Thursday, June 26, 2008

Ruh Roh

1. North American semi equipment bookings decline 37% y/y, SEMI reports
Semiconductor Equipment and Materials International (SEMI) data shows that North America-based providers of semiconductor manufacturing equipment saw $79 worth of orders received for every $100 of product billed for in May. Bookings for the month declined year over year for the first time since 2005.

We are seeing a whole lot of "since 2005" lately. Excepting of course GM stock which is at prices "not seen since 1953." The question is; Is GM worth $6.4b and Intel $116.2b because Intel is overvalued? The SEMI association seems to imply so.

Wednesday, June 25, 2008

Blast From the Past

Regular readers are probably bored by recent housing events and financial implosions. This from December 2005:

Wednesday, December 07, 2005
Future History 2005-2012

Mortgage rates are low because of the velocity of money and the lack of risk premium built into the cost structure.

"Foreign investment" has always been around. If you were a rich capitalist pig Nouveau Riche ChiComm would you entrust your money to the mainland financial system? NFW. And balance of payments data are broken. No longer reliable. It isn't as bad as it seems.

What long term is gonna kill low interest rates is the necessity to inflate our way out of paying back all the SocSec money that isn't there but that's 8-10 years away.

In order of occurance:
1 Velocity of money slows down (M3 no longer reported, coincidence?)
2 MBSecs fall out of favor in the secondary markets.
3 Commodities pricing finally honestly shows up in the inflation data.
4 The Republicans (re)capitulate on taxes (again).
5 The Fed screws up one time too many.
6 The boomers start drawing down earlier than ever expected at the same time the extended lifespans of their parents so dearly bought both radicalize health care and push assetst onto the markets. Property and stocks, etc.

Welcome to a short history of 2005 through 2012.

So. How am I doing?

Tuesday, June 24, 2008

Slide or Cliffdiving?

It's all in the spin. This is far worse than the words belie.
Home prices extend record slide in April: S&P
Tuesday June 24, 9:04 am ET

NEW YORK (Reuters) - U.S. home prices extended their record slide in April, with every top metropolitan area now posting annual losses and many showing double-digit declines, according to the Standard & Poor's/Case Shiller home price index report on Tuesday.
The S&P/Case Shiller composite index of 20 metro areas fell 1.4 percent in April from March and slumped by a record 15.3 percent over the year.
1.4% per month compounded is nearer 19% per year. The toboggan is speeding up. Put another way near everyone who bought since 2002 has lost money on their housing investment after expenses.

Monday, June 23, 2008

Uber Alles Redux

California, California, California. Why does everyone bring up one State of 50 whenever they want to make a point? If sub-prime was the tip of the iceberg for housing problems then housing is the tip of the iceberg for California. The government doesn't realize it but the productive class is in near revolt. Highest gas prices in the nation on the lowest energy content fuel in the nation with among the highest taxes. High taxes? Federal plus 9.3% State and ~8% sales tax on near everything. Overegulation and infrastructure deficits that rival the GDP of major nations. Social programs that would never withstand a popular vote and but a few shreds of populism left protecting the now captive middle classes and business sectors from outright socialism. With the prospect of a single party veto proof Legislature in a few months there exists a very real possibility of economic meddling that will make Smoot-Hawley look benign. Housing soared because it was a rare niche beyond the grasp of politicians. The Golden State in subsequent decades has taxed and confiscated and charged everyone and everything in sight and still is not satisfied. The prospect of 15% budget reduction directly from the housing bust and another 10% in ripple effects to tax receipts after a decade of taking on excessive debt and compounded deficit spending is an event that could collapse the economy. That's a big statement but the Federal courts have already taken over the state prison medical care program and are spending $7 billion of unbudgeted additional money to fix the problem. Add that to a structural deficit of $17b and a deferred spending gimmick of $6b and a likelihood of $8b less revenue next year and there's a perfect storm here now.

That's why people always talk about California. Sometimes it takes time away to see just how screwed up things have gotten. Boiled frog syndrome.

Sunday, June 22, 2008

Saturday, December 10, 2005

When did reporters become the gullible stenographers of frauds?

Holy smokes!
The Phoenix region has landed on a list of "extremely" overvalued housing markets

But, but but! Of course there's a "but":
but it's unlikely that the situation will lead to meaningful drops in home prices, several local housing analysts said.

Whew! That was a close one!

Well, not really. The cited text comes from the Arizona Republic, reporting alarmist predictions that are based on no actual, on-the-ground experience that I can detect. The 'researchers,' "Global Insight and National City Corp., a Cleveland-based mortgage lender," couch everything they dare to say in the most mealy-mouthed possible language, for that simple reason that any long-range prediction about a particular real estate market is inherently suspect. Our Cleveland mortgage lenders only dare to make mealy-mouth predictions for--wait for it--"299 metro areas."

