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And I Thought You Were My Friend...


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2007 Oct 11, 5:08pm   23,960 views  227 comments

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I thought you were my friend...

I noticed that every housing-related article in my rss-feeds today has a negative headline. Negative reports on housing sales, housing starts, home-builders, mortgages, and housing prices. If they aren't predicting further drops, then they are blaming slow retail sales on housing and mortgage problems. In more and more articles, the REIC are being fingered as accomplices to fraud.

Boston Globe: "The US housing bust is like a leaking ship."
Bloomberg: "Retail Sales Slowed as Housing Fell"
Valley Tribune: "Realtor faces trial in alleged scam"
NBC: "Officials Say Mortgage Fraud Is Growing Problem"
AP: "Bear Stearns Predicts Ripple Effect of Real Estate Decline"
Bakersfield Californian: "Realtor Offices Raided By FBI"
Los Angeles Times: "Home prices expected to drop"
:
:
and so on.

When they actually quote from a shill - either a realtor, or a NAR-dummy, or a home-builder - it is invariably with a counterpoint from a more credible source.

Has the MSM has finally clambered on to the bandwagon and left the REIC to fend for itself?

Should Patrick start reporting on articles that are still bullish on housing? Those are becoming harder to find!

SP

#housing

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167   StuckInBA   2007 Oct 16, 7:13am  

DinOR :

Bill Gross (and the entire bond market) confuses me. Just a few months ago he was claiming to be in a bear market for bonds - higher yield, lower prices.

After his prediction exact opposite has happened in treasury market. Now he is calling for lower yield on short term bonds.

The bond market has been acting like being afraid of recession - inverted yield curve - for more than a year now. That recession just doesn't seem to materialize. I don't want a recession. But the bond market still acts like one is coming.

Anyway, I am glad I have been staying away from bonds and concentrating on stocks. Till I get more yield than CD, I have no interest in buying a long term bond.

168   skibum   2007 Oct 16, 7:31am  

Here's an extremely bearish, but interesting piece on the state of the credit crisis, and where it might be headed:

http://articles.moneycentral.msn.com/Investing/SuperModels/AreWeHeadedForAnEpicBearMarket.aspx?page=1

169   StuckInBA   2007 Oct 16, 7:48am  

skibum :

Regarding your query about mortgage securitization going away. CR has a small post on it. I think I agree. Combining things in a basket is not a bad thing, as long as things that are put in the basket are OK.

I loved that quote from the MBA chairman. We're going back to lending the way it was in the 1950s and 60s.

About time, I suppose.

170   DinOR   2007 Oct 16, 7:49am  

StuckInBA,

What's more is that if he was THAT wrong about the quality of MBS... what ELSE is he wrong about? I never could stand the guy so I guess I'd better admit that upfront, but he seemed to be such a "darling" amongst bears but now it looks like they've begun to abandon him too.

171   StuckInBA   2007 Oct 16, 7:59am  

Now it's my turn to be a bit surprised. I was really expecting the -ve indicators to stabilize by now. Don't get me wrong. I did not expect things to get better, but just slower descent.

ABX index are in free fall again. The SoCal sales are a shock. And what to say about new home sales. Shouldn't cancellations at least stabilize ? I mean if no one is booking, no one can cancel, right ? The homebuilders' confidence keeps getting worse. Guess these things can actually go close to zero.

The downward acceleration is still in place. Speed is increasing as the free fall continues.

172   HelloKitty   2007 Oct 16, 8:11am  

@StuckInBA,
I started noticing the SoCal sept sales falling by 50% in september.

I thought it might be an anomoly, but the 50% drop from YOY sept 06 is across the board in SoCal(and other states,areas too).

So far the October sales look to be just about the same in volume as september 07. Meaning lower than 20 year low. Lowest ever recorded since computer recordkeeping began(per DQ)!!and SoCal has a much much larger population now, and more realtors than ever so this stat has end-of-world consequences for many industries.

"Realtor Famine" is right. To be followed by Construction Worker Bust, and Government Hiring Freeze, etc...

173   skibum   2007 Oct 16, 8:36am  

Stuck,
I'm all for free fall in housing indicators - it would mean a more rapid correction back to "normal." However, I'm not surprised by the HB confidence numbers, nor the SoCal sales data. They are both lagging indicators.

