Everyone will want to stay in hotels during a severe recession and office building absorption will be robust when jobs disappear. Makes perfect sense to me.
Actually, I think this number is going to be very light. I have a friend who is an Architect specializing in health care related projects.
Recently a number of projects have been cancelled or delayed. What is getting little press right now is the cost of building materials, especially petroleum based, is skyrocketing and budget are being blown.
[T]he slower economy and tighter lending conditions are now causing [CRE] projects to be deferred, and the loss of momentum will take firmer hold as the year proceeds.
But they'll miss the big economic rebound coming in the second half of 2008.
If you don't need new commercial buildings and the cost of construction is too high to justify rents, why build them? Oh, of course, so they can bust and we can bail them out. How can I forget a story that is told every 10 years or so? I must be tired...
The commercial market in my area hasn't been doing that great. There have been a number of large projects that have stalled due to their inability to secure additional financing.
Anyone think there will be a total breakdown with Mer Morgan and Goldman? They traded pretty well into options expiration. This is never a good thing for a volatile sector. Pump before a Dump?
"Goldman Sachs is close to finalising a plan to restructure a $7bn investment vehicle formerly run by London-based hedge fund Cheyne Capital...The Cheyne restructuring, which has been brokered after nearly 10 months of negotiations, will require the receivers to organise an auction of the Cheyne assets in the coming weeks, to establish a transparent price for these instruments. This is important because in recent months it has often proved impossible to value these murky assets.
Once this price is established, Goldman will then create a new off-balance sheet vehicle to buy the assets..."
Neighbors with median income probably in mid 200K per annum told me they are thinking of getting into the landlord business, purchasing a home because "prices have gotten so cheap that positive cash flow has got to be a slam dunk." (They haven't and it never is) They got the good word from another neighbor who has several units and has them all rented (off Craigslist) with no problems so far (less than three months). I nodded and stared at the sunshine.
Anybody else heard this sort of thing. Possibly, this is the next mania amongst boomers...tech stocks, housing, glod, commodities, and now landlordin' made easy.
If so, home prices might tank later rather than sooner, held up by wannabe landlords who don't know what they are doing, who they are renting to, or the first thing about a rent v. own calculation.
I read a Jane Bryant Quinn comment about how to decide if you are ready to be a landlord and do this sort of thing..., was to ask yourself the following question. Can you bring yourself to evict a nice lady with three young girls who can't/won't pay the rent in the middle of February in Minnesota (our location) when it's snowing and 21 below? Really? REALLY? Because if you aren't sure the answer is "Absofuckinlutely," you are dead meat in the landlord game, and will get played more than an XBox in prison.
When the rest of the country is yinging, Houston as usual is yanging. Commercial RE still is strong with energy boosting the west side, big port projects have supported CRE on the east and SE side, a stabilized Compaq-HP helping the NW side, and the Medical Center boosting the south-inside the loop area. In spite of a strong commercial market, the residential RE market has seen decreased sales and prices in certain markets.
While some people may be interested in doing this, it seems that lenders have already begun to tighten their lending requirements.
Loans on income properties have been historically more difficult to obtain than owner occupied mortgages.
The reason that house prices went up so much recently is because of lenders giving away more capital to homebuyers, which raised the price of house, which caused lenders to have to give out even more money to the next wave, rinse and repeat.
In some cases, individuals have been purchasing investment properties around here claiming owner occupied, but banks are hurting right now and their going to have to go back to being responsible lenders again.
The amount of people that will be able to become landlords in this current market is going to be very small in comparison to the amount of people that were able to buy their first homes in the past few years.
I doubt it will have much of an impact on housing prices.
The people that will be able to afford to do this are hopefully the type with enough disposable income that one household member is at home during the day watching Judge Judy and the other daytime court shows. That sometimes show what trouble being a landlord can be.
Somewhat on topic (CRE): IYR and its arch nemesis SRS look like good -respective- short/buy candidates here, or just above/below here. IYR is just lagging the XHB and XLF downtown; it has a date with its March lows.
Anyone have a sense of how long it takes CRE builders to come in after a previous structure has been knocked down and the land graded by the demolition crew?
I ask because I'm seeing more sites in Seattle where the previous building is torn down and then the land just sits with a fence around it.
And yeah I'm sure it varies, but this is supposedly still a "hot" market... I'd think they'd want to start construction asap.
From what I understand big many commercial real estate projects are financed in phases. Around here, some projects were started when financing was plentiful. Then before building starts, the financing dries up.
That's what I've been seeing around northern nj at least.
Goldman is organizing auctions of SIVs containing toxic real estate related financial instruments. Finally, maybe the banks can (and will be forced to) start marking down assets to their true values.
"But they'll miss the big economic rebound coming in the second half of 2008"
Right! One little problem... any of that $600 congress hail mary pass that hasn't already been spent on goods is probably a little cup of water tossed on the debt bonfire. All gone. Only thing left is deeper hole in the national debt crater.
