Archive for July 29th, 2008
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07
2008
Real Homes of Genius: Today we Salute you Long Beach with our Real Home of Genius Award. 792 Square Feet for $109,900. Built During the Great Depression and Offered at New Depression Prices.Posted by: admin in Real-estate newsDid you hear that? Probably not because that was the sound of Treasury Secretary Hank Paulson’s bazooka shooting out a dud. The market on Monday simply reaffirmed what we all know at our core; housing is still a long way from any bottom and even though the Senate signed off on the housing […] Did you hear that? Probably not because that was the sound of Treasury Secretary Hank Paulson’s bazooka shooting out a dud. The market on Monday simply reaffirmed what we all know at our core; housing is still a long way from any bottom and even though the Senate signed off on the housing bailout bill, not much is going to change except putting the American taxpayer on a bigger hook. The market hit a bottom on July 15 of 10,962 and rallied to a high of 11,632 on July 23 for a gain of 670 points. Yet in another 5 days the market gave back 501 points to stand at 11,131 on July 28. The market today just had another rally based on “better than expected” drivel even though nationwide housing prices drop for a 22nd month in a row putting prices down by 15.8% nationwide according to the Case-Shiller Index. This means more write-downs in the future but the market is trying to act like we are at a bottom. Merrill Lynch on Monday after hours announced more write-downs to the tune of $5.7 billion and stated that it will seek to raise capital. Capital which only a short time ago it stated was not necessary. This is what CEO John Thain had to say in April of this year: “(Fortune) Despite this quarter’s loss, Merrill Lynch’s underlying businesses produced solid results in a difficult market environment,” said Thain. “The firm’s $82 billion excess liquidity pool has increased from year-end levels, and we remain well-capitalized. In addition, our global franchise is positioned strongly for the future, and we continue to invest in key growth areas and regions.” Apparently the global franchise means getting cash infusions from worldwide players. When Hank Paulson made the bazooka comment, I suddenly had visions of Paulson holding a t-shirt gun, loading it up with cheap shirts, and blasting it all over the American public. The shirt reads, “I bailed out Wall Street and all I got was this crappy mortgage.” It is easy really, to forget the actual reason we got into this mess. The pervasive psychology that home prices only went up. This was true until it wasn’t of course. Yet any person with common sense and a basic understanding of economics knew that we were living in a bubble. There was no regulation and enforcement of any kind. It was as if mom and dad had left two teenage boys for the weekend in a house full of liquor and the urge to party expecting to come back to a clean home. The Miami Herald (hat tip J) has a great series on mortgage fraud. In what seems like a bad episode of Cops, these were the folks responsible for finding and helping borrowers fund their homes: “When Scott Almeida walked out of federal prison and into the mortgage business, he took a gamble. He admitted on his license application that he had been convicted of cocaine trafficking. Florida regulators — responsible for protecting borrowers from predatory brokers — could have rejected him on the spot. Instead, they asked for a character reference: He gave them a note from his mom. They said he needed a reputable supervisor for his practice: He chose a guy he met in the prison visitor room. They asked for a copy of the court file but never demanded the police report, which shows that he had been caught with a small arsenal of assault rifles and ammunition, in addition to the cocaine. Their background investigation complete, regulators circled ”approved” at the bottom of the screening checklist, collected a $215 license fee and looked the other way.”
*Source: Miami Herald Bwahaha! A note from mom. That is simply absurd. You can see the Three Stooges running around and doing some slapstick comedy while handing out licenses like free candy. What’s next, giving a credit card to a cat? Oh yeah, that actually did happen: “(Australia) MESSIAH Campbell was considered a good enough credit risk to be given a card with a $4200 limit - which was surprising considering he’s a cat. His Melbourne owner Katherine Campbell wanted to test the limits of her bank’s identity screening process and applied for the Visa credit card on Messiah’s behalf. She was amazed when it was approved. “I just couldn’t believe it,” she said yesterday. “People need to be aware of this and banks need to have better security.”
