patrick.net

I'm much more concerned about the Ninety-seven percent of the $133 million of deferred interest outstanding came from loans with balances above the original principal amounts,

than the and the company generated 62% of its profits from noncash income from deferred interest.”

Noncash net-income is not uncommon for this industry, especially because of the complex GAAP rules surrounding interest expenses and deferrals. To make matters worse, this is an area where tax law diverges from GAAP so there is a whole tax-effect thing going on. I'd like to know how this falls out for EBT and EBITDA measures (but I'm too lazy to do it myself right now).

I wouldn't be surprised to see a FAS revising how revenue is booked for things like negative amortized loans or other instruments where the principal can rise higher than the original balance. The accounting numbers aren't capturing the risks of revenue collection. However, keep in mind that it may not be the fault of the companies which are reporting these numbers. It may be a direct failure of the convoluted GAAP rules everyone tries in vain to follow. The FASB has been on a revenue accounting obsession for many years now, and the rules are worse than a Goldberg machine.

I do not understand all of the fancy numbers

It may be a direct failure of the convoluted GAAP rules everyone tries in vain to follow. The FASB has been on a revenue accounting obsession for many years now, and the rules are worse than a Goldberg machine.

Point taken. Of course, we can all look to our government's wonderful "Rube Goldberg Tax Code" for setting a fine example.

This smells very much like the revenue-booking shenanigans we used to see in the dot.com days.

I have the same feeling.

“Everybody wins, heh heh, at least everybody who is in this room, what? Har har.”

Not even that, only "the smartest guys in the room". :)

Hmmm... can't tell if "SoftestLanding" is a real troll, or tongue-in-cheek poster pretending to be a troll.

pretending to be a troll

Huh? Trolling the troll?

ps:

My wife was a software revenue recognition auditor with a big 6/5 (and a bit of a recognized expert in the field, to toot her horn a bit) during that era. A bulk of the FAS' that have come out in the years during and since have been specifically designed to quash that sort of thing. Companies that do anything like that today are committing outright accounting fraud.

The problem now is often the opposite: firms can follow all the revenue rules strictly and get away with things hiding in the "unintended consequences" holes.

No worries, what's the fuss? Nothing can happen if we have a Fed that will monetize everything. Just print more money. You think that our government will allow large-scale banking failure? What is FDIC for anyway?

Why don't we discuss what will happen AFTER the mortgage loans get monetized, that will be more interesting.

I have a question.

Apart from energy (oil, ng, uranium, etc.), and gold, silver, what other real assets are good for hoarding? How does one hoard agricultural products, esp soy and sugar? Any suggestions?

Apart from energy (oil, ng, uranium, etc.), and gold, silver, what other real assets are good for hoarding? How does one hoard agricultural products, esp soy and sugar? Any suggestions?

Consider item trading vehicles only. Nothing is really good for hoarding.

Not investment advice

Well, the money has to come from somewhere, Fed is the ultimate backer.

When mortgage loans go into default in a massive scale, our government won't let this drag major banks into a systematic banking failure. So count on printing money.

While NEOs (negative home owners) lose their homes, the banks will just be fine. So I am more interested to see where the extra money will go once it is pumped into the banking system through monetization of bad debt. This scenario is already played out in Japan, BOJ essentially bailed out all banks with a powered up printing machine, as suggested by our new Maestro BB.

source of protein. I like tofu.

Peter P,

I respectfully disagree.

Real assets are not trading vehicles with a looming fiat crisis. What is money for? Money is simply a denomination, where I park my unexecuted rights to exchange for something real, like a house, a loaf of bread, a car, etc. If I have a bunch of greenback which has a dwindling purchasing power, then I'd rather go back to barter exchange and hoard stuff that will keep my purchasing power.

Hence comes the soaring value of gold and silver. They are quite useless, but central banks and people like myself are hoarding them because we believe that an ounce of gold can keep its purchasing power better than a dollar printed by BB. Same thing with oil or ng, these are the backbones of our economy, not dollar, a lubricant, and an increasingly thinned down lubricant may I add.

Even compared to other fiat, dollar is losing its ground, each interest hike delivers dwindling marginal power to keep dollar strong.

I think a fiat crisis is not impossible but I am not going to position myself for one just yet.

If you are really worried you should probably own farms and guard them with militia. ;)

In the worst case scenario (e.g. nuclear war), you cannot eat gold. But corn can keep you alive just for another day of misery. :)

Homer Simpson tried to hoard sugar and bees ate it.

