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...and now (your predictions welcome)


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2007 Aug 12, 1:36am   36,846 views  326 comments

by Randy H   ➕follow (0)   💰tip   ignore  

crystal ball

What do you think comes next. Let this stand as a record of your incredible intuition and insight. Or let it just be a scratch pad for your musings. All takers welcome.

This thread will be permatroll free, my commitment to you. (Don't bother responding to trolls, I'll get around to deleting the comments).

--Randy H

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53   Peter P   2007 Aug 13, 2:50am  

Standard Proper English: Have you eaten?
Casual Usage: Did you eat?
Ohiolisch: Jeet?

Peter P English: What did you eat?

54   ScottJ   2007 Aug 13, 3:03am  

My prediction is that there will still be a lot of new FBs out there who are buying properties to flip them, even though the easy "no down, no income verification" loans have disappeared. I went to a wedding wwwwaaaaayyy up north from SF in Rohnert Park this past weekend and some fools were still talking about wanting to get into flipping in Truckee citing that "home prices have appreciated from $150k to $600k in 4 years!" These folks will lose whatever savings they had and will cry to mommy and daddy (or whoever will listen) when they go belly up.

For those of you who aren't from CA, Truckee is a third rate town, which is essentially where people stay when they can't afford to stay in Reno or along the lake in North Lake Tahoe. Home prices there have appreciated since so many bay area folks bought second homes up there. Right now, there are hundreds of 1-2 million $ homes up for sale there and hundreds in the $500k-1 mil range. How is one supposed to flip houses with that much inventory in one city? Some people are still smoking the housing rock pipe... these folks would never believe "The steepest part of the downward curve in home prices is now just around the corner as the inflection point has now clearly just passed."

55   DennisN   2007 Aug 13, 3:17am  

Peter P:
IIRC eating raw fish is illegal in Ohio.

56   lunarpark   2007 Aug 13, 3:24am  

I don't know about the future, but in the present someone I know is about to lose their house in San Mateo. They are behind on property taxes, etc. The realtor told them they will not be able to get what they paid for the house (if it sells). They are also behind on their second home up north (somewhere outside Sacramento). I'm not sure when they bought the house in SM.

57   Rob Dawg   2007 Aug 13, 3:45am  

Professional squatters. Pay me to live in your house.

Bahstan food discussion:

D'you jus faht?

Who ah you, my fuggin' grandmothah?

Jus smeels like something crawled up your azz and died.

Naw, it was that nasty grinder I ate from the spa.

Wicked, any left in the 'fridge?

58   Peter P   2007 Aug 13, 3:54am  

IIRC eating raw fish is illegal in Ohio.

IMO the government has no business in regulating food. For example, people should be allowed to eat blowfish. It is their responsibility to understand the risks.

Hopefully the good folks at consumerfreedom.com can liberate us from food dictatorship.

59   Randy H   2007 Aug 13, 4:06am  

There are sushi restaurants in Ohio. That still doesn't make it right. Some things just don't go with some other things.

60   DennisN   2007 Aug 13, 4:07am  

Peter,

I was just teasing you earlier. Little did I know the truth.

http://query.nytimes.com/gst/fullpage.html?sec=health&res=9E02E0D91438F93BA35757C0A9629C8B63

Most would be even more surprised to learn that if the sushi has not been frozen, it is illegal to serve it in the United States.

61   Peter P   2007 Aug 13, 4:09am  

Most would be even more surprised to learn that if the sushi has not been frozen, it is illegal to serve it in the United States.

Still, people should be allowed to eat the flesh off a live fish if they so choose to.

62   Peter P   2007 Aug 13, 4:14am  

There are sushi restaurants in Ohio. That still doesn’t make it right. Some things just don’t go with some other things.

Randy, remember the deep-fryer you suggested a while back? ;)

63   DennisN   2007 Aug 13, 4:14am  

All we need is a few good justices to overturn Wickard v. Filburn, 317 U.S. 111 (1942).

64   Peter P   2007 Aug 13, 4:21am  

Commerce should be left to the market to regulate itself. The government should merely enforce the integrity and transparency of the market.

65   Rob Dawg   2007 Aug 13, 4:22am  

Peter,
My most memorable gastronomic life moment was a slice of abalone on the boat. The diver (with permit) surfaced and sliced without even bothering to drop flippers or tank. Still moving, transcendent. There's a Haiku in there someplace.

Ohio seafood; "Hey Cletus throw some more catfish in with those ears of corn you are boiling."

66   Peter P   2007 Aug 13, 4:25am  

My most memorable gastronomic life moment was a slice of abalone on the boat.

Ooh, abalone, my favorite. It is in season!

I like it raw. It IS transcendental.

