patrick.net

This is a weird experience, watching a very slow motion train wreck. The super-SIV idea, the mortgage freeze idea, mothballing homes, weakening the dollar. Everything is designed to buy time so that the fire-sale won't happen. But there is simply no derailing the asset repricing express, and its not just housing.
The credit bubble has created unhealthy valuations virtually everywhere. The economy needs this recession. Badly. Just to bring sanity back to life.
Debt is not wealth. Hard work, saving, and wise investing are wealth.

Once the Joneses are not given their MEW, credit cards, and easy access to serial bankruptcy they are going to be a lot easier to keep up with.

Hedge funds betting against the lending industry. You betcha!

One NY hedge fund manager is warning that we'll see something similar to the Great Depression very soon:

A Wall Street superstar this year who runs Balestra Capital Partners, Jim Melcher, says he's "worried about a recession. Not a normal one, but a very bad one. The worst since the 1930s. I expect we'll see clear signs of it in six months with a dramatic slowdown in the gross domestic product."

Talk of Worst Recession Since the 1930s
http://www.nysun.com/article/66268

"a lot easier to keep up with"

Yes it will. Duke, I agree. It's all about buying time right now. Puttin' the "freeze" on loans, the whole Maryanne. It will be interesting to see if indeed the HF's take an interest in filling the void created by 189 imploded lenders? They'll have to do "something" with all those profits!

You got it right Duke. The slow motion train wreck that will be reduced to a crawl with all the upcoming rate cuts from the fed.

You are correct also Boom. A recession is coming. But we need a recession to get rid of all of this deadwood. The speculation, the greed, the lack of savings and the unhealthy dependency on credit in our society. All this needs to be wiped away. The NASDAQ is a casino. Our homes are an ATM. We have mortgaged our children's future for current consumption.

We need a new beginning. A good start would be to export Ben Bernanke to China.

I don't see Hedge Funds taking up the housing charge. In fact, I see global banking getting away from securitization for quite some time.
I have been thinkning about the term 'frictional unemplyment.' There is a rate of unemplyment at which it is no longer cost effective to put another body to work - their net econmic effect is negative.
Similarly I believe that with too much credit sloshing about people have been throwing bad money at stocks, bonds, housing, bad R&D, etc. The net effect of adding more capital to the market is generating only waste and speculation. Capital markets should back only those ideas and goods that meat a threshold. Frankly the world is just not yet ready for a 48T economy.

What of housing? Fannie and Freddie will show some spectacular losses. People will call for regulation until it finally emerges that housing is a form of generational warfare. New buyers should ask for the disolution of Fannie and Freddie as the net effect of cheaper rates set against lower prices completely favors lower prices. But the financially immature don't get that.
In the end we will get some banking reform that will limit price destruction at the cost of the strength of the US dollar .

By the way, this fund seems very hard to find on the net in terms of contact info. I couldn't find a website, and the best other contact info I could find for them is this:

Lahde Capital Management LLC
2700 Neilson Way, Suite 1126
Santa Monica, CA 90405
310-392-3010
Andrew@lahdecap.com

Note: the website lahdecap.com is under construction, but that doesn't mean the email @ lahdecap.com isn't working.

Also note: "The funds charge a 1% management and 20% performance fee, with a $250,000 minimum investment requirement."

http://www.finalternatives.com/node/1143

Lahde's new fund betting on a major slowdown in commercial real estate will probably be another winner.

P.S. I have no connection with or stake in Lahde Capital. Although I wish I'd been there a year ago!

I was kidding. I don't see HF's having any desire... to get caught up in that. Least not for some time to come. It's funny though that Lahde decided to get out at this point and move to commercial? One of Randy H's links showed that a majority of HF's fully planned on milking the subprime slide for quite a while.

I will beg to differ on securitization though. The Street likey and now I'm hearing boomer death put bonds will join the fray (among others). Of course they'll have claimed to have learned their lesson and promise not to do it again. I agree, it should go away, we can only hope.

I don't even understand how this all works ..... Bet? What do you mean? Like going to the racetrack and meeting up with a bunch of big guys wearing pinky rings and telling 'em, "I'll bet'cha a million dollars this or that goes down?"

