the problems of depreciation without an owner occupant assuming maintenance responsibility, the risk of squatters or meth producers moving in, the increased chance that vacant homes will be vandalized or pillaged for precious metals on the premises, etc. I am perpetually puzzled by why the banks holding on to all this vacant REO don’t just get on with the fire sales?

Comment by Professor Bear
2007-11-12 14:29:47

BTW, can anyone offer information about the origins of the term “Dutch auction?” I have long conjectured that this term originated in the aftermath of Tulipmania, when it was necessary to keep lowering the price of overvalued tulip bulbs in order to find a buyer, but I would be interested in a reference if anyone can offer one.

Comment by Darrell_in _PHX
2007-11-12 14:42:37

There are 2 “types” of auctions.

One type seeks to set the price at the highest anyone is willing to pay. These auctions are the sealed bid auction and the REAL Dutch auction. Each bidder comes in at the max they are willing to pay, meaning the final auction prices is the max of what each bidder is willing to pay.

The other type of auction, the more traditional autction, aims for one bid unit more than the second highest person is willing to pay. In this case, you bid until everyone else is out, even if that is below your highest you’re willing to go.

The way he says prices can go up after the bottom is set, he’s making it a tradition (second kind) auction. IF the price can go up after a bid is made, then people won’t make the bid as soon as it goes below their highest limit. They’ll wait until someone else comes in, then the auction becomes a traditional where price is set by when the second highest bid falls out.

Comment by shadow7
2007-11-12 14:04:32

Lay offs at the home builders are skyrocketing, cheap labor is fleeing back to Mexico, owners of businesses are getting hit at both ends, their business is going south with the home meltdown and their low paid employees are heading in the same direction.
Lenders don’t want to hear sad stories now all of a sudden they are the good guys and the real estate agents actually look up what is happening in a neighborhood trying to convince the sellers the huge profit days are down to break even or worse.
People are into anything but buying houses the word demand has all but flew away, right now especially with the traditional slow holiday sales period the trend will be for a very depressing xmas with much anticipation of what the new year will bring which doesn’t look any better ,most likely much worse..
These are very scary times, going thru any neighborhood used to be fun seeing what the neighbors have done to imoprove their home now you tell the kids instead of counting the most popular cars on the block you tell them to count how many empty houses are on the block, sorry for the doom and gloom but if a storm is overhead why say it is a beautiful day ?

Comment by Doug in Boone, NC
2007-11-12 14:07:36

The DOW closed below 13,000 today.

Comment by jetson_boy
2007-11-12 14:15:59

Indeed it did… at 12,987. Actually, this is starting to become a bit of a concern. Sure- home prices will probably be coming down to more affordable levels, but at that point, will we have an economy to go along with it? My only saving grace is that I have been saving for years now. -no pun intended.

Comment by Professor Bear
2007-11-12 14:23:48

“…this is starting to become a bit of a concern.”

Nah — it’s all good. Stocks are now on sale for anyone smart enough to buy the dip!

Comment by badger boy
2007-11-12 14:24:32

remember having this discussion with co-workers at a tech company in San Jose, CA 2 years ago. Even then, I said when housing becomes affordable here for us (software engineers w/ solid 6-figure incomes), we will likely be unemployed because of the resulting recession.

sigh. I have savings too. but will likely be living on them at some point soon. :-(

Comment by John
2007-11-12 14:36:13

Stock prices are always affected by traders and speculators. Traders can drive prices temporarily up or down, but the market “eventually” snaps back to the long term trend. There is NOTHING unusual going on until it drops 10% below the peak (which would be ~12,600). Lots of speculators are currently trying to get out of bad bets on financials, technology, and home builders. Once this happens the long-term buy and hold crowd tends to stabilize stock prices and causes the upward trend to resume.

Comment by jetson_boy
2007-11-12 14:57:46

I’m actually thinking of ‘getting in’ soon. Everything I’ve got is all in CD’s and cash. Thanks to the Fed lowering rates, CD’s aren’t as great of a deal as they used to. They say that markets go up 7 out of 10 years on avg for the last century. True… but I’m a bit concerned that now we have several very large neighbors across the ocean who will eventually have much larger and likely more profitable economies that will suck even more commodities out of the supply. The question is can you now rely on conventional historical trends? With the exception of the Great Depression, I don’t think the US has been as broke on a consumer basis as it is now.

