Housing Bubble ‘Crashing From It’s Own Excesses’
Some housing bubble news from Wall Street to Washington. “Technical Olympic USA Inc., a homebuilder operating in 10 states, on Monday said it expects combined sales orders in the second quarter to decline sharply on lower demand, higher cancellations and competitive pressure. The company forecast combined sales orders, which include consolidated results and unconsolidated joint ventures, to be down 25 percent to 40 percent from the second quarter last year.”
“‘We are experiencing a more challenging housing market, characterized by higher inventory levels, softening demand, and increased competition,’ said Antonio Mon, CEO. ‘We expect these conditions to continue to impact most of our markets for at least the remainder of 2006.’”
“Shares of planned community developer Levitt Corp. and homebuilders fell Monday following an analyst downgrade on Standard Pacific Corp. ‘What the industry is going through appears to be much more brutal than most had anticipated even just a few short months ago,’ wrote AG Edwards analyst Gregory Gieber. ‘Last year, our view was that it would be a soft landing, but as 2006 started to roll forward, our concerns grew and we abandoned the soft-landing view.’”
“Continuing a wave of layoffs, Washington Mutual Inc. will close its Austin, Texas, call center by 2007, a move that affects more than 200 employees, media reports said.”
From Paul Muolo. “Insurance giant American International Group’s residential division, American General Financial Services of Indiana, is making mortgage news. About two weeks ago AGFS shuttered its correspondent division. One of its key products was a 100% loan-to-value ratio prime mortgage, said one executive.”
“Former OFHEO chief Armando Falcon Jr. said Fannie Mae officials pulled a ‘Keating Five’ in their attempt to discredit his investigation of the mortgage giant. In a speech last week, Mr. Falcon said the GSE’s behavior reminded him of the K5 scandal of the late 1980s when five U.S. senators pressured thrift regulators to go easy on his rogue S&L.”
“In the Fannie saga, the K5 role was played by Sen. Christopher Bond, R-Mo. As the chairman of VA-HUD appropriations subcommittee, Sen. Bond included language in OFHEO’s $60 million budget that penalized the agency if Mr. Falcon remained at the helm. Why did Bond do this? Because Fannie executives asked him to. Did Sen. Bond receive campaign donations from Fannie officials? Are the Mets in first place? One of Bond’s donors was current Fannie CEO Daniel Mudd.”
From Business Week. “You might think there couldn’t be any more bad news about Fannie Mae, the mortgage-finance giant accused of manipulating earnings and defrauding investors. But additional disheartening revelations could be on the way as regulators focus on the major Wall Street firms and other advisers that gobbled up Fannie business and allegedly aided in a $10.8 billion accounting fiasco.”
“SEC staff members are looking into deals in which Goldman Sachs Group, among others, allegedly helped Fannie rearrange earnings to maintain the appearance of steady profit growth, according to people familiar with the inquiries. Investigators also are scrutinizing KPMG, which, as Fannie’s outside auditor, approved financial statements since deemed misleading. And the SEC staff is examining deals designed by Lehman Brothers Inc. and later executed by KPMG that the Internal Revenue Service has determined improperly deferred taxes.”
“The list goes on. Referring to one arrangement that could come back to haunt insurer Radian Group Inc., a Fannie official wrote in a Jan. 9, 2002, internal e-mail: ‘I am terrified of the negative public-relations aspects of a disclosure of a transaction like this.’”
“Veteran observers of corporate excess say the Fannie saga is unfolding according to script. ‘When a company has engaged in wrongful conduct, the inquiry [inevitably turns to] who knew about it, who could have prevented it, who facilitated it,’ says former SEC Chairman Harvey Pitt.”
And one consultant is down on the sector. “The speculative housing craze is crashing from its own excesses, not Federal Reserve action.”
“Inventories since last year have jumped 91% in Boston, 236% in Miami and 149% in Los Angeles. Asking prices have been cut on one-third of listings in Boston, San Diego, Sacramento, Los Angeles and Miami.”
“Nationwide median prices will probably fall at least 20% before the break is over. It will take a 35% fall to return prices to their long-run link to the Consumer Price Index; markets overshoot on the downside as well as the up.”
Thanks to the readers who contributed links to this post.
“We are experiencing a more challenging housing market”
Keep those euphemisms coming. Can’t they say declining.
David
http://bubblemeter.blogspot.com
Keep those euphemisms coming. Can’t they say declining.
No-On the FNMA 1004 appraisal form there is a series of boxes in the neighborhood description section where the appraiser must note whether values are increasing-stable-or declining.
Check that declining value box and you’ll promptly get a call from a ballistic L/O and his or her fellow rackeetering realtor, screaming bloody murder because FNMA won’t buy the loan.
So if you won’t “play ball” and compromise yourself, they deep-six the original appraisal report, while noting you’ll never get another GD piece of work from them, and proceed go find a rubber stamper who will acquiesce to saying “values” are stable.
