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davelj
ParticipantWhile multi-variate regression is a great tool, in many instances often simpler ocular regression does just fine. Ocular regression suggests that the trendline in median price in SD housing will be re-establised about 30%-35% below the peak. I think Occam’s Razor needs to be applied to some of this analysis.
Participant“First, it appears that the housing boom has not been driven by unusually loose monetary policy. This is not to say that monetary policy has not been unusually loose, but that to the extent it has been loose, this is not what has been driving spending on housing.”
Sorry, but it’s hard for me to take anything following the above quote seriously. If you can’t connect the dots and figure that when short-term rates are below inflation (1% vs. some number much greater than 1%) that such loose policy will flow through discount rates and then to malinvestment, then I can’t help you.
In my view, the big three housing boom culprits are:
(1) Too many years of artificially low interest rates via the Fed;
(2) Too much easy credit via lenders (option ARMs, etc.); and
(3) A lack of risk aversion on the part of home buyers and investors, mostly a result of the “Greenspan Put.”I’m sure there are other reasons, but I’d say these are the Big Three.
ParticipantActually, there are legal/regulatory issues with respect to non-regulated entities (that is, almost anyone other than a mutual fund) providing performance data to “non-accredited investors” (investors with less than $1 million in net worth and less than $200,000 in average income over the previous two years). That’s why you can’t just email KKR and get their performance data – you’ll have to fill out an accredited investor form. Private firms break this rule at their own peril. But I think that investment services and newsletters are somehow able to get around this, but I don’t know the details. Chris J, I’d be interested to see your audited performance as well, but I wouldn’t post it here or send it to anyone without checking with a securities lawyer first. Just my two cents.
ParticipantThree words: look out below!
ParticipantBuffett’s not a trader, he’s an investor. Big difference. (Actually, he does a little trading in currencies and commodities, but for the most part his positions are long-term in nature.) One thing to keep in mind: Most great long-term investors underperform a large percentage of the time. John Templeton underperformed the S&P in 40% of the years he managed money, but in the end came out WAY ahead. Bottom line: It’s hard to be a trader (focused on the short-term) and an investor (focused on the long-term) at the same time. Generally, you have to pick one or the other. And if you choose to be an investor you’re going to underperform in the short-term a certain percentage of the time no matter how well you do in the long-term.
September 12, 2006 at 10:17 AM in reply to: “Secret Seconds” Raise risk of MBS default, unknown to investors #35053ParticipantRLA, that doesn’t really make much sense. Without the junior lien the odds of default are lower on the senior lien. So, as the senior lienholder, wouldn’t you just rather have no junior lienholder at all? In other words, wouldn’t you rather just have lower odds of a default period? And if the borrower does, in fact, default, the fact that there’s a junior lienholder that’s also interested in recovering their principal doesn’t really get me very excited. In fact, it’s just one more party that wants their money that I might have to deal with in some way.
September 11, 2006 at 3:49 PM in reply to: “Secret Seconds” Raise risk of MBS default, unknown to investors #34997ParticipantThe senior lien holder cares about the junior lien holders because the mere presence of a junior lien (obviously) raises the odds of default; there’s more debt to service, after all. And while the senior lien holder’s position has more protection, servicing these loans becomes much more expensive as defaults and foreclosures rise.
Think of it this way. As a bank, holding interest rates constant, would you rather hold a portfolio of 70% LTV mortgages with practically zero odds of default OR would you rather hold a portfolio of 70% LTV mortgages all with 20% juniors behind them (for a CLTV of 90%)? Clearly the latter portfolio is more risky and more expensive. Yes, you’ll likely get your principal back, but it’s going to be more expensive from an operating standpoint (servicing, legal, etc.).
Holding the interest rate steady, you’d always rather have a lower risk of default, even if you feel your principal is protected. The mortgage business has very thin profit margins. Add in a lot of additional servicing on an additional 5% of your portfolio and an otherwise good portfolio turns bad pretty quickly even if your principal is protected.
ParticipantThis is basically a repeat from a previous post…
You have to be careful drawing parallels between our current bubble here in the U.S. and Japan’s bubble of the late-80s. Recall that at the peak of Japan’s bubble, the Nikkei traded at well over 100x peak earnings and there was commercial real estate being valued at $150,000/sq.ft. (you read that right). The few square miles around the Imperial Palace in Tokyo were worth more than the entire state of California. Our bubble isn’t in the same galaxy as the Japanese bubble from a price/value disconnect perspective. And while Japan’s savings rates were (and are) higher, they also obliterated a much larger chunk of their savings when the bubble burst.
We have a credit/asset bubble. And the aftermath will be ugly and painful. But I wouldn’t bet on real estate or stock market values being lower in 15 years than they are today, although investors are probably going to be extremely disappointed with returns on these asset classes over that period.
Participantbubble_contagion, I’m confused. These seem to be contradictory statements:
“As of right now, there is absolutely no need to increase the quota.”
“The reason companies hire foreign engineers is primarily that there not enough US engineers.”
Do we have enough engineers or don’t we? And if we don’t, why not let the market sort out who the “generic engineers” and the “brand-name engineers” are, which amounts we need of both, and what their relative values are?