Hee, especially if you brew the corn into moonshine. Then it might not be so miserable.

LOL

Too funny!

In a Colombo episode, a murderer owned a vineyard and hoarded the best wines around the world. Somehow he messed up his wine cellar temperature in his act of murder and therefore spoilt all his cherished stock.

I am not quite a wine enthusiast, and I am afraid I may run the risk of turning my wine hoarding effort into a vinegar hoarding situation :-)

I am not quite a wine enthusiast, and I am afraid I may run the risk of turning my wine hoarding effort into a vinegar hoarding situation

I rather hoard lobster.

I think this might be the fastest degradation of a topic into inane food thread yet!

Wait until I talk about sushi and it will be further out of control. :)

Anyone wants to sponsor the

"Mortgage Abuse and Homeowner Protection Act"?

Can we package that with the

"Imitation Krab Disclosure Act"?

I’m not a creative enough cook to deal with 1 eggplant and 2 leeks, or some other sort of half order of vegetable.

Leek is easy. It will taste good anyway you cook it.

I hate eggplants so I cannot offer much help here.

Owneroc,

I have been hearing about ethanol lately - not sure if I am too late to the party, and hence have not taken any position. Today on MSN investor, there were 2 articles. One about ethanol and other about sugar. ADM has raliied a lot in last few months, and more after Barrons mentioned them this Saturday. Seems very expensive stock. But if trend is the friend, then there may be still some rally left.

If you brush enough olive and herbs on the eggplant and grilled it, it would be (barely) edible.

Good idea!

I prefer sauteed or poached vegetables, although I love olive oil.

Oh, and another one. Jubak wrote a nice article about (very basic info) on the lack of M3 supply number from this month onwards.

http://moneycentral.msn.com/content/P146592.asp

How about an "MSG Prohibition Act"?

how did we end up with so many amateur "investors"

I believe that they are not compelled by greed. Instead, they are compelled by fear and competitiveness. A friend of mine who took on more than 1.2M mortgage, flipping 3 homes. He has a kid and another one was on the way, till his wife had a miscarriage, due to pressure, I guess, because they absolutely need dual salary to make it through every month.

Last year, when he was contemplating buying his last "investment property", I asked him why he wanted to be so aggressive. He was a bit insecure so I never dared to tell him that he was totally setting himself up for failure. He noted that he was "lagging" in building his wealth as compared to his friends, and he felt pressured to catch up. Flipping homes seemed to be the only route to quick bucks. He missed out on the dotcom lottery (a close friend of his who has almost the identical background and skill sets lucked out and bought a home in Los Altos all-cash), so he didn't want to miss out on the next get-rich-fast scheme.

I wonder how many "investors" were sharing the same mindset.

I wonder how many “investors” were sharing the same mindset.

Perhaps a lot. I bet many also compare their diamond rings.

@To BA Or Not To BA,

I sent Jim Jubak a critical email last summer in response to a puff piece he wrote, which basically denied the possibility of a housing bubble. He actually took the time to write me back, naturally defending his position. Fast forward to today and now he's singing a completely different tune.

What a difference nine months makes!

I’d second that and introduce my own bill - the cube buillion prohibition act.

If they can have cube buillion without MSG or other additives, I have no problem with that. :)

Real broth is not that difficult to make anyway. Clam broth can be prepared very quickly.

I wonder how many “investors” were sharing the same mindset.

Someone taught me this:

Never chase money. Position yourself to have money come to you.

Not investment advice

Once in a while I get stuck eating at a chain restaurant (freeway, children). I think that shredded ‘cheese’ and tortilla strips shouldn’t be allowed near salads.

Well, chain restaurant...

Chopped green onion isn’t ‘chives’, and shouldn’t be called that, and I want full fat sour cream on my potato! And keep more of that shredded ‘cheddar cheese’ off my potato!

I had cream tea in SF once and they used sweetened cream instead of the all important Devonshire cream. What a crime!

I also once had a "lobster bisque" which was essentially canned tomato soup with two bay shrimps.

FormerApt,

if you are lurking, do you care to share your perspective on what the watershed % of investors is in a total housing stock to make the general housing vulnerable to a fall?

I don't have a number here. Back in Hong Kong, we typically used 20/80 as a safety line. If 80% of a development are taken by owner-occupiers, then it's fine. If you have more than 20% investors speculating on a development, then it could get bubblish. 40/60 is the line considered too risky to breach, or you will have potential running-for-life situation. So an experienced investor or speculator will check out how many people like himself are buying into the same development.