2nd half is going to be hell with interest rates ratcheting up along with double digit inflation and job losses. The next administration might just lose their capacity to keep the 1-way trade gates wide open, which could make for some additional fireworks.
"Tom writes:
In some cases, individuals have been purchasing investment properties around here claiming owner occupied, but banks are hurting right now and [they're] going to have to go back to being responsible lenders again."
Sorry, but I laughed so hard when I read this that my drink came out of my nose.
I read a Jane Bryant Quinn comment about how to decide if you are ready to be a landlord and do this sort of thing..., was to ask yourself the following question. Can you bring yourself to evict a nice lady with three young girls who can't/won't pay the rent in the middle of February in Minnesota (our location) when it's snowing and 21 below? Really? REALLY? Because if you aren't sure the answer is "Absofuckinlutely," you are dead meat in the landlord game, and will get played more than an XBox in prison.
landlord of the flies | 06.16.08 - 10:56 pm | #
The other question to ask them is...
Do you like unplugging badly plugged plumbing so much you want to do it at more homes than just the one you live in?
And since we're talking Minnesota - what's your opinion about the best way to thaw ice dams so they don't flow back into the house & destroy the sheet rock/plaster? Own enough places & for long enough and they will have an opinion.
Frozen pipes? Broken furnaces? Yard work?
Oh - and paying somebody to do that kind of stuff eats cap rate like a hungry dog grazing droppings at the state fair.
I have a friend who owns something like 8 really old rentals (built circa 1900 to 1930)... He loves to work on them & his schedule is flexible so it works well for him... but he said if he had to pay himself there wouldn't be anything left to call profit... In effect he has two jobs - his regular job & the rental gig... and he had to buy the rental gig! Though the homes are mostly paid for now - he owns the one next to me, rents it & is there working on something maybe once a month.
I think landlording is great for folks who love to fix stuff & don't have have another life. It isn't for everyone.
Recently, the ratio has been coming down. There are news reports of potential buyers trying to close on homes and the banks that prequalified them will no longer honor that.
It's not going to happen overnight but lenders are facing large losses and they're either going to come up with some other scam or they're going to have to return to their previous, more conservative practices.
The local and community banks that kept this position all along, didn't feel the sting that the large commercial lenders did.
Bloomberg reports that Goldman is supposed to show Q2 profit drop off of 32% while Morgan Stanley is expected to see net income fall 59% with commodities picking up the slack for the shops as other areas of business suffer. That's the good news. WSJ's Gaffen note option action in Goldman with volatility plays suggesting that regardless of their reporting there will be significant moves in the underlying With the June "$185 straddle costs $12.10, implying about a 6.7% move. The July $185 straddle costs about $18.70, implying a move of more than 10%."
When I went to the store for milk, Conjure Bag's picture was on the milk cartons.
I stole that one from some other blogger..
And I'm going to start bringing a camera with me on my Portland errands this next week. Now that it stays light, later, I can take pictures of abandoned CRE developments.
On buying: "Now is a good time to buy because prices have come down. Real estate always goes up you know," said with absolutely no awareness of the obvious conflict within the statement.
Leftys Liquors writes:
Yeah I cancelled our expansion plans. So we will carry beer in quart bottles now instead.
Leftys Liquors | 06.17.08 - 12:40 am | #
What about the snowmobile drive through - not shutting that down I hope?
Bill Miller has been called one of the greatest investors in the world. Famed for beating the S&P 500 15 year straight.
He manages the Legg Mason Value Fund (LMVTX). Look it up. It's 10 year return is 4.9%!!!!
Now look at the chart below which is for the life of the fund.
Just think, you'd have been better off in Treasuries! How many millions did he take off the top to manage this?
Now remember, that return is if you went "all in" 10 years ago...Think of your returns if you dollar-cost-average into this in your 401k for your retirement. You lost alot of money having one of the the best investors in the world manage your funds.
The idea that stocks over the long run outperform will be proven a sham.
The run up from the stock market's early days to the present was simply due to the increased demand for stocks, more and more people wanting to buy stocks, culminating in the bull run of the 90's, not due to earnings, but due to the huge influx of investors brought into the market as buyers through the invention of 401k's, Roth's etc and their ever increasing contribution limits.
People weren't sold stocks, they were sold the stock market.
Now we have what never existed before anywhere in the world. The Bloomberg special on the high hidden fees of 401k's this Thursday night, may miss the biggest point of its own story...and that is we have an entire generation of people who accumulated stocks their whole life and are now looking to sell.
The baby boomers didn't have a wave of sellers in thier face before. Their returns have been dismal and that was as good as it was gonna get.
This will be common sense and fully understood in a decade by everyone.
People will tell you that American won't stop growing, it will continually evolve with more computers, processors, whatever.