With a bazillion starving appraisers because of the collapse of the re-fi biz, finding a patsy isn’t really difficult.
So the legit honest appraisal gets flushed, and the scammers have a field day.
FNMA’s entire portfolio for the last 4 years has been assembled based on the inherant dishonesty noted above. They deserve to crash and burn.
Not many places for the rats to hide now though, with all markets heading for a free-fall.
That’s why regulation ends up being so fruitless.
All it adds is another box for people to figure out how to at least strong-arm if not outright bribe one another to ignore.
Fruitless and dangerous. With less regulation, there is more skepticism and more fear. A healthy amount of fear would be nice.
You’re right, it isn’t just pointless.
It adds another box for threats or bribery behind the scenes while giving credibility to con-artists as they steal from people with a government stamp of approval.
Even worse. It makes people think the gov’t will bail them out if the are taken.
With a bazillion starving appraisers because of the collapse of the re-fi biz, finding a patsy isn’t really difficult.
Is it really a collapse? I wouldn’t know I’m not in the business. An acquintance of mine is an appraiser, at christmas time he was telling me to buy as much house as I could borrow, because this year would be another record breaker. He was shopping for a hummer at the time.
Christmas was a long time ago for this housing market. I’ll bet anyone in the RE biz who bought toys last year now wish they hadn’t.
Sounds like your appraiser has only been in the biz for the last few years. Like so many like him, he’s only witnessed an appreciating market. All the appraisers I know who lived through the early 90’s have been covering their asses for some time now.
Why can’t Fannie or Freddie check the boxes themselves? Don’t they have the greater knowledge or power to acquire it?
‘What the industry is going through appears to be much more brutal than most had anticipated even just a few short months ago.
Most, perhaps. But not readers of this blog. We saw this coming a year ago!
Hallelujah, brother ! We were scorned for even mentioning a bubble. We were the idiots renting instead of buying ! “Housing always goes up.”
Now who is the idiot !
Shares of planned community developer Levitt Corp. and homebuilders fell Monday following an analyst downgrade on Standard Pacific Corp. ‘What the industry is going through appears to be much more brutal than most had anticipated even just a few short months ago,’ wrote AG Edwards analyst Gregory Gieber. ‘Last year, our view was that it would be a soft landing, but as 2006 started to roll forward, our concerns grew and we abandoned the soft-landing view.’”
________________________________________________
Been talking about here for some time. Looks like their analysis is based on fees from HB’s??
Standard Pacific Orders Dn 41%;Mkt Wonders About A Crash
Dow Jones Online (VIA WSJ online)
Full article:
http://tinyurl.com/mgr76
NEW YORK — Home-building stocks traded down Monday after another builder, Standard Pacific Corp.(SPF), joined the growing number of builders reporting a steep decline in housing demand in the current quarter and announcing plans to ratchet down earnings guidance for 2006.
The Irvine, Calif., home builder issued a statement late Friday indicating that orders plummeted 41% in April and May - one of the biggest dropoffs in demand reported yet by a home builder. The news left Wall Street wondering if the sector is heading for a cliff rather than the soft landing that many had been touting.
.
The news has left some analysts wondering if the sector is heading for a crash - and not a short-term correction.
“Given the recent announcements from numerous builders, we believe we are past the point where a ’soft-landing’ scenario is possible, and investors should be prepared for further negative headlines in the near-term,” Raymond James analyst Rick Murray said in a note
And for a brief moment there I really thought the soft landing prophecies were going to come true!!!
I have to admit that I don’t follow the actions of these big builders very closely, since I have no desire to buy a house from any of them, but I am curious—when they say “orders” are down, is that a leading indicator for a reduction in the number of reported as “starts”? Unless they continue to build a lot of houses on spec, which presumably they won’t want to do if they already have a lot of unsold inventory.
Unless they continue to build a lot of houses on spec, which presumably they won’t want to do if they already have a lot of unsold inventory.
Ahhh Moopheus, you’ll never be a corporate CEO at this rate.
When prices drop you build MORE. If prices drop by half you can just sell twice as many to make the same profit.
Furthermore I have been assured by Bob Toll and more recently Hovanian that the inventory increases have been a temporary blip due to excess speculation… but that blip is being smoothed out even as we speak.
Now, please look the other way while the companies use borrowed money to buy shares they optioned to themselves.
“When prices drop you build MORE. If prices drop by half you can just sell twice as many to make the same profit.”
Then, uh, why aren’t they, you know, dropping prices fast enough to clear inventory?
The reason is two-fold:
A) They want to make as much as possible and keep their share price up as long as possible.
B) They need to keep the illusion going so people who just purchased happy and keep panic from spreading, especially into the credit market who is funding this mess. Therefore, add incentives from swimming pools to a year’s mortgage without actually showing lowered prices.
But they are certainly beating the price of any specu-vestor who purchased from them last year and that is all that matters.
