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11:40am - July 23 - In 2006 I wrote about the "Housing Hurricane" in Barrons. In April of this year Barrons published my piece titled "The Eye of the Housing Hurricane." You can read both pieces via the links at the left. Today we are in the back half of what has just grown from a 100 year hurricane to a 500 year hurricane, and we still have yet to realize just how devastating this hurricane is and will yet be. Is there anything new to write about? It depends. If you are a client, this is old news. If you still believe the worst is over, read on.
- Million Dollar Plus Homes
- Short Term Memory? - Credit Default Swaps
- Subprime v. Credit Default Swaps
- More Memory Loss - Auction Rate Securities
- Paulson’s Fraternity Bros
- Consumer Debt Exploding
- (F x 4)/ H + I(3) = Not a Happy Ending
- LENDER COLLAPSE
- Housing Bill Bail-Out
- Armageddon
Million Dollar Plus Homes - Here’s something you haven’t read about. For the past two weeks I had two of the most interesting residential clients I have ever worked with. This was a husband and wife team that is involved in international investing at a level very few people are exposed to. They were here shopping for a vacation home, purchasing 60 hours of my time in a block. As many of you know, when I do work with a residential buyer, I only do so with clients that retain my time, just like the financial institutions I work with when they retain me for research projects. For my residential clients, when they do close on a home, whatever commission the seller pays me, is turned over to my client. So on a two million dollar home with a $50,000 commission, even if my client purchased $30,000 worth of my time, my client still comes out ahead of the game.
But that is not what I want to write about this morning. I am explaining this process, so you will understand just how serious my clients are. I don’t work with "lookers" unless they are prepared to shell out a minimum of $7,500 for 30 hours. So when I spend 60 hours with buyers looking at homes, they are real buyers . . . or they are sharp enough to gather information to make an intelligent decision about buying or renting. And that is exactly what happened here.
After two weeks of looking at homes in the $1.5 to $3M range, my clients decided NOT to purchase a vacation home, but instead to rent this coming season, and wait for prices to come down further. Very smart decision from the sharpest buyers I have worked with in several years. Here’s what’s interesting.
You’ve read so much about subprime and foreclosures and the general malaise facing the heart of American home ownership. But you have not read much about what is happening in the very high end markets. It is this part of my work that my Wall Street clients want to hear about. They want to know what I see on the ground with residential clients. They want to know what I see when I am out with analysts or hedgies researching commercial space. And what I saw during this two week field trip was an eye opener for me and my clients.
Second, Third and Fourth Homes - The market that we were looking at consists of homes that start at $1.5M and run all the way up to $10M. In the communities we toured, these are second, third and fourth homes for many people. Two years ago, there were a handful of these homes on the resale market. Today, the numbers of these homes on the market is staggering. Why? A little research into who the sellers are, spells a picture we have yet to grasp as a nation. Many of the sellers are financial executives that have lost their jobs. Some sellers are high net worth individuals that have purchased several of these homes to flip when the average Joe was buying condos in Miami or single family homes in Cape Coral. And some of the sellers are people that have simply overextended the good life to the point of breaking. Overall, it is the same story we hear at the lower end . . . just a different flavor.
The only difference between this market and the lower end, is the number of foreclosures and short sales. Oh . . . but wait. This is a very stubborn market. These are people that still believe the value of their homes can’t go down 20, 30, 40, 50%. So a solid one half of these puffed up sellers are priced in the stratosphere. The folks, for the most part, will resist reality, because they are so out of touch with reality. And here’s the catch. Even the sellers priced below the "market" are not getting bids. Once again, we have more homes than we have people to live in them. Moreover, when it comes to the level of home, the supply is even more staggering by percentages.
My clients decided not to buy right now, because they believe the global markets have not finished punishing those that are sucking on helium balloons and sipping the Kool-Aid being served up by Bob Toll, Cramer, Paulson, Bernanke, Roubini et al. So my clients will rent this season, and come back after a market crash forces these puffed up sellers to face reality. The lenders will have a new group of short sales and foreclosures to deal with, but with this group they will have their hands full of gooey stuff. We are not seeing it yet, but all the signs are on the wall. It is only a matter of time before this market gives lenders a new migraine. These owners have huge egos and jumbo sized arrogance. Unfortunately, that’s not enough to keep their homes from falling in price, and even these wealthy individuals will eventually throw in the towel when they see just how expensive it is to carry these homes.
Short Term Memory? - Credit Default Swaps - Remember these? How soon we forget. Well, let Captain Mike poke you in the eye. Back in the first quarter of this year, these were all the rage as the next crisis to crush the markets. Some estimates put this market as large as $40 trillion, which is more than double the size of the entire U.S. stock market. A CDS is, or was, or is . . . insurance on securities like bonds and mortgage securities. Here’s the catch. This market is not regulated. That should not come as a surprise. Moreover, this market was created by banks and hedge funds . . . stellar performers in the opera we are painfully living through. Allow me to continue. It gets better.
