Dear Readers, I would like you to continue and be vigilant about what is going on around you. You/we together can be a great source of investment ideas for not losing money(remember, we are not in the market to make money, we are in it not to lose!).
So, please continue reporting what your neighbours maybe doing that is interesting, what is on the front page of TIME/BUSINESS WEEK/ECONOMIST, NYTIMES etc. Even Local papers and magazines hold the key often.
OK, so here is my story Fall of 2005, Los Angeles California, Downtown Conference center. Main Events delivered by Donald Trump and Guy Kawasakii. One of the attendees my neighbour, who was crazy about buying half a MILLION Dollar house with his 18hour work earnings of $3.000.00/month.
What went through my brain? You guessed it I knew housing will blow, but Now I was confident time has come.
Please, Please, relentlessly report anything you see that anecdotally supports some theses or if not sure just report and ask questions. Thanks
18 comments:
Hello, Boris. I have watched your site for some time now and have learned alot about patience. I have nothing to report as it relates to my neighbors or other seemingly bizzare behavior at this time, however, woud like your input on the following.
I have $750 million CASH in money market making around 5%....what would you do with CASH today if you have time to comment.
Thanks in advance, and if no time, not big deal, your site has been very informative and great resource.
WRONG.....$750k thousand...Sheesh, my bad.
Dear Hamkua,
You are at a right time at a right place( where is the place, by the way). I assume it is USA and perhaps Los Angeles?
In any case, You could go wrong, for a while, keeping low profile. Perhaps you may want to follow our INVESTOR allocation method. They are now 15% invested in high YIELD high quality companies, that do have some downside, but not much of it rlated to SUBPRIME. For example Candaian Banks earn as much as MM funds and, while they can go down, I think down the road they are capable of delivering nice capital gains. ACAS and GLAD two Decelopment companies we advised to purchase YIELD 12 and 10% respectively. Again there is a downside risk, but you can afford to wait this out with double of MM earnings. I have also suggested some of BAC/WFC/USB Us banks, again close or better than Money Market funds with a possibility of high capital gains down the road. Among other individual companies I would look at BC ( BRUNSWICK) company agian 3.4% Yield with a solid financial stadning.
Considering that only 15% is invested at this time. There is a 85% buying power and and INVESTOR suchs you should, actually, pray that markets do go down, so that you can add same and similar companies at YIELDS 7/8% and higher.
Other than that keeping rest in the MM is the best thing to do now, provided that you have a CORE POSITION IN GOLD, to protect you from inflationary outbreak, whcih is coming, but perhaps little later (2010-12 period). Nevertheless I recommend that INVESTOR keep 5%at all times in GOLD and 10% in your case and at this time. Goes down, no worry. I can not here, but can tell you how to make money on that gold so that it actually makes you more than MM and it is safe . Totally.
I would suggest to put another 15% in fixed income securities ( highly liquid) so that if god forbig deflation strikes first you will have something to build on...
THat would be 2-3 Year Treasury Bonds ( If you were with us we rcommended them at 5.3% and now have 25% total, capital+interest , gains on it).
Other than that you ENJOY life and try to stay away from REALESTATE unless you find an absolute fire sale where you buy the property for 25/30% below at where the similar properties sold recently.
GOod Trading
Dear Hamakua,
Thanks for your correction.
And here is one more thing.
Please check out your MM fund.
Make sure they have no mortgage and /or commercial paper in it.
Good Trading
Boris, you are really a Saint. I will post your reply to my personal Blog so I can start working on my allocation. BTW, I am now in Houston area where I did find close to fire sale property and bought for cash. I was in Florida for a while where homes are still $150 psf price range for '$350k Track House, model A-D' whereas you can get REAL custom home in Suburban Houston for $93 psf....so I worked the deal as much from a demographic perspective as well as 'Fire sale' perspective. Best to you and your family here at your Blog and at your home.
Dear Hamakua,
We appreciate your reporting on you findings abut real estate, I am not sure if it will ever feel the same way as late 1980 and early 1990 when Dallas prperties were given away for $20-50 a month. OIL crash has then created a total nirvana for those with cash...
Please, keep reporting and smae well wishes to you and family and readers.
GOod Trading
Coincidentally, I worked in Dallas when commercial mortgage crisis was going on. I remember it well More importantly, I remember Don Carter (then owner of the Dallas Mavericks) started buying commercial buildings for 10 cents on the dollar. He bought the building I worked in for $10 million whereas it sold for $120 million just a few short years before the crisis hit. I worked for one of the largest RE developers in Dallas at that time and he at least had the foresite to refinance all his 'WRAP' mortgages ($65 million) before real collapse occurred. He took the money to Isle of Man and put it in Asset Protection Trust. Althought he was sued for the money after the collpase of commercial RE, he paid only 10 cents on dollar for settlement as the FEDS could not penetrate the Asset Protection trust and Isle of Man had 5 year minimum wait to get through their legal system. Thats my long story short about Dallas. :-) Bottom line, CASH was KING...it just took fortitude to know when to buy rock bottom prices and as you said, its not going to be near as obvious this time around. (compared to '90's)
Dear Hamakua,
3 Cheers for Ol good times(: :)
GOod Trading
Dear Hamkua,
Consider Adding KMP and EPD, couple very find GAS pipeline companies. They make money when gas is up and they make money when Natural gas is down. Cause the people need to use the gas and it flows and they just collect money for that traffic. Nice business ha...
