patrick.net

SactoQT:

There is a huge difference between having been accurate so far and being considered a visionary. Lereah has been accurate. Those who disagree with him have been wrong so far. Will he fail to see the bear market? Perhaps. Then he would be wrong too. However, he might get the decline right as well. It remains to be seen.

I happen to think that the decline has already begun in some of the hot markets and will hit other hot markets by this time next year. But this all remains speculation. The current cooling could be seasonal.

Zephyr

I agree on all points. The next year or two ought to be interesting.

Btw, the water cooler talk has changed quite a bit in my neck of the woods. People who less than a year ago were saying the market would never fall are now talking about the decline in progress and how many houses are for sale in their neighborhood. The change is psychology is pretty amazing to watch.

HARM,

I believe that Lereah believes what he is saying. I see nothing immoral in giving an honest market forecast. It seems that you are judging the morality of his comments based on how his forecast compares to YOUR market beliefs.

Regarding loan portfolio sales, you said: “I think requiring lenders to hold a substantial percentage of the loans they originate on their own books (the way they used to) would go a long way towards tightening up lending standards.”

I would think that the buyers of loan portfolios would want the originators to retain an interest in the loans. I worked in that industry in the mid 1970s and at that time the buyers DID require the original lenders to retain a percentage share of the loans that they sold. The buyers would typically take an 80% interest in the loans.

AntiTroll:

People believe all sorts of things.

As for investors buying more oil, they are trying to but they can only buy what is on the market. World oil production is nearly maxed out at about 84 million barrels of oil produced per day. There is very little potential for increasing the production in the near future. However, demand (actual use) is growing. The prices are rising.

World oil production will be reduced after tomorrow.

Just a quick update:

Crude oil is near $70 and natural gas has gone up nearly 20% over the weekend.

Crazy! The hurricane season barely started...

Do you guys have plans to trade the oil or natural gas?

Zephyr, do you know anything about the electronic mini oil contract from NYMEX (QM)?

I have the news on and they are of course covering the hurricane. They say that oil is now over $70 a barrel.

Peter P:

Hurricanes cause tremendous damage on the sea bottom in the gulf. The Sea bottom is like spaghetti with oil pipelines to shore. Even if the oil platforms survive Katrina (unlikely) the pipes and the terminals in and around New Orleans will be out of service.

Production capacity will be reduced, but demand will continue to grow.

I fully expect to wake up tomorrow and see higher prices at the pump.

I believe that Lereah believes what he is saying. I see nothing immoral in giving an honest market forecast. It seems that you are judging the morality of his comments based on how his forecast compares to YOUR market beliefs.

Well, I don't know Mr. Lereah personally (perhaps you do?), so I suppose I could give him the benefit of a doubt for actually believing his own "Home Values and Other Real Estate Investments Will Climb Through The End of The Decade" prediction.

The book aside, what I don't think is acceptable --morally or financially-- is him basically insulting people for behaving responsibly by paying down their debts ("very unsophisticated" and "It's as if you had 500,000 dollar bills stuffed in your mattress" as he put it). I see this as an utterly reckless and irresponsible statement for a public figure to make, regardless of his professional loyalties. We may have to agree to disagree on this one.

I worked in that industry in the mid 1970s and at that time the buyers DID require the original lenders to retain a percentage share of the loans that they sold. The buyers would typically take an 80% interest in the loans.

Wow. What a difference a generation makes. I think when the party's over, we'll see a return to saner lending (and borrowing) standards.

Peter P, I am do not trade commodities. I understand that the minis are linked to and a function of the underlying futures contracts. They are partials with something like 400 barrels for each unit. Short term only.

HARM, I do not know Lereah, and I have never met him.

Zephyr, do oil service stocks correlate well with oil prices?

I have to weigh in w/Harm on the ethics end of the Lereah debate. I think there's too much at stake financially for Lereah to be purely objective. And though that goes toward the "he believes what he says" argument I also believe that he knows people are listening to what he says and that he may have an influence on the market, albeit probably a small one (but who knows). But it is in his financial interests to keep pushing the market, especially since he has a book to sell. But I gotta be honest, the guy has always rubbed me the wrong way, so my opinion is colored as well.

I understand that the minis are linked to and a function of the underlying futures contracts. They are partials with something like 400 barrels for each unit. Short term only.

Thanks!

Peter P, Generally yes, but be careful. The oil service companies can take losses in the storm as well. Even if insured they could have diminished capacity as a result. This, of course, will raise their price power, but could be of little value if they are short of equipment and personnel. I suspect that they are all running pretty much at full capacity now so the disruption by the hurricane is hard to evaluate. I am not an oil guy, so don’t take any of this as expert comment.

BTW
Glad to see you posting again Zephyr. Whether I agree with you or not I highly respect your opinions and can tell you have a lot of experience to share. I appreciate that you spend the time to help educate us 'newbie's' on the intricacies of the various financial markets we've been discussing.

SactoQT, Thanks for your kind words.

Glad to see you posting again Zephyr.

Ditto.

It is good to have a wise man on this board. :)

SactoQT, Thanks for your kind words.

Not at all, I even meant most of them. ;)

I have Fox news on and they're talking about oil futures as I sit here writing this. To be honest, it's still pretty much over my head. But if I can grasp the yield curve, I'm sure I'll catch on to this subject if I keep reading the posts. But it's interesting to see what has captured our interest here is also on the news as were discussing it. I guess were right with the times.

Honestly, I will not be surprised to see $5 gas next summer.

Honestly, I will not be surprised to see $5 gas next summer.

Hi Zephyr,
Is it possible this k-wave might end (if it has not ended yet) with a conflict over the control of oil?