Credit Default Swaps are traded (swapped) from investor to investor (read: sucker to sucker). The protectors of our financial markets created Credit Default Swaps as another means to make money from nothing. Kinda like the Dire Straits lyrics . . . Get your money for nothing and the chicks are free. Don’t laugh. Remember the folks I wrote about a few seconds ago with the second, third and fourth vacation homes? Many of them lived and will die by the Dire Straits lyrics. And how appropriate is the name of the band? Okay, back to CDS.
We haven’t heard much about the CDS market since March. It didn’t go away. It just reached the point where the banks have no clue what they own or what its worth. You’ve heard that before from me. That is the mantra I started hearing from my European bankers almost two years ago. Remember when I told you these guys were telling me the liquidity crisis was not a liquidity crisis, but a . . . Duhhhhhh Crisis, because these guys admitted they had no clue what they owned, and even when they figured it out, they had no clue what it was worth. And that has not changed much since then!
The top commercial banks hold more than a trillion dollars in swaps. But here’s the catch . . . they are on both sides. I kid you not. This is a true story. Honest. Sometimes they were the screwer (insurer) and sometimes they were the screwee (insured). And from what I hear in the field, some of these clowns are on both sides of the same freakin’ trade! By the way, two of the top five players in this market are BOA and Wachovia . . . two of the rising stars this past week.
Subprime v. Credit Default Swaps - No comparison. Subprime is a baby compared to the ramifications of the CDS market when it starts to unravel. And I love it when we keep hearing over and over and over about how we should not be comparing this market to 1929 . . . because we have more safeguards now. What? Huh? What safeguards? Greenspand did away with all of that nonsense. By the way, where is Greenspan lately.
Unfortunately, there are NO safeguards in place when it comes to the Credit Default Swaps market. None. Nada. Zipity Doo Dah.
More Memory Loss - Auction Rate Securities - Here’s another area lost in the fog of deception. Or maybe it was just Bob Toll passing out enough Kool-Aid to fog over the memories of entire segments of the financial world after doing such a great fog-job in the home builder sector. But MadDog Morgan is here to bite you in the ass, just to make sure you don’t forget about this one either. Auction Rate Securities were developed by none other than Goldman Sachs back in the 80's. I’d love to see a history of what’s come out of Goldman Sachs over the years in terms of creative financing and guys like Paulson who reaped the rewards . . . and now want to tell us how to clean up the mess they created. By the way, don’t you find it just a little funny that Goldman exec Kindrick Wilson is taking a leave of absence to go to Washington to "help" Paulson? Oh, and the new CEO of Wachovia, Robert Steel . . . you guessed it. He’s another Golman/Paulson fraternity brother. C’est la vie . . .and we sit back and watch.
So Goldman Sachs created Auction Rate Securities as a means to . . . . . . . . well, they want you to believe it was a new form of liquidity for the markets, but if you look at it real hard, it was nothing more than a shortcut to disaster and huge fees for companies like Goldman Sachs. The problem with all of this liquidity we created, is that it was constantly being moved, just like the pea under the shell or the three-card Monte scam. For those of us that have been taken in by the shell game, you know there is no pea . . . and you can’t beat the Monte scam. Well, that’s the same thing we are seeing today in our financial markets. We’ve carved off so many pieces from the side of beef, that there is no beef in the game. Guys like Paulson, Rubin, Mozilla, and other have the beef socked away in their private meat lockers.
Okay, so I am straying again. But it has been awhile since I produced anything for the public, so allow me the luxury.
ARS in a nutshell was a way to trade long term debt like donuts. Strike that. I meant, like Miami condos. No, no. Strike that too. I really meant, like Credit Default Swaps. Naaaah. I’m just teasing to make a point. A point that only Senator Bunning seems to understand, but guys like Barnie Fife (Frank) turned on Bunning as if Bunning were the enemy. That’s another story, so if you have no clue what I am talking about, Google Senator Bunning.
Back to Auction Rate Securities. They were created so long term debt could be traded like short term debt . . . with huge fees and expenses going to companies like Goldman Sachs for the privilege of playing the shell game. Other than the skimming that went on, the ARS has demonstrated that liquidity is totally controlled by the creators of the game . . . just like the guys on the streets of New York with the shell game and three-card Monte. When they want to play, they are taking your dollars. When you figure it out, they pack up shop and leave. Ah, hah. I think I just summed it all up in a neat and tidy package for you.
