As suggested housing themes go, what about the myth? of the walk away? Do you see ruthless defaults noticeably accelerating? I do! It's the warm-up round to the discredit phase of a financial mania.
"Circuit City Stores Inc., the struggling electronics retailer that is in the midst of a strategic review, has put on hold the completion of a $45 million distribution facility near Scranton, Pa.
"Plans have evolved," a company spokesman said, adding that management "decided to step back and take a look at it."
The 1.3 million-square-foot facility in Covington Township was slated to employ more than 300 workers and begin operations later this year, replacing facilities in Brandywine, Md., and Bethlehem, Pa."
Why isn't CC spending this $45 million? Maybe because it would be seriously dilutive to common shareholders. Stock is down to $1.80.
My theme: the disappearing homebuyer. No move-up buyers are created when a foreclosure/short sale/unprofitable sale occurs.
Down payment requirements and higher loan standards lower the number of first time buyers, especially those entering for the first time at higher price levels. Existing homeowners, even if they could profitably sell and move up put it off since they "aren't going to sell in this market"
Where are the buyers going to come from to pick up all the $600k+ homes coming on the market?
Re: "istorically, during housing busts, existing home prices fall for 5 to 7 years - so I'd expect to start looking for the bottom in the bubble areas in 2010 to 2012 or so. "
So, the recovery curve is not a parabolic spike upwards that will happen before XMAS? Huh.. I guess that could be a question, but the point is well taken.
hopeinsd: there are none. My favorite flawed analogy is the floating factory fisheries - the Alt-A loans sucked in all the hatchlings with 0-down and NINJA hooks. Now there are no more little fish to buy the low end. So no move up buyers.
Which, of course, means that $600k is sinking towards $300k.
Thank you for the housing themes, because I have been asking and not getting answers to the question of why there is so much construction going on Chicago's northside.
In the last three weeks I have seen at least a half of dozen buildings torn down to make way for the monstrous pile of bricks that typically replaces older buildings.
And this occurs in areas where the three flat with a ground-level storefront are only partially sold and occupied.
There is a building in my old neighborhood that was build with 24 units, the last time I rode by, I checked the door bell directory, only 2 tenants were in the entire building.
Any insights? Because I can't figure it out except that builders have to keep building, that's what they know.
And I'm not mentioning the half a dozen cranes on high rises you see on the train ride from north to the downtown area.
Vanguard said in a regulatory filing that customers have recently withdrawn "significant" deposits and that, "conditions and events cast significant doubt on our ability to continue as a going concern.
Vineyard said it is seeking a waiver from the FDIC to raise new funds via brokered deposits, and if it doesn't get it, it won't be able to raise money that way
[snip]
Told you this was their lifeline!
Oh yea get this (A Bank run?) (Heh Shelia its your fault, your actions create uncertianty)
"Negative publicity relating to our financial results and the financial results of other financial institutions, together with the seizure of IndyMac Bank by federal regulators in July 2008, has caused a significant amount of customer deposit withdrawals, thus affecting our liquidity and our ability to meet our obligations as they have come due"
Last month, Congress and President George W. Bush pushed through emergency legislation authorizing Treasury Sec. Henry Paulson to supply federal cash infusions of up to $300 billion to the mortgage giants, in almost any form he chooses. Mortgage Giants Need Dose of Reality « The Washington Independent
There is a growing consensus that prices will fall by another 15 percent or so. The projections made by Fannie and Freddie economists, though they use different market indices, anticipate proportionally that level of decline -- bottoming out toward the end of 2009.
A cold-eyed view of Fannie and Freddie suggests that theyve long since outlived their usefulness. This is a country with low personal savings, extraordinarily wasteful consumption habits and big deficits in pensions, health care, roads and airports. Yet the new housing bill raises their permissible guarantee ceiling from $417,000 to $729,750 -- as if bigger houses were a national priority.
Lona,
That will provide some financing under a soon to be 95% plus of the market.
Multimillion dollar houses will become a thing of the past as the wealth evaporates.
Or the leverage.
Now the spec builders will have to eat their own cooking, as nowhere near enough rich folks are being generated in this downturn.
The part I find interesting is that there is still a lot of investors out there buying foreclosures and attempting to flip them. What happens when they can no longer flip them fast enough? The beginning of courthouse steps discounting by mortgage holders would seem to imperil their investment and finance model;-} Lol- nothing but hope.
I think we may be seeing some signals of deflation here that are part of a liquidity trap, and as more cash comes out of the woodwork to buy into stupid fast trends, then obviously, these suckers are gonna burn cash. The housing game is obvious IMHO, because prices are still too high in many places, and even though class structures are fragmenting, i.e, baby boomers, displaced foreclosure households, unemployed people are reshaping the economy -- what engine will drive future growth and thus future value?
Two things I will watch are dividends and then employment trends, both of which fuel future value, thus where will future cash come from, which will be able to sustain or push up the value of a McMansion? There are a fair amount of baby boomers, but if dividends and yields and cash flow slow, they will have less play money and they will spend less and the economy will not grow jobs. You can't keep raising a dividend without higher sales, but as I know, you can buy back shares and increase option grants, manage EPS, but dilute shareholders in the process -- so somethings gonna give, and there is no driver!
