San Diego Housing Bubble News and Analysis

I work in Real Estate development (Retail) so I am watching things very carefully. I have two projects under development right now (start construction very soon, both 60% leased or greater and in prime locations). The other projects we have on the books are 2+ years out through entitlements. Plus the land is owned free & clear so we can wait out the market. We have a very strong (multiple millions of sf) portfolio of existing high quality real estate that kept the company going through the 90's.

On the personal side, I have almost all my money sitting in savings accounts earning 5-6% interest. I have maybe 5% of my portfolio in stocks and both are long term holds. I have another 20% of my portfolio in two real estate projects in Arizona & Texas. I am nervous about them a little but we don't have extreme leverage so we can stop distributions and give rent abatement if needed (plus we have 6 months of reserves for both properties). No CC debt, and renting. I do have a car loan but it's minimal and I only owe 40% of the KBB value (at 3% interest). God forbid I was to loose my job I could pay rent and all other expenses with the income from savings accounts.

That about sums it up. I am going into this market with eyes wide open.

Hunker down...gonna be an interesting ride for all of us.
It will be interesting to see what happens on Wall street next week. Consumer sentiment and spending is still high, however this may not last long. All the lead stories on national news networks seem to be stocks slide and real estate problems. Will this result in a reverse wealth effect? Consumer spending is accounts for >75%+ of economy. I'm sure that someday I'll again be bullish on both real estate and the stock market. Certain sectors will probably continue to thrive and some Hedge funds have made big bets against housing and are making a killing now.

Bubblesitter

My situation boils down to this:

- I am a homeowner who has accepted that my home, worth perhaps $550k at the peak of the madness will be declining in value rapidly, maybe to half of the peak value.

- My only debt is a mortgage balance of $148k.

- I have an STRS pension and contribute to a college fund for my kids each month.

So, I guess you could say that I see things the Piggington way in terms of what will happen in real estate, but I want to give my kids the stability of growing up in the same house. It was tempting in 2005 to say "Let's take the money and run" but most of our equity is phantom equity that came to us with the blowing up of the bubble, and which will go away as it deflates.

JS

Bubblesitter has officially declared July 18 as the peak of of this cyclical Bull market.

Stay tuned when Bubblesitter makes a similar announcement identifying the bottom of the real estate market. Be patient, it will be a few years.

Note, for entertainment purposes only ;)

Big down day on Wall Street

The LBO craze is over, the long bull run is gasping, and credit is crunching.

Any Bulls still out there?

I just moved 50% of my 401k into cash equivalents. I kick myself for not shorting all the stuff I wanted to (blame it on being conservative). I will not miss jumping in full force to this market when it hits the bottom.

radelow, I've been doing the same slowly for a while. I also do not short since I am smart enough to know I don't know enough. After this drop today, I am finally up overall for having pulled money out of the market. The big question is, when to start putting it back in?
Do you pick a date (I've heard October--don't know the rationale) or do you pick a random number, like 12500?

The biggest and smartest thing I've done is move away from anything that is heavy on financials, homebuilders, and consumer discretion. I have been heavy beer and band-aids since spring (as well as foreign since '05)

-one muggle

ps. I'm not more risk averse, since I've been skittish for some time. Now I just feel less timid and smarter (or less stupid, at least) for being risk averse.

Am I more risk averse now? You bet I am. I own no stocks -- haven't since 2001. I have cash, and soon will be getting a bundle more due to a legal settlement. And I have NO IDEA what to do with that pile of money to come. I just know I want to preserve what I have. I have two years to retirement. CDs don't seem a good way to go -- have to pay tax on what you earn and I don't think the rates are beating inflation. I feel like I'm hunkered down in the foxhole.

If you have several 100K $, you may want to diversify your currency even if you want to remain in cash. A good mix of GBP, EUR, Yen, CHF (Swiss Franc), Canadian $ etc., may be better than all USD. Expect severe devaluation of USD due to balance of trade, credit risks, budget deficits etc.,

picpoule, merely a suggestion, but you might look for tax free bonds and/or stashing a little bit each month over the next year or three into safe harbor stocks, like KO, JNJ, BUD or UFCS (examples, NOT specific recommendations). These type have global reach, are fairly steady (most days--not today ;^) )and/or generate a decent dividend (taxed at 15).
Even though you are retiring in two yrs, money that you plan to need 10 yrs from now is still typically game for stocks.

