The New Negative Equity

Some of us simply have no concept of negativity. Bowl half full is bad enough; empty is catastrophic. Negative food? Huh?!!

Anyway, Mark Hanson (Mr. Mortgage) proposes that we should really think of anywhere from 6-15% equity as being effectively zero, and anything less than that as negative. The 6% (to pay the Extortionator) figure is obvious to all but the least financially literate, like my ball-crazy jock brother. And then, sure, there are moving costs to contend with. Anyway, bottom line is that, upon reflection, tons more folks are effectively locked into their present residences than might be immediately obvious.

Anyone interested in such should just read the whole thing here...

Anatomy of a Bull Market?

Picture (and description) from here:

REO Surfwagon

Mr. Mortgage talks about the coming foreclosure wave becoming a tsunami. Methinks someone has a surfing problem, and is getting a bit ahead of himself in anticipation. Not that I could identify an addiction if one bit me in the butt roast.

On the Mythical Unwilling Homeseller

Like bearish bulldogs or dishonest salesmen, unwilling homesellers just don't exist. Oxen see morons, allegedly, whatever that might mean. Calculated Risk provides corrugation (without cardboard) here:

only 16% of the agent-sold residential real estate market—REO and non-REO properties—is a result of unforced or optional listings.

See? Jumbo shrimp are supposed to be fine eating if you can actually get ahold of 'em, but good luck...

Unemployment: The Proverbial Tail?

Wagging the economic dog, that is. My brother's kinda like that. He's so small relative to his high-frequency, exuberant tail, it really appears to wag him when he gets really excited. Like anytime there's a ball or frisbee in the vicinity. Silly pup. Those don't taste so good. Not that he seems to notice or care.

So anywho, much has been made lately of green shoots and such, and how the worst has been seen since unemployment's still getting worse, but that's to be expected, given how it's a lagging indicator and all. Some of us otherwise mental laggards aren't so certain. I personally would prefer to see the bowl all full than half. I'm greedy that way. No, really.

Mohamed El-Erian of Harvard and PIMCO fame had this to say recently:

The unemployment rate is traditionally characterised as a lagging indicator and, as such, is viewed as having limited predictive power. After all, unemployment is a reflection of decisions taken earlier in the cycle so the rate always lags behind the realities on the ground – or so says conventional wisdom.

This conventional wisdom is valid most, but not all of the time. There are rare occasions, such as today, when we should think of the unemployment rate as much more than a lagging indicator; it has the potential to influence future economic behaviours and outlooks.

And the ever-rational John Hussman, perhaps not unrelatedly, piped in with this:

Given current household leverage from mortgage and consumer debt, coupled with the inability to access mortgage equity withdrawals (that largely fed spending increases during the most recent economic expansion), my concern continues to be that unemployment will behave as a leading indicator rather than a lagging one. During typical economic downturns, there is always some feedback from employment losses to credit losses, but that effect has been more contained because debt burdens have not been nearly as high, and homeowners have not been saddled with negative home equity. The dynamic of this downturn is different, so investors should be slow to accept the “employment is a lagging indicator” argument under present conditions.

Now let's add in what we already know about Stupid Unemployment Games, and leave the rest as an exercise for the (hopefully otherwise still gainfully employed) reader...

Color Me Happy to Blog for Food

From Andrew Sullivan:

We moved yesterday. One of the movers was a 58 year-old guy, obviously college-educated and white-collar. He told me he lost his job at a bank. Now he's not even a regular employee with the moving company; he's a day laborer who picks up work for several moving companies whenever he can. He was in excellent shape for a guy almost sixty, but I could tell that some of the lifting was really hard on him. Man. Almost sixty, and he's carrying king-sized beds up and down flights of stairs to get enough money to eat. Obviously, I tipped the hell out of him and the other guys.

Manias, Panics, and Crashes! Oh, My!

Well, except for the "Oh, My!" part, is the title of my favorite historically-based, psychosocioeconofinancial book. It's come to my attention that there exist blog followers--among the few and far between extant in the first place--who still have yet to read it. Wow; I may need a moment here...

