The Economy, stupid

[Balta1701]

True on cash buyers, and their buys will help stabilize prices. But more important, the combo of the bailout, lower rates and a clearing out of some of the substandard lenders will create lending opps. Banks still need to lend to survive - and lend they will.

 

Long run, this is a good time to buy.

If you look at real estate values in a historic context, in terms of how much they inflated beyond rent values and beyond the historic value where they grow steadily close to the rate of inflation, then housing prices haven't fallen enough yet, they still have another 10% or so to go on average to hit the pre-bubble trend lines, and I have difficulty figuring out how, with the gigantic surge in building that accompanied the bubble over the last few years, they won't be pushed down at least that far.

[NorthSideSox72]

If you look at real estate values in a historic context, in terms of how much they inflated beyond rent values and beyond the historic value where they grow steadily close to the rate of inflation, then housing prices haven't fallen enough yet, they still have another 10% or so to go on average to hit the pre-bubble trend lines, and I have difficulty figuring out how, with the gigantic surge in building that accompanied the bubble over the last few years, they won't be pushed down at least that far.

Values in many places have already fallen through the long-term implied curve before the bubble. So on a technical analysis, I think we're near a bottom. Note I say near, because, you never know where it will really be. I thought for a while it was going to be late 2007 or early 2008, which I was wrong about.

 

But again, you don't buy trying to find a bottom. You think long term. Right now, in the general scheme of things, its in a bowl. Its time to buy, IF you can without overleveraging. Plus thing factors I noted earlier will loosen lending. And, a long term recession usually ends up giving housing prices a back end boost because people run for "real" assets.

 

I am not saying that prices in some areas won't go down another 5 to 10% - they might. But in many places, its already dropped way more than that. And in some places, I think its pretty stable where it is, and will go up in the relatively near future.

 

[mr_genius]

I don't think Chicago home prices are near the bottom yet. I think there is still going to be some more drops.

[mr_genius]

I don't know if this is hilarious or I should be crying

 

http://news.yahoo.com/s/ap/odd_national_de...4c0ui1lLBADW7oF

[Balta1701]

This, I think is hilarious.

The only thing we have to fear is fear itself. Fear and negative equity … The two things we have to fear are fear itself and negative equity, and the depleted capital of financial institutions … Amongst the things we have to fear are fear itself, negative equity, and the depleted capital of financial institutions.

[Chisoxfn]

For the past 9-12 months I have been harping on how bad the credit market is and I believe the elasticity of debt has finally snapped. The bailout proposition will not work. Next up, INSURANCE COs.

Just look at AIG's insurance practice, they are a completely legit solid business. The Insurance Industry isn't even close to being a disaster. And let me just state that I say that based upon a s***load of knowledge of the insurance industry and the standards they have to abide by. Sure they insurance companies have taken part is some credit swaps and have plenty of Alt A investments. But they also have a s***load of regulations to ensure that the company has matched its funds to ensure that the assets pay out in a period where they'll be able to pay out the expected liabilities and on insurance type contracts those liabilities are pretty well set (you don't expect some massive fluctuation unless there is just a complete and utter run on "deaths"). Obviously Insurance companies do more than just Life insurance but the reality is all of there policies are based on a s***load of historical trends and than those payouts get matched with the assets on very conservative set-ups and this ensures you won't ever have another insurance collapse.

 

Plus there are a lot of things which limit the types/risk of investments the company can have. If its a certain type of investment they may only be able to go up to a certain percentage of assets, etc. Trust me knolls, Insurance Companies aren't the next to blow up. I could see picking on people that did some shady stuff related to credit swaps but a typical insurance business is about as safe as it gets right now, although they obviously will have profitability issues in the short-term due to some of the investments they are in, but as those investments flux one way they'll likely see gains on there FAS 133 riders.

[Chisoxfn]

anyone want to predict the low point the Dow will hit during this crash?

 

8,000?

 

7,000?

7000-7500 will be the bottom.

[Chisoxfn]

The DOW has lost almost 25% of its value from September 9th.