IMHO right now is not the time to dump your money into stocks, but with the dollar cratering, you might want to consider slowly dribbling money in during this bear market rather than sitting on it all. It is nearly impossible to time or measure the exact bottom or top. Better to pick good companies or index funds and invest long with dollar cost averaging.
One last suggestion, if you really don't know what to do with the cash, hire a professional FOR A FLAT FEE, not a percentage, to explain your options. (If you work for a large company, your retirement fund company for 401k/403b or the like will have seminars every few months. They typically steer you to their own products, but mine at least tells you other options.
Finally, websites like clark howard or motley fool have free and fee info sites that are helpful.

Good luck.
-one muggle

ps. Ditto bsrsharma--but that is too complicated and scary for me. I sleep better buying foreign stocks to leverage off the weak dollar.

I'm short homebuilders (have been for 2+ years), mortgage and some fixed income including leveraged bank loan ETFs like FCM. I do have a treasury short that's not doing well as it was an inflation trade that's getting beat up by the flight to quality. Can't win them all.

I have an account that actually pays interest on short balances which has been a nice addition to the return in the account. I do have other stocks which are long term investments that I'll probably never sell as well as foreign investments via mutual funds in retirement plans. Pretty well setup for a down market.

It is looking to be an another interesting week on Wall Street.

I wonder which surprises we'll see from Hedge funds, lenders, homebuilders and others. Does anybody know how many employees Accredited Home Lenders (LEND) has in San Diego? This one is another strong candidate for bankruptcy and liquidation. What are the odds that the acquisition actually going thru given their significant stock collapse?

What a day on Wall street and the European exchanges. Tonight I'm watching the credit worries hit the Asia markets. The markets have been on a real roller coaster the past few weeks. In my opinion, the near/mid term upside potential for stock market is extremely poor. For those still on the coaster, you are in for a rough ride.

Are you folks reading Bloomberg? Businessweek? Marketwatch? Look what is going on! Nearly EVERY STORY is about the Credit Crunch, housing woes, etc. I talk to many folks who are completely unaware of what is going on. The average Joe seems to be oblivious to what is going on and the impact on his life. He will continue to be oblivous one day he notices his ARM resets, unable to refinance he goes into foreclosure. In 10 years, we will probably all look back and say "it was so obvious, how did we miss the elephant in the room?"

http://www.bloomberg.com/apps/news?pid=2...

"average Joe seems to be oblivious.."

And will remain so. Some one said: It is Recession when your neighbor loses his job; It is Depression when you lose your job. Till unemployment crosses 5% it is good time. At 6% it is worrisome. At 7%, all hell breaks loose.

I think that this credit crunch crisis is getting more water cooler talk. Most folks still don't seem to grasp what is going on.

Please review every prospectus in your 401K/403B and taxable accounts. You may be suprised to find many "safe" bond funds of these have heavy holdings of MBS - Mortgage backed securities.

As a measure of how risk averse I am now, I have even shifted money out of Money Market Funds in my multiple 401K accounts. Although safer than bond funds, some of these MM funds are loaded with an unknown amount of potentially risky asset-backed securities and other "paper" that could be pulled down by the mortgage mess. I shifted all of these assets into Govt treasuries.

I have scrubbed and rescrubbed my entire portfolio to ensure minimal exposure to MBS and associated fallout. Are you folks doing similar things?

http://www.mlnbank.com/Services/premCDs.htm

Bubblesitter, interesting that you opened this thread on about the same day that the market topped, and the same day that Eric Jantzen at iTulip called a market top. You have obviously been doing your homework.

I am definitely more risk adverse today than even a month ago. I posted this link on another thread, but I'll post it again here:
http://market-ticker.denninger.net/2007/...
I had a lot of cash in one particular internet bank, several times the FDIC limits. It's four star rated by BankRate.com, and I had thought that the chances of it going bust are slim to zero. I have rethought that notion with the turmoil of the past month. Even if the bank doesn't fold, there is a good chance that there will be "runs on the banks" out of people's fear which could cause systemic risk. I feel it's better to be prepared than not. Kinda like the saying "it's better to have a gun and not need it than to need a gun and not have it." So I'm transferring my cash to other banks and opening additional accounts to keep the amounts within insured limits. It's a big hassle. I'm one of those people that likes to have things all in one place. But I've always believed that the successful people in this world are those that are willing to adapt to changing circumstances.