When did reporters forget how to make the Bronx Cheer? Isn't that what Hildy Johnson used to do, in The Front Page, when fed a line of bull?

Here's a better question. Assuming the absolute mealy-mouthed worst for the Phoenix market, how bad will things get?
"[W]hen you look back at markets that have declined 10 percent or more over two years, those markets were overvalued by that much or more[.]"

That's choice. What it almost says is that the Valley might be at risk of losing 10% of the current market value of homes over the next two years. That is to say, the house that was worth $145,000 in December of 2003, which is now worth $265,000, may only be worth $238,500 in December of 2007. I'll take bets against that outcome at $100 a head, down to my last dollar. But, even conceding the (unmade) point, the four-year appreciation on the home would be 64%, $93,500 in unearned increment--wealth accrued without having to be produced.

But what the quotation actually says is this: If it turns out that homes have lost 10% of their value over two years, it's because they had been overvalued by 10% or more. Translated into English, it's just stupid. It sounds tautological, but it isn't, actually, because it introduces a false idea of causation.

The value of a thing is what that thing will bring. If people in Phoenix value beer more in Summer than in Winter (they do, by a lot), this doesn't mean the beer was somehow over- or under-valued, in means the value of the beer changes in the subjective evaluation of the buyer depending on the weather. If people in some future time offer less for comparable homes than they had in the past, this doesn't mean they had been over-valued in the past. It simply means they are less highly prized in the subjective evaluation of the buyer at that future time. The only commodity that can be said to be "over-valued" is the one that didn't sell.

There is actually nothing in the article that says Valley home values are going to drop, nor any indication of why they should, could or even might. To his credit, the reporter goes to R. L. Brown and Elliott Pollack for arguments why prices probably will not go down.

He doesn't mention the monthly results reported this week for Las Vegas, a useful leading indicator for Phoenix real estate results. Las Vegas is very similar to Phoenix, a high-growth city which has also undergone a sustained appreciation boom. Like Phoenix, Las Vegas suffered a very small decline in median values in October. For November, Las Vegas home prices were up slightly. We haven't yet seen November's overall median results for the Phoenix market, but the Market-Basket of Homes shows a small increase in values among the subset of Valley homes it tracks.

When did reporters stop vetting the claims made by the sources of their stories? Maybe they never did. Maybe that's just a romantic illusion we got from the movies. Maybe they've always been the doe-eyed stenographers of charlatans and mountebanks, dutifully transcribing the absurd.

In any case, my favorite version of the make-a-scary-prediction-get-a-headline scam comes from KPHO Phoenix Channel 5 News in August:
Schiller predicts housing prices could fall as much as forty percent over the next generation, triggering a recession.

"Generation" is a nebulous term. At a minimum, it indicates the span of time necessary for infants to become parents, call it 20 years. A recession--a nationwide failure of the central banking system--runs 18 months peak to valley and 36 months peak to peak. So prices are going to decline by as much as 40% (a quantification that includes 0% and +200%) over the next 20 years, which could trigger a recession, although we may have to root around to find it somewhere in that 20-year span of time.

How can anyone hear such a blast of flatulence and not say, "Hold on a second there, Perfesser. Are you saying that the population of Phoenix or the United States or the Earth is going to decline? Or are you saying that people are going to start living outdoors? Or is your claim simply that the supply of housing is somehow going to massively and permanently increase by around 40%, abating demand by the same amount? Is there any basis in factual reality whatever for making such an absurd and seemingly undefended claim?"

You can see me asking the same sort of questions of Dr. Jay Butler, who in fact may not be pulling his best headline-grabbing claims out of thin air. But he has not yet responded to my questions--nor, to my knowledge, has anyone else pressed him for the underlying data behind his wilder statements.

While I wait--cum taces, clamas--I have one last question about the state of affairs in Valley real estate journalism:

Where, oh where, is Hildy Johnson when we need him?

posted by Greg Swann

Yes Greg, where is the media to call a shill a shill?

Thursday, June 19, 2008

The Greenest Greens You've Ever Seen...

In Seattle.

SoCal is so weird you tend to forget there are normal places. I'll report what I find as we toddle around the region. So far it looks like a nice place.

Monday, June 16, 2008

Trust Us

Who in their right mind would give over $10,000 to Countrywide for a year in exchange for $10,260 June 2009 dollars? (Remember the interest is taxed at regular rates?

Friday, June 13, 2008

Wishing Price Spotlight

351 Castleton St, Santa Rosa Valley, CA 93012

Price: $839,900 BEDS: 4 BATHS: 1

What does zillow have to say?