I understand sight alignment though, and 'scope parallax, and how to snipe a target so the sound bounces off of something and everyone thinks it came from the grassy knoll, or a building across the street etc..... Lots of us understand that, and more can be taught.

Now Abu Dhabi owns CitiBank, it's right and proper to stiff 'em all, they're not American companies any more and probably have not been for a long time. I suspect we will get to the stage where goon squads will come out to take whatever they can for their Arab rulers, so you know what to do.

Get armed, get expert, keep ready.

As ex-sunnyvale-renter says, it is not always so obvious to figure out how a certain bet is made.

What conduit (if I dare use that word) did Lahde Capital use for their bets?

DinOR,

Can you explain boomer death put binds in a nutshell?

@justme,

A lot like "viaticals". Back when AIDS was really raging some smart investors decided to give people 200k upfront for their 500k life insurance policy. (I know, join the world of the living!) Anyway, early on they were great deals (for investors) but as the condition became more survivable and longevity increased... returns decreased. Obviously they became a lot less popular.

No sooner does "the first boomer" sign up for her SS them WS comes out with a newly securitized product. Off course they'll be underwritten, cast in pools and traded on the secondary. For me it's a major turn-off. All those fees built into "the product" and I'm sure by the time they're done they'll be labeled "AAA" (so.. jack for yield) and then somehow guys like me are supposed to sell it as "quality paper" for a lousy 1/4 maybe 1/2 pt. mark-up.

They sales pitch will go something like; "Mr. Investor these BDB's are a great addition to your portfolio b/c it plays on the boomer demographic, it has NO correlation to the stock market AND it has this "implied guarantee" of the gub'mint" (or words to that effect).

Since we basically single-handedly stopped the "bail-out" maybe if enough people get behind this we can stop it before it gains momentum?

I still like simply killing off the rich and looting their enclaves, what's wrong with that? It's easy to understand, ecological, and fun. A whole generation raised on the video game Doom as well as working-class despair will prove enthusiastic, and any farm kid or hunter who's cleaned game won't find gutting a body much different.

Go where the money is.....

We here at Patrick.net do not advocate violence of any kind. :(

Since most HF firm's min. is at least 250K (and that's in ONE investment mind you) as I've said before, the rich will take it in the shorts on THIS one! The reason Lahde is even a story is b/c he was on the right side of that trade. (Most HF's weren't).

That's the reason there's even any discussion about "propping up home prices" and injecting liquidity. Where were these guys when daytraders were takin' it in the ying-yang?

The September Case /Shiller Home Price Index numbers (PDF alert) are out. Shiller does a victory lap:
“The declines in the national figure are notable for two reasons,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “First, the 3rd quarter decline, at 1.7%, was the largest quarterly decline in the index’s 21-year history. And, second, the year-over-year decline posted its second consecutive record low at -4.5%. Consistent with prior 2007 reports, there is no real positive news in today’s data. Most of the metro areas continue to show declining or decelerating returns on both an annual and monthly basis."
Miami continues its spectacular fall and SF Bay Area is down .8% month-to-month.

I don’t even understand how this all works ….. Bet? What do you mean? Like going to the racetrack and meeting up with a bunch of big guys wearing pinky rings and telling ‘em, “I’ll bet’cha a million dollars this or that goes down?”

In a metaphorical sense, you're absolutely right! Derivatives to me have always seemed like sanctioned gambling, only with much, much higher antes and a house that's willing to spot you a few billion here and there.

What we're seeing unravel is what the "mortgage elimination" crowd bases a lot of their claims on. You go to buy a home, get a loan and sign some doc's? But where did the money for the seller really come from? Did the bank that issued the check have that much on deposit?

I know they sound like incredibly simplistic questions but from what we've seen (so far) in '07 you can understand why people feel confused. And we haven't even gotten to all the derivatives yet!

Investopedia has some great links to explain short selling and derivatives.

DinOR,

Not quite sure how the BoomerDeathBonds (BDB) work. Something like, "I'll give you 200k up front fot the right to all your future SS checks"?