In February of this year, the Auction Rate Securities market failed, seized up . . . so the street boys packed up their shells and ran. The biggest players in this market declined to step in and support the market! When "investors" declined to bid on the securities the broker-dealers ran for cover . . . rates spiked and assets were frozen.
Oh, by the way, one of this week’s financial stars is at the current heart of this investigation. Last week state regulators showed up at Wachovia to demand the documents they have been trying to obtain for several months. But it doesn’t stop there. It gets worse folks.
Consumer Debt Exploding - Maybe Captain Mike needs to keep poking folks in the eyes, even though American Express did a pretty good job of that the other day. To understand who gets hurt on consumer debt, you need to understand the difference between American Express and Master Card and Visa. The latter two make money on fees. They do NOT lend money, so they don’t care how much debt the consumer builds up. The more debt, the more fees. On the other hand American Express actually earns fees AND they take on the debt when card holders cannot pay off their monthly balance. For Master Card and Visa, their cardholders are racking up debt with our nation’s banks. Yup, the banks again. Start adding it up and you will soon understand why my banker buddies keep telling me they have no clue how bad it is . . . but they know it is really, really bad . . . and it is getting worse. I don’t need to see the statistics and the numbers and all of the keen stuff the analysts use to make their rear-view mirror calls. When my banking clients tell me they are in trouble and things are getting worse . . . and when I see consumers that have tapped out the housing ATM who are now juggling credit cards, I’ve seen and heard all I need to know.
Housing Bill Bail-Out - Bail Out what? How can you bail out two industries that are destroying themselves. I simply don’t understand how the American public can be expected to bail out the banks and builders, along with the junkies that bought houses like they bought stock options. It;s interesting how the White House called the Housing Bill exactly what it was (a dud), and now is backing it. Paulson has the power. He’s not looking out for our best interests, but for the best interests of his fraternity bros. And here’s something to chew on. As credit card debt continues to explode, and people use credit cards like they used their homes to rack up debt, is Paulson going to bail-out credit card debt as well? Not likely.
(F x 4)/ H + I(3) = Not a Happy Ending - I haven’t discussed some of my formulas for several months. And when I see all of the stuff coming out from Roubini and other prophets of economic wisdom, I feel a little left out. I’ve written extensively about my SSI Index, and my GOOBer Index, and my TTFN (Ta Ta For Now) Index, and some of my exclusively private formulas and indexes which have accurately predicted the level and intensity of the hurricane we are in. But I haven’t shared Happy Ending with you, simply because it is NOT a Happy Ending, and I didn’t want to burst the bubble of the folks still drinking the Kool-Aid. But the time has come to burst your bubble.
There are four "Fs" including fraud, fantasy, fiction and foreclosure. The first three are the foundation for the fourth "F." Enough said. We take this and divide by H + I, which represents Hype and Incompetence. Okay, so you don’t need a discussion about the four "F’s" or the Hype. But let me share a bit about just how severe the "I" factor is of total, absolute, and beyond any belief . . . Incompetence.
LENDER COLLAPSE - Over the last two weeks I have noticed a decisive shift in how lenders are handling foreclosed properties (REOs), or maybe I should say mishandling. There are three issues bubbling out of the Ooze of Incompetence at these lenders. First, they can’t get deals done. The ship is headed for the rocks, and the captain has abandoned ship. He’s sitting comfy on his own private island sipping cocktails with the Fat Lady in the thong. This is a very severe crisis in operations. Lenders are not responding to offers, and when they do respond, they make the process so convoluted, that the buyers often walk away and buy another property . . . at a lower price. Instead of jumping on contract and moving them through the system, the lenders have stalled the process to an agonizingly painful stand-still.
Second, over the last two weeks we have seen another leg down in pricing from some lenders. And the pricing makes no sense, because if they managed the sale process properly, there would be no need to slash prices. These two events are disturbing. We are essentially seeing a total collapse in the housing market. Unless someone sprinkles these guys with Smart Dust, they are going to destroy themselves. When you look at this, you don’t think it can get any worse, but it keeps getting worse.
The third issue is financing. Its tough to put a deal together, and when you do, usually FHA is involved. The 3% down payment is a myth. Either the seller or the builder pays it, so you still have folks getting into homes with zero down. And the moment they close, they are into negative equity. Thirty days later, they could be 10-15% negative when you consider a falling market and the costs of a buy/sell transaction. When things go bad, as they are, it is the Fed that is eating the 10-15% plus another 50-60K in expenses to unload foreclosed properties . . . at a very minimum. If you want to hear more, you need to be a client. This is a very complicated subject, but it is at the heart of our crumbling economy.
