Bits Bucket For May 18, 2009
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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Geither’s gift to Wall Street:
“NEW YORK (Fortune) — Imagine if you were not really in the market for a house but the government came along and said that it would finance 94% of a home’s purchase price with a mortgage rate of less than 3%. Still not interested? Wait, Uncle Sam has some additional sweeteners: if you do the deal and buy the house for only 6% down, you also get the equivalent of rental income every month to the tune of at least an annualized yield of 10% of the purchase price.
But wait there’s still more: if, say, after two years, you decide you don’t want the house any longer, you can just walk away from it. No need to pay the balance of the mortgage (it won’t effect your credit rating), and you can keep the rental income received to date.”
http://money.cnn.com/2009/05/18/news/economy/geithner-talf.fortune/index.htm?postversion=2009051808
Where do I sign up for this fantastic deal?
Of course the right analogy is not a house, but a likely worthless piece of paper.
Comment by jbunniii
Of course the right analogy is not a house, but a likely worthless piece of paper.
You buy the house?
Leigh -
Not on Ben’s den.
Just for fun-
How many comments will be posted in today’s Bits Bucket by 6pm EDT?
My guess is 405.
Heisenberg’s Uncertainty Principle at work.
I’ll take 386.
Are we there yet?
It’s after 7 PM EDT and only 258 posts.
Slackers!
Don’t blame the slackers. Blame Heisenberg and packman.
Er…294 Bubs?
Leigh
Bump
Here: something we talked about months ago.
(nailed it!)
________
Major Madoff Victims Under Investigation
Top friends and clients would request certain returns for the year, and Madoff would comply. In some cases, they reached 900% per year.
“Investigators are turning their focus to some of Bernie Madoff’s largest “victims”, as evidence piles up that they must’ve known fraud was at hand.
The damning part: Some would specifically request a certain level of returns in advance.
Among the names being looked at include … original feeder Frank Avellino, the man who told his housekeeper that she’d lost all her money, 10 days before the Madoff bust occurred.
Mr. Picower and his wife, Barbara, had two dozen accounts with Mr. Madoff and received annual returns of more than 100% in 14 instances, reaching as high as 950%, Mr. Picard alleged.
Correspondence between Mr. Picower or one of his employees and the Madoff firm suggests complicity, Mr. Picard alleged. In May 2007, for example, a foundation employee named April Freilich requested gains on Mr. Picower’s behalf, according to the suit. The Madoff firm then recorded purported trades in his account as having occurred in January and February 2006, according to the lawsuit. That and similar moves in May 2007 netted Mr. Picower $55 million in fictitious gains, the suit alleged
Hang ‘em high!
These guys should have watched MADtv, they had a sketch about some guy calling the cops to report his weed stolen.
OUTSTANDING!
See people, they’ll get the SOBs, but they are so swamped it will take time.
Holy Cow Muir!
Mr. Picower and his wife, Barbara, had two dozen accounts with Mr. Madoff and received annual returns of more than 100% in 14 instances, reaching as high as 950%, Mr. Picard alleged.
Yeah, the investor(s) did’nt know.
Good night Irene!
Leigh
Morning Y’all. Hussman predicts run-away inflation in 2012?
May 18, 2009
The Destructive Implications of the Bailout - Understanding Equilibrium
………….
The bottom line is that the attempt to save bank bondholders from losses – to provide monetary compensation without economic production – is not sound economic policy but is instead a grand monetary experiment that has never been tried in the developed world except in Germany circa 1921. This policy can only have one of two effects: either it will crowd out over $1 trillion of gross domestic investment that would otherwise have occurred if the appropriate losses had been wiped off the ledger (instead of making bank bondholders whole), or it will result in a stunning and durable increase in the quantity of base money, which will ultimately be accompanied not by a year or two of 5-6% inflation, but most probably by a near-doubling of the U.S. price level over the next decade. As I’ve noted previously, the growth rate of government spending is better correlated with subsequent inflation than even growth in money supply itself, particularly at 4-year intervals. Regardless of near-term deflation pressures from a continued mortgage crisis, our present course is consistent with double digit inflation once any incipient recovery emerges.
a near-doubling of the U.S. price level over the next decade
You see guys: housing prices will return to the heady days of 2006 in the next few years.
Buy now or forever be priced out!
Sounds right to me.
In New Future, inflation, taxes, and unemploment will all be high and stay that way. Housing will stay overpriced as more and more of it is absorbed into various shadowy groups that buy up masses of empty houses and then get Bailouts from the government to keep prices high since that is “good for the country”. The house that should cost $150,000 would have cost $300,000 at the peak, will cost $225,000 in the future, will be valued as $400,000 on the crooked books of the banks, and will be taxed at $300,000 as if the Bubble never ended. Meanwhile, you’ll be earning less than you did before (effectively), so the house will still not be affordable. Fortunately, with endless Bailouts, the banks (or whoever holds them) can hold the houses forever.
“the attempt to save bank bondholders from losses”
Is doublespeak for bailing out the very richest (top 1%) amongst us?
Rhetorical question, right?
“You can’t legislate greed.”
My point exactly!
So, why is armed robbery against the law?
Roidy
- Citizens taking money from banks is against the law.
- The Fed taking money from savers through printing currency in excess of the value of wealth creation is SOP. In fact, we are so used to having our wealth inflated away that the absence of inflation is sufficient grounds for panic at the Fed.
In other words - the main difference between the two is that a bank robber doesn’t pretend like he’s not breaking the law.
And that level of honesty is BAD for the system!
I just got my coffee, I’ll guess later.
Morning everyone!
Good morning Rancher!
And a mornin ta you HBBers!
Leigh
Morning. Enough of this coffee. After watching the market take off for absolutely no
good reason, I hereby declare it is 5 pm and I’ll
even forego breakfast….laughing!
This market move over the past few months is nothing but one GIANT sucker rally. Every time I turn on the TV, I hear some shill calling a bottom in the economy or housing. Housing is not bottoming anywhere in this country. In Reno, NV, for instance, prices are down 50%, yet NOD’s just set another all time record. Yeah, that’s a sign of price stabilization- NOT.
It seems as if traders believe that the stock market can return to it’s heady days while the general population dies on the vine. I think that’s an impossibility. Without a healthy consumer, most public companies and their stocks will stagnate at best.
“Let them eat cake.”
I agree BanteringBear, it is one big sucker rally.
But you know, Louie XVI lost his head over over the fundamentals as well.
Some people never learn.
I was thinking of putting the next $1,000 in my Roth IRA the other day, but I decided to wait until this little blip of the last couple of months disappears.
The blog called this a long time ago http://finance.yahoo.com/real-estate/article/107041/House-Price-Drops-Leave-More-Underwater
Has anyone seen the list of the GM dealers that were cut Friday? I have not been able to find one. Thanks
http://www.gminsidenews.com/forums/f12/gm-dealership-closing-list-updating-constantly-79399/
That’s nothing but a paltry list of 75 dealerships whose employees are signaling they’ll close. It’d be nice to see a real list of the more than 1,100 who’ve been notified by GM.
From what I understand the cuts wont take place until late next year. Isn’t the recovery supposed to be in full swing by then? Why the cuts into the recovery? Something smells like bs.
Yeah, that does sound fishy. And why would anyone buy from a dealer that they know won’t be there to service the vehicle (when under warranty)?
The MSM says there will be great deals at the closing dealers, but that’s just buzz - the reality will be probably closer to the Circuit City experience.
Lastly, car dealers aren’t saints - it’s not like they’re closing down orphanages or animal shelters or something.
There may be contractural reasons why GM can’t terminate the dealers’ contracts without notice.
UAW says GM talks to intensify; jobs issue loomsMay 18, 2009 9:01 AM ET
reportGM, Chrysler to drop 1,900 dealers by end of 2010
All Thomson Reuters newsDETROIT (Reuters) - The United Auto Workers union expects a crucial round of restructuring talks with General Motors Corp “to intensify this coming week” ahead of an end-of-May deadline set by the Obama administration.
In an e-mail message sent to rank-and-file workers, the union also repeated its opposition to GM’s plans to close 16 U.S. manufacturing plants and cut about 21,000 jobs while also planning to increase vehicle imports from GM plants in lower-wage economies such as Mexico, South Korea and China.
“The UAW is actively involved in these complex negotiations, which involve the Obama auto task force, GM management, bondholders and secured lenders, dealers, parts suppliers and other stakeholders,” the union said in the message. “These negotiations will have a major impact on wages, benefits and jobs for active and retired UAW members.
“We are expecting the restructuring negotiations to intensify this coming week,”
The unusual email message to UAW-represented workers comes as UAW President Ron Gettelfinger and GM Chief Executive Fritz Henderson are both due in Washington on Monday for talks with U.S. officials.
Those discussions have a growing urgency because GM faces a deadline to restructure its debt, including healthcare-related obligations to the UAW, by the end of the month ahead of a bankruptcy filing that the automaker says is now probable.
GM has a $1 billion bond payment due June 1 and must complete debt restructuring talks by then or file for bankruptcy, executives have said.
GM has been kept in operation since the start of the year with more than $15 billion in federal loans and would be majority owned by the U.S. government under the terms of the reorganization it has proposed to the Obama administration.
In its email message to members sent late Sunday, UAW leadership urged auto workers and retirees to write to President Barack Obama and ask him to dictate job-saving changes to GM’s restructuring plan.
The union campaigned for Obama during last year’s election, and the White House-appointed autos task force being steered by former investment banker Steve Rattner has shown special consideration for the union’s position in the reorganization of GM’s smaller rival, Chrysler LLC.
This is like what, the tenth time Gettlefinger has asked everyone to write the president? They might as well write the North Pole while they’re at it.
Chrysler expands buyout, early retirement packages May 18, 2009 11:32 AM ET
All Associated Press news DETROIT (AP) - Chrysler LLC has expanded early retirement and buyout offers at six of the eight factories it plans to close as part of its bankruptcy restructuring.
The offers expire May 26 and in some cases are better than an offer now on the table for all U.S. factory workers.
The offers include a $50,000 payment for early retirement and $75,000 to $115,000 for buyouts depending on seniority. Workers also get a $25,000 voucher for a vehicle.
The new offers apply to the Conner Avenue plant in Detroit; the St. Louis North and South assembly plants; the Kenosha, Wis., engine factory; the Twinsburg, Ohio, parts stamping plant and the Sterling Heights, Mich., assembly plant
Huffington Post has a short list, so far.
I’m looking for same. I’d like to cop a deal on a new duramax but the salesman said they’re aren’t just going to give them away. :sarcasmoff:
I used to want a Duramax, too. After my latest GM experience, I’d go with a Cummins. They’re more reliable and longer lasting.
The CTD is a good motor but the rest of the truck is junk. Besides, they look like a flamboyantly gay auto architect went wild with a paint brush. All flash, no a$$ so to speak.
LOL. I actually prefer the body of the GMC as well. But, I know a lot of guys with diesels, and most of them have ended up with a Cummins, even after having Power Stroke’s and Duramax’s. They swear by them. I’m going with a Dodge Cummins next, if they’re still in business.
CTD’s certainly are more affordable. The rub with the CTD isn’t the engine as it is a great engine albeit very noisy. Ask any CTD owner how many times he’s replaced the transmission. Everyone I know, without exception has replaced the tranny at least once. No thanks.
I’ve owed a dozen or more Ford halfs and 3/4’s and up until I drove a duramax, I never owned a GM product, period. I have to say I will never go back to Ford after driving the dmax. As a daily driver, there is no match and hauls 7 tons effortlessly. And given Fords legal battle with International and the failure prone Powerjoke, the choice was easy.