Good food WILL bring world peace.

67   Rob Dawg   2007 Aug 13, 4:26am  

IMO the government has no business in regulating food. For example, people should be allowed to eat blowfish. It is their responsibility to understand the risks.

And when a nationalistic supremacist group opens a free kitchen in an ethnic neighborhood offering all the fugu you can eat?...

68   Peter P   2007 Aug 13, 4:28am  

And when a nationalistic supremacist group opens a free kitchen in an ethnic neighborhood offering all the fugu you can eat?

Sushi Nazi?

69   Peter P   2007 Aug 13, 4:32am  

BTW, I am not saying that negligent food providers should not be held accountable. This has everything to do with the integrity of the food industry.

70   DennisN   2007 Aug 13, 4:57am  

When my parents were young you could still go down to the bay and gather abalone at low tide with just a tire iron.

My dad's "poor us in the Depression" stories generally began "we couldn't afford chicken so all we could eat was abalone", at which point I generally would burst out laughing.

71   EBGuy   2007 Aug 13, 5:24am  

I predict.... the securitization money train is too lucrative to be derailed. Obviously, the current system is not working as (this current crisis demonstrates) there are too many areas for fraud to take hold. The current securitization food chain: buyer->appraiser->mortgage broker->real estate agent->warehouse lender->Wall Street->sucker needs to be massively overhauled to restore investor confidence. Basically, a lot of "pork" will be taken out of the lower end of the food chain, costs will be cut, and the overall quality of the loans will increase (quality referring to the ability to characterize the loan and accurately price risk). I think banks are the most likely candidates so subsume many of the functions in the food chain and rebuild trust in the marketplace. In five years time, I believe the REIC will have changed dramatically.

I still think the "fraud" aspect of the current crisis is getting underreported in the MSM, and I'm not just talking about JoeSixPack overstating income or a predatory lender going after old folks. I am talking about the untold damage done by Casey Serin type "investors" (how many "primary" residences can you own?) and overinflated homes being sold to straw buyers who do a first payment default (with "cash proceeds" being distributed to all parties involved). These are the practices that inflated home values, caused many folks to stretch beyond their means, and manufactured untold "equity" for FBers to tap. The real muckraking journalists covering this scene are in the blogosphere. I have been reading ocrenter's blog for over 6 months, and it always makes the hair on the back of my head stand on end. When you start handing out free money, a line forms rather quickly.
Forget the "Housing: American Nightmare" magazine cover. I predict (once the dust settles and people finally process what has happend), we will see a Time magazine cover with Casey Serin and a title like "The man who brought down Bear Stearns".

72   Peter P   2007 Aug 13, 6:07am  

Some Chinese restaurants serve 4-5 small abalones (farmed) for under $20.

73   e   2007 Aug 13, 6:24am  

My dad’s “poor us in the Depression” stories generally began “we couldn’t afford chicken so all we could eat was abalone”, at which point I generally would burst out laughing.

In the very very old days, lobsters were fed to employees so much that one group actually had in their contract "no lobsters".

How times have changed.

74   jeffolie   2007 Aug 13, 7:32am  

Update on Collateral:

I am being told that the Fed accepted three types of securities in these repos: safe Treasuries, agency (GSEs) debt and mortgage backed securities (MBS) guaranteed by Fannie and Freddie. These latter are not subject to credit risk given the guarantee; but can still technically default if the underlying assets are impaired. Still, there are still anomalies in this use of guaranteed MBS in repos: the rate at which the Fed accepted these MBS was apparently the same as the rate at which it acccepted safer Treasuries and Agency debt. This, in turn, implied that mostly MBS were offered and used in the repos; especially on Friday all submitted and accepted securities were MBS and in the last intervention the average rates on this MBS repos was below the Fed Funds rate. Even today about half of the accepted collateral was MBS. See Kevin Drum for more details.
http://www.rgemonitor.com/blog/roubini/

August 12, 2007
FRIDAY'S LIQUIDITY EVENT....On Friday, as part of an effort to inject liquidity into the banking system, the Fed bought several billion dollars worth of mortgage-backed securities. Brad DeLong called this "unusual," but left hanging the question of just how unusual it was.

Stephen Spear, a professor of economics at Carnegie Mellon University, emails to say that he spoke with a friend of his at the Fed who confirmed that the Fed's action was unusual, "but not tremendously so." I thought it was an interesting email, so with his permission, here it is.

--------------------------------------------------------------------------------

Here's what I've been told by a colleague at the Fed:

First a minor point: Most of the open market operations that the Fed does (including Friday's) are short-term collateralized loans and not outright purchases of securities. Friday's loans were all overnight (well, over the weekend, actually, maturing on Monday). So the Fed is technically not buying anything; it's been making short-term loans of cash against collateral.