It might just get worse when people see the Q3 earnings announcements. People are talking about the PE ratios that are so low, but once those Q3 earnings come out those PE ratios won't look quite out of whack. I guarantee you there are s***loads of public companies s***ting there pants at what type of OTTI they will be taking at 9/30. Even with FASB making some changes to FAS 157 I don't see any real drastic measures which will help the market. Companies still have that alt a s*** priced way too high.

[Chisoxfn]

the lower the market gets, the more people will panic and pull their money out. the public has lost faith in the stock market to an extent. not a good sign.

Jim Cramer actually told investors to pull out enough money so that they could live for the next 5 years. Now obviously most people don't have that type of money laying around but there is a good chunk of investors that do and thats a pretty scary statement coming from a guy like Cramer.

[Chisoxfn]

There are only two premises, which are tenable as to the future. Either we are going to have chaos or else recovery. The former theory is foolish. If chaos ensues nothing will maintain value, neither bonds nor stocks nor bank deposits nor gold will remain valuable. Real estate will be a worthless asset because titles will be insecure. No policy can be based upon this impossible contingency. Policy must therefore be predicated upon the theory of recovery. The present is not the first depression; it may be the worst, but just as surely as conditions have righted themselves in the past and have gradually been readjusted to normal so this will again occur. The only uncertainty is when it will occur.

Dean Witter, May 6, 1932

I've seen some interesting independent pricing reports on Real Estate and they are talking about people who bought at the peak not making money for 20 years. They are also indicating another 20% drop in real estate (thats in the SoCal market). Pretty interesting stuff given a lot of people around here that are pretty intelligent seem to be thinking the real estate market is close to bottoming out (plenty of stuff has dropped 40-50%). But 80% of subprime loans are still getting paid and that number is bound to drop as more people get laid off and as home prices continue to fall. That will push another big round of foreclosures which will shoot things down again.

[Chisoxfn]

real estate prices will continue to drop if banks are not giving out loans. but it will be a cash buyers bonanza. huge profits could be made

Real Estate still has room to drop. Financing is very tight and there is still too much bank owned stuff out there (REO's). We'll see another round of bank owned stuff and than the market will finally stabilize. Obviously certian markets vary but as a whole thats what people should expect, especially with it still so tough to get loans.

[southsider2k5]

So, there is some backstory here...the guy instituting this policy will still perform evictions, but only if the bank provides documentary proof that the people he's evicting actually have been notified and given 120 day warnings. The idea is to avoid the mess where a person goes in to foreclosure and either isn't told at all before they're evicted or even worse when a property owner goes in to foreclosure and the people he's renting to wind up being evicted despite having paid their rent in full and no warning given to them whatsoever.

 

Don't see how it's inappropriate for a bank performing an eviction to follow the laws even if that makes it a little more expensive for them.

 

So why are we penalizing the banks and not the landlords?

[southsider2k5]

I'm getting very nervous about job security in these times.

 

Everyone should be. If companies don't have money to operate, they fire people. Its pretty much that simple. There is a common though that the bailout is only for Wall Street, but if the business you work for doesn't have cash to function, they cease to exist, and so does your job.

[NorthSideSox72]

So why are we penalizing the banks and not the landlords?

That's a good point. Seems like the best thing to do here is to prosecute landlords who don't inform their tennants of the foreclosure stages on the building. Not sure how tough the current penalties are, but, maybe they need to be tougher, and better-enforced.

 

[southsider2k5]

they need to figure out a way to tell tenants if they are going to get evicted 120 days before time. but if banks can't forclose on properties, this whole economic disaster is only going to get much worse. banks not being able to recoup money form loans is a major reason for what is going on. if this 'will not evict' policy spreads banks will not give out home loans anymore. it's that simple.

 

If banks can't foreclose and aren't collecting on a mortgage, that bad debt sits on their books and crowds out other loans. If this happens in a larger scale a bank is largely handcuffed from lending anymore money, because they have nothing left that they can lend out. You are only allowed to lend out a certian percentage of deposits, and if that money is tied up in bad loans, it can't be lent out. If you throw in SOX regulation that reprice all of the loans based on property values, and that is one of thing things that can lead to a bank getting shutdown.

[southsideirish71]

Secure your f***ing networks for the love of god. This is mind boggling at this time.

 

World Bank Group's network Hacked.

 

At least they had the brains to hire Kevin Mandia's outfit to help assess the impact.

