[powayseller]

From today’s Dallas Morning News:

” Finally, investors should not make too much of the recent rally in the Dow Jones industrial average.

The Dow is up about 8 percent since mid-July and seems poised to break its all-time closing high set in 2000.

But while the Dow index has performed well of late, the Russell 2000 index – the most-watched index of small-cap stocks – has dropped more than 10 percent since May.

In other words, the rally is narrow, not broad-based, and that’s typically not a good thing. “

[powayseller]

Add to that the MBS sold through private lenders.

I sure hope the gov’t does not bail out homeowners. The bank can take back the house, sell it to an investor, and let the former owner rent the house. Maybe we’ll see the formation of mutual funds which buy up real estate. I don’t believe the taxpayer should be responsible for the financial mistakes of individuals.

[powayseller]

I’m with MH. Efficient markets means all information about the markets and each stock is available to all investors, so the price of each stock is precise and accurate.

I don’t buy it though. Why did homebuilders go up recently? Why are some stocks trading at PE/s over 15? Why was there even a tech bubble, with stocks earning no profit trading at high prices?

I don’t believe in efficient markets. None of the current pricing makes any sense to me. Besides, some companies play with the numbers too. Fleck had an example of a company that came out with just-before-closing-bell earnings warning which made the stock take a hit, and then in the thinly traded after-hours market they announced they would have a much better year going forward, making the stock rise again. We also have shorting and options and all kinds of trading which further distorts the true value, as those people treat the market like a casino table, rather than being true investors which pay for a stock what they think it is worth. They are buying only for short term holding to play small changes in the price.

Maybe markets were efficient before all the games and the before the speculators took over.

To me, the stock market does not reflect the accurate value of a company’s stock. It just shows what a bunch of speculators are willing to game it for, at this moment.

[powayseller]

Inflation is tamed, but if they are not printing money, then why stop calculating and publishing M3?

RE: commodities. It makes sense, as Zeal says, that commodities will be in high demand, as 3-6 bil people in Asia want an American lifestyle. How dependent are they on the American consumer? Can the Asian countries grow while the US is in a recession? They could not grow in 2000, and they can’t grow today, but can they grow without us in a few years? What is the effect of China printing so much yen, and isn’t that causing inflation?

(Primer: Chinese suppliers are paid by the U.S. in dollars, take the dollars to their bank to convert it to yen, and the Chinese bank has to print enough yen to cover the dollars they were given, to prevent their currency from appreciating. So the Chinese bank ends up with every dollar that we send to China for buying goods. The bank invests those dollars they got from their customers, into U.S. Treasuries, bonds, MBS, equities.)

[powayseller]

poorgradstudent, they’ll probably not be okay. First, is their job recession proof? Anyone in retail, sales, manufacturing, construction, entertainment, travel, is at jeopardy of losing their job or taking a pay cut. What if they get a promotion in 5 years and want to move to San Francisco, but their mortgage is $750K and their home is worth only $400K? They’ll be married to that house for decades. Nobody who buys know can assume they’ll be okay, even if they have a 30 year fixed. And what about the nagging feeling that your neighbor paid half of what you paid for your house? How much will you enjoy your house in 5 years knowing you owe $200K – $800K more than it is worth?

rseiser, when it is the bottom, I think some of us on this board won’t want to buy either. There will be real fear. The masses will not be buying. Only investors and contrarians and independent thinkers like people on this board will want to buy, because they will use logic and data, and not be driven by emotion. But the economy will be bad for many years, and even government and military jobs will be cut, so perhaps some of us won’t even have a good enough job at that time, to buy. Maybe lending will be so tight, we need 10% or more to put down. So the bottom might be a difficult time even for those of us who are expecting it.

[powayseller]

sjk, do you think it was a mistake?

[powayseller]

ronnieb, you have a point. There is so much global liquidity now, even more than in 2000. Where are all those stock market investors going to put their money? They are going to see a slowdown in the economy, but if they take their money out of the stock market, where will they go? Treasuries, which are now paying a decent return? Not real estate or MBS, which are now showing their true risk? Euros or swiss francs? With no place to go, could they stay in equities? Will they switch to emerging market funds? Maybe commodities? They could start buying gold?

[powayseller]

oops – I think it’s “battened down the hatches”. Hatches don’t have buttons.

