Real Estate Domino Chain Extends Abroad

I watched as Bear Stearns, Countrywide, & Lehman led off the entire financial/housing bust which hit home "owners'" pocketbooks (I use quotes since I would bet most underwater residents didn't even have 30% equity in their homes). As they got laid off and/or foreclosed & stopped buying, retailers started folding: Circuit City, Mervyn's, Linens 'n' Things, etc. That eventually led to a collapse in commercial real estate -- both multifamily housing such as the portfolio of Mortgages Ltd. & office buildings such as the Viad (formerly Dial) Tower.

But the pain didn't stop there. At the height of the housing boom in 2005, the Chicago Spire project was initiated w/ Anglo Irish Bank as the primary lender ($US70million). This was the culmination of a tricountry (US, UK, & Ireland) portfolio of loans at Anglo Irish built up by Sean Fitzpatrick, who had taken the bank's helm in 1986. Competition led Allied Irish Banks & Bank of Ireland to develop similar risky loan portfolios. Thus the American financial bust dragged the major Irish banks under. Since the Irish gov't just as stupidly as the American gov't subscribed to the "too big to fail" philosophy, now the entire Irish economy is collapsing in order to rescue those precious Irish idiot bankers. The Wall Street Journal C Section on Nov. 23 article on Ireland's banks detailed how the National Asset Management Agency (Ireland's version of TARP) plans to buy €73B ($US100B) in bad loans from the banks. Isn't it wonderful when big corporations who made huge, stupid mistakes can con the taxpayers into cleaning up their messes?

I haven't had the chance to research this hypothesis yet, but I wouldn't be surprised if major banks in Portugal, Spain, & Greece had also heavily invested in American real estate.

NAHB Housing Market Index July 2010

http://www.nahb.org/news_details.aspx?newsID=11078

The HMI was down in July, but the NAHB's Bernard Markstein on MarketWatch's podcast was arguing that record low mortgage rates & home prices ensure a good second half for 2010. He seems to be missing the fact that no matter how low rates & prices are, they won't entice the unemployed & underemployed to buy new homes.

Commercial is the 2nd Shoe to Drop

Bank Fix for Unpaid Commercial Property Loans: 'Extend and Pretend' - WSJ.com

Chateaux on Central Avenue in Phoenix Sells for $7 Million | KEYTLaw

See the link for the :
Yvonne & Caleb Correa's unfulfilled listing of Chateaux for $2.8-$4M per unit (Pro*Star Realty)

The Chateux (above) were part of Mortgages Ltd's portfolio, which included condo complexes in downtown Phoenix & Tempe which only sold handfuls of units (Scott Coles, Mortgages Ltd's CEO, committed suicide in the middle of the real estate collapse).



As the Viad (formerly Dial) Tower (right) completes another stage in the slow bursting of this commercial bubble, get ready for another round of federal bailouts using taxpayer dollars.
Viad Tower in Phoenix Subject of a Foreclosure | KEYTLaw

California's Unemployment Crisis

The columnist seeks to show that California's high unemployment is tied to an imploded construction sector; however, on a county-by-county basis there is no significant correlation between construction jobs lost and unemployment levels (the R^2 value has to be close to 1 for reliable correlation). This suggests that either the construction workers who lost their jobs had long commutes (so jobs usually showed up in different counties than their unemployment filings) or (I believe more likely) construction is not the most significant factor in California's unemployment. For one, I believe the California economy is a lot more diverse than Arizona's, which is heavily dependent on construction -- so even though California may have had a larger real estate bubble, it possibly represented a smaller percentage of the overall state economy.

Death Cross a Self-Fulfilling Prophecy

AHEAD OF THE TAPE: Dark Omen Threatens Stock-Market Bulls - WSJ.com (WSJ's Kelly Evans explains the death cross -- the S&P 500's 50-day moving avg. crossing below its 200-day moving avg.)

She illustrates well the ambiguity of this indicator, showing how half the recessions since 1972 were preceded by death crosses. I've been hearing a lot of analysts on CNBC making a big deal out of it, but Ms. Evans points out that the hype surrounding a death cross puts downward pressure on investor sentiment, making it a self-fulfilling prophecy. Her counterpoint is that over the last 40 years, death crosses were followed by an average 6-month gain of 5% in the S&P 500. Here's hoping this one's above average.