Nemo, dk, CR likes to use nominal because it is so widely reported and avoids the GDP deflator arguments that arise when you try to figure out the true rate of inflation.
At some point in time the house prices from 2005 will be exceeded in nominal terms, however, in real terms that day may never again happen.
Contemplate the differences between fiat and partially backed currencies.
Nemo, dk, CR likes to use nominal because it is so widely reported and avoids the GDP deflator arguments that arise when you try to figure out the true rate of inflation.
I understand, but I thought the way everyone tries to "guess" where the price declines end is by looking at historical ratios like price/income or price/rent, where inflation affects both numerator and denominator.
So I would expect such projections to give an answer in real terms, with the nominal price decline dependent on the (very hard to predict) future inflation. Put another way, I would expect predictions of the form "30% from peak in real terms, which might mean a 30% nominal decline or a 15% decline with 15% inflation", etc.
Forecasting nominal price declines just strikes me as much harder, given the uncertainty about the inflation outlook. So I am curious about CR's reasoning here.
I never did get a reply from my question, which is;
Why is Blackrock liquidating Bear Assets for JPM?
Anyone? I know, I know cash and debt -- but the mechanics of this confuse me, so any help appreciated.
In my example late last night, I suggested Bear is like a house built with asbestos, which JPM was forced to buy as part of a blackmail deal, where JPM looks as if they have a Bear house worth $30 B; along comes The Fed/Treasury and says, yah, the Bear House is worth $30B and we don't care about the asbestos, so we gonna lend you $29B, if you go along with this scam, cause if you don't, your gonna burn more than a billion and you'll be next, cause we have evidence that connects you to some shit we can't discuss ... blah, blah .... and then, like magic, the deal is struck before the clock strikes midnight and poof, we have an illegal merger that violates anti trust law -- cause no one else had the same deal and since it was kinda rushed through over a few hours -- well, that was grounds for a breech of contract right there, with what I would call duress.
So anyway, The Bear House is sold and they all claim it's worth $30B, but then they bring in Blackrock to manage $30B of imaginary asbestos bullshit
So, I wanna know, why is a third party brought in to liquidate The Bear House assets, when The Bear House was worthless?
I went on to post some crap about Fraudulent Conveyances, etc ... and obviously, while under duress, no one did any DD. This is fraud! WTF is going on and where did DOJ crawl to? Where is FTC and where is FBI and how is this still going on without an investigation?
NEW YORK -(Dow Jones)- Citigroup Inc. (C) is attempting to raise up to $3 billion in the investment-grade corporate debt
Barley | 08.12.08 - 4:36 pm | #
Investment Grade? yeah right, on the other hand, C is in the too big to fail camp, so Uncle Sam will bail out the bondholders I guess. W/O the too big to fail doctrine, they would be a B credit at best.
Any insights? Because I can't figure it out except that builders have to keep building, that's what they know.
And I'm not mentioning the half a dozen cranes on high rises you see on the train ride from north to the downtown area.
Spiv | Homepage | 08.12.08 - 4:43 pm | #
Hope they keep building, I want to be able to buy a 1000 Sq ft condo in East Lake View or Lincoln Park for under $100K. Based on my current rent of $1,150 I figure the current rational price would be about $138K, (120x monthly rent) but a lil panic and overshoot to the downside and maybe it will happen.
For what it's worth, I'd like to provide evidence, albeit anecdotal, that points both ways on the prospects for housing. My family recently inherited a mortgage-free 4BR, 3Ba fixer-up in a desirable semi-luxury development the SF Bay area with a nice mountain view. At the peak it was worth 1.4M, and now it would be salable closer to 1.1M. However, because it has problems and needs about $200-300K other work, we have reduced the asking price to well under $1M. The traffic has been amazing -- we got over a 100 visitors, mostly builders but also private individuals, all looking for a spec house to flip after a bit of repair work. Apparently, the dream of making a nice quick profit through residential real estate is still very much alive -- the enthusiasm among visitors was palpable. Now, of course, there is another side. We have not had any acceptable offers. Yes, we could lower the price to $600K and sell it in a heartbeat. But why would we want to do that? Where can we get a better potential return in the current environment than holding on to my houser? My money market fund is paying 2.2%; my stocks are down 11%, and even my muni fund lost 3% in March. On the other hand, if the housing market rebounds in the Bay area within two or three years, not a given, but certainly possible, I'd be looking at $900K, maybe more. If other home owners are looking at things the way I am, which seems likely, we may be in a buyer vs seller standoff that will last for quite a while.
Lona writes:
I never did get a reply from my question, which is;
Why is Blackrock liquidating Bear Assets for JPM? Because Blackrock can sell it or manage it just like the $200 billion they already manage
Anyone? I know, I know cash and debt -- but the mechanics of this confuse me, so any help appreciated.
