The Housing Bubble

Move to Hotlanta. Lower taxes.Right to work state. What is there not to love?

Does anyone besides myself find it odd that “free market” America bailed out every large firm on the planet that could marginally qualify as “financial” and “systemically risky,” while “communist” China is adopting a laissez faire “no bailouts” policy?

After this round of winnowing, communist China seems destined to emerge as the world’s leading capitalist nation. How weird is that?

March 13, 2014, 7:46 p.m. EDT
Markets in thin air as Ukraine, China fears grow
Opinion: Investors find reasons to seek safety in cash, bonds or gold

Tensions are running high and if the map above is correct perhaps an assault could take place after Sunday’s Crimean vote. But my own non-expert opinion is Putin is slow-playing this situation. Further, China has now entered the controversy telling the U.S. and the West it could retaliate against any Russian sanctions.

In data, Jobless Claims improved greatly dropping to 315K vs 330K expected, and prior 324K. From a negative view this can be unfriendly for stocks but friendly for more Fed tapering.

Retail Sales improved to 0.3% vs 0.2% expected, and prior -0.6%, and Ex-Autos & Gas Retail Sales were 0.3% vs. 0.1% expected, and prior 0.5%. The take away here is despite the current improvement in the data, the prior negative revisions were disappointing. In fact, this data caused Goldman Sachs to reduce first-quarter GDP estimates from 1.7% to 1.5%.

Lastly, Business Inventories were 0.4% vs 0.4% expected, and prior 0.5%.

In China, negative news continued as Premier Li stated the country’s economy may underperform dropping below 7.5% growth. Further, he acknowledged corporate debt defaults are likely to increase and must be tolerated. In other words, there won’t be any bailouts. This is ominous for the world’s second-largest economy.

So what does all this data have to do with the price of the good old S&P 500? Collectively, it’s enough to scare bulls into bonds, gold, cash or other safe haven for now. All this market carnage was done even as the Fed tossed-in another $3.738 billion in POMO.
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It’s very difficult to run hard and run far when you need to take a dump.

March 14, 2014, 2:01 p.m. EDT
In-the-know insiders are dumping stocks
Opinion: Extreme bearishness among executives is a sell sign
By Mark Hulbert, MarketWatch

Corporate insiders are more bearish than they have been in almost 25 years. That isn’t good news for the stock market, since these insiders — corporate officers and directors— know more about their companies’ prospects than the rest of us.

In fact, you may want to take their pessimism as a signal to ditch some of your stocks or shift into industries in which insiders aren’t heavily selling, such as energy, financials and basic industrials.
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March 14, 2014, 4:13 p.m. EDT
Is the selloff for real?
By Anthony Mirhaydari

The market continues to do its best impersonation of a wild, untamed beast bucking from side to side.

There were more whipsaws and volatility on Thursday as stocks suffered their worst losses in six weeks on currency carry-trade weakness and more poor data out of China. Overnight futures trading suggests Friday will see a continuation of the weakness.

Like you, all of these swings are making me nauseous. Just look at the chart of the Japanese carry-trade proxy, the ProShares UltraShort Yen (YCS -0.60%), as it dips and weaves like an All-Pro running back shredding a defensive line.

Things looked like they were about to sour in mid-February heading into an apparent breakdown on March 3. But then came the Putin bounce and an apparent upside breakout on March 6 and March 7. But it’s been all downhill since then, culminating in Thursday’s retest of the March 3 lows.

Are we going to see another reversal here, as a high-strung market doped up on cheap-money stimulus, late-stage bull-market excesses, including extended sentiment and record margin debt, stretched valuations, and a surge of money-losing IPOs on a scale not seen since the dot-com blowup resists the inevitable fall from grace?

Or is the selloff for real?
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March 11, 2014, 8:31 a.m. EDT
Five reasons why stocks will fall
By Irwin Kellner, MarketWatch

PORT WASHINGTON, N.Y. (MarketWatch) — Last week I told you that the skyscraper indicator has flashed a sell signal. Since many readers were skeptical of this conclusion, I now present five more reasons to lighten your exposure to stocks.

First a reminder: The sign on Wall Street that reads one way applies only to motor vehicles — not to the stock market. For equities, it is definitely a two-way street, and the market seems poised to make a U-turn.

This change in direction is contrary to what passes for the conventional wisdom in the Street of Dreams. Most of the time, most investors think that stocks can only go in one direction: up.

If you don’t believe me, ask your broker or your favorite analyst. These folks make a living based on your buying stocks. And let’s face it, you wouldn’t be buying stocks if you didn’t think that their prices would rise.

All that said, here are five reasons why stocks are more likely to fall than to rise over the near term.
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“housing is a great investment”.

And strangely enough, every one of the dopes that say this are underwater. lolz

Spoke with a guy yesterday who works for a big RE company. He is renting and investing his money in other types of RE, as prices where I am are back to insane levels (SF Bay Area).

I spoke about how my wife and I rented for a long time and waited until there was a downturn before buying, and at that point, only buying a place that we could/would stay in for a long time. He agreed.

