patrick.net

I am still waiting for the day when people talk about crappy economy and retire "credit squeeze", "sub-prime".

Web Crash 2.0

If a recession finally hits, Web 2.0 companies will find there are neither enough ad dollars out there for all of them to survive on, nor enough big corporate buyers such as Google, Microsoft, and traditional media companies to buy them all out. What's more, venture capitalists may decide that momentum looks better for clean-tech investments than for Web startups that depend on a cyclical business like advertising. So more will join the "DeadPool," as the Web startup blog TechCrunch calls its list of failed companies.

Today we learn of two more Googlers leaving the search giant: Kevin Fox, a UI designer who worked on Gmail, Googel Calendar, and Google Reader, and Nathan Stoll, a product manager at Google News. Fox is going to an unnamed startup. Stoll is vague about his plans.

Remember, these are two employees out of 16,000 and the end of the year is a natural time to leave a job for something else. But Fox and Stoll join a growing trickle of Google veterans who no longer find Google as alluring a place to work as they once did.

Anyone know what Google’s employee churn rate was in 2007? Anyone want to guess what it will be in 2008?

Well, recession usually helps the churn rate of big companies like GOOG and MSFT. There will be fewer options out there.

OO,

At first, I read your query too quickly and thought you asked about the candidates' mediocre policy and thought, you're right ...

But in terms of health care reform, you can read all about it on the Kaiser Family Foundation site - they have a nice side-by-side comparison. For me personally, the bottom line is there is little difference between the candidates, not surprisingly. They all tow the party line and espouse a bunch of glad-talk. My key points:

- ALL the Dems propose some form of "universal coverage", although if you read the details, only Kucinich's is probably a radical overhaul.

- ALL the Republicans propose only to tweak the status quo - make insurance coverage more "free market" oriented, whatever that really means.

- You can't trust John Edwards, the bastard. He's a glorified ambulance chaser, and his claims of tort reform are only lip service. I'll guarantee he's in the pocket of the trial lawyers lobby.

Permarenter,

I think it's been SP and me claiming this exact scenario about crappy Web 2.0 "companies" if recession hits. Their businesses are all about fluff, and their lifelines will be the first too be cut in recession.

Speaking of which, many with more economic expertise than me (CR, for instance) claim that in retrospect, Q4 of 2007 may already have turned out to be the start of recession. Doesn't bode well, since let's not forget there's still the looming ARM and Alt-A reset tsunami coming in the next 2 years...

I have been wondering how well GOOG will do in the next recession with its majority of revenue still from advertising.
I think it will get hit the same way YHOO did in 2000.

With regards to the high income earners in the Bay Area keeping the market up - they too were drinking the kool-aid and were most likely going for the biggest loans that they could to get into the biggest best located McAlbatross that they could - I bet the mortgage brokers were not selling them the 30 year fixed, but instead selling ARM's - because - why pay all that extra interest when you can just refinance in 2 years time?

I think that they are going to be stretched too because remember they all liked their new kitchens/ remodels and Mecedes too - plus those extravagant holidays that all their friends were taking - please - I really think some of them will have bitten off more than they can chew too - even if they have a better chance of digging themselves out of their money pits!

I think that they are going to be stretched too because remember they all liked their new kitchens/ remodels and Mecedes too

I know of 2 people at work are like that, they make really good money but elected to have really expensive houses. It's like if they can comfortably afford a 1.2 M house, they will stretch to get something close to 2M.

Claire :

Your bet is safe. Till 2007, not a single person I know had a fixed rate mortgage. In 2007, the buyers I know took 30yr FRM because there was very little difference in the ARM rate and FRM.

Prices will soften in the valley. But the hard realization is still couple of years away. That's when their ARMs and Option ARMs reset. It all depends on what the interest rate would be at that time.

SP Says:

> Salary will put a limit on debt-service ability, but some
> won’t need any debt for a 1.5M home.

Then skibum Says:

> In the current RE environment, how many of these people
> will want to sink the bulk of their “hard earned” stock options
> money into a 1.5M stucco home that is depreciating? Maybe
> more than I imagine, but then again there is the saying about
> a fool and his money…

If you have $1.5mm you can get an almost risk free return of about 5%/75K a year. The taxes. Insurance and maintenance on a $1.5mm home will be about $25K a year. Why buy a crappy $1.5mm home in the Bay Area when you can rent a much nicer multi-million dollar home and save money without any down side risk?

