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View Poll Results: Will "the Economy" be the most Prominent 2008 Campaign Issue
No, The US Economy Seems Too Strong to Become the #1 Issue in 2008 12 37.50%
Yes, There is a Significant Chance That the US Economy will Be the #1 2008 Issue 20 62.50%
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Old 03-03-2007, 01:16 PM   #1 (permalink)
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1992 Redux: Will "it's the economy, stupid", Be The Big Campaign Issue?

This was "the news" on thursday:
Quote:
http://www.marketwatch.com/news/stor...8EF19A722BA%7D
New Century upgraded at Bear Stearns

By Alistair Barr, MarketWatch
Last Update: 4:19 PM ET Mar 1, 2007

SAN FRANCISCO (MarketWatch) -- New Century Financial Corp. <b>was upgraded Thursday by analysts at Bear Stearns, saying the risk of the subprime lender's shares falling further is limited by the potential for an acquisition of the struggling business.</b>
Shares of New Century (NEW :

News , chart , profile , more
Last: 14.65-1.20-7.57%
4:03pm 03/02/2007
were lifted to peer perform from underperform by Scott Coren and Michael Nannizzi at Bear Stearns.
The shares climbed almost 3%to $15.78 during afternoon trading Thursday. They've still slumped almost 50% so far this year due to signs of a credit crunch in the subprime-mortgage industry.
Subprime mortgages are offered to home buyers who fail to meet the strictest lending standards. Companies like New Century that specialize in these types of loans have suffered as housing prices stopped rising and interest rates climbed from record lows. See full story. ....
....and yesterday.....just a day later:
Quote:
http://www.marketwatch.com/news/stor...t=MostReadHome
New Century says it faces criminal probe
Subprime-mortgage lender warns it will likely breach lending covenant

By John Letzing & Alistair Barr, MarketWatch
Last Update: 9:04 PM ET Mar 2, 2007

SAN FRANCISCO (MarketWatch) -- New Century Financial Corp. said late Friday that it's facing a federal criminal probe and will likely breach a major lending covenant with its financial backers, <b>bringing into question the survival of the second-largest U.S. subprime-mortgage lender.</b>
The U.S. Attorney's Office for the Central District of California is conducting a federal criminal inquiry into trading in New Century securities as well as accounting errors, the company wrote in a regulatory filing late Friday.
The Securities and Exchange Commission also is looking into the company, as is the regulatory arm of the New York Stock Exchange, New Century disclosed. The company added that it is complying with all three inquiries.
Shares of New Century (NEW :
new century financial corp m com
News , chart , profile , more
Last: 14.65-1.20-7.57%
4:03pm 03/02/2007

NEW14.65, -1.20, -7.6% ) <b>were down almost 25% in after-hours trading Friday at about $11, after falling more than 7% in the regular session to $14.65. .....</b>
My observations are that is possible that Bear Stearns had some large holders of <b>NEW</b> that needed to unload their shares before the impending news, hence, the "upgrade".
<img src="http://chart.finance.yahoo.com/c/1y/n/new">
It is not as if "the news" was unknowable:
comments in reaction to the 02/04/07 New Century Financial conference call:
Quote:
http://forum.themarkettraders.com/re.../3023#msg-3023
....Financial Fantasy Land

I listened to the New Century Financial conference call today, and I'm convinced the executives of that company are from another planet. I think most of the analysts who called in would agree with me. They seem to be from a fantasy world where financial results according to GAAP are all that matters, and to the extent they can manipulate earnings, they are able to manipulate the truth.

When the call started, the stock was already down about 3.7%, having missed their estimates for the first time in ages. As the call went on and one amazing revelation after another came out, the stock kept dropping and now is down about 10%. Among the things that were revealed:

<b>1. They borrow $1 Billion for 1 day every quarter so that they can show that Cash on their balance sheet.

The Billion dollars they borrow for a day is to help them "explain" their financial situation better. If they didn't borrow that money, then people might be confused and think they didn't have that much cash.</b> As we all know, the amount of cash you own is of course equal to the amount of money people are willing to loan you. We should <b>thank them for simplifying their accounting for us by borrowing money they don't really need right now and putting it where we can see it on their balance sheet.


2. They sell mortgages to themselves because they can report higher gains on the sales than if they sold them on the open market.

They were especially proud of becoming a REIT and all the imaginary benefits that bestowed on their results.</b> While selling mortgages from their lending unit to their REIT unit resulted in nice gains on their income statement, the gains weren't taxable because they weren't real. Talk about the best of both worlds!


3. They aren't assuming any losses on certain portions of their loan portfolios now because most defaults occur later in the life of the loans.

The business of profiting from making bad loans depends on lending more money each and every quarter. People don't usually buy homes if they are already in deep financial trouble. It takes them awhile to get in trouble, so new loans rarely default. Therefore, new loans don't need to allow for losses because losses won't happen until the future. Since there's no guarantee there will even be a future, what's the point in allowing for such losses anyway?


4. They lowered their assumptions of future defaults which boosted earnings by 8 cents per share, and they now think $90 Million is enough reserves for future defaults on $19 Billion worth of loans.

Sure, some of their loans are delinquent, and while its nice to report late fees on these loans as profits, some allowance should probably be made for the remote possibility that there is a tiny inkling of a chance that they might lose money on these a minute faction of these loans, so it wouldn't do too much harm if they reserved a little bit of money for these loans when earnings are good. If they ever have a need, they can lower their assumptions to inflate their earnings, like they did this quarter.

What's that? All you banking analysts don't think they're setting aside enough reserves? By an order of magnitude? Well, let me assure you that their experience during the last 8 years (the greatest housing boom, HELOC expansion and cash out refinancing surge of all time) indicates that loans almost never go bad. All they have to do is rely on past results to indicate what will happen forever into the future. So obviously you are all wrong!


5. They believe that their customers can handle a 34% increase in mortgage fees on their ARMS.

20% of their loans over the past 2 quarters have been interest only, so obviously their customers understand interest. Besides, they have a lot of customers who actually have decent credit ratings. These types of people know how to budget and plan for the future.


6. They believe that housing prices can't go down by 10% and even if they do, their customers won't walk away from loans.

It's never happened before on a national level, and they say that all the talk about a housing bubble is dying down. Besides, they aren't making any more land and housing prices always go up. Plus, once customers learn to account like New Century, nobody will ever have to lose money again!


7. The compression of margins is temporary.

As rising short term rates crashed head long into falling 10-year bond rates, and as increasing competitiveness among mortgage lenders crashed head long into declining demand, margins were squeezed. But relax, this is temporary. It will only last until the weak links are squeezed out of the market. NEW tried to "lead the way" by raising rates higher, but their competitors didn't follow. When they lowered rates back down again, their competitors lowered rates further. Even though demand for loans is still slowing, and the lenders all depend on increasing originations to avoid blowing up their business models, the pressure on margins must decrease!


8. They can hedge away the risk of rising interest rates.

They buy derivatives that pay off if interest rates rise. If rates rise slowly over time, they get clobbered like CFC did. If rates rise rapidly they get to report a nice short term gain, then buy new derivatives at higher prices. If interest rates rise so quickly that their counterparties can't make their payments, then the housing market is doomed anyway, so there's no point in worrying about that single aspect of a meltdown.


In a sense, the views of the NEW executives typifies what is wrong with our entire financial system. Risk has been imagined away, and the resulting imaginary profits are taken as reality. Level upon level of creditors has leveraged themselves into the false reality that will one day come crashing down. We have:

1. Interest rates at suppressed levels because the Fed has injected record amounts of liquidity and foreign central banks have bought treasuries disproportionately to keep their currencies week, while propping up a US Government that is bound for bankruptcy.

2. We have homeowners borrowing more than they can afford at these temporarily reduced adjustable rates who are bound to default once rising payments and their inability to borrow new funds push them past the breaking point.

3. We have crazed mortgage lenders like NEW, CFC, IFC, NFI and others making bad loans at an accelerating rates to stave off the inevitable.

4. We have mutual and pension funds throwing other people's money at the crazed lenders to purchase exploding corporate bonds.

5. We have hedge funds selling derivatives to soak up interest rate risk in search of short term profits and higher NAV based fees.

In short, we have one domino after the next, all lined up ready to topple once the kindness of foreign governments runs out and the unsustainability of our twin deficits comes home to roost and the fantasy world we live in is exposed.
The point of the above info is that the DOW 30 stock index DJIA , experienced it's largest weekly decline in the week that ended yesterday, in the last 42 months...

The fraud at <b>NEW</b>, the second largest US subprime lender, and the sudden, sharp decline in it's stock price, is not an isolated incident. About 25 other sizeable sub-prime lenders have gone out of business or been "absorbed" by other companies, just in the last 10 weeks:
Quote:
http://www.conntact.com/article_page.lasso?id=40702
Mortgage Firm's Implosion Rocks State

Was once-high flying MLN a victim of housing downturn or author of own ills?
<img src="http://www.conntact.com/images/fs_mln.JPG">
Business New Haven
02/19/2007
by Liese Klein
When it's completed, the 310,000-square-foot structure along I-91 in Wallingford will be a showpiece - a striking blend of arched rooflines, cubic office blocks and glass. The building's skeleton is impressive even now as cranes and dozens of workers cluster at the site, at the intersection of I-91 and Route 68.

But in the first weeks of February, workers took down signs trumpeting the future owner of the building - Middletown-based Mortgage Lenders Network (MLN). Even as hardhats braved freezing temperatures to install the structure's environmentally friendly elements, Mortgage Lenders filed for bankruptcy, then revealed its intentions to liquidate.

A company once touted as one of the state's brightest hopes for job growth is now facing complete disintegration, with customers, creditors and employees alike threatening legal action.

MLN officials did not respond to repeated requests for comment.

How did a company that drew Gov. M. Jodi Rell to the groundbreaking of its new headquarters less than a year ago fall so far, so fast?

One clue can be found on a Web site (http://ml-implode.com/) illustrated with big red letters and an image of an explosion: "The Mortgage Lender Implode-O-Meter." The site, run by a self-described "scientist, mathematician, entrepreneur and activist," tracks the fate of the 20 mortgage lenders that have "gone kaput" just since December of last year.

Many of the casualties specialized in so-called sub-prime lending, or mortgage loans to those with poor credit. Sub-prime lending took off in the recent housing boom as a high-risk, yet high-profit niche in an industry with traditionally low margins.

But lenders nationwide who leapt into the sub-prime market are suffering as those homeowners fall behind in a tough housing and job market.
If you believe, as I do, that the mortgage industry, home construction industry, and the residential realty industry, and the speculative financial bubble that grew them since 2001, are responsible for most of the US job "growth", and that MEW (mortgage equity extraction), drive by bubble prices for real estate, driven by lax lending standards, and "interest only", no down payment loans, was the source of the money that drove the spending spree of the past 5 years in the US, since wages remained flat, on average, doesn't it seem likely that "the economy" will be the 2008 presidential campaign issue, as early as late this spring?

I'd also like to discuss what to do about it, both on a personal finance level, and on a macro level....
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Old 03-03-2007, 01:28 PM   #2 (permalink)
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Host, I find this very interesting from a professional perspective since residential construction currently accounts for about 45% of my income. While it's certainly true that the housing bubble has burst in certain places, what's true about politics - that it's all local - is true about real estate. There are current housing booms in 5 major cities that I deal with on a daily basis that aren't showing any signs of slowing down appreciably. Las Vegas is the most obvious one, especially for condos on the Strip.

That said, I think that you've drawn too narrow a window for a look at the fiscal health of the country. While I agree that the economy could be heading for a downturn, I disagree that the lending standards and housing boom are the cause. If we do see a recession, I think that it would be a minor one at best but the timing would be absolutely crucial for the 2008 election season. We've already seen how foreign regulations can affect our stock market, but the trends that I see in the industrial manufacturing arena don't really lend themselves towards a major recession around the corner. Sales on big-ticket consumer products are going up, and that's my most accurate assessment of national economic health. People are buying more RV's than they did last year, and that's been an excellent barometer for me for the past 10 years.
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Old 03-03-2007, 02:12 PM   #3 (permalink)
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Quote:
Originally Posted by The_Jazz
Host, I find this very interesting from a professional perspective since residential construction currently accounts for about 45% of my income. While it's certainly true that the housing bubble has burst in certain places, what's true about politics - that it's all local - is true about real estate. There are current housing booms in 5 major cities that I deal with on a daily basis that aren't showing any signs of slowing down appreciably. Las Vegas is the most obvious one, especially for condos on the Strip.

That said, I think that you've drawn too narrow a window for a look at the fiscal health of the country. While I agree that the economy could be heading for a downturn, I disagree that the lending standards and housing boom are the cause. If we do see a recession, I think that it would be a minor one at best but the timing would be absolutely crucial for the 2008 election season. We've already seen how foreign regulations can affect our stock market, but the trends that I see in the industrial manufacturing arena don't really lend themselves towards a major recession around the corner. Sales on big-ticket consumer products are going up, and that's my most accurate assessment of national economic health. People are buying more RV's than they did last year, and that's been an excellent barometer for me for the past 10 years.
The_Jazz , I don't take your opinion lightly....you're the professional, while I am a self educated amateur who has intensely focused on the US stock market (before being distracted....to a degree....by the political events...post the November 2000, election....) since taking a "stab" at being a full-time "short term" and "day trader", back in 1997.

That said... I am especially surprised at your much more optimistic opinion than the one I'm currently holding. I view real estate as a "bottom up", demand situation. These sub-prime lenders made it possible for what would have been the "bag holders" of entry level houses, condos, and studio apartments, to unload them at inflated prices to the sub-prime borrowers of New Century, et al. IMO, the new lending "standards", announced to include eliminating zero down payment mortgages to applicants with FICO scores below 700, will kill demand from the "bottom up" and, in much of the country, the "top" of the market has been dead for some time, now:

On friday, I initiated a small "short" position in this one. Icahn's position aside, this is a BK candidate, IMO, and much sooner than the longs in the stock would think:
http://news.google.com/nwshp?ie=UTF-...n&tab=wn&q=wci

Carl Icahn has initiated a fight to take over the board of WCI. That is reason enough for me to protect my stock position by buying put options at a $20 strike price, a few months out....but everyone holding this stock will increasingly feel the need to sell it, I believe.

