The Housing Bubble

Can anyone explain to me how printing this much money would be good for the dollar.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a46Oa_2V9s8M&refer=home

“Many real estate agents are pinning their hopes on this month’s change in presidential administrations.

LePage, of Re/Max Heritage, thinks there’s pent-up demand among first-time home buyers.

He said many buyers have been sitting on the sidelines because of the economic uncertainty. LePage predicted that the change of administrations will create a new sense of optimism that finally turns the market around.”

http://pressherald.mainetoday.com/comments.php?id=231298&com_sent=1

The fundamentals of the economy remain weak….

With the new year, all the media is flooded with stories of new optimism for investors. New president will rescue the economy. Bailouts will work…. Ect.

Me thinks reality will come slap all this new optism HARD in the face.

We’re a consumer economy and consumers have been living on debt. That debt is maxxed out, and will be defaulting in boat loads. Still trillions of losses coming in residential mortgages, more trillions from corporate debt defaults, and even more trillions in local government defaults.

All they need to do to fix the economy is find a way for everyone to spend 110% of their income, forever, without ever having to pay on or for any of the debt, ever….

No problem, right…. certainly Obama can fix it with a wave of the magic pen.

So, this traveling salesman goes to see the farmer, and lo and behold, there’s three plum daughters.
Anyways, the day before yesterday, I was barefoot, I like to do that at home, and I was sitting down on this big really nice whicker chair I have and I hit my big toe against the coffee table and my entire nail of my big toe popped out.
I ain’t kiddin.
Oh, the pain was so big, it didn’t even hurt.
After the scream that is. Nope didn’t hurt at all.
So my question is this, will it grow back?
And I mean at all the correct angles now.
This entire post is dedicated to Olymiagal.
I think, anyways, it really is a very good Caribbean style whicker chair.

I had an interesting conversation with a orthopedic(sp?) surgeon a couple of days ago. Seems they saw a big increase in injuries from table saws and the like before the holidays. Lots of small time house flippers with power tools they couldn’t use on houses so they decided to build presents to save money.

1. Since 50% of the people in the US pay no taxes, should we care if these same people are against tax cuts?
2. What will happen whem all of the young people that voted for Obama figure out that they are the ones who will get stuck paying for a $1 Trillion stimulus package that mostly doesn’t benefit them?

articles to read today (no links provided)

Fighting Off Depression

By PAUL KRUGMAN
Published: January 4, 2009
NYT

The Limits Of Pump Priming
By Robert J. Samuelson
Monday, January 5, 2009; Page A11
WaPo

As Vacant Office Space Grows, So Does Lenders’ Crisis
NYT

Paper bonuses
Published: January 5 2009
FT -LEX

The Economy
The Ultimate Bubble?
by Michael Wolff February 2009
Vanity Fair

Family has all gone back to their respective areas of interest - Colorado, California, Oregon - - Except Lars who regards this as his 2nd house! He is still over and took all the half finished 6 packs or cases of odd lots of beers and whiskeys and Jaegermeisters etc and is loading up his wagon. LOL

I love holidays!

Here’s the future of condos in South Fl.
The guy quoted works for the FL Office of the Condominium Ombudsman.
His work is primarily as a mediator.
“Q: What are the consequences of association-fee problems going unaddressed?

A: I know of several condominiums that are on the brink of people just walking out. They can’t afford to maintain their units anymore. Their slice of the pie has become so big that they can’t afford it. They are just packing up and leaving their largest investment because it doesn’t pay for them to stay. You are going to be hearing about this very soon. This is going to be a real problem.

Q: So unit owners who’ve been in their condos for many years, who have equity in their condos and even may have paid off their mortgages, are still having to move because they can’t afford maintenance fees?

A: Yes, and some condos can’t take in even enough money to pay their water bills. They’re shutting off the water. They’re shutting off the electricity. They can’t come up with the money because there are so many delinquencies. The few who are left can’t come up with enough money to pay all the bills for everybody. It’s sad.