That’s the whole problem here is that Wall Street is only now understanding that the ‘boom’ bled the spending public dry of money. I think the thoughts on Wall Street has been to screw the middle class, screw the consumer, and screw the basic economic infrastructure of the US. The attitude was that we don’t matter. I see that they’ll learn this to be grossly miscalculated.

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Comment by palmetto
2007-11-12 15:20:47

“I think the thoughts on Wall Street has been to screw the middle class, screw the consumer, and screw the basic economic infrastructure of the US. The attitude was that we don’t matter. I see that they’ll learn this to be grossly miscalculated.”

To be sure. Good parasites don’t kill their hosts, as a general rule. Also, Wall Street forgets that the middle class is a buffer between them and the seething lower classes. Cops, nurses, teachers, even doctors, plumbers, mechanics, etc., these are all members of the middle class. Some big swinging dick on Wall or in Washington might not like it if some financially stressed-out pharmacist mixed up their meds.

In my case, I can tell you, I’d think twice about intervening on behalf of a developer or Wall Streeter in some tough situation like a mugging, if I happened to be there. Part of me would just want to keep on trucking by the scene of the crime, whistling “Walk On By”.

And then there’s the often told story (not sure if it an urban myth, it’s widely held to be true) about the 1-95 bridge collapse up in Greenwich, Connecticut years ago. Some trucker was pull over to the side of the road and frantically tried to flag down a guy in a Beemer. The fellow gave the trucker the finger, sped on his merry way and met his Maker. Pride goeth before a plunge.

Comment by az_lender
2007-11-12 15:47:44

jetson, have you considered FOREIGN government bonds? My favorites are Australia (6%), Iceland (9%), and Brazil (10%) - these yields to maturity beat the hell out of US Treasuries of comparable duration, AND there is the possible benefit of the currency play. I can’t say how much longer the currency play will go in my favor, but I believe the present reversal (US dollar firming) is not the final reversal. For once, I have to agree with CNBC commentators, who were saying today that the commodity-based currencies (Australia, Canada) are likely to remain strong so long as China’s economy is growing.

Comment by jetson_boy
2007-11-12 16:07:40

admittedly, I’m not one to know a great deal about investment strategies. I’m thinking of starting a medium risk mutual fund and a BRIC fund( Brazil, Russia, India, and China) and perhaps some REITs-commercial end stuff. That’s about it really.

Other then that, if I were to pick individual US stocks, I’d probably go for internationally healthy US companies like Coke, Pepsico, Apple, GE, etc etc… in other words, companies that will likely survive a recession and come back stronger.

Comment by Silverback1011
2007-11-12 17:32:51

Laugh if you wish, but I’m waiting for 8000 Dow before I go back in. I’ve got everything we have on “ice” right now ( as my 82 year old dad puts it ) in CD’s and govt. bonds. When the banks are folding like they did in N.E. in the 80’s, then I’ll go back in and buy in the fire sale. In the meantime, I just keep accumulating more cash each month, plus a little gold/silver. That’s it. I’m a scared chicken, yes, but so far we haven’t lost any $$ like I did in the mess. Me learned me lesson well, I hope.

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Comment by bill in Maryland
2007-11-12 18:39:25

Been dollar cost averaging in the stock market since 1989. I always laughed at people who thought it wise to try to time the market with most of their portfolio. They end up failing more often then not. Eventually they learn that they should have dollar cost averaged.

Comment by Vermonter
2007-11-12 18:51:42

Bill -

You’ve been investing in the longest bull market in history. Does dollar cost averaging make sense if you back test it from say 1925 through 1940? (This is a serious question..)

My problem is that I look at that stock market and think that it’s got the same problems as houses right now. Investing in steady increments makes sense but I worry about the opportunity costs if the stock market was to do what it did in 87 or 29.

Comment by hd74man
2007-11-12 14:43:48

Actually, this is starting to become a bit of a concern.

See NY Sun editorial.

Thanks to the poster with the video links to the interviews with Jim Rogers of commodities fortune fame.

Says BB is a madman, and the dollar is doomed.

Recommendations: the renminbi, Swiss Franc, Yen, shares in Rogers Agricutural Index, and short investment banks.