Here’s a question for ya….
How is it that a powerjoke in a schoolbus will go 400k miles with no problems but when you put it in a Ford pickup, you can’t go 20k miles without serious problems? I don’t get it. It’s the same block, same heads, etc.
The list of the 1,100 dealerships that GM is closing has begun to trickle in. Early this morning, GM dealerships across the country anxiously waited for FedEx packages to arrive, which indicated which franchises will be shut down. GM announced that it will close nearly one quarter of its U.S. dealerships.
GM, however, isn’t publicly disclosing the list of dealerships that will be shuttered. The Huffington Post is compiling the closed dealerships as we find them.
Leigh
Thanks, I had not heard if GM was going to release a complete list.
Guess they will once all the ax letters get delivered. A dealer I know says they are expecting GM to file BK right before the first and cut another 800 or so dealerships.
WOW - the swishing sound is getting louder.
Leigh
Kinda like that swather in Caligula?
GM, Chrysler to drop 1,900 dealers by end of 2010May 16, 2009 12:16 PM ET
All Associated Press news NEW YORK (AP) - A decision by troubled automaker General Motors to drop 20 percent of its dealers in the U.S. is due in part to an oversized network that created stiff internal competition and gave shoppers too much leverage to talk down prices, hurting chances for future sales.
GM’s announcement Friday is more bad economic news for dealers, communities and businesses still reeling from Chrysler’s similar nationwide dealer cuts a day earlier. Both automakers are scrambling to reorganize and stay alive in a severe recession that has devastated sales of cars and trucks.
Several hundred of the roughly 1,100 GM dealers already knew they were headed for closure, but most of them learned for the first time Friday. The dealerships will be eliminated when their contracts end late next year.
“We’re 98 years old. We’re two years from a hundred, and I don’t want to go out at 99 years,” said Alan Bigelow, whose family runs a Cleveland-area Chevrolet dealer that learned it was on GM’s hit list.
Including Chrysler’s decision Thursday to eliminate a quarter of its own dealers, about 1,900 dealerships learned in a matter of 48 hours that they would be forced either to sell fewer brands or close altogether.
The National Automobile Dealers Association, an industry group, says the GM and Chrysler cuts combined could wipe out 100,000 jobs.
Chrysler LLC is already in bankruptcy protection, and industry analysts say General Motors Corp. is making its cuts now in preparation for a bankruptcy filing June 1. The company says it would prefer to restructure out of court.
GM declined to reveal which dealers will be eliminated. Many dealers vowed to fight, first through a 30-day company appeal process, then possibly in court.
GM’s dealers are protected by state franchise laws, and the company concedes it would be easier to cut them if it were operating under federal bankruptcy protection. GM says it’s trying to restructure outside of bankruptcy because of the stigma involved in going through a court-approved reorganization plan.
Chrysler dealers have fewer options because the company has already filed for bankruptcy protection, and federal bankruptcy judges generally trump state law. And Chrysler said on Thursday that its cuts were final.
GM outlined a plan to cut about 40 percent of its 6,000-dealer network by the end of 2010 in hopes of getting the company back on its feet. Besides the 1,110 dealership cuts, the company will shed about 500 dealerships that market the Saturn, Hummer and Saab brands, which GM plans to phase out or sell.
And when the surviving dealers’ contracts are up in late 2010, GM will cut still more by not offering renewals to about 10 percent of the dealers who are left. Dealers could stay open selling used cars or other brands, but GM and Chrysler cuts will still leave cities across the U.S. with empty buildings, vacant lots and perhaps hundreds of thousands of dollars in lost tax revenues.
FedEx letters bearing the bad news began arriving Friday morning at GM franchises around the country. The letter states that dealers had been judged on sales, customer service scores, location, condition of facilities and other criteria.
The Obama administration’s auto task force, which is overseeing the GM and Chrysler restructuring because both have received billions of dollars from the government, was aware GM would cut dealers, LaNeve said. But he stressed the company made the decision on how many and where.
Chrysler is aiming to close its nearly 800 dealers by June 9, and those outlets may try deep discounts to clear out their remaining inventory. But in the long run, prices for cars and trucks will probably rise for customers as dealerships disappear.
As GM and Chrysler lost market share to Japanese and other overseas brands, they ended up with too many dealers. So did Ford Motor Co., which has managed to stay healthier than either of its Detroit siblings.
In the 1980s, GM, Chrysler and Ford accounted for more than 75 percent of U.S. sales, but that dropped to 48 percent last year. GM alone held nearly 51 percent of the market in 1962, but only 22 percent last year.
Bigelow was stunned to get his termination letter. He said he believed the dealership was meeting all of GM’s criteria to stay in business. He said sales had dropped in the recession — but he didn’t know of many dealers who were doing better.
Many of the dealership’s 45 employees have been there for 30 years or more. He said they pledged to stay and fight the closing “until there’s no more fight left.”
“A dealer I know says they are expecting GM to file BK right before the first”
If they do, those checks they’re cutting May 28th will be useless. Same thing happened to us with Chrysler last month.
My understanding was they did not have to release the list like Chrystler did because they were not in BK. We will all know soon enough.
…and no wonder. New cars are like the fastest depriciating assest you can buy.
hummm..kinda like ..houses.
It’s become very expensive to move around or hole-up in style in today’s “Ownership Society”.
Welcome to America !
How does axing dealers save GM money? Dealers are owned and operated independently from GM itself. They buy cars from GM and sell those cars for more. I don’t see how having fewer retailers selling a manufacturer’s product saves the manufacturer money.
Sony makes electronics. They sell those electronics to Best Buy. Best Buy sells the products to the public. If Best Buy closed 1000 stores, Sony wouldn’t save any money right? if anything Sony would be hurt since there would be fewer stores selling Sont products.
So how is GM’s situation different with its dealers?
How does axing dealers save GM money ??
My take is its not as much about saving money then it is about allocating a more limited resource…Less lines, less cars = less dealers…
So how is GM’s situation different with its dealers?
I’m going to guess that the dealers operate at the pleasure of GM.
Too many dealers in an area will tend to depress prices for a particular brand.
I don’t suppose one dealer will say, “Hey, I’m making it difficult for the other guys to make a profit, so I’m going to close up”, so it’s up to GM to make the call.
If you’re right then GM’s strategy is like a home builder raising prices in order to sell more houses. Genius!
Problem is GM dealerships look old and run down. Honda and Toyota dealers look clean and modern. GM dealers look like they were built in 1962 and haven’t updated much since.
It depends on the location. Out here its the other way around.
Exactly, In Colorado, it depends upon the city.
The trouble here is it’s not directly comparable to your Sony example.
When Sony fills an order for Best Buy they sell the products to the retailers at wholesale, and wash their hands of things. That is the start and finish of Sony’s whole transaction. If Best Buy discovers the latest Sony widget is a POS and doesn’t sell, the worst thing that can happen to Sony is Best Buy orders less product next time around. Best Buy takes the hit.
When GM sells a bunch of cars to one of these small underperforming dealers, they floorplan them. The dealers do not “own” these cars. This means essentially the dealer has these cars on loan from GM, and has a good LONG time to find a home for them before they need to worry about paying them off. There’s even some leeway after the sale, as I recall you have 45 days after a sale to pay off a vehicle, most dealers float RIGHT to the line. GM is under obligation under franchise agreements to give these dealers inventory to retail, and this inventory sits around FOREVER with GM footing the bill until sale. Back when times were -good- I worked at a GM store, even back then we had “new cars” at our dealership that were 1-2 model years old at all times. Our average age of inventory was probably close to 200 days old. Today the situation is much worse with lower sales figures, higher age of inventory, and GM having extreme difficulties obtaining enough cash-on-hand to float all of these “floorplan” cars. These old models sitting around on loan not being paid for become a problem for GM, so GM has to release huge rebates and incentives on the old inventory to try and keep the cash flowing.
To make matter’s even more fun, GM’s finance arm who handles the floorplans for these dealers (gmac) is 51% owned by cerberus (the guys who own chrysler). They have been threatening for 6 months now to pull the plug on floorplans for underperforming dealers across the nation. I’d bet this is a primary motivator here.
Axe a TON of dealers, reduce the amount of cars you need to stock across the nation DRASTICALLY, reduce the amount of floorplan DRASTICALLY. The in-fighting and heavy competition between the 9 Chevy stores in your city eases, prices rise, and you need less incentives and rebates to clear excess inventory. It’s win-win for everyone - except the 2700 dealers that get the axe.
Doesn’t the dealer pay interest on the financing loan? I’m pretty sure they do. So if they hold a car for 1-2 years, they’re paying interest that whole time to GM.
Even if that’s not the case, wouldn’t it make more sense to just sell fewer cars to the dealers rather than close the dealerships?
Maybe in a big city it won’t make much of a difference. If let’s say Atlanta goes from having 20 GM dealers to 15 dealers, if someone wants to buy a GM they’ll still do it. But what about small towns or rural areas. If the 1 GM dealer in my town is closed, I’m not going to drive 100 miles to find the next dealer. I’ll go buy a Ford or Toyota or whatever dealer is closest to me. Because if I buy a GM, every time I need warranty service I’ll have to drive 100 miles each way.
I guess I don’t know the industry well enough to full understand what’s happening. But just from a basic business model, when trying to sell more product you don’t eliminate 1/2 of your retail outlets.
You eventually make small amounts of interest on the vehicles that are floorplan’ed, but dealers end-around this in many ways (buying out cars that are approaching requiring a payment and floorplan’ing them elsewhere for example). It’s not as big a cash-cow as you would think, and there is often reimbursements to the dealers to help cover this on cars that aren’t selling well.
It’s a complicated web.
I understand your thinking KJ, but GM requires a staggering amount of cash-on-hand to be able to support such an overblown network of dealers. When cash was plentiful even just a handful of years ago GM was handing out franchises as fast as people would take them. Why not have more sales points, we can afford to stock the whole damn world with inventory!
Now that cash at GM is incredibly finite (well, lets face it, it’s gone), you cannot support the immense cash reserves required to produce, support, and stock all of these dealers. They can’t even put together enough cash without government help to keep their supply chain running and cars rolling off factory floors. This is -bad-.
This isn’t even taking into account the huge pounding GM’s vehicle values have taken in this market. Costs to produce cars keep on going up, and prices have been in free-fall. With less dealer competition and a more limited supply you have better pricing supported, better resale value, and less rebates required from GM to move the product.
In any event the top 50% of GM dealers sell close to 90% of their total yearly output, why not focus there instead of on the dealers selling 50 cars a -year-. Costs savings from only supporting the top 50% in a down market like this makes up for the loss of 10% of your yearly sales. They already need to reduce production massively to match demand, so it’s a no brainer. May as well consolidate everything at the places it’s selling.
What nobody talks about is the “too few dealers” argument.
The local Toyota dealer suffers from what would normally be “terminal arrogance”. No making a deal, MSRP + the typical dealer add-on crap, Eff you if you don’t like it, where else are you going to go for a Toyota, you loser?
Khan Noonian Singh must be the Sales Manager.
And he’s right…….the next nearest Toyota dealer is 40-50 miles away. The next one is 60 miles beyond that…..
OTOH, if the local Chevy dealer won’t play ball, the Pontiac guy two miles down the road sells something similar.
The ownership experience is going to be getting a lot more expensive, if the culling plan is implemented.
Temporal,
Thanks for the long explanation. Makes a lot more sense now.
