patrick.net

We even predicted that ETFs that would surely quickly follow in the wake of CME futures and options markets.

I was too optimistic. :(

The CME Housing Futures, is a gimmick, pitting one gambler against another. Its a Las Vegas style game, which is irrelevant and has no bearing on gains or losses in the housing sector. You might as will go gamble on hurricanes. I here it's a lot more fun.

I'm with ajh. It may still grow to something substantial, but people who are most likely to play are over-vested in the RE bubble. And without the volume from those people, the arbitragers and secondary hedgers have a good reason to stay in the sidelines rather than risk going into unchartered waters.

I think we may start to see new interest once people become more rational about housing again.

Off topic.

Finally, I stumbled upon someone who (roughly) shares my disdain for meritocracy. Here's the article: http://www.guardian.co.uk/comment/story/0,3604,514207,00.html

For those who still contemplate sending kids to "good" schools, think again what the word "good" means. If it means excellent academics and "faux" athletics, you and I don't belong together.
After all, excellence should come natural, preferrably without effort. If you have to resort to schooling to bring up "excellent" kids, I am sad to tell you, "it will never work out in the end." In any case, the whole meritocratic system has more or less destroyed the Ivy League.

Well, when NYMEX Crude Futures were introduced there were "wobbly" at this point as well! Now it's fairly substantial. We are being entirely too antsy about this whole thing. Joe Howmuchisthisamonth was never Schiller's target market. This is a legitimate a necessary investment tool. Everyone from your local realtor to the administration is quick to remind us that for most Americans our home is our largest "investment" yet it took until 2006 to develop a futures market? This will help contain the housing bubble from becoming a global depression and keep the pain where it belongs ( on the FB/specuvestor). Because lenders will be able to mitigate their loses by assuring shareholders they have the situation "under control" the liquidity spigot will not dry up completely. In doing so every Patrick faithful will be able to get a "sensible" loan after the correction in their respective area (whatever that means to you). Without the option to hedge your loan portfolio going forward the doom and gloom will spread to sectors that never benefited from the HB to begin with. As a group we tend to be bearish and love to critique but housing futures are something we should be cheering (unless you can afford your post bubble abode cash money).

losses?

RC,

If you get a chance please detail your reasoning on the methodological shortcomings of the CSI on my blog (use the link in the OP). I didn't read the method as having that much time-series sensitivity.

DinOR,

I'm with you. I am very supportive of CME Housing Futures, and by no means think it some gambling or scam scheme. A lot of people don't understand derivatives and think the whole thing is a four-letter word.

My question is more about why the drastically increasing uncertainty isn't driving more interest in the market. If I were a tiny lender with say $300M in loans on residential real estate, then I could benefit tremendously by delta hedging, then matching duration on the rates. So, why aren't they at least testing the waters with a couple million here and there?

Randy H,

It's a "new animal" for them too. I knew several of the institutional traders at Wells Fargo (Series 55 Licensed) and they said it took MONTHS to implement new software programs and policies. All of this stuff has to clear regulatory hurdles as well. Nothing happens quickly and most banks look at and are managed by the quarter. Nothing new happens mid quarter (typically). They will probably "paper trade" their trading programs until they are comfortable with this new format. I have a buddy at _______ Financial Software so maybe he can shed some light on how this will come to fruition. He's on the road so it may take a bit.

SQT,

Looks like the post has been removed. Care to summarize? I really could use a laugh.

"But please, don't give your house away"

"If you've got to sell"

I'll take it this "poster" didn't make their name available? No. Of course not.

Please keep your asking price in the realm of the ridiculous so I can sell mine and when I'm down the road with my skin intact good luck suckah!

Oh things are getting pretty desperate in SAC! We'll likely see similar posts from other areas soon so this must be the canary in the coal mine.

"you know this market WILL eventually rebound"

WILL? O.K, I can go along with the WILL part but define "eventually" for me will ya'? Will that be in my lifetime?

Next thing we'll see will be "train wreck scenarios" from realtors that harken back to the days of old when people stayed in a home for the life of the mortgage.

SQT,

I just happened to think that submission might be more appropriate in the "bargaining phase". Have we really moved that swiftly?

SQT-

Thanks for posting that idiotic craigslist pep talk from the anonymous Amway hopeful. That mongoloid diatribe reminds me of the sales pep rallies we used to have to endure from lower management in the retail sales jobs of my yesteryear. The author of that post needs a polyester red sport coat just like the warranty-hucksters at Circuit City. THIS, my friends, is theatre.

George,

Yeah, I guess I can feel bad for the guy but this is the risk we take when things get too "cozy". Used to be in the stock market if a client refused to pay for a stock purchase they had previously agreed to and the stock was up the broker could just purchase the shares and dump them on the open market for a profit. They put an end to it b/c there was too much opportunity for manipulation.