I can't recommend this tome (not really; it's not very long, hence not so filling) nearly highly enough. Not the best-written thing per se, but the nuggets it contains are even better than the Mc- kind, shockingly enough. Anyone who cares a whit about their figurative kibble or literal finances owes it to themselves to beg, borrow, or buy a copy. It'll increase your mental FLEX-ability.

Money quote from Charles Kindleberger's Manias, Panics, and Crashes:

Nothing so undermines your financial judgment as the sight of your neighbor getting rich.

If that doesn't sum up the mindlessly envy-consumed, manic-depressive root of all markets, I just don't know what does. As it stands, I may still not know. Just read it now. Und believe me later...

Mr. Mortgage Is Back

In a new home, and shock, horror, etc., he's got a dour prediction for non-subprime real estate.

Money quote (emphasis his):

One thing is for sure, there is a pig the size of Godzilla in the python right now that has worked its way to the lower intestine.

While that might sound good to some of us, others might want to hunker down and avoid the proverbial fan when all this hits. End of this year, he thinks. Ish...

Bay East Housing Statistics

Been rather remiss in not plugging the housing statistics provided by the Bay East Association of Realtors. These are some pretty comprehensive data, and give a fairly decent sense of what's going on in the eastern side of the SF Bay Area. Haven't found their equal for any other region. Would appreciate pointers to any other similar type of information.

SV Real Estate Update

So there's usually a bit of angst about local housing prices, among even the thinking housing abstainers, who have no skin in the game just yet. I sympathize: prolly not terribly unlike the anxiety some of us feel about getting our bowls filled, on time, before time, and even after time.

Well, View from Silicon Valley is only too happy to oblige, and have posted a chart of current inventory trends here:


We concur with their financial conclusion:

The laws of supply and demand tell us inventory holding up in the face of sales increases will be bad news for prices.

Being particularly fond of the (ungainly, unlike us) term "nicer-neighborhood bid funds," might we direct the reader to "But in the Nicer Neighborhoods" for charts depicting the origins, and presumptive destination, of said funds.

Michael Lewis on Buffett

So yours truly has been waxing rather skeptical on the great Warren Buffett lately, as documented here.

Well, turns out I'm a mere whelp when it comes to questioning the actions of the Great One. No, I'm not talking about talking about how Buffett's "lost his touch," which happens every time he sneezes while investing, seemingly. Instead, I'm talking about doubts about his intentions.

Back in '92, before yours hungrily ever was, Michael Lewis was casting dubiousness on His Highness in "The Temptation of St. Warren," referred to by David Collum in his editorial pitting Warren '99 against Warren '08. Interestingly, these allegations go beyond the investing realm and get into the question of Character. Would recommend the Lewis piece over the Collum piece, in terms of meatiness. To wit:

Lewis painted a vivid picture of an egotistical financial carnivore seated at the very top of the food chain--a world-class stockjobber--cloaked by a highly deceptive country boy shtick. It’s quite a read and surely took guts to publish.

Geez, hate to see what they think of cute drooling ravenous dog shtick.

Color Me Surprised: Recent Productivity a Myth

I am, like, so shocked. Possibly even a touch appalled. Verklempt, you ask? No, not quite, thank you.

Anyway, apparently it's come to some people's attention that things haven't just gone bad recently. Things have been bad, just not so apparent to some. Please, have you seen the definition in my ribs lately? 'Nuff said.

From a recent Matthew Yglesias post a sometime- (but mostly not-) reader passed on, a picture worth at least a kibble, maybe two:



If one must belabor the point, it kinda boils down to this: if things had been going so swimmingly before the current crisis came, how come credit card debt was outstripping wages by so much? Resilient 'merkun consumer, my posterior...

On GE

Looking at GE's single-digit share price of late, one might wonder if it's a bargain or otherwise.

Being nothing if not a parrot in puppy skin, will simply repeat what yours truly, last November, referred to others as having said:

Funny how Immelt has seen fit to remind shareholders several times recently how GE has a AAA rating, and yet they run to the FDIC to get $139B in debt backing, not to mention getting themselves on the do-not-short list back in September.

That was when GE was in the $20 range, a mere 50% or so haircut from its recent highs. Now, less mere, more haircut.

Mr. Mortgage Refines His Outlook

Ironically, if you've checked out his site lately, Mr. Mortgage is figuratively homeless for the next coupla weeks. Updates are available by email, once one signs up.

