patrick.net

Okay, Bears Sterns just said their two funds are basically worthless. The highly leveraged fund is worth ZERO cents on the dollar, and the less leveraged one worth 9% of its april valuation. Since the large one was valued at $920 million, it's now worth less than 90 million. At least 830 million lost there, and that's the fund Bear Sterns loaned 1.6 BILLION to less than a month ago. Link : http://tinyurl.com/2czm4x

The amount of money vaporized by these two funds has got to be several billion.

So... as a hedge fund manager, what if you're holding similar products in your portfolio? Good thing you're not required to disclose what you've bought, right?

Idea for Hollywood remake-

"It's a Wonderful Life Again!"

A company named BS is busy foreclosing on homes in Rylandville. Meanwhile, word gets out that the BS companies everyone invested in have little or no net liquidating value so they line up at the local office demanding repayment of their investment. Alas, there are no funds in the vault only promises to pay by people with no jobs or assets.

BS begins to rent out all of the properties in their portfolio at below market rates just to get some sort of income.

Meanwhile, our friend George is seen shopping these many wonderful choice properties for rent and decides on a beautiful house at a nominal rent. When George reflects on selling his house a couple of years ago and putting the proceeds into CDs of which the interest is now more than paying his rent, he exclaims "it truely is a wonderful life, again!"

Glen, I'm not sure what you concern is? If it's simple worry over being evicted by a new owner, I though that any lease must be honored by next owners? Not really sure though.

Yahoo Finance Poll:

What will deliver the greatest returns in the next 12 months?

U.S. Stocks 32%
International Stocks 50%
Cash 7%
Bonds 5%
Real estate 7%

56358 Votes to date

Please note that cash is now equivalent to real estate

"Black explained that 80 percent to 85 percent is the break-even point for apartment owners. He said owners do not start kicking off serious profits until occupancy passes 90 percent."

If people in California had the same expectation maybe the bubble wouldn't have gone quite so crazy. A few years ago I was looking at an 8 unit building which was well over a million dollars, and would have had a negative cash flow at 100% occupancy. The agent acted like I was from a different planet when I said, don't mean to question the pricing, but why would I put 200K down on something to then have a monthly loss when I can just make $20,000 per year on it in interest. I have never figured out why investors buy properties that have a loss. The value of an investment property should only be derived from the income stream.

Glen Says:
July 17th, 2007 at 2:45 pm
"I will gladly enter into a 5 year lease to rent a home (if I can find one in my area which is way below the cost of ownership) IF I can get the lender to subordinate their deed of trust to my lease. "

I like the creativity but this can't happen. You might be able to find a lender who is renting out their foreclosures, I've actually heard of that happening, though in reality your best bet would be to find an FB, and let him subsidize your monthly rent with the false hope that he can buy enough time for things to improve. Make sure the lease contains actual damages that you will be owed by the owner if the owner loses the house.

Interesting thought...I forget my old property law class here. But I'm sure that the lease should be recorded at the country office for it to survive title transfer. If the lease isn't recorded, the new purchaser may be held to be a "bone fide purchaser" who takes title not subject to the lease. Anybody practice real property law here?

FYI: Aaron Krowne (of Mortgage Lender Implode-O-Meter fame) is being sued by one of the scumbag lenders he reported on. Basically, this is a de facto "gag" attempt to silence a website that is throwing light on people who do not want their shady business practices and true financial status known publicly.

If you can afford it, please drop by and make a quick Paypal donation. Thanks!

Ha! The owner of my house just dropped my rent!

We've actually been paying very low rent already. The house is paid off so they just use it for cash flow. I guess he just wants to make sure he hangs on to good renters.

>> BS. The interest on CDs is close to 0 after “government inflation”.

I am now reading Crash Proof by Peter Schiff.

Inflation is around 8-9% he says and I believe him.
I am becoming a client of http://www.europac.net/ with initial funding of US$ 50,000.00

@ ptiemann & PermaRenter:

Why would George care about inflation and the price of the Euro when he lives in the USA and pays rent in USD?

The point is that the interest pays his rent!

I'm as bearish the USD as the next guy but geeszh!?!

June DQ stats are out for SoCal:

http://dqnews.com/RRSCA0707.shtm

It looks REALLY bad in the Inland Empire...

A slightly different perspective since I am interested in both topics from Paul and PermaRenter. Just my thoughts:

I believe that historically, and one would say logically, the 'safe rate' ( anything FDIC or government backed) will barely beat inflation since these rates are the market interpretation of what inflation is. Yes, interest rates may be market driven, but like most cost burdens, people won't save money at a rate less than inflation so it is basically a price floor.

