Sunday, May 01, 2005

Comment Of The Day

"If money is the root of all evil, then debt is the all powerful fertilizer. Stay away from the fertilizer."


At 11:04 PM, Anonymous Anonymous said...

Apprarently, Americans really LOVE fertilizer.

At 12:25 AM, Anonymous Anonymous said...

Fertilizer ? No. Toxic waste.

At 6:54 AM, Anonymous Anonymous said...

"I have warned for a long time that the Federal Reserve is planning to destroy the U.S. economy by: printing the U.S. dollar in exponentially riskier quantities until it blows off the charts and crashes, and by easing credit and rates until the average individual and corporate debt loads are so enormous that the resulting massive distortions in the economy suddenly bring on an economic heart attack, leaving no possibility of a short or even medium-term recovery. That day is here!"

At 7:34 AM, Anonymous Anonymous said...

I've heard talk a year ago from Templeton that real estate is going to drop 90% in the US.

Now I read an article where Templeton is quoted as saying real estate in the US will drop 50%?

Which one is it? Next he'll say 30%? 10%?

You can't trust anyone. Quotes from investors are usually misdirection. When Buffet and Gates came out stating that the US dollar would fall, the US dollar had already hit bottom and began rising.

Liars...all of them.

At 7:50 AM, Anonymous dudleydoright said...

"Liars...all of them."

When I first began to invest/speculate in the stock market, I didn't have a lot of confidence in my own opinions. So I read analysis from various commentators, magazines, seers, etc. I found that you can find conflicting information on every stock and on every asset class (gold, currency, stocks, real estate, etc.)

That's what makes markets.

I ended up getting whipsawed out of positions and was losing money. Once I had the confidence of my own viewpoints---based on my own research---I began to do much better.

You can't read a comment from Buffett, Templeton, Jim Cramer and assume they are either correct or incorrect. It's just another data point. You have to have your own view and stick to it.

Buffett has been short the dollar and so far he has lost money on that call. That doesn't mean he is wrong. Perhaps it is simply a hedge or he has a different time horizon.

I remember last year when I was looking to short Pier One. It had fallen a lot and was too risky to short. I was waiting for a rebound to initiate my position. Then last summer, it was revealed that Buffett had taken a large position in the company. I was stunned because I had visited a number of their stores and had found them empty of customers and full of crap merchandise.

The stock began to climb as "investors" wanted to get in on the "Buffett" trade. I began to question my thesis. How could I be right and Buffett wrong? So I waited until Dec when the stock had climbed 30%. Then I shorted.

Today the stock is 25% lower and below the lows of last Aug. I stuck to my guns, Buffett or no Buffett, and was rewarded. Maybe some day Buffett will be proven correct. He often waits years for his payoff. But my thesis was also correct. It's all in the timing and believing in your own research.

At 7:51 AM, Blogger Sunny said...

I am not as cynical to say they are all liars, but you have a point. Information, information, information is what makes investing profitable. More specifically, having information most people do not have makes it extremely profitable. If they have valuable information, why would Buffet type investors show their cards? Usually they do not until it doesn't matter. Its like poker.

The internet is so fascinating in this regard because the "hide the nut" game still goes on in cyberspace. You would think not. But not on this blog though and it makes Buffet types probably a little nervous.

At 7:57 AM, Anonymous Anonymous said...

Housing may drop 90% if we have a depression.

If we have major inflation that increase salaries, housing will drop "only" 30-50%.

Either way, buying a home today is just plain stupid. Sorta feel sorry for all the young 20-30 year-olds rushing in to buy a home "before it's too late" and being taken advantage of by real estate agents, mortgage brokers, home sellers, etc.

My wife still does not believe real estate could ever drop 50%...maybe she's right...time will tell.

Irrespective, don't buy until rents>mortgage+propertyTaxes+upkeep+insurance.

And you may likely be ok.

At 7:59 AM, Anonymous Aaron said...

Another article in LA times about loosening credit standards for minorities without much financial savvy.,0,7689909.story?coll=la-home-realestate

Ben, you have a great blog! I am addicted and check it several times a day.

At 8:08 AM, Anonymous boulderbo said...


I think you are doing a terrific job with this blog. No need to spend hours searching for relevant material, it's all right here. Just a few quick thoughts: Been in the lending business for twenty years, went through the real estate crash in Colorado in the 80's, the crash in Boston in the 90's, so I'm fairly jaded about the current state of affairs. Bought quite a bit of real estate in Colorado in the early 90's and in Massachusetts in the mid-90's. Probably sold too early in both markets but stuck with the advise received from an older gentlemen years ago on how to make money on real estate: buy when everyone is selling, sell when everyone is buying. You never buy when everyone else is buying. We'll be on the sidelines on this one because this debacle is gonna make the RTC seem like kids play.