In my example late last night, I suggested Bear is like a house built with asbestos, which JPM was forced to buy as part of a blackmail deal, where JPM looks as if they have a Bear house worth $30 B; along comes The Fed/Treasury and says, yah, the Bear House is worth $30B and we don't care about the asbestos, so we gonna lend you $29B, if you go along with this scam, cause if you don't, your gonna burn more than a billion and you'll be next, cause we have evidence that connects you to some shit we can't discuss ... blah, blah .... and then, like magic, the deal is struck before the clock strikes midnight and poof, we have an illegal merger that violates anti trust law -- cause no one else had the same deal and since it was kinda rushed through over a few hours -- well, that was grounds for a breech of contract right there, with what I would call duress. Duress, but JPM got the parts it also wanted dirt cheap with that Fed free money backstop in place- can you say loan it to me at 2%, plus soak any losses?
So anyway, The Bear House is sold and they all claim it's worth $30B, but then they bring in Blackrock to manage $30B of imaginary asbestos bullshit
So, I wanna know, why is a third party brought in to liquidate The Bear House assets, when The Bear House was worthless? Because they are not worthless, just worth less than $30 billion at this point in time. Bear ran out of cash and had no access to the Fed discount window- they probably were worth more than the $10 a share they got, but not if they liquidated immediately- plus the Fed could not allow the derivative mess that Bear had to go nuclear- Herstatt risk - look it up.
I went on to post some crap about Fraudulent Conveyances, etc ... and obviously, while under duress, no one did any DD. This is fraud! WTF is going on and where did DOJ crawl to? Where is FTC and where is FBI and how is this still going on without an investigation? Are you kidding? Bear was going to file Chapter 11! This is done all the time in this country- it is called buying distressed assets- obviously you don't check out the bid/offer at the local pawn shops- it might be instructive;-}
Three ways to buy assets- death, divorce, and destitution. Ask your local relitter;-}
these are low end areas with high foreclosure rates and high demand for housing
This describes Denver to a T -- and it probably also describes why there has been a pretty marked increase in home prices over the past 4-5 months (more than can be explained by seasonal factors).
WTF if a person owned a collector car, and that car was on fire. Imagine a divorce, where a wife sets the hubbies toy on fire. One person may see a car on fire and another may see opportunity. However, if the sale of this car occurs while the car is on fire, then obviously DD is not an issue, thus fire sales often are under duress.
A collector car on fire may have insurance, it may still be intact enough to salvage, but without understanding its previous condition, you would have to guess what it was worth and then guess as to what it may be worth, after you guess as to how much it will cost to restore it.
Thus, enter Blackrock as a restoration agent that has a car said to be worth $30B today, which will be worth $30B in the future, plus interest. Although we don't know the exact nature of the restoration, we are to assume that the assumed value of $30B is something that can be resold for more than $30B plus the restoration costs and mang fees, plus interest.
SAS 82 says an auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.
Where is an audit in this Bear Bailout deal? Did Waxman get what he wanted?
Nah, just think of Balckrock as the loan servicer.
They don't care about the value of the manure, just have to keep track of it. Sell it when they can get some acceptable portion of value for it, but hey, it is just another bond portfolio. They could have just as easily hired Pimco.
Audits occur after the fact.
Waaay after the fact.
Nobody is going to audit the carcas of BSC independently, they are going to audit the new parts of JPM after the end of JPM's fiscal year.
Audits are a snapshot of a company at a certain moment. For instance an auditor signed off on Bear's last audit, before they had their liquidity crisis. I am sure there was no going concern letter, but the standard "conditions may change" boilerplate was there, and lo and behold, conditions changed.
In other words, highly leveraged entities may go broke at any given moment in time, and we, the auditors, are not very surprised.
You sound sort of surprised at this- Bear is not Enron with deliberate fraud in the accounting (at least not yet!).
hey guys! can you come up with some numbers?
1. 2nd mortgage loans
2. helocs
3. percent of non performing that had 1 or more refis taken out on the way up.
4. i've seen the cc balances outstanding (1trn) and about twice that of open lines. is this true? and how much is securitized?
5. when does the 2nd q mew # come out?
6. outstanding opt-arms? by state?
7. auto loans outstandin? and how much securitized?
8. junk bond issuance in the last 3-4 years. are some segments showing greater tendency to default than others?
anyway i love you guys, just great stuff and on another level from the drivel i have to read in the nyt, wsj, etc every day. keep up the good work! oh yeah, any ideas where the next hole in the dike is going to show up? c? cds? repo market?
As a result of the foregoing summary of the federal legislation, it is our view that any loan made to the Chrysler Corporation by the Missouri State Employees' Retirement System would be authorized only if the federal government waives its priority as to assets of the Chrysler Corporation in the event of its default.
Thus what if we say:
As a result of the foregoing summary of the federal legislation, it is our view that any loan made to JPM would be authorized only if the federal government waives its priority as to assets of Bear Sterns in the event of its default.
Re: CONCLUSION
It is the opinion of this office with respect to the question concerning a loan of funds of the Missouri State Employees' Retirement System to the Chrysler Corporation to be secured by land in the state of Michigan that:
Section 379.080 RSMo authorizes a loan by the Retirement System secured by improved unencumbered real estate worth at least two times the amount of the loan;
Section 376.300 RSMo, Senate Bill 322, 80th General Assembly authorizes a loan by the Retirement System not exceeding one percent of the system's assets and not more than 75% of the fair market value of the unencumbered real estate;
The prudent man rule is applicable to the Board of Trustees of the Retirement System acting under either of the above sections.