It’s kind of like walking in the woods with a friend and stumbling across a bear. You don’t need to outrun the bear, you just need to outrun your friend.
I had never bought puts(betting stock to go down) in over 40 years investing in the market, but loging in to Ben’s blog everyday for hte last 3 months gave me the courage to buy Pulte (PHM) puts 6 weeks ago. Aa $3000 investment became 5000 today, almost a 66%. You can make money in a down real estate market
What the industry is going through appears to be much more brutal than most had anticipated even just a few short months ago,’ wrote AG Edwards analyst Gregory Gieber. ‘Last year, our view was that it would be a soft landing, but as 2006 started to roll forward, our concerns grew and we abandoned the soft-landing view.
Glad to see that someone finally gets it, though anyone with eyes to see it could have anticipated it long ago. The ’soft landing’ scenario was never anything more than marketing spin, with nothing to support it.
I’m long a basket of homebuilder stocks as of 5 minutes ago. It’s a trade, not an investment but got some techical “completion/buy/take a shot with a stop” signals. So I am. Long TOL, HOV, KBH, and others.
You evil vile flipper speculator you.
This should make everyone on this blog happy:
http://tinyurl.com/ovpm8
Let the games begin!
guess the PPT taking today off?
Maybe they ran out of money.
They had to work overtime last week with the passing of the reigns of power at Treasury to Paulson, so they got to take the day off today:-)
txchick I’ve considered it but you’ve got bigger balls than me. I believe this is the proverbial it.
I know we’ve had some big drops in the stock market recently, followed by some pretty big rebounds. But the only spinnable news left is the dregs at this point. There’s nothing good to say and it looks like they finally won’t be able to take the bad numbers and waive “Fed rate pause!” for another rally. Stick a fork in it. The next down leg of the secular bear began in May 2006.
Interesting times.
Yes, feepness, exactly what I was thinking. Add certifiably crazy. The Arizona sun is getting to her already!
No argument here. But this is also a double bottom/retest of the lows a few weeks ago. Path of maximum frustration would be a BS/low volume summer rally to get the neubears and then wham in the fall/winter.
I like your term “path of maximum frustration”. I can’t remember who said it (and google isn’t finding it) but I recall a quote: “The market will extract the greatest pain from as many participants as possible.”
That said, wouldn’t the TRUE path of maximum frustration be a continued major selloff in the summer followed by a good rebound in the fall and then another spring/summer selloff? Or is the poison in the glass in front of me because you would know that I would know that you wouldn’t put it in front of me?
Seriously, I don’t go technical, it might be possible but I have neither the stomach nor the expertise.
I think txchick is probably going to prove us bears wrong, as I notice that every time Toll Bros and friends test their 52 week lows, there is a follow-on rally of 10-20% on the upside over the next couple of weeks. I believe this has something to do with dips buying by the big Wall Street firms; once these stocks no longer bounce back off the floor, nobody will buy them, and the Wall Street middlemen will no longer be able to extract their brokerage fees. Volatility is the name of the game for middlemen, and that requires beaten down stocks to rebound, in order to lure in the “buy the dips” crowd for more punishment.
>The next down leg of the secular bear began in May 2006.
It’s not the downleg of the secular bear until Bob Brinker calls it.
You’re serious about that? Why don’t you just give me 1/3 of your money and keep the rest in your mattress?
Or, as Marty the blackjack dealer said in Vegas Vacation: “You don’t know when to quit, do ya Griswold?… Here’s an idea: Why don’t you give me half the money your were gonna to bet, then we’ll go out back, I’ll kick you in the nuts, and we’ll call it a day!”
txchick57 at 2006-06-05 09:58:54 was long TOL, HOV, KBH, and others.
At 15:00 TOL -4%, HOV -4.5%, KBH -3.6%, and “others [^HGX]” -3.9%.
Good thing it is a trade and not an investment.
and where were they at the time I bought them?
Don’t give up your day job. Pontification and general blowharding must be rewarding since you do so much of both.
Excellent youask “where were they at the time I bought them?”. I thought I was clear by reproducing your 2006-06-05 09:58:54 post time and being able to reference your “5 minutes ago” is this East coast (down) or Ben time (down) or what? Show us just EXACTLY how you made money by being “long a basket of homebuilder stocks as of 2006-06-05 09:53:54.” Such incredible hubris does not belong here.
Tons of steaming BS don’t belong here either but that doesn’t seem to stop you from unloading on this blog and seemingly every other one in the civilized world.
I do my thing in real time. You spin fairy tales from days gone by and indulge in endless self-congratulation. Whatever floats your boat (or as I am sure you will be quick to tell us, your yacht). Whatever.
9:59 which time zone?
i don’t know time zones that much, but i’m looking at my Esignal charts and TOL opened this morning at approx. $28.5 and dropped to about $27.20 around 11:15am PDT.
looks like a good short to me.
Best advice I every received from a Wall Street partner.