I say true.
But think of the world in 1950. People were lucky to have a car. Houses were built with one garage.
If in 1950 you could fly into the future to 2008 and see the number of cars on the road, see L.A. gridlock and see 3 car and 4 car garages becoming ubiquitous...you'd run out and buy Ford, GM....and be rich?
Converting single family houses to rentals is usually a poor investment, but it's a pretty good price discovery mechanism. Not quite as good as foreclosure sales, but once you have a few rentals in the neighborhood you have an "observable input" on rental equivalent cap rates. Then -Boom- there go your premiums based on homeownership intangibles.
Of course, the neighbors attribute the dropping values to the undesirable characteristics of the renters personally, but the renters are really just market arbitrageurs, exploiting an inefficiency to get your SFR intangibles at a lower price.
Just goes to show - Level Three valuation isn't for investment banks only.
The idea that stocks over the long run outperform will be proven a sham.
It depends upon how long the run is that you use. If you had bought in the early 1980s you'd still be ahead. And of course it depends upon which stocks. This fund has some big losers in the top ten: UNH, a Buffett purchase, has done badly as has Freddie Mac, etc.
Average Joe: The SP 500 was at 109 on March 5, 1982. Today it is at 1360. That's a 1150% increase. I'd say those returns from stocks are pretty good, wouldn't you?
That GM stock chart is very interesting. Basically between 1964 and 1994 the stock price went nowhere. So apparently GM's heyday was pre-boomer. The surge in the late 1990's was basically the stock market bubble and the big truck craze, and now the company's down below its 1962 level. Amazing...the company's basically been riding its brand name for 44 years.
"Amazing...the company's basically been riding its brand name for 44 years."
It's all about momentum, which is in turn directly affected by mass. GM is like a gigantic ocean liner; it takes a comparatively long time to build up any kind of speed, but once it does it takes a long time to come to a stop, even if the engine stops functioning efficiently and the captain has passed out drunk at the helm. Sort of like the current Republican Party.
...the company's basically been riding its brand name for 44 years
That misses the point. In the real world, profit (or surplus value, as Marx would put it) progressively diminishes. No system continues to throw off profit. The initial profitability of a new system (e.g. the auto industry) declines as "profits" are gradually incorporated into the socio-economic structures.
The concept of buy-and-hold is built on a fundamental misunderstanding. To reap profits, one must catch the early wave of some change that increases productivity.
For example the assembly line, the telegraph, radio, TV, and silicon chip technologies. And myriad other less obvious ones.
As these new productive inputs mature, the profits they once threw off gradually fund a new "higher" standard of living. So profits can no longer be extracted from them.
If we stopped making improvements (breakthroughs, efficiencies, consolidations, etc) in the way we do things, profits would come to a halt. And no one could sit on their asses having tea parties and playing tennis while the dividend checks roll in.
Thre's nothing wrong with GM no longer being profitable. We don't expect our national parks or our government or our mass transit or our schools to be profitable. If it is able to sustain its labor force and pay its bills, that ought to be sufficient.
Thre's nothing wrong with GM no longer being profitable. We don't expect our national parks or our government or our mass transit or our schools to be profitable. If it is able to sustain its labor force and pay its bills, that ought to be sufficient.
unirealist | 06.17.08 - 5:39 am
That is a radical statement on too many levels for me to contemplate. Actually I would call that subversive and heresy! Your name is going to the database.
I read something that has really sttuck in my mind. That exporting grain is exporting water.
"He manages the Legg Mason Value Fund (LMVTX). Look it up. It's 10 year return is 4.9%!!!!"
It's easy to pick a time frame for any investment in which it underperformed. In fact if you compare this fund to SPY, its performance is mediocre, and in fact is downright poor so far this year
You are wrong on dollar cost averaging; it almost always beats a 1-time buy in, because you buy a disproportionate %age of your shares at lower prices. Only if your 1-time buy-in is at a bottom like late 2002 will it beat averaging. And unless you inherit a pile of cash from a rich uncle and throw it all in at once, the ordinary investor will be averaging in anyway.
Besides if I take your arbitrary window, then I'd say houses are a great investment. I don't believe that, but that's what your window says.
The well-off retires that are family friends all have at least 1 of 3 things: 1) great pension, 2) considerable stock holdings by the mid-80's (older people with discretionary savings), and 3) a house they had paid peanuts for, and had appreciated to a whole bag of nuts.
Sadly, we are 0-for-3. Which means that wealth acquisition for younger folks will be facing gale force headwinds for the next several decades.
badger boy: "Sadly, we are 0-for-3. Which means that wealth acquisition for younger folks will be facing gale force headwinds for the next several decades."
The people in that generation didn't constantly spend hundreds of dollars on the latest new technology gadget.