So now we are left with a disastrous mess and the mortgage kitty litter is all over the world. If you really want to get some serious perspective, the median priced home of the biggest state in the country California is now down 37.7% on a year over year basis. In fact, let us take a look at the top 30 zip codes in Los Angeles County with the highest year over year price declines:
*Source: DataQuick As you can see, many zip codes in Los Angeles County have already broken the 50% year over year decline barrier. One zip code in Long Beach has passed the 60% mark and we will go hunting for a home in this area to see what we can find. In all, there are 270 zip codes in Los Angeles County over 88 cities; many cities like Long Beach and Los Angeles have multiple zip codes. If you want a break down of the list, here it goes: > 60% decline 1 zip code > 50% decline 11 zip codes > 40% decline 29 zip codes > 30% decline 76 zip codes > 20% decline 134 zip codes > 10% decline 198 zip codes > 0% decline 225 zip codes Number of positive zip codes 28 zip codes 17 zip codes with no data Let us now go house hunting in the negative 65% zip code in Long Beach! Today we salute you Long Beach with our Real Home of Genius Award. Built During the Great Depression for this Depression
This amazing “Spanish style bungalow” sits on a whopping 792 square feet. We are told there are 2 bedrooms in this place and we are offered a great piece of perspective photography. To show you how big this place is, a car is parked right in front of almost the entire length of the home. The ad tells us this is on a “quaint” street and the price is so low that you’ll “have some money left for a hammer and some paint!” for needed work. Need we say more? The home was built in 1929 which of course is the infamous date of the stock market crash sounding the start of the Great Depression. When we take a look at one of the rooms, it looks like we are going to need that hammer and paint:
This home is a foreclosure so what do you expect? The price tag may be right for a maverick investor. Currently it is listed at $109,900. That is right. A place in Los Angeles County that is a single family residence (yeah, technicalities) that is almost in the six-figure range. Now that is why this zip code is down by 65% in one year. Let us look at the sales history to see what shenanigans occurred: Sale History 10/22/2004: $176,000 04/02/2004: $156,200 There was a lot of action on this place in 2004. The current reduction is 37.5% (amazing how it almost matches the state median price decline) but a far cry from the 65% drop. Given the market antics in California I wouldn’t be surprised to find a home purchased by a ferret with a $500,000 Pay Option ARM mortgage. Current rents in this area go from $850 to $1,000. So is this a good investment? Not really even though prices are coming down and at least with this place we can run the numbers. So here we go. First, you will need to invest money in getting this place rent ready. Clearly you are going to need more than a hammer and some paint to make this place livable so that is money out of your pocket. Let us assume you buy this as an investment. For investment properties rates are higher and normally require a minimum of 10% down. So let us use that assumption: 10% out of pocket: $10,990 Loan Amount: $98,910 (30 year fixed at 7.5%) PITI: $805 per month Average Household income for area: $31,053 You are barely cutting it here. Keep in mind that the California unemployment rate is 6.9% and quickly rising. Lower to middle class areas are the first to feel the pain and rents will be coming down in these areas. After all, if people aren’t working it is hard to make the rent payment and many are living paycheck to paycheck. Keep in mind you have already invested $10,990 and you can expect negative to no appreciation for the next few years. It is apparent that there is a major housing crash in California. Those thinking that we are at a bottom need only look at the list above and this current example (or any of the other Real Homes of Genius homes) to understand that we have further to go. Today we salute you Long Beach with our Real Home of Genius Award.
