patrick.net

The WSJ excerpt on Calculated Risk claims:
Unlike the two other Bear funds that are being closed, this fund is not leveraged. Yikes.

OO,
Does a day go by when you don't use propertyshark? I admit I am addicted as well (great for checking out "suspicious" Craigslist ads). Paint still drying slowly in the fortress. Any insights into Crapertino's median drop last month?

EBGuy,

I am sad to report that my usage of propertyshark has gone down considerably, I only check up whatever properties that I come by to verify data :-)

I haven't been keeping track of price in Crapertino. My simple way of tracking is to look at listings and pendings. However, if we continue to have a few more days like last Friday, the market sentiment is bound to turn in the fortress. It is pretty clear to me that Evergreen, Gilroy, Morgan Hill, aka the outlying BA are breaking down due to the lack of credit. The fortress cannot possibly live out of a vaccum, at some point these buyers will wake up as well.

HARM,

in the Depression gold was not liquid, because it was illegal to use as money. This could happen again I suppose, so even if you could hoard gold bullion, unless you are elite international who already has it out the country, you wouldn't be able to use it. So what good would it be?

Each time I sign the customs declaration I notice that along with the $10K worth of cash, you hafta report moving 10K of gold across the border, too.

What do you and Randy H think about something like this happening again if the dollar collapsed?

Another accidental landlord here in fortress Marin.

Probably 7 months ago I blogged about how our neighbors were trying to sell their house as a secretive pocket listing. After 2-3 months of that they put it up for sale. They paid just over $1mm exactly 2 years before moving in. They did a *ton* of inside work on the place. Blah blah, all top of the line appliances and such. They weren't flippers. They had a baby, and being a home smaller than large mobile-homes where I grew up, they probably thought they needed to move, trading-up.

They bought a new place, vacated, staged, etc. They listed about $400K over their purchase price. Not bad, $200K per year just for sitting there. In fairness, they probably did put about $80K-$100K into it.

Weekend after weekend it was held open. The price came down, and down and down. It's right back at exactly 2.5% over their original purchase price, and surprise of surprise, it's now got a big "lease option available" sign plastered on the garage and they're looking for renters.

Price stickiness in action. They won't sell below asking, hell or high water (luckily both seem to be coming soon). I peeked at their title a while back. They'll have to rent it out at about $6800K/mo to break even even ignoring all their expenses and such. LOL! We rent a house 3X larger a couple houses up for about half that. Good luck, FB accidental landlords.

sybrib

If you have gold during a crisis that bad you will either

a) not use it because you'll be smart enough not to try, or
b) not use it because someone else will take it from you after you do try

Gold is probably only good for a bribe to get you on a ship and out of the country type of thing. Trouble is, during such a meltdown, there probably aren't any other countries worth going to that would welcome your arrival.

I don't worry about another Great Depression. It always *could* happen. But it's not very likely. Other terrible things are much more likely, and more worthy of our worry.

AP
J&J to Cut Up to 4,820 Jobs on Drug Woes
Tuesday July 31, 8:48 pm ET
By Linda A. Johnson, AP Business Writer
J&J to Cut Up to 4,820 Jobs, or Up to 4 Percent of Its Work Force, As Key Drugs Flounder

http://biz.yahoo.com/ap/070731/johnson_johnson_restructures.html?.v=21

In a statement late Tuesday, Johnson & Johnson-owned Alza Corp. said it will close its Mountain View, Calif. office and eliminate about 600 jobs. About 200 employees working in Mountain View will be transferred to La Jolla, Calif. and other Johnson & Johnson offices.

"This is what you would expect, this type of retrenchment," given the safety questions, looming generic competition and other problems facing J&J and rival drugmakers, said analyst Steve Brozak of WBB Securities. "Woe be it to the company that doesn't realize it sooner rather than later."

......

hmm, speaking of drug cos, anyone seen 'sicko' yet?

Hey DS, did you see this:

http://preview.tinyurl.com/3cz4je

Looks like Australia is not immune to the fallout.

Randy H says:
They won’t sell below asking, hell or high water (luckily both seem to be coming soon).

Speaking of mental accounting, the thing is that a lot of money disappears in transfer costs on purchase, as well as interest to the bank on the mortgage every single month, which is what I think Randy was alluding to earlier -- people aren't really factoring in the 'dead money' of interest payments when they sell, or even calculating it, so it's really written off money also. So to take a loss or 'break even' at sale time on the last asking price doesn't take into account the further effect of inflation, closing costs including agents' fees and transfer taxes, ongoing property taxes and rates, or interest payments, except that all these factors seem to exercise a constant 'ratchet effect' in a booming market.