The Fed accepts three categories of collateral for these loans. One is Treasury securities, another is other government agency securities, and the third is mortgage-backed securities that are federally guaranteed. Because they are federally guaranteed, the mortgage-backed securities the Fed accepts are (obviously) the very best.

Typically the interest rate on these short-term loans varies slightly depending on the type of collateral offered by the borrower. Treasuries get the lowest rate; mortgage-backed securities the highest. (The details of the last 25 OMOs, including the rates for each type of security, are available here.)

What was unusual about Friday (other than the size of the operation) is that the Fed announced it would lend against all three types of collateral at the same rate.

To quote my Fed colleague on this: "I'm not sure why we did this. I think the idea was that given the size of the operation we did not want to risk disrupting the Treasuries markets, but there may have been other motivations. ["Other motivations"? Hmmm. –ed] The expectation was that borrowers would primarily use mortgage-backed securities, since these have the lowest opportunity cost to the borrower."

On the web page above, you will see that for Friday's operations, under collateral type it just says "mortgage-backed." What this means is that mortgage-backed securities or any better securities were allowed as collateral — in other words, all three types were acceptable. Apparently, the media misinterpreted this as saying that the Fed was only accepting mortgage-backed securities, which led to the headlines about the Fed buying these things up.

So, the bottom line is that the Fed's actions on Friday were unusual, but not tremendously so. It did three OMOs instead of the usual one. The quantity of reserves lent out was larger than normal, and the way collateral was handled was slightly unusual. But the general operating procedure, including the type of collateral accepted, was completely standard. It would seem that the media is trying to make the story a lot more sensational than it truly is.
http://www.washingtonmonthly.com/archives/individual/2007_08/011861.php

75   Bork   2007 Aug 13, 7:33am  

DennisN :

My grandmother was telling me stories that people in 50s who could not afford meat had to buy caviar and crab meat which was cheaper and thought of as "second rate" food.

Last time I saw caviar in duty free shop in Paris - 850 euro for 50g.

76   Bork   2007 Aug 13, 7:34am  

Err ... That was in 50s in Russia, if I did not make it clear :)

77   Peter P   2007 Aug 13, 7:42am  

My grandmother was telling me stories that people in 50s who could not afford meat had to buy caviar and crab meat which was cheaper and thought of as “second rate” food.

The Sunday brunch at the Half Moon Bay Ritz Carlton has all-you-can-eat (domestic) caviar. The quality of the roe is actually quite passable.

Last time I saw caviar in duty free shop in Paris - 850 euro for 50g.

I think you can still get Caspian Osetra for under $80/oz. Just two 2-3 years ago I could get them for $40/oz.

We have a caviar price bubble!

78   Bork   2007 Aug 13, 7:53am  

Peter P,

I think what I saw was Caspian Beluga from Iran. IIRC there were even pricier cans on the display but I can't remember the exact price.

79   DennisN   2007 Aug 13, 7:59am  

Maybe Peter P will become our very own Casey Serin of the exotic seafood market!

80   Bork   2007 Aug 13, 8:04am  

Flip that sushi!

81   DennisN   2007 Aug 13, 8:10am  

EBGuy,
Your link to ocrenter's blog no workie.

82   DennisN   2007 Aug 13, 8:16am  

Fresh sushi for me
Flip the H E L O C
And buy cold flounder

Peter P caviar
Visions swirl of full plates now
Smile as you eat it

What do they call doggerel haiku?

83   Bork   2007 Aug 13, 8:27am  

Flopku?

84   DinOR   2007 Aug 13, 8:29am  

EBGuy,

I agree. The entire, massive "food chain" was founded on people that had failed at everything else in life! Realtors that "washed out" at whatever and appraise-whores (that are basically failed realtors). Based on their "abilities" they created a multi-trillion dollar nightmare.

I hope when the go about re-tooling the REIC they take these clowns out of the securitization decision making process.

85   aurelian   2007 Aug 13, 8:37am  

For anyone in the energy industry has there been any talk of pebble bed reactors or thermal depolymerization? From an outsiders view these look like good technologies to exploit, but, being an outsider I may be wrong.