[powayseller]

deadzone, the sheep thing is very important to our discussion, and I’m glad to see it brought up again. Every bubble relies on sheeple mentality. Yet, we still have to answer why some cities have bubbles and others don’t.

Ok, I am *not* religious, so I have no agenda here, but it seems to me that truly religious people have that sparkle in their eyes, that non-religous people usually lack, although I have non-religious friends who sparkle too. In general, it seems that truly believing in religion makes people happier on the inside, and that could explain less desire for materialism. But I don’t know if this is proven, and I agree that many people use religion as a crutch, just like people use AA as a substitute for alcohol.

Back to the point: whether we like religion or not, the graph jg provided makes a compelling case for a link between religion and housing bubbles. Since we are students of housing bubbles, it behooves us to consider this link, and not dismiss it out of hand. I was so appalled when Gloria Steinem said we should stop research on the differences between male and female brains, because she didn’t want to think these differences existed; however, knowing these differences has been a boon to educators and it turns out that the research proved that boys and girls each have their own strength.

We’ve had two tantalizing links this week to explain why some cities had a housing bubbles, and others did not: Religion and more high-income workers.

[powayseller]

Maybe that explains why England has a housing bubble, too.

I don’t want to start any religion wars here. I don’t even go to church, and I hate going to church, but I want to be open to all possibilities. It makes sense that more materialistic societies spend more home equity and take on more debt, causing a housing bubble. Communities which value family and connections and don’t compare their material wealth, don’t create housing bubbles. John Talbott mentioned something like that in his book. He said Midwesterners are more grounded and conservative so they don’t have housing bubbbles there.

Full disclosure: shares in IBG (I believe in God).

[powayseller]

That info came from the contact agent listed in foreclosure.com, so he was only giving me the info he was allowed to give, I think. Maybe it didn’t sell, and Wells Fargo continues to own it. It was “bank owned” before the auction.

[powayseller]

I agree, that last post you got was on the personal negative side. I get this negative stuff too, and it’s too bad. piggington is supposed to be a community of people wanting to learn about the housing market and investing, and when people pick on each other, it thwarts our community effort.

We show our intelligence and character in how we treat others, and your responses Chris have been exemplary.

[powayseller]

Won’t the banks lower the prices on the foreclosed homes until they are sold? They won’t want to rent them out,will they?

Can someone explain this? There was a Poway house on Twin Peaks Rd that went to auction last week, and the realtor told me, “It was purchased by Wells Fargo 9/22/06 and listed @$655000”. What does that mean? Wells Fargo is listed as the lender on one of the NODs.

[powayseller]

If interest rates are lowered too much, foreigners will sell their dollars and get into euros. There is a tipping point, so the Fed has to be mindful of our addiction to foreign investors. Other FCBs are raising interest rates due to global inflation pressures, so we’ve got to keep ours high enough to attract the foreign money we so desperately need to keep our government employees paid, etc. Party’s over, how can you save a drunk? He’s got to vomit, have a blasting headache, and feel sick for a while. There is no cure for this.

[powayseller]

nsr, my calculations are all there, in the last paragraph, showing how I got 306,000. They are all estimates, but take a look at the calc first, and then tell me if you think I’m off by too much or by too little. I was hoping that people would look at the calcs and give me some feedback.

You’re right, it’s not the absolute number of defaults that matters, but the percentage of homes for sale that are distress sales.

Someone told me recently that the foreclosures I’m talking about are mayne not a big deal in the overall picture, since maybe that is only .002% homes in San Diego in distress; it is a number she came up with to make her point. But .002% of 1.1 million is 22,000 homes, which is almost every home on the MLS today, and would be 1/3 of all homes on the MLS if spread out over 3 years. That is going to have a huge impact, and that is the point that I keep trying to make and it’s not getting across. nsr, you got it though, but for the others, let me make sure you all get it: it is not the number of distressed sales or NODs that matters,but the percentage of distressed homes for sale.

So even if only .002% of homes in San Diego are getting foreclosed right now, that means almost every single home on the MLS is in foreclosure and we would see huge price reductions within weeks as these distress sales compete for buyers! Not only that, it is going to put serious downward pressure on the home prices of the other 1.1 million homeowners and lower their prices a LOT.

I hope I explained it well, but if anyone can make it more clear, please do so. Some of this is hard to explain.

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