Only flippers and some landlords are trying to make huge profits on property resale as a business, the rest are basically paying a premium for the security of ownership, and perhaps 'hoping' for 20% appreciation every year to cover all sins (or expenses)...

Yes, I saw the indirect hits to Macquarie Bank. They don't have direct exposure to subprime markets, but they had a few margin calls on allied funds -- just goes to show how things are interconnected.

I will be interested to see if there is much of a carry trade effect from the US subprime fallout -- and any international credit squeeze or risk reassessment which might occur. The boast of analysts here is that 'relatively few' Oz loans are in the subprime category, so they feel shielded, which to me is a pity of sorts, as I kind of want the whole property market and maybe the sharemarket also to collapse as a lesson to everyone.

OO Says:
[re: Crapertino] if we continue to have a few more days like last Friday, the market sentiment is bound to turn in the fortress.

Home prices in Mountain View, Los Altos, Crapertino are very sensitive to tech-stock prices (and tech jobs) since the current buyer demographic relies heavily on options and ESPP profits. So I would suggest watch for that.

Alza shutting down? Hmm... they have some nice buildings in Mountain View, right next to the Googleplex.

SP

this was the article in the tabloid daily telegraph, another murdoch paper -- check out the front page of their website, it looks like E! weekly...

MacBank shares hit by US crisis | The Daily Telegraph

I've been blogging all over the Tele now given that they allow reader 'feedback' on just about every story. Can't resist...

Why do so many smart people have so much faith in regulation? It's been the bane of our existence.

A little regulation may work out well, if it is local and preferably temporary. However, it most often produces a worse result than the free market over time. This is most true for national regulation that one can't easily escape.

The basic issue comes down to choice and adapting to change. Regulation by definition is designed to limit that.

Now I'm not saying never have regulation. Rather, it should be used most sparingly. The problem in these credit markets is not lack of regulation. It is the government support of the large speculators that allows this to grow out of proportion.

ADP Employment Report for July is out

Private Sector jobs up 48k vs last month 128k

Add another 25-30K government jobs. That should give the number for friday.

Randy H,

Absolutely hysterical "accidental landlord" story. Keep us posted on that situation. I'm sure the neighbors just love the "lease option available" sign hung out like so much dirty laundry as well.

Why do so many smart people have so much faith in regulation? It’s been the bane of our existence.

A little regulation may work out well, if it is local and preferably temporary. However, it most often produces a worse result than the free market over time. This is most true for national regulation that one can’t easily escape.

China is a great example of what can happen with less regulation.

Spectator Says:
August 1st, 2007 at 4:08 am
"Why do so many smart people have so much faith in regulation? It’s been the bane of our existence."

I don't understand comments like this. Just a blanket assertion with little to back it up other than an immediate eqivocation in the next paragraph. We enjoy an incredibly safe standard of living which gives us the luxury of dwelling on the notable failures, and mistakes.

With no regulation there is a good chance you or any one of us would be dead from anything from food contamination to medical concoctions. These deaths were very common in the 'golden age' of little state intervention in commerce. Our society has finally evolved to the point where the optimum balance is where government sets boundaries and standards, and the free market then allowed operates to everybody's betterment.

changed tense midstream, sorry, 'then operates to everybody's betterment."

The last 20 minutes surge of 180 pts going from negative territory to positive 150 was most definitely an act of PPT.

Why would anybody, with absolutely no news to cheer about and plenty to lose sleep over, plunge in when the whole day was clearly a zig-zag, tug-of-war territory?

Will the PPT buying fund count towards the M3 growth?

@Malcolm,

Agreed. I think the problem with discussing government "regulation" in general is that most people tend to mentally equate the term REGULATION with SUBSIDY.

Everyone,

Just to be completely clear, let's review our definitions here:

REGULATION:
Government setting ground rules and basic operating limits for "free markets", so they will operate in a socially beneficial way that (hopefully) discourages fraud, theft, coercion, cartels and information hiding, while encouraging "fair" competition that occasionally allows even small, non-politically connected players to succeed.

Examples: Sarbanes-Oxley, Glass-Steagall, OSHA, FDA food inspection, child labor laws, immigration enforcement (haven't seen too much of the latter lately).

