Shadow inventory

Take a few minutes and consider the comments made recently by Robert Shiller. "People have gotten very speculative in their attitudes towards housing . . . " wasn't speculation what got us into the mess in the first place? Are you prepared for the housing market languishing for many, many years? There are literally years of inventory not yet on the market, being held by banks who have foreclosed, or intentionally stalled foreclosure proceedings, which will at some point need to be liquidated. This is going to very ugly for many many years.

Click on link above or cut and paste below.

http://finance.yahoo.com/tech-ticker/article/278952/%E2%80%9CAnother-Bubble%E2%80%9D-In-Housing-It-Could-Happen-Says-Yale%E2%80%99s-Robert-Shiller?tickers=UMM,DMM,XHB,DHI,KBH,LEN,PHM&sec=topStories&pos=8&asset=&ccode=

Paulson = Satan???

As you may recall I am a Mike Morgan fan, his website http://www.Goldmansachs666.com
is great. Below is something he forwarded recently, Paulson starts to face the music, unfortunately it doesn't change the fact the Paulson and his colleagues have literally stolen TRILLIONS of dollars. As usual, click on title above or cut and paste link below.

http://www.youtube.com/watch?v=4MH_oz9f1E4&eurl=http%3A%2F%2Fzerohedge%2Eblogspot%2Ecom%2F2009%2F07%2Fpaulson%2Dpwned%2Ehtml&feature=player_embedded

CalPERS loses $60 billion last year alone

$60 BILLION
That's a lot of money!
So now according to the attached (click on title above or cut and paste from below) article CalPERS is suing the ratings agencies who claimed the crap that CalPERS bought was actually AAA. Why are they only suing for $1Billion???

According to US Census Bureau there are almost 37 million people in the state of CA, that would be a little less than $2,000/person.

Also according to US Census Bureau, only 11% of those people are 65 or older. That's just a little over 3 Million people, meaning that CalPERS lost close to $20,000 per person aged 65 and over in the state last year.

I don't know how many of those people are drawing from CalPERS, I think I read that they have about 1.6 Million members. So if my math is right, that's a loss of almost $40,000/person last year alone!

I wonder how much the average CalPERS pension recipient was actually paid last year?

Oh well, at least it's in CA where there is plenty of money and the State Government is rolling in the dough!


http://finance.yahoo.com/tech-ticker/article/284859/CalPERS-Lawsuit-%22Just-the-Tip-of-the-Iceberg%22-for-Rating-Agencies-Wall-St.-Alpert-Says?tickers=mco,mhp,gs,xlf,fas,skf,faz

Harry Dent call, US Dollar, US real estate, illiquidity

Last evening I had the opportunity to attend a conference call with Harry Dent. I left the call absolutely certain that the single most effective way to tie oneself to the US dollar is by owning US real estate debt free. Illiquid, impossible to trade in other currencies, devaluing rapidly over the next several years - both the dollar and the real estate, so by combining them you have the opportunity to leverage your stupidity!

Why vacant land is worse than worthless . . .

The attached article describes a very real situation, click on the title above or cut and past http://www.dailywealth.com/archive/2009/Jul/2009_Jul_15.asp?printdoc=print into your browser.

Here's the sad but true reality I have shared with many clients, and others with whom I have consulted over the past several years . . .

Take a typical property built in your community over the past 5-10 years. Let's assume a 2400 sq ft home on a .25 acre lot

Now look at the cost of labor, materials, and permits to build that property.

Next add in the cost of having your money tied up while the house is built.

The total of these items is in most cases already (and in other cases/areas soon will be) MORE THAN the cost to buy the 5-10 yr old home on the .25 acre lot already built, sold and probably foreclosed on.

So if the cost to build the home is higher than what it could possibly sell for, and we haven't added anything in for acquiring the land (paying the taxes on it etc) what is the land worth?

let's look:
2400 sq ft home
materials @ $50/sq ft = $120,000
labor @ $50/sq ft = $120,000
permits = $5,000
interest on money = $5,000
Total to build the house = $250,000

3 year old finished home (in some markets never even lived in) on a lot can be bought for $200,000.

What is the lot worth?

if the difference between the 2 properties is one has a lot and sells for $200,000 and the other has no lot and sells for $250,000 and you set aside your emotions and actually apply logic the value of the lot, as you will quickly realize is NEGATIVE $50,000 - but wait, it's worse. If you own the lot and aren't building on it to sell it and make it go away, you simply have the privilege of dipping into your pocket to pay taxes, fees, etc for something with a negative value! Woo Hoo! Sign me up for a dozen!!! Idiots, if you think that's a great deal how about you just give me the money for the taxes, fees etc and I won't even make you take something with a negative value, how much further ahead would you be then? (of course I would be too!)

