January 31, 2010

A Different Time, A Different Era

The Las Cruces Sun News reports from New Mexico. “Verde Realty has scrapped plans for a city-size residential and commercial development on almost 24,000 acres it owns in Santa Teresa. In 2005, Verde announced plans for the 25,000-home master-planned community on mostly vacant desert at the edge of West El Paso. ‘We previously developed a small portion of the Santa Teresa property, but we no longer intend to pursue large-scale development of this land,’ Verde stated in documents filed last week with the SEC.”

“Other developers may be interested in that land, but ‘I don’t see a demand for it now - maybe in five to 10 years,’ said Charles de Wetter, president of one of El Paso’s largest real estate companies.”

“Randy O’Leary, president of El Paso’s largest homebuilder, and president of the El Paso Association of Builders, said he did expect El Paso-area developers to show interest in that land. ‘Everyone has enough land’ to develop for several years, he said. ‘We (Desert View) have as much land as we need for the next five to seven years.’”

“This is the second big proposed master-planned community project to collapse in this area in recent years. In 2008, Hunt Communities of El Paso decided not to buy 4,833 acres in Northeast El Paso from the El Paso Public Service Board to build a master-planned community with more than 14,000 homes. Hunt said the nation’s financial crisis prevented it from getting financing for the project.”

The Denver Post in Colorado. “The state’s chief regulators sought to defend their oversight of New Frontier Bank during a legislative hearing Wednesday, saying its $1 billion failure last year had nothing to do with poor regulation. Asked by state Rep. Joe Rice, chairman of the House Business Affairs and Labor Committee, what lessons are evident from New Frontier’s failure, acting banking Commissioner Fred Joseph suggested that the state could improve its monitoring of rapid growth.”

“The bank quadrupled its assets in less than three years, surging from $500 million in 2005 to $2 billion in 2007. ‘If that happens, we should require them to put more capital in the bank,’ Joseph said.”

“Greeley-based New Frontier was shut down in April by the state Banking Division because it was bleeding cash. The bank failure caused havoc in the agriculture and real-estate communities of northern Colorado. A Denver Post investigation published in December found that the state Banking Division under DORA failed to detect or punish potentially fraudulent accounting maneuvers by New Frontier managers.”

The Post Independent in Colorado. “The developer of a stalled condominium-hotel project in Basalt wants to overhaul the plan and build something more likely to secure financing in the current economic climate. A Chicago-based firm called Snow River Lodge Inc. wants to convert the condo-hotel project into a traditional hotel, representative Jim Richmond told Basalt officials in a recent meeting.”

“His company has approval to build 54 lodge rooms and two affordable housing units on vacant land. The project stalled 18 months ago after the concrete foundation was poured. The owners ‘lost financing’ during the recession, according to Basalt Assistant Planning Director James Lindt. Financing to build fractional ownership projects has nearly dried up, and loans for buyers of the units are virtually non-existent, according to sources in the real estate development industry.”

“The town planning department supports the change. ‘Staff feels that the request to convert the approved condominium hotel to a standard hotel will further the Town’s goal of creating a balanced economy and sustainable economic growth,’ a memo to the council said. ‘A standard hotel will better promote ‘hot beds’ and tourism than will a condominium hotel.’”

The Arizona Republic. “Arizona State University professor Karl Guntermann said preliminary data for December show the median price for a foreclosed home was down just 2 percent from December 2008. The index for non-foreclosed homes showed a very different trend in December, indicating that the Valley housing market continues to follow two distinct paths: one for bank-owned home sales and the other for more traditional sales.”

“The median sale price for non-foreclosures continued on a steady decline that barely has budged in more than a year. ‘By October 2008, non-foreclosures were declining at an annual rate of 20 percent, and they still are,’ Guntermann said.”

The East Valley Tribune in Arizona. “For the year, Phoenix-Mesa-Scottsdale ranked as the eighth-worst metropolitan area nationally in terms of foreclosure filings - default notices, auction sale notices and bank repossessions. In 2009, foreclosure filings were reported on 133,809 houses, or more than 8 percent of all houses, up 39 percent from 2008 and 343 percent from 2007.”

“The majority of foreclosures are not homeowners who can no longer afford their mortgages, but instead are unhappy because their mortgages are higher than the value of their homes, said Eric Bowlby, president of Amerifirst Financial in Mesa. ‘It may be their (mortgage interest) rate is adjusting and they can’t refinance and get on a fixed rate because they’re upside-down on the house, and that causes frustration and they get mad, and they just walk away,’ he said.”

Inside Tucson Business in Arizona. “Until jobs return and “we put people in foreclosed homes,” recovery of Southern Arizona’s real estate, home building and overall economy will lag behind most of the rest of the nation. The process will be slow and steady, with a full recovery not expected until late 2013 or early 2014. That was the sobering message from economist Marshall Vest of the University of Arizona speaking to about 300 otherwise upbeat attendees at the Tucson Association of Realtors Annual Forecast.”

“Vest said he could make a case that Arizona ‘is the nation’s hardest hit state.’ Arizona ranks last in job growth, 43rd in revenue growth, fourth in home foreclosures, and second in homeowners with negative equity. ‘Since the economy peaked in March 2007, Arizona has lost 275,000 jobs. Tucson has lost 26,000 jobs. The declines are just stunning,’ he said.”

“As this year’s president of the National Association of Realtors (NAR), Tucson Realtor Vicki Cox Golder’s ‘Washington Outlook’ is focused on reform and preservation. Because Congress has approved so many new programs, ‘we’re going to have some heavy-duty tax reform to pay for them,’ she said.”