“THE TREND IS YOUR FRIEND” Bye, Bye, long position on any of the Home Builders. I expect chapter 11 by the end of the year.
I’m also long TOL and NVR. NVR was grudgingly upgraded by S&P a few days ago, before the latest plummet. Just a trade here, too.
You have to wonder how David L. is going to spin all this news.
I don’t wonder one bit. He will make a bunch of upbeat statements that conveniently ignore the evidence, same as usual…
Last year apparently they thought that the 25-year-old grocery store cashiers would be just fine holding those 5 investment properties in the desert with 110% LTV on all of them.
I just wonder sometimes, why are economicsts such dumbfvcks. Any ideas?
bought and paid for?
Just agreeing with their friends. We are inventing new (and re-discovering old) ways of destroying ourselves all the time so history isn’t a remotely perfect guide. In the absence of indisputable facts (which are now arriving daily) it is easier to go with the crowd and predict the less catastrophic ending.
I was convinced a major downdraft was coming in 2003. It took another three years… all the problems I saw just got bigger and bigger and bigger for three years! It’s not easy and those economists are trying to predict irrational behavior of billions of people. That’s difficult (if not impossible) so they consciously or subconciously take the easy way out… agree with an existing authority.
2003 was my worst year in over 20 years of trading. I thought the same thing you did and could not be convinced otherwise. I had a couple of doubles and triples in index puts during the summer which intensified my commitment to the short side and in sum, by the end of the year, could have just gone to the beach and done nothing for all that I made vs. the work I put in.
With my performance in 2003 I could have also gone to the beach instead…
In Australia.
Because if you line them up across the country, they will never reach a conclusion! (Old Joke, Sorry!)
my local paper should start reporting on this come december,with any luck.
Unless you live in Philly, in which case the HOV owned papers won’t say much.
This FNM business is disgusting. It just seems to look worse all the time. A hive of common crooks!
GSE = Government Sanctioned Embezzlement
Nope…Just our best in class government!!
The DJIA is again getting dangerously close to their plunge protection floor (= 11K)… Look for another “buy the dips” opportunity within the next day or so.
GS, From a floor traders viewpoint the market is getting ready to buy because 1) the price of “puts” is too far above theoretical value 2) the price of “calls” correspondingly has increased to allow for “reversals” (an easy way to lock a quick profit) 3) the increased value of the straddle (selling both “puts” and “calls”) and buying the stock thus reducing the cost of the stock 4) Cash value of the stock(s) is below computed value based on hedgeable indexes. In summary there are so many things to valuation that your PPT is nothing more than overexcited speculators investing in stocks, puts and calls that they know little about - and that results in opportunities for knowlegable traders to quickly lock in profits and in the process may move the stock market UP. Inefficiencies are what moves the market.
Yup. All the “current” bad news is in the prices right now. In the HBs that is. IMO. They’re better to buy at this point.
It seems that recently when I have been convinced of this and simply sold my PUTs the market has continued dropping. I get back in and THEN it rebounds and I have to wait for awhile to drop again. I guess I’m the idiot you’re making money off of so I’m just sticking to my guns this time.
I’ll time the market, but not that short a basis. If you can, great!
I don’t care about being right. I have a stop loss in place if I’m wrong and I”ll know quickly if that is the case. Way way up for the year already so it ain’t no thang if I get stopped out.
Now I get it — the market has rationally priced in all the bad news. I guess that explains why they sank 4% today…
So what you claim is that when the market moves down by a large amount, there are a number of technical “resistance” factors, all related to trader perceptions of prices of stocks, puts, calls, straddles, whatever, becoming “cheaper” than they were yesterday, which tends to result in a rebound (dead cat bounce?) in the opposite direction.
But fundamentals must matter at some point. Such as –
1) the dollar dropping, bond yields rising, and gold prices going up on the same day the US stock market sells off (today was a good day to have money stuffed under your matress, provided it was denominated in gold coin or Swiss francs)
http://www.marketwatch.com/tools/marketsummary/default.asp?siteid=mktw
2) Bernanke announcing in rather blunt terms that the Fed cares more for price stability than for reincarnating the Greenspan put.
3) US stock prices need to drop considerably to equilibrate with increasing risk premiums in the face of recent volatility.
4) Rising risk free rates (on Treasuries) imply a direct and an indirect erosion in the value of US equities. The direct effect is through the discounting of future profits at a higher discount rate, which shows up immediately in a drop in Treasury bond prices, but somehow does not show up nearly as quickly in stocks, even though the Treasury bond yields are risk free and corporate profits are not. The indirect effect is higher corporate borrowing costs with risking interest rates, which tends to narrow profit streams from the cost side, and falling consumer demand due to the shutdown of the housing ATM machine, which cuts down consumer demand (=2/3 of aggregate demand in the economy). So with lower profits valued at a higher discount rate, stocks are currently overvalued relative to where they were at the beginning of the year, though it is not reflected in their prices.