Oh yes, this is good and probably is OT here (LOL):
As to conflicting guidance from history, governmental flirtations with the too big to fail policy are intermittent. Government willingly bought into the bailout business in the 1970s and 1980s; then this habit dissipated in the early 1990s when Congress restricted the policy for banks. Then again, the government orchestrated a bailout of Long Term Capital Management (LTCM) in 1998. While the government refrained from preserving Arthur Andersen in 2002, many market participants and some policymakers later questioned this reticence. Whether related to that criticism or not, in 2005 the government refrained from prosecuting a criminal indictment against KPMG although there was no question about the firms guilt.
See, e.g., GAO, Study on Auditing Industry Consolidation, supra note 2, at 19R(It is unclear whether and to what extent the Antitrust Division was consulted and to what extent DOJs Antitrust Division had input into the decision to criminally indict [Arthur]Andersen.); The Future of Auditing: Called to Account, supra note 12, at 72 (Almost everyone agrees that [Arthur] Andersens collapse made the financial system more vulnerable.
Guess who runs the FASB now??? Go look>>> go on....
In many/most markets housing sales have been substantially ahead of housing starts for many months now - that is why inventories are dropping
Yet starts are still falling or at best stationary
When you have a sales pace 20+% ahead of starts its a great help in reducing inventory - and the thing may miss or ignore is that builders right now are largely not starting anything new and are not likely to until a substantial several month bottom appears
During that time though the sales activity is likely to continue at the same pace - which will leave a gap where inventory will very likely be short - which should jumpstart a price increase - which should bump the fence sitters off the fence and into the market hoping not to miss the bottom
I think its very possible and even likely we will see a strong increase in both prices and sales when we hit, and overshoot, the bottom - will probably level some but think there is a good chance this could provide some momentum for recovery
The other thing I think fell by the wayside in the housing frenzy of last few years are the investment basics of buying a home
People never used to expect to make a killing - or a profit at all - if they sold in first 3 or 4 yrs - the expectation was a home was a long term investment ... and with that mindset except for homes purchased in a few narrow windows homes have been good long term investments and will continue to be
The other thing often seems forgotten is the benefit of leverage in a home purchase
Today we hear things like we won't see the rate of appreciation of the last 5 years for a long time etc ... I hope we do not as it wasn't sustainable
And 3 or 4% annual appreciation is a pretty good deal - especially when you factor leverage ...
If you put 5% down and your see 3% appreciation if I do the math right you see a 60% return on cash investment - per year .. since the home appreciates on its overall value, not its "equity"
This is moderated slightly if you look at detail - as in most cases your house payment is something more than rent - and that difference should probably be considered addtl cash investment - in many markets rents are close to payment though
Housing prices in Maryland at least doubled during the Bubble, and have only fallen 10% thus far. I can't realistically believe that a 20% drop is all we'll see max since we're still talking about 5 times median income for an entry level shack. Some places have yet to fall as far as others: the DC, Maryland, NoVa region is one of the last ones to fall, while CA, AZ, and FL were some of the first.
On local house prices-- as Pondering the Mess noted, the Virginia bubble isn't quite popping yet, just doing a very very slowwwww leak. Here in the Virginia Beach/Norfolk MSA, this summer is the first summer in 5 years that I've seen prices on regular old nothing special tract homes in Norfolk dip beneath 200,000. But bear in mind, all these same 3BR 1 bath WWII era Cape Cods all sold for less than $125,000 in 2003.
The $350K and up houses in nice neighborhoods are pretty much having to drop their prices by $20-40K down from what they listed at last summer.
Inventory here is still sky high, & the relitters are all complaining sellers are just stubborn & "just don't get" that the market's softened. Hell, most of these folks all re-fied & can't afford to take less now.
Which leads to a question: Is there any source that tells how many re-finance loans occurred in a specific area? -- thanks for any info...
You are way to optimistic about the bottom for housing. Our financial system is in default and the bottom is way down, down from here and no where yet in sight.
1st
and second
Yikes... is Goldslaughter the name of a drink or is my memory here impaired?
CR I think the umbrella theme ought to be "Recession Progression" or "The Great American Gravy Train Wreck".
I honestly believe we are in uncharted waters. How this will compare with historical experience will be interesting.
CR,
As suggested housing themes go, what about the myth? of the walk away? Do you see ruthless defaults noticeably accelerating? I do! It's the warm-up round to the discredit phase of a financial mania.
ot
"Circuit City Stores Inc., the struggling electronics retailer that is in the midst of a strategic review, has put on hold the completion of a $45 million distribution facility near Scranton, Pa.
"Plans have evolved," a company spokesman said, adding that management "decided to step back and take a look at it."
The 1.3 million-square-foot facility in Covington Township was slated to employ more than 300 workers and begin operations later this year, replacing facilities in Brandywine, Md., and Bethlehem, Pa."
Why isn't CC spending this $45 million? Maybe because it would be seriously dilutive to common shareholders. Stock is down to $1.80.
Next stop: $1 and delisting.
NEW YORK -(Dow Jones)- Citigroup Inc. (C) is attempting to raise up to $3 billion in the investment-grade corporate debt
My theme: the disappearing homebuyer. No move-up buyers are created when a foreclosure/short sale/unprofitable sale occurs.