Jimbo :

I completely agree with skibum here and Claire and cb have also echoed similar thoughts.

And that is very similar to my primary reason for not buying. We work long hard hours and earn a really good salary. To do what ? Transfer all that money to some lender ? And for what ? To live in a crappy sh1tbox - a 50 year old hut sold as is ? With such an antiquated plan where I can not even figure out where to put my high end TV ? With a minuscule kitchen and tiny bathrooms ? And I am supposed to be in a bidding war over this ? So that I won't have any money left over to live like I am actually earning a nice salary ? That completes the circle.

It's a tragedy that IN SPITE of earning such high income, people cannot live to that standard. They won't become rich by saving money after earning this high salary. The only way they have a chance of becoming rich is that sh1tbox gets sold to a greater fool.

This is NOT a rich area. This is a high income, higher debt area. Someday, people might actually understand it.

Claire Says:

> With regards to the high income earners in the Bay Area
> keeping the market up - they too were drinking the kool-aid
> and were most likely going for the biggest loans that they
> could to get into the biggest best located McAlbatross that
> they could - I bet the mortgage brokers were not selling them
> the 30 year fixed, but instead selling ARM’s - because - why
> pay all that extra interest when you can just refinance in 2
> years time?

Just in case anyone has not noticed lenders are losing Billions every month on real estate loans. Most people with a ton of cash already own a home and when many of these recent buyers can’t re-fi (due to stricter underwriting) they will be forced to sell and keep lowering the price until they sell that will create a low comp that makes it even harder for the guy down the street to re-fi that will force him to sell creating an even lower comp…

P.S. I know someone who was told by the bank that they would re-fi his current loan to a fixed rate if he just paid it down $300K (not many people have $300K in the checking acct.)…

>> The only way they have a chance of becoming rich is that sh1tbox gets sold to a greater fool.

Government will continuously tinker with policy so that this SCAM is perpetuated. Democrats sepecially will try to raise conforming loan limit to $1 million.

FAB,
Is it fair to say that balance due after the pay down of 300k represents the fair market value at this time?

GOOG (669.39) is steadily going down:

3-Jan-08 685.26 686.85 676.52 685.33 3,252,500 685.33
2-Jan-08 692.87 697.37 677.73 685.19 4,306,900 685.19
31-Dec-07 698.57 702.49 690.58 691.48 2,376,200 691.48
28-Dec-07 704.93 707.95 696.54 702.53 2,537,000 702.53
27-Dec-07 707.07 716.00 700.74 700.74 2,942,500 700.74
26-Dec-07 698.99 713.22 698.21 710.84 2,530,000 710.84

OO :

have a few more weeks like this, that will wipe out quite a bit of options/ ESPP gains of the 2 income households, which will grant you your wish.

:-) The stock market gyrations have a deep psychological effect on BA. I guess outside the financial areas of NY, Chicago, Boston etc, nowhere else in this country you will see so many mood swings that are in sync with the major indexes.

Well, happy new year, I guess ;-) to all the bears. What an opening week.

FAB,
Been meaning to ask, how were conditions at Sugarbowl? Man, I haven't been there in about 5 years.

GOOG and AAPL are not good put targets because at least these companies have good fundamentals which are just over-valued, its Chinese counterpart BIDU with a 170 P/E is a much better target.

Happy New Year to everyone, especially if you are a bear.

OO

Would you short S&P using ETF?

seeking investment advice :)

cb :

I have dabbled in some of the short and ultra-short ETF as well as Ultra-long ETFs. They are extremely volatile, so proceed with caution. I have done OK with them as trading vehicles. I prefer them to options these days.

PermaRenter Says:
Hooray, Dow is at 12K ==> 12,884.63

Dang, I had a friendly bet with a cow-orker (I will "buy" you a beer at the next Friday social) riding on the Dow falling under 13000 by the end of 2007. Just missed it, and now I have to pay up on the very day that it actually did it...

skibum Says:
In the current RE environment, how many of these people will want to sink the bulk of their “hard earned” stock options money into a 1.5M stucco home that is depreciating?