Is it any different here?

HARM,

I remember that article - claiming that there is no housing bubble.
http://moneycentral.msn.com/content/P116257.asp

This Jan, he did write that "Housing Bubble Is Deflating - but slowly". I wanted to write him an email reminding his article just a few months ago ;-)

He was also very wrong after the dot-com crash about the recovery. He maintained that since Fed is dropping rates, everything will be fine in 1-2 years.

But I give him credit. He is far more open, honest than most of the commentators. He has been critical of Fed for some time, although mildly.

In general, MSN Investor has decent commentators. (I do not work for Microsoft, nor do I own shares of MS.)

1. In a expanding credit is it not MOST prudent action to make GREATEST use of that credit — is that correct?

It depends. The trend is your friend... until it ends.

2. “FDIC Insured” is a FUCKING JOKE — is that correct?

It is not better or worse than fiat currency.

3. Why worldwide index is mostly GREEN

_Shrug_

Where is the best place to park Cash Money for the next 4-5 years?
I want CASH in my pocket each month, and extra CASH for some tasty snacks.

Owneroccupier,

Apart from energy (oil, ng, uranium, etc.), and gold, silver, what other real assets are good for hoarding? How does one hoard agricultural products, esp soy and sugar? Any suggestions?

I'm trying to solicit comments on this topic on my blog. Please feel free to post any comments there and I'll cross-link everything back here. My ambition is to use an efficient frontier optimizer I have to take the portfolios people recommend and then keep track of the different picks. So far no one's been bold enough to hazard any picks yet though.

Fewlesh,

Currently, everything is honky dory, except when we mention things like the Icelandic Kroner Hiting 11% (”How can a country have a high intrest rate?”, was the lunch time discussion).

Remind them that Iceland, New Zealand and the others in this boat fall in the IS-LM "Small Open Economy" model in a macro sense. Countries such as this have little or no effective control over their nominal rates (at least not for long), and thus their rates can rise dramatically, and very quickly. This is because they don't manipulate their currency (at least not much or effectively), they have open capital markets and therefore are real-rate takers, and they do not have economic scale or locally generated GDP sufficient to have divergent nominal rates (as the US, Japan and the EU do -- especially the US by a huge margin).

...oh, and these countries in the news all have one fatal problem in this context: they are all carry-trade currencies vis-a-vis the USD. They are all "American-Anglican" economies and are tied very closely to the USD making them great for carry-trades. The amount of capital the likes of BGI and the big Hedges were pumping through their currency was massive on a scale few comprehend. Since that pump is grinding to a halt, it's interest rate hiking time.

astrid Says:

“I find this RE boom actually brings in a lot of inexperienced investors while more experienced and more successful investors stay put.”

The wealthy experienced investors “all” know this is a bubble and many have been profit talking and selling property to inexperienced investors who are too naïve to know that they are buying at the top of a cycle. Most of the borrower sponsors of loans I have originated for investment property purchases over the past couple years have been so inexperienced investors buying the property from experienced investors…

Owneroccupier Says:

“FormerApt, if you are lurking, do you care to share your perspective on what the watershed % of investors is in a total housing stock to make the general housing vulnerable to a fall?”

It depends on how you define “investor”. I define an investor is someone who makes an investment and gets an actual “return” on that investment. A “speculator” or “gambler” is someone who makes an investment and hopes or prays that they will get a return on their investment. There is a big difference between real estate investors like my parents and their friends who own million dollar single family homes with little or no debt and the real estate speculators that buy million dollar homes with no money down and rent them for $50,000 to $75,000 less than it costs to own and maintain them hoping and praying that they will continue to appreciate by at least $100,000 a year…

“I don’t have a number here. Back in Hong Kong, we typically used 20/80 as a safety line. If 80% of a development are taken by owner-occupiers, then it’s fine. If you have more than 20% investors speculating on a development, then it could get bubblish.”

There are many reasons why people get nervous when the percentage of renters gets above 20% (in a condo complex, neighborhood or PUD). Owners tend to be committed to the area while renters come and go. As I mentioned in a previous post If I’m an investor and own a condo I can get more rent from eight hard working immigrant guys than I can get from an old lady and her cat or a nice young couple …

Algorithm for Real Estate Success with Haiku Thrown in for Aesthetics:

Stated Income + No Doc ARM + Min. Wage Job x 10 houses = Big Pimpin'

No mon' big fun with
Monopoly housing bucks:
Back up the truck...fools...