patrick.net

Well, with today's rate cut announcement, is there any doubt left that The Plan is to inflate our way out of the real estate losses?

Monetary policy is all about maximizing profit and minimizing loss for banksters, all the while letting the rest of the population pay for the party.

I was against rates cuts like many here were earlier this year. However, in the case of the massive deflation we're seeing, I think it is generally good for the majority of people to cut interest rates. It doesn't JUST prop up house prices, but makes loans cheaper and lowers investment thresholds as well. It is an inflationary move, I'm not saying otherwise, but we can always 'tax and raise interest rate ourselves' out of an excessive inflationary environment. I'm optimistic about some of the things I'm seeing. I can assure you in many places around the country home prices have actually fallen below their fundamental value, in fact there are some real steals out there, and people buying right are getting a rare chance to have a cheap house price with a cheap loan.

Fed has not shot their load yet.

I am waiting for the big RAW PRINT, big one. Ben announcing to everyone that he is printing as many USD as he wants, and he is dropping them from the sky, through rebate program, employment programs, and subsidy checks with an early expiration date.

"we can always ‘tax and raise interest rate ourselves’ out of an excessive inflationary environment."

Tell that to Zimbabwae and Iceland.

There was someone here who, rightly, called for ZIRP by the end of the year. I recall arguing aginst that possibility as I felt it would be impossible to get the entire world's central banks to all competitvely devalue their respective currencies.

I stand corrected.

Scary blogs by Mankiw and Krugman. In my own, "Forrest for the trees" paradigm I keep thinking inflation is the last thing to worry about right now. We have deflation and since we are walking in the footsteps of Japan, it looks like we will have deflation or zero inflation for some time.

But.

It really looks like another world. Japan could muddle along with its export machine and currency manipulation. Not so the US. The Fed is *trying* to create inflation and the people in this economy are insiting on delfation. However, the word noes not really respoond to our people, it is going to respond to the Fed. With our large outstanding, and growing debt, we are likely in for a hecuva whipsaw event.

About the only thing I can see is that we had better start rebuilding ourselves into self sufficieny ASAP as cheap imports will soon become a thing of the past. We simply must rebuild our manufacturing base.

I'm also more than a bit skeptical about the whole "deflation:" really being the case.

While the bubble was forming, "inflation" was measured by the cooked-and-manipulated-to-the-gills CPI. No "inflation" in houses ot stock prices, no siree!

But if the house and stock prices drop, then suddenly it is "deflation".

Again CPI is trotted out as evidence, but the only deflation in CPI is because oil had its own bubble and then fell from 145 to 45 (roughly). IS there *really* any other consumer-level deflation?

Karl Denninger is on a tear this morning (nothing unusual about that) about the consequences of short-term ZIRP, long-bond ZIRP and so on:

The argument keeps being made that "we had to do this" to save the system. But what's not being talked about is what the real problem was, and who we're trying to save.

http://market-ticker.denninger.net/archives/692-The-Idiocy-of-Bernankes-Bubbles-and-CNBS.html

It seems prudent to remind everyone here on a housing blog of an old economic maxim:

"It is better to buy cheap assets with expensive money than to buy pricey assets with cheap money"

Home prices are over valued. With rates low and likely going lower going forward there is pressure to jump in. From a purely economic perspective I would urge all not to use rates as motivation.

Of course, any who can withstand the loss of principle to improve quality of life on issues like: shorter commute, better school, better access to things you like, etc then go ahead. Not all decisions in life are economic.

Speaking of schools: I think the CA schoold budget is $58b per year. I think the legislature is talking about cutting $10b. If this happens, it makes movng for the sake of 'better schools' pretty risky.

I can assure you in many places around the country home prices have actually fallen below their fundamental value, in fact there are some real steals out there, and people buying right are getting a rare chance to have a cheap house price with a cheap loan.

Does "below fundamental value" mean that one can buy a home at approximately the same cost as rent? PTTI has only a small premium over rent for an equivalent house? That one could pay $200k for a home and be able to rent that home out for $1400/mo?

Near me in Menlo Park, houses are still grossly overpriced relative to rent. My own rent remains less than 3% of the likely sale price of the house I'm in, and that's even after 10-20% decline in price lately.

There is just no way I'm going to buy when I can still rent for so much less. Even if mortgage rates were zero, property tax, maintenance, and insurance are probably 3%.

And with all the Silicon Valley layoffs, I expects rents to fall as well, making it an even worse deal to buy.

My only problem is how to protect all the cash I've saved by renting.