Post from: Dr. Housing Bubble Blog Related Posts:
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07
2008
Before the bell: Citi earnings push futures higher despite MER, GOOG, MSFT disappointmentsPosted by: admin in Goog news
Filed under: Before the bell, Major movement, Earnings reports, Google (GOOG), Microsoft (MSFT), Market matters, International Business Machines (IBM), Citigroup Inc. (C), JPMorgan Chase (JPM), Merrill Lynch (MER), Oil
Many on Thursday started wondering if we have seen the bottom. Stocks rallied for a second straight session as oil continued its price drop. Better -than-expected earnings for JPMorgan Chase (NYSE: JPM) again lifted banks. The Dow Jones Industrial Average gained 207.38 points, or 1.9%, the S&P 500 index rose 15.7 points, or 1.2%, and the Nasdaq Composite Index gained 27.45 points, or 1.2%. Without any economic releases today, the market will continue to focus on earnings, and investors have a lot to mull, especially after Thursday’s wave of financial results releases after the close, and with financials and techs being in the center of attention. After JPMorgan Chase brought on some optimism with its results Thursday morning, Merrill Lynch (NYSE: MER) reported after the close a wider-than-expected loss of $4.65 billion, or $4.9 a share, on $9.7 billion of credit-market writedowns. The loss per share was larger than any analyst had expected according to Bloomberg survey. MER shares are declining over 4.8% in premarket trading. But then, Citigroup Inc. (NYSE: C) reported this morning a smaller-than-expected loss. The largest U.S. bankposted a $2.5 billion second-quarter loss, or 54 cents per share on about $7.2 billion of credit-market writedowns. Analysts estimated the loss would be $3.67 billion, according to a Bloomberg survey. Citi shares are up over 4% this morning in premarket trading. Also, three tech giants reported after the close Thursday: Microsoft Corp. (NASDAQ: MSFT), Google Inc. (NASDAQ: GOOG) and IBM (NYSE: IBM). Google missed expectations despite posting a 35% growth in profit and its stock is over 7.2% lower in premarket trading. Similarly, Microsoft also missed Wall Street’s expectations despite posting a 13% profit growth and MSFT shares are down over 5.5% in premarket trading. IBM, however, topped estimates with its 22% profit growth. Many more earnings were reported Thursday and this morning. Will the ones that beat expectations offset the disappointments? This is how today’s session will likely play out.
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07
2008
Serious Money: 10 finance stocks as the market bouncesPosted by: admin in Stocks Money News
Filed under: Major movement, Rants and raves, Berkshire Hathaway (BRK.A), Market matters, Citigroup Inc. (C), Money and Finance Today, Merrill Lynch (MER), Serious Money, DJIA, Lehman Br Holdings (LEH), Stocks to Buy, MBIA Inc (MBI)
There are plenty of prognosticators explaining why this happened and so I am not going to join the crowd this afternoon with my own version. Leave it to say we are in a period of uncertainty where investors and traders alike are a bit jumpy. We did have a 5.8 magnitude earthquake today in Southern California, only fitting for this type of market. In the meantime I have been wondering how to take advantage of the lousy situation in the financial sector of the market. How can I maximize my gains and and control risk at the same time? I guess we are all trying to do this, but few will appreciate my contrarian, ‘no guts no glory’ approach. I think you have to be buying banks and investment companies and I have decided that ten is the right number. Sir John Templeton (RIP) is the catalyst for this notion. I am already on record (Serious Money: More signs the market has bottomed) that this is the time to be selectively buying and ‘my pal Warren’ said as much at the Berkshire Hathaway (NYSE: BRK.A) annual meeting when he suggested the financials have seen the worst of the storm.