I also like the observation of interest paying the rent and the discussion that leads to. If the interest was fixed at a certain rate, and there was no growth over time, inflation would make the rent eventually pass the break even point to where the interest didn't cover it. Whether the principal is in equity in a house, or in a bank account inflation is still chiseling away at the future value, the main difference is the leverage that owning the house has, but this is double edged as many recent buyers are finding out the hard way.

Oh my God, is CAR now being somewhat truthful?

http://www.car.org/index.php?id=Mzc1NTQ=

Why couldn't Lereah be this straightforward?

Good for you SQT, that says a lot.

Harm, I made a donation. Isn't it normally businesses who complain about frivioous lawsuits? Funny how quickly things can change. Man I'm getting tired of corporate America surpressing free speech and property rights.

frivolous

>> I’m as bearish the USD as the next guy but geeszh!?!

Betting against U.S. dollar may be good buy

We all have things we worry about in the middle of the night. Taxes. Blood pressure. The creature in the basement.
One thing that's kept economists and strategists up for years is the U.S. dollar. Chronic budget and trade deficits someday may sharply weaken the dollar — which, in turn, could bring a slew of other problems. Is the dollar something you should worry about? Possibly. Fortunately, you have several ways to help shield your portfolio from a falling dollar, depending on your degree of fear.

Steady income from overseas
Top-performing international income funds the past five years:
Total return*
Fund, ticker 2006 5 years
Oppenheimer Int'l Bond A, OIBAX 2.8% 86%
Amer Cent Int'l Bond, BEGBX 0.9% 52%
Federated Intl' Bond A, FTIIX 0.9% 45%
Franklin/Temp Hard Currency A, ICPHX 2.7% 44%
T Rowe Price Int'l Bond, RPIBX 1.3% 44%
Average international income fund 0.9% 42%
* — Dividends, gains reinvested through Wednesday Source: Lipper

In a way, it seems odd to worry about the dollar, which reigns as the world's preferred currency. The oil market, for example, is run largely in dollars. And in countries such as Ecuador, the greenback has replaced the national currency.

But economists worry that there are too many dollars in foreign hands, thanks to our enormous budget deficit. The United States must borrow to finance its debt. To do so, it issues Treasury securities, which are interest-bearing IOUs backed by the government.

There's not enough demand for Treasuries in the USA. So we rely on foreign buyers to take up the slack — which they've been doing enthusiastically.

Japan owned $683 billion of Treasury securities as of November, according to the latest information from the U.S. Treasury. China is the second-largest foreign holder of Treasuries. It also holds a lot of other government-backed securities.

If foreigners became less inclined to buy our debt, the Treasury would have to raise interest rates to entice more buyers. Rates on commercial loans and mortgages would rise, too. Those higher rates, in turn, could slow the U.S. economy.

Powerful forces are at work to try to prevent a dollar meltdown. Foreigners know that if the U.S. economy were to grind to a halt, so would U.S. purchases of foreign goods.

Additionally, Treasury rates are already higher than most major world interest rates, which keeps buyers coming. The 10-year T-note, for example, yields 4.56%. That compares with 3.5% for Germany's 10-year government note and 1.6% for Japan's.

John Lonski, chief economist for Moody's Investors Service, puts the likelihood of a spike in U.S. interest rates driven by a dollar sell-off at about 15%. Those are long odds. But they're not negligible ones, either.

"There is a risk," Lonski says, "and it's perhaps foolish to be complacent about it."

David Wyss, economist at rival Standard & Poor's, agrees that the dollar is worth worrying about. The U.S. trade deficit — the gap between imports and exports — was about $817 billion last year, up from $668 in 2004.

"No country has ever been able to run a trade deficit which is that big a percentage of gross domestic product and not have a currency collapse," Wyss says.

And James Grant, editor of Grant's Interest Rate Observer, notes that currency problems don't have to end suddenly: The British pound, for example, swooned for decades after World War I.

What's an investor to do? Actually, you have many choices, depending on how worried you are. Grant recommends gold, which gains in value when paper currencies fall in value. An easy way to invest in gold is through the iShares Comex Gold Trust (ticker: IAU). It's an exchange-traded fund that invests in the yellow metal. You can buy or sell shares through your broker.

If you're really bearish on the buck, there's the Rydex Weakening Dollar fund (ticker: RYWBX). It uses futures and other investments in its effort to rise 2% for every 1% fall in a dollar index. If you're less bearish, the Falling Dollar ProFunds (FDPIX) is designed to rise 1% for every 1% fall in a dollar index.

If you're down on the dollar but eager for euros, you could invest in the Euro Currency Trust (FXE), an exchange-traded fund that invests in euros. It rises when the dollar falls against the euro, and vice versa.

Another avenue is bank CDs denominated in foreign currencies. EverBank, in Jacksonville, offers CDs and other accounts denominated in a variety of currencies, as well as some linked to currency indexes. You'll gain if the dollar falls.