"Oh, gee Mr. Client, I know I told you I could have this home sold at a healthy profit in 30 days so I'll tell you what I'm going to do". "Since we both well know your financial situation why don't I just buy it off of you at a loss and I promise we'll swing for the fences on the next one".

This has to stop. No more sleeping in the same bed.

Howdy folks,
Just got back from a week long vacation. I spent most of it driving around the state. While me and my wife and parents toured the state, it was interesting to note that of all the places we saw, most of the small towns seemed to be relying almost exclusively on RE for their local economies. In some towns, literally every other former barber shop and hardware store was a RE office. Driving through fields, we saw sign after sign after sign up out front with open house, for sale, and coming soon. It seemed that the percentage of homes for sale in these middle of nowhere places was much higher than that in the city.
My parents also filled me in on the home front in TN. Apparently there is now an unrelenting sea of people moving in from FL, NY, and MA. Unfortunatly, this is starting to cause some of the lower end housing prices to rise. New housing developments are now fairly rampant, and some of the same speculative fever that's gripped CA is now in full swing there as people from TN and other states are buying up homes.
My parents hadn't been in SF more than 10 minutes when we were on the BART when a young woman asked them where they were from ( they have strong accents). She replied that it must be nice to be able to afford to live there, and how nobody could afford here, and on and on( enter usual housing woas here). My parents are not used to hearing this kind of language that has become so commonplace here and were taken back at just how miserable this woman was.
My dad had the usual uninitiated response which was how in the hell do people afford to buy here? Interestingly enough, I had a hard time explaining to him the whole exotic loan/ CA is better than anywhere attitude that permeates the region. I don't think he understands even now.
For the 4th of July parade in town, both major RE offices were out and about walking around their floats, waving, smiling, etc. I found it interesting that out of all the bands, churches, dental offices, and police officers in the parade, they were the only ones that didn't get any applause or smiles from anyone. Sort of fitting if you ask me.

I had to share this little gem with all of you:

http://losangeles.craigslist.org/lgb/rfs/180744800.html

There are so many to choose from, but this might be my favorite quote:

"The house may be making more than you each year and it doesn't even commute".

Despite the fact that the author of this ad is a Neanderthal, this might actually be the cheapest house I've seen for sale in SoCal.

"single handedly prop the market up"

Well, even if that were so (and it ain't) I hardly think Craigslist is the proper format to "build credibility". Firstly IT'S FREE and secondly I believe there are links there "erotic services". Wouldn't be my first choice as an image builder. But then again these are desperate times.

Red Whine,

How do you guys come up with this stuff? I love the ones in LV where they say "FREE EQUITY". "This house was appraised at 360K and we're willing to sell it to you for 320K giving you 40K in FREE EQUITY!

Well genius, if it's appraised at 360K then you should be able to sell it for at least that and keep the "free equity" yourself! What? Can't sell it? Not even close? Oh you know what? Just never mind!

There is no way to arb between the underlying and the futures. Perhaps this is why the liquidity is not there. Isn't this similar to weather futures?

There is no way to arb between the underlying and the futures. Perhaps this is why the liquidity is not there. Isn’t this similar to weather futures?

You could arb the positions, but it would be difficult and very illiquid on the underlying side. For weather futures you could buy & sell concerns directly related to the weather region. Same with housing, but a bit more difficult.

You could create a hedge-hedge. For example, using options (or LEAPs) on Home Depot you could play the correlation of HD to the composite housing index. But this would a big statistical quant play, probably best left to quant hedge funds with the computing and brainpower to have a chance at pulling it off.

But with no liquidity to begin with, it's all a moot point. The operational hedgers need to come first before there's room for arbitrageurs and speculators.

You could create a hedge-hedge. For example, using options (or LEAPs) on Home Depot you could play the correlation of HD to the composite housing index.

This will not help the regional futures.

Did you guy hear? Microsoft is going to have an "iPod-killer" named "Argo".

Why would it name a music player after a sunken-battership-turned-spaceship?

SQT,

Exactly, posting an "open letter" on C/L is on about an equal footing with....... graffiti? While some of it can be entertaining it's hardly to be considered advice.

It is getting quiet in here.

This will not help the regional futures.

True enough. You could build a hedge-hedge for regional futures on weather in most cases, but doing so with housing is about impossible.

What about finding businesses with heavy cost sensitivity to real-estate prices as reflected through commercial leases? Assuming they exist and you could get reliable data to build correlations, you could hedge-hedge against them.

Peter P,

Sounds like Microsoft is trying to do something about Apple's hold on the portable digital music market and also venturing into PSP territory. If they're going to call it the Argo, why not just call it the Titanic and get it over with? It will be too large, too clunky and it'll be prone to sinking. Yeah, it's wireless, blah blah blah, but it will require multiple OS downloads every month to combat all the hackers. How many times have they tried to take out iTunes with money? I know Microsoft as an entity isn't stupid, but some of their products sure seem unstellar. Perhaps this particular war is directed at the PSP

What about finding businesses with heavy cost sensitivity to real-estate prices as reflected through commercial leases?