HB confidence won't pick up until they've already seen a pickup in sales or at least a significant clearing of inventory. I think there is probably more than one major HB seriously worried about going under from all of this.

The So Cal numbers (we'll see what the Bay Area numbers show later this week, but I suspect a similar direction of badness, just not nearly as nasty) reflect completed sales in September for contracts signed in July and August. The heart of the credit crunch hit late August into September. Hence, I'd even expect October's numbers to be just as bad.

174   anonymous   2007 Oct 16, 8:36am  

DinOR - isn't it amazing how some of the cheapest POS guitars can be the most playable?

I have some thing, a "parlour guitar" made in Canada, I need to dig it out of the closet, got a tuner, finger-ease (spray stuff) and new set of strings....... I got it and it seemed OK, the strings chew me up but of course they do, it's a guitar and that's what they do....

Well, I just discovered Django Reinhardt about 6 months ago, so what's a little finger skin right? I signed up for a class at the Ostensibly Folkie Republican Capitalist Pig guitar place, and worked on buildin' up those calluses on the basic chords....... had to drop the class as my own financial situation was really imploding, and the ugly Birkenstock-wearing moneygrubber teacher wouidn't even give me a partial refund ......but I digress..... I ended up a few weeks later going into the Guitar Center in Santa Clara woops Slumma Clara, you see I thought I'd be bunking (and paying rent to) some friends, living there, but they turned out to be druggies, Heroin anyone? Err, No Thanks. So I was visiting the G.C thinking it might become a jam place for me...... they have imitations of the Selmer guitars Django and his gypsy coherts played, and I was jamming around, I can't play but I can remember what I heard so I was doing little sets of notes from the Django stuff I'd listened to, and a guy in there was impressed with how I was doing all those bends (Django hardly played any note without some bend involved) and I thought it was pretty weird myself - this is a guitar with I think a larger than standard fretboard and I have tiny-ass hands. How could it be easy on this monster when my own smaller than standard guitar is hard? Hence the new set of strings and finger-ease, which I think are both on those shop guitars so they'll play nice...... I think the shops, the smart ones anyway, make sure the strings aren't getting rusty and wipe the guitars down with finger-ease or Pledge or something so of course they all play terriffic lol.

I didn't think the high-end guitars came with horrible actions though, I thought that's part of what you're paying for, is a decent neck and action when you pay the big bucks?

I notice the "greats" never had good guitars when they were on their way up..... hehe.

It really has me wondering, how hard might it be to learn to make guitars, maybe start out making ukes lol.

175   EBGuy   2007 Oct 16, 9:00am  

The CR post on Mortgage Lending Going back to the "1950s and 60s" also included the commentary Securitization is here to stay. I've said this before, and a little table pounding never hurts, and I'll say it a little differently this time: the REIC is about to be disintermediated. Mortgage brokers, realtors, appraisers(?) and the other nice folks who poisoned the securitization stream are in for a rude awakening. And look for fabprefab.com and modular houses to hit the homebuilders where it hurts.

Well, I just discovered Django Reinhardt about 6 months ago, so what’s a little finger skin right? Finger skin -- heck, you don't even need all your fingers...

176   skibum   2007 Oct 16, 9:22am  

Well, maybe securitization is here to stay, but I wonder if it will be in the same form as it stands today, and to the same extent. I guess the crux of the matter is, will investors ever regain an appetite for these instruments to the extent where they will be created and traded to any significant extent. Given human nature, my bet is that in several years, a new generation of bankers will be too young to have gone through today's mess, and they will rehash this scenario, unless the government decides to heavily regulate the industry (fat chance).

177   skibum   2007 Oct 16, 9:29am  

ex,
If you like Django, you might enjoy the Woody Allen movie "Sweet and Lowdown." It's of course fictionalized, but Sean Penn is a jazz guitarist who sees Django as his arch rival. The music is great. I've always admired the chops of jazz guitarists much more than most rock or blues guitarists. Wes Montgomery, Charlie Christian, Kenny Burrell. Although SRV, Leo Kottke, and Michael Hedges had/have some serious chops... Good stuff.

178   EBGuy   2007 Oct 16, 9:40am  

skibum,
Either the REIC goes or securitization goes, and I guess I wouldn't bet against Wall Street. I imagine securitization will crank back up after loans are seasoned (by the banks) for a year or two -- instead of 90 days and out the door.

