Weekend Bits Bucket & Craigslist Finds
Post off-topic ideas and links here! This thread will be forwarded through the weekend.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Yesterday I was hunting around for brick and mortar choices for CDs. Didn’t realize before that a number of insurance companies, including at least State Farm and Metlife, sell CDs and apparently are FDIC insured. Thought about it some more and concluded, based on logic alone, that an insurance company (a) likely has less exposure in residential mortgages, as a % of assets, than most banks and (b) that their liabilities include a huge amount of very long-term money as opposed to demand deposits. State Farm, for example, is offering 4.70% APY on a $100K jumbo, which seems pretty competitive and “feels” very safe. Wanted to buy some of Treasury’s shorter-term equivalents, but the sign-up process seems daunting and, a la brick and mortar, there’s no one to talk to.
The 4.70 is for 90 days. 2-year is 5.5%.
Chip wrote
“The 4.70 is for 90 days. 2-year is 5.5%.”
Vanguard’s Prime Money Market fund is yielding 4.8%.
Vanguard’s tax exempt money market funds are paying in the mid 3’s…might make sense if you’re in a high tax state and a high federal bracket.
i have a money market account with state farm $100,000 plus is paying 4.4% and give you a book of checks to do withdrawels with.
I don’t even trust FDIC insurance anymore. Try money market funds that invest only in US treasuries - paying 4.4%+. Zero risk, other than the US gov defaulting, which is not beyond the realm of possibility I guess. I sure wouldn’t want $100K of my money in a busted bank or insurance company, waiting for the Fed to print up $100K for me.
All the big mutual fund companies offer them. Why risk anything, for a measly 0.25 or 0.5% extra interest a year, and tying your money up for 1 or more years?
I’m afraid I have to agree with your lack of trust.
Interest rates are negotiable. I came in armed with the top CD rates from BankRate.com. I just got my bank to give me 5.20 on 6 month CD and 5.45 on a 12 month. Whoohoo.
Wickedheart — Good tip.
Daunting? 4.70% on a CD? The Treasury Direct process should be doable for anyone with over an 88 IQ.
https://www.treasurydirect.gov/tdhome.htm
6 month Treasuy bills will go for around 5.20% at the next auction on Monday, far preferable and safer than CDs.
For those looking for a broker that allows Treasury Direct transactions for free, check Fidelity. They have a simple online order entry process. I moved my IRA there from TD Ameritrade (who charges $40 for Treasury Direct transactions).
“6 month Treasuy bills will go for around 5.20% at the next auction on Monday, far preferable and safer than CDs.”
Great Deal! I have been into Treasury Direct for over a year now and just started branching out of savings bonds into Notes. I’ll go for a 6 month T-bill at 5.2. Slam dunk. No state income tax on the gain.
Yo, Russ — thanks for the tips. I tried for the screen name Reetard, but it was already taken by a housing bear. Anyway, I’ve been hoping to pick an investment mentor here with an 89+ IQ — I guess you’re it, big fella.
What is the process for cashing out, particularly if you want out early?
Typo: housing bull
The US Treasury has a process where they will get a bid from a market maker at some haircut to take t-bills off your hands. If you just want a defacto money market and more quick access to your funds, just use the 4 week bill auctions. Those will likely go for aroound 4.80% now.
I’ve been splitting my funds about half into six months laddered to mature every week, and half to four weeks, but am now going to move more four weeks longer, and begin to gradually lock in two year Treasury note rates here and if they keep yielding higher. Three month bills returns have been lagging, but if they traded closer to the Fed funds rate post June 28, I’ll us them more.
The first hedge fund folded - lots more to come!
HEDGE FUND SHUTS DOWN AFTER SEC CHECK:
June 16, 2006 — A Bear Stearns-backed hedge fund is shutting its doors under a mysterious cloud after regulators discovered an unusual, potentially improper pay deal in which one of the Wall Street giant’s brokers was caught matching super-rich investors with secretive investment pools.
http://tinyurl.com/rmnaf
“… 25 percent owned by Bear Stearns and run by Andrew Haas, a 25-year veteran of the firm who ran its Los Angeles branch until late 1999.”
Hoz —
Do you know if this guy is connected to the Haas family of Levi Strauss fame (the ones with their names plastered on buildings all over the SF Bay area)?
Good question - I’ll ask and post.
Does not appear to be. In fact appears to be a stock broker that was a former office manager former stock broker etc.
I tried to post a link to SYstemic Risk in Hedge Funds - it may show up but the link was incomplete.
The complete text is (caution 95 pg pdf file)
http://tinyurl.com/ro3cv
Since a lot of individuals are not familiar with Hedge Funds on this Blog. I am posting an abstract from a paper done a little over a year ago. This is a summary of the Banking risk.
Systemic Risk and Hedge Funds
Nicholas Chan, Mila Getmansky, Shane M. Haas, Andrew W. Lo
NBER Working Paper No. 11200
Issued in March 2005
NBER Program(s): AP
Systemic risk is commonly used to describe the possibility of a series of correlated defaults among financial institutions—typically banks—that occur over a short period of time, often caused by a single major event. However, since the collapse of Long Term Capital Management in 1998, it has become clear that hedge funds are also involved in systemic risk exposures. The hedge-fund industry has a symbiotic relationship with the banking sector, and many banks now operate proprietary trading units that are organized much like hedge funds. As a result, the risk exposures of the hedge-fund industry may have a material impact on the banking sector, resulting in new sources of systemic risks. In this paper, we attempt to quantify the potential impact of hedge funds on systemic risk by developing a number of new risk measures for hedge funds and applying them to individual and aggregate hedge-fund returns data. These measures include: illiquidity risk exposure, nonlinear factor models for hedge-fund and banking-sector indexes, logistic regression analysis of hedge-fund liquidation probabilities, and aggregate measures of volatility and distress based on regime-switching models. Our preliminary findings suggest that the hedge-fund industry may be heading into a challenging period of lower expected returns, and that systemic risk is currently on the rise.
http://tinyurl.com/m6zor
and from The SEC
…Hedge funds are pools of investment capital that are managed by professional investment advisers and that are not offered generally to the public. They are operated so that they are not subject to the same regulatory requirements of mutual funds, which are governed by the Investment Company Act of 1940 which contains many safeguards for retail investors….
Testimony Concerning Hedge Funds
by Susan Ferris Wyderko
Director, Office of Investor Education and Assistance
U.S. Securities & Exchange Commission
Before the Subcommittee on Securities and Investment of the
U.S. Senate Committee on Banking, Housing, and Urban Affairs
May 16, 2006
http://tinyurl.com/p7dkx
Now you all know why I am scared.
‘Fess up, Hoz — are you one of the reviled economists that posters here like to pillory?
Nope just a simple midwesterner - haven’t been to Chicago in years - used to own seats on the Major exchanges retired (old age) 11 years ago. And since then it has been preservation of capital. Now I do some loans for friends and referrals and invest in markets I think I understand. I did not get caught in the Dot Com rally or bust because I did not and still do not understand the economics of pricing a company in a fluid industry at more than 3X PE. Eg Google’s PE is ~65; a new competitor could appear in the same field with a better product overnight, what PE would google trade at then? The industry is too fluid to trade at such high PE’s.
Hi. Can you please direct me to some books about this subject that a total newbie can understand? I am interested in learning more but the bits I have seen tend to go over my head a bit. Is there anything out on the market to explain that is geared to a high school graduate level? Possibly starting with training wheels and gradually working its way up? Thank you very much.
The textbook which one of my professors used for his undergrad class in Money and Banking is a great choice. R. Glenn Hubbard has been at the nexus of academia and US government economic policy for many years, and has written a lucid book which demystifies what is intrinsically a technically complicated subject.
—————————————————————–
Money, the Financial System, and the Economy
Authors: R. Glenn Hubbard, Pearson Addison-Wesley
Format: Hardcover (Illustrated), 684 pages
Other Hardcover Editions:
Publication Date: January 2005
ISBN: 0321237854
A review on Amazon (which reflects my opinion as well):
“This is a great book for undergrads who are not economics majors - the market features are covered effectively, thoroughly, and without the jargon that characterizes most exchanges between seasoned economists.”
http://www.amazon.com/gp/product/0321237854/ref=nosim/103-9849938-1281439?n=283155
Also recommended (readable, informative, not technically overwhelming):
Irrational Exuberance, by Robert Shiller
A Short History of Financial Euphoria, by John Kenneth Galbraith
Hedge funds are not really that complicated. I believe they started out as being both long and short to “hedge” their bets… hence the name. They can invest in pretty much anything unlike mutual funds which must stick to their stocks or bonds as they case may be. A hedge fund could buy baseball cards for example. So that’s it, no special magic.
The issue is that once they started to get popular they all ended up chasing the same things driving down risk premiums and lowering returns for everyone which caused yet more risky behavior to get the returns they needed to justify their existence… standard market overcrowding. They also started using lots of leverage like an aggressive flipper. Now there is a huge house of cards that many think may fall.
Thank you very much. I just picked up irrational exuberance very recently after seeing it mentioned here on the blog many times. The text book sounds right up my alley. That will be my next one when i have some extra.