If you take a moment to list it all . . . consumer debt, swaps, defaults, foreclosures, commercial debt and on and on an on, you will realize we are witnessing a complete collapse of our country’s financial institutions. And all we are doing . . . or all we can do at this point is watch it all unfold.
Armageddon - I believe it is all but written into the screenplay at this point. The recent rally of 50-100% in banks and builders is indicative of the nonsensical days leading up to October 1929. What I am seeing in the field, is a crumbling of the builders and the banks, followed by retailers. But on Wall Street, Paulson is passing out the Kool-Aid and telling us we need protection from the short sellers. Let’s face it, if the short sellers push the envelope too far, buyers have the right to step in and take advantage of the bargains. But when the Federal Government, or should I say Goldman Sachs (Paulson), take it upon themselves to change the rules, that’s when you can bet Armageddon is in the cards. Over the next few weeks, we will all see just how much more pain there is, and the bag of garbage we just threw up in the air, will come back down harder and stinkier.
Crisis Investing - Please. If you are not considering it, you need to start thinking about it. If you want to buy into the rally and continue to sip the Kool-Aid, you will be devastated.
IN CLOSING . . . I wish I was a market timer with magic dust and a magical wand. For the folks that just joined me, there would have been less pain if I was a magician. And trust me, I feel it. My clients are like family. I have a bottle of Tums on my desk today, and I am still nauseous. I can take some relief in the nice emails I am receiving, and so far I haven’t received any ugly ones . . . but I know some of you want to send them. You need to sit tight, and not let Paulson and his fraternity buddies shake you out. They are systematically shaking out the pension funds our municipal government accounts and so much of the wealth this country has built up over the last 200+ years. Unfortunately, the American public enjoyed the ride . . . and that ride is coming to an abrupt end.
Whether it is a week a month or a few months, our markets will be much lower and the financial crisis I have written about for the last four years will be reality. Unfortunately, it will not be a Reality TV Show that we can simply change the channel on.
Senator Bunning summed it up for us last week – “The Fed is the Systematic Risk.”
By the way, even when the Housing Bill passes today, it will probably not have a positive effect on the markets. It is old news, and if you really look at it, the Housing Bill is bad for the economy and the markets.
Wednesday, July 23, 2008
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46 comments:
Mike, you write: "My clients decided not to buy right now, because they believe the global markets have not finished punishing those that are sucking on helium balloons and sipping the Kool-Aid being served up by Bob Toll, Cramer, Paulson, Bernanke, Roubini et al."
I agree with all but not Roubini at www.rgemonitor.com who has been correct and very bearish for years.
Otherwise, thanks for the truth on RE in FL.
Roubini has been on the top of my list. He is brillliant and he has been on top of this, but he has stopped short lately. I would love for him to come on a tour of Florida, California, Texas, Ohio and DC with me. I guarantee he would change his tune about Armageddon. He simply does not comprehend the magnitude of what he was been writing about. That is something you only get when you see the white of their eyes . . . Behind Enemy Lines. He can't get that from an office or stack of statistics.
Mike's Back. Good to have you back. Great piece Mike. Right on the money again. Tough times, but you've been right all along so I'm still with you and I'll kick anybody's butt that pisses on you.
Very well written. Thank you for sharing your insights.
not to bust your bubble, but people who called the crash are also calling the bottom
check it:
http://www.clusterstock.com/2008/7/john-paulson-calling-bottom-starting-fund-to-buy-financials
Hedge Fund managers who bet in the right direction usually are good to listen to...
Watch your step IMO :)
Thanks Sidney.
Matt - you are entitled to your opinion, and I posted it. I disagree that we are anywhere near a bottom, and the problem is simple. You can only get so much from reports and meetings. When one of my clients coined the blog name, Behind Enemy Lines, he summed up what I do in three words. Just take one look at "John" Paulson who made billions betting on the housing crisis. He has been on the buying side for several months now. I have hundreds of millions of dollars thrown at me every month. I could make a killing selling these guys property. But I have been telling them to wait, and they will appreciate that much more when it is time to buy. Just last week I turned down a client that wants to buy $50M worth of distressed property in Florida. I took his retainer fee and told him why he needs to wait. That takes guts and ethics. We are nowhere near the bottom. If you have not listened to my conference call, you should.
I'm a fan Mike. I want people to know you might be sucking with on the financials right now, but your calls on Monsanto and Potash were briliant. So was Google, Landry's and all the other stuff you did. I'm in on the financials and I'm tripling up. Keep a stiff upper lip and ignore the critics.
Hey Mike,
What a great piece! Be kind to Roubini. I think he'll re-focus on the harsh realities before too much longer.
You say that banks would be better off if they began to deal with their REO problems competently. I wonder if that is even possible? The reason is that I think a lot of South Florida valuations are still something right out of The Outer Limits or The World Beyond. Is it possible (1) that a lot of the marked down asking prices are still delusional and (2) that some of the prospective REO "buyers" are drinking the Kool-Aid too?