“The national association is most concerned about preserving the mortgage interest deduction on homes. The Obama Administration views it as a new source of revenue for the government. ‘The deduction is the Holy Grail to anybody with a mortgage. We are going to fight this tooth and nail,’ Golder said.”

“Vest told the Realtors ‘we must put people in foreclosed homes before building more new ones.’ According to U.S. Postal Service officials, there are currently 25,000 vacant homes in the Tucson region.”

The Verde Independent in Arizona. “The latest version of Cottonwood’s proposed annexation master plan for 10-square miles of Arizona State Trust Land is starting to draw more compliments then the previous hail of ‘boos.’ The re-designed plan, according to Curt Johnson of consultant Coe and Van Loo, provides more open space and trails, a larger wildlife corridor and responds to local interests to give the entire development more variety and flexibility. The number of potential homes that might be built has been reduced from 23,000 identified in the last plan to a range of from 12,000 to 19,000.”

The Salt Lake Tribune in Utah. ” Home sales are up, but prices are still going down. That’s the focus of the Salt Lake Board of Realtors’ newest report out covering the housing market along the Wasatch Front. ‘It’s a tough time to be a seller,’ said Realtor Scott Colemere. ‘But with prices down and rates down and the government giving you money to buy, I don’t think there’s a better time to buy.’”

“Justin Lloret and wife Kristi have qualified for a federal home-buying incentive of $6,500, locked in at a mortgage rate of 5.5 percent and got a great deal on a 3,100-square-foot home on nearly one acre in Taylorsville they plan to close on within days. The couple had been looking for a for about a year and a half. ‘Compared to a couple of years ago, we got a really great price,’ Justin Lloret said.”

“Kelly and Elizabeth Callister plan to claim the $6,500 incentive. The Callisters sold their previous home in January 2009 and settled in the fall on their new home in Davis County, where they were able to buy at $15,000 below the already-low asking price for a newer house on a large lot. Kelly Callister said the home-buying incentive, lower prices and his 4.75 percent mortgage rate vastly outweighed the specter of more price declines.”

“‘It’s in the back of my mind, but this is our long-term home, this is where we want to be, so I’m OK with it. We’re thrilled.’”

“Home Savings Bank has until the end of March to increase its capital to at least 11 percent of assets, according to the Federal Deposit Insurance Corp. The order is part of a broader consent agreement between state and federal regulators and the bank requiring Home Savings to also cleanse its books of bad loans.”

“‘The FDIC and the Utah Department of Financial Institutions desires to have all banks increase their capital, reduce nonperforming loans and reduce their concentrations in commercial real estate loans,’ said John Sorensen, Home Savings president and chairman. ‘Recognizing the economic downturn, we took action.’”

“Right now, commercial real estate loans are 529 percent of the bank’s capital. The peak was 1,150 percent in 2006, when the housing slump began. Sorensen said the bank expects to reach its goal of 450 percent within six months. Because Home Federal would lend no more than 75 percent of a project’s value, the bank was comfortable with loan-to-value ratios that exceeded 1,000 percent of its capital. Other banks were willing to lend as much as 110 percent, Sorensen said.”

“With the collapse of real estate, that thinking has gone out the window, he said. ‘I would say I wouldn’t feel comfortable with that level now. It was a different environment,’ he said ‘So that 1,150 percent, that’s a different time. That’s a different era.’”

The Pahrump Valley Times in Nevada. “Lenders last week assumed ownership through foreclosure of a 20-acre tract of land where Jerry Wang, CEO of the Forum Group Ltd., had plans for an ambitious resort complex. There were no buyers at the trustee sale on the courthouse steps in Tonopah.”

“Wang planned to begin construction in January 2000. When the project was completed in five to seven years, Wang predicted 18,000 jobs would be created. His project, The Oasis at Shangri-la, would include an Oriental-themed hotel, casino, retail shopping complex, recreational vehicle park, convenience store and the St. Thomas Place condominium project, for which a sign stood for many years at the site. In November 1999, Wang told an audience of 200 people, ‘At least every other household will have something to do with this project.’”

The Reno News & Review in Nevada. “The unemployment rate in California stayed the same—12.4 percent—only because it did not reflect thousands who have dropped out of the job market altogether, meaning the figures do not reflect their numbers. ‘It hurts us,’ said Nevada economist Glen Atkinson. ‘We’re connected, totally connected to the California economy. … Some of our major sectors, including gaming, tourism and warehousing [are dependent on California’s economy].’”

“‘A lot of the construction industry here in the housing boom was highly correlated with what was going on in California,’ said economist Thomas Cargill. ‘In fact, a great many construction workers were from California, and one of the reasons why the labor force has declined is those people have packed their bags and gone somewhere else.’”

“‘Of the 30 biggest occupational categories in Northern Nevada, only 15 percent require a baccalaureate degree,’ Atkinson said. ‘It means we have a low-skilled labor force here. And it means that the people who go to university here, most of them will have to go someplace else for a good job. … There are not a lot of high-paying, high-skilled jobs in the region. … One of our big growing sectors has been retail, for example—you know, cashiers and so forth.’”

“‘Even though tourism’s been declining, we’re not growing enough in other industries—manufacturing, whatever—to make up for that,’ Atkinson said.”

“Nevada has always been something of an adjunct of California. The wealth of the state’s early mining booms was shipped to California. A former California governor was president of the second Nevada constitutional convention, which drafted the new constitution by using a copy of the California Constitution as a model. Since the revival of legal Nevada gambling in 1931, Californians have been the largest customer base of Nevada casinos.”