Maybe GM could offer to give away a house with each purchase of a new GM vehicle.
Maybe GM could offer to give away a house with each purchase of a new GM vehicle.
Genius!
A house in Detroit, of course?
Independent stealerships have very complex deals with the Big 3.
At any given time there may a million dollars a month per dealership being floated back and forth between the mfg and the dealer. That’s a million dollars that only exists on paper until it “lands” somewhere. That’s a lot of money in limbo at any given moment.
Not to mention the parts deals, the insurance deals, the special incentives, the buybacks, the leasings, the financing, the facilities assistance, co-op advertising, etc.
The overhead alone of just managing all that is enormous.
Wait, I just thought of something. There’s a gold mine of information there if anyone wants to plot all the dealership closures on a map. It’s an insight into which towns and neighborhoods may just be in terminal decline.
Think about it, areas where household income can’t generate enough sales are also likely to be areas “permanantly” losing jobs. That and the loss of tax base from the closeures ensures even more trouble ahead.
Now all you househunters out there could use that info to avoid buying in a FUBAR area.
There’s a google map out there that shows Chrysler closures. Kinda cool to see it plotted out like that.
I notice the Cadillac dealer in Bend OR is on the list for closing. I wonder whether DinOR wants to comment.
Spock cursing Kirk:
May your Heloc live long and crush you!
+10 LOL
“The Trouble With Tribbles”
(delete Tribbles and replace with refi’s)
Add “VL” to your list of economic recovery letters, in addition to “V”, “U”, “L” and “W”:
Jeremy Grantham’s latest quarterly letter, headlined “The Last Hurrah and Seven Lean Years”: Grantham does a particularly good job of explaining why trying to come up with guesses about market outcomes — a fool’s game that those of us in the business are always engaged in — is more difficult now than it has been at many junctures in the recent past. Grantham does present his own probabilities for various outcomes. He also shares some really interesting insights regarding investment “rigor mortis,” a very seductive and dangerous trap that catches nearly everyone on occasion and keeps them from moving when it’s time for action.
In addition, he introduces the concept of a recovery that has a “VL” shape, which I find quite interesting. This is an economy “in which the stimulus causes a fairly quick but superficial recovery, followed by a second decline, followed in turn by a long, drawn-out period of sub-normal growth.”
“… followed in turn by a long, drawn-out period of sub-normal growth.”
This will be the time to come out of cash and move into Ben Graham-type stocks.
combo,
Could you expound a little on Ben Graham-type stocks?
Stocks of value, maybe? You know, companies that actually do something.
Read “The Intellegent Investor”.
Briefly: A Ben Graham-type stock is one that sells for about one-half of its fundamental value.
Graham had a saying: “In the short run the stock market is a voting machine, in the long run it is a weighing machine”.
The intellegent investor buys when the stock voters decide to sell at well below the stock’s fundamental value, and sells when they vote the price up to above this value. All that is necessary is to determine just what this fundamental value is.
And exercise patience.
Intellegent = Intelligent
thanks combo
I think it is more like an “LL” if you could specify that the first L is not in a sansserif font so there is a little twitch up at the end of the first L. Or maybe a backwards J and an L. “VL” implies going back to the top or somewhere close to it before going down. A small bump up does not mean we are going to get back to 2005 before going down again.
This recovery is going to be slow as L. (say it out loud).
How about a “O” shaped recover so we can all run around in circles and do loops for the Gov’t and the Banks?
Ooops…we’re ALREADY doing THAT !
Search for “gm dealer closing list”.
How hard can this be? Do people do a basic search before they ask questions?
How hard can this be? Do people do a basic search before they ask questions?
LMGTFY
(Third try this morning)
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahuizoIPC7zA&refer=home
British real estate is a screaming buy. Who knew?
As Troll, the head of Troll Brothers said, in New Future, we’ll all be “like people in Europe” while living in tiny little shacks with our parents until we’re 40 and we’ll then pay 2/3 of our paycheck to make the mortgage payments. Somehow, he saw this as a good thing and, and I guess some geniuses in England really want this to be their future as well.
Thanks for the link.
If I had a bunch of Euros burning a hole in my pocket I would immediately rush out and buy overpriced UK real estate…
“The pound may recover even as Gordon’s Brown’s popularity declines amid voter discontent about his management of the economy and a scandal over parliamentary expenses.”
Last Friday’s BBC Radio 4 Friday news quiz has some good jokes about the parliamentary expenses scandal. You can listen to it online or download it as a podcast.
http://www.bbc.co.uk/programmes/b006r9yq
I just read that Harley is getting TALF funds.
Maybe now they can finally afford to put mufflers that actually work on their product.
They’d increase sales dramatically if they’d offer a prerequisite Village People costume as a complimentary gift for buying a Hardly Ableson, saving their customers $500.
Geesh - we’re all TALF now.
Leigh
The line with hands out gets longer each week…
Battery makers vie for US aid
By Richard Waters in San Francisco
Published: May 17 2009 18:53 | Last updated: May 17 2009 18:53
A handful of US battery makers is scrambling for government support ahead of a deadline this week as the US struggles to win back lost ground from Asian competitors in one of the world’s next important technologies.
The race is also the first test of how the administration will use the near-$190bn in stimulus money earmarked this year to support “green” technologies, from alternative fuels to energy-efficient building materials.
Hey…this is good news for Harley. Another excuse to have another Milwaukee Hog Heaven Biker Rally. A 1st Time 8k Gov’t Bike Buyers DISCOUNT wouldn’t hurt sales either.
Everybody, Turn, Face Milwaukee, kneel and Pray!
Okay!…Grab your Flags, Abandon your Jobs and “Start your Engines”
“mufflers”
What he said. Spring has finally arrived in our city, announced by the flatulant blat of hundreds of Harley-Davidsons,
We nailed this one, FBBrs!
____
Major Madoff Victims Under Investigation
Top friends and clients would request certain returns for the year, and Madoff would comply. In some cases, they reached 900% per year.
Investigators are turning their focus to some of Bernie Madoff’s largest “victims”, as evidence piles up that they must’ve known fraud was at hand.
The damning part: Some would specifically request a certain level of returns in advance.
Yes, you’d have to have a heart of stone to read these “victims” tales of woe without laughing.
Muir,
There’s absolutely nothing wrong w/ an investment client taking a risk assessment profile and then sitting down and discussing what level of return they would be comfortable… with and LIKE to see!?
( But cutting some sort of backroom deal saying; “Oh just pencil me in for a ___% return and call it good” -should- raise flags across the board! ) These guys are just too much huh?
FBBrs?
Fibbers. You know, like UHS types.
http://www.nypost.com/seven/05182009/business/mags_ads_plunge_169779.htm
This is heartwarming - MSM propaganda outlets continue to see their ad revenue plunge. The plunge is most pronounced among the Conde Naste line of monthly magazines (I think VANITY FAIR is their flagship mag, like PEOPLE, except for subscribers who can read without moving their lips). The more of these that join the death pool, the better. The survivors might realize that in times like these even the sheeple want real news and real truth, not politically-correct agenda-pushing from elitist dissemblers and soulless corporate cartel whores on the editorial boards.
Agreed. Read a book a while back called “Boob Jubilee”. In it there’s an excellent short story that tells how manufacturers and other businesses bascially “bribe” magazine writers to pimp their products.
Imagine paying to read what’s basically a really thick advertisement - that’s what most of those rags are. Good riddance.
…even the sheeple want real news and real truth…
Surely, you jest.
(Yes, I’ll stop calling you Shirley)
“real news and real truth, not politically-correct agenda-pushing from elitist dissemblers and soulless corporate cartel whores on the editorial boards.”
LOL… Why don’t you just come out and say what you really think, Sammy.
I’m not sure I get your beef. There’s zillions of magazines out there. why wish the demise of one because you don’t like it? Just don’t read it. All forms of entertainment/news are voluntary.
I used to like Chris Hitchens column in Vanity Fair. And some of the picture spreads were nice enough that I actually had a subscription for a year. But I sure as heck didn’t renew it. The perfume ads alone were enough to cause severe breathing problems. Blech.
Yes, the perfume ads are definitely a problem. The first thing I do when I get the mag is rip those pages out. But Vanity Fair is the only mag I buy every month and I get the shakes if I don’t get that fix. I’d hate to have to read it online. I love settling down for a good read before I lay me down to sleep and sometimes I bring it into the can if I’m going to be a while. It has great journalism and intelligent gossip, a great mix. I’ve learned a lot from it. Really enjoyed Shoumatoff’s article on Bohemian Grove this past month. Also Hitchens’ little dust-up in Beirut.
I’d be really bummed if it went out of biz.
palmy,
Do you buy it every month or have a subscription? The newsstand price is $4.95 and I think a sub is something like $17.95.
I enjoy reading VF and I open and sniff all the perfume ads - it’s sort of like wandering through the duty-free shops while reading.
But I dislike the ads for clothes, shoes, and handbags - even while I find myself perversely drawn to looking at them. Chiseled androgynes in positions of sexual submission with robotic / zombie gazes.
The issue with the article on Bohemian Grove was great. I picked up a copy in the Dallas airport, and it wasn’t because Giselle Bundchen was on the cover.
Although the interview with her was interesting. The Bohemian Grove club made me angry and disgusted. Not surprising that the Old Boys Network has a private redwood grove, but the fact that they’re selling it off exemplifies everything that is wrong with those people.
I wasn’t familiar with that article so Googled it. I had to laugh, to be honest. Interesting how the article for some reason constantly harps on it supposedly being a conservative Republican club, conveniently ignoring the very prominent liberal Democratic membership (e.g. Bill Clinton, Jimmy Carter, etc.), and also finds it so horrific that (gasp!) there are men that pee-pee on trees there! OMFG!
VF needs to dig deeper to get the real picture. There’s a lot of important under-the-radar stuff that goes on there (and other places like Bilderberg meetings), but it’s not exclusive to Republicans, and it’s most definintely not conservative, at least in terms of what the MSM presents as being conservative (religious nuts with laissez-faire economic views).
Gotta agree that the ‘conservative Republican’ label seemed at odds with people like Bob Weir of the Grateful Dead, Steve Miller and some other names being members. It’s really a club for the People Who Run Everything and some wannabees. The tree-peeing is just part of the frat-boy atmosphere. The thing that got me mad was that the inner circle is selling off their majestic old-growth trees to pay expenses. All these guys are wealthy, so just raise the dues if money’s so tight.
VF has had done some FANTASTIC reporting about our ongoing economic debacle and the ‘tards on Wall Street and in Washington who started it all. It’s not quite the Economist, of course, but I’ll take it!
I’m with you Palmy. I’ve had a subscription for years and look forward to it every month. They do articles that I don’t see anywhere else. The one about the Mona Lisa coming to America in the early 60s was really fascinating.
polly,
Normally I’m not one to tell someone that they “need a spouse”
, especially someone as awesome as you.
But if you were happily married like my friend Jack, you would have a spouse whose “duties” include exacto-ing out the ads from VF before passing the magazine on to him.
(I don’t mean “duties” in the sense that she is his servant, but part of the back-and-forth spousal “division of labor.”)
I dunno. I would take out the perfume ads myself very soon after it arrived and there was still considerable smell left in the magazine. Having a beloved to take them out would have been nice, but I don’t think it would entirely resolve the problem.
Also, Hitchens got all weird after 9/11.
I definitely didn’t keep them around after I looked through them. When I moved to DC, they were not donated to the Merchant Marine Library Association like the Smithsonians were.