At 8:12 AM, Anonymous Rob said...

San Marcos California (North San Diego County) Update. I posted a few days ago about the house I rent in one of the so called "Hottest" San Diego areas.

This house is listed the lowest price of 10 houses for sale in this gated community of about 100 houses at $699K

Not one single buyer stopped by to look at it this last week including Saturday and Sunday. Zip. Nada.

Can't blame this on weather. I talked to the Landlord and she is begging me to stay after my lease is up in July, unless she sells of course.

At 8:13 AM, Blogger goleta said...

Not even Nobel Prize laureates have ever come up with a theory that predicts market crash with useful precision like a month of timing error or 10% of valuation error.

But one thing that is true all the time is we've never seen a bubble, say over 20% over-valued, that didn't come with a correction followed by an over-correction within 10 years of existence of the bubble.

When houses became so unaffordable in the late 80s, Californians fled and that reduced the real demand and left only flippers and speculators in the game until they killed each other. Most new constructions always started when the market was hottest, so when news homes were available, the market was already on the way down. The whole system and human psychology was then moving toward over-correction.

So even if 50% correction puts the market in line with the fundamentals, over-correction can push it all the way down to 90% drop.

At 8:19 AM, Anonymous Anonymous said...

The 'Sky is Falling' choir needs to get ahold of themselves. Some folks have been singing the 'Sky is Falling' hymne for a year or two now and are praying for a crash just so prices get back to where they were before they found 'religion'. IMHO we have a better chance of house prices continuing to rise 10% annually indefinetely than a 90% drop.

At 8:20 AM, Anonymous Anonymous said...

A 90% will never happen.

That would mean that a $700K home is $70K.

Never gonna happen - the Federal reserve will make sure of that.

A 20-30% drop is believable though.

At 8:21 AM, Anonymous Rob said...

I like this one. "Cold Feet"

At 8:23 AM, Blogger goleta said...

90% is about the worst case of over-correction. It did happen in Tokyo. The average drop there is about 80% and some properties 90%.

At 8:26 AM, Blogger Ben Jones said...

Thanks for the update.

At 8:28 AM, Anonymous dogsbreakfast said...

I see all these predictions of a 50% drop, a 30% drop, a 90% drop, in home prices to get in line with historical valuations.

This is going to be a tough one to manage.

Unless Greenspan (and crew) are delusional---certainly a possibility---they must know that there is a nasty bubble in home prices in many markets. They know what can happen when bubbles burst (see Nasdaq crash of 2000-2002).

The difference here is that the Nasdaq crash was not that devastating since it didn't hurt that many people. Sure, some speculators got nailed. But most stockholders sold at some point along the way or were not involved to begin with. And its effect on jobs was miniscule because, as a pct of the labor market, employment in dotcoms, tech and telecom (and related financiers) is quite small.

Not so with housing. Homes represent most Americans' largest asset. They rely on their home equity for refis and for a sense of financial security. Plus, the housing sector represents a major piece of national employment (finance, realtors, construction, home furnishings, etc) as well as a major piece of state tax revenues based on valuation. I read that over 50% of all new jobs created in San Diego over the past few years have been housing-related. So even a 10% downturn would be savage. Probably even a flat period would be devastating.

The stock market fell 50% (and the Nasdaq 80%) in two years and didn't dramatically affect the spending habits of most Americans. Even a small decline in real estate values would have a much more powerful negative effect.

It will be interesting to see how the real estate decline is managed. If done poorly, we will have the mother of all recessions.

At 8:36 AM, Blogger goleta said...

we have a better chance of house prices continuing to rise 10% annually indefinetely than a 90% drop.

Wait till you see the hot money dries up. Asia central bankers are seeing a risk of further 40% depreciation in dollar and they have been talking about diversification to reduce the risk since early last year. The 10% annual gain can not make up the loss in exchange rate, at least not for a couple of years. Besides, most east Asia countries have seen the burst of their own RE bubble recently, so they are aware of the risk of the RE bubble here.

At 8:39 AM, Anonymous Anonymous said...

"IMHO we have a better chance of house prices continuing to rise 10% annually indefinetely than a 90% drop."

