patrick.net

Beware the ides of March

Beware the ides of March

But April is the cruelist month.

Whoever says this is perhaps naive or does not have much of knowledge in history.

I refrain comment, for fear of being branded. However, in the spirit of cross promotion, anyone interested in applying genetic algorithms to portfolio optimizations is welcome to visit http://randolfe.typepad.com/randolfe/2006/03/genetic_algorit.html

Now back to the regularly scheduled bubble...

I refrain comment, for fear of being branded.

I thought you were already branded as a left-wing market fundamentalist. :)

RE: left-wing market fundamentalist

Now imagine Stiglitz joining the IMF (not World Bank) and wearing a hat with the IMF logo on it. :)

I doubt 666 refers to a date.

And so have been the doomsayers of the monster housing crash. Maybe those momentous events simply don’t happen all that often…

Wait 2000 years before you declare our failure.

Randy H Says:

"I come down in the middle of the Silicon Valley comparatives. I am generally optimistic and bullish on SV *over the long term*. I do think SV is sustainable *given a significant RE correction*. "

When Randy mentioned Silicon Valley it reminded me of a conversation I had with a friend this weekend. My friend is one of the few third generation valley residents (his Grandparents were farmers and his Dad and Uncles converted their families and other families orchards in to office parks). My friend feels that the SV real estate will drop more than the Peninsula and SF since there are less third generation residents like himself that plan to stay in the area forever and live near their extended family. How about a “What part of the Bay Area will drop the most” topic?

I thought that '666' was in reference to a person, not a date nor a place. On this website, this person states his case about who he thinks that person is. Check it out:

http://www.bushisantichrist.com/

kinda weird...but kinda spooky. I mean the terrorists used familiar American numbers 911 to put together a huge attack. Every American kid knows the numbers 911....they also know 666....but of course that would mean 777 would be our lucky day! Back to bubbles...

Bap33 said: .. maybe we should be ready for anything on June 6th...it will be 6/6/6 … and that might be when the really bad atomic type stuff starts

The Hebrew prophet Ezekiel, writing around 537 BC, predicted that in the last days, there would be a great war involving not only Islam, but dragging an unwilling (Rus) Moscow along for the ride, as if God had put hooks in its jaws, the prophet said. Leading the Islamic alliance, according to Ezekiel, is Persia (Iran). Together with the Islamic nations of North Africa and the Mediterranean Middle East, Ezekiel says they will attempt to invade the nation of Israel. In Ezekiel's day, there had been no nation called 'Israel' for almost two centuries and no sovereign nation of Israel would exist for another 2500 years. There you have it - Iran, Russia putting us on the road to Armageddon. Anyone want to be on a couple of super tankers wedged in the Strait of Hormuz?

- be on a couple
+bet on a couple

Any astrologer in the audience?

Seriously.

I hope you're all kidding about the numerology stuff. The bushisantichrist parody site was amusing, but really, people...

@Peter P,

Ok, you got me on the million dollar Malibu trailer on rented land. Even so, I'd say that's a weird exception. Plus, the morons who paid a cool mil were no doubt paying for the location, not the 1970's double-wide itself. I see a lot of new mobile homes being built out in SBO-Riverside, and they're going brand-new for not much more they were 5 years ago.

There's not much of a bubble in construction/raw materials.

hmmm, what about 6/6/1906, 6/6/1806, 6/6/1706, 6/6/1606, 6/6/1506...

and that the Julian/Gregorian calendar wasn't in use at the time Revelations was written... although you never know with prophecy, do you?

weren't they talking about the Roman Caesar of the time, persecuting Christians? Can't imagine why he'd want to do that, heh....

Then the morning and the hangover comes. And the bearded lady in your bed shocks the hell out of you. She is having your baby.

Fear.

Lawdy. Carnivalé.

Looks like every housing article posted on this site is finally negative.

As the laws of financial physics begin to kick in, and fiscal centrifugal force shakes the market, the weak hands are being shaken out while the greed and hysteria are mercifully coming to and end.

Thank god.

Looks like it's almost time to bust out the Dom.

Where will all the quick-buck-artist, wilted flower children of the great housing mania of 2000+ go? Precious metals?

Who cares...