In his latest missive, there are at least several choice tidbits well worth pondering:

CA Jan 2009 home sales fell 22.1% from Dec and were at the lowest level years. The median price hit $224k, down 10% from last month and 53% from the peak. 60.4% of total sales came from the foreclosure stock. This is now a categorical wipeout.

Next, is for the mid to upper end homes to follow in expeditious fashion accelerating the Alt-A, Pay Option, Jumbo Prime and Prime Implosion. This will make the ‘Subprime Implosion’ look like a walk in the park.

Are we running out of buyers? Where will they come from? Homeownership going into this crisis was at an all-time high, credit is tight and the all-important market-moving move-up buyer is gone. Prices are falling so fast and rents closely behind that we could conceivably see a default and foreclosure crisis among investors who bought foreclosures too early thinking they were getting a good deal a year ago. The investor today can rent the home for much less than the one who bought nine-months ago putting pressure on past buyers.

Note to potential buyers of average to nicer houses: as previously mentioned in "But in the Nicer Neighborhoods," end of this year and beginning of next oughter be interesting times.

On Geithner and Bubbles

So there had been some noise about our now Treasury Secretary Timothy Geithner and his taxes, which may or may not be a good indicator of his level of fitness for oversight of ye olde IRS. For review, old hat:

-Geithner paid $16,732 in back taxes and interest for the years 2003 and 2004 after an Internal Revenue Service audit, but didn't amend his 2001 and 2002 returns, which reflected the same error, at that time.

-He made amends for the 2001 and 2002 omissions, paying $25,970 in self-employment taxes and interest, but only after he was nominated to serve as Treasury secretary.

-The IMF circulated documents to Geithner offering extra pay to cover his U.S. self-employment taxes. He filled out the forms and received the extra cash, but he didn't pay the taxes.

All the same, there has been some juicy stuff, albeit somewhat less circulated, about his personal finances:

All of the Geithners' mortgages...carried adjustable-rate mortgages with the risk that annual rate increases could raise their interest payments to as much as 11.25 percent, though the couple tended to refinance or sell their homes before they faced a rate adjustment.

They also took out second mortgages, now known as home equity lines of credit, borrowing a total of nearly $1 million in 2002 on their second Bethesda home, which they bought a year earlier for $1,085,000.

In 2004, they sold that house for $1.45 million and bought their current house in the New York suburb of Larchmont with a $1 million Wells Fargo mortgage, later adding a $400,000 home equity line of credit, also from Wells Fargo.

Just a couple days ago, by happenstance, an otherwise hapless pup thought she mighta saw a putty tat:

"The causes of this crisis are many and complex. They accumulated over a long period of time, and they will take time to resolve," Geithner said.

"Governments and central banks around the world pursued policies that, with the benefit of hindsight, caused a huge global boom in credit, pushed housing prices and financial markets to levels that defied gravity.”

Maybe me simply dumb dog; irregardless, does it not instill great confidence in one's mind that the arguably second most important financial person in the country--if not the world--considers the causes of the crisis manifold and complex, and allegedly requires hindsight to see bubbles in housing and credit? Perhaps elaborate plan, as conniving as certain kibble-crunching kitties.

But truly, what conviction, to actually be smarter than the average bear, but to partake continually of trufflesque ARMs and HELOCs simply to show the masses how good they taste. Kudos to the new Maestro.

Would that I had a smorgasbord of delicacies with which to demonstrate palatability thereof to others. Cruel fate.

Uh-Oh: Ben's Contrite (Sort of)

As previously noted, Ben Stein is probably not terribly smarter than yours truly, which is really saying a lot. He was horribly, ridiculously--yet simultaneously incredibly, inexplicably, smugly so--wrong about financials all last year, and then some. Although, to make it all better, he kinda sorta left-pawedly admits to it now, after a bit of time to reflect, presumably:

I was wrong and Peter Schiff was right -- in a very big way.