So, with affordability in some CA markets at 5.2%, how long do you think that appreciation of any type can continue? A few months, maybe another year tops.

At 8:42 AM, Anonymous Anonymous said...

Place your bets.

Thing is 70% of the US pop "own" homes, so I think the US gov may even step in and freeze home prices.

Anyone selling would just sell to the gov, and they would give you the frozen in price. Buyers would be forced to pay whatever the gov says is the going price.

Such is life in the new Amerika.

At 8:45 AM, Blogger deb said...

A quote from Aaron's link above:

"Some buyers lack federal W-2 forms from their employers, but they qualify for mortgages because many of the country's biggest lenders have adopted creative credit practices."

So, in CA we (taxpayers) help people engaged in tax evasion to buy homes anyway. We wouldn't want people to be left out of this glorious bubble just because they take all their income in cash, stuff in a safety deposit box and don't file a tax return.

At 8:48 AM, Anonymous Anonymous said...

"Anyone selling would just sell to the gov, and they would give you the frozen in price. Buyers would be forced to pay whatever the gov says is the going price."

Interesting theory, but highly improbable/impractical. Because of the Greefi (Greenspan induced re-finance) addiction in many part of the country, home prices MUST appreciate to keep many from going under water. Frozen house prices won't stop mass forclosures of these individuals.

At 8:49 AM, Anonymous Loren said...

Nothing can grow at 10% annually forever.

A 90% drop is very unlikely too.

With the magic "elastic" dollar it's very hard to make comparisons year over year. Did the 10% forever guy mean real dollars, 1913 dollars, or 2005 dollars? Since the word dollar has no real meaning maybe there ought to be some other measure of housing value.

Just for the record, money is actually good according to my reference Book. It just depends upon whose purposes you're putting your money too. Credit on the other hand is dangerous and should be viewed with way more respect than it gets.

At 8:50 AM, Blogger John Law said...

Buffet hasn't lost a lot in foreign currencies. that's just a Q1 loss.

you wanna know how much RE could fall? probably back to where homes are affordable for people who live in the area. then account for a little bit more because the housing bubble would wipe some out. to get back to where the mania started, could be 30-50%. when you consider the financial position of the average household, and how they are close to retirement and need to save, you've got a disaster on your hands.

At 8:51 AM, Anonymous Anonymous said...

Anon 848,

That's a great idea. The US gov could mandate a certain percent rise in home prices every year.

Each year, a publication would be published that stated home much homes had appreciated in different regions of the US. Buyers would either pay the price our keep renting.

Maybe rents could also be madated and increased faster than home prices so as to force renters to buy homes.

At 9:01 AM, Blogger Melody said...

A little off topic but did anyone go the the Los Angeles Real Estate Wealth Expo? Just curious as to what the key points were. Thanks in advance.

At 9:07 AM, Blogger goleta said...

"Anyone selling would just sell to the gov, and they would give you the frozen in price. Buyers would be forced to pay whatever the gov says is the going price."

Sounds so much more communist than even China would do nowadays!

The government might as well freeze everything, secure our jobs, and restrict reallocation, so 98% of the population who can't afford a median price of over 1.25M in my town, Santa Barbara, are forced to stay, otherwise, those people will all move to states like Ohio, the most affordable state, to buy 120K homes.

At 9:23 AM, Anonymous Anonymous said...

I predict the US gov will become much more communist-like than any US citizen would ever imagine.

But the flag-wavers will keep on waving, and say that "at least we have our freedom."

At 9:28 AM, Anonymous trailerparkmelvin said...

The water is full of sharks.

Late nite TV has always been full of those "no money down, get rich quick in RE" infomercials. But now it's wall-to-wall and not just late nite.

Yesterday I saw one I hadn't seen before. Can't remember the guy's name but the schtick is the same. Young upbeat guy claims to have made millions (or was it zillions?) in RE without investing a dime of his own money. "You can do it too!!", he chirps.

Then they have testimonials from "real" people. They trot out a half dozen "satisfied" customers reading from a script. They are really scraping the barrel here. Most of them were working stiffs who appeared to have marbles in their mouths. The topper was a guy who didn't have anywhere near the normal complement of teeth.

Now I guess there's no reason a guy with eight teeth can't make a fortune in real estate. But when these RE TV scams are targeting the tooth-challenged market, it seems like there isn't much room left at the bottom.

Even the home makeover shows are scraping the barrel. Anyone see the new "Trailer Home Makeover" show? I think it's on UPN or the WB. End times, folks.


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