WCI has ceased building new towers, has tried to sell it's land holding and options, is stuck with more cancellations than closings, and is technically in default on it's loan convenants.

It's not "just in Florida", either......
http://www.wcicommunities.com/

On the conference call, the other day, the management admitted that they have been unable to sell their remaining 29 units at their NJ tower, Watermark:
http://www.wcicommunities.com/defaul...ID=79&vid=1000

Quote:
http://news.google.com/news/url?sa=t...business&cid=0
WCI reports quarterly loss, blames Florida housing market
Naples Daily News, FL - Feb 27, 2007
<b>WCI officials withdrew their financial guidance for the year</b> and offered no profit predictions. Going forward, company officials said the focus would be on ...
I'll go so far out on a limb as to say that the participants in your "still booming" real estate markets, do not know that they are "dead men walking",
yet....but this week, the DOW and the S&P behaved as I have expected, and waited for them to behave....

The way that I think this "works" is that the financial markets always end up surprising the maximum number of investors....and it has to be that way. Politicians will always be followers of the trend, not the leaders. Just as with the war in Iraq, and in the GWOT.....unfortunately, the democrat who takes the lead on describing the coming economic decline, and offers a plan to cope with it's effects, will be accused of not "supporting the US consumer".....of "talking the economy down"....etc.

So....either I'm wrong.....or you are. I actually think that your optimism is a "tell" that indicates that there will be much greater damage from the suddenness and the depth of the economic downturn that I am expecting.
On March 13, 2000, the Nasdaq 2000 stock index crossed the 5000 mark, up from a low of 2800, in October, 1999. The Nasdaq ended up retreating to near 1000, by early 2003.

In March 2003, when the DOW had retreated to 7200, I bought a couple of call options on that index. I sold them way too early, at a profit.....the DOW rose to 12,800 recently.....I think that was the high for the DOW for the next few years....

Sept. 1929 Dow = 393 July 1932 Dow = 41 ....and 393 was not surpassed again until....1953.

Not trying to scare you....I am an amateur, I don't have a crystal ball. I'm better at picking market bottoms than tops. If I can share what I'm observing, and my experience with a few interested folks, maybe it'll help....
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Old 03-03-2007, 04:56 PM   #4 (permalink)
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Elphaba's Avatar
 
Location: Olympic Peninsula, WA
Host, I can't even claim an amateur knowledge of the stockmarket, but I think it is relevent to your discussion that Freddie Mac is refusing to further participate in the subprime lending that grew out of the "bubble."

If the surviving group of subprime lenders are no longer able to bundle and resell to Freddie using their "creative" financing, they too will be risking their own solvency. I find that preferable to citizen funded bailouts any day.

This might be a useful link:

FreddieMac

Will the economy be a central issue in 2008? Greenspan assisted in the stock drop this week by predicting a likely recession by the end of this year. His successor is now doing the 'happy happy' tour to settle down the market investors. It's the middle class that has faired poorly over the last several years and I expect economic issues to be in the forefront soon.
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Last edited by Elphaba; 03-03-2007 at 05:04 PM.. Reason: Addition
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Old 03-04-2007, 02:04 AM   #5 (permalink)
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Quote:
Originally Posted by The_Jazz
Host, I find this very interesting from a professional perspective since residential construction currently accounts for about 45% of my income. While it's certainly true that the housing bubble has burst in certain places, what's true about politics - that it's all local - is true about real estate. There are current housing booms in 5 major cities that I deal with on a daily basis that aren't showing any signs of slowing down appreciably. Las Vegas is the most obvious one, especially for condos on the Strip.

That said, I think that you've drawn too narrow a window for a look at the fiscal health of the country. While I agree that the economy could be heading for a downturn, I disagree that the lending standards and housing boom are the cause.....
The_Jazz, the downturn, both in average selling price and numbers of new building permits issued and new homes sold, is reported to be a nationwide phenomena. The statistics of the decline are supportive of my argument, both in trend and in severity. New data comes with the consideration that most of the country experienced much milder weather than ususal, throughout the Dec. thru Jan. period.

The Las Vegas strip proximity is unique because it is a "one of a kind" locale with a unique economic base that receives more international financial investment, interest, and tourist/gambling revenue than it's closest US competitor, New York City, does.

http://www.lvcva.com/getfile/Histori....pdf?fileID=80
Las Vegas 2006 visitors: 38,914,889 Visitor dollar contribution: $39.4 billion

Tourist spending rose nearly 25 percent in Las Vegas since 2001, from $31.9 billion.

The population of Las Vegas "proper", is still under 600,000, yet revenue from tourism is more than 50 percent above the revenue received by New York, a city with 12 times the Las Vegas population.

Even with all that money flowing in, the Businessweek forecast for the Las Vegas real estate market as a whole, is dismal for 2007:
Quote:
http://images.businessweek.com/ss/06...7/index_01.htm
Real Estate
Las Vegas

2006 Median Home Price: $324,000
2007 Median Home Price: $292,000
1-yr Change: -9.9%

Home Price Index 1-yr Change: -9.2%
Housing Starts 1-yr Change: -12.4%
Quote:
http://www.nycvisit.com/content/index.cfm?pagePkey=1817
FOR IMMEDIATE RELEASE
December�27, 2006
No. 451
www.nyc.gov�

MAYOR BLOOMBERG AND NYC & COMPANY ANNOUNCE
44 MILLION TOURISTS VISITED NEW YORK CITY IN 2006,
PUMPING $24 BILLION INTO ECONOMY........
Even if the price increases in the few areas of the country mentioned here, continue, is the population in those unaffected areas, large enough to offset the job losses and business and lender failures, everywhere else?
Quote:
http://www.forbes.com/2007/01/25/str...strongest.html
America's Best & Worst Housing Markets
Matt Woolsey, 01.25.07, 3:00 PM ET

Talk about being in the right place at the right time.

While speculators and flippers in places such as Boston and San Diego are running for cover, in other parts of the country they are basking in robust residential sales. Third-quarter median home prices last year climbed 14.6% in Seattle, Wash.; 14.3% in El Paso, Texas; and 12.3% in Portland, Ore.

They also increased by roughly 5% in Houston, Texas; Los Angeles, Calif.; Austin, Texas; Jacksonville, Fla.; and Charlotte, N.C., over the year before, according to the National Association of Realtors....
You said that real estate acivity is "local", but as Elphaba pointed out, the market for the loans that are made and "packaged" into MBS for Freddie and Fannie to buy and attempt to resell to investors, is a narrow, national pair of two giant GSE's with increasingly questionable portfolios of the MBS's to sell to increasingly wary investors.

New Century Financial and the other large subprime lending firms were national in their business niche, and as they fail, they won't be replaced. It doesn't matter much if the buying and selling is all local, if the financing of mortgages and the lending guidelines are from a narrow, uniform, national source and structure. More failures and foreclosures in the more numerous declining local markets will restrict lending, and even appraisal activity in the as yet unaffected locales....
Quote:
http://www.wilmingtonstar.com/apps/p...703010355/1002
March 01. 2007 3:30AM
Sales of new homes fall 16.6 percent

Sales of newly constructed homes plummeted 16.6 percent in January from the preceding month. That was the largest decline since January 1994, when sales slid by 23.8 percent, the U.S. Department of Commerce reported Wednesday.

The decline in January - much steeper than analysts were anticipating - left sales at a seasonally adjusted annual rate of 937,000, the lowest level since February 2003. Sales fell sharply in all parts of the country, including the South, which saw a drop 9.7 percent.

The national pace of new-home sales was 20.1 percent lower than January 2006. And the supply of new single-family homes on the market rose to 6.8 months' worth from 5.3 months' in January 2006.

Prices also were down from a year earlier. The median sales price of a new home - where half sell for more and half for less - was $239,800 in January, a 2.1 percent decline from a year earlier.

In contrast, existing-home sales in January rose 3 percent from December 2006, by the biggest amount in two years, the National Association of Realtors reported Tuesday. But the median price of an existing single-family home fell from a year earlier, to $210,600, the sixth straight monthly decline from year-earlier levels, the trade group said.

New-home sales figures are based upon contracts signed, while existing-home sales reflect actual closings.
Quote:
http://money.cnn.com/2007/02/16/news...arts/index.htm
Housing starts plunge
Housing starts fall much more than forecast, lowest level since '97; permits also fall as single-family permits hit 6-year low.
By Chris Isidore, CNNMoney.com senior writer
February 16 2007: 11:52 AM EST

NEW YORK (CNNMoney.com) -- Housing starts plunged in January to the slowest pace in more than nine years

.....New homes started in January fell 14.3 percent to an annual rate of 1.41 million from the 1.64 million pace in December, the Census Bureau reported Friday. Economists surveyed by Briefing.com had forecast a 1.6 million rate for January.
Housing starts fell to the lowest pace since August 1997 in January.

The last time starts fell to a pace this slow was August 1997.

The number is not only well below the December pace, but it is 22 percent below the average for all of 2006, when housing was already slowing down, and about 32 percent below the record building pace through all of 2005.
Latest prices in your hometown

The slump was widespread. Only the Northeast, the smallest region in terms of new home construction, posted a rise in starts compared to December. But starts were down 15.2 percent in the Midwest, 11.2 percent in the South and 28.5 percent in the West.

Applications for new home permits, which is generally viewed as a measure of builders' confidence in the market, fell 2.8 percent to an annual 1.57 million rate from 1.61 million a month earlier, which was a bit below economists' forecast of a 1.59 million pace.

The housing permit reading was helped by a second, straight month of strong permit application for buildings with five or more units. The permits for single-family homes fell 4 percent to a six-year low.....
This gentleman sums up my argument better than I could:
Quote:
http://www.safehaven.com/article-6603.htm
December 29, 2006
............Real Estate and the Post-Crash Economy
By Barry Ritholtz

The Housing boom and bust have been page-one news for what seems like years now. Is there anyone left in the country who doesn't know about the huge run up in home prices during 2002-06, and the subsequent "correction?"

My guess is no one. What most people may not be aware of, however, is just how unusual residential real estate has been in the current cycle. The housing boom has played an enormous role, with few truly appreciating the outsized contributions the "Real Estate industrial complex" has played in the recovery and expansion. It can politely be described as "atypical."

Since the recession ended in 2001, Real Estate has been crucial in enabling enormous consumer spending, and helping to create many new jobs. These two factors have been the primary drivers of the post-crash economy. With this economic expansion now entering its 4th year, the cooling real estate market is increasingly presenting new risks. With the peak of the boom long since past, the current inventory build up, sales slow down, and price decreases are starting to take their toll on economic activity. Given how extraordinary the boom was, we may not be in for a run-of-the-mill downturn.

Few investors seem to have fully considered the impact the boom and subsequent bust will have - for the real estate market, to equities, and to the overall economy. Today's commentary aims to correct that. We want to put Housing's surge into the broader context of this business cycle, and examine what the slowdown will mean to various economically sensitive sectors. To do that, we will look at:

- How this expansionary cycle got started;
- Why this post-recession cycle has been so unusual;
- How this housing market has been "backwards"
- Where these factors are impacting consumption, the economy, and equities.

The Background......
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Old 03-04-2007, 04:53 AM   #6 (permalink)
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Location: upstate NY
We are headed for a major flame-out in the housing market, and much of what's already been posted above clearly explains why.

But to get back to the original question: Iraq has been such a major catastrophe for the United States that it will be the major issue in the next election. I don't think that economics can trump it.
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Old 03-04-2007, 07:41 AM   #7 (permalink)
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Location: Chicago
Host, thanks for the well-thought out responses. While I certainly agree that there are a whole bunch of markets either in the process of or long overdue for a bubble burst, I am again going to point out that all real estate is local.

First, let me define my terms. In my world, a "bubble burst" means that housing stock is either stagnant or depreciating in value. With that in mind, I think that the very first sign that a specific market is in trouble is an inability to sell new units (almost always condos) in smaller metropolitan areas. Your North Bergen, NJ example is a prime example. It is outside of NYC and doesn't have the traditional drawing power of Manhatten.

To elaborate on my "local" thoughts, the flip side is the Las Vegas Strip, which is something that I'm involved in at work literally every day. The new Trump Tower that's going up there sold out in 2 weeks, which is a record. Every other condo/mixed use tower that's broken ground there is at least 85% sold (from what I've heard). I will caution you that I'm working from information provided by my clients, and it's not always accurate.

I saw your stats on Las Vegas, and honestly I've seen them before. I even know why they say what they say. However, I still think that you're looking at too large of a picture. The reason that I specifically said "The Las Vegas Strip" in my original post was that I meant that exact location - not the rest of Las Vegas. I think that I can successfully argue that The Strip is bubble-proof. There are always going to be people looking to buy into those buildings barring any major recession. The rest of Las Vegas is a group of individual neighborhoods - and that's what I mean by "local". While it's painfully obvious that national trends can affect local ones (lending rates being cheif among those), the fact is that there are and always will be certain neighborhoods that will always have high housing prices that will appreciate. The Gold Coast in Chicago or South Beach in Miami immediately spring to mind as other examples.

Then there's the troubling case of Southern California, which has had a housing stock shortage for the past 20 years. There literally aren't enough homes for people who want to buy them. The big problem is that there's a lot of substandard housing being built there (and several other venues), but that's not going to slow the market down. However, I do want to make that point, since I have a feeling that it's going to be very relavent in the next 4 years, especially for non-California construction (oddly enough). I make this point since I know that as soon as the economy turns there will be a huge wave of construction defect lawsuit filed around the country for substandard construction.
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Old 03-04-2007, 08:08 AM   #8 (permalink)
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I happen to own property in Vegas, as do my parents. We invested there in the late 90s as costs for property where "cheap" compared to other parts of the nation. My $60k condo is now $180k outpacing my NYC coop by leaps and bounds.

As a landlord I rent out the condo at a reasonable profit below what market rate is since IMO the market rate is quite absurd. I had never raised rent and make a modest $100 profit each month, I had to reduce my rent last year by $75 to attract a new renter. Even if I rent it at a break even point I know that in the end I still come out ahead something that other investors are not as interested in.

That is my history of LV, so even if I live in NYC, I pay close attention to the LV housing market. A few of the high rises that were touted looking for investors did not ever break ground one comes to mind is the Ivana Trump building.

