I hope he is right about the housing market, but I can tell you for a fact as I am on the streets daily hunting deals here in NC, there aren’t too many to be found due to the “investors” from the northeast and california speculating on the North Carolina gold rush hype the realtors are having fun with down here. There are websites dedicated solely to these investors here that want nothing to do with someone like me. Check out deaton.com
I laugh here sometimes because I post A LOT of material about our current economic situation. It’s bad, and going to get a lot worse, you all know that already (at least you know it’s MY opinion) But I laugh because some people think it’s too NEGATIVE, but in reality it’s THE MOST POSITIVE news ANY long term REI could ever hope for.
I’m telling you guy’s, YOUR KIDS will study what we’re about to go through in their economics classes 20 years from now. It will THEN be seen as the SINGLE GREATEST buying opportunity in the history of REI.
My warnings to you all are DON’T SCREW UP NOW!!!
The guy’s with CASH & FINANCING will rule the world!!!
Don’t be stupid at this point. You blow it now and you’re on the sidelines when the FUN REALLY STARTS.
JIM CRAMER??? Did you watch the clip??? ONLY ONE EXPLANATION…
THAT’S A MAN LOSING A LOT OF MONEY!!! DON’T BE HIM!
Jim made a VERY telling comment while at a Yankee’s game recently… I believe it shed’s a very bright light on his outburst.
Jim’s sitting a few rows up from a on field reporter when one of the announcers recognizes him… The reporter runs up a few stairs and say’s “Hey Jim, got any advice for ball palyers on what stocks they should be buying???”
His reply blew my mind…
“Stocks??? Stocks??? are YOU kidding me??? These guy’s shouldn’t have ANY STOCKS. Their already millionaires like me, I don’t own ANY stocks. My money and theirs should be IN BONDS!!! That way you can sleep at night.”
Now it all makes sense, JIM’s losing his shorts buy the DAY. They just closed 3 more bond funds this morning!!! Do you know what that means??? Your $3 million long term “safe” investment is GONE!!!
Why should WE care??
THOSE “investments” FUND YOUR REAL ESTATE PURCHASES!!!
While I don’t see a total financial Armageddon occurring, I do think it’s gonna get way uglier before it gets better. There are a number of connected factors that lead me to think this, but the two main ones are panic and opaque valuations.
We are seeing panic create this volatility, particularly Thursday’s market plunge. When you have the ECB infuse $130B overnight to ensure liquidity and our Fed issue $24B in repos - that’s panic. It’s panic stemming from the second factor - opaque valuations. For example, the French bank BNP Paribas blocked redemptions from a fund exposed to mortgages because they reportedly couldn’t establish a valuation for those underlying mortgage assets. As a former commercial banker and bank regulator, that scares hell out of me! Maybe I’m reading between the lines and seeing something that’s not really there, but that rationale tells me that the bank was/is afraid to make a mark-to-market valuation of whatever tranche they’ve got. If that’s right, their fear is due to that they really don’t know how bad it is…or they do know how bad it is! Not sure which would be worse.
I think the panic is also being driven by less than accurate statements by big players; if I’m not mistaken, very recently Goldman Sachs said rumors that it was going to liquidate a hedge fund were totally untrue but lo and behold, it was selling off parts of that portfolio. I think the markets are far better able to absorb an up-front declaration that something is in the crapper, than to get surprised after hearing to the contrary. Erode credibility and ya got problems… (I am not a conspiracy-theorist, but I couldn’t help think of Enron’s Jeffrey “I Am Now A Convict” Skilling’s declared reason for leaving the company before it collapsed: family issues. Right.)
Panic is contagious…I personally witnessed otherwise rational people behave like crazed cattle. Long story short - in early 1987 a group of us (FDIC) in Dallas were ordered to fly to Tulsa immediately as there was a potential run on a bank (lots of banks and S&L’s failing then, remember) so we left with nothing but the clothes on our backs. We arrive at this bank and there were multiple lines of panicked people wrapped all around the place. Despite the existence of FDIC insurance and despite that very few of these folks were in danger of being over the insurance limit, there was fear - irrational fear but fear nonetheless…and it just fed on itself. The lines got longer. We got the bank locked down on an OCC order, which gave us time to talk to the depositors in person and via TV interviews (my first time on TV!) and to assure them that their money was safe - even if the bank ultimately failed.
All this is a real long way of saying that panic/fear is a hell of a catalyst and that its effects are multiplied because of the interconnection of national and global institutions and currencies. It’s really ironic, but I think that if on Friday the Fed infuses more liquidity - or worse, make an extraordinary announcement that short-term rates will be decreased - then either of those actions will be read as confirmation that this really is deep doo-doo and that SecTreas Paulson is on crack…and then down we’ll spiral.