ARE YOU KIDDING ??? Millenium Bank Accounts are NOT FDIC insured.

I have been to St Vincent & the Grenadines. It's a poor Caribbean Island nation with a small bit of tourism.

Countrywide Bank accounts ARE FDIC insured. I wouldn't risk $100,000 in cash to MAYBE get a couple thousand dollars a year.

You are risking $100,000.00 to maybe get $2,000, MAYBE.

I see on their site they have a LOAN BACK program.If had a CD there, I would get 95% out and be safe. I don't care what their past history is.

I'll stick with Countrywide Bank or similar FDIC insured accts!

This Millenium band sounds very high risk.

Hat tip to Davidt1.......

http://www.fatwallet.com/forums/arcmessa......

http://www.bankaholic.com/2006/millenium...

If you have more than 100K and are concerned about your deposits, spread it among a number of banking institutions. I would feed much safer in CW bank than Millenium

As the old adage goes, if it sounds too good to be true, it probably is!. 7%+ return on a CD is too good to be true!

More info on Money Market Funds. Troubling news for those who thought their MM funds were safe. I'm shifted out.

Gold (ETFs), US Treasuries and 6 month CDs at FDIC insured institutions. That is the my entire portfolio now.

I would suggest you scrub and rescrub your portfolios for MBS, and MBS Derivatives. This is gonna get alot worse.

http://www.bloomberg.com/apps/news?pid=2...

http://www.bloomberg.com/apps/news?pid=2......

(Excerpt from above link)
"Subprime Infects $300 Billion of Money Market Funds, Hikes Risk

Aug. 20 (Bloomberg) -- Money market funds were invented 37 years ago to offer investors better returns than bank savings accounts while providing a high degree of safety. Most of the $2.5 trillion sitting in these funds is invested in such assets as U.S. Treasury bills, certificates of deposit and short-term commercial debt.

Unlike bank accounts, money market funds aren't insured by the federal government. They almost never fail.

Unbeknownst to most investors, some of the largest money market funds today are putting part of their cash into one of the riskiest debt investments in the world: collateralized debt obligations backed by subprime mortgage loans........."

Is there a reason to go with a money market fund when you can just put the cash in an interest earning checking account and earn 5-5.5% right now? EG: Wamu, more than 25k, earns 5+%

WaMu has an online savings account that links with an online checking account. No minimums, pays 5% in whatever is in the savings account.

To me, that is preferable to keeping $25K as a minimum balance in a checking account. Plus, you can easily transfer funds online just minutes before your check would bounce - only a click away!

Consumer sentiment is now starting to erode per today's consumer confidence numbers. The reverse wealth effect may be starting to take hold. People now feel less wealthy, and will spend less.

Consumer spending accounts for >75%+ of economy. A drop in this will lead us rapidly to recession. I hope I am wrong.

I have progressively become more risk averse since July.

We are probably in for a rough week ahead after friday's big selloff on Wall street.

I still remain extremely bearish and now have an even larger gold % holding since July. I've held off acquiring an even larger gold position due to the likely gold selloff to cover margin calls in the event of a steep Wall street drop.

We saw a similar thing in late July, gold dropping a number of percent due to liquidations to cover Margin calls. Since then gold reached further heights, with the dollar reaching all-time lows against the Euro. Since July, I've continued to convert some of my US Dollar-based liquid assets (currently in CDs at FDIC-insured institutions) into foreign currency. I believe there is fundamentally nothing that can prevent the continued erosion of Dollar's value.

I'm planning to convert the remaing US Dollar cash reserve to acquire more gold (after a big stock market selloff) and diversify completely away from the Dollar.

Root cause of this remains the collapsing housing market and associated MBS and derivative markets. This SIV bailout plan is likely to fail and credit markets will probably be in trouble into next year.

The remaining leg holding up the economy, the US consumer is tapped out. We are very likely already in recession. The call for a starts of recession are always determined after the fact, after revisions in previous month's GDP numbers come in.

Are there any stock bulls out there?

Bubblesitter

"Let's take the money and run"

We took the money and "walked down the street and rented"

"but most of our equity is phantom equity that came to us with the blowing up of the bubble, and which will go away as it deflates"

We also took that "phantom equity" and invested it and now it is "Real"?