“But even now, with Nevada casinos losing customers to California tribal casinos, Nevada—particularly the populous south and west that contain most of the population—shares overlapping trade and media markets with California. The dependence of Nevada on California has been so pronounced that the late scholar Hal Rothman suggested that Nevada is in a colonial relationship to California. He noted that at Hoover Dam, Los Angeles Municipal Utility District vehicles have Nevada license plates.”

“‘The fundamental relationship between Nevada and California is as clear as the insignia on the side of these cars: California runs Nevada, so completely and brazenly the most needed resource in the desert state, water, is stored there for consumption in the great economic engine to the west,’ Rothman wrote in 2002 in a book of essays about Las Vegas—published by the University of California. ‘The control is so complete that the relationship seems natural: California entities wear Nevada license plates and no one notices, proof positive of the vast power of the Golden State in the Silver State. Nevadans need look no farther to see where their bread is buttered. … [D]esolate Nevada has survived by catering to the needs of outsiders, in particular Californians.’”

“When Nevada economic development officials last year started running ads touting the benefits of Californians moving their businesses to Nevada, Fresno Bee writer Jim Boren warned, ‘So here’s what you won’t hear in those ads: Nevada had the nation’s highest home foreclosure rate for the 31st-straight month. U-Haul dealerships in Nevada can hardly keep moving trucks on their lots as residents fishtail out of the once-booming state. Nevada casino revenues report double-digit revenue declines because of the sour economy and the beating they are taking from California’s Indian casinos. Nevada’s unemployment rate of 12 percent was fifth-worse in the nation—even worse than California’s 11.6 percent rate. … Readers know that I don’t defend California very often. State government is a mess. Our infrastructure is falling apart. We’re taxed every time we turn around. But in this comparison, Nevada is the competition, and California wins hands down. In fact, I’d double down on California’s economic future compared with Nevada.’”




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82 Comments »

Comment by yogurt
2010-01-30 08:44:02

“Until jobs return and “we put people in foreclosed homes,”

Want to put people in foreclosed homes? Just sell them for what people are willing and able to pay.

Couldn’t figure that out?

Comment by jess
2010-01-30 11:54:04

Wether a house costs 50K or 500K , it will serve exactly the same number of people . The trick is to get an ”owner” in it who will take care of it , as a residence and not as a potental piggy-bank.

Comment by Professor Bear
2010-01-30 20:09:21

There is no trick. Simply end the denial about the fact that home prices have collapsed, list empty homes at prices the market will bear, and soon end-user owner occupants who are willing and able to care for them will come out of the woodwork to make purchases.

Otherwise, we all get to enjoy watching the Great American Wealth Toilet Flush, Round II. (Round I was the Crazy Lending round; Round II would be the Dilapidation round due to extreme physical depreciation of empty homes.)

Comment by oxide
2010-01-31 06:53:41

List empty homes at prices that the market will bear, and soon bottom feeders will come out of the woodwork to start flipping again.

How’s this for a reg: Simply require that all loans be “seasoned” for 2 years at full amortization before they can be sold. Even the anti-gov types wouldn’t mind just one teeny little regulation, right?

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Comment by Professor Bear
2010-01-31 08:57:21

“Even the anti-gov types wouldn’t mind just one teeny little regulation, right?”

I’m thinking that Alan Greedscam’s anti-regulation juggernaut has pretty much run out of gas at this stage of the housing bust.

 
 
 
 
 
Comment by Hwy50ina49Dodge
2010-01-30 08:58:01

“…Nevada casino revenues report double-digit revenue declines because of the sour economy and the beating they are taking from California’s Indian casinos.”

Let’s see, 300+ miles to Vegas from CA Metro’s…$3.00 per gallon gas…20 mpg…$72.00 just to head out of state for smoke / noise & clanking digital slots , …or drive 45 to your local Native American supplement income depository for the same results. ;-)

Comment by combotechie
2010-01-30 09:14:49

Or, to save all the hassle, just figure out what you’d probably lose and then mail that amount to Caesar’s Palace.

Comment by In Montana
2010-01-30 12:27:35

Heheh. I made a good living as musician there back in the day, but never did understand the attraction.

 
 
Comment by NycityBoy
2010-01-31 15:39:52

“Let’s see, 300+ miles to Vegas from CA Metro’s…$3.00 per gallon gas…20 mpg…$72.00 just to head out of state for smoke / noise & clanking digital slots”

I believe that is $45. With math skills like that Hwy you are definitely qualified to work for The Fed or Trashery Department.

 
Comment by potential buyer
2010-01-31 15:45:07

Yeah, but I like my gin and tonic at that blackjack table! Anyway, lets face it, I love Vegas! Could never live there though.

 
 
Comment by Diogenes (Tampa, Florida)
2010-01-30 09:35:52

“The national association is most concerned about preserving the mortgage interest deduction on homes.
The Obama Administration views it as a new source of revenue for the government. ‘

I’m Shocked!, I tell you, SHOCKED!!

Who wud a thunk it?

Comment by Michael Fink
2010-01-30 10:51:04

Oh that would be wonderful. That will drop home prices nationally about 20% overnight. And encourage people NOT to take our monster MTGs or re-fi CC debt into home loan debt. A great move for the country.

And one that will never happen because of the political pressure against it (from the RE industry, and the 60%+ of the country who are homedebtors).

Renters subside the taxes of the home owners, doesn’t something seem wrong about that? And, more interestingly, once you pay off your home, the subsidy goes away… Hmmmm… Why on earth do we want economic policy to encourage massive levels of home debt?