Q: How do these problems affect sales in the buildings? I’ve heard it described as a “death spiral.”

A: Sales are very poor because people don’t have the money to buy, No. 1. And, they don’t want to take over places with debt problems. Sales are very bad. Everything is very bad. Let’s face it.”
-
http://www.miamiherald.com/331/story/834433-p2.html

Sorry if a re-post.

MSNBC:

Calif. Taxpayers Due Refunds may get IOUs.

By Patrick Healy
NBCBayArea.com

If you expect you’ll be getting a refund from California when you file your 2008 state income tax return, be prepared: you may instead receive a “registered warrant.” Translation: an IOU.

California is rapidly running out of money. Blame it on the state budget deficit that continues to bleed billions of dollars from California’s reserves. Facing inadequate credit to make up the difference, California’s Controller John Chiang warns that by the end of February, the nation’s most populous state may not be able to pay some of its debts, and instead be reduced to issuing those creditors IOUs.

….

Just a few months ago, 25% of all the construction cranes in the world were operating in Dubai. Many of the construction company employees had loans and investments related to Dubai properties. Now much of ir has come to a screeching halt - and has been said here before, this will not end well:

“Dubai dream turns sour as job losses mount”

“Global financial meltdown ends dreams for many people as more firms sack staff to cut costs.”

By Ali Khalil - DUBAI

Dubai’s rapid expansion in recent years provided jobs for millions. But the global financial meltdown has abruptly ended the dream for many people as more and more firms sack staff to cut costs.

Spectacular economic growth, spurred by a robust construction sector, lured people from far and wide to the booming city on the shores of the Gulf, tempted by high pay, low tax and — for many Europeans — the year-round sunshine.

link:
http://www.middle-east-online.com/english/?id=29550

…So there was this “theory” concerning how the rest of the world can “decouple” form that laggard American economy…stop…China see’s Irish opportunity to export more toxic lead around the global via name brand consumer labels…stop”

“…Waterford Mayor Jack Walsh said the closure of the crystal factory would deal a cultural and psychological blow to all of Ireland, noting that the crystal plant was one of the country’s top tourist attractions and the product “one of only a handful of iconic Irish brands.’

“Given this, it is of major strategic importance that this company not be allowed to slip into oblivion,” Walsh said.”

Crystal, china maker Waterford Wedgwood collapses

http://biz.yahoo.com/ap/090105/eu_britain_waterford_wedgwood.html

Investors dump $89B in U.S. securities in historic fire sale

The deep river of private money that helped knit together the global economy has abruptly dried up, new government figures show.

As the global financial crisis grew more severe this summer, foreigners sold almost $90 billion of U.S. securities — the greatest quarterly fire sale by overseas investors since the government began keeping track in 1960. U.S. investors also are retrenching; they unloaded about $85 billion worth of foreign holdings in the quarter, says the Commerce Department’s Bureau of Economic Analysis.

“We’ve had a global panic. Everyone is pulling their money home,” says economist Adam Posen of the Peterson Institute in Washington, D.C.

That’s bad for economic growth in the U.S. because it threatens to starve capital-hungry companies and entrepreneurs. But it’s especially serious for emerging-market countries that rely heavily on outside financing. Capital flows into countries such as South Korea, Turkey and Brazil were evaporating even before the mid-September Lehman Bros. bankruptcy made things worse.

The reversal of private capital flows signals an abrupt end to a nearly two-decades-long era of financial globalization, says economist Brad Setser of the Council on Foreign Relations. Private flows into and out of the U.S. for purchases of stocks, corporate bonds and federal agency bonds have dropped from around 18% of economic output to near zero “in a remarkably short period of time,” Setser says.

The past five quarters — roughly since the August 2007 onset of the financial crisis — private foreign investors have been net sellers of U.S. securities. The turnabout represents a dramatic change from the first half of 2007 when foreign purchases of U.S. securities other than Treasuries averaged about $250 billion per quarter.

