patrick.net

Peter P,

My primary beef w/HF's has been that we really now have (2) markets. One regulated, the other not. One with Reg. FD and another that operates under a cloak of secrecy.

It was wrong for the "wires" to upgrade the subprimes with likely full knowledge of their impending disaster. They will hear about it. Believe me.

Just recently several "former" employees at the wires are being accused of leaking info to HF mgrs. Oh!!! So THAT's how they've been getting those great returns! In ways it's like the old joke about the woman that complained about her MD's "unorthodox" examination as she exclaimed "I'll SUE!" So the guy says, go for it lady, I'm not really a doctor!

Bad, I know but you get the idea.

It was wrong for the “wires” to upgrade the subprimes with likely full knowledge of their impending disaster. They will hear about it. Believe me.

Perhaps the market is too dependent on the "wires." :)

My primary beef w/HF’s has been that we really now have (2) markets. One regulated, the other not. One with Reg. FD and another that operates under a cloak of secrecy.

This is a valid concern. But what is the real difference between a HF and a restaurant partnership?

What is the "real" difference?

In my mind the primary difference is that you and I can't circumvent the FDA and local health inspectors just b/c we decided we were only going to offer our food to a select group of people?

In many cases, competition can be bad. Just look at the subprime mess. They are going to say “competition made me do it.”

Peter P,

Again, we disagree. I would respond to subprime lenders: "Competition had nothing to do with it and you damned well KNOW it. The Fed's 1% + GSEs' massive injection of cheap mtg. money + Yen/Yuan carry-trade + Congress's 24-month club incentives had EVERYTHING to do with it." Remove the massive government manipulation, moral hazards and mis-incentives and *poof* goes housing bubble.

Remove the massive government manipulation, moral hazards and mis-incentives and *poof* goes housing bubble.

True.

The bond market has been doing very well this week, with the yield curve becoming even more negative. So the bond market is not predicting inflation, on the contrary, now they have priced in a Fed cut in August. At this rate, it will be a 1/2 point cut, instead of a 1/4 point.

An anecdotal note to rising lending standards: for some time now, I have been rolling over $30k from one "one year no interest" teaser rate credit card offer to another. This makes me ~$1500/yr in interest income before taxes, but mostly it amuses me to act like a bank and make money on the "carry trade." Last week, I got turned down for the first time on a credit card offer since college. So I checked my credit score and it is 770, still pretty prime. They said I had too much debt to income.

NV,

All I can say is that if you're a MB AND a realtor that "qualifies" his/her own clients.....LOOK OUT! It may be easy enough for some guy that got tired of driving the Frito-Lay delivery truck to write subprime mortgages for da' big bucks to wash his hands but Lord help the those on both sides of these transactions.

The incentives to pencil whip that are just too rewarding. And too easy to identify.

@NV,

Again, I think that it all depends on imposing the right KIND of "regulation". Some forms of regulation create worse moral hazards than the problem they were supposed to "cure".

If the market predicts a rate cut, the spring bounce may be a silent one.

I remember the boom really took off when the Fed started raising interest rate. With an expectation of falling interest rate, market participants may as well just wait.

Today's charts of the selloff was actually pretty interesting. Compare it to the massive drop before and you'll see there wasn't a lot of volatility to this sell off. Check the Nasdaq, S&P, and Dow, and what you'll see is a drop from the previous night's close that holds steady in the morning, and then a very orderly sell off during the day. No peaks and valleys as people jump between buying and selling, and no 'end of the day bounce' you see in most other big sell offs.

Well, if the subprime woes are not contained, which I don't think will be, a massive bailout is just going to happen, and this is how democracy works. I've never lived through S&L bailout, but I'd like to hear first hand experience from people who went through it.

The US government will eventually have to face the choice of
1) trashing the last bit of credibility of USD by cutting interest rate, in an inflationary environment (wait for the oil manipulation is gone and oil is back on rising track again)
2) saving the economy - the effort will prove futile, nevertheless, voters want jobs and politicians have to look as if they were doing something to help

Fed is finding itself between a rock and a hard place, but I believe that we will have to opt for route 2). Funding the bailout is never an issue, considering how much money we've already printed. Btw, our printing press has been slowing down since 2006 compared to other parts of the word, US monetary growth was only 9%, compared to 13% in Australia, and 18% in China!!!

If the market predicts a rate cut, the spring bounce may be a silent one.

Peter P, are you a novice or what ? :-)

If rates are going down, buy now because prices will go up and you can refinance later if rates go down a lot.

If rates are going up, buy now and lock in a good rate.

I repeat, when Fed lowers their rates, mortgage rates may not go down. Even if they do, lending standards will go up compensating that. Cheap rates for anyone with a pulse will be a thing of the past.