Comment by JDinCT
2010-01-30 11:06:56

unfair to renters, encourages indebtedness…
wow those really are two big unspoken effects of the mortgage interest deduction.
the consumer society that the USA has evolved into thrives on that indebtedness….velocity of money and all that…it’s not sustainable, but it has been the elixir that has kept the consumer consuming.

Comment by NoSingleOne
2010-01-31 10:36:07

those really are two big unspoken effects of the mortgage interest deduction

I would also add that it makes house prices higher. If people couldn’t count on a mortgage deduction, then they would get smaller mortgages.

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Comment by oxide
2010-01-31 07:00:51

The mort deduction only encourages debt for stupids. To me “tax deduction” is code for “20% off.” Why buy something for $100 just to get $20 back? It’s best not to spend the $100 in the first place.

It’s the same idiot reason women buy unnecessary shoes: “But honey, they were on sale…so I saved money!” The $8K tax credit is the same concept.

Comment by CA renter
2010-02-02 02:54:46

+1

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Comment by Diogenes (Tampa, Florida)
2010-01-30 09:48:53

“Based on these kinds of experiences, it’s easy to conclude that there’s something wrong with the grim picture presented by economic experts. Is Las Vegas really in such dire shape if mid-level places such as the Monte Carlo Brewpub and Margaritaville have such big weekend crowds?

More happy talk from Vegas.
I posted a short blurb last year about Vegas from a gambler friend of mine who visits regularly. His hotel room was costing about $150 per week.
I think he was being charge $30 per night for 5 nights with 5 nights free.
The casinos were so desperate to get customers, many things were comp’d.
He got cheap if not free lunches, and free chips to play as incentives.
At the time i suggested a Vegas Vacation could be a really good deal.
It is not surprising to see a bunch of people taking advantage of give-away pricing, but the housing market is a disaster and employment is way down. Lot’s of empty places off the strip.

The signs you see are people getting CHEAP vacations, but it is not economically sustainable on the part of the businesses. It is an act of desperation to generate any business at all. Casino revenues have been way down. They are hurting and trying to bring in some more marks. (BTW, if you are sitting a poker table and don’t know who the mark is, it’s you).

Comment by Sagesse
2010-01-30 11:34:47

There is a convention in mid April with 80 K conventioneers expected, and yet the hotel rooms during that time are still really cheap, as of now. It’s kind of odd.

Comment by Diogenes (Tampa, Florida)
2010-01-31 10:25:24

It’s not really odd. It’s called excess inventory.
Supply and Demand working its way through the Las Vegas pricing structure.
Remember all the Condos for sale around the strip??
They are now rentals around the strip, or vacant.
It’s worse than Miami. Lots of rooms and very few tenants.

It’s sad to have watched all this unfolding over the past few years, waiting for stabilization at 1998 prices. When we were talking 1998 to 2000 pricing, everyone looked at us like we were regulars at Area 51 and waiting for the next arrival of the Hale Bopp comet.
Now it’s the SL o oo oo ooo w process of recovery.
I fear that stiffness in my joints is really rigour mortis setting in.
My house shopping season started in 2002, when i pulled the plug on the bid war games. It’s been so long, i am growing senile for sure.

 
 
Comment by snake charmer
2010-01-30 15:18:38

“If you don’t know who the mark is, it’s you.”

That maxim could apply to many areas of our national economic life, so much that I’m beginning to come to the conclusion that some people like being marks. For about a year as a student, I played in a regular once-a-week, low-stakes poker game. There was one guy who lost every single week, but it didn’t seem to bother him.

Comment by Diogenes (Tampa, Florida)
2010-01-31 10:30:50

I met a guy like that once. He came to our table straight from the roulette wheel. Some people just like playing games of chance, even when the chances are you are going to be poorer when you leave. The guy raised almost every hand, even when he had nothing and i had the nuts. I like these folks. Generous souls….or what’s that they say about people who are soon to be parted from their money?

 
 
Comment by Lionel
2010-01-30 15:27:54

My cousin is a poster-child for Vegas. He moved down there from Canada years ago and found himself waist-deep in commercial constructing, mostly renting out trucks. He used to come out and visit me in LA in his giant Armada, bragging about his 700K house with seven TVs. One day he mentioned that a friend of his offered him a 2.8 million dollar mansion for a mere 2.3 million, but he says he can’t quite swing the mortgage. I tell him in exacting detail what kind of economic hell will be descending upon Vegas (thanks to Ben and other insightful bloggers), but he won’t listen. Where’s the real estate mogul now? Bartending in a small town in Saskatchewan.

Comment by CA renter
2010-01-31 04:26:47

Wow, that’s quite the slap-down. I wonder where he was really happier, though.

Comment by RioAmericanInBrasil
2010-02-02 15:53:29

I wonder where he was really happier, though.

This is a very important question.

And I think it’s a question that will be asked more going forward than it had been asked the past few years.

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Comment by SDGreg
2010-01-30 10:21:49

“The national association is most concerned about preserving the mortgage interest deduction on homes. The Obama Administration views it as a new source of revenue for the government.”

Doing the right thing, even if not necessarily for the best of reasons, would be a step in the right direction. I’ve seen more than enough of the wrong things done for the worst of reasons in the past decade.

But how would reducing or eliminating the mortgage interest deduction fit with his goal of propping up housing prices? Is that like trying the grow jobs while reducing the deficit?

Comment by joeyinCalif
2010-01-30 10:52:14

..But how would reducing or eliminating the mortgage interest deduction fit with his goal of propping up housing prices? Is that like trying the grow jobs while reducing the deficit?..