I also wanted to say thankyou to Ben and everyone on here I have learned very much. At work one of my co-workers was recently unable to purchase and I directed him here and also told him what I have learned since starting to read here. I think I was able to cheer him up when I told him to keep saving his money for a large down payment and in 2 years be ready. It didnt help that his realtor was the night superintendent. Boy the dirty look I got when I started my bubbleblab. Heehee. I decided silence would be good for staying employed at that point. (But I knew I was right thanks to everyone here)
The original print of “Richest Man in Babylon” is a fun read for anyone concerned about wanton consumerism.
“The hedge-fund industry has a symbiotic relationship with the banking sector, and many banks now operate proprietary trading units that are organized much like hedge funds.”
We can offer our special thanks to Alan Greenspan, who helped knock down the walls between banking and gambling operations.
We can offer our special thanks to Alan Greenspan, who helped knock down the walls between banking and gambling operations
True!
italics off!
another try
Time to close the italics
I tried to read through three-quarters of that last link, and it just occurred to me that this is all about the power to avoid lifting a finger to do anything, which is what people really want. We want to be able to do anything we want, anytime, anywhere, without having to do anything for it. It looks like our minds is yearning to go back home where all these things are possible, wherever that is beyond the physical plan. That’s my honest opinion of people in general (and myself, too, but I’m realistic about consequences of actions, or lack thereof). That they are trying to escape the bounds of earthly living, which requires that to succeed in doing or having something, you have to work at it. And all this proves that this country is no longer based on it.
Stephanie
I just got something from an e-mail I get every day.
————————
“‘The average man doesn’t wish to be told that it is a bull or a bear market,’ wrote the legendary Jesse Livermore once. ‘What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.’
———————–
I just had to say something when I saw this.
Stephanie Ellison
Question:
Does this hedge fund closing have much impact? As best as I can determine, investors will either get their money back with modest returns or be directly vested into the sub-funds (”fund of funds”)?
Not to diminish this event, but I think what we’re looking for is a hedge fund shutting down that does *not* return investment capital. That would truly signal the bear market. Or did I miss something? Is this more significant in a way I missed?
Please note I’m asking,
Neil
Neil - damn if I know, I think the operative phrase is “shutting its doors under a mysterious cloud after regulators discovered an unusual, potentially improper pay …”
And I do not know that the investors are getting their money back from the funds liquidation or from Bear Stearns - it is a small fund! But then so was LTCM.
Guess I’m naive, but I thought the meat of the story was the implication that Bear Stearns is in deep kimchee for complicity/collusion for running up commissions and that the unregulated nature of hedge funds implies that this could be a widespread practice. As opposed to outright losses to investors. For this article, at least, they are “just” getting screwed on the skim by their brokers — as I read it.
Neil –
My guess is that a hedge fund closing at this point in financial market history may, in retrospect, look much like the “handwriting on the wall.” Think of the demise of King Belshazzar as a historical metaphor for the fate which awaits the hedge fund “industry”…
http://en.wikipedia.org/wiki/Handwriting_on_the_wall
P.S. HedgeFundAnalyst — if only you were a member of the Mormon church, then you would have the benefit of foresight offered by familiarity with this “Bible story”…
What is hedge fund?
I have heard alot about it and what is it that make them so controversial/risky?
Read this, for starters:
http://en.wikipedia.org/wiki/Hedge_fund
They are like poker tables with $1,000 minimum bets — you do not want to sit at the table. If you did, you probably would not be reading this blog.
one of the worst risks is the lack of funds needed to hold a position. If I buy a 100k US T Bond, I put down 50K and borrow 50K at prime, If I hedge the Bond by stripping the interest and appreciation into 2 or more classes (derivatives)- I only need 1K and borrow 99K at prime - but I only have 50K - so I do this 50X - I now control 5,000,000. If I am not perfectly hedged then a 1 pt downward move would not only wipe out my 50K but I would owe real money. Getting into a hedged position is easy - getting out can be next to impossible. The current derivative market is 100trillion dollars in the US backing covering face value 12 trillion dollars in bonds. so a 120 billion dollar moves in bonds could result in a trillion dollar collapse. That is a 1% move on the bond, but derivatives and bonds do not always move in tandem.
Pleas read this comment from Warren Buffet 2003
http://www.fenews.com/fen31/one_time_articles/warren_buffet.html
http://tinyurl.com/3yx8j
Wawa — also read this:
http://en.wikipedia.org/wiki/Nick_Leeson
Thanks fellows.
FOR SALE signs have gotten lots of doo-dads attached to them lately. There’s the basic sign itself then all the gizmos the realtors put on above or attach below for example OPEN HOUSE hours are usually posted on the top over the sign.
The other day I saw a FOR SALE sign that had the “starburst” attachment of “NEW PRICE” then it also had one I hadn’t seen before but smells of desperation: “BRING OFFERS”.
These poor signs are starting to look like Charlie Brown’s blinged out Christmas tree.
The main doo-dads attached to the FOR SALE signs in my areas are the PRICE REDUCED stickers.
Saw a FOR SALE sign in Vegas with a picture of a very attractive real estate lady with the quote “I’ll do anything to put you into this home” Now, that got my attention!
Or a common one here in Sarasota/Bradenton…
‘For Sale’ and a sign underneath saying ‘Or For Rent’
Ha!
‘For Sale’ and a sign underneath saying ‘Or For Rent’
Oh yeah, Flipper Plan B-rent it out and cover your payment. They are doing that here too. I’m looking to rent a 3 bedroom house in Serra Mesa and they usually rent for about 1500 to 1700. Asking prices are now 1900 to 2100. And some of these folks are not taking the house off the market when you renting it either. No they want you to show their home and pay for the priviledge of doing it. It not easy finding a place to rent right now and for a reasonable price. I think alot of landlords cashed out during the boom. I noticed in my area alot of long time rentals have been sold.
Great editorial this morning in the NY Times:
http://tinyurl.com/mpwf3
Commission Accomplished
by Robert E. Litan
As the housing market cools, buyers and sellers should be more sensitive than ever to the real estate brokerage fees they pay. Although average commissions have fallen over the last decade, the typical seller pays more than 5 percent of the sales price in broker fees, which for many middle-class families will easily exceed $15,000.
The industry is doing its to best to hang onto its revenues, which hit roughly $61 billion in 2004, in the face of growing competition from discount and online brokers. At the urging of traditional local brokers, states have passed statutes preventing the use of customer rebates and outlawing cut-rate, limited-service packages, which many home sellers would rather have.
Now such protectionist tactics are beginning to attract the government’s attention. In late 2005, the Justice Department sued the National Association of Realtors for orchestrating a conspiracy enabling brokers to withhold their listings from other brokers’ Web sites. And next month, hearings on the changing real estate market will be held by the House Financial Services Committee, whose chairman, Representative Michael G. Oxley, Republican of Ohio, has criticized anticompetitive practices.
But if Congress wants a more competitive real estate market, it should start by rectifying the industry’s fundamental problem: brokers themselves set the market’s rules, with no effective oversight to protect home buyers and sellers.
A comparison with our securities markets is instructive. Ask E*Trade what I.B.M.’s stock sells for and you are likely to get the same information as if you made the request of a Merrill Lynch broker. The markets are transparent and efficient, and transaction costs are low. Some discount securities brokers now charge $7 for trades that in the early 1970’s would have cost hundreds or thousands.
But if you want to sell or buy a house, you generally need to go through multiple listing services, the exchanges that are to houses what the New York Stock Exchange and Nasdaq are to stocks. The more than 800 multiple listing services nationwide are typically operated by the dominant local brokers in a given city under rules set by the National Association of Realtors. Each is run separately. If you don’t go through a licensed Realtor in that city, you don’t get access to the listings.
An even more important contrast is how the two “markets” are supervised. The Securities and Exchange Commission, state regulators and an independent industry body (the National Association of Securities Dealers) oversee the securities markets. But there is no state or federal oversight of the listing services — the industry association runs the show.
Although the National Association of Realtors might claim to represent the interests of home sellers and buyers, it clearly looks out for its 1.3 million members. It operates one of the most powerful political action committees in the country. It also earns licensing fees from and sits on the board of Homestore, which operates the dominant home listings Web site, http://www.realtor.com. At the same time, the association sets the industry rules that govern — or impair — other brokers’ online activities.
Congress should fix this clear structural conflict of interest by empowering the Federal Trade Commission, with its statutory mandate to protect consumers, to oversee the National Association of Realtors. The enabling legislation also should instruct the commission to ensure that real estate markets are competitive.
For starters, this legislation should make clear that multiple listing services must provide all properly licensed brokers access to the marketplace on equal terms. Moreover, while individual states are the primary regulators of real estate markets, this legislation should enable the Federal Trade Commission to monitor and pre-empt laws that are intended more to protect Realtors from new competition than to protect consumers from possible abuses by discount real estate agents.
Like a stock exchange, multiple listing services make markets more efficient, but only if they don’t discourage entry by new competitors. As Arthur Levitt, the former chairman of the Securities and Exchange Commission, once put it: “Markets of fairness, markets of integrity and markets of quality should not be the most investors hope for — but the very least they should expect.” Homeowners, and aspiring homeowners, deserve the same.