OO,

As I recall the "wires" made out on that deal as well. They packaged and retailed "RTC Notes" (or something like that) that basically traded like STRIPS. No current int. paid but phantom income based on the discount they were sold at when redeemed or at maturity.

I'll glady pay you tomorrow for a hamburger....

DinOR,

how long did it take for people to get back their savings from the failed S&Ls in the 80s? Did any savers lose their deposits?

I am more concerned at the failure of brokerages these days because most people I know park their dough at the brokerages, not banks. And sensible human being will only deposit up to $100K at any FDIC-insured bank. Although there is an insured amount of $500K at brokerages, the system just never went through the test, so I am not sure how this entire thing will play out.

I found another fun shorting target, POOL.

I remember seeing news about a few months ago from local TV saying that many families in the Bay Area are not keeping up their pool service properly, so the local departments have to send a helicopter flying over the neighborhoods to take aerial photos for identifying potential mosquito breeding grounds. The reason why many households are not properly maintaining their pools is due to cost, at around $100-120/month.

I have discovered that quite a few neighbors in my neighborhood were putting in new pools in the last few years amidst the housing boom. But when things turn ugly, that $100 discretionary spending is heading down the drain first, not to mention an extra cost of $25-50K putting in a new pool. Pool expenditure is far more discretionary than furniture.

Peter P, are you a novice or what ?

Yes, I am.

SP,

do you remember this listing?
Sold for 1.65M in 2005, was trying to sell for 1.75M all last year, pulled from MLS, and came back on market for 1.675M. Considering that property tax of 2006 alone was already 18K, this guy is sure to lose on this transaction even if he sells the home himself. Woohoo.

http://www.mlslistings.com/common/properties/propertyDetail.asp?open=0&page=1&mls_number=708231&type=property&name=

OO,

Offer 800k.

From the original thread starter:

Steep losses in real estate related employment are being absorbed by other industries.

Only if you believe the gov't figures, which, surprise surprise, don't include illegal workers. Those figures show that the downturn in manufacturing and construction has almost entirely been offset by... wait for it... gov't employment. If you include the imputed loss of employment for illegal worker (and construction has a bunch, don't forget), then the figures skew noticeably the other direction.

OO,

IIRC a lot of people lost money as a cause of the failed S&L's. When John Keating went to trial there were blue haired old ladies swinging their handbags at him (if THAT means anything!)

Merrill cut a fat hog. They probably built at least a point or 3 into the takedown I'm sure. I think they called them RTC Strips and they were sold in different maturities so the gub'ment could allow the press to cool down periodically. I remember one client that owned them but he had to hold onto them for a long @ss time to maturity.

If I were designing a house, it would probably look a lot like that! :)

I think everyone should watch the Uncle Angelo interview. He repeatedly said a few things.

1. CFC is not like "those" companies who are in trouble. CFC will be fine.
2. It has become a credit crisis, "unnecessarily".
3. Everyone needs to "step back" and not over react.

I translate this as, his lenders are giving him REAL hard time. He wants them off his back, but they just won't keep quiet.

Jon,

Thank you for that trip down memory lane. I went through a phase as a teen reading Vonnegut and Jerzy Kosinski next to the pool at home. No matter what the themes of their books they remind me of sun and coconut oil and drinking powdered Lipton iced tea.

Is that interview available on the web yet?

I can’t stand Eichler’s.

Me neither. Glide House is much nicer.

http://www.mkd-arc.com/whatwedo/glidehouse/index.cfm

SFBB :

Go to MSN Investor and open the daily report. You will find the link to the report over there.

http://articles.moneycentral.msn.com/Investing/Dispatch/070313markets.aspx

Fatal,

I had forgotten Consumers for Christ. I'll rent Brazil again. I guess we had Patriotic consumerism post-9/11. WWII had victory gardens, we were told to go shopping and moved daylight savings time three weeks early. Oh, the pain!

Japan down 2.4%. Other Pacific/Asian markets down as well.

That 1.65M thing in Saratoga is an Eichler?

I don't care if that's Saratoga...I won't pay $700/sqft for a slab floor.

I'd take a Glide House of some other modernist prefab over an Eichler--the build standards are far better (and I bet plumbing is easier to fix too). Of course, land costs are an issue in the SFBay, but outside CA it might be reasonable. Something tells me we've discussed this before...?

I was just referring to the openess of the design and the way they integrated the pool into the overall layout of the home. Actually I would say this is more like Michelle Kaufman's "Breeze House" which is really for people that feel couped up (like Oregonians) :(

MKD's breezehouse is a lot nicer than glidehouse. I did more research on the web, and came to a different conclusion than the one I arrived at earlier. The modern prefab homes should be better built than custom stick on site. The cost savings is not much, about 5-15%, but you have more QC along the way.