He then goes on about how badly Schiff's portfolio has fared (so what? I'd call it bad timing as opposed to fundamentally wrong) compared to his truly guru-worthy index-based vehicle, which was "only" down some 20 percent last year. As if that's something to be proud of. And invokes Buffett's missteps, of which which yours humbly has enumerated a few. By the way, anyone look at GE lately? This is what a certain nameless puppy (whose name starts widda "B" and ends widda "A", and in da middle is "ACAL") said last November:

In October, Buffett swooped in to buy some GE stock at a then-bargain $22.25. That, for a financial black box that many suspect doesn't nearly deserve the AAA rating its CEO constantly has to remind the public it still has.

But enough about dumb dogs; here's the truly worrying Steinism:

I assume that Peter Schiff is a fine and capable man. But he is not Superman. He is a man. No more. Recently I heard him make a prediction on a California radio station of simultaneous ruinous inflation and a complete collapse of the economy. At least this is what I understood him to be saying.

This scenario has no precedent in history that I am aware of. Maybe we have skipped the rails of history, but a huge increase in demand -- fueling inflation -- coincident with a huge drop in economic activity (which is what I understand Mr. Schiff to be predicting -- maybe I am wrong) would make no arithmetic sense.

I've seen some scary stuff before, but Stein disagreeing with Schiff on such a scale is a touch disconcerting, to put it mildly. And, by the way, about the last part of his quote above: HUH?!!! Demand, and demand alone, creates inflation? (Don't see him saying Schiff said so.) Funny, methought money supply alone, independent of demand, maybe could mayhap perhaps create inflation... Silly puppy. Moral of story: read and believe Stein. 20 percent of his portfolio disappeared last year, so obviously big man knows something about fighting inflation.

Here's the punchline, a new one:

Again, I emphasize that I am extremely fallible, too.

Gee, you think?

Again, I emphasize that I am extremely emaciated, too.

SEMI: Ratio or Absolute?

According to View from Silicon Valley, on the one paw, the SEMI book-to-bill (B:B) ratio has leveled off to 0.93 in December. On the other, bookings are way down, to some multi-year low, and still going down. So the slope is leveling, but on the other other paw, the slope can level at any absolute level, and is not necessarily reflective of such.

By the way, according to one late, great Richard Feynman, on making calculus accessible:

The French curve is made so that at the lowest point on each curve, no matter how you turn it, the tangent is horizontal.

Apologies if this tangent wasn't humorous...

Reggie Disrespects JP Morgan

Reggie Middleton's been kinda scary right lately about financial and other institutions being caught in less than ideal financial situations. No one big, just Bear Stearns, Lehman, GGP, MBIA, Ambac, Goldman Sachs, maybe another 32 or so banks he called "doo doo." No, really. He literally referred to them as "doo doo." Is it any wonder I'm a fan?

Anyway, his latest reiterated target is JP Morgan, which he calls insolvent, possibly related to some WaMu-induced indigestion. Possibly not terribly unlike my squeaky-ball indigestion of some moons ago, which sadly required surgical attention, not to mention ritual sacrifice of not a few Benjamins. But the surgical attention was the really ouchy part. For me, at least.

I'm sure this solvency concept is completely overrated. So move along, nothing to see here.

Remember, though: squeaky balls are for squeaking, not scarfing...

Chanos and Citron vs. Apollo

Hypothetically speaking, if one were to run a part-time private school which sounded suspiciously like a four-year type of institution, and charge substantially more than a community-college type place for potentially no better results, would one then want to refund dropout students' loans to the lenders, and then go directly after the students for the money, so that one's reported dropout rate could be lower than might otherwise be fair?

Jim Chanos of Enron-shorting fame is widely reported as having a short interest in Apollo Group, parent company of the ubiquitous University of Phoenix, and Citron Research has dug up some juicy particulars about the company here and here.

Having no use for education, higher or otherwise, I will simply sit this one out and observe. And maybe eat. And sleep. And stare.

What Cliff?

Have reason to believe that if one were to understand TV in a fashion other than flashing colors and the occasional whiny/interesting dog sound or scary huge cat growl, there's this certain Coyote vs. Road Runner dualism one might find amusing. In which our hero, one Wile E. Coyote, ocassionally finds himself temporarily standing on some air. After which his gastronomical needs are apparently (gasp!) delayed.