I’ve seen lost of “NEW KITCHEN” or “FIREPLACE” doo dads, buy my new favorite one reads, “A PERFECT 10!”
I’ve seen lost of “NEW KITCHEN” or “FIREPLACE” doo dads, but my new favorite one reads, “A PERFECT 10!”
My favorite, on a rather ugly ranch in Clairemont (SD): Must see inside!
Makes me think “’cause it’s actually worse! A tackier house you couldn’t imagine! You like ‘country kitchens?’ Well we got us a doozie here, and the livingroom is wallpapered in red, white, and blue, so stop hating America and buy buy buy!”
Wanna buy a condo in Florida?
http://www.nwfdailynews.com/erodingcoast/images/erosion0730a.jpg
Where else can you fish from inside your family room, while watching the surf at the same time?
:-))
I drove through my neighborhood yesterday and counted fourteen houses for sale within three blocks of my house; two weeks ago, there were ten. A house up the street from me has a dead lawn and no for sale sign in the yard, which I am assuming must be a repo, since this is in an HOA. This is the first time I have seen this since I moved into my place in ‘98.
Last summer when a house was put up for sale in my neighborhood, it only stayed on the market for a couple of days. Now there are a half dozen which have been for sale since December and still haven’t moved (although every copule of months, the signs out front changes to a new realty firm). The market here in Temecula is heading south fast.
When the housing market starts to slide I’ve seen the IE and especially Murietta and area hit hard. Temecula will be interesting to watch because it has gotten so built up. It used to have the north SD type country charm but I’m not so sure anymore.
Sorry to say, but Murietta and Temecula are spillover areas from the SD market. When SD goes south, then the outlying areas which absorbed the excess demand will get hit harder…
I moved from Temecula/Murietta last month. (whew!) I am shocked that the market turned so quickly. I knew over a year ago this was coming, but I anticipated the decline at the end of 2006. I put my 2 year old home on the market last November. I figured I’d be out within 90 days, allowing for the winter slowdown. A neighbor had his for sale sign up for only 3 days before he found a buyer in September. It took 7 months, one falling out of escrow, and a reduction of 40k to get me outta there. I didn’t care about holding out; I had a 30yr fixed at 5.5%. I’m not complaining; I’m now debt free and have enough to pay down on my next house when the prices come back to reality. I would have reduced the price even farther if necessary. My friend told me, well, you dont want to just GIVE it away! I responded, which would I rather do, be a greedy-ass and possibly lose everything when my current savings ran out, or take what I could and run? I have been keeping track over several months; the number if houses for sale in my zip code has gone from 150 to 590 (since last November) and counting. This snowball has just started to roll.
“This snowball has just started to roll.”
Thanks for the great anecdote to support my Murietta / Temecula hypothesis. It sounds as though the snowball is quickly growing into an avalanche. The markets which went up due to spillover from the CA bubble markets will have the farthest to fall, IMO. This includes places on the urban fringe where people would actually prefer not to live, like Tracy, Temecula, and SFV, but were driven to do so by bubble prices in the coastal zone, and also the markets where Californians invested their home equity gains, like LV, St. George UT, Tucson, Phoenix, Reno, Bozeman, Missoula, Boise, Redding, Merced, Bakersfield, etc. Mark my word — in four years, we will be reading the sad tales of the demise of those who were unfortunate to have recently bought in these places, and were not as lucky as you were to get out while the gettin’ was good.
It is not going to be be pretty. This article is a good read.
from Financial Times June 16, 2006
…Most Americans used to have company pension plans. But they have been replaced with optional 401k savings plans – barely a third of Fortune 100 companies still offer company plans.
Yet a 401k comes with no sight of the income it will deliver. Half the employees who could save this way have chosen not to. And those who opted for such schemes have typically gone for investments so pedestrian that after management fees they are set to deliver returns of less than 5 per cent a year.
With $2,000bn invested in private 401ks, the prosperity of many Americans rests on the returns from investments that look to be disappointing.
To add to this cumulative picture of over-spending, under-saving and poor personal financial management, the economy appears to be changing gear, with house prices faltering and fears of stagflation in the air: both would quickly exacerbate the problem….
http://tinyurl.com/rpm3k
“Half the employees who could save this way have chosen not to.”
It is natural to have a low savings rate during a mania. Most US homeowners (now around 70% of households) came to believe in recent years that stocks and home equity would provide for their retirements; why bother to save when you can get the wealth effect of asset ownership forevermore?
“why bother to save when you can get the wealth effect of asset ownership forevermore? ”
I think for some people it was more like: why bother to WORK when you can get the wealth effect of asset ownership forevermore?
one good reason is if your company matches - like most do (at least every company i’ve worked for). even if you only defer up to the percent that is matched, it’s still worth the “free money”.
Also if median income in this country is $60,000, I’d say there are a lot of families out there living hand to mouth!
People are ditching insurance coverage due to escalating costs….why wouldn’t 401k deductions be next?
I have had staff working for me refuse to fund a 401K with a 2% company match. The explanation? The cost of living in the OC is so high that they need to get every take-home dollar now just to survive. BTW, I didn’t own the company, just some company stock in my 401K, woefully inadequate for any sort of retirement.
Is this to be the future for America?
I believe using income earned to invest in stocks is considered savings. The reports are showing that people are spending money on ‘things-cars, clothes, etc’ more than they are earning.
There are at least two further reasons that it may be folly to save money in the USA these days.
1) There is a much-discussed risk of a US currency devaluation (at least in policy circles, not to mention the foreign financial press — e.g., the Financial Times). In that scenario, those who saved in $US would get burned, and might regret having foregone gambling junkets to Vegas during the good times.
2) In the back of their minds, US citizens are aware that so many are following the “American way” of blowing wads of money on the credit/debt binge, that they are at least subconsciously aware that they form a “too-big-to-fail” voting block. If times get tough (especially for retirees), then this voting block will get a bailout — probably in the form of a revamped Social Security system (which will naturally penalize anyone who was foolish enough to be a lone-saver).
When in the US, do as Americans.
I need to upgrade my understanding. There are several learned folks including the esteemed GetStucco, who raise the real concern of US currency devaluation.
In terms of a retirement account, if the retirement is going to take place in the US, would it not be a wash, as the costs for everything except imported goods likely to stay relative?
Help clue me in. I have been saving like mad in my 401K for the last 15 years, (40 now) and I want to protect that thing.
From A Beginner’s Guide to The World Economy
by Randy Charles Epping
c1995
“When a profligate government finances spending by increased borrowing or by simply printing new currency, prices will increase as the new money enters the economy. The expectation of runaway inflation fuels the fires of hyperinflation. Eventually, this wage and price spiral takes on a life of its own: prices rise, leading to demand for increaed wages, which results in higher prices……
Hyperinflation’s rising prices end up hurting poor people most, because their day-to-day expenses consume a significantly higher pecentage of total income…….
Hperinflation especially hurts those on fixed incomes, such as old age pensions. During hyperinflationary times, when prices are rising daily, a nest egg may become worthless in a few short months. With rent and food costs rising astronomically stipends can become virtually worthless without cost-of-livng increases.
Governments often refuse to take tough economic action against hyperinflation because they fear the political consequences of austeritiy plans or increases taxes. To keep large state work forces satisfied, many governments simply borrow more money. this allows them to keep from closing inefficient state industries or reducing bloated bureaucracies. Many overburdened governments keep the economy going by increasing the money supply even further, issuing more government debt, or printing even more money. As the government loses control of the economy, the self-perpetuating spiral of wage and price increases spins out of control”
I felt a wave of scared recognition when I was reading this chapter.—Upstater
We have a big problem in that $900b trade deficit, which is (in my simple understanding) the difference between the amount of money we spend on imports less the amount that other countries spend on purchasing our exports. Think of that $900b/year as a trade of green paper (or the electronic version thereof) for Japanese automobiles and Chinese manufactures (did you ever notice how the labels on almost every small manufactured item you purchase are marked with “made in China”). The symbiosis refers to the link between the trade deficit and that $900b in extra $US that our foreign creditors accumulate each year, much of which ends up “reinvested” in our long-term Treasury and GSE debt — in other words, after the Chinese and Japanese accept our green paper in exchange for automobiles, camcorders, flat-screened TVs, clothing, and toys they ship us, they use that paper to purchase IOUs — promises to repay them a future stream of $US payments (a thirty-year Treasury bond is no more nor less than a promissary note from the US government to make 60 interest payments, once every six months, and repay the principle along with the 60th interest payment). The Asian nations which send us all these manufactured goods are referred to as our foreign creditors, since they end up repatriating those dollars which are used by our government to pay its current bills and by mortgage lenders to make home loans.
If our foreign creditors suddenly feared a $US devaluation, then they would face the prospect of receiving a future stream of dollar payments out of the various $US-denominated bonds they hold which would be worth far less than it was when they purchased it. On our side of the pond, we would suddenly see a huge inflation in the cost of all those manufactured goods we rely on the Chinese, Japanese, and Korean manufacturers to send us for cheap. And interest rates on our debt would skyrocket to backbreaking, bubble-popping levels, as all of our foreign creditors would suddenly be unwilling to lend us money.