The past two quarters also have seen an about-face in cross-border bank flows as institutional investors found lenders unwilling to extend credit. In the first quarter of 2008, foreigners deposited more than $79 billion with U.S. banks. That flow reversed in the second quarter, as foreigners withdrew a staggering $256 billion, and the outflow continued in the third quarter with an additional $147 billion. Likewise, banks in the U.S. brought home more than $151 billion in the quarter, as overseas institutions repaid loans.

Support for property-tax rollbacks is building from Arizona to New York, fueled by angry homeowners in some locales who are seeing rising tax bills despite plunging home prices.

WSJ: Calls Grow to Cap Property Taxes

“…U.S. diplomats have gradually moved into the $592 million newly built compound, the world’s largest U.S. embassy”

I can only wonder how many US Sea Stallion helicopters can land on the roof. The “Green Zone”….well named!

“But some Iraqis, like Basim al-Hindi, 46, a security guard working in downtown Baghdad, saw more sinister motives behind the new coral-colored compound.”

“They just want to retain their control in the heart of the Green Zone,” he said. “The sovereignty is all America’s.”

“U.S. forces on New Year’s Day handed over responsibility to Iraqi troops for the Green Zone, a fortified compound in the heart of Baghdad off limits to most Iraqis. The new embassy, like the palace that housed it before, is located in the zone.”

“Embassy officials defended the vast scale and cost of a compound that dwarfs the U.S. presence in much larger countries. The embassy has 1,200 employees, including diplomats, troops and staff from 14 federal agencies.”

U.S. opens new Iraq embassy:
http://news.yahoo.com/s/nm/20090105/ts_nm/us_iraq_usa_embassy

SD Union Tribune
Homeownership goals created house of cards
Lender guidelines were ‘obliterated’ in buying frenzy
By Emmet Pierce
12:56 a.m. January 5, 2009

Government long has promoted homeownership as a means of strengthening communities and building the wealth of its citizens, but the recent housing market collapse has some analysts wondering whether consumers have gotten too much of a good thing.

While federal policies helped tens of thousands of U.S. consumers achieve homeownership during the housing boom, they also opened the door to the widespread use of risky loans, a national credit crunch and a wave of foreclosures.
…
Healing the economy was what U.S. policymakers had in mind when they were looking for ways to boost homeownership in 2001. The nation was in a slump amid the bursting of the dot-com bubble and the Sept. 11 terrorist attacks. To get back on track, then-Federal Reserve Chairman Alan Greenspan decided to lower interest rates.

Homeownership became a key driver of the economy. Federal regulators did not intervene when lenders began using subprime, adjustable-rate mortgages to temporarily reduce mortgage payments, allowing more people to qualify for loans.

Thousands of borrowers became homeowners without regard to their creditworthiness or their ability to cope when adjustable mortgages reset at higher rates. Because such loans carry higher fees, lenders made more money.

Attempts to pass federal legislation against predatory lending to protect borrowers from being placed in unnecessarily costly loans were opposed by the Bush administration and members of Congress. They feared that restrictions on lending would slow the rise of homeownership.

Instead, the housing market heated up as lenders and consumers went on an easy-credit bender. Highly leveraged loan products surfaced that had not been widely used since the Great Depression. At the height of the home-buying frenzy, a running joke in the lending industry was that anyone who could fog a mirror could get a loan.

In mid-2002, President Bush urged lenders to add 5.5 million minority homeowners by the end of the decade. In the years that followed, San Diego County neighborhoods with large minority populations would be hard-hit by foreclosures resulting from risky subprime loans.

Government-sponsored mortgage giants Fannie Mae and Freddie Mac ensured that funds were consistently available to lending institutions. Under pressure from the Bush administration, Fannie Mae and Freddie Mac increased their funding of mortgage loans to lower-income borrowers.