Michael Holliday,

I began informally tracking the "article sentiment index" almost as soon as I discovered this website about 18 months ago. There was actual frustration on my part b/c so much of the mainstream media coverage would start by acknowledging the possibility of a bubble (and perhaps a serious one) only to conclude that things are still "rockin and rollin" then basically dismiss a crash as paranoia or wishful thinking on the part of JBR's. Although there was a marked change in DEC 05/JAN 06 it has only very recently gone almost completely bearish with virtually NO ONE calling for a continuation of outrageous "appreciation. Statements like, "15% for OC is already in the bag" are looking more like damage control and in the face of overwhelming evidence to the contrary there's always a Bull somewhere pointing to a "last hurrah" bidding war and thrusting it in your face as proof positive.

Harm,

How much money has been made off of the "anti-christ"? From death metal albums to movies and games etc. Whoever this guy/thing is should be getting SOME royalties! Perhaps this is why he/it is so ticked off.

Btw, I believe it's a LAND bubble. Lots in our "up scale' neighborhood top 80K. Then there's about 20K in SDC's (up from 16K last summer). So even here in Oregon you're upside down before you even start pouring the foundation. My wife and I bought our first home in the late 80's for around 69K. That was on a 10,000 sq. ft. lot which was the standard here for years. The "up scale" lots are about 7,000 sq. ft. Dimensional lumber prices did go up during the bubble and certainly post Katrina but not nearly enough to justify 2004/2005 asking prices. The trade pub. that posts lumber prices is called Random Lengths if you're curious.

Good post DinOR.

I think a segment of our working population are addicted to bubbles now.

I think the psychology of the Nasdaq bubble simply moved into housing and found its pathological expression there.

Do you think gold & other precious metals will be the new thing?

You can alread hear the hype about "all the gold ever mined could fit into..." and "the price to mine silver is..." etc.

You gonna bust out some Dom soon?

Maybe a Dos Equis is all I can afford but if the pickens get good, maybe I'll ditch Phoenix for my home town of San Jo.

We shall see!

I'll be honest... Every day that I have to listen to depressed, miserable, overworked people bitch, complain, and moan about their life of whoas, mostly concerning the high cost of living, the high cost of housing, and the loopholes they have to jump through to just live in California, the more I realize that my ultimate decision to go back to my home state of TN and move out of CA was a wise one. I'm so tired of all the silly little under the breath statements about "the bible belt" and those conservatives- whoever they might be- and this and that, and how GREAT the weather is here despite the fact that for 3 years solid, it's rained all damned winter long, and how much culture there is, and how it's all worth it.I fail to see compelling evidence that the intelligence, natural beauty, or diversity is that diffrent here from anywhere else. We ALL have our own perceptions of what a truly diverse area is, and if you make a statement that "there's too many bible bashers there", then you yourself have failed to comprehend the very word " diversity". You must learn to be truly tolerant and open to ALL forms of religion and opinion.. after all, isn't that what SF is supposed to be about?An open minded mindset? If you fit in the above classification, then perhaps you would be better off to simply claim that the local character of certain california regions fits your limited perceptions better than other places. That would be by far more accurate.
What really pisses me off more than anything is hearing people say" golly- lookit' what 300k will getcha' in Palooka Alabama! I could buy 10 of em in a row! Listen. 150k.. 200k... 300k is SERIOUS money in these areas. You go in there sashaying your way around- the big Californian or New Yorker, shell-shocked from years of unrealistic housing prices, and lo and behold- a 200k house with a yard! So it sounds cheap cheap cheap! Forget the local character... maybe you can ignore the so-called ignorant ways that you project on the locals. Perhaps a little coffee shop there.. a little coffee shop here, and maybe.. just maybe it'll look like San Francisco! This sort of crap is what I see every single time I visit Nashville. There's a whole slew of neighborhoods absolutly full of Californians. They live in the most pricey part of town. They are moving there by the thousands.. and they are making the real estate prices go up up up, not because there's a limited supply, but because Californians will pay anything, without haggling on a house that they percieve as "Cheap" by their CA real estate scales, but expensive by TN standards. All I am trying to say here is that I feel that CA, NY, MA, etc muddied there own water. If they want a solution, then the answer isn't to go and start round 2 in another state. I think the change for TN, NC, TX, and VA is GREAT. I see a very bright, diverse, sophisticated, and healthy region coming of age where the other traditional regions are going to have a serious decline over the next several decades.. in essence, CA and NY are the next Detroit, with an industry based in the comfort and retirement of old farts, while the brain power will be long gone. But for those that are simply moving there because it is cheap, and hoping to simply ignore the local traditions and customs, then please stay in your little hovels in SF and LA.
Seriously, I'm just about fed up with all of it. Sorry for the rant. I've had a lot of thinking going on this weekend.

