Forum Replies Created
-
AuthorPosts
-
powayseller
ParticipantLet me explain. The end holders of these mortgages are investors (central banks, pension funds,etc.). They demanded a low risk premium for investing in notes for overvalued homes. Had they expected a 5% risk premium, Ameriquest could never have offered a 2% ARM.
Second, capitalism makes companies compete. Further, Wall Street pressures on ever glossier profit margins has caused these lenders to accept ever-greater risk, ever-lower profit margins, just to compete.
The biggest blame goes to the elimination of risk premium, as borrowers qualified with no money down. If MBS holders had priced in a 8% risk premium for 100% financing, borrowers would not have qualified. They also couldn’t have bought homes for 6x their income if they needed even 10% down.
This is just a product of capitalism. Not bad, but the role of regulator is to tame the excesses. The OCC is doing that now, or trying, but they are a little late…The damage has been done.
ParticipantExcellent point. The housing bubble is caused by loose lending, which is just a byproduct of capitalism, and a lack of lending regulations to protect the public. The recent OCC regulations should have been put in place a long time ago.
Realtors market themselves by person, whereas lenders market themselves by company. That’s the difference, and that’s why someone gets mad at Eric Zoey the realtor vs. Ameriquest the company.
ParticipantSmith left out inflation. Adjusted for inflation, home price has been cyclical, and more so in certain locales. Wages were rising fast in the 80s, as was inflation.
He also left out this: Exotic loans.
It really IS different this time.
ParticipantOur friend in Boston said he was in his 30’s.
April 19, 2006 at 8:58 PM in reply to: Here’s a link to that SHAMELESS Century 21 commercial… #24374ParticipantIt’s too cheesy. The guy seems like a wimp. And they’re buying a house bec. a gal named Susan said they could do it? Oh, and her mascara is running…
April 19, 2006 at 6:32 PM in reply to: The effect of stopping raising short term interest rate by the Fed #24370ParticipantDocteur, I’ve held that Legg Mason fund since 1999, and I sold it yesterday. Bill Miller wasn’t always right. He admits losing 4% in returns last year because his internet stocks were down. Next year, he’ll have to admit he lost 6% in returns because his homebuilders were down. I disagree with his decision to load up on homebuilders, so when I reviewed my investment portfolio (for the first time since 2000), and saw what the large exposure to RE, I sold it immediately.
This is what Bill had to say in an interview 2 weeks ago:
Q: How are you positioning the fund? Have you made any changes recently?
A: We run the fund with a long-term orientation. We try to buy businesses that are cyclically undervalued due to the economy or specific to the company. We have no energy exposure. We’ve been increasing our technology exposure for the first time since 1995. We’ve went to 38% to 40% in tech.We recently added Dell (DELL) and H-P (HPQ) to the portfolio. We think they’re as cheap as they’ve been since ’95.
We also added homebuilders, but we’ve bought a cluster of them, such as Centex (CTX), Pulte (PHM), Ryland (RYL), and Beazer (BZH). The biggest mistake people make in the markets is confusing the trend of fundamentals and the direction or attractiveness of stocks. Builders are just too cheap at six times earnings, even with housing weakening, which it undoubtedly is.
END QUOTEAs a value investor, Bill looks for companies/industries which are temporarily out of favor, betting that in time, they will shine again. He’s betting that their strong balance sheets will overcome their bad timing in the market. I bet he will lose money on that portion of his portfolio. He’d be better off putting that homebuilder money into commodities: copper, coffee, sugar, lumber, gold, palladium silver.
Here are some bullish arguments in favor of homebuilders from MSN Money.
April 19, 2006 at 4:00 PM in reply to: The effect of stopping raising short term interest rate by the Fed #24359ParticipantDid the Fed care when billions or trillions or whatever it was, were lost in the stock market? They lowered interest rates to stimulate the economy, but most American stock owners lost big time in stocks in 2000.
They’ve already said they don’t care about housing, and that history doesn’t look kindly upon people who don’t expect a risk premium.
I disagree with your assumption. The Fed looks out for the health of the economy, perhaps favoring businesses, but not John and Suzie Q Homeowner. Layoffs from manufacturing losses? Did the Fed jump in with fiscal policies, or Bush w/ trade policies, to prevent offshoring?
Just remember, for every Joe Q that is in foreclosure, there is a John Smith who pocketed the profits, or a bank that made the interest. The benefits were reaped. It’s a zero sum game…
April 19, 2006 at 2:24 PM in reply to: The effect of stopping raising short term interest rate by the Fed #24357ParticipantHousing is a dead horse.
I heard this on the radio yesterday: several Fed members wanted to stop raising rates. Well, they didn’t get their way! Bernanke will keep raising until inflation is contained, and to keep foreigners buying our dollars. He doesn’t care if housing tanks.