All told, the unraveling of the conundrum will potentially be an ugly reversal of what has been a mutually satisfactory, if disfunctional and self-destructive, codependency relationship for a number of years now.
Well you can try things that are negatively correlated to the US dollar. All natural resources stocks are still dirt cheap.
Yea right — especially gold mining stocks.
sigalarm wrote “Help clue me in. I have been saving like mad in my 401K for the last 15 years, (40 now) and I want to protect that thing. ”
I’m 47 and have saved in a 401k only slightly longer than you. You are doing great! However, you should also save outside tax deferred plans. Consider a tax-deferred plan one of several alternative tax avoidance investment schemes. As Emeril would say, you need to “turn it up a notch” in your investment sophistication. Outside your 401k it would be a good idea to check out investments that are state tax free if you live in a state with income taxes: Those are government securities and slam dunks such as Savings Bonds. Also consider short term (2 year) treasury notes and T-Bills. Since you are still relatively young, check out value stocks paying reasonable dividends. Look for stocks in big companies with a lot of cash, low debt to equity, a Price to earnings ratio under 16, and near their 52 week low, as well as a good history of dividend payouts (slowly increasing over time). Also diversify your investments overseas. If all my 401ks offered Dodge and Cox International Mutual fund, I would select it. I have that fund as my only non-tax-deferred international fund. That won’t diversify you tax-wise. But it will lower your risk in America’s decline (and I think it’s declining). One additional way of protecting your 401k or hedging against it, would be to invest in precious metals. I buy them with cash at times. Other times I buy rare coins. I think those who only save in a 401k and IRA are going to be paying the bills of those who did not save in the future. But I’m not saying to not invest in a 401k. If you cannot afford to invest in anything else, it is probably wise to only invest enough in a 401k to get the matching contribution. Any leftover should go toward government securities, dividend stocks, and precious metals.
Thank you very much for the insight!
I do not participate in a 401(k) and proud of it. I’m not going to give my money to the Wall Street crooks.
So what do you participate in, just out of sheer curiosity.
Some guesses:
- food
- guns
- ammo
Yuk, yuk. Increasingly, a good start for the first dollars. For alternative-to-401K purposes, Always use ammo that can easily be reloaded. Skip the wierd calibers, no matter how awesome-looking.
I invest in myself and my family - provide better education for me, my spouse, and my children. Maybe one day I’ll own my own business.
Beats the crappy below 5% returns of most 401(k)s any day. And the 30-year investment horizon that most of them tout is a total joke, every good investor would laugh at these terms.
Well, I invest in my myself & my family too, in terms of money, time, love, wisdom — sometimes welcome, sometimes not ( as our daughter says, ” thanks for the mommily advice, mom), caring, etc. In fact, I invest VERY heavily in my family. That being said ( and all 3 of us have bettered our educational status/job skills in the last 12 months, by the way ) what are you putting round, cold, hard dollars into for yourself and your family ? If you don’t like 401K’s, which is your right, what are you doing to save for your old age ? Almost everyone out there whe is eligible for a 401K has some kind of education already. So what are you doing to feather your nest during what I call the ” accumulation years “, which is when most Americans should be ( and aren’t ) saving for their old ages/emergencies, etc. ??? Just wondering. It doesn’t sound like you have much of a plan.
I can’t help but invest in a 401K. My company provides 12% of my salary into the fund provided I put 4%. Nonetheless, I put more of my salary in it. If you have a 401K through Fidelity you can open a brokerage link account that allows you to manage the fund yourselves. Can also trade indivudual stocks in this account.
Aside from this, the rest of my money is waiting on the sidelines in short-term CDs. There will be many buying opportunities in RE and emerging asian markets after the crash. Be patient.
I live in the South Bay (LA). I’ve been tracking Redondo Beach via Catalyst Homes web site for 1.5 yrs. 3 weeks ago the total # of homes went over 300 for the first time (it was 80 a year ago). I thought it would be August before we got to 400. Well, we are at 350 as of yesterday. Damn, 50 home in 3 weeks. Its now a buyers market so says the realtor who sends me emails…yeah right. Talk to me inventory reaches 700 and let the low ball bids begin.
$5k/month, must sign a 2-year lease and pay $50 service charge whenever anything needs to be fixed.
“HI! I bought my house in ‘92 for ~330k (see Arlington RE assessment site) but now I’m HELOC’d up to my ears paying for flopped condo investments, care to subsidize my stupidity?”
http://washingtondc.craigslist.org/nva/apa/171885658.html
With an ad like that with those terms and conditions he’ll be sitting vacant for awhile. The arrogance of some people can be truly amazing sometimes.
Forget $5K. Actually, I thought most of the terms were not too unreasonable, but shouldn’t the rent for this place be more like $1,800-2,000 per month?
$2800/month nowadays would probably be close.
DC is set for a major “correction.”
The Odyssey condo finally came online at Arlington’s RE assessment page… low floors are fine but the middle floors on up are very much unsold. I bet The Market at Station Square is similar.
What did they expect? $700k+ condos? This is not Hollywood.
5K? Nuts, someone willing to pay that price can buy a condo. It will have that swimming pool and no maintenance is required. Are people insane to live in homes like these? I hope they get an financial ass pounding by a 100 golf balls hit with a 1 wood.
I’ve been tracking inventory in Pasadena, California via ZipRealty:
Apr 21st - 275 homes
Apr 24th - 279 homes
Apr 25th - 278 homes
Apr 27th - 288 homes
Apr 28th - 288 homes
May 2nd - 293 homes
May 3rd - 297 homes
May 4th - 302 homes
May 8th - 297 homes
May 9th - 296 homes
May 23 - 317 homes
May 25 - 306 homes
May 26 - 310 homes
May 31 - 319 homes
Jun 2 - 318 homes
Jun 6 - 328 homes
Jun 7 - 329 homes
Jun 9 - 333 homes
Jnn 13 - 343 homes
Jun 16 - 358 homes
Are you tracking SFH only? The total number of homes for sale are now above 700, including condos.
30% increase in two months — not too shabby, for us bears.
I wonder if in the aftermath of this speculative fever in real estate, if we will see attempts to control the flow of capital in housing? A popular notion in international finance is that over the last decade or so, capital markets have become more developed, and huge sums of money are traveling around the globe looking for investment opportunities. While this may be good for a country when capital flows in, the outflow can be very quick and very painful (think Mexico ‘94, Asian currency crisis ‘98, Russion bond default ‘99, etc.). Some countries installed capital controls that limit the flow of capital (like restricting foreign ownership, how much currency can be traded daily, etc.). While economists generally don’t like to see controls in any market, there may be some merit in trying to stem disruptive outflows of capital.
Maybe we will see the same thing in US RE, because we may very well come to believe that the “problem” was not locals buying a place to live, but vacation homes, and investment properties. People buying a house to live in are now competing with “investors” with deep pockets. There has definately been a sense that RE investors are no longer chained to one place, and the whole US market is somehow “local.” If this is case, and if the public wants to stop “outside” investors from “ruining” local RE markets for first time home buyers, then we may see new rules to limit outside participation. This may be in the form of differential property taxes, surcharges based on residency, and changes in the federal tax code that more clearly identify and favor “primary” residence.
Not that I’m in favor of these controls, but I could easily imagine a backlash against “investors” who have made life tremendously more difficult for people buying a place to live. Of course, this may all sort itself out, because many of these “investors” are flippers, and with prices falling, flipping is no longer profitable. At the same time, the very high P/E ratios make investing in rental units unprofitable as well in many markets today.
Whenever government gets more involved, it gets worse. Save for the most fundamental infrastructure, I vote we leave it to the market.
The market? You really believe that the US, China, Japan or European governments believe in free markets? Look at all the obscene manipulations that are going on in the currency markets, the bond markets and the general economic data like the CPI, that are all phoney. Come on! You really think the FED believes in free markets. No Way! I woudn’t be surprised that they use their reserves to intervene in the stock market when the indices fall too much.
Marc — of course I don’t believe the Fed believes in free markets. What I said was, I vote for free market solutions. As a Libertarian, that’s how I vote on just about everything. Doesn’t mean it will happen, which was the assumption inherent in your reply.
> we may see new rules to limit outside participation. This may be in the form of differential property taxes, surcharges based on residency, and changes in the federal tax code that more clearly identify and favor “primary” residence.
These are not capital controls but changes in the tax code and, like it or not, the RE market is already full of tax codes and their consequences. As long as any tax code changes are announced in with sufficient lead time, the markets can deal with them easily and efficiently.
Personally, I would like to see the preferential treatment of RE investment limited to “simple” primary residences and, e.g., tax deductibility of HELOCs removed (simple = not too much above median home value).
Peter — I agree, as a least-worst solution.
http://www.craigslist.org/sby/rfs/172094217.html
Walnut factory loft!! Only $430,000! Love the ceiling and wall decor!
I actually kind of like that place.