Am I a stock bull? Yes for the right stocks. I won't sell my long term holds for another 20 years unless their fundamentals change. For my trading account I added new money in May and am up 13% after Friday on those picks. Just one loser (CAT). Still scratching my head how SLB loses 11% in one day after great earnings, but I'll chalk it up to the sell on the news crowd. I never trade during earnings season unless it's a stock that gets crushed for no reason and their long term propsects are still intact. SLB just got ahead of itself. I own CAT and am getting a little disapointed in them. Their comments really triggered the sell off and they did that exact same thing last qtr. I may buy S&P puts prior to their January announcments because their CEO seems intent on issuing negative economic statements in order to cover his ass over poor results.

Overall, I think the Fed will continue to cut rates, and I was actually happy about the sell off for that reason. If we go to new highs prior to Oct. 31 Bernanke will have no ammo. The market is now pricing in a 1/2 point cut.

I beleive the weak dollar will help multinationals, and I think there are some undervalued tech plays out there (EMC). India and China still have an enormous amount of infrastucture to build out and they have an up and coming class of consumers that had no access to even telephones just 5 years ago. Over the next 10-20 years there will be tens of millions of new consumers for cell phones, computers, TV's etc. and the dominant tech suppliers should thrive.

For now I'm avoiding banks and homebuilders like the plague although there will be tremendous buys at some point in 2008 once we see who survives. I own small positions of puts on both groups.

Still have quite a bit in cash earning 5%.

So I guess I'm a bull.

I'm still bullish on a couple sectors, but nearly completely bearish on everything. It seems very likely we are already in a recession.

I'm holding on to diversified oil and oil services companies. I'm still a believer that emerging markets (China, others) will continue to drive demand even during this recession. I guess the $64K question is whether the world catches a cold when the US sneezes.

I agree that some US export-centric manufacturers, Boeing, CAT, John Deere etc are in a good position with the weakening dollar. Strong food commodity prices may especially help Deere....more combines harvesting expensive wheat.

Some tech companies should do well, e.g. especially ones with good sales outside of US, Qualcomm, Microsoft, Cisco, etc. I'm scoping out small companies in alternative energy that may have defensible intellectual property that may make a breakthrough e.g. higher efficiency solar, biodiesel,etc. Famed venture capitalist Vinod Khoshla is now focused on these types of investments. Public ones are tough to find.

Still holding onto Gold via an GLD ETF, it is a larger % of my portfolio due to the run-up last year. I'm planning on using part of it for a down-payment for the next house.....in a couple years.

Bubblesitter

I am in a similar situation, but my gold has been less than I would like. GDX is going up and down more like a stock, than a commodity - but GLD has been o.k. I am also long in Euro bonds that are doing well, but expiring this month.

I am real leary of stocks, but all that money has to go some where and the stock market may be the only place that can absorb all of the "new" dollars. I am hedging with SDS which goes up double when the S&P goes down.

I may want to shoot myself later, but I am thinking that there may be some bargains in the market, and that the overall market may be lackluster, but some discount consumer staples may do O.K.

My real worry is a fire sale on the dollar, and any dollar denominated CD's and bonds may be seriously hurt.

I'm still stickng with my original plan (posted in Oct. aove) with a few adjustments. I got out of CAT and a couple mutual funds in my trading account and only hold DE and BRK alng with some international mutual funds. Lots of cash on the sidelines and hopefully more once a few RE deals close later in 2008. It seems like a good long term (5-10 years) trade will be the companies that benefit from emerging middle class in India, China, etc. Should mean higher corn, wheat, meat prices as they inprove their diets. Railroads should benefit, fertilizer companies, DE, etc. I'm looking for some ETF's that might fit that model. Anyone have any ideas?

Financials were actually th best performing sector last week despite the bad news which could signal something close to a bottom for them, but I doubt it. I think the BA buyout of CFC may lend some transparency to the entire financial sector over the next 6-9 months. They aren't expected to close until the 3rd qtr. so BA will have time to uncover every blemish on Angelo's arse during that time (sorry for the visual). Meanwhile I expect the write offs to continue for at least the first 2 qtr's of '08.

A good trade might be the bonds of some these financials and hombuilders although many have already rallied.

My cash earning 5% is now earning about 3.5% so that's dead money. Need to put it to work.

anyone watching amd? between intel and amd, it's a duopoly and amd has been hammered for some reason. they also own ati which, between nvidia and ati own the graphics processor space.