Best comment from the CR thread by ckt:
I like George Baily route:
"I don't have your money! It's in your CDO, and your CDO, and your CDO..."

Also, socketsite.com is handicapping the NorCal DQ numbers in their latest thread. Place your guesstimates.

179   StuckInBA   2007 Oct 16, 11:03am  

EBGuy :

Based on the weekly SJMN chart posted at DQ, the September sales numbers seem to be down only by 30%. Not as much fun as SoCal. But the median is up in all categories ! Too bad that even dumb Realtors know that the "median up" jig is up.

180   EBGuy   2007 Oct 16, 11:58am  

I went to one open house this past weekend. It was mobbed. They had Jelly Bellys. Next time I am going to start asking people if their are neighborhood gawkers or seriously looking.

I also ended up in the hills and took a look at a REO. There appeared to be another family in a car on a “stakeout” in front of the house. Well, I guess they were eating lunch, as the father got out of the car later and talked to me after I nosed around the property. It was a flip gone bad so there are some unfinished baths, some of the floors need to be refinished and kitchen appliances are missing. Nothing, that I can see, is beyond repair. At any rate, the guy could not get over that there was a property selling for less than $800k amongst the millions dollar pads. Its a REO, my friend; I don’t think the bank is ecstatic to have it on the books. I forgot to bring out the ARM reset chart, but did tell him several times to sit tight for two years as the fun is just beginning (he’s currently renting). For those who are interested, the property is listed here. I really like the name of foreclosure specia1ist: bareo properties. Sounds like a certain Spanish word.

181   OO   2007 Oct 16, 12:16pm  

Does anyone know of investment site(s) that are dedicated to discussing shorting / put targets?

182   SP   2007 Oct 16, 1:28pm  

skibum Says:
Have any of the pundits/experts even mentioned or contemplated the possibility that this whole “credit crunch” might (in the best of worlds) be the precipitating factor that forever dooms the concept of securitizing mortgages? Maybe, just maybe, there will be a realization that taking a bunch of heterogeneous loans and “packaging” them into a “product” that can be “traded” is not such a good thing after all.

I don't think so - securitization of debt instruments (and trading in them) won't go away, since it is not really a new thing. It has been around in various forms for a long time.

What will change is that the recent burns will cause risk to get repriced at a higher level for a while. You will still be able to lend money against a note and then turn around and resell the note, or sell a large tranche of the notes together - but the discounts will be steeper than they used to.

SP

183   svcausguy   2007 Oct 16, 3:38pm  

SP said

Why are falling housing prices a penalty to economic growth? In what kind of kool-aid filled universe does this hemorrhoid live?

Who is Paulson?

Paulson was Staff Assistant to the Assistant Secretary of Defense at The Pentagon from 1970 to 1972.[7] He then worked for the administration of U.S. President Richard Nixon, serving as assistant to John Ehrlichman from 1972 to 1973.

He joined Goldman Sachs in 1974, working in the firm's Chicago office. He became a partner in 1982. From 1983 until 1988, Paulson led the Investment Banking group for the Midwest Region, and became Managing partner of the Chicago Office in 1988. From 1990 to November 1994, he was co-head of Investment Banking, then, Chief Operating Officer from December 1994 to June 1998;[8] eventually succeeding Jon Corzine (now Governor of New Jersey) as its chief executive. His compensation package, according to reports, was US$37 million in 2005, and US$16.4 million projected for 2006.[9] His net worth has been estimated at over $700 million

184   svcausguy   2007 Oct 16, 3:40pm  

"Too bad that even dumb Realtors know that the “median up” jig is up."

we still need direct proof that prices are falling....thus you get capitulation.

185   OO   2007 Oct 16, 3:51pm  

The most savvy move of Paulson was to take the current position, according to Economist, because he was able to unload ALL his Goldman stocks at a high price without causing the market to turn its head - it was required legally. That alone netted him $400M+. If he were to unload all the stocks as CEO without a proper reason, that $400M+ would likely to be very much less.

I have always wondered if that was the main motive for him to become the Treasury Secretary. I would be tempted if I could up my networth 3x in one shot, and if he worked in IB all his life, he obviously cared for money.

186   StuckInBA   2007 Oct 16, 3:55pm  

Indian stock index plunged as much as 9% today triggering trading halts.

http://tinyurl.com/yqrbnp

``The government was getting uncomfortable with the sharp run, which was creating a bubble,'' said Jayesh Shroff, who helps manage the equivalent of about $6.4 billion at SBI Funds Management Pvt. in Mumbai.