But it is regional for sure. Back in Michigan near my sisters, houses are insanely cheap compared to rents. I should probably buy one and rent it out for a 10% return, but I don't want to be a long-distance landlord.

And with all the Silicon Valley layoffs, I expects rents to fall as well, making it an even worse deal to buy.

Patrick, all the layoffs may finally crack the market. Fear is the key.

Protecting cash, for now, seems easy. Keep it as cash. Even in a 0% savings account, that actual cash is buying more and more house every day. I would say every other form of investment, for now, looks pretty bad.
I think Menlo Park may actually be an area in which, even after prices have bottomed, it may STILL make sense to rent. The way in which this is true is that if the home was purchased any time before prop 13, the insanely low cost basis of the house coupled with the low property tax AND the ability to pass that basis on to the next generation means that rents can be profitable at extremely low levels. If people want passive incomes more than they want a lump sum, you can effectively never get pressure to sell except at the premiums that have been pretty well estabblished in Menlo Park over the last 25 years.
So I guess the real trick to not ever think of owning there, but rather to put your cash into - dunno. Anything you value that makes sense to you fom a cost/risk/benefit analysis. Sun Bird home for your retirement years? Long Term Care insurance policy? Art?
Of course, Silicon Valley has up and moved once before. There was a defection to Arizona in the 80s that may be repeated now if CA is convinced it can solve its budget crisis on additonal taxes. This *could* lead MP home owners to realise this is the 'best time' to take their lump sum is now since price destruction would be real and huge if ALL jobs and ALL high paying salaries were sent away. But then, would YOU want to stay? Could you find work and would the art, culture, restaurant scence stay the same?

So I guess the real trick to not ever think of owning there, but rather to put your cash into - dunno.

Remember, asset prices come in cycles. Sometime down the road, it may become attractive to buy.

A mountain of cash may not help you much...

http://humorland.wordmess.net/20081025/what-the-real-crisis-is-like/

Guys, we really need to turn schadenfreude into a real game plan. We are looking at quite possibly the best trading market in a lifetime.

The argument keeps being made that “we had to do this” to save the system. But what’s not being talked about is what the real problem was, and who we’re trying to save.

No system is worth saving.

BTW, the Madoff debacle illustrates that regulation is not the answer. Scrap the SEC!

Insider trading is legal in markets like currencies and commodities and those markets look just like any other financial time series. Insider trading is harmless and it ought to be legal for every asset class.

Smoke and mirrors -- cruel hoax of a homeowner bailout called a failure

The three-year program was supposed to help 400,000 borrowers avoid foreclosure. But it has attracted only 312 applications since its October launch because it is too expensive and onerous for lenders and borrowers alike, Preston said in an interview.

Hi Justme, I agree with the skewing the numbers bit. You have to bear in mind that I along with many others here during the run up were also skeptical of housing being left out of the inflation calculation. People like me are not all of a sudden picking convenient measures. (You might remember points like, "people are whining about 50 cents in gas prices but tripling of home prices is considered good news?")

I also don't hold to the notion that on their own interest rates cause or reduce inflation. In conjunction with other factors they certainly do, and not in a linear way. I also want to state another assumption before I make my observation, that list prices for things are a marketing ploy in many cases masking the true price because of things like coupons or specials. I say that because companies sometimes claim to charge premium pricing but then incentivize the sale (we saw this with the builders earlier in the decade.)

Having said all that, I would have to say that it is a dynamic economy with some segments inflating and others deflating. A plumbing repair can now cost more than a laptop. Did the WalMart model actually contain inflation, or did it just devalue everything to where low prices just matched up with the destruction of higher paying industries to where low prices actually are inflationary compared to the standard of living? And if people are going to debate inflation or deflation in a pure sense, do we use dollars or gold as the example. If we say gold, one can quickly claim that point in the 25% or so decline in gold. It buys more of just about everything, and takes fewer dollars to acquire. Hence, I think gold is still overvalued, but like I've said before could easily pop up again if governments panic people into thinking they're going to print their way out of the mess.

So what I'm saying is that I think for a majority of people, low low interest rates right now present more opportunity with little risk of run away inflation. It could happen, and if it does feel free to tell me I was wrong, because like Peter, I'm seeing tons of opportunities right now. On a macro level, the USA will also benefit by locking in some long-term debt at very attractive rates just like consumers should be doing right now. Instead of panicing, people should be looking at exploiting current conditions with a long-term game plan.

That one could pay $200k for a home and be able to rent that home out for $1400/mo?