Spoke with someone else two days ago who lives in a neighboring city (and has lived there her whole life). She commented on how insane prices had gotten, being pushed by Facebook employees. Her husband said that “once they could clear $1MM” on the sale, they should sell. Her response “we’re there”, but if they sold, she asked, where would they move? Her whole family (parents and siblings) and clients are still in the area.

So, long story short:

RE professionals recognize the madness of home prices in the Bay Area;
Long-standing residents in the area recognize the madness of home prices in the Bay Area;

My comment is that I would NOT buy my house at today’s prices, but I also am not interested in selling (where would I move?). At the same time though, I’m not sure what is going to cause the next downturn. My sense it is a general economic malaise, not a credit event.

My “Oh sh*t it’s all going down soon” moment during the bubble was when I heard that the most popular mortgage from a local mortgage broker was the Option ARM. I haven’t seen anything like that on the debt side from a single family side…yet. Although I heard a shocking story this past week about debt financing on apartments (REALLY risky loans are being made).

HOWEVER, I have started hearing small peeps here and there about businesses renting space that they are projecting need for in the future (banking commercial space by signing leases for more space than they need)…that’s NOT a healthy sign, and was happening in a rampant way during the dotcom bubble (only baby steps so far at this point).

My lunch bunch (Denver) thinks that the sky’s the limit. They all trade stories about how their neighbor sold in 3 days with 5 offers, blah, blah, blah.

Asset values can be based on:

1. The income it can generate today;
2. The income that it can reasonably be expected to generate in the near-term;
3. There isn’t supporting income, but you think that you can sell to the next guy for a higher price.

#1 is based on fact
#2 is based on reason
#3 is based on dreams

#1 is the most conservative
#3 is the least conservative

#1 is prevalent in a “normal” market
#2 is prevalent in both a “normal” market (there can be very good reasons for income to go up in the near term) and a bubble market
#3 is prevalent only in a bubble market

#3 is what happens with your “magic” assets

I think according to this, stocks are in a pre-magic-asset phase.

I think that to take a new bubble to that point we STILL have to fully pop the old bubble. We never have. We started to lance it and then couldn’t take the pain.

Warren Buffett: Don’t dump stocks on China or Ukraine and stay away from bitcoin
March 14, 2014, 9:17 AM

Warren Buffett sat down for an interview with CNBC on Friday morning and offered up a lot of wisdom on a variety of topics ranging from bitcoin to Ukraine to the global response to the wisdom of betting against No. 16 seeds in the NCAA college basketball tournament.

What about the same rusty rumor that upstate NY is experiencing a renaissance of booming business activity?

My MiL bought a little Cape Cod joint in Syr a few years ago. She keeps telling my wife she will be moving to FL in a few years because she can’t stand it anymore.

Spread Sheet
Bless Our Happy Home Sale
When the housing market struggles, some home sellers turn to St. Joseph for help, data show; in better times, sales of the saint’s statue fall
By Sanette Tanaka
connect
March 13, 2014 8:45 p.m. ET

Traditionally, Joseph, the husband of Mary, is hailed as the patron saint of home and family. Some believe that burying a statue of St. Joseph in the yard helps sell a house.

In honor of St. Joseph’s Day on March 19, Spread Sheet asked Catholic Supply of St. Louis Inc., a religious-goods store with three locations in St. Louis, to break down sales of St. Joseph products over the past five years. The data were paired with median sale prices for existing homes compiled by the National Association of Realtors.

In general, sales of St. Joseph statues tend to rise when the market sours, says Lara Traina, director of marketing and web management at Catholic Supply. From 2009 to 2010, when home prices were stagnant, the number of sales of St. Joseph statues slightly more than doubled. When home-sale prices began to creep back up, St. Joseph statue sales dropped.

Catholic Supply offers six real-estate-related St. Joseph items and dozens more statues. “It’s probably our No. 1 item in our store,” Ms. Traina says. The company says it serves parishes all over the U.S., as well as world-wide. At a high point in one recent year, Catholic Supply sold nearly 10,000 statues and kits in stores and online, she says.

The St. Joseph Home Selling Kit comes with a 3.5-inch plastic statue and laminated prayer card. It costs $6.95—less if bought in bulk. Ms. Traina adds that real-estate brokerages that purchase kits for their agents make up a large part of sales.

Phil Cates, a mortgage banker and founder of online store StJosephStatue.com in 1996, sees statue sales ebb and flow with the housing market. “Our heyday of sales was in 2006, which happens to be near the top of the real-estate market,” says Mr. Cates, who stepped down as head of the company last year. Sales dropped 50% since 2006, partly due to increased competition among supply companies, he adds.

Here is how it works: Bury a St. Joseph statue upside-down in your yard, facing toward the for-sale house. After the house sells, the seller is supposed to dig up the statue and place it in a spot of honor in their new home.

The details are debated. Some say the St. Joseph statue should be buried right-side up; others advise burying it by the for-sale sign for easy retrieval.

But Ms. Traina waves the details aside. “We really do emphasize that it’s the belief in St. Joseph and your prayer that really matters,” she says.

Even in stronger market cycles, some agents won’t give up the faith.
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Quiz

How well do you know saints?