Saturday, March 12, 2005

Miami Condo Market Speculative: CSFB

A mid-sized condo developer in Florida was downgraded by Credit Suisse First Boston, characterizing its future as "neutral at best." The market is threatened by "investor speculation", and the shares of WCI Communities lost 4% on the news.

The Miami Herald report found at Planet Realtor includes the typical arguments surrounding the question of overheated markets. But one bit of data may be telling. "South Florida is in the midst of an unprecedented condo development boom. More than 55,000 residential condo units are in some phase of development in Miami, and..increasing monthly. In contrast, Miami has built about 7,000 condo units in the last 10 years."

Nor was the story lacking in humor. "Downtown developers have brushed off worries about rampant speculation..'I don't see it backed up by empirical statistical data' said Pedro Martin, CEO of Terra Group (which) recently signed a contract to buy 10 acres..for $190 million(!)'You don't put 20 percent down on a $500,000 condo when you are a speculator' said Martin, who has two other high-rise projects in downtown Miami."


At 4:58 PM, Blogger mspenelope said...

Hi Patrick,
Thought the article below was very interesting.
I didn't want to paste the link because after today the Daily Breeze charges readers for the story.
Hope you don't mind's a little long!

Saturday, March 12, 2005

State still grappling with fallout from dot-com bust
While it lasted, the dot-com boom enticed politicians into making three very irresponsible, very destructive but very lasting decisions.
By Dan Walters

California is marking -- but certainly not celebrating -- an anniversary this week. It was precisely five years ago that the technology-driven NASDAQ stock market reached its zenith before beginning a long and painful plunge.

Internet-centered technology was a genuine, legitimate economic phenomenon that was blown out of rational proportion by a feeding frenzy of speculative capital.

The rampant formation of companies aiming to exploit the spread of Internet access could not sustain itself. It was ludicrous that brand-new firms would have paper values in the billions of dollars when they were not producing products or services, much less profits. Eventually, even the most jaded day-traders accepted that what Federal Reserve Chairman Alan Greenspan had described as "irrational exuberance" had gripped the dot-com industry and technology stocks, and the big sell-off began in March 2000.

Employees of new dot-com firms had often been lured by stock options. As the decline began, many hastily converted those options into stock and just as hastily sold their holdings to secure as much real gain as they could. Others, however, could not bring themselves to believe that the bubble was bursting and even though technology stocks are now showing signs of moderate recovery, those in the center of technology development and high-tech capitalism, the San Francisco-San Jose corridor, are still feeling the negative impacts of the decline.

Moreover, nontechies who had blithely ridden the technology elevator in their IRAs and 401(k) retirement accounts, but failed to switch in time, saw their paper fortunes erased and their dreams of early retirements in seaside cottages vanish. Thus, the residual effects of the dot-com plunge continue to be felt not only in Silicon Valley and environs, but in the personal finances of countless millions who ignored the Newtonian law of investments: What goes up very often comes down.

A hundred and twenty miles northeast of Silicon Valley, in Sacramento, the impacts of the dot-com boom and bust are still afflicting state government. They will do so for decades to come, because while it lasted, the boom enticed politicians into making three very irresponsible, very destructive but very lasting decisions, to wit:

• With the union-dominated Public Employees Retirement System issuing assurances that public pension benefits could be raised sharply without cost to taxpayers because of stock market gains, then-Gov. Gray Davis and the Legislature eagerly agreed, and when the market dropped, state and local governments were stuck with billions of dollars in extra costs.

• The state saw a one-time windfall of income tax revenues fill its coffers -- about $12 billion extra -- as dot-commers cashed in their options and sold their inflated shares. In May 2000, two months after Nasdaq began its slide, Davis publicly acknowledged the windfall and pledged "to resist the siren song of permanent spending, whether it comes from the left or the right (and) stand up to anyone who tries to convince the Legislature that they should spend most or all of this money in ongoing expenses." Within weeks, however, he had agreed to commit two-thirds of the $12 billion windfall to permanent spending and tax cuts.

• The tax cuts, such as the $4 billion slash in car taxes, and the extra spending on schools, health care and other services created a huge hole in the state budget when revenues returned to normal growth levels a year later. Rather than reverse course, however, Davis and lawmakers borrowed heavily. Over the next four years, Davis, successor Arnold Schwarzenegger and legislators amassed more than $30 billion in official debt and unofficial borrowing, such as siphoning money from transportation projects. And the state's "structural deficit" has yet to be resolved.

Hopefully, California will never see another speculative bubble such as the one that burst five years ago this week. We might not survive the next one.

Dan Walters is a columnist for The Sacramento Bee.


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