RE numbers, economic direction

 The housing numbers for July were actually mixed, some positive, some negative.  Obviously, August will reveal the credit crunch, and therefore, really bleak numbers, but it’s good to know that we went into that month with a little positive information.  The builders seem to have finished everything that they were pregnant with, so building starts are way down, a good omen for real estate values in, let’s say, 5-10 years.
 In Sacramento, CA we had the lowest house appreciation (lack thereof) in the nation second only to Punta Gorda, Florida.  We were one of the nation’s three most overbuilt cities in the boom.  In January 2007, the median home price was 350K, average days on the market was 50 days, the average price per square foot was $230 and the inventory was around 3000.  Now, median home price has fallen to 300K, average days on the market is up to 105 days.  Average price per square foot is down to $210.  Inventory has grown to 5500.
I believe that we will see a fall in home prices, but I disagree with the notion that we are headed for recession.  Most financial analysts have praised the work of the Federal Reserve Board during this period of panic.  The Fed did its job, and kept the markets liquid during what amounted to the same thing that triggered the Great Depression.  We had a run on the bank.  Just like in 1929, the economy is fine, but widespread unjustified panic inspired EVERYONE to reach for their money at the same time.  It’s absolutely stupid that Thornburg, which is primarily commercial A paper, would suffer any consequence from this crunch at all…but hey, it SMELLS like “real estate”, so let’s slit their throat from ear to ear (hear “dump their stock from my portfolio”).  The Fed, taking a lesson from the panic in 1929, infused liquidity into the market, and opened the discount window.  They may lower the Federal Funds Rate in September, and that would also calm some of the panic.
 Take a look at Bank of Japan’s Governor, Toshihiko Fukui, who’s only goal has been to get their prime rate UP to 1%.  The reason he wants to be able to do this is to have a tool to fight recession.  If we lower the funds rate back down to, let’s say, 4.5%, we would reinvigorate the whole subprime process.  Why?  Because businesses are flush with cash, because wages are still high enough to drive consumer demand, because people still want to put their money in the stock market (even if it’s to buy Chinese companies), because unemployment is still at historical lows, because most Americans are sick with the compulsion to spend as much money as they can, and that will continue to drive business activity. 
 The Fed has been very concerned with the possibility of inflation, and with good reason.  What are your wages now?  What were they in 2000?  What could you sell your home for now compared to 2000?  Look at the cost of everything from milk, coffee and bread, to gas, automobiles and insurance.  We have more and more dollars to chase a finite number of goods and services.  The Fed is under a great deal of pressure to lower the funds rate because of the panic of late.  The stock market has already priced in a Federal Funds Rate cut before the end of the year, so if they don’t do it, Wall Street will swoon.  This is a recipe for inflation if I ever saw one.

This is a prime example of what I say that nobody makes any money with stocks. You buy low and sell high. This stock is low. That means that you CAN’T sell it. You have to buy. With the herd mentality (efficient markets) in stocks you have to buy as many of these mortgage based companies as you can. Countrywide (CFC) is trading at 15 now versus a value of 40 just a couple of weeks ago. These companies are no worse than they were then, it is just that the herd is scared now and have driven the price down. There is money all over the floor you need to pick up as much of it as you can. If I were a stock person I would buy every bank and mortgage based stock I could.

Bluemoon, I don’t follow your post.

You say that you can’t make money with stocks, but people do it all the time. And at the end of your post, you suggest to buy all the bank and mortgage stocks possible.

You also said that when a stock is low you can’t sell, you have to buy. But for someone to buy, someone has to sell. Also, there are market makers whose job it is to buy and sell stocks in order to keep markets liquid.

As for Countrywide trading at 15 now versus 40 then, you’re right…the company is no worse off than it was; it’s basically still the same company, although I think you can make the argument that its prospects have changed, at least in the short run. Perhaps it should never have been valued at 40, though.


The stock market is a tool to pacify the middle class. Nobody ever makes any money with stocks. What stocks do is hold your money so that it keeps pace with inflation. Nobody knows anybody who ever got rich in stocks. Every now and then there is a deal to be bought, like the mortgage companies and banks right now.

Now you asked why the stocks are valued where they are? It is because of supply and demand. The reason that stocks are as high as they are is that companies got rid of pensions and started 401ks in the late 80’s and early 90’s. Before that the Dow never got above 1000 and now it is at 13,000. After 401k became the norm, every month tons of money poured from everybody’s paychecks into the stock market every month. It had to go somewhere so stocks got bought and that drove the price of stocks up. The only time stocks move is because of greed or fear. Right now the mortgage companies are down because of fear. You may as well buy a bunch of it so that when the herd forgets that they are afraid of the companys and it goes back up you will own some of it.

Oh, quite the contrary. I know many people who have made their fortunes by investing wisely and for the long term in common stocks. To say that “nobody ever makes any money with stocks” is just not true. And of course I would never go so far as to say that I know Warren Buffett, but he has made a rather considerable fortune buying and holding stocks.

There are such things as good companies, and there are certainly such things as good stocks. Having said that, if you choose not to allocate some of your net worth to this asset class, that’s your decision and yours alone.

Hi Paul, I don’t mean that there are not rich people that own stocks, but they didn’t make their fortunes with stocks. They made their fortunes and then put the money into stocks. The only people that make fortunes from stocks are stock brokers. They make fortunes selling stocks. The problem with making money in stocks is that that the stock market is too efficient of a market. Substantive changes to companies get reflected in the stock price too rapidly for a person to profit from it.

The people you know that made their money by investing wisely over a long time made that money by dollar cost averaging, not by stocks. They could have bought Barbie dolls or gold. As long as you buy anything that goes up over time consistently for years you will end up with a fortune. Stocks are just easier to buy over time. Like I said nobody makes money from stocks.

That is why I am in real estate.