I don’t know about that big-ass pipe next to the bed
You get your very own oil well running through your bedroom with this loft. Pretty cool.
Is that walnut oil? Can I run my car on it, like bio-diesel?
What a dump.
This is good- another “instant equity” listing. The seller brags about the cash flow he is receiving on his “neg am” loan. No mention of neg cash flow once loan resets.
http://boise.craigslist.org/rfs/170779398.html
Enjoy!
What an ugly house
“It’s an ugly house”
I think it’s a garage…
“We will also keep these for ourselves if no one takes them in next two weeks”
__________________________________________________________
I am going to take my ball and go home if nobody plays with me!
So there!
long-time lurker, first time poster. just want to share a little story with us housing bears who are getting a little impatient. I have a colleague who is about to retire the end of this year. He lives in Aliso Viejo, OC. A few months ago, he was telling us that he was going to buy a brand new house in Tucson ‘outright’ and retire there. He was bluntly saying ‘this thing will never go down’, refering to the housing price. Guess what, things have changed drastically over the last few months. Yesterday, he was complaining that ‘houses are staying on the market for at least 45 days and he would love to sell his house in AV today and retire in Tucson, and that he can not afford to sell his house until the end of the summer because the rate is going up and people are reluctant to buy bla bla bla’. He said his strategy is not to price it ‘ridiculously too high, but still higher than the recent comps to leave room for negotiation’. a female colleague commented, ‘that sounds like a good plan’. He said ‘it better be!’. It turns out he had refinanced and took out money to buy the house in Tucson and is carrying two ‘humognous’ (his own words) mortgages. Guys, the mode is changing, slowly but steadily.
I personally hope things will work out for him.
I had a coworker tell me yesterday that he is carrying over $1mil in two mortgages (actually 4 mortgages, including bridge loans, etc.). He just moved from Chicago to Conn. I warned him three months ago to rent in Conn., and to sell before buying. Advice ignored.
What am I supposed to say? I told him that “I hope it works out for you.” But I cannot offer him any comforting words, and if he pressed, I’d have to tell him that he’s probably in trouble. I simply will NOT try to sugar coat things for him and others.
Point him here:
http://www.milkandcookies.com/article/3267/
“Don’t Buy Stuff You Can’t Afford”
I love this SNL skit. I tell my clients they have to watch an educational video then play it. Fortunately, most of them have little consumer debt and can see the humor. The ones laughing the loudest? The one I talked out of buying “investment real estate” last summer! (Although none have sent me flowers yet.)
Here’s another “affordability” phrase -
If you have to ask “How much?” you can’t afford it.
Stephanie
I just wonder which market will tank in each area? Take the example of the two mortages in Aliso Viejo and Tucson. That is a case of “unintentional speculation.” Now I have a question about the “Alligator” in this situation: Does he have a mortgage in Tucson or is “two humongous” mortgages both on his AV home? Either way, he’s about to get bitten.
As to the “end of summer” being a good idea, I stick with my previous prediction that by the ides of October (10/15/06) we’ll be in a home price decline. (I consider now the prelude “standoff.”) This individual is an example of someone who is going to have to sell and just “suck it up.” Will it hurt? Only in a little less plush retirement.
The anecdotal story of the Chicago to Connecticut guy… sounds like a much higher leveraged case. Their… oh… we all knew the pain was going to be felt by many.
Neil
Ivy says (my mls data mining project ala Able-Danger) says price cuts started in over half the markets in the past two weeks are are starting to accellerate. Right now they are spotty in the markets as the “need to sell” are weeded out from the fishermen. Once some of the flippers start to get a bit more bite from their ‘gators this should increase. So far most of the mark downs are what I would consider “token” and are not even beginning to take out the speculation premium that was incorrectly inserted in the market.
In addition some areas of some markets, the mark downs in price have sparked a mini-rally of selling. Part of this might be because of timing for families with kids wanting to land and establish before the school year. Ivy’s preditions 2 weeks ago of a mini-rally in North County San Diego (my territory) seems to be confirmed by Jim’s excellent local blog ( http://www.bubbleinfo.com/)
sorry, mini rally of buying. Friday afternoon stupidity is setting in. Back to my SQL code.
Thank you for your input, sigalarm! We are in North County SD as well, and can confirm that some homes are still selling.
We’re seeing quite a few more listings the past few weeks, though. That is encouraging because fall, 2004 was the height of inventory for our particular area. We seem to be at about that level (or above), finally! The unfortunate part is sellers are listing HIGHER than any comps in the past (like $200K higher, in some cases). It seems they are using each others’ listings as comps (priced according to other list prices) instead of sold comps. Hope they end up chasing the market all the way to the bottom.
I stay out of conversations like this at work — I don’t know their business, and they don’t know mine. That way my coworkers can’t hassle me, ask for loans, etc. I’m friendly with them, but not best friends with any of them. If I knew anyone who had done a dumb stunt like this ( as if Tucson was going to run out of houses anytime soon ), I would just say, “well it sounds like you have a plan”. That’s pretty ambiguous and people think it means that I don’t think they’re nuts.
Those are the anecdotal stories that are priceless.
I know of 2 people who HELOC OC properties to buy in PHX.
The size of this pending ass-pounding has been underestimated by most people.
I met with someone the other day who owns an older farmhouse estate with lots of land, a pond, horses, the whole bit….a Cali transplant. She happily told me they were renting the house behind them for 5 mos while
they were building her dream kitchen and some other rooms in a new addition.
Not much later in the conversation, she mentioned her husband had not had any of his movie scripts picked up and if things didn’t change soon she might even have to go to work. There are four small mouths to feed besides the 2 of them. I’m sure they’ve got lots of equity in the bank from the Cali home sale last year. Still, I just can’t believe people are still putting the cart before the horse. She sounded nervous.
The McMansion glut article in today’s WSJ was accompanied by an interesting sidebar, which suggested there was little-to-no appreciation in YOY appreciation in some of the wealthiest US zipcodes (the one bizarre exception was a wealthy zipcode in PHX, and we all know where that is headed…). My guess would be that measuring price changes from the peak (which was after June 05) would show prices are dropping. Does anyone have good evidence on this?
Now that June Fletcher’s article has brought the McMansion glut to light in a prominent Wall Street Journal article, can we anticipate the next leg down in the homebuilder stock price crash?
http://tinyurl.com/o7skt
sweet post from the live RE chat at WashPost today… and the moderator’s empty response:
“Re: Leesburg, Va.: “We’re more than $60k below what our neighbors sold for in Sept.”
A piece of advice from a potential buyer — FORGET WHAT YOUR NEIGHBORS SOLD THEIR HOME FOR! Times have changed dramatically, even since September. If you’re selling your house now, you will NOT get anything near what the neighbors got when the market was so totally nuts. The days of insane profits and quick flipping are long gone.
We buyers know that prices are coming down and interest rates are going up, and sellers, we can afford to wait it out longer than you can.
Maryann Haggerty: Yes, Sept. was just about the height of the market.”
“We buyers know that prices are coming down and interest rates are going up, and sellers, we can afford to wait it out longer than you can.”
What I would like to see happen is that buyers realize this, refuse to buy a house collectively for two years, and just watch prices go all the way down to about 40-80 grand per house.
Stephanie
I talked to a realtor friend in Portland, OR yesterday and he said we still only have two month’s worth of inventory. Stuff in the area I watch sure seems to sell quickly if it’s priced right. Any ideas on when our inventory might shoot way up?
After California equity locusts finish leaving LA/OC and the Bay Area and bidding up your RE.
Native to So Cal and lived in Clackamas for a bit over a year.
Do you know anything about Medford? Seems cheap compared to OC. Do you think people will keep driving prices up there?
Been there a few times, been through it a lot. I recall at one point it was one of the fastest growing cities in Oregon and may still be. I’m sure it’s super cheap compared to OC, but it’s expensive for what it should be. It’s gotta be equity locusts.
SunsetBeachGuy, I agree, but you didn’t give a date!
I would say this summer will most likely hold the last of the big gains here, meaning the turnaround might begin next spring.
When a house does sell in my neighborhood (NE PDX), the new owners invariably have CA plates.
As fewer people can sell down there, the frequency of locusts buying in neighboring states will slow. I’d say we are following CA by 12-18 months.
On the other hand, most of the buyers mentioned above (at least in my ‘hood) are younger buyers, who seem to think a $350K home is cheap for a first timer. (In spite of the fact that the same house was less than half that just 3 years ago)
So, I could see this dragging on a little longer if we continue to attract first timers who can’t afford CA.
Jan 2004 - March 2005
Real crappy year for skiing at Mt Hood Meadows, pretty dismal for WW kayaking as well.
Nice and cheap house, wife loved working for Nike but didn’t like the prospects for career advancement in OR.
Oops, you were probably asking for a prediction of PDX.
I have no idea. I have a buddy in community banking up there and a flipper friend and most of my co-workers were in construction or O&M of buildings.
Things seem to be chugging along in PDX and might even accelerate as smart homeowner’s in CA cash out and overpay for RE in PDX.