Zestimate®: $676,500

Sold 07/28/2005: $693,500

Hint to sellers; Police tape in the sales shot is not smart.

This is so wrong on so many levels I hardly know where to begin snarking on this poor sod. Let's start with "Santa Rosa Valley, CA" when in fact this is a tract home just off the freeway on the flats (Oxnard Plain) in Camarillo. The stink of desperation is getting strong in these parts.

Good News? Not

The "PE" is an inland newspaper that reports on Riverside, San Bernardino and environs. They have this wierd little piece today:
Inland foreclosure auctions draw more sales as lenders get more flexible about prices
Investors bought more foreclosed homes on the courthouse steps in California last month, reflecting a growing willingness of lenders to accept more deeply discounted bids, ForeclosureRadar, a Web site that tacks foreclosure auctions, reported Wednesday.

Despite more than 97 percent of the foreclosed properties being returned to the lender after auction, there was a 34.6 percent increase in properties purchased by third parties, which most likely were investors, the report said.

Sorry but 3% is not an upturn, it is noise. In fact what this implies is really bad news. not only are the banks not availing themselves of the courthouse steps option but likely there is a rise in the number of people with equity starting to default. Remember, I predicted that last year. The blogosphere is worried that people 10% underwater are going to walk. I'm worried that the really smart homeowners who have 10% equity are going to see the value of defaulting. Think about it. A years free rent, no taxes, no HOA. Your paltry 10% equity is evaporating over that time anyway and you can't sell. Besides those bloodsucking realtors aren't going to get another 6%. Heck, Countrywide might even give you a nice $2500 severance package.

12 months of ruthless squatting gives you a full down payment on a better house. Sounds like a plan.

Sunday, June 08, 2008

50 Ways

N.B. Yes, I know the video and lyrics don't match.

The problem is all inside your wallet, she said to me
The answer is easy if you take it logically
I'd like to help you in your struggle to be free
There must be fifty ways to leave your mortgage

My agent said its really not my habit to intrude
Furthermore, I hope my meaning wont be lost or misconstrued
But Ill repeat myself at the risk of being crude
There must be fifty ways to leave your mortgage
Fifty ways to leave your mortgage

Just slip out the back, jack
Make a new plan, stan
You dont need to be coy, roy
Just get yourself free
Hop on the bus, gus
You dont need to discuss much
Just drop off the key, lee
And get yourself free

Just slip out the back, jack
Make a new plan, stan
You dont need to be coy, roy
Just listen to me <-----------
Hop on the bus, gus
You dont need to discuss much
Just drop off the key, lee
And get yourself free

Bernanke said it grieves me so to see you in such pain
I wish there was something I could do to make you smile again
I said I appreciate that and would you please explain
About the fifty ways

Bush said why dont we both just sleep on it tonight
And I believe in the morning youll begin to see the light
And then he stimulated me and I realized he probably was right
There must be fifty ways to leave your mortgage
Fifty ways to leave your mortgage

Just slip out the back, jack
Make a new plan, stan
You dont need to be coy, roy
Just get yourself free
Hop on the bus, gus
You dont need to discuss much
Just drop off the key, lee
And get yourself free

You just slip out the back, jack
Make a new plan, stan
You dont need to be coy, roy
Just listen to me <------------
Hop on the bus, gus
You dont need to discuss much
Just drop off the key, lee
And get yourself free

Friday, June 06, 2008

Free The Electrons

In keeping with the promise Tueday to return to more tech/transport/planning content for your consideration:

Researchers demonstrate 'avalanche effect' in solar cells
Coventional solar cells, one photon (light particle) can release precisely one electron. The creation of these free electrons ensures that the solar cell works and can provide power. The more electrons released, the higher the output of the solar cell.

In some semiconducting nanocrystals, however, one photon can release two or three electrons, hence the term avalanche effect. This could theoretically lead to a maximum output of 44 percent in a solar cell comprising the correct semiconducting nanocrystals. Moreover, these solar cells can be manufactured relatively cheaply.

Right now the best commercial panels are 16-18%. 44% could reduce the "roofprint" by 2/3rds and likewise make many many more locations available. The Dawg House would need ~1200sf to meet its electrical needs. We have that but @44% efficiencies we'd need only 300sf because location and orientation could be optimized for the smaller package. If the price was right add another 100sf and recharge a plug in hybrid as well.

And what better time than when the oil bubble closes above $139.

If You Don't Pay They Will Close

The old Gray Lady stumbles upon another story of why the Cenurbs are toast and procedes to mangle conclusion. So, what's new? Hospital emergency rooms have been closing all over the Southland for more than a decade. For years they have been a secret subsidy of the urban milieu but that became an unaffordable luxury as it drove health care costs for paying customers out of reach.