The housing market in LV has definitely cooled but it had to, a place cannot lay claim to biggest growth every year. This doesn't apply to just the housing market but any industry, sector, stock, or company.

As for the substandard construction, that has happened in Las Vegas as well, many HomeOwners Associations suing builders for later phases that were not up to par with original first phase buildings.
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Old 03-04-2007, 08:34 AM   #9 (permalink)
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The economy only looks "good" from certain broad measures. The fact is, people on the middle-to-lower end of the income scale are worse off than they've been in decades--and that's the vast majority of Americans.

That said, while I think the economy will be a major issue in '08, it won't be the #1 issue. That spot is reserved for US international relations issues, headlined by the Iraq quagmire.
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Old 03-04-2007, 12:17 PM   #10 (permalink)
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we're missing a third option, 'it's the government, stupid!'
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Old 03-04-2007, 01:04 PM   #11 (permalink)
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we're missing a third option, 'it's the government, stupid!'
From my closed, "Reds" thread:
http://www.tfproject.org/tfp/showpos...95&postcount=1
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.....Not only was Williams very upset and disgusted with the oppression against his people, but as with many, felt that the Vietnam war was a great wrongness. Williams didn't chew on his words, either. He knew what he thought and felt about the horror of Imperialist wars.

The american people cannot hide behind the excuse that they are not doing it, that they are not committing these crimes. <b>They are actually responsible for these crimes because these crimes are being committed in the name of the American people by a government that states it is a government of the people, for the people and by the people. [...]

When you have a community that is becoming degenerate, and is being overrun by degenerates, and degeneracy is becoming the order of the day, then no honest man can take an inactive position; no honest man can be neutral. and if honest men are neutral, than they are not honest.</b> then they become accessories after the fact and after the act, and to the act.

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Old 03-05-2007, 10:43 AM   #12 (permalink)
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Here is the single biggest problem with the "sky is falling" argument about the bursting housing bubble.

People gotta live somewhere!
The US population is still growing!
There ain't no new land to be found within our boarders!


Therefore, long-term demand will go up. Most of the time housing demand will go up faster than supply and prices will go up.

Until some high level economic guru addresses that argument, panic over short-term market volitility is an excercise in trivia on a macro level. On the flip side local markets are a different animal governed by thier own market issues.
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Old 03-05-2007, 11:26 AM   #13 (permalink)
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....Until some high level economic guru addresses that argument, panic over short-term market volitility is an excercise in trivia on a macro level. On the flip side local markets are a different animal governed by thier own market issues.
Thanks for clearing that up for us, ace....however, the "tell", as I see it...is that 20 percent of the new mortgages and refis done in the last few years were to subprime borrowers. Since december, with no signficant economic downturn, and no pain to the consumer from unemployment as of yet....only a slow down in the res real estate market and a slight reversal to the negative, in housing price appreciation, has triggered the collapse of nearly the entire subprime mortgage lending industry. It is easy to imagine what a spike in unemployment and a sustained decline in home valuations would cause. This is the biggest, most prolonged run up in housing prices and over building in the US, ever, and the reversal and depression in the housing market will most likely be the mirror image of the run up, both in scope and duration.....

Here are some of the top ten subprime lenders, today....the ones that haven't filed for bankruptcy...yet...or been absorbed by large banks for a pittance of their former high flying stock prices. Pension funds and mutual funds held significant positions in these companies, and the equity....is gone for good. That is not volatility....it is permanent wealth destruction:
<img src="http://ichart.finance.yahoo.com/c/6m/n/new">
<img src="http://ichart.finance.yahoo.com/t?s=NEW">
<br>
<img src="http://chart.finance.yahoo.com/c/6m/n/nfi">
<img src="http://ichart.finance.yahoo.com/t?s=NFI"><br>
<img src="http://chart.finance.yahoo.com/c/6m/n/lend">
<img src="http://ichart.finance.yahoo.com/t?s=LEND"><br>
<img src="http://chart.finance.yahoo.com/c/6m/n/fmt">
<img src="http://ichart.finance.yahoo.com/t?s=FMT">

<b>Three of four of the stocks of these subprime lenders dropped dramatically today. They lent to subprime mortgage applicants across the US, there will be no replacements for these national landers, borrowing qualifications will be tightened, and there will be significantly fewer first time buyers entering the home market. In the now ending, "bubble era:, anyone who wanted to own a home could simply fill out paperwork with little or no verification of it's accuracy, and borrow the entire purchase price and even the closing costs. Only interest had to be paid on these mortgage loans....at under 5 percent annually in many cases, for the first few years. Millions of folks who are obligated to make monthly payments on these mortgages, won't when they find themselves owing ten or twenty percent more than they borrowed, because of real estate price declines, and/or they won't qualify when their short term, subprime "buyer's mortgage", must be refinanced with a new mortgage at a new, lower home appraisal value, and with terms that include a higher interest rate and added principle payments.

Thus it is not difficult to anticipate that there is little foundation to support ace's "no problem here.....", opinion.</b>

Last edited by host; 03-05-2007 at 11:44 AM..
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Old 03-05-2007, 11:53 AM   #14 (permalink)
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Originally Posted by host
Thanks for clearing that up for us, ace....however, the "tell", as I see it...is that 20 percent of the new mortgages and refis done in the last few years were to subprime borrowers.
Subprime ain't noth'n but a word. Is there a common definition? What was the percent 10 years ago? What was the percent 25 years ago? What are the trends? What are the trends in the changing definition of subprime?

What is really happening, worse case? People who would ordinarily rent, now buy. If they are forced to sell, they go back to renting. Same housing supply, same housing demand. Only change long-term is the name on the title.

Quote:
Since december, with no signficant economic downturn, and no pain to the consumer from unemployment as of yet....only a slow down in the res real estate market and a slight reversal to the negative, in housing price appreciation, has triggered the collapse of nearly the entire subprime mortgage lending industry. It is easy to imagine what a spike in unemployment and a sustained decline in home valuations would cause. This is the biggest, most prolonged run up in housing prices and over building in the US, ever, and the reversal and depression in the housing market will most likely be the mirror image of the run up, both in scope and duration.....
Again, people gotta live somewhere. Even if unemployment goes up, the demand for housing won't change. There will be a change in second home or vacation home demand, so places like Miami are having and will continue to have supply/demand imbalances.

Quote:
Here are some of the top ten subprime lenders, today....the ones that haven't filed for bankruptcy...yet...or been absorbed by large banks for a pittance of their former high flying stock prices. Pension funds and mutual funds held significant positions in these companies, and the equity....is gone for good. That is not volatility....it is permanent wealth destruction:
<img src="http://ichart.finance.yahoo.com/w?s=NEW"><br>
<img src="http://chart.finance.yahoo.com/c/6m/n/nfi"><br>
<img src="http://chart.finance.yahoo.com/c/6m/n/lend"><br>
<img src="http://chart.finance.yahoo.com/c/6m/n/fmt">
Forclosures will go up, but - so what? The family can always go back to renting.

I have not done research on the above companies, however I would bet things like PE, PEG, price to book value, debt to equity, are out of line with traditional financial institutions. If true, the stocks are due for a correction. This is healthy for the overall market, it gets rid of speculators. If conservative investors are heavily in these stocks, shame on them.
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Old 03-05-2007, 12:39 PM   #15 (permalink)
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While I agree with you about the need for housing stock being an ever-hungry monster, I think that you're missing host's point. He's using mortgage lending as a barameter of the overall economy. I'm the one guilty on focusing solely on housing stock and pricing, which while relavent to the overall picture, resides outside his arguement.

Also, a rise in foreclosed properties is a major harbinger of economic problems, and it's rarely so simple that a family just "goes back to renting" since foreclosure usually means a rash of other monetary problems. The foreclosure is usually just the icing on the cake.
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Old 03-05-2007, 12:51 PM   #16 (permalink)
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Quote:
Originally Posted by The_Jazz
While I agree with you about the need for housing stock being an ever-hungry monster, I think that you're missing host's point. He's using mortgage lending as a barameter of the overall economy. I'm the one guilty on focusing solely on housing stock and pricing, which while relavent to the overall picture, resides outside his arguement.
O.k., but my point is - if you take each argument one by one, the case for a failing economy falls apart

Here is a good one from Ms. Clinton.

Foreign ownership of our national debt is bad and can hold the US hostage.

Here is the fundemental flaw.

If you or a nation loans money with no security, I.e. buying US Treasury Notes/bonds, you want to get paid back. So the reciever of the loan - holds the giver, hostage, i.e. China wants the US to repay the debt in dollars with as much value as possible. China has an interest in a stable dollar, a stable US economy, and low inflation. Debt is not equity.

Quote:
Also, a rise in foreclosed properties is a major harbinger of economic problems, and it's rarely so simple that a family just "goes back to renting" since foreclosure usually means a rash of other monetary problems. The foreclosure is usually just the icing on the cake.
I agree it is not simple, but in the end the forclosed owner going from owning to renting is the result. Also, don't discount the interests of the lenders. They have alot of smart people making decisions to give loans. They are not in the business of wanting to forclose at fire sale prices or in the business of wanting to own real-estate. Also rather than taking $.50 on the dollar, they may be willing to work with most homeowners through short-term hard times. We have alwasys had economic cycles, there is nothing is new with this slow-down.
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Old 03-05-2007, 12:57 PM   #17 (permalink)
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The economy is going great right now!! 2006 and 2007 are slated to be the best in years in terms of jobs and job growth for new graduates. The Fortune 500 are fighting heavily over new grads right now. Employers are offering more incentives and bonuses than ever. The future looks bright.

Didn't the stock market grow like 2000 something points in the past 4-years before last weeks temporary lows?

The real estate market will always ebb and flow, just like anything else. Up and down, up and down. Now and then, now and then. If houses are too expensive or rates too high, then just rent and wait for it to come down. I have missed many "booms" (dot com, stock markets, real estate) but I never panic cause I know I will get my opportunity soon enough. Deferring gratification, patience, making wise decisions will pay off in the end (in my opinion). I never had a chance to capitalize on the low interest rates of the past few years, nor did I get in on the tech boom stocks. but hey, more opportunities will arise.

By the time I will be ready to buy a house, rates will either fall again, or due to the previous frenzy, there will be lots of awesome foreclosures to be had at fantastic prices.
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Old 03-05-2007, 01:00 PM   #18 (permalink)
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Here is a definition of "subprime" - Any loan issued below average underwriting standards.

Therefore in the basket of all loans 49% of the loans issued are subprime or below average, by definition and this will always be true.
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Old 03-05-2007, 03:19 PM   #19 (permalink)
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The subprime market is a fairly risky one. What tends to happen is that the lenders make the loans because they can get fees for it. Then they package the loans and sell them if they can, while keeping a servicing contract. That way they reduce risk while still making money.

People go to subprime lenders precisely because they can't get conventional mortgage loans. After a certain period of time of making high payments, which is what subprime loans usually require (they charge higher rates and higher fees), the borrower falls behind. This housing market has been hot long enough that the cumulative impact of years of high payments is starting to bite.

And no, it's not a good sign.

That does not mean, however, that the economy is about to tank. All it means is that one sector will retrench.

Last edited by loquitur; 03-05-2007 at 03:20 PM.. Reason: Automerged Doublepost
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Old 03-05-2007, 03:42 PM   #20 (permalink)
 
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so wait: i'm confused. much of this debate seems to turn on the question of how to develop a sense of the economy in general, and within that on the question of which indices one chooses to look at, how you weight them, etc.

anyone care to lay out the assumptions behind their views?
i have been reading the thread but am not sure i have much to say about it as i am not particularly committed to any of the ways of reading economic data that are presented here, mostly because i can't get a sense of their relative weight--only that different folk attribute different weights and on that basis refute the weightings of others.
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Old 03-05-2007, 04:52 PM   #21 (permalink)
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Quote:
Originally Posted by aceventura3
Here is a definition of "subprime" - Any loan issued below average underwriting standards.

Therefore in the basket of all loans 49% of the loans issued are subprime or below average, by definition and this will always be true.

This is completely incorrect and does not begin to realistically address what is going on in "subprime" lending.
There are a huge number of no-doc mortgages that have been handed out in the past 2 years. They are essentially ALL sub-prime and at high risk of default. They may have lowered the average creditworthiness of the pool of all borrowers, ,but the fact that a lot of garbage loans were added at the low end of creditworthiness does not mean that the definition of sub-prime gets revised downward.
Put another way, if banks stopped lending to "low risk" borrowers tomorrow, then ALL the loans after that would be subprime, not just the worst 49%.
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Old 03-05-2007, 05:55 PM   #22 (permalink)
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This is completely incorrect and does not begin to realistically address what is going on in "subprime" lending.
There are a huge number of no-doc mortgages that have been handed out in the past 2 years. They are essentially ALL sub-prime and at high risk of default. They may have lowered the average creditworthiness of the pool of all borrowers, ,but the fact that a lot of garbage loans were added at the low end of creditworthiness does not mean that the definition of sub-prime gets revised downward.
Put another way, if banks stopped lending to "low risk" borrowers tomorrow, then ALL the loans after that would be subprime, not just the worst 49%.
In 1950 you could not get a home loan unless you had 20% down. During other times in history the percentages were higher and in some cases mortgages where not available. The trending of "subprime" has occured over a long period of time.

It is true some firms have taken higher risks due to the recent real-estate boom. these firms will and have paid a price for the risk. However, the overall market is not supported by subprime loans. The overall market is supported by homeowners who have owned their homes for a long time and have equity. These people are not subject to short-term trends. Even if these people have re-financed or have used equity loans they still have net positive equity and would not be forced to sell on a short-term dip in the market.

I stand by my first post in this thread. The sub-prime definition was my way of illustrating how the term only has meaning in the "eye of the beholder". Given the worse case - what has happend in the subprime market? Some people who were renters became homeowners. Some people who were doing little or no investing bought some investment property. Given that - if they loose - their credit score goes down and the bank owns some real-estate that will be sold at below market prices. When that happens strong investors and strong buyers will benefit. Like the old saying - the rich will get richer.

So again, I ask for the economic guru who can explain what is going to happen to net demand for housing and how long-term, the market goes down. Everything else is just smoke and mirrors and a means to sell newspapers and TV ads.