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07
2008
Barron’s covers Intuitive Surgical with wet blanketPosted by: admin in Stocks Money News
Filed under: Chasing Value, 25 Stocks for Next 25 Years, Stocks to Buy, Intuitive Surgical Inc (ISRG), Technology, Best Stocks for 2008
The stock is down in early trading today, but that is probably warranted given the runup last week when it jumped $52 in one day after it reported one more mind boggling quarter. I only exaggerate slightly as the company beat estimates by 10 cents a share and increased margins in all areas, when I reported then, Chasing Value: Intuitive Surgical beat the street AGAIN! The Barron’s story, Surgical Robot Cuts Both Ways by Andrew Barry questions the stock’s valuation and the company’s projections of expanding sales and service figures. Mr. Barry points out that the stock is trading at sky high valuations and that any disappointment could result in a 25% drop in the stock price. I would remind ISRG fans and stock watchers that this has happened on many occasions without any bad news. It had reached a high around $360 per share and then traded down until it took a dive into the $240s when Wall Street decided that the slowing economy and tighter fiscal restraint on the part of hospital administrators would dampen ISRG’s prospects in the second half of 2008.
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Filed under: Deals, Cisco Systems (CSCO)
Well, recently the company agreed to sell out to Cisco Systems, Inc. (NASDAQ: CSCO) for $120 million. Both companies already have an OEM deal — through Cisco’s Linksys division. Essentially, the deal is a part of Cisco’s vision of the so-called “connected life.” And, no doubt, it should be a huge market opportunity (yes, I’m sure our toasters will eventually be hooked up to the Net). However, this vision will require some extremely complex technologies. And at the same time, it needs to be easy to use for the consumer. But it looks like Cisco has had some success with Pure, which should help with the integration process and minimize some of the technology risks going forward. Tom Taulli is the author of various books, including The Complete M&A Handbook Permalink | Email this | Comments
My posting last week was relatively light due to a hectic business travel schedule Monday-Wednesday and then the Inman Real Estate Connect Conference in San Francisco. It was great to be participating in the conference, but the big highlight for me was meeting CR of Calculated Risk and Merlin Mann both in person. Connect had a great setup with an opportunity called “Meet the Leaders” where you could come up and talk to the keynote panelists. I wasn’t missing out on meeting either of those two gentlemen and I’m glad I did. If you haven’t you should check out Calculated Risk (it’s a must read for the mortgage/economy) and Merlin Mann (his site is a must read for productivity). In addition to those two folks I met a ton of real estate bloggers (too many to name here) but it was great to meet all those folks and talk instead of blog and comment at each other!
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2008
5 solar stocks that can triple, how do you rank as a taxpayer & all about housing home bill - Today in Money 7/28Posted by: admin in Goog news
Filed under: Google (GOOG), Toyota Motor Corp. (TM), Money and Finance Today, Verizon Communications (VZ), Hasbro Inc (HAS), Tyson Foods’A’ (TSN), Kraft Foods’A’ (KFT), Unilever ADR (UL) In the News:
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07
2008
Merrill Lynch gored by $5.7 billion worth of write-downsPosted by: admin in Stocks Money News
Filed under: Merrill Lynch (MER)
The biggest shocker was, as Reuters reports, that Merrill signed a contract with Singapore’s Temasek, a sovereign wealth fund, that requires Merrill to pay $2.5 billion under terms of a previous stock sale to Temasek, along with $2.4 billion in required dividends to preferred shareholders. That’s because under its previous deal, Merrill had agreed that if it sold shares at too low a price in the future, it would reimburse investors. Temasek has agreed to purchase $3.4 billion — or 28% of the new offering. In other words, Merrill is paying an extremely high price for its capital. The second shocker was how much of a write-down Merrill is taking on its portfolio of collateralized debt obligations (CDOs). Private equity fund Lone Star is paying 22 cents on the dollar, or $6.7 billion for CDOs with a stated book value of $30.6 billion. At that rate, the holders of $2 trillion worth of CDOs outstanding earlier this year would need to take a $1.56 trillion haircut if they sold all the CDOs. And I don’t think they have nearly enough capital to be able to afford that. Continue reading Merrill Lynch gored by $5.7 billion worth of write-downs Permalink | Email this | Comments
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U.S. stock futures turned higher Friday morning after earnings from Citigroup that beat expectations offset disappointment from Merrill, Google and Microsoft. There was also some pressure from oil as prices rebounded to above $131 a barrel, following 
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