5) A steadily falling dollar must not make US equities that exciting of an option for foreign investors, undercutting the argument that some will make that the relatively small drop in US stock prices relative to the recent crash in emerging markets is a “flight to quality” effect in the international investing landscape.
For all of these reasons and more, the value of the US DJIA currently lies south of 11K, but I maintain that “something” will keep will keep bouncing the DJIA back up off 11K as many times as possible before fundamentals ultimately hold sway.
Rule 80a calls for an intervention if the NYSE composite drops 2% in a day—it’s down 1.5% an hour from closing, so probably no PPT action today, sorry.
You mind posting a link or printing an except from this “Rule 80a”
The PPT does exist, its more commonly refered to in the Gov’t as “the Working Group”
Furthermore there are no set of “rules”, certainly not written and certainly not made available to the public. The tinfoil hat crowd needs to realize the PPT is used soley in the case of emergencies (9-11, 87 crash, FNM)..and even then it’s a risk they don’t like to take.
http://www.nyse.com/Frameset.html?nyseref=&displayPage=/press/circuit_breakers.html
These are the rules created by the Working Group after the 1987 crash to limit volatility in the market.
A few minutes left to go and the composite is -1.91%—down to the wire!
LOL!
That is a rule put in place by the NYSE as a circuit breaker. It has nothing to do with the Working Group and says nothing about “PPT action” to correct the sell-off.
No, the circuit breakers were created on the recommendations of the Working Group.
http://www.cftc.gov/opa/speeches/opaborn-26.htm
OK I’ll give you that and tone down my disparaging remarks. I’m on your side.
My original point still stands though that IMHO the PPT does not inject liquidity to the markets on a 2% drop, and nothing you posted proves that. In fact, if there was such a written statement it would be proof that the Gov’t rigs the market and we all know that will never be made public.
Actually, I don’t believe there is any mechanism to do anything other than what is posted there. There’s no way any government agency could be micromanaging the market to that extent without the actions being revealed somehow; there’d be too many trails to cover up.
And I did misspeak slightly; the lower-level trading collars were created independently by the NYSE; only the larger-scale circuit breakers were addressed by the Working Group.
“There’s no way any government agency could be micromanaging the market to that extent without the actions being revealed somehow; there’d be too many trails to cover up.”
Moopheus,
You are right. Our government would absolutely never, under any circumstances, engage in covert action of any kind followed by a deliberate coverup. This has never happened before, nor will it ever happen in the future, because the risk of them getting caught is too great.
That’s not what I said, and you know it. How many times did covert ops work out exactly as intended? And how many times did they eventually get caught? And how many of them would create a financial black hole the size of Jupiter?
Moopheus,
Sorry, I did not mean to turn you into a straw man. Covert ops do seem to eventually come to light, but supposing the govt were playing a little more than they used to with propping up the stock market, then it is safe to assume they would do what they could to cover their tracks, and we would not find out until later what really happened.
That is what I predict we will discover when this episode in financial history is a fading memory…
Sure, but a good paranoid conspiracy theory has to have a) a good story, b) bad actors, and c) loosely strung together bits of dubious evidence. Also, whenever possible, connections to some other conspiracy theories (these days, if you can get Da Vinci in there somehow, you can get a book out of it). I don’t see much of that here.
TRADING-COLLAR LEVELS
FOR SECOND-QUARTER 2006
In the event of a 160-POINT ADVANCE in the NYA, all index-arbitrage buy orders of the S&P 500 stocks must be stabilizing for the remainder of the day. Collar will be removed if the NYA moves back to within 80 points of the previous days close.
In the event of a 160-POINT DECLINE in the NYA, all index-arbitrage sell orders of the S&P 500 stocks must be stabilizing for the remainder of the day. Collar will be removed if the NYA moves back to within 80 points of the previous days close.
Note: Effective April 3 - June 30
http://tinyurl.com/q89r8
The trading collars were on this afternoon.
Trading collars have the effect of turning a forest fire into a controlled burn. But if fundamentals dictate, the entire forest will in either case be reduced to ashes.
All I care about is the 4% body fat!
That’s why I can take money from you guys. You don’t keep your eye on the ball
If you believe in the PPT, then I guess we will have to count you as part of the “tinfoil hat” crowd.
Agreed. When the PPT believers can show me its office, staff, and hugely liquid asset pile, bigger than national banks and all big money traders, fully ready to intervene at the drop of a hat, perhaps I will change my mind.
1250 on the S&P is the line to watch. If prices break significantly below this the resumption of the secular bear market is a pretty sure bet.
LMFAO!!!!
If you think to PPT is going to step in professor and keep the DJIA aboue 11,000…oe even 10,000 for that matter you are deluding yourself. Put down the pipe and stay away from the X-Files.
I agree, the government has more important things to attend to. They are not in anyway in a position of strength. Those days are long gone. Why do you think Iran is acting so cocky? They know the US military power is spread out and is negotiating from a position of weakness. PPT…hah! they will be lucky to get enough funding to keep GW’s foriegn fiasco going.