Quest for Alternative Homebuilding Materials

Will China Housing Market Follow the U.S. In a Mortgage Bust? (why China's housing market is far from developing a bubble)

So there's little hope of a burst bubble bringing down raw material prices & helping American homebuilders produce more affordable homes to market to buyers w/ damaged credit from our own housing bubble. This means if US builders hope to sell more homes they must look to alternative building materials, such as light-gauge steel -- ideally something even more unconventional that can be demonstrated to satisfy building codes and withstand various gravity loads (from selfweight, people & inanimate contents, and snow) and lateral loads (from wind and earthquakes). Another approach might be to dismantle (not demolish) obsolete structures in such a way as to recover usable building materials for new construction.

MeritEdge

Jannarone WSJ 6.7.10
I don't like the use of "excluding charges" in calculating homebuilders' gross margins (sounds too much like "core" inflation excluding food & fuels, 2 of the most essential purchases to consumers). Nonetheless, I hope that the bigger players have bigger charges to exclude by having further overextended themselves during the bubble. I have visited their site & found they're hiring in several key areas (unfortunately for me no structural engineering positions). So I have a second metric independent of the Journal in case the article writer has a vested interest in talking up the builder.

Light @ End?

Steel prices expected to fall: http://online.wsj.com/article/SB10001424052748704269204575270401110245226.html

as China ramps up production:
http://online.wsj.com/article/SB10001424052748703406604575278290771237112.html

plus the WSJ has a recent article (W or Th I believe) about China seeking to unload excess steel on the global market as domestic prices fall.

Prices rose in the US & in Europe because of plant shutdowns, but have flattened now in the US. If the US gov't were willing to -- at least temporarily -- lift quotas on steel imports, that could help American homebuilders who are struggling to cut costs & make new homes affordable enough for underemployed, bankrupted, & foreclosed-on buyers. Hopefully it's enough to create new demand to the degree that builders hire/rehire more people to handle expanded production.

Housing, Nat'l Debt, & Inflation

This is from Mon's WSJ. I apologize for the blurriness, but it's easy to read if you can save & use a program to zoom in. The gist is that a number of factors threaten the weak housing recovery, from the removal of the housing stimulus to 1.1 million foreclosures & 4.8 million delinquents (over 60 days late on payments). If many of these head into foreclosure, that threatens banks' balances & causes them to tighten lending to small businesses (who can't get credit to hire new employees or keep current employees). This is the last month for the housing stimulus, & the rest of the stimulus package ends at year's end. That will pull the rug out from under a fragile recovery not long before the massive hammer of rising tax rates required to pay for Obama's gradual nationalization of the economy start to take effect. Plus many cities are facing bankruptcy -- and the nat'l gov't will to varying degrees bail them out (it already is partly by covering the excessive interest they must pay on new bonds). As seen below, the inflation rate is already rising, which will push up the interest on the national debt. The Treasury will then have to print more money to pay that rising interest rate, causing inflation to spiral out of control (and some are worried about deflation?).

The State Turns State's Witness

The typical story is that when a crime is unveiled, one of the perps turns state's witness to reduce his sentence. This time, the state is that one of the perps. Clinton's Gorelick (the same one who established the wall betw. FBI & CIA so they couldn't connect the dots before the WTC & Pentagon attacks) helped put teeth into Carter's Community Reinvestment Act so banks were forced to make loans to risky individuals (ostensibly in the name of removing racism from the financial industry). These banks normally have to turn around and sell loans to continue their business. But how can you possibly sell a bad loan to anyone? By mixing it in w/ good loans -- hence the morass of derivatives which came unglued in late '08. The CRA ultimately had a racist result, in that it forced many minorities into foreclosures and bankruptcies by encouraging them to buy homes beyond their means in the first place. Now the Senate has the gall to point their fingers everywhere in the private sector but at themselves. Fannie Mae & Freddie Mac were two of the biggest culprits in hawking these derivatives & made massive donations to the likes of (then) Sens. Dodd & Obama. Goldman Sachs was also greatly guilty (the transit of GS exec's back & forth betw. the co. & fed. gov't goes back a long way). However, now the Senate has the convenience of being able to grill current & recent GS exec's & try to pin all of the blame on them w/out acknowledging the gov't's own efforts in the '90s to create this whole mess. But this is surely according to plan, since the Marxist Democrats now get to take over ever greater swaths of the American economy, sweeping it bit by bit under the thumb of the feds.

I remember guys standing up on the floor of the Senate during impeachment hearings saying, "Judge not lest ye be judged," and "Let he who is without sin cast the first stone." Where are those guys when we need them to stand up again in the Senate?