Headset, supposedly some places back East are starting to look attractive. See this post from Laughing Millionaire Renter in Marin on Socketsite:

(BTW, paco, I was back on the East Coast for Thanksgiving and I am currently looking at real estate investment opportunities in central Long Island w/family and friends. Cash flow potential fom Section 8 rentals are getting very attractive right now out there, not yet in CA from what I can tell. We've seen properties in the $80-110K range that, with a little work less than $10K using the same Home Dumpo parking lot "subcontractors" that you do, can reliably generate $1900-2200/mo rents - the county portion, not the portion that you never collect from your "tenants" :) If we can get some scale - e.g., 5-7 properties, we are going to do it).

One definition of a bear market is the prolonged contraction of P/E ratio. Perhaps this housing downturn will push price/rent ratio lower than we thought possible.

Look for 3% fixed mortgages next year. At least I hope. :)

I heard on NPR that there was a buzz among apparently affluent people that Mr. Madoff's accounts were something to be coveted, almost like a privilege to "get in".

Then I heard on NPR that in spite of some warnings, regulators were not doing their jobs to prevent abuse. People've lost their retirements, etc. Mr. Madoff is a villan and may go to prison. It was an unethical pyramid, a Ponzi scheme.

But I cannot differentiate it from the housing bubble nor the dot.com bubble.

Karl Denninger is a nobody who likes to think that he is somebody with some ideas that can really change the world. Well, no.

I am a nobody who knows how the somebody works, and I go along. I don't pretend that I am somebody, I just observe how those somebody think and act, and I tag along, hopefully protecting myself or even profit a little as those somebody fiercely defend their vested interest.

History doesn't change for anyone, unless you are pushed to that seat. Before you become the instrument of history and get pushed into that seat, better go along with the flow (of the powerful), and hopefully as you do enough of these going along, you will become somebody one day. You don't become a somebody by fighting these somebody as a nobody. You have to join the somebody to become somebody.

Sounds like they're growing (and consuming?) more than just potatoes in that state.

EBGuy, that's what I am doing right now. It's for real, I am seeing cap rates of 20% with Section 8s. I mentioned it a while back, there are places where houses are dirt cheap.

We’ve seen properties in the $80-110K range that, with a little work less than $10K using the same Home Dumpo parking lot “subcontractors” that you do, can reliably generate $1900-2200/mo rents - the county portion, not the portion that you never collect from your “tenants”

Laughing Millionaire Renter seem like an unabashed blowhard, or a conman laying the groundwork for a real estate scam.

I doubt the citizens of New York have the stomach to tolerate thier newly raised taxes going to support $2,000 monthly Sec 8 payments on $100,000 slum fixups. Funding such feathering schemes will get noticed in an era of cutbacks in city services.

The Economic Crisis is a Test of Character
http://www.huffingtonpost.com/penny-herscher/the-economic-crisis-is-a_b_151799.html

One recent example is of a senior manager let go from Cadence Design in their recent layoff -- anxious to get a reference from me as he tries to get a job at Synopsys -- the only other major company in the EDA industry but more of the same. This guy is 40. By doing the obvious thing he was missing the opportunity to break out and change his career into an industry that is growing vs. EDA which has some serious structural issues. I walked him through the thought experiment of what his career will be like 10 years from now based on the choices he makes today. It's a sobering exercise and as a result he's now looking at growth industries outside of EDA too.

In another case I had dinner with a friend last night who spent the first 30 minutes complaining about how hard it was, how depressing, how difficult to get the other people in his firm to deal with the challenges, and after allowing him the indulgence I then verbally smacked him. He has a choice. He can be dragged down by the reactions of the people around him, or he can step up and lead them out of their issues by driving to decisions without giving in to the indulgence of complaining. In his case it's a choice of self discipline -- to habitually lead instead of giving in to the emotion of the crowd. (I'm fortunate that we're good enough friends that he stayed for dinner instead of telling me to get lost at my presumption).

In contrast I am inspired by my girlfriend who runs a Silicon Valley recruiting business which is severely challenged by the downturn, and has had a host of health issues, and yet she leads, smiles and soldiers on. Or my board member who runs a hedge fund and describes his daily life today as "catching falling knives" and yet he stays strategic, stays focused on executing the long term opportunities this market is creating and still has time to advise me and make me laugh. At least I was able to make him laugh too by suggesting he wear leather gloves.

I am seeing cap rates of 20% with Section 8s.

WOW! If that is occuring in enough towns or smaller cities, that is a strong invite for British style "Council Housing." The Obama administration philosophy, along so many vacant houses, may add more incentive for such gov owned and managed rental homes.

You are also gambling that Sec 8 will not decrease the allotment. A real risk when tax revenues are decreasing.