Best comment on the subject yet. I should never drink Lienie’s when reading these posts. Now i have to clean my keyboard. LOL
Feel free to ignore my argument and make a personal attack instead. It is open testament to your own ignorance.
“BULLETIN>> BERNANKE SEES SLOWDOWN, BUT STRESSES INFLATION FIGHT”
Wall Street to Fed:
“Thanks for the kick in the teeth, Gentle Ben!”
sounds like stagflation is back…
Nope, wages kept down. The stagflation of the 70’s was accompanied by the ever-increasing wages, which in the absense of productivity growth translated to the ever-higher prices. Now it is a bit different. What we are heading to, IMO, is the widening bid-ask spread due to collapsing credit. Maybe not deflation per-se, but a serious slowdown.
Price inflation + wage deflation = lower standard of living
No, it’s not the seventies.
True, wages haven’t gone up, but spending has gone up anyway as “house-rich-on-paper” people have borrowed heavily against their homes to offset stagnent wages.
its a recipe for a serious depression
“BERNANKE SEES SLOWDOWN, BUT STRESSES INFLATION FIGHT”
This says it’s over.
BB is killing the market today. Expect the chorus of pain from financial, housing, and political interests to grow louder this month. The pressure on BB to stop raising rates must be getting enormous. The stock and housing market will fold like a cheap suit if he doesn’t stop. Of course they will fold anyway, but no one wants to believe that. Can’t wait to see what they do with rates.
We may just yet be singing his praises.
They burned Volcker in effigy. I think that was ‘81.
What is Ben to do with the largest deficit in the history of the world? If China doesn’t get a decent return on their IOU’s, then you can rack up the next major recession. It’s all about foreign debt holders making a noise about the overspending from the Pres and Congess.
Nothing more, Nothing else
“The pressure on BB to stop raising rates must be getting enormous. The stock and housing market will fold like a cheap suit if he doesn’t stop.”
And that pinpoints the reason that he can’t stop. Somebody will curse him no matter what he does now, but if he stops, Wall Street will claim victory, and the speculative binge will have new legs.
“If you think to PPT is going to step in professor and keep the DJIA aboue 11,000″
P.S. I think you ought to brush up on your typing or your speling.
“Inventories since last year have jumped 91% in Boston, 236% in Miami and 149% in Los Angeles. Asking prices have been cut on one-third of listings in Boston, San Diego, Sacramento, Los Angeles and Miami.”
“Nationwide median prices will probably fall at least 20% before the break is over. It will take a 35% fall to return prices to their long-run link to the Consumer Price Index; markets overshoot on the downside as well as the up.”
_____________________________________________________
The cat is out of the bag!
Way OT, just saw a breaking news alert on CNNMoney, that Bernanke is ok with the moderating economic growth. Says he will still target inflation. Stocks are down big, I am assuming they got word of this news. Glad that I sold my retirement mutual funds last week. Looking into reinvesting them this week. Any suggestions?
Im jumping into mutual funds that hedge aginest the usd.
Too late, the run up in international and emerging market funds (besides gold related ones) points to the fact that much of the market is already hedging against the usd.
The emerging market funds got slaughtered in May as a
result of Japan going off ZIRP. The only emerging fund that may recover is Russia.
I am talking hard currency funds, I am staying clear of emerging markets at this time since they are based on all the inflow of us investors.
Everbank has an interesting gold CD that has do downside and an upside tied to a 5 year avergae of the price of gold.
http://www.everbank.com/main.asp?affid=eb
Wait till next year. Housing dead, wait till 2008.
fred hooper–what do you mean wait till next year? To sell off stocks/mutual funds or to reinvest the funds?
Reinvest next year. I’m zero stocks and funds, 25% gold and gold stocks, with a small defensive fund that’s in T-bills and gold mining stocks, and 75% cash waiting for speculative opportunities. Regret that I covered my HB stocks a few weeks ago at the bottom (txchick mentioned above). She was betting on a bounce thru the summer, and I was waiting for the bounce to re-enter short positions. I also moved my Mom out of all stocks, mutual funds and bonds in the first week of May. So far, an excellent move.
I am assuming to reinvest… definetly going to do something, even if it is in the bond area.
Bonds? Wait till after the next FOMC meeting. Fed funds rate hike may be .5 instead of the .25 the market is expecting as of today. I will look T-Bills when the Fed funds rate is closer to 6 and the 3 year is at 5.25.
Thanks Fred.
Thanks Fred, we’re 4/5th cash right now and 1/5th diversified mutual funds (indexed dom and intl stks and a couple tax-free).
But I’m getting more nervous by the day watching the markets and would prefer to pull out now while we haven’t lost any $ but my wife isn’t as tuned into the market and wants to wait until we start showing losses to exit. That way she’ll believe it’s declining.