I have read news about every country trying to prevent asset bubbles, fight inflation. Not just lip service, but stern measures that have drastic consequences. Sometimes these measures work, often times they don't. But you cannot blame them for not trying.

Here in US, we refuse to even acknowledge the existence of bubble, so we don't have to take any measures at all. Given excuse is often the same - not interfering with the free market. But once they pop, oh do we forget about the not interfering part or what. And we are supposed to be the smarter ones when it comes to free markets.

187   StuckInBA   2007 Oct 16, 4:00pm  

This news confuses me even more.

http://tinyurl.com/37pwlp

Japan, China and Taiwan sold U.S. Treasuries at the fastest pace in at least five years in August as losses linked to U.S. subprime mortgages sparked a slump in the dollar.

If Asian countries are dumping treasuries, who the hell is buying them keeping yields below FF rate ?

188   OO   2007 Oct 16, 4:16pm  

StuckinBA,

The answer may be, the Fed itself. I know I know, I start to sound like a lunatic conspiracy theory believer. But lots of the add-ons were coming from British Virgin Islands where buyers' identity could be hidden (2006 data). I highly doubt if there are so many patriotic or dumb super-riches buying these bonds.

Don't worry, I will be proven right or wrong within 2-3 years.

189   OO   2007 Oct 16, 4:26pm  

The 17th Commie Powwow at Bejing just declared: the government will make it easy for Chinese people to benefit from non-salary source income (aka stock and house flipping).

The Chinese government kept giving the same lip service as they vowed in public to mop up the liquidity. In fact, they won't ever want to mop up the liquidity if that is what is keeping the country going, because what the commie has left to justify the regime is economic growth alone, at whatever cost it takes to sustain. As soon as the growth stalls, China will be in big big trouble.

Just for the record, Chinese monetary growth just went up 20.94% and 18.48% for M1 and M2 respectively for July 07 compared to July 06. If anything, the PROC want this party to go on forever. Mop up my ass.

190   SP   2007 Oct 16, 4:39pm  

StuckInBA Says:
Indian stock index plunged as much as 9% today triggering trading halts.

What's happening with real-estate there? I have a neighbor who CANNOT shut the f*ck up about how much his apartment in Bangalore has gone up since he bought. I am wondering if he is going to pipe down anytime soon.

SP

191   OO   2007 Oct 16, 4:41pm  

PROC=PBOC want=wants

192   DinOR   2007 Oct 17, 12:15am  

StuckInBA,

Thanks for the heads-up. That gave me quite a start. I don't understand why global hedge funds necessarily need anonymity when investing in Sensex "participatory notes"?

193   DinOR   2007 Oct 17, 12:18am  

SP,

After years of battling to contain "domestic smugness" this new strain appears to be very stubborn?

194   StuckInBA   2007 Oct 17, 4:38am  

SP :

What’s happening with real-estate there?

The RE in India exploded where software centers were based. Since this was a combination of mania plus actual wage increases, the bubble is not half as bad as ours here.

There are speculators that are under water. People who have booked multiple apartments are going to lose their deposits. Indian Govt officially gives a rats ass about these and have persistently increased interest rates to break the back of RE speculation. They succeeded in doing that. But as a result INR became strong. Some sudden inflows of foreign funds resulted in BSE index gonig from 14K to 19K in a month and half - that is like 30% in 45 days. And this is a slower index like DJIA - some stocks have done double that.

Indian economy is dependent on exports, but internal growth is getting stronger and stronger. Couple that with high inflation, the RE prices are not in danger of free fall as here. So your neighbor is not going to quiet down soon. But you can tell him that he should have bought in Hyderabad instead ! People feel far more strongly about missed even more gains than realized profits ;-)

195   Duke   2007 Oct 17, 4:39am  

New thread time.

Who can start one?

196   DinOR   2007 Oct 17, 4:53am  

"your neighbor is not going to queit down soon"

Oh great! "Drug resistant i-m-p-o-r-t-e-d smugness". Just what we need! Could it be that traditionally, in India there hasn't been (until recently) any way to "make payments" on a house? I thought (and I could be wrong here) that consumer finance is a VERY recent development there?