George,

Your "bar metaphor" is nearly perfect except you left out the folks that "know their limits" drink responsibly and left before the only people on the road are cops and drunks. The ones that "cut themselves off" to post their observations on the housing crash blog?

Michael Holliday,

Peter P and others that track precious metals would be a much better resource than myself. I have a lot of things to track and I do not believe trading gold is a casual undertaking. You need the desire and commitment to become a "student" all over again. At my age (late 40's) I'm not sure I have the energy to be the new kid on the block. Additionally I don't really know any commodities guys personally so I don't have an "in" at all (no one that owes me favors anyway). Also, with 2 daughters in college I don't have the liquidity to become a professional traders "new best client" or his "go to guy".

I saw a commercial that perfectly summarized the premise of this topic. It was a REMAX TV commercial.An older couple with white hair in tropical clothing, in front of what I can only assume was a house in California. "We wanted to retire.. to Mexico", exclaimed the elderly gentleman. Thus the dialouge of the commericial continued, how to "make your retirement dreams a reality",in the form is selling what I can assume was their vastly inflated house for a bazillion dollars, then showing their immence house in Mexico with scenery of perfected coastal Mexican shoreline replete of any Mexicans or poor people. To me this sums up what so much of the housing bubble is now all about, which is convenient exploitation of not only of 3rd world countries, but many parts of the more affordable regions of the country.

Good post Nomad.

Good post DinOr.

Din:

I'm just asking an intuitional question: "do you FEEL that precious metals are the next bubbe?"

Not an analytical question. What's your hunch?

Thanks!

Your “bar metaphor” is nearly perfect except you left out the folks that “know their limits” drink responsibly and left before the only people on the road are cops and drunks. The ones that “cut themselves off” to post their observations on the housing crash blog?

Perfect metaphor with this addition. Although I'd like to think my wife and I are some market timing wizards, in fact we simply cut ourselves off after the 3rd stiff round of housing bubble cocktail and hailed a cab home.

This market is crazy. Fannie Mae may restate its accounting error to the magnitude of 11 Billion (boys and girls, this is a 57 billion dollar company), and yet its stock price barely came down a few cents. Any other company with this kind of scandal would have folded long time ago.

I am no conspiracy theorist, but I am starting to believe the PPT (plunge protection team) story, it seems every bit more plausible as days go by.

Randy H,

Here it is Monday morning and we're talking about cocktails. O.K, I'm a sport. How does one make a housing bubble cocktail?

Randy, I'm not trying to break my own arm off patting myself on the back either. The fact that our old house sold on the last day of 2003 (before the mania was a full blown circus) was more coincidence than anything. If you participate in the "sweet spot" of a movement you're fine. The older I get the more I'm convinced that investment success is based more on "what you don't own".

DinOR,

I believe that Randy sold at the top, spring of 05. He beat you to the game :-)

I am just shorting a bunch of housing related stocks, haven't really reaped a big profit yet, but hopeful, as long as PPT doesn't screw my day.

Michael Holliday,

I really wasn't trying to dance around the issue, it's just that I'm not qualified to render and opinion. I don't even try to be an expert in all aspects of trading. Now, given that, I have a sense that the mortgage "re-set issue" is going to be bigger and more impactful than the financial media is letting on. In fact I think it's so horrific most of us would just as soon not entertain it. One of the articles linked said that the sales pitch for the 2/28 sub-prime ARM was that after 2 years the homedebtor's FICO would improve and then they could re-fi. One lender they interviewed said point blank that just isn't happening. There isn't any equity and their DTI is worse than ever. Capital always seeks it's most efficient use. Dollars will likely continue to flow out of MBS (as it should) and into other asset classes. Will gold benefit? How can it not?