It's no sure thing, though. Even though the CDs are insured by the federal government against the bank's collapse, you could still lose money if the dollar rises. EverBank's Internet address is www.everbank.com.

Probably the most sensible way to hedge against a dollar decline is an international stock or bond fund. Still, both would run into problems if worldwide interest rates rose. International bond funds are probably the better currency play. Some international stock funds use futures to hedge against currency risk.

The USA has run big deficits for a long time, and economists have been predicting a weakening dollar for a long time. They could be wrong much longer. But if a small position in foreign currencies helps you sleep, then it might be a good investment.

Thanks Malcolm.

PermaRenter

It's funny that you put that up today. My brother lives in Thailand and I just talked to him this morning. Apparently the Thai government is very pessimistic about the dollar right now. According to my brother they are bracing for a world wide recession and most of their concern is aimed at the U.S. They are heavily cracking down on foreigners working in Thailand because they don't want Thai people losing much needed jobs. My brother can't work right now and he'll only be able to get a job once he finishes his college degree and proves he can speak fluent Thai. He also said that they are forecasting over 2 million people losing their jobs due to the expected recession. Oh, and he added that the exchange rate on the dollar is just getting worse and worse.

Hm, I was thinking of going to Thailand for Christmas Break.

Does that mean I shouldn't go anymore?

Any good Thailand tips?

Eburbed

I'll ask my brother next time I talk to him.

OO said in last thread I don’t know how long this will last, it’s like watching the paint dry.
I hear ya... I have been monitoring several houses on my bike ride home. They all sold in under a month. There was an overpriced condo that sat on the market for a while, but even it sold when the price was cut a bit. At worst we are sliding sideways -- BAP is still prime! DQ numbers for the SF Bay Area should be out in the next day or two.
OO, any movement on land prices?

@Malcolm --thanks. I agree, the lawsuit is completely meritless, but Aaron still has to hire a lawyer to defend himself.

@SQT --good for you! Another inspiring success story for us JBRs.

As the Herald Tribune is a Sarasota-based paper, this is a little like the SF Chronicle posting something similar about RE woes/JBR thrills in SJ.

I'm watching the stress fractures widen here in Fortress Sarasota, but I don't expect Herald Tribune coverage until it's news to no one. North Port is our idea of nowhere to be, nothing to do. A 1990s Levittown, really.

"Does that mean I shouldn't go anymore?"

I don't know there's ever a "bad" time to go to Thailand? (Unless of course azrob is there throwing the positive cash flow from his numerous rentals around like sewer covers?)

After you've lived abroad for awhile timing purchases around currency fluctuations becomes second nature. You really don't even think about it any more. Just hold off on any kind of major purchase when your currency is soft. If you're only there for a few weeks, why worry?

Ex-pats really cringe when they see "newbies" throwing money around like not bothering to get the proper (or any) change from a cabbie or bar-maid etc! They're like, "Dude, we're here b/c we can AFFORD HERE"! Why don't you go mess up some place else?!

Dollar's loss can be your gain

PREV 1of 2NEXT

Analysis |

The dollar continues to slide against other major currencies, but its weakness may actually boost some companies' profits, analysts say.

A 10 percent decline in the dollar adds 1.5 percentage points to the earnings growth of companies in the S&P 500 stock index, according to Morgan Stanley analyst William M. Smith. That's because companies with overseas sales benefit when the euros and pounds used to buy their goods are translated back to dollars.

Coca-Cola, reporting its financial results Tuesday, said currency gains accounted for 3 percentage points of its 19 percent growth in second-quarter revenue. Coca-Cola is among companies with high foreign sales, most of them very large companies.

Wall Street has already baked in higher earnings expectations for globally focused companies: Among the 100 largest U.S. companies, those with more than 25 percent of sales overseas are expected to report 7.3 percent growth in second-quarter profit, Smith says. Analysts expect those with less than 25 percent in foreign sales to report 4.4 percent earnings growth.

But some say the best way to play the weak dollar is to invest directly in foreign stocks. "It's not a benefit to earn more dollars if the dollars have less value," says Peter Schiff, president of Euro Pacific Capital, which specializes in international securities.

He has been advising clients to invest exclusively abroad for the past 10 years, and sees the dollar dropping as much as 50 percent over the next few years. Most of his holdings are in Asia, Europe and Canada, though he owns a few U.S.-based commodity plays, such as oil producers and miners.

From MSN-

"Bad news whacks stocks:
Two Bear Stearns hedge funds are now worth nearly nothing after having invested in subprime mortgages. Meanwhile, earnings from Pfizer, Intel and Yahoo disappoint. News Corp. moves one step closer to buying Dow Jones with approval from the newspaper company's board."

Patrick just put up some news stories...

