Henry Blodget’s been busy writing

Here’s a good article he wrote for this month’s Atlantic on bubbles, real estate and otherwise.

Mickey Kaus gets it right

The very group that demanded sub-prime mortgages is now suing those who created them.

‘You should never have made those loans groups like us pressured you to make!’The National Community Reinvestment Coalition, a “community-based organization,” is suing Wall Street ratings services for approving bonds backed by home loans to African American and Latino home purchasers with “insufficient borrower income levels.”

The firms “knew or should have known” that subprime loans disproportionately were marketed to minority consumers — a process known as “reverse redlining” — and that those borrowers would ultimately default and go into foreclosure at high rates, according to the coalition’s complaint.

Hmmm. Didn’t community-based organizations push for exactly this sort of reverse-redlining?I think they did. It’s one thing to argue that they maybe weren’t the major cause of the subprime meltdown. It’s another for them to pose as victims wronged by the very system they worked hard to set up (including the securitization that enabled banks to keep up “reverse redlining”). …

Wish he’d been this open about his stock picks

Henry Blodget says don’t count on your house coming back to last year’s value for 15 years or so.

“Counting on a quick rebound in the housing market to resurrect your net worth and save your retirement? No? Thank goodness.

Unfortunately, other Americans still are.

WSJ: In survey after survey, people expect prices to bounce back — in some cases, as soon as six months from now.

Those hoping for a quick rebound are likely to be disappointed. Economists and other pros generally say home prices won’t bottom out before the second half of 2009, and some don’t see a bottom until 2011 or 2012. Even when they stop falling, prices may scrape along the bottom of the rut for years…”

Of course, if we’re going to quote Blodget himself, we might as well see what the SEC said about him:

1. The Commission brings this action against defendant Henry McKelvey Blodget to redress his violations of the Securities Exchange Act of 1934 (“Exchange Act”), pertinent rules thereunder, and pertinent rules of NASD Inc. (“NASD”) and the New York Stock Exchange, Inc. (“NYSE”).

2. During the period January 1, 1999 to December 31, 2001 (the “relevant period”), Blodget was a Managing Director and the senior research analyst at Merrill Lynch Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), covering the Internet sector.

3. During the relevant period, Blodget issued research reports on one Internet company, GoTo.com, that violated antifraud provisions of the federal securities laws, and issued research reports on six other Internet companies that expressed views inconsistent with privately expressed negative views as discussed below. These reports violated NASD and NYSE rules that require, among other things, that published research reports have a reasonable basis, present a fair picture of the investment risks and benefits, and not make exaggerated or unwarranted claims.

Doesn’t mean he’s not right this time -I’m just saying …

Is Realogy already insolvent?

Carl Ichan says it is. This NYT blog seems to sympathise with the financier’s argument but the courts have yet to rule.

The New York Times and Political Correctness – I’m shocked

Here is a link to the New York Times’ coverage of the Wal-Mart stampede. Notice that the illustrating picture shows a crowd of Oklahomans rushing into their local Wal-Mart. You may, like me, remember that the incident took place on Long Island, not Oklahoma, and wonder why the Times travelled half-way across our country to get a picture resembling what it might have looked like.

Elk City, Oklahoma Wal-Mart, 5:00 AM

Here is a series of photographs of the actual melee as reported by The Daily News.

Long Island Wal-Mart Stampede

My point is not that black people riot and white people don’t. In fact, the Times may have used a photo from Oklahoma precisely to remind its readers that we have white madmen/bombers right there in the heartland. But when a purportedly serious newspaper is too timid to run a photograph of actual events and instead chooses a “representative illustration”, I think that paper’s usefulness is exhausted.

Between rocks and hard places

I’m noticing houses just coming on the market that were started before the present downturn and they must be making their builders nervous. Some were built on land that, after it was purchased, went back on the market when the buyer/builder got cold feet. When no one went for the land, these builders decided to go ahead with their plans. 26 Circle drive, for instance, was bought for $712,000 in July 2007, put back on the market for $890,000 (why?) in December and then construction began in January 2008. The new house now sitting on the land is asking $2.195 million.

Circle Drive is not unique. But one builder I know purchased 3 separate lots in town for $2 million up to $3 million each and never tried to back away. Bully for him, but he’s now got three huge spec houses nearing completion. If he’s got solid loans behind him, no worries, mate. Otherwise, that’s a lot of exposure.

Greenwich Financial Services and the applecart?