Down payment requirements and higher loan standards lower the number of first time buyers, especially those entering for the first time at higher price levels. Existing homeowners, even if they could profitably sell and move up put it off since they "aren't going to sell in this market"
Where are the buyers going to come from to pick up all the $600k+ homes coming on the market?
SKF FTW!
Re: "istorically, during housing busts, existing home prices fall for 5 to 7 years - so I'd expect to start looking for the bottom in the bubble areas in 2010 to 2012 or so. "
Ye gawds, housing first, financials second, now comes Retail!
Of course, everyone is positive gold and oil are dead.
I would not be so sure folks.
As CR points out, housing has between two and four years to go to find a hard bottom.
I can hardly wait to see how few realtors are left after this debacle.
That $100 billion plus federal deficit is sure a stunner.
Someday this war's gonna end...
hopeinsd: there are none. My favorite flawed analogy is the floating factory fisheries - the Alt-A loans sucked in all the hatchlings with 0-down and NINJA hooks. Now there are no more little fish to buy the low end. So no move up buyers.
Which, of course, means that $600k is sinking towards $300k.
Thank you for the housing themes, because I have been asking and not getting answers to the question of why there is so much construction going on Chicago's northside.
In the last three weeks I have seen at least a half of dozen buildings torn down to make way for the monstrous pile of bricks that typically replaces older buildings.
And this occurs in areas where the three flat with a ground-level storefront are only partially sold and occupied.
There is a building in my old neighborhood that was build with 24 units, the last time I rode by, I checked the door bell directory, only 2 tenants were in the entire building.
Any insights? Because I can't figure it out except that builders have to keep building, that's what they know.
And I'm not mentioning the half a dozen cranes on high rises you see on the train ride from north to the downtown area.
Vanguard said in a regulatory filing that customers have recently withdrawn "significant" deposits and that, "conditions and events cast significant doubt on our ability to continue as a going concern.
Vineyard said it is seeking a waiver from the FDIC to raise new funds via brokered deposits, and if it doesn't get it, it won't be able to raise money that way
[snip]
Told you this was their lifeline!
Oh yea get this (A Bank run?) (Heh Shelia its your fault, your actions create uncertianty)
"Negative publicity relating to our financial results and the financial results of other financial institutions, together with the seizure of IndyMac Bank by federal regulators in July 2008, has caused a significant amount of customer deposit withdrawals, thus affecting our liquidity and our ability to meet our obligations as they have come due"
[snip]
Vineyard Bancorp cautions it may not survive; shares tumble - MarketWatch
Last month, Congress and President George W. Bush pushed through emergency legislation authorizing Treasury Sec. Henry Paulson to supply federal cash infusions of up to $300 billion to the mortgage giants, in almost any form he chooses.
Mortgage Giants Need Dose of Reality « The Washington Independent
There is a growing consensus that prices will fall by another 15 percent or so. The projections made by Fannie and Freddie economists, though they use different market indices, anticipate proportionally that level of decline -- bottoming out toward the end of 2009.
A cold-eyed view of Fannie and Freddie suggests that theyve long since outlived their usefulness. This is a country with low personal savings, extraordinarily wasteful consumption habits and big deficits in pensions, health care, roads and airports. Yet the new housing bill raises their permissible guarantee ceiling from $417,000 to $729,750 -- as if bigger houses were a national priority.
Lona,
That will provide some financing under a soon to be 95% plus of the market.
Multimillion dollar houses will become a thing of the past as the wealth evaporates.
Or the leverage.
Now the spec builders will have to eat their own cooking, as nowhere near enough rich folks are being generated in this downturn.
The part I find interesting is that there is still a lot of investors out there buying foreclosures and attempting to flip them. What happens when they can no longer flip them fast enough? The beginning of courthouse steps discounting by mortgage holders would seem to imperil their investment and finance model;-} Lol- nothing but hope.
We need real wage inflation!!!
Now let the Fed cringe at that very thought!
Someday this war's gonna end...
We need intelligent leadership.
But before we can have that luxury, we need intelligent voters.
I'm not holding my breath.
What about the theme "Housing Prices Are Lubricated This Time."?
Hey CR --
In general on a national basis - I think nominal house prices have probably fallen more than half way from the peak to the trough.
Interesting. Are you more comfortable forecasting nominal price declines than real? Why?
Or did you mean to say "real house prices"?
So now we've left the inflationary period and slid into deflationary...
Barley, you said "Vanguard" in your first sentence. Jesus H. Christ. You almost gave me a heart attack.
Sorry 'bout that...typo
Maybe CR can fix it.
AllenM aka Joliet Jake,
I think we may be seeing some signals of deflation here that are part of a liquidity trap, and as more cash comes out of the woodwork to buy into stupid fast trends, then obviously, these suckers are gonna burn cash. The housing game is obvious IMHO, because prices are still too high in many places, and even though class structures are fragmenting, i.e, baby boomers, displaced foreclosure households, unemployed people are reshaping the economy -- what engine will drive future growth and thus future value?