If government and lenders pushed hard for increased homeownership, it was with good intentions, said Dustin Hobbs, spokesman for the California Mortgage Bankers Association.

“You definitely had, for generations, presidents from both parties and congressmen from both sides really pushing homeownership, with Fannie and Freddie and every way they could, and with good reason,” Hobbs said. “It is the best way that individuals acquire wealth. There was a consensus from consumer groups to mortgage bankers to government that more needed to be done to create homeownership.”

Not everyone bought into the idea that owning is preferable to renting. Some contrarian economists held that people could build more wealth by renting and investing the money that would have gone into down payments and home maintenance.

They pointed out that home prices fluctuate. People who buy at the peak of a fevered market run the risk of losing wealth during a speculative price bubble.

“What is wrong with renting?” asked economist Christopher Thornberg of Beacon Economics. “I am so tired of hearing that owning a home is the height of being an American.”

So, after being on vacation for couple of weeks and not posting much, I have this question (rhetorical):

Given the overwhelming flood of bad news the past month or so, with virtually zero good financial news - does it seem… odd… to anyone that the stock market is at a two-month high?

(scratches head)

County treasurer says housing market can fluctuate, but taxes fairly certain

“The economy is tough. The (real estate) market is tough. Why aren’t my taxes going down?”

St. Croix County Treasurer Cheryl Slind said that’s the question she has been hearing ever since property tax bills went out earlier this month.

While the market value of many houses probably has dropped, it takes time for the assessment and equalized value processes to catch up, said Slind. Besides, she said, the drop is likely temporary.

Also, said the treasurer, property tax bills — many of which have actually fallen a little this year — can’t go down significantly unless municipalities and schools cut services and thus their tax levies.

Most Wisconsin property owners pay their first-half taxes to their town, city or village treasurer, but in St. Croix the county treasurer collects taxes for 12 of the 35 municipalities.

…She is optimistic those drops when they happen will be temporary.

“Sooner or later — it’s going to take some time — but things are going to bounce back,” Slind said.

“What’s the answer?” she asked, and then answered her own question: “Patience, time.”

From today’s cnnmoney:
(Money Magazine) — Question: Were you wrong to be so bullish?

A.(David Lereah) –Answer: “[...] If you look at my actual forecasts, the numbers were right in line with most forecasts.”

True, but this is because as the NAR chief economist he set the tone for other forecasters to follow. He wasn’t one in a “herd”, he was the leader. His answer is a big cop-out.

http://www.money.cnn.com/2009/01/05/real_estate/Lereah.moneymag/index.htm?postversion=2009010510

The year hedge funds got hit.

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/02/AR2009010202329.html

Interesting chart in there showing how fast they grew. Seems to me there’s still quite a bit of hedge fund unwinding yet to be done.

Attempting to put a fictitious economy back together is wasteful and simply absurd. Part of the total demand for houses was not real. It was fiction. It was speculation. Which means demand for a lot of things that go into homes should be lower. Which means capacity and supply across the globe needs to be lower. Why is this so difficult for people to understand?

“What will happen when all of the young people that voted for Obama figure out that they are the ones who will get stuck…”

““ALL” the young people will never figure it out. The few who do don’t constitute much of a voting bloc.”

Adding in those older people who care about what will happen to the young, and in particular their own children, does not expand the voting block much further.

The young would be better off, relatively, with a Great Depression or hyper-inflation that wiped out the value of all paper assets — and their debts. That would leave everyone with the value of their future labor to live on, which is the one asset the young have, and it keeps getting encumbered by other people’s liabilities.

Deflation will be contained, just like subprime was.

latest news
U.S. Nov. residential construction outlays fall 4.1%

Deflation is new Public Enemy No.1
Top officials from Fed and ECB vow to keep it contained
By Greg Robb, MarketWatch
Last update: 10:10 p.m. EST Jan. 4, 2009

SAN FRANCISCO (MarketWatch) — Deflation, the steadily falling prices that are a byproduct of the virulent global recession and financial-market weakness, has emerged as a top danger for monetary policy markets in the U.S. and Europe, top central bankers made clear Sunday.