Have you ever been to Medford?? I would suggest you go there. And what is this mentality of comparing different cities/states prices to Californias? Don’t you realize that different markets command different prices which relate to local economic conditions, etc…?? I would love to hear you explain your logic so please elaborate if you are willing.
People realize this, but its like the New York to Florida connection… If you make 500K profit selling your New York apartment, then paying 300K for a house in Florida that was 150K three years ago seems like a bargain. To the native Floridian, you are crazy interloper f’ng up their market, to the New Yorker, you are buying a home with land for 1/10th of what you would pay in NYC for a 20 foot wide townhouse with a 100 Sq. foot backyard - and you can buy it cash and have 200K in the bank and mow lawns or bag at Publix for a living.
And this is how bubbles spread across the world also.
Medford is in total denial….(see my earlier post). Prices for horrifying dumps in our famed “methford” area are in excess of $250K, needles and garbage and colorful neighbors included at no extra cost…. Wages in the valley are low, but for specialized fields such as pvt computer/finance types and a handful of profs (slightly higher wages) at the U. in Ashland… Massive increase in inventory, and shaking heads all around
Here’s a good one if you’re looking for a chuckle. I thought CNNMoney stopped doing these. Guess not.
http://tinyurl.com/ekvkc
In particular, I love the line, “….Minor did what every good Southern California real estate investor does - he brought his act to Arizona.”
Sheesh.
By the way, in the article, click on the link for the guy’s band and check out the first picture you see. Priceless!
I am gonna f’ing puke.
When this guy is face down on skid row, he won’t get a dime.
Did anyone see Charles Dumas, Chief Economist for Lombard Street Research today on MSNBC, Street Signs? He said there’s a 50% chance for a recession and the housing market plays a big part. The host, Erin Burnett, said something to the effect that the housing market is having a “soft landing” but Dumas said he disagreed. I wonder if those on CNBC will ever put away the kool-aide. http://en.wikipedia.org/wiki/Image:Kool-AidMan.jpg
I’ve seen lost of “NEW KITCHEN” or “FIREPLACE” doo dads, but my new favorite one reads, “I’M A PERFECT 10!”
Geez, what’s wrong with me today? Sorry for the lame posting here and above. I’m going on vacation starting tomorrow and I think my brain left before my body can. Have a great week, all. I’ll miss my daily bubble blogging.
Have a beer for me
Have a nice vacation! It really is hard to stay away from this blog.
Don’t know if you’ve seen this…from Lansner’s blog; OC Register…auctionheaven posted on there
Home-sales price creeps higher
http://tinyurl.com/lzgbg
Is this the last YOY price increase we will see?
Hey, OCKurt.
I am boycotting Lansner’s blog, too many edits of my posts.
Also too many not edited out ad hominem attacks from the perma-bulls.
I am back to my original position that bears shouldn’t increase Lansner’s traffic.
OCR is a 2nd rate paper.
The asymmetrical edits of bear posts and the posting of inflammatory, personal attacks by the bulls without any facts is something that I won’t participate in.
Let the smug and self-satisfied homeowners rot in their for sale listings.
LOL. I can’t believe they are editing your posts (unless you are cursing or something) when you have useful information to share…I thought Lansner would be more open to bearish comments after his discussion with Ben…
At least you will have nice weather down at the beach this weekend…put extra sunblock on and head down to Turc’s for a cold one…
I have never tried to curse on Lansner’s blog.
But pointing out dubious perma-bull tactics should be allowed.
Yep, gonna take the wife and baby for a walk on the boardwalk right now.
Take care.
I am back to my original position that bears shouldn’t increase Lansner’s traffic
____________________________________________
I concur. I will go back to posting there when we have YOY declines - Then I will FIRE AWAY at the bulls!
Hey Sunset Beach Guy,
I am a lurker here and just posted once on the Lansner Blog and I totally agree with you. I don’t blame you for boycotting the OR blog. It has become totally one-sided. Bulls are protected and always launch personal attacks, yet the Bears pretty much rely on statistics and do not launch personal attacks. I am not going to bother reading Lansner’s Blog anymore. It’s become a joke.
Well, I feel a bit better, that I am not the only one with an issue of edits at OCR.
Lansner also posts the most idiotic bearish statements from Allen N that should be edited out.
I think Allen N may be an under-employed realtor undermining the bear case by posting as a illiterate nutcase loon.
Did anyone else notice the perma-bull tactic of instead of posting support for their case, they ask for wild goose chases for data that doesn’t exist because the RE industrial complex doesn’t keep good data?
I don’t have time to waste with that.
I agree to all that’s been said.
I had to take on the satirical POV of a homeless guy living under a bridge just to post without being edited.
It worked for a time, but then they started editing that, too.
I’d rather post where I’m not edited.
We’re all adults here on Ben’s Blog.
That’s why he doesn’t need to edit us.
Maybe Jon could take a hint.
Your last post was pretty incoherent and didn’t flow at all, so it had to be hacked to bits by Jon.
Maybe we should have parallel posting for the uncensored comments.
Auction:
The problem is the average readership of OCR.
We live in smug self satisfied OC and most in OC don’t want reality to intrude on their little head in the sand reality.
The perma-bull flames at OCR got me pretty pissed off particularly since I was prevented from responding to the juvenile attacks.
Local mortgage rates hit 4-year high
http://tinyurl.com/lt4jo
Shiller gave a presentation on housing prices at S&P’s:
http://tinyurl.com/el9e7
I find it puzzling how some economists who seemed to get the early prediction long before others had a clue (Shiller, Thornberg) now seem very precautious about making any strong claims as the evidence mounts that the bubble collapse scenario they predicted a while back is coming to fruition. I know they have reputations to protect and all, but no guts, no glory, right? (Easy for a semi-anonymous blogger to say this, I suppose…)
They called the direction right (prices down) but no one can call the magnitude (how far down?). These guys should at least feel good that the consensus is now turning toward a decline in prices.
Getstucco - I wondered the same thing — seemed very tame for a bear like Shiller. Maybe he buys into the PPT idea, though I’ve no idea where that would lead.
I think it is human nature and the fact that they can’t afford bodyguards no that the risks are real.
Lies by omission that pass for social grace.
Agree with SSBG (literally concerned for their safety). Also, they might be worried about causing the avalanche to gain momentun. Before, they were trying to warn people. Now that the bubble is obvious, they likely want to slow things down a bit, as this bubble really is likely to cause some serious financial problems (recession/depression, etc.). They also don’t want to be the cause of RE just grinding to a halt, IMHO, as they might somehow be held liable.
From the Marketwatch.com piece on the Shiller presentation to S&P:
‘In the future, insurance companies may offer policies to shield consumers from lowering home prices, thanks to the futures now available, said David Blitzer, managing director and chairman of the Index Committee at Standard & Poor’s, who also participated in the presentation. He identified the housing market as a continued stable investment.
“If you want volatility, go to the stock market,” he said. “If you have any doubts of that, take a look at it over the past six weeks.”‘
NYC cab drivers and hairdressers take note: David Blitzer, managing director and chairman of the Index Committee at Standard & Poor’s, has identified the housing market as a stable, low-volatility investment. Please continue flipping those condos…
Kill me if you have to! The psychology-driven stock market has been extremely volatile lately, with all hanging on BB’s every word and word choice.
Stock market seems pretty balanced over time recently when compared to RE.
The big difference (which the S&P guy either ignores or does not understand) is that stock prices are posted minute-to-minute (except for when prices are in a free-fall like on Black Monday, Oct 19, 1987, when nothing is selling). Nobody will know the market value of all those homes which are piling into the nationwide for-sale inventory at nearly a 100% YOY rate of increase until the cash burn rate forces some sellers to start lowering their price in order to move sales. And then it will probably take more than four years for prices to bottom out at fair market value, given the sudden disappearance of speculative demand. Such is the nature of bear markets in housing.
Email just arrived from Beazer ( I got on their email list last summer looking at new homes in Tampa )
SNEAK PEEK!!!
BIG RED 1.875% WEEKEND
Thank you for your recent interest in a Beazer Homes. My name is Leslie Anderson, the New Home Information Manager for Beazer Homes in theTampa area.
In appreciation of your interest in our homes, we want to invite you to take a sneak peek at our biggest weekend of the summer. If you are still looking for a brand new home, there’s never been a better time to act than now!
Beginning Friday, June 23rd through Sunday, June 25th, brand new, ready-to-move-in Beazer Homes will be available at the lowest mortgage interest rate we’ve ever offered.
Interest rate is only 1.875% for the first year.*
Please call me at (813) 663-9002 or email me at landerso@beazer.com or call the New Home Counselors at the community of interest to schedule an appointment to preview homes available at this tremendous savings before this offer is extended to the public.
One year at 1.875% ? What then? I don’t have any sympathy for the big builders who have used their self contained mortgage branches to sucker, er I mean entice, buyers into their over-priced loans for over-priced houses.
Ha ha. One year is a freakin’ joke. Hey, but since most of CA’s homebuyers used that type of loan last year I’m sure they’ll find some suckers.
Kind of like the Chevy ad of you only having to pay $1.99/gal for gas for a year…what then? Then you’re stuck with a giant gas-guzzler…
I thought that Chevy ad was funny as hell.