SUBSIDIES:
Government picking market "winners" or "losers", either directly, by paying certain industries/companies large sums of taxpayer money, awarding no-compete federal contracts, or indirectly, by giving that industry preferential tax breaks/credits.

Examples: oil & gas and corn/ethanol/sugar subsidies, non-negotiable Medicare drug prices for big pharma, no-bid military contracts for Halliburton/Bechtel, tax breaks for RE flippers.

OO, no ppt required. Permit me to quote from another site:

the code goes if yen is less than dollar, then buy spy,qqqq, dia. Else endif.

That's in response to suspicions of coordinated ppt or fx in Calculated Risk comments. Sounds about right to me.

Another non-ppt scenario from CR comments (thanks to Yal/Karl):

"It's called a 'Mark on Close' order and is institutional. Often used by mutual funds. The specialist is free to execute them any time they'd like, but they price to the person ordering them at the close.

Remember, mutual funds give you the price at the end of the day,

So on an up day, the specialist will run 'em early and pocket the difference.

On a day when you might get whipsawed he is not going to do that because it will roach him. So he puts them through at the close and you get exactly what you saw."

2:27p post in Moderation? What in blazes did I say?

2:27p post in Moderation? What in blazes did I say?

"specialist" --> contains the string "cialis", which is flagged for automatic moderation. Try 'special1st' instead.

Bruce,
You didn't yell "PPT!" at the top of your lungs. :D

Is the first a typical time for 401s/etc to buy? I expected most of the lumbering funds to buy yesterday.

Here's yet another financial entity, this time insurance co. AIG, with subprime-related securities bag-holding angst:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aWGOYSOtQz44&refer=home

Thanks, HARM. I was agnostic 'til now.

sfbubblebuyer, I did see the end-of-the-month 401k idea ... but then why so near market close?

I agree, there is no conspiratorial "PPT". I doubt the government or some other clandestine organization could buy enough to move the DOW that much without notice. In a volatile market like this they'd quickly end up holding way too much % of outstanding.

And the first sniff some of the hedge funds got something like this was happening they'd be all over it, and the gov't would just be paying the hedge funds at the end of the day.

I have no idea why it peaked so hard. I would have thought that euphoria would have been beaten out of the herd last week. It would be interesting to see WHO was buying so much at the end.

Or what was being bought at the end.

I think it was Buffy. Or Biff.

A bunch of Trustafarian bank accounts swelled today. Heh.

Oh, the "PPT" (formally known as the "Working Group on Financial Markets") exists alright. The question is, is it really the invisible hand behind recent "buy the dip" come-backs? And, does it really have the ability to single-handedly prop up equity markets by itself?

Bruce,

I like the Mutual fund's mark-to-close explanation. So I should have taken advantage of it and sell my mutual funds at close when a day like this happens?

I seldom trade in and out my funds, so I am wondering if the same day order can be executed by market close?

Of course there is government intervention.

Hong Kong, Singapore government OPENLY bought back shares with taxpayer's money when stock market tanked during the 97 crisis. Since the Fed has literally unlimited USD printing ability, and given the credibility and ways of operation of this particular administration, PPT operation is not entirely unreasonable.

I myself never believe in a true China wall between the different government operations, especially when so much is at stake.

HARM,

I just tried pen1s enlarge-ment, my comment was immediately sent into moderation.

Sorry, OO, you get the price at closing, right? Executor has dinner on you.

Think of it as karma.

"Or what was being bought at the end."

There are only 30 stocks in the DOW....If I wasn't so lazy I could figure out which components went up right there at the end. I know INTC went up 50 cents in the last few minutes because I follow that stock.

"History has not dealt kindly this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent."
“To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy. But what they perceive as newly
abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset
values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of lowrisk premiums.”

Above quote from "A Froth-Finding Mission" by HSBC Global Research on Randy's website. Was looking at it recently to see where we could be heading if we go back to "historic norms". Still trying to reconcile their Penninsula and East Bay data. They claim:
Oakland-Fremont-Hayward, CA (MSAD) Q3 2005
Median Income: $69,572
Median Home Price: $804,363
San Francisco-San Mateo-Redwood City, CA (MSAD) Q3 2005
Median Income: $68,087
Median Home Price: $767,777

In fact, East Bay beats the Penninsula in their historic data too. Doesn't seem right to me.

I think that low-class Redwood City skews the data downward.

Our first CA home is in Redwood City. We paid $365K in 1996. It now comps for about $1.1mm. There's skewing going on there alright, not sure which way though.