In separate comments, Lucas Papademos, the number-two official at the European Central Bank, and Janet Yellen, president of the San Francisco Federal Reserve Bank, and one of the most influential officials at the Fed, said that they would quickly seek to contain the danger of deflation if it emerges in coming months.

Their remarks came at he American Economics Association convention.
Yellen said the U.S. faces a clear risk of deflation: “The odds are high that over the next few years, inflation will decline below desirable levels.”
To keep falling prices from becoming entrenched, the Fed would have to make it clear to the financial markets that such an outcome is unacceptable.

“I am optimistic that, by clearly communicating the Fed’s commitment to low and stable inflation and by backing that commitment up with determined policy actions should the need arise, any deflationary pressures caused by the weak economy can be contained,” Yellen said.

I woke up this morning to a radio ad from Subway, which said in essence that due to the trying economic times, Subway is lowering their prices on ALL their sandwiches…

Smart marketing, or whiff of deflation?

Dumb question time - does anyone have a link to a good blog about Los Angeles area commercial real estate?

I’ve got a friend who took out a $715K mortgage on his house in early 2007 to put down on the purchase of 5 pieces of commercial real estate in the LA area. Zillow now says his house is worth $650K.

How screwed is he?

According to Federal Reserve report Z1, during the peak of the housing equity extraction boom, 2003-2007, total household debt outstanding was increasing by an average of $1 trillion a year.

Loss of that ability to borrow huge sums of money at low rates is causing…ummm…issues with consumer spending, which is in turn feeding back into higher unemployment, which is causing further cuts in spending, feeding back….

Anyway… How are we going to halt and reverse theis negative spiral? Oh, simple. $750 billion. $300 billion in tax cuts, $200 billion handouts to states, and some $250 billion in infrastructure…

And this $750 billion will be spread out over 2 years. So, really, something like $375 billion a year.

Last time I checked… $375 billion is somewhat smaller than $1 trillion.

Oh, did I mention that we were also adding some $500 billion a year in new business borrowing, that has largely been cut off.

So, $375 billion a year for 2 years, is going to reverse the slide caused by the loss of $1.5 trillion a year in new money?

Our economy was being pulled through the jungle by a giant elephant known as debt. Now that elephant has turned 180 degrees around and is trampeling our economy. And, to stop this charging elepahnt, they are swatting it with a fly swatter. Sure, it is the biggest, meanest fly swatter ever, but how can they expect it to stop the charging elephant???? Oh, wait… They aren’t just claiming this fly swatter will halt the elephant in its tracks. They claim they can make it do another 180 and make it start pulling the economy again.

All fall down.

Newsweek’s Jane Bryant Quinn advises consumers to declare bankruptcy this year, en masse.

http://www.newsweek.com/id/177749?GT1=43002

“It’s painful and humiliating even to consider bankruptcy, let alone join that crowd in the courthouse corridor, waiting for your name to be called. Normally I’d say suck it up, cut spending and repay your consumer debt. But that’s not always possible, especially with an economic tsunami rolling over your home, job and health insurance.”

“Don’t try to preserve your house if you’re going broke. Stop making payments, stay there while foreclosure is underway, then move out and rent. If the mortgage is underwater, ‘you’re already functionally renting because you have no equity,’ says Adam Levitin, a professor at Georgetown University Law Center. In theory, many states allow lenders to chase you for the sum still owed after the house is sold. But that’s rare, Warren says. Lenders know that you probably can’t pay.”

The first foreclosure on my street!

Woo hoo!

http://tinyurl.com/9gjgtn

Priced at $905k for a 3/2, we still have a long way to go. But, this is a modest start. Just think - 3/2’s were going for 1.3M-1.85M at the peak in my neighborhood, so this is a huge step backwards.