P.S. Also - if you don't own stock in a subprime lender, didn't get a subprime loan and lost your ability to pay, don't own property in high risk areas what going to happen to you if the subprime market blows up - pretty much nothing. But you say there will be a chain reaction - but thats where you or the economic guru needs to make the link with long-term demand and supply and a short-term market correction. No one has done it yet, other than to say the sky is falling. Last time I checked Chicken Little is not a trained economist.
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Old 03-05-2007, 06:58 PM   #23 (permalink)
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In terms of the answer to the question at the top: I am friendly with a number of bankruptcy lawyers and other bankruptcy-related consultants. Their business is slow and they tell me they can't see anything on the horizon that will change that.
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Old 03-06-2007, 06:25 AM   #24 (permalink)
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Remember when:

Y2K was going to ruin the economy?
Highly leveraged hedge funds were going to ruin the economy?
Highly margined stock day traders were going to ruin the economy?
The weakening dollar compared to the Yen was going to ruin the economy?
The Reagan supply side tax cuts were going to ruin the economy?
Three dollar gas? Two dollar gas? One dollar gas? All were going to ruin the economy?

I am sure there are many others. All items getting major headlines at the time with experts saying the end to normal economic long-term growth was near an end.

The real problem facing this nation economically is social security and medicare. Those two issues truely need to be addressed, but ironically those are the issues that mostly get ignored.
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Old 03-06-2007, 07:06 AM   #25 (permalink)
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Quote:
Originally Posted by jorgelito
The economy is going great right now!! 2006 and 2007 are slated to be the best in years in terms of jobs and job growth for new graduates. The Fortune 500 are fighting heavily over new grads right now. Employers are offering more incentives and bonuses than ever. The future looks bright.

Didn't the stock market grow like 2000 something points in the past 4-years before last weeks temporary lows?

The real estate market will always ebb and flow, just like anything else. Up and down, up and down. Now and then, now and then. If houses are too expensive or rates too high, then just rent and wait for it to come down. I have missed many "booms" (dot com, stock markets, real estate) but I never panic cause I know I will get my opportunity soon enough. Deferring gratification, patience, making wise decisions will pay off in the end (in my opinion). I never had a chance to capitalize on the low interest rates of the past few years, nor did I get in on the tech boom stocks. but hey, more opportunities will arise.

By the time I will be ready to buy a house, rates will either fall again, or due to the previous frenzy, there will be lots of awesome foreclosures to be had at fantastic prices.
That is what your hope is. I have collegues who thought that as well and seem to be chasing something they may never attain in NYC, SF, LA because the cost of housing is outpacing the pay scales. So some of my friends who make good salaries have 2-3 hour commutes in order to have housing that they can afford.

Also, start looking into the rules of foreclosure purchasing and you'll find that a) most of the best foreclosures never hit the streets and get sold to those inside the market first, b) must be purchased sight unseen, so you cannot even look inside and walk the premises and see structural faults/issues, c) must pay cash up front since most foreclosures don't accept financing.

Lastly, even if prices become "good" keep in mind interest rates fluctuate and also affect how much "house" you can buy.

As far as Grads are concerned, most grads are heavily debt laden in order to get that education. While yes, they can be deferred for some time, they do still have to be paid back and can never be defaulted on. Some people I know have educational debt in excess of $50k. This does not include their credit card debt for their "lifestyle" that they lived in college which could also be an additionaly $20k. All that gets factored in when qualifying for a mortgage, again affecting how much "house" you can buy.
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Old 03-06-2007, 07:33 AM   #26 (permalink)
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Quote:
Originally Posted by host
src="http://ichart.finance.yahoo.com/t?s=LEND"><br>



<b>Three of four of the stocks of these subprime lenders dropped dramatically today. They lent to subprime mortgage applicants across the US, there will be no replacements for these national landers, borrowing qualifications will be tightened, and there will be significantly fewer first time buyers entering the home market. In the now ending, "bubble era:, anyone who wanted to own a home could simply fill out paperwork with little or no verification of it's accuracy, and borrow the entire purchase price and even the closing costs. Only interest had to be paid on these mortgage loans....at under 5 percent annually in many cases, for the first few years. Millions of folks who are obligated to make monthly payments on these mortgages, won't when they find themselves owing ten or twenty percent more than they borrowed, because of real estate price declines, and/or they won't qualify when their short term, subprime "buyer's mortgage", must be refinanced with a new mortgage at a new, lower home appraisal value, and with terms that include a higher interest rate and added principle payments.

Thus it is not difficult to anticipate that there is little foundation to support ace's "no problem here.....", opinion.</b>
I just looked a LEND the shares opened at $8.03 on 3/10/03, the company went public in February '03 at $7.31. Today the price is $17.42.

My only question is - why didn't you tell me about this stock 4 years ago? Did you see it is up$1.32 this morning or over 8%. You should start a contrarian investment fund.
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Old 03-06-2007, 08:01 AM   #27 (permalink)
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Quote:
Originally Posted by Cynthetiq
That is what your hope is. I have collegues who thought that as well and seem to be chasing something they may never attain in NYC, SF, LA because the cost of housing is outpacing the pay scales. So some of my friends who make good salaries have 2-3 hour commutes in order to have housing that they can afford.

Also, start looking into the rules of foreclosure purchasing and you'll find that a) most of the best foreclosures never hit the streets and get sold to those inside the market first, b) must be purchased sight unseen, so you cannot even look inside and walk the premises and see structural faults/issues, c) must pay cash up front since most foreclosures don't accept financing.

Lastly, even if prices become "good" keep in mind interest rates fluctuate and also affect how much "house" you can buy.

As far as Grads are concerned, most grads are heavily debt laden in order to get that education. While yes, they can be deferred for some time, they do still have to be paid back and can never be defaulted on. Some people I know have educational debt in excess of $50k. This does not include their credit card debt for their "lifestyle" that they lived in college which could also be an additionaly $20k. All that gets factored in when qualifying for a mortgage, again affecting how much "house" you can buy.
Let me also qualify some of this with the fact that many people I know don't want to sacrifice more than they have already in order to get the 20% down. Gathering up $50,000 so that you can buy a $250,000 home gets harder and harder to do especially when distracted by new cars, vacations, new gadgets, full cable TV subscriptions, dining out, memberships, baby.

Many new graduates do not want to sacrifice feeling that they got the new job and they deserve it after 5-6 years in college scrimping to get by.
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Old 03-06-2007, 10:12 AM   #28 (permalink)
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Ah, but this is where choices and decision-making matter. Defer gratification, make good, sound consumer choices, and make sacrifices. All the things you list are a consequence of choice. College debt is very manageable, again, it is about good budgeting and smart lifestyle choices.

Your colleagues, they choose to commute, the choose to live in LA, SF or New York. Accumulating $20K in college for "lifestyle" is highly irresponsible and will not illicit any sympathy from me. They made a choice, they have to live with it. Saving for 20% down is relatively simple if people would just exercise some planning and discipline.

Throughout college I budgeted my finances. I spent $25 a week on groceries by buying produce in season and on sale, clipped coupons and made 98% of my mreals at home and bagged the lunch. I quit smoking, saving myself $1000 a year. I didn't own a cell phone, cable TV or a car or car insurance, saving thousands a year on these expenses. In fact, I was savvy enough to budget my needs and have enough money left over to travel extensively throughout college.


I live in LA. I just graduated and got a job. Now I'm going to buy a car. A nice, simple starter car (Honda Civic). I'm also moving and getting an apartment. Not a house. Not yet. Why? Cause I can't afford it just yet. I know what sacrifices I will had to make to get here and what sacrifices I will have to make to get where I want to be. I also have student loans to pay off and maybe $300 Iracked up in credit card debt I accumulated last month but I will pay off this month. Student loans should not be a problem as long as you have a monthly income.

I stand by my contention that the economy is hot hot hot and the outlook is good.

Bottom line: Spend less than you earn. Live within your means.
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Old 03-06-2007, 11:02 AM   #29 (permalink)
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loquitur, when other large speculative bubbles "burst", everything was fine....new high prices attained, surpassed.....up and up and up.....fine, until it wasn't. Depending on the size of the bubble, and on the length of time that it lasted, and on the amount of money and the number of speculators it attracted,
...then the longer it declined, and the lower prices dropped from the "all time" highs.

Here are two examples, and it is amazing how both of these contemporary bubbles unwound so relentlessly, to such dramatic lows....with hopeful buying into the decline, all the way down......and the disappointment of those who bought into the long series of false recoveries, and then watch the new, lower lows, until the final lows.....to date....were put in. Both played out, in price decline and in duration, witn uncanny similarity to the 1929 Dow index crash.
That index declined from 393 to 41, in a little less than 3 years, and the recovery from the 393 high to a new high, took 24 years.

Compare the 1929 unwinding to these price movements:

Nasdaq 2000 stock index
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=02&b=01&c=2000&d=02&e=15&f=2000&g=d">10-Mar-00 open 5,060.34 high 5,132.52</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=03&b=01&c=2000&d=03&e=15&f=2000&g=d">14-Apr-00 open 3,597.44 high 3,615.64</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=11&b=01&c=2000&d=11&e=15&f=2000&g=d">15-Dec-00 open 2,688.66 high 2,697.93</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=02&b=01&c=2001&d=02&e=15&f=2001&g=d">15-Mar-01 open 2,023.79 high 2,030.73</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=03&b=01&c=2001&d=03&e=15&f=2001&g=d">4-Apr-01 open 1,668.37 high 1,698.21</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=09&b=01&c=2002&d=09&e=15&f=2002&g=d">10-Oct-02 1,116.76 1,165.83 1,108.49</a>

<b>....and today, almost 7 years to the day that the Nasdaq was at 5132, it is still below half that level.....</b>

Nikkei 225 stock index

<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=11&b=15&c=1989&d=11&e=31&f=1989&g=d">29-Dec-89 open 38,913.00 high 38,957.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=01&b=1&c=1990&d=01&e=28&f=1990&g=d">27-Feb-90 open 33,346.00 high 34,001.00 low 32,793.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=02&b=1&c=1990&d=02&e=31&f=1990&g=d">30-Mar-90 open 31,002.00 high 31,002.00 low 29,828.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=07&b=1&c=1990&d=07&e=31&f=1990&g=d">24-Aug-90 open 23,731.00 high 24,485.00 low 23,547.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=09&b=1&c=1990&d=09&e=15&f=1990&g=d">2-Oct-90 open 20,222.00 high 22,899.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=02&b=1&c=1992&d=03&e=30&f=1992&g=d">10-Apr-92 open 16,622.00 high 17,851.00 low 16,622.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=03&b=15&c=2003&d=03&e=30&f=2003&g=d">28-Apr-03 open 7,679.11 high 7,685.36 low 7,603.76</a>
<img src="http://chart.finance.yahoo.com/c/my/_/_n225">

<b>It's 17 years after the Nikkei 225 put in it's 38,957 high, and 4 years since it reached it's latest "new low" of 7603. I've shown you the effects of the three most prominent bubbles having to do with financial speculation of the general public, of the 20th century. All of my posts are filled with linked facts that support my opinions. Those who disagree with me have provided no citations to support their opinions, and indeed, don't even seem willing to consider that what I am saying is a possibility, let alone that it is actually taking place now. Given what we know about the duration, scope and the size of the residential real estate "run up", the amount of "easy", low qualification and low interest financing that it has needed to "make it happen", and to sustain it, and the fact tha almost anyone who wanted to obtain a mortgage and buy a housing unit, now has one, now is in "the market", who will the "holders" sell to, now?

If you agree that the increase in housing prices that spurred the building of huge numbers of new units, and that the overall economy benefited from the jobs that the housing construction, real estate marketing, and mortgage brokering, from the manufacture and sale of building materials and home furnishing, and from the extraction and spending of the increasing home equity of those who owned home during the price run up....wealth extraction by homeowners that reached $800 billion,</b>
<img src="http://www.safehaven.com/images/mauldin/6603_g.gif">

....in a decline like the one that we are seeing now.....in price, in the number of houses sold, and in the amount of wealth extraction that homeowners are able to get from their home values into their wallets...to be spent on second homes, home improvements, vacations, restaurant meals, consumer goods, new cars....etc., and in the decline (disappearance) of the profits of builders, realtors, mortgage brokers, and "flippers",

<b>what can you say to support your opinion that the disappearance of all of this former stimulus won't drag down the economy in the same way that, when it was there to stimulate the economy, promoted it's growth? What will take the place of consumers taking equity from their homes in an amount that exceeded, at it's high, over $200 billion, every three months, in an environment of increasing inflation and chronically flat income levels?></b>

....and my question does not even consider the negative impact of mortgage defaults and foreclosures, and the BK of home builders and the financial institutions that lent them, and the homebuyers, the money to build and buy the housing units.....

I followed this guy's writings, for the last four years, (below) on the farce of the fed lowering interest rates to one percent, in an attempt to remove the negative effect of the wealth destruction that would have been a consequence of the 2000 to 2003 crash of the Nasdaq and Dow stock indexes. He went so far as to detail a "character", a mortgage broker who worked for NEW CENTURY FINANCIAL, and he detailed the ridiculousness of New Century lending money to anyone....regardless of income, or even resident status in the US....to buy houses at inflated prices, which further inflated the housing prices, which allowed the houses to turn into an ATM, into "free money" for their owners.....money to buy whatever they wanted with.....and his first post is in Feb., 2003, and his last was yesterday, when the stock price of "NEW", finally imploded, and the NY Times wrote an article about an actual former NEW CENTURY broker, who seems describe the reality of what "Mark" had commented on for the past four years:

Quote:
http://www.capitalstool.com/forums/i...showtopic=1158

post Feb 11 2003, 08:46 PM
Post #1

From: Manhattan Beach, CA
Member No.: 184

Mark’s Market Commentary – February 11, 2003

....Never before have I experienced such an amazing period of denial, resistance, and ignorance of what is going on. A stark contrast to what we in California experienced in 1990 – 1993 where gloom was pervasive, everyone was cautious, nobody was spending, and the most popular topic of discussion was the lack of jobs.

Contrast that to today’s MTV Spring Break attitude. New cars rolling off the lots everywhere. Real estate mania in full swing. The popular topic of discussion is how to further leverage your financial position in order to upstage your own appearance of wealth and success. No fear. No concern. But can you blame them?