Comment by bill in Maryland
2007-11-12 18:47:20

funny how many people mention other currencies (some backed by gold and some plain paper) but gold is not mentioned. Could be that since gold took a correction today. I love corrections. It’s fun to watch the dumb money run for the exits. Saw that in 1998 in the “Asian Contagion” deal but I kept dollar cost averaging into Asia ex-Japan during that time. 1999 the Asian markets almost made up for the loss in 1998. My Asian mutual funds are now three times what I put into them.

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Comment by az_lender
2007-11-12 19:45:43

Bill, what I like about Australian government bonds is (a) the currency basically goes up and down with gold, because Aus is a gold exporter, but (b) they pay me 6% all the while, unlike the metal itself.

Comment by Pondering the Mess
2007-11-13 10:15:02

We haven’t had an economy for years.

What do we produce in this nation? Not much compared to what we made years ago, and with our ability to produce has gone most of the decent paying jobs. Now, we have a nation of meaningless “service” jobs where the pay isn’t enough to live on, so debt takes the place of income. But, since we’re drawing near “Peak Debt” levels and the last source of “income” (just more debt) was the housing Bubble, well… once that Bubble pops it is over.

Comment by Statsman
2007-11-12 14:57:41

Speaking of the stock market: How does one know when there is a run on a non-brick & mortar “bank” like E*Trade?

I would be panicking if I had money with them as they are not covered by FDIC (as far as I can tell.)

Comment by tuxedo_junction
2007-11-12 15:32:33

E*trade is a financial holding company. It has an S&L subsidiary (FDIC insured deposits), a discount brokerage subsidiary (SIPC insured accounts), and probably some other subs. Check the 10k for what E*trade consists of.

Comment by sfbubblebuyer
2007-11-12 18:14:23

Yep. I’ll transfer my e-trade account stock to another brokerage before selling to keep their needy little hands off of it.

Comment by palmetto
2007-11-12 14:08:05

OT, and I apologize for any threadjacking, but Dow ended below 13,000 at 12,987! Whoo-Hoo! Palmetto does the happy dance! Do I hear 12,000 anyone?

And no, I am not gleeful about the economy going into the crapper and I don’t think the stock market casino manipulation ought to be any kind of economic indicator for Main Street, anyway. A lower Dow to me is a healthy Dow. It’s had a fever for far too long and I’m glad to see the fever breaking.

Comment by Matt
2007-11-12 14:18:35

Why doesn’t the NYSE let bears ring the closing bell on a down day? All the clapping might cheer up the longs.

Comment by palmetto
2007-11-12 14:21:59

Forget the closing bell, how about bears with kazoos? Or better yet, whoopee cushions.

Comment by DinOR
2007-11-12 14:34:06

Ya’ know, (that’s not an entirely bad… idea?) I can respect that.

I know it can be hard to keep in mind with ALL the stupidity we’ve had to endure over the last several years but we may not want to lose sight of the fact that bears didn’t build this country. The TransContinental Railway wasn’t built by guys that said; “Let’s drag our heels until they go belly-up and we can come back and sell this mess for scrap iron”? Even the guys that didn’t get paid (or very little) believed they could do it right up until they got buried in a landslide!

Bears certainly have their place in today’s market, and a lot of days I feel bearish too. In the end you have to find “something” fall in love with it and make it your life’s work. (Or not?)

Comment by palmetto
2007-11-12 14:41:35

DinOR, it was producers and people with capital and vision who built this country, neither the bulls nor the bears of Wall Street really had much to do with it. Before such an animal as a stock exchange could exist, there had to be companies producing goods and services with shares worth investing in.

BTW, I agree with your post on the Kennedys. Sound like good folks.

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Comment by jetson_boy
2007-11-12 14:52:24

Well… Actually you all might find it interesting that in reality, the transcontinental railroad was essentially bankrupt for most of the construction process. I read a book about it last year and basically, the RR companies would take out IOU’s from banks and other deferred loans in order to buy materials, pay workers, etc. They ran out of money so frequently that they would have to stop paying the workers and stop construction. the workers would drink up all their savings and walk off the job. It was actually more of a disaster that took years to make profitable. Only after RR companies set up towns all along the RR… towns that would later become far-flung interstate accessed cities… would they become a success.