Here is a case in point. Someone on another blog brought up a specific REO in Fort Myers. So I did some research at:
http://www.leepa.org/Scripts/PropertyQuery/PropertyQuery.aspx?FolioID=10297749
Appraiser history:
2002: 166,420
2003: 252,710
2004: 325,050
2005: 565,540
2006: 729,150
2007: 879,250
2008: 666,920
Here's the kicker. Take a look at the photograph of this property on the Appraiser's Web Site. It's just a standard South Florida block style house, 3 bedrooms, with garage. When I look at the picture, my instinct tells me that the property is probably not worth more than 25% of the appraised value, even if it is lakefront property. I think the 2002 appraisal is closer to reality than the 2008 appraisal, so I also have to conclude that the property appraiser's office is located somewhere in The Twilight Zone.
I would love it if you took a look at the appraisal history and the picture of the property and then offer us a simple yes/no comment on whether the 2008 appraised value of this property is realistic, or something from The World Beyond...
PS I'm not looking to buy on the Gulf Coast. I'll wind up on the Atlantic Coast. I'm just biding my time for now while prices continue to decline.
Hi VegasBob - The 2008 number is stratospheric. But it is not just Florida where we are seeing the REO failures. The banks are using asset managers that are not doing their jobs, but the real kink is still at the bank level, where they are totally clueless. Then throw in a few thousand soccer-Moms the asset managers hire to sell these properties. The real estate industry has no barrier to entry and no regulations. I cringe whenever I have to get involved in a residential deal, because 90% of the time it is with a clueless soccer-Mor or a part-time fireman running around between shifts.
2 thoughts. And they are just thoughts as I like to consider both sides of all arguments:
1) Everyone says oppose the bailouts because it would hurt the tax payers. But wouldn't it also hurt tax payers if the economy experienced heavy ruin left about from the destruction of all the financial/commercial/retail companies? I have to wonder if they are both the same thing. Bill Fleckenstein says that when a bubble pops everyone gets hurt including many who never participated in the bubble to begin with. So whether we have to pay for the destruction of the credit bubble as tax payers or by losing jobs or having our portfolios get slaughtered...I have to wonder if it's all the same in the end. The innocent get hurt regardless - so it begs the question, which is better?
2) At inflection points in the market, there is often a huge disconnect between main street and wall street. The S&P was hitting all time highs in October 2007. But on main street, subprime was already a disaster, the housing market had already peaked more than a year prior, and delinquencies had already been on the rise for some time. Now we have the market having "bottomed" for the time being, but Mike you are saying that things are absolutely beyond horrid over in the trenches. Is now one of those times when the bottom has been reached in the market even though it has yet to be reached on main street? Or is this the proverbial bull trap? Of this I have to wonder also.
Thanks, Mike. Stratospheric is a good description. I thought maybe I'd died and gone to the Twilight Zone when I saw that Fort Myers property appraisal history and looked at the property's photograph.
If you want any info on what's going on in Vegas, let me know. I still get an earful every couple of weeks, even though I got out of there in early '06.
In response to the 2 thoughts from Anonymous. First of all, it would be nice if folks that left comments used names, even if they make them up, just for the sake of making responding easier. In any event, I don't agree with Fleckenstein and I think he is just another yokel that sits in an office . . . reads, watches TV and regurgitates. Free markets mean you pay for mistakes, and if that means there is collateral damage, that is a free market. Are we supposed to let Hank Paulson and his cronies decide who gets bailed out, because he will choose his frat buddies. Yes, the general public will get hurt if we let things fail, but the general public will be hurt far more if we allow jackasses like Paulson, Bernanke, Dodd, Frank, Mozilla and the rest of the criminals decide who, when and who things are to play out. As for your second question, you need to read more of my stuff. This is not a bottom. We are headed for a Depression, and there is nothing that can be done to stop it at this point. Nothing, unless we are invaded by Martians.
Mike -
Write on!
Sorry, couldn't resist. Anyhow, do you have any thoughts you can share with we the public (w/out free cash and maxing out our ccs) on the oil price debate? I.e., do you think oil will fall w/housing because of demand destruction? If yes, then it would seem that would help the overall economy. Personally, I don't see why oil prices would decrease over time but that's just my gut.
Mike - Write on! (Sorry - couldn't resist. )
Where do you stand on the current oil price debate? I.e., will the oil prices go down (along with housing,etc)? Or will they stay the same or go up? Lots of commentators over the last week have decided oil is in a bubble that's bursting a la housing. Thoughts?
Mike,
Like your blog, but I have a pet peeve.