The effect of raising interest rates has a 6-12 month lag in the economy. The 4.75% effect won’t be felt until fall or spring 2007. That’s why the Fed has to be careful, so they don’t overdo it. They won’t know they’ve overdone it until it’s too late. We also must be patient for the effect of raising interest rates to be felt in the economy. Look, banks are still making record profits. Did you read the U-T today? Banks are down on the lending side,but up on fees (I assume credit card late fees). Only subprime lenders are shutting down. The big banks are not affected, (yet…)
Let’s all remember that we’ll have about $1trillion of ARMs resetting next year, and $330 billion this year. When those ARMs reset, even if interest rates stay at 4.75%, folks with intro rates of 1% or 2% will see their payments go up 50-100%! The Fed is expected to raise to 5% in May. Anyone with an ARM is screwed, and they won’t know it until later this year, or sometime next year.
What happens if the Fed actually lowers the rate? It could save housing, unless the psychology against housing is too strong, and monetary tightening is keeping lenders from making those silly loans.
It’s unlikely the Fed will lower to save housing. First, they don’t care about housing per se. They need to contain inflation, and keep foreigners buying our dollars. This requires keeping rates up.
The Fed has additional reasons to keep raising. First, competition. The European and Japanese Banks are raising their rates. I think the Fed will have to keep raising, to entice those foreigners to buy Treasuries instead of euro or yen notes. Second, inflation. The commodity bull market is good for investors, but bad for inflation, as the higher cost of materials will get passed on in increased costs of goods.
Long term mortgage rates are set in the bond market, which gets their lead from short term rates, but is held artifically low by excess demand from foreigners. As their demand wanes, prices decrease and rates go up. That’s one reason that the rates on long-term bonds went up recently: Japan purchased less than usual at the last auction.
A little off-topic: at what point will foreigners really shift from buying our debt to buying our assets? On one hand, China must support the dollar, bec. they need work for those millions of peasants moving into the city. They need to keep the USD strong, since we are their biggest customer.
At some point, their consumer spending will pick up, and they will no longer need to keep their currency weak enough to support our purchasing. Then they can buy US assets, like ports and buildings and oil companies, instead of our Tnotes. They can buy euros, francs, and invest in their own factories. They will, but I just don’t know if the shift will be this year or in 5 years.
ParticipantI checked my Vanguard index funds, to make my Sell move today. I realized they are all doing well, and may not be at a high PE. I’ve owned all since May and August of 1999: Pacific, European, Emerging Market, Small Cap Growth, Small Cap Value. All have gone up 50% – 100% since I bought them. Is there any reason to think they are overvalued? Perhaps there is a good run left in them. I made a good move: back in 1999, when everyone was piling into money-losing tech stocks, I loaded up on out-of-favor index funds.
I did sell my stocks: CAT (from $37.81 in 2000 to $79.06 today0, RUBO ($6.13 in 2000 to $9.35 today), and UPS (from $55 to $82 today). I sold Gillette ($21 down to $13) and Proctor and Gamble ($55 then and now). Overall, I am up ahead somewhat. I mention these stocks to give an indication that I ran against the herd, and it worked out okay for me. So far.
Now the question is: is there a compelling reason to hang on to those index funds? I don’t know how to find the PE of the foreigns ones. The Small Cap index pes are 19 and 24, so perhaps ripe for a sell. I will wait to sell the index funds until I can evaluate any feedback I get here.
ParticipantI found the Greenspan link.
In a 2005 testimony to the Senate Banking Committee, Greenspan said , “We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power. ”
At least we won’t have to worry about getting our Social Security checks when we retire. The government has a plan after all!
ParticipantI thought you guys could figure it out 🙂 Actually, his other writings are much easier to decipher.
What he seems to be saying is that the median sales price for March was $610K (based on 258 Closings), and the median sales price for April will be $577K (based on the 239 most recent Pendings).
On the other hand, April Closings as of today (98 closings)are $629K. Balance that against the fact that Pendings are only $577K, and April could well be the high point for median sales.
He didn’t try to explain why the April Closings so far are so much lower than the April Pendings.
I like reading Jim site now and then, because he analyzes the data, and gives us a 2-month lead time on the NAR and Dataquick reports. I know it’s only a couple zip codes, but with about 250 monthly sales, it does give us a general indication of the SD market.
April 17, 2006 at 11:11 PM in reply to: UT Sunday Home Section article “Is there a buble? Do the math” #24317ParticipantOk, don’t just tease…Give us the stories.
ParticipantChrisJ, I have used the Dogs of the Dow approach myself. Except I tweaked it, and used those Dogs that I thought had a better hope of recovery. My mistake was holding on too long. Delphi, DuPont and Caterpillar were 3 of the stocks I picked at that time. I just sold CAT, and the money I made almost made up for the money I lost on Delphi:) I will make sure I do it right next time!
What do you think about commodities, or the Jim Rogers International Commodities Index Fund? The supply-demand imbalance should cause a bull run for commodities for many more years.
April 17, 2006 at 3:27 PM in reply to: UT Sunday Home Section article “Is there a buble? Do the math” #24300ParticipantSdrealtor, I hope everything turned out ok with your son. You didn’t mention it again, so I assume it did. We do earn less in SD for the same jobs, yet pay more for housing (relative to the rest of the country). This double whammy is called the “Sunshine Tax”.
-
AuthorPosts