How ironic that 160+years later, here we are, with a nation full of people who took out much the same kinds of loans, live in far-flung metros, driving huge SUVs with escalating fuel prices, living in homes they can’t afford. Seems like there’s a bit of irony there.

Comment by DinOR
2007-11-12 15:01:17

Well, agreed. When I say “bulls” in that context I simply meant a “can do” attitude not necessarily any form of equity market strategy. I suppose another MAJOR difference was that (in this case) a rail line was something we actually NEEDED!

One of things that never ceases to amaze me about the “boom” was that we were totally willing to scuttle our broader economy so that specuvestors could make a few lousy bucks flipping houses to one another? I mean, having your back against the wall and betting everything on… bio-tech research, nuclear power.. whatever! But to utterly scuh-rue our collective financial futures for some P.O.S, particle board disposable subdivision? I’ll always struggle with that.

Comment by palmetto
2007-11-12 15:03:09

I think someone posted on this blog that Buffett was putting his money in railroads. Not a bad idea to live within walking distance of a commuter rail line.

Comment by DinOR
2007-11-12 15:06:07

Oh absolutely. That was kind of my point. Right up until that famous last spike! I understand there were a number of fatalities and it was fraught w/ disaster. It was a way though of connecting basically (2) seperate countries. The same could be said of the telegraph replacing the Pony Express but the idea was that these were huge and necessary leaps. How important was building another cookie cutter subdivision we (apparently) didn’t need?

Comment by tresho
2007-11-12 15:11:32

On a parallel note, I’ve read in multiple places that the airlines, considered as a whole, have not made money for their investors since their origin. Maybe the people who make money out of real economic expansion are not the investors…

Comment by Pondering the Mess
2007-11-13 10:21:16

Of course, nowdays we outsourced all those producers and people with vision beyond their next bonus or opportunity to pillage a company and take a golden parachute exit. Doesn’t speak well for the future, IMHO.

Comment by Professor Bear
2007-11-12 14:20:28

Earlier today, I captured a headline saying the market was rallying while the downward trajectory of all the headline stock market index charts suggested otherwise. I suggest the folks at try to refrain from reporting on what the market is doing until Mr. Market is finished having his say.

Comment by Professor Bear
2007-11-12 14:22:20

P.S. In case any bulls wander on to this blog, don’t worry — we are just having a little fun! Now is the time to buy the dip. You won’t see stock market valuations like this again!!

Comment by Darrell_in _PHX
2007-11-12 14:34:06

“You won’t see stock market valuations like this again!! ”

Unless the Fed cuts again soon, stocks are going to continue to slide.

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Comment by hd74man
2007-11-12 14:56:33

RE: stocks are going to continue to slide.

Phantom economy…cell phone services and fast food.

Comment by Darrell_in _PHX
2007-11-12 14:26:58

Nasdaq off 8% from last week’s high.

S&P off 6.5% from this time last month.

Looks like it is time for another rate cut.

Comment by palmetto
2007-11-12 14:33:08

When was it the Dow was last up over 14,000? Not long ago, just a few weeks, right? It has lost over 1000 points in a short amount of time. I think my theory, which Jas Jain agrees with, of a controlled crash, might actually have some reality to it.

Comment by Darrell_in _PHX
2007-11-12 15:17:18

Oct 31 the Dow had an interday high of 13990. You have to go back a full month to Oct 12 find a close over 14,000. (14093) So, off 7.9% in the last month.

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Comment by palmetto
2007-11-12 15:26:41

Thanks, Darrell. Seems like only yesterday…

Comment by Jeff
2007-11-12 14:29:47

Now starts the second inning. In this inning the stock market decline begins and market psychology fully switches to the bears. Mainstream news is filled with stories about credit crunch, consumer confidence crisis, and housing market collaps. People are finally beginning to wake up to how bad it is.

It’s gonna be ugly.

Comment by Aqius
2007-11-12 16:36:58

hey palmy

speaking of casino - why not celebrate the dow drop by going over to the seminole casino & placing a hefty bet on the dont pass/dont come line?
dontknow if they have craps tables there (maybe just slots n poker) but heck ; good way to mark the occasion.