Does anyone have a good link or very recent article to describe (in plain English) the recent volatility in the market and the forcast going forward so I can convince her to sell now before the losses start rolling in?
I am one of those leading baby boomers. Please someone explain to me this business of in and out of stocks, houses etc. Damn, it all sounds exhausting. There is something to be said for long term investing and not worrying about things on a day-to-day business. Please, take some Concerta or something else to slow you down.
No wonder the Lingus hates you.:) We are all in this together. Whether you follow TaxChick’s aggressive strategies (she does not advocate them for most), follow GetStucco’s pragmatic advice, or just follow the blog as is our collective addiction, you will learn. Cote adds much. Don’t know how to add the accent.
If you follow the blog, you will have no excuse to become a Fucked Borrower as many of our friends, neighbors, and relatives have become.
I am 53, so I guess it makes me a mid-Baby Boomer. No kids, but serious sympathy (not empathy because I can never feel your same emotion).
It should not be exhausting. If it is, turn it over to a Financial Advisor. Be advised. When I did it in the Dot.Com era, it cost me $25,000 on a $45,000 portfolio. We lived and learned and fired his ass! Diversity seems to be the sane solution. Good luck adjusted for better intelligence.
Maybe now is not the time to invest in real estate, ya think?
Take Care,
buy gold and precious metals stocks. if you want to hedge against decline in US dollar, buy canadian or australian gold stocks.
IMO, if you want to stay in the market then go with Hussman Strategic Growth Fund. It’s more or less acts like a long/short hedge fund when the market is overvalued and market action is unfavorable (like now). Other than that, stay in safe low duration (1 to 3 yrs) bonds or CDs.
Thanks for the info everyone.
Exactly what I alluded to above deflation guy. HSTRX.
41%down, and rise in cancelations….wow. Give me a company that is not crashing when they sell half of what they did last year. But don’t worry last year’s demand was unsustainable(I am starting to love this stuff). Keep on coming with excuses.
Believe this or not- on local news this morning in Hartford CT- at the NBC affilliate - REMAX actually had an ad on with REMAX VP of New England saying that although inventories where ‘up over 40%’ over a year ago, there was ‘No Chance of a housing bubble’ and that Real Estate was a ‘great buy’ and was now a ‘Balanced Market’.
How Mr. Jay Hummer VP of REMAX New England Had the balls to actually say this bheap of trash with a straight face was truly amazing.
I saw the same advertisement, and i couldn’t believe it!!!
I think they said “we don’t believe there is a Bubble just a re-balancing”
Wow!
They say it and it works. I’ve had this repeated to me by folks contradicting my comments about the housing market. They simply repeat what they heard on the ad without giving it any thought.
“Baaaa…there is no housing bubble….baaaa!”
I like “there’s never been a nationwide drop in home prices”.
Ok, but what about the area WE’RE talking about?
They must believe they have not yet run out of greater fools…
this is from my “there is bubble in ____, but not here in _____” files.
“We are not Reno and Vegas where they’ve overbuilt and it’s rampant speculation.’”
then a few days later about Las Vegas.
“All their money is not earned here, but it spends very well. The houses get bigger and more luxurious and the roads are clogged with more and more high-end vehicles. It is a salesman’s paradise: affluent consumers everywhere.
So despite the cooling of the market, do not expect real estate prices to return to the halcyon days of the late 1990s. Too much outside money is lined up, seeking to move here and often retire here. These dollars will hold up the market, allowing softness but keeping prices relatively stable.”
yeah, all that money and all those boomers and all those increasing gov’t jobs are not holding up Las Vegas, Florida or Nova/D.C.
by the way, SPF is at a 52week low off almost 10% today. Below is from their website at one of their communities in Phoenix area.
“Due to current market conditions, we are limiting the number of lots that will be available for purchase on a weekly basis. We have devised a system by which we hold a drawing on Saturdays to allow homebuyers an equal chance to be chosen for one of these lots.
Below are the guidelines for the drawing.
Drawings are held on Saturdays at 11:30 am of each week that lots are available for sale. Registration for the drawing begins at 11:00 am.
e of their Phoenix communities.”
BUUUUUHAAAAAAAAAAAAAAAAA
Maybe they will allow the one bag holder that shows up to put in multiple tickets for the drawing, that way a drawing could actually take place. The bag holder could then go tell all of their freinds about how lucky they were to win the drawing.
LFC - What builder and community is this?
Maybe they’ll start cold-calling people to tell them about how they have won their lottery and can buy a house?
That is an excellent idea, I am glad there is a national do not call list. I still get charities asking for money, I could just tell them I rent though. They would probably understand.
Maybe they laid off their Web site design guy a year ago and haven’t been able to change the message since.
Inventories since last year have jumped 91% in Boston, 236% in Miami and 149% in Los Angeles. Asking prices have been cut on one-third of listings in Boston, San Diego, Sacramento, Los Angeles and Miami.”