Speaking of the Smithsonian, I cannot bring up the Smithsonian Museum of American History on my work computer. It gets screened out by our content filter. None of the other Smithsonian museums that I have tried have this problem. I am very confused…
Hitchens got very weird after 9/11, when he started applying his considerable wit to propounding a severe neocon point of view. I guess being an alcoholic former Trotskyite predisposes one to dramatic ideological swings.
Still, I enjoyed his columns about his “makeover” - when he got his teeth done American-style and got waxed “back, sack, and crack.”
Agreed about the Hitchens makeover–hilarious! That was the first time I’d heard that phrase. I can’t get that picture out of my head of him being held down while getting waxed.
Some magazine publishers allow subscribers to request perfume free copies
Jack Nicholson (Col. Jessup): You want answers?
Tom Cruise (Kaffee): I want the truth!
Jack Nicholson (Col. Jessup): You can’t handle the truth!
Lost respect for Vanity Fair when it channeled Janet Jackson and commissioned Annie Liebowitz to do a cover portrait on Miley Cyrus. Selling minors as sex symbols is kinda evil.
Last night we took our daughter to a meal in Baltimores’ Little Italy, this area is next to the Inner Harbour and predates the Harbour, it probably has 18 Italian restaurants over several blocks. Anyway we saw 3 vacant places is just 2 blocks. I had never every previously seen more then 1. This area used to be busy even in the winter.
My sister lives in Westminster (about 20 miles northwest). She has seen a real decline in house values of about 15% (as opposed to just median numbers).
Layoffs and hour cutbacks limit one’s options for discretionary spending.
Considering how badly Maryland real estate is overpriced, 15% is nothing compared to how far prices should be falling, IMHO.
Be Afraid…be very Afraid.
“The green shoots story took a bit of hit this week between data on April retail sales, weekly jobless claims and foreclosures. But the whole concept of the economy finding its footing was “preposterous” to begin with, says Howard Davidowitz, chairman of Davidowitz & Associates.
“We’re in a complete mess and the consumer is smart enough to know it,” says Davidowitz, whose firm does consulting for the retail industry. “If the consumer isn’t petrified, he or she is a damn fool”
Wow
http://finance.yahoo.com/tech-ticker/article/248398/%22The-Worst-Is-Yet?reft
Thanks so much for the link, Mikey. That’s one of the best pieces I’ve ever watched. That guy’s fun to listen to, and it’s nice to hear an honest voice amongst all of the shills.
People ARE still buying, they just aren’t buying anything more than they need.
Do we really fifty THOUSAND different types of one thing?
I like that guys attitude! Good find mikey.
Hey Hey Financial History and Market Mavens!
Only on the HBB, Exclusive!
Ever wonder what the Dow Jones Industrial Average was comprised of, long ago?
Well, wonder no more, as the Cobaltblue On-line University presents, the Dow Through the Ages series. Our stated purpose in presenting this series is to provide an opportunity for all the HBB universe to judge for themselves the real nature of purported returns in equities via the Wall Street machine over time.
First up, what did the Dow Jones Industrial Average look like in the beginning?
The Dow Jones Industrial Average, comprised of 12 ‘smokestack’ companies, made its debut May 26, 1896. Twelve years earlier, Mr. Dow’s initial stock average, containing 11 stocks (nine of which were railroad issues) appeared in “Customer’s Afternoon Letter”, a daily two-page financial news bulletin that was the precursor of The Wall Street Journal. Those 11 were:
Chicago & North Western
Delaware, Lackawanna & Western
Lake Shore
Louisville & Nashville
Missouri Pacific
New York Central
Northern Pacific pfd.
Pacific Mail
St. Paul
Union Pacific
Western Union
From this we may conclude, that those who say they have charted the “Dow” for any further back than 1884 are full of it, as that was when first Dow letter appeared, and it didn’t become an “Industrial” average until 12 years later, in 1896.
Woo for the Delaware, Lackawanna & Western! My mother’s father was a cop on that line.
Both my grandfathers, who were farmers, worked building the railroad line in Colorado. At the end of a season’s work, they walked back to central Kansas to save paying train fare. Not just my grandfathers, but a lot of the men who laid the rails.
Whew. What a morning!
Just a casual observation — Monday mornings seem to be bullish.
Really? You’re not kidding me, are you?
Shaking head in disgust……….
Lennar is up 14% and has a buy recommendation…Two trillion of printed money and all is well I guess…
“Lennar is up 14%”
Yup, and there’s some homebuilder conference today, right? That should be funny.
A little day trade simulation. Let’s say we just bought 100 SRS @ 22.54
Let’s see what happens @ 1pm when they announce “all is well it’s a good time to buy, God bless USA, etc.”
I sold my GSG that I had bought Fri afternoon for a .47% profit.
50 cents x ___ is nice.
__
“There are times when money can be made investing and speculating in stocks, but money cannot consistently be made trading every day or every or every week during the year. Only the foolhardy will try it. It just is not in the cards and cannot be done.”
I sold everything this morning, what was left after stopping out last week. After the dust settled, I gained 5.5%
Lesson learned.
Is it time to bail? I have a few thousand of non-retirement funds in the market that I bought foolishly when DOW was around 10k. My loss is really minimal right now with the recent uptick. Is this a dead cat?
Hi Adam, I don’t know how often you read the HBB, but I am basically a fool playing with fire. I only started trading exactly a week ago, but stopped this morning, just to try it out. Today is a perfect example of why all of the other posters were telling me to stay out. I look around and see no reason to, “be up,” and yet, the market is “happy.”
The only person I know trying to buy house just lost his job.
Why did you stop?? My god, man, 5.5% a week is what, 1500% annualized?!
Easy, sleepless. Muggy still has his dignity.
Here Muggy, just for you:
“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor.”
“…the fruits of your success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions.”
“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”
Thanks, Muir.
I think they only “safe” play I might make is load up on SEF later this summer. I think it was nearly two years ago that I said on this blog we should try putting our money where our mouth is, and use our bubble knowledge to pick up some loot along the way. This obviously doesn’t translate to the market. I mean, a little, but not much.
I don’t know that the loss of peace of mind is worth it for me. I was able to control the intoxication to some extent, but it’s a little much… as a creative type I tend to exist like FAZ, magnifying the sentiment 3x, so obviously there is a conflict to keeping cool when so much is on the line.
At the end of the day, I still didn’t buy a house in Florida.
From the UK’s Telegraph - abandoned by Mexicans!
The American Dream is losing some of its most devoted fans: Mexicans. If Americans are now loath to go south of the border in case they contract swine flu, Mexicans increasingly don’t want to go in the other direction for fear of catching unemployment. New figures showed last week that the number of Mexicans coming to the States has fallen by a quarter a whopping 226,000 people in a year. Some Americans won’t be sorry, as more than half of Mexican immigrants are working here illegally. But the people who rely on them in their farms, kitchens and childcare equations will be horrified.
In good years, the US runs on Mexicans and so it’s perhaps not entirely surprising that they tend to be regarded as a commodity. In New York, where Mexicans are now the fastest growing ethnic minority, they’re hardly the most glittering example of the city’s famed culture of economic opportunity, many still stuck in the menial jobs they’ve done for years. A prominent local Mexican recently called on New Yorkers to “look into the eyes of the people who are serving them, who are taking care of their children, who are delivering their food look into their eyes and say, ‘I see you’.”
Out in the wealthy suburbs, people can drive down to the railway station of a weekend and pick up a couple of Mexicans for a day’s gardening with all the ceremony of renting a lawnmower. In the Hamptons, dozens of illegal Latino labourers are living in the woods until the locals are able to afford them again. It might be a long wait.
“A prominent local Mexican recently called on New Yorkers to “look into the eyes of the people who are serving them, who are taking care of their children, who are delivering their food look into their eyes and say, ‘I see you’.”
OTOH, illegals have a pretty high profile around here. They’re right in your face, hardly what I would call “in the shadows”.
John Walsh had a pretty interesting show on AMW this weekend.
What do you suppose would happen if I looked into the faces of drug dealers, drug mules, rapists, home invasion thugs, kidnappers and human traffickers and said Peekaboo, ICEU?
Here in Tucson, we have generations of Mexicans who, for whatever reason, don’t seem to rise beyond the menial level of employment. I strongly suspect this is due to the lack of English speaking, reading, and writing skills. That can really hold you back in this country.
Case in point: Yesterday, the neighbors came over. Yes, the same neighbors who were in the face of my contractors last week. Only this time, it was the two female members of the household. The mother and daughter came over to ask permission for their electrician to enter their property.
The daughter did the translating for the mother, who’s been in this country for many years. And the reason why the electrician needs to get over here? Well, because he needed to check the overhead wire between the pole and the new panel that he installed on Friday.
Well, after all the flack that my contractors and I caught last Monday re: my water line excavation project taking out half the power to their house, I was, shall we say, a bit incredulous. So, I asked the daughter several times if their power does indeed come to their house via an overhead wire.
Yes, she said. Repeatedly.
So, I gave permission. And I can’t wait to talk to the electrician. I won’t mention what happened last Monday, but I want to confirm with him that the neighbors’ power does indeed come to them from above.
Do you see wires going from the pole to the house? Generally the electric wires are the higher up ones. At the bottom of the cables on the utility pole will be telephone and cable television, if they are not buried. You will often see transformers (the big cans) up on the pole, then wires from there leading to the homes. Those step it down from the high voltage to power usable in the home. Normally the electric is a twisted bundle of large wires going to the house.
VA, ya gotta point there. I was wrong. I stand corrected. The two sets of lines that are currently going to my neighbors’ house are telecom. That’s what their electrician just told me.
BTW, I just checked said electrician against the Arizona Registrar of Contractors database. No current complaints.
However, I’m not hiring him to do work here. Not after what went down between the drunk brothers and my plumbing contractors last Monday. I’ve got a different electrician coming later in the week.
Me again. The neighbors’ power is *going to start* coming to them from above. I just spoke with their electrician. He needs permission to access my backyard, which I’m going to grant.
Seems that the power company wants the neighbors to make the change from below-ground service to service that drops off the pole just to the east of my property line. The electrician told me that he’s replacing the neighbors’ panel. (Hmmm, the problem was at the panel all along, now wasn’t it? Just like we HBB-ers thought.)
And, no, I’m NOT being asked to pay for the panel replacement. I mentioned that I heard something (like a fuse) blow a couple of Saturdays ago. The electrician didn’t say anything like, “Oh, yeah. That’s what happened.” But he did say that they had a fuse box, rather than a breaker box.
BTW, one of the drunk brothers was standing right next to the electrician. Unlike last Monday, he’s stone cold sober. Let’s hope that is his default state for today.
Of course this means that about 750K are still coming every year.
Does this mean that teenagers can finally get jobs again?
The Original Dow Jones Industrial “12″ from 1896:
American Cotton Oil
American Sugar
American Tobacco
Chicago Gas
Distilling & Cattle Feeding
General Electric
Laclede Gas
National Lead
North American
Tennessee Coal & Iron
U.S. Leather pfd.
U.S. Rubber
How many of these still exist?
The first average computed from this list of stocks was 40.94 on May 26, 1896. It declined gradually during June and July and on August 8, 1896 stood at 28.48 which is the lowest
point on record for the industrial average.
“How many of these still exist?”
There is a false premise in your argument: the fact that they do not exist anymore does not mean that they were worthless when removed from the index. I’m sure many of these disappeared through mergers, in which case the investor is left with some other shares to replace these. Plus, some invested in the index would need to sell what is removed, and buy what is added—so companies not existing is just part of the process of creative destruction.