Comment by palmetto
2007-11-12 14:20:15

“Development Services Director Carmine DeBonis said he did not anticipate the severity of the slowdown or how long it was likely to last when he was making hiring decisions earlier this year.”

“‘Hindsight always is 20/20,’ he said. ‘At the time we came up with the budget, no one anticipated the drop-off in the residential market that occurred.’”

The market was already in trouble earlier this year and there were stories everywhere and this guy couldn’t anticipate further trouble?

Comment by palmetto
2007-11-12 14:28:26

Also I’d like to point out that all these smacked azzes say the same things when they mess up big time “Hindsight is 20/20″. “No one could have anticipated..” In other words, “I dunno what I’m doin’, yuk-yuk”. And taxpayers actually pay this clown.

Comment by flat
2007-11-12 15:28:40

he;s a gov worker and will get a raise
the department names kill me

Comment by desmo
2007-11-12 16:19:40

Looking back, if I had known the revenue and activity were going to decline to this point, I would have looked for opportunities to consolidate functions.”

He “would have looked for opportunities to consolidate functions?” I guess it is too late now to do anything, how pathetic.

Comment by DinOR
2007-11-12 14:23:36

I have to say, I actually admire the Kennedys. They didn’t sit around whinning about how they made all this huge money during the boom? Not that 70k for a household is exactly rollin’ in it. I must say, this level of personal accountability and tenacity is truly rare in today’s world. Especially from REIC participants. So he went from writing loans to writing “w/fries”. So what, I hope they make it, whatever “it” is.

Comment by Matt
2007-11-12 14:57:18

There’s always money in bootlegging.

Comment by SanFranciscoBayAreaGal
2007-11-12 20:42:51

During Prohibition my grandfather was a bootlegger and rum runner.

Didn’t make his riches though.

Comment by gotsilver?
2007-11-12 14:23:42

looks to be alot of support/congestion at DOW 9500.

Comment by Wasatch Dude
2007-11-12 14:24:13

Here’s some gossip from Utah. Take it with a grain of salt because the info is coming from several sources and the situation is very muddy.

There is a company called Franklin Squires. As near as I can tell they buy houses, use a very optimistic appraisal to increase the value, strip the equity, and then invest the money in such things as hard money loans, hoping to make a return higher than the interest on the HELOC. The top people in the company have a fetish for luxury cars, and it has made a lot of people wonder what is going on. You don’t usually see people in their late twenties driving hundred thousand dollar cars and living in million dollar houses here. The whole operation does not smell right.

Anyway, I have a couple of friends who live in a housing development with a half dozenl people who work for this company. Something big is up. They have been selling their sports cars (and by sports cars I mean M5s, Ferraris, Porsches, etc.). One friend has observed them selling things like ATVs. Houses are up for sale, and one family moved out just a few days ago with no warning. A lower level employee that lives there says he has not been paid for six months. Another one says he recently resigned, which is surprising since you would not expect someone about thirty to up and resign from a two to three hundred thousand dollar a year job when he has no chance of getting anything remotely similar.

An aquaintance who owns a mortgage brokerage told me to expect to hear some names in the news. I don’t know whether he was referring to this Franklin company or something else. Shortly after he told me this, one of the candidates running for mayor of a nearby town was exposed for mortgage fraud. When talking to him, I got the impression that what he was talking about was bigger and involved organized, large scale fraud. He wouldn’t give me any real info though. :-(

Maybe there is a benign explanation for Franklin, but my guess is that we will be seeing some perp walks soon.

To the make the situation even sweeter, the man who runs the company is a laissez faire libertarian kook with his own Internet radio show and he has billboards with his face and the slogan “I am the free capitalist” all over. He has built up a local cult of like minded nutters who call themselves the “producer generation.”

Comment by Professor Bear
2007-11-12 14:41:38

‘Something big is up.’

Sounds something like, “Take the money and run.”

Comment by crispy&cole
2007-11-12 14:46:13

Please forward to all of your local media ASAP. Let the story get out…

Comment by rentor
2007-11-12 14:54:46

The townhome I rent has a “send pending” in the complex. The townhome was listed at 319000 from 2006 peak of 360000. Yesterday the sign was changed to “Back on the market”.

I felt a FB was saved from being created.