I plan to pick up rental property when the price is right, but I want market renters with jobs, I will not do Sec 8.

WASHINGTON — Cadence Design Systems Inc. said Wednesday (Nov. 5) it will lay off 625 full-time workers, or 12 percent of its global workforce, in an effort to cut operating costs.
The job cuts, along with elimination of a "substantial number" of contractors and consultants, is expected to result in at least $150 million in savings, the company said in announcing its delayed restructuring plan.

In a research note published Thursday, Needham and Co. analyst Rich Valera said that including the contractors and consultants the practical number of employees let go by Cadence would be at least 15 percent.

Cadence (San Jose, Calif.) was to have announced details its restructuring plan along with third quarter financial results last month, but delayed the disclosure to complete an accounting review.

Michael Fister and four other top executives resigned from Cadence on Oct. 15. Industry observers immediately predicted Cadence would lay off workers in an attempt to survive in a shrinking EDA market.

In a statement, Cadence said it would complete the restructuring in the second half of its 2009 fiscal year. It expects to record a pre-tax restructuring charge of as much as $70 million.

In principle I'm also against section 8, especially in California where living here is a luxury. However, in the South that seems to be the only infusion to create a local economy. I don't want to give too much away but the area I'm investing in is quite nice and ridiculously cheap.

Losing Section 8 I think is unlikely, if it was pulled suddenly there would be riots and civil unrest. And BAP, I agree with you also, it is a transfer, but at least a value-added one. I figure if it is there, you may as well capitalize on it.

Have you watched:

Michelle Chappel - Screw You Yahoo
http://www.youtube.com/watch?v=_Gn4soId0EM

Michelle Chappel, who created the video above, writes in to give us her view of the fall of Yahoo from an insiders perspective:

I have a news tip about a topic you’ve covered: the Yahoo layoffs.

I’ve been a consultant/contractor at Yahoo three different times. It’s one of my favorite companies to work for–including AltaVista, Google, TiVo, and eBay–because the people are so nice there! Here is some background information on what it was like to be at Yahoo right before the fall, as well as a recount of my experience on “Layoff Day.”

The fact that Yahoo would be having another round of layoffs was first announced at a company-wide meeting an hour before Yahoo threw a huge Oktoberfest party in which beer, bratwurst and German chocolate cake were served to everyone on campus. A week later we received sparkling wine and cupcakes to celebrate a recent Developer Network (YDN) success. Many people were curious as to why so much money was being spent on these parties, not to mention the upcoming Christmas party, because Yahoo was in such dire straights.

The layoffs were preceded by a massive re-org. Suddenly we were having lots of meetings with people we’d never worked with before. The rumor going ’round was that if you were a manager with fewer than 5 reports, you’d either be demoted, or fired. One woman who lost all her reports packed up her desk weeks in advance of layoffs because she couldn’t take the pressure anymore. She’d always seemed so sure of herself before. A couple of others told me they secretly wished they’d be let go because they were sick of all the changes at Yahoo this past year. One girlfriend admitted she was very angry about it all, and that Jerry Yang had screwed up. But most people at Yahoo stayed quiet… and tried to be good… and extra dutiful… to save their jobs.

Towards the end, some of us were asked to submit reports again and again, and we all knew it was so that the powers-that-be could determine who would stay and who would go. Some people just stopped working altogether because there was nothing to do. We were pretty sure folks were going to lose their jobs on December 10th because all the classrooms had been booked on that day. But at meetings right before Thanksgiving, the date “December 10th” wasn’t even placed on timelines on whiteboards. It was as if nothing was going to happen, even though we all knew layoffs were inevitable. The VP of my division sent LinkedIn invites to all his reports in late November, so we figured that meant he was going to be asked to leave. But we weren’t sure because he was such a stellar boss. It made no sense. It was a crazy time.

On the day Yahoo was having layoffs I recorded a music video called “S**** You Yahoo”: http://www.youtube.com/watch?v=_Gn4soId0EM&fmt=22

It broke my heart to watch friends and co-workers worry about whether they’d lose their jobs. I wanted them to know they’re not alone, encourage them to have hope, and maybe even make them laugh a little. The video even proposes an out-of-the-box solution to our trying economic times. I used your layoff tracker and Yahoo piece (12/10/08) for the statistics in it. (Best to watch it in HD so you can read the signs.)

I hope this background information is interesting to you, and that you enjoy the music video. This song is not just about Yahoo, it’s about all companies having layoffs right now. It would be terrific if you’d consider doing a story on this to help raise people’s spirits during this economic downturn.

Happy Holidays!
Michelle