Two things I will watch are dividends and then employment trends, both of which fuel future value, thus where will future cash come from, which will be able to sustain or push up the value of a McMansion? There are a fair amount of baby boomers, but if dividends and yields and cash flow slow, they will have less play money and they will spend less and the economy will not grow jobs. You can't keep raising a dividend without higher sales, but as I know, you can buy back shares and increase option grants, manage EPS, but dilute shareholders in the process -- so somethings gonna give, and there is no driver!
yeah, noticed the Vanguard here too.
Nice cup check
Nemo, dk, CR likes to use nominal because it is so widely reported and avoids the GDP deflator arguments that arise when you try to figure out the true rate of inflation.
At some point in time the house prices from 2005 will be exceeded in nominal terms, however, in real terms that day may never again happen.
Contemplate the differences between fiat and partially backed currencies.
Someday this war's gonna end...
Kind of day I'm having here, it could have been Vanguard. whew.
kc, Anon - no sh!t - LOL!
AllenM --
Nemo, dk, CR likes to use nominal because it is so widely reported and avoids the GDP deflator arguments that arise when you try to figure out the true rate of inflation.
I understand, but I thought the way everyone tries to "guess" where the price declines end is by looking at historical ratios like price/income or price/rent, where inflation affects both numerator and denominator.
So I would expect such projections to give an answer in real terms, with the nominal price decline dependent on the (very hard to predict) future inflation. Put another way, I would expect predictions of the form "30% from peak in real terms, which might mean a 30% nominal decline or a 15% decline with 15% inflation", etc.
Forecasting nominal price declines just strikes me as much harder, given the uncertainty about the inflation outlook. So I am curious about CR's reasoning here.
I never did get a reply from my question, which is;
Why is Blackrock liquidating Bear Assets for JPM?
Anyone? I know, I know cash and debt -- but the mechanics of this confuse me, so any help appreciated.
In my example late last night, I suggested Bear is like a house built with asbestos, which JPM was forced to buy as part of a blackmail deal, where JPM looks as if they have a Bear house worth $30 B; along comes The Fed/Treasury and says, yah, the Bear House is worth $30B and we don't care about the asbestos, so we gonna lend you $29B, if you go along with this scam, cause if you don't, your gonna burn more than a billion and you'll be next, cause we have evidence that connects you to some shit we can't discuss ... blah, blah .... and then, like magic, the deal is struck before the clock strikes midnight and poof, we have an illegal merger that violates anti trust law -- cause no one else had the same deal and since it was kinda rushed through over a few hours -- well, that was grounds for a breech of contract right there, with what I would call duress.
So anyway, The Bear House is sold and they all claim it's worth $30B, but then they bring in Blackrock to manage $30B of imaginary asbestos bullshit
So, I wanna know, why is a third party brought in to liquidate The Bear House assets, when The Bear House was worthless?
I went on to post some crap about Fraudulent Conveyances, etc ... and obviously, while under duress, no one did any DD. This is fraud! WTF is going on and where did DOJ crawl to? Where is FTC and where is FBI and how is this still going on without an investigation?
NEW YORK -(Dow Jones)- Citigroup Inc. (C) is attempting to raise up to $3 billion in the investment-grade corporate debt
Barley | 08.12.08 - 4:36 pm | #
Investment Grade? yeah right, on the other hand, C is in the too big to fail camp, so Uncle Sam will bail out the bondholders I guess. W/O the too big to fail doctrine, they would be a B credit at best.
Any insights? Because I can't figure it out except that builders have to keep building, that's what they know.
And I'm not mentioning the half a dozen cranes on high rises you see on the train ride from north to the downtown area.
Spiv | Homepage | 08.12.08 - 4:43 pm | #
Hope they keep building, I want to be able to buy a 1000 Sq ft condo in East Lake View or Lincoln Park for under $100K. Based on my current rent of $1,150 I figure the current rational price would be about $138K, (120x monthly rent) but a lil panic and overshoot to the downside and maybe it will happen.
Themes? What about "Mr. Creosote"?
YouTube - Mr Creosote (Monty Python)
Are we at the bon apetit stage yet?
For what it's worth, I'd like to provide evidence, albeit anecdotal, that points both ways on the prospects for housing. My family recently inherited a mortgage-free 4BR, 3Ba fixer-up in a desirable semi-luxury development the SF Bay area with a nice mountain view. At the peak it was worth 1.4M, and now it would be salable closer to 1.1M. However, because it has problems and needs about $200-300K other work, we have reduced the asking price to well under $1M. The traffic has been amazing -- we got over a 100 visitors, mostly builders but also private individuals, all looking for a spec house to flip after a bit of repair work. Apparently, the dream of making a nice quick profit through residential real estate is still very much alive -- the enthusiasm among visitors was palpable. Now, of course, there is another side. We have not had any acceptable offers. Yes, we could lower the price to $600K and sell it in a heartbeat. But why would we want to do that? Where can we get a better potential return in the current environment than holding on to my houser? My money market fund is paying 2.2%; my stocks are down 11%, and even my muni fund lost 3% in March. On the other hand, if the housing market rebounds in the Bay area within two or three years, not a given, but certainly possible, I'd be looking at $900K, maybe more. If other home owners are looking at things the way I am, which seems likely, we may be in a buyer vs seller standoff that will last for quite a while.