Back to your regularly scheduled news…and cash accumulation.
Yes, David thanks for the insightful post. It’s refreshing to see someone post their actual observations and experiences rather than repeating the same-old Cramer hipe and expousing the virtues of getting your economic data from you-tube. On a side note I bring a similar background to the table, commercial banker and regulator in Florida during the 80’s/90’s. It was great experience.
I hope I didn’t offend you with my references to youtube.
After all you “bankers” created this mess. I hope I didn’t insult you now that the true depth of the situation is coming to light.
I just thought that seeing one of the most widely watched (notice I didn’t say GOOD) market “authorities” literally MELTING down on national TV might shed a small insight into how bad this situation is becoming. Did you know that “The Meltdown Clip” was THE most watched clip on youtube last week. See if you can follow me here. MOST WATCHED CLIP ON YOU TUBE!!! From a guy with THE HIGHEST ratings on CNBC and YOU don’t see where that MIGHT be a further problem for market SENTIMENT or even for confidence in these markets???
But I guess that information is a little light weight for a “Commercial Banker”
I LOVE statements like your’s. Guess when markets collapse???
When the EXPERTS get it WRONG!!! Sort of like how all those bankers totally screwed up their predictions on where real estate prices would be going. You know the Harvard guy’s who thought loaning money to losers, or even better, BUYING those loser loans, was a GREAT idea. Hey, how could they lose??? No one EVER loses in Real Estate.
Hey, I’m just a dumb Real Estate guy with some REAL WORLD experience. You’re a former “bank regulator” WOW, that title REALLY carries some weight now a days huh???
Bank Regulator… Oxymoron??? I think so!!!
Your right, posting links to financial market telecasts is no good.
Welllll da-yum! It appears Bernanke neither read my post above or received my telepathic message! Seems the infusion of another $19B has exacerbated the panic today and damned if the Fed didn’t also make an announcement that the “discount window remains open” - least it wasn’t that an emergency rate cut was coming down!
Pete - thank you for the kind words above. Just a bit of clarification…The bankers that are behind the exotic derivatives involved in this meltdown are not commercial bankers - they are investment bankers. Those folks such as the ones at the I-banks (Bear Stearns, Goldman Sachs, Morgan Stanley, etc.) and those in the I-bank arms of commercial banks such as my former bank (JPMorgan Chase), are a totally different breed and have a totally different perspective. Matter of fact, they always looked down on us as poor, dumb cousins…but that’s okay, I never lost much sleep over how I was thought of by those folks. While there are certainly exceptions, commercial bankers are quite conservative when it comes to risk. I can’t tell you how many times a customer of mine bitched 'cause I would only allow a 20% advance rate for raw materials on their borrowing base.
And talk about conservative - bank regulators, at least examiners - are such with a capital “C” almost to a person. Hell, they make a commercial banker look like an I-banker! Too bad it’s not those folks looking over the I-banks’ shoulders, as I don’t things would have happened as they have.
On a news note, I heard a bit ago that the SEC is now looking over several I-banks’ books to make sure that they aren’t concealing anything…and that’s as far as I’m gonna go with that! Interesting times indeed!!
Thanks again for your post. I have a slightly different take on the subject.
Let’s use Miami as an example. 20,000 condo’s for sale currently, with another 22,000 coming online in 2008. As of right now some of these completed projects have occupancy rates of only 20%. That’s a LOT of empty condos!!! Commercial banks made those loans. These are multi-million dollar projects. Those commercial banks, in my opinion, have an equal amount of responsibility here. The I Bank guy’s might be the ones passing the rotten egg around now, but the commercial banks laid it!
I’m sure all those loans were based on solid financial credentials, but, come on. 42,000 condo’s in MIAMI??? It’s going to be a disaster down there. Some economists are actually predicting a local depression.
The I Banks guy’s might have came up with the creative financing but the commercial bankers had NO problem “feeding the beast.” Plenty of GREED for everyone.
Pete, you have a point and one taken…I fear I’m guilty of a myopic snobbishness in that I don’t really consider commercial real estate (CRE) bankers as “real bankers.” In my experience, most of 'em have a “if we build it, they will come” outlook and woudn’t know a true commercial loan if it hit 'em upside the head, much less how to structure one.
Before my time at the FDIC, I was a commercial banker at a bank which failed…Guess why it failed - CRE loans to almost anyone in Dallas who had a pulse and claimed to be a developer. The bank’s true commercial loan portfolio was statistically clean - it was the CRE bankers who brought our roof down. In returning to banking after FDIC, not much had changed except that there were fewer CRE folks…
So yes, bankers have played a role in this mess…Guess I never forgot my early to mid-80’s experience and have always categorized most CRE lenders as being quasi-bankers.