[StrangeSox]

More on hedge funds.

 

FerrariChat has three private rooms for paid members. One general forum, Business & investments, and politics and religion.

 

This is from the business forum (I'm not a member, but I got this from someone who is). There is a very interesting discussion going on.

 

 

i am the poster boy for capitalism. i want free markets and unfettered money making for everybody. however, i think something is wrong and it is about to come to the attention of the barney frank's of the world, and since the players were not disciplined enough to keep themselves in check, the government is going to do it for them...and it aint gonna be pretty.

 

the average guy is now angry and vengeful, given his perception that his problems are due to arlie's favorite scapegoat - fatcats - and that he is going to be handed the bill. so this volcano is rumbling and will burst through to government in short order. then the finance committee, even though they really dont know how markets work, how the economy works, how trading works, how to make money frankly...will start 'investigating'. and when they do they will stumble onto some stupid stuff, and some terrible stuff.

the stupid stuff will come from the banks that are their own worst enemies when it comes to partying on the wrong day and flagrantly spouting off about their money making prowess and their general disregard for everything but the almighty dollar. (most of this is bravado, and due to a failure in leadership, not so much about what they actually managed to do). but they will be pilloried for their hubristic bs, and maybe rightfully so.

 

the terrible stuff is of a completely different nature, and will find the hedge funds holding the smoking gun. now, once again, i am a trader and i play markets, and i dont take prisoners that often. but since i have a conscience and i have been around the block a few times, i have limits to the distance i will take a trade (pigs get fat, hogs get slaughtered). but the hedge funds will be found to have carried things to a level never before seen, and unbelievable to the common man, or the house/senate. as an example i will tell you that falcone through his hedge fund, made more than $2.5 billion on the fall of lehman. how you might ask? relatively simple. he was naked short, through a variety of means, a number of lehman shares which exceeded the total number of shares that lehman had ever issued, by multiples. and, he was not alone. other funds were doing a similar thing. i have no idea about the total number, but my conservative guess is that the funds were easily naked short more than 10 times the total number of existing lehman shares. then they might have told somebody that lehman was shaky. i will not accuse anybody of rumor mongering, but you know how easy it is to do... the result is that lehman goes down fast, faster than they can handle and then it goes bankrupt. falcone and friends walk away with billions and lehman discharges 28,000 people, and adds to the havoc in the market, and the world.

 

now you can say that lehman was mismanaged and that fuld was a moron. and i might agree with you. were they overleveraged and running the shop poorly? probably. would they have been flushed down the toilet this quickly if they didnt have an avalanche of short sellers prepared to push billions of dollars into the trade? probably not.

 

so far, as the standard bearer of capitalism, we have always accepted that survival of the fittest in business was the right way to handle things. if lehman ran their business poorly, then they deserve to fall. and in general i agree with this, and so do most of you. and maybe lehman is not the right example to use if we were to really know how badly they were run. but that is not my point. my point is that the funds have crossed the line, and now that line is going to be redrawn by barney frank and co. and it wont be a good thing. my guess is that the barney boys are going to move the goalposts retroactively (like with milken), and then pursue the funds, fine them or in some way demand repayment of these billions, and have them contributed to the bailout kitty.

 

at first look, i kind of like this idea since i have been in the financial markets for 20 years, and i have made a fair amount of money, but i have never walked away with billions on one trade. maybe i am stupid. i am evidently not as smart as falcone. so liking this idea strikes me as a bit of sour grapes on my own part. maybe it is. however, it will also seem eminently fair to the masses, who have no idea how it happened and cannot even fathom the mechanism that would allow it to happen, and are envious and thus vengeful. and this will play well on tv, and for the useless politicians who wont believe their luck at having fallen into this righteous honey pot.

 

BUT, in the long run this kind of legislation will lead the way down the slippery slope of creating unnecessary and restrictive rules that will impede our rise from the abyss, and will eventually diminish the american capitalist system. oh well. i hope it doesnt affect things too much.

 

any fundies reading this, please dont hide behind MY capitalist ideals when you dont know where the line between good business and abject unadulterated and unthinking greed is. and .....dont spend that money too fast, coz i think you are going to need it to defend yourselves and pay fines...