Or did I mistake the point you were trying to make with that question?
Wow! What a night last night here in the South Bay…the ground shook for her as it did for me!
How much was this one?
chuckle.
Yeah, but it wasn’t quite the “Big One”, was it?
Is that your kitty cat you’re referring to? (Hardy har)
Did you feel it down in SD, Prof? 4.7
Yeah — wife and I submitted our respective reports to the USGS “Did you feel it?” site. I was awoken from an early-evening nap by the temblor’s brief jolt. Wife and kids were all excited, ready to avoid falling objects, but nothing was damaged or even moved much.
Yeah but this time she did not say “GET OFF ME”!!!
b..b..but the gold, the GOLD…is safe…isn’t it Bill ?
The Dow is up 109 points.
GM is up five cents to $1.14.
House prices will continue to decline until average Joe can buy.
It is a good day indeed.
Fictional demand=Fictional price
Actual demand=Actual price
The real estate mobsters hate that.
exeter,
Well… true, but at least REIC’sters have had a hell of a lot more to keep them distracted during this debacle than the rest of us have?
While we have agonized over “Dude, where’s my Economy” how many times have we heard these clowns say; “If only… I can just get this (1) home sold!”?
If only… I can get that construction bridge loan?
If only… the appraiser would see things ‘my’ way?
So they’ve had ample focus and in many cases continued financial support by playing musical loans, homes, lots etc. If anything, they’ve had it a great deal easier than non-REIC’sters who’s only fault was getting laid off? IMHO.
Went to visit friends in Walnut Creek yesterday. Whew, 100+ degrees! Glad to get back to 68 degrees!!! I just wanted to relax but the young crowd spent time talking about stock accounts being down 30-40% and where could they put their money. I remained quiet as my wife berated me this past week about speaking up earlier in the week when we were out with two different groups of people. They asked and I told and my wife said that I looked like a smart ass. One later called and said that he appreciated my input; wife-y just doesn’t like to make waves.
The older set then talked about losing money in bank stock and crop and dairy prices.
It sounds exactly like me and my wife. She’s a true believer in The Great Housing Fraud but insists I get too heavy handed with depressed FB’ers.
Bloomberg
This headline caught my eye, then what the…
Pound a ‘Screaming Buy’ as U.K. Attracts Investment (Update3) By Matthew Brown and Ye Xie
Story to follow.
Scratching head -
Leigh
“The pound’s 20 percent drop in the past year made Britain the first choice when Schroders Plc started buying real estate in Europe last month.”
…British house prices rose in March following a 16-month decline, according to Nationwide Building Society. ”
__
There’s nothing quite like a currency devaluation to prop up prices!
The problem is that since this puppy is global, not everyone can employ that strategy at the same time—at least, not successfully.
Let the next round of our game-show “Beggar Thy Neighbor” begin!
Yeap
Oil is up to $57.88 a barrel.
I live in So. Cal. and the ground has stopped shaking.
It is a good day indeed.
Aren’t you better off than you otherwise would be by releasing some of the pent up demand for SoCal real estate? Talk about your underground economies.
Anyone who is scared away from the housing market by last night’s minor shaking does not belong in SoCal.
I was living near Griffith Park when the Northridge quake did its thing. The swimming pool at our apartment complex rocked splish splash like a scene from a disaster movie, but few cracks in the stucco to out apartments. Great opportunity for those businesses that did earthquake retrofitting. I also happened to be living in South Florida when Hurricane Andrew roared (literally) through. Trust me on this one: Andrew was far and away much worse.
Central Arizona the housing value depreciation rages on. The land of endless 100 degree days (mid-May to late October), trips to the dermatologist to burn-off pre-cancerous lesions, sunspots and cataracts, the ubiquitous depreciating gas-hog RV, ATV’s wedged into garages full of Wal Mart junk, helmet-less motorbike boomers, hefty A/C bills, sinus infections, the (more than most places) prevalence of cigarettes smokers, and tubby people waddling through the supermarkets and big box stores. The latest news: from mid-April to mid-May housing values fell precipitously - again. According to several sites that track house values, even modest $175K homes lost another 18K in the past thirty days. Even my brother in south Phoenix didn’t see these price declines. Rural/semi-rural Arizona is like much of Michigan/Oregon/California’s Inland Empire, and Las Vegas - a toxic housing zone.
The kicker is that we still have a flood of foreclosures that haven’t even hit our market yet.
Ria,
Too funny! Right, when you’ve put on enough weight to where you have to “waddle” to get around you have some choices to make or it’s all over!
Thanks for including Oregon in there too. If the shoe fits..?
yea thats AZ at least the desert part of the state. Much nicer higher up like were Ben Jones lives in Flagstaff
“yea thats AZ at least the desert part of the state. Much nicer higher up like were Ben Jones lives in Flagstaff”
Uh huh. I’m up to Flag often. Flag has it’s own set of issues that drive people nuts. No kidding. I do prefer the landscape of Flag, but after the Central Coast of California and the Mid Hudson Valley of NY even Flag’s look gets boring. You can only venture up to the Grand Canyon so many times or gaze at the red rocks of Sedona so many times before you’re ready for something different. Americans are a restless lot.
“after the Central Coast of California and the Mid Hudson Valley of NY even Flag’s look gets boring.”
Stop in about New Years and stay for 4 months and you’ll change your mind.
Hey Ria: I’m in the CA desert. It’s hellahot here, too. It was 84 @ 6 am. Other side of the coin is it was absolutely devine @ 9 pm last night in the pool. Foreclosures, bank failures, scams, don’t matter to mother nature.
Not to ‘totally’ discount the impact of the weather on the original statement but I’ve seen much of what Ria describes even here in drizzly Oregon.
Driving through one subdivision after another where it looks like everyone on the block can barely get their garage door closed? Like they just hit it big on the Price Is Right?
Where I’m concerned, the “toxic house zone” is what’s key hereI don’t think we’ve even -begun- to see the flood of RV’s and boats hit the market?
Yes-iree. If Arizonians aren’t in the drink on hot days, they’re using knocking it back. Spent time in Palm Desert back in my SoCal years. What an odd ball mix of characters in the California desert communities. Did you know Captain Beefheart lives/lived in a trailer home in one of California’s desert communities? I think he qualifies as an odd ball. A good odd ball. I have some old acquaintances still there. When all’s said and done I prefer it to this abysmal area of Arizona I live in. My house has been priced 20% below what I paid for it in early ‘04 and not a bite - so doing the “get outta here thing” ain’t happening. For a big chuckle, hunt down the CD or source from the internet the story read by Ms. Cheryl Trykv “Teen Getaway” from “This American Life”. Absolutely drop dead hilarious, and nails the place dead-on.
X-GSFixer,
I thought you might get a kick out of this:
http://www.wfaa.com/sharedcontent/dws/wfaa/latestnews/stories/wfaa090515-_lj_harris.7a4a7d4.html
Seems a fair number of aircraft mechanics in TX can’t even read english. I mean being able to read all those stupid manuals isn’t all ‘that’ important, is it? This cr@p would be laughable if it wasn’t for the fact that people’s LIVES are at stake? Mind you this is Southwest and American ( not Puddle Jumper Airlines ) I give up.
The article says that Southwest and American require their mechanics to know English.
Years ago, when my cousin said that Texas was the only state where a driver with a DWI could get a commercial license.
He worked for the Cattlemen’s Association in KC at that time and had something to do with their trucking. It was a long time ago, so I hope that has changed.
should be:
Years ago, my cousin said…
I’m not sure if it’s still the same, but in the 80’s when we used to go to Texas for semi-annual factory business meetings it was legal to have open alcohol in the car as long as the driver wasn’t drinking. The meeting organizer hired vans and drivers and all us attendees had a fine time… (Oh the eighties!)
They changed the law around 1990, IIRC.
In the 80s, you would see pickups with crushed empty beer cans sliding around the truck bed, as passengers (and drivers too of course) would toss their empty cans into the back when they finished their beers.
They changed the law around 1990, IIRC.
Hah….you beat me by two seconds, damnit. The law changed when I was living in Texas, so it was after 2000. I think it was 2001 or 2002.
No, that law changed 5 or 6 years ago…
“That creates a huge problem, another certified mechanic told News 8. “I need an interpreter to talk to these people,” he said. “They can’t read the manuals, they can’t write, and I have so many working for me I can’t be sure of the work they’ve done.”
“There are people [where I work] who do not know how to read a maintenance manual …He wished to remain anonymous to protect his employment.
…The root of the problem is money, mechanics say. A certified mechanic can earn upwards of $25 an hour in Texas. Technicians who can’t speak English are often hired for less than $10…”
___
___
Great Read!
I’ll say it again even if not one single person agrees with me.
Americans want these workers.
I saw this in construction where owners of companies would bemoan the Mexicans and illegals even as they were working for them!
They would justify this with “somebody will hire them….”
The ultimate in cognitive disconnect (hypocrisy also) was the son of a builder I knew who hired the masonry work out for his own home he was building to a company run (and co-owner) by a Mexican who hired out illegals.
Yet he quoted Lou Dobbs and Rush Limbaugh.
__
I do know the root of all of this and it is, in my opinion, unsolvable.
I’ve got one word for you: NAFTA.
Even for those of us who would prefer to hire U.S. citizens, it can be difficult to find out who will actually be doing the work when you contract with a business. I’ve gotten very tired of hiring a contractor based on what the sales guy or estimator (who is usually a native English speaker) tells me, and then having people with whom I cannot even communicate showing up to do the work. When I have asked who will be performing the job, I have been told flatly “I will” only to find that means the guy shows up at lunch hour to see how things are going.
Yes, Elanor, in your case you asked.
What I am talking about is willful blind spots, you know, something like putting the blinders for the horses on one’s own head.
Until the religious fervor of “a negative GDP is an abomination to God’s gift to us” dies, we shall have these situations.
Palmy guessed wrong.
We “need” these workers because otherwise with the current birthrate by “anglos” we would be a -GDP.
Commentary…
The 81% Tax Increase
Bruce Bartlett, 05.15.09, 12:00 AM EDT
To pay for government’s promises on Social Security and Medicare.
pic
This week, the federal government published two important reports on long-term budgetary trends. They both show that we are on an unsustainable path that will almost certainly result in massively higher taxes.
The first report is from the trustees of the Social Security system. News reports emphasized that the date when its trust fund will be exhausted is now four years earlier than estimated last year. But in truth, this is an utterly meaningless fact because the trust fund itself is economically meaningless.
The 2010 budget, which was finally released this week, confirms this fact. As it explains in Chapter 21, government trust funds bear no meaningful comparison to those in the private sector. Whereas the beneficiary of a private trust fund legally owns the income from it, the same is not true of a government trust fund, which is really nothing but an accounting device.
Most Americans believe that the Social Security trust fund contains a pot of money that is sitting somewhere earning interest to pay their benefits when they retire. On paper this is true; somewhere in a Treasury Department ledger there are $2.4 trillion worth of assets labeled “Social Security trust fund.”
The problem is that by law 100% of these “assets” are invested in Treasury securities. Therefore, the trust fund does not have any actual resources with which to pay Social Security benefits. It’s as if you wrote an IOU to yourself; no matter how large the IOU is it doesn’t increase your net worth.