This New York Times business blog mostly devotes itself today to assessing, with a skeptical eye, various post-bailout deals being finagled by our auto companies and such. But I was struck by this promise at the end of the column and by the follow up comment from a reader:

Countrywide

On Wednesday, I’ll write about Greenwich Financial Services’ lawsuit against Countrywide Financial seeking to forestall the modification of mortgage loans under 374 Countrywide mortgage trusts.

If Greenwich succeeds it will put a real monkey wrench in loan modification programs. –Steven M. Davidoff

December 2nd,
2008
3:18 pm

There is absolutely no excuse for the Times not putting the story of the lawsuit by Greenwich Financial Services against Countrywide on the front page.
This cracks open the entire securitization game. It is incendiary, to say the least that, because of the practice of bundling mortgages then slicing anddicing tranches of risk off those bundles, wealthy hedge fund investors are preventing mortgage relief.
If the majority of the general public understood this, heads would roll. Why is the Times burying this?

I’m pretty sure that the head of Greenwich Financial Services is the same guy who was (unjustifiably) ripped by some posturing Congressman a few weeks back for insisting that our Constitution prohibits the government from interfering with contracts between private parties (it does). But I’ll go look into it now.

UPDATE: The story’s here. It’s pretty much what I said – Countrywide, bowing to states Attorney Generals and Congress, has agreed to modify some 400,000 mortgages that are in default or threaten to go into default. GFS owns some of those mortgages or the income streams from them and says Countrywide can’t do what it wants to do. I’m with GFS but, as one lawyer quoted in the article says, “it should be interesting”. Indeed.

Vulture patrol

A number of us agents and our buyers are waiting out the builders of spec homes and I think that spells trouble for owners of older homes unless things get better fast. Here’s why: right now, new construction is probably the cheapest it’s been in a long while because builders with existing houses are stretched thin and willing to forego any profit if they can get out from under their projects. Not every builder, of course, but enough that there are some attractive deals to be had.

And things may get better, for buyers. Word is, there are a lot of notes and construction loans coming due in the next few months and no lenders are willing to step forward with new financing. That will put builders in an even tougher place than they’re in now. My personal opinion is that we’re going to see a lot of good builders disappear in this cycle and not return, so they won’t be building any new houses in Greenwich, ever. The ones they’ve already built, however, are available, and for far less than they would have cost last year. Buyers and their larcenous agents are eyeing $8 million houses and thinking, “how soon before a $4 million offer looks good?” And we’re waiting until it does.

Why is this bad news for owners of existing houses? Because they aren’t under the same pressure to sell and therefore their prices aren’t as attractive. Those prices may eventually fall in order to compete with new housing selling at half-off: they’ll have to, if they’re ever going to sell, but so far at least, they haven’t. And therefore few people are interested in even looking at them. Maybe when the last of the failed spec projects moves off the market buyers will return to the older stock but for now it reminds me of a bluefish feeding frenzy, and the blues are ignoring the fish on the fringes. It’s a grand time to be a buyer (with cash) and a rotten time to be a seller.

Shhh! Don’t tell them about Greenwich’s empty spec homes!

Activist steers homeless into empty houses.

Where are we now?

25 Innis Lane

Innis Lane is a development off of Lockwood in Old Greenwich. Quiet dead end, slab-constructed builder homes of modest quality. This one sold for $765,000 in January 2002 and in September of this year it was again put up for sale, in the same condition, I believe, for $1.260 million – a 64% increase in six years. It didn’t sell so today it dropped to $1.125 million. I’ll be curious to see where this house finally sells, and where in relation to 2002 prices that selling price is.

Here’s how to adjust your price

7 Mill Pond Court

This little house, pretty much run down but on a nice street, came on this fall for $925,000 which was, I thought, agressive. Yesterday it dropped to $875, a good move in the right direction and today it’s down to $825. Getting there, for sure.

Oh, the Humanity!

The New York Times does it again, comparing a trampling death at Wal Mart to Guernica. As Ed Driscoll says,

“But if the New York Times and its writers and editors can’t see the difference between an unfortunate shopping incident and the Spanish Civil War, one wonders what what value the newspaper has as an information source to be trusted by their readers.”

I read the same silly article in Sunday’s Times and was awestruck (well, I might have been, if it hadn’t been in the NYT) that the paper could blame Bush, Wall Street and America for causing this death – God forbid they blame the savages who stormed in:

Wages for most Americans have fallen in real terms over the last eight years. Pensions have been turned into 401(k) plans that have just relinquished half their value to an angry market. Health benefits have been downgraded or eliminated altogether. Working hours are being slashed, and full-time workers are having to settle for jobs through temp agencies.