Here's the NYTimes:
“You call an ambulance and you think you’re going to St. Francis and they say it’s full,” said Denise Provost, whose largely untreated asthma routinely sends her to the emergency room. “So they take you to Kaiser. If that’s full, then it’s Long Beach. You go way out of your way.”

The vast majority of residents in central Los Angeles are uninsured or are on the state’s Medicaid program — known as Medical — which offers the lowest reimbursement rates in the nation, and a growing population of illegal immigrants who are not eligible for government insurance have flooded the ranks of the uninsured.

Gov. Arnold Schwarzenegger, a Republican, has proposed another 10 percent cut in the state’s Medicaid program to balance the state’s budget while Congress contemplates a host of reductions to the program that, if approved, would mean $240 million less for Los Angeles.

Los Angeles County’s health department, the provider of last resort, is sagging under its own budget woes, and it adopted complex patient-transfer policies that have shifted an increasing number of its indigent patients to private hospitals, which are in barely better financial shape.

Roughly 14 percent of the nation’s uninsured live in California, and one in three visits to a Los Angeles emergency room are made by someone without insurance. Many of those patients have conditions that have gone untreated for months and need to be admitted, further straining hospital resources.

From 2000 to 2006, the number of Medicaid-covered patients using the South Los Angeles hospitals on Medicaid increased 18 percent and the uninsured ranks rose more than 20 percent, while patients with commercial coverage fell 20 percent, according to the hospital association’s figures.

As a result, many hospitals in the South Los Angeles area are unable to stay afloat, and centers that once served 100,000 patients here have closed.

I have two phrases for the policy makers to consider as the struggle with the problem of their own construction: "attractive nuisance" and "economic disincentive." There's no mystery here except why anyone is confused over the situation.

Thursday, June 05, 2008

How Do You Start A Flood?

Huge business fire raging near Florin Mall
By Ryan Lillis -
Published 12:58 pm PDT Thursday, June 5, 2008
Sacramento firefighters are battling a massive blaze at a business in south Sacramento.
The three-alarm fire broke out just after 12:30 p.m. in the Nails Depot at 6960 65th Street near Florin Mall, said Capt. Jeff Lynch with the Sacramento Metropolitan Fire District.

Lynch said part of the building's roof collapsed and was unsure whether anyone had been injured. He said firefighters had been on the roof and had scaled back into a defensive mode against the fire.

CRE overhang eliminated.

Tuesday, June 03, 2008

Tech Tuesday

I've been remiss. There are so many Exurban related technology stories recently rather than bring them up for discussion I've been merely collecting them. Cold Fusion, 45% efficient photovoltaics, the economics of electric vehicles, the dearth of battery breakthroughs. And yes, cyborg poultry.

Monday, June 02, 2008

Mountain Bunker

A little whiskey, a little gunpowder...

No, I'm not joining the bunker crowd but while reviewing the town of Wrightwood, CA this particular offering just screamed for a little attention. Want you own slice of high mountain heaven? 660 sq ft on 7200 sq ft lot. Only $297,500!!! A freakin' A-Frame for $450/sq ft. My only explanation is that the owner has been holed up in there since 2005 and got tired of waiting. My guess? Before the declines are through this will sell for less than $100k.

Next Shoe Retirement Losses

From The Morning Call:
So far this year, both the State Employees' Retirement System (SERS) and the Pennsylvania Public School Employees' Retirement System (PSERS) have lost billions of dollars in the stock and bond marketplace. In fact, SERS lost $1.48 billion just in January.

These losses do not include the gigantic stock market losses of March in which Bear Sterns almost declared bankruptcy. The Bear Sterns incident, combined with the ongoing subprime mortgage dilemma, resulted in the largest investment losses since the 9/11 disaster.
Even if you aren't one of the growing number of RELOCs (Retirement Equity Liberators On Credit) what's left ain't gonna feed the cat.

Pinched Consumers
Scramble for Cash

After a long binge of borrowing, U.S. consumers face a credit crunch and a sagging economy. To sustain their living standards, many Americans are doing what comes naturally: scrambling to raise more cash.

More in this WSJ article. A must read.

Sunday, June 01, 2008

Casey puts on weight

From the Tainted Lady NYTimes:
These contractors and thousands like them see first hand the detritus of the subprime era: peeling paint, gutted interiors, family dogs left behind to starve, overgrown lawns infested with snakes.

In Florida, the crisis can seem overwhelming at times.

It can take months, even years, for some homes to wind through foreclosure in the backlogged local courts.

Even with the number of Neutron Houses proliferating we still have millions of surplus properties. How anyone can claim to see a bottom is astounding.