Why not be optimistic when all Fed members are on the rubber chicken circuit forecasting a “recovery”, crowing about the “resilient consumer”, and how there is no debt bubble.

Why not be optimistic when the Wall Street Matrix with their cheery pundits are all pounding the table to “buy stocks” to “participate” in the “2nd half v-shaped recovery”.

Picture the 28-year old female Marketing Director for Expedia.com. Biding her time at some nonsense buzzy jazzy job. Leveraging her stunning appearance to land a man who is involved in one of the fantastic growth industries in Orange County like “mortgage finance”. She’s up to her eyeballs in debt. The Nordstrom’s credit card, Victoria’s Secret credit card, and even an “emergency” credit card from Target or Sears. On top of the usual maxed out First USA and Capital One VISA. And of course, the $690/mo. payments to BMW finance for the BMW 330i convertible. But now there are some murmurings about potential layoffs.

But why worry? Her boyfriend is the top closer for New Century Mortgage. A 34-year old Italian swinger fluent in Spanish, making 6-figures pushing subprime mortgages to illegal immigrants. Driving his Lexus GS430. He’s already eyeballing the purchase of a $1.8 million house in Newport Beach. Of course, he has no money for a down payment, but that doesn’t matter. He’s in the mortgage business, headed for great success.

Is she worried about gassing up the 330 with premium gas at $2.00/gallon? No. She’s too busy honking the horn at the poor Guatamalan Gardener in front of her with his 1972 Datsun pickup. She’s in a hurry to get home to see who got nominated for the Oscars.

Is she worried about the Al Queda live interview tonight? No. She’s too busy waiting for the new Madonna video.

Is she going to Home Depot to get some duct tape, plastic sheeting, and bottled water in case of a bio attack? No. She’s wondering when the next thong sale is occurring at Victoria’s Secret.

What about him? Has he any clue about the mortgage bubble? No. He’s too busy training his boiler room operators on how to convince the Guatamalan Gardener that he can afford the KB Home “starter” property at $325,000 even though he’s not even a legal resident. And the commission checks keep rolling in, and the refinancing boom has shown no signs of slowing down yet.

These two have been living for years and years on credit. With no adverse consequences. Everyone else is doing the same. The naysayers have been warning of excessive consumer debt, but Al Green has assured everybody that its not a problem. Anyway, the 2nd half recovery hasn’t shown up yet, but after 3 years, it has to appear this year. That’s a guarantee of an acceleration of both incomes. And thanks to the productivity miracle everyone is crowing about, things are going to get really good next year. So she just continues making the payments, even though she is getting a little behind, and wait for the much heralded “recovery”.

No worries about the job market, either. After all, as a last resort, she could become an exotic dancer at any of the hundred clubs in Las Vegas, and hopefully some high roller will come along and bail her out of her debts if Mr. Closer doesn’t work out. Interesting how the shrink-wrapped skeletons with the silicon bolt-ons never have to worry about “job security”.

In the meantime, the stock market mania continues to explode with new kinds of funds sprouting up daily.

The mutual fund manager who has the honor of getting in Barron’s this week is Kevin Baum at the Oppenheimer Real Asset fund. Marketing itself as a natural resource fund. It is anything but. It is basically a money lender using huge leverage playing various financial exotica in the structured finance arena.

Run by 32-year old Kevin Baum, who was 11 years old when the bull market started and 18 years old during the 1987 crash. After working at a summer job with Edward D. Jones, Baum went to Texas Tech and started this fund at age 26.

About 33% of the fund’s assets are loans to firms such as Cargill Investors Services and ABN Amro, who in return, sign structured notes which essentially “promises” that a return equal to LIBOR + 1.4% plus a principal return equal to 3x the Goldman Sachs Commodities Index. Basically, it is a money lender to companies like Cargill who expects to produce 300% returns by Riverboating in the commodities market. The other 66% of the fund is invested in so-called “short-term investments” like Harley Davidson Trust Receivable Notes, Fannie Mae and Ford Motor Credit bonds. To minimize the interest rate risk, the fund hedges the portfolio with Treasury futures. Occasionally Baum has gone long on gold futures while shorting silver futures.....
Quote:
http://www.capitalstool.com/forums/i...=&#entry121481

Jun 28 2003, 02:31 AM
Post #2

From: Manhattan Beach, CA
Member No.: 184

Noland <a href="http://64.29.208.119/archive_comm_article.asp?category=Credit+Bubble+Bulletin&content_idx=24351">painted a pretty dire picture</a> of California.

So far, there is no visible evidence of any trouble out here.

The 24-year old large breasted blonde bombshell employed at $175,000/year as a Marketing Assistant for Expedia is still living in The Dream World. Driving her $42,000 BMW 330ci which just had its $1,300/year license plate fee tripled to $3,900/year.

So far, she is unfazed.

Especially when her bills are being paid by her boyfriend.

As for her $325,000/year "top closer" 32-year old boyfriend working at New Century with the $82,000 BMW 745il, things don't look bad from his vantage point either. His $1.7 million starter home in Newport Beach has already appreciated $300,000 in 6 months, so what little extra taxes and fees Gray Davis hands out is really of no consequence. Another "refi" to extract another $100,000 in equity will paper over a large portion of these "financial nuisiances"

Over on the other side of the railroad tracks, the Jerry Springer contestants can still be found at the Long Beach car wash with their Ford Expeditions with the brush guards, 21" flying saucer wheels which keep rotating after the car stops, and two Kenwood DVD Plasma Screen Players. No, he doesn't have a house yet. He's still renting a 1 bedroom apartment in a stucco box for $1,200/mo., trying to work down his $55,000 in credit card debt so he can qualify for a Fannie Mae interest-only mortgage for first time homebuyers. Trouble is, with so much consumer debt, he's finding it hard to stay ahead with his $14/hr. job as a car stereo installer at Best Buy.

The San Francisco Bus Drivers are still making $90,000/year. I don't think they have a clue that their wages will be dropping to $5.50/hr. later this summer.

Driving up the I-5 freeway yesterday, it was a virtual standstill. A Yobob Paradise with every brand, make, and model camper, diesel pusher, trailer, and motor home towing a trailer full of jet skiis and motorcycles. It was difficult to find a vehicle on the road older than 5 years.

If conditions change radically, I will keep you guys informed in real time as it happens.

But for now, the state's budget problems are a mirage for most people.

And while on the subject, BobBrinker has always recommended California General Obligation bonds as "dollar good" and impervious to credit default.

We shall see.
Quote:
http://www.capitalstool.com/forums/i...showtopic=8272
The End of The Heyday, M2M 03/05/07

post Yesterday, 06:52 PM
Post #1

From: Manhattan Beach, CA
Member No.: 184

Some of you old stoolies might remember my riffs about the normal and typical yuppie couples in Orange County.

Remember the guy featured, the "top closer" from New Century? The immigrant with limited education who became an instant millionaire?

Drove a Ferrari and purchased a giant oceanfront home?

Well, here he is, featured on today's <a href="http://www.nytimes.com/2007/03/05/business/05lender.html">New York Times</a>

By JULIE CRESWELL and VIKAS BAJAJ

Even in affluent Orange County, Calif., the growing wealth of executives and brokers in the booming mortgage industry was hard to miss.

For Kal Elsayed, a former executive at New Century Financial, a large lender based in Irvine, driving a red convertible Ferrari to work at a company that provided home loans to people with low incomes and weak credit might have appeared ostentatious, he now acknowledges. But, he says, that was nothing compared with the private jets that executives at other companies had.

“You just lost touch with reality after a while because that’s just how people were living,” said Mr. Elsayed, 42, who spent nine years at New Century before leaving to start his own mortgage firm in 2005. “We made so much money you couldn’t believe it. And you didn’t have to do anything. You just had to show up.”

Orange County was the epicenter of the boom in subprime. Five of the 10 biggest providers of subprime mortgages last year had their headquarters in the region.
[/quote]
The March 5, 2005 NY Times article described by "wndysrf" in the preceding quote box:
(Consider that the articles' description of New Century's stock price was written before the stock, trading under the synbol "NEW", closed at $4.56 per share in todays' trading.)
Quote:
http://www.nytimes.com/2007/03/05/bu.../05lender.html

March 5, 2007
Mortgage Crisis Spirals, and Casualties Mount
By JULIE CRESWELL and VIKAS BAJAJ

Even in affluent Orange County, Calif., the growing wealth of executives and brokers in the booming mortgage industry was hard to miss.

For Kal Elsayed, a former executive at New Century Financial, a large lender based in Irvine, driving a red convertible Ferrari to work at a company that provided home loans to people with low incomes and weak credit might have appeared ostentatious, he now acknowledges. But, he says, that was nothing compared with the private jets that executives at other companies had.

“You just lost touch with reality after a while because that’s just how people were living,” said Mr. Elsayed, 42, who spent nine years at New Century before leaving to start his own mortgage firm in 2005. “We made so much money you couldn’t believe it. And you didn’t have to do anything. You just had to show up.”

Just as the technology boom of the late 1990s turned twenty-something programmers into dot-com billionaires, and leveraged buyouts a decade earlier turned Wall Street bankers into Masters of the Universe, the explosive growth in subprime lending turned mortgage bankers and brokers into multimillionaires seemingly overnight.

Now an escalating crisis in the market, which seemed to reach a new crescendo late last week, is threatening a wide band of people. Foremost are the poor and minority homeowners who used easy credit to buy houses that are turning out to be too expensive for them now that mortgage rates are going up, but the pain is also being felt widely throughout the business world.

Large companies that bought subprime lenders during the boom, like H&R Block and HSBC, are now scrambling to sell them or scale back their exposure. Many investors are also likely to suffer: Wall Street firms made billions in fees, commissions and trading revenue from packaging and selling subprime mortgages to them as bonds.

New Century has emerged as a poster child for the lenders that rode that boom to the top and are now in free fall. The company disclosed on Friday that federal prosecutors and securities regulators were investigating stock sales and accounting errors. The latter could jeopardize billions of dollars in financing for the company, which issued $39.4 billion in subprime loans in the first nine months of last year.

Weakening home prices and rising default rates have rocked the subprime business. But for those who cashed out before the market turned, the ride up was particularly sweet. The three founders of New Century, for example, together made more than $40.5 million in profits from selling shares in the company from 2004 to 2006, according to an analysis by Thomson Financial. They collected millions of dollars more in dividends, salaries, bonuses and perks.

The company said in a statement yesterday that the founders were “still significant shareholders,” noting that they collectively owned about 7 percent of the company at the end of last year.

New Century’s stock price, which seemed to mirror the trajectory of the subprime business, peaked at nearly $66 a share in December of 2004 and traded in the $40s most of last year; on Friday, it was trading at $11 a share after the market closed. In a series of sales from August to November, two of the company’s founders sold shares for an average price of about $40 a share, for a total profit of $21.4 million.

It is not known whether the stock sales by the founders are among the sales being examined by federal investigators. Some of them had been part of scheduled stock sales that are often used by executives to diversify their portfolios. But some of the sales occurred on the same day that the executives entered the plans. A New Century spokeswoman, Laura Oberhelman, said that executives declined further comment.

The founders’ stock also rose in the social circles of southern California, the epicenter of the boom in subprime. Five of the 10 biggest providers of subprime mortgages last year had their headquarters in the region.

Robert K. Cole, 60, a co-founder who retired as chairman and chief executive last year, lives in a 6,100-square-foot oceanfront home in Laguna Beach that is valued at tens of millions of dollars and was once owned by the chief executive of Pimco Advisors, the giant bond trading and management firm. Edward F. Gotschall, 52, another co-founder who is vice chairman of the board, donated $3 million for an expanded trauma center at Mission Hospital that will be named for him and his wife Susan.

The executives from New Century are by no means alone in cashing in on the bonanza, and they do not appear to have scored the biggest profits. That title may be claimed by Angelo R. Mozilo, the chief executive of Countrywide Financial, the nation’s largest stand-alone mortgage company and one of the largest subprime lenders last year. He reaped more than $270 million in profits from sales of stock and the exercise of stock options from 2004 to the start of this year, according to the Thompson analysis.

Of course, most of the 500,000 people who work in the mortgage industry did not cash in so grandly. The wealth was concentrated among executives, loan officers and brokers, because the greatest rewards were meted out in the form of commissions, bonuses and stock awards.

“In the hot times, it was not unusual to see a broker make a million bucks,” said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. “You can carry that up further to people who ran the companies. The whole business revolves around personal compensation.”

The hot times are clearly over.
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<b>The disconnect here is obvious..... some of the same folks who take the other side of the political argument than I do, don't see the economic conditions of the last six years as an artificially contrived, unsustainable farce, as described so well in the "Mark to Market" posts above. Since they don't see "the folly".....the ridiculousness of the idea that vast numbers of folks could experience the transformation of their homes into financial "holdings" that throw out equity at them, as they refinance their mortgages annually, at ever lower terms......their homes that are ever rising in value....and not have the result be the financial failures of the lenders of those mortgage loans, and a reversal in the value of the homes, and in the ability of their owners to spend, and on the employment numbers of all of those in the realty, realty, finance, and housing industries, and then, in the economy, itself.......that disconnect....evident here.....is confirmation to me that this will end up having an even more negative impact on our economy, and on many of us in the US, than I have been considering.</b>
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Old 03-06-2007, 06:44 PM   #30 (permalink)
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My "simplistic" or "black and white" response is that there is intrinsic value and there is speculative value. During periods of market euphoria speculative value increases and gets out of control, however intrisic value stays grounded in the fundementals of the market. Personally, I always try to stay focused on intrinsic value. I think smart money or wise investor gurus like Warren Buffet, or the late Benjamin Graham also stay focused on intrinsic value. Speculative value comes and goes. when a market crashes it normally is not a crash but more of a sudden decrease in speculative value still supported by intrisic values. If intrisic values suddenly declined, in my book that would be a crash, if this happens it doesn't last long because smart money comes in for the easy gains when the intrisic value goes back to equilibrium.

My point is that real-estate has intrisic value. That value will increase over time and has historically increased over time. Speculative value is currently being taken out of the market. This is good. Smart money wants this to happen. Smart money sees this as healthy, you don't. All the citations, quotes, stats in the world won't prove the above - you either get it or you don't.

