DrStool Posted August 19, 2007 Report Share Posted August 19, 2007 I thought this weeks Leavitt Brothers video was pretty good:http://www.screencast.com/users/LeavittBro...89-ec37363d4e8a Last week he made the case for a bottom forming. But this week he takes a look further back to see how indicators compare to the 2000-2003 period versus the current post 2003 period and shows that we're dipping into levels generally seen in the 2000-2003 period. But it is still too early to call. It'll be interested to follow up these indicators over the next few weeks and see if we stay at the current levels or pull out of this. 601256[/snapback] That was my criticism of his last piece that you linked to. I guess it dawned on him. Or else he's reading this board. Link to comment Share on other sites More sharing options...
sandy beach Posted August 19, 2007 Report Share Posted August 19, 2007 I had dinner last nite with a friend of mine who bought a SFH as an "investment" back in 2005. She's a single woman in her 40s with no assets and relatively low income. She doesn't own a home for herself and rents a studio apartment. Her aunt, a Reamtor, convinced her to "get on the RE gravy train" in 2005 so she bought the house using a liar loan with no money down and with a teaser rate. She lives here in Kali but comes from Minnesota, where the "investment" is located. She just got back from Minn because her tenants were "trashing the place" and she has to kick them out. She plans to move back to Minn in a few months once the tenants move out so she can repair the damage and sell the home. The home right now has negative cash flow, even with the tenants. When they move out, it will have no cash flow. The only thing keeping her from going under with the "investment" is because her loan has not re-set yet. Her loan is with Countrywide. Her broker advised her to lie about her income in 2005 to get the loan. She overstated her income by over 100%. I asked her what she thought of all the news about Countrywide and the mrotgouge mess. She was unconcerned. "My loan doesn't reset until 2009 and I'll have sold the home or re-fied to a lower rate by then," she said. She's complacently working off a number of assumptions: Selling her home for a profit will be no problem; refi'ing in 2009 to an affordable rate will be no problem; lenders will be lining up to lend her money even though she inflated her income by 100% on the original loan; interest rates will continue to be low out into the foreseeable future. She is optimistic that the best-case scenario will unfold and that her poorly-timed and fraudulently-acquired "investment" will pay off. Maybe it will. Maybe the gubermint will take pity on all the liar-loan aficionados and bail them out. But one thing is clear: if she applied for her loan today at a time when the subprime liar-loans are not welcome, she would not qualify for the home she "owns." But if the best-case scenario fails to unfold, then this mrotgouge situation will be with us for some time to come and will be made even worse should mrotgouge rates (not the Fed rate) actually rise over the next few years in concert with rising unemployment. My guess is that the outcome here will not be market-based but likely be hashed out in the political realm. It seems unlikely that the market, which created this problem, will have any interest in cleaning up the mess. So it will, as always, fall to the gubermint to provide the bail out. Privatize profits, socialize losses and all that rot. Oh, by the way, my friend says she's diversified and not putting all her eggs in the RE basket. She's getting into the stock markit. She says her portfolio now consists of: 5 shares of GOOG. 601252[/snapback] I've heard nearly the identical story from dozens of friends and associates. It boggles the mind. However, I must concede my friends who used to ruthlessly make fun of me for saying that real estate was in a bubble back in 2004 and would top out within a year are finally starting to change their tune this summer for the first time. Even a few months ago it was the same old nonsense of "everyone wants to live here," and "real estate never goes down," crap. But finally I guess all the media hoopla about the "sub-prime" junk and all the stories about" so and so getting foreclosed on," and Zillow finally showing their house is now not worth quite as much as they thought... is all starting to sink in. They are now fussing more and more about real estate. The euphoria is gone. Depression is clouding up the sky. But I don't sense any fear. Plenty are still holding on to underwater properties. Some are telling me they are resigned to continue to hold these investments with negative cash flow until they damned get what they need for them. They're in no rush to unload. But things have changed. If mortgage lending really does tighten up and people in California really do need a down payment and are limited to $417K loans than next year I think we'll start to see fear as the market seizes up and the game starts to pull more people into foreclosure because they can't sell or refinance. The whole thing is very depressing to watch. It was depressing on the way up and now it is depressing on the way down. The worst part is how long it takes for the market to revert to the mean. The years are just going by and I'm sick to death of renting here in Silicon Valley. I can afford to buy no problem but I refuse to buy into a bubble. Dunno - may be time to follow the trend these days and migrate out of state to some low cost area like everyone else here seems to be doing. At least if the market goes to hell on a $250K house in Colorado you aren't losing much. But there is no way I'm plunking down $800K - $1.2M for a house here to watch six figures evaporate. I mentioned that a house went up for sale down the road for $859K. All previous comps including an identical house that just sold a month ago within two houses down the street were in the $659 range. I thought, what the hell is going on? Well the house after 30 days on the market just had the sign pulled down and has been pulled off the market. I guess they're in no rush. They'll wait until they can get what they need for it...or so they dream...I'm glad to see that no one was stupid enough to fall for it. Link to comment Share on other sites More sharing options...