You and I would have guessed *zero*, but evidently the answer still is a non-zero positive number. But basically, you and I are in agreement that it hinges on psychology now - when you are dealing with insane people, I guess that is to be expected. :-)

One of the most fundamental problems I think this economy faces is a deep decay in business ethics. Especially with regard to Wall Street. You can't have a successful economy when everybody is just trying to take somebody else's money so they don't have to do an honest day's work.

Again, this is precisely the sort of thing that rate cuts and government bailouts don't address... and may well make worse.

FAB said:
If you have $1.5mm you can get an almost risk free return of about 5%/75K a year. The taxes. Insurance and maintenance on a $1.5mm home will be about $25K a year. Why buy a crappy $1.5mm home in the Bay Area when you can rent a much nicer multi-million dollar home and save money without any down side risk?

Preaching to the choir. What you say makes perfect sense, but there still are people who feel the need to build a 4000 sq.ft. McMansion with a Mission style roof on a Tuscan facade with Doric columns and Victorian details, for a couple and one kid to live in.

Dang, I had a friendly bet with a cow-orker (I will “buy” you a beer at the next Friday social) riding on the Dow falling under 13000 by the end of 2007.

The Dow below 13K is news. But for your coworkers and the rest of the Silly Valley, I think the more stress-inducing number is the 3.8% drop in NASDAQ today. It's pretty much near it's levels from 1 year ago.

Bay Area MSM getting bearish???

http://www.kcbs.com/Dismal-Outlook-for-Bay-Area-Housing-Market/1430686

Dismal Outlook for Bay Area Housing Market
SAN FRANCISCO (KCBS) - New numbers from an online tracking site don't exactly paint a rosy outlook for the Bay Area housing market in 2008. The number of properties languishing without bids is on the rise.

According to Movoto.com, more than half of all available homes in the Bay Area counties tracked last month were on the market for at least 60 days. "We think we're probably in the third or fourth inning of a pretty long game," explained Movoto.com spokesman Mark Brandemuehl. The way he sees it, many would-be sellers are staying on the sidelines for the time being. "People who have a choice in when to list their home are holding homes off the market."

In December, there was a decline in home prices in many of the Bay Area counties. "1 to 2% on the month-over-month basis is a pretty aggressive drop in prices," said Brandemuehl. "What that tells us is that sellers are kind of chasing, chasing the market down with their prices and trying to find a price at which their homes will sell." The sharpest decline was in San Mateo County. The average list price there was down 12% in December 2007, compared with November 2007.

there still are people who feel the need to build a 4000 sq.ft. McMansion with a Mission style roof on a Tuscan facade with Doric columns and Victorian details, for a couple and one kid to live in.

You just described about 80% of all the homes built within the last 5 years in Los Altos Hills!

Shrines to tackiness built into formerly pristine hillsides. McMansion doesn't seem to aptly describe these monstrosities - more like FrankenMansions, what with all the random, jarring and completely gaudy faux-elegant architectural "touches" they incorporate.

how were conditions at Sugarbowl?
I can't comment on Sugarbowl, but do follow South Lake Tahoe a bit. For reference purposes I have been tracking the asking prices on 1bed/1bath quarter share fractionals (not timeshares, those lose value!) at the Marrriott Grand Residence. Looks like a seller may need some cash (now!) and is undercutting everyone else with their price of $110k (previous low asking was around $120k). And on similar resale site a 1bed/2bath is showing up for $115k. For reference, another site that rents out their unit claims the orginal price from the developer was north of $200,000 (ouch!).
And this is going up across the street.
Oh wait, you meant ski conditions :-)

The end of big oil as we know it. Also my next car, I just put a deposit down to reserve one.

http://aptera.com/

skibum : You think like Howard Roark.

I was up at Tahoe during Christmas. I think I saw the ad that EBGuy is talking about. I remembered couple years back at Northstar some broker was trying to sell 1/7 share of NorthStar village condo for $200K, I wondered how much that had gone down.