Those who don't get it will generally always be on the wrong side of the trend.

Six months from now when we look at the stats we will see that today we have already hit and past the real-estate bottom. You can say you heard it here first.

That is my market call. What's yours?

How about a wager. If you are correct and I am wrong I will donate $100 to your favorite charity, and you do it if the opposit is true.
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Last edited by aceventura3; 03-06-2007 at 06:49 PM..
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Old 03-07-2007, 01:16 AM   #31 (permalink)
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Quote:
Originally Posted by aceventura3
.....My point is that real-estate has intrisic value. That value will increase over time and has historically increased over time. Speculative value is currently being taken out of the market. This is good. Smart money wants this to happen. Smart money sees this as healthy, you don't. All the citations, quotes, stats in the world won't prove the above - you either get it or you don't.

Those who don't get it will generally always be on the wrong side of the trend.

Six months from now when we look at the stats we will see that today we have already hit and past the real-estate bottom. You can say you heard it here first.

That is my market call. What's yours?

How about a wager. If you are correct and I am wrong I will donate $100 to your favorite charity, and you do it if the opposit is true.
ace, thank you for the reasonable tenor I detected in your last post, and your offer of a wager between us that would ulitmately benefit a charity of our choosing, but....as I posted earlier, I'm already putting my money where my mouth is, via stock market investments in the direction of the deteriorating economic trend that I am forecasting.
If you turn out to be correct about the direction of the economy in the next six months, I promise to post the dollar figure of the losses from making the "wrong bets" in the stock market.

I also do not want to make a wager with you until you can post something similar to this Feb. 20 Forbes article, with facts to counter reasons for a downturn.
Quote:
http://www.forbes.com/business/2007/...219oxford.html
Risks Still Cloud U.S. Economic Outlook
Oxford Analytica 02.20.07, 6:00 AM ET

The U.S. Federal Reserve on Jan. 14 forecast sustained healthy economic growth in 2007. Most analysts believe the Fed has put the economy on a glide path to a "soft landing" of only slightly below-trend growth, and financial markets have reacted positively. However, disquieting economic data suggests growth may be more fragile than expected.

......The details of the 2006 fourth-quarter preliminary GDP report reveal soft spots:

--Weak investment spending. While real consumer spending was the positive linchpin of the report, investment spending was surprisingly weak.

--Plummeting residential investment. Residential investment spending declined in the fourth quarter.

--Government spending stimulus. A key boost to growth in the fourth quarter came from a rise in federal defense spending.

--Downward growth revision. Most data releases since the GDP report have come in weaker than expected, which suggests that the government's revised GDP data for the fourth quarter will reduce the quarterly growth estimate to 2.5% to 3.0%.

A number of economic statistics suggest that the U.S. economy is somewhat fragile:

1. Employment. The economy created only 111,000 jobs in January.

While the pace of job growth hit 2.1% year-on-year in March 2006, it eased steadily over the course of 2006, and by last month had slowed to 1.6% year-on-year. Manufacturing jobs declined since the third quarter of last year. All measures of hours worked were weak in January.

One key indicator of future employment growth is the temporary worker category. Recently this has turned flat.

2. Purchasing Managers Index (PMI). This survey is a "diffusion index" that measures whether business conditions in the manufacturing sector are increasing or decreasing. The PMI dropped to 49.3 last month. Readings below 50 indicate that the U.S. manufacturing sector is declining.

3. Yield curve. The "yield curve" is commonly defined as the yield on 10-year government bonds less the interest rate on 90-day commercial paper. An inverted yield curve is taken as a signal that credit conditions are tight and monetary authorities are trying actively to discourage borrowing. The typical reaction to tightened credit conditions is that capital spending and housing weaken--developments now underway:

--Since 1970, there have been six episodes when this measure of the yield curve has been inverted for at least nine months, and all were followed by recessions.

--The lag between the beginning of the yield curve inversion and the onset of recession ranged from three to six quarters.

--The present yield curve inversion began in July 2006, meaning that if the yield curve remains inverted through the end of March 2007 a "recession watch" would start.

4. Mortgage equity withdrawal. MEW is turning decidedly more negative. MEW boosted consumer spending in recent years and helps explain the negative U.S. saving rate. However, with home prices flattening off and declining in many areas, refinancing has slowed sharply, and MEW has softened.

Consumer spending remained robust during the fourth quarter, but this may not continue if MEW remains weak. Meanwhile, rising interest rates and the resetting of many adjustable-rate mortgages have driven the ratio of the median mortgage interest payment to median family income to its highest level in nearly 25 years.

5. Other weak indicators. A series of other measures suggest caution:

--Industrial production fell an unexpected 0.5% month-on-month in January.

--Trucking industry volumes turned weaker in the final months of 2006--this weakness has persisted.

--Large homebuilders continue to report tumbling orders for new homes.

--Automobile industry sales at General Motors (nyse: GM - news - people ) and Ford Motor (nyse: F - news - people ) dropped by double-digit year-on-year rates in January.

The market's sanguine estimate of U.S. economic prospects this year may yet be proved accurate. However, given recent mixed economic signals, and the persistence of significant downside risk, U.S. economic statistics bear a close watch in the coming months for further signs of trouble ahead........
ace, what I want to read from you are answers to where the economic stimulus will come from to mitigate the loss of a sizeable portion of the consumer financial "bonus" that the recent $800 billion per year of "MEW" - "Mortgage Equity Extraction" was, to expand GDP, and now, to even sustain it at a $13 trillion annual level.
Below, in the Bloomberg.com article:
Quote:
The problems in the subprime market may be just the tip of the iceberg, given the depth and duration of the housing bubble -- and the money tied up in it.

``We've created an unproductive asset,'' says Joe Carson, director of global economic research at AllianceBernstein. ``A house doesn't produce income.''

Mortgage debt rose by $4.7 trillion from the end of 2000 through the third quarter of 2006, according to the Fed's Flow of Funds report. ``We created as much debt in housing in the last six years as we did in the prior 50,'' Carson says.
....ace, supply us with your "take" on what will drive further GDP growth, or even sustain it, if what has driven it to where it is today....a $4.7 trillion mortgage lending binge that drove the homebuilding, realty, and mortgage underwriting industries, and the quadrupling of "MEW" in just five years, the effect of federal tax cuts that
are in the past now....priced in....and federal spending deficits that exceeded $500 billion per year, but are now, in your own belief, declining significantly? How will the decline in housing sales and in the prices offered for houses, avoid "feeding on itself", just as it did in the run up phase? How will increasing homeowner mortgage defaults not result in more foreclosures, auctioned into a housing market already suffering from lower demand and lower prices?
How will a consumer who grew accustomed, every 18 months, to refinancing his credit card balances and car loan into a new mortgage refi, while taking cash out...to boot...begin and sustain a new cycle of spending and trading up to an even bigger and better home, when he can no longer do the "cash out", debt consolidating "refi"...stuck paying his recent credit card balances and newest car loan, with no hope of again......making it disappear into his mortgage balance?
Will the new homeowners who are forced to refi their "no money down"...."buyer's ARM" into a mortgage that raises their monthly payment by 50 percent, while they observe a drop in value of a home that they already had no equity in...react to their dramatically higher mortgage payment? Will they pay...or will they walk away?

ace....the subprime lenders who I earlier covered, about 30 of them now....in distress, acquisition or BK, just since December, flamed out, even with no increase in the US unemployment rate. Explain how job losses in the realty boom related segments, and in building materials, trucking, construction equipment, etc., will be minimal, if the decline in realty related activity continues. What will replace the lost jobs and the related activity, to prevent the decline of GDP growth?
Quote:
http://www.washingtonpost.com/wp-dyn...030601980.html

Greenspan Lays Odds On U.S. Recession
'One-Third Probability' in '07, Former Fed Chief Says

By Craig Torres
Bloomberg News
Wednesday, March 7, 2007; Page D01

Former Federal Reserve Chairman Alan Greenspan said yesterday that there is a "one-third probability" of a U.S. recession this year and that the current economic expansion won't have the staying power of its decade-long predecessor.

"We are in the sixth year of a recovery; imbalances can emerge as a result," Greenspan said in an interview at his District office. "The historically normal business cycle is much shorter" than a decade and is likely to be this time, he said.


Alan Greenspan is back in the economic forecasting business.

Greenspan's outlook contrasts with the prediction of his successor, Ben S. Bernanke, who told Congress last week that the economy might strengthen this year. Bernanke's upbeat assessment helped steady stock markets on Feb. 28 after a plunge the day before that some traders attributed partly to Greenspan's musing that a recession could not be ruled out.

"It is possible that we can have a recession at the end of this year," said Greenspan, who ran the central bank for 18 years until January 2006. Bernanke declined comment.

Little more than a year after leaving the central bank, Greenspan, 81, is returning to economic forecasting, which he did before entering the government in 1974. He isn't trying to predict a number for gross domestic product or inflation; instead, he's trying to capture trends and when they might change.

Private-sector economists and policymakers are predicting that the expansion, which began in 2001, will continue. The Fed expects the economy to grow 2.5 to 3 percent this year, and 2.75 to 3 percent next year, according to forecasts presented to Congress last month.

Greenspan said he had been careful to avoid making life difficult for his successor....
to Read the Rest of this Article   click to show 
Quote:
http://www.forbes.com/markets/2007/0...markets48.html
Market Takes Greenspan's Odds
Matthew Kirdahy, 03.06.07, 5:21 PM ET

The market ignored Alan Greenspan's dispatches on the state of the U.S. economy Tuesday, behaving more in line with U.S. Treasury Secretary Henry Paulson's remarks on the proverbial glass being half full.

The Dow Jones industrial average soared 157.18 points, or 1.3%, to close at 12,207.59 following strong gains late in the session. All but one of the stocks in the index, Johnson & Johnson, were in the green as the Dow logged its best one-day gain since July. However, the industrial average is on pace for its worst quarter since the first quarter of 2005.

The broader Standard & Poor's 500 gained 1.6% and the Nasdaq Composite, home to many leading technology companies, finished up 1.9%.

Things were looking almost too good, in which case, the New York Stock Exchange had to institute a trading collar -- which does not halt all trading, but is meant to curb certain arbitrage and computer-driven trading -- at about 3:13 p.m......

....Regardless, Greenspan couldn't spook the market the way he did last month, when the former Federal Reserve chairman first raised the prospect of recession <b>and said investors aren't braced for a hit.....</b>
a huge number of articles in the following piece, ace. They detail the last realty run up, and decline....from 1981 to 1995.
Explain ace, given that the recent run up was much longer and peaked much higher, how it will "be different, this time"?
Quote:
http://njrereport.com/80sbubble.htm

Home Prices Do Fall
<b>A Look At The Collapse Of The 1980's Real Estate Bubble
Through The Eyes Of The New York Times</b>
by
James Bednar
New Jersey Real Estate Report
http://njrereport.com

Introduction

"Home prices never go down" is a quote often heard spoken by real estate agents. It isn't true. Real estate bubbles do exist and they do burst. The after effects of a real estate bubble burst are felt for years afterwards.

Thanks to the online search capability of the New York Times, I was able to compile a list of articles that appeared in the New York Times during the real estate bubble from 1981 to 1988 and then from the resultant crash, from 1989 onwards.

All the readers that have seen the preliminary compilation gave the same remark, "It's like deja-vu."

Indeed, it is. We've quickly forgotten the 80's bubble that swept over the Northeast, in particular the New York Metropolitan area. We've convinced ourselves that "this time is different." Unfortunately, all we've proven is that we lack the ability to learn from history and our mistakes.

.....<b>1981 - Slow After 70's Slump</b>

Your Money; Buying Houses As Investments
May 23, 1981, Saturday
By ALAN S. OSER (NYT); Financial Desk
Late City Final Edition, Section 2, Page 30, Column 1, 947 words
http://select.nytimes.com/gst/abstra...AC0894D9484D81

''DO you think we did the right thing?'' the nervous woman asked the supposed authority. She and her husband, already owners of a summer home in Southampton, L.I., had just contracted to buy a condominium there, purely as an investment. They had seen home prices in the Hamptons rise...

<b>1987 - Cracks Appear At The Top</b>

<b>Home Buying Drops Sharply In the Suburbs</b>
By THOMAS J. LUECK, SPECIAL TO THE NEW YORK TIMES
Published: July 27, 1987
http://query.nytimes.com/gst/fullpag...54C0A961948260

The surging market for homes in the suburbs of New York City has abruptly shifted gears. In many suburban communities, where real-estate prices have more than doubled since 1980, industry experts say there is a huge inventory of unsold homes, and a sudden paucity of buyers.

In May, June and early July - normally the peak of the home-buying season - anxious sellers in much of the suburban region have been lowering their prices, sometimes repeatedly.

''The number of properties on the market is unbelievable,'' said Richard Palmer, regional vice president of the National Board of Realtors for New York, New Jersey and Pennsylvania. ''For the moment, the unsatiable demand for homes seems to be satisfied.''


<b>1995 - Uncertainty As The Bottom Is Hit</b>

For Suburban Homes, Modest Recovery
By NICK RAVO
Published: February 19, 1995
http://query.nytimes.com/gst/fullpag...51C0A963958260

RECOVERY that was reserved in most areas and robust in some reigned over the residential real estate market in the New York suburbs last year. Home sales surged in much of Connecticut and Long Island and in Westchester and Rockland Counties and parts of Northern New Jersey -- but fell short of their mid-1980's peaks. Sale prices, in most places, were flat or rose only slightly, barely bouncing off the bottoms hit during the recession in the early 90's.
Quote:
http://www.bloomberg.com/apps/news?p...d=aQKw_vL7cuLQ

As Housing Goes Bust, Lenders Become Predators?: Caroline Baum

By Caroline Baum

March 6 (Bloomberg) -- Congress is gearing up for hearings on predatory lending, the latest chapter in its long history of barn-door-closings on already-departed horses.

Just some background in case anyone hasn't picked up a U.S. newspaper in the last month. The subprime lending market is in trouble as borrowers who are, by definition, poor credit risks live up to their reputation.