I remember a news story about who some of the millionaires in the US were. They weren't what you would expect. People living in modest homes, that they have long since paid for. They didn't have flat screen tv's in every room, they weren't driving expensive luxury cars. They lived comfortably in their means and built up a large nest egg at a fraction of the salaries in current dollars that some people these days who can't seem to save a dime.
One interesting thing I noticed in some research for a recent blog entry on my site. A 2005 report from HUD on housing affordability showed a break down of home price to income by income group.
The low income group had the highest price to income and the high income group had a much much lower ratio. During the recent housing bubble, they're ratio actually stayed flat. Actually there was a little dip at the end.
The point is that the average high income homeowner lives in a more affordable house in relation to their income vs a low income homeowner. This frees up their income to be invested in other areas that can generate more income. Even if it's just a simple CD, it's better than relying on your home to be your savings.
Lower to middle income Americans should follow suit and only purchase homes that are similarly priced to their income. That is hard to do when the prices rose like they did, but if sellers showed restraint, prices would come down faster in my opion.
GM had 65% of the world market in the mid-60s, too.
They frittered it away 1% at a time believing what everyone really wanted was a defective Cadillac and holding strategy meetings to decide to go with big fins or smaller ones.
Tom-You hit the nail on the head. There's a book that describes this called "The Millionaire Next Door". It's quite accurate. I think there is an updated version, but I don't recall the name. Same conclusion though-Live below your means.
turtle, there was a guy I saw on some panel that wrote a book, not sure if it's the same one. He recommended the same principles. It was a panel put together to discuss american's credit. The rich dad poor dad guy was on it as well as the guy that has a show on A&E that yells at people to make them repair their credit.
Anyway, one of the lines of the guy (wish I was good with names) that wrote a book on living within your means recalled a story of a visit with a family that was having financial problems. The comment he made that stuck in my mind was something like "they have a flat screen tv, I don't even have one." The read between the lines part was that he made more then them but he didn't actually say that.
The Millionaire Next Door is by Stanley & Danko. They are academics and have done some solid research. Their main point is that even very high earners often spend more than they make and have nothing, whereas some more moderate earners have accumulated substantial wealth. I can testify from experience that is very true.
Rich Dad, Poor Dad is a total fraud (he made up the rich dad) who is just pushing his real estate "investment system".
Those of you relying on historical performance of the stock market are missing the point.
Look at Microsoft's chart. What would you have predicted the future would look like say in 1999 for their stock price?
The historical performance of the market is during a time where the absolute number of stock purchasers increased while there was a dearth of sellers.
That has fundamentally changed here and now.
We have had mass participation in stock buying over the last decade. That can't increase much.
We now have a generation of sellers. Something that didn't exist before.
The previous rise of stocks over the last 50 years had as much to do with an increase in demand for stocks as an asset class as it did in the profitability of the companies.
June 17 (Bloomberg) -- Best Buy Co., the largest U.S. electronics retailer, reported first-quarter profit that fell less than analysts estimated after shoppers spent their tax rebate checks on flat-panel televisions and laptop computers.
Everyone will want to stay in hotels during a severe recession and office building absorption will be robust when jobs disappear. Makes perfect sense to me.
Actually, I think this number is going to be very light. I have a friend who is an Architect specializing in health care related projects.
Recently a number of projects have been cancelled or delayed. What is getting little press right now is the cost of building materials, especially petroleum based, is skyrocketing and budget are being blown.
Stay tuned.
CR,
11% sounds pretty big. Some charts would help put it in perspective.
[T]he slower economy and tighter lending conditions are now causing [CRE] projects to be deferred, and the loss of momentum will take firmer hold as the year proceeds.
But they'll miss the big economic rebound coming in the second half of 2008.
just 14 more days and we are in the clear.
If you don't need new commercial buildings and the cost of construction is too high to justify rents, why build them? Oh, of course, so they can bust and we can bail them out. How can I forget a story that is told every 10 years or so? I must be tired...
Tired of idiots with institutional money...
I never get tired of cute puppies, bacon, and jackhammers, though.
The commercial market in my area hasn't been doing that great. There have been a number of large projects that have stalled due to their inability to secure additional financing.
Massive Fort Lee redevelopment project is for sale | New Jersey Real-Time News - - NJ.com
There was one that Trump was involved with in the Meadowlands as well.
Even a couple of years ago, local office building renovations had stalled and some were contemplating the conversion to luxury condos.
Anyone think there will be a total breakdown with Mer Morgan and Goldman? They traded pretty well into options expiration. This is never a good thing for a volatile sector. Pump before a Dump?
Off-topic, news from FT:
"Goldman Sachs is close to finalising a plan to restructure a $7bn investment vehicle formerly run by London-based hedge fund Cheyne Capital...The Cheyne restructuring, which has been brokered after nearly 10 months of negotiations, will require the receivers to organise an auction of the Cheyne assets in the coming weeks, to establish a transparent price for these instruments. This is important because in recent months it has often proved impossible to value these murky assets.