197   DinOR   2007 Oct 17, 4:54am  

quiet?

198   StuckInBA   2007 Oct 17, 6:17am  

DinOR :

Yes and no. Home Loans were not easily available when my parents purchased theirs. Only loan they could get was from the employer, which didn't cover much of the costs. Because most of the payment was "in cash only". Completely illegal. It was no secret either. The builder would quote you 2 amounts - they used to be called black and white.

This practice has not disappeared by any means. But the larger builders, which are public corporations now - use only "white" payments. That's why they have to charge a lot more. But it helps buyer get loans. And there are many legal avenues for taking a home loan.

So my parents took loan for the "black" portion from friends, relatives etc. The going rate for such loans those days was 25%. Yes, it was that horrible. So they did "make payments" on the house. But they could not take MID on that part ;-)

199   GallopingCheetah   2007 Oct 17, 7:07am  

Hey Guys,

Boring topics and convs. Anything fun and interesting?

BTW, I looked around for a nice writing desk and couldn't find any! I went to the top producers, the heirloom makers. There are a couple good ones, but they are all big (60+ inches wide). The only one that really struck my heart (and fit my room) is selling for $8000 after heavy discount. My furniture dealer gently told me that the maker furnishes palaces and embassies. The only reason that I don't shell out $8000 for the desk is that I'm going to use the same room as my amateur art studio and chances are I'll scratch and soil the desk within weeks.

It sucks. I can't find a good desk -- not the executive desks, but the 18/19-th century writing table; besides, who wants to be reminded of a boring businessman's (or taking-himself-too-seriously-running-from-here-to-there entrepreneur 's) life at home -- for under $4000. Most furniture pieces are utterly tasteless and grotesque. I can't believe people (mostly housewives) buy them.

I'm thinking of becoming a furniture designer at some point in my life.

200   HelloKitty   2007 Oct 17, 7:39am  

Cheetah your furniture comment is funny. My 'desk' philosophy is opposite.
I buy a cheap $99 laminate tabletop desk w/no drawers. Then when I move or tire of it I toss in garbage.

This type of furniture is cheap and I consider it disposable. Disposable everything is nice since you dont have to worry about keeping it nice, theft,fire, etc.

201   DinOR   2007 Oct 17, 7:53am  

StuckInBA,

Thanks for filling in some of the gaps in our understanding as to the mechanics of financing there. I'd noticed after years of "cash on the barrel head" even the Philippines are offering "financing schemes" that are... pretty reasonable! I guess they are trying to get Manila to move UP (Lord knows they can't go any further OUT!)

202   HiThere   2007 Oct 17, 7:55am  

HelloKitty,

I understand where you are coming from when you mention 99 desk. There was a stage in life I did exactly what you said. Then you come to a point when you think you are more affluent and well settled in life (though it's a state of mind, you may never settle) and start looking at finer things in life like a nice house, expensive car, nice furniture etc. The order in which you procure them might be different. At one stage in life I though twice to buy a 99 dollar desk but recently I bought a desk for $4800 without thinking twice.

203   HiThere   2007 Oct 17, 7:56am  

though = thought

204   DinOR   2007 Oct 17, 7:56am  

Since they should have my "new" (actually refurbished historic bldg.) office finished in January I figured it wasn't too early to shop for furnishings? I was hoping for that "Mike Hammer Investigations look".

The building is actually from the late 1800's and I'm open to suggestions!

205   GallopingCheetah   2007 Oct 17, 8:10am  

Kitty,

We are not that different. Either the cheapest or the most equisite. Anything in between, what they call the value items, is abominable. I would put together a few cardboxes and use them as my table.

206   GallopingCheetah   2007 Oct 17, 8:21am  

A beautiful house I can't afford right now. Actually, it really doesn't make any sense for a single man to live in a house, unless he can staff it with servants. If he were to have roommates, he would not be able to frolic around with his mistresses. So a beautiful condo/co-op (such as this one http://www.johnlscott.com/PropertyDetail.aspx?GroupID=53084101&ListingID=29368047) makes a lot of sense. Unfortunately, I can't afford it.

Some guys like NY-style lofts. My personal feeling is that a loft doesn't induce a sense of intimacy and hence poor as a seduction location. Any thoughts on that?

What's the ideal size of an apartment/condo for use as a place of debauchery? 700 sqft, 800 sqft, 900 sqft?

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