.. and is that like punishing banks on the one hand, while supporting them on the other?

Politicians, along with everyone else, will twist and squirm in an attempt to extricate themselves from the situation, but resistance is futile. Property prices will fall.. and fall some more.. all the way to affordability and perhaps beyond.

 
 
Comment by SDGreg
2010-01-30 10:34:39

“The latest version of Cottonwood’s proposed annexation master plan for 10-square miles of Arizona State Trust Land is starting to draw more compliments then the previous hail of ‘boos.’ The re-designed plan, according to Curt Johnson of consultant Coe and Van Loo, provides more open space and trails, a larger wildlife corridor and responds to local interests to give the entire development more variety and flexibility. The number of potential homes that might be built has been reduced from 23,000 identified in the last plan to a range of from 12,000 to 19,000.”

Where are the jobs with the incomes to support even a small fraction of those new houses or the water for the people that would occupy them? There aren’t enough decent paying jobs to absorb all of the housing that’s been built there in the past few years much less absorb another 10k+ houses. The next generation of retirees, not likely to be flush with cash, won’t be in a position to absorb many of those houses either.

Comment by JDinCT
2010-01-30 11:10:43

those cottonwood officials are out of their cotton-pickin’ mind!

who the heck is positioning themselves to build 10,000 more houses?
they MUST be in the hip pocket of the construction interests.

 
Comment by Ben Jones
2010-01-30 11:20:02

A couple of things here; one, Cottonwood doesn’t need any houses, much less thousands. There is not a large job base. I remember the big laugh we all had when the locals got excited about the Wal-mart supercenter opening and visited it like a park.

I don’t know the specifics about this annexation, but it raises a larger issue, which is this state land trust. I understand this trust holds many millions of acres all over the state, in patches of 10k acres. It was set up long ago. What AZ has is this entity, the BLM, the Forest service, etc, sitting on vast amounts of land and selling it off to developers. And notice that we don’t hear anything about BLM auctions in Vegas anymore?

IMO, there will come a day when people will scream for this land to be released so the economy can grow again. Land is all we really have, and cheap land is the only thing that will draw out-side retirees and fix this economy.

Comment by SDGreg
2010-01-30 20:51:05

” I remember the big laugh we all had when the locals got excited about the Wal-mart supercenter opening and visited it like a park.”

To me, it looked like the people in that Walmart were struggling mightily even in better times, much more so than the people in most Walmarts I’ve visited.

The jobs and incomes don’t support the houses that are there now, much less the massive number of proposed new houses.

Comment by Silverback1011
2010-01-31 09:47:44

I’ve been in that Walmart supercenter, and you’re right, Cottonwood couldn’t possibly handle 10,000 more houses. The valley’s gorgeous, but you can tell it used to be Godforsaken for a good reason. There’s nothing there. And I like the place.

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Comment by Professor Bear
2010-01-30 17:08:03

“Where are the jobs with the incomes to support even a small fraction of those new houses or the water for the people that would occupy them?”

Sounds like a generic description of the Sand States’ housing bust…you could almost be discussing anywhere west of Utah and south of Oregon.

Comment by JDinCT
2010-01-30 17:50:26

Sand States

Boy there’s a word for the lexicon….

 
Comment by sheila bear
2010-01-30 20:55:33

Umm I would throw 75% of OR and 90% of Utarr in that category PB.

 
Comment by MightyMike
2010-01-31 11:20:54

Please don’t leave us out in Arizona. We’re definitely in the top 4 states.

 
 
 
Comment by DennisN
2010-01-30 13:18:16

A few thoughts….

(1) Obama is finally going to loosen the floodgates to new nuclear power plants.

(2) The state of Nevada is going broke.

therefore…..

(3) Nevada will end its opposition to the Yucca Mountain nuclear waste site in order to gain large tax benefits thereby.

Comment by Professor Bear
2010-01-30 17:09:20

Sounds plausible. But don’t underestimate the ability of green NGOs to muster strong opposition to the idea of locating nuclear waste facilities in geologically unstable earth (Basin and Range country).

Comment by B. Durbin
2010-01-31 14:57:48

There really isn’t anywhere in the world that isn’t geologically unstable. The biggest earthquake in the contiguous 48 was in Missouri, of all places.

 
Comment by lavi d
2010-02-01 07:13:38

…geologically unstable earth

I stood on Yucca Mountain and looked down into a canyon. There are tips of volcano cones down there over 6M years old.

That’s unstable?

 
 
 
Comment by Athena
Comment by Bill in Los Angeles
2010-01-30 15:05:37

That 30 year debt mountain will have to be paid back…to whom? My parents are not alive. So they will not be paid.

I figure a massive debase of the currency will happen. And no one will ever lend to the U.S. again! Boo hoo.

When did anyone start lending to the U.S. anyway? I only started hearing about China being our creditor a few years ago. And what about all the money the U.S. gave to other countries for decades? I’m thinking it’s in the hundreds of billions of dollars.

Tax hikes to pay the debt will not be allowed by the American people. Taxing the ones who already pay 50% of the taxes won’t work because there are not enough of that kind. Taxing the middle class won’t amount to much unless their rates are more than doubled. And the middle class won’t allow that to happen.

Declaring bankruptcy, a clean slate, is the other approach. Is that the same as debasing the currency. The politicians like devaluing the U.S. dollar so much because it makes American products cheaper to the foreignors, staunches some of the bleeding of jobs to overseas, and buys time.