This from Jim Cramer at thestreet.com:
“Cramer said homebuilders like KB Homes (KBH:NYSE - commentary - research - Cramer’s Take) are cheap enough that their downside risk is minimal, while the upside is huge. “Any pause from the Fed, and this will be the coiled spring of the market and the stocks will take off,” Cramer said. “I don’t see these companies going down to two times earnings.”
It’s unbelievable how dumb Cramer can be. If the earnings collapse the stock’s P/E will skyrocket even while the price is falling.
My timing wasn’t great but I’m long a basket of these dogs from late last week. Planning to sell them in a month or so.
He’s not dumb. He makes a living by selling bullsh!t. It matters not in the least whether he turns out to have been right…
And this off Craigslist… anyone who doesn’t think that the illegal immigrant market hasn’t helped support this market is crazy…This is off Tampa Craigslist
Non-Resident Aliens: Local Area Properties Available!
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Reply to: see below
Date: 2006-06-16, 3:17PM EDT
Local Properties Available for Purchase or Rent to Own!
Local Real Estate Agent & Staff specialize in representation of Non-Resident Aliens with up to 100% financing. No social security number needed. Good or bad credit ok!
Hablamos Espanol.
Call 813-436-5358 for more information.
Our hours are Monday to Friday, 9 am to 5 pm.
this is in or around Tampa areas
no — it’s NOT ok to contact this poster with services or other commercial interests
172280165
I will try to link here:
Then where are these illegal aliens getting the money to even do 100% financing and other creative stuff?
Stephanie
El Paso County, Colorado Springs, has a 16% Hispanic population, but I’ve noticed a disproportionate percentage (at least a third) of the foreclosure listings the FB has a Hispanic name. I’m guessing that a lot of them were fairly recent immigrants (legal or otherwise) who were easy marks for predatory lending mortage brokers and unscrupulous RE agents.
Fake id’s etc. - Illegals can still have bank accounts & jobs. They don’t need paystubs anymore - no doc loans. These companies will lend to anyone who can fog a mirror.
link:
http://tampa.craigslist.org/apa/172280676.html
OK, who broke the italics button in the on position?
I had an interesting conversation with a collegue of mine today. She says she will be a millionaire in a few years from RE. I asked her how. She said she made $150k last year from selling her Phoenix home. She then bought two homes; Queen Creek and Maricopa. She financed both of them 100% I asked her if she invested the $150k profit. Nope, she bought a BMW and a Mercedes (for husband) with the profit. She plans on selling both homes for over $1mil in a few years. She is a part time admin. assistant and her husband is a painter.
She is living in fantasy land.
As is every other person I have met in Phoenix this year.
She is living in fantasy land.
Reply to this comment
Comment by Michigan Born and Phoenix Bound
2006-06-16 13:49:49
“As is every other person I have met in Phoenix this year. ”
You have not met people like me though! Totally renting and in savings bonds, cash, CDs, muni bonds, precious metals, and value stocks!
Jeez, for an admin assistant she sure is smart! Why couldn’t I figure out a way to make a million dollars by investing in RE? It sure seems so simple the way she explains it. I’m surprised no one else has figured this out!
Oh wait! There are over 16,000 homes sitting empty in the PHX market with over 50K for sale? Perhaps there are others utilizing this extraordinary wealth building scheme? Gosh, there are sure going to be a lot of rich folks running around in the next year or so!
This is going to end SO BADLY!
I am thinking of investing in some guns, ammo and canned food.
> I asked her if she invested the $150k profit. Nope, she bought
> a BMW and a Mercedes (for husband) with the profit.
WOW. The word “savey” comes to mind, as in “there are financially savey people; and then there are people like her.”
Another reference to the Shiller statements today:
http://tinyurl.com/kgwm7
Article on housing bubble on Market Watch - compares to 1890
http://www.marketwatch.com/News/Story/750RqBsVB9Jjnqplzr1rGp2?siteid=yhoo&dist=TNMostMailed
Ok, second daffy post today - that one is already posted and discussed above. Sorry for the waste
I have been reading Shiller with interest since his “Irrational Exuberance” came out in 2000. And he called the housing bubble. However, his “explanation” of psychology as the cause doesn’t explain anything. What caused buyers’ psychology to change? What evidence is there of this mental change other than the bubble itself? I know Shiller is a behavioral finance guy and so he is always looking for the nail to fit his hammer. It doesn’t make sense to me. What does make sense is that there was a structural change, the global liquidity wave, coming from various central banks (Fed, ECB, BoJ, etc.). With cheap money buyer’s can bid up the price of homes. So, the psychology change is an effect, not the cause. Then it spirals into a feedback loop, of course, like any mania. Greed, in general, and the desire for better housing, in particular, seem pretty universal to me, probably a constant. I know that I always want more money and better housing.
Looking at psychology to explain large scale behavior is part of the mistake that people often make of attributing more agency to themselves than they actually have.
I think Galbraith had a better explanation in his early-1990s book “A Short History of Financial Euphoria”, prophetically written shortly before the internet brought us the dot.com boom and bust, then Central bankers brought us the housing bubble (currently going bust). The long-and-the-short of this book is that all financial euphorias are first and foremost sparked by credit bubbles. Small wonder central bankers generally despised Galbraith — he shot from the hip, and was not afraid to make the esteemed central banking establishment his target.
Central Bankers are gods. Watch out if they hear you, they might strike you dead with their thunder bolt. Galbraith was right. Personnally I think the FED and all these institutions are incompetent, corrupt and have to much power. I hate Greenspan.
I am hoping they listen, but don’t throw any lightening strikes my way. They ignore what we say here at their own peril.
The Brooklyn sculptor put his backyard treehouse up for rent as a gag on Craigslist.com. Asking price: $150 dollars.
http://abclocal.go.com/ktrk/story?section=bizarre&id=4276683
Does he allow pets?
Bwahahaha - Don’t underestimate the artists of NYC ability to find funky new ways to “live”
Not worth a thread, but there will be 521 properties for sale in July’s Allegheny County (PA) Sheriff’s Sale. Most over. http://www.pittsburghlive.com/x/pittsburghtrib/search/s_458274.html
I’d like a financial darwin award thread. It doesn’t have to be housing related just instances where people demonstrated a general ignorance of money.
An example would be:
Every year people bring thousands of “you may be a winner” sweepstakes checks to the bank to be cashed. Whats surprising is that a good number are actually cashed.
Tellers are not on the executive pay scale, to be sure.
Several months ago, a buddy of mine was defrauded in a pay-too-much scheme where he was to repay the excess to the buyer. I told him that his incoming money order would prove to be fraudulent; he told me that the bank (teller) had accepted it. I told him that the bank would call him soon. It did.
Banks do not have to pay tellers squat if they are not required to be accountable, at the teller level, for their transactions.
Simple — sucks — sorry.
Comparing the current housing bubble and upcoming recession to the 1970’s deserves more attention, IMO. My perspective of post-WWII economic history is that only one truly serious recession has occurred - the ‘78-’82 recession where the economy finally purged the union-industrial complexes of their excesses, not to mention getting rid of some of the loonier political excesses of the 70’s. WWII’s success was the economic catalyst that lasted about 28 years until it finally played out.
Now, about 24 years past the end of the 78′-’82 recession, ended by the economic reforms of Reaganonomics, we have to purge the consumerism that has resulted. Consumerisim in the late 80’s and 90’s was a minor problem that was overcome by the continuing structural improvements in the overall economy (freer trade, industrial automation, the internet as a means of commerce, etc.) But those structural improvements seem to be stalling at the same time the housing bubble has become the ultimate of excesses of post-Reagan consumerism. Now the excesses must be purged. The question becomes, how painful will the purge be?
This is my take on the end of the housing equity economy from SW AZ. Would love to hear the opinons of the esteemed members of this blog.
Painful beyond belief. You have two generations now who have been raised on the “want it now, get it now” mentality by parents my age who were no slouches in the entitlement department, yet had to work a lot to get things and now feel guilty that they don’t or didn’t have time for their kids. The others appear to have been raised by wolves or by the TV, I am not sure which is worse.
I was ridiculed at OCR’s blog, for even mentioning the concept of deferred gratification.
That is why the middle class is going, going, gone.
That was one of the key differentiating factors between middle and lower classes the ability to defer gratification like getting a college degree.
Not anymore.
This bust is going to warm the cockles of my heart to teach some humility to the sheeple.
Sunsetbeachguy wrote
“This bust is going to warm the cockles of my heart to teach some humility to the sheeple.”
Warning, however: The sheeple who used their homes as ATM machines and bought SUVs and fancy furniture and newfangled TVs they could not afford - they are a much larger voting bloc than the individuals who saved and lived below their means. We savers will be the ones getting screwed unless we take defensive action. Defensive action means diversifying in tax avoidance and tax deferred strategies, even getting a residence in a foreign country may be a good defensive measure for the wealthier segment of the responsible class.
I still love the “threat” ads for houses. Does this ever actually work? Who is going to hurry up to spend six figures on your house that is not selling b/c you threaten to raise your asking price amidst record inventory?