[bmags]

How does that happen? Can someone explain to me how you can short sell that much stock that doesn't exist and gain real money from it? If it's too complicated that's fine, but it blows my mind.

[NorthSideSox72]

More on hedge funds.

 

FerrariChat has three private rooms for paid members. One general forum, Business & investments, and politics and religion.

 

This is from the business forum (I'm not a member, but I got this from someone who is). There is a very interesting discussion going on.

Christ. They were naked short on more than the total shares issued for Lehman? WTF?

 

[StrangeSox]

How does that happen? Can someone explain to me how you can short sell that much stock that doesn't exist and gain real money from it? If it's too complicated that's fine, but it blows my mind.

 

Democrats.

 

Seriously though, I would imagine that there's just no regulation on it. There's no balancing of shares. You have to meet your margin eventually, but you can leverage yourself way, way out there without too much of a problem. I'm sure some others (Northside, southside ck, etc.) understand this in more detail.

[StrangeSox]

Christ. They were naked short on more than the total shares issued for Lehman? WTF?

 

Falcone was naked short multiples, as in 2-10 times as many shares that even exist. That's just one fund. It really is mind-boggling.

 

I think that makes it clear that there needs to be some sort of regulation put in place. The problem is (as that poster pointed out) that those in Congress simply don't understand the systems well enough. I don't trust them to make regulations that won't have unforeseen negative consequences.

Edited October 10, 2008 by StrangeSox

[Cknolls]

Just look at AIG's insurance practice, they are a completely legit solid business. The Insurance Industry isn't even close to being a disaster. And let me just state that I say that based upon a s***load of knowledge of the insurance industry and the standards they have to abide by. Sure they insurance companies have taken part is some credit swaps and have plenty of Alt A investments. But they also have a s***load of regulations to ensure that the company has matched its funds to ensure that the assets pay out in a period where they'll be able to pay out the expected liabilities and on insurance type contracts those liabilities are pretty well set (you don't expect some massive fluctuation unless there is just a complete and utter run on "deaths"). Obviously Insurance companies do more than just Life insurance but the reality is all of there policies are based on a s***load of historical trends and than those payouts get matched with the assets on very conservative set-ups and this ensures you won't ever have another insurance collapse.

 

Plus there are a lot of things which limit the types/risk of investments the company can have. If its a certain type of investment they may only be able to go up to a certain percentage of assets, etc. Trust me knolls, Insurance Companies aren't the next to blow up. I could see picking on people that did some shady stuff related to credit swaps but a typical insurance business is about as safe as it gets right now, although they obviously will have profitability issues in the short-term due to some of the investments they are in, but as those investments flux one way they'll likely see gains on there FAS 133 riders.

 

Have you taken a look at Metlife lately. Only down $40 in a month. 75 million share secondary offering yesterday. Everything is A-OK.

[NorthSideSox72]

How does that happen? Can someone explain to me how you can short sell that much stock that doesn't exist and gain real money from it? If it's too complicated that's fine, but it blows my mind.

I assumed they meant options, not short the stock. Theoretically, if you are following the rules and covering all your shorts or at least doing locates on them, this should be impossible.

 

SS2K5 might know this better than I do though - can you short stock on a large scale without locates on the stock? This stinks of firms multi-locating stocks to trading firms, which seems awfully dangerous. Not sure its illegal though.

 

That right there is a hole that could be legislated - stock/collateral locates have to be singular, no exceptions. All collateral must be single-pegged.

 

[NorthSideSox72]

By the way, this situation alone - the fact that hedge funds and trading firms are shorting stock because IB's are allowing multi-locates, or they are allowed to short uncovered and unhedged - makes me revise my feelings on the market. We have a big beast out there lurking still.

 

[StrangeSox]

Some articles on buying and selling more shares than actually exist.

 

http://www.euromoney.com/Article/1001047/N...hat-didnt-.html

http://www.investortrip.com/sec-to-review-...-selling-rules/

NPR audio story:

http://www.npr.org/templates/story/story.p...toryId=92933200

 

Edit:

 

That euromoney article is from 2005 and warns about the potentially deadly flaw in the US securities market. Oops.

Edited October 10, 2008 by StrangeSox