ParticipantJosh, yes I would say that about defense and healthcare. Not so much that they are as commoditized as other areas – they’re not – but I don’t care about the origin of the people doing the work. In the case of defense, so long as they agree not to sell their research to other countries and plan to live here, I have no problem. The fact is that we have a disproportionate number of scientists from Eastern Europe already working in the defense field. Doesn’t bother me a bit.
You “assume its unfair because the costs of education/life/skills are higher here than in other places.” As an engineer I’m sure you see the flaw here. What’s important is not the ABSOLUTE level of wages and/or cost of education/living in two places but rather the difference between them. For example, I’m sure that Indian engineers would have no problem with you coming to India to work for a wage that might leave you with a hundred dollars per month of savings after their much lower cost of living. In contrast, they’re dying to come here because the wages here are extremely high even RELATIVE to our much higher cost of living.
SebNY, good point about the prevailing wage issue with H-1Bs. I had completely forgotten about that. Although I think this discussion goes beyond just H-1Bs and into the issue of outsourcing in general of which I am a proponent (and where generally lower foreign wages obviously prevail).
bgates, I’m assuming that most people who obtain H-1Bs probably would like to become citizens, with which I have no problem. When I distinguised between “consumer” and “citizen” I was just trying to distinguish between the benefits that I might derive as a consumer (which are economic) and the benefits I might derive from living amongst a more diverse population (which are social/cultural). I was just trying to make the point that having highly educated foreigners here isn’t just an economic issue but a social/cultural one as well. You may disagree.
I like the U.S. and I enjoy living here. But I have no great emotional attachment to this country. I live here largely because my job demands it. Otherwise I could be just as happy living in a lot of other places. That’s probably the root of my H-1B/outsourcing opinions, rightly or wrongly. At the end of the day I think people should be forced to compete, geographical boundaries be damned.
ParticipantAs a consumer and citizen I don’t care who does the engineering… or the science… or anything else for that matter as long as it gets done. It’s interesting that you assume that the marketplace is “unfair” simply because you have to compete with people who are just as skilled as you but are willing to work for less. I bet from their perspective it’s “unfair” if they’re not given the opportunity to compete with you. Is it their fault they weren’t born in a country with as much opportunity as the U.S.? What’s fair or unfair often depends on whose ox is being gored.
And why should we care whether native-born people can compete in engineering? The fact is, in this day and age, most engineering and scientific functions are commodities, so why not treat them as such? Because they weren’t commodities 20 years ago? Things change.
Do you now feel solidarity with your brothers in the United Auto Workers Union whose jobs have been exported around the globe for years now? If you do, then Big Auto would be happy to keep those jobs here in the U.S. if you’re willing to pay an additional $15,000 per car. But you’re probably not willing to do that.
So the U.S. churns out fewer native-born engineers and scientists and instead we import them. I don’t see the problem… unless you’re a native-born engineer or scientist trying to compete with these hungry foreigners.
ParticipantYou have to be careful drawing parallels between our current bubble here in the U.S. and Japan’s bubble of the late-80s. Remember, at the peak of Japan’s bubble, the Nikkei traded at over 100x peak earnings and there was commercial real estate being valued at $150,000/sq.ft. (you read that right). The few square miles around the Imperial Palace in Tokyo were worth more than the entire state of California.
We have a bubble. And the aftermath will be painful. But I wouldn’t bet on real estate or stock market values being lower in 15 years than where they are today, although investors are probably going to be extremely disappointed with returns on these asset classes over that period.
ParticipantYou’re a better man that I am, Contraman. You’re right, of course. But when I recall the looks of indignation I got when I sold my place two years ago, and subsequent pedantic prognostications that SD real estate was a no-lose proposition regardless of price, I’m filled with visions of future schadenfreude. I know a few acquaintances and friends of friends who are in real trouble right now. But I don’t have any family or close personal friends who indulged in this recent mania. So, as to the rest I say, “Screw ’em.” As my father liked to say, “Experience is life’s greatest teacher but her tuition is very expensive.” Well, the next few semesters are going to be a doozy.
ParticipantWAMU has been selling 71% of their option arm PRODUCTION, not their portfolio. This has no effect on the loans they keep on their balance sheet; they’re still responsible for all of the neg-am implications for the loans they portfolio.
As with virtually all large thrifts, WAMU owns a subsidiary mortgage company. This mortgage company generates loans, some of which the thrift keeps on its balance sheet (portfolio) and others it sells either in flow, bulk or securitized form into the secondary market. WAMU sells these loans because either they (a) don’t have the capital to portfolio all of the production, (b) don’t want credit exposure to all of the production, or (c) the economics on the premiums they receive for selling the production are better than the economics of keeping the paper on balance sheet.
The loans on their balance sheet, however, they’re basically stuck with for the short term (although they can always try to sell them at some point). And those loans typically fall into two bifurcated tranches: (1) the loans they’re really comfortable with which probably have low LTVs, high FICOs, etc. (the majority) and (2) the stuff they couldn’t package up and re-sell – higher LTVs, lower FICOs, etc. – because the market didn’t want them (the minority). This is the case with most large thrifts. Obviously it’s the second group, the nasty stuff, that people are really worried about.
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