86   EBGuy   2007 Aug 13, 9:55am  

Your link to ocrenter’s blog no workie.
Try this link for ocrenter's blog: http://bubbletracking.blogspot.com

Speaking of TV, I caught ABC's Nightline last Thursday and Friday. On Thursday they had a fluff piece on "Briny Breezes" in FL (see Ben's blog for color commentary) -- where trailer park residents had been offered buyouts at ~$1 million per spot. The deal fell though, but the piece was along the lines of "what price for paradise" (some residents were relieved that they could stay). While on camera, the trailer park board president took another call from a developer (we're not dead, yet). Oh Ted Koppel, where have you gone....
Friday's piece was a bit better as they interviewed an agent whose office specializes in foreclosures (in San Diego, I believe). Did a funny montage of the agent pointing out all the foreclosures on a street and then going inside to check some out. Nice high end places -- in one kitchen they left the granite but took all the fixtures, appliances and the stainless steel hood.... nice. About the only good news the agent could profer was percentage-wise, the 90's crash was worse (so far)... but in absolute numbers, they are getting overwhelmed.
On an unrelated note, Surfer-Xs boomer rants have spoiled any chance of me enjoying a showing of "Monterey Pop" on PBS. Jimmie Hendrick lighting his guitar on fire and smashing to bits seemed to become a metaphor for the current housing crash and don't even get me started on Janis Joplin's rendition of "Ball and Chain".

87   DennisN   2007 Aug 13, 10:29am  

EB Guy,
I like how the Feds couldn't care less about documented cases of alleged mortgage fraud.

The guy who bought my SJ home was represented by a buyer's agent/mortgage broker scam guy who specialized in Spanish-speaking clients. He secured a 103% mortgage (of unknown to me terms) to "help out" his client. I'll bet that whole deal is a crock. I feel bad about it but I'm clean: as seller I had little choice in selling it to the best offer.

some residents were relieved that they could stay
Here in Boise the RE market isn't as crazy, but it is sad that so many of the trailer parks here are being sold to SFH developers. A lot of the old-timers in those parks are really between a rock and a hard place.

88   El Hombre   2007 Aug 13, 10:54am  

Just bought some investment property in the midwest. With 25% down on a 30 year fixed mortgage, all costs are covered. I have been waiting way too long for this bubble to burst. The "numbers" might not make sense in California, but they do make sense in other parts of the country--if you look hard enough.

89   jeffolie   2007 Aug 13, 11:22am  

I have a warning about Money Market Funds. They hold a lot of dangerous asset backed commercial paper. Typically they hold 50 to 70%. This is dangerous when the assets backing the commercial paper is mortgages. Each money market fund is different. So find out what is in yours.

For better security, buy Treasuries through Treasuries Direct

ABCP (asset-backed commercial paper)

With some of these ABCP conduits, a certain opaque nature exists surrounding the nonstandard methods of reporting or the standard definitions of certain asset types. So, one's not always sure exactly what type of collateral exists inside the conduit.

"ABCP has grown very dramatically in the past 15 years or so, and no investor has ever lost money. Hopefully, cool heads will prevail, as most money-market funds hold 50% to 75% ABCP, and banks or financial institutions are obligated to support nondefaulted -- and in some cases even defaulted -- assets in the conduits. So, implications for the financial system are large."

Money-market dark matter?

The moral of the story? As we get further down the road, I think we'll discover that some money-market funds owned commercial paper issued by a conduit whose assets may not be up to snuff. So folks with a lot of assets in money-market funds might want to double-check that they know what's in them.

Bottom line: The upcoming weeks should be pregnant with indications of more trouble throughout the whole financial-engineering world. More than a few outfits may discover that the triple-A pieces of paper they thought were worth 100 cents on the dollar are worth only, say, something in the 70s. That will make for a lot of heartache.

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/CreditProblemsAreTooBigForTheFedsToFix.aspx?page= 2

If money market funds break the $1 mark then the liquidity will drain superfast. This could spiral out of control a lot faster than I guessed as next summer.

90   Philistine   2007 Aug 13, 12:43pm  

Slightly OT, but we are always saying (and I agree) that all this easy credit has dried up and NINJA/subprime type loans are not out there anymore. So why am I still seeing ads on TV and Yahoo! homepage (among other websites) with promises of "$400,000 for $1299/month" etc?

Just a ruse to poach my info for some house salesman's/mortgage salesman's Rolodex? I tried to fill out a few of the online apps, but they eventually ask for info I don't ever give out over The Internetz--so, mystery not solved.

Any explanations?

91   justme   2007 Aug 13, 1:01pm  

jeffolie,

on the topic of money-market funds, any thoughts on these guys: thereserve.com.
Today, they have posted a soothing message on their front page, saying they have no
DIRECT (my emphasis) exposure to ABS or MBS.

If course, that does not mean they have no INDIRECT exposure. Any thoughts?
I'm not picking on this particular fund, just noting that they provide good rates and I have been thinking about using them.

92   PermaRenter   2007 Aug 13, 1:19pm  

Is it not outright fraud by FEDERAL RESERVE that a 300 point jump in the Dow is normal but a 300 point dip is viewed as a cataclysmic event that requires intervention!

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