Delinquency rates on these risky home loans are rising, subprime lenders are going belly up at an alarming rate, criminal probes of some lenders are under way (the trial lawyers must be salivating at the prospect of a whole new class of class-action suits), and front-page stories are proliferating almost as fast as you can get a no-money-down, no-questions- asked mortgage.

Make that as fast as you could have gotten a loan, before the regulatory agencies got wind of the trouble.

Last week, federal financial regulators, including the Federal Reserve, Office of the Controller of the Currency and the Federal Deposit Insurance Corp., proposed a series of guidelines ``to address certain risks and emerging issues related to subprime mortgage lending practices, specifically, particular adjustable-rate mortgage (ARM) lending products.''

The feds are concerned that (my interpolation) borrowers may not appreciate that a 2 percent teaser rate might not be good for 30 years. (See, ``If it sounds too good to be true, it probably is.'') They're afraid lenders may be unaware of the risks these loans pose to financial institutions. (The risk of making risky loans? Really?)

Full Disclosure......
To Read the Middle of this Article   click to show 
If the definition is making a loan to someone who can't pay it back, then I guess it was predatory.

The interest rates weren't high, the standards weren't tight, and access to credit was wide open. Based on characteristics most folks associate with predatory lending, the accusation seems unfounded.

Easy Credit

To the contrary, any schnook who could sign on the dotted line qualified for a home loan.

The word ``predatory,'' with all its negative connotations, is popping up elsewhere; specifically, to describe loss- mitigation practices.

There is nothing predatory about ``improving the collectability of the loan,'' says Scott Valentin, managing director, specialty finance research, at Friedman, Billings, Ramsey & Co. in Arlington, Virginia.

Loss-mitigation tactics are fairly standard: Extend the terms of the loan, and if that fails, sell the loan for pennies on the dollar. There's nothing predatory about either. It's loan management. And it's in both parties' self-interest to find terms that can be met because ``no one makes money foreclosing,'' Valentin says.

Cause or Cure?

He estimates the loss of foreclosing at 40 percent to 50 percent of the initial value of the loan.

<b>The problems in the subprime market may be just the tip of the iceberg, given the depth and duration of the housing bubble -- and the money tied up in it.

``We've created an unproductive asset,'' says Joe Carson, director of global economic research at AllianceBernstein. ``A house doesn't produce income.''

Mortgage debt rose by $4.7 trillion from the end of 2000 through the third quarter of 2006, according to the Fed's Flow of Funds report. ``We created as much debt in housing in the last six years as we did in the prior 50,'' Carson says.</b>

After the late 1990s stock market bubble, the economy recovered with a combination of interest-rate relief and income growth, he says.

That rate relief was the cause of the current housing bubble, former Fed Chairman Alan Greenspan's claim about the Berlin Wall coming down notwithstanding. How can the cause also be the cure?

(Caroline Baum, author of ``Just What I Said,'' is a columnist for Bloomberg News. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net .
Last Updated: March 6, 2007 00:04 EST
You've convinced me that you "feel" good about our recent and continued economic growth, and you've told me that you believe in the "intrinsic value" of residential realty properties. I know, from my own experience, that....when you have to sell, because of the circumstance you find yourself in at a given point in time, even if you have waited, three, four, or more years for a "better market", you sell for the price that "that market" will bear. It is of no consequence, at that moment in time, whether you are selling for less than your own cost, or even for less than it would cost to buy the lot and build a clone of that residence. You can only get what the market into which you are selling, "will bear"
I predict that the decline will last more than ten years, ace, in the majority of US local realty markets....ten years from now, or from sometime in 2005, depending on local conditions. I predict, that...just as the housing boom drove a period of unparalled prosperity for a fortunate, and sizeable minority of American homeowners, speculators, and realty industry participants, and that it is already, and will continue to "spill over"on the broader economy, affecting US GDP to the point of a sustained period of negative GDP, low enough and long enough to be declared by the Federal Reserve as an economic depression, accompanied by double digit unemployment numbers and record personal BK filings and residential foreclosures.
Earliest date when national median home price is equal to that of the high during the last two years, and when new and existing home sales are equal to the highest monthly median number during the last two years, (even a collapse of the dollar would not make both median price and number of units sold, quickly achievable, IMO), is at least no sooner than the spring of 2015, IMO.
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Old 03-07-2007, 07:38 AM   #32 (permalink)
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Here is where I am going to start to see if we have any basis of a common understanding of economic markets.

Lets assume there is a residential property with a fair market rental value of $1500 per month. After expenses (taxes, insurance, maint., etc) the net cash flow is $1,000 per month, assuming no inflation or other variables, and that cashflow held constant for 30 years. What would you be willing to pay for that cash flow?

Discounting the cash flow using 5%, I would pay about $186,000.

Next lets assume the property has a residual value at the end of that 30 years, simply the value of the land and lets i say it is going to be $50,000. How much would you pay today for a lump sum of $50,000 in 30 years?

I would pay about $11,000, discounting at 5%.

If you found such a property that was selling a lot less than $197,000 would you buy it?

I would.

You could argue that there is no guarantee in the rental value being $1,500 per month. That is a good questions and that is the fundamental issue that begs an answer in regard to any real estate bubble bursting. There is a demand for housing. The demand is not getting smaller, it is getting bigger. In most cases supply growth lags demand growth. In none of your posts have you cited a source linking a drop in housing demand and the "crash" or whatever you want to call it. to me it it is obvious that housing demand will not materially change in the overall market, hence there is a floor to the "crash". We know what it is. Property values will drop to their intrinsic values, if that far - because speculator will never completely leave the market.

In the above example if the property is selling for $250,000, it is clearly over valued. But when it drops to $197,000, that is not a "crash", is it? If it dropped to $150,000 smart money will quickly come in, and over a short period of time the value will go back to $197,000

You ask the question where is $800 billion going to come from to replace funds that where taken out of the real-estate market? I know we have discussed this in the past, i.e. in the early '90's money flowed into stocks, then started shifting into real-estate, and will shift into something else. And remember we are really only talking about speculative money.

But the driver of our economy is productivity growth. that combined with job growth will keep our economy going strong. Here is a link from GWB, just so you have something to say is not credible.

Quote:
Job Creation Continues - More Than 7.4 Million Jobs Created Since August 2003

On February 2, 2007, The Government Released New Jobs Figures – 111,000 Jobs Created In January. Since August 2003, more than 7.4 million jobs have been created - more jobs than the European Union and Japan combined. Over half a million jobs (513,000) have been added in the past three months alone. Our economy has now added jobs for 41 straight months, and the unemployment rate remains low at 4.6 percent.

American Workers Are Finding Jobs And Taking Home More Pay

* Real Wages Rose 1.7 Percent In The Past 12 Months. This means an extra $1,030 in the past 12 months for the typical family of four with two wage earners.

* Real After-Tax Income Per Person Has Risen By 9.8 Percent – More Than $2,800 – Since The President Took Office.

* The Economy Grew A Strong 3.5 Percent In The Fourth Quarter Of 2006. The economy grew 3.4 percent last year, up from 3.1 percent in 2005.

* Since The First Quarter Of 2001, Productivity Had Strong Average Annual Growth Of 3.1 Percent. This is well ahead of the average productivity growth in the 1990s, 1980s, and 1970s.
http://www.whitehouse.gov/infocus/economy/
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Old 03-07-2007, 08:07 AM   #33 (permalink)
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thanks host and ace for your tete a tete... very informative.

and yes, I agree about the housing market demand outstripping the inventory. there are many people out there who do own multiple properties but don't rent. many people in NYC have a city dwelling and a country dwelling. so there are a good number of housing that doesn't make it into the rental inventory.

right now in Vegas there is an interesting point wherein rents and mortgates are about equal, downpayments are disounted heavily in some cases to 1% down. So the Vegas market seesaws back and forth.

Now the biggest benefit that I'm a firm believer in is that more often a home owner is a better community member than a renter. Home owners have more of a stake in community since their values are tied to community health.
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Old 03-07-2007, 09:32 AM   #34 (permalink)
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Quote:
Originally Posted by aceventura3
I just looked a LEND the shares opened at $8.03 on 3/10/03, the company went public in February '03 at $7.31. Today the price is $17.42.

My only question is - why didn't you tell me about this stock 4 years ago? Did you see it is up$1.32 this morning or over 8%. You should start a contrarian investment fund.
RE: your post #26:


Here's today's trading range on stock symbol, "LEND", ace"

ACCREDITED HOME LE (NasdaqGS:LEND) http://finance.yahoo.com/q?s=lend&x=60&y=16
Day's Range: 14.93 - 18.15


....and here is the problem:

The financial "community" in the US sold and "packaged" sub-prime mortgage into MBS's...mortgage backed securities. In order to make it "attractive" to investors to assume the risk associated with buying these "junk" credit reting level
investment "vehicles", the issuers (the crooks at the big brokerage houses), described below....inserted clauses that gave MBS buyers the right to force the sub-prime lenders like LEND and NEW and NFI, to buy them back from the investors if too many of the individual mortgages conatined in a given MSB, defaulted due to non-payment of monthly mortgage payments, during an initial period of a yera or two after the MBS was purchased.
LEND is down today, because stock market participants are finally asking who will buy the MBS's currently being packaged from newly issued sub-prime mortgages.
Weighing against these now failing lenders are returns of formerly sold MBS's accompanied by demands for refunds by the investors who bought them. Difficulty in obtaining new funds to lend on future mortgages sold to home buyers increasingly viewed as poor risk.
Less mortgage and re-fi business due to shrinking numbers of homes sold......

Quote:
http://www.iht.com/articles/2007/03/...berg/bxatm.php
Around the Markets: Goldman and Merrill almost "junk," their own traders say
By Shannon D. Harrington Bloomberg News
Published: March 5, 2007


NEW YORK: Goldman Sachs, Merrill Lynch and Morgan Stanley, which earned a record $24.5 billion in 2006, suddenly have become so speculative that their own traders are valuing the three biggest securities firms as barely more creditworthy than junk bonds.

Prices for credit-default swaps linked to the bonds of the New York investment banks this week traded at levels that equate to debt ratings of Baa2, according to Moody's Investors Service.

For Goldman, Morgan Stanley and Merrill, that is five levels below the actual Aa3 rating on their senior unsecured notes, and just two steps above noninvestment grade, or junk.

Traders of credit derivatives fear that a slowdown in housing markets, coupled with the rout on global equity markets, will hurt the companies. Since 2005, Merrill has financed two mortgage lenders that subsequently failed, and bought a third, First Franklin Financial, for $1.3 billion.


Subprime mortgages, which refer to loans taken out by buyers with poor or limited credit histories, typically charge rates at least two or three percentage points above safer prime loans.

They made up about a fifth of all new mortgages last year, according to the Mortgage Bankers Association in Washington.

But at least 20 lenders have shut down, scaled back or been sold this year. Countrywide Financial, the biggest U.S. mortgage lender, said last week that borrowers were at least 30 days past due at the end of last year on almost a fifth of its subprime loans.

Credit-default swaps were conceived by Wall Street to protect bondholders against default and pay the buyer face value in exchange for the underlying securities should the company fail to meet its debt agreements. An increase in price indicates a decline in the perception of creditworthiness; a drop means the opposite.

The swaps on the debt of Goldman, for example, have risen to $32,775 per $10 million in bonds, up from $21,500 at the start of the year, according to prices compiled by CMA Datavision in London. The price touched $35,000 on Wednesday, the highest level since June 2005.

<b>And it is likely that Goldman's own traders were among those pushing the price higher.</b> Goldman and Morgan Stanley were among the top five banks on credit-default swaps in 2005, a group that represented 86 percent of the market, according to Fitch Ratings. Lehman, Merrill and Bear Stearns were among the top 12.

Contracts tied to Morgan Stanley, Merrill, Lehman Brothers Holdings and Bear Stearns are also trading at 19-month highs, and their price increases were larger than an index that measures credit risk for investment-grade companies in North America.

<b>By contrast, default swaps for Deutsche Bank in Germany, which has little exposure to the U.S. housing market, are near a record low at €9,800, $12,935.</b>

A Standard & Poor's index of investment bank stocks has fallen 7.5 percent this year. Merrill shares have dropped 12 percent, while Morgan Stanley has fallen 9.9 percent and Bear Stearns is down 9.4 percent.

Nonetheless, last year was the best ever for the five biggest Wall Street firms, whose combined profit rose 33 percent to $132.5 billion.

"There's been a little bit of a reappraisal of the financial sector, with a strong desire to get away from subprime exposure," said Scott MacDonald, director of research at Aladdin Capital Management in Stamford, Connecticut.

Merrill equity analysts last week cut their recommendations on Goldman, Lehman and Bear Stearns shares as well as that of European banks Deutsche Bank and Credit Suisse Group to "neutral" from "buy" because earnings would probably decline next month.
......added to the above, new "vicious cycle" is the fact that more than 40 percent of recent new home sales were to investors and second home buyers, the liquidation.....foreclosures of individual homes and unsold inventories of home builders, and your "intrinsic value", formula, IMO, is as unpersuasive as your "productivity" argument as an answer to what will replace the support for GDP growth in the coming years, that was the wealth effect from pumping $4.7 trillion into creation of the new mortgage debt that fueled the housing bubble.
The answer, ace, is that the replacement "stimulus" and the replacement jobs to offset the decline caused by the unwinding of the housing boom, just ain't there, and the liquidation that is coming will not be orderly, and will not behave as your "intrinsic value" assumptions would need it to.
There will be huge numbers of formerly employed and prosperous home equity withdrawing, and spending.....former homeowners filing for BK, and looking for the cheapest rental housing that they can afford, and the oversized houses that were recently built in great numbers....the second homes, the homes demanded by now gone flippers, the homes purchased by unqualified, sub-prime buyers with fraudulanlty obtained "no doc" , "low doc", and no down-payment, interest only mortgages, will end up sitting vacant, a new blight on the American landscape, to join the still un-lit, excess fiber optic network buildout of the last malinvestment in America, the internet stock bubble.
Non-productive malinvestment, ace....not the stuff that facilitates a "productivity miracle", like the one that would be needed to make your idea of what will stimulate our economy, now that the housing bubble has blown up.....
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Old 03-07-2007, 11:28 AM   #35 (permalink)
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I am not trying to persuade you or anyone of anything. What we have is just a different view of market economics. That's o.k., when I am a buyer I need sellers like you and when I am a seller I need buyers like you. Either you win or I do. that is what I love about free markets.