This fact is documented in the budget, which says on page 345: “The existence of large trust fund balances … does not, by itself, increase the government’s ability to pay benefits. Put differently, these trust fund balances are assets of the program agencies and corresponding liabilities of the Treasury, netting to zero for the government as a whole.”
http://www.forbes.com/2009/05/14/taxes-social-security-opinions-columnists-medicare.html
One attains a higher state of happiness once one completely forgets about Social Security and just accepts the money paid in as having been lost.
I agree ejohn…
Yeah, that money would have been far better invested in the stock market…
Darn shame they didn’t get that bill passed, isn’t it?
Dumb questions of the day:
1) Can the Fed legally directly prop up housing prices?
2) Are they?
3) Have they in previous housing market downturns?
The other part of the story is that given a prediction for economic recovery later this year, they have to engineer confidence-building measures like rising housing and stock prices in order to foster confidence in the masses which is necessary to fulfill the prediction. I personally have nothing against economic recovery, but I fail to see how respiking the housing bubble punch bowl will bring about the requisite structural adjustments in the FIRE sector to provide a sustainable foundation for recovery. Perhaps kicking the can down the road is preferable to a protracted period of unbearable pain?
“they have to engineer confidence-building measures like rising housing and stock prices in order to foster confidence in the masses”
I think they truly believe that they can create an economic facade to instill confidence in the masses; after all we have been living in an environment of late where you are credited for what you say not what you accomplish.
My take is that they the government is in a take no prisoner mode, just don’t let everything get to the bottom at the same time. Housing is just a thorn in their side, they just don’t want everyone out on the street at the same time. They know it’s going down, they just want to float it through a series of locks on the way down hoping that people will focus their attention elsewhere over time.
Ah, time that rascally 4th dimension, just like in the options market, is your enemy.
prop up housing prices ??
I have been having lots of discussion about this since the first of the year with some really smart people…Not sure I would call it propping up, its more like preventing a complete death spiral…
With beer and dice cups firmly in hand twice a week, we have concluded that home ownership “as a investment” will fair very poorly for a very long time mainly due to rising interest rates…
“…mainly due to rising interest rates…”
A key component of the Fed’s suite of financial engineering measures is to prevent this through buying down the yield on l-t Treasury bonds. Why don’t you think this will work? (It looks as though it is so far…)
Oh, I think it is working Bear…Can you imagine what the housing market would be like right now if mortgage interest rates were 7% or more ?? I just think that these artificially low rates are not here much longer and when they spike it will be the dagar in the heart of the housing market going forward…Very few people (who have a choice) that are sitting on 4.5%-5% loans are going to be interesting in buying another house with 7%+ mortgage…People staying put for a very long time (20 years +), is that the new way ??
The spread between TIPS and Ts was .20 about 6 months ago.
What’s it now?
TIPS may be the buy of this decade (even after using their CPI numbers.)
It can’t hold, PB.
(Your analogy of 6 months ago of these massive forces being temporarily in equilibrium was correct, but you can’t balance a Hummer on a pin forever)
___
Only two ways this will go:
1. bust
2. double digit inflation.
FPSS sees #1.
I see the second.
Muir…When you say bust, do you mean the markets, the economy, real estate or all the above ??
All the above; a bust, depression (massive deflation)
Muir…Check your post above…You suggested you see double digit inflation not deflation…
You play liar’s dice with people who have basic math skills? That is a dangerous proposition…..
yeah but, if you feed them enough beer the math skill set diminishes…Thats when I go in for the kill
The Fed answers to no one and can do whatever it wishes.
They will continue to prop up housing prices and funnel off anything of value for their crooked friends. Most people won’t notice, so nothing will change.
“The Fed answers to no one and can do whatever it wishes.”
This wouldn’t really be a problem if they did not have monopoly control over the money press.
Why do I strongly suspect this report merely reveals the tip of a large iceberg?
And I fail to comprehend the comment about how “Everybody’s in this market together.” Wouldn’t this just apply to homeowners? Is the point that the government is forcing homeownership on all taxpayers, whether or not they like it?
Gov’t losses big in home market
By Brad Heath, USA TODAY
WASHINGTON — The nation’s teetering economy has Uncle Sam playing a growing role in neighborhoods across the country — as a homeowner.
The combination of a deep recession and a foundering housing market has left the government with more than 50,000 houses on its hands — enough homes to fill a city the size of Riverside, Calif., or Miami. Now federal records show it’s struggling to unload the houses and facing billions of dollars in losses.
“Everybody’s in this market together,” says Bill Apgar, a senior adviser to Housing Secretary Shaun Donovan. “Obviously, this is not the best time to be a home seller.”
In many ways, the government’s situation parallels what thousands of other homeowners are confronting: The houses it owns are harder to sell, they typically sit empty longer, and in many cases, their values cratered as the real estate market collapsed.
MORE: Obama expands mortgage foreclosure help
Since 2007, the Department of Housing and Urban Development has acquired at least 110,000 foreclosed houses, its records show, spending about $12.2 billion to reimburse lenders after the owners defaulted on government-backed loans. So far, HUD has been able to recover only about $5.5 billion by reselling them. It has about 38,000 homes still for sale.
So I’ve been thinking about it, the bubble, and my area (Southeastern Virginia). With the high number of navy bases, and constant turnover of people… I’m thinking they are pro-longing the pain. The Navy brings people that aren’t really financially responsible (or very smart) and they turn around and “snap up” anything and everything. Our area has lots of stores that cater *only* to the gov’t employed with scam financing on rims/stereos/tv/furniture/jewelery. I’m wondering how much they are contributing to the lower end of the housing market?
What is everyone’s opinion about the coming wave of inflation that will hit the country due to all the wreckless spending and bailouts by Washington? I know interest rates will HAVE to go UP, but what about the price of housing? Some of my friends say housing prices will go up a lot too (Bay area) due to the inflation. I told them how can prices go up when wages are not going up, people are unemployed/under-employed, banks aren’t lending and there is NO money? Does anyone have a good answer??
This is one thing that worries me, as well. Just because we here on the blog see what is going on doesn’t mean that the sheep won’t somehow be given more debt and go on a house buying frenzy again. Of course, we haven’t really seen a .com boom #2.
I heard this morning the housing race is now back on in places like Phoenix and Florida… People are racing to buy I guess. People are STUPID!! I get very frustrated by the illiteracy of this country!
Reminds me of something from our nation’s history. The 1800s, to be exact. In the Southern states, it was illegal to teach a slave to read. After all, literate slaves would start to question their lot in life, and who knows where that would lead.
I see a modern-day parallel in the widespread financial illiteracy and innumeracy that drives so many of us bonkers. If we, as a nation, were more able in these areas, would we have had an economy based on bubble boom/bust cycles?
ENTER Stage Left
Rap and Hip hop music….and guess what ???? same effect without all that nasty cross burning and white hood stuff
————————————–
it was illegal to teach a slave to read. After all, literate slaves would start to question their lot in life, and who knows where that would lead.
‘zactly. Can’t be havin’ the po’ folks get all uppity and forget their station in life, now can we?
2 weeks ago I called bottom for Coral Gables Fl.
This weekend on bits I posted about prices statewide.
150K 2 blocks from the beach in Melbourne, walking distance in Tequesta, North of Daytona 3 blocks from the beach.
Schiller will continue to point down, but in a strange way it’s lagging.
Those properties will not be lower, just more of them.
conclusion:
Bottom.
(even the absolute pits for the state Cape Coral, azlenders mortgage play in Fl, may be bottoming)
A friend of ours is preparing to buy overpriced garbage in Virginia Beach. He said he basically doesn’t care, there is no way to escape it. Either pay high rent or pay high price for home, at least with one he might have something to show for it. It’s near $200/sqft, tiny place, bad school district.
“Either pay high rent or pay high price for home, at least with one he might have something to show for it.”
High rent is temporary—rents are declining.
High purchase price is forever. Unless, of course, he is willing to walk away down the road, in which case it may be a wash modulo the credit-report hit.
“Of course, we haven’t really seen a .com boom #2.”
Not yet, VaBeyatch in Virginia Beach, but it’s coming. Can’t say when, but come it will.
Inflation in that which you need and deflation in that what you want.
The Super Stagflation Party
Need: *Shelter, Food and Energy
Want: *House, Cars, Electronics, etc..
*Shelter is needed, but owning a Home is not a pre-requisite for Shelter.
Unemployment and Wages are much more important than QE and any other Government scheme.
I concur, but for a different reason.
Price increases for things for which we normally pay cash: rent, energy, food
Price decreases for thing we normally finance: Houses, cars, electronics
Does this present a business opportunity? If cash truely becomes king, would this be a good time to become a landlord? Will we see the return of lease-backs? Seems it might soon become a good time to buy things and rent them to others.
If cash truely becomes king ??
Maybe it already is….If Deleveraging is
the word of the day then cash must be king…
I’m not going to call it King just yet. Not until I can get some reasonable rent (interest) on the cash I already hold.
Not until I can get some reasonable rent (interest) on the cash ??
Patience my friend will be rewarded soon.
I am also with you on the Wants & Needs analysis…
My guess is that various speculative organizations will buy up huge chunks of housing to “keep our neighborhoods looking good.” while in reality the goal is reduce supply and artificially drive up prices by creating a new middleman and reducing competition. Then, these organizations will just sit on the houses, only selling them at very high prices, while pretending that their value is much higher to keep everything looking good on paper. Naturally, they will receive Bailout money for all the good they’ve done the community by pricing people out of the area.
If housing prices go up because of inflation, it will be because of wage inflation. If salaries double, housing prices will be in-line with salaries, and then further salary rises will lead to housing prices rising.
However, there is no benefit to buying early if wage inflation is counted on for fortifying housing prices as the housing prices will once again be based on fundamentals. When it’s cheaper to own than rent, buy.
If you think that the above scenario is going to happen and buy, but it DOESN’T, you are getting hammered. If you think the above scenario is going to happen, and wait for fundamentals to come back in line and then buy, you won’t get hammered either way.
The only way that not buying right now will hurt you is if the housing bubble reinflates. And if that happens, rent and wait for the next crash.
I can’t imagine how home prices can appreciate given that we are building a valuation base on 4%-5% money….Everybody “that can” is refinancing…Lots of foreclosures and short sales acquired with the same discounted money not to mention the re-sale market and what ever new home sales there are…Once a clear bottom is put in, I say SFR’s flat line for a very, very long time…Inflation, maybe yes but not necessarily with real estate…Maybe on the things we “need” rather than want…
Last week I was at a trade show and the guest speaker was one of the FMOC board Chief Economists. He presented a great deal of information and took questions afterwards. His conclusion was that the economy will turn around by the middle of this year. I respectfully disagreed. We discussed the economy for about an hour after his speech. I must say he was a great guy. He was/is very approachable, very down to earth and open to discussions.
We have a bet: He believes the economy will turn around by the middle of this year based on inventory levels and housing rebounding. I bet him that it would not turn around until 2010 or 2011. He took the bet and then asked me what I based my conclusion on. I told him the Credit Suisse reset chart and housing. I also told him the FED is fighting the wrong battle. It is not a liquidity crisis it is a Debt crisis.
We spoke for over an hour and he asked me to E-mail him supporting information. It was great to speak to him and send him information.
Sorry for any misspelling or incorrect grammar as I am hurrying off to work.
Middle of this year as in end of June? 6 weeks from now? What did you bet?
Last week I was at a trade show and the guest speaker was one of the FMOC board Chief Economists… We spoke for over an hour and he asked me to E-mail him supporting information.
That is actually a very telling and very scary statement. It tells me that those in positions to influence policymakers and their decisions still don’t understand what we’re dealing with.
They never did or we wouldn’t be in this mess.
How’s THAT for scary?