Glad to see you posting again Zephyr.
Ditto.

Double-ditto on that. Even when we disagree, your responses are always cogent, thoughtful and informative. A welcome departure from... oh, I don't know... a certain poster who monopolized the board's attention for far too long.

Btw, the improvement on the quality of posts and volume of participation post-MP has exceeded my expectations. If I had known the impact would be this great, I would have banned him a long time ago --even without a vote.

Btw, the improvement on the quality of posts and volume of participation post-MP has exceeded my expectations. If I had known the impact would be this great, I would have banned him a long time ago –even without a vote.

The difference is obvious and even more substantial than I would have thought. But it was impossible to know until after the fact. Kind of like the bubble we've spent so much time talking about. ;)

Tonight I have been unable to stop watching the Weather channel. Tomorrow (today) will be hell. But it is now way past my bedtime.

Given that we were talking about Lereah and his book, I thought I would leave you with an article that is primarily based on comments by Dr. Shiller of Yale (author of Irrational Exuberance).

http://www.foxnews.com/story/0,2933,166561,00.html

Thanks, Zephyr. The Fox story did a surprisingly good job of laying out and supporting Schiller's arguments (Fox isn't exactly known for being bearish on much of anything). It even went so far as to all but rule out the "soft landing" scenario.

Writing's on the wall people. The ending to this asset/credit bubble will not be pretty.

Area with a high population density tend to vote more liberally and seem to be the areas most affected by the housing/credit bubble. It may be a function of population density more than politics. It is an interesting observation though.

This just in…

David Lereah has denounced all U.S. weathermen for claiming that Hurricane Katrina could reach New Orleans. He characterized anyone predicting widespread flooding as “Unsophisticated, the type of people who live in bunkers and wear tinfoil hats.” He is recommending that everyone on Bourbon Street return to “partying as usual” and pay no attention to calls for evacuation.

Stanman --I'd say any correlation between liberal-majority "blue" states and areas of extreme bubbles is more a function of them having large cities than anything else. As SactoQt said, "It may be a function of population density more than politics." If you have a low population density and that low land-to-home value ratio mentioned in the "Land Prices" thread, it's very hard to get enough demand/momentum going to sustain much of a housing bubble. I.e., smaller herd = smaller herd effect.

Californians do tend to be an odd bunch, but there are plenty of right-wing (End-of-Days a-comin'/ZOG-Illuminati conspiracy) nut jobs in the South and Midwest. Trust me, I've lived in a number of red states.

"also keep in mind that the last bubble burst at the time Clinton was elected."

Not quite true. Clinton didn't get into office until January 1993. Most of the bubbles that burst in the early 90s had already begun by that point during Bush Senior's administration. California's began in late 1990.

Lereah has been accurate. Those who disagree with him have been wrong so far.

For now, I think the jury can be out on Lereah. After all, his advice should be judged by whether it produces long-term financial benefit, and not just some paper gains over a few years. And, perhaps some damning evidence is already emerging?
Still, as someone who works in educational publishing, I can take issue with Lereah's lack of objectivity. Consider statements from his book like "...those [real estate] opportunities will continue to exist throughout this decade and clearly into the next"; how is this proven? Reading an excerpt, I see the book is rife with optimistic forecasts and manipulative wording, such as insinuating that paying off your mortgage is an unwise financial strategy, etc. The book reads as boosterism; there's little cautionary balance to this glowing forecasts for RE. If we published such a weak book, it would be a dark stain on our company.

Yet, Lereah is just one of thousands of authors in the retail market who pen half-baked schemes towards finances, dieting, relationships--you name it. In retail, unfortunately publishers don't care it it's accurate--only that it sells well. Books are rushed to the press with less critical consensus. It does suck that such books get printed and mass-marketed, but if people buy into his nonsense, ultimately they only have themselves to blame.

What I want to know is where was Lereah's book say 10 years ago in 1995? How come seemingly nobody in the mid 90s foresaw what was about to be the greatest real estate boom in our lifetimes? Point being it's very easy to be bullish when things have already been bullish for so long. Where was he when nobody was boasting about the value of their properties when there was nothing to boast about?

"Yet, Lereah is just one of thousands of authors in the retail market who pen half-baked schemes towards finances, dieting, relationships–you name it."

Very true. If all those diet books really worked, we'd be the thinnest nation on earth, but instead we're the fattest. Hmm. If all those books about finances really worked, we'd be the most financially sound nation on earth, but instead we're in over our heads in debt. Hmm.

Publishers just want to publish something that will sell. Real Estate is hot right now (at least in the minds of many people), so a book about the red hot real estate market will sell. The usual way of selling a non-fiction book is either to say something controversial that lots of people will want to read, or to say somethng popular that lots of people will want to read.

What I want to know is where was Lereah’s book say 10 years ago in 1995? How come seemingly nobody in the mid 90s foresaw what was about to be the greatest real estate boom in our lifetimes? Point being it’s very easy to be bullish when things have already been bullish for so long. Where was he when nobody was boasting about the value of their properties when there was nothing to boast about?

*DING*

Perhaps publishers will sell books in boxed sets. I see Mr. L's book in the same box as Dow 36000. It will be something like Comical Economics.

It amazes me that paying down your debt is now called "unsophisticated."I wonder what Lereah will call bankruptcy in the near future, "trendy" perhaps? "Superior financial management" He's going to have to think of some positive spin as he guides the masses into rampant financial indebtedness.

FYI: Patrick fixed the average rents graph last night (so it shows the year):
patrick.net

And he alphabetized the average rents by City table:
patrick.net/cache/rankrent.html

Hmm... novice investors initially unwilling to cut prices as the market turns... even at a profit!

Greed is now impairing their decisions.