Once this price is established, Goldman will then create a new off-balance sheet vehicle to buy the assets..."
Key phrase: "off-balance sheet". Lipstick, meet pig.
"Anyone think there will be a total breakdown with Mer Morgan and Goldman?"
Don't know but if there is one bunch that deserves it, it's Goldman Suks.
OT:
Neighbors with median income probably in mid 200K per annum told me they are thinking of getting into the landlord business, purchasing a home because "prices have gotten so cheap that positive cash flow has got to be a slam dunk." (They haven't and it never is) They got the good word from another neighbor who has several units and has them all rented (off Craigslist) with no problems so far (less than three months). I nodded and stared at the sunshine.
Anybody else heard this sort of thing. Possibly, this is the next mania amongst boomers...tech stocks, housing, glod, commodities, and now landlordin' made easy.
If so, home prices might tank later rather than sooner, held up by wannabe landlords who don't know what they are doing, who they are renting to, or the first thing about a rent v. own calculation.
I read a Jane Bryant Quinn comment about how to decide if you are ready to be a landlord and do this sort of thing..., was to ask yourself the following question. Can you bring yourself to evict a nice lady with three young girls who can't/won't pay the rent in the middle of February in Minnesota (our location) when it's snowing and 21 below? Really? REALLY? Because if you aren't sure the answer is "Absofuckinlutely," you are dead meat in the landlord game, and will get played more than an XBox in prison.
When the rest of the country is yinging, Houston as usual is yanging. Commercial RE still is strong with energy boosting the west side, big port projects have supported CRE on the east and SE side, a stabilized Compaq-HP helping the NW side, and the Medical Center boosting the south-inside the loop area. In spite of a strong commercial market, the residential RE market has seen decreased sales and prices in certain markets.
lotf:
While some people may be interested in doing this, it seems that lenders have already begun to tighten their lending requirements.
Loans on income properties have been historically more difficult to obtain than owner occupied mortgages.
The reason that house prices went up so much recently is because of lenders giving away more capital to homebuyers, which raised the price of house, which caused lenders to have to give out even more money to the next wave, rinse and repeat.
In some cases, individuals have been purchasing investment properties around here claiming owner occupied, but banks are hurting right now and their going to have to go back to being responsible lenders again.
The amount of people that will be able to become landlords in this current market is going to be very small in comparison to the amount of people that were able to buy their first homes in the past few years.
I doubt it will have much of an impact on housing prices.
The people that will be able to afford to do this are hopefully the type with enough disposable income that one household member is at home during the day watching Judge Judy and the other daytime court shows. That sometimes show what trouble being a landlord can be.
Somewhat on topic (CRE): IYR and its arch nemesis SRS look like good -respective- short/buy candidates here, or just above/below here. IYR is just lagging the XHB and XLF downtown; it has a date with its March lows.
Anyone have a sense of how long it takes CRE builders to come in after a previous structure has been knocked down and the land graded by the demolition crew?
I ask because I'm seeing more sites in Seattle where the previous building is torn down and then the land just sits with a fence around it.
And yeah I'm sure it varies, but this is supposedly still a "hot" market... I'd think they'd want to start construction asap.
xanadu (if structured the way I think it is) will put the Mills company into liquidation just to get it finished ad pawned off to somebody else.
tranches,
From what I understand big many commercial real estate projects are financed in phases. Around here, some projects were started when financing was plentiful. Then before building starts, the financing dries up.
That's what I've been seeing around northern nj at least.
CR,
Goldman is organizing auctions of SIVs containing toxic real estate related financial instruments. Finally, maybe the banks can (and will be forced to) start marking down assets to their true values.
See:
Goldman deal could point way for SIVs
news from FT:
Thanks Tom. I just started paying attention to such things, so hard to judge what is "normal" and what might be a credit crisis-related issue.
"But they'll miss the big economic rebound coming in the second half of 2008"
Right! One little problem... any of that $600 congress hail mary pass that hasn't already been spent on goods is probably a little cup of water tossed on the debt bonfire. All gone. Only thing left is deeper hole in the national debt crater.
2nd half is going to be hell with interest rates ratcheting up along with double digit inflation and job losses. The next administration might just lose their capacity to keep the 1-way trade gates wide open, which could make for some additional fireworks.
"Goldman deal could point way for SIVs"
Good riddance. Let them rot in hell. All the IBs are nothing but parasites.
"Tom writes:
In some cases, individuals have been purchasing investment properties around here claiming owner occupied, but banks are hurting right now and [they're] going to have to go back to being responsible lenders again."
Sorry, but I laughed so hard when I read this that my drink came out of my nose.
Man, I love good sarcasm.