Right now, some of you HBBers are 100% in cash. Some are 100% in stocks. Some of you are 100% in precious metals. Some are 100% in t-bills. Some of you 100%ers are dead wrong and going to suffer quite a bit. No one knows how this movie will end. The 1920s credit bubble was absorbed in ten years. Why gamble everything when you can cover your a$$ets by diversification and be just slightly wrong?

Comment by In Montana
2010-01-30 19:32:03

so stocks inflate with currency devaluation? help me here.

Comment by JDinCT
2010-01-30 19:42:20

VERY VERY common phenomena.
The cheap currency makes it cheaper for foreigners to buy equities real estate et cetrea.

This works in a genral growth environment. Not so sure if I would want to try it these days.

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Comment by Professor Bear
2010-01-30 20:12:50

“I figure a massive debase of the currency will happen. And no one will ever lend to the U.S. again! Boo hoo.”

Serious question: How else could this possibly play out? I am interested in alternative scenarios anyone can offer, as I have none (i.e., I agree with BiLA on this…).

Comment by CA renter
2010-01-31 04:45:29

Even though I’m a deflationist at the moment, I agree with Bill and you on this, too. At some point, our currency will be worth much less than it is today. It’s possible though, that we will experience another wave of deflation before that happens.

Nobody knows for sure, or else we’d all be rich! :)

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Comment by Bill in Los Angeles
2010-01-31 10:58:46

I have no answer to how it will play out. I think they (the Fed) are buying time, hoping the American public will pay off their debts or cause a new bubble.

I am all for buying time. Let it stretch ten years - well that is my dream. I could handle any asset crash by then. And some assets will drop 90% while others relatively gain 100%.

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Comment by Bill in Los Angeles
2010-01-31 18:13:14

I’m thinking that after the 2007 Mortgage Forgiveness Act ends (in 2012) not even a homeowner with a primary residence will escape the tax bite of a lost value if he sells after 2012. The specuvestors meanwhile will be forced to pay the taxes for the marked down values of the houses they buy - or face jail time - if they are caught.

After 2010 home loans will be very hard to get. There will be no more bank bailouts because the large banks will be allowed to crash and burn (no more large banks). The taxpayers had enough bailouts of big banks. BAC stock will drop from $15 down to less than a buck, where it belongs.

The interest rates on whatever loans remain will be very high, well above 11%, where they should be. This will be the nail in the coffin of the housing bubble and it will take several years before the bottom.

Cash is king in that scenario. The T-bill interest rates will go back above 6% just when you are ready to buy the $100,000 house that was selling for $500,000 in 2006.

 
Comment by JDinCT
2010-01-31 19:34:02

sounds plausible Bill

 
 
 
Comment by Silverback1011
2010-01-31 09:52:05

So true, Ben. We go from one thing to another in our endless talks about what to invest in. We are spread out amongst several asset classes, except for precious metals now, which had a great run-up. We sold last week, except for 2 pieces, one from my mother’s estate, and a pretty Pamp Suiss Fortuna 5 gm bar, cuz I liked it. We finally decided that with everything else deflating, gold would too, eventually. There doesn’t seem to be much of the way of inflation hitting. If it does, then we’ll get some more, I guess. But everything is going down, down, so it would seem. They haven’t lowered my paycheck, yet, luckily.

Comment by Bill in Los Angeles
2010-01-31 11:00:27

Keeping cash in T-bills and money market funds is a secure feeling if you think you bought too much of the yellow metal and sold some of it.

This is my feeling with individual stocks for now. I feel better having cashed out $9,000 worth.

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Comment by jane
2010-01-31 10:31:49

Bill, as you have seen, the middle class has nothing to say about its terms of enscrewment. The middle class is, in financial terms, a market taker, not a market maker.

You live in a world of astonishing certainty.

Comment by Bill in Los Angeles
2010-01-31 15:19:20

About the economic future, I’m the least certain. That’s what I have been trying to say. The people caught with their pants down in the last tech stock crash and the current real estate crash were VERY certain that their tech stocks or house prices will go up forever.

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Comment by Ol'Bubba
2010-01-31 16:10:36

“Why gamble everything when you can cover your a$$ets by diversification and be just slightly wrong?”

Okay Bill in LA, you bring up an excellent point which brings us back to a fundamental concept of successful investing: Asset Allocation.

Let me ask you this- what is your current asset allocation model by percentage invested in the various asset classes? Thanks in advance.

Comment by Bill in Los Angeles
2010-01-31 17:56:53

As of Friday January 29, 55.25% equities (stocks and stock mutual funds), 11.27% precious metals, and 33.47% government securities and cash. I’m 50 years old and in great health, and cannot see me retiring before 67. If I was 30 years old I would probably be 80%, 10%, and 10%.

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Comment by Ol'Bubba
2010-01-31 18:54:16

Thanks.
I need to tweak my asset allocation. My largest position is in cash and cash equivalents, but the financial markets currently look overvalued to me.

 
Comment by Bill in Los Angeles
2010-01-31 19:22:01

You are welcome. I put my age down because what works for me may not work for you. Also, since I’m single and have no kids, no credit card debt (only a timeshare I’m paying off this year), and I am very flexible on where I work, I can afford more risk. If tomorrow (Monday) I’m asked to move to the east coast and start working there, I’m going to go. They pay me for flexibility and they are pleased I don’t complain about having no roots or sense of community.

 
 
 
 
 
Comment by snake charmer
2010-01-30 15:26:19

California and Nevada are two of the states that have peaked in wealth, population, and/or ability to function. Another is Florida.

Comment by Bill in Los Angeles
2010-01-30 16:12:17

That sounds as credible as the line “the human race has invented all that could ever exist by now.”