Indeed, this was the situation for the unfortunate man who found himself working at the Valley Stream Wal-Mart at 5 a.m. Friday, a temp at a company emblematic of low wages and weak benefits, earning his dollars by trying to police an unruly crowd worried about missing out.

In a sense, the American economy has become a kind of piñata — lots of treats in there, but no guarantee that you will get any, making people prone to frenzy and sending some home bruised.

It seemed fitting then, in a tragic way, that the holiday season began with violence fueled by desperation; with a mob making a frantic reach for things they wanted badly, knowing they might go home empty-handed.

What a load of horse hockey. You’ll note that even the reporter couldn’t bring himself to write, “things they needed badly” -instead, he wrote “things they wanted badly”. In the undeveloped world, unfortunates trample each other to reach food and water – our poor will do the same thing to each other in order to grab a flat screen TV. I see a difference; the Times sees Guernica.

Stock market’s good news?

According to Henry Blodgett, the S&P 500 is back to its historical norm and it’s now safe to go back in the water. You can see the chart he uses to defend this thesis here. I know next to nothing about charts or the stock market but looking at these numbers, it seems to me that the market hit the same norm in 1970 and then dropped below it and stayed below it until 1990, when it came back up. That’s a long time to hold your breath.

Should Lehman’s Dick Fuld face prison?

This author thinks he’ll be tried but doesn’t think he should be. I agree.

Uh oh – Robert Shiller says housing recovery is a long way off

Sees many parallells to the Great Depression, thinks recovery will take “years and years”. That’s not a very nice thing to predict.

You can’t do that! Icahn sues Realogy

Oh boy, now they’ve gotten him mad.

Contracts

Three contracts have been reported in the past two days, all in Riverside: 13 Club Road, asking $2.275; 25 Bayside, asking $1.498; and 12 Druid (new construction) asking $3.550 million. I wouldn’t call Riverside “bomb-proof”, but it’s holding up better than all the other Greenwich neighborhoods.

Here are some numbers: Since September, 47 single family homes in Greenwich have gone to contract. By neighborhood, that was 4 in Cos Cob (72 current active listings); 27 in Greenwich (405 active listings); 5 in Old Greenwich (49 active listings) and 10 in Riverside (57 active listings).

Will commercial real estate be next to fail?

This developer writing for the Huffington Post thinks not. I’d feel better about his optimism if the reasons he gives to support his confidence weren’t contradicted by what I’ve witnessed here in Greenwich. He says, for instance, that commercial real estate deals are governed by numbers, not emotion: if a deal isn’t profitable, it isn’t done. I know of one developer in town who consistently outbid its competitors by 2:1. The losing bidders couldn’t figure out what set of numbers the developer was using and as these deals shut down one-by-one like so many birthday candles, it seems that the numbers were irrelevant: management fees (and banking fees for the lenders) were.

Personal recourse: the author says that, unlike single family homes, borrowers can’t walk away from loans go bad. Well, the reason that mortgages for primary residences carried lower interest rates than those for second homes is that “nobody defaults on his family’s house”. That proved wrong and I think Donald Trump is about to demonstrate the error of that thinking in his failed Chicago tower project.

And so on. Anyway, feel free to hit the link and decide for yourself.

As you fight your way past airport security guards, read this

NPR has a good summary of how we’ve wasted billions of dollars on”Homeland Security” and, maybe, how to start again.No news here to anyone who’s watched gray-haired old ladies in wheel chairs being strip-searched by federal security agents at Kennedy, but heck – the Obama crowd listens to NPR – maybe they’ll listen to this.

[A]dvice for the incoming administration? “I would say worry about the greatest threat to homeland security, and that’s the U.S. Congress,” he [Carafano] says.

Funding For Homeland Security

More than a hundred committees and subcommittees have some piece of the Homeland Security pie.

Carafano says that has led to lots of pork barrel spending and mandates that the fledgling agency change direction to respond to the crisis du jour — immigration or hurricanes or the threat of a biological attack. He says it has also meant repeated efforts to reorganize the new department before it has had a chance to make the current structure work.

“All Congress wants to do is to fixate on the Department of Homeland Security and pretend like it’s a little rat trapped in the corner that it can just poke with a stick and watch it jump up and down,” he says.