crazy_ate Posted August 19, 2007 Report Share Posted August 19, 2007 Anyone here have acces to Barron's online.....if you do, could you copy and paste the last section of Up & Down Wall Street....the section starts, "How did this all come about?"....it closes the loop nicely on what has been discussed on this site for years, and most notably pondered by WNDY in his old M2M openings, "where the the hell are they off loading all this toxic derivative crap to? apparently, as quoted from the article, to the "UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE" Link to comment Share on other sites More sharing options...
sandy beach Posted August 19, 2007 Report Share Posted August 19, 2007 I thought this weeks Leavitt Brothers video was pretty good:http://www.screencast.com/users/LeavittBro...89-ec37363d4e8a Last week he made the case for a bottom forming. But this week he takes a look further back to see how indicators compare to the 2000-2003 period versus the current post 2003 period and shows that we're dipping into levels generally seen in the 2000-2003 period. But it is still too early to call. It'll be interested to follow up these indicators over the next few weeks and see if we stay at the current levels or pull out of this. 601256[/snapback] That was my criticism of his last piece that you linked to. I guess it dawned on him. Or else he's reading this board. 601261[/snapback] Indeed, that's exactly what you pointed out last week. A very astute criticism which this last week bore out in spades. So I guess we just wait and see at this point. Link to comment Share on other sites More sharing options...
try2win Posted August 19, 2007 Report Share Posted August 19, 2007 Sunday morning pondering. http://www.marketwatch.com/news/story/inve...2C6997DCB220%7D 601247[/snapback] Here we go again with these goddam dumbass sentiment indicators that haven't worked in the last 700 years. What an utter waste of time and mind power. You can't trade sentiment. It's worthless in that respect. Give it up already. Same thing with the put call ratio, which, in this era of machine driven dynamic hedging tells us absolutely nothing about directional bets on the market. Without knowing the net underlying position of the players, there's no way to know which way they are leaning. Sentiment hasn't had a contrarian correlation to stock prices in years. Why would they start "working" that way now. 601253[/snapback] is that also true of the " COT Report " I tried to gauge the market from that and it was worthless. Link to comment Share on other sites More sharing options...
DrStool Posted August 19, 2007 Report Share Posted August 19, 2007 If the intermediate indicators turn back up, which they will in time, I will once again be long for swing trades. Meanwhile all but 3 of the shorts in the WSE Pro Chart pick list have been closed. Link to comment Share on other sites More sharing options...
lineup32 Posted August 19, 2007 Report Share Posted August 19, 2007 Los Angeles is rent-controlled. You can't "kick out old tenants". It's the same way here in most of the major cities in the Bay Area (San Jose, San Francisco, Oakland, Berkeley, etc). So the upside is capped, although in most jurisdictions you can raise rent to "market levels" when tenants leave voluntarily (or die.) 601204[/snapback] Its pretty easy to get around the rent control laws here. There is one property in The Palms area one of my clients just purchased. Its a 21-unit building, all singles and 1 bedrooms, each unit rented for an average of $900/mo. Lots of deferred maintenance, terrible curb appeal. Tenants have been in that building for years, the prior owner was a little old lady who never raised the rents very much, didn't spend any money on upkeep. First thing he does, is he kicks out all tenants he can immediately. For example, in this building, there is one tenant who is a pack rat and is a health hazard, and 4 tenants with illegal pets. That's 5 units from the get go he can evict immediately. According to L.A. rent control laws, if you evict a tenant, rehab the unit, you can immediately raise rents to market. In this case, to about $1,500/mo. Second step is the exterior rehab. New roof, new plumbing, new stucco facade, new windows. According to L.A. rent control laws, 50% of all exterior capital improvements can be passed on immediately in the form of rent increases, amortized over 5 years. Single and 1 bedrooms are easy to push tenants out, because there are no families and many of the tenants will leave if there is a drastic rent increase. The other key is the way your remodel the units. By using granite counter tops, travertine tile floors in the kitchen, living area, total bathroom remodeling, etc., you minimize the amount of repainting and re-carpeting in the future when there is a tenant turnover. And of course, after the roof is re-done and plumbing is replaced, your capital repairs pretty much drop to zero for the next 6 - 8 years. The expense ratio for running the building in its current condition is about 35%, but that drops to about 25% after you turn all the units around. As far as competition goes, one by one, all of these 1970's buildings are gradually getting rehabbed, or in many cases, knocked down and replaced