SFwoman,

one house down my block is trying to sell for 1.8M, and I looked it up on zillow, the owner paid for 550K in 2004. Speaking of bubble!! It is the same darn house, the owner didn't even throw in a granite countertop for god's sake.

Yeah, money starts to grow on roof...

OK, excuse me for my ignorance, can anyone tell me why I/O loans have to reset? Can't they pay I/O loans forever? Is it mandatory that the borrowers have to refinance? Why if they keep paying their interest?

Sorry for the question list since I never bothered to look at this option anyway. I always thought you could just pay I/O till eternity.

Owneroccupier,

Oh that's right, rub it in! No, I don't feel bad at all. I'm all about the "sweet spot" of the move. My oldest daughter graduated HS in 2003 and we knew we would have to help support her in school so there were personal issues as well. Not the least of which was that everyone loved the old house but what do you think your chances are of getting a teen-age daughter to spend her Saturday afternoon on a riding lawnmower? Everyone loved the Christmas lights but was no where to be found when it was time to put them up. I'm not AS bitter about it but it became a one man show and the girls were becoming young ladies with their own interests (sports, boys etc.) and painting gutters wasn't on their agenda.

Owneroccupier,

Good question! I suppose that the only reason I/O's and ARM's re-set is so they can re-sell the loans in the secondary market. It gives the appearance that the borrower has at least some design to ultimately repay the loan otherwise it's just like renting. Hey wait a minute, it is like renting.

1.8 mil in 06 from 550K in 04? What's the matter? Don't you like Amurika? A 227% return in under 2 years? Why would we grudge anyone that? Afterall, they did take the trash out and did some weeding!

Mr. curious,

speaking from experience, the last nail on the coffin has to be a stock market event, that is how the RE fate was sealed in Japan and Hong Kong. Otherwise, the sheep's attention won't be secured. Stock market loss is the biggest wake-up call.

What I predict will happen is the implosion of either of the GSEs, Freddie Mac or FNM, or some BIG REIT fund going under, sending the tremor to the whole sector. GSEs don't have to go under, but they have to be distressed enough that a government bailout is absolutely necessary to treat them as a going concern.

When that happens, the sheep sellers will slash price left and right, sending the price of homes spiraling down.

I recently looked up some new developments in the fringe of the valley, many new homes of almost exactly the same lot size, home size and location are selling at 100K-200K less than the 5-year old homes. While the homebuilders are aggressively unloading, the individual sellers obviously haven't gotten the memo yet.

Mr. Curious,

"we ain't there yet"

I agree, but we're close. There's a growing consensus in the media that this is awfully big to be swept under the carpet. The funny thing is that the pain started in places that seemed the least bubble prone. Defaults in Ohio? Appraisal scam in Kansas City? Appreciation was tame in these areas when compared to CA. What will happen re-fi's are no longer a viable answer there?

DinOR,

further questions.

What about those people who are on 30-year, 15-year ARM loans? These people are not categorized into the reset right? We've had the traditional ARM for years right? In fact, most of Europe and Oz, Canada are on ARM.

So the only resets required are those that don't pay down their principal? As long as you pay down your principal, you don't need to reset?

So I/O loans or negative am loans cannot be packaged off to the MBS market and passed on to the next sucker? Does it mean those who issue these exotic loans will have to be the bagholders?

Thanks.

Owneroccupier,

Good questions. I don't portray myself as an expert in the mortgage underwriting process but part of the appeal of buying ARM's in the secondary is that they DO re-set. This provides a hedge to the investor going forward. Many of these have Pre-payment penalties which also protect the lender and investor. My understanding is that that about 500 bil. will re-set this year. As I've said before, hauling GSE exec's out on the carpet will not help MBS shareholders (although it may make them FEEL better) it will not provide relief. All ARM's have provisions that allow the lender to change rates and ultimately payments as in "adjustable". There are new legitimate firms out there that actually help folks with debt/micro management issues like getting their credit cards paid down, then they wittle away at you auto loans and then focus on pre-paying your mortgage off in 8 to 12 years instead of 30 or God forbid 40. They are not that popular and I don't understand why. I guess when you can buy a home on "04" for 550K and sell it in "06" 1.8 mil who needs a financial advisor?

SF Woman,

Points well taken. Not long back Harm coined a phrase about GSE's that just about summed it up.

Privatize Profits
Socialize Risks

Says it all for me!