I have not read your blog in the past on a regular basis because you did not have an RSS feed.
Now that you do have RSS feeds, they are all proprietary b.s., rather than basic RSS 2.0 (or 1.0) feeds.
None of them work in SharpReader.
I would love to be able to put your blog in my SharpReader if you would get a feed that is compatible.
Keep writing.
Response regarding RSS. I am not a blog expert, so the RSS stuff is Greek for me. If you have a blog recommendation, I will certainly take a look at a new package.
Sidetalk - I do have a position on oil, but the long of it is reserved for clients. The short of it is, there is certainly a bubble, but you also need to consider the dollar, politics and potential violence and unrest in the oil regions. We have had two very successful oil trades in our portfolios this month. One trade was 100% profit and one was 26%. We will trade it again when the timing is right.
Great post.
One question tho:
Roubini has been on the top of my list.
I was surprised that you put him in the same list as Toll, Cramer, Paulson, Bernanke in your post. Did you mean to write Rubin in that slot by any chance?
I live in Australia and we are told we will not suffer as much as the rest of the World due to the Mining boom, yet if America stops buying washing machine China won't need out steel or Coal. Just how bad is it over there and where do the ex home owners go to live?
Hey Mike thanks for making this public.
I have read you for years now but when you went private had to stop as I cannot afford your fees lol.
Your reports from the ground are so refreshing. I sold out of the markets completely last august when the first cracks appeared in the facade. reading you and other similar folks with good writing skills and a clear eye as to what is happenning has saved me for now. Thank you for this public service.
Mike,
I totally agree with your analysis. The regulator actions are window dressing to settle the short term markets. Underlying fundamentals are so bad and resulted from years of doing the wrong things in so many ways.
Pete Peterson's book "Running on Empty" describes our fundamental national insolvency due to unfunded out year committments for social security and medicare. Add the gross misallocation of capital into housing and other forms of consumption and you have a toxic brew. Stir it with the new foreign competition and add in the common man's assumption that legislation from DC can fix things and we are done.
Housing is about $22 trillion in value, but needs a 30% national haircut in order for that metric to return to the long term trend line in relation to other national income accounting metrics. The haircut will be uneven and will destroy some local governments and communities. (See Florida as the leading example.)
I wish we could prevent the fall, but the best we can do is manage the damage.
Hey Mike. Outstanding article that spells out the present situation very intelligently - with one missing element. I think one of the main reasons it will (does) take so long for banks to work through mortgage delinquencies & foreclosures is the sheer manpower required. I have not see anyone talking about this.
I am a banker who remembers the early 90's well. It took huge numbers of us to handle problem loans - in ADDITION to the bank's normal business which had to carry on. Loan workouts are very, very time consuming. How will the banks, Fannie, Freddie, etc. pay for the manpower needed for working out these loans??
JP - Roubini is brilliant, but he is still only "book" smart. I put him in the same group, only in terms that none of these guys come out into the field. It is like a war, when the Generals sit in Washington and listen to reports. You need to be in the field to really understand what is going or you need "good" people that are not going to YES you to death. Unfortunately, the folks feeding guys like Roubini have not been in the field, and they are YES men. How do I know? Easy, I look at what they write and say. I look at how they interpret numbers. It is obvious, they are sitting in their comfy offices making bad calls. Roubini has been right on the money for much of his commentary, but he is missing the real battle secret stuff.
Glen - I happen to have clients in Australia. Three of these clients are in the financial markets. Australia might be in a different time zone and at the other end of the globe, but the USA is still the big bully . . . and we are going to make it ugly for everyone. I wish it weren't so, but it is.
Kevin - Thanks for the nice comments. I've tried to lower the fees to even folks with small nest eggs can participate in my conference calls and investment advice. If my client list grows next month, like it did in July, I am going to try to start cutting fees so more people can participate.
Bigbuilder - You are right on the money. We are going to see municipalities in Florida fail within the next few months. Florida, Ohio and Michigan are already in Depression. Today's housing numbers speak for themselves. Foreclosures represent 1/3 of sales . . . and that is only what they are admitting to. I can guarantee you, it is more than 50% in Florida . . . and growing.
Kent - Thanks for your comments. Fannie and Freddie fail. Period. Full Stop. I believe we see 100+ bank failures withing the next six months, and hundred more next year. From Behind Enemy Lines, I am told we could see 2500 bank failures within the next 18 months. That's one out of three!
mike-
Tried to buy the replays of your conference calls, but paypal says that seller cannot be sent money at this time.
Can you please check this out.
Again, thanks for the great read.
Thanks Mike-Just on a lark,I called the Lee County
Assessors Office and asked how they can assess a propety at four times the current asking price. They said:"We REVAL evreything according to state law in August"
Yah. This is:
Stonewall.Lies.Keep putting off the future. That's their tactic.