Comment by Wasatch Dude
2007-11-12 15:11:51

The situation reminds me of the Crisp and Cole debacle in Bakersfield, but maybe on a much larger scale. There are a lot of people involved, and it has the signs of a typical Utah ponzi scheme. Part of it appears to be run like the MLM companies that are everywhere in Utah. If you want to check them out, google “free capitialist” and look at Franklin Squires website, which includes links a a forum on the free capiitalist site.

The odd thing is that the whole neigborhood as been wondering about how they were making their money ever since the Franklin Squires employees moved in. One of my friends has tried to pry info out of them, but has not been able to get much. At first he thought they were playing it close to the vest, but after a while he concluded they truly did not know It is like there are a few masterminds at the top and the rest of them are willingly ignorant as long as they can continue to live large.

The company’s founder went bankrupt at one time and was sanctioned for securities fraud by the state of Wyoming shortly before he moved to Utah and set up Franklin Squires. Talk about a huge red flag.

Comment by Devildog
2007-11-12 14:56:33

Utah seems to attract more than their fair share of schemes. I think part of that is the trusting nature of the population and the naivety of kids who live at home into their mid to late 20s (at least a fair number of the ones I personally know). That region just seems to draw sharks like no other place I know.

Comment by hd74man
2007-11-12 15:04:47

RE: As near as I can tell they buy houses, use a very optimistic appraisal to increase the value,

Once the AG in NY gets all the dirt out from under the eAppraiseIT rug and the guys who are going to hang, turn chickenshit point their fingers to the “everybody was doing it” crowd, the appraisers who get swept up in the coming crackdown are going to hang by the yard-arm as an example.

LMAO…these johnny-come-lately schmucks will be havin’ fun with Bubba.

Comment by aimeejd
2007-11-12 15:07:56

This is NOT a good look . . .

Comment by Darrell_in _PHX
2007-11-12 15:23:55

“after being surprised by the dot-com collapse in 2000 and finding himself with almost $1,000,000 of debt and subsequently filing for federal bankruptcy protection, developed into a successful multimillionaire in less than five years by learning and applying what he now recognizes as the “ancient principles” of economic prosperity.”

And those “ancient principles” would be..
Borrow all you can,through fraud if necessary.
Spend it all.
Go bankrupt.

Comment by Wasatch Dude
2007-11-12 15:31:16

You have to love a “university” that teaches a class named “How to Earn 3-5 Percent a Month on your Cash”. Yeah, that’s got to be legitimate.

Comment by CA Guy
2007-11-12 16:22:02

Oh my god. That website is such a scam. It doesn’t really state what it is that they “do.” Everyone on their “Management Team” appears to be under age 35, and only a couple have college degrees. The rest seem to have made their fortunes by taking classes from their CEO who was once part of Carlton Sheets’ organization. Enough said. Total scam.

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Comment by cactus
2007-11-12 18:50:12

Committed to delivering credible, powerful and meaningful innovation based upon the universal principles of prosperity, FranklinSquires collaborates with entrepreneurs to help them achieve high performance individually, within families and as an enterprise. When it comes to success, acting without principle is a formula for frustration and destruction. FranklinSquires shares the creative spirit driving all producers and knows what it takes to make a company succeed and prosper

What a lot of junk words, I’d run from this kind of scam

Comment by hd74man
2007-11-12 14:37:45

Still all contained…

Comment by Professor Bear
2007-11-12 14:39:15

All this gloom and doom has created a fantastic opportunity for bulls with balz to buy the dip!

Comment by palmetto
2007-11-12 14:44:13

LMAO, PB, you are postively evil today! Go, bulls, buy that dip! Buy that dip! Rah-rah-sis-boom-bah!

Comment by bill in Maryland
2007-11-12 18:48:54

People like that thought laughed at me like I was a fool when I had a 50% loss in 1998. They stopped laughing when I had a 100% gain in 1999 and then a 200% gain since then.

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Comment by bill in Maryland
2007-11-12 18:53:59

Excuse the grammar, but I think I made the point.

Comment by JamesRaven
2007-11-12 14:40:26

I’m a lurker, and I like the educational nature of the unfolding disaster “defined here… A bit OT, but here’s a quote I found here, and I’m a bit amazed it got printed without a WTF!! after it.