Two of the links include a suicide apiece.

www.tickerforum.org/cgi-ticker/akcs-www?post=431&ref=patrick.net

http://thehousingbubbleblog.com/?p=3107#comment-799267

It's starting to look like 1929 all over again. Will FBs stage a bonus-marchers encampment in DC this time too?

What will deliver the greatest returns in the next 12 months?
U.S. Stocks 31%
International Stocks 51%
Cash 8%
Bonds 6%
Real estate 7%
74102 Votes to date

http://www.dqnews.com/RRBay0707.shtm

Bay Area DQ numbers are out.

After reading Steveoh's post and some of the responses to him I found myself wondering....?

I know under certain circumstances sub-leases are possible. What would it take to lowball a lease to the threshold of pain and then turn around and rent it out at a higher rate? If you're generating $250-$150-$50 (?) in positive cash flow that is infinitely better than what Mr. Ijustknowthingshavegottogetbetter is doing?

Now... true, Mr. Whataboutallthatupsidepotentialandtaxbenefits will ultimately be getting the "lion's share" but in the meantime can I be Mr. Fiftybucks-is-fiftybucks?

When a house is sold the new owner must more or less honor your rental agreement so long as it is legal, binding, and you don't live in an area with very weak renter protection bias. The lease agreement travels with the title.

But none of that really applies in a foreclosure. The bank effectively has the ability to invalidate the lease. In some areas they are required to honor some statutory obligations, but even then they'll just offer to buy out the lease if they want you out (and you'll take it or you'll be sorry you didn't). However, you still have a chance to work with the bank if you're a good renter. Just try to find out who to call and talk to them. They'll probably be happy to have a renter (mainly for reasons of security, not income) until they can sell the place.

You can't subordinate the title. That's out. There's no upside to a bank doing this, nor does the legal or administrative process exist to handle such a transaction. The 1-off cost of doing the deal is more costly than the value of the deal.

You can customize your lease with your landlord. I did. But there are a couple of big caveats:

1. You have to pay a lawyer. If you do it yourself you'll screw yourself. Leases are hard to get right, even though the boilerplates look simple.
2. You have to offer the landlord something compelling, or else there is no reason for him to do it. Just saying you'll pay his rent isn't compelling. He expects that. You have to give consideration, something like lots of rent $ forwarded or an extra long lease period, or you'll tend his bio-dynamic garden with a registered shaman and deliver his moldy tomatoes to his wife via Alpaca on a bi weekly basis.
3. You have to have a reason other than more easily mitigated risks. For example, if you're just afraid he'll go foreclosure, and you'll lose your deposit and have to move on short notice, it may be cheaper (given your situation) to just put a safety buffer of $ away in a CD for that eventuality than to pay a lawyer and provide something special in consideration of a complex escrow or some other protection. Think of it this way, even given all the FB's trying to rent out McMansions, the primary risk in any rental agreement is still by far the renter skipping out, not the landlord. I mean, what if he asked you to provide everything you're asking him to? Should he demand you pay 1 year rent to escrow or that you mitigate your future salary to him should you break the covenant?

The renter still actually has far more free market power than the landlord. This is one of the reasons that rent-control is such an abomination (among other reasons).

Just some thoughts.

The renter still actually has far more free market power than the landlord.

Not in extremely supply constrained markets, like NYC, SF, Berkeley, Santa Monica, etc.

Guess what cities in America have rent control?

Bap: Well, that would depend on how responsive the INS people are in your area, wouldn't it?

I don’t know there’s ever a “bad” time to go to Thailand? (Unless of course azrob is there throwing the positive cash flow from his numerous rentals around like sewer covers?)

Well aside from the currency thing - are they about to politically/socially destabilize or something? Whatever happened to that coup?

Randy said you’ll tend his bio-dynamic garden with a registered shaman and deliver his moldy tomatoes to his wife via Alpaca on a bi weekly basis.
That is a brilliant piece of writing (barely avoided coffee on the keyboard). For those of you wondering why Randy is writing with such fervor, some reading of the DQ report shows Marin's median rose 15.8% from $830,000 to $961,250. Nice.

It's the median, EBGuy. If the low-end volume is way down, the number skews upwards. That's a game every marketing department knows how to play. What's the average, and what are the comps' sqft prices compared to prior months?

you’ll tend his bio-dynamic garden with a registered shaman and deliver his moldy tomatoes to his wife via Alpaca on a bi weekly basis.

Randy,

But are those 'free range' Alpacas? Smug Boomer navel-gazers must have their moldy biodynamic tomatoes 'cruelty free', you know.

Well, they might say they want them cruelty free until they compare the cost. Nothing is too good for a boomer when someone else is paying for it, or if it can be broken down into E-Z payments.

Brand, EB, if you click on the link I posted above, the realtors are now even admiting the median phenomenon.