Lona writes:
I never did get a reply from my question, which is;
Why is Blackrock liquidating Bear Assets for JPM?
Because Blackrock can sell it or manage it just like the $200 billion they already manage
Anyone? I know, I know cash and debt -- but the mechanics of this confuse me, so any help appreciated.
In my example late last night, I suggested Bear is like a house built with asbestos, which JPM was forced to buy as part of a blackmail deal, where JPM looks as if they have a Bear house worth $30 B; along comes The Fed/Treasury and says, yah, the Bear House is worth $30B and we don't care about the asbestos, so we gonna lend you $29B, if you go along with this scam, cause if you don't, your gonna burn more than a billion and you'll be next, cause we have evidence that connects you to some shit we can't discuss ... blah, blah .... and then, like magic, the deal is struck before the clock strikes midnight and poof, we have an illegal merger that violates anti trust law -- cause no one else had the same deal and since it was kinda rushed through over a few hours -- well, that was grounds for a breech of contract right there, with what I would call duress.
Duress, but JPM got the parts it also wanted dirt cheap with that Fed free money backstop in place- can you say loan it to me at 2%, plus soak any losses?
So anyway, The Bear House is sold and they all claim it's worth $30B, but then they bring in Blackrock to manage $30B of imaginary asbestos bullshit
So, I wanna know, why is a third party brought in to liquidate The Bear House assets, when The Bear House was worthless?
Because they are not worthless, just worth less than $30 billion at this point in time. Bear ran out of cash and had no access to the Fed discount window- they probably were worth more than the $10 a share they got, but not if they liquidated immediately- plus the Fed could not allow the derivative mess that Bear had to go nuclear- Herstatt risk - look it up.
I went on to post some crap about Fraudulent Conveyances, etc ... and obviously, while under duress, no one did any DD. This is fraud! WTF is going on and where did DOJ crawl to? Where is FTC and where is FBI and how is this still going on without an investigation?
Are you kidding? Bear was going to file Chapter 11! This is done all the time in this country- it is called buying distressed assets- obviously you don't check out the bid/offer at the local pawn shops- it might be instructive;-}
Three ways to buy assets- death, divorce, and destitution. Ask your local relitter;-}
Someday this war's gonna end...
these are low end areas with high foreclosure rates and high demand for housing
This describes Denver to a T -- and it probably also describes why there has been a pretty marked increase in home prices over the past 4-5 months (more than can be explained by seasonal factors).
maynardgkeyes:
Re where can you find a better return?
Many who post on this blog would say SRS, SKF.
Check out the ubernerd posts for a 'quick' intro as to why.
I'm from the Bay Area, so I know about the 'extra value' of bay area real estate, but this blog offers a solid counter argument re the next 10 years.
Good luck.
AllenM aka Joliet Jake,
Hmmm,
WTF if a person owned a collector car, and that car was on fire. Imagine a divorce, where a wife sets the hubbies toy on fire. One person may see a car on fire and another may see opportunity. However, if the sale of this car occurs while the car is on fire, then obviously DD is not an issue, thus fire sales often are under duress.
A collector car on fire may have insurance, it may still be intact enough to salvage, but without understanding its previous condition, you would have to guess what it was worth and then guess as to what it may be worth, after you guess as to how much it will cost to restore it.
Thus, enter Blackrock as a restoration agent that has a car said to be worth $30B today, which will be worth $30B in the future, plus interest. Although we don't know the exact nature of the restoration, we are to assume that the assumed value of $30B is something that can be resold for more than $30B plus the restoration costs and mang fees, plus interest.
That is total fraud!
SAS 82 says an auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.
Where is an audit in this Bear Bailout deal? Did Waxman get what he wanted?
Nah, just think of Balckrock as the loan servicer.
They don't care about the value of the manure, just have to keep track of it. Sell it when they can get some acceptable portion of value for it, but hey, it is just another bond portfolio. They could have just as easily hired Pimco.
Simple, in a perverse sort of way.
Someday this war's gonna end...
Audits occur after the fact.
Waaay after the fact.
Nobody is going to audit the carcas of BSC independently, they are going to audit the new parts of JPM after the end of JPM's fiscal year.
Audits are a snapshot of a company at a certain moment. For instance an auditor signed off on Bear's last audit, before they had their liquidity crisis. I am sure there was no going concern letter, but the standard "conditions may change" boilerplate was there, and lo and behold, conditions changed.
In other words, highly leveraged entities may go broke at any given moment in time, and we, the auditors, are not very surprised.
You sound sort of surprised at this- Bear is not Enron with deliberate fraud in the accounting (at least not yet!).
Someday this war's gonna end...
hey guys! can you come up with some numbers?
1. 2nd mortgage loans
2. helocs
3. percent of non performing that had 1 or more refis taken out on the way up.
4. i've seen the cc balances outstanding (1trn) and about twice that of open lines. is this true? and how much is securitized?
5. when does the 2nd q mew # come out?
6. outstanding opt-arms? by state?
7. auto loans outstandin? and how much securitized?
8. junk bond issuance in the last 3-4 years. are some segments showing greater tendency to default than others?
anyway i love you guys, just great stuff and on another level from the drivel i have to read in the nyt, wsj, etc every day. keep up the good work! oh yeah, any ideas where the next hole in the dike is going to show up? c? cds? repo market?