This offer is for one week only and you cannot find this size home anywhere close to this size for the price. Owners want contract before June 25 or price will go back up to $249500. DON’T MISS OUT ON THIS AWESOME DEAL!!! New Owner should have some equity in home just by buying the home. It has been lived in and taken care of by original owners.
http://phoenix.craigslist.org/rfs/172423888.html
They must have been thin-skinned — the ad’s been withdrawn.
My grandfather, before he died, always stocked up on the things he felt would be most needed in the coming days:
Guns, ammo and toilet paper.
Don’t forget food and water…
I’ve been tracking Woodland Hills (San Fernando Valley in SCAL). At the beginning of February Ziprealty listed 255 houses for sale. As of today there are 453 houses for sale. The only properties selling are those that are priced low and then get reduced even further. Rampant examples of houses sitting for 120 days and then suddenly getting relisted to show that they’re new on the market. Doesn’t seem to trick anyone as they still sit! A lot of these listings expire and then the owners wait a few months and relist.
The WSJ calls them “bears” — I call them my sources. From the bowels of today’s Personal Finance / Money & Investing pages (Bids & Offers / By Clint Riley, page B3). My comments are in parens…
————————————————————————————
A Bear at the House
(Where there should be a photo of Robert Shiller is a photo of a grizzly bear with the caption: “Trendy Animal: Don’t discuss the housing market or emerging-markets stocks with this fella.”)
Yale economist Robert Shiller said Friday the U.S. housing market is in more danger than most people think.
Mr. Shiller is known for his 2000 book, “Irrational Exuberance,” which predicted the bursting of the stock bubble in the 1990s and the coming of a similarly speculative bubble in housing. Speaking at a panel hosted by Standard & Poor’s in New York, Mr. Shiller said the pundits are still “more upbeat than they ought to be” about housing.
Many economists expect the still-booming market to cool slowly rather than burst suddenly. Federal Reserve policy makers, too, have said the housing market is slowing gradually while the underlying fundamentals in the market remain strong. But Mr. Shiller said the market’s fundamentals “are not that strong.” (Whoa! What a boldly bearish remark!)
Mr. Shiller, who’s made a name for himself by studying the behavioral quirks of investors, attributes the rapid rise in home prices the past few years to psychology. Individuals have been enviously trying to emulate the financial successes of their neighbors. Buying based on such psychological factors could end suddenly, Mr. Shiller said. Eventually, “you run out of people” (we call them “greater fools” around here) and the tide turns like a “disease epidemic,” he said.
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Also From the Bears
(There is an actual photo of him, with the caption “Morgan Stanley’s Stephen Roach says when U.S. consumers stop buying, emerging markets stop selling.”)
Morgan Stanley economist Stephen Roach, a longtime bear on the global economy, thinks investors are right to be worried about emerging markets, which sold off heavily recently. Stock markets in Russia, India, and Brazil have tumbled 20% or so over the past five weeks (this is why I like to call them submerging markets; they actually have fallen by more than 20%, but who cares at that point?).
The chief cause for concern about the rest of the world, he writes in a report, is the exhausted American consumer. Mr. Roach suggests that it is “increasingly likely” that the world’s buyers of last resort — American consumers– will slow their consumption. He points to numerous factors, such as mounting debt and the cooling property market (we refer to that as the collapsing real estate bubble around here).
While emerging markets are on sounder economic footing than they were in the 1990s, he says, they “have not succeeded in boosting internal consumption and, as a result, they remain heavily dependent on exports as the sustenance of growth.” When American consumers stop buying, in other words, emerging markets stop selling (and hedge funds dump their stock holdings, which tends to make the emerging markets submerge).
Time will tell if he’s right, though investors have lost a lot of money betting against U.S. consumers in the past (even during housing corrections when the savings rate was negative and household debt was at record levels?? We haven’t had similar conditions since the 1930s, though I realize that anything which happened so long ago is not fair game when discussing how bets turn out…).
Here is yet another tell-tale sign of the crashing bubble in Rancho Bernardo, a bubbleliciously overvalued San Diego neighborhood which may well be ground zero for the SD inventory crash. Apparently a problem has recently returned which was last seen during the early 1990s real estate downturn — a glut of used cars, campers, and boats for sale along public streets. Once housing prices begin decelerating, it sure sucks to have used home equity cashout financing to purchase an expensive car, boat, or camper.
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City street or used car lot? Maienschein working to eliminate problem
By Donna Hartings
June 14, 2006
From autos and SUVs to pickup trucks and motor homes, Rancho Bernardo Road is fast becoming a mile-long strip of used vehicles for sale.
“It’s getting worse and worse,” said Robin Kaufman, president of the RB Community Council. “A couple of weekends ago, I saw a trailer with jet skis on it for sale. Now I’m just waiting for the day when the line (of vehicles) reaches all the way to Albertsons.”
…
In the early 1990s, such vehicles were banned from parking on Bernardo Center Drive after everything from cars to boats to RVs lined the curb from Lomica Drive to the Plaza entrance and beyond.
But Rancho Bernardo’s Traffic and Transportation Committee has a history of effectively dealing with such issues.
Among the solutions available on a case-by-case basis through the city’s Transportation Engineering division are red curbs and time-limit parking signs.
http://www.mylocalnews.com/nws/index.php?/main/content/city_street_or_used_car_lot_maienschein_working_to_eliminate_problem/
I like looking at the used diesel pickups (fuel $3.27/gal) at the park and ride parking lots. It’s amazing to see them asking $25k+ when they already have 100k+ miles.
(Thx again, Patrick…)
NEWS ANALYSIS
By Michael Mandel
JUNE 15, 2006
Bubble, Bubble, Who’s in Trouble?
Worried investors are hunting for safe havens. But with so many bubbles about, it’s anyone’s guess which way to turn
Too many bubbles, too many potential busts—that’s what’s confusing the global financial markets these days. Housing markets are sky-high from Boston to Shanghai. Stock prices in India and Russia have roughly doubled in two years, with emerging markets such as Turkey, Indonesia, and Argentina not far behind. Prices for copper, oil, and aluminum have enjoyed equally outsize gains. The factory and office construction boom in China continues in full swing, creating the potential for massive overcapacity. And then there’s the Houdini of levitating currencies, the U.S. dollar, which many economists fear could tank at any moment because of massive trade deficits.
In this world of bubbles, investors see central banks armed with giant pins they’re prepared to use. The latest U.S. inflation numbers, released on June 13 and 14, came in stronger than economists expected, making it almost inevitable that the Federal Reserve will continue to raise rates. The Bank of Japan and the European Central Bank are tightening monetary policy as well, depriving markets of the low-cost capital that helped fuel the global booms. Traders have reacted since May 11 by bolting from most markets, from U.S. stocks to commodities, emerging markets to gold. “The days of cheap money are coming to an end, and a lot of investors are getting nervous,” says Stephen Gallagher, chief U.S. economist at French investment bank Société Générale.
But for ordinary investors and big institutions trying to place their bets, there’s a big unanswered question: Which bubble or bubbles are going to pop, and which ones will prove sustainable? Will the U.S. be hit the hardest, or China, or commodity markets? If housing prices plunge in the U.S., will the ensuing economic collapse be limited to the U.S. or spread worldwide?
http://www.businessweek.com/bwdaily/dnflash/jun2006/nf20060615_5460_db016.htm
We really hope for the final scenario in that article: That everything settles down and there could be soft landings. I would say several positive signs would do well for equities and real estates, but these are dreams: That worldwide Muslims will spontaneously denounce killings in the name of their religion; that massive oil deposits are discovered in Australia to keep the world going another 300 years (and that includes China and India), that scientists finally harness nuclear fusion power, that there will be cures for the top two diseases (cancer and heart disease). and so on. But I don’t plan for those things.
“I would say several positive signs would do well for equities and real estates, but these are dreams:”
I would say the best hope for equities and real estate are that BB turns out to be a better bubble-blower than his predecessor, and manages to somehow keep blowing them until he has a chance to pass on unimaginably larger global economic imbalances to his successor.
I cant wait till it blows up further to tell all the people to eat it when I was saying that RE was to high (back in 2003).
This one seems to be off the radar: Screech from Saved by the Bell (Dustin Diamond in R/L) bought a house in less-than bubblicious upper Wisconsin and now can’t pay for it.
The story is here: http://www.getdshirts.com/the_story.php
He says he has “shitty credit” and that “During the past years the land around me has developed for the better and my property value went way up. Now that the house is worth a lot more they want it back. Knowing my credit is bad, getting a straight mortgage would take some time. I received a letter stating that I had 30 days to pay $250,000.00 or get out. I was not thrilled.”
So now he’s selling Tshirts to pay off his fat RE bill.
This is what RE has come too…Slap on granite, put in new tiles, price it at over 400,000 and call a house bordering one of the most nortorious neigborhoods in the world an “Incredible 3 bedroom…”, I find it hard to believe that anyone would want to pay over 3,000 a month for this…
http://losangeles.craigslist.org/gtw/rfs/173111429.html
“The master bedroom has its own exit to the backyard.” LOL…for what? An easy escape?