They YIELD around 7% which is nice safe 7% with small downside risk.
Good Trading
We live in the estate section of a subdivision, so, even though we do not intend to sell, you can see our bias for the following.
Some here do intend to sell, but are waiting. The WSJ reports that the legislative and executive branches "strongly favor" raising the mortgage limit that Fannie can back. The limit is currently $417k. Above that are called "non-conforming jumbos".
With that limit in place, a $500 loan carries a 1 to 2% higher interest, which comes to $5k to 10k more/y.
The favored raise is to $1m, and the reported time frame is to make the change prior to Mar 08.
When, if, the limit is raised, I think you'll see jumbo houses moving again to some extent.
If you average 1, 2, 3, 4; you get a number. Remove the 4, and you get a smaller number. So, with jumbos currently off the market to some extent, the national averages are mathematically lower.
When, if, jumbos move again, the reported average numbers will increase.
I wonder if this will cause the media to report a bottom in the housing market. If so, I am thinking this will probably occur around march of 08.
Who of you readers thinks this could spark a general turn-up in all residential and thus commercial realestate too? Is this what the stock market is anticipating with the current rally? If so, does this rally have legs even into 08 and beyond?
Dear Will,
Our Approach to markets requires kind of data that is not available in housing.
While it is hard for us to see exact timing via methods we ordinarily use, we can still try approach the issue on a MACRO bases.
Whatever the events in March 2008 I personally dount that it would mark "THE BOTTOM" of the real estate market.
Why?
For the following reasons.
According to the research I have seen and personally experienced, it takes more than 2-3 years to finish the downturn in housing.
Last housing downturn started in 1987 and did not end til 1994. On the average I think it takes about 4-7 years for the HOUSING DOWNTURN to bottom.
Having that said, how does one account to this downturn when it is anything but similar to postwar downturns?
I find it hard to relate to this downturn within the context of the post wwII history.
So, where do we go?
I would go to Japan as it is could be closest thing that looks like this one.
So, Jpanese Real Estate has turned up only after 16 years of downturn from 1989 to 2005. Is this what we are in for?
Frankly I do not have definite answer, but I doubt that this downturn will not be longer and harder than any others before it, which means that it will probably be as bad or close to what Japan experienced. If this is the case than we are looking at a downturn that lasts from 7-15 Years. OUTCH.
I do not want to predict this and I would hate to see that. For the sake of average American...
But I got to get info somewhere and as a stundent of history, I got nowhere to go but here:
While ON and OFF the USA real estate may not bottom before 2015 and it could last into 2022!
That does not mean that we will not have , what looks like "final bottom" reapeatedly called and "seen" buy the public and economists. Alas it maybe all illusionary.
We do think that the market resliency( Stock Market that is) may flow into the real estate market on more time and we could get a boomlet in RE by 2009-2010, but downturn after that could really be brutal.
We will update this forecast as we go, but this is the best we can do at this time.
Good Trading Dear Will.
Glad to see you here and please come back and update us with your own views as well.
Boris,
I have two things
1. I have been trying to sell my house for almost a year. Took it off the market for the holidays. I have lowered the price 4 times and had two offers. Both of those offers could not get financing.
2. I am doing the grocery shopping for a while as my wife recovers from an illness. The first time I have been in a grocery store in approximately 8 years. The prices are double what I remember they were in the 1999 time frame. I could not believe what just milk, bread and produce costs. I would conservatively say that they have gone up 8% a year since I last went grocery shopping.
old john
Dear John
Marry Christmas to you and to your family. May the new year bring only health and prosperity to you and especially health to your wife.
Your anecdotal view of the inflation is correct and perhaps understated and Government keeps telling you that inlation is low , so that they can screw you on Socalial Security COLA.
Good Trading
NY times articles are usually good for shorting or buying
http://www.nytimes.com/2007/02/10/business/10five.html
This one was good for shorting IYR (commercial real estate)
This one appeared on feb 10 (the day after IYR made an all time high). I bought some puts and closed them out after two days, when IYR fell by almost 5 %
Another instance is the summer lows - Both NY times and BBC printed (in their online editions) quite big articles about the stock market decline when the big intraday decline (and reversal to upside) occurred in mid -August.
My mother also asked what was happening with regard to the US banks when she called me from India
All this pointed to a low. But I was too caught up in the hysteria to realise this at that time
Dear Hajime,
Both of you examples are very good.
I like the first one more thogh(: :). I hope you forgive me for choosing(: :)
In any case how sweet was it to short IYR when SAM ZELL was selling out on his Empire of REAL ESTATE holding accumulated over 25 years.
Good Examples My friend.
Please keep reporting those kind of feelings you get next time. And thanks a lot
Good Trading
3 NY times Op Eds on the mortagage crisis and MBIA goes up 11 %
http://www.nytimes.com/2007/12/26/opinion/superheadhouse.html
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMRlP9tmnX10&refer=home
Dear Hjime,
Thanks for your stories.
Good trading
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