by condos, so the number of "cheapie" units available to rent on the west side is diminishing. All the major apartment REITs are building brand new apartments in the area, and the rents in those buildings are huge, usually $2,500 - $3,200/mo., and mostly 2 bedroom units. Other competition may be a newer building with a pool and a gym, but those properties are easily getting $1,800 - $2,000/mo. According to my analysis, this guy is putting down $1 million on a $2.2 million purchase price via 1031 exchange, he will be getting a 1.65x debt coverage ratio when he has a 6.3% fixed rate loan after the rehab is finished and rents are stablized, and all future rent increased indexed to inflation will be more icing on the cake. Right now, there is a huge boom of apartment and older commercial building rehabs going on, since there was virtually no investment of this type made over the last 15 years. By the way, this client of mine is one of many that I have who continues to make a vast fortune in real estate. This guy owns no stocks. Zero, nada, zilch. He has over $2 million in our bank, and has absolutely no interest in investing that money in stocks, bonds, or whatever. He's already bought and rehabbed 9 properties the last 3 years, 5 of which he sold at a huge profit, the remainder he has kept in his own portfolio for cash flow. He's 48 years old, and just got married for the first time to a blonde bombshell who was his former 1031 exchange agent. She's about 28 years old. 601248[/snapback] I don't know what color her hair was once, and neither does your friend, but I am sure she wants and expects to spend and live the good LA lifestyle. Interesting how lenders (sellers of debt) aways have a sure deal to offer investors or ways to boast their lifestyles, no downside risks, life is good until its not. Link to comment Share on other sites More sharing options...
Goldmember Posted August 19, 2007 Report Share Posted August 19, 2007 Indicator comparisons of today and 1987: Cycles of time duration are almost an exact match. In September 1987 the nominal one year cycle bottomed as well as the nominal 5 month cycle bottom...exactly what I have been saying here about now. The up-phases of those short term cycles were unimpressive but did create some sideways up-phase for the next few weeks to a month....before the 5-year cycle down-phase asserted itself. We know what happened after that.... Link to comment Share on other sites More sharing options...
Goldmember Posted August 19, 2007 Report Share Posted August 19, 2007 The newly launched short term cycle up-phases only made it this far in 1987: Link to comment Share on other sites More sharing options...
DrStool Posted August 19, 2007 Report Share Posted August 19, 2007 I wonder when these people who lied on their loan applications will wake up to the fact that they committed fraud, and that the ARE CRIMINALLY LIABLE AND CIVILLY LIABLE FOR ANY LOSSES. Won't it be ironic when the legal actions against the "little guys" start to hit the courts. True, it may not be worth it to go after the borrowers, but my guess is the courts and jails won't be big enough to handle all the mortgage brokers and bankers who will be prosecuted and convicted. Will make the late 80s affair look like a Sunday School picnic by comparison. Link to comment Share on other sites More sharing options...
DrStool Posted August 19, 2007 Report Share Posted August 19, 2007 I suspect too that some of those mortgage brokers who are on the receiving end of criminal and civil complaints will be subpoenaing those "lying borrowers" in order to save their own skins. Will be interesting to see those folks on the hot seat in court. My guess is that they won't look so much like the victims that some in the media are painting them. Link to comment Share on other sites More sharing options...
lineup32 Posted August 19, 2007 Report Share Posted August 19, 2007 First Magnus: Boom to bust in three weeks Easy credit powered firm's growth ? and then a 'crunch' doomed it By Becky Pallack Arizona Daily Star Tucson, Arizona | Published: 08.19.2007 First Magnus, one of Tucson's largest employers and one of the nation's largest mortgage lenders, grew astronomically right up until it suddenly stopped writing home loans and laid off most of its work force on Thursday. How could the rising star that had never had an unprofitable month collapse overnight? http://www.azstarnet.com/dailystar/197166 "The five-year global growth boom and four-year secular bool market may simply run out of steam, or become oversaturated by too many late-coming imitators entering a very specialized and exotic market of high-risk, high leverage arbitrage. The liquidity boom has been delivering strong growth through asset inflation (property, credit spreads, commodities, and emerging market stocks) without adding commensurate substantive expansion of the real economy. Unlike real physical assets, virtual financial mirages that arise out of thin air can evaporate again into thin air without warning. As inflation picks up, the liquidity boom and asset inflation will draw to a close, leaving a hollowed economy devoid of substance" http://henryckliu.com/page133.html Link to comment Share on other sites More sharing options...