When I was playing craps the stickman was saying how Horizon is hurting, wouldn't be surprised that they tear that place down and build even more condos. The Asian gamblers now all go to Indian casino near Sacto to avoid going up the mountains so I don't think south Tahoe can support all the casinos.

It's funny to see now how the resorts now have young visa workers from all over the world, I remembered reading about how they are more courteous than local seasonal workers (another way to get more cheap and more reliable labor).

The condition at heavenly was pretty bad when I was there, I got a $66 bad weather discount for one day of skiing ($81 regular). Lots of trails were closed or not groomed and the Nevada side was closed.

cb

I won't short a group of stocks. I buy puts on individual stocks in the particularly susceptible sectors, because I am worried that PPT may still do something to hold up the indices. They won't do anything for a particular company, especially that particular company is precariously positioned to handle recession.

I have puts in a bunch of retailers.

NOT INVESTMENT ADVICE

Who said the move-up market is dead or
When people with good credit do bad things.
According to Fiona Santos of Coldwell Banker Peninsula, neighborhoods like Ingleside and Ocean View have dipped as much as 15 percent, or the equivalent of $100,000 per property. "It's definitely a buyer's market," she told me, "And sellers are pretty desperate." She said that the desperation is not only emanating from those moving out of town or those who can't afford their mortgage, but those buyers who have already bought a more expensive home in San Francisco. "Some of my clients have already moved up. Now they can't sell their first home. These homeowners can't afford to carry two mortgages," she says. "So they are foreclosing on their first home."
Can't believe Ms. Llyod got a used home salesperson to actually say this on record. The end is near...

I have a feeling that many finer-defined sector short ETFs will come on market pretty soon.

You can always count on Wall Street's efficiency when they smell blood.

OO :

The PPT has been able to do Zilch till now. I fear the Fed coming to rescue at the worst possible moment when I am on the short side. They do not fear moral hazard and have shown that in their actions.

I also fear manipulation on the individual company level - like deliberately spreading rumor of a buyout by Buffet. It can start a nice short squeeze.

The broader indexes have been behaving quite predictably on the news. NOT all the time, but most of the time for last few weeks. Even the "Bad Report Bulls" - economy is bad, so Fed will cut, so buy-buy-buy - crowd has gone in hiding now.

But anytime - ANYTIME - now some bullish trigger would start another covering rally. That's what I remain mindful about.

* If anyone takes that as an advice of any kind, they deserve what happens to them.

EBGuy,
That link is amusing. I especially like that doofus Realtors pontification, "I predict the demand for this property offering is going to be legendary."

I for one agree with ptiemann, it's sad to see all the rathole motels going away. SLT was never a place for ski-town ambience, but it had its sketchy charm. Now it's slowing turning into every other over-developed plastic area.

The saving grace for me personally is that I usually avoid staying right in town - taking the gondola up bites - it takes too long to get to a crappy part of the mountain anyway.

THis was in moderation, so try again...

I was up at Tahoe during Christmas. I think I saw the ad that EBGuy is talking about. I remembered couple years back at Northstar some RW was trying to sell 1/7 share of NorthStar village condo for $200K, I wondered how much that had gone down.

When I was playing craps the stickman was saying how Horizon is hurting, wouldn’t be surprised that they tear that place down and build even more condos. The Asian gamblers now all go to Indian casino near Sacto to avoid going up the mountains so I don’t think south Tahoe can support all the casinos.

It’s funny to see now how the resorts now have young visa workers from all over the world, I remembered reading about how they are more courteous than local seasonal workers (another way to get more cheap and more reliable labor).

The condition at heavenly was pretty bad when I was there, I got a $66 bad weather discount for one day of skiing ($81 regular). Lots of trails were closed or not groomed and the Nevada side was closed.

Stuck,
I'd take that as a compliment. I'm a big fan of Howard Roark.

I was up in Tahoe last week, I tried to take my kids to the snow park, the Gondola agent told me everyting was opened except tubing, after we paid $80 to get to the snow park, the guy up there told me everything was closed. To add insult to injury, 2 gondolas were stuck together and nobody could get down, the line to get down was over an hour.

The day earlier I forked out $165 for one day of kids ski lessons, at the end the girl told me my kid can now enrolled in level 3, yeah right, like I would spend $1000 before she even get on a lift.