Subprime is the problem of the day. Next week there will be a new one. However, the real problem involving entitlements won't go away - social security and medicare.

On LEND - I am not a short-term trader. I just hppened to pick LEND from your list and looked at it in more detail. It is actually not a bad stock. Once it gets through this subprime issue, it will be o.k. Also, your chart doesn't show it but the stock "gapped down in August of '06 on strong volume, it gapped down again in October '06 on strong volume and gapped down again in March. The time to sell was in August or October. Some large institutional investors were clearly getting out at that time and have continued selling. LEND was over-valued, and most likely still has about 20% fat in its price depending on what happens next in the subprime lending market. If it drops to about $13, that would be a good time to buy, assuming about a 6 PE, 6% growth and about an 8% discount rate . The estimated 5 year growth rate is about 10%, but analyst have started making reductions.
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Old 03-07-2007, 11:55 AM   #36 (permalink)
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Ace, I have to add or amend to what you are saying. I don't believe it's a zero-sum game (necessarily), I believe that both parties can be winners. If you sell or buy at a price you like and same for me, then we both win. That's what I like about free markets.
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Old 03-07-2007, 12:05 PM   #37 (permalink)
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Quote:
Originally Posted by jorgelito
Ace, I have to add or amend to what you are saying. I don't believe it's a zero-sum game (necessarily), I believe that both parties can be winners. If you sell or buy at a price you like and same for me, then we both win. That's what I like about free markets.
I agree. I got carried away with the discussion in terms of the market being out of balance.

When two parties transact with the same information and the same method for establishing value then it is a question of different variables, i.e. I might use an 8% discount rate and you use 10%, or perhaps you or I are buying and selling for different reasons, like retirement, etc. These transactions are actually the most fun, because you don't mind having lunch with the guy or gal afterward.
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Old 03-10-2007, 12:59 AM   #38 (permalink)
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Quote:
Originally Posted by aceventura3
Host,

There is a difference between my approach to a subject and yours. I understand your approach, and that is o.k. because it is grounded in the way people are taught in school.

Often, your research and citations have major fallacious arguments and disconnects with logic and reason. My approach is socratic and doesn't lend itself to blindly reporting the opinions and views of so-called experts or anyone for that matter.....

http://www.tfproject.org/tfp/showpos...58&postcount=3
ace....I quoted you because your comments remind me of what Greenspan had to say about the <i>"Evolution of the Consumer Finance Market"</i>, less than two years before the "subprime" portion of it, imploded, almost overnight. I read Greenspan's 2005 comments, and I read your comments, and jorgelito's, too....and I have the same reaction to the comments of all three of you....what WERE you thinking....where, on earth, did you get "that stuff"?

ace, jorgelito, and host have all had an opportunity to "paint" their respective opinions on the state of...and the prospects going forward...of the US economy. It is, as it always is here, a competition of the presentaion of ideas and opinions. There are few things that are of greater concern to me than the looming, and probably imminent, economic depression that I see unfolding in front of us. The complacency of those who posted in disagreement is displayed on the same forum pages, in sharp contrast to my presentation.

Quote:
Originally Posted by jorgelito
Can you please post a source for the Jennifer Love Hewitt underwear ad? Better yet, multiple sources and visual aids so we know what you are talking about and also from a good mix of liberal and conservative sources so that your "facts/opinions" will be well-backed and balanced.

No need to use the "hide" function either. Feel free to bold or highlight areas of "interest" or if you think we can't read the articles for ourselves or if you just want to selectively highlight text that supports your reasonong behind why the Jennifer Love Hewitt underwear ad is great and thus take it out of context and don't forget to cite some previous threads or posts and while you're at it you can quote UsTwo also just to make sure all your bases are covered.

http://www.tfproject.org/tfp/showpos...37&postcount=7
.....fair enough....you read what I've posted....or not.....nothing that follows in this post is highlighted text, but.....I find all of this information...especially Greenspan's "disconnect", and the folly of lending unqualified borrowers 100 percent, $700k "home mortgages", for the purpose of supporting ridiculous "bubble level", residential real estate "valuations", that rose into the stratosphere on earlier stages of the same wave of liquidity, eagerly loaned to borrowers who qualified because they were able to "fog a mirror"....."highlights" of my argument that they economic decline will be a proportional reaction, both in duration and intensity, to the excesses that enabled the accumulation of $4.7 trillion in new mortgage debt in the US, in just six years. The debt (malinvestment) remains to be paid, and the constantly added liquidity required to even maintain real estate valuations at current levels, is now absent, in a system driven by lending that could only be justified, by the ever rising prices that the profligate "easy credit", guaranteed to perpetuate.

Quote:
http://www.federalreserve.gov/BoardD...08/default.htm
Remarks by Chairman Alan Greenspan
Consumer Finance
At the Federal Reserve System’s Fourth Annual Community Affairs Research Conference, Washington, D.C.
April 8, 2005

.....Evolution of the Consumer Finance Market

A brief look back at the evolution of the consumer finance market reveals that the financial services industry has long been competitive, innovative, and resilient. Especially in the past decade, technological advances have resulted in increased efficiency and scale within the financial services industry. Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country.

From colonial times through the early twentieth century, most people had quite limited access to credit, and even when credit was available, it was quite expensive. Only the affluent, such as prominent merchants or landowners, were able to obtain personal loans from commercial banks. Working-class people purchased goods with cash or through barter, since banks did not make consumer loans to the general public.

However, more-intense industrialization and urbanization during the late nineteenth and early twentieth centuries dramatically changed the market for small consumer loans. Urban wage earners used credit to help them purchase the vast array of durable goods being produced by the new industrial economy, such as automobiles, washing machines, and refrigerators. Naturally, this growth in demand fostered increased competition for consumer credit, and, most important, the development of new intermediaries to supply it. Early in the twentieth century, many new organizations that focused exclusively on the needs of consumers entered the field, and the structure of consumer finance began to change dramatically......

........The Impact of Technology on Financial Services Markets

As has every segment of our economy, the financial services sector has been dramatically transformed by technology. Technological advancements have significantly altered the delivery and processing of nearly every consumer financial transaction, from the most basic to the most complex. For example, information processing technology has enabled creditors to achieve significant efficiencies in collecting and assimilating the data necessary to evaluate risk and make corresponding decisions about credit pricing.

With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets cost reductions tend to be passed through to borrowers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.

For some consumers, however, this reliance on technology has been disconcerting. Credit-scoring models are complex algorithms designed to predict risk. Consumer advocates have raised concerns about the transparency and completeness of the information fit to the algorithm, as well as the rigidity of the types of data used to render credit decisions. Consumer advocates contend that the lack of flexibility in the models can result in the exclusion of some consumers, such as those with little or no credit history, or misrepresentation of the risk that they pose.

To address these concerns, some firms have worked to customize credit-scoring systems to include new data and to revalue the weight of the variables employed. Also, new organizations have emerged, developing new systems for collecting alternative data, such as rent payments and other recurring payments that will enable creditors to evaluate creditworthiness of consumers who lack experience with credit.

Improved access to credit for consumers, and especially these more-recent developments, has had significant benefits. Unquestionably, innovation and deregulation have vastly expanded credit availability to virtually all income classes. Access to credit has enabled families to purchase homes, deal with emergencies, and obtain goods and services. Home ownership is at a record high, and the number of home mortgage loans to low- and moderate-income and minority families has risen rapidly over the past five years. Credit cards and installment loans are also available to the vast majority of households.

The more credit availability expands, however, the more important financial education becomes. In this increasingly competitive and complex financial services market, it is essential that consumers acquire the knowledge that will enable them to evaluate products and services from competing providers and determine which best meet their long- and short-term needs. Like all learning, financial education is a process that should begin at an early age and continue throughout life. This cumulative process builds the skills necessary for making critical financial decisions that affect one's ability to attain the assets, such as education, property, and savings, that improve economic well-being.

Conclusion

As we reflect on the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. Without these forces, it would have been impossible for lower-income consumers to have the degree of access to credit markets that they now have.

This fact underscores the importance of our roles as policymakers, researchers, bankers, and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers.
Quote:
http://www.latimes.com/business/la-f...7.story?page=2
Loan turmoil closes doors for buyers
Mortgage terms are tightening as more sub-prime borrowers default and lenders reel.
By Annette Haddad and E. Scott Reckard, Times Staff Writers
March 10, 2007

ShaRon Lewis is facing a 50% hike in the payment on her adjustable-rate mortgage next month.

This week, she discovered she can't qualify for a new loan with payments that she could afford.

And although she's willing to sell the West Hills home she's owned for two years, she has been told it won't fetch what she paid for it. "I have to laugh to keep from bawling," the 30-something Lewis said.

Her situation is becoming increasingly common across the country amid the implosion of the business of sub-prime mortgages — loans for people with less-than-perfect credit or no credit histories.

Many would-be home buyers, and homeowners who want to refinance, are finding that virtually overnight their status has changed: They no longer are eligible for the kind of easy-credit loans that helped millions of people join the ranks of property owners during the housing boom.....

......As recently as two months ago, consumers could qualify for a home-purchase loan or a refinancing even if they had low credit scores and no cash for a down payment. Not anymore.

"You're back to real credit standards," said Scott Simon, a mortgage expert and money manager at Pacific Investment Management Co. in Newport Beach.

In effect, the industry and new borrowers are paying the price for what many critics say were absurdly generous lending terms in recent years. In 2005 and 2006, mortgage brokers would joke, "If you can fog a mirror, you can get a home loan."

Sub-prime loans mushroomed from $213 billion nationally in 2002, or 7.4% of all mortgages, to $665 billion in 2005, a 21.3% market share, according to trade publication Inside B&C Finance.

The volume in 2006 was $640 billion, or 21.5% of all mortgages — a level regulators and analysts say was achieved by loosening loan standards amid brutal competition as home sales began to slide.....

......Now, sub-prime loans made just last year, many of them for the full value of the homes and without proof of borrowers' incomes, are going into default at a record pace.

For some lenders, nearly 20% of their 2006 sub-prime borrowers are delinquent on payments. And with home prices falling in many parts of the country, many owners can't use the escape hatch of selling their home at a profit to make good on their loans.

Wall Street investment banks had been voracious buyers of sub-prime loans, packaging them for sale to investors via mortgage-backed bonds. Those same banks now are forcing lenders to take back bad loans, devastating the lenders' finances.

The jump in lender failures and the shut-off of credit for marginal borrowers were two of the catalysts behind the stock market's slump last week. This week, even as U.S. market indexes rebounded somewhat, worries about sub-prime loans continued to weigh on investors' mood..........

.......Still, as loan standards tighten for sub-prime and Alt-A borrowers, as many as 1.1 million people could be closed out of the housing market this year, said Dale Westhoff, head of mortgage-backed securities research at brokerage Bear, Stearns & Co., in comments to investors Friday.

That's the unhappy state in which homeowner Lewis finds herself.

Two years ago, when Lewis was looking for a larger house, she easily prequalified for a nearly $700,000 house even though she had no down payment and a spotty credit record. It helped that she was willing to take on two loans to cover 100% of the cost.

"I wasn't completely aware of the mortgage terms but I knew it would adjust in two years," she said. "Properties were still going up at the time, so I felt it might be a good time for me to buy."

But almost as soon as she and her family moved in, Southern California's housing market began to cool off, giving Lewis a chill.

"I knew I was in trouble the very next month, and it's been that way since," she said. Since mid-2005, home values in her neighborhood have flattened.

Although she has shopped around for a new loan, she can't find one that would enable her to keep her monthly payment at its current level, around $4,000. And because her house hasn't risen in value, she can't use equity as a down payment on a refinancing.

Starting next month, her payment is slated to jump to more than $6,000, an amount she says she won't be able to pay.

"It's overwhelming," said Lewis, who hopes that if she can sell her home within the next few months, she can at least break even after closing costs before she misses too many payments.

"I can completely ruin my credit," Lewis said. "Or get out the best way I can."
Quote:
http://www.ocbj.com/industry_article...45&aID2=111162

.......Nearly 13% of the country’s $10 trillion mortgage market is tied to subprime loans, according to the Washington, D.C.-based Mortgage Bankers Association.

The most popular subprime loan—a fixed teaser rate for two years, followed by a floating 28-year rate—has been a boon for first-time homebuyers, not to mention homebuilders targeting that segment of the market.

Factor in slightly less risky Alt-A loans—in between subprime loans and mortgages for those with solid credit—and a typical Orange County homebuilder could have a minimum of 20% of its business tied to buyers with riskier loans, according to a source familiar with the situation.

If subprime and Alt-A loans fall off dramatically as some predict, the market for starter homes could take a hit.

“It’s not just the marginal homeowner sector,” UC Irvine’s Vandell said. “The effect of (a subprime slowdown) could ripple through the rest of the sector. It could put a logjam on the rest of the mortgage market.”........

......During the boom years of the county’s housing market—2002 to 2006—the number of local jobs tied to “financial activities” rose from 110,000 to 139,000. A breakdown of those jobs is hard to determine, but it is reasonable to assume many were related to the subprime sector, said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange.

Adibi is forecasting an overall loss of 1,000 jobs in financial activities this year, as larger subprime losses drag down growth in other areas. It’s the first sign of annual job losses in the sector since 1999.

“The more important question coming from the (sector’s) troubles is: Is this going to put more pressure on the local housing market? I think it will,” Adibi said.

There’s the prospect of fire sales on home foreclosures. That could have a real dampening effect on home prices, which, so far, only have seen modest declines in the past year........

Last edited by host; 03-10-2007 at 01:09 AM..
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Old 03-10-2007, 08:01 AM   #39 (permalink)
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Pay day loan companies and pawn shops are next in line to ruin the economy. More on that next week.
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"If you live among wolves you have to act like one."
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Old 03-10-2007, 08:47 AM   #40 (permalink)
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Quote:
Originally Posted by aceventura3
Pay day loan companies and pawn shops are next in line to ruin the economy. More on that next week.
On this forum, we all have an opportunity to post competing presentations of opinions and ideas, and....after we've posted them, we "own" them. They are also retrievable via the major search engines. Our posts are a snapshot of what was going on in our minds and they form a record that we can later reference.
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