Comment by snake charmer
2010-01-30 18:15:34

If you would have told people in 1950 what Detroit, and Michigan, would look like now, they would have responded in the same dismissive and condescending manner that you just did. And the Maya might have ritually sacrified anyone bold enough to predict that someday within their lifetimes Tikal would be totally abandoned. Every culture and area rises and falls, and unexpected change happens much more frequently than people are comfortable with.

Comment by Bill in Los Angeles
2010-01-30 19:14:08

I take exception in wealth, productivity, and ability to function. You are saying California won’t change for the better.

I call BS. Eventually things improve. That is the trademark of humanity. It could take five years, it could take 500 years.

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Comment by JDinCT
2010-01-30 19:48:38

i agree Bill (re: humanity will recover).
The key question is: what is your time frame? waht is your threshold for pain?

I’m thinking Gold bugs in 1980 (underwater), tulip bulb owners in 1600 (underwater), Mayans (not coming back), Southern Confederate States (skip it).

Your point is well taken, the civil war, ww I, GD, WW II …there are many historical examples when people thought it was all over…people are resilient.

I’d rather not be resilient living in a tent.

 
 
 
Comment by Professor Bear
2010-01-30 18:43:46

Physicists had reached a similar conclusion regarding the limits of their discipline in the years preceding Einstein’s announcement of his Theory of Relativity (1905)…

 
 
Comment by Professor Bear
2010-01-30 17:05:28

This news item has given rise to the creation of a new cottage industry: The “California is America’s First Failed State” discussion sector.

California: America’s First Failed State

In the latest Intelligence Squared US debate, the audience agreed that the Golden State has lost its luster.
——————————————————————————-
Is California The First Failed State?
LISTEN NOW
Published January 27, 2010 12:01 AM
——————————————————————————-
Field Poll: Governor’s approval rating 27%
Marisa Lagos, Chronicle Sacramento Bureau
Sunday, January 24, 2010

 
 
Comment by texasdiver
2010-01-30 15:32:00

“Vest said he could make a case that Arizona ‘is the nation’s hardest hit state.’ Arizona ranks last in job growth, 43rd in revenue growth, fourth in home foreclosures, and second in homeowners with negative equity. ‘Since the economy peaked in March 2007, Arizona has lost 275,000 jobs. Tucson has lost 26,000 jobs. The declines are just stunning,’ he said.”

How many of those jobs were in construction and real estate?

 
Comment by Professor Bear
2010-01-30 16:57:38

Leading indicator of a U.S. housing market recovery:

Ben Jones has a harder and harder time finding articles suggesting the
housing market is crashing.

We’re not there yet, folks… this bubble (and the devastating aftermath) has legs.

Comment by SDGreg
2010-01-30 21:20:34

“We’re not there yet, folks… this bubble (and the devastating aftermath) has legs.”

I was just talking to a coworker last night. That coworker bought an investment property a few years back with another party. That property is hugely upside down, but they’re otherwise current with expenses, just unlikely to ever make any money on it any time soon.

My co-worker mentioned he’s not on that loan, good for him, but that the other party is headed into chapter 7 for credit card and other debt.

There’re many acts yet to play as this bubble unwinds.

Comment by Professor Bear
2010-01-30 23:18:32

Last night I heard numerous candid tales of woe from self-trained real estate investors who were with me on a weekend camping trip. It seems there is no limit to the number of SD citizens who drank the RE koolaide and choked on it…

 
Comment by bink
2010-01-31 13:57:11

I stopped in to St. Augustine, FL the other day to visit an old friend of mine. He bought back in 2005 on the water. I warned him at the time he’d be losing money, but I didn’t harp on it too much as the total price he paid was well below what he could afford based on his salary (from an investment bank, of course).

Anyways, he tells me now that even though he is only marginally underwater compared to his neighbors (who are really hurting), his plan is to walk away in the next year or so and move back to where he’s from. He wasn’t familiar with the term “jingle-mail” so I educated him.

We aren’t anywhere near done yet.

 
 
 
Comment by Paul Mayson
2010-01-30 18:28:46

I’ve been fearful that I was missing the boat…by not buying. I kept watching prices in my area and they just were not going down. But lately the buying has slowed substantially and I see signs of severe price slashing. The inventory is not here…but it is increasing. I’m watching homes go 225……..then 200………then 190………then 180….in about two months. And still not selling. These sellers are scared. I can drive the communities and see the empties….some have lockboxes and others don’t. But they are empty nice homes. Someone should be living in them. If you look at Orlando inventory across the way you see it just is not moving….gobs and gobs of houses. The buying is done. They tried to raise asking prices on some of these homes……..no takers. Why would they raise asking prices? What do they know? I’m thinking it is just a ploy to try and get prices moving in opposite direction in areas where inventory is low. But it isn’t working. I think the buying is done. The 8K tax credit has run its course. Was talking to a very smart mortgage company owner the other day. He said…next two years are going to be very bad. Don’t buy. If you want to…do a Lease with Option to Buy. If you see solid housing improvement….buy it…otherwise let it go.

Comment by Professor Bear
2010-01-30 18:37:20

“If you see solid housing improvement….buy it…otherwise let it go.”

‘improvement’ = move towards fundamental affordability for end-users

 
Comment by Professor Bear
2010-01-30 18:38:35

“The inventory is not here…but it is increasing. I’m watching homes go 225……..then 200………then 190………then 180….in about two months. And still not selling. These sellers are scared. I can drive the communities and see the empties….some have lockboxes and others don’t. But they are empty nice homes.”