I read a Jane Bryant Quinn comment about how to decide if you are ready to be a landlord and do this sort of thing..., was to ask yourself the following question. Can you bring yourself to evict a nice lady with three young girls who can't/won't pay the rent in the middle of February in Minnesota (our location) when it's snowing and 21 below? Really? REALLY? Because if you aren't sure the answer is "Absofuckinlutely," you are dead meat in the landlord game, and will get played more than an XBox in prison.
landlord of the flies | 06.16.08 - 10:56 pm | #
The other question to ask them is...
Do you like unplugging badly plugged plumbing so much you want to do it at more homes than just the one you live in?
And since we're talking Minnesota - what's your opinion about the best way to thaw ice dams so they don't flow back into the house & destroy the sheet rock/plaster? Own enough places & for long enough and they will have an opinion.
Frozen pipes? Broken furnaces? Yard work?
Oh - and paying somebody to do that kind of stuff eats cap rate like a hungry dog grazing droppings at the state fair.
I have a friend who owns something like 8 really old rentals (built circa 1900 to 1930)... He loves to work on them & his schedule is flexible so it works well for him... but he said if he had to pay himself there wouldn't be anything left to call profit... In effect he has two jobs - his regular job & the rental gig... and he had to buy the rental gig! Though the homes are mostly paid for now - he owns the one next to me, rents it & is there working on something maybe once a month.
I think landlording is great for folks who love to fix stuff & don't have have another life. It isn't for everyone.
bond guy:
It's already happening. Here in Bergen County, the median house price to income ratio jumped up to over 5.5. Nationwide it was up to over 4.5 from a pretty steady 3.0 for almost 20 years.
Recently, the ratio has been coming down. There are news reports of potential buyers trying to close on homes and the banks that prequalified them will no longer honor that.
It's not going to happen overnight but lenders are facing large losses and they're either going to come up with some other scam or they're going to have to return to their previous, more conservative practices.
The local and community banks that kept this position all along, didn't feel the sting that the large commercial lenders did.
Pardon me, but is Tanta missing?
Bloomberg reports that Goldman is supposed to show Q2 profit drop off of 32% while Morgan Stanley is expected to see net income fall 59% with commodities picking up the slack for the shops as other areas of business suffer. That's the good news. WSJ's Gaffen note option action in Goldman with volatility plays suggesting that regardless of their reporting there will be significant moves in the underlying With the June "$185 straddle costs $12.10, implying about a 6.7% move. The July $185 straddle costs about $18.70, implying a move of more than 10%."
It's not just Tanta.
When I went to the store for milk, Conjure Bag's picture was on the milk cartons.
I stole that one from some other blogger..
And I'm going to start bringing a camera with me on my Portland errands this next week. Now that it stays light, later, I can take pictures of abandoned CRE developments.
Yeah I cancelled our expansion plans. So we will carry beer in quart bottles now instead.
Conjure Bag and Tanta?
Who woulda thought?
On buying: "Now is a good time to buy because prices have come down. Real estate always goes up you know," said with absolutely no awareness of the obvious conflict within the statement.
I was never really sure that "she" existed but the milk carton sightings may explain part of this?
Leftys Liquors writes:
Yeah I cancelled our expansion plans. So we will carry beer in quart bottles now instead.
Leftys Liquors | 06.17.08 - 12:40 am | #
What about the snowmobile drive through - not shutting that down I hope?
CR may be on realestate but I will be OT.
Bill Miller has been called one of the greatest investors in the world. Famed for beating the S&P 500 15 year straight.
He manages the Legg Mason Value Fund (LMVTX). Look it up. It's 10 year return is 4.9%!!!!
Now look at the chart below which is for the life of the fund.
Just think, you'd have been better off in Treasuries! How many millions did he take off the top to manage this?
Now remember, that return is if you went "all in" 10 years ago...Think of your returns if you dollar-cost-average into this in your 401k for your retirement. You lost alot of money having one of the the best investors in the world manage your funds.
The idea that stocks over the long run outperform will be proven a sham.
The run up from the stock market's early days to the present was simply due to the increased demand for stocks, more and more people wanting to buy stocks, culminating in the bull run of the 90's, not due to earnings, but due to the huge influx of investors brought into the market as buyers through the invention of 401k's, Roth's etc and their ever increasing contribution limits.
People weren't sold stocks, they were sold the stock market.
Now we have what never existed before anywhere in the world. The Bloomberg special on the high hidden fees of 401k's this Thursday night, may miss the biggest point of its own story...and that is we have an entire generation of people who accumulated stocks their whole life and are now looking to sell.
The baby boomers didn't have a wave of sellers in thier face before. Their returns have been dismal and that was as good as it was gonna get.
This will be common sense and fully understood in a decade by everyone.
LEGG MASON CAPITAL MANAGEMENT V Fund Chart - Yahoo! Finance
P.S.
People will tell you that American won't stop growing, it will continually evolve with more computers, processors, whatever.
I say true.