This is the house that I have rented for the past 6 years :
http://tinyurl.com/7ogsod

I love this waiting game, now! So much fun.

First foreclosure on my street, in 90048 :

http://tinyurl.com/9gjgtn

At $905k for a 3/2, we still have a long way to go. However, at the peak 3/2’s were fetching between $1.3M-1.8M in my neighborhood.
This house has a recent comp, too :
Sold (05/28/2008): $1,180,960*
2008 Property Tax: $14,677

That property tax amount is what most people pay in rent here in LA.

This doom and gloom news is getting old already. When will things turn out ‘better than expected’ again?

GM’s 2008 U.S. Sales Plummet to 49-Year Low; Toyota, Honda Fall
By Mike Ramsey and Alan Ohnsman

Jan. 5 (Bloomberg) — General Motors Corp.’s 2008 U.S. sales plunged to a 49-year low, dragged down by a 31 percent plunge in December as demand was ravaged by the recession and concern that the biggest domestic automaker might collapse.

Toyota Motor Corp.’s U.S. deliveries plummeted 37 percent last month, while Honda Motor Co. slipped 35 percent, Ford Motor Co. fell 32 percent and Nissan Motor Co. was down 31 percent, pointing toward the industry’s worst annual volume since 1992.

The federal rescue of GM and Chrysler LLC couldn’t overcome the weight of consumer pessimism and tight credit in the world’s biggest auto market. Ford’s annual U.S. sales sagged to a 47- year low, while GM’s total of 2.98 million was the least since 1959, according to trade publication Automotive News.

“If consumer confidence doesn’t snap back soon, it’s going to be difficult for the automakers,” said John Wolkonowicz, an analyst with IHS Global Insight Inc. in Lexington, Massachusetts. “It isn’t just GM, Ford, Chrysler that are suffering from this. It is the entire auto industry globally.”

–
Just finished watching Obama’s news conference on economy.

It hit me that everything in American governance is tailored to fit dopes, especially the born-and-bred variety. This includes the President, the Fed Chairman, the Treasury Secretary and on and on. Anyone not suitable for dopes would have no chance. One example would suffice. Bernanke was about to write a book in 2002 titiled, “How Politicians and Policymakers Caused the Great Depression.” Well, who all are in-charge now?

We are screwed. No?

Jas

12:40 PST, PPT efforting.

I guess Obama is pushing for a $300 billion tax cut, $100 billion of which will be given back to businesses to cover losses over a 5 year spread. $200 billion for families or something.

It’s a good start but what about the $1 trillion in new spending?

The printing press will pay for it.

George W. Bush’s 3rd term starts after inauguration day.

The mainstream media has stooped to a new low:

January 05, 2009

NEW YORK (AdAge.com) — The New York Times unveiled a display ad on its front page, despite decades of fear that advertising there could contaminate the journalistic product or brand.

Today’s ad, which promotes CBS, occupies a strip of real estate two and a half inches high at the very bottom of page A1.

Today’s ad, which promotes CBS, occupies a strip of real estate two and a half inches high at the very bottom of page A1. That makes the unit less noticeable than the boxes available on the front of Rupert Murdoch’s Wall Street Journal, but it’s still a big departure for the Times.

Complete article at: http://adage.com/mediaworks/article?article_id=133557

“A quarter of all British families will have no disposable income in 2009, dealing yet another blow to the beleaguered retail sector.”

http://www.independent.co.uk/news/business/news/consumer-cash-crisis-turns-the-screw-on-the-high-street-1223894.html

I am not going to look it up, but IIRC in the US, the pre recession number number is 32%.

Muir, where should I stay for a night in Miami?

I am looking for a reasonable hotel close to whatever is considered the “Miami experience”.

So here’s something I’ve been thinking/wondering about:

I hear folks talking about “people buying homes when they should be renters”, about the “normal level of home ownership” and about “artificially high levels of home ownership”, etc., etc.