Here is a nifty link - I think it was posted awhile back on the blog.
Leigh
http://www.stateline.org/live/issues/Economy+%26+Business
I wonder how many f’ed borrowers have been living mortgage-free in their houses while awaiting the banks to start foreclosure proceedings?
http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html
This guy (an economics reporter for the New York Times, no less!) is doing just that: after him and his wife overextended into a house, maxed out their credit cards, refinanced, job loss, JCrew/BabyGap binges, the whole catastrophe, is still in his house despite not having made a mortgage payment in 8 months.
The bank (JPMorgan Chase) wouldn’t consider a workout until he was 90 days late on his mortgage payments (nudge nudge “don’t pay it” wink wink). So he stopped sending them for a few months but then the bank representative told him that each of their analysts have workloads w/500 cases like his, and they’ll get back to him when they can. I doubt those numbers are made public, but there must be an incredible number of people doing what this person is doing. He has a book being published so maybe he’s the rare case that gets out of the mess he’s in, but for most people foreclosure would seem unavoidable.
Also, do you think the banks are really that overworked, or are they stalling to see what kind of bailouts they get, and are letting people stay to keep the houses maintained?
If this story is any indication of what’s happening, then we ain’t seen nothing yet…
I think the banks are overworked. They didn’t anticipate this particular storm. And, there is no reward for banks to prepare. There is also almost no penalty for not responding. If the bank seizes the house, the bank has to try to sell the house …. and _if_ they succeed, then they need to book the loss. In the more likely case they fail, they have to pay real estate taxes and maintenance. Either way, it makes more sense to leave the workout department understaffed
“Also, do you think the banks are really that overworked, or are they stalling to see what kind of bailouts they get, and are letting people stay to keep the houses maintained?”
I imagine the prospect of higher prices and/or bailouts down the road tends to provide incentives for footdragging. Conversely, without such prospects, banks would be dumping REO so hard and fast that the housing market crash would be audible.
There is a home my wife & I attended an open house at the end of last Summer, may have been early Fall. The older Husband and Wife agents showing it were trying to get interest at $499K, non-approved short Sale. My wife got the elderly Hubbie agent taking. The people had not made a payment in 8 months. It just showed up on a pre-foreclosure list this month.
I wonder how many times we need to multiply this story. Especially in Orange County. Carrying costs must be killing the Lenders. Then again they have Tax Payer money to fill the void.
Oh I almost forgot, the people are still living in the home. It looks like they owe somehere in the mid 700K range.
Meanwhile I rent a few blocks away, paying on-time every month. Whose the fool? Well at least I don’t dump my stupidity as a burden on my fellow man. I keep it to myself
“Carrying costs must be killing the Lenders.”
Nope, I don’t see why it woudl be. The lenders don’t actually own the mortgage—some MBS pool does.
What we SHOULD be learning from this debacle is that MBS pool servicing contracts should have both incentives AND penalties. If the lender cannot forward the payment to the MBS pool, and has not initiated forclosed within Y months (3? 4? I don’t know what this should be), then the LENDER should become liable for making the payments to the MBS pool. Or at least should become liable for some significant penalty.
What we are seeing is the lenders ignoring the rights of the bondholders; the bondholders have a right either to their payments, or to have their liens exercised in order to gain the property.
Today, bondholders are getting f’ed, because they are getting neither.
Is it even possible to dis-aggregate (if that’s a word) these MBS pools?
For instance, could I approach an MBS pool, and buy one particular note out of the pool?
What happens to the pool overtime, as the notes are paid off?
I thought that, at least some of these pools were sliced into tranches according to risk, the high risk piece (the toxic waste) serving to insure the A rated tranche. Or am I completely confused as to how this works (a distinct possibility)
I heard on the radio recently that there is really only one company that specializes in doing the work outs that the government keeps trying to get the banks to do for the FB’s. They have metrics that show how much will be lost on a total foreclosure, so their people can actually decide what kind of work out to offer that will be cheaper than foreclosing. They gave a tour of their operation to some big shot at a large bank and he admitted flat out that his own people have no way to decide whether a work out is better for the bank or not which is why they aren’t doing them.
Not enough people. The ones they have don’t have enough information. No workouts.
I know someone who has not made a mortgage payment in over a year.
I know someone who has not made a mortgage payment on 5 investment properties in about a year. (while still collecting rent checks from her tenants)
Meanwhile, back in my savings account…
And this is why the moratorium on taxing forgiven debt is a bad idea!
Expires 1/1/2010.
The rush for the exits. Can a FB sue for deed in lieu?
Is That why they are waiting? On January 2, 2010, all heck is going to break loose and the banks will foreclose on every single late payer?
“I know someone who has not made a mortgage payment on 5 investment properties in about a year. (while still collecting rent checks from her tenants)”
WOW! Now _that_ is an investment with amazing cash-flow. Ask her to compute her ROI! It could be nearly infinite if they were all zero-down deals…
Ok, I admit that the long-term prospects of the investment are not as promising as the short-term cash-flow.
I think Neil has stated that his relative has 20 months since last payment and no NOD.
My LL is 8 months with no NOD.
“So he stopped sending them for a few months but then the bank representative told him that each of their analysts have workloads w/500 cases like his, and they’ll get back to him when they can.”
You can do a lot of consuming/economic stimulating when you can free up an extra 30%-50% (or more!) of your monthly salary. The banks won’t be able to sustain that forever, though.
Don’t get me started, in FL this is SOP.
[seething in a in an inverse 3x-ultra schadenfreude ETF]
Found out a friend of ours hasn’t paid a mortgage payment in a year. I knew he was behind almost $10K after a job loss, and was kind of scratching my head when he was recently talking about buying a toy. I figured maybe a relative stepped in or something. Nope. He said after he got his new job he called the lender and they said DON’T pay. He said they don’t want it, and wouldn’t explain. They said it was cool, he said he really did try to pay, and doesn’t under stand it. He said they’ve got $6K or so in the bank, and have been paying down other debts. Bail out funds?
More likely don’t pay any if you can’t pay it all.
Cross-ref my comment under the other topic (”Buyer Arrogance…”) today. People blame the FBs, but this type of laxity on the part of the banks is ridiculous. They’re making a mockery of the whole concepts of thrift and responsibility. Remind me again, why do we issue bank charters?
Why do we issue them charters?
Because Tony and Guido, they say so, that’s why.
I spent my weekend dirtbiking around northern california with my Dad. It was nice not to even think about housing and the economy. It was also fun to blast through the mud pits. As they got deeper and stickier, we had to gun it harder and harder to get through. Until, of course, we found one too deep to get through. Then we had to dig the bikes out push them out and wound up covered in mud pretty much up to the waist from all the falling and flailing and shoving.
Coming back to the office this morning made me think it’s pretty similar to the government trying to convince us all the economy is going to be just fine. They keep hitting bigger and bigger mud pits and throwing burning more and more money to try and blast through them. It’ll be interesting when they finally get stuck.
I’m back from Disney. There is no recession there, folks. Lines were long, restaurants were full, and even the gift shops seemed to be ringing up sales. The last time I was there was ten years ago, and I’d say it was busier last week than it was back then. DH asked a bus driver if he had seen any signs of a slow down and he said no, but he guessed it was because people book those trips very far in advance. With Disney’s generous 45-day cancellation policy, I suppose its more likely Disney might be poaching guests who would otherwise stay offsite by lowering their hotel rates and giving out free meal plans. It seems to be working.
At the arrival day dinner my husband told everyone they should get the “you two should buy a house” lecture out of the way right then and there so we could enjoy the rest of the trip in peace. They all laughed, but unfortunately we still had to hear the lecture on Night 3.
With the market up, up, up 180+ points today, I feel like I never left Disney World.
We had a great time though (although a less crowds would have been really nice), and now I must catch up with a whole week of HBB posts.
Amazing.
The only mistake I keep making is closing my positions.
I’d like to see this sham end in a deflation and keep trading that way; protectively.
Yet, every time I humbly try my hand at graphing this stuff, it looks like an open wedge, widening.
I talk inflation; my revolutionary roots sing deflation, alas, it may not be meant to be.
Oil up 4.51%. (15:00 EST)
Seems cash gets poorer and poorer.
(sorry combo, at least my heart was with you)
Maybe the oil company gas cards will get lower limits, too, just like their multipurpose brethren from Visa et al.
Tuck some extra cash under your floor mat, in case you are caught short.
Kim, Disney is wacking their prices tremendously. I know this as I schedule wife and daughter for a 1 week gig for less than 600 including air fare from NY.
U.S. Household Deleveraging and Future Consumption Growth
http://www.frbsf.org/publications/economics/letter/2009/el2009-16.html
Thanks for the link whino.
I’m often struck by how honest and relatively on-the-ball the regional Federal Reserve banks are compared with their overarching New York counterpart. This article seems to be on the money, and paints a fairly bleak picture of our medium-term economic prospects.
They say that Households are still levered at 130%. This figure says we are still no where near a bottom, IMO.
Those graphs say it all. Who can see them and still say that the last decade of “normalacy” was even close to being sustainable?
All the graphs I’ve ever seen show(ed) noting but a “moonshot.”
There is one sign of discouragement here in Boise. The guy at the end of my street has had a forelorn looking FSBO sign on his lawn for about 2 years now. Always said the same price: $298K. He never moved down a single penny.
This week it’s $261K. He’s starting to crack.
This week it’s $261K. He’s starting to crack. Is he still alive?
It depends upon what you mean by “alive”.
The housing bulls are stampeding back into builder stocks on excitement that the NAHB Housing Market Index has attained a level of 16 after many months in the basement. It may have hit its all-time low last fall, reaching a level below 10 for the first time on record and staying there for a few months, but now is hardly time to break out the bubbly just yet. The lowest level before the current cycle was a trough of 20 in January 1991; the HMI reached that level in September 2007 and has remained there or lower ever since (20 months and counting). If this is a green shoot, it sure does not appear to be very viable.
Financial Times
Optimism grows among US house builders
By Alan Rappeport in New York
Published: May 19 2009 03:00 | Last updated: May 19 2009 03:00
US homebuilder confidence rose to an eight-month high in May and has doubled since falling to a record low at the beginning of the year as buyers responded to new incentives to break ground.
The National Association of Home Builders’ index of homebuilder sentiment rose from 14 to 16 this month, in line with economists’ expectations, and offered a fresh sign of life for the stricken US housing market. However, the figure remains 78 per cent below the peak of hopefulness reached in June 2005, when the index rose to 72, and is still well below the mark of 50 that indicates “good” conditions.
“Builders are responding to what they perceive to be some of the best home buying conditions of a lifetime,” Joe Robson, NAHB chairman, said yesterday.
(sorry if this is a double post)
This is an academic paper that you can download. It looks interesting and quite readable as such things go (for me economics goes down easier with history in the mix).
I’ll leave it to those more knowledgeable to comment on the argument.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401882
by Gary Gorton, Yale and NBER
Prepared for the Federal Reserve Bank of Atlanta’s 2009 Financial Markets Conference: Financial Innovation and Crisis, May 11-13, 2009
Abstract
The “shadow banking system,” at the heart of the current credit crisis is, in fact, a real banking system – and is vulnerable to a banking panic. Indeed, the events starting in August 2007 are a banking panic. A banking panic is a systemic event because the banking system cannot honor its obligations and is insolvent. Unlike the historical banking panics of the 19th and early 20th centuries, the current banking panic is a wholesale panic, not a retail panic. In the earlier episodes, depositors ran to their banks and demanded cash in exchange for their checking accounts. Unable to meet those demands, the banking system became insolvent. The current panic involved financial firms “running” on other financial firms by not renewing sale and repurchase agreements (repo) or increasing the repo margin (“haircut”), forcing massive deleveraging, and resulting in the banking system being insolvent. The earlier episodes have many features in common with the current crisis, and examination of history can help understand the current situation and guide thoughts about reform of bank regulation. New regulation can facilitate the functioning of the shadow banking system, making it less vulnerable to panic.