But think of the world in 1950. People were lucky to have a car. Houses were built with one garage.
If in 1950 you could fly into the future to 2008 and see the number of cars on the road, see L.A. gridlock and see 3 car and 4 car garages becoming ubiquitous...you'd run out and buy Ford, GM....and be rich?
Here is a link to GM's stock chart.
Chart | GM - Yahoo! Finance
It's trading today at lower prices than it did in the 60's!
Joe, the liabilities at the big three have eaten all the equity. Just like in American homes.
Is it possible for CR to do a story on Tanta?
Converting single family houses to rentals is usually a poor investment, but it's a pretty good price discovery mechanism. Not quite as good as foreclosure sales, but once you have a few rentals in the neighborhood you have an "observable input" on rental equivalent cap rates. Then -Boom- there go your premiums based on homeownership intangibles.
Of course, the neighbors attribute the dropping values to the undesirable characteristics of the renters personally, but the renters are really just market arbitrageurs, exploiting an inefficiency to get your SFR intangibles at a lower price.
Just goes to show - Level Three valuation isn't for investment banks only.
We should be thankful whenever Tanta feels good enough to post. I wish her the very best.
The idea that stocks over the long run outperform will be proven a sham.
It depends upon how long the run is that you use. If you had bought in the early 1980s you'd still be ahead. And of course it depends upon which stocks. This fund has some big losers in the top ten: UNH, a Buffett purchase, has done badly as has Freddie Mac, etc.
Between Dryfly bagging on being a landlord and Avg Joe's take on the stock market and everyone worried about Tanta,...you guys are a barrel of fun.
Hazard writes:
Conjure Bag and Tanta?
Who woulda thought?
Ahh, excuse me I am trying to get drunk and your making it very difficult.
What RE said...
Average Joe: The SP 500 was at 109 on March 5, 1982. Today it is at 1360. That's a 1150% increase. I'd say those returns from stocks are pretty good, wouldn't you?
That GM stock chart is very interesting. Basically between 1964 and 1994 the stock price went nowhere. So apparently GM's heyday was pre-boomer. The surge in the late 1990's was basically the stock market bubble and the big truck craze, and now the company's down below its 1962 level. Amazing...the company's basically been riding its brand name for 44 years.
"Amazing...the company's basically been riding its brand name for 44 years."
It's all about momentum, which is in turn directly affected by mass. GM is like a gigantic ocean liner; it takes a comparatively long time to build up any kind of speed, but once it does it takes a long time to come to a stop, even if the engine stops functioning efficiently and the captain has passed out drunk at the helm. Sort of like the current Republican Party.
Yossarian- "When I went to the store for milk, Conjure Bag's picture was on the milk cartons."
Let me assure you, Conjure Bag is not among the missing. In fact, he is at the computer next to mine watching Scrooge McDuck videos.
mp:
Thank god (or any hairy thunderer).
Now I can go back to sleep, knowing all is right with the world.
Does cb still hold his 'bottom' call on financials?
...the company's basically been riding its brand name for 44 years
That misses the point. In the real world, profit (or surplus value, as Marx would put it) progressively diminishes. No system continues to throw off profit. The initial profitability of a new system (e.g. the auto industry) declines as "profits" are gradually incorporated into the socio-economic structures.
The concept of buy-and-hold is built on a fundamental misunderstanding. To reap profits, one must catch the early wave of some change that increases productivity.
For example the assembly line, the telegraph, radio, TV, and silicon chip technologies. And myriad other less obvious ones.
As these new productive inputs mature, the profits they once threw off gradually fund a new "higher" standard of living. So profits can no longer be extracted from them.
If we stopped making improvements (breakthroughs, efficiencies, consolidations, etc) in the way we do things, profits would come to a halt. And no one could sit on their asses having tea parties and playing tennis while the dividend checks roll in.
Thre's nothing wrong with GM no longer being profitable. We don't expect our national parks or our government or our mass transit or our schools to be profitable. If it is able to sustain its labor force and pay its bills, that ought to be sufficient.
Thre's nothing wrong with GM no longer being profitable. We don't expect our national parks or our government or our mass transit or our schools to be profitable. If it is able to sustain its labor force and pay its bills, that ought to be sufficient.
unirealist | 06.17.08 - 5:39 am
That is a radical statement on too many levels for me to contemplate. Actually I would call that subversive and heresy! Your name is going to the database.
I read something that has really sttuck in my mind. That exporting grain is exporting water.
The SP 500 was at 109 on March 5, 1982. Today it is at 1360. That's a 1150% increase. I'd say those returns from stocks are pretty good, wouldn't you?
Try cherry picking another time window ... how 'bout 1960-1980? Not so great.
"He manages the Legg Mason Value Fund (LMVTX). Look it up. It's 10 year return is 4.9%!!!!"