Here might be one such topographical feature (hat tip Sudden Debt), courtesy the St. Louis Fed:



Which might provide additional fodder for the good ninja rant I previously mentioned. So much for rational actors, and predicting every coming chunka data looking nice and smooth, like in every other previous period. Hoocoodanode (RIP, Tanta)?!

On Unopposed Optimism

Yves Smith (my hero) some time ago blurbed an excerpt of an article which I strongly believe should be read by all who aspire to be critical thinkers. Especially because it lets me off the hook, partially, for being apparently allegedly unabashedly pessimistic and critical. Hey, what can I say? Isn't life supposed to be a bitch, let alone yours truly?

Not gonna bother re-excerpting it; just go and read the whole thing.

Google Blinks

Shoulda put on their doggles. Full story here. Hard to put a good spin on this:

Google is cutting "approximately 100 positions" from its human resources department...
Google will no longer be accepting uploads to Google Video...
Development will cease for Google Notebook...
Its nascent Dodgeball mobile social networking platform is getting whacked...

Cutting HR means less hiring, methinks. No, really. Contract work was officially being reduced some time ago, and anecdotally, vendors were getting squeezed and scaled back on even before that, like mid last year.

Wonder if this hits Mt. View and surrounding real estate. Don't laugh yet; was initially extremely dismissive of this conjecture, but then agnosticism set in as stories materialized about otherwise-penniless mirror-foggers bidding up houses in the area as "investments." And it doesn't seem to happen anymore, but once upon a time, googling "GOOG" got one not only the stock price, etc., but also a handful of ads for upmarket houses for sale in the vicinity of you-know-where. I poop thee not.

Update: FWIW, Blodget not so bullish on GOOG.

California Mortgage Defaults Double in December

And that's month over month, none of this year over year business, according to (who else?) Mr. Mortgage. This when Countrywide's had a Notice of Default moratorium. That's ok; Countrywide's never been a big mortgage originator or (bag)holder.

By the way, there may have been some noises made about my postings being on the negative, ranty side of things. Would now like to rationalize away such inefficient commentary.

For example, the mainstream financial media (worse than useless), believe it or not, is a wonderful source of cheery news. Because as superficially bad as they may sometimes seem to paint things, their censorship leans toward the "Let's not alarm people by giving them bromides like 'stocks for the long haul'" variety. Not to mention cutting out the meat, which is, naturally, not a Good Thing.

And one must like Ben Stein. He's just so very right so very often, and, as a result, so very sure.

Let's not even get started on CNBC or Cramer.

But how about the government? Surely they're on our side? After all, we pay them. Yeah, to lie to and steal from us. One might pause to recall Stupid CPI Games and Stupid Unemployment Games...

On the flip side, there have been some good peeps, such as Jeremy Grantham, Jim Grant, Bill Fleckenstein, Jim Stack, Marc Faber, Reggie Middleton, and still others who've undoubtedly undeservedly fallen out of my possibly overly spacious cranium for no good reason. Listening to their ilk would've not only limited one's losses last year, but most likely made for more kibble liquidity. Latter being an unaggravated Good Thing.

Anywho, the main point of contention here is that the point of the data I point to isn't to point out stuff is bad per se, but instead to point out bad stuff is already baked into the cake, stuffed into the pipeline, what have you. So, not to put too fine a point on it, I'm not saying stuff is bad now, more like it's already primed to be as bad or worse in the future. Don't say you weren't warned.

Update: Heh. How could I forget? Bloggers on my blog list to right not so bad, either. Mostly better than yours truly, at least. They just tend to be more economic than financial, so less linkage to yummies, hence initial oversight. My bad.

Unemployment Begets Employment

Apparently you people chase your own (figurative) tails, too. Who knew unemployment is a growth industry?

Silicon Valley Leads

In foreclosures, that is:

Foreclosure activity increased at a faster clip in Santa Clara County last year than in any other California county, a foreclosure information service said Tuesday.

Specifically:

A total of 18,610 properties in the county entered into some stage of foreclosure in 2008, said the company, up from 5,491 in 2007.

One of the admittedly selfish reasons (hey, gotta look out for Number One!) for starting this blog was to deflect from certain feeders the seemingly incessant barrage of "When are you buying?" queries, hence freeing more time and energy for actual provision of foodstuffs. Hark! Be that distant thunder, or perchance poureth forth the kibble?