Determining how the current episode will play out is tricky because economists have few tools to gauge how tightening credit will ultimately affect spending, said Douglas Lee, chief economist for research group Economics from Washington.”

Since the shitpile is rolling downhill, with Real Estate and Wall Street pretending the economy starts and stops with them, it would appear that the “overhang” of unsold houses is indirectly creating an equal “overhang” of unpurchased consumer goods. Like cars, furniture, etc. So pretending that all the consumers’ problems will go away once they can buy stocks and real estate again is the same delusion, but using a couple trillion dollars less money.

Comment by Johnny B. Good
2007-11-12 14:45:41

Prices…don’t have much farther to go unless there is a broader correction to the market

Let me see if I understand. Prices won’t fall further unless they fall further. It seems Mr. Aguero has a keen sense of the obvious.

Comment by az_lender
2007-11-12 15:55:53

Johnny I noticed that one too. You beat me to the punch. I suppose we could credit Aguero’s statement with some non-tautological content if we interpret it to mean that the chasm won’t get any deeper unless it also gets wider … but that seems pretty obvious too!

Comment by Dave
2007-11-12 14:48:36

$1 million tax free profit to go with those million $$ GSE loans.

Comment by palmetto
2007-11-12 14:55:18

EGAD! CONgress has completely lost their minds.

Comment by Darrell_in _PHX
2007-11-12 14:56:09

What the ????? The millionaires realize it is time to get out, and they don’t want to have to pay tax???

Comment by Johnny B. Good
2007-11-12 16:57:51

The exclusion of $500k was a huge contributing factor to this bubble. Let’ blow another one.

OK Congress, do something useful…fix the AMT problem! Quit tinkering with the housing market.

Comment by housing hanky panky
2007-11-12 14:56:53

O.T………..but can anyone tell me what’s happening with the YEN ?

Comment by Matt
Comment by CA Guy
2007-11-12 16:30:50

Don’t worry, Matt! The commerical RE “experts” said it is contained.

I love all the so-called experts who state that the fundamentals are still good, but then they never state what those fundamentals are. Commercial is overbuilt.

Comment by flat
2007-11-12 15:23:23

big gov keepin on
He questioned why the department would consider raising fees instead of letting staff go.”

“‘What are these people going to sit around doing when nobody is applying for permits?’ he asked.”

Comment by rocketrob
2007-11-12 15:57:47

Until 2003, I worked with farmers and dairies on the west side of Phoenix. I have not been back there since, until yesterday. Holy cows - there is NO agricultural land, it’s all houses! Big houses. My guess is 50,000+ acres gone. That does not include the South, North and East side of town. Phoenix is toast!

Pima County (Tucson area) government will continue to grow until they are broke. It has the worst planning department I have ever seen (due to politics). There is no access from the east side of town to the west side ( where the only freeway is). For a town of 500,000 people, it takes 1 to 11/2 hours to get from the NW to the SE. During rush hour don’t even try. Planning here is a direct attempt to restrict migration - If we don’t build it, no one will come- wrong.

Don’t forget about the 60 year old waste water treatment system that smells nice for all those new developments nearby. That said, Tucson is not unbearably hot like Phoenix. This time of year it’s downright nice.

Now, back to checking my Copper puts.

Comment by bill in Maryland
2007-11-12 18:59:58

Between Phoenix and Tucson, closer to Picacho Peak, new houses are advertised in the $130,000 range. Oh yeah, there is a state correctional facility in the Picacho Peak area…

Closer to Phoenix near the two outlet malls they appear to be in the next phase of building cracker jack box homes. The former farmland is now graded dirt ready for the foundations. Dozens and dozens of acres. Gas will be at $6 per gallon in a few years. It’s a long drive to Central Phoenix from that point. The Occam’s razor solution is to live in downtown Phoenix and commute ten miles to work in the area. Go home to restaurants, pubs, pro basketball and pro baseball.

I’m doing something almost like that in Maryland. I work in a small community but live closer to Baltimore.

Comment by az_lender
2007-11-12 19:53:20

Notice how “Business Las Vegas” accurately reports that the apartment vacancy rate has risen since the same time last year, while some brokerage is pointing out that the apartment vacancy rate fell in September compared to August. (Duh, think heat.)

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