When they have to truely 'assess to market' Florida municipal government will implode...it's just a matter time.
We reap what we sow.
If we have a strong military, do we need to stop drinking the kool aid? As I think Dennis Miller said in a standup comedy act: we owe billions of dollars to whom? Other countries. What if we just don't pay them!
I am shocked that you mentioned Texas in the same breath as CA, FL and OH. I don't pretend to be savvy about current economic events by any stretch of the imagination. I live in Texas and I know we are not immune to this wave washing over the country but so far we are experiencing the crises on a lesser scale. I thought with our stronger market that we might escape the worst of it, though. I am very interested in your thoughts on the Texas economy. Thanks Mike!
ah ha..... so my dollar in relation to housing or the ground under my feet has lost by using that fort myers property as an example something like 80 percent or More of iTs value, could Tjat explain foog and fuels rise aND EVERYTHING ELSE UNLESS SPENDINGS CAN BE STOPPED..... THAN THOSE "PRICES " WILL REMAIN
Mike,
John Paulson is calling the end of bank stock price decline. But read carefully -- he would have funds to buy only starting DEC 2008. So I think he may be right after the next brutal round of bank failures in the next 5 months, and he would start picking the survival.
Roubini is on a different scale than you, Mike. Even though he is academic, but he sees and understand the whole crisis on a Macro level, not your micro level.
I know you are on a great stripe of winning trades, but your king-of-the-world attitude would surely come back to haunt and bite you.
Be HUMBLE. Even a world respected Roubini in a prestigious NYU chooses his words in expressing his thoughts. You win nothing by BeLittle others.
Mike,
100% agree with you. However, I just bought a million dollar home in Florida for one and only reason; Weimar Republic. Deflation yes, inflation sure!!! But it only takes one stroke of the keyboard, just putting one extra zero to destroy everybody. One must hedge against hiperinflation. Sure it costed the old owner $2 mln to built it and it may drop below purchase price but as soon as I am strong enough I buy another one, maybe my 3rd one.
So be carefull!!!. My family lost everything during Weimar, I lost a fortune in Russia. So sorry. even if you are 100% right, that will not give you hedge against Mr Helicopter Bernanki. I am 100% sure, I bet all my authority that all this will end with hiperinflation. Keep good work. World needs you!
MY APOLOGIES TO RECENT POSTER COMMENTS: I am sorry but with everything going on, I simply do not have time to respond to all of the comments and questions. My apologies. I do offer a limited amount of my time each week in affordable blocks for non-clients. That is the best I can do as this moment. I believe we offer six - 20 minute blocks. When they are gone for the week, that's it till the next week. If you are interested, you can purhase a block at http://www.morgan-florida.org/investment_advice
Awesome overview, Mike. Isn't it time to name ALL the names of the Banksters and Globalist responsible?
GOT INCEST?
In the WSJ article entitled “Fed’s Fireman On Wall Street Feels Some Heat”, it states that Timothy Geithner, President of the NY Fed:
“…initiated a series of dinners at the New York Fed’s executive dining room, in which five or six executives from a major Wall Street firm would meet his own top people…”
Such relationships may help the Wall Street Banks, but do not serve the public interest. It is completely inappropriate for officials who have regulatory duties to be socializing with the people they are supposed to regulate.
Kissinger Associates is a front for "David Rockefeller, Inc." also known as the CFR and JP Morgan "Chase" AND Exxon.
Geithner is Rockefeller's bankster, and Rockefeller is calling the tune on literally everything.
That helps to explain why Rockefeller named his Manhattan office building "The Tower Of Power."
Geithner is the operational head of the snake...and the body is fully revealed here:
In 2001, he left the Treasury to join the Council on Foreign Relations as a Senior Fellow in the International Economics department. He then worked for the International Monetary Fund as the director of the Policy Development and Review Department until moving to the Fed in 2003. In 2006 he became a member of the influential Washington-based financial advisory body, the Group of Thirty.
http://en.wikipedia.org/wiki/Group_of_Thirty
The Group of Thirty was founded in 1978 by Geoffrey Bell at the initiative of the Rockefeller Foundation which also provided initial funding for the body. Its first chairman was Johannes Witteveen, the former managing director of the International Monetary Fund. Its current chairman of trustees is Paul Volcker.
The Group of Thirty’s groundbreaking work on derivatives, Derivatives: Practices and Principles, published in 1993 was commissioned in the 1990s just as the use derivatives grew and began to move into the mainstream of finance.
former members include:
Austrian-American economist, Fritz Machlup
former deputy Bank of England governor, Rupert Pennant-Rea
former Bundesbank President, Karl Otto Pöhl, and
the former Federal Reserve chairman, Alan Greenspan
Masters Of The Universe, all tied to Rockefeller and the IMF:
http://www.imfsite.org/abolish/whyrock.html
Mike, great post!