So - in an ideal world (yes I am a big picture thinker), what should be the percentage of home owners vs. renters?

What is your economic reasoning for your answer? Moral reasoning?

Why should some people own homes and others be renters?

I am not being rhetorical, either. I think this would be a good discussion. There seems to be a lot of opinions on HBB about this subject, but I wonder how many of them are really thought out and and have a foundation in a larger, solid political/philosophical worldview.

A blast from the past:

Broke, busted, disgusted, Realty agents can’t be trusted,
And Mitchy wants to go to the sea.
Cass can’t make it; she says we’ll have to fake it—
We knew she’d come eventually.
Greasin’ on American Express cards;
Tent’s low rent, but keeping out the heat’s hard.
Duffy’s good vibrations and our imaginations
Can’t get us out of this scare.
And California dreamin’ is becomin’ a real nightmare.

Jan. 5 (Bloomberg) — Wall Street’s biggest bond firms say Treasuries will fall for the first time in a decade as efforts to spur the economy gain traction and the flight to safety that drove the best returns in government debt since 1995 wanes.

Benchmark 10-year notes may lose 3.5 percent this year, the first loss since declining 8.3 percent in 1999, based on the median forecast of the 17 primary government security dealers that trade with the Federal Reserve. After last year’s rally, yields are so low coupon payments can’t make up for any drop in bond prices, they said.

Traders’ expectations for inflation over the next decade are near the lowest on record, based on the 0.11 percentage- point gap between yields on 10-year Treasury Inflation Protected Securities, or TIPS, and notes with the same maturity. The gap briefly turned negative in December as investors predicted deflation.

Privatizing Social Security in Italy

Jan. 5 (Bloomberg) — Italy did for retirement financing what President George W. Bush couldn’t do in the U.S.: It privatized part of its social security system. The timing couldn’t have been worse.

The global market meltdown has created losses for those who agreed to shift their contributions from a government severance payment plan to private funds meant to yield higher returns. Anger is rising both at the state, which promoted the change, and money managers such as UniCredit SpA and Arca Previdenza, which stood to profit.

Italy’s benchmark stock index has fallen 53 percent since the switchover

and now the kicker

The government is considering Covip’s proposal to compensate retirees for losses on private pensions incurred in the 12 months beginning Aug. 31, 2008. The watchdog has also proposed forcing funds to adopt more conservative investment strategies as clients near retirement.

Can you say Moral Hazard - Gov will cover your losses but you can keep it when your portfolio full of high flying stocks goes higher.

Prediction for 12/31/2009: Treasury securities will no longer be called “risk-free” securities, whether in economics textbooks, the MSM, or general discussion. And I’m not talking about the risk of losses due to price decreases brought about by increases in interest rates. Wal-mart paper (to pick an example) could trade through Treasuries.

Question for anyone who has this figured out:

How will Obamanation pay for $1t in new stimulus? Or have we returned again to the “money grows on trees” school of economic thinking?

Question for those in the know about corporate bonds, if I may.

I’m checking into the retirement portfolio of my MIL, and it looks pretty bad - some very risky stuff in there, even though she’s 70. For instance one bad one is a significant amount in corporate bonds for Sanmina-SCI. From looking at the fundamentals it appears that chances are they’ll be going bankrupt soon, probably in 2009.

I know in bankruptcy, there are various “priorities” given to paying back the bondholders - right? Assuming this company does go bankrupt - is there a way to know what her chances are of getting some principle back? If so - is it an all-or-none thing, or might it be a percentage? I’ve also heard of some companies exchanging bonds for equity - stock I presume, and presumably only if the company emerges via Chapter 11.

The specifics of these bonds are:

CUSIP 800907AJ6
Issue date 6/1/05
Maturity date 3/1/2013
Coupon 6.75%
Rating B3/B- (junk, right?)
Aug. 08 price 90.25
Current price 44.00 (!!!)