Brings to mind the growing, thundering mass of snow as an avalanche approaches the bottom of a mountain…

 
Comment by SDGreg
2010-01-30 21:47:40

There was the story a couple of days ago about the vacancy rate in the Orlando area being an astoundingly high 25 or 28 percent. There’s no way the bottom is in on prices with that many vacancies.

That would imply additional price drops of 25 to 30 percent just to spread the existing housing dollars across all of the excess housing.

Comment by Silverback1011
2010-01-31 09:57:44

We’ve been looking ( well, I’ve been looking ) at foreclosures around here as possible rentals for the last 3 years. We still haven’t bought one. Prices just keep plummeting. Housing is severely cheap in the area, so it seems. But maybe, it’s still too expensive. We’re in an awfully deep crater round abouts.

Comment by JDinCT
2010-01-31 17:46:01

silverback
i can’t always remeber where everyone is from - me the 064888, it’s different here– where are you from again?

re: possible invetment ideas

here’s one

ever heard of Gamestop
they sell video games but their money really comes from buying and reselling used games.
it’s a broken model given that so many people play subscription services noe.
anyway, shorting can be risky , buying puts requires great timing— how about selling a call spread? i.e. sell the jul 15 calls and buy the jul 20 calls. the stock is at 20 now , you take in about $350 per contract and at worst must pay out $500. Another candidate is GRMN (garmin) now that nokia (and everybody else) is putting gps in the phones.
just a thought

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Comment by Will
2010-02-01 11:29:44

Don’t worry about “missing the boat”. 20 years from now the boat will still be alongside the dock, as it has been after every massive housing bubble. NY or FL in the late 1920s, Houston in the 1970s. The lessons are hard to learn, but not soon forgotten.

 
 
Comment by Professor Bear
2010-01-30 22:43:08

Take the word of a geriatric sucker fluffer: Commercial real estate can only go up from here. Perhaps his commercial real estate bullishness will pan out better than did his poor judgment about investing in news papers.

Never mind all those “Space for Lease” signs, or the astronomically high vacancy rate that can be found by anyone who ventures to actually look behind the “For Lease” sign to see the situation on the ground. I have on evidence of people who work in commercial RE that the situation in San Diego is epically bad. But perhaps Zell has a point: Once things sufficiently bad, the only possible direction they can go from there is up.

Zell upbeat on outlook for office properties
Construction recovery to be extremely slow, billionaire predicts

By Roger Showley, UNION-TRIBUNE STAFF WRITER

Saturday, January 30, 2010 at 12:04 a.m.

Sam Zell, Tribune Co. owner and a longtime commercial real estate investor, spoke at the Hilton San Diego Bayfront yesterday at a conference sponsored by the Burnham-Moores Center for Real Estate.

John Gibbins / Union-Tribune

Sam Zell, the billionaire real estate mogul who stubbed his toe when he invested in newspapers, returned to San Diego yesterday to dismiss predictions that office buildings will fail on the same scale as housing did in the recession.

Speaking to the 14th annual real estate conference sponsored by the University of San Diego’s Burnham-Moores Center for Real Estate, Zell forecast a very slow recovery in construction and advised idle developers to go to medical school while they await an upturn.

“In 2008 and ’09, it was all about property falling off the cliff,” Zell told nearly 700 attendees at the Hilton San Diego Bayfront. He spoke of “panic” overcoming buyers, sellers, lenders and investors and scaring them away from looking for opportunities. “It was all about a loss of confidence.”

 
Comment by Mugsy
2010-01-31 06:57:58

Sam Zell…the bigger they are… well, you know the rest. How is his media empire working out for him? I wouldn’t take his advice on hot dog prices at the ball park.

Comment by Ol'Bubba
2010-01-31 16:21:40

Well Sam may not know much about media and hot dogs, but the old gravedancer sold Equity Office, a publicly traded real estate investment trust, at the top of the market in January of 2007.

I wouldn’t be so dismissive of Sam Zell when it comes to office property valuations. Of course, I’d also like to know what kind of assets he’s holding when he’s speaking… people have a tendency to talk up their books when it comes to investing.

Comment by JDinCT
2010-01-31 17:47:52

people have a tendency to talk up their books when it comes to investing.

that may be the understatement of the year!

Comment by Ol'Bubba
2010-01-31 18:49:51

Yet it’s often a key factor that’s overlooked.

I learned this lesson the hard way many years ago when a colleague of mine recommended a stock. I’ll spare you the details, but his judgement was certainly clouded by his existing position in the stock.

The stock went down to zero in less than a year.

Fortunately, I was able to afford the loss. Lesson learned.

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Comment by alpha-sloth
2010-01-31 14:34:08

test

 
Comment by Professor Bear
2010-01-31 21:53:30

What again was it the TARP was supposed to achieve?

Jan. 31, 2010, 12:03 a.m. EST

TARP overseer says bank bailout program has mixed results
TARP stabilized system, but bailed out banks lend less; more foreclosures soon

By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) — The government’s $700 billion bank bailout bill has met its goal of helping bring the financial markets back from the brink, but has so far failed to increase lending from the banks who received the taxpayer assistance, a key government overseer reported Sunday in a generally critical review of the program.

“On the positive side, there are clear signs that aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008,” according to a quarterly report to Congress submitted by the office of the Special Inspector General for the government’s $700 billion Troubled Asset Relief Program.

The report, which was authored by TARP’s Special Inspector General, Neil Barofsky, also warned that the Obama administration’s and the Federal Reserve’s policies to support the mortgage market could in fact be creating another dangerous housing bubble.

“Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car,” said the report.

 
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