I wonder if there is a rule that you cannot "pledge" (that is the term used in stock options agreements) your SS payments against anything. Come to think of it, that such a rule would be unreasonable, because then you could not borrow money (for a house :)) against your future SS income.

Wells Fargo CFO is presenting at an investor conference tomorrow AM. Should be interesting given the recent housing market/Great Depression comments from their CEO. Will their subprime portfolio go nuclear? Stay tuned...

I found the article slightly amusing in that certain semi-notorious posters here 12 months ago were asking, 'how can we profit from the meltdown?' The answer was to splonk 250 Gs on this pony. However, $250K in readies alternatively would buy you half a house, albeit overpriced...

I'm not sure how these derivatives work in practice either, but that's what hedges are all about, I guess. DinOR knows much more about these matters, and we used to have randy's market 'insights'...

@justme,

I've never been insurance licensed but my understanding is that this would pertain to their "whole life policies". Unlike term insurance (the only kind I've ever had) a WL policy builds up cash value.

I imagine the insurers like MetLife etc. will know EXACTLY how much cash value their policyholders have on the books and are talking with other firms. Evidently it must be a whole lot or they wouldn't be so excited about it. Then they are given.... some sort of "advance" on that amount (enough over their normal "loan value") to make it attractive and they're then pooled with like securities and of course securitized and shipped off to retail.

Again, that's my guess. The original article was such a cheery, warm and fuzzy slant you could only construe it as advertising.

Patrick,
What do you think about these new laws that are coming that will give tax relief to sellers that have conducted a short sale? Sounds great, but then it actually motivates sells to dump their properties even LOWER since there is no tax consequence to them. Thus making non-foreclosured properties have to follow suit.

Frank Borges LL0SA Broker Virginia

Blog.FranklyRealty.com

Wells Fargo & Co (NYSE:WFC - News), the second-largest U.S. mortgage lender, said on Tuesday it would take a $1.4 billion fourth-quarter charge largely related to losses on home equity loans as the nation's housing market deteriorates....

Wells Fargo will stop making home equity loans through brokers where the combined loan-to-value ratio of the first and second mortgages is at least 90 percent, or where it does not already issue the first mortgages. The bank will continue to offer its own, traditional prime mortgages.

Special liquidating portfolio... see, it's contained. Will be interesting to see how the CFO spins this tomorrow.

franklyrealty Says:

> Patrick, What do you think about these new laws that
> are coming that will give tax relief to sellers that have
> conducted a short sale?

It will be interesting to look in to the new “debt forgiveness” laws for loopholes after they pass. I’m wondering if I can find a way to “loan” my on site managers $12K every year and then “forgive the debt” to give them $12K tax free vs. current system where income taxes, Social Security and Medicare take a big bite out of the $1K a month I pay them…

FormerAptBroker - you bring up a good point. If I am able to do my BK and discharge all of my debt, the IRS will still be on my ass for the tax on the supposed "income" that represents, so in essence I will not be allowed to make a decent amount of money in the Empire ever again.

As I see it, this argues VERY strongly toward living so cheaply that I make too little to tax, be able to live off the land as much as possible, and have as little to do with the government as possible since, because I have failed in my small biz I am essentially, as the laws dictate, an enemy of the US gov't. now.

Which sucks, I never thought things would go this way. I was an idiot to try to be anything but a wage-slave, ever.

I never thought I'd be an honest to goodness enemy of my government, but then my government is sure not the same one that was in effect when I was born in the early 60s, is it?

Learn skills, learn to farm and to barter, keep firearms and tactics training up to date, hunt and forage regularly, keep in excellent physical shape to save on doctors and keep "fighting fit", do all that stuff which a person Of The People and Against The Tyranny is supposed to do. I guess that's the best advice I can come up with for myself and for anyone else in my boat, whom will number in the millions.

ex-sunnyvale-renter Says:

> I don’t even understand how this all works …..
> Bet? What do you mean? Like going to the
> racetrack and meeting up with a bunch of big guys
> wearing pinky rings and telling ‘em, “I’ll bet’cha a
> million dollars this or that goes down?”