Just a comment from soemone who has been saving since 2000 trying to buy a house the normal way, and at first not understanding how come making a decent salary, i cant catch up with prices to afford even the most basic crap in Staten Island. These thoughts led me to find this and many other wonderful economic blogs. That said, we are still looking to buy, but in Fort Lee, NJ. A very nice house that sold for 425K in Fort Lee in 1999, (know according to a friend whos family bought one back then). Current asking price is $640 wich to me is a 2005 fantasy price. What is this worth based on 1999 price? I would guess around 450K, but if we are indeed headed for a total collapse, should I offer even less? Is 450 a fantasy price too? Thanks a lot for any comments!
Once again, I must apologize to everyone that is posting comments, sending emails and leaving voice mails. I simply do not have the time to respond to everyone. I wish I could, but with what is going on in the markets, I am just about running 20 hours a day. I get a breather from 6-7 in the afternoon before Australia and the Far East start trading, and then another little nap before Europe. It is round the clock right now with the level of information flooding in and the level of trading for a variety of clients around the globe.
I must dedicate my time to my clients. With that said, this month I offered plans for the little guy, and I also offer some 20 minute blocks of my time at very low rates, but that is the best I can do. If you don't want to purchase some of my time, I suggest you at least listen to the 3.5 hour conference call I held on July 17th. That alone will give you enough to keep you thinking, get you thinking and get you moving in the right direction. You can purchase the download for that call and the following one using this link - http://www.morgan-florida.org/07-18-08
What a hoot! I would have to agree on the uncomfortable truth that the slide is not as nasty as what the bump at the bottom is going to be (and its a little way off bottom yet). The guys saying we are at the bottom tend to have something to sell! (shares,finance,real estate etc).
The winners in the end will be the folks with the least debt. And the ones that have managed to keep their savings out of failing banks. The whole financial system will consolidate down to a few, meanwhile government intervention will only drag out the proccess and waste more money and time (but hay, thats what they are good at, right?). At least we can't blame global warming!
P.S. Asia is going down post Olympic Games, just like every other country thats had a go at hosting, just abit worse
Hoot Hoot, I'm picking we are near the peak of a commodity cycle, as wharehouses and shops get full of stock, ready for the imminent recovery (not!). Interest rates will climb as banks run out of dough. What do you think Mike?, you seem pretty on to it!
Many years ago Jim Reeves had a song called HIGHWAY TO NOWHERE. It's the road this country is on now.
It's guys like you that are creating the run on banks and stocks. You are the idiots that are going to send this country into the toilet. Our country is the greatest in the world but guys like you keep sucking the wind out of the sails. Crawl into a hole and die.
Hoot!
Rose tinted glasses looking for the recovery just around the corner, denial of the obvious facts, prepare for a dose of reality Mr Anon.
Mike, you're the champ. I'm just a fence contractor in Palm Beach County but I sensed this a few years back, then KNEW it was coming over a year ago. My initial barometers were day to day stuff...less construction traffic on the streets, Home Depot parking lot empty, and less fence calls of course. The 'experts' cited low unemployment as indicator of health...hey, 25% of labor pool is illegal and can't enroll, and 60 hour weeks cut to parttime won't show up either. I've been getting calls from guys laid off looking for work, at the same company 14 years or more, unbelievably bad in construction here. Another indicator...look at all the grey-haired professional looking guys on the road crews and other projects...low seniority workers are gone and management is doing the grunt work. I agree with the guy, municipalities AND counties will be going broke soon, THEN see what SHTF. PB County irresponsible spending clearly expected boom revenues from taxes on inflated property values to continue. A GC I know who does lots of county work, said very little is coming down the pipeline now. Few roofers, screen contractors, anyone who expanded big time after the 3 hurricanes and boom are going to make it. Some of their new buildings are already for lease. And your pet observation...VACANCIES. FOR LEASE commercial has at least tripled in my immediate industrial area of the City of WPB. Brand new office parks 100% empty, like the one near me by airport. I truly believe, 35% of existing is vacant, and like you said, 75% or MORE of new is vacant. Let alone downtown condominiums.
Only thing good for me is that I expect to sell more security fence due to increase in crime we're already seeing. (Ignore the statistics...get street level accounts..it is really bad.) I truly agree with you, Depression is clearly the definition of what is in its initial stages in this part of South Florida. Add in reduced state revenues, municipal bankruptcy, and what's going on nationally...I'm preparing for a very bad one. This is just in its initial stages. Sincerely, June
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