Side note - this is a good sized company - 38k employees recently. Apparently very poorly managed.

Though apparently this is/was a really bad investment, I’m wondering if it would make any sense to try and sell the bonds now. She has a large quantity, and I’m guessing trying to sell them on the open market she won’t even get 44.00 for them.

Also - what does “44.00″ mean - is that generally in cents? Or just relative to whatever the original purchase price was - e.g. 44%? I don’t know what the original price was, though am trying to find out. Based on her statement, it looks like it’s 44 cents - i.e. if I multiply the quantity times the price, it equals the current value shown.

Thanks.

A bad year for the world’s banks ahead, say Deutsche Bank analysts. “Loan losses might even surpass the 3.4 percent loss levels reached in 1934 during the Great Depression”

Bank loan losses may double by 2010-end: Deutsche
Mon Jan 5, 2009 3:50pm GMT

Reuters) - Loan losses for U.S. commercial banks are expected to rise to 3 percent by the end of 2010, from 1.5 percent in the third quarter of 2008, hurt by an increased percentage of bad loans, greater consumer leverage and faster problem recognition by banks, Deutsche Bank said.

Loan losses might even surpass the 3.4 percent loss levels reached in 1934 during the Great Depression as the industry has taken on increased structural risk in addition to mortgages that should become more apparent during the cyclical slowdown, the brokerage said.

Internal capital generation may not be enough to cushion losses, Deutsche Bank said and cut its earnings view on 16 large commercial banks, including Citigroup (C.N), Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N).

Earnings for the group will experience further pressure in the form of lower revenue in the near term, given lower economic growth and consumer spending, the brokerage said.

“Moreover, additional securities losses or tougher requirements from regulators and ratings agencies may constrain existing capital, potentially forcing a bank to limit balance sheet growth and/or pay dividends,” Deutsche Bank wrote in a research note.

Manhattan apartment prices fall, will drop further
Mon Jan 5, 2009 11:08pm EST

By Helen Chernikoff

NEW YORK (Reuters) - Prices of existing Manhattan apartments fell nearly 4 percent in the fourth quarter, two reports showed, and analysts warned of much deeper declines in coming months in the wake of turmoil on Wall Street and financial sector layoffs.

The median sales price — in which half the sales prices were higher and half were lower — of an existing Manhattan apartment fell 3.6 percent to $732,500, according to the Prudential Douglas Elliman Manhattan Fourth Quarter Market Overview.

“You could say it started the second week of September when Lehman (Brothers) filed for bankruptcy,” said Dottie Herman, chief executive of Prudential Douglas Elliman, one of the United States’ largest real estate companies.

Confessions of a former real estate bull

As chief economist for the National Association of Realtors, David Lereah was famously optimistic. Now a private consultant, he’s abandoned what he calls the ‘positive spin.’

Q. The NAR’s latest forecast calls for a slight increase in home prices next year. Thoughts?

A. My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get back to the peak prices we saw in many markets.

Q. Any regrets?

A. I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.

http://money.cnn.com/2009/01/05/real_estate/Lereah.moneymag/index.htm?postversion=2009010510

Obamanation is planning to richly reward the builders and their bankers who p!ssed away the national wealth on building unneeded, unwanted, overpriced McMansion tract home developments. But don’t worry — since this is funded by tax cuts, it won’t cost Joe Taxpayer a nickel (snark!)…

Ye gads! (Now I get why the builder share are so blaming resilient!)

Wall Street Journal

* JANUARY 6, 2009

Write-Offs a Boon to Builders, Bankers
By JESSE DRUCKER

The main business tax cuts proposed by President-elect Barack Obama are likely to be a windfall for two industries particularly tied to the current economic meltdown: Wall Street investment banks and home builders.

Under the proposal being crafted by the incoming Obama administration and congressional Democrats, companies would be able to use their so-called tax losses to offset taxable U.S. profits earned in the past five years.

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