AllenM aka Joliet Jake,
Try this:
As a result of the foregoing summary of the federal legislation, it is our view that any loan made to the Chrysler Corporation by the Missouri State Employees' Retirement System would be authorized only if the federal government waives its priority as to assets of the Chrysler Corporation in the event of its default.
Thus what if we say:
As a result of the foregoing summary of the federal legislation, it is our view that any loan made to JPM would be authorized only if the federal government waives its priority as to assets of Bear Sterns in the event of its default.
Re: CONCLUSION
It is the opinion of this office with respect to the question concerning a loan of funds of the Missouri State Employees' Retirement System to the Chrysler Corporation to be secured by land in the state of Michigan that:
Very truly yours,
John Ashcroft
Attorney General
Attorney General's Opinion No. 92-80
Oh yes, this is good and probably is OT here (LOL):
As to conflicting guidance from history, governmental flirtations with the too big to fail policy are intermittent. Government willingly bought into the bailout business in the 1970s and 1980s; then this habit dissipated in the early 1990s when Congress restricted the policy for banks. Then again, the government orchestrated a bailout of Long Term Capital Management (LTCM) in 1998. While the government refrained from preserving Arthur Andersen in 2002, many market participants and some policymakers later questioned this reticence. Whether related to that criticism or not, in 2005 the government refrained from prosecuting a criminal indictment against KPMG although there was no question about the firms guilt.
See, e.g., GAO, Study on Auditing Industry Consolidation, supra note 2, at 19R(It is unclear whether and to what extent the Antitrust Division was consulted and to what extent DOJs Antitrust Division had input into the decision to criminally indict [Arthur]Andersen.); The Future of Auditing: Called to Account, supra note 12, at 72 (Almost everyone agrees that [Arthur] Andersens collapse made the financial system more vulnerable.
Guess who runs the FASB now??? Go look>>> go on....
TOO BIG TO FAIL: MORAL HAZARD IN AUDITING ANDTHE NEED TO RESTRUCTURE THE INDUSTRYBEFORE IT UNRAVELS Lawrence A. Cunningham*
http://www.columbialawreview.org/pdf/cunningham.pdf
Themes? What about "Mr. Creosote"?
He's been one of my governing metaphors for this whole thing for some time.
However, I try not actually to think of him too precisely
In many/most markets housing sales have been substantially ahead of housing starts for many months now - that is why inventories are dropping
Yet starts are still falling or at best stationary
When you have a sales pace 20+% ahead of starts its a great help in reducing inventory - and the thing may miss or ignore is that builders right now are largely not starting anything new and are not likely to until a substantial several month bottom appears
During that time though the sales activity is likely to continue at the same pace - which will leave a gap where inventory will very likely be short - which should jumpstart a price increase - which should bump the fence sitters off the fence and into the market hoping not to miss the bottom
I think its very possible and even likely we will see a strong increase in both prices and sales when we hit, and overshoot, the bottom - will probably level some but think there is a good chance this could provide some momentum for recovery
The other thing I think fell by the wayside in the housing frenzy of last few years are the investment basics of buying a home
People never used to expect to make a killing - or a profit at all - if they sold in first 3 or 4 yrs - the expectation was a home was a long term investment ... and with that mindset except for homes purchased in a few narrow windows homes have been good long term investments and will continue to be
The other thing often seems forgotten is the benefit of leverage in a home purchase
Today we hear things like we won't see the rate of appreciation of the last 5 years for a long time etc ... I hope we do not as it wasn't sustainable
And 3 or 4% annual appreciation is a pretty good deal - especially when you factor leverage ...
If you put 5% down and your see 3% appreciation if I do the math right you see a 60% return on cash investment - per year .. since the home appreciates on its overall value, not its "equity"
This is moderated slightly if you look at detail - as in most cases your house payment is something more than rent - and that difference should probably be considered addtl cash investment - in many markets rents are close to payment though
Housing prices in Maryland at least doubled during the Bubble, and have only fallen 10% thus far. I can't realistically believe that a 20% drop is all we'll see max since we're still talking about 5 times median income for an entry level shack. Some places have yet to fall as far as others: the DC, Maryland, NoVa region is one of the last ones to fall, while CA, AZ, and FL were some of the first.
On local house prices-- as Pondering the Mess noted, the Virginia bubble isn't quite popping yet, just doing a very very slowwwww leak. Here in the Virginia Beach/Norfolk MSA, this summer is the first summer in 5 years that I've seen prices on regular old nothing special tract homes in Norfolk dip beneath 200,000. But bear in mind, all these same 3BR 1 bath WWII era Cape Cods all sold for less than $125,000 in 2003.
The $350K and up houses in nice neighborhoods are pretty much having to drop their prices by $20-40K down from what they listed at last summer.
Inventory here is still sky high, & the relitters are all complaining sellers are just stubborn & "just don't get" that the market's softened. Hell, most of these folks all re-fied & can't afford to take less now.
Which leads to a question: Is there any source that tells how many re-finance loans occurred in a specific area? -- thanks for any info...
You are way to optimistic about the bottom for housing. Our financial system is in default and the bottom is way down, down from here and no where yet in sight.