And 300% in DC suburbs.
Up 315% in Bakersfield!
Yes, but that doesn’t count, because last year the inventory was unusually low. Plus, this year is an inverted year, so inventories will start coming down before school starts
400% in many Nova counties:
http://virginiamls.com/charts/Loudoun.htm
Actually it’s worse
Loudoun County
Total Listings in June 06: 5363
Listings in June 05: 1183
Soft landing my a@#
And 500% in Phoenix (est.)!
Up 216% in Norfolk, Va. Beach, etc. since 9/1/05.
“Nationwide median prices will probably fall at least 20% before the break is over. It will take a 35% fall to return prices to their long-run link to the Consumer Price Index; markets overshoot on the downside as well as the up.”
So what’s the market bottom prediction here?…
20%? 35%? >35%?
The bottoms are going to be quite local. “All Real Estate is local.” was used to justify insane prices, but like any good lie it has a grain of truth.
My guess? Some places drop (non-adjusted) 10%. San Diego? Around 35%, again not adjusted for inflation. Inflation takes a big again.
But you know what… I’m just buying more property when the rental equivalency pencils out. So prices drop another 10% after that… it’s still rented for positive cashflow!
And unfortunately this could be, as Shilling put it, be the “Greater Depression”. If anyone is not worried they either live on wholly owned and self-sustaining farmland or they aren’t paying attention.
feepness: But if the rent market falls, the positive cashflow can go negative — what happens then?
If rents had skyrocketed before I was looking to purchase then I might be wary of that. That has not been the case and doesn’t look likely to happen anytime soon.
If I had cashflow issues I can easily reduce luxury spending and if I had to I could even save less. I wouldn’t put myself in a position to be a FB. Even being frugal I have a lot of flexibility in my budget. All sorts of disasters can happen… my wife wants to get pregnant again for example…
Waiting for road kill,
It is standard pacific. One of their communities in Maricopa…but I think they all say that.
And the walls keep tumbling down.
I have been trying to gain something from the demise of real estate stock. Having not gained anything from the bubble, shame on me for even thinkiing;-)
Anyway I am following SRPIX which a short on real estate find. And that has not even moved 5% over last several months.
I guess that is all FNM etc? How does one short XHB that the Shilling’s article today mentioned.
Can anybody can please enlighten the dark zone here…
“How does one short XHB that the Shilling’s article today mentioned.”
I have Scottrade, has anyone else shorted XHB and can give me directions ?
Asking here is unwise. They will have better resources at Scotttrade itself. Also start small. Very small. And stay that way for awhile.
In Silicon Valley, a 50% decline would not be out of the question.
Its so out of wack here, its already a tragic drama.
800 sq ft renting around $1100 and similary homes/condo going for $500K.
The BA has lost 15 to 20% of tech jobs since 2000 and most tech stocks are below 25% of their peaks in 2000, so other than the gains from their homes, most are not even 1/2 as rich as they used to be in 2000. If 2000 home prices were reasonable back then, the reasonable prices now should be 1/2 of those plus inflation.
Commenting on Ben Bernanke’s comments to be vigilent on inflation, someone wrote that the pressure on the Fed to stop hiking must be immense. A couple of comments to on that :
1) In my mind, the fed is more or less irrelevant at this point. If the Fed stops hiking (and stops draining liquidity out), long rates are going to spike sharply. The Fed/Govt can try and continue CPI-engineering to fool the unwashed masses into thinking inflation is benign. But that is not going to fool institutional investors into accepting low (negative in real terms rates). In my mind, the only thing the Fed has shown that it can successfully do is to blow up Asset Price Bubbles.
2) If the Fed does not act to contain inflation, we will see
- The dollar plummet which puts the Dollar’s status as the
reserve currency of choice at risk.
- Rates soar
- Complete loss of faith (whatever faith is left) in the fed
- Potentially unrecoverable blows to our banking system (sky high
rates, weak dollar, sharply elevated risk, plummeting financial
markets).
I think the fed governors are well aware of the risks of not dealing with inflation at this point. The only thing they can do to stop housing from collapsing is issue checks to Homeowners to cover the amount Homeowners are underwater by (send out checks to homeowners every month to make sure their equity is > 0)
Will they do so ? Who knows ? Anything is possible.
“The only thing they can do to stop housing from collapsing is issue checks to Homeowners to cover the amount Homeowners are underwater by…”
Actually, creating higher-than-anticipated inflation is a good way to help bail out homeowners, at least those with fixed-rate mortgages. Anyone who bought an overpriced home with an option ARM within the past couple of years is pretty-much screwed no matter what happens from here.
How can specks like us ‘create some inflation?’ Not that I care to…..
Bernanke may be able to slip in a higher-than-expected level of inflation, and has a motive to do so, as the alternatives are unpalatable:
- higher taxes (politically suicidal to Congress)
- lower spending (depressive for economic activity)
- higher productivity (easier said than done)