After two years of business school I was finally able to understand how it worked, but it was not until after business school (during the dot com bubble) that I learned (the hard way) that there is still a lot of luck involved with making the bets since you not only need to know “HOW” to make the bets, but you need to know “WHEN” the values would fall (I have “ALWAYS” been right when I bet a sock would fall but I have “NEVER” been right on when it would fall so I’m sticking to real estate). I had a lot of inside information in the late 90’s (like my friend the CFO telling me that “this company has no chance of ever making any money EVER and they are going to run out of cash in 90 days”) and I still lost money since some of these pathetic dot com stock prices remained high even when the companies were out of cash. I’ve been reading this site for over two years and if you asked me two years I would have told you that CFC was in big trouble giving $500K loans to illegal aliens making $10/hour secured by homes worth $300K, but 6 months later the stock was up $5/share. A year later even with the “orange man” dumping HUDREDS OF MILLIONS of stock it was still up and this summer when even most $10/hour illegal aliens well aware that the real estate bubble was over the stock was still higher than Nov. 2005…

@ex-sunnyvale-renter

I am sorry to hear that the IRS will not let you off, but they will the FBers. I am starting to think the way you think. You have good ideas for people in rural areas. I plan on making an offer on a 9 acre lot with a small home and stocked pond on it with 20% downpayment. The place is only 4 miles from where I work and is in a rural area of NW Ohio. My wife can't find work, but I bet she can learn to can fresh vegtables. I also bought 2 rifles to go compete at the CMP matches nearby every Summer. One of these can be used to get deer if I had to.

The CMP (civilian marksmanship program) isn't as good a deal as it once was. I got a pair of M1 Garands through the program two years ago and paid $500 each for them. That's much better than the street price of $1K or more but still they used to go for much less via the CMP. But the CMP is no longer a government agency but rather a GSE like Fannie Mae. Try getting a type 3 FFL if your background is clean. It's only $30 for three years and lets you buy older guns wholesale and have them shipped to you.

I want to buy a M1 Garand from CMP in the next few months. I also would like to get a Springfield Rifle.

I recently bought an used/unfired Rock River Arms NM A2 at a gunshow at a good price and plan to shoot next summer at Camp Perry. I also bought a Yugoslavian SKS with the hopes of using it as well. The rear sight is screwed up, slightly twisted somehow, and I cannot compensate for elevation. The SKS is very percise and will hit the same spot over and over while aiming at the same point. The problem occurs when others try to shoot it and do not know how far to the left and down to aim inorder to hit the target :) Well that works at 100 yards, beyond that I don't know where to aim at to hit my target.

I'll have to admit, the closest I've ever been to the CMP is... their web-site. I spoke w/ friends about it and many said the wait probably isn't worth it. Since much of the surplus is from Korea (and prior) many of the imperfections in the stocks are addressed w/ wood filler and there can be pitting along w/ normal wear and tear. Once in awhile our "Big 5" sporting good store has them on special for $599 but the ones I saw looked a little rough.

Guns! Yay everyone's talking about guns!

Weren't CMP Garands something like $ 165 or $200-odd? I guess that was a while ago.

Go to gun shows, and learn to hang out with gun people a bit if you want to find deals on guns. The deals are out there and will be more common once this Depression really gets underway.

Can someone explain exactly how these hedge funds bet against the subprime market? What trades would they make that would profit by what's happened in the market? Thanks!

In 2001 I purchased a house in Emerald Hills for 800K and told WF that i was putting down 20%. At the closing suddenly they didn't want my 160K down payment, the loan had been changed to some kind of 80/20 were I was given a Home Equity Loan for $160K. At the time I was a very time stressed person and didn't care much because when I got the equity payment bill I just payed it off but I always wondered what was up with that situation since during the process of getting the loan they made a big deal about how I aquired the $160K downpayment and had to produce documents that it came from a company bonus.
My guess is that Wells loan reps made some extra money using that loan combination and that people even though they had the money for the down payment probably used the extra money for investments or consumer goodies and then when home prices began to decline they suddenly found themselves in a hole.
By the way I sold the house in June 05 and now renting up in Sonoma.