BusKow Posted August 19, 2007 Report Share Posted August 19, 2007 Orange County's housing market reached a curious benchmark last month: It's been 22 months since there were more homebuyers closing deals than a year ago, the longest such losing streak since 1989-1991. OC Register Link to comment Share on other sites More sharing options...
Jimi Posted August 19, 2007 Report Share Posted August 19, 2007 Anyone here have acces to Barron's online.....if you do, could you copy and paste the last section of Up & Down Wall Street....the section starts, "How did this all come about?"....it closes the loop nicely on what has been discussed on this site for years, and most notably pondered by WNDY in his old M2M openings, "where the the hell are they off loading all this toxic derivative crap to? apparently, as quoted from the article, to the "UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE" 601263[/snapback] I don't have Barron's, but I do have the hedge fund's July 30th investor letter in which the original & widely-circulated claim is made: I recently spent some time with a senior executive in the structured product marketing group (Collateralized Debt Obligations, Collateralized Loan Obligations, Etc.) of one of the largest brokerage firms in the world. I was in Roses, Spain attending a wedding for a good friend of mine who thought it would be an appropriate time to put the two of us together (given our shared interests in the structured credit markets). This individual proceeded to tell me how and why the Subprime Mezzanine CDO business existed. Subprime Mezzanine CDOs are 10-20X levered vehicles that contain only the BBB and BBB- tranches of Subprime debt. He told me that the ?real money? (US insurance companies, pension funds, etc) accounts had stopped purchasing mezzanine tranches of US Subprime debt in late 2003 and that they needed a mechanism that could enable them to ?mark up? these loans, package them opaquely, and EXPORT THE NEWLY PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE!!!! He told me with a straight face that these CDOs were the only way to get rid of the riskiest tranches of Subprime debt. Interestingly enough, these buyers (mainland Chinese Banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, UK banks) possess the ?excess? pools of liquidity around the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the US in USD, 2) petrodollar recyclers. These two pools of excess capital are US dollar denominated and have had a virtually insatiable demand for US dollar denominated debt?until now. They have had orders on the various desks of Wall St. to buy any US debt rated ?AAA? by the rating agencies in the US. How do BBB and BBB-tranches become AAA? Through the alchemy of Mezzanine-CDOs. With the help of the ratings agencies the Mezzanine CDO managers collect a series of BBB and BBB- tranches and repackage them with a cascading cash waterfall so that the top tiers are paid out first on all the tranches ? thus allowing them to be rated AAA. Well, when you lever ONLY mezzanine tranches of Subprime RMBS 10-20X, POOF?you magically have 80% of the structure rated ?AAA? by the ratings agencies, despite the underlying collateral being a collection of BBB and BBB- rated assets... This will go down as one of the biggest financial illusions the world has EVER seen. These institutions have these investments marked at PAR or 100 cents on the dollar for the most part. Now that the underlying collateral has begun to be downgraded, it is only a matter of time (weeks, days, or maybe just hours) before the ratings agencies (or what is left of them) downgrade the actual tranches of these various CDO structures. When they are downgraded, these foreign buyers will most likely have to sell them due to the fact that they are only permitted to own ?super-senior? risk in the US. I predict that these tranches of mezzanine CDOs will fetch bids of around 10 cents on the dollar. The ensuing HORROR SHOW will be worth the price of admission and some popcorn. Consequently, when I hear people like Kudlow on Crapvision tell their viewers that the Subprime problem is ?contained?, I can hardly bear to watch. Link to comment Share on other sites More sharing options...
Janitor Posted August 19, 2007 Report Share Posted August 19, 2007 A $9 billion fund of funds made a cash request of $500 million from the money market fund where they hold their idle cash. For the first time ever, they didn?t receive the funds immediately. It?s been two days. They are still waiting, and there has been no word on how long it will take until they get their money. This is a fund that earlier took a $600 million hit on the Amaranth fiasco. And they are still waiting for the $165 million or so that they were supposed to receive from the liquidation. This is just one fund folks. There are others in similar situations, perhaps hundreds, perhaps thousands of funds. 601242[/snapback] Doc, can you give link to the above? Link to comment Share on other sites More sharing options...
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