Currently seems to be unavailable at that link; I get “Service Unavailable”.
Too bad—looks like an interesting paper!
I got in first time. Mebbe try again?
I’m still able to access it, even after I emptied the cache. So do try again.
I left off the title, and it’s a nice one:
“Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007″
No matter what steps are finally taken, eventually the financial industry will move back to unregulated machinations as quickly as they can, any which way they can, and invent a whole new jargon and confidence game to do it. This is their natural wont.
Remember, the loudest proponents of “the free market” was the FIRE sector. What they really meant was “free to fvck you up the a$$” market.
Never forget this.
I’m making the following offers on 4 properties, all in 93551. Any of you REIC knife catcher types that want to snap any of them up had better come up with a better offer now.
Watch out for number four, it is likely to chop the arm off a sight unseen infestor.
1605 West Avenue O4 Offer Down
MLS ID #273492 310 200
816 Denise Ave
MLS ID #F1793569 300 150
1112 Lakeview Dr
MLS ID #277007 320 180
330 Sugar Loaf
Dilbeck 175 175
I apologize in advance for formatting issues.
Some thoughts on the dentistry business, since my spouse is in that profession. This is California, for you lurkers out there.
Business is up at many traditional practices. Many who fear getting a pink slip are using health benefits while they have them.
The President’s stimulus package has made COBRA more affordable, so some who have lost work have extended benefits.
The state recently followed through on a warning that it must cut adults from a Dentical (low-income) program.
That has left a lot of chain companies such as Western Dental hurting, since they have maybe more than 50 percent Dentical in some areas. That company asked some dentists to take a 15 percent pay cut. It has sold off some practices. Some dentists who are tied to those kinds of companies are, as usual, stuck, perhaps more so, because of their visa restrictions.
Many dentists in the central valley are leaving to go the coast, where they perceive the quality of life to be better, and where they believe real estate values make it more attractive. Some, depending on when they bought, are upside down. If they sell their digs for what the market will bear, that will accelerate the price decline in the higher-end niche, which has been frozen of late.
Practices that have satellite offices in Vegas, and there are more than one, well, you guessed it, aren’t doing so well. Neither are practices that specialize in veneers and implants. I don’t think the demand for lip plumping ever took off here.
It’s the old drilling, patching, pulling, making dentures, root canals, crowns and bridges that are the bread and butter.
The late photographer Pop Laval took a picture of a pioneer dentist that you can see at his family’s gallery in north fresno. What makes it eye popping: back in the day, patients in the chair had to push pedals on a bicycle-looking wheel… to….. turn………… the………….. drill that the dentist uses. Spittoon for a sink. Newspaper liners over the garbage can in the name of hygiene.
I digress.
Do you ever just want to throw up and jump off the roof of your building as a short nowadays? Dow up 3% for apparently no good reason other than money chasing stocks.
Grrrrrrrr.
Larry Kudzu says happy days are here again.
http://corner.nationalreview.com/post/?q=MjdmYWQ5MDNjZWUwZWE1N2ZhYzk1OTZlN2Q2MTdiOTU=
May 18, 2009, 2:47 p.m. EST
As stock market rallies, insiders sell, TrimTabs warns
Increase in shares outstanding last week was biggest this decade, firm says.
By Alistair Barr, MarketWatch
SAN FRANCISCO (MarketWatch) — As the stock market rallied in recent months, company insiders have been selling, a sign that investors should exit, too, TrimTabs Investment Research said Monday.
“As investors have turned more upbeat, the smartest money in the stock market has been leaving the party,” TrimTabs wrote in a note to clients.
TrimTabs, run by Charles Biderman, tracks share buybacks and acquisitions, along with new equity issuance by companies and stock buying and selling by chief executives and other corporate insiders.
This allows the firm to gauge the level of outstanding shares, or “float,” in the market — potentially useful information when trying to work out which way prices are heading next. It’s particularly helpful because companies and their executives know more than outsiders such as investors, TrimTabs argues.
Judging by the behavior of these insiders in recent weeks, the signs aren’t good for the stock market, the firm said Monday.
Last week there were $31.3 billion of new equity offerings, as many of the nation’s largest banks sold stock to raise new capital, TrimTabs reported, noting that’s the highest level of issuance this decade.
“Companies took advantage of the rally to flood the market with new shares,” TrimTabs wrote.
Meanwhile, announced corporate buying was “almost non-existent,” no new cash takeovers were unveiled and insiders sold $500 million worth of stock, the firm added.
The overall float of shares in the market soared by $34.6 billion during the first 10 days of May. That puts this month’s float increase on course to be the largest this decade, TrimTabs said.
“The message the ‘house’ is sending is clear — investors should get out of the stock market,” the firm concluded.
Or, as insiders like to say to retail investors:
SUCKAH!!!
Yet, explain this to me, the ETFs I follow are mainly owned by institutions, 30%-48% of shares owned by institutions.
Why have institutions been increasing their positions for weeks?
There is a great article in the Wall Street Journal today about Trump.
Trump on Trump: Testimony Offers Glimpse of How He Values His Empire
Worth Rises, Falls ‘With Markets and Attitudes And With Feelings, Even My Own Feeling’
Some key quotes:
The world famous real-estate developer and television personality has consistently said it’s in the billions. A 2005 book citing anonymous sources said it was between $150 million and $250 million.
“My net worth fluctuates, and it goes up and down with markets and with attitudes and with feelings, even my own feeling,” he told lawyers in the December 2007 deposition.
if you like hating donald trump; you gotta read this article for lots of juicy quotes he has given in sworn testimony.
Brazil and China eye plan to axe dollar
http://www.ft.com/cms/s/0/996b1af8-43ce-11de-a9be-00144feabdc0.html
Most families now find ownership within reach
By JEFF OSTROWSKI
Palm Beach Post Staff Writer
Monday, May 18, 2009
WEST PALM BEACH — Plunging home prices and stable incomes have made homes in Palm Beach County and the Treasure Coast enticingly affordable to most families, the National Association of Home Builders said Monday.
In Palm Beach County, nearly two-thirds of homes sold in the first quarter were in reach of a typical family, according to the NAHB/Wells Fargo Housing Opportunity Index. And in the Treasure Coast, more than four-fifths of homes were affordable for a median-income family.
In Palm Beach County, 65.7 percent of new and existing homes sold in the county were affordable to a family making the county’s median income of $67,600, the study says. That’s up from 53.5 percent in the fourth quarter.
Affordability hit a low of 28.8 percent in 2006.
In the Treasure Coast, the housing affordability index soared to its highest level in 15 years, the index says. Some 81.4 percent of homes sold in the first quarter were in reach of a family making the area’s median family income of $59,600.
Surprisingly, incomes changed little from 2008 to 2009, according to the index. Despite rising unemployment rates and a weakening economy, the region’s estimated median family income held steady. Income rose 2.4 percent in Palm Beach County from 2008 and fell 0.3 percent in the Treasure Coast.
The national housing market saw a similar trend, as affordability rose to its highest point in the 18-year history of the index.
A family earning the U.S. median income of about $64,000 could afford around 73 percent of all the homes sold in the first quarter, said David Crowe, NAHB’s chief economist.
Crowe has forecast that the housing market will begin picking up toward the end of this year and turn around by 2011.
Builders, however, still face challenges getting loans from banks to finance new construction projects, while many borrowers must comply with more stringent standards that often require them to come up with more money for a down payment.
Here’s a graph I mentioned last week I was making showing residential mortgage debt as a percentage of GDP; data from Federal Reserve z1. It includes a trend line for comparison.
Of note:
- Over the long run, one can see how we’ve been getting deeper and deeper into mortgage debt - not just in nominal terms, but as a percentage of GDP. This obviously is not sustainable; even the the trend line is not sustainable, for obvious reasons. I put in the trend line for reference, just to show the recent bubble, not to indicate that it’s something “normal”. This to me is a strong indicator how the banks’ portion of our economy has grown; and that’s not a good thing IMO.
- This confirms my calculations from other data of several months ago of the scale of the bubble - about $4.5 Trillion on the residential mortgage side (commercial I believe is about $1.5 Trillion, though I haven’t crunched the numbers as closely).
- The increase in debt comes mainly in steps, and interestingly before the early 1980’s it corresponded quite closely with stock market growth (presumably mortgage debt fueling the 50’s and 60’s growth, followed by stagnation in the 1965-1982 timeframe), whereas since 1982 or so it has more closely corresponded with the the larger recessions of the early 90’s and now, but not with the weak 2002 recession, and the correlation is less tied to the market (which for whatever reason completely ignored the strong early-90’s recession but was hammered by the weak 2002 recession).
- The last few months have been very interesting - we did start downward with the debt unwind, but are now actually starting back *up* as GDP shrinkage actually exceeds the rate of mortgage debt unwind. This to me is a very bad foreboding. However that being said - someone asked the other day if maybe this was due in part to foreclosures that have actually already been written off, but haven’t shown up yet in the Federal Reserve data. That could be - I don’t really when this hits the Fed’s books. I would imagine though that there’s not *that* much of a difference.
Will probably post this again tomorrow. Off to bed now tho…
A steady linear uptrend in mortgage debt as a share of GDP is clearly already unsustainable, but that ginormous spike above trend in recent years is just crazy.
It sounds like BlackRock enjoys a similar privileged position to that of the Fed, acting as buyer, seller, middleman and price setter of the assets in which it deals.
Wall Street Journal
* MAY 19, 2009
BlackRock Wears Multiple Hats
In the Crisis, Fink’s Firm Is Buyer, Seller, Adviser; ‘Our Clients Trust Us’
By LIZ RAPPAPORT and SUSANNE CRAIG
Laurence Fink has parlayed a lifetime of contacts and computer models into a powerful, controversial role for his firm in the financial crisis.
The U.S. has selected BlackRock Inc., a money manager and risk-advisory firm, to manage mortgage assets once owned by Bear Stearns Cos. and American International Group Inc. Separately, the firm also has been tapped to analyze hard-to-price assets of Freddie Mac and Morgan Stanley, among other financial institutions in the crisis.
Now, the Treasury Department has preliminarily granted BlackRock a coveted second-round interview to become one of a few money managers to buy toxic assets from U.S. banks, using taxpayer money, people familiar with the matter say. Mr. Fink aims to raise as much as $7 billion to invest through the program, which could yield his firm millions of dollars in fees. A Treasury spokesman says it is in negotiations to prequalify several fund managers
BlackRock helped shape the government’s toxic-asset plan, which critics have said helps vulture investors buy assets on the cheap while exposing taxpayers to the bulk of losses if the investments sour. Meantime, BlackRock continues to manage $132 billion in mortgage assets, some of which have defaulted.
BlackRock’s multiple hats put it in the enviable position of having influence on setting the prices of both the assets it is buying and selling.
Some critics say financial firms stand to benefit from the process, after Wall Street helped to create the problem.
“BlackRock is too close to the problem to be objective,” says Janet Tavakoli, a former Wall Street derivatives trader and now president of a financial-consulting firm. “One should question how much they are part of the problem.”