If this isn't yet the case in your market . . . it will be. Thinking of investing in REITS, TICS, Home Builders, Developers etc? Why not take your cash, set it on fire and heat your home with it, at least you'll get something for you money!

Here they come . . . Commercial mortgage defaults increase - ALOT!

According to the article below (or click on title above for direct link)
Commercial Mortgage Backed Security default rates were only 1.62% in the 4th quarter of 2008 and then jumped to 2.25% in the 1st quarter of 2009. I know we midwesterners are slow, but if my math is correct that represents a 38.9% increase from one quarter to the next. Holy Shit that's huge! Scary thing is there is no way that any of those numbers are accurate, I would bet the whole damn ranch that real numbers are in excess of 10% of these CMBS's being in default. You watch, it's coming. Be smart and stay out of the way, don't get sucked down with the sinking ship!



http://www.costar.com/News/Article.aspx?id=563521C73456CCABB61C92BFA4DB2DDC&ref=1&src=rss

California leads the way . . . right?

I just read this, if CA leads the way, what do the rest of us have to look forward to?

If You Live in California, Here's What You Do... By Dr. Steve Sjuggerud

Would you lend money to someone who is completely broke and in a mountain of debt... and only demand 3.75% interest? That's what California is forcing many people to do today. California is out of money. But it still must pay people. So it's paying in "IOUs" instead of cash. By the end of this month, California will have handed out over $3 billion in IOUs. These IOUs are only supposed to last for a few months. And they pay a 3.75% annual interest rate.

How will this end? Some investors are getting excited – they earn interest AND can potentially buy these IOUs at a discount to face value in exchange for cash. Me? I have no interest in these things. I've seen this exact game before... It happened in Argentina in 2001. The lesson was this: You don't want to lend money for a tiny bit of interest to a broke state that has no problem changing its laws on you. In 2001, the province of Buenos Aires ran out of money. So it started issuing IOUs called "patacones" that paid 7% interest. What's a patacon? It looked like money, but it matured a year in the future. The man on the street was confused... Many merchants flat-out refused to accept patacones (though McDonald's offered a special "Pata-Combo"). "One peso buys a cup of coffee or a newspaper... but what will you be able to buy with one Patacon?" an Argentine woman asked the Wall Street Journal in 2001. She had no idea how prophetic her words were... Long story short, a U.S. dollar's worth of patacones held in late 2001 were worth about 30 U.S. cents a year later at maturity, after the Argentine peso crashed. And that's much better than money issued by other Argentine states... For example, the "federal" issued by the province of Entre Rios north of Buenos Aires was worth maybe 10 cents on the U.S. dollar a year later. Now, I don't expect a repeat of Argentina's crisis in the States. I don't expect the California IOUs to fall to 30 cents on the dollar. At the same time, I'm not interested in giving cash today for a patacon, er, a California IOU that promises to pay me back at some future date with only a small amount of promised interest for my troubles. The government of California is broke. If you're unfortunate enough to receive California "patacones" try to get rid of them. Use them to pay your taxes, sell them to the knuckleheads on Craigslist... do whatever you can.

These Tax-Free Bonds Are Still a Great Buy
This Country Is the World's Most Likely Candidate for Hyperinflation
But don't hold them. The historical record of broke governments issuing IOUs doesn't offer much promise. The "reward" of 3.75% interest versus the risk simply isn't worth it. Get rid of your California "patacones" if you get 'em... Good investing, Steve P.S. These IOUs are different than municipal bonds. Some California municipal bonds actually could do just fine – particularly "revenue" bonds, which pay you back directly from the project the bonds financed, like a toll road.

Russian Perspective . . .

Russia has 2 primary periodicals, one is primarily propaganda, the other tends to be far more realistic. Pravda, the non propaganda periodical ran the following article a couple of months ago. I had lunch recently with a Sr Professor of Accounting and Finance at Pepperdine University. He shared this article with me and asked for my perspective. I commented that I felt it was probably a very fair and reasonable perspective of what is, has been and will be occurring here in the United States. He concurred. I suppose this will provide even more material for one of my future books “I remember when the States of America were United.” I found it ironic that a country half a world away, who has themselves recently gone through revolution and economic collapse, can so clearly see what we here in the United States refuse to see. Fortunately, for Dr Kinsman’s students, there are still a small handful of people in this country who actually think for themselves . . . are you one of them?

To access the article click on title above or cut and paste below


http://english.pravda.ru/opinion/columnists/27-04-2009/107459-american_capitalism-0