One of my neighbors has been building this really nice, steel frame custom home for about 3 years, he is eventually done with the shell and moving on to the interior now. You didn't read it wrong, yep, 3 years. I don't know why it took so long, but by the time it is done, it will be a stunning 6000 sft+ modern house. But there's one problem with it. Some of the sticks and wood panels have to weather months of rain while being built, which is very conducive to mold no matter how you treat it. If I build a home from scratch, I prefer to go with modular, or at least have most of the home built off site within a factory to be assembled on site.

I also looked at some newly built homes in BA, most, if not all, of them are of sub-optimal quality. One of the homes a few blocks down that was sold last year for $2.6M has this really elaborate mosaic marble pattern at the entry, but guess what, the border line is not even straight! The ornamental pillar is made of plaster, and the fireplace marble tiles don't match in color. These are the little stuff that my naked eyes can catch, I have no confidence in what my nakes eyes cannot catch.

Also, some of the remodeling experience my friends went through indicated that the building labor here simply don't care. In BA, what you get are $15/hour Mexican labor (mostly illegal immigrants) who don't give a shit about your home, and have little or no prior construction experience. They cut corners whenever they can, so that they can move on to the next job ASAP. Unless you spend lots of time becoming an expert in the construction process yourself and supervise on site 24 x 7, you have no idea what kind of stuff goes under the hood.

Therefore, I prefer to have a home manufactured by quality labor on a factory floor, while the factory itself has a reputation to defend.

@FatalException,

CHOLERA :lol: Nice job! Btw, Brazil was a movie waaay ahead of its time --still one of my all-time favorites.

bruceb,

I am fascinated by Google.

Some things don't make sense to me because they seem to defy sensible logic.

If I wait long enough, what I thought was "common sense" was right, and all the hip and cool spinmeister spin was lies.

Like, the overnight electricity shortage in California a few years ago, and the concomittant Google-like rise of Enron. (Yes, yes, probably supply is tight. But, we experienced an "overnight" shortage of massive proportions).

You see, I still have never, ever, heard one single person, of any age, of any degree of "internet savvy", say that they made a purchase from a website that Google helped them to find.

sybrib,

I just did, literally five minutes ago! I wanted to send my landscaping contractor a gift for really, really doing a great job (we are about 90% finished and he is an absolute perfectionist) and he likes exotic fruits so I googled 'Exotic fruit basket' and got a hit for Melissa's Deluxe Exotic Fruit Basket. I just ordered it.

SFW:

Thank you for sharing, now I've heard of one. I think like bruceb is mentioning, there will be a reckoning to see if there's enough people like you for that capitalization. Time will tell.

SF
I didn’t even bother to point out the obvious signs of softening. Why would I at this point? It would be like pointing out the flaws and contradictions in someone’s religion. I then realized that real estate had become a religion, something that people worshipped and had faith, even with evidence to the contrary, in. The ‘Manifestation’ stuff, and prosperity Christianity are just attempts to blend this new Prosperity/Real Estate religion into established belief systems.

SFWoman, you rock. That is an awesome analogy. It is totally like that. That was just like that idiot Reality. He didn't have a point to make, just wanted to condem us for our beliefs. When people used to tell me I was a fool for thinking the party could end, I would ask them why can't it stop? Their reply, the trend points upwards. It was pure faith, they just thought it would keep going up despite evidence of the fundamentals being totally disconnected.

SP -Although I was expecting it to happen, I was surprised by the speed and intensity with which subprime was hit. I am wondering if we should rethink our previous assumptions on how quickly this will roll once it actually starts.

This site is not a crystal ball. It is just a reminder of out of whack fundamentals. There is no timeline, just a predicted pattern of events, one logically leading to the other.

I DVRd CBS news today. It is awesome. I don't believe there is ANYONE now calling for a recovery in the middle of 2007 anymore. I haven't heard the term soft landing in quite a while. They predict 18 to 36 months. That is a far cry from, 'a slowdown in the rate of appreciation.'

PAR Says:

> I’ve been collecting some data on BA foreclosures.

Once the banks take back the homes and the they are sold by the REO the Realtors will be able to report “Bay Area Home Sales Increase”…

Malcolm,

There have been some fringe articles, penned by comp-e-tent but out-side-the-tent economists, that have suggested a very fast meltdown in liquidity.

I think there is precedent for it, the margin calls for the dotcommers in March 2000. Remember how quick the plunge? After the margin call plunge, a protracted, less steep but even more deep, drop in the prices.

But "it's different this time". What is different? Unlike the 50% margin of the dotcom stocks, the "housing stock" is completely leveraged. And it's people's homes, not their 401K's or their play money. It's their homes.

And those homes have property tax collections based upon the values of those homes. Property taxes to pay for things like schools and public safety.

Yeah, it is different this time.

At least, the elite neighborhoods in this area that are in demand by rich Asians who continue to pay in cash, will be cushioned. But that's only for a few immigrant enclaves.