But commercial RE and residential RE can diverge greatly especially in psychology-driven markets.

Moreover, I think there needs to be sufficient speculative interest in those markets for them to be liquid. I am so surprised that the speculative interest is non-existent.

George,

That article gives me little comfort, even as schadenfreude. I fully expect the Boomer retirement income crisis to result in increasingly confiscatory taxation upon the younger generations. They won't tax other retirees, so the 20% or so Boomers who did save enough will be handsomely rewarded. The rest will just steal our money.

The way I suspect this will happen will be "borrowing against future taxes", or deficits. Then, when X rolls into retirement those who saved for the golden years will find no allies among either their own generation or the younger gens. We'll get taxed into oblivion.

I can actually see some future environment when elder Xers are viewed as having "greedily stolen from the government for years by not paying taxes on their ill-gotten 401k gains". Of course, by then no one will remember or want to hear about the 2 gens that passed before us which caused the problem; they can't be taxed or punished at that point. So, they'll go after anyone else with $.

Of course by that point I'll have long since retired to Mauritius.

Randy, this is why it is of extreme importance that we retire with the boomers. We do not have a lot of time. I would say at most 15-20 years.

George,

You know that's kind of funny coming from Paul B. Farrell. The guy totally bashes brokers and fin. planners (that typically advocate saving/investing) so it's odd to cite studies done by mutual fund companies when he usually touts "no-loads" to the hilt. You see, Paul is a "you guys can do this" kind of guy.

Where much of the negative savings comes in is that Joe Howmuchisthisamonth has been told that paying 1/2 of your take home pay to a mortgage company is the new "standard". Boomers are the focus of his article as they are next in line to retire but the truth is that FB's of any age aren't in any better shape financially, just a little younger.

Oh, btw I REFUSE to treat boomers lack of savings, foresight or general lack of reasoning skills as a freaking CRISIS! No one else should either! Just remember boomers; All you need is Love!

Apple and Microsoft shouldn't pend too much of their futures on portable MP3 and movie players. The real future is in cellphones. Pretty soon, most of your computer needs, entertainment, MP3's, movies, reading materials, and web browsing will all be on your phone. I'm fairly confident that at least apple knows this.I can imagine that "apple wireless", would position them into having a majority control of on on-phone media. If they aren't then they're stupid. Microsoft surely knows this as well, so perhaps they're throwing this player out as a temporary fix. MP3 players of today can be equated to the Ad-on FM tuners you could buy seperatly for your 72' Dodge charger back in the day.

The real future is in cellphones.

However...

A mobile computing device is too big to be used as a cellphone.
A cellphone is too small to be used as a mobile computing device.

I thought cellphone and electric shaver will converge ( ;) ) but that did not happen.

Peter,
I actually work for a company that researches and sells cellphones. The truth is that some of the up and coming phones have as much as an 800 mgz processor in them. That's more than 60% more than the current speed, and as time passes, a doubling in processing power is made available within a time frame of usually 7 months or less. That means that within a year and a half, cellphones will possibly have the same computing as a laptop. Some of the operating systems are getting awfully close to that you'd find on a computer as well. Some of the entertainment options now available for phones is impressive. The only thing that's stopping people from being able to watch movies outright on either cellphones or Ipods is a restriction from the movie industry.That and carriers are all trying to specialize their technologies so that you HAVE to have their service to watch movies, clips, music, etc. Bullcrap. Phones are becoming more like a conventional computer, so the need for carriers as sources for media is uneccesary. But they'll only be able to stall the enivitable for so long, or until they have caught up enough to find a way to regulate it.
As crazy as it sounds, the next tech and entertainment wave is and will be on cellphones. You should see some of the options

I like the idea of having centrally run main computer and have cheap receiver devices. I definitely see iPod (and GPS and swiss army knives) and cellphone devices converging. Not quite so sure about the oncoming convergence with electric shavers though.

Is there now a razer with five blades? Anyone tried it?

The truth is that some of the up and coming phones have as much as an 800 mgz processor in them. That’s more than 60% more than the current speed, and as time passes, a doubling in processing power is made available within a time frame of usually 7 months or less.

True. But the problem is in the tiny screen. Unless they come up with foldable/flexible screens, size will be a problem.

SHTF,

I think the big challenge for cellphone makers is the small size of the screen. I don't really see how that could be changed without affecting their portability.

DinOR:
"Just remember boomers; All you need is Love!"

Right! All we are saying -- is give peace a chance!

Maybe create a boomer death cult will take care of the problem.