It's easy to pick a time frame for any investment in which it underperformed. In fact if you compare this fund to SPY, its performance is mediocre, and in fact is downright poor so far this year
LEGG MASON CAPITAL MANAGEMENT V Fund Chart - Yahoo! Finance
You are wrong on dollar cost averaging; it almost always beats a 1-time buy in, because you buy a disproportionate %age of your shares at lower prices. Only if your 1-time buy-in is at a bottom like late 2002 will it beat averaging. And unless you inherit a pile of cash from a rich uncle and throw it all in at once, the ordinary investor will be averaging in anyway.
Besides if I take your arbitrary window, then I'd say houses are a great investment. I don't believe that, but that's what your window says.
the blog is becoming more literary and I'm learning many new things:
"hungry dog grazing droppings at the state fair."
"will get played more than an XBox in prison."
turtle, for a long time he kept up with or beat the S&P. For a lot of mutual funds that's not bad!
I need to find some better funds.
Speaking of CRE, Trump still has not finished his tower in Chicago...will the top remain unfinished for years?
kett,
The Backcombed One accepts fees for the association of his name with flashy new buildings.
Average Joe,
The well-off retires that are family friends all have at least 1 of 3 things: 1) great pension, 2) considerable stock holdings by the mid-80's (older people with discretionary savings), and 3) a house they had paid peanuts for, and had appreciated to a whole bag of nuts.
Sadly, we are 0-for-3. Which means that wealth acquisition for younger folks will be facing gale force headwinds for the next several decades.
badger boy: "Sadly, we are 0-for-3. Which means that wealth acquisition for younger folks will be facing gale force headwinds for the next several decades."
The people in that generation didn't constantly spend hundreds of dollars on the latest new technology gadget.
I remember a news story about who some of the millionaires in the US were. They weren't what you would expect. People living in modest homes, that they have long since paid for. They didn't have flat screen tv's in every room, they weren't driving expensive luxury cars. They lived comfortably in their means and built up a large nest egg at a fraction of the salaries in current dollars that some people these days who can't seem to save a dime.
One interesting thing I noticed in some research for a recent blog entry on my site. A 2005 report from HUD on housing affordability showed a break down of home price to income by income group.
The low income group had the highest price to income and the high income group had a much much lower ratio. During the recent housing bubble, they're ratio actually stayed flat. Actually there was a little dip at the end.
The point is that the average high income homeowner lives in a more affordable house in relation to their income vs a low income homeowner. This frees up their income to be invested in other areas that can generate more income. Even if it's just a simple CD, it's better than relying on your home to be your savings.
Lower to middle income Americans should follow suit and only purchase homes that are similarly priced to their income. That is hard to do when the prices rose like they did, but if sellers showed restraint, prices would come down faster in my opion.
GM had 65% of the world market in the mid-60s, too.
They frittered it away 1% at a time believing what everyone really wanted was a defective Cadillac and holding strategy meetings to decide to go with big fins or smaller ones.
Tom-You hit the nail on the head. There's a book that describes this called "The Millionaire Next Door". It's quite accurate. I think there is an updated version, but I don't recall the name. Same conclusion though-Live below your means.
PPI 7% - yoy. No inflation, move along
turtle, there was a guy I saw on some panel that wrote a book, not sure if it's the same one. He recommended the same principles. It was a panel put together to discuss american's credit. The rich dad poor dad guy was on it as well as the guy that has a show on A&E that yells at people to make them repair their credit.
Anyway, one of the lines of the guy (wish I was good with names) that wrote a book on living within your means recalled a story of a visit with a family that was having financial problems. The comment he made that stuck in my mind was something like "they have a flat screen tv, I don't even have one." The read between the lines part was that he made more then them but he didn't actually say that.
The Millionaire Next Door is by Stanley & Danko. They are academics and have done some solid research. Their main point is that even very high earners often spend more than they make and have nothing, whereas some more moderate earners have accumulated substantial wealth. I can testify from experience that is very true.
Rich Dad, Poor Dad is a total fraud (he made up the rich dad) who is just pushing his real estate "investment system".
Those of you relying on historical performance of the stock market are missing the point.
Look at Microsoft's chart. What would you have predicted the future would look like say in 1999 for their stock price?
The historical performance of the market is during a time where the absolute number of stock purchasers increased while there was a dearth of sellers.
That has fundamentally changed here and now.
We have had mass participation in stock buying over the last decade. That can't increase much.
We now have a generation of sellers. Something that didn't exist before.
The previous rise of stocks over the last 50 years had as much to do with an increase in demand for stocks as an asset class as it did in the profitability of the companies.
So much for the Millionaire Next Door...
June 17 (Bloomberg) -- Best Buy Co., the largest U.S. electronics retailer, reported first-quarter profit that fell less than analysts estimated after shoppers spent their tax rebate checks on flat-panel televisions and laptop computers.
Hey...get those TVs while you can!